Archives: 12/2010

Random Assignment

The Brookings Institution released a new study today on charter schooling—assessing how well it’s working and what the federal government should do about it. One of the recommendations reads as follows:

Student participation in lotteries for admissions to any public [charter] school and the results of such lotteries should be a required student data element in state or district longitudinal data systems supported with federal funds.

Why? Because it would make it a lot easier to measure relative school quality, by permitting more widespread use of randomized, control group experiments. Experiments are certainly great from a researcher’s standpoint, but mandating that schools must admit students on a random basis has a catch:

an observer effect as subtle as an 80-foot fire-breathing robot. One of the reasons markets work is that exchanges are mutually voluntary, and producers and consumers don’t enter into an exchange unless each perceives it to be beneficial. If you eliminate the mutually voluntary character of an exchange in the process of trying to observe how beneficial it is to one of the parties, you’re affecting the very thing you’re trying to measure. It becomes more likely that you will have students assigned to schools that are not well equipped to serve their particular needs, injuring such students’ educational prospects.

Lottery admission to oversubscribed charter schools appeals to people’s desire for fairness, but a much better solution is to adopt a true market approach to education in which oversubscribed schools have not only the freedom but the incentives to expand as demand increases. For-profit enterprises, schools among them, do not generally ignore rising demand for their services. Kumon, the for-profit tutoring service, does not turn students away when it reaches capacity at a given location, it grows that location or opens a new one. As a result, it now serves about four million students in 42 countries.

Rather than figuring out how to ration good schools, why don’t we just unleash the market forces that will grow and replicate them?

Obama’s Afghanistan War Plan

President Obama released his Afghanistan war review today. It highlights progress on the battlefield against insurgents, the success of Special Forces operations and drone strikes, and achievements in training the Afghan security forces.

I have four thoughts on the matter:

First, scattered throughout the document are passages such as “al-Qa’ida’s senior leadership in Pakistan is weaker,” “[a]l-Qa’ida’s senior leadership has been depleted,” and “al-Qa’ida’s leadership cadre have diminished.” However, can we deter more jihadists than our efforts help to inspire? After all, “fighting them over there so they don’t fight us here” did not deter Pakistani-American Faisal Shahzad and his incompetently constructed bomb in Times Square. “Fighting them over there so they don’t fight us here” did not deter failed British “shoe-bomber” Richard Reid. “Fighting them over there so they don’t fight us here” did not deter Umar Farouk Abdulmutallab, the so-called “underwear bomber,” who tried to blow up a Detroit-bound airliner on Christmas Day.

Second, although there is a persuasive case to be made that the United States should disrupt, dismantle, and defeat al Qaeda in Afghanistan and Pakistan, the administration never clarifies explicitly how it will encourage Pakistan to do more to fight militants that frequently attack U.S. forces in Afghanistan. The review claims “improved understanding of Pakistan’s strategic priorities,” but policy considerations seem to fail to take into account that no amount of pressure or persuasion will affect Pakistan’s decision to tackle extremism, particularly when its strategic priorities are tied directly to reinforcing Islamist bonds across its borders as a buffer against Indian encirclement.

The third core reality ignored in the review is the importance of regional actors, namely Iran, India, Saudi Arabia, Russia, China, and Afghanistan’s Central Asian neighbors (this list is not meant to preclude the inclusion of other countries). As long as the United States is at war, regional rivalries and insecurities will play out in Afghanistan at the expense of Afghan civilians and coalition forces.

Lastly, if the United States insists on pursuing the so far fruitless mission to create a viable Afghan government and economy, then U.S. officials should stop saying that the United States is not nation building in Afghanistan (and stop using the oft-repeated euphemism “capacity building”). After all, what is nation building? Perhaps in the words of Secretary of State Hillary Clinton it is providing Afghanistan’s pervasively corrupt and predatory government with “economic, social and political development, as well as continued training of Afghan security forces.”

Overall, modest and ephemeral tactical gains have given the administration cause for optimism. It also gives the military a chance to buy more time, which means that the president will stick to his pledge to begin withdrawing troops in July 2011. But a residual U.S. troop presence will remain in the country long after that official date.

Any policy, including war, makes sense only insofar as the United States and its citizens receive significant benefits in exchange for that policy’s political and economic costs. The Afghan War’s current cost-benefit disparity would call for a scale-down in mission objectives and correspondingly in troop presence. But for now, the United States would rather fixate on pipe dreams and on asserting America’s permanent role in Central Asia.

ObamaCare Challenges Gain Steam

Today’s hearing in Pensacola built on Monday’s ruling out of Richmond: Judge Roger Vinson is likely to hold the individual mandate unconstitutional. And such a decision would be the most significant development possible at the district court level because the Florida case involved 20 states, with more joining the lawsuit when new governors and attorneys general assume office in January. It is unprecedented for this number of states – again, soon to be a majority – to sue the federal government and it shows the singular and extreme nature of the government’s assertion of raw power here.

As Judge Vinson said during the hearing, the Supreme Court has held that the outer bounds of Congress’s regulatory power under the Commerce Clause (as exercised via the Necessary and Proper Clause) is activity that has a substantial effect in interstate commerce. If the government were to prevail under its theory that Congress can regulate any decision with economic ramifications – as two district courts have unfortunately held – then there is no principled limit on federal power. At that point, we might as well throw the Constitution out the window and admit that Congress is the judge of its own authority.

Finally, while Judge Vinson was more skeptical of the Medicaid-related claim that is unique to the Florida lawsuit, it is similarly impossible to draw limits to federal power if we allow Congress to impose a Hobson’s Choice on states of either withdrawing from Medicaid or implementing budget-crippling regulations. At a certain point the strings that Congress attaches to federal funding become coercive – particularly when the new shape of a government program (here, Medicaid) radically transforms the compact states originally joined and have inextricably relied on.

‘Politicians’ Top 10 Promises Gone Wrong’

That’s the title of an upcoming FOX News Channel feature program with John Stossel, in which Cato Executive Vice President David Boaz and Director of Health Policy Studies Michael F. Cannon weigh in on some of the hidden, unforeseen, and unintended consequences of the attempts to deliver on promises our politicians make.

Politicians promised that:

  1. Cash for Clunkers would save the auto industry.
  2. Increasing the minimum wage would be good for the working poor.
  3. Title IX would end gender-based discrimination in college sports.
  4. Mega-construction projects like stadiums, arenas, and conference centers would create jobs.
  5. Changing the tax code would save small farmers and the environment.
  6. Credit card reform would save us from banking fees.
  7. Reforming the health care system would give us more affordable and more comprehensive care.
  8. Ethanol would reduce our dependence on foreign oil and save the environment.
  9. Home ownership for all would be good for America.

And the #1 promise politicians made that went awry?

Tune in to FOX News Channel this Friday, December 17, 2010 at 9:00 p.m. Eastern to find out. Use the #10Promises hashtag on Twitter during the program to follow the conversation.

Kindly note that while John Stossel’s programs normally air on the FOX Business Network, this feature program will appear on the FOX News Channel.

Two Cheers for the Bill of Rights!

As Tim Lynch has already blogged – and as Cato is currently featuring on its front page, today is Bill of Rights Day.  But of course, this is less of a big deal than Constitution Day (September 17, when we release the Cato Supreme Court Review at an annual conference) – because the Bill of Rights is essentially redundant of the Constitution’s original structural protections:  Whenever the government exceeds its constitutionally granted powers, it violates rights of some sort.

Tim Sandefur explains over at the Pacific Legal Foundation’s blog:

Madison, along with his colleagues like James Wilson, Alexander Hamilton, and others, expected the Constitution to give Congress only a limited set of powers—powers that were listed in the text of the document. If it wasn’t listed in the text, then Congress couldn’t do it. So the federal government could collect taxes or run a post office, but it couldn’t do other things—like run a national health care program, for instance. Since Congress’s powers were, in Madison’s words, “few and defined,” there was no need to add a bill of rights to declare that the federal government couldn’t do such-and-such, because they already couldn’t do such-and-such.

Indeed, the argument went, if you enumerate various rights, some will later claim that this is an exhaustive list – even though it’s impossible to list all of our rights at every conceivable level of specificity – with everything else subject to state regulation and control and perhaps implied powers too.  That concern is why, even though Jefferson and others won the debate over whether to have a bill of rights, Madison and others ensured that the Ninth Amendment would be included as a safeguard against those who would “deny or disparage” other rights that are “retained by the people.”  And why the Tenth Amendment reiterated that, conversely, the powers “not delegated to the United States” are “reserved to the States respectively, or to the people.”

We’re fortunate that both Jefferson and Madison got their way because, as we’ve seen over the last 70+ years, the Supreme Court read out of the Constitution the structural protections for liberty that are plainly there in the pre-amended Constitution.  Not that the Court has done a very good job on the “rights” side of the coin, either – think eminent domain abuses (earlier this week it denied cert. in the Columbia University case, by the way), or the Second Amendment before Heller, or, perhaps most infamously, economic liberties since the rights bifurcation of 1937’s Carolene Products footnote 4 – but if it weren’t for these little bones that it has thrown our way, why the government would always be the sole judge of its own powers.  (Which, of course, is what Obamacare proponents argue, that the check on Congress’s power is purely political.)

In any event, bully for the Bill of Rights, even if it’s not – as many people think – the most important part of the Constitution.

Another Nail in REAL ID’s Coffin

The REAL ID Act—the 2005 national ID law rejected by the states asked to implement it—continues its long slow death. The latest nail in the coffin: moves in Congress to defund the “hub” system that would share driver information nationwide.

The House-passed “Full-Year Continuing Appropriations Act” contains the following language in the section that funds U.S. Citizen and Immigration Services: “none of the funds made available in this section shall be available for development of the system commonly known as the ‘REAL ID hub’.”

And also: “From unobligated balances of prior year appropriations made available for United States Citizenship and Immigration Services for the program commonly known as the ‘REAL ID hub’, $16,500,000 is rescinded.”

Senator Inouye’s (D-HI) amendment in the Senate also denies USCIS funding for the REAL ID hub. And it, too, rescinds $16.5 million in prior-year funding.

Money spent on REAL ID is waste. That money should be put to better uses, including deficit reduction. No future money should go to the national ID boondoggle, and REAL ID should be repealed once and for all.

U.S. Corporate Tax Rate the Highest

Japan has announced that it will cut its corporate tax rate by five percentage points. Japan and the United States had been the global laggards on corporate tax reform, so this leaves America with the highest corporate rate among the 34 wealthy nations of the Organization for Economic Cooperation and Development.

That is not a good position for us to be in. Most of the competition faced by U.S. businesses comes from businesses headquartered in other OECD countries. America also competes with other OECD nations as a location for investment. Our high corporate tax rate scares away investment in new factories, makes it difficult for U.S. companies to compete in foreign markets, and provides strong incentives for corporations to avoid and evade taxes.

The chart shows KPMG data on statutory corporate tax rates in the OECD for 2010, but I’ve also put in the new lower rate for Japan. With the Japanese reform, the average rate in the OECD will be 25.6 percent. That means that the 40 percent U.S. rate is 56 percent higher than the wealthy-nation average.

Most fiscal experts agree that cutting the U.S. corporate tax rate is a high priority, and President Obama’s fiscal commission endorsed the idea. If the president wants to get the economy firing on all cylinders–and generate a new pragmatic and centrist image for himself–he should lead the charge to drop the corporate rate to at least 20 percent.

With state-level taxes on top, a federal corporate rate of 20 percent would put America at about the OECD average, and give all those corporations sitting on piles of cash a great reason to start investing again.

Dan Mitchell’s comments are here.

Buy Global Tax Revolution here.