Archives: 10/2011

Colombian President Backs Drug Legalization

One of the worse kept secrets in Latin America is that Colombian President Juan Manuel Santos believes in drug legalization. Back in the 1990s he co-signed an open letter to then UN Secretary General Kofi Annan calling for an end to the war on drugs. And, since assuming office last year, Santos has hinted on several occasions that a new approach is needed in drug policy.

Earlier this week, Santos finally came out supporting the legalization of soft drugs, such as marijuana. In an interview published by Metro World News, Santos said that he favors legalization “provided everyone does it at the same time.” However, Santos balked at the idea of being the first sitting president to propose this in an international forum, citing mostly political reasons: “I would be crucified if I took the first step,” he said.

Despite Santos’s lukewarm endorsement of drug legalization, he adds his voice to the growing number of Latin American leaders calling for ending prohibition. Cato will host a big conference on November 15 on ending the international war on drugs, featuring some of the leading voices in the region on this issue: Fernando Henrique Cardoso, former President of Brazil, Jorge Castañeda, former Minister of Foreign Relations of Mexico, former Colombian Senator Enrique Gómez Hurtado, and Luis Alberto Lacalle Pou, Uruguay’s current Speaker of the House of Deputies. You can see the full program of the event and register here.

The Objective Insider

This is a reminiscence of Bill Niskanen by his former student and colleague Benjamin Zycher:

The late Herbert Stein, former Chairman of the Council of Economic Advisers, and a genuinely wise man—in the true rather than the Beltway sense—once described Bill Niskanen as “a member of that rare species, the objective insider.”

I knew Bill for almost forty years, as his student at the public policy school at Berkeley, as his colleague at the Council of Economic Advisers, and as a dear friend.  Bill introduced me to the newly emerging field of public choice economics.  Bill sharpened my still-meager skills in economic analysis.  Bill improved my econometric modeling.  I cannot count the number of errors from which Bill, exhibiting the patience of Job, diverted me.  Bill above all was a friend, a real friend, always willing to help, always willing to listen, always willing to be honest when called for, in a manner simultaneously uncompromising and kind.

And yet: Those nine simple words from Herb Stein capture Bill far better than I have ever been able to do.  Absolute honesty, absolute integrity, absolute devotion to principle, immune to the petty pressures of others: Bill was a mensch.  Even more than his prodigious contributions to economic and public policy analysis, those attributes will remain synonymous with his name.  Kathy and Lea and Pamela and Jaime: May you be comforted with the knowledge that his name, and yours, will evoke tremendous respect for many lifetimes to come.

May Bill rest in peace.

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Big Sky, Big Buses, and Big Bill Niskanen

I first met Bill Niskanen at a conference in Big Sky, Montana soon after he had left the Reagan administration. At the time I was an environmentalist with free-market leanings rather than (as is the case for many of my Cato colleagues) a free marketeer who cared about the environment. Mainly because of James Watt, environmentalists weren’t too happy with the Reagan administration, and all I knew about Bill was that he had chaired Reagan’s Council of Economic Advisers. I must have been intimidated: in my memory he was about 6’-4” tall, and I was surprised later to find he was only a little taller than my 5’-7”.

I didn’t know it at the time, but Bill’s 1971 book, Bureaucracy and Representative Government, would prove to be a major influence on my 1988 book, Reforming the Forest Service. Bill was the first to suggest that government agencies work mainly to maximize their own budgets rather than serve some social good, and the budget maximization hypothesis was the only explanation I could find that fit all of the Forest Service’s behaviors I had observed since the early 1970s.

Years later, when I renewed my acquaintance with Bill, I was surprised to learn he had grown up in Bend, Oregon, a few miles from where I live. The last time I saw Bill, he graciously agreed to chair a policy forum on transportation issues, which I knew interested him because his father (also named William) owned Pacific Trailways and had won a major anti-monopoly lawsuit against Greyhound. Coincidentally, earlier this week I attended the annual meeting of the California Bus Association, many of whose members remembered Bill and asked me to say “hello” for them. Sadly, I won’t get a chance.

Bill’s lifelong habit of putting principle before self-interest is an inspiration for everyone at Cato and in the free-market movement in general. I am proud to have known him.

William Niskanen, Former Reagan Economist and Cato Board Chair, Dead at 78

All of us at the Cato Institute are saddened to announce that William A. Niskanen, distinguished senior economist and chairman emeritus of the Cato Institute, passed away today in Washington at 78.

Niskanen served 23 years as chairman of Cato’s board of directors, stepping down in 2008. Prior to joining Cato, he served as a member and acting chairman of President Ronald Reagan’s Council of Economic Advisers.

“Bill Niskanen was a world-renowned economist and a passionate leader of the growing classical liberal movement around the globe,” said Cato founder and president Edward H. Crane. “More importantly, he was a man of unshakeable integrity. His influence on and importance to the Cato Institute cannot be overstated. His passing is a terrible loss to the Institute and to the nation.”

Niskanen had a long and prominent career as an economist, including tenures as director of economics at the Ford Motor Company, professor of economics at the University of California at Berkeley and Los Angeles, assistant director of the federal Office of Management and Budget, a defense analyst at the Rand Corporation, the director of special studies in the Office of the Secretary of Defense, and the director of the Program Analysis division at the Institute of Defense Analysis.

Born March 13, 1933 in Bend, Ore., Niskanen graduated from Bend High School,and received his B.A. and Ph.D in economics from Harvard and the University of Chicago, respectively.

Many of Niskanen’s articles and essays are collected in two books, Policy Analysis and Public Choice and Reflections of a Political Economist: Selected Articles on Government Policies and Political Processes.

Niskanen underwent heart surgery in September, and was undergoing rehabilitation. He suffered a major stroke on Tuesday evening at his home and passed away Wednesday at a D.C.-area hospital, his wife Kathy at his side. He is also survived by daughters Lia, Pamela and Jaime.

Niskanen was granted a Professional Achievement Award by the University of Chicago Alumni Association in 2005, sharing the stage with fellow recipient David Broder, the late longtime Washington Post columnist, and philosopher Richard Rorty. The announcement of the award described Niskanen as “the embodiment of what the University of Chicago stands for in terms of scholarship, professionalism, integrity, and dedication.”

Niskanen’s 1980 departure from the Ford Motor Company was recounted in several books and in a Wall Street Journal profile. These accounts concluded that Niskanen’s departure had been forced upon him due to his principled opposition to protectionist trade policies. “Mr. Niskanen’s sermons against the protectionist temptation weren’t exactly what Ford management wanted to hear,” wrote the Journal’s Robert Simison. “It soon decided to launch anyway what has become an active publicity and lobbying campaign for government controls on Japanese autos. …They also decided they didn’t need Mr. Niskanen’s advice. They fired him.”

“When Bill first came to Washington in the ’60s, Americans had great faith in government,” said Cato scholar John Samples. “Bureaucracy and Representative Government, the book he wrote in 1971, was one of the main forces that helped start to change that. In that book, Bill accurately predicted that Congress would have a very difficult time calculating the true costs of public services, particularly national defense.”

William Niskanen, RIP

We were all saddened today at Cato to learn of the death of our friend and colleague Bill Niskanen. Sitting down the hall from Bill over the past 10 years, I’ve learned a great deal from him about economics, fiscal policy, and perhaps most importantly, how to approach public policy work with balance, accuracy, and integrity.

Bill called them as he saw them. If he thought your work was in error, he’d tell you bluntly. But he always had time to help you work through issues and to discuss ideas and data at great length. He brought the same honestly to his views on political issues—he really didn’t care what party label people had when judging their policies, and so he set the standard for Cato’s nonpartisan analysis.   

One impressive thing about Bill was the huge range of his policy interests and scholarship. At Cato, Bill tackled issues in fiscal policy, international trade, defense spending, foreign policy, public choice economics, macroeconomics, monetary policy, and corporate governance. He even published a statistical analysis of crime rates.

Bill was a mentor and a good friend, and I will miss him.

Little Student Loan Relief, and Never for Taxpayers

Today’s big news is that the Obama administration – thanks to those crisis-ignorin’ creeps in Congress – is going off on its own to reduce purportedly devastating student loan burdens. Well, that’s the message. The reality is that the proposals just tinker around the edges, meaning debtors are getting little relief while the notion that it’s okay to stick taxpayers with other people’s obligations is advanced.

What would the administration’s proposals do? There are several little wrinkles, but basically this: New, income-based repayment rules will be hurried a bit so that borrowers’ payments are capped at 10 percent of discretionary income (likely meaning income above 150 percent of the poverty line) rather than 15 percent, and remaining debt would be forgiven after 20 years rather than 25. In addition, borrowers with loans from both the now-defunct guaranteed loan program – loans through banks that are almost completely backed with federal money – and loans that come directly from Uncle Sam can consolidate those loans and get an interest rate reduction. In point of fact they could do the same thing before, only the administration is offering a .25 point interest reduction in addition to the .25 points that were previously offered.

Here, though, is the really miraculous part: According to the U.S. Department of Education, “these changes carry no additional cost to taxpayers.” Don’t ask how that can be – they don’t say – just rest assured!

For what it’s worth, these changes probably won’t cost taxpayers a whole lot, at least in Washington spending terms. Many borrowers don’t have both guaranteed and direct loans, and a normal federal loan has a ten-year term, meaning most borrowers probably aren’t still paying back twenty years down the line. Finally, while college prices are without question out of control, the average debt for a student graduating with any debt is still only around $27,000. That’s a heck of a lot closer to a car loan than a mortgage.

That said, the idea that any of this won’t cost taxpayers is bunk. They ultimately back all federal student loans, so unless Washington intends to send in the 82nd Airborne to force lenders with remaining guaranteed loans to write them off – which maybe I shouldn’t put past the feds – lenders will get paid. And any direct loans that get less money returned are immediate taxpayer losses. And yes, direct loans probably do make money for the federal government, but those receipts were pledged to Obamacare and deficit reduction when the Student Aid and Fiscal Responsibility Act was rolled into the health care bill to make the CBO numbers come out right. Change the revenue, and it means you’ve saddled taxpayers  with more health care costs, or less supposed deficit reduction, than had been promised with Obamacare. And don’t even get me started on how any reduction or forgiveness of debt encourages students to borrow more and pay even higher tuition prices.

In light of all this, it looks like everyone is being sold a bill of goods by the administration: borrowers won’t get much relief, and taxpayers will indeed get saddled with additional costs.

Financial Regulators Are Not Above the Constitution

As protestors across America condemn Wall Street for its greed and corruption, the Supreme Court has an opportunity to examine a ruling that holds some of Wall Street’s biggest regulators immune from suit.

In 2006, the National Association of Securities Dealers and the regulatory arm of the New York Stock Exchange consolidated to form the Financial Industry Regulatory Authority (FINRA). NASD and FINRA are “self-regulatory organizations” (SROs), because the Securities and Exchange Commission charges them with regulating their own members — a set-up that is supposed to protect investors and the public. But NASD officers may have achieved the consolidation (and thereby received huge bonuses) by misstating material facts on a proxy solicitation, which induced member firms to give up some of their voting powers in exchange for a payout.

Remarkably, the Second Circuit held that a lawsuit against NASD for the alleged fraud could not proceed because the defendants had sovereign immunity. Yes, SROs should be immune for their actions as quasi-government regulators. For example, immunity is appropriate for government actors like judges, who must have some protection from private suit to do their jobs properly. But judges are not immune for things they do in their private lives — they can be sued just like anyone else. The Second Circuit, however, held that SROs, which have expansive and varied powers, enjoy absolute immunity even for actions that are merely “incident to” their regulatory duties. That is, suits involving private corporate actions cannot proceed if they are incident to actions taken in a governmental capacity.

In this case, the court found that the voting-rights changes were “incident to” FINRA’s regulatory activities because they were part of a plan to make a larger entity that would also have regulatory duties. This case raises serious constitutional issues about the role the judiciary plays in ensuring that SROs remain faithful to their delegated duties of protecting investors and the public. Because SROs are quasi-private actors, they have incentives to act in their own best interests — rather than in the public interest — and they do not have to be as transparent as fully public agencies.

Further, the executive branch, including the SEC, has failed to hold SROs accountable for their self-serving behaviors. As we see from this case, the judiciary provides the sole opportunity for SRO accountability. Cato, joined by the Competitive Enterprise Institute, has now filed a brief urging the Supreme Court to review Standard Investment Chartered, Inc. v. NASD. Accountability among branches of government — the separation of powers and checks-and-balances — is a central tenet of our constitutional structure, and is especially important for SROs, which exercise great power over financial markets. Our brief argues that the judiciary remains the last check on SROs’ unbridled power and that the Second Circuit erred in failing to hold these SROs accountable.