When a police SWAT team raided Andrew Cornish’s home in Cambridge, Maryland at 4:30am, the officers were heavily armed, dressed in black, wearing helmets and goggles, and carrying battering rams. (They were investigating small-time drug possession—seriously.) They stormed the residence without announcing themselves and killed Cornish seconds later as he emerged from his bedroom in his underwear.
Cornish’s estate sued the Cambridge police. At trial, Cornish’s estate claimed that the police violated two Fourth Amendment rules. First, the police violated the knock-and-announce rule when they failed to wait more than five seconds for him to answer the door after knocking. Second, the police violated the prohibition on excessive force when they shot him to death. The jury found for Cornish’s estate on the knock-and-announce violation and against him on the excessive force violation, awarding damages to the estate.
The U.S. Court of Appeals for the Fourth Circuit arrogated to itself the role of the jury—the resolution of questions of fact—and determined that because “the Officers’ illegal entry was not the legal cause of Cornish’s death,” the estate was only entitled to nominal damages to “vindicate the deprivation of Cornish’s constitutional rights.” Cornish’s estate has now appealed to the Supreme Court.
The knock-and-announce rule is an ancient one rooted in the English common law. In the early 17th century, Lord Coke noted that if a sheriff “break the house when he may enter without breaking it (that is, on request made, or if he may open the door without breaking), he is a trespasser.” That rule continues to this day: “law enforcement officers must announce their presence and provide residents an opportunity to open the door.” Hudson v. Michigan (2006).
Read more at http://www.cato.org/blog/police-militarization-leads-extreme-constitutional-violations
2015-10-10
Cato: Rules versus Discretion: Insights from Behavioral Economics
For half a century now, the “rules versus discretion” debate in monetary economics has focused on the so-called “time inconsistency” problem. The problem is that, although a discretionary central bank might promise not to allow the inflation rate to rise above zero (or some other ideal value), the fact that an inflation “surprise” can boost employment and output in the short run will tempt it to break its promise. Realizing this, market participants will anticipate higher inflation. The long-run result is a higher inflation rate with no improvement in either employment or output. By limiting the central bankers’ options, a monetary rule solves the time inconsistency problem.
An earlier rules-versus-discretion debate had taken place in the 1920s and 1930s.1 The later one, which was inspired by the stagflation of the 1970s, differed in that it was influenced by the New Classical revolution that was taking place around the same time. Consequently, the later critics of monetary discretion, including Finn Kydland and Edward Prescott, Guillermo Calvo, Benn McCallum, Robert Barro and David Gordon, and John Taylor,2 differed from their predecessors by building their arguments on the premise that central bankers were both well (if not quite perfectly) informed and well intentioned. Discretion, according to them, leads to less than ideal outcomes not because central bankers are ignorant or misguided, but because of misaligned incentives.
Naturally, champions of discretionary monetary policy also regarded monetary policy makers as well-meaning and well-informed experts. Their counterargument was simply that such experts could in principle out-perform any rule. Well-trained monetary technocrats might, after all, resist the short-run temptation to take advantage of established inflation expectations by creating inflation surprises.
Read more at http://www.cato.org/blog/rules-versus-discretion-insights-behavioral-economics
An earlier rules-versus-discretion debate had taken place in the 1920s and 1930s.1 The later one, which was inspired by the stagflation of the 1970s, differed in that it was influenced by the New Classical revolution that was taking place around the same time. Consequently, the later critics of monetary discretion, including Finn Kydland and Edward Prescott, Guillermo Calvo, Benn McCallum, Robert Barro and David Gordon, and John Taylor,2 differed from their predecessors by building their arguments on the premise that central bankers were both well (if not quite perfectly) informed and well intentioned. Discretion, according to them, leads to less than ideal outcomes not because central bankers are ignorant or misguided, but because of misaligned incentives.
Naturally, champions of discretionary monetary policy also regarded monetary policy makers as well-meaning and well-informed experts. Their counterargument was simply that such experts could in principle out-perform any rule. Well-trained monetary technocrats might, after all, resist the short-run temptation to take advantage of established inflation expectations by creating inflation surprises.
Read more at http://www.cato.org/blog/rules-versus-discretion-insights-behavioral-economics
2015-10-09
Cato: Reserve Requirements Basel Style: The Liquidity Coverage Ratio
Over the last couple of decades, reserve requirements all but vanished as a means of bank regulation and monetary control. But now a new variation on reserve requirements is being introduced through the capital controls of the Basel Accords.
Canada, the UK, Sweden, Australia, New Zealand, and Hong Kong have all abolished traditional reserve requirements. In many other countries, reserve requirements have become a dead letter. In the U.S., for instance, the Fed under Alan Greenspan reduced all reserve requirements to zero except for transactions deposits (checking accounts), while permitting banks to evade reserve requirements on transactions balances by using sophisticated computer software to regularly “sweep” those balances into money market deposit accounts, which have no reserve requirement. In 2011 Congress went a step further by allowing the Fed to eliminate all reserve requirements if it so desired. The Eurozone, for its part, began with a reserve requirement of only 2 percent, which was reduced to 1 percent in January 1999.
There were good reasons for this deregulatory trend. Economists consider reserve requirements an implicit tax on banks, requiring them to hold non-interest earning assets, while central banks considered changes in such requirements too blunt an instrument for monetary control. The Fed discovered the latter shortcoming when, in the midst of the Great Depression, having just gained control over the reserve requirements of national banks, it doubled them, contributing to recession of 1937.
Ostensibly designed to keep banks more liquid, reserve requirements can prevent them from drawing on their liquidity when it is most needed. As Armen A. Alchian and William R. Allen point out in University Economics (1964): “To rely upon a reserve requirement for the meeting of cash-withdrawal demands of banks’ customers is analogous to trying to protect a community from fire by requiring that a large water tank be kept full at all times: the water is useless in case of emergency if it cannot be drawn from the tank.”
Read more at http://www.cato.org/blog/reserve-requirements-basel-style-liquidity-coverage-ratio
Canada, the UK, Sweden, Australia, New Zealand, and Hong Kong have all abolished traditional reserve requirements. In many other countries, reserve requirements have become a dead letter. In the U.S., for instance, the Fed under Alan Greenspan reduced all reserve requirements to zero except for transactions deposits (checking accounts), while permitting banks to evade reserve requirements on transactions balances by using sophisticated computer software to regularly “sweep” those balances into money market deposit accounts, which have no reserve requirement. In 2011 Congress went a step further by allowing the Fed to eliminate all reserve requirements if it so desired. The Eurozone, for its part, began with a reserve requirement of only 2 percent, which was reduced to 1 percent in January 1999.
There were good reasons for this deregulatory trend. Economists consider reserve requirements an implicit tax on banks, requiring them to hold non-interest earning assets, while central banks considered changes in such requirements too blunt an instrument for monetary control. The Fed discovered the latter shortcoming when, in the midst of the Great Depression, having just gained control over the reserve requirements of national banks, it doubled them, contributing to recession of 1937.
Ostensibly designed to keep banks more liquid, reserve requirements can prevent them from drawing on their liquidity when it is most needed. As Armen A. Alchian and William R. Allen point out in University Economics (1964): “To rely upon a reserve requirement for the meeting of cash-withdrawal demands of banks’ customers is analogous to trying to protect a community from fire by requiring that a large water tank be kept full at all times: the water is useless in case of emergency if it cannot be drawn from the tank.”
Read more at http://www.cato.org/blog/reserve-requirements-basel-style-liquidity-coverage-ratio
2015-10-08
Cato: Puerto Rico Edges to Default
Greece is expected to default on its government debts tomorrow as its bailout package from the European Union (EU) expires. The country will also hold a referendum on Friday on whether to accept the latest round of terms from its EU funders. Greece continues to grab all the headlines, but there is another government closer to home that is in a similar situation: Puerto Rico. Over the weekend, the governor of the island announced that Puerto Rico is unable to repay its $70 billion in debt.
The Washington Post describes the situation:
A U.S. commonwealth with a population of 3.6 million, Puerto Rico carries more debt per capita than any state in the country. The island has been staggering under the increasing weight of those obligations for years as its economy has tanked, triggering an exodus of island residents to the mainland not seen since the 1950s.
"Meanwhile, the government has raised taxes, cut government employment and slashed pensions in a futile effort to get its debt burden under control. Those actions have only slowed the acceleration of debt creation, while harming efforts to reignite the economy."
Read more at http://www.cato.org/blog/puerto-rico-edges-default
The Washington Post describes the situation:
A U.S. commonwealth with a population of 3.6 million, Puerto Rico carries more debt per capita than any state in the country. The island has been staggering under the increasing weight of those obligations for years as its economy has tanked, triggering an exodus of island residents to the mainland not seen since the 1950s.
"Meanwhile, the government has raised taxes, cut government employment and slashed pensions in a futile effort to get its debt burden under control. Those actions have only slowed the acceleration of debt creation, while harming efforts to reignite the economy."
Read more at http://www.cato.org/blog/puerto-rico-edges-default
Cato: Ten Things Every Economist Should Know about the Gold Standard
At the risk of sounding like a broken record (well, OK–at the risk of continuing to sound like a broken record), I’d like to say a bit more about economists’ tendency to get their monetary history wrong. In particular, I’d like to take aim at common myths about the gold standard.
If there’s one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don’t excuse the errors many economists commit in their eagerness to find fault with that “barbarous relic.”
The false claims I have in mind are mostly ones I and others–notably Larry White–have countered before. Still I thought it would be useful to address them again here, because they’re still far from being dead horses, and also so that students wrapping-up the semester will have something convenient to send to their misinformed gold-bashing profs (though I urge them to wait until grades are in before sharing!).
For the sake of those who don’t care to wade through the whole post, here is a “jump to” list of the points covered:
* The Gold Standard wasn’t an instance of government price fixing. Not traditionally, anyway.
* A gold standard isn’t particularly expensive. In fact, fiat money tends to cost more.
* Gold supply “shocks” weren’t particularly shocking.
* The deflation that the gold standard permitted wasn’t such a bad thing.
* It wasn’t to blame for 19th-century American financial crises.
* On the whole, the classical gold standard worked remarkably well (while it lasted).
* It didn’t have to be “managed” by central bankers.
* In fact, central banking tends to throw a wrench in the works.
* “The “Gold Standard” wasn’t to blame for the Great Depression.
* It didn’t manage money according to any economists’ theoretical ideal. But neither has any fiat-money-issuing central bank.
Read more at http://www.cato.org/blog/ten-things-every-economist-should-know-about-gold-standard
If there’s one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don’t excuse the errors many economists commit in their eagerness to find fault with that “barbarous relic.”
The false claims I have in mind are mostly ones I and others–notably Larry White–have countered before. Still I thought it would be useful to address them again here, because they’re still far from being dead horses, and also so that students wrapping-up the semester will have something convenient to send to their misinformed gold-bashing profs (though I urge them to wait until grades are in before sharing!).
For the sake of those who don’t care to wade through the whole post, here is a “jump to” list of the points covered:
* The Gold Standard wasn’t an instance of government price fixing. Not traditionally, anyway.
* A gold standard isn’t particularly expensive. In fact, fiat money tends to cost more.
* Gold supply “shocks” weren’t particularly shocking.
* The deflation that the gold standard permitted wasn’t such a bad thing.
* It wasn’t to blame for 19th-century American financial crises.
* On the whole, the classical gold standard worked remarkably well (while it lasted).
* It didn’t have to be “managed” by central bankers.
* In fact, central banking tends to throw a wrench in the works.
* “The “Gold Standard” wasn’t to blame for the Great Depression.
* It didn’t manage money according to any economists’ theoretical ideal. But neither has any fiat-money-issuing central bank.
Read more at http://www.cato.org/blog/ten-things-every-economist-should-know-about-gold-standard
Cato: Clearly Worded Contracts Should Be Enforced
Freedom of contract—the right of individuals to manage and govern their own affairs—is a basic and necessary liberty. The appropriate role of the government in contract-law disputes is to hold parties to their word, not to enforce its own policy preferences.
The New Jersey Supreme Court recently struck a blow against that basic freedom, however, in ruling that clearly worded arbitration provisions—one of the most common parts of consumer contracts—are unenforceable unless the parties comply with multiple superfluous formalities. The case arose when Patricia Atalese retained a law firm, U.S. Legal Services Group, to negotiate with creditors on her behalf. Atalese signed a retainer agreement with a standard arbitration provision: she checked a box that unambiguously indicated that she read and understood that all disputes would be settled via arbitration. Then, after a dispute over legal fees, Atalese disregarded the arbitration agreement and filed a lawsuit in state court.
The trial court dismissed her complaint and compelled arbitration, a ruling that was affirmed by the intermediate appellate court. But instead of letting that decision stand, the New Jersey Supreme Court broke from years of tradition and federal precedent found the arbitration provision unenforceable because it lacked certain magic words stating, in addition to all disputes being resolved by arbitration, that the parties were waiving their right to a civil jury trial.
Read more at http://www.cato.org/blog/clearly-worded-contracts-should-be-enforced
The New Jersey Supreme Court recently struck a blow against that basic freedom, however, in ruling that clearly worded arbitration provisions—one of the most common parts of consumer contracts—are unenforceable unless the parties comply with multiple superfluous formalities. The case arose when Patricia Atalese retained a law firm, U.S. Legal Services Group, to negotiate with creditors on her behalf. Atalese signed a retainer agreement with a standard arbitration provision: she checked a box that unambiguously indicated that she read and understood that all disputes would be settled via arbitration. Then, after a dispute over legal fees, Atalese disregarded the arbitration agreement and filed a lawsuit in state court.
The trial court dismissed her complaint and compelled arbitration, a ruling that was affirmed by the intermediate appellate court. But instead of letting that decision stand, the New Jersey Supreme Court broke from years of tradition and federal precedent found the arbitration provision unenforceable because it lacked certain magic words stating, in addition to all disputes being resolved by arbitration, that the parties were waiving their right to a civil jury trial.
Read more at http://www.cato.org/blog/clearly-worded-contracts-should-be-enforced
2015-10-07
Cato: Illinois Uses Racial Preferences for No Good Reason
Since before the Declaration of Independence, equality under the law has been a central feature of American identity. The Fourteenth Amendment expanded that constitutional precept to actions by states, not just the federal government. For example, if a state government wants to use race as a factor in pursuing a certain policy, it must do so in the furtherance of a compelling reason—like preventing prison riots—and it must do so in as narrowly tailored a way as possible.
This means, among other things, that race-neutral solutions must be considered and used as much as possible. So if a state were to, say, set race-based quotas for who receives its construction contracts and then claim that no race-neutral alternatives will suffice—without showing why—that would fall far short of the high bar our laws set for race-conscious government action.
Yet that is precisely what Illinois has done.
Illinois’s Department of Transportation and the Illinois State Toll Highway Authority have implemented the U.S. Department of Transportation’s Disadvantaged Business Entity (“DBE”) program, which aims to remedy past discrimination against minority and women contractors by granting competitive benefits to those groups. While there may be a valid government interest in remedying past discrimination, Illinois’s implementation of the program blows through strict constitutional requirements and bases its broad use of racial preferences on studies that either employ highly dubious methodology or are so patently outdated that they provide no legal basis on which to conclude, as constitutionally required, that there remains ongoing, systemic, widespread racial (or gender) discrimination in the public-construction-contracting industry that only the DBE program can rectify.
Read more at http://www.cato.org/blog/illinois-uses-racial-preferences-no-good-reason
This means, among other things, that race-neutral solutions must be considered and used as much as possible. So if a state were to, say, set race-based quotas for who receives its construction contracts and then claim that no race-neutral alternatives will suffice—without showing why—that would fall far short of the high bar our laws set for race-conscious government action.
Yet that is precisely what Illinois has done.
Illinois’s Department of Transportation and the Illinois State Toll Highway Authority have implemented the U.S. Department of Transportation’s Disadvantaged Business Entity (“DBE”) program, which aims to remedy past discrimination against minority and women contractors by granting competitive benefits to those groups. While there may be a valid government interest in remedying past discrimination, Illinois’s implementation of the program blows through strict constitutional requirements and bases its broad use of racial preferences on studies that either employ highly dubious methodology or are so patently outdated that they provide no legal basis on which to conclude, as constitutionally required, that there remains ongoing, systemic, widespread racial (or gender) discrimination in the public-construction-contracting industry that only the DBE program can rectify.
Read more at http://www.cato.org/blog/illinois-uses-racial-preferences-no-good-reason
Cato: States Must Preserve Voter Equality
When you go to vote for state legislators, you don’t expect that some other voters in your state will have their votes weighed double yours, just because they happen to be neighbors with people who can’t vote. But that, in effect, is what Texas is trying to do.
When Texas draws its state legislative districts, it looks only to equalize the total population in each district, ignoring how many of those people are actually citizens of voting age. The result is a plan that would create one senate district where 74% of the residents can vote and another where only 47% can vote. Depending on where you live, you might be one of 383,000 people who get to choose a senator, or one of 611,000.
This is a blatant violation of the principle of “one person, one vote” (OPOV) that the Supreme Court established 50 years ago under the Fourteenth Amendment’s Equal Protection Clause: no matter where you live in your state, your vote should have the same weight. Nonetheless, a three-judge federal district court upheld the plan, following a flawed Fifth Circuit precedent holding that the Equal Protection Clause was ambiguous as to whether total population or voter population should be equalized.
But if a state really only has to care about total population, it could create districts of 10%, 5%, or even 1% eligible voters—and the tiny groups of voters in those districts would each be able to choose one senator all the same. Cato, joined by the Reason Foundation, has filed an amicus brief in the Supreme Court arguing against this absurd result, focusing on rebuttals to two supposed justifications for allowing states to violate OPOV.
Read more at http://www.cato.org/blog/states-must-preserve-voter-equality
When Texas draws its state legislative districts, it looks only to equalize the total population in each district, ignoring how many of those people are actually citizens of voting age. The result is a plan that would create one senate district where 74% of the residents can vote and another where only 47% can vote. Depending on where you live, you might be one of 383,000 people who get to choose a senator, or one of 611,000.
This is a blatant violation of the principle of “one person, one vote” (OPOV) that the Supreme Court established 50 years ago under the Fourteenth Amendment’s Equal Protection Clause: no matter where you live in your state, your vote should have the same weight. Nonetheless, a three-judge federal district court upheld the plan, following a flawed Fifth Circuit precedent holding that the Equal Protection Clause was ambiguous as to whether total population or voter population should be equalized.
But if a state really only has to care about total population, it could create districts of 10%, 5%, or even 1% eligible voters—and the tiny groups of voters in those districts would each be able to choose one senator all the same. Cato, joined by the Reason Foundation, has filed an amicus brief in the Supreme Court arguing against this absurd result, focusing on rebuttals to two supposed justifications for allowing states to violate OPOV.
Read more at http://www.cato.org/blog/states-must-preserve-voter-equality
2015-10-06
Cato: Patients and Doctors, not the FDA, Should Choose Right Medicine
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.”
Read more at http://www.cato.org/blog/patients-doctors-not-fda-should-choose-right-medicine
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.”
Read more at http://www.cato.org/blog/patients-doctors-not-fda-should-choose-right-medicine
Cato: The FDA’s Trans Fat Ban: Their Laws, Your Body
The Obama administration’s Food and Drug Administration today announced a near-ban, in the making since 2013, on the use of partially hydrogenated vegetable fats (“trans fats”) in American food manufacturing. Specifically, the FDA is knocking trans fats off the Generally Recognized as Safe (GRAS) list. This is a big deal and here are some reasons why:
* It’s frank paternalism. Like high-calorie foods or alcoholic beverages, trans fats have marked risks when consumed in quantity over long periods, smaller risks in moderate and occasional use, and tiny risks when used in tiny quantities. The FDA intends to forbid the taking of even tiny risks, no matter how well disclosed.
* The public doesn’t agree. A 2013 Reason-RUPE poll found majorities of all political groups felt consumers should be left free to choose on trans fats. Even in heavily governed places like New York City and California, where the political class bulldozed through restaurant bans some years back, there was plenty of resentment.
* The public is also perfectly capable of recognizing and acting on nutritional advances on its own. Trans fats have gone out of style and consumption has dropped by 85 percent as consumers have shunned them. But while many products have been reformulated to omit trans fats, their versatile qualities still give them an edge in such specialty applications as frozen pizza crusts, microwave popcorn, and the sprinkles used atop cupcakes and ice cream. Food companies tried to negotiate to keep some of these uses available, especially in small quantities, but apparently mostly failed.
Read more at http://www.cato.org/blog/fda-bans-trans-fats-keep-laws-body
* It’s frank paternalism. Like high-calorie foods or alcoholic beverages, trans fats have marked risks when consumed in quantity over long periods, smaller risks in moderate and occasional use, and tiny risks when used in tiny quantities. The FDA intends to forbid the taking of even tiny risks, no matter how well disclosed.
* The public doesn’t agree. A 2013 Reason-RUPE poll found majorities of all political groups felt consumers should be left free to choose on trans fats. Even in heavily governed places like New York City and California, where the political class bulldozed through restaurant bans some years back, there was plenty of resentment.
* The public is also perfectly capable of recognizing and acting on nutritional advances on its own. Trans fats have gone out of style and consumption has dropped by 85 percent as consumers have shunned them. But while many products have been reformulated to omit trans fats, their versatile qualities still give them an edge in such specialty applications as frozen pizza crusts, microwave popcorn, and the sprinkles used atop cupcakes and ice cream. Food companies tried to negotiate to keep some of these uses available, especially in small quantities, but apparently mostly failed.
Read more at http://www.cato.org/blog/fda-bans-trans-fats-keep-laws-body
2015-10-05
Cato: Does EPA’s Supreme Court Loss Doom Obama’s Climate Agenda?
In a 5-4 decision today, the Supreme Court struck down the Obama Administration EPA’s signature “Mercury and Air Toxic Rule,” which regulates emissions by fossil-fuel-fired power plants. Before regulating, EPA was obligated to decide whether regulation under one the Act’s most burdensome programs was “appropriate and necessary.” EPA interpreted that language to preclude it from considering the costs of regulation—some $10 billion per year, in exchange for $4 million or so in direct benefits. That interpretation, the Court decided, was ludicrous.
The decision may well leave the Obama climate agenda in tatters. Why that is requires a bit of explanation. In the usual case when the Court finds a rule to be unlawful, it vacates the offending action—in other words, deprives it of legal force. But that’s not what the Court did here. Instead, it sent the case back down to the D.C. Circuit for further proceedings, knowing full well that that court will follow its usual practice of “remand without vacatur”—in other words, let the agency fix any flaws in its rule while leaving the rule in place.
This is a very big deal. The centerpiece of the Obama Administration’s climate agenda is EPA’s so-called “Clean Power Plan,” which aims to cut power plants’ carbon-dioxide emissions by around 30 percent and force the phase-out of coal-fired generation. But the statutory authority that EPA claims supports this effort explicitly carves out any regulation of facilities that are already subject to regulations like the Mercury Rule. So if the rule remains in place—as seems likely—then the Clean Power Plan should be dead in the water.
Read more at http://www.cato.org/blog/does-epas-supreme-court-loss-doom-obamas-climate-agenda
The decision may well leave the Obama climate agenda in tatters. Why that is requires a bit of explanation. In the usual case when the Court finds a rule to be unlawful, it vacates the offending action—in other words, deprives it of legal force. But that’s not what the Court did here. Instead, it sent the case back down to the D.C. Circuit for further proceedings, knowing full well that that court will follow its usual practice of “remand without vacatur”—in other words, let the agency fix any flaws in its rule while leaving the rule in place.
This is a very big deal. The centerpiece of the Obama Administration’s climate agenda is EPA’s so-called “Clean Power Plan,” which aims to cut power plants’ carbon-dioxide emissions by around 30 percent and force the phase-out of coal-fired generation. But the statutory authority that EPA claims supports this effort explicitly carves out any regulation of facilities that are already subject to regulations like the Mercury Rule. So if the rule remains in place—as seems likely—then the Clean Power Plan should be dead in the water.
Read more at http://www.cato.org/blog/does-epas-supreme-court-loss-doom-obamas-climate-agenda
Cato: EPA: Fracking Doesn’t Affect Groundwater
Last week the Environmental Protection Agency released a study that concluded that hydraulic fracturing, so-called “fracking” of oil and natural gas wells, does not contaminate drinking water, except in extremely unusual cases involving improper drilling techniques. The study should reduce the concerns of some of the technique’s vocal critics whose fears have led to restrictions on its use.
The EPA study reviewed the results from thousands of wells and found few faults with the drilling technique. When problems occurred, they stemmed from improperly sealed wells, which can affect any oil or gas well and not just those that utilize hydraulic fracturing.
Read more at http://www.cato.org/blog/epa-fracking-doesnt-affect-groundwater
The EPA study reviewed the results from thousands of wells and found few faults with the drilling technique. When problems occurred, they stemmed from improperly sealed wells, which can affect any oil or gas well and not just those that utilize hydraulic fracturing.
Read more at http://www.cato.org/blog/epa-fracking-doesnt-affect-groundwater
Cato: Dealing with the California Drought
California has had several years of record low rainfall, resulting in a severe water shortage. Gov. Jerry Brown (D) has responded by ordering a 25 percent reduction in urban water system use.
Are there any solutions to the state’s water shortage other than government mandates? Gary Libecap, professor of environmental management at the University of California, Santa Barbara, argues in a recent issue of Regulation that the restoration of clear water ownership rights and the cultural and political acceptance of water markets is an easier solution.
Conventional accounts of water problems in the West often blame farmers and their excessive use of water in places like the vegetable-farming Central Valley. But according to Libecap, “farmers are not the source of the problem. … Most would be pleased to sell or lease water that could earn more than is generated in agricultural production.”
Read more at http://www.cato.org/blog/dealing-california-drought
Are there any solutions to the state’s water shortage other than government mandates? Gary Libecap, professor of environmental management at the University of California, Santa Barbara, argues in a recent issue of Regulation that the restoration of clear water ownership rights and the cultural and political acceptance of water markets is an easier solution.
Conventional accounts of water problems in the West often blame farmers and their excessive use of water in places like the vegetable-farming Central Valley. But according to Libecap, “farmers are not the source of the problem. … Most would be pleased to sell or lease water that could earn more than is generated in agricultural production.”
Read more at http://www.cato.org/blog/dealing-california-drought
2015-10-04
Cato: Air Traffic Control Modernization
The Senate Commerce Committee held a fascinating hearing on Wednesday regarding air traffic control (ATC). The hearing showcased the momentum to proceed with ATC restructuring. Because aviation is crucial to the economy, such a reform would create wide-ranging benefits.
At this point, industry experts are ahead of Congress in thinking about ATC reform. At the hearing, some of the senators seemed short-sighted and parochial. They had not done their homework and they nit-picked instead of considering the big-picture benefits.
However, the witness testimony was powerful and so it hopefully helped sway the skeptics. America’s ATC needs a big upgrade to meet rising passenger demand. Airspace is getting crowded and our antiquated ATC is causing delays and wasting fuel. Other countries have improved performance by separating ATC from their governments. That is the reform that America needs.
The testimonies of former Democratic senator Byron Dorgan (here), Paul Rinaldi of the National Air Traffic Controllers Association (here), and Jeff Smisek of United Airlines (here) were impressive. Kudos to them all for embracing change.
Dorgan heads an ATC reform group, and he clearly had done his homework. If he were still a sitting senator, he might be skeptical of ATC changes, but he now favors restructuring. He argued that separating ATC finances from the federal budget is a crucial step to take. His testimony illustrates that when politicians take the time to learn about policy issues in detail, they are more likely to embrace reform.
Read more at http://www.cato.org/blog/air-traffic-control-modernization
At this point, industry experts are ahead of Congress in thinking about ATC reform. At the hearing, some of the senators seemed short-sighted and parochial. They had not done their homework and they nit-picked instead of considering the big-picture benefits.
However, the witness testimony was powerful and so it hopefully helped sway the skeptics. America’s ATC needs a big upgrade to meet rising passenger demand. Airspace is getting crowded and our antiquated ATC is causing delays and wasting fuel. Other countries have improved performance by separating ATC from their governments. That is the reform that America needs.
The testimonies of former Democratic senator Byron Dorgan (here), Paul Rinaldi of the National Air Traffic Controllers Association (here), and Jeff Smisek of United Airlines (here) were impressive. Kudos to them all for embracing change.
Dorgan heads an ATC reform group, and he clearly had done his homework. If he were still a sitting senator, he might be skeptical of ATC changes, but he now favors restructuring. He argued that separating ATC finances from the federal budget is a crucial step to take. His testimony illustrates that when politicians take the time to learn about policy issues in detail, they are more likely to embrace reform.
Read more at http://www.cato.org/blog/air-traffic-control-modernization
2015-10-03
Cato: Put Harriet Tubman on the $20 Bill
Washington’s latest symbolic battle is looming. America’s money celebrates its early political leaders, all white males. There’s now a campaign to add a woman. A recent poll named antislavery activist Harriet Tubman the favorite, ahead of First Lady Eleanor Roosevelt.
Of course, it wouldn’t be the first time that a woman appeared on America’s money. Suffragette Susan B. Anthony and Native American Sacagawea graced ill-fated dollar coins which were little used and quickly forgotten.
President Barack Obama indicated his interest in showcasing more women. Republican legislators should take up the challenge and introduce a resolution urging the Treasury to add Tubman. There’s nothing sacred about the present currency line-up. After all, America was created by many more people than presidents and other politicians. Indeed, replacing Andrew Jackson makes a certain sense since he resolutely opposed a federal central bank.
Moreover, Tubman would be a great choice to replace him. She was born between 1820 and 1822 in Maryland to slave parents. Tubman was hired out and often beaten. After her owner’s death in 1849, which led his widow to begin selling their slaves, she escaped through the Underground Railroad to Philadelphia.
However, a year later she returned to Maryland to rescue her niece and the latter’s two children, beginning a career of leading slaves to freedom. She was daring and creative; her plans were sophisticated. Although she trusted God she also saw value in arming herself. She directed her last rescue in December 1860.
Read more at http://www.cato.org/blog/put-harriet-tubman-20-bill
Of course, it wouldn’t be the first time that a woman appeared on America’s money. Suffragette Susan B. Anthony and Native American Sacagawea graced ill-fated dollar coins which were little used and quickly forgotten.
President Barack Obama indicated his interest in showcasing more women. Republican legislators should take up the challenge and introduce a resolution urging the Treasury to add Tubman. There’s nothing sacred about the present currency line-up. After all, America was created by many more people than presidents and other politicians. Indeed, replacing Andrew Jackson makes a certain sense since he resolutely opposed a federal central bank.
Moreover, Tubman would be a great choice to replace him. She was born between 1820 and 1822 in Maryland to slave parents. Tubman was hired out and often beaten. After her owner’s death in 1849, which led his widow to begin selling their slaves, she escaped through the Underground Railroad to Philadelphia.
However, a year later she returned to Maryland to rescue her niece and the latter’s two children, beginning a career of leading slaves to freedom. She was daring and creative; her plans were sophisticated. Although she trusted God she also saw value in arming herself. She directed her last rescue in December 1860.
Read more at http://www.cato.org/blog/put-harriet-tubman-20-bill
2015-10-02
Cato: Why Can’t We Have Great Trains? Because We Don’t Want Them
“Why can’t America have great trains?” asks East Coast writer Simon Van Zuylen-Wood in the National Journal. The simple answer is, “Because we don’t want them.” The slightly longer answer is, “because the fastest trains are slower than flying; the most frequent trains are less convenient than driving; and trains are almost always more expensive than either flying or driving.”
Van Zuylen-Wood’s article contains familiar pro-passenger-train hype: praise for European and Asian trains; selective statistics about Amtrak ridership; and a search for villains in the federal government who are trying to kill the trains. The other side of the story is quite different.
For example, he notes that Amtrak “ridership has increased by roughly 50 percent in the past 15 years.” But he fails to note that the biggest driver of Amtrak ridership is gasoline prices, which 15 years ago were at an all-time low (after adjusting for inflation). Now that prices are falling, so is Amtrak’s ridership.
He also ignores the fact that Amtrak’s ridership is minuscule compared with flying or driving. Whereas highways moved around 87 percent of passenger travel and airlines around 12 percent in 2012, Amtrak’s share was just 0.14 percent. While that is an increase from 0.11 percent in 1999, it is a decrease from 0.15 to 0.16 percent in most of the years from 1975 through 1993, when gas prices were high.
Trains are great for moving large volumes of goods from point A to point B. America’s freight railroads are the envy of the world, but they make most of their money moving coal from mine to power plant; grain from elevator to port; and containers from port to inland distribution center. The railroads conceded less-than-carload shipments, the freight equivalent of passengers, to trucks and air freight back in 1975 when the Railway Express Agency went out of business.
Read more at http://www.cato.org/blog/why-cant-we-have-great-trains-because-we-dont-want-them
Van Zuylen-Wood’s article contains familiar pro-passenger-train hype: praise for European and Asian trains; selective statistics about Amtrak ridership; and a search for villains in the federal government who are trying to kill the trains. The other side of the story is quite different.
For example, he notes that Amtrak “ridership has increased by roughly 50 percent in the past 15 years.” But he fails to note that the biggest driver of Amtrak ridership is gasoline prices, which 15 years ago were at an all-time low (after adjusting for inflation). Now that prices are falling, so is Amtrak’s ridership.
He also ignores the fact that Amtrak’s ridership is minuscule compared with flying or driving. Whereas highways moved around 87 percent of passenger travel and airlines around 12 percent in 2012, Amtrak’s share was just 0.14 percent. While that is an increase from 0.11 percent in 1999, it is a decrease from 0.15 to 0.16 percent in most of the years from 1975 through 1993, when gas prices were high.
Trains are great for moving large volumes of goods from point A to point B. America’s freight railroads are the envy of the world, but they make most of their money moving coal from mine to power plant; grain from elevator to port; and containers from port to inland distribution center. The railroads conceded less-than-carload shipments, the freight equivalent of passengers, to trucks and air freight back in 1975 when the Railway Express Agency went out of business.
Read more at http://www.cato.org/blog/why-cant-we-have-great-trains-because-we-dont-want-them
Cato: This Is Why Amtrak Should Get More of Your Money?
An Amtrak locomotive caught fire yesterday on its way from Chicago to Milwaukee. Fortunately, all 51 passengers were safely evacuated from the six-car train.
At about the time the locomotive was burning, a reporter was telling me that “everyone” in Washington was saying that the Philadelphia accident proves that Amtrak needs more money. No doubt the Wisconsin incident will add to those calls for more funding.
But go back and read the first paragraph: There were only 51 passengers on that train. All of them could have fit on one motorcoach, many of which have 52 or more seats. The Horizon coaches used on this train typically have 60 seats, which means the train was less than one-sixth full. According to Amtrak’s performance report for fiscal year 2014, the Chicago-Milwaukee Hiawatha trains filled an average of 36 percent of their seats in 2014, or about two-and-one-half buses worth.
Amtrak fares for its seven daily trains each way between Chicago and Milwaukee start at $24. According to Busbud, Greyhound and Megabus together offer 13 trips per day each way between Chicago and Milwaukee, and their fares are often as low as $7 and never higher than $10.
While intercity bus operators pay a discounted fuel tax, the buses otherwise operate without subsidy. Amtrak’s Hiawatha trains produced $16.8 million in ticket revenues in 2014 against $24.5 million in operating costs, for a net loss of $5.7 million (not counting amortized capital costs). The trains carried slightly less than 800,000 riders, for an average subsidy of slightly more than $7 per trip.
In other words, the subsidy alone would have been enough to give every single Hiawatha rider a free trip on Greyhound or Megabus (at the low cost of $7 per trip).
Read more at http://www.cato.org/blog/why-you-should-give-amtrak-more-money
At about the time the locomotive was burning, a reporter was telling me that “everyone” in Washington was saying that the Philadelphia accident proves that Amtrak needs more money. No doubt the Wisconsin incident will add to those calls for more funding.
But go back and read the first paragraph: There were only 51 passengers on that train. All of them could have fit on one motorcoach, many of which have 52 or more seats. The Horizon coaches used on this train typically have 60 seats, which means the train was less than one-sixth full. According to Amtrak’s performance report for fiscal year 2014, the Chicago-Milwaukee Hiawatha trains filled an average of 36 percent of their seats in 2014, or about two-and-one-half buses worth.
Amtrak fares for its seven daily trains each way between Chicago and Milwaukee start at $24. According to Busbud, Greyhound and Megabus together offer 13 trips per day each way between Chicago and Milwaukee, and their fares are often as low as $7 and never higher than $10.
While intercity bus operators pay a discounted fuel tax, the buses otherwise operate without subsidy. Amtrak’s Hiawatha trains produced $16.8 million in ticket revenues in 2014 against $24.5 million in operating costs, for a net loss of $5.7 million (not counting amortized capital costs). The trains carried slightly less than 800,000 riders, for an average subsidy of slightly more than $7 per trip.
In other words, the subsidy alone would have been enough to give every single Hiawatha rider a free trip on Greyhound or Megabus (at the low cost of $7 per trip).
Read more at http://www.cato.org/blog/why-you-should-give-amtrak-more-money
Cato: The School Choice Myth That Just Won’t Die
The myth that there’s no evidence that school choice works has more lives than Dracula. Worse, it’s often repeated by people who should know better, like the education wonks at Third Way or the ranking Democrat on the U.S. Senate education committee. In a particularly egregious recent example, a professor of educational leadership and the dean of the University of Wisconsin-Madison School of Education wrote an op-ed repeating the “no evidence” canard, among others:
"The committee also expands the statewide voucher program. There is no evidence privatization [sic] results in better outcomes for kids. The result will be to pay the tuition for students who currently attend private school and who will continue to attend private school—their tuition will become the taxpayers’ bill rather than a private one. Additionally, the funds for the expansion would siphon an estimated $48 million away from public schools, decreasing the amount of money available for each and every school district in the state."
It is astounding that a professor and a dean at a school of education in Wisconsin would be unfamiliar with the research on the Milwaukee voucher program, never mind the numerous gold standard studies on school choice programs elsewhere.
Read more at http://www.cato.org/blog/school-choice-myth-just-wont-die
"The committee also expands the statewide voucher program. There is no evidence privatization [sic] results in better outcomes for kids. The result will be to pay the tuition for students who currently attend private school and who will continue to attend private school—their tuition will become the taxpayers’ bill rather than a private one. Additionally, the funds for the expansion would siphon an estimated $48 million away from public schools, decreasing the amount of money available for each and every school district in the state."
It is astounding that a professor and a dean at a school of education in Wisconsin would be unfamiliar with the research on the Milwaukee voucher program, never mind the numerous gold standard studies on school choice programs elsewhere.
Read more at http://www.cato.org/blog/school-choice-myth-just-wont-die
2015-10-01
Cato: Mr. President, Don’t Scapegoat Private Schools
It is not often I get a chance to latch on to someone as high profile as the President of the United States saying that public schools “draw us together.” But in his appearance at Georgetown University a couple of days ago, President Obama blamed, among other things, people sending their children to private schools for breaking down social cohesion and reducing opportunities for other children.
First, let’s get our facts straight: Private schools are not the main way better-off people, or people with high social capital, isolate themselves from poor families. Only 9 percent of school children attend private schools, and as Matt Ladner points out in a great response to the President, that percentage has been dropping over the years. No, the main way the better-off congregate amongst themselves is buying houses in nice places, which translates into access to good school districts. Even the large majority of the mega-rich appear to send their children to public schools, but rather than paying school tuition, their tuition is the far-steeper, far more exclusive price of a house. And let’s not pretend – as the President hinted – that we’ve seen anything close to long-term decreased funding for public schools. Even with a slight dip during the Great Recession, inflation-adjusted, per-pupil spending in public schools has well more than doubled since 1970.
Read more at http://www.cato.org/blog/mr-president-dont-scapegoat-private-schools
First, let’s get our facts straight: Private schools are not the main way better-off people, or people with high social capital, isolate themselves from poor families. Only 9 percent of school children attend private schools, and as Matt Ladner points out in a great response to the President, that percentage has been dropping over the years. No, the main way the better-off congregate amongst themselves is buying houses in nice places, which translates into access to good school districts. Even the large majority of the mega-rich appear to send their children to public schools, but rather than paying school tuition, their tuition is the far-steeper, far more exclusive price of a house. And let’s not pretend – as the President hinted – that we’ve seen anything close to long-term decreased funding for public schools. Even with a slight dip during the Great Recession, inflation-adjusted, per-pupil spending in public schools has well more than doubled since 1970.
Read more at http://www.cato.org/blog/mr-president-dont-scapegoat-private-schools
Cato: Nevada Enacts First Nearly Universal Education Savings Account
On Tuesday, Nevada Gov. Brian Sandoval signed into law the nation’s fifth education savings account (ESA) program, and the first to offer ESAs to all students who previously attended a public school. Earlier this year, Sandoval signed the state’s first educational choice law, a very limited scholarship tax credit. Despite their limitations, both programs greatly expand educational freedom, and will serve as much-needed pressure-release valves for the state’s overcrowding challenge.
When Nevada parents remove their child from her assigned district school, the state takes 90 percent of the statewide average basic support per pupil (about $5,100) and instead deposits it into a private, restricted-use bank account. The family can then use those funds to purchase a wide variety of educational products and services, such as textbooks, tutoring, educational therapy, online courses, and homeschool curricula, as well as private school tuition. Low-income students and students with special needs receive 100 percent of the statewide average basic support per pupil (about $5,700). Unspent funds roll over from year to year.
Read more at http://www.cato.org/blog/nevada-enacts-first-nearly-universal-education-savings-account
When Nevada parents remove their child from her assigned district school, the state takes 90 percent of the statewide average basic support per pupil (about $5,100) and instead deposits it into a private, restricted-use bank account. The family can then use those funds to purchase a wide variety of educational products and services, such as textbooks, tutoring, educational therapy, online courses, and homeschool curricula, as well as private school tuition. Low-income students and students with special needs receive 100 percent of the statewide average basic support per pupil (about $5,700). Unspent funds roll over from year to year.
Read more at http://www.cato.org/blog/nevada-enacts-first-nearly-universal-education-savings-account
Cato: Yet More Empirical Evidence That Yes, Federal Student Aid Fuels College Price Inflation
For a few years, I have been posting an evolving list of empirical studies that have found that federal student aid programs help fuel rampant college price inflation. Why? Because I continually encounter people, often who work for or in higher education, who insist that there is no meaningful empirical evidence of big subsidies enabling big price increases, even if the possibility makes mammoth intuitive and theoretical sense.
A few days ago a new entry arrived for the list, a paper from the Federal Reserve Bank of New York. It finds that student loans have big inflationary effects, especially at four-year private schools not focused on top academic performers, and that Pell Grants have smaller direct effects, but also likely lead to reductions in aid funded by institutions. It is yet one more study that shows that, contrary to the hopes of the American Council on Education–the premiere higher ed advocacy group–the inflationary effect of student aid is absolutely a subject that should “play a major role” in discussions about college affordability.
Read more at http://www.cato.org/blog/yet-more-empirical-evidence-yes-federal-student-aid-fuels-college-price-inflation
A few days ago a new entry arrived for the list, a paper from the Federal Reserve Bank of New York. It finds that student loans have big inflationary effects, especially at four-year private schools not focused on top academic performers, and that Pell Grants have smaller direct effects, but also likely lead to reductions in aid funded by institutions. It is yet one more study that shows that, contrary to the hopes of the American Council on Education–the premiere higher ed advocacy group–the inflationary effect of student aid is absolutely a subject that should “play a major role” in discussions about college affordability.
Read more at http://www.cato.org/blog/yet-more-empirical-evidence-yes-federal-student-aid-fuels-college-price-inflation
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