Topic: Government and Politics

House Testimony on Energy Subsidies

I testified to a House committee today on Department of Energy (DOE) loan programs. These were the Bush/Obama-era subsidies to Solyndra and other renewable energy businesses.

I discussed five reasons why the loan programs should be repealed:

1. Four Decades Is Enough. The federal government has been subsidizing solar and wind power since the 1970s. These are no longer the sort of “infant industries” that some economists claim need government help. Solar and wind are large and mature industries, and they already receive subsidies from state governments, particularly in the form of utility purchase mandates, which are in place in 29 states.

2. Failures and Boondoggles. The DOE claims that Solyndra’s bankruptcy was the exception, and that the agency’s overall loss rate on loans is low. But as an economist, I’m more concerned with whether the overall benefits of projects outweigh the costs, and that appears not to be the case for numerous projects. The Ivanpah solar project in California, for example, is producing less electricity and consuming more natural gas than promised, and its cost per kwh is at least three times more than for natural gas plants.

3. Corporate Welfare and Cronyism. The Washington Post found that “Obama’s green-technology program was infused with politics at every level.” Public opinion polls have shown plunging support for both politicians and big businesses over the years, and one of the reasons is such cronyism. Businesses and policymakers would gain more public respect if they cut ties to each other by ending corporate welfare.

4. Private Sector Can Fund Renewable Energy. Most DOE loan guarantees have gone to projects backed by wealthy investors and large corporations, such as Warren Buffett and General Electric. Such individuals and companies are fully capable of pursuing energy projects with their own money. Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy since 2004. With that kind of private cash available for renewables, we do not need the DOE handing out subsidies.

5. Subsidies Distort Decisionmaking. Federal energy subsidies create counterproductive incentives in the economy. For example, subsidized firms tend to become slow and spendthrift, thus subsidies undermine productivity. Also, because subsidies are not driven by consumer demands, they can induce firms to invest in activities that will not succeed in the marketplace in the long term.

You can watch the full hearing here. My testimony is here. More background on energy subsidies is here.

Trump’s Executive Orders on Crime

Yesterday, President Trump’s pick for Attorney General, Jeff Sessions, was sworn into his office. Trump used the occasion to sign three executive orders relating to crime.  In this post, I want to briefly scrutinize these orders and explain what impact they may have on our criminal justice system.

One order calls for the creation of a task force on crime reduction.  The new Attorney General will appoint people to the task force and they will meet and discuss ideas and make recommendations for Trump. A second order is titled “Preventing Violence Against Federal, State, Tribal, and Local Law Enforcement Officers.” This order is also about exploring new ideas and strategies to “enhance the protection and safety” of law enforcement officers.  The third order concerns enforcing federal law against transnational criminal organizations that employ violence and derive revenue “through widespread illegal conduct.”  Working groups will be established to discuss ideas and make recommendations to Attorney General Sessions and President Trump.

Police Executive Order Invites Overfederalization

Yesterday, President Trump signed three executive orders to focus federal resources on fighting drug cartels, increasing overall public safety, and preventing violence against law enforcement officers.

Perhaps the most worrisome of these is the directive to “pursue appropriate legislation…that will define new Federal crimes, and increase penalties for existing Federal crimes, in order to prevent violence against Federal, State, tribal, and local law enforcement officers.”

While law enforcement officer safety is important, there is no evidence that local or state officials have been reluctant to capture and punish those who commit violence against police. Moreover, there is little empirical evidence that more punitive sentences deter crime generally.

The United Kingdom and the Benefits of Spending Restraint

When I debate one of my leftist friends about deficits, it’s often a strange experience because none of us actually care that much about red ink.

I’m motivated instead by a desire to shrink the burden of government spending, so I argue for spending restraint rather than tax hikes that would “feed the beast.”

And folks on the left want bigger government, so they argue for tax hikes to enable more spending and redistribution.

I feel that I have an advantage in these debates, though, because I share my table of nations that have achieved great results when nominal spending grows by less than 2 percent per year.

The table shows that nations practicing spending restraint for multi-year periods reduce the problem of excessive government and also address the symptom of red ink.

I then ask my leftist buddies to please share their table showing nations that got good results from tax increases. And the response is…awkward silence, followed by attempts to change the subject. I often think you can even hear crickets chirping in the background.

I point this out because I now have another nation to add to my collection.

From the start of last decade up through the 2009-2010 fiscal year, government spending in the United Kingdom grew by 7.1 percent annually, far faster than the growth of the economy’s productive sector. As a result, an ever-greater share of the private economy was being diverted to politicians and bureaucrats.

Beginning with the 2010-2011 fiscal year, however, officials started complying with my Golden Rule and outlays since then have grown by an average of 1.6 percent per year.

Conflicted Public Reaction to Trump’s Immigration Executive Order

Last Friday, President Trump issued an executive order temporarily barring entry of refugees, visitors, and immigrants—including those with green cards—from Syria, Iraq, Iran, Libya, Somalia, Sudan, and Yemen. During this delay, the government is tasked with making its screening process more extensive. The order indefinitely bans refugees from Syria.

As Henry Enten notes, we’ll have to wait until we have more polling data to ascertain how the public will judge the action, but polling over the past year gives us some clues.

Slim but Shy Support Most polls throughout 2015-2016 found about 56% of Americans opposed Trump’s call to temporarily ban Muslim immigrants from entering the United States. However, these polls tended to be conducted by live telephone interviewers. In contrast, polls conducted online by reputable firms like YouGov and Morning consult, find a plurality of Americans in support.

Aggregating over 40 telephone and online polls conducted over the past two years finds Americans opposed to the ban 56% to 39% in surveys conducted by phone, but a plurality in support 49% to 39% in surveys conducted online. This suggests that people taking surveys by phone feel uncomfortable sharing their true feelings and thus fib to the live interviewers. But, privately taking a survey online encourages people to share what they really think. In the polling world, this is called “social desirability bias” evoked by social pressure to not appear prejudiced to the live interviewer.

Of course, the difference cannot be entirely attributed to survey mode since the questions weren’t worded the exact same way. Nonetheless, it’s suggestive that there is a “shy immigration restrictionist” effect going on. (Remember the shy Trump voter?)

Americans Don’t Support an Outright Ban on Refugees Existing data suggest Americans do not support a permanent ban on refugees. Most telephone and online surveys found that Americans oppose not taking any refugees at all and a plurality (46%) say the “US should open our borders to refugees of foreign conflicts” according to an Ipsos/Reuters Jan 2017 online survey. At the same time, Americans tend to support taking fewer refugees rather than more, when given the option. For instance, both an Ipsos/Reuters Jan 2017 online survey and a Marist Apr 2016 telephone survey found 53% of Americans want the US to take in fewer refugees.

Wording Impacts Support Strength As you can imagine, survey question wording impacts responses. Support for immigration restriction increases when refugees and immigrants are described as coming from “terror prone regions” or when respondents are told that government needs time to enhance security measures. For instance, Rasmussen, measures the highest degree of support (57%) when it asked if respondents support or oppose a “temporary ban on refugees from Syria, Iraq, Iran, Libya, Somalia, Sudan, and Yemen until the federal government improves its ability to screen out potential terrorists from coming here.” This question presupposes the government screening system is already poor and the new administration could meaningfully improve it. If these are the assumptions going in, support will be higher. When national security concerns are invoked and at the top of people’s minds they are more supportive of immigration restrictions.

Support for immigration restriction decreases, however, when the described policy implies a religious test. Surveys register lower support (48%) if the policy is described as a “temporary ban on all Muslims traveling to the United States” (from Morning Consult).

If You’ve Got $650 Million, the Fiduciary Duty Rule Is Not Your Problem

Yesterday, the New York Times ran a column that claimed to illustrate the issues at the heart of the current debate over the so-called “fiduciary duty rule,” which is slated to affect retirement accounts in the coming months. Except the column completely avoided one of the most important issues—access to financial advice—and instead ruminated on the troubles afflicting movie star Johnny Depp. Mr. Depp may be profligate and his money managers may have been asleep at the wheel, but the fiduciary duty rule has nothing to do with the ultra rich or their expensive advisors. Quite the opposite. Its impact will be felt almost exclusively by moderate income Americans precisely because they have only moderate incomes.

The rule was proposed and implemented in 2015 and 2016; if left unchanged, it will become effective in April 2017. Its stated intent is to ensure that investors receive quality financial advice by requiring that brokers selling certain retirement savings products conform to a “fiduciary duty” standard. In legal terms, acting as a fiduciary means handling another person’s business with the care that a prudent person would take in handling his or her own affairs. Specifically, the rule is intended to address situations in which brokers act as advisors, providing information to investors about the pros and cons of different types of retirement accounts.

This sounds good. Why wouldn’t we want advisors to act in investors’ best interests? Isn’t that just good business? It may be, but there is a difference between deciding to act in your clients’ best interests and abiding by a regulation that imposes a legal standard. The first is essentially costless and may actually benefit the broker by promoting a reputation for customer service. The second is anything but costless. Aside from the expense of implementing necessary compliance procedures to ensure that everything adheres to the law, imposing a legal duty raises the specter of litigation. Litigation, even baseless litigation, is always extremely costly.

AEI Forum on American Indians

At an AEI forum this week, Naomi Schaefer Riley discussed her insightful new book on Indian policies, The New Trail of Tears. I was pleased to take part in the forum alongside Robert Doar of AEI, Rep. Rob Bishop, and Keith Moore, who headed the Bureau of Indian Education (BIE).

I focused on the bureaucratic failures of the BIE and Bureau of Indian Affairs (BIA), as well as the institutional factors that deter growth on reservations. All of the panelists agreed that the lack of individual property rights on reservations is a key problem.

Keith Moore’s comments impressed me. Keith grew up on, and nearby, the Rosebud reservation in South Dakota. He served as BIE head from 2010 to 2012. Here are a few of his observations:

  • On the effects of subsidies: “Ingenuity, and the innovative, and creative parts of life have been pretty squelched for a long time because the government has provided.”
  • On reservation land being held in trust: “We’re not going to get where we need to go in Indian country until we have freedom, autonomy, and the ability to buy land and own it and create wealth.”
  • On the federal bureaucracy: “You look at the BIA system, it’s a nightmare. Bottom line, I lived it, I was in it, I left it … I don’t know how you move this bureaucratic titanic to get to a spot where it could have a positive effect. ”

The answer, as I think Keith would agree, does not lie in the BIA/BIE, but in Congress and the tribes making fundamental institutional reforms in areas such as property rights and education.

For background on how federal policies toward American Indians have been failing for two centuries, see this study.