Government Exceeds Its Powers in Enforcing the Endangered Species Act

“It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits,” the Supreme Court held last year in Michigan v. EPA.It seems that the U.S. Fish and Wildlife Service (USFWS) did not get the message, with its willy-nilly imposition of significant economic costs when designating “critical habitat” for endangered species.

A California builders’ association is now asking the Court to establish that judicial review is available for individuals and businesses affected by these agency actions that purport to enforce the Endangered Species Act (ESA). The ESA specifically requires federal agencies to take economic impacts into consideration, but the USFWS routinely ignores the costs of designating land as a critical habitat. The San Francisco-based U.S Court of Appeals for the Ninth Circuit held that the designation of critical habitat is an action fully committed to agency discretion, and that it may ignore any cost implications at its leisure, but this would seem to contradict Michigan v. EPA and other precedent.

The USFWS employs a cost-benefit accounting method called “baseline analysis,” which separates the impacts that would occur absent designation (baseline impacts) from the impacts attributable to designation (incremental impacts). It then only considers the incremental impacts, despite enormous disparities between baseline and incremental costs—one order of magnitude or two—and fanciful estimates that the economic impact of critical habitat designation is often $0.

Cato, joined by the Reason Foundation and National Federation of Independent Business, filed an amicus brief urging the Supreme Court to take up this important question of whether courts can even review the government’s Enron-style of cost-benefit analysis. Independent research by Reason’s Brian Seasholes found that in examining 159 of the 793 species that have critical habitat designation, there are at least $10.7 billion in economic impacts, hundreds of jobs lost per species designated, and regulatory burdens affecting 60,169,546 acres of land (11,261,054 privately owned) spanning 37 states and two territories.

Police Misconduct — The Worst Case in May

Over at Cato’s Police Misconduct web site, we have selected the worst case for the month of May.  It was the case of one Shane Mauger.  Over a period of about 10 years, this former police officer told lies to obtain search warrants and would then falsify police reports by under-reporting any cash that he seized during those raids.

Now, because of his corruption, officials cannot tell how many of his previous cases were based on valid police work and how many were based upon dishonest work.  Many cases are being reviewed and thrown out.

Federal investigators discovered other corrupt officers in the same Reynoldsburg, Ohio police department.  Former officer Tye Downard was arrested in February for dealing in narcotics.  Shortly after his arrest, Downard committed suicide in his jail cell.

Arctic Methane Scare Oversold

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.”

Methane is all the rage. Why? Because 1) it is a powerful greenhouse gas, that molecule for molecule, is some 25 times as potent as carbon dioxide (when it comes to warming the lower atmosphere),  2) it plays a feature role in a climate scare story in which climate change warms the Arctic, releasing  methane stored there in the (once) frozen ground, which leads to more warming and more methane release, ad apocalypse, and 3) methane emissions are  also be linked to fossil fuel extraction (especially fracking operations). An alarmist trifecta!

Turns out, though, that these favored horses aren’t running as advertised.

Cato Journal: Revisiting Three Intellectual Pillars of Monetary Wisdom

A new issue of the Cato Journal, which collects the proceedings of last year’s Annual Monetary Conference, was released last week.  Those proceedings include a paper by Claudio Borio, head of the Bank for International Settlement’s monetary and economic department, which Alt-M readers may find particularly interesting.

According to Borio, conventional thinking on monetary policy rests on three faulty assumptions:

First, that natural interest rates are those consistent with output at potential and low, stable inflation.

This assumption is important because monetary authorities are supposed to track natural interest rates when they set policy.  Unfortunately, says Borio, the mainstream view of natural interest rates is imprecise, since we know that dangerous financial build ups can occur even when growth is strong and inflation is on target.  Crucially, such build ups—excessive credit, inflated asset prices, and too much risk-taking — may be caused by interest rates that are too low.  Could it be that “natural” rates are themselves sometimes inconsistent with financial stability?  Borio thinks not, and suggests that we need instead to define natural rates more carefully, as rates “consistent with sustainable financial and macroeconomic stability.”  In practice, such a definition would lead monetary policymakers to “lean against” booms when times are good, and also to worry more about the long-term consequences of expansionary monetary policy (which Borio suggests may sow the seeds of future crises) during busts.

Second, that monetary policy is neutral over the medium- to long-term.

By contrast, Borio believes that monetary policy may in fact have significant long-term effects on the real economy.  It is hard to argue, for example, that low interest rates are not a factor in fueling financial booms and busts, given that monetary policy generally operates through its impact on credit expansion, asset prices, and risk-taking.  And when such booms and busts lead to financial crises, the effects can be very long-lasting, if not permanent: growth rates may recover, but output might never catch up with its pre-crisis, long-term trend.  Borio points out that financial busts weaken demand, since falling asset prices and over-indebtedness often combine to wreak havoc on balance sheets.  Financial booms, meanwhile, affect supply: BIS research suggests they “undermine productivity growth as they occur” by attracting resources towards lower productivity growth sectors.  Taken together, these points have important implications: on the one hand, monetary policymakers ought to be more careful about supporting booms; on the other, apart from resisting the temptation to encourage booms, there may not be much that monetary policy can do about busts, since “agents wish to deleverage” and “easy monetary policy cannot undo the resource misallocations.”

Third, that deflation is everywhere and always a bad thing.  

Not so, says Borio (and many here at Alt-M would agree with him).  In fact, BIS research has found that there is only a weak association between deflation and output.  When you control for falling asset prices, moreover, that association disappears altogether — even in the case of the Great Depression.  The key here is to distinguish between supply-driven deflations, which Borio suggests depress prices while also boosting output, and demand-driven deflations, which tend to be bad news all around.  By failing to draw this distinction, monetary authorities have introduced an easy-money bias into their policy decisions: in the boom years, when global disinflationary forces should have led to falling consumer prices, loose monetary policy instead kept inflation “on target”; then, in the bust years, central banks eased aggressively — and persistently — to stave off the mere possibility of a demand-driven deflation.  (Or did they?)

Zimbabwe’s Hyperinflation: The Correct Number Is 89 Sextillion Percent

Most press reports about Zimbabwe’s fantastic hyperinflation are off the mark – way off the mark. Even our most trusted news sources fail to get the facts right. This confirms the “95 Percent Rule”: 95 percent of what you read in the financial press is either wrong or irrelevant.

When it comes to the reportage about hyperinflation, there are no excuses. All 56 of the world’s hyperinflations have been carefully documented in “World Hyperinflations”. This record is available in the Routledge Handbook of Major Economic Events in Economic History (2013) and has been available online since 2012 at the Cato Institute.

The International Monetary Fund (IMF) is the main culprit, a prominent source of the faulty data. EvenThe Economist magazine has fallen into the trap of uncritically accepting figures pumped out by the IMF and further propagating them. It’s no wonder that there is a massive gap between the public’s perception and economic reality. A gap that, ironically, The Economist reports on this week

The Economist’s most recent infraction on Zimbabwe’s hyperinflation appeared in the May 2016 issue. The magazine claimed that the hyperinflation peaked at an annual rate of 500 billion percent. Where did this figure originate? You guessed it. That figure is buried in the IMF’s 2009 Article IV Consultation Staff Report on Zimbabwe.

Obama’s Misguided Reversal On Social Security Expansion

In a speech this week, President Obama called for an expansion of Social Security, saying “it’s time we finally made Social Security more generous, and increased its benefits.” Obama was undoubtedly influenced  to some degree by the developments in the Democratic primary, where both Bernie Sanders and Hillary Clinton have expressed support for some form of expansion.  This represents a reversal in part for Obama. While he had always supported increasing payroll taxes on higher-earning Americans, he had also previously supported a change in the way benefits were adjusted each year that would have reduced the growth rate of benefits over a long timeframe in the interest of improving the program’s fiscal trajectory. Social Security’s long-term oultook has only gotten worse in the intervening years, but in his speech he signalled that he no longer believed “all options were on the table” to address solvency concerns  and instead supports further expansion. This reversal is misguided. If his favored reforms are implemented it will increase the economic distortions introduced by Social Security and do nothing to address its serious fiscal problems.  The more likely result is that with this retrenchment, policymakers will continue to make promises but fail to actually do anything. Younger workers will bear the brunt of the cost resulting from failures to put forward constructive reform.

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Supreme Court Should Protect Workers Against Government-Union Collusion

Imagine that you run a daycare business out of your home. Some of your clients are poor families whom your state has decided to help with daycare. The state program allows such families to choose any daycare they want and then reimburses the provider up to a certain amount. Now the state has declared that because of this program, you—and even people who provide at-home daycare for family members’ children—will be considered a state employee for the sole purpose of giving a union exclusive representation rights.

You don’t get state medical or dental insurance. You don’t get state retirement benefits. You don’t get paid vacation on national holidays. The only thing you get is a union you didn’t choose and you refuse to join that is now representing your “interests” before the state, which isn’t even your employer. Does this sound far-fetched? Yet it’s what’s happened to Kathleen D’Agostino and seven other women in Massachusetts who are asking the Supreme Court to take their case after the lower courts dismissed their lawsuit.