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Art sale could benefit retirees

March 24, 2014, 11:22 AM

The following piece was co-written by R Street Midwest Director Alan Smith.

Next month, Detroit emergency manager Kevyn Orr will release the latest iteration of a plan to restructure the city’s finances and begin the long slog out of the largest municipal bankruptcy in American history.

It will be an exercise in carefully distributing the pain associated with decades of population decline, economic stagnation, poisonous racism, regional isolation, mismanagement in all corners and outright corruption.

Among the city’s most famous assets is a world-class art collection held in the publicly-funded Detroit Institute of Arts.

Some boosters have suggested the art should be kept in Detroit and the DIA spun off as an independent entity, with proceeds used solely to bail out pensions.

But such a move would be misguided legally and could hamper the city’s economic reboot.

Detroit is unique among major cities in having funded directly huge portions of its signature art museum’s existence, including its building, operations and many of its works.

The precise value of the collection isn’t known, but the auction house Christie’s appraised 2,800 city-purchased pieces – just five percent of the collection – at more than $800 million.

In other words, contained within the walls of 5200 Woodward Ave. are billions of dollars in assets that can be used to repay the city’s debts, both to pensioners and to bondholders, many of whom are retirees themselves.

Officials from the city, state, DIA and private foundations instead have offered a plan that would spin off the institute into an independent non-profit trust, in exchange for some $815 million in funding from state taxpayers and private interests.

Those proceeds would be earmarked solely for the General Retirement System and Police and Fire Retirement System pension plans.

This would turn bankruptcy law on its head, using an asset sale to pay off only one class of unsecured debt.

It is understandable why the emergency manager might seek to jump pensioners ahead in line.

After all, most pension recipients are honest, hard-working individuals who did their level best while union leaders and city officials broke their trust and mismanaged the funds’ assets.

But pensioners are not the only sympathetic figures in Detroit’s bankruptcy – and they are just one class who, under law, deserve to have their rights addressed.

The city’s pension debt is actually dwarfed by its unfunded retiree health care liabilities.

There are also thousands of vendors, from local markets to carpet cleaning operations, who are owed money.

And while no one has much sympathy for Wall Street giants who gambled on Detroit’s debt and lost, the sad reality is that jumping pensioners ahead of them in the payout line will likely carry serious negative consequences for the city, scaring off investors and raising the cost of borrowing the capital needed to rebuild.

Officials should instead embark on an honest legal assessment of which pieces can be sold or leased and then work with community figures and creditors of all types to arrange a deal to monetize as much of the art as is practical.

This likely would not involve emptying the building from stem to stern, nor should it.

Every untapped dollar that remains at the DIA represents a dollar that must come out of future pension checks of Detroit employees or a dollar in interest costs that taxpayers will need to pay investors to set aside their fears about loaning money to a struggling city.

Rethinking tax benefits for home owners

March 24, 2014, 10:51 AM

The attached piece, which appeared in the Spring 2014 issue of National Affairs, was co-written with Ike Brannon and Zackary Hawley.

The individual income-tax code offers a multitude of benefits for home owners. The largest in dollar terms, and the most apparent to taxpayers, is the mortgage-interest deduction, which allows home owners to deduct the interest paid on up to a $1 million mortgage and up to $100,000 in additional debt backed by home equity. But the tax code also tilts the balance toward home owners by allowing a deduction for state and local property taxes and exempting from taxes the capital gains from the sale of a home. These preferences for home ownership fall under the umbrella of “tax expenditures,” or provisions that create special benefits by lowering tax liabilities. Tax expenditures technically reduce the amount of taxes paid, but they resemble direct spending programs more than they do typical tax laws. The tax benefits for home ownership are thus essentially subsidies.

Although tax expenditures for housing are not real line items in a budget the way other spending programs are, they have real effects on the economy by creating incentives, lowering receipts, raising the debt, and causing tax rates to be higher than they otherwise would be. The cost of the tax benefits for owner-occupied housing adds up to about $175 billion annually, with the mortgage-interest deduction alone costing the Treasury roughly $100 billion. The five-year costs of these tax benefits total well over $1 trillion. To put this amount in perspective, one year of tax benefits for owner-occupied housing costs more than the discretionary budgets of the departments of Education, Homeland Security, Energy, and Agriculture combined.

Proponents of these generous tax benefits often justify them by arguing that they encourage home ownership, which in turn is said to offer society all manner of social and civic benefits. In reality, however, it is far from clear whether mass home ownership is inherently beneficial to our society or even to individual home owners. But whatever the merits of owning a home, the data regarding the reach and distribution of the various tax benefits we offer owners show that these benefits do not in fact encourage such ownership in any meaningful way. Most Americans receive no benefit from the preferential tax treatment of home ownership, and those who do see such benefits tend to be high-income earners who own large, expensive homes, and who are therefore unlikely to be on the fence about whether to buy or rent.

In fact, the tax benefits afforded to home owners are highly regressive, extremely expensive, and of little obvious value to society at large. Even if we do want to encourage home ownership through the tax code — and it is by no means obvious that we should — there are far better ways to do so. By considering the flaws in the tax treatment of housing and examining how our housing-related tax benefits are distributed across incomes and across the country, we may come to see how these policies might be transformed to better serve owners, renters, and taxpayers.

Study: Upper class entitlement helps upper class most

March 24, 2014, 10:20 AM

From Reason:

The Wall Street Journal has a write-up of a new study by the R Street Institute that looks at how the mortgage-interest deduction is taken zip code by zip code. Conclusion?

Mehrens confused about impact of Internet sales tax initiative

March 24, 2014, 10:06 AM

Nathan Mehrens is confused about the Internet sales tax issue and the so-called “Marketplace Fairness Act,” which he praises as addressing a “competitive advantage” enjoyed by online retailers (“Chaffetz is tackling Internet sales tax issue,” Opinion, March 15).

The federal government’s thumb is not on the proverbial scale, as he claims. Quite the opposite: Current law says if a business has a physical presence in a state, it must collect its sales tax, but if it has no presence, it does not. That goes for online businesses, brick-and-click and traditional brick-and-mortar retailers, too.

The law is designed this way for good reason. Businesses with a physical presence place burdens on and enjoy the benefits of local infrastructure and services, while out-of-state businesses do not. States may not reach across their borders to tax businesses located outside their jurisdiction, a key taxpayer protection.

The Marketplace Fairness Act would give voracious revenue agents from states like California, Illinois and New York the power to force their sales tax rules on Utah-based businesses. Granting states a new power to tax that’s as big as the reach of the Internet itself, as Mehrens advocates, is no limited-government solution at all.

Ticket-selling giants push for Florida legislation to help squash industry competition

March 24, 2014, 9:20 AM

From BizPac Review:

Raulerson argues that proponents don’t want to disrupt the free market. But that’s exactly what the bill does, according to Christian Camara, Florida director for R Street, a Washington-based think tank that specializes in free-market issues.

Camara said the bill uses government regulation to dictate “how private citizens can sell tickets to each other.”

Restrictions on ticket resales are best left to individual venues without the interference of government involvement, he said. If a venue wants to impose resale restrictions, that should be its choice.

“Tickets are essentially a contract between the buyer and the seller,” he said. “We don’t mind private sellers attaching any conditions to the sale.”

Venues experiencing problems with outside ticket purchases for resale “could be solved on their own,” Camara said. “I just don’t think the government needs to be mandating conditions on tickets.”

Artfully resolving Detroit’s bankruptcy

March 24, 2014, 8:00 AM

The attached policy study was co-authored by R Street Midwest Director Alan Smith.

For the first three decades of the 20th Century, Detroit was the second fastest-growing city in the United States, behind only Los Angeles. It was a center of the high-tech industry of the day – automobile manufacturing – as the city saw the creation of what was, in many ways, a predecessor to today’s Silicon Valley. But as spectacular as its rise through the middle of the 20th Century was, its decline and ultimate bankruptcy has been just as precipitous.

As co-author Andrew Moylan wrote in a recent Reason.com piece on Detroit:

More than one million people have headed for the Motor City’s exits since its size peaked in 1950. Even when compared to other Rust Belt cities that have experienced significant population loss, Detroit stands out. The only city that has dropped farther from its mid-20th Century peak is St. Louis, but its population has never been even half as large as Detroit’s. In fact, of the eight U.S. cities that have lost more than 50 percent of their population in recent decades, Detroit is far and away the largest. Even in its shrunken state today of just over 713,000 residents, it is larger than Pittsburgh’s all-time peak of 677,000.

Today, those 713,000 residents receive atrocious public services and labor under extremely high tax burdens, with income taxes levied at the maximum level allowed by state law and property taxes that are higher than every other major American city. The legacy cost of services provided decades ago, as well as the city’s current expenses, continue to rise even while the population has dwindled dramatically. The result is a broken city with sky-high crime rates, rampant unemployment and a very uncertain future now that it has officially filed for Chapter 9 bankruptcy.

With the bankruptcy process underway, state-appointed emergency manager Kevyn Orr and the city’s 170,000 creditors have begun working to resolve many competing claims in order to restructure the city’s operations, retire debt and create a vibrant and sustainable operation for the future. Orr has dubbed this the “Olympics of restructuring,” but even that analogy doesn’t quite capture the high stakes involved in a municipal bankruptcy that’s roughly five times larger than the previous holder of the dubious distinction of the largest in history.

This saga offers a peek at the adversarial relationship that underpins any bankruptcy proceeding. In this case, Orr and other city officials have a strong incentive to undervalue existing assets and pay off as little of the accumulated debt as possible. On the other hand, creditors have an equally strong incentive to push the city to sell off anything that isn’t bolted down, regardless of potential negative impacts on the city’s ability to create a viable entity moving forward.

For no other asset is this fight more clear than the city’s incredible collection of artifacts housed in the Detroit Institute of Arts. In total, the DIA has in its possession some 66,000 art treasures collected over nearly 130 years, including works by Van Gogh, Rembrandt, Matisse and the amazing “Detroit Industry” murals painted in 1932 by Diego Rivera. Monetizing the art, even on a small scale, could prove enormously helpful in minimizing harm done to the interests of employees and creditors.

It is far from clear what the resolution will be, but it will undoubtedly establish precedent for future municipal bankruptcies of significant size. The domino effect on other struggling municipalities in Michigan, like Pontiac or Ecorse, and cities like Chicago with even bigger liabilities, will be a matter of intense interest, as they attempt to fix their finances to avoid Detroit’s fate.

R Street paper encourages using Detroit’s art collection to help combat debts

March 24, 2014, 8:00 AM

DETROIT, Mich. (March 24, 2014) – In order to relieve the crippling debt to creditors in the bankrupt City of Detroit, the city should turn to its priceless art collection, argued co-authors Andrew Moylan and Alan Smith in a paper the R Street Institute published today.

Some boosters have suggested that payments be made to spin the art collection of the Detroit Institute of Arts off in an independent entity, with proceeds used solely to bail out pensions. But Moylan and Smith argue such a move would be misguided legally and could hamper the city’s economic reboot. Detroit is unique among major cities in having amassed a large collection of valuable artwork that has been largely financed by the taxpayers, which in total is now worth billions.

“One need not diminish the cultural enrichment and aesthetic value of the collection to nonetheless determine that a city that quite literally cannot keep the lights on must consider every available option to blunt the financial impact on investors and pensioners,” said the authors.

Moylan, R Street executive director, and Smith, R Street Midwest director wrote that state-appointed emergency manager Kevyn Orr should embark on an honest legal assessment of which works can be sold, then perform a full-scale appraisal of the entire collection to determine its true value.

“If Detroit is forced to take the heartbreaking step of selling its art, it should get the maximum value, to reduce as much as possible the burdens on pensioners and other creditors,” the authors said.

Monetizing these pieces would be a major step toward relieving the city’s staggering debt to its creditors. The authors note that every untapped dollar that remains at the DIA represents a dollar that must come out of future pension checks of Detroit employees or a dollar that must be paid on top of ordinary rates in order to convince investors to set aside their fears about loaning money to a struggling city.

Moylan and Smith further stressed that monetizing the collection should not have the consequence of leaving Detroit without its art, and care should be taken to keep as much of the work in Detroit as possible.

“Monetizing the art would likely not involve emptying the building from stem to stern, nor should it,” the authors wrote. There are several scenarios in which the DIA would remain full of these priceless treasures, including sales that would keep the works on permanent loan to the Institute, leasing the art to other exhibitions or placing the collection in a trust in which shares could be sold.

R Street promotes two as organization continues to grow

March 21, 2014, 12:31 PM

WASHINGTON (March 21, 2014) — The R Street Institute today announced that Andrew Moylan has been promoted to executive director and Lori Sanders to outreach director, effective immediately.

In his new capacity, Moylan will act as the “tip of the spear” for the organization in public settings, maintaining its policy brand and relationships with policymakers, donors and the non-profit community. Moylan will also be responsible for creating original research and policy content to help advance the organization’s priorities. In addition, Moylan will oversee all relevant outreach, communications and policy staff.

“In less than two years, R Street has grown from a small startup spinoff of another think tank to a substantial institution in its own right. I’m pleased to announce that we’re restructuring to prepare for the next phase in our growth,” said Eli Lehrer, R Street’s president. “Andrew has taken a great leadership role at R Street since he joined us soon after our founding. He’s super-smart and a strong and effective manager. I can’t think of a better person to run our day-to-day operations.”

Moylan previously served as R Street’s outreach director, where he was responsible for coalition efforts as well as providing education about public policy issues to regulators, lawmakers and their staffs. He previously served as vice president of government affairs at the National Taxpayers Union and with the Center for Educational Freedom at at the Cato Institute.

Sanders, previously R Street’s outreach manager, moves into Moylan’s former position of outreach director, where she will take on a broader outreach and education role. She joined R Street from the American Enterprise Institute, where she served as program manager for AEI’s Road to Freedom project.

“Even on the wonkiest issues of policy, Lori has proven herself a great connector and fantastic outreach manager. She’s also a brilliant writer and incredibly bright,” said Lehrer.

Clinical trial: e-cigarettes are satisfying cigarette substitutes

March 21, 2014, 9:57 AM

A clinical trial demonstrates that e-cigarettes deliver nicotine, reduce craving and satisfy vapers. The research, published in Scientific Reports, is the work of Konstantinos Farsalinos and colleagues at the Onassis Cardiac Surgery Center in Kallithea, Greece.

Twenty-three experienced vapers (all former smokers) were recruited to compare a small e-cigarette (V2, also called a ciga-like) with a more advanced and powerful model (EVIC) in a cross-over trial on two separate days.  Participants abstained from e-cigarettes, caffeine and alcohol for eight hours before each session.  In the sessions, vapers took ten puffs during the first five minutes, then puffed ad lib for the next hour.

The advanced e-cigarette models delivered about 50-70 percent more nicotine than ciga-likes throughout the trial.  Peak blood nicotine levels, occurring at the end of the session, were 23 nanograms per ml for the advanced model and 16 ng/ml for the ciga-likes.

The investigators also compared nicotine delivery from these devices to previously published levels from conventional cigarettes.  They concluded:

It took about 35 minutes of vaping with the [advanced] device at high wattage in order to obtain plasma levels similar to smoking one cigarette in five minutes.  The [ciga-like] was even less efficient in nicotine delivery; even 65 minutes of ad lib vaping was insufficient to deliver…nicotine at levels similar to smoking.

The difference in nicotine delivery may have accounted for the fact that the advanced devices reduced cravings to a significantly lower level than ciga-likes during the sessions. Vapers rated the advanced devices as significantly more satisfying and more likely to provide a “throat hit,” even though they produced significantly more throat burning.  They rated ciga-likes as more similar to a cigarette.  There were no differences in other effects, such as calming, concentration or taste.

The bottom line: e-cigarettes are satisfying cigarette substitutes.  Ciga-likes have the look and feel of traditional cigarettes, while advanced models deliver nicotine and tobacco satisfaction more efficiently.  The findings suggest that the current e-cigarette market provides a range of models that should appeal to the majority of smokers.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Apply now for our 2014 Google Policy Fellowship

March 21, 2014, 8:33 AM

The R Street Institute (a free-market think tank headquartered in Washington, DC) is accepting applications for its 2014 Google Policy Fellowship in technology policy. R Street’s Google Fellow will have the opportunity to contribute op-eds and blog posts, work on overseeing coalition efforts and help manage digital and social media projects relating to tech policy. In addition, our Google Fellow will have the opportunity to help run the Congressional Data Coalition and coordinate efforts between members.

Apply here for the fellowship. Read the full terms and conditions here.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Bringing local knowledge to federal lands

March 20, 2014, 7:00 PM

The United States might indeed be one nation, indivisible, but there are huge differences between its eastern and western halves when it comes to federal lands. In the West, nearly half the land is owned and controlled by the federal government, compared with only 4 percent in the East. That difference affects the ability of western states to determine their own destiny.

In March 2012, Utah Gov. Gary Herbert signed H.B. 148, legislation that insists the federal government divest its lands in the state, transferring most of them to state jurisdiction. Utah is not alone in the desire to bring federal acreage under local control. At least four other western states (Idaho, Montana, Nevada and Wyoming) have passed similar legislation and still more are considering similar bills.

Proponents of the measure argue that this sort of decentralization would place control in the hands of those with the most to gain or lose from effective land stewardship. They also point to enabling legislation passed by Congress when each of these states joined the union, noting that they typically have included clauses providing that the federal government would extinguish its title to any unappropriated lands.

Indeed, what were once public lands in eastern states largely have been transferred to the private sector, where they generate revenues for those states. Conversely, in the West, hundreds of millions of acres of federal land remain. The consequences include limited revenue for state coffers, declining recreation access, increased restrictions on commodity production and, in some cases, poor environmental stewardship.

These pieces of state legislation undoubtedly will face constitutional challenges, but regardless of their legal standing, if federal land management was to be reassigned, who would mind the estate? What rules would reign? What sort of arrangements would best steward America’s lands to ensure they are managed to bring recreational and environmental value, while also providing the revenues and resources needed for a productive society?

This paper provides a glimpse of some of the institutional and management problems that face America’s public lands and suggests reforms that policy-makers should consider to improve management of the federal estate.

Letter to Senate Armed Services Committee

March 20, 2014, 4:12 PM

March 20, 2014

Chairman Carl Levin and Ranking Member James Inhofe
Senate Armed Services Committee
United States Senate
228 Russell Senate Office Building
Washington, DC 20510

Dear Chairman Levin and Ranking Member Inhofe:

We urge you to open up the process for considering the National Defense Authorization Act (NDAA) this year.

Last year, your committee drafted and voted on this bill—authorizing more than $625 billion in Pentagon spending—almost entirely in secret. We know that you are aware of the great frustration expressed by many of your Senate colleagues who did not have an opportunity to amend the bill on the floor last year. Given the size and scope of this important legislation, it is unacceptable for the vast majority of senators to have to vote on a bill compiled almost entirely behind closed doors, with very little chance for public input.

The NDAA is the single largest authorization bill that Congress passes, making the stakes for taxpayers very high. And yet, your Committee does not disclose the bill it will vote on in advance and then closes the markup of the bill to the public.

It’s time to bring the NDAA into the light of day.

All congressional proceedings should be conducted in accordance with our country’s highest principles of transparency and openness. Certainly, there are special exceptions when a committee can and should move to closed session to consider classified information, but this step should be taken only as needed and as infrequently as possible. Notably, the House Armed Services Committee (HASC) did not close last year’s markup of the NDAA for national security reasons, at all.

How can the same bill considered publicly in the House require secrecy in the Senate?

We ask you to make your committee’s consideration of this critical bill at least as transparent as the HASC does, by:

  • Giving the public access to all subcommittee and the full committee markups of the NDAA, including live and archived webcasting on the SASC website.
  • Posting online the: 1) text of the actual bill the subcommittees and full committee will amend during markup at least 24 hours prior; 2) amendments considered during markup no later than 24 hours after markup (though preferably when they are filed); and 3) the NDAA as amended and approved by the subcommittees and full committee within 48 hours of the markup.

We appreciate that last year SASC held hearings and votes on one portion of the NDAA in open session. The debate on the sexual assault epidemic in the military was an important, thoughtful deliberation of different reform proposals. It is a model for what your committee could and should do on other policies and spending provisions in the bill.

In addition, three SASC subcommittees held open markups of the NDAA last year (though the bills they voted upon were not made public in advance). As you know, an open markup will not prevent private deliberation on the bill between senators and staff—as well as with outside interests—it simply gives the public greater opportunity to participate.

Chairman Levin, since you plan to make this your last year in the Senate—we hope you will choose to leave a legacy of openness. We would be pleased to discuss this with you or your staff. Please contact Angela Canterbury, Director of Public Policy at the Project On Government Oversight, at 202-347-1122 or acanterbury@pogo.org.


American Library Association
American Values Network
Americans for Tax Reform
Article 19
Audit The Pentagon Project
Bill of Rights Defense Committee
Brave New Films Action Fund
Campaign for a Nuclear Weapons Free World
Center for Effective Government
Center for Financial Privacy and Human Rights
Center for International Policy
Center for Media and Democracy
Citizens for Responsibility and Ethics in Washington (CREW)
Coalition on Human Needs
Coalition to Reduce Spending
Cost of Government Center
Council for a Livable World
Defending Dissent Foundation
DownsizeDC.org, Inc.
Electronic Privacy Information Center
Essential Information
Friends Committee on National Legislation
Government Accountability Project (GAP)
Human Rights First
Human Rights Watch
Just Foreign Policy
Liberty Coalition
National Coalition Against Censorshi
National Commission on Intelligence and Foreign Wars
National Priorities Project
National Security Network
National Taxpayers Union
Open Society Policy Center
Peace Action West
Physicians for Social Responsibility
Project On Government Oversight (POGO)
Public Citizen
R Street Institute
Society of Professional Journalists
Sunlight Foundation
Taxpayers for Common Sense
Taxpayers Protection Alliance
The Constitution Project
Washington Coalition for Open Government
Washington Office on Latin America
Win Without War
Women’s Action for New Directions (WAND)

Fla Cat Fund missing out on best reinsurance market ever

March 20, 2014, 3:08 PM

Coming into 2014, we had modest expectations of the potential for significant property insurance reform in Florida. Given that it is an election year – and one featuring the return to prominence of our old friend Charlie Crist, that notorious wrecker of the state’s insurance market – we knew that proposals to address the core problem of rate controls were unlikely to get much political traction.

That’s why we worked with the James Madison Institute to publish a paper on ten reform proposals for Florida that WOULDN’T require rate increases. And we were heartened that one of them – perhaps the easiest and most obvious of them all – was embraced by Florida Hurricane Catastrophe Fund Chief Operating Officer Jack Nicholson — take advantage of the incredibly soft global reinsurance market to transfer some of the Cat Fund’s tail risk off the backs of taxpayers.

Alas, recent headlines suggest Nicholson has put his plan for the Cat Fund to buy $1.5 billion of private reinsurance on hold, and there may not be enough time to place the coverage before Florida’s renewal season closes (just as the North Atlantic hurricane season starts) on June 1.

What makes this news so incredibly disappointing is that there literally has never been a better time to take advantage of pricing for property catastrophe insurance. Just look at the recent $3.2 billion placement by Japanese insurer Zenkyoren, just one piece of what is now a record $10 billion catastrophe reinsurance for the massive mutual. Insurance Insider noted that the placement comes “as pricing slides double digits.”

As expected, the pricing on the lower layers was far softer than the excess layers as Zenk and broker Aon Benfield pushed reinsurers up from the higher rate on line (RoL) lower layers.

The pure RoL on the 220bn yen xs 270bn yen combined quake and wind layer was 18 percent weaker at 9.8 percent on line. The new merged layer above this – which triggers in excess of a 100bn yen private layer – is paying almost 12 percent less premium at 6 percent on line.

The bottom line is, in today’s market, capacity supply is far outpacing demand. The world’s largest reinsurers mostly closed out 2013 with underwhelming earnings reports, due almost entirely to poor pricing opportunities. To keep investors interested, companies have resorted to returning capital to shareholders, because there simply aren’t enough opportunities to deploy that capital in the marketplace. Swiss Re is bumping up its proposed earnings dividend, while Munich Re – which is projecting a 9.1 percent drop in 2014 earnings – plans to buy back 1 billion euros worth of shares before its 2015 meeting.

That’s all capital the Cat Fund could be taking advantage of to lever up its claims-paying capacity and reduce the odds of needing to borrow money later, financed through special post-storm hurricane taxes. Alas, it looks like, once again, the State of Florida is going to opt instead to cross its fingers and roll the dice that 2014 won’t be the year that brings the long-awaited budget-crushing storm on shore.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Fannie Mae, Freddie Mac: 30-year fixed rate mortgages a sticky wicket

March 20, 2014, 11:54 AM

From Value Walk:

“Stripping away the façade of private banks and mortgage brokers who originate the loans, the U.S. mortgage market works almost entirely because the government transfers risk to the taxpayer in order to let banks market a product that no sane financier would ever sell in the free market,” wrote Ike Brannon and Eli Lehrer for The Weekly Standard a few years ago.

Survey finds businesses would reducing hiring, raise prices to offset minimum wage hike

March 20, 2014, 11:30 AM

Though the Congressional Budget Office has already warned that the proposed $10.10 federal minimum wage could cost the economy at least 500,000 jobs over the next two years, President Barack Obama and Democrats are still trying to push the increase through Congress, mostly because they believe it plays to their favor in an election year.

The issue may be an easy way to score political points, but the Wall Street Journal makes note of a new survey which found that most businesses would adjust to an increase in the minimum wage by reducing hiring and increasing prices for goods and services, and some would even lay off workers:

Just over half of U.S. businesses that pay the minimum wage would hire fewer workers if the federal standard is raised to $10.10 per hour, according to a survey by a large staffing firm to be released Wednesday. But the same poll found a majority of those companies would not cut their current workforce.

About two-thirds of employers paying the minimum wage said they would raise prices for goods or services in response to an increase, the survey by Express Employment Professionals found. About 54% of minimum-wage employers would reduce hiring if the federally mandated rate increased by $2.85 per hour. A smaller share—38% — said they would lay off employees if the wage increase favored by President Barack Obama becomes law…

“The response shows that some businesses will certainly lose employees and many will not be hiring as much, if the minimum wage goes up,” Express chief executive Bob Funk said in an interview. “In a time of weak job growth like we’ve had recently, this is not the right time for a wage hike.”

It should come as no surprise that demand falls when the when the cost of labor is artificially increased. That’s why more than 500 economists have argued that the minimum wage is “a poorly targeted anti-poverty measure” and urged lawmakers to address poverty through other policies.

Hey, but it’s an election issue. It’s another hopey changey free thing that President Obama and Democrats want to give away, and they would if not for those obstructionist Republicans. Ignore the fact that the economy is still sputtering along and pay no attention to businesses who are saying that a minimum wage hike would reduce hiring, increase prices and kill some jobs. Just pay attention to the unicorns.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

R Street looking for a California director

March 20, 2014, 10:07 AM

The R Street Institute, a free-market think tank based in Washington, is looking for a dynamic, energetic person to serve as the first employee and director of a California office that will open during the spring or early summer of 2014 in Sacramento, Calif.  Founded in 2012, R Street (www.rstreet.org) operates under the motto “Free markets. Real solutions.” We’ve been called “pragmatic libertarians” and accept that label. Our work covers a wide range of federal and state issues. Some of the issues we’ll be looking at in California include the natural environment, technology and the state’s system of insurance regulation.

All candidates must have at least two years experience working in or directly with the California Legislature and be able to cite at least two currently sitting members of the Legislature as references. (Reference checks will not be done until very late in the process and, in some cases, can be done after an offer-in-principle is made.) Excellent writing ability, including a record of published work, is also desirable.

Your personality and work ethic are at least as important as your specific background.  We’re all high-energy types who want to get things done quickly. If you haven’t at least sometimes felt that you were far more productive than everyone in your current workplace, you probably won’t fit in with the rest of us.

Because we work on a wide variety of issues, deep expertise in our issue set is not expected but experience with insurance regulation, particularly Proposition 103 and the California Earthquake Authority, is a plus. That said, experience in the California policymaking process is crucial.

Pay is commensurate with experience. Compensation for this position will be well above what legislative assistants in the Assembly currently make, but won’t match the salaries of most chiefs-of-staff. This is a full-time, W-2 job with health insurance fully paid by the employer and a suite of excellent benefits, including an employer-funded HRA, a 401(k), gym membership reimbursement, bike share membership (as soon as it opens in Sacramento) and a very generous vacation policy.

R Street is a non-partisan organization, but is often identified with the political right. You can get an idea of what we believe by reading our web page at www.rstreet.org. That said, we have a strong pragmatic streak and have worked closely with self-described progressives and liberals in the past. We’re a lot more interested in solving problems than winning fights. Someone who is actively opposed to our work shouldn’t apply, but there is certainly no party affiliation litmus test or need to agree with every word that everyone at R Street has ever written.

Needless to say, we don’t discriminate on the basis of sex, race, creed, color, national origin, use of medical marijuana, sexual orientation, gender identity, veteran status, taste in music or anything else that is illegal, immoral or stupid to use as a basis for hiring. We also don’t care where you went to school or what your GPA was (we actually wish that we had known this ourselves when we were looking for jobs…hardly anyone ever asks for your transcripts.)

To apply, put your cover letter into the body of an e-mail, attach a resume, and send it to employment@rstreet.org. Include the word “California” in the subject line. Include one writing sample if you’d like. We’ll be accepting applications until April 25. If you’re applying after that date, we may still look at your application depending on the quality of our pool. We try to read all applications within a week of getting them and will contact the most promising applicants to set up telephone interviews quickly. We’ll interview finalist candidates in Sacramento on May 8 and make an offer soon thereafter.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Sea level rise predictions have little effect on Florida real estate

March 19, 2014, 1:23 PM

From National Public Radio:

RUNDLET: Whether or not your property will be here 30 years from now, Johnson says it may be the insurance issue that determines real estate prices. After all the payouts following Hurricane Sandy, the National Flood Insurance Program went into debt by more than $20 billion. While the price of flood insurance will always be a factor for folks living in known flood zones, Eli Lehrer says there’s another more urgent problem beside sea level rise. Lehrer is the president of a Washington, D.C. think tank called the R Street Institute. It focuses on the insurance industry.

ELI LEHRER: Storm surge is a larger and more imminent problem than is sea level rise. Sea level rise is projected to be somewhere between two and five feet over the next century. Storm surge is going to be six feet from a category 1 hurricane, and the chances that a category 1 hurricane hitting Florida are virtually 100 percent.

NSA can record every phone call in a foreign country

March 19, 2014, 10:25 AM

The NSA spying controversy has found its way back in the news, after a brief respite due to the foreign policy crisis with Russia and coverage of the missing Malaysia Airlines flight.

The latest revelation, provided by whistle-blower Edward Snowden, is just as concerning as previous ones. The Washington Post reports that the NSA has developed a program, with no approval from Congress, that has the ability to record and store every single phone call made in an unnamed foreign country:

The National Security Agency has built a surveillance system capable of recording “100 percent” of a foreign country’s telephone calls, enabling the agency to rewind and review conversations as long as a month after they take place, according to people with direct knowledge of the effort and documents supplied by former contractor Edward Snowden.

A senior manager for the program compares it to a time machine — one that can replay the voices from any call without requiring that a person be identified in advance for surveillance.

The voice interception program, called MYSTIC, began in 2009. Its RETRO tool, short for “retrospective retrieval,” and related projects reached full capacity against the first target nation in 2011. Planning documents two years later anticipated similar operations elsewhere.

In the initial deployment, collection systems are recording “every single” conversation nationwide, storing billions of them in a 30-day rolling buffer that clears the oldest calls as new ones arrive, according to a classified summary.

The call buffer opens a door “into the past,” the summary says, enabling users to “retrieve audio of interest that was not tasked at the time of the original call.” Analysts listen to only a fraction of 1 percent of the calls, but the absolute numbers are high. Each month, they send millions of voice clippings, or “cuts,” for processing and long-term storage.

The Post didn’t name the country at which this extraordinary surveillance is aimed, at the request of administration officials, though the paper does note that the NSA is considering using it in up to six other countries. The White House, of course, declined to comment on the report.

Some may be passive to this latest revelation, but recall that reports of NSA spying on world leaders didn’t go over so well in the international community, and understandably so. Given that the Post didn’t name the country, we could assume that it’s a nation more hostile to the United States.

The conversations swept up by the program likely includes Americans who either live in the country or have made a call to the country. The NSA apparently considers those recorded conversations to be “incidental.” There isn’t much in the way of restrictions on what the NSA can collect from foreign sources, and there is, presumably, not much, if any oversight from Congress:

“Much of the U.S. government’s intelligence collection is not regulated by any statute passed by Congress,” said Timothy H. Edgar, the former director of privacy and civil liberties on Obama’s national security staff. “There’s a lot of focus on the Foreign Intelligence Surveillance Act, which is understandable, but that’s only a slice of what the intelligence community does.”

All surveillance must be properly authorized for a legitimate intelligence purpose, he said, but that “still leaves a gap for activities that otherwise basically aren’t regulated by law because they’re not covered by FISA.”

Beginning in 2007, Congress loosened 40-year-old restrictions on domestic surveillance because so much foreign data crossed U.S. territory. There were no comparable changes to protect the privacy of U.S. citizens and residents whose calls and e-mails now routinely cross international borders.

Now, keep in mind that apologists for domestic surveillance programs, including President Obama and intelligence officials, have insisted that the NSA is not collecting or listening in on Americans’ phone calls. This report undermines that claim. What’s more, one has to wonder how far away the intelligence agency is, given that it wants more expansive powers, to trying to get something like this to record domestic phone calls.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Congress just undid the one good thing it’s done on climate change

March 18, 2014, 1:39 PM

From the Huffington Post:

R Street, a right-leaning think tank, criticized the Democratic senators who took part in the climate talkathon and then voted for the repeal as “hypocritical.”

“Any rational response to climate change must start by ending taxpayer handouts for behavior that exacerbates its impact,” said Andrew Moylan, senior fellow at R Street, said in a statement. “Senate Democrats failed that test by voting almost unanimously for a bill gutting flood insurance reform.”

Republicans should back Tesla, creative destruction at its best

March 18, 2014, 10:44 AM

Gov. Chris Christie’s administration just effectively banned Tesla Motors from selling cars directly to consumers in New Jersey. Here’s why his move is a quintessential example of how cronyism and lobbying are corrupting the free market and destroying innovation, growth and jobs across the country.

If policy-makers are serious about robust economic growth that will lead to millions of new jobs – better jobs (higher paying and higher skilled) than those lost in the recession – then we need to evaluate how our laws discourage innovation and set simple rules of the road that apply to everyone equally. And then – and this is the critical part – we need to get out of the way.

Policy makers need to implement laws and regulations that foster “creative destruction” (the idea popularized by Joseph Schumpeter). When entrepreneurs enter markets, that is the disruptive force driving economic growth even as it destroys the value of established companies. For new and more efficient market models to survive and for competition to be robust, companies that don’t innovate must die. This is what a truly free market enables.

Across the country, in every state, government-imposed monopolies restrict auto manufacturers from selling directly to consumers. The car selling market is one of the most significantly regulated markets in the country, which greatly stifles competition, innovation and hurts the consumer. These laws affect disruptive new market participants like Tesla Motors and online selling of cars directly to the consumer. This week, New Jersey joined the illustrious list of Virginia, Maryland, Texas and Arizona in completely banning Tesla from selling cars to consumers.

Today 57 million Americans live in states where Tesla cannot legally sell cars.

Why would a state ban Tesla sales?

Texas prevents Tesla from providing test drives, discussing price points or even directing buyers to Tesla’s website. Employees are allowed to talk to buyers about electric cars in general but can provide no information on how to purchase one. In Texas, Tesla is only allowed to have car “galleries” where consumers can look at the vehicles. Other states are copying the Texas model, not avoiding it, as the New Jersey regulations are very similar.

New Jersey has now turned Tesla Motors into Tesla Motors Gallery.

Dealership-imposed restrictions across the country deny Tesla Motors the ability to easily sell their cars in other jurisdictions, but it also affects the thousands who would be employed in Tesla stores and building the vehicles and components, and the thousands of potential Tesla buyers who would like to be able to buy the Model S, Roadster and 2014 launch vehicle: the Model X. It deters a potential new Tesla-like competitor who may consider developing their own new unique vehicle or market model.

The rules restricting direct sale of cars are silly. Why would you worry about the rampant and pervasive threat of new car manufacturers selling cars directly to consumers? In the name of consumer protection, the highest rated car manufacturer, as rated by Consumer Reports, Tesla Motors, is legally banned from selling cars to consumers. Regulators trust your local car dealer to protect the consumer, even though car dealer ratings are the only group rated lower than members of Congress.

Bigger than Tesla

Fixing this problem is bigger than just Tesla. It is about the next Tesla and it is about keeping innovation right here in America. It’s about enabling a free market for the $2 trillion auto market, and it’s about opening the floodgates for the autonomous vehicle revolution with an estimate of $5.6 trillion in global savings.

The last successful American car company was Chrysler, founded in 1925. There have been dozens of failed start-ups in this space, including Yucker, DeLorean and electric car start-ups Fisker and Coda. Prohibiting manufacturers from selling vehicles directly to consumers forces manufacturers to develop a car and invest millions of start-up capital in production capacity without knowing if any dealership will carry their planned vehicles. The dealers may have an interest in favor of the status quo, as they may be less likely to carry a car unless there is already strong market demand for that car. Thus these regulations create a chicken-and-egg problem. And if the dealer agrees to carry the car, manufacturers would still be relying upon the dealer to choose to promote and sell the car.

State bans on Tesla sales have affected and angered many Americans. Over 131,000 Americans have signed a White House petition to allow Tesla to sell directly to consumers – a petition to which the White House is eight months late in responding. Even the Justice Department’s Antitrust Economic Analysis Group’s has published their economic findings that, “as a matter of economics, arguments for state bans…are not persuasive.”

Republicans, as supporters of the free market, should be taking advantage of this groundswell and calling the White House out on not responding to their own website’s petition. Instead, in Texas, Arizona and now New Jersey, Republicans have become complicit in this cronyism.

These nonsense regulations protect the dealers’ monopoly rents on the market, ultimately creating a higher barrier to entry for new car manufacturers in the United States and a “tax” upon the final price of the 14 million cars that Americans buy every year. According to a 1986 study by the Federal Trade Commission, they concluded that these laws increase prices by about 6 percent and cost $6.9 billion in 2014 dollars. But according to a 1982 study from economist Richard Smith, these regulations may be costing $22 billion in 2014 dollars. He estimated the cost of this regulation per car as 9.3 percent, an extremely significant mark-up. Incredibly, it’s likely that those studies underestimated the impact of potential new market models as enabled by the Internet.

Further, these laws not only prop up the existing structure, but they also make it nearly impossible for car manufactures to remove franchises that they don’t want to represent their brand. But even worse, not only do state laws require middlemen to sell cars, but the laws have effectively removed the possibility of direct online buying of cars and innovation which could create dynamic competition and savings for the consumer.

Online Direct Car Selling

Entrepreneur Scott Painter founded Carsdirect.com in 1998 to sell cars directly to consumers, as a national “virtual” dealership. Such an online direct-to-consumer dealership could hold great utility for consumers who still wonder why they can’t buy a car online as easily as they can buy just about anything on Amazon. Painter explains that, because of state-regulations, in order to sell cars directly to consumers across the country (as a website), they would have to own car dealerships in every state and for each brand. With 40 car brands and 50 states, they needed 2,000 car dealerships to be set up across the country and abide by 50 state laws. After raising millions of dollars for their venture, once it was clear that this was the only way for the company to proceed, they ultimately changed their market model and removed the ability to sell directly to consumers.

After Carsdirect.com was impeded from selling directly to consumers, its founder and CEO Scott Painter next tried to create his own car manufacturing company, like Tesla, called “Built-to-order.” The firm designed a car using a GM power-train and planned to build it with components from established suppliers. They were trying to imitate the “Dell model” by holding inventory of customizable parts which would be assembled and delivered after the customer ordered them. As leading expert Fiona Scott Morton argues, the potential economic benefits are significant here: “drastic reductions in the cost of retailing; reductions in the cost of holding inventory; elimination of the need for discounts…increased revenues from customization…and lower capital costs due to being paid prior to incurring the expenses of building the car. Painter estimates the total savings from these sources was approximately 30 percent.”

New Era of Innovation

If states remove these government-imposed monopolies, Tesla and buying cars directly online may be merely the beginning of a new era of innovation in the automobile sector. When new and innovative companies will offer new concepts of vehicles for the 21st century, consumers can more easily buy and compare vehicles and save money through dynamic competition. This is particularly important as we are entering an era of entirely new autonomous vehicle concepts. As the Justice Department’s Antitrust Economic Analysis Group recently noted” “Just as Dell has altered its distribution model in the personal computer industry to better meet evolving consumer preferences, car customers would benefit from elimination of state bans on auto manufacturers making direct sales to consumers.”

The United States was the world leader in the automobile market of the 20th century. Companies like Tesla, and the competition their new car models bring to Ford, General Motors and Chrysler, must be part of a second renaissance of the United States leading the autonomous automobile market of the future.