Archives: 08/2013

Give the Economy a Deregulatory Stimulus

The U.S. economy has yet to recover, so President Barack Obama naturally wants to hike federal outlays. His favorite justification for spending more is to “stimulate” the economy.  Never mind that $5 trillion in federal deficits during the president’s first term didn’t create an economic boom. His latest gambit is a proposal to “reform” corporate taxes and have Washington spend, er, “invest,” the extra money collected to “create” jobs. 

Unfortunately, government never has been able to create self-sustaining economic growth. If Uncle Sam could buy prosperity, then we should just load up the Air Force’s antiquated B-52s with dollar bills and drop the cash all over America. Everyone would be rich!

A better strategy would be to free the private sector by, for instance, cutting the regulatory burden on U.S. enterprises.  Obviously, or at least, obviously to people outside of Washington, when government makes it more costly to create businesses, develop products, expand operations, employ people, and market goods and services, there will be less commerce, meaning fewer and lower-paying jobs. Reduce the unnecessary burden, get more economic growth.

Clyde Wayne Crews of the Competitive Enterprise Institute, a former Cato scholar, regularly publishes “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State.”  The latest issue is filled with bad news.

As I explain in my latest article for American Spectator online:

“These days most Americans probably view Uncle Sam’s most important duty as that of sugar daddy—transferring money from taxpayers to basically everyone, ranging from corporations and labor unions to students and retirees. The national government has turned into a vehicle for most everyone to attempt to live at most everyone else’s expense. A system originally created to preserve liberty and limit government has turned into an institution by which the influential loot the productive.

However, nearly as important even if less visible is Washington’s regulatory role. Special interests have learned that they can use federal rulemaking to enrich themselves and/or impoverish their rivals. Doing so has the added advantage of disguising the cost to the public. Added to self-serving regulations are the even more officious nanny-state controls which increasingly appeal to the authoritarian liberals who so often end up in government.”

We are now facing Thomas Hobbes’ Leviathan in Washington: 15 departments, 69 agencies, and 383 civilian sub-agencies, employing 2.84 million people. The Treasury Department, including the IRS, tops the list of Washington regulators with 487 rules completed or in-process last year. Next comes the Commerce Department, centered on corporate welfare, with 415 rules. 

Climate Rehash

Global Science Report is a weekly feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

Yesterday, the National Oceanic and Atmospheric Administration (NOAA) issued a press release announcing the publication of its “State of the Climate 2012” report. The global media, predictably, are all over it, loving the gloomsaying.

None of it is new. The NOAA report is simply a collection of rehashed stories that have already had their 15 minutes of fame, stories that we (and others) have already commented on, put into perspective, or debunked.

Usually, “Year in Review” type of stories are saved up until the end of the year, but when it comes to climate change—an issue for which the president has declared “we need to act”—once a year is apparently not enough.  So, NOAA’s “Year in Review” comes out at the end of December and then is rerun like old Seinfeld episodes the next summer.

The NOAA press release contains this manner of introduction from its acting head, Kathryn Sullivan:

“Many of the events that made 2012 such an interesting year are part of the long-term trends we see in a changing and varying climate—carbon levels are climbing, sea levels are rising, Arctic sea ice is melting, and our planet as a whole is becoming a warmer place,” said acting NOAA Administrator Kathryn D. Sullivan, Ph.D. “This annual report is well-researched, well-respected, and well-used; it is a superb example of the timely, actionable climate information that people need from NOAA to help prepare for extremes in our ever-changing environment.”

It is interesting that she terms the information contained in the report as “timely.”

Below is a list of our comments, each made at least several months ago, on the topics highlighted in her statement.

Making a Market in Education

AEI’s Michael McShane writes that America’s “school choice” policies have thus far failed to live up to their hype and have not created real, vigorous education markets. That’s hard to argue with. As McShane rightly points out, existing programs are still very small, mostly filling empty places in non-profit private schools that predate the programs’ creation. The creative destruction of real market innovation has yet to make its presence felt, and the few new entrants to the marketplace usually look much like the old ones.

It’s not entirely clear what McShane is proposing as a solution, but he offers a few hints:

New schools and school models need to be incubated, funding needs to follow students in a way that allows for non-traditional providers to play a role, new pathways into classrooms for private-school teachers and leaders need to be created, and high-quality school models need to be encouraged and supported while they scale up. In short, policymakers, private philanthropy, and school leaders need to get serious about what’s necessary to make the market work.

This seems to suggest the need for some sort of new school development organization, the picking of “high quality” schools by philanthropists for scale-up funding, and revisions to teacher certification rules. The first two would likely do more harm than good and the third can be improved upon by simply getting rid of government certification rules for private school teachers altogether.

Obama’s Housing Speech: The Good, The Bad, & The Ugly

Yesterday, President Obama went to what was perhaps ground-zero of the housing crisis: Phoenix. He laid out his vision for the role of housing in building a middle class, as well as his solutions for avoiding bubbles.    

On the rhetorical side, the president certainly laid out some principles that anyone would be hard-pressed to disagree with. For instance, he characterized the business mode of Fannie Mae and Freddie Mac as “heads we win, tails you lose”–which of course it was. The president was correct in calling it “wrong.”  If only then-Senator Obama had aided the efforts to reform Fannie and Freddie by Senator Richard Shelby and others, perhaps this mess could have been avoided. But, hey–better late than never.  

The president is also correct in highlighting the issue of local barriers that increase the cost of housing. Both Cato’s Randy O’Toole and I have written regularly on this topic. You don’t get bubbles without supply constraints. But then every president since Reagan, at least, has pointed to this problem and yet it has only gotten worse. If the president has a substantial plan to bring down regulatory barriers in places like California, then I would love to see it.

Perhaps most importantly, the president recognized that what we had was a housing bubble, and the solution isn’t to “just re-inflate” it. As the president urged, we must “turn the page on the bubble-and-bust mentality” behind the housing crisis. That was the good, and again I applaud the president for recognizing those facts.  

Unfortunately, what details we have of his vision are not exactly consistent with these facts–which are bad and ugly. The president wants “no more leaving taxpayers on the hook for irresponsibility or bad decisions,” but then he implies that government should continue to stand behind risk in the housing market. The primary purpose of FHA, which the president commends, is to allow lenders to pass along the costs of their mistakes to the taxpayer.  

Mr. President, there is only one way to take the taxpayer off the hook:  get the government out of the mortgage market.  Anything short of that will continue to undermine the incentive for lenders to make responsible loans.  

What About “Zero-for-$3 billion-a-Year”?

That’s about how much the U.S. economy would gain from removing all sugar price supports and trade barriers right now.

But the sugar lobby, and their supporters in Congress and, sadly (not to mention confusingly), some conservative groups, are pushing a “Zero-for-Zero” sugar policy, which would essentially end U.S. sugar support programs only when other sugar-producing countries do the same. Seton Motley, president of Less Government puts it this way in an article for the Daily Caller:

It’s called zero-for-zero. Where we approach the planet and say “You get rid of your trade barriers, and we’ll get rid of ours.” In other words, we have zero protectionism — and so does everyone else. Right now, it’s being proposed for sugar…

“Consider that there are more than 100 sugar producing countries worldwide, and there are also basically 100 different sugar policies, each of which includes various forms of government intervention,” [a supply-chain management researcher in a recent study] continues. “[A] free market approach rewards the best and most efficient business people and not the most heavily subsidized producer,…[zero for zero] could stabilize domestic and ultimately world market sugar prices … [Getting] government out of markets creates free markets, and free markets lead to free and fair markets, and that, in the final analysis, is where world sugar needs to be.”

Well sure it does. The question is: what should the United States do while we are waiting for this nirvana to materialise, a process that would be very lengthy indeed? I would suggest that doing ourselves a favour and abandoning the terrible U.S. sugar policy—costing the economy billions of dollars a year through artificially high sugar prices and, now, government sugar purchases—is a good start. Let other countries distort their markets and subsidise sugar importers’ consumption, as is their wont. We don’t have to follow them, and American consumers and businesses would benefit from a freer domestic market in sugar.

Sovereign Currency Populism versus Dollarized Populism

Venezuela and Ecuador both have left-wing populist governments that have benefited tremendously from record high oil revenues. Both governments used those revenues to significantly increase public spending. However, there is a critical difference between these countries: while Venezuela has its own currency (the so called “strong Bolívar”), Ecuador adopted the U.S. dollar as its official currency in 2000. That means that, no matter how fiscally irresponsible the Ecuadorean government, it can’t print money to pay for its spending.

The result: Venezuela has the highest inflation rate in Latin America whereas Ecuador has one of the lowest rates in the region.