California Outliers

Today’s Washington Post story by Darryl Fears on California drought frequency in a warming world compelled me to take a look at the Golden State’s temperature history. In my 2011 book Climate Coup,  I showed that the alarm over California warming was rather odd, as most of the changes had taken place thirty years previously. 

That was then, and this is now. But what about history?

Long Range Bomber’s Big Bill

Over the next several months the Pentagon will award the contract for the Long Range Strike Bomber. If the Department of Defense’s history repeats itself, cost overruns on the project seem likely.

According to 2010 estimates each new plane is officially expected to cost $550 million. More recent estimates are higher. A 2014 report from the Congressional Research Service included estimates of up to $810 million per bomber. The Air Force is expected to buy 100 planes, which would cost a total of $55 billion even if the low official estimate per plane panned out.

One reason for the projected overruns is that there are only a few suppliers of military aircrafts to the Department of Defense (DoD), and so companies take advantage. The Washington Post describes the situation:

‘Given the steep barriers to entry, it is not surprising that no one has disrupted the combat aircraft market,’ [Todd] Harrison [Director of Defense Budget Studies at the Center for Strategic and Budgetary Assessments] said. Unlike the space launch industry, which also flies commercial satellites, the market for combat aircraft is dominated by a single customer: the U.S. government.

The technical challenges are great, the costs high, the industry highly regulated. And barriers to exit are low: Lose one major contract and you could be out of an industry forever. All of which is why many companies have left the business but “nobody has entered the business of building aircraft since 1969 to any meaningful degree,” said Richard Aboulafia, an aerospace analyst with the Teal Group.

And so while Silicon Valley innovation and verve upends industry after industry, the companies vying for the bomber contract are the same stalwarts that have dominated military aviation for decades.

Bottom 90% Pretax Pretransfer Income is no Proxy for Median After-Tax Income

bottom 90 percent vs CBO median

This graph illustrates a few points made in my recent Wall Street Journal article.  First of all, the Piketty & Saez mean average of bottom 90% incomes per tax unit is not a credible proxy for median household income, particularly since the big reductions in middle-class taxes from 1981 to 2003.

Second, the red bars claiming bottom 90% incomes in the past six years have been no higher than they were in 1980 (Sen. Warren) or even 1968 (see the graph) is literally unbelievable.  If that were true then all other income statistics – including GDP – would have to be completely false.  

If You Want Good Fiscal Policy, Forget the Balanced Budget Amendment and Pursue Spending Caps

Back in 2012, I shared some superb analysis from Investor’s Business Daily showing that the United States never would have suffered $1 trillion-plus deficits during Obama’s first term if lawmakers had simply exercised a modest bit of spending restraint beginning back in 1998.

And the IBD research didn’t assume anything onerous. Indeed, the author specifically showed what would have happened if spending grew by an average of 3.3 percent, equal to the combined growth of inflation plus population.

Remarkably, we would now have a budget surplus of about $300 billion if that level of spending restraint continued to the current fiscal year.

This is a great argument for some sort of spending cap, such as the Swiss Debt Brake or Colorado’s Taxpayer Bill of Rights.

But let’s look beyond the headlines to understand precisely why a spending cap is so valuable.

U.S. Aid Empowering Organized Crime in Mexico

Two weeks ago I had an article in The National Interest where I made the case against the Obama administration’s proposal to deliver hundreds of millions of dollars in aid to Central American governments to help them fight organized crime, promote security and foster economic development. In my piece, I wrote that “…giving $1 billion to governments with dubious records on transparency and human rights will empower corrupt officials to the detriment of ordinary Central Americans.”

Last week, Jesse Franzblau had a revealing exposé in The Nation that proves how counterproductive this sort of aid can be. In his article, Franzblau publishes unclassified documents that show how U.S. authorities continued to deliver millions of dollars in aid to Mexican security agencies despite knowing that those same forces were infiltrated by drug cartels. This money came under the auspices of the Plan Mérida, a $2.6 billion program aimed at helping Mexico fight drug cartels. In some instances, the documents seem to show efforts by U.S. officials to cover up or downplay serious human rights abuses committed by Mexican security forces so it wouldn’t affect the continuity of Plan Mérida.

As Franzblau points out:

While US laws explicitly prohibit the delivery of aid to foreign individuals and units implicated in systematic human rights violations, internal reporting on the implementation of Mérida programs reveals that institutional connections to organized crime are consistently overlooked, ignored or kept hidden from public scrutiny as counter-drug money continues to flow.

This is serious stuff. Instead of helping the fight against drug cartels, U.S. aid might be empowering them. As I mentioned in my article, there is well-documented evidence about how the security agencies and judicial systems of Central American countries have been infiltrated by powerful criminal organizations, from drug cartels to youth gangs.

Franzblau’s article also shows a well-documented phenomenon regarding aid: once it starts flowing, the bureaucracy in charge of delivering it has an incentive to disregard the evidence of whether it is accomplishing its goals or being counterproductive since discontinuing the aid would compromise the bureaucracy’s own existence. In this particular case, Franzblau mentions that “US officials were well aware of the effect that reports of abuse could have on Mérida assistance.”

There is no reason to believe that the Obama administration’s massive aid plan for Central American governments won’t suffer from the same flaws that Jesse Franzblau exposes in his article.

17 Errors & Omissions in Vox’s Otherwise Excellent History of King v. Burwell

This week, the Supreme Court will hear oral arguments in King v. Burwell, one of four legal challenges to an IRS regulation that purports to implement the Patient Protection and Affordable Care Act, but in fact vastly expands the IRS’s powers beyond the limits imposed by the Act. Just in time for oral arguments before the Court, Vox’s Sarah Kliff has produced what I think may be the best history of King v. Burwell and related cases I’ve seen. Still, there are a few important errors and omissions, listed here in rough order of importance.

After Eight Years of Losses, End the Government’s Postal Monopoly

The United States Postal Service lost $5.5 billion last year. That is the eighth annual loss in a row and the third highest ever. The only good news is that it remains below the red ink tsunami of $15.9 billion in 2012.

Why does the federal government deliver the mail? Why does it have a monopoly over delivering the mail?

The Postal Service one of the few government programs with actual constitutional warrant. Alas, America’s revolutionaries turned the system into a fount of federal patronage.  Local postmasters became perhaps the president’s most important appointments. The Postmaster General was a member of the Cabinet from 1829 to 1971.

With politics rather than service the PO’s priority, Congress took the next step and approved the Private Express Statutes, preventing anyone from competing with the government in delivering first class mail.   

That left the system ill-equipped to adapt to changing circumstances. In 1971 Congress turned the Post Office into the semi-independent USPS but retained its control over postal policies and, of course, preserved the system’s delivery monopoly.

Banning competition could not preserve the postal market.  The number of pieces of mail peaked in 2001 and continues to fall despite a rising population. USPS’s last profitable year was 2006.

With characteristic understatement, observed the Government Accountability Office:  “Given its financial problems and outlook, USPS cannot support its current level of service and operations.”

The postal unions insist that nothing is wrong—at least, nothing which a federal bail-out wouldn’t solve.  They reserve particular ire for the requirement that USPS prefund workers’ retirement.

But prefunding protects taxpayers. Washington’s unfunded (government) retirement liability is about $800 billion, growing every year.  Only USPS must prefund, which is unfair to taxpayers, not the postal service. 

There’s no other obvious way for USPS to become solvent.  Over the last half century the postal authorities raised rates 50 percent faster than the rate of inflation.  Pushing hikes even faster in the future would encourage more people to use alternatives. 

USPS has reduced costs through facility closures and staff reductions despite strong opposition.  Cuts in compensation, retirement benefits, and workforce levels and improvements in productivity also are obvious responses, but must overcome union opposition. 

Proposals for reducing services abound.  All of these anger consumers, encouraging them to go elsewhere—including to Federal Express and UPS, which offer better options for packages.  Irritated workers and customers also complain to Congress, creating political roadblocks for USPS.

Instead of attempting to save an unnecessary political monopoly, Congress should look abroad where numerous countries, some pushed by the European Union, have introduced competition and innovation into their postal markets. 

The Organization for Economic Co-operation and Development reported that such reforms had yielded “quality of service improvements, increases in profitability, increases in employment and real reductions in prices.”  Only in the supposed laissez faire paradise of America—where a union-led “Grand Alliance to Save Our Public Postal Service” just formed to ensure that whatever has been will forever be—do such ideas seem radical. 

Yet even President Barack Obama admitted a few years back that “it’s the post office that’s always having problems.”  In contrast, “UPS and FedEx are doing just fine.” 

Better management and less politics would help.  In fact, revenue was up a bit last year, despite the bigger loss.  But over the long-term USPS cannot escape from a seeming death spiral of bigger losses, higher rates, poorer services, fewer customers, bigger losses, and so on.

As I contend in the Freeman:  “Uncle Sam should ease out of the postal business.  Privatize USPS and drop the federal first class monopoly.  No one can say for sure what would happen.  But history suggests that innovative entrepreneurs would be more likely to find a cost-effective solution than will today’s mix of politicians and bureaucrats.”