Archives: 05/2011

More HUD Community Development Duds

Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.

HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.

Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.

Recent stories in the news provide further evidence.

First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:

An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.

More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick-and-mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.

The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.

Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:

Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community-development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three-story building nestled between two skyscrapers at City National Plaza.

Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:

[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.

A HUD official called the situation “entirely healthy.”

Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:

Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.

In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.

Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.

But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.

Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!

A Message From The Ivory Tower’s Friendly Neighborhood ‘Reactionary’

There is a reason “ivory tower” has a negative connotation, evoking images of effete snobs walled away in ivory opulence as they look down on the commoners and demand outsized respect. The image, unfortunately, is occasionally accurate for individual academics, and almost always so for the whole of academia, which is funded by massive subsidies taken from taxpayers, but walled off by claims that no price can or should ever be affixed to the “public good” it produces. Add to this its professorial residents often demanding limitless freedom – and job security – to say whatever they want about such evil pursuits as “big business” that generate the tax dollars that keep the tower cushy and its jobs secure, and disdain for the tower is well deserved.

The distasteful side of academia is on display in an article by journalism professor Robert Jensen, in which he responds to a recent Texas Public Policy Foundation conference that he attended, and in which I participated. And by “I,” I mean Neal McCluskey, a “reactionary” ideologue suffering from “libertarian fantasies,” to use the good professor’s insightful and even-handed characterization of me and my positions.  He also throws in a guaranteed lefty applause line about the free market causing the recent economic downturn – who the heck are Fannie and Freddie? –  and in so doing displays why many people see academia not as a haven for objective truth-seekers, but a castle for axe-grinders who want to place themselves high above the people and institutions they just don’t like.

This would perhaps be palatable if our betters sought to fund their lofty positions through the voluntary contributions of others. But many don’t. No, they insist that they should be able to do and say whatever they want using money extracted from taxpayers – including taxpayers they plan to rhetorically assault – whether those taxpayers like it or not. In an equal society – which so many of them, including Prof. Jensen, say they’re defending – they insist that they should be most equal of all.

Perhaps the most ironic part of Prof. Jensen’s commentary is that in his apparent haste to ignore my message and demean the messenger, he missed that he and I are likely in agreement about whether No Child Left Behind-esque rules and regulations should be applied to colleges and universities. It seems he just infers that my arguing that ending subsidies is the key to meaningful accountability means that I support such efforts as those being pitched by TPPF to impose transparency and accountability on public Texas colleges. I offered no such support, and though I would like to see TPPFs proposals tried in some schools, I would never demand that they be imposed by government. Unfortunately, it appears Prof. Jensen just didn’t do due journalistic diligence by researching what I’ve written on these topics before branding me a bad guy, including taking in my opposition to standardized testing proposals that emanated from the Spellings Commission, or, for that matter, reading my writings on NCLB.

In the end, all I want is for professors to be on the same starting level as the average person: having to get the voluntary support of others to do their vaunted work. But too many academics, like Prof. Jensen, don’t seem to care for that deal. They want to take your money whether you like it or not, lest they lose the ability to tell you how terrible you are.

Can We Rely on Inflation Expectations?

The Wall Street Journal has pointed out that in his recent press conference Federal Reserve Chair Ben Bernanke used the words “inflation expectations” (or some variation) 21 times. His argument is that we need not worry about inflation because we will see it coming, and then the Fed will do something about it. Such an argument relies heavily on the ability of inflation expectations to predict inflation. Which of course raises the question, just how predictive are inflation expectations?

The graph below compares inflation, as measured by CPI, and inflation expectations, as measured by the University of Michigan consumer survey, the longest times series we have on inflation expectations.

Clearly the two move together. For instance, the correlation between current inflation and expectations is almost 1 (its 0.93), while the correlation between inflation and actual inflation a year later is slightly less at 0.81. The relationship declines as we move further into the future. So yes, consumer expectations appear a reasonable predictor of the direction of inflation. However, they don’t appear to be a great predictor of the magnitude or the frequency of changes. For instance, the standard deviation of actual inflation is about twice that of expected inflation. As one can easily see from the chart, expectations are quite sticky and rarely pick up the extremes. During the late 1970s and early 1980s, expectations did move up, but then never reached the heights actually experienced, nor did consumers ever actually expect deflation during the recent financial crisis (if we are going to base policy on expectations, we should at least be consistent about it).

For about the last decade we also have market based measures of inflation, based upon inflation-indexed bonds. The TIPS measure tends to be less correlated with actual inflation, but does a better job of capturing the extremes. Although interesting enough, TIPS was already predicting that deflation would be short-lived before we even experienced any deflation.

The point is that while expectations are useful for qualitatively purposes, they do not have a strong record of recording the extremes. Given that most of us expect some positive level of inflation, the real debate is over how much. In this regard, either survey or market-based expectations are likely to be both a lagging indicator and an under-estimate of actual inflation.

“This time they said, ‘We’re not going.’”

“This time they said, ‘We’re not going.’”

That was the quote that caught my attention in last week’s PBS broadcast of “Stonewall Uprising,” a documentary about the “Stonewall riots” that launched the gay rights movement in 1969. And it made me think of other people who finally said “no” to oppression – like Rosa Parks in Montgomery, Alabama, and Mohammed Bouazizi in Tunisia.

At the Britannica blog I look at the connections among these resisters and movements and ask:

What causes some acts of resistance to succeed? Is it historical inevitability, just the right moment for the dry field of hidden dissatisfaction to be set on fire by a spark? Some libertarian — and other — radicals wonder why Americans don’t revolt against what the radicals see as tyranny.

Release the OBL Photo

A lot of people are asking whether the White House will release photographic proof of Osama bin Laden’s death. It should. The operation to get OBL has been very successful thus far, including the decisions to conduct a raid instead of a standoff bombing and the burial at sea. The latter avoided a repeat of the race to dig up Che Guevara.

The Obama administration should release photos to confirm that we have ended bin Laden’s life. We do not need a decade of OBL sightings and conspiracy theories to undermine the positive steps taken in the last two days. Obama’s birth certificate has been vindicated, and Osama’s revoked. End of story.

And in case you’re wondering, it appears that no informant will qualify for the $25 million OBL award.

Tuesday Links

  • “Given America’s large-scale, long-term nation-building mission in Afghanistan, another chapter remains unfinished.”
  • It doesn’t make a lot of sense to refer to a government whose intelligence service assists military efforts by al Qaeda and the Taliban against U.S. troops in Afghanistan as an ‘ally.’”
  • “Terrorists are not superhuman.”
  • “Physicians must either make up for this shortfall by shifting costs to those patients with insurance — meaning those of us with insurance pay more — or treat patients at a loss.”
  • Is America in a libertarian moment?

Conservatives Win, Socialists Up, Liberals Down, Separatists Out

The conventional wisdom is that the United States is a center-right country while Canada is a center-left one.  Yet, even as the most-left-wing president in history occupies the White House, last night the Conservative Party of Canada – which had already been steering its ship of state in a fiscally prudent direction despite only having a plurality of seats in Parliament – won a decisive victory.  Prime Minister Stephen Harper will thus lead the first first majority government by any party since 2004 (after the first election creating a majority government since 2000).

How can this be?

The answer comes down to three main factors:

  1. Electoral system.  Canada has a multi-party first-past-the-post parliamentary system that currently features one united center-right party and an opposition split among two major left-wing parties, Quebec separatists, and a not-inconsequential Green Party.  Thus, the Tories’ 40% of the popular vote (up 2% since the 2008 election) translated to 166 of the 305 seats in Parliament (a gain of 23).  Recall that John McCain won 45.7% of the vote in the 2008 presidential campaign. 
  2. Timing of terms of office.  If President Obama had run for re-election yesterday – well, maybe not yesterday, the day after announcing the end of Osama bin Laden – he might very well have lost (depending on the vagaries of the electoral college and who the GOP ran against him).  As it was, of course, the Republicans did win big in the 2010 midterms and stand to do so again in 2012 regardless of the result of the presidential election.  Also, one of the themes of this year’s Canadian election was that the opposition forced an election that Canadians “did not want” and considered to be a waste of money.
  3. Leadership/personality.  Barack Obama was a singular individual at a unique time (financial collapse, Bush fatigue, etc.).  The leader of the Liberal Party of Canada, meanwhile, former Oxford and Harvard professor Michael Ignatieff, who hadn’t lived in the country for 30 years before entering Parliament in 2006 (see the Conservatives’ hilarious and devastating attack ads), was a wooden campaigner who failed to connect with the average voter.

And so, even as 60% of Canadians voted for a party other than the Conservatives – 31% New Democrats (socialist/labor), 19% Liberal, 6% Bloc Quebecois (separatists), 4% Green – they will have a Tory majority government until (probably) October 2015.  Given that social issues don’t play much of a role in Canadian public affairs, this is generally a good result for friends of liberty.  Now that he has his majority, we’ll see how much more Prime Minister Harper moves in the free-market direction he has long said he would if given the opportunity.

For those interested in more than that basic synopsis and US/Canada comparison, read on below the fold.

Here are a few other tidbits from Canada’s 41st federal election:

The Conservative Party

  • Won a majority based almost exclusively in Ontario (72 seats) and the West (also 72 seats), a feat – i.e., winning without Quebec – heretofore thought impossible.
  • Won 30 of 44 seats in the Greater Toronto Area (GTA), including my former riding of Eglinton-Lawrence (where my dad still lives and which has been a Liberal seat since its inception in 1979) and Ajax-Pickering, picked up by former ambassador-to-Afghanistan (and youngish alum of my high school) Chris Alexander.  Such a strong performance in the 416 and 905 area codes – as the central and suburban parts of the city are labeled – was unexpected, to say the least, and is being attributed to successful courtships of so-called New Canadians (especially Asians) and a strong pro-Israel position.
  • Won 27 of 28 seats in Alberta, 13 of 14 in Saskatechewan, and 11 of 14 in Manitoba, painting the West blue.

The New Democratic Party

  • The NDP won a record 31% of the vote (up 13% from 2008) and 102 seats (a gain of 65), for the first time becoming the Official Opposition.
  • Of those 102 seats, 58 are in Quebec, up from 1 (one!) going into the election.  Thus, the Official Opposition is essentially a Quebec-based group.
  • The NDP leader, and therefore Leader-elect of the Opposition, is former Toronto city councillor Jack Layton, who, the media discovered three days before the election, had in 1996 been found by policy lying naked in a “bawdy house.” Layton explained that he was just getting a shiatsu massage.
  • The party had some other colorful characters unexpectedly elected to Parliament, including a former(?)-Communist karate instructor, a cocktail waitress elected in Quebec who doesn’t speak French and went on vacation to Las Vegas during the election, and at least one college student.

The Liberal Party

  • The Liberals, the longtime “natural party of government,” were decimated, reaching record lows of 19% of the vote (down 7% from 2008) and 35 seats (down 32). 
  • Liberal leader Ignatieff lost his own seat, setting up a leadership race between Bob Rae, former premier of Ontario (as a New Democrat) and Justin Trudeau (son of the late prime minister Pierre Trudeau, considered by many Baby Boomers Canadians to have been Canada’s JFK).

The Bloc Quebecois

  • The Bloc were utterly defeated, losing 40% of their vote, all but four of their seats (down from 49), and “official party status” in Parliament (important procedurally and also for public funding formulas).
  • Bloc leader Gilles Duceppe, the first MP elected under the Bloc banner (others had “crossed the floor” from other parties), also lost his own seat, and promptly resigned the party leadership.
  • The conventional wisdom is that most Bloc voters were social democrats and so, tired of flogging the one-issue separatist horse, moved their anti-Conservative voices en masse to the NDP.  Maybe.  If this were any other province, probably.  There are, however, plenty of nationalist, separatist conservatives here (perhaps better described as populists), so it could be that, as usual, Quebeckers voted in a way they thought would maximize their power and autonomy within the federal system.

The Green Party

  • Although the Greens lost nearly half their popular vote (down from 7% in 2008), they did manage to elect their leader, Elizabeth May, in a British Columbia riding previously held by a Tory cabinet minister.  How a seat can swing from Conservative to Green is beyond my ken, but this is the first Green seat ever in Canadian history.

For more on this fascinating election, which nobody predicted would turn out quite this way, see the National Post’s coverage.