For the past few months, nearly thirty communities around the country have been anxiously awaiting an announcement from the Pentagon concerning the military bases that would be affected by the planned drawdown of 40,000 active-duty Army personnel, plus another 17,000 or so civilian employees. Local news outlets have been filling in the details as they become available. Some communities, including Leesville, Louisiana (Fort Polk), and northern New York (Fort Drum) are breathing a “sigh of relief.” Others, in Georgia (Fort Benning) and Alaska (Joint Base Elmendorf-Richardson), are crying foul.
Sen. Johnny Isakson (R‑GA) seems especially peeved. “I am demanding answers from the Department of Defense on how they are justifying these troop cuts in Georgia,” Isakson said. And, in the meantime, he plans to block the nomination of a “new congressional liaison for the Department of Defense in light of the Department’s failure to give Congress a heads up before these cuts were made public.”
This is what defense consolidation looks like without the formality and relative transparency of the Base Realignment and Closure (BRAC) process.
I am in the midst of a major research project studying the effects of military spending cuts on local communities. With the help of my excellent research assistant, Connor Ryan, I am looking at some familiar cases, such as San Francisco’s Presidio and Monterey’s Fort Ord, and some that are more obscure (e.g. Portsmouth, New Hampshire’s Pease AFB). I’m also writing about some bases closed before BRAC (e.g. Frankford Arsenal in Philadelphia; the Springfield Arsenal in Massachusetts; and Dow AFB in Bangor, Maine), and some facilities that were privately owned and operated, but that grew primarily by supplying products to the military (including the Tredegar Iron Works in Richmond, Virginia; and DuPont’s Eleutherian Mills in Wilmington, Delaware). The project aims to go beyond studying the economic effects predicted and observed by economists (e.g. here and here), but to also get a feel for the history of each place, what it built, or how it fit into the nation’s defenses, and, ultimately, each facility’s denouement. To oversimplify: “How’s it goin’?”
My preliminary conclusions, after having visited about half of the places that I plan to study (and I will visit all of them), is that communities do adapt and recover, some more quickly than others, and many emerge after the transition period with a robust and more diversified economic base. In other words, the resources once directed toward the military do eventually find their way to more productive uses.
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Science Revives “The Hiatus”
Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”
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Just five weeks after Science magazine prominently featured a paper proclaiming that the multidecadal slowdown in the rate of the earth’s average temperature rise—aka, the “pause” or “hiatus”—was but a figment of bad data, comes a new paper in Science magazine explaining the physical mechanisms that have led to the slowdown.
Wait, what?
You read it right. What Science laid to rest but a month ago, Science has now resurrected. Science (with a capital “S”), and those dedicated to it, should not be amused.
But such is the nature of the game. Science the magazine is more interested in generating publicity for itself than in best serving Science the field—a point being increasingly raised by prominent scientific figures.
The new paper, whose title even contains the dreaded H‑word (“Recent hiatus caused by decadal shift in Indo-Pacific heating”), is authored by Veronica Nieves and colleagues from the Jet Propulsion Lab (JPL). The paper itself is rather technical look at how the hiatus has manifested itself in various compilations of measurements (and models) of the ocean’s temperatures at depth.
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And You Thought Civil Asset Forfeiture Was Bad Enough…
Remember Megaupload.com? It was once the 13th most popular website on the internet, with more than 82 million unique visitors and a billion total page views during its seven-year operation. The site allowed people to store files on the cloud for later use — and some users inevitably stored copyrighted TV shows, films, songs, and software.
In 2012, the U.S. government charged the owner, the colorful Kim Dotcom, and the website’s operators with conspiracy to commit copyright infringement. The defendants are currently resisting extradition to the United States (Dotcom lives in New Zealand), as is their right under extradition treaties. In 2014, the seemingly frustrated government moved to seize the defendants’ considerable assets in a civil forfeiture action, claiming that the assets are probably connected to the alleged criminal activity.
Under civil forfeiture laws, the government can take property without an underlying criminal conviction based only on the allegation of a crime. Those whose property has been seized can get it back by proving that their property is “innocent.” The government, however, is preventing the defendants from even making that argument. Using the “fugitive disentitlement” doctrine, the government is blocking the defendants from challenging the forfeiture.
Fugitive disentitlement has historically been applied only to criminals who escaped custody while appealing a conviction, the idea being that a court could decide to dismiss the appeal because any judgment would be unenforceable against an absent defendant. Here, the government has decided that, because the Megaupload defendants aren’t coming to the United States to defend their property, they are “fugitives” who have lost the ability to defend against that seizure — and the district court agreed. Cato, joined by the Institute for Justice and the National Association of Criminal Defense Lawyers, has filed a brief in the U.S. Court of Appeals for the Fourth Circuit arguing that it’s unconstitutional for the government to use fugitive disentitlement in civil forfeiture proceedings against non-fugitives.
The Obamacare Giveaway, Connecticut Edition: Earn $62k and Get Health Insurance for less than $58/Year
Several days ago, I pointed out that a married couple earning $62,000 in Wisconsin could get health insurance under Obamacare with no monthly premiums. Now it’s time to move onto Connecticut. Connecticut runs its own exchange, known as access health CT.
Among the 114,000 individuals aged 55 to 64 in Fairfield County, Connecticut, roughly two-thirds – or 77,000 people – rely on employer coverage, where the odds are high that they’re paying something out of their own pocket for monthly premiums.
Consider married couple earning $62,000. Each is 64-years-old, a non-smoker, and lives in Fairfield County, Connecticut. The structure of Obamacare subsidies means that many individuals who are not poor can find health plans with such large subsidies that they pay virtually nothing for premiums out of their own pocket. In this case, the couple would qualify for the HealthyCT Bronze Basic HSA 1 Plan for $4.79 per month in premium – or $2.40 per month for each person in that household. If the couple chooses this plan, it pays less than 0.1% of its total income towards health care premiums. That’s not a typo – and it doesn’t say one percent – the household would pay one-tenth of one percent of their income towards premiums. Subsidies pay for more than 99% of the monthly premium.
See the graphic below for this married couple:
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Sen. Murray and the “No Evidence for School Choice” Canard
There are many good reasons to oppose a federal school voucher program, but a supposed lack of evidence that school choice improves student outcomes isn’t one of them. Sadly, Sen. Patty Murray (D‑WA), the ranking minority member of the U.S. Senate’s education committee, repeated this canard during the debates over a proposed amendment that would have added a federal school voucher program to the No Child Left Behind replacement bill:
What’s more, studies of voucher programs in Milwaukee and the District of Columbia have shown that they do not improve students’ academic achievements, she said. “Study after study has shown that vouchers do not pay off for students or taxpayers,” Murray said.
That’s simply not true. According to Dr. Patrick Wolf, coauthor of the only longitudinal study of the effect of Milwaukee’s voucher program, “school choice in Milwaukee has had a modest but clearly positive effect on student outcomes.”
First, students participating in the Milwaukee Parental Choice (“voucher”) Program graduated from high school and both enrolled and persisted in four-year colleges at rates that were four to seven percentage points higher than a carefully matched set of students in Milwaukee Public Schools. Using the most conservative 4% voucher advantage from our study, that means that the 801 students in ninth grade in the voucher program in 2006 included 32 extra graduates who wouldn’t have completed high school and gone to college if they had instead been required to attend MPS.
Second, the addition of a high-stakes accountability testing requirement to the voucher program in 2010 resulted in a solid increase in voucher student test scores, leaving the voucher students with significantly higher achievement gains in reading than their matched MPS peers.
In the final year of the study, Milwaukee voucher students in grades 3–9 performed about 15 percent of a standard deviation higher on standardized reading tests, “a modest but meaningful educational difference.” Moreover, the study concluded that Milwaukee district-school students were “performing at somewhat higher levels as a result of competitive pressure from the school voucher program.” And contrary to Sen. Murray’s assertion that “vouchers do not pay off for taxpayers,” the study found that the voucher program saved the state nearly $52 million in fiscal year 2011 because the vouchers were worth about half of the cost per-pupil at the district schools.
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How Not to Stress Test: UK Edition
![Bank of England, stress tests, inflation, capital requirements](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/so_far_so_good.jpg?itok=rx9Jj0vs)
When putting banks to such a test, a central bank or other banking authority starts by imagining one or more “stressful” scenarios to which banks might be exposed, uses a bunch of models to determine how those scenarios will affect the banks’ capital adequacy (that is, their ratio of capital to assets), and then passes or fails banks depending on whether their capital remains adequate at the end of the test.
The Bank of England reported the results of its first set of annual stress tests in December. Its message was a reassuring one: the UK banks are safe. Unfortunately, there’s no good reason to trust that assessment than there was to trust the others, for the Bank of England’s stress tests are also deeply flawed, in ways that, besides obscuring the significant vulnerability of the UK banking system, actually tend to accentuate it.
For starters, the tests are based on a “risk-weighted asset” metric, which depends on models that underestimate banks’ risks. Worse still, these models are eminently gameable, and banks have every incentive to game them, since doing so can reduce their capital requirements and allow them to distribute greater false profits.
Abundant research—from the Bank of England itself, among other authorities—has convincingly established that lower risk-weighted asset scores do not necessarily mean lower risk. In fact, the risks are often greater; they just happen to be among those that are invisible to the risk measure. We saw precisely this problem in 2008–2009, when UK banks appeared to be well capitalized using risk-weighted asset metrics, but actually turned out to be massively undercapitalized when the financial crisis hit.
These points alone ought to be enough to discredit the Bank of England’s stress tests. Still, there are a plenty of other problems to consider.
First, the Bank’s stress tests are based on just a single scenario. This approach cannot possibly give us confidence that the banking system is safe against all the other possible scenarios that were not considered. Indeed, the Bank acknowledged the need to consider multiple scenarios in one of its preliminary discussion papers, but then inexplicably ignored its own advice and opted for a single scenario in its final report.
Second, the Bank describes its stress tests as ‘extremely tough,’ but in reality its scenario is a mild one: GDP growth falls to ‑3.2 percent before bouncing back, inflation rises to peak at 6.5 percent, long term gilts peak just below 6 percent, and unemployment hits 12 percent. This is not particularly stressful by historical standards, and also pales in comparison to the Eurozone’s recent (and on-going) strife. The Bank of England scenario also has only a mild impact on bank capital and profitability—and if a stress scenario doesn’t actually stress the banking system, what is the point of the exercise?
Third, the Bank uses a very low “pass” standard—a 4.5 percent minimum ratio of capital to risk-weighted assets. This is lower than the 5.5 percent ratio that the European Central Bank used in its widely discredited 2014 stress tests, and is well below the capital requirements coming through under Basel III. Had the Bank carried out a test using these Basel minimums, the UK banking system would have failed. Same exercise, higher safety standard, opposite result.
Fourth, the Bank also failed to carry out any tests based on leverage—the ratio of capital to total, unweighted assets—which offers a much less gameable measure of a bank’s financial health. Even an undemanding such test, based on the Bank’s required minimum leverage ratio of 3 percent, would have revealed how weak the UK banking system really was. Of course, many experts recommend a minimum leverage ratio of 15 percent or more, at least five times larger than the leverage test that the Bank failed to conduct—or, at least, to report. Had the Bank based its stress tests on this measure, December’s comforting financial headlines would have been very different indeed.
Fifth, stress tests impose a single view of risk on the banking system—one based on the same flawed models, with the same blind spots. This creates systemic instability: if the stress test’s view of risk turns out to be wrong, all the banks subject to it are likely to run into trouble at the same time.
Finally, stress tests have all the credibility of a Soviet election. Even if the central bank discovers there are major problems in the banking system, it will be loathe to publicly admit to them. Doing so would undermine confidence and also lead to awkward questions about the central bank’s own supervisory competence.
The bottom line is this: official stress tests are like a lookout who has trouble seeing big, white icebergs. If you wouldn’t travel on a liner with such a lookout, you shouldn’t trust the results of stress tests that cover every risk to a nation’s banking system—except the sort that might sink it.
(This post is based on Kevin Dowd’s recent in-depth report for the Adam Smith Institute, “No Stress: The Flaws in the Bank of England’s Stress Testing Programme,” in which he critically assesses the stress tests conducted by the Bank of England and other central banks.)
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The Most Racist Urban Area in America?
Yesterday, the Department of Housing and Urban Development (HUD) approved a new fair housing rule called Affirmatively Furthering Fair Housing. This follows the Supreme Court’s recent ruling allowing HUD to use disparate impact as a criterion for determining whether a community is guilty of unfair housing practices.
![Media Name: alamosquare2.jpg](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/alamosquare2.jpg?itok=FzdcEa9r)
Wikimedia photo by Bernard Gagnon.
In one form of disparate impact analyses, HUD compares the racial makeup of a city or suburb with the makeup of the urban area as a whole. If the city doesn’t have enough minorities, it is presumed guilty and must take steps to attract more. Under the Affirmatively Furthering Fair Housing rule, that could mean subsidizing low-income housing or rezoning land for high-density housing.
While I have no doubt that prejudice is still a factor in housing in America, there are many other factors that influence the distribution of people across an urban area. These include religion, education, and personal tastes in food, recreation, and other activities. For example, low-income families with children will be more likely to live near a Walmart Supercenter while high-income families with no children will be more likely to live near a Whole Foods. To expect every suburb, most of whose borders are based on little more than historical accidents, to have a perfect mix of races is absurd.