A Small Sign of Hope on Capitol Hill?

A bipartisan bill to strengthen inspectors general (the folks who monitor fraud in various agencies and departments) has swept through Congress. It even includes a provision sponsored by Congressman Tom Davis that would require IGs to report on duplicative programs.

This bill doesn’t acutally mandate the elimination of waste, fraud, and abuse, but at least it will result in more information about ways to cut back a bloated federal budget. As the old saying goes, a journey of a thousand miles begins with a first step.

Congressional Quarterly reports (subscription required):

Democrats scored a victory Wednesday in their effort to bolster oversight of the executive branch with House passage of a bill that would give inspectors general more autonomy with the agencies they oversee. Despite a White House veto threat, the bill passed with considerable Republican support, 404-11, more than the two-thirds majority needed to override a veto.

Majority Leader Steny H. Hoyer, D-Md., speculated that Republicans were “hard-pressed to vote against an effort to prevent waste, fraud and abuse.” …Lawmakers also agreed, 274-144, to a Davis-sponsored motion to recommit the bill and amend it to require annual inspector general reports on program redundancy within federal agencies.

The idea that future administrations would be subjected to the bill’s limits was not lost on Republicans. “This is an even better bill under a Hillary Rodham Clinton presidency,” said Patrick T. McHenry, R-N.C., referring to the Democratic senator from New York.

Norway’s Banana-Republic Shipping Industry Expropriation

The Wall Street Journal correctly castigates Norway’s socialist government for applying a huge retroactive tax hike on the shipping industry. The only silver lining to this dark cloud is that some shipper will “re-flag” its vessels in jurisdictions where politicians don’t expropriate past earnings:

It’s almost unheard of, though, for a rich, enlightened nation like Norway to deliberately undermine one of its most important industries. That’s exactly what’s expected to happen tomorrow, when Norway’s left-leaning government presents its budget to parliament. Included will be a proposal to retroactively tax shipping companies to the tune of nearly €3 billion, a move that could threaten the status of Scandinavia’s maritime superpower.

Over the past seven years, as the regime took effect, maritime employment in Norway has climbed almost 20% to about 100,000 and the number of ships on order by Norwegian fleets has risen more than threefold — keeping pace with rapid international shipping growth since the turn of the century. That boom has attracted the attention of Norway’s finance minister, Kristin Halvorsen, a member of the country’s Socialist-Left Party. Under her budget plan, all profits reinvested by the industry since 1996 would be subject to a retroactive tax.

Many ship owners are considering reflagging their vessels in nearby countries, such as the U.K. and Denmark. Moving could mitigate their future liabilities, but that will be little consolation to firms that remained in Norway over the past decade and invested in their fleets, only to be betrayed by politicians.

High-Flying Bureaucrats Rip Off Taxpayers

The New York Times reports that the Government Accountability Office found pervasive abuse of premium travel by bureaucrats. Fraud was especially rampant at the Department of Agriculture, which is doubly outrageous since the Department shouldn’t even exist:

Federal employees are routinely abusing rules on business-class travel, taking trips that cost taxpayers an estimated extra $146 million annually, Congressional investigators have found. …An Agriculture Department official, for example, spent $62,000 on 10 business-class flights to Europe to attend trade negotiations. The coach fare would have been less than $9,000. …a business-class ticket costs on average five times that of a coach ticket. The investigators found very few first-class flights, which have even stricter rules. But the study found that 65 percent of the overall premium flights, $146 million worth, broke the rules or were not appropriately authorized. …The foreign affairs agency in the State Department had one of the highest shares of questionable premium-class travel, the investigators said. Cases highlighted included a family of eight that flew business class to Eastern Europe from Washington at a cost of $46,000, as part of permanent change of assignment, a trip that auditors said should have cost $12,000. The Agriculture Department at times sent large employee groups by business class, including eight officials who went to a trade conference in Geneva on flights that cost $50,000.

Lies, Damn Lies, Statistics, and a Media Happy to Abuse Them

The Wall Street Journal reports ($) today that support for free trade is fading among Americans who are likely to vote Republican.  Perhaps that’s true.  It certainly wouldn’t be surprising given the way most Americans are misled by their political representatives and the mainstream media about how to measure trade’s impact on the economy.

But something really smells about today’s lead article in the WSJ.  The WSJ/NBC News poll upon which the article is based simply doesn’t support the author’s conclusions.  In fact, the article is misleading in ways I find inexcusable for a newspaper of that caliber.   If you weren’t already, you should be highly skeptical of polling results (at least as reported second hand).

The third paragraph in the article reads: “Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports.”  Next to that paragraph is a graphic box with a bar chart showing responses to the question: “Is foreign trade good or bad for the U.S. economy?”  The “Good” bar showed 32%; the “Bad” bar showed 59%.

Here’s the first problem.  That question (“Is foreign trade good or bad for the U.S. economy?”) was not asked in the poll.  The second problem: no questions were asked about whether the respondents would agree with a Republican candidate who favors tougher regulations to limit foreign imports.  But that didn’t stop the author from reporting that phantom result in paragraph three.

Here is a link to the subject WSJ/NBC poll.  Question 10 is the only question about trade, which gives two statements and asks the respondent to reveal which statement comes closer to his/her point of view.

Statement A: “Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.” (32% of Republicans agree)

Statement B: “Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced U.S. demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.” (59% of Republicans agree)

From these results, John Harwood concludes that “six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports.”

But as you can see, there is a clear bias in the manner of phrasing the questions.  You’re not agreeing that foreign trade is good or bad, but that it’s good or bad because… And respondents are more likely to be familiar with one of the offered consequences of trade.  Certainly, the issue of “potentially unsafe products” is fresh on our minds, thus respondents are basically escorted to that answer.

What bugs me most about this is that the competing statements: foreign trade has been good for the U.S. economy vs. foreign trade has been bad for the U.S. economy would have been perfectly objective phraseology.  Why introduce subjective perspectives?

That a professional polling agency would introduce such obvious bias into its polls and a major newspaper would ignore the obvious problems with the results is troubling.  For all we know, Ron Paul and Mike Gravel are the leading candidates for their respective parties’ nominations.

CORRECTION: The poll did ask about a Republican candidate who favored tougher regulation. See here.

Clinton’s $5,000 Baby Giveaway

In a speech last week, Senator Hillary Clinton proposed giving $5,000 (of your money) to every baby born in America in the form of a government-controlled savings account. In a speech last year, Clinton proposed a $500 baby savings account, so the cost is rising as we get closer to the election.

Clinton’s comments had roots in ideas proposed by both conservative and liberal think tanks and politicians. That’s not surprising, because both liberals and conservatives inside the beltway specialize in top-down government planning schemes. The liberal New America Foundation has a plan for a $6,000 baby giveaway. Conservative plans are discussed here.

Here are seven problems I see with baby giveaway plans:

1) Cost. Clinton’s plan would cost about $20 billion annually, but would be higher if added private savings were matched by further government subsidies. The money would come from higher taxes, causing damage to the private economy on the order of $2 for every $1 extracted (as Martin Feldstein estimated).   

2) Lobbying for Expansion. Suppose Clinton’s plan passed and would begin January 1, 2010. Do you think that parents of kids born in 2009 or 2008 would be happy that their neighbors were getting $5,000 giveaways and they weren’t? I don’t think so. I think lobby groups would quickly get Congress to expand the benefits to tens of millions of existing kids.

3) Cookie Jar Problem. Clinton suggested that when kids turned 18, they could use the money for college, buying a home, starting a business, or saving for retirement. But don’t you think that a $5,000 per-child cookie jar would be tempting for families to raid early? Interest groups would help them by lobbying to expand the accounts to cover: baby formula expenses, kids’ health costs, children’s clothes, kid’s school and tutoring costs, family emergencies, and so on. 

4)  Bureaucracy. All these exceptions would require hundreds of pages of regulations and a huge bureaucracy to administer. And we would also need a huge enforcement bureaucracy because with the government handing out $5,000 to anyone who mailed in a birth certificate, the temptation for fraud would be large.

5) Not savings. Giving people $5,000 is not savings. Savings involves individuals sacrificing current consumption for greater future security and income. There is no sacrifice here except by the taxpayers who have their own income and savings swiped by the government in higher taxes. 

6) Increased Consumption. Proponents of these savings plans claim that giving people money in freebie savings accounts will encourage them to save more on their own. Maybe. But the opposite would also occur. Parents would increase their own consumption rather than saving for their kids’ college costs because they would be counting on the government account. And kids reaching 18 would increase their own consumption because the government has their home downpayment covered. Savings is about frugality, but these accounts would encourage the opposite.

7) Generational Issues. The current Social Security and Medicare systems create a huge and involuntary transfer from young people to old people. Senator Clinton does not favor cutting these programs, while her new baby proposal would create a new program to take from older people (who are paying taxes) to give to young people. Clinton thus favors different programs that work exactly against each other.

Rather than having multiple government transfer programs working at cross-purposes, politicians might try simply cutting benefits and scaling down the fiscal war of all against all.

To boost savings, we should eliminate current government tax hurdles through universal, all-purpose, tax-free savings accounts

While money to fund baby accounts doesn’t grow on trees, crackpot schemes do in the fertile ground of federal election campaigns.

Advantage: Friedman!

The San Diego Union-Tribune’s Chris Reed got a chance to chat with Drug Czar John Walters recently.   Reed asked Walters about “Milton Friedman’s critique of the drug war, noting the evidence that the drug war – by making popular intoxicants illegal and available only on a highly lucrative black market – was responsible for lots of crimes beyond buying and selling, and that it had led to police corruption, among many other unintended consequences….”  Walters replied that Friedman’s critique was “untrue – demonstrably untrue.”  On the Union-Tribune’s weblog, you can get the details on Walters’ answer and whether he demonstrated that Friedman was wrong.  Reed, for one, found himself utterly underwhelmed by Walters’ logic.

For some of Cato’s work on the drug war, go here.  

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Which Part of “Not Green Box” Does the USDA Not Understand?

After a long wait, the United States finally notified the other members of the World Trade Organization of its spending on agricultural programs today. Although timely notification is supposedly a key requirement (and benefit) of the WTO, the U.S. had left members in the dark as to the true nature and extent of its farm subsidies since 2004, and that notification covered only the years up to 2001.

Today’s notification asserts that U.S. spending on so-called “Amber-box” domestic support (that which is linked to production and/or prices of agricultural commodities, and thus is the most market-distorting) was well below its limit of $19.1 billion in every year between 2002-2005 (the period covered by the latest notification). However, sources tell me that the administration admitted in a telephone press conference today that direct payments were classified as “green box” (spending which is at most minimally trade-distorting and therefore not subject to reduction commitments) in their calculations, in direct contravention of a 2005 WTO Appellate Body ruling on U.S. Cotton programs, which stated (at para. 342) “[P]roduction flexibility contract payments and direct payments … are not green box measures exempt from the reduction commitments by virtue of Annex 2 of the Agreement on Agriculture.” (my emphasis)

Seems pretty clear to me.

In other words, if direct payments are properly classified as amber box measures, the United States’ spending might look very different, and may not be below the legal ceiling after all, especially in years 2004 and 2005 (see more here). Members of Congress currently writing a new farm bill might want to keep the threat of WTO litigation (including pending challenges by Canada and Brazil) in mind.