Archives: October, 2010

Canada’s Spending Cuts and Economic Growth

We’ve had huge federal deficit spending in recent years–$459 billion in FY2008, $1.4 trillion in FY2009, $1.5 trillion in FY2010, and now an estimated $1.4 trillion in FY2011. Despite all the spending, the economy is still sluggish, private investment remains in the tank, and the unemployment rate is stuck at near 10 percent.

The Bush/Obama Keynesian spending experiment has obviously failed. Yet eminent economists Paul Krugman and Martin Feldstein think that the government hasn’t spent enough. They argue that a war-sized package of fresh spending is what the doctor orders for our sick economy.

If big government spending really did spur economic growth, then the Canadian economy would be flat on its back and dying. But the Canadian economy boomed during the 1990s and 2000s as government spending was dramatically reduced.

In the early 1990s, overspending had pushed the size of the Canadian government to 53 percent of GDP, and government debt was spiralling upward. But the nation turned course and began cutting spending and making pro-market reforms such as privatization and tax rate cuts. The chart shows that Canadian government spending was chopped by more than 10 percent of GDP. (Data from Table 25).

As spending was cut, the Canadian economy boomed. Average annual growth matched U.S. growth from the mid-1990s until the recent recession (See Table 1). Canada made a mistake in passing a spending stimulus last year, which pushed up spending temporarily, but government spending is expected to fall again and the economy has already returned to solid growth.

U.S. policymakers would be advised to ignore the Keynesian theoreticians who seem intent on bankrupting the nation. Instead they should take lessons from the success of the Canadian model of spending cuts, balanced budgets, debt reduction, open international trading and investment, sound banking, privatization, and corporate tax rate cuts.

Enough Community College PDA

Yesterday, President Obama hosted the White House Summit on Community Colleges, and in-your-face love was in the air. President Obama and Second Lady Jill Biden, a community college professor, couldn’t keep their hands off their signficant other, lavishing all sorts of praise on their favorite little schools.

Swooned Dr. Biden about the dreamy things community colleges do for their students:

They are students like the mother who shared her experience with us on the White House website of working towards a degree while raising three children and straddling financial challenges.  Now employed and the holder of a Bachelor’s and a Master’s degree, she wrote, “Community colleges didn’t just change my life, they gave me my life.”

Community colleges do that every day. 

Ick!

The President, too, couldn’t hide his affection:

So I think it’s clear why I asked Jill to travel the country visiting community colleges -– because, as she knows personally, these colleges are the unsung heroes of America’s education system.  They may not get the credit they deserve.  They may not get the same resources as other schools.  But they provide a gateway to millions of Americans to good jobs and a better life.

Like the guy with the locker next to Mr. and Mrs. Lovebird, all I can say is “oh, come on!”

Community colleges might be a good option for some people, but they are hardly paragons of educational success. Quite the opposite: According to the U.S. Department of Education, they have the worst graduation rates of any two-year sector of higher education. Only around 22 percent of public, two-year college students graduate within three years, versus roughly 49 percent of private, not-for-profit attendees and about 59 percent of private, for-profit students.

Wait! What’s that? Private, for-profit institutions outperform super-cute community colleges…by a lot? But they’re the ugliest, meanest, least popular kids in school!  Nobody likes them!

Oh, I know what’s going on here! For-profit schools cost a lot more than community colleges, right? That’s why they’re so disliked.

That’s true if you look at tuition prices. But community colleges get big subsidies from government, especially state and local taxpayers. So they might actually cost a lot, it’s just that they sneak the money out of your back pocket and then congratulate themselves for charging students so little.  

When you look at government expenditures per-pupil, including aid to schools and students, it becomes clear that community colleges are, in fact, just as mean and greedy as for-profits. Indeed, former Clinton administration economist Robert Shapiro has calculated that they are actually more costly to taxpayers than for-profit schools (see table 24). According to his calculations, two-year public schools cost taxpayers $6,919 per student, while private, for-profits cost just $3,628. 

No wonder the summit turned my stomach! At the same time the administration and its allies in Congress are bashing for-profit schools, the President has a love fest with community colleges that are generally much worse. Unfortunately, it leaves you concluding that for-profits could walk on water and it wouldn’t matter: As long as they’re honest about trying to make a buck, they’ll be beaten up in the parking lot and never invited to any of the cool summits.

The Current Wisdom

NOTE:  This is the first in a series of monthly posts in which Senior Fellow Patrick J. Michaels reviews interesting items on global warming in the scientific literature that may not have received the media attention that they deserved, or have been misinterpreted in the popular press.

The Current Wisdom only comments on science appearing in the refereed, peer-reviewed literature, or that has been peer-screened prior to presentation at a scientific congress.

The Iceman Goeth:  Good News from Greenland and Antarctica

How many of us have heard that global sea level will be about a meter—more than three feet—higher in 2100 than it was in the year 2000?  There are even scarier stories, circulated by NASA’s James E. Hansen, that the rise may approach 6 meters, altering shorelines and inundating major cities and millions of coastal inhabitants worldwide.

Figure 1. Model from a travelling climate change exhibit (currently installed at the Field Museum of natural history in Chicago) of Lower Manhattan showing what 5 meters (16 feet) of sea level rise will look like.

In fact, a major exhibition now at the prestigious Chicago Field Museum includes a 3-D model of Lower Manhattan under 16 feet of water—this despite the general warning from the James Titus, who has been EPA’s sea-level authority for decades:

Researchers and the media need to stop suggesting that Manhattan or even Miami will be lost to a rising sea. That’s not realistic; it promotes denial and panic, not a reasoned consideration of the future.

Titus was commenting upon his 2009 publication on sea-level rise in the journal Environmental Research Letters.

The number one rule of grabbing attention for global warming is to never let the facts stand in the way of a good horror story, so advice like Titus’s is usually ignored.

The catastrophic sea level rise proposition is built upon the idea that large parts of the ice fields that lay atop Greenland and Antarctica will rapidly melt and slip into the sea as temperatures there rise.  Proponents of this idea claim that the United Nations’ Intergovernmental Panel on Climate Change (IPCC), in its most recent (2007) Assessment Report,  was far too conservative in its projections of future sea level rise—the mean value of which is a rise by the year 2100 of about 15 inches.

In fact, contrary to virtually all news coverage, the IPCC actually anticipates that Antarctica will gain ice mass (and lower sea level) as the climate warms, since the temperature there is too low to produce much melting even if it warms up several degrees, while the warmer air holds more moisture and therefore precipitates more snow. The IPCC projects Greenland to contribute a couple of inches of sea level rise as ice melts around its periphery.

Alarmist critics claim that the IPCC’s projections are based only on direct melt estimates rather than “dynamic” responses of the glaciers and ice fields to rising temperatures.

These include Al Gore’s favorite explanation—that melt water from the surface percolates down to the bottom of the glacier and lubricates its base, increasing flow and ultimately ice discharge. Alarmists like Gore and Hansen claim that Greenland and Antarctica’s glaciers will then “surge” into the sea, dumping an ever-increasing volume of ice and raising water levels worldwide.

The IPCC did not include this mechanism because it is very hypothetical and not well understood.  Rather, new science argues that the IPCC’s minuscule projections of sea level rise from these two great ice masses are being confirmed.

About a year ago, several different research teams reported that while glaciers may surge from time to time and increase ice discharge rates, these surges are not long-lived and that basal lubrication is not a major factor in these surges. One research group, led by Faezeh Nick and colleagues reported that “our modeling does not support enhanced basal lubrication as the governing process for the observed changes.” Nick and colleagues go on to find that short-term rapid increases in discharge rates are not stable and that “extreme mass loss cannot be dynamically maintained in the long term” and ultimately concluding that “[o]ur results imply that the recent rates of mass loss in Greenland’s outlet glaciers are transient and should not be extrapolated into the future.”

But this is actually old news. The new news is that the commonly-reported (and commonly hyped) satellite estimates of mass loss from both Greenland and Antarctica were a result of improper calibration, overestimating ice loss by  some 50%.

As with any new technology, it takes a while to get all the kinks worked out. In the case of the Gravity Recovery and Climate Experiment (GRACE) satellite-borne instrumentation, one of the major problems is interpreting just what exactly the satellites are measuring. When trying to ascertain mass changes (for instance, from ice loss) from changes in the earth’s gravity field, you first have to know how the actual land under the ice is vertically moving (in many places it is still slowly adjusting from the removal of the glacial ice load from the last ice age).

The latest research by a team led by Xiaoping Wu from Caltech’s Jet Propulsion Laboratory concludes that the adjustment models that were being used by previous researchers working with the GRACE data didn’t do that great of a job. Wu and colleagues enhanced the existing models by incorporating land movements from a network of GPS sensors, and employing more sophisticated statistics. What they found has been turning heads.

Using the GRACE measurements and the improved model, the new estimates of the rates of ice loss from Greenland and Antarctica  are only about half as much as the old ones.

Instead of Greenland losing ~230 gigatons of ice each year since 2002, the new estimate is 104 Gt/yr. And for Antarctica, the old estimate of ~150 Gt/yr has been modified to be about 87 Gt/yr.

 How does this translate into sea level rise?

 It takes about 37.4 gigatons of ice loss to raise the global sea level 0.1 millimeter—four hundredths of an inch. In other words, ice loss from Greenland is currently contributing just over one-fourth of a millimeter of sea level rise per year, or one one-hundreth of an inch.  Antarctica’s contribution is just under one-fourth of a millimeter per year.  So together, these two regions—which contain 99% of all the land ice on earth—are losing ice at a rate which leads to an annual sea level rise of one half of one millimeter per year. This is equivalent to a bit less than 2 hundredths of an inch per year.  If this continues for the next 90 years, the total sea level rise contributed by Greenland and Antarctica by the year 2100 will amount to less than 2 inches.

 Couple this with maybe 6-8 inches from the fact that the ocean rises with increasing temperature,  temperatures and 2-3 inches from melting of other land-based ice, and you get a sum total of about one foot of additional rise by century’s end.

 This is about 1/3rd of the 1 meter estimates and 1/20th of the 6 meter estimates.

Things had better get cooking in a hurry if the real world is going to approach these popular estimates. And there are no signs that such a move is underway.

So far, the 21st century has been pretty much of a downer for global warming alarmists. Not only has the earth been warming at a rate considerably less than the average rate projected by climate models, but now the sea level rise is suffering a similar fate.

Little wonder that political schemes purporting to save us from these projected (non)calamities are also similarly failing to take hold.

References:

Nick, F. M., et al., 2009. Large-scale changes in Greenland outlet glacier dynamics triggered at the terminus. Nature Geoscience, DOI:10.1038, published on-line January 11, 2009.

Titus, J.G., et al., 2009. State and Local Governments Plan for Development of Most Land Vulnerable to Rising Sea Level along the U.S. Atlantic Coast, Environmental Research Letters 4 044008. (doi: 10.1088/1748-9326/4/4/044008).

Wu, X., et al., 2010. Simultaneous estimation of global present-day water treansport and glacial isostatic adjustment. Nature Geoscience, published on-line August 15, 2010, doi: 10.1038/NGE0938.

Actually We Aren’t Running the World

Bloggers have already noted the most glaring problems with Arthur Brooks, Edwin Feulner and Bill Kristol’s Monday Wall Street Journal op-ed, “Peace Doesn’t Keep Itself,” which worries that conservatives are figuring out that trying to run the world is not conservative.

The op-ed pretends that the fact that defense spending isn’t the largest cause of the deficit means it isn’t a cause of the deficit. It obscures the fact that we spend more on defense than we did in the Cold War by counting the defense budget as a portion of the economy without noting the latter has grown faster than the former.

So I can limit myself to less obvious angles. The first is that neoconservatives like Kristol are for increasing the defense budget no matter what. For them the military is basically an expression of national awesomeness (to use an academic term). Enemies and other details, like what we spend already, come up mainly in the justification phase.

In 2000, when U.S. defense spending was nearly $180 billion lower than today—excluding the wars and adjusting for inflation—Bill Kristol and Robert Kagan wanted to increase defense spending by $60 to $100 billion a year. After September 11, they called for a “large” and “substantial” increase. Having got that and then some, Kristol, at least, wants even more. The neoconservative appetite for military spending is insatiable because their militarism is.

Second, I want to pick on one point the op-ed makes because it is both wrong and widely believed: “Global prosperity requires commerce and trade, and this requires peace. But the peace does not keep itself.”

There are really two theories there. First, commerce requires general peace in supplier nations and military protection of supply lines. Second, only the United States can provide both. There is some evidence for these claims in a long-running correlation. Since World War II, U.S. military hegemony has coincided with explosive growth in global trade. So it’s easy to see how people assume causation. But as Chris Preble and I argue in the Policy Analysis that we just released, “Budgetary Savings from Military Restraint,” the causal logic here is weak. It overstates the U.S. military’s contribution to global stability and trade and the trouble that instability causes us.

The first theory is right in the sense that nations devastated by war ultimately lose purchasing power, which is bad for their trade partners. But in the meantime, warring countries typically need a lot of imports. They also generate capital for armies by selling goods abroad. For that reason, the Iranians and Iraqis kept pumping oil during their war. Wars do not simply shut down trade.

The argument for policing peacetime shipments is even worse, as I explain in a guest post I did yesterday for the Stimson Center’s revamped defense budget blog. As I note there, we do not really protect shipments now. A tiny minority get naval protection. Thus primacists tend to argue that what matters is not defending trade but the ability to do so, which deters malfeasants from harassing it or building capability to do so. But that argument gives the game away. You don’t need to do it in good times to do it in bad times.

What happens the day after we tell our Navy to stop sailing around in the name of protecting commerce? Who interrupts shipments? Would Iran start charging tolls at the Strait of Hormuz or China in the South China Sea? I say no because they know that we can force access and because there are plenty of ways to retaliate, including blockading those countries.

A more plausible claim is that some states would increase naval spending to police their own shipping. That seems like a good thing. Sometimes people say that such burden-sharing could set off a naval arms race that causes a war, say between India and China. I suppose that is possible, but naval arms races have caused few, if any, wars.

Let’s say our ability to buy some good from some area is cut off, either by instability at the source or en route. The likely outcome is supply adjustment, not supply failure. Generally another supplier takes the orders and prices adjust. That is particularly true as globalization links markets and increases supply options. It is when you have only one potential supplier that you really need to police delivery.

If you believe that military hegemony protects peacetime shipments, you could argue that it distorts price signals by shifting a portion of the good’s cost to federal taxes. Because I don’t believe that we are propping up prices in most cases, I say that what primacists are really selling is an attempted but failed subsidy to consumption of goods, including oil.

Oil is a special case because price shocks caused by supply disruption have in the past caused recessions. However, economists argue that the conditions that allowed for this problem have changed. One change is the reduced burden energy costs now impose on U.S. household income. Others disagree, but if they are right, that is why we have public and private reserves.

You can read more of what we think of about the idea that only we can keep the peace among states in the Policy Analysis or in the stuff Cato scholars have been pumping out for years. I will just say here that primacists ignore all the history contradicting the idea that only hegemons create a stable balance of power and the many rivals that formed stable balances of power without an hegemon taking a side.

International stability and world trade would be OK without our nation trying to use our military to provide them. If you don’t believe me, you might read one of these three papers by Eugene Gholz and Daryl Press. I took a lot of this from them.

Where are the ’60s Hippies Now that They’re Needed to Fight Keynesianism?

Keynesian economic theory is the social science version of a perpetual motion machine. It assumes that you can increase your prosperity by taking money out of your left pocket and putting it in your right pocket. Not surprisingly, nations that adopt this approach do not succeed. Deficit spending did not work for Hoover and Roosevelt is the 1930s. It did not work for Japan in the 1990s. And it hasn’t worked for Bush or Obama.

The Keynesians invariably respond by arguing that these failures simply show that politicians didn’t spend enough money. I don’t know whether to be amused or horrified, but some Keynesians even say that a war would be the best way of boosting economic growth. Here’s a blurb from a story in National Journal.

America’s economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today. Nobelist Paul Krugman, a New York Times columnist, and Harvard’s Martin Feldstein, the former chairman of President Reagan’s Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. …Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact “exogenous” shock like a major war – something similar to what Krugman called the “coordinated fiscal expansion known as World War II” – would be enough to break the cycle. …Both reiterated their previously argued views that the Obama administration’s stimulus was far too small to fill the output gap.

Two additional comments. First, if Martin Feldstein’s views on this issue represent what it means to be a conservative, then I’m especially glad I’m a libertarian. Second, Alan Reynolds has a good piece eviscerating Keynesianism, including a section dealing with Krugman’s World-War-II-was-good-for-the-economy assertion.

The Next Step for SpeechNow

The plaintiffs in the SpeechNow.org case have petitioned the U.S. Supreme Court to decide “whether, under the Free Speech Clause of the First Amendment, the federal government may require an unincorporated association that makes only independent expenditures to register and report as a political committee.”

You can read all about this important case here.

Today’s Challengers, Tomorrow’s Incumbents

It’s not at all clear that the political challengers whose fortunes are raised today won’t try to pull up the ladder of free and open political speech when their own incumbency receives a challenge. The Citizens United decision notwithstanding, the drive to be returned to office is a strong one.

In today’s Cato Daily Podcast (subscribe!), John Samples offers fans of free speech a few things to consider about this and future election cycles:

  • “In politics, when people talk about special interests, they don’t mean the people who support them.”
  • “[Independent spending on elections] is an unknown factor. Incumbents, even those who win big, live in fear of a big last-minute spending push by outside groups.”
  • “The point of campaign speech is voters. The evidence is that they’re going to know more about the incumbent because of the spending. … What the incumbents want really shouldn’t matter because in the end this is a republic and government by the people.”