201211

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.

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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.

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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.

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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.