Archives: December, 2010

Are Tea Partiers Anti-trade?

Where will the new Tea-Party-backed members of Congress come down on trade issues, such as the newly revised trade agreement with South Korea or the next farm bill?

Those elected to the House are the biggest question marks because very few of them have had to think much about trade, never mind actually cast a vote on it. In an op-ed in the Philadelphia Inquirer this week, I try to discern what direction the new members will take the generally pro-trade Republican Party, and which direction they should take it in light of the movement’s free-market, limited-government principles.

For my full take, see “Are Tea Partiers Anti-trade?”

Is There an Inflation-Unemployment Trade-off?

Much of what drives the policy choices of Ben Bernanke and the Federal Reserve is a belief in the ability to trade higher inflation for lower unemployment, known within the economics profession as the “Phillips curve.”   But does this trade-off actually exist? 

While its true that many have found a negative correlation between inflation and unemployment prior to 1960, looking at U.S. data, this relationship appears to have broken down in the mid-1960s, just about the time policy-makers thought they could exploit it (Lucas critique anyone?).

It is hard, looking at the graph, which displays the annual change in consumer prices over the previous year and unemployment, to see much of a relationship.  In fact, since 1960, the correlation between changes in CPI and unemployment has been positive.  We have generally seen rising unemployment along with rising inflation.  Of course, one might be concerned that the stagflation of the 1970s is driving this result. But looking at the data since 1980, there still remains a positive correlation between inflation and unemployment.  While I am not arguing that inflation causes unemployment (after all, correlation is not causation), it should be clear from the data that there is not some exploitable trade-off that policymakers get to choose.

The Richmond Fed also has a great history of the Phillips curve that is well worth the read.  Perhaps Fed President Jeff Lacker should bring copies to the next FOMC meeting.

DREAM Act a Low-Risk, High-Return Option

In a perfect world, we wouldn’t need to consider bills such as the DREAM Act, approved by the House last evening and on tap for a vote in the Senate as early as today.

The Development, Relief and Education for Alien Minors Act would offer legal status to students who came to the United States illegally before they turned 16 and have lived here for more than five years. To gain legal status they would need to complete high school, and then two years of college or military service. Once implemented the act would legalize about 65,000 students a year.

If our immigration policy was more in line with what I’ve been advocating for years, we would not have the large population of illegal immigrants that we do today because more legal alternatives would have been available. And access to in-state tuition would not be such a big deal if our education policies more closely reflected the sound arguments of my colleagues at Cato’s Center for Educational Freedom. Alas, that is not the world we live in yet.

The DREAM Act would improve a less-than-ideal situation by legalizing a population that is primed to live the American dream, and is virtually guaranteed to bestow real blessings on our economy and society.

Critics of the DREAM Act, such as Rep. Dana Rohrbacher (R-CA), paint these kids as nothing but expensive liabilities and the act as nothing but a backdoor amnesty. Both charges are false.

Young immigrants eligible for the DREAM Act are a low-risk, high-return addition to America. Because they came here at a young age, they almost all speak English fluently and are at home in American society. The fact that they have completed high school and will be attending college makes it likely they and their descendants will pay more in taxes than they consume in government services during their lifetimes. With the U.S. birthrate hovering at the replacement level, these assimilated, immigrant students at the beginning of their careers will help the United States maintain a healthy growth rate in our workforce.

It is wrong to label the DREAM ACT “amnesty.” These kids did nothing wrong. In fact, most of them simply obeyed their parents when the family immigrated to the United States. They should not be punished for the actions of their parents.

The DREAM Act, like most other immigration-related bills, has become charged with partisanship. House Democrats voted overwhelmingly in favor of the bill last evening, Republicans lopsidedly against. Democratic leaders in Congress are certainly open to the charge that they are using the bill to attract Hispanic voters even though the chances of it passing the Senate and becoming law are, at the moment, slim. But Republicans are open to the more serious charge that they are ignoring the more optimistic and inclusive vision of our country articulated by former President Ronald Reagan.

‘Prince of Pork’ to Chair Appropriations

House Republican leaders went with Rep. Hal Rogers (R-KY) – a.k.a. “The Prince of Pork” – to chair the House Appropriations Committee. As I wrote last week, the prospect of Rogers chairing Appropriations is about as inspiring as re-heated meatloaf when it comes to his potential for pushing serious spending reforms.

Republican leaders in the House chose to ignore the concerns of tea party activists and other proponents of limited government, who were more supportive of Rep. Jack Kingston’s (R-GA) dark-horse push for the chairmanship. Kingston’s plan to “change the culture” on Appropriations offered a lot of positive ideas suggesting that he was more in tune with the voters that gave Republicans the majority.

Politico reported that Kingston received “the cold shoulder” from the House leadership in his bid to chair appropriations. Instead, presumptive Speaker of the House John Boehner supported spending-hawk Jeff Flake’s (R-AZ) bid for a seat on the committee. That’s nice, but Flake himself appears to recognize that his appointment could amount to a token gesture if old bull spenders end up ruling the roost:

“If it’s just putting a few conservatives on the committee, and leaving the current structure pretty much in place, that’s not enough.”

Some congressional Republicans have defended Rogers’ chairmanship, saying that he’ll be fine if he sticks to what he says he’s going to do. A long-time champion of earmarking, Rogers did agree to go along with a ban on the tawdry practice a few weeks ago, which was convenient timing.

Will the leopard change his spots?

The left-wing Think Progress blog recently used a FOIA request to obtain a letter Rogers sent to the Department of Health and Human Services requesting ObamaCare money for a community service center in his district. No earmarks? No problem for Hal Rogers. He can just go the time-honored route of policymakers heckling federal agencies for pork. Earmarks represent just one of many ways that parochial-minded members steer benefits to their districts at the expense of taxpayers and the general public good.

According to Bloomberg, Kentucky’s Lexington Herald-Leader called Rogers “the very model of an old-fashioned pork-barrel politician who builds an empire out of government spending.” Roger’s website contains numerous pictures of him attending local photo-ops for projects he helped fund with federal taxpayers’ money. (I suppose one argument in his favor is that lifting all those ceremonial spades means he’s probably in good shape to handle the rigors of chairmanship.)

The support for Rogers from House Republican leaders is a slap in the face of voters who demanded change in Washington—change from the big-spending ways of both Democrats and Republicans.

War on For-Profit Colleges Reeks Even Worse

As I’ve pointed out repeatedly, though the sector is no doubt rife with waste and home to some dirty-dealers, attacks on for-profit colleges are almost certainly driven by politics and ideology, not educational concerns. Were it otherwise, all of higher education would be taking a beating for its bankrupting waste and widespread failure.

A recent symptom of anti-profit witch-huntery was the misrepresentation of GAO reporting on what “secret shoppers” found while visiting select for-profit institutions. At the time the findings were released I thought the main problem was that members of the media and Sen. Tom Harkin (D-Iowa) – who has been leading the crusade against for-profit schools – were using the results to smear the whole proprietary sector when the GAO was clear about examining a nonrepresentative sample of schools. Unfortunately, it turns out the GAO might actually be in on the demonization.

On November 30 – without making any announcement that I could find on its website – the GAO released a modified version of its report, and according to a comparison between the old report and new one by the Coalition for Educational Success, the new version contains several changes that cast its for-profit targets in better light than they first appeared.

One vignette, for instance, originally said that a school’s admissions representative told an undercover applicant that she “should” take out maximum federal loans even if she didn’t need all the money. The change says the representative told the applicant that she “could” take maximum loans – a pretty big difference.

Another section went from only reporting that a representative told an applicant that the school has graduates making $120,000 to $130,000 in a job that, according to the GAO, typically makes less than $70,00 a year, to reporting that the representative also informed the applicant that she “could expect a job with a likely starting salary of $13-$14 per hour or $15 if the applicant was lucky.” $15 an hour translates into about $30,000 a year, and completely changes the tenor of the vignette.

According to Stephen Burd of the Center for American Progress, career colleges have been self-servingly crying – or at least whispering – foul over the GAO report for months now. Burd has been a leading for-profit basher, but I’d have been inclined to give only limited credence to concerns about dirty pool, too, until this latest revelation trickled out.

Now, though much needs to be determined about why the myriad changes to the report were made, I wouldn’t be terribly surprised to learn that people at the GAO have actually been in on the crusade to demonize proprietary colleges. I also, unfortunately, won’t be surprised if no one pays attention to any of this, and the shameless, responsibility-dodging war on for-profits continues unabated.

Senator Reid’s Gamble

My colleague Dan Mitchell has already written about the tax deal reached between President Obama and congressional Republicans.  But there might be something in the package for people wishing to play poker freely online.

Sen. Harry Reid (D., Nev.) is apparently circulating draft legislation to overturn the Unlawful Internet Gambling Enforcement Act of 2006, which blocked financial institutions from processing transactions with online gambling companies.  I would characterize that as a good move overall, apart from three quibbles. First, the draft legislation would – you guessed it –place a tax on the wagers (you didn’t think you’d get your freedom back without conditions, did you?). Second, the bill applies only to poker, and continues to prohibit “Internet gambling” more broadly. And third, the fine-print sounds problematic from a trade policy (and trade law) point of view:

…Mr. Reid’s office is considering language that would allow only existing casinos, horse tracks and slot-machine makers to operate online poker websites for the first two years after the bill passes, which could limit the ability of other companies to enter the market.

Carving out this fast-growing market for established gambling service providers sets off my protectionist alert. The cosy little cartel wouldn’t just exclude domestic potential competitors; I wrote a short paper a few years ago on how the UIGEA got the United States into hot water with the World Trade Organization, and the same arguments apply today. The United States still – despite vague, and so far empty, talk about changing its commitments with WTO members – has an obligation under the General Agreement on Trade in Services to open its market to online gaming operators abroad.

Politico has more about the groups supporting this move, suggesting (as are many Republicans opposed to internet gambling) that Reid has seen religion on online poker in direct response to the campaign contributions he received from gambling interests. I’m not so much interested in that angle –politicians responding to special interests is hardly news – as I am in the substance of what the legislation is proposing. And if the following reporting from Politico is accurate, the substance is troubling enough :

The National Indian Gaming Association is opposing Reid’s effort to insert the online poker language in any tax cut bill, said an official with the group, Jason Giles. He asserted it gives an advantage to Las Vegas-based gambling operators while discriminating against tribal operators.

“It is drafted to create an initial regulatory monopoly for Nevada and New Jersey for the first several years of the bill, which gives Las Vegas operators time to capture the market,” he said.

A gambling industry insider familiar with Reid’s efforts said Republican-leaning Vegas casino moguls Steve Wynn and Sheldon Adelson, while generally supportive of Reid’s legislation, take issue with provisions that could allow companies that previously operated in violation of online gambling laws to cash in.

The UIGEA is/was a nightmare for online operators to work around, partly because it never really defined “unlawful internet gambling.” Therefore, I am not sure how one would determine unambiguously whether a company “operated in violation of online gambling laws”.  The UIGEA referred to transactions processors rather than gambling companies. And in any case, a few European operators (PartyGaming most famously) withdrew from the U.S. market at the time the UIGEA passed, just to be safe, and yet have continued to face prosecution.  The European firms are at the cutting edge of online gaming services. Of course Messrs. Wynn and Adelson would want them out of the picture, but legislators should resist their attempts.

While Reid’s proposal may be an improvement on the status quo, it falls far short of restoring the full freedom of consenting adults to use their money, time, and online access in a manner of their choosing. It also is a long way from allowing a competitive, open market in gaming services to thrive. We should see this as a step in the right direction, but not the end game.

On Federal Education, Think Progress Should Think Harder

Over on the Think Progress blog, Ian Millhiser accuses Sen. Tom Coburn (R-Okla.) of never having read the Constitution. His grounds for the accusation? Coburn, citing Jefferson, doesn’t think that the Constitution gives the federal government authority to provide such things as Pell Grants and student loans.

Writes Millhiser:

Sen. Coburn might want to try actually read the Constitution before he pretends to know what it allows. Article I provides that “[t]he Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States,” a grant of power that unambiguously empowers Congress to raise funds and spend them on programs that are broadly beneficial to American welfare — such as education.

Moreover, while Coburn’s reference to Thomas Jefferson is true in the narrowest sense of the term, it also betrays Coburn’s ignorance of constitutional history. During the Washington Administration, Jefferson and James Madison led a minority coalition which believed that Congress’ constitutional power to spend money was too narrow to support spending programs such as the First Bank of the United States. President Washington, however, rejected their arguments. Moreover, while Coburn is correct that President Jefferson briefly referenced his narrow view of the Constitution in his 1806 State of the Union, Jefferson was an extreme outlier by this point in American history. Even Madison parted ways with Jefferson by the time Madison became president in 1809.

This might be a classic pot-kettle situation. At the very least, it is utterly impossible to say that the general welfare clause “unambiguously” empowers Congress to raise funds and spend them – with massive strings attached, of course – on education. Indeed, that the general welfare clause does anything other than introduce the specific, enumerated powers that follow it was expressly rejected by Madison in Federalist no.  41, in which he wrote:

For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power? Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars.

The general welfare clause, quite simply, confers no power – it just explains why the specific powers that follow it were given.

But didn’t Alexander Hamilton – who had Washington’s ear – reject that notion? Well yes, in his 1791 Report on Manufactures he suggested that the federal government could do almost anything as long as it was done in the interest of the entire nation. But his report was not only shelved by Congress at the time, Hamilton’s argument was quite different from what he wrote in the Federalist Papers. Though speaking  specifically of the taxation and  ”necessary and proper” clauses, in Federalist no. 33  Hamilton wrote that seemingly broad powers were given to Congress only to execute “specified powers:”

[I]t may be affirmed with perfect confidence that the constitutional operation of the intended government would be precisely the same, if the clauses were entirely obliterated, as if they were repeated in every article. They are only declaratory of a truth which would have resulted by necessary and unavoidable implication from the very act of constituting a federal government, and vesting it with certain specified powers [italics added]. This is so clear a proposition, that moderation itself can scarcely listen to the railings which have been so copiously vented against this part of the plan, without emotions that disturb its equanimity.

How about the argument that Jefferson’s quaint small-government beliefs were way out of date by 1806? Well, they sure weren’t on education.

For one thing, it is notable that President Washington probably had a more expansive view of the federal government’s role in education than one might expect. He wanted a national university, after all. But he didn’t get it – that notion was well out of sync with the limited federal government most Americans wanted. 

Next, Coburn was actually quoting Jefferson from Jefferson’s call for federal involvement in education, an idea that went nowhere because it would have constituted more federal intrusion – not less – than most Americans wanted. Indeed, Jefferson was generally on the big-government fringe of his time when it came to education. He only got the University of Virginia after four decades of trying, and never got the rudimentary public schooling system he wanted for Virginia.  Most people at the time simply didn’t think government’s role – especially the federal government’s – was to run education.

One last bit of information demonstrates just how truly mistaken Millhiser is in his attack on education ”tenthers.” In 1943 – when Franklin Delano Roosevelt was president – the United States Constitution Sesquicentennial Commission, under the direction of the president, the vice president, and the Speaker of the House, published The History of the Formation of the Union under the Constitution. It noted in a section titled “Questions and Answers Pertaining to the Constitution:”

 Q. Where, in the Constitution, is there mention of education?

A. There is none; education is a matter reserved for the states.

Even FDR’s people, apparently, didn’t find that the Constitution ”unambiguously” gave Washington authority to involve itself in education – quite the opposite!

In light of all this, it is clearly not Mr. Coburn who can reasonably be accused of having never read the Constitution. Indeed, not only has he almost certainly read it, it seems he has even taken the time to understand it.