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Mortgage Risk Index release of July 2018 data - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 21:24

The American Enterprise Institute’s Center on Housing Markets and Finance released its monthly update to the series on mortgage lending practices on October 29, 2018. The loan-level data, which are for loans originated between September 2012 and July 2018, are risk-rated based on default risk factors to produce the National Mortgage Risk Index (NMRI), the best measure available of lending standards used in current mortgage lending.

National Data State Data Methodology Periodic Tables of Housing Risk

This month’s main takeaways:

  • Mortgage risk jumped in July with all indices setting new series’ highs for July.
    • The composite Purchase NMRI was up 0.5 ppt from July 2017.
    • FHA index set new series’ highs at 28.0%.
    • Refi NMRI also set a new series’ high primarily due to a higher Cash-Out Refi NMRI.
  • Agency purchase volume was up from a year ago.
    • Purchase volume by count was up 1.3% from July 2017, and up 21% from July 2013.
    • Total purchase and refinance volume by count was down 10% from July 2017.
  • Maintaining purchase volume continues to be too reliant on further agency credit easing, seen as needed to offset headwinds from gradually rising interest rates resulting from slightly less accommodative monetary policy and rapid home price increases.
  • Higher NMRI indicates agencies continue to increase leverage to maintain levels of mortgage activity and in furtherance of “affordable housing” mission.
    • FHA continues to loosen at a breath-taking pace.
    • Fannie’s purchase risk index relative to Freddie has widened by about 1 ppt in the last year.
    • The national seller’s market continued for its 73rd consecutive months. Further credit easing will be capitalized into higher prices, especially at the lower end of the market.
  • Drivers toward greater risk were:
    • A massive shift towards higher DTIs after GSEs increased DTI limit to 50 without compensating factors.
    • An immense increase in cash-out risk, which has more than doubled from July 2013.

“FHA commissioner Brian Montgomery, speaking at the 7th Annual AEI-CRN Housing Conference, noted that rapid home price appreciation could lead to ‘imbalances in the housing market, especially when there’s a severe discrepancy between the supply and demand for housing,’” noted Edward Pinto, codirector of the American Enterprise Institute’s (AEI’s) Center on Housing Markets and Finance.  “We are encouraged that the Commissioner indicated FHA is ‘looking at loan risk characteristics [such] as down payment assistance, cash out refinances and DTI ratios,’” Pinto added.

The implications of leverage during a long-lasting seller’s market, now in its 73rd month, are higher house prices concentrated at the lower end of the market and in lower income neighborhoods where leverage has been increasing the most. On the national level, there has been a long period with few metros experiencing negative home price growth, which is allowing market excesses to build. Moving forward, there will be even more risk as borrowers, especially first-time buyers, are forced to take on more leverage to buy.

“The increase in the cash-out refinance risk index has been nothing but breath-taking,” said Tobias Peter, senior research analyst at AEI’s Center on Housing Markets and Finance. “With mortgage rates rising over the last two years combined with declining volumes of rate-and-term refinances and flat purchase volume, non-bank lenders continue to ease credit standards for cash-outs, propelled in large measure by steering borrowers to FHA and VA, which have a much wider credit box,” Peter added.

With the addition of the data for July 2018, the NMRI covers nearly 34.2 million Agency loans dating back to September 2012, comprised of almost 17.1 million Agency purchase loans and over 17.1 million Agency refinance loans. The NMRI is published for purchase loans (with separate indices for first-time and repeat buyers), refinance loans (with separate indices for no-cash-out and cash-out refinance loans), and the composite of purchase and refinance loans.

Please find data and additional materials from our monthly call below. If you would like to receive invitations to our monthly update calls, please email Neil.Filosa@aei.org.

Presentation materials:

https://www.aei.org/wp-content/uploads/2018/10/7669776-2018-00-29T10-00-11-main.mp3



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Education as reeducation - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 18:50

This July, in sunny San Diego, Calif., a thousand educators from 27 states gathered for an immersive five-day meeting. The Standards Institute, hosted twice annually by New York–based UnboundEd, provides “standards-aligned” training in English-language arts, mathematics, and leadership. What differentiates UnboundEd is how it slathers its Common Core workshops with race-based rancor and junk science — and the snapshot it provides into the ongoing transformation of “school reform.”

UnboundEd CEO Kate Gerson opened the institute, telling the assembled: “If you are under the impression that there are good white people and bad white people, you’re wrong.” Gerson informed her charges that racial biases are pervasive, universal, and something “you cannot be cured from.”

Read the piece in full at National Review here .

A brief history of the exit poll - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 18:00

The first national exit poll of voters leaving the polls was conducted in 1972 by the late Warren Mitofsky who directed polling at CBS. In the 1970s and 1980s, the networks had their own exit polls. In 1990, Mitofsky left CBS to run the Voter Research Service, a consortium of the networks who pooled their resources to conduct one in-person survey. The idea was to cut the cost of conducting individual exit polls, all of which were competing with one another. In the presidential election in 2016, the five networks worked together with the Associated Press to conduct the exit poll, now called the National Election Pool (NEP). Edison Media Research in New Jersey conducted the exit poll for the NEP.

There were new developments in 2017. The AP, which has counted actual election results from around the country since 1848, pulled out of the consortium. Working with the NORC at the University of Chicago, the AP has developed a new approach called AP VoteCast. Fox also left the consortium and will be using the new AP-NORC approach. The Washington Post will also be using the AP VoteCast in a few states. The new effort isn’t a traditional exit poll where interviewers stand outside selected polling places throughout the country. Instead the AP VoteCast will be conducting pre-election interviews. David Bauder of the AP reported in May that the new partnership will conduct online and telephone surveys over four days before the election until the polls close. They plan to conduct “more than 85,000 interviews” over this time period.” With Fox, AP-NORC began testing the new approach in 2017 in special elections.

The exit polls are invaluable. They are the only source we have to look at how actual voters differ from all Americans. But they have come under increasing criticism in recent years. The 2016 exit poll underestimated the number of white working class voters and overestimated the white, college-educated Democratic electorate. In an NPR interview with Domenico Montanaro, Murray (Edelman who has worked on the exit poll for decades) acknowledged the problem, saying, “There’s an issue with overstating Democrats.” Will the new AP VoteCast solve the problems of the exit poll? Only time will tell, but most people who watch and use the exit polls for analysis agree that the new experiment is worth a try.

Join the AEI Election Watch team on November 8 for lunch to discuss what happened and what it means. Click here for details.

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Washington State Initiative 1631: A carbon tax and wealth redistribution to favored interests - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 17:30

The Washington State electorate on November 6 will vote on Initiative 1631, a “pollution” tax on greenhouse gas (GHG) emissions, the stated goal of which is an annual GHG emissions reduction reaching 25 million tons by 2035 and 50 million tons by 2050. Nowhere in the initiative is there any requirement actually to meet these goals — no one suffers any penalty if they are not — a reality that speaks volumes about the true purpose of this proposal: wealth redistribution.

But on the surface, this specific goal of reducing GHG emissions means that the initiative purports to make a contribution toward dealing with anthropogenic climate change, although one searches in vain for any reference to that topic on the proponents’ websites, campaign materials, and other such political advertising.

Temperature “Effects”

Why is that? Like Sherlock Holmes’ dog that failed to bark, the proponents of I-1631 have maintained a deafening silence on the prospective climate impacts of this proposal. So let us do that for them, applying the climate model used by the US Environmental Protection Agency in its analyses of GHG regulatory proposals and similar policies. By 2050 the temperature reduction attendant upon this initiative, making every assumption favorable to it, would be 0.0003 of a degree. By 2100 that figure would rise to 0.0009 of a degree. (If a proportional policy were applied to the US as a whole, the temperature effect by 2100 would be a few one-hundredths of a degree.)

Those temperature effects obviously would be unmeasurable, a reality that explains fully why the proponents studiously have avoided any discussion of the actual climate impacts of I-1631. Instead, they have emphasized, ad nauseam, the supposed benefits of this initiative on “pollution,” a blatant exercise in subterfuge to which I return below.

Wealth Redistribution

For now let us examine the intended wealth redistribution effects of I-1631, another topic that the proponents have attempted to obfuscate. This initiative would raise approximately $1 billion per year — the tax begins at $15 per ton of GHG emissions and rises by $2 annually plus inflation, without limit — and the exemptions from the tax and uses to which the revenues would be put are fascinating.

The exemptions first: The initiative exempts such energy-intensive industries exposed to trade competition as aluminum and concrete producers and such other manufacturers as Boeing. This means that ordinary individuals, businesses, and families will bear a disproportionate burden of this tax, another negative reality that the proponents have avoided.

But $1 billion per year is not chopped liver; someone will receive subsidies at the expense of the ordinary individuals, businesses, and families just noted. The lucky ones — actually, luck has nothing to do with it — are (1) the electric car industry, already a beneficiary of deeply perverse federal subsidies and favoritism that have the effect of subsidizing the wealthy at the expense of everyone else; (2) new forest and water projects that are likely to conflict with other federal and state environmental policies and that should be financed with general revenues rather than a specific tax borne, again, by ordinary individuals, businesses, and families; and (3) an “Environmental and Economic Justice Panel” that is empowered under I-1631, literally, to engage in self-dealing, and that is the very definition of the politicized consumption of tax dollars.

With respect to the last: That panel will be unelected but will make the decisions on how its share of the revenues will be spent. Apart from this blatant effort to reward political allies, I-1631 specifically mandates support of road “demand management.” That means toll lanes and roads, that is, subsidies for transit and construction companies and other interests, the ironic effect of which will be an increase in congestion and emissions. It is likely also to mean various attempts to subsidize urban interests at the expense of suburban, exurban, and rural ones by hampering the ability of motorists to drive their vehicles when and where they see fit.

Rent-Seeking and Pollution

Should anyone doubt that I-1631 is little more than a revenue grab — don’t forget who will bear the costs — let us recall the memory of Washington State Initiative 732 a mere two years ago. That initiative also proposed a carbon tax, with the central difference being that it was intended to be revenue neutral, incorporating cuts in sales and business taxes. Many of the groups now supporting I-1631 opposed I-732 precisely because the latter failed to provide new revenues for them and their political allies.

Where was their deep concern about “pollution” then? Obviously, given the exemptions and explicit subsidies for favored groups, I-1631 has nothing to do with “pollution” and everything to do with “rent-seeking,” that is, the use of government policies to bestow favors on activist groups and narrow interests demanding that they get a share of the revenues, at the expense of everyone else.

“Clean Energy”

The “clean energy” assertions from the proponents are laughable. Notwithstanding the conventional wisdom, wind and solar power systems do not reduce emissions of GHG or conventional pollutants because the unreliability of such unconventional electricity requires the use of fossil fuel backup generation units that must be cycled up and down depending on wind and sunlight conditions. Accordingly, the backup units must be operated inefficiently so as to avoid blackouts, yielding an increase in emissions rates and total emissions measured absolutely once the wind and solar systems achieve a market share of roughly 10 percent.

More generally, there is nothing “clean” about renewables. There is the heavy-metal pollution created by the production process for wind turbines. There are the noise and flicker effects of wind turbines. There is the large problem of solar panel waste. There is the wildlife destruction caused by the production of renewable power. There is the land use both massive and unsightly, made necessary by the unconcentrated nature of renewable energy.

It simply is a reality that renewables are morecostly than conventional energy, in large part because the energy content of sunlight and wind flows is unconcentrated, unlike the case for fossil fuels. This is separate from the theoretical limits on the energy obtainable from those sources. Except perhaps for specialized and highly limited applications in localized contexts, higher costs are an inexorable outcome of GHG policies, notwithstanding ubiquitous assertions to the contrary. (Witness, for example, California.) And so the tax to be imposed by I-1631 is only the beginning: The indirect adverse effects of this initiative are difficult to measure, but they will not be trivial, and will be borne, again, by those not among the ones exempted and the specified beneficiaries.

Pollution Propaganda

And about the endless invocation by the proponents of the term “pollution”: In the context of GHG, that term is political propaganda, the obvious purpose of which is to cut off debate before it begins by assuming the answer to the underlying policy question. Carbon dioxide is not “carbon,” and it is not a pollutant, as a certain minimum atmospheric concentration of it is necessary for life itself. By far the most important GHG in terms of the radiative properties of the troposphere is water vapor; no one calls it a pollutant. Why not? Is it because ocean evaporation is a natural process? So are volcanic eruptions, but the toxins, particulates, and other effluents emitted by volcanoes are pollutants by any definition.

The proponents now are arguing in a campaign mailer that I-1631 will reduce emissions of conventional pollutants in addition to GHG, thus yielding favorable impacts in terms of “dirty, smoky air and increased asthma risk, [and] frequent forest fires.” Wow. Whom do they think they’re kidding? That reduction in emissions will not be costless, and there is little evidence that Washington State has failed to meet the requirements of the federal Clean Air Act, except for emissions of particulates from wood-burning stoves during winter atmospheric inversions and when winds blow smoke into the state from forest fires in British Columbia. For the US, the number of wildfires shows no trend since 1985 despite increasing atmospheric concentrations of GHG.

Put aside the silence of the proponents on the climate phenomena that this proposal supposedly would improve. It has been quite awhile since I have seen political arguments as dishonest as those that have been promoted in favor of I-1631. Washingtonians would be far better off without it.

AEI Events Podcast: America engaged: Attitudes toward US global leadership - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 17:09

On this episode of the AEI Events Podcast, join AEI and the Chicago Council on Global Affairs for the release of the council’s 2018 report on American attitudes toward US global leadership and a discussion on the future of America’s role in the world.

Strong global leadership has been a pillar of US foreign policy for more than half a century, but some believe the Trump administration’s America First agenda strays from the country’s enduring tradition of international engagement. But disengagement in the Middle East and an empty “pivot to Asia” in the Obama administration also signaled a similar drift from internationalism. For years, public support of the nation’s visible role in the world was a given, but is there a more fundamental shift in American thinking?

This event took place on October 2, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

Examining US–Saudi Arabia relations - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 16:26

The brutal murder of Washington Post columnist Jamal Khashoggi in the Saudi consulate in Istanbul has produced new strains in the relationship between the US and Saudi Arabia, which is already under stress from the 9/11 terrorist attacks, the ongoing war in Yemen, and the values gap between the two countries.

In the past two years, President Donald Trump has aligned much of his Middle East policy more closely with Saudi Arabia. He chose the Kingdom for his first overseas visit as president, and Jared Kushner has forged a close relationship with Saudi Crown Prince Muhammad bin Salman — the architect of Riyadh’s newly assertive foreign policy.

Please join the Center for American Progress and the American Enterprise Institute for a discussion on the future of American relations with Saudi Arabia and the likely impact of recent events on military, diplomatic, and economic cooperation.

Join the conversation on social media with @AEI on Twitter and Facebook.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

Tuberculosis rates may rise due to inferior treatment - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 14:08

It is an unusual day when I agree with a large group of socialist health groups. But activists correctly raise the alarm that changes in policies by large multilateral donors may lead to the rise of inferior tuberculosis medicines and poor patient outcomes.

Tuberculosis patients outside Chiulo Hospital in Angola on February 22, 2018. REUTERS/Stephen Eisenhammer

Donor policy changes were understandable and inevitable. Taxpayers in richer nations cannot be expected to fund health programs in emerging markets forever. There have to be transition policies in place so that as a nation (like China) moves from relative poverty to riches, it should fund its own programs. This is both rational and self-interested of the donor bodies, since if they don’t demand transition they will lose taxpayer support.

But recipient nations become addicted to financial support and rarely handle transitions well. And when it comes to drug procurement, the health activists have themselves partly to blame. It was the mantra of Western health activists that local production of medicines was part of the solution to expensive medicines. Dozens of times over the past two decades I’ve interacted with emerging market officials, several Western officials who should have known better, and most health groups that claim that drugs would be more available and cheaper if only they were made locally.

That such companies can rarely maintain standards or keep costs down never really bothered activists whose main aim seemed to be to bash Western pharma companies. As a result, nascent pharma industries have sprung up in emerging markets. The one I looked at closely myself was Quality Chemicals of Uganda, part-owned by the president’s family (nepotism is rife on such companies). On the surface it wasn’t a bad operation, but ignoring quality control concerns, it couldn’t compete with Western companies, let alone Indian generics companies, on price.

The temptation to favor local producers with tariffs or quotas on imports starts as local companies cannot hope to compete. And as donors now start to pull back from nations and programs, local companies are likely to win business since they employ people and pay taxes locally.

But the outcome for TB patients, and possibly malaria and HIV patients, is not a good one. Expect quality to go down and price to go up.

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Conservation programs in the 2018 Farm Bill - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 13:15

Key Points

  • Conservation programs that have been included in farm bills since the New Deal originally set out to protect the country’s agricultural productive capacity and to provide income support for important farm constituencies.
  • Since 1985, conservation programs have been expanded in terms of their scope (to include wetlands preservation and wildlife habitat), complexity of programs, and levels of funding for conservation payments to farm businesses.
  • The House and Senate draft reauthorizations of the 2018 Farm Bill retain most of the current features of agricultural conservation programs but include changes that may lead to efficiencies (for example, reducing and rationalizing the numbers of programs) and other changes that do little to improve program effectiveness.

Read the full PDF. 



Executive Summary 

In April and June 2018, the House and Senate independently voted to approve two distinct versions of a new farm bill that, with respect to conservation programs, have many similarities but differ in some important ways. Both bills would retain funding for conservation programs at close to current levels, but with modest overall cuts. Nevertheless, with expected annual average outlays of close to $6 billion between 2019 and 2023, they would continue to account for about 30 percent of all federal spending on farm programs.

Both bills would also retain support for two broad categories of the program. The first category includes paid land diversion programs that shift acres from agricultural production to conserving uses. The second category consists of working lands programs that pay farmers to adopt or continue to use conservation practices. Both legislative initiatives continue a trend of shifting funds toward working lands programs and away from paid land diversion programs.

To a large extent, both bills would concatenate the wide range of paid land diversion programs available under the 2014 Farm Bill into two major initiatives: the Conservation Reserve Program (CRP) and the Agricultural Conservation Easement Program (ACEP). The CRP would continue to focus resources on land diversion in the Midwest and the Great Plains, rather than in more populated regions where water-quality issues are of considerable concern and benefits are likely to be higher. The House bill exacerbates that problem by freezing the geographic distribution of current CRP enrollments. In addition, funds would be shifted modestly toward the ACEP, although there are substantial questions about whether conservation easement programs, which result in more permanent land diversion, provide much in the way of environmental and other conservation benefits.

Three programs account for the bulk of spending on working lands initiatives: the Environmental Quality Incentives Program (EQIP), the Conservation Stewardship Program (CSP), and the Regional Conservation Partnership Program (RCPP). Both the Senate and House bills include modest increases in funding for the RCPP, which focuses on major projects that cut across state boundaries addressing explicit national environmental problems such as water quality in extensive watersheds (for example, the Chesapeake Bay). The House bill limits funding to shorter time periods than the Senate bill does even though such projects often take many years to have their full effects. The Senate bill retains the EQIP and CSP programs as separate and distinct entities. The House bill restricts the scope of conservation practices eligible for subsidies by replacing CSP contracts with stewardship contracts under EQIP, with a corresponding reallocation of funds toward the EQIP initiative.

Overall, none of the changes in the House and Senate bills would substantively increase the environmental benefits derived from outlays on the CRP, EQIP, and CSP programs that account for 90 percent of all federal spending on conservation programs. Some efficiencies in program implementation would be obtained through rationalizing the number of conservation programs. Further, the modest expansion in funding for the RCPP at the expense of support for the CRP, EQIP, and CSP could, at the margin, increase the environmental benefits obtained from federal conservation programs.

Introduction 

From their earliest days of the 1930s New Deal, farm bills in the US have included conservation programs. Those programs have always had multiple goals, which have evolved as the US economy has changed. Initially, there were two major objectives: (1) protecting the country’s agricultural productive capacity by conserving essential resources such as soils and water and (2) providing income support for important farm constituencies by reducing the amount of cropland in production as a means of increasing prices. The rise of the 1970s environmental movement motivated adding new goals, notably protecting water quality and wildlife habitat and, somewhat later, preservation of wetlands, grasslands, and farming more generally— all of which were essentially grafted onto the existing program rootstock.1

That expansion of goals signaled an increase in the importance of conservation in the farm bill and was correspondingly accompanied by increases in spending on conservation. In 1990, for instance, spending on conservation programs amounted to $1.9 billion, most of which paid for retirement of highly erodible land. By 2014, spending on conservation programs had almost doubled, due to expansion of both highly erodible land retirement and subsidies for conservation on working farmland. In 1990, conservation programs accounted for about a fifth of direct federal farm program payments to farmers. By 2014, the conservation program share of direct federal farm program payments to farmers had increased to about a third.2

Since the New Deal programs of the 1930s, the federal government has used two general types of policy instruments in pursuit of conservation goals: (1) paying farmers to divert farmland into some form of conservation use such as grassland, forest, or wetlands and (2) paying farmers to install and maintain farming practices on working farmland that reduce erosion and runoff or protect wildlife habitat. Currently, five major programs implement one or both of these conservation strategies.

The Conservation Reserve Program (CRP) and Agricultural Conservation Easement Program (ACEP) use the first approach. The CRP pays farmers to convert cropland (and some grassland) to conservation uses, while the ACEP pays farmers to maintain or restore wetlands or grasslands. The Environmental Quality Incentives Program (EQIP) and Conservation Stewardship Program (CSP) use the second approach. EQIP subsidizes up to 75 percent of the cost of installing approved conservation structures or equipment on working farmland, while the CSP pays farmers an annual fee to maintain a suite of approved conservation management practices on working farmland. The fifth program, the Regional Conservation Partnership Program (RCPP), funds projects at a regional or watershed scale that are undertaken by governmental or nonprofit entities. Those projects can include both land diversion and subsidies for conservation on working farmland and technical assistance to farmers provided by those projects.

Over the past 30 years, subsidies for conservation on working farmland have increased in importance relative to subsidies for land diversion. In 1990, for instance, the CRP accounted for virtually all conservation spending under the farm bill. By 2017, its share had fallen to under half, while EQIP and CSP combined accounted for a little over half.3 The RCPP is quite small, accounting for only 2 percent of spending on major conservation programs since its inception in the Agricultural Act of 2014.

Both the Senate (Agriculture Improvement Act of 2018)4 and House (Agriculture and Nutrition Act of 2018)5 draft reauthorizations of the farm bill retain the current status of conservation programs in terms of the overall level of spending on conservation and the importance of conservation subsidies relative to other direct payments to farmers. Both legislative proposals also arrest the trend toward conservation on working farmland at the expense of land diversion by retaining the division of expenditures at roughly current levels. The Congressional Budget Office (CBO) projects that both bills would increase outlays on these five major conservation programs by roughly $310–$350 million over fiscal year (FY) 2019–23, or about 1 percent relative to a baseline of $28.7 billion (Figure 1).6

According to the CBO projections, outlays on conservation programs under both the Senate and House farm bills would total about a third of combined spending on the programs that account for most of the direct payments to farmers (commodity programs, crop insurance, and conservation) over that same period. Under both bills, as in the Agricultural Act of 2014, outlays on subsidies for conservation on working farmland (EQIP and CSP) would account for over half of conservation spending, and outlays on payments for land diversion (CRP and ACEP) would account for under half, while the share of outlays under RCPP would increase by 1 or 2 percentage points (Figure 2).

However, the Senate and House farm bills would affect the structures of the individual programs differently (Figure 3). Both bills increase funding for ACEP and decrease funding for CRP while keeping the overall share of spending on land diversion roughly constant. The House bill eliminates the CSP and incorporates some, but not all, of its provisions into EQIP. Both bills feature increases in RCPP spending.

The two bills differ in important details within each program as well. The following sections compare the changes the two bills would make to each of the five major conservation programs, and evaluate the potential advantages and disadvantages of those changes.

Read the full report. 

Notes

  1. Erik Lichtenberg, “The Farm Bill, Conservation, and the Environment,” American Enterprise Institute, November 13, 2017, http:// www.aei.org/publication/the-farm-bill-conservation-and-the-environment/.
  2. US Department of Agriculture, Economic Research Service, “Government Payments by Program,” https://data.ers.usda.gov/ reports.aspx?ID=17833.
  3. Lichtenberg, “The Farm Bill, Conservation, and the Environment.”
  4. Agriculture Improvement Act of 2018, S. 3042, 115th Cong.
  5. Agriculture and Nutrition Act of 2018, H.R. 2, 115th Cong.
  6. Congressional Budget Office, “Cost Estimate, S. 3042 Agriculture Improvement Act of 2018,” June 21, 2018; Congressional Budget Office, “Cost Estimate, H.R. 2, Agriculture and Nutrition Act of 2018,” May 2, 2018; and Congressional Budget Office, “USDA’s Mandatory Programs—SBO’s April 2018 Baseline,” April 2018.

The midterms of 2018 aren’t so earth-shaking after all - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 10:00

Because voting is voluntary in our country, political activists have to find some way to rev up Americans to do their civic duty. One old standby is calling the next election “the most important in history,” or “a generation.”

It’s easy to make fun of this trope, but elections do vary in their importance. The stakes really were higher in 1860 than they usually are. In 2012, I wrote that the election that year would be the most important since 1980. Republicans had a chance to hold the House and take the Senate and White House, and if they had, significant changes to Medicare would have been on the table. Obamacare would have been dismantled before most of it took effect.

The 2016 election was an important one, too. The outcome determined whether the Supreme Court would have a liberal or a conservative majority. The nomination of Donald Trump also marked a major change in our politics that voters had to decide whether to ratify or at least accept.

Midterms, too, can matter. The 2010 election, by putting Republicans in charge of the House, brought an end to the march of big liberal legislation. President Barack Obama would go on to serve six more years, but his major legislative accomplishments ended.

This year’s national elections are already unusual in the emotional intensity they have generated. They may have turnout to match. But the truth is that the stakes this time are relatively low.

A good result for the Republicans would be holding their majority in the House and adding a seat or two to their majority in the Senate. A good result for the Democrats would be winning a majority in the House and a bare majority in the Senate. If the Democrats take the Senate, the Trump administration’s drive to move the judiciary to the right will come to a halt. If they take either chamber, the administration will face meaningful oversight.

But that’s pretty much all that turns on the election results. If the Republicans win, they are unlikely to send Trump major legislation to sign. They may try to overhaul Obamacare again. But they passed a bill through the House with only four votes last time, and their margins are going to be smaller next time.

They will not have the votes to get much done, and they don’t have the appetite to legislate anyway. They will not be under the impression that they need to enact laws to win the next election, since they will just have won an election with no thanks to legislative accomplishments. (Their only big win on that front was their tax cut, which nobody thinks is doing a lot to help their campaigns.)

If the Democrats win, they will be stymied by a narrow majority in the Senate and possibly one in the House as well. They may not have the votes to overcome filibusters, or to weaken the minority’s ability to use them.

Forget about a new ban on assault weapons. And even if Democrats got big legislation through Congress, they surely won’t have the votes to override Trump’s vetoes on any issue where he has a significant number of voters in his corner.

Even if House Democrats impeach the president, it will be a largely symbolic move so long as there is no prospect that two-thirds of senators will agree to remove him from office — and that won’t happen based on anything close to today’s fact pattern.

Trade policy might see different legislative outcomes depending on who wins the election, but the impact would be trifling. Partisanship might get Trump’s deal with Canada and Mexico through a Republican Congress and get it rejected by a Democratic Congress. But the deal makes only minor changes to existing policies in North America. It would make a difference, to be sure, if the prospect of a congressional defeat provoked Trump into leaving Nafta. But in that case it would be executive action, not the congressional decision, that mattered.

Some people argue that it’s vital for Democrats to win the election, not because they are seeking different legislative outcomes but because they want to see a national rebuke of the Trump-led Republican Party. Republicans, they think, have to be shown that continuing to support Trump will lead them to political ruin.

Sorry to anyone who harbors this hope, but a Democratic wave won’t accomplish this result either. The House Republicans who lose this year are practically guaranteed to be disproportionately the ones who are most critical of Trump (since they are in swing districts). On average the House Republicans who remain after the election will be more supportive of the president than the ones in Congress today.

If Democrats take the House, they will become a better foil for Trump that helps him maintain his grip on Republican voters. And Trump will remind both Republican politicians and voters, correctly, that the party in power usually loses seats in the midterms. The only rebuke that would matter to Trump and Republicans would be his losing re-election in 2020.

The low stakes in the election don’t mean that people shouldn’t vote. Oversight and judicial confirmations are at issue in any competitive national elections, and they matter. (Even if the Supreme Court will have a conservative majority regardless of this year’s elections, the make-up of many appellate courts will turn on their outcome.)

Many states are also holding elections that could have a larger impact on their residents. But while neither party has an interest in saying it, this is one of the least important national elections we have had in years.

A look at the growing consensus on online privacy legislation: What’s missing? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 10:00

Six years seems like a century in tech policy. While there is now a growing consensus among the tech industry, regulatory advocates, and policymakers on the need for comprehensive privacy legislation, a blueprint proposed in President Barack Obama’s 2012 Consumer Privacy Bill of Rights proved unsuccessful. Had Congress taken up legislation in 2012, it may have forestalled the egregious regulations the EU and California adopted.

Representatives from AT&T, Amazon, Google, Twitter, Apple, and Charter Communications testify before the Senate Commerce, Science and Transportation Committee in Washington, DC, September 26, 2018. via REUTERS.

In any case, the principles agreed on today generally align with those proposed in 2012. They’re hardly controversial: individual control, transparency, security, accountability, and strengthened enforcement at the Federal Trade Commission (FTC). The 2012 proposal supported using multi-stakeholder processes to develop enforceable codes of conduct through Section 5 of the FTC Act and global interoperability. Importantly, the Obama administration was adamant about the need for preemption of state laws that would contradict the national standard. It expected states to participate in multi-stakeholder processes and believed that states proposing more stringent requirements would diminish incentives for firms to adopt the codes of conduct.

Moreover, the administration wanted Congress to codify forbearance from enforcement of state laws for companies already compliant with the FTC’s codes of conduct. Fortunately there is bipartisan agreement in Congress — Sens. Amy Klobuchar (D-MN) and John Kennedy’s (R-LA) bill — offering a win-win for both parties and a common set of rules for all consumers online. This blog briefly reviews the areas of policy agreement and unresolved issues.

A growing consensus on the principles of consumer online privacy

Reviewing the statements of principles from many in the industry (US Chamber of Commerce, Information Technology Industry Council, Verizon, and Spectrum, to name a few) shows common ground:

  • Transparency. Enterprises must provide clear, easy to understand information about their practices for the collection, use, and sharing of information. And they must be able to make available to the consumer, without undue cost or delay, the information the consumer provided to the enterprise and a description of the types of additional information the enterprise may have about the user.
  • Accountability. Companies must put in place reasonable security measures to protect consumers’ information and should notify consumers when breaches occur and threaten harm. Companies have also offered to establish rigorous governance procedures to ensure compliance with legal requirements.
  • Safe harbor. There is agreement that legislation should give firms that follow the law confidence that they are not in danger of arbitrary prosecution. Moreover, companies need to have the ability to experiment with and improve on data privacy systems without fear of punishment. Policymakers should also consider the role of incentives for design and experimentation with privacy-enhancing technologies, such as grants, awards, prizes, and competitions. Better privacy enhancing systems will drive competition and global preeminence.
  • Opt-in requirements for “sensitive” personal information. Categories of data such as health, financial, age (for children), and precise geolocation are deemed “sensitive personal information,” and many are already regulated under existing laws. Any online entity collecting this information would need to provide a clear opportunity for consumers to affirmatively opt in to the collection, use, and sharing of this information. (Note that while the Federal Communications Commission’s 2015 online privacy rules required internet service providers to get opt-ins for all information collected, even if it was not sensitive, no such obligation was required for search engines, social media, or other online entities. Congress wisely struck down these arbitrary and asymmetrical rules that confused consumers about which protections were offered for competing services.)
  • Consistency. Another consumer-centric principle is a common set of rules for all Americans for all online entities, enforced by the FTC with the support of state attorneys general under federal law.

Issues to be resolved

The FTC is best equipped to handle these new responsibilities because of its experienced staff, mature processes, and deep privacy and security expertise: There should be a glide path to integrate the duplicative consumer protection functions from other federal agencies into the FTC to maximize the value of federal dollars and enforcement effectiveness.

In the meantime, the FTC can learn from the current multi-stakeholder efforts to develop codes of conduct, such as the one on artificial intelligence and algorithms the Brookings Institution supports This represents another key opportunity for any potential federal policy to leapfrog ahead of the EU’s General Data Protection Regulation, which involves regulations so onerous that on strict reading they effectively nullify next generation information processing.

A proper national policy removes rent-seeking incentives for states and litigants. Sadly, many US states are under financial distress because of historically bad management, and America’s connected digital industries offer an untapped source of revenue even if they have not violated privacy rules. However lucrative it may be to sue these companies, the better option is for states to make their economic environments friendlier to enterprise and to earn revenue by taxing legitimate business activity. If we do nothing, California’s misguided rules will become the standard. Even worse, US policy could devolve into 50 sets of rules, frustrating the seamless, connected digital economy we enjoy today. We need good legislation to keep bad regulation away.

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Econ 101 predicted Trump would widen the trade deficit - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 10/28/2018 - 13:30

It would be a gross understatement to say that President Trump has failed in delivering on his campaign promise to close the U.S. trade deficit with a view to promoting manufacturing jobs at home.

Indeed, under his watch, not only has the U.S. trade deficit steadily widened over the past two years. It has now reached an all-time high, running at an annual rate of close to a staggering $1 trillion.

Sadly, with his administration’s budget and trade policies, there is every prospect that the trade deficit will continue to widen during the remainder of his first term in office.

While the unwelcome widening of the U.S. trade deficit might have come as a surprise to President Trump and his economic team, it should have come as no surprise to anyone who had bothered to take an introductory course in international economics.

Such a course would have taught that the main determinant of trade deficits is not so much the level of a country’s import tariffs but it is rather a question of whether the country saves enough to finance its investment.

If a country reduces its savings and increases its investment level, its trade deficit will necessarily widen. That has proved once again to have been the case for the U.S. over the past two years.

A basic economic course would also have taught that the level of the dollar is an important determinant of both exports and imports. A strengthening dollar makes it more difficult to export and cheaper to import.

Yet another lesson from an Economics 101 class is that with a floating exchange rate, an increase in a country’s capital account surplus will necessarily be matched by a widening in its current account deficit.

Looking ahead, there is every reason to expect that over the next two years, the U.S. trade deficit will rise to well over $1 trillion a year.

Among the main reasons for expecting this to happen is the Trump administration’s budget policy, which holds out the prospect of a major decline in the country’s savings level.

That policy includes an unfunded tax cut which is estimated by the Congressional Budget Office to increase the U.S. public debt by a mind-boggling $1.5 trillion over the next 10 years. It also includes support of a Congress-approved $300 billion increase in public spending over the next two years.

As a result of the administration’s expansive budget policy at this late stage in the economic cycle, it is widely expected that over the next two years, the U.S. budget deficit will rise to a peace-time high of over $1 trillion.

This makes it all too likely that we will be revisiting the famous twin-deficit problem of the Reagan presidency when we had both an outsized budget deficit and an outsized trade deficit.

Yet another reason to fear that the U.S. trade deficit will widen in the year ahead is that a strengthening dollar will discourage exports and incentivize imports. Already, over the past year, the U.S. dollar has appreciated by around 10 percent.

That strengthening is all too likely to continue in the period ahead as U.S. monetary policy becomes increasingly out of synch with that of our major trade partners.

Indeed, at a time that an expansive budget policy is forcing the Federal Reserve to keep raising interest rates to prevent economic overheating, the European Central Bank and the Bank of Japan are keeping their foot on the pedal to provide support to their lackluster economies. In the process, they are increasing the relative attractiveness of U.S. financial assets.

Another factor likely to contribute to a further strengthening of the U.S. dollar is the current global financial market turmoil that is being caused in part by the uncertainty engendered by President Trump’s “America First” trade policy.

As has happened so often in the past in times of global turmoil, too much capital is likely to be repatriated to the United States in search of a safe haven for investment. As a matter of arithmetic, under a floating exchange rate regime, as the U.S. capital account surplus strengthens, its external current account and trade account deficits must be expected to widen.

Judging by his past behavior, it would be too much to expect that President Trump will assume responsibility for the country’s disappointing trade behavior under his watch. However, if he is wanting to assign blame, a good place to start might be with his economic team.

After all, they all took Economics 101 classes, and they should have learned that an unfunded tax cut coupled with public spending increases runs the all-too-real risk of having the country revisit the twin deficit problem of the 1980s.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the Chief Emerging Market Economic Strategist at Salomon Smith Barney.

Will Fuad Hussein’s appointment as finance minister sink Abdul-Mahdi’s reform efforts? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 10/28/2018 - 12:51

More than five months after elections, Iraq’s new government is taking shape. With the announcement of 14 cabinet picks and their parliamentary confirmation, Prime Minister Adil Abdul-Mahdi can begin governing. He has his work cut out for him. Fifteen years after the U.S. invasion, Iraqis remain frustrated at poor or inadequate government services, corruption and the seeming impunity of the ruling class. No longer can even Shi’ite and Kurdish politicians expect constituents to excuse their failings as the price of ridding the country of Baathist dictatorship. After all, 40 percent of Iraqis were born after Saddam’s fall. Well over half of Iraqis have no direct memory of Saddam Hussein. Rather than compare their plight to times past, Iraqis instead take the freedom to criticize for granted and compare their standard of living to Iran, Turkey, and the Gulf countries.

Then Iraqi President Fuad Masum speaks at the opening ceremony of the World Economic Forum on the Middle East and North Africa at the King Hussein Convention Centre at the Dead Sea May 20, 2017. Reuters

Is Fuad Hussein competent to take on finance?

Iraqis debate Abdul-Mahdi’s longevity: Not only is he more than a decade older than his predecessor, Haider Abadi, he also resigned from his two previous posts. Circulating around Baghdad earlier this month, it seemed many politicians were jockeying as much for posts in Abdul-Mahdi’s government as they were positioning themselves for his fall. After all, patience is thin and the clock is ticking: The summer surge in electrical demand is only seven months away. Abdul-Mahdi’s promises to preside over a technocratic government and his announcement that he would move his office outside the Green Zone are meant to assuage a cynical public. But, while his symbolism might be apt, his choice of Fuad Hussein as finance minister suggests political weakness and the need to appease Kurdistan Democratic Party (KDP) leader Masud Barzani will trump any meaningful effort to tackle corruption or continue Abadi’s economic reforms.

Hussein’s main credential was that he was for more than a decade chief-of-staff—essentially, consigliore—to Barzani. By education, he is a teacher rather than economist or engineer. If service to Barzani was his only credential, it would suggest emptiness to Abdul-Mahdi’s rhetoric about prioritizing technocratic ability over patronage. But, after years being partner to if not supervising implementation of every major Kurdistan Regional Government (KRG) policy, the track record of the policies Hussein championed in the KRG are worth examining. Because the KRG became free from Baathist rule 12 years before the rest of Iraq and remained both secure and stable while insurgency raged through newly-liberated areas of the country, the Kurdish region had an economic head start upon the rest of Iraq. Alas, through both corruption and poor economic policy, KRG squandered that lead. Consider, for example, that the KRG is on par with Cuba in terms of percentage of residents on the state payroll. While Abadi was working to reduce payroll and create incentives—a private pension scheme for example—to ensure financial stability at times of lower oil prices, the KRG increased its dependence on oil.

Did the KRG mishandle oil contracts and revenue?

While the KRG sold itself as “an emerging market offering excellent opportunities,” oil industry corruption has also tarnished Iraqi Kurdistan’s reputation. On November 27, 2015, for example, Dana Gas, a United Arab Emirates-based energy company and one of the largest investors in Iraqi Kurdistan, won a London Court of International Arbitration ruling worth nearly $2 billion against the KRG. The case exposed bribery and extortion at the highest levels of the KRG. If Hussein was unaware of the corruption, he was either blind or incompetent. If he was complicit, then that bodes no better for his tenure at the finance ministry. The problem, of course, was not just corruption. The Dana impasse and arbitration caused a six-year delay in development, which meant lost profits on undeveloped fields and dissuaded further investment in Kurdistan.

While the KRG subsequently blamed defaults on the fight against the Islamic State and the pressures of caring for refugees, profligate spending by Kurdish political elites and the lack of austerity at top levels of the KRG belied such claims. KRG Oil Minister Ashti Hawrami acknowledged, “If the KRG carried on as before with its uncurbed spending and without real reforms, then even if we reached 1 million barrels of crude oil production per day and oil returned to $100 per barrel we would still not cover our financial requirements”. The KRG contracted PricewaterhouseCoopers to audit the region but never released the results of its audits. Nor did the KRG release audits by Deloitte and Ernst & Young. Given Hussein’s central role in managing government at the time, shouldn’t Abdul-Mahdi demand their release and parliamentary examination? Given the Iraqi public’s sensitivity about corruption, shouldn’t Abdul-Mahdi seek to have his finance minister explain the difference between Barzani, KDP, and public party in the KRG? Perhaps parliament might ask why, if Barzani no longer serves as KRG president, he continues to occupy a mountaintop resort appropriated first by Saddam and then, after 1992, for the KRG presidency?

Will Fuad Hussein forgo prudence to Barzani demands?

Not all KRG financial failure can be laid at Hussein’s team. Hussein, after all, was simply a cog in corrupt KRG machinery, albeit a prominent one. And, during the time of Hussein’s service, an oil dispute between Baghdad and Erbil led the Iraqi government to withhold cash transfers to the KRG. This alone did not leave the KRG in such dire financial straits, but it does raise further questions about Hussein’s intentions. Does Hussein support the Iraqi government position that the KRG is due 12.67 percent of Iraqi oil revenue, or does he support reversion back to 17 percent, a figure not commensurate with KRG population? If the latter—and it is likely this is why Barzani fought to place his nominee in the finance ministry—then what would this mean for the Iraqi budget? Should the shortfall come from electricity generation or water sanitation? Should there be less money to rebuild Mosul? Or should the government hire fewer teachers? Iraqis deserve to know whether Abdul-Mahdi, his rhetoric aside, has betrayed their demands for a clean government and transparent finances in order to win Barzani’s support.

Will Fuad Hussein continue to discourage modern banking?

No Iraqi prime minister has inherited as healthy an Iraqi economy as did Abdul-Mahdi. Prime Minister Nouri al-Maliki had run Iraq’s economy largely into the ground and when Abadi took over, not only had oil prices crashed, but the Islamic State precipitated a national emergency. While Abadi stabilized the Iraqi economy and helped make Iraq investor-friendly, Western businesses say the missing piece in Iraq is a modern banking sector. But, while modern banking lags in Iraq, in Iraqi Kurdistan it is positively old-fashioned. Alas, for the KRG, this was by design. Kurdistan remains largely a cash society; credit cards are rarely accepted and cash machines rare. To collect salaries, many Kurds must queue in their offices, peshmerga must go to force headquarters, and police must visit their directorate. Pensioners likewise must show up every month or two to collect what they are owed. It need not have been this way. When, six years ago, a representative from one of the United Kingdom’s top companies offered to install a network of ATMs and electronic banking centers—more than 1,500 in all—across Kurdistan, the KRG refused. The issue was not expense: The company would have provided the machines for free and sought only a miniscule commission on transactions at less than one-percent, far less than the going international rate.

Rather, the apparent reason for Barzani’s refusal was that electronic banking would have ruined ghost employee and embezzlement schemes and also undercut efforts to monitor suspicious cash. When electronic banking is the norm, watchdogs can question, for example, how it could be that a mid-level government employee suddenly deposited $100,000 into his account. Given Hussein’s record obscuring corruption rather than exposing it, can international partners and investors expect any significant progress modernizing Iraq’s banking sector?

How does Fuad Hussein propose tackling corruption?

While almost every Iraqi complains about corruption, prosecuting corruption is more than a matter of political will. Outdated laws hamper the anti-corruption fight in Iraq. Iraqi Criminal Code No. 111 of 1969, section one, focuses on bribery the penalty for which is a maximum of ten years in prison and confiscation of the bribe. Section two addresses embezzlement for which penalties range from a fine to life imprisonment with a restitution of the funds stolen, and section three criminalizes “officials who overstep the bounds of their duty” and misuse public authority. Article 330 deals with the common Iraqi practice of wasta, the use of connections to avoid application of law. But, Iraq’s penal code has not been updated to address cross border crimes, cybercrimes, or basic conflicts of interest such as the common Iraqi practice of using sons, cousins, or in-laws as business agents for politicians. If Abdul-Mahdi and Hussein are serious about fighting corruption, what new laws or amendments will they or the parties supporting them submit to parliament to update Iraq’s legal code?

Will Fuad Hussein exploit Abdul-Mahdi’s style?

Abdul-Mahdi enters office with a very different leadership style than his predecessors. Maliki sought to pepper the bureaucracy with loyalists and created an informal, shadow cabinet to control policy outside the formal ministries. Abadi, meanwhile, could call up the minutiae of technical details of financial reform, the oil industry, and infrastructure. While many Iraqis complained about backlogs of decisions in the prime minister’s office, without exaggeration, Abadi often had a better grasp of ministry portfolios than many ministers. Abdul-Mahdi, however, delegates. His goal is to allow ministers to run their portfolio and sink or swim by his results. If the ministers were technocrats and had the betterment of Iraq as their goals, that might be noble. But Fuad Hussein is neither a technocrat nor does he have a track record of economic success. He was pivotal to efforts to dismantle Iraq just over a year ago. Perhaps Barzani forced Hussein upon Abdul-Mahdi as the price of his political support. That Abdul-Mahdi violated his promise not to engage in the usual political horse-trading surprises no one, but it bodes poorly that he did not hold firm to demand a more competent figure. Abdul-Mahdi may mean well, but sometimes it is the early compromise which determines whether a prime minister will succeed or not. Alas, Abdul-Mahdi’s compromise gives little reason for optimism, at least in the financial and anti-corruption spheres.

AEI Events Podcast: AEI Election Watch- The 2018 contests - AEI Events Podcast: AEI Election Watch- The 2018 contests - AEI

Fri, 10/26/2018 - 21:20

On this episode of the AEI Events Podcast, join AEI’s Election Watch team- Michael Barone, Karlyn Bowman, John Fortier, Sean Trende, Henry Olsen, and Norman Ornstein- as they give a comprehensive briefing on where the 2018 contests stand and what the outcomes may mean for 2019 and beyond.

Drawing on their deep experience in analyzing elections, the panelists examine specific contests, the polls, levels of enthusiasm, key voting groups, the issues, and what the results will mean for the Democratic and Republican parties and for Trump’s coalition and the resistance. In addition, they address whether America’s election systems are ready for November.

This event took place on October 10, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

How strong is the conservative case for a carbon tax? - Farm subsidies: Where the money goes | In 60 Seconds - AEI

Fri, 10/26/2018 - 18:00

In the debate over anthropogenic climate change, one important difference has emerged among self-described economic and political conservatives: Would a tax on greenhouse gas emissions, whether imposed by the US alone or by international agreement, further the goals of environmental improvement and enhanced economic growth? This debate has become more prominent recently, with formal proposals for such a tax presented in both detailed policy papers and proposed legislation.

Join AEI for a discussion on this important issue. The panel will offer sharply contrasting views, with the larger goal of moving the climate policy debate forward in a rigorous fashion.

Join the conversation on social media with @AEI on Twitter and Facebook.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

Bush-Obama education policy: Lessons learned | reTHINK TANK - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 14:16

The Bush and Obama administrations represented the high-water mark of federal involvement in education policy, with issues like teacher accountability and teacher evaluation front and center. So, what lessons have we learned from the past two decades? AEI’s Frederick M. Hess walks through a few of the key takeaways from the Bush-Obama years.

Can the president lower drug prices? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 13:20

The president has announced a new initiative to lower certain drug prices. There is no doubt cheaper drugs can be bought from overseas, as he threatens. My own research, most of which has appeared in the peer review literature, shows that the prices of medicines bought from overseas via web pharmacies are overwhelmingly cheaper than US-sourced medicines.

All of the medicines above passed quality control and were authentic. There were some substandard and fake medicines sourced mainly from China and India, but these were not bought from credentialed web pharmacies, only from sites not credentialed by www.pharmacychecker.com or the Canadian Internet Pharmacy Association.

The pharma industry makes a lot of noise about the risks of procuring inferior medicines, but from credentialed sites I found no problem from the seven types of medicines sampled over 500 times.

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What Betsy DeVos can learn from Bush-Obama school reform - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 12:00

Madam Secretary, as you well know, American education suffers from more than its share of posturing, invective, hype, and spin. All that noise too often drowns out lessons that experience might otherwise teach. When we look at the George W. Bush or Barack Obama education legacies, for instance, it’s all too easy to find glossy PR or ad hominem critiques. Much harder to find are analyses that tease out practical lessons. In our new book, Bush-Obama School Reform: Lessons Learned, we tried to identify those, with the aid of a double handful of thoughtful analysts more interested in seeking insights than in scoring points. In this memo, we’ve sketched four key takeaways that might help inform the Education Department’s efforts today.

Aaron Clamage Photography (C) American Enterprise Institute

1. Uncle Sam is good at making schools give tests and at promoting research and reporting, but lousy at making schools improve. Your rhetoric sometimes suggests that there’s nothing Washington does well when it comes to K-12 schooling. That’s not the case. Indeed, your critique is most compelling when it recognizes that there are some areas where Washington has a useful role to play. The legacy of No Child Left Behind is instructive. NCLB yielded a wealth of data on how students were faring in reading and math. NCLB created a uniform, consistent national framework for testing—yielding a boom in transparency, research, and data-informed practice. It was NCLB’s “adequate yearly progress” measure, its remedies for “low performing” schools, and its legacy of top-down compliance that were defective, requiring unwieldy standardization and putting an undue faith in bureaucratic routine.

Takeaway: When it comes to federal guidelines governing school discipline or addressing state plans under the Every Student Succeeds Act, don’t simply denounce the federal role or grudgingly bow to procedural requirements. Rather, move forward with the recognition that federal efforts can be a boon for transparency and research. At the same time, keep explaining, over and over, that Washington may be good at making schools perform simple tasks, like giving tests—but is poorly equipped to steer more complicated improvement processes.

2. Nationalizing a policy can make things tougher for state-level coalitions. When the Common Core State Standards or Race to the Top-style teacher evaluation took on the veneer of “national” initiatives, backed by directives from the U.S. Department of Education, these became fixed in the public mind as Washington’s handiwork. This made it tougher for local leaders to credibly argue that their approach was sensitive to the local context—no matter how true that might be. Given that the educational and political dynamics are different in New Jersey and Nebraska, and that Washington is disliked almost everywhere, this invited blowback—especially in places where the president was unpopular.

Takeaway: America doesn’t need a 50-state effort on school choice. The lack of federal leadership has allowed school choice advocates in places as different as California, Arizona, Louisiana, and Indiana to build powerful, broad-based coalitions that don’t suffer from the need to rally around a dictate cooked up in President Donald Trump’s Washington. While it may be tempting to pursue a big win, such a path would exact a huge cost—tarring the issue, making coalitions more fragile, and potentially doing more to stymie school choice than to stimulate it.

3. Public officials are forced to operate on political timelines, but those timelines can undermine reforms. Rebooting policies, training educators, revising instructional materials, and changing what happens in classrooms is a slow, frustrating process, especially when the goal is competence and not merely compliance. Yet, political realities lead officials to think in terms of expedited timelines. Elected officials want results in time for re-election. Appointees to the Education Department know that they have only a few years to make their mark. NCLB and President Bush’s Reading First program sprinted out of the gate, only to be hobbled by myriad design flaws that weren’t immediately apparent. The Obama administration pursued teacher accountability even as new standards and tests were being rolled out and value-added assessment was still being pioneered—leaving little opportunity to work out the kinks.

Takeaway: This is one place where your distrust of Washington serves you especially well. The Bush and Obama teams were racing to implement a raft of new federal initiatives, and those wound up tripping over one another. As you look to move forward on higher education reform and your efforts to promote “rethinking” in K-12, you’ll do well if that deliberate and measured impulse continues to guide you.

4. It’s politically potent to wrap education advocacy in the garb of “civil rights,” but doing so carries costs. Casting school reform as a civil rights issue, a hallmark of both the Bush and Obama years, has lent the cause heft and urgency. It also, however, has made it harder to accommodate practical concerns about how reforms were working. After all, civil rights enforcement is a moral absolute. Once that flag is planted, any perceived softening on testing, accountability, or school improvement—even when necessary and appropriate—risks being depicted as a “retreat” on civil rights. This rigidity magnified NCLB’s impact in the early years, but it also ensured that the law’s provisions would eventually become less tenable, and thus less sustainable.

Takeaway: The power of framing school reform in terms of civil rights cuts both ways. More importantly, it is at odds with the kind of bureaucratic humility that you have sought to bring to the department. Try to resist the temptation to use claims that your stance is the only one consistent with a respect for civil rights. Avoid using that as a cudgel with which to promote school choice or higher education reform.

Madam Secretary, we know that your job looks a lot easier from the outside. But it’s also the case that there are lessons which it may be easier to see from outside than from within. So, if you’ll permit, we’ll close with a final thought. There’s great pressure for those in your position to say: “We have to do something!” But the hard lesson is that clumsy action in Washington can poison the well for promising ideas and undermine ongoing efforts, and that restraint is sometimes the wisest course.

This article first appeared in Education Week as What Betsy DeVos Can Learn From Bush-Obama School Reform on October 22, 2018. Reprinted with permission from the author.

In praise of divided government - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:30

Right now, the broad consensus among nonpartisan experts is that in this year’s midterm elections, Republicans will hold control of the Senate while the Democrats will win back control of the House of Representatives. If this turns out to be true, we will once again return to divided government.

Division between the two parties has been the norm since 1981. In the past 38 years, one side or the other has had total control of the government for only ten years. Neither Republicans nor Democrats have held a decisive advantage over the other. Rather, temporary unity in government has quickly transformed into divided control, again and again.

Pundits like to lament this state of affairs, for both its gridlock and its tendency to produce hyperpartisan rhetoric, but I think it has several virtues that are often unappreciated.

Fifty years ago, a popular theory among political scientists was the notion of “alignments” in American politics. The thinking was that certain political coalitions dominate for epochs of American history (typically lasting about 40 years), and while the opposition could win elections, they still had to swim against the current of public opinion.

In recent years, scholars have moved away from this idea, in no small part because the finer details of American politics do not match up with this grand, sweeping theory. Take Franklin Roosevelt. He supposedly inaugurated a new age of liberal policymaking . . . except that a conservative coalition of Northern Republicans and Southern Democrats took control of Congress in 1938 and more or less retained control for the next half century.

The theory of alignments or eras has performed pretty badly since Ronald Reagan, too. Reagan governed as a bold conservative, which should have signaled the end of the New Deal era. But subsequent Democrats did not follow suit. Bill Clinton is famous for his triangulation, but the 103rd Congress of 1993–94 was decidedly liberal on taxes and gun control. Similarly, Barack Obama governed as a bold liberal, perhaps suggesting a new epoch, but Trump has governed in the opposite way.

Instead, I would posit another framework to understand politics over the past 40 years, one in which the two parties are basically evenly matched, strong ideologues dominate the bases of both sides, and a decisive quantum of voters in the middle is up for grabs. This process has yielded a general pattern that seems to repeat: One party surges to control the government, but this is short-lived; the opposition quickly gains a foothold; and divided government persists until the opposition finally takes total control, repeating the cycle.

We have seen something like this happen for Ronald Reagan, Bill Clinton, George W. Bush, and Barack Obama, and if the trends continue through Election Day, we will see it with Donald Trump as well. Each president enjoyed a period, early in his term, when he was able to work his will on Congress. Clinton, Bush, and Obama had partisan majorities on their side. In 1981 Reagan had a Republican Senate and a conservative majority in the House. Subsequent midterms cut down on presidential influence, and eventually the opposition wins the White House with majorities of its own in Congress.

This theory is not perfectly efficient. George H. W. Bush managed to win a third consecutive term for Republicans — a feat unprecedented in the postwar era (except for Harry Truman, who won a fifth consecutive term for Democrats). And Republicans won back the Senate under George W. Bush in 2002. But still, this process has more or less held in place for nearly 40 years.

Is this a good thing? On balance, I believe it is. It makes our politics vitriolic on a day-to-day basis, as both sides, always having recently experienced a governing majority, are cutthroat in their efforts to reclaim it. But it offers the country a way to self-correct on public policy. Democrats tend to peel back Republican tax cuts, while Republicans tend to peel back Democratic regulations — except those provisions on both sides that are broadly popular. This does not lead to coherent public policy, but at least it is moderate in sum.

The other advantage of this system is that it keeps both sides invested in the process. Recent Democratic caterwauling about the Senate notwithstanding, both sides appreciate that a small shift in political fortunes can sweep one side in and one side out. So, unlike in the 1850s, when the South was calling for fundamental changes to the political process in recognition that it was now a permanent minority, both sides are basically content to play the game according to the rules.

Again, it is now an ugly game, on a day-to-day basis. But if we think about politics over the course of the past two generations, it definitely has had its advantages. Both sides have been able to enjoy a taste of power, and the public has had regular opportunities to dial back policy excesses.

Nobody is blameless in the rising acrimony of American politics - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:30

Whether the packages delivered to leading Democrats and liberals turn out to be functioning bombs or dummy devices intended to send a message, the effect is largely the same: American politics is descending further into the logic of the vendetta.

If you read about famous feuds or intergenerational rivalries — Hatfields vs. McCoys, Israelis vs. Palestinians, etc. — one simple truth makes everything much more complicated: Everybody has a valid point. The Hatfields shout, “Your family shot my uncle!” The McCoys reply, “Well, you folks hanged my father!”

And they’re both right.

And they’re both wrong.

They’re right that the other side did something bad, but they’re wrong that the first bad act justifies the second.

They’re also wrong because, outside of war, “sides” don’t really kill people; people kill people. If someone named Smith kills someone named Goldberg, I have no right to kill some different person named Smith, who did nothing wrong, simply because I happen to be a Goldberg, too.

Until now, I’ve been speaking mostly metaphorically. We’re not a failed state where competing coalitions visit bloody reprisals on each other. We’re not Ancient Rome either. But we’re getting closer. And you can tell by the way we’re talking.

In response to this still-unfolding crime, the overwhelming response from Democrats and most of the mainstream media is that this is all Donald Trump’s fault.

“Time and time again, the president has condoned physical violence and divided Americans with his words and his actions,” Senate minority leader Chuck Schumer and House minority leader Nancy Pelosi said in a joint statement Wednesday. “Expressing support for the congressman who body-slammed a reporter, the neo-Nazis who killed a young woman in Charlottesville, his supporters at rallies who get violent with protestors, dictators around the world who murder their own citizens, and referring to the free press as the enemy of the people.”

Trump’s calls for unity in response to mail-terror attacks “ring hollow,” they added. And they’re right.

Indeed, Trump seemed to demonstrate the hollowness the following morning in a tweet: “A very big part of the Anger we see today in our society is caused by the purposely false and inaccurate reporting of the Mainstream Media that I refer to as Fake News. It has gotten so bad and hateful that it is beyond description. Mainstream Media must clean up its act, FAST!”

On one level, this tweet is loopy. We don’t know the motives of the bomb mailer yet, but it seems unlikely that he or she was sending explosive devices to Barack Obama, Robert De Niro and Representative Maxine Waters to teach the “fake news” a lesson. That would be some serious three-dimensional media criticism right there.

But Trump has a point, too. His “enemy of the people” rhetoric is irresponsibly hyperbolic, but it resonates with millions of people who have good reason to believe that much of the media has gone off the rails in its animosity toward Trump and toward Republicans generally.

More relevant, Trump’s most loyal defenders leapt to make the case that Schumer, Pelosi, and all of the Democrats and pundits blaming Trump for fomenting a climate of violence are hypocrites given the things they’ve said and done. Fox News host Sean Hannity had a furious monologue recounting all of the uncivil things Trump’s liberal critics have said, from Waters encouraging mobs to harass Republicans in public to Hillary Clinton saying civility isn’t an option for Democrats.

Put aside the asininity of acting as if the most pressing issue of the moment is liberal hypocrisy when bomb-laden packages are still being discovered. Hannity still has a point. Ricin was sent to Trump. GOP representative Steve Scalise was shot at a practice for a charity baseball game by a man motivated by liberal rhetoric.

The point is not about “whataboutism” or “both sides-ism.” As a conservative who is critical of Trump, the Democrats, and the mainstream media, I have no team here. The point is that everybody is using the real or perceived hypocrisy of the “other side” to justify their refusal to look squarely at their own side’s irresponsible words and deeds.

It’s obvious to me that Trump’s demonizing rhetoric, his inveterate lying, and his insinuations that his supporters are the only real Americans are dangerously irresponsible. His responsibilities as president of the whole country do not change regardless of what his critics say about him. But the reactions to Trump are often irresponsible, too. And saying “Trump is worse” doesn’t change that.

Yes, everybody is right. But that doesn’t mean everybody isn’t wrong, too.

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