John Mueller Joins Cato
I am pleased to announce that John Mueller, a leading scholar in the fields of political science, international relations, and national security, has joined the Cato Institute as a senior fellow.
All of us at Cato are very excited to have John as a colleague. Over the last decade as a professor of political science and as the Woody Hayes Chair of National Security Studies at the Ohio State University’s Mershon Center for International Security Studies, John has taken on the conventional wisdom in the national security arena with a rare combination of accessible, breezy prose and meticulous cost-benefit analysis. In particular, he has focused on how policymakers inflate national security threats at home and abroad.
His newest book, Terror Money and Security, which he presented at a recent Cato forum, examines whether the gains in security over the past decade were worth the funds expended. For the vast majority of U.S. homeland security and counterterrorism policies, John and his co-author, Mark Stewart, resoundingly conclude “no.”
As a member of the Cato Institute, John will contribute to our multitude of programs and publications while furthering his work on the subjects of security, defense, and U.S. foreign policy. Cato is fortunate to have such a brilliant scholar join its staff.
For more Cato Institute work on foreign policy and national security, go here.
Bathtubs, Terrorists, and Overreaction
I dislike our national obsession with anniversaries and tendency to convert solemn occasions into maudlin ones; to fetishize perceived collective victimization rather than simply recognizing real victims. That kept me from joining in the outpouring of September 11 reflection, now mercifully receding. But I have reflections on the reflections.
The anniversary commentary has, happily, included widespread consideration of the notion that we overreacted to the attacks and did al Qaeda a favor by overestimating their power and making it easier for them to terrorize. Even the Wall Street Journal allowed some of the bigwigs they invited to answer their question of whether we overreacted to the attacks to say, “yes, sort of.”
Unsurprisingly, however, the Journal’s contributors, like almost every other commentator out there, did not define overreaction. It’s easy and correct to say we’ve wasted dollars and lives in response to September 11 but harder to answer the question of how much counterterrorism is too much. So this post explains how to do that, and then considers common objections to the answer.
That answer has to start with cost-benefit analysis. As I put it in my essay in Terrorizing Ourselves, a government overreaction to danger is a policy that fails cost-benefit analysis and thus does more harm than good. But when we speak of harm and good, we have to leave room for goods, like our sense of justice, that are harder to quantify.
Cost-benefit analysis of counterterrorism policies requires first knowing what a policy costs, then estimating how many people terrorists would kill absent that policy, which can involve historical and cross-national comparisons, and finally converting those costs and benefits into a common metric, usually money. Having done that analysis, you have a cost-per-life-saved-per-policy, which can be thought of as the value a policy assigns to a statistical life—the price we have decided to pay to save a life from the harm the policy aims to prevent.
Then you need to know if that price is too high. One way to do so, preferred by economists, is to compare the policy’s life value to the value that the target population uses in their life choices (insurance purchases, salary for hazardous work, and so on). These days, in the United States, a standard range for the value of a statistical life is four to eleven million dollars. If a policy costs more per life saved than that, the market value of a statistical life, then the government could probably produce more longevity by changing or ending the policy. A related concept is risk-risk or health-health analysis, which says that at some cost, a policy will cost more lives than it saves by destroying wealth used for health care and other welfare-enhancing activities. One calculation of that cost, from 2000, is $15 million.
In a new book, Terror, Security, and Money: Balancing the Risks, Benefits, and Costs of Homeland Security,* John Mueller and Mark Stewart use this approach to analyze U.S. counterterrorism’s cost-effectiveness, generating a range of estimates for lives saved for various counterterrorism activities. I haven’t yet read the published book, but in articles that form its basis, they found that most counterterrorism policies, and overall homeland security spending, spend exponentially more per-life saved than what regulatory scholars consider cost-effective.
That is a strong indication that we are overreacting to terrorism. It is not the end of the necessary analysis however, since it leaves open the possibility that counterterrorism has benefits beyond safety that justify its costs. More on that below.
Making Sense of New TSA Procedures
Since they were announced recently, I’ve been working to make sense of new security procedures that TSA is applying to flights coming into the U.S.
“These new measures utilize real-time, threat-based intelligence along with multiple, random layers of security, both seen and unseen, to more effectively mitigate evolving terrorist threats,” says Secretary Napolitano.
That reveals essentially nothing of what they are, of course. Indeed, “For security reasons, the specific details of the directives are not public.”
But we in the public aren’t so many potted plants. We need to know what they are, both because our freedoms are at stake and because our tax money will be spent on these measures.
Let’s start at the beginning, with identity-based screening and watch-listing in general. A recent report in the New York Times sums it up nicely:
The watch list is actually a succession of lists, beginning with the Terrorist Identities Datamart Environment, or TIDE, a centralized database of potential suspects. . . . [A]bout 10,000 names come in daily through intelligence reports, but . . . a large percentage are dismissed because they are based on “some combination of circular reporting, poison pens, mistaken identities, lies and so forth.”
Analysts at the counterterrorism center then work with the Terrorist Screening Center of the F.B.I. to add names to what is called the consolidated watch list, which may have any number of consequences for those on it, like questioning by the police during a traffic stop or additional screening crossing the border. That list, in turn, has various subsets, including the no-fly list and the selectee list, which requires passengers to undergo extra screening.
The consolidated list has the names of more than 400,000 people, about 97 percent of them foreigners, while the no-fly and selectee lists have about 6,000 and 20,000, respectively.
Obama’s Other Massachusetts Problem
Even if Democrat Martha Coakley wins 50 percent of the vote in the race to fill the late Sen. Ted Kennedy’s (ahem) term, there are other numbers emanating from Massachusetts that present a problem for President Obama’s health plan.
On Wednesday, the Cato Institute will release “The Massachusetts Health Plan: Much Pain, Little Gain,” authored by Cato adjunct scholar Aaron Yelowitz and yours truly. Our study evaluates Massachusetts’ 2006 health law, which bears a “remarkable resemblance” to the president’s plan. We use the same methodology as previous work by the Urban Institute, but ours is the first study to evaluate the effects of the Massachusetts law using Current Population Survey data for 2008 (i.e., from the 2009 March supplement). Since I’m sure that supporters of the Massachusetts law and the Obama plan will dismiss anything from Cato as ideologically motivated hackery: Yelowitz’s empirical work is frequently cited by the Congressional Budget Office, and includes one article co-authored with MIT health economist (and Obama administration consultant) Jonathan Gruber, under whom Yelowitz studied.
Among our findings:
- Official estimates overstate the coverage gains under the Massachusetts law by roughly 50 percent.
- The actual coverage gains may be lower still, because uninsured Massachusetts residents appear to be concealing their lack of insurance rather than admit to breaking the law.
- Public programs crowded out private insurance among low-income children and adults.
- Self-reported health improved for some, but fell for others.
- Young adults appear to be avoiding Massachusetts as a result of the law.
- Leading estimates understate the cost of the Massachusetts law by at least one third.
When Obama campaigns for Martha Coakley, he is really campaigning for his health plan, which means he is really campaigning for the Massachusetts health plan.
He and Coakley should explain why they’re pursuing a health plan that’s not only increasingly unpopular, but also appears to have a rather high cost-benefit ratio.
(Cross-posted at Politico‘s Health Care Arena.)
What Is Seen and What Is Not Seen
Two items in Tuesday’s newspapers remind us of the often unseen costs of regulation and also of the often unseen benefits of market processes. In the Wall Street Journal, Prof. Todd Zywicki examines the likely consequences of a law to limit credit card interest rates and the fees they charge to merchants:
Card issuers might also reduce the quantity and quality of credit cards by restricting credit availability and cutting back on product innovation or ancillary card benefits. This is exactly what happened when Australian regulators imposed price controls on interchange fees in 2003: Annual fees increased an average of 22% on standard credit cards and annual fees for rewards cards increased by 47%-77%. Card issuers also reduced the generosity of their reward programs by 23%. Innovation, especially in terms of improved security and identity-theft protection, was stalled. Card issuers also increased their efforts to attract higher-risk customers who generate interest and penalty fees to offset lower interchange revenues from lower-risk transactional users.
Those are the kinds of unseen costs that most of us wouldn’t anticipate (that’s why economists talk about “unanticipated [or unintended] consequences” of action). Only after the fact were economists able to identify the specific costs of the regulation. It seemed like a good idea – limit the cost of something that consumers (voters) want. Did anyone predict the consequences? People probably predicted that annual fees would rise to compensate for the lost revenue from interchange fees. But did they anticipate a slowdown in innovation in security and identity-theft protection? Did they anticipate that card issuers would work harder to get higher-risk customers? Such regulation always impedes the optimal working of market processes, and thus inevitably delivers sub-optimal results.
Meanwhile, we often observe conditions in the marketplace that don’t seem to make sense to us. So we assume something is wrong, maybe even corrupt. An article in the Washington Post written in a sober yet hysterical style raised the problem of “medical salesmen in the operating room.” Then, in a letter to the Post, Dr. Mark Domanski explains why it makes sense to have medical salesmen in the operating room. A Post article on the topic had been full of anecdotes about a salesman who “began his career selling hot dogs” hanging out in operating rooms and doctors who expressed outrage. If only they had thought to ask a surgeon in distant Arlington, Virginia:
I found David S. Hilzenrath’s Dec. 27 Business article, “The salesman in the operating room,” to be one-sided.
Of course, medical sales representatives work along doctors in operating rooms. As a surgeon, I always want a company rep in the operating room.
So, if you were having surgery that involved a complicated piece of equipment, wouldn’t you like somebody from the manufacturer to be there? I know I would.
Here’s why:
Remember when you tried to assemble that desk you bought from a furniture store? We all know how to use a screwdriver, but when something is off, it’s nice to know there is a number to call. What if you needed to put that desk together quickly because you needed it for something important? It would be nice if the company sent someone to make sure all the parts were there and in good order. That’s what a good rep does.
As the surgeon, I make the diagnosis and decide the treatment. No company representative tells me how to use a knife. But many products in the operating room are complex and change almost every year; they are getting better that fast.
When I am using a complex product, such as a plating system for fixing a jaw fracture, having the rep in the room ensures that the system is functional. I know all the parts will be there. I know that the right screw and plate will be handed to me at the right time.
Sometimes we call in the rep for an operation, and it turns out that the fracture does not need to be plated. No rep has ever suggested that I plate a fracture that didn’t need to be plated.
Members of Congress and activists are constantly reading articles about apparent problems and rushing off to propose legislation. These examples and countless more should remind us to think carefully before we coercively interfere in the decisions that millions, billions, of people make every day.
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