Tag Archives: Nick Gillespie

The Special Olympics and Tax-Funded Philanthropy

30 Saturday Mar 2019

Posted by in Big Government, Education, Federal Budget

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The federal government’s contribution to funding the Special Olympics (SO) illustrates the widespread view of government as a limitless font of subsidies for appealing causes. People were up in arms over the elimination of $17.6 million dollars in federal grants for the SO in President Trump’s budget proposal. Granted, that’s a pittance as budget items go. Later, Trump promised to restore the funding. That is, of course, in addition to the millions in federal tax subsidies already granted on private gifts to the SO.  As Nick Gillespie explains, SO funding is like so many other things people want from government that government has no business doing. Why, exactly, should the federal government, or any level of government, fund the SO? It is a wonderful program, but it simply does not have the character of a public good, nor is it a safety net issue.

The SO certainly benefits the athletes and families that take part, but those benefits are strictly private. Perhaps the larger population of disabled individuals takes inspiration from watching the SO, along with good-hearted people everywhere. Most everyone is happy to know that the SO happen, but those are no more public benefits than the good vibes you get from viewing an inspirational film or theatrical production. For that matter, sports fans and patriots are inspired by great efforts on the part of the U.S. Olympic team, but the federal government does not fund the U.S. Olympic Committee. It’s therefore absurd to assert that the public bears an obligation to pay for the most athletic of disabled individuals to have opportunities to compete and win medals just like Olympic athletes.

Gillespie explains a little about the history and funding of the SO:

“Founded in 1968 by Eunice Kennedy Shriver, the Special Olympics is a 501(c)3 nonprofit, meaning that deductions to it are tax deductible. According to its 2017 financials (the most-recent available on the web), the organization had total revenues of about $149 million, including $15.5 million in federal grants. It’s not a stretch to assume that if federal funding disappears, the resulting outcry would lead to record donations.”

And again, let’s not forget that corporate gifts to the SO are tax deductible up to certain limits. Gillespie also quotes Secretary of Education Betsy DeVos:

“There are dozens of worthy nonprofits that support students and adults with disabilities that don’t get a dime of federal grant money. But given our current budget realities, the federal government cannot fund every worthy program, particularly ones that enjoy robust support from private donations.”

Families with disabled children have extraordinary needs. It’s probably better to think of federal support for those needs as a safety net issue, a form of social insurance. There are several federal programs that provide funds to support low-income families with disabled kids. And while the cut to SO funding was in the budget originally submitted by Secretary DeVos, Gillespie notes that the DOE’s budget “allocates over $32 billion for ‘high-need students,’ which includes intellectually disabled students.” 

DeVos was widely criticized for her budget, but as Gillespie says, she sets a fine example for anyone in a position to help rein in the growth of federal spending and ultimately the federal budget deficit. Given the DOE’s track record of poor programmatic guidance (Common Core), counter-productive school disciplinary mandates, and it’s complete lack of impact on educational outcomes after 40 years of existence and many billions of dollars spent, the continued existence of the DOE is difficult to rationalize.

Once a program appears in the federal budget, no matter how inappropriate as a public priority, and no matter how ineffective, its constituency will always defend its funding with rabid enthusiasm. That defense is multiplied by a chorus of statists in the media and elsewhere who, in their benevolent intentions for the taxes paid by others, can be counted upon to call out the “cruelty” of any proposed cuts, or even mere cuts in a program’s projected growth. The Special Olympics episode, and the DOE, are cases in point.

The Abolition of Wealth

12 Tuesday Feb 2019

Posted by in Free markets, Redistribution, Taxes

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Few weep for the wealthy when they are attacked by redistributionists, but perhaps we should. Recent expressions of hatred for the so-called super-rich extend to the merely affluent, of course, but billionaires are much less likely to find sympathy. Those proposing to “abolish billionaires” by laying public claim to their assets and incomes have little reason to expect a popular backlash. Nevertheless, there are strong reasons to defend the wealthy and their right to control the riches they accumulate. Don Boudreaux has some words we should all take to heart:

“While exceptions no doubt exist, the people who get rich in our economy are overwhelmingly people who have made the rest of us richer.”

Boudreaux is correct in noting that “anti-billionaire” sentiment is marked in people who know little of the complexities of actually producing things. Wealth creation is a two-way street. On one end is a cadre of innovators and risk-takers whose rewards are often concentrated. On the other end are the many beneficiaries of those innovations: eager buyers of value-enhanced products whose rewards are relatively diffuse but very meaningful nonetheless. The same dynamic takes place in generating lower levels of wealth, among hard-working small entrepreneurs and savers. Eliminate one set of rewards and the other will vanish.

Redistributionists are aware of scarcity at a basic level, but it’s as if they take for granted that a certain quantity of product will be on the shelves irrespective of the policy environment, incentives, and basic guarantees of economic liberty. As Boudreaux says:

“If food, clothing, medical care, automobiles, houses, diamond rings, airplane seats, rolls of paper towels, and all other good and services were randomly rained down onto earth by some heavenly being, it would then be true that the more of these goodies that I manage to grab, the fewer are the goodies available for you to grab, and vice versa. … And so if through simple luck or sinister cunning I grab more than you grab, then the resulting inequality in our wealth has no good justification. If the government seizes from me a chunk of ‘my’ stuff and gives it to you, no ethical offense is committed.”

That’s not how it works in a world in which effort and resourcefulness are required to satisfy wants. Under a truly liberal order, such efforts are voluntary, motivated by the promise and prospect of secure rewards. And so, as consumers, we can possess the riches made possible through the efforts of innovators and risk-takers. If successful, their rewards are earned by producing value that not only exceeds their own costs, but exceeds the prices buyers are asked to pay. Today’s most prominent billionaires have brought to market products, services, and ways of transacting that we’d never have imagined even a few years prior to their introduction. Computer operating systems, smart phones, on-line retailing, and room- and ride-sharing are just a few examples.

Nick Gillespie makes much the same point in quoting Joseph Schumpeter:

“The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.”

Then there are the highly popular musicians and actors of the day, with wealth approaching (and in a few cases exceeding) $1 billion. Gillespie uses Paul McCartney as a case in point. Rather than “cheating” his way to wealth, McCartney’s fans would heartily agree that his talents are well worth the wealth he’s managed to accumulate. Would advocates of “abolishing” billionaires deny all this? They contend, in their own arbitrary judgment, that the market’s objective assessment cannot justify wealth of this magnitude.

Redistributionists also resent that anyone of wealth might have the gall to hold it or invest it rather than give it away. First, as noted above, secure rights provide the necessary incentives to create, produce, and take risks ex ante, which help enrich us all ex post. But those rights also must be secure ex post, and not subject to the whims of the next generation of socialist nitwits. In addition, as Gillespie says:

“Would there be less suffering in the world if [McCartney’s] money is expropriated and transferred to the wretched of the earth via higher taxes rather than through his own charitable donations and investments? Probably not, especially when you think about how much suffering, especially in the developing world, is the direct result of government action.”

Gillespie also marshals statistics on changes in measures of inequality that do not support the claims of redistributionists. In a separate post, Boudreaux makes that case here. Furthermore, the U.S. already has arguably the most progressive tax system in the developed world, even if transfers to the poor are not as generous as in some countries.

The sheer ignorance of many progressives is well illustrated by the “war against billionaires“. These critics of wealth demonstrate all the economic sophistication of preening high-school social studies students. Unfortunately, they are now coddled by certain established officeholders too eager to seek approval from the fringe left than to bother with responsible policy analysis.

It’s a short rhetorical step from condemning billionaires to condemning mere millionaires and sub-millionaires, and coveting their wealth. The victims here will ultimately include successful small business people and professionals who not only employ large segments of the population but also provide many of the services and wares we rely on in our day-to-day lives. Their success is not only well-earned: it is continuously exposed to risk from competitive forces. Rapacious politicians will never cease in their efforts to apply confiscatory taxes to the wealth of the very affluent. Soon enough, tax policy will reach farther down into the wealth distribution. These are games better suited to children or even vicious animals. Redistributionists think in zero-sum terms, with no appreciation for the positive-sum outcomes enabled by secure rights and free markets. Their failure to grasp the dynamics of free markets is at the root of their advocacy for disastrously negative-sum policies.

 

Rural Broadband and Federal Intrusion

06 Tuesday Feb 2018

Posted by in infrastructure, Technology

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Rural telecommunications service is often inferior in speed and quality to what is available in urban areas. This is one basis of the so-called “digital divide” in the U.S., the gaps that exist between various groups in terms of access to broadband telecom service. The urban rural “divide” is actually much smaller than the gaps that exist within urban areas, but much of the attention in public policy debates seems to focus on rural broadband availability. Telecom infrastructure is far more expensive to provide in the hinterlands due to the distances and occasional natural barriers that must be traversed. This was true before the revolution in wireless technology and still is, though wireless has reduced the severity of the tradeoff. Given the cost differential, it strikes me as unreasonable for rural users to expect the same levels of service at the same cost as urbanites. They can either pay the higher cost of provision to receive high-end service, make do with service levels that can be delivered at rates they are willing to pay, or go without. Or, if a high level of service is critical and the user is unwilling to pay the cost, they can move to a place at which it is available at lower cost.

For many years, however, public policy has been premised on the notion that rural telecom users deserve subsidies from the general user population, or from taxpayers, in order to promote equal access to basic telephony and, more recently, broadband access. The Universal Service Fund, to which telecom users pay a fee on their bills every month, is based on this premise. Its extension to broadband is a classic example of first-world luxury made necessity, now asserted to be an obligation owed by society to every individual. It is the philosophical underpinning for a huge allocation of federal funds for rural telecom spending that is now expected as part of President Trump’s infrastructure plan. 

Broadband Availability

The quality of telecom service includes speed and other factors (such as latency, which refers to data delays). Here, I’ll confine the discussion to the speed at which data can be downloaded (upload speeds are always a bit slower). Minimum speeds of 5 – 8 Mbps are required to stream HD video, according to the FCC. Higher speeds are necessary for heavy users with several devices or “running more than one high-demand application at the same time.”

Broadband speeds vary tremendously across the U.S., but it’s important to remember that speeds are increasing dramatically over time. Small towns are undoubtedly concentrated at the lower end of the distribution of speed availability at any point in time. Today, the gap between the availability of speeds in urban and rural areas is minimal up to about 10 Mbps, but it widens above that level. In fact, the speeds available via certain wireline technologies can vary significantly even within one small town (to say nothing of the significant variation within urban areas). Away from town, the availability of wireline broadband is much more limited. Fixed wireless broadband service (point-to-point) can often be deployed at speeds comparable to wireline service, and those speeds and their availability will increase with the rollout of new (5G) wireless technology. Still, that might not be an option in many isolated communities and remote locales without additional facilities like relay stations. Satellite service is often available at speeds up to 25 Mbps, in-town or out, but like wireless, it has some reliability issues.

Nevertheless, to one degree or another, broadband service is often available in rural areas, or can be available if customers are open to a range of alternative technologies (and again, available speeds are increasing). Obviously, some technologies are better suited to reaching particular areas, depending on distances and terrain. Many rural communities are finding affordable solutions that combine technologies that best leverage existing infrastructure and the natural features of the landscape.

Alms or Unfettered Choice

A reality of life in a hard-to-serve location is that broadband service will be costly… for someone. Enter the interventionists, who view “rurals” with paternalistic sympathy. Rural customers, and certain solutions for broadband delivery discussed above, are already subsidized by the federal government in some instances. And again, the Trump Administration is ready to throw more federal money at rural telecom infrastructure. These subsidies are questionable from a public finance perspective because they presume that rural areas are “underserved” on a cost-benefit basis, a case that is often dubious.

The biggest rub is that most people who live in rural areas do so by choice, a point recently articulated by Nick Gillespie. He recounts the experiences of his ancestors, who came from poor European villages to America to seek a better life. By comparison, today’s American rural population is highly privileged. Few are mired in circumstances beyond their control, contrary to the popular view. Gillespie notes that rural median income is only about 3.5% less than urban income (including suburbs), while rural homeownership rates are higher and poverty rates are lower than in urban areas. Indeed, it’s no secret that many urban elites purchase rural property to escape congested city life. Those are some of the would-be recipients of federally-funded rural broadband infrastructure.

In the end, Americans tend to live where they do by choice. Alternatives not acted upon generally reveal a preference for staying put. Some people prefer the amenities of small town or country life for any number of reasons, including a generally low cost of living. They accept the disadvantages of a rural life such as the lack of proximity to advanced emergency treatment facilities and, at least historically, less connectedness to media. Obviously, city dwellers tend to prefer urban amenities and accept the disadvantages of city or suburban life, like congestion. Those who wish to move from country to city, or vice versa, are free to do so, but they must pay the cost of the move. Likewise, it’s reasonable to expect that those desiring to transform the amenities of a place to their liking should pay the cost. Bringing almost any form of broadband infrastructure to areas with low population density is a costly proposition, but today’s rural consumers have more choices than ever before, and the speed and quality of broadband will continue to improve there without federal intervention.

Rural vs. Urban Adoption Gaps

The rural population is older on average, and it is less educated on average, so rural adoption rates are always likely to be lower. This point has been emphasized by Brian Whitacre, who has stated that the urban-rural “digital divide” might always exist to some extent. But this phenomenon is not unique to rural areas. Adoption rates within urban areas are highly variable, and the intra-urban broadband gaps by race, age, and income dwarf the urban-rural gap. That too is unlikely to change any time soon.

Federal Cash for Cronies & Conferees 

Last year, FCC Commissioner Michael O’Reilly warned of the dangers of direct federal involvement in broadband infrastructure investment. These include the market distortions caused by picking winners and losers among providers based on non-market assessments, the graft that such a process invites, discrimination in favor of high-cost fiber technology, poor coordination across government bureaucracies, and insufficient oversight leading to chronic overpayments. Sadly, however, even Ajit Pai, Chairman of the FCC and a man whose opposition to network neutrality I have applauded, has proposed more federal spending on rural telecom infrastructure. The big telecom recipients of the buildout funds don’t mind the subsidies, of course. The rural recipients of new services at artificially low cost can’t mind too much. But federal taxpayers and broadband ratepayers should question this activity. I’m hopeful that there will be a silver lining: it is likely to be private infrastructure.

Bump Stock Prohibition: A Mere Inconvenience?

06 Friday Oct 2017

Posted by in Gun Control

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Today’s news was full of speculation that a consensus is developing to ban the sale of so-called “bump stocks” of the kind used by Stephan Paddock, the perpetrator of last Sunday’s Las Vegas massacre. These are accessories that allow a semi-automatic rifle or pistol to be fired in a way that mimics a fully-automatic weapon, albeit less than perfectly. Today, even the National Rifle Association (NRA) stated its support for a regulatory review of bump stocks by the Bureau of Alcohol, Tobacco and Firearms. The idea was also endorsed, more or less, by conservative writer Jonah Goldberg earlier this week in an article called “Slow Down and Think“, which was otherwise focused on the unfortunate tendency of the Left to politicize the tragedy in Las Vegas. As I’ll explain below, a bump-stock ban would be a largely symbolic concession. It would represent something of an inconvenience to gun enthusiasts; like most gun control proposals, it would have approximately zero impact on the likelihood and severity of gun violence and even mass killings in the future.

One could argue that a prohibition on the sale of bump stocks represents an erosion of Second Amendment rights. Goldberg, however, rests his position on the fact that machine guns have been banned already (not quite true), so why not? Goldberg’s not really a “gun guy”, and neither am I, but here’s how he puts it:

“I am actually open to the idea that we might need tougher or better gun-control regulations. That’s an easy concession for me to make. The hard part is figuring out what those reforms would look like. One place we might start is making it harder to convert semiautomatic weapons into fully automatic ones. If it’s okay to ban machine guns, it doesn’t seem unreasonable to make it harder to turn guns into machine guns.“

It should be noted that the trade of certain (pre-1986) fully-automatic weapons is not outlawed, though it is heavily regulated and very costly.

In addition to bump stocks, Goldberg is favorably disposed to changes in gun laws that would prohibit the sale of kits enabling the actual conversion of semi-automatic to fully-automatic firearms. Currently it is legal to do so. It’s not really that easy for an individual without expertise to make such a conversion, however. A poorly done job is unlikely to be durable, if it works at all. A semi-automatic equipped with a bump stock might not be very durable either, since a semi-automatic itself is not really built to fire continuously or near-continuously.

Another issue addressed at the last link is that fully-automatic weapons, when hand-held, are not terribly accurate when engaged in firing more than a few rounds at a time. Bump firing a semi-automatic, with or without a bump stock, is even less accurate. But this might have suited Stephan Paddock just fine. If he planned to target the jet fuel tanks near the outdoor venue, then the accurate targeting of a small area on a tank with repeat-fire might have helped him achieve an even more horrific objective. But if he simply planned to spray bullets into the large crowd, the degree of accuracy was less important than the number of rounds he could fire.

Nevertheless, banning the sale of bump stocks won’t stop anyone determined to rapid-fire a gun, innocently or otherwise. First, apparently a bump stock can be 3D-printed with relative ease. Beyond that, “bump firing” is a rapid-fire technique that can be performed without a bump stock, though a bump stock makes it easier. Gun enthusiasts and hobbyists sometimes desire the thrill of firing something that feels like a fully-automatic weapon. Try it sometime, they say, under appropriate supervision! Some gun owners might like to have rapid-fire capability as extra protection against violent intruders on their property, human or animal, the advent of tyranny, or a violent breakdown of civil order. That gun-control advocates would scoff at these notions surely belies their shallow knowledge of history, or perhaps it really underscores the legitimacy of concerns that go to the very heart of the Second Amendment.

I cannot endorse the proposal to ban bump stocks. I understand the rationale offered by Goldberg and the NRA’s apparent flexibility on bump-stock regulation, but my view is that steps to outlaw conversions, like gun laws in general, will be ineffective in stopping determined killers. In the end, it amounts to an additional intrusion on private behavior without any real benefit, and the symbolism of such a concession does not help the cause of defending the Second Amendment.

In general, legal guns promote public safety via deterrence and the many reported and unreported defensive gun uses (DGUs) that occur every day (see here and here). In general, I’m aligned with the view expressed this week by Nick Gillespie in “This Is the Time To Defend the Second Amendment and Less-Strict Gun Control“.

Obama’s On-The-Clock Undertime Rule

23 Monday May 2016

Posted by in Labor Markets, Regulation, Uncategorized

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Hurting the ones you love: one of the Obama Administration’s calling cards is a penchant for misguided economic policy; the change in an overtime rule announced Wednesday by the Department of Labor (DOL) is a classic example. The DOL has amended the rule, which requires payments of time-and-a-half to workers who exceed 40 hours per week, by doubling the threshold at which salaried employees are exempt from overtime to $47,500 annually. This affects almost 5 million workers earning between the old threshold of $23,660 and the new threshold. While the media heralds Obama for “lifting the wages of millions of workers”, those with a grasp of economic reality know that it is a destructive policy.

The rule change is unambiguously bad for employers, many of which are small businesses. That should not be too difficult to understand. Most private employers operate in competitive markets and do not earn lavish profits at the expense of their employees. They need good employees, especially those in positions of responsibility, and they must pay them competitively. By imposing higher costs on these businesses, the rule puts them in a position of greater vulnerability in the marketplace. The higher costs also include extra record keeping to stay in compliance with the rule. The impact on new business formation is likely to be particularly damaging:

“We might be told that the answer for a startup is simply to ‘go and raise more money.’ But — aside from diluting the founders who are paying for the company with their sweat in exchange for the hope of a payoff that comes in years, if ever — raising capital is the single most difficult thing I do as a startup entrepreneur. I would invite anyone not in our field to give it a shot before he endorses a regulation that will impose greater capital costs on us.

Regulators often act as though they cannot imagine a world where a few hundred or a few thousand dollars can make the difference between success and failure. If you raise our costs even modestly, you will put some of us out of business.“

Shutting down, or not starting up, is a bad outcome, but that will be a consequence in some cases. However, there are other margins along which employers might respond. First, a lucky few well-placed managers might be rewarded with a small salary bump to lift them above the new exemption threshold. More likely, employers will reduce the base salaries of employees to accommodate the added overtime costs, leaving total compensation roughly unchanged.

Many other salaried employees with pay falling between the old and new thresholds are likely to lose their salaried status. Their new hourly wage might be discounted to allow them to work the hours to which they’re accustomed, as demotivating as that sounds. If their employers limit their hours, it is possible that a few extra workers could be hired to fill the gap. Perhaps that is what the administration hopes when it claims that an objective of the new rule is to create jobs. Unfortunately, those few lucky hires will owe their jobs to the forced sacrifice of hours by existing employees.

A change from a salary to hourly pay will have other repercussions for employees. Their relationships to their employers will be fundamentally transformed. Ambitious “hourly” managers might not have the opportunity to work extra hours in order to demonstrate their commitment to the business and a job well done. When the rule change was first proposed last June, I paraphrased a businessman who is one of my favorite bloggers, Warren Meyer (also see Meyer’s follow-ups here and here):

“As [Meyer] tells it, the change will convert ambitious young managers into clock-punchers. In case that sounds too much like a negative personality change, a more sympathetic view is that many workers do not mind putting in extra hours, even as it reduces their effective wage. They have their reasons, ranging from the non-pecuniary, such as simple work ethic, enjoyment and pride in their contribution to reward-driven competitiveness and ambition.“

As hourly employees, these workers might have to kiss goodbye to bonus payments, certain benefits, and flexible work arrangements, not to mention prestige. The following quotes are from a gated Wall Street Journal article but are quoted by James Pethokoukis in his piece at the AEIdeas blog of the American Enterprise Institute:

“Jason Parker, co-founder of K-9 Resorts, a franchiser of luxury dog hotels based in Fanwood, N.J., said the chain will reduce starting pay for newly hired assistant managers to about $35,000 from the $40,000 it pays now. That will absorb the overtime pay he expects he would have to give them, he said. …

Terry Shea, co-owner of two Wrapsody gift shops in Alabama, would prefer to keep her store managers exempt from the overtime-pay requirement as they are now. But raising their salaries above the new threshold to ensure that would be too big of a jump for those jobs in her region, she said. Instead, she’ll convert the managers to hourly employees and try to limit their weekly hours to as close to 40 as possible. She’ll also have to stop giving them a comp day when their weekly hours exceed 46, a benefit she said they like as working moms.

‘I will be demoted,’ said one of her store managers Bridget Veazey, who views the hourly classification as a step backward. ‘Being salaried means I have the flexibility to work the way I want,’ including staying an extra 30 minutes to perfect a window display or taking work home, she said. She is particularly concerned Ms. Shea might stop taking the managers on out-of-town trips to buy goods from retail markets, an experience she said would help her résumé but includes long days.“

Here is some other reading on the rule change: Nick Gillespie in Reason  agrees that it’s a bad idea. Andy Puzder in Forbes weighs in on the negative consequences for workers.  John Cochrane explores the simple economic implications of mandated wage increases, of which the overtime rule is an example. As he shows, only when the demand for labor hours is perfectly insensitive to wages can a mandated wage avoid reducing labor input.

This is another classic example of progressive good intentions gone awry. Government is singularly incapable of managing the private economy to good effect via rules and regulations. Private businesses hire employees to meet their needs in serving customers. The private compensation arrangements they make are mutually beneficial to businesses and their employees and are able to accommodate a variety of unique employee life-circumstances. Good employees are rewarded with additional compensation and more responsibility. By and large, salaried workers like being salaried! Hard work pays off, but the Obama Administration seems to view that simple, market truism as a defect. Please, don’t try to help too much!

Department of Homeland Skepticism

28 Saturday Feb 2015

Posted by in Big Government

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Almost any reference to the U.S. as the “homeland” makes me cringe. It has such a jingoistic ring to my ear that I am immediately suspicious of the speaker’s motives: “Propaganda Alert!” I suppose anyone who makes their home in this land has a right to call it their homeland, if they must. The term seems uniquely appropriate for native americans. For others residing in this “nation of immigrants”, the homeland always strikes me as a reference to the country of origin of someone’s ancestors.

It’s all the worse when a government super-agency engaged in a variety of controversial activities uses “homeland” as its middle name. That very name, the Department of Homeland Security (DHS), suggests that whatever it is they do there must be in the interests of our homeland, and therefore beyond reproach.

To me it’s creepy and Orwellian, but the name of the agency is of little import relative to its activities. Now, as the fight over DHS funding — and President Obama’s executive order on immigration — reaches a fever pitch in Congress, Nick Gillespie asks, “Why do we even have a Department of Homeland Security in the first place?”

“Created in 2002 in the mad crush of panic, paranoia, and patriotic pants-wetting after the 9/11 attacks, DHS has always been a stupid idea. Even at the time, creating a new cabinet-level department responsible for 22 different agencies and services was suspect. Exactly how was adding a new layer of bureaucracy supposed to make us safer (and that’s leaving aside the question of just what the hell “homeland security” actually means)? DHS leaders answer to no fewer than 90 congressional committees and subcommittees that oversee the department’s various functions. Good luck with all that.”

Gillespie expounds on the profligacy and mismanagement at DHS. It has a voracious appetite for resources and taxpayer funds and is notorious for waste, to say nothing of its less than full-throated enthusiasm for civil liberties:

“The Government Accountability Office (GAO) routinely lists DHS on its ‘high risk’ list of badly run outfits and surveys of federal workers have concluded ‘that DHS is the worst department to work for in the government,’ writes Chris Edwards of the Cato Institute.”

That shouldn’t make anyone feel much safer. Gillespie advocates dismantling the entire agency. A high-level org chart for DHS is shown here. Certainly its constituent sub-agencies were able to function before the DHS concept was hatched. There might have been some interagency rivalry, but there was also cooperation. Would a DHS have been better able to anticipate and prevent the 9/11 attacks? That’s doubtful. Given its track record, it’s difficult to see how the DHS bureaucratic umbrella improves security, and it is not a model of cost efficiency despite expectations of reduced duplication of overhead.

Threats by a faction of the GOP to defund DHS enforcement of Obama’s immigration order are creating another deadlock in Congress. The order would grant amnesty to over 5 million illegal immigrants, but a Federal judge has ruled in favor of 26 states that sued to stop enforcement based on the imposition of enforcement costs on the states. GOP leadership would rather approve funding and let the courts do the heavy lifting to stop the order, but the administration has asked the judge to stay his injunction pending appeal. If a stay is granted, and that is unlikely, or if an appeals court overturns the ruling, implementation of the order would go forward before the conclusion of what would likely be a protracted legal process. The de-funders are unwilling to take that chance.

Democrats claim that the effort to defund DHS enforcement of the executive order will shut down the agency, which is nonsense. GOP leadership fears that Republicans will be blamed if there is even a perception of negative consequences. I suspect Obama will do his best to create those perceptions, but the funding gap won’t have much real impact. In any case, I’m with Nick Gillespie: to hell with the DHS administrative umbrella! Releasing the individual security agencies from DHS’s grip would be more likely to reduce costs with no loss of security, and just might promote individual liberty.

The Non-Neutrality of Network Hogs

11 Tuesday Nov 2014

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President Obama wants to regulate your internet. Today, he encouraged the FCC to adopt rules requiring “net neutrality,” ostensibly rules that would keep the internet “free, open and fair,” as a common jingo asserts. Here’s a six-minute interview of Thomas Hazlett that gets to the heart of the problem: the FCC does not know how to impose a central plan on internet services. Nick Gillespie, who conducted the interview with Hazlett, says:

“There are specific interests who are doing well by the current system—Netflix, for instance—and they want to maintain the status quo. That’s understandable but the idea that the government will do a good job of regulating the Internet (whether by blanket decrees or on a case-by-case basis) is unconvincing, to say the least. The most likely outcome is that regulators will freeze in place today’s business models, thereby slowing innovation and change.”

I posted on the subject of net neutrality a few months ago. Gosh, I just hate to quote myself, but here’s a brief slice:

“Internet capacity is not like the air we breath. Providing network capacity is costly, and existing capacity must be allocated. Like any other scarce resource, a freely-functioning price mechanism is the most effective way to maximize the welfare surplus to be gained from this resource. Net neutrality would eliminate that solution.”

Of course, “net neutrality” is a misnomer. It is hardly a “neutral” situation when big users of internet capacity can soak up all they want, having paid for a plan with a certain download speed. 30 mgs per second is one thing, and that is typically how ISPs price their services (by speed). But that speed, for a large number of movie downloads (for example), can absorb lots of capacity, leaving that much less for other users. Again, that is not neutral in its effect across users. In fact, it is a classic tragedy of the commons: the under-priced resource is over-consumed, and there is little incentive to expand capacity, as the rewards flow to the over-consumers. Is that fair in any sense?

Advocates of net neutrality often contend that ISPs have an interest in limiting network capacity in order to extract monopoly rents from users. Under conditions of rapidly growing demand and competition for end users, that hardly seems plausible. A limited network is a liability under those conditions, so this rationale for net neutrality rules is completely misplaced.

Unintended Consequences: Living (Without a) Wage

02 Thursday Oct 2014

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Nick Gillespie makes a good case for what should be obvious to any thinking person: to help the poor, direct transfers are a better alternative than raising the minimum wage. Most people would probably agree, regardless of their views of the appropriate role of government in society, that governments are better-suited to writing checks than to complex market interventions, and labor markets are no exception. State or federal wage floors,  minimum wages, or “living wages” — whatever politically expedient name happens to be in vogue, they are the same thing — diminish employment opportunities for the least skilled members of the labor force. These workers have the most to gain from employment experience. Hence, their losses extend beyond a mere loss of current income into lost opportunities to build human capital and future income.

Mark Perry puts a fine point on the folly of raising the wage floor: “Instead of $10.10 per hour, think of the proposed minimum wage as a $5,700 annual tax per full-time unskilled worker.”

Transfers can be targeted at the poor more effectively than a living wage. First, it is relatively easy to qualify households falling below poverty-level. Second, a significant share of low-wage earners are not members of low-income households. Third, as noted above, employers can respond to wage mandates by reducing employment, but also by cutting the hours of their low-skilled employees. Both actions tend to nullify an otherwise positive impact of a higher wage floor on income.

There are few who question the need for a safety net for those truly in need, but policy should be designed to limit the need for public support. Wage floors do not promote either of those goals. However, I’d also caution that some of the transfer programs mentioned by Gillespie (food stamps and housing subsidies) are, in fact, market interventions that have unintended consequences of their own, including price distortions. Cash transfers avoid these kinds of difficulties if they are crafted to minimize negative incentives on work effort and job search activity.

Ma Jones Writer Fair To Koch Bros.

31 Saturday May 2014

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A book on the the Koch brothers by a senior editor of Mother Jones is “mandatory reading,” according to libertarian Nick Gillespie, for those “who care about politics” and the country’s cultural direction. By Gillespie’s telling, the book by Daniel Schulman is a fair treatment of the brothers and their history within the libertarian movement, which has championed smaller, less intrusive government and civil liberties (which is really saying the same thing). 

Gillespie’s review of the Schulman book is structured around a three-part history of Libertarianism, with Part III yet to unfold. Will Libertarians continue to alter the direction of the Republican Party? Or, as Ralph Nader has suggested, will they engage to a greater extent in “issue politics” with others outside the orbit of the major parties, forming coalitions that span right and left to achieve success. 

Gillespie: “Imagine, if you will, a country in which government at every level spends less money and does fewer things (but does them more effectively), doles out fewer perks to special interests (from Wall Street banks to sports teams to homeowners), regulates fewer things across the board, engages in fewer wars and less domestic spying, and embraces things such as gay marriage, drug legalization, and immigration. …Schulman reminds readers that while the Koch brothers remain staunch opponents of Obamacare and government spending, ‘they are at odds with the conservative mainstream’ and ‘were no fans of the Iraq war.’ As a young man, Charles was booted from the John Birch Society (which his father had helped to found) after publishing an anti-Vietnam War newspaper ad, and David told Politico of his support for gay marriage from the floor of the 2012 Republican National Convention. In the past year, the Charles Koch Institute cosponsored events with Buzzfeed about immigration reform (which angered many on the right) and with Mediaite about criminal justice reform.”

One reservation: Gillespie (and quite probably the book) exaggerates the Koch’s political contributions by linking them directly to the total contributions of organizations they back. In reality, the Koch’s direct contributions would rank them as no more than “mid-major players” in the world of campaign finance.