5 June 2010
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Remembering the Gipper on
June 5 [Americans for Tax
Reform]
JUN 05, 2010 06:00A.M.
On June 5, the occasion of the anniversary of the death of Ronald Wilson
Reagan, Grover Norquist, chairman of the Ronald Reagan Legacy Project
issued the following statement: &ldqu..;.
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Kazakhstan’s Approach to Bank
Failure [Cato at Liberty]
JUN 04, 2010 06:13P.M.
By Mark A. Calabria
Gillian Tett has an interesting column in today’s Financial Times,
discussing the recent resolution of one of Kazakhstan’s largest banks,
BTA. What’s novel about this particular bank resolution? Well instead of
the taxpayer, or the rest of the banking sector, covering a large hole in
BTA’s balance sheet, the bondholders are taking the hit (of course
shareholders are also taking a loss).
Some of this is probably due to politics; the bondholders in this case are
mostly foreign, and of course, the taxpayers are domestic voters. Not that
the foreign bondholders didn’t lobby for a bailout.
But putting the politics aside, this represents a real test of whether we
are stuck only with the choice of bailouts or mass panic, as argued by the
Bernanke-Paulson-Geithner crowd. If, in the weeks ahead, Kazakhstan,
and particularly its other banks, are still able to tap the debt markets and
its economy does not crater, then I believe we have sufficient evidence to
end bailouts here in the United States and start letting the bondholders,
instead of the taxpayer, take the losses.
Will lending costs to Kazakhstan banks likely go up? Of course, that is
the point. One of the most damaging aspects of the 2008 bank bailouts
was the elimination of whatever market discipline remained, in terms of
large bank creditors. As most financial institutions fund 90% plus of the
activities via borrowing, we simply cannot rely solely on equity,
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management, and regulators to police their behavior. Only if creditors
really have something to lose will we ever have any hope of ending “too-
big-to-fail.”
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Florida’s Education Tax Credit
Program Helps Public School
Students [Cato at Liberty]
JUN 04, 2010 05:00P.M.
By Adam Schaeffer
Are Florida’s celebrated test-score gains caused by the state’s education
tax credit program? Maybe. What is certain is that Florida’s education
tax credit program significantly increases student achievement in public
schools.
David Figlio, a respected economist at Northwestern University and the
official researcher for Florida’s education tax credit program, has
completed the most rigorous analysis of how a private school choice
program impacts public school performance.
The achievement effects increase in relation to the availability and
diversity of private schools near the school. Schools with the most to lose
make bigger gains. The kicker? All this happened BEFORE any kids left
their public school. The performance gain came from the THREAT of
competition.
On average, student achievement increased 1 percent for every standard
deviation increase in the concentration of private school competitors
before any students even used the program.
In schools on the margin of getting Title I funds from their district — in
other words, those with the most to lose from losing poor students — the
increase was over 3 percent before any students left. That means
schools that had a medium level of competition private schools would
see a more than 6 percent rise in scores and at the highest levels of
competition that would reach nearly 13 percent.
Elementary and middle school student performance increased about 1.5
percent. Again, that means a 3 percent gain for medium competition and
over 6 percent at the highest level of competition. Six years in, the
average gain in schools facing more competition doubled to about 2
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These effects are being called small by many, including Figlio. But it Adam Smith Quote of the Day
depends on what you mean by small. Those minority 4th grade test score
gains that have been celebrated; they constitute a 5 percent increase on [Cato at Liberty]
the NAEP. The grade school and marginal Title I impacts start looking JUN 04, 2010 04:07P.M.
pretty big in this context. And remember, this program supports less
than 1 percent of students. And it saves money. Just think of the By Justin Logan
possibilities as it grows and competition expands dramatically.

In addition, these measures don’t capture what the cumulative effect of

the increased competition might be. Are these gains ratcheting up
student achievement? Has the growth in the size of the program
increased its impact on achievement? And will the most recent
expansion, which has no near-term limit, boost public school student
achievement even more?

Figlio is continuing to analyze the data and I eagerly await his next
installments . . .

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Prosecutors and the Forfeiture

Laws [Cato at Liberty]
JUN 04, 2010 04:21P.M.
By Tim Lynch
Child pornography is against the law. You can go to jail if you make it,
distribute it, or possess it. There is also a law that says the government
can seize property that is “used” to distribute child pornography. So
prosecutors can seize computer equipment from someone who engages
in such criminal conduct. Pretty straightforward.
But in a recent case, the federal agents not only seized the computer, but
the house and the 19 acres of land on which the house was located. The
prosecution argued — and an appellate court agreed [pdf] — that there
was a “substantial connection” between the acreage and the offense. That
is just absurd.
“In great empires the people who live in the capital, and in the provinces
remote from the scene of action, feel, many of them scarce any
inconveniency from the war; but enjoy, at their ease, the amusement of
reading in the newspapers the exploits of their own fleets and armies. To
them this amusement compensates the small difference between the
taxes which they pay on account of the war, and those which they had
been accustomed to pay in time of peace. They are commonly dissatisfied
with the return of peace, which puts an end to their amusement, and to a
thousand visionary hopes of conquest and national glory, from a longer
continuance of the war.”
- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations, Book 5, Chapter 3

I am also aware of a local case in which federal agents violently executed

a search warrant in a child porn-in-the-computer-case. Early morning
raid, guns drawn, neighbors detained, the works. It was as if the
agents were looking for a killer who recently escaped from Leavenworth.
More overkill.

For more information on forfeiture, go here and here.

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Cult Watch [Cato at Liberty]
JUN 04, 2010 04:06P.M.
By Gene Healy
Download my book for free!
Driving home the other night, I caught the end of the NPR program “On
Point.” This edition, running the ideological gamut all the way from left
to center-left, featured Bob Kuttner and Jonathan Alter, “on the Obama
presidency and the oil spill challenge.” At about 45:20 in, Alter took the
week’s prize for utterly creepy views of the presidency (no small feat):
One thing I want to make clear where Bob and I strongly
really agree is that — when FDR died the funeral procession
moved up Pennsylvania avenue and a man, a grieving man,
fell to his knees, and another man helped him to his feet and
said, “Did you know the President?”
And the grieving man said, “No, but he knew me.”
And Barack Obama is not yet at a point where the American
people really feel like he knows them and their problems and
that’s where he needs to get to.
Yes, if only our president could emit from his concern-furrowed brow
rays of inspiration so powerful, they’d make Americans swoon in the
street like holy rollers at an Appalachian snake-handling session — then
and only then will we know our democracy is truly healthy.
“Man is a toad-eating animal,” the early 19th-century English essayist
and political radical William Hazlitt wrote in 1819: “naturally a
worshiper of idols and a lover of kings.” That’s a pretty pessimistic take
on humanity as a whole, but it certainly holds true for a good many
public intellectuals.
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5 June 2010
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Free the Colombia Trade
Agreement [Cato at Liberty]
JUN 04, 2010 03:47P.M.
By Daniel Griswold
Thirty-nine members of Congress from both major parties sent a letter to
President Obama this week urging him to seek passage of the long-
stalled free trade agreement with our South American ally Colombia.
The agreement to eliminate trade barriers between our two countries
was signed in November 2006, but under the influence of their trade-
union allies, Democratic leaders in the House have refused to even allow
a vote.
As signers of the letter point out (go here for a Cato analysis), the
agreement would be good for our economy and good for U.S. foreign
policy. So far, the delay in passage has forced U.S. exporters to Colombia
to pay $2.7 billion in extra duties that would have been eliminated if the
agreement had become law.
The bipartisan supporters also rightly note that Colombia is a key ally,
standing as a democratic alternative to both the Marxist FARC guerrillas
and their authoritarian friend, President Hugo Chavez of Venezuela. As
the letter correctly states:
Colombia has made remarkable progress on many fronts,
emerging as a major growth market and leading center for
Latin American business. In a region that has seen a
disturbing increase in hostility to U.S. interests and values,
Colombia has consistently proven itself to be an important
friend, a reliable partner and a bulwark for democracy.
With Colombia in the process of electing a new president after eight
years of progress under Alvaro Uribe, it is more important than ever that
we strengthen our ties with Colombia through peaceful commerce.
The 20 House Democrats who signed the June 2 letter prove that this
need not be a partisan issue. If President Obama is serious about
boosting U.S. exports, building friendships abroad, and reaching across
the aisle for the good of the country, he should heed the wise words of
this letter.
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Education Standards
Throwdown! [Cato at Liberty]
JUN 04, 2010 03:44P.M.
By Neal McCluskey
On Wednesday, Cato hosted what turned out to be a very animated —
and informative – debate on the likely effects of the drive for national
education standards. The video of that throwdown is now online, and
watching it will greatly reward viewers on any side of the national
standards debate. Moreover, with states having to decide if they will
adopt proposed national standards released the same day as our forum
— and having to make that decision by August 2 to help compete for
Race to the Top funds – Americans can no longer wait for this debate to
go national.
And now, a little extension of our Wednesday debate. While it is perhaps
a tad unfair of me to do this considering that the forum is technically
over, this point is crucial: Protest to the contrary all they want, since at
least December 2008 the primary Common Core State Standards
Initiative members — the National Governors Association, the Council
Of Chief State School Officers, and Achieve, Inc. — have said that the
federal government should be involved in paying for and
implementing ”common core” state standards. As stated on page 7
of Benchmarking for Success: Ensuring Students Receive a World-class
Education:
The federal government can play an enabling role as states
engage in the critical but challenging work of international
benchmarking. First, federal policymakers should offer funds
to help underwrite the cost for states to take the five action
steps described above [including ”adopting a common core of
internationally benchmarked standards in math and language
arts.”] At the same time, policymakers should boost federal
research and development (R&D) investments to provide
state leaders with more and better information about
international best practices, and should help states develop
streamlined assessment strategies that facilitate cost-effective
international comparisons of student performance.
As states reach important milestones on the way toward
building internationally competitive education systems, the
federal government should offer a range of tiered incentives
to make the next stage of the journey easier, including
increased flexibility in the use of federal funds and in meeting
federal educational requirements and providing more
resources to implement world-class educational best
practices.
In case that doesn’t make clear that CCSSI proponents have long
wanted federal money and power to help drive creation and adoption
of national standards, there is also this contradictory, but nonetheless
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5 June 2010
damning, final entry from the FAQs page of the CCSSI website:
The federal government has had no role in the development
of the common core state standards and will not have a role
in their implementation.
However, the federal government will have the opportunity to
support states as they begin adopting the standards. For
example, the federal government can
• Support this effort through a range of tiered incentives,
such as providing states with greater flexibility in the
use of existing federal funds, supporting a revised state
accountability structure, and offering financial support
for states to implement the standards.
• Provide long-term financial support for the
development and implementation of common
assessments, teacher and principal professional
development, and research to help continually improve
the common core state standards over time.
• Revise and align existing federal education laws with
the lessons learned from the best of what works in other
nations and from research.
So there is no federal role in development or implementation of national
standards. Oh right, except for providing “incentives” for states to
“implement” the standards, and furnishing “long-term financial
support for the development and implementation of common
assessments.” In other words, there IS a federal role in developing and
implementing national standards.
Finally, one last thing left hanging in Wednesday’s debate needs
clarification: States knew very well that they would essentially have to
sign on to the national standards effort to compete for Race to the Top
money, which explains the seemingly widespread state support for the
effort. Indeed, as early as February 2009 (registration required to read
this and the next article) U.S. Secretary of Education Arne Duncan stated
that he was contemplating using “stimulus” dollars to drive adoption of
national standards, and the CCSSI didn’t even formally launch
until April of that year.
So again, please watch Wednesday’s debate — it really is entertaining
and informative. But make no mistake: The move to national standards
is anything but truly voluntary and state led. It is very much a federal
campaign.
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On Bailout for Bureaucrats, SC-
03 Candidates Show Their True
Colors [The Club for Growth]
JUN 04, 2010 03:34P.M.
WASHINGTON S COMMITTEE. 202-955-5500.
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“You Punch Them, I Punch You”
[Americans for Tax Reform]
JUN 04, 2010 03:28P.M.
This is one of the most truthful four minute speeches you will ever see a
prominent American politician give. NJ Gov. Chris Christie makes an
important point: Fiscal conservatives and education ref...
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Krugman’s Fannie Mae
Fantasyland [Cato at Liberty]
JUN 04, 2010 02:30P.M.
By Mark A. Calabria
An insightful op-ed in yesterday’s Financial Times by Raghu Rajan (who
will be presenting his latest book soon here at Cato), apparently was too
much for Paul Krugman to bear. What was Rajan’s great crime that so
upset Krugman? Rajan, correctly, pointed out that US policies, such as
Fannie Mae and the Community Re-investment Act, were direct
contributors to the financial crisis and that bankers shouldn’t be blame
for simply reacting to perverse government incentives.
Now Krugman cannot bear to see CRA and Fannie questioned. He claims
that Rajan is relying on some blind faith that has been dis-proven by all
thinking people. Krugman offers two points (his supposed “facts”) that
prove Fannie Mae and CRA are innocent.
First, he argues that the bad lending was done not by banks covered by
CRA, but by non-banks that were exempt from CRA. Now in Krugman’s
defense, there is a grain of truth to this. For instance, up until its
purchase of a thrift, Countrywide, the largest subprime player, was not
covered by CRA. However, comparing Countrywide to say Bank of
America, which was covered by CRA, misses a crucial point: these non-
CRA lenders were selling their loans to Fannie and Freddie, who were
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5 June 2010
getting housing goal credit for those loans. For instance, 25% of Fannie’s
whole loan purchases were from Countrywide. So rather than, as Paul
claims that CRA didn’t matter, what the comparison shows is that the
GSE housing goals were more damaging than CRA.
Krugman tries to cover this base by claiming that Fannie and Freddie
were “sidelined by Congress” during the worst years of the boom. As
someone who spent the boom years as staff on the Senate Banking
Committee, I found that claim to be insane. For every Senator Shelby
who tried to sideline the GSE’s, there was 10 Senators Sarbanes, Dodd
and Schumer who pushed the GSEs to do more. Krugman needs to move
past empty assertions and offer some, any, evidence that Congress
sidelined Fannie and Freddie.
What evidence he does offer is to show that during the boom, the percent
of the market that was securitized by Fannie/Freddie fell, while the
percent securitized by the private-label market increased. Krugman has
that fact correct, yet he misses a critical point. That increase in private-
label securities was being funded/purchased by Fannie and Freddie.
As my chart illustrates, the more involved were Fannie and Freddie in
purchasing subprime MBS, the more the subprime market grew. During
the bubble years, Fannie and Freddie were the largest single source of
liquidity for the subprime market. And the chart doesn’t even take into
account all the subprime whole loans being purchased by the GSEs.
Sadly Krugman has his facts on CRA wrong as well. I point the reader to
Ed Pinto’s work in this area, as well as my post on CRA from a few
months ago.
We have little hope of avoiding a future financial crisis if we do not undo
all the perverse government incentives for irresponsible lending.
Krugman’s presentation of selective and misleading data only makes true
and meaningful reform all the more difficult.
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John Kasich Signs the Taxpayer Charles Murray on Ayn Rand

Protection Pledge [Americans [Cato at Liberty]
JUN 04, 2010 10:50A.M.
for Tax Reform]
JUN 04, 2010 01:00P.M. By David Boaz

[PDF Version] Former U.S. House Budget Committee Chair John Kasich, Ayn Rand’s books have been selling strongly for more than 50 years, a
a Republican running for Governor of Ohio, has signed the Taxpayer constant irritant to the literary and academic establishments. And since
Protection Pledge sponsored by Americans for Tax Reform (A... the acceleration in government growth about 18 months, they’ve been
selling better than ever. In the middle of that surge of interest, two new
biographies of Rand were published, whose authors were featured at a
Cato Institute Book Forum last fall. Now Charles Murray, the author of
FISCALLY CONSERVATIVE BLOG FEEDS such books as Human Accomplishment and What It Means to Be a
Libertarian, reflects on Ayn Rand in a review of those books.
Ken Blackwell: Does Obama
Murray does a great job of showing what was wrong — and what was
Believe All Students Are Created very right — with Ayn Rand. To the certain annoyance of her fans,
Murray insists that “there is a dismaying discrepancy between the Ayn
Equal? [The Club for Growth] Rand of real life and Ayn Rand as she presented herself to the world. The
JUN 04, 2010 11:37A.M. discrepancy is important because Rand herself made such a big deal
about living a life that was the embodiment of her philosophy.”
Club for Growth board member Ken Blackwell has a new piece in the Nevertheless, he muses, “Why then has reading these biographies of a
Washington Examiner about the Obama Administration s bias is elitism, deeply flawed woman—putting it gently—made me want to go back and
not concern for federal student loan programs. reread her novels yet again? The answer is that Rand was a hedgehog
who got a few huge truths right, and expressed those truths in her fiction
so powerfully that they continue to inspire each new generation.” He
concludes:
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Ayn Rand never dwelt on her Russian childhood, preferring
Oklahoma and California Target to think of herself as wholly American. Rightly so. The huge
truths she apprehended and expressed were as American as
Online Sales Taxes [Americans apple pie. I suppose hardcore Objectivists will consider what
I’m about to say heresy, but hardcore Objectivists are not
for Tax Reform] competent to judge. The novels are what make Ayn Rand
JUN 04, 2010 10:50A.M. important. Better than any other American novelist, she
captured the magic of what life in America is supposed to be.
The following has been cross-posted from www.StopETaxes.com Last The utopia of her novels is not a utopia of greed. It is not a
week, the Oklahoma State House passed several bills that would raise utopia of Nietzschean supermen. It is a utopia of human
taxes in different areas in order to negate a $300 million ... beings living together in Jeffersonian freedom.

Read the whole thing.

I note that the excellent new group blog Pileus got to this review before I
did. Plenty of other good thoughts there, too, on topics ranging from
Adam Smith to David Souter to a comparison between Rand and Marx.

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Toomey Leads Sestak in New

Poll [The Club for Growth]
JUN 04, 2010 09:41A.M.

From Rasmussen Reports: Congressman Joe Sestak S COMMITTEE.

202-955-5500.