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InsiderOnline Blog: October 2008

Coming Up – Week of November 3, 2008

Some events that caught our eye:

TAKE IN a Harvey Mansfield lecture on Tocqueville’s answer to the mild despotism of rational control. Host: American Enterprise Institute.

HEAR the remarkable story of Sichan Siv, who as a young man fled the killing fields of Cambodia, moved to the United States, and eventually became a U.S. Ambassador to the United Nations. Host: The Heritage Foundation.
FIND OUT what the election results mean. The American Enterprise Institute offers its concluding Election Watch panel.
FIGURE OUT how to adapt to the future. Cato hosts David Friedman, author of Future Imperfect: Technology and Freedom in an Uncertain World.

EXAMINE globalization in light of Catholic Social Teaching. The Acton Institute host an all-day forum in Budapest.

• EXPLORE ideas for better commercializing Africa’s resources for the benefit of Africans. The Inter Region Economic Network hosts the 6th Africa Resource Bank.

For more events, see InsiderOnline’s Conservative Calendar.

Posted on 10/31/08 12:26 PM by Alex Adrianson

How Dare They Use Information from the Government to Explain What the Government Is Doing!

Apparently, the Left doesn’t even need a Fairness Doctrine to be able to silence commentary it doesn’t like. There are already laws on the books that allow it to do that—like Section 507 of the Communications Act of 1934. Of course! Rowan Scarborough has the report at Human Events:  

The FCC has sent letters to some of the nation’s most prominent military analysts – some of them pro-President Bush and pro-war – suggesting they may have broken the law when they appeared on television stations to comment on and explain the war on terrorism. …

In the analysts case, the FCC is looking at the practice of the Pentagon providing exclusive briefings on the wars in Iraq and Afghanistan to retired military officers, who would then use the information on the air.

In the Oct. 2 letters to 19 analysts and various TV networks, the FCC cited a New York Times article which accused the analysts of receiving the Pentagon information in exchange for positive commentary on the air. The letters, signed by Hillary S. DeNigro, chief of the agency’s investigations and hearings division, said such an arrangement might violate the Communications Act of 1934.

The FCC sent the letters after receiving a complaint from Rep. Rosa L. DeLauro, (D-Conn.) and Rep. John Dingell, (D-Mich.). …

“In their complaint, Representatives DeLauro and Dingell express concern that the analysts and [TV stations] may have failed to disclose this exchange of consideration to the stations, as required by section 507 of the Communications Act of 1934,” said the FCC letter. “They also suggest that the stations may have aired your commentary without making appropriate sponsorship identification announcements at the time such material was aired, as required” by the act.

Posted on 10/31/08 10:45 AM by Alex Adrianson

Who Could Be Against Fairness?

A return of the Fairness Doctrine would be a grave threat to free speech in this country, but some people don’t even know what the Fairness Doctrine is. Witness this clip of Kay Barnes (D) candidate for the U.S. House from Missouri:

Clearly, those of us who care about free speech in this country have some educating to do, starting with the politicians.

Those who don’t know what the Fairness Doctrine is should read Brian Anderson and Adam Thierer’s recent overview of the issue: “Killing Talk Radio,” in the September issue of New Criterion.

Posted on 10/30/08 06:50 PM by Alex Adrianson

Global Warming: No Kumbaya, Yet

Global warming was supposed to be such a dire problem that we would all be able to set aside our differences and figure out a solution. It’s not working out that way. Governments are still behaving like governments.

According to the Financial Times, China has now set a price for its participation in talks on global warming. China wants the developed countries to spend 1 percent of their GDPs helping poorer nations reduce greenhouse gas emissions. “The funding – amounting to more than $300bn (£190bn, €240bn) based on Group of Seven countries – would be spent largely on the transfer of ‘green’ technologies, such as renewable energy, to poorer countries.”

Recently, the Prime Minister of India made a similar plea for assistance for poorer countries, while noting, according to the Times of India, “that the principle of convergence of per-capita emissions of developing countries with advanced developed countries is gaining wider acceptance.” “We should recognize,” said Manmohan Singh “that each citizen of the world has equal entitlement to the global atmospheric space.”

Meanwhile, developed countries are doing some jockeying, too. Reuters reports that Italy announced this week it remains opposed to an EU climate plan to cut carbon dioxide emissions by a fifth by 2020. According to the Italian government, the plan would cost Italian companies 40 percent more than those of other EU countries. And in Australia, notes the New Zealand Herald, support for Prime Minister Kevin Rudd’s plans to control greenhouse gas emissions has faded because of concerns about the economic impact.

Any efforts to control greenhouse gas emissions that do not include China will be pointless. According to calculations by University of California researchers, the growth in China’s greenhouse gas emissions by 2010 will be at least five times greater than any reductions achieved by signatories to the Kyoto Protocol. But even if all the developed countries had signed and complied with Kyoto, it would have produced only a 0.15 C decrease in temperature by the end of the century. So maybe China is the country that is behaving sensibly by choosing not to cripple its economy for the sake of unnoticeable decreases in temperatures.

Posted on 10/30/08 06:14 PM by Alex Adrianson

Are Targeted Tax Breaks Like Pork? Part II

Earlier this week, the weekly conservative bloggers briefing hosted by The Heritage Foundation featured a number of speakers on the topic of taxes. During the discussion, an interesting debate broke out between our friends at Americans for Tax Reform and our friends at the Tax Foundation. The question debated was how conservatives should view tax breaks that are targeted to benefit specific interests: Are they like pork—just a spending program administered through the tax code? Or are such tax cuts an incrementally positive—though perhaps not ideal—step toward reducing an already too high tax burden?

The discussion considered a hypothetical tax credit written to benefit just one person. From the perspective of that one beneficiary, a $1,000 reduction in tax liability provides more or less the same benefit as a $1,000 check from the Treasury. So why should one form of the benefit be esteemed as a move in the right direction while the other is regarded as a part of Congress’s culture of corruption? This is the view of the Tax Foundation. The counter argument, put forth by Americans for Tax Reform, is that cutting taxes is not a zero-sum game; but in order to spend money, government must first take that money away from someone else; thus, spending and tax cuts should never be equated. 

This debate is not a new one, as we noted in an earlier post (which provides a fuller description of the two positions). Without taking a position ourselves, we pose the following questions:

1. For conservatives trying to puzzle out this issue, is it at all relevant that tax cuts by themselves do not reduce the size of government? If the burden of government is what it spends, not what it taxes, then can we necessarily say that any tax cut must always yield some net decrease in the size of government? Government might respond to reduced tax revenue by decreasing spending, but it might also decide that the spending it wants to do is worth borrowing more money. And doesn’t more borrowing just mean tax increases in the future?

2. Is it at all relevant for conservatives that uniformity of taxes is a value embedded in the Constitution? The pertinent language from Article I, Section 8 is “all Duties, Imposts and Excises shall be uniform throughout the United States.” This clause is taken to mean that Congress cannot engage in explicit geographic discrimination when it comes to taxes. Interesting hypotheticals ensue. A tax credit that benefits only one person who happens to live in California would be constitutional. But a law that gave all Californians and only Californians the same tax break might bring a constitutional challenge based on Article I, Section 8. According to the logic of the “tax cuts are not a zero-sum game” position, however, the all-California tax break should be about 37 million times better than the one-person tax break.

3. Is it at all relevant that the recipients of targeted tax breaks aren’t just taxpayers, but are also tax consumers? For instance, earlier this week it was reported that the group ACORN has been skipping tax payments. ACORN affiliates owe $3 million in back taxes. Conservatives were widely outraged that a group whose entire agenda is to increase the size of government would be so hypocritical as to avoid paying its share of taxes. Another hypothetical: Now suppose that ACORN successfully lobbies Congress to receive a one-time tax credit in the amount of $3 million. By fiat, its tax liability has gone away. But has its hypocrisy disappeared, too? Would we conservatives give such an act of tax cutting our praise?

Again, not taking a position. Just asking some questions.

Posted on 10/30/08 12:24 PM by Alex Adrianson

How Not to Help the Poor

In a recently unearthed 2001 radio interview that has now been posted to YouTube, Barack Obama discusses the civil rights movement’s emphasis on achieving formal equality rather than community organizing for redistributive change. What that interview did not cover, however, was whether redistributionist policies really help the poor. Fortunately, the Acton Institute has a new video short examining the problems with moving money around as a social policy:

Posted on 10/29/08 04:32 PM by Alex Adrianson

Heritage Asks Obama Campaign to Pull Ad with Inaccurate Quote

The Heritage Foundation has sent a letter asking Barack Obama’s campaign to pull an ad that falsely describes Heritage analysis of Barack Obama’s tax plan. The ad claims Heritage analysis shows “the middle class would likely pay less under Mr. Obama’s plan.” In the letter, Heritage lawyer Alan P. Dye tells the Obama campaign that the source of the quote was not in fact any Heritage analysis, but rather a New York Sun article that erroneously summarized the views of Heritage analyst Rea Hederman.  

That the reporter’s summary is erroneous is evident from the actual quotes from Mr. Hederman presented in the article, which make it quite clear that Mr. Hederman believes your tax plan would be bad not only for the country, but for the middle class.

For a full analysis of the candidates tax plans, see “The Obama and McCain Tax Plans: How Do They Compare?” written by the staff of Heritage’s Center for Data Analysis, including Rea Hederman. Here is the relevant analysis:

… many aspects of Senator Obama’s tax plan generate little economic activity and could actually reduce economic incentives. Senator Obama raises the marginal tax rate on many low- and mid­dle-income taxpayers. Senior citizens also bear a significantly higher tax burden when they declare more than $50,000 in annual income, so seniors are strongly encouraged to work less. Other tax credits, such as one for homeowners who do not itemize, only benefit existing homeowners and spark little additional economic activity.

Tax credits can boost short-term consumption and employment, but tax credits do not change basic incentives to work, save, or invest. Workers and investors are given no reason to work or invest more in response to the tax credits. Furthermore, tax cred­its complicate the tax code, making it less efficient.

Since over one-third of Senator Obama’s tax plan consists of demand-side stimulus through tax cred­its, economic growth is not as strong as it would be under a similar size tax cut that changed work or savings incentives.

Senator Obama’s plan increases economic growth compared to the baseline because his plan reduces the tax on capital below baseline forecasts and cuts the marginal tax rates for many workers. However, economic growth is also constrained by higher taxes for many individuals and small businesses. Tax credits do not produce the same economic growth as rate cuts or tax simplification.

Senator McCain’s plan is substantially better at spurring economic growth than Senator Obama’s. This is not surprising, since Senator McCain focuses on economic growth and job creation while Senator Obama focuses on the redistribution of income.

Posted on 10/28/08 05:58 PM by Alex Adrianson

What Would Perón Do?

Juan Perón would not have approved of Argentina President Cristina Kirchner’s proposal to nationalize private pension plans. Cato’s Ian Vasquez points to a 1973 speech in which

… Juan Perón emphatically condemns the nationalization of private pensions, calling it “theft” and referring to public pension systems as generally “inefficient” and “unsafe.” He describes a previous episode in Argentina when a government in need of money nationalized private pensions and depleted workers’ retirement funds, using them for other purposes. It was an “assault.”

For those who understand Spanish:

By the way, investors seem to agree that the idea is a bad one. Wall Street Journal reports:

The Argentine peso weakened to its lowest level in more than five years on Monday, slipping to 3.3 to the dollar from 3.28, despite central-bank intervention to support it. Traders estimate the central bank has spent roughly $500 million to $1 billion in interventions since Mrs. Kirchner announced the nationalization last Tuesday. The Buenos Aires stock market fell 5.7% on Monday, and bonds also fell.

Posted on 10/28/08 04:53 PM by Alex Adrianson

More Hypocrisy from ACORN

The Association of Community Organizations for Reform Now—aka ACORN—wants taxpayers to pay for affordable housing slush funds and other big government schemes, but it doesn’t pay its own taxes. Matthew Vadum reports:

… more than 200 federal, state, and local tax liens adding up to more than $3 million have been filed against the ACORN network since 1989. All of these liens, which are only issued by creditor tax agencies after a tax debt has become seriously delinquent, are associated with ACORN’s 1024 Elysian Fields Avenue address in New Orleans, Louisiana. That address is the official headquarters for nearly 300 ACORN-affiliated groups.

This is the same organization whose voter registration drives have led to criminal convictions for voter fraud in Colorado, Washington, Wisconsin, and Missouri.

Posted on 10/28/08 03:18 PM by Alex Adrianson

Who Pays Their Fair Share?

The U.S. tax system is still progressive, reports The American’s Duncan Currie:

According to the latest Internal Revenue Service (IRS) data, the top 1 percent of income earners paid nearly 40 percent of federal individual income taxes in 2006, compared to roughly 19 percent in 1980. Between 1980 and 2006, the share of federal income taxes paid by the top 5 percent jumped from under 37 percent to over 60 percent. During that same period, the share paid by the top 10 percent went from around 49 percent to almost 71 percent.

To be sure, the share of income earned by the top groups has also increased substantially. The IRS says that in 1980, the top 1 percent of income earners collected less than 8.5 percent of all adjusted gross income (AGI), compared to more than 22 percent in 2006. Between 1980 and 2006, the share of AGI earned by the top 5 percent grew from about 21 percent to nearly 37 percent. During that same period, the share earned by the top 10 percent swelled from roughly 32 percent to over 47 percent.

But when we compare the figures for 2006, it is clear that the percentage of federal income taxes paid by the top earners was considerably higher than the percentage of AGI they received. For the top 1 percent, the difference was almost 18 percentage points. For both the top 5 percent and the top 10 percent, the difference was nearly 23.5 percentage points. For each of these groups, the difference between percentage of federal income taxes paid and percentage of AGI earned grew significantly larger between 1980 and 2006.

Posted on 10/28/08 11:35 AM by Alex Adrianson

Fixing Entitlements by Reforming Health Care

In today’s Wall Street Journal, Robert Carroll of the Tax Foundation points out that John McCain’s health care reform plan does two things progressives would normally cheer.

First, it redistributes the tax benefits that current law provides for the purchase of health insurance in a progressive direction. Current law excludes employer-provided health insurance from taxable income. That exclusion is unlimited, which means the more your employer spends on your health care, the greater the tax benefit. By ending that exclusion and replacing it was a refundable tax credit, McCain’s plan would give everyone the same benefit.

Second, Carroll notes that according to Tax Foundation calculations, McCain’s plan increases the tax benefit for health care, from about $3.6 trillion over the next 10 years to roughly $5 trillion. According to the Lewin group, the plan is expected to increase the number of people with insurance by between 15 million and 21 million.

So, more subsidies distributed in a more progressive fashion—you probably wouldn’t learn that from listening only to Barack Obama’s criticisms of the plan. Of course, the most important thing the plan does is to reduce the incentive to purchase gold-plated plans that provide first-dollar coverage for routine expenses. More cost-conscious consumers, says Carroll, have the potential to transform health care broadly:   

There is an enormous unfunded liability associated with the major entitlement programs of Social Security, Medicare and Medicaid. If left unchecked, the growth in these programs will nearly double the size of the federal government by 2040, consuming roughly 40% of the nation’s output rather than the 20% today. While the growth in Social Security is largely the result of demographics, the growth in Medicare and Medicaid is also driven by the rapid growth in health-care spending. This is where a proposal like Sen. McCain’s can be so important.

The elimination of the income-tax exclusion should reduce private health-care spending; to the extent this reduces the cost of health care, it should also put downward pressure on the growth of Medicare and Medicaid costs. Thus, by removing the tax bias for more generous health coverage, the McCain health credit also has the potential to provide important dividends to the entitlement problem down the road.

Posted on 10/27/08 05:48 PM by Alex Adrianson

Felons Vote in Washington State

Chris Halsne, investigative reporter for KIRO-TV in Seattle, has uncovered a flaw in Washington State’s election system that may let thousands of convicted felons vote. According to Halsne’s investigation, there are 23,927 convicted felons in the state’s active voter database, in spite of the fact the Secretary of State had implemented a new computer system to weed illegal voters out of the system.

But the system was intentionally programmed to ignore a subset of felony conviction data. Felons can only vote if they had met all their court-ordered conditions, for instance paying restitution. They also have to have a judge sign an order restoring their voting rights. The Secretary of State says it is simply too difficult to track which felons have had their voting rights restored and which have not. Of the 23,927 felons in the database, Halsne writes, “6,812 of them are considered ‘very likely voters’ because they already cast a ballot in other elections this year.”

A long-term study by the Washington Department of Corrections shows that about 65 percent of felons fail to pay off all their restitution or finish their court ordered conditions.

Using admittedly simplistic math, if our data shows 6,812 felons voted in primary elections this year, that means 65 percent of them or about 4,400 will illegally cast ballots in November.

If all active voters who also appear to be convicted felons are counted, that’s more than 15,000 questionable votes.

The Evergreen Freedom Foundation has been following this story, too. Their latest Good Government podcast is up.

Posted on 10/24/08 05:40 PM by Alex Adrianson

Coming Up – Week of October 27, 2008

Some events that caught our eye:

LEARN why it would be a mistake to respond to the subprime crisis by creating new criminal laws and enforcement authorities. Host: The Heritage Foundation.
REVIEW AND PREVIEW the Supreme Court’s 2007 and 2008 terms. Host: American Enterprise Institute.
FIND OUT what are the top 10 myths about American health care. The Pacific Research Institute hosts a book party for author Sally Pipes.

GET an overview of the civil and criminal actions likely to be taken in the wake of the financial crisis. Host: Washington Legal Foundation.

LEARN the real lessons of the Enron episode and how those lessons are relevant to continuing debates over capitalism. The Mercatus Center hosts Robert L. Bradley Jr., former speechwriter for Ken Lay and author of the new book Capitalism at Work: Business, Government, and Energy.

HEAR Newt Gingrich lay out a program for reducing energy prices. Gingrich discusses his new book, Drill Here, Drill Now, Pay Less: A Handbook for Slashing Gas Prices and Solving Our Energy Crisis, at a forum hosted by the American Enterprise Institute.

For more events, visit InsiderOnline’s Conservative Calendar.

Posted on 10/24/08 11:38 AM by Alex Adrianson

A. Barton Hinkle Wins Bastiat Prize

On Wednesday, A. Barton Hinkle won the 2008 Bastiat Prize for Journalism, given every year by the International Policy Network to the journalist whose written work clearly and wittily promotes the institutions of the free society.

Hinkle is the deputy editorial page editor for the Richmond Times-Dispatch. Among the articles for which Hinkle won the award was a hilarious piece of satire in which he proposed to solve the country’s “food-care crisis” by “establishing tax incentives for employer-provided food coverage.” Under this plan, he said, American families would choose the groceries they want, their employer would cover the bill at the checkout line, and everyone would pay the same flat deductible or co-insurance payment no matter how many shopping carts they filled up.

But that’s just the preliminary step, says Hinkle. Here’s where we end up:

The final phase of my plan, called Total Choice, will require everyone to shop at a public grocery store. It will ration scarce groceries through long lines instead of high prices. No one will have to pay directly for any food they consume; they will simply present their food-rationing card at the checkout counter and take whatever is given to them. Farmers and grocers will get paid the same whether they produce groceries for their consumers or not.

The article, “Government Can Solve the Food Crisis, Too” was published by the Richmond Times-Dispatch on November 13, 2007. (Sorry, couldn’t find a link.)

A report on the event from IPN provides some additional food for thought:

Following the award, Barton gave an emotional speech in which he compared himself and the attendant audience – which included many of the leading lights of the US free market movement – to an idea proposed in an essay by Albert J. Nock, entitled “Isaiah’s Job”. He said that the assembled guests were the “Remnant” – those who continue to explain, defend and promote the institutions of the free society in an environment that is predominantly hostile to such views. As governments in the US and Europe take control of financial companies left, right and center, with narry a whimper from the public, the role of the Remnant has become more important than at any time in the past two decades.

Posted on 10/24/08 10:30 AM by Alex Adrianson

Gas Prices Fall: Why Isn’t Congress Demanding Answers for That?

Heritage’s Ben Lieberman asks a good question: “If large oil companies really were responsible for creating last summer’s high prices, why would they give them up so quickly?”

Posted on 10/23/08 05:06 PM by Alex Adrianson

Tax Havens: A Check on Persecution

Switzerland today is renowned for its strong financial privacy laws, which some people say merely allows wealthy people to avoid paying their fair share of taxes. In the video below, however, Dan Mitchell points out that those laws have their origin in reforms made during the 1930s aimed at helping German Jews avoid financial persecution at the hands of Adolf Hitler and the Nazis.

We shouldn’t forget, says Mitchell in his latest segment on tax havens, the importance of tax havens in helping to protect the assets of dissidents and minorities living under tyrannical governments. That moral case for tax havens, he says, is every bit as important as the economic case.

Posted on 10/23/08 04:53 PM by Alex Adrianson

Where Did $9 Billion in Bridge Repair Funds Go?

Following the collapse of the St. Anthony Falls Bridge in Minneapolis in 2007, which killed 13 people, members of Congress moved quickly to immunize themselves from charges that they had neglected bridge repair in the federal budget. Congress put $1 billion in additional funding for bridge repairs into the fiscal year 2008 budget. Some members now want further increases as well.  

It turns out, however, that the federal government had already made a significant amount of money available for bridge repair that the states did not spend on bridge repair. Using data from a recent report by the Congressional Research Service, Heritage’s Ron Utt calculates that between FY 2002 and FY 2007, the gap between what the federal government made available to the states for bridge repair and the amount of that money the states actually spent on bridge repair is $9.29 billion. That represents about a third of the total federal funding for bridge repair over that time period.  

What happened? Much of the gap, says Utt, remains a mystery, but at least $2.1 billion was diverted by the states to other transportation priorities, such as building new bridges and funding transit projects. Pennsylvania, notes Utt, was one of the leading states at diverting money from bridge repair to other purposes. Pennsylvania also leads the nation in percentage of bridges deemed structurally deficient: 25 percent. Nationally, only 12 percent of bridges are deemed structurally deficient.

The CRS data suggest that if there is a problem with bridge funding, it is not the level of federal funding. Indeed, notes Utt, even before the bridge collapse, Congress had already been increasing funding rapidly for bridge repair. Between 2002 and 2007, the federal government appropriated an average of $4.5 billion per year for bridge repair. The 2001 figure was only $1.9 billion. The government actually has some results to show for the additional outlays, too. According to Department of Transportation data, 18.7 percent of bridges were deemed structurally deficient in 1994. As noted, the figure for 2007 stood at 12 percent.  

Before rushing ahead with additional increases in federal funding for bridge repair, Congress should instruct the DOT inspector general to account for the $9.29 billion gap between what the states could have spent and what they actually did spend on bridge repair.

Posted on 10/23/08 02:28 PM by Alex Adrianson

Finance for 21st-Century Dummies

And now for something completely different: If the world of finance is Greek to you, but you feel like you need to keep up with news about the continuing crisis in financial markets, then you might want to read Jim Manzi’s “So Simple a Caveman Could Do It,” posted over at The American Scene. It turns out, everything you need to know about finance can be explained in terms of a hunter-gatherer economy. After you read it, you’ll wonder why man didn’t develop complex financial markets before inventing the wheel.

Posted on 10/23/08 09:53 AM by Alex Adrianson

Are Historians the Galileos of Today?

If you’re anything like us, you’re more than a little bit suspicious of the idea that crimes against humanity need an officially sanctioned version of history, enforced by government penalties against heterodox teachings. Since government is the usual suspect in crimes against humanity, do we really want government to be in charge of deciding what the truth is?

Timothy Garton Ash, writing recently in The Guardian, notes that today in Switzerland “you get prosecuted for saying that the terrible thing that happened to the Armenians in the last years of the Ottoman empire was not a genocide” but in Turkey “you get prosecuted for saying it was.” The French actually convicted historian Bernard Lewis for suggesting that the treatment of the Armenians might not technically fit the definition of genocide under international law. Now, the German minister of justice has proposed a “framework of decision” that “suggests that in all EU member states ‘publicly condoning, denying or grossly trivialising crimes of genocide, crimes against humanity and war crimes’ should be ‘punishable by criminal penalties of a maximum of at least between one and three years imprisonment.’”

Fortunately, reports Garton Ash, a group of historians have pushed back against this nonsense by issuing a statement called the “Appel de Blois.” Published in Le Monde, the “Appel de Blois” argues that in a free country “it is not the business of any political authority to define historical truth and to restrict the liberty of the historian by penal sanctions.”

Garton Ash points out what most lawmakers don’t seem to understand: History, like science, is a process of discovery, of finding and sifting evidence, and submitting arguments for public criticism and debate. You can’t find historical truth by shutting down debates about history.

To join Appel de Blois e-mail

Posted on 10/22/08 06:49 PM by Alex Adrianson

Department of Labor Clarifies Limits on Pension Fund Activism

Kudos to the Department of Labor for its continuing efforts to check the union-inspired hijacking of pension plans for political purposes. As the Employee Retirement Income Security Act of 1974 spelled out, pension plans are supposed to be managed so as to maximize plan assets. Yet, for the past couple of decades, unions have been engaged in a plot to redefine “fiduciary duty” so that union-influenced pension plans could play shareholder politics on labor and other issues.

That campaign suffered a setback earlier this month when Labor issued a new interpretive bulletin reaffirming its long-held position that under ERISA plan managers cannot use plan assets to push a social agenda at the expense of plan performance. This means, for instance, that fiduciaries may not sell a plan’s shares in a company merely because they think that company has too big of a carbon footprint.

The bulletin did clarify, however, that a plan may consider non-economic factors only in the rare circumstance that a plan is faced with the choice of two or more investment options of equal value based on economic considerations. But, said the bulletin, before considering objectives beyond maximizing plan value, “fiduciaries must have first concluded that the alternative options are truly equal, taking into account a quantitative and qualitative analysis of the economic impact on the plan.”

Since the early 1990s, unions have been trying to redefine fiduciary duty in order to allow them to use plan assets to pressure companies during labor negotiations. Lately, labor unions have also teamed up with environmental activists to participate in shareholder resolutions to force companies to adopt greener practices. For more on that, see “Union Pension Funds Go Green, but It’s Not the Color of Money,” by Ivan Osorio; and “Pensions in Peril: Are State Officials Risking Public Employee Retirement Benefits by Playing Global Warming Politics?” by Steven J. Milloy and Thomas Borelli.

RELATED POST: Department of Labor: Retirement Plan Managers Cannot Use Funds for Activism

Posted on 10/22/08 04:52 PM by Alex Adrianson

Liberty Is a Worldwide Movement

Every year, the John Templeton Foundation and the Atlas Economic Research Foundation team up to recognize the think tanks around the world that are doing great and innovative work to promote liberty and free markets. This year, 16 think tanks from nine different countries have won Templeton Freedom Awards. Below is a list of the winners.

Free Market Solutions to Poverty: Unirule Institute of Economics (China) and Fundación Ecuador Libre (Ecuador)

Social Entrepreneurship: Japanese for Tax Reform (Japan) and Deep Springs International (United States)

Ethics & Values: American Center for Civic Character (United States) and Polish-American Foundation for Economic Research and Education, PAFERE (Poland)

Student Outreach: Center for the Dissemination of Economic Knowledge (Venezuela) and Institut de Formation Politique (France)

Initiative in Public Relations: Goldwater Institute (United States) and Institución Futuro (Spain)

Innovative Media Award: Reason Foundation (United States) and Institute of Economic and Social Studies (Slovakia)

Award for Special Achievement by a University-Based Center: Mercatus Center at George Mason University (United States) and Political Theory Project at Brown University (United States)

Award for Special Achievement by a Young Institute: Prometheus Institute (United States) and Instituto Juan de Mariana (Spain)

For details on the selections, see the Templeton Freedom Awards Web page. The winners will be honored at an awards conference starting at 8 a.m. on November 13 at the Renaissance Mayflower Hotel in Washington, D.C.

Posted on 10/21/08 01:42 PM by Alex Adrianson

Going Green and Broke

A recent report by Amanda Berg of the National Center for Policy Analysis provides some details on how the EPA’s proposal to regulate greenhouse gases under the Clean Air Act would impact energy prices:

[T]he proposed EPA rule would cause a shift from coal — cur­rently used to generate half of the do­mestic electricity supply — to natural gas. Due to the limited domestic sup­ply of natural gas and the moratorium on production from reserves on the Outer Continental Shelf, more natural gas would be imported, reducing U.S. energy security. According to a study by Science Applications International Corporation, an increase in demand for natural gas would cause its price to skyrocket, raising electricity prices:

• Natural gas prices could increase by as much as 146 percent.
• Electricity prices could increase 129 percent.
• A two-thirds reduction in coal-fired electric power generation would lower gross domestic product (GDP) by $371 billion annually, say Pennsylvania State University researchers.

Posted on 10/20/08 05:27 PM by Alex Adrianson

Genocide: Funded by the Taxpayer!

When government-backed militias started committing genocide in the Darfur region of Sudan, many people urged the United States and other developed countries to “do something.” But many developed countries were already doing something: The members of the Organisation for Economic Cooperation and Development’s Development Assistance Committee were giving the Sudanese government of Omar al-Bashir a lot of money. A new paper on development aid for dictators from the Mercatus Center provides some details:

… total DAC official development assistance  to al-Bashir from the 1989–2006 period was nearly $7 billion in net disbursements. … approximately 40 percent ($2.7 billion) of that total development assistance has come from the U.S. Further, members of the DAC have made official development assistance commitments to Sudan for another $7 billion. In addition to official development assistance, the United States has also provided hundreds of millions of dollars in military aid to Sudan, despite the fact that al-Bashir has used the country’s military against certain segments of the Sudanese population.

The paper, by Christopher Coyne and Matt Ryan, totes up all the foreign aid that has been handed out by the Development Assistance Committee to the worst dictators in the world. The 23 dictators listed as the worst in the world in Parade magazine’s annual rankings in either 2006 or 2007 have received a total of $105 billion (in 2006 dollars) from the DAC. An additional $39 billion has been pledged to members of this club.

Posted on 10/20/08 05:10 PM by Alex Adrianson

“Necessary” Doesn’t Equal “Possible”

In recent testimony, Sterling Burnett identifies a major flaw in the case for regulating carbon dioxide emissions:

… one of the most common logical fallacies philosopher’s catch people violating is the principle that “ought implies can.” All too often citizens call on politicians to do the impossible, however, governments – and this should apply to regulatory agencies as well – surely only have a duty to do something, if it is possible that they can actually have an effect. Futile actions ought not be required by law. Since no actions contemplated by the EPA would, in fact, have any measurable impact on overall greenhouse gas concentrations and thus on either global temperature and or future sea levels, assuming for the sake of argument that the former are related to the latter, the EPA ought not to regulate CO2. The judicial system refers to this point as the issue of redressability. Any regulations proposed or implemented ought to be likely to redress, prevent, correct or reduce the harm from the action being regulated. This condition is not met and for this reason alone, the EPA ought not to regulate CO2 emissions.

Posted on 10/20/08 02:29 PM by Alex Adrianson

Do You Want an Economy Planned by the EPA?

Candidate Barack Obama’s energy advisor, Jason Grumet, told Bloomberg last week that under a President Obama, Congress would have to choose between passing its own bill to regulate greenhouse gasses or letting the Environmental Protection Agency use the Clean Air Act to do it instead. Remember, the Clean Air Act was never intended to be a tool for fighting global warming and using it that way would give unelected bureaucrats unprecedented power over the national economy. Eighteen months, said Grummet, would be Congress’s window of opportunity. To the Wall Street Journal, Grumet’s comments sounded like an ultimatum:

The strategy is most notable for what it says about the climate-change lobby and its new standard bearer. Supposedly global warming is the transcendent challenge of the age, but Mr. Obama evidently doesn’t believe he’ll be able to convince his own party to do something about it without a bureaucratic ultimatum. Mr. Grumet justified it this way: “The U.S. has to move quickly domestically . . . We cannot have a meaningful impact in the international discussion until we develop a meaningful domestic consensus.”

Normally a democracy reaches consensus through political debate and persuasion, but apparently for Mr. Obama that option is merely a nuisance. It’s another example of “change” you’ll be given no choice but to believe in.

The EPA, or course, already has a plan to regulate greenhouse gasses under the Clean Air Act. It was released earlier this year, but disavowed by the Administrator of the EPA, Stephen Johnson, as the “wrong tool for the job” of fighting global warming. The EPA’s plan would unleash regulations on virtually every sector of the economy. Even lawnmowers and large private homes could be regulated! Energy costs would rise dramatically.

If you are concerned about handing this kind of power to unelected bureaucrats, then make sure you send your views to the EPA, which is accepting public comment until November 28. Check out, which lets you write your comments and send them to the EPA at the click of a button.

Posted on 10/20/08 02:24 PM by Alex Adrianson

Coming Up – Week of October 20, 2008

Some events that caught our eye:

FIND OUT just how prone to error and vulnerable to fraud the U.S. election system is. The Heritage Foundation hosts John Fund, author of Stealing Elections.

ASSESS the state of freedom in Africa. The Cato Institute hosts Tony Leon, former leader of the opposition in the South African Parliament; and Andrew Mwenda, managing director of Uganda’s The Independent.
GAIN some perspective from past financial crises. Host: Mercatus Center.

EXAMINE policy options for dealing with Iran. The Heritage Foundation hosts a panel discussion featuring a keynote talk by former Ambassador to the United Nations John Bolton.

HEAR the No Left Turns bloggers expound on the major issues of the day. Host: Ashbrook Center.

LOOK INTO the idea of replacing the federal income tax with a progressive consumption tax. Host: American Enterprise Institute.
LEARN how radically the modern administrative state has departed from the design of the United States Constitution. The Heritage Foundation hosts Gary Lawson of Boston University.

For more conservative events, visit InsiderOnline’s Conservative Calendar.

Posted on 10/17/08 01:43 PM by Alex Adrianson

First Major Privatization of a U.S. Airport

USA Today reports:

The Chicago City Council has approved a historic deal to sell a long-term lease of Midway Airport for $2.5 billion.

The winning bidder, Midway Investment and Development, will operate the airport and control its revenue for the next 99 years, making Midway the first major U.S. airport to be privatized.

City officials hope to complete the deal by the end of the year. But it still needs approval from the Federal Aviation Administration and the Transportation Security Administration, a process that will take at least two months.

“For the airlines, the lease will mean lower and more predictable airport rates and charges, which will improve their financial situation,” said Mayor Richard Daley in a statement, adding that passengers will see improvements in amenities and services.

Hat tip: Georgia Public Policy Foundation’s Friday Facts.

Posted on 10/17/08 01:40 PM by Alex Adrianson

McCain’s Health Care Plan Puts Individuals in Charge

Heritage’s Robert Moffit and Nina Owcharenko have a new paper examining Sen. John McCain’s proposals for reforming health care, and in that paper they explain why McCain’s proposed $5,000 tax credit for individuals to buy health insurance is the right reform for fixing a deeply flawed health care system. The proposal, which replaces the current unlimited exclusion for employer-provided insurance with an individual credit that is available to all, would end the bias in the tax code toward employer-provided insurance. Ending that bias, say Moffit and Owcharenko, would have a number of important benefits, including:

1. Creating greater equity in the tax code. Because the current exclusion is unlimited, the tax benefit increases as the health plan becomes more expensive. That tends to benefit higher-income workers more than lower-income workers. It also encourages firms to choose more expensive plans that suit the needs of their senior employees over the preferences of their lower-income workers who might not be able to afford the gold-plated plan.

2. Encouraging the search for value in health care. As noted, the unlimited exclusion for employer-provided insurance encourages firms to purchase more expensive health care plans than individual would otherwise choose to purchase on their own without the tax preferment. Replacing the unlimited exclusion with a limited tax credit, reduces this distortionary impact.

3. Ending “job lock.” When health care is tied to the job, workers can face a difficult transition when they want to change jobs. They may not be able to replace their old coverage so easily, or their new plan may not allow them to continue seeing their preferred physician. With an individual tax credit, however, workers can choose the coverage that is suitable for them and retain that coverage whereever they work.

Moffit and Owcharenko also note:

Some critics claim that this transition from a tax exclusion to a tax credit—financing the credit by making health benefits taxable compensation like wages—would amount to a tax increase. … This is incorrect. In fact, the proposed taxation of health benefits is simply a mechanism for transitioning from one tax break (the exclusion) to another (the credit). Under almost any scenario, the credit is a far more equitable and transparent tax policy.

Tax experts, regardless of philosophical persua­sion, point out that the vast majority of Americans would be net winners with such a transition. Econ­omist Len Burman, a tax policy specialist at the Urban Institute and Brookings Institution’s Tax Pol­icy Center, estimates that “[f]amilies at all income levels would pay lower taxes, at least on average.… On average, is about a $1,200 tax cut in 2009.” … 

A recent analysis by Republican congressional staff looked at the impact of transitioning from the exclusion to a credit on middle-class families. Assuming that the average annual value of employer-based family group coverage is roughly $12,000 and that those benefits were subject to income tax liability, a middle-class family in the 25 percent tax bracket would have a tax liability of $3,000 on those benefits. However, that family would be automatically eligible for a $5,000 health care tax credit, thus securing a $2,000 tax savings. A family in the 28 percent tax bracket would have a tax liability on the same health benefits package of $3,360, but the $5,000 credit would yield a tax sav­ings of $1,640.

Posted on 10/17/08 01:29 PM by Alex Adrianson

Obama Would Put Bureaucrats in Charge of Health Care

Heritage’s Robert Moffit and Nina Owcharenko have a new paper examining Sen. Barrack Obama’s health care proposals. The paper covers a lot of ground, but the key takeaway point is that while Obama’s proposals ostensibly preserve a mixed public-private system, they would actually create powerful incentives for people to drop private coverage in favor of government-provided health insurance. Here’s a précis of the analysis:

Obama would create a nationwide health insurance exchange to provide health insurance for individuals who do not get health insurance through their employer. Private plans would compete in this exchange, but they would have to provide a standard benefit package defined by the government. The government, meanwhile, would offer its own competing plan. In other words, the government would be both referee and player in this system. Additionally, the government plan would offer subsidized coverage to low-income workers. It’s not hard to see how these advantages would make the government plan dominant in the health insurance exchange.

Obama would also mandate that employers (except small businesses) provide health insurance for their employees or pay a tax that would be used to fund the national plan. This mandate is not a tax on employers; it is a tax on labor. Employees pay the cost of either the health insurance or the tax in the form of lower wages. Lower-income employees may well conclude that they could get a better deal by having their employer drop their coverage and pay the tax and pay higher wages, while they seek similar coverage from the national health insurance exchange. Far from preserving the employment-based system, as Obama claims he wants to do, his proposals would weaken that system.

A few other problems:

1. Obama proposes subsidies for small businesses to provide coverage, but insurance tied to employment is an inappropriate model for workers in small firms, because they change jobs much more frequently. The coverage should follow the employee, not the job.

2. Obama proposes that the government pick up the tab for employers whose costs of providing coverage exceed a specified threshold per employee. This rebate rewards plans that spend more and undermines efforts to design benefit packages that provide value by controlling costs.

3. Obama proposes expansions of Medicaid and the State Children’s Health Insurance Program, even though such programs provide inferior care and would only add to the building entitlement crisis.

In sum, Obama’s proposals would put more health care choices in the hands of government bureaucrats and make the system less responsive to consumer demand.

Posted on 10/16/08 05:21 PM by Alex Adrianson

What the Candidates’ Tax Plans Do

The Heritage Foundation has two new papers assessing the presidential candidates’ tax plans. Here is the conclusion of a report from the Center for Data Analysis:    

Senator McCain’s plan is substantially better at spurring economic growth than Senator Obama’s. This is not surprising, since Senator McCain focuses on economic growth and job creation while Senator Obama focuses on the redistribution of income. As Tax Policy Center Director Len Burman states, “the major themes of the two plans are, in the case of Senator McCain’s plan, that the major emphasis is on economic efficiency—cuts marginal tax rates, improves economic incentives…. In the case of Obama’s plan, the goal is primarily to improve pro­gressivity…to lower tax burdens on low-income people and raise them on higher-income people.” … Each presidential candidate achieves his stated goal, with Senator McCain generating the most new jobs, growth, and additional income for individuals. Sen­ator Obama’s plan drives up the tax rate for individ­uals with annual incomes above $250,000 and redistributes money to workers with lower incomes.

And here is J. D. Foster’s similar take on the plans:

Through the lens of sound tax policy, both McCain’s and Obama’s tax plans would leave the tax code more complicated than it is today. Even so, McCain’s plan has important advantages through its focus on keeping tax rates low—and lowering them further in some instances—while improving incentives for investment and correcting an extremely harmful tax distortion at the heart of much of the trouble in America’s health care financing system.

In contrast, the Obama plan raises income tax rates, raises payroll taxes on a delayed basis, and actively increases the use of the tax system to redistribute income to those who pay little or no income tax. Each of these aspects move the tax code in a decidedly inappropriate direction.

On balance, the McCain plan would be decidedly better for economic growth, largely because it would lower tax rates while the Obama plan would raise tax rates. Under the McCain tax plan, the economy would be expected to be about $320 billion greater, and average household income about $2,600 higher than would be the case under the Obama tax plan.

Below are some graphs detailing the plans’ impacts on key measures of the economy. Note that the improvement shown by both plans is relative to a baseline that assumes none of the Bush tax cuts are extended.  

Posted on 10/16/08 12:17 PM by Alex Adrianson

The NCLB “Balloon Payment”

No Child Left Behind seems to have created a wonderland of statistical legerdemain—kind of like Soviet central planning. Remember when Secretary of Education Margaret Spellings told us that the law was working to improve the majority of schools?

The New York Times reports that the number of schools falling short of their targets under the program is increasing. Three in ten failed to make adequate yearly progress last year; this year the figure is four in ten. The reason for the rise turns out to be quite simple: Under the program, the states were allowed to chart their own paths to the goal of raising every student to proficiency, with proficiency defined by tests that each state writes for its own students.

Approximately half the states decided to set lower targets for progress in the early years and increase the rate of improvement in later years. Those higher targets are now kicking in. The Times reports:

Here in California, which in 2002 had only 13.6 percent of students proficient in reading, officials promised to raise that percentage on average by 2.2 points annually from 2002 to 2007, but starting this year greatly accelerate the progress, raising the percentage of proficient students by 11 points per year through 2014.

Now that the time has come for that accelerated improvement, California schools are not keeping up. This year, about half the state’s 9,800 schools fell short.

“We’re hitting a balloon payment scenario, to use a housing analogy, where the expectations set forth in the federal law are far higher than recent performance levels,” said Richard Cardullo, a professor at the University of California, Riverside, who led an analysis of the performance of state elementary schools.

His study, published Sept. 26 in the journal Science, found that the proportion of students scoring at or above proficiency increased, on average, less than four percentage points annually from 2003 to 2007, far short of the 11 percentage points of annual growth required starting this year.

Posted on 10/16/08 10:42 AM by Alex Adrianson

Health Care Workers Don’t Like Waiting Lists Either

The Telegraph reports that one of Britain’s health care trusts has spent £12,116 over the past year for its staff to see private physiotherapists.

British citizens of course, can get the same service free of charge from their country’s taxpayer-funded National Health Service—if they’re willing to endure the wait. If not, they can pay for their own private physiotherapist.

A spokesman for the West Suffolk Hospital in Bury St. Edmunds told the Telegraph that the program makes sense because it gets their workers back to work sooner without having to leapfrog other patients on the waiting lists.

Well, that must make taxpayers feel totally reassured that the NHS has no intention whatsoever of giving its employees special treatment.

Posted on 10/15/08 05:09 PM by Alex Adrianson

The Next Crisis on the Horizon: Summer Blackouts?

Without immediate and significant new investments in both power plants and power lines, major electricity blackouts and brownouts could occur as early as next summer, particularly in the Western states, predicts the NextGen Energy Council*. The problem, according to the group’s recent report, is that supply is not keeping up with demand:

U.S. baseload generation capacity reserve margins have declined precipitously to 17 percent in 2007, from 30-40 percent in the early 1990s. A 12-15 percent capacity reserve margin is the minimum required to ensure reliability and stability of the nation’s electricity system.

According to the Council, maintaining a reliable supply of electricity will require a minimum of $300 billion of new investments in generation and transmission between now and 2016. Why aren’t these investments being made? The Council says the industry is discouraged by the uncertainty created by state and federal efforts to pass new regulations on greenhouse gas emissions as well as by the certainty of lawsuits from environmental groups seeking to block virtually all access to new coal-generated electricity.

* The Council describes itself as a collaborative of Western and Great Plains governors, state and federal legislators, state and federal agency officials, business leaders, conservation groups and others committed to accelerating the development of next-generation advanced coal technologies, fossil-renewable hybrid systems and strategies for increasing the economic utilization of carbon dioxide.

Hat tip: William Yeatman at

Posted on 10/15/08 04:01 PM by Alex Adrianson

How Will the Economy Impact Fundraising?

If you’re wondering how turmoil in financial markets will impact fundraising, then you might want to check out this month’s Development Exchange. The event, sponsored by the Koch Foundation, normally features a talk on the ins and outs of fundraising. This month, however, Koch is bringing in Steve Moore to talk about economic issues and their relevance to fundraising. Moore, a member of the Wall Street Journal’s editorial board, has a timely new book out, too, The End of Prosperity, coauthored with Arthur Laffer.

According to Kevin Gentry, there are still a few spots open for the lunch at noon tomorrow. RSVP to Kevin at The event takes place at the Koch Industries Washington, D.C. downtown office, 655 15th Street, NW, suite 445. Those who can’t make it in person can call in to listen: (866) 430-2984, with participant code 68530112.  The international dial-in is (706) 634-9785.

Posted on 10/15/08 11:58 AM by Alex Adrianson

Florida Cracks Down on Informed Voting

The whole idea of campaign finance laws is suspect as an infringement on constitutionally protected activity: engaging in speech about political issues. Florida, however, deserves special recognition for new laws in force this year. Writing in the Orlando Sentinel today, Kristina Rassmussen of the National Taxpayers Union reports that in order to communicate about ballot measures, nonprofits must now turn over to the state details about their donors. Consequently, says Rassmussen, the National Taxpayers Union has decided to exclude information about Florida ballot measures from its nationwide taxpayers’ ballot guide.

As the nation’s largest and oldest taxpayer group, we have more than 362,000 members nationwide. More than 24,000 are in Florida. If it took just three minutes to look up each NTU supporter and record his or her name, address, occupation, contribution amount and date on an official form, I would spend 754 days nonstop – more than two years – to fill out all the required paperwork.

Other problems pop up. We must disclose a person’s occupation if his or her donation is more than $100, yet we do not request occupation information from our donors.

Furthermore, there’s no minimum threshold for reporting. As our mail-room staff will tell you, they regularly receive donations of a few dollars – even coins – from people who can’t afford much but still want to help the taxpayer cause.

We also received 1,165 anonymous contributions in 2006. How do we fill out a form for them?

The burden of compliance isn’t the only problem. Rassmussen says NTU thinks its donors deserve privacy, too.

Note that NTU’s publication doesn’t attempt to tell voters how to vote. It merely provides information about how taxpayers would be affected by each measure. Presumably a newspaper reporting exactly the same information would not be subject to these rules. If that’s true, then perhaps the Orlando Sentinel could do Floridians a public service by taking the information NTU has already prepared but not yet published and penning their own article about Florida’s ballot measures.

NTU, with the assistance of the Institute for Justice, has filed a lawsuit in federal court arguing that Florida’s law is an unconstitutional abridgement of its First Amendment rights.

Posted on 10/14/08 06:02 PM by Alex Adrianson

Coming Up – Week of October 13, 2008

Some events that caught our eye:

• SEE the unveiling of the first Encylopedia of Libertarianism at the Cato Institute. 

• ASSESS the past half century of judicial intervention in education. Host: American Enterprise Institute.
• HEAR Judge Robert Bork’s thoughts on the role of the judiciary at The Heritage Foundation’s inaugural Joseph Story Distinguished Lecture.
• EXPLORE the mind of jihad with author Laurent Murawiec. Host: Hudson Institute.

• EXAMINE how the question of citizenship is tied up with some of the most salient political debates going on in both Europe and the United States. The American Enterprise Institute and the Council on Public Policy host a two-day forum.
• LEARN about the new nuclear renaissance that’s coming. Host: The Heritage Foundation.
• FIND OUT what to make of today’s pop culture: wasteland or wonderland? Host: America’s Future Foundation.

LEARN what made Frederick Douglass so certain that one day slavery would end. Host: The Ashbrook Center.

For more events, visit InsiderOnline’s Conservative Calendar.

Posted on 10/10/08 01:10 PM by Alex Adrianson

The Opposite of Transparency

Did you know?

In California, government owns the laws and forces people to pay for a copy. Therefore, the more legislation and regulations the state creates, the more revenue it generates.

Sacramento collects nearly $1 million a year from these transactions, but how can anyone claim to own the law? Legislators and regulators assert the same copyright protections on their work as artists, musicians, and performers. Unlike creative endeavors, laws are rarely original, unique, or culturally valuable. As long as they are copyrighted, however, it is illegal to make or distribute copies without permission. Therefore, transferring California’s “latex foam rubber and filling regulations” to an iPod would trigger the same penalties as pirating a hit single or blockbuster movie.

Daniel Ballon of the Pacific Research Institute reports that a Web site called Public is challenging the state’s monopoly. The site has made 33,000 pages of the California code available to the public for free. Good for them.

Posted on 10/10/08 11:59 AM by Alex Adrianson

Risks in Perspective

The Dow stood at 8,607 in January 2003, which, as Radley Balko points out is the earliest point at which President Bush’s proposal for private Social Security accounts could have been passed. At close today, it stands at 8,579.

So that doesn’t look so good for private accounts. Balko points out, however:

No one gets his first paycheck five or six years before retirement. And all of the plans for full or partial Social Security privatization called for bringing in private accounts in phases. People already near retirement would have received the same benefits they were anticipating. But younger people would have had 20 or 30 or 40 years to invest, using the power of compound interest to yield returns exponentially higher than the maximum 1.5-2.5 percent you can expect from the government. Even if the Dow drops below what it was in 2003, anyone would have had Social Security funds invested in it wouldn’t be retiring for decades.

There’s no period in the history of the stock market—including the crash of 1929, the stagflation of the 1970s, the crash of 1989, and the tech bubble burst of the early 2000s—in which a worker who’d been investing for 30 years or more wouldn’t have still received a far better return than what he got from Social Security, even if he retired the day after a historic Wall Street dive.


Critics now trying to use the financial crisis on Wall Street to make political hay of the push for private accounts in 2001 also neglect to mention that for all the risk they want to associate with Wall Street, if you’re under 40, you’re at far greater risk of never seeing your Social Security deductions under the present system than under any privatization plan. Social Security faces an unfunded liability of $4 trillion over the next 75 years. USA Today reported in May that the combined federal liability for Social Security, Medicare, and other government programs for everyone currently eligible is more than $57 trillion, or $500,000 for every household in the country. And, of course, Congress can raid the Social Security “trust fund” at will.

The stock market is risky? The federal government currently has obligations it will never be able to keep.

Posted on 10/09/08 05:55 PM by Alex Adrianson

Defining Death Down

Upwards of 6,000 people die every year in the United States waiting for an organ transplant. That by itself should cause a reconsideration of the government’s policy of outlawing financial compensation for organ donation.

But here’s something else: The organ shortage may also be encouraging a shift in the definition of death. Economist reports that bioethicists are concerned that “as the demand for organs rises, doctors are under pressure to shift the line that divides life from death, so that they can get hold of organs for transplant at a time when they are more likely to be in a healthy condition.”

Following the 1968 recommendations of a committee at Harvard Medical School, most countries changed the definition of death from cardiac death to brain death. But waiting for brain death can take a few extra critical minutes. The concern is that in some cases doctors may be reverting to the old definition of death in order to hurry things along. That’s the case laid out by Robert Truog of Harvard Medical School and Franklin Miller of the National Institutes of Health in a paper published in August by the New England Journal of Medicine. Economist reports:

Dr Truog and Dr Miller posit the example of a patient who has given informed consent to the withdrawal of life support in the case of his suffering devastating brain injury. The doctors respect his wishes and his heart stops beating. So far, so ethical. But instead of waiting a few minutes for his brain to die as well, they anticipate this inevitability and declare him dead immediately, so that they can hurry along with the business of removing his organs.

Death in such cases is therefore based on a decision not to resuscitate, not the impossibility of resuscitation. And their hypothetical case does seem to be happening more frequently in reality. In America, data from the Organ Procurement and Transplantation Network, an organisation that matches donors to recipients, show that those classified as cardiac-dead but not brain-dead represent the fastest growing proportion of donors, having risen from zero ten years ago to 7% in 2006.

Does this news make anybody more willing to carry a donor card?

Posted on 10/09/08 05:12 PM by Alex Adrianson

Adolescent Theft and Family Structure

More evidence that parents matter, from Family Research Council’s Mapping America project:


Posted on 10/09/08 04:20 PM by Alex Adrianson

Can We Get a Better Question?

The John Templeton Foundation has a new Web page hosting a forum on the question: Does the free market corrode moral character? There are some good answers there given by some intellectual heavy hitters. In fact, most of the answers turn out to be much better than the question. Can you spot the problem? Consider these questions: Does religion corrode moral character? Do books corrode moral character? Do paved roads corrode moral character?

If those sound a bit leading, then you get the point. Even if one answers “no,” the question doesn’t invite a consideration of whether the free market might be good for moral character. The question doesn’t contemplate any possible validation of free markets. The Foundation might have asked: Just how evil is it? A far better question about free markets would be: Is capitalism good for the soul? (You can find an answer to that question in “Why Capitalism Is Good for the Soul,” by Peter Saunders, The Insider, Spring 2008.)  

A further problem is that the question treats free markets as if they are some frilly treat like ice cream. If too much is bad for you, then don’t eat so much. But unlike forgoing ice cream, forgoing free markets doesn’t mean just having less of the one thing; it means having more of something else. It means having an alternative system for deciding how limited resources with alternatives uses shall be employed. What is that alternative system and how would that system be better for our moral character? That part of the question is usually ignored by critics of free markets.

Robert Reich’s answer exemplifies this problem well. He worries that in a free market consumers become disconnected from the consequences of their choices. They should care, he says, about the fact that buying from a big box retailer offering lower prices puts the little retailer on Main Street out of business while virtually enslaving children from poor countries in sweat shops. Free markets, he says, encourage consumers to be ignorant about such effects. Further, he says, in a globalized economy the chain of production is too complex for consumers to keep track of all the different effects of their choices.

But, we should ask: What alternative economic system encourages consumers to be less selfish? What economic system gives consumers better feedback about the consequences of their choices? What other economic system can produce the high-quality products needed to maintain the well being of Reich’s neighbors on Main Street without the specialization that yields the complex supply chains that bother Reich so much? Reich doesn’t say what that alternative system is.

Of course, everyone knows what the alternative to a free market economy is, because that experiment has already been tried—many times. We already know that economies planned by centralized bureaucracies do not empower consumers with more information or social awareness. We already know that centrally planned economies do not protect the little guy against the designs of his politically well connected competitors. And we already know that centrally planned economies make people poorer.

Reich says we should worry about how our individual choices as consumers affect other people. But why not worry also about how our preferences for an economic system impact other people? There is a massive historical record that shows that free markets do a much better job of satisfying people’s wants and needs. If it is moral to care about other people’s well being, then it must be moral to support free markets.

One suspects that for Reich and others “free markets” are just a synonym for “things as they are.” And who is completely satisfied with things as they are? The question, Does the free market corrode moral character? tempts the person answering to imagine how human beings might be better than they are. If you think people can be better than they are, then you are likely to want to believe there is some means of making them so. But if men need improving by government, then you have a dilemma that can’t be ignored. A commenter on the site summed up the problem very well:

A free market is subject to abuse by those who are morally deficient, and regulations are necessary to deter that abuse. But if the regulations are composed and enacted by greedy, morally deficient legislators who put self-interest before the public interest, then the abuses have only been multiplied.

Posted on 10/09/08 01:48 PM by Alex Adrianson

Are Targeted Tax Breaks Like Pork?

The “sweeteners” that supposedly were needed to get the bailout bill passed last week have renewed a debate that comes up from time to time among small-government conservatives: Are tax breaks for specific interests merely the cousins of pork-barrel spending—i.e., part and parcel of Congress’s culture of corruption? Or should they be regarded as incremental steps toward the worthy goal of lowering tax burdens?

Among the provisions prompting this question was the dropping of a 39-cent excise tax on children’s wooden practice arrows.

On Friday, Gerald Prante of the Tax Foundation took the position that there is little difference between delivering a targeted benefit through the tax code and delivering it via a spending program:

Suppose Congress was about to pass an earmark that sent a government check to some person or company for $1 million as a reward for doing something that had no public good value (beyond private gains). But then at the last second, the earmark was withdrawn and replaced with a $1 million tax credit for the same person or business. Should angry opponents of the corrupt spending earmark be appeased? No. They were right that wasteful government spending forces higher taxes onto taxpayers, but so do wasteful government tax credits. The only real difference is that the IRS is implicitly writing the check instead of the Department of XYZ. From the perspective of the most taxpayers, and of economic efficiency in general, it doesn't matter which way that million dollars is delivered.

Yesterday, Ryan Ellis of Americans for Tax Reform responded, arguing that while targeted tax cuts are not the ideal reform, they nevertheless should not be confused with new spending programs:

If … I were to put in place Prante’s [hypothetical] three-legged spayed dogs credit, how does that “cost the taxpayers money?” It costs the Treasury some tax revenue, but it doesn’t have to come at the expense of any other taxpayer. It’s only if you assume that the government has the right to a certain percent of GDP in taxes that it becomes a zero-sum game … As conservatives, we can distinguish between good tax policy and bad tax policy. I would much prefer cutting the capital gains rate to doubling the child tax credit. However, I would not oppose doubling the child tax credit merely because I can’t cut the capital gains tax rate instead. As conservatives, we’re for lower taxes[.]

This topic is an important one for conservatives to think through carefully. Ellis’s logic seems correct, as far as it goes: Supporting a tax cut that benefits a narrow interest does not bar one from also supporting broader tax cuts or from supporting fundamental tax reform. But we can’t help wondering: Congress has been writing targeted tax provisions for decades now. So when exactly is it planning to come back and vote for lower and simpler taxes for everyone? Please send us that memo. Meanwhile, conservatives discuss!

Posted on 10/08/08 02:09 PM by Alex Adrianson

Tell EPA What You Think

After the elections on November 4, another important date for American civic engagement looms large. November 28 is the last day for the public to submit comments on the Environmental Protection Agency’s plan to regulate greenhouse gas emissions.

Sure, picking a President is important. So, too, is the question of how much power unelected bureaucrats should have to micromanage an entire economy. In the name of fighting global warming, the EPA wants to invoke the powers of the Clean Air Act—a law written before global warming was even considered to be a problem. The EPA’s proposal, released in July, envisions guidelines for anything with an engine—lawnmowers, dirt bikes, snowmobiles, boats, planes, trains, and automobiles. The EPA gives instructions to pilots on how to taxi airplanes, and suggests materials that may be used in the construction of boat hulls. Many commercial and residential buildings would also face controls on emissions. So would farms with as few as 25 cows. Hundreds of thousands of businesses could be affected. Carbon taxes are contemplated.

Remember just a couple of weeks ago, when people worried that Secretary Paulson’s bailout plan would make him the czar of the finance sector? Adopting a plan to regulate greenhouse gas emissions under the Clean Air Act would effectively make the Administrator of the EPA the czar of the entire economy. And the agency can implement it all without a single vote from Congress.

So if you have concerns about the plan, make sure you let EPA know before November 28. The Heritage Foundation has created an easy-to-use portal for submitting comments to the EPA. Check out

Posted on 10/07/08 03:22 PM by Alex Adrianson

The Culprit Is Government, Not Deregulation

In his latest column, Sebastian Mallaby debunks the storyline that a lack of government oversight has caused the current financial crisis. What really happened, he argues, is that “the Fed’s track record of cutting interest rates to clear up previous bubbles” led financial engineers to believe that they could profit in good times and be bailed out by the Fed when things went bad—all in all, a classic case of moral hazard created by the government.

What’s more, he points out, the folks who binged on mortgage-backed assets were in fact heavily regulated:

U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part – though they are now vulnerable to the broader credit crunch because they operate with borrowed money.

Of course, another little confounding detail is that the highly-regulated Fannie Mae and Freddie Mac “bought more than a third of the $3 trillion in junk mortgages created during the bubble” because “heavy government oversight obliged them to push money toward marginal home purchasers.”

Posted on 10/07/08 11:53 AM by Alex Adrianson

Some Issues Before the Court

The Supreme Court began its new term today. The slate of cases accepted so far promise nothing so momentous as last term’s rulings on the Second Amendment, the death penalty for child rapists, and the rights of detainees in the war on terrorism. However, there are some cases worth keeping an eye on.

Fleeting Expletives. The Court will take up the question of whether the Federal Communications Commission may fine TV and radio stations for indecent statements made during live broadcasts. Previously, it had been FCC policy to fine only instances of repeated use of profane language. In 2004, however, in response to complaints about expletives uttered by various celebrities during live awards shows, the FCC decided to change its policy and begin issuing fines for the broadcast of isolated uses of profanity. A number of TV stations challenged the FCC’s action as arbitrary and capricious under the Administrative Procedures Act. Last June, the Second Circuit Court of Appeals agreed with the TV stations. If the Supreme Court affirms this judgment, it won’t reach any of the constitutional questions raised about the FCC’s authority to regulate broadcast content. Nevertheless, technological trends seem likely to force the Court at some point to reconsider the justification for indecency regulations. An amicus brief submitted jointly by the Progress & Freedom Foundation and the Center for Democracy and Technology argues that as new technologies give consumers more and more control over the content they receive, the justification for giving broadcast content a lower level of First Amendment protection disappears. The case is Federal Communications Commission v. Fox Television.

Navy Sonar v. Whales. The Court will decide whether a District Court judge had the authority to issue an injunction against the Navy’s use of sonar in training exercises off the coast of California, in spite of a presidential exemption for the training exercises from the requirements of the National Environmental Protection Act. The case had begun when the Natural Resources Defense Council sued the Navy for failing to produce an environmental impact statement that considered the affect of the sonar on whales. The case is Winter v. Natural Resources Defense Council.

Related: “National Security & Environment Before High Court in Winter Case,” by Brandon T. White, Washington Legal Foundation, September 5, 2008.

Can Ashcroft and Mueller Be Sued for Harsh Detainment Conditions? The Court will consider whether a Pakistani man may sue former Attorney General John Ashcroft and FBI Director Robert Mueller for his treatment in detention for six months following 9/11. The man, Javaid Iqbal, contends that Ashcroft and Mueller should be held personally liable for the harsh conditions of his imprisonment. Iqbal was held on suspicion of being involved in terrorism, was subsequently cleared of such involvement, but was convicted of defrauding the United States. On completion of his sentence he was deported to Pakistan.

Richard Samp of the Washington Legal Foundation says that the lawsuit is more a political statement about the war on terrorism than a case with real merit. Without specific facts showing that Ashcroft or Mueller personally directed harsh treatment of Iqbal, says Samp, the case should not be allowed to proceed. Samp says allowing the case would be “particularly inappropriate in a case raising national security issues; it threatens to interfere with the ability of officials to perform their duties without the distraction of having to defend against claims for money damages.” The case is Ashcroft v. Iqbal.

See: “At Urging of Former AGs and FBI Heads, Court Agrees to Review Case Seeking Damages from High-Level Officials,” Washington Legal Foundation, June 17, 2008.

Voting Wrongs? Another case that the Court may yet choose to take up is a challenge to the recently renewed Voting Rights Act. Section 5 of the act requires certain states and portions of other states to obtain pre-approval from the Justice Department before making any changes to election procedures. The law, first passed in 1965, was intended to protect the voting rights of blacks. A small municipality in Texas is asking the court to rule Section 5 unconstitutional. In a recent editorial in the Washington Examiner, Quinn Hillyer argues that the town’s argument is correct. The Constitution gives states authority over election procedures, and Congress may upset that constitutional design only by showing that another constitutional value—i.e., the right to vote—is threatened. But, says Hillyer, Congress did not show that such rights continue to be threatened when it recently renewed the law in 2006. Hillyer also notes: “the whole state of Texas was included among the ‘pre-clearance’ states not because of discrimination against blacks, but because of a lack of Spanish-language election materials – a problem fixed in the early 1970s statewide, a full decade and a half before the North Austin utility district even came into being.” The case is Northwest Austin Municipal Utility District Number One v. Gonzales.

Related: The Unintended Consequences of Section 5 of the Voting Rights Act by Edward Blum, AEI Press, December 2007.

Posted on 10/06/08 06:09 PM by Alex Adrianson

The Presidency and the Courts

The question of how one should go about the business of interpreting the Constitution, always an important topic, is taken up by an Ashbrook Center/Federalist Society conference today, the first day of the Supreme Court’s new term (more on that later).

The broader theme of the conference is: The Presidency and the Courts. The conference takes place in Cincinnati, and it can be viewed live online. Former Attorney General and current Heritage Foundation fellow Ed Meese III will give a luncheon address, and President George W. Bush will wrap up the conference with a major speech.

Posted on 10/06/08 11:08 AM by Alex Adrianson

Coming Up – Week of October 6, 2008

Some events that caught our eye:

• EXAMINE options for dealing with Russian aggression against former Soviet states. Host: American Enterprise Institute.

DISCOVER how to bring space travel to the masses at the National Coalition for Cheap and Reliable Access to Space.
LEARN how teachers unions have harmed education in Pennsylvania. Host: Commonwealth Foundation.
HEAR Harvey Mansfield discuss the central role of the Constitution in American conservative thought. Host: The Heritage Foundation.

ASSESS the rising tide of bailouts. Host: American Enterprise Institute.
HEAR Charles Murray explain why a college education should not be the key to living a good life. Host: Cato Institute.
FIND OUT if the United States is going to lose its primacy in space to China. Host: The Heritage Foundation.
TAKE IN a discussion with Antonin Scalia at the annual Leadership Dinner Series for young professionals. Host: America’s Future Foundation.

GET the latest ideas and strategies for promoting liberty in Europe at the European Resource Bank.

ADD your voice to the movement for limited government and free markets by attending the Defending the American Dream Summit in Washington, D.C. Organizer: Americans for Prosperity.
EXAMINE immigration, oil exploration, budget earmarks, and many other issues at the Western CPAC.
LEARN how higher taxes will doom the economy. The American Enterprise Institute hosts authors
Arthur Laffer, Stephen Moore, and Peter Tanous.

For more events, visit InsiderOnline’s Conservative Calendar.

Posted on 10/03/08 01:54 PM by Alex Adrianson

Let Private Contractors Do It

On September 18 in Minneapolis, the Saint Anthony bridge reopened for traffic. The  bridge had collapsed last August, killing 13 people. Popular Mechanics has dubbed the rebuild “one of the most impressive infrastructure projects of the decade—the complete replacement of a major bridge in little more than a year, months before a deadline that was considered incredibly ambitious.”

How did they do it? Ed Morrisey argues:

Private enterprise works. Most road and bridge construction in America gets performed by state agencies who subcontract bits and pieces out while retaining the general-contractor role. In this case, the bridge replacement was so badly needed that Minnesota dumped that model to use one that would produce a bridge in a shorter period of time — and incentivized the contractor to get it done fast. 

Popular Mechanics describes how “FIGG, Flatiron and Mason pulled off the improbable, and delivered a new bridge in what appears to be an unprecedented time frame”:

Along the way, the company drew wide praise from infrastructure experts and fellow designers and contractors, employing as much innovation in its construction techniques as in its project management. Construction began well before the final design was completed, with teams of contractors working 12-hour shifts in brutal subzero temperatures. Three of those teams would drill shafts at the same time, instead of one. When conditions on the ground necessitated a shift in the overall bridge design, FIGG made the adjustments on the fly. By shaving off more than three months from the Christmas Eve deadline, FIGG, Flatiron and Mason have earned themselves a hefty bonus.

Their contract with the Minnesota Department of Transportation stipulated an extra $7 million if the bridge opened on time. An earlier opening would mean another $2 million for every ten days before December 24th, with a maximum of $20 million (plus the on-time award of $7 million) if cars were rolling across the St. Anthony Falls Bridge on September 15th. The deal was a doubled-edged sword: If the bridge opened late, the team would lose $200,000 per day. At press time, the Minnesota Department of Transportation had yet to announce the final bonus, but it seems likely that the team will receive either $25 million, or, provided there’s enough good will to forgive a few short days, the full $27 million.

Posted on 10/03/08 01:51 PM by Alex Adrianson

Concerned About Government-Run Health Care? Read this Article!

We don’t normally call special attention to individual articles in The Insider—because we think they are all worth reading. But please do make time to read Michael Greve and Philip Wallach’s article “Who Will Tell the People? Medicaid Has Ruined Arizona’s Finances and It’s a Prelude for the Rest of the States.” As the title indicates, Greve and Wallach show how Medicaid has made it virtually impossible for state legislators to make sensible budget choices. And even as the program leads states to fiscal ruin, it creates additional demands for government-provided health care. Politicians understand all this, but none are talking about it. If you think government-run health care is the wrong way to go, then read Greve and Wallach’s article to understand just how daunting the political problem is.

Posted on 10/03/08 12:55 PM by Alex Adrianson

The Insider, Fall 2008

The Fall issue of The Insider is out. Here’s the editor’s note running down the articles:

Energy, unfortunately, is one of those commodities that many people believe is too important to be left to the free market. Many in Congress hold this view, and they have responded to rising energy prices with proposals for a variety of new government interventions, including price controls on gasoline, windfall profits taxes on oil companies, and more subsidies and mandates promoting the development of particular alternative energy technologies.

But as Ben Liebermann and Nicolas Loris, and Rob Gordon show in their respective articles, these policies have been tried before and they have failed before. If you’re old enough to remember the gas lines of the 1970s, then you know a good part of the story. Are members of Congress old enough to remember the 1970s?

While gas lines are a mystery to some politicians, other problems much too obviously arise from government policy. Such is the case with Medicaid, so Michael Greve and Philip Wallach explain. The program rewards states for increasing spending and punishes them for fiscal restraint. If that sounds like a recipe for a budget crisis to you, then it probably sounds like phase one of nationalized health care to many liberal politicians.

Local governments meanwhile are busy playing a rigged game of their own. In his article, Doug Kaplan describes the red tape and bureaucracy that city governments have created for entrepreneurs who want to bring a little business to town. At the same time, however, city planning agencies are set up to help some businesses cut through the red tape, obtain favorable financing, and even obtain their fellow citizens’ property through eminent domain. The result is economic development that makes politicians happy instead of consumers.

In other stories this issue, Victoria Hughes tells how the Bill of Rights Institute is teaching young people about the Constitution, and Jay Richards urges conservatives to take up the challenge of making good documentaries that promote liberty.

Posted on 10/03/08 12:54 PM by Alex Adrianson

Nature Achieves Personhood

In non-financial-perfect-storm news, Ecuador went the wrong way over the weekend with its new constitution, reports Thomas Szyszkiewicz:

... the entire document is full of socialistic doctrine. President Rafael Correa can now remain in office until 2017, dissolve Congress at will, and has taken over control of the country’s monetary policy from the central bank. According to the Financial Times, he can also grab and redistribute idle farmland, appoint controlling majorities in the supreme, constitutional, and electoral courts and he has exclusive authority over the budget. Plus the document bans big landholdings, allows for popular referenda without the authorization of the congress, and raises mandatory spending on health, education, and social security.

The country’s Catholic bishops vocally opposed the new document on three grounds – that through the ambiguous language of “reproductive rights” it would allow for abortion, that it allows for same-sex civil unions to have the same status as marriage, and that it doesn’t allow parents the freedom to choose the schooling they think best fits their own children’s needs. That last objection translates into the constitution requiring children to attend state-run schools.

But perhaps the most notable feature of Ecuador’s new constitution is that it gives nature the same rights as human beings. The constitution states:

Persons and people have the fundamental rights guaranteed in this Constitution and in the international human rights instruments. Nature is subject to those rights given by this Constitution and Law.

As a result of the new constitution, any Ecuadorian can now represent nature in a court of law to challenge drilling or exploration for oil in environmentally sensitive areas. That’s not good for Ecuador’s economy, and it won’t help lower the price of oil, either.

Posted on 10/02/08 04:55 PM by Alex Adrianson

Scarce Airwaves?

Did you know?

The number of broadcast TV stations has doubled since 1970 and now exceeds the number of daily papers, yet we don’t have a Fairness Doctrine governing The New York Times.

Neither do we have one for radio or broadcast TV, but there is a campaign afoot to bring it back. There’s more about that in Brian Anderson and Adam Thierer’s “Killing Talk Radio” in the latest issue of New Criterion.

Posted on 10/02/08 04:07 PM by Alex Adrianson

Thanks to Carbon Trading, Communism Finally Pays Off

Under Europe’s carbon-trading regime, formerly heavy-polluting countries can make a lot of money selling carbon credits to countries that are actually greener. Business Week reports:

Ukraine, Hungary, the Czech Republic and other countries of the region not exactly renowned for clean air have made or are close to signing deals to sell the rights to emit greenhouse gases, and their main customer is environmentally friendly Japan.

This carbon windfall dropped into Central and East Europe’s lap because the Kyoto Protocol sets 1990 as the reference year for future reductions in greenhouse gas emissions. The socialist states at that time were producing gargantuan amounts of CO2 and other gases implicated in global warming from unfiltered coal-fired power plants and factories; when those unprofitable industries withered, countless thousands of workers went on the dole—but the air got cleaner. In the coming years, in line with European Union mandates, would-be members gradually adopted better environmental policies. It’s the difference between the often unspeakably bad air of 1990 and the comparatively clean air of today that allows them to sell “carbon credits” potentially worth billions of euros.

Hat tip: Planet Gore.

Posted on 10/02/08 12:19 PM by Alex Adrianson

SEC Eases Mark-to-Market Requirement

Reuters reports that the Securities and Exchange Commission has eased the requirement that firms use mark-to-market (or “fair value”) accounting when valuing financial assets. Many analysts believe that these rules have played a large role in the deteriorating financial condition of investment and commercial banks.

According to the American Enterprise Institute’s Peter Wallison, fair value accounting “has been the principal cause of an unprecedented decline in asset values and an unprecedented rise in instability among financial institutions.” For an overview of the issue see Wallison’s article, “Fair Value Accounting: A Critique.”

Fair Value accounting generally requires accountants to value financial assets based on market prices. But, according to Wallison, in a declining market, such a valuation method produces a pro-cyclical feedback that makes the troubles worse:

As losses mounted in subprime mortgage portfolios in mid-2007, lenders demanded more collateral. If the companies holding the assets did not have additional collateral to supply, they were compelled to sell the assets. These sales depressed the market for mortgage-backed securities (MBS) and also raised questions about the quality of the ratings these securities had previously received. Doubts about the quality of ratings for MBS raised questions about the quality of ratings for other asset-backed securities (ABS). Because of the complexity of many of the instruments out in the market, it also became difficult to determine where the real losses on MBS and ABS actually resided. As a result, trading in MBS and ABS came virtually to a halt and has remained at a standstill for almost a year. Meanwhile, continued withdrawal of financing sources has compelled the holders of ABS to sell them at distressed or liquidation prices, even though the underlying cash flows of these portfolios have not necessarily been seriously diminished. As more and more distress or liquidation sales occurred, asset prices declined further, and these declines created more lender demands for additional collateral, resulting in more distress or liquidation sales and more declines in asset values as measured on a mark-to-market basis. A downward spiral developed and is still operating.

If Wallison and other critics are right, this step could be a major part of the fix for financial markets.

Posted on 10/01/08 05:58 PM by Alex Adrianson

How Less Regulation (Not More!) Could Help Unfreeze Credit

The Paulson plan was supposed to unfreeze the market for short-term lending that’s needed to keep the economy moving. Why, some might wonder, can’t the market figure this out without government help? Economist Jerry Bowyer points to some government-created bottlenecks. In particular, he argues that because the Sarbanes-Oxley law has criminalized so many regulatory violations for financial executives, the banks are now afraid to take any action at all regarding mortgage-backed securities:

These securities, which the government invented (through Fannie Mae …) and foisted upon the banks (through the Community Reinvestment Act), now has regulatory cooties. Own it and you’ll get sued. Sell it and you’ll get sued. Keep it and the regulators will force you to write it down to panic-level prices—and then you’ll get sued. Try to foreclose and state and local government will refuse to enforce the contract. Try to get private equity investment to keep your balance sheet alive and you find the door barred by 80-year-out-of-date regulations like the Bank Holding Company Act.

Bowyer suggests:

Perhaps the mark to market regulations could be suspended before the taxpayers are forced to move in. Maybe if some of these rules are eliminated, little or no taxpayer dollars will be needed. If Congress doesn’t want to put public dollars into this, it should let private equity put private dollars in.

It’s a silly throwback to the 1920s, which only allowed bank-holding companies to buy a majority investment in a troubled bank. Back then, all banks were local. Now banking is an international industry. Mutual funds, private individuals, hedge funds, venture capitalists, leprechauns, unicorns…everybody should be allowed to buy bank shares. If everybody is not allowed to, I’m afraid everybody will be forced to.

Posted on 10/01/08 03:05 PM by Alex Adrianson

How Can You Have Any Pudding If You Don’t Eat Yer Meat?

Little by little it is starting to dawn on people just how totalitarian is the project to stop global warming by forcing reductions in greenhouse gas emissions. It helps when those who want to advance that project issue reports detailing just what will be necessary. A recent study reported on by the Guardian examines the sacrifices people will have to make in their diets:

People will have to be rationed to four modest portions of meat and one litre of milk a week if the world is to avoid run-away climate change, a major new report warns.

The report, by the Food Climate Research Network, based at the University of Surrey, also says total food consumption should be reduced, especially “low nutritional value” treats such as alcohol, sweets and chocolates.

It urges people to return to habits their mothers or grandmothers would have been familiar with: buying locally in-season products, cooking in bulk and in pots with lids or pressure cookers, avoiding waste and walking to the shops – alongside more modern tips such as using the microwave and internet shopping.

Good thing for the environment that we got the microwave and the Internet, but environmentalists are otherwise happy to shut down economic growth. The more people face up to the sacrifices called for by a program of drastic greenhouse gas reductions, the better a slightly warmer, more meatier world looks.

Posted on 10/01/08 11:41 AM by Alex Adrianson

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