Archives: 02/2018

Navy Scandal: Classic Government Corruption

The Washington Post does not do much investigating of waste, fraud, and abuse in federal agencies anymore, but it has done a great job with the Fat Leonard Navy corruption scandal. I discussed prior WaPo stories on the scandal here and here.

The newspaper has another pair of stories today (here and here) describing how Leonard Glenn Francis cozied up to Navy leaders in the Pacific to win lucrative deals for resupplying ships. He cashed in on overpriced contracts and fraudulent invoices, and he had numerous moles inside the Navy to steer business and profits his way. He wined and dined Navy officers, providing them with gifts, prostitutes, and other favors to get their help and protection.

The upshot: If so many Navy leaders were easily seduced by an old-fashioned con artist, does it mean that America’s other military and intelligence services are just as vulnerable to low-tech bribery and infiltration?

Here are excerpts from the WaPo story:

In a case that ranks as the worst corruption scandal in Navy history, the Justice Department has charged 15 officers and one enlisted sailor who served on the Blue Ridge with taking bribes from or lying about their ties to Leonard Glenn Francis, a Singapore-based tycoon who held lucrative contracts to service Navy ships and submarines in Asian ports.

For the better part of a decade, as part of a massive scam to defraud the Navy, Francis systematically infiltrated the Blue Ridge to a degree that is only now coming into focus, more than four years after the defense contractor’s arrest, according to the documents from federal court and the Navy, as well as interviews with Navy officials and associates of Francis.

Prosecutors say nine sailors from the 7th Fleet flagship leaked classified information about ship movements and other secrets to Francis, a Malaysian citizen, making the Blue Ridge perhaps the most widely compromised U.S. military headquarters of the modern era.

The Navy is investigating dozens of others who served on the ship, which is based in Japan, for possible violations of military law or ethics rules, according to documents and interviews.

Between 2006 and 2013, Francis doled out illicit gifts, hosted epicurean feasts and sponsored sex parties for Blue Ridge personnel on at least 45 occasions, according to federal court records and Navy documents obtained by The Washington Post under the Freedom of Information Act.

Officers from the Blue Ridge consumed or pocketed about $1 million in gourmet meals, liquor, cash, vacations, airline tickets, tailored suits, Cuban cigars, luxury watches, cases of beef, designer handbags, antique furniture and concert tickets — and reveled in the attention of an armada of prostitutes, records show.

That’s your government folks.

Some of the systematic reasons for bureaucratic failure in the government are discussed here.

Economic Growth Under the Trump Immigration Plan

Economic growth is a poorly understood phenomenon by economists.  There are many schools of thought and models that try to understand it but we are far away from understanding it as well as how micro markets function.  We may never do so.  But there seem to be two non-mutually exclusive ways that growth increases.  The first is called intensive growth whereby our economy becomes more efficient and produces the same amount of output for equal or lesser inputs.  The second is called extensive growth whereby economic output increases because more factors of production are added such as capital, land, entrepreneurship, or laborers. 

Based mainly on extensive growth, many economic models try to predict how changes in the U.S. population affect gross domestic product (GDP), itself an imperfect measure.  Immigration is the primary contributor to population growth in the United States both through their movement here and their subsequent birth of children.  More people in the United States, at a minimum, increase the quantity of two factors of production: labor and entrepreneurship.  Land is relatively fixed and capital adjusts based on population.  The National Academies of Sciences (NAS) report on immigration and economic growth concluded that (page 317):

Immigration also contributes to the nation’s economic growth. Most obviously, immigration supplies workers, which increases GDP and has helped the United States avoid the fate of stagnant economies created by purely demographic forces—in particular, an aging (and, in the case of Japan, a shrinking) workforce.  Perhaps even more important than the contribution to labor supply is the infusion by high-skilled immigration of human capital that has boosted the nation’s capacity for innovation and technological change. The contribution of immigrants to human and physical capital formation, entrepreneurship, and innovation are essential to long-run sustained economic growth. Innovation carried out by immigrants also has the potential to increase the productivity of natives, very likely raising economic growth per capita. In short, the prospects for longrun economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants.

The NAS report argues that there are substantial technological spillovers that boost economic growth but those are impossible to predict.  Thus, I use a simple back of the envelope calculations to show how GDP growth through 2060 would alter under the Trump plan.  This includes Census population projections under the current policy.  I then subtract legal immigration and adjust births and deaths accordingly.  I assume annual GDP growth of 2 percent under the current policy but 1.75 percent under the Trump plan to take account of the Wharton Model’s findings concerning the Trump-inspired RAISE Act and the research of economist Joel Prakken.

Chamber of Commerce Misguided on Gas Tax

The U.S. Chamber of Commerce is urging policymakers to pass an infrastructure package. Some of the Chamber’s proposals make economic sense and have bipartisan appeal, such as speeding the permitting process for construction projects.

But one Chamber proposal makes no sense and has little political appeal: raising the federal gas tax by 25 cents per gallon, which would more than double it from the current 18 cents. The Chamber’s case for a federal increase in infrastructure funding—as opposed to state-level increases—seems to include little more than polls purporting to show Americans are not against a federal “user fee” increase.

It’s Time to Put the Farm Bill Out to Pasture

Some Americans may be surprised to learn that agriculture in their country is in large part based on a five-year plan. Most commonly referred to as the farm bill, it is up for renewal this year and—just like in years past—is likely to produce a legislative morass in which the primary beneficiaries are lobbyists and the business interests they serve. The following excerpt from a recent article in The New Yorker helps to illustrate the madness:

When milk prices bottomed out in the summer of 2016, Robin and David Fitch didn’t know how they could continue. Their four-hundred-and-seventy-acre dairy farm, in West Winfield, New York—a four-hour drive north of Manhattan—supported about a hundred and seventy milk cows. Sixteen years earlier, when they had married and started farming together, a herd that size would have been more than enough to keep them afloat. But milk prices kept falling that summer, eventually hitting fourteen dollars per hundredweight, down from twenty-five in 2014. The Fitches’ income took a nearly fifty-per-cent hit, while the debt they incurred from fuel costs, rising interest rates, and other expenses grew. The day came when they had to tell their two children that they might be forced to sell the farm. “My fourteen-year-old was in tears,” Robin recalled. “For the farmer, it means losing everything they have worked for their entire life—their land, their home, everything. It’s gone.”

The Fitches were not alone in their struggles. The U.S. Department of Agriculture estimates that, between 2013 and 2016, net farm income fell by half, the largest three-year drop since the Great Depression. Some forty-two thousand farms folded during the downturn, and small and medium-sized operations, such as the Fitches’, proved particularly vulnerable. Now, with commodity prices still low and farm debt predicted to reach record highs, the nonprofit organization Farm Aid has warned that, if the market doesn’t recover soon, the country could see its highest rate of farm closures since the nineteen-eighties. Newsweek estimates that, at the peak of that crisis, two hundred and fifty farms closed every hour.

Many American farmers are looking to Donald Trump for relief. He was, after all, their preferred candidate for President, winning sixty-two per cent of the rural vote in 2016. “Farmers built this country, and I was hopeful that he was going to see that and step up to the plate for us,” Robin Fitch told me. The President will soon have the chance to do just that, as Congress readies the next version of the farm bill, the single most important piece of legislation for the nation’s food growers. First conceived during the Depression, the bill has since become a fixture of American policy-making, updated and renewed and haggled over every five years or so. The 2018 bill, which is due in the coming months and is expected to cost around nine hundred billion dollars over a decade, promises to be one of the most consequential ever. This year, even more than in the past, farmers such as the Fitches face an existential question: Will Washington come to their rescue, or will it let them disappear?

The farm bill’s unassuming name fails to capture its effect on American life. Besides providing crop subsidies, establishing pricing structures, and regulating farming practices, it allocates funds for disaster relief, school-lunch programs, and wildlife conservation. Some eighty per cent of the bill’s budget goes to the Supplemental Nutrition Assistance Program (snap), formerly known as food stamps. “At one point, I started to catalogue the number of programs that were covered in the farm bill, and I gave up after a hundred,” Marion Nestle, a professor of nutrition, food studies, and public health at New York University, told me recently. “And every single one of those programs has a lobbying force behind it or it wouldn’t be there. And that’s just the farm programs!”

As the Fitches’ experience suggests, past farm bills have tended to benefit large operations over small and medium-size ones, which still account for ninety-seven per cent of all working farms in the United States. According to the Environmental Working Group, a D.C.-based nonprofit, the top ten per cent of wealthiest farms received seventy-seven per cent of commodity subsidies between 1995 and 2016. Roughly the same is true of crop insurance, currently the largest component of the farm bill behind snap. That’s where the real money is, Nestle told me. “What the insurance programs do is provide an incentive to grow as much food as you possibly can, because you know that the price is going to be guaranteed,” she said. The certainty of payment, backed by U.S. taxpayers, encourages big farms to get bigger, take risks, and then claim the insurance payouts if the crops fail to yield.

Each one of these paragraphs helps highlight at least one flaw with the farm bill or perceptions of the agriculture sector.

A Justice with Philosophical Training

At Reason’s “Hit & Run” blog today, Damon Root discusses “a major split [that] seems to be developing between conservative justices Neil Gorsuch and Samuel Alito over the issue of property rights and the Fourth Amendment.” I write simply to add a point to Damon’s important post. But first, a very brief summary of the issue.

Byrd v. United States, argued on January 9, is an automobile search case. Setting aside the more peripheral issues, the core question nominally before the Court was whether police may conduct suspicionless searches of places and effects in which those in possession have a reasonable expectation of privacy.

But Justice Gorsuch took not an “expectation of privacy” approach to the question but a property rights approach. Under common law, he said, “possession is good title against everybody except for people with superior title.” Absent probable cause, a trespass action would be available against anyone searching the car. Thus, “by virtue of his possession,” Byrd would have a right to resist a carjacker or throw out an overstaying hitchhiker. “So why not the government?”

Taking the more recent expectation of privacy approach to reading the Fourth Amendment, Justice Alito complained that “the problem with going down this property route is that we go off in search of a type of case that almost never arose…at common law, where [a person in possession] brings an action for trespass to chattel against a law enforcement officer.” He added that the word “property” doesn’t appear in the Fourth Amendment: “It talks about ‘effects’.” He then asked Byrd’s lawyer whether his argument is “that any property interest whatsoever falls within the definition of effects if we are going to go back to an originalist interpretation of the Fourth Amendment?”

Set aside whether Alito is resisting an originalist interpretation, it’s hard to know just what his theory of the case is. Is precedent his main concern, including the more recent expectation of privacy precedents and the alleged paucity of property precedents, especially involving law enforcement officers? Is it that with “effects” there’s a lesser expectation of privacy?

By contrast—and here’s the point I want to add—Gorsuch appears to be going back to First Principles. By implication, he’s doing the kind of state-of-nature analysis, reflected largely in the common law, that underpins the Constitution’s theory of legitimacy. From the Preamble to the document’s first sentence to the Ninth, Tenth, and Fourteenth Amendments, the idea is that legitimate governments have only those powers that the people have given them—but only those that they first have to give them. In the state of nature, there’s no right to trespass on another’s person or property—real or chattel—without probable cause. So once we leave the state of nature, where would a law enforcement officer get such a right. We have here, in short, a justice who studied these issues at Oxford, and we are the better for it.