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Following up on my comments Monday about Donald Trump “changing his tone,” I note that this week prominent Republicans are offering different timetables for Trump beginning to act like a leader instead of an angry score-settler.

Senate majority leader Mitch McConnell said Tuesday, “My advice to our nominee would be to start talking about the issues that the American people care about and to start doing it now. In addition to that, it’s time to quit attacking various people that you competed with or with various minority groups in the country and get on message. This election is eminently winnable.”

Note that, as I pointed out Monday, McConnell is not hoping for the 69-year-old Trump to change his actual character or his vast ignorance about public policy, just to “get on message” and listen to his campaign consultants. But he wants it done now.

Senate Foreign Relations Committee chairman Bob Corker is a bit more lenient: “He’s got this defining period that’s over the next two or three weeks where he could pivot, can pivot, hopefully will pivot to a place where he becomes a true general election candidate.” Corker also refuses to say whether the candidate he supports is fit to be president.

Former speaker Newt Gingrich, perhaps remembering his own verbal stumbles, offers a much longer leash: “I am confident the Trump campaign, from the convention on, will be remarkably inclusive and will do much better with minorities than [Mitt] Romney did in 2012.”

So Gingrich gives Trump a full six weeks to start presenting himself as a serious, civil presidential candidate not focused on personal slights and ethnic insults. That’s very generous.

But as I wrote Monday, 

When Republicans say that Trump must change his tone, they are saying that they want him to conceal his character for the duration of the election. But he’s a scorpion, and they knew that when they picked him up.

Perhaps along with changing his tone, Trump could change his policy positions: Support free trade, not trade war; sensible immigration reform, not walls around America; religious liberty, not Muslim immigration bans and spying on mosques; fiscal responsibility, not more money for the military and for transfer programs. Now that would be an attractive pivot.

Yesterday, the House GOP released a report called A Better Way: Our Vision for a Confident America. Alas, at least in education, only if you think doing basically the same thing we’re doing right now is a “better way” could this report please you. And there is little to suggest what we’re doing now is working.

Start with pre-k education. While acknowledging the undeniable—“gold-standard” research commissioned by the feds themselves has shown federal Head Start has no discernable, lasting benefits—the report does not call for even decreasing Head Start spending, much less eliminating the program. No, it proclaims that early-childhood programs are very important and what Washington should do—again, with no talk about actually decreasing funding—is “streamline” duplicative programs and fund more research into “what works.” Because states, or local governments, or philanthropists, could never fund such research!

That’s not a better way. That is a way, maybe, to mute attacks that Republicans “don’t care” about little children or the poor. So maybe it’s a politically better way. But it isn’t a better way on policy.

At the elementary and secondary level, the report says nice things about choice, including the DC voucher program, which is all well and good. It also touts the Every Student Succeeds Act—the replacement for No Child Left Behind—before, frankly, we know what it is going to look like in practice. More and more, it seems the law may have given too much power to the U.S. Secretary of Education, which the report warns against in only the broadest terms.

A better way? We’ll see.

Perhaps the biggest disappointment is the report’s higher education discussion. Basically, the better way is—of course—to “streamline” stuff, including federal regulations, while failing to even mention the mountain of evidence that federal student aid—all $161 billion of it—fuels rampant price inflation and student debt; encourages massive noncompletion; finances credential inflation; and abets demand for on-campus water parks and other extreme amenities.

While we’re on the subject, the report falls all over itself to tout Pell Grants, but it would sure be refreshing if someone, in looking for a better way for everyone—taxpayers included—were to at least note how fundamentally unfair Pell Grants are. A huge benefit of completing college is to greatly increase one’s lifetime earnings—to use a term some people find distasteful, to profit—and what Pell says is you should be able to make that profit with other people’s money and no obligation to pay them back. How’s that fair?

There is one more omission from the report: any mention of the Constitution, and whether it gives the federal government authority to do any of these things. But if whether the programs work doesn’t matter, probably no one is going to care about a minor, abstract thing like the rule of law.

The “better way” on all these issues would be to be frank about the effects of federal policies, what the federal government is constitutionally permitted to do, and act accordingly. But that seems to be asking way too much.

I’ve written a few things here and elsewhere about the need to close military bases, about how we should go about closing them, and about the possible civilian reuses for these sites. Later this month, I’ll be discussing some examples around the world, drawing from cases in a new book, Sustainable Regeneration of Former Military Sites published by Routledge.

I wrote a chapter covering two cases in Philadelphia – the Frankford Arsenal and the Philadelphia Navy Yard – and co-wrote another on the Brooklyn Navy Yard. Other places featured in the book include the Brunswick Naval Air Station in Maine, and an arts community in Marfa, Texas, once home to Fort Russell, a German POW camp in World War II. My friend and former colleague Connor Ryan wrote about the Base Realignment and Closure (BRAC) process. But the volume mostly addresses non-U.S. cases, including former defense sites in the UK, Croatia, the Netherlands, Finland, Sweden, China, and Taiwan. The experiences are as varied as the sites themselves, but common challenges include environmental cleanup, jurisdictional disputes (i.e. who controls the process, and who benefits), and local resistance to change. Eventually, these former military facilities do find other uses that provide clear benefits for their surrounding communities. And some recover quite quickly.

I’ll be speaking at the Association of Defense Communities’ National Summit here in DC, in the morning on Tuesday, June 21st. Then, on the afternoon of Wednesday, June 22nd, I’m traveling to New York City for an official book launch with the co-editors Celia Clark and Samer Bagaeen at historic Governors Island. A flyer with more details about that event, and the book, is featured below.

Something unsurprising but very interesting is happening in Austin, Texas. Last month, voters in Austin voted against Proposition 1, which would have repealed regulations mandating that wannabe rideshare drivers include fingerprints as part of their applications. Uber and Lyft left the city in the wake of the vote. Predictably, drivers and passengers have turned to social media to keep ridesharing going in a city without Uber and Lyft. While it’s nice to see drivers and passengers trying to adapt to Uber and Lyft leaving Austin, the approach does pose some privacy and safety concerns.

Austin residents looking for a ride need not resort to taxis. Rather, they can join the Facebook group “Arcade City Austin/Request a Ride.” Members of the group can request rides. These requests includes arrival and pickup locations as well as preferred times. Drivers in the group interested in driving the passenger can comment on the request with a phone number, fare, and “brochure” showing that Uber and Lyft had approved them to drive.

As Arcade City notes, their approach removes “corporations” (read: Uber) and other institutions that act as middlemen in popular ridesharing services. There is no Uber or Lyft connecting passengers with drivers, the two parties voluntarily submit information to one-another in order to make each other better off.

As great as it is to see so-called micro-entrepreneurs in Austin working around poorly-considered local regulations, the Facebook group isn’t without concerns.

The “brochures” put on display by drivers could be faked without too much difficulty. A driver found via the Facebook page could be dangerous person who knows how to use Photoshop. Passengers do not know for sure that their potential driver was cleared by Uber or Lyft. In fact, they don’t even know if the driver has a valid license or insurance.

Speaking of insurance, drivers could end up in trouble if they are in an accident while driving a passenger using this Facebook group. Absent clarifying legislation personal auto insurance will be of little help if you’re involved in an accident while driving someone in exchange for money.

There are additional safety concerns associated with Arcade City’s Facebook page. It doesn’t seem difficult to be added to the Facebook group. In fact, I was promptly added to the group after I sent in my request, despite the fact that I work in Washington, D.C. and live in Virginia. It’s not hard to see how this page could be used by stalkers or would-be assailants to identify or track targets. As the screenshot below shows, passengers using the page can reveal specific addresses and telephone numbers.

Arcade City, which has yet to release its app, claims that their platform will allow drivers to create a profile that can embed a social media account, which will enable them to list their safety qualification, as TechCrunch explained:

Arcade City is confident they have a solution that will protect riders, while still remaining decentralized.

The startup explained that each driver will have a profile that can embed a Facebook or Twitter profile, background check, FBI check, driver’s license, proof of physical address, and more. Each driver can attach as few or as many of these verification options as they like, and the app will use these to compile a score that summarizes trustworthiness for each driver. Essentially, since riders will always be able to pick their driver, drivers who choose not to verify should be weeded out of the platform.

However, while this approach may work to provide some safety reassurance, it remains the case that the current Facebook page doesn’t provide rides as safe as Uber or Lyft rides.

Ironically, Uber and Lyft leaving Austin over a safety regulation has left residents with a ridesharing platform more dangerous than the services offered by Uber and Lyft.


Venezuela no longer can feed or care for its people. Yet many Americans have forgotten what socialism really is. Sen. Bernie Sanders campaigns as if Karl Marx was just another Santa Claus.

Real socialism largely disappeared decades ago. The collapse of the Soviet Union and its Eastern European satellites effectively ended the age of collectivism.

Nevertheless, oil-rich Venezuela since became a flamboyant exponent of socialism. Its travails should remind us how America’s power is built upon a prosperous economy. Prodigal spending at home and promiscuous intervention abroad are undermining our nation’s economic foundation.

Like most Latin American nations, Venezuela never enjoyed a genuine market economy. After years of misrule, Lt. Col. Hugo Chavez attempted a coup in 1992. He failed, but six years later frustrated Venezuelans elected him president, leading to his “Bolivarian Revolution.” Before his death in 2013 he nationalized industries, provided bountiful social benefits, spent wildly on domestic and foreign ventures, turned the state oil company into a fount of political patronage, and imposed price controls.

Chavez’s successor, Vice President Nicolas Madura, is no more competent but less charismatic. Today the economy is in virtual collapse. With oil revenues declining the regime no longer can mask its many failures.

Yet Madura’s government only blames others—political opponents and private businessmen—for everything from pervasive shortages to hyper-inflation. Madura recently seized private factories and jailed their owners for not producing goods at a loss. People can’t even cry in their beer, since Venezuela lacks the barley and hops necessary to brew any.

In May Madura declared a 60-day state of emergency “to tend to our country and more importantly to prepare to denounce, neutralize and overcome the external and foreign aggressions against our country.” He said his government’s problems are “made in the U.S.A.”

In December legislative elections delivered a two-thirds parliamentary majority to the divided opposition, which is organizing a recall campaign against Madura. Seven of ten Venezuelans say they want him gone.

The Obama administration declared the Chavista regime to be a national security threat and imposed sanctions on top Venezuelan officials. Washington often inflates foreign threats to justify intervention, but Venezuela is a danger only to its own people. The Obama administration should stay out of the worsening chaos.

In fact, as I wrote in Forbes: “there’s little good that Washington can do. Attempts at isolation, especially economic sanctions which have become America’s weapon of choice, tend to hurt those people most aligned with the U.S.”

In Venezuela Washington’s support for a failed coup in 2002 spurred nationalist support for Chavez. Only the Venezuelan people can rid themselves of the Chavistas.

As they must do. Hugo Chavez said he created “21st century socialism.” Alas, it didn’t work any better than 19th century socialism. Bernie Sanders, call your office. America can’t afford to import a system that continues to fail around the world.

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.” 

Currently, details are few, but apparently the results of a major scientific study on the effects of anthropogenic aerosols on clouds are going to have large implications for climate change projections—substantially lowering future temperature rise expectations.

In a blog post from the Department of Meteorology of the University of Reading, Dr. Nicolas Bellouin describes some preliminary results from a research study he leads investigating the influence of aerosols on cloud properties.  The behavior of clouds, including how they are formed, how long they last, how bright they are, etc., plays a very large role in the earth’s climate system, and is considered the weakest part of global climate models. The climate model cloud deficiency results from a combination of scientific uncertainty about cloud behavior, as well as the modeling challenges that come from simulating the small spatial and temporal scales over which the important processes take place.

When it comes to the influence of human aerosol emissions on cloud properties, the scientific mainstream view is that aerosols modify clouds in such a way as to result in an enhanced cooling of the earth’s surface—a cooling influence which has acted to offset some portion of the warming influence resulting from human emissions of greenhouse gases (primarily from the burning of fossil fuels, like coal, oil, and natural gas to produce energy).  In the absence of this presumed aerosol cooling effect, climate models predict that the earth should warm at a much faster rate than has been observed.  A large cooling effect from aerosols was thus introduced in the early 1990s as a way to “fix” the climate models and bring them closer in line with the modest pace of observed warming. Despite that “fix,” climate models continue to overpredict the observed warming rate—which is bad enough news for climate models already.

But the new results, reported by Bellouin, make things much worse for them. His team’s investigations show that the anthropogenic cooling impact from clouds is much less than “assessed” by the U.N.’s Intergovernmental Panel on Climate Change (IPCC) and also much less than employed by climate models.  Less enhanced cloud cooling means that greenhouse gases have produced less warming than the climate models have determined. Another way to put it is that this new finding implies that the earth’s climate sensitivity—how much the earth’s surface will warm from a doubling of the pre-industrial atmospheric carbon dioxide concentration—is much below that of the average climate model (3.2°C) and near the low end of the IPCC’s 1.5°C to 4.5°C assessed range. This result comports with the concept of “lukewarming” (which you can read more about here).

Bellouin summarizes his findings:

Radiative forcing is a measure of the imbalance in the Earth’s energy budget caused by perturbations external to the natural climate system, such as the emission of aerosols into the atmosphere by human activities. Our preliminary [research] estimate of radiative forcing due to aerosol-cloud interactions, based on satellite observations of aerosol amounts and cloud reflectivity, is –0.6 W m−2. The negative sign indicates a loss of energy for the climate system. The estimate of climate models for the same radiative forcing is stronger, typically larger than –1 W m−2. What causes that discrepancy? Over the past few months, I have discussed with experts in aerosol-cloud interactions, and there are reasons to expect that aerosol-cloud interactions are weaker than simulated by climate models – and perhaps even weaker than the preliminary [research] estimate.

Bellouin promises a more formal and detailed release of his team’s findings in August.

As they stand, the results of this new study seem to confirm the results of an analysis published last year by Bjorn Stevens of the Max-Planck Institute for Meteorology which also showed a much smaller anthropogenic enhancement of the cooling property of clouds.

When the Stevens results were incorporated into a determination of the earth’s climate sensitivity made by Nic Lewis, the result was a best estimate of the earth’s climate sensitivity of 1.5°C with a narrow range of 1.2°C to 1.8°C. This is a significant lowering and narrowing of the IPCC’s assessed range (again, 1.5°C to 4.5°C). The lower the climate sensitivity, the less future warming will result from our greenhouse gas emissions, the smaller any resultant impact, and the less the “need” to “do something” about it. Also, Lewis’ narrow range of uncertainty increases our confidence that climate change will not be catastrophic—that is, will not proceed at a rate that exceeds our ability to keep up.

At the time, we wrote

If this Stevens/Lewis result holds up, it is the death blow to global warming hysteria.

The findings being reported by Nicolas Bellouin show, in fact, the Stevens/Lewis result to be holding up quite nicely.

Distrusted by most Americans and generating little enthusiasm even among supporters, Hillary Clinton has fallen behind Donald Trump in the polls. Last week she launched a brutal attack on his foreign policy views.

Clinton is the Democratic neoconservative who backed every major conflict fought by the U.S. over the last quarter century. Her needless foreign adventures consistently created new crises and consequent demands for more intervention and war.

Nevertheless, her basic message was that Donald Trump is “temperamentally unfit” for the presidency. True, but common sense still occasionally surfaces in the Trump world view. It rarely makes an appearance as Clinton backs Washington’s attempted domination of the globe.

Ultimately, she is most appalled that Trump appears to oppose the conventional wisdom that Washington is destined to micro-manage the globe. For instance, she began by posing “a choice between a fearful America that’s less secure and less engaged with the world, and strong, confident America that leads to keep our country safe and our economy growing.” However, Clinton-backed military interventions have left America poorer and less secure.

In her speech she imagined Trump “leading us into war just because somebody got under his very thin skin.” He could. But she doesn’t require even that much justification for going to war. She has backed U.S. involvement in virtually every unnecessary conflict.

She pushed her husband to remake the Balkans. She strongly supported the Iraq invasion, one of America’s worst foreign policy blunders.

She backed doubling down in nation-building in Afghanistan. She orchestrated the campaign in Libya, which resulted in a vacuum filled by ISIS. She advocates that the U.S. get more involved militarily in Syria, a multi-sided civil war in which America has no vital interest and for which Washington has no answer.

Yet she believes this list of mistakes entitles her to the presidency: “I’m proud to run on my record.”

In her speech she said “we need to stick with our allies,” which make “us exceptional.” Yet America is not exceptional because dozens of whiny dependents expect the U.S. to subsidize, reassure, and defend them. Actually, nations all over the world are begging Washington to do so.

Allies should make the U.S. stronger. America should not protect those who can protect themselves.

The Europeans are not only wealthier and more populous than Russia, their only serious potential antagonist, but also America, which does most of the heavy lifting in defending the continent. South Korea has more than 40 times the GDP and twice the population of North Korea.

These alliances are a source of conflict, not strength. Washington has no cause to risk war over the Baltic States, Japan’s claims to the Senkaku Islands, or who controls the Korean peninsula.

Clinton endorsed diplomacy and specifically the Iran nuclear accord. She’s right, but though Trump has been inconsistent on Iran, he appears to be more open to diplomacy elsewhere, especially in dealing with the PRC and Russia.

She advocated being “firm but wise with our rivals.” Clinton rightly criticized Trump’s sometimes bizarre praise of foreign dictators, but she supports confrontation with Russia over Ukraine even though the latter is not in NATO and is of far greater interest to the Europeans.

She also argued that “We need a real plan for confronting terrorism,” but, as I point out in Forbes, she “failed to mention the most obvious point. Stop creating enemies around the globe. Terrorism is evil and awful, but it almost always is a political act directed against outsiders, in this case, unfortunately, Americans.”

Clinton advocated that Americans “stay true to our values.” Her criticisms of Trump’s grotesque behavior struck home.

Yet her public values are worse: a belief in global social engineering, a willingness to go to war for frivolous reasons, a willingness to wreck entire nations while pursuing failed policies. Clinton, too, is not qualified to be commander-in-chief.

Clinton made a case against herself as well as Trump. Whatever happens in November is likely to leave Americans in greater danger.

Waste, fraud, and abuse are a common target on the campaign trail. Politicians from both parties point promise that eliminating this problem is a cure-all for whatever mathematical problems their tax and spending proposals might face. Eliminating waste, fraud, and abuse is not controversial, and allows them to avoid naming any actual programs they would phase out or reduce. As my Cato colleagues have pointed out, even completely eliminating all improper payments (which are somewhat related but not quite the same thing) won’t magically make next year’s budget deficit disappear and would do nothing to address the country’s more serious longer-term fiscal issues. Even with that caveat, improper payments are a pervasive and persistent problem, reaching $137 billion in 2015, a new record. Given the persistently high error rates and the outsized problems in government health care programs, it’s very likely that there will be another record high next year.

Total Improper Payments by Program, 2011-2015

Source: OMB via paymentaccuracy.gov

Improper payments are somewhat related to the oft-cited triumvirate of waste, fraud, and abuse. These payments can stem from fraud and abuse, but also misidentification, insufficient documentation, and clerical errors. The vast majority of improper payments are overpayments, 92 percent in 2015, but  a portion of this total does come from underpayments, or payments that are too low according to program rules. These amounts only measure amounts and rates relative to these rules, so say nothing about the effectiveness or propriety of the programs themselves.

If the $137 billion in combined improper payments were one program, it would be almost as large as the Social Security Disability Insurance program. As the figure above illustrates, most of these improper payments are concentrated in a few “high-error” programs. Three of the programs with the biggest improper payment amounts are health care programs, and projected growth in health care spending overall and recent government expansions in this sphere will likely lead to even higher amounts over the next decade. If Medicaid’s error payment rate were to remain constant over the next decade, improper payments in this program alone would be more than $60 billion in 2026.

While the magnitude of these improper payments is a serious concern, it is almost more troubling that they are so persistent, despite repeated efforts to address them. Since 2011, cumulative improper payments totaled almost $600 billion, which is more than total domestic discretionary federal spending last year.

While a few “high-error” programs have seen some progress in reducing improper payment rates, in most cases the rate has been relatively steady over the past five years, and in some instances has even increased. Medicare Fee-for-Service, one of the largest components with $358 billion in total outlays last year, had an improper payment rate over 12 percent the last two years, the highest on record.

Improper Payment Rates by Program, 2011-2015


Source: OMB via paymentaccuracy.gov

Note: Some programs lack data for specific years.

Cutting down the scope of the federal government’s improper payments won’t solve all of our other fiscal problems, but these outlays do represent a significant misallocation and waste of taxpayer money. In many cases, error rates remain stubbornly high even after a program has been identified as one needing additional oversight. It is one thing for a politician to promise they’ll address the persistent improper payment problem, and quite another to actually do it.

Over the course of the last decade, as the United States got bogged down in quagmires in Iraq and Afghanistan, many Americans anticipated that war-weariness or an Iraq/Afghanistan syndrome would diminish the United States’ propensity to use military force. That expectation is proving to be somewhat unjustified, however. President Obama, who staunchly opposed the war in Iraq, has overseen new wars in Libya and Iraq/Syria, as well as an ongoing drone strike campaign throughout the greater Middle East. Although the lessons of Iraq and Afghanistan have not dissuaded President Obama from employing military force, they have influenced the manner in which he has done so. To avoid becoming embroiled in another ground war in the Middle East, the Obama administration has adopted a “light footprint” approach. Rather than deploying large contingents of ground troops, the administration has employed standoff strike capabilities and small contingents of Special Operations Forces, often in support of indigenous ground troops.

In a new Cato Policy Analysis, I present a thorough analysis of that approach, arguing that the light footprint essentially constitutes a tactical shift. The Obama administration has sought to achieve the same strategic objectives—the eradication of terrorism and the promotion of democracy in the greater Middle East—with less obtrusive military instruments. Unfortunately, although the light footprint has yielded tactical dividends, it appears unlikely to advance those strategic objectives. As the Obama administration draws to a close, it is the perfect time to stop tinkering with military tactics and begin a serious discussion about reorienting U.S. national security strategy—particularly with regard to the Middle East. 

I have been saving bits of misreported statistical string about Venezuela’s inflation over the past couple of months, and it has become a giant ball. The bits all come from the International Monetary Fund (IMF)

The IMF’s World Economic Outlook (April 2016) forecasts inflation to rise to 720 percent by the end of 2016. This number, which is nothing more than a guestimate, is now carved in stone. The media, from Bloomberg, the New York Times, the Washington Post, the Wall Street Journal, to countless other ostensibly credible sources, repeats that guestimate ad nauseam.

Instead of reporting pie-in-the-sky estimates for future inflation rates in Venezuela, the press should stop worshiping at the IMF’s altar and, instead, stick to reporting current inflation rate. These are updated regularly and are available from the Johns Hopkins-Cato Institute Troubled Currencies Project. The current implied annual inflation rate is 140 percent; while it is currently the world’s highest, it is well below the IMF’s oft-reported forecast of 720 percent.

Not all government takings of private property proceed by condemnation or regulation (or taxation).  In February the U.S. Supreme Court denied certiorari in Taylor et al. v. Yee, a case challenging California’s practice of seizing unclaimed property after only three years of idleness with relatively minimal efforts to contact owners. Unclaimed property can consist of such things as “forgotten security deposits, uncashed money orders, unused insurance benefits, idle shares of stock, and even the undisturbed contents of safedeposit boxes,” for starters, to quote the Court. In a concurrence, Justice Samuel Alito joined by Justice Clarence Thomas agreed with the majority in denying review, saying the “convoluted history” of the California dispute made it a poor candidate for a clean review under constitutional principles. But the trend among self-interested states in unclaimed-property, or escheat, law – such as truncating dormancy periods to a mere three years, from as long as 15, while “doing less and less to meet their constitutional obligation to provide adequate notice” to owners – inevitably raises constitutional questions, because the Due Process Clause “undoubtedly requires that, before seizing private property, the government must give ‘notice and opportunity for hearing appropriate to the nature of the case.’” In revamping escheat practices in ways that grab more money for their budgets, states might well be overstepping this bound.

Another part of the picture, while not mentioned in Alito’s brief opinion, adds practical importance: states have creatively expanded their definitions of what they consider abandoned property, to include such things as unused minutes on calling cards (for which they seek a cash equivalent from the phone company) and gift certificates (make the retailer pay). Three years ago I wrote a post at Overlawyered titled “Delaware: Your Escheating Heart.” Excerpt: 

…The revenue [from these laws] looms peculiarly large for the state of Delaware, because it is the state of incorporation for so many businesses. In recent years friction has been growing between the state and its corporate citizens as the state government has taken an increasingly aggressive stance in auditing corporations for unreported escheatable property. [WSJ] So far, perhaps, so routine (except for the parties to the dispute), but some accounts omit one of the most salient angles, summed up by one critic [Douglas Lindholm, IBD via Volokh] as follows:

“Last year alone, Delaware seized $319.5 million from liquidated property while returning only $18.9 million of unclaimed property to its rightful owners.

“Delaware does this through an unfair, onerous and expensive audit system that ‘looks back’ to 1981, and contrives unclaimed property if the company doesn’t have records for all those years. This process often costs companies millions of dollars, mires them in years of audits, and forces them to deal with third-party auditors who are motivated by contingent fees to invent unclaimed property where none exists….”

Again and again – whether in forfeiture laws entitling law enforcers to a share of the booty seized, or percentage awards for informants under whistleblower laws, or traffic camera systems in which the operators of the cameras get a share of ticket revenue, contingency fees for participants in law enforcement prove deeply problematic. … Delaware seems to have gotten its image in trouble through a variant on tax farming.

As for the argument that if you didn’t want to have your pockets rifled by a given state, you shouldn’t have done business there, it’s not really any stronger than the argument that if you didn’t want to have your property seized for private use at a big knock-off from fair value, you shouldn’t have done business in a state with poor eminent domain laws.

In the closing paragraph of my last entry I offered two hypotheses about the post-2008 US economy. The first is that “real GDP has shifted to a lower path because of a shrinkage in the economy’s productive capital stock — a problem that better monetary policy (not feeding the boom) could have helped to avoid, but cannot now fix.” It is reasonable to suppose that the capital stock has shrunk, I argued, because the housing boom diverted investible resources from more productive capital formation into housing construction. The second is that potential output, as estimated by the Congressional Budget Office’s method, “is currently overestimated because capital wastage has not been fully recognized.”

Here again is the chart that frames the common account of our recent macroeconomic history, showing the paths of actual real GDP and of the CBO’s estimate of potential real GDP, this time in natural logs so that a constant growth rate corresponds to a straight line with constant slope:

This picture of the estimated “output gap” suggests no unsustainable boom in the US economy before 2007. There was no bubble. There was merely a return to full employment after the previous “dot-com” recession of 2001 pulled output below potential. The Great Recession of 2007-09 then appears not as a reaction to an unsustainable path, but as a bolt from the blue, an exogenous shock. The initial drop in real GDP has to be explained by going off chart, e.g., by reference to the bursting of the housing bubble. But the housing bubble is itself unexplained by macro data, not part of any general malinvestment-and-overconsumption boom.

Next, as Market Monetarists have emphasized, households responded to the start of the recession by hoarding money, reducing aggregate demand. As I showed last time, there was indeed a jump in hoarding (as measured by the ratio of M2 balances to GDP) during 2009. The Fed failed to increase the quantity of M2 in response, so aggregate demand did fall, which in a sticky-price world brought down real output. (In 2009 the CPI and PCE price indexes also fell, but in this view not enough to clear the markets.) This nominal shock helps to explain some part of the severity of the recession, but it can’t be the whole story. It can’t explain why the economy has remained below its potential output level for more than six years. It cannot explain why recovery to potential output has continued to fall short for so long. That remains a puzzle. The “output gap” has shrunk only because the potential output path has been revised downward, a revision explained by shrinking labor force participation.

The account of macroeconomic events that I prefer can be framed by taking the same path for actual real GDP, but instead contrasting it with a simple constant growth-rate path that extrapolates from the 2000-2003 trend, as follows:

This picture suggests that, between 2003 and 2008, real GDP rose unsustainably above its old trend. The recession brought a return to reality, and then some. Consistent with the view that the unsustainable boom was fueled by Federal Reserve credit expansion, here is the bulge in real M2 before and during the period:

Since 2009 the economy has followed a lower real GDP path, with no tendency to return to the old dashed path, let alone to the bubble path of potential output as estimated by the CBO. To explain that, I suggest, we need to recognize a drop in the stock of productive capital goods due to the misallocation of investment to housing construction during the housing boom.

Consistent with capital shrinkage, the Bureau of Economic Analysis shows gross private domestic investment making a negative contribution to real GDP for nine consecutive quarters, 2007Q3 to 2009Q3 inclusive. The CBO method of estimating potential output does not recognize any capital wastage during the period, however. The CBO’s data website reports a continuously rising value for its capital services index, an input to its estimate of potential real GDP, during 2000-2014. This is of course consistent with its continuously rising estimate for potential output.

I don’t know the literature on econometric estimation of the size of the capital stock well enough to criticize the CBO’s method in any detail, or to propose an alternative method that would give us a better way to estimate whether the path of capital accumulation has been shifted downward. I would be grateful for pointers to any sites that use a method distinct from the CBO’s to provide explicitly derived estimates of the path of productive capital.

[Cross-posted from Alt-M.org]

As Republicans fall in line behind Donald Trump, despite their misgivings, many of them are urging him to “change his tone” as he moves toward the general election. But is a change in tone sufficient or even honest?

Last Thursday, announcing his endorsement, Speaker Paul Ryan said, “It is my hope the campaign improves its tone as we go forward and it’s all a campaign we can be proud of.” Former Republican nominee Bob Dole says, “I can already see sort of a shift with Trump. He needs to start talking (like) he is about to be president.” Asked about Trump’s repeated comments that offend Hispanic voters, Senate majority leader Mitch McConnell says, “I hope he’ll change his direction on that.” Republican chair Reince Priebus says, “I think there’s work to do, and I think that there’s work on tone to do. I’ve been clear about that…. I think he gets it…I think you’re going to see the change in tone.”

But what does “change his tone” mean? These pleas don’t ask him to change his policies. He has proposed, among other things, building a wall on our southern border, deporting 11 million Mexican-Americans, banning Muslims from entering the United States, blowing up U.S.-China trade, forcing American companies to stop manufacturing products overseas, torturing suspected terrorists and killing their families, not touching entitlement benefits, ending our 200-year-old policy of birthright citizenship, “loosen[ing] up” libel laws to make it easier to sue newspapers, and much more. He has also supported, in the recent past, single-payer health care and the largest tax increase in world history. Are Republicans OK with those policies as long as Trump changes his tone?

He remains, as George Will puts it, an “impetuous, vicious, ignorant and anti-constitutional man.” He insults Mexicans, women, disabled Americans, Muslim Americans, and so on. Are Republicans comfortable with that man having the nuclear codes, as long as he tones it down?

For the past 11 months Donald Trump has been making his character, temperament, and egotism very clear. I wrote in January that “not since George Wallace has there been a presidential candidate who made racial and religious scapegoating so central to his campaign,” and that “he’s effectively vowing to be an American Mussolini, concentrating power in the Trump White House and governing by fiat,” and I have seen no reason to change that assessment. Indeed, I don’t think Trump’s endorsers disagree with it. They just seem to value party above the future of the republic and their own complicity.

There’s a folk tale that goes something like this: A scorpion asks a frog to carry him across the river. The frog is reluctant because he’s afraid the scorpion will sting him. The scorpion assures the frog that he would do no such thing, pointing out that then they would both drown. The frog agrees. As they are crossing the river, the frog feels a searing pain in his side. “What did you do that for?” the frog demands. “Now we’re both going down!” The scorpion replies, “You knew what I was when you picked me up.” 

When Republicans say that Trump must change his tone, they are saying that they want him to conceal his character for the duration of the election. But he’s a scorpion, and they knew that when they picked him up.

Footnote: If anyone reads this as an endorsement for Donald Trump’s principal opponent, they should check out my references to her in The Libertarian Mind.

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

We’ve put together an interesting collection of articles this week for your consideration.

First up is a shout out to lukewarming from Bloomberg View columnist Megan McArdle. In her piece “Global Warming Alarmists, You’re Doing It Wrong,” McArdle suggests that lukewarmers have a lot to bring to the climate change table, but are turned away by the entrenched establishment and tarred with labels like climate “denier”—a label which couldn’t be further from the truth. McArdle writes:

Naturally, proponents of climate-change models have welcomed the lukewarmists’ constructive input by carefully considering their points and by advancing counterarguments firmly couched in the scientific method.

No, of course I’m just kidding. The reaction to these mild assertions is often to brand the lukewarmists “deniers” and treat them as if what they were saying was morally and logically equivalent to suggesting that the Holocaust never happened.

In her article, McArdle calls for less name calling and less heel digging and more open, constructive discussion:

There is a huge range of possible beliefs that go into assessing the various complicated theories about how the climate works, and the global-warming predictions generated by those theories range from “could well be catastrophic” to “probably not a big deal.” I know very smart, well-informed, decent people who fall at either end of the spectrum, and others who are somewhere in between. Then there are folks like me who aren’t sure enough to make a prediction, but are very sure we wouldn’t like to find out, too late, that the answer is “oops, catastrophic.”

These are not differences that can be resolved by name calling. Nor has the presumed object of this name calling – to delegitimize thoughtful opposition, and thereby increase the consensus in favor of desired policy proposals – been a notable political success, at least in the U.S. It has certainly rallied the tribe, and produced a lot of patronizing talk about science by people who aren’t actually all that familiar with the underlying scientific questions. Other than that, we remain pretty much where we were 25 years ago: holding summits, followed by the dismayed realization that we haven’t, you know, really done all that much except burn a lot of hydrocarbons flying people to summits. Maybe last year’s Paris talks will turn out to be the actual moment when things started to change – but having spent the last 15 years as a reporter listening to people tell me that no, really, we’re about to turn the corner, I retain a bit of skepticism.

How was this bit of advice from McArdle received by some of the loudest name-callers? Not well, as she describes in this follow-up:

In response, climate scientist Michael Mann tweeted this:

Then he blocked me. You will correctly infer that I was also inundated with other interlocutors on social media and e-mail. Many of them were respectful. Others were … less so. At worst, they suggested, I was a paid shill for fossil fuel interests. (Not so. I accept no pay from anyone other than Bloomberg.) At best, they said, I was a fool who was giving aid and comfort to the enemy. My editor was thusly chided for the column: “shame on you for publishing it, especially if you have children.”

This should come as a big surprise to no one.

Next, we point you to Judith Curry’s (herself no stranger to treatment like McArdle’s, and worse) excellent blog post in which she provides a 21st-century update to Michael Polanyi’s 1962 essay titled “The Republic of Science: Its Political and Economic Theory.” Curry delivers an introduction to his work (“Polanyi provides an interesting perspective from the mid 20th century, as the U.S. and Europe were contemplating massive public investments in science.  Polanyi’s perspective was colored by his early years in Hungary, which led him to oppose central planning in the sciences.”) and excerpts from Polanyi’s work and then follows with an offering of comments as to how Polanyi’s perspective stands up some half a century later. For instance [embedded links in original]:

Polanyi’s analogy of the scientific process with markets captures the pure incentives that drive scientists – search of truth, intellectual satisfaction and individual ego. What happens when the externalities of the Republic of Science produce perverse incentives, and careerism becomes a dominant incentive that requires publishing a lot of papers rapidly and producing headline-worthy results (who even cares if these papers don’t survive scrutiny beyond their press release)? (see What is the measure of scientific success?) What happens is that you get increasing incidence of scientific fraud (see Science: in the doghouse?), cherry picking and meaningless papers on headline grabbing topics that don’t stand up to the test of time (see Trust and don’t bother to verify).

And what happens when the ‘hand’ guiding science isn’t ‘invisible’, i.e. science is driven by politics, such as a political imperative to move away from fossil fuels and towards renewable energy?  Federal funding can bias science, particularly in terms of selecting which scientific problems receive attention (link).

And what of Polanyi’s statement:  “Such self-coordination of independent initiatives leads to a joint result which is unpremeditated by any of those who bring it about.”  The ‘result’ of dangerous anthropogenic climate change and the harms of dietary fat were hardly unpremeditated.

We also have our own humble opinion on Polanyi, and how he influenced Thomas Kuhn, who, as a result of Polanyi’s view, noted that the intellectual market may not be all that fluid. From “Lukewarming: The New Climate Science that Changes Everything”:

…Polanyi…recognized the horrors of government intervention in science and the pernicious influence of central planning.  He argued that science should be considered a free market with spontaneous order a perspective akin to [a list of libertarian economist luminaries]. Thomas Kuhn, a physicist and philosopher who attended several of Polanyi’s lectures, went him one better and argued in his classic The Structure of Scientific Revolutions that order created paradigms, or encompassing philosophical strucures, that lie at the core of science. 

We went on to demonstrate that paradigms must become even more entrenched when the government becomes the monopoly provider of funding for science with political and policy consequences.

Curry offers up these suggestions as to how to improve on the current sad state of scientific affairs [again, links in original]:

So, what should the Republic of Science look like in the 21st century?  The overwhelming issue for the health of science is to reassert the importance of intellectual and political diversity in science, and to respect and even nurture scientific mavericks.  The tension between pure (curiosity driven) science and use-inspired and applied science [see Pasteur’s quadrant] needs to be resolved in a way that supports all three, with appropriate roles for universities, government and the private sector. And finally, the reward structure for university scientists need to change to reward more meaningful science that stands the test of time, versus counting papers and press releases, which may not survive even superficial scrutiny even after being published in prestigious journals that are more interested in impact than in rigorous methods and appropriate conclusions.

Failure to give serious thought to these issues risks losing the public trust and support for elite university science (at least in certain fields).  Scientists are becoming their own worst enemy when they play into the hands of politicians and others seeking to politicize their science.

We urge you to read the whole thing. As always, Curry is insightful, interesting, informative, and right on target.

And finally, we suggest that you ought to have a look at Julie Kelly’s “The EPA vs. Science” in National Review. In this article, Kelly looks at recent developments in the long-running controversy surrounding the use of the herbicide glyphosate (i.e., Roundup) and EPA’s recent released and then withdrawn report on glyphosate’s health effects. Here’s a teaser:

On April 29, the EPA posted a report concluding that glyphosate (the active ingredient in Roundup herbicide and other products) is “not likely to be carcinogenic.” The committee found no relationship between glyphosate exposure and a number of cancers, including leukemia, multiple myeloma, and Hodgkin lymphoma. The 86-page assessment was signed by the EPA’s cancer review committee back in October 2015 and marked “final.”

But the EPA took it down on May 2, claiming the documents were “inadvertently” posted and only a preliminary report. “EPA has not completed our cancer review. We will look at the work of other governments… . our assessment will be peer reviewed and completed by end of 2016,” said an EPA spokeswoman.

Kelly notes “GMO foes are now targeting glyphosate in their ongoing campaign against genetically engineered crops” and “[a]ctivists are also using the court system to punish companies that use glyphosate” and adds “[i]t seems that the EPA may be taking some cues from these anti-GMO activists.”

House Science Committee chairman Lamar Smith (R-TX) is looking into what prompted the rather unusual move by the EPA. According to Kelly:

Chairman Smith also senses that EPA foot-dragging might be based more on politics than on science: “That the EPA would remove a report, which was marked as a ‘Final Report’ and signed by thirteen scientists, appears to be yet another example of this agency’s attempt to allow politics rather than science [to] drive its decision making. Sound, transparent science should always be the basis for EPA’s decisions.”

Kelly smartly concludes:

If the science indeed shows (again) that glyphosate does not cause cancer, the anti-pesticide Center for Biological Diversity says it will be a “major roadblock” for the anti-GMO movement, which wants to ban genetically engineered crops worldwide. It will be a blow the anti-GMO movement richly deserves.

You can check out her full story here.

“It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits,” the Supreme Court held last year in Michigan v. EPA.It seems that the U.S. Fish and Wildlife Service (USFWS) did not get the message, with its willy-nilly imposition of significant economic costs when designating “critical habitat” for endangered species.

A California builders’ association is now asking the Court to establish that judicial review is available for individuals and businesses affected by these agency actions that purport to enforce the Endangered Species Act (ESA). The ESA specifically requires federal agencies to take economic impacts into consideration, but the USFWS routinely ignores the costs of designating land as a critical habitat. The San Francisco-based U.S Court of Appeals for the Ninth Circuit held that the designation of critical habitat is an action fully committed to agency discretion, and that it may ignore any cost implications at its leisure, but this would seem to contradict Michigan v. EPA and other precedent.

The USFWS employs a cost-benefit accounting method called “baseline analysis,” which separates the impacts that would occur absent designation (baseline impacts) from the impacts attributable to designation (incremental impacts). It then only considers the incremental impacts, despite enormous disparities between baseline and incremental costs—one order of magnitude or two—and fanciful estimates that the economic impact of critical habitat designation is often $0.

Cato, joined by the Reason Foundation and National Federation of Independent Business, filed an amicus brief urging the Supreme Court to take up this important question of whether courts can even review the government’s Enron-style of cost-benefit analysis. Independent research by Reason’s Brian Seasholes found that in examining 159 of the 793 species that have critical habitat designation, there are at least $10.7 billion in economic impacts, hundreds of jobs lost per species designated, and regulatory burdens affecting 60,169,546 acres of land (11,261,054 privately owned) spanning 37 states and two territories.

And what is the purported conservation benefit to these billions in costs? Nothing. As the USFWS itself has stated, “[i]n 30 years of implementing the Act, the Service has found that the designation of statutory critical habitat provides little additional protection to most listed species, while consuming significant amounts of available conservation resources.”

Moreover, critical habitat designation is counterproductive for conservation. Again, the federal government is the source for the best material on this: “Mounting evidence suggests that some regulatory actions by the Federal government, while well-intentioned and required by law, can (under certain circumstances) have unintended negative consequences for the conservation of species on private lands.” These negative consequences are caused by the ESA’s regulatory reach and severe penalties—up to $50,000 and 1 year in jail for misdemeanor harm to an endangered fish, bird, or habitat, whether the habitat is occupied or not—coupled with the ability to regulate vast amounts of land, water and natural resources.

As Australian environmental-law expert David Farrier has described, “disgruntled landowners make poor conservationists”—and foisting enormous costs and regulatory burdens onto homeowners with criminal penalties for non-compliance certainly makes them disgruntled. 

The Supreme Court will consider whether to take up Building Industry Association of the Bay Area v. U.S. Dept. of Commerce either right before it goes on summer recess or right when it gets back in September.

Over at Cato’s Police Misconduct web site, we have selected the worst case for the month of May.  It was the case of one Shane Mauger.  Over a period of about 10 years, this former police officer told lies to obtain search warrants and would then falsify police reports by under-reporting any cash that he seized during those raids.

Now, because of his corruption, officials cannot tell how many of his previous cases were based on valid police work and how many were based upon dishonest work.  Many cases are being reviewed and thrown out.

Federal investigators discovered other corrupt officers in the same Reynoldsburg, Ohio police department.  Former officer Tye Downard was arrested in February for dealing in narcotics.  Shortly after his arrest, Downard committed suicide in his jail cell.

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.”

Methane is all the rage. Why? Because 1) it is a powerful greenhouse gas, that molecule for molecule, is some 25 times as potent as carbon dioxide (when it comes to warming the lower atmosphere),  2) it plays a feature role in a climate scare story in which climate change warms the Arctic, releasing  methane stored there in the (once) frozen ground, which leads to more warming and more methane release, ad apocalypse, and 3) methane emissions are  also be linked to fossil fuel extraction (especially fracking operations). An alarmist trifecta!

Turns out, though, that these favored horses aren’t running as advertised.

While methane is a more powerful greenhouse gas in our atmosphere than carbon dioxide, its lifetime there is much shorter, even as the UN’s Intergovernmental Panel on Climate Change can’t quite say how long the CO2 residence time actually is. This means that it is harder to build-up methane in the atmosphere and that methane releases are more a short-term issue than a long-term one. If the methane releases are addressed, their climate influence is quickly reduced.

This is why methane emissions from fracking operations—mainly through leaks in the wells or in the natural gas delivery systems—really aren’t that big of a deal. If they can be identified, they can be fixed and the climate impact ends. Further, identifying such leaks are in the fracking industry’s best interest, because, in many cases, they represent lost profits. And while the industry says it has good control of the situation, the EPA isn’t so sure and has proposed regulations aimed at reducing methane emissions from new and existing fossil fuel enterprises. The recent scientific literature is somewhat split on who is right. A major paper recently published in Science magazine seemed to finger Asian agriculture as the primary suspect for recent increases in global methane emissions, while a couple of other recent studies seemed to suggest U.S. fracking operations as the cause (we reviewed those findings here).

And as to the runaway positive feedback loop in the Arctic, a new paper basically scratches that pony.

A research team led by University of Colorado’s Colm Sweeney set out to investigate the strength of the positive feedback between methane releases from Arctic soil and temperature (as permafrost thaws, it releases methane). To do this, they examined data on methane concentrations collected from a sampling station in Barrow, Alaska over the period 1986 through 2014. In addition to methane concentration, the dataset also included temperature and wind measurements. They found that when the wind was blowing in from over the ocean, the methane concentration of the air is relatively low, but when the wind blew from the land, methane concentration rose–at least during the summer/fall months, when the ground is free from snow and temperature is above freezing. When the researchers plotted the methane concentration (from winds blowing over land) with daily temperatures, they found a strong relationship. For every 1°C of temperature increase, the methane concentration increased by 5 ± 3.6 ppb (parts per billion)—indicating that higher daily temperatures promoted more soil methane release. However (and here is where things get real interesting), when the researchers plotted the change in methane concentration over the entire 29-yr period of record, despite an overall temperature increase in Barrow of 3.5°C, the average methane concentration increased by only about 4 ppm—yielding a statistically insignificant change of 1.1 ± 1.8 ppm/°C. The Sweeney and colleagues wrote:

The small temperature response suggests that there are other processes at play in regulating the long-term [methane] emissions in the North Slope besides those observed in the short term.

As for what this means for the methane/temperature feedback loop during a warming climate, the authors summarize [references omitted]:

The short- and long-term surface air temperature sensitivity based on the 29 years of observed enhancements of CH4 [methane] in air masses coming from the North Slope provides an important basis for estimating the CH4 emission response to changing air temperatures in Arctic tundra. By 2080, autumn (and winter) temperatures in the Arctic are expected to change by an additional 3 to 6°C. Based on the long-term temperature sensitivity estimate made in this study, increases in the average enhancements on the North Slope will be only between -2 and 17 ppb (3 to 6°C x 1.1 ± 1.8 ppb of CH4/°C). Based on the short-term relationship calculated, the enhancements may be as large as 30 ppb. These two estimates translate to a -3 – 45% change in the mean (~65 ppb) CH4 enhancement observed at [Barrow] from July through December. Applying this enhancement to an Arctic-wide natural emissions rate estimate of 19 Tg/yr estimated during the 1990s and implies that tundra-based emissions might increase to as much as 28 Tg/yr by 2080. This amount represents a small increase (1.5%) relative to the global CH4 emissions of 553 Tg/yr that have been estimated based on atmospheric inversions.

In other words, even if the poorly understood long-term processes aren’t sustained, the short term methane/temperature relationship itself doesn’t lead to climate catastrophe.

The favorite thoroughbreds of the methane scare are proving to be little more than a bunch of claimers.



Sweeney, C., et al., 2016.  No significant increase in long-term CH4 emissions on North Slope of Alaska despite significant increase in air temperature. Geophysical Research Letters, doi: 10.1002/GRL.54541.


A new issue of the Cato Journal, which collects the proceedings of last year’s Annual Monetary Conference, was released last week.  Those proceedings include a paper by Claudio Borio, head of the Bank for International Settlement’s monetary and economic department, which Alt-M readers may find particularly interesting.

According to Borio, conventional thinking on monetary policy rests on three faulty assumptions:

First, that natural interest rates are those consistent with output at potential and low, stable inflation.

This assumption is important because monetary authorities are supposed to track natural interest rates when they set policy.  Unfortunately, says Borio, the mainstream view of natural interest rates is imprecise, since we know that dangerous financial build ups can occur even when growth is strong and inflation is on target.  Crucially, such build ups—excessive credit, inflated asset prices, and too much risk-taking — may be caused by interest rates that are too low.  Could it be that “natural” rates are themselves sometimes inconsistent with financial stability?  Borio thinks not, and suggests that we need instead to define natural rates more carefully, as rates “consistent with sustainable financial and macroeconomic stability.”  In practice, such a definition would lead monetary policymakers to “lean against” booms when times are good, and also to worry more about the long-term consequences of expansionary monetary policy (which Borio suggests may sow the seeds of future crises) during busts.

Second, that monetary policy is neutral over the medium- to long-term.

By contrast, Borio believes that monetary policy may in fact have significant long-term effects on the real economy.  It is hard to argue, for example, that low interest rates are not a factor in fueling financial booms and busts, given that monetary policy generally operates through its impact on credit expansion, asset prices, and risk-taking.  And when such booms and busts lead to financial crises, the effects can be very long-lasting, if not permanent: growth rates may recover, but output might never catch up with its pre-crisis, long-term trend.  Borio points out that financial busts weaken demand, since falling asset prices and over-indebtedness often combine to wreak havoc on balance sheets.  Financial booms, meanwhile, affect supply: BIS research suggests they “undermine productivity growth as they occur” by attracting resources towards lower productivity growth sectors.  Taken together, these points have important implications: on the one hand, monetary policymakers ought to be more careful about supporting booms; on the other, apart from resisting the temptation to encourage booms, there may not be much that monetary policy can do about busts, since “agents wish to deleverage” and “easy monetary policy cannot undo the resource misallocations.”

Third, that deflation is everywhere and always a bad thing.  

Not so, says Borio (and many here at Alt-M would agree with him).  In fact, BIS research has found that there is only a weak association between deflation and output.  When you control for falling asset prices, moreover, that association disappears altogether — even in the case of the Great Depression.  The key here is to distinguish between supply-driven deflations, which Borio suggests depress prices while also boosting output, and demand-driven deflations, which tend to be bad news all around.  By failing to draw this distinction, monetary authorities have introduced an easy-money bias into their policy decisions: in the boom years, when global disinflationary forces should have led to falling consumer prices, loose monetary policy instead kept inflation “on target”; then, in the bust years, central banks eased aggressively — and persistently — to stave off the mere possibility of a demand-driven deflation.  (Or did they?)

This leads neatly to the broader theory that Borio outlines in his Cato Journal article: that the long-term decline in real interest rates we have witnessed since the 1990s is not, as proponents of the “savings glut” and “secular stagnation” hypotheses suggest, an equilibrium phenomenon, driven by deep, exogenous forces; rather, it is a disequilibrium phenomenon driven by asymmetrical monetary policy, and may be inconsistent with lasting financial and macroeconomic stability.

In a nutshell, Borio believes that the three fundamental misconceptions outlined above have inclined central banks towards monetary policy that is expansionary when times are good, and then even more expansionary when times are bad.  Over the course of successive financial and business cycles, this skewed approach to monetary policy imparts a downward bias to interest rates and an upward bias to debt, which in turn leads to “a progressive loss of policy room for maneuver” as central banks cannot push interest rates any lower, but also cannot raise rates “owing to large debts and the distortions generated in the real economy.”  The result is entrenched instability and “chronic weakness in the global economy,” as well as what Borio calls an “insidious form of ‘time inconsistency,’” in which policy decisions that seem reasonable — even unavoidable — in the short term, nevertheless lead us ever-further astray as time goes by.  This will, undoubtedly, strike many readers as an apt description of the current state of play in monetary policy.

Here again is Borio’s complete article.  I encourage you to read the whole thing.  The entire monetary issue of the Cato Journal, titled “Rethinking Monetary Policy,” can be found here, and features articles from Stanford economist John Taylor, Richmond Fed president Jeffrey Lacker, and St. Louis Fed president James Bullard, as well as from Alt-M’s own George Selgin, Larry White, and Kevin Dowd, among others.  Happy reading!

[Cross-posted from Alt-M.org]

Most press reports about Zimbabwe’s fantastic hyperinflation are off the mark – way off the mark. Even our most trusted news sources fail to get the facts right. This confirms the “95 Percent Rule”: 95 percent of what you read in the financial press is either wrong or irrelevant.

When it comes to the reportage about hyperinflation, there are no excuses. All 56 of the world’s hyperinflations have been carefully documented in “World Hyperinflations”. This record is available in the Routledge Handbook of Major Economic Events in Economic History (2013) and has been available online since 2012 at the Cato Institute.

The International Monetary Fund (IMF) is the main culprit, a prominent source of the faulty data. EvenThe Economist magazine has fallen into the trap of uncritically accepting figures pumped out by the IMF and further propagating them. It’s no wonder that there is a massive gap between the public’s perception and economic reality. A gap that, ironically, The Economist reports on this week

The Economist’s most recent infraction on Zimbabwe’s hyperinflation appeared in the May 2016 issue. The magazine claimed that the hyperinflation peaked at an annual rate of 500 billion percent. Where did this figure originate? You guessed it. That figure is buried in the IMF’s 2009 Article IV Consultation Staff Report on Zimbabwe

In reality, Zimbabwe’s annual inflation rate in September 2008 was 471 billion percent, not 500 billion percent. More importantly, Zimbabwe’s hyperinflation peaked in November, not September. It was then that Zimbabwe recorded the second-highest hyperinflation in history: a whopping 89.7 sextillion percent. This is 179 billion times greater than the IMF’s figure.

That said, the IMF did attempt to cover its backside from questions about its hyperinflation guestimate. 2009 Article IV Staff Report on Zimbabwe states clearly that “data have serious shortcomings that significantly hamper surveillance due to capacity constraints.” Despite the red flag, The Economistcontinues to blindly propagate a figure that is neither reliable nor replicable. I stress the word “continues”.

It turns out that The Economist is a serial propagator of inaccurate IMF figures. The magazine has cited IMF’s incorrect figure of 500 billion percent before, in June 2009 and October 2015.

For accurate estimates of Zimbabwe’s fantastic hyperinflation that are used in the professional literature – estimates that are reliable and replicable – the IMF and the financial press corps should take a look at the following table from “On the Measurement of Zimbabwe’s Hyperinflation”, which was published in The Cato Journal, (2009):

In a speech this week, President Obama called for an expansion of Social Security, saying “it’s time we finally made Social Security more generous, and increased its benefits.” Obama was undoubtedly influenced  to some degree by the developments in the Democratic primary, where both Bernie Sanders and Hillary Clinton have expressed support for some form of expansion.  This represents a reversal in part for Obama. While he had always supported increasing payroll taxes on higher-earning Americans, he had also previously supported a change in the way benefits were adjusted each year that would have reduced the growth rate of benefits over a long timeframe in the interest of improving the program’s fiscal trajectory. Social Security’s long-term oultook has only gotten worse in the intervening years, but in his speech he signalled that he no longer believed “all options were on the table” to address solvency concerns  and instead supports further expansion. This reversal is misguided. If his favored reforms are implemented it will increase the economic distortions introduced by Social Security and do nothing to address its serious fiscal problems.  The more likely result is that with this retrenchment, policymakers will continue to make promises but fail to actually do anything. Younger workers will bear the brunt of the cost resulting from failures to put forward constructive reform.

Inexorable demographic changes and the program’s structure mean that today’s younger workers were already going to get a worse deal from Social Security than previous generations. As work from C. Eugene Steuerle and Caleb Quakenbush has shown, a married-couple both earning the average wage retiring in 1960 received more than seven dollars in benefits for each dollar it paid in taxes over their lifetime. A similar couple reaching age 65 in 1980 received roughly $2.60in benefits for each dollar contributed, and a couple retiring in 2030 will receive about $1.12 for each dollar paid into the program. As they note, this ratio probably overstates how good a deal future retirees will get as it does not incorporate the reforms needed to pay scheduled benefits, so that couple that is currently in their 50s could end up having to pay more in taxes or taking a substantial benefit cut.

Present Value Lifetime Benefits and Taxes in Social Security, Married Couple at Average Wage

Source: Steuerle and Quakenbush (2015)

Given that neither Hillary Clinton nor Donald Trump are likely to make any substantive reforms to improve the program’s fiscal trajectory, she has expressed support for some form of expansion and he has promised to protect old-age entitlements from any kind of cuts, it is likely policymakers will continue to kick that can further down the road and closer to the trust fund exhaustion date in 2034. The longer these reforms are delayed, the larger the required reforms become. In order to make the program solvent through the 75-year projection period, scheduled benefits would have to be cut by 16.4 percent for all current and future beneficiaries. If policymakers delay until 2034, scheduled benefits would have to be by 21 percent, with these reductions increasing in later decades.

Changes Needed to Reach 75-Year Solvency

Source: Social Security Administration, The 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July 2015, p. 25.

Recent experience has shown that even would-be reformers have expressed a reluctance to make any changes that would affect current retirees, and if this continues it would make addressing the program’s significant unfunded obligations more difficult. Even completely eliminating benefits for those newly eligible in 2034 would not be enough to enable the program to pay out all scheduled benefits in that year. Perhaps it is not surprising that almost two-thirds of people 18 to 29 think Social Security will be unable to pay them benefits when they retire.

President Obama’s reversal is misguided, and will make it harder to enact Social Security reforms that would actually begin to address the program’s issues. Younger workers will bear the burden of policymakers’ reticence to put forward constructive reforms, and they have shown that they are skeptical of Social Security promises made by politicians.