Saturday, October 31, 2009

Cap and Trade Will not Reduce Emissions

Two EPA lawyers write:

Offsets -- considered indispensable to keeping cap-and-trade affordable -- are supposed to be "additional" reductions beyond what is legally required. But experience with offsets in Europe and California has shown that ensuring real "additionality" is not an achievable goal.

Suppose, for example, that a landowner is paid not to cut his forest so that it can continue capturing carbon dioxide from the atmosphere. Purchasing this offset allows owners of a coal-fired power plant to burn extra coal, above the cap.

But if the landowner wasn't planning to cut his forest, he just received a bonus for doing what he would have done anyway. Even if he was planning to cut his forest and doesn't, demand for wood isn't reduced. A different forest will be cut. Either way, there is no net reduction in production of greenhouse gases.

Here is a different example of "offset." A friend comes to me and says, "I want to have an affair, but if I did I would feel guilty about increasing marital discord in the world. So I want you to forego that affair your were "planning" to have. That way, the net number of affairs does not go up, and I will not feel guilty."

Friday, October 30, 2009

No Government Health Insurance

My thoughts on the current debate, at My bottom line:

The underlying presumption behind [proposals for "reform"] is that government health insurance should be expanded to cover the uninsured.

This presumption is wrong. Government should not subsidize health insurance -- for the uninsured, the poor, the elderly or anyone else -- or regulate health insurance markets.

Wednesday, October 28, 2009

All You Need to Know ...

... about this story is the headline:

Politicians Butt In at Bailed-Out GM.

Tuesday, October 27, 2009

Financial Market Reform

My thoughts, at The gist:

In the coming weeks and months, Congress will be turning its attention to financial market reform, in hopes of avoiding future financial crises. According to perceived wisdom, the root cause of the 2008 financial crisis was excessive risk-taking, and proper regulation can detect and prevent such excess in the future.

This view is a pipe dream. Most new regulation will do nothing to limit crises because markets will innovate around it. Worse, some regulation being considered by Congress will guarantee bigger and more frequent crises.

Monday, October 26, 2009

Medicare Shuns Seniors

Medicare has become a scary word to the doctors at the largest private group practice in Kansas City, Mo.

It's so scary that most physicians at Kansas City Internal Medicine, with 65% of its nearly 70,000 active patients age 65 or older, have stopped accepting walk-in Medicare enrollees, said Dr. David Wilt, an internist at the group.

Wilt and his colleagues say they are shunning the area's growing senior population because they believe Medicare doesn't reimburse physicians enough to cover the cost of care.

This outcome is inevitable under government provided health insurance. As health technology improves, expenditure on insured health care grows rapidly. Governments respond by limiting payments, lest deficits mushroom.

This problem is going to get worse, with or without Obamacare. Thus the only consistent position for those who oppose Obamacare is to also oppose Medicare and Medicaid.

Civil Union versus Civil Marriage

In defending his decision to sign Maine's same-sex marriage law, Governor John Baldacci noted that,

"The research that I did uncovered that a civil union didn't equal a civil marriage."

His statement is undeniable as a description of the current political landscape: many opponents of same sex marriage do not object to civil unions for same-sex couples, and many advocates of gay marriage are not satisfied with civil unions.

Yet Baldacci's statement is also puzzling: for all practical purposes, civil union and civil marriage are identical.

So how might governments resolve the conflict? By exiting the "marriage" business and providing civil unions only to both same-sex and opposite-sex couples.

This accomplishes any legitimate goal of having government define and enforce the particular bundle of contracts (regarding inheritance, property, children) known as civil marriage. But it leaves the controversial aspect of this action - using the term marriage - to private parties.

Under this policy, some couples will just get civil unions. Some couples will also get "married" in religious ceremonies, but these will have no legal significance. This will apply to both same-sex and opposite-sex couples.

Everybody should be happy with this arrangement. Right?

Sunday, October 25, 2009

The Fed and Policy Uncertainty

How and when should the Fed unwind the enormous monetary expansion it undertook in response to the financial crisis and recession:

As the Federal Reserve's next meeting approaches in early November, an internal debate is brewing about how and when to signal the possibility of interest-rate increases.

The Fed has said since March that it will keep rates very low for an "extended period." Long before it raises rates, however, it will need to change that public signal to financial markets.

Because the recovery is so young and is expected to be so weak, many central bank officials are comfortable, for now, keeping rates very low. But they are beginning to strategize about how to walk away from the "extended period" language.

My suggestion is that the Fed announce a path of gradual increases in the federal funds rate, say beginning next year and lasting for two years, until the rate is at some "normal level."

This approach is different than what the Fed is likely to undertake; it will probably want to maximize "discretion," the ability to adjust on the fly as conditions unfold.

My approach maximizes predictability and reassurance: it commits the Fed to shrinking the money supply and heading off future inflation. This reassures markets and takes substantial uncertainty out of the picture.

The problem with my approach is the pre-commitment: everyone knows the Fed could abandon a pre-announced path.

But such an announcement might still give markets useful guidance, and the Fed would know that any deviation would itself upset markets, and this might encourage adherence to the pre-commitment.

I do not expect the Fed to follow my advice, but I think it is an approach worth considering.

Saturday, October 24, 2009

Obama's Climate Speech at MIT

President Obama spoke at MIT yesterday, touting the benefits of the cap and trade legislation pending in Congress. According to the President,

"Such legislation can transform our energy system into one that is far more efficient, clean and independent -- making the best use of resources we have in abundance, through clean coal technology, safe nuclear power, sustainably grown biofuels and energy we harness from wind, waves and sun," Obama said.

The Washington Post coverage goes on to say,

But the legislation has stalled in the Senate, where critics say that curbing greenhouse gas emissions linked to climate change could lead to higher energy prices.

The President's claims for cap and trade legislation, and the Post's comment on this legislation, illustrate precisely what is wrong with it.

The President's comment does not say, "Cap and Trade will make energy more expensive; that is good because then people will use less of it."

Rather, the President's description is a deliberate obfuscation: the cap and trade approach allows some advocates to pretend, and some voters to believe, that we can reduce carbon emissions for free by magically becoming more energy efficient or using alternative energy.

That is nonsense. Cap and trade may reduce energy emissions (although it may not, because the offset provisions could virtually gut its impact), but if it does so, it will be by raising energy prices.

A better way to raise energy prices, however, is carbon taxes. Anyone who believes the U.S. should reduce its use of fossil fuel should advocate for those, not cap and trade.

Friday, October 23, 2009

Krugman on China and the Dollar

I rarely agree with Paul Krugman's views on economic policy, but his column today is dead on. His point is that China is propping up its currency, which is probably bad for China (because it distorts their choice of exports versus imports) and bad for the U.S. (because it hurts our exports), yet the U.S. refuses to recognize this fact:

U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

I fully agree. The U.S. should take no official position on the value of China's currency, and we would be better off if China let its value fall to market levels.

Execs Quit to Avoid Pay Limits

In yesterday's post I wrote that the Obama's administration limits on executive compensation would have minimal impact in part because the affected executives would quit and work elsewhere.

Today's Washington post reports the following:

Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart. ...

Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.

At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.

At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.

The way to limit executive compensation is to let failing companies fail.

Thursday, October 22, 2009

No Limits on Executive Compensation

The Obama administration announced yesterday that it

will order the firms that received the most aid to slash compensation to their highest-paid employees ... .

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent.

This plan, as emotionally appealing as it might appear, is miguided.

Excutive compensation did not cause the financial crisis, nor will limits prevent the next one.

The limits will not work, since the affected employees will either quit and work elsewhere, or find creative ways to maintain the same level of compensation (e.g., "retire," get hired as a consultant, and charge exorbitant fees), or relocate to overseas branches where they can circumvent the limits.

And government control of compensation is a horrendous precedent that will open the doors to even more destructive meddling in the financial sector.

My earlier thoughts on this issue are here. Bottom line:

The lesson to be learned ... is that this kind of dilemma is one reason governments should not provide bailouts in the first place. Once a bailout occurs, the government is inevitably drawn into the day-to-day business decisions of the companies and forced to resolve issues with no good resolution.

Wednesday, October 21, 2009

Massachusetts Should Lower, Not Raise, the Dropout Age

Under a propsal to be announced today by a special state commission,

Massachusetts students would be required to stay in school until age 18 ... , part of a broader effort to halve the state’s high school dropout rate.

This is a terrible idea.

The best path for many 16-17 year olds is not high school but vocational tech, apprenticehip, or even a minimum wage job. Additional schooling is good for some 16-17 year olds; that does not mean it is good for everyone.

A higher dropout age will in any case do little to keep students in school; many already drop out before legally permitted because enforcement is lax, and the resources to enforce an even higher age would be substantial. Those resources are better employed serving the students who want to be in school.

Students forced to stay in school, moreover, especially at ages 16-17, can be disruptive or even dangerous to other students.

The right policy change, therefore, is to lower the dropout age, or even eliminate it. Raising it to 18 will waste resources and reduce school quality for those who want to learn.

Tuesday, October 20, 2009

Fiddling While Rome Burns

It is good to see that amidst all the pressing issues of the day, our fearless leaders in Washington are focussed on the right things:

Senator Orrin Hatch (R-Utah), Rep. Neil Abercrombie (D-Hawaii) and Rep. Joe Barton (R-Texas) said Monday that they are backing a federal political action committee "dedicated to discarding the Bowl Championship Series and instituting a competitive post-season championship for college football."

The people behind Playoff PAC – whose tagline is "Beat the BCS. Save College Football." – believe that the Bowl Championship Series is "inherently flawed," the group said in a press release.

Actually, I am delighted to see Congress spending its time on the BCS; that means less time designing bad stimulus packages, or byzantine cap-and-trade programs, or ruinous expansions of government health insurance.

Monday, October 19, 2009

U.S. Legalizes Medical Marijuana

In a stunning announcement, the Justice Department has stated that

Federal drug agents won't pursue pot-smoking patients or their sanctioned suppliers in states that allow medical marijuana, under new legal guidelines to be issued Monday by the Obama administration.

Two Justice Department officials described the new policy to The Associated Press, saying prosecutors will be told it is not a good use of their time to arrest people who use or provide medical marijuana in strict compliance with state law.

In states where medicial marijuana is legal, this change in federal policy amounts to full legalization.

Why? Because the set of conditions for which medical marijuana is alleged to be effective is huge, and the California experience shows that, once state law treats medical marijauna as legal, doctors prescribe freely. So, any user, medical or recreational, who wants marijuana in a state that has legalized medicial marijuana will have no legal difficulty obtaining it.

This is a huge victory for the marijuana legalization movement. The only question is how the Justice Department will enforce the new policy. They have stated:

The guidelines to be issued by the department do, however, make it clear that agents will go after people whose marijuana distribution goes beyond what is permitted under state law or use medical marijuana as a cover for other crimes, the officials said.

My bet, however, is that enforcement will target only those distributors or users who blatantly fail to cover themselves in a "medical" veneer.

Sunday, October 18, 2009

Reefer Non-Madness

The city of Los Angeles is apparently ready to crack down on the incredible proliferation of cannabis dispensaries, which distribute marijuana under the state medical marijuana law:

Cannabis advocates claim that more than 800 dispensaries have sprouted here since 2002; some law enforcement officials say it is closer to 1,000. Whatever the real number, everyone agrees it is too high.

And so this, too, is taken for granted: Crackdowns on cannabis clubs will soon come in this city, which has more dispensaries than any other.

The most important fact about this situation is that by all accounts, legal and quasi-legal access to marijuana has exploded in recent years.

So, if marijuana really causes violence and amotivational syndrome, or acts as a gateway, drug, as asserted by the prohibitions, then we should have seen an explosion of violence, high school dropouts, and harder drug use in California; we have not. The California experience is one more piece of evidence that the prohibitionist claims are wrong.

Why, then, is LA cracking down on these clubs? The only sensible justification would be to clean up appearances so that the feds do not get tempted to intervene. From every other perspective, the crackdown makes no sense.

Saturday, October 17, 2009

Should Insider Trading be Illegal?

In a case announced yesterday,

federal authorities exposed what they claim is the biggest insider-trading ring in a generation -- a conspiracy in which a hedge-fund kingpin and executives at blue-chip firms including IBM and Intel allegedly connived to profit on Google and other big-name stocks.

I take no stand on whether the individuals accused in this case broke existing law; if so, the feds should prosecute them.

But it is not obvious that insider trading should be illegal.

The main argument for a ban is that it protects outsiders from being taken advantage of by insiders. Perhaps, but in a world with no ban, outsiders would be more careful about trading with insiders, so the net impact on who gains and loses from inside information might be modest.

More importantly, insider trading means that information about a company's prospects become incorporated in its stock price sooner rather than later; this is a good thing.

Insider trading can act as a check on malfeasance within a company; insiders who know the books are being cooked, for example, can start dumping their stock, alerting the market that something is up.

In a world with no ban, small investors might fear to trade individual stocks and would face a greater incentive to diversify; that is also a good thing.

On top of all this, consistent enforcement of the ban is close to impossible. Authorities catch a tiny fraction of violations, so honest insiders obey and dishonest insiders still profit.

So, my strong hunch is that the ban does more harm than good.

Friday, October 16, 2009

The Public Option is the Decoy

Al From writes in the WSJ that if the Democrats were willing to give up on the public option,

Congress would pass a bill that requires every American to buy insurance, offers consumers a choice of plans through a new health exchange like the successful Commonwealth Connector in Massachusetts, provides subsidies that assure everyone can afford a basic plan, and prevents insurance companies from denying coverage to people with pre-existing conditions or dropping coverage for people who become sick.

From is exactly right, as I argued earler.

From, of course, endores of Obamacare, while I oppose it. But our analyses of the political realities are identical.

Thursday, October 15, 2009

Emergency Aid to Seniors? No Way

Social Security benefits are indexed for inflation, but because inflation has been roughly zero for the past year, the adjustment formula implies no increase in benefits this year. Nevertheless,

President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.

Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act.

This is outrageous on four levels:

1. If the President thinks the economy needs more stimulus, he should say that explicitly and have an honest debate.

2. This is the wrong kind of stimulus. Any further stimulus should consist of reductions in marginal tax rates, such as a cut in the corporate income tax (or better yet, repeal).

3. All social security recipients already have a moderate guaranteed income, and many have significant income beyond their social security benefits. This kind of transfer has no plausible justification as redistribution for the needy.

4. Sending checks to seniors is a blatant attempt to buy their support for Obamacare, which promises to cut Medicare spending substantially.

Wednesday, October 14, 2009

Your Car and Home: Guilty Until Proven Innocent

One perversion of our civil liberties spawned by War on Drugs has been an enormous expansion of civil forfeiture:

Every year, police agencies seize more than $1 billion of cars, cash and other goods linked to drug crimes. The Supreme Court will hear arguments Wednesday on how hard it should be for owners to try to recover that property.

Police typically get to keep much of what they seize, although owners can fight forfeiture in court. On Wednesday, the central issue will be whether owners are entitled to a prompt, informal hearing to argue that they should get their property back while waiting for a formal forfeiture proceeding that could be scheduled months or years in the future. At present, some states impound the property during that lag time and provide owners no recourse. Critics say many innocent owners just give up during that period, and states then are free to sell their cars and other items.

The practice of seizing property that might have been used in a crime, even when an arrest of the person is never made, would seem to fly in the face of the presumption of innocence. Courts have reasoned, however, that this presumption applies only to your person, so police can seize your property by just asserting the property's "guilt," and force you to prove otherwise.

This distinction is of course absurd. By seizing your property, police and prosecutors can force you out of your home, take over your place of business, and freeze any financial assets you might use to hire a lawyer. This obviously stacks the deck against your ability to prove your innocence.

The best way to eliminate this outrage is to legalize drugs. A less satisfying, but nevertheless useful step, would be for the Supreme Court to restore some element of "presumed innocence" to the civil forfeiture procedure.

Tuesday, October 13, 2009

How Many Troops in Afghanistan?

President Obama and his advisers have been struggling of late over how many troops the U.S. should commit to Afghanistan.

My view is that we have only two real options: zero, or "many."

The in-between path we have chosen so far appears to have no chance of producing any kind of lasting peace, conquest of territory, or installation of true democracy or capitalism. It is hard to see how it can ever make real progress along any relevant dimension.

The approach of sending zillions of troops might have some chance of suppressing the Taliban, just as Saddam Hussein's highly militarized, repressive regime was more or less successful in supressing the Shiites. This approach is enormously costly, however, not just because it involves huge commitments of resources but becuase it means we are, in effect, acting as a totalitarian government in a foreign country.

So, I vote for option #1: bring all the troops home now.

Monday, October 12, 2009

Border Security is a Joke

Whenever I return to the U.S. from another country, my blood pressure rises as I wait in the lines to get through immigration and customs. I cannot help thinking that any determined terrorist, drug smuggler, or illegal immigrant can find numerous ways to circument this system, in which case all the waiting in line is a waste.

Here is some evidence that supports my view:

Eight years after the Sept. 11 terrorist attacks and despite repeated mandates from Congress, the United States still has no reliable system for verifying that foreign visitors have left the country.

Last year alone, 2.9 million foreign visitors on temporary visas ... checked in to the country but never officially checked out, immigration officials said.

Over all, the officials said, about 40 percent of the estimated 11 million illegal immigrants in the United States came on legal visas and overstayed.

So why bother with border security at all? The costs are enormous: in addition to the expenses for immigration officials, border fences, and the like, millions of people lose time every day, all for a process that has no plausible chance of accomplishing its goals.

Open the borders officially. They are already open in reality.

Sunday, October 11, 2009

What Needs to Happen When Demand Exceeds Supply?

California is facing a serious water shortgage but does not have the money to invest in new dams and reservoirs:

Mr. Schwarzenegger has said the state needs more dams to help store water for its growing population. "We have been decades talking about water infrastructure, and we've got to bring it up to date," he told a conference of community-college trustees in San Francisco Thursday.

But Assembly Republicans and some Democrats call a $12 billion bond measure supported by the Senate too costly. The timing is bad for a big bond measure, they say, given that California lawmakers have already used billions in bonds to help close a series of past budget deficits. "Going to the voters and racking the credit card up another $12 billion is a very hard sell," said Jared Huffman, a Democratic assemblyman from Marin County.

How about raising the price of water so that California stops trying to grow food in the desert? Oops, never mind, that would make too much sense.

Saturday, October 10, 2009

The Limits of the Medical Marijuana Approach to Legalization

For more than a decade, the marijuana legalization movement has focussed much of its energy on getting marijuana legalized for medicinal purposes, rather than pushing for full-scale legalization. The movement has also focussed on changing state laws rather than federal laws, since the chances for success have seemed much higher at the state level.

This approach carries its own risks, as New Mexico's recent experience illustrates:

New Mexico’s new medical marijuana law was intended to provide safe, aboveboard access to the drug for hundreds of residents with chronic pain and other debilitating conditions. By licensing nonprofit distributors, New Mexico hoped to improve upon the free-for-all distribution systems in some states like California and Colorado, where hundreds of for-profit dispensaries have sprung up with virtually no state oversight.

But even in New Mexico, the process — from procuring the starter seed (in Amsterdam, via a middleman) to home delivery (by a former Marine) — is not for the faint of heart. Those engaged in the experiment here never know if they will be arrested, because growing, selling and using marijuana remain illegal under federal law. And robbery is always a fear.

The other problem with the medical marijuana approach to legalization is that it leaves the movement open to the charge of dishonesty. Many people suspect that medical marijuana advocates really want full scale legalization, and this suspicion is well founded. Many also suspect that a substantial fraction of medical marijuana "patients" are buying for recreational use, and this is also correct.

In my judgement, therefore, the legalization strategy with the best chance of broad, long-lasting success is one that states explicitly that government has no business interfering with any individual's drug use, whatever the reason for that use, so long as the individual causes no harm to others.

Friday, October 9, 2009

Perpetuating Bad Housing Policy

Perhaps the worst feature of the bailouts and the stimulus has been that, whatever their merits as short terms fixes, they have done nothing to improve economic policy over the long haul; indeed, they compound past mistakes.

Here is a good example:

For months, troubled homeowners seeking to lower their mortgage payments under a federal plan have complained about bureaucratic bungling, ceaseless frustration and confusion. On Thursday, the Obama administration declared that the $75 billion program is finally providing broad relief after it pressured mortgage companies to move faster to modify more loans.

Five hundred thousand troubled homeowners have had their loan payments lowered on a trial basis under the Making Home Affordable Program.

The crucial words in the story are "$75 billion" and "pressured."

No one should object if a lender, without subsidy and without pressure, renegotiates a moretgage loan. That can make sense for both lender and borrower because the foreclosure process is costly.

But Treasury's attempt to subsidize and coerce loan modifications is fundamentally misguided. It means many homeowners will stay in homes, for now, that they cannot really afford, merely postponing the day of reckoning.

Treasury's policy is also misguided because it presumes that everyone who owned a house before the meltdown should remain a homeowner. Likewise, Treasury's view assumes that all the housing construction over the past decade made good economic sense.

Both presumptions are wrong. U.S. policy exerted enormous pressure for increased mortgage lending in the years leading up to the crisis, thereby generating too much housing construction, too much homeownership and inflated housing prices.

The right policy for the U.S. economy is to stop preventing foreclosures, to stop subsidizing mortgages, and to let the housing market adjust on its own. Otherwise, we will soon see a repeat of the fall of 2008.

Wednesday, October 7, 2009

Bumper Sticker Wisdom

Seen yesterday on the Mass Turnpike in Newton, Massachusetts:

A government big enough to give you everything you need is a government big enough to take everything you have.

The Next Bailout: Commerical Real Estate

Critics of the government's bailout of Wall Street banks (the TARP) have focussed especially on the incentive it creates for banks to forego prudent risk management because they expect taxpayers to cushion their losses.

With that in mind, consider the following:

Banks in the U.S. "are slow" to take losses on their commercial real-estate loans being battered by slumping property values and rental payments, according to a Federal Reserve presentation to banking regulators last month.

The remarks suggest that banking regulators are girding for a rerun of the housing-related losses now slamming thousands of banks that failed to set aside enough capital during the boom to cushion themselves when the bubble burst. "Banks will be slow to recognize the severity of the loss -- just as they were in residential," according to the Fed presentation, which was reviewed by The Wall Street Journal.

Do you think banks are slow to realize these new losses because of the lessons they learned from TARP?

"Those who cannot remember the past are condemned to repeat it." - George Santayana.

Tuesday, October 6, 2009

Calorie Postings and Food Habits

In an attempt to reduce obesity, New York City recently began requiring fast food restaurants to post information on the calorie content of their food. The thinking was that, faced with this information, obese customers would curtail their calorie intake.

Guess not:

A study of New York City’s pioneering law on posting calories in restaurant chains suggests that when it comes to deciding what to order, people’s stomachs are more powerful than their brains.

The study, by several professors at New York University and Yale, tracked customers at four fast-food chains — McDonald’s, Wendy’s, Burger King and Kentucky Fried Chicken — in poor neighborhoods of New York City where there are high rates of obesity.

It found that about half the customers noticed the calorie counts, which were prominently posted on menu boards. About 28 percent of those who noticed them said the information had influenced their ordering, and 9 out of 10 of those said they had made healthier choices as a result.

But when the researchers checked receipts afterward, they found that people had, in fact, ordered slightly more calories than the typical customer had before the labeling law went into effect, in July 2008.

This result is utterly unsurprising. Most people have long been aware that fast food is caloric; information on the exact amounts is unlikely to change eating habits. Indeed, if the correct calorie counts are lower than what some people believed, posting this information might cause a few customers to order more calories.

Even if laws like NYC's are effective, why should policy care about obesity? The usual argument is that governments subsidize health insurance, so obesity by some forces elevated health costs on others.

The obvious solution, in that case, is to make the subsidies decrease with weight, so that people face a monetary incentive to slim down. Or, better yet, eliminate subsidies for health insurance.

Monday, October 5, 2009

Will Sanctions Deter Iran?

As news has emerged recently about Iran's nuclear weapons program, discussion of trade sanctions has heated up. But

as the focus on sanctions intensifies, a review of the United States’ experiences in enforcing its own longstanding restrictions on trade with Iran suggests it would be difficult to truly quarantine the Iranian economy.

Black market networks have sprouted up all over the globe to circumvent the sanctions.

This makes perfect sense. Any ban on profitable economic activity, whether it is drug sales, prostitution, or international trade, creates the incentive to evade the ban. Evidence from history suggests that trade sanctions, like other prohibitions, are difficult to enforce and usually have minimal impact.

The unfortunate reality is that the U.S. has only two choices on Iran: accept that they will soon possess nuclear weapons, or use military force to destroy their capabilities. Trade sanctions are just a way of pretending to "do something" without having any impact.

Sunday, October 4, 2009

Not Big Enough to be Bailed Out

Although the U.S. prevented the failure of many large banks over the past year - by using taxpayer=TARP funds to bail them out - failure has increased substantially at small to medium size banks:

Three regional banks were closed by regulators on Friday evening, bringing the 2009 tally to 98. ...

An average of 10 banks have failed per month this year, nearly four times the number that failed in 2008. It's the highest tally since 1992, when 181 banks failed.

Letting small banks fail while protecting big banks means, of course, that the big banks face less competition and get still bigger over time, so they are even more likely in future to be regarded as Too Big to Fail.

Saturday, October 3, 2009

Should Extortion be a Crime?

In the recent scandal involving David Letterman, an employee at CBS threatened to publicize Letterman's sexual liasons with CBS staff members unless Letterman paid $2 million dollars.

Set aside whether Letterman's relations with these women violated sexual harrassment law or CBS policy.

My question is, why should extortion be a crime? Why isn't this just a matter between Letterman, CBS, and the employee making the accusations?

Friday, October 2, 2009

Tariffs on Solar Panels? No Way

The most extreme global warming alarmists, and the most ardent global warming skeptics, should all agree on one thing: the U.S. should repeal policies that increase production of greenhouse gases and that make no sense in the first place.

Here's a perfect illustration:

Companies that import solar panels to the United States are facing up to $70 million in unexpected tariffs.

This is insanity. Reasonable people can, in my assessment, differ over whether we should be subsidizing alternative technologies. But tariffs never make sense, and we should certainly not deliberately put alternative energy at a competitive disadvantage.

This tariff is especially worrying because it hints at a broader trade issue: the possibility that the U.S. might erect trade barriers against countries that do adopt what we regard as sufficiently stringent curbs on greenhouse gas emissions.

The only sensible trade policy is no trade policy, i.e., free trade.

Thursday, October 1, 2009

Time to Repeal Don't Ask, Don't Tell

What is the justification for the current ban on gays in the military? The only possible answer is that service by openly gay soldiers would reduce unit cohesion or discipline. Otherwise, the ban is just prejudice, pure and simple.

The standard justification has long been suspect; gay soldiers serve
in 20 of 26 NATO countries.

Now an article in the official military journal, Joint Force Quarterly, concludes that

after a careful examination, there is no scientific evidence to support the claim that unit cohesion will be negatively affected if homosexuals serve openly.

The article is not an official military position, but its appearance in such a prominent place may signal that the military is ready to repeal the ban on gays.

It is high time.