Education, Standards, and Private Certification

Can there be standards in education without the government imposing them?

Too many education policy wonks, including some with a pro-market bent, take it for granted that standards emanate solely from the government. But that does not have to be the case. Indeed, the lack of a government-imposed standard leaves space for competing standards. As a result of market incentives, these standards are likely to be higher, more diverse, more comprehensive, and more responsive to change than the top-down, one-size-fits-all standards that governments tend to impose. I explain why this is so at Education Next today in What Education Reformers Can Learn from Kosher Certification.” 

Hungary’s Slide Towards Authoritarianism

Yesterday’s general election in Hungary has given Viktor Orbán’s party, Fidesz, a very comfortable majority in the Hungarian Parliament, while strengthening the openly racist Jobbik party, which earned over 21 percent of the popular vote. Neither of this is good news for Hungarians or for Central Europe as a whole.

In the 1990s, Hungary was among the most successful of transitional economies of Central and Eastern Europe. With a significant exposure to markets in the final years of the Cold War and a political establishment committed to reforms, it was often singled out as an example of how a successful, sustained transition towards market and democracy should look like.

In 2014, the situation could not be more different. Hungary’s economic policies have become increasingly populist and haphazard, as the government has confiscated the assets of private pension funds, undermined the independence of the central bank, and botched the consolidation of the country’s public finances (p. 77). Worse yet, Hungary has seen a growth of nationalist and anti-Semitic sentiments which have not been adequately countered by the country’s political elites. In a recent column, I wrote about Mr. Orbán’s personal responsibility for the disconcerting political and economic developments in Hungary:

Mr. Orbán’s catering to petty nationalism often borders on selective amnesia about certain parts of Hungarian history. Recently the Federation of Hungarian Jewish Communities, the Mazsihisz, announced it would not take part in the Orbán government’s Holocaust commemorations. According to the Mazsihisz, the framing of the ceremonies whitewashes the role that the Hungarian government played and focuses exclusively on the crimes perpetrated by the Germans—despite the fact that Hungary adopted its first anti-Jewish laws as early as 1938.

Mr. Orbán’s tone-deafness when it comes to historical symbols goes hand in hand with a concerted effort to undermine the foundations of liberal democracy and rule of law in Hungary. Since Mr. Orbán came to office four years ago, Fidesz has consolidated its political power and used it to pass controversial legislation tightening media oversight, as well as constitutional changes that curb judicial power and restrict political advertising, among other measures.

FEMA Disaster Declarations

I am writing a study on the Federal Emergency Management Agency (FEMA) and looking at the issue of presidential disaster declarations. Under the 1988 Stafford Act, a state governor may request that the president declare a “major disaster” in the state if “the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments.”

The main purpose of declarations is to impose on federal taxpayers the relief and rebuilding costs that would otherwise fall on state and local taxpayers and individuals in the affected area. Federalism is central to disaster planning and response in the United States, and federal aid is only supposed to be for the most severe events. Unfortunately, the relentless political forces that are centralizing power in just about every policy area are also doing so in disaster policy.

Below is a chart of FEMA data showing the number of “major disasters” declared by presidents since 1974, when the current process was put in place. The number of declared disasters has soared as presidents have sought political advantage in handing out more aid. Presidents have been ignoring the plain language of the Stafford Act, which allows for aid only in the most severe situations.

In the chart, I marked with red bars the years that presidents ran for reelection. In those years, presidents have generally declared the most major disasters. That was true of Ronald Reagan in 1984, George H.W. Bush in 1992, and Bill Clinton in 1996. George W. Bush declared the most disasters of his first term in his reelection year of 2004. The two presidents who do not fit the pattern are Jimmy Carter and Barack Obama.

Minimum Wage Solidarity Misplaced

Senate Democrats are anxious to bring the Minimum Wage Fairness Act (S. 1737) up for a vote to express their solidarity with “progressives.”  That solidarity, however, is misplaced. The bill is not a panacea for the prosperity of low-skilled workers; it is anti-free market and immoral—based on coercion not consent.

The bill would increase the federal minimum wage to $10.10 after two years, index it for inflation, and increase the minimum for tipped workers.  Those changes would substantially increase the cost of hiring low-skilled workers, lead to job losses and unemployment (especially in the longer run as businesses shift to labor-saving methods of production), and slow job growth.

Although there is virtually no chance this bill would pass, Senate Majority Leader Harry Reid (D-Nev) wants it to come to the floor so he and his compatriots can express their support for low-income workers (and for unions and others who support the minimum wage increase) in an election year.  “Democrats are focused on the future,” says Reid, and “we were elected to improve people’s lives.” 

The Current Wisdom: The Administration’s Social Cost of Carbon Turns “Social Cost” on Its Head

This Current Wisdom takes an in-depth look at how politics can masquerade as science.

                      “A pack of foma,” Bokonon said

                                                Paraphrased from Cat’s Cradle (1963), Kurt Vonnegut

In his 1963 classic, Cat’s Cradle, iconic writer Kurt Vonnegut described the sleepy little Caribbean island of San Lorenzo, where the populace was mesmerized by the prophet Bokonon, who created his own religion and his own vocabulary. Bokonon communicated his religion through simple verses he called “calypsos.” “Foma” are half-truths that conveniently serve the religion, and the paraphrase above is an apt description of the Administration’s novel approach to determining the “social cost of carbon” (dioxide). 

Because of a pack of withering criticism, the Office of Management and Budget (OMB) is now in the process of reviewing how the Obama Administration calculates and uses the social cost of carbon (SCC).  We have filed a series of Comments with the OMB outlining what is wrong with the current SCC determination. Regular readers of this blog are familiar with some of the problems that we have identified, but our continuing analysis of the Administration’s SCC has yielded a few more nuggets.

We describe a particularly rich one here—that the government wants us to pay more today to offset a modest climate change experienced by a wealthy future society than to help alleviate a lot of climate change impacting a less well-off future world.

FSOC’s Failing Grade?

All the recent hype over the legitimacy of high frequency trading has overshadowed another significant event in financial regulation: In a speech in Washington, D.C., yesterday Securities and Exchange Commissioner Luis Aguilar offered some fairly strong criticisms of recent actions by the Financial Stability Oversight Council (FSOC). The speech was significant because it is the first time that a Democratic commissioner has criticized the actions of one of the Dodd-Frank Act’s most controversial creations. (To date, only the Republican commissioners have criticized the FSOC, and we all know that Republicans don’t much like Dodd-Frank.) Indeed, Aguilar’s statements indicate just how fractured and fragmented the post-Dodd-Frank “systemic risk monitoring” system is.

At issue is the FSOC’s recent foray into the regulation of the mutual fund industry. Aguilar described the FSOC’s actions as “undercut(ting)” the SEC’s traditional authority and described a major report on asset management by the FSOC’s research arm, the Office of Financial Research, as “receiv(ing) near universal criticism.”

He went on to note that “the concerns voiced by commenters and lawmakers raise serious questions about whether the OFR’s report provides (an) adequate basis for the FSOC to designate asset managers as systemically important … and whether OFR is up to the tasks called for by its statutory mandate.”

For those of us who have been following this area for a while, the answer to the latter question is a resounding “no”. The FSOC claims legitimacy because the heads of all the major financial regulatory agencies are represented on its board. Yet it has been clear for a while that the FSOC staff has been mostly off on a frolic of its own.

Aguilar notes that the SEC staff has “no input or influence into” the FSOC or OFR processes and that the FSOC paid scant regard to the expertise or industry knowledge of the traditional regulators. Indeed, the preliminary actions of the FSOC in determining whether to “designate” mutual funds as “systemic” echoes the Council’s actions in the lead-up to its designation of several insurance firms as “Systematically Important Financial Institutions” that are subject to special regulation and government protection. It should be remembered that the only member of the FSOC board to vote against the designation of insurance powerhouse Prudential as a “systemic nonbank financial company” was Roy Woodall, who is also the only board member with any insurance industry experience. And in the case of mutual funds and asset managers, the quality of the information informing the FSOC’s decisions—in the form of the widely ridiculed OFR study—is even weaker. The process Aguilar describes, where regulatory agencies merely rubber stamp decisions made by the FSOC staff, is untenable (in part because the FSOC staff itself has no depth of experience, financial or otherwise).

Aguilar’s comments could be viewed as the beginning of the regulatory turf war that was an inevitable outcome of Dodd-Frank’s overbroad and contradictory mandates to competing regulators. But the numerous and well documented problems with the very concept of the FSOC means that it is time for Congress to pay some attention to Aguilar’s comments and rein in the FSOC’s excessive powers. 

No, There Are NOT Three Job Seekers for Every Job Opening

Unemployment benefits could continue up to 73 weeks until this year, thanks to “emergency” federal grants, but only in states with unemployment rates above 9 percent.  That gave the long-term unemployed a perverse incentive to stay in high-unemployment states rather than move to places with more opportunities.   

Before leaving the White House recently, former Presidential adviser Gene Sperling had been pushing Congress to reenact “emergency” benefits for the long-term unemployed.  That was risky political advice for congressional Democrats, ironically, because it would significantly increase the unemployment rate before the November elections.  That may explain why congressional bills only restore extended benefits through May or June.

Sperling argued in January that, “Most of the people are desperately looking for jobs. You know, our economy still has three people looking for every job (opening).”  PolitiFact declared that statement true.  But it is not true. 

The “Job Openings and Labor Turnover Survey” (JOLTS) from the Bureau of Labor Statistics does not begin to measure “every job (opening).”  JOLTS asks 16,000 businesses how many new jobs they are actively advertising outside the firm.  That is comparable to the Conference Board’s index of help wanted advertising, which found almost 5.2 million jobs advertised online in February.  

With nearly 10.5 million unemployed, and 5.2 million jobs ads, one might conclude that our economy has two people looking for every job (opening)” rather than three.  But that would also be false, because no estimate of advertised jobs can possibly gauge all available jobs.

Consider this: The latest JOLTS survey says “there were 4.0 million job openings in January,” but “there were 4.5 million hires in January.”  If there were only 4.0 million job openings, how were 4.5 million hired?   Because the estimated measure of “job openings” was ridiculously low. It always is.