Archives: 02/2014

Political Poster Week Continues: “Come On, Dad!”

1929 British poster for Liberal Party

Yes, it’s political poster week at Cato at Liberty. (Yesterday’s “Inspectors All Round” poster for the Conservative Party is here). This poster also appeared during the 1929 British general election and although by that point the rapidly declining Liberal Party had, alas, abandoned its one-time allegiance to principles of economic non-intervention, it was still an important locus of support for some good causes such as free trade.

Tomorrow: be patriotic and supply all the tobacco you can.

Pounding the Table, Not the Facts, on School Choice

There’s an old legal proverb about how to win a court case: “If the law is on your side, pound the law. If the facts are on your side, pound the facts. If neither is on your side, pound the table.” In this factually-challenged attack on school choice, two lawyers at the UNC Center for Civil Rights do a great deal of table pounding.

Despite mountains of evidence to the contrary, the lawyers charge that school choice programs don’t work and that they increase racial segregation. For example, they claim: 

…in states with [school choice] programs, student achievement at the private schools is no better, and often worse, than in the public schools. In fact, in Milwaukee and Cleveland, whose voucher programs are the country’s longest running, traditional public school students outperform voucher students on available proficiency measures.

Even read in the most charitable light, the lawyers misleadingly compare apples and orangutans. Participants in school choice programs are generally more disadvantaged than the general population, so it is absurd to compare their average performance against the general population, which includes all the students in wealthy “public” school districts (where low-income parents have been arrested for trying to enroll their kids). Government school advocates rightly object when someone compares average private school performance to average government school performance. The private schools outperform government schools on average, but because both parents and the private schools select each other, the comparison breaks down. The same is true here.

A meaningful comparison requires a randomized-controlled trial, which is the gold standard of social science research because the process of randomization allows researchers to compare like against like and to isolate the effect of the “treatment” (in this case, the offer of a school choice scholarship). Fortunately, there have been 12 such studies addressing this very question from highly-respected institutions like Harvard University and the Brookings Institution. Eleven found that school choice programs lead to positive student outcomes, including higher academic performance and higher rates of high school graduation and college matriculation. One study found no statistically significant difference and none found a negative impact.

Congress against Budget Reform: Voting to Hike Subsidies for People Who Build in Flood Plains

Uncle Sam is essentially broke.  But the federal government keeps spending.  The House is voting this week on a measure already adopted by the U.S. Senate to suspend money-saving reforms adopted less than two years ago.

In 1968 Congress created the National Flood Insurance Program, shifting the cost of disasters from people who chose to live in flood-prone areas to taxpayers who don’t.  Over time Congress kept cutting premiums.  By 1982 two-thirds of participants received a subsidy.

NFIP turned into foolishness squared.  The first cost is financial:  the federal government keeps insurance premiums low for people who choose to build where they otherwise wouldn’t.  The Congressional Research Service figured that the government charges about one-third of the market rate for flood insurance.  The second cost is environmental:  Washington essentially pays participants to build on environmentally-fragile lands that tend to flood. 

Uncle Sam also has a propensity to spend billions more to rebuild public buildings and infrastructure in flood zones. 

Although not every NFIP beneficiary is wealthy, CRS noted:  “Some critics point out that the costs—financial risk and ecological damage—are widely distributed to taxpayers across the country and the benefits, by contrast are disproportionately enjoyed by wealthy counties and by owners of vacation homes.”

NFIP’s overall liability is $1.3 trillion.  Today total program debt is about $25 billion.  Economists Judith Kildow and Jason Scorse warned that “the flood insurance program is a fiscal time bomb for the government.” 

So disastrous were the program’s finances that even Congress felt the need to act.  In July 2012 legislators approved the Biggert-Waters Flood Insurance Reform Act in an attempt to make the NFIP more accurate, efficient, and solvent.  For different properties rates were increased and subsidies were cut.  Overall, the legislation was expected to save about $25 billion.

The amendment worked—too well.  Insurance bills began increasing.  People used to living well at taxpayer expense complained to their legislators.  Interest groups which profit from property sales also raced to Capitol Hill,  

So now reform co-sponsor Rep. Maxine Waters (D-Ca.) is pushing to delay the reforms until 2018.  Of course, in 2018 no one will be more willing to pay higher premiums, and undoubtedly will again lobby for further relief from Congress.

Explained Waters:  “Never in our wildest dreams did we think the premium increases would be what they appear to be today.”  Her new legislation, backed by a mix of Republicans and Democrats, would bar increases in premiums and reductions in subsidies for some properties, restore earlier subsidies for others, and mandate an “affordability study.”

Said Waters:  “neither Democrats nor Republican envisioned it would reap the kind of harm and heartache that may result from this law.”  She was echoed by Nicholas Pinter, a professor at Southern Illinois University, who advocated reforms but also “compassion for Americans living on flood-prone lands.” 

As I point out in my new article on Forbes online: 

Actually, those people need to be held responsible for their actions.  Compassion should be accorded taxpayers, who have suffered for decades.  Mississippi Commissioner of Insurance Mike Chaney said the NFIP should not make up its shortfall from homeowners who “simply followed the rules.”  But if not them, who?  After all, they received the benefits of the subsidized insurance.

At the end of January, the Senate voted to effectively kill the 2012 reform.  That would “return the program to a state of insolvency,” Shai Akabas of the Bipartisan Policy Center told the New York Times

The Republican House leadership has approved a vote on a companion measure.  Even the White House criticized Congress’ potential U-turn.

In fact, the 2012 measure didn’t go far enough.  Congress should eliminate federally-subsidized flood insurance—entirely.  There is no justification for turning Uncle Sam into a back-stop for wealthy vacationers and other privileged recipients of federal largesse.

Like Uncle Sam, NFIP is broke.  It should be killed, not reformed.  Legislators should start exhibiting compassion for American taxpayers.

The Missing Data in Krugman’s German Austerity Narrative

There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.

Simply stated, we get more jobs, output, and growth when resources are allocated by competitive markets. But when resources are allocated by political forces, cronyism and pork cause inefficiency and waste.

That’s why statist nations languish and market-oriented countries flourish.

Paul Krugman has a different perspective on these issues, which is hardly a revelation. But I am surprised that he often times doesn’t get the numbers quite right when he delves into specific case studies.

He claimed that spending cuts caused an Estonian economic downturn in 2008, but the government’s budget actually skyrocketed by 18 percent that year.

He complained about a “government pullback” in the United Kingdom even though the data show that government spending was climbing faster than inflation.

He even claimed that Hollande’s election in France was a revolt against austerity, notwithstanding the fact that the burden of government spending rose during the Sarkozy years.

My colleague Alan Reynolds pointed out that Krugman mischaracterized the supposed austerity in the PIIGS nations such as Portugal, Ireland, Italy, Greece, and Spain.

We have another example to add to the list.

He now wants us to believe that Germany has been a good Keynesian nation.

Marijuana’s Moment

Very good, front page story in yesterday’s Washington Post entitled, “Marijuana’s Moment?

The highlight is a quote from former drug czar, General Barry McCaffrey: “The momentum to treat marijuana as a legal drug is irreversible.”  Wow.  The last time I was on a panel with him was about two years ago and it was quite evident then that the tide was turning, but I expected him to keep fighting.  According to the Post story, the former drug czar no longer accepts invitations to appear on television.  That will save me some time fact-checking him.

Here’s another excerpt from the Post story:

America has been at the edge of marijuana legalization several times during the past half-century, but never as close to mass acceptance of the drug as the nation is today.

Since the 1960s, the United States has traveled on a herky-jerky trip from hippies and head shops to grass-roots backlash by suburban parents, from enthusiastic funding of the war on drugs to a gathering consensus that the war had little effect on marijuana use. Now, for the first time, marijuana legalization is winning majority support in public opinion polls and a drug used by about 6 percent of Americans — and one-third of the nation’s high school seniors — is starting to shake off its counterculture reputation. It is winning acceptance even from some police, prosecutors and politicians.

But is this time really different? Why is the current campaign for legalization resonating when previous ones did not? Today’s leap toward legality is entwined with the financial desperation of cash-strapped states, an Internet-driven revolution in how Americans learn about marijuana and its medicinal uses, and a rising libertarian sensibility in which many liberals and conservatives alike have grown skeptical of government’s role in telling citizens how to medicate themselves.

The momentum is now obvious and it is great to see the drug warriors in retreat, but marijuana is still considered contraband in 48 states and under federal law.  There is still much work to do.  It costs money to start and win initiative campaigns, for example.  It used to be hard to raise money because donors thought it was a hopeless cause.  Now potential donors are making the mistake that legalization is “inevitable.”  The shift in public opinion helps, but it does not assure political action.  To complete the job, friends of legalization need to step up their efforts.  The next state to consider marijuana legalization–by initiative–will be Alaska this summer.

For more info on Cato’s work, go here.

The Arrest of “Chapo” Guzmán: Did We Just Win the War on Drugs?

The arrest on Saturday of Joaquín “El Chapo” Guzmán, leader of the Sinaloa Cartel, is no small feat. He was perhaps the world’s most wanted man, and his capture certainly represents a major political victory for Mexico and its president Enrique Peña Nieto. But just like the killing of Pablo Escobar in 1993 didn’t end the war on drugs, the downfall of Joaquín Guzmán won’t put an end to drug trafficking in the Americas.

As leader of Mexico’s largest criminal organization, “Chapo” was the central figure in the breakout of drug violence in that country. In 1992, Guzmán decided to invade the turf of the Arellano Félix brothers in Tijuana. Years later he also declared war on the Juárez and Gulf cartels, thus unleashing years of unprecedented bloodshed in northern Mexico. Eventually he would succeed in controlling most of the lucrative routes, and his organization would become responsible for nearly half of all illegal drugs coming into the United States.  

His power relied not solely on plomo (lead) but also plata (money). Some years ago, high-ranking officials at Mexico’s Attorney General’s Office were arrested for receiving bribes from the Sinaloa cartel. The sums were staggering: between $150,000 and $450,000 per month. Guzmán’s organization was also actively engaged in buying the support of policemen. According to the Secretariat of Public Security, every year the cartels spend approximately $1.2 billion dollars bribing 165,000 cops all over Mexico (just as a comparison, the Merida Initiative, Washington’s aid package to Mexico and Central America to fight organized crime, totals $1.6 billion).

Without a doubt, Guzmán’s capture is a huge success for Enrique Peña Nieto. In the last seven months, the leaders of Mexico’s top three drug cartels (Zetas, Gulf and Sinaloa) were arrested without a single shot being fired. So, are we on the verge of wining the war on drugs? That all depends on what the ultimate goal is. Is it taking down drug kingpins or stopping the flow of drugs into the United States? If it’s the latter, the war is far from over. A report from the Office of Intelligence and Operations Coordination of the U.S. Custom and Border Protection agency looked at drug seizure data from January 2009 to January 2010 and matched it with the arrests or deaths of drug operatives (11 druglords in total). It found that “there is no perceptible pattern that correlates either a decrease or increase in drug seizures due to the removal of key DTO [drug trafficking organization] personnel.”

The latest National Drug Threat Assessment report from the Justice Department indicates that while cocaine availability has been declining since 2007, that of marijuana, heroine and methamphetamine is on the rise. In the case of cocaine, the fall in availability hasn’t produced a sharp increase in its street price, as the graph below shows:

We shouldn’t expect a major decline in the flow of drugs into the United States, just as such didn’t occur after Pablo Escobar, then the leader of the powerful Medellín cartel, was killed in December 1993.

The consequences on the dynamics of violence in Mexico are yet to be seen. Sinaloa is the last major drug organization with a semi-pyramidal structure in that country, and it’s also the most professionally run. Two of “Chapo’s” top lieutenants, Juan José “El Azul” Esparragosa and Israel “El Mayo” Zambada remain at large. It’s likely that they already had in place a succession plan in case Guzmán was arrested. Some experts even speculate on a new generation of drug kingpins taking over Sinaloa. So it isn’t sure that the cartel will implode or disintegrate. Nor we should expect an outbreak of violence as other cartels try to move into Sinaloa territory. That didn’t happen when Miguel Ángel Treviño, leader of the Zetas, was arrested last July.

The arrest of “Chapo” Guzmán is being seen as a major triumph in the battle against organized crime in Mexico. But his capture doesn’t bring us any closer to victory in the war on drugs.