Archives: December, 2008

David Hyman Now Blogging at Volokh Conspiracy

Fans of Cato adjunct scholar David Hyman – you know, the guy who claimed that Medicare is a tool of the devil – will be happy to know that he is now blogging at The Volokh Conspiracy.

Hyman’s inaugural post – the first in a series on capping non-economic damages in medical-malpractice cases – can be found here.

And seriously, he was just kidding about that whole Medicare/devil thing.  Honestly.

This Time, Don’t Blame Court for Lost Educational Freedom

Florida’s First District Appellate Court has just ruled that only the state’s public school districts have the right to approve and oversee charter schools, striking down a 2006 law that had created an alternative state-level charter authorization body. Districts typically – and correctly – see charters as competitors for scarce public funding, and this ruling will allow them to once again protect their monopoly position by stifling the competition (the very problem the 2006 law was meant to address).

School choice advocates often blame biased or misguided courts for such unfortunate decisions. This time, the blame lies elsewhere: in Florida’s constitution. Unlike most state constitutions, which leave legislators considerable freedom in the area of education policy, Florida’s spells out how its public school system must be organized, run, and funded. Among its many stipulations is that each school board ”shall operate, control and supervise all free public schools within the school district.” Florida districts clearly have an absolute monopoly on how public school dollars are spent.

Monopolies aren’t exactly famous for innovation or responsiveness to their customers. So Floridians who want greater freedom and diversity in education will have to demand a constitutional amendment to that effect. Until they do, their elected representatives will remain helpless to provide them with meaningful alternatives to their assigned district schools.

This Month at Cato Unbound: What Happened?

Writing the history of a financial crisis can’t be easy, and it’s even harder when that crisis is still unfolding.  That’s why this month we’ve invited a team of economic experts for a very special issue of Cato Unbound.  Each brings a different perspective on our financial troubles, and, partly because the matter is so far from settled, we’ve decided to give them all equal billing:  Lawrence H. White, William K. Black, Casey Mulligan, and J. Bradford DeLong will each write a full-length essay in a first of its kind roundtable format.  The question at hand:  What happened?

Prof. White’s essay is available here, and I found the following particularly interesting:

One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.

I’m just old enough to remember how everyone called the 1980s a decade of greed. Then there were the 1990s, also a decade of greed. The 2000s? Greed yet again. (I wish I could invest in this “greed” thing. It never seems to go out of style.)

I also liked the following, which makes one of its most substantive points in the final parenthesis:

As calculated by the Federal Reserve Bank of St. Louis, the Fed from early 2001 until late 2006 pushed the actual federal funds rate well below the estimated rate that would have been consistent with targeting a 2 percent inflation rate for the PCE [Personal Consumption Expenditure] deflator. The gap was especially large—200 basis point or more—from mid-2003 to mid-2005. [4]

The excess credit thus created went heavily into real estate. From mid-2003 to mid-2007, while the dollar volume of final sales of goods and services was growing at a compounded rate of 5.9 percent per annum, real-estate loans at commercial banks were (as already noted) growing at 12.26 percent. [5] Credit-fueled demand both pushed up the sale prices of existing houses and encouraged the construction of new housing on undeveloped land. Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates. The housing sector thus exhibited a disproportionate share of the price inflation predicted by the Taylor Rule. (House prices are not, however, included in standard measures of price inflation.)

I understand that it isn’t easy to incorporate housing prices into measures of inflation, and that there is no generally accepted method of doing it. It seems more important than ever, though, to include these prices in some way, if only to let the public know the sort of trouble housing inflation has very likely been causing.

The Pre-Public Choice View

I always thought the view that the private sector is full of greed and self-interest, while the public sector is all about selflessness and public service, was confined to 1950s civics books. But lo and behold, it turns out that view is still held by federal appointees interviewed by NPR:

“We’ve always thought of the government as motivated by a sense of service to the people,” says Charles Tiefer, whom Congress appointed earlier this year to the new Commission on Wartime Contracting, which oversees Pentagon contracts in Iraq and Afghanistan. “We’re getting away from that [by contracting out government services].”

After all, he says, federal employees take an oath to the Constitution, while private contractors are just motivated by their own economic interest. It’s a lovely vision, and apparently some people actually believe it. But about 50 years ago the public choice economists, such as James M. Buchanan, Gordon Tullock, and William Niskanen, began to suggest that people in government are still people, with all their good and bad characteristics. And also that analyzing the actions of government in the light of self-interest leads to pretty sound predictions and observations. As Buchanan put it in an interview:

I usually have a three-word description [of public choice economics] – it is “politics without romance”. Politics is a romantic search for the good and the true and the beautiful. “Public choice” came along and said, “Why don’t we model people more or less like everyday persons? Politicians and bureaucrats are no different from the rest of us. They will maximize their incentives just like everybody else.” By taking that very simple starting point, you get a completely different view of politics and its analysis.

Buchanan won a Nobel Prize for his insights, but obviously they haven’t fully permeated Washington yet.

A Perfect Introduction to Congress

NPR reports on the new public entry to the U.S. Capitol:

The U.S. Capitol Visitor Center formally opens to tourists Tuesday, over budget and behind schedule.

At 580,000 square feet, it’s the largest project in the Capitol’s 215-year history. It was originally scheduled to open almost four years ago, and the $621 million price tag is double the initial estimate.

What a perfect introduction to Congress and its activities! I hope they have a display in the entryway about the construction of the Visitor Center. And maybe they could have interactive graphs and figures showing cost overruns in the Visitor Center, weapons systems, Medicare, Medicaid, and other federal programs. A sign of the times in the Bush-Obama New New Deal era.

The Washington Post offers more details on the progress toward the Visitor Center:

The unveiling that will be marked with one Capitol Hill staple – speechifying by politicians in an invitation-only morning ceremony – already has achieved much else for which Congress is noted.

Take, for example, spending. What was proposed as a $71 million project in the early 1990s became a $265 million endeavor a decade later. By the time work got underway in 2002, the price tag was up to $368 million. Tomorrow, the ribbon will be cut on a $621 million project.

Then there was the congressional penchant for thinking big. The center’s architects were ordered to include 150,000 square feet of “shell space” for some future day when Congress might need more office area. The finished center is about two-thirds the size of the entire Capitol.

Then there have been delays, a malady common to many federal endeavors. The project once was expected to be finished in time for the presidential inauguration – in January 2005. As that date neared, the center was about half done, so the completion date was bumped ahead to spring 2006.

Six months after President Bushwas sworn in for a second term, the Government Accountability Office reported that the architects and contractors were making so many mistakes and facing so many unexpected problems that March 2007 was probably more realistic. When that target rolled around without a ribbon-cutting, project officials were summoned before a House subcommittee to explain why, and Rep. Jack Kingston(R-Ga.) scolded them for overseeing “a monument to government inefficiency, ineptitude and excessiveness.”

Members of Congress did manage to achieve one thing with the timing:

Top lawmakers and Congressional officials have been fretting for months that the visitor center would finally open its impressive doors in the weeks before Election Day. They worried that it would inspire a raft of news stories and snide commentary about how Congress had erected another monument to itself, just in time to irritate voters already irked at Washington.

New Video Punctures Anti-Tax Haven Myths

Politicians from high-tax nations routinely smear tax havens as part of their efforts to undermine tax competition. Using academic research and data from international organizations, this video shows that the most common attacks made against low-tax jurisdictions are empty demagoguery.

This mini-documentary is actually the final installment of a three-part series. Part I presented “The Economic Case for Tax Havens” and Part II showed “The Moral Case for Tax Havens.” For those who want more background on the issue of tax competition, this video on “Tax Competition: A Liberalizing Force in the World Economy” should suffice.

Here Comes Democracy!

(Before you finish reading this, you’ll want to sign up for this policy forum.)

Ben Goddard’s most recent column in The Hill is called “Obama Marketing Lesson,” and he reviews how the Internet and savvy use of media energized President-Elect Obama’s campaign effort. “[S]ocial networks have returned as one of the most powerful forces in politics,” he says.

President-elect Obama has a database of some 10 million names and e-mail addresses, and those who built it have made clear they’ll activate that army to support the new president. MoveOn.org is already preparing its supporters to advocate for progressive policies. Groups like Divided We Fail, Healthcare for America Now! and the American Medical Association are already running television and online campaigns to advocate for healthcare reform.

(Goddard will be lending some of his insights about communications strategies to secure the country against fear and overreaction at our January conference on counterterrorism strategy, by the way.)

The substance of the campaigns he talks about might be far from encouraging for libertarians. None of these are limited government advocates. Politicized online social networks could be the agar in which a new mobocracy grows - something our republican form of government was designed to prevent.

But what’s the solution? To oppose democracy and an active citizenry? Other than restoring constitutional limits on government, I don’t think so. As with speech, the cure for bad democracy is more of it, but good.

It’s not a given that online politics will amount to crowds of avatars with digital pitchforks and torches. The Internet is a fertile medium for careful debate about our public policies. Social networks can be smart and informed - if they get the data.

That process is starting. USASpending.gov delivers data about where federal contracting dollars and grant awards go. This was a project of President-Elect Barack Obama who, with Senator Tom Coburn (R-OK), made transparency a signature issue in the Senate. The non-profit effort that broke ground for this is OMBWatch’s FedSpending.org, which logged its 10 millionth search in June.

My humble effort, WashingtonWatch.com, attaches cost estimates to the bills in Congress and recently welcomed its millionth visitor for the year. The Sunlight Foundation has a list of insanely useful Web sites, each exposing some dimension of government action to greater public scrutiny. The organization is dedicated to developing a stable of private, non-profit, and volunteer efforts that promise revolutionary change once they can access standardized, structured, and open government data.

And that’s the bottleneck: access to good data. Government information now comes to us mediated by government Web sites and government-defined database queries. Getting the raw data would allow all kinds of actors to generate all kinds of new information about government. All citizens would have better information to work with, not only about taxes and spending, but about the results of government programs.

Libertarians bet that this would reduce demand for government. Liberals and progressives believe that this would deliver on the promise of government. If either side wins, we’re better off than we are here in the dark disappointment of government today.

On December 10th, the Cato Institute is having a policy forum on this topic. The title is “Just Give us the Data!