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Last December the federal Department of Justice concluded an investigation of the Cleveland Police Department.  That investigation found a pattern of excessive force in violation of the Constitution.  On Monday, Cleveland Mayor Frank Jackson agreed to a legal settlement with the feds to overhaul his police department’s policies and practices regarding the use of force and how it handles complaints and monitors the actions of its officers.  This is just the most recent police department to be scrutinized.  Following the riot in Baltimore, Attorney General Loretta Lynch announced that the Dept of Justice would be launching a pattern and practice investigation of that police department as well.  Local policymakers in Baltimore, Cleveland, and elsewhere, have let serious problems fester in their police departments and addressing those deficiencies is long overdue.  At the same time, we should also remember that policymakers are also doing a generally poor job on a broader range of issues, including the schools.  As it happens, our friends at Reason did a short film a while back titled “Saving Cleveland.”  The film covers several important issues and what needs to be done.

Reason Saves Cleveland With Drew Carey

Last week, Cato hosted an event on Capitol Hill, Lessons from Baltimore, which covers additional issues not in the Reason film.  Policing, body cameras, and social welfare spending.  That event can be viewed here.

As more journalists and commentators discuss the Trans-Pacific Partnership, we’ve seen very conflicting descriptions of the agreement.  For some, the TPP isn’t about trade at all but about giving power to corporations and ending U.S. sovereignty, or about containing China and building U.S. influence in Asia.  When commentators do focus on the potential economic impact of the agreement, they either describe the TPP as a very big deal or as a very small one.  It all depends on your perspective.

My colleague Simon Lester has written about problems in how GDP gains from the TPP have been estimated.  I’d like to take issue with a different figure commonly cited to bolster the idea of the TPP’s hugeness—that the 12 countries involved account for almost 40% of global GDP.  This number is correct but highly misleading as a gauge of the TPP’s economic significance.

For one thing about 22.5% of global GDP comes from the United States.  So, one could claim accurately that the U.S.–Jordan Free Trade Agreement covers almost a quarter of the global economy.  Also, most of the remainder comes from Canada and Mexico, with whom the United States already has a free trade agreement.  In fact, the United States has free trade agreements with all but five countries in the TPP negotiations.

The only large economy country in the TPP that the United States doesn’t already have a free trade agreement with is Japan.  So, if you’re going to measure the “size” of the TPP, it would be best understood as a U.S.–Japan free trade agreement.  That’s a pretty big deal, actually, but it’s not two-fifths of the world.

Talking about trade agreements in terms of their size also obscures what trade agreements actually do.  Contrary to the rhetoric we hear from the White House, trade agreements benefit the United States because they lower artificial trade barriers, not because “we” get to write “the rules” instead of China.

But those claiming that the TPP is really small are missing something too.  Paul Krugman, for example, points out that U.S. tariffs are already really low, so the TPP won’t make much of a difference.  This argument misses the fact that while U.S. tariffs are low on average, a number of tariffs remain very high in order to protect domestic industries from competition.  Moreover, many of the high tariffs are on basic consumer goods like clothes and shoes.  These are essentially regressive consumption taxes, and their negative impact goes beyond a simple dollar amount. 

That’s why the inclusion of Vietnam in the TPP is so significant.  Tariff-free trade in labor-intensive manufactured goods from Vietnam could have great benefits for Vietnamese workers (and potential workers) and American consumers.  But U.S. negotiators may reduce those benefits by securing long tariff phaseouts or complex rules of origin at the behest of politically powerful domestic industries.

What all this means for the TPP is that its economic value hinges on how extensively, deeply, quickly, and uniformly it reduces existing trade barriers, something we won’t know until the negotiations are completed.

A piece in the New York Times today suggests that rich people are more likely than poor people to support free trade:

The Trans-Pacific Partnership trade deal making its way through Congress is the latest step in a decades-long trend toward liberalizing trade — a somewhat mysterious development given that many Americans are skeptical of freer trade.

But Americans with higher incomes are not so skeptical. They — along with businesses and interest groups that tend to be affiliated with them — are much more likely to support trade liberalization. Trade is thus one of the best examples of how public policy in the United States is often much more responsive to the preferences of the wealthy than to those of the general public.

Skepticism toward free trade among lower-income Americans is often substantial. Data from a 2013 CBS/New York Times poll show that 58 percent of Americans making less than $30,000 per year preferred to limit imports to protect United States industries and jobs, while only 36 percent preferred the wider selection and lower prices of imported goods available under free trade. But the balance of opinion reversed for those making over $100,000. Among that higher-income group, 53 percent favored free trade versus 44 percent who wanted to limit imports.

Similarly, a Pew Research Center survey released on Wednesday found that a plurality of Americans making under $30,000 per year say that their family’s finances have been hurt by free trade agreements (44 percent) rather than helped (38 percent). By contrast, those making more than $100,000 per year overwhelmingly believe free trade has been beneficial — 52 percent said trade agreements have helped their family’s finances versus only 29 percent who said they have hurt.

I am sometimes skeptical of polls on these issues, mainly due to badly phrased questions.  But regardless, I would be interested to see if the answers were affected by information on who actually pays the most in tariff revenue (as a percentage of their income), which, it turns out, is poor people:

Should a movie star’s maid pay higher sales taxes than her famous boss?

The truth is, she often does. She just doesn’t know it.

Low-income moms buying polyester shirts, plastic purses, and cheap canvas sneakers are unwittingly taxed five, ten, and sometimes even 30 times higher than movie stars shopping for silks, cashmeres, and snakeskin on Rodeo Drive. This is the hidden scandal of the American tariff system—a small and almost forgotten tax, which likely costs low-income families nearly $2 billion a year.

Because the tariff system raises most of its money from cheaper shoes and clothes, its tilt against the poor is especially steep—much steeper than that of any other federal tax. Each year, single-parent families spend about $13 billion buying clothes, shoes, and other home goods. Tariffs drive up the cost of these goods by about 15 percent, adding about $1.6 billion to the total bill.

So, the next time they conduct one of these polls on how people of different income levels feel about free trade, maybe give them these details first and then see how they answer.

Expanded maternity and child care benefits are expected to be a pillar of Hillary Clinton’s presidential campaign. These policies seek to make it easier for women to balance the challenges of being a working mother. While they may well be well-intentioned, but they backfire. The New York Times highlighted the downside.

First, the article focused on maternal leave policies in Spain:

Spain passed a law in 1999 giving workers with children younger than 7 the right to ask for reduced hours without fear of being laid off. Those who took advantage of it were nearly all women.

Over the next decade, companies were 6 percent less likely to hire women of childbearing age compared with men, 37 percent less likely to promote them and 45 percent more likely to dismiss them, according to a study led by Daniel Fernández-Kranz, an economist at IE Business School in Madrid. The probability of women of childbearing age not being employed climbed 20 percent. Another result: Women were more likely to be in less stable, short-term contract jobs, which are not required to provide such benefits.

The results in Chile were similar:

The child-care law in Chile, the most recent version of which went into effect in 2009, was intended to increase the percentage of women who work, which is below 50 percent, among the lowest rates in Latin America. It requires that companies with 20 or more female workers provide and pay for child care for women with children under 2, in a location nearby where the women can go to feed them.

It eases the transition back to work and helps children’s development, said María F. Prada, an economist at the Inter-American Development Bank and lead author of a new study on the effects of the law. But it has also led to a decline in women’s starting salaries of between 9 percent and 20 percent. Researchers compared pay at the same companies before and after they were big enough to be forced to comply with the law. (Another approach by companies, especially smaller ones, has been simply not to comply with the law.)

A broader analysis of 22 countries found that women were more likely to work when these types of policies are in place, but their jobs more likely to be “dead-end” positions and less likely to be managerial posts.

Even the Family Medical Leave Act, which provides up to 12 weeks of unpaid medical leave here in the United States, has hurt female job prospects. Women are slightly more likely to stay employed, but receive fewer promotions because of the law, according to research cited by the New York Times.

Balancing the challenges of working while raising children is difficult, but having the government force employers to provide additional maternal and childcare benefit is the wrong approach. Such policies harm job prospects for women and make the work-life balance even tougher to achieve.

The Atlanta Journal-Constitution reports that district school bureaucrats are “proceeding with an ambitious plan to offer a wider range of education options.”

Superintendent Robert Avossa is leaving the 96,000-student district for the larger Palm Beach County system in Florida. Ken Zeff, who takes over as interim superintendent next week, shares Avossa’s view that parents want and deserve choices.

An array of choices may lessen the exodus of by parents who want a non-traditional setting for their children. More than 15 percent of Fulton families opted for private schools this school year.

While Fulton has increased its number of district-approved charter schools, the AJC reports more than 1,600 families are on charter school wait lists for next fall, largely in south Fulton where school performance is not as high as north Fulton. 

(North Fulton is one of the state’s most affluent areas and boasts some of the highest achieving high schools in Georgia. Its schools are a major draw for new families moving to the metro region.)

Not every student learns in the same way so Fulton is expanding school design options.

“This is not an attempt to dismantle traditional public schools,” said Zeff in an AJC news story by Fulton Schools reporter Rose French. “Traditional-model schools are performing great for a lot of kids. But some parents want and some students would do better in a different environment.”

In other words, when parents chose schools other than their child’s assigned district school–perhaps using Georgia’s tax-credit scholarships–the government school system responded by being more responsive to parental demands. 

This is not an isolated phenomenon. Out of 23 empirical studies of the impact of school choice policies on district school performance, 22 found a statistically significant positive impact. Recently, the prestigious peer-reviewed American Economic Journal published the results of a study by David Figlio of Northwestern University and Cassandra Hart of the University of California-Davis on the impact of a school choice program in Florida on district schools. The study found that the academic performance of students at public schools improved as a result of increased competition:

We find greater score improvements in the wake of the program introduction for students attending schools that faced more competitive private school markets prior to the policy announcement, especially those that faced the greatest financial incentives to retain students. These effects suggest modest benefits for public school students from increased competition.

As I’ve noted previously, district schools often operate as monopolies, particularly those serving low-income populations with no other financially viable options. And sadly, a monopolist has little incentive to respond to the needs of its captive audience. Thankfully, the evidence suggests that when those families are empowered to “vote with their feet,” the district schools become more responsive to their needs.

Good ideas in Congress rarely have a chance. Rep. Fred Upton (R-Mich.) is sponsoring legislation to speed drug approvals, but his initial plan was largely gutted before he introduced it last month.

Drug discovery is an uncertain process. Companies consider between 5,000 and 10,000 substances for every one that ends up in the pharmacy. Of those, only one-fifth actually makes money—and must pay for everything.

As a result, the average per drug cost exceeds $1 billion, most often thought to be between $1.2 and $1.5 billion. Some estimates run more.

Naturally, the Food and Drug Administration insists that its expensive regulations are worth it. Unfortunately, while the agency undoubtedly prevents some bad pharmaceuticals from getting to market, it delays or blocks far more good products.

The average delay in winning approval of a new drug rose from seven months in 1962, when the FDA’s power was dramatically increased, to 30 months in 1967. Approval time now is estimated to run as much as 20 years.

Economist Sam Peltzman found no evidence that changing the law reduced the introduction of ineffective or unsafe pharmaceuticals. After all, companies don’t make money selling medicines that don’t work. And putting out something dangerous is a fiscal disaster. Observed Peltzman:  the “penalties imposed by the marketplace on sellers of ineffective drugs prior to 1962 seem to have been enough of a deterrent to have left little room for improvement by a regulatory agency.”

Alas, the FDA increases the cost of all medicines, delays the introduction of most pharmaceuticals, and prevents some from reaching the market. That means patients suffer and even die needlessly.

Congress has applied a few bandages over the years. One was to create a process of user fees through the Prescription Drug User Fee Act. The measure was estimated to save as much as $30 billion and as many as 310,000 life years.

A special procedure for “Accelerated Approval” of drugs aimed at life-threatening conditions also was created. Unfortunately, noted Nature Biotechnology, few medicines qualified and “in recent years, FDA has been ratcheting up the requirements.”

The Wall Street Journal reported that some desperate patients today who are “frustrated by the slow pace of clinical drug trials or unable to qualify, are trying to brew their own version of an experimental compound at home and testing it on themselves.” Overall, far more people die from no drugs than from bad drugs.

The deadliest pre-1962 episode involved Elixir Sulfanilamide and killed 107 people. Around 3500 users died from Isoproterenol, an asthmatic inhaler. Vioxx was blamed for a similar number of deaths, though the claim was disputed. Most of the more recent incidents would not have been prevented from a stricter approval process. 

The death toll from agency delays of medicines like beta-blockers is much greater. Analyst Dale Gieringer figured that the benefits of FDA regulation “could reasonably be put at some 5,000 casualties per decade or 10,000 per decade for worst-case scenarios.  In comparison … the cost of FDA delay can be estimated at anywhere from 21,000 to 120,000 lives per decade.”

Fundamental reform is necessary. The FDA should be limited to assessing safety. Further, the agency should be stripped of approval monopoly. As a start, drugs okayed by other industrialized states should be available in America.

As I argue in the Freeman, “Patients and their health care providers also could look to private certification organizations, which today are involved in everything from building codes to electrical products to kosher food. Medical organizations already maintain pharmaceutical databases and set standards for drug treatments. They could move into testing and assessment.” 

No doubt, some people would make mistakes. But they do so today. With more options, more people’s needs would be better met.

Instead of arguing over regulatory minutiae Congress should address who decides who gets treated how. Today it is Uncle Sam. Tomorrow it should be all of us.

                                                  

The U.S. Fish and Wildlife Service, exercising power purportedly delegated to it pursuant to Congress’s power to regulate interstate commerce, has classified the ubiquitous Utah prairie dog, which has no commercial value and has never dug holes in any lands beyond southwestern Utah, as “threatened” under the Endangered Species Act (ESA), thereby prohibiting the “take” of said prairie dogs—which essentially means doing anything that disturbs the little rodents’ habitat. If the varmints invade their property, human residents cannot build homes, start or operate certain businesses, or, in the case of Cedar City, protect playgrounds, an airport, and a local cemetery from their burrowing and barking.

Joining as People for the Ethical Treatment of Property Owners (PETPO), and represented by the Pacific Legal Foundation, residents filed suit, claiming that the “take” rule for the noncommercial, intrastate Utah prairie dog exceeds Congress’s power to regulate interstate commerce. Congress has the power to regulate “commerce among the states,” not species. PETPO’s suit argues that the ESA cannot reach activities that are intrastate and noncommercial—activities, for example, like filling holes in your lawn or otherwise developing land where prairie dogs might live. The federal district court agreed and therefore struck down the “take” regulation. The case is now before the Tenth Circuit Court of Appeals.

Joined by constitutional law professors Jonathan H. Adler, James L. Huffman, and Josh Blackman, Cato has filed a brief supporting the landowners. We argue, consistent with prior Supreme Court precedent, that the Constitution’s Commerce Clause affords Congress the power to regulate only items, channels, or instrumentalities of interstate commerce. If Congress wants to regulate activities that “substantially affect” interstate commerce, that power rests in the Necessary and Proper Clause, which gives Congress the means to regulate interstate commerce—provided those means are both necessary and proper. But the prohibited activities do not substantially affect interstate commerce. Moreover, the “take” rule is not necessary for regulating interstate commerce; Congress can regulate that commerce without prohibiting these residents from using their property. Nor is the rule proper since the power to regulate uses of property that do not affect interstate commerce belongs to the states. For those several reasons the “take” rule as applied to the Utah prairie dog exceeds the powers the Founders and the Founding generation delegated to Congress.

Across my desk this morning: James Bennett’s new book, Corporate Welfare: Crony Capitalism That Enriches the Rich.

Bennett is a highly regarded George Mason professor of economics and a prolific author of public policy books. His new book opens with a discussion of corporate welfare in the Early Republic, and then provides four case studies on more recent issues. The case studies are the Supersonic Transport (SST) project of the 1960s, state and local economic development subsidies, the use of eminent domain in Detroit to benefit General Motors, and the Export-Import Bank.

The last item is timely given the current battle over Ex-Im between the fiscal reform and business-subsidy wings of the Republican Party. It is an important battle because a win for reform on Ex-Im might generate momentum to wean American businesses off of other types of subsidies. I also think that ending Ex-Im would make recipient businesses more competitive and efficient in the long run. Subsidies produce industrial weakness, not strength.

Here’s what I said about Corporate Welfare on the book’s dust jacket:

Professor Bennett begins his excellent new book about corporate welfare with Alexander Hamilton’s misguided schemes. Fortunately, those schemes were mainly blocked in the early Republic by the Jeffersonian party. The problem today—as Bennett skillfully documents—is that business subsidies are a bipartisan disease, chronic at all levels of government. Few politicians stand up for the taxpayer, despite citizen opposition to hand-outs from across the political spectrum. Hopefully, Bennett’s stomach-turning stories will convince more people of the evils of crony capitalism.

The Asian order is under strain as the People’s Republic of China has become an economic colossus with growing military might and diplomatic influence. The PRC is asserting territorial claims once considered impractical or worthless. Brunei, Japan, Malaysia, Philippines, and Vietnam all stand opposed to these claims. 

Washington is not a claimant, but has sparred with the PRC over the U.S. Navy’s legal right to engage in intelligence gathering in Chinese waters. More important, America has a formal military alliance with Japan which, the president declared, covers disputed territories. Washington’s military relationship with Manila is looser, but Philippine officials are seeking a similar territorial guarantee.

The Obama administration has escalated U.S. involvement by sending American aircraft over islands reclaimed by China and discussing joint patrols with the Japanese.

Most of the islands are intrinsically worthless and provide little security value. Maritime rights are affected but, in peacetime, the difference wouldn’t matter so much. In wartime, everything would depend on the capabilities of the contending navies.

The economic benefits from control are real but still relatively small compared to the economies of most of the claimants. For most of the countries, national ego is the primary issue.

What should the United States do? American interests are few and of middling importance. Washington primarily seeks to uphold global norms, in this case, navigational freedom and peaceful conflict resolution.

It is widely assumed that America’s involvement would deter China from starting a war. However, any attempts to coerce the PRC over its perceived interests would add conflict to the U.S./China relationship.

As I point out on National Interest online: “China likely would respond by matching American air and naval maneuvers, accelerating military outlays, and challenging U.S. interests elsewhere. Americans should reflect on how they would respond if Beijing acted like the U.S.”

Maintaining the overly large and expensive military presence necessary for Washington to project power sustainable over the long-term. It costs far more to build carriers than to sink them. Americans are unlikely to heed a clarion call for sacrifice to ensure that the Senkakus stay Japanese.

Instead of goading China, the administration should withdraw from East Asia’s territorial miasma. First, Washington should acknowledge that East Asian hegemony it not essential for America’s security.

Second, Washington should make clear through action, as well as rhetoric, that it takes no position regarding competing territorial claims. While the United States should assert freedom of navigation—and insist that there is no valid legal justification for turning 80 percent of the South China Sea into Chinese territorial waters—Beijing has not threatened that basic freedom.

Third, the administration should remove contested territories from security guarantees. America’s interest is in Japan’s and the Philippines’ independence, not their control over worthless rock piles. It is especially foolish to threaten a nuclear-armed state over territories to which the latter might be entitled.

Fourth, the administration should allow events to take their natural course. China’s neighbors are growing increasingly hostile to Beijing’s aggressiveness. Japan is spending more and rethinking historic strictures on its military, smaller nations are arming–some of which are working with Tokyo–and everyone is encouraging India to play a larger regional role.

Fifth, U.S. officials should more effectively make the case for negotiation. Washington should press its friends to offer creative solutions to the region’s many disputes, such as setting aside or sharing island sovereignty.

Finally, Washington should highlight the advantages of peace for all concerned, especially China. The future should not be risked for stakes of such limited value.

What should the United States do about East Asia’s territorial disputes? In most of East Asia’s territorial controversies, America’s interests are peripheral and Washington should play a minor role. America’s most important interest today is keeping the peace.

On Friday night of Memorial Day weekend, the U.S. Senate passed the Bipartisan Congressional Trade Priorities and Accountability Act, better known as Trade Promotion Authority (TPA), by a vote of 62-38.  In light of what appeared to be formidable opposition pressing difficult demands that could have seriously prolonged the Senate TPA debate or derailed the Trans-Pacific Partnership (TPP) negotiations altogether, passage of the bill in relatively short order is a credit to the commitment of Majority Leader McConnell, Finance Committee Chairman Orrin Hatch, and Finance Committee Ranking Member Ron Wyden to getting it done.  But proponents of the trade agenda still have a long road ahead.

When Congress reconvenes next week, debate and consideration of a similar TPA bill will be one of the first orders of business in the House of Representatives.  Getting to 218 votes will test the persuasive powers of Ways and Means Chairman Paul Ryan, Speaker John Boehner, and President Obama, who will need to woo Democratic support without losing Republican support in the process. The goal is to pass TPA in a form that is sufficiently similar to the Senate version to avoid the need to reconcile different versions in conference, which would necessitate a second vote in the House. 

Meanwhile, with trade negotiators seeing some progress on TPA, the TPP talks appear to have begun to move into the “end-game” phase.  Although it is uncertain how long this phase of the negotiation might last – because it remains unclear how many issues are outstanding, how much distance there is between the parties, and whether unexpected demands requiring alterations to previously settled parts of the agreement will be made – it is now evident that the soonest Congress could vote to implement the TPP is early 2016, with the distinct and growing possibility that the matter will fall to a lame duck Congress and president or, even, to the next president and the 115th Congress.

Stay tuned for an analysis that fleshes out some of the issues likely to affect the direction and outcome of the trade agenda, including some possible hurdles and other twists and turns in the road.

George Pataki, the governor of New York from 1995 to 2006, is expected to announce the launch of his presidential campaign tomorrow. Pataki joins an already crowded Republican field and is expected to highlight his record as governor to win support. A review of Pataki’s record presents a question: which Pataki will be running for the presidency?

Pataki’s first several years in office showed promise, from a small-government perspective. He proclaimed that his administration was “overthrowing all the unworkable liberal abstractions of the past and replacing them with a revolution of conservative ideas.” His actions matched his claims. His first two budgets included a number of spending cuts. New York general fund spending decreased five percent in his first year.  He eliminated 12,000 of the state’s 200,000 government jobs. In total, spending was cut by $2 billion. Pataki coupled his spending cuts with tax cuts. He cut the personal income tax by 25 percent

His actions during those two years earned him an “A” on Cato’s Fiscal Policy Report Card on America’s Governors in 1996. The authors of the report said that Pataki “had far and away the most impressive fiscal record in his first two years” among the 20 new governors covered in the report.

Pataki seems to have lost his zeal for fiscal restraint after his first two years. He supported a 55 cent increase to the cigarette tax and followed it with another 39 cent increase in the tax. He pushed for a $1.5 billion bond issue for infrastructure. General fund spending increased by seven percent from fiscal year 1998 to fiscal year 1999. It continued to grow after that. It grew five percent from fiscal year 2004 to 2005, nine percent from fiscal year 2005 to 2006, and an astounding 10.6 percent from fiscal year 2006 to 2007. 

During his tenure as governor, fiscal years 1997 to 2007, New York general fund spending increased 67 percent, according to data from the National Association of State Budget Officers. That was almost double New York’s population growth and inflation during those years.

In his final appearance in the Cato report card in 2006, the authors summarized Pataki’s time in office. “George Pataki started out as a tax-cutting, small-government governor. He ended up as a big spender seemingly hell-bent on overturning anything good he had done in his first term.” His grade fell from an “A” in his first two years in office to a “D” for his final term

Pataki’s tenure as governor can be divided into two distinct periods. His first two years in office embodied fiscal restraint. Pataki cut taxes and spending and downsized the state’s workforce. He quickly lost steam tackling the monster New York budget. Pataki increased taxes by $3 billion in his last term. Under Pataki’s leadership, state general fund spending increased by 67 percent. His campaign will hopefully answer the question of which Pataki is running for president.

Over at the Huffington Post, Ryan J. Reilly reports that St. Louis was one of the cities to receive MacArthur Foundation grants to improve the relationship between the police and the public. When discussing the award, the police chief made some frank admissions about the double standard that infects policing in the greater St. Louis area:

In an interview ahead of the announcement, St. Louis County Police Chief Jon Belmar called the reform effort a “positive that came out of a tragedy.”

[…]

Belmar… said it is simply unrealistic for law enforcement to be able to enforce the hundreds of thousands of outstanding warrants in the county, many of them in connection with missed court dates for minor violations of municipal codes.

“I’m looking at cities that have 50,000, 39,000, 30,000 outstanding warrants today. You’re never going to catch up to that,” Belmar said. “You might have a city like Pine Lawn, which is 360 acres, that has 30,000 outstanding warrants. How can that be? The math doesn’t work.”

Belmar acknowledged that the protests in Ferguson have given a voice to populations that had been overlooked in the past.

“If you went to a very affluent area in St. Louis County, how long do you think a program would last where speed cameras were put up on arterial roads coming into subdivisions, and people were given letters saying they were going to be arrested? It would last about five hours,” Belmar said.

As Judge Janice Rogers Brown recently wrote in a concurrence in the U.S. Court of Appeals for the D.C. Circuit, such double standards are not limited to St. Louis. Describing roving patrols for guns that are standard practice in Southeast D.C.—an area of predominantly poor and minority neighborhoods—she wrote:

As a thought experiment, try to imagine this scene in Georgetown. Would residents of that neighborhood maintain there was no pressure to comply, if the District’s police officers patrolled Prospect Street in tactical gear, questioning each person they encountered about whether they were carrying an illegal firearm? Nothing about the Gun Recovery Unit’s modus operandi is designed to convey a message that compliance is not required. While viewing such an encounter as consensual is roughly equivalent to finding the latest Sasquatch sighting credible, I submit to the prevailing orthodoxy, but I continue to reject its counterintuitive premise.

Georgetown is an affluent, predominantly white area that is home to many D.C. elites and features high-end shopping and dining. It is indeed difficult to imagine SWAT teams shaking down tourists and well-to-do residents for very long.

Because many neighborhoods around the United States continue to be segregated along both economic and racial lines, this policing double standard has the effect—whether intended or not—of alienating poor minorities and undermining police legitimacy in those communities. Extracting money from the impoverished and using dubiously constitutional tactics in specific areas is the wrong way to treat the people who live there.

When I first came to Washington back in the 1980s, there was near-universal support and enthusiasm for a balanced budget amendment among advocates of limited government.

The support is still there, I’m guessing, but the enthusiasm is not nearly as intense.

There are three reasons for this drop.

  1. Political reality - There is zero chance that a balanced budget amendment would get the necessary two-thirds vote in both the House and Senate. And if that happened, by some miracle, it’s highly unlikely that it would get the necessary support for ratification in three-fourths of state legislatures.
  2. Unfavorable evidence from the states - According to the National Conference of State Legislatures, every state other than Vermont has some sort of balanced budget requirement. Yet those rules don’t prevent states like California, Illinois, Connecticut, and New York from adopting bad fiscal policy.
  3. Favorable evidence for the alternative approach of spending restraint - While balanced budget rules don’t seem to work very well, policies that explicitly restrain spending work very well. The data from Switzerland, Hong Kong, and Colorado is particularly persuasive.

Advocates of a balanced budget amendment have some good responses to these points. They explain that it’s right to push good policy, regardless of the political situation. Since I’m a strong advocate for a flat tax even though it isn’t likely to happen, I can’t argue with this logic.

Regarding the last two points, advocates explain that older versions of a balanced budget requirement simply required a supermajority for more debt, but newer versions also include a supermajority requirement to raise taxes. This means - at least indirectly - that the amendment actually is a vehicle for spending restraint.

This doesn’t solve the political challenge, but it’s why advocates of limited government need to be completely unified in favor of tax-limitation language in a balanced budget amendment. And they may want to consider being more explicit that the real goal is to restrain spending so that government grows slower than the productive sector of the economy.

Interestingly, even the International Monetary Fund (which is normally a source of bad analysis) understands that spending limits work better than rules that focus on deficits and debt.

Here are some of the findings from a new IMF study that looks at the dismal performance of the European Union’s Stability and Growth Pact. The SGP supposedly limited deficits to 3 percent of GDP and debt to 60 percent of GDP, but the requirement failed largely because politicians couldn’t resist the temptation to spend more in years when revenue grew rapidly.

An analysis of stability programs during 1999–2007 suggests that actual expenditure growth in euro area countries often exceeded the planned pace, in particular when there were unanticipated revenue increases. Countries were simply unable to save the extra revenues and build up fiscal buffers. …This reveals an important asymmetry: governments were often unable to preserve revenue windfalls and faced difficulties in restraining their expenditure in response to revenue shortfalls when consolidation was needed. …The 3 percent of GDP nominal deficit ceiling did not prevent countries from spending their revenue windfalls in the mid-2000s. … Under the SGP, noncompliance has been the rule rather than the exception. …The drawbacks of the nominal deficit ceiling are particularly apparent when the economy is booming, as it is compatible with very large structural deficits.

The good news is that the SGP has been modified and now (at least theoretically) requires spending restraint.

The initial Pact only included three supranational rules… As of 2014, fiscal aggregates are tied by an intricate set of constraints…government spending (net of new revenue measures) is constrained to grow in line with trend GDP. …the expenditure growth ceiling may seem the most appealing. This indicator is tractable (directly constraining the budget), easy to communicate to the public, and conceptually sound… Based on simulations, Debrun and others (2008) show that an expenditure growth rule with a debt feedback ensures a better convergence towards the debt objective, while allowing greater flexibility in response to shocks. IMF (2012) demonstrates the good performance of the expenditure growth ceiling

This modified system presumably will lead to better (or less worse) policy in the future, though it’s unclear whether various nations will abide by the new EU rules.

One problem is that the overall system of fiscal rules has become rather complicated, as illustrated by this image from the IMF study.

Which brings us back to the third point above. If the goal is to restrain spending (and it should be), then why set up a complicated system that first and foremost is focused on red ink?

That’s why the Swiss Debt Brake is the right model for how to get spending under control. And this video explains why the objective should be spending restraint rather than deficit reduction.

And for those who fixate on red ink, it’s worth noting that if you deal with the underlying disease of too much government, you quickly solve the symptom of deficits.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

A popular media story of the week was that sea level rise was accelerating and that this was worse than we thought. The stories were based on a new paper published in the journal Nature Climate Change by an author team led by the University of Tasmania’s Christopher Watson.

Watson and colleagues re-examined the satellite-based observations of sea level rise (available since the early 1990s) using a new methodology that supposedly better accounts for changes in the orbital altitude of the satellites—obviously a key factor when assessing sea levels by determining the height difference between the ocean’s surface and the satellites, the basic idea behind altimetry-based sea level measurements.

So far so good.

Their research produced two major findings, 1) their new adjusted measurements produced a lower rate of sea level rise than the old measurements (for the period 1993 to mid-2014), but 2) the rate of sea level rise was accelerating.

It was the latter that got all of the press.

But, it turns out, that in neither case, were the findings statistically significant at even the most basic levels used in scientific studies. Generally speaking, scientists report a findings as being “significant” if there is a less than 1-in-20 chance that the same result could have been produced by random (i.e., unexplained) processes. In some fields, the bar is set even higher (like 1 in 3.5 million). We can’t think of any scientific field that accepts a lower than a 1-in-20 threshold (although occasional individual papers do try to get away with applying a slightly lower standard).

But in the sea level rise paper that is getting all the attention, the author’s team push a result—an acceleration in sea level rise—that has about a 1-in-4 chance of being zero or below—i.e., that no acceleration in actuality is taking place. That’s like betting the farm that you won’t get two heads in a row when flipping a coin. No one outside of someone who is extremely desperate would make such a bet.

Given such a result—a finding that grossly failed the standard test of statistical significance—the  authors of the paper should have concluded that over the past 22+ years, there has been no reliably detectable change in the rate of sea level rise in the satellite-observed dataset.

Instead, the lead authors wrote in their paper’s abstract that:

“[I]n contrast to the previously reported slowing in the rate during the past two decades, our corrected [global mean sea level] data set indicates an acceleration in sea-level rise…which is of opposite sign to previous estimates.”

Further down in the details of the paper (where no reporter dares to go), the authors do admit that the acceleration was in fact statistically insignificant. But that’s not the impression left to the press.

And the press, always eager for a paper predicting doom and gloom from human-caused climate change was more than happy to run with headlines like:

“Sea Level Rise Accelerating Faster Than Thought” (from Science magazine)

“Sea levels are rising at faster clip as polar melt accelerates, new study shows” (from the Washington Post)

“Sea level rise accelerated over the past two decades, research finds” (from The Guardian)

“Study: Sea level rise accelerating worldwide” (from USA Today)

For the misleading claims, and the cascade of misinformation that flowed from them, we determine that the Spin Cycle setting of this story is Permanent Press.

 

 

Venezuela’s bolivar is collapsing. And as night follows day, Venezuela’s annual implied inflation rate is soaring. Last week, the annual inflation rate broke through the 500% level. It now stands at 510%.

When inflation rates are elevated, standard economic theory and reliable empirical techniques allow us to produce accurate inflation estimates. With free market exchange-rate data (usually black-market data), the inflation rate can be calculated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

To calculate the inflation rate in Venezuela, all that is required is a rather straightforward application of a standard, time-tested economic theory (read: PPP). Using black-market exchange rate data that The Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Venezuela’s current annual implied inflation rate to be 510%. This is the highest rate in the world. It’s well above the second-highest rate: Syria’s, which stands at 84%.

Venezuela has not always experienced punishing inflation rates. From 1950 through 1979, Venezuela’s average annual inflation rate remained in the single digits. It was not until the 1980s that Venezuela witnessed a double-digit average. And it was not until the 1990s that Venezuela’s average inflation rate exceeded that of the Latin American region. Today, Venezuela’s inflation rate is over the top (see the accompanying table).

Benjamin Franklin said, “There never was a good war or a bad peace.” Given Franklin’s leadership in the struggle for American independence, we can infer that he did not think that there never was a war that was necessary, or a war that was worth its cost. But he reminds us that even necessary wars have terrible costs.

I thought about Franklin when I read an eloquent column on the meaning of Memorial Day by the novelist Mark Helprin, who is also a senior fellow at the Claremont Institute. He lamented:

Though if by and large we ignore the debt we owe to those who fell at Saratoga, Antietam, the Marne, the Pointe du Hoc, and a thousand other places and more, our lives and everything we value are the ledger in which it is indelibly recorded.

It’s a worthy sentiment, one heard frequently in Memorial Day addresses, and we do indeed owe our lives and our pursuit of happiness to the freedom that America’s soldiers have sometimes had to defend.

But I can’t help wondering: Have all of America’s wars have been necessary to American freedom? Helprin mentioned the Second Battle of the Marne, the great turning point of World War I and the first battle in which Americans started experiencing the enormous casualties that Europeans had been facing for nearly four years. The problem is that World War I was a catastrophe, a foolish and unnecessary war, a war of European potentates that both England and the United States could have stayed out of but that became indeed a World War, the Great War. In our own country, the war gave us economic planning, conscription, nationalization of the railroads, a sedition act, confiscatory income tax rates, and prohibition. Internationally, World War I and its conclusion led directly to the Bolshevik revolution, the rise of National Socialism, World War II, and the Cold War. World War I was the worst mistake of the 20th century, the mistake that set in motion all the tragedies of the century. The deaths of those who fell at the Marne are all the more tragic when we reflect that they did not in fact serve to protect our lives and all that we value.

Did the wars in Vietnam and Iraq protect American lives and liberties? Two weeks ago, Republican presidential contender Jeb Bush said that discussing whether the Iraq war was a mistake “does a disservice to a lot of people who sacrificed a lot.” It’s understandable that an aspiring commander-in-chief would want to spare the feelings of those who lost a loved one in Iraq. But surely it’s more important that a commander-in-chief ask tough questions about when it’s advisable to go to war.

In my book The Libertarian Mind, I wrote about the effects of war: not just death on a large scale but the destruction of families, businesses, and civil society. And thus:

War cannot be avoided at all costs, but it should be avoided wherever possible. Proposals to involve the United States—or any government—in foreign conflict should be treated with great skepticism….We should understand the consequences of war for our entire social order and thus go to war only when absolutely necessary.

On this weekend we should mourn those who went to war, such as my father, who planned and participated in the liberation of Europe, and his brother who was lost off the coast of Normandy, and we should resolve not to risk American lives in the future except when our vital national interests are at stake.

In about 30 seconds this morning on Fox News Sunday, George Will laid out the prudential case for proceeding very cautiously when contemplating a war:

WALLACE: So George, with that as trailer, what’s the lesson that we should take from Iraq, and particularly as it comes to future U.S. policy?

WILL: Four lessons, I think.

First, the government has to choose always on the basis of imperfect information. I agree with Bob [Woodward]. There were no lies here [in the Bush administration’s incorrect claims about WMD]. It was a colossal failure to know what we didn’t know.

Second, the failure to ask Admiral Yamamoto’s question. When he was asked by the government of Japan could he take a fleet stealthily across the Pacific and strike Pearl Harbor, he said yeah, but then what? He knew they would have on their hands an enormous problem in the United States.

Third, Colin Powell’s Pottery Barn rule: if you break it, you own it. Just as when the Kennedy administration in November 1963 was complicit in the coup against Diem, in South Vietnam, we owned South Vietnam ever after.

But fourth and most important, the phrase nation-building is as absurd as the phrase orchid building. Orchids are complex, organic things. So are nations. And we do not know how to build nations any more than we know how to fix English-speaking home grown Detroit. 

That’s more-or-less the question that Bankrate.com asked Dean Baker, co-founder of the Center for Economic and Policy Research, and me after last month’s FOMC press release. Dean said yep. I said…uh, not really. Our full answers appeared recently in the online publication’s “Wealth of Opinions” column. There’s even a little poll at the end, allowing you to pick your favorite answer. Of course you don’t have to vote. It’s really entirely up to you. I mean, I’m not trying to pressure you or anything like that.

Honest.

No, really!

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.

In this issue of You Ought to Have a Look, we focus on what we think is an extremely important article, written by Richard Horton, long-time editor of The Lancet—a British medical journal considered to be one of the world’s most prestigious.

Horton addresses what is increasingly becoming recognized as the biggest problem in modern science: an incentive system that promotes style (i.e., “attention grabbing”) over substance. The headlong pursuit of headlines is leading not only to sloppy science, but selective science. The result is that the course of human knowledge is being perturbed, and not for the better.

Horton’s comments are particularly salient as this week witnessed the retraction of another headline-grabbing paper in a prestigious journal.

Here, we reproduce the bulk of Horton’s essay in which he addresses “the idea that something has gone fundamentally wrong with one of our greatest human creations”:

The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness. As one participant put it, “poor methods get results”.The Academy of Medical Sciences, Medical Research Council, and Biotechnology and Biological Sciences Research Council have now put their reputational weight behind an investigation into these questionable research practices.The apparent endemicity of bad research behaviour is alarming. In their quest for telling a compelling story, scientists too often sculpt data to fit their preferred theory of the world. Or they retrofit hypotheses to fit their data.Journal editors deserve their fair share of criticism too. We aid and abet the worst behaviours. Our acquiescence to the impact factor fuels an unhealthy competition to win a place in a select few journals. Our love of “significance” pollutes the literature with many a statistical fairy-tale. We reject important confirmations. Journals are not the only miscreants. Universities are in a perpetual struggle for money and talent, endpoints that foster reductive metrics, such as high-impact publication. National assessment procedures, such as the Research Excellence Framework, incentivize bad practices. And individual scientists, including their most senior leaders, do little to alter a research culture that occasionally veers close to misconduct.

Can bad scientific practices be fixed? Part of the problem is that no-one is incentivised to be right. Instead, scientists are incentivised to be productive and innovative. Would a Hippocratic Oath for science help? Certainly don’t add more layers of research redtape. Instead of changing incentives, perhaps one could remove incentives altogether. Or insist on replicability statements in grant applications and research papers. Or emphasise collaboration, not competition. Or insist on preregistration of protocols. Or reward better pre- and post-publication peer review. Or improve research training and mentorship. Or implement the recommendations from our Series on increasing research value, published last year.One of the most convincing proposals came from outside the biomedical community. Tony Weidberg is a Professor of Particle Physics at Oxford. Following several high-profile errors, the particle physics community now invests great effort into intensive checking and rechecking of data prior to publication. By filtering results through independent working groups, physicists are encouraged to criticise. Good criticism is rewarded. The goal is a reliable result, and the incentives for scientists are aligned around this goal. Weidberg worried we set the bar for results in biomedicine far too low. In particle physics, significance is set at 5 sigma—a p value of 3 × 10–7 or 1 in 3.5 million (if the result is not true, this is the probability that the data would have been as extreme as they are). The conclusion of the symposium was that something must be done. Indeed, all seemed to agree that it was within our power to do that something. But as to precisely what to do or how to do it, there were no firm answers. Those who have the power to act seem to think somebody else should act first. And every positive action (eg, funding well-powered replications) has a counterargument (science will become less creative). The good news is that science is beginning to take some of its worst failings very seriously. The bad news is that nobody is ready to take the first step to clean up the system.

This issue is especially near and dear to our hearts at the Center for the Study of Science. For those interested in more on this topic (and we hope that is most of you), please see our recent Working Paper and various other writings and presentations.

This is an extremely important issue that is far from receiving the level of attention that it deserves.

Most central banks do one thing well: they produce monetary mischief. Indeed, for most emerging market countries, a central bank is a recipe for disaster.

The solution: replace domestic currencies with sound foreign currencies. Panama is a prime example of this type of switch. Panama adopted the U.S. dollar as its official currency in 1904. It is one of the best-performing countries in Latin America (see the accompanying table). In 2014, economic growth in Latin America and the Caribbean was a measly 0.8 percent. In contrast, Panama’s growth rate was 6.2 percent. Not surprisingly, it was the only country in Latin America to have realized an increase in the number of greenfield FDI projects

My misery index indicates just how well Panama stacks up against other Latin American countries. The misery index is a simple sum of inflation, bank lending rates, and unemployment, minus year-over-year per-capita GDP growth. The table below shows the misery index readings for the Latin American countries in which data were available in 2014.

Thanks to their central banks, Venezuela and Argentina top the list as the most miserable countries in the region. Panama, El Salvador, and Ecuador score very well on the misery index. All three are dollarized.

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