Archives: 02/2013

Federal Infrastructure for Private Profit

In my recent study on infrastructure, I noted that federal spending is often designed to aid private interests, not the general public interest. As one example, I pointed to the Army Corps’ “MRGO” canal in Louisiana that was aimed at helping the shipping industry, but ended up being a wasteful boondoggle and harming the public interest.

The Washington Post today focuses on another dubious Army Corps project: the New Madrid Floodway project in Missouri. The aim of the project is to confer taxpayer benefits on a small group of private landowners, but it will harm the environment and undermine effective flood management on the Mississippi River.

Why would Congress consider going ahead with such a counterproductive project? Because the Army Corps has an institutional pro-construction bias and the agency is under the sway of certain powerful members of Congress, who do the bidding of private interests in their states. From the Post:

[Senator Roy] Blunt — who told reporters on Feb. 4 that he and Rep. Jo Ann Emerson (R-Mo.) ‘spent all of last year trying to browbeat the EPA and the Corps of Engineers into doing this job’ — tweeted Friday that he would ratchet up the pressure.

Blunt’s comments make clear that political power, not sound economics, dominates policy in Washington. Yet many pundits and wonks continue to believe the fairy tale that if we boost federal infrastructure spending it will allocated in an efficient manner by impartial experts toward high-return projects that benefit the general welfare.

Perhaps there are exceptions, but, in general, the federal government has never worked that way. With regard to the Corps, pork barrel politics, boondoggles, and environmental harm have been the modus operandi for more than a century. Here’s what I noted regarding the New Madrid Floodway project in my study of the Corps:

The Corps and some members of Congress have pushed a $108 million project to drain tens of thousands of acres of flood-prone land in Southeastern Missouri to benefit a small number of corn, soybean, and cotton farmers. The area currently acts as a beneficial relief valve for the Mississippi River during floods. Many experts think that this project is absurd, but the Corps sought to speed project approval on the basis of a manipulated cost-benefit analysis. In 2007 D.C. District Court Judge James Robertson harshly criticized the Corps’ analysis as ‘arbitrary and capricious,’ and he said that ‘the Corps has demonstrated its willingness to do whatever it takes to proceed.’

In a Republic, Voters Are Sovereign

As the story goes, when Benjamin Franklin left the Constitutional Convention in 1787, he was approached by a woman who wanted to know what type of government the delegates created. Franklin responded, “A republic, madam, if you can keep it.” Since the Founding, the Supreme Court has never directly defined what this “Republican Form of Government” is that Article IV of the Constitution guarantees to every state in the union — but cases come up every now and then invoking this provision (also known as the Guarantee Clause).

The latest such case comes out of Colorado and involves the ability of voters, protected in nearly every state constitution, to make law through various forms of direct democracy, such as voter initiatives. In 1992, Centennial State voters enacted a Taxpayers Bill of Rights (TABOR) to restrict the legislature’s ability to raise tax rates or increase spending, in a formula tied to the rate of inflation and population growth, unless otherwise approved by voters.

In Kerr v. Hickenlooper, the plaintiffs wish to remove this barrier and provide the Colorado legislature, municipalities, and school boards with full discretionary authority to tax, spend, and borrow, without voter approval. State Senator Andy Kerr and other government officials are seeking to redefine a “republic” as an institution whereby all legislation is solely the duty and privilege of the legislatures, and voter referenda are impermissible. The outcome of this revised interpretation could invalidate centuries of voter decisions at the ballots, abolish future voter input aside from the election of representatives, and give politicians carte blanche to tax, spend, and borrow.

Surprisingly, and despite any showing that voter initiatives are somehow incompatible with “republican government,” the federal district court allowed the lawsuit to proceed. Now before the U.S. Court of Appeals for the Tenth Circuit, Cato has joined the Independence Institute on an amicus brief arguing that, absent controlling legal precedent, the phrase “Republican Form of Government” should be defined by the standard sources the Supreme Court uses to decipher constitutional language: Eighteenth century political works, contemporaneous dictionaries, and official records and commentary from the Constitutional Convention, which for our purposes here all define “republic” in a way fully consistent with direct citizen lawmaking.

The most popular example of voter participation at the time of the Founding was through the town meeting, employed to this day throughout much of New England. Moreover, Massachusetts ratified its state constitution of 1780 by referendum, and Rhode Island even used a referendum to ratify the U.S. Constitution itself. Entry of those states into the union entailed recognition that those existing states had a republican form of government.

Based on all available evidence, the Guarantee Clause doesn’t require Colorado to dismantle its TABOR system of checks and balances. We urge the Tenth Circuit to reverse the district court’s denial of Colorado’s motion to dismiss and allow the state to preserve its model of self-governance.

Protectionism: Not Dead Yet

Paul Krugman has a post in which he proclaims “The Death of Protectionism.”  He refers to this chart from the U.S. International Trade Commission:

Itc

And he says:

 In doing course prep for trade policy, I looked, as I always do, at the latest edition of the USITC publication on the economic effects of import restrictions — and discovered that my subject was gone. At least according to the ITC estimates, there’s almost nothing left to talk about.

What happened? Mainly the end of the Multi-Fiber Agreement; also, US and world sugar prices have converged. But now that protectionism is a trivial issue, what will economists inveigh against?

The ITC chart shows tariffs falling from about 3.5% in 1993 to under 1.5% in 2011.  That sounds like they started low and got lower.

But it’s important to note that these are average tariffs.  Tariffs on certain goods are still quite high.  A publication called World Tariff Profiles illustrates this nicely.  If you look at p. 170 for U.S. statistics, you will see tariff duties for four general product categories of over 10%.  You’ll also see maximum tariffs (i.e., the high tariff on particular products) of over 100%!

And if you look at the duty rates for other countries, they are generally much higher.

And none of that includes special “trade remedy” tariffs (anti-dumping, countervailing duties, safeguards), subsidies, discriminatory government procurement, or domestic laws and regulations that discriminate (such as local content requirements).

So, protectionism is alive and well. 

I have little doubt that Krugman knows this.  So why is he doing a post proclaiming the death of protectionism?  I don’t know for sure, but allow me to speculate.  He wants the focus of economic growth policy to be on fiscal and monetary stimulus.  He doesn’t want free trade agreements to be offered up as an alternative growth strategy.  Thus, he is telling people that there is not much for free trade to do.

I don’t know if that’s really what’s going on.  But it could be.

Matt Yglesias Cools Out the Marks

Ben Smith has a mostly excellent piece titled, “Obama Prepares to Screw His Base”:

[T]he health care overhaul known as ObamaCare [is] calculated to screw his most passionate supporters and to transfer wealth to his worst enemies.

The passionate supporters are the youth, who voted for him by a margin of 60% to 36%, according to exit poll samples of people 29 and under. His enemies are the elderly: Mitt Romney won 56% of the votes from people 65 and over…[W]hat follows may come as an unpleasant surprise to many of the president’s supporters. The provisions required to make any sort of health insurance plan work — not just ObamaCare, but really any plan of its sort — require healthy young people to pay more in health insurance than they consume in services, while the elderly…consume far more than they pay in…[T]his year will be spent laying plans to shift the burden further toward the young…

And so this vast transfer or resources from young to old — just the latest in a long line of these transfers — hasn’t been discussed much because it is totally uncontroversial.

The piece falls shy of totally excellent because Smith incorrectly asserts, contrary to the economics literature, that young people have to subsidize old people for health insurance markets to work. Smith correctly notes that ObamaCare screws young people, but thinks that’s unavoidable, if unfortunate. Since there’s no reason to screw young people at all, ObamaCare is even worse than Smith portrays it.

But Matt Yglesias takes the cake. ObamaCare does not screw the young, he writes. Sure, millions of young adults will pay more for health insurance, even after accounting for ObamaCare’s subsidies. But young adults shouldn’t sweat the triple-digit premium hikes ObamaCare forces them to pay solely for the benefit of subsidizing older people who have more resources than they do. Why? Because today’s young adults will benefit later when ObamaCare does the same for them at the expense of subsequent generations. You know, if they don’t die first. What could go wrong?  

Social scientists have a term to describe the role that people like Yglesias play in a confidence game. It’s called “cooling out the mark.” In his classic 1952 article, sociologist Erving Goffman explains. See if you can find any similarities:

The confidence game – the con, as its practitioners call it – is a way of obtaining money under false pretenses by the exercise of fraud and deceit…

The typical play has typical phases. The potential sucker is first spotted and one member of the working team (called the outside man, steerer, or roper) arranges to make social contact with him. The confidence of the mark is won, and he is given an opportunity to invest his money in a gambling venture which he understands to have been fixed in his favor. The venture, of course, is fixed, but not in his favor. The mark is permitted to win some money and then persuaded to invest more. There is an “accident” or “mistake,” and the mark loses his total investment. The operators then depart in a ceremony that is called the blowoff or sting. They leave the mark but take his money. The mark is expected to go on his way, a little wiser and a lot poorer.

Sometimes, however, a mark is not quite prepared to accept his loss as a gain in experience and to say and do nothing about his venture. He may feel moved to complain to the police or to chase after the operators. In the terminology of the trade, the mark may squawk, beef, or come through. From the operators’ point of view, this kind of behavior is bad for business. It gives the members of the mob a bad reputation with such police as have not yet been fixed and with marks who have not yet been taken. In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play. It is called cooling the mark out. After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his team‑mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation. An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss.

So remember, young voters. ObamaCare doesn’t screw you. ObamaCare is good for you.

See you next time.

The First Amendment Is a Sweet Emotion

Hawaii, no longer content to trample on the Fourteenth Amendment alone, is about to bid a sorry aloha (farewell) to the First Amendment. In a brazen giveaway to celebrities who like to like to vacation on its pristine beaches, Hawaii’s Senate is poised to pass the “Steven Tyler Act.”

The bill, named after – indeed, written by – the Aerosmith frontman, could punish anyone who takes a photograph of a celebrity in public. That includes a tourist who takes out her iPhone to snap a pic of an aging rocker, or perhaps the Obama family. Specifically, the bill would prohibit recording someone “in a manner that is offensive to a reasonable person,” while that person is “engaging in a personal or familial activity.” The Steven Tyler Act not only departs from a century’s worth of privacy laws, but does so at a huge cost to the First Amendment’s guarantee of the freedom of speech. As my frequent co-author, law professor Josh Blackman explains,  there are several constitutional defects here:

First, the bill offers no exceptions for newsworthy content. It simply assumes that if a person is “engaging in a personal or familial activity with a reasonable expectation of privacy,” any photograph would be illegal. Newspapers covering matters of public affairs (that may be personal or familial) could be snared by this staute.

Second, the proposed statute is purposely vague. It offers no guidance of what “personal or familiar activity” means.

Third, courts would have the authority not only to stop the initial publication of a photograph, but allows for restraining orders for future, subsequent reproductions of the same photograph. This type of authority is called “prior restraint” – highly suspect in First Amendment jurisprudence – with nary a compelling government interest at stake.

Fourth, the penalties are severe, and include compensatory damages, treble punitive damages, and disgorgement of profits. Such penalties on a vague statute would easily chill speech far beyond the worst kind of paparazzi any celebrity can imagine.

Fifth, this standard applies not only to the person who takes the photograph, but potentially to anyone who uses the photographs in any capacity.  The only existing publication-related laws even approaching such a strict liability standard involve child pornography. As Josh notes based on one of his law review articles, many of these constitutional defects could be fixed by adding a newsworthiness exception to the law and limiting the scope and nature of damages that can be awarded. These tweaks would bring the law more in line with existing privacy law, while still respecting the Constitution. Protecting privacy in public is a laudable goal that in our constitutional jurisprudence dates back at least to the seminal article “The Right to Privacy” by Samuel Warren and Louis Brandeis. Indeed, we’re all affected by the sweet emotion of seeing celebrities harassed by the paparazzi (viz., Princess Diana). The Steven Tyler Act, however, misses a very important thing – that privacy and the First Amendment can coexist.

Hawaii shouldn’t walk this way, instead promoting the right of privacy that our society should strive for while ensuring the freedom of speech. Let’s not be jaded by the costs of freedom. Anything else is just crazy.

So You Want to Cut Spending

Back in 2011 there was a titanic fight between President Obama and the newly energized House Republicans over the federal budget. The ballyhooed result, which averted the frightening specter of a “government shutdown,” was “the largest annual spending cut in our history,” in the words of President Obama and the national media. I raised some doubts about it at the time, noting that it certainly wasn’t the largest budget cut in history and then pointing to a National Journal story suggesting that the cuts weren’t really there.

Now, in the Sunday Washington Post, David Fahrenthold follows up: What happened to the much-touted $38 billion in cuts (out of a $3,800 billion budget)? Oops. Not so much: 

Nearly two years later, however, these landmark budget cuts have fallen far short of their promises.

In some areas, they did bring significant cutbacks in federal spending. Grants for clean water dried up. Cities got less money for affordable housing.

But the bill also turned out to be an epic kind of Washington illusion. It was stuffed with gimmicks that made the cuts seem far bigger — and the politicians far bolder — than they actually were.

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.

Read it all. It’s just an amazing investigation into what happens in the bureaucracy when Congress announces it’s cut the budget, and the reporters move on.

Which is why I wrote last week that if you really want to cut spending, you should shut down agencies and programs. Then you have some hope that the spending will actually stop.

Why High-Speed Rail Is a Ridiculous Fantasy

High-speed rail supporter Alfred Twu has gotten a lot of attention for having boldly drawn a map of where he thinks high-speed trains should go. Never mind that Twu’s map is even more absurd than Obama’s plan. What’s sad is that the romance of trains still manages to hold peoples’ attention long after passenger trains have become technologically and economically obsolete.

Slate calls this the “liberals’ dream [of] what America’s high-speed rail network looks like.”

Anybody can draw a map, and that map is likely to reflect their own particular preferences. My ideal high-speed rail line would connect my home in Camp Sherman, Oregon (population 380) with Cato’s offices in Washington, DC. Of course, I tend to move about every eight or nine years, so by the time the rail line was finished the only potential regular customer would be gone. But just think of the jobs that would be created!

Twu lives in California, and his map has six lines radiating from Los Angeles and two from San Francisco. Twu is probably thinking either of where he would like to go by high-speed train or that everyone else would like to come to California by high-speed train. (He would also like us to “imagine no cars” in which case everyone would happily live in high-density, mixed-use developments. Like many planning types, he doesn’t understand the economics behind the horror of dumbbell tenements.)

Economist Megan McArdle points out that Twu’s New York-Los Angeles line makes little sense. Few people will want to spend 18 hours (McArdle’s estimate) in a coach seat when planes can do the same trip in six at a far lower cost. Nor will many intermediate segments, such as Chicago to Omaha or Denver to Las Vegas, attract large numbers of passengers. Thus, the trains will be fairly empty for much of the route.

McArdle doesn’t mention the even more absurd Los Angeles-Miami line on Twu’s map. As this analysis shows, Los Angeles-New Orleans is Amtrak’s least-used long-distance train, and Amtrak’s attempt to extend this route to Miami failed (partly due to Hurricane Katrina) after just a few years.

Twu’s map also includes routes from Cheyenne to El Paso; Chicago to Montreal; and a line to McAllen, Texas and beyond into Mexico. Other than the politicians that represent these regions, how could anyone take these routes seriously?

Twu’s map violates conventional wisdom among high-speed rail aficionados, which holds that trains are most competitive in 100- to 600-mile markets, not 2,000- to 3,000-miles. By “most competitive,” of course, they mean “able to capture 5 or 6 percent of the market,” which–when all modes are counted–is all that Amtrak has in the Boston-to-Washington corridor.

Rail supporters argue that Amtrak’s Northeast Corridor barely qualifies as high-speed rail as its top speed is only 150 and its average speed only about half that (which also means that none of the lines funded by the Obama administration, outside of California, qualify either). But dreaming about faster trains does little to change the fact that the fastest trains in the world are only about half as fast as jet aircraft, nor the fact that more Americans live and work within a few minutes of airports than downtown train stations. Anyone who is really serious about speeding travel would find ways to speed airport security, which would cost a lot less and do a lot more to help a lot more travelers than building multi-billion-dollar rail lines.

Here’s the real problem: America is a two-dimensional place, and we have a 4-million-mile network of highways and streets that allows anyone to get from practically anywhere to practically anywhere else in the contiguous 48 states. Rail lines are one dimensional, and what is worse they serve only selected points on that one-dimensional line. The number of people going from one point served by trains on a line to another point will be a small fraction of the total travelers in any given corridor.