Archives: August, 2013

Problems with Federal Infrastructure

A new essay at Downsizing Government focuses on infrastructure investment. The essay discusses problems with federal infrastructure spending and the advantages of privatizing infrastructure to the full extent possible.

Unfortunately, the current administration’s infrastructure policy has been mainly focused on increasing spending on misguided activities such as high-speed rail. But here are some of the problems with such a federal-led approach to infrastructure:

  • Investment is misallocated. Federal investments are often based on political pork-barrel factors rather than actual marketplace demands. Amtrak investment, for example, has long been spread around to low-population areas where passenger rail makes little economic sense. Most of Amtrak’s financial losses come from long-distance routes through rural areas that account for only a small fraction of all riders. Every lawmaker wants an Amtrak route through their state, so investment gets misallocated away from where it is really needed, such as the Northeast corridor.
  • Infrastructure is utilized inefficiently. Government infrastructure is often utilized inefficiently because supply and demand are not balanced by market prices. The vast water infrastructure operated by the Bureau of Reclamation, for example, greatly underprices irrigation water in western United States. The result is wasted resources, harm to the environment, and a looming water crisis in many areas in the West.
  • Investment is mismanaged. Federal agencies don’t have the strong incentives that businesses do to ensure that infrastructure projects are constructed and operated efficiently. Federal highway, energy, airport, and air traffic control projects, for example, have often experienced large cost overruns. The Big Dig in Boston—which was two-thirds funded by the federal government—exploded in cost to five times the original estimate. And over much of the last century, the Army Corps of Engineers and the Bureau of Reclamation were known for spending on boondoggle projects, distorting their analyses, harming the environment, and spending on projects to further private interests rather than the general public interest.
  • Mistakes are replicated across the nation. Perhaps the biggest problem with federal intervention in infrastructure is that when Washington makes mistakes it replicates them across the nation. High-rise public housing projects, for example, were a terrible idea that federal funding helped spread nationwide. Federal subsidies for light-rail projects have biased cities to opt for these expensive systems, even though they are generally less efficient and flexible than bus systems. High-speed rail represents another federal effort to induce the states to spend money on uneconomical infrastructure.
  • Burdensome regulations. A final problem with federal infrastructure spending is that it usually comes part and parcel with piles of regulations. Federal Davis-Bacon labor rules, for example, raise the cost of building state and local infrastructure. In general, federal regulations impose one-size-fits-all solutions on the states even though the states may have diverse infrastructure needs.

Many policymakers are concerned that America have top-notch infrastructure to compete in the global economy. But the best way forward is for the federal government to cut subsidies and to devolve control over infrastructure to state and local governments. To meet demands for new infrastructure capacity, the states should innovate with privatization.

America’s entrepreneurs are looking for new opportunities. So let’s give them a crack at improving the nation’s infrastructure by reducing federal subsidies and regulations that deter private investment in airports, highways, and many other facilities.

For more, see www.downsizinggovernment.org/infrastructure-investment.

Nat Hentoff on the NSA and Privacy

Today’s Washington Post reports that the National Security Agency violated the rules on domestic surveillance thousands of time a year since Congress granted the agency broader surveillance powers in 2008. Note this revelation did not come to light because of forthright disclosure from the professionals that run the agency, the congressional oversight committees, or the FISA court. Rather, whistleblower Edward Snowden provided this information to the Post. The U.S. government has made it clear that it wants Snowden locked away in a prison cell incommunicado. 

Over at the Wall Street Journal, Peggy Noonan interviewed Cato senior fellow Nat Hentoff about the implications of the surveillance state. Here’s an excerpt:

A loss of the expectation of privacy in communications is a loss of something personal and intimate, and it will have broader implications. That is the view of Nat Hentoff, the great journalist and civil libertarian. He is 88 now and on fire on the issue of privacy. “The media has awakened,” he told me. “Congress has awakened, to some extent.” Both are beginning to realize “that there are particular constitutional liberty rights that [Americans] have that distinguish them from all other people, and one of them is privacy”…

He wonders if Americans know who they are compared to what the Constitution says they are.

Mr. Hentoff’s second point: An entrenched surveillance state will change and distort the balance that allows free government to function successfully. Broad and intrusive surveillance will, definitively, put government in charge. But a republic only works, Mr. Hentoff notes, if public officials know that they—and the government itself—answer to the citizens. It doesn’t work, and is distorted, if the citizens must answer to the government. And that will happen more and more if the government knows—and you know—that the government has something, or some things, on you. “The bad thing is you no longer have the one thing we’re supposed to have as Americans living in a self-governing republic,” Mr. Hentoff said. “The people we elect are not your bosses, they are responsible to us.” They must answer to us. But if they increasingly control our privacy, “suddenly they’re in charge if they know what you’re thinking.”

This is a shift in the democratic dynamic. “If we don’t have free speech then what can we do if the people who govern us have no respect for us, may indeed make life difficult for us, and in fact belittle us?”

More thoughts from Nat Hentoff here.

Do Not Walk, California—Run from EDLs

As early as next week, the California State Senate could vote on S.B. 397, a hitherto little-noticed bill that approves “enhanced drivers’ licenses” in California. The bill’s ostensible purpose is to bring California’s licenses up to the standards set by the Western Hemisphere Travel Initiative (WHTI), which mandated the use of a passport or “enhanced driver’s license” for sea and land crossings in 2008 within continental North America and the Caribbean. (Air travel still requires the use of a passport.) WHTI was and still is a paragon of costly overreaction to terrorism.

What’s “enhanced” about an “enhanced driver’s license”? It contains a radio frequency identification (RFID) chip, which in turn contains a personal identification number. Think of it as your Department of Homeland Security tracking number. The RFID chip broadcasts the information to any receiver that properly interrogates it. At the Canadian and Mexican border, this in theory allows for quicker transit and passage through EDL-specific “Ready Lanes.” The receiver pulls up information held in a DHS database, including identity data, the bearer’s picture, and signature. (Unsurprisingly, the bill reserves the right for the state to include other information in the future, should it deem it to be necessary.) At the border and beyond, it allows pretty much anyone to figure out your comings and goings.

Using RFID in identity documents was identified as a no-no by DHS’s privacy advisory committee in 2006. That doesn’t seem to have stopped the agency from moving forward with it. If S.B. 397 passes, EDLs in California would become legal but optional, as they currently are in New York, Michigan, Vermont, and Washington State. Given the government’s propensity for turning optional pilot programs into permanent mandatory programs (witness the current debate over the 17-year-old E-Verify “pilot progam”), it’s not difficult to imagine a time when the EDL programs cease to be optional—and when EDLs contain information well beyond a picture, a signature, and citizenship status. The government also tends to expand programs far beyond their original purposes.

Californians should not walk—they should run away from “enhanced” driver’s licenses.

UPDATE: Rep. Justin Amash (R-Mich.) is on the case for Michiganders.

Social Security Disability Fraud in Puerto Rico

In 2011, the Wall Street Journal’s Daniel Paletta reported on the rapid growth in individuals applying for and receiving Social Security disability benefits. Paletta found that Puerto Rico had become a particularly easy place to obtain benefits. Officials with the Social Security Administration (SSA) absurdly claimed that nothing was amiss. 

It looks like the SSA is about to get some egg on its face. 

Yesterday, Paletta reported that federal investigators, including the FBI, raided doctors’ offices in Puerto Rico as part of a widening probe into disability fraud on the island. A doctor’s opinion that an individual is suffering from a disability is naturally quite helpful in convincing examiners and judges that benefits are warranted. Investigators are apparently looking into whether Puerto Rican doctors are being paid to document that applicants are disabled. From the article: 

In 2006, just 36% of initial applicants in Puerto Rico were awarded benefits. In December 2010, the award rate had jumped to 69%. By 2010, nine of the top 10 U.S. ZIP Codes for workers receiving disability benefits were on the island. 

At the time, SSA officials said the high number of recipients and the high award rate was due to the island’s weak economy and a lack of adequate health care for workers. 

The program is overseen by the Social Security Administration in Baltimore, but each state and territory is responsible for performing an initial screening to determine eligibility. Social Security officials said in 2011 that Puerto Rico had rigorous standards and a virtually nonexistent error rate. 

The characteristics of Puerto Rico’s beneficiaries differed from other areas. In addition to the large clusters in certain zip codes, federal data showed that 33.3% of Puerto Rican beneficiaries qualified because of “mood disorders,” a rate that is at least 10 percentage points higher than any U.S. state. 

Disability examiners and federal judges say mental disorders are harder to measure and often rely on medical opinions issued by doctors to make a determination. 

SSDI was designed as a way to provide benefits for people who can’t work because of mental or physical health problems, and Americans can qualify for benefits because of ailments ranging from severe back pain to terminal cancer. 

A lifetime of benefits, including access to Medicare, can cost the government about $300,000 a person. 

As I noted in my recent paper on the growing cost of Social Security Disability Insurance, the SSA’s inspector general says that “fraud is an inherent risk in SSA’s disability programs.” But as my paper explains, the problems with the program go way beyond outright fraud: 

Given the subjective and convoluted nature of determining SSDI eligibility, it’s likely that erroneous and unjustified payments are far larger in volume than just outright fraud. The huge, complex, and difficult-to-audit system is a perfect breeding ground for awarding and continuing benefits to people who shouldn’t be on the disability rolls.

The Perils of Publicly Funded “Private” Schools

We support getting publicly funded schools public accountability…. No exceptions, no excuses, no special treatment.

Thus spake John Johnson, spokesman for the Wisconsin Department of Public Instruction, on the subject of a new bill his agency co-wrote with Republican legislators. Among other things, the bill would allow the DPI to kick private schools out of the state’s voucher program if it rates them perennial failures.

Here’s the thing: Way back in … August of 2013, (a.k.a., “this month”), the head of a state department of instruction was forced to resign because, while in that same post in another state, he had personally revised his department’s ranking of a school run by a major political donor. State officials and agencies, contrary to the implicit assumption of “accountability” mavens, are not all wise, objective, beneficent philosopher-kings. They are people–and organizations made up of people–who have political and personal vested interests that do not always align with those of the families they nominally serve.

Fortunately, over the course of human history, a system evolved which tends to align the interests of producers and consumers more effectively than any other. It is the free enterprise system, in which producers must compete for the privilege of serving each and every customer, and consumers have the freedom to easily choose from among many competing providers. Let schools do their best to serve families and let families choose their schools: let the chips fall where they may. Some schools will succeed, others will fail. Those that succeed, grow. Those that fail are prevented from continuing to ill-serve families. It is a system that works not simply in theory, but in practice, as I found when I surveyed the worldwide within-country research comparing alternative school systems. The least regulated, most market-like education systems most consistently outperform state school systems, such as we have in the United States.

Egypt’s Fall Down the Dark Hole

The ongoing events in Egypt are an unspeakable human tragedy. With yesterday’s death toll of 525 and rising violence in major Egyptian cities, the chances of a return towards anything resembling normalcy are very slim. The Muslim Brotherhood deserves a significant portion of the blame-–mostly for its complete failure in governing the country prior to the coup and also because their willful effort to be seen as martyrs in the aftermath of the military takeover. However, it is the military junta running the country that is now the single biggest factor driving the country towards a catastrophe.

The fact that the military has shut down the normal political process and proceeded with an extensive crackdown both against the leadership of the Brotherhood and its supporters, has created incentives for the rise in politically motivated violence and, potentially, terrorism. Princeton University economist Alan Krueger–author of What Makes A Terrorist, a book investigating the factors fostering political violence and terrorism–argued that

[t]errorists and their organisations seek to make a political statement; terrorists arise when there are severe political grievances with no alternatives for pursing those grievances.

This account describes perfectly the escalation of violence in Egypt after the military coup. Unfortunately, it is not clear that there is an easy way back. Ideally, one would hope that the Egyptian secular liberals engage with the Brotherhood, that the military relinquish its hold to power, lift the curfew, and renounce further repression, and that the Brotherhood and its various factions steer away from violence. Yet the probability of the simultaneous occurrence of all these events is rather small.

It is important to stress that the West has been complicit in the build-up of the current situation. Without a continual inflow of US military assistance (roughly $70 billion since the country’s independence), the Egyptian military would have hardly grown to be the unaccountable and opaque organization it is, controlling a large part of the Egyptian economy and effectively calling the shots in Egypt’s politics.

Alas, the behavior of Western policymakers in the aftermath of the coup has been equally embarrassing – notwithstanding the cancellation of joint military exercises with Egypt that President Obama announced today. Douglas Carswell, a member of the UK’s House of Commons, wrote an excellent blog post on the subject yesterday. He concludes by saying that

[b]y equivocating about the overthrow of Morsi (the US State Department won’t even call it a coup), Western governments seem to be doing all they can to validate the Brotherhood’s script. The more that we buddy up to the generals in Cairo, the further we legitimise the world view of people like Morsi.

Where is the principled opposition to military takeovers in London and Washington? Where is the condemnation of the treatment of Egypt’s democratically elected leader?  Where is the loud, and uncompromising condemnation of this morning’s killings?

Perhaps this is what happens when we leave it to career diplomats to determine foreign policy.  Equivocation and drift.  It does not do us – or Egypt – any favours.

The United States and Egypt, Post Coup

President Obama’s statement regarding Egypt was decent, as such things go, but reveals the very limited influence that the United States has, and can have, over what transpires inside of that country–or any other, for that matter. American politicians seem incapable of admitting such things, and Obama went about as far as I’ve heard recently.

It is too convenient for the president’s critics to accuse him of failing to halt the violence, just as they blamed him for not preventing the coup, or, before that, of not (somehow) preventing the election of Mohamed Morsi. President McCain or Romney likely would have heard the same thing. Whenever anything bad happens, anywhere in the world, Uncle Sam gets blamed, including by people who want Uncle Sam to do more. The presumption among that group is that more effort, more speeches, more intervention, would have worked, or will work in the future. I’m generally skeptical that that is true, and I’m especially skeptical in this instance.

The one concrete step that Obama could have taken, and should have taken, is a suspension of U.S. aid to Egypt. I’ve heard the arguments against an aid cutoff: The aid supposedly gives us leverage because the Egyptian economy is a basketcase and an aid cutoff will harm the most vulnerable in Egyptian society. Another argument says that the money withdrawn will be replaced by the aid of others, including people we don’t like–this will supposedly give them great influence. Thus, we can’t cede this opportunity to others, so we must persist in pretending that the coup wasn’t a coup, because if the Obama administration ever admitted that it was, it would be required by law to cut off aid.

But a counterargument is in order. The Egyptian economy is indeed a basketcase, but arguably because of U.S. aid. More accurately, the economy is a mess because of some really foolish policies adopted by the Egyptian government over the years, policies effectively abetted by U.S. support. Do those who oppose an aid cutoff believe that the Egyptian government will reverse its harmful economic policies if the aid continues, but are less likely to do so if it continues unabated?

Similarly, one could logically argue that we have only limited influence over events on the ground in Egypt, while also claiming that our aid gives us that influence. But does it follow, then, that an aid cutoff will reduce minimal influence to zero influence? So what if it did? The truth is that the United States, as the most powerful country in the world, has some influence over countries that receive no U.S. foreign aid, and, sometimes, little influence over countries that receive a lot

In the end, the absurdity of the U.S. position in Egypt is revealed by the fact that both sides direct their ire at the United States, a point that Obama made in his statement today. We are, once again, damned, no matter what we do. Which seems like a pretty good argument for doing less.