Archives: 03/2011

2011 Budget Battle in Perspective

Today the Cato Institute placed an ad in major newspapers highlighting specific spending cuts that policymakers should make to restore our country’s fiscal sanity and economic stability. Our public call for policymakers to demonstrate leadership on spending cuts comes in the midst of the on-going battle on Capitol Hill over funding the government for the remainder of fiscal 2011.

A graphic at the top of the ad measures the $61 billion in cuts that Republicans have proposed against fiscal 2011 estimates for total spending, the deficit, and interest on the debt. As the graphic shows and the ad notes, it is clear that “leaders and members of both parties are in deep denial about the fiscal emergency we face.”

There are news reports that Republican and Democrat negotiators are heading toward a compromise figure of $33 billion in spending cuts. Let’s put that figure in perspective alongside the GOP’s original proposal to cut a whopping $61 billion:

Record spending levels…trillion dollar plus deficits…mountainous debt…a weak economy…

What, Congress worry?

Energy Independence: Obama Embraces the Department of Nutty Ideas

Every president since Richard Nixon has asserted that we are sitting ducks for those who brandish the oil weapon. To keep the evildoers at bay, the government must adopt policies that ensure our energy independence. Like his predecessors, President Obama is worshiping at this altar. And why not? How many elections have been lost by blaming foreigners for an impending crisis?

Despite their cynicism about politicians, most people actually believe that mineral resources, including oil, are doomed to disappear. It’s obvious: Start with a given stock of provisions in the cupboard, subtract consumption and eventually the cupboard will be bare.

But what is obvious is often wrong. We never run out of minerals. At some point it just costs too much to produce them profitably. In the 19th century, the big energy scare was in Europe. Most thought Europe was running out of coal. That doomsday scenario never materialized. Thanks to a plethora of substitutes, the prices that European coal could fetch today are far below its development and extraction costs. Consequently, Europe sits on top of billions of tons of worthless coal.

Once economics enters the picture, the notion of fixed reserves becomes meaningless. Reserves are not fixed. Proven oil reserves, for example, represent a warehouse inventory of the expected cumulative profitable output, not a fixed stock of oil thought to be in the ground.

When thinking about oil reserves, we must also acknowledge another economic reality: Oil is sold in a world market in which every barrel, regardless of its source, competes with every other barrel. Think globally, not locally. When we do, the dwindling reserves dogma becomes nonsense. In 1971, the world’s proven oil reserves were 612 billion barrels. Since then the world has produced approximately 990 billion barrels. We should have run out of reserves fourteen years ago, but we didn’t. In fact, today’s proven reserves are 1,354 billion barrels, or 742 billion barrels more than in 1971.

How could this be? Thanks to improved exploration and development techniques, costs have declined, investments have been made and reserves have been created. The sky is not falling.

Contracts and ‘Reasonable Expectations of Privacy’

Chris Soghoian looks at a recent ruling related to the ongoing investigation of Wikileaks, in which a judge rejected a challenge from several users whose Twitter account information had been obtained by the government. Thanks to a shortsighted Supreme Court ruling from the 1970s, people are presumed to waive their “reasonable expectation of privacy” in data voluntarily conveyed to third parties, which means many types of sensitive records can routinely be obtained by the government without the need for a full-blown Fourth Amendment search warrant based on probable cause. In some cases, a mere subpoena, or even a government agency’s certification that the records are “relevant” to an investigation, will suffice.

Recently, however, some courts have sought to rein in the scope of this “third party doctrine” on the grounds that the logic of the ruling that established it doesn’t apply to many types of data generated and recorded in the modern technological context. So, for instance, the Third Circuit recently held that while some cell phone companies keep relatively detailed records of the locations of the phones they serve—information automatically generated when the phone is turned on and getting service—the “cell phone customer has not ‘voluntarily’ shared his location information with a cellular provider in any meaningful way” and, moreover, “it is unlikely that cell phone customers are aware that their cell phone providers collect and store historical location information.” The targets of the government’s request here—not a search warrant but a court order based on a showing of mere “relevance” to an investigation—argue that IP addresses logged by Twitter when users connect to the service should be treated in the same way.

The judge in the Wikileaks/Twitter case was unmoved by this sort of argument, observing that Twitter users signify via click that they “agree” to a lengthy series of terms of service, and that those terms include a link to a privacy policy, which indicates that such information maybe stored. Many privacy advocates object that it is unreasonable to infer the waiver of constitutional rights from clickwrap agreement to legal boilerplate terms that, as studies consistently show, nobody actually reads. That’s a fair enough point, but I’d like to point out a little asymmetry here.

Perhaps the most objectionable aspect of the original third-party doctrine rulings was that they refused to take any account of the context of disclosure to that third party—including explicit promises of confidentiality:

This Court has held repeatedly that the Fourth Amendment does not prohibit the obtaining of information revealed to a third party and conveyed by him to Government authorities, even if the information is revealed on the assumption that it will be used only for a limited purpose and the confidence placed in the third party will not be betrayed.

Drawing on precedent from cases involving criminals who disclosed their plans to government informants, the Court essentially held that people “assume the risk” that sensitive records conveyed to financial institutions or phone companies will be revealed to the government, even if those companies secure the trust of customers only by explicitly promising to safeguard the confidentiality of that data. There’s no sign of this “assumption of risk” doctrine in the recent FTC settlement with Google over the ill-conceived launch of the search giant’s “Buzz” service, I note. In that context, everyone—including Google!—seems to agree that when a company promises not to share your data in certain ways, people are entitled to form the perfectly reasonable expectation that they won’t do so! But the Supreme Court thought this was irrelevant: Once the data is knowingly shared, no reasonable expectation, and no Fourth Amendment protection.

But if promises of confidentiality aren’t enough to retain your Fourth Amendment “reasonable expectation of privacy,” a company’s privacy policy is a perfectly adequate basis for surrendering your constitutional rights, regardless of whether or not the overwhelming majority of Internet users ever read the policies that are supposed to be the grounds for their “reasonable expectation.”

Does this seem backwards to anyone else? When there’s a disconnect between what most ordinary people actually expect in practice—and it seems like as an almost definitional matter, an expectation actually shared by huge majorities of people has to be regarded as “reasonable” in most circumstances—you’d think one would, by default, lean against the assumption that a constitutional right has been waived. The standard we’ve evolved now seems to make just the opposite assumption. If the stated policy of a company would cut against your expectation of privacy, then it counts in the Fourth Amendment analysis, even if the evidence suggests people don’t actually read the policy or form their expectations on that basis. When the company policy might seem to create an expectation of privacy—even in cases where it seems plausible that people do rely on such representations in deciding whether to use a service—it doesn’t count, because you “assume the risk” your trust will be betrayed. It looks an awful lot like the only expectation that genuinely counts here is the government’s expectation that it can get most kinds of information without a warrant. Unfortunately, that expectation looks pretty “reasonable” under current law.

Let’s Not Lose Sight of a Real Education Market

Over the last few days Jay Greene, the Fordham Institute’s Kathleen Porter-Magee, and several other edu-thinkers have been arguing about whether national curriculum standards would destroy a competitive market in education, and a market that already provides the uniform standards Fordham wants Washington to impose. But let’s be very clear: We haven’t had a real market – a free market – in education for a long time.

Sadly, I’m afraid Jay started this whole mess, though he certainly knows what a free market in education would look like and I don’t think he intended to confuse the issue.  Indeed, he doesn’t use the term “free market,” but mainly writes about the “competitive market between communities.” His argument is that Americans over time picked standardized curricula and schools by moving to districts that provided such things. He is no doubt at least partially right, though the case is hardly open and shut. Indeed, there is strong historical evidence that district consolidation and uniformity was often pushed on small districts from outside, especially in urban areas. It is also quite possible that many people moved to districts with uniform offerings not in search of such offerings, but in search of something else that happened to coincide with them. Most notably, industrialization brought many people to cities in search of employment, and school uniformity often came with that. Finally, the economist whose work inspired Jay’s post notes that while he believes small rural districts died largely due to residents abandoning them, he concedes that there is a “lack of direct evidence connecting rural property values with local decisions about consolidation.”

Those caveats aside, Jay’s point is a still good one that I have made before, most notably when discussing schooling and social cohesion: People will tend to have their children learn many ”common” things because that is the key to personal success. People will learn what they need to in order to work effectively and successfully in society.  Moreover, people will simply tend to gravitate toward things that work.

So the main problem in the Greene-Fordham debate is not that Jay’s points are necessarily wrong, it’s that “competitive market between communities” is too easily misconstrued as “free market,” and it fails to acknowledge the gigantic inefficiencies that come from government monopolies, whether controlled at the district, state, or federal level. Those include the massive, expensive waste that fills the pockets of special interests employed by the system; constant conflict over what the schools will teach; and at-best very ponderous competition – if you want a better school you have to buy a new house – that quashes crucial innovation and specialization. Worse yet, it leads to the following kind of crucial, damaging misunderstanding by Porter-Magee:

For more than a decade we have been conducting a natural experiment where we let market forces drive standards setting at the state level. The result? A swift and sure race to the bottom. A majority of states had failed to set rigorous standards for their students—and had failed to create effective assessments that could be used to track student mastery of that content. In fact, the whole impetus behind the Common Core State Standards Initiative was to address what was essentially a market failure in education.

This is wrong, as they say, on so many levels!

First, we do not have real market forces anywhere at work in the current, NCLB-dominated regime. Using the quick list of market basics that John Merrifield lays out in his Policy Analysis on school choice research, a truly free market needs ”profit, price change, market entry, and product differentiation.” None of these are meaningfully at work in public schooling, with profit-making providers at huge tax-status disadvantages; public schools artificially “free” to customers; high legal barriers to starting new institutions that can meaningfully compete with traditional public schools; and requirements that all public schools teach the same things, at least at the state level. 

Moreover, if you want to talk about competition between states – which is more in line with what Jay was discussing – under NCLB all states have faced the same, overwhelming incentives to establish low standards, weak accountability, or both: If they don’t get their students to something called “proficiency” – which they define – the federal government punishes them! In light of that, of course they have almost all set very low “proficiency” bars. But that is about as far from “a natural experiment where we let market forces drive standards setting” as you can get! Indeed, it is a brilliant example not of market failure, but government failure!

Ultimately, Jay’s point is right: People on their own will tend to select educational options that are unifying, as well as gravitate to what appears to work best, so there is no need for the federal government to impose it. Moreover, as Jay points out, there are huge reasons to avoid federal standardization, including that special interests like teachers unions will likely capture such standards. But that problem has been at work with state and local monopolies, and it, along with myriad other government failures, will not be overcome until we have a real market in education – a free market in education.

The Good News and Bad News about ‘Sneakers on the Ground’

There is good news and bad news about the report that the Obama administration authorized CIA teams to go into Libya to liaise with the Libyan opposition before instituting a no-fly zone over that country. (The phrase “sneakers on the ground” has emerged in response to the administration’s firm insistence that there are no US boots on the ground there.)

Get the map out

The good news is that the administration, despite prior appearances, does indeed have a strategy in Libya: siding with the rebels in their effort to depose Muammar Qaddafi. The bad news is that siding with the rebels in their effort to depose Muammar Qaddafi is not a good strategy.

It is probably important to make clear at the outset that I do not mean to overstate the stakes here. I am not suggesting that the Libya intervention necessarily will produce a Vietnam or Iraq-scale blunder. And it is always possible that Col. Qaddafi will be deposed swiftly and a reasonably orderly transition to a reasonably decent replacement will take place.

But I would not bet on it.

Why not? For one, the Director of National Intelligence James Clapper yesterday described the opposition itself as a “pick-up basketball team.” This, to my ear, does not sound like a group of people prepared for modern governance of a national state.There also have been somewhat murky reports that jihadists, if not inner-circle al Qaeda types, number among the opposition with whom we are siding. It is probably worth noting that Paul Wolfowitz, a vocal advocate of throwing our lot in with the Libyan opposition, responded to a question (at 56:50 of the video here) whether he could name the leaders of the opposition by admitting that he could not, advising instead that “you can Google and find out.” We just don’t know these people terribly well.

In addition, it is far from clear that the pick-up basketball team can win. A “senior U.S. intelligence official” yesterday reported that Qaddafi’s people have rather rapidly adapted to the no-fly zone:

Gadhafi’s forces have adopted a new tactic in light of the pounding that airstrikes have given their tanks and armored vehicles, a senior U.S. intelligence official said. They’ve left some of those weapons behind in favor of a “gaggle” of “battle wagons”: minivans, sedans and sport-utility vehicles fitted with weapons, said the official, who spoke anonymously in order to discuss sensitive U.S. intelligence on the condition and capabilities of rebel and regime forces. Rebel fighters also said Gadhafi’s troops were increasingly using civilian vehicles in battle.

The change not only makes it harder to distinguish Gadhafi’s forces from the rebels, it also requires less logistical support, the official said.

This seemed to me a blazingly obvious approach for Qaddafi to take, given that were he to move his armor or artillery, it would almost certainly become a target for the coalition, but it would be much harder to detect small groups of men armed with small arms. You fight with what you can use.

All of this seems to mitigate in favor of the government, but it should be pointed out that the unsophisticated, poorly led, and poorly armed rebels have some notable advantages as well. A reasonably unsophisticated force in Afghanistan currently has the modern world’s mightiest military power bogged down in that country with only limited organization, arms, and leadership of their own. From a defensive standpoint, a few thousand men with small arms who are willing to fight and die can cause a big headache for counterinsurgents, particularly were Qaddafi to attempt to retake Benghazi with these men he’s shipping eastward.

Secretary Gates was right to say that there is no vital U.S. interest at stake in Libya over the weekend, and he is right to threaten to quit if the administration moves to insert U.S. ground forces. It wasn’t worth war to get rid of Muammar Qaddafi two months ago, and it isn’t worth war today.

Are Farm Subsidies Progressive?

An economist in the Department of Agricultural and Consumer Economics at the Univeristy of Illinois posted an interesting entry on the FarmDocDaily blog yesterday, claiming that farm subsidies flowing to the biggest farms is a sign of progressivity.

His reasoning goes something like this: because a progressive tax system is one in which the rich pay a higher proportion of their income in taxes than do the poor, and because a subsidy is essentially a negative tax, then a progressive subsidy system is one in which subsidies would flow more to farms where the subsidy is a higher proportion of their sales or assets. And, according to Mr. Kirwan, that’s what we see: subsidies make up 10 percent of sales for small farms and only 4 percent of sales for large farms. So far, so progressive.

But here’s the problem as I see it. Mr Kirwan takes a pretty narrow view of what progressive means (when I hear that term, by the way, I reach for my revolver, but we’ll let it slide for now). The question isn’t whether the subsidies are being distributed “progressively” among farmers – although the fact they are not is, I think, one of the valid critiques of U.S. farm policy.  The real question we should be asking ourselves is how subsidies are distributed among society, a society that Mr Kirwan claims to speak for when he says that the current income tax structure is “how we as a society have decided to measure the “fairness” of the tax system.”

Farmers are wealthier (second graph from the bottom) and earn higher incomes (fourth graph from the bottom) than the average U.S. household. Their average debt-to-asset ratio is about 12 percent (third graph from the bottom), very low relative to the average U.S. household. Those should be the relevant data for any progressivity test.

And all of this ignores the main critique of farm subsidies: that they are an example of special interest politics at its worst. I’ve yet to hear of a convincing argument as to why farmers deserve taxpayer- and consumer-funded special treatment compared with other small (or large, for that matter) businesses.

States Resisting Federal Power

If two points are sufficient to draw a trend line, then state resistance to federal authority is growing.

I reported earlier on my recent testimony to the Florida legislature on REAL ID. The state’s legislators have taken notice of what the motor vehicle bureaucrats have been doing in collaboration with federal officials, and they’re not too happy.

Yesterday, I was pleased to testify in the Pennsylvania legislature, where legislation to push back against the Transportation Security Administration’s strip/grope policy at airports has been introduced. The Constitution’s Supremacy Clause seems to make federal law paramount, but states have many angles for challenging federal power, especially when it’s as flawed and reactive as the TSA’s airport checkpoint policies.