201611

November 30, 2016 11:46AM

Does Higher Ed Prove We Need Bigger, Stronger Gates?

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With school choice advocate Betsy DeVos slated to become the next U.S. Secretary of Education, the battle between regulation and freedom has suddenly become more intense, with people on both sides exchanging fire. Yesterday, Jason Bedrick weighed in against regulation, while today Jeffrey Selingo warns that a major reason “choice hasn’t necessarily led to better outcomes in higher education is the absence of a strong gatekeeper for quality control.”

This sort of assertion strikes me as more an article of intuitive faith than a conclusion based on evidence. If only some well-informed, smart group of experts decided what people could choose, choices would be much better. The problem is that no one has the omniscience to do the job, especially so effectively that the costs of bureaucracy, barriers to entry, and kneecapping of innovation don’t severely outweigh the hoped-for benefits.

The University of Arkansas’ Jay Greene tackles the omniscience problem in his response to many of the calls for heavier gates, preferably triple-locked and backed with a moat and walls with dudes on top ready to drop hot tar on anyone unsavory who might get in. Writeth Greene:

I’ve written previously about the disconnect between near-term test score gains and changes in later life outcomes. If we can’t reliably use rigorously identified test score gains to predict later life outcomes, then on what basis will regulators be able to judge quality to protect families against making bad choices?...

But let’s say you don’t believe me about the weak predictive power of test score gains and are determined to use tests as the main indicator of school quality. We are still left with the question of whether regulators are any good at identifying which schools will contribute to test score gains. Fortunately, we have a recent study that examined whether the criteria used by regulators in New Orleans are predictive of test score growth — even if we accept test gains as a reliable indicator of quality. The bottom line is that none of the factors used by authorizers to open or renew charter schools in New Orleans were predictive of how much test score growth these schools could produce later on.

Gatekeeping sounds so safe and reassuring at first: someone let us choose only good stuff, and good stuff is all we’ll get. But the reality is no one is the deity necessary to infallibly—or even close to infallibly—know good stuff when they see it.

So does higher ed offer no lesson for K-12? Hardly, but it’s the opposite of what Selingo suggests: K-12 needs to decentralize and put funding in the hands of families.

American higher education has huge problems that I’ve listed so many times I can’t bear to repeat them (though I’ll get to two big ones in a moment). But even with its mammoth flaws, our higher education system works far better than elementary and secondary schooling. Our colleges feature top faculty talent, dominate international rankings, and attract students from all around the world. Pretty sure we can’t say that for K-12!

Higher ed’s relative dynamism and international prominence is almost certainly a function of our colleges having lots of autonomy coupled with a need to compete for students.

But there are still those tremendous problems, perhaps the greatest of which are massive noncompletion and huge price inflation. Both, however, are largely functions of a funding system that is fundamentally the same as K-12 education: someone other than the consumer is paying the bill. When someone else pays—especially nameless, faceless taxpayers—consumers’ incentives to think long and hard about what they are buying, and the prices they pay, shrink.

Go ahead, pursue the Uzbekistani studies major with badminton minor, and take six years (or more) to do it—someone else is footing the bill!

Of course, public elementary and secondary schools are funded directly—not through students—so they don’t face the price-inflation problem. Such inflation is, however, a very real concern should school choice become widespread, especially through vouchers. And while American higher education shows that it is much better that schools be autonomous and forced to compete, this is reality: any big subsidies will have big, ugly side effects.

Is the higher education lesson for K-12 schooling that it needs bigger, stronger gates? No. It’s that tough gatekeeping makes worse a situation already suffering from massive subsidization.

November 30, 2016 10:26AM

Trump and the Emoluments Clause: What Congress Needs to Do

This morning President-elect Donald Trump announced via Twitter that "I will be holding a major news conference in New York City with my children on December 15 to discuss the fact that I will be leaving my great business in total in order to fully focus on running the country in order to MAKE AMERICA GREAT AGAIN! While I am not mandated to do this under the law, I feel it is visually important, as President, to in no way have a conflict of interest with my various businesses. Hence, legal documents are being crafted which take me completely out of business operations. The Presidency is a far more important task!"

With that announcement, Trump takes one important step toward addressing both the wider problem of conflicts of interest, and within it the narrower problem—of distinct constitutional dimensions—of the Trump Organization's complex ongoing dealings with foreign governments. On those latter entanglements, I argue in a new Philadelphia Inquirer piece that under the Emoluments Clause of the Constitution, Congress will affirmatively need to “decide what it is willing to live with in the way of Trump conflicts”—and it should draw those lines before the fact, not after. Excerpt:

…That clause reads in relevant part: “And no Person holding any Office of Profit or Trust under [the United States] , shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.”…

The wording of the clause itself points one way to resolution: Congress can give consent, as it did in the early years of the Republic to presents received by Ben Franklin and John Jay. …

…it can’t be good for America to generate a series of possible impeachable offenses from a running stream of controversies about whether arm’s-length prices were charged in transactions petty or grand. …

There is no doubt that doing the right thing poses genuine difficulties for Trump not faced by other recent presidents. If he signals that he understands the nature of the problem, it would not be unreasonable to ask for extra time to solve it.

For reasons that Randall Eliason outlines in this helpful explainer, Emoluments Clause issues do not map well onto the concept of “bribery.” (Payments can violate the Emoluments Clause even if made with honest intent on both sides; bribery, for its part, is subject to a separate ban.) Removing himself from day-to-day management should help Trump avoid some violations of the Clause (for example, it will become less likely that a foreign state firm will wind up compensating him for his time). Stephen Bainbridge of UCLA has suggested that if the President-elect refuses to divest ownership of his business he at a minimum "needs to create an insulation wall separating his political activities from those of the organization. Such walls were formerly known in colloquial legal speech as 'Chinese walls.'"

Even if Trump does that, serious Emolument Clause issues will remain, especially those surrounding favorable treatment that a presidentially owned business may not have sought out but which may nonetheless constitute "presents." Congress should expect to ramp up the expertise it can apply to these problems, and (absent divestiture) assign ongoing committee responsibility to tracking them. And it should issue clear guidelines as to what it is willing and not willing to approve. Such a policy will not only signal that lawmakers are taking their constitutional responsibilities seriously, but could also benefit the Trump Organization itself by clarifying how it needs to respond if and when foreign officials begin acting with otherwise inexplicable solicitude toward its interests.

Expanded and adapted from Overlawyered.

November 30, 2016 10:02AM

Secretary of Transportation Elaine Chao

President-elect Trump's pick for Secretary of Transportation, Elaine Chao, may provide some clues about his infrastructure policies. High-speed rail advocates have hoped that Trump will support their boondoggles, and his big talk about infrastructure spending as an economic stimulus has done nothing to dim those hopes. Chao may be leaning in that direction as well.

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Chao was previously Secretary of Labor under George W. Bush, and prior to that served as Deputy Secretary of Transportation under George H.W. Bush. Born in Taiwan in 1953, Chao's father was captain of a merchant marine vessal. In 1961, the family moved to the United States where her father started the Foremost Shipping Company, which now owns at least 15 ships. 

Chao received a degree in economics from Mount Holyoke College in 1973 and an MBA from Harvard Business School in 1979. Just seven years later, she was made Deputy Administrator of the Maritime Administration in the Department of Transportation. Two years after that, she became chair of the Federal Maritime Commission, and Deputy Transportation Secretary a year after that. In 1993, she married Mitch McConnell.

As deputy transportation secretary, she let it be known that she thinks the United States has built about enough highways, and she has the respect of the heavily subsidized passenger rail industry. Thus, she may be inclined to support light rail, high-speed rail, and other transportation projects that many (including this writer) consider to be obsolete in today's world.

Digging a hole in the ground, lining it with concrete, and filling it up could be considered "infrastructure," but it won't contribute much to the national economy. Transportation infrastructure adds to the nation's gross domestic product only if it increases passenger travel and/or freight shipments. Rail projects aimed at getting people out of cars, buses, and planes will actually reduce the nation's GDP because they cost more than the forms of travel they are supposed to replace.

Meanwhile, much of the Interstate Highway System is at the end of its service life. Washington Metro recently announced it needs to spend $25 billion on “capital needs” (maintenance) over the next ten years to keep its trains going. The New York, Chicago, Philadelphia, Boston, San Francsico, and Atlanta transit systems have similar needs and similar budget shortfalls. 

Trump and Chao will have to decide if America should rebuild its existing infrastructure or let that infrastructure fall apart as it builds brand-new infrastructure that it won’t be able to afford to maintain. Even with the tax breaks proposed in Trump’s infrastructure plan, the country won’t be able to do both. While Chao may turn out to be Trump's least controversial nomination, the actions she takes as secretary will be heavily debated.

November 29, 2016 3:44PM

Markets in Education Work, But Keep the Feds Out of It

President-Elect Trump's selection of philanthropist and long-time school choice advocate Betsy DeVos for Secretary of Education has the public education establishment and its allies in panic mode. American Federation of Teachers President Randi Weingarten tweeted "Trump has chosen the most ideological, anti-public ed nominee since the creation of the Dept of Education." Over at Slate, Dana Goldstein frets that "Trump could gut public education"—even though federal dollars account for less than 10 percent of district school funding nationwide. The New York Times has also run series of hand-wringing pieces about what the Trump administration has in store for our nation's education system.

At the center of the panic over Trump’s nomination of DeVos is their support for school choice. Although light on details, Trump has pledged to devote $20 billion to a federal voucher program. As is so often the case, the most vocal opponents of federal school choice are right for the wrong reasons. Not only does the federal government lack constitutional jurisdiction (outside of Washington, D.C., military installations, and tribal lands), but a federal voucher program poses a danger to school choice efforts nationwide because a less-friendly future administration could attach regulations that undermine choice policies. Such regulations are always a threat to the effectiveness of school choice policies, but when a particular state adopts harmful regulations, the negative effects are localized. Louisiana’s folly does not affect Florida. Not so with a national voucher program. Moreover, harmful regulations are easier to fight at the state level than at the federal level, where the exercise of “pen and phone” executive authority is increasingly (and unfortunately) the norm.

Many of Trump's critics have not addressed very real federalism concerns, but have instead used the DeVos appointment to attack school choice generally, particularly its more free-market forms.

In a New York Times blog, Kevin Carey of the left-wing New America Foundation writes:

Ms. Devos [sic] will also be hamstrung by the fact that her deregulated school choice philosophy has not been considered a resounding success. In her home state, Detroit’s laissez-faire choice policies have led to a wild west of cutthroat competition and poor academic results. While there is substantial academic literature on school vouchers and while debates continue between opposing camps of researchers, it’s safe to say that vouchers have not produced the kind of large improvements in academic achievement that market-oriented reformers originally promised.

In a Times op-ed, Tulane Professor Douglas Harris echoed these critiques, claiming that "even charter advocates acknowledge" that Detroit's charter school system—which DeVos supposedly "devised [...] to run like the Wild West"—is "the biggest school reform disaster in the country."

Consider this: Detroit is one of many cities in the country that participates in an objective and rigorous test of student academic skills, called the National Assessment of Educational Progress [NAEP]. The other cities participating in the urban version of this test, including Baltimore, Cleveland and Memphis, are widely considered to be among the lowest-performing school districts in the country.

Detroit is not only the lowest in this group of lowest-performing districts on the math and reading scores, it is the lowest by far. One well-regarded study found that Detroit’s charter schools performed at about the same dismal level as its traditional public schools. The situation is so bad that national philanthropists interested in school reform refuse to work in Detroit. As someone who has studied the city’s schools and used to work there, I am saddened by all this.

Likewise, Harvard Professor Paul Reville decried that "in places like Michigan and Arizona where the approach to opening up choice has been a Wild West version of an unregulated free market, the results have been highly disappointing, giving school choice a bad name."

Charter schools in Michigan and Arizona may be subject to fewer government regulations than in other states, but it's absurd to describe the sectors as "laissez-faire" or "an unregulated free market." For example, charter school regulations in both states, as elsewhere, limit the ability of charter schools to set their own mission (e.g., they must be secular), mandate that they administer the state standardized test, forbid them from setting their own admissions standards, forbid them from charging tuition, limit who can teach in the schools, limit the growth of the number of schools, and so on.

"Laissez-faire" indeed!

And although Michigan's results are far from stellar, they're also not the "disaster" that Harris depicts. Indeed, Harris links to the 2013 CREDO report, which found that, on average, Detroit’s charter schools outperformed the district schools that their students would otherwise have attended. Indeed, nearly half of Detroit’s charter schools outperformed the city’s traditional district schools in reading and math scores, while only one percent of charter schools performed worse in reading and only seven percent performed worse in math.

CREDO 2013 Michigan Charter School Study

Source: CREDO's 2013 report on charter schools (page 44).

CREDO's 2015 report even called Detroit’s charter sector “a model to other communities.” I'd say that's overstating it. Nevertheless, while Detroit's district schools are so bad that it's not a very high bar, Detroit does show how even a significantly regulated system of school choice can outperform the government's system of district schools. Using the CREDO study to knock Detroit's charter sector is, to borrow a phrase from Harris, "a triumph of ideology over evidence." 

And since Harris mentioned the NAEP, let's see how Arizona's "Wild West" charter sector performs. As education analyst Matthew Ladner has detailed, Arizona's charter sector not only outperformed the state average for gains between the 2011 4th-grade and 2015 8th-grade NAEP tests for math and language arts, but they beat the statewide average gains for every single state. The Arizona charter sector's gains between the 2009 and 2015 NAEP science tests were at least double the statewide average gains everywhere else.

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Source: Matthew Ladner.

A word of caution is in order. These comparisons don't account for differences in demographics among states nor changes in demographics over time. The raw NAEP results cannot tell us whether a particular policy caused any improvement or decline in the scores. Moreover, as Ladner notes, it's possible to have significant gains while simultaneously doing poorly overall. The bowler whose average score improves from a 25 to a 50 might earn the "Most Improved" trophy while still being the worst bowler in the league. That said, after controlling for demographics, Arizona's math and language arts scores are above average (13th nationwide). Although we don't have adjusted scores for Arizona's charter sector, they are likely even better. Moreover, even using raw scores, Arizona charter students perform about as well as Massachusetts students on the 2015 8th grade NAEP science test. For that matter, Arizona's charter schools topped the list for college attendance among Arizona's 2015 graduates.

If Harris believes that supposed lack of regulation in Detroit's charter sector (at least as compared to charter school regulations in other states) accounts for their poor performance on the NAEP, how does he explain the Arizona results?

Indeed, even without heavy top-down oversight, Arizona manages to close down poorly performing charter schools fairly quickly through a rather innovative method called "parental choice." The average closed charter operated for only four years and had an average of only 62 students enrolled in their final year. As Ladner explains, parents put most of those charters out of business before the regulatory apparatus got around to it:

Arizona parents seem extremely adept at putting down charter schools with extreme prejudice. Arizona parents detonate far more schools on the launching pad compared to the number we see bumbling ineffectively through the term of their charter to be shut by authorities (or to give up the ghost in year 14 in an ambiguous fashion). Both of these things happen, but the former happens with much greater regularity than the latter. Having a vibrant system of open enrollment, charter schools and some private school choice means that Arizona parents can take the view that life is too short have your child enrolled in an ineffective institution.

The critics' read of the evidence on voucher programs also leaves much to be desired. Harris points only to research on statewide voucher programs in Louisiana and Ohio that found negative impacts, but he ignores the near-consensus of more than a dozen random-assignment studies that found modest positive impacts on student performance on tests as well as on high school graduation and college matriculation. Outside of Louisiana's heavily regulated voucher program, none were found to produce a negative impact and only one found no discernible impact. (The Ohio study was not random-assignment and its comparison group may have been severely compromised by the study's design.) Moreover, nearly every study on the impact of private school choice policies on district school performance found a positive impact, including in Louisiana and Ohio. The one exception was Washington, D.C., where the voucher funds come from a separate source and therefore a decrease in district school enrollment does not affect their funding.

On the whole thus far, private school choice programs have been an improvement over the status quo. Nevertheless, Carey is only half right when he writes that "vouchers have not produced the kind of large improvements in academic achievement that market-oriented reformers originally promised" because no state has yet adopted the sort of large-scale, lightly regulated, universal voucher system that market-oriented reformers like Milton Friedman called for. Instead, most voucher programs are limited in scale and eligibility and subject to numerous regulations. They're designed, essentially, to fill empty seats rather than to revolutionize the way education is delivered. Small-scale choice programs should be expected to deliver positive but small-scale results, and that is what the research has found.

Advocates of large-scale private school choice programs should be careful not to over-promise, but critics of market-oriented educational choice policies should also be careful not to cherry pick or to make claims that the research literature does not support. Outside heavily regulated environments, private school choice policies have a consistently positive track record. What we should be able to agree about is that the positive track record of state-level school choice policies does not imply that Congress should enact a federal voucher program.

November 29, 2016 3:08PM

Tilting at Sawmills: Extortion and Lawlessness Prominent in U.S. Approach to Canadian Lumber

Donald Trump has called the North American Free Trade Agreement the “worst trade deal ever negotiated.” If he were speaking on behalf of Canadian exporters or American consumers of softwood lumber, his point would have some validity. For more than 20 years, NAFTA has failed to deliver free trade in lumber. Instead, a system of managed trade has persisted at the behest of rent-seeking U.S. producers, egged on by Washington lawyers and lobbyists who know a gravy train when they see one.

Those who consider the United States a beacon of free trade in a swirling sea of protectionist scofflaws will be surprised by the sordid details of the decades-long lumber dispute between the United States and Canada. Among those details is the story of how the U.S. Commerce Department (DOC) ran roughshod over the rule of law to manufacture the leverage needed to extort from Canadian lumber mills a sum of $1 billion, which was used to line the pockets of American mills and the U.S. Forestry Service, while restricting lumber imports for nearly a decade through October 2015, at great expense to retailers, builders, and home buyers.

With that ugly history mostly expunged from the public’s memory, the U.S. lumber industry is back at the trough again, demanding its government intervene to restrict Canadian supply, following a whole 13 month period during which it was forced out of the nest to operate in an environment rife with real market conditions! In the quiet shadows of the Friday after Thanksgiving, U.S. softwood lumber producers filed new antidumping and countervailing duty petitions with the DOC and U.S. International Trade Commission (ITC), alleging that dumped and subsidized Canadian imports were causing material injury to the domestic industry.

Whether the DOC finds legitimate evidence of dumping or countervailable subsidization is actually beside the point here. The agency has proven itself quite capable of producing evidence it is willing to defend as legitimate, which is all that matters when the game plan is to use the specter of a long, drawn out procedural battle—a period during which importers have no certainty about whether they will have to pay duties or how large that bill will be—to arm-twist the Canadians back to the table to agree, once again, to limited U.S. access in exchange for suspension of the unfair trade petitions.

If the investigations go forward and injurious dumping and/or injurious subsidization are found—a likely outcome given the discretion DOC has to administer these laws—preliminary duties likely would be imposed in April 2017 and final duties imposed by the end of the year.  Depending on those duty rates (and how willing importers are to stomach the risk that their duty liability increases) imports of lumber from Canada could continue. But, the more likely outcome is that the two sides will reach a new agreement to limit Canadian access to the U.S. market, through quantitative restrictions, export taxes, or some combination of the two, before preliminary countervailing and antidumping duties are imposed. 

Unfortunately, this wouldn’t be the first time that the U.S. trade remedy laws have been used to extort settlements under which foreign producers agree to restrict their exports to the United States in exchange for the U.S. government dropping often spurious claims against them. But the lumber case provides an especially egregious example of how the United States—self-proclaimed champion of free trade—uses the threat of protectionism to strong arm even its closest trade partner.

(If you're interested in diving deeper into this post, the full story is published here, on Forbes.)

November 29, 2016 1:04PM

OECD Economic Research Finds That Government Spending Harms Growth

At the risk of understatement, I'm not a fan of the Organization for Economic Cooperation and Development. Perhaps reflecting the mindset of the European governments that dominate its membership,

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the Paris-based international bureaucracy has morphed into a cheerleader for statist policies.

All of which was just fine from the perspective of the Obama Administration, which doubtlessly appreciated the OECD's partisan work to promote class warfare and pimp for wasteful Keynesian spending.

What is particularly irksome to me is the way the OECD often uses dishonest methodology to advance the cause of big government:

But my disdain for the leftist political appointees who run the OECD doesn't prevent me from acknowledging that the professional economists who work for the institution occasionally generate good statistics and analysis.

For instance, I've cited two examples (here and here) of OECD research showing that spending caps are the only effective fiscal rule. And I praised another OECD study that admitted the beneficial impact of tax competition. I even listed several good examples of OECD research on tax policy as part of a column that ripped the bureaucracy for some very shoddy work in favor of Obama's redistribution agenda.

And now we have some more good research to add to that limited list. A new working paper by two economists at the OECD contains some remarkable findings about the negative impact of government spending on economic performance. If you're pressed for time, here's the key takeaway from their research:

Governments in the OECD spend on average about 40% of GDP on the provision of public goods, services and transfers. The sheer size of the public sector has prompted a large amount of research on the link between the size of government and economic growth. ...This paper investigates empirically the effect of the size and the composition of public spending on long-term growth... The main findings that emerge from the analysis are... Larger governments are associated with lower long-term growth. Larger governments also slowdown the catch-up to the productivity frontier.

For those who want more information, the working paper is filled with useful information and analysis.

Here's one of the charts from the study, showing how government spending is allocated in OECD nations.

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The report also acknowledges that there's a lot of preexisting research showing that government spending hinders economic growth.

There is a vast empirical literature investigating the relationship between the size of the government and economic growth (see Slemrod, 1995; Myles 2009; Bergh and Henrekson, 2011 for overviews). A review by Bergh and Henrekson (2011), based on papers published in peer reviewed journals after 2000, suggested a negative relationship in OECD countries. Likewise, a recent OECD study confirmed a negative relationship between the size of government and GDP growth (Fall and Fournier, 2015). ...the link between the size of government and growth may vary with the income level and could be hump-shaped (Armey, 1995). A few studies have found support for the existence of a non-linear relationship between the size of government and growth (e.g. Vedder and Gallaway, 1998; Pevcin, 2004; Chen and Lee, 2005).

By the way, the reference to "hump-shaped" means that the OECD is even aware of the Rahn Curve.

The methodology in the paper is not ideal from my perspective. For all intents and purposes, the economists compare economic performance of the OECD's big-government nations with the growth numbers from the OECD's not-quite-as-big-government nations. But even with that limitation, the study generates some powerful results.

...the simulation assumes that in countries where the size of government is above the average level of countries in the bottom half of the sample, the government size will gradually converge to this level (36% of GDP). Similar to the spending mix reforms, this reform is phased in over 10 years. Such a reduction in the size of the government could increase long-term GDP by about 10%, with much larger effects in some countries with currently large or ineffective governments. ...a reduction of the size of government has a positive, but moderate, effect on the income of the poor. The average disposable income also rises. However, the rich gain relatively more. Finally, in countries where the government is less effective (such as Italy) the growth effect dominates and a moderate reduction of the size of government would have a large growth effect, so that it would lift all boats.

And here's a chart showing how much more growth would be possible if the countries with really-big government downsized their public sectors to the somewhat-big level.

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Even with the methodology limitations I described, these results are astounding. Potential GDP gains of more than 30 percent for Greece and Italy. Gains of more than 20 percent for Slovenia, France, and Hungary. And more than 10 percent for Belgium, Czech Republic, Portugal, and Poland.

The working paper also looks at the composition of government spending. In other words, just as not all taxes are equally damaging, the same is true for spending programs.

The results from the estimation of the size of the government and the public spending mix illustrate that public spending matters for long-term growth...pension and subsidy spending [are] the two items with a significantly negative effect on growth. As each regression includes the size of government and one spending share, the estimates provide the effect of increasing this type of spending while decreasing spending on other items to keep the spending to GDP ratio unchanged... larger governments are in several specifications significantly and negatively associated with long-term growth. This is consistent with the literature... Larger governments can impede convergence (Table 8, columns 1 and 3), because they are associated with higher taxation that can discourage business investment including foreign investment and households to supply labour.

Pensions and subsidies seem to cause the most economic harm.

Reducing the share of pension spending in primary spending yields sizeable growth gains with no significant adverse effect on disposable income inequality. This reduction could be achieved by an increase in the effective retirement age or by cutting the replacement rate. ...Cutting public subsidies boosts growth, as public subsidies...can distort the allocation of resources and undermine competition. ...Education outcomes depend not only on education spending but also on the effectiveness of education policies, and the literature suggest the latter can be more important. Since the seminal work of Coleman (1966), a broad literature suggests that there is no clear link between education spending and education outcomes. ...policies aimed at increasing education spending effectiveness can be more appropriate than an across-the-board rise of education spending. ...It may be that, beyond a certain point, additional spending on investment has adverse effects, if poorly managed.

For those of you with statistical/econometric knowledge, here's some relevant data from the study.

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And you can match the numbers in Table 6 with these excerpts.

...pension spending reduces growth (Table 6, columns 2, 5, 7 and 10). Increasing the share of pension spending in primary spending by one percentage point (offset by a reduction in other spending) would decrease potential GDP by about 2%. ...Public spending on subsidies also reduces growth (Table 6, columns 3, 5, 8 and 10). ...increasing the share of public subsidies in primary spending by one percentage point would decrease potential GDP by about 7%.

If you're not a stats wonk, these two charts may be more helpful and easy to understand.

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What jumped out at me is how the normally sensible nation of Switzerland is very bad about subsidies. That's a policy they obviously need to fix (along with the fact that they also have a wealth tax, which is very uncharacteristic for that country).

But I'm digressing.

Let's return to the study. One of the interesting things about the working paper is that it notes that bad fiscal policy can be somewhat mitigated by having market-oriented policies in other areas, which is a point I always make when writing about Scandinavian nations.

...countries with a high level of public spending may also be characterised by features that partly offset the adverse growth effect of government size. ...in Sweden the mix of growth-friendly structural policies...may have offset the adverse growth effect of a large government sector.

In other words, the moral of the story is that smaller government is good and free markets are good. Mix the two together and you have best of all worlds.

P.S. Even if the OECD published dozens of quality studies like this one, I would still argue that American taxpayers should no longer be forced to subsidize the Paris-based bureaucracy. And even if the OECD's political types stopped pushing statist policies, I would still have the same view about ending handouts from American taxpayers. This has nothing to do with the fact that the bureaucrats once threatened to have me arrested and thrown in a Mexican jail. I simply don't think taxpayers should fund international bureaucracies.

P.P.S. Other international bureaucracies, including the World Bank and European Central Bank, also have published good research about the negative effect of excessive government spending.

November 29, 2016 12:41PM

Our Sensitive President‐​Elect

Yesterday the President-elect of the United States tweeted:

Nobody should be allowed to burn the American flag - if they do, there must be consequences - perhaps loss of citizenship or year in jail!

This view directly contradicts First Amendment doctrine established in the case of Texas v. Johnson (1989). Texas had outlawed desecration of venerated objects including the American flag. The state argued this prohibition protected a symbol of national unity and precluded breaches of the peace by those who would take offense at the flag being burned.

Gregory Johnson, a demonstrator at the 1984 Republican Convention, burned a flag as part of a protest. Johnson and his fellow protesters chanted "America, the red, white, and blue, we spit on you" while the flag burned. He was convicted of destroying the flag and sentenced to a year in jail and fined $2,000. Texas thus did exactly what the President-elect wants concerning flag burning.

A five-member majority of the Supreme Court ruled that flag burning constituted “symbolic speech” protected by the First Amendment. Indeed, Johnson burned the flag in 1984 to express a series of political views. The Court ruled that prohibiting this speech did not and was unlikely to prevent violence. As to national unity, Justice William Brennan noted an earlier statement by the Court:

If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.

Concurring with the opinion, Justice Anthony Kennedy wrote:

Though symbols often are what we ourselves make of them, the flag is constant in expressing beliefs Americans share, beliefs in law and peace and that freedom which sustains the human spirit. The case here today forces recognition of the costs to which those beliefs commit us. It is poignant but fundamental that the flag protects those who hold it in contempt.

This tweet marks at least the second time the President-elect has repudiated settled First Amendment doctrine. He earlier criticized the broad protection for free speech enunciated in New York Times v. Sullivan (1964), a decision that complicated suing speakers for libel.

Donald Trump wishes to criminalize flag burning for giving offense to those who value what the American flag represents. Many others have called for limiting speech that offends religions or ethnic groups. In The Tyranny of Silence, Cato’s own Flemming Rose recounts that some Muslim clerics in Europe called for censorship of speech giving offense to Islam. No doubt Mr. Trump would not join their calls for protecting the faith. But he does agree with those radical clerics that giving offense should justify government limits on free speech.

I wonder if the President-elect understands why his comments disturb so many people who differ otherwise about so much. He appears to oppose basic ideals underpinning liberal democracy. He is also the President-elect.