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InsiderOnline Blog: May 2009

Chavistas Tell Free Market Think Tanks to Shut Up

The Cato Institute must be doing something right. It’s definitely gotten under the skin of Venezuelan caudillo Hugo Chavez.

For years Cato has hosted seminars, which it calls Cato University, throughout Latin America. The events aim to promote the classical liberal principles of limited government, individual liberty, free markets, and peace.

Earlier this week, Cato held another Cato University, this time in Caucagua, Venezuela, and the Venezuelan think tank Centro de Divulgación del Conocimiento Económico por la Libertad (CEDICE) was a co-host. Cato reports:

During the course of the event on Monday, the National Guard, state television and a state representative from a ministry of higher education interrupted the seminar, demanding that the seminar be shut down on the grounds that the event organizers did not have permission to establish a university in Venezuela. When the authorities were told that neither Cato nor CEDICE was establishing a university and that the Cato Institute has long sponsored student seminars called Cato Universities, the authorities then insisted that the seminar was in violation of Venezuelan law for false advertising.

After two hours of groundless accusations, the Chavez representatives left but their harassment has continued. One of the speakers at the seminar, Peruvian intellectual Alvaro Vargas Llosa, was detained by airport authorities Monday afternoon for three hours for no apparent reason. He was released and told that he could stay in the country as long as he did not express political opinions in Venezuela.

Later, Chavez supporters organized a protest rally in front of the conference hotel.

Apparently, Chavez believes that Cato’s programs are part of a U.S. government conspiracy to overthrow his government. Freedom is just another word for CIA plot, he thinks! Ultimately, of course, freedom is a plot against socialism.

This isn’t the first time Cato has been a stick in the eye for Chavez. Cato awarded its 2008 Milton Friedman Prize to Yon Goicoechea, the student leader who led the opposition to Chavez’s effort in 2007 to amend the Venezuelan constitution to give himself more power.

For more on the goings on in Venezuela this week, see Iain Vasquez’s report at Cato@Liberty.

Posted on 05/29/09 04:56 PM by Alex Adrianson

The Trouble with Empathy

Heritage fellow Robert Alt states the issue just right:

My late constitutional law professor once offered the following hypothetical about a fishing dispute that made its way to court. On one side were Native Americans; on the other, environmentalists. After a pregnant pause, he mused: “What’s a liberal to do?” Were he to teach the class today, he might well have asked, “What’s an empathetic judge to do?”

As this hypothetical illustrates, empathy, the factor by which President Obama claims that he selects his judicial nominees, is highly subjective, and provides little direction for judges. In some cases, all of the parties are sympathetic. In other cases, none are. In still other cases, the law may be unambiguously on the side of a party who is less sympathetic.

If empathy is the guiding principle, how is a judge to decide these cases? And how do we separate empathy from personal bias?

Here, then, is a modest proposal: In choosing nominees, President Obama should seek judges who would apply the Constitution and the laws as they are written, and interpret them consistent with their plain and original meaning.

Posted on 05/29/09 03:53 PM by Alex Adrianson

Don’t Forget the Cost of Regulations

Federal regulations imposed compliance costs of $1.172 trillion on the economy in 2008, per the Competitive Enterprise Institute’s latest “Ten Thousand Commandments” report. Those costs equal 39 percent of the level of federal spending in 2008.

Maybe next time Congress wants to find some stimulus for the economy it should start by looking for unnecessary and costly regulations to eliminate.

Posted on 05/29/09 10:05 AM by Alex Adrianson

Light Rail Plus Smart Growth Equals More Greenhouse Gas Emissions

Is promoting light rail a viable strategy for reducing greenhouse gas emissions? Wendell Cox has crunched the numbers from Portland, a city that has invested heavily in light rail projects since 1986, and he finds that the answer is clearly no. In fact, according to Cox’s calculations, light rail coupled with Portland’s density-increasing (and therefore congestion-increasing) smart growth policies has probably increased greenhouse gas emissions.

While transit is 50 percent more greenhouse-gas friendly per passenger mile than automobiles, the cost of light rail per ton of carbon emissions avoided makes it a prohibitively expensive strategy to follow. Cox calculates that Portland’s transit system, which carries only 2.1 percent of motorized travel, may have reduced GHG emissions by 50,000 tons per year. “That sounds like a large number,” says Cox, “until you consider that Portland traffic produces more than 8,000,000 GHG tons per year. Transit’s expansion has reduced GHG emissions by approximately 0.6 percent annually over 22 years. This pales in comparison to the 83 percent national reduction over a 45 year period that would be required by the Waxman-Markey bill being considered by Congress.”

But transit is more than four times more expensive per passenger mile than automobiles. According to Cox, the cost of transit per ton of greenhouse gas emissions avoided is approximately $5,500. Says Cox: “If the United States were to spend as much to remove each ton of the likely 83 percent national reduction target, the cost would be $30 trillion annually, more than double the gross domestic product.” By contrast, Nancy Pelosi, Al Gore, and Arnold Schwarzenegger pay just $14 to offset each ton of greenhouse gas emissions for which they are responsible. And when people choose to work from home, they achieve greenhouse gas reductions that cost right about $0 per ton.

Further,” says Cox

… according to information in the Texas Transportation Institute’s Annual Mobility Report, the amount of gasoline wasted due to peak period traffic congestion in Portland rose 18,000,000 gallons from 1985 to 2005 (latest data available, adjusted for the population increase), simply due to greater traffic congestion. The increase in GHG emissions from this excess fuel consumption is estimated to be approximately 200,000 tons annually. This is four times the estimated reduction in GHG emissions that was assumed to have occurred from the increase in transit ridership.

Posted on 05/28/09 06:07 PM by Alex Adrianson

Third International Conference on Climate Change

With Congress contemplating a carbon-emissions capping regime that will add $1,500 to the annual energy bill for a family of four, there can’t be enough discussion of the science and economics of climate change. Thanks to the Heartland Institute and some 40 other organizations, another opportunity to get past the hype and learn the facts will come on June 2 at the Third International Conference on Climate Change. This event, to be held in Washington, D.C., aims to expose Washington-based journalists and members of Congress to the many experts who take a skeptical view of global warming.

Posted on 05/27/09 06:25 PM by Alex Adrianson

Rabkin on American Sovereignty

Hillsdale College’s First Principles on First Fridays series continues next week (Friday, of course) with what looks to be an interesting and timely talk with Jeremy Rabkin. Rabkin, a George Mason University law professor, will present a view that’s a little less in fashion these days, especially among certain Obama nominees: that American sovereignty matters and is an important part of the constitutional structure of American government.

The event runs from 7:30 a.m. to 8:45 a.m. at The Heritage Foundation. Coffee, fruit and pastries will be served. See the First Principles on First Fridays Web page to register.

Posted on 05/27/09 05:20 PM by Alex Adrianson

Not Built by the American Recovery and Reinvestment Act of 2009

Remember when rebuilding infrastructure was the great project that was going to put America back to work? One community in Hawaii got tired of waiting for the government to rebuild a bridge, so they put themselves to work instead. Pete Peterson tells the story for City Journal:

Last December’s floods washed out park roads, bridges, and facilities at Kauai’s Polihale State Park. Hawaii’s Department of Land and Natural Resources (DLNR) studied the damage and released a statement two months later, declaring, “We know that people are anxious to get to the beach. However, the preliminary cost estimate of repairs is $4 million.” The DLNR’s response to this natural disaster was to look for more state or federal funds. Its main objective was to grab a fee-generated windfall for the department, ironically entitled the “Recreational Renaissance” fund. DLNR’s chair, Laura Thielen, proclaimed: “We are asking for the public’s patience and cooperation to help protect the park’s resources during this closure, and for their support of the ‘Recreational Renaissance’ so we can better serve them and better care for these important places.” An original timeline for the work was set for late summer, but according to local resident and surfer Bruce Pleas, “It would not have been open this summer, and it probably wouldn’t be open next summer.”

The go-slow approach did not sit well with area residents, who depend on the park for their livelihoods. Ivan Slack, owner of Na Pali Kayaks, which operates from the beach in Polihale, summed up the community’s frustration: “We can wait around for the state or federal government to make this move, or we can go out and do our part. Just like everyone’s sitting around waiting for a stimulus check, we were waiting for this but decided we couldn’t wait anymore.” Beginning in late March, business leaders and local residents organized together to take the situation into their own hands.

From food donated by area restaurants to heavy machinery offered by local construction companies, a project originally forecast to cost millions and take months (if not years) to complete has been finished in a matter of weeks with donated funds, manpower, and equipment. As Troy Martin from Martin Steel, which provided machinery and five tons of steel at no charge, put it: “We shouldn’t have to do this, but when it gets to a state level, it just gets so bureaucratic, something that took us eight days would have taken them years. So we got together—the community—and we got it done.”

Posted on 05/27/09 04:17 PM by Alex Adrianson

Great Moments in FCC Censorship: JFK Targets His Critics

What would “localism” regulations do to broadcast content? From Cato’s John Samples, here’s one snapshot from another era when government regulations ostensibly aimed to increase the diversity of voices in media:  

In 1963, the Kennedy administration wished to negotiate a limited nuclear test ban treaty with the Soviet Union and to persuade the Senate to ratify the agreement. The administration worried that conservative broadcasters might influence public opinion and thereby complicate or preclude ratification and, more generally, their efforts at détente. Indeed, the president himself had said privately that the FCC and the “proper” Senate committees should act against efforts to “spread right-wing propaganda” critical of his administration. Members of the administration, acting in concert with the Democratic National Committee, set up the Citizens Committee for a Nuclear Test Ban Treaty. This group purported to be nonpartisan; its research, publicity, and arguments, however, were prepared by Ruder and Finn, the public relations firm for the DNC. Each time a conservative commentator attacked the treaty, the Citizens Committee demanded time to respond and followed up with their arguments and information. The strategy was successful. Public opinion favored the administration, and the Senate overwhelmingly ratified the treaty in the early fall of 1963. The Fairness Doctrine had been successfully used to “provide support for the president’s programs.”

The administration and the DNC decided to continue the attack on their conservative critics with the help of the Fairness Doctrine. They believed that regularly investigating and monitoring conservative critics of the administration would diminish opposition to Kennedy’s reelection and to his proposals, including Medicare and the sale of wheat to the Soviet Union. The campaign strategists for Kennedy (and later Lyndon Johnson) directed surrogates to demand time from radio and television stations in order to respond to conservative broadcasts and then to threaten FCC action if the requests were not honored. Bill Ruder, a public relations specialist active in the effort, later described its purpose:

Our massive strategy was to use the Fairness Doctrine to challenge and harass right-wing broadcasters and hope that the challenges would be so costly to them that they would be inhibited and decide it was too expensive to continue. [Internal citations omitted.]

For more history on how politicians used the Fairness Doctrine to silence their political critics, see Samples paper, “Broadcast Localism and the Lessons of the Fairness Doctrine,” published by the Cato Institute, May 27, 2009.

Posted on 05/27/09 01:33 PM by Alex Adrianson

Sotomayor and Second Amendment Rights

Marie Gryphon thinks Maloney v. Coumo, decided by the U.S. Second Circuit in January, provides a clue about Supreme Court nominee Sonia Sotomayor’s views on Second Amendment rights. In Maloney, the court upheld New York state’s complete ban on nunchako (nun chucks). At Point of Law, Gryphon writes:

The panel makes what superficially appears to be a strong argument: the Supreme Court directly held in Presser v. Illinois, 116 U.S. 252 (1886) that the Second Amendment does not bind the states, it reasoned, and lower courts are obligated to follow even antiquated SCOTUS precedent if it is directly on point.

What the panel missed, however, was the significance of the fact that Presser was decided before the development of modern incorporation doctrine, which applies most of the bill of rights to the states through the Due Process Clause of the 14th Amendment. The Presser court therefore addressed only the issue of whether the Second Amendment applies to the states directly, and did not consider the question of whether the Second Amendment is incorporated by the 14th Amendment.

A Ninth Circuit panel recently took this better view, holding that Presser did not control the question of incorporation and that the individual right to keep and bear arms does indeed apply to the states via the 14th Amendment’s Due Process Clause.

The legal argument for incorporation of the Second Amendment is pretty strong, and it’s hard not to see the 2nd Circuit panel’s opinion as deliberately ducking a question about which its members, including Sotomayor, might have had public policy misgivings.

Posted on 05/26/09 04:22 PM by Alex Adrianson

Sotomayor on Property Rights

In 2006, the U.S. Second Circuit, on which Judge Sonia Sotomayor sat, heard the case Didden v. Port Chester. The opinion in that case, writes Richard Epstein, does Kelo one better and “makes Justice Stevens look like a paradigmatic defender of strong property rights.”

The case involved about as naked an abuse of government power as could be imagined. Bart Didden came up with an idea to build a pharmacy on land he owned in a redevelopment district in Port Chester over which the town of Port Chester had given Greg Wasser control. Wasser told Didden that he would approve the project only if Didden paid him $800,000 or gave him a partnership interest. The “or else” was that the land would be promptly condemned by the village, and Wasser would put up a pharmacy himself. Just that came to pass. But the Second Circuit panel on which Sotomayor sat did not raise an eyebrow. Its entire analysis reads as follows: “We agree with the district court that [Wasser’s] voluntary attempt to resolve appellants’ demands was neither an unconstitutional exaction in the form of extortion nor an equal protection violation.”

Maybe I am missing something, but American business should shudder in its boots if Judge Sotomayor takes this attitude to the Supreme Court. Justice Stevens wrote that the public deliberations over a comprehensive land use plan is what saved the condemnation of Ms. Kelo’s home from constitutional attack. Just that element was missing in the Village of Port Chester fiasco. Indeed, the threats that Wasser made look all too much like the “or else” diplomacy of the Obama administration in business matters.

Posted on 05/26/09 03:36 PM by Alex Adrianson

The Nominee’s Hope

In 2001 Judge Sonia Sotomayor, officially nominated this morning by President Obama to serve on the Supreme Court, told an Hispanic audience at the University of California (Berkeley) School of Law:

Justice [Sandra Day] O’Connor has often been cited as saying that a wise old man and wise old woman will reach the same conclusion in deciding cases.... I am... not so sure that I agree with the statement. First... there can never be a universal definition of wise. Second, I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life. [Excerpted by Stuart Taylor in his latest Opening Argument column.]

Why wouldn’t she hope that all judges reach correct conclusions all the time, regardless of the color of their skin?

Posted on 05/26/09 02:07 PM by Alex Adrianson

Counterterrorism and the Obama Administration

The Federalist Society and The Heritage Foundation are bringing together some big thinkers next week to talk about U.S. counterterrorism strategy and how it is evolving under the Obama administration. For those of you who follow these issues, this event is one to catch. It’s an all-day series of panels on Thursday, May 28. Among of the participants are Andrew McCarthy, David Rivkin, Ed Meese, William Kristol, and Kenneth Wainstein. The panels are: “Detention and Trial of Terrorist Suspects,” “Interrogation and Transfer of Terrorists Suspects,” “Preventing Attacks through Surveillance and Intelligence.”

For more information or to register see the event’s page at The Federalist Society’s Web site.

Posted on 05/22/09 11:37 AM by Alex Adrianson

Koh v. U.S. Sovereignty

President Obama’s nomination of Harold Koh to be legal advisor to the State Department has generated opposition among those—primarily conservatives—who take seriously the idea that the United States is a representative democracy. Briefly, the argument against Koh is that he believes the United States should be governed by transnational norms such as international law, and that it is the job of judges and other elites to bring U.S. laws and the Constitution itself into compliance with such norms—even by interpreting the Constitution in light of international norms, rather than the intentions of its authors. Here’s a short buffet of commentary on Koh:

David Kopel, Volokh Conspiracy:

Dean Koh is an excellent writer and an impressive scholar. But his legal vision is for a substantial diminution of the sovereignty of the American people, and as Legal Advisor to the State Department, he would have tremendous power to advance that vision. As Dean Koh has explained, his writings on transnationalism are not merely descriptive; they are also a strategy for activists. Of course Dean Koh has the right to advocate as sees fit. The Constitution, however, requires that major presidential appointees must earn the Advice and Consent of the United States Senate. The Senate’s duty to be especially careful on Advice and Consent would seem to be at its apex when an appointee’s record shows a long-standing determination to weaken the existing constitutional sovereignty of the United States of America.

Ed Whelan, Ethics and Public Policy Center:

What is most striking—and, in a limited sense, refreshing—about Koh’s position is how brazen it is, compared, say, to that of Justices Ginsburg and Breyer, who base their reliance on foreign and international laws on fuzzy grounds (“we can learn from others,” “our people in this country are not that much different than people other places”). … Koh is explicit in stating that he wants American courts to “play a key role in coordinating U.S. domestic constitutional rules with rules of foreign and international law.” American courts, of course, cannot revise the “rules of foreign and international law,” so the “coordinating” that Koh has in mind requires that American courts, and especially the Supreme Court, change the meaning of constitutional provisions to comport more closely with the ever-evolving rules of foreign and international law. In other words, what Koh calls “coordinating” is really subordinating the Constitution to international norms.

Koh argues that this role is necessary “not simply to promote American aims, but to advance the broader development of a well-functioning international judicial system.” But in our constitutional system, it is up to the political branches—Congress and the president—to make foreign policy and to determine whether, and to what extent, American domestic law should be coordinated with rules of foreign and international law. It is their job, not that of the courts, to determine whether and how it is in our national interest “to advance the broader development of a well-functioning international judicial system.” (And it is also their job, not the free-floating job of the courts, “to promote American aims.”) There is nothing necessary about the judicial role that Koh advocates, and there is nothing appropriate about it.

[Whelan has produced an extensive analysis of Koh’s writings.]

John Fonte, National Review:

But, of course, the “transnational legal process” articulated by Harold Koh and the politics of transnationalism generally are not democratic. They represent a new form of governance that I call “post-democratic.” To “make, interpret, [and] enforce” international law, “which can in turn be internalized into the domestic law of even resistant nation-states” (as Koh describes it), is to exercise governance. But do these transnational governors have the consent of the governed?

The transnational legal process fails the “government by the consent of the governed” test in two ways. First, the democratic branches of government, the elected representatives of the people, have no direct input either in writing the global laws in the first place, or even in consenting to their domestic internalization, as, for example, happens when the Senate ratifies a treaty or the Congress passes enabling legislation for a non-self-executing treaty.

Second, there is no democratic mechanism to repeal or change these international rules that are incorporated into U.S. law by this process. What if the American people decide that they object to these global norms and transnational laws that were imposed upon them without their consent (on, for example, the death penalty, internal security, immigration, family law, etc.)? What if the American people at first approved, but later changed their minds on, some of these rules: How can these global norms, now part of international law and U.S. constitutional law, be repealed? Legislation to repeal the global norms could be deemed “unconstitutional.” In short, there are no democratic answers to these questions consistent with the transnational legal process, because it is not a democratic process.

In April, a large group opposing Koh sent a letter to the Senate Foreign Relations Committee explaining why they think Koh’s nomination should be rejected. Earlier this month, a group of prominent conservative leaders signed a statement opposing the Koh nomination. More information on Koh can be found at the Web site NoKoh.

Koh’s nomination has been approved by the Senate Foreign Relations Committee and will soon be taken up by the full Senate.

Posted on 05/21/09 06:06 PM by Alex Adrianson

Don’t Fear Private Funding

Some folks in Pennsylvania are fretting that budget cuts might force the state to turn to private sponsorships to maintain historic landmarks like the Brandywine Battlefield. What’s the big deal? wonders Christopher Dodds of the Commonwealth Foundation:  

… when I was studying in Xiamen, China, I traveled to a nearby mangrove forest, one of the largest in the country. Traveling with members of the Mangrove Protection Project, we arrived at the beautifully maintained forest to see tastefully engraved on a rock by the entrance that the site’s preservation is funded by Wal-Mart.

Somehow, a country that maintained one of the most socialist economies in the world as recently as twenty years ago has surpassed Pennsylvania in willingness to allow private companies to fund previously government-funded operations.

Examples of private support for historic preservation can be found a little closer to home, too. One of our favorite historic sites is George Washington’s Mount Vernon, which is funded entirely by private donations. We don’t think you can visit Mount Vernon without being impressed.

Posted on 05/21/09 03:23 PM by Alex Adrianson

Obey or Be Regulated

Coming to light this week is a letter sent by Barney Frank and five of his colleagues on the House Financial Services Committee to one William Frey back in October. It’s an interesting letter, if you know what we mean.

Frank was a bit agitated by the fact that some holders of mortgage-backed securities weren’t too keen on the government’s plan to renegotiate mortgages. It seems the holders of the securities had something called contractual rights that were threatening to gum up the works.

Frank wrote Frey, president of Greenwich Financial Services:

We are outraged to read in today’s New York Times that you are actively opposing our efforts to achieve a diminution in foreclosures by voluntary efforts. Your decision is a serious threat to our efforts to respond to the current economic crisis, and we strongly urge you to reverse it. Given the importance of this to the economy and to what it means for future regulatory efforts, we have set a hearing for November 12, and we invite you now to testify. We believe it is essential for our policymaking function for you to appear at such a hearing, and if this cannot be arranged on a voluntary basis, then we will pursue further steps.

For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling and will clearly have serious implications for the rules by which we operate in the future if this posture of obstruction of our efforts is maintained.

We very much hope you will be able to tell us very soon that you have reversed your position of trying to obstruct the operation of the bill that was overwhelmingly passed by Congress and signed by the President this summer, and we hope you will also affirm your presence at the hearing on November 12.

The other signatories of the letter were Maxine Waters, Luis Gutierrez, Paul Kanjorski, Carolyn Maloney, and Melvin Watt.

By the way, Frey has also been a target of the Neighborhood Assistance Corporation of America, a thuggish group about which we wrote yesterday. You know a man by the enemies he keeps—or something like that.

Posted on 05/21/09 12:41 PM by Alex Adrianson

Nasty NACA: The Housing Shakedowns Continue

Like the more infamous ACORN, the Neighborhood Assistance Corp. of America is another leftwing group waging war on free enterprise while filling its own coffers by using shakedown tactics. NACA variously accuses banks of engaging in predatory subprime lending or ignoring the needs of low-income communities. And the group likes to get nasty. A profile of the group in today’s Wall Street Journal notes that the group

… salts its Web site with photos of executives it accuses of standing in the way of helping homeowners – emblazoning “Predator” across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it’s called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

In the 1990s, [the group’s founder and CEO] Mr. [Bruce] Marks leaked details of a banker’s divorce to the press and organized a protest at the school of another banker’s child. He says he would use such tactics again. “We have to terrorize these bankers,” Mr. Marks says.

Taxpayers should note that they are helping fund this group. The Journal reports:

The organization has been allocated $34.5 million from a new federal program to counsel distressed mortgage borrowers, to be paid to groups such as NACA little by little as they provide counseling. NACA’s slice is nearly 10% of the program’s funds …

The idea of taxpayers funding Leftist street theater and harassment is nothing if not infuriating. But perhaps an even bigger reason for concern is this group’s contribution to the lowering of lending standards that led to the implosion of the mortgage industry. David Hogberg describes the group’s methods as a “peculiar and successful formula: Help responsible borrowers get bank loans and then attack the banks until they also agree to make loans to irresponsible borrowers.”

NACA extracts concessions from banks and uses the proceeds to fund its own mortgage program. But, according to Hogberg, author of recent report on NACA for Organization Trends, the group rigorously screens applicants to its own mortgage program. Hogberg reports:

In a 2001 San Antonio Express-News article, NACA regional director Pam Brooks acknowledged that only about one in four persons completed NACA’s mortgage program after signing up for it. A National Mortgage News article from 1998 noted that while NACA had bank commitments of $1.3 billion over a four-year period the banks had made only $250 million for mortgages to NACA qualified borrowers.

Apparently, NACA does train previously high-risk borrowers who are ready to become financially responsible. After all, what type of person would be willing to wait up to a year for a loan approval, accumulate several months of savings, repay delinquent loans, and participate in NACA’s program of political activism? By weeding out irresponsible borrowers, NACA can claim that its “track record of helping people who have credit problems become homeowners or refinance out of a predatory loan debunks the myth that high rates and fees are necessary to compensate for their ‘credit risk.’”

The irony is that NACA should be commended for its systematic and exacting efforts to help low-income people become homeowners. But Bruce Marks’s responsibility toward the poor is more than matched by his irresponsible attacks on banks. He stalks and demonizes and harasses bank officials into making mortgage loans to the sorts of negligent low-income people he would throw out of his own program.

It’s time for banks and other corporations to stop selling the rope that gets them hung by agitation groups like NACA. The free enterprise system is at stake.

Posted on 05/20/09 12:11 PM by Alex Adrianson

Cap-and-Trade: Costs and Benefits

Via The Heritage Foundation, here are some estimates of the costs that will be imposed on the economy if the cap-and-trade scheme in the latest version of the Waxman-Markey bill becomes law:   

By 2035:

• The typical family of four will see its direct energy costs rise by over $1,500 per year.

• Pain at the electric meter will cause consumers to reduce electricity consumption by 36 percent. Even with this cutback, the electric bill for a family of four will be $754 more that year and $12,200 more in total from 2012 to 2035.

• The higher gasoline prices will have forced households to cut consumption by 15 percent, but a family of four will still pay $596 more that year and $7,500 more between 2012 and 2035.

• In total, for the years 2012-2035, a family of four will see its direct energy costs rise by $22,800. These inflation-adjusted numbers do not include the indirect energy costs consumers will pay as producers are forced to raise the price of their products to reflect the higher costs of production. Nor does the $22,800 include the higher expenditure for such things as more energy-efficient cars and appliances or the disutility of driving smaller, less safe vehicles or the discomfort of using less heating and cooling.

• As the economy adjusts to shrinking GDP and rising energy prices, employment will take a big hit. On average, employment is lower by 1,105,000 jobs. In some years cap and trade reduces employment by nearly 2.5 million jobs.

• The negative economic impacts accumulate, and the national debt is no exception: Waxman-Markey will drive up the national debt 29 percent by 2035. This is 26 percent above what it would be without the legislation and represents an additional $29,150 per person, or $116,600 for a family of four. To reiterate, these burdens come after adjusting for inflation and are in addition to the $450,000 per family of federal debt that will accrue over this period even without cap and trade.

[Source:Son of Waxman-Markey: More Politics Makes for a More Costly Bill,” by William W. Beach, David Kreutzer, Karen Campbell, and Ben Lieberman, published by The Heritage Foundation, May 18, 2009.]

What’s the benefit? Climate researcher Chip Knappenberg, using a computer model developed with funding from the Environmental Protection Agency, estimates that by 2050 Waxman-Markey can be expected to have offset about two years worth of warming.

Posted on 05/19/09 10:35 AM by Alex Adrianson

National Health Service: Extending Life Not Cost-Effective

“Health care as a right” is the big selling point of universal health care. The reality, however, is that in government-run systems you have the right only to the health care the government is willing to pay for.

Many European governments, including Great Britain’s, use something called health technology assessment to figure out what they will cover and what they won’t. According to Helen Evans, registered general nurse and director of Nurses for Reform in Britain, health technology assessment is a pseudo science that

… is designed primarily to provide policymakers with a legitimizing rubric by which they can mimic a few elements of the market and therefore deploy a degree of fake economic rationality in justifying their decisions. In this way, practitioners of HTA attempt to balance the requirement to provide innovative health care technologies with ham-fisted efforts at controlling the costs of those technologies.

The point of all this, says Evans, is to ration health care technologies “so that they mesh with the politically fixed budgetary allocations of the national government.” In other words, sick patients whose lives could be improved by expensive new treatments are just not an important enough constituency for the politicians to worry about.

Lawmakers in the United States, which leads the world in developing new medical innovations, are considering creating an Institute of Comparative Effectiveness. That, says Evans, “would explicitly accelerate America's trajectory downward toward a European-style medical interventionism.” Evans paper is “Comparative Effectiveness in Health Care Reform: Lessons from Abroad,” published February 4, 2009 by The Heritage Foundation.

To see more stories of people’s experiences with government-run health care, visit

Posted on 05/18/09 05:45 PM by Alex Adrianson

Private Sector Beats the Government—at Knowing What Government Is Doing

A private company that specializes in connecting small and mid-size firms with federal grants in doing a better job of tracking the stimulus spending than is the government.

The government’s Web site,, was set up to track “every dime” of stimulus spending so that taxpayers can know how their money is being spent. But the head of the project told Congress recently that the Web site would not have information on grants and contracts until October.

Meanwhile, the company Onvia has launched the Web site, which already has a database of 10,000 projects representing $40 billion of the stimulus spending. Onvia CEO Mike Pickett says his company is using new technologies that allow it to monitor and pull information on government spending from tens of thousands of Web sites. recently talked with Pickett about and government transparency.

Posted on 05/18/09 11:09 AM by Alex Adrianson

More Subsidies for College?

Richard Vedder:

… in 1970 only three out of every 100 mail carriers had college degrees, compared with 12 today. Do college-educated mail carriers promote economic growth. I doubt it. … Do we need more than 15,000 Americans with advanced degrees fixing people’s hair? One study says that, five years after graduation, only 61% of college graduates are in jobs requiring a college degree.

[Source: “The Education Mill,” by Richard Vedder in the Claremont Review of Books, Spring, 2009. (No link.)]

Posted on 05/15/09 03:59 PM by Alex Adrianson

Cheer Up, the Worst Is Yet to Come

How does “turtles all the way down” describe the human condition? Who’s not smart enough smart enough to be a spell-checker at an M&M factory? Why are think tanks like monastic societies?

You’ll find answers to those questions and more in Jonah Goldberg’s recent talk at a Heritage First Principles conference. In the clip below, Goldberg ranges from Rousseau and Locke, to Hayek, to T.S. Eliot, to Captain Planet. And for good measure, he throws in some Shakespeare, advising that in the fight for liberty conservatives must be like Henry V’s “we happy few.”


Posted on 05/15/09 02:46 PM by Alex Adrianson

Do You Know the Risks?

According to, if you add up all the annual deaths from bisphenal A, phthalates, polymers, acrylamides, DDT, alar, dioxin, and perchlorate you get a grand total of zero.

Meanwhile, active smoking—which increases the risk of cancer, cardiovascular disease, respiratory disease, cerebrovascular disease, and perinatal conditions, as well as burns—contributes 389,290 to the U.S. death toll every year, according to

Visit, to see graphic comparisons of the health risks you face. You might be surprised to learn how much of your risk you can control through your own lifestyle choices., a product of the American Council on Science and Health, will also help you keep things in perspective next time the anti-consumer activists push Congress to pass ill-considered regulations—such as those that recently forced libraries and used-book stores to ditch all their old copies of children’s books because the inks supposedly contained too much lead.

Posted on 05/14/09 06:53 PM by Alex Adrianson

What If Social Security Had to Mark to Market?

Laurence Kotlikoff: Were the trustees to price Social Security’s implicit liabilities and assets based on risk as well as safety, they would show a net liability that is higher by almost one-fourth.”

Posted on 05/14/09 12:06 PM by Alex Adrianson

Overseas Investment Is a Good Thing

“Overseas investments,” writes Steven Malanga, “rarely cost jobs in a corporation’s home country,” but instead bring substantial benefits for the home country. 

President Obama has proposed eliminating what he sees as an unfair incentive in the tax code for U.S. companies to move jobs overseas. In fact, as explained in an earlier post, the provision he is targeting—which allows U.S. firms to defer tax liability on the profits they earn abroad—was designed to mitigate the disadvantages of the U.S. tax code for U.S. companies competing globally.

But what about this idea that corporations invest abroad in order to take advantage of low-cost labor? Malanga, senior fellow at the Manhattan Institute, points to research showing that multinational corporations in rich countries are five times more likely to invest in other rich countries than in poor countries. In other words, they’re not getting a bargain on labor costs. So why are they investing in overseas operations? Malanga writes:

What we’ve learned is that companies don’t expand overseas primarily to eliminate local jobs, but to tap into other appealing markets where, if they succeed, they only become stronger. And lots of research has confirmed this idea, not just about U.S. firms, but about multinationals in other countries too. Studies of the Italian, French and German economies have found that when a business in one of these countries makes a decision to expand overseas the move rarely results in a net loss in domestic jobs, according to research summarized by Harvard’s Mihir A. Desai in a new paper published by the National Bureau of Economic Research, “Securing Jobs or the New Protectionism?” In fact, a company’s successful overseas expansion brings advantages to a home country, according to a study of Japanese multinationals which found that firms that increased their overseas investments also increased their domestic employment at a growth rate from three-to-eight times quicker than job growth among purely domestic firms.

The same holds true for the United States and its shrinking manufacturing industry. Desai looked at who was responsible for the decline in manufacturing jobs in the U.S. from 1986 to 2003 and found that it wasn’t multinationals. In fact, they have been expanding their manufacturing jobs in the U.S. even as they have been investing overseas. Instead, “the rapid decline of manufacturing employment in the late 1990s and early 2000s might well best be understood as marking the exit of purely domestic, low-productivity players rather than the displacement of domestic activity abroad by multinational firms,” Desai writes.

This shouldn’t be surprising. It’s a difficult and risky leap to go from a domestic company to an international one, and for the most part companies that succeed at it are our strongest firms. In a global marketplace, they are the firms most likely to face down new foreign competitors entering the country. Short of high tariffs to punish foreign products and make them uncompetitive here, it is our multinationals that give us our biggest edge.

Posted on 05/13/09 05:50 PM by Alex Adrianson

A Sale in Name Only

Writing in The American, David Skeel thinks President Obama’s plan for Chrysler would make a true New Dealer turn over in his grave:  

In the early 20th century, large troubled corporations did not file for Chapter 11 like they do today. They used a process known as “equity receivership,” which involved an artificial “sale” of the company to a new entity set up by the debtor and the investment banks who represented its bondholders and stockholders. The new entity was the only bidder at the sale, and creditors who were unhappy with the terms of the reorganization had very little opportunity to interfere.

New Dealers hated the process, which they saw as opaque and designed to foist a deal crafted by the insiders on everyone else. Jerome Frank, a lawyer who later headed an important New Deal agency and became a federal judge, complained in 1933 that the judicial sale in these cases “was a mockery and a sham.” He said, “A sale at which there can be only one bidder, is a sale in name only.” In 1938, thanks to the handiwork of another prominent New Dealer, future Supreme Court Justice and then-SEC Chairman William Douglas, Congress dramatically altered the bankruptcy laws, eliminating the former practice.

… What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans.

Posted on 05/13/09 04:26 PM by Alex Adrianson

More Competition Is the Best Reform Plan

As health care providers and the White House huddle together to find ways to cut growth in health care spending, they should note what usually works in other industries that don’t need to announce they will seek savings: good old-fashioned competition. John Goodman of the National Center for Policy Analysis has some things to say about this. In his Spring 2007 article in The Insider (“Want Health Care Info? Get Government Out of the Way”), he details some of the many ways that government regulations inhibit the competitive forces that would lead to lower prices and better service in health care.

For example, at the behest of the medical profession, many states maintain laws against the corporate practice of medicine. This means that medical practices must be owned and run by licensed doctors. Like medicine, air travel is another industry where safety requires very low error rates. But imagine, says Goodman, what would happen if corporate ownership of airlines was illegal: “Rather than numerous carriers flying thousands of large airliners across thousands of regularly scheduled routes, the industry would likely be dominated by charter pilots flying small propeller-driven planes.” Does that sound like a safer and more efficient airline industry?

Today’s reformers like to talk about coordinating care, but doctors could do more coordinating if they were not prevented by law from referring patients to other practices in which they have a financial interest. According to Goodman, “with revised legislation, a traditional physician practice could offer integrated services, including disease management for chronic conditions, walk-in clinics for minor problems and discounted lab work.”

The key to any competitive system of course is that consumers have access to information, but patients entering a doctor’s office can’t see a menu with prices. Anti-trust laws make it illegal for health care providers to share price information with third parties that have any conceivable tie to a trade group. If doctors can’t share their prices with some people, then they surely can’t post them for the whole world to see.

And of course, there is our tax code that encourages first-dollar coverage by third-party payers. Why should doctors care about maximizing value for patients when the patients aren’t the ones paying the bill?

Posted on 05/13/09 12:39 PM by Alex Adrianson

Signs of Crowding Out

At last week’s Treasury auction, the rate on 30-year notes jumped from 4.1 to 4.3 percent, a development that J.D. Foster regards as “the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery”:

Healing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate.

Posted on 05/12/09 08:08 PM by Alex Adrianson

The Flaw in the Design

Here’s an example of how Medicare could save money while providing better service to patients:

According to a RAND Corporation study, patients receive recommended hospital care – such as an aspirin after a heart attack or antibiotics before hip surgery – only about half the time, on the average. There is also a lot of variation in quality. In Pennsylvania alone, the mortality rate for heart surgery among hospitals varies from zero to 10 percent. Even more surprising, hospitals usually profit from their mistakes: When patients have to be readmitted to deal with complications from the initial surgery, the hospital can bill them again. 

Geisinger Health System in central Pennsylvania has discovered a better way for patients and insurers. It offers a 90-day warranty, similar to the type of warranties found in consumer product markets. Specifically, Geisinger charges a flat fee for three months of follow-up treatment. If the patient returns with complications in that period, Geisinger promises not to send the patient or the insurer another bill.

The problem is that Geisinger would lose money on the proposition even as it saved money for Medicare and Medicaid – because those programs do not pay for such guarantees. Medicare should pay more to hospitals that save taxpayers money.

This example is one of a number from a short paper written in February by John Goodman of the National Center for Policy Analysis. The paper illustrates how Medicare’s payment system discourages innovations that could lead to better service for Medicare patients at lower prices. According to Goodman, Medicare could harness entrepreneurial efforts by allowing providers to suggest and adopt alternative reimbursement systems, by letting providers offer risk-adjusted Health Savings Accounts to chronically ill patients, and by eliminating outdated regulations that stand in the way of new products and services.

Yesterday, health care providers made a big news splash by committing to finding $2 trillion in health care savings over the next decade. Normally, an industry doesn’t need to get together to announce it will make an effort to find savings. That usually happens as a matter of course through the magic of competition for the consumer’s business. Goodman’s idea essentially is to use those competitive impulses to produce better value for Medicare patients. But the savings goal announced yesterday is clearly an effort by the industry to make the government happy, not the patients it serves. And that raises the question of whether the prospective savings are ones that health care consumers will be happy to have.

Posted on 05/12/09 08:05 PM by Alex Adrianson

Alice in Wonderland Territory

Fighting global warming will now cost every family in Britain £20,000, double the original estimate provided by the government, reports the Daily Mail.

The total cost of the government’s plan to cut carbon dioxide emissions by 80 percent before 2050 now stands at £404 billion, up from £205 billion.

Conveniently, however, the British government also claimed that the benefits of its plan to cut carbon dioxide emissions have risen by 10 fold, to more than £1 trillion.

That revision prompted Tory MP Peter Lilley to tell climate change secretary Ed Miliband: “When it comes to your revised estimates of the benefits we enter Alice in Wonderland territory.”

Posted on 05/12/09 04:13 PM by Alex Adrianson

The Meese Award

The Alliance Defense Fund this week establishes the Edwin H. Meese III Originalism and Religious Liberty Award. The award is a tribute to Mr. Meese’s leadership in creating the “freedom-based” legal defense movement and for his role in sparking an intellectual revolt against the Supreme Court’s infidelity to the Constitution. ADF President Alan Sears writes in the Washington Times:  

In 1985, the still-new attorney general, in a landmark speech before the American Bar Association, called for a “jurisprudence of original intent,” criticizing judicial activism in terms so blunt that his remarks drew an all-but-unprecedented public response from two sitting Supreme Court justices, William J. Brennan Jr. and John Paul Stevens.

That speech drew the legal line in the sand that has increasingly bisected American jurisprudence for the last quarter of a century, dividing jurists, attorneys, professors, law students, legal journalists and philosophers.

Many have dismissed “originalism” as an effort to impose 18th-century values on 21st-century Americans. But Mr. Meese has always recognized those enduring, eternal values as the moral truth and legal bedrock on which the republic was built.

He recognized early on the aggressive efforts of the so-called “progressives” to rewrite the Constitution in ways calculated to crack that bedrock by dynamiting centuries-old understandings of life, marriage, family and the rule of law, and by undermining the crucial freedoms of the Bill of Rights, especially religious liberty. In response, his unflinching words and example sparked the dramatic growth of what has come to be known as the “freedom-based” legal defense movement: a loose alliance of key individuals and organizations nationwide who may differ on many other things but who share Mr. Meese’s commitment to originalism.

Posted on 05/12/09 10:41 AM by Alex Adrianson

Obama’s Tax Proposal Hurts U.S. Competitiveness

President Obama’s recent proposal on corporate taxes reveals that either he doesn’t understand how the U.S. tax code puts U.S. firms at a disadvantage globally, or he doesn’t care. Obama wants to tighten rules allowing U.S. companies to defer U.S. taxes on the income they earn from operations abroad, claiming the deferrals amount to a subsidy for U.S. companies to export jobs.

But, as Dan Mitchell explains in the video below, Obama has it all backward. Congress created the deferral system long ago as a way of offsetting some of the extra burdens that the U.S. tax code places on U.S. firms. Aside from a high U.S. corporate tax rate, the chief problem for U.S. firms operating abroad is that they face double taxation: They must pay taxes in the country where they operate, and U.S. taxes as well. Allowing companies to defer taxes on income they earn abroad is a second-best fix: the ideal solution would be for the U.S. to follow the practice of most other countries and tax only income earned within its borders.

That and lowering the U.S. corporate tax rate would not only help U.S. companies internationally, but would help level the playing field for companies creating jobs in the United States. As Mitchell explains, it is certainly a better way of leveling the playing field than Obama’s plan:

If deferral is curtailed, that may prevent an American company from taking advantage of a profitable opportunity to build a factory in some place like Ireland, but U.S. tax law does not constrain foreign companies operating in foreign countries. So there would be nothing to prevent a Dutch company from taking advantage of that profitable Irish opportunity. And since a foreign-based company can ship goods into the U.S. market under the same rules as a U.S. company’s foreign subsidiary, worldwide taxation does not insulate America from overseas competition. It simply means that foreign companies get the business and earn the profits.

Mitchell explains it all with numbers and examples in the video below:

Posted on 05/11/09 02:45 PM by Alex Adrianson

Happy 110th, Friedrich Hayek

Today is the 110th birthday of Friedrich Hayek. It always pays to refresh one’s knowledge of Hayek’s ideas. Here is an excerpt from a lecture he gave in 1976 that might help set some thinking right (one can hope, anyway):

Sometimes it seems as if the sum of demands which are now everywhere advanced in the name of democracy have so alarmed even just and reasonable people that a serious reaction against democracy, as such, is a real danger. Yet it is not the basic conception of democracy, but additional connotations which have in the course of time been added to the original meaning of a particular kind of decision-making procedure, which now endanger the belief in a democracy so enlarged in content. …

But to call ‘law’ everything that the elected representatives of the majority resolve, and to describe as ‘Government under the Law’ all the directives issued by them – however discriminating in favour of, or to the detriment of, some groups of individuals – is a very bad joke. It is in truth lawless government. It is a mere play on words to maintain that, so long as a majority approves of acts of government, the rule of law is preserved. The rule of law was regarded as a safeguard of individual freedom, because it meant that coercion was permissible only to enforce obedience to general rules of individual conduct equally applicable to all, in an unknown number of future instances. Arbitrary oppression – that is coercion undefined by any rule by the representatives of the majority – is no better than arbitrary action by any other ruler. Whether it requires that some hated person should be boiled and quartered, or that his property should be taken from him, comes in this respect to the same thing.

New Studies in Philosophy, Politics, Economics, and the History of Ideas, University of Chicago Press, 1978, pp. 152-154.

Posted on 05/08/09 11:15 AM by Alex Adrianson

Gerald Scully, RIP

Gerald Scully, an economist who demonstrated a link between the size of government and economic growth—which came to be called the Scully Curve—died on Monday of pancreatic cancer. John Goodman, who credits Scully with having a great deal of influence on him and the National Center for Policy Analysis, describes Scully’s work:   

He pioneered sports economics and went on to make many contributions in other fields. One of his most important contributions was the “Scully Curve.” Jerry showed that the size of government can contribute to economic growth in a nation’s early stages, but at some point, the size of government becomes a burden – reducing the rate of growth and causing national income to be lower than it otherwise would be.

In Jerry’s estimate, the optimal size of government is about 21% of national income. Since all developed countries are above this level, they all are making huge sacrifices in terms of lost income and economic well being – making even low income families worse off than they otherwise would have been.

Posted on 05/07/09 04:32 PM by Alex Adrianson

For Taxpayers, an Underwhelming Proposal

The good news: Today, the White House released a list of 121 programs that it wants to eliminate to achieve budget savings of $17 billion. Some of these proposed savings amount to considerably low-hanging fruit. The Washington Post reports that among the programs targeted for elimination are

a $35 million-a-year long-range radio navigation system that officials said has been made obsolete by Global Positioning System devices; a Department of Education attache based in Paris that costs $632,000 per year; and a $142 million program that officials said continues to pay states to clean up abandoned mines even though that task has been completed.

In addition, the White House is proposing to cancel the Christopher Columbus Fellowship Foundation, an independent federal agency established to encourage and support research, study and labor designed to produce new discoveries in all fields of endeavor for the benefit of mankind,” according to its Web site. The program costs $1 million a year, and officials said 80 percent goes to administrative overhead.

The mediocre news: Almost half of the cuts come from the one function of government that nearly everyone agrees is a core function—and one established by the Constitution: national defense. Defense spending is currently only 20 percent of the federal budget. Heritage’s Brian Riedl comments:

The Defense Department can certainly be wasteful and should not be spared from any exercise in cleaning up government. At the same time, President Obama should explain that the disproportionate targeting of defense is not ideological, and he should employ similar diligence when examining the other 80 percent of the federal government.

The bad news: Seventeen billion dollars is a pittance—less than one-half of 1 percent of the entire federal budget. It is less than 3 percent of the amount of new public debt that has been created since President Obama took office. And there’s no reason to think that tax payers will even see a savings of $17 billion. As the Post reports:

The proposed cuts, if adopted by Congress, would not actually reduce government spending. Obama’s budget would increase overall spending; any savings from the program terminations and reductions would be shifted to the president's priorities.

But the more likely outcome, budget analysts said, is that few to none of the programs targeted by Obama will be terminated. Presidents from both parties have routinely rolled out long lists of spending cuts – and lawmakers from both parties routinely ignore them.

That explains the persistence of the low-hanging fruit.

Posted on 05/07/09 04:11 PM by Alex Adrianson

A Fool’s Errand?

New estimates of the amount of warming that can be avoided by stringent reductions in greenhouse gas emissions reveal the futility of the United States attempting to halt global warming without similar commitments from China, India, and other developing countries. Using a model called (what else?) MAGICC (Model for the Assessment of Greenhouse-gas Induced Climate Change), Chip Knappenberg estimates that cutting greenhouse gas emissions to 83 percent below 2005 levels by 2050—as called for by the Waxman-Markey climate bill—would reduce the projected increase in global temperatures by only 0.06 degrees Celsius. MAGICC is a model developed by scientists at the National Center for Atmospheric Research with funding from the U.S. Environmental Protection Agency. The United Nation’s Intergovernmental Panel on Climate Change predicts that global temperatures could rise by as much as 4.4 C without government action to reduce greenhouse gas emissions. A change of 0.06 C amounts to about two years’ worth of warming.

The model also predicts that by 2100, the temperature increase avoided would be less that 0.195 C—or about five years’ worth of warming. Even if all the developed countries committed to a plan like Waxman-Markey, the temperature increase avoided would be only 0.402 C. By contrast, says Knappenberg, if all countries in the world committed to the same 83 percent reduction by 2050, the temperature increase avoided would reach 2.37 C by 2100. Including China is the key, since the increase in China’s emissions since 2000 is 50 percent greater than the increase from the rest of the world combined. China has recently indicated a willingness to consider limits on carbon emissions, but still wants developed countries to bear a larger share of the burden. That’s only sensible for them, since China’s per capital GDP is still about 14 times lower than that of the United States, and economic growth will require more energy use.

According to the CBO, the annual costs that the Waxman-Markey bill imposes on the typical U.S. household would reach $1,600 within a decade and then rise each year thereafter as limits on emissions are ratcheted downwards.

Posted on 05/07/09 01:54 PM by Alex Adrianson

The Good News Seniors Won’t Learn Reading the New York Times

At AEI’s new Enterprise Blog, Andrew Biggs identifies a little recognized fact about Social Security: By law, cost of living adjustments can never be negative, which means deflation amounts to a raise for Social Security recipients. This observation will seem a paradox to those who don’t understand what inflation is, including Robert Pear of the New York Times. Reporting on CBO’s recent projection that there will be no cost-of-living increases until 2013, Pear writes: “The absence of a cost-of-living adjustment, calculated under a formula set by law, will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs.”

Biggs explains the problem:

Pear’s article, and public reaction to COLAs in general, reflects a mistaken view that inflation adjustments for Social Security benefits are a “raise”—the higher the COLA, the happier people seem to be. A year with no COLA is treated as a year without Santa Claus. In Pear’s article, for instance, AARP’s David Certner says, “Most seniors have never been through a year in which there was no Social Security COLA.” Of course, most seniors have never been through a year without inflation either. If you don’t have the latter, you don’t need the former.

Wouldn’t it be nice if reporters covering Social Security didn’t always aim to scare senior citizens?

Posted on 05/06/09 05:59 PM by Alex Adrianson

What Happens Next Time Credit Is Needed?

Regarding the White House plan to put UAW ahead of Chrysler’s secured creditors, Megan McArdle identifies a good question:

… let’s pretend that the most important thing in the world, far more interesting than stupid concepts like the rule of law, is saving unions. What do you think this is going to do to the supply of credit for industries with powerful unions? My liberal readers who ardently desire a return to the days of potent private unions should ask themselves what might happen to the labor movement in this country if any shop that unionizes suddenly has to pay through the nose for credit. Ask yourself, indeed, what this might do to Chrysler, since this is unlikely to be the last time in the life of the firm that they need credit.  Though it may well be the last time they get it, on anything other than usurious terms.

Posted on 05/06/09 05:25 PM by Alex Adrianson

Spain’s Renewable Energy Boondoggle

A funny thing about President Barack Obama’s suggestion that we look to Spain for guidance on energy policy: Spain’s experience reveals that green energy is a job killer, not a job creator.

In January, President Obama urged a rally in Ohio: “Think of what’s happening in countries like Spain, Germany and Japan, where they’re making real investments in renewable energy. They’re surging ahead of us, poised to take the lead in these new industries.”

But Gabriel Calzado of Spain’s Rey Juan Carlos University calculates that Spain’s efforts to promote renewable energy through subsidies and price controls has destroyed 2.2 jobs for every job the program has created. According to Calzado, since the year 2000, Spain’s subsidies for renewable energy have created no more than 50,200 jobs. But the annual subsidy per job created has been 55,946. That works out to 2.2 times the productivity of the average worker in the European Union, meaning the resources spent to subsidize green jobs could have sustained 2.2 times more jobs in the private sector.

Calzado’s calculations help fix the deficient analysis being put out by the promoters of green energy who look only at jobs created directly by subsidies, but ignore the alternative uses of the resources spent. Meanwhile, it should be kept in mind that jobs per se are not a benefit. Jobs are the cost of producing the things we value. If we could get the things we value with less work, then we’d all have more time to spend at the beach.

Posted on 05/06/09 02:51 PM by Alex Adrianson

A Pioneer in “Smart Growth” Becomes a Pioneer in No Growth

April 30 was the last day for the planning department of Petaluma, Calif. The city decided to axe the department after it became clear that development activity was not generating sufficient revenue to cover the department’s expenses. As of March, the department was running a deficit of $280,000 for the fiscal year, which ends in June. Too few developers were applying for building permits or otherwise making use of the department’s fee-generating services.

In 1972, Petaluma became the first city in the country to attempt to control growth through limiting the number of building permits issued each year. The city also established an urban-growth boundary. These and other planning devices eventually became known as “smart growth” and were subsequently adopted by many other cities around the country. In 1975, the city successfully defended its growth-control legislation before the U.S. Ninth Circuit Court, and the Supreme Court declined to hear the developers’ appeal.  

It’s not clear if the planning staff view their dismissal as success through obsolescence, but that appears to be what the city has accomplished. Over the decades, Petaluma has developed a reputation as being unfriendly to new businesses, especially big box retailers that would compete with the established boutique shops. It’s a form of protectionism, of course, and some may like to keep their town small and quaint.

But “smart growth” advocates should acknowledge that they are practicing a new form of segregation. As Wendell Cox and Ron Utt point out, cities with the most restrictive land-use regulations have the highest ratios of median house price to median annual income. San Francisco, Los Angeles, and San Diego each have tight land-use regulations and in each of those cities, the ratio of median house price to median annual income exceeds 10 to 1. Historically, that ratio has been 3 to 1 or less. Higher house prices drive out families of more modest means. Cities with light land-use regulations such as Indianapolis, Dallas, Atlanta, and Houston have more welcoming prices. The ratio of house price to median annual income is only 2.3 in Indianapolis, 2.5 in Dallas, 2.8 in Atlanta, and 2.9 in Houston.

Even more troubling, however, is the fact that “smart growth” policies have contributed to the recent instability in housing markets—which in turn has contributed to the falling interest in new development in California. As Cox and Utt detail in their recent paper, the housing bubble that collapsed last year was a regional phenomenon. In areas where regulations made land artificially scarce, house prices increased faster than incomes, which lured many homeowners to convert their equity appreciation into cash. When the bubble then collapsed, the tightly regulated markets experienced the largest declines in house prices and the highest foreclosure rates, as homeowners with excessive debt were exposed. The foreclosures have been concentrated in four states—and California is one of them. Utt and Cox write:

According to RealtyTrac, a leading real-estate reporting firm, nine of the 10 areas with the highest foreclosure rates were in California, Nevada, Arizona, and Florida, while 18 of the top 20 were in urban areas that [the] Brookings [Institute] includes in its most restrictive category, including California, Nevada, Arizona, and Florida. [Internal citations omitted.]

So the planners in Petaluma can thank “smart growth” for putting them out of a job. Meanwhile, the citizens of Petaluma are currently engaged in a debate over whether letting Target set up shop would be good for the tax base and help the city close its budget gap. But maybe Petaluma doesn’t need Target. In 1973, George Lucas filmed many scenes in his ’60s nostalgia movie American Graffiti in Petaluma. Perhaps by shunning development, Petaluma can remain stuck in time, the perfect venue for filmmakers to make future coming-of-age movies. That model, however, probably can’t work for every city currently enthralled with “smart growth” ideas.

Posted on 05/05/09 02:11 PM by Alex Adrianson

Kemp’s Tax-Cutting, Pro-Growth Legacy

“Arguably, without Jack Kemp,” writes Richard Rahn, “the Reagan supply-side, high-growth economic revolution would never have occurred”:

The Keynesians of the [late 1970s] favored monetary expansion to reduce interest rates and high tax rates to contain inflation. Mr. Kemp and his advisers argued that the Keynesians had it all backward and the solution was to reduce tax rates to spur the economy and restrain growth in the money supply to reduce inflation.

Mr. Kemp successfully sold this idea to Ronald Reagan, who made it the core of his successful 1980 presidential campaign. (In his unsuccessful 1976 campaign, Mr. Reagan had emphasized cutting spending rather than cutting taxes.) With Mr. Kemp leading the charge in Congress, the tax cut plan was passed, the economy soared (7.2 percent in 1984) beyond anyones expectations, and federal tax revenues came in at a much higher level than either the critics or the supporters of the tax cut expected. Mr. Reagan and Mr. Kemp supported Paul Volcker at the Fed, who did the necessary wringing out of inflation by restricting monetary growth in the early 1980s, even though many politicians of both parties were screaming for monetary expansion.

There has been no politician in recent decades with a better understanding of the consequences of economic policy than Jack Kemp.

Mr. Kemp, unlike those in the current administration and the congressional Democratic majority, knew that without sound money and low tax rates, we could not have a vibrant economy. Much of the prosperity and job creation we had in the quarter-century from 1983 to 2007 can be directly attributable to the remarkable efforts and economic salesmanship of Jack F. Kemp.

We have lost Jack’s voice for his enduring economic principles, just when we need them more than ever.

Posted on 05/04/09 04:54 PM by Alex Adrianson

How Many Attended the Tea Parties?

The Taxpayer Tea Parties were never expected to be a “Million Man March,” but according to a tally by Americans for Tax Reform, a safe estimate is that on tax day upwards of half a million people attended various protests against out-of-control government spending. Since tax day, ATR has been collecting reports of tea parties held around the country. The group’s list identifies 540 events with a total of 578,000 people attending. Their tally for attendees is based on newspaper and police reports for the events.

ATR is still collecting reports. If an event you attended is not on the list, please go to the ATR blog and leave a comment (in response to the post, Updated: How Many People Attended the Tax Day Tea Parties?) identifying the event location, the number of attendees, and a news source to verify.

Posted on 05/01/09 11:40 AM by Alex Adrianson

Don’t Close the Border

James Carafano and Jena Baker McNeill of The Heritage Foundation point out three reasons why closing the U.S.-Mexican border is a bad idea as a response to the swine flu outbreak:

First, doing so will not prevent infected individuals from entering the United States. If someone crossing the border is affected, they could appear “asymptomatic” at the border or with symptoms virtually indistinguishable from other flus and colds. Even the WHO has advised against the use of travel restrictions for dealing with the swine flu, emphasizing that such a measure would be ineffective.

Second, such measures would cause massive economic disruption. A blockade at the U.S.–Mexican border would effectively halt the North American supply chain. The southern border has 39 ports of entry, through which hundreds of millions of people, trucks, and cars pass each year. Mexico is America’s third largest trading partner, with most goods flowing through the southern border. Given the current economic climate and the market’s already skittish reaction to the swine flu, closing the border would be a crippling blow to commerce.

Finally, the flu has already gone “global”—hopes of restricting the international spread of the disease are unrealistic.

For now, it seems that washing your hands frequently and avoiding work if you feel sick are the best things that can be done.

Posted on 05/01/09 11:12 AM by Alex Adrianson

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