Archive for December, 2011
New Video: Ending the Global War on Drugs
In the new video below from Reason TV, leading critics of the global drug war provide some thoughts about why they oppose prohibition. The conservative and former Colombian Senator Enrique Gomez Hurtado blames the drug war for the high levels of violence and cruelty his country has experienced. India’s former drug czar and expert on Afghanistan, Romesh Battacharji, says of current drug policy: “You just can never win it…Ever since the war on drugs, everything has hit the fan.”
The video is based on last month’s Cato conference, “Ending the Global War on Drugs.” You may see videos of the talks here, including a video of former U.S. Secretary of State George Shultz and former Mexican President Vicente Fox.
Va. Gov. McDonnell (Sort of) Takes My Advice, Defers Creating ObamaCare Exchange
In June, I testified in Richmond before Virginia’s Joint Commission on Health Care that Virginia should refuse to create one of ObamaCare‘s health insurance “exchanges”:
[ObamaCare's] health insurance “Exchanges” are scheduled to become operational in 2014. These new government bureaucracies would enforce the law’s regulations that will drive up health insurance premiums, and would distribute hundreds of billions of taxpayer dollars to private health insurance companies, thereby driving up the national debt…
Neither the Commonwealth nor the federal government has money to waste on new government agencies that might be repealed or overturned tomorrow…
At a minimum, Virginia should defer the question of creating an Exchange until the courts dispose of the constitutional challenges brought against this law. Legal scholars expect the U.S. Supreme Court to rule on this law in the summer of 2012…If the Court voids the law, Virginia will be glad she waited.
Virginia Gov. Bob McDonnell (R) has inexplicably been gung-ho to create an ObamaCare Exchange. According to the Richmond Times-Dispatch, however, McDonnell may be modulating his tune:
McDonnell said he does not want to create an exchange legislatively until after the court makes its decision on the mandate’s constitutionality. The court will hear arguments in the case in March and possibly rule in July, just after a federal deadline for states to seek grant money to set up exchanges.
“Any major expense prior to the court decision is irresponsible and a waste of money,” the governor said at a luncheon meeting with members of the Capitol press corps.
Unfortunately, McDonnell is still laboring under the misapprehension that creating her own Exchange will let Virginia retain a measure of control over her health insurance markets:
McDonnell said he hopes the Supreme Court will strike down the law’s individual mandate, rendering an exchange unnecessary, but he made clear he wants Virginia to operate the exchange if the law stands.
“If we have to do it, I clearly want to have a state-based exchange,” he said.
To read about why Virginia doesn’t “have to do it,” and why there is no defensible rationale whatsoever for an ObamaCare opponent such as McDonnell to create an Exchange, read my Missouri testimony.
To learn how McDonnell may end up saving ObamaCare from repeal by creating an Exchange, read this Wall Street Journal oped by Jonathan Adler and me.
Government Spending Transparency: ‘Needs Improvement’ Is Understatement
Back in September, I rated Congress on how well it is publishing information about its deliberations and decisions. “Needs Improvement” was the understated theme.
Now we’re looking at the government’s publication of data that reflects budgeting, appropriations, and spending. “Needs improvement” isn’t just understated in this area. It’s really, really understated.
On the budgeting, appropriations, and spending transparency report card I’m putting out today, B+ is the best grade—and it goes to just half of one subject area. There are 2.5 Cs, 3 Ds, and 4 incompletes. This area needs improvement.
What is transparency, anyway? In my briefing paper, “Publication Practices for Transparent Government,” I wrote about the publication practices that support transparency. They are: authority, availability, machine-discoverability, and machine-readability. That means putting good data out from a consistent source in sensible ways, and, especially, structuring the data so that computers can interpret it.
You know what the World Wide Web is? It’s a whole bunch of structured data. If you want the kind of breakthrough in transparency for government data that the Web was for communications, you want the data structured right.
Our draft structure for data in this area is in our “Conceptual Data Model of the U.S. Federal Government Budgetary Process.” (HTML version, Word version)
Structured data doesn’t really exist yet in the area of budgeting, appropriating, and spending. The one bright spot is the president’s annual budget submission, which includes some information in a workable structure, but there is much room for improvement even there.
Because I’m so nice, I’ve given a lot of “incompletes” where I could have—and some say should have—given Fs. Believe it or not, there is NO federal government “organization chart” that is published in a way computers can use. That’s one of the building blocks of computerized oversight, and its absence is easily rectified.
When we return to these issues in the summer or fall of next year, and review more formally how Congress and the administration have done on transparency, I expect these things to be fixed. (Fear the blog post!)
In the meantime, here’s a run-down of the grades and why they were given. A Hill briefing today might be available online at the page for the event. (It’s somewhat symbolic that the room we have on Capitol Hill is ill-equipped for live-streaming, but we’re going to try.)
I’ve alternated in this post between “I” and “we” because I’ve gotten so much help on this. People from OMB Watch, the National Priorities Project, and the Sunlight Foundation have helped a great deal with this project, to name a few—and omit many others! The grades, the commentary, the errors, the misstatements, and omissions are all mine. And there are going to be plenty of gaps in this work. That’s why this is a blog post and not a formal Cato publication.
Obama’s Win-Win on Iraq
The end of the Iraq war is a rare win-win situation for President Obama. So far, he has played his hand skillfully. And it is a fair bet that he will continue to do so. Indeed, it might be one of the only policy areas that won’t cost him votes come next year.
This week’s events surrounding the end of the nearly nine-years long U.S. military mission in Mesopotamia reveal Obama’s acumen and good fortune. On Monday, Obama and Iraqi Prime Minister Nouri al-Makiki punctuated the fact that the U.S. mission was finally ending. Today, the president will travel to Fort Bragg to thank the troops for their service in a war that he opposed at the outset.
There is irony in this, but one that Americans have managed for many years: unlike Vietnam, the American people have learned to love the troops while still hating the war. We don’t blame the military for the fact that the war has turned out to be a bloody, costly quagmire. And with good reason: the military didn’t claim that it would be easy or cheap. The soldiers knew better. With few exceptions, the cheerleaders for the war had no first-hand experience in warfare.
President Obama will likely emerge unscathed even if the worst-case scenarios transpire in Iraq. Unlike his worn-out claim that he inherited most of the country’s economic problems, “the other guy did it” excuse rings true when it comes to Iraq. The dwindling but vocal few who call for the U.S. military to remain in Iraq indefinitely cannot fairly accuse President Obama of implementing a reckless policy driven by the political calendar. He merely executed the plan according to the timeline developed by his predecessor.
Obama was not in a strong position to renegotiate the Status of Forces Agreement, given the Iraqi people’s overwhelming opposition to a continued U.S. presence in their country. But it wasn’t in his interest to do so. The American people want this war to end, and he wins credit, fairly or not, for following through on his promise to end it. And if Iraq descends into chaos, and civil war, or if Iran somehow manages to consolidate power over its restive neighbor, Obama can claim, justifiably, that these things wouldn’t have happened had people listened to him in 2002. But he doesn’t have to say it. Others will say it for him. Nearly every news story reporting on this week’s events have reminded viewers, listeners, and readers that the president opposed this war. That one fact translates to a relatively favorable perception of the president’s handling of foreign policy, generally.
Indeed, the president likely wins whenever the subject of Iraq arises. Excepting Ron Paul and Gary Johnson, the other GOP contenders are unable or unwilling to speak to the nearly two-thirds of Americans who believe the war to have been a mistake. Most of the president’s Republican challengers are reluctant to cross the neoconservative cheerleaders for the war who, inexplicably, still have great sway over aspiring chief executives. On the crucial question, “Was the war worth it?” Iraq war true believers expect a simple, one word answer: yes. They will not tolerate any apostasy, even though, for most Americans, the answer is a resounding no.
Any of his Republican challengers who cannot give that same answer can only hope that they won’t be asked the question. The more they say about Iraq, the less credible they become. And Barack Obama doesn’t have to say a thing.
Citizens! Do You Know the Source of Your Honey?
Some disturbing news indeed reached my inbox today (HT: David Boaz). Apparently honey is entering the United States under assumed identities. Chinese honey, once ubiquitous, was largely shut out of the American market through anti-dumping measures. So, this article from NPR.org alleges, it started to be sold through a third country (perhaps Indonesia, Thailand, or Malaysia) and was falsely labelled to evade the duties. (Apparently we know this because the honey can be tested for peculiar types of pollen.) The U.S. government wasn’t having any of that of course, and so they held up suspicious shipments through regulations, inspections, and documentary requirements. So now the Chinese honey is allegedly being sold through India.
The domestic honey industry is now starting to worry that all of this nefarious, subversive honey-related activity will suppress the market for all types of honey, including their own, and are starting a fair trade-esque system called True Source Honey, which will trace the honey to a proper, ‘merican source. None of that Chinese muck.
Eric Wenger is president of True Source Honey. Soon, he’s going to Vietnam to help with the first audit of a Vietnamese honey exporter.
“The question we want to answer is: Does that exporter only purchase honey from beekeepers in that country?” he says.
The exporter will give the True Source auditor a list of the beekeepers from whom it buys honey. “Then the auditor will randomly select a number of those beekeepers, go out to that beekeeper’s apiary, and evaluate the capacity of that beekeeper to produce the volume that that exporter claimed was purchased and shipped,” says Wenger.
If everything checks out, that exporter is certified. But even after that, True Source will take samples from every shipment of honey and send those samples to a lab in Germany to see if the pollen matches the flowers that are actually blooming in Vietnam.
True Source wants to expand this system globally. One exporter in India is already certified.
Jill Clark, from Dutch Gold Honey, says these sorts of audited, verified supply chains are getting more common throughout the food business. In some cases, governments are requiring it.
“With all the food safety and food security issues, knowing where your food comes from right now is incredibly important,” she says.
Shouldn’t consumers be the ones to decide that? Removing the anti-dumping duties and discriminatory regulations will reduce the incentive for Chinese honey to be labelled falsely, and then we can decide for ourselves what is “incredibly important.” Or maybe we don’t care, and True Source will be a massive flop.
On a positive note, there are an encouraging number of libertarian comments to the article.
Obama and Daniels Team Up to ‘Shovel’ Subsidies
(Credit: Westgate @ Crane)
The Indianapolis Star recently profiled local boy makes good (handing out other people’s money) John Fernandez, the ex-Bloomington mayor and Obama fundraiser who now heads up the Economic Development Administration. A reference to an EDA taxpayer handout to a technology park in southern Indiana caught my eye:
Southwestern Indiana got a $6.7 million boost from the EDA last year to create a multi-county technology park to tap into the research related to the Crane Division, Naval Surface Warfare Center in Martin County. At the July groundbreaking for the park, Gov. Mitch Daniels called it a ‘long-awaited development that will serve as an economic catalyst for the region.’
Why would Republican governor Mitch “Red Menace” Daniels want to help the Obama administration score public relations points with Hoosiers? One reason is Daniels’s favorite corporate welfare apparatus, the Indiana Economic Development Corporation, also handed out money from state taxpayers for the technology park.
From a WestGate @ Crane Technology Park press release:
The Indiana Economic Development Corporation offered WestGate @ Crane Authority, Inc. up to $1 million from the Technology Development Grand Fund as a local match to a U.S. Economic Development Administration grant commitment of $6.6 million.
So what is this technology park that U.S. and Indiana taxpayers are being forced to subsidize?
Qualified as a state Certified Technology Park (CTP) by the Indiana Economic Development Corporation (IEDC), the WestGate @ Crane Technology Park represents a natural marketplace for defense contractors currently providing technical support, and research and development services to the Naval Surface Warfare Center, Crane Division in southern Indiana. Operations of the $2 billion URS corporation, and SAIC, the nation’s 7th largest defense contractor, in addition to ITT, CACI, CSC, CLEC, MLE, Raydar & Associates, Novonics, NAVMAR, Stimulus Engineering and Technical Services Corporation (TSC), already maintain operations in the park.
Great. A high-tech playground for defense contractors—an industry that has enjoyed a taxpayer windfall thanks to Uncle Sam’s ten years of warring on terror.
In a blistering op-ed, Indiana Policy Review editor Craig Ladwig calls Daniels “more of an accountant than an economist, more Beltway than Hoosier” and says that “although he claims to admire the classical liberal philosophy, you strain to see any sign of it in his governing.” As evidence, Ladwig cites Daniels’s record of supporting “crony capitalist ventures.”
Craig is correct, but it’s not just Mitch Daniels. Support in the nation’s statehouses for crony capitalism is ubiquitous. And key enablers of state business subsidies are the numerous federal “economic development” programs—like the Economic Development Administration—that policymakers in Washington use to coddle special interests in the name of “job creation.”
As the Obama-Daniels tag-team demonstrates, corporate welfare is a bipartisan affliction. Indeed, back in February, Rep. Michael Michaud (D-ME) offered an amendment to restore $80 million in funding for the EDA. The amendment passed with 145 votes from Republicans and 160 from Democrats.
Newt Gingrich and the EMP Threat
The front page of yesterday’s New York Times features a story on Newt Gingrich’s “doomsday vision:” an attack over the United States’ airspace known as an electromagnetic pulse, or EMP. Gingrich and a cadre of concerned national security analysts worry that terrorists or rogue states—Iran and North Korea—could detonate a nuclear device over the United States that theoretically could disrupt electrical circuits, from cars to power grids.
The Times does a commendable job of questioning Gingrich’s arguments and whether this is a legitimate national security concern. Despite the fact that a “National EMP Recognition Day” exists, the threat is in fact very, very low. But it may be unfortunate that such extravagant doomsday scenarios get placed on the front page of the Times.
I addressed the EMP threat in my 2010 book Atomic Obsession and I included a discussion of the views of Stephen Younger, the former head of nuclear weapons research at Los Alamos National Lab, as forcefully put forward in his 2007 book, Endangered Species:
Younger is appalled at the way “one fast‑talking scientist” managed in 2004 to convince some members of Congress that North Korea might be able to launch a nuclear device capable of emitting a high‑altitude electromagnetic pulse that could burn out computers and other equipment over a wide area. When he queried a man he considers to be “perhaps the most knowledgeable person in the world about such designs” (and who “was never asked to testify”), the response was: “I don’t think the United States could do that sort of thing today. To say that the North Koreans could do it, and without doing any testing, is simply ridiculous.” Nevertheless, concludes Younger acidly, “rumors are passed from one person to another, growing at every repetition, backed by flimsy or nonexistent intelligence and the reputations of those who are better at talking than doing.” [Emphasis in original.]
The 2012 presidential election should certainly contain a legitimate discussion of national security issues. But I don’t think it really needs to include a lot of breast-beating about the EMP “threat.”
Should Fannie & Freddie Fund the Payroll Tax Cut?
At the top of the Congressional agenda for the remainder of this week will be extending the payroll tax cut. Whatever its merits, the extension is a done-deal. Both parties agree on it and it’s just a matter of assembling a way of paying for it. Both parties also understand that, despite their rhetoric, neither millionaires or federal employees will be bearing the full cost of the extension.
One of the “off-sets” being discussed is an increase in the guarantee fees (g-fees) that Fannie Mae and Freddie Mac charge to cover the credit risk in mortgages that they purchase. Not surprisingly, my friends in the real estate industry have come out against the proposal. NAHB goes as far to say, “This will jeopardize the tenuous rebound and is the last thing this economy needs.”
Accepting that the language is currently in flux and it is not even a given that the g-fee increase will be included, I believe my real estate friends are over-reacting. As presently proposed, the increase would only be 10 basis points (which are 1/100 of a percentage point) a year. This is so modest as to have about zero impact on the housing market. Mortgage rates fluctuate by more over the course of a day.
What I am worried about is that the change is instituted over a 10 year period. Putting aside the bizarre policy of using 10 year “revenue-raisers” to pay for one year of spending, the policy might actually make it harder to eliminate Fannie and Freddie. Why? Let’s say the next Congress and White House administration put the taxpayer above the special interests and decide to end Fannie and Freddie. Now you might have to “pay” for ending them, as their existence has been built into the 10 year budget baseline.
The simple solution to me would be to limit the increase to 5 years. I don’t think anyone really expects the GSEs to disappear before then. We could raise the same amount by increasing the g-fee bump to say 20 basis points, which would also have the advantage of making the GSEs less competitive with other sources of mortgage capital, allowing their market share to shrink.
This is all to say, be careful of what you ask for. I’m the first one to argue for sticking it to Fannie and Freddie, just be careful that there are not any unintended consequences of how you do so.
The New SOPA: Now With Slightly Less Awfulness!
On Thursday, the House Judiciary Committee is slated to take up the misleadingly named Stop Online Piracy Act, an Internet censorship bill that will do little to actually stop piracy. In response to an outpouring of opposition from cybersecurity professionals, First Amendment scholars, technology entrepreneurs, and ordinary Internet users, the bill’s sponsors have cooked up an amended version that trims or softens a few of the most egregious provisions of the original proposal, bringing it closer to its Senate counterpart, PROTECT-IP. But the fundamental problem with SOPA has never been these details; it’s the core idea. The core idea is still to create an Internet blacklist, which means everything I say in this video still holds true:
Read the rest of this post »
One out of Four Ain’t Bad?
Last week I was critical of a New York Times op-ed by AEI’s Rick Hess and Stanford’s Linda-Darling Hammond. Yesterday, Hess graciously replied to my critiques, basically saying that it would be good if we could get the feds out of education, but since that’s highly unlikely, lets see how Washington can help.
That’s a modest and sensible stance, and I don’t think Hess is “endorsing big government.” (At least relative to most edu-analysts—admittedly a lopsided scale.) But even if you accept that few in Washington are willing to boot themselves out of schools—and few are—it’s still critical to explore whether or not the things you’d have them do would be of net benefit.
Like last time, we’ll take the four proposals in order, this time based on Hess’s rebuttal. But first, one pet peeve:
Hess writes that he’d be happy to end “two centuries” of federal education meddling, noting that it all started with “the Continental Congress’s Northwest Ordinance of 1787.” I don’t know if this was his intent, but that factoid is usually invoked to suggest that even the Founders believed the federal government should advance education. This is not an impression that should be given: the Constitution is very clear in ceding Washington no authority to govern education outside of federal lands and civil rights enforcement. That the states have jurisdiction over education was, in fact, explicitly acknowledged as recently as the 1940s by a commission overseen by none other than Franklin Delano Roosevelt. And, while there was some federal education activity largely during and after the Civil War, it was not until the 1960s that Washington got heavily involved.
On to the four points:
First, when it comes to transparency, states have a collective action problem. There is both the problem of providing parents, taxpayers, and voters with meaningful transparency and the fact that state officials in each state have an incentive to manipulate performance results to their own advantage. More standards accounting and linking results to NAEP is a case of the feds providing a public good that only Washington is equipped to provide.
It’s true that state officials have a big incentive to manipulate performance results so that they stay out of trouble with voters and, especially, the teachers, administrators, and others who would be held accountable. The problem is that once you connect real consequences to NAEP—currently there are none—it will become a target for manipulation just like state tests and standards. Don’t attach consequences, however—including having no consequences attached to the state tests you’d audit with NAEP—and there’s no real impetus for schools to change. At best, then, this is a very limp proposal, and that’s before you get into big questions about whether the public really knows what NAEP assesses, whether one set of tests is a useful measure of education, and others I’ll save for another day.
Second, when it comes to basic research, the market tends to underprovide. Basic research is a public good…and is tough to monetize. The result is that, while the private sector is terrific at funding applied research, it tends to invest little in basic research.
As I mentioned last time, I hear this a lot but rarely see meaningful evidence to support it. And by “meaningful” I mean research looking at both the successes of government-funded basic research and the costs. Is it a net gain? Does the private sector steer clear of much of it because it’s an unjustifiable risk? Does it steer clear because government enables end users to rent-seek? There might be such research, but I’ve not seen it cited by those who assert that government must fund basic research. And then there’s the research I have seen that shows much of the funding translates not into innovation, but higher researcher salaries.
Third, even hard-charging state officials get tangled in decades of entrenched rules, regulations, and practices. The feds can help untangle this status quo by supporting officials seeking to throw off anachronistic routines but who must find ways to persuade skeptical constituents or union leaders to go along.
This if great if the goal is to clear out federal regulations, but state and local? There’s nothing in the Constitution authorizing Washington to manipulate state and local education systems, and perhaps more importantly: Why should anyone think it will work? The overwhelming, long-term track record for Washington is to add efficiency killing rules and regulations, and do the bidding of teachers unions and other school employees. Plus, why should we assume that the feds are able to pick the right routines to throw off or add on?
Finally, the federal government is obliged to ensure that constitutional guarantees of equal protection are observed. That said, this will ideally be pursued far less prescriptively than is the case today.
Here we agree, if Hess means Washington must stop clear state discrimination. And I guess one out of four ain’t bad.
It Was those Bad Speculators That Drove the Housing Bubble….
A recent report from the Federal Reserve Bank of New York examines the role of speculators in driving the housing bubble. Setting aside the fact that almost everyone who bought a house was “speculating” to some degree, the researchers focus on those who were buying homes they did not intend to live in.
Some have already tried to paint this study as proving the government had little to do with the housing crisis. To their credit, the study’s authors do not go that far. Others, Mark Thoma for instance, show no such constraint:
“This is pretty far away from the (false) story that Republicans tell about the crisis being caused by the government forcing banks to make loans to unqualified borrowers.”
Of course, I’m sure that even Thoma knows that he’s set up a straw-man. Does anyone really believe that the Community Reinvestment Act and the Government Sponsored Enterprises housing goals were the only factors behind the crisis? Perhaps if the New York Fed really wanted to understand the crisis, it should look in the mirror. It would seem reasonable to me that three years of a negative real federal funds rate might have had some impact on the housing market, particularly in encouraging speculators. After all, the Fed was basically paying people to take money.
None of this takes away from the role that Fannie and Freddie played in the housing market. For mortgages they purchased directly, Freddie’s investor share increased from three percent in 2003 to seven percent in 2007. And this ignores the massive volume of private label mortgage backed securities purchased by Fannie and Freddie. I think its reasonable to believe some of those were investor loans. In addition, the FBI has reported that the most frequent form of mortgage fraud has been borrowers stating the loan was for a primary residence when it was not. But then it would be impolite of me to suggest we actually prosecute borrowers who committed fraud.
As I argued over two years ago, the relatively high percentage of foreclosures that are driven by pure speculators should make us question the many efforts to slow or stop the foreclosure process. If so many of these foreclosures are speculators, then why do we continue to protect them from losing the homes? They gambled, they lost. It’s time to move on and let the markets continue to adjust.
Now, one can continue to blame private sector actors for following the perverse incentives created by government. After all, the banks didn’t have to make the loans and the borrowers didn’t have to take the money. But it should be the primary objective of public policy to get the incentives correct. It should by now be crystal clear that all of the massive speculation in the housing market didn’t “just happen”—it was the result of massive government distortions in our housing and financial markets.
“Liberalism’s Problem in One Graph”
That’s the title of Ezra Klein’s blogpost last night. Americans are increasingly distrustful of Big Government, it seems (64% in 2011, up from 35% in 1965), as opposed to Big Business (26% versus 29%) and Big Labor (8% versus 17%). Here’s the graph:
Of course, given that Big Labor these days is mostly in the public sector, you can really add its total to that of Big Government. And given corporate subsidies, part of Big Business can be thrown in there too. In any event, sobering news for the Occupy Wall Street crowd, and surely an electorate for political candidates who want to shrink the size of government.
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