November 2, 2012 2:14PM

The ‘Lehman Trigger’ Myth Continues…

In yesterday's defense of President Obama's economic record, Alan Blinder starts, "[A]fter the frightening financial panic and deep recession triggered by the collapse of Lehman Brothers in September 2008," thereby repeating the myth that Lehman's failure caused the recession.

Below is a chart of real (inflation-adjusted) personal consumption and civilian employment from January 2007 to December 2010.  Let's recall that Lehman's failure was in September 2008.  What should be immediately clear, even to such an accomplished economist as Blinder, is that both consumption and employment began their decline almost a full year before Lehman's collapse.  So unless Lehman's collapse caused some backward ripple in time, it's hard to see how it triggered the recession.  In fact, about 75% of the decline in personal consumption preceded the Lehman collapse.  Also of interest is that the rate of decline in consumption actually slowed after the Lehman collapse.

Why is this important, other than my obsession with facts?  As long as we allow the narrative to run that Lehman's collapse caused the crisis, then "solutions" like Dodd-Frank will continue to dominate the debate, rather than recognizing a housing bubble drove the crisis and that we should instead be focused on preventing the creation of housing bubbles.  And don't get me wrong; Lehman got what they had coming. If anything, their well-deserved fate should have been shared by others.

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November 2, 2012 1:53PM

End, Don’t Cap, the Mortgage Interest Deduction

The housing market is soft, so this is the worst possible time to get rid of the mortgage interest deduction, right? Well, it's not that simple.

1.) The deduction is not a subsidy to homeowners. It's a subsidy to people who have mortgages, and then only if they itemize their taxes. Those claiming the standard deduction can't take advantage. Paying cash for a home won't qualify you for the deduction, either. Following a great recession fueled by would-be homeowners borrowing more than they could afford, it's well past time for the feds to get out of the business of subsidizing home debt.

2.) Borrowing to own a home now costs homebuyers less in interest than it has historically, which means that the cash value of the mortgage interest deduction is lower than it will be under higher (future) interest rates. In other words, this particular tax-code goodie is at a historically low value to taxpayers, so why not get rid of it now?

Mitt Romney has nibbled around the edges of this idea. He would cap the mortgage interest deduction. In delivering a bit of a backhanded compliment, Yonah Freemark and Lawrence J. Vale write in the New York Times that "while Mr. Romney’s tax proposal overall may not be fair or sensible---or even mathematically logical---Democrats shouldn’t be so quick to attack any change to the mortgage interest deduction."

Freemark and Vale would use the boost in federal revenue from ending the deduction to fund new housing programs. However, ending the mortgage interest deduction could also be used to lower overall tax rates. Mark Calabria and I chatted about the mortgage interest deduction this week for the Cato Daily Podcast.

November 2, 2012 1:45PM

We Support Gay Marriage but Oppose Forcing People to Support It

Elane Photography, a Christian-identified business in Albuquerque, N.M., declined to photograph Vanessa Willock's same-sex commitment ceremony based on the business owners' personal beliefs. New Mexico law prohibits any refusal to render business services because of sexual orientation, however, so Willock filed a claim with the New Mexico Human Rights Commission.  She argued that Elane Photography is a "public accommodation," akin to a hotel or restaurant, that is subject to the state's anti-discrimination law.

The commission found against Elane and ordered it to pay $6,600 in attorney fees.  Elane Photography's owners appealed the ruling, arguing that they are being denied their First Amendment right to the free exercise of religion (and a similar provision in the state constitution).  Furthermore, New Mexico's Religious Freedom Restoration Act defines "free exercise" as "an act or a refusal to act that is substantially motivated by religious belief" and forbids government from abridging that right except to "further a compelling government interest."

The state trial and appellate courts affirmed the commission's order.  Elane Photography v. Willock is now before the New Mexico Supreme Court, where Cato has joined UCLA law professor Eugene Volokh and University of Minnesota law professor Dale Carpenter---who, like Cato, support gay marriage---in filing an amicus brief siding with Elane Photography on free speech grounds.

Our brief explains that photography is an art form protected by the First Amendment because clients seek out the photographer's method of staging, posing, lighting, and editing.  Photography is thus a form of expression subject to the First Amendment's protection, unlike many other wedding-related businesses (e.g., caterers, hotels, limousine drivers).

The U.S. Supreme Court has already ruled in Wooly v. Maynard that photography is protected speech---even if it's not political and even if the photos are used for commercial value---and that speech compulsions (forcing people to speak) are just as unconstitutional as speech restrictions.  The First Amendment "includes both the right to speak freely and the right to refrain from speaking at all."  Moreover, unlike true cases of public accommodation, there are abundant opportunities to choose other photographers in the same area.

The New Mexico Supreme Court should thus reverse the lower court's ruling and allow Elane Photography to be free to choose the work it desires.

November 2, 2012 10:14AM

A Four‐​Picture Indictment: Final Pre‐​Election Jobs Report Is Not Good News for Obama

In some sense, President Obama is fortunate. I predicted a long time ago that he would win re-election if the unemployment rate was under 8 percent.

Well, the new numbers just came out and the unemployment rate is 7.9 percent.

So even though his stimulus failed, and even though his class-warfare tax policy is like a dark cloud over the economy, and even though his plans to further increase the burden of government spending will accelerate America's descent into a Greek-style fiscal quagmire, he may dodge the proverbial bullet.

You can see my latest election prediction by clicking here, and you can even cast a vote in my reader poll. But let's set aside the crystal ball nonsense and focus on public policy.

Below are four images that summarize Obama's dismal performance.

We'll start with a chart showing what President Obama claimed would happen to unemployment if we enacted his so-called stimulus compared to the actual real-world results.

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As you can see, the joblessness rate currently is more than 2.5 percentage points higher than Obama claimed it would be if we implemented his Keynesian plan.

Now let's look at some updated images of how this "recovery" compares to previous recoveries in the past six decades, based on data from the Minneapolis Federal Reserve Bank. We'll start with the unemployment rate. Take a wild guess which president has presided over the red line at the bottom.

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Previously, I've compared Obamanomics and Reaganomics,but this image may be even better because it shows all business cycles and confirms that the Obama years have been the worst in post-World War II history.

And we see something similar if we look at GDP growth. Once again, go out on a limb and guess who is responsible for the weakest recovery since World War II.

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Last but not least, this info-graphic is a bit dated, but Obama's dismal track record would not change if we added the past few months of data.

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Defenders of the White House argue that all these bad numbers are a legacy of the dismal situation that Obama inherited. That's partially true. Obama should not be blamed for the depth of a recession that began before he took office.

But he should be held at least somewhat accountable for an anemic recovery---particularly since he promised "hope" and "change" and then continued the big-spending, pro-cronyism policies of the Bush years.

The moral of the story, needless to say, is that free markets and small government are the keys to growth and prosperity.

November 1, 2012 9:00AM

Response to Federal Critics of our Report on Climate Change Impacts in the U.S.

The Cato Institute’s Center for the Study of Science has released the author’s proof version of its major report examining the potential impacts of climate change in the United States. It’s called Addendum: Global Climate Change Impacts in the United States (the final copy will be available shortly).

Our document grew from our desire to show how the government report upon which ours is based could have/should have looked if the original scientists involved had included a more thorough (less narrow) review of the scientific literature, and had not been obviously predisposed towards climate change doom and gloom.

Our report refers to itself as an “Addendum” to draw attention to the fact that the original 2009 report from the U.S. Global Climate Change Research Program (USGCRP) was incomplete, insufficient and badly in need of an update to include both scientific results published since its release and to include scientific research that was overlooked or ignored in that original document.

In general, our report, while pointing out that the earth’s temperature is rising and that human activities play a role, paints a more modest picture of climate change and its effects in the U.S. and emphasizes our adaptive capacity to handle a large amount of change in virtually all aspects of society. The overall tone of the Cato report is an optimistic one—a stark contrast to the pessimism that pervades the USGCRP report.

USGCRP Authors React

Our report has drawn ire from climate change alarmists, as well as from a subset of the group of scientists which authored the original USGCRP report.  We note that those who signed the group note make up barely a third of the 31 scientists who authored the USGCRP report. Eleven USGCRP co-authors released a statement airing their discontent in which they said:

As authors of [the USGCRP] report, we are dismayed that the report of the Cato Institute, ADDENDUM: Global Climate Change Impacts in the United States, expropriates the title and style of our report in such a deceptive and misleading way. The Cato report is in no way an addendum to our 2009 report. It is not an update, explanation, or supplement by the authors of the original report. Rather, it is a completely separate document lacking rigorous scientific analysis and review.

In fact, one of the primary ways that our report intended to make its point was by mimicking the style of the USGCRP report (in this case, imitation is not a form of flattery).  It is what the government report would have looked like had the authors been more open-minded and inclusive of the scientific literature.  In places where it was determined the original authors had done an adequate job, those sections were included verbatim, which we were certainly explicit about! This was all clearly explained in the “About this Report” section of our report (p. 8; analogous to their p. 7):

This Addendum is similar in format to the 2009 USGCRP report, allowing a facile reference for science that was omitted. In some places, we have moved text verbatim from the 2009 report to this Addendum.

That’s “deceptive or misleading?” The front cover of our report, smack in the middle of the page it says “Center for the Study of Science, Cato Institute.” That’s deceptive or misleading? The back cover is completely blank except for the prominent Cato Institute logo. There is a letter of introduction (p. 3 in both documents) written and signed by (then) Cato President Edward Crane. And “The Cato Institute” is included in the running header of every left-hand page in the document.

Deceptive or misleading? All of this led the world’s most prominent and popular climate blogger Anthony Watts to state “How anyone with even limited intelligence could get the idea that the report is from the US Government/NOAA is truly laughable, because if they can’t read “Cato Institute” clearly printed on the front and back cover, then they probably aren’t capable of reading and interpreting the original report either.”

As to the USGCRP co-authors statement that the Cato report is not “an addendum...an update, explanation, or supplement by the authors of the original report” this is certainly true. The original authors had nothing whatsoever to do with our report. In fact, the original authors substantively ignored virtually every comment in a 77-page single-spaced (24,958 word) review of their draft document that we submitted in August, 2008—which is why they are now seething over our Addendum, which is partially based on that review.   It is their very poor job, which is so misleading in spots that it appears intentional, that required a subsequent addendum, update, explanation, and supplement, or whatever you chose to call it.

And as to their claim that our report is “lacking rigorous scientific analysis and review,” any reader of our report will find the text to be well documented and derived primarily from the well-accepted material.  Our report describes its source material this way:

This Addendum is primarily based upon the peer-reviewed scientific literature, peer-screened professional presentations, and publicly-available climate data. We include literature through the beginning of 2012, which of course could not be in the 2009 [original USGCRP] report. But there are also a plethora of citations from 2008 or earlier that were not included in the US­GCRP document. Why that is the case is for others to determine.

These sources are no less rigorous (and certainly more inclusive) than those assessed/included by the original USGCRP authors.

The co-authors of the group letter go on to note four other points that they wish to emphasize.

Quality References

The first has to do with the number/quality of references included in the USGRCP report vs. our report. Both reports draw primarily from the peer-reviewed scientific literature. That our report includes a large number of peer-reviewed studies directly relevant to climate change impacts in the United States that were not included in the USGCRP report, and which support a more modest impact, in and of itself speaks volumes. Instead of quibbling over the number of references, the USGCRP co-authors ought to be apologizing profusely for producing such an incomplete and one-sided report on the taxpayers’ dime.

Effectiveness of Public Comment

Another bone of contention is that the USGCRP report was open to public comment while our report was not. But, as Ed Crane described in his introductory remarks in the report, the public comment process for the USGCRP report left a lot to be desired:

This effort grew out of the recognition that the original [USGCRP] document was lacking in scope and relevant scientific detail. A Cato review of a draft noted that it was among the worst summary documents on climate change ever written, and that literally every paragraph was missing critical information from the refereed scientific literature. While that review was extensive, the restricted timeframe for commentary necessarily limited any effort. The following document completes that effort.

And, of course, our Addendum is a public comment.  As is the letter signed by 11 of the USGCRP report’s original authors.

Modest Climate Change

Here is the third point made by the USGCRP author team:

The authors of the Cato Institute report agree with our Committee’s conclusions that global warming is unequivocal and consistent with a change in greenhouse gas effects attributable to human activities. They also conclude that climate change will continue to occur as greenhouse gas concentrations increase. However, their conclusions that future climate change will be benign, if not beneficial, and easily adapted to, diverge markedly from our Committee’s view regarding the seriousness of the risks. This is because the Cato Institute authors assume—based on their own analysis and contrary to peer-reviewed, contemporary science—that warming, intensification of weather extremes, polar ice cap melting, and sea-level rise will all be at the lowest end of the ranges projected in the Fourth Assessment of the Intergovernmental Panel of Climate Change.

I largely agree with all of this except the phrase “based on their own analysis and contrary to peer-reviewed, contemporary science”—in fact, our entire report is largely built upon the peer-reviewed, contemporary science.  And our “conclusions that future climate change will be benign, if not beneficial, and easily adapted to” are well-supported by the literature (and, as we point out, common sense). That the USGCRP co-authors find otherwise, or at least fail to even consider this very strong possibility, is the primary fault in their report that we address.

NAS Reports

The fourth and last point made by the USGCRP author team is that the USGCRP findings are backed by recent National Academy of Sciences reports. To me this is a hollow claim, as the NAS reports are about as selective in their science as the USGCRP report. Most of the NAS reports mentioned by the USGCRP authors in support of their report have been taken apart by the Cato Center for the Study of Science staff (see here and here, for example).

Future Update

And finally, the USGCRP co-authors note:

The next U.S. National Climate Assessment is underway under the auspices of the U.S. Global Change Research Program, with draft sections of its report to be released in December and completed in 2013. We are confident that this new assessment will reinforce and extend the findings of Global Climate Change Impacts in the United States.

Well that last line sure sounds like a bummer. My guess is that there will soon be another Addendum report from the Center for the Study of Science in the making.  In fact, the last substantive section of their document is titled “A vision for future U.S. assessments.”  Ours is titled “Future federal science assessments,” and says:

Future assessments of climate change are likely to be as poor in quality as Global Climate Change Impacts in the United States...However...each  new federal assessment is likely to be answered like the USGCRP report was—with more science than our federal government chooses to recognize.

Note: This is post is a substantial modification of one that originally appeared at MasterResource.org.

November 1, 2012 8:39AM

Drug‐​Sniffing Dogs Are Sense‐​Enhancing Technology

The Supreme Court heard oral argument yesterday in Florida v. Jardines, a case that examined whether bringing a drug-sniffing dog to the front door of a home looking for drugs was a Fourth Amendment search.

Having attended the oral argument (transcript; audio forthcoming), my sense is that a majority on the Court thinks dog-sniffs at front doors (absent a warrant) go too far. But few of the justices know why. The one who does is Justice Kagan.

What rationale might the Court use to decide the case? Even after United States v. Jones threw open Fourth Amendment doctrine, the instinct for using "reasonable expectation of privacy" analysis is strong. (I've joked that many lawyers think the word "privacy" can't be uttered without the prefix "reasonable expectation of.") This is where much of the discussion focused, and Justice Breyer seemed the most firmly committed to its use.

But the insufficiency of "reasonable expectation" doctrine for providing a decision rule was apparent when Breyer teed up Jardines's counsel to knock the case out of the park. There was much discussion of what one reasonably expects at the front door of a home. Neighbors may come up. Trick-or-treaters may come up. Neighbors may come up with their dogs. The police may come to the door for a "knock and talk." Neighbors, trick-or-treaters, dogs, and police officers may all come up and discover odors coming from the house. What makes the drug-sniffing dog unexpected?, Justice Breyer asked:

Do in fact policemen, like other people, come up and breathe? Yes. Do we expect it? Yes, we expect people to come up and breathe. But do we expect them to do what happened here? And at that point, I get into the question: What happened here?

Joelis Jardines's counsel could not say what made the dog unexpected.

Perhaps property law draws the line that excludes government agents with drug-sniffing dogs, while allowing other visitors to come to the door. Not so. Justice Alito in particular pressed Jardines's counsel for any case that had excluded dogs (drug-sniffing or otherwise) from the implied consent one gives to visitors on the walk and at the front door. The argument is unavailing, this idea that Florida's property law (put into play by the majority holding in Jones, which relied on property rights) solve this case. Florida property law doesn't exclude dogs from the implied permission it gives to lawful visitors on residential property.

None of this is to say that the government had it easy. Florida's counsel had uttered just three sentences when Justice Kennedy informed him that the rule from Illinois v. Caballes would not carry the day. In Caballes, the Court found there to be no search at all when government agents walked a drug-sniffing dog around a car stopped for other reasons. (I attacked what I called the "Jacobsen/Caballes corollary" to the Katz decision in the Cato Institute's brief to the Court, and also in this Jurist commentary.)

It won't be the rule from Caballes. So what is the rationale that decides this case?

Justice Scalia was on the scent when he reasoned with the government's counsel about what might be done with binoculars.

"As I understand the law," he said, "the police are entitled to use binoculars to look into the house if---if the residents leave the blinds open, right?"

Florida's counsel agreed.

"But if they can't see clearly enough from a distance, they're not entitled to go onto the curtilage of the house, inside the gate, and use the binoculars from that vantage point, are they?"

"They're not, Your Honor."

"Why isn't it the same thing with the dog?"

Justice Kagan knows that it is. And she used Justice Scalia's reasoning in Kyllo v. United States, the precedent that is on all fours with this case.

She recited from Kyllo: "'We think that obtaining by sense-enhancing technology any information regarding the interior of the home that could not otherwise have been obtained without physical intrusion into a constitutionally protected area constitutes a search, at least where, as here, the technology in question is not in general public use.'" And she asked Florida's counsel, "[W]hat part of that language does not apply in this case?"

"Franky's nose is not technology," he replied, referring to the dog. "It's---he's using---he's availing himself of God-given senses in the way that dogs have helped mankind for centuries."

The existence of dogs in human society for centuries might help the government if dogs had been used for drug-detection all this time. And then only if the question was what it is reasonable to expect.

What matters is that a drug-sniffing dog is indeed a form of sense-enhancing technology. Selected for its strong sense of smell, and trained to convey when particular odors are present, a drug-sniffing dog makes perceptible to law enforcement what is otherwise imperceptible.

And that is the very definition of searching. At least as Black's Law Dictionary has it: “‘Search’ consists of looking for or seeking out that which is otherwise concealed from view.”

Police officers use dogs to search for drugs and other materials in which they are interested but which they cannot see by themselves. A drug-sniffing dog is a cuddly chromatograph.

And just now, quietly, you have seen at work the rationale that the Supreme Court should use to decide Florida v. Jardines. Was it a search to bring a drug-sniffing dog to the front door of a house? The Court should apply the plain meaning of the word "search" to the facts of the case that has come before it. There's no need for doctrine at all.

November 1, 2012 8:35AM

Fed Up in Old Blighty

Yesterday, the British coalition government (Conservatives and Liberal Democrats) suffered a major defeat in the House of Commons at the hands of some 50 Conservative rebels who want David Cameron, the Prime Minister, to veto any increase in the EU budget. The tone-deaf eurocrats in Brussels are demanding a 6.8 percent increase in the EU budget for 2013. All the while, most European governments are sinking deeper in the red. Quelle surprise!

Cameron has already promised to veto any spending increase above the inflation rate of 2.5 percent, but the Tory rebels demand that spending be frozen at the current level, which would amount to a cut in real spending. So, what now?

Cameron can ignore the non-binding parliamentary vote, but he was put on notice to take a hard line in Brussels. Most Tories realize that a cut in real spending is probably too much to hope for, but Cameron would do himself irreparable harm if he agreed to anything above a nominal increase. Some countries will not be pleased with the British stance and Cameron may yet have to veto the entire EU budget. It is impossible to ignore the growing euro-skepticism in Britain. Only last week, Theresa May, the Home Secretary, announced that Britain was withdrawing from some 130 EU-wide agreements in police and justice measures. Where is all of this heading? At present, it is not possible to tell whether the UK withdraws from the EU altogether or negotiates some sort of a looser membership agreement with the EU. One thing is clear, though: Europe’s troubles are far from over.