Scott Walker’s Fiscal Record

Monday is Scott Walker’s turn to join the crowded presidential field. Walker has served as Wisconsin’s Governor since 2011. He rose to prominence quickly after the State Capitol in Madison was overtaken by protesters opposing his labor reforms. Walker has passed a number of government-limiting measures, earning a “B” on Cato’s Governor Report Card in both 2012 and 2014, but he continues to support higher spending.

When Walker took office Wisconsin had a $3.6 billion budget deficit and needed urgent reform. His first big legislative achievement was Act 10 which overhauled the state’s collective bargaining rules and benefit programs for state employees. Under Act 10, state employees must contribute 12 percent of premium costs to their state-provided health insurance plan. In addition, pension contributions are now split evenly between the employee and the employer. In 2015 that contribution was 6.8 percent of income.

Act 10 also limited collective bargaining subjects to base wages, removing the ability to negotiate on overtime, pension, and health benefits. It has saved taxpayers in Wisconsin $3 billion since its passage in 2011.

Walker has also passed several tax cuts while in office. In 2013 Walker signed a plan that cut the state’s personal income tax by almost $500 million a year. The plan consolidated the state’s five income tax brackets into four brackets, with the larger cuts skewed towards the lower end of the income scale. In 2014 the state made further cuts to the lowest income tax bracket. In total, the lowest bracket fell from 4.60 percent to 4 percent. Work is still needed. Wisconsin’s total income tax rate of 7.65 percent is still one of the highest in the country, and its Business Tax Climate is a discouraging 43rd in the nation, according to the Tax Foundation. 

Walker has had success on labor and tax issues, but spending continues to grow rapidly in Wisconsin. From fiscal year 2012 to fiscal year 2015, Wisconsin state spending grew 15 percent. For comparison, state spending grew by 8 percent nationally during this period.  So while Walker turned a $3.6 billion deficit when he took office into an $800 million surplus by June 2013, he has continued to spend excessively.  His budget for fiscal years 2016 and 2017 included another $1 billion in increased spending. 

Walker’s policies have targeted numerous areas of Wisconsin’s budget. He reformed the state’s labor laws as they related to state employees and saved $3 billion in four years. He cut personal income taxes. Overall, his actions have helped restore fiscal sanity to Wisconsin. But voters concerned about Washington’s debt and profligacy should be aware Walker’s record of increasing state spending even while cutting taxes.

The ACA Is Dead — Long Live ObamaCare

My first, but not remotely my last, oped on the Supreme Court’s ruling in King v. Burwell appears in today’s Washington Examiner. Excerpt:

Obamacare supporters are mistaken if they think the Supreme Court’s King v. Burwell ruling settles the issue. Even in defeat, King threatens Obamacare’s survival, because it exposes Obamacare as an illegitimate law…

By overriding the operative language of the statute, the Supreme Court colluded with the president to impose taxes and entitlements that no Congress ever approved; to deprive states of powers Congress granted them to block parts of the ACA; and to disenfranchise Republican and independent voters who swept ACA opponents into state office in 2009, 2010 and 2011 for the purpose of blocking the ACA.

The Supreme Court did not lose its legitimacy with King v. Burwell — it has made worse mistakes. Obamacare did. Having been rewritten over and over by the president and the Supreme Court rather than Congress, Obamacare cannot claim to be a legitimate law.

Read the whole thing.

Remove Lew, Not Hamilton

On June 17th, Treasury Secretary Jack Lew shocked many, including former Chairman of the Federal Reserve Ben Bernanke, when he proclaimed that Alexander Hamilton (1755-1804) – the first and foremost Treasury Secretary – would be demoted and share the ten-dollar bill with a yet unnamed woman. Undaunted by wide-spread criticism, Secretary Lew continued to press his case at an event at the Brookings Institution on July 8th. Asked about the ten-dollar bill’s selection, Secretary Lew insipidly claimed that the ten-dollar bill was the “next up” for redesign to help combat forgery. The diminution of Hamilton, for whatever reason, is simply indefensible.

Just how great was Hamilton? A recent scholarly book by Robert E. Wright and David J. Cowen, Financial Founding Fathers: The Men Who Made America Rich, begins its pantheon of greats with a chapter on Alexander Hamilton. It is aptly titled “The Creator.”

After the Constitution was ratified and George Washington was elected President, the new federal government lacked credibility. Public finances hung like a threatening cloud over the government. Recall that paper money and debt were innovations of the colonial era, and that, once the Revolutionary War began, Americans used these innovations to the maximum. As a result, the United States was born in a sea of debt. A majority of the public favored a debt default. Alexander Hamilton, acting as Washington’s Secretary of the Treasury, was firmly against default. As a matter of principle, he argued that the sanctity of contracts was the foundation of all morality. And as a practical matter, Hamilton argued that good government depended on its ability to fulfill its promises.

Hamilton won the argument and set about digging the country out of its financial debacle. Among other things, Hamilton was – what would today be called – a first-class financial engineer. He established a federal sinking fund to finance the Revolutionary War debt. He also engineered a large debt swap in which the debts of individual states were assumed by the newly created federal government. By August 1791, federal bonds sold above par in Europe, and by 1795, all foreign debts had been paid off. Hamilton’s solution for America’s debt problem provided the country with a credibility and confidence shock.

Doesn’t the 76th Secretary of Treasury have better things to do than to diminish the presence of our 1st and most distinguished Secretary of Treasury?

How Not to Stress Test: UK Edition

Anyone who follows the  stress tests conducted by the Fed and various European banking authorities can’t help poking fun at them.  After all, it’s hard to repress a chuckle when, time and again, a bank passes one of these tests with flying colors only to end up failing not long afterwards.  Whether it’s Iceland in 2008, Ireland in 2010, or Cyprus in 2013, the story is the same: all three national banking systems collapsed shortly after being signed off as safe following regulatory stress tests.

When putting banks to such a test, a central bank or other banking authority starts by imagining  one or more “stressful” scenarios to which banks might be exposed, uses a bunch of models to determine how those scenarios will affect the banks’ capital adequacy (that is, their ratio of capital to assets), and then passes or fails banks depending on whether their capital remains adequate at the end of the test.

The Bank of England reported the results of its first set of annual stress tests in December.  Its message was a reassuring one: the UK banks are safe.  Unfortunately, there’s no good reason to trust that assessment than there was to trust the others, for the Bank of England’s stress tests are also deeply flawed, in ways that, besides obscuring the significant vulnerability of the UK banking system, actually tend to accentuate it.

For starters, the tests are based on a “risk-weighted asset” metric, which depends on models that underestimate banks’ risks.  Worse still, these models are eminently gameable, and banks have every incentive to game them, since doing so can reduce their capital requirements and allow them to distribute greater false profits.

Abundant research—from the Bank of England itself, among other authorities—has convincingly established that lower risk-weighted asset scores do not necessarily mean lower risk.  In fact, the risks are often greater; they just happen to be among those that are invisible to the risk measure.  We saw precisely this problem in 2008–2009, when UK banks appeared to be well capitalized using risk-weighted asset metrics, but actually turned out to be massively undercapitalized when the financial crisis hit.

This Is What Defense Consolidation without BRAC Looks Like

For the past few months, nearly thirty communities around the country have been anxiously awaiting an announcement from the Pentagon concerning the military bases that would be affected by the planned drawdown of 40,000 active-duty Army personnel, plus another 17,000 or so civilian employees. Local news outlets have been filling in the details as they become available. Some communities, including Leesville, Louisiana (Fort Polk), and northern New York (Fort Drum) are breathing a “sigh of relief.” Others, in Georgia (Fort Benning) and Alaska (Joint Base Elmendorf-Richardson), are crying foul.

Sen. Johnny Isakson (R-GA) seems especially peeved. “I am demanding answers from the Department of Defense on how they are justifying these troop cuts in Georgia,” Isakson said. And, in the meantime, he plans to block the nomination of a “new congressional liaison for the Department of Defense in light of the Department’s failure to give Congress a heads up before these cuts were made public.”

This is what defense consolidation looks like without the formality and relative transparency of the Base Realignment and Closure (BRAC) process.

I am in the midst of a major research project studying the effects of military spending cuts on local communities. With the help of my excellent research assistant, Connor Ryan, I am looking at some familiar cases, such as San Francisco’s Presidio and Monterey’s Fort Ord, and some that are more obscure (e.g. Portsmouth, New Hampshire’s Pease AFB). I’m also writing about some bases closed before BRAC (e.g. Frankford Arsenal in Philadelphia; the Springfield Arsenal in Massachusetts; and Dow AFB in Bangor, Maine), and some facilities that were privately owned and operated, but that grew primarily by supplying products to the military (including the Tredegar Iron Works in Richmond, Virginia; and DuPont’s Eleutherian Mills in Wilmington, Delaware). The project aims to go beyond studying the economic effects predicted and observed by economists (e.g. here and here), but to also get a feel for the history of each place, what it built, or how it fit into the nation’s defenses, and, ultimately, each facility’s denouement. To oversimplify: “How’s it goin’?”

My preliminary conclusions, after having visited about half of the places that I plan to study (and I will visit all of them), is that communities do adapt and recover, some more quickly than others, and many emerge after the transition period with a robust and more diversified economic base. In other words, the resources once directed toward the military do eventually find their way to more productive uses.

Science Revives “The Hiatus”

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

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Just five weeks after Science magazine prominently featured a paper proclaiming that the multidecadal slowdown in the rate of the earth’s average temperature rise—aka, the “pause” or “hiatus”—was but a figment of bad data, comes a new paper in Science magazine explaining the physical mechanisms that have led to the slowdown.

Wait, what?

You read it right. What Science laid to rest but a month ago, Science has now resurrected. Science (with a capital “S”), and those dedicated to it, should not be amused.

But such is the nature of the game. Science the magazine is more interested in generating publicity for itself than in best serving Science the field—a point being increasingly raised by prominent scientific figures.

The new paper, whose title even contains the dreaded H-word (“Recent hiatus caused by decadal shift in Indo-Pacific heating”), is authored by Veronica Nieves and colleagues from the Jet Propulsion Lab (JPL). The paper itself is rather technical look at how the hiatus has manifested itself in various compilations of measurements (and models) of the ocean’s temperatures at depth.

And You Thought Civil Asset Forfeiture Was Bad Enough…

Remember Megaupload.com? It was once the 13th most popular website on the internet, with more than 82 million unique visitors and a billion total page views during its seven-year operation. The site allowed people to store files on the cloud for later use — and some users inevitably stored copyrighted TV shows, films, songs, and software.

In 2012, the U.S. government charged the owner, the colorful Kim Dotcom, and the website’s operators with conspiracy to commit copyright infringement. The defendants are currently resisting extradition to the United States (Dotcom lives in New Zealand), as is their right under extradition treaties. In 2014, the seemingly frustrated government moved to seize the defendants’ considerable assets in a civil forfeiture action, claiming that the assets are probably connected to the alleged criminal activity.

Under civil forfeiture laws, the government can take property without an underlying criminal conviction based only on the allegation of a crime. Those whose property has been seized can get it back by proving that their property is “innocent.” The government, however, is preventing the defendants from even making that argument. Using the “fugitive disentitlement” doctrine, the government is blocking the defendants from challenging the forfeiture.

Fugitive disentitlement has historically been applied only to criminals who escaped custody while appealing a conviction, the idea being that a court could decide to dismiss the appeal because any judgment would be unenforceable against an absent defendant. Here, the government has decided that, because the Megaupload defendants aren’t coming to the United States to defend their property, they are “fugitives” who have lost the ability to defend against that seizure — and the district court agreed. Cato, joined by the Institute for Justice and the National Association of Criminal Defense Lawyers, has filed a brief in the U.S. Court of Appeals for the Fourth Circuit arguing that it’s unconstitutional for the government to use fugitive disentitlement in civil forfeiture proceedings against non-fugitives.