The Disappointing Continuing Resolution

The House of Representatives is set to vote on a continuing resolution (CR) tomorrow to fund the federal government until December 11, 2014. A CR is stop-gap measure often used when the parties and chambers cannot agree on a full-year budget.

The CR package, as presented in draft form, is disappointing. It fails to institute much-needed fiscal reforms.

  • Spending Levels: The CR keeps the level of discretionary spending constant at $1.012 trillion. Not growing the size of government is a positive step for Congress, but there are plenty of ways to cut and reform spending. As I noted recently, the sooner Congress reforms spending the better.
  • Export-Import Bank: The CR extends the Export-Import Bank’s charter until June 30, 2015. Ex-Im subsidizes exports for American companies, but at a large cost to other American firms.
  • Internet Tax Moratorium: In 1998, Congress passed a law making it illegal for federal, state, or local governments to impose taxes on internet access, such as bandwidth or email taxes. This moratorium expires on November 1, 2014. The CR extends the moratorium until December 11, 2014, but it does not permanently extend it as  previously-passed House legislation would have. This sets up an important tax fight after the congressional elections.
  • Overseas Contingency Operations: The supplemental war budget, known as the Overseas Contingency Operations (OCO) budget, provides funding for military activities in Iraq and Afghanistan. OCO funding is supposed to decrease as those activities wind-down. But this CR increases OCO above planned levels. It includes $26 billion, at an annual rate, more than the Obama Administration’s request earlier in the year. One problem with OCO funding is that it is not subject to the same federal budgetary rules and disciplines as other types of spending, which allows Congress to treat it like a slush fund.

In sum, this CR allows members to again punt on any sort of meaningful entitlement reforms or spending cuts to reduce our half trillion dollar deficit.

Share Better Coalition Takes Aim at Airbnb

Airbnb, which allows for homeowners to temporarily rent some or all of their property, is the target of “Share Better,” a New York City-based campaign group launched last Friday which claims that the company worsens the affordable housing crisis, allows for tenants to violate lease agreements, and poses a safety risk to property owners and guests.

Share Better is a coalition of predictable groups: New York state and NYC elected officials, activists, and hotel industry representatives.

The Share Better campaign is a notable example of established market participants (hotels) working to stifle competition. Airbnb has proven popular in NYC, and many New Yorkers believe that the type of short-term renting facilitated by Airbnb should be permitted. A Quinnipiac poll from earlier this month shows that only 36 percent of NYC voters believe that residents should not be “permitted to rent rooms in their homes for a few days at a time to strangers, similar to a hotel.”

Given Airbnb’s popularity some in the NYC hotel industry are understandably concerned. However, some of the claims made by the group are unfounded. 

Is Airbnb contributing to NYC’s affordable housing crisis? It’s hard to see how given the number of Airbnb rentals and the number of households in NYC. Airbnb claims that there are approximately 25,000 listings in NYC. In a city of roughly 3 million households it’s hard to see how Airbnb could be significantly contributing to a lack of affordable housing in NYC.

If New York and NYC elected officials and activists are concerned about affordable housing in NYC they should turn their attention to rent controls, which economists almost universally agree are bad policy. As Swedish economist Assar Lindbeck noted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

Read Cato’s Policy Analysis “How Rent Control Drives Out Affordable Housing” by William Tucker here.

The Share Better campaign released a video highlighting negative reviews of Airbnb rentals imposed over footage of grim-looking properties. No one who supports the sharing economy claims that every Airbnb experience will be good, just as no one will claim that every hotel visit will enjoyed by every guest. However, given the rise of the Internet it is easy for those interested in staying at a hotel to look up reviews of hotels made by previous guests. Similarly, Airbnb hosts and guests review each other, making it unlikely that a host offering dirty or unsafe accommodation will be able to use Airbnb’s services for long. 

Libertarians and Share Better can agree that, if an apartment tenant has signed a lease with a landlord that forbids him from temporarily renting his apartment, he should not be hosting Airbnb guests.

Argentina: One More Step toward Venezuela

This week the Argentine Congress is likely to pass legislation that would bring that country one step closer to suffering the economic disaster that currently besets Venezuela.

First, let’s keep in mind that when it comes to the economy, Argentina is already the country that comes closest to following Venezuela’s flawed policies (expansionary monetary policy, arbitrary expropriations and nationalizations, price controls, etc.).

High inflation remains the country’s number one problem. According to private consulting firms, year-to-year inflation in August was 40.4%. The black market exchange rate is 70% higher than the official rate, which has led to a growing shortage of dollars. We have seen this movie before in Venezuela.

President Cristina Fernández now wants to tackle inflation by having Congress pass an amendment to the “Supply Act” of 1974 that would allow her government to go after businesses that are deemed to be raising prices “unjustifiably or artificially,” or that enjoy “abusive profits.” In those cases, the bill authorizes the Secretary of Commerce to regulate and establish profit margins in each stage of production and commercialization, set price controls, and force companies to continue producing even though they are incurring losses. The bill also empowers the Secretary of Commerce to raid, fine and temporarily close businesses, and also to confiscate merchandise. (In fairness, the bill also aims to eliminate the prison sentences, massive confiscations and permanent closing of businesses that are stipulated in the original law —although they have been rarely implemented.)

The Argentine bill is very similar to Venezuela’s “Just Prices and Costs Act” passed in July, 2011. That law has greatly contributed to the country’s further decimation of the private sector and to widespread shortages of basic goods. The last time the Venezuelan Central Bank published its scarcity index in March, it reached 29.4%, meaning that over one out of four basic products is out of stock at any given time.

Since the Fernández administration enjoys a comfortable majority in the House of Deputies (the Senate already passed the bill), it’s very likely that the legislation will be approved this week. If that happens, Argentina will be one step closer to becoming the next Latin American basket case.

Is it “Moral” to Restrict Fossil Fuel Use to Mitigate Future Sea Level Rise?

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.”

Organizations of all sorts are scrambling to get their ducks in a row in preparations for The People’s Climate March (we are not making this up) scheduled in NYC on September 21st as a prelude to the U. N.’s Climate Summit on the 23rd.  President Obama has pledged to be at the Summit.  The leaders of China, India, Australia, Germany, Canada, among others, have better things to do.

One of the pre-Summit events being held by several sponsors of The People’s Climate March is a Capitol Hill briefing scheduled for Thursday, the 18th. The Franciscan Action Network, the Friends Committee on National Legislation, and the Kingdom of the Netherlands (there is no way we could have made up that collaboration) are hosting a briefing titled “The Impact of Sea Level Rise Right Now: Stories of the Lived Experience and the Moral Call to Action.”

The bottom line of the briefing will be that:

Climate change is a moral, non-partisan and pragmatic issue which can be addressed by solutions with multiple co-benefits. We urge legislators to join global business, faith, scientific, health and military leaders in acknowledging that climate disruptions are real, happening now, and requiring our nation’s leaders to act.

It is interesting that they juxtapose a “moral issue” with calls for “policies to reduce national and global greenhouse gas emissions.” Interesting, we say, because there is a soon-to-be released and incredibly compelling book written by the Center for Industrial Progress’s Alex Epstein titled The Moral Case for Fossil Fuels. Its main premise is that both the short- and long-term benefits of using fossil fuels greatly outweigh the risks of any climate change that may occur as the result of the accompanying carbon dioxide emissions. Epstein argues that the “moral” thing to do is to continue (and expand) the use fossil fuels:

If we look at the big picture of fossil fuels compared with the alternatives, the overall impact of using fossil fuels is to make the world a far better place. We are morally obligated to use more fossil fuels for the sake of our economy and our environment.

The primary case against expansion of current fossil fuel use involves the risk from anthropogenic climate change.  However, here, the threats are overstated—especially by organizations (like many of those behind The People’s Climate March) that favor centralized government control of energy production (and most everything else).

The sea level rise concerns that are to be described in the Hill briefing will undoubtedly fall into the “overstated” category. According to the briefing’s flier:

“The U.S. National Climate Assessment projected that sea levels will rise 1 to 4 feet by 2100, affecting 39 percent of the U.S. population and impacting the very futures of many coastal communities and small island nations.”

We imagine that the focus will be on the high end of the 1 to 4 foot range (and beyond), even as a plethora of new science argues for an outcome nearer to the low end.

The current decadal rate of sea level rise is about 3 mm (.12 in) per year, which would result in about a foot of sea level rise during the 21st century. There  is a lot of recent research that concludes that a large increase in this rate of rise as a result of the melting of Greenland’s and/or Antarctica’s glaciers is unlikely.

The statistical models most responsible for the high-end sea level rise projections used have been shown to be questionable and thus unreliable. And finally, and perhaps most importantly, the future projection of temperature rise made by climate models (upon which the sea level rise projections are based) have been shown by a growing body of scientific research to be overestimated by about 40 percent.

Taken together, the latest science argues that the case for rapid and disruptive sea level rise is flimsy at best.

Undoubtedly, sea levels will continue to rise into the future, in part, from the earth’s temperature increase as a result of human carbon dioxide emissions resulting from our use of fossil fuels. Appropriate adaptations will be necessary. However, signs point to a rather modest rise in sea levels accompanying a rather modest rise in temperature—a pace at which our adaptive response can keep up.

So long as this is remains case, the continued use of fossil fuels to power the developed world and the expanded use to help provide safe, reliable, and cheap electricity to the more than 1 billion people in the underdeveloped world that currently live without any (or very minimal) access to it is a no-brainer.  That’s where the moral imperative should lie.

Anthony Burgess on “the Duty to Distrust the State”

Anthony Burgess wrote some 50 books, but he became most famous for one that was made into a hit movie – A Clockwork Orange, published in 1962 and filmed by Stanley Kubrick in 1971. Two years later Burgess wrote an essay reflecting on the book, the film, and their message. But the essay was not published until 2012, in the New Yorker, where it could be seen only by subscribers. Only this summer did the New Yorker open access to its archives, if only temporarily. So at last I have a chance to draw attention to the section of it I particularly enjoyed, on the dangers of the modern state:

We probably have no duty to like Beethoven or hate Coca-Cola, but it is at least conceivable that we have a duty to distrust the state. Thoreau wrote of the duty of civil disobedience; Whitman said, “Resist much, obey little.” With those liberals, and with many others, disobedience is a good thing in itself. In small social entities—English parishes, Swiss cantons—the machine that governs can sometimes be identified with the community that is governed. But when the social entity grows large, becomes a megalopolis, a state, a federation, the governing machine becomes remote, impersonal, even inhuman. It takes money from us for purposes we do not seem to sanction; it treats us as abstract statistics; it controls an army; it supports a police force whose function does not always appear to be protective.

This, of course, is a generalization that may be regarded as prejudiced nonsense. I personally do not trust politicians or statesmen—very few writers and artists do—and consider that men enter politics for the negative reason that they have little talent for anything else and the positive reason that power is always delicious. Against this must be set the truth that government makes healthful laws to protect the community and, in the great international world, can be the voice of our traditions and aspirations. But the fact remains that, in our own century, the state has been responsible for most of our nightmares. No single individual or free association of individuals could have achieved the repressive techniques of Nazi Germany, the slaughter of intensive bombing, or the atomic bomb. War departments can think in terms of megadeaths, while it is as much as the average man can do to entertain dreams of killing the boss. The modern state, whether in a totalitarian or a democratic country, has far too much power, and we are probably right to fear it.

It is significant that the nightmare books of our age have not been about new Draculas and Frankensteins but about what may be termed dystopias—inverted utopias, in which an imagined megalithic government brings human life to an exquisite pitch of misery. Sinclair Lewis, in “It Can’t Happen Here”—a novel curiously neglected—presents an America that becomes fascist, and the quality of the fascism is as American as apple pie. The wisecracking homespun Will Rogers-like President uses the provisions of a constitution created by Jeffersonian optimists to create a despotism which, to the unthinking majority, at first looks like plain common sense. The trouncing of long-haired intellectuals and shrill anarchists always appeals to the average man, although it may really mean the suppression of liberal thought (the American Constitution was the work of long-haired intellectuals) and the elimination of political dissidence. Orwell’s “1984”—a nightmare vision which may conceivably have prevented the nightmare fact from being realized: no one expects the real 1984 to be like Orwell’s—shows the unabashed love of power and cruelty which too many political leaders have hidden under the flowers of “inspirational” rhetoric. The “Inner Party” of Orwell’s future England exerts control over the population through the falsification of the past, so that no one can appeal to a dead tradition of freedom; through the delimitation of language, so that treasonable thoughts cannot be formulated; through a “doublethink” epistemology, which makes the outside world appear as the rulers wish it to appear; and through simple torture and brainwashing.

Both the American and the British visions conjoin in assuming that the aversive devices of fear and torture are the inevitable techniques of despotism, which seeks total control over the individual. But, as long ago as 1932, Aldous Huxley, in his “Brave New World,” demonstrated the submissive docility that powerful states seek from their subjects as being more easily obtainable through non-aversive techniques. Pre-natal and infantile conditioning makes the slaves happy in their slavery, and stability is enforced not through whips but through a scientifically imposed contentment. Here, of course, is a way that man may take if he really desires a world in which there are no wars, no population crises, no Dostoyevskian agonies. The conditioning techniques are available, and perhaps the state of the world may soon frighten man into accepting them. 

The whole thing is worth reading, with its reflections on freedom and conformity, good and evil, Orwell and B. F. Skinner (he was big in 1973).

Prof. Krugman Snared By 364 Trap

In his New York Times column of September 15, 2014, How to Get It Wrong,Paul Krugman pleas for open-mindedness and reason. From whence did Prof. Krugman convert from his embrace of dogmatism?

Well, it’s clear that he has not converted. Indeed, the evidence resides about three quarters of the way through his column:

“The great majority of policy-oriented economists believe that increasing government spending in a depressed economy creates jobs, and that slashing it destroys jobs — but European leaders and U.S. Republicans decided to believe the handful of economists asserting the opposite. Neither theory nor history justifies panic over current levels of government debt, but politicians decided to panic anyway, citing unvetted (and, it turned out, flawed) research as justification.”

This passage brings back vivid memories of the 364. In 1981, Margaret Thatcher was prime minister and my friend and collaborator, the late Sir Alan Walters, was her economic guru. Britain’s fiscal deficit was relatively large, 5.6% of its gross domestic product, and the economy was in the middle of a nasty slump. To restart the economy, Thatcher instituted a fierce fiscal squeeze, coupled with an expansionary monetary policy. This was immediately condemned by 364 dyed-in-the-wool Keynesian economists - virtually all of the British establishment. In a letter to the Times, they wrote, “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”

Thatcher and Walters were vindicated quickly. No sooner had the 364 affixed their signatures than the economy turned around and boomed for the next five years. That result provoked disbelief among the Keynesians. After all, according to their dogma, the relationship between the direction of a fiscal impulse and economic activity is supposed to be positive, not negative.

The 364’s dogma was proven wrong. Thatcher and Walters were right.

Middle East and North Africa: A Fatal Attraction

Last week, President Obama addressed the nation to proclaim that the U.S. and an unspecified coalition were going to once again ramp up our military operations in Middle East and North Africa (MENA). This time, the target is the Islamic State, the group terrorizing Iraqi and Syrian citizens.

Just what is the economic condition of that troubled MENA region? This is a question that must be addressed by anyone who is looking over the horizon. After all, the state of an economy today will have a great influence on post-war prospects tomorrow.

My Misery Index allows us to obtain a clear picture of the current economic situation. The Index is the simple sum of the inflation rate, unemployment rate and bank lending rate, minus per capita GDP growth. I calculated a misery index for the countries in MENA where sufficient data were available.

As the chart shows, many of the countries in MENA are, well, miserable. Indeed, a score of over twenty indicates that serious structural economic problems exist. To correct these problems, thereby reducing misery, major economic reforms (read: free-market reforms) must be implemented. But, even if the respective governments approve such changes, it is unclear whether they can be implemented. To put a bit of color on that conjecture, consider that only 13 of the 21 countries in MENA reported the four pieces of economic data that are required to calculate my Misery Index. The regional governments’ inability to produce reliable economic data is a canary in a coal mine. When it comes to MENA, most of the countries have been singing for a long time. The region is, by and large, miserable.