Surprise! Subsidized Projects Not Viable

Sometimes I complain that the media give us a distorted picture of the world by reporting bad news and ignoring the sea of good news, like the drop in heart disease deaths that I celebrated here. I understand why bad news is news and good news isn’t, but I do worry that we get a misleading picture of the world.

But then other times, perhaps contradictorily, I open the newspaper and see a story that seems so obvious that I almost wonder why it’s reported. Like this one in the Washington Post today:

Several projects subsidized by Maryland’s economic development agency are in financial trouble, legislative auditors reported yesterday, citing, in particular, a resort in Western Maryland and a golf course in Calvert County.

Rocky Gap Lodge & Golf Resort, the state-subsidized retreat built for $45 million a decade ago to revive an economically depressed area, has operated in the red for years and is $27 million in debt, the auditors said.

Chesapeake Hills, a golf course that the Maryland Economic Development Corp. took over from Calvert County five years ago, is running a $1.3 million deficit and cannot pay its operating costs without help from the county, the auditors said.

Whattaya know? Projects that weren’t financially viable without a subsidy from the taxpayers turn out to be … not financially viable, even with the subsidy. If there just wasn’t much market demand for a resort in an economically depressed area or a golf course in Calvert County, then it’s no surprise that the projects can’t even make their operating expenses. And of course, projects that are owned, managed, or subsidized by government tend not to be run as efficiently as projects in which individuals and businesses are risking their own money.

We’ve seen a bigger example of this recently in the subprime mortgage market, of course. People who borrowed money they really couldn’t afford discover that they can’t pay it back. That’s why it’s probably best to let the market work in deciding which mortgages, business start-ups, and other projects are financially sound.

Friday Legal Roundup

Here’s a Friday Legal Roundup:

  • North Carolina prosecutor Michael Nifong goes to jail for his misconduct in bringing reckless charges against Duke athletes. Cato will be hosting a book forum on the case next Tuesday. Previous coverage here and here
  • A federal judge has ruled that ”National Security Letters” are unconstitutional.  Cato said so here.
  • The Federalist Society has an on-line discussion on the landmark Second Amendment lawsuit involving Cato’s Tom Palmer and Bob Levy here. To learn more, go here and here.
  • President Bush is expected to announce his choice for the position of Attorney General. The Legal Times invited several D.C. lawyers, including myself, to offer advice to the next AG.  Go here for my list of Dos and Don’ts. If the Legal Times had not imposed word limits on my article, I could have said a lot more.

“Why Are You Trying to Give Away the President’s Power?”

Jack “I’m Not a Civil Libertarian” Goldsmith has more on the thirst for power inside the executive branch in excerpts from the book in Slate today.

[Counsel to Vice President Cheney David] Addington once expressed his general attitude toward accommodation when he said, “We’re going to push and push and push until some larger force makes us stop.” He and, I presumed, his boss viewed power as the absence of constraint. These men believed that the president would be best equipped to identify and defeat the uncertain, shifting, and lethal new enemy by eliminating all hurdles to the exercise of his power. They had no sense of trading constraint for power. It seemed never to occur to them that it might be possible to increase the president’s strength and effectiveness by accepting small limits on his prerogatives in order to secure more significant support from Congress, the courts, or allies. They believed cooperation and compromise signaled weakness and emboldened the enemies of America and the executive branch. When it came to terrorism, they viewed every encounter outside the innermost core of most trusted advisers as a zero-sum game that if they didn’t win they would necessarily lose.

More here.

Cato Brief in NYT

One of the big cases the Supreme Court will be hearing in its upcoming term concerns the constitutionality of the Military Commissions Act.  That law sought to revoke the jurisdiction of federal courts over habeas corpus lawsuits arising out of the Guantanamo Bay prison facility.  The case will not be heard by the High Court until November, but the New York Times had an article about it over the weekend quoting from the Cato brief (pdf) that I prepared.  I argue that Congress overstepped its authority by trying to withdraw the jurisdiction of federal courts over habeas corpus claims. 

More background about the case in this NYT article (reg r’d).  For more about the constitutional record of the Bush administration, read this.

Suspicious Standards

The primary belief underlying the No Child Left Behind Act – and much state-driven education reform – is that if governments set academic standards and then test students’ mastery of them, policymakers, parents, and the public will have the information they need to see how schools are doing and act on it. As Andrew Coulson and I explain in a new report on NCLB, however, that’s not how the belief has worked out in practice. Instead, most states have set low standards or used trickery to identify kids as “proficient” in math and reading when they’re really no such thing.

A report in the New York Daily News offers an interesting insight into one way by which such standards sliding can and has occurred, maybe intentionally, maybe not:

When test scores rise, politicians crow that schools are getting better, but a Daily News analysis of recent standardized math exams and a News experiment suggest another reason: The questions might be getting easier.

The News obtained technical details on high-stakes math tests given to fourth-graders across the state over the past six years and found that in every year when scores went up, testmakers had identified the questions as easier during pretest trials.

In years when scores were lower, pretest trials showed the questions were harder.

“That’s pretty strong evidence that something is just not right with the test,” said New York University Prof. Robert Tobias, who ran the Board of Education’s testing department for 13 years.

“If this were a single year’s data or two years’ data, I would say it would be inappropriate to make conclusions,” Tobias said. “But with the pattern over time …that’s prima facie evidence that something’s not right.”

Pretty Bad News in Higher Ed

First, the good news: Yesterday, a congressional conference committee passed legislation that would cut subsidies to lenders participating in federal student loan programs. Terrific! Lenders – especially Sallie Mae, the federally spawned queen of student loans – deserve no taxpayer-furnished profit, and this bill would get us a little closer to that ideal.

Unfortunately, the good news ends there. Only a measly $750 million out of about $22 billion in subsidy cuts would go to the taxpayers who have been forced to enrich lenders for decades – and that will be in the always-questionable from of “deficit reduction” – and the rest will be transferred to the other group on whom taxpayers have long been forced to lavish money through federal aid: students. The bill would cut interest rates on subsidized federal loans, for instance, from 6.8 percent to a minute 3.4 percent over four years; boost Pell Grants from the current maximum of $4,310 to at least $5,400 by 2012; and forgive loans after ten years of making payments for people in “public service” jobs ranging from firemen to prosecutors. And, in the end, the big lenders like Sallie Mae will probably be just fine, because the bill would institute an auction system in which lenders would bid for control over federal loans, giving the big guys huge advantages over little banks and lenders.

Student advocates are, of course, pleased as punch with all this, especially over at the New America Foundation, where for months they’ve been leading the charge against private lenders and for this auction scheme. Ironically, they partly hailed the compromise on the grounds that the auction would use “market forces to set student loan subsidy rates.” This, of course, begs the question: How can you love an auction because it supposedly uses market forces, while simultaneously supporting the gargantuan market distortion that is the overall federal student aid system? Unfortunately, the only possible answers seem to be that (a) you are a politician intent on bribing the college-going population and their parents to vote for you, (b) you are confused about how a real market works, (c) you work in academia and know that the more the government shells out, the better your life will be, or (d) all of the above.

Unfortunately, this legislation seems likely to be signed by president, and if it is, you can ultimately chalk it up to (d) being the answer in Washington.

Arguing Over the Emperor’s New Clothes

According to Alexander Russo at the Ed Week blog, Representative George Miller, chairman of the House education committee, has been going at it with Ed. Sec. Margaret Spellings over his proposed revisions to the No Child Left Behind act. Miller is quoted as saying that Spellings’ criticism that his revisions would “muck up accountability” are ”hokum.” This is very much like two members of the imperial court arguing over whether “the emperor’s new clothes” are fab or fugly. In order for NCLB to be “muck-uppable” it would have to be doing something useful to begin with. It isn’t. As Neal McCluskey and I document in our new study released today, NCLB has failed to fulfill its goals.