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Philadelphia Teachers Disrupt School Board Meeting

Thu, 10/23/2014 - 12:59

Andrew J. Coulson

In poll after poll, parents tell us that they care about academic achievement, but that they also want schools to help instill good values. And since children are adept at drawing lessons from adults’ behavior as well as from their words, it’s always nice when teachers conduct themselves with decorum and sensitivity. Which begs the question, how many parents would want their children to emulate the teachers who disrupted last week’s meeting of the Philadelphia School Reform Commission—the district’s governing body? For that matter, how many of these teachers would want their students to behave this way in class?

All the shouting, incidentally, was over the Reform Commission’s decision to require teachers to contribute for the first time to their health insurance premiums. For what it’s worth, Philadelphia was one of only two districts in the state that had not yet required this.

Categories: Policy Institutes

Americans Don’t Know How Good They Have It

Thu, 10/23/2014 - 12:52

Doug Bandow

CAIRO—“I could be arrested when I leave here,” said a journalist who I met at the tiny Marriott near Cairo’s Tahir Square.  A student activist observed that he could be detained at any time. 

A veteran human rights activist calmly stated:  “Some of our groups will be closed.  Some of us will be imprisoned.  It is inevitable.”

Most foreigners travel to Egypt to play tourist.  I visited with a human rights delegation, reminding me yet again about how lucky Americans—and, indeed, most Westerners—are.

Most important are the basic characteristics of a free society.  The rule of law.  Civil liberties.  Criminal procedures.  Legal safeguards.  Democratic processes. 

Obviously, even nations which purport to have all of these often fall short.  However, few Americans or Europeans, or citizens of democratic Asian nations live in constant fear of arrest, imprisonment, and torture. 

In Egypt the uncertainty began when arriving.  On both of my trips the government knew our delegation was coming.  Both times I was pulled aside. 

On the first trip an entry guard took my passport and I waited for an hour before officials returned it and waved me on.  The second time after far shorter delay security officials formally welcomed me—after asking for my phone number and hotel destination. 

Of course, the U.S. occasionally stops people from entering, but not typically because they want to assess America’s human rights record.  Even after leaving the arrivals area on my first trip I had to wait again while the videographer joining us unsuccessfully attempted to persuade officials to let him bring in his camera. 

Both visits were filled with interviews—relating all sorts of harrowing stories.  Most every society has injustice and errors are sadly common in U.S. jurisprudence.  However, most Americans don’t expect a visit to a friend to turn into a stint in prison.

In Egypt for reasons of political repression and personal revenge people face arbitrary arrest, perpetual detention, fraudulent trials, and horrific imprisonment.  Some of the accounts we heard could be exaggerated or even false, but reports from people in many walks of life and across the political spectrum suggested that the slightest resistance to state authority risks freedom and even life.

Students told us about classmates detained at demonstrations.  Journalists discussed colleagues arrested after criticizing the regime. Attorneys reported on lawyers detained while representing defendants. 

Nor is there any effective oversight or appeal to limit official abuse.  If you are tortured or suffered from inhumane prison conditions, you only can complain to the public prosecutor, which rarely follows up allegations against government officials.  Accountability obviously is less than perfect in the U.S., but here, at least, there are alternative channels of protest:  private lawsuits, media coverage, public demonstrations. 

Evidence of extreme force is everywhere.  Tanks by prisons, armored personnel carriers in city squares and on city streets, barbed wire and armed sentries around sensitive government installations, and a ubiquitous mix of uniformed and plain clothes security personnel.

It is unsettling enough to be stopped by a policeman in the U.S.  It is far worse in Egypt after hearing stories of dubious arrests followed by months of detention.  Yet when two of us were talking after clearing passport control to leave on my second trip a border agent demanded to look at our passports for no obvious reason.

As I pointed out in the Freeman:  “Despite all of the problems faced by those in the West, even imperfectly free societies offer extraordinary advantages which we should never forget.  Walking the streets of Cairo I thought:  there but for the grace of God go I.  With my U.S. passport I could return to a society which, despite great imperfection, nevertheless generally respects people’s lives, liberty, and dignity.” 

Categories: Policy Institutes

Does Foreign Outsourcing Supplant or Augment Domestic Economic Activity?

Thu, 10/23/2014 - 12:08

Daniel J. Ikenson

Voters in Massachusetts, Georgia, Illinois, and elsewhere are being treated to a little 2012 redux, as desperate candidates try to paint their opponents with last election’s popular pejorative: “Outsourcer!” You may recall the accusations exchanged between President Obama and Mitt Romney two years ago, as each sought to portray the other as more guilty of perpetuating the “scourge” of outsourcing. At the time, I faulted Romney for running away from what I thought was his responsibility (as the businessman in the race) to explain why companies outsource in the first place, and how doing so benefits the economy and leads to better public policies. Had he done so, his explanation might have sounded something like this

For many people, the term outsourcing evokes factories shuttering in the industrial midwest only to be ressurrected in Mexico or China to produce the exact same output for export back to the United States. While a popular image of outsourcing, that particular rationale – to produce for export back to the United States – accounts for less than 10 percent of the value of U.S. direct investment abroad (as this paper describes in some detail). Over 90 percent of outward FDI is for the purpose of serving foreign goods and services markets and for performing value-added activities in conjunction with transnational production and supply chains. In most industries, it is difficult to succeed in foreign markets without some presence in those markets. And without success in foreign markets (where 95% of the world’s consumer’s reside), it is more difficult to succeed at home.

So, does “outsourcing” really deserve its bad reputation? Does it really hurt the U.S. economy?  Well, the U.S. Bureau of Economic Analysis collects and compiles the kinds of data that can help us begin to answer these questions, including data about inward and outward foreign direct investment, and the activities of U.S. multinational corporations – both U.S. parents companies and their foreign subsidiaries. The scatterplots presented below reflect the relationships between annual changes in various performance metrics (value added, capital expenditures, R&D expenditures, sales revenues, employment, and compensation per employee) experienced by U.S. parent companies and their foreign affiliates. Each point on each plot represents a combination of the annual percent change for the affiliate (horizontal axis) and the parent (vertical axis) in a given year. 

If a foreign hire comes at the expense of a U.S. job, if ramping up production abroad means curtailing output at home, if a $100 million investment in a new production line or research center abroad means that plans for a new line or center in the United States get scrapped, if foreign outsourcing is as bad as its critics suggest, then we should expect to see an inverse relationship (at least not a direct or positive relationship) between the economic activities at U.S. parents and their foreign affiliates. We should expect to see most of the points in the upper-left or lower-right quadrants of the plots below.

The first plot shows annual changes in value added. The prevalance of observations in the upper-right quadrant indicates that in most years, value-added increased at foreign affiliates and their U.S. parents simultaneously, suggesting that U.S. and foreign activities of U.S. multinational are complements, not substitutes. That might be counterintuitive for some, but those more familiar with how multinational corporations operate can probably appreciate that production and sales activity on the foreign affiliates end often requires support from the parent company with respect to the provision of goods, supply chain logistics, finance, accounting, public relations, and various administrative functions. Increased activity abroad necessitates increased activity at home. Granted, the slope of the line running through those points is less than 45 degrees, which suggests slightly less than a one percent increase in value added at U.S. parents for every one percent increase of value added at their foreign affiliates. But this picture clearly refutes the notion of a zero-sum game, as value added increased for one group and decreased for the other in only 4 or 15 years.

The concern that U.S. MNC investment in factories or research centers abroad diverts investment from their U.S. operations should be put to rest by the data in the capital expenditures chart below. The positive relationship between capital expenditures abroad and at home is very strong, moving in the same direction for 12 of 15 years at approximately the same rate (the slope of the line is about 45%).  

Claims that outsourcing drains research and development dollars and activities from the United States get a little bit of support from the data below (6 years showing an inverse relationship and a slope suggesting a ratio of about a 5 percent increase at foreign affiliates for every one percent increase at parents).  However, in 9 of 15 years, R&D expenditures increased at both affiliates and parents, suggesting that research and development spending is also complementary.

In 13 of 15 years, annual changes in sales revenue moved in the same direction – and positively for both affiliates and parents in 12 of those 13 years. These data suggest that sales by affiliates do not come at the expense of parents’ sales.

The idea that outsourcing amounts to “shipping jobs overseas” is not well supported by the employment figures, which indicate that in 9 of 15 years, employment changes moved in the same direction at parents and affiliates.

Finally, the compensation data also fail to support the negative characterizations associated with outsourcing.  In 10 of 15 years, changes in the amount of compensation per worker moved in the same direction and, in fact, never once showed a decrease at U.S. parents.

Certainly, there are more data to consider and more layers of analysis to perform, but the metrics considered here suggest a lack of merit to to the adverse connections politicians, in particular, make between outsourcing and domestic economic conditions.

Categories: Policy Institutes

Bill Gates Recognizes the Improving State of Humanity

Thu, 10/23/2014 - 10:36

Chelsea German

With the newspapers full of crises, it can be hard to maintain a proper perspective on the progress humanity has made, and to remember that there are individuals striving every day to make the world a better place. In a recent interview, businessman and philanthropist Bill Gates discussed the improving state of humanity, and the work that he is doing through private charity to help those in need.  He said,

I think the idea that people are worried about problems, like climate change or terrorism or these challenges of the future, that’s okay. But boy, they really lose perspective of what’s happened over the last few hundred years. And how science and innovation have been a central factor of that. And I think that’s too bad, because people are lucky to live now. And they should see that progress is actually taking place faster during their lives than at any time in history.

One of the major initiatives of the Gates Foundation, for example, aims to eliminate polio. The data bear out how much progress has already been made towards that end:

In 1980, about half of all children received the polio vaccine. Today, around 90% of children receive the vaccine, and eradication of the condition is in sight – just as people eradicated smallpox in 1979.

Gates is also among the many caring individuals working to eliminate malaria and malnutrition, areas where humanity has already made great strides. Insecticide-treated mosquito nets, for example, protect more children from malaria in Sub-Saharan Africa:

Malnutrition among children is also declining. In populous developing  regions, such as East Asia and the Pacific, malnutrition affected about 20% of children in 1990. More must be done, but today malnutrition affects fewer than 6% of children in those areas.

Even one child afflicted by polio, malaria, or malnutrition is too many, but the dramatic improvements the world has made on these fronts should be celebrated. Like Gates, while working to make the world better we must not lose a proper perspective on the progress humankind has already made.

Categories: Policy Institutes

Wading Through Disability Paperwork

Thu, 10/23/2014 - 09:00

Nicole Kaeding

Social Security Disability Insurance (SSDI) provides benefits to 11 million individuals, costing $140 billion annually. Its trust fund will become insolvent by 2016, so policymakers have little time to reform the system.

Funding is not the only issue facing the program. A new report from the Washington Post highlights the long list of disability cases waiting to be adjudicated.

Individuals apply to the Social Security Administration (SSA) to claim disability benefits. The file is reviewed by an administrator who makes an initial ruling, with 32 percent of applicants qualifying. Individuals who are denied can appeal the ruling. Eleven percent of appeals are approved for benefits. More than 633,000 individuals are waiting on initial claims with 170,000 waiting on appeal.

An individual’s second appeal goes to one of SSA’s 1,445 judges, whom are tasked with more than 990,000 individuals waiting on appeals. The average wait for a hearing is longer than a year.

The backlog for a hearing before an appeals judge is not new. It started during the Gerald Ford administration and SSA has never caught up. The agency tried various tactics to solve the problem, but nothing seemed to work.

Several years ago, the SSA tried a different approach. The SSA pressured judges to decide 500 cases annually, but that led to a different problem.

The Washington Post explained:

The problem was rooted in a flaw in the system. Judges complain that saying “yes” is a lot easier — and faster — than saying “no.” A negative decision often requires a lengthier write-up, which goes through all the different ailments that might have rendered this person disabled. That means 10 pages of text to prepare for a future appeal. A “yes” decision is rarely appealed. So, they say, it takes less writing.

“So, what happens when you’re pressed for time? You end up paying [approving] cases,” said Thomas Snook, a judge who has worked in the Miami office for 17 years and has been active in the judges union.

Snook is not the only judge that felt the pressure. The Washington Post notes “across the system, judges approved more than half of the cases they saw — up to 62 percent, according to Social Security’s figures. Congressional investigators found 92 judges were even more generous: They had been saying yes to 90 percent of their appeals.”

SSA acknowledged the incentives faced by judges and tweaked their requirements. The Washington Post said:

Today, Social Security officials seem to have backed off their push for faster decisions. They’ve now limited all judges to 720 cases a year and imposed new checks to make sure the “yes” decisions are as well thought-out as the “noes.”

Today, judges approve just 44 percent of cases, a marked decline. At the same time — even as the agency has hired dozens more judges — the backlog has reached its highest level in history. It increased by 13,000 people in the first half of this month alone.

SSDI blames the backlog on less funding over the last few years, last year’s government shutdown, and a large increase in applicants due to the weak economy. 

But with a backlog since 1975, there are much larger issues: SSDI is suffering from decades of missteps.

SSDI is ripe for reform and spending cuts. Good intentions from federal policymakers led to bureaucratic headaches and years of waiting. Slashing requirements and reorganizing the program will allow funds to be dedicated to the truly needy.

Categories: Policy Institutes

Ebola Travel Restrictions – Marginal Measures

Thu, 10/23/2014 - 08:45

Alex Nowrasteh

The recent story of a Liberian man in Dallas who had Ebola sparked a political conflagration around travel restrictions for countries where there are Ebola cases. The virus does not appear to have spread from him to anyone that did not come into direct contact with him in the Dallas hospital.

Many are arguing that his arrival in the United States means that all travel from the affected West African countries should be shut immediately. Others are arguing that travel should remain as open as it currently is – which is still heavily restricted. 

What happened to policy responses on the margin

Fortunately, the federal government took a marginal action yesterday. Fliers from Guinea, Liberia, and Sierra Leone will have to enter through one of five ports of entry and undergo an interview as well as a temperature check once they arrive in the United States. These restrictions are far less than the total ban sought by some folks and still more restricted than the current system  These checks do not interrupt the flow of aid to these West African countries either and will affect roughly 150 travelers per day.

Immigration or movement restrictions for legitimate health concerns are proper and already written into law. Travel restrictions to contain viruses different than Ebola have not been successful in the past. Ebola is far less communicable than the flu so the comparison to previous travel bans might not be appropriate.  

Americans have a very low chance of contracting Ebola while in the United States, let alone dying from it. The only person to die from Ebola in the United States contracted it in Liberia. I took a bigger risk of dying from a traffic accident this morning commuting to the office than I will ever face from Ebola.

More Americans are killed every year from their furniture than all Americans who have died from that dreaded hemorrhagic fever.

Those Americans who worry about Ebola focus on the freakishly high death rates for those who contract the virus – 50 percent for most strains of the virus (only 20 percent of Americans who have contracted Ebola have died.) But the death rate is not the most important figure; the chance of contracting the virus in the first place is the most important factor. 

So far, two American nurses who treated the Liberian man contracted Ebola from him. Both nurses are recovering. For the rest of us, that means the chances of contracting Ebola is about zero. No matter the death rate, a zero chance of contracting the disease means we will not die from it.     

Still, a few marginal precautions, like those put in place by the federal government, will impose a very small temporary cost and likely stop any future Ebola patients from coming to the United States on a commercial flight.    

Categories: Policy Institutes

Stop Squandering “Defense” Dollars on Rich Allies and Failed States

Wed, 10/22/2014 - 15:33

Doug Bandow

America accounts for nearly 40 percent of globe’s military outlays, but Washington hawks believe that the federal government never spends enough on the Pentagon.  The United States should scale back its international responsibilities and cut Pentagon outlays accordingly.

Military expenditures are the price of Washington’s foreign policy.  And the cost is high—about $627 billion budgeted this year, before counting extra expenditures for the latest Mideast war. 

The war lobby minimizes the magnitude of America’s military spending through statistical legerdemain:  real outlays have been falling and account for a lower percentage of GDP.

But the United States leads the world in military spending and is allied with every major industrialized state save China and Russia.  America and its allies collectively account for two-thirds of the globe’s military expenditures.

While Washington’s inflation-adjusted outlays have recently dropped, they previously rose significantly—almost 165 percent between 1998 and 2011.  It is only natural for expenditures to fall as Washington wound down two wars. 

Moreover, the percentage of GDP is irrelevant.  America’s GDP this year is almost seven times that in 1952, at the height of the Korean War.  Today’s GDP is roughly 3.5 times that in 1968, at the height of the Vietnam War and almost twice that in 1989, the peak of Ronald Reagan’s Cold War military build-up.  Washington today spends more in real resources on the military than in any of those years.

Early in the Cold War, Washington had good reason to bear much of the burden of defending the “free world.”  But no longer.  The fact that the world is dangerous does not mean it is particularly dangerous for Americans. 

Terrorism remains the most pressing security threat, but does not pose an existential danger. Washington must spend better, not more, in response. 

The People’s Republic of China is becoming more powerful, but is no replacement for the Soviet Union.  The PRC remains a relatively poor nation beset with economic and political challenges.  It has but one ally, North Korea, while America is friends with most of Beijing’s neighbors.  The United States remains well ahead of the PRC militarily.

Russia has reverted to a pre-1914 Great Power which is most concerned about border security and national respect.  Moscow’s potential military ambitions are limited to its former republics. Europe alone has eight times the GDP and three times the population of Russia.

Beyond these two large powers, there is no there there, as Gertrude Stein said of Oakland.  North Korea should be contained by the Republic of Korea, which has roughly 40 times the North’s GDP. No one wants Iran to have nuclear weapons, but there is no evidence that it is suicidal and would strike America. 

Syria’s implosion is of only minor relevance to U.S. security. The Islamic State has little ability to harm Washington other than killing Americans who fall into its hands. 

Challenges in these and other nations may warrant some form of U.S. involvement, but not primarily military action. 

Mitt Romney declared that “our military is tasked with many more missions than those of other nations.”  Actually, no one “tasks” America with such jobs.  Rather, Washington takes on these roles voluntarily—indeed, it shoves aside other nations.

Reducing Washington’s security objectives and armed forces does not mean becoming a pushover.  The United States should maintain the world’s most powerful and innovative military on earth, and doing so won’t be cheap.  But Washington could protect America while spending far less.

As I noted in my new column on Forbes online:  “Washington’s policy of promiscuous foreign intervention would be foolish even if it was not costly.  But it is both.” 

The United States should scale back its international objectives and adjust its force structure accordingly.  Returning to a foreign policy of a republic would be both safer and cheaper.

Categories: Policy Institutes

Is Idaho Really Forcing Ministers to Officiate Weddings?

Wed, 10/22/2014 - 14:26

Walter Olson

It’s important to push back against the tendency of modern anti-discrimination law to trample the rights of private business and property owners to follow the dictates of their own religious scruples or other personal conscience. It’s also important to get the facts right in each of these controversies as they arise, lest we be stampeded into mistaken assumptions and alarmist misreadings. At Overlawyered, I’ve got some thoughts on the Hitching Post wedding chapel case from Coeur d’Alene, Idaho, which may pose dangers in both of these directions. 

Categories: Policy Institutes

Wastebook: 100 Silly Government Projects

Wed, 10/22/2014 - 12:49

Nicole Kaeding

The office of Senator Tom Coburn released its fifth annual “Wastebook.” The report highlights “100 silly, unnecessary, and low priority projects” funded by federal tax dollars or government debt. The 100 projects in this year’s report cost taxpayers $25 billion and represent the enormous scale of the federal government.

Among the waste in the report:

  • The National Institutes of Health’s grant-making is roundly criticized. NIH provided $533,000 to study the “effects of meditation…from reading Buddhist texts,” $1.5 million to develop a smartphone game to help parents of children with picky-eating habits, $387,000 to provide Swedish massages to rabbits, and $371,000 to study whether moms love dogs or their own children more.
  • The National Science Foundation awarded an $856,000 grant to train three mountain lions to use treadmills to study mountain lions’ use of energy while hunting. This follows NSF’s earlier grant to study shrimps’ ability to walk on treadmills.
  • A small bridge in Morrison, Colorado may be removed and rebuilt for violating the federal government’s “Buy American” provision. The original bridge, built with $52,000 in federal highway dollars, contains $3,300 in American steel that was rolled into sheets in Canada. Reconstruction costs are estimated at $20,000.
  • The Department of Housing and Urban Development provided a $1.4 million grant to build a luxury hotel in Cary, North Carolina. The hotel features afternoon tea, facials, and an “upscale cocktail bar.” There are 50 hotels within 15 minutes of driving distance.

The report also includes several other boondoggles that I’ve highlighted recently:

  • Customs and Border Protection built 21 homes in Ajo, Arizona for its agents. CBP overpaid for land, added unnecessary amenities, and wasted $4.6 million on these extravagant homes.
  • The Department of Homeland Security’s vehicle fleet is underutilized. Fifty-nine percent of the agency’s vehicles are driven less than 12,000 miles a year, wasting up to $48.6 million.

These projects represent a fraction of the federal government’s almost $4 trillion in annual spending, but illustrate a larger trend. Agencies spend wildly and Congress refuses to provide the necessary oversight.

Entrenched interests encourage policymakers to allow wasteful spending to continue. For instance, the Department of Agriculture tried to close a $2 million sheep research station in Idaho, but “politicians in the region stepped in to keep it open.”  There are many similar examples.

Policymakers applaud themselves for efforts the recent drop in the budget deficit, but Senator Coburn’s “Wastebook” shows that a lot of work is left to complete.

Categories: Policy Institutes

Immigrants Don’t Grow Government

Wed, 10/22/2014 - 12:05

Alex Nowrasteh

Many critics of immigration claim that immigrants will grow the size of government.  As their argument goes, allowing for more lawful immigration to the United States will produce a larger government through immigrant voting behavior or their children’s voting behavior.  However, if another factor like institutional changes can explain the growth of government, we would expect government to grow independently of the size of the immigrant stock.

There are many measures of the size of government, many of which are included in the Economic Freedom of the World: 2014 Annual Report.  As excellent as that report is, the data does not go back far enough to show whether government growth a century ago tracks well with growth in the immigrant population.  Older data is essential because there have been radical changes in immigration policy over the last century and larger changes in the growth of government.  By looking at the more distant past, a clearer picture can be formed over how immigration has impacted growth in government – if at all. My charts below focus on the federal government only.

Below I use two measures of the growth of the federal government from 1901-2010:  Real outlays (2010 dollars) per capita and government outlays as a percent of GDP.  I use figures for every decade as yearly data is more difficult to attain. 

 

 

Source: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

Real government outlays per capita go up no matter what happens to the stock of immigrants.  Two forty-year periods had very different immigration policies: 1930 to 1970 and 1970 to 2010.

From 1930 to 1970, when permanent immigration to the U.S. was heavily restricted, real outlays per capita grew about 17 fold. From 1970 to 2010, when the percent of immigrants increased from its lowest point in American history (4.7 percent to almost 13 percent), outlays per capita grew by two-fold. That is a large increase but nowhere near the growth that occurred during the period when immigration was heavily restricted.

Looking at the 1901-1930 period, a time when immigration was less restricted, real outlays per capita grew by 1.9 fold – almost the same growth rate as the relatively liberalized 1970-2010 period.  Government grew the quickest in the time period when immigration was heavily restricted.  The relatively more open immigration policies before and after the 1930-1970 period coincided with slower growth in the size of real government outlays per capita.

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

For the 1901-2010 data, the correlation coefficient here is  -0.298 – meaning that as either outlays or the stock of immigrants increases, the other decreases. This does not support the thesis that a greater stock of immigrants is correlated with bigger government.

Perhaps the immigrants themselves are not the only culprits responsible for an increase in government.  Perhaps their American born children are also responsible.

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

From 1901 to 2010, the stock of immigrants and their children is even more negatively correlated with real outlays per capita.  The correlation coefficient here is -0.748.  The correlation between the stock of immigrants and their children and government outlays is negative – the opposite of what critics of immigration contend.

Perhaps my previous graphs, which measured real outlays per capita, were the wrong way to measure the size of government. Below I measure the growth of government by looking at outlays as a percent of GDP.

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

The relationship between immigration and the size of federal outlays is even more negative than the per-capita data.  The correlation coefficient here is -0.624.  As federal outlays as a percentage of GDP increase, the share of the foreign born population falls. Again, this is just a correlation and I am not implying causation.

What about including the size of the immigrant population and their children with outlays as a percent of GDP?  I get the most negative results yet.

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

 

Sources: Table 1.1, http://www.whitehouse.gov/omb/budget/historicals & U.S. Census

The relationship between the stock of immigrants plus their children and the size of federal outlays is my most negative finding.  The correlation coefficient here is -0.914.  As federal outlays as a percentage of GDP increase, the share of the population that is foreign born plus their children falls. 

Looking at the 1901-1930 period, a time when immigration was less restricted, government outlays as a percent of GDP grew by 1.3 fold.  During the 1930-1970 period of heavy immigration restrictions, federal outlays as a percent of GDP grew increased by 6.3 fold.  During the 1970-2010 period of less restricted immigration, government outlays as a percent of GDP grew 1.2 fold. Government outlays as a percent of GDP grew most rapidly during the time period when immigration was most restricted.

To be clear, these are merely correlations and I am not arguing that more immigration results in a smaller government. It could be that smaller government attracts more immigrants or there could no causal relationship here. I am merely showing that the persistent claims of immigrants causing an increase in the size of government do not match the facts.   

Categories: Policy Institutes

U.S. Floods, Droughts and Global Warming: Another Wardrobe Failure

Tue, 10/21/2014 - 14:50

Paul C. "Chip" Knappenberger and Patrick J. Michaels

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

It is the current rage in the mainstream media and the government to tie almost everything into human-caused global warming—from a sluggish economy to Ebola,  and everything in between (and then some).

In fact, virtually none of these claims are supported by a consensus of evidentiary science. Here is (yet) another example, debunking the popular notion floods are being worsened by dreaded climate change caused by pernicious economic activity.

Clinically speaking, a “flood” is actually an extreme excursion in streamflow. So, if changes in streamflow are related to long-term changes in climate, and we accept that the majority of those latter changes are caused by said economic activity (we don’t), then our activities should increase streamflow and therefore the frequency of floods (or their opposite, droughts).

Two scientists from the U.S. Geological Survey (USGS), Gregory McCabe and David Wolock, recently examined historical (1951-2009) streamflow records from 516 rivers and streams that they considered to be only minimally impacted by human development. They first sorted the data into regional patterns, and then compared the temporal behavior of these patterns to  common historical climate indices—such as well-known patterns of atmospheric circulation, sea surface temperatures, or even large-scale warming.

It turns out that there weren’t any relationships between streamflow and the larger atmospheric phenomena.  Or at least, so very few that they are hardly worth mentioning.

Here is how McCabe and Wolock describe what they (didn’t) find:

Comparing time series of climate indices…with the time series of mean [stream] flow for the 14 clusters [patterns] indicates weak correlations that are statistically significant for only a few clusters. These results indicate that most of the temporal variability in streamflow in the conterminous U.S. is unpredictable in terms of relations to well-known climate indices. [emphasis added]

In other words, trends and/or variability in larger-scale features of the climate (including rising temperature from global warming) are not very strongly (if at all) related to regional and temporal characteristics of streamflows across the U.S.

And before anyone starts to argue that we have left out the direct (i.e., local) effect of global warming—that warmer air holds more moisture and thus it can rain more frequently and harder—McCabe and Wolock report very few long-term trends that would be indicative of steadily rising moisture levels. Instead, the find the historical records dominated by periods of multidecadal variability. In their own words:

Analyses of the annual mean streamflow time series for the 14 streamflow clusters indicated periods of extended wet and dry periods, but did not indicate any strong monotonic trends. Thus, the mean cluster streamflow time series indicate nearly random variability with some periods of persistence.

The bottom line is that McCabe and Wolock do not identify any behavior in historical U.S. streamflow records that is suggestive of an influence from human-caused global warming.

So next time you hear that there are increasing droughts or floods in the U.S. and that they are, through some convoluted explanation, “consistent with” global warming, remember two things: 1) “consistent with” is not the same as “caused by” and, 2) the consensus science linking global warming to changing streamflow characteristics across the U.S. is lacking.

Reference:

McCabe, G. J., and D. M. Wolock, 2014. Spatial and Temporal Patterns in Conterminous United States Streamflow Characteristics. Geophysical Research Letters, doi:10.1002/2014GL061980

 
Categories: Policy Institutes

Abusing Federal Paid Leave

Tue, 10/21/2014 - 13:37

Nicole Kaeding

Compensation for federal civilian employees is more generous than private-sector workers. Federal workers receive better benefits than their non-governmental counterparts in particular, and generous paid leave benefits are one of the federal advantages. A new report from the Government Accountability Office (GAO) suggests that federal agencies are abusing this benefit.

The Washington Post summarizes the GAO findings regarding the number of workers who are being paid for staying home:

53,000 civilian employees were kept home for one to three months during the three fiscal years that ended in September 2013. About 4,000 were idled for three months to a year and several hundred for one to three years. This is the first time the government has calculated the scope and cost of administrative leave.

The Office of Personnel Management permits paid leave for many reasons including jury duty and snow days. But those types of absence do not require one to three months of time out of the office. Instead, it appears that agencies are shifting employees to paid leave for months at a time while dealing with performance issues:

Auditors found that supervisors used wide discretion in putting employees on leave, including for alleged violations of government rules and laws, whistleblowing, doubts about trust­worthiness, and disputes with colleagues or bosses. Some employees remain on paid leave while they challenge demotions and other punishments.

This practice varies from the private sector where paid leave is used infrequently. The Washington Post notes that in the private sector “an employee accused of wrongdoing either stays at the office and is reassigned or is suspended without pay,” generally within days to minimize costs.

All told, GAO estimates that federal employees collected $775 million in salary while on leave. Employees continue to receive other benefits as well. Time on leave counts towards pension and pay increase calculations, and employees continue to accrue vacation and sick days.

GAO acknowledges that this cost estimate understates the problem because it only includes three-fifths of the federal civilian workforce. Leave is not tracked for the remaining employees.

Abusive practices are not a new phenomenon. As early as 1958, the comptroller general found excessive use of leave and ruled that it should not be used for more than 24 hours for employees under investigation.

Senators Chuck Grassley of Iowa and Jon Tester of Montana are working on legislation to overhaul this practice. If passed, the legislation “would narrowly define the circumstances in which employees can be kept home” and “pay would be limited to a few days,” to match private-sector practices. Limiting this abusive practice would save millions in unnecessary expense.

Categories: Policy Institutes

TFSAs Spur Canada Savings Revolution

Tue, 10/21/2014 - 12:08

Chris Edwards

A tax reform is spurring a savings revolution in Canada. Amity Shlaes and I wrote about Canada’s Tax-Free Savings Accounts (TFSAs) in the Wall Street Journal in August. We think that such accounts would be a fantastic policy reform for America. They would simplify the taxation of savings, encourage families to save more, and spur stronger economic growth.

Toronto firm, Investor Economics, has released new data confirming the popularity of TFSAs. In just the past year, TFSA account assets increased 34 percent, and the number of accounts increased 16 percent. In June 2014, 13 million Canadians held $132 billion in TFSA assets. Given that the U.S. population is about 10 times that of Canada, it would be like 130 million Americans pouring $1.3 trillion into a new personal savings vehicle.

The chart shows the rapid growth of TFSAs since they were introduced in 2009:

 

  

There are 27.7 million Canadian adults, so about 47 percent of them own a TFSA, according to the data from Investor Economics. A 2013 survey by a bank found a similar figure of 48 percent. In just five years, TFSAs have become the most popular savings vehicle in Canada, outstripping the Canadian version of 401(k)s. TFSA growth is expected to continue, and the accounts may soon play a central role in virtually every family’s financial planning.

The American vehicle most similar to the TFSA is the Roth Individual Retirement Account (IRA). But Roths are far inferior, and thus just 16 percent of U.S. households own them. Indeed, just 38 percent of U.S. households hold any type of IRA, even though these accounts have been around a lot longer than TFSAs.

TFSAs are like supercharged Roth IRAs. Here are some of the key features: 

  • Individuals can deposit up to $5,500 after-tax each year. Annual contribution limits accumulate if you do not use them. So if you contribute $2,000 this year, you will be able to put away $9,000 next year ($3,500+$5,500).
  • All account earnings and withdrawals are tax-free.
  • Withdrawals can be made at any time for any reason with no penalties or taxes. That greatly simplifies the accounts and increases liquidity, both of which encourage added savings.
  • There are no income limits and no withdrawal requirements. All Canadian adults can contribute and withdraw at any time during their lives.
  • TFSAs can be opened at any bank branch or online. They can hold bank deposits, stocks, bonds, mutual funds, and other types of assets.
  • TFSAs are great for all types of saving, including saving to buy a home, a car, or to start a business, and saving for health expenses, unemployment, or retirement.    

Why are we letting Canadians have all the fun? Everyone agrees that Americans don’t save enough, so why don’t we kick-start a home-grown savings revolution with a U.S. version of TFSAs? Former Treasury official Ernest Christian has long championed similar accounts, which he and I call “Universal Savings Accounts (USAs). Canada has now run the real-world experiment on such accounts, and it has succeeded brilliantly.

TFSAs, or USAs, are a better way to handle savings in the tax code. Currently, many people are scared off by the complexity of U.S. savings vehicles and by the lack of liquidity in retirement accounts. TFSAs solve these problems. Members of Congress and presidential aspirants for 2016 who are interested in a popular, pro-growth, and pro-family reform to champion—this is what you are looking for. 

Categories: Policy Institutes

OMB Director Sets a Low Bar for Deficit Reform

Tue, 10/21/2014 - 11:57

David Boaz

Jonathan House reported [$] in the Wall Street Journal:

The U.S. government’s budget deficit narrowed in its 2014 fiscal year to its lowest level in six years, as an improving economy boosted tax revenues.

The annual deficit for fiscal year 2014 fell 29% to $483.35 billion, the Treasury Department said Wednesday… the lowest deficit since 2008. …

The 2014 deficit fell to 2.8% of the country’s gross domestic product, the broadest measure of economic output. This measure, preferred by economists because it offers greater context, was at its lowest level since the fiscal year ending Sept. 30, 2007.

“This is not only a reduction of the deficit, it’s also a return to fiscal normalcy,” said White House budget director Shaun Donovan.

The Obama administration’s definition of “fiscal normalcy” is a deficit just under half a trillion dollars, larger than in any year before 2009.

The national debt, which was about $5.7 trillion when George W. Bush entered office and $11 trillion when he turned the White House over to Barack Obama, is now at just a shade under $18 trillion. And the director of the Office of Management and Budget declares that a “return to fiscal normalcy.” Where is Warren Harding now that we need him? 

But hold on, there’s more: Donovan also noted that the federal government has abandoned its “harmful excessive budget austerity.” So we can expect more spending, and more deficits, and more debt, in the years to come.

Categories: Policy Institutes

Las Vegas is Ripe For Ridesharing

Tue, 10/21/2014 - 11:35

Matthew Feeney

The regulations that govern taxis in the Las Vegas area impose especially heavy restrictions on consumer choice and driver availability. Such an environment is ideal for rideshare companies, which provide consumers with more choice and drivers with more flexibility. Yet perhaps unsurprisingly, regulators and market incumbents in Sin City may prove to be among ridesharing companies’ most defensive and rigid opponents.

Taxi drivers in Las Vegas are not only restricted in regards to where they can pick up passengers, they are also restricted in how they pick up passengers. For instance, individuals are unable to hail Las Vegas cabs from the street. Cabs must be called and requested or found at designated areas.

The Nevada Taxicab Authority has a web page dedicated to describing the sixteen different taxi medallions available in the state.

The “North Las Vegas” medallion allows operators to drive 24 hours a day, seven days a week. Holders of this medallion “are permitted to stage on any taxicab stand North of Owens Avenue. They can then provide an on-call service within a five-mile radius of North Las Vegas. The southern border of North Las Vegas is Flamingo Road. Taxis with the “North Las Vegas” medallion may pick up passengers when directed to do so by a dispatcher; however the ride must originate north of Flamingo Road and cannot originate on Las Vegas Boulevard or Paradise Road (in the map below Owens Avenue is blue, Flamingo Road is green, and Las Vegas Boulevard and Paradise Road are highlighted in brown). 

“Providing that adequate service is maintained” in North Las Vegas, taxis with this medallion are permitted to provide service from ten specified locations, most of which are hotels.  

The restrictions detailed above affect cabs with only one of the Las Vegas area taxi medallions. Other taxi medallions restrict where drivers can pick up passengers (including a ban on picking up passengers from McCarran International Airport) as well as when drivers can provide rides (such as a prohibition on picking up passengers after 2am).

Uber and Lyft allow their rideshare drivers to pick up whom they want, where they want, when they want. Las Vegas taxi drivers are allowed no such flexibility. So if Uber, Lyft, and other rideshare companies were to move into Las Vegas, it wouldn’t be surprising if the effect on the taxi industry were similar to what was seen in San Francisco.  

In an article published in Forbes on Sunday, Teamly CEO Scott Allison highlighted reporting on Uber’s recent meeting with prospective Las Vegas drivers. Last summer, the Nevada Transportation Authority suggested it would impound unlicensed vehicles providing rides for hire. Allison also highlighted that as it stands Nevada legislation effectively prohibits Uber and similar companies from operating in the state. 

Las Vegas, which has a huge tourist and convention industry and a far-from-ideal public transport system, is ripe for ridesharing. Unfortunately, Uber, Lyft, and other ridesharing companies should expect strong opposition from regulators and taxi companies if they launch there. 

Categories: Policy Institutes

Accuracy of Macroeconomic Forecasts

Fri, 10/17/2014 - 16:24

Chris Edwards

One of my first professional jobs 25 years ago was with the economic forecasting firm DRI/McGraw-Hill. It was fun work, but I noticed that the firm’s gross domestic product forecasts with models hundreds of equations long were no better than simple forecasts based on the interest rate yield curve.

I’m sure that macroeconomic models have grown more sophisticated today, but they still can’t predict very well. Former chair of the Council of Economic Advisers, Edward Lazear, has a terrific piece today describing the inaccuracy of government forecasting models:

My analysis of 1999–2013 reveals that the [Congressional Budget Office]’s real GDP growth forecasts for the next year were off, on average, by 1.7 percentage points, either too high or low. Administration forecasts were similarly off by a slightly larger 1.8 percentage points on average, also too high or too low. Given that the average growth rate during this period was only 2.1%, errors of this magnitude are substantial.

Perhaps most damning: History is a better predictor of annual growth than government forecasts. Simply assuming that GDP growth will be 3.1% in each year—the average annual rate for the 30 years that precede the study period—results in an average forecast error of 1.5 percentage points.

Lazear’s article should be posted above the desk of every reporter and pundit writing about the macroeconomy. And it should be kept in mind by politicians, who often claim that such-and-such policy will create such-and-such number of jobs based on such models.

The lesson for federal budget policy should be one of prudence. We don’t know where the economy is headed, so policymakers should cut spending, zero out deficits, and start paying down debt now while we’re enjoying a run of sustained growth.

Categories: Policy Institutes

Backyard Birds Spreading as Climate Changes

Fri, 10/17/2014 - 11:14

Patrick J. Michaels and Paul C. "Chip" Knappenberger

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

———-

In a recent Global Science Report, we posted some good news coming out of California’s Sierra Nevada, where climate change (from whatever cause), has been partially responsible for a greening of the organo state. Technically, the biomass in the montane forests has been on the increase over the past several decades.

Turns out climate change is for the birds, too. Yes, little Eastern Bluebirds (which almost went extinct because of habitat damage)—raising their young in cute houses, awakening us with their melodious songs, providing free cat food, and selectively messing only on my car. What’s not to like? And who wouldn’t like more birds? And if you live in the Eastern United States, there is a climate-related increase in cat purring because global (actually, local/regional) warming is increasing the range of songbirds.

A new study appearing in the journal Global Change Biology, authored by Karine Princé and Benjamin Zuckerberg from the University of Wisconsin-Madison’s Department of Forest and Wildlife Ecology, finds that:

[A] shifting winter climate has provided an opportunity for smaller, southerly distributed species to colonize new regions and promote the formation of unique winter bird assemblages throughout eastern North America.

The operative word here is “colonize.” In other words, they are spreading out from their home range, not moving north in lockstep.

Linking observations from the amateur bird surveys with temperature data from nearby locations, the authors track how the birds are responding to changing winter conditions. During the period 1990–2011, Princé and Zuckerberg find that the average environmental temperature characteristic of the observed bird assemblages indicate a “northward shift in the community composition of wintering birds” of about 93 miles during the period 1990-2011. Most of that shift is the result of warm-weather adapted species with short migratory paths, such as the Chipping Sparrow and the Carolina Wren, which are both expanding their ranges northward as well as increasing their populations within already established ranges. The authors tell us:

We found that the stronger positive … trends in southerly latitudes were driven by warm adapted birds increasing in their local abundance and regional occurrence… Despite diminished trends … in the more northerly latitudes, these trends were also driven by southerly species expanding their range (e.g., Carolina Wren and Eastern Bluebird) as opposed to cold adapted birds becoming locally extirpated and shifting northward.

This is pretty good news. Biodiversity—which everyone seems to like—is on the rise.

The authors sagely point out that “[c]limate change should not be viewed as the sole driver of changes in winter bird communities in eastern North America,” and note that changing landscapes, changing backyard bird feeding habits, changes in the observing network, etc., may play some role in the results. They also note that the changing community structure of the bird species may act to alter the “biotic interactions” within the winter bird communities, implying that there may ultimately be winner and losers. (A “W” goes to the cats.)

The data show that bird species are pretty much doing what rational climate optimists (h/t to Matt Ridley) expected all along, that is, adapting to changing climate conditions—and not only adapting, but thriving. And cats are purring with approval.

Reference:

Princé, K. and B. Zuckerberg. 2014. “Climate Change in Our Backyards: The Reshuffling of North America’s Winter Bird Communities.” Global Change Biology, doi:10.1111/gcb.12740.

Ridley, M. 2010.  The Rational Optimist: How Prosperity Evolves. New York: Harper.

Categories: Policy Institutes

Updates on President Obama’s Immigration Enforcement Record

Fri, 10/17/2014 - 10:48

Alex Nowrasteh

Last May I wrote a blog post about President Obama’s immigration enforcement record. In that post I made some assumptions about the percentage of all “interior removals” (that is, deportations of illegal immigrants who were living in the United States) for the years 2001—2007, because of a lack of data.

A recent report from the Migration Policy Institute (MPI) fills in those data gaps, except for the first two years of the Bush administration. Here are the updated data:

The total number of internal removals over the last six years of the Bush administration was about 475,000. From 2009 to 2013, the Obama administration removed just under 848,000 from the interior. Those numbers make for an incomplete comparison of the two administrations’ enforcement policies, but they paint an interesting picture.

Source: MPI

On average, President Bush removed about 276,000 unauthorized immigrants per year for the years data are available. That is total removals, including both interior and “border” removals; interior removals alone averaged 79,000 annually. President Obama has removed an average of 404,000 unauthorized immigrants a year, including an average of 170,000 interior removals. It should be noted that initially there were large numbers of “unknowns”—that is, removals that were not classified as either interior or border—during the Bush administration, but those numbers decreased in the administration’s later years and have been very small so far during the Obama administration.

Source: MPI

As I’ve written before, the best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population deported in each year.

Source: MPI, Department of Homeland Security, Pew, author’s calculations

For the years that data are available, the Bush administration deported an average of 0.7 percent per year of the interior unauthorized immigrant population. President Obama’s administration has deported an average of 1.47 percent per year of the interior unauthorized immigrant population—more than twice the rate of the Bush administration.

Obama’s interior removal statistics show a downward trend in 2012 and 2013. However, the Obama administration has clearly not gutted interior immigration enforcement, as their 2013 figures for interior removals are higher than for every year of the Bush administration except for 2008.

Categories: Policy Institutes

Now More Than Ever, Courts Should Police Administrative Agencies

Fri, 10/17/2014 - 10:07

Ilya Shapiro

Under the Bush administration, the Labor Department interpreted a piece of the Fair Labor Standards Act as exempting mortgage-loan officers from eligibility for overtime pay. The Obama Labor Department didn’t see the law the same way, however, and issued a re-interpretation.

This was a worrying development for the Mortgage Bankers Association, which represents banks that relied on the original interpretation and whose interests were greatly affected by the re-interpretation, but were given neither notice nor the chance to comment on the change. The MBA thus sued the Labor Department, arguing that the re-interpretation violated the Administrative Procedure Act, the 1946 law that determined (among other things) the processes that agencies must go through when exercising their “interpretive” and “legislative” powers—that is, when they interpret laws and when they make their own regulations.

Under the APA, agencies have to give affected parties notice and the opportunity for comment when making legislative rules, but do not have to do so when they merely make interpretive rules. The MBA argued that the APA requires an agency to go through the notice-and-comment process when it changes its interpretation of a law or regulation to such a degree that it is effectively making a legislative rule.

The U.S. Court of Appeals for the D.C. Circuit agreed with the MBA, and now the Supreme Court has decided to review the case. The government argues that agencies are due deference when they change the application of a law through interpretive rules—so long as they come in the form of an interpretation—and that the courts don’t get a say regarding when this action becomes a legislative rulemaking.

Cato disagrees with the government’s position—if there’s anything our country needs, it’s not fewer checks on the administrative state—and has filed a brief supporting the MBA, joined by the Competitive Enterprise Institute and the Judicial Education Network, and with former White House Counsel Boyden Gray as co-counsel. In our brief, we examine the APA’s framers’ goal of rebutting the government’s assertion of administrative power. We argue that the boundary between “interpretive” and “legislative” rules is a blurry one that should be policed by the courts. The APA’s architects assumed that the courts would play such a role; they wouldn’t have made interpretive rulemaking so procedurally easy otherwise. Scholarly sources and legislative history agree that judicial review is necessary—for example, determining when “interpretive” flip-flopping necessitates greater due-process protection—to protect those whose livelihood depends on relying on and complying with agency interpretations.

In sum, our brief looks to history to make clear a few important points that only the government would dispute. In a time when more people’s lives are staked on administrative rulings than ever before, we shouldn’t weaken the APA’s due-process protections. This case boils down to the government’s desire for agencies to more easily exercise power and for the subjects of regulations to have a harder time challenging that awesome authority. We, with the APA’s framers, think it should be the other way around.

The Supreme Court will hear oral argument in Perez v. Mortgage Bankers Association on December 1.

This blogpost was coauthored by Cato legal associate Julio Colomba.

Categories: Policy Institutes

How to Stop Wasting Money on Science

Fri, 10/17/2014 - 09:56

Patrick J. Michaels

In Thursday’s Wall Street Journal, former Energy Secretary (and Stanford professor) Steven Chu and his colleague Thomas R. Cech penned an opinion piece entitled How to Stop Winning Nobel Prizes in Science, in which they argue for better long-term planning and consistency in the public funding of science. Cato Adjunct Scholar Dr. Terence Kealey agrees, suggesting the right amount would be consistently $0.

In August, 2013, Professor Kealey wrote precisely about this in that month’s edition of Cato Unbound. Since then, he has stepped down after a long and successful tenure  as Vice-Chancellor (equivalent to President in the US) of the University of Buckingham in the United Kingdom.

First, Kealey introduced the notion that science is a “public good”, i.e. something that should rightly be funded government, because scientific developments are central  the improvement of society as a whole.  

The myth [that Science is a public good] may be the longest-surviving intellectual error in western academic thought, having started in 1605 when a corrupt English lawyer and politician, Sir Francis Bacon, published his Advancement of Learning”.

Kealey went on to document that there is no evidence the public good model (as opposed to laissez faire) indeed does provide for the betterment of the public.

The world’s leading nation during the 20th century was the United States, and it too was laissez faire, particularly in science. As late as 1940, fifty years after its GDP per capita had overtaken the UK’s, the U.S. total annual budget for research and development (R&D) was $346 million, of which no less than $265 million was privately funded (including $31 million for university or foundation science). Of the federal and states governments’ R&D budgets, moreover, over $29 million was for agriculture (to address—remember—the United States’ chronic problem of agricultural over productivity) and $26 million was for defence (which is of trivial economic benefit.) America, therefore, produced its industrial leadership, as well as its Edisons, Wrights, Bells, and Teslas, under research laissez faire.

Meanwhile the governments in France and Germany poured money into R&D, and though they produced good science, during the 19th century their economies failed even to converge on the UK’s, let alone overtake it as did the US’s. For the 19th and first half of the 20th centuries, the empirical evidence is clear: the industrial nations whose governments invested least in science did best economically—and they didn’t do so badly in science either.

What happened thereafter? War. It was the First World War that persuaded the UK government to fund science, and it was the Second World War that persuaded the U.S. government to follow suit. But it was the Cold War that sustained those governments’ commitment to funding science, and today those governments’ budgets for academic science dwarf those from the private sector; and the effect of this largesse on those nations’ long-term rates of economic growth has been … zero. The long-term rates of economic growth since 1830 for the UK or the United States show no deflections coinciding with the inauguration of significant government money for research (indeed, the rates show few if any deflections in the long-term: the long-term rate of economic growth in the lead industrialized nations has been steady at approximately 2 per cent per year for nearly two centuries now, with short-term booms and busts cancelling each other out in the long term.)

The contemporary economic evidence, moreover, confirms that the government funding of R&D has no economic benefit. Thus in 2003 the OECD (Organisation of Economic Cooperation and Development—the industrialized nations’ economic research agency) published its Sources of Economic Growth in OECD Countries, which reviewed all the major measurable factors that might explain the different rates of growth of the 21 leading world economies between 1971 and 1998. And it found that whereas privately funded R&D stimulated economic growth, publicly funded R&D had no impact.

The authors of the report were disconcerted by their own findings. “The negative results for public R&D are surprising,” they wrote. They speculated that publicly funded R&D might crowd out privately funded R&D which, if true, suggests that publicly funded R&D might actually damage economic growth. Certainly both I and Walter Park of the American University had already reported that the OECD data showed that government funding for R&D does indeed crowd out private funding, to the detriment of economic growth. In Park’s words, “the direct effect of public research is weakly negative, as might be the case if public research spending has crowding-out effects which adversely affect private output growth.”

For more on the history of the failure of public science, from Francis Bacon to the modern era, read Dr. Kealey’s The Case against Public Science at Cato Unbound.

Categories: Policy Institutes

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