Department of Energy Boondoggles

The Wall Street Journal recently looked at the trouble the Department of Energy will have efficiently spending all the extra cash allocated to it under the stimulus bill. The article noted: “The Energy Department has had limited experience pulling off big, transformative energy projects.”

Actually, the department has undertaken big projects many times, but the Journal is correct that it sure as heck hasn’t pulled them off. Indeed, the history of big federal energy projects is one of boondoggle, boondoggle, boondoggle.

Unless President Obama has a magic formula that fundamentally changes the nature of government management, Americans can expect a horribly wasteful energy spending spree in coming years.

New Podcast: “Stimulus: The Welfare Un-Reform”

When President Obama signed his massive spending bill into law yesterday, many of the provisions of the 1990s welfare reform were chipped away, says Cato Senior Fellow Michael D. Tanner in today’s Cato Daily Podcast. Parts of the new law actually offer states incentives to add people to their welfare rolls, Tanner says.

They didn’t repealed the ’96 act, but what they have done is chip away at the foundations and the very idea that you’re supposed to hold down your rolls rather than increase them, particularly when you take this into the context of all the other welfare spending….There really is a surprising increase in the welfare state in this bill.

In a New York Post op-ed, Tanner expands on the welfare-friendly provisions of the stimulus plan:

This is radical change. States that succeed in getting people off welfare would lose the opportunity for increased federal funding. And states that make it easier to stay on welfare (by, say, raising the time limit from two years to five) would get rewarded with more taxpayer cash. The bill would even let states with rising welfare rolls still collect their “case-load reduction” bonuses.

In short, the measure will erode all the barriers to long-term welfare dependency that were at the heart of the 1996 reform.

When Will Ford Defend its Interests?

Earlier this week, the Congress and President Obama authorized a $787 billion borrow-and-spend plan to create “or preserve” 3.5 million American jobs. So, could there be a better time than now for GM and Chrysler to announce they will need billions more taxpayer dollars to avoid having to let go hundreds of thousand of workers? How likely is Washington to cut off the auto producers at this particular juncture?

It shouldn’t come as a surprise that GM and Chrysler are asking for a lot more money because, well, the warnings were issued. In fact, Bush’s decision to defy Congress and provide “loans” to GM ($9.4 billion) and Chrysler ($4 billion) back in December wasn’t even intended as a cure all. It was designed to buy time for the producers to come up with detailed viability plans for their next bite at the apple. And as expected, central to both viability plans, which were unveiled yesterday, is more taxpayer money.  At the moment, a combined $22 billion is being requested, which would bring the total doled out to just under $40 billion.

Just as stunning as the implied blackmail (give us money or we’ll give you idled workers) being perpetrated by GM and Chrysler is the continued silence of Ford. There is probably no company in America that stands to lose more from taxpayer subsidization of GM and Chrysler. (The foreign nameplate producers in the United States are also penalized by subsidies to GM and Chrysler, but in the current environment it is probably wiser for them to bite their tongues. And Ford is more of a direct competitor with the other Detroit producers than are the foreign nameplates, anyway.)

If GM and Chrysler were no longer producing, Ford would be able to pick up market share and productive assets from the others, and ultimately improve its own long term prospects. By keeping GM and Chrysler afloat with subsidies, the government is implicitly taxing Ford. Ford is facing unfair, government-subsidized competition, of the sort alleged against foreign producers all the time. But in this case, the subsidies are real, direct, quantifiable, and large. Ford is relatively healthy now, but continued subsidization of the others could well drive Ford to the trough, too.

When companies are losing billions per month with sales revenues continuing to shrink, it doesn’t require a finance degree to discern an imminent cash flow crisis. Even if the demand environment were picking up, these companies would still be losing money because their cost structures are impossibly inefficient. GM and Chrysler have nibbled around the edges to cut costs. Brands are being sold off or scrapped. Factories are being closed. Dealership arrangements are being terminated. But none of those changes addresses the big issues, particularly for GM: an unmanageable capital structure (its debt burden is too heavy), unmanageable legacy costs (paying for lavish promises made in the past), and uncompetitive operating costs (including still much higher than industry-average compensation).

Reorganization or liquidation under one of the bankruptcy chapters will condense the timetable for resolving this problem, will save taxpayer money, and very importantly, will speed the return to stability in the automobile market worldwide. It’s time for Ford to speak out on behalf of this solution too.

Can We Have Secure, Long-Term Health Insurance with Less Regulation? Yes, We Can.

In a paper released today by the Cato Institute, University of Chicago finance professor John Cochrane argues that yes we can have secure, long-term protection against the costs of expensive illnesses and give consumers complete freedom to choose any health plan they wish.

Cochrane’s paper, “Health-Status Insurance: How Markets Can Provide Health Security,” builds on his classic 1995 Journal of Political Economy article, which remains among the most innovative in health policy.  Here’s the executive summary:

None of us has health insurance, really. If you develop a long-term condition such as heart disease or cancer, and if you then lose your job or are divorced, you can lose your health insurance. You now have a preexisting condition, and insurance will be enormously expensive—if it’s available at all.

Free markets can solve this problem, and provide life-long, portable health security, while enhancing consumer choice and competition. “Heath-status insurance” is the key. If you are diagnosed with a long-term, expensive condition, a health-status insurance policy will give you the resources to pay higher medical insurance premiums. Health-status insurance covers the risk of premium reclassification, just as medical insurance covers the risk of medical expenses.

With health-status insurance, you can always obtain medical insurance, no matter how sick you get, with no change in out-of-pocket costs. With health-status insurance, medical insurers would be allowed to charge sick people more than healthy people, and to compete intensely for all customers. People would have complete freedom to change jobs, move, or change medical insurers. Rigorous competition would allow us to obtain better medical care at lower cost.

Most regulations and policy proposals aimed at improving long-term insurance —including those advanced in Barack Obama’s presidential campaign — limit competition and consumer choice by banning risk-based premiums, forcing insurers to take all comers, strengthening employer-based or other forced pooling mechanisms, or introducing national health insurance.

The individual health insurance market is already moving in the direction of health-status insurance. To let health-status insurance emerge fully, we must remove the legal and regulatory pressure to provide employer-based group insurance over individual insurance and remove regulations limiting risk-based pricing and competition among health insurers.

Read the complete paper here.  Cochrane is the Myron S. Scholes Professor of Finance at the University of Chicago Booth School of Business and a Research Associate at the National Bureau of Economic Research.  (You can see him commenting on the stimulus package in this Cato video.)

Stimulus Lobbying Watch

Tim Carney has more details on some companies that hired lobbyists specifically to get a piece of the kitchen-sink spending bill:

For example, the National Association of Home Builders hired Baker & Hostetler a week after Barack Obama’s inauguration to lobby explicitly on the stimulus bill, which, in the end, included an $8,000 credit for home purchases.

Better Place Inc. is an electric car company that hired its first lobbyist — Steve McBee, a former staffer for House appropriator Norm Dicks, D-Wash. — to push for electric car incentives in the stimulus. The resulting cornucopia included an expanded tax credit for plug-in cars, $2 billion in funding for electric car batteries and $400 million to build an electric car infrastructure, complete with recharging stations.

Media giant Time Warner added to its lobbying army, hiring the firm Parven Pomper Strategies to lobby for broadband subsidies in the bill. These subsidies included $2.5 billion to underwrite loans to get broadband out to rural areas and an additional $4.7 billion in spending on other broadband projects. Similarly, network giant Cisco Systems lobbied for the broadband subsidies in H.R. 1.

Carney calls it “The Lobbyist Enrichment Act.” I wrote about “Obama’s K Street Recovery Plan” a couple of days ago.

New Cato Study: How Markets Can Provide Health Security

None of us has health insurance, really.

If you develop a long-term condition such as heart disease or cancer, and if you then lose your job or are divorced, you can lose your health insurance.

You now have a preexisting condition, and insurance will be enormously expensive – if it’s available at all. In a new study, “Health-Status Insurance: How Markets Can Provide Health Security,” author John H. Cochrane argues that free markets can solve this problem, and provide life-long, portable health security, while enhancing consumer choice and competition.

The TSA Strip-Search Machines

USA Today reports that the Transportation Security Agency is replacing metal detectors in some airports with body scanners (sometimes known as “strip-search machines”).

This doesn’t sit right with many people.

The TSA has done a questionable job so far of informing the public about what the machines do and - most importantly - of the fact that they’re optional.

Back in October, St. Petersburg Times columnist Robyn Blumner wrote about her experience.

As I stepped out of the virtual strip-search machine I immediately felt a shock wave of humiliation and intrusion, particularly as I looked around the security area and realized I was the only female traveler around and the only person “randomly” selected. The TSA agent hadn’t bothered to explain that I had the right to decline and submit to a pat-down by a female agent instead — a choice I would have taken.

A friend wrote me the other day to tell of her recent experience:

For the past year I’ve been reading stories about new machines being tested by TSA at airports which x-ray or wave scan passengers in order to detect explosives or other items hidden under one’s clothing. I’ve been horrified by these stories and the accompanying sample pictures which show a pretty detailed picture of the person’s body parts. I think the use of this technology is a gross violation of the right to privacy, particularly when used randomly on passengers for no probable cause or even reasonable suspicion of any wrong doing.
… .

This past Sunday in Miami, … after going through the normal metal detector, a TSA agent had me enter a machine which looked similar to the puffer machines (explosive trace portals) from the outside. He told me to put my feet on two premarked spots. The door closed, and an internal panel of the machine rotated part of the way around my body. Then the machine opened, and he had me turn, put my feet on different preprinted places, the door then shut, and the panel rotated around my body again. All the while I had to keep my arms raised.

My hunch and a subsequent internet search confirmed that TSA is using millimeter wave body-imaging technology at the Miami International Airport. I saw a picture of the machine I was lead through. However I also read on the TSA website that use of this technology is supposed to be VOLUNTARY. Several places on the TSA website describe it as an alternative OPTION available for passengers.

… .

At no point did the TSA agent tell me what the machine was doing. I was not told of any other options available to me such as a pat down or wand. There were no signs informing passengers that they were being x-rayed/wave scanned for viewing of them naked at a remote location.

I never would have willingly entered that machine had I known in advance what it was. In my opinion, this technology should not be used at all, but if it is, TSA needs to do a better job on site of disclosing its actions and the capabilities of its equipment. TSA also should make advising passengers of their rights a high priority.

I’ve corresponded with Peter Pietra, the TSA’s Privacy Officer, and he disputes the absence of signs at the Miami airport. I think he’s done a creditable job of trying to build privacy protections into this system. You can find information on the millimeter wave strip-search technology here and here.

But maybe it’s not enough. We’re talking about trying to maintain privacy with a technology that’s fundamentally intrusive.

Back to Robyn Blumner:

Here is the inevitable: You give people with routine jobs the ability to rummage around in other people’s intimate lives — innocent people who are not suspected of anything — and bad stuff happens. Privacy goes out the window, boys will be boys, the rules, law and even the Constitution don’t stand a chance. Titillation trumps training, at least for some.

Why must we fight about this? Because we transferred so much more responsibility for airline security to the government in a knee-jerk reaction to the 9/11 attacks. This was a bad idea, for reasons I discussed at length in a March 2005 debate about airline security with Reason’s Bob Poole.

Instead of this lumpy, government-provided airline security, I said, “Airlines should be given clear responsibility for their own security and clear liability should they fail. Under these conditions, airlines would provide security, along with the best mix of privacy, savings, and convenience, in the best possible way.”

TSA is not balancing all these interests well. Government agencies are terrible at responding to consumers compared to businesses, whose bottom lines rely on it. As I said in the Reason piece, the fix to this problem is to rethink aviation security from the ground up. The TSA should be eliminated.