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A new health club opened in my neighborhood recently and I told my wife I wanted to join it. She agreed, providing that I gave up something we were spending elsewhere to pay for the $1,200 annual membership.  I don’t want to give up anything fun so I decided to adopt the Congressional approach to budgeting to achieve such savings.  It turned out to be a snap.

The first thing I did was claim $150 in credit from a restaurant app I use called Open Table.  Each time I use the app to reserve a table it gives me the equivalent of $1 towards a future meal.  Since I got the app five years ago I’ve never gotten around to using these, but now seems a propitious time.

Next, I let our discount deals expire with the cable company and the newspaper. Each has a base price it offers subscribers, but if I call and threaten to stop my subscription they give me the discount for new subscribers. So I let each expire for a week and then called to get the new subscriber deal again. Together, that saved me $850.

I was still a bit short, but then I got an unexpected $200 check from a friend that owed me for tickets I got us for a visit to Wrigley Field last Summer.  I had written off the money off-my friend was jobless at the time–so it represented a genuine windfall.

I presented these “savings” to my wife and she was not at all amused. She agreed to give me credit for this, albeit grudgingly, but that I had to come up with enough savings in 2016 to cover a membership for her as well. I looked up and down our credit card bill and saw an obvious way to save money–our health insurance bill.

I wasn’t going to not pay the thing, of course, but in my game of Congressional cost-saving I didn’t need to do such a thing. I merely called the insurance company, told them that my paychecks were now arriving on the 15th instead of the 1st and asked if I could have my monthly payments pushed back two weeks. After a few minutes on hold they agreed.

This meant that I would now have only 11 insurance payments in the next 12 months instead of 12, saving me $1500 in the next year. Mission accomplished.

As you might have surmised, my wife wasn’t amused, and as of now I’m still working out in my old gym, which doesn’t have a towel service, a juice bar, or even hot water and clean showers most of the time.

The ease with which I can manipulate such a fictional budget constraint when it comes to our own household account is no different from Congress.  Its PAYGO rules are incredibly malleable and the notion that it prevents Congress from spending recklessly is a foolish supposition.

The recent legislation that took a lot of “temporary” tax breaks–many of which are salutary–and made them permanent by merely waiving PAYGO for the bill–is a prime example of its inefficacy.

For the last decade, Congress has come up with increasingly convoluted and dubious paygos to cover the cost of extending these another year.  Paygo was the reason that they were never made permanent, a situation that made no economic sense at all.  It was only when Congress had exhausted all potential paygos that they gave up the ghost and twisted enough arms and legs to make them permanent.

The lesson for small-government advocates is that budget rules guarantee nothing.  A forthcoming Federal Reserve working paper looks at Colorado’s TABOR (which holds annual spending increases to the combined rate of inflation and population growth), widely hailed by conservatives as being the gold standard when it comes to governmental budget rules, and concludes that it did close to nothing to rein spending.  Colorado’s spending history looks no different than other, similar states.

Rules don’t work because nothing can prevent a future Congress from unmaking the rules set forth by the current Congress, there are myriad ways to game any such system, and–most importantly–the biggest ticking budgetary time bomb out there are the entitlement programs that seemingly escape scrutiny in either Congress, or at least the budget rules.  Entitlement spending will go up by over half a trillion dollars a year in the next five years and no mere budget rule can arrest this growth.

The answer is–and always will be–that to keep spending low we need help people understand the true cost of government largesse.  It’s a task that’s easier said than done. 

A new investigation by ABC7/WJLA reporter Chris Papst highlights data on the number of federal civilian workers earning more than $100,000 in annual wages. Using data from the Office of Personnel Management, Papst reports:

… last year the number of federal employees making more than $100,000 topped 500,000 for the first time. That’s 25 percent of the entire federal workforce of roughly 2.1 million. In the last 15 years, the number of federal workers making $100,000 increased from 66,116 to 509,025, a nearly 800 percent increase.

The chart below shows Papst’s data. The number of high-paid federal workers soared during the 2000s, but has grown more slowly in recent years. There is stark contrast between the George W. Bush years and the Barack Obama years. The number of federal workers earning more than $100,000 more than quadrupled under Bush (83,532 in 2001 to 389,828 in 2009), but has risen 31 percent since 2009 (to reach 509,025 by 2015).

What explains the spendthrift record of Bush and the more frugal record of Obama? Partly, Bush wanted large pay increases for the uniformed military, and to gain support he agreed to large increases for the civilian workforce. Partly, the new pay system in place for the Pentagon in the later Bush years inflated civilian Pentagon pay, as described by Dennis Cauchon. And partly, the Obama frugality was the result of a three-year partial pay freeze backed by the Republicans and approved by the president.


For more on federal pay, see

Data note: figure for 2002 in chart is estimated.

This week, the House Committee on Education and the Workforce held a hearing on “Expanding Education Opportunity through School Choice.” As I’ve written before, there are lots of great reasons to support school choice policies, but Congress should not create a national voucher program:

It is very likely that a federal voucher program would lead to increased federal regulation of private schools over time. Once private schools become dependent on federal money, the vast majority is likely to accept the new regulations rather than forgo the funding.

When a state adopts regulations that undermine its school choice program, it’s lamentable but at least the ill effects are localized. Other states are free to chart a different course. However, if the federal government regulates a national school choice program, there is no escape. Moreover, state governments are more responsive to citizens than the distant federal bureaucracy. Citizens have a better shot at blocking or reversing harmful regulations at the state and local level rather than the federal level.

That said, there’s at least one area where Congress both has the authority to act and can do a lot of good: Washington, D.C.

Despite spending close to $30,000 per pupil, D.C.’s public schools are ranked among the worst in the nation, and it’s the students from the poorest households who are assigned to the worst schools:

In nearly all D.C. neighborhoods where the median three-bedroom home costs $460,000 or less, the percentage of students at the zoned public school scoring proficient or advanced in reading was less than 45 percent. Children from families that could only afford homes under $300,000 are almost entirely assigned to the worst-performing schools in the District, in which math and reading proficiency rates are in the teens.

Ideally, Congress would enact a universal education savings account program, similar to the one that Sen. Ted Cruz is proposing. At the very least, Congress should work to reauthorize the D.C. Opportunity Scholarship Program (OSP) that is set to expire this year. At about $9,000 each, OSP vouchers cost taxpayers a fraction of what it costs per pupil at the public schools yet a random-assignment study found that OSP students were 21 percentage points more likely to graduate from high school than the control group. Moreover, researchers Patrick Wolf and Michael McShane calculated that the total benefits to the taxpayer are even greater than the immediate savings: 

Because a high-school diploma makes an individual less likely to commit crimes, it therefore decreases both the costs incurred by victims of crimes and those borne by the public in administering the justice system. Coupled with the increased tax revenue made on the increased income, this yields an extra benefit for society of over $87,000 per high-school graduate.

Multiplying the number of additional graduates by the value of a high-school diploma yields a total benefit of over $183 million. Over the time of our study, the OSP cost taxpayers $70 million, so dividing the benefits by the cost yields an overall benefit-to-cost ratio of 2.62, or $2.62 for every dollar that was spent.

Sadly, the OSP is threatened by the Obama administration’s war on school choice:

Since coming into power, the administration has actively opposed policies that empower low-income minorities to enroll their children in the schools of their choice. Obama’s proposed budgets repeatedly zeroed out funding for the Washington, D.C., Opportunity Scholarship Program… Last year, more than 95 percent of the D.C. voucher recipients were black or Hispanic.

The program survived only because of its champions in Congress, particularly former House speaker John Boehner, who ensured that the program would continue to receive funding. However, the program is set to expire later this year, and while the latest omnibus bill funds it for fiscal year 2016, it failed to reauthorize the program, spurring the Wall Street Journal in December to wonder “how Nancy Pelosi prevailed despite Republican majorities in both houses.”

Even though he was a scholarship student who now sends his own children to private school, it’s unlikely President Obama will sign any legislation creating new school choice options in his final year in office. If federal lawmakers are serious about expanding school choice, they should make reauthorizing the OSP a top priority.

To learn more about the impact of the D.C. Opportunity Scholarship Program and the Obama administration’s efforts to shut it down, watch this short documentary from Reason Magazine

Bryana Bible defaulted on her student loans. Upon her default, the guarantor of her loans, United Student Aid (USA) Funds, paid the default claim and took over the loan. Bible and USA Funds agreed to a $50-a-month repayment plan. Per the applicable Higher Education Act and Department of Education regulations, however, the agreement included a collection fee of 18.5% of the unpaid loan balance.

Bible balked at this fee and filed a class action against USA Funds, alleging that the company violated both the terms of the promissory note and the federal Racketeer Influenced Corrupt Organizations Act (!). The district court agreed with USA Funds because both the law and applicable regulations allowed for exactly that fee to be imposed. But when the case got to the appellate stage, it went off the rails.

The Seventh Circuit panel fractured, with one judge considering the regulatory text unambiguously permitting the fee, one judge considering the regulatory text unambiguously prohibiting the fee, and one just finding the regulations altogether ambiguous. The judges decided to resolve the case by deferring to the Department of Education’s opinion on the matter.

The Secretary of Education filed an amicus curiae brief, siding with Bible—which contradicted both the agency’s previous regulations and the statute’s express terms. Still, because the Secretary’s brief offered novel interpretative guidance, the court was forced to defer to the agency’s interpretation of its own guidance under a rule called Auer (or Seminole Rock)deference—a doctrine requiring courts to defer to agencies’ interpretation of their own guidance unless plainly erroneous or inconsistent with the regulation—instead of hazarding its own interpretation.

USA Funds has asked the Supreme Court to clean up this mess. Cato has joined the American Action Forum and Judicial Education Project on a brief urging the Court to take up the case and overrule both Auer v. Robbins (1997)and Bowles v. Seminole Rock & Sand Co. (1945).

Auer deference is simply outdated—and was superseded by statute from its inception. In 1946, one year after the Court decided Seminole Rock, Congress passed the Administrative Procedures Act (APA). The APA distinguished between legislative and interpretative rules. Legislative rules are subject to notice-and-comment practice but interpretative rules are not. Accordingly, judicial deference to a rule that results from an open notice-and-comment procedure may be justifiable, while deference to an interpretative rule—like the one at issue here—which is not subject to such a process, is inappropriate.

The text, history, and structure of the APA confirm this reading. Indeed, Auer deference subverts the APA’s purpose and immunizes the least politically accountable agency action from meaningful judicial review.

Moreover, even if the Court decided to apply Auer deference rather than overruling it, the Education Secretary’s guidance plainly fails the Auer test because it’s “plainly erroneous or inconsistent with the regulation.” The Department of Education in 1994 – under President Clinton – issued interpretative guidance stating that collection fees like the one here are not only permissible but “reasonable” under the very same regulation that it now interprets to bar them.

Taking a step back, Auer deference has become increasingly unpopular in legal circles because its invocation is now a too-frequent occurrence that shuts down jurisprudence. Justices Scalia, Thomas, and Alito have written several opinions in the last decade indicating that they wish to overturn Auer. USA Funds v. Bible presents a perfect case for the Court to do so, thus restoring a measure of reasonableness and accountability to the administrative state.

While Cato believes that same-sex couples ought to be able to get marriage licenses (if the state is involved in marriage in the first place), a commitment to equality under the law can’t justify the restriction of private parties’ constitutionally protected rights like freedom of speech or association.

Arlene’s Flowers, a flower shop in Richland, Washington, declined to provide the floral arrangements for the same-sex wedding of Robert Ingersoll and Curt Freed. Mr. Ingersoll was a long-time customer of Arlene’s Flowers and the shop’s owner Barronelle Stutzman considered him a friend. But when he asked her to use her artistic abilities to beautify his ceremony, Mrs. Stutzman felt that her Christian convictions compelled her to decline. She gently explained why she could not do what he asked, and Mr. Ingersoll seemed to understand.

Later, however, he and his now-husband, and ultimately the state of Washington, sued Mrs. Stutzman for violating the state’s laws prohibiting discrimination in public accommodations. The trial court ruled against Arlene’s Flowers and the case is now on appeal.

Cato has filed an amicus brief supporting Arlene’s Flowers and Mrs. Stutzman, urging Washington’s highest court to reverse the trial court’s decision. Although floristry may not initially appear to be speech to some, it’s a form of artistic expression that’s constitutionally protected. There are numerous floristry schools throughout the world that teach students how to express themselves through their work, and even the Arts Council of Great Britain has recognized the significance of the Royal Horticultural Society’s library, which documents the history, art, and writing of gardening.

The U.S. Supreme Court has long recognized that the First Amendment protects artistic as well as verbal expression, and that protection should likewise extend to floristry—even if it’s not ideological and even if it’s done for commercial purposes. The Supreme Court declared more than 70 years ago that “[i]f there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion, or force citizens to confess by word or act their faith therein.” West Virginia Board of Education v. Barnette (1943). And the Court ruled in Wooley v. Maynard—the 1977 “Live Free or Die” license-plate case out of New Hampshire—that forcing people to speak is just as unconstitutional as preventing or censoring speech.

The First Amendment “includes both the right to speak freely and the right to refrain from speaking at all” and the Supreme Court has never held that the compelled-speech doctrine is only applicable when an individual is forced to serve as a courier for the message of another (as in Wooley). Instead, the justices have said repeatedly that what the First Amendment protects is a “freedom of the individual mind,” which the government violates whenever it tells a person what she must or must not say.

Forcing a florist to create a unique piece of art violates that freedom of mind. Moreover, unlike true cases of public accommodation, there are abundant opportunities to choose other florists in the same area.

Finally, granting First Amendment protection to florists would not mean that public-accommodation laws could provide no protection to same-sex couples. The First Amendment protects expression, which should include floristry but would not include many other wedding-related businesses like caterers, hotels, and limousine drivers who are not in the business of creating artistic expression. These sorts of businesses may have other defenses available, constitutional or statutory, but that’s a different legal matter. 

The Washington Supreme Court (“SCOWA”) will hear oral argument in Arlene’s Flowers v. Washington in late winter or early spring. Whichever side loses there will likely petition the U.S. Supreme Court for cert – unless the state loses on a state-law ground, in which case there will likely be no basis for federal review.

On February 18th at noon, Cato will be hosting a book forum with Columbia University professor Michael Doyle on his new book The Question of Intervention: John Stuart Mill and the Responsibility to Protect.  The forum will include a presentation of Doyle’s conception of the key standards that should guide decisions to intervene militarily abroad, followed by responses from two distinguished discussants—Anne-Marie Slaughter (President and CEO of New America, and former director of the State Department Policy Planning Staff), and Christopher Preble (Executive Vice President for Defense and Foreign Policy Studies, Cato Institute). 

In light of the persistent calls for the United States to intervene in trouble spots around the world, this event will provide an illuminating discussion of the circumstances in which moral and security considerations supersede the norm of state sovereignty and justify foreign intervention.  To register for the event, click here.

After a short pause over the holidays, here is a new installment in the HP series on technological breakthroughs. This time, we look at improvements in agriculture, and the fight against schizophrenia, aging and diabetes.    New robotic farm will harvest 30,000 heads of lettuce daily.    The world’s first completely robotic farm is in the works in Japan. Developed by a company called Spread, the farm will be able to harvest crops at greater quantities than before. The indoor farm already uses LED light instead of natural sunlight and stores the growing plants on vertical racks, allowing crop growth to be more easily controlled and more productive. With full automation, the farm will increase its lettuce production to 30,000 heads per day. The state-of-the-art facility also will provide environmental benefits such as recycling used water and greatly reduced labor costs. Spread hopes to export its technology around the world in the near future.      A new study released by the Broad Institute of MIT has found new links between brain development during adolescence and schizophrenia. The researchers focused in on a gene called component 4 (C4), which is found in the immune system. They examined 100,000 human DNA samples from 30 countries. When C4 is prominently expressed in the genetic code, people have a higher risk of developing schizophrenia. Additional analyses of mice found that C4 plays a role in closing off synapses in the brain. This process emerges during adolescence and opens exciting new avenues for additional research.     A cure for aging?   A competition in Silicon Valley is underway inspiring innovators in medicine to discover a way to reduce the effects of aging. The Palo Alto Longevity Prize awards $1 million in prizes to researchers who can find a way to reduce the effects of aging and disease. But, the goal of the competition is not just to find a way to allow individuals to live longer, but also to raise their quality of life by reducing the impact of age-related diseases such as Alzheimer’s and cancer. The body has a natural state of rest, called homeostasis, which it returns to after recovering from sickness or trauma. In a person’s early life, it is relatively easy for their body to return back to that state after getting a cold or breaking a bone. But after the age of 40, it becomes much harder for that person’s body to get back in sync.   ‘Cure’ for Type 1 diabetes close.    Scientists at Harvard and MIT have found a way to provide long-term treatment for Type 1 diabetes. Tests in animals have been so far successful. Through embryonic stem-cell research, the team found a way for cells to detect glucose levels and adjust insulin levels accordingly throughout the body. The breakthrough would effectively eliminate reliance on insulin injections for several years at a time and reduce the risks that come from Type 1 if an injection is missed or a sudden spike in blood-sugar occurs. The disease afflicts millions of individuals across the world, including 400,000 in Britain alone, according to The Telegraph. Those with Type 1 diabetes must check their blood sugar levels and take insulin injections daily in order to live with the disease. 

Ever wonder about the neutrality (or lack thereof) of scientists investigating the subject of global warming? Does it seem that far too many of them eagerly sound alarm bells when it comes to documenting and communicating the potential consequences of human-induced climate change to the public? Well, that little voice inside your head telling you something is awry appears to be vindicated based on new research published in the journal Public Understanding of Science.

In an article that is both enlightening and damning at the same time, Senja Post (2016) set out to investigate the “ideals and practices” of German scientists in communicating climate change research findings to the public. Post accomplished her objective by conducting and analyzing a representative survey of German scientists holding the academic rank of full professor and who were actively engaged in climate change research. Altogether, 300 such scientists were identified and invited to participate in her survey, and 42 percent of them responded with a completed questionnaire in which they were queried about “various aspects of climate change, their attitudes toward publicly communicating scientific uncertainty, and their media relations.”

According to Post, the results of her survey indicated that “the more climate scientists are engaged with the media the less they intend to point out uncertainties about climate change and the more unambiguously they confirm the publicly held convictions that it is man-made, historically unique, dangerous and calculable.” Similarly, the more scientists were convinced of the alarmist narrative that rising atmospheric CO2 is causing dangerous climate change, the more they worked with the media to disseminate that narrative. Post’s survey also revealed that “climate scientists object to publishing a result in the media significantly more when it indicates that climate change proceeds more slowly rather than faster than expected,” which finding, in her words, “gives reason to assume that the German climate scientists are more inclined to communicate their results in public when they confirm rather than contradict that climate change is dramatic.”

Such findings are saddening and shameful, highlighting a near-ubiquitous bias among climate scientists (at least in Germany) who willfully suppress the communication of research findings and uncertainties to the public when they do not support the alarmist narrative of CO2-induced global warming. Such deceit has no place in science.



Post, S. 2016. Communicating science in public controversies: Strategic considerations of the German climate scientists. Public Understanding of Science 25: 61-70.

The Constitution has gotten short shrift in the ongoing presidential debates, save for an occasional mention by Rand Paul. Now that he’s out of the race, Politico reports this morning, in a piece entitled “Ted Cruz, born-again libertarian,” that Cruz is scrambling for Paul’s supporters, claiming that he’s the one remaining “constitutional conservative.” That’s rich, and here’s why.

If there is any test of libertarian constitutionalism, it concerns the proper role of the courts in limiting legislative and executive excesses, federal, state, and local. Even many conservatives today are rethinking their earlier views and arguing now that courts need to be more engaged in the business of limiting government and preserving liberty. And no Supreme Court decision in our history more symbolizes the divide between the earlier conservatives and the libertarians who’ve gradually brought this re-thinking about than Lochner v. New York, where the Court in 1905 struck down an economic regulation because it violated the right to liberty of contract protected by the 14th Amendment.

And where does Ted Cruz stand on that? Here’s Damon Root writing yesterday about the Paul exit in Reason’s “Hit & Run” blog:

Ted Cruz, meanwhile, stands in direct opposition to the libertarian legal movement on the central issue of economic liberties and the Constitution. For example, in July 2015 Cruz attacked the Supreme Court’s Lochner decision as a regrettable example of the Court’s “imperial tendencies” and “long descent into lawlessness.”

Unfortunately for Cruz, he undercut his own position in that speech by mangling the facts of Lochner, which he incorrectly described (while reading from a prepared text) as a case where “an activist Court struck down minimum wage laws” on behalf of an individual right “that has no basis in the language of the Constitution.” (Cruz’s opposition to Lochner also happens to be indistinguishable from Barack Obama’s negative view of the case.)

In reality, Lochner was not a minimum wage case at all; it was a maximum working hours case, plain and simple. What’s more, there is significant historical evidence showing that the individual right at issue in Lochner—liberty of contract—is deeply rooted in the text and history of the 14th Amendment.

Ted Cruz may be a “constitutional conservative” in the old and, increasingly, passing sense, but he’s hardly heir to those Rand Paul supporters who take the Constitution seriously. If his views on Lochner are any indication, he’d be more comfortable with the deferential Court that has left Obamacare largely intact. At the least, he needs to bone up on his constitutional theory and history.

Last year I referred readers to the abuse of civil asset forfeiture laws by the IRS in its attempt to take more than $107,000 from North Carolina small business owner Lyndon McLellan without charging him with any crime.

The IRS cleaned out Mr. McLellan’s business account because it suspected him of “structuring,” an offense whereby a person avoids legally-mandated financial reporting requirements by keeping their deposits and withdrawals under $10,000.  Because there are many perfectly legitimate reasons a business owner may deposit less than $10,000 at a time (for instance, if their insurance policy only covers $10,000 cash on hand), and because civil asset forfeiture allows the government to seize cash and property without proving any wrongdoing, IRS structuring seizures are prone to abuse.

Tacitly recognizing the abuse allowed by the law, former Attorney General Eric Holder announced changes to the use of civil forfeiture in structuring offenses last year.  The policy changes should have spared innocent business owners like Lyndon McLellan, but it seems some federal prosecutors never got the memo.  In fact, the Assistant U.S. Attorney in charge of the case responded to criticism by sending veiled threats to Lyndon McLellan and his lawyers at the Institute for Justice, warning them against publicizing the case lest it “ratchet up feelings” in the IRS offices.

The publicity worked. After significant public and political pressure, the IRS relented and returned the amount they had taken from Mr. McLellan’s bank account. As I noted last year, however, the IRS refused to reimburse Mr. McLellan for the costs of fighting the seizure or to pay interest on the money it had wrongfully seized.

But this week a federal judge ruled that the IRS must do more to make Mr. McLellan whole, and awarded him legal costs totalling more than $20,000.

The court held:

Certainly, the damage inflicted upon an innocent person or business is immense when, although it has done nothing wrong, its money and property are seized. Congress, acknowledging the harsh realities of civil forfeiture practice, sought to lessen the blow to innocent citizens who have had their property stripped from them by the Government… . This court will not discard lightly the right of a citizen to seek the relief Congress has afforded.

Fortunately, thanks to the efforts of Mr. McLellan and the Institute for Justice, the good guys won this time. Ultimately, however, the only way to ensure that civil forfeiture abuses stop happening is to abolish civil forfeiture. If the government cannot prove beyond a reasonable doubt that a person engaged in criminal activity, it should not be able to punish them as if they’re guilty.  As long as Congress and state legislatures allow this practice to continue, more innocent Americans will end up fighting for their livelihoods like Lyndon McLellan had to.  

For the Institute for Justice page detailing Mr. McLellan’s case, click here.

For Cato’s explainer on the troubling history of civil asset forfeiture, click here.

The big trade news from yesterday was that government officials from the 12 nations negotiating the Trans Pacific Partnership traveled to New Zealand for the official signing ceremony. While the negotiators are no doubt relieved, and are looking forward to some time off, we now get to perhaps the most difficult part of the process: Seeing whether Congress will approve what the Obama administration negotiated.

Finding a way for different branches in a divided government to work together is never easy. This year you have Presidential elections thrown into the mix, which makes things even harder.

Senator Mitch McConnell is sounding pretty skeptical about holding a vote before the election, and maybe even after as well:

McConnell said his “advice” is that Congress not vote on TPP prior to the election in part because the two Democratic presidential candidates and several Republican candidates oppose the agreement.

With respect to a lame-duck vote, McConnell signaled it may not be fair to constituents to take a vote on a controversial issue such as trade after they cast their votes for who should represent them in Congress.

People are sometimes able to resolve their differences, and maybe there is some deal to be struck here. On the other hand, Senator McConnell feels pretty strongly about the “tobacco carveout” that was included in the TPP’s investment provisions. The Obama administration has used this carveout to generate TPP support from groups such as the Cancer Action Network, but it’s not clear that such support will lead to any Democratic votes for the TPP, whereas it clearly is affecting Republican views of the TPP.

So, the TPP has been signed, but it is not clear whether it can be sealed and delivered.  In fact, at this point, it seems very possible that whoever becomes President will want to take a fresh look at the terms. Hillary Clinton might want to see if it is “progressive” enough (the Obama administration keeps calling it the “most progressive trade agreement in history”); on the other side, Marco Rubio might want to make it a lot less progressive (e.g., by taking out the minimum wage provisions, and deleting the tobacco carveout).

I’ll close with a quote from Victoria Guida of Politico: “The future of the Trans-Pacific Partnership is as clear as mud … .” 

Remember peak oil? Remember when oil prices were $140 a barrel and Goldman Sachs predicted they would soon reach $200? Now, the latest news is that oil prices have gone up all the way to $34 a barrel. Last fall, Goldman Sachs predicted prices would fall to $20 a barrel, which other analysts argued was “no better than its prior predictions,” but in fact they came a lot closer to that than to $200.

Low oil prices generate huge economic benefits. Low prices mean increased mobility, which means increased economic productivity. The end result, says Bank of America analyst Francisco Blanch, is “one of the largest transfers of wealth in human history” as $3 trillion remain in consumers’ pockets rather than going to the oil companies. I wouldn’t call this a “wealth transfer” so much as a reduction in income inequality, but either way, it is a good thing.

Naturally, some people hate the idea of increased mobility from lower fuel prices. “Cheap gas raises fears of urban sprawl,” warns NPR. Since “urban sprawl” is a made-up problem, I’d have to rewrite this as, “Cheap gas raises hopes of urban sprawl.” The only real “fear” is on the part of city officials who want everyone to pay taxes to them so they can build stadiums, light-rail lines, and other useless urban monuments.

A more cogent argument is made by UC Berkeley sustainability professor Maximilian Auffhammer, who argues that “gas is too cheap” because current prices fail to cover all of the external costs of driving. He cites what he calls a “classic paper” that calculates the external costs of driving to be $2.28 per gallon. If that were true, then one approach would be to tax gasoline $2.28 a gallon and use the revenues to pay those external costs.

The only problem is that most of the so-called external costs aren’t external at all but are paid by highway users. The largest share of calculated costs, estimated at $1.05 a gallon, is the cost of congestion. This is really a cost of bad planning, not gasoline. Either way, the cost is almost entirely paid by people in traffic consuming that gasoline.

The next largest cost, at 63 cents a gallon, is the cost of accidents. Again, this is partly a cost of bad planning: remember how fatality rates dropped nearly 20 percent between 2007 and 2009, largely due to the reduction in congestion caused by the recession? This decline could have taken place years before if cities had been serious about relieving congestion rather than ignoring it. In any case, most of the cost of accidents, like the other costs of congestion, are largely internalized by the auto drivers through insurance.

The next-largest cost, pegged at 42 cents per gallon, is “local pollution.” While that is truly an external cost, it is also rapidly declining as shown in figure 1 of the paper. According to EPA data, total vehicle emissions of most pollutants have declined by more than 50 percent since the numbers used in this 2006 report. Thus, the 42 cents per gallon is more like 20 cents per gallon and falling fast.

At 12 cents a gallon, the next-largest cost is “oil dependency,” which the paper defines as exposing “the economy to energy price volatility and price manipulation” that “may compromise national security and foreign policy interests.” That problem, which was questionable in the first place, seems to have gone away thanks to the resurgence of oil production within the United States, which has made other oil producers, such as Saudi Arabia, more dependent on us than we are on them.

Finally, at a mere 6 cents per gallon, is the cost of greenhouse gas emissions. If you believe this is a cost, it will decline when measured as a cost per mile as cars get more fuel efficient under the current CAFE standards. But it should remain fixed as a cost per gallon as burning a gallon of gasoline will always produce a fixed amount of greenhouse gases.

In short, rather than $2.38 per gallon, the external cost of driving is closer to around 26 cents per gallon. Twenty cents of this cost is steadily declining as cars get cleaner and all of it is declining when measured per mile as cars get more fuel-efficient.

It’s worth noting that, though we are seeing an increase in driving due to low fuel prices, the amount of driving we do isn’t all that sensitive to fuel prices. Real gasoline prices doubled between 2000 and 2009, yet per capita driving continued to grow until the recession began. Prices have fallen by 50 percent in the last six months or so, yet the 3 or 4 percent increase in driving may be as much due to increased employment as to more affordable fuel.

This means that, though there may be some externalities from driving, raising gas taxes and creating government slush funds with the revenues is not the best way of dealing with those externalities. I’d feel differently if I felt any assurance that government would use those revenues to actually fix the externalities, but that seems unlikely. I actually like the idea of tradable permits best, but short of that the current system of ever-tightening pollution controls seems to be working well at little cost to consumers and without threatening the economic benefits of increased mobility.

Just days before the Trans-Pacific Partnership is scheduled to be signed by its 12 member governments, an official expert from the UN Human Rights Council released a statement criticizing the agreement for being incompatible with the goals of the UN human rights regime.  The criticism isn’t about the TPP in particular so much as the modern model of trade agreements as an inadequate vehicle for furthering wealth redistribution and massive regulatory intervention to pursue progressive goals.  That is, it’s a complaint about what the TPP doesn’t do.

There are, of course, lots of things the TPP doesn’t do.  Critics have complained that the TPP doesn’t prevent climate change, doesn’t eliminate human trafficking, and doesn’t reform repressive regimes in Vietnam and Brunei.  But these are not things the TPP was ever supposed to do.  It’s like complaining that Obamacare doesn’t end the drug war.

There are legitimate criticisms to be leveled against the TPP—things it does but shouldn’t and things it doesn’t do as well as it should.  There’s also a lot to like.  But debates over trade agreements often get bogged down with unrelated controversies that are easier to argue about.  Not one of the complaints the UN expert makes is explicitly about trade liberalization.  

The statement includes two specific criticisms of the TPP.  One is the secrecy of the negotiations, and the other is investor-state dispute settlement.  These are well-worn, standard complaints opponents of the TPP have been making for years.  The persuasiveness of both arguments relies on reflexive fear of the unknown—opponents can hint at what horrible things might happen from the TPP rather than looking at specific, measurable impacts.

These issues have become so controversial, in fact, that eliminating ISDS from future trade agreements and increasing transparency in negotiations would probably result in more free trade

The proliferation and prominence of non-trade arguments against trade agreements show that agreements like the TPP have strayed too far away from their core mission.  Using “human rights” as an argument against trade agreements will be harder to do if they focus more on simply eliminating tariffs, quotas, and subsidies.  A debate over the value of protectionism in promoting national and global welfare sounds very appealing and would surely lead to better policy.

I’ve been quite hard on President Obama for his abuse of executive power – and will soon file another brief in the 26-state challenge to his immigration action – but there are certainly things that he or any president can do to protect and secure our liberty without violating the Constitution. One such executive action would be to “declassify” marijuna: remove it from the list of controlled substances (or at least move it further down the list, which would have significant positive legal effects). I explain in this video:

What the President Should Do: Declassify Marijuana

In case you don’t have time to watch, here’s a transcript:

While legalizing marijuana as a matter of federal law would take an act of Congress, President Obama can decriminalize it. He can do this by moving it out of Schedule I of the Controlled Substances Act, which is reserved for substances of no medical purpose and a high potential for abuse, and therefore have high criminal penalties attached to their mere possession.

Virtually all marijuana-­related arrests are handled by state and local law enforcement. The federal Drug Enforcement Agency (DEA) simply lacks the resources to enforce the federal ban across all 50 states. That’s why the Justice Department decided not to fight the legalization of marijuana in the handful of states that have taken that step.

President Obama — without rewriting any laws or going outside of his constitutional authority — can direct the attorney general to start the process of reclassifying marijuana as a Schedule IV or V substance, or declassifying it altogether.

Reclassifying marijuana as a Schedule III substance or lower would have significant benefits for the budding marijuana industry and individual users. For example:

Declassifying marijuana would solve all of these problems.

But even merely reclassifying it would make it easier for legal businesses to access the full economy and reduce violent crime.

Marijuana deregulation sits squarely within the control of the executive. The president should use his executive powers to allow for intelligent enforcement of drug policy without eroding the rule of law.

I guarantee that if President Obama does this, he won’t be impeached for high times crimes and misdemeanors.

The majority of federally insured savings and loans failed in the 1980s, wiping out the Federal Savings and Loan Insurance Corporation in 1989.  The fiasco ultimately cost taxpayers around $150 billion to make savings depositors whole.  Two years later, the failures of hundreds of commercial banks put the Federal Deposit Insurance Corporation in the red.  (The FDIC got a bridge loan from the US Treasury, which it eventually repaid.)  It became clear that deposit insurance had fostered immense moral hazard, enabling the growth of unsound S&Ls and commercial banks.

For many reformers these events raised the question of how the core services of banks (intermediation and payments) might be provided without the expense of tax-funded guarantees, and yet without the danger of runs that had prompted the creation of the FSLIC and FDIC.  A number of economists (myself included) pointed to checkable money-market mutual funds (MMMFs) as an alternative to bank deposits that are not run-prone and therefore have no need for taxpayer-funded guarantees.

MMMFs, like other mutual funds and unlike banks, offer savers not debt claims promising specified dollar payouts on specified dates but rather equity claims (shares) in the dollar value of a portfolio.  Like other mutual funds, a MMMF buys back shares on demand at the current “net asset value” or NAV.  The modifier “money-market” means that a fund invests only in fixed-income securities with less than a year in remaining maturity, which means that present-value losses will be negligible from a rise in interest rates.  A fund can keep default and liquidity risks low by maintaining a diversified portfolio of highly rated securities with active secondary markets.

In 1976 Merrill Lynch introduced a MMMF that allowed customers to write checks against their account balances, an innovation which was quickly copied by other funds.  Money-market share accounts now combined the services of checking accounts with much higher returns, because they were not subject to the binding interest-rate ceiling (under the Fed’s Regulation Q) then constraining bank accounts.  To make them seem more like bank accounts, fund providers adopted the convention of pegging the share redemption value or NAV at $1, and varying the number of shares in an account, rather than varying the share price to reflect changes in the value of portfolio assets.  The popularity of MMMFs soared.  MMMFs that hold only Treasury obligations are called “government” funds.  Those that hold mostly commercial paper and jumbo bank CDs are called “prime” funds.

J. Huston McCulloch put the case for MMMFs not needing government guarantees well in a 1993 article: “[E]ven though MMMFs invest in financial instruments that may not come due for many weeks or months, they are entirely run-proof.  Should the volume of withdrawals be high enough” to require net sales that shrink the asset portfolio, “the fund’s liability to its remaining depositors simply falls in the same proportion.”  That is, each MMMF share is a claim not a fixed dollar sum, but only a percentage of the portfolio’s value.  A fall in the total value of the asset portfolio, whether from redemptions or from bad-news events that reduce assets’ market prices, immediately reduces the total value of shares so that they never over-claim the available assets.  Any bad-news net market value loss is immediately spread evenly over shareholders rather than being concentrated “on the last unlucky depositors in line, as occurs in a run on a traditional bank.”  With no greater losses falling on the person last in line to withdraw, there is no incentive to run to withdraw ahead of others.  Thus, “as long as MMMFs behave like true mutual funds,” continuously marking portfolio assets and shares to market value, the problem of the me-first incentive to run “cannot arise.”

I made essentially the same argument in chapter 6 of my text The Theory of Monetary Institutions.  There I argued that a run arises from the combination of three conditions: (1) claims are redeemable in pre-specified dollar amounts (i.e. are debts), (2) redemption is unconditionally available on demand, with a first-come first-served rule for meeting redemption demands, and (3) the last claim in line has a lower expected value.  Mutual funds eliminate the first element (claims are equity rather than debt), which is sufficient to eliminate the run problem.  It’s no use rushing to redeem when bad news about the asset portfolio arrives, because your account balance has already been marked down.  They also eliminate the third element (because every share redemption receives the same percentage of the portfolio value) when assets are liquid enough or the fund is small enough to make “fire-sale” losses from asset sales negligible.

But wait — doesn’t this argument assume that MMMFs vary the price of their shares like ordinary mutual funds?  Doesn’t it matter that the share redemption value is pegged at $1?  McCulloch explained why it should not matter: “Some MMMFs offer investors a variable number of shares of fixed value instead of a fixed number of shares of variable value.  This is merely a cosmetic difference with no substance, however.”  The problem of claims exceeding portfolio value “arises [only] when funds try to offer investors a fixed number of shares of fixed value.”  In other words, so long as $1 shares are promptly subtracted from each account in proportion to any decline in total portfolio value, or alternatively promptly marked below $1 (an event called “breaking the buck”), there remains no incentive to run.

In practice, subtracting $1 shares is not done (for reasons not immediately obvious), and breaking the buck has become an occasion to liquidate the fund.  Accordingly parent companies, to keep a MMMF alive and preserve its brand-name capital, almost always choose to eat losses and maintain the $1 share value.  A 2010 report by Moody’s identified 147 occasions over the period 1980-2007 when a MMMF suffered a net decline in portfolio assets that, without a rescue, would require breaking the buck.  Only one fund actually broke the buck.  (It was then liquidated, with shareholders receiving 96.1 cents per share.)  In 146 cases the parent firm stepped in, absorbing losses to keep the share value at $1.  If a parent firm acts immediately, upon news of critical asset losses, either to break the buck or instead to pitch in to preserve the par value, then running to get a better payoff than other shareholders remains either impossible or pointless.

Fast-forward to September 2008.  At midday on Sunday the 15th, insolvent and without a rescuer, Lehman Brothers filed for bankruptcy.  A money-market fund called The Reserve Primary Fund was caught holding $785 million in Lehman paper, about 1.3% of its $62.5 billion in assets under management.  (This size put it in the top twenty, but outside the top ten.)  An immediate 20% write-down on Lehman paper meant that a $157 million gap needed to be filled immediately if the fund was to have the asset value necessary to maintain its $1 share price.  For the next 24 hours, shareholders ran on the fund.  They did not believe, for good reason as it turned out, reassurances from the fund’s sales reps, repeating what The Reserve’s ownership had said but not done, that the parent company would pitch in to support the price.  By 1pm Monday (the 16th) shareholders had redeemed a bit more than a quarter of their claims at $1 per share.  The ownership had dithered and did not fill the hole in the balance sheet.  The fund’s custodian State Street Bank finally refused to make further payouts, and the fund broke the buck.  The Reserve also imposed daily withdrawal limits on its other funds.

During that Monday, and again on Tuesday and Wednesday, other prime funds experienced heavier than normal redemption outflows.  Other MMMF parent firms, by contrast to The Reserve, immediately supported their prime funds that had Lehman-related losses, and continued to redeem at $1 per share.  No other funds broke the buck.  By the 19th the industry-wide dollar value of assets under management by MMMFs was down by $247 million, a bit less than 7 percent of the value held ten days earlier.

After these three days of relatively heavy net redemptions following the Lehman bankruptcy and Reserve Primary buck-breaking, on Thursday the 19th, the US Treasury stepped in to stanch the redemptions, which it considered equivalent to runs, with something that it considered equivalent to federal deposit insurance.  It announced what Secretary Hank Paulson described as a “temporary guaranty program for the U.S. money market mutual fund industry,” assuring shareholders in participating funds that their shares would be redeemed at $1 even if their fund’s net asset value fell below par.  The Federal Reserve pitched in on September 22 by creating a special “Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility” to lend funds to banks for acquiring the commercial paper assets that MMMFs were shedding.

As later described by Philip Swagel, who was a Treasury official at the time, the MMMF guarantee program was initially funded, in an unprecedented and legally dubious move, from the Treasury’s Exchange Stabilization Fund:

The US Department of the Treasury (2008) used the $50 billion Exchange Stabilization Fund—originally established back in the 1930s to address issues affecting the exchange rate of the US dollar—to set up an insurance program to insure depositors in money market funds. … Use of the Exchange Stabilization Fund for this purpose was plausibly legal—after all, a panicked flight from US dollar-denominated securities could be seen as posing a threat to the exchange value of the dollar—but its use in this way was without precedent.

It should be noted that there was in fact no panicked flight from US dollar-denominated securities in general.  US Treasury securities rose in value during the crisis as investors worldwide considered them a safe haven.  The trade-weighted US dollar index actually rose sharply in the six months after Lehman fell and the Primary Reserve Fund broke the buck.  In its indifference to the rule of law, the US Treasury acted much like the Federal Reserve System did during the crisis.

After one year, the Treasury ended its MMMF guarantee program.  It has since imposed new pricing restrictions, liquidity requirements, and accounting rules on the funds in the name of reducing the problem of runs.  (I will discuss these regulatory changes in my next Alt-M post.)

So what happened in September 2008?  Is the run on Reserve Primary and heavy redemptions at other prime funds evidence that, contrary to McCulloch’s and my argument, prime MMMFs with a fixed $1 share price are in fact inherently fragile?

Stephen G. Cecchetti, former Director of Research at the Federal Reserve Bank of New York, and co-blogger Kermit L. Schoenholt have said so:

The fundamental problem facing U.S. regulators is that money market funds are banks in everything but their outward legal form.  They perform liquidity and credit functions that are identical to those of chartered banks; in particular, they offer the equivalent of bank checking deposits, making them vulnerable to a run.

This argument won’t do.  It completely fails to engage the basic counter-argument that checkable equity claims (MMMFs) are not run-prone because they distribute portfolio asset losses in an essentially different way from checkable debt claims (bank deposits).

Useful analysis of the run-proneness of MMMFs is provided by a 2013 comment on SEC rule proposals by the Squam Lake Group, a committee of 13 center-left to center-right financial economists.  They note that a MMMF (like a bank) will be run-prone whenever the aggregate redemption value of its shares or NAV exceeds the actual market value of the fund’s assets, so that early redeemers can expect to get more than late redeemers.  Under current accounting rules for money-market mutual funds (which they abbreviate MMFs), they point out, this can happen for two reasons:

First, mutual funds have the option to account for assets at amortized cost if they have a maturity of 60 days or less.  With that option, the [total redemption value of shares] is not a true reflection of the fair market value of fund assets.  Whenever investors can redeem at a NAV that is higher than the fair value of the assets, investors have incentives to run.

Second, and more fundamentally, prime MMFs invest substantially in assets without a liquid secondary market.  This creates an incentive for fund investors to run during a period of financial stress, because even “fair market value” may exceed by a significant amount the value at which the fund can quickly sell assets to meet investor redemptions.  Therefore, … the first MMF investors to redeem their shares during a crisis are likely to receive a higher price for their shares than those who follow once the fund is forced to meet redemption demands by selling assets that have not yet matured. … This first-to-redeem advantage, which is exacerbated by amortized cost accounting, creates an incentive for MMF shareholders to run.

In other words, MMMFs in August 2008 did not exhibit the immunity to runs that McCulloch and I expected in cases where the accounting rules did not, as we assumed they generally do, rule out an excess of aggregate share redemption value over actual asset portfolio value.  Some funds used accounting rules that allowed them not to mark 60-days-or-fewer assets to market at all, and not to mark other assets to a market price that corresponded to their actual immediate liquidation value.

In summary, we learned in August 2008 that MMMFs using certain accounting rules are not run-proof.  For 24 hours The Reserve Primary Fund carried a diminished asset portfolio without either topping it up or diminishing the claims against it, and consequently was rationally run upon.  We did not learn that MMMFs are inherently fragile, but rather that run-proneness depends on the accounting practices that a fund uses.

From this diagnosis, no policy intervention is indicated.  What follows is rather that in a market where losses remain private, investors can be expected to consider the relative fragility under certain circumstance of funds that opt to use potentially run-incentivizing accounting practices.  Such funds, if they do not offer some fully compensating advantage, should be expected to lose their market share.  Money-market mutual funds that instead credibly bind themselves to thoroughgoing mark-to-market accounting and other run-proofing practices (such as perhaps a pre-funded commitment by the parent company to shelter shareholders from losses), and advertise that fact, should be expected to flourish in the marketplace.  Such MMMFs remain an available payment mechanism that is not susceptible to runs and therefore has no need for guarantees at taxpayer expense.

To come in a later post: What to make of the US Treasury’s new restrictions on MMMFs?


*Acknowledgment: I thank Kyle Davidson for research assistance.

[Cross-posted from]

Global Science Report is a weekly 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.”

Second only to incidences of high temperature, supporters of government action to restrict energy choice like to say “extreme” precipitation events–be they in the form of rain, sleet, snow, or hail falling from tropical cyclones, mid-latitude extratropical storms, or summer thunderstorm complexes–are evidence that greenhouse gas emissions from human activities make our climate and daily weather worse.

The federal government encourages and promotes such associations. Take, for example, the opening stanzas of its 2014 National Climate Assessment: Climate Change Impacts in the United States, a document regularly cited by President Obama in support of his climatic perseverations:

This National Climate Assessment concludes that the evidence of human-induced climate change continues to strengthen and that impacts are increasing across the country.

Americans are noticing changes all around them. Summers are longer and hotter, and extended periods of unusual heat last longer than any living American has ever experienced. Winters are generally shorter and warmer. Rain comes in heavier downpours.

President Obama often calls out the extreme rain meme when he is running through his list of climate change evils. His Executive Order “Preparing for the Impacts of Climate Change,” includes:

The impacts of climate change – including…more heavy downpours… – are already affecting communities, natural resources, ecosystems, economies, and public health across the Nation.

So, certainly the science must be settled demonstrating a strong greenhouse-gas altered climate signal in the observed patterns of extreme precipitation trends and variability across the United States in recent decades, right?


Here are the conclusions of a freshly minted study, titled “Characterizing Recent Trends in U.S. Heavy Precipitation” from a group of scientists led by Dr. Martin Hoerling from the NOAA’s System Research Laboratory in Boulder, Colorado:

Analysis of the seasonality in heavy daily precipitation trends supports physical arguments that their changes during 1979-2013 have been intimately linked to internal decadal ocean variability, and less to human-induced climate change…Analysis of model ensemble spread reveals that appreciable 35-yr trends in heavy daily precipitation can occur in the absence of forcing, thereby limiting detection of the weak anthropogenic influence at regional scales [emphasis added].

Basically, after reviewing observations of heavy rains across the country and comparing them to climate model explanations/expectations, Hoerling and colleagues determined that natural variability acting through variations in sea surface temperature patterns, not global warming, is the main driver of the observed changes in heavy precipitation.

They summed up their efforts and findings this way (emphasis also added):

In conclusion, the paper sought to answer the question whether the recent observed trends in heavy daily precipitation constitute a strongly constrained outcome, either of external radiative forcing alone [i.e., greenhouse gas increase], or from a combination of radiative and internal ocean boundary forcing. We emphasized that the overall spatial pattern and seasonality of US trends has been more consistent with internally driven ocean-related forcing than with external radiative forcing. Yet, the magnitude of these forced changes since 1979 was at most equal to the magnitude of observed trends (e.g. over the Far West), and in areas such as the Far Northeast where especially large upward trends have occurred, the forced signals were several factors smaller. From the perspective of external forcing alone [i.e., changes in atmospheric carbon dioxide], the observed trends appear not to have been strongly constrained, and apparently much less so than the efficacy of an external driving mechanism surmised in the National Climate Assessment.

Hoerling’s team tried to say it nicely, but, basically they’re saying that the federal government’s assessment of the impacts of climate change greatly overstates the case for linking dreaded carbon dioxide emissions to extreme precipitation events across the United States (Note: We weren’t as nice when saying that, in fact, the National Assessment Report overstates the case for linking carbon dioxide emissions to darn near everything.)

This is not to say that Hoerling and colleagues don’t think that an increasing atmospheric concentration of carbon dioxide isn’t supposed to lead to an enhancement of heavy precipitation over the course of the 21st century. (If they didn’t say that, they’d probably be exiled to the federal climatologist rubber room). Rather, they think that folks (including the president and the authors of the National Climate Assessment) are far too premature in linking observed changes to date with our reliance on coal, oil, and natural gas as primary fuels for our energy production.

Whether or not at some later date a definitive and sizeable (actionable) anthropogenic signal is identifiable in the patterns and trends in heavy precipitation occurrence across the United States is a question whose answer will have to wait—most likely until much closer to the end of the century or beyond.


Hoerling, M., J. Eischeid, J. Perlwitz, X. Quan, K. Wolter, and L. Cheng, 2016. Characterizing Recent Trends in U.S. Heavy Precipitation. Journal of Climate. doi:10.1175/JCLI-D-15-0441.1, in press.


In the 1990s, the Clinton administration proposed restructuring our air traffic control (ATC) system, creating a self-funded organization outside of the Federal Aviation Administration (FAA). The idea went nowhere in Congress at the time.

Since then, numerous countries have successfully privatized their ATC systems, including Britain and Canada. Meanwhile, our ATC is still trapped inside the FAA bureaucracy, and it continues to fall short on crucial technology upgrade projects.

The good news is that major restructuring is back on the agenda in Congress. House Transportation and Infrastructure Committee chairman, Bill Shuster, is expected to soon unveil a major reform proposal, perhaps along the lines of Canada’s non-profit ATC corporation, Nav Canada. The FAA must be reauthorized by the end of March, which gives some momentum to reform. If President Obama wants an important pro-growth legacy in his final year in office, he should get behind this effort.

Canada’s ATC privatization has been a huge success. In a recent Wall Street Journal interview, the head of Nav Canada, John Crichton said, “This business of ours has evolved long past the time when government should be in it … Governments are not suited to run … dynamic, high-tech, 24-hour businesses.” Exactly—and for all the reasons I discuss here.

Please join us Thursday for a Capitol Hill forum to discuss these issues (Rayburn B-354, noon). We will hear from two top experts. Dorothy Robyn was a top economic advisor to both Presidents Clinton and Obama, and she wrote an excellent study on ATC reform for Brookings. Stephen Van Beek is a long-time aviation industry expert.  

A popular knock against vouchers and other school choice programs is that private schools do not serve many students with disabilities, whereas public schools serve everyone. If that’s true, then the vast majority of public schools in New York City must actually be private.

According to a federal investigation just rejected by the de Blasio administration, the large majority of New York City elementary schools – 83 percent – are not “fully accessible” to students with disabilities. That forces many disabled students to travel far afield from their local public schools, which are supposed to serve every zoned child. The U.S. Department of Justice’s letter to the city laying all this out contains this anecdote:

In the course of our investigation, we spoke to one family who went to extreme measures to keep their child enrolled in their zoned local school, rather than subject the child to a lengthy commute to the closest “accessible” school. A parent of this elementary school child was forced to travel to the school multiple times a day, every school day, in order to carry her child up and down stairs to her classroom, to the cafeteria, and to other areas of the school in which classes and programs were held.

Of course, it is unrealistic to expect that every school is going to be able to provide the best possible education for every child – all kids learn different things at different rates and have different strengths and weaknesses – but it is especially true for children with disabilities. Yet while the public schools often fall lightyears short of the goal, that is the standard to which public schooling advocates love to hold schools in choice programs. And not only is it unrealistic no matter what, but vouchers are usually a fraction of the funding public schools get, averaging around $7,000, versus New York City’s nearly $19,000 per pupil.

The scope of NYC’s failure to live up to the ideal is sobering, but revelations of double standards on this front are not new. School districts often pay for kids with the most challenging disabilities to attend private institutions, and there are several choice programs that are, in fact, specifically designed for children with disabilities. But maybe now, before choice opponents attack private schools again, they’ll at least try to get their own house in order. Or in New York City, their hundreds of houses not fully serving disabled children.

Jeb Bush spent at least $14.9 trying to win the Iowa Republican primary, the most of any candidate in either party. He finished sixth.

Will this persuade people that money does not buy elections? Probably not. The belief that “money buys elections” is not really falsifiable. It is a matter of faith.

But perhaps those who believe that money buys elections will now think it is somewhat less probable they are correct.

On Wednesday, February 3, the Senate Environment and Public Works committee will hold a hearing on a new “Stream Protection Rule” being proposed by the Department of the Interior’s Office of Surface Mining (OSM) that looks to be another nail being hammered into the coal industry’s coffin by the Obama Administration.

Energy and mineral resource development in the U.S. is being thwarted by a wave of agenda-driven federal agency rulemakings being rushed through before the end of this administration. Oil, natural gas, and coal have been targeted for replacement by renewable energy sources. The coal industry has been fast-tracked by the OSM’s proposed new “Stream Protection Rule” (SPR). 

The new SPR would supersede the existing Stream Buffer Zone Rule, enacted in 2008 to control the increasingly few negative effects of surface coal mining on aquatic environments in the nation’s three largest coal mining areas: Appalachia, the Illinois Basin—Midwest, and Rocky Mountains—and Northern Great Plains. But, as is so often the case in the world of environmental regulation, that was not sufficient for the OSM, and, over the past seven years it has continued to press for more and stricter regulations on coal mining all across the United States.  They seem to prefer a nationwide one-size-fits-all regulatory enforcement scenario, even though local geology, geochemistry, and terrain vary widely between states and basins.  As it is, these concerns are more efficiently addressed by the states and policed by the industry.

That aside, the real impacts of the SPR, openly acknowledged by OSM, leave tens of billions of dollars’ worth of coal in the ground with no chance of future development—“stranded reserves,” as OSM terms them in the rule. Those coal deposits, according to OSM, “…are technically and economically minable, but unavailable for production given new requirements and restrictions included in the proposed rule.”  Yet, OSM’s engineering analysis, cited by a Congressional Research Service study, states that there will be no increase in “stranded reserves” under the SPR. In other words, the same volume of coal will be mined under the proposed rule as under the current rule…an OSM oversight, no doubt.

The proposed rulemaking employs questionable geoscience and mining engineering issues such as overemphasizing the importance of ephemeral streams to limit mining activities in all areas, requiring needless increases of subsurface drilling and geologic sampling, redefining accepted technical terms such as “approximate original contour” and “material damage to hydrologic balance,” and creating new unfamiliar terms such as “hydrological form” and “ecological function.”

But OSM likely is not focused on technical issues as much as their main concern: that the new rule is more stringent than the existing 2008 rule as is possible, and that it will apply nationally. Hence, the rule appears to be more for the benefit of regulators and places undue burden and expense on coal miners. Neither is OSM overly concerned with the big three tangible adverse impacts of their proposed rulemaking: lost jobs, lost resources, and lost tax revenue—with Appalachia being hit the hardest. Consensus estimates—not OSM’s—of the number of mining-related jobs lost nationally due to the SPR: in excess of 100,000 to upwards of 300,000. The decrease in coal tonnage recovered: between roughly 30 to 65 percent less. The annual value of coal left in the ground because of the rule: between 14 to 29 billion dollars. The estimated decrease in Federal and coal state tax bases: between 3.1 to 6.4 billion dollars. These are not very encouraging statistics for an industry that is currently responsible for supplying 40 percent of U.S. electrical power generation.   

Interior’s Office of Surface Mining has failed to adequately justify its proposed Stream Protection Rule in light of the federal and state rules and regulations already in place. Rather, OSM has embarked on a seven year odyssey of agenda-driven rulemaking that would force-fit regional and local characteristics coal mining operations to a nationwide template. However, Congress and the courts had already established that a uniform nationwide federal standard for coal mining would not be workable given the significant differences in regional and local geology, hydrology, topography, and environmental factors related to mining operations everywhere. On the non-technical side, OSM does not retreat from its admission in the preamble to the proposed rule that the SPR is politically motivated. Press reports have quoted an OSM official as acknowledging that there was pressure to get the SPR done in this administration’s last year.

Enacting the new SPR would be an ominous threat to a coal mining industry that deserves much better from this or any other future administration. This is one reason why OSM’s proposed SPR has been tagged by the National Mining Association as “a rule in search of a problem.” However, to paraphrase a more appropriate quote: the voluminous Stream Protection Rule is not the solution to the coal industry’s problems—rather the Stream Protection Rule is the problem.

It will be interesting to see how this all plays out in the Senate on Wednesday.