Archives: 02/2014

Selling Federal Government Buildings

How many buildings does the federal government own? 10,000? 20,000? Actually, it is a staggering 306,000, according to the U.S. General Services Administration. In addition, the government leases 55,000 buildings, for a total of 361,000. These include offices, hospitals, warehouses, and other sorts of facilities. The chart shows federal buildings owned by department.

In addition to all the buildings, the federal government owns and leases a remarkable 486,000 structures such as parking lots. The GSA reports that the annual operating costs for all the buildings and structures is $33 billion. The current market value of the buildings is unknown, but the government estimated that the replacement value in 2007 was $1.5 trillion.

A good way to save taxpayer money and increase economic efficiency would be to start privatizing these assets. The government itself says that it has about 77,000 buildings that are underutilized or unneeded.

William Galston’s Not-So-Great Decoupling of Pay, Productivity, and Common Sense

Wall Street Journal columnist William A. Galston says “the Great Decoupling of wages and benefits from productivity [is] the biggest economic story of the past 40 years.”  Wow!  The Biggest Economic Story of the past 40 years!  Imagine that!  I have been researching such data longer than 40 years yet this particular story is so old (and so wrong) I had almost forgotten about it.   

The alleged decoupling of growth of pay from productivity, as Robert Gordon explained in 2009, “compares apples with oranges, and then oranges with bananas.” Median wages for the whole economy were deflated by the consumer price index, which exaggerated inflation and understated real income growth. Rapidly growing health and retirement benefits were often excluded. These muddled measures of real pay, which also failed to adjust for changing household size or hours, were compared to productivity of the nonfarm business sector, not the whole economy. And real output was calculated using GDP deflators that showed much less inflation than the CPI. With those errors, one estimate for the income-productivity gap from 1979-2007 was 1.46 percentage points, but Gordon’s adjustments shrunk that to a negligible 0.16. He also noted that mean and median incomes grew at remarkably similar rates, suggesting inequality did not explain much.

A 2013 study from the London School of Economics likewise found no significant gap between growth of compensation and productivity in the United States or UK (unlike the EU and Japan) if both measures are properly calculated with the same price index. The LSE study concluded that, “the debate around net decoupling in the UK and US is rather a distraction (it is actually more important in Continental Europe and Japan). Obtaining faster productivity growth is a highly desirable policy goal in the current climate of near recession as it will ultimately lead to faster wage growth and consumption.”

Galston tells other stories, such as “mobility has stalled” – which is indefensible nonsense. His allusion to the “past 40 years,” appears based on a Pew Research paper’s pointless claim that the “middle class” constituted a smaller share of adults in 2011 than in the idyllic year of 1971. As Pew Research hesitantly revealed, that is mainly because millions of people moved up – “the upper-income tier [earning more than double median income] rose to 20% of adults in 2011, up from 14% in 1971.”

All this statistical fog is thin camouflage for Galston’s invitation to grant authoritarian politicians and bureaucrats the discretion to somehow “link the tax rates individual firms have to the compensation practices they adopt.” That may well be the worst economic policy idea of the past 40 years, trailing barely behind Nixon’s dictatorial price controls.

Nightmare Scenario Underway in Ukraine

As the Ukrainian security forces are moving to clear Kiev’s ‘Maidan’ protest camp again, after an unsuccessful attempt last night, the events are unfolding quickly and with the characteristically scary dynamics of an autocratic regime acting under pressure:

Ukraine’s state security service said it was launching an “anti-terrorist operation” across the country after the seizure of administrative buildings and arms and ammunition depots by “extremist groups.”

Labeling the opposition as ‘terrorists’ is a common rhetorical device used by authoritarian governments under duress. But we should make no mistake – the current situation is not just an outcome of the divisions existing within Ukrainian society but also a result of Vladimir Putin’s long standing and sinister meddling in Ukraine.

For Mr. Putin, the current situation is both a source of fear and an opportunity. The fear stems from the possibility of Ukraine setting a precedent of a bottom-up, civil society-driven initiative displacing a Moscow-sponsored leadership in a country with strong cultural and historical ties to Russia. The opportunity lies in leveraging the current unrest and the ethnic divisions it has uncovered to strengthen Russia’s influence over the country’s politics. The Russian government already provided Mr. Yanukovych with cash in December 2013; this week, another bond purchase worth $2 billion was announced, conditional on the government successfully tackling the opposition.

The international response is too timid given the magnitude of the problem and its proximity to the European Union’s borders. Targeted EU sanctions, such as the asset freezes and travel bans directed at Ukrainian officials, which are likely to be adopted tomorrow, seem fully justified–although they come very late. Still, care needs to be exercised so that they hurt the regime and not ordinary citizens.

More importantly, European leaders need to clearly articulate the long-term alternative that they are offering to Ukraine lest it remain the Kremlin’s client state. The roadmap to full EU membership ought to have an accelerated timeline, incentivizing Ukrainian policymakers to adopt open political and economic institutions.

The EU’s engagement with the country needs to come with tangible benefits for Ukrainians. Those would include most fundamentally a removal of trade and regulatory barriers, as well as immigration restrictions, making Ukrainians a de facto part of the common European market now rather than at an uncertain point in the future.

Fuel Efficiency Standards for New Trucks—Can’t We Decide These for Ourselves?

Rather than wait on the market to demand more fuel efficient trucks, President Obama, bypassing Congress, has directed the Environmental Protection Agency to draw up a new round of regulations raising the fuel efficiency standards on heavy-duty trucks. He promises that this will save billions of dollars in fuel costs, lower prices and reduce greenhouse gas emissions—or, as he describes it, a “win-win-win” situation.

Thank you, Mr. President for taking such good care of us.

Apparently, we are too stupid to have realized the manifold benefits of this chain of events ourselves.

Or is it that we realize these actions will have no impact of climate change and will probably result in higher prices for new trucks and everything that they transport?

You can use our “Handy-Dandy Temperature Change Calculator” to see that, using the EPA’s own computer model, if Americans cut all of our carbon dioxide emissions to zero, today, the amount of warming that would be prevented (assuming a warming forecast that is itself probably too high) by 2100 is around two-tenths of a degree—an amount that would be virtually impossible to measure against natural climate variability.  Increasing the fuel efficiency of heavy trucks would have considerably less of an effect than cutting all carbon dioxide emissions and would simply not be discernible in climate data.

And the President’s claim that increasing the fuel efficiency will lower the price of all things neglects the fact that we simply do not know what technology would accomplish this end.

Perhaps he should have said—”if you like your truck, you can keep your truck,” that is, until you have to replace it with something that will cost much more than you would have otherwise purchased and not do what it is supposed to do.

Again, thank you, Mr. President.

John Kerry’s Bumbling Performance Regarding East Asia

Secretary of State John Kerry seems to be suffering a case of foot-in-mouth disease before and during his current trip to East Asia. We had already learned to be wary of his judgment on substantive foreign policy issues. He was, for example, an enthusiastic proponent of U.S. military intervention in Syria, a move that would have mired the United States in yet another expensive, futile war in the Muslim world. Fortunately, intense congressional opposition and a timely Russian diplomatic initiative spared the Obama administration from its own folly—at least for the time being.

But whatever challenges might exist when handling difficult foreign policy issues, one should be able to expect a secretary of state not to mangle basic facts about key countries and regions. Alas, that expectation is apparently erroneous when it comes to John Kerry. During a press conference in Washington prior to his departure for East Asia, he emphasized Washington’s support for Japan’s position regarding the bitter dispute with China over the Senkaku/Diaoyu islands in the East China Sea. Unfortunately, Kerry’s credibility became somewhat suspect when he initially placed those islands in the South China Sea (the arena of territorial disputes involving China and other neighbors).

Matters got worse when he traveled to South Korea. During a press conference in Seoul, a reporter asked him about the long-standing territorial dispute between Tokyo and Seoul over the Dokdo/Takeshima islands in the Sea of Japan. The audience was astonished when he appeared to signal a major shift in U.S. policy by stating that the U.S.-South Korean mutual defense treaty covered those islands. Such a position would place the United States on the side of South Korea against Washington’s principal ally in East Asia, Japan.

A State Department spokesman had to scramble later to rectify Kerry’s verbal gaffe, insisting that the Secretary apparently had misunderstood the question, believing it had referred to the Senkaku/Diaoyu dispute. One problem with the revised version of events is that South Korea is not a party to that controversy; as noted above, it’s a feud between Japan and China.

Unfortunately, Kerry’s blunders are indicative of widespread problems in President Obama’s foreign policy team. The president appointed Caroline Kennedy to the crucial post of ambassador to Japan, although her knowledge of Japan (or foreign policy in general, for that matter) is exceedingly meager. Other ambassadorial appointees have embarrassed themselves in Senate confirmation hearings, displaying little or no knowledge of the country to which they would be assigned. In some cases, their principal qualification for the diplomatic post appeared to be their record in raising funds for President Obama’s election campaigns.

The American people have every right to expect a better performance from individuals who are tasked with running the foreign policy of the United States. And that expectation should start with Secretary Kerry.

Nick Gillespie and Matt Welch on the New Episode of “Free Thoughts,” the Libertarianism.org Podcast

On Free Thoughts, the newish podcast from Libertarianism.org, Aaron Ross Powell, myself, and our guests explore the deep questions in libertarian thought. Guests include philosophers, economists, other Cato scholars. Rather than focusing on current public policy issues, we try to take a deeper look at how libertarians see the world. 

Nick Gillespie and Matt Welch joined us for this week’s episode, and Jason Kuznicki filled in for Aaron. We discuss whether there is a growing movement of independents that is a cause for optimism among libertarians. Are we in for a better, more libertarian era than ever before? Or should we be skeptical of this kind of optimism, given the growth of the federal government in recent years?

You can also subscribe to the iTunes feed or the RSS.

Venezuela’s Plunging Petroleum Production

A hallmark of socialism and interventionism is failure. Venezuela is compelling proof of this, having spent the past half century going down the tubes. Indeed, in the 1950’s, it was one of Latin America’s most well off countries. No more. Now it is a basket case – a failed state that’s descending into chaos.

How could this be? After all, Venezuela’s combined reserves of oil and gas are second only to Iran’s. Well, it might have reserves, but thanks to the wrongheaded policies of President Hugo Chavez, Venezuela is the only major energy producer that has seen its production fall over the past quarter of a century. The following chart tells that dismal tale: