A Debate About Mexico's Drug Wars

The event, tomorrow night at the Skirball Center at NYU, is produced by Intelligence Squared; see here for details.

Fareed Zakaria, Andres Martinez, and I will aruge in favor of the proposition:

America is to Blame for Mexico's Drug Wars

Jorge Casteneda, Chris W. Cox, and Asa Hutchinson will argue against.

Stay tuned for the outcome; I2 identifies the winner as the side that moved the most undecided members of the audience to its position.

Bernanke on the Fed

In a recent op-ed, Federal Reserve Chairman Ben Bernanke argues that proposals in Congress to reduce the Fed's powers or increase Congressional oversight are misguided.  My reactions to Ben's piece are as follows:

1. Given that the Fed exists, it probably made sense for it to lower interest rates in response to the financial crisis.  The private sector expected this; had the Fed not undertaken these actions, the confusion generated might have been counterproductive.

2. The Fed should have argued vociferously against, rather than for, the bailouts of Wall Street banks.  These bailouts probably made things worse rather than better in the short term by generating uncertainty and delaying appropriate adjustments in bank balance sheets.  And the bailouts virtually guarantee increased moral hazard in the long term.

3. Granting more regulatory power to the Fed is silly.  Regulation of large, complex, and constantly evolving finanicial market activities is not going to fix anything, since the financial sector will innovate around it.  Worse, regulation gives some investors a false sense of security.

4. Giving Congress more oversight of the Fed is a terrible idea; libertarians, in particular, should be wary of fixing bad government with more government.  The way to improve the Fed is to eliminate the Fed.

George Will, Medical Marijuana, and Legalization

George Will writes an interesting column on medical marijuana. 

Will argues that a large fraction of "medical" marijuana purchases are in fact for recreational use, a claim no reasonable person disputes.  Will believes that widespread circumvention of the law's official intent undermines respsect for the rule of law, and I agree.

Will also suggests that estimates of the tax revenue states can collect from medical marijuana are probably inflated; my own estimates suggest he is right on this as well.

But the most intriguing issue is Will's last sentence:

By mocking the idea of lawful behavior, legalization of medical marijuana may be more socially destructive than full legalization.

This last sentence leaves us hanging: is Will advocating legalization, or arguing that legalization is undesirable and medicalization is even worse? 

If Will is true to his small government, individual responsibility ideals (which I share), he must surely advocate full legalization.  To the best of my knowledge, however, he has yet to do that in so many words. 

Now would be a good time.

A College for Cannabis

At most colleges, marijuana is very much an extracurricular matter. But at Med Grow Cannabis College, marijuana is the curriculum: the history, the horticulture and the legal how-to’s of Michigan’s new medical marijuana program. ...

Even though the business of growing medical marijuana is legal under Michigan’s new law, there is enough nervousness about the enterprise that most students at a recent class did not want their names or photographs used. An instructor also asked not to be identified.

“My wife works for the government,” one student said, “and I told my mother-in-law I was going to a small-business class.”

 The rest of the story is here.

The Politics of Cap and Trade

A discussion at the New York Times's Room for Debate.  My bottom line:

Any policy to reduce emissions may be more costly than the emissions themselves, given the unintended consequences of such policies (e.g., pushing carbon-emitting activity to countries with lower carbon prices).

Dollars for Dishwashers

On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances."

Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.

This program is just as misguided as the original Cash for Clunkers.  The only half-way respectable argument in its favor is the one offered by the Council on Economic Advisers:

Clunkers "is one of several stimulus programs whose purpose is to shift expenditures by households, businesses, and governments from the future to the present," the council wrote in a September report. "Such time-shifting is valuable in a recession, when the economy has an abundance of unemployed resources that can be put to work at low net economic cost."

This view could be right in principle, but it is unlikely to be right in practice.  Just as governments are error-prone and easily swayed by special interests when it comes to picking industries to support (industrial policy), they are likely to miscalculate often in picking when and where to stimulate.

Plus, this particular stimulus requires destruction of consumer durables that still work, an unambiguous waste.

Given its $300 million size, the program cannot have much influence.  But a better approach with that $300 million is to reduce tax rates and let consumers choose how to spend their money.

Franksgiving: Another Flawed Stimulus

In 1939, FDR decided to move Thanksgiving Day forward by a week. Rather than take place on its traditional date, the last Thursday of November, he decreed that the annual holiday would instead be celebrated a week earlier.

The reason was economic. There were five Thursdays in November that year, which meant that Thanksgiving would fall on the 30th. That left just 20 shopping days till Christmas. By moving the holiday up a week to Nov. 23, the president hoped to give the economy a lift by allowing shoppers more time to make their purchases and—so his theory went—spend more money.

 The plan did not turn out too well:

For the next two years, Roosevelt continued to move up the date of Thanksgiving, and more states resigned themselves to celebrating early. By 1941, however, the facts turned against Roosevelt.

By then, retailers had two years of experience with the early Thanksgiving, and data were available regarding the 1939 and 1940 Christmas shopping seasons. In mid-March 1941, The Wall Street Journal reported the results of a survey done in New York City. The Journal's headline put it succinctly: "Early Thanksgiving Not Worth Extra Turkey or Doll." Only 37% of stores surveyed favored the early date. In Washington, the federal government reported that the early Thanksgiving resulted in no boost to retail sales.

And so, on May 20, 1941, FDR called a press conference at the White House and announced that he was changing Thanksgiving Day back to its traditional date. The early Thanksgiving had been an "experiment," he said, and the experiment failed. It was too late to move the 1941 Thanksgiving back to the traditional date, but in 1942 Thanksgiving would revert to the last Thursday of the month. This was "the first time any New Deal experiment was voluntarily abandoned," a Washington Post columnist wrote.

Apparently during the debate over whether to honor the Roosevelt's wishes,

People started referring to Nov. 30 as the "Republican Thanksgiving" and Nov. 23 as the "Democratic Thanksgiving" or "Franksgiving."

Is Nuclear the Answer to Global Warming?

Probably not, although environmentalists are jumping on this bandwagon:

Nuclear power -- long considered environmentally hazardous -- is emerging as perhaps the world's most unlikely weapon against climate change, with the backing of even some green activists who once campaigned against it.

It has been 13 years since the last new nuclear power plant opened in the United States. But around the world, nations under pressure to reduce the production of climate-warming gases are turning to low-emission nuclear energy as never before. The Obama administration and leading Democrats, in an effort to win greater support for climate change legislation, are eyeing federal tax incentives and loan guarantees to fund a new crop of nuclear power plants across the United States that could eventually help drive down carbon emissions.

Nuclear power may be low emissions, but that is not the whole story.  In the United States, the Price-Anderson Act of 1957 limits the liability of the nuclear power industry in the case of accidents. In other countries governments own and operate the nuclear industry and, implicitly, insure themselves, thereby hiding the liability cost of nuclear power.

Without government-subsidized insurance, the nuclear power industry would have to buy private insurance, which would be prohibitively expensive. Thus the true costs of nuclear power are much higher than they appear.  These costs must be balanced against any reductions in emissions achieved by nuclear power.

Right Meets Left on Criminal Justice

In the next several months, the Supreme Court will decide at least a half-dozen cases about the rights of people accused of crimes involving drugs, sex and corruption. Civil liberties groups and associations of defense lawyers have lined up on the side of the accused.

But so have conservative, libertarian and business groups. Their briefs and public statements are signs of an emerging consensus on the right that the criminal justice system is an aspect of big government that must be contained.

Libertarians and civil liberties groups have long agreed on many of these issues. The surprise is that prominent conservatives (e.g., former Reagan Attorney General Edwin Meese) have moved into the libertarian camp.

Alas,

the conservative re-evaluation of crime policy is not universal, of course. Two notable exceptions to the trend, said Timothy Lynch, director of the Cato Institute’s criminal justice project, are Chief Justice John G. Roberts Jr. and Justice Samuel A. Alito Jr.

Still, with Justices Thomas and Scalia in the limited government camp, some reigning in of the worst abuses seems possible.

Obamanomics: Growing the Pie or Dividing the Pie?

My thoughts at Alister and Paine.

Comments Welcome

The comments feature of this blog was not working properly. I believe I have fixed it. Please let me know if you still have problems. Thanks, jeff

Insane Mortgage Policy

As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess.

Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans.

But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.

While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers.

Yet one more reason why the deficit situation is far worse than the administation admits. Many of these insured mortgages will fail, and taxpayers will foot the bill.

Tougher DUI Laws?

New York State would make it a felony to drive while intoxicated with a child in the vehicle and would require first-time convicted drunken drivers to buy a device that prevents them from driving their cars if they have been drinking, under a bill passed by the State Assembly on Tuesday.

Even libertarians agree that DUI laws make sense. I fear, however, that these particular enhancements to New York's laws are driven mainly by emotion:

The push for harsher drunken-driving penalties follows two recent crashes in New York in which children were killed while traveling with adults who had been drinking.

My guess is that the felony charge will often be bargained down, or police will let violators off with a warning because the felony charge seems excessive.


The provision for locking devices may again have little impact in practice, as those affected disable them, or use other cars.


I do not have an obviously better alternative to offer, but I am not convinced these enhancements to the DUI laws will change much.

Higher Tuition at the University of California

The University of California's Board of Regents agreed yesterday to raise undergraduate tuition by 32 percent. This had a predictable effect:

Hundreds of students from campuses across the state demonstrated ... More than 5,000 students demonstrated outside Sproul Hall at Berkeley

The increase is exactly the right thing to do, of course; the only problem is that it does not go far enough.

No good argument exists for state colleges or universities; the private sector does an excellent job.

A reasonable although oft-exaggerated argument exists for helping low-income students afford college, but this implies means-tested vouchers, not state-run higher education.

So California's tuition increase is a step in the right direction; its universities should mimic elite private universities by setting a high official tuition rate, while discounting that rate for those of limited means. Better yet, California should simply privatize the entire university system.

The Headline ...

... says it all:

US wealthy should pay for health care overhaul, poll finds

That is the essence of the debate over health care. Nothing in existing bills constitutes "reform." Rather, these bills are just transfers from some people to others.

Global Warming Silliness

Buried in the text of Tuesday's joint declaration between the President Obama and Chinese President Hu Jintao was a significant climate announcement: The Obama administration will offer concrete emission reduction targets as part of next month's negotiations, as long as the Chinese offer a climate proposal of their own.

This is such nonsense. The agreement is not enforceable, so each side will do nothing and say it is waiting for the other side to go first. Then each can claim the other side is the problem.

Everyone knows that any policy toward global warming that has any chance of adoption will in fact have no effect. Everyone also knows that any policy that would actually reduce emissions to a signifcant degree would be incredibly costly.

So what's the answer? Repeal existing policies - like energy subsidies - that contribute to greenhouse gas emissions and that do not make sense in the first place. This makes sense no matter what one belives about global warming science.

The Jobs Summit

The Obama administration announced plans Monday to hold a forum on jobs and economic growth at the White House on Dec. 3, after which the president will go on the road to demonstrate his concern about the nation's rising jobless rate. ...

"During these difficult economic times, we have a responsibility to consider all good ideas to encourage and accelerate job creation in this country," Obama said in a statement.

We will see whether the administration is really willing to consider "all good ideas." The two that make the most sense are reductions in employment taxes and reductions in the corporate income tax. Yet I suspect those two are exactly the ideas that will get little or no attention.

Health Reform and Drug Prices

Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years. ...

Drug makers say they have valid business reasons for the price increases. Critics say the industry is trying to establish a higher price base before Congress passes legislation that tries to curb drug spending in coming years.

Both the drug makers and the critics are right, of course: the only difference is that critics do not accept profit maximization as a legitimate goal for the drug makers.

The bigger problem posed by health reform is not just these increases in drug prices; it is the reduced incentive for innovation implied by spending controls going forward.

Was the Iraq War Worth It?

Samarra, where the U.S. military closed a key base this fall, in many ways embodies the Iraq that American forces are leaving behind as the troop drawdown begins in earnest. The fighting here, as in much of the country, has ebbed. Iraqi troops are indisputably in charge. Sectarian and ethnic divisions remain deep, but political feuds and fights for power are, by and large, not being waged on the street.

As the American military footprint thins out in places such as Samarra, many U.S. soldiers are returning home making a strong case that they are leaving behind a country with a fighting chance. Just how good Iraq's odds are remains an open question ...

Depending on whom you ask, this phase is the preface of peace -- or a prelude to the fight.

"If it doesn't somehow reach an equilibrium, those who are have-nots could find themselves with no alternative except for violence," said Lt. Col. Samuel Whitehurst, an infantry battalion commander whose unit departed Samarra a month ago.

My forecast for Iraq's future: renewed violence between Sunni and Shiite as the U.S. funding that has temporarily bought peace dwindles. And any pretense of democracy will vanish. In the end we will have replaced one authoritarian state with another, at enormous cost.

And the Winner is ...

Yours truly.

Last night, in Albuquerque, New Mexico, I received the Alfred R. Lindesmith Award from the Drug Policy Alliance:

This award recognizes scholars, like Alfred Lindesmith, whose personal courage and quality of published research constitute a source of rational inspiration for all who labor in drug policy scholarship.

You can read about previous winners and other awardees here. I am grateful to the DPA and its executive director, Ethan Nadelmann, for this recognition, but even more for their tireless efforts to end the war on drugs.

The Next Bailout Gets Closer

The Federal Housing Administration, the government agency whose loan-insurance programs have become a crucial source of support for the housing market, said on Thursday that its cash reserves had dwindled significantly in the last year as more borrowers defaulted on their mortgages. ...

As recently as a few weeks ago, the F.H.A. had said that even under the bleakest economic forecast, its cash cushion would quickly recover. On Thursday, it abandoned that position.

The only suprise here is that anyone kept a stright face while denying that this outcome was inevitable. So long as the U.S insures mortgage debt, bailouts will continue.

AMA Wants Review of Medical Marijuana

The American Medical Association on Tuesday adopted a resolution calling for the government to review its classification of marijuana, in order to ease the way for more research into the use of medical marijuana.

This is an interesting development. One glaring hypocrisy in the federal government's position on medical marijuana has been its claim that no standard medical research supports the claims made for marijuana's purported medical benefits.

This claim is overstated, but the amount of gold-standard, double blind research is small.

Why? Because the beauraucratic hurdles erected by federal authorities make it impossible for any medical researcher to conduct such research.

If the AMA's new position eases the way for more research on medical marijuana, everyone but the prohibitionists will benefit.

The Only Independent Fed is No Fed

Economists have long argued for the Fed to be independent so that politicians cannot pressure the Fed into ill-advised actions, such as juicing the economy in advance of elelctions.

The goal makes sense in principle, but achieving independence is hard. Congress created the Fed, so Congress can influence the Fed:

With the Federal Reserve under more intense attack than at any time in decades, Ben S. Bernanke, the professorial chairman of the central bank, was schooled last month in how to handle the increased political demands of his job.

For months, he had warned — without anyone on Capitol Hill appearing to listen — that a seemingly innocuous bill to let Congress “audit” the Fed would gravely threaten the central bank’s independence.

It was alarming enough that the bill’s author was Representative Ron Paul, the quixotic Texas Republican whose new book, “End the Fed,” had just landed on the best-seller lists. Despite vigorous protests by Mr. Bernanke, nearly 300 House lawmakers and 30 senators had endorsed Mr. Paul’s bill.

But when he sat down shortly after 8 a.m. on Oct. 1 at the Rayburn House Office Building for coffee and muffins with Representative Barney Frank, the rumpled and wisecracking chairman of the House Financial Services Committee, he took in some blunt advice. Voters had become suspicious and unnerved by the Fed because of its trillion-dollar efforts to bail out the financial system, Mr. Frank warned. If the Fed really wanted to survive the disgruntlement in both parties, he continued, Mr. Bernanke would have to step back and let him devise a compromise.

That is, Congress cannot commit itself not to interfere, so the Fed will frequently react to the threat of interference. True independence is unlikely.

A different question is whether independence is desirable. If you believe the Fed does only good things, then yes, but that is unlikely. That is why Ron Paul, correctly in my view, argues for eliminating the Fed.

Bait and Switch on Health "Reform"

As health care legislation moves toward a crucial airing in the Senate, the White House is facing a growing revolt from some Democrats and analysts who say the bills Congress is considering do not fulfill President Obama’s promise to slow the runaway rise in health care spending. ...

Health economists say it is impossible to know whether the bills, including one passed by the House on Saturday night, would meet that goal, and many are skeptical that they even come close.

The claim that "reform" of Medicare and Medicaid could "bend the curve" was always laughable. We have been trying to reign in these programs for decadaes; if we had easy, effective ways to reduce costs (other than simply reducing care) we would have adopted them long ago.

So, it is no surprise that experts do not expect the Congressional bills to reduce the growth in health costs. The only question is whether the administration's ploy has suckered enough voters to get this faux reform adopted before the reality hits home.

Needle Exchanges

Needle exchanges are programs funded by cities that provide clean syringes to IV drug users in exchange for dirty ones returned by users. These programs aim to reduce the spread of blood-borne diseases like HIV and hepatitis.

The exchanges are an awkward use of government funds: they appear to condone an activity that is both illegal and regard by some members of society as immoral. Yet exchanges plausibly save lives of drug users and others by reducing the spread of disease.

As further illustration of the policy dilemmas created by needle exchanges, consider this:

A bill working its way through Congress would lift a ban of more than 20 years on using federal money for needle exchange programs. But the bill would also ban federally financed exchanges from being within 1,000 feet of a school, park, library, college, video arcade or any place children might gather — a provision that would apply to a majority of the country’s approximately 200 exchanges.

So what's the resolution? A small step is to legalize syringes in those states that currently ban them. No evidence suggests that drug use is higher due to legal availability of syringes.

The better step is to legalize drugs. That would mean significantly cheaper drugs, so the incentive to inject - which provides a big bang for the buck - would diminish substantially. For users who still wanted to inject, a legalized market would provide drugs packaged with disposable syringes, thereby minimizing any incentive to share needles.

Obamacare and Civil Society

If government is paying for everyone's health care, then it would seem to have an interest in promoting "healthy" lifestyles. This might sound innocuous, but it has troubling implications.

Consider, for example, the question of weight. Existing evidence seems to suggest that being overweight is bad for one's health and causes higher than average health care expenditure. So, government might want the health insurance plans it subsidizes to include incentives for exercise and weight loss.

Yet that approach runs headlong into a ban on pre-existing conditions, a crucial feature of Obamacare. This ban implies that overweight people get the same insurance, at the same price, as everyone else. This defeats an attempt to improve health by discouraging obesity and generates resentment from the non-obese who believe, accurately or not, that they are being forced to subsidize unhealthy behavior by others.

In a private, unregulated insurance market, competition between insurers would determine whether obesity actually predicts higher than average health expenditure. (Even if the obese are less healthy, their lifetime health expenditures might be near or below average because of shorter life expectancy.) Competition would determine whether provisions like required exercise regimes actually improve health. People who are overweight might face higher premiums, but they would bear the burden.

The same issue arises for an enormous range of behaviors: smoking, excessive drinking, downhill skiing, and so on. Government takeover of health insurance, implicitly or explicitly, takes a stand on all these issues. Government will not always get it right, no matter how well-intentioned, and competitive forces will not be allowed to correct the mistakes. In addition, imposition of a particular approach, with the implied cross-subsidies from the healthy to the unhealthy, constistutes one more way in which government intervention promotes an embittered, polarized society.

If Brevity is the Soul of Wit ...

Then the House's health care bill is the epitome of insanity:

The 1,990-page health-care bill in the House is one of the weightiest pieces of legislation on Capitol Hill.

A single-sided copy of it printed by The Wall Street Journal weighed 19.6 pounds, and stood 8.25 inches tall.

Has anyone actually read the whole bill?

Not-so-Temporary Stimulus

In separate actions to address Americans’ continuing economic hardship, the government moved Thursday to assist long-unemployed workers and struggling businesses, as well as home buyers and homeowners facing foreclosure.

Fannie Mae, the federally controlled mortgage company, announced a Deed for Lease program in which those in danger of eviction may be able to stay as tenants in their houses for at least a year.

At the same time, Congress gave final approval to a stimulus measure that will extend unemployment benefits for the longtime jobless, aid that will bring total assistance for many to nearly two years. Other provisions of the bill will expand two popular tax breaks — one for home buyers, the other for businesses operating at a loss.

The worst components of these extensions of the stimulus are those that support housing. The U.S. economy got into trouble in part because it over-invested in housing. The recession is a chance to re-allocate investment from housing to non-residential investment (factories, equipment, R&D) and for people who bought homes they could not afford to find smaller houses or apartments.

Propping up the housing market merely delays inevitable adjustments and perpetuates a misallocation of resources.

An Opportunity for Libertarians?

Daniel Henninger of the WSJ writes about yesterday's election results:

What was learned Tuesday is that the American voter is absolutely, totally, unremittingly disgusted with both political parties.

I could not agree more. I am not persuaded, however, by Henninger's assessment of what the electorate wants. He says

More than anything, the American voter is desperate for political leadership.

This may be part of the story, but here's a different interpretation: a signficant fraction of the electorate is neither liberal nor conservative but libertarian.

Not over the top, wingnut libertarian like me, but moderate, restrained libertarian: fiscally conservative and socially tolerant.

I doubt this augurs a flood of officially libertarian candidates. But perhaps it means that more politicians will shift toward the soft libertarian perspective.

Renewed Hope for Gridlock?

The results of yesterdays two gubernatorial elections - big wins for Republicans in Virginia and New Jersey - provide renewed hope for people with political preferences like mine:

The only thing worse than the Republicans is the Democrats, and vice versa.

Thus, I am not pleased because I want Republicans rather than Democrats to run the country; I am pleased because I want gridlock: a Congress with sufficient Republicans and Blue Dog Democrats to defeat most of the initiatives proposed by liberal Democrats.

Gridlock is not the ultimate goal, of course; I would like to see the U.S. eliminate huge amounts of existing government. But for starters, not enacting any new government would be an improvement over the path Democrats will adopt unconstrained.

It is nevertheless too early to forecast what will happen in the mid-term elections next year. If the economy has recovered substantially, the Democrats may hold their own. Last night's results nevertheless suggest that independents may be less enthusiastic about President Obama and the Democrats than they were last fall, and this should tilt the composition of Congress toward the Republicans.

That is one reason the Democrats are pushing so hard to get their agenda adopted immediately. They know their window of opportunity may soon close.

Letting the Sick Die on the Street

Blogger Matt Yglesias has described my op-ed on health care as follows:

Meanwhile, in Harvard economist and Cato Institute senior fellow Jeffrey Miron’s dystopia, if your parents wind up with no money through bad luck or poor decision-making and then you get sick you’ll just die on the street for lack of money.

Did I really say such an outrageous thing? Well, I did not use exactly those words (as Matt makes clear), but yes, that is the logical implication of my position.

And I stand by it. Here's why.

First, my assessment is that even with no government health insurance, hardly anyone would die on the street for lack of health care. The poor would use their income transfers to buy some health care or insurance. The poor would receive private charity. And health care would be far less expensive due to elimination of the distortions caused by government health insurance.

Second, my position is that government provision of health insurance is enormously inefficient: it means worse health care for everyone, and it wastes resources that can be put to other uses. So the negative of having a few people suffer without government health insurance must be balanced against the good of having better medical care for all and against the good that can be accomplished with those saved resources.

That good might be lower taxes for everyone, or more government spending on education, or greater public health spending to combat HIV in poor countries. Whatever the alternate uses turn out to be, one cannot escape the fact that a tradeoff exists between protecting the poor and other goals.

Did the Stimulus Work?

Responses from Simon Johnson, Mark Thoma, Russell Roberts, and me, at Room for Debate.

My answer in brief: probably not.

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