Criminals Caught on Tape?

It’s not surveillance film from a bank or gas station hold-up — it’s guys in lab coats who seem to be helping the police and prosecutors by making evidence “fit” a murder charge

This particular case is not for the faint of heart. The film shows an autopsy of a young girl whose parent claims she drowned in the bath tub. Prosecutors say it was murder. The forensic “experts” appear to be putting bite marks on the child’s dead body using a plaster mold of the defendant’s teeth. 

Assuming that’s right, how perverse is that? The government’s scientists put the marks on the child, snap some photos of the marks, and then show those pictures to the jury and declare, “The bite marks match the defendant.” 

You might think that once the film is brought to the attention of the District Attorney, he’d disavow the case against the parent and have the “scientist” arrested for tampering with evidence. Sadly, it doesn’t work like that. The authorities are probably hiding under their desks, hoping this story will just go away. Because if this is not an isolated incident and someone takes a serious look at all the cases these ”experts” have been involved in, lawsuits will be filed, careers will end, and grand juries may be convened. Super-sleuth Radley Balko has been on the trail of these junk scientists for the past year or two. 

60 Minutes should investigate this thing further.

State Budget Exaggerations

Here we go again with the state budget “crisis” narrative. Today on the front page, the Washington Post highlights meaningless “budget gap” data from an interest group that always makes modest government restraint sound like fiscal armageddon.

[N]early all states are feeling pressure from falling revenue and rising costs as tax collections decline and demand for services increases. At least 46 states are facing shortfalls this year or next, and the combined budget gaps are estimated to total more than $350 billion, according to the Center on Budget and Policy Priorities.

There is a lot wrong with that statement. First, the $350 billion figure from CBPP is over three years, not the two implied by the story. Second, overall state/local tax revenues are essentially flat, not “falling” or “declining.” Third, of course the “demand” for state services is increasing — you give people something for free and they want more and more. That’s just Economics 101.

More importantly, budget gap data from the CBPP and the National Conference of State Legislatures are mainly fiction. The data have as much to do with errors in economic forecasting as with the economy. Suppose state general fund revenues and spending are $700 billion this year, and states had planned for these totals to rise to $750 billion next year. But now it looks like revenues will only be $710 billion next year — the “budget gap” is then said to be $40 billion and scaremongers would complain about $40 billion in “cuts.” But you can see that the real problem is an error in forecasting combined with the assumption that spending should always rise. If spending is restrained, no actually gap appears.

Data from the National Governors Association show that state general fund spending has been flat, on average. Spending in FY2008 was exactly the same as it was in FY2009 at $689 billion. See pages 33 and 36 here.

More authoritative data for combined state and local governments comes from the Bureau of Economic Analysis (Table 3.3). Data for 2008 is now available. The figure shows that total spending has risen strongly and continuously in recent years, with a large rise of 6.1 percent in 2008.

With the recession, state/local revenues are growing slowly, even as spending keeps rising. The table shows state/local tax receipts and overall state/local receipts, which includes federal grants and other items. (I have estimated corporate tax receipts for 2008).

It appears that if the states and cities, on average, hold their spending growth to about 2 percent to match revenue growth, the budget gap problem is solved. When families and businesses across America are having to freeze or cut their budgets, it’s surely no tragedy to expect such modest restraint from government.

Oil Price Collapse — Bad News?

In the Washington Post today, staff writer Steven Mufson gets space on the front page to tell us about how the oil price collapse is playing out for oil producers, rival energy generators, and, ultimately, for consumers. Much of what follows is obvious — prices are declining because the economic collapse is hammering demand — but other aspects of the narrative offered by Mufson are on shakier ground.

Ed Morse — managing director and chief economist of LCM Research and a favorite “go-to” guy for print reporters — says, “The last five years saw the rebirth of the use of oil as a critical instrument of foreign policy by key resource countries, Iran, Russia, and Venezuela in particular. With oil and natural gas prices having collapsed, the power of their weapons has been waning rapidly…” Really? When, exactly, have oil-producing states used oil as a weapon in foreign policy over the course of the 2004-2008 price spiral? Have there been embargoes I’ve missed? Strategic production cutbacks tied to the Israeli occupation of the West Bank? Or substantive threats about the same that have been used as an effective lever in international relations? Not that I know of.

The only example I am aware of that Morse might cite to back up his claim is Russia’s ongoing dispute with Ukraine over natural gas prices. But gas producers have leverage in markets that oil producers don’t have, given the much higher transaction costs associated with changing buyer-seller relationships.

In short, Morse’s first claim — that oil producers have been using oil as an effective foreign policy weapon during the boom — is utterly without foundation. His second claim conflates natural gas with oil markets in a manner that muddies the issue. Belief in the “oil weapon” is like belief in UFOs; lots of people claim to have seen such things — and some continue to fear such things — but every attempt at verifying existence has come up empty. The reality is that embargoes can’t deny oil to consuming states given the fungible nature of the international oil market and severe production cutbacks will do far more harm to producers than consumers — which is why we never see those sustained production cutbacks play out.

Next, Mufson implies that energy secretary Steven Chu made some sort of gaffe when he told reporters on Tuesday that OPEC was “not in my domain.” Now, it may be correct that, politically speaking, OPEC is in his “domain,” but the reality is that American pressure on OPEC never has and probably never will have an effect on decisions made by the cartel. OPEC’s aim, after all, is to maximize revenue. Can the U.S. talk OPEC into decisions that will cost OPEC money? Chu’s right to suggest that no mere U.S. energy secretary is capable of such a thing and probably shouldn’t waste much time laboring for such an unlikely end. Bully for Chu — for a few moments at least, he had the courage to say what almost no energy secretary before him has ever dared to say.

Unfortunately, Chu quickly spends his intellectual capital with me in the very next paragraph when he warns that oil prices will likely rise over time. Well, they may, but there is no statistically significant trend toward higher oil prices if we examine quarterly data from 1970 forward. Oil prices move around a lot, but they have always migrated back toward an equilibrium price in the inflation-adjusted mid-$20 range. The belief that oil prices march ever higher over time is widely shared, but has no historical basis.

Chu’s worries about higher prices dovetail with the related warning (this time, from OPEC president Chakib Khelil) that the price respite is only temporary. Soon enough (two years, Khelil says), demand will pick up again and then where will we be? Low oil prices mean cuts in upstream investment which means that, down the road, we’ll get even higher prices than we would have had, had the price collapse never occurred.

Now, it is true that the oil market always has and probably always will move in boom and bust cycles with price spirals and price collapses feeding off one another. But historically, those cycles take a lot longer to play out than a couple of years. We heard the same warning against complacency in 1986 when oil prices went through their last bust cycle — but it wasn’t until 18 years later (2004) that prices recovered and moved into boom cycle once again. And that experience is fairly typical. The time between peaks and valleys in global oil prices run about 20 years apart and have been doing so for over 100 years.

Producers love to warn against low oil prices because, well, they hate them. But the idea that low prices are bad for consumers is one of those things that is so obviously at odds with the reality that one should take such warnings with a heavy block of salt. Domestically, those warnings have been used to justify producer subsidies that fail to pass any reasonable economic test.

Do low oil prices “make it harder for more expensive wind and solar projects to compete,” as Mufson asserts? No. Wind and solar energy does not compete with oil because only a tiny amount of electricity is generated by oil in the United States. Low coal and natural gas prices make it hard for wind and solar to compete. True, fossil fuel prices tend to move roughly in tandem over time, but precision is everything here. Low oil prices do not “cause” natural gas and coal prices to fall and thus do not directly undercut wind and solar.

Finally, what about the dog that’s not barking — that is, what about the claim heard ad infinitum from people like Thomas Friedman and James Woolsey that oil profits are military steroids for Islamic terrorists and that eliminating the same would cut Islamic terrorism off at the knees? So far, we find little evidence that al Qaeda or related groups have been particularly harmed by low oil prices. That shouldn’t surprise — there is no historical correlation between oil prices and Islamic terrorism — whether we’re looking at number of terrorist attacks or fatalities from the same.

[Cross-posted at NRO’s The Corner]

Napolitano: Scrap REAL ID

She didn’t put it so bluntly, but DHS secretary Janet Napolitano appears ready to scrap the failed national ID program in the REAL ID Act. This is good news.

Is it great news? Not really. Nothing I’m aware of in her public comments reflects awareness of the thoroughgoing weakness of identity-based security or its prohibitive privacy and dollar costs. And she’s looking for an alternative national ID.

“ ‘Enhanced driver’s licenses give confidence that the person holding the card is the person who is supposed to be holding the card, and it’s less elaborate than Real ID,” the Washington Times quotes her saying. Less elaborate? Yes. Reliably secure? Not really. A full-fledged national ID? Eventually.

The point is to get away from national ID systems entirely. It’s not an achievement to produce a national ID that’s less bad than the one that went before. But it is progress.

HUD the Dud

Last week I blogged on President Obama’s “stimulus” rally prop Henrietta Hughes — a.k.a. “the face of the economic crisis.” Ms. Hughes and her son, who were homeless, asked our messianic president to help them since they’ve been stuck on a two-year waiting list at the Fort Myers, Fl., public housing authority. Using the government’s own numbers, I was able to determine that Fort Myers and surrounding Lee County received almost $70 million in U.S. Housing & Urban Development (HUD) money in the past three years. Some $41 million — or $600 per man, woman, and child in Fort Myers — went to the city’s public housing authority alone.

I concluded that HUD’s inspector general should investigate what the housing authority is doing with all that taxpayer change. And if a story coming out of Las Vegas about its public housing authority is any indicator, there’s a good chance a lack of federal funding wasn’t the problem in Fort Myers. According to the Las Vegas Sun,

The North Las Vegas Housing Authority failed to spend up to $2 million on federal housing programs even as thousands of people were on lists awaiting that help, a recent audit has found… The total amount won’t be known until the city audit and a federal investigation are finished, but so far auditors have determined that at least $800,000 was misused, [North Las Vegas City Manager Gregory] Rose said. Still unclear is how the money was spent, who is responsible, and whether any crimes were committed, he added.

I keep hearing the Obama administration say the “stimulus” bill, which will be funding a plethora of notorious HUD programs, will come with transparency and accountability. The odds of accountability at HUD are somewhere around the odds of me taking off and flying after running really, really fast down the street.

In other HUD news this week:

  • A city in Ohio plans on using HUD Community Development Block Grant (CDBG) funds to purchase ball field back stops.
  • Tulsa’s city council wants to know more about the $1.5 million in CDBG money the city inappropriately used to pay for employee salaries. The city was to pay it back, but “In December, the city announced that HUD would allow the city to reapply for the $1.5 million to fund two projects it has deemed meet the required use of the funds.”
  • In New Jersey, “The [Franklin] township’s former housing coordinator and her plumber husband have been indicted on a variety of charges — including official misconduct, forgery and witness tampering — in connection with what authorities are calling a conspiracy to misappropriate more than $100,000 in federal housing rehabilitation funds.”
  • And in West Virginia, the Wheeling city council “voted 6-0 to spend $42,000 in CDBG money to install an outdoor modular floor at the Pulaski Playground tennis courts in South Wheeling.”

Is Sports like Wall Street?

Washington Post sportswriter Sally Jenkins often has sensible things to say. And in today’s paper she makes some interesting points about hyper-competitiveness in sports and finance. But I think she was led astray by investor, college athlete, and Clinton Treasury appointee Roger Altman:

There is a strong natural connection between Wall Street and sports because “both are quite binary worlds, somebody wins and somebody loses,” according to Altman, who was a varsity lacrosse player at Georgetown.

That’s just wrong. In sports it’s true: somebody wins and somebody loses. If the Yankees beat the Red Sox, that’s a binary outcome with a winner and a loser. It’s what economists call a zero-sum game. If Michael Phelps wins the gold, then everybody else doesn’t.

But in the market both parties to a transaction expect to gain. I get a meal, the restaurant owner gets my money. I get a salary, Cato gets my production. As Murray Rothbard wrote in the Concise Encyclopedia of Economics:

The mercantilists argued that in any trade, one party can benefit only at the expense of the other—that in every transaction there is a winner and a loser, an “exploiter” and an “exploited.” We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a “positive-sum” rather than a “zero-sum” or “negative-sum” game.

No doubt businessmen do like to “win” – sometimes they say “money is a way of keeping score.” They like to make the deal and block their competitors. Sometimes their testosterone may even impel them to make deals that aren’t economically rational, and the market has a way of punishing such decisions. But the people who make the deals – both parties, all parties – all expect to benefit. And usually they’re right. We’ve all bought things that we wish we hadn’t, or made investments that didn’t pan out. Most of the time, though, both parties to a transaction are pleased to make it and remain pleased after the fact. And the process of repeated positive-sum transactions creates economic growth and development.

Sports is different. The game may be fun, for both competitors and spectators. But in the end, as Altman correctly says, in sports “somebody wins and somebody loses.”