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A Win for Innovation and Intellectual Property

Michi Iljazi - April 24, 2015

As the world celebrates World IP Day on Sunday, intellectual property is becoming one of the most important issues facing Congress. Protecting IP is a core government function that can help grow the economy, which in turn helps taxpayers and consumers.

The growing threat of “patent trolls” has become a major area of concern among those who want to ensure that patents are still a vibrant part of the creative process. Patent trolls in most cases do nothing to innovate; instead, they obtain patents for the purpose of filing lawsuits and clogging up the courts. For example, the company Lodsys exists solely to target small application developers. They do not make or sell anything; they just go after creators and claim patent infringement. In 2011, patent trolls cost the economy $80 billion and discouraged future innovation by raising creators' risk of frivolous lawsuits.

A bipartisan House bill called the Innovation Act is designed to address this problem. Among other reforms, the legislation would require courts to decide on the validity of a patent on a faster timetable. This will make it harder for patent trolls to drag out a lawsuit in order force a settlement. As the Wall Street Journal has reported, the bill would also “require plaintiffs to disclose who the owner of a patent is before a lawsuit is filed and demand that plaintiffs explain why they are suing a particular defendant in their court pleadings.”

According to an op-ed by Tim Lee with the Center for Individual Freedom, “the Innovation Act is narrowly targeted to address bad actors while maintaining the broader integrity of the patent system itself. For example, the bill’s reforms would increase transparency in the litigation process by heightening pleading standards. Accordingly, parties would be required to provide more detailed information to support their allegations, instead of their current habit of relying upon vague and threatening demand letters.”

It is important that this legislation be brought to the floor in both chambers of Congress. There are currently millions of dollars being wasted in litigation costs that would otherwise be invested in other more productive areas. In a piece for The Daily Caller, Chuck Muth of Citizen Outreach described the high costs businesses are burdened with and the possible legal entanglements, noting that “most businesses can expect to pay about $1.3 million to settle a trolling lawsuit and about $1.75 million if they have to go to trial.”

Reforms that benefit all stakeholders who want to contribute will only help to boost the nation’s economy and provide even more incentive for groups and individuals to invest in new ideas. Washington can deliver a win for intellectual property.

Michi Iljazi is the communications and policy manager for the Taxpayers Protection Alliance (TPA).

Ban Affirmative Action in Medicine?

Liliana M. Garces, The Conversation - April 24, 2015

With widely documented health disparities, the US is facing a real crisis when it comes to the health of its racial and ethnic minorities.

Studies have shown that minority patients receive better care when physicians are from a similar racial or ethnic background. Medical schools have always defended affirmative action policies, based on this compelling need for racial diversity.

However, with eight states banning affirmative action, via ballot initiatives and other measures, a new trend is emerging across the nation which will have long-term consequences on racial and ethnic diversity in higher education.

More than that, it will have serious consequences on health care efforts as it hurts the ability to have more racially and ethnically diverse physicians that could better address the health disparities in the US.

A research project I led shows how these statewide bans have led to a drop in the already underrepresented students of color at medical schools. This research is a follow up to my earlier one showing an overall decline in the percentage of minority students coming to graduate schools, which also impacts the pipeline to medical schools.


Impact of Affirmative Action Bans
In our study of medical school enrollments, we examined the impact of bans in six states: California, Washington, Michigan, Nebraska, Florida, and Texas (the ban in Texas is no longer in place).

We don’t include bans in the states of Arizona, New Hampshire and Oklahoma, as they had been enacted only recently.

The bans were implemented either through voter initiatives, or executive orders, or court cases, as was the case in Texas, known more famously as the Hopwood decision, in which Texas colleges and universities were prohibited from taking race into consideration during admissions.

We analyzed data from 19 years – 1993-2011, allowing us to cover four years before the implementation of the first ban in Texas and three years since the most recent ban in Nebraska.

While these laws apply to public institutions in the states, in our analysis we looked at the potential impact on private schools as well.

We did this considering it was possible that students would choose to enroll at private schools instead of public ones in states with bans or at medical schools in states that still allowed for the consideration of race as a factor in admissions.

We found that following these bans, underrepresented students of color at public medical schools dropped by about 3.2 percentage points.

So, if you took a four-year average across the states, as we did, the percentage of students of color who matriculated at public medical schools was about 18.5%. Our findings, showing a a 3.2 percentage-point decline, meant that this had dropped to about 15.3% during the period we looked at.

In other words, before bans on affirmative action, for every 100 students matriculated in medical schools in states with bans, there were 18 students of color, whereas after the ban, for every 100 students matriculated, about 15 were students of color.

You might think that this is not a very large difference. But in my view, it’s a very important decline that seriously hurts efforts in the field of medicine to become more racially and ethnically diverse.

I believe such a decline has negative consequences for the ability of medicine to address health disparities, improve quality of care, provide better treatment and to have healthier populations.


Decline in Diversity of Graduate Schools
My previous research too showed a decline in the racial/ethnic diversity in graduate education and across different fields of study, including engineering, natural sciences, social sciences and humanities. These bans have also led to declines in racial/ethnic diversity at selective colleges that often form the pipeline to medical schools.

States with affirmative action bans host 35% of the nation’s research-ranked public medical schools and 29% of primary-care ranked public medical schools. Given this substantial proportion of medical schools, the action in these six states have national repercussions.

We also need to consider that despite gains over the last few decades, historically underrepresented students of color, like Africans Americans, Latinos, and Native Americans, are already underrepresented in medical schools, relative to their proportion of the US population.

While about 17% of the US population is Latino and 13% is African-American, these groups made up only 4% and 6%, respectively, of the total US medical school enrollment in 2014.

All this has consequences for physician competence and health care. There is a strong association between racial diversity of medical school students and their ability to handle cultural differences, attitudes towards access to care and plans to serve communities that are under-served.

For these reasons, a racially diverse medical workforce improves access and quality of care and in turn, health outcomes.

The ConversationLiliana M. Garces is an assistant professor of education at Pennsylvania State University. She received funding for this study from the W.E. Upjohn Institute Early Career Grant in 2012. This article was originally published on The Conversation. Read the original article.

Parsing Chris Christie's Pension Math

Cezary Podkul, ProPublica - April 24, 2015

As we reported last week, Gov. Chris Christie's rhetoric about his fiscal record in New Jersey doesn't always match what's in his budget. Since then, we've found another example of Christie's malleable math.

On multiple occasions, the GOP governor has claimed that he put more money into public employee pensions than any prior governor – Democrat or Republican. When we noticed that the numbers didn't support the claim, the governor's aides had a ready explanation.

It turned out they weren't counting a $2.75 billion pension contribution that former Gov. Christine Whitman made – because the money was borrowed in a 1997 bond sale. That's not the same, they said, as putting taxpayer money directly into pensions. Debt, after all, has to be paid back.

We duly reported that response. Except that when it comes to his budget, Christie does count the payback on the bonds – it's tallied under "school aid" as a teacher retirement expense picked up by the state.

The bond payments highlight the enormous weight that public employee pension obligations have put on New Jersey's chronically troubled finances.

Christie muscled a slate of pension reforms through the Democratic legislature in 2011, but it didn't fix the problem. Now, as he prepares a possible presidential campaign, his hope for another grand pension bargain with unions is in trouble.

When it comes to New Jersey's school aid budget, it turns out that pension payments have been the main driver of increases in recent years. Aid for classroom and other educational uses has held flat, but it hasn't stopped Christie from declaring a victory for education.

"We are making record investments in aid to our schools, and this year again I propose to do that for a fifth straight year," Christie in his February budget address, citing his proposal to spend $12.7 billion on school aid.

The figure includes $185 million in payments on a portion of the pension bonds. A spokesman for the New Jersey treasury said the bond payments are considered school aid because teacher pensions are an education cost. Past governors also have counted the pension bond payments the same way, so Christie isn't alone.

Christie has complained about the bond sale under Whitman, a fellow Republican, listing it among "deadly sins of the past" committed by previous governors.

By the time New Jersey taxpayers finish paying off the debt, they will have coughed up more than $10 billion. Data from the treasurer's office shows the interest rates on the bonds are higher than the returns the proceeds have earned since the sale, making them a money loser overall.

Some $7 billion in principal and interest remains due on the bonds, according to the treasury. Annual payments will top $500 million a year from 2022 to 2029, when the debt will finally be repaid.

Some of these bonds were expensive clunkers known in the trade as "zero-coupon" or "capital appreciation" bonds.

Instead of making regular cash interest payments, as borrowers do on a normal bond, these securities defer interest until all the debt comes due years or decades later, often at multiples of the original amounts borrowed. (The Christie administration has stopped issuing this type of debt.)

To give an example, just one $59 million chunk of those bonds came due this past February, costing the state $219 million. Terms prohibit New Jersey from refinancing even though interest is accruing at more than 7 percent a year – a rare find in today's low interest-rate environment.

Investors are reaping the rewards. After the bonds sold back in 1997, The Bond Buyer newspaper called Whitman's pension debt the "deal of the year" and quoted investors who called them a "beautiful piece of paper."

Asked about the pension borrowing, Whitman said she couldn't recall why the state opted to sell capital appreciation bonds.

Jim DiEleuterio, Whitman's treasurer from 1997 to 1999, also said he couldn't recall. But he still thinks the state made the best decision at the time, based on interest rates and assumed rates of return.

"I think that given the times that we were in, it was the right thing for us to do," he said.

What about Christie's claim that he's contributed more to pensions than prior New Jersey governors?

As we reported earlier, including the $2.75 billion from Whitman's bond sale that went into state pension funds, her administration contributed $3.7 billion, versus $2.2 billion so far under Christie.

Another $2 billion in promised payments would bring his total to $4.2 billion by June 2016 – without any borrowing.

Cezary Podkul covers finance for ProPublica, where this piece originally appearedRead more of Cezary Podkul's reporting on Chris Christie's fiscal record. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

How to Cut Taxes and Fund Infrastructure

Stefan Folster - April 23, 2015

We hear a lot about public debt. But we rarely discuss public wealth: the corporations, financial institutions, land, buildings, infrastructure, and so on that governments own and profit from. Better management of this wealth could pay off handsomely — if only we approached the problem the right way, placing these assets under professional management away from the influence of politicians.

In the U.S., for every 1 percentage point increase in yield from the federal government's asset portfolio, general taxes could be lowered by 4 percent. Worldwide, professional management of public commercial wealth among central governments could easily raise returns by as much as 3.5 points, to generate an extra $2.7 trillion. This is more than the total current global spending on national infrastructure — for transport, power, water, and communications combined. This alone should make every individual citizen, taxpayer, investor, financial analyst, and stakeholder stand up and pay attention. And it should spur demand for action.

More than 25 percent of all land in the U.S. is owned by the federal government. Along with all this land, it holds buildings with a book value of $1.5 trillion. In addition, state and local government assets amount to $6 trillion. The U.S. Bureau of Economic Analysis calculates that the value of nonfinancial public assets in the U.S., as a whole, was equal to 74 percent of GDP in 2011.

Many assets could perform far better than they do currently, or be sold when fully developed. The U.S. General Accounting Office (GAO) has noted that the federal government has "many assets it does not need," including billions of dollars' worth of excess or vacant buildings.

Consider also the U.S. Army Corps of Engineers, a federal agency that builds and maintains the infrastructure for ports and waterways. Most of the agency's $5 billion annual budget goes to dredging harbors and investing in controlling waterway locks and channels, as on the Mississippi River. In addition, the Corps is the largest owner of hydroelectric power plants in the country and manages 4,300 recreational areas, funds beach replenishment, and upgrades local water and sewer systems. Congress has used the Corps as a "pork barrel" spending machine for decades. Funds are earmarked for low-value projects in important members' congressional districts, while high-value projects go unfunded.

Another example is Amtrak, a publicly owned entity operated and managed as a for-profit corporation. Amtrak operates a 22,000-mile nationwide passenger railroad service. Amtrak's long-haul routes are deeply unprofitable, and if they were canceled, Amtrak would serve just 23 states, down from the current 46. But support from only 23 states is not enough for Congress to keep providing any subsidies, so the cuts never happen. State ownership, in other words, has perverted the democratic process.

There are many other underperforming assets as well, including Fannie Mae and Freddie Mac, which buy and securitize mortgages; the Department of the Interior, which oversees approximately 260 million acres of land, some of it oil-rich; and the Tennessee Valley Authority and four Power Marketing Administrations, which sell power in 33 states.

How to address the problem? Transparency is a good first step. The U.S. has no central registry of either federal, state, or local government assets. As long as government ownership stays murky, it is easier for government institutions to distribute favors without scrutiny. With a consolidated understanding of the value and breakdown of the portfolio of public commercial assets, it is not difficult to improve the yield, be it of government-owned firms, real estate, productive forests, or other public assets that provide some kind of income stream.

Another worthwhile measure would be to require the government to sell or redevelop high-value properties, consolidate space, and dispose of unneeded assets. According to the Office of Management and Budget, such a process could generate $15 billion in revenue from property sales within the next ten years; additional savings would come from reduced federal spending on leases, energy, and maintenance.

But to truly manage these resources effectively, a more ambitious approach is needed. This debate often boils down to a fight over ownership, but that is not always the right answer — in fact, the process of privatization itself offers tempting opportunities for quick enrichment, risking crony capitalism, outright corruption, counterproductive regulations, and selling assets at big discounts to placate vested interests. Instead, governments can combine public ownership with private-sector management techniques, and sell assets only when fully developed and as part of a well thought-through business plan.

Most governments have already outsourced the management of monetary and financial stability to independent central banks, and passed control of pension funds to professional fund managers. Following this lead, establishing a more professional solution for our public commercial assets is the logical next step. The U.S. should set up a National Wealth Fund (NWF) for the federal government, as well as similar funds — regional, state, and urban wealth funds — at lower levels of government.

An NWF is a ring-fenced corporate vehicle owning all commercial assets at arm's length from short-term political influence. NWFs enable transparency, and their debt ratings enable independent borrowing that optimizes capital structure and maximizes value. Public listing is also possible, providing the ultimate form of transparency while broadening the shareholder base and potentially maximizing value to the taxpayer.

The economic benefits of consolidating all commercial assets into a single company stem from the ability to structure an integrated business plan for the entire portfolio, without constraints on necessary actions to maximize value. This has important scale effects, with lower transaction and operational costs, and enables the portfolio to be developed and (when desired) privatized more efficiently. In addition, when politicians relinquish direct access to public wealth, they can focus solely on issues concerning individual citizens and the economy as a whole.

Our common resources are limited. It is therefore imperative that they are managed responsibly. Recognizing these vast resources and reforming our approach to public wealth is a financial and social enterprise with a huge upside for public finances, democracy, and the ongoing battle against corruption.

Dag Detter is an adviser to investors in Europe and Asia, specialized in identifying underperforming, high-potential assets. Stefan Fölster is the managing director of the Reform Institute, a market-oriented think tank in Stockholm. This piece is adapted from their forthcoming book The Public Wealth of Nations: How Management of Public Assets Can Boost or Bust Economic Growth.

A Bipartisan Breakthrough on Trade

Pinar Cebi Wilber - April 23, 2015

Washington, D.C., witnessed a rare but welcome event this week when Republican leaders decided to back President Obama's request for "fast track" trade authority. This would establish negotiating guidelines for the president and guarantee him an up-or-down vote in Congress on any trade deal he signed.

This in no way means that the fight is over. Just yesterday, Senator Bernie Sanders (I., Vt.) managed to force a delay in the Senate's consideration of the fast-track bill. Labor and environmental groups vow to fight any further action with all they've got. Still, the rare collaboration between the president and the Republican Party is something to celebrate.

Economic growth has been weak lately, both in emerging markets and in developed countries. Recently, IMF economists forecasted lower growth through 2020 due to deteriorating productivity levels and aging workforces around the world. The U.S. is not doing much better. The domestic economy is still dealing with the mess that was left by the Great Recession. Low domestic investment and productivity levels are raising concerns among policymakers.

It is obvious that we need a jolt to put everything back on track. A number of trade deals that are currently being negotiated could just do that. Economic research undertaken by different groups shows that both the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) could have wide-ranging positive effects on the countries involved. For example, TPP, whose negotiating parties represent 40 percent of total U.S. trade in goods and 25 percent of total U.S. trade in services, could increase global annual income by $295 billion ($78 billion for the U.S.) in 2025, according to Peterson Institute. If this agreement leads to a wider free-trade agreement in the Asia-Pacific Region, the global economic gain will be much larger.

Labor unions are vehemently opposed to trade deals, citing the possibility of job losses or lower domestic wages. However, the Bureau of Labor Statistics used to track the primary causes of all extended mass layoffs. (The measure was discontinued due to budget cuts.) Between 2001 and 2010, less than 2 percent of total involuntary displacement was associated with import competition or overseas relocation. On the other hand, Department of Commerce Data show that exports supported 11.3 million jobs in 2013 — equal to about 8 percent of total nonfarm employment that year. Furthermore, evidence shows that companies that have access to international markets invest heavily in technology and capital, increasing their labor productivity and their wages. According to David Riker, on average, exports contribute an additional 18 percent to workers' earnings in the U.S. manufacturing sector.

Some say these are just numbers and ignore the human side of the story. While it is true that there might be some job loss, this is more reason for both sides to work together. This week's deal was a testament to that. Both sides agreed on expanded trade-adjustment assistance to help workers in service and manufacturing sectors, whose jobs might be displaced by trade. In addition, for the first time, human-rights issues were part of the 150 negotiating objectives laid out by Congress for the president and the U.S. trade representative. If the outcome of the trade negotiations is not satisfactory, Congress still has the final vote. But at the very least, giving the president fast-track authority strengthens the administration's position during the bargaining process and shows a unified front for American politics abroad. It also reinforces the U.S.'s strong support for free trade.

Then there is another human side of the story: the impact on developing nations. As eloquently stated by former EU trade commissioner Karel De Gucht, "One thing is for sure: No country has ever lifted itself out of poverty without international trade." According to the latest estimates, 17 percent of people in the developing world lived on $1.25 a day or less. Access to international markets, either to sell their products or to purchase cheaper products, is paramount to economic growth and increased living standards in many of these developing countries.

It is the hope of many in Washington, D.C., that this collaboration between President Obama and Republican leaders is the first of many bipartisan agreements. The benefits to U.S. jobs and economic growth, not to mention our competitiveness and our standing in the growing global economy, are obvious.

Pınar Çebi Wilber is a senior economist for the American Council for Capital Formation, a nonprofit, nonpartisan organization promoting pro-capital formation policies and cost-effective regulatory policies.

Is 'Innovation Policy' an Oxymoron?

Robert D. Atkinson - April 22, 2015

Where does innovation come from? In one view, it's something that just happens naturally in any society. In another, it's something more individualized and unpredictable, a magic that springs forth from the minds of creative iconoclasts in places like Silicon Valley.

These two prevailing views of innovation are wrong, or at least incomplete, and their errors have significant implications for the role of government. If innovation were a constant, or something that emerged full-blown from the minds of creative entrepreneurs, there would be little for government to do. But in fact, it comes from organizations assembling resources and working together to solve problems.

Indeed, the innovation consultancy Doblin has found that by applying a rigorous, formalized innovation process, enterprises can achieve up to a seven-fold increase in their innovation success rate. And frequently, a single enterprise working in isolation is not enough: U.C. Davis professor Fred Block has found that approximately two-thirds of the best U.S. innovations now involve some kind of inter-organizational collaboration with other firms, government agencies, federal laboratories, and research universities.

Because innovation is a process and a discipline, there is a vast array of things government can and should do to encourage it. It's time for our nation to rally around solving a few big challenges — like the development of low-cost, low-carbon energy sources, affordable robotics, and a cure for Alzheimer's and other chronic diseases — the way President Kennedy did with putting a man on the moon.

Governments can ensure that organizations — from startups to major global corporations — have access to needed innovation inputs, such as a skilled workforce and scientific and technological knowledge. This means providing workforce training and expanding the immigration of scientists and engineers, as well as funding university research, where the U.S. now ranks just 24th in the OECD. Government also needs to ensure an adequate legal, regulatory, and trade environment, taking steps not only to fully fund regulatory agencies, but also to ensure that regulation is smart and limited and does not squash innovation.

An effective innovation policy also includes things like a permanent and much more generous R&D tax credit (the U.S. R&D credit is an abysmal 27th in the world in generosity), programs to help small and mid-sized manufacturers adopt new technology, and funding public-private research partnerships in key technologies (such as advanced batteries, robotics, and artificial intelligence) and key industries (like semiconductors, aerospace, IT, and life sciences). And we should also copy over 20 other nations around the world and create a National Innovation Foundation, akin to the National Science Foundation, but with a mission to help organizations and entrepreneurs turn ideas into innovations.

Accelerating innovation also entails focusing on how technology can transform government and government-related industries like education, health care, and transportation. This means that Congress should task each major federal agency with developing action plans for the particular industries they are involved with. For example, the Department of Housing and Urban Development should develop an action plan to support innovation in the construction industry, and the Department of Transportation should develop a plan to spur the adoption of intelligent transportation systems.

Innovation policy need not be a left-right issue, although Washington's hyper-partisan environment makes it one. Too many liberals buy into the incorrect notion that almost all the gains from innovation have gone to the "1 percent," and therefore either oppose or ignore federal policies like the ones above. Too many conservatives buy into the incorrect notion that maximizing innovation is simply about unleashing the private sector from government shackles, and therefore oppose expanded R&D tax incentives and funding of public-private technology programs.

In short, if America is to thrive through innovation, policymakers need to recognize that the forces for innovation that come from all parts of the system, including from smart government policies, and support those forces. Indeed, accelerating the rate of innovation is the most important thing they can do when it comes to economic policy.

Robert Atkinson is founder and president of the Information Technology and Innovation Foundation, a technology-policy think tank in Washington, D.C.

Think Licensing Laws Are Unfair? It Gets Worse

Timothy Sandefur - April 21, 2015

The historian James Truslow Adams first coined the phrase "the American Dream" in 1931, to describe Americans' long-standing "belief in the common man and the insistence upon his having, as far as possible, equal opportunity in every way with the rich one." Central to that dream is the chance to start a business for oneself, be one's own boss, and maybe even make a fortune.

Sadly, eight decades later, licensing laws often block people from earning a living or starting new businesses, simply to protect politically powerful companies from competition. Licensing requirements are supposed to ensure that professionals, such as doctors or pharmacists, are qualified and honest — but these laws often do nothing more than create cartels, block the path to economic opportunity, and raise prices for consumers.

Most egregious are laws that require a type of license called a Certificate of Need (CON). Unlike ordinary licenses, CON laws do not require a person to be qualified. Instead, they prohibit anyone from starting a business if the community doesn't "need" it — which means, in reality, if the existing companies don't want competition. That may sound crazy, but it's the law in most states, and it applies to a wide variety of industries — everything from moving companies to taxi businesses to hospitals and even car dealerships.

Any entrepreneur who applies for a CON must first notify all the established firms and allow them to object to his application. The objections need not show that the newcomer is unqualified or dishonest — simply that he would increase competition. And whenever an objection is filed, the applicant must hire a lawyer and attend a hearing, to prove to bureaucrats that a new business is "needed."

It's doubtful that government officials — who typically don't conduct market research — can predict what sort of businesses are "needed," but it gets worse: Most CON laws leave it up to bureaucrats to define "need." The whole process can be expensive and time-consuming, since hiring a lawyer is a big cost for a business just starting out, and there's no way to ensure one will get a license.

Economists have long warned that when government can block economic competition or redistribute wealth, that power becomes a prize in a political contest — a contest in which experienced lobbyists have the advantage over unknown entrepreneurs.

In my new paper published by the Mercatus Center, I explain how CON laws restrict economic opportunity — not to protect the public, but to benefit existing businesses that know how to manipulate the system. I focus on the case of Raleigh Bruner, who tried to start a moving business in Kentucky but didn't have the required CON. In the five years before his company started, 19 applicants for CONs had been protested by movers who openly admitted that they objected solely to block competition. Knowing a hearing would be expensive and take months to resolve, all but three of the 19 applicants simply abandoned their applications or bought CONs from existing companies. (The existing companies never objected to that.)

The three applicants who persisted were refused CONs, regardless of their qualifications, because bureaucrats deemed current moving services "adequate." In one case, officials refused to issue a CON to a man who had been in the business for 35 years, even though the same companies that protested against him testified that he would "make a great mover."

The Constitution's guarantee of "due process of law" prohibits states from using licensing laws solely to benefit cronies. That guarantee, as the Supreme Court has explained, "forbids arbitrary deprivations of liberty," but a law that blocks some people from practicing a trade merely to increase the profits of those with more political clout arbitrarily violates the right of those less privileged to earn a living. That's why the Court declared in 1957 that licensing laws "must have a rational connection with the applicant's fitness or capacity to practice" the trade. My colleagues at the Pacific Legal Foundation and I sued on Bruner's behalf, arguing that Kentucky's CON law deprived him of his constitutional right to earn a living. Last February, a federal judge struck down the law, labeling it a "Competitor's Veto" that allowed established firms to "essentially 'veto' competitors ... for any reason at all, completely unrelated to safety or societal costs."

That victory was only the first step. As part of our nationwide campaign against Competitor's Veto laws, my colleagues and I are now challenging CON requirements in Montana, Nevada, and other states, and previous cases persuaded Oregon and Missouri to repeal similar restrictions. Such laws make no pretense at protecting the public; they exist to protect businesses who don't want to compete economically and want to outlaw entrepreneurship instead.

Yet entrepreneurship is central to the American Dream, and to the Constitution's guarantee of liberty. Abolishing unjust and unconstitutional Competitor's Veto laws would be an important step toward vindicating our nation's promise of equal opportunity for the common man.

Timothy Sandefur is a principal attorney at the Pacific Legal Foundation, and author of a new working paper, "State 'Competitor's Veto' Laws and the Right to Earn a Living: Some Paths to Federal Reform," published by the Mercatus Center at George Mason University.

A Double Standard for the Poor?

Robert VerBruggen - April 17, 2015

In recent years, states have been making efforts to police the behavior of welfare recipients  drug-testing them, trying to stop them from buying steak, etc. Many across the political spectrum (including yours truly) regard these efforts with deep suspicion: Micromanaging the lives of the poor is a dubious endeavor, and in many cases there's little evidence the targeted behaviors are a big problem anyway.

Some on the left, though, are throwing in a more problematic talking point. Here it is in the Washington Post today:

We rarely make similar demands of other recipients of government aid. We don't drug-test farmers who receive agriculture subsidies (lest they think about plowing while high!). We don't require Pell Grant recipients to prove that they're pursuing a degree that will get them a real job one day (sorry, no poetry!). We don't require wealthy families who cash in on the home mortgage interest deduction to prove that they don't use their homes as brothels (because surely someone out there does this).

True. But we also don't require welfare recipients to farm, show they're making satisfactory academic progress at a participating college, or take out mortgages, which are things we require of people who get the other perks. So the Post's next sentence  "The strings that we attach to government aid are attached uniquely for the poor"  isn't quite right. Yes, each aid program has a unique goal and its own set of strings, but they all have strings, and many exist for the sole purpose of encouraging a specific behavior the government likes. Further, many of the Post's examples merely highlight the tradeoffs we face in making the rules stricter — strict rules can save money, but they can also be absurd or expensive to enforce. (For the record, I'd endorse stricter Pell Grant restrictions but not routine prostitution inspections.)

One might plausibly say that, since the goal of welfare is to lift people out of poverty and (ideally) into self-sufficiency, we should make sure welfare recipients aren't doing things that are likely to keep them poor. You might disagree; I tend to as well. But this is not somehow wildly out of step with the measures we take with other government subsidies. It is not unusual for a subsidy to be a reward for a desired behavior  available only to those who do what the government wants, to the government's satisfaction.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Growing Up in the Shadow of Wealth

Candice Odgers, The Conversation - April 17, 2015

One of New York City's newest luxury apartment buildings recently started accepting applications for low-income renters who will use a controversial "poor door" — a separate entrance from their wealthier neighbors who pay the full monthly rate.

Meanwhile, in Great Britain, some apartment buildings also require rich and poor residents to use separate entrances. A resident of one such building recently told the Daily Mirror she has "...never felt poorer in my life because of the way we're kept apart."

As this controversy illustrates, mixing the rich and poor sounds simple in theory, but can raise a number of complications. And the problem isn't limited to which door people enter. While economically mixed communities can offer safety, better living conditions and better schools, a growing body of research suggests they can also adversely affect low-income residents.


A Study of Contrasts
Mixed-income housing has become a key aspect of public housing policy in both the US and the UK. In many cities, the towering, crumbling project complexes of the 1960s and 1970s  areas of highly concentrated crime and poverty  have been demolished and replaced by mixed-income developments, where poorer residents live in close proximity to wealthier tenants. Over the past 20 years, upwards of $6 billion has been allocated for developing mixed-income housing through the US Housing and Urban Development's HOPE VI (Housing Opportunities for People Everywhere) program.

But what's the impact of growing up on the poorer end of the spectrum?

In a recent study, my colleagues and I tested whether low-income children would benefit from living alongside more affluent neighbors.

We analyzed data from 1,600 children in urban and suburban areas of England and Wales, following the children and their families from birth to age 12. We conducted intensive home assessments, surveyed teachers and neighbors, and collected census information and parent reports. We also used Google Street View images to gauge neighborhood conditions within a half-mile radius of each child's home.

We found that low-income boys living alongside more affluent neighbors engaged in more antisocial behavior than their low-income peers who lived in concentrated poverty. The behaviors included lying, cheating, stealing and fighting. (For low-income girls, growing up alongside more affluent neighbors had no effect on behavior.)

Other researchers have arrived at similar results. University of Texas sociologist Robert Crosnoe tested how thousands of low-income children across the United States fared when attending schools with students of varying economic backgrounds.

He found that when low-income students attended schools with more students from middle- and high-income families, they did worse in math and science and experienced more mental health problems. Low-income minority children fared even worse while enrolled in schools with wealthier peers.


A Remedy That Comes With Costs
Without an experimental study, it's impossible to say that exposure to more affluent neighbors or peers caused low-income children to fare worse.

Beginning in 1994, the US Department of Housing and Urban Development's Moving to Opportunity Study has tried to overcome the problem of a lack of an experimental study by randomly assigning housing vouchers that allowed families to move out of high-poverty neighborhoods.

The long-term evaluation of this experiment tells a similar story. Ten to fifteen years later, boys in families that were offered the housing vouchers suffered from higher rates of mental health problems and engaged in more antisocial behavior. In contrast, girls given the chance to move out of their high-poverty neighborhoods reported improved mental health and increased feelings of safety.

Criminologists offer one explanation for these findings: in mixed-income communities, there are greater opportunities for certain types of crime (such as theft), as high-value targets are more visible. However, a more widely held belief is that individuals who occupy lower positions in a community suffer due to unfavorable upward social comparisons. They're also often discriminated against  judged and treated poorly by those further up the social ladder. This can result in poorer health and antisocial behavior among low-income residents.

The story for girls has been more complicated. There's some evidence that low-income girls may not be as strongly influenced by neighborhood factors as they spend more time at home and less time in the community than boys do. They're often more closely monitored by their parents.

These findings do not mean that economically mixed neighborhoods are a bad thing for boys, or that the rich and poor should live apart. Economically mixed communities may be rightfully viewed as a socially just remedy to growing inequalities.

However, the findings do remind us of the need to check our hopeful assumptions about mixed-income communities against objective data, and that additional supports may be needed for low-income children to thrive in these settings. At the very least, economically mixed communities should include shared physical spaces that foster a sense of belonging among residents, versus separate entrances for the poor.

We know that growing up in poverty is toxic for children; but entering through the "poor door" may also exact a toll.


Candice Odgers is an associate professor of public policy and psychology and neuroscience at Duke University. She received funding from the William T. Grant Foundation, the National Institute of Child Health and Human Development, the Economic and Social Research Council and Google to support the completion of this work. 
This article was originally published on The Conversation. Read the original article.

The Conversation

All Pay Raises Are Not Created Equal

Brian Brenberg - April 16, 2015

Protestors in over 100 U.S. cities gathered yesterday to call for a $15 federal minimum wage. Already this year, 14 states and several major cities, including Chicago, Oakland, San Diego, San Francisco, and Seattle, have increased their minimum wage. Meanwhile, a tighter labor market driven by stronger economic growth has led several companies, including Walmart and McDonald's, to promise wage increases for hundreds of thousands of employees.

On the surface, both scenarios look like a win for workers. But dig a little deeper and you'll find that not all pay raises are created equal. Rising wages driven by a growing economy mean more opportunity for both businesses and job seekers. But when politics is behind a pay increase, nobody wins unless someone else loses.

Some of the minimum-wage increases we have seen this year have been relatively small. For example, Washington indexes its minimum wage to a cost-of-living index, and so the minimum wage increased by only 1.6 percent. Because the increase is so small, it's unlikely to make a big difference to most workers, and it's unlikely to reduce employment much in the short term, since it may be more costly for businesses to substitute technology for labor than it is to just pay higher wages.

But not all of this year's minimum-wage increases were so mild. For example, when fully implemented, San Francisco will increase its minimum wage by $3.95, nearly a 36 percent increase. This dramatic increase has caused small businesses and local restaurants to either decrease their workforces, increase menu prices, or exit the market entirely. It's the outcome most economic research would predict: a large increase in the minimum wage reduces employment opportunities among the least skilled and reduces hiring rates.

The fact that smaller businesses have been disproportionately affected is predictable, as larger firms have the resources and flexibility to cope with a sudden increase in input costs. This also helps explain why many large businesses are vocal supporters of higher mandated minimum wages, since it eliminates their smaller competitors. Increasing inequality between small and large firms is probably not the effect minimum-wage proponents were aiming for.

Compare these cases of politically driven wage increases to what's happening with Walmart and McDonald's.

In February, Walmart announced it would increase its starting hourly wage to $9 an hour and raise the hourly wage of all current workers to $10 an hour by next year, affecting the wages of 500,000 workers. This action was voluntary and a result of real business needs. As the economy grows, competition for workers intensifies, which means Walmart must offer competitive wages or risk losing existing and potential employees to rivals. Even though Walmart has a market capitalization of $260 billion and is the largest private employer in the United States, it cannot escape competitive forces.

The same holds true for McDonald's, the nation's third-largest private employer. On April 1, McDonald's promised it would pay each of its 90,000 workers in company-owned restaurants at least $1 more than the locally mandated minimum wage. In recent years, McDonald's has struggled with low employee morale and customer dissatisfaction. Paying higher wages is one part of the company's attempt to retain and attract employees, improve service, and win back customers in the face of growing competitive threats from Chick-fil-a, Shake Shack, Chipotle, and others.

In a growing economy where market forces drive higher wages, both employers and job seekers can win. Employers see a chance to expand their business and offer higher wages to retain and attract the talent they need. As a result, opportunities for workers multiply, putting them in a position to negotiate better compensation. Unlike the acrimonious minimum-wage debates of recent years, there's no pitting business against labor. And there's none of the negative employment effects we see with the minimum wage.

For too long, the wage debate in the United States has been about taking from one side and giving to the other. That's what's bound to happen when an economy grows slowly, which has been the case in the United States for the better part of seven years. But pay is beginning to rise all over the country, not because of political pressure, but because businesses see opportunity. If our policymakers are really fans of higher wages, the best thing they can do is get out of the way.

Jared Pincin is an assistant professor of economics and Brian Brenberg is chair of the Business and Finance Program at the King's College in New York City. 

Returning to the Exurbs

Teresa Wiltz, Stateline - April 16, 2015

Dawsonville, Ga. — Winding up Route 400, a good 40 minutes' north of Atlanta's traffic-snarled freeways, are miles of farmhouses, interspersed with mobile homes, McMansions and thrift shops. Here, too, is Dawson County's biggest draw: The North Georgia Premium Outlets, where tourists hunt for bargains at Burberry, Armani and Restoration Hardware.

Despite the designer outlets, the vibe is decidedly rural Americana. Tractors chug the roads. Masonic symbols emblazon the county government building. It's a "small town feel" that Ginny Tarver says drew her to the area from Naples, Florida, to get married and work as an executive  assistant in the county building.

Dawson is one of the fastest growing counties in Georgia and reflects a demographic shift in the nation: a return to exurbia. New census data show that for the first time since 2010, the outermost suburban counties are growing faster than urban counties and close-in suburbs, according to analysis by the Brookings Institution. People are moving back to the exurbs, some for jobs, others for bigger and more affordable homes in a more wide-open space.

"Once the economy improved, exurbs started growing," said Joel Kotkin, presidential fellow in urban futures at Chapman University. "Basically, the recession did not revolutionize human beings. As they get older, they want to own something and they want to do it with some degree of privacy. If they can do it closer to work, they do it, but the vast majority of jobs aren't in the cities."

A decade ago, the exurbs were the hot thing in real estate. Between 2005 and 2006, the peak growth period for exurbs, urban counties lost over 1.3 million people as people left for the far reaches in surrounding counties.

Young professionals in search of more affordable housing gravitated there, lured by sprawling subdivisions. Exurbs gained about 146,000 new residents through domestic migration, according to William Frey, a senior fellow at the Brookings Institution, who analyzed the new Census Bureau population estimates for counties and metro areas, which were released on March 26.

But when the housing bubble popped, so did the population growth in the outer ring suburbs. Easy credit disappeared while gasoline prices skyrocketed, making lengthy commutes unattractive. People, particularly young people, couldn't afford to move, and so they didn't, Frey said.

"There was overbuilding in the suburbs and exurbs" before the housing bubble collapsed, Frey said. "That was one extreme. Then we saw the other extreme, when everything stopped in the exurbs."

But now, exurbia is showing signs of rejuvenation, Frey said. "People are able to qualify for (mortgage loans for) homes; they're willing to take on the risk of a mortgage. Developers see that. It's a matter of supply and demand."


Migrating Millennials
The U.S. has always been a nation of movers. For decades, about one in five people moved over a one year period, according to the U.S. Census Bureau. Today, about one in nine moves each year.

Typically, young adults age 18 to 34 are the ones loading the U-Haul trucks, according to the census. But the Great Recession, which technically ended in 2009, stalled life transitions for many millennials who found themselves shut out of the job market and stuck in their parents' basements, Frey said. Without stable job prospects and saddled with student loans, many young adults delayed marriage and parenthood. Buying a house became a dream deferred.

In the immediate aftermath of the recession, the number of young adults packing up and moving declined, according to the Census.

During that time, demand for suburban houses was low and they weren't being built, Frey said. Meanwhile, cities grew. Between 2010 and 2013, the average annual growth rate for cities nearly doubled the rate of the previous decade, he said. During that time, cities with more than 250,000 people saw their populations increase more than 1 percent a year. The fastest growing were Washington, D.C., Denver, Seattle, Austin and Charlotte, North Carolina. Demographers declared the exurbs dead.

But between 2013 and 2014, core urban communities lost 363,000 people overall, as migration increased to suburban and exurban counties, according to Frey.

The small but significant growth of the exurbs indicates that the housing market may be rebounding, Frey said. "People said millennials wanted to live in cities, close to cool jazz clubs. But young people might have settled in a city because they had no place to go." Frey said. "It's too soon to say how much of this is changing preferences — and how much of it is the economy."


The Lure of the Exurbs
The return of the exurbs comes as no surprise to Joel Garreau, who wrote about the rise of the new urban centers in his 1991 book, "Edge City: Life on the New Frontier."

"What you saw before the crash is now coming back with a vengeance after the crash. This is not a blip," said Garreau, the professor of law, culture and values at the Sandra Day O'Connor College of Law at Arizona State University. "The core question for states is, ‘What's the future of my town or my city?' "

Historically, where we choose to live is driven by the technological advancements of the day, according to Garreau, from the advent of boats, to railroads, to jet planes to the World Wide Web. With cellphones, WiFi and Amazon.com, workers no longer need to be confined to one place. Professionals with certain skills could work and live where they wanted — and the world would come to them in the guise of a brown UPS truck.

But to call these rural hot spots "exurban," Garreau said, is missing the point. As he sees it, today's urban exiles aren't looking for a lengthy commute from the far suburbs to a downtown office. They're seasoned professionals with big incomes who've grown tired of the urban rat race, he said. They're looking to completely eradicate the notion of commuting to work and toiling from 9 to 5. Rich greenery and wide-open vistas are a must.


But not just any exurb will do.

"We can find places that are fabulous and have mountains and streams and we can get anything delivered to us," he said. "But we're still craving community. The places that are good for face to face contact will thrive. The ones that won't will die. You've got to create a place that will give you a reason to get out from behind your computer screen and interact with real life, flesh and blood human beings."

Case in point: Santa Fe, New Mexico, a remote town of about 70,000 that became the darling of urban expats in the early parts of the last century, thanks to its beautiful mountain vistas and pueblo-style architecture. Artists (such as Georgia O'Keefe) and nuclear scientists alike came for a visit and decided they never wanted to leave. Today, Santa Fe is a foodie haven, home to a world-class opera, a booming arts scene and quirky shops. Other exurban outposts looking to establish themselves could learn from this "Santa Fe effect," Garreau said. "You've got to give them a reason to stay."

Mike Berg, chairman of the Dawson County Board of Commissioners, said he's very aware of this. Research commissioned by the county found that Dawson's population would nearly quadruple over the next 20 years, from about 22,000 now to 100,000. To comfortably accommodate such an explosion, the county has to strengthen its infrastructure, especially when it comes to ensuring its water supply. (Georgia has been in a protracted water battle with neighboring Florida.)

To safeguard the county's future, Berg said, "We've got to make sure we have amenities that folks enjoy."  The county is unusual in that its tax base is heavily reliant on sales taxes rather than home property taxes. Several years ago, the county, along with four other local counties, was awarded a $38 million federal grant to expand fiber optics communications in the region, Berg said. Faster Internet helps businesses in the area — and appeals to telecommuters.

"The exurban group doesn't necessarily need a high-paying job or to feel like they're part of a massive community," Berg said. "They look to pockets like ours that have the amenities they need, but they're not as closed in."

When Tarver moved to Georgia to be with her husband, they never considered living in Atlanta. "We didn't want that hustly-bustly life," Tarver, 47, said. The exurbs suit her just fine. "When I drive to work, I don't have any stop signs," she said. "It's the prettiest drive."


This piece originally appeared at Stateline, where Teresa Wiltz is a senior staff writer.

Chuck Marr - April 14, 2015

The House is expected to consider a bill this week to repeal the federal estate tax on inherited wealth. This proposal would significantly increase budget deficits, widen wealth inequality, and benefit only the wealthiest Americans. And it comes just after House and Senate Republicans approved budgets that would make $5 trillion in budget cuts over ten years, with more than two-thirds of the cuts coming from programs focused on Americans with low or modest incomes.

Only the estates of the wealthiest 2 of every 1,000 people who die will owe the estate tax in 2015 under current law, largely because of its very generous tax-free exemption levels. The estate tax's reach is limited to the biggest estates.

Under repeal, the roughly 5,400 estates that would otherwise owe any tax in 2016 would get a tax cut averaging more than $3 million apiece, Joint Committee on Taxation (JCT) data show. The estimated 320 estates worth at least $50 million would receive tax windfalls averaging more than $20 million each.

The repeal bill also would leave in place a loophole in the capital-gains tax. Consider estates that are worth more than $100 million. More than half of their assets are in the form of unrealized — and untaxed — capital gains. Normally, capital gains are taxed when they are realized, but those who inherit these assets are given a "stepped-up basis," meaning that they are taxed only on gains that occur after the original owner died — and the gains that occurred earlier are never taxed at all. With estate tax repeal, wealthy individuals would be able to pass such assets along to succeeding generations without the gains ever having been subject to any tax.

The repeal bill is part of a long push by a well-organized, well-financed lobby to cut taxes on the wealthiest estates. Over the past two decades, policymakers have increased the amount of an estate that's exempt from the tax from $650,000 in 2001 to $5.43 million per individual (and $10.86 million per married couple), and cut the top tax rate from 55 percent to 40 percent.

And the effective rate of the tax — the portion of the value of a taxable estate that is actually paid in tax — is much lower than the top rate. The few estates that are taxable at all paid taxes equal to 16.6 percent of the estates' value, on average, in 2013. That's because of the high exemption level, coupled with provisions to protect farmers and small businesses and complex estate-planning methods that many wealthy estates use to reduce their tax liability.

Still, the estate tax is an important source of revenue for the federal government, raising funds for essential programs from health care to education to national defense. Repealing the tax would cost $269 billion in lost revenues from 2016 to 2025, according to JCT. The House legislation doesn't offset this cost; it just adds it to the deficit.

The estate-tax repeal proposal comes just after House and Senate Republicans passed budget resolutions that would make it harder for low-income people to secure adequate food for their families, for working-class children to afford to go to college, and for millions of Americans to afford to go to the doctor.

The proposed estate-tax repeal and the proposed budget cuts also come at a time when income and wealth in America have grown increasingly concentrated at the top. The wealthiest 0.1 percent of families — the main beneficiaries of estate-tax repeal — saw their share of the nation's wealth jump from 7 percent to 22 percent between 1978 and 2012. Large inheritances play a significant role in this wealth concentration, as they account for about 40 percent of all household wealth.

Estate-tax opponents have relied on two unsound arguments to make their case.

First, they argue that the estate tax threatens family-owned small businesses and small farms. But due to the generous exemptions already in law, only roughly 20 small businesses and small-farm estates in the entire United States owed any estate tax in 2013, according to the Tax Policy Center.

Second, estate-tax opponents argue that the estate tax hurts the economy. Yet the evidence indicates that the estate tax is economically sound. Rather, it is repealing the tax that would likely affect the economy adversely over time, because repeal would increase the deficit and thereby reduce the pool of saving available for private investment. (This would occur because a larger share of the nation's saving would have to go to finance the enlarged deficit.) Research also underscores that repeal would likely lead some wealthy heirs to work less.

Policymakers should reject legislation that would swell deficits and deepen inequality while providing no benefit to the vast majority of Americans.

Chuck Marr is the director of federal tax policy at the Center on Budget and Policy Priorities.

Chris Christie Takes On Entitlements

Michael Tanner - April 14, 2015

New Jersey governor and putative Republican presidential candidate Chris Christie will deliver a speech in New Hampshire today in which he will set out, according to his aides, a "detailed proposal to address our long-term entitlements crisis." The speech may or may not jump start Christie's stalled presidential campaign, but if it forces other candidates to address the issue, he will have already done the country an enormous favor.

The national debt has dropped out of the headlines recently, in part because the deficit has been declining. It was just six years ago that the federal budget deficit topped $1.4 trillion. This year, the Congressional Budget Office projects it will be just $486 billion.

But the reprieve is purely temporary. Starting as early as next year, the deficit will begin to rise once more. Within a decade, we will again experience annual shortfalls of $1 trillion or more.

All this profligacy adds up. If rising annual budget deficits represent year-to-year fiscal irresponsibility, the cumulative total of that irresponsibility is the federal debt, which has now reached almost $18.2 trillion. By 2025, the debt is expected to approach $27 trillion. After that it only gets worse.

Driving this debt is the massive growth of entitlement spending. Thanks in large part to sequestration, both defense and domestic discretionary spending are down. Domestic discretionary spending, in fact, accounts for just 15 percent of all federal spending. That represents just 3 percent of GDP, a historic low.

The simple truth is that there is no way to address America's debt problem without reforming entitlements, notably Social Security, Medicare, Medicaid, and our newest entitlement program, Obamacare. Social Security, Medicare, and Medicaid alone account for 46 percent of federal spending today, a portion that will only grow larger in the future. And while the spending for Obamacare has just begun, it too will soon consume an ever larger portion of the federal budget.

Social Security will run a $69 billion cash-flow deficit this year, a shortfall that will grow every year into the future. Altogether, Social Security is facing future shortfalls worth almost $25 trillion. The so-called Trust Fund is simply an accounting measure, specifying how much money the federal government owes the program out of general revenues, not an actual asset than can be used to pay benefits. At the same time, Social Security taxes are already so high that most young people will receive a rate of return far below historic market returns.

Medicare is in even worse financial shape. Even under the most optimistic scenarios, Medicare's future shortfall will approach $48 trillion. And if health inflation returns to previous levels, Medicare's long-term costs could be far higher.

Medicaid's financial problems are measured somewhat differently since the federal portion is funded entirely from general revenues. Nonetheless, the program will cost the federal governments almost $350 billion this year, and an additional $150 billion at the state level. Moreover, program costs are rising rapidly. Federal Medicaid costs are estimated more than double to $576 billion by 2025.

If one took a proper accounting of America's unfunded entitlement liabilities, our real debt is not $18 trillion, but an astounding $90.5 trillion. That's getting uncomfortably close to our being Greece.

Yet so far, Republicans have been surprisingly muted on the issue. Rand Paul has offered a five-year balanced-budget plan. Marco Rubio has written about Social Security reform. Jeb Bush has called for raising the retirement age and means-testing programs. Ted Cruz supports personal accounts for Social Security and raising the eligibility age for Medicare. And Scott Walker says vaguely that "long term, there's got to be some sort of entitlement reform." But no one yet has stepped up to make the issue their own.

Christie first came to national prominence because of his willingness to stand up to the public-employee unions and demand reforms to New Jersey state pensions. Reforming entitlements will take a similar willingness to fight powerful special interests. That makes it a natural fit for the pugnacious New Jersey governor and his blunt speaking style.

But it is also a crucial issue for the future of our country, one that all the candidates should be talking about a lot more. If Christie's speech is the opening salvo in a national debate about how to stem the coming tsunami of red ink, our children and grandchildren will thank him -- no matter what it means for his political future.

Michael Tanner is a senior fellow at the Cato Institute.

Wind Costs More Than You Think

Randy Simmons, The Conversation - April 13, 2015

As consumers, we pay for electricity twice: once through our monthly electricity bill and a second time through taxes that finance massive subsidies for inefficient wind and other energy producers.

Most cost estimates for wind power disregard the heavy burden of these subsidies on US taxpayers. But if Americans realized the full cost of generating energy from wind power, they would be less willing to foot the bill — because it's more than most people think.

Over the past 35 years, wind energy — which supplied just 4.4% of US electricity in 2014 — has received $30 billion in federal subsidies and grants. These subsidies shield people from the uncomfortable truth of just how much wind power actually costs and transfer money from average taxpayers to wealthy wind farm owners, many of which are units of foreign companies.

Financial advisory firm Lazard puts the cost of generating a megawatt-hour of electricity from wind at a range of $37 to $81. In reality, the true price tag is significantly higher.

This represents a waste of resources that could be better spent by taxpayers themselves. Even the supposed environmental gains of relying more on wind power are dubious because of its unreliability — it doesn't always blow — meaning a stable backup power source must always be online to take over during periods of calm.

But at the same time, the subsidies make the US energy infrastructure more tenuous because the artificially cheap electricity prices push more reliable producers — including those needed as backup — out of the market. As we rely more on wind for our power and its inherent unreliability, the risk of blackouts grows. If that happens, the costs will really soar.

Where the Subsidies Go
Many people may be familiar with Warren Buffet's claim that federal policies are the only reason to build wind farms in the US, but few realize how many of the companies that benefit most are foreign. The Investigative Reporting Workshop at American University found that, as of 2010, 84% of total clean-energy grants awarded by the federal government went to foreign-owned wind companies.

More generally, the beneficiaries of federal renewable energy policies tend to be large companies, not individual taxpayers or small businesses. The top five recipients of federal grants and tax credits since 2000 are: Iberdrola, NextEra Energy, NRG Energy, Southern Company and Summit Power, all of which have received more than $1 billion in federal benefits.

Iberdrola Renewables alone, a unit of a Spanish utility, has collected $2.2 billion in federal grants and allocated tax credits over the past 15 years. That's equivalent to about 6.7% of the parent company's 2014 revenue of $33 billion (in current US dollars).

President Obama's proposed 2016 budget would permanently extend the biggest federal subsidy for wind power, the Production Tax Credit (PTC), ensuring that large foreign companies continue to reap most of the taxpayer-funded benefits for wind. The PTC is a federal subsidy that pays wind farm owners $23 per megawatt-hour through the first ten years of a turbine's operation. The credit expired at the end of 2013, but Congress extended it so that all projects under construction by the end of 2014 are eligible.

In all, Congress has enacted 82 policies, overseen by nine different agencies, to support wind power.

I explained in December why Congress shouldn't revive the PTC, which expired at the end of 2014. In this article, I'm adding up the true cost of wind power in the US, including the impact of the PTC and other subsidies and mandates. It's part of a study I'm doing of other energy sources including solar, natural gas, and coal to determine how much each one actually cost us when all factors are considered.

 


Tallying the True Costs of Wind
Depending on which factors are included, estimates for the cost of wind power vary wildly. Lazard claims the cost of wind power ranges from $37 to $81 per megawatt-hour, while Michael Giberson at the Center for Energy Commerce at Texas Tech University suggests it’s closer to $149. Our analysis in an upcoming report explores this wide gap in cost estimates, finding that most studies underestimate the genuine cost of wind because they overlook key factors.

All estimates for wind power include the cost of purchasing capital and paying for operations and maintenance (O&M) of wind turbines. For the studies we examined, capital costs ranged from $48 to $88 per megawatt-hour, while O&M costs ranged from $9.8 to $21 per megawatt-hour.

Many estimates, however, don't include costs related to the inherent unreliability of wind power and government subsidies and mandates. Since we can't ensure the wind always blows, or how strongly, coal and natural gas plants must be kept on as backup to compensate when it's calm. This is known as baseload cycling, and its cost ranges from $2 to $23 per megawatt-hour.

This also reduces the environmental friendliness of wind power. Because a coal-fired or natural gas power plant must be kept online in case there's no wind, two plants are running to do the job of one. These plants create carbon emissions, reducing the environmental benefits of wind. The amount by which emissions reductions are offset by baseload cycling ranges from 20% to 50%, according to a modeling study by two professors at Carnegie Mellon University.

While the backup plants are necessary to ensure the grid's reliability, their ability to operate is threatened by wind subsidies. The federal dollars encourage wind farm owners to produce power even when prices are low, flooding the market with cheap electricity. That pushes prices down even further and makes it harder for more reliable producers, such as nuclear plants, that don't get hefty subsidies to stay in business.

For example, the Kewaunee Nuclear Plant in Wisconsin and the Yankee Nuclear Plant in Vermont both switched off their reactors in 2013. Dominion Energy, which owned both plants, blamed the artificially low prices caused by the PTC as one of the reasons for the shutdown.

As more reliable sources drop off and wind power takes their place, consumers are left with an electrical infrastructure that is less reliable and less capable of meeting demand.


Lost in Transmission
Another factor often overlooked is the extra cost of transmission. Many of America's wind-rich areas are remote and the turbines are often planted in open fields, far from major cities. That means new transmission lines must be built to carry electricity to consumers. The cost of building new transmission lines ranges from $15 to $27 per megawatt-hour.

In 2013, Texas completed its Competitive Renewable Energy Zone project, adding over 3,600 miles of transmission lines to remote wind farms, costing state taxpayers $7 billion.

Although transmission infrastructure may be considered a fixed cost that will reduce future transmission costs for wind power, these costs will likely remain important. Today's wind farms are built in areas with prime wind resources. If we continue to subsidize wind power, producers will eventually expand to sub-prime locations that may be even further from population centers. This would feed demand for additional transmission projects to transport electricity from remote wind farms to cities.


The Final Bill Comes To ...
Finally, federal subsidies and state mandates also add significantly to the cost, even as many estimates claim these incentives actually reduce the cost of wind energy. In fact, they add to it as American taxpayers are forced to foot the bill. According to Giberson, federal and state policies add an average of $23 per megawatt-hour to the cost of wind power.

That includes the impact of state mandates, which end up increasing the cost of electricity on consumer power bills. California is one of the most aggressive in pushing so-called Renewable Portfolio Standards (RPS), requiring the state to consume 33% of its electricity from renewables by 2020. Overall electricity prices in states with RPS are 38% higher than those without, according to the Institute for Energy Research, a non-profit research group that promotes free markets.

The best estimate available for the total cost of wind power is $149 per megawatt-hour, taken from Giberson's 2013 report.

It is difficult to quantify some factors of the cost of wind power, such as the cost of state policies. Giberson's estimate, however, includes the most relevant factors in attempting to measure the true cost of producing electricity from wind power. In future reports, Strata will explore the true cost of producing electricity from solar, coal, and natural gas. Until those reports are completed, it is difficult to accurately compare the true cost of wind to other technologies, as true cost studies have not yet been completed.


Blowing in the Wind
The high costs of federal subsidies and state mandates for wind power have not paid off for the American public. According to the Mercatus Center at George Mason University, wind energy receives a higher percentage of federal subsidies than any other type of energy while generating a very small percentage of the nation's electricity.

In 2010 the wind energy sector received 42% of total federal subsidies while producing only 2% of the nation's total electricity. By comparison, coal receives 10% of all subsidies and generates 45% and nuclear is about even at about 20%.

But policymakers at the federal and state level, unfortunately, have decided that the American people will have renewable energy, no matter how high the costs. As a result, taxpayers will be stuck paying the cost of subsidies to wealthy wind producers.

Meanwhile, electricity consumers will be forced to purchase the more expensive power that results from state-level mandates for renewable energy production. Although such policies may be well intended, the real results will be limited freedom, reduced prosperity and an increasingly unreliable power supply.


Randy Simmons is professor of political economy at Utah State University. He receives funding from the US Department of Energy (grant has been completed and there is no current funding) and Strata, a 501 (c)3 non-profit organization, of which he is president and director of research. 
Megan Hansen, a Strata policy analyst, co-authored this article.

TThe Conversationhis article has been updated with a corrected figure for wind power's current share of US electricity generation. It also clarifies the range of cost estimates from Lazard.

Death Sentences for Drug Crimes

Andrew Gargano - April 13, 2015

An Indonesian court last Monday rejected the appeal of two Australian nationals on death row for drug offenses, exhausting the duo's final effort to avoid the country's next firing-squad execution, which is slated for this year. While the ruling brings to light the extreme measures some nations take to punish drug offenders, it also calls attention to the involvement of the U.S. government and the United Nations, both of which are indirectly supporting these efforts through their attempts to prosecute the War on Drugs internationally.

Andrew Chan and Myuran Sukumaran were arrested in 2005 on drug-trafficking charges for leading a plot to smuggle heroin out of Indonesia. The other seven members of the drug ring, which has become known as the Bali Nine, were more fortunate and narrowly evaded death sentences. While Indonesia underwent a four-year capital-punishment hiatus in 2008, it resumed executions in 2013, with the most recent round -- six drug offenders -- held this past January. Although January's executions elicited an international outcry, with both Brazil and the Netherlands recalling their ambassadors from Jakarta, Indonesian president Joko Widodo has remained steadfast on capital punishment for drug criminals.

In fact, 33 countries have capital drug laws. Most of these laws are never used, but some countries execute drug criminals regularly. In Malaysia, for example, there were 648 drug offenders on death row in September 2012. Many legal experts have argued that these policies violate international law, citing the 1966 International Covenant on Civil and Political Rights, which limits death sentences to the "most serious crimes," and U.N. committee rulings that suggest drug offenses do not qualify under this criterion.

Despite widespread awareness of these laws, both the U.S. and the U.N. continue to provide counter-narcotics support to countries that execute drug offenders. The DEA has spent roughly $400 million each year for the past four years on international drug enforcement, some of which has ended up in these countries.

The U.S. has sponsored drug-control operations in Indonesia since at least 2005, according to a cable obtained by Wikileaks. In 2011, the U.S. Drug Enforcement Administration opened its Jakarta Country Office in order to provide "wide-ranging support that includes training, technical assistance, equipment, and infrastructure." Then, in 2012, the U.S. expanded its support and "funded the construction of administrative offices, classrooms, and barracks for training counter narcotics officers." In 2013, the Department of State spent $450,000 on its counter-narcotics program in Indonesia. The DEA also holds a field office in Kuala Lumpur, where the taxpayer-funded agency trains Malaysian law-enforcement officers and shares intelligence.

While U.S. aid to countries with capital drug laws is reproachable at best, it pales in comparison to the involvement of the U.N. in the Middle East, where capital drug laws are invoked regularly. Last year, Iran executed 367 people for drug-related crimes. In 2011, the country executed 540 — these were more than 80 percent of its total documented executions. The executions are not just reserved for adult offenders, either. Last April, a 17-year-old from Afghanistan, Jannat Mir, was hanged in Iran after being caught smuggling heroin across the border.

The human-rights advocacy group Reprieve has directly linked millions of dollars in international funding to drug arrests that result in executions. The United Nations Office on Drugs and Crime has for years financially supported the counter-narcotics programs that the country uses to arrest, prosecute, and then execute drug offenders. While some countries, such as Denmark and Ireland, have acknowledged the deadly link and cut off funding to the UNODC, others have not yet done so.

Moreover, the UNODC recently established a five-year, multimillion-dollar aid deal to continue this support. And since the UNODC is financed through member-country donations, European taxpayers are footing the bill for this costly and inhumane attempt at global drug enforcement.

The U.N.'s mission is to uphold international law and support human rights, but in continuing to offer this funding to Iran, it has chosen to ignore both. This must change. And while the U.S. slowly begins to reform the criminal-justice system at home, it should do so overseas as well.

Andrew Gargano is an editorial assistant at Young Voices, a policy project of the international nonprofit Students For Liberty.

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