Topic: General

Federal Technology Failures

A new GAO report describes failures in the federal government’s information technology (IT) activities. The government spends $80 billion annually on IT. These “investments frequently fail, incur cost overruns and schedule slippages, or contribute little to mission-related outcomes,” concludes GAO.

The new report summarized some of the failures:

  • the Department of Defense’s (DOD) Expeditionary Combat Support System, which was canceled in December 2012, after spending more than a billion dollars and failing to deploy within 5 years of initially obligating funds;
  • the Department of Homeland Security’s Secure Border Initiative Network program, which was ended in January 2011, after the department obligated more than $1 billion to the program, because it did not meet cost-effectiveness and viability standards;
  • the Department of Veterans Affairs’ (VA) Financial and Logistics Integrated Technology Enterprise program, which was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011 due to challenges in managing the program;
  • the Office of Personnel Management’s Retirement Systems Modernization program, which was canceled in February 2011, after spending approximately $231 million on the agency’s third attempt to automate the processing of federal employee retirement claims;
  • the National Oceanic and Atmospheric Administration, DOD, and the National Aeronautics and Space Administration’s National Polar-orbiting Operational Environmental Satellite System, which was a tri-agency weather satellite program that the White House Office of Science and Technology stopped in February 2010 after the program spent 16 years and almost $5 billion; and
  • the VA Scheduling Replacement Project, which was terminated in September 2009 after spending an estimated $127 million over 9 years.

The GAO attributes the problems to “a lack of disciplined and effective management and inadequate executive-level oversight.” That is certainly true, but I would also point to more fundamental problems with the nature of government bureaucracy, which I discussed in testimony yesterday.

Scott Walker Defends Corporate Welfare for NBA

On ABC News’ This Week yesterday, Gov. Scott Walker defended his proposal to spend $250 million of taxpayers’ money to build a new arena for the Milwaukee Bucks:

“Our return on investment is three to one…” Walker said. “It’s a good deal.”

The Bucks franchise, valued at $600 million, is owned by a group of billionaire financiers in New York. But no matter what it’s worth, Walker’s statement is at wide variance with the findings of independent economists.

Economic projections for subsidized stadiums are always vastly overstated. As Dennis Coates and Brad Humphreys wrote in a 2004 Cato study criticizing the proposed D.C. stadium subsidy, “The wonder is that anyone finds such figures credible.”

And indeed the Washington Examiner reported in 2008:

Attendance at Nationals Park has fallen more than a quarter short of a consultant’s projections for the stadium’s inaugural year, cutting into the revenue needed to pay the ballpark bonds and spurring a D.C. Council member to demand the city’s money back.

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,“ Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports — or a possible negative effect.

In Regulation magazine, (.pdf) Dennis Coates and Brad Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

Stadiums, arenas, convention centers, arts centers, the story is the same. In 2011 the Washington Post reported that the financial projections for a government-funded arts center, Artisphere, in Arlington, Virginia, didn’t seem to have panned out.

A 2014 report by Don Bauder in the San Diego Reader is worth quoting at length:

Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

Of course you wouldn’t. But all around the U.S., politicians, civic planners, and particularly business executives have been following the advice of self-professed experts who invariably tell clients to build a convention center or expand an existing one.

A remarkable new book, Convention Center Follies: Politics, Power, and Public Investment in American Cities, published by the University of Pennsylvania Press, tells the amazing story of how one American city after another builds into a massive glut of convention-center space, even though the industry itself warns its centers that the resultant price-slashing will worsen current woes.

The author is Heywood Sanders, the nation’s ranking expert on convention centers, who warned of the billowing glut in a seminal study for the Brookings Institution back in 2005. In this new, heavily footnoted, 514-page book, Sanders, a professor of public administration at the University of Texas/San Antonio, exhaustively examines consultants’ forecasts in more than 50 cities….

The worst news: “These expansions will keep happening,” as long as “you have a mayor who says it is free,” says Sanders.

Or a governor:

“We would lose $419 million over the next 20 years if we did nothing, if we said, go on, move somewhere else, which the NBA said they would do,” Walker continued. “In this case, we don’t raise any taxes. There are no new taxes, only existing taxes. And we get a three to one return.”

The project will be funded by existing taxes on hotel rooms and rental cars, though the Wisconsin Center Board has the authority to raise the rate, he said.

“In this case, we take the tax, the revenues on hotels and rental cars that are currently paid for the convention center and allow those to continue to be paid for a new arena,” Walker said. “It’s not a new tax.”

This wasn’t the worst thing Scott Walker said to Jonathan Karl on ABC. He also said he wouldn’t rule out re-invading Iraq. But any presidential candidate who believes that taxpayer-subsidized stadiums are “a good deal” shouldn’t be anywhere near the federal Treasury.

An earlier version of this post relied on an erroneous quotation by ABC News in the first and last paragraphs. The post has been corrected to reflect the video with Walker’s actual language.

Proven Reforms to Restrain Leviathan

Back in March, I shared a remarkable study from the International Monetary Fund which explained that spending caps are the only truly effective way to achieve good fiscal policy.

And earlier this month, I discussed another good IMF study that showed how deficit and debt rules in Europe have been a failure.

In hopes of teaching American lawmakers about this international evidence, the Cato Institute put together a forum on Capitol Hill to highlight the specific reforms that have been successful.

I moderated the panel and began by pointing out that there are many examples of nations that have enjoyed good results thanks to multi-year periods of spending restraint.

I even pointed out that we actually had an unintentional - but very successful - spending freeze in Washington between 2009 and 2014.

But the problem, I suggested, is that it is very difficult to convince politicians to sustain good policy on a long-run basis. The gains of good policy (such as what was achieved in the 1990s) can quickly be erased by a spending binge (such as what happened during the Bush years).

A Pattern of Problems in American Cities

Last December the federal Department of Justice concluded an investigation of the Cleveland Police Department.  That investigation found a pattern of excessive force in violation of the Constitution.  On Monday, Cleveland Mayor Frank Jackson agreed to a legal settlement with the feds to overhaul his police department’s policies and practices regarding the use of force and how it handles complaints and monitors the actions of its officers.  This is just the most recent police department to be scrutinized.  Following the riot in Baltimore, Attorney General Loretta Lynch announced that the Dept of Justice would be launching a pattern and practice investigation of that police department as well.  Local policymakers in Baltimore, Cleveland, and elsewhere, have let serious problems fester in their police departments and addressing those deficiencies is long overdue.  At the same time, we should also remember that policymakers are also doing a generally poor job on a broader range of issues, including the schools.  As it happens, our friends at Reason did a short film a while back titled “Saving Cleveland.”  The film covers several important issues and what needs to be done.

Last week, Cato hosted an event on Capitol Hill, Lessons from Baltimore, which covers additional issues not in the Reason film.  Policing, body cameras, and social welfare spending.  That event can be viewed here.

Balanced Budget Requirements Don’t Work as Well as Spending Limits

When I first came to Washington back in the 1980s, there was near-universal support and enthusiasm for a balanced budget amendment among advocates of limited government.

The support is still there, I’m guessing, but the enthusiasm is not nearly as intense.

There are three reasons for this drop.

  1. Political reality - There is zero chance that a balanced budget amendment would get the necessary two-thirds vote in both the House and Senate. And if that happened, by some miracle, it’s highly unlikely that it would get the necessary support for ratification in three-fourths of state legislatures.
  2. Unfavorable evidence from the states - According to the National Conference of State Legislatures, every state other than Vermont has some sort of balanced budget requirement. Yet those rules don’t prevent states like California, Illinois, Connecticut, and New York from adopting bad fiscal policy.
  3. Favorable evidence for the alternative approach of spending restraint - While balanced budget rules don’t seem to work very well, policies that explicitly restrain spending work very well. The data from Switzerland, Hong Kong, and Colorado is particularly persuasive.

Advocates of a balanced budget amendment have some good responses to these points. They explain that it’s right to push good policy, regardless of the political situation. Since I’m a strong advocate for a flat tax even though it isn’t likely to happen, I can’t argue with this logic.

Regarding the last two points, advocates explain that older versions of a balanced budget requirement simply required a supermajority for more debt, but newer versions also include a supermajority requirement to raise taxes. This means - at least indirectly - that the amendment actually is a vehicle for spending restraint.

Mr. President, Don’t Scapegoat Private Schools

It is not often I get a chance to latch on to someone as high profile as the President of the United States saying that public schools “draw us together.” But in his appearance at Georgetown University a couple of days ago, President Obama blamed, among other things, people sending their children to private schools for breaking down social cohesion and reducing opportunities for other children.

First, let’s get our facts straight: Private schools are not the main way better-off people, or people with high social capital, isolate themselves from poor families. Only 9 percent of school children attend private schools, and as Matt Ladner points out in a great response to the President, that percentage has been dropping over the years. No, the main way the better-off congregate amongst themselves is buying houses in nice places, which translates into access to good school districts. Even the large majority of the mega-rich appear to send their children to public schools, but rather than paying school tuition, their tuition is the far-steeper, far more exclusive price of a house. And let’s not pretend – as the President hinted – that we’ve seen anything close to long-term decreased funding for public schools. Even with a slight dip during the Great Recession, inflation-adjusted, per-pupil spending in public schools has well more than doubled since 1970.

On the deeper point, do we really know that public schools “draw us together,” and more importantly, do so better than private schooling? No, we don’t. That’s the accepted wisdom, but basic history doesn’t necessarily bear it out. Roman Catholics ended up starting their own school system – which at its peak in 1965 enrolled about 12 percent of all students – because the de facto Protestant public schools could not accommodate them. African-Americans, of course, were long legally excluded from public schools, especially white public schools. Similar situations existed for Asians and Mexican-Americans in some parts of the country. And, of course, public schools reflected the communities they served, which were often small and homogeneous. Finally, public schooling forces diverse people into a single system, which has led to seemingly incessant, cohesion-tearing clashes over values, personal identities, and much more.

Reich Is Wrong on the Minimum Wage

Watching Robert Reich’s new video in which he endorses raising the minimum wage by $7.75 per hour – to $15 per hour – is painful.  It hurts to encounter such rapid-fire economic ignorance, even if the barrage lasts for only two minutes. 

Perhaps the most remarkable flaw in this video is Reich’s manner of addressing the bedrock economic objection to the minimum wage – namely, that minimum wage prices some low-skilled workers out of jobs.  Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers.  Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers. 

Ignore (as Reich does) that any additional amounts paid in total to workers mean lower profits for firms or higher prices paid by consumers – and, thus, less spending elsewhere in the economy by people other than the higher-paid workers.

Ignore (as Reich does) the extraordinarily low probability that workers who are paid a higher minimum wage will spend all of their additional earnings on goods and services produced by minimum-wage workers.