Archives: 02/2014

Laura Ingraham’s Poor Response to George Will on Immigration

Radio talk show host Laura Ingraham recently penned a criticism of an excellent column written by George Will about immigration.  Although George Will is more than capable of defending himself, I thought I should step in and push back against many of Ingraham’s points.

The first two arguments made by Ingraham respond to practical political concerns – the midterm elections in 2014:

Will claims that the GOP should not focus its arguments in 2014 solely on Obamacare. I agree, and so do other conservative opponents of immigration reform. But that hardly proves that we will benefit politically from giving in to the president on his top priority and yielding a huge political victory to the Democrats that will boost their morale and devastate many people in our base.

Will maintains that if the GOP enforces unanimity on major issues, it will not grow. GOP supporters of reform are not being silenced or pushed out of the party. And, again, I don’t see the political benefits of siding with the president and House Minority Leader Nancy Pelosi (D-Calif.) against the conservative base on such a vital issue. The easiest way for the GOP to do very poorly in 2014 would be for its base to stay home, and that is more likely to happen if conservative voters watch the GOP cooperate with the president on immigration.”

Many Republicans are looking at polling data, months in advance, and counting their electoral chickens before they hatch.  The train wreck of Obamacare will likely help Republicans in the 2014 elections.  I’m not a political strategist so I won’t comment on Ingraham’s or Will’s arguments about that.  Ingraham, however, misleadingly leaves off the name of prominent conservative Republicans who support immigration reform, namely Senators Marco Rubio (R-FL) and Jeff Flake (R-AZ).  It is true that President Obama and Rep. Nancy Pelosi (D-CA) support immigration reform, but excluding conservative backers makes the bipartisan reform effort appear entirely Democratic – which it isn’t.

A Tough Day in Court for the EPA’s Greenhouse Gas Regulations

The Obama Administration appeared prepared to abandon a major portion of its initial greenhouse gas regulatory scheme in oral argument before the Supreme Court today. Solicitor General Donald Verrilli, defending a series of EPA rules, sought to preserve regulations reaching large industrial sources by offering up a more aggressive gambit by the agency that could potentially reach millions of smaller businesses, apartment buildings, and schools.

The problem, as EPA itself has conceded, is that EPA’s regulatory approach renders the Clean Air Act’s Prevention of Significant Deterioration program “unrecognizable” to the Congress that enacted it. That’s because GHGs are emitted in far greater quantities than traditional pollutants and PSD requirements are based on the quantities of emissions, with facilities emitting more than either 100 or 250 tons per year of any applicable pollutant being subject to an expensive pollution-control regime. For GHGs, those tonnage triggers would transform the PSD program from one aimed at only the nation’s largest sources of emissions. For that reason, after deciding to use PSD to regulate GHGs, EPA then issued a “tailoring rule” to avoid the absurd result by discarding the numerical thresholds that are specified in the law and adopting new ones thousands of times larger.

That decision was under heavy scrutiny at oral argument. Businesses challenging the rule, represented by Peter Keisler, argued that the PSD program is structured to address local air quality concerns and therefore does not extend to emissions of carbon dioxide. PSD’s triggers, monitoring requirements, requirement for local air-quality analysis, and administration by 90 separate state and local permitting authorities all demonstrate that Congress did not intend the statute to address anything like GHG, Keisler argued. So while the statute does apply to “any air pollutant,” that term cannot be interpreted to reach pollutants that cause these other statutory requirements to fail

Fannie and Freddie Offset Reported Government Spending

The federal government took control of mortgage giants Fannie Mae and Freddie Mac (F&F) in 2008 and have bailed them out with $189 billion of taxpayer money.

Today the mortgage companies have returned to profitability and are paying the government dividends. All profits earned by the companies since August 2012 are going to the federal government, as discussed by the CRS and the Washington Post.

How large are the F&F dividends? You can find out from a number of data sources:

  • FHFA (Table 2) shows that Fannie has paid a cumulative $114 billion in dividends to the government, while Freddie has paid $71 billion.
  • FHFA data show that F&F together paid $131 billion in dividends in calendar 2013, which matches what BEA Table 3.2 shows for federal “income receipts from assets” (dividend portion).
  • CBO (p. 101) says that F&F dividends received by the government were $97 billion in fiscal 2013 and will be $81 billion in fiscal 2014. Curiously, the CBO does not report how large future dividends are expected to be because they account for F&F going forward based on a net subsidy approach.

Here is the important thing for budget wonks and reporters: the money now pouring into the Treasury from F&F is not counted as “revenues” but as “offsetting receipts.” Those receipts are subtracted from federal spending before the “net outlays” reported by CBO and OMB, which people may wrongly assume is total federal spending.

Thus the government was reported to have spent $3.5 trillion in fiscal 2013, but without the F&F offset spending was $3.6 trillion. It is a similar story in 2014. And without the F&F dividends, federal deficits would be about $100 billion a year greater than reported.

Looking ahead, a fear is that with the return to profitability of F&F, politicians will get hooked on the inflows of cash, particularly since it has the magical effect of reducing reported spending. Reformers should press on with privatization and severing government ties to the mortgage companies as soon as possible.

A further discussion of offsetting receipts is here. Mark Calabria discusses F&F here and here.

A Few Steps in the Right Direction on Military Spending

Someone has begun leaking elements of the Pentagon’s FY 2015 budget, and the leakers apparently want reporters to focus on proposed cuts in the U.S. Army. The headline in the New York Times warns readers that the Army will shrink to “a pre-World War II level.”The proposal,” explains the Times, “takes into account the fiscal reality of government austerity and the political reality of a president who pledged to end two costly and exhausting land wars. A result, the officials [who leaked to the Times] argue, will be a military capable of defeating any adversary, but too small for protracted foreign occupations.”

“You have to always keep your institution prepared” for the unknown, a senior Pentagon official told the Times, “but you can’t carry a large land-war Defense Department when there is no large land war.” 

Reaction from other Beltway insiders has been predictably apoplectic, but one doubts that the American public are terribly worried about a military that might be slightly less likely to get involved in unnecessary and counterproductive nation-building missions in distant lands. The war in Afghanistan started with strong public support, as it was clearly connected to the events of 9/11. It no longer is, and Americans want out. The salespeople for the war in Iraq tried to connect that escapade to 9/11, but the Iraq war effort also lost public support when that rationale fell away, and the costs mounted into the trillions. 

In this case, at least, the public is smarter than the politicians who supposedly represent them. Americans were unenthusiastic about the Libya caper of 2011, and they effectively blocked efforts to embroil the United States in the Syrian civil war last fall. The Pentagon’s budget might finally be reflecting the reality that the American people actually want President Obama to do what he said he was going to do: focus on nation building at home.

But the news is not all good. The Pentagon apparently still intends to retain 11 aircraft carriers, possibly cutting into modernization of the Navy’s surface combatant ships. As had been reported earlier, the venerable A-10 attack aircraft is going away, but the Pentagon remains committed to the troubled F-35. The early details don’t address the possible modernization of the nuclear triad, which is sure to compete with other Air Force and Navy priorities. If the Pentagon isn’t serious about confronting those tradeoffs, the resulting infighting could get ugly.

And there is a hint of the perennial Washington Monument strategy in the details that have been leaked so far. By proposing to cut some very popular programs, Pentagon budgeteers might hope that they can scare Congress into busting the very modest budget caps currently in place. The White House presumably would accept higher taxes in exchange for a bit more spending. Republicans in Congress want domestic spending cuts to offset additional military spending. And neither side seems inclined to add to the deficit. So it is hard to see how that impasse gets broken. For now, the Pentagon’s budget apparently fits the spending cap of $496 billion negotiated late last year, but additional cuts will be needed if the sequestration provisions of the 2011 Budget Control Act take effect in 2016 and beyond.

As more details dribble out today and into next week, it is important to keep everything in context. True, the Army will be smaller, declining from a post-Iraq high of 566,000 in 2011, to perhaps as few as 440,000 active-duty troops, about 40,000 fewer than the late 1990s average. But the force retains enormous capabilities across a range of contingencies. In the words of the senior Pentagon official, this “very significant-sized Army” is “going to be agile. It will be capable. It will be modern. It will be trained.”

That sounds like the kind of force that Americans want and expect. Given rapidly rising personnel costs, and the great political difficulty of reining them in, the only way to achieve actual savings may be a smaller active-duty force. That is what Ben Friedman and I suggested over three years ago, and with this latest proposal, we might actually be heading in that direction.

Save Elephants by Selling Ivory

For many people free markets seem cold and calculating.  Maybe it’s the best way to sell, say, automobiles and soap.  But we shouldn’t like the process.  And we certainly shouldn’t base our behavior on markets when basic concepts of right and wrong are at stake.

Of course, markets are no substitute for understanding what the good life is all about.  However, markets offer a powerful tool to reinforce underlying moral values.

One of the great tragedies of the modern age is the slaughter of elephants.  Ivory long has been a widely desired decorative material.

Unfortunately, these days most new ivory comes from poachers.  The killing of elephants has sparked a new form of prohibition, with steadily tighter controls over ivory sales. 

As I note in my new Freeman article:

As a result, elephants have turned into modern day bison—simultaneously owned by no one and more valuable dead than alive.  The result has been devastating for elephant populations in many African states, with upwards of 40,000 elephants being killed annually.

In fact, about the only advocates of the giant creatures are Westerners who see the animals in zoos or on carefully controlled safaris.  In contrast, struggling developing nations must manage wildlife reserves and deter poachers while facing what they see as far more pressing human needs. 

Worse is the situation facing villagers and farmers.  Residents of the industrialized West wax eloquent when talking of faraway elephants, but to locals the creatures are giant rats, threatening and destructive. 

Thus, despite much effort, activists and governments have not been able to stop the massacre of elephants.  Yet faced with the failure of prohibition, the usual suspects only propose more of the same. 

They are pushing countries to destroy existing ivory stockpiles, acquired from elephants which died naturally or were culled, as well as seized from poachers.  Groups also are pressing to ban even the sale of antique ivory, as if outlawing ancient objects could bring back long-dead elephants.  Even more improbable have even been proposals that Western nations deploy military

Without a change of tactics, elephants could disappear from some African countries.  Yet some in the West favor morality lectures rather than practical innovations. 

Moral suasion always is worth a try.  But what happens after preaching fails?

Use markets to reinforce the moral message.  Observed the international conference covering endangered species (CITES):  “provided that their full value (i.e. both intrinsic and extrinsic) is fully realized by the landholders involved, not only will elephants be conserved but so will the accompanying range of biodiversity existing on such land.” 

It’s not a jump into the unknown.  Before 1989 Botswana, Malawi, Namibia, South Africa, and Zimbabwe allowed legal sales.  The same countries generally enjoyed expanding elephant populations, in contrast to the shrinking herds evident elsewhere in Africa.

Even today, after closure of these ivory markets, some governments sell licenses to hunt elephants when the population exceeds the land’s capacity.  Where the money is shared locally, noted analyst Peter Fitzmaurice, “Damaged land and crop losses are not only being tolerated, but villages are doing their best to guard against poachers.”

More needs to be done.  Observed CITES:  “A legal trade in ivory, elephant hide and meat could change current disincentives to elephant conservation into incentives to landholders and countries to conserve them.” 

Some activists appear to believe that it simply is morally wrong to trade in animals, or at least elephants (speciesism lives!).  But markets have been used elsewhere to help save endangered species, such as vicunas, tigers, and crocodiles.

Why not elephants too?

The current system formally treats elephants as sacred, thereby leaving them for dead.  Markets would treat elephants as commercial, thereby keeping them alive. 

If asked, elephants likely would prefer the second policy.  So should we.

Spending Restraint in Arkansas

For the fourth day in a row, the Arkansas House of Representatives has refused to approve the yearly appropriation for its Medicaid program, dubbed the “private-option.” If the legislature continues this refusal and reverses its decision to expand Medicaid under Obamacare, state and federal taxpayers will save billions of dollars, making the Little Rock legislative battle the most important spending fight in the country.

Last spring, Arkansas made headlines for adopting a “free-market” alternative to Medicaid expansion. Instead of expanding using the traditional Medicaid model in which the federal and state government would directly fund enrollees’ care, Arkansas decided to provide subsidies to 250,000 new enrollees, so that they could purchase private health insurance through the bureaucratic exchanges created under Obamacare. By using private insurance, supporters claimed, Arkansas would be able to provide individuals with insurance coverage and protect them from the broken Medicaid system that fails to provide “significant improvements” to enrollees’ health.

Medicaid expansion will cost the federal government $800 billion over the next 10 years if all states expand their qualification thresholds for the program as Obamacare’s architects want. (Currently, only half of the states have obliged.)

Arkansas’ expansion is actually even more expensive than the traditional expansion model envisioned by President Obama and Health and Human Services Secretary Kathleen Sebelius. According to the Congressional Budget Office, private insurance actually costs 50 percent more than traditional Medicaid coverage. Earlier this month, Arkansas Gov. Mike Beebe, a supporter of the private option plan, acknowledged that the plan costs the federal government—read taxpayers—more. Under the conservative estimates from the state, Arkansas’ expansion will cost $20 billion over the next 10 years.

Arkansas’ actions could affect other states. Following its expansion last year, Iowa, Michigan, and Pennsylvania expanded their Medicaid programs using a private-option model costing federal taxpayers billions more. Defunding Medicaid expansion in Arkansas would likely stop the wave of expansion, saving even more public dollars.

If opponents of the private option are successful, Arkansas will do far more to help federal taxpayers this month than anything coming from Washington.