Panderer Throwdown!
There is a case study being written right now about the absurdity of government. Basically, both parties are trying to outdo each other politically in order to pass a bit of pandering that they actually agree on: freezing at rock-bottom levels interest rates on subsidized federal student loans.
Republicans, at least, are taking some political risk by trying to pay for the lost revenue a freeze would create by digging into a fund that sure seems pretty slushy, but which nonetheless opens them to the accusation that they don’t care about Americans’ health. It’s a small risk — at the very least, what they’re doing likely plays well to their base — but a risk nonetheless.
The Democrats, for their part, are driving home their theme that the rich don’t pay “their fair share” by proposing that taxes be raised on “S corporations,” a legal designation few Americans likely know anything about. Of course, that makes it easier to say such corporations are really just rich people (apparently, these corporations really are people) who, well, don’t pay their fair share.
The really crazy part, though, is that all this political bickering is occurring ultimately to do something that will do no short-term good but real long-term harm.
In the short term, a rate freeze will help no student. The rate will only apply to people taking out subsidized loans next year, and probably only save the average recipient about $7 per month over the life of the loan. And those savings won’t start for at least a year-and-a-half for most students (next year’s college seniors, who also get a six-month repayment grace period after graduation, will be the first). So let’s not hear about this being necessary given the current economy.
The far bigger problem, however, is the long term effect of cheap federal aid. Both overwhelming evidence and logic make it clear that the main effects of federal aid are rampant tuition inflation and millions of people taking on debt for schooling they either cannot handle or aren’t all that motivated to complete. In other words, huge, self-defeating waste.
If members of either party were to take the time to look at the evidence and make policy based on it, we wouldn’t be debating how to pay for a rate freeze at all. We’d be seeing both sides rush legislation to the floor to phase out federal student aid and help return college prices — and consumption — to much more rational levels. But that’s just not how pandering works.
Looking at ‘Austerity’ in Britain
I’m going to jump into the debate about austerity in Europe because it is being closely followed in Latin America, and many people are drawing the wrong conclusions about how austerity is strangling the European economies. But first, we have to be clear about what we mean by “austerity.”
As the debate between Veronique de Rugy of the Mercatus Center and Ryan Avent at The Economist shows, there are different definitions of austerity. The term could mean fiscal consolidation only by spending cuts. It could mean a mixture of spending cuts and tax increases (the so called “balanced approach”), and it could even be just tax increases. So when people blame “austerity” for Europe’s economic malaise, we could be talking about a very different set of policies in each country.
Let’s look at Britain, which just entered into a double dip recession because of, according to Paul Krugman, “the evident failure” of austerity policies. If we look at spending levels in the UK both in nominal and real terms, we can clearly see that despite the announcement of deep cuts, government spending continues to rise:
Source: European Commission, Economic and Financial Affairs.
It’s clear that, at least in nominal terms, the rate of growth of spending has declined, but that hardly constitutes brutal cuts as Krugman and others want us to believe. If we look at total government spending as a percentage of the economy, Britain reached a peak in 2009 at 51.5%, and that came down to 49.9% in 2011. Can anyone seriously argue that Britain is in a recession because of that tiny drop in spending as a share of the economy?
Now, let’s remember that the Conservative-Liberal Democrat coalition government that came to power in May 2010 adopted what The Economist hailed as a balanced approach of fiscal consolidation based on £1 of tax increases for £3 of spending cuts. To be fair, the British magazine also said that if economic recovery proved hard to achieve, the government should consider a reprieve in tax increases, but not on spending cuts. We all know that the tax increases already took place (the VAT rate went up from 17.5% to 20%, for example). But as we can see, spending cuts haven’t taken place at all. Thus, austerity in Britain consists only of tax increases.
It’s hard to estimate the impact of tax increases on the British economy. Certainly the economic turmoil in Continental Europe has played a role in taking the U.K. into a second recession. But those who claim that “austerity” is responsible for Britain’s economic malaise should be honest and acknowledge that by austerity they mean only tax increases, not spending cuts.
Democratic Tax Policy, Then and Now
My new piece at Daily Caller looks at how the Democratic Party’s approach to tax policy has changed over the decades.
The piece was prompted by a recent article from Norm Ornstein and Tom Mann claiming that needed bipartisan reforms are being blocked by the new “ideologically extreme” Republican Party.
Baloney. It’s the Democrats who have changed. The party’s leaders have moved far to the left on economic issues.
As evidence, I point to this Cato Journal article from 1985 by Democrat Richard Gephardt, who was a leader on tax reform. As a free-market guy, I agree with the great majority of what Gephardt said, yet I agree with virtually nothing that modern Democratic leaders say about tax policy.
Regarding ridding the tax code of special breaks, Gephardt says, “I confess that I am not qualified to act as a central planner and I do not know anybody on either committee who is.” Amen!
And Gephardt says, “We in Congress take pride in the free market system.” When was the last time you heard a Democratic leader say something like that?
Economic Development Administration—Telling Votes in the House
My colleague Sallie James reported this morning on the looming vote in the House to reauthorize the Export-Import Bank. There are two other votes, which could come as soon as this evening, that would provide a similar indication of how serious the Republican-controlled House is about limiting government and supporting free markets.
An amendment to the House’s fiscal 2013 Commerce, Justice, and Science appropriations bill (H.R. 5326) introduced by Rep. Mike Pompeo (R-KS) would eliminate funding for the Economic Development Administration. An amendment introduced by Rep. Mike Michaud (D-ME) would give the EDA an additional $38 million. The House bill appropriates $219 million for the EDA, which is the same amount that President Obama requested.
It’s bad enough that the House Appropriations Committee wants to continue funding this relic of the “Great Society” at any level. However, the appropriations committees are a lost cause regardless of which party is in control. Thus, how the entire Republican House caucus votes on these two amendments will be the more important—and telling—story.
See this Cato essay for background on the Economic Development Administration.
Big Government Causes Hyper-Partisanship in the Judicial Appointment Process
Earlier this year, the Georgetown Journal of Law & Public Policy hosted a symposium on “Hyper-Partisanship and the Law.” The journal editors graciously invited me to join an august panel on partisanship in the judiciary that included George Mason University Law School’s Todd Zywicki and the U.S. Chamber of Commerce’s Rachel Brand. (Brand ran the DOJ’s Office of Legal Policy, which is responsible for vetting and advising the president on judicial nominees, from 2005 to 2007.)
The symposium video isn’t available online, but the participants were invited to publish their presentations in this summer’s issue of the GJLPP. Zywicki has already blogged about his paper, “The Senate and Hyper-Partisanship: Would the Constitution Look Different if the Framers Had Known that Senators Would Be Elected in Partisan Elections?”
My (short) article is entitled “Big Government Causes Partisanship in Judicial Nominations.” Here’s an excerpt:
In 1962, Byron White’s hearing lasted 15 minutes and consisted of three questions. Can you imagine that happening now? Most district court nominees would take that deal. Is it because of TV and the media and the instant sound bite and the new media with the Internet and social networking and all the rest of it? Is it because the issues have gotten more ideologically divisive? I think the answer isn’t really any of these. It isn’t that there’s been a corruption of the confirmation process, the nomination process, presidential or senatorial rhetoric, or the use of filibusters. It’s a relatively new development but one that’s part and parcel of a much larger problem: constitutional corruption.
As government has grown, so have the laws and regulations over which the Court has power. The Court’s power has grown commensurate with the power of Congress, because all of a sudden it’s declaring what Congress can do with its great powers and what kind of new rights will be recognized. As we have gone down the wrong jurisprudential track since the New Deal, judges all of a sudden have more power behind them and the opportunity to really change the direction of public policy more than they ever did.
Read the whole thing (not yet in the final format). My presentation largely tracked some of the points Roger Pilon made in his seminal (and now decade-old) paper, “How Constitutional Corruption Has Led to Ideological Litmus Tests for Judicial Nominees.” You should read that too.
The Institute for Justice Exposes the Plague of Occupational Licensing
Today, the Institute for Justice released a 200-page, comprehensive study on occupational licensing in the United States. The report details the plague of occupational licensing that has swept the country over the past 60+ years. According to the study, “In the 1950s, only one in 20 U.S. workers needed the government’s permission to pursue their chosen occupation. Today, that figure stands at almost one in three.”
Fifty years ago, in Capitalism and Freedom, Milton Friedman warned against the dangers of professional licensing. At that time, Friedman quoted a previous study on licensure by Walter Gellhorn:
By 1952 more than 80 separate occupations exclusive of ‘owner-businesses,’ like restaurants and taxicab companies, had been licensed by state law; and in addition to the state laws there are municipal ordinances in abundance, not to mention the federal statutes that require the licensing of such diverse occupations as radio operators and stockyard commission agents. As long ago as 1938 a single state,North Carolina, had extended its law to 60 occupations. One may not be surprised to learn that pharmacists, accountants, and dentists have been reached by state law as have sanitarians and psychologists, assayers and architects, veterinarians and librarians. But with what joy of discovery does one learn about the licensing of threshing machine operators and dealers in scrap tobacco? What of egg graders and guide dog trainers, pest controllers and yacht salesmen, tree surgeons and well diggers, tile layers and potato growers? And what of the hypertrichologists who are licensed in Connecticut, where they remove excessive and unsightly hair with the solemnity appropriate to their high sounding title?
The Institute for Justice’s study found that licensing has only become more wide-spread and more absurd. But an increase in licensure is expected when interest groups are allowed to capture government and violate our economic liberties. Public choice theory predicts a growth in licensing if the anti-competitive interests of trades are not checked by constitutional rights. As Friedman observed,
In the absence of any general arrangements to offset the pressure of special interests, producer groups will invariably have a much stronger influence on legislative action and the power that be than will the diverse, widely spread consumer interest. Indeed from this point of view, the puzzle is not why we have so many silly licensure laws, but why we don’t have far more.
There are significant real-world effects to these laws. In a world of nine percent unemployment, barriers to work should be the last thing we want, particularly if those barriers do not make us safer or better off. The study found that the average license forces would-be workers to pay an average of $209 in fees, take one exam, and complete nine months of training. In the four places in which they are licensed (three states and DC), interior designers have the highest barriers to entry, apparently to save us from shag carpeting and misuses of the Pottery Barn. In the face of such requirements, particularly the months of training, it’s easy to see how someone can be discouraged from even looking for a job.
In addition, out-of-control licensing has other, more human costs, such as the monks of Saint Joseph Abbey, who were prohibited from building caskets in their monastery unless they obtained a funeral director license. The Institute for Justice won that case. Here’s hoping the new study gives IJ’s attorneys the data they may need to defeat other unconstitutional licensing regimes.
Below is the video announcing the study:
Police Charged for Beating Kelly Thomas
A security camera records police officers questioning a homeless man, Kelly Thomas. A few minutes later, the police begin to beat and taser Thomas, who later died from his injuries. In the video, Thomas can be heard desperately calling out to his dad for help.
Previous coverage here.
Happy Birthday, F. A. Hayek
Today is the 113th anniversary of the birth of F. A. Hayek, perhaps the most subtle social thinker of the 20th century.
He was awarded the Nobel Prize in Economics in 1974. He met with President Reagan at the White House, and Margaret Thatcher banged The Constitution of Liberty on the table at Conservative headquarters and declared “This is what we believe.” Milton Friedman described him as “the most important social thinker of the 20th century,” and Lawrence H. Summers called him the author of “the single most important thing to learn from an economics course today.”
He is the hero of The Commanding Heights, the book and PBS series by Daniel Yergin and Joseph Stanislaw. His most popular book, The Road to Serfdom, has never gone out of print and sold 125,000 copies last year. John Cassidy wrote in the New Yorker that “on the biggest issue of all, the vitality of capitalism, he was vindicated to such an extent that it is hardly an exaggeration to refer to the 20th century as the Hayek century.”
Last year the Cato Institute invited Bruce Caldwell, Richard Epstein, and George Soros to discuss the new edition of The Constitution of Liberty, edited by Ronald Hamowy. In a report on that session, I concluded:
Hayek was not just an economist. He also published impressive works on political theory and psychology.
He’s like Marx, only right.
Cato published two original interviews with Hayek, in 1983 and 1984.
Find more on Hayek, including an original video lecture, at Libertarianism.org.
Paul Krugman and the European Austerity Myth
With both France and Greece deciding to jump out of the left-wing frying pan into the even-more-left-wing fire, European fiscal policy has become quite a controversial topic.
But I find this debate and discussion rather tedious and unrewarding, largely because it pits advocates of Keynesian spending (the so-called “growth” camp) against supporters of higher taxes (the “austerity” camp).
Since I’m a big fan of nations lowering taxes and reducing the burden of government spending, I would like to see the pro-tax hike and the pro-spending sides both lose (wasn’t that Kissinger’s attitude about the Iran-Iraq war?). Indeed, this is why I put together this matrix, to show that there is an alternative approach.
One of my many frustrations with this debate (Veronique de Rugy is similarly irritated) is that many observers make the absurd claim that Europe has implemented “spending cuts” and that this approach hasn’t worked.
Here is what Prof. Krugman just wrote about France.
The French are revolting. …Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. …What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.
And he’s made similar assertions about the United Kingdom, complaining that, “the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback.”
So let’s take a look at the actual data and see how much “slashing” has been implemented in France and the United Kingdom. Here’s a chart with the latest data from the European Union.
Ex-Im Reauthorization Vote Expected Tomorrow
House legislators have reached a “compromise” deal to reauthorize the Export-Import Bank of the United States until 2014 and at an increased funding level ($120 billion, with a possible increase to $140 billion). The compromise builds on a bill crafted by Rep. Eric Cantor (R-VA) I blogged about in March, but seems to largely be a win for the pro-bank folks judging by the increased funding levels, with the “compromise” part being not much more than pathetic sops to those concerned about the bank’s mission, if not its very existence.
Inside U.S. Trade [$] has more details:
House Republican and Democratic leaders late last week announced that they had a reached a compromise deal to reauthorize the Export-Import Bank through fiscal year 2014 and immediately raise its lending cap to $120 billion, with the possibility of further increases to $140 billion during that period if default rates are kept low and other conditions are met. The House expects to consider the bill on Wednesday (May 9) under suspension of rules, a House GOP aide said.
The bill contains a longer reauthorization, and a higher lending cap, than what was included in an initial draft bill floated by Rep. Eric Cantor (R-VA) in March. That draft bill would have renewed the bank’s charter only through June 2013, and would have raised the lending cap to $113 billion, up from the current level of $100 billion.
At the same time, the compromise bill reflects some of the demands of Cantor and other Republicans who are wary of reauthorizing the activities of a bank they say puts taxpayer money at risk and distorts the free market.
For instance, it conditions further increases in the lending cap, to $140 billion for fiscal year 2014, on the bank maintaining a default rate on outstanding loans that is below two percent and submitting other required reports. It also includes language from Cantor’s draft instructing the president to enter into negotiations with other countries to substantially reduce official export financing in general and for aircraft in particular, with the goal of ultimately eliminating such financing altogether.
Under suspension of rules, which is a procedure typically reserved for non-controversial legislation, debate is limited to 40 minutes and the bill must garner a two-thirds majority to pass.
The article goes on to describe all of the ostensible brakes that the Republican leadership have insisted placing on Ex-Im, but they really amount to the usual Washington ways of pretending they are implementing real reform: calls for the bank to issue business plans, address GAO concerns, be more transparent, etc. Nothing, unfortunately, about changing the accounting rules under which the bank operates let alone setting a path to winding down the bank altogether.
In short, the “compromise” is just fiddling while Washington is awash in red ink, and the federal government encroaches more and more into what should be private markets.
U.S. Taxpayers Subsidize Afghan Insurgents
Less than a week after President Barack Obama made a surprise visit to Afghanistan and proclaimed, “We broke the Taliban’s momentum,” the chairs of the Senate and House intelligence committees offered a candid assessment of the U.S. mission. Senator Dianne Feinstein (D-CA), alongside Representative Mike Rogers (R-MI), said on CNN’s “State of the Union,” “I think we’d both say that what we found is that the Taliban is stronger.” Their observations are the type of unvarnished truth that our military and civilian leaders typically avoid. U.S. and NATO officials meeting in Chicago later this month should take heed, especially since American taxpayer dollars are helping to fund the insurgents we’re fighting.
In a not-much publicized report last August from the Commission on Wartime Contracting in Iraq and Afghanistan, researchers found that after the illegal opium trade, the largest source of funding for the insurgency was U.S. contracting dollars. It found that Afghan companies under the Host Nation Trucking program use private security contractors who then turn around and pay insurgents and warlords who control the roads we must use. Although the Commission on Wartime Contracting report did not mention how much was funneled to the insurgency, a similar protection racket was also uncovered a couple of years ago.
Task Force 2010, assembled by General David Petraeus, examined the connections between insurgents and criminal networks on the one hand and Afghan companies and their subcontractors for transportation, construction, and other services on the other. The task force estimated that $360 million in U.S. tax dollars ended up in the hands of insurgents and other “malign actors,” including criminals, warlords, and power-brokers.
The $360 million “represents a fraction of the $31 billion in active U.S. contracts that the task force reviewed,” Associated Press reporters Deb Riechmann and Richard Lardner explained. As Brussels-based International Crisis Group observed in a depressingly frank June 2011 report:
Insecurity and the inflow of billions of dollars in international assistance has failed to significantly strengthen the state’s capacity to provide security or basic services and has instead, by progressively fusing the interests of political gatekeepers and insurgent commanders, provided new opportunities for criminals and insurgents to expand their influence inside the government. The economy as a result is increasingly dominated by a criminal oligarchy of politically connected businessmen.
Is it any wonder why pouring massive piles of cash into a broken and war-ravaged system resulted in failure? Those who follow the news from Afghanistan will see how rent-seeking inadvertently strengthens that country’s twin evils: corruption and insecurity. As journalist Douglas A. Wissing writes in his eye-opening new book, Funding the Enemy: How U.S. Taxpayers Bankroll the Taliban, in addition to foreign development advisers preoccupied with their own career advancement, development money itself was not countering the insurgency but rather paying for it. Combined with an enemy whose strategy was always about exhaustion, the result has been catastrophic.
Wissing writes, “I learned that the linkage between third-world development and US national security that foreign-aid lobbyists peddled to American policymakers was a faith-based doctrine with almost no foundation in research.” Year after year, the American public was spoon-fed government reports that lacked honesty about why our top-down security and development programs were constantly failing. Buildings were poorly constructed. Projects were bereft of proper oversight. Schools were built without teachers to staff them. Road construction contracts financed insurgent racketeering operations.
The undistorted evidence of a European-based think tank, a bipartisan congressional commission, and a report from military experts, assembled by the war’s former commander, leads to one conclusion: the war is inadvertently throwing American taxpayer dollars at insurgents killing American troops. What about this self-aggrandizing system is making Americans safer? Moreover, what about the safety of the Afghans whom planners in Washington swore to protect from the Taliban? In spite of the tripling of U.S. troops since 2008, a recent report by the U.N. mission concluded that 2011 was the fifth straight year in which civilian casualties rose.
As Feinstein said to CNN on Sunday, “The Taliban has a shadow system of governors in many provinces. They’ve gone up north. They’ve gone to the east. Attacks are up.” After over a decade of inadvertently funding the enemy and alienating the local people, Americans should not be surprised with such a dire outcome. If anything, they should be surprised that their elected leaders are finally telling the truth.
New Underwear Bomb, New Threat Information
It’s a good bet that news of a new thwarted underwear bomber will underlie more than one argument for the strip-search machines American travelers encounter even at the domestic terminals of our airports. According to the AP:
The plot involved an upgrade of the underwear bomb that failed to detonate aboard a jetliner over Detroit on Christmas 2009. This new bomb was also designed to be used in a passenger’s underwear, but this time al-Qaida developed a more refined detonation system, U.S. officials said. … The would-be suicide bomber, based in Yemen, had not yet picked a target or bought his plane tickets when the CIA stepped in and seized the bomb, officials said.
Reading this, you’ve been reminded of the fact that, somewhere in a remote Middle Eastern backwater, someone would like to bomb an aircraft flying into the United States. For many, this will induce a bout of probability neglect, making it very hard to process the upshot of this news: This type of attack, which was already very unlikely to succeed, has been made even less likely to succeed.
How did it become less likely to succeed? Let’s use the Transportation Security Administration’s layered security concept to examine things.
In December 2009, the underwear bomber (well—he failed: the “underwear bomb plotter“), managed to get a deformed bomb onto a plane. It was so deformed that he could not cause it to explode. Instead, he burned himself while other passengers subdued him. In the TSA’s formulation, the plot was foiled by the last security layer (it’s hard to read in the graphic): passengers.
(This is not actually the last security layer. The design of planes to withstand shocks to the fuselage is a preventive against downings that small smuggled bombs will have a hard time overcoming.)
The latest news has it that an updated underwear bomb was seized in Yemen by the CIA. That’s the first layer of security in the TSA’s graphic. Intelligence—the first layer.
(This is not actually the first security layer. A benign, phlegmatic foreign policy would produce fewer people worldwide wishing to do the United States harm and more people intolerant of those who do.)
Now, it is not all 100%, unalloyed good security news. As the AP report says:
The FBI is examining the latest bomb to see whether it could have passed through airport security and brought down an airplane, officials said. They said the device did not contain metal, meaning it probably could have passed through an airport metal detector. But it was not clear whether new body scanners used in many airports would have detected it.
There may be an innovation in underwear bombs that make them easier to smuggle on to planes. At its best, this innovation may render the body scanners useless against them. (Again, watch for arguments that, despite their impotence, this news makes body scanners all the more essential. A news report yesterday said that new vulnerabilities in the machines have been unearthed by government investigators.)
On balance, I think this news shows just how much the threat is diminished. Innovations in bomb-making, happening on the far outskirts of modern society, are being thwarted at their source, long before they begin the journey through the many other security layers that protect aviation and air travelers. You may continue to move about the country even more confident of your safety than you did before. I’m hopping on a plane again Friday morning, and I will be just as polite and cheerful as ever in declining to go through the strip-search machines.
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