Medicine Eees No Cheezborger

Colleague and comrade-in-arms Sally Pipes likens federally funded research comparing medical treatments – to which the so-called “stimulus” bill would devote $1.1 billion – to federally funded research comparing cheeseburgers.

I too think the case for federally funded comparative-effectiveness research is misguided, but it’s stronger than the comparison to cheeseburgers would suggest.  Why?  Cheeseburgers are not credence goods.

Investors Bet against the Stimulus Plan and/or Tim Geithner

I rarely give investment advice unless asked.  But I’ve found that most people are unduly shy about using short sales to hedge and, yes, “speculate.”

If you were invested in, say, an S&P 500 index fund over the past two years, you were actually speculating that stocks of banks and homebuilders would go up.  Index funds are weighted by the value of shares, so financial firms in particular were much too heavily weighted (the market has fixed that).

Exchange-traded funds (ETFs) make it easy to hedge that sort of unwanted long position with shorts.  You buy them like stocks and they have similar trading symbols like SKF or TBT.   Since 2007 (but not lately), I was invested in SRS which shorts real estate, and SKF which shorts financial stocks.  Those are ultra-short funds, which means the rise about twice as fast as those stocks fall in a day (though not over time).  The gains from SKF sometimes topped 150%.

In a May 1 2008 blog, I revealed that “I am shorting oil through an exchange-traded fund (DUG), and shorting precious metals through a mutual fund (SPPIX). I’m also slightly long the dollar (UUP).”  Shorting energy stocks and going long the dollar were contrarian positions, but profitable.  Shorting precious metals (then, not now) was partly because platinum and silver have industrial uses; gold held up fairly well.

If you still hold any mutual fund or 401(k) that is invested in long-term Treasury bonds that shows admirable patriotism and courage but not much caution.

Two old friends, one at a hedge fund the other a California economist, told me they think the government will be borrowing too much, and that the Treasury and Fed are trying too hard to expand money and credit.  That sounds like an easy bet to me.  I suggested another Pro Shares Ultra Short fund called TBT.  It makes a strong, leveraged bet that the price of 30-year Treasury bonds will fall and long-term interest rates will rise.

Since the end of 2008, this bet that government borrowing will cease being so cheap has risen by 36% – from about $36 to $49.

And that happened even though the Fed has threatened to buy long-term Treasuries.

If the Obama team’s “stimulus” plans and “rescues” keep making it this lucrative to bet that long-term long-term interest rates are heading up, what sort of “stimulus” is that?

FutureGen Boondoggle

The Senate stimulus bill apparently contains $2 billion for “FutureGen.” Here is what my assistant, Harrison Moar, found out about this project:

FutureGen was launched in 2003 by President Bush as a public-private partnership to build a low-emission coal-fueled power plant and demonstrate technologies to capture carbon dioxide. The government was to share the cost of the project with 12 private energy companies. The project was originally estimated to cost $1 billion, but by 2008 the estimate had ballooned to $1.8 billion. By mid-2008, $176 million had been spent.

In 2007, the Department of Energy chose a single site for the project in Mattoon, Illinois. But after the project’s estimated cost started soaring, the department changed direction in 2008 and cancelled the Mattoon project. That was a good decision, but the government had still flushed $176 million down the drain. The department’s new idea was to focus on developing other clean coal projects in different locations at an estimated taxpayer cost of $1.3 billion.

FutureGen has involved pork barrel politics since the beginning. As the department originally considered various project sites in Illinois and Texas, the state governments in those states deployed aggressive lobbying to woo federal officials. Upon news of possible cancellation of the Mattoon project in 2008, Senator Dick Durbin of Illinois swung into action using all his tools as the second-ranking senator to continue the funding to his state. He even threatened to block appointments to the Department of Energy unless it reversed its cancellation decision.

Meanwhile, a House committee considered issuing subpoenas to the Department of Energy to get the details of the decision to change course on the project. Illinois Republicans and Democrats alike have sought to use various legislative means to continue funding for the Mattoon facility.

The FutureGen project illustrates the near impossibility of making rational economic decisions with government subsidy projects. Even if a government agency were well-managed and made decisions based on sound cost-benefit analyses, projects become incredibly politicized. Now, with the stimulus bill, it looks like the Mattoon boondoggle has another lease on life.

The Beginning of the End of Welfare Reform?

As if there were not enough reasons to oppose the Big Boondoggle, otherwise known as the stimulus bill, it appears that Democrats have slipped in a provision that would take the first steps toward undoing the 1996 welfare reform.

A provision of the bill would establish a $3 billion “emergency fund” for states to use to pay for increases in their welfare rolls. Significantly the legislative language would reward states for increasing their caseloads, regardless of whether the increase was due to increased unemployment or other economic conditions or simply because the state loosened its work requirements or time limits. It also shifts the base for states caseload reduction bonuses in a way that will discourage states from holding down the growth in welfare. And, while the grant does not eliminate welfare reform’s central concept of replacing the individual entitlement to welfare with a state block grant, it certainly weakens the foundation.

This effort to undermine welfare reform, should not be seen in isolation. As an Illinois State Senator Barack Obama was highly critical of the 1996 reform. Recent articles and editorials in the New York Times have signaled a new campaign on the Left to restore welfare to its pre-96 rules. And, of course, the stimulus bill also dramatically increases non-cash welfare benefits like Medicaid and food stamps.

I’m not sure that when the American people voted for change, they were really seeking a return to 40-years of welfare failure.

100 Years of Failed Drug Prohibition

Dale Gieringer observes that the federal government’s war on (an arbitrary list of) drugs began one hundred years ago this week.  Excerpt:

This week marks the centennial of a fateful landmark in U.S. history, the nation’s first drug prohibition law.  On February 9, 1909, Congress passed the Opium Exclusion Act, barring the importation of opium for smoking as of April 1.  Thus began a hundred-year crusade that has unleashed unprecedented crime, violence and corruption around the world —a war with no victory in sight.

Read the whole thing.

This month Cato released our latest Handbook for Policymakers.  In this volume, David Boaz and I urge Congress to bring this sad chapter of drug prohibition to an end (pdf) or at least get the federal government out of it.  Later this month, Cato’s Ted Galen Carpenter and Ethan Nadelmann of the Drug Policy Alliance, among others, will be discussing the how well drug prohibition is working in Mexico.  For more information about that event, go here.  For more Cato scholarship on the drug war in general go here.

“Redress” = Due Process

In discussions about data-intensive government programs like watchlists, people often talk about the importance of “redress” - giving the public some way to correct information or dispute adverse decisions arising from these programs.

“Redress” is a misnomer that diminishes the importance of the subject at hand. Constitutional Due Process is what’s at stake. So says the Ninth Circuit in the case of Humphries v. County of Los Angeles.