Archives: 08/2017

Which Are the Largest Federal Agencies?

The federal government spends more than $4 trillion a year on programs in hundreds of agencies. Which are the largest agencies, and how fast are they growing?

You can find out using the charting tool at DownsizingGovernment.org/charts. The tool plots spending on hundreds of federal agencies and programs in real, or inflation-adjusted, 2017 dollars. The charts cover 1970 to 2017, based on data from the 2018 federal budget.

The following are seven charts from the tool showing spending by the 21 largest agencies in order by size.

The first chart shows the largest departments: Defense, Health and Human Services, and Social Security. The three used to vie for top spot, but Defense has been left in the dust in recent years as the two entitlement-dispensing agencies have continued to grow. The federal government now has two $1 trillion agencies. Wow.

A Different Angle on Google Employee Privacy

Can we talk about the story of whether Google, a company entrusted with everyone else’s personal secrets, should let its own employees’ confidential data be thrown open to the scrutiny of a vengeful world in the course of trying to show that its workplace is not rife with discrimination?

No, not that Google story. Not the one about the firing of Google Memo author James Damore, which has been taking up oxygen in online conversation all week.  I’ve already had my say in Wednesday’s USA Today on how existing federal law would have helped shape Google’s incentives in handling that furor. (“Now, as then, government pressure on employers to ban speech consists less of direct you-must-ban mandates and more of litigation incentives whose contours are not explicitly announced.”) And since you can read that piece here, I won’t retrace the ground it covers. 

My purpose here instead is to relate another Google bias-claims-and-employee-privacy story from last month, which would have counted as fairly significant news in its own right had it not soon been eclipsed by the memo episode. 

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 2)

The first installment of this blog was a preliminary look at a Washington Post article “Is Amazon Getting Too Big?” by Steven Pearlstein.  That article promoted strong opinions of Yale law school student Lina Khan based largely on (1) faulty market concentration estimates from President Obama’s Council of Economic Advisers and (2) a selective 40-year survey of mergers as evidence of some current problem linking concentrated markets to rising prices.    

There was another bit of indirect evidence in the Obama CEA memo which merits discussion.  A graph from former CEA Chair Jason Furman showed large recent gains in “returns on invested capital” among public nonfinancial firms, as measured by McKinsey & Co.  The CEA insinuated that this shows a recent surge in “rents” (receipts larger than needed to attract capital) which they wrongly defined as “greatly in excess of historical standards.”  There is a simpler explanation.

Return on invested capital is notoriously difficult to estimate and, as McKinsey explains, returns look relatively larger by this measure because invested capital has become smaller as the economy shifted from capital-intensive manufacturing to services and software:

“What if the invested-capital side of the equation approaches zero, as it increasingly does among companies that use outsourcing and alliances and thus reduce the capital intensity of parts of their businesses? Other businesses, such as software development and services, also have inherently low capital requirements or take advantage of atypical working-capital dynamics, including prepayment by customers for licenses and payment by suppliers for inventory. Even traditional businesses are shedding capital: the median level of invested capital for US industrial companies dropped from around 50 percent of revenues in the early 1970s to just above 30 percent in 2004.”

Like the CEA’s mention of a rising share of sales by Top 50 firms in 10 industries between two years, the CEA’s return on invested capital data also failed to uncover any new “market concentration” problem to be solved by the Democratic Party’s mysterious “Better Deal.”

Neither Khan, Pearlstein, nor their cited sources provide any evidence of (1) the alleged widespread increase in market share held by 3 or 4 firms, nor of (2) higher prices outside of federally-regulated and subsidized industries, nor of (3) any connection between concentration and monopoly pricing, nor of (4) any connection between return on invested capital and concentration or monopoly pricing.

New Study on Federal Highway Policies

The federal government plays a large role in the nation’s highways through the funding of aid programs for the states and the imposing of top-down regulations. Congress passed a major highway bill in 2015 that authorized $305 billion in spending over five years, of which $226 billion was for highways and most of the rest for urban transit.

The Trump administration is promising a fresh approach to highway spending and regulation. What are the main problems with current highway policies, and what reforms should the administration pursue?

Transportation expert Gabriel Roth and I examine these questions in a new study at DownsizingGovernment.org. We review the history of federal highway interventions, describe the inefficiencies of federal aid and regulations, and discuss possible reforms.

We argue that Americans would be better off if federal highway and transit spending, fuel taxes, and related regulations were cut. The states can more efficiently tackle their transportation needs with a reduced federal role, and they would be more likely to pursue privatization and other market-based reforms.

Our primer on federal highway policies is here.

2016 Record Warm Surface Temperatures: The Party’s Over!

As expected, and thanks to the big 2015-6 El Niño, the National Oceanic and Atmospheric Administration (NOAA) has announced that 2016 is the warmest year in their 150-year long global surface temperature record. They didn’t mention that there are signs that global average temperatures are headed back to pre-El Niño values, which may put them near the range of the long “pause” in warming beginning in 1997 that ended with the recent El Niño.

There are several sources showing this. Here’s the satellite data from the University of Alabama-Huntsville through last month:

Temperatures have fallen to within approximately 0.15⁰C of the average since the end of the last (1998) big El Niño and the beginning of the recent one. These are “bulk” data for the lower atmosphere.

You can see similar behavior in the surface record from the University of East Anglia:

In this record, the “pause” from mid-1997 through 2013 is obvious. It will be interesting to see where this record settles out, as the early 2017 data look very “pause-y”.

We are also suffering from the problem that NOAA’s (the folks who made today’s announcement) record is the “pause-buster” version that used a new record of sea-surface temperatures (designated ERSSTv4) that became progressively warmer, beginning in 1998, compared to its predecessor (ERSSTv3).  It also raised very good buoy temperatures to match very bad ship intake tube temperatures. Just inside a large hunk of conductive metal sitting in the sun isn’t a good place to take the water temperature.   

One increasingly popular recent surface temperature history is “reanalysis” data in which temperatures are transformed onto a tight latitude/longitude grid that provides a spatially “level playing field”, bypassing the problems that occur as weather stations move, or go off or on-online. You can also see the temperature peak here, and that we are approaching pre-El Niño values.

It looks like the warm party is breaking up.

USPS: A Giant Distortion Machine

The U.S. Postal Service (USPS) is a major business enterprise operated by the federal government. It has a legal monopoly over first-class mail, which prevents entrepreneurs from competing to improve quality and reduce costs.

I describe the postal system’s inefficiencies here, and discuss how European countries have privatized their systems and/or opened them to competition.

In this country, privatization is needed more than ever because the USPS is increasingly distorting the booming package delivery business. My study discusses USPS cross-subsidies between its mail and package activities, and a recent article in the Wall Street Journal explored the problem further.

Josh Sandbulte argued that the USPS gives Amazon an unfair advantage over brick-and-mortar firms:

The U.S. Postal Service delivers [Amazon’s] boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.

… The 2006 Postal Accountability and Enhancement Act made it illegal for the Postal Service to price parcel delivery below its cost. But with a networked business using shared buildings and employees, calculating cost can be devilishly subjective.

… An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.

In a response to Sandbulte here, the USPS claims that they do not cross-subsidize. The solution for this dispute? Privatize the USPS, repeal the monopoly, and let competitive markets decide on product pricing.

America versus North Korea: Which President Is More Dangerous?

I never expected to have trouble distinguishing the rhetoric of America’s president and North Korea’s leader. Nor did I ever imagine it would be unclear which official was more impulsive, emotional, blustering, and reckless. But these are not normal times.

For anyone contemplating the odds in a war between the U.S. and the Democratic People’s Republic of Korea, a few numbers are instructive. Last year the U.S. had a GDP of almost $19 trillion, roughly 650 times the GDP of the Democratic People’s Republic of Korea. The latter is equivalent to the economy of Portland, Maine or Anchorage, Alaska. America’s population is around 13 times as large as that of the DPRK.

The U.S. military spends upwards of 100 times as much as the North’s armed forces. With the world’s most sophisticated nuclear arsenal and 1411 warheads (the peak was 31,255 50 years ago), Washington could incinerate the North in an instant. Pyongyang is thought to possess around 20 nukes, of uncertain status and deliverability.

Does the DPRK’s “Supreme Leader” Kim Jong-un recognize this reality? There’s plenty of evidence that he is ruthless and cruel. But none that he is blind or suicidal. Like his father and grandfather, who ruled before him, he most assuredly prefers his virgins in this world.

The North’s rhetoric is bombastic, splenetic, confrontational, and fantastic. But it always has been thus. Even before Pyongyang possessed deployable nukes and long-range missiles, it was promising to turn New York (as well as Seoul) into a “lake of fire.” The North Koreans even distributed a video showing precisely that result. If calm ever descends upon the Supreme Leader and his minions, then perhaps Americans should really worry.

The North’s rhetoric and behavior is determined at least in part by domestic considerations. Politics is all-consuming and militaristic images are everywhere. (I visited in June and put up a bunch of photos on Forbes. We are holding a CatoConnects session on Tuesday, August 15 to discuss my visit.) The regime seeks support by portraying itself as heroically defending—against overwhelming odds—a society under siege by imperialistic Americans and their South Korean puppets. The constant mantra, almost irrespective of subject, place, or person, I heard was “under the wise leadership of the Supreme Leader.” Whether the population believed it seemed secondary.