May 5, 2010 11:23AM

How the World of Campaign Finance Is Changing

Journalists are looking closely at the DISCLOSE bill, Congress’ response to Citizens UnitedCQ says DISCLOSE will loosen independent spending by the parties on their candidates.


Why is Congress liberalizing party spending? CQ explains:

According to one GOP attorney, opponents of the Supreme Court’s decision are realizing that they will have a difficult time challenging the constitutional right of outside groups to spend money, so this bill is a response to free up the parties to compete.

Mark that. Citizens United has altered the incentives regarding speech. In the past, Congress tried to suppress speech to win elections. Now leaders must liberalize in order to compete for votes.

February 24, 2010 12:50PM

Ban on Short Sales Benefits Banks and Hurts Investors

Today, in what seems like an endless string of 3 – 2 votes, the SEC moved to restrict the ability of investors to short stocks, claiming that such restrictions would restore stability and protect our financial system. The truth couldn’t be more different. Short sellers have long been the first, and often only, voice raising questions about corporate fraud and mismanagement. For instance, shorts exposed the fraud at Enron, WorldCom and other companies while the SEC largely slept.


Bush’s SEC, lead by former Congressman Chris Cox banned the shorting of various financial industry stocks during the crisis. The SEC then, as now, would have us believe that Bear, Lehman, AIG, Fannie, Freddie and others were not the victims of their own mismanagement, but rather victims of bear raids by short sellers. In another instance of Obama and his appointees reading from the Bush playbook, SEC Chair Mary Shapiro finds ever creative ways to expand Cox’s misguided policies.


Short sellers only profit if they end up being correct. Sadly Washington instead believes in punishing market mechanisms that work and throwing increasingly more money at failed agencies, like the SEC. Rather than attacking short sellers we should applaud them for doing the SEC’s job. But then if we had more short selling, providing greater incentives for investors to root out fraud, we might start to question why we even have the SEC.

December 17, 2009 10:07AM

National Standardizers Just Can’t Win

I've been fretting for some time over the growing push for national curricular standards, standards that would be de facto federal and, whether adopted voluntarily by states or imposed by Washington, end up being worthless mush with yet more billions of dollars sunk into them. The primary thing that has kept me optimistic is that, in the end, few people can ever agree on what standards should include, which has defeated national standards thrusts in the past.

So far, the Common Core State Standards Initiative -- a joint National Governors Association/Council of Chief State School Officers venture that is all-but-officially backed by Washington -- has avoided being ripped apart by educationists and plain ol' citizens angry about who's writing the standards and what they include. But that's largely because the CCSSI hasn't actually produced any standards yet. Other, that is, than general, end of K-12, "college and career readiness" standards that say very little.

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December 3, 2009 2:57PM

Is Trade Policy Obsolete?

That is one of the conclusions in my new paper, "Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete."

For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the "national interest." Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between "our" producers and "their" producers and speak to a long chain of interdependent economic interests between product conception and consumption.

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December 2, 2009 9:23AM

The Cost of Government Guarantees

John Kay’s column in yesterday’s Financial Times criticizes government guarantees to banks because they involve hidden but large costs. According to Kay:

  • Such guarantees distort competition: sheltered banks outperform rivals not because of greater efficiency, but because capital becomes cheaper to obtain.
  • Sheltered banks gain too‐​big‐​to‐​fail status, which creates barriers to entry for smaller, more efficient banks.
  • Relief from business risk leads to more risk taking, AKA moral hazard.
  • Cheaper private risk management incentives are reduced within and outside the bank.

Other kinds of government guarantees, such as social insurance, also involve large hidden costs. Social Security and Medicare’s guarantee of a paid holiday with medical care for the rest of retirees’ lives generates the same types of costs:

  • Labor competition is reduced because the programs induce early worker retirements, which leads to higher wage costs, on average, and lower national output.
  • Workers who believe they will receive Social Security and Medicare will engage in lower personal saving, which means less capital formation and lower economic efficiency.
  • Retirement income guarantees induce riskier personal savings portfolios, AKA moral hazard.
  • Guaranteed retirement income means poorer financial knowledge and poorer risk management.

And now, retiree political power is too big to fail as well!


How come when Kay writes about market distortions from government guarantees for banks, he gets published; but when I do the same about government guarantees for people, I get the cold shoulder from editorial page editors?

November 19, 2009 4:06PM

GAO: Dept. of Ed. Suffers Oversight Deficiencies

A report released today by the federal government’s non‐​partisan General Accounting Office finds deficits in the Department of Education’s financial and program oversight. According to the GAO, “These shortcomings can lead to weaknesses in program implementation that ultimately result in failure to effectively serve the students, parents, teachers, and administrators those programs were designed to help.”


The GAO’s findings are consistent with the longstanding pattern: for forty years, Americans have steadily increased spending on public schools without any resulting improvement in student performance by the end of high school (see the figures here and here).


The Obama administration has touted its $100 billion in education stimulus spending as a key to long term economic growth. What the data show, however, is that higher spending on public schools over the past two generations has not improved academic outcomes. And economists such as Stanford’s Eric Hanushek have shown that it is improved academic achievement, not higher public school spending, that accelerates economic growth.


So if the administration is serious in wanting education to boost the American economy, it must support reforms that are proven to significantly raise achievement, such as those that bring to bear real market freedoms and incentives — programs like the DC private school choice program that the administration has decided to kill despite its proven effectiveness.

October 29, 2009 1:51PM

Ben Chavis to Charles Murray: “Bring it”

In an exchange I had with Charles Murray earlier this month, he complained that there was no bulletproof scientific research documenting miraculous improvement in student achievement attributable to great schools like those of Ben Chavis.


At the time, that objection was beside my point, which is that there is copious evidence that competitive market education systems yield very substantial (if not “miraculuous”) improvements over the status quo government monopoly. We don’t need miracles to prove that there is a much better way of organizing and funding schools.


But that wasn’t enough for Ben Chavis. He called yesterday to pass along a proposition to Charles: come perform the research yourself. In fact, Ben offered to put Charles up in his own house.


I don’t know if Charles will go for this, but I wish he would (or find a grad student who will). And here’s why: I think Charles is so skeptical of the results of great schools and teachers because he has not come across any mechanism in his studies that could adequately explain those results. But I contend that there is such a mechanism: a school culture so strong and conducive to academic effort that it can overcome the absence of an academically supportive culture in the home.


If you read Jay Mathews’ wonderful book Escalante, or Ben’s Crazy Like a Fox, this becomes immediately clear. The school environment in these rare cases becomes a much more powerful influence on students’ willingness to work and expectations of success than is normally the case. These great schools tap into a fundamental human desire to belong to a team that offers them support and to which they feel an obligation to be supportive in return. It’s the same impulse that leads soldiers to put their lives on the line for their buddies in combat, and that sustains the insane work ethic in high tech startups.


This is one reason why free enterprise education systems excel all others: they offer the greatest freedom and most powerful incentives for excellent schools to replicate their cultures on a grand scale.