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InsiderOnline Blog: November 2008

Learn from the Pilgrims

The Foundry carries a timely history lesson on socialism:

When we bow our heads this week in thanks for our many blessings, we should recall the Pilgrims’ early lesson in the power of free markets. At first, the Pilgrims who established Plymouth Colony in Massachusetts in 1621 held all goods and products in a “common stock” to be contributed and shared equally by all — in effect, socialism.

But after a three-year experiment, it was clear the system was failing miserably. Everyone was equal, but the Pilgrims took little comfort in the fact they were starving to death equally.

William Bradford, governor of Plymouth, wrote in his journal that the experience taught him: “the vanity of that conceit of Plato’s and other ancients applauded by men of later times; that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God.”

And so the Pilgrims, painfully aware they would not long survive under centralized management of their economy, changed the rules to allow for private property and provide the incentive of keeping the fruit of one’s labor. Bradford wrote: “This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content.”

Plymouth soon began to thrive, happily transitioning from starvation and despair to surplus and hope. Before some of us begin claiming other people’s piece of the pie, let’s remember why the Pilgrims thought going cold turkey on socialism was a hot idea. Let’s spread the word—not the wealth.

Posted on 11/26/08 09:38 AM by Alex Adrianson

Coming Up – Week of December 1, 2008

Some events that caught our eye:

• DISCOVER how fiction can help teach economic ideas. The Cato Institute hosts Russell Roberts, author of The Price of Everything: A Parable of Possibility and Prosperity.

• LEARN about the funders who helped create the modern American conservative movement. The Heritage Foundation hosts Ron Robinson and Nicole Hoplin, authors of Funding Fathers: The Unsung Heroes of the Conservative Movement.
• EXAMINE the attitudes of 19th century intellectuals toward capitalism. The Mercatus Center hosts Deirdre McCloskey, author of The Treason of the Clerisy: How Capitalism was Demoralized in the Age of Romance.

• FIND OUT what how religious practice impacts health. The Heritage Foundation, the Baylor Institute for the Studies of Religion, and Child Trends host the annual conference, “Religious Practice and Health: What the Research Says.”
• MAKE MERRY with fellow friends in the free-market movement at the Mercatus Center’s holiday dinner.
• IDENTIFY the real causes of the financial crisis. The Shaftesbury Avenue Society and the Cato Institute host three speakers who each look at the crisis from a different perspectives: Tim Congdon, United Kingdom; William Niskanen, United States; and Andrei Illarionov, Russia.

• EXAMINE the shifting roles of governments, corporations, and non-governmental organizations in a new era of internationalism. Host: Competitive Enterprise Institute.
• ASSESS whether Russian political culture can be compatible with the values of tolerance, freedom, and individual rights. Host: Hudson Institute.
• SURVEY the most important policy issues affecting state governments. The American Legislative Exchange Council hosts its annual States and Nation Policy Summit.

• LEARN how the concept of an income contract can help reduce poverty in America. The Heritage Foundation hosts author Joseph V. Kennedy.
• CELEBRATE the 75th anniversary of the repeal of Prohibition. Cato hosts a discussion (with drinks, too!).

For more events see InsiderOnline’s Conservative Calendar.

Posted on 11/26/08 09:20 AM by Alex Adrianson

If Unions Are So Great, Why Doesn’t the Economy Show It?

Defenders of unions have a very interesting response to critics of the proposed automaker bailout. The opponents of a bailout, say defenders of unions, want to force the automakers into a chapter 11 restructuring so that they can roll back gains that unions have made.

Well, either you think unions are part of the problem or you don’t.

To be sure, getting upwards of $70 per hour in benefits is a good deal for unionized auto workers. But only as long as such rich compensation doesn’t put those workers’ employers out of business. A broader issue, however, is whether unions are a good deal for all workers. Richard Vedder and Lowell Gallaway tackled just this issue in their 2002 paper, “Do Unions Help the Economy?” Here is their conclusion:

While there are no doubt many individual members of labor unions who feel that they have benefitted from collective bargaining, the overall evidence is overwhelming that labor unions in contemporary America have had harmful aggregate effects on the economy. Unions are associated with lower rates of growth in income and jobs. On balance, people move away from union-intensive areas to areas with relatively low rates of union density. Occupations and industries with high rates of union density have had less vibrant job growth in recent decades. Widespread unionization of an industry is often associated with initial sharp declines in employment, as the steel industry demonstrates. The more strident and intense union involvement in industry, the bigger that industry’s decline, as the experience of coal mining shows. Also, high levels of unionization are associated with out-migration of native born Americans, while low levels are associated with in-migration. The decline in union density in the private sector in the past generation has been sharp, and that decline has added to the vitality of the economy at the beginning of the new century. The increasing weakness of unions in the market economy has contributed to economic growth and a rising proportion of the working age population that actually works.

Posted on 11/26/08 09:17 AM by Alex Adrianson

Some Optimism

In spite of all government efforts to short-circuit markets, they might be working after all, reports Nicole Gelinas:

Consider what happened after Hank Paulson announced that he had dropped his plan to buy up those troubled mortgage-related securities via TARP: Private hedge-fund manager John Paulson (no relation) reportedly told his investors that he’d start purchasing some of the assets.

This is vital. As funds like John Paulson’s start buying mortgage-backed security assets and the like at rock-bottom prices, they’ll help the market discover the mortgage-related securities’ true value over time – and help push that value up.

These funds will likely use their clout as big investors to make changes in the unaffordable, unsustainable mortgages underlying the securities that they buy up.

Markets are already predicting big losses in those mortgages, depressing those securities’ prices. So credible changes to the securities to prevent such an outcome will raise their prices over time.

This process will be good news for some of the 5 million to 7 million US households that could face foreclosure over the next few years.

That is, because investors will buy up the securities for, say, 30 cents on a dollar of face value, they’ll be able to force a renegotiation of the underlying mortgages to, say, 50 cents on the dollar – making the mortgages affordable (and thus keeping them out of default) and still coming out ahead.

Posted on 11/26/08 08:34 AM by Alex Adrianson

Failing to Fill the Filling Quota

A snapshot of health care central planning, from The Times:

Dentists will be required to refund £120 million to the health service because they failed to treat enough NHS patients last year, The Times has learnt.

About half of dental practices have fallen short of targets for NHS treatment agreed with local health authorities, meaning dentists will have to pay back tens of thousands of pounds each.

In the latest repercussion of the troubled dental contract, clawbacks are threatening to put some practices out of business and may persuade many more dentists to leave the NHS, the British Dental Association (BDA) says. …

About 1,000 dentists opted out of providing NHS services when the new contract came into force, meaning that 900,000 fewer patients were seen in 2006-07 than under the old system, a report by MPs found this year.

HAT TIP: Adam Smith Institute Blog.

Posted on 11/26/08 08:19 AM by Alex Adrianson

A Plan to Put Experts in Charge of Planning Health Care

The idea of giving an independent Fed-like agency the power to make health care policy in the United States is gaining traction. Tom Daschle, recently tapped by President-elect Obama to be the next Secretary of Health and Human Services, is among the supporters of the idea.

The idea seems to be that interest group pressures play too big a role in influencing congressional decisions on health policy. In explaining his support for the idea, Daschle has stated: “Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility.”

One way of getting politics out of health care would be to reduce the scope of government’s involvement in health care. For instance, instead of continuing Medicare’s fee-for-service system that puts the government in charge of setting prices for thousands of medical services (and thus invites interest group pressures), Congress could transform Medicare into a defined-contribution system that lets each beneficiary control the dollars spent on his or her behalf by choosing the coverage that is right for him or her.

Daschle’s approach, on the other hand, seems to be to rearrange the government’s deck chairs a little bit, so that the power to set benefit packages and design reimbursement systems is taken from Congress and given to an independent Federal Health Board whose members are appointed. That board’s authority would extend to all government health care programs and might also extend to linking tax exclusions/credits to a standard benefits package.

The proposal is clearly an attempt to do an end-run around democratic accountability. Stuart Butler of the Heritage Foundation writes that Daschle

… wants a Board that really doesn’t have to listen to Americans, or even return White House calls. It would get to determine pretty much what health care we get and what we will be denied. Americans are not going to stand for that, and Mr Obama should reject it right now.

I lived for 30 years in Britain, where regulating access to treatments based on the decisions of faceless health bureaucrats is the norm. The British are known for their wry sense of humor – the acronym for the British board is the appropriately Orwellian “NICE”.

Another problem, as John Goodman of the National Center for Policy Analysis points out, is that insulating policy makers from politics doesn’t make them smart enough to know how to make decisions impacting millions of people:

Sen. Daschle is essentially saying, “I don’t know how to solve these problems; so let the experts decide.” Unfortunately, the “experts” don’t have any idea how to solve the problems either. The reason: on the patient side, all the difficult decisions involve value tradeoffs (which differ a lot from person to person) and on the provider side, efficiency is an economic concept, not an engineering one.

Take cancer care. For most cancers, conventional therapies (chemical and radiation) are not doing much more than buying a few more years of life. On the other hand, about 95% of children with cancer are in clinical trials using therapies that are by definition unproven. So let’s say the Health Board concludes that a few more years of life are not worth the cost, and that we shouldn’t spend a lot of money on unproven therapies for childhood cancer. Basically, the Health Board could close down the U.S. cancer care industry.

For more views on the idea, see the National Journal’s health care expert blog. See also, “Life or death? Ask U.S. health board,” by Stuart Butler, Washington Times, September 18, 2008.

Posted on 11/26/08 07:36 AM by Alex Adrianson

Paying People to Be Unemployed

One way an Obama administration could help preserve jobs, argues David Henderson at Forbes, is to repeal the 13-week extension of unemployment benefits. That would help, he writes, because paying people to be unemployed provides an incentive to be unemployed:   

According to a 1990 article in the Journal of Public Economics authored by economists Lawrence Katz of Harvard and Bruce Meyer of Northwestern University, who was chief economist in President Clinton’s Labor Department, a 13-week extension of unemployment benefits from 1978 to 1983 added 2.2 weeks to the average duration of unemployment for recipients, raising it from 16.2 weeks to 18.4 weeks. This may sound small, but it translates into a noticeable increase in the overall unemployment rate.

Here’s the math: 2.2 weeks is a 13.6% increase. Because about 40% of the unemployed receive unemployment insurance, the overall unemployment rate would be 5.4% (13.6% of 40%) higher than otherwise. Applying this figure to an unemployment rate of 7% means that if unemployment benefits were not extended, our unemployment rate would be 6.6%.

Posted on 11/25/08 11:28 AM by Alex Adrianson

Whose Jobs Would a Bailout Save?

If saving domestic jobs is a reason to bail out automakers, then Congress might want to stop and ask: “What is an American car?” As Cato’s Alan Reynolds points out, this is a question that’s getting harder and harder to answer:

An “American” brand tells you little about where all the parts in a car are made. I was once at a dinner with Lee Iaccoca where I teased him about my Dodge Stealth, made in Japan by Mitsubishi. Similarly, today’s Chevy Aveo is imported from Daewoo in South Korea. Yet Hyundai has a plant in Alabama. found only four cars and six light trucks with a domestic content (meaning US or Canadian) above 75%. That list includes the Toyota Tundra and Sienna and the Honda Odyssey. Other Honda’s have a 60-70% domestic content, barely missing the cut.

Posted on 11/24/08 05:02 PM by Alex Adrianson

Coming Up – Week of November 24, 2008

Some events that caught our eye:

• LEARN how America-bashing propaganda is distorting the history that Americans hear about their country. The Heritage Foundation hosts Michael Medved, author of The 10 Big Lies about America.
• UPDATE your economic liberty library with latest release of the Cato Institute/Fraser Institute Economic Freedom of the World Report. Host: Cato Institute.
• HEAR Alfred Regnery, author of Upstream: The Ascendance of American Conservatism, discuss the beginnings of the American conservative movement. Host: Harbour League.

• BE thankful.

For more events, see InsiderOnline’s Conservative Calendar.

Posted on 11/21/08 11:13 AM by Alex Adrianson

Is Chapter 11 Such a Big Deal?

Are we looking at a jobs implosion (and, even worse from the green perspective, the loss of General Motor’s Volt!) if Congress doesn’t fork over taxpayer money for the big three Detroit automakers? To believe that, you would have to think that the alternative, chapter 11 bankruptcy, means the total liquidation of a company’s assets. While there are no guarantees of success (nor should there be!), chapter 11 is a procedure that allows a company to restructure its business so that it can succeed.

It’s not at all unusual for companies to emerge from chapter 11 and operate successfully. Here’s a short list of companies still operating today that have at some point in their history entered into a chapter 11 proceeding: 7-11, Bally Total Fitness, Ben Franklin, Chiquita, Converse, Delta Airlines, Dow Corning, Frederick’s of Hollywood, Fruit of the Loom, Greyhound, Houlihans, Huffy, Imperial Sugar, KB Toys, KMart, L.A. Gear, Lionel, Loehmann’s, Maidenform, Marvel Comics, Moto Photo, Orion Pictures, Owens Corning, Planet Hollywood, Rand McNally, Regal Cinemas, Schlotzskys, Texaco, Trump Hotels, Western Union, Winn-Dixie, and Zenith. (That these companies still operate was confirmed by checking Hoover’s Business Directory.)

This is not to say that all these companies are now profitable, or that they haven’t had to shed some jobs in the process of reorganizing. What it does suggest is that the specter of a sudden and massive loss of employment overwhelming an already weak economy is a bit of a fairy tale that’s being told in order to build the case for a bailout.

Posted on 11/20/08 05:42 PM by Alex Adrianson

Automaker Bailout: Bad for Trade, Bad for the Economy

An important point to keep in mind about any and all bailouts: While corporate welfare is always a bad idea, the costs of such policies consist not in the transfer of wealth from taxpayers but in the less-productive allocation of resources that arises from the distortion of incentives that bailouts create. Sometimes these distortions are not entirely obvious. For instance, Matthew Slaughter, writing in today’s Wall Street Journal, points out that bailing out automakers would have deleterious consequences for the movement of goods and capital across borders. How so?

In the first place, foreign companies would be discouraged from bringing their operations to a country with a habit of protecting its domestic nameplates from competition—even though that competition provides good jobs for Americans, too:

In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.

At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.

Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation.

Secondly, says Slaughter, bailing out the Detroit Three would “entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals.” Again, Americans would lose jobs:

… these companies employ more than 22 million Americans and account for a remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access foreign customers. They do this two ways. They export goods from their U.S. parent companies. And they sell goods locally through foreign affiliates. These foreign affiliates are built by direct investment of American companies in other countries. In 2006, U.S. parent companies exported $495.1 billion to foreign markets. That same year their majority-owned affiliates earned over $4.1 trillion in sales – $8.33 for every $1 in exports.

The Detroit automakers, of course, are among the U.S. multinationals that benefit greatly from selling in foreign markets—markets they might find closing up if U.S. policies embolden protectionist sympathies.

Posted on 11/20/08 05:32 PM by Alex Adrianson

What Should Conservatives Conserve?

A recent conference at Yale raises the question: How “outside the box” can navel gazing get? David Barnes, Yalie and Assistant Director of The Heritage Foundation’s Young Leaders Program, reports:  

The Intercollegiate Studies Institute recently held a conference at Yale University about “The Next American Conservatism.” The consensus among the speakers was that conservatives have erroneously focused on affecting national politics when they should have focused on affecting the culture of their local communities. True conservatives don’t head to Washington to fight for abstractions like “small government” or “free markets.” They should stay in their local communities and develop their families to transmit our shared cultural values to the next generation.

The other major theme was that conservatism has ceased being a temperamental disposition favoring tested traditions over speculative reforms and has become an ideology. Hillsdale Professor Richard Gamble made this point most directly in his controversial talk, “Should Conservatism Actually Be a ‘Movement’?” He pointed out that since conservatism is really about conserving the past and not proposing a positive agenda, conservatives should not, and fundamentally cannot, be organized to advance anything.

For a conference proposing the next American conservatism, there was little discussion of the actual basis for American conservatism: the Constitution. For all the lamenting of our departure from traditional values, they were always couched in terms of generic Judeo-Christian Western values instead of the particularly American values of the Founders. Any American conservatism must be dedicated to conserving the first principles of our country. Conservatives should not bury their collective heads in the sand and abandon the task of promoting limited, Constitutional government in Washington. A focus on the first principles of the Founding of our country allows conservatives to support the ideals of liberty and self-government while also supporting America’s traditions.

All of the lectures were recorded and will be soon posted to the ISI Web site. Helen Rittelmeyer took the presenters’ advice to focus on culture to heart and wrote up her impressions from the conference in dramatic form as a four-act play (Part 1, Part 2).

Posted on 11/20/08 04:33 PM by Alex Adrianson

An Even Worse Idea: Greening the Bailout

Some in Congress see an automaker bailout as an opportunity to push the industry into making cars that are better for the environment. Having Congress design the country’s next generation of vehicles, writes Ken Green, would be good for neither the automakers nor consumers:

Greener vehicles are more expensive to make and bring in less profit than other cars. They cost more to finance, more to repair, and more to insure. Their sales depend heavily on tax incentives—which means that selling more of them will require more taxpayer dollars. The National Renewable Energy Laboratory (NREL) estimates that plug-in hybrid vehicles cost $3,000 to $7,000 more than regular hybrids, even though the performance differences between the two models are slight, and the really fuel-efficient hybrids cost $12,000 to $18,000 more than the conventional brand. …

Hybrids are also more expensive to insure. Online insurance broker shows that it costs $1,374 to insure a Honda Civic but $1,427 to insure a Honda Civic Hybrid. Similarly, it costs $1,304 to insure a Toyota Camry but $1,628 to insure a Toyota Camry Hybrid.

What explains the higher rates? According to State Farm, hybrids cost more to insure because their parts are more expensive and repairing them requires specialized labor, thus boosting the after-accident payout.

Forcing the industry to sell cars that consumers aren’t willing to pay for is probably not going to make the industry stronger. Green also points out that it might not even be good for the environment, as higher price vehicles would induce consumers to delay buying new cars, leaving older, heavier polluting cars on the road longer.

Posted on 11/20/08 03:30 PM by Alex Adrianson

Big Business Serves the Poor

In contrast to the usual storyline about the pursuit of profit hurting the poor, Economist reports that drug companies see great profits in selling drugs that people in developing countries want and can afford:

Some are offering products of particular relevance to developing countries, such as treatments for hepatitis B, or combination therapies, which are especially popular in India. Western firms have also dropped their traditional resistance to tiered pricing: Pfizer’s Viagra, a drug for erectile dysfunction, and Merck’s Gardasil, a vaccine against cervical cancer, were both introduced in India at a fraction of their American price. The health-care arm of Bayer, a German conglomerate, has seen its sales in emerging markets soar as it has included more locals in drugs trials and brought new pills to market soon after launching them in America.

Some firms are going further, venturing beyond the familiar big cities to more difficult, but potentially more lucrative, territories. Mr Halfon says Pfizer has expanded in the past couple of years into over 130 Chinese cities. His firm has also set up a joint venture with Grameen Bank in Bangladesh to cultivate rural markets for basic drugs by developing “microinsurance” products. Mr Halfon is convinced there is plenty of money to be made among the underserved poor. He thinks the drugs market for those earning less than $3,000 a year is already worth $30 billion annually, and he expects this to increase to $60 billion-70 billion by 2012. Novartis, a Swiss rival, recently unveiled a pilot project to expand into rural India; the firm aims to reach 50m new customers by 2010.

Further evidence of emerging markets’ potential comes from the experience of Britain’s AstraZeneca in China. Unlike rivals, which focused on Shanghai and Beijing, its trailblazing marketers pushed into the country’s remote western provinces. The going was tough, but with little foreign competition the firm’s efforts paid off. It has just reported that during the third quarter, sales in mature markets grew by 2% compared with the same period a year ago, but increased by 35% in China—and by 18% in emerging markets overall.

Posted on 11/19/08 04:33 PM by Alex Adrianson

Does the SAT Predict Success?

Standardized testing has gotten a bad name in recent years, especially as a result of the chicanery that has been encouraged by the No Child Left Behind Act. Holding schools accountable for the results of standardized tests seems to encourage teachers to “teach to the test”—or, worse, encourages states to make the tests easier in order to create the illusion of progress and ensure the continuance of federal funding.

But do these episodes amount to an indictment of standardized tests, per se? What about college entrance exams, which some critics see as barriers to achieving racial and ethnic diversity on campuses?

Writing in the New York Times, Peter Salins recounts how the State University of New York, where he was formerly a provost, ended up conducting a kind of controlled experiment on the value of the SAT as a predictor of academic performance. Beginning in the 1990s, Salins notes, some of the SUNY campuses decided to raise their SAT requirements, while others did not.

Among the campuses that raised selectivity, the average incoming student’s SAT score increased 4.5 percent (at Cortland) to 13.3 percent (Old Westbury), while high school grade-point averages increased only 2.4 percent to 3.7 percent — a gain in grades almost identical to that at campuses that did not raise their SAT cutoff.

Yet when we look at the graduation rates of those incoming classes, we find remarkable improvements at the increasingly selective campuses. These ranged from 10 percent (at Stony Brook, where the six-year graduation rate went to 59.2 percent from 53.8 percent) to 95 percent (at Old Westbury, which went to 35.9 percent from 18.4 percent).

Most revealingly, graduation rates actually declined at the seven SUNY campuses that did not raise their cutoffs and whose entering students’ SAT scores from 1997 to 2001 were stable or rose only modestly. Even at Binghamton, always the most selective of SUNY’s research universities, the graduation rate declined by 2.8 percent.

The SAT might not be perfect, but it seems to be a lot better than nothing.

Posted on 11/19/08 04:17 PM by Alex Adrianson

Your Carbon Papers, Please!

No doubt any plan that foresees putting the government in charge of designing lawnmowers and specifying acceptable materials for boat hulls will be dangerous for the economy. We’re referring, of course, to the Environmental Protection Agency’s proposal to use the Clean Air Act to force reductions in greenhouse gas emissions.

The Heritage Foundation’s David Kreutzer and Karen Campbell have calculated that the costs of such a plan would accumulate to $7 trillion by the year 2029. That’s bad enough, but it doesn’t even include the paperwork burden. Rob Gordon, one of The Heritage Foundation’s environmental experts, sends along these back-of-the-envelope calculations:

The U.S. Chamber of Commerce has calculated some of the regulatory burden that would be imposed, finding that the number of businesses that could be trapped within the Clean Air Act’s Prevention of Significant Deterioration (PSD) permitting requirements would mushroom to around 1.2 million. While only a fraction would likely have to obtain permits under this provision in any given year, the number would likely rocket beyond the program’s current scope. According to EPA figures (see the Federal Register, August 5, 2008, pp. 45436-45437) 282 PSD permits were filed in 2007 imposing an average cost of $125,120 on the permit applicant and a burden of 866 hours for preparing and submitting the application. On average, each permit also imposed $23,280 costs including a burden of 301 hours staff time on state and local agencies tasked with implementing aspects of the Clean Air Act program. All this resulted in a total cost of over $35 million dollars.

If, as a result of the proposed new rules, only 40,000 of the pool of 1.2 million potential applicants identified by the Chamber went through the PSD program, then the cost and burdens would be staggering. Using EPA’s averages for PSD permitting, the cost of EPA’s proposed regulations would be over 5 billion dollars annually and would require about the same number of people—perhaps more—than currently employed at EPA—17,320. That’s more than an entire infantry division and this is just one of several provisions that would be triggered if EPA proceeds to regulate greenhouse gases using the Clean Air Act.

Remember, the deadline for submitting comments to the EPA about this plan is November 28. An easy way to submit comments is to visit

Posted on 11/19/08 03:22 PM by Alex Adrianson

Another Plan

This one might work. Grover Norquist writes to Neel Kashkari, Interim Assistant Secretary for Financial Stability, U.S. Department of the Treasury:

Dear Secretary Kashkari:

I write today to formally request $700 billion from the TARP Capital Purchase Program. Since unionized auto companies, state and local governments, and certain credit card companies are applying, I thought I should, as well.  Attached you will find the two-page application which I downloaded from …

I have a plan for this $700 billion which should be just what’s needed to get the American economy going.  Since the money came from the taxpayers in the first place, I propose giving it back to them.

Norquist’s plan for giving the money back to the taxpayers includes cutting the corporate income tax rate from 35 percent to 15 percent, eliminating the capital gains and dividends tax, cutting the top personal income tax rate from 35 percent to 15 percent, killing the death tax, and allowing companies to fully expense capital assets in the first year of purchase. Using Joint Committee on Taxation estimates, these proposals add to just about $700 billion.

Posted on 11/19/08 10:28 AM by Alex Adrianson

Still a Big Self-Licking Ice Cream Cone?

The fact that taxpayers are now backstopping Fannie Mae and Freddie Mac’s operations has stopped neither politicians nor the leftwing affordable-housing lobby from continuing to see these two government-sponsored enterprises as a conduit for largesse. At Chronicle of Philanthropy, Eric Kelderman reports:

Nonprofit organizations in Washington are continuing their efforts to make sure that lending giants Fannie Mae and Freddie Mac can sustain their levels of charitable giving.

The two mortgage companies, which were taken over by the federal government this fall, donated $47-million to charities last year, according to the Center for Nonprofit Advancement, an association of tax-exempt groups. The association is coordinating its second campaign to press Congress to ensure that donations from the lenders don’t dry up in the current economic downturn.

Tomorrow, association members are being asked to e-mail their Congressional representatives about the matter. A similar effort was made in October, which resulted in a letter from six members of Congress to James B. Lockhart II, director of the Federal Housing Finance Agency. Mr. Lockhart is the conservator placed in charge of Fannie Mae and Freddie Mac after the U.S. Treasury Department bailed-out the troubled lenders in September.

The nonprofits and politicians now asking for the gravy train to continue have been some of the biggest defenders of Fannie and Freddie’s government-provided privileges, and it was those privileges that gave us the profit-side capitalism/loss-side socialism setup that is now costing taxpayers so much money.

Posted on 11/18/08 05:45 PM by Alex Adrianson

Mandates Making Insurance a Bad Deal

Premiums for family health insurance plans can be 21 percent to 33 percent higher because of state laws that prevent insurers from charging different rates based on risk factors, according to a new study by researchers at Brigham Young University, the National Bureau of Economic Research, and the Brookings Institution.

It’s not hard to see how these community rating laws can drive up insurance prices. The laws are intended to make sure sick people don’t have to pay more for insurance than healthy people, but the result is that insurance becomes a bad deal for healthy people. States often combine community-rating mandates with mandates that insurers accept everyone, no matter how sick; together, these laws encourage healthy people to wait until they are sick to sign up for insurance. With fewer healthy people in the risk pool, insurers have to charge higher premiums in order to cover the risk.

The study also found that health insurance premiums rise 10 percent or more when a state forbids insurers from steering customers to an exclusive network of providers.

Mandates such as these are supposed to protect consumers, but it seems more likely that they serve to protect the high-price providers from competition.

Posted on 11/18/08 03:42 PM by Alex Adrianson

October Not So Hot After All

James Hansen and the Goddard Space Center made a little goof when claiming last week that October 2008 was the hottest October on record, reports the Telegraph’s Christopher Booker. Hansen, you may recall, is the guy who wants to put global warming deniers on trial for high crimes against humanity and nature.

Hansen’s claim, says Booker, surprised meteorologists:

Across the world there were reports of unseasonal snow and plummeting temperatures last month, from the American Great Plains to China, and from the Alps to New Zealand. China’s official news agency reported that Tibet had suffered its “worst snowstorm ever”. In the US, the National Oceanic and Atmospheric Administration registered 63 local snowfall records and 115 lowest-ever temperatures for the month, and ranked it as only the 70th-warmest October in 114 years.

So what explained the anomaly? GISS’s computerised temperature maps seemed to show readings across a large part of Russia had been up to 10 degrees higher than normal. But when expert readers of the two leading warming-sceptic blogs, Watts Up With That and Climate Audit, began detailed analysis of the GISS data they made an astonishing discovery. The reason for the freak figures was that scores of temperature records from Russia and elsewhere were not based on October readings at all. Figures from the previous month had simply been carried over and repeated two months running.

The error was so glaring that when it was reported on the two blogs – run by the US meteorologist Anthony Watts and Steve McIntyre, the Canadian computer analyst who won fame for his expert debunking of the notorious “hockey stick” graph – GISS began hastily revising its figures. This only made the confusion worse because, to compensate for the lowered temperatures in Russia, GISS claimed to have discovered a new “hotspot” in the Arctic – in a month when satellite images were showing Arctic sea-ice recovering so fast from its summer melt that three weeks ago it was 30 per cent more extensive than at the same time last year.

Posted on 11/18/08 01:43 PM by Alex Adrianson

Maybe Two Automakers Are Better than Three

What if General Motors went completely bankrupt and ceased to exist? Dan Ikenson tells Townhall’s Bill Steigerwald that might actually be a good thing.

Q: Have the Big Three been victimized to any special degree by either dumb or highly fallible government policies?

A One of the examples I’m hearing from proponents of the current bailout is, “Let’s go back to 1979 when Chrysler was bailed out. That was a success story. Chrysler came out of bankruptcy and paid back the U.S. taxpayer with interest after four years.” Well, to me, the fact that the government stepped in back then has been an enabling implicit guarantee for the Big Three ever since. Had Chrysler gone under back then, I am convinced that the unions would not have had as much power as they had during the 1980s, because they would have been dealing with two companies instead of three. So they would have had less leverage. So had Chrysler had gone under then, the “Big Two” might not be in the position that they are in right now.

Q: They’d be a lot healthier too, business-wise, because they’d be sharing parts of Chrysler’s market share.

A: Exactly, and that’s why I say we shouldn’t need a bailout now. All we need is a little bit of a shakeout. If GM were to go under, those companies are going to get much larger market shares. Even though demand is contracting, getting increased market share in a contracting demand environment market still could translate into increased revenues.

Posted on 11/18/08 12:26 PM by Alex Adrianson

A False Argument for Universal Health Care

Some observers have now divined that the reason General Motors, and perhaps Ford and Chrysler, too, need a bailout in order to avoid bankruptcy is that the United States lacks universal, government-provided health care. Japanese automakers, they say, don’t have to pay for their workers’ health care because the government pays for it. If the U.S. had such a system, so goes the argument, then U.S. automakers would be freed from this burden and would be able to compete again on a level playing field with Japanese automakers.

As a general rule of thumb, whenever you hear that the solution to a problem is to find another pot of money somewhere, you should be suspicious. The argument that universal health care is a solution to U.S. competitiveness problems rests on the common but mistaken view that providing health care is an extra cost employers must bear. It is not.

Labor has a price, and employers do not become willing to pay a higher price simply because part of the compensation they provide is health insurance. When employees demand health care as part of their compensation—a preference encouraged by the tax code—they pay for that health care in the form of lower wages. Conversely, employees would not become willing to accept a lower price for their labor, simply because a change of government policy removes health insurance from the compensation package. If government began to provide health insurance to everyone, then workers would quickly shift their compensation demands to receive higher wages. Thus, having the government provide health insurance is no fix for the U.S. automakers’ labor cost problems, which have more to do with the power of the unions.

Posted on 11/18/08 12:08 PM by Alex Adrianson

Fact of the Day: The Union Stranglehold

One reason that automakers can’t compete is that they have rolled over when it comes to negotiating labor contracts. The figures below for the Big Three are from 2006 and those for the Japanese automakers are from 2005.

Now they want the federal government to bailed them out—i.e., that want taxpayers to foot the bill so that high-paid auto workers can continue to enjoy higher incomes than the average taxpayer.

HAT TIP: The Foundry

Posted on 11/17/08 07:15 PM by Alex Adrianson

Bankruptcy, Not Bailout, for Automakers

Detroit has come, hat in hand, to Washington, as Congress this week takes up a proposal to provide $25 billion in federal loans to the ailing auto industry. The problem with a bailout is this: Under their current obligations automakers cannot make cars people want to buy. Those obligations need to be restructured, but only a bankruptcy proceeding—not a bailout—gives them the flexibility and the incentive to make the needed changes.

What’s holding back Detroit?

Michael E. Levine writes:

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities.

And James Gattuso and Nick Loris write:

So-called “legacy costs” leave Detroit paying an enormous sum of money for mistakes made in the past. In 2004, GM, Ford, and Chrysler employed approximately 370,000 people in their U.S. automotive operations but supported more than 800,000 retirees with expensive pension and health care packages negotiated through collective bargaining. … From 1993 to 2007, General Motors alone spent an average of $7 billion per year to fund legacy pensions and retiree health care. … These legacy costs create a catch-22 for automakers: Not only are they nearly impossible to trim outside of bankruptcy, but as firms downsize existing operations, they become a proportionately larger burden on the company.

What about the idea of attaching conditions to a bailout to make sure the auto industry makes changes in return for the taxpayer financing? Gattuso and Loris are skeptical:

One can just see the headlines: “Government Funds Job Cuts,” “Taxpayer Money Funds Dealership Closings.” Put bluntly, the types of changes that are needed will be painful and unpopular, and it is difficult to imagine politicians allowing them, never mind insisting on them.

Andrew Grossman has a good overview of the issues, as well. He notes one particular false argument being made against bankruptcy:

The chief objection voiced to allowing any of the Big Three to slide into bank­ruptcy is that consumers would be unwilling to purchase vehicles made by a corporation that they fear could not honor warranties or supply parts. … But no automaker that hopes to rebuild a sustain­able business would turn its back on its custom­ers, so there is no reason to expect that one undergoing reorganization would ignore its cus­tomer’s valid claims and expectations, which would be a recipe for certain failure. There is no incentive, then, for parties to a bankruptcy to take steps like reneging on warranties that would undermine the company’s business.

Posted on 11/17/08 04:39 PM by Alex Adrianson

Coming Up – Week of November 17, 2008

Some events that caught our eye:

• LEARN why everyone has a stake in Second Amendment rights. Ashbrook Center hosts a talk by Wayne LaPierre, Vice President of the National Rifle Association.

• GET an overview of where telecommunications policy might be going in the new administration. The Phoenix Center hosts its 2008 Annual U.S. Telecoms Symposium.
• FIND OUT where the Supreme Court is headed. The Goldwater Institute hosts Pepperdine Law Professor Douglas Kmiec.
• HEAR about the latest efforts to make government more transparent. Host: The Platte Institute for Economic Research.

• LEARN some lessons from the subprime crisis, offered up at the Cato Institute’s 26th Annual Monetary Conference.
• EXPLORE the shortcomings of poverty statistics with Nicholas Eberstadt at the American Enterprise Institute.
• DISCOVER how to find life-long love in a hook-up world. The Acton Institute hosts Jennifer Roback Morse.

• ASSESS the costs of the EPA’s plan to regulate carbon dioxide. Host: The Heritage Foundation.

For more events, see InsiderOnline’s Conservative Calendar.

Posted on 11/14/08 11:21 AM by Alex Adrianson


Good thing governments aren’t greedy like private businesses, otherwise they might have been blinded to the risks of a housing bubble. Oh, wait—there’s this from the Wall Street Journal:

As Wall Street wages have grown, so has New York’s dependence on revenue from the personal income tax. In 1977 personal income taxes represented less than 45% of all state taxes. In 2007 they represented about 60%. And for the past 30 years, inflation-adjusted state spending has tracked closely with booms and busts on Wall Street. …

New York City has also done little to decrease its addiction to revenue from a single industry. Mayor Michael Bloomberg missed the chance to use 9/11 as an opportunity for reform, and he’s declined to challenge public unions over pay and benefits. Bigger and bigger budgets have been submitted and approved as though record Wall Street profits would never end. The financial industry is 14% of gross city product. In 2006, New York City received 50% of its personal income tax revenue from the top 1% of earners, many of whom work in finance. …

New York’s revenue coffers are set to take a hit. The only question is how big. The state budget deficit is already projected to be $1.5 billion in the current fiscal year, and Governor David Paterson estimates it could grow to $14 billion over the next two years if nothing is done.

Posted on 11/13/08 05:26 PM by Alex Adrianson

News to Them

Deborah Howell, the ombudsman for the Washington Post, has come to the rather unsurprising conclusion that the Post’s coverage of election 2008 was tilted toward Barack Obama. Tracking the Post’s coverage since November 11 last year, Howell found that Obama received more overall coverage (946 stories to 786), more coverage since he captured the Democratic nomination on June 4 (626 stories to 584), and more photo coverage since June 4 (311 photos to 282) than John McCain.

Howell writes:

… Obama deserved tougher scrutiny than he got, especially of his undergraduate years, his start in Chicago and his relationship with Antoin “Tony” Rezko, who was convicted this year of influence-peddling in Chicago. The Post did nothing on Obama’s acknowledged drug use as a teenager. …

Some readers thought The Post went over Palin with a fine-tooth comb and neglected Biden. They are right; it was a serious omission.

Howell also criticized the Post being far too concerned about the horse-race aspects of the campaign instead of reporting on issues:

The count was lopsided, with 1,295 horse-race stories and 594 issues stories. The Post was deficient in stories that reported more than the two candidates trading jabs; readers needed articles, going back to the primaries, comparing their positions with outside experts’ views. There were no broad stories on energy or science policy, and there were few on religion issues.

Posted on 11/13/08 04:37 PM by Alex Adrianson

Where’s the Change?

The agenda page on Barack Obama’s Web site no longer contains an agenda. The details of the President-elect’s proposals have been removed from the site.

Americans for Tax Reform has posted a scanned version of the economy section before it was pulled down. Among the proposals that have now disappeared: windfall profits taxes; a national infrastructure reinvestment bank; and allowing a card-check procedure instead of a private ballot for organizing unions. Hopefully, those items will stay vanished.

The agenda page currently states:

President-Elect Obama and Vice President-Elect Biden have developed innovative approaches to challenge the status quo in Washington and to bring about the kind of change America needs.

The Obama Administration has a comprehensive and detailed agenda to carry out its policies. The principal priorities of the Obama Administration include: a plan to revive the economy, to fix our health care, education, and social security systems, to define a clear path to energy independence, to end the war in Iraq responsibly and finish our mission in Afghanistan, and to work with our allies to prevent Iran from developing a nuclear weapon, among many other domestic and foreign policy objectives.

That’s it.

Posted on 11/13/08 03:18 PM by Alex Adrianson

Green Jobs: Nonsense Dressed Up with Numbers

Various efforts are afoot to sell schemes limiting greenhouse gas emissions as not merely good for the environment but good for the economy, too. We should be suspicious. If such measures were truly good for the economy, then why would they have to be mandated? Why wouldn’t individuals and businesses jump at the opportunity to achieve economic gains voluntarily?

Earlier this year, a Heritage Foundation study calculated that imposing limits on greenhouse gas emissions via the Lieberman-Warner bill would have cost the economy $1.7 trillion cumulatively by the year 2030. The reason for these losses is fairly straightforward: Meeting the bill’s caps on emissions would require using less energy and substituting renewable energy for fossil fuels—even though renewable sources are more expensive than fossils fuels. Switching to renewables, thus, requires making fossil fuels artificially more expensive.

So, in what world could higher energy prices and forced reductions in consumption make people better off? Believe it or not, agenda-driven research is attempting to posit such scenarios, and these, naturally, are being cited as support for environmental proposals by President-elect Barack Obama. One widely-cited study is that of David Roland-Horst, a researcher at the University of California–Berkeley who examined California’s experience with energy-efficiency mandates since the 1970s. The San Francisco Chronicle credulously describes the study: 

Although the Berkeley study examines complicated policies, its central observation is simple. When people use less energy, they spend less on utility bills and have more to spend on other things, from groceries to clothes to lattes. That spurs job creation.

As a result, California should prosper even if a cap and trade system raises electricity costs, Roland-Host said. Although the price of electricity would probably go up, the state and its residents could avoid paying more by using less energy.

In other words, it is claimed that even though energy prices are higher, people will benefit overall because the higher prices redirect their spending to other higher-valued things.

But if resources have higher-valued alternative uses, then individuals will adjust their spending on their own. They don’t need government mandates to do it. The only way this makes sense, is if you suppose that consumers’ real preferences are not reflected by their actual choices—i.e., that they are irrational and need to be led to their true interests by government-distorted price signals.

David Kreutzer of The Heritage Foundation notes some reasons to doubt that California’s program has been a net plus:

… Californians pay 36 percent more for their electricity, have watched manufacturing’s share of state output drop by 15 percent since 1980, need less electricity for heating and cooling than the rest of the nation, live in smaller houses than the national average, and pay billions of dollars to generate electricity using inefficient alternatives.

What about the idea that higher prices (combined with government investments) can induce more research in energy efficiency and that such research will over time produce gains that more than offset the higher prices? For instance, a recent report of the Center for American Progress states:

Public and private investment in energy efficiency reduces energy demand and lowers energy costs, which in turn means that money spent now on energy efficiency will pay for itself through lower energy bills over the long term. Lowering energy costs for educational buildings eventually means more funds for teachers, books, and scholarships. Retrofitting hospitals over time releases money for better patient care. And providing incentives for investment in more private-sector energy savings at commercial buildings, factories, and residential homes helps American businesses and consumers save and invest money over the long term and improve our quality of life.

This argument is really just a more subtle version of the free lunch argument. Resources directed to research that the government wants done have alternative uses—such as research by private companies. Government-directed research might produce gains in energy-efficiency, but those gains are not free. They come at the cost of whatever gains would have been produced had the government not interfered. Again, government doesn’t have to tell individuals and private businesses to pursue economic gains. They already do that on their own. That’s why our economy today is more efficient at doing everything than were the economies of 10, 20, and 50 years ago.

Another false argument being made is that shifting to a low-carbon-emitting economy will lead to lots of new jobs because people will have to be hired to build the new energy-efficient infrastructure as well as retrofit existing facilities. The CAP report argues, for instance, that a federal $100 billion green recovery program would add 2 million new jobs to the economy and reduce the unemployment rate to 4.4 percent. And President-elect Obama says that 5 million new jobs can be created with a program of $150 billion.

But, as Ken Green of the American Enterprise Institute notes, this is the broken window fallacy identified by Frederic Bastiat 160 years ago. Bastiat “explained the fallacy as follows:”

Imagine some shopkeepers get their windows broken by a rock-throwing child. At first, people sympathize with the shopkeepers, until someone claims that the broken windows really aren’t that bad. After all, they “create work” for the glassmaker, who might then be able to buy more food, benefiting the grocer, or buy more clothes, benefiting the tailor. If enough windows are broken, the glassmaker might even hire an assistant, creating a job.

Did the child therefore do a public service by breaking the windows? No. We must also consider what the shopkeepers would have done with the money they used to fix their windows had those windows not been broken. …

Now consider Obama’s “green jobs” plan, which includes regulations, subsidies, and renewable-power mandates. The “broken windows” in this case would be lost jobs and lost capital in the coal, oil, gas, nuclear, and automobile industries. These industries currently employ more than one million people directly. Conventional power plants would be closed and massive amounts of energy infrastructure would be dismantled. After breaking these windows, the Obama plan would then create new jobs in the renewable energy sector. The costs of replacing those windows would ultimately be passed on to taxpayers and energy consumers.

Earlier this year, the San Francisco Chronicle was given an assessment of the cap-and-trade idea that did not ignore the jobs that would be lost in fossil fuel production:  

So if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.

That assessment, of course, came from Barack Obama. Proponents of schemes to limit energy consumption should always be so honest.

Posted on 11/13/08 01:56 PM by Alex Adrianson

The Zeitgeist

Steven Malanga notes a bit of news that should make us all wonder whether there is truly any line now that can be drawn on bailouts:

Recently the American Library Association issued a press release that declared: “ALA seeks $100 million in stimulus funding as U.S. libraries face critical cutbacks, closures.”

The press release informs us that the group is asking Congress for “stimulus funding to aid the nation’s working families during the economic crisis” [my emphasis] in order to stem “the bleeding of critical library services.” Later the association observes that, “For every dollar invested in the public library the community receives a return of $5.50...Known as the multiplier affect [sic], every dollar spent in the community will ripple through the economy.”

Posted on 11/12/08 03:01 PM by Alex Adrianson

33 Minutes

Here is a preview of a documentary on missile defense that The Heritage Foundation plans to release in February:

Posted on 11/10/08 05:34 PM by Alex Adrianson

A Growing Tension with the First Amendment

The proliferation of media that digital technology has made possible, writes Randolph May, has only increased the tension between government regulation of broadcast content and the First Amendment:

at least since the Telecommunications Act of 1996 the communications marketplace environment has been characterized by increasing competition among a variety of service providers and also by a convergence of the services offered by major service providers. It no longer makes sense to speak of the telephone, broadcast, cable, or cell phone markets in the same way it did only a few short years ago. Telephone companies now provide video and Internet services in addition to voice, cable companies provide voice and Internet services, and wireless companies provide voice, video, and Internet services. Increasingly, people watch television programs on their computer screens, or even on their mobile devices. The advent of competition and convergence is attributable in large part to the rapid technological developments accompanying the transition from analog to digital equipment and from narrowband to broadband services.

In todays competitive and converging digital environment, it is time for the Court finally to abandon the scarcity rationale used in Red Lion to justify limited First Amendment protection for radio and television broadcasters.

The Roberts Court should seize the first opportunity to chart a new jurisprudential course that provides broadcasters, as well as other electronic media, including cable, satellite, wireless, and broadband Internet providers, with First Amendment protections that are on par with those traditionally enjoyed by the print media. In other words, government content restrictions applicable to the various electronic media, regardless of the technological platform used to deliver content, would be subject to the same strict scrutiny the Court employed in Tornillo in holding unconstitutional a newspaper right of reply mandate. This would mean, whether explicitly or in some less direct fashion, overturning Red Lion and Turner Broadcasting. And it would mean declaring that, with the availability of todays various parent-empowering blocking and filtering technologies,including, for example, the V-chip embedded in every television setPacificas uniquely pervasive and uniquely accessible to children rationales have outlived whatever jurisprudential utility they once may have had as a justification for content regulation.

A move by the Court in this direction, would, among other things, make it unlikely that a new version of the Fairness Doctrine could withstand the Courts scrutiny.

Posted on 11/10/08 02:36 PM by Alex Adrianson

Forced Labor for America’s Youth?

Is this what the youth of America were so enthused about when they celebrated Barack Obama’s victory Tuesday night?

Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year.

This language is from, the official Web site of President-elect Barack Obama.

Does the U.S. government really have the power to force people to provide free labor? Probably not, but as Hans Bader points out, the government could make federal aid for schools conditional on the existence of community service requirements.

So what counts as service? Volunteering for ACORN?

Posted on 11/07/08 02:59 PM by Alex Adrianson

Taxing Questions

Voters saw lots of tax-related ballot measures on Tuesday. The Tax Foundation has the rundown of the results so far.

Posted on 11/06/08 07:18 PM by Alex Adrianson

Coming Up – Week of November 10, 2008

FIND OUT what is next for school choice. Host: American Enterprise Institute.

LEARN how to rejuvenate support for limited government and economic liberty. The Institute of Economic Affairs hosts Dan Mitchell of the Cato Institute.

GAUGE the prospects for free market health care in the new Congress. The Heartland Institute hosts its annual Consumers for Health Care Choices Banquet.
TOAST freedom at the Atlas Economic Research Foundation’s annual Freedom Dinner.

HEAR about some of the most innovative work that think tanks around the world are doing to advance the ideas of limited government and individual liberty. The Atlas Economic Research Foundation recognizes the winners of the 2008 Templeton Awards.
ASSESS the impact of the financial crisis on Europe’s political architecture. Host: The Heritage Foundation.
DISCOVER how the solution to poverty is to be found within poor countries themselves. The Independent Institute hosts William Easterly, Alvaro Vargas Llosa, former Bolivian President Jorge Quiroga, and others discussing entrepreneurship in developing countries.  

EXPLORE how film and freedom converge as Reason Goes Hollywood.
SOLVE the mystery of what happened to welfare caseloads following welfare reform. Host: American Enterprise Institute.

For more events, see InsiderOnline’s Conservative Calendar.

Posted on 11/06/08 05:54 PM by Alex Adrianson

What’s Wrong with “Eat Locally”

Environmentalists want you to cut your carbon footprint by eating only locally grown food—food that doesn’t have to be transported far. Does that actually help cut emissions? Not necessarily. Ron Bailey reports some findings from a new Mercatus Center report by Pierre Desrochers and Hiroko Shimizu:

Local food production does not always produce fewer greenhouse gas emissions. For example, the 2005 DEFRA study found that British tomato growers emit 2.4 metric tons of carbon dioxide for each ton of tomatoes grown compared to 0.6 tons of carbon dioxide for each ton of Spanish tomatoes. The difference is British tomatoes are produced in heated greenhouses. Another study found that cold storage of British apples produced more carbon dioxide than shipping New Zealand apples by sea to London. In addition, U.K. dairy farmers use twice as much energy to produce a metric ton of milk solids than do New Zealand farmers. Other researchers have determined that Kenyan cut rose growers emit 6 metric tons of carbon dioxide per 12,000 roses compared to the 35 tons of carbon dioxide emitted by their Dutch competitors. Kenyan roses grow in sunny fields whereas Dutch roses grow in heated greenhouses.

But an even bigger problem with the campaign to promote eating locally is that it could exacerbate the distortions that already exist because of barriers in agricultural trade. These barriers, by protecting inefficient food producers from lower-priced competition, lead to higher food prices and undermine agriculture in developing countries. Desrochers and Shimizu write:

The net effect of the trade inhibitions that arise from the subsidy regimes and trade policies of developed nations is to keep developing (and, ironically, developed) countries much poorer than they would otherwise be. As poverty, rather than the potential to produce more food, is, along with inappropriate domestic policy environments, the main reason for food insecurity in many jurisdictions, trade restrictions imposed by developed nations and the subsidy regimes that distort what trade is permitted are largely to blame for food shortages in the developing world. As one observer pointed out, trade restrictions and various European government policies tainted by “befuddled romanticism”—from campaigns against genetically modified foods and low-wage produce to “save the peasant” farm reforms—have resulted in sub-Saharan Africa now having less commercial agriculture than it did fifty years ago. … According to a World Bank report, developing countries would capture about $85.7 billion in real income gained from the full liberalization of the global merchandise trade. The global liberalization of agricultural and food markets would contribute about 63 percent of the total global gains …

No doubt, the concept of food-miles as a measure of sustainability will help forge a nefarious alliance between farmers who want even more protectionist policies and the environmentalists.

Posted on 11/06/08 03:17 PM by Alex Adrianson

Michael Crichton, RIP

Let’s be clear: the work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science, consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.Michael Crichton, National Press Club, 2005

Michael Crichton, who died of cancer yesterday, was best known as the author of many wildly successful techno-thriller novels. But Crichton also contributed mightily to public discussion on the role of science in public policy. In numerous public talks and lectures, Crichton criticized the politicization of science and staked out a position of skepticism toward global warming. Crichton cared deeply about the environment, but saw the environmental movement as a religion that cared more about dogma than science. In a famous 2003 speech at the Commonwealth Club in San Francisco, he argued that contemporary environmentalism stood in the way of environmental progress because it had become a religious belief system:

Religions think they know it all, but the unhappy truth of the environment is that we are dealing with incredibly complex, evolving systems, and we usually are not certain how best to proceed. Those who are certain are demonstrating their personality type, or their belief system, not the state of their knowledge. Our record in the past, for example managing national parks, is humiliating. Our fifty-year effort at forest-fire suppression is a well-intentioned disaster from which our forests will never recover. We need to be humble, deeply humble, in the face of what we are trying to accomplish. We need to be trying various methods of accomplishing things. We need to be open-minded about assessing results of our efforts, and we need to be flexible about balancing needs. Religions are good at none of these things.

Fans of Crichton’s novels will no longer be able to look forward to the next Crichton-authored thrill ride. The public, however, has lost an important advocate for sound science.

Here is Crichton explaining his view that environmentalism had become a religion (hat tip: Wayne Crews at Open

Posted on 11/06/08 01:20 PM by Alex Adrianson

Britain Adds a Dash of Choice to Its Health Care System

In the United States, President-elect Obama wants to reform private health insurance markets by having the federal government both compete with and regulate private insurance providers (currently regulated by the states). In Great Britain, one new reform is going the other way: injecting private incentives into government-provided care. For a fee, government-run hospitals will now offer additional services beyond those it provides to all patients for free. Previously, Britain’s National Health Service did not allow such “topping up”—e.g., paying extra for a different cancer drug than the one NHS would pay for. In the past, a patient who wanted treatments beyond what the NHS would offer had to pay for the entire treatment in a private setting. The reason for the old policy was that the NHS wanted to avoid the appearance of a two-tier system in which patients would could pay more got better treatments.

Tom Clougherty of the Adam Smith Institute explains why the new policy is very definitely a move in the right direction:

Firstly, it lets people pay out-of-pocket for things that are too expensive to be provided by the taxpayer – good. Secondly, it will encourage the growth of affordable top-up insurance plans, giving many more people access to those new and expensive drugs. But there’s a more important aspect to this decision: it ends the long-running fiction that the state (or rather, the taxpayer) can ever provide everything.

The lasting impact of this decision will hopefully be that the NHS becomes a defined benefit, rather than an open-ended entitlement.

Posted on 11/05/08 04:22 PM by Alex Adrianson

If the Data Don’t Fit …

TG Daily:

Scientists at MIT have recorded a nearly simultaneous world-wide increase in methane levels. This is the first increase in ten years, and what baffles science is that this data contradicts theories stating man is the primary source of increase for this greenhouse gas. It takes about one full year for gases generated in the highly industrial northern hemisphere to cycle through and reach the southern hemisphere. However, since all worldwide levels rose simultaneously throughout the same year, it is now believed this may be part of a natural cycle in mother nature – and not the direct result of man’s contributions.

HAT TIP: Daily Policy Digest.

Posted on 11/05/08 01:52 PM by Alex Adrianson

The FCC’s Sleight of Hand

Is technology undermining the rationale for government policing of broadcast content? Do we still need the Federal Communications Commission to protect tender ears from indecent language? Those questions were touched on briefly in oral arguments before the Supreme Court yesterday in the case Federal Communications Commission v. Fox Television Stations, Inc. This is the case involving FCC fines on television stations for expletives being uttered on live broadcasts.

While the Court may not need to reach the constitutional questions involved, the Solicitor General’s response is worth noting for its own sake.

Previously, the Court had held that because broadcast is uniquely pervasive and easily accessible by children that it deserved a lower level of First Amendment protection. But hasn’t cable TV, the Internet, and parental control technologies undermined this argument? If consumers today have more choices and more control over the content that comes into their homes, then isn’t continued FCC authority in this area merely an affront to the First Amendment?

Here is what the Solicitor General said about that argument:

We actually think that the fact that there are now additional mediums like the internet and cable TV, if anything, underscores the appropriateness of a lower First Amendment standard or safety zone for broadcast TV, because Americans who want to get indecent programming can go to cable TV, they can go to the Internet.

But broadcast TV is, as Congress designed that to be, the one place where Americans can turn on the TV at 8:00 o’clock and watch their dinner and not be expected to be bombarded with indecent language, either in an isolated basis or repeated basis. That’s a societal expectation that has grown up over the last 30 years since Pacifica. And it would be a remarkable thing to adopt the world that the networks are asking you to adopt here today, where the networks are free to use expletives, whether in an isolated or repeated basis, 24 hours a day, going from the extreme example of Big Bird dropping the F-bomb on Sesame Street, to the example of using that word during Jeopardy or opening the episode of American Idol -- 

Get it? When we lived in a world of media scarcity, the scarcity was the justification for government regulation. Now that we have a plenitude of media sources, that plenitude is said to be the justification for government regulation. In the view of some, government control is always the solution to some problem. Which problem that might be is something they’ll fill you in on later.

Posted on 11/05/08 12:41 PM by Alex Adrianson

Why Coal Is King

So if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.

That’s Barack Obama telling the San Francisco Chronicle about his plans to cap greenhouse gas emissions. Audio of the interview has been posted at the paper’s Web site since January, but it has only recently received national attention. Obama goes on to say that existing coal-powered plants would also have to retrofit their operations. “That will cost money,” he says. “They will pass that money on to consumers.” When he says “pass that money on to consumers,” he means consumers will have to pay more.

Indeed, renewable sources of energy cannot compete with fossil fuels unless either the former receives subsidies from the taxpayers or the price of the later is driven up by regulations and taxes. We’ve written about this before. In the fall issue of The Insider, Rob Gordon wrote of wind power:

While wind-generated power has rocketed upward in absolute terms, its relative contribution was still less than 1 percent of the net electricity we generated in 2006. And that little bit isn’t cheap. Professors Bernard Weinstein and Terry Clover at the University of North Texas report that for every $100 million of investment, wind-power developers received over $74 million in federal tax credits and other benefits, not to mention additional corporate income tax breaks and local property tax abatements in Texas. Just how sustainable is that?

And of solar:

After decades and millions of dollars, photovoltaic panels can’t efficiently collect much more than about 10 percent of the sunshine that hits them. … Photovoltaic panels require a fair amount of space. Unlike relatively energy-rich fossil fuels, uranium, or even a flowing river, solar energy is diffuse. To meet U.S. electricity needs with solar panels we’d have to blanket thousands of square miles. That’s a huge footprint compared to the three square miles or so needed to tap the immense quantities of energy resources in the Arctic National Wildlife Refuge. Then there’s the weather. Even in places where there’s lots of sunshine, solar isn’t 100 percent reliable. You can be sure, though, that the sun doesn’t shine at night, which means that solar power must be backed up by some other source.

Posted on 11/04/08 04:21 PM by Alex Adrianson


Jeffrey Lord’s very thoughtful essay at The American Spectator helpfully reminds us that the battle of ideas transcends elections. Why? Because ideas are not tested at the ballot box; they are tested by reality.

One may wish to take a giant leap and fly straight to the moon unaided, but since Newton understood the significance of a falling apple an understanding of gravity has taken hold with most humans. To quote Milton Friedman citing F.A. Hayek, “the validity of Hayek’s central insight – that coordination of men’s activities through central direction and through voluntary cooperation are roads going in very different directions…central direction to poverty for the ordinary man, voluntary cooperation a road to plenty” is what can surely be termed the reality of political gravity.

Yet in spite of the astounding reality of progress inherent with conservatism, the so-called “smart people” – liberal intellectuals and politicians aplenty – keep returning to the idea that gravity (the success of free enterprise, competition, private property, limited government and, in national security, what Reagan called “peace through strength”) simply does not exist. Marching backwards they always believe they are looking forward. Like Charlie Brown, they believe that THIS time Lucy will let them actually kick the football.

What this says as Americans go to vote this day is something Ronald Reagan had come to understand to his core: the battle for freedom, as his friend Friedman also said, must be won over and over again.

Posted on 11/04/08 03:54 PM by Alex Adrianson

The Constitution at Risk

Will economic troubles produce further depredations against the Constitution? Pointing to George Soros’s talk at MIT last week, Bill Frezza worries that indeed they will:

Calling for “forcefully changing the terms of contracts ex post facto” by resetting the principal value of mortgages to 80% of a home’s current market value, Mr. Soros noted that “there is one small problem.” No, it’s not the challenge of determining what the “fair” value of a particular home might be when negotiating with a counterparty wielding a gun. The small problem, Mr. Soros laments, is that “this is actually unconstitutional.” He went on to conclude with unconcealed glee that “it needs to be done and it can be done, but it’s going to be very difficult.”

Posted on 11/04/08 01:05 PM by Alex Adrianson

Obama’s Road to Single-Payer Health Care

Obama’s idea to have government-run insurance compete with private health insurance is a rigged game, says Grace-Marie Turner:

Under ObamaCare, public insurance programs and their private competitors would likely be subject to the same rules regarding benefits and underwriting. But public programs would be supported by a constant stream of tax dollars. They could undercut premiums and offer generous benefits that would bankrupt private insurers—and then cover the losses by drawing on taxpayer subsidies. In other words, the federal government would have the ability to drive up the cost of private health insurance while keeping its own insurance program artificially cheap.

If the Obama plan were implemented, Americans would naturally flock to the new public insurance program. Advocates of government-run healthcare would claim “victory” and demand an expansion of it. Slowly but surely, private insurers would be supplanted by the public program. The new costs would be borne by taxpayers.

Posted on 11/04/08 12:31 PM by Alex Adrianson

Personal Accounts Still Beat Social Security

Even with the down market, personal accounts invested in the stock market still beat Social Security, calculates Michael Tanner:

Assume you had invested a hypothetical $100 in 1965. The redline shows what would have happened if that money had annually earned Social Security’s imputed rate of return (about 2.2 percent for someone retiring today). The blue line represents what would have happened if you earned the actual market return. If you invested $100 in 1965 at Social Security’s rate of return, today you would have $254.91. But if you invested that $100 in the market, today, even with the current down market, you would have $4,135.92.

Posted on 11/03/08 05:24 PM by Alex Adrianson

What the Markets Fear

Current prices for corporate bonds reflect an expectation that half of all firms will default on their debt. Can things really be that bad? They might be, says Kevin Hassett, if Democrats are able to follow through on plans to retaliate against China for “unfair currency manipulation” and to do away with private ballots in union-organizing elections.

The first could provoke a trade war, just as the Smoot-Hawley bill led to a breakdown of international trade in the 1930s. The second measure would put unions in charge of the economy and limit output. Both of these ideas, says Hassett, would repeat key mistakes that prolonged the Great Depression:

While the Smoot-Hawley nonsense has been widely discussed, the impact of NIRA [National Industrial Recovery Act] and the NLRA [National Labor Relations Act] has received less attention. That impact can’t be overstated. A 2004 study by UCLA economists Lee Ohanian and Harold Cole found that 60 percent of the difference between actual output and its long-run trend during the Great Depression was attributable to NIRA and NLRA.

Cartelization, or the coordinated raising of prices by businesses that Franklin Roosevelt allowed after unions organized an industry, played a role in deepening the Depression. But perhaps the key negative component was the massive increase in unionization, from 13 percent of the workforce in 1935 to 29 percent in 1939.

Posted on 11/03/08 01:43 PM by Alex Adrianson

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