The Pelican Post

The Jefferson political dynasty seems to have finally collapsed under its squalid foundation of greed and deceit. This week Betty Jefferson has resigned her post as the 4th district assessor following pressure from her fellow assessors.

The resignation follows her guilty plea to swindling money from both her office and from nonprofit groups funded by taxpayers. Apparently, her reported $90,000 a year salary wasn’t enough to satiate her greed. (For a powerful indictment of Betty Jefferson, read Jarvis DeBerry’s excoriation of her in the Times-Picayune).

Despite the black eye that this episode has left on the city, it seems the municipal government has learned a lesson. The seven assessor offices have been consolidated into one city-wide office, which Erroll Williams was elected to this past February.

Limiting the number of bureaucratic offices, such as consolidating 7 assessor offices into one, will both allow the municipal government to run more efficiently, as well as prevent abuse of office by allowing for more transparency and auditing. This case illustrates the need to eliminate superfluous government offices, which as the precedent shows, lead to wasteful spending and corruption.

Additionally, Betty Jefferson’s case serves to illuminate the troubles which inevitably follow government-subsidized non-profit organizations. As demonstrated by both Ms. Jefferson and ACORN, the usage of tax-payers money to subsidize non-profits which are then manipulated and exploited for political ends illustrates the need to decrease, or end, such practices altogether.

It is absolutely imperative that federal, state and local government implement more transparency.  Taxpayers have a right to see how their money is being spent. How many more scandals will it take to elicit action from our elected officials?

A feasibility study by Burk-Kleinpeter Inc. and HDR Engineering emphasizes the economic and social benefits of the proposed high-speed rail linking New Orleans to Baton Rouge. Currently under revision, the final report is due March 16.

With an estimated 78% probability of having a positive return on investment, the study claims that the value creation offsets the project’s costs. However, a Baton Rouge news site reports that Louisiana would bear the burden of $11 million to $14 million in annual subsidies. These costs are too high for a state already facing large deficits.

The BR-NO rail has been debated for years, but the controversy heated up when the state turned down stimulus money that would have funded its creation. While Bobby Jindal rejects the plan due to its high costs, Cato Institute scholar Randal O’Toole concentrates on the project’s hidden negative impacts.

In a Pelican Institute publication, O’Toole argues that the new high-speed rails will be “an expensive slippery slope” leading to higher costs for Louisiana taxpayers. The project would not relieve overall traffic congestion, and only few Louisiana residents will use the new trains. In other words, the possible economic benefits from new rails line will be greatly offset by high maintenance costs and low customer usage.

O’Toole believes that Louisiana should not build new rail lines; it should instead spend the federal stimulus money on safety measures by improving signaling and crossing gates on existing lines.

A disturbing report in the Washington Examiner disclosed that, since August 2007, a dozen Washington, D.C. public school teachers have been fired for a litany of nausea-inducing incidents including corporal punishment, physical abuse, threats of bodily harm, and even sexual abuse.

As if this behavior is not sickening enough, even more distressing is that there were 67 substantiated offenses over this time period, and “half of the incidents did not result in a resignation or the loss of a job, either immediately or by the end of the school year.” Instead, the culprits were briefly punished under the pretense of some inane “progressive discipline” program.

This unnerving revelation reiterates one of the intrinsic flaws plaguing public education, and that is the lack of accountability for bad, and even criminal, teachers and administrators.

Sure, one could say “well stuff like this happens all the time in private schools.” But when it does, the guilty parties in question are more likely to be fired or prosecuted. Unlike in public schools, they aren’t reinstated after an investigation or ten day suspension.  Further, private schools understand that they will go out of business if they lose the confidence of their customers.  Public schools face no such market discipline.

One of the solutions to this problem will be continuing the movement away from a centralized bureaucracy towards a more decentralized model where teachers and schools are accountable for their performances. Charter schools are enabling private interests to operate public schools with relative independence from state control. Meanwhile, programs such as Teach for America and Teach Nola invigorate some of our roughest public schools with fresh, educated young minds who are eager to teach.  This puts pressure on the education establishment to deal with the abusive and unqualified teachers who have not been held accountable for their performance.

The future of our public schools needs to be out of the hands of unionized and bureaucratic special interests and in the hands of those who demonstrate the ability and dedication to educate the young.

NPR reports on a public backlash in Arizona against the state’s use of highway traffic cameras, similar to the controversial cameras in New Orleans. This has resulted in Governor Jan Brewer announcing that she will not renew the state’s contract with Redflex, the Australian “photo enforcement” company hired to install and maintain the cameras.

Meanwhile, a number of bills intended to kill the program have been introduced into the State Legislature. Similar to the case here in New Orleans, criticism of these cameras in Arizona has been fueled by the charge that it is a transparent attempt by the local government to bring in more revenues under the pretense of transportation safety, a charge even reiterated by Governor Brewer.

While Arizona can at least boast a discernible decline in highway fatalities since the implementation of this camera network, the municipal government of New Orleans lacks any comparable justification for its overreach into the daily lives of New Orleanians.

Unless city officials can present statistics verifying that the presence of a camera at the corner of St. Charles and Louisiana has done anything to make motorists safer (which some argue it most certainly has not), we can assume that the only byproduct of its installation has gone straight into the pockets of City Hall.

Recently, Jefferson Parish put an end to its traffic camera program after it was revealed that the company in charge of installing the cameras planned to give a portion of the collected revenues to a lobbyist who had steered Jefferson Parish in their direction. The company in question?: Redflex.

This revelation begs a reiteration of the question: what are the real motives for the New Orleans traffic cameras? This question, however, is essentially rhetorical; our municipal leaders need to follow the lead of Jefferson Parish and Arizona and pull the plug on this shameful chapter.

Gov. Bobby Jindal is expected to unveil the Louisiana GRAD Act, a proposal that will allow public universities and colleges to increase tuition without legislative interference. In turn, institutions will have to meet defined performance goals and improve their graduation rates.

Currently Louisiana’s institutions cannot raise tuition without a two-thirds approval by the Legislature. This policy distorts the market by putting an effective price ceiling on a product that a growing number of people wish to purchase.

The GRAD Act seems to be a step towards a more market-based pricing system, but it has limitations. In a market system, higher prices discourage marginal buyers. In the case of higher education, this would impact those who are less fully committed to pursuing higher education.

But our higher ed system features extensive federal intervention, which distorts the market. Higher tuition leads to more federal aid. Federal aid shifts the burden of education costs to taxpayers. The buyer is insulated from the higher cost of and the demand for education is artificially inflated.

In a true market economy, higher tuition costs will cause fewer people to apply to college. While we may initially view this as a problem, the Cato Institute argues that there are too many college students:

“While college attendance is up, overall adult literacy has barely budged. A federal assessment found that in 2003 only 13 percent of Americans 16 years old or older were ‘‘proficient’’ in reading prose, understanding written directions, or performing quantitative tasks. This dismal score was down from 1992, when 15 percent of Americans were proficient in prose and document literacy. To a significant extent, it seems a college degree may just be replacing a high school diploma as a sign of minimum competence.”

It appears that our current system of government subsidization has made education more affordable but less valuable. The GRAD Act can only have a limited impact on the market for higher education while government artificially inflates demand.

Effective policy changes would include cutting administrative spending in public institutions, reducing federal aid, and relying more on private lenders. With less government intervention tuition costs would stop skyrocketing, and might even come down. Further, reducing federal aid would not prevent dedicated students from pursuing higher education. Private lenders would have strong incentives to lend to students due to the higher value of the degree.

While higher education plays an essential role in our state and nation, the federal government should play a less prominent role it its funding.

On Thursday, February 8^th the Loyola University Economics Club hosted Dr. Christopher Coyne, assistant professor of economics at West Virginia University and author of “After War.”

In “After War: The Political Economy of Exporting Democracy”, Coyne uses the tools of economics to analyze the ability of the US to export democracy abroad. He analyzes the American intervention in Iraq and Afghanistan, arguing that the US failed to establish democracy by falling into traps of reconstruction:

The Credible Commitment Trap: “Without a binding commitment to reforms that is credible, policymakers may have an incentive to renege in future periods.” In other words, the lack of consistency in policy decisions lowers the credibility and efficiency of the powers exporting democratic principles.

The Fatal Conceit Trap: Reconstruction is based on the idea that authorities have the knowledge necessary to identify and implement an efficient master plan that would provide a solution for all sectors of a country. This concept ultimately limits the development of the occupied country.

The Political Economy Trap: Crucial to Coyne’s argument is the distinction between democracy and liberal democracy. As explained in the book:

Democracy deals with the method of selecting government officials, while liberal democracy deals with the goals of government: the protection of individual rights, the rule of law, and so on. (p. 11)

In other words, limiting the goal to the implementation of democracy did not lead to constitutional democratic societies.

The Bureaucracy Trap: The United States failed to export liberal and constitutional democracy because of too much reliance on bureaucratic agencies and the public sector. According to the author, bureaucratic agencies compete over scarce resources and limited budgets while depending on inefficient information flows.

Due to these constraints, Coyne argues that “reconstruction efforts are least likely to work precisely where they are needed most”. The author proposes the following steps in order to effectively promote liberal democracy abroad. The US should:

• Disengage from current military occupations
• Refrain from future military occupations to establish liberal democratic institutions
• Reduce trade barriers with the ideal goal of reducing them to zero with as many countries as possible

In his conclusion Coyne identifies non-intervention and free trade as the viable means to overcome the four traps and effectively promote liberal democracy.

The prosperity of a country is tied to the effective usage of its available resources, i.e. capital and labor. The amount of capital and labor in any society is limited, therefore efficient resource allocation is essential for economic growth.

Capital and labor are not homogeneous resources. Certain types of capital workbest with a certain types of labor, and vice versa. We cannot force capital or labor to efficiently work in conjunction with any arbitrary resource.

Unfortunately, what the government has done through the stimulus package is to stimulate growth and production by forcing capital and labor to collaborate without taking into consideration their specific purposes and characteristics.

In a Nightly Business Report blog post Steven Horwitz explains this concept:

To see this, I borrow an analogy from the economist Peter Boettke. Stimulus proponents seem to view resources as if they were Play-Doh that could be shaped into any form desired. […] If capital and labor were like Play-Doh, then it wouldn’t matter what government spent on as the idle capital and labor would be equally productive in whatever use was demanded. Unfortunately, capital and labor are more like Legos than Play-Doh. What kids can build with Legos depends on the particular shapes and sizes of the pieces they have and whether and how those pieces can fit together. Any two hunks of Play-Doh can be combined to make a desired object. That is not true for Legos, and it’s not true for capital and labor.

Horwitz concludes that the current pattern of resource allocation should be reevaluated.

Government should not determine the economy’s resource allocation. This task should be left to markets and economic actors. Free markets may appear chaotic, but they do a better job than a centralized bureaucracy of distributing knowledge and allocating resources through competitive prices.

The Times-Picayune reports on the mismanagement of another public agency. After FEMA, Fannie Mae and Freddie Mac it’s now time for The Housing Authority of New Orleans.

HANO defines itself as a “state created public agency dedicated to providing safe, sanitary and affordable housing for low-income residents.” The latest analysis by the Department of Housing and Urban Development found that the agency continues to perform poorly.

The Operational Assessment of the Housing Authority of New Orleans shows that out of the 3,212 available public housing units, 815 are vacant. As Katy Reckdahl from TP reports, there is “no clear indication that the services or the approach meet the needs of residents.”

Unfortunately, HANO’s financial mismanagement and poor customer service are qualities often found in government agencies. These public agencies lack the incentives that encourage organizations to provide quality service at a lower price. In fact, by spending most of their budgets, agencies de facto communicate their need for further (and increased) funding.

A private company, on the other hand, is incentivized to provide better service at a better price. Most investments made by the private sector involve a cost-benefit analysis that aims at efficiently allocating resources in order to maximize profits. This aspect is often neglected by the public sector.

When the government identifies a failing public agency it implements more planning and strives for better collaboration. And it usually spends more money. We should rely less on government agencies and instead seek opportunities to make use of the private sector. This would promote economic growth and provide better services to the recipients of housing assistance.

As Diana Furchtgott-Roth of the Manhattan Institute points out, there is widespread hostility towards the financial sector even though:

• 140 banks failed in 2009
• regulators and Congress encouraged banks to make high-risk loans
• many banks were required by Hank Paulson to take the TARP money in 2008
• all but one large bank repaid TARP funds with interest

In order to regulate banks, President Obama is adopting both the Volcker Rule and the Financial Crisis Responsibility Fee. However, the consequences of having both regulations simultaneously interfering with the financial industry are highly uncertain.

Jason Zweig believes that the Volcker rule would distort banks’ behavior. But Diana Furchtgott-Roth argues that it “would restrict banks to core customer-based activity, strengthening the banking system.”

Obama’s proposed bank fee, which is actually a tax, could discourage intra-bank lending, hinder the banking system, and reduce the supply of credit available to customers. The likely effects of the after-TARP fee may undermine Obama’s plan to expand lending programs for small businesses.

Will the after-TARP tax along with the Volcker Rule effectively stabilize the banking system? It doesn’t seem likely. Reform is necessary, but the recovery will not be advanced by taxing institutions that play a key role in generating economic growth.

One of the major goals of US education reform has been to establish higher academic standards. An improved K-12 curriculum and higher standards have been constant themes in recent years. But is imposing uniform standards across the states a productive and appropriate role for government?

Many policymakers have argued that a common goal encourages coherence and uniformity in educational practices. Also, by setting expectations students learn more and people have a clear understanding of what students should know and be able to accomplish.

But the Cato Institute’s Neal McCluskey makes a strong argument against top-down control. McCluskey points out:

“Setting high standards and getting American students to hit them is extremely difficult. Politically powerful interest groups must be overcome. Crippling conflicts between different religious, ethnic, and ideological factions must be avoided. And a culture that is generally averse to an intense focus on academics must be transformed.”

McCluskey concludes his argument by stressing the role of free market in producing high standards, accountability, and optimal education outcomes.

“The key appears to be to give education funding to parents, allow schools autonomy, and as a result make schools respond to the needs and demands of parents and children. That would solve the asymmetrical power problem, forcing educators to satisfy customers rather than use politics to get their way”.

In other words, give parents more freedom to decide what option is best for their children, and schools will be begin addressing the demands of the marketplace. This will drive innovation, expand choice and lead to better schools.