Arming Syrian Rebels—Afghanistan Deja Vu?



mccain-syria-rebelsConcerns over the Islamic State of Iraq and Syria, or ISIS, have continued to grow. Last night, President Obama addressed the nation on the “ISIS threat.” He announced his intentions to provide further assistance to opposition groups. More specifically, he is asking Congress for $500 million to arm and train “moderate Syrian rebels.”

The idea of sending weapons to fight a regime or group deemed “unfriendly” to U.S. interests is not a new phenomenon. In fact, between 1970 and 1979, the U.S. arranged for more than $74 billion in weapons to be sent abroad. This number has only continued to climb. The logic behind sending weapons is straight forward. By selectively equipping groups friendly to U.S. interests, the U.S. government is able to “tip the scales” in a particular conflict. The U.S. can effectively defeat the opposition with fewer or no American troops on the ground. Moreover, once the conflict has come to an end, those in power (i.e. those who received military assistance from the U.S.) will look to maintain relations with the U.S. so as to obtain more benefits. In essence, by providing arms, the U.S. is able to end a conflict, position a “friendly” regime to take power, and ultimately influence international policy.

As appealing as this narrative sounds, in reality it’s not that simple. The scenario suggested by the President and others falls prey to linear thinking. That is, such plans assume that the U.S. government can 1. identify a problem, 2. construct a solution, and 3. implement it. This type of thinking maintains that an intervention only impacts those areas which the U.S. government intends.

What this type of thinking ignores is that it is impossible for these kinds of interventions to do only one thing. When acting in a complex system like Syria, there are innumerable moving parts, literally millions of actors, each responding to their own unique incentives. It is impossible to know at the start how interfering in one part of the system will impact other parts, either immediately or in the future.

Take, for example, the Soviet occupation of Afghanistan in 1979. In an effort to drive out the Soviet Union, the U.S. chose to arm a rebel group, the Mujahedeen. Reflecting upon the conflict in 1983, President Reagan stated that,

To watch the courageous Afghan freedom fighters [Mujahedeen]...is an inspiration to those who love freedom....The West has no designs upon Afghanistan....All we seek is the restoration of peace and freedom for a noble and brave people

Arming the group may have had the desired short-term effects. The Soviet Union ended its occupation in early 1980 and the U.S. military sent no troops to the region. But the consequences of the policy had long-reaching effects. The Mujahedeen were able to gain control of the country. But those “freedom fighters,” once lauded as heralds of liberty, formed the Taliban. Afghanistan became a safe haven for individuals like Osama bin Laden and others, who not only opposed the interests of the U.S. government, but directly impacted the freedom of Afghan citizens.

The situation in Syria is no different in principle. Syria’s regime is unfriendly to the U.S. The country is in the midst of an ongoing civil war with a death toll considered tragic on any margin. But the idea that the U.S. can arm rebels and keep weapons in “responsible and moderate” hands is unfounded in theory and practice. If the U.S. were to send weapons to Syria, there are no guarantees how such weapons would be used, who would ultimately possess them, or how such an arrangement would change conditions over time. If Afghanistan and other U.S. ventures into the Middle East are any indication, there is a very real possibility that weapons sent to protect U.S. interests today could be used to threaten them tomorrow.

The situation in Syria is undoubtedly a difficult one. Mounting international concerns have placed new pressures on the U.S. government to “do something.” But before advocating or undertaking any action in Syria, it is imperative to understand that such interventions have costs. Many of these costs are not visible and won’t materialize immediately. Pretending otherwise will yield disastrous results.

Are Students Afraid To Be Free?



FreeBirdClass is back in session for most colleges and universities across the country. Last year, I had the privilege of teaching college economics courses for the first time. We discussed many issues, from the economics of War on Drugs and the War on Terror, to the minimum wage, to why airlines offer discounts to grandmothers but not, businessmen. It was during one of these discussions, when analyzing a particularly nefarious but common policy, that one of my students raised his hand. His question was simple:

WHY DO PEOPLE STILL ADVOCATE THIS?!”

The question was a great one. It gave us an opportunity to discuss how the incentives faced by policymakers may mean economically detrimental policies persist. But the student’s question got me thinking. Every year on campus there are always students staging some kind of demonstration. Sometimes it’s as innocuous as signing people up for a social club or organizing a sporting event. Other times, it’s a direct assault on what a university campus should be, a place where students can be free to express and explore ideas, a place where students are exposed to different kinds of people and new ways of thinking.

This second kind of activity is happening all across the country. From establishing “free speech zones” on college campuses, to school officials seizing Hanukkah candles from a student’s dorm because of a supposed “fire hazard” (note students were allowed to smoke in the same dorm), there is a disturbing trend of limiting liberties on college campuses. What’s more worrisome is that it’s not just political actors who advocate such polices, but students.

The question to ask is why? When there is no clear incentive for a person to advocate a particular policy, how do we answer this question? In one of my favorite papers, the late Nobel Laureate James Buchanan argued that individuals will continue to advocate for policies that reduce prosperity, cripple civil liberties, and grow the size of government. The reason—people are afraid to be free. He states,

[T]he attitude here is akin to that of the child who seeks the cocoon-like protection of its parents, and who may enjoy its liberty, but only within the limits defined by the range of such protection. The mother or father will catch the child if it falls, will bandage its cuts.... Knowledge that these things will be done provides the child with a sense of order in its universe, with elements of predictability in uncertain aspects of the environment.

[…]

[T]he state—steps in and relieves the individual of his responsibility as an independently choosing and acting adult. In exchange, of course, the state reduces the liberty of the individual to act as he might choose.

In discussing many current policy issues, from unemployment benefits, to healthcare, to education, to public prayer, there are really two courses of action. One course allows people the liberty to choose for themselves, to do as they will and not impose their preferences on others. The other option relegates these decisions into the hands of supposedly benevolent bureaucratic actors. In some cases, removing responsibility from individuals may sound appealing. But it is important to remember that such a decision involves costs. In many cases, the cost may be our individual liberties.

In my courses I aim to challenge my students. I want them to question their prior assumptions so they can critically examine the world around them. I encourage them to recognize that there are a variety of obvious and hidden costs to any policy, what Bastiat referred to as “what is seen and what is not seen.” College students should be lots of things. They should be curious, and question, and explore. They should pursue new passions and discover what the world has to offer. But there are things students shouldn’t do. I try to convince them they shouldn’t put off their homework until an hour before it’s due. They shouldn’t allow someone else to chart their course. They shouldn’t let someone else make their decisions. They shouldn’t be afraid to be free.

Long-Term Unemployment Benefits Expire; Long-Term Unemployment Falls



11252843_SThe unemployment rate has fallen from 6.7% at the end of 2013 to 6.1% in August 2014. That decline is primarily the result of the expiration of long-term unemployment benefits.

Unemployment compensation usually expires at the end of 26 weeks of unemployment, but during the last recession Congress extended that period, and many states paid benefits for well over a year. If we pay people to be unemployed, we should expect more unemployment, and that’s what we got. The long-term unemployment rate skyrocketed during the recession because we paid people to be unemployed longer.

In August 2013, when people were eligible for extended unemployment benefits, people unemployed for 27 weeks or more made up 38% of total unemployment. In August 2014, after extended unemployment benefits had been eliminated, only 31.2% of the unemployed had been unemployed that long.

Looking at this table from the Bureau of Labor Statistics, we see that the number of people unemployed for less than five weeks has actually risen from August 2013 to August 2014, while the number unemployed 27 weeks or more has declined by more than 30%.

The decline in the unemployment rate isn’t due to fewer people who are newly-unemployed, it is due to the shorter duration of unemployment for those who are unemployed. And people have shorter durations of unemployment now because we are no longer paying them to be unemployed for longer periods.

Many government policies have prolonged the recovery from the 2008 recession, and one was the extension of unemployment benefits. In hindsight, it is easy to look at the data and see that once long-term unemployment benefits were eliminated, long-term unemployment fell, and because of the shorter duration of average unemployment, the unemployment rate has fallen.

New Study Links Patent Trolls to Decline in R&D Spending and Other Ills



patent_trolls_180x270A new paper (“Patent Trolls: Evidence from Targeted Firms”) written by researchers from Harvard University and the University of Texas offers more evidence of the harm that patent trolls cause to the American economy. The data show that (1) trolls target companies flush with cash, (2) seek targets likely to settle rather than litigate, and (3) that troll suits have a negative impact on the future innovative activity of targeted companies.

This is but further evidence that substantive reform of our broken patent litigation system should be a priority if Americans are serious about encouraging innovation.

Misplaced Outrage over the NCAA’s Decision to Reduce Sanctions on Penn State



NCAA CartelIn a USA Today column published on September 8, Nina Mandell is livid about the lessening of sanctions imposed on Penn State two years ago in connection with charges of child sexual abuse against assistant football coach Jerry Sandusky. Those sanctions, which included a $60 million fine, a reduction in football scholarships, and a four-year ban on post-season play, led to Sandusky’s resignation and subsequent conviction, the resignation of Penn State’s president, as well as to hounding and untimely death of “Joe Pa” (Joe Paterno), the Nittany Lions’ iconic head coach.

The NCAA should never have gotten involved in the Penn State affair in the first place. It is a rules’ enforcing institution, not a law enforcement body. The charges against Sandusky should have been handled as a criminal matter exclusively by Pennsylvania’s public prosecutors and Sandusky’s guilty plea should have ended the scandal. For what purpose was Penn State fined, football scholarships cut, and football players not involved in the actions of one assistant coach denied the privilege of participating in conference championships and post-season bowl games? By what authority did the NCAA intervene?

The late Gary Becker and other economists have called the NCAA America’s strongest cartel, sharply criticizing its policies limiting college athletes’ compensation to a “full-ride” scholarships, regulating recruiting practices and many other aspects of the college game under the laughable pretext of “preserving amateurism.” The rents generated by such regulations flow primarily to coaching staffs and to the central administrations of big-time college athletic programs, not to the athletes who are responsible for producing billions in revenue for athletic budgets nationwide from ticket sales and TV broadcasts.

In the Penn State matter, the cartel went far beyond its organizing principles and stated purposes, giving a new meaning to the term “bureaucratic mission creep.” The NCAA’s administrative staff has a hard enough time ferreting out rules violations. It is ill equipped for and therefore should not be in the business of enforcing criminal laws.

After $26 Billion Paid Out, Meaningful Use of Electronic Health Records Only 4 Percent of Target



EHR_stethoputerAt a September 3 meeting of the Obama administration’s Health IT Policy Committee, officials disclosed that only 3,154 eligible professionals (doctors, dentists, et cetera) had “attested” to so-called “meaningful use stage 2″ to get their bounties from the federal government for installing electronic health records. Only 143 hospitals had attested.

One healthcare leader, who was at the meeting, was disappointed:

“The numbers are very low, particularly for Stage 2 attestation. I mean they are like 4 percent of [providers] that should be currently going for Stage 2,” HITPC member and Intermountain Healthcare CIO Marc Probst commented during the meeting.

This new data reinforces the case made here in March: The billions of taxpayer dollars paid to doctors and hospitals to install electronic health records was wasted. The cost-benefit analysis of federal subsidies to this effort just doesn’t add up.

“Hunger” Games



Screen Shot 2014-09-08 at 10.46.10 AMAs with their measurement of “poverty,” federal officials not surprisingly similarly play creatively with their definition of “hunger”—that is, “food insecurity.”

As James Bovard explains in The Wall Street Journal, in releasing figures showing nearly 15% of the U.S. population as “food insecure,” the USDA has in fact polled Americans on their feeling that the “quality and variety” of available food isn’t what we’d prefer:

The USDA defines a “food insecure” household in the U.S. as one that is “uncertain of having, or unable to acquire, enough food to meet the needs of all their members because they had insufficient money or other resources for food” at times during the year. The USDA notes: “For most food-insecure households, the inadequacies were in the form of reduced quality and variety rather than insufficient quantity.”

Unfortunately, the media doesn’t appreciate this distinction, and when they report on the USDA’s findings, they have a tendency to substitute the word “hunger” for “food insecurity,” resulting in scare headlines such as the Washington Post’s:

Hunger a growing problem in America, USDA reports

and, from the New York Times:

Hunger in U.S. at a 14-Year High

President Obama is similarly in the dark about the distinction, announcing in 2009 that “hunger rose significantly last year” and promising to reverse “the trend of rising hunger.”

The President and others in political power, of course, have good reason to play fast and loose with how they label such statistics, since, as Robert Higgs has brilliantly documented, crises make for great job security, resulting in increasing budgets and more power.

Lies, damn lies, and statistics, indeed.

There are of course many people in need in this country and others, and a multitude of selfless non-profits and others working diligently to help move those in need from dependency to self-sufficiency whenever possible. Unfortunately, government programs are not among these efforts:

A 2013 Harvard School of Public Health study also found that enrolling in the food-stamp program failed to significantly boost participants’ food security or dietary quality.

No government employee, bureaucrat, or politician has the least incentive to reduce dependency, and in fact is rewarded for producing the opposite results that they are achieving.

If any of our do-gooders in the public sector wanted to actually reverse food insecurity trends, there are any number of simple immediate solutions: end marketing orders that make food less abundant and more expensive, remove fuel taxes that drive up transportation costs—the single highest component of food’s cost, end any of the thousands of regulations that impede sellers from entering the marketplace, end the war on drugs that has made inner cities war zones and driven food retailers out. Or, to best achieve food security: abolish the USDA.

And if Mrs. Obama really wants to end childhood obesity, she would do well to quote the USDA’s own survey in lobbying her husband to end the food stamp program:

The most recent survey (2009-10) revealed that children ages 2 to 11 in households with less than $25,000 in annual income consume significantly more calories than children in households with incomes above $75,000.

Such households need home ec, not food stamps.

Obama: The Unbearable Lightness of Being on Immigration



global_crossings_180x270President Obama’s decision to postpone executive action on immigration is probably the nail in the coffin for comprehensive reform under the current government—regardless of whether the president has the constitutional authority to bypass Congress or not, which is not the topic of this post. Whatever reform comes after the midterm elections, if any, will not overhaul a system that places major obstacles on the forces of supply and demand pushing millions into the shadows.

It was almost a miracle that the Senate’s comprehensive bill (which, despite many flaws, constituted progress) was passed on June 27, 2013. Three things have conspired to overturn that partial success: Obama’s style of leadership, the relative strength of the warring ideological camps, and the electoral system. History is not short of examples of presidents who were able to do things in defiance of the existing array of hostile forces at the risk of electoral defeat. But one will be hard-pressed to find many cases of weak leadership overcoming and turning to its advantage a hostile environment.

When the bill passed in the Senate, a majority of Americans supported comprehensive reform. According to Gallup, 83 percent of white conservatives were in favor of “allowing illegal immigrants to become citizens.” At the time, there were several very active Republican members of Congress pushing for change. Other Republicans, including former Governor of Florida Jeb Bush, were rooting from the sidelines. A visionary leader willing to take risks could have created an environment in which the House of Representatives found it extremely difficult to avoid real reform. To judge by the way in which he distanced himself from vocal Tea Party critics, even Republican Speaker John Boehner feared this might be the case. House majority leader Eric Cantor later dared make a few pro-immigration statements.

Everything changed in the following months. The failure to build a coalition in favor of reform allowed critics within the Republican Party to bully pro-immigration conservatives. Gradually the perception that a huge majority of the GOP base was against reform silenced the most active conservatives. Soon even Democrats began to feel that the approaching midterm elections made it unwise to persist. Eventually the president made noises about executive action but postponed it.

Then the summer of 2014 happened—i.e., the news that in May and June of this year there had been a surge in the number of unaccompanied Central American children trying to cross illegally into the United States. The predictable brouhaha triggered by this temporary humanitarian crisis, which had little connection with the issues at the heart of immigration reform, paralyzed the Obama administration. The president dithered—a perfect scenario for scared Democrats to begin to voice concerns about executive action prior to the midterm elections. As races tightened in Arkansas, North Carolina, Alaska, New Hampshire, and other places, the relative strength of the warring ideological camps on immigration increasingly favored the path of no reform despite evidence that a majority of Americans continued to support a path to citizenship for illegal immigrants (they outnumber those who are opposed by 27 percentage points).

Ironically, confirmation soon came that the number of children trying to cross the border was dropping dramatically. By August, the number of kids trying to sneak in was down to one-third the level of May and June.

It was too late. Fearing the loss of the Senate in November, the president had decided he would not act. Regardless of the delicate constitutional aspects involved, the decision was the end of any possible substantive reform.

It has often been said that Obama’s tortuous decision-making process is due to a conscience in constant debate with itself and a legal formation that pushes him to scrutinize every argument and counterargument. As far as immigration reform goes, it really hasn’t looked that way. It has simply come down to a failure of leadership or, in Milan Kundera’s eternal words, an unbearable lightness of being.

* * *

For more on immigration policy, see Alvaro Vargas Llosa’s award-winning book, Global Crossings: Immigration, Civilization, and America (The Independent Institute, 2013).

Costs of Government Administration of Health Care to Almost Double in Ten Years



21908269_SThis week’s report by staff of the Office of the Actuary of the Centers for Medicare and Medicaid Services concluded that the last few years of muted increases in health spending will soon be ending. Health spending will resume its upward march:

The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter (5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the average rate of increase through 2023 is projected to be slower than the 7.2 percent average growth experienced during 1990–2008. Because health spending is projected to grow 1.1 percentage points faster than the average economic growth during 2013–23, the health share of the gross domestic product is expected to rise from 17.2 percent in 2012 to 19.3 percent in 2023.

While there was nothing very surprising in the report, there was at least one thing that was underreported by the media: The astonishing increase in “government administration” of health care.

Government administration cost $35.1 billion in 2013 and will cost $66.7 billion in 2023—an increase of 90 percent overall and a compound annual growth rate of 6.63 percent. To put that in perspective, those costs were $29 billion in 2008, so they grew at a compound annual rate of only 3.61 percent in the subsequent five years. That is: The increase in bureaucratic costs associated with the introduction of Obamacare will pale in comparison with their future costs. Government spending on actual public health will increase by a significantly smaller compound annual rate of 4.84 percent, or 47 percent overall.

The cost of private bureaucracy will also increase. “Net cost of health insurance” will increase from $174.5 billion to $341.0 billion, a compound annual growth rate of 6.93 percent. The rate from 2008 through 2013 was only 4.62 percent. As for spending on actual medical care, that will grow at a slower rate over the next ten years. Spending on physicians and hospitals will grow at compound annual rates of 5.78 percent and 5.95 percent.

Supporters of centralized federal control of health care tout its supposed efficiencies. For that to happen, the costs of administration would have to grow at a slower rate than spending on actual health care. The opposite is happening. Government control of health care has grown well beyond its optimal span and scope.

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Politics and Inequality



30174586_SThe Federal Reserve has just released a survey indicating that income and wealth inequality has been growing in the United States since 2007. Meanwhile, President Obama has called for government action to reduce inequality. So, it is worth a remark that the growth in inequality reported by the Fed pretty much coincides with the Obama presidency.

One can debate how much government can actually do to affect inequality, but because the president has called for government action to reduce it, that is an indication that President Obama believes government policy has an effect. If so, Obama’s government would have to be responsible for at least a part of the growing inequality the Fed has reported.

Imagine if this news on growing inequality had been announced during the Bush administration. Much of the reporting would have been on how much inequality has grown because of President Bush’s policies. Nobody is saying this today, about President Obama’s policies.

Is the recent increase in inequality really a result of the president’s policies?

The president’s own statements indicate he thinks inequality is enough a product of government policy that those policies could be changed to reduce it. Using the president’s own words, we could find him responsible.

If the president’s policies have had any effect on inequality, there are good arguments to suggest that they have increased it. The president’s regulatory policies, the huge budget deficits, and his low interest rate policies, have slowed economic growth, which disproportionately affects those at the bottom, and clearly, small savers, who tend to rely on interest income more than on appreciation of financial assets, have been hurt by the president’s policies even as upper-income investors have been helped by the stock market boom fueled by the Fed’s policies.

So, I’ll agree with the president part-way on this. Not only can government have some effect on inequality, as the president suggests, the policies he has supported have increased inequality. Despite the president’s rhetoric, his policies have not been good for those at the bottom end of the income distribution.