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Recent Policy Studies
Crime, Justice & the Law
The Hawaii Opportunity Probation with Enforcement Project: A Potentially Worthwhile Correctional ReformBy Paul Larkin, The Heritage FoundationLegal Memorandum, 02/28/2014
Probation is a long-standing feature of the criminal justice system and is found in every state. Unfortunately, however, probation has not been as successful as its original proponents hoped that it would be: Approximately one-third of offenders placed on probation wind up in prison or abscond. In 2004, a Hawaii state court judge developed a new way of managing probationers that has shown the promise of reforming offenders and reducing costs borne by the criminal justice system and the public. That project—known as Hawaii Opportunity Probation with Enforcement, or HOPE—uses a fundamentally different approach to traditional probation supervision by seeking to address, among other issues, the fact that offenders would face a revocation hearing only after committing multiple probation violations. The federal and state governments should look to this program as a potentially valuable criminal justice reform.
Regulation & DeregulationBy Daren Bakst, The Heritage FoundationIssue Brief, 02/28/2014
Acting on its own volition, the Food and Drug Administration (FDA) is using the regulatory process to gain unprecedented control of food policy and remove dietary choices from Americans. Similar to the Environmental Protection Agency (EPA), the FDA is pushing extreme policies to regulate in areas that have never been federally regulated. Recent examples highlight this disturbing trend. Congress should rein in the FDA, clarify that food safety does not mean restricting personal dietary choices, and ensure that the FDA does not divert resources from food safety to food control.
Budget & TaxationBy Rea S. Hederman, Rachel Greszler, John L. Ligon, The Heritage FoundationIssue Brief, 02/28/2014
House Ways and Means Committee chairman Dave Camp (R–MI) released a plan for comprehensive tax reform. Setting aside its merits, Camp’s proposal is noteworthy on two accounts: (1) It presents the most comprehensive tax reform proposal in decades, and (2) it includes a dynamic estimate from the Joint Committee on Taxation (JCT). The latter is a long overdue and welcome change to how tax policy is discussed at the federal level. Conventional government scores of tax policy have historically excluded the effects of behavioral changes on macroeconomic growth. This is known as “static scoring.” “Dynamic scoring,” in contrast, takes into the account the changes that individuals and businesses make in response to tax policy and the impact of their behavior on economic growth. The Camp bill will fundamentally change how tax legislation is evaluated by JCT in the future.
Information TechnologyBy Evan Bernick, The Heritage FoundationLegal Memorandum, 02/28/2014
The development of new technologies has brought the Fourth Amendment front and center in the public discourse. By requesting or compelling cell phone companies to provide subscriber information, law enforcement agencies can pinpoint the locations of the cell sites from which subscribers have made calls and, therefore, where the subscribers can be found. Americans do not want the government to be able to track them without specific, articulable suspicions and without oversight. Americans need not choose between Fourth Amendment precedent and protecting important privacy interests. Congress should consider revising the Electronic Communications Privacy Act to address the privacy concerns raised by ever-evolving tracking technology. The tools are ready at hand.
Information TechnologyBy Seth L. Cooper, Free State FoundationPerspective, 02/27/2014
Following its second judicial rebuke in as many attempts to impose Internet regulations, the FCC proposed a new plan to exert FCC power over broadband Internet services. The plan calls for examination of state laws that keep local governments out of the Internet business. It hints at federal preemption of state-level restrictions on municipal broadband projects. But preemption would undermine local government accountability. States that safeguard taxpayers from dicey government-owned broadband ventures are safeguarded by constitutional principles. Rather than restrict states’ ability to ensure the financial soundness of their cities and counties, the FCC should promote successful private sector-led investment into faster and better broadband networks. When it comes to local barriers to broadband investment, the FCC should seek ways to end rights-of-way discrimination, streamline tower siting rules, reform franchising processes and fees, and clear away other red tape.
Budget & TaxationBy Justin M. Ross, Mercatus CenterResearch, 02/27/2014
Every tax instrument employed by a state or local government has wide-ranging implications for the economy and changes the over¬all design of the tax administration system in several distinct ways. This primer considers several of the most popular tax instruments of state and local govern¬ments, reviewing how each can contribute to the public revenue system in terms of economic efficiency, equity, transparency, collectability, and revenue produc¬tion. One recurring theme throughout each of these instruments is that there is no perfect tax that is unambiguously desirable because the criteria often conflict with one another. A second theme is that every tax instrument can be made worse through poor design. Policy advocates following good tax principles should have little trouble continuously finding areas of improvement in their own environment. Hopefully, this primer will aid such endeavors.
The Constitution/Civil LibertiesBy Jennifer Gratz, The Heritage FoundationBackgrounder, 02/27/2014
Affirmative action was intended to ensure that all Americans are treated without regard to race. Today, public officials and educators justify using special treatment based on race to make up for past discrimination and to foster diversity. Stories of the victims of racial preferences, however, reveal the hidden consequences of these well-intentioned efforts to manufacture racial balance. Racial preferences are a form of discrimination, and they stigmatize those whose accomplishments are not due to such preferences. Race-based discrimination policies continue to undermine the American Dream, and the only way to end the vicious cycle of discrimination is to ensure that fair and equal treatment for everyone is a reality, not just a talking point.
The Constitution/Civil LibertiesBy Darpana Sheth, Federalist SocietyEngage, 02/27/2014
Russ Caswell has owned his family-run budget motel in Tewksbury, Massachusetts since he purchased it in 1984. Unencumbered by any mortgages, the Motel Caswell is valued at over $1.5 million. Without prior notice, the federal government filed a civil-forfeiture complaint against the motel asserting that a small number of the motel’s guests or their visitors surreptitiously engaged in various drug activities, unseen and unknown to Mr. Caswell at the time these events occurred. Fortunately, after four years of litigation, Mr. Caswell won. But his victory is unusual. Civil-forfeiture laws constitute one of the most serious assaults on private-property rights today. Based on a legal fiction that property can be guilty of a criminal activity, civil forfeiture enables law enforcement to take property, regardless of whether the property owner is guilty or innocent or even charged with a crime. Additional procedural safeguards are necessary to protect against forfeiture abuse.
The Constitution/Civil Liberties
A Lady or a Tiger?: Thoughts on Fisher v. University of Texas and the Future of Race Preferences in AmericaBy Alison Somin, Federalist SocietyEngage, 02/27/2014
The consequence of the recent Fisher v. University of Texas case is far from certain. Fisher proceeds from the premise that Grutter v. Bollinger, the 2003 Supreme Court case that found the University of Michigan Law School’s admissions system of holistic review constitutional, was rightly decided. But the opinion calls for tight judicial scrutiny of the means used to achieve Grutter’s approved end of diversity on campus—scrutiny tighter than what the Fifth Circuit previously understood Grutter to require. The ultimate outcome of the Fisher litigation is more likely to satisfy the opponents of race preferences, but it remains to be seen how the Fifth Circuit will thread this particular needle on remand, and the case may well return to the Supreme Court because it is less than clear what exactly this heightened standard of Fisher scrutiny entails.
Information TechnologyBy John M.R. Kneuer, Rachael M. Bender, Federalist SocietyEngage, 02/27/2014
Spectrum connects us to the rest of the world via our mobile devices. However, the threat of overload is near as this exploding consumer demand has put a crunch on current spectrum holdings, and availability of new spectrum for mobile is low. With smartphones and tablets on the rise, data traffic is continually increasing to the point of congestion on our nation’s wireless networks. Without making additional spectrum available for commercial uses, our communications economy and our global competitiveness will be at risk. But spectrum is a scarce and finite public resource, to which only government action can increase access. Yet, the government not only oversees the allocation of this resource, but also controls a majority of the spectrum for its owns uses. Policymakers must work towards repurposing government held spectrum for commercial services as soon as possible and without additional regulatory barriers.
The Constitution/Civil LibertiesBy H. Christopher Bartolomucci, Federalist SocietyWhite Paper, 02/27/2014
Can a State enact a law that purports to “nullify” a controversial federal statute that the State believes to be unconstitutional, even if the U.S. Supreme Court already has upheld the federal statute against a constitutional challenge brought by the State? That is the question presented by a bill now being considered by the South Carolina General Assembly—H. 3101, the “South Carolina Freedom of Health Care Protection Act.” House Bill 3101 is a response to the Patient Protection and Affordable Care Act enacted by Congress as well as the U.S. Supreme Court’s decision in National Federation of Independent Business v. Sebelius. In NFIB v. Sebelius, the Supreme Court upheld the PPACA’s individual mandate against the claim that it exceeded Congress’s authority. As a party to the case, South Carolina is bound by that judgment. House Bill 3101 cannot “nullify” the judgment of the Supreme Court upholding the individual mandate.
Elections, Transparency, & Accountability
The Proper Role of Congress in State Taxation: Ensuring the Interstate Reach of State Taxes Does Not Harm the National EconomyBy Joseph Henchman, Tax FoundationTestimony, 02/27/2014
The Constitution empowered Congress with the responsibility to rein in state tax overreaching when it threatened to harm the national economy. Consequently, states were not permitted to tax items in interstate commerce at all until the 1950s. Since then, states may tax interstate commerce so long as the tax is non-discriminatory, fairly apportioned, related to services, and applies only to businesses with substantial presence (nexus). However, states do not have uniform rules about nexus-causing activity, and some decline to clarify whether a particular activity will create nexus. Only Congress can bring sanity to this economically harmful patchwork of aggressive rules. Clarifying that substantial nexus for business activity taxes must be linked to the physical presence of solicitation activity in the state is in line with the “benefit principle” idea of paying taxes in the jurisdiction where you get the benefits of government services.
Budget & TaxationBy Stephen J. Entin, Tax FoundationSpecial Report, 02/27/2014
There is broad agreement that the U.S. corporate rate is too high and that it is making U.S. businesses uncompetitive in the global marketplace. The U.S. corporate tax rate needs to be lowered to at least 25 percent to bring it into line with the average corporate rate of most developed nations. House Ways and Means Committee Chairman Dave Camp (R-MI) and others have set that as a goal but with the constraint that the reduction in federal revenue from the lower rate should be offset by eliminating various tax credits and deductions in the corporate tax code. However, the majority of these revenue offsets would have adverse economic consequences. We estimate that the economic effects of eliminating sufficient tax preferences to pay for rate reduction would erase all of the economic benefits of cutting the corporate tax rate to 25 percent.
Budget & TaxationBy Michael Schuyler, Tax FoundationFiscal Facts, 02/27/2014
The federal government expanded dramatically in the 20th century and has continued growing in the 21st. Between 1900 and 2012, federal expenditures rose from 2.7 percent of economic output to 24.0 percent. Between 1930 and 2012, state and local government expenditures rose from 9.1 percent to 14.8 percent of output. The National Income and Products Accounts data only displays past events. However, federal taxes and spending, and to a lesser extent state and local taxes and spending, may be poised to increase substantially as the Patient Protection and Affordable Care Act is implemented and as the elderly population grows. If the government sector expands further, it will become even more vital to trim unnecessary or low-return spending programs and to strive for simplicity, economic efficiency, and transparency in tax policy to grow the economy.
Health CareBy Devon M. Herrick, National Center for Policy AnalysisIssue Brief, 02/27/2014
The Affordable Care Act (ACA) will negatively impact seniors. A portion of ACA funding is derived by cutting $716 billion from the Medicare program over the next decade, which could reduce seniors’ access to care. Yet another potential shock to seniors’ pocketbooks has nothing to do with the ACA. The Centers for Medicare and Medicaid Services (CMS) wants to block seniors’ access to Medicare Part D drug plans that offer lower premiums in return for patronizing a preferred pharmacy network. An estimated 75 percent of seniors in Part D stand-alone plans (plans not integrated with a Medicare Advantage health plan) are enrolled in a drug plan that features a preferred pharmacy network. All told, nearly 14 million seniors with Medicare Part D will lose their plan if preferred networks are banned for 2015. As a result, the losers will be seniors—and taxpayers.
Health CareBy Richard L. Jackson, Georgia Public Policy FoundationIssue Analysis, 02/27/2014
The current medical liability tort system is exceptionally expensive, complicated and only awards 20 percent of all legitimate malpractice claims—leaving many patients without the compensation they may need and deserve—in particular, the poor and minorities. Despite the political and economic turmoil throughout the nation, there is an opening—and a need—to finally address the physician liability and patient safety issues that plague the U.S. health care system. This paper introduces the concept of the Patients’ Compensation System, an alternative to the existing medical tort system modeled after the workers’ compensation system, designed to lower health care costs, eliminate the incentive for physicians to order unnecessary tests and procedures to prevent malpractice lawsuits, and improve the quality of patient medical care.
National SecurityBy The Heritage Foundation, The Heritage FoundationSpecial Report, 02/27/2014
Providing for the common defense has been a complex challenge for U.S. policymakers since the first days of the Continental Congress. In particular, the Constitution assigns Congress a multitude of specified and enumerated responsibilities to meet its obligation to raise and maintain the armed forces of the United States. On the one hand, Congress bears a significant responsibility to ensure that the government maintains suitable and adequately trained and ready forces to protect the nation’s vital national interests. On the other hand, Congress has an obligation to be a good steward of the people’s resources and ensure the legitimate exercise of the instruments of limited government. The Heritage Foundation Defense Reform Handbook provides a guide to resources available to U.S. policymakers to the efficient and effective oversight of defense management.
Health CareBy Roger Stark, Washington Policy CenterPolicy Brief, 02/26/2014
In March 2010, after 14 months of intense debate and with narrow partisan support and substantial bipartisan opposition in Congress, President Obama signed major health care reform legislation into law. This sweeping law empowers the federal government to manage the health care of all Washingtonians, as well as all other Americans. The national health law will affect every person in Washington, but will have specific consequences for various groups. In separate sections, this Policy Brief examines the new law’s impact on businesses, on Medicare and Medicaid recipients, on young adults and on health care providers in Washington State. Already, implementation of the ACA has resulted in the loss of existing health coverage for 290,000 Washingtonians. As implementation continues, the ACA will continue to adversely impact and severely restrict choices for virtually everyone in Washington State.
EducationBy James V. Shuls, Show-Me InstituteTestimony, 02/26/2014
Today, you will hear many compelling testimonies in support of the Common Core State Standards. Supporters of Common Core would have you put blinders on regarding the standards. They say, “Common Core is just standards.” That is true. The Common Core are simply a set of standards that say what students need to know and must be able to do at various grade levels in math and language arts. But viewing Common Core only as standards ignores reality. The fact is that adoption and implementation of the Common Core marks one of the most monumental shifts in education policy for Missouri and the rest of the nation. You see, standards undergird everything in education. By adopting Common Core, Missouri has ushered in an era of greater centralized control of our education system. House Bill 1490 will allow Missourians to reclaim that control.
Budget & TaxationBy Andrew G. Biggs, Show-Me InstitutePolicy Study, 02/26/2014
Pension plans for state and local government employees have become increasingly underfunded in recent years, with total shortfalls nationwide ranging from approximately $1 trillion to more than $4 trillion, depending on how plan liabilities are measured. Annual required contributions have more than doubled over the past decade, and many plan sponsors were unable to make required contributions during the recession that began with the financial crisis of 2007 and the slow recovery that followed. Closing defined benefit plans reduces or prevents the accumulation of additional unfunded liabilities. There are many reasons elected officials may favor or oppose shifting public employees out of traditional defined benefit pensions into cash balance or defined contribution plans. But concerns over so-called “transition costs” are largely mistaken and should not stand in the way of public employee pension reforms.
EducationBy Paul J. Gessing, Rio Grande FoundationPaper, 02/26/2014
When it comes to executive compensation, whatever can be negotiated will be. In the case of publicly-financed higher education in New Mexico, salary negotiations between top-level executives at New Mexico’s two-year independent institutions and the taxpayers are negotiated by governing boards or the regents of a parent school. These negotiations are not balanced. An individual negotiating on his own behalf is likely to be far more aggressive in advancing their own interests than is a group of caretakers who are negotiating with taxpayer dollars. In the interest of transparency and a better understanding of compensation at New Mexico’s two-year independent institutes of higher education, the Rio Grande Foundation has made available the contracts of all presidents at the state’s 2 year institutes. To our knowledge, this is the first example of such a cross-institutional comparison.
EducationBy Paul J. Gessing, Rio Grande FoundationPaper, 02/26/2014
New Mexico’s lottery scholarship program has the potential to be an incredible boon to students throughout the state who are looking to better themselves and their economic opportunities through education. Since 1996, more than 82,600 students from across the state have attended New Mexico public colleges, universities and technical colleges with the help of Legislative Lottery Scholarships. The program pays 100% of tuition for eight consecutive semesters of eligibility beginning with the second semester of college enrollment as long as those students maintain a 2.5 GPA in their college studies. However, there are serious issues associated with the Lottery program and its funding mechanism. There are also serious questions over whether the program provides maximum benefits in terms of economic and educational outputs. As the Legislature considers reforms to extend the financial solvency of the Lottery Scholarship program, it should consider the following additional factors.
Budget & TaxationBy Paul J. Gessing, Rio Grande FoundationReport, 02/26/2014
As the Legislature discusses the budget during the 2014 legislative session, pay hikes for State and local government workers are on the table. The Legislative Finance Committee has proposed relatively ambitious pay raises. Gov. Martinez, on the other hand, has proposed more modest pay hikes targeted at teachers. An earlier analysis from the Rio Grande Foundation demonstrated that government workers enjoy a greater than eight percent compensation premium over their private sector counterparts. Now, new research conducted for the Rio Grande Foundation demonstrates the source of that premium: In unionized sectors of New Mexico government, employee pay is higher than it is for government workers who aren’t union employees. In other words, taxpayers pay more than they have to for basic public services. Rather than providing pay raises for government workers, New Mexico’s elected leaders should look for ways to return resources to the private sector.
Foreign Policy/International AffairsBy Brett D. Schaefer, The Heritage FoundationIssue Brief, 02/26/2014
United Nations system revenues nearly tripled between 2002 and 2012 from nearly $15 billion to $41.5 billion. Cumulatively, the U.N. received more than $312 billion over that period. The U.S. has been and remains the U.N. system’s largest contributor, providing approximately one-fifth of total contributions on average annually over that period. Best estimates indicate that U.S. contributions to the U.N. system from 2002 to 2012 were approximately $60 billion. Because the U.S. pays so much more than other nations, it has a greater interest in tracking its contributions and ensuring that they are used productively and as intended. Implementing the outlined recommendations would enhance transparency and accountability, provide critical information on how U.N. organizations should prioritize funding and boost effectiveness, and create an objective basis for aligning U.S. contributions to the U.N. system with U.S. interests.
Budget & TaxationBy Deborah D. Thornton, Public Interest InstituteInstitute Brief, 02/26/2014
The Fiscal Year 2013 Iowa Public Employee Retirement System (IPERS) annual report was greeted with good cheer by many in the Legislature and state government. In general, a pension plan is considered to be adequately funded if 80 percent of the money owed is available. Current IPERS funded ratio is 81 percent, up from 79.5 percent in 2012. This is still well down from its 97.9 percent high in 2000, before the financial crisis and large increase in retirees, but it has stabilized in the “approved” 80 percent range. However, the IPERS unfunded actuarial liability (UAL) is still almost $6 billion, or a full year of the state budget. The question is, “Is this good enough?” Because the amounts owed to both current and future beneficiaries must be paid by future taxpayers—the younger workers of today and tomorrow—the answer is “No.”
Budget & TaxationBy Ilya Atanasov, Pioneer Institute for Public Policy ResearchPolicy Brief, 02/26/2014
The Massachusetts Bay Transportation Authority (MBTA) Retirement Fund (MBTARF) has long been notorious for its secretiveness. Most recently, it has resisted media requests for information despite legislation making its records public. MBTARF spokesman Steven Crawford claims that it is fully capable of meeting its obligations without help from the commonwealth. Meanwhile, in fiscal 2013, the MBTA received over $1.1 billion in dedicated sales tax revenue, local assessments and contract assistance from the state, compared with operating revenue of just $630 million. In other words, about two thirds of the T’s funding that year came from the public fisc. Our findings illustrate that investment losses at the largely unaccountable MBTA Retirement Fund have a costly impact on both the commonwealth and the plan’s members. Without taxpayer support, the fund will run out of money between 2024 and 2036.
The Constitution/Civil LibertiesBy Ronald J. Pestritto, Taylor Kempema, The Heritage FoundationFirst Principles, 02/25/2014
The Progressives’ impatience with the Constitution, their antipathy for checks on government, and their longing to delegate power to administrative experts have had a lasting impact on American politics as Progressivism has gradually been carried forward in successive liberal waves throughout the 20th and now the 21st centuries. Yet Progressivism, for all of its impact on national government, had much more immediate and radical effects on state and local government. In many states and localities, Progressives were able to push through sweeping structural changes, many of which pertain to the common ways in which most Americans interact with government and have become such a familiar part of Americans’ political participation that their departure from our constitutional principles is hardly noticed.
Budget & TaxationBy Ted Dabrowski, Kyle Woodruff, Justin Hegy, Illinois Policy InstituteSpecial Report, 02/25/2014
National attention is focused on Chicago and Illinois’ collapsing pension systems. The state’s official unfunded pension liability is $100 billion, and the city of Chicago and its sister governments’ shortfall totals another $30 billion. But there is a broader pension crisis looming. Local governments are also increasing taxes and cutting core services to keep their municipal pension funds afloat. Yet, despite increasing taxpayer support, in aggregate, these local pension systems’ unfunded liabilities grew to more than $12 billion in 2010 from $1 billion in 2000. That means taxpayers are on the hook for bailing out state pensions and their local pension funds. The real reason these pensions are in shambles is the inherently flawed defined benefit design. If real reform is implemented, the end result will be government workers with retirement security, stable local budgets, and taxpayers free from the burden of funding failed pension systems.
LaborBy Ken Schoolland, Grassroot Institute of HawaiiArticle, 02/25/2014
Federal and state politicians are eager to raise the minimum legal wage—again. They have raised the minimum legal wage many times, but they complain that it is never enough because the prices of food, clothing, and shelter keep going up faster than wages. Yet, a general rise in prices is caused by government monetary policy. As it takes more and more dollars to buy the same goods, the value of wages, savings, and pensions falls. Politicians could tell the Federal Reserve Gang to stop printing money, but they don’t because printing more money is useful to the spending plans of politicians. State politicians are also responsible for rising prices. They don’t print money, yet they raise prices by raising taxes on nearly everything. As L. Neil Smith puts it, “The government is a disease masquerading as its own cure.”
Economic GrowthBy Ken Schoolland, Grassroot Institute of HawaiiArticle, 02/25/2014
Economist Hernando de Soto has called international attention to the lack of property rights in developing nations, resulting in the single greatest deterrent to economic development. But recognizing this isn’t enough. “De Soto’s approach to making change has had limited success so far,” remarks Barun Mitra, President of the Liberty Institute in New Delhi. Frustrated by the lack of impact from academic conferences, Barun has decided that a real and practical demonstration of establishing property title among the vast population of rural farmers is the only way to prove the value of these ideas. Such proof will not only win over and empower the rural poor, but will captivate the interests of social and political leaders across the ideological spectrum.
LaborBy Paul Harleman, Grassroot Institute of HawaiiIssue Brief, 02/25/2014
Spurred on by President Obama’s State of the Union, both the Hawaii State House and Senate have introduced legislation that would increase the current minimum wage from $7.25 to $10.10 and adjust future minimum wages to inflation. Given accelerating cost of living and poverty rates, a minimum wage increase is often seen as a viable solution to address the rising level of social and economic inequality in Hawaii. Because of the debate’s “populist” nature, facts and empirical evidence are often overlooked. The legislature and media should consider the following four key considerations: Raising the minimum wage will benefit less than 4%of low-income working families; the current proposed minimum wage raise increases the costs of low-skilled labor by 39%; raising the minimum wage will not lift working families out of poverty; and raising the minimum wage is expected to reduce teenage employment.
Regulation & DeregulationBy Andrew Grossman, The Heritage FoundationLegal Memorandum, 02/25/2014
Typically, the federal government defends itself vigorously against lawsuits challenging its actions. But not always: Sometimes regulators are only too happy to face collusive lawsuits by friendly “foes” that are aimed at compelling government action that would otherwise be difficult or impossible to achieve. Rather than defend these cases, regulators settle them in a phenomenon known as “sue and settle.” This tactic has exploded under the Obama Administration, costing the economy tens of billions of dollars while eroding political accountability and public participation in government. There are solutions: The executive branch should return to the principles adopted during the Reagan Administration by Attorney General Edwin Meese III, and Congress should require transparency and accountability in settlements that commit agencies to action.
Economic GrowthBy Tim Cavanaugh, Manhattan InstituteCity Journal, 02/25/2014
The Los Angeles 2020 Commission (LA2020) was established “to study and report on fiscal stability and growth in Los Angeles.” Its 43-page report, “A Time for Truth,” is notable for how its strident content clashes with its distinguished authors. ”Los Angeles is barely treading water while the rest of the world is moving forward,” the report begins. Businesses are fleeing Los Angeles. Poverty and unemployment rates are far above the California and United States averages. The city’s “barbell” economy—with jobs only at the top and bottom ends of the income scale—is “more typical of developing world cities than a major American urban area.” Although “A Time for Truth” does offer some striking perspectives on L.A.’s troubles, its authors can’t help misplacing their sympathies with their own special interests. The same group is said to be coming out with a document on solutions later this year. Don’t expect much.
Economic GrowthBy Mario Polese, Manhattan InstituteCity Journal, 02/25/2014
Not so long ago, most urbanists were predicting the demise of downtowns. The data, after all, pointed unambiguously to declining central-city populations and expanding suburban ones. Central business districts were becoming vestigial organs. But most downtowns have begun to grow again. The key to downtown resurgence is jobs—chiefly, jobs in business services. Also, successful downtowns are mixed-use centers that are busy around the clock, not just from nine to five. Cities with resurgent central neighborhoods also have strong metropolitan economies. Finally, policies that restrict real-estate supply downtown—rent control, restrictions on building heights, and so forth—are a luxury that only cities with solid, growing downtowns can afford because they drive up prices in the center and discourage people and businesses from settling there. Abandoning these policies would reinforce the gratifying shift that cities are witnessing: a return to the center.
Natural Resources, Energy, Environment, & ScienceBy Mark P. Mills, Manhattan InstitutePower and Growth Initiative Report, 02/25/2014
According to a recent poll from the Washington Post Miller Center, American workers’ anxiety over jobs is at a four-decade record high. Meanwhile, few realize that no part of the U.S. economy has had as dramatic an impact on short-term job creation as the small businesses at the core of the American oil & gas boom. America’s future, of course, is not exclusively associated with hydrocarbons or energy in general. Yet, the depth and magnitude of job destruction from the Great Recession means that creating jobs in the near-term is vital. Analysts looking out over 15 years see 3–4 million more jobs that could come from accelerating domestic hydrocarbon energy production. Even these forecasts underestimate what would be possible in a political environment that embraced growth-centric policies.
The Constitution/Civil LibertiesBy James Copland, Isaac Gorodetski, Manhattan InstituteLegal Policy Brief, 02/25/2014
The last decade has seen the emergence of a new approach to business regulation and prosecution of wrongdoing in the United States. The U.S. Department of Justice now regularly enters into “deferred prosecution” or “non-prosecution” agreements (DPAs or NPAs) with large corporations, in which companies are paying billions of dollars in fines annually without trial. These agreements are presented as steps short of prosecution that might drive firms into bankruptcy. At the same time, these agreements suffer from a lack of transparency. In 2013, the United Kingdom passed new legislation that introduced DPAs to the British criminal justice system. In contrast to U.S. practice, the U.K. rules limit the scope of corporate conduct subject to such arrangements and delineate a transparent process that prosecutors must follow in pursuing DPAs, with significant judicial oversight. The new British rules bear watching as they offer a potential blueprint for reforming American practice.
EducationBy Marcus Winters, Manhattan InstituteCivic Report, 02/25/2014
The advent and spread of charter schools—publically funded schools that operate independent of the surrounding school district—have raised important questions. The most prominent policy question related to charters hinges on their effect on so-called traditional public schools. This paper seeks to determine whether charter schools could influence public schools, for better or worse, in a particular situation common in some cities: where charter schools share buildings, or are “colocated,” with traditional public schools. I find no evidence that colocations in New York City have any discernible impact (positive or negative) on student achievement in a traditional public school. Thus, policymakers considering colocations need not weigh the potential benefits for students who would attend a charter school against reductions in the performance of students attending a traditional public school that is required to share facilities with the charter.
EducationBy Terry Stoops, John Locke FoundationSpotlight, 02/25/2014
In 2011, Lindsay Burke of the Heritage Foundation outlined a three-prong exit strategy for states that desire to abandon the Common Core State Standards. The North Carolina-specific plan outlined in this article addresses some of the anxieties of parents, teachers, and citizens who worry about the long- and short-term effects of the Standards on North Carolina public education. The NC General Assembly should create two permanent commissions that would be charged with raising the quality and rigor of state English and mathematics standards, curricula, and assessments. Each commission should employ a large and diverse group of stakeholders. The goals of the commissions should be to: modify or replace the Common Core State Standards; specify content that aligns with the standards; recommend a valid, reliable, and cost-effective testing program that aligns to the standards and content; and provide ongoing review of the standards, curriculum, and tests throughout implementation.
LaborBy Richard A. Epstein, Hoover InstitutionDefining Ideas, 02/25/2014
The White House Council of Economic Advisors recently published a post on its website optimistically declaring, “Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers.” The piece describes a CBO report on a current proposal to increase the minimum wage in three stages from its current level of $7.25 per hour to $10.10 by 2016, after which it would be permanently indexed for inflation—at least until further legislation is enacted. However, upon closer review, the CBO report raises several serious theoretical and practical issues that the CEA’s optimistic headline conceals. Most prominently, the proposed minimum wage increase will go into effect at the same time as Obamacare’s employer mandate. On top of the regulations that Obamacare adds to the labor market, steep minimum wage laws will kill jobs and further slow a weak economic recovery.
Health CareBy David R. Henderson, Hoover InstitutionDefining Ideas, 02/25/2014
When Obamacare was being debated, critics pointed to a bad disincentive within the law. Obamacare included large subsidies for low-income people to enable them to buy government approved health insurance plans. Yet, the government would phase out the subsidy as a low-income family’s income rose. Some economists argued that reducing the subsidy as people earn more would act like a tax on income and, thus, would reduce the incentive to work. Recently, a Congressional Budget Office (CBO) study came out claiming that by 2024, Obamacare will reduce the number of hours worked in the economy by the equivalent of about 2.5 million full-time jobs. Now, two well-known economists who support Obamacare admit that Obamacare will reduce employment, but they argue that this cutback in labor supply would be a voluntary choice of workers and thus a good. As we shall see, that conclusion is far from clear-cut.
Budget & TaxationBy Carons Bruno, Hoover InstitutionDefining Ideas, 02/25/2014
California’s two main pension systems—CalPERs and CalSTRs—are massively underfunded. Following the Hoover Institution’s “California Public Pension Solutions” conference, the bi-partisan group of attendees completed a post-conference survey that explored pension reform concepts discussed during the conference. Overall, the conference yielded three important overarching themes: the “California Rule” needs to be amended, reform needs to be holistic, and leadership with public support is a necessity. The “California Rule” makes it so “pension benefits for current employees cannot be detrimentally changed, even if the changes are purely prospective.” A ballot initiative to amend the “California Rule” supported by Mayor Chuck Reed could appear on the November ballot. Nonetheless, at a certain point California and its localities will reach insolvency and reform will have to occur—it is more a matter of when than whether.
LaborBy Max Nelsen, Capital Research CenterLabor Watch, 02/25/2014
Amidst a national debate about wages and so-called income inequality, labor unions are pushing local “living wage” laws to build support for a hike in the federal minimum wage law. Recently, a Seattle suburb became the first city to adopt a $15 “living wage” law. The city’s experience, which included a wide range of other restrictions on businesses, reveals that the real purpose of such laws is to enhance union organizing.
Regulation & DeregulationBy Paul H. Rubin, Cato InstituteCato Journal, 02/24/2014
A concept recently developed in psychology and biology is “pathological altruism.” A pathological altruist is defined as “a person who engages in what he or she intends to be altruistic acts, but who harms the person or group he or she is trying to help, often in unanticipated fashion; or harms others; or becomes a victim of his or her own altruistic actions.” This concept could become an extremely useful tool for public choice economists. There are many public policies that are harmful in one or more of the senses above, and yet which are supported by well-meaning citizens and voters. This concept will help us understand some of the bases of inefficient regulation. In addition, it may enable economists to enlist assistance from other scholars in attacking undesirable legislation. By exploring the inefficient justifications for regulation, it may be possible to create politically useful counterarguments.
Monetary Policy/Financial RegulationBy Thomas L. Hogan, William J. Luther, Cato InstituteCato Journal, 02/24/2014
Much analysis of government-provided deposit insurance evaluates a costless means of protecting depositors. Yet, as the case of the Federal Deposit Insurance Corporation (FDIC) illustrates, government deposit insurance is costly. Costs are incurred in assessing fees from banks, covering losses when banks fail, and monitoring the banking system. In this article, we review the performance of the FDIC and examine how the costs of federal deposit insurance have changed over time. We also used the FDIC experience as a benchmark against which potential alternatives might be compared. We find that deposit insurance in practice departs markedly from the ideal, costless system espoused by the Diamond-Dybvig model, which is often cited as a theoretical justification for government deposit insurance. As such, a meaningful analysis of deposit insurance must incorporate the costs of government-provided insurance.
Monetary Policy/Financial RegulationBy Joshua R. Hendrickson, Cato InstituteCato Journal, 02/24/2014
In the wake of the recent financial crisis, advocates of policy reform have emphasized the imposition of greater capital requirements as a way to prevent bank insolvency. Banks with greater capital requirements might be at a reduced risk of insolvency, but the imposition of such requirements does not necessarily alter the incentives of the bank. An alternative is imposing some form of contingent liability, in which bank shareholders would not only lose the value of their initial investment in the event of insolvency but would also be subject to compensating depositors for any losses. This is in stark contrast to the current limited liability system, under which bank shareholders have no responsibility to compensate depositors. Contingent liability realigns the incentives of bank shareholders to be cognizant of the preferences of depositors, which results in less risky bank behavior.
Natural Resources, Energy, Environment, & ScienceBy Paul Ballonoff, Cato InstituteCato Journal, 02/24/2014
Recently The Economist, a prominent journalistic advocate of strong policies to control CO2 emissions, expressed their puzzlement on the absence of warming over the last 15 years. They observed that this flat period of global average temperature occurred despite the fact that CO2 emissions from human sources continued at an increased rate. The standard climate models anticipated that such massive CO2 increases should have caused continuing increases in average global temperatures. Given the large difference of observed date from the forecasts that underlie much current policy, it is timely to ask if the climate debates are addressing the right questions. Models alone are not science; models merely reflect the assumptions embedded in them. In climate models, and climate policy generally, those assumptions have apparently not reflected demonstrated evidence. Climate policy should reflect what experimental and empirical evidence show to be true.
Budget & TaxationBy Robert Krol, Cato InstituteCato Journal, 02/24/2014
Forecasts of future economic activity underlie any budget revenue projection. However, the forecasters in a government agency may face incentives or pressures that introduce forecast bias. This article evaluates the accuracy of the Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the Blue Chip Consensus forecasts of real GDP growth. Assuming a symmetric loss function, the unbiased forecast hypothesis is rejected for the five-year forecast, but not the two-year forecast. Estimates indicate a significant upward bias in the OMB forecast. This is interpreted to mean executive branch political pressure influences the forecast. In contrast, both the CBO and Blue Chip forecasts have a downward bias. The CBO economic outlook is consistent with the private sector forecast. By addressing the issue of intentional forecast bias, this study highlights the roll political pressure and institutional design may play in economic forecasts.
Health CareBy Andrew Foy, Christopher Sciamanna, Mark Kozak, Edward J. Filippone, Cato InstituteCato Journal, 02/24/2014
Since 1970, annual growth in U.S. health care spending per capita has doubled the real growth in GDP per capita: 4.3 percent versus 2 percent. Over that same time period, countries in the Organization for Economic Cooperation and Development (OECD) averaged strikingly similar health care spending growth in relation to GDP per capita. Thus, despite pronounced institutional medical financing differences, any explanation accounting for the cost growth in health care must hold true across all OECD countries. In the medical care cost ratchet (MCCR) model, health care spending increases as new technologies are incorporated into traditional care standards that confer only modest clinical benefits. The current medical insurance model perpetuates the MCCR. Market-based approaches to health care reform would bend the cost curve over time by encouraging individuals to economize non-emergent health care decisions.
Budget & TaxationBy John Merrifield, Barry W. Poulson, Cato InstituteCato Journal, 02/24/2014
Widespread fiscal crises create opportunities to compare policy options that address especially adverse circumstances. We used a dynamic scoring simulation model to explore state fiscal policies to stabilize budgets and promote economic growth. The simulations combine tax and expenditure limits and rules for the disposition of surplus revenue to an emergency fund, rainy day fund, capital fund, and taxpayer rebates. The simulations measure the potential for income tax cuts with those rules in place and the impact of the cuts possible while maintaining budget stability. All of the simulations indicate significant gains from budget stabilization with spending restraint, including improved emergency preparedness, tax relief, and accelerated economic growth. The fiscal rules simulated in this article also capture the unique tax structure and tax politics in California, Montana, and Utah, including changes in tax structure.
Natural Resources, Energy, Environment, & ScienceBy Geoffrey Black, D. Allen Dalton, Samia Islam, Aaron Batteen, Cato InstituteCato Journal, 02/24/2014
Over 50 years ago, in “The Problem of Social Cost,” Ronald Coase attempted to reorient the economics profession’s treatment of externalities. In 1991, he was awarded the Nobel prize in economics “for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy.” Still, critics question both the relevance and applicability of the Coasean framework. Nalebuff, for example, has argued that for environmental problems “as the scope of the externality affects more and more people, it becomes increasingly difficult to assign property rights.” We argue that the New York City Watershed Memorandum of Agreement (MOA) proves the usefulness of the Cosean framework—even when there are a large number of affected parties from nonpoint source pollution.
Budget & TaxationBy Jason E. Taylor, Jerry L. Taylor, Cato InstituteCato Journal, 02/24/2014
Seven weeks before the 2012 presidential election, the Congressional Research Service (CRS) published a paper suggesting that no empirical evidence exists that top marginal tax rates impact U.S. economic growth. The CRS study was widely reported as evidence refuting Republican candidate Mitt Romney’s position that cutting the top marginal tax rate would spur economic growth. Entin (2013) claims that the CRS’s model does not control for several other factors that could have affected growth. Furthermore, Entin notes that looking only at the effects of tax changes one year out “misses the point.” We employ the exact data and specifications from the CRS study but change the methodology to analyze how changes in top marginal tax rates affect growth over the following three to five years rather than just the year of the change. The modified regressions suggest that tax cuts have brought faster economic growth in subsequent years.
Foreign Policy/International AffairsBy Roger F. Noriega, American Enterprise InstituteLatin American Outlook, 02/24/2014
Narcotraffickers, terrorist groups, and street gangs are increasingly making inroads into Central American politics, threatening the security and stability of the region. El Salvador’s March 9 presidential runoff election, in which the corrupt and ineffective ruling party is trying to hold on to power, will affect the future of the nation and US security. The US government must denounce criminal or terrorist organizations and their supporters attempting to hijack a country’s democracy for their own gain.
Information TechnologyBy Roslyn Layton, American Enterprise InstituteEconomic Outlook, 02/24/2014
Even though it is often idealized as a technologically connected continent, Europe’s broadband system is actually highly fragmented and in great need of overall improvement. The American market-led approach of facilities-based competition has resulted in greater investment in next-generation broadband technologies. Many European leaders are increasingly abandoning their regulatory approach and looking to the US broadband model. The European Union should simplify and reduce regulation of broadband providers, remove barriers to consolidation and embrace a market-led, technology-neutral approach to broadband.