Venezuela: A Military Regime

Bloomberg has a story today on the many perks that the Venezuelan army enjoys vis-à-vis the downtrodden civilian population. Whereas a regular Venezuelan has to line up for hours to get basic goods (when they are available), officers enjoy privileged access to fully stocked supermarkets, new cars, housing, and many other benefits.

The obvious strategy of the Venezuelan government is to keep the armed forces happy in case it needs them to hold on to power.  But the reality is far worse.  In fact, Venezuela is now a military regime. Even though President Nicolás Maduro is a civilian, he is surrounded by people who have donned a uniform: according to Bloomberg, “A third of Venezuela’s 28 ministers and half the state governors are now active or retired officers.”

The rise in prices is not the only kind of inflation affecting Venezuela. Bloomberg reports that “its military now has between 4,000 and 5,000 generals” for a ratio of one general for every 34 servicemen (in the United States the ratio is one general per 1,490 servicemen). As expected, generals enjoy higher salaries and many other benefits. Moreover, the intelligence community believes that high-ranking army officers control most illegal activities in Venezuela, from smuggling to drug trafficking. In other words, military men are profiteering from the status quo.

All this points to an unlikely scenario where the armed forces would threaten the continuity of chavismo in power. Just the opposite, the army will be a key actor in propping up the regime, even if Venezuelans decide otherwise in the polls.

New York Airbnb Law Hurting B&Bs

The campaign against Airbnb in New York City has claimed some surprising collateral damage – actual B&Bs. According to Mary White of BnB Finder, half of all the B&Bs in the city have closed down since legislation in 2011 aimed at limiting Airbnb abuses came into effect. The statewide law prohibits building owners renting rooms in residential buildings and apartments for less than 30 days.

The law may have been aimed at preventing apartment buildings from being turned into illegal hotels, but it has resulted in fines being issued to B&B owners. The owner of one of New York City’s B&Bs launched an advocacy group in 2011 that lobbies for changes in legislation but does not list its members. Given the legislation affecting B&Bs it is understandable that BnB owners would be hesitant to increase their exposure. A Crain’s New York Business article on the decline of B&Bs in New York City quotes the owner of a Brooklyn inn, who limits the amount of attention her business receives online in order to avoid city investigators:

Most people don’t even know B&Bs exist in the city. Now many innkeepers are keeping a lower profile, hoping not to attract the city’s attention.

The owner of a European-style inn in Brooklyn, who did not want to be identified, said she limits her online exposure by not listing her property with travel sites like Expedia. The reason is twofold: She wants to speak personally with her guests before they arrive to ensure “that the people who stay with us won’t steal anything from us,” and to keep out of the crosshairs of city investigators.

Airbnb has made enough on an impact in New York City for hotel industry representatives, local officials, and activists to launch Share Better, a coalition group which claims the popular site is contributing to New York City’s affordable housing crisis and allowing tenants to violate lease agreements. Earlier this month, I wrote about Share Better’s claims and discussed the regulatory gray area Airbnb operates in with MSNBC’s Eric Ortega and The New Republic’s Noam Scheiber.

As Share Better continues to make its arguments against Airbnb, regulators and lawmakers should not forget the recent decline in New York City B&Bs, the hard hit unintended victims of anti-competitive rental restrictions.

The Federal Government and American Indians

As research for this essay on the Bureau of Indian Affairs, I visited the Smithsonian National Museum of the American Indian (NMAI). I found virtually no information useful for my project.

I stopped by the museum information desk on the way out and said something to the effect, “There is very little here about the relationship between Indians and the federal government, yet that relationship is central to the story of American Indians over the last two centuries.” A few months ago, I emailed a similar complaint to the head of the NMAI, and he did kindly respond to me.

The museum has now taken a big step toward fixing the problem with its new exhibit about the history of treaties between tribes and the federal government. It’s a good exhibit, telling some of the stories about how the government deceived and cheated the Indians again and again, depriving them of their lands, resources, and freedom.

The general topic is interesting to me because it illustrates numerous libertarian themes, including the arrogance and dishonesty of federal officials, the eagerness of officials to substitute their own goals for individual freedom, government corruption, the failure of top-down planning from Washington, and the inability of hand-outs to create lasting prosperity.

As I discuss in my essay, there has been good news on Indian reservations in recent decades. But the federal government continues to fail in creating the legal structure needed so that people on reservations can prosper. One long-standing problem is the very poor functioning of law enforcement. In a story today about Indian tribes in North Dakota, the Washington Post says:

Investigating crime on Fort Berthold is more difficult than most places because the reservation sits in six different counties each with its own sheriff — some of whom do not have a good relationship with the tribe, according to tribal members. If the victim and suspect are both Native American, the tribal police or the FBI handles the arrest. But if the suspect is not Native American, in most cases the tribal police can detain the suspect but then have to call the sheriff in the county where the crime occurred. Sometimes they have to wait several hours before a deputy arrives to make the arrest. In a murder case, the state or the FBI might be involved, depending on the race of the victim and the suspect.

“There are volumes of treatises on Indian law that are written about this stuff,” Purdon said. “It’s very complicated. And we’re asking guys with guns and badges in uniforms at 3:30 in the morning with people yelling at each other to make these decisions — to understand the law and be able to apply it.”

I don’t know what the best solution to these particular problems is. I do know that the U.S. Constitution empowered the federal government to engage with the tribes, and that Congress should spend more time tackling such fundamental issues. Unfortunately, most members of Congress focus most of their efforts on hundreds of programs not authorized by the Constitution.

Anyway, kudos to the Washington Post for doing a series on justice issues in Native American communities. And kudos to the NMAI for informing the public about the government’s often appalling behavior over two centuries of dealing with the first Americans.

The Real Costs of HealthCare.gov

In May, Department of Health and Human Services (HHS) Secretary Sylvia Burwell testified to Congress that costs for building HealthCare.gov were $834 million. New research from Bloomberg Government suggests that Burwell’s estimate represents a low-end estimate.

According to the new report, spending for HealthCare.gov has been an estimated $2.14 billion. Burwell’s estimates did not include numerous costs related to the project. For instance, she did not include the contract costs for processing paper applications, which are used as a backup. That contract cost $300 million.

Burwell’s figure also does not include spending at the IRS and other agencies related to ACA requirements. For instance, the IRS is required to provide real-time interfacing with HealthCare.gov to verify income and family size for insurance subsidy calculations. Those requirements cost $387 million.

Bloomberg also includes $400 million in costs that were excluded by HHS using creative accounting. When it wrote the ACA, Congress did not appropriate money to HHS for the construction of a federal exchange. Instead, it provided unlimited grants to states to construct their portals. When many states refused to construct their exchanges, HHS was forced to develop HealthCare.gov, but without a dedicated source of funding. HHS said it would need to “get creative” about funding options, leaving many wondering where HHS would eventually get the money. According to Bloomberg, HHS shifted money around to finance the construction of HealthCare.gov, using a number of existing contracts to finance the website’s construction.

Finally, Bloomberg included $255 million more in costs than Burwell due to time period differences. Burwell’s costs were as of February 2014. Bloomberg included costs until August 20, 2014, and then projected the current level of spending forward to the end of the fiscal year, September 30th. But this means that their figures are likely conservative too because federal agencies often ramp up spending— particularly contract spending—as it closes out its fiscal year.

Implementing the ACA is a costly exercise; Bloomberg says the $2.14 billion for HealthCare.gov administration is only a small part of the full $73 billion costs of Obamacare since its passage in 2010. But the administration nonetheless owes taxpayers an accurate accounting for the costs of the system.

Halbig v. Burwell: House Oversight Committee Subpoenas IRS

This was a long time coming.

Those who follow Halbig v. Burwell and similar cases know the IRS stands accused of taxing, borrowing, and spending billions of dollars contrary to the clear language of federal law. The agency is quite literally subjecting more than 50 million individuals and employers to taxation without representation.

Congressional investigators have been trying to figure out how the IRS could write a rule that so clearly contradicts the plain language of the Patient Protection and Affordable Care Act. Unfortunately, the agency has been largely stonewalling their efforts to obtain documents relating the the development of the regulation challenged in the Halbig cases.

Fortunately, finally, last week the House Committe on Oversight and Government Reform used its subpoena power to demand the IRS turn over the documents that show what whent into the agency’s decision.

We’ll see if the IRS complies, or if another of the agency’s hard drives conveniently crashes.

I’ve got a fuller write-up over at Darwin’s Fool.

Democrats and Their Mansions, Again

Two articles in today’s Washington Post Real Estate section remind me of how off-target a Post political article was a couple of months ago. The House of the Week is Paul and Bunny Mellon’s Upperville, Va., estate, which features a 10,000-square-foot main house on 2,000 acres and is being offered for $70 million. The Mellons often entertained their friends John F. and Jacqueline Kennedy there. Bunny Mellon, the daughter of the man who cofounded the Warner-Lambert drug company, married the heir to the Mellon Bank fortune. Sadly, she made headlines late in her long life for her multi-million-dollar support of Sen. John Edwards’s presidential campaign, including money to cover up his extramarital affair.

Norton Manor

Meanwhile, the feature article in the Real Estate section looks at “an American palace,” a 40,000-square-foot house (and you thought the Mellons were extravagant at 10,000 square feet!) in Potomac, Md., built by a businessman who started a company with a federal grant, built it on government contracts, and then sold it for hundreds of millions of dollars. Frank Islam says that “‘to whom much is given, much is expected.’ It’s our responsibility to give back and share.” And share he does, with the kind of people who made all that government largesse possible:

Since moving into their 14-bedroom, 23-bathroom estate in 2013, the homeowners have regularly staged events for the Democratic Party. They held a June dinner attended by Vice President Biden and a fundraiser for Sen. Al Franken (D-Minn.) this month. 

Islam and Driesman have hosted nearly all the region’s Democrats, including Maryland Gov. Martin O’Malley and Lt. Gov. Anthony Brown; Sens. Timothy M. Kaine of Virginia and Benjamin L. Cardin of Maryland; and Montgomery County Executive Isiah Leggett.

All of which reminded me of another Post story by a longtime reporter back in May, which turns out to have been about the very same mansion:

The Potomac estate of IT entrepreneur and philanthropist Frank Islam seemed more fitting for a Republican soiree than a Democratic fundraiser, some of Maryland’s top elected officials said Wednesday….

“There are not too many people who own homes like this who are great Democrats,” Sen. Benjamin L. Cardin (D-Md.) told the audience of about 400.

As I said at the time, “Democrats don’t have much trouble finding billionaires and mansions for fundraising events. Reporters shouldn’t act like it’s an unusual event.”  

A month after that Sen. Harry Reid declared in one of his tirades about billionaires in politics that the Democratic party “doesn’t have many billionaires.” (Or maybe he said “any billionaires”; the audio is unclear.) Politifact found plenty of billionaire donors to both parties. Whatever you think of many politics, reporters should stop recycling Democratic spin that big money is found on one side of the aisle.

 

Who Needs to Be More Flexible in the TPP talks? Hint: It’s Not Japan.

According to news reports, the United States and Japan have again failed to reach a bilateral agreement on lowering import barriers, a necessary prerequisite to completion of the 12-member Trans-Pacific Partnership (TPP) trade agreement. U.S. negotiators and business interests are quick to blame Japan for being reluctant to eliminate tariffs on a handful of highly traded agricultural products. In truth, though, the Japanese government has shown much greater commitment to the TPP and more willingness to take political risk than the United States. If the TPP falls apart, the blame will not lie with the Japanese.

The tariffs in question are what trade negotiators refer to as “sensitivities.” For every country in any trade negotiation, there are some trade barriers that are very difficult to lower because of the domestic political power of the businesses and industries that benefit from them. In Japan’s case these are agricultural tariffs (on rice, wheat, sugar, meat, and dairy) that are the bread and butter of Japan’s politically powerful farmers. Getting rid of sensitive barriers can be done, but it requires greater political will from both local and foreign leaders. Politicians take great risks when they oppose the interests of a powerful lobby.

I’ve noted before that criticisms of Japan’s stance are inappropriately antagonistic in light of how beneficial tariff elimination would be to Japan itself. The Japanese government know this, too. Earlier this week, Japanese Prime Minister Shinzo Abe spoke about how eager his government is to use the TPP talks as a way to enact broad agricultural reforms:

I consider it is indispensable for the future of Japanese agriculture to promote the domestic and international reforms in an integrated way.

To be honest with you, it is indeed an enormous task to suppress the resistance from the people who have been protected by vested interest. However, there is no future for them if they are not exposed to competition.

Rather than sympathize with their Japanese counterparts, however, the U.S. Trade Representative’s office continues to accuse Japan of expecting special treatment when all other TPP members are committed to more ambitious liberalization.