Obama Lonely at U.N. Climate Fest

People should learn from their mistakes. The last time President Obama took it upon himself to “lead” a U.N. climate fest was at Copenhagen in December, 2009, which, from the point of view of my greener friends, was a notorious failure. 

Today, he’s back, this time at Ban Ki-moon’s U.N. “climate summit,” but not a lot of his global peers are going to be there. Prime Ministers from China, India, Canada, Australia and Germany have all decided to stay home. 

Together, they emit almost three times what the U.S. does, which means we are going it alone in New York.  Any policy we agree to is  meaningless.  According to the EPAs “Model for the Assessment of Greenhouse-gas Induced Climate Change” (yes, it is MAGICC), if we emitted not another molecule of carbon dioxide between tomorrow and January 1, 2100, the amount of warming that would be prevented is a mere 0.14°C, an amount too small to reliably measure. That’s probably an overestimate, too, as the EPA appears to have overestimated 21st century warming.

EPA assumes  that the “sensitivity” of surface temperature to a carbon dioxide doubling is 3°C, an amount very likely far too great, compared to what is being observed.  Or, perhaps, compared to what is not being observed, as global surface temperatures have held constant for 17+ years now (actually 19, according to Cato scholar and eco-statistician Ross McKitrick), according to the surface annual temperature history that climate scientists cite the most. So the “saved” warming from any policy is likely to be even less than what MAGICC says.

You’re not going to hear that from the President. As happened at the 2009 Copenhagen disaster, the President and the Secretary-General will declare a roaring success.

In Copenhagen, that meant that all participants had to submit specific action plans to reduce emissions within two months.  But, a bit more than a month before the deadline, the U.N.’s climate commissioner, Yvo deBoer, announced that they really didn’t have to. Then he resigned.

There’s still no new international agreement to replace the failed Kyoto Protocol. But, last month, the President got people pretty worked up when he proposed a new, U.N.-sponsored agreement (a treaty—or a modification of an existing one—by any other name) on climate change that he didn’t think would require ratification by a two-thirds vote of the Senate, counter to what is explicitly stated in Article II, Section 2, Clause 2 of our constitution:

[The President] shall have Power, by and with Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur… 

Not only is the president going to be quite lonely at the U.N., he could be setting the country up for a huge constitutional conflagration.

It’s not going to happen on his watch, though. Any agreement that he signs on to won’t likely take effect until at least 2016.  Even under the most rosy Democrat-wave election that year (one is likely to happen, given the demographics of the Senate crowd that is up for re-election), there’s no way 67 are going to vote to ratify a treaty that differentially harms the U.S. while China and India keep increasing their emissions dramatically.

Of course we’re going to hear the rhetoric, repeated again today, that the U.S. has to “lead by example.”  Well, Mr. President, with those big emitters and the developing world saying “no way,” no one is going to follow.  In 2012, the last year for which we have reliable data, the U.S. contributed 14% of global carbon dioxide emissions. Together, the five big no-shows emitted almost three times as much as us, and their fraction can only grow as both China and India are determined to develop their economies.

If we were really going to lead by example we would show the world how our free economy has resulted in investments in clean, big power sources like shale gas. The developing world is currently lacking in large sources of dense energy. If we’re going “lead by example,” maybe that example should be that governments should get out of the way of economic development and cleaner energy will follow. 

Do the Benefits of Mandatory Disclosures Outweigh the Costs?

Current regulations, which require companies that issue stocks and bonds to publicly disclose information to investors, allegedly assist those investors in determining the appropriate price for securities as well as detecting fraud. But mandatory disclosures impose heavy costs on issuers of debt and stock. Do the benefits outweigh the costs?

In the forthcoming issue of Regulation Elisabeth De Fontenay, an associate professor at Duke University Law School, answers that question by examining a natural experiment in corporate debt markets.

Corporate bonds are treated as securities and subject to mandatory information disclosure under SEC regulations. In contrast corporate loans are not subject to SEC disclosure regulations because historically such loans were held to maturity by the issuing bank. But over the last 15 years corporate loans have become functionally equivalent to bonds especially at the “high-risk high-return end of the spectrum.” They are underwritten by many investors and securitized and traded in secondary markets.

If regulation produces net benefits for investors, then they would purchase only corporate bonds rather than syndicated loans. But “the market not subject to mandatory disclosure is not only thriving, it is surging past its regulated counterpart.”  

How is this possible? De Fontenay explains that in secondary loan markets, investors obtain all the information they need through contract. And that information is more relevant to investor needs than the information mandated by regulation.

Travel Card Abuse in the Department of Transportation

Department of Transportation (DOT) employees are abusing their government travel cards, according to a new report from the agency’s Inspector General. The report suggests that DOT officials missed $183,000 in unallowable cash advances and $2.1 million in unauthorized purchases on government travel cards.

The report details numerous examples of abuse such as:

  • A Federal Aviation Administration (FAA) cardholder traveled to Houston, Texas, for 3 days and withdrew a $301 cash advance on the last day of the trip at an automated teller machine located 40 miles from his residence.
  • Between October 2011 and June 2012, an FAA cardholder collected seven cash advances totaling $719 while not on Government travel. On one occasion, this employee obtained a $104 cash advance on a race day at an Alabama Superspeedway…
  • Between February and August 2012, another FAA cardholder collected five cash advances totaling over $1,400 while not on Government travel…
  • An FAA employee who was not on Government travel visited a casino in Shawnee, OK, and collected three cash advances totaling $492 from his Government-issued travel card.
  • A former OIG employee collected two cash advances totaling $488, more than 2 years after separating from the Agency. DOT’s Financial Management Travel Card Management Policy requires that travel card accounts be closed when an employee leaves the department.

DOT is not the only agency with this issue. Last year, the Treasury Department announced misuse of cards within the Internal Revenue Service. Treasury found “more than 1,000” employees who abused their travel cards in fiscal year 2010 and 2011.

These types of employee ripoffs are not limited to travel cards. A 2008 report from the Government Accountability Office (GAO) found 41 percent of transactions on government purchasing cards violated “basic internal control standards.” Agencies were unable to provide appropriate documentation for 48 percent of large purchases that GAO studied. GAO found: “the Department of the Army could not adequately account for 256 items … each of which cost nearly $100,000.” One employee was able to withdraw $642,000 from her purchasing card over six years before being caught and sent to prison.

Purchasing and travel cards can be efficient in reducing overhead and streamlining processes, but agencies should ensure that proper audit controls are met so that more taxpayer funding is not wasted. Our bloated federal government purchases about $570 billion worth of supplies and equipment each year, so reform in this area is essential.

Targeting the Constitution

[Cross-posted from The Volokh Conspiracy]

It is now well known that the IRS targeted tea party organizations. What is less well known, but perhaps even more scandalous, is that the IRS also targeted those who would educate their fellow citizens about the United States Constitution.

According to the inspector general’s report (pp. 30 & 38), this particular IRS targeting commenced on Jan. 25, 2012 — the beginning of the election year for President Obama’s second campaign. On that date: “the BOLO [‘be on the lookout’] criteria were again updated.” The revised criteria included “political action type organizations involved in … educating on the Constitution and Bill of Rights.”

Grass-roots organizations around the country, such as the Linchpins of Liberty (Tennessee), the Spirit of Freedom Institute (Wyoming), and the Constitutional Organization of Liberty (Pennsylvania), allege that they were singled out for special scrutiny at least in part for their work in constitutional education. There may have been many more.

The tea party is viewed with general suspicion in some quarters, and it is not difficult, alas, to imagine the mindset of the officials who decided to target tea party organizations for special scrutiny. But federal officers swear an oath to “support and defend the Constitution of the United States against all enemies, foreign and domestic.” It is chilling to think that these same officials who are suspicious of the tea party are equally suspicious of the Constitution itself.

What is most corrosive about this IRS tripwire is that it is triggered by a particular point of view; it is not, as First Amendment scholars say, viewpoint-neutral. It does not include obfuscating or denigrating the Constitution; only those “involved in … educating on the Constitution” are captured by this criterion. This viewpoint targeting potentially skews every national debate about politics or government. And the skew in not strictly liberal; indeed, it should trouble liberals as much as conservatives. The ultimate checks on executive power are to be found in the United States Constitution. Insidiously, then, suppressing those “involved in … educating on the Constitution” actually skews national debate in favor of unchecked executive power.

The Great Debate Over Hobby Lobby

The Supreme Court’s 5-4 ruling granting certain for-profit companies religious exemptions from Obamacare’s contraceptive mandate has of course generated a flurry of debates between conservatives and liberals (with libertarians siding with the right not to be forced by the government to violate your conscience). But what about within the camp that supported the decision in Hobby Lobby? Was there some conservative vs. libertarian split?

Well, as it happens, one of the icons of the libertarian legal movement, my former professor Richard Epstein, contributed an article to the most recent volume of the Cato Supreme Court Review. He concluded that Justice Samuel Alito’s majority opinion reached the right result for the wrong reason, that the Court should’ve rejected the mandate because the government didn’t have a compelling interest to advance not because it didn’t use the least-restrictive means to advance it. 

Epstein wasn’t able to attend our Constitution Day symposium, however, so Ed Whelan – president of the conservative Ethics & Public Policy Center and noted legal contributor to National Review Online – took Epstein’s place in discussing Hobby Lobby. Whelan took issue with Epstein’s approach; during the panel [see starting at 35:00] his comments about the Review article were akin to Justice Antonin Scalia’s “blistering concurrences” this term, agreeing with little other than the final judgment.

So this sounds ripe for the libertarian-versus-conservative trope, right? Maybe Epstein focused on liberty and Whelan on religion? Actually not really; (most of) their dispute is more about principle with pragmatism.

How Common Are School Shootings?

Schools are stocking up on M16s and modified grenade launchers and holding drills involving shooting blanks in middle and high school hallways, but is the risk really worth the expense and possibility of preemptively traumatizing children?

Groups like Michael Bloomberg’s Everytown for Gun Safety argue that our nation’s schools are dangerous, claiming that there have been 74 school shootings since the Sandy Hook massacre in December 2012 in an infographic that went viral earlier this summer. But a closer look at their numbers revealed that they artificially inflated the statistic by including suicides, accidents, incidents related to criminal activity (e.g. - drug dealing or robbery), and incidents that took place outside of school hours or were unconnected to members of any school community. Moreover, half of those incidents took place on college campuses. Since Sandy Hook, the actual number of K-12 school shootings in which the shooter intended to commit mass murder has been ten—a far cry from the “one school shooting per week” that President Obama claimed back in June.

Surely even one such incident is too high, but with nearly 106,000 public and private schools in the U.S., there were shootings at only 0.009% of schools since December 2012. According to the National Center for Education Statistics’ 2013 “Indicators of School Crime and Safety” report, from the 1992-93 school year until the 2010-11 school year, there were between 11 and 34 homicides of youths ages 5-18 at schools each year (including attacks with weapons other than firearms), with an average of about 23 homicides per year. Comparing that to NCES’s enrollment statistics, about 0.000044% of public and private K-12 students were killed at school per year between 1992-93 and 2010-11. That’s about one out of every 2,273,000 students per year. By contrast, the odds of being hit by lightning in a given year is one out of 700,000 according to National Geographic. 

School Year K-12 Student Homicides  Fall Enrollment (thousands)  % Homicides
1992-93 34  48,500 0.000070%
1993-94 29  49,113 0.000059%
1994-95 28  49,898 0.000056%
1995-96 32  50,759 0.000063%
1996-97 28  51,544 0.000054%
1997-98 34  52,071 0.000065%
1998-99 33  52,526 0.000063%
1999-00 14  52,875 0.000026%
2000-01 14  53,373 0.000026%
2001-02 16  53,992 0.000030%
2002-03 18  54,403 0.000033%
2003-04 23  54,639 0.000042%
2004-05 22  54,928 0.000040%
2005-06 21  55,224 0.000038%
2006-07 32  55,524 0.000058%
2007-08 21  55,762 0.000038%
2008-09 17  55,966 0.000030%
2009-10 19  56,186 0.000034%
2010-11 11  56,480 0.000019%
       
     Maximum:  0.000070%
     Minimum:  0.000019%
     Average:  0.000044%

It makes sense for schools to take precautions and have contingency plans, but they should keep a sense of perspective. School shootings, especially the mass casualty incidents like Sandy Hook, are exceedingly rare. Schools should dispense with the M16s, grenade launchers, and armored vehicles.

SBA’s Risky Franchise Lending

The Small Business Administration’s (SBA) stated mission is to aid small businesses and strengthen the economy. Under its popular 7(a) program, SBA provides private lenders with loan guarantees. In the case of default, SBA steps in to cover up to 85percent of the lender’s losses.

This structure encourages lenders to provide more loans, but also encourages the approval of riskier loans. The lenders are insulated from most of the risks of default.  

A new analysis conducted by the Wall Street Journal confirms that this arrangement induces SBA to provide loans that result in a large number of defaults. Default rates for some franchise companies can be as high as 40 percent. According to the Wall Street Journal:

Quiznos, Cold Stone Creamery, Planet Beach Franchising and Huntington Learning Centers Inc. ranked among the 10 worst franchise brands in terms of Small Business Administration loan defaults.

Franchisees of the 10 brands in the ranking defaulted at more than double the rate for SBA borrowers who invested in all other chains, according to a Wall Street Journal analysis of charge-offs of all SBA-backed franchise loans in the past decade.

Put another way, franchisees of those 10 brands have left taxpayers on the hook for 21% of all franchise-loan charge-offs in the past decade, collectively failing to pay back $121 million in SBA-guaranteed loans from 2004 through 2013.

Thirty percent of the loans provided to Quiznos and Cold Stone Creamery franchises ended in default. The losses from loans to Quiznos franchises totaled $38.4 million during the 2004 to 2013 period, while losses to Cold Stone Creamery amounted to $34.1 million.

This is not the first time that SBA’s franchise lending has been criticized. In a report focused on franchises, SBA’s Inspector General noted in 2013 that SBA “had not implemented a program or process to monitor risk in its portfolio.” The report continues: “SBA did not monitor portfolio segments to identify risk based on default statistics…SBA continued to guarantee loans to high-risk franchises and industries without monitoring risks, and where necessary, implementing controls to mitigate the risks.”

Franchise businesses are an important component of SBA’s activities. In its new analysis, the Wall Street Journal points out that “SBA guaranteed nearly $18 billion in 7(a) loans [in 2013], including $2 billion for franchisees.”

Taxpayers are picking up the costs of these government loan guarantees. SBA charges lenders fees to mitigate the costs of default, but the fee amount seem to be too low. Most recent years, SBA has received a net outlay, or subsidy, from Congress.

What should be done? At the very least, SBA should take its inspector general’s recommendations and review its practices regarding franchise loans to reduce the number of defaults. Ideally as argued on www.downsizingovernment.org, SBA should be closed down.