Monthly Archives: December 2015

Stock Crash At Retirement? Still Better Than Social Security

30 Wednesday Dec 2015

Posted by in Social Security

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Social_Security

That’s right! Suppose you are given an option to invest your FICA taxes (and your employer’s contributions) over your working life in a stock market index fund. After 40 years or so, based on historical returns, you’ll have stashed away about 12 – 18 times your total contributions (that range is conservative — 40 years through 2014 would have yielded 19x contributions). A horrible preretirement crash might leave you with half that much. At the low-end, you might have as little as 4.5 times contributions if the crash is as bad as the market decline of 1929-32. That would be very bad.

But you don’t have that option under current law. Instead, the return you can expect from Social Security will leave you with only 1 to 4 times your contributions — without further changes in the program — based on your current age, lifetime earnings, marital status and retirement age. The latter range is based on the Social Security Administration’s (SSA’s) own calculations, as quoted in “Social Security: Saving or Tax? Proceeds or Aid” on Sacred Cow Chips.

Social Security, billed as the most reliable source of retirement income because it is not dependent on market risk — would almost certainly buy you less than a private investment even when a horrible market outcome is factored in immediately prior to retirement. Keep in mind that this is an unfair baseline for equity investments, because historical returns already factor-in historical market crashes, and we are imposing an extra, instantaneaous crash at the end-point! Note also that the calculations above do not account for ongoing, post-retirement returns in private investments. In view of this comparison, Social Security’s status as an “untouchable” third-rail of U.S. politics is a testament to the economic ignorance of the American voter.

Wharton’s Jeremy Siegel offers perspective at wsj.com based on his own experience in “My Sorry Social Security Return” (gated — Google “wsj Siegel Social Security”). Siegel’s Social Security benefits represent about a third of what he could have earned in private investments; the value of his benefits is also much less than what Siegel would have earned for retirement had those funds been invested exclusively in government bonds, as the Social Security “Trust Fund” does when there are surplus contributions over and above benefits paid. The return Siegel can expect over his retirement years on Medicare taxes paid is similarly bad. Siegel is just the kind of high earner whom many assume Social Security favors.

Even worse, Social Security benefits for future retirees are quite risky, given the long-term demographic changes underway in the U.S. The Social Security system is not solvent. Only recently, we have witnessed the revocation of “Restricted Application” filing for married filers born after 1953. This change can mean a significant reduction in benefits to any married couple, but it may be a more meaningful blow to married filers in the age cohort now approaching retirement or full-filing eligibility. This will not be the last revocation of future benefits, because the system is now “cash-flow negative” (benefit payments exceed payroll-tax contributions) and it will be for the foreseeable future. There will be hikes in payroll-taxes and reductions in benefits down the road.

This post is a follow-up to earlier discussions on Sacred Cow Chips of Social Security’s horrid returns to retirees: “Reform Not: Play Social Security Slots” in October and the link given in the second paragraph (above) from August. The Social Security “Trust Fund” is not an asset with any net value to the economy. Earlier surpluses have been used to fund the government’s general budget, so the SS Trust Fund is not “saving” your contributions in any real sense. Government debt held by the Trust Fund as an “asset” must be repaid to the SS system via future taxes. Some asset for the public!

Privatization of Social Security accounts would offer tremendous advantages over the current, unsustainable program. From the August post:

“There are several advantages to privatization of Social Security accounts beyond the likelihood of higher returns mentioned above: it would avoid some of the labor market distortions that payroll taxes entail, and it would increase the pool of national savings. Perhaps most importantly, over time, it would release the assets (and future benefits) accumulated by workers from the clutches of the state and self-interested politicians.“

It’s true that a shorter market horizon makes private investment returns more variable. Transitioning to a system of private accounts would involve a risk tradeoff for private accounts that is less attractive than over a lifetime. That makes it important to offer current workers within, say, 20 years of retirement an option of remaining on a defined benefit plan or converting to a private account, or perhaps some combination of the two.

The safety of Social Security benefits is greatly overrated. As a social mechanism for shielding retirees from market risk, it provides even less in exchange for one’s contributions than would a terrible down-market in equities at the end of a working career.

Automate No Job Before Its Time

28 Monday Dec 2015

Posted by in Price Controls, Technology

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This interactive chart from the McKinsey Global Institute (not the one above, as good as it is…) shows occupations at risk of automation, and it should give warning to those asserting that a substantial increase in the minimum wage is in the interests of low-wage workers. It shows the extent to which various jobs can be automated under existing technology. The salient facts here are that a large number of workers earn less than $15 per hour, that most of those workers perform jobs that can be automated, and that further advances in technology will increase the potential for automation beyond what’s shown in the chart.

A simple truth that must be understood is that wage rates are strongly associated with the skills and productivity required for particular jobs. Denial of that fundamental rule cannot help anyone, and will almost certainly harm many. Low skill requirements are less highly-compensated because they add little value and are easily satisfied.

As Don Boudreaux points out, innovation is often spurred by economic forces. A mandated wage minimum, which is a price floor creating artificial surplus conditions, magnifies incentives for greater innovation. In addition to the substitution away from low-skilled labor (or domestic labor) that can be expected, there are many other margins along which employers can economize in the face of such government edicts: higher expectations for productivity, fewer benefits, fewer breaks, fewer niceties in the workplace, and less flexibility over hours and days off. These things matter greatly to employees and employers. A wage law can make for an unpleasant work environment.

Those who suffer most from minimum wage decrees are the least skilled, whose jobs are the most vulnerable. Economist David Neumark notes that “The Evidence Is Piling Up That Higher Minimum Wages Kill Jobs“, despite claims to the contrary (gated… Google “wsj NeumarK”, select the December 15, 2015 link).

Lest anyone decry the technologies that could replace these workers, recall that the substitution of capital for labor over time has led to the great gains in productivity that have elevated wages and income over time. Many jobs that are commonplace today (and were not even imagined in earlier times) would not exist if not for advances in technology. Likewise, there will be jobs that are commonplace in the future that do not exist today, and we won’t have the power (nor will the government) to anticipate those jobs until the enabling technologies come to fruition and early adoption. These kinds of changes are never without difficulty, as workers bear significant costs of adjustment in the short run, including the acquisition of new skills. However, wage floors force an even earlier and contrived adoption of technologies, which harms low-wage workers most severely. Far better to allow an unfettered and natural process of free choice, technological diffusion, price adjustment, and growth to take place.

ZIRP’s Over, But Fed Zombies Linger Over Seed Corn

24 Thursday Dec 2015

Posted by in Central Planning, Monetary Policy, Price Controls

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Fed Rate Cuts

The Federal Reserve plans a few more increases in short-term interest rates in 2016, which should be welcome to savers who are not overexposed to market risk. The Fed took its first step away from the seven-year zero-interest-rate policy (ZIRP) last week, increasing its target rate on overnight loans between banks (“federal” funds) for the first time in almost ten years. ZIRP was grounded in the Fed’s desire to stimulate the economy after the last financial crisis, an objective that met with limited success. ZIRP’s most profound “success” was to distort prices, with negative consequences for conservative savers, those dependent on retirement assets, and the long-term growth of the economy.

ZIRP necessarily constitutes a price ceiling when expected inflation is positive. It implies negative real rates of return, but real rates of time preference are not and cannot be negative. Given the choice, no one intends to forego present pleasure to purposefully suffer a loss later. The imperative to earn positive real returns does not end simply because the Fed and ZIRP make it more difficult. 

Anyone with funds parked in near zero-return assets, such as money market funds and certificates of deposit, earned a negative real return during the ZIRP regime, as inflation remained positive despite misplaced fears to the contrary. Those kinds of savings vehicles earn relatively low returns and should carry little risk to savers.

What are savers and retirees to do under a ZIRP regime? If they absolutely must defer consumption, they can accept the predicament and leave funds to decay in real value. They can dis-save in response to the disincentive, consuming their accumulated wealth. Some, for whom retirement is near, might even put more aside with the full knowledge that it will erode in real terms. But many will seek out yield in other ways, investing in assets bearing greater risk than they would otherwise prefer. All of these alternatives are likely to be less-preferred by the public than rates of saving and portfolios constructed in the absence of the Fed’s rate distortions.

The Fed’s policies and zero rates have contributed to inflated equity prices over the past six years as savers sought enhanced returns, and those valuations are certainly vulnerable. Over the past week, market jitters have shown the extent to which traders and investors feel threatened by the Fed’s tightening move.

The impact of ZIRP on the well-being of savers is only part of the story, however. Such a regime compromises the fundamental process of aligning preferences with the physical transformation of present resources into future consumption. Like any price distortion, ZIRP misallocates resources, but it misallocates across time and across sectors of the economy. When discounted at ultra-low rates, the values of future financial flows are grossly inflated, diminishing the need to set additional amounts aside today. At the same time, zero or near-zero rate borrowing confuses the evaluation of alternative capital investment projects. Resources may be committed to projects that would be rejected given accurate price signals. The artificially-enabled bidding for resources prompted by ZIRP, and the distortion of the risk-return trade off, might even cause more worthy projects to be rejected. And there is every reason to expect that saving by some individuals will be channeled into immediate consumption by others.

Who would do such wasteful things, undertaking projects with low or nonexistent future returns? Those facing distorted price signals, most prominently government technocrats for whom meaningful price signals are seldom a concern. And that also goes for the subsidy-hungry private beneficiaries of the state’s tax-extracted and borrowed largess. The ultimate consequence of this behavior is a deterioration in the economy’s growth potential.

Ronald-Peter Stoferle provides a short catalogue of ZIRP’s destructive impacts in the “Unseen Consequences of ZIRP“. One of his more interesting statements is the following, with reference to “zombie” banks:

“Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.“

Thus, ZIRP promotes economic rot in several ways. Last week’s rate move by the Fed is a step in the right direction, away from zero rates and drastic overvaluation of consumption flows now and in the future. However, the monetary excesses of the past six years will not be reversed by this one move. The Fed is still imposing an artificial ceiling on rates. Even if that restriction is eased in further steps during 2016, the Fed is committed for the long-term to the manipulation of interest rates in the execution of policy. That sort of activist market manipulation is likely to continue; like all forms of central planning, it will be based on woefully incomplete information, a poor understanding of individual and market behavior, and bad timing. It will degrade economic conditions and have the classic boom-and-bust repercussions typical of central bank intervention.

End The FDA’s War On Drug Development

16 Wednesday Dec 2015

Posted by in Health Care, Regulation

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FDA Secret Happiness

For the seriously ill, the phrase “regulated to death” might hit close to home when it comes to the U.S. Food and Drug Administration. The agency is a notorious bottleneck on the availability of new, potentially life-saving drugs. Its policies seem to rely on an over-reading of the precautionary principle: that the risk of harm must be weighted heavily regardless of the opportunity cost in terms of curative, life-extending or palliative potential. The facts are as economist Alex Tabarrok describes:

“It costs well over a billion dollars to get the average new drug approved and much of that cost comes from FDA required clinical trials. Longer and larger clinical trials mean that the drugs that are eventually approved are safer. But longer trials also mean that good drugs are delayed. And the more expensive it is to produce new drugs the fewer new drugs will be produced. In short, longer and larger trials mean drug delay and drug loss.“

One billion-plus dollars of incremental cost for the average new drug! Not only are the lengthy delays unacceptable, but the added cost seriously inflates new drug prices. Furthermore, it is difficult for small, innovative competitors to engage in development in the face of costs like these. And while large pharmaceutical companies might be forced to limit investment in new drug research and might rightfully bemoan their cost structures, they are in a much better position to handle the regulatory burden than start-ups.

Tabarrok has long advocated “reciprocity”, or U.S. approval of “drugs, devices and biologics” that have been approved by authorities (such as the European Medicines Agency, or EMA) in certain other developed countries. He has also advocated “Free To Choose Medicine” principles, which would create a dual track allowing certain patients to opt into the use of drugs at a relatively early stage in the FDA’s approval process. Research studies cited by Tabarrok suggest that expedited drug approval can provide substantial benefits in terms of patient survival years without compromising safety.

A bill introduced by Senators Ted Cruz (R-TX) and Mike Lee (R-UT) would authorize reciprocity in the U.S. In October, Cruz discussed the legislation in this article:

“The FDA model is risk-averse, by its very nature obstructing promising innovations. It largely assumes that the biology of patients is the same, rather than recognizing that individuals’ genetic makeup varies widely. As a result, the only drugs the agency tends to approve are those that help a broad spectrum of patients and harm close to no one. That method may work to fight diseases that affect us all in a similar way, such as smallpox or cholera, but it does not work for diseases such as Alzheimer’s and cancer, which are highly tailored to each individual’s genetic makeup. In medicine, a one-size-fits-all approach ignores the diversity of the human person and limits the discovery of innovative cures to a small segment of those afflicted with disease.“

Tabarrok anticipates a certain objection to reciprocity:

“The argument for reciprocity, however, isn’t that the FDA is uniquely bad or always worse than the EMA or vice-versa. The argument is that it’s wasteful to duplicate the lengthy approval process and that both agencies sometimes make mistakes. As a result, it’s simple common sense to let Americans avail themselves of drugs and devices approved in other developed countries.“

There are other reform proposals in play. The Goldwater Institute has advocated “Right to Try” laws at the state level that would allow terminally-ill patients to access unapproved medicines. Representative Fred Upton (R-MI) has introduced the 21st Century Cures Act, which includes:

“... steps to streamline clinical trials; advance personalized medicine by encouraging greater use of drug development tools, such as biomarkers; and creat[es] incentives for developing drugs for uncommon but deadly diseases.”

Regulation is often an obstacle to vibrant competition and innovation, and the FDA’s antiquated drug approval process is certainly a hindrance. The process adds time and expense to drug development that carries unacceptable human costs. It is beyond comprehension that drugs can be rejected for procedural reasons when their proposed use involves circumstances that could hardly be worse, when those drugs carry little incremental downside risk. The rights of patients and the judgements of their physicians should take precedence over the sometimes picayune concerns of a regulatory bureaucracy. The reforms discussed above would be positive steps toward establishing that primacy.

 

Would You Tax Coastal Development?

14 Monday Dec 2015

Posted by in Central Planning, Global Warming

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Sea Level

If sea levels are truly rising due to climate change, then public policy should stop encouraging new development in coastal areas. Stipulating that this threat is real for the moment, serious and damaging encroachment of the seas might be 50 years away or more. By that time, many of today’s coastal buildings will be gone, or at least candidates for replacement, under realistic assumptions about the average lives of structures. A relatively low-cost approach to the threat of rising seas would be to stop building along the most vulnerable coasts right now and move new development inland. Yet no one wants to do that, least of all coastal property owners. But there is little discussion of this alternative even among the true believers of a coming global warming apocalypse. Why not?

This and related questions have been asked recently by several writers, including Glenn Reynolds and economist Robin Hanson. There are alternatives to discouraging new construction along coasts. Other expensive abatement projects can be pursued, now and later, such as sea walls or even adding land mass excavated from the sea floor or inland. In fact, the prospect of damming the Strait of Gibraltar to protect Mediterranean coastlines has been discussed. The expense of such an unprecedented public works project is what prompted Hanson’s post. To the extent that such remedial projects are not funded privately, they represent social costs arising from coastal development.

The federal government still subsidizes flood insurance on many coastal properties, though efforts to phase-out this FEMA program have been underway for a few years. However, governments seem only too willing to undertake the investment in public infrastructure and ongoing maintenance made necessary by new coastal development. And like other development projects, tax abatements and other subsidies are still granted for coastal development. Why do these policies escape notice from coastal green elites?  Public outlays with private beneficiaries along threatened coasts are an immediate drain on resources, relieving private developers and property buyers of shoreline risk.

Reynolds (perhaps tongue-in-cheek) and Hanson suggest that new development should be taxed in coastal areas. That, and ending subsidies for development along coasts, is an economically and ecologically defensible alternative to the public expense of ubiquitous sea walls. However, a coastal tax might not be in the immediate interests of elites  who claim that mankind faces an insurmountable global warming problem. Better to put off these sorts of remedial measures, especially while you can tax and regulate fossil fuels, and maybe live on the coast!

The position of the warmist community is that carbon emitters must cease and desist, in the hope that the seas will stop rising. They are willing to destroy entire industries (fossil fuels) in pursuit of their goals, but are unlikely to achieve them without inflicting drastic economic harm. If greens are so amenable to central control of economic activity and individual behavior (so long as they are at the controls), it would be prudent to take precautions now that will help to minimize the damage later. Discouraging coastal development with taxes and denial of subsidies is the sort of classic intervention that any Pigouvian planner should love. There is even evidence that sea levels have been much higher at times in the past. An earnest central planner might say that coastal development should always be discouraged to mitigate the risk of destruction.

I am skeptical of alarmist claims, including those related to rising sea levels. In fact, the connection between carbon emissions, global temperatures and sea levels is not well established, and whether sea levels are rising due to human activity is a matter of some dispute. Furthermore, global sea ice extent is not declining dramatically, if at all, and the storied glacier melts have been greatly exaggerated. Climate activists pursue their agenda despite the gross inaccuracy of past carbon-forcing forecasts, the gaping uncertainty surrounding model predictions going forward, and the crushing expense of the measures they advocate. The expense, however, is not one that activists expect to compromise their own standard of living. They either assume that it will be borne by others or that their draconian prescriptions will usher in an era of “sustainability”, powered by new, renewable energy sources. Not many of these alarmists would boast that their policies can quickly reverse the sea level rises they’ve told us to fear, but they dare not suggest taxes on coastal development until they see more convincing evidence. At least that much is sensible, if ironic!

FCC Net Neutering Vs. Technological Potency

11 Friday Dec 2015

Posted by in Net neutrality

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160194_600-2

A court challenge to the FCC’s “net neutrality” rules may go a long way in preventing inflated costs, degraded service, stifled innovation and abridgment of freedoms that the rules would foist on the public. The rules are based on treating internet service providers (ISPs) as common carriers under the Title II provisions of the Telecommunications Act of 1934. The uncertain and potentially severe regulatory environment this creates has already led to reduced capital investment by service providers, limiting capacity needed to accommodate the usage demanded by consumers and businesses. The first arguments in the case, U.S. Telecom Association v. FCC, were heard last week in the U.S. Court of Appeals for DC.

A primary argument of proponents of net neutrality is their objection to unrestricted pricing of Internet traffic. The fear is that big carriers will discriminate against smaller users and content providers, shutting them out, despite the fact that the diffusion of internet services throughout society has taken place at a breakneck pace, and despite the existence of network externalities benefitting ISPs that encourage diffusion. In fact, some of the largest content providers have pushed for net neutrality with designs on avoiding the long-run marginal costs of network expansion required by their services, thus to gain a cost advantage over smaller competitors. This is a typical regulatory play: an entrenched private interest seeks to protect its market position, and its technologies, against new and potentially more innovative competitors via supplication to government rule-makers.

L. Gordon Crovitz discussed the U.S. Telecom case in the Wall Street Journal in “Obamanet Goes To Court” (gated — but Google it). Already, the FCC has cast a watchful eye on a competitive, “zero-rating” video service from T-Mobile under its “general conduct rule”. Zero-rating services are of great value to consumers who prefer low-cost access to specific internet features, like video streaming (see this Newscopia piece). Corvitz says:

“T-Mobile’s Binge On benefits consumers by giving them low-priced unlimited access to 24 video services, including Netflix, HBO and ESPN. This package is aimed at cost-conscious people who don’t have broadband. Net neutrality absolutists hate the idea, known as ‘zero rating.’ Susan Crawford, a former Obama special assistant for science, technology, and innovation policy, has written that it ‘is pernicious; it’s dangerous; it’s malignant.’”

Say what? Are consumers no longer capable of judging value against price, as they typically must in their day-to-day affairs? Do we need Big Brother to hem-in competitors in the marketplace who desire more than anything to meet a need in the market, thereby attracting buyers?

Crovitz discusses the legal issues facing the Court, most importantly the FCC’s authority to decide what is “fair” and “reasonable” under the Telecommunications Act of 1996:

“… the agency’s new ‘Internet conduct standard’ is so vague it exceeds the agency’s authority; … the White House’s intervention violated separation of powers and the notice period for new regulations; and the rules violate First Amendment protections for free speech by letting regulators decide what content broadband providers can and can’t make available…. in its rush to adopt Obamanet, the FCC failed to conduct even a cursory review of the costs of treating the Internet as a utility.“

Make no mistake, many of the complaints received by the FCC are from commercial interests attempting to strong-arm other players. “BlackBerry even asked regulators to force Netflix to stream videos on its unpopular phones.” Net neutrality amounts to a vehicle for croney capitalists to seek rents at each others’ expense through government regulatory action. That’s not how the internet has grown to become the tremendous communication, entertainment and transactional apparatus that it is today.

Rep. Marsha Blackburn (R-TN) is a vocal critic of the FCC’s rules, leads a group of 22 legislators who filed a brief in the case “arguing that Congress never granted the FCC the statutory authority to reclassify an industry on its own.” She is also one of 50 cosponsors of the Internet Freedom Act, which would make explicit the FCC’s lack of statutory authority to regulate the internet under Title II rules.

Blackburn believes that net neutrality rules represent a first move by the federal government to control content on the Internet. That could include political speech as well as central direction of internet resources, redirecting opportunities to favored “winners” (content and service providers, technology developers, and geographies) and away from players less favored by the political class.

Another consequence of the FCC’s new rules is likely to be the imposition of a “Backdoor Internet Tax” on users. That is the universal service fee that eventually would amount to $7.25 per month at today’s average broadband bill. Many younger users have no experience with that tax, having rejected landline telephone service in favor of wireless technology and voice-over-internet.

The cartoon at the top of this post is inaccurate in one important respect: it doesn’t come close to indicating the dead weight that government regulation will impose on the future development of the Internet. The FCC was not needed to promote the amazing growth we have witnessed to date. Its intervention is already creating burdens on providers and users. The likelihood of restricted choice and other freedoms, and distortions to an otherwise healthy market mechanism for allocating technological resources, should not be tolerated. We will never know the true potential of the internet if we allow the it to be tampered and hampered by a government bureaucracy.

Gun Bans Are “Stupid, Unconstitutional, and Unpopular”

08 Tuesday Dec 2015

Posted by in Gun Control, Terrorism

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Poster_Obama_Children_Guns

The terrorist attack this week in San Bernadino is not a rational argument for gun control. The anti-gun left has fixated on the tragedy for the wrong reason: to push their agenda to compromise gun rights. This topic was not prominent in the commentary after the recent massacre in Paris. That might be because France has strict gun laws that did not stop the terrorists. Similarly, the guns used in the San Bernardino attack were acquired legally despite the fact that California law requires background checks and bans so-called “assault weapons”.

President Obama’s ridiculous claim that mass shootings are an experience known only in the U.S. is obviously false (and see here). In fact, the barrage of misinformation regarding growth in mass shootings in the U.S. is based on severely distorted definitions.

Furthermore, there is no causal evidence that imposing stronger gun prohibitions reduces homicides and violent crime rates, and much evidence to the contrary. See this interesting 2007 study in the Harvard Journal of Law and Public Policy, “Would Banning Firearms Reduce Murder and Suicide?” And NYU Law Professor James Jacobs’ adds his thoughts on the inefficacy of gun control.

A compelling reason to reject the anti-gun narrative is that gun violence has been declining for years, despite continuing increases in gun ownership. That makes sense given the value of gun ownership as a crime deterrent. Even relatively conservative estimates of defensive gun uses (DGUs) put their number above, even far above, statistics on gun crime, and deterrence is an additional benefit over and above actual DGUs. Gun prohibition is often counterproductive because it forecloses the opportunity for deterrence and DGUs, much as signs announcing “gun-free zones” offer effective advertising for soft targets.

International comparisons of homicide rates and gun death rates which purport to show that the U.S. ranks poorly are distorted along several lines, but one glaring reason is that European governments exclude terrorist killings while the U.S. does not. Furthermore, reports of U.S. murder rates relative to other “developed” or “advanced” countries often involve arbitrary definitions that tend to distort the comparisons.

Australia has been adopted as something of a poster child on social media for the purported success of their gun “ban” (which was not really a ban at all). The results have been greatly exaggerated. In fact, “success” is a poor choice of words. Here are a few notes on Australian homicide rates after the gun “ban”. The video here is also illuminating, and the following link has more information on the “Australian Gun Ban Conceit“.

Finally, as the New York Times and other outlets have inadvertently demonstrated, the anti-gun argument rests on a poor understanding of constitutional principles. The Times states that “No right is unlimited and immune from reasonable regulation.” That is a testament in support of tyranny, and it is false under any conception of natural rights. The statement is either a complete misunderstanding of the intent of the U.S. Constitution or an open call to rip it to shreds. The Constitution is clear in establishing limits on government power and in leaving nearly all individual rights presumed and unenumerated. However, it clearly establishes the right to bear arms because the nation’s founders considered the right of self-defense against aggression so fundamental, including defense against aggression by a tyrannical state.

Note: the title of this post includes a post from Glenn Reynolds.

Pundits Get Played But Earn Rents From the Trade

04 Friday Dec 2015

Posted by in Big Government

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Powerful officials often seek to influence “thinkers” and pundits by flattering them with access and requesting advice that ultimately is treated as superfluous. That is the upshot of this interesting post from Jeremy Shapiro at The Brookings Institution: “Who Influences Whom? Reflections on U.S. Government Outreach to Think Tanks“.

These relationships are of a different character than the symbioses often existing between government officials (elected and unelected) and private corporations and unions. The corporatist relationships that most often come to mind are infamous for bleeding taxpayers, distorting the economy and using the power of government to advance private interests. The nexus highlighted by Shapiro between officialdom and think-tank experts, as well as influencers in the media and academia, is a different corner of the rent-seeking world, but it is rent seeking nevertheless.

Shapiro, himself a former government official, describes a sequence of events that might be experienced by an outside expert leading up to an “important” meeting with a high government official. Such experts have a strong interest in their areas of study and naturally hope to promote their own views and analyses. An opportunity to provide input to a policymaker is obviously attractive to such a person. Interactions with officials also confer status on experts, who can then trade on the impressive access they’ve been granted. Invitations to meetings like these, in and of themselves, represent successful rent-seeking by policy experts, regardless of whether their policy advice is given serious consideration by public officials.

While outside experts are often called upon for real policy advice, the government official is frequently after something else; in all likelihood, the official already has a policy position:

“The government official desperately wants the thinkers to give him the benefit of the doubt when his inevitably flawed policy comes up for critical examination, as they are an important source of its ultimate evaluation by the Congress and the public. The briefings therefore tend to take place before important diplomatic meetings or foreign trips that will predictably occasion a round of media coverage on the policy in question.“

So the official hopes to engineer mutually beneficial trades with outside experts. Trades of this kind may have no real value to anyone outside of the direct parties. Shapiro’s example relates to foreign policy, but the same dynamic takes place in almost every area of government policymaking:

“The thinkers are the validators. They will write op-eds, give pithy quotes to important newspapers, and appear on network news programs.“

As Shapiro tells it, an intriguing aspect of this process is that the experts are often well aware of the circumstances. Usually, they can be counted upon to pay for their access and the esteem it bestows by offering at least subtle forms of support for the official’s policy initiative:

“The meetings, their grandeur and secrecy, are intended to foster a sense that the thinkers have been listened to and thus are somehow complicit in the policy—the illusion of inclusion. A meeting that seems to the thinker to be an opportunity to persuade is actually an opportunity to be persuaded. It doesn’t always work, of course. Fundamental positions are rarely altered and many of the supposed validators will remain fierce critics. But the biggest secret of all is that, even if the thinker does understand the real purpose, it often works at least at the margins.“

Large numbers of tremendously talented, well-compensated people are engaged in charades like this on a regular basis. We know there are beneficiaries and there are real costs, but who pays for the largess? Obviously taxpayers, but private parties pay in other ways: Media time devoted to pundits is often paid by advertisers and, ultimately, consumers. Private think tanks are supported by private contributors who expect their own views to be validated by analyses and promoted in policy debates. The activity described by Shapiro may subvert those intentions. The real cost to society, however, is the value of resources diverted from productive, private activity to support the circle of rent-jerking. The bigger the government, the bigger the circle.

Climate Summit Success? Let’s Talk In Five Years

02 Wednesday Dec 2015

Posted by in Global Warming, Human Welfare

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Moudakis Cartoon

Misplaced priorities are on full display in Paris for the next ten days at the climate conference known as COP-21 (“Conference of the Parties”). Joel Kotkin makes note of the hysteria in evidence among climate activists fostered by political opportunists, economic illiteracy and fraudulent climate research. Of course, climate alarmism offers handsome rewards for politician-cronyists and rent-seeking corporatists. With that seemingly in mind, President Barack Obama is playing the role of opportunist-in-chief, claiming that climate change is the biggest threat to U.S. security while blithely asserting that the climate is responsible for the growing danger from terrorism. Here is Kotkin on such tenuous claims:

“… this reflects the growing tendency among climate change activists to promote their cause with sometimes questionable assertions. Generally level-headed accounts, such as in the Economist and in harder-edge publications like the Daily Telegraph, have demonstrated that many claims of climate change activists have already been disproven or are somewhat exaggerated.“

“Somewhat exaggerated” is an understatement, given the scandals that have erupted in the climate research community, the miserable predictive record of carbon forcing models, and the questionable practices employed by NASA and NOAA researchers in adjusting surface temperature data (see below for links). When it comes to climate activism, the Orwellian aspect of Groupthink is palpable:

“Rather than address possible shortcomings in their models, climate change activists increasingly tend to discredit critics as dishonest and tools of the oil companies. There is even a move to subject skeptics to criminal prosecution for deceiving the public.“

This is thoroughly contrary to the spirit of scientific inquiry, to say nothing of free speech. As if to parody their questionable approach to an issue of science, climate-change devotees have come out in full force to attack the excellent Matt Ridley, a sure sign that they find his message threatening to the power of their mantra. Ridley and Benny Peiser have an op-ed in the Wall Street Journal this week entitled “Your Complete Guide to the Climate Debate” (should be ungated for now). The authors discuss the weakness of the scientific case for anthropomorphic global warming (AGW); the fact that they use findings of the Intergovernmental Panel on Climate Change (IPCC) to make this critique must be particularly galling to the alarmists. Ridley and Peisner cover the correspondingly flimsy case for draconian environmental policies to deal with the perceived threat of AGW. Also, they emphasize the regressive nature of the demands made by the environmental left, who are either ignorant or unfazed by the following truths:

“… there are a billion people with no grid electricity whose lives could be radically improved—and whose ability to cope with the effects of weather and climate change could be greatly enhanced—with the access to the concentrated power of coal, gas or oil that the rich world enjoys. Aid for such projects has already been constrained by Western institutions in the interest of not putting the climate at risk. So climate policy is hurting the poor.“

Finally, Ridley and Peisner explain the economic incentives that are likely to undermine any meaningful international agreement in Paris. Less developed countries have been asked to reduce their carbon emissions, which they can ill afford, and to agree to a verification framework. Those parties might agree if they view the framework as sufficiently easy to game (and it will be), and if they are compensated handsomely by the developed world. The latter will represent an insurmountable political challenge for the U.S. and other developed countries, who are already attempting to promulgate costly new restrictions on carbon emissions.

“Concerned about the loss of industrial competitiveness, the Obama administration is demanding an international transparency-and-review mechanism that can verify whether voluntary pledges are met by all countries. Developing countries, however, oppose any outside body reviewing their energy and industrial activities and carbon-dioxide emissions on the grounds that such efforts would violate their sovereignty.

… China, India and the ‘Like-Minded Developing Countries’ group are countering Western pressure by demanding a legally binding compensation package of $100 billion a year of dedicated climate funds, as promised by President Obama at the U.N. climate conference in Copenhagen in 2009.

However, developing nations are only too aware that the $100 billion per annum funding pledge is never going to materialize, not least because the U.S. Congress would never agree to such an astronomical wealth transfer. This failure to deliver is inevitable, but it will give developing nations the perfect excuse not to comply with their own national pledges.“

These conflicting positions may mean that the strongest point of accord at the Paris conference will be to meet again down the road.

“Expect an agreement that is sufficiently vague and noncommittal for all countries to sign and claim victory. Such an agreement will also have to camouflage deep and unbridgeable divisions while ensuring that all countries are liberated from legally binding targets a la Kyoto.“

This morning, an apparently sleepy and deluded President Obama spoke at the Paris conference before heading back to the U.S. He insisted again that the agreement he expects to come out of Paris will be a “powerful rebuke” to terrorists. Yeah, that’ll show ’em! Even a feeble agreement will be trumpeted as a great victory by the conference parties; Obama and the Left will attempt to wield it as a political cudgel, a brave accomplishment if it succeeds in any way, and a vehicle for blame if it is blocked by the principled opponents of climate alarmism. The media will play along without considering scientific evidence running contrary to the hysterical global warming narrative. Meanwhile, the frailty of the agreement will represent something of a win for humanity.

Here are some links to previous posts on this topic from Sacred Cow Chips:

Climate Negotiators To Discuss Economic Cannibalism

A Cooked Up Climate Consensus

Fitting Data To Models At NOAA

Carbon Farce Meets Negative Forcings

Subsidized Waste: The Renewable Irony

Manipulating Temperatures, People & Policy

Record Hot Baloney

Alluring Apocalypse Keeps Failing To Materialize

The Stench of Green Desperation

Cut CO2, But What About the Environment?

Live Long and Prosper With Fossil Fuels

Divesting of Human Well-Being