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Roger Noriega

U.S. intelligence chief doubts Chávez is cured of cancer

By Roger Noriega

January 31, 2012, 5:06 pm

U.S. intelligence chief James Clapper on Tuesday publicly contradicted claims by Venezuelan dictator Hugo Chávez that he is cured of cancer, the first official U.S. statement on Chávez’s failing health.

General Clapper’s declarations, made during testimony before the U.S. Senate, breaks months of silence from the U.S. government on the subject of Chávez’s health and corroborates my assertions that Chávez is deceiving the Venezuelan people about his fatal condition.

I wrote in the Miami Herald on July 19, 2011, that doctors treating Chávez told him then that he had a 50 percent chance of living 18 months. That was seven months ago. I noted that:

With the ailing dictator off the political stage for at least two months, civic leaders can jump start a transition by laying out a constructive plan for addressing the country’s growing crises. This task is even more urgent, because regime insiders have begun to quietly mobilize their campaign team…

Since then, dozens of my sources with access to Chávez’s inner circle have confirmed my original appraisal about Chávez’s condition. Several publications have revealed additional details about his health. For example, Spain’s ABC newspaper reported on January 23:

The Venezuelan leader’s prostate cancer has metastasized into his bones, spinal cord, and colon, according to medical records accessed by ABC. Chávez should only expect between nine and twelve months of life if he insists on refusing adequate treatment for his cancer…

General Clapper revealed the U.S. government’s devastating assessment of Chávez’s health as part of the U.S. intelligence community’s formal annual report to Congress; he is scheduled to testify before the House of Representatives oversight panel on Thursday.

As I explained last November:

Chávez’s sobering prognosis is a dilemma for Caracas, where Chavista leaders are afraid that their fiercest followers will feel betrayed when they learn his claim to be”cancer-free” turns out to be a big lie…. Chávez wants his people to believe that he was “cured” months ago…. In fact, his physical deterioration is advancing faster than doctors had expected.

Chávez’s periodic public appearances—particularly his nine-hour address before the National Assembly earlier this month—are purposely orchestrated to sow doubts about his true condition and buy time for his co-conspirators to hang on to power as he falters and dies. Ironically, these public encounters are grueling physical challenges for Chávez, and doctors have told him that such public commitments complicate his treatment and recovery.

Many Venezuelans—perhaps most of Chávez’s supporters—have clung to the hope that he might be surviving his bout with his aggressive cancer. The formal testimony of retired U.S. Air Force Lieutenant General James Clapper, the current U.S. director of national intelligence, reveals what intelligence professionals tell President Obama about Chávez’s failing health.

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Categories:  Latin America   |   Tags:

Why the ‘do nothing’ option on debt reduction won’t work

By James Pethokoukis

January 31, 2012, 4:10 pm

In its latest update, the Congressional Budget Office has a forecast which assumes the following:

  • All expiring tax provisions (other than the payroll tax reduction), including those that expired at the end of December 2011, are extended;
  • The AMT is indexed for inflation after 2011 (starting from the 2011 exemption amount);
  • Medicare’s payment rates for physicians remain unchanged from current amounts; and
  • The automatic spending reductions required by the Budget Control Act do not take effect.

And according to that “current policy” forecast, Washington would add $11 trillion to the federal deficit over the next decade. As a share of GDP, deficits would average 5.4 percent. By 2022, the deficit would equal 6.1 percent of GDP. Debt held by the public would reach 94 percent of GDP by the end of 2022, the largest share since 1948. Not good.

But Matthew Yglesias and some other liberals kind of like the “do nothing” approach to deficit reduction. Unless Congress acts to stop that stuff from happening—by, for instance, extending some or all of the Bush tax cuts—massive fiscal tightening would mean just $3 trillion in new debt would be added. And over the next few years, projected deficits would drop markedly, averaging 1.5 percent of GDP over the 2013–2022 period. What’s more, debt held by the public drops from about 75 percent of GDP in 2013 to 62 percent in 2022.

Here’s what I am guessing Yglesias really likes:

Much of the projected decline in the deficit occurs because, under current law, revenues will rise considerably as a share of GDP—from 16.3 percent in 2012 to 20.0 percent in 2014 and 21.0 percent in 2022. In particular, between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30 percent, mostly because of the recent or scheduled expirations of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect. Revenues continue to rise relative to GDP after 2014 largely because increases in taxpayers’ real (inflation-adjusted) income are projected to push more of them into higher tax brackets and because more taxpayers become subject to the AMT.

That’s right, the Mother of All Tax Hikes (MATH). But there are some problems with this idea: a) debt at 62 percent of GDP in 2022 would still be higher than in any year between 1952 and 2009, a dangerous level; b) GDP growth would sink to just 1 percent in 2013, putting unemployment back above 9 percent (and some private estimates show an even more severe impact) and risking another recession; c) the CBO assumes the income tax could consistently generate revenue above 20 percent of GDP, a historically unprecedented event. The “do nothing” option really doesn’t look like much of an option at all.

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Categories:  Economic Policy, Fiscal Policy and Taxes   |   Tags: , ,

Questioning the efficacy of ‘blue laws’

By Daniel Hanson

January 31, 2012, 3:13 pm

Governor Daniel Malloy of Connecticut is currently embroiled in a debate over whether the state should revise its decades-old restrictions on the sale of alcoholic beverages to allow more consumer freedom. Opponents of lifting the so-called “blue laws” that restrict behavior based on religious prohibitions have gone into histrionics over the proposal, citing the supposed increased workload, decreased religiosity, and outbreaks of vandalism that are sure to follow such a move.

But do blue laws actually encourage better behavior?

One paper, published by Jonathan Gruber and Daniel Hungerman in 2008, looked at the impact of blue laws on religiosity. The authors found a marked decline in religious charitable contributions and church attendance in the aftermath of a blue law repeal. As the authors note:

Under weak conditions repealing the laws will unambiguously lead to less time spent on religious activities. This is because after the laws are repealed formerly constrained individuals will increase time on work and secular consumption, and both of these crowd out time spent on religious activities. The situation is more complicated for religious donations. On the one hand, individuals who had been facing a restriction on work will respond to the laws being repealed by working more and spending more on both secular consumption and religious donations, and so religious donations could rise. On the other hand, if donations are normal, individuals who had been facing a restriction on secular consumption will respond to the laws being repealed by substituting out of religious donations and spending more on secular consumption.

But the results are actually more interesting. Since religious participation and moral decision-making are hugely related, the authors try to parse out whether there are other behavior changes associated with blue law repeal, like increases in drinking. They find:

Here we find a positive and significant effect on marijuana consumption of 3.2 percentage points. This is a very large effect which is more than 20 percent of the sample mean. For cocaine, the coefficient is again positive and significant, and the marginal effect is nearly the same as the sample mean … The results here are striking: for each of these three behaviors [drinking, cocaine use, marijuana use], we find significant effects of repeal on those who attend church, relative to those who do not. For example, for drinking, we find that attendees are 5.5 percent more likely to drink than those who don’t attend.

Apparently, the Puritans were correct: one sure fire way to get people to go to church and behave is to take away all their other options.

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Categories:  General, Society and Culture   |   Tags:

Marc Thiessen

Al Qaeda in Iran—the evidence

By Marc Thiessen

January 31, 2012, 12:36 pm

More evidence is emerging of the cooperation between Iran and al Qaeda. Last June, the Obama Treasury Department named six al Qaeda facilitators operating in Iran under a “secret deal” between al Qaeda and the Iranian regime. Then, in December, a federal court found that Iran had “aided, abetted and conspired with” al Qaeda in the 1998 bombings of the U.S. embassies in Kenya and Tanzania.

Now, RAND scholar Seth Jones has published an important new essay in Foreign Affairs detailing the evolution of the Iran-al Qaeda relationship. Jones spent much of the past year at West Point culling through hundreds of open-source and declassified documents, and interviewed government officials from the United States, Europe, the Middle East, and South Asia. Based on this research, he concludes, “Evidence of the Iranian-al Qaeda partnership abounds” and that “the organization’s presence in Iran means that, contrary to optimistic assessments that have become the norm in Washington, al Qaeda’s demise is not imminent.”

Jones writes:

[O]ver the past several years, al Qaeda has taken a beating in Iraq, Pakistan, Yemen, the Horn of Africa, and North Africa. In particular, an ongoing campaign of drone strikes has weakened — although not eliminated — al Qaeda’s leadership cadre in Pakistan. But the group’s outpost in Iran has remained almost untouched for the past decade.

He notes that:

On the surface, the relationship between Shia Iran and Sunni al Qaeda is puzzling. Their religious views do differ, but they share a more important common interest: countering the United States and its allies, including Israel, Saudi Arabia, and the United Kingdom. Iran’s rationale might be compared to that of British Prime Minister Winston Churchill, who declared, “If Hitler invaded Hell, I would make at least a favorable reference to the devil in the House of Commons.”

Iran is likely holding al Qaeda leaders on its territory first as an act of defense. So long as Tehran has several leaders under its control, the group will likely refrain from attacking Iran. But the strategy also has an offensive component. If the United States or Israel undertook a bombing campaign against Iran, Tehran could employ al Qaeda in a response. Tehran has long used proxies to pursue its foreign policy interests, especially Hezbollah in Lebanon, and it has a history of reaching out to Sunni groups. In Afghanistan, for example, Iran has provided limited support to the Taliban to keep the United States tied down. Al Qaeda’s proven willingness and ability to strike the United States make it an attractive partner.

As for al Qaeda:

Iran is in many ways a safer territory from which al Qaeda can operate. The United States has targeted al Qaeda in Iraq, Pakistan, Yemen, and other countries, but it has limited operational reach in Iran. In addition, Iran borders the Persian Gulf, Iraq, Turkey, Afghanistan, and Pakistan, making it centrally located for most al Qaeda affiliates. …. Although most governments in the region have clamped down on al Qaeda, Iran’s willingness to allow some activity sets it apart.

Jones is clearly sensitive to the possibility that the evidence he has produced could strengthen the hand of those who argue for military action against Iran’s nuclear facilities. He concludes that a pre-emptive attack on Iran’s nuclear facilities could backfire by pushing Iran and al Qaeda closer together:

For one, Iran would likely respond to an attack by targeting the United States and its allies through proxies in Iraq, Afghanistan, and other countries. The regime might increase its logistical support to al Qaeda by providing money, weapons, housing, travel documents, and transit to operatives — some of which it is already doing. In a worse scenario, Tehran might even allow al Qaeda officials in Iran to go to Pakistan to replenish the group’s depleted leadership there, or else open its borders to additional al Qaeda higher-ups. … In an even more extreme scenario, Iran could support an al Qaeda attack against the United States or one of its allies, although the regime would surely attempt to hide its role in any plotting.

This is certainly a risk that must be weighed before any military action is taken. But policymakers could reasonably conclude that the risk of a closer Iran-al Qaeda alliance does not, in the long run, outweigh the risk of an Iranian regime armed with nuclear weapons.

You can read the full essay here.

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Categories:  Foreign and Defense, War on Terror   |   Tags: , ,

5 scariest debt and unemployment charts from the new CBO report

By James Pethokoukis

January 31, 2012, 11:27 am

The Congressional Budget Office has released its updated 10-year budget and economic forecast. Actually, the CBO offers two forecasts. It has a baseline forecast, which assumes current law stays in place. It also has an “alternative” forecast which assumes current tax and spending policy stays in place as is—even if the law says it must change in coming years. That scenario incorporates the following assumptions:

– Expiring tax provisions (other than the payroll tax reduction) are extended [under current law, those expirations will boost individual income taxes in a variety of ways by amounts totaling $3.8 trillion from 2013 through 2022];

– The AMT is indexed for inflation after 2011 [under current law, its parameters are fixed, and the number of taxpayers affected by the AMT will jump from 4 million in calendar year 2011 to 30 million in 2012];

– Medicare’s payment rates for physicians’ services are held constant at their current level [under current law, those rates are scheduled to drop by 27 percent this March and more in later years]; and

– The automatic spending reductions required by the Budget Control Act do not take effect [under current law, they will impose reductions totaling about $109 billion a year starting in January 2013].

I like to refer to the “alternative fiscal scenario” as the “realistic fiscal scenario.” It is certainly the scarier scenario over the long term. For instance, annual budget deficits would average 5.4 percent of GDP over the 2013–2022 period under the alternative fiscal scenario, rather than the 1.5 percent reflected in CBO’s baseline projections. (In other words, instead of adding $3 trillion in new debt over the next decade, Washington would add $11 trillion.) Debt held by the public would climb to 94 percent of GDP in 2022, the highest figure since just after World War II.

With that background, here are some of the scariest debt and economic charts I pulled out of the CBO report:

1. Huge deficits as far as the eye can see

2. Total debt held by the public reaches its highest level since just after World War II 

3. The economy continues to perform below its potential for years, leaving the economy smaller than it would be otherwise 

 

4. The unemployment rate stays at abnormally high levels for years


5. Spending never returns to its pre-Obama levels

 

 

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Categories:  Economic Policy, Fiscal Policy and Taxes   |   Tags: , , ,

Marc Thiessen

Obama ‘exposes’ a covert action program

By Marc Thiessen

January 31, 2012, 11:00 am

During an online question and answer session on Monday, President Obama “exposed” a covert action program when, for the first time, he acknowledged the existence of the CIA’s drone campaign against al Qaeda. The drone program is, of course, an “open secret” in Washington. U.S. officials routinely discuss it on deep background, and Obama has referred to it obliquely in the past. But this was the first time an American president had openly acknowledged that the United States was using unmanned drones to kill al Qaeda terrorists.

The president made his remarks in the context of defending the program against charges from critics on the left that it has led to the deaths of a large number of civilians. “Drones have not caused a huge number of civilian casualties,” the president declared. “There’s a perception that we’re just sending a whole bunch of strikes willy-nilly. This is a targeted, focused effort at people who are on a list of active terrorists who are trying to go in and harm Americans … It is important for everybody to understand that this thing is kept on a tight leash.”

He added that, far from a source of tension with countries where strikes occur (he judiciously avoided mentioning Pakistan by name), relations would be further frayed if drones were not available to go after al Qaeda and the United States had to use manned missions to kill the terrorists instead. “We have to be judicious in how we use drones,” the president said, “but we have to understand that probably our ability … to limit our incursions into somebody else’s territory is enhanced by the fact that we are able to pinpoint-strike an al Qaeda operative in a place where the capacity of that military in that country may not be able to get them.”

At almost the same time the president spoke, eleven terrorists, including four local commanders, are reported to have been killed in a U.S. drone airstrike in a southern Yemeni province where al Qaeda’s affiliate controls significant ground. And earlier this month, the United States resumed drone strikes in Pakistan after a nearly two month pause following an American air strike in November that killed two dozen Pakistani troops. According to the Long War Journal, this was the longest pause in strikes since the program was ramped up in the summer of 2008 by President George W. Bush. Here is LWJ’s list of the pauses in drone attacks:

Number of days between Predator/Reaper strikes in Pakistan since August 2008, eight days or greater

2011:

•    33 days, Nov. 16 to Dec. 19

•    11 days, Nov. 3 to Nov. 15

•    11 days, Oct. 15 to Oct. 27

•    12 days, Sept. 30 to Oct. 13

•    11 days, Sept. 11 to Sept. 23

•    17 days, Aug. 22 to Sept. 11

•    9 days, May 23 to June 3

•    19 days, April 21 to May 6

•    25 days, March 17 to April 13

•    14 days, Feb. 21 to March 8

•    27 days, Jan. 23 to Feb. 20

2010:

•    9 days, Dec. 17 to Dec. 27

•    19 days, July 25 to Aug. 14

•    15 days, June 29 to July 15

•    12 days, May 28 to June 10

•    12 days, March 30 to April 12

•    10 days, Feb. 24 to March 8

•    11 days, Feb. 2 to Feb. 14

2009:

•    19 days, Nov. 18 to Dec. 8

•    13 days, Sept. 30 to Oct. 14

•    9 days, Sept. 14 to Sept. 24

•    10 days, Aug. 27 to Sept. 7

•    8 days, Aug. 11 to Aug. 20

•    9 days, June 23 to July 3

•    28 days, May 16 to June 14

•    9 days, April 19 to April 29

•    10 days, April 8 to April 19

•    9 days, March 15 to March 25

•    11 days, March 1 to March 12

•    12 days, Feb. 16 to March 1

•    21 days, Jan. 23 to Feb. 14

•    20 days, Jan. 2 to Jan. 23

2008:

•    11 days, Nov. 29 to Dec. 11

•    13 days, Sept. 17 to Oct. 1

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Categories:  Bin Laden, Foreign and Defense, South Asia   |   Tags: , ,

AEI Elsewhere—Bringing more minds to America, inequality and the rich, and more

By The Editors

January 31, 2012, 10:54 am

• Nick Schulz: “The human capital imperative: bringing more minds to America”
• James Q. Wilson: “Angry about inequality? Don’t blame the rich”
• Roger F. Noriega: “Iran’s gambit in Latin America”
• Alan D. Viard: Is there a tax loophole that benefits fund managers? “Understanding carried interest”
• Marc A. Thiessen: “Why is Team Gingrich parroting a pro-Obama union’s attack?”
• Roger Bate: “Time for a fake-drugs treaty”
• Andrew G. Biggs: “CBO: Federal workers overcompensated“

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Sadanand Dhume

Expanding the American Kosher Deli

By Sadanand Dhume

January 31, 2012, 10:04 am

Yesterday marked the 20th anniversary of the establishment of full diplomatic relations between India and Israel.

The event was a watershed for both countries. For Israel—which also established ties with China the same year—it symbolized a decisive end to widespread isolation in Asia and the developing world. For India, whose socialism and non-alignment tilted it firmly toward the Palestinians for more than four decades, it marked a step toward a new kind of foreign policy: one marked less by anti-Western speechifying and abstract moralizing, and more by the pursuit of its own national interest.

Since then, the two countries have developed a curious relationship. On the one hand, India—at least under the left-leaning Congress Party—continues to pay (excessive) lip service to the Palestinian cause. On the other hand, Jerusalem has emerged as one of New Delhi’s most trusted partners on counter-terrorism, border security, and advanced weapons purchases. Agriculture is another large area of co-operation, indeed the only one both country’s officials tend to speak of expansively. (Almost everything I know about drip irrigation, I owe to Israeli diplomats expounding on the topic at length.)

For the United States, growing ties between India and Israel offer an opportunity. Step aside from a small and aging cohort of New Delhi intellectuals banging on about settlements and the right of return, and you find a deep admiration for the Jewish state among educated Indians. A strong India-Israel relationship binds India more closely with the democratic West. Perhaps it’s time to propose a Middle Eastern equivalent of the U.S.-India-Japan trilateral dialogue. There’s already a name for it: the American Kosher Deli.

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Categories:  Foreign and Defense, Middle East, South Asia   |   Tags: ,

The big hole in Newt’s flat tax plan

By James Pethokoukis

January 31, 2012, 9:39 am

My pal Art Laffer heaps gobs of praise on Newt Gingrich’s tax plan (an optional 15 percent flat tax for individuals, 12.5 percent for businesses, no investment taxes) today in the WSJ. He notes that each of the main components has been tried elsewhere to great success:

Hong Kong, where there has been a 15% flat income tax on individuals since 1947, is truly a shining city on the hill and one of the most prosperous cities in history. Ireland’s 12.5% flat business income tax propelled the Emerald Isle out of two and a half centuries of poverty.

I agree. I love, love the idea of a flat consumption tax, which is really what Gingrich is proposing since he would also get rid of investment taxes for individuals and allow full and immediate expansion of capital investment by business.

If only Gingrich were as bold and specific when it came to cutting spending. Even Laffer admits in the op-ed that the Gingrich plan—despite faster economic growth—would be a revenue loser to the government. Now, that’s not such a big deal if you also plan to slash the size of government. But Gingrich doesn’t say what he would cut, aside from, dare I say it, grandiose projections like this one in his “21st Century Contract for America”:

Strong America Now, an organization dedicated to bringing modern management to government at every level, estimates that we can save $500 billion a year in spending through proven waste-cutting and value-enhancing techniques from the private sector, such as Lean Six Sigma.

Boy, I hope he’s right. But I would be more impressed if Gingrich moved beyond “waste-cutting and value-enhancing techniques” to actually cutting something. It is possible, you know. Last summer, Senator Tom Coburn released a 600-page plan to cut spending by $9 trillion over the next decade. It had a lot of stuff like this in it:

– Reduce the number of limos owned by federal agencies. Savings: $10.4 million a year.

– Eliminate NSF’s Social, Behavioral, and Economics (SBE) Directorate. Savings: $2.8 billion.

– End the Parole Commission, which was eliminated by Congress along with federal parole in 1984. Savings: $12.9 million per year.

Coburn didn’t just wave a Lean Six Sigma magic wand over the budget to make the red ink go away. He went over the federal budget line by line to identify and exorcise wasteful, duplicative, or unnecessary programs. Newt should do the same. Mitt Romney, too. Americans can see what’s happening in Europe right now and understand that the out-of-control spending must end. Government will need to be cut. Presidential candidates should be as specific about what austerity means as they are about cutting taxes.

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Categories:  Economic Policy, Fiscal Policy and Taxes, Politics and Public Opinion, U.S. Economy, U.S. Politics   |   Tags: , , ,

Credit ratings: Where ‘least wrong’ is the best we can hope for

By Daniel Hanson

January 30, 2012, 4:43 pm

U.S. regulators think they can do better than the major credit ratings agencies. As part of the Dodd-Frank Act, U.S. regulators are no longer allowed to use ratings from independent companies to judge the appropriateness of bank capital levels. Under the newest proposal from the Fed, the Comptroller of the Currency, and the FDIC, ratings would instead be assigned based on OECD classifications, which are even worse than the ratings agencies’ diagnoses.

This week, the U.S. Congress will hold hearings regarding the major credit ratings agencies’ supposed inability to predict the collapse of MF Global. Despite the fact that both Moody and S&P downgraded the brokerage prior to the collapse and “did not have any understanding” of the firm’s bets on European sovereign debt until less than a week before the collapse, expect lawmakers to crack down harshly on ratings agencies yet again.

This comes amid accusations that ratings agencies are, apparently, being too harsh on European nations thanks to a spate of downgrades in sovereign creditworthiness over the past months. These accusations piggyback on prior claims that the ratings agencies failed to anticipate the wave of defaults in subprime mortgages that precipitated the U.S. housing crisis. (Never mind that U.S. regulators didn’t anticipate them either.)

Surely the OECD ratings can’t be worse?

Except that they can be. The OECD currently rates all of the troubled countries of the Eurozone as entirely riskless investments and has done so since they started producing ratings. This stands in stark contrast to the ratings agencies. See below for a breakdown of ratings, and notice how the OECD has totally failed to grasp the magnitude of the current crisis.

By cutting out ratings agencies, regulators have correctly sensed the conflicts of interest in the status quo, but they have merely replaced one set of conflicts of interest with another. The OECD is a collective of governments who are leveraged to the hilt with sovereign debts they are struggling to service. In this instance, the ratings agencies are right to say these countries are in trouble. It appears that in this instance, least wrong is the best we can hope for.

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Categories:  Economic Policy, Europe and Russia, Regulation, U.S. Economy   |   Tags: ,

Yes, Intrade actually is that useful!

By James Pethokoukis

January 30, 2012, 4:13 pm

Jonah questions the usefulness of Intrade, doubting whether the “wisdom of crowds” actually generates much predictive value when it comes to political prognostication. Don’t betting markets just follow the consensus, which generally follows the poll? Well, a 2010 study looked at that very issue:

In keeping with similar research by Berg et al and others, this dissertation found that market prices tend to be better predictors of political event outcomes than corresponding polls. This superiority was observed over all time periods studied, with Intrade market prices correctly predicting the winner 36% of the time in the 2004 Democratic presidential nomination contest (compared to 13% for polls) and 54% of the time in the 2008 Democratic presidential nomination contest (compared to 45% for polls).

And this past October, the Washington Post took a look at Intrade and came to this conclusion:

For example, in the 2004 election, Intrade was predicting that George W. Bush would win by August. On the other hand, the market did not see Hillary Clinton’s New Hampshire victory in the 2008 primaries coming. Of course, no one else—including Clinton—did either.

And, Intrade has successfully predicted events for which there are no polls—for example, that former North Carolina Sen. John Edwards would be the 2004 Democratic vice-presidential nominee and that Donald Rumsfeld would resign as secretary of defense in 2006. (Politics aside, Intrade has shown a knack for predicting Oscar winners.)

And how about Intrade versus the pundits in 2008:

On the morning of Election Day, I printed out the expectations from the Dublin-based Intrade market as well as a roundup of predictions from nearly two dozen political consultants, journalists and academics that appeared at the Huffington Post. The Intrade bettors expected Mr. Obama to end up with 364 votes in the Electoral College — one less than he actually got. None of the pundits came so close. Alan Abramowitz, a political scientist at Emory, came closest with prediction of 361; all the rest were off by at least 12 votes. Nate Silver, the much-talked-about statistician at FiveThirtyEight.com, underestimated Mr. Obama’s tally by 18 votes. Many of the pundits underestimated Mr. Obama’s total by more than 25 votes, like Chris Matthews, Arianna Huffington, and the strategists Paul Begala, James Carville and Alex Castellanos.

I could go on and on. A 2004 study concluded “Prediction markets are remarkably accurate information aggregation mechanisms.” They are not perfect, of course. But I was made a believer in 2004 when the exit polls said Bush was a sure loser and Intrade gave a different story.

Believe, Jonah, believe!

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Categories:  Politics and Public Opinion, Society and Culture   |   Tags:

Andrew Biggs

CBO study concurs with Biggs-Richwine paper highlighting overpaid federal workers

By Andrew Biggs

January 30, 2012, 3:36 pm

The Congressional Budget Office has released a new study showing that federal government employees receive significantly higher compensation than private sector workers with the same levels of education and experience. The CBO report confirms many of the findings of a 2011 study I wrote with Jason Richwine of the Heritage Foundation and helps rebut claims that federal workers are underpaid.

CBO found that federal employees receive average salaries that are about 2 percent higher than those for similar private sector employees and benefits that by 48 percent exceed private sector levels. Total average federal compensation is 16 percent above private sector levels. With federal employee compensation totaling $200 billion per year, a 16 percent pay premium is big money.

CBO’s methods are broadly consistent with the 2011 AEI study, although we found a larger federal pay premium because we sought to capture a broader range of federal compensation—including the implicit value of federal workers’ near-total job security—and because of somewhat different economic assumptions. Nevertheless, the CBO report serves as a valuable contrast to figures generated by the federal Office of Personnel Management claiming that federal employees are underpaid by 26 percent relative to private sector jobs.

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Categories:  Economic Policy, Fiscal Policy and Taxes   |   Tags:

Jonah Goldberg

Is Intrade really that useful?

By Jonah Goldberg

January 30, 2012, 1:07 pm

I don’t want to start a war with my AEI colleagues, specifically Intrade junkies Mark Perry and Jim Pethokoukis, but can I offer a small bit of skepticism about Intrade?

I understand why prediction markets are interesting. But am I the only one who thinks they are incredibly overblown? On any given day, some friend of mine will blog or tweet or otherwise opine about how Mitt Romney is now at X on Intrade or how Newt Gingrich now has a 29.3 percent chance of Y on Intrade. I am always at a loss about how much, if at all, I should care about this information.

From what I can tell, the “prices” for shares in political candidates have been all over the place over the last year. So how predictive are they, really? It seems to me they don’t really measure the likelihood of anything so much as the prevalence of certain aspects of conventional wisdom. It’s a clever way to poll people in a given moment, not some ingenious new mechanism for gleaning the future.

When I complain about Intrade to some of my Intrade-obsessive friends, they say that the numbers change because the facts on the ground change. And in the end, the accuracy is great. Well, first of all, isn’t that true of conventional wisdom, pundits, polls, etc. too? In the end, everyone’s accuracy is great. The closer you get to an actual event, the more ironclad the predictions that that event will occur become. Predictions that your plane will crash in a giant fireball decrease precipitously once the plane’s wheels safely hit the ground, and they drop to zero when the plane parks at the gate.

It reminds me a bit of that scene from Fletch when Chevy Chase pretends to know someone who died.

Dr. Joseph Dolan: You know, it’s a shame about Ed.

Fletch: Oh, it was. Yeah, it was really a shame. To go so suddenly like that.

Dr. Joseph Dolan: He was dying for years.

Fletch: Sure, but… the end was very… very sudden.

Dr. Joseph Dolan: He was in intensive care for eight weeks.

Fletch: Yeah, but I mean the very end, when he actually died. That was extremely sudden.

At the very end, when Mitt Romney, Newt Gingrich, or Rick Santorum actually wins the Republican nomination, Intrade will predict that outcome perfectly. Until then, it’s just another kind of focus group.

Or am I wrong? What is the metric that proves the value of Intrade? I am open to correction on all of this.

Editor’s note: See Jim Pethokoukis’s response here.

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Categories:  Politics and Public Opinion, U.S. Politics   |   Tags:

AEI Elsewhere—How the CDC overstates sexual violence, Obama hiding on earth while Newt lands on the moon, and more

By The Editors

January 30, 2012, 11:14 am

• Christina Hoff Sommers: “How the CDC is overstating sexual violence in the U.S.”
• Michael Barone: “Obama hides on Earth, Newt crash lands on moon”
• Thomas Donnelly, Gary J. Schmitt, and Mackenzie Eaglen: “A response to the Obama administration’s preview of the fiscal year 2013 defense budget request”
• Alex Brill: “Tax analysts exclusive: a conversation with Alex Brill”
• David Shaywitz: “Road not taken: the unrecognized harm of excessive regulation“

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Kenneth P. Green

The green-energy climbdown continues

By Kenneth P. Green

January 30, 2012, 10:41 am

The rain in Spain may stay mainly on the plain, but it won’t be falling on giant solar panel arrays for very long: Spain is in full retreat on its ill-advised renewable push. That won’t come as a surprise to AEI readers, since I’ve been writing about Spain’s failing and corrupt renewables regime (along with the rest of Europe) for a good year now.

As I wrote last year:

Spain has also found its foray into renewable energy unsustainable. As Bloomberg BusinessWeek reports, Spain has slashed subsidies for new solar power plants. Analyst Andrew McKillop observes in The Energy Tribune:

In Spain, where subsidies to the country’s massive windfarms and their dependent industries is estimated to have attained as much as 12 billion Euros in 2009, either directly or through “feed-in tariff” subsidy for power sales, government proposals target at least a 30% cut in subsidies. Major wind energy producer firms, such as Gamesa, have begun cutting their workforces, while trying to find sales outside Europe, helped by a weaker Euro. In addition and due to Spain’s highly exposed deficit finance status, making it a target for market speculators betting its bond rates must rise, the Spanish government is also likely to cut financial backing to existing renewable energy power plants, built with an expectation of guaranteed prices and government subsidies for 25 years.

Well, Bloomberg has an update:

Spain halted subsidies for renewable energy projects to help curb its budget deficit and rein in power-system borrowings backed by the state that reached 24 billion euros ($31 billion) at the end of 2011.

“What is today an energy problem could become a financial problem,” Industry Minister Jose Manuel Soria said in Madrid. The government passed a decree today stopping subsidies for new wind, solar, co-generation or waste incineration plants.

The system’s debts were racked up as revenue from state- controlled prices failed to cover the cost of delivering power. Costs have swollen in the past five years because of an increase in regulated payments for the power grid, support for Spanish coal mines and subsidies for renewable energy plants.

Watch for the same pull-back in other countries that foolishly believed the wind- and solar-hucksters, and threw their national fortunes behind these not-ready-for-prime-time technologies, including here in the good ol’ US of A. Given our political pig-headedness, and our slightly greater distance from the fiscal abyss, it’ll take us a little longer, but, I suspect, not a lot longer.

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Categories:  Energy and Environment, Europe and Russia, U.S. Economy   |   Tags: , ,

The Obama stimulus: How Big Government screwed up the Big Spend

By James Pethokoukis

January 30, 2012, 9:13 am

Recall the original Obama economic team. It consisted of President Obama, Vice President Joe Biden, Treasury Secretary Timothy Geithner, and White House economists Lawrence Summers, Christina Romer, Austan Goolsbee, and Jared Bernstein. It was the Democrats’ Best and Brightest—but not one with a smidgen of executive experience in either the private or public sector. And into their hands was entrusted an $800 billion stimulus spending plan, a package whose details were fleshed out by Harry Reid and Nancy Pelosi. What could go wrong?

Lots, it turns out. And Michael Grabell, a reporter for ProPublica, documents the many failings of the American Recovery and Reinvestment Act in “Money Well Spent? The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History,” out this week. Rather than focus on questionable Keynesian economics behind the stimulus, Grabell focuses on its execution and management.

In reporting on the stimulus over three years, I traveled to 15 states, interviewed hundreds of people and read through tens of thousands of government documents and project reports. What I found is that the stimulus failed to live up to its promise not because it was too small (as those on the left argue) or because Keynesian economics is obsolete (as those on the right argue), but because it was poorly designed. Even advocates for a bigger stimulus need to acknowledge that their argument is really one about design and presentation.

Take the tax cut piece of the plan. Inspired by new research in behavioral economics, Team Obama constructed the $116 billion tax credit so it was “dribbled” out in paychecks at about $10 a week. Grabell:

Perhaps that would have worked if the tax cut had been substantial. But spread out in tiny increments, it did little to overcome the prevailing fear of losing a job, a home and years of retirement savings. Not only did Obama lose the political credit but also the consumer excitement that a large check would have provided.

Or how about the infrastructure spending. Grabell says it was beset by regulatory obstruction and union pandering:

The timing of the stimulus was poor to bring about the flood of construction projects everyone expected in the first year. States had to advertise the project to allow contractors to submit bids. They needed to review those bids and sign the contracts. Then, they had to go back to the U.S. Department of Transportation for the final OK. ..

Some projects in public housing, waterworks and home insulation remained paralyzed for six months to a year as short-staffed agencies reviewed Buy American waiver requests and calculated prevailing wages for weatherization work in every county in America.

In Michigan, human services officials estimated that 90% of the homes in line for weatherization work would need a historic preservation review. But as of late fall 2009, the office responsible had only two employees.

Public transit advocates expected a windfall for bus companies like New Flyer in St. Cloud, Minn. But the transit money took longer to get out the door because every grant had to be reviewed by the Labor Department to ensure that it wouldn’t have a negative impact on transit unions.

In short, Big Government screwed up the Big Spend. Biden said the stimulus would “literally drop kick us out of the recession.” But Grabell concludes that “the stimulus ultimately failed to do what America expected it to do — bring about a strong, sustainable recovery. The drop kick was shanked.”

And that’s about what you might expect from a White House run by brilliant theoreticians with no one around to do a reality check. Let’s contrast Team Obama with Team Reagan. The Gipper’s cabinet had Donald Regan, former CEO of Merrill Lynch; George Schultz, former president of engineering firm Bechtel; Caspar Weinberger, also of Bechtel; Malcolm Baldridge, CEO of manufacturer Scovill. And, of course, there was Reagan himself, the former two-term governor of America’s most populous state.

So here we are, three years and a trillion bucks later. Unemployment is still over 8 percent and the economy grew just 1.7 percent last year. And many economists think the fourth quarter’s 2.8 percent GDP growth might be as good as it gets for a while. The Federal Reserve’s recent economic forecast, for instance, sees the economy growing between 2.2 percent and 2.7 percent with unemployment between 8.2 percent and 8.5 percent.

Is Obama really going to run on the success of the stimulus? Republicans should sure hope so.

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Michael Auslin

Cheers to Julia Gillard: Civility at the top, hooliganism at the bottom in Australia

By Michael Auslin

January 29, 2012, 1:40 pm

This video of Australian Prime Minister Julia Gillard being threatened last week by Aboriginal rights supporters is a case study in civilized behavior versus the mob. Appearing at a restaurant for an Australia Day event, Gillard and opposition leader Tony Abbott had to be evacuated by security and police. The reason? Apparently, the spark was a comment earlier in the day by Abbott that it was time for Canberra’s 40-year old “Tent Embassy” aboriginal encampment to move on, causing angry protesters to mass. That a mere off-the-cuff remark in an interview somehow justifies a threat to innocent life shows the hooliganism of the mob. In response, Prime Minister Gillard reflects the reaction of a civilized society: decency, awareness, and leadership.

If you watch the video above, at the 2:00 minute mark, as protesters bang on the windows of the restaurant and throw objects, Gillard is told by her security head that it is time to leave because of the threat of the mob. This is every politician’s nightmare, and fears for their safety would probably cause most to get out as fast as they can. Yet Gillard’s very first comment is “What about Mr. Abbott?” Clearly, the security detail has no plans for helping ensure his safety. Gillard immediately states that he should be taken care of, as well. She then talks to Abbott herself to let him know he’ll leave with her. Ultimately, the two are surrounded by a cordon of police and security, rushed through the mob, and bundled together into one car to escape. In the melee, Gillard loses a shoe, which the protesters later held up like a fetishistic sacrifice in front of the crowd.

What inspiring common sense and kindness by Gillard. How many leaders (let alone regular individuals) would have the calmness of mind in such an unexpected and frightening situation to think of someone vulnerable who would be the target of the mob outside? She could easily have simply followed her security detail without thinking of anyone else, but she instinctively chose not to do so. Now that’s a real example of civility. Cheers to Julia Gillard.

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Categories:  Asia Pacific, Society and Culture   |   Tags: , ,

Why the Reagan Recovery was much more impressive than Obama’s

By James Pethokoukis

January 28, 2012, 5:32 pm

My pal Joe Weisenthal over at Business Insider just wrote a piece—in response to a post I wrote earlier today—with the delightfully provocative and contrarian headline, “Why The Obama Recovery Has Been Much More Impressive Than Reagan’s.”

Nope, I’m not making this up. See for yourself:

Let’s be perfectly clear, the Reagan Recovery (RR) has been far stronger than the Obama Recovery (OR). I think that is beyond dispute, really.

– In the first ten quarters of the OR, GDP is up a total of 6 percent. During the first ten quarters of the RR, GDP rose 15 percent. Point for Reagan.

– In the first ten quarters of the OR, the economy created 790,000 jobs. During the first ten quarters of the RR, the economy created 7.5 million jobs. Point for Reagan, especially given the U.S. workforce is a third bigger today than it was in the early 1980s.

– In the first ten quarters of the OR, real disposable personal income rose at an annual average pace of 0.8 percent. During the first ten quarters of the RR, real disposable personal income rose at annual average pace of 5.4 percent. Point for Reagan. Game. Set. Match.

But Brother Weisenthal is making a subtler, more subjective point. He is arguing that, for a number of reasons, the Obama Recovery is more impressive than the Reagan Recovery. Not stronger, more impressive, because Obama was dealt a worse hand. Among Weisenthal’s points:

1. “There are at least some economists who argue that post-financial crisis economies experience unusually slow growth for years and years.”

Me: Indeed, there are. But there are also some who disagree. A Federal Reserve study released last November found the following:

Whether a recession is associated with a banking or financial crisis does not have a statistically significant effect on the pace of growth following recession troughs. … Banking and financial crises are associated with more severe recessions – deeper in the case of emerging market economies and longer in the case of the advanced economies – but do not appear to impose additional restraint to recoveries beyond the depth and duration.

2. “The problem is that Pethokoukis is … defining housing bust purely in terms of housing construction, while ignoring the real elephant in the room: The collapse in home prices, and the knock-on effects it has had on the economy.”

Me: I don’t disagree that the “knock-on effect” such as loss of wealth may well be a drag on growth. That Fed study makes the same point: … “recoveries from recessions associated with severe housing downturns are found to be slower.” Well, there is a difference between slow and virtually non-existent, right? Again, the Reagan Recovery 10-quarter growth rate was 6 percent vs. 4.6 percent for the average post-WWII recovery vs. 2.4 percent for the Obama Recovery.

And the impact of a deleveraging and a reverse wealth effect are not as clear as Weisenthal contends. Note that personal consumption has increased for 10 straight quarters and the savings rate remains extraordinarily low. But I think this chart, from the NY Times, raises big questions about the deleveraging argument:

Where is the deleveraging? It looks like debt has shifted from private to public. Let me quote a Michael Pento piece from BI, of all places: “It is certainly true that after decades of overly speculative borrowing, individuals and corporations are paying down debt, rebuilding their savings, and generally repairing their respective balance sheets. But these activities cannot be faulted for our economic malaise. In fact, as a country, we haven’t deleveraged at ALL. All the moves made by the private sector have been vastly outpaced by the federal government’s efforts to add leverage to the economy.”

3. If you really want an apples-to-apples comparison, it’s hard to fathom why Reagan doesn’t have to answer for a recession happening so soon on his watch, and why he only gets measured on those two years. What’s more … the 1984-1988 period was pretty average, so we’re really just talking about two years of really impressive morning-in-America growth.

Me: I think Paul Volcker cranking interest rates through the roof might have had a role in the recession as he attempted to squeeze out the inflation of the 1970s. The 1981-82 recession was really the culmination of 16 years of economic mismanagement. One sign of this: The Dow industrials fell by two-thirds when adjusted for inflation from 1966-1982. (From 1983-1988, the S&P composite notched a real return of 13 percent a year.) The entire previous decade was marked by tremendous economic volatility, high unemployment, and high inflation. Reagan inherited a mess.

As for GDP growth, it averaged 4.4 percent from 1983-1988 vs. roughly 3.3 percent since WWII. So I am pretty sure growth was markedly above average. A recent IMF forecast, by the way, predicts sub-3 percent U.S. GDP growth through 2016.

4. “We could of course go on, and point to several other factors in Obama’s favor, such as the fact that tax rates had already been lowered quite a bit heading into his presidency, taking away one easy form of stimulus, or the fact that a major trading partner, Europe, has been in crisis virtually the whole time of Obama’s Presidency, or the fact that Obama faced a Congress who threatened to cause the U.S. to default, or the fact that interest rates were ultra-low already, again taking away one form of stimulus from Obama.”

Me: Gosh, I wonder what U.S. GDP growth would have been in the 1980s had China been the second-largest economy in the world, growing at 10 percent a year and boosting global growth. Instead, it was the stagnating Soviet Union in the number two spot. In the 1980s, one-third of the planet lived under communism, sapping all that human vitality and creativity (and trade) out of the world economy. And I am not sure about JW’s point about taxes and interest rates. Is he saying that Obama has a much more constructive tax and rate environment and still couldn’t get the economy cooking?

Bottom line: People were amazingly pessimistic heading into the 1980s after the economically tumultuous 1970s. America seemed to be in decline both economically and militarily. And corporate America was desperately in need of restructuring. (Thanks, Bain!) Obama inherited a much healthier non-financial private sector.

This is what the American people had just gone through, by the way (via MeasuringWorth):

 

Imagine going back in time and showing these economic statistics from the next 25 years:

Growth up, stocks up, inflation down. Oh, and the Soviet Union gone. Safer. Stronger. Better. Instead of the Soylent Green future of diminished expectations people were predicting in the 1970s, we got something more like the shiny, growthy one shown in Back to the Future II.

Obama has some big shoes to fill.

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Categories:  Economic Policy, U.S. Economy, Uncategorized   |   Tags: , , ,

Is it unfair to compare the Obama and Reagan economic recoveries? No

By James Pethokoukis

January 28, 2012, 9:11 am

Ronald Reagan inherited a Long Recession. The economy declined 0.3 percent in 1980, grew at a subpar 2.5 percent in 1981, and then plunged 1.9 percent in 1982. The lengthy downturn was really the culmination of more than a decade of bad economic policy. But the Reagan Recovery was stunning. GDP rose 4.5 percent in 1983 and 7.2 percent in 1984. It was Morning in America, and Reagan won reelection by a landslide.

Barack Obama also inherited a Long Recession. According the National Bureau of Economic Research, the U.S. economy entered recession in 2007 and stayed there until June 2009. But the Obama Recovery has been terribly weak. The economy grew at a 2.8 percent pace in the second half of 2009, 3.0 percent in 2010, and—according to new Commerce Department data—1.7 percent in 2011. We’ll see what happens in the 2012 election, but Obama’s current approval rating is 43 percent, according to Gallup.

As economist Lawrence Kudlow of CNBC notes:

After 10 quarters of recovery, the Reagan growth rate was 6 percent. Compare that with Obama’s 2.4 percent. Or compare Obama’s 2.4 percent with the 4.6 percent post-World War II average recovery rate after 10 quarters.

But Obamacrats and other liberals say the Reagan-Obama comparison is unfair. After all, Reagan didn’t have to deal with a collapsed housing bubble. Obama, they contend, was dealt a near-impossible hand and played it about the best he could. Americans need to lower their expectations, and Reaganites need to quit making the comparison.

The reality: Housing is usually a key contributor to GDP growth during the early stages of a recovery. As a 2011 St. Louis Fed analysis points out, “Somewhat surprisingly, the housing component of GDP (more formally known as residential investment) tends to be a solid contributor to GDP growth during a recovery. Historically, residential investment has contributed only about 5 percent of GDP—a small share considering the consumption component is close to 70 percent. Nevertheless … it can contribute substantially to the GDP growth rate for short periods of time.”

According to Commerce Department data, residential investment added 1.33 percentage points to GDP in 1983 and 0.64 in 1984. By contrast, residential investment subtracted 0.11 percentage point in 2010 and 0.03 in 2011. (See chart below.)

But here’s the thing: Subtract the housing rebound from the Reagan Recovery and GDP still grows twice as fast as during the Obama Recovery. For example, the economy grew 7.2 percent in the second full year of the Reagan Recovery. Without residential investment, it would have grown 6.6 percent vs. 1.7 percent growth in 2011, Obama’ s second full year of recovery. Score one for the Gipper … and for supply-side/Schumpeterian economics over demand-side/Keynesian economics.

 

I also ran across an interesting bit of commentary from former Fed governor Kevin Warsh on this very issue (via International Economy magazine) of blaming housing for the weak recovery. It’s a bit long but worth reading:

Only by the standard of the deepest, darkest day of the crisis is this economic recovery even plausibly satisfactory. On a historical basis, the economic recovery is modest, and unacceptably so. Some describe this recovery as the “new normal” and suggest we should just get used to it. Others suggest that recoveries from global financial crises are inevitably weak, and so we should lower our standards. I call this the new malaise. Instead of lowering our standards, we should improve our policies and raise our expectations.

So why is the recovery weak? First, the symptoms have been confused with the disease. Some policymakers have tried to steer a housing recovery without an economic recovery. So there have been a dozen or so programs to “fix” the housing crisis on the theory that once that’s repaired, the broader economy will come roaring back. These housing programs, however well intended, have done little, in my view, to help the housing markets or the real economy. A housing recovery will begin when real household incomes improve, not before.

Second, intentions aside, the broad suite of macroeconomic policies has tended to favor the big over the small—big banks have been advantaged over small banks; big businesses have been favored versus small businesses; and those big multinationals with access to the global economy and global financial markets have benefited more than those on the front lines of job creation.

Third, macroeconomic policies, in my view, have been preoccupied with the here and now, not the long term. So going back several years, Washington has compensated for a faltering economy with temporary programs that plug quarterly GDP arithmetic, but do far less to support long run growth. Massive stimulus has proven not to be as efficacious as many academic models would suggest.

In short, better policies, a better economy. The current economic recovery could be a lot stronger.

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Categories:  Economic Policy, U.S. Economy   |   Tags: , ,

Roger Bate

Fake drug scandal, winding down?

By Roger Bate

January 27, 2012, 5:49 pm

The saga over the quality of medicines produced by Indian company Ranbaxy looks to be coming to a close. Back in 2004 and 2005, a Ranbaxy whistleblower contacted me to provide information about quality infringements at one of Ranbaxy’s plants. Despite FDA warnings and the WHO’s awareness of the problem, the problem was not fully resolved.

Ranbaxy is a good company and it is endeavoring to set things right. But its problems demonstrate the cost of not successfully inculcating good standards through all levels of management. My reading of the infringements made by Ranbaxy staff suggests that they may have saved the company at most a few thousand dollars from their regulation-infringing cost-cutting. Yet the loss of business has now run in the millions of dollars—and who knows what the cost of poor quality medicines has been to patients. It should be noted that none of the drugs the FDA tested failed quality control. But, as drug experts explain to me, there are some flaws it is hard to test for; it is possible dangerous products slipped through, especially if the production processes are careless.

The United States now sources 80 percent of its intermediate drug chemicals from overseas, a growing number from China. Chinese companies probably suffer worse quality control problems than most of the large Indian companies—but so far no whistleblowers have emerged. I expect many more Ranbaxy-type problems to crop up in the near future, with the likelihood of serious implications for at least some American patients.

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Categories:  Global Health, Health Policy, Regulation   |   Tags:

Andrew P. Kelly

Obama tells higher education institutions they’re ‘on notice’

By Andrew P. Kelly

January 27, 2012, 4:32 pm

President Obama gave everyone more detail on his latest higher education reform ideas this morning. The proposals are unlikely to make many friends among the higher education establishment.

The big pieces:

•    A proposal to tie a portion of federal financial aid dollars to whether institutions maintain low net prices and provide “long-term value” to their students.

•    A Race to the Top for College Affordability and Completion: A competitive grant program that incentivizes states to lower postsecondary costs, and a smaller program (“First in the World”) for individual institutions and non-profit organizations to experiment with lower-cost models.

•    An effort to create a College Scorecard for consumers that would (eventually) include measures of labor market success.

What to make of it all? Two quick reflections:

1.    A college scorecard with comparable information on costs and quality makes good sense. I’ve written (repeatedly) about the need for better consumer information, shown that information can affect the way parents evaluate colleges, and discussed the shortcomings of existing efforts to provide it.

In K-12, the NAEP exam is necessary because the states have no incentive to honestly “keep score” on their own. The federal government has also fulfilled this role in higher education via the National Center for Education Statistics. This latest iteration is an effort to streamline the data that are available, place any given institution’s cost and performance in context, and add some measures that have heretofore been unavailable (earnings and employment).

Two issues to keep in mind:

Measuring earnings and employment information for all colleges and universities seems sure to provoke a firestorm of debate. But the federal government is already collecting similar information for for-profits and vocational programs at community colleges.

Second, making the information available is not enough: policymakers must find ways to proactively put the scorecards in front of consumers. Seems like providing the scorecard for each school a student lists on the FAFSA is the right place to start.

2.    While it’s not entirely clear, it looks like the “First in the World” competitive grant program will be limited to colleges and nonprofit organizations, thereby precluding any for-profit service providers from applying.

This echoes the administration’s stubborn stance on the i3 program in K-12, and it means that some of the most innovative providers in higher education will be left out. Many for-profits (and I’m not just talking about colleges and universities here) are experimenting with promising models of instructional delivery, student services, and credentialing and assessment that are bending the cost curve and promoting student success. Barring these outfits would be a missed opportunity to harvest the best of what the for-profit sector has to offer: the fruits of their R and D. For-profit organizations should be included, at the very least as potential partners to public and non-profit institutions.

Whatever happens, if anyone is considering a career change, now would be the time to get hitched to a higher education lobbying firm. Judging by the initial response to Obama’s ideas, it’s going to be a “growth industry” over the next few months.

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GOP debate strangely focuses on moon rather than mortgages

By James Pethokoukis

January 27, 2012, 3:15 pm

I’ve been eager for the GOP presidential debate to move to Florida. Finally, I assumed, America’s housing depression would get some time in the issue spotlight. Let’s briefly recall how housing is doing in the Sunshine State, courtesy of economist Jed Kolko of Trulia, the real estate data firm:

1) The housing bust took Florida down. Prices in most of Florida have fallen by at least 40% since their peak. Along with Nevada, Arizona and inland California, Florida was ground zero for the housing bubble, and now its residents are deep underwater.

2) Florida is in foreclosure purgatory. It takes more than two years for homes to go through the foreclosure process in Florida, longer than any other state except New York and New Jersey (which have far fewer foreclosures to begin with). That means 14.0% of Florida loans are stuck in foreclosure, compared with 6.3% in Nevada, 3.2% in Arizona, 3.2% in California and 2.7% in Michigan, according to LPS. This keeps Florida’s housing market in limbo and prevents Florida from benefiting from a plan to sell government-owned homes to investors after a foreclosure is complete.

But I did not get my wish. Although the housing crisis did come up last night, the conversation quickly derailed into a discussion about privatizing the GSEs, as well as some back-and-forth about what exactly Newt Gingrich was doing for Freddie Mac to earn his $1.6 million. Amazingly, there was no discussion of President Barack Obama’s plan, announced in his SOTU address, for a mass refinancing of U.S. mortgages.

Keep that in mind as you read what New York Fed President Bill Dudley had to say about housing today:

While house prices are no longer overvalued by historical standards, restrictions on access to credit and the large number of homes in the foreclosure pipeline means that home prices remain under downward pressure. The ongoing weakness in housing makes achieving a vigorous economic recovery more difficult for several reasons:

  •  The strong rebound in housing construction and related activities, such as furniture sales, that typically power economic recoveries following deep recessions is absent.
  • The decline in home prices has eroded household wealth, which then inhibits consumer spending. Since home values peaked in 2006, homeowners have lost more than half their home equity and many expect further declines.
  • The weakness in home prices has reduced credit availability because many households and small businesses use their homes as their primary source of collateral for loans.
  • The big drop in house prices has made it more difficult for borrowers to refinance, undercutting some of monetary policy’s ability to support demand.

Gosh, sounds like a subject worthy of discussion in a 2012 presidential debate. In a world where moderators cared more about policy than process, perhaps Wolf Blitzer would have asked something like this:

Gov. Romney/Speaker Gingrich/Sen. Santorum/Rep. Paul, Romney economic adviser Glen Hubbard has suggested a massed refi of U.S. mortgages. Former Reagan economic adviser Martin Feldstein suggests a $350 billion mortgage principal writedown. Conservative economist Luigi Zingales would reduce underwater mortgages by the amount home prices have fallen in the area, with homeowners and banks splitting future price gains. Do these ideas have any merit or it is better just to speed up foreclosures?

Love to hear their answers.

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Categories:  Economic Policy, Fiscal Policy and Taxes, Regulation   |   Tags:

Marc Thiessen

Best of the foreign policy blogs (Week of Jan. 21-27)

By Marc Thiessen

January 27, 2012, 2:30 pm

Here’s the best of what AEI’s foreign and defense policy scholars are reading this week:

• Elliott Abrams at Foreignpolicy.com on why the Arab Spring proves that neoconservatives were right all along.

• Elliott Abrams at NationalReview.com on how Gingrich insulted Ronald Reagan.

• Jackson Diehl at the WashingtonPost.com’s Post Partisan blog on how, during the Florida debates, Mitt Romney doubles down on the Taliban.

• Walter Russell Mead at the-american-interest.com’s ViaMeadia blog reports that Tehran and Moscow Double Down in Syria. 

• Bill Ardolino at LongWarJournal.org on al Qaeda’s new jihadi comic strip “Son of the Martyr” in The Cartoon Jihad Continues.

• Collum Lynch at ForeignPolicy.com’s Turtle Bay blog on whether the UN’s new DC Comic series can make the UN look cool (or at least effective) in The League of Extraordinarily Bureaucratic Gentlemen.

• Barbara Surk at ArmyTimes.com reports on al Qaeda’s claims that the U.S. pulled its troops out of Iraq because our economy is collapsing and we needed to save money.

• Jamie Crawford at CNN.com’s Security Clearance blog on the Foreign policy of the GOP’s final four.

• Will Rahn at DailyCaller.com on Newt’s plan for a real Jurassic Park and Sex in Space.

• Spencer Ackerman at Wired.com’s Danger Room on America’s Most Dangerous Mall: Going Shopping at the Pentagon.

• Joshua Keating at ForeignPolicy.com’s Passport blog on the frightening phenomenon of World Leaders Singing (Who knew Obama did such a mean Al Green?)

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Claude Barfield

Outsourcing/insourcing contradictions

By Claude Barfield

January 27, 2012, 2:29 pm

Even longwinded SOTU speeches can provide amusement if one plows through the text. So it is with President Obama’s treatment of the goal to “bring manufacturing back” to U.S. shores. Without getting into the weeds of international tax policy, President Obama proposes to tilt the playing field strongly against U.S. corporations that invest abroad in order to keep up with global competition: specifically, he would take tax dollars away from such firms and give them to firms that bring jobs back to the United States.

There’s a lot wrong with this jiggling, but here let’s point to an obvious contradiction: just a few moments later, Obama praised the German multinational Siemens for building a gas turbine factory in North Carolina and providing a job for the (inevitably) “single mom,” Jackie Bray. By the logic of the president’s thesis, however, German Chancellor Angela Merkel must surely respond by punishing Siemens. Similarly, by extension the Korean government should jerk the chain on Hyundai’s plants, as should the Japanese government for Toyota’s U.S. plants. Does the president really want to go down this job-destroying path? And where was the Council of Economic Advisers when this economic nonsense was written into this SOTU campaign speech?

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Categories:  Economic Policy   |   Tags: ,

Kenneth P. Green

Obama’s green kiss of death

By Kenneth P. Green

January 27, 2012, 2:28 pm

The drumbeat of government-funded green-tech bankruptcies continues:

Ener1, an electric car battery company that the Obama administration awarded a $118 million stimulus grant to expand its operations, filed for Chapter 11 bankruptcy protection Thursday after being unable to repay pressing debts. The news comes one year after Vice President Biden visited the company’s new battery plant in Indiana to highlight its progress with federal funds. Ener1 is the third company to seek bankruptcy protection among those the Energy Department backed as part of the president’s signature program to invest in clean energy. Solyndra, a California solar-panel maker, and Beacon Power, a Massachusetts energy-storage firm, entered bankruptcy court proceedings in the fall, after having received taxpayer-guaranteed loans of $535 million and $43 million, respectively.

Apparently, one is best off avoiding presidential attention, or, as another blogger puts it, avoiding Obama’s [green] kiss of death.

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