Archives: 05/2012

Huge Victory for Educational Freedom in NH

The New Hampshire House and Senate approved a a path-breaking education tax credit bill yesterday with an overwhelming 70 percent support in each chamber. The Governor must now decide whether to sign up with reform on the right side of history or face a veto-override battle.

The program includes home school expenses and allows the program to grow 25 percent each year if donations equal 80 percent or more of the program cap. It is income-limited, but scholarship organizations can use 20 percent of their funds for children who would otherwise not qualify, giving flexibility instead of a hard cut-off. It allows up to 30 percent of students to be currently enrolled in private school. It imposes no new regulations on private education beyond basic reporting to the department of taxation.

I provided analysis and advice on education tax credit policy structure to individuals in New Hampshire over the past year, but a policy analyst can only explain why certain structures are better or worse for accomplishing particular goals.

The New Hampshire legislators who pushed this education tax credit perseverance, principle and thoughtfulness deserve the highest praise … it is not often that we are fortunate enough to see a critical mass of true leadership in politics.

Legislators in other states should take note of what can be accomplished when lawmakers take principles and policy seriously.

Note: Follow these links for model legislation,  tax credit legislative guidelines, and an explanation of why credit percentages are so important. Due to the peculiarities of New Hampshire tax law, which makes it difficult or impossible to back out deductions if a taxpayer claims a credit, the credit is set at 85 percent of the donation. But with New Hampshire’s flat 8.5 percent business tax, a donor’s tax liability is reduced by over 93 percent. Since New Hampshire has no standard individual income tax, next up should be property tax credits to ensure even greater participation in education. Other states without these restrictions should pass 100 percent credits for both businesses and individuals, and for both personal use and donations.

Does Internet Activism Work?

In the struggle between liberty and power, technologies are rarely neutral. So where does the Internet fall?

On the hopeful side, there’s the defeat of SOPA, the Arab Spring, and the ongoing struggle for liberalization in China, to name just three.

But we’ve also seen serious threats to privacy and civil liberties at home, Internet surveillance used to hunt down dissidents abroad, and China’s surprisingly effective Internet filtering.

This month at Cato Unbound, Berin Szoka of the think tank Tech Freedom takes a broadly optimistic approach. Jason Benlevi, the author of the book Too Much Magic, suggests that social media may be effective when they give corporations consumer feedback, but they don’t do as well against governments. Rebecca MacKinnon, the author of Consent of the Networked, urges us to focus on the details of specific countries and cultures; for her, facts on the ground can make or break Internet activism. And public choice scholar and law professor John O. McGinnis zooms out to the larger picture: The Internet is changing how we conduct public policy debates, he argues. As fact-checking and crowdsourcing get easier, our political culture will tend to grow more empirical and less ideological.

To follow the ongoing discussion, subscribe to Cato Unbound (RSS) or follow us on Twitter.

Googling Around DC

The Google car is in Washington, DC, and the Antiplanner managed to hitch a ride around downtown. My host, Anthony Lavandowski–sometimes driving, sometimes just sitting in the driver’s seat–answered a number of questions about the car.

The Cato Institute’s David Boaz stands next to the Google Prius. In addition to the spinning laser sensor on top of the car, note the infrared sensors in the front bumper (there’s a similar one in the center of the back bumper). The laser sensor finds nearby objects while the infrared sensors can detect objects much further away. Click on any photo for a larger view.

He said the car and hardware cost about $100,000, but Google has just a handful of them. When they go into mass production, he estimated an ordinary car could be retrofitted for a couple of thousand dollars. Some cars already have many of the sensors the Google car uses, so the cost of retrofitting such cars would be much lower.

Inside the car are more sensors, including a camera next to the rear-view mirror that detects traffic signals. The “driver” of the car is a desktop computer in the trunk; the laptop only allows the operators to monitor what the car sees.

As we threaded through downtown DC traffic, he noted that the car relies on GPS for only the most general purposes. Mainly it relies on the information it senses and its built-in knowledge of the area. For example, Google programs the location and height of every traffic signal the car might encounter so it knows where to look for the signals.

The small white boxes are pedestrians; the larger boxes are other motor vehicles. Anthony is pointing to a traffic light. Other lines show traffic lanes and crosswalks. The upper righthand corner gives the current status, including the legal speed limit and traffic signal.

People don’t like the idea of robots killing people, Anthony wryly noted as the car lurched to a halt when a pedestrian crossed in front of us, so Google programmed the car to drive extra cautiously. He promised they would eventually reprogram the brakes so the stops wouldn’t be so abrupt. Someone honked when several other vehicles took advantage of the car’s good nature to merge in front of us; eventually, they’ll probably program the car to be a bit more aggressive in such situations.

I asked him what they did about the fact that most drivers drive 5 to 10 mph over speed limits. The car has two modes, he said. If you’re going 75 mph and you put it in one mode, it will maintain that speed where it is safe to do so, slowing down as appropriate for curves, traffic, and other appropriate reasons. If you put it in the other mode, it will strictly obey all traffic laws, getting into the righthand lane if everyone else is going faster. No doubt they will eventually have “plus-5-mph” modes or whatever to take into account that many roads are signed for slower than the speeds people actually drive.

Anthony told me a couple of surprising things. No state actually outlaws driverless cars, he said; traffic codes were written before anyone conceived of self-driving cars, so the laws only require that a licensed driver be in the driver’s seat, not that they actually be operating the car. Google’s goal is to get the states to affirmatively recognize that driverless cars exist and eventually may operate without a licensed driver. Nevada and Florida have already passed such laws and Google hopes California will soon follow.

Operators of modern cars aren’t really driving them, he noted. When the operator turns the wheel or put a foot on the brake, the car gets a signal and then responds to that signal using built-in software. In some situations, many cars will override the signals they get from the operators for safety reasons. Self-driving cars just introduce one more layer of software between the operator and the car.

I asked him whether liability laws would be a barrier. Automakers probably won’t bring self-driving cars to market under current laws, he speculated–but those laws won’t stop Google. He promised that Google would stand by its software: If a self-driving car is involved in an accident, the car will have a record of what other vehicles involved were doing up to the accident. If the other vehicle is at fault, the record will prove it, and if Google’s car is at fault, Google would pay the cost and fix the problem so it won’t happen again.

So the main thing left is improving the systems so the they are ready for prime time. The car I rode in has detailed information about Washington DC built in–but it can’t drive itself back to California without a lot of new data entry and programming. Perhaps one of the reasons why Google photographs all the streets in the country is to help build the database for its driverless cars. Despite the need for more work, seeing the car in action makes it seem much closer to reality.

Selling Work Visas: Auctions or a Tariff?

Yesterday Professor Giovanni Peri presented an immigration reform plan that would auction work visas to employers.  As I wrote yesterday, Peri’s plan would diminish the misallocation of current visas but not do much to increase the quantity of work visas.  Since the real problem with America’s immigration system is a lack of work visas and green cards, Peri’s plan seeks to solve a rather miniscule problem by comparison.

Proponents of selling visas either support auctioning a limited number of visas to the highest bidders or establishing a tariff that sets prices but allows the quantity to adjust.  An immigration tariff is far superior to an auction of numerically limited work visas.  You can read my proposal in more detail here or listen  me explain it here.

Here are three reasons why an immigration tariff is better than an auction:

First, a tariff is the most market friendly way of restricting work visas.  Limiting the government’s role to setting the price of work visas, allowing the purchased quantities to adjust, would make for a much more market-friendly and flexible system.  A tariff would decrease immigration relative to open borders, but misallocation isn’t a big concern because immigrants with the most to gain would pay the tariff.

Second, an immigration tariff is more economically efficient because the quantity of work visas would adjust to market demand unlike an auction of numerically limited work visas.  When there is economic growth more people would buy work visas to keep pace with labor demand.  In slow economic times the number of visa purchases would automatically shrink.  With an immigration tariff, there is no need for a government commission to somehow figure out how many are demanded.  They can just set the price and let the market figure out the quantity.

Third, an auction system will not do much to diminish unauthorized immigration going forward.  An immigration tariff allows immigrants, temporary workers, American businesses, and families to plan ahead, save, borrow, and pool resources to pay the tariff.  Tariff prices will change, no doubt, but they won’t change all of the time as they would under Peri’s system.  An auction would provide less price certainty, fewer guarantees of entering legally, and incentivize more unauthorized immigration than a tariff.

When Bipartisanship Is A Dirty Word

In a blog post I wrote about two years ago, I said “Usually when I hear that a policy proposal has bipartisan support, I instinctively check for my wallet.” At that time I was lauding a bipartisan proposal to shut the USDA’s market access program (although it seems that idea didn’t get much traction) under the heading “When Bipartisanship Is Good News.”

I should have trusted my instincts; i.e., that “bipartisanship” is code for either:

(a) “we’ve just renamed a post office”;

(b) “cough up, because we’ve agreed to spend more of your money”;

(c) “brace yourself, because we’ve agreed to violate more of your liberties”; or

(d) both b and c (see, e.g., the Department of Homeland Security).

Last night we were treated to an example of (b), when the U.S. Senate in a 78 to 20 vote elected to follow the House’s lead (330 to 93, in that case) to re-authorize, with a bigger budget, the Export-Import Bank of the United States until 2014. (Please do click on the previous two links to the roll-calls so you can see how your friendly Representative or Senator voted on this taxpayer-funded slush fund for the biggest corporations in America, by the way). The bill will now go to the President for his signature.

Allow me a few comments. First, this is incredibly disappointing. One would think that this is an excellent time to shut down the Ex-Im Bank, what with bailout-fatigue, trillion dollar deficits and all. But this bill “had the backing of business and labor groups,” as this Washington Post article makes clear, and despite all of the rhetoric from both sides, it seems that Congress and the President loves them some special interest group pleadings.

Second, the fairly easily debunked talking points of Ex-Im supporters obviously resonated. Ex-Im Bank president Fred Hochburg (who one can hardly expect to do anything other than protect his job) showed an excellent ear for PR when he said “there are no Democratic or Republican exports. There are exports that create jobs. Good, middle-class jobs.” Exports! Jobs! Middle class! What’s not to love? And in the interest of non-partisanship, here’s a quote from Senator Lindsey Graham (R-SC) in response to the arguments made by what the WaPo article called ”tea party conservatives”: 

“I live in the real world and the real world is that these financing mechanisms have to be available to American manufacturers to have a share of the overseas market”

Actually, Senator, I’m glad you raised “the real world”. Because in “the real world” stuff costs money, money that isn’t manna from heaven but taken from other people. And in the real world, regulations or other market interventions distort the economy, reallocating resources from their most productive uses as identified by volunteers putting their own money at risk and towards uses directed by political entities, responding to lobbying and other features of public choice. In the real world, there is nothing special about manufacturing per se, with lots of middle class (or “upper class” jobs, if the class system is something that matters to you) created in the service sector. Also in the real world? Private finance. Lots of it, as you would know if you spoke with any of the folks producing the 98 percent of U.S. exports that don’t rely on Ex-Im.

Third, and this is somewhat parenthetical, not one – NOT ONE – Democrat in either chamber voted against corporate welfare.  Interestingly, according to the roll call for the 2002 re-authorization of the Ex-Im Bank, 26 democrats voted against re-authorization 10 years ago. So there was some opposition back when President Bush was in charge, but now that President Obama (as opposed to Candidate ”The Ex-Im Bank is little more than corporate Welfare” Obama) is supportive, apparently taxpayer guarantees for big business are ok.  The following Democratic members switched their vote from “Nay” in 2002 to “Yea” (or should that be “Yay!”?) in 2012: Andrews, Baldwin, Conyers, deFazio, Jackson (IL), Kaptur, Matheson, Nadler, Owens, Pallone, Peterson (MN), Stark, and Waters (with Kucinich not voting in 2012, but voted “Nay” in 2002). I’d be curious to hear about what caused the change of heart.

Looking at Austerity in Italy

The Italian economy contracted for a third quarter in a row, deepening the country’s recession and adding to the fire of the euro crisis. Italy is the third largest economy in the Eurozone, and many view it as the endgame of an eventual collapse of the common currency because it is too big to fail. Neither the EU nor the IMF have enough cash to rescue it. If the country defaults, that would probably spell the end of the euro.

Austerity is being blamed for Italy’s economic troubles. Chiara Corsa, an economist at UniCredit, wrote that “The key factor is austerity, which is weighing heavily on consumption and investment.” Recent local elections saw the rise of anti-austerity parties. Paul Krugman warned about this back in December when he described the austerity push of Prime Minister Mario Monti as “self-defeating” and “delusional.”

However, as is the case for Britain, France and Greece, commentators are unclear about what austerity means for Italy, although many seem to imply spending cuts. For example, if Krugman’s criticism about Italian austerity is consistent with his critiques about austerity elsewhere in Europe, we know he means spending cuts. So let’s take a look and see if there has been any:


* Using GDP deflator.
Source: European Commission, Economic and Financial Affairs.

Spending in nominal terms increased by a yearly average of 4.1% between 2000 and 2009, and then fell slightly the following year. In 2011 government spending was just 0.14% below its 2009 level. As for spending in real terms, there’s no cut whatsoever. And as a share of the economy, total spending reached a peak in 2009 at 51.6% of GDP, and it fell to 49.6% last year, a decline far from significant.

So what’s austerity all about in Italy so far? According to The Financial Times, the “government’s €30 billion austerity package, passed in December, was heavily oriented towards tax increases rather than spending cuts, an emphasis that is now widely recognized by ministers as having driven Italy deeper into recession.” The FT adds that the Monti administration is facing “intense pressure from business, politicians and the public to shift the burden of austerity away from heavy taxation towards cuts in public spending.” As a result, the Italian Prime Minister announced €4.2 billion in spending cuts starting in June, still less than 1% of total public spending. That doesn’t sound savage to me.

But it’s quite fascinating to see the hysteria surrounding non existent spending cuts and its supposedly negative impact on economic growth. For example, last December The Economist warned:

“But too great an emphasis on austerity in the short run risks sending the continent’s economy into a deep recession; the latest data on Italian industrial production showed an annual fall of 4.1% in October, even before budget cuts were introduced by the new government.”

Interestingly, according to The Economist, spending cuts were somehow responsible for a decline in economic output in Italy even before being implemented!

If austerity is to blame for Italy’s recession, we need to be clear that by austerity we mean mostly tax increases with almost no reduction in government spending.

Limit Access to Deposit Insurance Fund

The recent losses at JP Morgan have renewed calls to break up the banks and/or increase regulation of the banks.  I’ve written elsewhere why I believe these losses do not justify more regulation, particularly of the Volcker rule variety.  While I have some sympathy with the break them up view, and a number of people for whom I have great respect have argued for that position, I think that position is ultimately flawed beyond repair.

First any size limit would be arbitrary.  I don’t know anyone who thought that Bear Stearns was too big to fail ex ante.  I still don’t believe Bear was too big to fail.  More importantly, when it comes to banking, small is not always safer.  The most obvious example is the savings and loan crisis, which cost, on net, more than the TARP.  That was all small institutions.  And don’t forget over 300 small banks have failed this time around.  There is also some research suggesting that the more concentrated your banking system is, the more stable it is.  Just look at Canada for one example.  There are several others, and again this finding holds up to empirical testing.

If the ultimate concern is risk to the taxpayer, due to the backing of the Federal Deposit Insurance Fund, then it would seem to be that the obvious answer, and easy to implement, is to limit the amount of insured deposits that can be held by any one bank.  The previous limit was 10 percent of the insurance fund, although that could be breached by organic growth (rather than via merger).  We should reduce the limit to 5 percent and make such a hard cap.  If banks want to take uninsured deposits that’s fine, as long as we limit the risk to the FDIC.  And we should also roll back the extensions of deposit insurance coverage in Dodd-Frank.  Few households have $250,000 in deposits (and that is just per person, per account).  Ultimately we should go back to the pre-1980’s level of about $40,000 and limit that to total coverage per person.  If we want to reduce the taxpayers’ exposure, then the more effective way, in my view, is to limit the bank safety net or at least limit the extent that the safety backs any one bank.