Out of the Cap-and-Trade Frying Pan, ...

Three key senators are engaged in a radical behind-the-scenes overhaul of climate legislation, preparing to jettison the broad "cap-and-trade" approach that has defined the legislative debate for close to a decade. ...

Sen. Lindsey O. Graham (R-S.C.) ... , Sens. John F. Kerry (D-Mass.) and Joseph I. Lieberman (I-Conn.) ... plan to introduce legislation next month that would apply different carbon controls to individual sectors of the economy instead of setting a national target.

It is hard to imagine a worse policy than the Cap-and-Trade program being kicked around Congress, but this new proposal fits the bill. 

For all its problems, CAT at least allows markets to price the permits, which means economic considerations determine who emits more or less carbon (given the number of permits).

The command-and-control system being suggested by Graham et al. means politics, not costs and benefits, will determine who gets to emit carbon.  Another victory for crony capitalism.

Vancouverites on Hosting the Olympics

I have enjoyed watching the Olympics (short track is my favorite), but I'm glad the U.S. taxpayer did not foot the bill.   Apparently many Vancouverites are not persuaded the city got a good deal:

While hundreds of thousands of people have streamed onto the streets to enjoy (some of them to excess late at night) the Olympic party, there is still an undercurrent of crankiness and apprehension in the city. ...

Security costs, first estimated at $165 million, are now headed toward $1 billion.

So maybe the cost-benefit analysis mentioned in my earlier post, which concluded the Games are a loser for Canada, was too optimistic!

The Pot (Microsoft) Calling the Kettle (Google) Black

Microsoft Corp made its most vehement and public attack on Google Inc on Friday, calling its internet rival's actions potentially anti-competitive, and urging victims to file complaints to regulators.

The irony of  Microsoft trying to squelch competition via the antitrust laws is amusing. 

But the incident illustrates one key negative of antitust: companies that are losing in the marketplace encourage Justice or the FTC to prosecute competing firms, often with dubious justification.

Are Increasing Housing Prices a Good Thing?

The latest Case-Shiller data indicate that housing prices increased in December for the 7th straight month.  Most news accounts regarded this as good news.

But between 2000 and 2006, housing prices rose 80-90 percent, and they are still 35-40 percent above the 2000 level.  If most of the 2000-2006 increase was a bubble, then housing prices should be lower, not higher, based on fundamentals.

In that case, the U.S. is continuing to overinvest in housing.  So the higher prices are bad news.

This does not imply that policy should attempt to lower housing prices; it should just not care one way or the other.

Private Airport Security

Every time I fly, the urge to rant about airport security becomes irrepressible.

But what exactly is the alternative to the current system? Specifically, what would happen if airlines and airports could design and pay for their own systems? Here are some possibilities.

1. Trusted flyer programs. To join, you undergo an extensive initial security check. From then on, you just show a high-security ID at the airport and skip all the screening. (TSA has experimented with these, but they have been small scale so far.)

2. Flights that prohibit carry-on luggage. In exchange for being bored for a few hours, you get faster screening and a cheaper flight.

3. Expanded air marshal programs, with both uniformed and undercover marshals on every flight. Terrorists realize their chances of success are minuscule even if they get a weapon on a plane, so less screening is necessary.

I have no idea whether any of these would be cost-effective. But I would like to see what the private sector could figure out if it were free to innovate, and I bet it would work better, at lower cost, than what TSA does now.

Romer and Summers Should Resign in Protest

According to today's New York Times,

The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan.

This kind of intervention cannot possibly be beneficial; it is an excuse for redistribution to organized labor and politically connected businesses.  It is hard to imagine a worse idea.

See also Alex Tabarrok's excellent critique at Marginal Revolution.

Marriage Rules in Massachusetts

The marriage laws in Massachusetts specify the following:

No man shall marry his mother, grandmother, daughter, granddaughter, sister, stepmother, grandfather's wife, grandson's wife, wife's mother, wife's grandmother, wife's daughter, wife's granddaughter, brother's daughter, sister's daughter, father's sister or mother's sister.

No woman shall marry her father, grandfather, son, grandson, brother, stepfather, grandmother's husband, daughter's husband, granddaughter's husband, husband's grandfather, husband's son, husband's grandson, brother's son, sister's son, father's brother or mother's brother.

Presumably the demand for such marriages is small.  But should policy prohibit them?

Thanks to Joel Pollak for the tip (he noticed a sign with this information when he applied for his own marriage license).

Pollak is the Republican (libertarian sympathizing) candidate for the 11th Congressional district in Illinois; see here for more information.  I met Pollak recently when he visited Harvard.

See here for a faceoff over subprime lending between Pollak and Barney Frank; see here for a follow-up interview of Pollak by Greta Van Susteren.

Does Big Government Lead to Smaller Government?

Greg, a loyal reader,, emails me this query:

I live near Chicago Illinois. It must be one of the least libertarian places in the US. Chicago is famous for its preposterously large (and horrendously run) government. All this government has created very large operating deficits for the city, county and state. The government has gotten so big and burdensome that Chicago has had to think creatively to solve its debt problems.

Here's my dilemma: To solve their budget problems, Chicago has ironically been at the leading edge of some very libertarian-friendly policies.

For example, the city became one of the first municipalities to privatize a major tollway (the Skyway)... and is now trying to privatize a major airport (Midway). Chicago also privatized its parking meter operations. With that privatization, parking rates rose to a more competitive and unsubsidized rate. This deal has been criticized - but now more parking spaces are available and the company that runs the meters has upgraded all the facilities so that now people no longer need 500 quarters to feed the meters... you can pay with cash, credit card, etc.

The obvious paradox is that as government gets worse (and budgets get bigger), the city has resorted to more libertarian-friendly options. So what's the hopeful libertarian to do?

So does this mean that Frankin Roosevelt, Lyndon Johnson, George W. Bush, and Barack Obama are big time libertarians?

Truth is Stranger than Fiction

In Butch Cassidy and the Sundance Kid, Butch hatches a plan to escape a posse and avoid culpability for the duo's past crimes by joining the Army.  The plan did not work for Butch and Sundance, but a similar scheme seems to have worked for Mathew Meineke:

A man who helped arrange a drug deal that brought a large amount of cocaine into Maine is being allowed to return to the Army - and do a second combat tour in Afghanistan.

Mathew Meineke faced the prospect of five years in prison because of the drug deal in 2006. Afterward, the Colorado native cleaned up his life, enlisted in the Army, and served in Afghanistan as a forward observer for his infantry unit from July 2008 to June 2009. While in Afghanistan, he was indicted.

This month, Meineke got a rare break. Defense lawyer Tim Zerillo asked federal prosecutors to consider dropping the charges, and they agreed to do that.

“All he wants to do is to be able to serve his country,’’ Zerillo told the Portland Press Herald. “His highest and best use is not in a federal prison, it’s in Afghanistan protecting us and everyone else.’’

Butch and Sundance would be proud.

White House Urges Repeal of Insurers' Antitrust Exemption

I have three reactions to this news:

1. On balance, antitrust policy does more harm than good and should therefore be repealed.  Then the insurance exemption would be moot.

2. If we have an antitrust policy, I see no good argument for exempting the insurance industry.

3. I cannot figure out what health insurers are currently doing that violates the antitrust laws. So repeal of the exemption would make no difference.

Am I misssing something here?

How Long Will the U.S. be in Iraq?

According to the current plan, all combat forces are to leave by the end of August.  Yet

The top U.S. commander in Iraq said Monday that the planned withdrawal of all U.S. combat forces by the end of August could be delayed if conditions worsen in the coming months as Iraqis choose a new government.

Since violence has ticked upward in recent weeks (see, e.g., here), the likelihood of delay is real.  Recall my earlier prediction that the U.S.

will have at least 200,000 troops in Iraq / Afghanistan in November, 2012.

Aside: The same general who issued the above statement also announced this week that he supports open gay service in the military.

The Animal Abuse Registry

California may soon place animal abusers on the same level as sex offenders by listing them in an online registry, complete with their home addresses and places of employment.

Is this a good idea? I think not.

First, as awful as animal abuse can be, it is ridiculous to think of animal abuse as similar to rape or molesation.  Animals are not people.

Second, registries for sex offenders seem unlikely to be the right policy.  If offenders still pose risks to others, keep them in jail.

Paul Ryan on Spending-Cut Specifics

In an earlier post, I stated that conservatives who decry federal spending are nevertheless loath to name specific programs they would cut.  One exception is Paul Ryan, whose "Road Map for America's Future" advocates substantial reductions in Medicare and Social Security spending. 

You can read an interview with Ryan in yesterday's NYTimes.  He's from Wisconsin, so he's a cheesehead!

Will the Republicans Nominate a Libertarian in 2012?

Rep. Ron Paul won the most support for the 2012 Republican presidential nomination in an unofficial straw poll of conservative activists attending an annual conference.

A libertarian from Texas who has railed against spending and the Federal Reserve, Paul won the Saturday contest at the Conservative Political Action Conference with 31 percent backing.

This straw poll does not mean much, but Paul's success does raise a crucial question for Republicans: are they going to lean conservative or libertarian?

Another libertarian the Republicans might nominate in 2012 is Gary Johnson, the former governor of New Mexico.  You can read about him here and here.  Full disclosure: I have been working with Johnson on his economic program.

Conservatives versus Libertarians on Fiscal Imbalance

Conservative commentary these days is fixated on U.S. fiscal imbalance and holds that we should address the imbalance with spending cuts, not tax increases.

Missing from most such commentary, however, is specifics about what expenditure to cut (see, e.g., Daniel Henninger's recent WSJ piece).

Conservatives recognize that addressing the debt in a serious way means cutting national defense, Social Security, and Medicare.  But conservatives support high spending on national defense, and they are unwilling, for reasons of political expendiency, to propose reductions in entitlements.

Libertarians also believe we must slash expenditure, but they are happy to name specific cuts.  Libertarians advocate U.S. withdrawal from Iraq and Afghanistan, which would save hundreds of billions of dollars per year, and they endorse major cuts or elimination of Social Security and  Medicare.

The public thus perceives the conservative position as disingenuous, the libertarian position as unelectable.  Take your pick.

If One Leech is not Enough, Try Two

In response to concerns that unemployment remains high despite the stimulus, President Obama said this:

"You can argue, rightly, that we haven't made as much progress as we need to make when it comes to spurring job creation." ... "That's part of the reason why I expect Congress to pass additional measures as quickly as possible."

The President's response assumes that the first stimulus worked, just not enough. That is possible, but maybe the Keynesian model that underlies the case for stimulus is just wrong.

Non-Keynesian perspectives suggest that additional spending or poorly designed tax cuts will harm the economy by distorting resource allocation.  More broadly, stabilization policy instills a belief that governments can moderate recessions, which encourages risk-taking and larger booms and busts.  A steady stream of  policy "remedies" creates uncertainty that discourages productive activity.

So maybe the treatment is worse than the disease.

A Punishment That Fits the Crime?

My writings on drug legalization seem to generate a lot of interest from college and high school students (surprise).  Thus, I get many emails from students posing questions about my research, or requesting an intereview, or asking for a reprint.

One hight school student with whom I corresponded recently just sent me the following:

Sorry I never thanked you for talking to me about marijuana legalization. I got my internet privileges taken away for, funnily enough, smoking marijuana. So anyways, thanks.

I wonder if his parents see the humor!

Driver's Education, Continued

On Monday, my son started the classroom portion of the state-mandated driver's education program.  He views it as a collasal waste of time, especially since it is eating his entire winter break.  In his opinion, the state should just administer an appropriate written test on the material and let students choose how much to prepare.  If they flunk, they study more until they pass (yes, he is a libertarian).

When my daughter took the course a few years ago, she said her class divided into four groups:

Front few rows: ultra nerdy private school kids who took careful notes on everything the teacher said.

Next couple of rows: nerdy public shools kids who sort of paid attention, but not diligently.

Third set of rows: non-nerdy kids of all flavors who paid little attention and played hangman, or texted each other, or read a book, or whatever.

Last set of rows: stoners who were quite obviously high/asleep for most of the classes.

Deaths from Black Tar Heroin

Whenever media stories report a surge of deaths from heroin use, it turns out that more potent heroin has recently arrived in a particular city or town.  For example, a recent L.A. Times headline reads

Black tar moves in, and death follows

and the story goes on to explain that

The death was part of a rash of overdoses, 12 of them fatal, that shook Huntington that fall and winter. All were caused by black-tar heroin, a potent, inexpensive, semi-processed form of the drug that has spread across the United States, driven by the entrepreneurial energy and marketing savvy of immigrants from a tiny farming county in Mexico.

These deaths are due to prohibition.  In a legal market, information about potency would be readily available, so few users would suffer these accidental overdoses.

Public Education and Thought Control

One argument libertarians offer against government funding for education is that it facilitates thought control, since funding education means defining education.  This problem is particularly accute if funding comes in the form of public schools; it exists but is more easily avoided if funding comes as education vouchers.

Advocates of public schools view this concern as wild exaggeration, but I wonder what they think about a recent decision by the Texas School Board:

Finally, the board considered an amendment to require students to evaluate the contributions of significant Americans. The names proposed included Thurgood Marshall, Billy Graham, Newt Gingrich, William F. Buckley Jr., Hillary Rodham Clinton and Edward Kennedy. All passed muster except Kennedy, who was voted down.

More broadly, as this article explains, Christian Conservatives have become almost a majority of the Texas Board, and they want the public school curriculum to teach that the founding fathers were Christian and intended for the country to be the same.

The power to fund is the power to control.

A Cost-Benefit Analysis of the Vancouver Olympics

From Darren McHugh, in the Queens University Department of Economics.  His bottom line:

The net benefit of the Olympic Games is therefore also substantially negative when the estimates of Olympic benefits from this paper are combined with published estimates for event costs.

In other words, the U.S. should be happy that President Obama failed to secure the 2016 summer games for Chicago.

A Pox on Both Their Houses

More than a year after President George W. Bush left office, more Americans continue to blame his administration over any other entity for the nation's economic woes, according to a new poll.

In a New York Times/CBS News survey out Friday, 31 percent of Americans said the Bush administration is at fault for the current state of the economy while only 7 percent pointed their finger at President Obama and his team.

My assessment differs somewhat from this poll's;  I would argue that the following pre-Obama policies played the main role in generating the current mess:

1. The housing policies pursued by HUD, FHA, Fannie, and Freddie.

2. The implicit (almost explicit) guarantees issued by the Fed that it could clean up the housing bubble without much fuss;

3. The growth of expenditure during the Bush administration (Medicare prescription drug coverage, Middle East Wars, pork for everyone).

4. The Wall Street bailouts.

But then I would argue that the following Obama policies have made the recession deeper and longer:

1. Endorsement of the Wall Street bailouts (Obama voted for TARP and appointed a key architect, Tim Geithner, as his Treasury Secretary)

2. The auto bailouts;

3. The fiscal stimulus;

4. Populist ranting at Wall Street over compensation, taxes;

5. Refusal to extend the Bush tax cuts, or repeal the estate tax, or cut taxes rates generally;

6. Pre-occupation with resdistribution over productivity: health care, card check, auction-less cap-and-trade, and continued support for low-income homeownership.

Thus, plenty of blame to go around.

Health Care Price Controls in Massachusetts?

In 2006, Massachusetts enacted a health insurance "reform" that became the blueprint for Obamacare.  Now

Governor Deval Patrick is seeking sweeping authority to review and reject rates charged by hospitals, physician groups, medical imaging centers, and insurers, in a broad new effort to make health care more affordable, particularly for smaller companies and their workers.

The Governor's desire to reduce costs is understandable, since Massachusetts has the highest premiums in the nation.

But the Governor's approach to reducing expenditure is misguided because it will kill the incentive to supply healthcare services in the Commonwealth.  A better approach is to make consumers pay a higher fraction of their health costs, via increased co-pays and deductibles in government insurance and greater taxation of employer-paid premiums.

The Public School Monopoly

A video by Izzy Santa, of the Cato Institute.

Do State Liquour Stores Know How to Profit-Maximize?

Apparently not:

States suffering through tough times are reaching for a tonic.

Lawmakers in several states with tight control of liquor sales are considering legislation that would shift the job to private industry, saving money and raising revenue.

If these governments are running their stores in a profit-maximizing fashion, they gain nothing by selling them off.

The Nutrition Police March On

The Obama administration will begin a drive this week to expel Pepsi, French fries and Snickers bars from the nation’s schools in hopes of reducing the number of children who get fat during their school years.

I cannot imagine that such efforts will yield results; kids have too many ways to circumvent these restrictions.

Instead, what about health insurance premiums that increase with weight above the "healthy" threshold?

A Victory for Gay Marriage In Mexico City?

A new Mexico City law goes into effect March 4 that will allow same-sex couples to marry and adopt children, propelling the city to the forefront of the global gay rights movement.

A backlash is attempting to have the law declared unconstitutional.  One argument being made is that Mexico City already has civil unions for same-sex couples.

That argument, however, just raises the issue of whether government should provide marriage at all; it could instead provide civil unions to both same-sex and opposite sex couples, leaving marriage to religious institutions.

Suicide Tourism

What can you do if you want help committing suicide, but you live in a state (all but Oregon) or country where assisted suicide is illegal?  Travel to Switzerland:

From the start, Mr. Minelli [founder of Dignitas] has kicked up controversy for his willingness to help foreigners die. Most groups in Switzerland don't assist foreigners. Dignitas only helps foreigners. The number of foreigners Dignitas helps each year—132 in 2007, compared to 91 in 2003—has increasingly left the Swiss uncomfortable with the country's growing reputation for "suicide tourism." As of the end of last year, Dignitas had helped a total of 1,046 people to commit suicide.

I do not see a convincing reason for bans on assisted suicide.  Informed consent rules are reasonable, but that seems sufficient to me.

Buy America Provisions in the Stimulus

The U.S. and Canada, its largest trading partner, reached a preliminary deal to settle what had become an acrimonious dispute over "Buy American" provisions in the U.S. stimulus package.

The deal, if approved, will give companies on both sides of the border access to government procurement contracts at the state and local levels. U.S. Trade Representative Ron Kirk said the increased access for U.S. firms in Canada would be worth billions of dollars in contracts.

Last year's U.S. stimulus package requires that manufactured products used in projects paid for with federal stimulus funds be made in the U.S. While the restrictions were meant to exempt countries like Canada that have existing trade treaties with the U.S. and have signed on to the World Trade Organization's government procurement pact, the Canadian government in the 1990s excluded its provinces and towns from those rules.

Even if this issue gets resolved sensibly, it should never have arisen in the first place.  When the government builds infrastructure, it should do so at minimum cost (quality adjusted).  The Buy America provisions interfere with that objective and risk killing jobs when our trading partners retaliate.

Is Marijuana Effective Medicine?

The short answer is, "We don't know."  Why not?  Because existing DEA rules make it virtually impossible to carry about appropriate double-blind trials.

Yet the anecdotal evidence for marijuana's efficacy is stunning; here is one good example:

Even though it's a crisp November day, the flower boxes of Mary Jones's neat little bungalow are overflowing with brightly colored blooms. The bubbly mother of three has her utility vehicle parked in the driveway. Her hair is perfectly coiffed, her blond highlights glimmer in the late-fall sun. She looks like she could be a real-estate broker, and seeing the rock on her manicured finger, I imagine for a moment that her husband is a doctor or a lawyer. Mary would, in fact, be the ideal soccer mom, except that one of her now-grown sons played football, and rather than working in real estate, she grows and sells marijuana.

Read the rest here.  Anecdotes do not prove that marijuana works, but they make a good case for allowing objective scientific evaluation.

Should Policy Try to Reduce Foreclosures?

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing. ...

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

In my mind the crucial question is whether to help distressed homeowners, and the right answer is no:

1. these homeowners assumed the risk of buying houses; they should accept the consequences;

2. homeowners who default will acquire a bad credit rating, but they will be free of their debt burden.  Instead of putting money into an asset they may never actually own, they can start to accumulate savings.

2. foreclosing on these homeowners does not mean homeownerhip will decline; it means the houses will become available at low prices to others with limited income.  What's wrong with that?

Repeal Don't Ask, Don't Tell

I agree with President Obama; the U.S. Congress should repeal "don’t ask, don’t tell" and eliminate any federal prohibition on gay service.

The usual argument made for excluding gays from the military is that, because of anti-gay sentiment among some non-gay soldiers, the presence of gays might undermine cohesion and discipline. No evidence, however, supports this view; gays have served with minimal problems in numerous countries (e.g., Australia, Canada, Germany, Israel, Italy, United Kingdom, Switzerland). The same arguments made against gays in the military were offered decades ago in the United States to oppose racial integration of the armed forces, yet these forces are now entirely integrated with minorities disproportionally represented.

Whether policy should compel the armed forces to allow gays to serve openly – or just leave the issue to the individual armed forces – is a more subtle question. A decentralized approach might lead to slower change, but it might also produce a less polarizing transition.

The Demand for Guns in India

In the land of Mahatma Gandhi, Indian gun owners are coming out of the shadows for the first time to mobilize, U.S.-style, against proposed new curbs on bearing arms.

When gunmen attacked 10 sites in Mumbai in November 2008, including two five-star hotels and a train station, Mumbai resident Kumar Verma sat at home glued to the television, feeling outraged and unsafe.

Before the end of December, Verma and his friends had applied for gun licenses. He read up on India's gun laws and joined the Web forum Indians for Guns. When he got his license seven months later, he bought a black, secondhand, snub-nose Smith & Wesson revolver with a walnut grip.

"I feel safe wearing it in my ankle holster every day," said Verma, 27, who runs a family business selling fire-protection systems. "I have a right to self-protection, because random street crime and terrorism have increased. The police cannot be there for everybody all the time. Now I am a believer in the right to keep and bear arms."

Two aspects of this story are especially worth noting.

First, it illustrates how escalating violence can increase the demand for guns; hence, the observation that guns and violence coincide in no way shows that guns cause violence.  This is a standard fallacy committed by advocates of gun controls.

Second, the story suggests that guns benefit owners by making them feel safer.  

If this perception of safety is false, or if it pervents more effective steps to avoid being a target of crime, then this feeling could be counterproductive. 

But neither of those conditions seems likely.  So evaluation of gun control laws must recognize that they reduce the well-being of exactly the people these laws claim to help.

Did TARP Just Kick the Can Down the Road?

That seems to be the opinion of Neil Barofsky, the special inspector general of TARP.  According to a report released yesterday,

The government's bailout of financial institutions deemed "too big to fail" has created a risk that the United States could face a worse fiscal meltdown in the future, an independent watchdog assigned to review the program told Congress on Sunday.

The Troubled Assets Relief Program, known as TARP, has not addressed the problems that led to the last crisis and in some case those problems have festered and are a bigger threat than before, warned Neil Barofsky, the special inspector general at the Treasury Department.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Barofsky wrote the $700 billion financial bailout has encouraged more risk-taking because bank executives, who are still receiving massive bonuses, figure the government will come to the rescue the next time they steer their ships nearly aground.

No one should be surprised.