Sandefur, Science, and the State

Cato adjunct scholar Timothy Sandefur has a thoughtful post up on his blog that calls for “separating science and state.”  I recently posted on some questionable behavior by National Science Foundation employees, see here and here, but Tim’s blog gets to the heart of the matter and I highly encourage those interested in the subject to check it out.

Here are some teasers:

“It is morally reprehensible to use government’s coercive power—which, like it or not, means government’s power to imprison people, and to do other violent acts to them—to take away people’s earnings for projects that someone else considers worthwhile.”

“[A]ny time government can impose burdens on, or grant benefits to, private interest groups, those groups will use their time and effort to persuade government to do that in their favor. Legislation then gets enacted for the private benefit of political insiders, rather than for the “genuine public good.” This is just as true in science as it is in public contracting, occupational licensing, or any other endeavor. I believe it corrupts scientific integrity for investments and grants to be made on the basis of personal favoritism and political influence.”

“The question is not whether there is some hypothetically perfect way of deciding which research projects to fund and how; there is not. The question is whether there is any reason to believe that politicians are more skilled at making those decisions than are private individuals and private organizations. Given their expertise and their incentives, I see no reason to believe that government officials are more qualified to make those decisions, and good reason to believe they are less qualified.

“Closely related to the corrupting effects on the economy caused by government “investments” is the corruption of science that inevitably results from government interference…The bottom line is: when government writes the checks, it will make the rules, and those rules will interfere with scientific independence and scientific integrity.”

“Probably the most common objection to ending government subsidies for science research is that it’s necessary because private industry won’t make the investments for pure science, or is too insistent on immediate returns on investments so that private investors will not devote money to research that lacks an obvious commercial application…Terence Kealey has pointed out that scientific research is already largely funded by private industry, and that funding tends to be dramatically more efficient in making a real difference in the lives of real people…Private philanthropic organizations devote a tremendous amount of private money to scientific research, and it is good quality research. The March of Dimes, the American Heart Association, and the American Cancer Society receive boatloads of money from non-government sources. The Hughes, Keck, Rockefeller, and Carnegie Foundations have poured hundreds of millions of dollars into top-notch scientific research. David Packard of Hewlett Packard gave $4 billion to his research foundation.”

“What’s more, take a more skeptical look at some of the alleged payoffs of government-funded research. It’s true that government-run science projects have sometimes created great new innovations (as well as some pretty awful ones). But a lot of these discoveries would have been made by private research institutions, for less cost, and with less bureaucratic interference. And much of the time, these alleged benefits are wildly exaggerated.”

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.