Archives: March, 2011

Bailout Coming for the Postal Service?

The U.S. Postal Service is in financial trouble. Undermined by advances in electronic communication, weighed down by excessive labor costs and operationally straitjacketed by Congress, the government’s mail monopoly is running on fumes and faces large unfunded liabilities. Socialism apparently has its limits.

While the Europeans continue to shift away from government-run postal monopolies toward market liberalization, policymakers in the United States still have their heads stuck in the twentieth century. That means looking for an easy way out, which in Washington usually means a bailout.

Self-interested parties – including the postal unions, mailers, and postal management – have coalesced around the notion that the U.S. Treasury owes the USPS somewhere around $50-$75 billion. (Of course, “U.S. Treasury” is just another word for “taxpayers.”)  Policymakers with responsibility for overseeing the USPS have introduced legislation that would require the Treasury to credit it with the money.

Explaining the background and validity of this claim is very complicated. Fortunately, Michael Schuyler, a seasoned expert on the USPS for the Institute for Research on the Economics of Taxation, has produced such a paper.

At issue is whether the USPS “unfairly” overpaid on pension obligations for particular employees under the long defunct Civil Service Retirement System. The USPS’s inspector-general has concluded that the USPS is owed the money. The Office of Personnel Management, which administers the pensions of federal government employees, and its inspector-general have concluded otherwise. Again, it’s complicated and Schuyler’s paper should be read to understand the ins and outs.

Therefore, I’ll simply conclude with Schuyler’s take on what the transfer would mean for taxpayers:

Given the frighteningly large federal deficit and the mushrooming federal debt, a $50-$75 billion credit to the Postal Service and debit to the U.S. Treasury will be a difficult sell, politically and economically. Although some advocates of a $50-$70 billion transfer assert it would be “an internal transfer of surplus pension funds” that would allow the Postal Service to fund promised retiree health benefits “at no cost to taxpayers,” the reality is that the transfer would shift more obligations to Treasury, which would increase the already heavy burden on taxpayers, who ultimately pay Treasury’s bills. (The Congressional Budget Office (CBO) prepares the official cost estimates for bills before Congress. Judging by how it has scored some earlier postal bills, CBO would undoubtedly report that the transfer would increase the federal budget deficit.) For those attempting to reduce the federal deficit, the transfer would be a $50-$70 billion setback.

Sounds like a bailout to me.

See this Cato essay for more on the U.S. Postal Service and why policymakers should be moving toward privatization.

March Madness: Eminent Domain Abuse Goes Coast-to-Coast

This is a big week for private property rights.  Two epic eminent domain struggles are playing out on opposite sides of the country. 

First, National City, California, is ground zero for eminent domain abuse.  City officials declared several hundred properties blighted even before conducting a blight study that was riddled with problems. The city wants to seize and bulldoze a youth community center (CYAC) that has transformed the lives of hundreds of low-income kids, so a wealthy developer can build high-rise luxury condos:


CYAC has numerous volunteers, including local law enforcement officers, providing free mentoring in boxing as well as academics.  The gym is famous for getting kids off the street and back into school.  As Rick Reilly explained in a feature in Sports Illustrated (boy, how I miss his inside-back-page column):

You know what, Mayor? National City doesn’t need more luxury condos. It needs good men like the Barragans teaching kids respect for neighbors and property, manners you could use a little of yourself.

And if you kick the Barragans out so some slick in Armani can buy a bigger yacht, I hope your car stereo gets jacked—weekly—by a kid who would’ve otherwise been lovingly coached on their jabs and their math and their lives.

Question: Can you declare politicians blighted?

This week, the gym’s battle is in trial before the Superior Court of California.  Represented by the Institute for Justice (who else?), a victory will help protect private property far beyond National City and clarify the use and misuse of blight designations.

Second, moving to the other side of the country, we go to Mount Holly, New Jersey:


Mount Holly is another classic case of “Robin Hood-in-Reverse.”  Officials have been dismantling a close-knit community known as the Gardens for the last decade so a Philadelphia developer can bulldoze the area and build more expensive residential properties.

Homeowners in the Gardens are primarily minorities and the elderly.  The row-style houses are being torn down while still attached to occupied homes, and officials refuse to offer the remaining homeowners replacement housing in the new redevelopment.  Further, owners are being offered less than half the amount it would cost to buy a similar home blocks away.

Here, IJ just launched a billboard campaign and did a study that concludes the eminent domain abuse project may result in a loss of a million taxpayer dollars a year, or one-tenth of the Township’s budget.

I previously wrote about eminent domain shenanigans here and you can read more from Cato on property rights here.

What if We Ran a Public School System… and No-One Came?

The New Jersey Office of Legislative Services, which estimates the budgetary impact of proposed laws, has just released its analysis of a private school choice bill called the “Opportunity Scholarship Act.” The most remarkable thing about its report is the amount of money it assumes that districts would save for each student they no longer have to teach: $0.

On that assumption, if every student were to leave for the private sector tomorrow, districts would keep right on spending exactly the same amount they spend today. Inefficient though it is, not even state-run monopoly schooling is that bad.

The OLS report does not explain why it assumes that the per pupil savings for students leaving public schools (the “marginal cost”) would be $0. It states that this figure is “indeterminate,” but by not counting it at all is effectively treating it as zero.

In fact, the marginal cost of public schooling is not “indeterminate” at all. Economists “determine” it all the time, and it’s quite easy to do. You simply observe how district spending actually rises and falls with enrollment, using a time-series regression, as I did in 2009 to calculate the marginal cost of public schooling in Nevada (see Appendix A).

Even if the NJ OLS does not conduct a marginal cost estimate specific to New Jersey, they could have done–and should still do–the next best thing: take the marginal cost estimates for other states as a rough guide and estimate the NJ district savings from them. I estimated that Nevada district spending falls by 85% of average per-pupil spending when a student leaves, and Grecu and Lindsay, a couple of years earlier, estimated the figure at 80% for South Carolina.

If they want to be conservative, the NJ OLS could use the lower of these figures, and perhaps also run the numbers for estimates 10% higher and 10% lower.

Any of the above options is preferable to the logical impossibility of their current analysis, which effectively treats the marginal cost of public schooling as $0.

Thursday Links

  • “If financial institutions are indeed better than consumers at managing interest risk, then those companies should be able to offer consumers attractive terms for doing so — without the moral hazard of an enormous taxpayer backstop.”
  • We should be thankful that the president is spending time on his golf game.
  • After all, he recently reinstated military tribunals at Guantanamo Bay and has continued the use of extra-constitutional prisons in the U.S. after the Bush era.
  • It’s odd that debate here centers on a no-fly zone, a form of military intervention that shows support for rebels without much helping them.”
  • Does Haley Barbour really want to cut defense spending? Or is he just really politically astute? 

The Transparency Contest Heats Up

Back in January, I wrote in Politico about the potential for House Republicans to “eclipse” President Obama on transparency. Perhaps the most important element of that piece was the subtle pun on the “government in the sunshine” motif. (Sunshine? Eclipse? Get it?) House Republicans appear to be more ready than ever to move forward on transparency with the announcement by Speaker John Boehner (R-OH) and Jason Chaffetz (R-UT) of a working group to update the House’s use of technology.

That could end up as so much window dressing—Twitter accounts for everybody!—or it could result in substantive changes, such as publishing bills and amendments in real time (from committee markups, too) and tagging them with semantic data to make their meaning readily and instantly available to the public. How about publishing the House video feed (committee feeds, too) with real-time tags indicating what bill is being debated and who is speaking? That kind of data will give the public entrée to the House like they’ve never had before.

Meanwhile, President Obama seems to have ducked a meeting at which he was to receive an award for his transparency work. It didn’t strike me as quite fitting for him to get such an award. He’s good on transparency but has not reached the lofty goals he campaigned on. The House Government Reform Committee is having a hearing on the Freedom of Information Act today (9:30 am EST start-time), an area where the administration seems also to have come up short of expectations.

Now, whatever miscue prevented the president from accepting his transparency award is not substance, and the formation of a task force is not substantive change either. But the Republicans appear to have the keener interest in transparency at the moment.

Watch this space for the results of work we’ve been doing to show both Congress and the president how to be more transparent. So the irony is not lost on you the way that sunshine/eclipse pun was, I’ll put it in italics: You can’t see our transparency work quite yet. But soon we’ll set out what House Republicans, Senate Democrats and the Obama administration should be doing to win plaudits on the transparency merits.

Likely Voters Oppose ObamaCare by Nearly a 20-Point Margin

It has been a while since I generated a Pollster.com chart showing support/opposition to ObamaCare among only likely voters, so here goes.

Note that a majority of likely voters oppose ObamaCare, and that opposition exceeds support by nearly 20 percentage points.  That’s compared to a 10-point spread among all adults.

Celebrating James Madison

Two hundred and sixty years ago, James Madison was born in Virginia. His life was long and eventful, comprising the American Revolution, the writing and ratification of the U.S. Constitution, the founding of political parties, the War of 1812, and the rise of Andrew Jackson. The struggles that would culminate in the Civil War were evident in the last years of his life.

Along with his political career, Madison proved to be one of this nation’s most insightful and certainly its most influential political theorist. He is often accorded the twin titles of Father of the Constitution and the Bill of Rights. No doubt those titles claim too much for him or any other mortal. But according him those titles is not far from the truth.

What would surprise Madison about our current constitutional and political arrangements?

He would be surprised and, I think, displeased by the size and scope of the federal government. Madison was a limited government man. He thought the general welfare clause in Article I of the Constitution was simply a shorthand way of mentioning other enumerated powers, not a general grant of power for Congress to pursue whatever it might think served the general welfare. As he wrote, “If Congress can do whatever in their discretion can be done by money, and will promote the general welfare, the Government is no longer a limited one possessing enumerated powers, but an indefinite one subject to particular exceptions.” Of course, for some decades now, the courts have permitted Congress broad powers under the general welfare clause.

He would also be taken aback by the all but plenary power accorded to Congress under the Commerce Clause of Article I. How could (can) a limited government be reconciled to such plenary power? Moreover, as he said in Congress, “if industry and labour are left to take their own course, they will generally be directed to those objects which are the most productive, and this in a more certain and direct manner than the wisdom of the most enlightened legislature could point out.”

I think Madison would also be surprised by how far the executive has taken on the prerogatives of an English king, in fact if not in law. Like many republicans of the founding era, he worried that the legislature would dominate the executive. We live in a time where Congress happily delegates its power to the executive branch and awaits the executive’s budget agenda. At the same time, Madison worried that executives, presidents and kings, had every reason to declare and make war, the latter being the most dreaded of “all enemies to public liberty.”  As he wrote in 1795:

Of all the enemies to public liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds are added to those of subduing the force of the people. The same malignant aspect in republicanism may be traced in the inequality of fortunes and the opportunities of fraud growing out of a state of war, and in the degeneracy of manners and of morals engendered by both. No nation could reserve its freedom in the midst of continual warfare.

In this light, it is perhaps inevitable that the authors of The Executive Unbound dismiss Madison in favor of Carl Schmitt, the author of The Concept of the Political and from 1933 onward, Preußischer Staatsrat and President of the Vereinigung nationalsozialistischer Juristen.

For Madison, the whole point was to bind government through a Constitution, enumerated powers, and ambition pitted against ambition. His was a noble vision of politics in service to individual liberty. Let us hope that we are not living “after the Madisonian Republic.”