Archives: February, 2013

WP: ‘Many 2011 Federal Budget Cuts Had Little Real-World Effect’

Today’s Washington Post has an excellent article by David A. Fahrenthold on the gimmicks used by both Democrats and Republicans in the April 2011 budget deal to create phantom ‘cuts’ in federal spending:

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…

Congress, for instance, “cut” $14.6 million from its own budget to build the Capitol Visitor Center. That changed nothing. The center was already built…

At the Pentagon, for instance, the April 2011 bill required a whopping $6.2 billion cut to military construction. But through a combination of congressionally installed gimmicks and military ingenuity, the Pentagon escaped nearly unscathed…Total real-world savings: $25.2 million. Just 0.4 percent of the total that Congress counted as “cut” on paper.

Not all the bill’s cuts were illusory, however. The Post’s analysis found five large cuts that turned out to be very real.

None of them actually caused an agency in Washington to shed federal personnel. Instead, they reduced the money that passed through those agencies to state and local projects…

Now Washington is facing the “sequester,” which would cut $85 billion starting March 1. The administration has sought to persuade Republicans to cancel it or replace it with a package of spending cuts and tax increases.

That, at times, has made for an awkward argument. Two years later, it appears that some of the budget cuts from April 2011 turned out to be less painful than originally believed. But the White House says that can’t happen again.

This time, it says, the cuts would be very real and very painful.

“Reductions that were possible in 2011 are not possible in 2013,” said [Robert] Gordon, of the Office of Management and Budget. “The resources that could be cut, they’ve been cut. The low-hanging fruit is gone.”

Of course.

A Threadneedle Street Kerfuffle

On January 10, 2013, I penned a letter to the Financial Times, pointing out an error in its characterization of lending-of-last-resort operations. As the letter below describes, these central bank operations often do not go according to plan:

Sir, Your leader “Basel bends on liquidity rules” (January 8) asserts that: “Central banks can always provide liquidity, and while their facilities should not be a first resort for banks, the Basel Committee is right to signal it will incorporate access to them in its rules.”

You might have added: “But, central banks have a propensity to make a muddle out of what should be routine operations – like those associated with the provision of lender-of-last-resort liquidity.” The Bank of England provides the most recent evidence of this in what turned out to be a catastrophic government failure and arguably the start of the current financial crisis.

On August 9 2007 European money markets dried up after BNP Paribas announced that it was suspending withdrawals from two of its money market funds. This put Northern Rock – a profitable, solvent bank – in a liquidity squeeze. Northern Rock turned to the BoE for a relatively small infusion of liquidity.

This routine lender-of-last resort operation would have worked, according to the textbooks, but for a BoE leak to Robert Peston at the BBC. The BBC story broke on September 13 2007 and the next morning a devastating bank run ensued.

In a flash, Northern Rock went from being solvent (if temporarily illiquid) to bust. Indeed, it was government failure – the BoE’s bungled attempt to provide emergency liquidity – that transformed the Northern Rock affair from a minor, temporary liquidity problem to a major solvency crisis.

So, when it comes to central banks, there is often a wide gulf between the textbooks and reality. It’s time to close the book on Basel III and its liquidity coverage ratio, and to focus on fixing central banks, so that they can properly deliver liquidity, when needed, at a price.

Steve H. Hanke, The Johns Hopkins University, Baltimore, MD, US

To my surprise, what I thought was a simple factual clarification of a Financial Times editorial quickly drew the ire of none other than The Old Lady of Threadneedle Street. Indeed, Nils Blythe, the Bank of England’s communication director was quick to reply in the next morning’s FT:

Sir, In a recent letter (January 11) Professor Steve Hanke made the unsubstantiated claim that the Bank of England leaked information about a lender-of-last-resort operation at Northern Rock to the BBC. This claim is wholly untrue. As the governor made clear in evidence to the Treasury Committee of the House of Commons, the Bank wanted to provide support to Northern Rock covertly, precisely because of the risk of a run by retail depositors.

Prof Hanke also argues that Northern Rock was suffering “a minor, temporary liquidity crisis”. It is worth noting that even when it was supplied with abundant liquidity Northern Rock could not find a buyer and had to be nationalised. With hindsight it is clear that Northern Rock was an early example of the solvency crisis which gripped much of the banking sector in the following years.

Nils Blythe, Communications Director, Bank of England

To put it plainly, I am quite underwhelmed by Mr. Blythe’s argument and evidence. Although it would appear that his response is in line with standard central banking protocol, I found his letter quite concerning for two reasons.

Obama Right to Resist Arming Syrian Rebels

In a front-page story for the Wall Street Journal, Adam Entous reports that President Obama rejected a plan to arm Syrian rebels presented by officials at the Pentagon, CIA, and State Department. It seems that despite the advice of the most senior members of his national security team, including Secretary of State Hillary Clinton, Defense Secretary Leon Panetta, and then-CIA director David Petraeus, the president decided against becoming more deeply embroiled in a brutal civil war. 

The president’s caution is welcome news for those of us who are skeptical of the United States’ ability to pick winners and losers in distant conflicts. I am also deeply sympathetic with the president’s dilemma, which is the theme of my book The Power Problem. “With great power comes great responsibility,” as the saying goes. But true responsibility means acting wisely, not simply acting. It takes enormous discipline and courage for a president to resist the incessant demands that he do something—anything—when horrible things occur. He should only act (1) in those rare cases when vital U.S. national security interests are at stake, and (2) when it is clear that the action being taken has a reasonable chance of delivering tangible results at a reasonable cost. 

Neither of those criteria is satisfied with respect to the Syrian conflict. 

Indeed, as the Journal story notes, the president appreciated that armed support for individuals and factions within the Syrian opposition was likely to have a number of unintended consequences. Specifically, the White House was dissatisfied with the answers to “lingering questions” including “which rebels could be trusted with the arms, whether the transfers would make a difference in the campaign to remove Syrian leader Bashar al-Assad, and whether the weapons would add to the suffering.” And the president apparently didn’t listen only to those making the case for expanded U.S. involvement; an anonymous U.S. official told the Journal that a team of CIA analysts cast doubt on the impact of arming the rebels in the conflict. 

Although the United States is providing non-lethal support to Syrian rebels, there are other good reasons to avoid doing more. One is the United States’ terrible track record in providing material, and lethal, support to opposition groups and figures. We have often mistaken power-hungry thugs, or simply manipulative charlatans, for committed democrats, and it is unreasonable to expect that our ability to separate the true patriots from the phonies has improved markedly since Iraq. 

Obamacare’s Shell Games Collectivize Our Consciences

Facing increasing losses in federal courts over Obamacare’s contraceptive mandate, the Department of Health & Human Services last week promulgated a rule to expand exemptions for religious nonprofits. That sounds good, but what the government is actually doing is a sort of accounting shell game: employers will no longer have to pay for the products/services to which they objects, but the government requires them to contract with an insurance company that the government then requires to provide these products/services to employees who want them “for free.”

As Yuval Levin put it, “If religious people thought about their religious obligations the way HHS lawyers think about the law, this might just work. But they don’t.” Matt Bowman, an attorney litigating some of these cases, makes some amusing analogies to illustrate the point:

Suppose the government decides that college students need access to pornography for their sexual health. It forces all colleges to give their students a free subscription to the Playboy Channel. Christian colleges object. So the government says it will merely force those colleges to give their students a subscription to cable television, and then it will force that cable company to give those students a free subscription to the Playboy Channel. Why would the Christian colleges be content with this arrangement?

Imagine that the government wishes to empower Second Amendment rights. It pairs employers with local families struggling with mental illness and requires the employers to provide the families with free handguns. Religious groups object. So the government forces the religious groups to give people with mental illness a membership at a shooting range, and then forces the shooting ranges to provide those people with free handguns as a benefit of membership.

Perhaps the government decides that Americans need to just calm down, especially religious fanatics. It forces employers to supplement the water supply in their buildings with sedatives. Religious groups object. So the government forces the religious groups to maintain an account with the water company, and then forces the water company to put sedatives in the religious groups’ water supply.

The new accounting gimmick contraceptive-mandate exemption simply betrays contempt for anyone, religious or otherwise, who doesn’t want to pay for birth control pills. (I should note that I have no moral objection to contraceptives or the other pills at issue in this mandate; it’s the mandate itself that’s a problem.) And remember that there’s no question that proposed exemption doesn’t help objecting for-profit businesses, such as Hobby Lobby, one wit.  And that’s a shame. 

D.C. Treats Celebrities Better Than Veterans, Illustrating the Absurdity of Gun Laws

Last month, D.C. attorney general Irvin Nathan announced that he would not be prosecuting David Gregory for displaying an empty ammunition magazine on his national TV show Meet the Press—even though NBC knew ahead of time that this action would violate D.C. law. In a letter to NBC, Nathan admonished Gregory for knowingly flouting the law, but said he decided to exercise “prosecutorial discretion” and not pursue a criminal case. “Prosecution would not promote public safety in the District of Columbia, nor serve the best interests of the people,” Nathan wrote.

In the Washington Post story about this episode, I was quoted as calling Nathan’s decision “a wise use of prosecutorial discretion” but that the episode “illustrates the absurdity of some of these gun laws.”  My position apparently paralleled that of the NRA—even though Gregory had waved the illegal magazine in front of the group’s executive VP, Wayne LaPierre—but “thousands of gun advocates” signed a White House petition calling for Gregory’s arrest because he ought to be treated the same as anyone else.

Indeed, a friend soon pointed out to me that D.C. authorities were not treating people equally: Last summer, Army Specialist Adam Meckler, a veteran of the Afghanistan and Iraq wars, was arrested and jailed for having a few long-forgotten rounds of ordinary ammunition—but no gun—in his backpack in Washington. Meckler violated the same section of D.C. law as Gregory did, and both offenses carry the same maximum penalty of a $1,000 fine and a year in jail.  [H/t: Jason Epstein]

Well, that’s disgusting, and D.C. authorities ought to be ashamed of themselves. But the correct response isn’t to waste taxpayer dollars on prosecuting David Gregory, but rather to not prosecute the Adam Mecklers of the world. 

Now, I’ve never been a prosecutor or even practiced criminal law, so it could well be that it’s outside the ethical bounds of discretion not to charge someone who so brazenly flaunts the law as Gregory and the NBC producers did. But if incidents like these doesn’t make people realize that it’s lunacy to criminalize, as a strict liability offense, no less (meaning that your knowledge or mental state is irrelevant), the mere possession of magazines, bullets, and other gun-related accoutrements (without even getting to an “assault weapon” ban, etc.), then nothing will. A magazine is a metal box with springs, of which there are hundreds of millions in the country.  A bullet is a piece of metal that, in the absence of a gun, is less deadly than a rubber band. It’s people who insist on demonizing such objects that lend creedence to those on the other side who believe that any gun regulation is a step toward confiscation and tyranny.

Let me be even clearer: Criminalizing the possession of a magazine or bullet is as extreme as legalizing the private ownership of nuclear missiles. The idea that celebrities should be treated no differently than anyone else is an important one to draw from the David Gregory incident.  But it’s even more important, at least in the context of our ongoing discussion over gun policy, to understand that putting stupid laws on the books doesn’t make us any safer and indeed draws resources away from actions (like investigating, prosecuting, and preventing violent crime) that do.

Bike Advocates Oppose Mandatory Helmet Laws

This morning’s Washington Post reports that organized bicycling enthusiasts in Maryland, though a very safety-oriented bunch, are mostly not supporting a bill in the state House of Delegates filed by Del. Maggie McIntosh (D-Baltimore) that would make helmet use mandatory for riders: 

“We feel that everyone should wear a helmet,” said Carol Silldorff, executive director of the nonprofit group Bike Maryland. “We don’t feel that it should be necessarily the law that you have to wear a helmet.”

Shane Farthing, executive director of the Washington Area Bicyclist Association, is quoted similarly: “we are fully supportive of the use of helmets and encourage everyone who rides a bike to use one,” he said. “We’re just not convinced that a mandatory helmet law is going to improve safety.”

For bike advocates, the main problem seems to be that fear of being ticketed under a mandatory law is likely to discourage casual short-hop users from participating in the sort of Bikeshare program that has become popular in Washington, D.C. and is expected to spread soon into the Maryland suburbs.  Bike advocates cite a “safety in numbers” theory: once the novices and impulse users drop out for fear of being hassled by police for their lack of head protection, the only urban bicyclists will be the dedicated types who carry a helmet around with them just in case, and motorists (the theory goes) are more likely to ignore bicyclists’ safety needs when they don’t see them around much. Farthing, of WABA, is also concerned that once helmet use is legally obligatory, officials may be unwilling to open Bikeshare docking stations “for fear that they would be legally liable” after an accident for facilitating unhelmeted use.

In other words, you can care about safety, but not want it enforced by government decree. Kind of a revolutionary idea – especially in today’s Washington, D.C.  

North Korea’s Cute Leader Isn’t So Cuddly

North Koreans might be impoverished and starving, but Pyongyang has entered the Internet age. Unfortunately, the new leadership isn’t using its skills to make friends. 

Thirty-year-old ruler Kim Jong-un has followed his “Great Leader” grandfather and “Dear Leader” father, so some of us call him the “Cute Leader.” But he’s not proving to be warm and cuddly—at least toward the United States. 

The so-called Democratic People’s Republic of Korea recently posted an animated YouTube video showing Manhattan in flames after a missile attack from an unnamed country. The images are cribbed from the video game Call of Duty and the audio is an instrumental version of Michael Jackson and Lionel Richie’s “We Are the World”—so it’s not exactly an ILM-quality production. Scrolling across the pictures is Korean text reading, “It appears that the headquarters of evil, which has had a habit of using force and unilateralism and committing wars of aggression, is going up in flames it itself has ignited.”

The DPRK video—removed from YouTube because of copyright violation but still available elsewhere—occasioned hand-wringing and worries that maybe the United States should take the threat seriously. However, the threat is nothing new. Pyongyang previously issued posters showing missiles hitting America’s Capitol Hill.

The North Koreans aren’t the only people to view Washington as the Center of All Evil. However, most of the rest of us, especially here at Cato, don’t view foreign missile attacks as a particularly good solution to political disagreements.