Mercatus Site Feed http://mercatus.org/feeds/home/wp-login.php%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20Result%3A%20no%20post%20sending%20forms%20are%20found%3B en Todd Zywicki Book Panel: Consumer Credit and the American Economy http://mercatus.org/video/todd-zywicki-book-panel-consumer-credit-and-american-economy <h5> Video </h5> <iframe width="560" height="315" src="//www.youtube.com/embed/7p68nKoJPAA" frameborder="0" allowfullscreen></iframe> <p>The F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center hosted a panel discussion featuring Todd Zywicki and his new co-authored book Consumer Credit and the American Economy.</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;560&quot; height=&quot;315&quot; src=&quot;//www.youtube.com/embed/7p68nKoJPAA&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/todd-zywicki-book-panel-consumer-credit-and-american-economy Fri, 19 Dec 2014 09:55:50 -0500 Politically Connected Banks More Likely to Receive Emergency Loans From the Fed During Crisis, Study Finds http://mercatus.org/features/politically-connected-banks-more-likely-receive-emergency-loans-fed-during-crisis-study contact@mercatus.org (Mercatus.org) <h5> Feature </h5> <p>This excerpt originally appeared in&nbsp;<a href="http://www.ibtimes.com/politically-connected-banks-more-likely-receive-emergency-loans-fed-during-crisis-study-finds">International Business Times</a>&nbsp;on October 24, 2013:&nbsp;</p><blockquote><p>Blau based his study on data from the Government Accountability Office's July 2011 audit of the Fed, the first known audit of the Fed since its creation 100 hundred years ago. That audit showed that the Fed provided $16 trillion in short-term assistance to firms both domestic and abroad during the financial crisis, and by the end of 2008, outstanding loans topped $1 trillion.</p></blockquote><p><a href="http://www.ibtimes.com/politically-connected-banks-more-likely-receive-emergency-loans-fed-during-crisis-study-finds" target="_blank">SEE WHOLE ARTICLE&nbsp;→</a></p> http://mercatus.org/features/politically-connected-banks-more-likely-receive-emergency-loans-fed-during-crisis-study Thu, 18 Dec 2014 15:01:38 -0500 Why the Fed Should Follow Rules http://mercatus.org/expert_commentary/why-fed-should-follow-rules <h5> Expert Commentary </h5> <p class="p1">How should <a href="http://mercatus.org/publication/introduction-monetary-policy-rules"><b>monetary policy</b></a> be conducted? What previously was a question of interest only for a subset of economists has exploded into popular debate since the 2008 financial crisis. This, no doubt, is due to the Federal Reserve's unprecedented activities during the crisis. Some, such as Stanford's John Taylor, have accused the Fed of fueling a speculative boom by keeping interest rates "too low for too long" in the years running up to the crisis. Others, such as monetary-economics blogger Scott Sumner, argue instead the Fed was responsible for not acting swiftly and decisively enough when the trouble in asset markets became apparent. Whatever the reason, many believe that the Fed bears some of the responsibility for putting the "Great" in Great Recession, and that its activities must be scrutinized to discover how its operating framework can be changed to avoid such a calamity in the future.</p> <p class="p1">Monetary policy can be defined as changing the supply of money in order to achieve some predetermined macroeconomic goal. In this case, the organization doing the changing is the Fed, and the macroeconomic goal is nominal stability -- preventing large and unexpected changes in aggregate demand. Typically this can be thought of as trying to offset changes in the demand to hold money with changes in its supply.</p> <p class="p1">Money is the one good in the economy that does not have a market of its own in which it is independently priced. As such, if the demand to hold money changes, the only way markets can fully adjust is if relative prices across the entire economy change. Since prices, and especially wages, are costly to change, the adjustment at first is highly imperfect, which may result in a misallocation of resources. Ideally, the Fed prevents the need for such costly price adjustments by increasing the money supply if demand to hold it rises, and vice versa. This keeps the money market as close to equilibrium as possible.</p> <p class="p1">A significant debate within monetary economics is whether the monetary authority should act according to a predetermined rule, or whether it should be allowed discretion to act as the circumstances require. The financial crisis seems to suggest the latter. After all, how can crises be avoided if the rule the Fed is bound to follow prevents it from taking decisive action when necessary?</p> <p class="p1">However, this line of thought gets it backwards. A stable and predictable rule is necessary to anchor market actors' expectations by reducing uncertainty over the future stance of policy. This enables market actors to better coordinate their trading activity, increasing welfare by enlarging the gains from exchange. So long as market actors perceive the rules-based regime to be credible, the expectation of stability afforded by the rule will prevent market actors from engaging in the panicked behavior that can precipitate crises in the first place.</p> <p class="p1">Rules are preferable to discretion for three chief reasons. The first is the famous (at least within economics) time inconsistency problem. This basically says that without something tying the Fed's hands, the public will rationally expect the Fed to engage in more money printing than is optimal, resulting in too much inflation. The Fed can credibly commit to lower inflation, and hence increase public welfare, by binding itself to a rule on which it cannot go back. The second lies in the fact that the Fed often lacks the knowledge to fine-tune a system as complex as the U.S. economy. Given this complexity, providing a stable framework is the best the Fed can do. Lastly, we must also remember the Fed is a bureaucracy that is not accountable to market actors. It is subject to status quo bias, as Harvard's Greg Mankiw argues, like all bureaucracies. Therefore, what is best for the Fed may not be what is best for the economy.</p> <p class="p1">Realizing that a rule is preferable to discretion is only the first step toward reforming monetary policy. We must still decide which rule, from the multitude that economists have proposed over the years, ought to be adopted. Perhaps a strict inflation target, similar to that in the charter of the European Central Bank, is preferable. Perhaps Scott Sumner's proposed regime of using nominal gross domestic product (NGDP) targeting has the best chance of offering stability. More sweeping still, perhaps the Fed should be jettisoned in favor of a return to a gold standard, or some other commodity standard. While this last option may seem fantastic, recent research suggests the Fed has not outperformed the classical gold standard in delivering monetary stability, and may in fact have made things worse.</p> <p class="p1">Reasonable people can disagree over what rule a central bank should adopt, or whether we ought to have a central bank at all. It is clear, however, that the current discretionary regime is not in the public interest. Whichever way forward is chosen, we must remember that any reform, if it is to be effective, must not limit itself to monetary theory narrowly conceived, but must incorporate political economy considerations as well.</p> http://mercatus.org/expert_commentary/why-fed-should-follow-rules Fri, 19 Dec 2014 16:06:18 -0500 ‘Pro-Business’ Is Bad Business for the Middle Class http://mercatus.org/expert_commentary/pro-business-bad-business-middle-class <h5> Expert Commentary </h5> <p class="p1">Policymakers at the federal, state and local level have never been more interested in promoting business. And yet for the average American, business is bad. A smaller share of people are <a href="http://research.stlouisfed.org/fred2/series/CIVPART">working or looking for work</a> than at any point since 1978. More alarmingly, the U.S. economy seems to have <a href="http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.28.3.3">lost the dynamism</a> that was once its hallmark. The rate of new business start-ups has fallen over the past several decades, and the share of employment by young firms has declined by 30 percent over the last 30 years.</p> <p class="p1">This is not a coincidence. The bipartisan impulse to <a href="http://mercatus.org/sites/default/files/Mitchell-Pathology-March-2014.pdf">privilege</a> particular businesses — through subsidies, bailouts, tax privileges, incentive packages, and the like — stands in the way of genuine economic progress. Here are five reasons why “pro-business” policies are bad for business:</p> <p class="p1"><b>1. Pro-business policies undermine competition</b>: Privileged firms are insulated from competition and can therefore ignore customer desires and waste scarce resources. This leads to higher prices and lower quality goods (think of your local cable monopoly). It’s tempting to think that high prices don’t matter so long as the policies buy us more jobs. But the main reason we work is to earn money to buy products and services, and policies that protect firms from competition in the name of job creation depress real (that is, price-adjusted) wages.</p> <p class="p1"><b>2. Pro-business policies retard innovation: </b>Privileged firms are not innovative firms (think of protected taxi companies in most major cities). They need not adjust their products to meet changing desires. And they need not be creative. But change is what drives growth. Indeed, <a href="http://www.nber.org/papers/w12394">careful empirical tests</a> find that the sort of “creative destruction” that Joseph Schumpeter famously extolled nearly 100 years ago correlates with faster economic growth.</p> <p class="p1"><b>3. Pro-business policies sucker workers into unsustainable careers:</b>The destructive side of creative destruction is painful. Skill sets become obsolete, and workers have to retrain. But the longer industries are sheltered from the realities of the market, the more painful is the adjustment. Consider U.S. automakers. Through tariffs and subsidies, the U.S. auto market was protected for decades. As U.S. automakers grew more detached from customer desires, more 18 year olds were lured into this ultimately unsustainable line of work. Reality hit in 2008, and the dislocation was more painful than it would have been had the transition been gradual. Of course, policymakers doubled down with a massive auto bailout.</p> <p class="p1"><b>4. Pro-business policies encourage wasteful privilege seeking: </b>The late economist Gordon Tullock <a href="http://cameroneconomics.com/tullock%201967.pdf">showed</a> that when governments dispense privileges to particular firms or industries, people will expend resources — time, money, and effort — in an attempt to obtain these privileges. They’ll lobby, they’ll donate to Political Action Committees, and they’ll orient their businesses around political desires rather than customer desires. Tullock’s insight was that much of this activity is socially wasteful. It expends resources without creating any new value.</p> <p class="p1"><b>5. Pro-business policies undermine the legitimacy of government and business: </b>When businesses succeed on the basis of their political connections rather than on the basis of their ability to create value for customers, it undermines the legitimacy of capitalism itself. And when policy makers mind the <i>specific</i> welfare of the well-connected rather than the <i>general</i> welfare of the public, it undermines the legitimacy of government.</p> <p class="p1">Instead of being “pro-business,” policy makers should aspire to be “pro-market,” eschewing both targeted punishment and targeted privilege. That would be pro-worker.</p> http://mercatus.org/expert_commentary/pro-business-bad-business-middle-class Thu, 18 Dec 2014 10:06:46 -0500 Why Measuring Gross National Happiness Is So Difficult http://mercatus.org/expert_commentary/why-measuring-gross-national-happiness-so-difficult <h5> Expert Commentary </h5> <p class="p1">Anyone who has taken an introductory macroeconomics course knows that gross domestic product is an inadequate measure of the average citizen’s standard of living. For example, nonmarket output (such as household labor) is not included, quality improvements are difficult to account for and issues of distribution are completely absent. GDP is an imperfect measure of economic output, much less general well-being.</p> <p class="p1">These problems have led policymakers around the world to turn instead to modern psychological research that promises <a href="http://mercatus.org/publication/problems-measuring-and-using-happiness-policy-purposes">accurate measures of happiness and well-being</a>. After all, why rely on an imperfect proxy of well-being such as GDP if you can measure people’s well-being directly? While the motivation behind the “gross national happiness” movement is clear, however, its apparently straightforward nature conceals a number of problems that severely limit its usefulness.</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2014/12/15/why-measuring-gross-national-happiness-is-so-difficult">Continue reading</a></p> http://mercatus.org/expert_commentary/why-measuring-gross-national-happiness-so-difficult Wed, 17 Dec 2014 10:03:35 -0500 Drawn Up In the Dark of Night, Dodd-Frank's Unintended Consequences http://mercatus.org/expert_commentary/drawn-dark-night-dodd-franks-unintended-consequences <h5> Expert Commentary </h5> <p class="p1">When Dodd-Frank became law more than four years ago, even its proponents acknowledged that the law needed some tweaks. After all, remaking the financial markets in the wee hours of the night fueled by cold pizza and too much caffeine is a risky undertaking. Despite acknowledged problems, the law has remained largely untouched until this month. Fixes look like capitulation to Wall Street. It took emergences unrelated to Dodd-Frank-the need to get a spending bill done and the impending expiration of the Terrorism Risk Insurance Act-to drive changes in recent weeks. Concern that fixing errors will help financial firms can overshadow the cost that such errors can impose on the companies and individuals that buy useful products and services from those firms.</p> <p class="p1">On July 15, 2010, shortly after the congressional conference committee finalized the text of Dodd-Frank (but before the president signed it), a number of senators gathered on the Senate floor to <a href="http://www.gpo.gov/fdsys/pkg/CREC-2010-07-15/pdf/CREC-2010-07-15-pt1-PgS5902.pdf"><b>point out</b></a> some problems in the freshly minted Dodd-Frank Act. In so doing, the senators, some of whom had played an important role in drafting Dodd-Frank, acknowledged that the language of the financial reform bill was imperfect.</p> <p class="p1">Sen. Susan Collins (R-Maine) took to the floor to warn that an amendment she had championed could cause trouble for insurance companies designated systemically important by the Financial Stability Oversight Council. Sen. Christopher Dodd (D-Conn.) agreed that size alone is not enough to warrant designating a large insurance company. The FSOC, apparently unmoved by this colloquy, set about designating large insurance companies. The Fed, which is charged with imposing the Collins amendment, <a href="http://www.c-span.org/video/?313982-1/us-economic-outlook-monetary-policy"><b>pointed out</b></a> to Congress that Dodd-Frank did not allow it to modify the Collins Amendment to work for nonbanks. Only this month, as FSOC's designation hammer is poised to fall carelessly on another large insurance company, did Congress <a href="http://www.gpo.gov/fdsys/pkg/BILLS-113s2270enr/pdf/BILLS-113s2270enr.pdf"><b>pass</b></a> a "clarification" of the Collins Amendment to allow tailoring for insurance companies.</p> <p class="p1">Another Dodd-Frank provision discussed on the Senate floor that summer day in 2010-the so-called swaps push-out rule-forced banking entities to move their derivatives business out of their insured depositories. The reasonable justification was that banks should not be able to use their access to federal guarantees, deposit insurance, and other federal backing to woo derivatives customers. The swaps push-out provision excepted many derivatives transactions, including those undertaken to manage the insured unit's own risks. However, in the words of former Sen. Blanche Lincoln (D-Ark.)-the provision's author, "in the rush to complete the conference, there was a significant oversight made," and branches of foreign banks would not be able to avail themselves of these exceptions.</p> <p class="p1">The omnibus spending bill fixed that "significant oversight." The Fed had already cobbled together a fix of its own, but statutory problems can't be healed by regulation. The omnibus also broadened the swap push-out exceptions to include a broader array of derivatives, including commodity derivatives. This expansion was not necessary to solve the drafting problem highlighted by Senator Lincoln in 2010. However, as professor Craig Pirrong <a href="http://streetwiseprofessor.com/"><b>observed</b></a>, without the change, the push-out provision disadvantages commodity derivatives and consequently harms "the firms in the real economy that use commodity derivatives to hedge their price risks."</p> <p class="p1">The discussion on July 15, 2010 also included another Dodd-Frank trouble spot of greater importance to end users of derivatives. End users are the nonfinancial companies and farmers that use derivatives to manage their everyday business risks. In the pre-Dodd-Frank days, these companies could craft highly tailored derivatives with dealer banks. In these arrangements, dealers did not typically require end users to make cash margin payments to secure the deal. Farmers and Main Street companies are unlikely to have a lot of cash on hand to post as margin, so dealers secure the deal using other less liquid assets.</p> <p class="p1">Dodd-Frank seems to direct the regulators to require dealers to start collecting cash margin from end users. Sens. Dodd and Lincoln, in their conversation on the Senate floor, denied that this was their intent. Sen. Dodd insisted that "there is no authority to set margin on end users." There were subsequent legislative attempts to true the statutory language up with this intent. In one such effort, the House of Representatives voted 411 to 12 in favor of the change. The Terrorism Risk Insurance Program reauthorization bill that passed the House last week and is awaiting a Senate vote contains the same fix. There was some discomfort about including even a technical Dodd-Frank fix in the terrorism insurance bill because; as Congresswoman Carolyn Maloney (D-N.Y.) correctly noted, "Where there are any changes to Dodd-Frank, many Senators take exception. It is very difficult to pass them."</p> <p class="p1">Rep. Maloney is correct in her observation; Dodd-Frank has Teflon-like qualities. It is important to remember, however, that large portions of the statute were drawn up in the dark of night by sleep-deprived minds that had little time to game out the real consequences of the language being drafted. Even those who agree in broad strokes with the philosophy behind Dodd-Frank ought to carefully consider whether it is working as intended and who is bearing its consequences.</p> http://mercatus.org/expert_commentary/drawn-dark-night-dodd-franks-unintended-consequences Wed, 17 Dec 2014 09:56:57 -0500 'Twas the Overnight Before Christmas: The Merry Tale of Air Cargo Deregulation http://mercatus.org/video/twas-overnight-christmas-merry-tale-air-cargo-deregulation <h5> Video </h5> <iframe width="560" height="315" src="//www.youtube.com/embed/2bQNy90p5Y4" frameborder="0" allowfullscreen></iframe> <p>Professor of Public Policy at George Mason University Kenneth Button shares the story of how air cargo deregulation in the 1970s paved the way for low-cost, reliable overnight shipping, which in turn allowed for groundbreaking new e-commerce businesses like Amazon and eBay. These innovations enable everyone to get their presents on time for the holidays – almost as fast as delivery by Santa himself! To learn more, visit <a href="http://www.mercatus.org/overnight">http://www.mercatus.org/overnight</a>.</p><p style="padding-left: 30px;">‘Twas two nights before Christmas, and all through their houses Every creature was busy, double-clicking their mouses. Christmas was coming, but there were still presents to buy-- Thank heavens overnight shipping allows boxes to fly. “But how can this be?” the people asked in their haze “With so many miles to cover, why aren’t there delays?”</p><p style="padding-left: 30px;">What allowed this to happen is a very old rule, That deregulated air cargo - isn't that cool! You see, express planes were smaller, unlike today. Bigger is better, but the law said “No way!”</p><p style="padding-left: 30px;">And if Fisherman Fred shipped lively lobsters from Maine He hoped for some room in the belly of a passenger plane But if Aunt Edna had checked in fifteen pieces of luggage Fred’s lobsters would arrive days later, looking quite sluggish.</p><p style="padding-left: 30px;">Freed from restrictions, more packages could flow</p><p style="padding-left: 30px;">And arrive soon as promised, even in snow. This allowed private carriers to grow and expand, Unleashing innovations no one could’ve planned With better shipping options, online shopping exploded, And business inventories grew leaner: before they were bloated!</p><p style="padding-left: 30px;">Thanks to rolling back rules that were surely passé, Delivery is almost as fast as on Santa’s great sleigh.</p><p><span style="font-size: 11.8181819915771px;"><i>Music: Seth Partridge Select graphics courtesy of www.freepik.com</i></span></p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;560&quot; height=&quot;315&quot; src=&quot;//www.youtube.com/embed/2bQNy90p5Y4&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/twas-overnight-christmas-merry-tale-air-cargo-deregulation Tue, 16 Dec 2014 16:18:40 -0500 Defense Funding Extends Beyond the Pentagon’s Budget http://mercatus.org/publication/defense-funding-extends-beyond-pentagon-s-budget <h5> Publication </h5> <p class="p1">Policymakers and defense officials have recently expressed concern that defense spending is insufficient, citing the recent drop in base defense funding as proof. The use of this lower figure understates the actual taxpayer cost of maintaining the United States’ global military presence and interventionist foreign policies.</p> <p class="p1">This week’s chart puts into perspective the amount of funding—and expense—that is not accounted for in the figures widely cited by policymakers and defense officials.</p> <p class="p1">Using a methodology conceived by Winslow Wheeler of the&nbsp;<a href="http://www.pogo.org/about/board-staff/staff-profiles/winslow-wheeler.html">Project on Government Oversight</a>, line items from other areas of the federal budget relevant to defense and security issues are added to the fiscal year 2013 base. Once these expenses are included, it’s clear that the reported defense spending figures underestimate the overall cost of defense and national security programs by over $350 billion in fiscal year 2013 (the most recent year of finalized data).</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C1-defense-spending-2013_0.jpg"><img src="http://mercatus.org/sites/default/files/C1-defense-spending-2013_0.jpg" width="585" height="424" /></a></p> <p class="p1">The Pentagon’s base budget is the most widely reported defense funding estimate and was $503 billion in fiscal year 2013. This $503 billion figure excludes an additional $82 billion in war funding, which increases the total to about $585 billion. The defense base budget also doesn’t account for the nuclear weapons programs contained in the Department of Energy’s budget or other related defense spending, which would add another $25 billion to defense spending, pushing the total to $610 billion. This is 20 percent higher than the widely cited base figure—that is, at least one dollar in five in defense funding is not part of the Pentagon’s base budget.</p> <p class="p1"><img height="710" width="570" src="http://mercatus.org/sites/default/files/derugy-table-FY13-Defense.jpg" /></p> <p class="p1">While the majority of defense spending takes place in either the Pentagon budget or National Defense budget function, there is other funding related to national security and defense:</p> <ul class="ul1"> <li class="li1">• $137 billion to Department of Veterans Affairs to care for wounded or retired military veterans.</li> <li class="li1">• $46 billion to Department of Homeland Security for responding to terrorism and natural disasters.</li> <li class="li1">• $41 billion to International Affairs for additional war funding, weapons training to foreign militaries, and foreign aid. There are&nbsp;nondefense-related items&nbsp;in this amount, such as operating US embassies and consulates and normal diplomatic operations. However, these are all key components of the US government’s national security apparatus.</li> <li class="li1">• $27 billion for retirement costs for military pension benefits not included in the Pentagon’s budget.</li> </ul> <p class="p1">When all these categories of funding are included, the more comprehensive defense funding figure comes out to $861 billion. It’s important to note that this amount does not include the associated interest costs on the debt, which would add to the total amount.</p> <p class="p1">When Republicans take control of both houses of Congress in the new year, defense funding is likely to come to come to the forefront of policy discussions. Many in the party have been arguing that budget caps implemented by the 2011 Budget Control Act have been too restrictive on defense spending, pointing to the <a href="http://mercatus.org/sites/default/files/C1-DOD-base-budget.jpg">Pentagon’s base budget</a>, which has receded from its peak in fiscal year 2010. What often goes unacknowledged is the fact that war funding is not subject to the caps. Moreover, the associated cost categories discussed above are routinely ignored. If the nation is to have an honest discussion and debate on the appropriate amount of funding for national defense, policymakers should acknowledge that the Pentagon’s allocation is just the tip of the iceberg.</p> http://mercatus.org/publication/defense-funding-extends-beyond-pentagon-s-budget Thu, 18 Dec 2014 09:21:03 -0500 Breaking Down Department of Defense Grants to State and Local Law Enforcement http://mercatus.org/publication/breaking-down-department-defense-grants-state-and-local-law-enforcement <h5> Publication </h5> <p class="p1">Recent high-profile allegations of police misconduct coincide with a growing consensus spanning the <a href="http://www.nationalreview.com/article/365986/spooks-leash-kevin-d-williamson">right</a> and <a href="http://www.motherjones.com/politics/2013/12/american-society-police-state-criminalization-militarization">left</a> that police militarization is an increasingly serious problem in America. A <a href="http://reason.com/assets/db/13867453755251.pdf">Reason/Rupe poll</a> from December 2013 finds that a large majority of Americans believe that law enforcement does <i>not</i> require local police departments to employ military-grade drones, weapons, and armored vehicles. While the Department of Defense has been providing growing amounts of in-kind assistance to local and state municipalities since at least 1990, the trend of granting mine-resistant ambush protected (MRAP) and other combat vehicles to local law enforcement agencies is a more recent—and visible—phenomenon. The militarization of law enforcement is problematic because it constitutes both a cause and a consequence of <a href="http://mercatus.org/publication/government-cronyism-and-erosion-publics-trust">diminishing trust between US government bodies and its citizens</a>.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/c1-DoD-1033-grants-2006-2014.jpg"><img src="http://mercatus.org/sites/default/files/c1-DoD-1033-grants-2006-2014.jpg" width="585" height="424" /></a></p><p class="p3"><span style="font-size: 11.8181819915771px;">This week’s charts use data from a </span><a href="http://www.npr.org/2014/09/02/342494225/mraps-and" style="font-size: 11.8181819915771px;">National Public Radio compilation</a><span style="font-size: 11.8181819915771px;"> of public Department of Defense records of grants issued to state and local law enforcement bodies through its </span><a href="http://www.dps.mo.gov/dir/programs/cjle" style="font-size: 11.8181819915771px;">Excess Property Program</a><span style="font-size: 11.8181819915771px;">, also known as DoD 1033. The charts display the total value of all known grants to municipalities in real 2013 dollars along with the total value and number of mine-resistant and combat vehicles distributed from 2006 to April 2014.&nbsp;</span></p> <p class="p2">The 1033 program was created through the <a href="http://www.dispositionservices.dla.mil/leso/Documents/LESO%20Forms/FY1997NDAA.pdf">National Defense Authorization Act of 1997</a> as a restructured version of the earlier 1208 program launched in 1990. These programs empowered the Secretary of Defense to transfer excess equipment that had been over-issued or no longer needed by the Pentagon to other federal and state departments for use in “counter-drug activities.” Municipal law enforcement agencies that qualified could browse equipment listings online and apply to procure DoD equipment for their own offices. The <a href="http://www.dispositionservices.dla.mil/leso/Pages/default.aspx">Pentagon’s Law Enforcement Support Office</a> (LESO), which oversees the 1033 program, notes that more than $5.1 billion worth of federal property has been transferred to other federal and state offices since the program’s inception.</p> <p class="p2">The first chart displays the total known value of all items issued through the 1033 program from 2006 through April 2014 in real 2013 dollars. The items transferred range from benign materials, such as office supplies and construction tools, to more militaristic items, such as grenade launchers and armored vehicles. For many years, the data show that the Department of Defense issued more innocuous items than deadly weapons or other “militarizing” equipment. For example, in 2009, roughly $4.5 million worth of fire and safety equipment and $12.9 million in communications equipment was issued, while only $1.2 million worth of ammunition and weapons were granted. However, between 2013 and the first four months of 2014, the Department of Defense dramatically increased the number of MRAPs and other combat, assault, and tactical vehicles issued through the 1033 program.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/C2-DOD-municipalities.jpg"><img height="425" width="585" src="http://mercatus.org/sites/default/files/C2-DOD-municipalities.jpg" /></a></p> <p class="p2">The second chart breaks out the value and number of MRAPs and other combat, assault, and tactical vehicles granted by the Pentagon to other federal and state agencies from 2006 to late July 2014. (Because the MRAP dataset includes grants extended during May and July 2014, the value of 1033 combat vehicle grants in 2014 in the second chart exceeds the total value in 2014 on the first chart, which only extends to April 2014.) Only one MRAP vehicle was issued from 2006 through 2012, in 2009. Between 2013 and the first four months of 2014, the Department of Defense distributed 604 MRAPs and 72 other combat, assault, and tactical vehicles through the 1033 program.</p> <p class="p2">These charts show that Department of Defense’s 1033 program has dramatically increased the number of MRAP and combat, assault, and tactical vehicles granted to state and local law enforcement agencies. Additionally, the total value of in-kind grants to local and state law enforcement agencies has grown overall each year from 2007 to 2012. These grants include innocuous materials like office supplies and construction materials, but they also contain military-grade surveillance and recording equipment. While some grants represent wise reuse of surplus federal equipment, this program will likely be a source of controversy so long as the donated MRAP and combat vehicles serve as manifestations of the <a href="http://online.wsj.com/articles/SB100014240527023044509045793669">militarization of law enforcement</a>. Vehicles that were made to patrol warzones are increasingly employed in America’s cities. The benefits to local law enforcement agencies of operating these vehicles are outweighed by the immense costs of losing the trust of their constituents—and loss of trust is incredibly difficult to reverse.</p> <p class="p2">To maintain law and order while preserving community trust, local law enforcement agencies should move away from the top-down militarized model and adopt the community policing model <a href="http://journals.cambridge.org/action/displayAbstract?fromPage=online&amp;aid=9051165">studied and championed</a> by Nobel prize-winning economist Elinor Ostrom. Smaller, community-controlled law enforcement departments deliver a consistent pattern of superior results when compared to top-down, unaccountable agencies. Reforms that move local police enforcement agencies closer to this model will deliver security while maintaining trust.</p> http://mercatus.org/publication/breaking-down-department-defense-grants-state-and-local-law-enforcement Sun, 14 Dec 2014 15:22:08 -0500 Cops Scan Social Media to Help Assess Your ‘Threat Level’ http://mercatus.org/expert_commentary/cops-scan-social-media-help-assess-your-threat-level-data-mining <h5> Expert Commentary </h5> <p class="p1">A national spotlight is now focused on aggressive law enforcement tactics and the justice system. Today’s professional police forces — where officers in even one-stoplight towns might have body armor and mine-resistant vehicles — already raise concerns.</p> <p class="p1">Yet new data-mining technologies can now provide police with vast amounts of surveillance information and could radically increase police power. Policing can be increasingly targeted at specific people and neighborhoods — with potentially serious inequitable effects.</p> <p class="p1">One speaker at a recent national law enforcement conference compared future police work to&nbsp;<i>Minority Report</i>, the Tom Cruise film set in 2054 Washington, where a “PreCrime” unit has been set up to stop murders before they happen.</p> <p class="p1">While PreCrime remains science-fiction, many technology advances are already involved with predictive policing — identifying risks and threats with the help of online information, powerful computers and Big Data.</p> <p class="p1">New World Systems, for example, now offers software that allows dispatchers to enter in a person’s name <a href="http://www.predpol.com/?gclid=Cj0KEQiAwaqkBRDHx6rzxMqAobgBEiQAxJazJx7B_mtSxztpgisqaivxvTWvpplgwWLYFPaJD2zlvXYaAkmO8P8HAQ">to see if they’ve had contact with the police</a> before. &nbsp;Provided crime data, PredPol claims on its website that &nbsp;its software “forecasts highest risk times and places for future crimes.” These and other technologies are supplanting and enhancing traditional police work.</p> <p class="p1">Public safety organizations, using federal funding, are set to begin building a $7-billion nationwide first-responder wireless network, called FirstNet. Money is now being set aside. With this network, information-sharing capabilities and federal-state coordination will likely grow substantially. Some uses of FirstNet will improve traditional services like 911 dispatches. Other law enforcement uses aren’t as pedestrian, however.</p> <p class="p1">One such application is&nbsp;<a href="http://www.intrado.com/beware">Beware</a>, sold to police departments since 2012 by a private company, Intrado. This mobile application crawls over billions of records in commercial and public databases for law enforcement needs. The application “mines criminal records, Internet chatter and other data to churn out … profiles in real time,” according to one&nbsp;<a href="http://www.dailyherald.com/article/20140626/news/140628945/">article</a>&nbsp;in an Illinois newspaper.</p> <p class="p1">Here’s how the company describes it on their website:</p> <p class="p1">Accessed through any browser (fixed or mobile) on any Internet-enabled device including tablets, smartphones, laptop and desktop computers, Beware®&nbsp;from Intrado searches, sorts and scores billions of commercial records in a matter of seconds-alerting responders to potentially deadly and dangerous situations while en route to, or at the location of a call.</p> <p class="p1">Crunching all the database information in a matter of seconds, the Beware algorithm then assigns a score and “threat rating” to a person — green, yellow or red. It sends that rating to a requesting officer.</p> <p class="p1">For example, working off a home address, Beware can send an officer basic information about who lives there, their cell phone numbers, whether they have past convictions and the cars registered to the address. Police have had access to this information before, but Beware makes it available immediately.</p> <p class="p1">Yet it does far more — scanning the residents’ online comments, social media and recent purchases for warning signs. Commercial, criminal and social media information, including, as Intrado vice president&nbsp;<a href="http://urgentcomm.com/intrado/intrado-steve-reed-talks-about-integrating-beware-tool-motorola-solutions-idp-platform">Steve Reed said</a> in an interview with urgentcomm.com, “any comments that could be construed as offensive,” all contribute to the threat score.</p> <p class="p1">There are many troubling aspects to these programs. There are, of course, obvious risks in outsourcing traditional police work — determining who is a threat — to a proprietary algorithm. Deeming someone a public threat is a serious designation, and applications like Beware may encourage shortcuts and snap decisions.</p> <p class="p1">It is also disconcerting that police would access and evaluate someone’s online presence. What types of comments online will increase a threat score? Will race be apparent?</p> <p class="p1">These questions are impossible to answer because Intrado merely provides the tool — leaving individual police departments to craft specific standards for what information is available and relevant in a threat score. Local departments can fine-tune their own data collection, but then threat thresholds could vary by locale, making oversight nearly impossible.</p> <p class="p1">Tradition holds that justice should be blind, to promote fairness in treatment and avoid prejudgment. With such algorithms, however, police can have significant background information about nearly everyone they pull over or visit at home. Police are time-constrained, and vulnerable populations – such as minorities living in troubled neighborhoods and the poor — may receive more scrutiny.</p> <p class="p1">No one wants the police to remain behind a thick veil of ignorance, but invasive tools like Beware — if left unchecked — may amplify the current unfairness in the system, including racial disparities in arrests and selective enforcement.</p> <p class="p1">Intrado representatives <a href="http://www.gsnmagazine.com/article/27594/intrado_accesses_personal_data_quickly_assist_law">defend Beware’s perceived intrusiveness</a>, pointing out that credit agencies have similar types of information. This data-mining program, however, goes beyond financial records to include social media, purchases and online comments when assigning a rating.</p> <p class="p1">And no system is foolproof. Congress, for example, recognizes the sensitivity of the information that lenders and employers have, because errors can cause serious financial harm. The Fair Credit Reporting Act therefore gives consumers the right to access their credit reports and make corrections.</p> <p class="p1">The risks to life and property, however, are far higher and more unpredictable in the law enforcement context. Yet there is no mechanism for people to see their threat “ratings” — much less why the algorithm scored it. You have no ability to correct errors if, say, someone with the same name has a violent criminal record.</p> <p class="p1">Another effect is that these technologies give law enforcement the ability to routinely monitor obedience to regulatory minutiae and lawmaker whims. Police officers now boast, for example, that the Beware system&nbsp;<a href="http://www.gsnmagazine.com/article/27594/intrado_accesses_personal_data_quickly_assist_law_">allows the routine code enforcement</a>&nbsp;of a nanny state — such as identifying homeowners so overgrown trees on a property can be trimmed.</p> <p class="p1">Beware can also encourage fishing expeditions and indiscriminate surveillance in the hopes of finding offenders.&nbsp;<a href="http://urgentcomm.com/public-safety-broadbandfirstnet/denver-area-public-safety-realizes-benefits-adams-county-band-14-lte">Police used Beware recently at a Phish concert</a>&nbsp;in Colorado, for example, checking up on concertgoers based on car license plates.</p> <p class="p1">Perhaps the most serious issue is that such systems may be used as pretext in unconstitutional investigations. John Shiffman and Kristina Cooke&nbsp;<a href="http://www.reuters.com/article/2013/08/05/us-dea-sod-idUSBRE97409R20130805">reported</a>&nbsp;for Reuters last year that a secretive Drug Enforcement Administration unit regularly funnels information to other law enforcement agencies in order to launch criminal investigations. This information is frequently acquired via intelligence intercepts, wiretaps and informants. As the FirstNet national wireless network rolls out, federal-state coordination will likely increase opportunities for police to receive sensitive information from powerful federal agencies.</p> <p class="p1">Data-mining gives police significantly more information to create reasonable suspicion for suspects that federal agencies flag. Officers could receive a search or arrest warrant with the help of information gleaned from Beware and other databases, like those tracking license plates. If an arrest follows, data-mining helps provide the police with the legal pretext to engage in these fishing expeditions. Defendants will likely have no opportunity to challenge the legality of the original surveillance that led to their arrest.</p> <p class="p1">As predictive policing investment ramps up, and local police and federal agencies increasingly coordinate, more secrecy becomes more valuable. Local police and prosecutors often refuse to disclose how they gain information about defendants because federal agencies prohibit them from discussing these technologies. In Baltimore, for example, police recently dropped evidence against a defendant&nbsp;<a href="http://www.baltimoresun.com/news/maryland/baltimore-city/bs-md-ci-stingray-officer-contempt-20141117-story.html">rather than reveal information about cellphone tracking</a>&nbsp;that the FBI did not want disclosed in court.</p> <p class="p1">Yet police might not acquire some of this equipment if the local community is made fully aware of its use. Consider, the city council of Bellingham, Wash., recently&nbsp;<a href="http://www.cascadiaweekly.com/currents/intrado_intrusion">rejected</a>&nbsp;a proposed purchase of Beware. The police department had applied for, and received, a one-time $25,000 federal grant to cover some of the $36,000 annual cost of Beware. At a mandatory hearing about the purchase, Bellingham citizens discovered how Beware worked and opposed the purchase because of both the cost and the privacy implications. The funds were subsequently redirected.</p> <p class="p1">This rejection demonstrates that many modern policing techniques — and the accompanying secrecy — can antagonize the average citizen. The occasional appearance of sniper rifles and military vehicles only stokes that sentiment. Local police forces increasingly&nbsp;<a href="http://blogs.reuters.com/great-debate/tag/militarized-police-force/">receive military surplus equipment</a>&nbsp;and federal lucre from an alphabet soup of U.S. agencies and opportunistic contractors. Now police are using, typically without residents’ knowledge, powerful databases, along with cellphone and&nbsp;license-plate trackers.</p> <p class="p1">Police need guidance about under which circumstances these sophisticated databases can be used. An inaccurate threat level for a residence, after all, can change how police approach a situation. Failure to update who lives at a particular residence, for example, could transform a green rating into a red rating — turning a midday knock on the front door into a nighttime SWAT raid.</p> http://mercatus.org/expert_commentary/cops-scan-social-media-help-assess-your-threat-level-data-mining Fri, 12 Dec 2014 16:50:32 -0500 The Cornerstone of Regulatory Reform http://mercatus.org/expert_commentary/cornerstone-regulatory-reform <h5> Expert Commentary </h5> <p class="p1">When the 114th Congress assembles in January, members will have a plethora of proposed regulatory reforms on their plate. These plans range from required congressional approval for major regulations to stronger judicial review standards. Setting priorities will be a challenge, but one reform can lay a crucial cornerstone—statutory regulatory analysis standards for all regulators.&nbsp;</p> <p class="p1">Regulatory expertise requires the discipline to conduct quality economic analysis. In order to get a good result from regulations, it’s important to use good inputs before writing them. Unfortunately, federal regulatory analysis is poor at best. If it were better, agencies could solve more problems at lower costs with fewer regulations.&nbsp;</p> <p class="p1">Any effective regulatory reform must ensure that agencies first conduct a complete economic analysis of regulatory proposals, including an examination of regulatory and non-regulatory alternatives. Before they write a proposed or final regulation, agencies should use economic analysis to help make informed decisions about how regulatory authority will or will not be used.&nbsp;</p> <p class="p1">The benefits of statutory regulatory analysis standards extend beyond the agencies. Such standards will enhance the ability of Congress and the judiciary to evaluate agency compliance with statutory intent and regulatory decision-making standards.&nbsp;</p> <p class="p1">There is long-standing agreement on the value of methodical regulatory analysis as evidenced by a series of executive orders articulating regulatory analysis standards issued by presidents of both parties. Yet regulatory impact analysis is often incomplete or not used because of weak enforcement mechanisms. The current system places both the writing and review of regulatory analysis at the discretion of executive branch—respectively, the agencies and the Office of Information and Regulatory Affairs (OIRA). As a result, both agencies and the president can make exceptions to the analytical requirements in executive orders when they so choose. This happened in the Obama administration with regulations implementing the Affordable Care Act, as well as in the Bush administration with security regulations implemented in the wake of 9/11.&nbsp;</p> <p class="p1">Having the discretion to comply or not with regulatory analysis standards means that decision makers too often are regulating in the dark. Without comprehensive regulatory impact analysis, regulators do not know whether there is a problem regulation could solve, and they often fail to craft a workable, cost-effective solution.&nbsp;</p> <p class="p1">The absence of methodical regulatory analysis also impedes congressional oversight. Congress must have good information about the outcomes the regulation is intended to achieve and the pros and cons of the options available. Without that information, it will be significantly harder for Congress to employ mechanisms that provide for congressional approval or disapproval of individual regulations, such as the Congressional Review Act or the proposed Regulations from the Executive in Need of Scrutiny (REINS) Act. By first ensuring agencies meet sound regulatory impact analysis standards, these mechanisms will create a stronger regulatory process.&nbsp;</p> <p class="p1">Judicial review is necessary to enforce statutory analysis requirements. Judicial review gives stakeholders an opportunity to challenge regulatory impact analyses that are incomplete, use poor science or are obviously designed to support a decision made before the analysis even began. Statutory analysis requirements provide courts with a more detailed record of why and how agencies are regulating and the guideposts necessary to assess agency compliance with their statutory authority and obligations. For example, the Securities and Exchange Commission has statutory language that courts have interpreted to require benefit-cost analysis of certain SEC regulations. After losing several court cases due to insufficient analysis, the SEC issued new staff guidance on regulatory analysis based on the principles executive branch agencies must follow.&nbsp;</p> <p class="p1">Our current regulatory system continues to produce ineffective and expensive rules, because we’ve failed to tackle the core cause of poor regulations. Our end goal is solving more problems at a lower cost, and this can be achieved through methodical analysis and transparent decision making. With a foundation of statutory analysis standards for all regulators, we can build a better regulatory system.&nbsp;</p> http://mercatus.org/expert_commentary/cornerstone-regulatory-reform Fri, 12 Dec 2014 12:09:49 -0500 Seven Internet Policy Ideas that Everyone Can Agree On http://mercatus.org/expert_commentary/seven-internet-policy-ideas-everyone-can-agree-UN-NSA-copyright <h5> Expert Commentary </h5> <p class="p1">Right now, technology policy wonks are locked in a bitter dispute about the future of network neutrality. One of us is a technology policy expert who supports President Obama's call for <a href="http://www.vox.com/2014/11/10/7186179/obamas-big-net-neutrality-announcement-explained"><b>stronger network neutrality regulations</b></a>. The other is a tech policy expert who thinks it's a terrible idea.</p> <p class="p1">But fortunately, not all technology issues are so divisive. Here are seven issues on which we do agree — and we think policy experts across the political spectrum could get behind these common-sense reforms.</p> <p class="p2">1) Rein in surveillance by the National Security Agency</p> <p class="p3">Last summer, Ed Snowden revealed that the National Security Agency was collecting troves of data on both foreigners and U.S. citizens. In the process, they've also been undermining the security of American products and the internet as a whole. Among other things, we know that the NSA may be:</p> <ul class="ul1"> <li class="li4"><b></b><a href="http://www.nytimes.com/2013/09/06/us/nsa-foils-much-internet-encryption.html?_r=0"><b>secretly weakening</b></a> essential encryption tools and standards;</li> <li class="li4">attempting to <a href="http://www.spiegel.de/international/world/catalog-reveals-nsa-has-back-doors-for-numerous-devices-a-940994.html"><b>insert back doors</b></a> into common software and hardware;</li> <li class="li4"><b></b><a href="http://www.nytimes.com/2014/04/13/us/politics/obama-lets-nsa-exploit-some-internet-flaws-officials-say.html"><b>stockpiling information</b></a> about security flaws in the commercial software we use every day rather than notifying the companies so that the holes can get fixed;</li> <li class="li4">and even <a href="http://www.spiegel.de/international/world/ghcq-targets-engineers-with-fake-linkedin-pages-a-932821.html"><b>impersonating popular sites</b></a> like Facebook and LinkedIn to inject malware.</li> </ul> <p class="p1">This behavior is bad for online security, and it could lead to <a href="http://oti.newamerica.net/publications/policy/surveillance_costs_the_nsas_impact_on_the_economy_internet_freedom_cybersecurity"><b>billions of dollars</b></a> in losses because domestic and foreign customers are increasingly concerned about whether they’re more vulnerable to NSA surveillance if they use American products.</p> <p class="p1">So the NSA's actions have not only eroded our civil liberties and harmed U.S. credibility around the world; they are also damaging America's technology sector. As a result, there's growing support for reforms that would rein in the power of the NSA.</p> <p class="p1">The leading NSA reform proposal is the USA FREEDOM Act, which limits bulk collection of Americans' calling and internet records under the Patriot Act. The legislation enjoys support from <a href="http://www.google.com/url?q=http%3A%2F%2Freformgs.tumblr.com%2Fpost%2F102821955852%2Fopen-letter-to-the-us-senate&amp;sa=D&amp;sntz=1&amp;usg=AFQjCNGQL_o683Ck0Wp8x4hdwvLo78gNGw"><b>technology companies</b></a> and <a href="http://www.google.com/url?q=http%3A%2F%2Foti.newamerica.net%2Fsites%2Fnewamerica.net%2Ffiles%2Fprogram_pages%2Fattachments%2FCoalition%2520Letter%2520Supporting%2520USA%2520FREEDOM-%2520Opposing%2520Data%2520Retention_CISA_9%25204%252014.pdf&amp;sa=D&amp;sntz=1&amp;usg=AFQjCNHNNXkY-HgkvN5KWIu4e6gmP5WNgQ"><b>privacy advocates</b></a>, but unfortunately, the effort to get a Senate vote on the bill during the lame duck session <a href="http://www.vox.com/2014/11/18/7241987/usa-freedom-senate-vote"><b>failed</b></a>. So Congress won't pass meaningful surveillance reform this year.</p> <p class="p1">The issue will come up again next year because key provisions of the Patriot Act are scheduled to expire next summer — including the provision the government cites to justify bulk surveillance of Americans' phone and internet records. But reforming that provision wouldn't be enough on its own. The NSA relies on other legal authorities, including the 2008 FISA Amendments Act and a <a href="https://en.wikipedia.org/wiki/Executive_Order_12333"><b>controversial executive order</b></a> to justify spying on Americans. Stricter limits on all of these legal powers will be needed to rebuild the trust of individuals, companies, and governments around the world.</p><p class="p1"><a href="http://www.vox.com/2014/12/12/7378703/internet-policy-ideas">Continue reading</a></p> http://mercatus.org/expert_commentary/seven-internet-policy-ideas-everyone-can-agree-UN-NSA-copyright Fri, 12 Dec 2014 11:11:23 -0500 Regulatory Impact Analysis: The Cornerstone of Regulatory Reform http://mercatus.org/publication/regulatory-impact-analysis-cornerstone-regulatory-reform <h5> Publication </h5> <p class="p1">Congress has a diverse array of proposed&nbsp;regulatory reforms vying for attention,&nbsp;from targeted reforms aimed at providing&nbsp;relief to small businesses to broadbased&nbsp;reforms of the rulemaking process.&nbsp;Setting priorities will be a challenge, but the common&nbsp;objective is clear: solving more problems at a lower&nbsp;cost with fewer regulations.</p> <p class="p1">To ensure that this happens, decision makers must&nbsp;understand the likely consequences of regulations&nbsp;before they propose them. Therefore, any effective regulatory&nbsp;reform must require agencies to first conduct&nbsp;a complete analysis of regulatory proposals and their&nbsp;alternatives before they write proposed and final regulations.&nbsp;For this reason, comprehensive regulatory impact&nbsp;analysis (RIA) is the cornerstone of regulatory reform.</p> <p class="p1">THE GOAL: SOLVE MORE PROBLEMS AT LOWER&nbsp;COST WITH FEWER REGULATIONS</p> <p class="p1">In general, the only way we improve our standard of&nbsp;living is by improving productivity—that is, achieving&nbsp;more with less. This principle applies to government&nbsp;as well as to families and business firms. Regulatory&nbsp;reform should enable regulatory agencies to solve more&nbsp;problems at lower cost with fewer regulations.&nbsp;Presidents of both parties have articulated this goal in&nbsp;the past when proposing requirements to guide executive&nbsp;branch regulatory review:</p> <p class="p1">• President Carter’s Executive Order 12044 directed&nbsp;that regulations “shall achieve legislative goals&nbsp;effectively and efficiently. They shall not impose&nbsp;unnecessary burdens.”<sup>1</sup></p> <p class="p1">• President Reagan’s Executive Order 12291 was&nbsp;intended in part to “reduce the burdens of existing&nbsp;and future regulations, increase agency&nbsp;accountability for regulatory actions . . . and insure&nbsp;well-reasoned regulations.”<sup>2</sup></p> <p class="p1">• President Clinton’s Executive Order 12866, which&nbsp;currently governs regulatory planning and review,&nbsp;stated that the American people deserve “a regulatory&nbsp;system that protects and improves their health,&nbsp;safety, environment, and well-being and improves&nbsp;the performance of the economy without imposing&nbsp;unacceptable or unreasonable costs on society.”<sup>3</sup></p> <p class="p1">• President Obama’s Executive Order 13563 articulated&nbsp;the same goals as Executive Order 12866 and&nbsp;added that the regulatory system “must measure,&nbsp;and seek to improve, the actual results of regulatory&nbsp;requirements.”<sup>4</sup></p><p class="p1"><a href="http://mercatus.org/sites/default/files/Ellig-RIA-Cornerstone-MOP.pdf">Continue reading</a></p> http://mercatus.org/publication/regulatory-impact-analysis-cornerstone-regulatory-reform Fri, 12 Dec 2014 16:43:32 -0500 Unleashing Innovation: The Deregulation of Air Cargo Transportation http://mercatus.org/publication/unleashing-innovation-deregulation-air-cargo-transportation <h5> Publication </h5> <p class="p1">Airline deregulation in the late 1970s led to expanded cargo service, generally reduced cargo rates, and spurred substantial innovation in the types of services offered. In particular, nationwide overnight shipping became more affordable and virtually ubiquitous. The unanticipated nature of some of the results of deregulation in the 1970s suggests the possibility of further gains awaiting discovery in other regulated areas, including those portions of the air cargo industry that remain regulated.</p> <p><iframe frameborder="0" src="//www.youtube.com/embed/2bQNy90p5Y4" height="315" width="560"></iframe></p><p class="p1">BACKGROUND</p> <p class="p1">As part of a broader deregulatory movement, Congress passed Public Law 95-163 in 1977 essentially to remove economic regulation over the air cargo industry. Soon after, express air services spread across the country, allowing rapid increases in the amount and variety of products shipped.</p> <p class="p1">Before this deregulation, the Civil Aeronautics Board (CAB) oversaw the interstate air transport industry (passenger as well as cargo), controlling entry into both the overall market and specific routes. In the twenty years prior to deregulation, the CAB refused to certify the entry of any new cargo carriers or the expansion of existing ones into new routes and limited the size of plane allowed for air cargo hauls. Thus under this regime carriers such as FedEx, which was classified as an express (rather than cargo) service, could only use small planes even when larger ones were the more efficient choice. Supporters of deregulation pointed to air passenger prices provided by unregulated intrastate airlines that were about half that of the regulated interstate carriers as evidence of the benefits of ending economic regulation of the industry.</p><p class="p1"><a href="http://mercatus.org/sites/default/files/Button-aircargo-MOP.jpg"><img height="400" width="585" src="http://mercatus.org/sites/default/files/Button-aircargo-MOP.jpg" /></a></p> <p class="p1">Deregulation of the airline industry occurred in two stages: the first happened with the passage of Public Law 95-163 deregulating interstate air cargo transport in 1977; this was followed a year later by the Airline Deregulation Act of 1978 deregulating the air passenger industry. The effects of deregulation were dramatic. In 1977 air and parcel service (FedEx, UPS, etc., which involve multimodal transportation) accounted for 5.4 percent of domestic shipments by value.4 By 2012, this had risen to 14.5 percent. The growing importance of air cargo transport is shown in the accompanying chart. Air passenger service likewise experienced growth following decreases in fares and expansion in services. Estimates of ensuing welfare gains are in the tens of billions of dollars per year.</p> <p class="p1">AIR CARGO INNOVATION</p> <p class="p1">The innovations arising from deregulation of the air cargo industry may be categorized as first-order and second-order innovations. First-order innovations are those that arose as a direct result of deregulation. Important among these was Federal Express’s rapid initiation of overnight delivery service after deregulation. Under CAB regulation, if a parcel needed extremely rapid transport it could be shipped “belly hold” over routes for which an airline had passenger authority, thus limiting overnighting to point-to-point routes available under passenger air flight regulations. The availability of shipping space was unpredictable, as it was subject to the amount of space leftover after passenger luggage was loaded into the belly of the plane. The deregulation of passenger services increased the options available for belly hold cargo. The 1977 deregulation of air cargo allowed carriers, such as FedEx, to use larger aircraft for overnight shipping over any route, with prices determined by the market. This makes it possible for a lobsterman in Maine to ship crates of fresh lobster from Bangor to Bismark, or nearly anywhere else in the nation.</p> <p class="p1">Absent route restrictions, the air cargo industry began using hub-and-spoke models that made widespread overnight shipping possible.7 The dramatic impact of this model is illustrated by the scale of operations at FedEx’s primary hub in Memphis. FedEx’s presence has made Memphis among the world’s largest cargo airports, utilizing 15 million square feet of sort space and 179 gates, handling 2.2 million packages per day in 2010. Hub-and-spoke operations were accompanied within two years of deregulation by other logistical innovations, including computerized information systems and digitally assisted dispatch. The advent of the internet facilitated the integration of communications technology into the online tracking systems that characterize the modern cargo industry.</p> <p class="p1">Free from operational restrictions imposed by the CAB and the Interstate Commerce Commission (ICC), shippers increased reliability and provided a multitude of delivery speed, time, and method combinations. Nearly simultaneous deregulation of trucking and railroads allowed parcel carriers to become multimodal and offer intermodal services. This variety of services made available illustrates two important points about regulation: First, because regulatory bodies were developed in a specific historical context in which shipping was segregated by mode, the industry was then locked into that structure, with modal segregation enforced by regulation. Second, much of the innovation by parcel carriers has been possible only because both the CAB and the ICC regulatory systems were partially or entirely dissolved at around the same time; thus, deregulation across multiple sectors can lead to innovations inherently unimaginable to regulators and whose joint product outweighs the sum of the benefits arising from deregulation of the industries singly.</p> <p class="p1">These basic innovations arising in the immediate postregulation environment provided a foundation without which many of the second-order innovations characterizing the modern economy would not be possible. The expansion of lean manufacturing and lean retailing processes are among the most important of these second-order innovations. These rely heavily on just-in-time delivery services offered by carriers such as UPS and FedEx. An example of this is the PC industry. Stocking every possible PC configuration would require maintaining massive, costly inventories. Instead, many PC makers wait until a customer’s order is received and then install the needed components (which may themselves be shipped from suppliers using just-in-time delivery), shipping the finished product to the customer rapidly via delivery systems made possible by a parcel carrier utilizing combinations of air and surface transportation.</p> <p class="p1">Another example of the second-order innovations made possible by deregulation is repairs with a rapid turnaround time; for instance, in 2000 SonicAir, a UPS subsidiary, built a logistics center at the end of the runaway at UPS’s Louisville hub that made it possible for customers of tech companies with which SonicAir had a contract to ship their printers and scanners for repairs. These repairs were then completed overnight at the airport and returned in working order to the customer in the morning, reducing parts inventory for the manufacturer and improving customer service.</p> <p class="p1">Of course, the mostly readily recognizable second-order innovation facilitated by deregulation is e-commerce, as typified by online retail giant Amazon.com and online auction house eBay.com. These market-making platforms, as well as the online presence of countless individual retailers, have become an important component of the modern economy. As FedEx notes in its annual report, “e-commerce . . . is projected to reach $1 trillion in sales by 2016. . . . online sales are growing more than three times faster than offline sales.” The interaction between online retailers and air cargo deregulation is important: the rise of parcel shippers able to support the complex supply chains makes possible the rapid 1–2 day shipping of goods and tracking of shipments characteristic of modern e-commerce. When ordering online, consumers can often choose between slower shipping times or 24–48 hour shipping options—a choice not widely available before deregulation. For instance, the 1975 Sears Catalog (the pre-Internet equivalent of Amazon) lists only surface transport rates; 1–2 day shipping was not an option. Although it is impossible to guess what would have happened had air cargo not been deregulated, it is difficult to imagine e-retailing being anywhere near as successful in a world without parcel shippers such as FedEx and UPS.</p> <p class="p1">CONCLUSION</p> <p class="p1">Deregulation of the US domestic interstate airline industry in 1977 and 1978 has proven beneficial. Deregulation of air cargo was a key element in the emergence of modern supply chain management and allowed wider access to goods supplied by domestic and international sources. It also facilitated American trade to foreign markets. Efficiencies in widespread use of hub-and-spoke models for air cargo, by reducing total costs, enable more American products to reach foreign markets.</p> <p class="p1">As UPS expressed, “The efficiency and flexibility of our international air transportation network is dependent on DOT [Department of Transportation] and foreign government regulations and operating restrictions.” The lesson is clear: continued success and innovation in air transport and the many industries that have grown up around it depend on a consistent light-touch regulatory environment. Remaining inefficiencies in air cargo are found in the parts still subject to economic regulation—the airports. Seventy percent of transit time for air cargo is spent on the ground, waiting in line at congested terminals.18 As time is air cargo’s comparative advantage, this represents a significant impediment to realizing the full benefits of air cargo. Policymakers should take this to heart and consider the possibility of allowing market forces to find innovative solutions to the remaining problematic areas in the air transport industry—specifically, air traffic control systems and airport capacity—areas that, not coincidentally, remain heavily regulated.</p> http://mercatus.org/publication/unleashing-innovation-deregulation-air-cargo-transportation Wed, 17 Dec 2014 12:58:41 -0500 Matthew Mitchell Discusses Nanny State Policies on Stossel http://mercatus.org/video/matthew-mitchell-discusses-nanny-state-policies-stossel <h5> Video </h5> <p><iframe width="560" height="315" src="//www.youtube.com/embed/JrMzomAoHSg" frameborder="0"></iframe></p><p>Mercatus Center senior research fellow Matthew Mitchell discusses whether government regulations make us safer.</p> http://mercatus.org/video/matthew-mitchell-discusses-nanny-state-policies-stossel Tue, 09 Dec 2014 14:22:49 -0500 How Technology Could Help Fight Income Inequality http://mercatus.org/expert_commentary/how-technology-could-help-fight-income-inequality <h5> Expert Commentary </h5> <p class="p1">Rising income inequality has set off fierce political and economic debates, but one important angle hasn’t been explored adequately. We need to ask whether market forces themselves might limit or reverse the trend.</p> <p class="p1">Technology has contributed to the rise in inequality, but there are also some significant ways in which technology could reduce it.</p> <p class="p1">For example, while computers have improved our lives in many ways, they haven’t yet done much to make health care and education cheaper. Over the next few decades, however, that may well change: We can easily imagine medical diagnosis by online artificial intelligence, greater use of online competitive procurement for health care services, more transparency in pricing and thus more competition, and much cheaper online education for many students, to cite just a few possibilities. In such a world, many wage gains would come from new and cheaper services, rather than from being able to cut a better deal with the boss at work.</p> <p class="p1">It is a bit harder to see how information technology can lower housing costs, but perhaps the sharing economy can make it easier to live in much smaller spaces and rent needed items, rather than store them in a house or apartment. That would enable lower-income people to live closer to higher-paying urban jobs and at lower cost.</p> <p class="p1">Another set of future gains, especially for lesser-skilled workers, may come as computers become easier to handle for people with rudimentary skill. Not everyone can work fruitfully with computers now. There is a generation gap when it comes to manipulating electronic devices, and many relevant tasks require knowledge of programming or, more ambitiously, the entrepreneurial skill of creating a start-up. That, in a nutshell, is how our dynamic sector has concentrated its gains among a relatively small number of employees, thus leading to more income inequality.</p> <p class="p1">This particular type of inequality may very well change. As the previous generation retires from the work force, many more people will have grown up with intimate knowledge of computers. And over time, it may become easier to work with computers just by talking to them. As computer-human interfaces become simpler and easier to manage, that may raise the relative return to less-skilled labor.</p> <p class="p1">The future may also extend a growing category of employment, namely workers who team up with smart robots that require human assistance. Perhaps a smart robot will perform some of the current functions of a factory worker, while the human companion will do what the robot cannot, such as deal with a system breakdown or call a supervisor. Such jobs would require versatility and flexible reasoning, a bit like some of the old manufacturing jobs, but not necessarily a lot of high-powered technical training, again because of the greater ease of the human-computer interface. That too could raise the returns to many relatively unskilled workers.</p> <p class="p1">A more universal expertise with information technology also might reverse some of the income inequalities that stem from finance. For instance, <a href="http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall">the returns from high-frequency trading were higher a few years ago</a>, in part because few firms used it; now many firms can trade at very high speeds. It remains to be seen whether similar developments will lower hedge fund returns, but again it is possible to imagine a future in which many of the best investment and trading techniques are very widely copied and thus cease to be especially profitable.</p> <p class="p1">A final set of forces to reverse growing inequality stem from the emerging economies, most of all China. Perhaps we are living in a temporary intermediate period when America and many other developed nations bear a lot of the costs of Chinese economic development without yet getting many of the potential benefits. For instance, China and other emerging nations are already rich enough to bid up commodity prices and large enough to drive down the wages of a lot of American middle-class workers, especially in manufacturing. Yet while these emerging economies are keeping down the costs of manufactured goods for American consumers, they are not yet innovative enough to send us many fantastic new products, the way that the United States sends a stream of new products to British or French consumers, to their benefit.</p> <p class="p1">That state of affairs will probably end. Over the next few decades, we can expect China, India and other emerging nations to supply more innovations to the global economy, including to the United States. This shouldn’t be a cause for alarm. It will lead to many good things.</p> <p class="p1">Since the emerging economies are relatively poor, many of these innovations may benefit relatively low-income Americans. India has already pioneered techniques for cheap, high-quality heart surgery and other medical procedures, and over time such techniques may achieve a foothold in the United States. Imagine a future China producing cheaper and safer cars, a cure for some kinds of cancer, and workable battery storage for solar energy. Ordinary Americans could be much better off, and without having to work for those gains.</p> <p class="p1">To be clear, these are speculations and should not be taken as reasons to avoid improving our economy right now; furthermore, other trends may push in less positive directions. Still, these possibilities reframe the inequality problem. In the popular model developed by the economist Thomas Piketty, inequality is fundamentally about capital versus labor. In his view, capital has opened up an ever-widening lead because of the relatively high rates of return on savings and investment. The natural response to reverse this trend, according to Mr. Piketty, would be a direct attack on the return to capital, such as through a global wealth tax.</p> <p class="p1">In the scenarios outlined here, though, growing inequality is highly contingent on particular technologies and the global conditions of the moment. Movements toward greater inequality often set countervailing forces in motion, even if those forces take a long time to come to fruition. From this perspective, rather than seeking to beat down capital, our attention should be directed to leaving open the future possibilities for innovation, change and dynamism. Even if income inequality continues to increase in the short run, as I believe is likely, there exists a plausible and more distant future in which we are mostly much better off and more equal. The history of technology suggests that new opportunities for better living and higher wages are being created, just not as quickly as we might like.</p> http://mercatus.org/expert_commentary/how-technology-could-help-fight-income-inequality Tue, 09 Dec 2014 11:25:07 -0500 Housing Bubbles, Subprime Mortgages and the Financial Crisis Reconsidered http://mercatus.org/expert_commentary/housing-bubbles-subprime-mortgages-and-financial-crisis-reconsidered <h5> Expert Commentary </h5> <p class="p1">In his forthcoming book, "<a href="http://www.barnesandnoble.com/w/hidden-in-plain-sight-peter-j-wallison/1120563628">Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again</a>," <a href="http://mercatus.org/peter-wallison">Peter Wallison</a>, a scholar at the American Enterprise Institute and former White House counsel to President Reagan, seeks to re-inject the word “mortgage” into the narrative of the 2008 financial crisis. At the center of his narrative are what he calls nontraditional mortgages.</p> <p class="p1">Two decades ago, the major lenders employed mortgage underwriting requirements for collateral, capacity and credit history – the three Cs. Collateral meant that the home buyer made a down payment, preferably of 20 percent or more of the value of the house, never less than 10 percent. Capacity referred to the maximum share of a borrower's income that could be devoted to mortgage payments and other debt service. Credit history meant that the borrower demonstrated an ability to manage credit responsibly, an ability which has come to be summarized in a credit score.</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2014/12/08/housing-bubbles-subprime-mortgages-and-the-financial-crisis-reconsidered">Continue reading</a></p> http://mercatus.org/expert_commentary/housing-bubbles-subprime-mortgages-and-financial-crisis-reconsidered Tue, 09 Dec 2014 11:12:44 -0500 Financial Industry Should Be Its Own Knight in Shining Armor http://mercatus.org/expert_commentary/financial-industry-should-be-its-own-knight-shining-armor-not-regulators <h5> Expert Commentary </h5> <p class="p1">A favorite children's book of mine is Robert Munsch's <i>The Paper Bag Princess</i>. Its twist on the traditional fairy tale is that the courageous and quick-thinking <i>princess</i> rescues the <i>prince</i> from the dragon. The ungrateful prince derides the princess for her unbecoming rescue outfit and disheveled appearance. So the princess responds by ditching the prince and presumably living happily ever after. The book offers valuable life lessons — but it also helps us to take a fresh look at financial regulation.</p> <p class="p1">We often tell ourselves stories about regulators riding to the rescue when the financial industry gets into a bind. According to this tired narrative, in times of trouble, the dim-witted and over-indulged financial industry sits, waits, hopes, and pleads for strong, smart, powerful regulators' assistance. After each rescue episode comes the quid pro quo as the regulators tighten their hold on the financial industry, which clearly cannot survive without the regulators' superior wit and insight. This story gets into our blood, and we all start believing it.</p> <p class="p1">The power of this storyline was evident in the last crisis. As companies failed, the financial industry — rather than crafting its own remedies — called loudly for help from the same regulators that wrote the rules that drove them into crisis. They had been conditioned by a long history of government bailouts to rely on the government for help. Regulators, in turn, believed that only they were capable of acting as the knight in shining armor.</p> <p class="p1">True to the storyline, the regulators heeded the rescue calls in 2008. In exchange, the government extracted a commitment — memorialized in Dodd-Frank's micro-managing regulatory structure — in which regulators would call the shots and financial companies would complacently submit to their wise mandates. Employees of two different regulated entities recently told me how grateful they are for regulatory risk-management mandates, because without them their firms and others just would not manage their risks.</p> <p class="p1">It's time to rewrite the storybook. In the new narrative, the financial industry will be more self-reliant. It will realize the folly of looking to regulators — who invariably are wrapped up in regulatory checklists and other superficialities — to guide industry decision-making or get firms out of trouble when they make bad decisions. Financial companies will not live and die based on the competence of the regulator, but based on their own risk-management savvy and ability to satisfy customer demands.</p> <p class="p1">Of course, changing the way that the financial industry operates requires more than telling a new story. We need to empower financial firms to be active problem-solvers before and during crises. This means puttingan end to regulatory micro-management and firm complacency. It means placing the responsibility for risk-spotting and risk-management squarely on firms' shoulders by making it clear that failure in these areas will result in their shareholders losing money and perhaps losing the whole firm.</p> <p class="p1">To convince them of the real potential for such dire consequences, we should replace regulatory micro-management with shareholder capital. We should revisit Federal Reserve Act section 13(3), the provision that empowers the Fed to make emergency loans and was used during the crisis for, among other things, AIG's rescue. Dodd-Frank's attempt to pare it back was half-hearted.</p> <p class="p1">Convincing firms that failure is an option requires eliminating Dodd-Frank's orderly resolution authority, a legally hazy substitute for bankruptcy that offers the government an avenue to inject money to prop up failing firms. It might also mean requiring financial companies to buy insurance contracts that will pay out to the government if the government bails the company out. During a crisis, the insurers' calls against bailouts might be able to drown out the voices of those clamoring for a rescue.</p> <p class="p1">Financial regulators, fresh off their rescue of the financial industry and confident in their superior abilities, have taken to micromanaging the industry. The industry puts up a fight here and there, but largely seems content to be guided and directed by the regulators who rescued it once and are ready to do so again. The truth is that regulators are not particularly skilled at managing the financial industry. Their imperious commands, delivered with great bluster, often end up driving the industry right into harm's way.</p> <p class="p1">Were we to let the financial industry make its own way during ordinary times — a way that certainly would not be without shareholder and creditor losses and firm failures — the industry would be much better equipped to handle crises on its own. The regulatory prince would play a supporting role in the new narrative — a helpful influence, but not the center of attention or locus of all our hopes. The star of the narrative would be the financial industry. It is neither flawless nor perfect, but periodic failures are part of what make it strong, careful, and adaptable. This princess is capable of handling financial crises in her own, albeit sometimes messy, way — without looking for the regulatory prince to ride to the rescue.</p> http://mercatus.org/expert_commentary/financial-industry-should-be-its-own-knight-shining-armor-not-regulators Tue, 09 Dec 2014 11:00:35 -0500 Unmanned Aerial Vehicles: Opportunities, Barriers, and the Future of “Drone Journalism” http://mercatus.org/publication/unmanned-aerial-vehicles-opportunities-barriers-and-future-drone-journalism <h5> Publication </h5> <p class="p1">Unmanned aerial vehicles (UAVs), commonly referred to as “drones,” have gained media attention over the last several years with much of the focus centering on their military uses and their emerging role in newsgathering. News organizations, journalists, and private citizens have employed UAVs to capture and share breaking news, to provide glimpses of natural disasters that would otherwise be too hazardous for journalists to obtain, and to offer unique perspectives that enrich news storytelling. At the same time, media scholars have emphasized the need to better understand the privacy and ethical concerns surrounding UAVs. Legal restrictions to and implications of their use have been relatively unexplored. Given that evolving rules and regulations put in place by the Federal Aviation Administration (FAA) may ground UAVs for journalistic purposes, it is important to understand what those legal barriers are and what they mean for the future of UAVs as tools for journalism. This paper advances by noting key benefits UAVs offer journalism before explicating the evolving rules and regulations of the FAA and how those are shaping the use of UAVs for journalism by private citizens, journalists, and news organizations.</p><p class="p1"><a href="http://www.tandfonline.com/doi/ref/10.1080/17512786.2014.980596#tabModule">Continue reading</a></p> http://mercatus.org/publication/unmanned-aerial-vehicles-opportunities-barriers-and-future-drone-journalism Mon, 08 Dec 2014 11:44:14 -0500 Growth in Pentagon’s Budget Goes beyond War Costs http://mercatus.org/publication/growth-pentagon-s-budget-goes-beyond-war-costs <h5> Publication </h5> <p class="p1">A recent <a href="http://www.cbo.gov/sites/default/files/cbofiles/attachments/49764-MilitarySpending.pdf">report</a> from the Congressional Budget Office, which examines the growth in “base” Department of Defense (DoD) funding from fiscal years 2000 to 2014, finds that inflation-adjusted (real 2014$) base Pentagon funding jumped from $384 billion in fiscal year 2000 to $502 billion in fiscal year 2014—an increase of 31 percent.&nbsp;</p> <p class="p1">Base DoD funding excludes supplemental and emergency money for the wars in Afghanistan, Iraq, and ongoing “overseas contingency operations.” It also excludes funding for defense-related activities that are funded in other parts of the budget (e.g., nuclear weapons programs at the Department of Energy). In other words, the substantial amount of money—approximately $1.7 trillion since fiscal year 2001—that the DoD received for the wars in the Middle East and other emergencies is excluded from the data presented in the green bars in the first chart. Although base funding peaked in fiscal year 2010 due to spending caps instituted under the Budget Control Act of 2011, the respite is likely to be temporary.&nbsp;</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C1-DOD-base-budget.jpg "><img height="398" width="585" src="http://mercatus.org/sites/default/files/C1-DOD-base-budget.jpg" /></a></p> <p class="p1">The CBO report was released during negotiations between the House and Senate armed services committees on the fiscal year 2015 National Defense Authorization Act (NDAA). The NDAA guides defense policy and authorizes the annual appropriation of funds to the Pentagon. A key issue of contention that the CBO report addressed is the rise in pay and benefits for military and civilian DoD employees. As the bright blue bars in the following charts show, funding for the military personnel component of the DoD’s base budget increased 46 percent in real 2014 dollars.&nbsp;</p><p class="p1"><a href="http://mercatus.org/sites/default/files/C2-major-components-vero.jpg"><img src="http://mercatus.org/sites/default/files/C2-major-components-vero.jpg" width="585" height="398" /></a></p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C3-DOD-comparative-vero.jpg"><img height="398" width="585" src="http://mercatus.org/sites/default/files/C3-DOD-comparative-vero.jpg" /></a><br /><span style="font-size: 11.8181819915771px;"></span></p><p class="p1"><span style="font-size: 11.8181819915771px;">There are also substantial personnel costs contained within the operations and maintenance component (O&amp;M, in the light blue bars above), which jumped 34 percent in real 2014 dollars between 2000 and 2014. About one-third of this increase was driven by increases in federal civilian employee pay and benefits, excluding health insurance. The cost of the Defense Health Benefits program doubled, which accounted for another third of the increase in O&amp;M. As the CBO notes, “primary reasons for that growth are the new and expanded TRICARE benefits that lawmakers authorized, including expanded benefits for reservists and their families, and the very low out-of-pocket costs of TRICARE relative to other health care plans.” The rest of the increase in the O&amp;M component can be attributed to rising fuel costs, operations support, and “other.”&nbsp;</span></p> <p class="p1">Unfortunately, the compromise reached between the House and Senate armed services committees does little to address mounting DoD personnel costs. Even though Pentagon officials requested that lawmakers include changes that would slow the rate of growth in personnel benefits, the final version of the NDAA contains minimal adjustments. Indeed, Congress has consistently rebuffed efforts to corral in the unsustainable growth in personnel costs. Given that the funds available to support the Pentagon are not unlimited, policymakers are facing a situation where the dramatic increase in personnel costs means less money for other priorities. It’s also unfair to taxpayers who have been compelled to pay for a global US military presence that one could argue is excessive and contrary to limited government principles. Policymakers need to reconsider whether the nation’s best interests are served by the current expansive global military presence. Limiting American military presence overseas would not only benefit the nation, it would also help control runaway DoD personnel costs.</p> http://mercatus.org/publication/growth-pentagon-s-budget-goes-beyond-war-costs Fri, 12 Dec 2014 12:21:36 -0500