Feds Giveth Jobs & Cars, Then Taketh Away Again
The bad news this morning on the impact of both the federal stimulus and the Cash for Clunkers program should not come as a surprise to anyone who has paid attention to the history of government intervention in the economy.
New data that the jobs created by the stimulus have been overstated by thousands is compelling, but it’s really a secondary issue. The primary issue is that the government cannot “create” anything without hurting something else. To “create” jobs, the government must first extract wealth from the economy via taxation, or raise the money by issuing debt. Regardless of whether the burden is borne by present or future taxpayers, the result is the same: job creation and economic growth are inhibited.
At the same time the government is taking undeserved credit for “creating jobs,” a new analysis of the Cash for Clunkers program by Edmunds.com shows that most cars bought with taxpayer help would have been purchased anyhow. The same analysis finds the post-Clunker car sales would have been higher in the absence of the program, which proves that the program merely altered the timing of auto purchases.
Once again, the government claims to have “created” economic growth, but the reality is that Cash for Clunkers had no positive long-term effect and actually destroyed wealth in the process.
Right now businesses and entrepreneurs are hesitant to make investments or add new workers because they’re worried about what Washington’s interventions could mean for their bottom lines. The potential for higher taxes, health care mandates, and costly climate change legislation are all being cited by businesspeople as reasons why further investment or hiring is on hold. Unless this “regime uncertainty” subsides, the U.S. economy could be in for sluggish growth for a long time to come.
For more on the topic of regime uncertainty and economic growth, please see the Downsizing Government blog.
Lies Our Professors Tell Us
On Sunday, the Washington Post ran an op-ed by the chancellor and vice chancellor of the University of California, Berkeley, in which the writers proposed that the federal government start pumping money into a select few public universities. Why? On the constantly repeated but never substantiated assertion that state and local governments have been cutting those schools off.
As I point out in the following, unpublished letter to the editor, that is what we in the business call “a lie:”
It’s unfortunate that officials of a taxpayer-funded university felt the need to deceive in order to get more taxpayer dough, but that’s what UC Berkeley’s Robert Birgeneau and Frank Yeary did. Writing about the supposedly dire financial straits of public higher education (“Rescuing Our Public Universities,” September 27), Birgeneau and Yeary lamented decades of “material and progressive disinvestment by states in higher education.” But there’s been no such disinvestment, at least over the last quarter-century. According to inflation-adjusted data from the State Higher Education Executive Officers, in 1983 state and local expenditures per public-college pupil totaled $6,478. In 2008 they hit $7,059. At the same time, public-college enrollment ballooned from under 8 million students to over 10 million. That translates into anything but a “disinvestment” in the public ivory tower, no matter what its penthouse residents may say.
Since letters to the editor typically have to be pretty short I left out readily available data for California, data which would, of course, be most relevant to the destitute scholars of Berkeley. Since I have more space here, let’s take a look: In 1983, again using inflation-adjusted SHEEO numbers, state and local governments in the Golden State provided $5,963 per full-time-equivalent student. In 2008, they furnished $7,177, a 20 percent increase. And this while enrollment grew from about 1.2 million students to 1.7 million! Of course, spending didn’t go up in a straight line — it went up and down with the business cycle — but in no way was there anything you could call appreciable ”disinvestment.”
Unfortunately, higher education is awash in lies like these. Therefore, our debunking will not stop here! On Tuesday, October 6, at a Cato Institute/Pope Center for Higher Education Policy debate, we’ll deal with another of the ivory tower’s great truth-defying proclamations: that colleges and universities raise their prices at astronomical rates not because abundant, largely taxpayer-funded student aid makes doing so easy, but because they have to!
It’s a doozy of a declaration that should set off a doozy of a debate! To register to attend what should be a terrific event, or just to watch online, follow this link.
I hope to see you there, and remember: Don’t believe everything your professors tell you, especially when it impacts their wallets!
Debt Aggravates Spending Disease
USA Today’s Dennis Cauchon reports that ”state governments are rushing to borrow money to take advantage of cheap and plentiful credit at a time when tax collections are tumbling.” That will allow them to “avoid some painful spending cuts,” Cauchon notes, but it will sadly impose more pain on taxpayers down the road.
When politicians have the chance to act irresponsibly, they will act irresponsibly. Give them low interest rates and they go on a borrowing binge. The result is that they are in over their heads with massive piles of bond debt on top of the huge unfunded obligations they have built up for state pension and health care plans.
The chart shows that total state and local government debt soared 93 percent this decade. It jumped from $1.2 trillion in 2000 to $2.3 trillion by the second quarter of 2009, according to Federal Reserve data (Table D.3).
Government debt has soared during good times and bad. During recessions, politicians say that they need to borrow to avoid spending cuts. But during boomtimes, such as from 2003 to 2008, they say that borrowing makes sense because an expanding economy can handle a higher debt load. I’ve argued that there is little reason for allowing state and local government politicians to issue bond debt at all.
Unfortunately, the political urge to spend has resulted in the states shoving a massive pile of debt onto future taxpayers at the same time that they have built up huge unfunded obligations for worker retirement plans.
We’ve seen how uncontrolled debt issuance has encouraged spending sprees at the federal level. Sadly, it appears that the same debt-fueled spending disease has spread to the states and the cities.
Filed under: Government and Politics; Tax and Budget Policy
Eye of Neutrality, Toe of Frog
I won’t go on at too much length about FCC Chairman Julius Genachowski’s speech at Brookings announcing his intention to codify the principle of “net neutrality” in agency rules—not because I don’t have thoughts, but because I expect it would be hard to improve on my colleague Tim Lee’s definitive paper, and because there’s actually not a whole lot of novel substance in the speech.
The digest version is that the open Internet is awesome (true!) and so the FCC is going to impose a “nondiscrimination” obligation on telecom providers—though Genachowski makes sure to stress this won’t be an obstacle to letting the copyright cops sniff through your packets for potentially “unauthorized” music, or otherwise interfere with “reasonable” network management practices.
And what exactly does that mean?
Well, they’ll do their best to flesh out the definition of “reasonable,” but in general they’ll “evaluate alleged violations…on a case-by-case basis.” Insofar as any more rigid rule would probably be obsolete before the ink dried, I guess that’s somewhat reassuring, but it absolutely reeks of the sort of ad hoc “I know it when I see it” standard that leaves telecoms wondering whether some innovative practice will bring down the Wrath of Comms only after resources have been sunk into rolling it out. Apropos of which, this is the line from the talk that really jumped out at me:
This is not about protecting the Internet against imaginary dangers. We’re seeing the breaks and cracks emerge, and they threaten to change the Internet’s fundamental architecture of openness. [....] This is about preserving and maintaining something profoundly successful and ensuring that it’s not distorted or undermined. If we wait too long to preserve a free and open Internet, it will be too late.
To which I respond: Whaaaa? What we’ve actually seen are some scattered and mostly misguided attempts by certain ISPs to choke off certain kinds of traffic, thus far largely nipped in the bud by a combination of consumer backlash and FCC brandishing of existing powers. To the extent that packet “discrimination” involves digging into the content of user communications, it may well run up against existing privacy regulations that require explicit, affirmative user consent for such monitoring. In any event, I’m prepared to believe the situation could worsen. But pace Genachowski, it’s really pretty mysterious to me why you couldn’t start talking about the wisdom—and precise character—of some further regulatory response if and when it began to look like a free and open Internet were in serious danger.
Public Information and Public Choice
One of the high points of last week’s Gov 2.0 Summit was transparency champion Carl Malamud’s speech on the history of public access to government information — ending with a clarion call for government documents, data, and deliberation to be made more freely available online. The argument is a clear slam-dunk on simple grounds of fairness and democratic accountability. If we’re going to be bound by the decisions made by regulatory agencies and courts, surely at a bare minimum we’re all entitled to know what those decisions are and how they were arrived at. But as many of the participants at the conference stressed, it’s not enough for the data to be available — it’s important that it be free, and in a machine readable form. Here’s one example of why, involving the PACER system for court records:
The fees for bulk legal data are a significant barrier to free enterprise, but an insurmountable barrier for the public interest. Scholars, nonprofit groups, journalists, students, and just plain citizens wishing to analyze the functioning of our courts are shut out. Organizations such as the ACLU and EFF and scholars at law schools have long complained that research across all court filings in the federal judiciary is impossible, because an eight cent per page charge applied to tens of millions of pages makes it prohibitive to identify systematic discrimination, privacy violations, or other structural deficiencies in our courts.
If you’re thinking in terms of individual cases — even those involving hundreds or thousands of pages of documents — eight cents per page might not sound like a very serious barrier. If you’re trying to do a meta-analysis that looks for patterns and trends across the body of cases as a whole, not only is the formal fee going to be prohibitive in the aggregate, but even free access won’t be much help unless the documents are in a format that can be easily read and processed by computers, given the much higher cost of human CPU cycles. That goes double if you want to be able to look for relationships across multiple different types of documents and data sets.
Filed under: Government and Politics; Telecom, Internet & Information Policy
Early Education: Lots of Noise, Little to Hear
This weekend, the Detroit News ran a letter to the editor taking issue with a piece I wrote about the Student Aid and Fiscal Responsbility Act (SAFRA). Strangley, though the main part of SAFRA deals with higher education loans; the bill contains new spending all over the education map; and I made no specific mention of early-childhood education in my piece (though there is an early-ed component in the bill); the letter is all about pre-K education.
That the pre-K pushers even saw my op-ed as something to write about illustrates how very agressive they are. Unfortunately, the letter also demonstrates how dubious is the message that they are so loudly and energetically proclaiming. Here’s a telling bit:
Economists, business leaders and scientists all know from cold, hard data that high-quality early education provides a significant return on investment in terms of education, social and health outcomes.
Whether pre-K education is worth even a dime all depends on how you define “high quality.” As Adam Schaeffer lays out in his new early-education policy analysis — and Andrew Coulson reiterates in an exchange with economist James Heckman — the “cold, hard data” say only that a few programs seem to work, and most don’t. Pronouncements about the huge returns on pre-K investment are almost always based on very small, hyper-intensive programs that would be all but impossible to replicate on a large scale. And the programs that do function on a large scale? As Adam lays out, they provide little to no return on investment.
The early-education crowd is very good at getting out its message. Too bad the message itself is so darn suspect.
Obama to Seek Cap on Federal Pay Raises
USA Today reports that President Obama is seeking a cap on federal pay raises:
President Obama urged Congress Monday to limit cost-of-living pay raises to 2% for 1.3 million federal employees in 2010, extending an income squeeze that has hit private workers and threatens Social Security recipients and even 401(k) investors.
…The president’s action comes when consumer prices have fallen 2.1% in the 12 months ending in July, because of a massive drop in energy prices. The recession has taken an even tougher toll on private-sector wages, which rose only 1.5% for the year ended in June — the lowest increase since the government started keeping track in 1980. Private-sector workers also have been subject to widespread layoffs and furloughs.
Last week, economist Chris Edwards discussed data from the Bureau of Economic research that revealed the large gap between the average pay of federal employees and private workers. His call to freeze federal pay “for a year or two” received attention and criticism, (FedSmith, GovExec, Federal Times, Matt Yglesias, Conor Clarke) to which he has responded.
As explained on CNN earlier this year, the pay gap between federal and private workers has been widening for some time now:
Filed under: Government and Politics; Tax and Budget Policy
Author of the Private School Spending Study Responds
Bruce Baker, author of the study of private school spending about which I blogged yesterday, has responded to my critique. Dr. Baker thinks I should “learn to read.”
He takes special exception to my statement that he “makes no serious attempt to determine the extent of the bias [in his chosen sample of private schools], or to control for it.” Baker then points to the following one paragraph discussion in his 51 page paper that deals with sample bias, which I reproduce here in full [the corresponding table appears on a later page]:
The representativeness of the sample analyzed here can be roughly considered by comparing the pupil-teacher ratios to known national averages. For CAS and independent schools, the pupil-teacher ratio is similar between sample and national (see Figure 21, later in this report). Hebrew/Jewish day schools for which financial data were available had somewhat smaller ratios (suggesting smaller class sizes) than all Hebrew/Jewish day schools, indicating that the mean estimated expenditures for this group might be high. The differential, in the same direction, was even larger for the small group of Catholic schools for which financial data were available. For Montessori schools, however, ratios in the schools for which financial data were available were higher than for the group as a whole, suggesting that estimated mean expenditures might be low.
Even with my admittedly imperfect reading ability, I was able to navigate this paragraph. I did not consider it a serious attempt at dealing with the sample’s selection bias. I still don’t. In fact, it entirely misses the main source of bias. That bias does not stem chiefly from class size differences, it stems from the fact that religious schools need not file spending data with the IRS, and that the relatively few that do file IRS Form 990 (0.5% of Catholic schools!) have a very good reason for doing so: they’re trying harder to raise money from donors. This is not just my own analysis, but also the analysis of a knowledgeable source within Guidestar (the organization from which Baker obtained the data), whose name and contact information I will share with Dr. Baker off-line if he would like to follow-up.
Obviously, schools that are trying harder to raise non-tuition revenue are likely to… raise more non-tuition revenue. That is the 800 pound flaming pink chihuahua in the middle of this dataset. According to the NCES, 80 percent of private school students are enrolled in religious schools (see p. 7), and this sample is extremely likely to suffer upward bias on spending by that overwhelming majority of private schools. They may spend the extra money on facilities, salaries, equipment, field trips, materials, or any number of other things apart from, or in addition to, smaller classes.
Baker’s study does not address this source of bias, and so can tell us nothing reliable about religious schools, or private schools in general, either nationally or in the regions it identifies. The only thing that the study tells us with any degree of confidence is that elite independent private schools, which make up a small share of the private education marketplace, are expensive. An uncontroversial finding.
It is surprising to me that this seemingly obvious point was also missed by several other scholars whose names appear in the frontmatter of the paper. This is yet another reminder to journalists: when you get a new and interesting paper, send it to a few other experts for comment (embargoed if you like) before writing it up. Doing so will usually lead to a much more interesting, and accurate, story.
Evidence-based for Thee, But Not for Me
One of the things that strikes me as curious about supporters of the No Child Left Behind Act is that they talk regularly about “evidence” and having everything be “research-based,” yet they often ignore or distort evidence in order to portray NCLB as a success. Case in point, an op-ed in today’s New York Times by the Brookings Institution’s Tom Loveless and the Fordham Foundation’s Michael Petrilli.
Truth be told, the piece doesn’t lionize NCLB, criticizing the law for encouraging schools to neglect high-performing students because its primary goal is to improve the performance of low achievers. Fair enough. The problem is, Loveless and Petrilli assert with great confidence that the law is definitely doing the job it was intended to do. “It is clear,” they write, “that No Child Left Behind is helping low-achieving students.”
As you shall see in a moment, that is an utterly unsustainable assertion according to the best available evidence we have: results from the National Assessment of Educational Progress, which carries no consequences for schools or states and, hence, is subject to very little gaming. Ironically, Loveless and Petrilli make their indefensible pronouncement while criticizing a study for failing to use NAEP in reaching its own conclusions about NCLB.
So what’s wrong with stating that NCLB is clearly helping low-achieving students? Let me count the ways (as I have done before):
- Numerous reforms, ranging from class-size reduction, to school choice, to new nutritional standards, have been occurring at the same time as NCLB. It is impossible to isolate which achievement changes are attributable to NCLB, and which to myriad other reforms
- As you will see in a moment, few NAEP score intervals start cleanly at the beginning of NCLB – which is itself a difficult thing to pinpoint – making it impossible to definitively attribute trends to the law
- When we look at gains on NAEP in many periods before NCLB, they were greater on a per-year basis than during NCLB. That means other things going on in education before NCLB were working just as well or better than things since the law’s enactment.
So let’s go to the scores. Below I have reproduced score trends for both the long-term and regular NAEP mathematics and reading exams. (The former is supposed to be an unchanging test and the latter subject to revision, though in practice both have been pretty consistent measures.) I have posted the per-year score increase or decreases above the segments that include NCLB (but that might also include years without NCLB). I have also posted score increases in pre-NCLB segments that saw greater improvements than segments including NCLB. (Note that on 8th-grade reading I didn’t highlight pre-NCLB segments with smaller score decreases than seen under NCLB. I didn’t want to celebrate backward movement in any era.)
For context, NCLB was signed into law in January 2002 but it took at least a year to get all the regulations written and more than that for the law to be fully implemented. As a result, I’ll leave it to the reader to decide whether 2002, 2003, or even 2004 should be the law’s starting point, noting only that this problem alone makes it impossible to say that NCLB clearly caused anything. In addition, notice that some of the biggest gains under NCLB are in periods that also include many non-NCLB years, making it impossible to confidently attribute those gains to NCLB.
Please note that I calculated per-year changes based on having data collected in the same way from start to end. So some lines are dashed and others solid (denoting changes in how some students were counted); I calculated changes based on start and end points for the type of line used for the period. I also rounded to one decimal point to save space. Finally, I apologize if this is hard to read—I’m no computer graphics wizard—and would direct you to NAEP’s website to check out the data for yourself.
Federal Pay: Response to the Critics
My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:
First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).
Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.
Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.
Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.
A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).
That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.
Filed under: Government and Politics; Tax and Budget Policy
Cato Institute to Launch Ad Campaign Against Government-Run Health Care
The Cato Institute will launch an ad campaign Thursday highlighting under-reported poll data showing Americans’ concerns that current health care reform plans will raise costs, limit choice and reduce the quality of their health care.
The campaign will feature full-page ads in major national newspapers, in addition to radio spots focusing on why government-run health care cannot address the problems of growing costs and lack of coverage for many individuals and families. The campaign will expand in the weeks ahead.
“Our goal is to help the American public navigate terms like ‘a public plan’ and ‘individual or employer mandates’ to understand what is really happening here,” said Ed Crane, founder and president of the Cato Institute. “The bottom line is, most of the plans coming from the White House and congressional leadership will result in a government-run health care system that is really not the best option for most Americans.”
A poll by the Washington Post and ABC News conducted June 18-21 showed that 84 percent of respondents were “very” or “somewhat” concerned that “current efforts to reform the health care system” would increase their health care costs. The survey also showed that 79 percent of respondents were concerned that current efforts would limit their choices of doctors or medical treatments.
As part of the campaign, Cato is running radio ads in major cities across the country. You can listen to them below, and embed them on your own blog using the code on the official campaign site.
Who Pays?
Who Decides?
Cato has also created a new website, Healthcare.cato.org, to promote more free market-oriented health care reform proposals.
Would PASS ID Really Save States Money?
The proposed PASS ID Act is a national ID just like REAL ID, and it threatens privacy just as much. Some argue that a national ID under PASS ID should be palatable, though, because it reduces costs to states.
But savings to states under PASS ID are not at all clear. Let’s take a look at the costs of creating a U.S. national ID.
The REAL ID Act, passed in May 2005, required states to begin implementing a national ID system within three years. In regulations it proposed in March 2007, the Department of Homeland Security extended that draconian deadline. States would have five years, starting in May 2008, to move all driver’s license and ID card holders into REAL ID-compliant cards.
The Department of Homeland Security estimated the costs for this project at $17.2 billion dollars (net present value, 7% discount). Costs to individuals came it at nearly $6 billion – mostly in wasted time. Americans would spend more than 250 million hours filling out forms, finding birth certificates and Social Security cards, and waiting in line at the DMV.
The bulk of the costs fell on state governments, though: nearly $11 billion dollars. The top three expenditures were $5.25 billion for customer service at DMVs, $4 billion for card production, and $1.1 billion for data systems and IT. Getting hundreds of millions of people through DMVs and issuing them new cards in such a short time was the bulk of the cost.
To drive down the cost estimate, DHS pushed the implementation schedule way back. In its final rule of January 2008, it allowed states a deadline extension to December 31, 2009 just for the asking, and a second extension to May 2011 for meeting certain milestones. Then states would have until the end of 2017 to replace all cards with the national ID card. That’s just under ten years.
Then the DHS decided to assume that only 75% of people would actually get the national ID. (Never mind that whatever benefits from having a national ID drop to near zero if it is not actually “national.”)
The result was a total cost estimate of about $6.85 billion (net present value, 7% discount). Individual citizens would still spend $5.2 billion worth of their time (in undiscounted dollars) on paperwork and waiting at the DMV. But states would spend just $1.5 billion on data and interconnectivity systems; $970 million on customer service; and $953 million on card production and issuance—a total of about $2.4 billion. (All undiscounted—DHS didn’t publish estimates for the final rule the same way it published their estimates for the proposed rule.)
Maybe these cost estimates were still too high. Maybe they weren’t believable. Or maybe Americans’ love of privacy and hatred of a national ID explains it. But the lower cost estimate did not slow the “REAL ID Rebellion.” Given the costs, the complexity, the privacy consequences, and the dubious benefits, states rejected REAL ID.
Enter PASS ID, which supposedly alleviates the costs to states of REAL ID. But would it?
At a Senate hearing last week, not one, but two representatives of the National Governors Association testified in favor of PASS ID, citing their internal estimate that implementing PASS ID would cost states just $2 billion.
But there is reason to doubt that figure. PASS ID is a lot more like REAL ID – the original REAL ID – in the way that most affects costs: the implementation schedule.
Filed under: Law and Civil Liberties; Telecom, Internet & Information Policy
Review of the Big REAL ID Hearing
The Senate Homeland Security and Governmental Affairs Committee held a hearing yesterday on the REAL ID Act and the REAL ID revival bill, known as PASS ID. I attended and want to share with you some highlights.
Good News!
Little good came from the hearing, as it was primarily focused on how to get the states and people to accept a national ID. But there is some good news.
First, Department of Homeland Security Secretary Janet Napolitano declared REAL ID dead (much as I did in my testimony two-plus years ago). “DOA” is how she referred to it.
She also said that no state will be in compliance with REAL ID by the current December 31, 2009 deadline. This is important because a lot of people think that states doing anything about the security of drivers’ licenses and ID cards are complying with REAL ID.
Another highlight was the commentary of Senator Roland Burris (D-IL). He is a beleaguered outsider to the Senate and evidently wasn’t coached on the talking points around REAL ID and PASS ID. So he flat out asked why we shouldn’t just have “a national ID.”
Senator Susan Collins’ (R-ME) nervous smile was particularly noticeable when Burris asked why the emperor had no clothes. No one was supposed to talk about national IDs at this hearing! But that’s what PASS ID is.
REAL ID and PASS ID are two versions of the same national ID system, and nobody is denying it. That’s good news because the effort to rebrand REAL ID through PASS ID has failed.
Response to Conor Clarke, Part I
Last week Conor Clarke at The Atlantic blog , apparently as part of a running argument with Jim Manzi, raised four substantive issues with my study, “What to Do About Climate Change,” that Cato published last year. Mr. Clarke deserves a response, and I apologize for not getting to this sooner. Today, I’ll address the first part of his first comment. I’ll address the rest of his comments over the next few days.
Conor Clarke:
(1) Goklany’s analysis does not extend beyond the 21st century. This is a problem for two reasons. First, climate change has no plans to close shop in 2100. Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758. (This depends crucially on the rate of technological progress, and as Goklany’s paper acknowledges, that’s difficult to model.) Second, the possibility of “catastrophic” climate change events — those with low probability but extremely high cost — becomes real after 2100.
Response: First, I wouldn’t put too much stock in analyses purporting to extend out to the end of the 21st century, let alone beyond that, for numerous reasons, some of which are laid out on pp. 2-3 of the Cato study. As noted there, according to a paper commissioned for the Stern Review, “changes in socioeconomic systems cannot be projected semi-realistically for more than 5–10 years at a time.”
Second, regarding Mr. Clarke’s statement that, “Even if you believe GDP will be higher in 2100 with unfettered global warming than without, it’s not obvious that GDP would be higher in the year 2200 or 2300 or 3758,” I should note that the conclusion that net welfare for 2100 (measured by net GDP per capita) is not based on a belief. It follows inexorably from Stern’s own analysis.
Third, despite my skepticism of long term estimates, I have, for the sake of argument, extended the calculation to 2200. See here. Once again, I used the Stern Review’s estimates, not because I think they are particularly credible (see below), but for the sake of argument. Specifically, I assumed that losses in welfare due to climate change under the IPCC’s warmest scenario would, per the Stern Review’s 95th percentile estimate, be equivalent to 35.2 percent of GDP in 2200. [Recall that Stern’s estimates account for losses due to market impacts, non-market (i.e., environmental and public health) impacts and the risk of catastrophe, so one can’t argue that only market impacts were considered.]
The results, summarized in the following figure, indicate that even if one uses the Stern Review’s inflated impact estimates under the warmest IPCC scenario, net GDP in 2200 ought to be higher in the warmest world than in cooler worlds for both developing and industrialized countries.
Source: Indur M. Goklany, “Discounting the Future,” Regulation 32: 36-40 (Spring 2009).
The costs of climate change used to develop the above figure are, most likely, overestimated because they do not properly account for increases in future adaptive capacity consistent with the level of net economic development resulting from Stern’s own estimates (as shown in the above figure). This figure shows that even after accounting for losses in GDP per capita due to climate change – and inflating these losses — net GDP per capita in 2200 would be between 16 and 85 times higher in 2200 that it was in the baseline year (1990). No less important, Stern’s estimate of the costs of climate change neglect secular technological change that ought to occur during the 210-year period extending from the base year (1990) to 2200. In fact, as shown here, empirical data show that for most environmental indicators that have a critical effect on human well-being, technology has, over decades-long time frames reduced impacts by one or more orders of magnitude.
As a gedanken experiment, compare technology (and civilization’s adaptive capacity) in 1799 versus 2009. How credible would a projection for 2009 have been if it didn’t account for technological change from 1799 to 2009?
I should note that some people tend to dismiss the above estimates of GDP on the grounds that it is unlikely that economic development, particularly in today’s developing countries, will be as high as indicated in the figure. My response to this is that they are based on the very assumptions that drive the IPCC and the Stern Review’s emissions and climate change scenarios. So if one disbelieves the above GDP estimates, then one should also disbelieve the IPCC and the Stern Review’s projection for the future.
Fourth, even if analysis that appropriately accounted for increases in adaptive capacity had shown that in 2200 people would be worse off in the richest-but-warmest world than in cooler worlds, I wouldn’t get too excited just yet. Even assuming a 100-year lag time between the initiation of emission reductions and a reduction in global temperature because of a combination of the inertia of the climate system and the turnover time for the energy infrastructure, we don’t need to do anything drastic till after 2100 (=2200 minus 100 years), unless monitoring shows before then that matters are actually becoming worse (as opposing merely changing), in which case we should certainly mobilize our responses. [Note that change doesn’t necessarily equate to worsening. One has to show that a change would be for the worse. Unfortunately, much of the climate change literature skips this crucial step.]
In fact, waiting-and-preparing-while-we-watch (AKA watch-and-wait) makes most sense, just as it does for many problems (e.g., some cancers) where the cost of action is currently high relative to its benefit, benefits are uncertain, and technological change could relatively rapidly improve the cost-benefit ratio of controls. Within the next few decades, we should have a much better understanding of climate change and its impacts, and the cost of controls ought to decline in the future, particularly if we invest in research and development for mitigation. In the meantime we should spend our resources on solving today’s first order problems – and climate change simply doesn’t make that list, as shown by the only exercises that have ever bothered to compare the importance of climate change relative to other global problems. See here and here. As is shown in the Cato paper (and elsewhere), this also ought to reduce vulnerability and increase resiliency to climate change.
In the next installment, I’ll address the second point in Mr. Clarke’s first point, namely, the fear that “the possibility of ‘catastrophic’ climate change events — those with low probability but extremely high cost — becomes real after 2100.”
Debate over Duncan’s Record in Chicago
At The Quick and the Ed, Chad Aldeman disputes my assertion that Duncan’s impact on Chicago public school achievement was near zero. To make his case, Aldeman cites the fact that scores rose during Duncan’s tenure on 3 out of the 4 available NAEP tests. While true, this evidence actually supports my assertion rather than either Aldeman’s or Duncan’s.
Chicago’s gains on the NAEP tests ranged from 0.3 to 7.2 points on the 500 point scale, averaging out to a 1% increase in scale scores. I think 1% is pretty darn close to zero, and that’s what I said.
What’s more, as I wrote yesterday, the minuscule 1% improvement in Chicago NAEP scores was statistically identical to the improvement made by students in large central cities all over the country during the same period, so “The Duncan Effect” — his value-added over other large city superintendents — was precisely zero.
If there are other relevant data that I’m unaware of that paint a different picture, I’ll be happy to look at them. But the NAEP results flatly contradict Duncan’s own claims — routinely repeated in the media – that students made dramatic academic gains under his leadership.
Some Thinking on “Cyber”
Last week, I had the opportunity to testify before the House Science Committee’s Subcommittee on Technology and Innovation on the topic of “cybersecurity.” I have been reluctant to opine on it because of its complexity, but I did issue a short piece a few months ago arguing against government-run cybersecurity. That piece was cited prominently in the White House’s “Cyberspace Policy Review” and — blamo! — I’m a cybersecurity expert.
Not really — but I have been forming some opinions at a high level of generality that are worth making available. They can be found in my testimony, but I’ll summarize them briefly here.
Morozov vs. Cyber-Alarmism
I’m no information security expert, but you don’t have to be to realize that an outbreak of cyber-alarmism afflicts American pundits and reporters.
As Jim Harper and Tim Lee have repeatedly argued (with a little help from me), while the internet created new opportunities for crime, spying, vandalism and military attack, the evidence that the web opens a huge American national security vulnerability comes not from events but from improbable what-ifs. That idea is, in other words, still a theory. Few pundits bother to point out that hackers don’t kill, that cyberspies don’t seem to have stolen many (or any?) important American secrets, and that our most critical infrastructure is not run on the public internet and thus is relatively invulnerable to cyberwhatever. They never note that to the extent that future wars have an online component, this redounds to the U.S. advantage, given our technological prowess. Even the Wall Street Journal and New York Times recently published breathless stories exaggerating our vulnerability to online attacks and espionage.
So it’s good to see that the July/ August Boston Review has a terrific article by Evgeny Morozov taking on the alarmists. He provides not only a sober net assessment of the various worries categorized by the vague modifier “cyber” but even offers a theory about why hype wins.
Why is there so much concern about “cyber-terrorism”? Answering a question with a question: who frames the debate? Much of the data are gathered by ultra-secretive government agencies—which need to justify their own existence—and cyber-security companies—which derive commercial benefits from popular anxiety. Journalists do not help. Gloomy scenarios and speculations about cyber-Armaggedon draw attention, even if they are relatively short on facts.
I agree.
Filed under: Foreign Policy and National Security; Telecom, Internet & Information Policy
Social Control as a Profit Center
Here’s an idea that should be killed in the crib: scanning automobiles for up-to-date insurance.
Says Gizmodo (via ars technica and the Chicago Sun-Times):
The system is anticipated to raise yearly earnings “well in excess” of $100 million (possibly even double that figure or more), with InsureNet taking a modest 30% for their services. Of course, all of this cash would be contingent on uninsured drivers actually paying their fines.
There will be thousands more reasons like this put forward for mass public surveillance. The answer should almost always be no because of the accumulations of data about law-abiding citizens such programs would collect in government (and government-contractor) databases.
Taxpayers and the Federal Diary
The Federal Diary column in the Washington Post is a curious piece of newspaper real estate. Most newspaper columns are aimed at the broad general public, but this column is aimed directly at the few hundred thousand government workers in the DC region. The result is that it takes a very government- and union-centric view of the world. The fact that the federal civilian workforce costs taxpayers an enormous $300 billion or so every year is beside the point for the column.
In a briefing with reporters yesterday, the head of the Office of Personnel Management complained about a Lou Dobbs television bit that featured this data that I assembled from the Bureau of Economic Analysis. The Federal Diary columnist called me yesterday about the data, and I explained to him the shortcomings of the OPM claims that federal workers are underpaid.
Unfortunately, the Federal Diary today simply parrots the OPM’s claims, calling the Dobbs/Edwards/BEA data “misleading.” Yet this data clearly shows that federal compensation has taken off like a rocket this decade.
Today’s column, like many of the Federal Diary columns, is about how to improve the pay, benefits, and working conditions of federal workers. What about the taxpayers who foot the bill? To provide some balance, the Post ought to at least have a side-by-side column entitled “Federal Taxpayers’ Diary.”
Euro VAT for America?
Desperate for fresh revenues to feed the giant spending appetite of President Obama, Democratic policymakers are talking up ‘tax reform’ as a way to reduce the deficit. Some are considering a European-style value-added tax (VAT), which would have a similar effect as a national sales tax, and be a large new burden on American families.
A VAT would raise hundreds of billions of dollars a year for the government, even at a 10-percent rate. The math is simple: total U.S. consumption in 2008 was $10 trillion. VATs usually tax about half of a nation’s consumption or less, say $5 trillion. That means that a 10% VAT would raise about $500 billion a year in the United States, or about $4,300 from every household. Obviously such a huge tax hit would fundamentally change the American economy and society, and for the worse.
Some fiscal experts think that a VAT would solve the government’s budget problems and reduce the deficit, as the Washington Post noted yesterday. That certainly has not happened in Europe where the average VAT rate is a huge 20 percent, and most nations face large budget deficits just as we do. The hard truth for policymakers to swallow is that the only real cure for our federal fiscal crisis is to cut spending.
Liberals like VATs because of the revenue-raising potential, but some conservatives are drawn to the idea of using VAT revenues to reduce the corporate tax rate. The Post story reflected this in noting “A 21 percent VAT has permitted Ireland to attract investment by lowering the corporate tax rate.” That implies that the Irish government lost money when it cut its corporate rate, but actually the reverse happened in the most dramatic way.
Ireland installed a 10% corporate rate for certain industries in the 1980s, but also steadily cut its regular corporate rate during the 1990s. It switched over to a 12.5% rate for all corporations in 2004. OECD data show that as the Irish corporate tax rate fell, corporate tax revenues went through the roof — from 1.6% of GDP in 1990, to 3.7% in 2000, to 3.8% in 2006.
In sum, a VAT would not solve our deficit problems because Congress would simply boost its spending even higher, as happened in Europe as VAT rates increased over time. Also, a VAT is not needed to cut the corporate income tax rate because a corporate rate cut would be self-financing over the long-term as tax avoidance fell and economic growth increased.
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