Archives: 11/2012

Your Thanksgiving TSA Update

On this, the storied biggest travel day of the year, it’s worth reviewing the latest TSA news.

Will your checkpoint pat-down soon be administered by a TSA agent in short pants? That’s one of the employment conditions the TSA employees’ newly elected union might push for. TSA’s unionized workers will now pay about $16 million a year to the American Federation of Government Employees, which will push for comfortable uniforms and other felicitous policies for TSA agents—and for politicians felicitous to government employees. Oh, and the AFGE will defend weak links in the TSA cadre against termination. Conscientious TSA workers—and there are many: they touch my sensitive areas with the backs of their hands regularly—will go unremembered while their loud, rude, and occassionally kleptic colleagues make their imprint on public opinion.

Did you opt to drive instead of fly this year? You put yourself in a great deal more peril than you would have been aloft, whether the TSA existed or not. Read Matt Yglesias’ recent piece, “The TSA Is Killing Us”. More people die each year because of the TSA than would if security were handled in a way that didn’t discourage air travel.

Those airport strip-search machines are continuing their long, slow, expensive decline. News emerged in a hearing last week of glitchiness in software intended—finally—to respond to privacy concerns around exposing naked images of people to TSA agents. Because processing people using these machines is slow, they’ve been moved out of high-volume airports. Because they are large and unwieldy, they haven’t been installed in the smaller airports where they were headed. End result, the machines have been warehoused.

This latter story inspired a conversation between Caleb Brown and me, one that Caleb thoughtfully recorded and put in a podcast just for you! Early in 2013, the TSA will have to begin a formal rulemaking in which these machines must be justified. The agency will have a hard time doing so. And you were wondering what to give thanks for this year…

You can also give thanks that this TSA-related Twitter account is a spoof.

Voting to Save Pork Programs Doesn’t Save Allen West

House freshman Allen West (R-FL) – a tea party and Fox News favorite – finally conceded defeat to his Democratic opponent on Tuesday. According to a Politico article, “The congressman’s unexpected loss left his advisers, donors and legion of tea party fans searching for answers.”

Here’s one answer: West’s hypocritical votes in favor of federal programs that inappropriately subsidize local concerns apparently didn’t buy him goodwill from voters. I’m referring to West’s votes earlier this year to save the Community Development Block Grant program and the Economic Development Administration, which I previously discussed:

On West’s congressional website, he states that “As your Congressman, I will curb out of control Government spending.” He also says that “we need to challenge the status quo in Washington and stop the floodgates of government spending” and that he will “carry the torch of conservative, small government principles with me to Washington.” West, however, voted to save the CDBG program and he also voted back in May to save the Economic Development Administration, which is another parochial slush fund. In April, he accused Democrats of being communists. That’s pretty rich given that he proceeded to vote to protect programs that engage in central planning.

Those who understand and appreciate the need for a return to the fiscal federalism of our constitutional roots should not mourn West’s electoral demise. Indeed, supporters of limited government need to start taking a deeper look at the politicians that they embrace.

A Cautionary Tale on Negotiated vs. Unilateral Trade Liberalization

Many economists, including myself, take some convincing when it comes to the benefits of bilateral and regional trade agreements. I’m not as skeptical as the likes of, say, Rep. Ron Paul, who often votes against preferential and piecemeal trade liberalization legislation on the basis of it being “managed trade”  (his latest protest vote on that score was a “nay” on granting Russia permanent normal trade relations status).  But since the 1950s, when the work of Jacob Viner showed that when trade agreements cause the importing country to favor less-efficient producers (a phenomenon known as trade diversion), trade theory has pretty-much consistently shown a hierarchy of mechanisms for increasing commerce across borders: unilateral trade liberalization is best, followed by multilateral trade liberalization (although the current WTO round of trade negotiations is dead), and then regional or bilateral agreements. Most economists more-or-less subscribe to this hierarchy on the basis of pure economics, although we disagree on the extent to which political and practical concerns should trump the economic theory in order to harvest at least some benefits for consumers and taxpayers, who have had their wallets picked for decades if not centuries in the name of “leveling the playing field.” (In the interests of preserving appetites in anticipation of Thanksgiving, I will spare the readers further details on the esoteric and internecine squabbles between trade economists on this topic.)

In the early to mid-2000s, the Bush administration (followed by others) tried to turn this thinking on its head, arguing that bilateral negotiations can aid trade liberalization by (a) forcing the hand of foot-draggers, by scaring them into joining the fray and (b) setting up a series of trade blocs that subsequently could be joined together like a jigsaw puzzle (a process known as “competitive liberalization”, a term coined by Fred Bergsten at the Peterson Institute of International Economics). Die-hard unilateralists like Jagdish Bhagwati (a member of the Herbert A. Stiefel Center for Trade Policy Studies Advisory Board), instead cautioned of a “spaghetti bowl” of trade agreements. Preferential deals would cause extra burdens for customs authorities, they said, for example by giving rise to complicated and in some cases conflicting rules about deciding where a good comes from for the purposes of assigning tariff rates.

Economists and free trade advocates also worry about the effect that preferential deals have on multilateral trade negotiations. I saw this first-hand when I worked on the Doha Round in 2005-06. Many World Trade Organization members, particularly developing countries, receive preferential (i.e., lower) tariff rates on their exports to developed countries. They thus often raise concerns about non-discriminatory tariff cuts because it would mean their preferences were worth less (called “preference erosion,” in the jargon of trade negotiators).  You then see the somewhat perverse situation of developing countries arguing against tariff cuts in rich countries, or at least demanding compensation for it.

The latest example of the conflict between modes of liberalization – in this case, unilateral v. regional liberalization – comes from closer to home. The trade press is buzzing with the news that the Obama Administration has raised concerns about the efforts of some lawmakers to cut tariffs on certain footwear items (on the basis that we do not make them in the United States and therefore have no competitive interest in the market). These sorts of efforts happen regularly in the form of “miscellaneous tariff bills” (MTBs), usually with little fanfare given the uncontroversial politics of it, Republican concerns notwithstanding. Why would the administration object to limited tariff relief on goods not produced domestically? Because, as is typical among trade negotiators, they want to keep the tariffs in place as bargaining chips:

Alex Boian, director of trade policy at the Outdoor Industry Association (OIA), said in an interview that administration officials in private conversations have made clear their reservations relate to the fact that Vietnam is seeking a reduction in U.S. footwear tariffs in the context of the TPP talks. In the administration’s view, these tariff lines represent “prime negotiating leverage” with Vietnam in [the Trans-Pacific Partnership negotiations], Boian said. (emphasis added. Source: Inside U.S. Trade [paywall])

A few industry groups have raised a stink, pointing out that the tariff relief provided by the MTB is limited and temporary, so are unlikely to threaten the TPP. And procedurally, it is not clear if the administration even has the right to object to the MTB tariff breaks on this basis anyway. More broadly, I find myself sympathetic to the arguments of the American Apparel and Footwear Association, which in their letter to United States Trade Representative Ron Kirk, said:

…the objection that “Enactment would undermine existing U.S. trade preferences” creates  significant concerns.  In addition to the reasons outlined above, the basic premise of this objection is faulty. To extend the logic outlined in this objection, the current negotiations toward a TPP agreement would “undermine existing U.S. trade preferences” as would negotiations toward a Doha Round agreement at the World Trade Organization.

For that matter, under this logic, any new trade negotiation would “undermine existing U.S. trade preferences.” By making such an objection, the administration is essentially arguing that U.S. trade policy should be brought to a halt altogether. [emphasis added]

Indeed. When it comes to preferential trade deals, caveat emptor.

You Can’t Go Home Again, cont’d

In an earlier post criticizing Paul Krugman’s “Twinkie Manifesto,” I tried to make a simple point: just because economic policies produced good results at an earlier stage of economic development doesn’t mean they’ll work well today.

Now enter Brad DeLong and Matt Yglesias, two of the smartest progressives in Blogland, who in an effort to tweak me make exactly the same mistake Krugman did.

Let’s back up and review. Here was Krugman’s argument: (a) back in the ’50s the top tax rate was 91 percent, union density was high, and the economy boomed while incomes converged; (b) therefore, a return to dirigisme would be good for both growth and widely shared prosperity. I responded that correlation ain’t causation: the early post-WWII decades were an economic Golden Age, but that’s because the conditions for growth were so favorable that the country prospered despite the bad policies Krugman now longs for.

In identifying some of those favorable conditions, I mentioned, among other things, (a) the opportunities for catch-up growth in the South and West, facilitated by big advances in transportation (e.g., the U.S. highway system built during the ’20s and ‘30) and (b) the rapid accumulation of human capital as reflected in soaring high school and college graduation rates.

Yes, both of these factors involved public investment at either the local, state, or federal level, which led Brad and Matt to pounce. See, they argue, Big Government was good for growth!

First of all, I’m a Hayekian classical liberal, which means I’m fine with a government role in funding roads and schools. So Brad and Matt’s attempt to play “gotcha!” misses the target.

But back to the main point: what are the contemporary policy implications of the fact that some public investments in the first half of the 20th century – when government spending levels were much lower, and the economy was much poorer and less advanced – aided growth? As economists Vito Tanzi and Ludger Schuknecht show, returns to government spending in terms of social welfare declined rapidly in the second half of the 20th century. And now we’re in the second decade of the 21st. Hey Big Government, what have you done for me lately?

Let’s look specifically at education and infrastructure. Both sectors are dominated by government, and both are hot messes of waste and mismanagement. The way forward in both sectors will involve greater reliance on competition and private sector involvement, not less.

So sorry, Brad and Matt, I know it’s Thanksgiving and all, but you can’t go home again either.

DoD Now Responsible for Guns and Butter

Of the many enduring tenets shaping America’s state-building project in Afghanistan, the belief that expanded economic opportunities can promote long-term stability has long been received as gospel. Past 2014, that principle will continue to animate U.S.strategy in Afghanistan.

Jim Bullion, the director of the Pentagon’s Task Force for Business and Stability Operations (TFBSO), said in a recent interview with Foreign Policy’s Situation Report that America’s long-term presence could be robust. TFBSO itself hopes to strengthen existing industries in Afghanistan by luring private sector investment. Its broader mission is to promote “economic stabilization in order to reduce violence, enhance stability, and restore economic normalcy in areas where unrest and insurgency have created a synchronous downward spiral of economic hardship and violence.”

That thinking is consistent with the U.S. Army’s Stability Operations Field Manual [3-07], which states that the “long term and costly” effort to reintegrate former combatants includes vocational training, relocation and resettlement support, and assistance in finding employment. Indeed, a couple years back, Secretary of State Hillary Clinton articulated a similar vision when she made clear that for those militants who turned away from the Taliban, “we need incentives in order to both protect them and provide alternatives to them to replace the payment they received as Taliban fighters.”

So much is wrong with this way of thinking it’s difficult to know where to start. First, part of the coalition’s problem has been attempting to secure and stabilize an active war zone while simultaneously spending staggering sums of money to develop it. As a result, numerous audits, reports, and investigations have found that a number of projects and programs funded by DOD, State, and the U.S. Agency for International Development (USAID) have been ineffective, unsustainable, produced unnecessary redundancy, wasted resources, and fraud.

In addition, as Congresswoman Betty McCollum (D-MN) asked last year in a statement on the TFBSO and a defense bill appropriating $150 million to operate it:

When in the course of this long war did it become the Department of Defense’s role to facilitate business opportunities for Afghan and foreign companies?

Is it really within the Pentagon’s expertise or mission to excel at business development, farming, or mineral exploration?

[…]

Every House member needs to ask why the Pentagon is supporting the development of the Afghan carpet industry while U.S.soldiers are under attack.

McCollum makes some astute points. That said, she also argues that the role of promoting economic development belongs to civilian agencies like USAID, State, and Commerce. On that point, we diverge.

The underlying assumption of economic development programs in Afghanistan is that locals will gravitate toward the Taliban if they lack an alternative livelihood. Certainly, the promise of money and jobs has lured some militant foot soldiers off the battlefield, but to adopt this position as the crux of an overarching strategy does more to trivialize the complex blend of intangible motives that spur many locals to fight.

Some Afghans (and Pakistanis) take up arms for reasons other than economic impoverishment. They do so for reasons such as factional infighting, traditional/local/tribal vendettas, the promotion of jihad, or group exclusion from power. In this respect, the causal link between economic development and conflict alleviation is not so robust, especially if other more pervasive forces are underlying the conflict.

Moreover, a few of Afghanistan’s most insecure provinces have received the most development aid. Matt Waldman, Oxfam International’s former head of policy in Afghanistan, wrote years ago, “if it were a state,Helmand [province] alone would be the world’s fifth largest recipient of funds from USAID, the US Agency for International Development.”

Part of the problem is that money that’s pumped into unstable environments becomes unaccountable. That often creates a feedback loop in which foreign aid breeds corruption and generates more instability. In fact, that was the finding of a June 2011 Senate Foreign Relations Committee report:

Foreign aid, when misspent, can fuel corruption, distort labor and goods markets, undermine the host government’s ability to exert control over resources, and contribute to insecurity.

Ironically, the “economic opportunity = long-term stability” strategy achieves neither. In certain areas, continuing such policies beyond 2014 may not only do more harm than good, but also perpetuate the dysfunction and underdevelopment that has plagued Afghanistan for centuries.

Happy Imported Thanksgiving!

From the establishment trade policy perspective, trade is all about jobs.  Hence, I wasn’t too surprised to see this blog post from the U.S. Trade Representative’s office, explaining how Thanksgiving helps the U.S. balance of trade.  They start by reassuring everyone that eating Thanksgiving foods is suitably patriotic in economic terms: “Chances are most … Thanksgiving food staples will be grown and raised here in America.”  But apparently it’s not enough that we are avoiding imports; we must also be exporting, because that creates jobs!  In this regard, they note the following figures for U.S. exports (2011 figures) of Thanksgiving fare:

– $520 million in fresh, frozen, whole or cut turkey

– $255 million of potatoes

– $19 million of fresh cranberries

– $952 million of apples

– $1.25 billion of wine

– $2 million of pumpkin seeds

– $183 million of pecans.

We here at Cato’s trade policy center have no objection to exports, but we really like imports as well.  So, with the help of research assistant Inu Barbee, I have put together some rough import figures for those same products:

– $30 million of fresh, frozen or processed turkey

– $857 million of fresh or frozen potatoes

– $50 million of fresh cranberries

– $133 million of apples

– $4.8 billion of wine

– $35 million of pumpkin seeds

– $287 million of pecans

To sum up:  Enjoy your Thanksgiving dinner, wherever it came from!

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How the CFPB Distorts the Facts about College Loans

Last month, the Consumer Financial Protection Bureau – a rogue creation of Dodd-Frank – released the first annual report from its private student loan “ombudsman.” And boy, does the report illustrate how far off the rails government has gotten.

Start with the focus: private student loans. These and for-profit colleges have gotten huge, damning attention from Washington – and much of the higher ed commentariat – over the last few years. But even if they were true devil’s spawn, private loans are absolutely not the main problems in higher ed.

Even at their very brief peak in 2007-08, private student loans constituted only 12.5 percent of total student aid. In 2011-12 they were just 2.6 percent. The vast majority of funds have always come from other sources, first and foremost the federal government. Yes, it is primarily “aid” from Washington that lets colleges raise their prices with impunity, and enables students to take on substantial debt for often less-than-substantial studies.

Government, not private lending, is the Lex Luthor here. But to be fair, private lending is the CFPB’s bailiwick, so you can’t blame the agency for putting out the report. You can sure as heck, though, blame politicians for creating a bureau whose job seems simply to be pointing fingers at private companies.

You can also blame the CFPB for the content of its report, which is simply a summary of complaints the bureau has received from disgruntled borrowers. Fairly early on it even states that “the report does not attempt to present a statistically significant picture of issues faced by borrowers” (as if its findings are empirical at all). Unfortunately, it goes on to say that the report “can help to illustrate where there is a mismatch between borrower expectations and actual service delivered.”

Actually, no it can’t. At least not reliably. All it can tell you is what people complained to the CFPB about. It can’t tell you if the complaints had bases in fact. It can’t tell you if complaint-lodgers were really just motivated by a desire not to pay. And it can’t tell you what the lenders’ sides of the stories are.

Okay, it probably could do the last thing, but it seems the ombudsman chose not to. There is not an ounce of response from any lender to the anecdotes that essentially are this report. In other words, the report seems to be doing exactly what the bureau’s opponents feared CFPB would do: functioning as an unaccountable propaganda machine against private companies. And don’t be surprised to hear this report invoked repeatedly by Sen. Tom Harkin (D-IA) and other profit-haranguers as damning proof that private student lenders are out of control.

Sadly, the prominent role of government in student lending is ignored even when it is obvious from data on private lending. As one table shows, 46 percent of complaints received were about loans connected to Sallie Mae, and 12 percent about loans from American Education Services, an offshoot of the Pennsylvania Higher Education Assistance Agency (PHEAA).

Sallie Mae, of course, is the student-loan cousin of Fannie Mae and Freddie Mac, the federal creations at the heart of bad mortgage lending. And PHEAA? “Created in 1963 by the Pennsylvania General Assembly, PHEAA has evolved into one of the nation’s leading student aid organizations.”

Yup, more than half of the complaints about ostensibly private lending were really about government-created lenders. But don’t expect to find even a footnote in the report hinting that government might be the real problem.

It’s hard not to conclude that the major goal of the CFPB is to bash private companies, and in so doing justify more and more government control of the economy. If that’s the case, and if this report is any indication, then the CFPB is doing its job. Too bad that job serves the public so poorly.

Cross-posted from SeeThruEdu.com