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August 27, 2013 2:47PM

Bondholders Should Think Twice about Argentina’s Debt Swap Offer

The video below shows interim-Argentine president Adolfo Rodríguez Saá (he was president for a week) announcing before Congress in late December 2001 that Argentina would default on its debt—the largest sovereign default in history. Rodríguez was interrupted by a standing ovation and chants of “Argentina! Argentina!”



Fast forward 10 years to May 2012 when Argentina’s congress voted overwhelmingly to seize (without compensation so far) Yacimientos Petrolíferos Fiscales (YPF), the country’s largest oil company whose controlling stake belonged to Spain’s Repsol. When the 207-32 vote was announced, the chamber erupted in a wild celebration, with deputies hugging each other and singing:



This is just a taste of Argentina’s flimsy rule of law.

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August 27, 2013 1:52PM

Fordham Study Shows “Common Core” Unnecessary

The Fordham Institute released today a ("groundbreaking") study titled "What Parents Want," which finds that:

nearly all parents seek schools with a solid core curriculum in reading and math; an emphasis on science, technology, engineering, and math (STEM) education; and the development in students of good study habits, strong critical thinking skills, and excellent verbal and written communication skills. But some parents also prefer specializations and emphases that are only possible in a system of school choice.

That summary could just as easily describe chapter 1 of my 1999 book Market Education, which reviewed 20 years of public opinion research on people's educational goals and came to the same conclusion. So far so good.

Upon (re-)discovering that parents already share a "solid core" of educational expectations, do Fordham's Michael Petrilli and Checker Finn reluctantly abandon their erstwhile attachment to the government-backed standards and testing known as "Common Core"? After all, in a free marketplace with lots of overlap in consumer demands, there will be substantial overlap in what providers deliverall voluntarily; no need for government nudging. [I am shocked, shocked, to discover that Apple puts a web browser on its iPhone, similar to the one on my Android phone!?! Even without a government mandate!]

Strangely, but not unexpectedly, that is not what Petrilli and Finn elect to do. On the contrary, they conclude that the freely-occurring commonality among parents' demands "bodes well for policy initiatives such as the Common Core State Standards, which are designed to deliver much of that."

Translation: families would pursueand educators would thus providea common core of studies voluntarily, therefore, governments should compel educators to adhere to a particular set of standards cooked up by a group of bureaucrats and arm-twisted into place by the federal government. Because, really, when has anything pursued voluntarily not been improved by the addition of government compulsion?

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August 27, 2013 10:45AM

The Work vs. Welfare Trade‐​Off: A Response to Critics

Last week, the Cato Institute released a new study, The Work vs. Welfare Trade-Off, 2013: An Analysis of the Total Level of Welfare Benefits by State. It showed that a family collecting welfare benefits from seven common programs – Temporary assistance for Needy Families (TANF), food stamps, Medicaid, WIC, public housing assistance, utilities assistance (LIHEAP) and free commodities – could receive more than what a minimum wage job would pay in 35 states, more than a $15 per hour job in 13 states, and more than a $20 per hour job in the eight most generous states. We concluded that the high value of welfare benefits might create a disincentive for recipients to leave welfare for work.

Unsurprisingly, our study has attracted criticism from several quarters. Some of those critics make valuable points that might improve future research, but most criticism falls far short of the mark.

Among the most frequent criticisms:

SNAP should be the basis of the package instead of TANF

Some of our critics have essentially attempted to redefine “welfare” to mean a program other than TANF. Our analysis started with a family on TANF and then looked at what additional programs the family would receive. By starting with a much larger program, such as food stamps (SNAP), our critics are able to – correctly – argue that relatively few SNAP recipients also receive TANF benefits.

However, while SNAP has indeed grown in size and significance in recent years, TANF should continue to be the basis for determining welfare packages. TANF, and traditional cash assistance, have long been considered the quintessential “welfare” program, and its importance can be seen in legislative history. For example, it was the foundation and focus of the 1996 reforms that are cited as “welfare reform.” TANF is also more tightly targeted at the population we attempt to analyze in this paper; as is often cited, SNAP, in addition to serving low-income non-working families, also serves significant numbers of elderly and disabled people, as well as a higher proportion of working families. For instance, in 2011 almost 17 percent of SNAP households were above the federal poverty guidelines (FPL).

Single adults receive less/this hypothetical family is not representative

It is certainly true that a single adult would receive less than a family, due to the very nature of the welfare programs, but we feel our hypothetical family is more representative. The average household size for TANF in the most recent available data was exactly 3.0 people, while at the same time only six percent of TANF households were only one person. Looking at SNAP, a significant proportion of those single-person recipient households were either disabled or elderly, so a single, nondisabled, working age adult is not representative of that population either. In a larger sense, the majority of the expenditures for these programs are not on these childless adults, so the focus should remain on households with dependent children.

Not everyone receives all the benefits from these programs

Another critique notes that not everyone on welfare receives benefits from all seven of the programs that we included. Therefore, it is said, our study inflated the total amount of benefits.

We agree that not every family on welfare receives all benefits. In fact, the study specifically says, “Not every welfare recipient fits the profile used in this study, and many who do fit it do not receive every benefit listed.” It even included a chart (Figure 16) showing the value of a smaller package of benefits.

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August 27, 2013 9:18AM

Resisting the Calls for Action in Syria

After months of hand-wringing, the Obama administration appears poised to intervene militarily in Syria. Yesterday, Secretary of State John Kerry cited clear evidence of chemical weapons use by forces loyal to Syrian President Bashar al-Assad, and pledged that the United States would hold Assad accountable for a “moral obscenity.” Others have chimed in this morning in agreement. The editorial writers at USA Today declare that Assad’s action “demands” a “precise strike” in response.

As I explain in an “opposing view”:

The desire to "do something" in Syria is understandable. The gut-wrenching images of the dead, including the young, have rocketed around the world. To casual observers, it seems obvious that a country as rich and militarily powerful as the United States must be able to stop the violence.

But the truth is that not even the United States can solve Syria's problems.

The American public remains strongly opposed to military intervention of any type, and the people’s representatives in Congress generally reflect these sentiments. Unfortunately, presidents can, and usually do, ignore the public’s wishes. President Obama, following the example of his predecessors, has undertaken numerous military operations without securing congressional approval, and he has done so even in the face of clear and bipartisan opposition. (Libya, for example).

A few on Capitol Hill will occasionally complain, as some did yesterday, but a groundswell among members of Congress to affirm their constitutional responsibilities is unlikely, and certainly won’t happen quickly enough to halt what appears to be imminent military action.

But the strongest reason why President Obama should ignore the voices calling for military action is because such intervention is unlikely to achieve anything constructive, and may well do great harm. While the president has the ability to launch air attacks, he is unable to affect the political realities on the ground in Syria that have sustained a brutal and bloody civil war for nearly two and a half years.

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August 26, 2013 3:10PM

Ex‐​Im Loan to Australia’s Richest Person Attracts Opposition

Well, this is awkward.

OK, not really. Because despite the fact that a mooted Ex-Im loan will help my homeland (or, more precisely, a company based in my homeland), it is still not ok.

The Ex-Im bank touts itself as an easy yes, a no-brainer of an institution to which no rational person who likes exports, jobs, and children could ever possibly object. It's self-funding! It lends only for entirely risk-free purposes! It creates jobs! It is merely correcting a market failure, so even conservatives should support it! (I've written before about why those areallmyths).

But often when Ex-Im funds a purchase abroad, some other American firm will suffer. Delta Airlines has long been critical of loans supporting Boeing exports that it says enable its competition to offer cheaper flights and hurt its business. And now we have a new example of the unintended consequences of picking winners, whereby Ex-Im is reportedly considering financing the sale of about $520 million worth of Caterpillar earthmoving equipment to an Australian mining firm. That has attracted the ire of Minnesota Senators Franken and Klobuchar, because it could hurt mines in their state. From the Duluth News Tribune

It’s not that Minnesota’s congressional delegation doesn’t like Australia, mate. But the idea of a U.S. government bank loaning money to an Australian iron ore mine that will compete with Minnesota taconite?

That’s what they don’t like.

U.S. Sens. Al Franken and Amy Klobuchar and U.S. Rep. Rick Nolan, all Minnesota Democrats, are on record opposing a plan in front of the U.S. Export-Import Bank to invest in equipment for the giant Roy Hill iron mine in Australia’s northwestern Outback...

Cleveland-based Cliffs Natural Resources, with four mines in Minnesota and Michigan, has led the charge to stop the loan, saying it threatens U.S. mining jobs and, with new Asian steel produced from Australian ore, eventually threatens U.S. steel industry jobs.

Details of the loan, including the name of the beneficiary U.S. company, are supposed to remain secret to prevent foreign competitors getting a leg up. But the News Tribune has learned that the U.S. manufacturer is Caterpillar Inc. and that the equipment includes giant trucks, bulldozers and shovels made in Illinois and Wisconsin.

And that means the Export-Import Bank now is being squeezed by two titans of U.S. industry.

The bank is conducting an “extensive economic impact study” on the loan, Phil Cogan, vice president of communications for the Washington-based bank, told the News Tribune.

The deal is expected to reach the bank’s board for a vote in the next few weeks, and that’s why lawmakers and some Minnesota mining interests are weighing in as the bank accepts public comments.

Incidentally, the project in question is operated by Australia's richest person, Gina Reinhart. From everything I've heard and read, Ms. Rinehart seems an extremely able businesswoman, more than capable of financing her own purchases if she decides they are viable. This seems like yet another misguided "investment" by the Ex-Im Bank. Mate.

August 26, 2013 2:29PM

A Microeconomic Look at Regulatory Overkill

In this new paper, I argue that an overly burdensome U.S. regulatory state is partly responsible for the downward trend in domestic and foreign investment in U.S. factories, professional services operations, distribution centers, and research and development facilities. EPA mandates, Obamacare’s costly, complicated new health care directives, and the slowly emerging financial services restrictions stemming from Dodd Frank, are just some of the new regulations that have thickened the Federal Register to more than 80,000 pages per year and added 16,500 new pages to the Code of Federal Regulations during the Obama presidency, undoubtedly deflecting and chasing investment and business creation to foreign shores.

Oddly, this massive expansion of federal rules has evolved as President Obama has simultaneously expressed concerns about the impacts of both declining investment and regulatory overkill on economic growth. In 2011, the president issued Executive Order 13563 under the heading "Improving Regulation and Regulatory Review." Section 1 states:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to improve, the actual results of regulatory requirements.

The president issued this EO in the wake of his party’s mid-term election rebuke, perhaps to indicate that he understood the concerns of business. He even required that his agencies formulate plans for undertaking systematic, retrospective reviews of their rules and regulations with an eye toward making them less imposing on society:

Sec. 6. Retrospective Analyses of Existing Rules. (a) To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis for rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned…

In the words of a former chief economist at the Council of Economic Advisers:

The single greatest problem with the current system is that most regulations are subject to a cost-benefit analysis only in advance of their implementation. That is the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions.

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August 26, 2013 12:27PM

DOJ, SPLC, You Are the ‘Baddies’

It's natural for people to assume that whatever they are doing is right, and whatever their opponents are doing is wrong. But even the most ardent advocate of situational ethics will admit that this can't always be true. Sometimes, people who think they are on the side of goodness and light are... are... "the baddies."

In the past week, the Southern Poverty Law Center and the U.S. Department of Justice might as well have been going about with skull images on their caps, because they, too, have been the baddies. The SPLC is suing to prevent any poor children from escaping failing Alabama public schools because, under current policy, not every poor child is able to do so.... Yes, really. This has prompted countless commentators to observe, in the SPLC's "defense," that nothing in the organization's name says that it is against southern poverty. 

Meanwhile, the U.S. DOJ has just filed suit to stop poor children in Louisiana from escaping academically failing public schools because, it claims, those failing schools are becoming less racially integrated (by, it seems, less than 1 percent). This suit is possible because of the erroneous precedent of equating incidental ("de facto") and legally compelled ("de jure") segregation. But its unwisdom is easy to see without legal analysis: the DOJ is telling the mostly black families who choose to use Louisiana's school vouchers that their actions are not good for blacks. This is hubris on an epic scale.

The top people at the DOJ and the SPLC need to get together around a table, watch the video clip above, and summon the circumspection to grasp that they are, at the moment, the baddies--brutally stomping on the very goals and ideals that they presumably hold dear.