Archives: 06/2010

A Look at the Contract From America

The Contract From America is a very interesting political document, seeking to rally people around a set of policies that—unlike the Contract With America from years ago—was generated from the bottom up.

On the blog, I’ve been assessing the ten items in the Contract From America. The Tea Party movement stands for a lot of ideas in a lot of people’s minds. Here’s a chance to see what substantive policies are important to a large cross-section of this political movement.

Is Mickey Kaus Fashionable?

Why is a New York Times profile of blogger-turned-U.S. Senate candidate Mickey Kaus on the front page of the Sunday Styles section? He’s smart. He’s interesting. Stylish he ain’t. Maybe it’s because he’s running his whole campaign against Barbara Boxer on a budget that would buy a Birkin bag.

I probably disagree with Kaus on most things, including one of his two big issues, illegal immigration. But I’m glad to see a Democrat making an issue of the excessive power and cost of government employee unions just as a populist revolt against those unions seems to be building.

You read it in the New York Times, Californians: Mickey Kaus is in Style this week.

You Don’t Need to Waste More Money to Shrink Government

It’s rather symbolic of what’s wrong with Washington that a commission ostensibly created to promote deficit reduction is seeking a bigger budget, as noted in the Tax Notes story excerpted below. Rather than impose a bigger burden on taxpayers, though, I will generously suggest that they could easily fulfill their mandate by perusing Cato’s Downsizing Government website. And if they really want to do the right thing, they can always just look at Article I, Section VIII, of the Constitution and get rid of existing programs and activities that are not enumerated powers of the federal government.

Saddled with a tight deadline and great expectations, members of President Obama’s deficit reduction commission say they may not have the resources necessary to meet their task. The National Commission on Fiscal Responsibility and Reform, which the president created through an executive order in February, is charged with developing a plan by December 1 that would stabilize the budget deficit by 2015 and reduce the federal debt over the long term. The group is widely expected to consider a combination of tax reforms and spending cuts. But despite the weighty demands, the panel has only a fraction of the staff and budget of standing congressional committees. The panel’s own cochairs and Senate Majority Leader Harry Reid, D-Nev., have criticized the meager resources and called for more support. …The White House has set aside the resources to provide the equivalent of four full-time salaries and $500,000 in operating costs for the commission, fiscal commission Executive Director Bruce Reed told Tax Analysts.

(h/t: TaxProf)

Kazakhstan’s Approach to Bank Failure

Gillian Tett has an interesting column in today’s Financial Times, discussing the recent resolution of one of Kazakhstan’s largest banks, BTA.  What’s novel about this particular bank resolution?  Well instead of the taxpayer, or the rest of the banking sector, covering a large hole in BTA’s balance sheet, the bondholders are taking the hit (of course shareholders are also taking a loss).

Some of this is  probably due to politics; the bondholders in this case are mostly foreign, and of course, the taxpayers are domestic voters.  Not that the foreign bondholders didn’t lobby for a bailout. 

But putting the politics aside, this represents a real test of whether we are stuck only with the choice of bailouts or mass panic, as argued by the Bernanke-Paulson-Geithner crowd.  If, in the weeks ahead, Kazakhstan, and particularly its other banks, are still able to tap the debt markets and its economy does not crater, then I believe we have sufficient evidence to end bailouts here in the United States and start letting the bondholders, instead of the taxpayer, take the losses.

Will lending costs to Kazakhstan banks likely go up?  Of course, that is the point.  One of the most damaging aspects of the 2008 bank bailouts was the elimination of whatever market discipline remained, in terms of large bank creditors.   As most financial institutions fund 90% plus of the activities via borrowing, we simply cannot rely solely on equity, management, and regulators to police their behavior.  Only if creditors really have something to lose will we ever have any hope of ending “too-big-to-fail.”

Florida’s Education Tax Credit Program Helps Public School Students

Are Florida’s celebrated test-score gains caused by the state’s education tax credit program? Maybe. What is certain is that Florida’s education tax credit program significantly increases student achievement in public schools.

David Figlio, a respected economist at Northwestern University and the official researcher for Florida’s education tax credit program, has completed the most rigorous analysis of how a private school choice program impacts public school performance.

The achievement effects increase in relation to the availability and diversity of private schools near the school. Schools with the most to lose make bigger gains. The kicker? All this happened BEFORE any kids left their public school. The performance gain came from the THREAT of competition.

On average, student achievement increased 1 percent for every standard deviation increase in the concentration of private school competitors before any students even used the program.

In schools on the margin of getting Title I funds from their district – in other words, those with the most to lose from losing poor students – the increase was over 3 percent before any students left. That means schools that had a medium level of competition private schools would see a more than 6 percent rise in scores and at the highest levels of competition that would reach nearly 13 percent.

Elementary and middle school student performance increased about 1.5 percent. Again, that means a 3 percent gain for medium competition and over 6 percent at the highest level of competition. Six years in, the average gain in schools facing more competition doubled to about 2 percent.

These effects are being called small by many, including Figlio. But it depends on what you mean by small. Those minority 4th grade test score gains that have been celebrated; they constitute a 5 percent increase on the NAEP. The grade school and marginal Title I impacts start looking pretty big in this context. And remember, this program supports less than 1 percent of students. And it saves money. Just think of the possibilities as it grows and competition expands dramatically.

In addition, these measures don’t capture what the cumulative effect of the increased competition might be. Are these gains ratcheting up student achievement? Has the growth in the size of the program increased its impact on achievement? And will the most recent expansion, which has no near-term limit, boost public school student achievement even more?

Figlio is continuing to analyze the data and I eagerly await his next installments …

Prosecutors and the Forfeiture Laws

Child pornography is against the law. You can go to jail if you make it, distribute it, or possess it. There is also a law that says the government can seize property that is “used” to distribute child pornography.  So prosecutors can seize computer equipment from someone who engages in such criminal conduct.  Pretty straightforward. 

But in a recent case, the federal agents not only seized the computer, but the house and the 19 acres of land on which the house was located.  The prosecution argued – and an appellate court agreed [pdf] – that there was a “substantial connection” between the acreage and the offense.  That is just absurd.

I am also aware of a local case in which federal agents violently executed a search warrant in a child porn-in-the-computer-case.  Early morning raid, guns drawn, neighbors detained, the works. It was as if the agents were looking for a killer who recently escaped from Leavenworth.  More overkill.

For more information on forfeiture, go here and here.

Adam Smith Quote of the Day

“In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies.  To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace.  They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory, from a longer continuance of the war.”

- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book 5, Chapter 3