Archives: May, 2008

Myth-Busting Fortunes of the Steel Industry

Today, the Washington Post finally got around to publishing a story about the enviable state of America’s most iconic manufacturing industry – the steel industry.

Steel prices are at record highs, surging more than 70 percent in the past year alone. Industry profits have set new records in recent years. Return on investment has been astronomical. The American Stock Exchange’s Steel Index increased 49 percent per year from 2003 to 2007, as compared to 13 percent per year for the S&P 500. Foreign demand continues to be white hot, while demand from U.S. steel-using industries continues to be stronger-than-expected in a slowing economy.

U.S. steel industry shipments of 106 million tons in 2007 exceeded the industry’s 1970 shipments by 16 percent. Output per worker has soared: in the 1970s producing a ton of steel required 12 man-hours; today it requires 1.2 man-hours. Several billion dollars of new green-field investments are being made by foreign and domestic producers in U.S. production capacity, which is a sure sign that those who know the industry best have faith in America’s manufacturing future.

We at Cato have been reporting about the high-flying steel industry for several years now (here, here, and here), and about the record performance of the U.S. manufacturing sector overall (here and here). But the mainstream media (with a few exceptions) has been silent about these incredible successes, while Barack Obama, Hillary Clinton, the Congressional Steel Caucus, other members of Congress, Lou Dobbs, the United Steelworkers, the AFL-CIO, the Alliance for American Manufacturing, and other entities whose agendas require an environment of public fear have had carte blanche to mislead and deceive the public about trade and manufacturing.

The preference in the media for exceptional doom and gloom stories about job loss and manufacturing ghost towns over factual stories about the real state of manufacturing has definitely taken its toll. Opinion polls show irrational levels of antipathy toward trade and globalization among the American public, which simply belies the facts.

I suppose it would be wrong to blame the media for pursuing a proven formula: fear and drama sell advertising. But maybe the commoditization of fear and drama will lead more news media to discover niche markets, like the market for quaint, factual stories couched in perspective.

Fiscal Responsibility, Bush Style

As we all know, if you just put the word “defense,” or “homeland” or “security” anywhere in the name of a government program, its fiscal impact is immediately zeroed out. But if this mystical transformation didn’t take place, President Bush’s fiscal legacy would be looking darker and darker each day. Noah Shachtman gives us a rundown:

The Pentagon’s internal watchdogs can’t keep up with the explosive growth in military spending. Which means $152 billion’s worth of contracts annually aren’t being reviewed for fraud, abuse and criminal interference by the Defense Department’s Inspector General, according to a newly-unearthed report to Congress. The result: “undetected or inadequately investigated criminal activity and significant financial loss,” as well as “personnel, facilities and assets [that] are more vulnerable to terrorist activities.”

Since fiscal year 2000, the military’s budget has essentially doubled, from less than $300 billion to more than $600 billion. Two wars have begun. But the number of criminal investigators and financial auditors at the Department of Defense Office of Inspector General (DoD IG) has stayed more or less the same. So there are now “gaps in coverage in important areas, such as major weapon systems acquisition, health care fraud, product substitution, and Defense intelligence agencies,” according to the report, obtained by the Project on Government Oversight.

[…]

The DOD IG’s office has certainly stayed busy. In just the last few months, the DOD IG caught a Philippine corporation bilking $100 million from the military health care system; nabbed a trio trying to bribe their way into drinking water contracts for troops; busted an Air Force general who tried to steer a $50 million deal to his buddies; and launched investigations into the Pentagon’s propaganda projects and the youthful arms-dealer who sold tens of millions of dollars’ worth of dud ammunition to the government.

Shachtman then observes: “The question is: How much more could they have done, with a bigger staff?” It’s almost like you sink a half a trillion dollars a year into one massive bureaucracy and it’s hard to keep track of it all. President McCain’s going to have to find a lot of earmarks to offset this sort of thing.

Justified Praise for Cult of the Presidency

Gene is too modest to link to it himself (I wouldn’t be!), but George Will’s column in this week’s Newsweek centers on Caesaropapism and, Gene Healy’s new book. Here are the first few paragraphs:

Barack Obama recently said, “I believe in our ability to perfect this nation.” Clearly there is something the candidate of “change” will not change—the pattern of extravagant presidential rhetoric. Obama is trying to replace a president who vowed to “rid the world of evil”—and of tyranny, too.

But then, rhetorical—and related—excesses are inherent in the modern presidency. This is so for reasons brilliantly explored in the year’s most pertinent and sobering public affairs book, “The Cult of the Presidency: America’s Dangerous Devotion to Executive Power,” by Gene Healy of Washington’s libertarian Cato Institute.

Healy’s dissection of the delusions of “redemption through presidential politics” comes at a moment when liberals, for reasons of liberalism, and conservatives, because they have forgotten their raison d’être, “agree on the boundless nature of presidential responsibility.” Liberals think boundless government is beneficent. Conservatives practice situational constitutionalism, favoring what Healy calls “Caesaropapism” as long as the Caesar-cum-Pope wields his anti constitutional powers in the service of things these faux conservatives favor.

“Faux conservatives” is just right. Elsewhere, Gene has demonstrated that conservatives have shamefully prostrated themselves at the totem of executive power, a position that would have nauseated their intellectual forebears.

A Taxing Argument over School Choice

Today’s Tucson Citizen column by Robert Robb echoes a point I made a couple of weeks ago:  it is difficult to argue with the AZ appellate court decision striking down that state’s voucher programs for disabled and foster children.

But Robb goes astray when he asserts that:  

Vouchers are much preferable to tax credits. Good tax policy involves low rates on broad bases. Tax credits erode the tax base and depreciate in value as tax rates are lowered. So, reliance on tax credits puts good education policy at odds with good tax policy.

First, it is a mistake to compare two policies solely in terms of their impact on tax policy. There are important substantive advantages of credits over vouchers that outweigh tax policy considerations.

Second, the tax policy case does not actually favor vouchers as it might at first seem. Robb’s argument implicitly compares education tax credit programs with the absence of any government education policies at all, but we must compare credits to the voucher and government schooling alternatives.

Robb advocates low tax rates, but vouchers require much more money to be raised in taxes than do tax credit programs. Tax credits are targeted tax cuts, leaving more money in private hands. Thus, credits win on the “low rates” measure.

Next, the two main reasons for supporting a “broad base” for taxation are:

1) To minimize the extent to which there are favored classes among taxpayers who do not carry their share of the tax burden, and who thus breed resentment among those who must carry a greater burden [undermining public support for the system, and hence the voluntary compliance on which it relies], and

2) To minimize the government’s distortion of taxpayer behavior in the marketplace that can be expected when the state favors some activities and disfavors others.

On both of these scores, tax credits are superior to both vouchers and conventional government schooling.

First, under all three systems – tax credits, vouchers and public schooling – there is a favored class: parents with school-aged children. That class benefits at the expense of all other taxpayers. Nevertheless, tax credits offer the taxpayer a level of discretion and accountability that does not exist under vouchers and government schooling. Under credits, taxpayers choose either the individual recipient of their money or the non-profit scholarship organization that will disburse their money. If a particular scholarship organization ceases to meet their expectations, they can shift their donations to another. This flexibility can reduce the resentment that arises when taxpayers are compelled to pay for types of schooling they find fundamentally objectionable (which can happen under both vouchers and government schooling).  This taxpayer choice also exerts market pressure on scholarship organizations to behave wisely and efficiently in order to keep attracting donations. Voucher programs and government schooling undergo no comparable pressure.

Second, both vouchers and government schooling distort taxpayer behavior more than do tax credits. In fact, under those systems, taxpayer behavior is reduced to one of two options: paying one’s education taxes, or going to jail. Tax credits at least offer the taxpayer some level of choice: the option of choosing the specific child or specific scholarship granting organization who will receive his money. Since tax credit programs, to date, impose fewer restrictions on schools than either vouchers or government schooling, they also exert a less distorting effect on the choices of education consumers.

Credits are thus better not only on their intrinsic merits as a means of ensuring universal access to a free and dynamic education marketplace, they are also better from a tax policy standpoint.

Starved for Good Data: 35 Million Not Hungry

America’s supposed hunger epidemic is catching up to crocodiles in the sewers as the most popular urban legend. The difference is that the hunger epidemic is being promoted by the nation’s major media.

Under the headline “Going Hungry in America,” Parade magazine (circulation 32 million) claimed: “More than 35.5 million Americans–12% of the U.S. population and 17% of our children–don’t have enough food, according to the Department of Agriculture.”

This article comes two weeks after the Washington Post led a story: “About 35 million Americans regularly go hungry each year, according to federal statistics.” (And see here).

I’m not a hunger expert, but I actually looked at the official Department of Agriculture data, rather than relying on biased second-party sources, as many reporters seem to do.

In addition to the links I provided in prior blogs, check out this USDA discussion. The 35 million figure includes 24 million that are in a broader group called “low food security.” The USDA notes: “These food-insecure households obtained enough food to avoid substantially disrupting their eating patterns or reducing food intake, by using a variety of coping strategies, such as eating less varied diets, participating in Federal food assistance programs, or getting emergency food from community food pantries.”

Thus, 24 million of the 35 million are not “going hungry” as news reports keep claiming.

“Going hungry” better applies to the 11 million in the “very low food security” group. For this group, the USDA says “food intake was reduced at times during the year because they had insufficient money or other resources for food. In previous reports, these households were described as ‘food insecure with hunger.’ ” Notice that even for this smaller group, episodes of hunger may be fairly rare.

Finally, compare this USDA assessment: “In 2006, 430,000 children (0.6 percent of the nation’s children) lived in households with very low food security among children,” with Parade’s grim report “…17% of our children—don’t have enough food.” 

Actual hunger among the poor is, of course, a terrible thing. That is one reason why the federal goverment ought to repeal ethanol subsidies, terminate its Soviet-style controls on milk, and other reform other policies that push up the price of food.

Don’t Talk to the Police?

Professor James Duane has posted a terrific lecture about the Fifth Amendment’s safeguard concerning self-incrimination and the risk of “waiving” that right by speaking to the police.

If you want to divulge your Social Security number and other personal information to a stranger who telephones your home, that’s your choice.  You can choose to ignore common sense and risk identity theft.  Dealing with the police raises similar risks, as Prof. Duane shows.  It’s one thing for you to initiate the encounter, such as by calling the police about your stolen car.  But when the police initiate the encounter, it’s a minefield.   Watch out. 

The Supreme Court should make it as plain as possible that people have the right to remain silent.  Unfortunately, the Court is creating a situation where only lawyers will know when they must talk and when they can remain silent. 

For additional information, go here.

Tornadoes: Trends in US Death and Death Rates, 1916-2006

Once again tornadoes and other extreme events are in the news. Here, for perspective, are US and global trends in deaths and death rates from such events from 1900-2006.

For tornadoes, since peaking in the early decades of the 20th century, deaths declined by over 80% while death rates declined by 92% (based on 10-year moving averages for 1916-2006) . [See Figures 6 and 7.]

For other extreme events – lightning, floods and hurricanes – US deaths and death rates are also below their peak levels of a few decades ago. Their declines in annual mortality range from 62 to 80%, while mortality rates declined 75 to 95%.

Globally, mortality and mortality rates have declined by 95% or more since the 1920s. The largest improvements came from declines in mortality due to droughts and floods, which apparently were responsible for 93% of all deaths caused by extreme events during the 20th Century. For windstorms, which, at 6%, contributed most of the remaining fatalities, mortality rates are also lower today but there are no clear trends for mortality.

So contrary to what some may expect from global warming, matters are not getting worse. This is mainly due to adaptation.

Also, the linked paper (above), tells us that on average, extreme cold kills many more people directly than does extreme heat.