Archive for the 'Politics' Category

A beauty pageant for Worst Program Ever

Published on 8/29/2010 in Politics . 0 Comments Tags: , .

(…) asking policymakers to quickly fix problems that government policies helped foster isn’t much different than asking the arsonist to put out the fire.

There are so many beautiful competitors for “dumbest program ever“, or “scam of the century“. Here we consider recent pageant winners C4C = Cash for Clunkers and Homebuyer Tax Credit. These might not be the most beautiful of all time, but I am confident there will be many more deserving winners:

(…)

Over the past eighty years, the public has become conditioned in times of crisis to turn to their rulers and demand that they “do something.” That the rulers had a hand in the crisis is all too often either unrecognized or it’s a secondary concern. As Robert Higgs demonstrated in his seminal book, Crisis and Leviathan, the rulers will willingly oblige the public and, in the process, come away with more power and control than they had prior to the crisis. Unfortunately, the rulers’ enhanced authority begets more crises in the future.

The latest chapter in this story is the economic downturn. Many of the “seeds” for the recession were planted by government. Regardless, the average citizen reflexively looked toward Washington to quickly fix the economy. The public’s limited patience meshes well with policymakers who are naturally inclined to operate on a short-term horizon (i.e., the next election). Therefore, policymakers responded with quick-fix measures with almost no regard to the long-term consequences. The long-term economic problems caused by massive deficit spending and mounting debt are the most obvious. But as two stories in the news show, short-term measures implemented by policymakers to “fix” the economy have also introduced unwelcome economic distortions. First, following the expiration of the federal homebuyer tax credit, home sales have fallen off the cliff. The Christian Science Monitor asks: was the homebuyer tax credit the “scam of the century?” The program was riddled with fraud, some folks who were induced to purchase a house are already underwater or are headed in that direction, and the billions of dollars spent on the program did zilch for the long-term health of the housing market. When one looks at ultimate beneficiaries of the tax credit, it’s easy to see why the CSM calls it a “scam”:

[I]n trying to fully understand why the government undertook such a useless and poorly calculated program, it’s important to recognize those who truly walk away from this policy in better standing.

Realtors, home builders and mortgage bankers…. some of the most notable culprits of the housing bubble years… all walk away cleanly skimming the proceeds coming from the transactions of an estimated 2 million temporarily stimulated home purchases.

It should come as no surprise that these were the very same industry groups that worked tirelessly lobbying to enact this failed policy… it was a simple exchange… your tax dollars to their wallets.

Second, we go from “scam of the century” to the “the dumbest program ever.” The latter refers to the “Cash for Clunkers” program, which Chris Edwards submitted for nomination in August 2009. Chris cited numerous problems with the program, including that “Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.” A senior editor at Edmunds.com tells a reporter from WIOD news radio in Miami that used-car prices are way up (h/t Radley Balko):

If buying a used car is among your cost-cutting measures…be prepared to pay up to 30-percent more than you did last year.

It is a simple case of supply and demand.

Trouble is…there are fewer used cars.

The cash-for-clunkers program took a bunch off the market.

Plus, Edmunds Senior Editor Bill Visnick says 5-million fewer new cars were sold last year…which pares down the used car supply even more.

As Radley sarcastically notes, you can’t blame those supposedly selfish limited government types for this one:

[W]e have a government program whose stated aim was to shore up huge, failed corporations by giving public money to mostly upper-income people that in the end will penalize low and middle-income people. But remember folks, it’s the libertarians—who opposed C4C—who are greedy corporatists who hate the poor.

There could be a silver lining in the cloud if more Americans start to realize that asking policymakers to quickly fix problems that government policies helped foster isn’t much different than asking the arsonist to put out the fire. [From Government's Economic Distortions]

Case study in Regulatory capture: the MMS

Published on 8/29/2010 in Politics . 0 Comments Tags: .

Cato’s Chris Edwards takes his assault rifle to the carnival duck-shooting gallery:

“Regulatory capture” occurs when a government entity tasked with protecting the public’s interest instead protects the industry is it supposed to regulate. The latest example is the Interior Department’s Minerals Management Service. The MMS was created in 1982 to regulate the oil and gas industry and collect royalties on the resources extracted from federally leased land and waters.

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Regulatory capture is one of the many forms of government failure documented on this website. Policymakers never seem to worry about that in their continual calls to create new departments, agencies, commissions, boards, and other federal entities. When government regulations fail, policymakers almost always heap on more regulations. The government’s recent advances into the health care and financial services industries after its prior failures in those areas will likely lead only to further failures and more economic distortions down the road.

Gerald O’Driscoll points out that regulation also fails because the knowledge the regulators would need to possess “is dispersed throughout the industry and broader economy.” Centralizing that knowledge would mean central planning of the economy, which the Soviet Union proved does not work. O’Driscoll cites University of Chicago law professor Richard Epstein’s observation that we need simple rules for a complex world:

The complexity of rules is self-defeating, because that complexity requires more knowledge than can be acquired. Brazil has a simple rule for directors of failed banks: They are personally liable. That concentrates the mind of directors on reining in risk-taking by management more effectively than would creating a systemic-risk regulator.
The Obama administration and Congress propose more of the same failed approach to regulation. Instead they should heed Hayek, who observed that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Read more »

High-speed rail: Amtrak’s New $300 Million Rail Cars

Published on 8/29/2010 in Politics . 5 Comments Tags: , .

If you agree with Seekerblog, that America should urgently increase their taxpayer subsidies for stagecoaches, then you too may enjoy one of my favorite daily reads: Cato’s Downsizing the federal government.

Amtrak has announced that it will spend $300 million on 130 new rail cars, including sleeper and dining cars, for its long-distance trains. The government company’s announcement came with the obligatory statement that the purchase will create 575 jobs. That’s more than $500,000 per job.

As a Cato essay on Amtrak discusses, all of Amtrak’s long-distance routes are money-losers. For example, the Sunset Limited, which runs from New Orleans to Los Angeles, lost $462 per passenger in 2008. According to the Government Accountability Office, long-distance routes account for 15 percent of riders but 80 percent of financial losses.

Amenities like sleeping and dining services contribute to the red ink:

The demographic being served by these long-term routes does not demonstrate a strong need for taxpayer subsidies. Eighty percent of long-distance train riders use it for recreational and leisure trips, and riders tend to be retirees. Premium services like sleeper and dining cars contribute to operating losses for long-distance trains. These amenities are heavily subsidized, which means taxpayers—and not the pleasure-seeking retirees—are incurring the burden.

To maintain its unprofitable routes, Amtrak is dependent on federal subsidies, which are usually about $1.5 billion a year (Amtrak also recently received $1.3 billion in stimulus money). Amtrak has asked for $2.5 for the upcoming fiscal year, and the Senate Appropriations Committee has proposed a 25 percent increase. Amtrak’s press release brags: “Last fiscal year (FY 2009), the railroad carried 27.2 million passengers, making it the second-best year in the company’s history.” That sounds good until you realize that Amtrak accounts for only 0.1 percent of that nation’s passenger travel. Moreover, Amtrak projected in 1976 that its ridership would grow from 17.3 million in 1975 to 32.9 million by 1980. With the nation’s debt spiraling out of control, taxpayers can no longer afford to subsidize Congress’s toy train. If intercity passenger rail makes economic sense, it could be profitably supported by its ridership and run as a private company. If not, then it makes no more sense for taxpayers to keep Amtrak operating than it would be for the federal government to subsidize stagecoaches.

A guide to the Australian election for non-Australians

Published on 8/28/2010 in Politics . 0 Comments

This is great — money manager John Hempton concisely explains how Australian politics works:

I have already been asked by email what the Australian election result means and what will result from it. At this point I do not know – and frankly nor does anybody else. However I hope – and removing my politics from this – to give a quick handbook for someone with almost no knowledge of Australian politics. So please forgive me starting very basic.

What you need to form government

Australian politics is based on a “Westminister system”. That is – like the UK – to become a national leader you first need to elected a local representative in the “house”. This representation is in single-member seats. To become the national leader (the Prime Minister) you need to control the votes of a majority of the members of the House. Normally this happens through tight “party affiliation”. When you elect a member you know which party they belong to – and so you are really voting – indirectly and by convention – for a Prime Minister.

There are 150 members of the house – so 75 members for both sides would be a tie. You need 76 members under tight control to form a majority government.

A short summary of the political parties

I need this to explain roughly where the political parties sit.

(…) Mostly to the left of the Labor party is the Greens. The Greens are hard-line on environmental issues (mostly), mostly very left-wing on straight economic issues and mostly extremely liberal on social issues. The Green policy summary for this election are (a) not just have an emission trading scheme for carbon but tax the polluters into the bargain, (b) make the miners pay the full-undiscounted original mining tax, and (c) legalize gay marriage.

The classic dividing line between the Greens and the Labor party is logging of high conservation value forests. The Greens are hard-line opposed. The Labor party is (mostly) inclined to take the position of the (unionized) forestry workers. They can irregularly (say once per 20 years) take a power-pragmatic position to align with the Greens in exchange for Green preferences in urban areas.

If you are mostly economically conservative, mostly socially liberal and fairly hard line on environmental issues there is simply no single party to belong to or vote for in that you will disagree with their positioning on something.

Read more » from there John profiles the three conservative independents and the Green to assess how they might toss their lot with the Coalition.

In Defense of Congressman Paul Ryan

Published on 8/12/2010 in Economics and Politics . Closed

We haven’t had time to study Ryan’s plan in detail — but the priorities and structure of his plan all look very good. Surprisingly Paul Krugman doesn’t like the plan. Here’s the short rejoinder from Ted Gayer (Tax Policy Center) defending the Roadmap for America’s Future Act.

Given that columnist Paul Krugman relied on Tax Policy Center estimates to level claims that Congressman Paul Ryan is a “flimflam man” and that Ryan’s plan to address our fiscal problems is a “fraud,” I think a defense of the Congressman is in order.

First, it is worth citing budget estimates from the Congressional Budget Office (CBO). According to CBO, Congressman Ryan’s Roadmap for America’s Future Act would dramatically reduce the build up of America’s debt. CBO estimates that his plan would result in a debt to gross domestic product ratio (GDP) of 69 percent in 2020, rising to 99 percent in 2040, and then decreasing to 77 percent in 2060. This is in contrast to CBO’s estimates for its alternative fiscal scenario (which assumes a continuation of current policy) where the debt-to-GDP ratio is 87 percent in 2020, and then rises sharply to 223 percent in 2040 and 433 (!) percent in 2060.

On the spending side, Congressman Ryan’s plan achieves these substantial reductions in our long-term debt through such things as progressive reductions in Social Security benefits, increases in the eligibility age for Medicare, and the replacement of Medicare benefits with a voucher starting in 2021 (with an average initial voucher value for 65-year-olds of $5,900 in 2010 dollars).

On the revenue side, Ryan has proposed creating an alternative income tax system that has two marginal tax rates, eliminates most deductions and credits, and exempts all interest, dividends, and capital gains from the individual income tax. Filers would get to choose between the existing income tax and the new system. Ryan would also replace the corporate income tax with a business consumption tax (essentially a value-added tax).

Krugman alleges fraud because CBO did not score the revenue side of the Congressman’s plan. (This is correct as the Joint Committee on Taxation is responsible for providing the official revenue score of tax legislation.) Instead, CBO assumed that total federal tax revenues will be equal to “those under CBO’s alternative fiscal scenario … until they reach 19 percent of gross domestic product in 2030, and to remain at that share of GDP thereafter.” Contrary to Krugman’s claims, this assumption is not unjustified. Ryan has explicitly stated that he is willing to work with the Treasury department to adjust the rates on his tax reform plan to “maintain approximately our historic levels of revenue as a share of GDP.” Since 1980 the federal tax revenue has been about 18 percent of GDP.

TPC did analyze Ryan’s tax-specific proposals and found they would fall short of this revenue goal. For example, Ryan’s proposal would lead to federal tax revenue of approximately 16 percent of GDP, which amounts to a $4 trillion revenue shortfall over ten years compared to the alternative fiscal scenario. But that doesn’t mean that Ryan’s plan is a fraud. Instead, it shows that Ryan’s vision of broad-based tax reform, which essentially would shift us toward a consumption tax, needs to be adjusted in order to meet his stated goal of matching historical levels of revenue as a proportion of GDP. This indeed poses a challenge to Congressman Ryan to make specific changes to his tax reform plan in order to meet his revenue goal. Reasonable people can disagree about whether we should close our long-term fiscal gap primarily through spending reductions or tax increases, but Congressman Ryan’s proposal makes a useful contribution to this debate.

Especially refreshing to me is to see that there is at least one politician in the District of Corruption who is smart, competent and willing to challenge the status quo. It’s not perfect, but it is directionally right on.

A decade of spiraling deficits (NOT)

Published on 7/22/2010 in Politics . Closed

Keith Hennessey analyzes the Obama rhetoric:

Last Friday while speaking at the University of Nevada, Las Vegas about the economy, President Obama said:

And these were all the consequence of a decade of misguided economic policies — a decade of stagnant wages, a decade of declining incomes, a decade of spiraling deficits.

I want to focus on that last phrase: a decade of spiraling deficits.

Read more »

Why Is the Gulf Cleanup So Slow?

Published on 7/19/2010 in Politics . Closed

I will speculate that you will be angry after you read Paul Rubin’s op-ed. I don’t think the reason is sheer incompetence…

As the oil spill continues and the cleanup lags, we must begin to ask difficult and uncomfortable questions. There does not seem to be much that anyone can do to stop the spill except dig a relief well, not due until August. But the cleanup is a different story. The press and Internet are full of straightforward suggestions for easy ways of improving the cleanup, but the federal government is resisting these remedies.

(…) As the government fails to implement such simple and straightforward remedies, one must ask why.

(…) Another possibility is that the administration places a higher priority on interests other than the fate of the Gulf, such as placating organized labor, which vigorously defends the Jones Act.

Finally there is the most pessimistic explanation–that the oil spill may be viewed as an opportunity, the way White House Chief of Staff Rahm Emanuel said back in February 2009, “You never want a serious crisis to go to waste.” Many administration supporters are opposed to offshore oil drilling and are already employing the spill as a tool for achieving other goals. The websites of the Sierra Club, Friends of the Earth and Greenpeace, for example, all feature the oil spill as an argument for forbidding any further offshore drilling or for any use of fossil fuels at all. None mention the Jones Act.

To these organizations and perhaps to some in the administration, the oil spill may be a strategic justification in a larger battle. President Obama has already tried to severely limit drilling in the Gulf, using his Oval Office address on June 16 to demand that we “embrace a clean energy future.” In the meantime, how about a cleaner Gulf?

Overpaid Federal Workers

Published on 7/19/2010 in Politics . Closed

Why are US federal bureaucrats now paid double the private sector? What is wrong with this picture? For how to fix some of this problem see “Approaches to Cutting Federal Spending“, Chris Edwards’ testimony to the National Commission on Fiscal Responsibility and Reform.

Policing for Profit

Published on 6/3/2010 in Politics . Closed

HE ARRIVED in Houston with $500 in his pocket. A man he met on the Greyhound bus gave him a room until he found his feet. Zaher El-Ali, a Jordanian immigrant, worked hard and built up a small business renovating and selling cars and houses. He is now a proud American citizen. But, ridiculous though it sounds, his truck is in trouble with the law.

Six years ago, he sold a Chevy Silverado to a man who agreed to pay for it in instalments. Before the truck was paid off, the buyer was arrested for drunken driving. It was his third such arrest, so he was sent to prison and the police seized the truck. Mr Ali applied to get it back. He pointed out that he still held title to the vehicle, and that since the buyer had stopped making payments on it, he was entitled to reclaim it. But the government refused.

In most states the police can seize property they suspect has been used to commit a crime. Under “civil asset forfeiture” laws, they typically do not have to prove “beyond a reasonable doubt” that a crime was committed, or even charge anyone with an offence. What is more, the money raised by auctioning seized houses, boats and cars is often used to boost the budgets of the police department that did the seizing. That can mean fancier patrol cars, badass hardware or simply keeping the budget plump in lean times. In one survey 40% of police executives agreed that funds from civil-asset forfeiture were “necessary as a budget supplement”. This conflict of interest has predictable consequences. It spurs the police to pay more attention to cases that are likely to involve seizable assets (such as drug busts) and less attention to other ones. A report from the Institute for Justice, a pressure group, calls it “Policing for Profit”.

Please "http://www.economist.com/world/united-states/displaystory.cfm?story_id=16219747" target="_blank">continue reading…

The unintended consequences of mass incarceration

Published on 5/30/2010 in Politics . Closed

No comment required on this one by Lexington at The Economist:

Lexington’s notebook

Sex and the single black woman

Lexington

How jail undermines the black family

THIS week’s column looks at how locking up huge numbers of young black men makes it hard for black women to form stable relationships. Simply put, when there are more women than men in the dating pool, the men have all the power. An African-American man with a good job and no criminal record knows he is a hot commodity. He can get sex without offering commitment, so he is often reluctant to settle down, according to Audrey Chapman, a relationship counsellor and the author of books such as “Getting Good Loving“.

The single black women I spoke to for the column were not happy about this. They all complained about a shortage of eligible black men. Some thought it might be partly because some black men were on the “down-low”, ie they secretly have sex with men. But I doubt there is much difference between the proportion of black men and women who are gay, whereas we know there are huge differences in incarceration rates between the sexes.

A paper by Kerwin Charles and Ming Ching Luoh finds that the mass incarceration of males has a dreadful effect on women in the same “marriage market”. (They divided America into 306 marriage markets, to reflect the fact that most people marry someone who is of the same race, roughly the same age and who lives nearby.) Tim Harford’s book “The Logic of Life” has a more reader-friendly discussion of the subject.

This is a much more serious issue than most people realise, and yet another reason to reconsider America’s extraordinarily harsh punishments for non-violent crimes. If conservatives care about family values, they should be appalled at what jail is doing to the black family.

[From The unintended consequences of mass incarceration]

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