Archives: March, 2011

Those Non-Meddling Kids

For once, a new poll on the political attitudes of young Americans brings some good news.  The poll, “D.C.’s New Guard: What Does the Next Generation of American Leaders Think?”[.pdf]  is from the Brookings Institution, and it’s the subject of my Washington Examiner column this week:

“It’s a survey of the type of kids who run for student government and choose to spend their summer vacations working in Washington,” the authors explain, “youth who already have the ‘Washington bug’ and have set themselves towards a career in politics and policy.” In other words … creeps!

If you’re the rare bird who favors limited government at home and abroad, you can hardly expect good news from a poll of this generation’s Tracy Flicks*. After all, aren’t these just the sort of model U.N. types who’ve always wanted to run the world?

Maybe not: The Brookings study contains some surprisingly encouraging findings about the attitudes of our future policy elites.

When given a list of possible foreign policy actions and asked to prioritize them, our precocious politicos put “build a stronger military force to ensure deterrence” near the bottom. Moreover, nearly 58 percent of these “young leaders” agreed with the statement that “the U.S. is too involved in global affairs and should focus on more issues at home.”

Only 10 percent “thought that the United States should be more globally proactive.”

I’ve read a lot of polling data on the Millennials’ politics, and, from a libertarian perspective, they’re a mixed bag. On the plus side, they’re socially liberal, and totally uninterested in culture-war politics. On the minus, they exhibit higher levels of faith in government than do older generations, leading the Center for American Progress to call them “The Progressive Generation.”

But if, as the Brookings survey suggests, even GenY’s model-UN types don’t want to run the world, then the future looks less bright for neoconservatives than it does for libertarians.

* reference is to the Greatest Political Movie of All Time, 1999’s “Election”:

A Routine, Run-of-the-Mill Half-Billion-Dollar Corruption Story

It may be Michael Kinsley who first said that the scandal in Washington is not what’s illegal, it’s what’s legal. Maybe a corollary is that the scandal is what people don’t even notice when it’s exposed. The Washington Post splashed a huge story of corruption across the front page of its Sunday Business section. The pull quote in the center read

A D.C. lawyer and her associates secured $500 million in federal contracts to benefit Alaska native corporations. Less than one percent made it back to Alaska.

And so far this impressive story by Robert O’Harrow Jr. has generated 4 comments, 7 tweets, 11 “likes” on Facebook, and only one other blog post that I can find. Are we so jaded that a full-page investigation of self-dealing and corruption involving affirmative action, small business, defense contracting, and complicated financial maneuvers just doesn’t get our juices flowing? And if one diligent reporter, who obviously spent a lot of time on this story, could find this much fraud by one well-connected contractor, how much could a hundred reporters find? I generally don’t think that “waste, fraud, and abuse” is the key to cutting federal spending; you have to go after the big programs, like transfer payments and military spending. But as Everett Dirksen almost said, $500 million here, $500 million there, pretty soon you’re talking real money. So let me just turn the floor over to O’Harrow to tell you what he found:

For years as a lawyer in Washington, Paralee White had helped small and disadvantaged firms break into the federal contracting market.

Then she decided to help herself.

She started a business and was soon making more than $500,000 a year through a contracting program intended to help poor Alaska natives, even though she isn’t an Alaska native.

White also helped her family. She hired her sister and brother, paying them as much as $280,000 a year. She helped her sister’s boyfriend set up his own firm in partnership with Alaska natives. He made more than $500,000 a year.

White’s story offers a look at how Washington insiders can make fortunes from government programs intended to benefit small, disadvantaged and minority entrepreneurs. It also illustrates how government officials who are supposed to keep tabs on these programs often fail to do so.

White’s native partners eventually accused her and her siblings of fraud and self-dealing, saying they were paid more than the rules allowed and hid the transactions from the government. The allegations spilled out in a civil lawsuit in Alaska, and the case was quickly settled.

Although officials at the Small Business Administration say they knew about the dispute, the U.S. government has taken no action.

Over several years, White and her associates landed more than $500 million in construction contracts for the Navy and other Pentagon departments, nearly all of them through an SBA program aimed at boosting Alaska native corporations. But less than 1 percent of that money made it back to the native-owned corporations, a Washington Post investigation found.

Government officials say they were not monitoring the contracts for compliance with the rules to ensure that the natives were doing a significant portion of the work and receiving the correct share of the revenue.

In statements, Navy and Air Force officials said that responsibility fell to the SBA. But SBA spokeswoman Hayley Meadvin said her agency long ago transferred that authority to the Pentagon and other agencies.

White, 59, declined to answer questions about the contracts. In e-mails, she said the questions involve “events several years in the past and I don’t have the files or time to research or reflect on them sufficiently to give you accurate information.”

There’s more, much more. Read it all.

Book ‘Em, Danno

I hope you’ve got your NCAA bracket in by now. The NCAA estimates that 35 million Americans will do so. But keep in mind: As the Washington Post notes, you’re breaking the law:

Office pools, despite the warnings of law enforcement officials, are among the country’s most popular illegal activities. The FBI estimates that roughly $2.5 billion is gambled on the NCAA tournament, and only $80 million is bet legally through Nevada sports books. A good portion of the rest takes the form of $5 or $10 entry fees to participate in a bracket-pick NCAA tournament pool.

Is this the most popular illegal activity in America? Well, the Office of National Drug Control Policy says that 104 million Americans have used marijuana, 28.5 million in the past year.

Does it make sense to criminalize peaceful activity that tens of millions of Americans enjoy? Discuss.

Federal Spending Cap: Corker vs. 3%

The American Action Forum will host a conference on Capitol Hill this afternoon to discuss budget reform (details here). Sen. Bob Corker (R-TN) will discuss his “Commitment to American Prosperity Act,” which would cap federal spending at a declining percentage of GDP over ten years. Spending as a percentage of GDP would eventually be reduced to 20.6 percent, which is equal to the average from 1970 to 2008.

Corker’s plan properly places the focus of deficit reduction on the source of the problem: too much spending. A concern with Corker’s plan is that it is somewhat complicated, which could make it difficult to explain to the public. Chris Edwards, who will be speaking at today’s event, recently showed that the government can get its finances under control by imposing a statutory limit on annual spending growth of 3 percent.

Chris explains:

Such a limit would be easy for policymakers and the public to understand and enforce. It would put ongoing pressure on Congress to cut discretionary programs and reform entitlements. With spending growth limited to 3 percent, the budget would be balanced in just over a decade and growing surpluses would be generated after that. The federal government would shrink as a share of GDP. The math is simple: federal revenues and GDP are expected to grow substantially faster than the 3 percent spending limit over the next decade and beyond.

The following chart shows spending growth capped at 3 percent versus Corker’s plan to cap spending at a decreasing percentage of GDP:

Both plans effectively limit spending growth, although the 3 percent cap would be more successful in limiting spending in the long-run. The major difference is that the 3 percent cap has the advantage of being easier to explain to the public. Public support is important for spending limitation legislation to gain traction.

Bruce Cook, the chairman and CEO of the One Cent Solution, will also be participating in today’s discussion. The Mercatus Center’s Jason Fichtner recently released a similar proposal called the “One Percent Solution.” These budget cap proposals would be tighter.

The Mortgage Industry-Government Revolving Door

The Washington Post is reporting that current Federal Housing Administration (FHA) head David Stevens, who only last week announced he was leaving FHA, is going to be the new head of the Mortgage Bankers Association (MBA).

When Stevens was first nominated to head FHA, I have to admit I was concerned.  FHA has a long history of prioritizing the interests of the mortgage industry over that of the taxpayer.  And here was a guy right out of the real estate industry (former Freddie Mac exec).  My expectations weren’t exactly high.  Maybe because of that, I’ve been largely impressed.  As FHA Commissioner, Stevens has taken eliminating fraud seriously, as well as avoiding a taxpayer bailout of FHA (so far).

All that said, it is hard to imagine that in under a week’s time, he interviewed with and was hired by the Mortgage Bankers Association.  So while there’s no evidence that he was looking at an MBA job while carrying out his duties running FHA, there is certainly the appearance of such.  The appropriate thing to do would be to leave FHA before getting a job with the very industry that FHA regulates and subsidizes.

Again I think Stevens has done a far better job at FHA than many of his predecessors, and I don’t believe he played a role in the financial crisis, but I do believe the cozy relationship between the mortgage industry and our federal government did play a huge role in the crisis.

ADA Service Animals: The Silence of the Goats

As I note in a New York Post opinion piece published on Sunday, today marks an unusual milestone: the executive branch of the U.S. government is actually rolling back a significant burden imposed on business owners and others under the Americans with Disabilities Act (ADA). Because the subject matter is an unusually colorful one – the widespread misclassification of household pets, including such exotic species as iguanas, goats, and boa constrictors, as “service animals” under the ADA – you’d think there’d be major press coverage. And yet with scattered exceptions here and there, public attention has been muted. And there’s a story in that too.

In the early years of the law (as I observe in the Post piece) the ADA’s mandate that businesses admit service animals caused little stir because dogs trained to help persons with blindness, deafness and some other disabilities are skillfully trained to stay on task while ignoring such distractions as food, strangers and the presence of other animals. But given the law’s lack of definitions, combined with lopsided penalties should a defendant guess wrong – $10,000 is possible for a first violation – shop owners began seeing more and more rambunctious spaniels and irritable purse dogs, to say nothing of rabbits, rats, ferrets, lizards and critters of many other sorts. Doctors obligingly wrote notes testifying that the animals were helpful for mood support or to fend off depression; you can buy “therapy dog” vests online with no questions asked.

The new rules toughen things up. With a minor exception for miniature horses, service animals will now have to be dogs; they’ll have to be trained to perform a service; and while that service can relate to an “invisible” disability, including one of a psychiatric nature, it cannot be based simply on mood support or similar goals. Also, they’ll need to be on-leash unless their service requires otherwise.

In revising the rule, the Obama administration was heeding the wishes not of frazzled retailers but of disabled-rights advocates themselves. As press coverage recounts, persons who employ well-trained service animals suffer not only from public backlash but also from more tangible setbacks such as disturbances that can arise when other, less well-trained animals challenge their dog in an indoor setting. If the new change counts as deregulation, it’s a sort of accidental and tactical deregulation not arising from any notion that it’s better to leave private owners free to set their own rules.

And that helps explain the absence of fanfare, not to say stealth, with which the Obama administration is letting the new rule go into effect. Knowing that the change will be unpopular with some of its own constituents, it seems happy to forgo credit with constituencies that might favor deregulation – notwithstanding the public fuss a few weeks ago about the President’s newfound interest in reducing regulatory burdens. That interest remains, to say the least, untested.

Are Mortgages Cheaper in the U.S.?

As Congress and the White House continue to debate the future of Fannie Mae and Freddie Mac, one of the oft heard concerns is that if we eliminate all the various mortgage subsidies in our system, then the cost of a mortgage will increase.  There certainly is a basic logic to that concern.  After all, why have subsidies if they don’t lower the price of the subsidized good.  Of course some, if not all, of said subsidy could be eaten up by the providers/producers of that good.

All this begs the question, with all the subsidies we have for mortgage finance, are mortgages actually cheaper in the U.S.?  While not perfect, one way of answering that question is to look at mortgage rates in other countries.   Although every developed country has some sort of government intervention in their mortgage market, almost all have considerably less support then that provided by the U.S.  (For a useful comparison of international differences see Michael Lea’s paper).

The European Mortgage Federation regularly collects information on mortgage pricing by EU countries.   The latest complete annual data from the EMF’s Hypostat database is for 2009, with at least a decade of historical data.

A quick glance reveals that mortgage rates in most European countries are not all that different than rates in the U.S.  For instance in 2009, the U.S. 30 year mortgage rate was, on average, 5.04; whereas mortgages in France averaged 4.6 and those in Germany averaged 4.29.  In the UK, the average was 4.34.

Part of this difference is driven by product type.  For instance, in France, most mortgages tend to be 15 year, which one would expect to be cheaper than a 30 year.  But the French 15 year rate of 4.6 isn’t all that different from the current U.S. 15 year rate of 4.1.  As lending rates are usually bench-marked off the rate on government debt, part of the slightly higher rate in some European countries is due to their higher government borrowing rate.  If we instead measure mortgage costs as a spread over government funding costs (as reported by the OECD), then many European countries look more affordable than the U.S.  For instance, German mortgages price about 100 basis points over long-term German govt debt; whereas U.S. mortgages price about 140 basis points over long-term U.S. government debt.

I don’t expect these numbers to settle the debate.  A variety of other costs, such as points paid or required downpayments, differ dramatically across countries.  Unfortunately that data does not seem to be readily available.  What the preceding comparison does suggest, however, is that even without Fannie and Freddie, U.S. mortgage rates aren’t necessarily going to be a lot higher.