Archives: June, 2010

Protectionist Shipping Law Hinders Gulf Clean Up

Oil continues to spew into the Gulf of Mexico from the site of the BP oil rig, yet the Obama administration refuses to relax a protectionist U.S. shipping law known as the Jones Act that makes it more difficult for foreign-owned ships to help contain the damage.

According to an article in the Daily Caller this week by our former Cato colleague Chris Moody, foreign-owned ships have offered to assist the American-owned fleet in skimming oil and other tasks. But some of the foreign ships have hesitated to enter U.S. waters because of the 1920 law that reserves inter-coastal shipping to vessels that are built, owned, and crewed by Americans.

Although cloaked in terms of national security, the act is really a protectionist measure designed to insulate U.S.-based shipbuilders, ship operators, and their unionized crews from global competition.

Three GOP senators representing Gulf states have introduced legislation to temporarily suspend the Jones Act in the region of the spill. So far, President Obama has refused to act, despite his assurances that he is doing all he can to contain the damage.

The Jones Act is such an egregious trade barrier, I devote a whole page in my 2009 Cato book Mad about Trade describing the damage it imposes on the U.S. economy. The Jones Act is most costly during times of war or other emergencies. As I write on page 163:

Defenders of the Jones Act claim it promotes national security by maintaining a merchant marine fleet in case of war. But Jones Act ships tend to be old and of limited use in times of real emergencies. In fact, during the 1991 Gulf War, only one Jones Act ship actually went to war; President George H. W. Bush suspended the law because it was interfering in the efficient transfer of goods. President George W. Bush again suspended the law in 2005 so that fuel and other needed supplies could more quickly reach New Orleans after Hurricane Katrina. What is an expensive indulgence for domestic shippers during peacetime becomes an intolerable liability for the nation during time of emergency.

President Obama should suspend the Jones Act now, followed by a vote in Congress to repeal it permanently.

A Life-Saving Approach to Transplantable Organs

Raymond Raad, physician and coauthor of the Cato study, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” has an oped at the Daily Caller arguing that the United States could save thousands of lives per year by allowing individuals (or insurance companies, or the government) to pay people who agree to give their organs to patients who need them.

Raad cites the experience of Iran, which has eliminated its waiting list for transplantable organs. (The United States has 83,000 people waiting for kidneys alone. Forty percent will die waiting, and those who do receive a kidney die sooner because their health deteriorates while waiting.) He also cites the three main criticisms of compensating donors/sellers – “One, the prospect of payment can be so tempting that it blinds donors to the risks involved; second, it may lead only poor people to donate; third, it may turn altruistic donors away” – and shows that recent polling data contradicts all three.

Raad concludes:

Since this is the best data we have, and with 5,000 people expected to die this year on the waiting list, we owe ourselves at least a geographically limited experiment in monetary incentives for kidneys.

For more on how eliminating this government-imposed price controls would save lives, read Arthur Matas’ Cato study, “A Gift of Life Deserves Compensation: How to Increase Living Kidney Donation with Realistic Incentives,” and Healthy Competition: What’s Holding Back Health Care, and How to Free It.

Hey, UK: Meet the New Boss, Same as the Old Boss

As the chart below indicates, the United Kingdom has a large budget deficit solely because government spending has increased to record levels (OECD data). Unfortunately, the new Tory-Liberal coalition government has decided that taxpayers should be punished for all the over-spending that occurred when the Labor government was in charge.

The Telegraph reports that the top capital gains rate will jump to 28 percent, up from 18 percent (the new government foolishly thinks this will result in more revenue). But the biggest change is that the value-added tax will increase to 20 percent. According to Business Week, the Chancellor of the Exchequer (the British equivalent of Treasury Secretary) actually bragged that the VAT increase was good since it would generate “13 billion pounds we don’t have to find from extra spending cuts.” Here are some further details from Business Week about the disappointing fiscal news from London.

British Chancellor of the Exchequer George Osborne increased the value-added tax rate to 20 percent from 17.5 percent in the first permanent change to the levy on sales of goods and services in almost two decades. “The years of debt and spending make this unavoidable,” Osborne told Parliament in London in his emergency budget today as he announced a package of spending cuts and tax increases to cut the U.K.’s record deficit. …“We understand that the budget deficit needs to be tackled but we think the focus needs to be cutting public spending over tax rises,” Krishan Rama, a spokesman for the industry lobby group, the British Retail Consortium, said in a telephone interview yesterday. …VAT has remained at 17.5 percent in every year except one since 1991, when John Major’s Conservative administration raised the rate from 15 percent to help plug a deficit.

The one tiny glimmer of good news from the budget is that the corporate tax rate is being reduced from 28 percent to 24 percent, which is probably a reflection of the strong and virtuous tax competition that is forcing greedy governments to lower tax rates in order to attract and/or retain business activity. There also is a two-year pay freeze for government bureaucrats, but this is hardly good news since a 30-percent pay cut is needed to bring compensation down to private sector levels.

In Iowa, They Know Why We Fight

Why do public schools create lots of conflict? Because, as I labored to explain in my Policy Analysis  Why We Fight: How Public Schools Cause Social Conflict, they force people with diverse views to support a single system of schools, making battles over whose values the schools will teach almost inevitable. Well, in Shenandoah, Iowa – where the people are in a  huge row over sex ed – district superintendent Dick Profit summarized the problem much more colorfully, and effectively, than I have:

It’s a political hot potato; it’s a religious hot potato; it’s a parental hot potato…It’s all of these things that cause a crack in the system between society, parents and schools, and we’re still required to do it.

Diane Ravitch, give Mr. Profit a call.

ObamaCare’s Unlimited-Coverage Mandates Will Increase Some Premiums by 7 Percent (or More)

Among the many ways ObamaCare will increase the cost of health insurance, it will require all Americans to purchase unlimited annual and lifetime coverage.  The latter requirement takes effect this September.  The former will require consumers with non-grandfathered health plans (i.e., about half of the market) to purchase coverage with an annual limit on claims of no less than $2 million by 2014, and unlimited annual coverage thereafter.

In interim final regulations and a “fact sheet” released this week, the Obama administration claims that the mandate to purchase unlimited annual coverage will increase the cost of employment-based and individually purchased coverage by an average of about 0.1 percent.  That average glosses over the fact that these mandates will have zero effect on consumers who already purchase the required coverage.  Consumers who are actually affected by the mandates will see larger premium increases.

For example, the regulations indicate that the phased-in mandate to purchase unlimited annual coverage will increase premiums for the 18 million Americans affected by a weighted average of 0.15-0.18 percent.  Even that weighted average hides the fact that this mandate will cause premiums to rise as much as 6.6 percent for 278,000 Americans.  This mandate will increase premiums by even more – and for more people – once it is fully implemented.  But the administration did not include an estimate of the premium impact beyond 2014.

The Obama administration also estimates that the mandate to purchase unlimited lifetime coverage, when spread across all insured workers, will increase premiums by about 0.5 percent.  Yet that requirement would not affect the 40 percent of insured workers who already purchase unlimited lifetime coverage.  When spread across the 93.6 million affected workers, the average premium increase rises to 0.8 percent.  The increase will be greater than that for the 26.5 million workers with lifetime coverage limits at or below $2 million, and greatest for the 1.5 million workers with limits at or below $1 million.  But the administration offers no estimates for these workers.

Spread across the entire individual market, the unlimited-lifetime-coverage mandate would increase premiums by an average of 0.75 percent, according to the administration.  But since the mandate won’t affect 11 percent of that market, the average impact on the 8.7 million people affected will also be 0.8 percent.  Again, the 300,000 consumers in that market with lifetime limits at or below $2 million will face larger premium increases.  And again, the administration provides no estimates specific to these consumers. Which is a shame, because – aside from the uninsured – it is these consumers on whom ObamaCare will place the greatest burdens.

All told, ObamaCare’s unlimited-coverage mandates will increase the premiums of affected consumers by an average of about 1 percent, and as much as 7 percent for some consumers.  Or maybe more: the administration acknowledges that a “paucity of data” about the impact of these mandates means that there is “tremendous,” “substantial,” and “considerable” uncertainty about the mandates’ costs.

Stossel: New Topic, New Time

John Stossel’s weekly show has a new time: 9 p.m. and midnight every Thursday on the Fox Business Network, plus Fridays at 10 p.m., Saturdays at 9 p.m. and 12 midnight, and Sundays at 10 p.m. (Don’t get Fox Business? Tell your cable company you want Stossel!)

On this week’s show Stossel will interview 76-year-old Otis McDonald about his lawsuit seeking the right to protect himself with a gun, which is now before the Supreme Court. He’ll also talk to John Lott about the new edition of his book More Guns, Less Crime.

While you’re waiting for Thursday night, check out Stossel’s show on Milton Friedman, which featured interviews with Johan Norberg, Tom Palmer, and me. Or indeed his classic ABC special on politics and limited government, where I got even more air time!

Topics:

The Problem Is Bigger than McChrystal

Following up on my post from last night, I encourage you to read this news analysis by C.J. Chivers in the New York Times. Chivers focuses on the inherent tension within counterinsurgency doctrine that too many COIN advocates have neglected or ignored. The Rolling Stone article touches on these themes, but much of that story gets lost in the narrative surrounding McChrystal and his staff. Chivers is not so easily distracted. Here are a few excerpts:

…the counterinsurgency doctrine [which] has assumed an almost unchallenged supremacy in the ranks of the American military’s career officers…rests on core assumptions, including that using lethal force against an insurgency intermingled with a civilian population is often counterproductive.

Since General McChrystal assumed command, he has been a central face and salesman of this idea, and he has applied it to warfare in a tangible way: by further tightening rules guiding the use of Western firepower – airstrikes and guided rocket attacks, artillery barrages and even mortar fire – to support troops on the ground.

[…]

The rules have shifted risks from Afghan civilians to Western combatants. They have earned praise in many circles, hailed as a much needed corrective to looser practices that since 2001 killed or maimed many Afghan civilians and undermined support for the American-led war.

But the new rules have also come with costs, including a perception now frequently heard among troops that the effort to limit risks to civilians has swung too far, and endangers the lives of Afghan and Western soldiers caught in firefights with insurgents who need not observe any rules at all.

Chivers notes the extraordinary measures that our troops take to justify the use of superior firepower and readily available air cover, “including decisions by patrol leaders to have fellow soldiers move briefly out into the open to draw fire once aircraft arrive, so the pilots might be cleared to participate in the fight.”

“Moments like those,” Chivers continues,

bring into sharp relief the grand puzzle faced by any outside general trying to wage war in Afghanistan. An American counterinsurgency campaign seeks support from at least two publics – the Afghan and the American. Efforts to satisfy one can undermine support in the other.

As for Gen. McChrystal, no one knows if President Obama will accept his tendered resignation. I’d guess the odds are 50-50. I think that he should accept it, in part because Gen. McChrystal has bumped up against civilian authorities before, and in part because the principle of civilian control over the military is a bedrock principle of American governance.

But if the president decides to keep Gen. McChrystal in Afghanistan, he should ask retired general/ambassador Karl Eikenberry to resign. It is obvious that the celebrated unity of effort that characterized David Petraeus and Ryan Crocker’s tenure in Iraq does not exist (and apparently has never existed) in Afghanistan.

I’m not really advocating that, in part because I sense that Eikenberry harbors some skepticism about the mission in Afghanistan that is warranted. But if Obama chooses to retain McChrystal, he is merely affirming what many have known for a long time: the leading civilian official in Afghanistan, our ambassador, has no authority. How Eikenberry could continue under those circumstances is beyond me.

One last thing on COIN, Afghanistan, and people getting fired: COIN requires a credible local partner. We don’t have one in Hamid Karzai. But the United States can’t fire him. Our troops are fighting a war, according to rules of engagement that effectively nullify our technological advantages over the enemy, in order to boost support for a government over which we have no formal control, and apparently little leverage. That isn’t an indictment of McChrystal or Eikenberry so much as it is an indictment of the entire national security establishment that has chosen to deepen and expand this already-too-long war.

Topics: