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July 31, 2013 10:54PM

Uruguay’s House of Deputies Votes to Legalize Marijuana

Uruguay’s House of Deputies voted today to allow the production, commercialization, and distribution of cannabis, taking the first step to becoming the first country in the world to fully legalize marijuana. Even though Uruguay never criminalized personal consumption, this vote, passed 50-46, is a much bolder move.

The bill is a more elaborate piece of legislation than the draft introduced to the Uruguayan congress a year ago, which had only one article giving the state the power to regulate the cannabis market. Initially, the government contemplated creating a state-owned monopoly in the production and sale of the drug. The bill approved today provides for a private but strictly regulated market for cannabis. Uruguayans will be able to grow their own pot (up to six plants) or they can join membership clubs which can also grow their own marijuana (up to 99 plants). All crops require prior government authorization.

Also, Uruguayans will be able to buy marijuana from authorized drug stores (up to 40 grams per month). In order to do so, they will have to join a National Registry of Users. Even though the bill stipulates that the registry will be private and the information there is considered “sensitive,” there are good reasons to believe that not many people will rush to a government agency to register as a marijuana user. People under 18 years of age won’t be able to legally access marijuana and all forms of advertisement of the drug are prohibited.

The bill is now headed to the Senate where it is expected to pass. Once it becomes the law of the land, Uruguay will become the world’s standard-bearer of drug policy reform. Even though the country is small and it’s not beset by the plight of drug-related violence seen in Mexico or Central America, Uruguay’s marijuana legalization constitutes a momentous step in the road to dismantling the international prohibitionist regime that has been in place since the 1960s. Marijuana legalization bills have already been introduced in the legislatures of countries such as Chile and Mexico. And let’s not forget that cannabis was legalized last November (via referendum) in Colorado and Washington State.

The Obama administration faces a choice: it may either obstruct the momentum toward reform, or it may engage Latin American countries in an open debate about how to end a failed policy that has cost the lives of hundreds of thousands of people in the region. That would be change we can believe in.

July 31, 2013 3:16PM

Four Charts Showing How Obama’s Statist Agenda Is Hurting Jobs and Growth

President Obama made a much-hyped pivot-to-the-economy speech yesterday in Chattanooga, Tennessee.

I already explained, immediately following the speech, why his "grand bargain" on corporate taxes was not a good deal because of all the hidden taxes on new investment and international competitiveness.

But I also had a chance to dissect the President's overall track record on the economy for today's Chattanooga Times Free Press.

Here's some of what I wrote.

...he didn’t say anything new or different. His audience was treated to the same tax-spend-and-regulate boilerplate that the President has been dispensing ever since he entered political life. ...with Obamanomics, not only has America failed to enjoy the traditional period of four-to-five percent growth at the start of a recovery, the economy hasn’t even gotten close to the long-run average of 3 percent. That’s a damning indictment. But it gets worse. The data on employment is downright depressing. A look at the numbers reveals that the nation is suffering from the worst period of job creation since the Great Depression. Most startling, we still haven’t recovered the jobs we lost during the recession.

That's some strong rhetoric, but there are plenty of numbers to back up my assertions.

Let's take a look at the interactive website maintained by the Minneapolis Federal Reserve Bank. This site allows users to compare all business cycles since World War II.

Let's start by comparing the current business cycle to what happened under Reaganomics.

AFP Reagan v Obama GDP

As you can see, we've had a very sluggish recovery compared to the boom we enjoyed in the 1980s.

Not all of this is Obama's fault, by the way. Here's some more of what I wrote for the Chattanooga Times Free Press.

...all of these problems started before President Obama ever got to the White House. President Bush also was guilty of too much spending and excessive regulation, and his policies helped push the economy into a ditch. Unfortunately, even though he promised “change,” President Obama has been adding to Bush’s mistakes — and also raising taxes.

Some people may be wondering whether it's fair to compare Reaganomics to Obamanomics. Maybe I'm cherry-picking data to make Obama (and Bush) look bad.

Since I've already admitted that it's good to be suspicious of all people who work in Washington, I don't begrudge folks who are skeptical of what I write.

So let's now look at the Minneapolis Fed's data for every business cycle since the end of World War II. As you can see, the red line (representing where we are today) stands out in the wrong way.

AFP GDP

The employment data is even worse than the GDP data.

The comparison of Reaganomics with BushObamanomics is startling. There was a jobs boom in the 1980s, while today we haven't even recovered all the jobs lost during the downturn.

AFP Reagan v Obama Jobs

And if we look at what we're experiencing now compared to all other business cycles, it becomes even more apparent that big government is generating very bad results for the American people.

AFP Jobs

Here's how I conclude my column.

...what’s the bottom line? The world is a laboratory, and the lessons are very clear. Jurisdictions with small government and free markets, such as Hong Kong and Singapore, grow rapidly. Nations with bloated welfare states, such as France, Italy and Greece, suffer from stagnation and decline. The United States historically has been somewhere between these two camps, which is why we had average growth of about 3 percent. We’ve become a lot more like Europe during the Bush-Obama years. That helps to explain why our growth numbers and jobs data are now so disappointing. Unfortunately, the President’s speech shows that he wants to step on the gas rather than turn the car in the right direction.

In other words, if we want more prosperity, we need to follow the recipe of free markets and small government.

July 31, 2013 2:50PM

Zimbabwe Elections Underway as Mugabe Seeks to Remain in Power

Zimbabweans went to the polls today. Standing against each other in the contest for the presidency were, for the third time, President Robert Mugabe and Prime Minister Morgan Tsvangirai. Their respective political parties, the ZANU-PF and Movement for Democratic Change, battled for the control of the country’s Parliament.

None can be sure about the outcome, but smart money must be on the 89-year-old dictator, who seems determined to extend his 33-year hold on power. Mugabe has managed to hang on to the presidency in more difficult circumstances, murdering his way to electoral “victory” in the midst of hyperinflation and economic meltdown in 2008. He is likely to “win” again.

Those who are interested in the situation in Zimbabwe might like to read my take on the Zimbabwean economy in Foreign Policy and Washington Times. Also, Craig Richardson, associate professor of economics at Winston-Salem State University in North Carolina, has analyzed the country’s recent economic performance in a Cato Institute study titled “Zimbabwe: Why is One of the World’s Least-Free Economies Growing So Fast?” Last but not least, check out Cato’s Zimbabwe page that discusses, among other things, Zimbabwe’s experience with hyperinflation.

July 31, 2013 2:17PM

A Closer Look at the Government’s Determination of the Social Costs of Carbon

Global Science Report is a weekly feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

 

We and our apparently few friends tend to shriek with horror when governments try to centrally plan economies because, of course, planning places arbitrary prices on things and dictates how much of what will be made during the next five years.  But we should be equally horrified when government tries to invent costs and then impose them upon us.

Such is the case with the “social cost of carbon” (SCC), a completely mis-named concept which purports to accurately estimate damages associated with global warming caused by pernicious fossil fuel-fired economic activity.

First of all, “carbon” has nothing to do with global warming. In its purest crystalline form, a gram will set you back about $50,000—a.k.a. a 5-carat diamond. Other allotropes include graphite and buckyballs--geodesic-dome like molecules composed of 60 carbon atoms. Combusted (oxidized) carbon-containing compounds are the materials that produce carbon dioxide (CO2). Uncombusted methane (CH4) along with carbon dioxide can slightly enhance the earth’s natural greenhouse effect. 

Further, there are two sides to the industrial coin, not just negativity (i.e., social costs). It’s obvious that the combustion of carbon-containing compounds has driven a lot of civilization—a byproduct is the fact that you aren’t dead yet (life expectancy, pre-industrial revolution in Europe was around 35) and the fact that—in real dollars—you’re about ten times richer than your great-grandparents were.

So, what the government (e.g., the EPA) is really talking about is "The One-Tailed Effect of Oxidizing Carbon-Containing Compounds," acronymed OTEOCCC, which just isn’t as catchy as SCC, which sounds like a Division I Football conference.

Currently, there are several proposed legislative amendments floating around Congress that are aimed to limit how the EPA can use the government’s assessment of the social costs of carbon.

Limiting the EPA’s use of the SCC in considering regulations would be a wise move since the government’s SCC calculations are incomplete, subjective, and seriously lagging the science of climate change.

The government’s Interagency Working Group on the Social Costs of Carbon, back in 2010, defines the social costs of carbon this way:

The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change.

Its determination of the SCC has significant ramifications, as the Interagency Working Group is quick to point out:

Under Executive Order 12866, agencies are required, to the extent permitted by law, “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” The purpose of the “social cost of carbon” (SCC) estimates presented here is to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts.

Recently, the Interagency Working Group reconvened and made good on its promise to update their 2010 findings. In doing so, they increased their estimate of the SCC by about 40 percent.

Increased!? How on earth, you may wonder, could they have increased their SCC estimates since 2010 when paper after scientific paper shows that the equilibrium climate sensitivity—that is, how much global warming will result from a doubling of the atmospheric carbon dioxide concentration—is much lower than most pre-2010 determinations?  The  Interagency Working Group even recognizes that the climate sensitivity “is a key input parameter” to their SCC models.

Simple: The updated SCC calculations are made without “revisit[ing] other assumptions with regard to the discount rate, reference case socioeconomic and emission scenarios, or equilibrium climate sensitivity” [emphasis added].

How convenient is that? The updated SCC, which the White House requires to be used in the cost/benefit analyses of new regulations, completely ignores progress made in the basic science of climate change—progress which suggests that the future impacts from climate change are overestimated by some 50 percent.

And if failing to keep up with the science of a “key input parameter” to their calculation isn’t enough, the Interagency Working Groups makes several other egregious decisions in arriving at their SCC determination.

These other missteps were the subject of testimony of economist Robert Murphy from the Institute for Energy Research before the Senate Committee on Environment and Public Works a couple of weeks back.

Murphy’s testimony focused on two main areas (more details here and here): 

1) The arbitrary (and improper) selection of the discount rate.

2) The government’s use of its assessment of the global costs rather than the domestic costs of carbon emissions.

The discount rate is basically how much one is willing to pay now to avert future damages. The lower the discount rate, the more costly (in today’s dollars) future damages become. The SCC is very sensitive to the discount rate used in the SCC models. The Interagency Working Group assessed the SCC under assumptions of a discount rate of 2.5 percent, 3 percent and 5 percent. The SCC is about 5 times greater using a 2.5 percent rate than a 5 percent rate. Murphy argues that by federal guidelines (OMB Circular A-4), the Interagency Working Group should also have considered the SCC under a 7 percent discount rate. And had they done so, they very likely would have found the SCC to be negative (i.e., that carbon emissions conferred a net benefit to society). But that would have been an inconvenient result, so the Interagency Working Group ignored that federal guideline.

They also dismissed the directive to report the costs and benefits from a domestic perspective, where costs are only considered to be a fraction of the total global costs (according to the Interagency Working Group, between 7 percent and 23 percent). Considering a 7 percent discount rate and the new science indicating a lower climate sensitivity and almost assuredly, the domestic costs would approach zero (if not, in fact, be negative).

This gives rise to a situation where the EPA regulations on carbon dioxide emissions would lead to net costs to the United States and benefits to the rest of the world.

This is called “foreign assistance,” but seems to be absent in government accountings of such. So much for transparency.

But regardless of what you call it, the government’s determination and use of the social cost of carbon is simply a bad idea. The extreme sensitivity to its input parameters means that the final answer is easily molded to be whatever the user desires it to be. And since the current government user desires a limit on carbon dioxide emissions, the SCC is positive and has gotten larger just in time for the new round of proposed regulations and executive actions—ignoring new climate science in the process. 

Further, if they are going to speak about global costs, they had better note that the poor and developing world is seeing large increases in life expectancy and wealth as fossil fuel-generated electricity finally reaches the poor, just as happened here in the first half of the 20th century.

We think the blunders the Obama administration has committed in setting their “price” of carbon dioxide and methane (as opposed to the silly “carbon”) may be actionable, action we’d be happy to contribute to.

References:

Interagency Working Group on the Social Costs of Carbon, 2010. Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, http://www.epa.gov/otaq/climate/regulations/scc-tsd.pdf

Interagency Working Group on the Social Costs of Carbon, 2013. Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf

Knappenberger, P.C., and P.J. Michaels, 2013. Policy Implications of Climate Models on the Verge of Failure. American Geophysical Union Science Policy Conference, Washington DC, June 24-26, 2013, Paper CC-15.

July 31, 2013 12:23PM

Who Works at the Minimum Wage?

Recent protests by fast food workers have renewed interest in the minimum wage. Often, these protests focus on the inability of an individual worker to support a family on the minimum wage. Such a question spurred McDonald's to release a mock budget for low wage workers. McDonald's first mistake, however, was in accepting the premise of the question. 

Whoever claimed the minimum wage was supposed to be enough to support a family? Certainly, when I started my first job flipping burgers at Burger King, I didn't take that job expecting to support a family. It was an avenue to earn some spending money (I wasn't born a Kennedy, so my family could not provide a generous allowance) and a way to learn some basic job skills. I haven't been alone in viewing minimum wage restaurants jobs in that light. According to the Bureau of Labor Statistics, in 2012 (latest numbers) over half of minimum wage workers are under age 25. In fact, only 3 percent of workers over the age of 25 earn at or below the minimum wage. Two-thirds of minimum wage workers only work part-time, again illustrating the point that these jobs aren't viewed as a career but rather the first rung on the job ladder.

The biggest driver of who works at minimum wage is education. Only 8 percent of minimum wage workers have a college degree. Around one third lacks a high school degree. Cost of living also drives the difference. Despite the higher state minimum wages found in the Northeast, about half of all minimum wage workers live in the South, a relatively more affordable place to live. Sadly, opponents of the current minimum wage level are getting their wish, but not in the way they wanted. Since 2010, the number of minimum wage workers has declined by over 800,000. Given the increase in minimum wage in 2009 and the relatively weak labor market, I think it’s a safe bet that most of these workers left the labor force rather than received a big raise. 

Even if all minimum wage workers were trying to support a family on their own, I ultimately do not believe it’s the role of the government to inject itself into consensual private agreements. Nor do I believe it’s the role of the government to pick sides in private disputes. The government has no more moral authority to choose the “right” wage for someone than I do. Only free individuals can make those choices for themselves. Even if it wasn’t a policy choice about freedom of contract, do we really want, as a matter of policy, to encourage a large portion of individuals in their 30s and 40s to make a career of flipping burgers?  I certainly didn’t start my job at Burger King with the intention of staying.  

July 31, 2013 11:59AM

Pre‑K Poll Vaulting

Just as President Obama has vowed to regain the initiative and push forward with his economic and education policy agenda, an organization called The First Five Years Fund has released a new poll asking the public about Pre-K policy. According to the poll, Americans know what they want (More federally funded Pre-K!), and know when they want it (NOW!).

Encouraging as this must be for supporters of a larger federal role in early education, opinion polling is not a good way to design policy---any more than it is a good way to design bridges. There is an aspect of bridge construction in which public opinion does properly figure: assessing demand. But when it comes to actually designing the structure that will carry living, breathing people across a gorge, public opinion plays little role. The reason is obvious: most people lack the time, skills, and knowledge to design bridges. They know what they ultimately want out of civil engineering projects, but they don't know how best to achieve their goals.

It's the same with education policy, and indeed with policy generally. Contrary to the apparent assumption of these early education advocates, it is not inherently obvious that increased federal Pre-K spending will ensure that children get a strong start in life. As it happens, there is a great deal of evidence that past and current federal Pre-K programs have proven expensive failures and have even, in some cases, done harm. Nor is the advocates' currently favored policy--federally subsidized state Pre-K programs--an obviously good idea. Some states with universal Pre-K programs have actually seen their 4th grade test scores decline relative to the national average. There is no clear pattern of success.

Because of that fact, this is precisely not the sort of policy that should be expensively promoted at the federal level. If states wish to gamble that they can succeed where others have failed, then their residents should be the ones who put their money on the line. That approach has the merit that state politicians can be more easily held accountable than federal ones---voters have fewer issues on which to decide whom to support or oppose at the state level.

Well-meaning as the First Five Years Fund and its philanthropic backers no doubt are, their effort to design policy based on public opinion polling is badly misguided. It is little better than a schoolyard taunt that "everyone else wants to do it." Serious people, people who actually want to achieve their stated goals and not simply win a political contest, can do better.