Federal law enforcement agencies secretly seek the data of Microsoft customers thousands of times a year, according to congressional testimony Wednesday by a senior executive at the technology company.
Tom Burt, Microsoft’s corporate vice president for customer security and trust, told members of the House Judiciary Committee that federal law enforcement in recent years has been presenting the company with between 2,400 to 3,500 secrecy orders a year, or about seven to 10 a day.
“Most shocking is just how routine secrecy orders have become when law enforcement targets an American’s email, text messages or other sensitive data stored in the cloud,” said Burt, describing the widespread clandestine surveillance as a major shift from historical norms.
The relationship between law enforcement and Big Tech has attracted fresh scrutiny in recent weeks with the revelation that Justice Department prosecutors obtained as part of leak investigations phone records belonging not only to journalists but also to members of Congress and their staffers. Microsoft, for instance, was among the companies that turned over records under a court order, and because of a gag order, had to then wait more than two years before disclosing it.
Microsoft executive says U.S. overuses secret orders for Americans’ data
By Raphael Satter
WASHINGTON (Reuters) – The United States government is overusing its secret subpoena power to routinely gather vast amounts of data on American internet users, a senior Microsoft executive said in prepared testimony to Congress released on Wednesday.
In remarks for a U.S. House of Representatives Judiciary Committee hearing, the executive said that in the last five years Microsoft had received 2,400 to 3,500 secrecy orders a year and that U.S. courts provided little by way of meaningful oversight.
Tom Burt, a vice president for customer security and trust, said that American law enforcement was ordering Microsoft to stay quiet about between one third to one quarter of the requests for data that it received, “developing a practice of reflexively asking to keep even routine investigations secret.”
“Providers, like Microsoft, regularly receive boilerplate secrecy orders unsupported by any meaningful legal or factual analysis,” Burt told lawmakers. “Many of these orders should never have been approved by the courts.”
The panel called a hearing into secrecy orders in the wake of revelations that the U.S. Department of Justice during Donald Trump’s administration had secretly sought the phone records of reporters and Democratic representatives to investigate the leak of classified material.
Word of the investigations outraged lawmakers and blew new life into efforts to rein in the federal government’s domestic surveillance powers.
Burt said that while the effort to target lawmakers and reporters disturb many Americans, “what may be most shocking is just how routine court-mandated secrecy has become when law enforcement targets Americans’ emails, text messages, and other sensitive data stored in the cloud.”
Burt called for ending indefinite secrecy orders, boosting transparency around their use, forcing the government to notify targets of such orders once their time was up, and raising the bar on such orders to prevent what he described as the current “rubberstamping process.”
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http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00Pamela Gellerhttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngPamela Geller2021-07-01 06:21:482021-10-07 20:23:53Federal law enforcement agencies conduct clandestine surveillance of thousands of U.S. citizens with the help of Microsoft
On Friday, May 7, hackers attacked the computer systems of Colonial Pipeline, which operates a major gasoline pipeline that brings gasoline and jet fuel from Houston refineries up through the southeastern United States as far as New Jersey. Out of concern that the hackers might have obtained data enabling them to do physical damage to their facilities, the pipeline operators shut the pipeline down while it was still under their control.
This may have saved the machinery from damage, but it produced a severe regional fuel shortage that affected everything from flights out of Atlanta to drivers’ vacation plans. As of Sunday, May 16, the pipeline was fully restarted, but the ripple effects of the shutdown meant 88% of Washington, D. C. gas stations were out of gas at one point over the weekend.
This was a ransomware attack by a group calling itself DarkSide with reported links to Russia. According to Bloomberg News, Colonial Pipeline paid DarkSide about $5 million in bitcoin for software to unlock their systems, only to find that it ran so slowly that they ended up restoring service without its help.
This is by far the most serious ransomware attack ever mounted on a U. S.-based facility, and should become a turning point in our response to this sort of attack. Although I’ve stated the following position before in relation to other ransomware attacks, it bears repeating now that millions of people are going without gas, including many in Washington, D. C., and are presumably paying attention to the problem.
Article 4, Section 4 of the Constitution of the United States reads as follows, in full:
“The United States shall guarantee to every state in this Union a republican form of government, and shall protect each of them against invasion; and on application of the legislature, or of the executive (when the legislature cannot be convened) against domestic violence.”
The key word of present interest in this section is “invasion.” An online law dictionary defines invasion as “[a]n encroachment upon the rights of another; the incursion of an army for conquest or plunder.” The Constitution was written at a time when messages travelled fastest by horseback or sailing ship. It is safe to say that the current technological facts of instant global Internet access to a domestic firm’s private infrastructure were not in the minds of the drafters of the Constitution.
But notions of justice and international relations were, and the drafters recognised that a federal government that could not successfully defend its constituent states against invasion, as defined above, was not worth organising. So they put words in the Constitution that gave the federal government the responsibility of defending the states against invasion, and in Article 1, section 8, they also gave Congress the power to “provide for the calling forth the militia to execute the laws of the Union, suppress insurrections, and repel invasions.” There’s that word “invasion” again.
Pardon what may look like a constitutional detour, but what happened to Colonial Pipeline this month amounts to invasion and plunder by agents of a foreign power. The DarkSide criminals may not formally be agents of the Russian government, but they operate with its approval or at least without its hindrance.
Suppose a bunch of Canadians armed with tanks and machine guns charged across the Ambassador Bridge in Detroit and took over the headquarters of Ford Motor Company in Dearborn, Michigan, capturing their main computer centre and demanding $5 million in ransom to turn it loose. This would quite properly be regarded as a foreign invasion, and no one would raise a finger to object to using whatever military force was necessary to repel such an invasion.
I submit that what happened to Colonial Pipeline is morally equivalent to my hypothetical invasion by Canadians. The technological details are different, but the responsibility of the US government to defend those within its borders from invasion and plunder is something that the Founders intended it to do.
So what has the federal government in fact done? Hardly anything — a few warnings not to try keeping gasoline in plastic bags, a few adjustments of shipping regulations to allow more ships to land gasoline from abroad, and that’s about it.
There is a well-known saying that generals always prepare for the last war, not the one they’re fighting now. And that is certainly true in this case. According to one source, the U. S. military has over 200,000 troops stationed abroad in over 170 countries. The vast majority of these are conventional soldiers ready to shoot bullets and drop bombs, and certainly, bullets and bombs haven’t gone out of fashion. But among the more advanced criminal element, it’s much more chic to keep your fingers clean while typing code that will shut down half of the gasoline going to the U. S. East Coast, and make $5 million in exchange for some software that doesn’t even work.
Congress is reportedly drafting legislation to do something about this sort of thing. That is where the process should start, but it’s clear that a vast reorganisation and re-prioritising of the entire domestic and foreign military establishment is called for. Cyberwarfare is where it’s at now. Metaphorically speaking, the Canadians have been rioting through the entire country for years now, and all we have done is have vague discussions about the future of military combat. Don’t people get it? It’s happening now. The fact that nobody was killed in the Colonial hack is due more to the foresight of the pipeline operators than to anyone else, as an out-of-control pipeline can do unimaginable amounts of damage.
But private companies should not have to shoulder by themselves the burden of protecting their facilities against foreign invasion and plunder. That’s one of the most basic services of the federal government, and so far it is failing miserably in its job.
The gasoline shortage Washington now enjoys has fallen equally on Republicans and Democrats. We can only hope that they will unite to make major lasting changes in the structure and priorities of the U. S. military so that we can once more be secure in our persons and property against the depredations of foreign invasion, including ransomware attacks.
Karl D. Stephan received the B. S. in Engineering from the California Institute of Technology in 1976. Following a year of graduate study at Cornell, he received the Master of Engineering degree in 1977… More by Karl D. Stephan
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00MercatorNet - Navigating Modern Complexitieshttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngMercatorNet - Navigating Modern Complexities2021-05-21 04:23:222021-10-07 20:27:48OUT OF GAS: What Does The Colonial Pipeline Shutdown Say About U.S. Defence Readiness?
The WHO promotes permissive policies on prostitution, drug use, abortion, gender theory, and sex for kids.
Last year President Trump halted US funding to the United Nations’ World Health Organization (WHO). On his first day in office President Biden reinstated US funding for the WHO. Here are five reasons this is a very bad news:
1. The WHO advocates for decriminalizing prostitution. The WHO publication “Sexual Health, Human Rights and the Law” says, “All countries should work toward decriminalization of sex work.” Additionally, at DecriminalizeSex.Work, the WHO is listed as a proud partner in the decriminalization cause. The WHO’s push to make the world into a giant Las Vegas strip downplays the myriad risks to “sex workers” including assault, traumatic brain injury, PTSD, and death as documented by the National Center on Sexual Exploitation. The WHO’s enthusiasm for prostitution also ignores the fact that there are no independent studies showing that decriminalizing the sex trade makes it safer.
2. The WHO advocates for decriminalizing drug use. An official WHO report in 2014 said, “Countries should work toward developing policies and laws that decriminalize injection and other use of drugs.” In 2015, the WHO published “HIV and Young Transgender People” which urges the governments of the world to “work toward the decriminalization of…drug use” in the name of helping young people fulfill their “needs and rights.” The WHO—an official United Nations entity—appears to be pushing the decriminalization of injection drugs despite the fact that there is no consensus among UN member states on whether injection drugs should be decriminalized. It is especially troubling that the WHO is recommending decriminalization of drugs for “young people” which is defined by them as “people 10–24 years of age.”
3. The WHO advocates for legalizing abortion worldwide. The WHO produces manuals, videos, and programs that promote abortion and seek to expand the legalized and “safe” killing of pre-born babies throughout the world. Dr Tedros Adhanom Ghebreyesus was likely chosen for his post as head of the World Health Organization in part because of his successful campaign to expand abortion as Minister of Health in Ethiopia and his deep commitment to abortion and other tenets of the sexual rights agenda. The WHO regularly partners with abortion giant International Planned Parenthood Federation and has a close relationship with Ipas, maker of the EasyGrip portable abortion device and other grisly abortion innovations. Ipas is pursuing a scheme to expand abortion in accordance with the WHO’s guidance on “self-care” which would enable “health intermediaries” (instead of doctors) to distribute abortion-inducing pills to pregnant women, without a prescription. These women’s babies would then be disgorged into toilets and garbage cans in their own homes.
4. The WHO promotes gender ideology for children. The WHO endorses UN guidelines stating that children should be instructed on gender incongruence starting at age five. The WHO says it is “important to recognize identities that do not fit into the binary male or female sex categories” and that gender conflicted individuals need access to hormonal treatment and invasive, irreversible surgeries “for the protection of their health.” The WHO seems content to ignore the staggering risks (see here and here) that can accompany hormone treatments and transgender surgeries including blood clots, breast cancer, coronary artery disease, cerebrovascular disease, gallstones, liver dysfunction, hypertension, uterine cancer, incomplete mineralization of bone, transition regret, suicidality, sterility, and diminished or demolished sexual function.
5. The WHO advocates for “sexual rights” for children. TheWHO is a supporter of the children’s sexual rights movement and of comprehensive sexuality education (CSE) which is founded on the premise that children have inborn sexual rights. The name and logo of the WHO appears on the front cover of UNESCO’s 2018 International Technical Guidance on Sexuality Education. This document is peppered with references to children’s sexual rights including these statements:
“(Young) people want and need sexuality and sexual health information as early and comprehensively as possible…”
Children should have “agency in their own sexual practices and relationships.”
Comprehensive Sexuality Education can “help children…form respectful and healthy relationships with…sexual partners.”
“Young people are sexual beings…It is important for all young people around the world to be able to explore, experience and express their sexualities in healthy, positive, pleasurable and safe ways. This can only happen when young people’s sexual rights are guaranteed.”
“Sexuality and sexual pleasure are important parts of being human for everyone—no matter what age, no matter if you’re married or not and no matter if you want to have children or not.”
“There is a common misconception that young people are not or should not be sexual beings with the exception of certain groups, such as married young people or young people above a certain age. Sexuality is a central aspect of being human during all phases of each person’s life.”
The WHO not only supports sexual rights for children but is a strong advocate for eliminating parental consent in regard to abortion, contraception, and other sexual services for young people.
With these five reasons in view, it is dumbfounding that the Biden administration made a top priority of ensnaring the US in this ethically corrupt organization once again. This is a significant setback to the children, women, and families of the world.
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00MercatorNet - Navigating Modern Complexitieshttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngMercatorNet - Navigating Modern Complexities2021-01-25 06:46:322021-10-07 20:34:41Five reasons Biden’s move to rejoin the WHO is bad news
COVID-19 was going to be bad, no matter what. But the failures of big government made it much, much worse.
The disaster that was 2020 is finally over. Now it’s time for the inevitable post-mortems.
First and foremost, the COVID-19 pandemic posed enormous challenges to American institutions, and continues to do so. Frankly, we were not prepared. We need to diagnose what went wrong, so that we are never caught unaware like this again. Fortunately, the diagnosis is straightforward. COVID-19 was going to be bad, no matter what. But the failures of big government made it much, much worse.
In particular, the Centers for Disease Control, Food and Drug Administration, and public teachers’ unions are the great American villains of 2020. Meanwhile, the heroes of this year are almost entirely in the private sector. From Zoom to vaccine development, Big Pharma and Big Tech—yes, you read that right—made this horrible year bearable. Even amid a crisis that led so many to cry out for vigorous government action, we saw that private markets still work best.
For progressives and so-called “national” conservatives who support big government, 2020 represented the ultimate test for their philosophies. Although they disagree on cultural issues, they see eye-to-eye on the role of government. Both want a big, energetic state promoting what (they believe to be) the good of the nation. Well, here was their chance for the government to shine.
The result was shameful failure. The COVID-19 crisis put left-wing and right-wing statism on trial—and both were found guilty of ill-intent and gross incompetence.
After all, the CDC is the reason America lagged behind other nations for so long in terms of COVID-19 testing. We had the virus genome fully mapped in January, which enabled the rapid production of private testing kits. But the CDC forced these operations to shut down, coming up with its own test—which was flawed, and even contaminated! Testing and tracing could have stemmed the worst of the COVID-19 tide.
On this issue alone, CDC ineptitude is likely responsible for tens of thousands of deaths. Its red tape and incompetence made containing the COVID-19 pandemic, like a few other countries were able to, impossible.
As for schools, the data show that young people and children are at very low-risk from COVID-19, and that schools are not “super spreaders.” Despite this, largely due to pressure from public teachers’ unions, many schools remained closed in the fall. In fact, the US was pretty much the only country to pursue the alarmist policy of keeping schools closed.
The toll on school-aged children is immense, from psychological trauma to impeded learning. Low-income families were hit especially hard. They often lacked the means to participate in distance learning, and having their kids at home made it harder for parents to earn much-needed income.
Fortunately, there seems to be some well-deserved backlash against the crony public education establishment. Hopefully a mass exodus to more effective and accountable learning platforms will follow, whether that is charter schools, private schools, or homeschooling. Even more hopefully, parents will realize public education racketeers are not their friends. They should demand loud and clear: Fund students, not systems!
In stark contrast to these unacceptable failures by government agencies and employees, the private sector delivered.
Big Pharma and Big Tech are the winners here. Pfizer, Moderna, AstraZeneca, and many other companies did amazing work getting the vaccines developed as quickly as they did. Public health “experts” repeatedly claimed a vaccine would not be available for 18 months, at the earliest. (Shows what they know!)
As for Big Tech, companies like Facebook and Twitter helped us stay connected while we were forced physically to remain apart. Amazon responded well to a huge surge in demand, stemming from the curtailment of in-person shopping. Faced with an immense logistical challenge, the online retailer surpassed expectations.
These sectors and their star performers are not perfect, of course.
In the past, Big Pharma lobbied for many of the regulatory roadblocks that made fighting COVID-19 so hard. Big Tech got egg on its face for covering up the Hunter Biden laptop story. Nevertheless, the takeaway is clear: 2020 would have been much, much more miserable without these supposedly evil big businesses in our corner. We owe them far more than we give them.
2021 is the perfect time to revisit our basic beliefs about the role of government and business in society. Both were unexpectedly challenged by the greatest public health crisis in recent memory.
Government failed. Business triumphed. Statism should be discredited, hopefully for an entire generation. Any coherent political philosophy for the 21st century must start from this basic truth.
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2021-01-04 08:01:122021-10-07 21:09:38Why the Real Villain of 2020 Was Big Government
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00Dr. Rich Swierhttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngDr. Rich Swier2020-09-15 05:13:412020-09-15 05:18:02VIDEO: Why Religion is Essential for the Survival of American Democracy
President Donald Trump said Thursday that his administration was finalizing an executive order focusing on police reform amid widespread protests over the death of George Floyd.
The statement, which came during a roundtable with law enforcement officers in Dallas, addressed police funding, social workers and de-escalation tactics, Politico reported. It also came amid demonstrations and rioting over Floyd, who died May 25 after a Minneapolis police officer knelt on his neck for about nine minutes, video showed.
“We’re working to finalize an executive order that will encourage police departments nationwide to meet the most current professional standards for the use of force, including tactics for de-escalation,” Trump said. “Also, we’ll encourage pilot programs that allow social workers to join certain law enforcement officers so that they work together.”
Trump emphasized his support for law enforcement and said he wanted to increase funding toward it.
“We’re not defunding the police. If anything we’re going the other route. We’re going to make sure our police are well trained, perfectly trained, they have the best equipment,” Trump said.
The announcement came amid growing calls to defund police departments nationwide or even abolish police altogether.
The President spoke to community and faith leaders in Dallas yesterday, where he presented his vision for advancing justice and freedom in America.
The president also announced Thursday preliminary plans to build “safety and opportunity and dignity” in communities of color by increasing access to capital for minority-owned small businesses and by confronting the health care disparities that have long existed.
What could possibly go wrong? Convicted terrorists are simply people who have acted upon their justifiable grievances against the U.S. and Israel, right? Don’t you stand against colonialism, imperialism, and racism, you greasy Islamophobe?
“174 Democrats Vote Against Amendment That Aims To Make It Harder To Hire TSA Employees With Terrorist Or Sexual Crime Record,” by David Krayden, Daily Caller, March 6, 2020:
House Republicans and 42 Democrats joined forces Thursday to pass an amendment to the Rights for Transportation Security Officers Act that would keep people convicted of sexual assault, terrorism and other violent crimes from working for the Transportation Security Agency (TSA).
But 174 House Democrats — including House Majority Leader Steny Hoyer — did not support the legislation.
The vast majority of Democrats voted against the amendment, which was authored by Democratic Illinois Rep. Lauren Underwood.
Republican House Leader Kevin McCarthy was quick to criticize the Democratic leadership for rejecting the law.
“[The amendment] was pulled back by leadership because the socialist wing of the party did not want to have that amendment go forward on this bill,” the California representative said Thursday, according to the Washington Free Beacon. “When it was offered, overwhelmingly the majority of the House would like to see the TSA not hire terrorists or those who have been convicted of sexual misconduct with minors and others. But the socialist wing of the party, that controls now the Democratic Party, said that that could not be offered.”
Every member of the “squad” voted against the amendment. House Speaker Nancy Pelosi did not cast a vote….
Critics have also faulted TSA for being lax when it comes to identifying people on the terror watch list….
The Rights for Transportation Security Officers Act passed the House with a vote of 230-171….
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00Robert Spencerhttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngRobert Spencer2020-03-10 06:02:492020-03-11 07:22:19Most House Democrats Vote Against Amendment that Would Keep Convicted Terrorists from Working for the TSA
On January 31, 1940, Miss Ida Fuller received a check for $22.54. She was the first person to retire under the Old-Age, Survivors, and Disability Insurance (OASDI) scheme, better known as Social Security. At the time of her retirement in 1939, she had paid just $22 in Social Security taxes. Ms. Fuller lived to be 100, cashing over $20,000 worth of Social Security checks.
How Social Security Is Funded
If she had only paid $22.54 in contributions, where did the $20,000 Ms. Fuller received in Social Security payouts come from? It came, as it does now, from the taxpayers of the day. As of 2019, your employer deducts 6.2 percent of your wages up to $132,900 a year, matches this amount, and sends it to the Social Security Administration (SSA). The SSA deposits this with the Treasury, which spends it and receives Treasury bonds in return. This is the fabled trust fund that guarantees Social Security.
But these Treasury bonds are simply IOUs redeemable against the income of tomorrow’s taxpayers. When one of the Treasury bonds held by the SSA falls due for payment, the Treasury can only get the funds to meet this liability by taxing, borrowing (taxing the taxpayers of tomorrow), or printing money (imposing an inflation tax). In each case, what really guarantees Social Security is not the money you paid in but the earnings of today’s or tomorrow’s taxpayers.
The Golden Age of Social Security
Such a pay-as-you-go scheme could chug along well enough as long as there were lots of workers relative to retirees. When the program began, every 100 workers were supporting three retirees.
This favorable ratio encouraged politicians to be more generous. Originally intended to cover only about 50 percent of all workers, Social Security was expanded even before Ida Fuller received her first check to provide benefits for dependents of retired workers and surviving dependents. In the post-war years, Social Security grew further. Disability benefits, payable as early as age 50, were added in 1956, and during the 1950s coverage was extended to other previously excluded workers, making it essentially universal. Congress passed across-the-board benefit increases of 7 percent (1965), 13 percent (1967), 15 percent (1969), 10 percent (1971), 20 percent (1972), and 11 percent (1974). In 1972, benefits were tied to the Consumer Price Index, yielding an annual “cost of living adjustment.”
In 1965, Medicare was signed into law, establishing a heavily subsidized federal health care program for the elderly. Former President Harry Truman and his wife received the first Medicare cards without paying a cent in Medicare taxes.
Like Social Security, Medicare is financed by a payroll tax of 2.9 percent split between employer and employee, up from 0.7 percent in 1966. Like Social Security, that money gets paid right out to meet current expenses, which were vastly expanded by passage of Medicare Part D in 2003. And like Social Security, such a pay-as-you-go scheme could chug along well enough as long as there were lots of workers relative to retirees.
Entitlements vs. Demographics
Two things derailed that. US birth rates fell from births 3.65 births per woman in 1965 to 1.80 in 2016, and life expectancy rose from 68 in 1950 to 79 today. Together, this meant ever more retirees relative to the workers supporting them. By 2017, 100 workers were supporting 25 retirees.
These shifting demographics have shredded the solvency of the “trust funds.” Social Security is estimated to run out of reserves in 2034, after which benefits would have to be reduced by about 25 percent to keep spending within available annual revenue. Over 75 years, Social Security has an unfunded liability of $13.9 trillion.
The Medicare hospital insurance trust fund will run out of reserves in 2026. Medicare’s second trust fund, for physician and outpatient services and for prescription drugs, is permanently “solvent” because it has an unlimited call on the general fund of the Treasury—the incomes of future taxpayers. Premiums paid by the beneficiaries will cover only about 25 percent of program costs; the rest of the spending is unfinanced. Medicare’s overall unfunded liability over 75 years is more than $37 trillion.
The Future Is Bleak
The taxes levied to fund Social Security have already risen drastically. In 1937, the Social Security tax rate was one percent on earnings up to $3,000 ($53,449 in 2019 dollars) to be matched by the employer. By 1971 it was 4.6 percent on earnings up to $7,800 ($49,411 in 2019 dollars). It now stands at 6.2 percent up to $132,900.
This is only going to get worse. According to Census Bureau projections, by 2030 each 100 working-age Americans will be supporting 35 retirees, and this could rise to 42 by 2060. Another way to think of this is to calculate the number of retirees each worker must support. In 1946, the burden of one retiree was shared between 42 workers. Today, according to the SSA, roughly three workers cover each retiree’s Social Security and Medicare benefits. By 2030, however, there will be only two workers supporting each retiree.
In other words, a working couple will have to support not only themselves and their family but also someone outside the family thanks to Social Security and Medicare.
To make Social Security solvent again, the payroll tax rate would need to be hiked immediately from 12.4 percent to 15.2 percent, or Social Security benefits would need to be cut on a permanent basis by about 17 percent. According to economists Roger LeRoy Miller, Daniel K. Benjamin, and Douglass C. North:
[F]or Social Security and Medicare to stay as they are, the payroll tax rate may have to rise to 25 percent of wages over the next decade. And a payroll tax rate of 40 percent is not unlikely by the middle of the twenty-first century.
Boomers vs. Millennials
Teenage climate activist Greta Thunberg recently made international headlines with an impassioned speech to the United Nations in which she complained that her future had been stolen by inaction on climate change. An American Ms. Thunberg’s age could say the same about entitlement spending on Social Security and Medicare.
By the expanding eligibility for and hiking the benefits of a pay-as-you-go system while at the same time having fewer children to fund it, the generations preceding that child have left a fearsome financial obligation. Either taxes will go up sharply for the workers of tomorrow, lowering their standard of living, or benefits will go down for the retirees of tomorrow, lowering their standard of living. One group is going to feel pretty angry.
These problems were foreseen even as politicians were hiking payouts. In 1978, the economist Paul Samuelson wrote:
[O]ur Social Security system is also an actuarially unfunded system…there is no obligation for this generation to have children at the same rate as did previous generations. Therefore, when those born during the baby-boom period of the ‘50s reach retirement age in the next century, their stipends will be felt as more of a burden by the thinner ranks of the then working population
We are on the brink of inter-generational strife. We have the political shortsightedness of decades past to thank for that.
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png00Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2019-11-11 15:03:202019-11-11 15:05:59Entitlement Liabilities Are a Graver Threat to the Next Generation of Americans Than Climate Change
During the Obama Administration, it became common practice for Federal agencies to target and penalize American families and small businesses. They got away with it by hiding behind vague, often secret interpretations regarding how ordinary citizens should comply with the government’s own maze of bureaucratic regulations.
When President Donald J. Trump took office, he pledged to turn the page on Washington’s regulatory overreach, giving the American people a government that’s finally accountable to its citizens. Building on that promise, the President signed a pair of Executive Orders today to ensure that the abuses that took place under the last Administration can never happen again.
Americans will no longer be kept in the dark.
First, Agencies will have to place their guidance documents on easily searchable public websites, allowing any American access to them. The government will be required to permit citizens to give their input on these guidelines, and they will have the ability to ask agencies to withdraw guidance they believe is wrong. Second, agencies will be strictly prohibited from enforcing rules that have not been made publicly known.
These common-sense changes come alongside the President’s historic efforts to cut burdensome red tape. In his first week in office, he issued a challenge to his Administration: For every new regulation introduced, 2 old ones must be cut.
That goal has been met—to say the least. As of today, the tally is 14regulations that have been cut for every significant new one implemented. That makes for the largest deregulatory push since Ronald Reagan was President.
President Trump signs ‘game-changing’ trade deal with Japan
During the U.N. General Assembly last month, President Trump continued to fight for fairer trade deals for American workers. The results of that hard work came to light Monday, when the President signed a pair of groundbreaking deals at the White House.
“These two deals represent a tremendous victory for both of our nations,” President Trump said. “They will create countless jobs, expand investment and commerce, reduce our trade deficit very substantially, promote fairness and reciprocity, and unlock the vast opportunities for growth.”
America’s farming community is the big winner from the first of Monday’s agreements, which dramatically expands their market access. Before this deal, Japan was already America’s third largest agricultural export market—accounting for $14.1 billion in food and agricultural exports last year. The terms are even better now, as Japan will eliminate or reduce tariffs on approximately $7.2 billion in U.S. agricultural goods.
Once the agreement goes into effect, more than 90 percent of American agricultural imports into Japan will be duty free or receive preferential tariff access.
“In the United States, these deals are a game-changer for our farmers and our ranchers . . . [they] will now be able to compete fairly in Japan against major competitors worldwide,” the President said.
The second deal signed on Monday focuses on digital trade, setting the same “gold standard” digital trade rules that are found in the President’s landmark United States–Mexico–Canada Agreement (USMCA). Vital online commerce will now be expanded, which brings a significant boost to the already roughly $40 billion worth of digital trade between America and Japan. It ensures America will remain a global leader in digital.
http://drrich.wpengine.com/wp-content/uploads/logo_264x69.png001600 Daily - The White Househttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.png1600 Daily - The White House2019-10-10 05:54:552019-10-11 06:12:35President Trump is protecting Americans from Big Government
No matter how noble a cause, efforts to legislate morality have a rather dubious track record.
The road to hell is paved with good intentions. And on that road, there is, perhaps, nothing more dangerous than legislators committed to making sure those intentions come to pass. However, no matter how noble a cause, efforts to legislate morality have a rather dubious track record.
Yet, no matter how true this may be, governments are always trying to regulate morality by banning behavior they deem wrong. From the prohibition of alcohol to the drug war to anti-dancing campaigns, we have seen this happen throughout US history. And the latest example comes from Hawaii, where buying cigarettes may become an illegal act for roughly 99 percent of the population.
An Affront to Individual Liberty
Legislative season is upon us, and if one lawmaker from Hawaii gets his way, the state may become the first to effectively outlaw cigarettes. Though to be clear, the text of the proposed bill does not actually ban smoking—it just prohibits the sale of cigarettes to anyone under the age of 100.
Already, Hawaii is one of six states that has raised the legal smoking age to 21. The other states include California, New Jersey, Massachusetts, Oregon, and Maine. The proposed law takes this concept even further, incrementally raising the legal smoking age to 100. The legal age would rise to 30 in 2020, 40 in 2021, and 50 in 2022, finally reaching 100 in 2024. Vape devices and cigars would be exempt from the ban.
The bill’s sponsor, Rep. Richard Creagan, who is also a doctor, said, “We, as legislators, have a duty to do things to save people’s lives. If we don’t ban cigarettes, we are killing people.” As a doctor, Creagan is absolutely correct: It is his job to save lives, and he has sworn an oath to do so. As a legislator, however, he does not have the moral authority to tell his constituents which peaceful behaviors they can and cannot engage in, no matter how well-intentioned his motives may be.
We essentially have a group who are heavily addicted—in my view, enslaved by a ridiculously bad industry—which has enslaved them by designing a cigarette that is highly addictive, knowing that it [is] highly lethal…And, it is.
While he is clearly passionate about the topic, that does not make his attempts to outlaw smoking any less of an affront to individual liberty. To be sure, smoking is an unhealthy habit. And while I recommend avoiding it at all costs, that is a decision for the individual to make, not their state representative.
Supporters of the proposed legislation argue that the timing of the bill is right since the rise of tobaccoless vape products has resulted in a decrease in cigarette sales. Michael Siegel, a professor at Boston University’s School of Public Health said:
Because smoking rates are getting so low, we can actually start thinking about what I call end-game strategy, meaning we’re at the point where we can feasibly just make smoking history…We couldn’t even talk about it when there was a large percentage of people smoking because there were too many people affected.
It is important to reiterate that there is absolutely nothing wrong with wanting people to quit smoking and live healthier lives. There is, however, something very wrong with prohibiting buyers and sellers of cigarettes from engaging in a peaceful transaction under the threat of force, which is what laws of this nature effectively do.
Already, innovative market alternatives to traditional tobacco products, like vape pens, are directing tobacco users away from cigarettes and towards safer products. This shows that the market is working without the need for regulation. It would be silly, then, for the local government to get involved when things are already getting better on their own. If anything, it shows that government bans are not needed.
We don’t allow people free access to opioids, for instance, or any prescription drugs…This is more lethal, more dangerous than any prescription drug, and it is more addicting. In my view, you are taking people who are enslaved from a horrific addiction, and freeing people from horrific enslavement.
You cannot force someone out of their own captivity; each individual is responsible for that. And as well-intentioned as Creagan is, he would be wise to heed the wisdom of Lysander Spooner (1808-1887), who reminded us that vices are not crimes.
Vices Are Not Crimes
In 1875, Lysander Spooner—an abolitionist and founder of America’s only private postal service—wrote an essay called “Vices Are Not Crimes,” in which he famously denounced the government’s proclivity for passing laws that attempt to regulate “unsavory” individual behavior.
While Spooner does not praise “bad” behavior, he does assert that individuals, and to some extent their communities, are responsible for correcting their own actions. And by punishing and outlawing vices, like alcohol, drugs, and cigarettes, no real personal transformation or change can occur. By relying on the state to determine what is right or wrong, individuals completely relinquish personal responsibility.
Spooner argues that it is for this reason that vices, which he describes as “those acts by which a man harms himself or his property,” should not be outlawed by governments. Instead, individuals should be free to learn through trial and error, so long as they are not harming others.
“And, unless he can be permitted to try these experiments to his own satisfaction,” Spooner writes, “he is restrained from the acquisition of knowledge, and, consequently, from pursuing the great purpose and duty of his life.”
In fact, Spooner viewed the freedom to experiment with potential vices with such importance, he believed it was the foundation of individual freedom. He wrote that “unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property.” One can only imagine how he would view Hawaii’s new proposal.
In juxtaposition to his definition of “vices,” Spooner defined “crimes” as “those acts by which one man harms the person or property of another.” And unfortunately for Hawaii lawmakers, smoking cigarettes does not fit that definition. So long as smoking is done on private property where no one else’s liberties are being violated, there is no victim and thus, no crime.
No one of us, therefore, can learn this indispensable lesson of happiness and unhappiness, of virtue and vice, for another. Each must learn it for himself. To learn it, he must be at liberty to try all experiments that commend themselves to his judgment.
Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated, but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be “cured” against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.
Rep. Creagan most certainly cares about his constituents, but that does not justify his proposed legislation. Local governments can absolutely encourage individuals to be healthy. But they should not, under any circumstances, ban products or activities it finds undesirable. In order for individual liberty to flourish, people must be free to make their own choices, even if we think they have made the wrong choices.
Brittany is a senior writer for the Foundation for Economic Education. Additionally, she is a co-host of Beltway Banthas, a podcast that combines Star Wars and politics. Brittany believes that the most effective way to promote individual liberty and free-market economics is by telling timely stories that highlight timeless principles.
EDITORS NOTE: This FEE column with images is republished with permission. Image credit: Pixabay.
https://drrichswier.com/wp-content/uploads/woman-918616_1920-e1550191282329.jpg427640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2019-02-14 19:41:332019-02-14 19:41:34Hawaii’s Attempt to Raise Tobacco Age to 100 Reveals the Soft Tyranny of Neo-Moralists
Within minutes after President Trump made his Rose Garden announcement that a “deal” was made to reopen the government the Democratic National Campaign Committee (DNCC.org) sent out the below email:
Watch the video of President Trump’s announcement:
A good friend of mine noted that “compromise is the art of losing slowly.” It now appears that President Trump is more interested in making a deal than keeping America safe by building the wall. Now making a deal is the art of losing slowly.
President Trump now has five options:
Sign legislation passed by both houses of Congress that does not include the $5.7 billion to build the wall.
Veto legislation passed by both houses of Congress that does not include the $5.7 billion to build the wall.
Sign legislation passed by both houses of Congress that does include the $5.7 billion to build the wall.
If Congress does not pass legislation that includes the $5.7 billion to build the wall then declare a national emergency and build the wall.
Do nothing and let the current border situation continue to worsen.
The question is will President Trump, now that he has signed the temporary CR, demand that Pelosi keep her word and open up the House chambers for the State of the Union address?
As the DNCC.org email highlights, “Time for some accountability.” The House and Senate Democrats plan on holding Trump accountable. As they do and the legacy media parrot their propaganda the Republicans will cower in fear. For you see the opposite of peace isn’t war, it is fear. The Democrats and media strike fear in the hearts of Republicans.
Ayn Rand wrote:
“The uncontested absurdities of today are the accepted slogans of tomorrow. They come to be accepted by degrees, by dint of constant pressure on one side and constant retreat on the other – until one day when they are suddenly declared to be the country’s official ideology.”
President Trump and the Republican Party are in a state of constant retreat. The Democrats are in a constant state of applying pressure. Today may go down in political history as the end of the Trump presidency.
Trump’s signature slogan was, like George H.W. Bush’s read my lips, “build the wall.” The wall will not be built because the Democrats rightly understand that they have won. They aren’t tired of winning.
The presidential election cycle that is just beginning could turn out to become a rout. The Republicans could lose the Senate and the White House.
Today, January 25, 2019 is the beginning of the retreat and the decline and fall of MAGA. The end.
Mainstream economists are overlooking a key connection.
A growing chorus of alarmist voices decries the rising economic inequality in the Western world, especially in the United States. Surprisingly enough, the same mainstream analysts complain about the anemic growth of labor productivity without seeing the correct link between the two.
Data shows a strong correlation between labor productivity and economic inequality (the two charts below). From the end of the Second World War until the mid-1970s, labor productivity grew at a robust rate of almost 3 percent per annum (p.a.), while income inequality declined. Afterward, both trends reversed—labor productivity slowed to below 2 percent growth p.a. on average and has almost stagnated since the Great Recession, while both wealth and income inequality expanded steadily.
The Role of Capital Accumulation in Economic Growth
What common factor could explain the two divergent trends that the mainstream analysts seem to overlook? In the 1940s, Mises was impressed by the ”miraculous” rise in the standards of living of American wage earners, which had been going on for more than two centuries. For him, the answer was straightforward: capital accumulation is the driving force behind both labor productivity and standards of living convergence.
Building on Mises’s work, Rothbard explained in detail what capital accumulation requires: (i) new capital investment that lengthens the structure of production and (ii) technological progress that overcomes the diminishing returns accompanying the increase in the supply of capital goods. However, Mises also warned that depletion of the capital stock would hamper capital accumulation and labor productivity. Unfortunately, mainstream analysts and the United States seem to have forgotten this valuable lesson.
In terms of technological progress, the US has maintained its world leadership during past decades. It ranks second in the world to Switzerland in terms of both innovation and business sophistication, spends more for Research & Innovation than the OECD or EU on average relative to GDP, and makes up the majority of the top 25 universities in the world. Moreover, it has issued the same amount of patents over the last three decades compared with the previous 150 years.
In terms of capital stock, the picture is completely different. According to estimates of the Bureau of Economic Analysis (BEA), the stock of private non-residential assets per worker has increased in real terms at about 1 percent p.a. from 1947 to 2009 and stagnated since the Great Recession (left chart below). However, BEA’s alleged sustained pace of capital growth seems hard to reconcile with the falling private investment and savings since the mid-1970s (right chart below).
In addition, the BEA methodology presents some serious shortcomings. Except for cars, BEA uses the “perpetual inventory method” to estimate fixed assets. According to it, the value of the capital stock is indirectly estimated as the sum of past investment flows minus the estimated depreciation. It means that all past investments are considered sound by default, which is certainly not the case nowadays when recurrent booms and busts cause significant volumes of malinvestments. Other question marks relate to the accurate estimation of depreciation rates in the face of rapid technological progress and the use of GDP deflators as their accuracy is unreliable, especially with regard to real estate investment.
All these considerations have led not only us but also the Federal Reserve Board (FRB) to suspect that BEA’s estimates of the US capital stock are overvalued. It is intriguing that the FRB adjusts the BEA estimates downward, especially with regard to real estate assets— “structures” in BEA’s jargon when it uses them as input for the calculation of the capital stock in manufacturing. As a result, there is a substantial difference between BEA and FRB estimates of the evolution of the volume of manufacturing capital stock from 1952 to 2016, in particular for the real estate component (left chart below). Therefore, we tried to recalculate the BEA estimate of the total stock of private non-residential capital per employee by extrapolating the difference between the two manufacturing indexes coming from BEA and FRB (right chart below).
The new results suggest that the real stock of capital per worker grew in a clear and sustained manner only until the end of the 1970s and fell afterward until the trough of the Great Recession. The recalculated capital stock is more consistent with the observed declines in investment and productivity since the mid-1970s and also confirms Mises’s prediction that wrong policies would lead to capital consumption.
Economic Consequences of Big Government
For the United States, the failed economic policy is the exponential growth of government intervention in the economy in the 20th century, which stifled entrepreneurship and capital accumulation. This is obvious in the rise of both government spending that redistributes away economic resources from their originators (left chart below) and the amount of regulatory burden (right chart below). Another key factor taking a toll on capital endowment is inflation, which gained traction following the de facto abolishment of the gold standard in 1971.
Most importantly, inflationary policies trigger boom-bust cycles via the artificial lowering of interest rates below their free-market level. In a recent article on the business cycle, Salerno emphasizes that “overconsumption” and “malinvestment” are the two salient marks of the boom—not “overinvestment,” as wrongly understood by some mainstream critics. It is no surprise that the capital stock per worker dropped during the business cycles that have occurred regularly since the 1970s and that culminated in the Great Recession. The illusion of the boom fuels not only capital consumption but also the polarization of wealth and incomes in the society. The fiduciary credit expansion fuels an increase in asset prices, most commonly on stock exchanges and in real estate (charts below).
Although starting from a limited number of transactions, all owners calculate their net worth with the newly inflated asset prices, boosting the value of household assets in excess of liabilities. As a result, the rich appear to get even richer in an economy on steroids. This explains why both the US national wealth has grown much faster than national income since the end of the 1970s (left chart below), and the number of wealthy people increased significantly (right chart below).
The rising inequality since the 1970s has been fueled by both the decline in labor productivity and monetary expansion inflating asset prices. Both are perverse effects of government interventionist policies, which led to a gradual erosion of the US capital stock per employee. This is the correct linkage between inequality and productivity as explained by Mises and other Austrian School economists.
People have different skills and preferences, so the free market does not lead to a complete equalization of incomes and wealth. Nevertheless, it does ensure the proper allocation of capital to increase labor productivity and satisfy the most urgent needs of consumers. As a result, the gap between the well-off and the poor is not only gradually diminishing but also gets less significant in terms of consumption. Eventually, the disadvantage of wealth inequality becomes mostly a psychological one. As long as the capitalist consumes only a fraction of his wealth and invests the rest into productive businesses, the real beneficiary of the increase in labor productivity is the poorer part of society.
Dr. Mihai Macovei is an associated researcher at the Ludwig von Mises Institute Romania and works for an international organization in Brussels, Belgium.
EDITORS NOTE: This column with images by FEE is republished with permission.
https://drrichswier.com/wp-content/uploads/econgrowth-e1547237696222.jpg370640Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2019-01-11 15:15:072019-01-11 15:50:35Slowing Productivity and Rising Inequality Have a Common Driver: Government Intervention
“Government shutdown.” Probably no two words strike more fear in the hearts of Washington politicians.
The fact that another shutdown is imminent is a sign of how dysfunctional Washington’s budgeting process really is. What was once an orderly process where timelines were largely met has morphed into a political game plagued by brinkmanship and out-of-control spending.
Despite promises from Congress that the process would be different this year, here we are again.
This time the biggest issue holding up a deal is a confrontation between President Donald Trump and congressional Democrats over border security funding.
As Congress barrels toward a Friday spending showdown, the potential of a partial government shutdown is very real. But what would it actually mean?
A shutdown wouldn’t be good, of course, but it’s not as scary as you think. There wouldn’t be lawlessness in the streets. You’d still get your Social Security check.
Here’s what a shutdown and an alternative might look like:
If Congress and the president are unable to reach an agreement by Friday, then the federal government will enter into a partial shutdown. Five of 12 annual spending bills became law in September. That includes the military, so there is no threat to national defense.
It also includes the departments of Labor, Health and Human Services, Interior, and Veterans Affairs. In fact, 75 percent of the discretionary budget has already been funded through September 2019.
Still, a partial shutdown would mean that major federal agencies such as the departments of Agriculture, Commerce, Justice, Homeland Security, State, and Transportation would be left without funding.
Many of the services they provide, however, would not be interrupted. Four hundred and twenty thousand “essential” federal employees would continue to work, including 41,000 law enforcement and correctional officers and up to 88 percent of DHS employees. America’s safety would not be sacrificed.
You shouldn’t worry about your benefit payments being impacted either. Social Security, Medicare, and Medicaid payments, as well as veterans benefits, would continue uninterrupted. These programs don’t rely on Congress taking action for annual funding to continue, or their appropriations were already passed into law.
Mail service would also continue as scheduled since the Postal Service has its own revenue stream. National parks would remain open, though with reduced staff.
About 380,000 federal employees would be furloughed for the duration of a shutdown, meaning that they wouldn’t be paid nor expected to work. Agencies that would be most affected include the Department of Commerce, NASA, the IRS, and the Department of Housing and Urban Development. Based on past government shutdowns, all furloughed employees would likely be paid when the shutdown ends.
A Continuing Resolution
Another possible outcome to get around the current funding impasse is for Congress to pursue a continuing resolution to keep the government open. That scenario played out as the last funding deadline approached on Dec. 7.
Under this situation, agencies would operate at their 2018 budget levels for the duration of the continuing resolution. Congress could choose to extend funding for a short period of time (likely into early 2019) or could opt for a full-year continuing resolution.
If Congress passes a short-term continuing resolution, then it would be back in the same mess in just a few short weeks.
Passing a full-year continuing resolution would put an end to the budget drama for this year. However, it would also leave both Republicans and Democrats unsatisfied, with Trump not getting additional border security money and Democrats unable to enact some of their priorities.
But it would save taxpayers money. If unfunded agencies simply continued to receive money at the 2018 level, it would cut spending by $11 billion.
It’s not a lot, but with the national debt soon expected to cross $22 trillion, every penny counts.
Regardless of what happens, one thing is clear: The budget process is broken, and taxpayers are the real losers. When Congress is constantly budgeting by crisis, it erodes oversight and leads to wasteful spending. Citizens should demand that Congress not only make the budget process better, but also ensure a sustainable budget future.
The cost of failing to do that is much scarier than a government shutdown.
https://drrichswier.com/wp-content/uploads/vadim-sherbakov-127-unsplash-e1545217948969.jpg386640The Daily Signalhttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngThe Daily Signal2018-12-19 06:13:142018-12-23 04:42:33What Would Actually Be Affected in a Government Shutdown
Since 1973 Gallop has asked Americans the following survey question:
Now I am going to read you a list of institutions in American society. Please tell me how much confidence you, yourself, have in each one — a great deal, quite a lot, some or very little?
Of those surveyed here are the results in 2017:
Quite a lot
Great deal/Quite a lot
Current Florida Governor Rick Scott is running for the U.S. Senate. He is running against Democrat Senator Bill Nelson, who was elected to the Congress in 2001. Candidate Scott’s platform is simple, term limit members of Congress.
Watch this short video to understand Scott’s idea on how to drain the swamp:
It is difficult to overstate the extent to which term limits would change Congress. They are supported by large majorities of most American demographic groups; they are opposed primarily by incumbent politicians and the special interest groups which depend on them.
Term limits would ameliorate many of America’s most serious political problems by counterbalancing incumbent advantages, ensuring congressional turnover, securing independent congressional judgment, and reducing election-related incentives for wasteful government spending.
Perhaps most important, Congress would acquire a sense of its own fragility and temporariness, possibly even coming to learn that it would acquire more legitimacy as an institution by doing better work on fewer tasks.
The key takeaways of the report are:
Legislative resistance to term limits is in sharp contrast with private citizens’ strong support for them.
The only serious opponents of term limits are incumbent politicians and the special interests — particularly labor unions — that support them.
Congressional term limits are a necessary corrective to inequalities which inevitably hinder challengers and aid incumbents.
Maybe term limited Governor Rick Scott is on to something.
https://drrichswier.com/wp-content/uploads/rick-scott-e1524519003369.png375634Dr. Rich Swierhttp://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngDr. Rich Swier2018-04-23 17:30:122018-04-23 17:43:27One U.S. Senate Candidate’s Plan to Drain the Swamp: Term Limit Congress
Pardon the pun, but I would like to discuss the subject of “sunk costs” in the context of hurricane-induced flooding. Here’s the background, from a page one Wall Street Journal article on September 15, “Repeated Claims Flood Insurance Program”:
Brian Harmon had just finished spending over $300,000 to fix his home in Kingwood, Texas, when Hurricane Harvey sent floodwaters “completely over the roof.”
The six-bedroom house, which has an indoor swimming pool, sits along the San Jacinto River. It has flooded 22 times since 1979, making it one of the most flood-damaged properties in the country.
Government records show that between 1979 and 2015 the federal flood insurance program paid out more than $1.8 million to rebuild the house—a property that Mr Harmon figured was worth $600,000 to $800,000 before Harvey hit late last month.
“It’s my investment,” the 49-year old said this summer, before the hurricane. “I can’t just throw it away.”
On a house worth maybe $800,000, the government expended a total of $1.8 million—spread over as many as 22 occasions. What Mr. Harmon has personally spent (to build or buy, and later to improve or fix the house) is not stated, other than the $300,000 for recent hurricane repairs. It’s conceivable that this one single-family structure has sucked up a sum equivalent to five times its value, or more. And since it’s flooded 22 times in 36 years, it’s probably not done sucking.
Mr. Harmon says he “can’t just throw it away” but I as a taxpayer sure wish he would.
The moral and economic issues raised by government flood insurance ought to be obvious. Since its creation by Congress in 1968, the National Flood Insurance Program (NFIP) has lost money every year—about $25 billion to date, with this year’s deficit in excess of a billion.
Mr. Harmon’s reluctance to give up on his house seems motivated by what economists call “loss aversion,” the uneasy feeling people often have about wasting something they’ve invested in.
You buy a ticket to a movie but at the last minute a friend invites you to a sumptuous dinner at your favorite restaurant. That would be an easy decision if you hadn’t already bought the theater ticket; you could always see the film next week. But darn it, you paid for it and if you don’t go, it’ll be wasted. You may still accept your friend’s invitation, but with a tinge of regret. (To lessen that regret, you might pass the ticket on to someone else).
Nonetheless, economists caution us to recognize that a cost you’ve incurred in the past and which is unrecoverable is, in a word, “sunk.” The sooner you can put a sunk cost behind you—perhaps learn from it but otherwise forget about it—the better your future decisions will be.
Many times I’ve caught myself allowing a sense of loss aversion to overwhelm my knowledge of sunk costs. Here’s an example I shared often with students when I taught at Northwood University: I once bought a half gallon of butter pecan ice cream on sale for a mere 99 cents. “Such a deal!” I thought. When I opened it at home, scoop in hand, I discovered it was almost all ice cream (lousy to the taste, no less) and virtually no pecans! I suppose I could have angrily returned it to the store for a refund (minus the two dollars in gasoline it would have taken to get there), but I’m an easygoing chap. I just stuck the whole thing in my tiny freezer. For weeks thereafter as I tried to make room for other things, I would jam that half gallon of bad ice cream into a different corner.
Fixating on sunk costs is a major reason why a lot of small investors stay small.
Then it hit me. I’m never going to eat that stuff! It’s just taking up room I could use for something better. That 99 cents ain’t comin’ back. What am I keeping this junk for? Pleased that I was finally allowing my economics knowledge to inform me, I tossed that bad investment into the garbage can.
As the author of this article explains, another example of this “sunk cost fallacy” would be to assume, “I might as well continue dating someone bad for me because I’ve already invested so much in them.”
Fixating on sunk costs is a major reason why a lot of small investors stay small. They can’t bring themselves to admit a mistake when the market moves against them. Rather than cut their losses short and move on, they hang on. Loss aversion then becomes loss accumulation.
Obviously, some people are quicker than others to learn from the errors arising from their loss aversion and the sunk cost fallacy. But one general lesson proves itself time and again—if it’s your own investment you’re playing with, and losses associated with it are all internalized (that is, it’s you who pays them), you tend to learn sooner rather than later. Your behavior changes as a result, so that you act less to “avoid” past losses and more to avoid future ones—the ones that are actually avoidable.
In the case of Mr. Harmon and his flood-prone home, his endless commitment seems akin to forgoing the better invitation to go instead to an inferior movie, or stuffing the lousy ice cream back in the freezer, or getting engaged to a bad fit because of all the gifts and dinners he previously bought her. So why does he do it? Because his sunk costs are only partially internalized; most of them are paid by other parties (taxpayers). From his vantage point, his decision to throw your good money after his bad money doesn’t seem nearly as irrational as it might to you and me.
There’s another concept of cost that’s being overlooked in the Harmon example—opportunity cost. If the federal flood insurance program hadn’t given Mr. Harmon $1.8 million for his house, what might those from whom it was taken spend that money on? Perhaps three or four houses. Or a whole lot of things, big and small, according to the personal choices of those very people who earned the money in the first place. That unrealized cornucopia is what Frederic Bastiat referred to as “that which is not seen.”
Lots of lessons here, some very obvious and others more hidden or implied: Don’t cry over spilt milk. Don’t let a past, unrecoverable cost hobble your future decision-making or forgo a better opportunity.
Failure to internalize sunk costs results in a waste of resources by short-circuiting market signals and creating the wrong incentives. (Unless you live in an infinitely bountiful Garden of Eden, this latter point should concern you.)
So now that we’ve learned these lessons, tell me which of the following proposals makes the most sense:
Keep the federal flood insurance program in place. We’ve invested in it and can’t afford to kiss off those billions we’ve already spent.
Kill the federal flood insurance program (or at least price it so that those who build in flood-prone areas pay the full costs of it). Anything less is just a welfare program, not insurance.
https://drrichswier.com/wp-content/uploads/roof_mini-1.jpg381638Foundation for Economic Education (FEE)http://drrich.wpengine.com/wp-content/uploads/logo_264x69.pngFoundation for Economic Education (FEE)2017-10-02 05:26:282017-10-02 05:29:41Your House Does Not Need a New Roof at My Expense