201207

July 31, 2012 4:57PM

You’re Destroying the Whole Tower, Stop Blaming It on the Basement

Yesterday Sen. Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions Committee, released his magnum opus on for-profit colleges, the culmination of two years of excoriating, browbeating, shaming, and generally demagoguing that fast-growing but relatively small sector of American higher education. His report is everything you'd expect from a crusade characterized by an almost complete unwillingness to address the central role of the federal government in creating pervasive rot not just in for-profit higher education, but the entire Ivory Tower.

The for-profit college sector is certainly raking in lots of cash and producing very little for it, with big revenues but very low completion rates. It's probably not as bad as Harkin would have us believe—I've chronicled much of the exaggeration and misrepresentation that has punctuated his attack—but there's little question that lots of students drag heaps of taxpayer dough into for-profit schools and get little of value for it.

The thing is, that happens across higher education, including the profit-taking.

As I've cited ad nauseum, completion rates throughout higher education are abominable. Looking at first-time, full-time students—an imperfect sample, yes, but the best we've got—the top completion rate is for bachelor's students at private not-for-profit schools. But that's only 65.4 percent completing within six years. The worst is at public two-year institutions—community colleges—which see only 20.4 percent finish their programs within 150 percent of normal time. That's just one-in-five!

Surprisingly, Harkin's report mentions the atrocious completion rates at community colleges. But only very briefly, and mainly to assert that "the cost of for-profit programs makes those programs more risky for students and Federal taxpayers." That proviso is technically correct, but as misleading as much of the behavior for which Harkin condemns for-profit schools. Community colleges are cheaper to students in large part because they get direct taxpayer subsidies, and while those don't come mainly from Washington they do come from taxpayers, just at the state and local level. In the 2009-10 school year, state and local appropriations to community colleges totaled $5,412 per pupil. Meanwhile, public four-year schools—with six-year graduation rates of just 56 percent—received almost $8,000 per student in federal, state, and local appropriations. And, of course, all "not-for-profit" schools get favored tax status, paying no taxes on most of their revenue and benefiting from tax deductible largess of donors.

But don't think those schools aren't profiting. Harkin's report blows off the possibility that putatively not-for-profit schools make profits simply by stating that "by definition" such schools "do not retain any revenue as profit." But as Vance Fried illustrated in his 2011 policy analysis, most public and not-for-profit private colleges make thousands of dollars per-undergraduate beyond the cost of educating them. They just use the money to reward the people in the school, or to pay for things that often make the school more bloated, instead of distributing the profits to investors.

Putting the for-profit sector in the context of all of higher education, it's clear the witch hunt has been on. But there's also been major scapegoating: by enabling students to pay for school with other people's money, and with almost no regard for their ability to do college work, it is federal student aid that largely causes the rot in higher ed, quashing both school and student incentives to economize, and student incentives to think critically about consuming higher ed. By demonizing institutions that dare admittedly make profits, politicians like Sen. Harkin shift the blame from where it belongs—themselves—to those who do what the politicians want: "educate" people regardless of their ability. It's exactly like housing: the politicians demand that everyone be able to buy a home, condemn anyone who might fail to furnish the uncreditworthy with mortgages, then blame the lenders when things go horribly wrong. They seem to want the votes—their profits—but no blame when things go south.

Sen. Harkin, the fault for what ails not just for-profit higher education, but the entire Ivory Tower, sits largely with you and your colleagues. Please quit shifting blame and do what must be done: phase out student aid and make all schools earn their money.

July 31, 2012 1:44PM

Celebrating Milton Friedman

Today is the 100th anniversary of Milton Friedman's birth and wonderful pieces have appeared all over the Web to commemorate the occasion. I particularly like Stephen Moore's editorial in the Wall Street Journal, and economist Bryan Caplan's brief but thoughtful blog post.

To add to the celebration, we've put together a brief interview with Bob Chitester, producer of Milton's "Free to Choose" documentary series, and provided a link to the site where you can watch the whole thing for free. I've also added a few thoughts of my own on Milton's impact on the school choice movement, and the high standards he set in his life and work.

July 31, 2012 1:11PM

What We Can and Can’t Know About NSA Spying: A Reply to Prof. Cordero

Georgetown Law professor Carrie Cordero—who previously worked at the Department of Justice improving privacy procedures for monitoring under the Foreign Intelligence Surveillance Act—attended our event with Sen. Ron Wyden (D-OR) on the FISA Amendments Act last week.  Perhaps unsurprisingly, she's rather more comfortable with the surveillance authorized by the law than our speakers were, and posted some critical commentary at the Lawfare blog (which is, incidentally, required reading for national security and intelligence buffs). Marcy Wheeler has already posted her own reply, but I'd like to hit a few points as well. Here's Cordero:

Since at least the summer of 2011, [Wyden and Sen. Mark Udall] have been pushing the Intelligence Community to provide more public information about how the FAA works, and how it affects the privacy rights of Americans. In particular, they have, in a series of letters, requested that the Executive Branch provide an estimate of the number of Americans incidentally intercepted during the course of FAA surveillance. According to the exchanges of letters, the Executive Branch has repeatedly denied the request, on the basis that: i) it would be an unreasonable burden on the workforce (and, presumably, would take intelligence professionals off their national security mission); and ii) gathering the data the senators are requesting would, in and of itself, violate privacy rights of Americans.

The workforce argument, even if true, is, of course, a loser. The question of whether the data call itself would violate privacy rights is a more interesting one. Multiple oversight personnel independent of the operational and analytical wings of the Intelligence Community – including the Office of Management and Budget, the NSA Inspector General, and just last month, the Inspector General of the Intelligence Community, have all said that the data call requested by the senators is not feasible. The other members of the SSCI appear to accept this claim on its face. Meanwhile, Senator Wyden states he just finds the claim unbelievable. That there must be some way it can be done, he says, if even on a sample basis. Maintaining that position puts him in an interesting place, however: is the privacy advocate actually advocating for violating the privacy rules, to appease a Congressional request? Assuming that he would not actually want to advocate that the rules be waived at the request of a politician, a question then arises as to whether the Intelligence Community has adequately explained exactly how the data call would work and why it would conflict with existing privacy rules and protections, such as minimization procedures.

I'll grant Cordero this point: as absurd as it sounds to say "we can't tell you how many Americans we're spying on, because it would violate their privacy," this might well be a concern if those of us who follow these issues from the outside are correct in our surmises about what NSA is doing under FAA authority. The only real restriction the law places on the initial interception of communications is that the NSA use "targeting procedures" designed to capture traffic to or from overseas groups and individuals. There's an enormous amount of circumstantial evidence to suggest that initial acquisition is therefore extremely broad, with a large percentage of international communications traffic being fed into NSA databases for later querying. If that's the case, then naturally the tiny subset of communications later reviewed by a human analyst—because they match far narrower criteria for suspicion—is going to be highly unrepresentative. To get even a rough statistical sample of what's in the larger database, then, one would have to "inspect"—possibly using software—a whole lot of the innocent communications that wouldn't otherwise ever be analyzed. And possibly the rules currently in place don't make any allowance for querying the database—even to analyze metadata for the purpose of generating aggregate statistics—unless it's directly related to an intelligence purpose.

A few points about this.  First: assuming, for the moment, that  this is the case, why can't NSA and DOJ say so clearly and publicly? Because it would somehow imperil national security to characterize the surveillance program even at this highest level of generality, without any mention of particular search parameters or targets? Would it "help the terrorists" if they answered a more recent query from a bipartisan group of senators, asking whether database searches (as opposed to initial "targeting") had focused on specific American citizens?  Please.

A  more plausible hypothesis is that they recognize that an official, public acknowledgement that the government is routinely copying and warehousing millions of completely innocent communications—even if they're only looking at the "suspicious" minority— would not go over entirely smoothly with the citizenry. There might even be a demand for some public debate about whether this is the kind of thing we're willing to countenance. Legal scholars might become curious whether whatever arguments support the constitutionality of this practice hold up as well in the light of the day as they do when they're made unopposed in closed chambers. Even without an actual estimate, any meaningful discussion of the workings of the program would be likely to undermine the whole pretense that it only "incidentally" involves the communications of innocent Americans, or that the constraints on "targeting"constitute a meaningful safeguard.  The desire to avoid the whole hornet's nest using the pretext of national security is perhaps understandable, but it shouldn't be acceptable in a democracy. Yet everyone knows overclassification is endemic—even the government's own former "classification czar" has blasted the government's use of inappropriate secrecy as a weapon against critics.

Second, transparency at this level of generality is an essential component of privacy protection. To the extent that the rules governing  access to the database preclude any attempt to audit its aggregate contents—including by automated software tallying of identifiers such as area codes and IP addresses—then they should indeed be changed, not because a senator demanded it, but because they otherwise preclude adequate oversight. An online service that keeps no server logs would be somewhat more protective of its users privacy... if  its database were otherwise perfectly secure against intrusion or misuse. In the real world, where there's no such thing as perfect security, such a service would be protecting user privacy extremely poorly, because it would lack the ability to detect and prevent breaches. If it is not possible to audit the NSA's system in this way, then that system needs to be altered until it is possible. If giving Congress a rough sense of the extent of the agency's surveillance of Americans falls outside the parameters of the intelligence mission (and therefore the permissible uses of the database), it's time for a new mission statement.

Finally, Cordero closes by noting the SSCI has touted its own oversight as "extensive" and "robust," which Cordero thinks "debunks" the  suggestion embedded in our event title that the FAA enables "mass spying without accountability."  (Can I debunk the debunking by lauding the accuracy and thoroughness of my own analysis?)  Unfortunately, the consensus of most independent analysts of the intelligence committees' performance is a good deal less sanguine—which makes me hesitant to take that self-assessment at face value.

As scholars frequently point out, the overseers are asked to process incredibly complex information with a limited cleared staff to assist them, and often forbidden to take notes at briefings or remove reports from secure facilities. When you read about those extensive reports, recall that in the run-up to the invasion of Iraq only six senators and a handful of representatives ever read past the executive summary of the National Intelligence Estimate on Iraq's WMD programs to the far more qualified language of the  full 92-page report. You might think the intel committees would need to hold more hearings than their counterparts to compensate for these disadvantages, but UCLA's Amy Zegart has found that they consistently rank at the bottom of the pack, year after year. Little wonder, then, that years of flagrant and systemic misuse of another controversial surveillance tool—National Security Letters—was not uncovered by the "extensive" and "robust" oversight of the intelligence committees, but by the Justice Department's inspector general.

In any event, we seem to have at least 13 senators who don't believe they've been provided with enough information to perform their oversight role adequately. Perhaps they're setting the bar too high, but I find it more likely that their colleagues—who over time naturally grow to like and trust the intelligence officials upon whom they rely for their information—are a bit too easily satisfied. There are no  prizes for expending time, energy, and political capital on ferreting out civil liberties problems in covert intelligence programs, least of all in an election year. It's far easier to be satisfied with whatever data the intelligence community deigns to dribble out—often with heroic indifference to statutory reporting deadlines—and take it on faith that everything's running as smoothly as they say. That allows you to write, and even believe, that you're conducting "robust" oversight without knowing (as Wyden's letter suggests the committee members do not) roughly how many Americans are being captured in NSA's database, how many purely-domestic communications have been intercepted,  whether warrantless "backdoor" targeting of Americans is being done via the selection of database queries. But the public need not be so easily satisfied, nor accept that meaningful "accountability" exists when all those extensive reports leave the overseers ignorant of so many basic facts.

July 31, 2012 12:59PM

On the Perils of Single‐​Issue Politics

NPR ran a story this morning, “NRA Targets One Of Its Own In Tenn. Race,” that nicely illustrates the perils of single-issue politics, although you’d never learn the principle of the matter from the NPR account. It seems that the NRA has launched a $75,000 ad campaign against state Rep. Debra Maggart, a long-time NRA member and avid gun-owner who a year ago had an “A+” rating from the NRA. Her sin? She and several other Tennessee Republican officials opposed a bill that would have allowed employees to keep guns in their cars while parked in their private employers' parking lots.

The NRA’s Chris Cox, who’s spearheading this political vendetta and, in the process, is supporting Maggart’s tea-party backed opponent, invokes both “our First Amendment right to assemble to petition our government” and, of course, the Second Amendment, seemingly oblivious to the fact that neither is relevant here. In fact, the issue could not be simpler: individuals, including employers, have a right to determine the conditions on which others may enter their property.

The Second Amendment prevents the government, not private parties, from infringing your right to keep and bear arms. If a private party can ban you from his property for any reason, good or bad, he can do so for carrying a gun. So too with the First Amendment: it limits what governments, not private parties, may do; government may not violate your rights of assembly and petition, none of which is happening here.

As so often happens, here again we see how single-issue politics, in the name of liberty, ends up undermining liberty. The tea party should know better.

July 31, 2012 10:55AM

Here’s Why the Cayman Islands Is Considering Fiscal Suicide

What Do Greece, the United States, and the Cayman Islands Have in Common?

At first, this seems like a trick question. After all, the Cayman Islands are a fiscal paradise, with no personal income tax, no corporate income tax, no capital gains tax, and no death tax.

By contrast, Greece is a bankrupt, high-tax welfare state, and the United States sooner or later will suffer the same fate because of misguided entitlement programs.

But even though there are some important differences, all three of these jurisdictions share a common characteristic in that they face fiscal troubles because government spending has been growing faster than economic output.

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I've written before that the definition of good fiscal policy is for the private sector to grow faster than the government. I've humbly decided to refer to this simple principle as Mitchell's Golden Rule, and have pointed out that bad things happen when governments violate this common-sense guideline.

In the case of the Cayman Islands, the "bad thing" is that the government is proposing to levy an income tax, which would be akin to committing fiscal suicide.

The Cayman Islands are one of the world's richest jurisdictions (more prosperous than the United States according to the latest World Bank data), in part because there are no tax penalties on income and production.

So why are the local politicians considering a plan to kill the goose that lays the golden eggs? For the simple reason that they have been promiscuous in spending other people's money. This chart shows that the burden of government spending in the Cayman Islands has climbed twice as fast as economic output since 2000.

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Much of this spending has been to employ and over-compensate a bloated civil service (in this respect, Cayman is sort of a Caribbean version of California).

In other words, the economic problem is that there has been too much spending, and the political problem is that politicians have been trying to buy votes by padding government payrolls (a problem that also exists in America).

The right solution to this problem is to reduce the burden of government spending back to the levels in the early part of last decade. The political class in Cayman, however, hopes it can prop up its costly bureaucracy with a new tax—which euphemistically is being called a "community enhancement fee."

The politicians claim the tax will only be 10 percent and will only be imposed on the expat community. But it's worth noting that the U.S. income tax began in 1913 with a top rate of only seven percent and it affected less than one percent of the population. But that supposedly benign tax has since become a monstrous internal revenue code that plagues the nation today.

Except the results will be even worse in Cayman because the thousands of foreigners who are being targeted easily can shift their operations to other zero-income tax jurisdictions such as Bermuda, Monaco, or the Bahamas. Or they can decide that to set up shop in places such as Hong Kong and Singapore, which have very modest income tax burdens (and the ability to out-compete Cayman in other areas).

As a long-time admirer of the Cayman Islands, I desperately hope the government will reconsider this dangerous step. The world already has lots of examples of nations that are following bad policy. We need a few places that are at least being semi-sensible.

By they way, I started this post with a rhetorical question about the similarities of Greece, the United States, and the Cayman Islands. Let's elaborate on the answer.

Here's a post that shows how Greece's fiscal nightmare developed. But let's show a separate chart for the burden of federal spending in the United States.

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What's remarkable is that the federal government and the Cayman Islands government have followed very similar paths to fiscal trouble. Indeed, Caymanian politicians have achieved the dubious distinction of increasing the burden of government spending at a faster rate than even Bush and Obama. No mean feat.

This data for the U.S. chart doesn't include the burden of state and local government spending, so the Cayman Islands still has an advantage over the United States, but I'll close with a prediction.

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If the Cayman Islands adopts an income tax—regardless of whether they call it a community enhancement fee (to misquote Shakespeare, a rotting fish on the beach by any other name would still smell like garbage), it will be just a matter of time before the burden of government spending becomes even more onerous and Cayman loses its allure and drops from being one of the world's 10-richest jurisdictions.

Which will be very sad since I'll now have to find a different place to go when America suffers its Greek-style fiscal collapse.

July 31, 2012 8:42AM

Mass Tragedy Boilerplate and Rebuttal

On the road last week, and allergic to getting too heavily involved in the issue de l'heure, I only today saw Holman Jenkins' Wall Street Journal commentary: "Can Data Mining Stop the Killing?"

After the Aurora theater massacre, it might be fair to ask what kinds of things the NSA has programmed its algorithms to look for. Did it, or could it have, picked up on Mr. Holmes's activities? And if not, what exactly are we getting for the money we spend on data mining?

Other than to collect it in a great mass along with data about all of us, the NSA could not have "picked up on" Mr. Holmes's activities. As I wrote earlier this year about data mining's potential for averting school shootings:

"[D]ata mining doesn’t have the capacity to predict rare events like terrorism or school shootings. The precursors of such events are not consistent the way, say, credit card fraud is. Data mining for campus violence would produce many false leads while missing real events. The costs in dollars and privacy would not be rewarded by gains in security and safety.

Jeff Jonas and I wrote about this in our 2006 Cato Policy Analysis, “Effective Counterterrorism and the Limited Role of Predictive Data Mining.”

If the NSA has data about the pathetic loser, Mr. Holmes, and if it were to let us know about it, all that would do is provide lenses for some pundit's 20/20 hindsight. Data about past events always points to the future that occurred. But there is not enough commonality among rare and sporadic mass shootings to use their characteristics as predictors of future shootings.

Jenkins doesn't drive hard toward concluding that data mining would have helped, but his inquiry is mass tragedy boilerplate. It's been rebutted by me and others many times.

July 30, 2012 5:03PM

Should the USPS Diversify into Nonpostal Markets?

One possible solution offered up for the struggling U.S. Postal Service is to allow it to diversify into nonpostal commercial markets (e.g., insurance, logistics, banking, etc). After all, the share of revenue generated from diversified products at foreign posts has been on the rise and in many cases now accounts for the majority of a post’s revenue.

However, a new paper from postal expert Michael Schuyler concludes that the USPS entering “new nonpostal commercial ventures would probably end badly.” Here are some of the important takeaways from Mike’s paper:

  • “When foreign posts move into nonpostal markets, they often extract large sums from postal ratepayers and the government (which ultimately means taxpayers) to cover start-up costs.” The USPS is bleeding red ink and thus doesn’t have money for start-up costs – so it doesn’t take a genius to see where the money would have to come from.
  • When it comes to nonpostal commercial ventures, the USPS has an abysmal track record. Mike cites a Government Accountability Office report that looked at new postal products introduced over a two-year period and notes that “Among the nonpostal products on the list were retail merchandise sales (profitable), several electronic initiatives (all money losers), and the processing of credit card payments (unprofitable).”
  • Diversified products at foreign posts usually earn lower returns compared to industry averages. “Below-average profits suggest that when postal operators enter nonpostal commercial markets, they displace more efficient private-sector businesses, leading to less productive and vibrant economies.”
  • Would the USPS and its new private sector competitors operate on a neutral playing field? That’s doubtful. As I note in an essay on postal privatization, the USPS already enjoys several privileges including exemptions from taxes and various regulatory requirements. Mike notes that “special breaks [for the USPS] would misallocate resources, raise fairness issues, and might have high costs for the overall economy.”

In sum, it’s a really bad idea. Unfortunately, policymakers in Washington have a soft spot for bad ideas.