Ben Muse

Economics and Alaska

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Paul Heyne

One of the most exciting - for me - things about teaching the introductory (and hopefully review) micro-macro economics class for the UAS PADM program (PADM 293 - "Economics for Public Managers") has been the reorientation in my approach to this subject forced on me by the circumstances of the class. We have to cover micro and macro in 10 weeks, and the television technology we are using for the distance education doesn't lend itself to detailed graphs and diagrams. As a result, I've been forced to back off a little from the relatively complex diagrammtics and details I tended to cover when I taught in a traditional classroom, and focus more on verbal and discussion oriented elaborations of the big ideas - the ones that may change your life.

Fortunately, I've found and have been using a textbook exactly adapted to this approach: Paul Heyne's The Economic Way of Thinking. Students have appreciated this text - I always get good comments about it in the class evaluations. We'll be using the new 10th edition when this class is offered again next summer.

Paul was a professor at the University of Washington where he was an extremely popular lecturer, specializing in introducing economics to undergraduates. He died in April 2000.
Here is a copy of his obituary from the University of Washington Alumni Magazine: "Paul Heyne: Distinguished Economics Lecturer". Some quotes:
    In a 1995 interview, Heyne estimated he had taught more than 15,000 UW students in introductory economics. "In the early years I lectured. I was entertaining my students more than I was educating them. Then I realized the only way they are going to master these concepts is by reading, writing and talking," he said. "Now the class starts out with a small quiz on the reading material. There might be two or three short writing assignments. We break out into small discussion groups."

    "Heyne received two divinity degrees from Concordia Lutheran Seminary in St. Louis, got his master's from Washington University and a Ph.D. in ethics and society from the University of Chicago. He came to the UW in 1976, and turned down a tenured position to become a senior lecturer because of his love for teaching undergraduates."
A brief Google search found several short Heyne pieces:The 10th edition of The Economic Way of Thinking is the first since Heyne's death, and reflects the efforts of two new co-authors, Peter Boettke and David Prychitko.

The picture above is linked from the the website of The Library of Economics and Liberty

Intro to Public Administration, Oct 16

Jonathan has asked me to take the Oct 16 session of the "Introduction to Public Administation" class and introduce the economics part of the MPA program.

I'd like to: (1) briefly describe the economics classes we offer and talk about why they're important; (2) outline a view of the challenge facing public administrators - markets are great, but they presume a structure of law and enforcement to function, moreover, they fail systematically under well-known conditions - government is necessary to make up the deficit - but lawmakers and administrators face daunting obstacles - and I'd like to address two or three of these obstacles ("excess burden", the "principal-agent problem", and some problems suggested by behavioral economics); (3) look at a public decision problem - whether or not to ban cell phones - and talk about how a well-known type of economic analysis, cost-benefit analysis, can say something about it.

To prepare for class

To prepare for class, read the two items described below, submit a short paragraph (100-150 words) addressing one of the questions in the last two paragraphs of my blog summary of the article on cell phone use, and be prepared to discuss the questions in those paragraphs in class. Submit your paragraph to me at my home email address: .

I understand that many of you are new to the program and in some cases your college economics may be a long time in the past. I'll keep the discussion non-technical. The readings do include some more technical material. When you come to these sections, I'd suggest that you make a mental note of the technical expressions (for example, "constant marginal cost") because you'll see them in later classes, but read around them. I think you can still get the gist of the discussion. Skip the first of the three paragraphs of questions at the end of my blog entry, but be prepared to discuss the last two paragraphs of questions in class.Teaching objectives

After this class you should be able to address the following questions:
    What economic classes are offered in the UAS MPA program?
    Why is economics a useful thing for a public administrator to know?
    What are market failures?
    What are public goods?
    What are externalities?
    What is the excess burden of taxation?
    What is the principal-agent problem?
    Describe three perceptual problems that cognitive psychologists say interfere with rational decision making.
    Suggest alternative approaches to evaluating health, safety, and environmental policy proposals might affect mortality rates?
    What are the strengths and weaknesses of using intuition to make these decisions?
    What are the strengths and weaknesses of applying cost-benefit analysis to these decisions?

Should it be illegal for people to use cell phones while driving?

You may have seen someone do something dumb while they were driving and distracted by talking on a cell phone; you may have done something dumb yourself for the same reason. Should it be illegal to talk on a cell phone while driving?

Robert Hahn, Paul Tetlock, and Jason Burnett applied cost-benefit analysis to this question in an analysis summarized in the Cato Institute's journal Regulation as "Should You Be Allowed To Use Your Cellular Phone While Driving?" They estimate the annual net benefits from a proposed ban, assuming 1999 conditions.

You can find a more detailed description of this study, published as an AER-Brookings Joint Center for Regulatory Studies working paper in October, 1999, here: "The Economics of Regulating Cellular Phones in Vehicles". A third study, with summaries of other research, and with comments on public reaction to the study (including the reaction of the the Magliozzi brothers, co-hosts of NPR's "Car Talk") can be found here: "The Disconnect Between Law and Policy Analysis: A Case Study of Drivers and Cell Phones". The "Car Talk" web site dealing with cell phone use can be found here: "Drive Now, Talk Later".

Let me summarize this Hahn-Tetlock-Burnett paper - it's interesting for the light it sheds on this policy question, for the light it sheds on squeezing interesting results from "back-of-the-envelope" calculations, and because it highlights the difficulty of valuing changes in mortality rates.


The cost analysis tries to estimate how much cell phone users would have to be compensated to make them indifferent to the ban on car calls (How much would they have to be compensated to make them no worse off with the ban than they were before?). This amount would be approximately equal to the loss in consumers' surplus from the ban (remember, the area under the demand curve and above the price line).

The authors start by determining the consumers' surplus for all cell phone use in the U.S. They have the results of a demand analysis which provides an estimated price elasticity of demand for (all) cell phone use equal to -0.51. (Recall that the price elasticity tells you the percentage change in quantity demanded for a one percent change in price; in this case it says that a one percent increase in price would reduce the quantity of cell phone use demanded by about a half percent.) If you are willing to assume a linear demand curve, and you have a internally consistent estimates of elasticity, price and quantity, you can make an estimate of the demand curve. The authors do this (although they don't give the details of the calculation). Given the demand curve, and information on the level of cell phone use, they are able to calculate the amount consumers would need to be compensated for a ban on cell phone use in 1999: $41 billion.

This is an estimate of the total benefits from all cell phone use, whether the phones are used in cars or not. What part of the surplus is obtained from cell phone use in cars? The authors multiply the total estimate of needed compensation by an estimate of the total percent of cellular phone use that takes place while driving (60%). Total surplus from use of phones in cars: $41 billion*0.6 = $25 billion.


The benefit of the action is the reduction in death and injury, and in property damage, associated with the ban on cell phone use. The National Highway Transportation Safety Administration (NHTSA) estimated that the total economic cost of motor vehicle accidents in 1994 was about $170 billion. The accident numbers on which this estimate was based were approximately equal to those projected for 1999, so the authors adopted this number as the base for their calculations.

The authors kept the property damage estimates from the NHTSA study, but there were problems with the estimate of the costs of deaths and injuries. These were primarily based on the "value of lost productivity in the workplace and on direct medical expenses." This understates the actual costs of the accidents because, "NHTSA's measures of costs take account of only direct costs but do not consider what an individual would be willing to pay to reduce mortality and morbidity [injury, Ben] risks." The authors adopted recent estimates of willingness to pay to avoid risk of death and injury, which increased the total costs to $630 billion. I'll come back to these willingness to pay estimates below.

In the final step, the authors multiplied their total projected cost of accidents in 1999 by the percent of total accidents attributable to cellular phone use (0.74%). This gave a total benefit from the cell phone ban of (0.0074)*($630 billion) = $4.6 billion.

The values placed on lives lost deserve a word. How do you estimate something like this?

First, what is being valued is not a human life, but the change in risk of losing a life. Second, people are constantly balancing changes in the risk of losing their life against various types of benefits. You drive faster than you should because it would be inconvenient or costly to be late for an appointment. You take your attention off the road for the satisfaction of eating some fast food or finding the best channel on the radio - or to deal with kids fighting in the back seat. You accept a job with a higher risk of injury or accidental or premature death in exchange for a higher salary. You choose a home smoke alarm with fewer features to save money - or spend more for a home radon detector to be safer. In all of these decisions people tradeoff more or less money or convenience for more or less safety and risk of death or injury. Third, it is possible to look at how people behave, gather statistical data on this behavior, and estimate how much they would have to be paid to accept additional risk.

Fourth, for analytical convenience, the information from these studies are summarized in the idea of a "statistical life." What we have from the studies is information on what a person would pay for a change in the risk of dying. We need to go from this to an estimate of what the community would be willing to pay for a change in the risk of dying that, over a large population, will lead to a change in a certain number of deaths. The text I expect to use for "Economics of Public Policy" next fall (Bruce, Public Finance and the American Economy) summarizes this idea of a statistical life:
    A statistical life is not the life of an identifiable person but an anonymous life saved or lost among a population. For example, suppose 100 thousand drivers face an annual mortality rise of .02% on a dangerous stretch of road. This means that we can expect 20 of them to die (the loss of 20 statistical lives) in traffic accidents over the year. If a government road-safety project (say, installing traffic dividers) reduces the mortality risk to .015%, 5 statistical lives are saved as a result. If we know the value of a statistical life (VSL), we can place a value on the benefit of lives saved by the project.
In this cell phone analysis, the authors used an estimted VSL of $6.6 milion 1999 dollars.

Net benefits

The costs of the ban are estimated to be about $25 billion, the benefits are estimated to be about $5 billion, so the net benefits are about -$20 billion.

These are point estimates. The authors also appropriately provide ranges based on somewhat different assumptions. The benefits ranged from $110 million to $21,000 million, the costs from $10,000 million to $87,000 million, and the net benefits, from -$87,000 million to $6,800 million. Note that their analysis did note there was a possibility of positive net benefits from the proposal, but under a wide range of plausible assumptions, net benefits were negative (costs outweighed benefits).

Other issues - alternatives, sensitivity analysis important assumptions

The article addresses a broader range of issues. For example, a total ban on cell phone use is only one of the alternatives for dealing with the distraction problem. States or local governments might also mandate use of "hands free" cell phones. The article includes a cost-benefit analysis of a proposed hands-free ban. I'm not summarizing it here, because the total ban has already given me the opportunity to look at the overall approach, and raise the issue of valuing the changed risk in mortality. I'll only mention here that the authors think the costs of a hands-free requirement are also likely to outweigh the benefits. Other parts of the article look at the sensitivity of the results to assumptions about key parameters (Figure 1, page 51) and discuss potential critiques of the analysis (pages 52-53).

Here are some questions:

Is there a market failure here? Are the people using cell phones imposing an external cost on other persons on the road? What is the nature of the externality? Does this externality justify the public policy intervention under consideration (a ban on the use of cell phones while driving)? Why or why not? Does the existence of a market failure such as an externality automatically justify public policy measures? If you answered no with respect to the ban on cell phone use, can you think of other public policy measures which might successfuly address the externality?

How should we evaluate tradeoffs with death and injury on one side, and other benefits - convenience for example - on the other? Can you think of times when you took risks that could have avoided? Can you avoid making tradeoffs involving a change in the risk of death or injury in your personal life? Do your own personal actions indicate that you would spend almost everything you have to minimize your risk of death at each point in time? The VSL probably came from statistical analysis of risk of death in the work place. Would people have place similar values on risk in the work place and risk in an auto accident? Can we transfer estimates from one to the other?

Do you think that public decision makers must fall back on their own intuition in making decisions involving risk of human death or injury? Are there problems with human intuition (and the cognitive processes on which it is based) that may create problems if decision makers decided on solely on the basis of intuition? How did the authors go about their cost-benefit analysis? If you think that a benefit-cost analysis is an aid to decision-making in this context, do you think there are any other considerations that might be relevant in the cell phone case? How do you think the benefit-cost analysis and these other considerations should be weighted in making a decsision? If you think that the benefit-cost analysis is relevant to this specific case, do you think that it would be relevent if the issue was whether or not to commit resources to the rescue of a specific person (say a child trapped in a well)? Why or why not? Do you think an individual who had the authority to forward position rescue resources and reduce response time in a high risk environment should weigh the benefits against the costs? Do the benefits and costs as perceived by the individual accurately reflect the benefits and costs that would be experienced by society? If you think that VLSs have a useful purpose in cost-benefit analysis, how do you think people would react to this type of analysis? How might you present this type of analysis?

The idea to use the cell phone article as a class exercise was suggested to me by Paul Teske in "Cheap Talk? Taking Seriously Market Benefits Expressed by Consumer Willingness-To-Pay" in the Journal of Policy Analysis and Management, 21(3):507-513. (2002).

Minor revisions to questions on Oct. 3, 2002

Can Iraq be deterred?

A disturbing column in today's New York Times by former CIA Iraqi expert Kenneth M. Pollock: "Why Iraq Can't Be Deterred".

I learned about this from Brink Lindsey.

Environmental and public health tradeoff

The Bloviator notes that the "...that the best population defense available..." against the West Nile virus "...right now is use of DDT and other insecticides." A similar issue rises with respect to bans on DDT and third world malaria. See, for example, this column at Tech Station Central by Roger Bate: "DDT Saves Lives ". Tech Central Station has other columns on DDT and malaria.

Comment on the use of science by the Bush Administration

The Bloviator points to Bush Administration stacking of scientific advisory panels in"Bush wants to stack his scientific advisory committees with sycophants.".

Economist to head FDA

The administration will be nominating Dr. Mark McClellan of the President's Council of Economic Advisors to head the Food and Drug Administration according to today's New York Times:
    "But Dr. McClellan, who was an associate professor of both medicine and economics at Stanford University before joining the Bush administration last year, has little experience in running a large organization. His expertise is largely in health care economics, not regulatory matters of the sort handled by the food and drug agency."
This nomination is expected to pass the Senate easily:
    "Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the Senate health committee, said Dr. McClellan "has impressive credentials both as a physician and as an economist."
See the article by Sheryl Gay Stolberg at "After Impasse, F.D.A. May Fill Top Job".

I learned about this from the health policy blog The Bloviator.

Cultural base of a successful market economy

Jane Galt had a good post yesterday about the cultural preconditions for a successful market economy. Click here to link to it: "Americans are too black and white about everything...".

The thrust of her augment is that the ethical requirements on our duties to people outside our family (or tribal circle) are more demanding in our culture than in others:
    "Now, of course, America does not practice this ideal perfectly. But in other parts of the world, it's not even an ideal. There are large groups of people who do not consider it "wrong" in a moral sense to kill or cheat people outside the clan. It may have unpleasant repercussions, but it's not immoral. I, on the other hand, was marched five blocks back to the store I stole the tootsie roll from to hand it back to the merchant with a tearful apology. And I know I'm not the only one this happened to.

    "Americans, as a group, embrace the ideal that there is one contiguous set of morals for everyone. It's not okay to steal from your employer, not even to give it to your cousin who really needs it. It's not okay to attack, rape or kill people even if they're not related to you. These things do happen, but they're not widely accepted as the norm..."
Her key point:
    "A clear set of values, and the notion that those values apply to everyone, is a key part of the "Operating System" on which capitalism has to be installed."

The principal-agent problem in Mexico

The reformist Vincente Fox administration in Mexico has given considerable authority to public auditors to search out and prosecute administrative corruption in Mexico. Today's Wall Street Journal has a front page story by David Luhnow and Peter Fritsch today about the efforts of these auditors.

The story line is that the corruption needs weeding out, but much of the auditing efforts are wasted on minor administrative mistakes. Thus much of the expenditure on the auditors is wasted, moreover administrative efficiency is reduced. Some (hair-raising) quotes:
    "Pemex's [Mexico's state run oil monopoly, Ben] natural-gas division recently held a public bidding process to buy several thousand personal computers. Compaq, now part of Hewlett-Packard Co., won, But a page missing from its paperwork - routine proof of its membership in a computer maker's association - meant the bid was disqualified. When a top Pemex executive suggested simply collecting the missing piece and signing off on the bid, government auditors threatened to investigate him for collusion with Compaq. The contract went to a competitor, at a higher price.

    "A 2000 study by a Mexico City consultant estimated that satisfying government auditors costs Pemex several hundred million dollars a year. New government rules from Mr. Fox's Finance Ministry - intended to head off problems with Secodam [the Mexican agency responsible for the audits - Ben] also require Pemex to hire outside experts to approve its projects. The extra layer has slowed down Pemex so much that it has spent only a small fraction of the $10 billion in extra operating funds it obtained for this year...

    "Over at the state tourism promotion agency, four auditors are assigned to check the work of just two bureaucrats who decide how to spend money promoting Mexico abroad. That's down from 10 auditors at the beginning of the year."
On the other hand:
    Mr. Fox's campaign has had some success. Sting operations have nabbed federal employees handing out drivers' licenses to truckers in exchange for cash. Mexican customs, a traditional den of dishonesty, has also been cleaned up after an embarrassing episode in which a three-ton elephant was smuggled from Texas to Mexico last year to perform in a circus.

Today's "Healthy Forests Initiative" news

The Congressional Quarterly's free daily email newsletter (go to "CQ DAILY MONITOR MIDDAY UPDATE" to subscribe) reports:
    "Senate Republicans today for a third time thwarted Democratic efforts to kill a GOP amendment intended to reduce the threat of wildfires by allowing logging companies to thin federally managed forests. On a 51-47 vote, Democrats fell short of the 60 votes needed to cut off debate on a Robert C. Byrd, D-W.Va., proposal that would provide $825 million in emergency funds to replenish accounts depleted by fighting wildfires this summer. Both proposals have been offered to the $19.3 billion fiscal 2003 Interior spending bill (HR 5093). Majority Leader Tom Daschle, S.D., once again voted against the proposal so he could offer a motion to reconsider the vote. That sets up a potential fourth Senate vote on the issue. If cloture were invoked on the Byrd proposal, Democrats say the GOP wildfire plan would be declared non-germane, and therefore, ineligible for a vote."

The paranormal

I'm skeptical about ghosts, but this is scary: "Apparently the owners of this house had been seeing images and hearing voices for quite a while...".

I learned about this at The Daily Dose.

Administration's Forest Fire Proposal

I last posted on the Administration's forest fire intiative back in August ("Healthy Forests legislation"). Recent events are outlined in this Santa Fe New Mexican story last Thursday (9-19-02): "Senate Deadlocks Over Wildfire Plan; Both Parties Criticized". As of Thursday, the Senate was stalemated. The Administration is taking steps to implement measures on its own:
    ""Meanwhile, Rey [Undersectary of the Department of Agriculture (responsible for Forest Service), Ben] said the president has directed federal land agencies to speed work in Western forests on their own, regardless of whether Congress passes a bill on wildfires.

    ""I'm not comfortable sitting around and waiting for an outcome as uncertain as legislation can be," Rey told the Oregonian newspaper. "We're going to do this because we're committed to getting the job done."

    "At Rey's request, federal land managers are preparing to streamline Bush's recent initiative to thin flammable forests by excusing logging projects from citizen appeals and, in some cases, environmental reviews.

    "Officials are drawing up a measure called a categorical exclusion to exempt thinning and related activities from review under the National Environmental Policy Act, which requires close scrutiny of federal actions."
The Oregonian had more details on the proposal to use categorical exclusions in its Thursday issue: "Rules aim at speedy thinning ". Some key paragraphs:
    "The president meanwhile has directed the Forest Service and other federal land agencies to speed work in Western forests on their own, Rey said. They are drawing up an administrative measure, called a categorical exclusion, to exempt thinning and related activities from review under the National Environmental Policy Act, which requires close scrutiny of federal actions...

    "A categorical exclusion allows agencies to examine records and conclude they have done enough environmental reviews of certain kinds of projects to know such projects have minimal impact. They then could exclude similar projects -- in this case thinning and the like -- from future review.

    "That means the projects could bypass step-by-step scrutiny that includes public input and the publishing of thick documents detailing each decision...

    "Environmental groups complained the approach closes the public out of public land decisions. They fear limiting environmental review will open the door to thinning that takes bigger, commercially valuable trees under the guise of abating fire risk...

    "But Rey said the law allows categorical exclusions specifically so agencies need not review for similar projects over and over. He said agencies must notify the public of projects, even if no review is done. And while public comment is useful, Rey said, "it's also accepted that it's not necessary every time something happens."

    "The Forest Service and land agencies in the Interior Department are reviewing more than 1,500 past thinning and other projects to justify a categorical exclusion for upcoming thinning. They plan to publish a proposed categorical exclusion in the Federal Register in October, when it would be open to public comment.

    "...The White House Council on Environmental Quality must review the measure [the categorical exclusion rule, Ben], and the secretaries of the interior and agriculture would approve it sometime afterward, Rey said. It would emerge as new federal rule, such as the Clinton administration's since-stalled roadless-area protection plan did in 2000.

    "The Forest Service also is at work on a second categorical exclusion to exempt timber sales under a certain size from environmental review. Such sales could include live trees, those threatened by bugs or disease, and others burned or blown over. A court threw out such an exclusion last year; the court determined that federal foresters had not provided enough evidence to support it..."
Revised 9-23-02

Judge rules NEPA applies in EEZ

This past Thursday a judge ruled that federal actions in the waters between 3 and 200 files from shore are not exempted from the National Environmental Protection Act (NEPA) requirements. See this article from Friday's LA Times (free registration is required for access): "Environmental Review of Navy's Sonar Testing Upheld" The specific case dealt with a program of Navy sonar tests. The judge appears to have ruled that a programmatic analysis isn't required for this, but that individual analyses are required for the 17 individual tests that comprise the program:
    "Snyder ruled, however, that the Navy does not have to submit to an advance environmental review of its entire planned program of sonar testing, which consists of at least 17 separate tests of experimental anti-submarine warfare technologies. The judge did affirm that "individual sea tests will still be subject to NEPA requirements."
Both the administration and the environmentalists are claiming victory.

You can link to my August 10 posting on this case (linking to other newspaper coverage) here: "NEPA: not at sea?".

Stanford copyright activist

Today's L.A. Times has a story on the Stanford law professor behind the Eldred v. Ashcroft, the effor to get the U.S. Supreme Court to overturn the extension of existing copyrights done in the Sonny Bono Copyright Extension Act. Here's the story (free registration with the LA Times is required): "The Cultural Anarchist vs. the Hollywood Police State". Here are the first four paragraphs:
    "Larry Lessig is a 41-year-old Stanford University law professor who still looks like a graduate student, someone who has spent years in library stacks researching arcane subjects, miles from the real world. He's very pale and very quiet, as if he doesn't want to bother the fellow in the next cubicle. His hair sometimes sticks straight up, but he doesn't notice. Lessig has a student's idealism, too; he wants to change the way the world does business.

    "The entertainment industry, Lessig feels, is locking up old movies, books and songs that long ago should have transcended private ownership and become the property of the people, just as Thomas Jefferson, James Madison and the other framers of the Constitution intended. At stake, he says, is not only our common cultural heritage, but also the freedom that writers and musicians and filmmakers must have to interpret, reinterpret, adapt, borrow, sample, mock, imitate, parody, criticize--the very lifeblood of the creative process.

    "But Lessig doesn't merely want to free the past. He wants to free the future as well. That's something else that the entertainment companies want to lock up. The laws they are proposing and the technologies they are developing, he says, will make creativity on the Internet a wholly owned subsidiary of the Recording Industry Assn. of America and the Motion Picture Assn. of America.

    "His immediate target is a 1998 law that extended copyright protection an additional 20 years. It was a measure so obscure that the Senate passed it unanimously, with no debate and little public discussion. But it so outraged Lessig that he mounted what has become the first constitutional challenge of copyright limits to ever reach the Supreme Court. On Oct. 9, the former Supreme Court law clerk will try to persuade the justices to end private ownership of hundreds of thousands of artistic works, including some of America's most cherished. If he gets the court to agree, both the past and the future will change."

Why are some countries poor and other countries rich?

A tough question. We typically think about it in terms of comparing a cross section of countries at a certain point in time: why is the United States rich while Tanzania is poor in 2003. But maybe we should also look at countries through time: why is Germany rich in 2003, when it was relatively poor in 302?

Today Brad Delong asks "Why No Industrial Revolution in Ancient Greece?", tying his speculation to a recent article in the Economist.

Why do airlines require passengers to show IDs at check-in?

That's a question from yesterday on The Buck Stops Here. An answer was posted today, here: "Answer to the Economics Question". Security is only part of it.

The Price of Oil and War with Iraq II

The Sept 12 issue of the Economist has an article on the impact of a war in Iraq on oil markets: "Don't mention the O-word". Thanks to Nina for telling me about it.

I posted on August 25 about a New York Times article by Daniel Yergin on this topic - click here: "The Price of Oil and War with Iraq".

There's also a page 1 article in today's Wall Street Journal on this topic: "Iraq War Would Roil Oil World; Iran Could Gain, Saudis Lose."

The Duelfer article

As I read and reread the article by Charles Duelfer on weapons inspections in Iraq following the Gulf War (See my post yesterday on"What we can expect from inspections in Iraq") it becomes clearer to me that a new inspection regime is a dead end, given the current regime in Iraq.

I was going to post long excerpts from the article today, but for now I'll just refer to today's post by Brink Lindsey, which abstracts, comments, and contains excerpts: "Why Weapons Inspections Won't Work".

The Duelfer article would be worthwhile for MPA students for its political analysis even if it didn't bear in an important way a key issue of the day.

Why the Reg Flex Act May Be a Good Idea

The Reg Flex Act (RFA) requires an analysis of the adverse impacts of regulation on small businesses. The following quotes, taken from a recent political science article comparing conventional notice-and-comment rulemaking with negotiated rulemaking at the EPA, suggest that large businesses have an advantage over smaller ones in the reuglatory arena.
    "Previous evidence has shown that the conventional rulemaking process is more responsive to the preferences of large than small firms...Compared to numerous small firms in a given industry, large firms in the same industry comprise a relatively small group and face lower organization costs and higher per capita benefits from organization...As a consequence, while unorganized groups (i.e., voters and consumers) indirectly put issues on the congressional agenda through their elected representatives, the specifics of the legislation are more likely to be crafted by relatively well-organized groups. The result is that regulatory legislation, and the supporting rules, will often effect intra-industry transfers from small firms in an industry to typically better organized large firms. Given that the agency seeks to be responsive to politically relevant entities, there is no reason that the political relevance of, say, large firms, would be any different in negotiated rulemaking than in conventional rulemaking. Thus, inequity of outcomes should be observed in both types of rulemaking, but the degree of inequity should be no different in negotiated than in conventional rulemaking...

    "The evidence [in the statistical analysis of selected EPA rulemaking done in this paper, Ben] also shows that small business fares relatively more poorly than other participants in both negotiated and conventional rules. the finding is consistent with the expectation that, while business in general may fear losses from environmental regulations, small business, as a whole, bears greater losses than large business. Economists have long observed...that command-and-control regulations such as those examined here tend to impose relatively higher marginal compliance costs on smaller firms, thus effecting intra-industry transfers from small to large firms. Many of these regulation entail entry barriers, further reinforcing the industry dominance of established, large firms. thus is should not be surprising to find that small business rates the pre-1996 environmental regulations studied, no matter whether they were negotiated or conventional, less favorably than other participants, including large business. Further, the evidence in this study suggests that the disparity may be more attributable to political than to economic differences between small and big business. due to their greater numbers, small businesses face greater marginal costs of collective action than large business...By contrast, in terms of direct spending for participation in rulemaking, the no significant differences between small businesses, public interest groups, big business, and other types of affiliations. Thus, differences in political and not economic resources may explain why small business fares more poorly than large business in rulemakings, and possibly even worse in negotiated rulemakings. Whether the 1996 Small Business Regulatory Enforcement Act is effective in remedying this disparity remains another topic for further research."
References excised from this quote. Source: Langbein, Laura I. "Responsive Bureaus, Equity, and Regulatory Negotiation: An Empirical View." Journal of Policy Analysis and Management. 21(3):449-465. 2002.

What we can expect from inspections in Iraq

A discouraging essay from Charles Duelfer at the web site of the Arms Control Association: "The Inevitable Failure of Inspections in Iraq". Duelfer was the executive director of the United Nations Special Commission (UNSCOM, set up by the Security Council in 1991 to monitor Iraqi destruction of non-conventional weapons) from 1993 to 2000.

I learned about this article from Regions of Mind.

My last order from

...has come in, bringing a copy of Why Smart people Make big Money Mistakes and How to Correct Them. Lessons from the New Science of Behavioral Economics by Gary Belsky and Thomas Gilovich (Fireside, 1999, paper, $12.00).

Mainstream economics assumes people are rational. It assumes that they respond consistently to changes in income and relative prices as they pursue their own objectives. It assumes that they deploy their available assets to achieve their goals as fully as possible. Obviously people don't have perfect information about the world around them, but mainstream economics addresses that - there is a considerable literature within mainstream economics about how rational people respond to imperfect information. Mainstream economics does assume that people don't make mistakes.

But, suppose people had internal, hard-wired circuitry that caused them to tend to systematically mistake or misunderstand the implications of their own actions, or of events taking place around them? Suppose that this 'hard-wiring" caused them to make mistakes that they would correct if the mistakes were pointed out to them? This would have two implications for economics: (1) predictive economic theory would have to be adjusted, at least in some respects, to account for the impact of this factor; (2) economic analysis could be useful if it helped people address the implications of this hard-wiring and correct mistakes they would otherwise make.

This is a personal finance self-help book with the second goal in mind; a blurb on the back from Money magazine says, "A terrific introduction to the emerging science of behavioral finance, which identifies the ways in which investors' minds play tricks on them." "Behavioral" refers to insights into human behavior from the field of behavioral psychology.

The first substantive chapter is "Not all dollars are created equal" (this whole chapter is posted on the Amazon site - click on the title to go to the text). Economic analysis tends to assume that people view all dollars as equivalent. People are assumed to be aware of all their financial resources (assets and income), continually reallocating these assets to the highest valued uses and treating the different types of resources as equivalent, or "fungible." This implies, for example, that people don't compartmentalize their income, with a fixed percentage set aside for housing, a fixed percentage set aside for food, and a fixed percentage set aside to save for a vacation (or that if they do, these compartmentalizations are very weak).

But the psychology of this is not right - people don't think this way. In fact, Belsky and Gilovich argue, behavioral pyschology indicates that people not only tend to categorize their resources, but to treat them differently depending on the psychological category they've assigned the resources to. Sometimes this is sensible,
    "...people are not computers. They lack the computational power and the strength of will necessary to manage all their finances on a consolidated balance sheet. It would be intellectually difficult, and emotionally taxing, to calculate the cost of every short-term to cope with this daunting organizational task, people separate their money into mental accounts, necessarily treating a dollar in one account differently from a dollar in another, since each account has a different significance. A vacation allowance, for instance, is presumably treated with less gravitas than the same amount of money socked away in an Individual Retirement Account."
and sometimes it is not
    " your finances and answer two questions: 1) Do you have emergency or other nonretirement savings?; and 2) Do you carry balances on your credit cards from month to month?

    If the answer is "yes" to both, you're a victim of mental accounting. Why? Because you've placed an inappropriately high value on your savings dollar and too low a value on your borrowed dollars. As a result you're likely earning 5 percent a year on your emergency savings, while paying 16 percent a year in credit card interest. For every $1,000 on your credit card, that's a yearly loss of roughly $110. If you do nothing else after reading this but pay off $1,000 in credit card balances with short-term savings, then you've earned the price of this book about five times over. And for those people who say that emergency money should be left just for emergencies, our response is that if you pay off your credit card balances with short-term savings, you could always fill up those same credit cards in the event that you or your spouse is laid off..."
It is important to be self-aware, and use mental accounting, but not be used by it.

A public policy application: there are two routes for a new road - one requires land acquisition and the other runs through some lands that are already in public hands, the routes are otherwise equally suitable for the road. Some people make the argument that the route through the public lands is less costly: since the property is already in public ownership it would only be necessary to pay for physical construction of the road. It's easy to see this argument being made. The fallacy is that it ignores the opportunity cost of the land. An economist would argue that there is an essential "fungiblity" between the financial and land assets of the community, and that if you miss this, you may make bad decisions.

I'm going to consider this book as an ancillary text for "Economics for Public Managers" (the UAS MPA program basic economics review class) next summer. If people behave like this as private persons, it's likely they'll also behave like this as public administrators. Incorporating these ideas into the class could help students to recognize the biases in their own judgement and to operate more effectively in an environment where others are subject to these biases. These issues could be used to provide deeper understanding of the implications of economic concepts and to provide useful qualifications of economic results. For example, the "Not all dollars are created equal" chapter could do both with respect to "opportunity costs."

I think students would enjoy the book. The topics are interesting, could motivate class discussion, would be valuable to students in their personal lives as well as professionally (enhancing the take-home value of the class). The book is readable, the authors (one a former journalist for Money magazine) have tried to achieve the tone of "a conversation at a cocktail party." The book is not expensive.

One way to use the book - assign a chapter a week, ask each student to submit a paragraph on that chapter describing a public administration application based on the chapter, and use the submissions to motivate class discussions.

Is it time to scrap the "poverty line?"

Sunday's Washington Post has a good column on measuring poverty: "Really Out of Line. The Government's Poverty Measure Is 40 Years Old -- and Showing Its Age ".

Some key paragraphs:
    "...First developed in the early 1960s, the federal poverty line reflects economic and social realities completely different from those faced by families today. Drawn up in 1963-64 by a Social Security Administration official on the basis of a 1955 household food consumption survey by the Agriculture Department, the poverty line assumed that the cost of food makes up one-third of a family's budget. The official then used the department's "thrifty food plan" for people in financial emergency situations and multiplied by three.

    "Over the last 40 years, the federal poverty level has been updated to reflect inflation, but not social and economic changes. For most families today, food constitutes less than a fifth of their budgets while higher costs of transportation, housing, health care and child care have created new burdens. Moreover, the poverty line was calculated based on a "Leave It to Beaver" model -- the two-parent family with one stay-at-home parent. But that model doesn't accurately describe contemporary families and is particularly off-base for low-income families, where single working parents are more common than they were during the 1960s. In nearly two-thirds of two-parent families, both parents work. For them, there are costs associated with employment -- costs such as transportation, child care and taxes -- that the federal poverty threshold either underestimates or neglects entirely.

    "Despite all evidence to the contrary, the federal poverty level measurement also assumes that costs are the same across all of the lower 48 states (the federal poverty level is higher for Hawaii and Alaska)..."
Check the link above for the rest. I learned about this column from "Great Questions of Economics": "Re-drawing the Poverty Line". Click the link to see his commentary on the article.

The Cost of Regulation

Total direct Federal FY 2003 spending on regulatory activity is projected to be $24.6 billion dollars according to private estimates made from administration budget requests. The estimates were made this past March (see "Regulatory Response: An Analysis of the Shifting Priorities of the U.S. Budget for Fiscal Years 2002 and 2003").

The estimates include expenditures on social regulation (health, safety and environmental regulation) and economic regulation (price and quantity regulations). They do not include expenditures by agencies that perform "taxation, entitlement, procurement, subsidy, and credit functions." So the regulatory costs associated with the IRS are not included.

About 80% of the expenditures were for social regulation and about 20% for economic regulation. About 18% of the total 2003 expenditures are for the EPA alone, making clear the large size of this agency.

In real, inflation adjusted dollars, this represents a 4% decrease in overall regulatory expenditures over FY 2002; expenditures on social regulation are pegged to drop by 6% while expenditures on economic regulation may rise by 4%. Among social expenditures, transportation related regulation will actually see an increase (about 5%, following a 30% increase from FY2001 to FY2002) reflecting 9-11 related concerns; environmental agencies saw their budgets increase by 17.4% between FY 2001 and FY2002, but fall by 19.5% from 2002 to 2003.

Long-run trends in regulatory expenditures

These estimates were prepared by the Weidenbaum Center of Washington University and the Mercatus Center at George Mason. The Weidenbaum Center has been tracking Federal regulatory expenditures since 1977, and this report contains detailed tables summarizing expenditure (and workforce) information back to 1960. The figure below, which duplicates Figure 1 in the report, shows the overall trends in Federal social and economic regulation over that period. Cost estimates are shown in constant, 1996, dollars, so inflation is not an issue:

Much of the political history of our time is here. Note the enormous growth in expenditures on the social environmental, health and safety regulation (as opposed to economic). Although it's not clear from the diagram, the report authors point out that regulatory expenditures rose rapidly in percentage terms in the 1960s (Great Society). I'm struck by the rapid runup during the Nixon and Ford administrations. Things move more slowly during the Carter and Reagan administrations. They accelerate again with the Bush administration and the early part of the first Clinton administration, and then slow down after the Republican mid-term (Contract with America) victory in 1994. Regulatory expenditures rise more rapidly again after 1997.

What else does regulation cost us?

These estimates are crude - they look like budgets for entire agencies and bureaus, and may include non-regulatory expenditures. On the other hand, there are also agencies with regulatory functions that are not included (the National Marine Fisheries Service, for example).

These are not estimates of expenditures on all rule-writing activity - as noted, a number of agencies are not included here. The authors are not trying to estimate the costs of the excess burden of the taxes used to raise the money for the regulatory program. These are estimates of Federal and not of state regulatory expenditures.

Perhaps most important, these are only estimates government's cost of implementing regulations. Regulations also impose costs on the regulated public. These are alluded to briefly in the report; the authors cite a study commissioned by the Small Business Administration estimating that Americans spent $843 billion in 2000 to comply with the regulations.

There are other estimates of these costs that are lower than this. A recent OMB report estimates of annual costs that range between $521 and $617 billion per year. These cost estimates include $190 billion for the costs of filing out tax forms, as well as the direct expenses incurred by the Federal agencies - expenses not treated in the Weidenbaum Center report.

What do we get in return?

The OMB study cited above, "Draft Report to Congress on the Costs and benefits of Federal Regulations" actually provides crude estimates of the total annual benefits from regulation as well as estimates of the total costs.

Social regulation (health, safety and environment) produced estimated annual costs of $181 to $277 billion, total annual benefits somewhere between $308 and $2,009 billion, and annual net benefits between $31 and $1,828 billion.

The OMB report estimated that economic regulation had no benefits!?! The OMB study focused on economic regulation that modified market prices and amounts of goods and services bought and sold: "Economic theory predicts that regulation that restricts competitive prices and establishes entry barriers produces no social benefits except in the case of natural monopoly, a phenomenon becoming rare in a world of rapid technological progress." The OMB authors are thinking here of things like tariffs and import quotas.

I don't think this is entirely fair - the costs of economic regulation included in the Weidenbaum Center/Mercatus Center study included funding for agencies like the Security and Exchange Commission (SEC), the Patent and Trademark Office, and the Copyright Office. These agencies provide services that support the smooth functioning of the private sector. In any event, the OMB estimates for economic regulation: no benefits, $150 billion in efficiency costs.

Process regulation: these include the costs of paperwork imposed on the public. The bulk of these identified by OMB are for completing taxes. Total process costs - $190 billion.


Dudley, Susan and Melinda Warren. 2002. "Regulatory Response: An analysis of the Shifting Priorities of the U.S. Budget for Fiscal years 2002 and 2003." 2002-2003 Annual Report. Regulatory Budget Report 24. Weidenbaum Center, Washington University; Mercatus Center, George Mason University. June 2002.

U.S. Office of Management and Budget. 2002. "Draft Report to Congress on the Costs and Benefits of Federal Regulations." Federal Register, 67(60):15014-15045.

Challenge to public administrators

There are a lot of costs associated with collecting the taxes to pay those of us who work in the public sector. I posted on the excess burden of taxes on July 9: "Benefit-cost analysis and excess burden".

Now Great Questions of Economics reports on the cost of tax compliance: "Deadweight Loss". What we do is valuable, it is essential to the functioning of the economy and the prosperity of the nation - but it costs more than the sum of our salaries, the other operating costs of our agencies, and our agency capital expenditures.

It's part of the challenge facing UAS MPA students and graduates to make sure the public gets its money's worth.

After-shocks: NYC Fire Department continues to suffer

The New York Fire Department lost 343 dead on September 11. But the institutional damage was more extensive than these figures imply, and the Department has continued to suffer. Alan Feuer and Michael Wilson lay it out in this Wednesday New York Times article: "Its Ranks Depleted, a Weary Fire Dept. Is Trying to Regroup".

The shock from 9-11 reverberated through the fire department for the next year, causing continuing damage. The lost fire fighters ( some "4,400 years of collective experience") had to be replaced, meanwhile the applicant pool declined from some 25,000 a year to about 5,000. The replacements lacked vital experience, increasing the daily burden on the men and women already in place.

The experienced fire fighters had been through a harrowing physical and emotional ordeal. They then spent the next year in the national limelight with its satisfactions - but also its stresses. 500 of these experienced fire fighters suffered from lung damage incurred on 9-11.

There was tremendous leadership turnover. The department had lost much of its leadership cadre in the disaster. These had to be replaced. "There is a new chief of department, a new chief of operations, 3 new assistant chiefs, 14 deputy assistant chiefs, 29 new deputy chiefs, 71 new battalion chiefs, 179 new captains and 331 new lieutenants."

All of these staffing and leadership issues have been exacerbated by a surge in retirements: "In a single morning, the collapsing towers killed more men that are usually in an entire class at the Fire Academy, and yet, some officials say, the impending flood tide of retirements will be just as damaging to the force.....According to the department, 747 firefighters of all ranks filed retirement papers over the last 11 months, compared with 475 who had retired in the same period a year ago. Of late, about 40 firefighters have been retiring every week. A year ago, 40 firefighters might have retired in a typical month." The reasons? "While some have elected to leave because of emotional or physical exhaustion, many more have chosen to go because it makes good financial sense: their retirement pay is based on their last year's salary, and in the months after the disaster, they have increased their salaries with huge amounts of overtime."

Meanwhile, the department has to examine its practices and culture and fix the internal problems highlighted by the demands of 9-11 (See my 8-19 posting on the "McKinsey Reports on the NYC Fire and Police Department Responses to 9-11"

Where do you start?

Where do you start if you have to begin some major enterprise (building a transcontinental railroad, waging war against Japan and Hitler) almost from scratch? Whoever will organize a new "Department of Homeland Security" is going to face quite a challenge according to this article by Jason Peckenpaugh in Government Executive magazine: "Building a Behemoth":
    "When President Bush proposed a new Department of Homeland Security to protect Americans against 21st century terrorist threats, he declared it was the biggest federal reorganization since 1947, the year Harry Truman combined the armed services into the Defense Department. The president may regret the comparison. Before Truman’s effort had any effect on military coordination, it spawned the mother of all turf wars....

    "If previous reorganizations are any guide, it will take years for the Department of Homeland Security to mature into a well-run agency. Historically, reorganizations have been long, costly struggles that only sometimes have produced better-run programs. At other times, they have made things worse. Reorganization veterans point to the creation of the Energy Department in 1977, where reshuffling made life more difficult for the agencies involved. The legislation that authorized the department created a large staff of deputy secretaries to help the Energy secretary take control of the new department. In practice, the deputies acted as a barrier between agencies and the secretary, making it hard for officials in the field to gain top-level support. “The administrators at Energy are an example of bureaucracy at its worst,” says Thomas Stanton, a fellow with the National Academy of Public Administration.

    "But history teaches only so much. In scale and scope, there is no real precedent for the creation of the Homeland Security Department. The department will absorb parts of 22 agencies with between 170,000 and 200,000 employees, depending on the final size of the Transportation Security Administration. Its dimensions are staggering. The department will inherit employees represented by 17 different labor unions. It will absorb 15 agencies with pay systems that differ from the standard civil service system, and 10 agencies that follow their own custom hiring methods. Dozens of information technology systems will have to be linked together in some way, a task that didn’t exist in the reorganizations of 1947 or 1977. And since the bulk of homeland security work is done far from Washington, reorganization can’t be an inside-the-Beltway exercise that ignores the needs of hundreds of field offices, or state and local officials...."
Click here for the whole story.

September 11

I will not be blogging tomorrow, September 11.

To commemorate the events of 9-11, let me link you to the story of Dave Karnes and Sgt. Thomas of the U.S. Marines, as told by Rebecca Liss in Slate here: "An Unlikely Hero The Marine who found two WTC survivors". This story struck me particularly at the time; I'm glad Rebecca Liss also remembered it.

Read the story. Karnes and Thomas entered the rubble of Building 7 of the World Trade Center, which had recently collapsed.
    They climbed over the tangled steel and began looking into voids. They saw no one else searching the pile—the rescue workers having obeyed the order to leave the area. "United States Marines," Karnes began shouting. "If you can hear us, yell or tap!"
...and they found and rescued two Port Authority police officers. "United States Marines, If you can hear us, yell or tap!" If I'd been there, I can't think of anything more comforting to hear. United States Marines know exactly what to say in a difficult social situation.

Caught in the liquidity trap?

If inflation is bad, then deflation should be good, right? Robert Shapiro surveys the current deflationary threat in this Slate column: "Deflation Nation. Could falling prices send the U.S. into a Japanese-style recession?"

I learned about this from Brad DeLong's web site.

Administration "Healthy Forests" Program

The Wilderness Society says that Senators Craig and Domenici introduced a rider to the Interior Appropriations bill today with Administration "Healthy Forests" provisions. Here are some selections from the Society's notice:
    "Sens. Craig (R-ID) and Domenici (R-NM) today introduced a damaging rider to the Senate Interior Appropriations Bill. It would repeal environmental laws, eliminate citizen appeals, and render judicial review meaningless on 10 million acres of our National Forest lands.

    "Your Senators' votes, which could come as early as this Thursday, will be crucial...."

Eldred v. Ashcroft and the Sonny Bono Copyright law

Brad Delong has a post today on Eldred v. Ashcroft, the appeal to the Supreme Court of the copyright extension provisions of the Sonny Bono copyright extension act. Click here for "A Platonic Dialogue on Eldred v. Ashcroft ".

Why did the Supreme Court agree to review the lower court decision in this copyright case? Does it plan to confront Congress and overturn the case? How does the Constitution's copyright clause interact with its commerce clause? Is there a fifth amendment takings argument against the Sonny Bono copyright extension? All these questions addressed, and more, very efficiently in the form of a short (somewhat longer than a newspaper op-ed column) Platonic dialog between Ignoramus Inquisitivus, Realisticus, and Sapientia.

If a little background on the case would be helpful, look at my earlier posts on the case here and here.

Administration's NEPA task force

I posted a note on the Council of Environmental Quality's NEPA task force on August 19.

Here is a more recent (August 30) Associated Press story posted at the Natural Resources Defence Council website:"Bush Administration Steps Up Review of Landmark Environmental Law". Environmentalists are leery about this:
    "`Given this administration's past record on the environment, it's hard to imagine they are up to any good,' said Maria Weidner of Earthjustice, an environmental law firm and advocacy group."
According to the story, the time frame has slipped. The task force has apparently extended the public comment period until September 23 and expects to report early next year (as opposed to an end for public comments on August 23 and a November report).

Iraqi chemical-biological-nuclear potential

The International Herald Tribune reports the following analysis by the respected International Institute for Strategic Studies:
    "Iraq probably does not have enough chemical or biological weapons or long-range missiles to offer serious military resistance to U.S. armed forces protecting nearby countries or even invading Iraq itself, according to an independent assessment by a leading Western think tank."

    "But the Iraqi threat could achieve a quantum leap overnight thanks to a "nuclear wild card" in Baghdad's armaments drive, according to the report on Iraq's arsenal of nonconventional arms, which was issued by the International Institute of Strategic Studies (IISS), a nongovernmental organization in London."
Here's the link to the full story: "A report on Iraqi arms spells out risks". Here's a link to an IISS executive summary of their report: "Iraq’s Weapons of Mass Destruction: A Net Assessment. An IISS Strategic Dossier (Press Statement, Dr John Chipman, IISS Director, Monday, 9 September, Arundel House, London)

No Iraq-al Qaeda connection

Dana Priest reports in tomorrow's Washington Post that the CIA is unable to come up with compelling evidence that Iraq has been facilitating al Qaeda's terrorism:
    "Although administration officials say they are still trying to develop a strong case tying Hussein to global terrorism, the CIA has yet to find convincing evidence despite having combed its files and redoubled its efforts to collect and analyze information related to Iraq, according to senior intelligence officials and outside experts with knowledge of discussions within the U.S. government."
The article closes with this question from fromer National Security Advisor, Brent Scowcroft:
    In an interview with CNN yesterday, Brent Scowcroft, who was national security adviser to Bush's father, differed with Cheney's comments on Iraq and global terrorism.

    "'Vice President Cheney is a very dear friend of mine. Not all my good friends are always right," Scowcroft said. "I'm not even saying he is wrong. What I really am saying is that suppose there had been no 9/11 attack at all. Saddam Hussein would still be doing exactly what he is doing. He is not a problem for us because of terrorism.'"
Here is a link to the full story: "U.S. Not Claiming Iraqi Link To Terror"

It really is one world

New York City's parking tickets are processed in Ghana?: "In New York Tickets, Ghana Sees Orderly City".

I learned about this from The Daily Dose.

How to write for a blog

Here's an article about how to write for a frequently updated Internet site: "10 Tips on How to Write for the Living Web".

I learned about this from The Daily Dose.

Administration's forest plan goes to Capitol Hill

The Bush Administistration presented its forest fire plan to Congress on Thursday (9-5). Here is a link to a UPI report: "White House Sends Wildfire Plan to Hill". The story says the plan has four parts:
    "The first piece of the legislation would identify fuel-reduction projects for the next 10 years in critical areas where fire posed the greatest threat to homes and watersheds, and areas where large numbers of trees have been killed by insects. So-called bug kill areas are notoriously dangerous for firefighters, not only because they are often dry and burn easily, but they also can fall over without warning because the root systems have deteriorated.

    "The second part brings private enterprise into the picture by authorizing the Interior Department and Agriculture Department to enter into long-term "stewardship" contracts in which companies would maintain areas of forest over several years.

    ""Stewardship contracts retain contractors to provide valuable services, thinning trees and brush and removing dead wood," the two agencies said in a joint statement. "Long-term contracts provide contractors the incentive to invest in equipment and infrastructure needed to productively use material that is incidentally generated from forest thinning to make wood products, such as particle board, or to produce energy."

    "The third and fourth segments of the proposal deal with the overhauling of the rules governing fuels-reduction projects and an opportunity for environmentalists and other private citizens to challenge individual proposals."

The proposal has exemptions from NEPA:
    "'In its very first sentence, this bill would exempt virtually all activities in forests from the National Environmental Policy Act, and by the second page, it has repealed the entire administrative appeals process,'" said Michael Anderson, senior policy analyst with The Wilderness Society. 'Under these rules, the Forest Service could approve logging projects in old-growth forest with absolutely no environmental analysis and no public involvement at all.'"

Which religions are true, and which are false?

Stuart Buck says something cogent about how to tell here.

Brief note on Bush's forest plan

Today's CQ DAILY MONITOR MIDDAY UPDATE (from the Congressional Quarterly here reports:
    "Interior Bill Stalled By Battle Over Firefighting Policy:

    "Senate consideration of the fiscal 2003 Interior spending bill (S 2708) bogged down today over an amendment aimed at reducing wildfires by thinning forests. Western senators said they would try to rework the proposal and offer it during tomorrow's floor debate on the bill.....If the broad amendment fails to attract enough support, Republicans said they may try to tailor it to specific states...."

OMB Watch on the Data Quality Act

Yesterday I posted a short abstract of the guidelines OMB issued pursuant to the Data Quality Act. OMB Watch is taking a cautious approach to the act and guidelines. Let me summarize some of their concerns, from material on their web site. Energy and time permitting, I'll try and do something similar for the web page of the Center for Regulatory Effectiveness (enthusiastic supporters of the act) in a few days.

OMB Watch has followed the progress of the data quality guidelines at OMB and at the agency level carefully. You can access their archive of data quality materials here. The archive doesn't have everything OMB Watch has produced - type "Data Quality" into the search tool to find others.

The legislative and administrative history of the guidelines may be found here: "Background on Data Quality Guidelines". This backgrounder also contains an abstract of OMB's guidelines. I'll just note two points from this. The Data Quality Act was a rider to an appropriations bill, introduced so late in the process that there was no time for hearings or floor debate. There is thus "...little to judge congressional intent besides the legislative language." The source of the rider: "This rider builds on an industry lobbying effort to put roadblocks in the regulatory process."

A theme in OMB Watch's materials: industry plans to use these guide lines to slow down the regulatory process.
    A great deal of concern surrounds these guidelines, as business groups are gearing up to use them to challenge regulatory protections. Indeed, William Kovacs of the U.S. Chamber of Commerce recently told BNA (a Washington trade publication) that the guidelines would have the most profound impact on federal regulation since the Administrative Procedure Act of the 1940s. “This is the biggest sleeper there is in the regulatory area and will have an impact so far beyond anything people can imagine,” Kovacs said.
("Industry Targets EPA Data Quality") These OMB Watch notes are contemplating the application of the guidelines in the context of health, safety, and environmental regulation.

A May 5 OMB Watch article discussed things it thought agencies would be wise to incorporate into their guidelines: "Principles for Agency Data Quality Guidelines". Among the things it suggested: (a) "Agencies should clearly state that the guidelines do not provide any new adjudicatory authority." (b) Agencies should carefully outline the administrative mechanisms for obtaining correction of data errors. The burden of proof should rest on requesters, limit complaints to factual errors and not errors of interpretation, impost a timeliness requirement (they suggest within 90 days from the posting of the data). The Data Quality Act
    "...does not address reconsideration of complaints and is far outside the scope of the statutory requirements. In that context, agency reconsideration should remain fairly informal, consistent with the fact that it is not a legally enforceable process. Agencies should show due diligence, but need not go beyond that. Agencies should also establish time limits for requesting reconsideration. Some agencies have proposed a 30 day time limit, which we support."

It is not clear if the data quality challenges are subject to judicial review. ("Agencies 'Adapt" Data Quality Guidelines") While the agency guidelines that have been prepared don't contemplate judicial review of data quality requests,
    "Critically, however, this last point remains unsettled. As Graham told a workshop at the National Academy of Sciences (NAS) on March 21, “[T]here are as many legal theories about how these issues can be litigated as there are lawyers. My personal hope is that the courts will stay out of the picture, except in cases of egregious agency mismanagement. Yet it will probably take a few critical court decisions before we know how this law and the associated guidelines will be interpreted by judges.” Given the nature of the guidelines, and the interest of industry in using them in nefarious ways, the outcome could potentially have profound implications for the future of risk assessment...............

    "Each agency, as directed by Congress and OMB’s implementing guidelines, has proposed an administrative process for the “correction of information” in their draft guidelines, allowing for challenges of data quality by affected parties, including an appeals process for those unhappy with an agency judgment. (The appeals process was added at the last second by OMB and was not contemplated by Congress.) These challenges, for now, are ultimately decided by the agency itself, which might leave the impression that this is all relatively benign; after all, it seems unlikely an agency would turn against the assumptions in its own risk assessment.

    "Yet this is what makes the unresolved question of judicial review so critical -- because it could take ultimate decision-making authority out of the agency’s hands. Moreover, according to Graham, “If agencies do not develop an objective appeals process, I predict that there will be efforts down the road to authorize appeals outside the agency.”"

OMB has gone
    "...far beyond the congressional mandate and asked agencies to “adapt or adopt” principles for risk assessment laid out in the Safe Drinking Water Act (SDWA) to establish that information disseminated to the public meets standards of “quality, objectivity, utility and integrity,” and that “influential information,” such as risk assessment, is independently “reproducible.” Potentially, this sets up an extremely high burden of proof for regulatory action............

    "On top of this, agencies are to meet principles laid out in the Safe Drinking Water Act, which are perhaps the most rigorous standards for risk assessment written into statute. Previously, Graham had issued an agency-wide memo on regulatory analysis that also pressed SDWA principles for risk assessment, saying that agency proposals employing these methods would be viewed more favorably by OIRA -- which must grant clearance to all health, safety, and environmental protections before they can take effect. Graham seized the data quality guidelines to achieve formal adoption of these risk assessment principles across agencies.

    "The SDWA places particular emphasis on “peer-reviewed science and supporting studies” and asks for very detailed information about the risk being examined. For instance, the agency is to identify “each population” affected, the “expected risk” for each of these populations, and “each significant uncertainty” that emerges in the risk assessment. Graham has said such rigor, specifically the practice of agency peer review, should satisfy the “objectivity” requirement of the guidelines...........

    "Yet while the issue of the SDWA and its general importance is still unclear, Graham’s advocacy of its principles is consistent with his general approach to data quality in OMB’s implementing guidelines, now reflected in the agency draft guidelines. These guidelines seem to demand a new level of scientific certainty for the inherently uncertain practice of risk assessment. If such certainty is not achieved, an agency may be subject to challenge, which is especially dangerous if such challenges are open to industry litigation.

    "In general, it is surprising that OMB's guidelines provide such extensive discussion of risk analysis. This was never debated by Congress in the context of the data quality rider. Where it was debated, through regulatory legislation presented in the Contract with America, it was rejected. The emphasis on use of the SDWA makes it even more clear that this is simply a personal issue of John Graham's, not necessarily good policy or even needed."

These last block quotes are from "Agencies 'Adapt' Data Quality Guidelines". Well worth reading - I've only skimmed the top here.

One other item gleaned from the OMB Watch web site. The transcripts from a March 2002 National Academy of Sciences workshop on "Ensuring the Quality of Data Disseminated by the Federal Government" are here.

Ghost Riders in the Congress

On 8-30 I posted a short note (here) about possible efforts this week to implement parts of President Bush's Healthy Forests initiative as a rider to an Interior Department appropriations bill.

What is a rider, and why use it for this purpose? The Natural Resources Defense Council had an article by Susan Zakin in the Spring 2001 issue of its Amicus Journal on the use of riders in environmental politics. Check it out: "Riders from Hell".

The export-import bank

An interesting short column on the export-import bank in the New York Times on Sunday: A Guardian of Jobs or a 'Reverse Robin Hood'? by Leslie Wayne.

The bank was set up in the depression to assist in export financing. It does this through "direct loans, loan guarantees or export credit insurance." But Wayne's thrust is that the bank no longer serves U.S. interests, that its loans primarily benefit the already well-heeled, and that its efforts have led to the export of U.S. jobs. Nevertheless, Wayne notes, the bank is very effective at self-promotion. The bank can't lobby itself, but he describes the various ways lobbying occurs. Just a little bit:
    "...While the bank cannot lobby for itself, its beneficiaries can...."

    ""As a staff member for a congressman, you can call up Ex-Im and say, `My congressman represents District 13 in the state of whatever,' " said a Treasury official. "They will spit out a report saying, `Here are the businesses by name in your district that receive Ex-Im help.' The bank is politically savvy. It's active in promoting its products in each Congressional district."

    "The bank also knows how to make individual legislators look good before voters. One of its biggest outreach efforts is seminars throughout the country, about one a week, that bring together local executives and Export-Import officials to promote its programs. Whom does it also invite, to show voters the benefits that Washington brings to Main Street? Each district's local Congressional delegation, which can take credit for what Export-Import has done."

Some questions: Is there a market failure rationale for the Export-import bank? Does it serve important distributional interests? Would its loan subsidy program pass a benefit-cost test? Does it increase U.S. welfare? Does it serve important national foreign policy objectives? Why would we use the export-import bank to advance these objectives, as opposed to providing grants of money to the groups we want to benefit? Why do we assist exporting industries through the bank rather than through straight subsidies? If the article is correct and the bank reduces U.S. welfare, why does Congress continue to fund it? How does the article bear on the principal-agent problem in government? Cost-benefit analysis is premised on the existing division of income; would the use of cost-benefit analysis in this case (assuming the case is as advertised) lead to greater benefits to the poor and average income citizen, or to the rich? Again, assuming the case is as advertised, would the poor be better off with a market allocation of resources, or the political allocation of resources?

I learned about this from Great Questions of Economics.

Final stages of the Johannesburg Summit

The International Herald Tribune is predicting that the World Sustainability Summit will be producing a compromise action plan that will disappoint enviornmentalists:
    "Despite powerful speeches on sustainable development from some of the leaders, the plan of implementation that negotiators have worked on for the past week was a compromise that provides a moral imperative for action on the major summit themes - water, energy, health, agriculture and biodiversity - but which does not commit countries to the specific targets that poor states wanted...

    The Friends of the Earth environmental group said the plan was disappointing because it set no rules for corporate accountability, was subordinate to a trade agenda dominated by industrialized countries, set no targets for renewable energy, did not deal adequately with farm subsidies and watered down goals for protecting biodiversity. Nonetheless, it recognized that the implementation plan did not represent any retreat from the commitments that the world made at the Earth Summit in Rio de Janeiro..."
See the full story by Barry James at "Action plan of summit looks weak to activists"

Data Quality Act

Agencies must have Data Quality Act guidelines and procedures in place on October 1.

The Data Quality Act directed the Office of Management and Budget (OMB) to prepare overall guidelines (which they have done) and directed individual agencies to prepare their own guidelines. Here's my abstract of the OMB guidelines - make sure you work with your own agency's guidelines and general counsel. The OMB guidelines can be found here.

By October 1 agencies are required to have information quality guidelines ensuring data utility, objectivity and integrity. These guidelines would apply to new data released on and after October 1. The Center for Regulatory Effectiveness has been compiling agency guidelines at its web page: CRE's Data Quality Guidelines By Agency

The utility of data refers to its " its intended users." Untily has an implication you might not think of right off: "...when transparency of information is relevant for assessing the information's usefulness from the public's perspective, the agency must take care to ensure that transparency has been addresses in its review of the information." To make data "transparent" you need to make it clear how it was prepared.

Objectivity requires unbiased presentation of the data, but much more. Data transparency is important - explain how the data were generated. "Influential" data require "a high degree of facilitate the reproducibility of such information by qualified third parties." Reproducibility "means that the information is capable of being substantially reproduced, subject ot an acceptable degree of imprecision..." "Formal, independent, and external" peer review creates a rebuttable presumption of objectivity. "With regard to analysis of risks to human health, safey and the environment maintained or disseminated by the agencies, agencies shall either adopt or adapt the quality principles applied by Congress to risk information used and disseminated pursuant to the Safe Drinking Water Act Amendments of 1996..."

"Integrity" means that the information is kept secure - that unauthorized persons cannot tamper with or corrupt it.

Agencies should have complaint procedures, mechanisms that allow the public to get action on problems identified with agency data, by October 1.

Are the people behind him?

Will his people and his army stand up for Saddam Hussein?

Almost certainly not, says Michael Rubin, and he explains why in this New Republic Online article: "Small Arms."

Rubin is described as an "adjunct scholar at The Washington Institute for Near East Policy" and as having "spent nine months in northern Iraq last year as a Carnegie Council fellow"

Does NEPA apply to Federal actions overseas?

Friends of the Earth, Greenpeace, and the City of Boulder, Colorado, sued the U.S. Overseas Private Investment Bank and the Export-Import Bank last Tuesday, saying they should be required to comply with NEPA on projects that support overseas energy development, since those projects may contribute to global warming.

The lawsuit website is here. A news story on the Boulder News web site can be found here.