Hurricane Irene as Economic Stimulus

Oh, dear. Oh, dear. No matter how many times economists debunk the broken window fallacy, not a natural disaster goes by that journalists don't try to cheer us up by saying "at least it will stimulate economic growth." This time it's Josh Boak (no relation!), the economics reporter (!) at Politico, who was "educated at Princeton and Columbia." And Sunday afternoon he posted this story:
Irene: An economic blow or boost?
The power outages and shuttered airports may stop the engines of commerce for several days, but Hurricane Irene might have provided some short-term economic stimulus as billions of dollars will likely be spent to repair the damage to the East Coast over the weekend. Cumberland Advisors Chairman David Kotok saw the storm as likely jolting employment in construction, an industry paralyzed by the bursting of the real estate bubble in 2008.

“We are now upping our estimate of fourth-quarter GDP in the U.S. economy,” he said in an email Sunday. “Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

Kotok expects GDP growth — which limped along at less than a percentage point for the first half of the year — to exceed 2 percent in the last three months of the year and potentially reach 3 percent. Mark Merritt, president of crisis-management consulting firm Witt Associates, said the hurricane should provide a bump in economic activity over the next few months. “After a disaster, there’s always a definite short-term increase,” Merritt said. “There will be furniture bought, homes repaired, new carpet, new flooring, all the things affected by flooding.”
The story quotes no economist, who might have pointed out that the destruction of homes, businesses, and other property cannot actually be good for the economy. As economist Sandy Ikeda summed it up last year, the argument is that "paying $100 to replace a broken window somehow creates more prosperity than having an intact window and spending that $100 on something else." He goes on to ask, as many economists have: If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities? As Frederic Bastiat explained the "broken window fallacy," a boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!” But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.” In the comic strip "Pearls Before Swine," the nefarious Rat used the destruction-as-stimulus argument to defend his client's blowing up downtown: But that's a comic strip. Journalists should do better. Please, call one of these economists. They can tell you that destruction is destructive. When property is destroyed, people have less wealth. The money they had been saving for a new business or a new computer or a college education, now they have to spend it on rebuilding what they had. That is not "a bump in economic activity."

Posted on August 28, 2011  Posted to Cato@Liberty

Drug Decriminalization Has Failed?

David Boaz

Michael Gerson, former speechwriter for President George W. Bush and now a columnist for the Washington Post, has denounced libertarianism as "morally empty," "anti-government," "a scandal," "an idealism that strangles mercy," guilty of "selfishness," "rigid ideology," and "rigorous ideological coldness." (He's starting to repeat himself.)

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In his May 9 column, "Ron Paul's Land of Second-Rate Values," he went after Rep. Paul for his endorsement of drug legalization in the Republican presidential debate. "Dotty uncle," he fumed, alleging that Paul has "contempt for the vulnerable and suffering." Paul holds "second-rate values," he added.

What did Paul do to set him off? He said that adult Americans ought to have the freedom to make their own decisions about their personal lives — from how they worship, to what they eat and drink, to what drugs they use. And he mocked the paternalist mindset: "How many people here would use heroin if it were legal? I bet nobody would say, 'Oh yeah, I need the government to take care of me. I don't want to use heroin, so I need these laws.'"

Gerson accused Paul of mocking not paternalists but addicts: "Paul is not content to condemn a portion of his fellow citizens to self-destruction; he must mock them in their decline." Gerson wants to treat them with compassion. But let's be clear: He thinks the compassionate way to treat suffering people is to put them in jail. And in the California case Brown v. Plata, the Supreme Court just reminded us what it means to hold people in prison:

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California's prisons are designed to house a population just under 80,000, but ... the population was almost double that. The State's prisons had operated at around 200% of design capacity for at least 11 years. Prisoners are crammed into spaces neither designed nor intended to house inmates. As many as 200 prisoners may live in a gymnasium, monitored by as few as two or three correctional officers. As many as 54 prisoners may share a single toilet. Because of a shortage of treatment beds, suicidal inmates may be held for prolonged periods in telephone-booth-sized cages without toilets.

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Gerson knows this. His May 27 column quoted this very passage and concluded, "[I]t is absurd and outrageous to treat [prisoners] like animals while hoping they return to us as responsible citizens."

Gerson contrasted the "arrogance" of Paul's libertarian approach to the approach of "a Republican presidential candidate [who] visited a rural drug treatment center outside Des Moines. Moved by the stories of recovering young addicts, Texas Gov. George W. Bush talked of his own struggles with alcohol. 'I'm on a walk. And it's a never-ending walk as far as I'm concerned... . I want you to know that your life's walk is shared by a lot of other people, even some who wear suits.'"

Gerson seems to have missed the point of his anecdote. Neither Bush nor the teenagers in a Christian rehab center were sent to jail. They overcame their substance problems through faith and personal responsibility. But Gerson and Bush support the drug laws under which more than 1.5 million people a year are arrested and some 500,000 people are currently in jail.

Our last three presidents have all acknowledged they used illegal drugs in their youth. Yet they don't seem to think — nor does Gerson suggest — that their lives would have been made better by arrest, conviction, and incarceration. If libertarianism is a second-rate value, where does hypocrisy rank?

Gerson seems to have a fantastical view of our world today. He writes, "[D]rug legalization fails. The de facto decriminalization of drugs in some neighborhoods — say, in Washington, D.C. — has encouraged widespread addiction."

This is mind-boggling. What has failed in Washington, D.C., is drug prohibition. As Mike Riggs of Reason magazine wrote, "I want to know where in D.C. one can get away with slinging or using in front of a cop. The 2,874 people arrested by the MPD for narcotics violations between Jan. 1 and April 9 of this year would probably like to know, too."

Michelle Alexander, author of The New Jim Crow, writes, "Crime rates have fluctuated over the past few decades — and currently are at historical lows — but imprisonment rates have soared. Quintupled. And the vast majority of that increase is due to the War on Drugs, a war waged almost exclusively in poor communities of color." Michael Gerson should ask Professor Alexander for a tour of these neighborhoods where he thinks drugs are de facto decriminalized.

In a recent Cato Institute report, Jeffrey Miron of Harvard University estimated that governments could save $41.3 billion a year if they decriminalized drugs, an indication of the resources we're putting into police, prosecutions, and prisons to enforce the war on drugs.

What Gerson correctly observes is communities wracked by crime, corruption, social breakdown, and widespread drug use. But that is a result of the failure of prohibition, not decriminalization. This is an old story. The murder rate rose with the start of alcohol Prohibition, remained high during Prohibition, and then declined for 11 consecutive years when Prohibition ended. And corruption of law enforcement became notorious.

Drug prohibition itself creates high levels of crime. Addicts commit crimes to pay for a habit that would be easily affordable if it were legal. Police sources have estimated that as much as half the property crime in some major cities is committed by drug users. More dramatically, because drugs are illegal, participants in the drug trade cannot go to court to settle disputes, whether between buyer and seller or between rival sellers. When black-market contracts are breached, the result is often some form of violent sanction.

When Gerson writes that "responsible, self-governing citizens ... are cultivated in institutions — families, religious communities and decent, orderly neighborhoods," he should reflect on what happens to poor communities under prohibition. Drug prohibition has created a criminal subculture in our inner cities. The immense profits to be had from a black-market business make drug dealing the most lucrative endeavor for many people, especially those who care least about getting on the wrong side of the law. Drug dealers become the most visibly successful people in inner-city communities, the ones with money and clothes and cars. Social order is turned upside down when the most successful people in a community are criminals. The drug war makes peace and prosperity virtually impossible in inner cities.

There is a place where drugs have been decriminalized, not just de facto but in law. Maybe Gerson should have cited it instead of Washington, D.C. Trouble is, it doesn't make his point. Ten years ago Portugal decriminalized all drugs. Recently Glenn Greenwald studied the Portuguese experience in a study for the Cato Institute. He reported, "Portugal, whose drug problems were among the worst in Europe, now has the lowest usage rate for marijuana and one of the lowest for cocaine. Drug-related pathologies, including HIV transmission, hepatitis transmission and drug-related deaths, have declined significantly."

Posted on August 26, 2011  Posted to Cato@Liberty

The Kennedy View of Wealth

In a column bemoaning Ayn Rand's influence in America, Kathleen Kennedy Townsend writes:
I also see a moral issue with Ayn Rand's insistence that all of us, CEOs included, should be totally free of the ties that bind. I especially disagree when it comes to CEOs. As I wrote here a few months ago, the wealthy have a special responsibility. Much will be asked of those to whom much has been given. Participating in government and civic life, serving in war, helping the less fortunate, and--yes--paying a fair share of taxes are inescapable responsibilities for all Americans, especially for those who have realized the American dream that inspires us all. (emphasis added)
I hear this idea a lot, and of course it can be traced to the words of Jesus: "For unto whomsoever much is given, of him shall be much required." (King James Version, Luke 12:48) But something struck me in its being quoted by Kathleen Kennedy Townsend. Much has been given to her, and to her relatives. And thus wealth has always seemed to her something that falls like manna from heaven. Townsend is the granddaughter of Joseph P. Kennedy and of coal magnate George Skakel. Wikipedia sums up the charmed life her grandparents' wealth gave her:
Townsend was born in Greenwich, Connecticut....She spent most of her childhood in McLean, Virginia and attended Stone Ridge School in nearby Bethesda, Maryland. She graduated from The Putney School in Vermont. She attended Radcliffe College (which later became part of Harvard University), receiving her bachelor's degree in history and literature with honors in 1974.
It's a wonderful life. To her and her family, much was given -- by the hard work of an earlier generation. But most CEOs are not given anything. They have to create wealth. The ones who get the richest, the entrepreneurs, typically work very hard for years. They invent things -- cars, copying processes, software systems, computers, business practices. Sam Walton became fabulously wealthy by delivering mundane items a few pennies cheaper to tens of millions of people, Ray Kroc by standardizing the cheap and efficient delivery of reliable hamburgers. Sure, some CEOs inherit their jobs, but they still have to work to update their products and keep up with the competition. A person who makes money doesn't feel that "much has been given" to him, though rich Americans do nevertheless give a great deal to charity. Perhaps we might change Kennedy Townsend's mantra to
To those from whom we have received much -- the incredible standard of living that investors and businesspeople have helped us all to achieve -- much gratitude is owed.  And if they also devote some of their own wealth to charitable endeavors, they are doubly beneficent.

Posted on August 24, 2011  Posted to Cato@Liberty

Paternalism and Parks

Or, as Timothy Egan titles it at the New York Times: "Nature Without the Nanny State." After reporting on a higher level of deaths this year at Yosemite, and an increased level of warnings and lawsuits, Egan notes:
My experience, purely anecdotal, is that the more rangers try to bring the nanny state to public lands, the more careless, and dependent, people become.
That point might have broader application than national parks.

Posted on August 23, 2011  Posted to Cato@Liberty

David Boaz discusses the role of libertarianism in the 2012 elections on The Brian Wilson Show

Posted on August 23, 2011  Posted to Cato@Liberty

Is It ‘Well Worth the Money’?

A former congressional page tells the Washington Post that the recently ended page program was "well worth the money." At the Encyclopedia Britannica Blog, I note:
Well, it would be, wouldn’t it? For those who benefited from it, it is indeed well worth the money. But, as with all government programs, the beneficiaries weren’t paying for it. Did the program do the taxpayers much good? Yes, in the days when members of Congress needed a way to get documents to one another, the page program may well have been an efficient use of resources. But times change; technology has eliminated a lot of jobs in the private sector, and there’s no reason to think it shouldn’t have the same impact in the public sector. Cynics point out that pages were mostly the children of people with good political connections. And then they make better connections: The writer who thought the program was “well worth the money” now runs a company that boasts of having made more than 500 million political robocalls over the past 30 years. So we all owe something to the page program!
Much more on the problem of concentrated benefits and diffuse costs, some appalling examples, and a suggestion as to how we might determine whether each government program is "well worth the money."

Posted on August 22, 2011  Posted to Cato@Liberty

Well Worth the Money

David Boaz

Two weeks ago the House of Representatives announced that it would end its nearly 200-year-old page program. What with new technology and all, there just isn't much need any longer to employ teenagers to take phone messages and carry documents from one member of Congress to another. The program costs $5 million a year, which isn't much in a $3.8 trillion federal budget, but taxpayers should appreciate any elimination of an unnecessary program.

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The Washington Post published remembrances from former pages. One outraged response was titled "Well worth the money."

Well, it would be, wouldn't it? For those who benefited from it, it is indeed well worth the money. But, as with all government programs, the beneficiaries weren't paying for it. Did the program do the taxpayers much good? Yes, in the days when members of Congress needed a way to get documents to one another, the page program may well have been an efficient use of resources. But times change; technology has eliminated a lot of jobs in the private sector, and there's no reason to think it shouldn't have the same impact in the public sector. Cynics point out that pages were mostly the children of people with good political connections. And then they make better connections: The writer who thought the program was "well worth the money" now runs a company that boasts of having made more than 500 million political robocalls over the past 30 years. So we all owe something to the page program!

But this is just a tiny example of a much bigger problem: every government program is "well worth the money" to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people "who will be most affected" by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers' pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

And so we get bailouts for the Chrysler Corporation in 1979 and for Wall Street in 2008, a protective tariff for Harley-Davidson in 1982, higher-than-necessary wages for public employees, sugar and ethanol subsidies that benefit Archer-Daniels-Midland, farm subsidies, and thousands more programs with beneficiaries who know exactly who they are. When the Pentagon decided to cancel a program to build new presidential helicopters — after the price ballooned from $6.8 billion to $13 billion — an 11-year-old girl in Owego, New York, where Lockheed Martin had planned to build the helicopters, wrote a letter to President Obama that became "a voice for her shaken community":

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Lockheed is the main job source in Owego. If you shut down the program, my mom may lose her job and a lot of other people too... . Owego will be a ghost town. I've lived here my whole life and I love it here! Please really, really think it over.

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This girl loves her family and her home town. And we can't expect her to understand what $13 billion means to the American taxpayers. To the girl and her mom, the new helicopter is "well worth the money." But after all the beneficiaries of all the programs lobby to keep them going, we end up with a $3.8 trillion budget and a $1.5 trillion federal deficit.

For an unusually candid view of what it means to direct federal dollars to particular areas, we might turn to an advertisement in the Durango, Colorado, Herald in 1987, which touted the Animas-La Plata dam and irrigation project and made explicit the usual hidden calculations of those trying to get their hands on federal dollars:

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Why we should support the Animas-La Plata Project: Because someone else is paying the tab! We get the water. We get the reservoir. They get the bill.

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In the private sector, the voluntary sector of the economy, we know that something is "well worth the money" if people are willing to spend their own money on it. In government, politicians work to separate the payment of taxes from the receipt of specific services. We're not asked "will you pay $100 right now for farm subsidies and $4000 for Medicaid and $1600 for the wars in Iraq and Afghanistan and $130 for a new presidential helicopter and ... ?"

If we did get such a question, we might well decide that lots of government programs were not "well worth the money" to the people who would be paying the money.

And by the way, I said above that taxpayers would appreciate the elimination of even a small spending program. But House leaders said that they "will work with Members of the House to carry on the tradition of engaging young people in the work of the Congress." So chances are, taxpayers won't actually see even that $5 million savings. That's life in the taxpaying business.

Posted on August 22, 2011  Posted to Cato@Liberty

Anarchists for Big Government

Three months ago I wrote a long, thoughtful (ahem) critique of the Washington Post's use of the word "anarchists" to describe people outraged at the possibility that governments might finally be forced "to cut social benefits and slash public payrolls." "Odd anarchists," I harrumphed, who "object to the state reducing its size, scope, and power." Today, Michael Cannon made the same point to many more people in a few pithy sentences on the Post's letters page:
Anne Applebaum informed us that “the anarchists in Athens wanted more government spending” [“The smartphone riots?” op-ed, Aug. 11]. Which is it? Were they anarchists, who want no government? Or were they statists, who want more government?
The lesson? Write letters to the editor. People read them. Meanwhile, two other letter-writers on the same page complain that the Post should not reveal how our tax dollars are spent, lest the masses turn against Washington. I disagree.

Posted on August 20, 2011  Posted to Cato@Liberty

Libertarianism’s Cross-Cutting Appeal

NPR's Ari Shapiro reports from New Hampshire on Ron Paul, including this heart-warming story:
Robin and Tom Jacubic are husband and wife who had sat on opposite ends of the political spectrum for years. "I was for Ned Lamont because he was anti-war," says Robin, "and when the Democrats took over in 2006, nobody did anything to stop the war, so I found Dr. Paul from there." "He is the only one in the Republican race that knows what he's doing, knows what he's saying and has the answers," adds her conservative husband. After a decade of married life supporting opposing political candidates, "We found each other in libertarianism," says Robin.
For more on fiscally conservative, socially liberal voters, read "The Libertarian Vote."

Posted on August 19, 2011  Posted to Cato@Liberty

Why Is the Tappan Zee Bridge in the Wrong Place?

David Kestenbaum of NPR Planet Money reports this morning:
You would never look at a map of the Hudson River, point to the spot where the Tappan Zee Bridge is, and say, "Put the bridge here!" The Tappan Zee crosses one of the widest points on the Hudson — the bridge is more than three miles long. And if you go just a few miles south, the river gets much narrower. As you might expect, it would have been cheaper and easier to build the bridge across the narrower spot on the river.
Was there in fact a good engineering reason to put the bridge there, one that escaped the notice of the NPR reporter? Was there a good economic reason, perhaps avoiding expensive property confiscations? Well, it won't surprise readers of Cato-at-Liberty to discover that the bridge is in the wrong place because it made money for the State of New York:
If the bridge had been built just a bit south of its current location — that is, if it had been built across a narrower stretch of the river — it would have been in the territory that belonged to the Port Authority. As a result, the Port Authority — not the State of New York — would have gotten the revenue from tolls on the bridge. And [Gov. Thomas E.] Dewey needed that toll revenue to fund the rest of the Thruway.
Now the bridge needs repairs, which will cost more because the bridge is three miles long, instead of one mile long as it could have been. In Libertarianism: A Primer (page 199), I cited the work of the Italian fiscal theorist Amilcare Puviani, who asked, If a government were trying to squeeze as much money as possible out of its population, what would it do? He came up with 11 tactics, from inflation and borrowing to extraordinary budget complexity. I wonder if "placing a bridge in an inefficient place so that we get the tolls instead of another government" is covered by one of his strategies.

Posted on August 19, 2011  Posted to Cato@Liberty

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