Out of Control

Where is the center of the "centerpiece issue" of the California ballot? Proposition 8, which would rewrite the state constitution to end gay marriage, is supposed to be about moral absolutes--but the polls show a significant number of people are iffy on it, wedge-issue notwithstanding. Part of this is just plain confusion about what the proposition actually does, manufactured by misleading television ads and low understanding among voters (especially outside of the San Francisco bay area) about the current status of gay marriage in the state.

The new Field poll probes a little deeper, asking likely voters about their opinions on the issues underlying Proposition 8, not just the distorted triggers that campaigners rely on. The results show remarkable agreement. Field's polling show strong majorities (roughly 60 percent) on each of the following:

- Matters relating to the definition of marriage should not be written into the constitution.

- Domestic partnership laws by themselves do not give gay and lesbian couples the same certainty and security that marriage laws provide.

- By eliminating the right of gay and lesbian couples to marry, Prop. 8 denies one class of citizens the right to enjoy the dignity and responsibility of marriage.

- Extending new rights and legal protections to different peoples and lifestyles such as gays and lesbians, benefits California and the nation in the long run.

The same majority do not believe the message heavily promoted by proponents of the marriage ban, that "If Prop. 8 is not approved the public schools could be required to teach kids that same sex marriage is as acceptable as traditional marriage in California," and don't think gay rights advocates are moving too fast on policy in California.

Also from the poll, a curious statistical anomaly: 90 percent of those in households reporting an annual income of between $80-100K said they personally knew gays and lesbians; 40 percent in households earning less than $20K said they didn't personally know any gays or lesbians. (Part, but not all, of the discrepancy might be explained by the age of respondents in each category.)

What the polling on these issues underlying Proposition 8 suggests is that the November 4 vote is more likely to measure the efficacy of media buys and messaging than the actual value that Californians hold for keeping state licensing of marriage gender-neutral.

More from Reason's Adam Summers on Proposition 8 here and here.

There is already a long line of banks and investment firms queuing up for federal bailout money. The automakers just got in line and who knows, maybe we’ll see a newspaper or two slip in the back relatively soon. The number of states asking for a bailout is growing too. Already with California looking for a potential $7 billion to keep it out of bankruptcy, New York and New Jersey have joined the chorus pleading for a bailout. NY Gov. Paterson hasn’t asked for a specific amount yet, though NJ Gov. Corzine has suggested an additional $300 billion be allocated for struggling state budgets in general.

In the wake of this, nationally syndicated columnist Cal Thomas wonders today if states could set a fiscally responsible example for America’s groveling economic giants: "What if governments were forced to live within their means? Isn’t that what each of us has to do? If we get in financial trouble, we have to cut our spending, possibly curtail wants and focus on real needs."

Thankfully, there are still some wise leaders in America, as Reason's Director of Government Reform Len Gilroy noted in this post. Attempting to Counter Govs. Corzine and Paterson, South Carolina Republican Gov. Mark Sanford urged Congress to avoid placing further burden on an already struggling economy by adding billions more in debt, “Simply throwing money into the marketplace in the hope that something positive will happen ignores the fact that the government has already put over $2 trillion into the system this year.”

At times Gov. Paterson has seemed to recognize that bailouts aren't the answer, and is beginning to pursue public-private partnerships to reduce spending. But while he has vetoed 171 spending bills since taking office, there still appears to be an inherent distrust that the free market can restore market stability and sustainability.

So with banks, industry, and states looking for redistributed cash, the question is, what's next? Reason.TV finds citizens asking "Where's my bailout?"

From Reuters, via The Guardian:

French unions and employers signed an agreement on Thursday opening the way for privatisation of seven ports, including the key oil hub of Fos Lavera, as part of a reform of French docksides.

The agreement, required in a law on port reform passed by parliament in July, follows negotiations launched after the plans provoked weeks of protests and stoppages by port workers earlier this year.

The CGT union, representing port workers, said that as part of the agreement members had agreed to stop protest actions begun on July 15.

The deal will see private companies take over dockside unloading operations previously run by the state at the ports, which as well as the Fos-Lavera hub in Marseille include Dunkirk, Le Havre, Rouen, La Rochelle, Nantes-Saint-Nazaire and Bordeaux.

Workers at the seven so-called autonomous ports strongly opposed the plans to shake up the operation of the state-run harbours, which have been losing market share steadily.

Port employers have long complained that inflexible labour practices have hampered competitiveness at French docks, while labour groups feared privatisations could lead to job losses.

Work at the seven ports has been traditionally strictly divided between private sector cargo handlers and public sector authorities who manage harbour infrastructure, including the cranes used to load and unload ships.

The new agreement would end the state monopoly on infrastructure operation within two years, while providing guarantees for workers transferred to private sector operators as a result, the Environment Ministry said in a statement.

Here's the real nugget:

The CGT said in a statement workers were "fiercely opposed" to deregulating work at the ports. But they said they recognised that a deal was essential for the ports' strategic future.

So labor realized that thwarting privatization would be akin to cutting off your nose to spite your face: a short-term "lifeline" masking an ultimately self-destructive act.

On the larger front, I'm sure that American ports are taking notice. Their interest in privatization and private financing of port infrastructure is certainly on the rise, as Ken Orski described in Reason's Annual Privatization Report 2008. More on the emerging arena in port privatization here.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

One of the more enduring myths about the mobility Americans have embraced and the freedom cars provide us is that its unsustainable because we can't continue to pave over America. America has become an "Asphalt Nation." It's a nice bumper sticker but, like most bumper stickers, it's wrong and even conveys bad information. The most recent contribution to this myth comes from the San Francisco Chronicle:

What if we paved over the whole state of Wisconsin?

Actually, we already have. According to recent Federal Highway Administration figures, the United States has close to 240 million motor vehicles - almost 40 million more cars than licensed drivers - and just under 4 million miles of paved roads for them to run on. All told, some 61,000 square miles of the United States - an area a little smaller than the Badger State - is solidly paved over, either with roads or with parking. And, of course, there's always more pavement on the way.

Let's take a closer look at these numbers. 61,000 square miles seems like a lot, until you compare it to the surface area of the United States. The US includes 3.5 million square miles according to the U.S. Bureau of the Census. That works out to about 1.7% of the nation "covered by asphalt." Even if we exclude Gov. Palin's home state, which takes up 570,380 square miles (9.3 times the size of Wisconsin), our roads take up 2% of the nation's surface land area.

In short, we aren't an "asphalt nation" and never have been.

There’s an old joke: A capitalist and a socialist are working on the side of a road when a rich fellow drives by in a Cadillac. The capitalist says, “Someday, I’ll be driving a Cadillac.” The socialist replies, “Someday, that guy won’t.”

The joke has new resonance as the election campaign winds down amid talk of redistribution of wealth and a “New New Deal.” But even in a redistributionist scheme, the government’s got to have money in order to give it away. Given the current economic woes, and despite Barack Obama’s plans “to spread the wealth around,” if he’s elected the tax revenues might just not be there come January.

There is considerable speculation that rather than risk creating a deep recession by raising taxes during the current economic downturn, the Obama Administration’s first action will be to go after two pieces of legislation—the replacement of secret balloting with a “card-check” on union voting and restoration of the Fairness Doctrine in radio broadcasting.

These initiatives cost little in terms of monetary funds, but can risk enormous political capital early in the term.

My Reason colleague Shikha Dalmia discusses card-check this week in Forbes. As far as the Fairness Doctrine goes, this, too, could be the among the first chances to see how well a President Obama can stand up to a Congress bent on ramming through an extremely partisan agenda.

Abandoned by the Reagan FCC in the 1980s, the Fairness Doctrine stipulated that as part of its licensing requirement, a radio or TV station had to offer equal time to anyone with an opposing viewpoint to an opinion aired by that station. The Fairness Doctrine originated with the Communications Act of 1934, and its authors sought to assure that, given the scarcity of radio and TV spectrum available at the time, no single voice monopolized the airwaves. Perhaps embedded in that concern was the optimistic idea that the nation’s TV and radio outlets would become vigorous forums for political debate.

But the opposite happened. Saddled with a legal requirement to give all points of view equal time, radio and TV stations shied away from giving any point of view any time at all. After the doctrine was lifted, AM stations, which were steadily losing listeners to FM stereo music stations, not to mention portable tape and CD players (and today, iPods), found conservative commentators, led by Rush Limbaugh, but expanding to include Sean Hannity, Michael Savage, the late Tony Snow and others, attracted new audiences. I don’t know what made AM radio so conducive to right-wing thinking. Maybe there are just more conservatives in the radio audience during the daytime. But attempts by liberals, including comedian-cum-Senate-candidate Al Franken, to launch left-leaning talk radio programs foundered.

That’s why restoration of the Fairness Doctrine is little more than back-door censorship. A law to ban conservative talk radio programs would be unconstitutional on its face. So Congress, via a new Fairness Doctrine, is seeking to remove the commercial environment that has allowed talk radio to thrive. It would force AM radio stations that air Rush Limbaugh's daily three-hour program to reserve three hours of airtime a day for programming that ratings history shows audiences reject. With no audience, no advertising. With no advertising, no business. To remain viable and comply with the Fairness Doctrine, the station owner would have no choice but to dump Rush and find a new format that steered clear of politics.

Because the restoration effort is led by the liberal wing of the Democratic Party and would be limited to radio (TV and cable public access would continue to be exempt), it comes across as all the more vindictive and retaliatory. Like the socialist in the old joke, Democrats and liberals, rather than strive to cultivate their own forums, want to take away the forums their opponents have.

One hopes that the Fairness Doctrine would not survive a First Amendment test, no matter what the make-up of the Supreme Court is should a case ever reach that high.

First, although disguised as regulation of the broadcast industry, it’s effectively regulation of political speech, which the First Amendment specifically forbids.

Second, the rationale behind the Fairness Doctrine no longer applies. Media scarcity is no longer an issue. While a handful of national media companies today control most AM radio stations, they have no lock on information channels. Cable TV, the Internet and now, satellite radio, ended that. That pundits on the right and left both claim the media is biased against their views is as good a gauge there is in measuring the diversity of promulgated opinions. Don’t like the attitude of Fox News? Switch to CNN or MSNBC.

Third, the liberals' very claim that conservative talk radio wields an unfair influence on public affairs is undermined when the electorate appears ready to give liberal Democrats a greater hand in Congress and elevate a freshman senator with a long liberal voting record to the presidency.

Fourth, speaking of satellite radio, that’s likely where Limbaugh and his friends will go if the Fairness Doctrine were restored. AM radio, not talk radio, would die. Good government types should think hard about this potential consequence. Aren’t you guys the first to go into high dudgeon about the loss of “local voices” every time Clear Channel or Fox purchases another AM station?

Above all, if Obama signs on to the Fairness Doctrine push, he risks losing his “post-partisan” label early. And unlike the union card-check issue, opposition could be deeper and broader. As president, Obama will want a few easy wins come the first half of 2009. He should be careful with this one—it is visceral enough to become another “gays-in-the-military” fiasco that bogged down Bill Clinton’s first year. He’d be messing with people’s entertainment. Not the way you want to start.

Gov. Schwarzenegger "has decided to postpone formally releasing the latest bad news in the ongoing state budget mess," until Wednesday, after the election. Wait until voters have put away their credit cards--er, ballots--before discussing things like:

The problem's size has been variously put at anywhere from $10 billion to $12.5 billion by various officials, including Schwarzenegger. That's triple the size of the deficit estimated by the administration a few weeks ago, when the state was issuing $5 billion in short-term borrowing notes.

However, with headlines like, "Draft report: Prison medical care costs $2.3 billion higher," it appears not everyone got the memo.

ABC's Jake Tapper has an excellent post today that highlights a simple question that voters should be asking of the presidential candidates—"you're promising a lot, how are you going to pay for it?" This, of course, is a variation on the theme asked by moderator Jim Lehrer in the first debate when he queried the candidates on what parts of their agendas they would give up in the wake of the bailout. As we saw then, instead of an answer we got lots of dancing around the question. It's no wonder:

Once you get past the soaring oratory, to experience a speech by Sen. Barack Obama, D-Ill., is to be hit with an astoundingly lengthy list of promises.

"I don't know how any reasonable person" could think he'd really be able to accomplish everything he's pledging to do, said the mother-in-law of a colleague, a Missouri woman who intends to vote for Obama.

Just today in Sarasota, Fla., the Democratic presidential nominee said that he'd:

* "give a tax break to 95 percent of Americans who work every day and get taxes taken out of their paycheck every week";
* "eliminate income taxes on Social Security for seniors making under $50,000";
* "give homeowners and working parents additional tax breaks";
* not increase taxes on anyone if they "make under $250,000; you will not see your taxes increase by a single dime –- not your income taxes, not your payroll tax, not your capital gains tax";
* "end those breaks to companies that ship jobs overseas";
* "give tax breaks to companies that invest right here in the United States";
* "eliminate capital gains taxes for small businesses and start-up companies that are the engine of job creation in this country";
* "create two million new jobs by rebuilding our crumbling roads, and bridges, and schools -- by laying broadband lines to reach every corner of the country";
* "invest $15 billion a year in renewable sources of energy to create five million new energy jobs over the next decade";
* "reopen old factories, old plants, to build solar panels, and wind turbines";
* build "a new electricity grid";
* "build the fuel efficient cars of tomorrow";
* "eliminate the oil we import from the Middle East in 10 years";
* "lower premiums" for those who already have health insurance;
* "if you don't have health insurance, you'll be able to get the same kind of health insurance that members of Congress give themselves";
* "end discrimination by insurance companies to the sick and those who need care the most";
* "invest in early childhood education";
* "recruit an army of new teachers";
* "pay our teachers higher salaries, give them more support. But ... also demand higher standards and more accountability";
* "make a deal with every young person who's here and every young person in America: If you are willing to commit yourself to national service, whether it's serving in our military or in the Peace Corps, working in a veterans home or a homeless shelter, then we will guarantee that you can afford to go to college no ifs ands or buts";
* "stop spending $10 billion a month in Iraq whole the Iraqis have a huge surplus";
* "end this war in Iraq";
* "finish the fight and snuff out al Qaeda and bin Laden";
* "increase our ground troops and our investments in the finest fighting force in the world";
* "invest in 21st century technologies so that our men and women have the best training and equipment when they deploy into combat and the care and benefits they have earned when they come home";
* "No more homeless veterans"; and
* "no more fighting for disability payments."

This on top of his 30-minute infomercial last night, and the myriad other pledges and promises he's made throughout the last 21 months. [. . .]

The AP's Calvin Woodward took a look at Obama's assertion that he's "offered spending cuts above and beyond" what he's pledging to spend, and he concluded that's "accepted only by his partisans. His vow to save money by 'eliminating programs that don't work' masks his failure throughout the campaign to specify what those programs are -- beyond the withdrawal of troops from Iraq."

Even accepting the savings Obama pledges to bring, the bi-partisan Committee for a Responsible Federal Budget says Obama will add a net $428 billion to the deficit over the course of his term.

And it's not just Obama:

Sen. John McCain, R-Ariz., too is making unrealistic promises. As the Tax Policy Center says of both candidates, "Both John McCain and Barack Obama have proposed tax plans that would substantially increase the national debt over the next 10 years, according to a newly updated analysis by the non-partisan Tax Policy Center. Neither candidate's plan would significantly increase economic growth unless offset by spending cuts or tax increases that the campaigns have not specified."

Uggghhh. I'm all for lower taxes, but if you're not willing to back that up with an even more aggressive strike at the spending and entitlement crises, then you're not even halfway there. Promising to go line-by-line through the budget or cutting earmarks hardly rise to the level of the serious attention that's needed. Put simply, we need to cut way more than "wasteful" spending.

The true answer to what the candidates would give up is "as little as possible." And the true answer to how they'd pay for it is "don't know." To be truthful would be an admission that neither platform is offering much meaningful in terms of getting the country back on a sustainable budget and fiscal path. We get so distracted by universal health care or bundles of tax credits or incentives of one kind or another that we seem to whistle past the looming fiscal graveyard. Social Security, Medicare, and unfunded public pensions are train wrecks waiting to happen, for starters, yet it's hard to find policymakers and pundits seriously pondering how you could overlay universal health care, bailouts and economic stimuli, etc. onto that mess and not bankrupt the country.

To be fair, both major candidates have signaled their intentions to cut spending, so it's not like they're ignoring the issue. Perhaps the best and most substantive idea I've heard from either thus far was in the second debate when McCain suggested forming a BRAC-style commission for Social Security reform. That's probably the only realistic way to depoliticize the issue enough to make progress, and the next President would be wise to push the idea.

But spending and entitlement reform seem like afterthoughts when compared to the candidates' other detailed tax and spending proposals. Maybe that's why Senator Biden recently stated that he has no interest in pulling a Gore and becoming the point person for a Reinventing Government 2.0.

I can't say I blame him on a personal level—detangling and clearing out such a thick and tangled mess of weeds certainly isn't an easy or enviable job. But neither is the presidency, and Americans should wake up and demand that their next leader make it a top priority to rid the room of the 800-lb gorillas of entitlement and spending reform before spending dime one on new goodies and giveaways.

(Hat tip to Instapundit)

Underneath the bluster and sabre-rattling we've become accustomed to on the international stage (and the strange rediscovery of the 80s-era Members Only jacket that's come along with it), Iran's domestic privatization agenda continues apace. Next up, partial postal privatization:

Iran’s government today charged the Ministry of Communications and Information Technology with forming a government-run postal organization, which will take over some of the services offered by the existing state-controlled Iran Postal Service Company.

The decision is in line with the government’s plan to privatize some sectors of the country’s economy based on article 44 of the Islamic Republic’s constitution, which states that the country’s economy is comprised of “private, cooperative, and government sectors.”

Iran began to privatize its largely state-run economy during the presidency of Akbar Hashemi Rafsanjani [1989-1997].

The official IRNA news agency reports that according to the government’s newly ratified law, the Ministry of Communications and Information Technology is required to institute an “Organization of Nationalized Postal Services.”

Under the plan, “the main job of sorting, exchanges, communication and management of the distribution” of the current company will be taken over by the new postal organization and will remain in government control while the remainder of the activities of the postal service will be privatized.

According to the minister of communications and information technology, Mohammad Soleimani, the two postal companies will consist of “a parent company that will be subsidized by the government and will remain under government control and a private company, which will offer various postal services at private market rates.”

The National Governors Association and the National Association of State Budget Officers recently released their October 2008 State Economic Review, and the outlook is increasingly bleak:

By and large, states are struggling. Although 8 to 10 states – mostly energy and farm states – currently have stability in their state budgets, most other states are witnessing significant revenue declines. In fact, 24 states have publicly reported current shortfalls totaling $26.5 billion or more for fiscal year 2009—and that was before the liquidity crisis. With most economists projecting negative growth over the next several quarters, state budget shortfalls are expected to grow dramatically during the year and could double the current estimate. To close shortfalls to date, many states have drawn down rainy day funds and are making major cuts in programs including elementary, secondary and higher education, as well as welfare and Medicaid. [. . .]

In short, states will face a very difficult fiscal outlook over the next two to three years, and the decline may be deeper and longer than any they have witnessed during the last 30 years.

With fiscal conditions bad already and getting worse, seeking creative ways to do more with less—including privatization and public-private partnerships—is going to become the modus operandi in many state capitals. (more on that here, here, here and here)

In one bright spot, NGA/NASBO's review cites a Moody's job forecast that sees job losses in most regions of the country throught the first two quarters of 2009, but returning to growth in the third quarter of 2009. Well worth a read.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

This new video from Reason.TV is a hilarious take on the bailout mentality.

"Because ALL Americans should be protected from their own stupidity."

Washington Post columnist Steven Pearlstein has an interesting "I told you so" article on bailout regrets and the dangers of populist approaches to government intervention in financial markets.

Certainly there are situations in which capital injections are necessary. In Britain, for example, there are only a handful of banks that matter, and those had their capital so depleted that there was no choice but to pour money into them, on onerous terms and with lots of strings attached. And certainly, as with PNC's purchase of National City, a dose of government capital can grease the takeover of a weak bank that might have otherwise failed and required government intervention.

But making modest investments in dozens of banks, whether they needed it or not, produces little for the public beyond the small profit for the Treasury. What it does do, however, is open the door for every politician and populist to second-guess every decision and expenditure the banks make, based on the false assumption that everything they do is with "our money."

Joe Vranich is the former president/CEO of the High Speed Rail Association, and wrote The California High-Speed Rail Proposal: A Due Diligence Report for Reason, which is very critical of the Rail Authorities plan.

Today Joe wrote:

There was a time when my naiveté in supporting government spending programs caused me to think that public officials would do their best in running this or that program. And for nearly 40 years I've supported high-speed rail systems in writing, in speeches here and abroad and in testimony before Congress.

But last week I testified against California's high-speed rail plan before a state Senate committee, causing my surprised friends to ask, "How can you oppose something you've believed in for so long?"

He goes on to answer that question here. A good read.

In a column in yesterday’s Forbes, Reason Foundation's Shikha Dalmia says the McCain campaign missed an opportunity by failing to discuss Barack Obama’s support for “card check.”

Perhaps Republicans deserve to lose this election--but that doesn't mean they shouldn't try to win. It is not clear, however, that the McCain campaign agrees. How else to explain its failure to alert voters of frightening liberal ideas such as "card check" that are bound to be enacted if Democrats sweep into the White House and Congress?

Card check--the most radical revision of labor law since 1935--would allow unions to do away with secret ballots, a fundamental right in a democracy, and unionize companies simply by coaxing, cajoling or coercing a majority of workers into signing a card. It came alarmingly close to being enacted last year when the House overwhelmingly passed the fraudulently named Employee Free Choice Act. The Republican minority in the Senate eventually filibustered the legislation.

But this last line of defense will crumple if Democrats gain a super-majority in the Senate. Also, Sen. Barack Obama--who was one of the co-sponsors of the legislation--has already declared that he will make card check "the law of the land when I'm president of the United States." No surprise then that Big Labor is pumping close to $400 million to elect him and his fellow Democrats--likely the single largest buying spree ever by an interest group.

But card check will be bad for workers and businesses. And why McCain is not shouting this from the rooftops is one of the big mysteries of his campaign.

Unions have been losing membership steadily since their heyday in the 1950s when nearly 35% of the American workforce belonged to a union, compared with 7.5% today. Indeed, even as the economy added more than 9.5 million jobs between 1999 and 2006, unions lost more than 1 million members.

One big reason is that workers simply don't believe that handing over 1% to 2% of their wages in mandatory union dues is worth the services that Big Labor offers. Their skepticism is not unjustified. A 2002 study by the Bureau of National Affairs found that, after adjusting for cost-of-living, private sector workers in the 10 least unionized states earned $1,600 more annually than workers in the 10 most heavily unionized states. What's more, between 1992 and 2002, the less unionized states generated twice as many nonfarm jobs--with better benefits--than more unionized states.

But instead of enticing reluctant workers by offering better prices or services--as a club losing membership would do--unions want to effectively coerce them by taking away their right to a fair vote. Furthermore, Big Labor wants to eliminate the elections required to form a union, while keeping them for when workers want to remove an existing union. This is a flagrant double-standard designed to turn workers into union hostages!

Workers understand the dangers of card check, which is why 78% of union members support keeping the current secret ballot system, according to a 2004 Zogby survey conducted for the Michigan-based Mackinac Center for Public Policy.

Workers won't be the only losers under card check, however. Non-unionized companies in the manufacturing sector will confront new union drives. Even industries such as hospitals and hotels that never imagined they would be vulnerable to unionization would potentially become union shops. But the grand prize that Big Labor is coveting is the retail sector--and not just big-box stores like Wal-Mart (nyse: WMT - news - people ) and Home Depot (nyse: HD - news - people ), but also medium-sized establishments like pharmacies and grocery stores.

Companies' biggest fear is that unions will foist rigid workplace rules upon them--just as they did on the former Big Three automakers--preventing them from quickly redeploying their workforce in response to shifting market conditions, crimping their productivity and global competitiveness.

But there is an even deeper problem that card check will exacerbate: There has been a major shift in the mentality of the modern-day labor movement, which now regards political advocacy as its main role rather than workplace representation. Witness, for instance, its advocacy of nationalized health care.

Yet it is far from clear if union rank-and-file approve of this shift. Indeed, the 2004 Mackinac Center poll found that 43% of union members believed not enough union funds were spent on "efforts to secure better wages, benefits and working conditions."

With card check, however, Big Labor will get more money and added flexibility to further ignore the wishes of its rank-and-file and pursue its political agenda.

McCain could have used his own opposition to card check to expose the joint agenda of Big Labor and the Democrats while wooing ordinary, blue-collar voters. That he didn't do so might be one of the biggest missed opportunities of his campaign.

See Shikha Dalmia's contribution to Reason's 2008 Political Poll.

In a new column, Reason Foundation's Anthony Randazzo explains why government should send the message that no more bailouts are coming:

At the height of debate over the bailout, many opponents of the "stabilization" act threw in the towel and said, "All right, lets just get it over with." While this position acknowledged that a bailout was inevitable, it was naïve to think that Congress was getting anything "over with."

The congressional bailout of Wall Street highlights a growing trend of government management of the economy. Amid fears of a global recession, supporters of free markets need to stand up and help taxpayers see that economic philosophy really does matter and that America is headed in a dangerous direction: market paternalism.

The harmful, pragmatic policy solutions that come out of market paternalism can most readily be seen in the "too big to fail" philosophy. Fiscally responsible firms have added valuable assets to their balance sheets by buying up failing firms in the wake of the economic turmoil. While this is the proper market response, this must be done with the right intentions. Firms seeking to grow so large they will be considered "too big to fail" by government policymakers undermine the long-term stability of the economy.

The "too big to fail" philosophy is the belief that there are certain firms so tightly integrated into our financial system that their collapse would cause irreparable damage to the U.S. economy. The concept first emerged in a significant way in 1984 as the federal government orchestrated a $1 billion bailout of Continental Illinois Bank. At the time, Continental was one of the largest financial institutions in America, so big that Congress considered it too big to fail.

Today, JP Morgan Chase has grown so large by its purchase of Washington Mutual, the fourth largest American bank, that some might say it is now too big to fail. In the auto industry, General Motors is buying Chrysler, giving it 36 percent of the U.S. auto market, and putting GM in position to claim that it is too big to fail. Firms like Bank of America, Citigroup, Delta Airlines, and others have been positioning themselves for similar arguments.

These acquisitions are not without great risk. Wells Fargo will take on $74 billion in potential future losses by acquiring Wachovia. And the Chrysler brand is not strong in America today. Bankruptcy remains a very real possibility for these firms, especially considering the instability of the market.

Given the U.S. government's response to the bankruptcy of Fannie Mae, Freddie Mac, AIG and others, there is a very real possibility that the government's market paternalism will coddle firms in a potential bankruptcy.

Historically, the too big to fail philosophy has been applied erratically, reflective of its political nature: failing airlines were covered with $15 billion in bailouts in 2002. But Enron never saw a dime of federal bailout money.

The pattern that has emerged is clearly political, not economic. Enron's scandals made it politically impossible for the government to bail them out, despite the fact that their collapse hurt American banks, the stock market, and investors.

In contrast, after the terrorist attacks of 9/11, the airlines held immense public sympathy, and it was politically savvy to support them, despite the fact that air travel would have continued in the event of mass scale bankruptcy, albeit at a reduced level. Enron executives got blamed for financial losses following their collapse. The Bush Administration would have taken the heat if airlines began going under en masse.

Today, America is threatened with the prospect that too big to fail will actually become a policy of practice, instead of a policy of circumstance. The problem with this philosophy is that it skews the risk assessments of big corporations, which plan to use taxpayer dollars as a safety net in case their investments fail. Just the potential for government intervention changes the way firms do business.

If GM believes that by acquiring Chrysler it will receive special government treatment in the case of an even worse market downturn, then they are treating the U.S. treasury as a limitless financial backstop-economists call this moral hazard.

Of course if GM's investment in Chrysler succeeds, the U.S. taxpayer won't receive any of their profits. This economic philosophy is the privatization of economic gain, the socialization of economic loss. It's a philosophy that must be nipped in the bud before the economic situation gets any further out of control.

Given the propensity for the government to issue more bailouts and stimulus packages, we need American economic philosophy to be clear: if capital investments fail, the government won't issue more money. The free market works, but not when it is manipulated and over regulated. The government can only act as a referee in a free market, once they step onto the playing field, the whole game is changed.

The current public perception, which sees the government's support of failing firms as compassionate, doesn't realize the danger moral hazard creates for a fully functioning market. Too big to fail is the kind of market paternalism that capitalists must be prepared to counter.

Capitalists must stand up and voice their dismay at the economic philosophy being enshrined in America right now. Capitalists must stand up for the preservation of true free market philosophy. Capitalists must stand up now, before the war gets too far ahead of us. The bailout battle might have been lost, but the war has just begun.

In a new column, Reason Foundation's Skaidra Smith-Heisters writes:

These tough economic times make many of us think twice about what we're buying. This critical thinking is important as voters consider potential purchases like Measure Q, the 20-year sales tax increase proposed for the Sonoma-Marin Area Rail Transit District (SMART).

Our priorities don't change just because our budgets are overextended, but in times like these, households and governments alike are challenged to use what limited funds we have as effectively as possible. Proponents of Measure Q say their diesel train plan will fight global warming and support "environmentally responsible" transportation. Voters need to decide not only whether the plan achieves the right goals, but whether it can deliver at the right price.

Evaluating the cost-effectiveness of greenhouse gas abatement projects is relatively simple. The standard approach is to calculate the cost of the project and divide it by the amount of greenhouse gas emissions that are avoided as a result of the project. Measure Q proponents say the rail plan will cost $450 million in construction costs and an average of $19 million to operate each year, while it will reduce greenhouse gas emissions by the equivalent of 14,000 metric tons of carbon dioxide per year. That's a cost of more than $2000 per metric ton of carbon dioxide, or $1357 per metric ton in operating expenses alone. These figures don't include construction of the bike path (incidentally, the part of the project that would be postponed if revenues run short) or debt service on bonds (roughly $8 million per year).

Thus, by proponents' own estimates, the train project would be at least 30 to 45 times more expensive than the most expensive greenhouse gas abatement projects being considered to meet current climate stabilization goals at state and national levels.

To put these costs in perspective, consider that in the nation's first mandatory cap-and-trade auction last month, allowances in the northeastern states' greenhouse gas regulatory program sold for $3 per metric ton of carbon dioxide. Voluntary offsets can be bought from popular vendors like TerraPass for $13 per ton. Permits in the European Union cap-and-trade program are currently about $30 per ton-the general price range that many analysts expect to see around the world as more industries enter into the market. Numerous studies show that the significant reductions in greenhouse gas emissions sought at state and national levels can be achieved for less than $50 per ton. Hybrid electric cars and solar energy generation are notoriously pricey, but even so, these technologies are ten or 15 times more cost-effective than Measure Q.

The proposed tax increase is money is taken out of household budgets that can't be spent on proven, cost-saving energy conservation measures like home insulation or more efficient appliances. For many North Bay residents, the rising cost of living-exacerbated by higher sales taxes-makes the difference between renting or owning a home, between driving an old car or buying a newer, more fuel-efficient car, and between commuting long-distance or living near good jobs and schools. There's nothing "environmentally responsible" about that.

Full column.

Once again this administration, particularly DoD, is blowing it on their use of privatizaiton. GovExec reports

The Defense Department has not taken steps to prevent companies whose Iraq reconstruction contracts were terminated for poor performance from receiving additional government work, the Special Inspector General for Iraq Reconstruction reported on Monday. In several cases, poor performing contractors were awarded additional contracts. In two cases, contractors suspended for fraud and other criminal violations received new construction contracts after being placed on the Excluded Parties List System

Read the whole ugly thing here.

It is fundamental that if you are going to contract out services, you have to be a good shopper. If the government pays good money for lousy service, what is the advantage, except to the balance sheet of the contractor? This kind of stupidity undermines the effective use of privatization that is going on elsewhere--yes, even sometimes at DoD. These kind of problems are a small percentage of all federal competitive sourcing, but it only takes a few to arm the critics with legitimate beefs against the overall use of the private sector. In the long run this will errode our ability to use privatization to improve services, save money, and focus the government on stuff only government can do. Accountability and perfomance HAVE to be the centerpiece of all government outsourcing. When it is not, you get this kind of waste of taxpayer money.

From the AP this afternoon:

Two governors offered Congress starkly different solutions Wednesday for the ailing economy, with New York's David Paterson seeking immediate aid from Congress, and South Carolina's Mark Sanford urging lawmakers not to throw more taxpayer money at the problem.

Paterson, testifying Wednesday before the House Ways and Means Committee, asked Congress to include aid for state budgets as part of any new economic stimulus package. Lawmakers are considering a stimulus package that could be voted on after the Nov. 4 election.

"Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending financial calamity and stabilize our fiscal condition," said Paterson, a Democrat.

On Tuesday, Paterson said New York is facing a $47 billion deficit by 2012.

Twenty-nine states closed budget gaps totaling $48 billion for the 2009 budget year, and the projected shortfall for the following year is $100 billion, said Paterson.

Paterson is seeking higher Medicaid payments to states, greater unemployment benefits, infrastructure spending, and a boost in food stamp benefits to help state budgets.

Gov. Paterson is by no means alone here. Governors have long complained that unfunded mandates in welfare, Medicaid, and the like have hamstrung them budget-wise and removed some of their flexibility and discretion in crafting fiscal reforms. Using this logic, then if the feds are going to mandate it, they should pay for it. Paterson doesn't directly make that particular argument here, but it's a relevant subtext.

True to form, Gov. Sanford offered a differing perspective, and one that will resonate with free marketers:

Sanford of South Carolina, a Republican, also appearing before the committee, contended they should not pass another stimulus package because it will not fix the economic problems but drive the country deeper into debt.

"I'm here to beg of you not to approve or advance the contemplated $150 billion stimulus package," Sanford said. "This $150 billion salve may in fact further infect our economy with unnecessary government influence and unintended fiscal consequences."

By Sanford's count, the federal government has already pumped $2 trillion into the economy this year through a previous stimulus package, the financial services bailout, and rescue actions for specific firms.

It sounds like he even quoted Ayn Rand in his testimony, yet another reason that Gov. Sanford is a breath of fresh air in modern politics.

Then there's this:

A separate hearing before the House Transportation and Infrastructure Committee demonstrated bipartisan support for tens of billions of dollars for infrastructure projects such as highway construction, water and sewer projects and modernization of schools and public housing.

There, lawmakers and witnesses such as New Jersey Gov. Jon Corzine, a Democrat, touted public works projects for both creating jobs and making the economy more efficient.

"Every billion dollars in spending on infrastructure, on highway and transportation expenditures does result in 35,000 new jobs," said Rep. John Mica, R-Fla.

There's no doubt that the prospect of dangling federal money for infrastructure will cause policymakers on both sides of the aisle to salivate. And I'd be the first to argue that we have tremendous infrastructure investment needs.

But let's make no mistake that including infrastructure spending in another economic stimulus package is nothing more than a quick Keynesian "fix" to juice the economy. With well over $1.6 trillion in outstanding infrastructure needs today, you could put hundreds of billions of spending in a stimulus and combine it with the $60 billion Dodd/Hegel National Infrastructure Reinvestment Bank proposal under discussion, and you still wouldn't come anywhere close to closing the infrastructure gap. What Congress is talking about right now is nothing more substantive than "government-as-a-jobs program" and won't make a substantive contribution to addressing the systemic problems (political allocation of tax dollars, deferred maintenance, underinvestment and underperformance, etc.) that are a roadblock to delivering the 21st century infrastructure we need to keep our economy moving.

As I've commented recently (here and here, for starters), I'm definitely seeing an increasing interest in privatization across the board as state and local governments begin to reckon with the perfect storm of declining tax revenues, growing budget shortfalls, and swelling unfunded pension and health care obligations.

In fact, there's so much privatization activity now that it's becoming difficult to keep track of everything. Since blogging everything individually would be prohibitive in terms of time, I've decided to periodically blog a roundup of recent articles on privatization not covered elsewhere in the Out of Control blog. The articles below are some highlights from the last three weeks alone:

• "Partnership saved taxpayers $22M on hospital: report," Times Colonist
• "Ill. lottery lease plan faces new obstacle," Belleville News Democrat
• "Competition Authority gives go-ahead to Turkish lottery privatization," Today's Zaman
• "New York City Comptroller Eyes Infrastructure as Funds Investment," The Bond Buyer
• "Post office plans to privatize bulk mail," The Jersey Journal
• "Gary talks about privatizing airport," ABC7Chicago.com
• "Piecemeal privatization of Turnpike?," Pottstown Mercury
• "Treasurer defends Toll Road investments," Indianapolis Star
• "City waste contract out for bids," Kokomo Tribune
• "Animal lovers, city workers disagree on shelter privatization," Muncie Star Press
• "Trenton city administration plans to privatize technical inspections," The Times of Trenton
• "Freeholders table plan to privatize services at county nursing home," The Star-Ledger
• "Miller citizens sue to stop Gary garbage privatization," Munster Times
• "State busing contract coming," Woonsocket Call
• "Privatization of the electric distribution system for Pennsylvania Air National Guard Base," Trading Markets
• "Officials prepare to privatize Montgomery County center's rehabilitation services," The Colonial
• "Lawmakers say private prisons can save the state money," Tulsa Beacon
• "ACS inks $27 million Alaska contract," Bizjournals.com
• "Washington County considers privatizing some trash operations," Glens Falls Post-Star (more here)
• "Town could privatize dump operations," The East Hampton Press

Add these stories to those that we've already blogged on Out of Control, and it becomes very clear that privatization has been a hot issue in October 2008. And that should come as no surprise.

Though most eyes have been focused on Wall Street and Washington DC the last several weeks, the less-recognized story is that the financial crunch is having a tremendous impact on state and local fiscal conditions. The burst in the housing bubble in many areas, and the cold housing market more generally, has put downward pressure on property tax revenues for starters. And the true extent of the damage won't be known for months. So governments are having to scramble to do more with less, and policymakers seem to be increasingly recognizing that privatization is one of the proven tools for doing so.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

Over at Reason.com, Jeffrey Miron from Harvard looks at some of the dumbest assertions about the current economic crisis. In particular he answers the assertion that "Libertarian policies have failed so miserably . . . that it is time to toss libertarianism, like Soviet communism, on the trash bin of history."

Excuse me? Are you serious? he says. Read the whole delightful thing here.

As the Columbus Dispatch reports, Ohio Governor Ted Strickland's administration is soliciting bids for a contract to manage part of the state's accounting, payroll, and personnel management system.

The Strickland administration wants to turn over a big chunk of the state's sophisticated accounting, payroll and management system -- including dozens of high-paying technical jobs -- to a private contractor.

The Ohio Department of Administrative Services, the business arm of state government, is seeking bids for a managed-services contract to handle part of the Ohio Administrative Knowledge System. OAKS is a $158 million, multiagency network that administers payroll, personnel and other state government functions.

The proposed multimillion-dollar contract would cover work that would have been done by roughly 35 OAKS employees, most of them technical jobs with a salary range of $100,000 to $125,000, agency spokesman Ron Sylvester said. The state has been unable to fill the jobs largely because they require expertise with PeopleSoft, a technical software program that is the heart of OAKS. PeopleSoft also is used by many major Ohio companies, including AEP, Nationwide, Limited Brands and Blue Cross/Blue Shield.

The high demand creates keen competition for skilled employees to fill the jobs.

An assessment done for the state by Top5 Inc., a consulting firm from California's Silicon Valley, concluded that OAKS now "is not able to effectively support the current and future business needs of the state."

More significant, the consultant found that half of the current OAKS workers "do not possess the requisite technical skill set to successfully perform in the roles for which they were hired." About 75 percent of the OAKS organization is "high risk...either due to staffing gaps or skill set deficiencies," Top5 reported.

Only one candidate was considered for most of the 65 positions filled thus far, the consultant found.

To cope with those deficiencies, a managed-services contract "is a cost-effective and expedient way to realize the vision of OAKS," the consultant said.

Sylvester said, "Unfortunately, the OAKS we have today was designed yesterday and will not necessarily meet the needs of tomorrow."

The new alignment would have only 29 state employees working on OAKS, resulting in the reassignment of 36 current state employees. Sylvester said layoffs are not expected. [. . .]

Sylvester said Gov. Ted Strickland approved the contract plan even though "he's not a fan of outsourcing." The contract will have a five-year term, leaving open the possibility that state employees could take over the jobs when it expires, Sylvester said.

The Ohio plan is similar to what Georgia is currently doing, as reported here. And like Georgia, tapping the pool of private sector IT talent is a key driver behind the initiative.

Ohio officials should be sure to learn the lessons Florida did after embarking on a large-scale IT revamp and running into difficulties in implementation. Modernizing antiquated legacy systems can be tricky business, and the more moving parts, the more potential integration challenges along the way.

Here is an interesting article that begins "How do we protect the markets from their own overexuberance? By signaling that future failures won’t get government bailouts."

I think he gets the framework of the solution right, but not the details, which is interesting in its own right. The market will not be helped by a government that sees its role as preventing all problems in the market. The market is a decentralized and messy thing, there will be downsides sometimes for some people. But clearly we have reached a place of inadequate transparency and inadequate understanding of the consequences of policies and of some individual choices. If we respond in a way that strengthens the rules of the road, but keeps the government out of the market--i.e. retain capitalism, we will be better off. If we decide the governments job is to prevent us from being "harmed" by the market, we are doomed.

Washington D.C.'s Department of Mental Health announced today that it will be privatizing its mental health centers in 2009:

As WJLA reported last night, and DCist noted this morning, the D.C. Department of Mental Health wants to shutter its mental health centers and replace them with privately-run facilities.

City Desk reached DMH this afternoon for comment.

“We’re doing it,” says Director Stephen T. Baron. “But we’re not doing it until ’09.” This should not shock anyone who either a) works at DMH or b) follows DMH closely. The department had been pushed to assess its mental health centers for a while. This past summer, it hired KPMG to study whether the centers should go private. The departmental back story is referenced in a report released earlier this month.

The conclusion of the study, Baron says is simple: If DMH privatizes its centers, it will save a lot of money and have a chance to increase the number of residents it helps. The department would save between $11 and $14 million.

The savings would come from an obvious source. “I think frankly it comes down to labor costs and the benefits,” says Phyllis Jones, DMH’s spokesperson. “The private providers tend to have cheaper labor costs.”

The private providers already cover 60 percent of the city’s outpatient care. Think Green Door. Think Community Connections. Baron says his department may begin transitioning residents from its centers to the private facilities in the coming months. A transition plan must be completed by the end of the year with full implementation to be completed by next fall.

Full article here.

Government-run mental health facilities are facing some tremendous challenges these days, and the successes with four privatized psychiatric hospitals in Florida are probably the most visible example of how policymakers are turning to the private sector to improve (sometimes even rescue) care and services provided to psychiatric patients.

Let's look at Georgia, for example, where the Department of Human Resources recently announced that it would be privatizing one state-run psychiatric hospital in a consolidation move, and opened the door to privatizing more facilities down the road. Cost savings are one driver, but the impetus to explore privatization comes from a far more important issue—service quality under state operation has literally deteriorated to the point that lives are at stake:

Georgia’s mental health system has been the focus of increasing scrutiny since January 2007, when The Atlanta Journal-Constitution reported that 115 psychiatric hospital patients had died from neglect, abuse or poor medical care since 2002. During 2007, the newspaper reported, as many as 21 more patients died under suspicious circumstances. The newspaper also reported that authorities had confirmed almost 200 cases of patient abuse from 2002 to 2007.

The Justice Department opened a civil rights investigation of all seven state hospitals in response to the Journal-Constitution’s articles. In a letter to Perdue in May after inspecting Georgia Regional in Atlanta, the department said an “unabated” failure to correct dangerous conditions had caused preventable deaths to multiply and left patients vulnerable to sexual assaults and other attacks. Medical and nursing care, federal investigators said, “substantially depart from generally accepted professional standards.”

The state wrote the Justice Department in July, soliciting offers to settle the case and detailing actions it already had taken to improve the hospitals, Russ Willard, a spokesman for Georgia Attorney General Thurbert Baker, said Wednesday.

Read more for yourself in the Atlanta Journal-Constitution's commendable ongoing, multi-part coverage of the appalling conditions in Georgia's mental hospitals, entitled, "A Hidden Shame."

This should dispel any notion whatsoever that providing care to psychiatric patients is somehow an "inherently governmental" function so delicate that it demands the creation and preservation of government monopolies to fulfill it. That system has broken down completely in Georgia, and they're not alone; similar investigations are ongoing in Illinois and other states right now. Experienced private companies and nonprofits can bring their resources to bear to turn things around quickly and improve patient living standards and quality of care—not to mention accountability, which can be woefully lacking in government operation. This is the central lesson we've learned from Florida:

No state has moved more aggressively to privatize mental health services than Florida. In the past decade, it has hired private operators for five facilities, both massive state psychiatric hospitals and specialized treatment programs for sex offenders and other criminal defendants diagnosed with mental illness.

Four years in, a Florida consumer advocacy group concluded that the facilities had improved under private management. Waiting lists for patient admissions were eliminated, the group found, and the average patient stay decreased from eight years to less than one year. In addition, fewer patients were placed in seclusion and restraints to control their behavior.

At the privately run facilities, a state report said, the average cost per patient was about 7 percent lower than at the remaining state-run hospitals.

Reason Foundation has a new study underway that will explore state psychiatric hospital privatization in much further detail, with a specific focus on Florida and its successful implementation. Given the abysmal conditions in many of the state-run facilities and increasing federal watchdog intervention, there is likely to be rapidly increasing interest in how privatization can improve psychiatric facilities, control costs, and dramatically improve programming and patient care.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

From today's Las Vegas Review-Journal:

Nevada’s longtime state mail delivery service could by next year become a private operation, eliminating 21 government jobs and saving up to $400,000 a year.

State Budget Director Andrew Clinger said an analysis is under way to firm up the potential savings of privatizing the state mail system. If the numbers pencil out with the vendor selected by the state for detailed negotiations on a contract, it will become part of Gov. Jim Gibbons’ budget for consideration by the 2009 Legislature.

Clinger, who declined to identify the Reno-based vendor by name, said the plan would be to phase in the privatization effort beginning in July 2009.

Every effort would be made to find other positions for the state employees, he said. The employees are aware that privatization is being considered.

“The preliminary numbers that I was given showed potentially it could save us $400,000 a year,” Clinger said. “It won’t balance the budget but over 10 years, it would save some money.”

This is exactly the sort of thinking that state and local officials nationwide should be engaging in as they face the challenges of declining tax revenues and growing budget shortfalls. And no need to think small—officials should be scouring departments and divisions for all services and activities like this that are widely performed in the private sector, typically at a lower cost and higher quality of service than public operations.

Utah is moving in that direction now with its revamped Privatization Policy Board, a variation on similar entities in Florida (Council on Efficient Government) and Virginia (Commonwealth Competition Council). These entities conduct regular commercial activity inventories (the "scouring," if you will), develop recommendations for competition opportunities and serve as an institutional mechanism to facilitate the ongoing "right-sizing" of government.

A similar sort of entity would be perfect for Nevada. Nevada's SAGE Commission should explore such a commission as part of its wide-ranging review of cost-cutting and efficiency-enhancing opportunities. More here.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

The International City/County Mangagement Association recently released a video highlighting the largely privatized city government of Sandy Springs. It's well worth watching.

Check out our recent update on Sandy Springs and the "Sandy Springs Effect" (the city has spawned four imitators in the Atlanta metro area) in Reason's Annual Privatization Report 2008.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

One of the most consistent themes in transportation policy is the need to increase funding for transit to give travelers a "choice," as if the freedom and flexiblity of the automobile is a bad thing. Well, apparently there are a number of activists and lefties in New York City that are screaming mad about losing their parking spaces, even if only temporarily:

For some New Yorkers, the news that an American remake of an award-winning British television series was being shot in their neighborhood might be cause for celebration. But residents of the Amalgamated Houses, a sprawling cooperative in the northwest Bronx, are indignant about the loss of almost 400 on-street parking spaces on Monday and Tuesday, caused by the taping of ABC’s “Life on Mars” in their otherwise quiet neighborhood.

The Amalgamated is home to more than a few old-time lefties and activists, and the residents did not take this meekly. Upon learning of the shoot on Thursday, they began lobbying local politicians and officials for a quick fix that would allow them to park a few blocks away. They got their wish — permission to park on Goulden Avenue, a desolate stretch between the reservoir and De Witt Clinton High School, with a security guard and a shuttle service provided by the co-op.

Off to the barracades!

Today's Associated Press headline on the legal dispute over medical care in California prisons reads, "Calif. prison case to test state sovereignty." The root of the issue is the state's failure to meet Constitutional standards of treatment in prison, so this isn't a routine question of state sovereignty, hinging on the role of the federal government as defined in the Constitution. Instead, this "federalism dispute of the very highest order" (in the words of the judge overseeing the case) is about what recourse there is when a governor, allegedly in contempt of court, refuses to make amends to an unconstitutional situation in the method prescribed by federal authorities.

The proposed method is building 10,000 more medical beds. Another method is releasing prisoners early. That's something the state has considered, but is not doing right now. Proposition 9 would amend the state Constitution to take that option off the table--possibly the worst, most far-reaching provision of that ballot measure. A third option is to work quickly to reduce the number of nonviolent offenders being sent to prison in the first place, and stop returning people who have already served prison sentences back to prison for minor offenses. That's the method that would be implemented by Proposition 5.

It's no coincidence that the Prop. 5 campaign has a new ad out today--

The ad highlights the ballot language prepared by the LAO: that Prop. 5 will result in “capital outlay savings potentially exceeding $2.5 billion.”

The LAO’s analysis has impressed other groups concerned with the state’s fiscal health:

Adrian Moore, of the Reason Foundation, said “Proposition 5 is taxpayers’ only hope of getting prison spending under control, and the only choice on the ballot for voters concerned with our state’s fiscal solvency.”

Richard Holober, of the Consumer Federation of California, said, “Prop. 5 is a good deal for California taxpayers. It’s the only measure on the ballot that will reduce state spending. In these economic times, California can’t afford not to pass Prop. 5.”

According to the LAO, Prop. 5 will reduce the state prison population by at least 18,000 and the number of people on parole by 22,000.

In a way, when Sen. Diane Feinstein tried to smear Proposition 5 by calling it the "drug dealers bill of rights" she was partly correct--not about anything she said in her press release on the subject, which was completely wrong, not to mention boding very very ill for any chance of resolving the prison crisis if she's the next governor--but Prop. 5 is very much about the Bill of Rights.

UPDATED
Barack Obama during a radio interview in 2001 said some rather troubling things. He posited that the civil rights movement, while successfully establishing social rights for all, did not pursue “economic justice” and “redistributive change." While said in the context of talking about the segregation movement, he was explicit in noting that the civil rights movement had not gone far enough in terms of providing equal rights for all. In his view racial integration was the first step towards equality in terms of providing racial equality, but true equality will only come with the economic equality of all, beyond the race issue. [Read the text of the interview here].

We’ve already heard Obama tell Joe the Plumber that its better for everyone when you spread the wealth around, so this is not a radical bombshell, but it does reinforce an important point: when Obama becomes President, capitalists must be vigilant in the fight against socialist trends.

Obama was specifically quoted as saying it was a “tragedy” that “the Supreme court didn’t pursue redistribution of wealth” during the time of the civil rights movement. Beyond the obvious economic theory posited there, it also shows this former law professor’s bias about progressive judicial activism instead of constitutional activism.

He further established his position on strict constructionism or originalism (the conservative legal philosophy that limits and restricts judicial interpretation) versus living constitution theory (the progressive legal philosophy viewing the constitution as an evolving document pegged to societal trends) when he said this:

“[The Warren Court] didn’t break free from the essential constraints put in by the founding fathers in the Constitution…I’m not optimistic about redistributive change through the courts.”
That pessimistic view of a progressively activist court’s ability to “break free” might have led towards his decision to run for President, as he said “redistribution is an administrative task that takes a lot of time” and it’s the President who is the chief administrator of America.

Lets play a quick game, which of the following three statements was made by Karl Marx:

And the answer is—all of them, at least as a paraphrase. Marx specifically believed that the means of production should be distributed to all, and the profit from production belonged to the laborers, not the owner who made it all possible. And at least the first two are almost direct quotes from Obama. That's guilt by association that makes the Ayers controversy look even sillier than it already is.

Obama’s economic policy is socialist trending, but what makes this “not a bombshell” is that he isn’t trying to deny that. He is just fighting the label that has garnered so much nastiness in America. Calling him a socialist won’t change much at this point the election. John McCain hit back today, citing the redistributive language, but he really doesn’t have much a moral leg to stand on after he has pursued similar redistributive policies as Obama has.

So again the point is this: Stand up Capitalists. Stand up and voice your dismay at the economic philosophy being enshrined in America (Kerry wants a "New Deal II"). Stand up for the perseveration of true free market philosophy. Stand up now, before the war gets too far ahead of us. The Bailout battle might have been lost, but the war has just begun.

Arthur Laffer, creator of the famed "Laffer Curve" in economic and author of recent book "The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let it Happen," has an excellent commentary in the Wall Street Journal today. He outlines how government playing on the field with private firms only leads to negative outcomes:

When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

No one likes to see people lose their homes when housing prices fall and they can't afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house's value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

After going through several examples of the Bush Administration and Democratic Congress's perverse reactions, he ends with this statement:

"Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity."

Read the whole article here.

California has established a new public-private partnership to provide renewable solar energy to the state's universities. The partnership is between the energy firm SunEdison and California State University will serve as a test for future PPP opportunities:

Last week Gov. Arnold Schwarzenegger announced the state has partnered with SunEdison to provide affordable solar power at 15 California State University (CSU) campuses and the CSU executive office.

This innovative public-private partnership will protect the environment by providing a zero-emission eight megawatt (MW) solar photovoltaic power system to the California state university campuses.

As state government’s contract manager, the Department of General Services (DGS) negotiated the alternative financing method known as a power-purchase agreement for CSU. The agreement allows CSU to buy renewable power at or below current retail rates while avoiding the cost of installing the system. Under this agreement, SunEdison will finance, build and operate the solar panels for 20 years.

The State of California-SunEdison solar purchase agreement arranged by DGS should yield a total of approximately 20 MW of new renewable energy for the state.

“California is going green and we are doing it first and we are doing it fast,” Gov. Schwarzenegger said last Tuesday. “With the partnership being announced today between California and SunEdison, we are seeing more tangible results and more follow through in reducing our state’s carbon footprint. This partnership is a good deal for the state, the planet and our economy – all at no cost to taxpayers.”

The eight MW of energy produced by the solar panels are expected to deliver approximately 12 million kilowatt hours of clean renewable energy in the first year of operation. This amount of solar generated electricity represents five percent of the entire CSU system’s yearly energy consumption.

Over the life of the contract, the partnership will offset approximately 9,485 metric tons of carbon dioxide, which is the equivalent of removing 48,937 cars from the road.

New SunEdison solar panels will be installed on rooftops, atop parking canopies and in ground-mounted arrays at the following locations: CA Maritime Academy, Vallejo; CSU Bakersfield; CSU Channel Islands; CSU Chico; CSU Fullerton; CSU Humboldt; CSU Los Angeles; CSU Monterey Bay; CSU Pomona (Cal Poly); CSU Sacramento; CSU San Bernardino; CSU San Bernardino (Palm Desert): CSU San Francisco; CSU San Marcos; CSU Stanislaus; and, the CSU Office of the Chancellor, Long Beach.

“California's continued economic, environmental and social prosperity depends on sustainable energy and technology,” said CSU Chancellor Charles B. Reed. “As the nation's largest university system, the CSU welcomes this opportunity to lead the way.”

“California leaders have turned the vision of renewable energy for the state into results. SunEdison is proud to be part of this important public-private partnership and to help make solar a meaningful part of California’s energy portfolio,” noted David Buzby, chief executive officer of SunEdison.

In addition to the eight MW of solar power generation announced Tuesday, further development is under way by DGS and other state departments, including the Department of Corrections and Rehabilitation and the Department of Mental Health, to generate approximately seven MW of solar power at five state prison sites and three state mental hospitals. Since 2006, 4.2 MW of solar power have already been deployed at eight other state facilities through similar power purchase agreements.

DGS also recently launched an online database identifying where solar panels, fuel cells, wind turbines and other green energy technologies are generating renewable power at state office buildings, prisons, hospitals and college campuses which can be found at www.RenewableEnergy.dgs.ca.gov.

California’s push to fight global warming and increase renewable energy will also boost our economy. According to an economic study released yesterday by the University of California at Berkeley and Next 10, California’s policies will create as many as 403,000 jobs in the next 12 years and household incomes will increase by $48 billion.

Read the article from Lake County News here.

NYTimes columnist Thomas Friedman makes an excellent point his is post yesterday that the nationalization of banks will create a perverse incentive for financial operations within those banks. All of a sudden, the interests of the President and Congress have to be represented in all bank operating and loan decisions. Friedman says:

There is a fine line between risk-taking and recklessness. Risk-taking drives innovation; recklessness drives over a cliff. In recent years, we had way too much of the latter. We are paying a huge price for that, and we need a correction. But how do we do that without becoming so risk-averse that start-ups and emerging economies can’t get capital because banks with the government as a shareholder become exceedingly cautious.

Let’s imagine this scene: You are the president of one of these banks in which the government has taken a position. One day two young Stanford grads walk in your door. One is named Larry, and the other is named Sergey. They each are wearing jeans and a T-shirt. They tell you that they have this thing called a “search engine,” and they are naming it — get this — “Google.” They tell you to type in any word in this box on a computer screen and — get this — hit a button labeled “I’m Feeling Lucky.” Up comes a bunch of Web sites related to that word. Their start-up, which they are operating out of their dorm room, has exhausted its venture capital. They need a loan.

What are you going to say to Larry and Sergey as the president of the bank? “Boys, this is very interesting. But I have the U.S. Treasury as my biggest shareholder today, and if you think I’m going to put money into something called ‘Google,’ with a key called ‘I’m Feeling Lucky,’ you’re fresh outta luck. Can you imagine me explaining that to a Congressional committee if you guys go bust?”

And then what happens if the next day the congressman from Palo Alto, who happens to be on the House banking committee, calls you, the bank president, and says: “I understand you turned down my boys, Larry and Sergey. Maybe you haven’t been told, but I am one of your shareholders — and right now, I’m not feeling very lucky. You get my drift?”

Maybe nothing like this will ever happen. Maybe it’s just my imagination.

No its not your imagination Mr. Friedman. This is a very viable situation. Legislators are notorious for this kind of behavior and we do not have a climate in Washington that will not seek to exploit this new financial-governmental relationship.

And lets not forget the moral hazard these banks now have, not only can they count on the government to bailout them out in the future, but the government is now an owner so the government's bailout will be covering federal interests, not just interfering in the market place.

Read all of the Friedman article here.

Sarah Palin took a page out of the Reason playbook for an attack on Barack Obama on Saturday, invoking the image of a "nanny state" and virtually pleading for Americans to not give the Democrats control over all the Legislative and Executive branch power in the US. From CNN:

Campaigning Saturday in Iowa, a state where polls show Barack Obama enjoying a healthy lead just 10 days before the election, Sarah Palin warned that putting Obama in the White House along with Democrats running both chambers of Congress will turn the country into a nanny state.

Palin cautioned Iowans that under Obama’s "big government agenda,” their income, property and investments would be “shared with everybody else.” She labeled Obama’s plan to provide tax credits to lower and middle-income wage-earners “the philosophy of government taking more, which is a misuse of the power to tax.”

“It leads to government moving into the role of taking care of you, and government and politicians and, kind of moving in as the other half of your family to make decisions for you,” she said. “Now they do this in other countries where the people are not free. Government as part of the family, taking care of us, making decisions for us. I don’t know what to think of having in my family Uncle Barney Frank or others to make decisions for me.”

With audience members shouting “socialist!” throughout her speech, the Alaska governor said that time is running out for Americans to realize the danger of a having a Democrat in the White House.

“Are we hearing what he is saying with 10 days to go?,” she asked plaintively. “Are voters hearing what he is saying about his plans for bigger government?”

Of course, such rhetoric carries only limited value from a woman who seems able to contradict her self contradictions at any and every turn. In other news, Joe Biden finally gave an interview (he hadn't held a press conference in over a month... but you didn't see the "Evil Left Wing Liberal Fire Breathing Media" demanding he be available to the public did you? Gotta love the hypocrisy at every turn. And the greatest irony... the interview of Biden apparently got so tough that the interview sessions were called off mid-stride. Which VP candidate was the one we said couldn't stand up to international pressures if they had to take the White House office?

Today, Indiana Gov. Mitch Daniels dropped his proposal to fund a new college tuition program by monetizing future Hoosier Lottery revenues, either through a long-term lease to a private sector investor-operator or by bonding against future revenue growth.

This comes after the USDOJ issued an opinion that state lottery privatization would run afoul of federal law:

The ruling said that federal law requires that a state exercise actual control over all significant business decisions made by a lottery enterprise and retain all but a minimal share of the equity interest in the profits and losses of the business.

It also said a state had to retain the rights to the trademarks and other unique intellectual property or essential assets of the state's lottery.

"It is permissible under the exemption for a State to contract with private firms to provide goods and services necessary to enable the State to conduct its lottery, including management services," the opinion stated.

Many of them already do that. They're trying to move beyond that simple contracting model to the realize the significant benefits available through long-term concession arrangements (large upfront payments, operational efficiencies, professional management and superior marketing, etc.). This approach would be new for the United States, but has been in place for years in Australia, the UK, and other countries (Turkey is in the process of privatizing their lottery right now).

Gov. Daniels' advisors researched the matter and came to a different interpretation than USDOJ:

Daniels said in a statement that he was surprised by the opinion from the Justice Department's Office of Legal Counsel.

"The best legal advice available to us had suggested that the OLC would not interpret federal lottery statutes as preventing the long-term lease of state lotteries," he said.

He said although the opinion is not binding, it seemed wiser to look at other options his administration has been exploring to fund his Hoosier College Promise Proposal.

I'll be digging into this and commenting more in coming days and weeks as this develops. If you missed it, check out the lottery privatization recap in Reason's Annual Privatization Report 2008.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

UPDATE: More from Reuters here.

MuniNet Guide published an interview with me today on my "crystal ball" view of privatization in the wake of the financial crunch. The short story is, I'm bullish. An excerpt:

MuniNet: Does the current fiscal climate encourage or discourage private sector infrastructure financing? Given the recent credit crunch and market downturn, many people would assume that Wall Street banks have left the table.

Gilroy: While some skeptics might believe that the turmoil in the financial markets could dampen enthusiasm for public/private partnerships, I’d argue the opposite. There seems to be a general consensus in the financial community that infrastructure public/private partnerships remain an attractive investment in the “flight to quality” that we’re seeing in the markets.

The flight to quality refers to capital flowing to solid, safe, and tangible investments. Despite the rise and fall of the economy, people are still going to drive, fly, and consume goods. That means that roads, airports, seaports, and other types of infrastructure will likely remain good long-term investment prospects. In addition, these are brick and mortar assets, a far cry from the credit default swaps, mortgage-backed securities and other types of derivatives that few could really understand.

Further, financial firms and public pension funds raised over $150 billion to invest specifically in infrastructure last year, and recent reports have indicated that infrastructure investment funds are trying to raise another $100 billion in 2009.

Now it’s reasonable to expect that the private sector may become more selective about project opportunities to pursue and more conservative in their project risk evaluations. But generally speaking, there seems to be at least as much investor interest in infrastructure today as six months ago, if not more so. And it’s not just Wall Street banks. Public pension funds (like CalPERS) and insurance companies are also dedicating billions to invest in infrastructure. Cash-strapped governments will be hard pressed not to consider tapping into those vast pools of equity capital as their revenues dry up.

MuniNet: The privatization of public infrastructure - roads, bridges, etc. - has cropped up frequently in recent headlines. In what other sectors are we seeing an increase in public private partnerships?

Gilroy: Infrastructure encompasses all elements of a community’s foundation, which includes - but is not limited to - roads, bridges, water, etc. There’s a great deal of experience now in using partnerships to expand and modernize roads and water/wastewater systems, and now we’re starting to see those models extended into airports, seaports, and other types of big ticket assets.

The U.S. military is using all sorts of public-private partnerships for non-combat-related purposes; replacing the entire stock of U.S. Army on-base housing - over 70,000 units in total - is just one example.

Social infrastructure - educational facilities, parking structures and hospitals, for example - is another area in which we are starting to see increasing interest in privatization.

Policymakers in several states are also considering privatization of state-run psychiatric hospitals as a way to improve often appalling conditions and substandard quality of care. Florida has used this approach in recent years to modernize - or even completely replace - four of its psychiatric facilities with tremendous results and quality of care improvements.

Check out the full interview here.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

John McCain’s website gives limited details about his plan for “helping Americans,” but there is enough detail given to show his ideas are going to massively increase the problems our economy and nation are facing. As the election deadline nears, Reason offers this breakdown of McCain's core budget proposals (directly from his website) and a commentary on the out of control madness:

Establishing a National Commission on Workplace Flexibility and Choice: McCain wants to modernize labor laws to require employers to offer flexible work arrangements and allow flexible health plans. His plan would promote “telework,” create flexible retirement plans, overhaul unemployment, and provide job training assistance to help America be competitive in the world economy.

Counter: How about that plan from a supposed fiscal conservative who wants to let “the market operate freely?” Whenever a politician starts talking about requiring firms to do anything, we should instantly be concerned. McCain supported the Family Medical Leave Act in 1993 that forced firms to allow for a leave of absence without penalization to care for a newborn, adopt a child, or take care of a family member. He also co-sponsored the Family Friendly Workplace Act that sought to require employers to provide flexible work schedules to “help employees balance the demands and needs of work and family.”

On the surface they may sound like good ideas, but they are recipes for disaster in America’s job market. When you limit the ability of firms to hire and fire you incur unseen loses. Firms may be less likely to hire someone for fear they couldn’t fire them in necessary. Employees can abuse the “rights” given to them to work. Or firms may experience inefficiencies as they hire temporary workers to fill the place of an “on leave” employee. Additionally, these laws show a lack of trust in the American employer. They are intended to keep firms from mistreating their employees, but when you try to regulate away ever potential “injustice” you remove the onus on the employer to act responsibly out of their own interest. Instead the standard becomes just obeying the law and nothing more because the law must be trying to cover every conceivable vice.

This is what France has done, dictate extreme measures to the firms on employment, allowing for months of paid leave, mandating a 35-hour work week killing inefficiency, and creating a poor work ethic in the country. They now have skyrocketing unemployment. That’s what McCain’s economic plan would bring.


Strengthen the dollar while reducing dependency on oil: McCain will enact policies like his summer gas tax holiday plan to reduce prices, while also instructing the Fed to begin taking steps to strengthen the dollar.

Counter: Lets start with oil. No matter what plans or ideas McCain has on oil, his summer gas tax plan, which is website boasts broadly about, underscores his si