Over at Downsizing the Federal Government, we focused on the following issues this past week:

• Rep. Mike Pompeo wants to terminate the Economic Development Administration—and for the right reasons.
• Recent history shows that government efforts to micromanage industry range from unnecessary to disastrous, be it green energy, automakers, or the housing market. Small wonder, then, that the government has so drastically mismanaged its own “business”: the United States Postal Service.
• On Steve Jobs and charity.
• Workers’ compensation costs for postal employees are unnecessarily high thanks to stale federal laws and bureaucratic ineptitude at the USPS and the Department of Labor.
• Attention Occupy Wall Street protestors: the problem isn’t capitalism, it’s the “crony capitalism” that’s been fostered by an unhealthy relationship between government and business.

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Speaking before a group of protesters in Zuccotti Park, Nobel economics prize winner Joseph Stiglitz urged on the crowd, telling them they are “right to be indignant.” Professor Stiglitz goes on to explain, correctly in my view, that we have a financial system of socialized losses and privatized gains. 

What the good professor fails to mention is only a few years ago, for what I understand was a nice paycheck, he was denying this very fact. In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he “estimated” that the “risk to the government from a potential default on GSE debt is effectively zero.” The paper goes on to argue “that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.” Now I understand his Nobel is in economics, not math, but $2 million sounds no where near the actual cost so far of $160 billion.

Certainly there was a time where some could be forgiven for not really understanding the nature of Fannie and Freddie, but this was published after Freddie’s accounting scandals came to light and while Fannie itself was being investigated.

So yes, you do have a right to be indignant. Especially at those “academics” who sold their work to the highest bidder defending the system and now pretend to be shocked at how everything turned out.

The video below shows former Massachusetts governor Mitt Romney (R) relaying a quip that former U.S. senator from Massachusetts Ted Kennedy (D) made at the 2006 signing ceremony for RomneyCare, a law that both men labored to make a reality. Cato adjunct scholar David Hyman quotes Kennedy’s quip in this paper on RomneyCare:

When you come to a celebration of a signing and Mitt Romney and Ted Kennedy and the Heritage Foundation are all together, it’s clear one of us didn’t read the bill.

Romney paraphrases Kennedy’s quip at 1:12 into the video, to the amusement of the conservatives attending the National Review Institute’s Conservative Summit:

RomneyCare later served as the model for ObamaCare. Guess who didn’t read the bill.

Question 12‑C in last week’s Time Poll reads as follows:

Agree or Disagree? Executives of financial institutions responsible for the financial meltdown in 2008 should be prosecuted. (Question was asked of respondents familiar with the recent Wall Street protests.)

AGREE 71%

DISAGREE 23%

NO ANSWER/DON’T KNOW 6%

Missing from the options offered, unfortunately, was something along the lines of “Only the ones who have committed crimes.” Wouldn’t you say that’s a pretty serious omission? After all, there is no law on the books against the vague if ominous-sounding offense of being an executive responsible for a financial meltdown.

Some people help bring on financial crashes by committing acts of fraud, in which case it should be straightforward enough to prosecute them for those acts (and if the fraud has contributed to a wider economic calamity, things will probably not go well with them at sentencing). Other people help bring on a crash by insisting on their rights in an entirely lawful way. (“Sorry, Bear Stearns, but we’re declaring you in default on the money you owe us, and we don’t care if the Treasury secretary begs us to hold off till next week. We’re pulling all our money out of Lehman too.”) At least in a financial world where ignoring the Treasury secretary’s pleas is not yet a punishable offense, prosecution of someone in the latter position is probably doomed to acquittal.

And in between? In between are very many persons who behaved rashly or negligently in the period leading up to the crash, bought into bubble psychology, placed risky bets in the correct expectation of future bailouts and federal financial guarantees, built up mortgage businesses on models that were widely approved by experts at the time but now look deeply stupid in retrospect, and so forth. Reprehensible though some of those behaviors were, most of them do not violate any current law. Indeed, even among left-leaning lawmakers it is hard to find much of a serious constituency for broad-brush laws that would attempt to criminalize, say, financial negligence or risk-taking resulting in the need for a bailout. Criminal law needs to lay out more specifically what it is prohibiting.

It’s fair game to question failures to prosecute when the particulars are on the table: Why aren’t A and B facing charges when there’s strong evidence they violated U.S. Code such-and-such? It’s another matter to say we’ve had an economic calamity, someone needs to go to prison for it, and if we can’t identify some law they’ve broken then we should retroactively invent one to fit. If some demagogue out there is hoping to raise the latter demand, he may be smiling to himself at that 71-to-23 poll result.

The alleged Iranian plot to kill the Saudi ambassador, Adel al-Jubeir, has served to underscore that Washington and Riyadh view Tehran as a common enemy. This plot has already heightened both parties’ persisting anxieties over Iran, but the U.S.-Saudi partnership has often tended to reinforce, rather than diminish, each side’s most hawkish tendencies.

After the U.S.-led invasion and occupation of Iraq, Iran developed far greater influence among its allies and co-religionists in Syria, Lebanon, the Palestinian territories, and the Gulf States. Demonstrating the fear that Iran’s expanded Shia influence has inspired among Saudi leaders, in February 2007 Foreign Minister Prince Saud Al-Faisal encouraged the United States to strengthen its naval presence in the Persian Gulf, telling a U.S. diplomat that the Saudis would supply the logic for America’s deployment if Washington supplied the pressure.

Of course it is the Kingdom that is alarmed by the possibility of an Iranian SCUD missile attack on Saudi oil facilities; it is the Kingdom that is petrified by the possibility of Iran’s nuclear program posing a threat to the House of Saud’s regional prestige; and it is the Kingdom that has claimed that Shia-Persian Iran has been stage-managing the massive, popular uprisings sweeping the region in order to undermine Sunni Arab regimes. If the United States moves to increase the scope of its political, economic, and military sticks against Iran, it will only serve to invite further Iranian and Saudi intrigues. It may also encourage Iran and other states like it to seek a nuclear deterrent. Responding swiftly to this alleged plot, as some political pundits have encouraged, will further entangle the United States in an intra-Islamic, Shia-Sunni, Arab-Persian rivalry divorced from America’s vital interests.

As an aside, to shed some new light on the scorn currently being heaped on Iran’s odious regime, let us remember that it is America’s strategic ally—the Kingdom of Saudi Arabia—that remains one of the most oppressive regimes in the Middle East. And as much as folks are fulminating over Tehran’s support for terrorism, in reality it is donors in Saudi Arabia who constitute the most significant source of funding to terrorist groups worldwide.

Cross-posed from the National Interest.

A recent report from the U.S. Postal Service’s inspector general found that workers’ compensation costs for postal employees are unnecessarily high. The reasons according to the audit are stale federal laws and bureaucratic ineptitude at the USPS and the Department of Labor.

The DOL administers workers’ compensation claims for federal employees – including postal employees – under the Federal Employees’ Compensation Act (FECA). Workers’ compensation costs the USPS over a $1 billion a year and it pays the DOL millions of dollars in administrative fees. According to the audit, “the Postal Service’s average workers’ compensation cost per employee workhour was 95 cents compared to the private sector range of 42 to 67 cents.” The inspector general estimates that the USPS could conservatively save $335 million a year if it kept its workers’ compensation costs in line with the private sector.

That’s the insurmountable problem: the government isn’t a private sector business. The latter has to control its costs and please its customers. In contrast, the federal government obtains its revenues through coercion and force, and its ability to spend is only limited by how much it can confiscate and borrow.

A couple of examples from the audit illustrate the difference:

When claimants’ conditions are expected to be long-term or permanent, settlements and buyouts are commonly used by the private sector to reduce workers’ compensation costs and long-term liabilities. For example, benchmarking results revealed that one company settled 906 of 5,400 active workers’ compensation cases. FECA does not allow settling of workers’ compensation cases except for those that involve third-party liability.

The audit uncovered a postal employee receiving workers’ compensation benefits who was 99 years old.

Benchmarking results and our analysis showed that a majority of TPAs [third-party administrators] and private companies require claimants to use their networks of selected physicians. TPAs select physicians who have experience in handling workers’ compensation cases…In addition to cost savings, some of the benefits TPAs and the private sector have realized from using selected physicians include timely communication, trusted physician assessments, and improved claims management. Currently, FECA allows claimants to choose their own physicians. As a result, the Postal Service could be exposed to a higher risk of fraud and increased workers’ compensation costs.

Then there’s the bureaucratic ineptitude:

The DOL is not always responsive to our reports of investigations for fraudulent workers’ compensation claims. Specifically, our agents stated that it is difficult to work with the DOL and that DOL officials are reluctant to provide needed information during investigations. Additionally, the DOL does not always take timely or appropriate action when our agents provide documentation demonstrating fraud or that a claimant is not entitled to workers’ compensation benefits as evidenced below.

Amazingly, the DOL’s workers’ compensation acceptance rate is more than double that of the Social Security Administration’s acceptance rate for Social Security Disability Insurance claims – and the SSA has its own problems. From the audit:

Specifically, the DOL’s average 5‑year acceptance rate for new claims was 85 percent compared to the SSA’s 40 percent acceptance rate for SSDI. With FECA, medical evidence is required to prove the claimant has a work-related injury or disease and the claimant receives benefits prior to claim approval. Alternatively, the SSA requires medical evidence to establish that the claimant is expected to be totally disabled for at least 12 months and the claimant does not receive benefits prior to claim approval.

As for the USPS, which is supposed to ensure claimants have properly completed claims and other medical forms and correspondence, it’s not doing too hot either:

…69 percent of the case files we reviewed (103 of 150) for the Chicago, Philadelphia, and Seattle Districts did not contain consistent and relevant claims forms, medical documentation, or correspondence…We found that responsible HRM personnel and supervisors in the three districts we reviewed did not have sufficient training for handling workers’ compensation cases.

Reining in the USPS’s workers’ compensation costs won’t solve its financial problems. But the issue provides further evidence that the federal government is no longer up to the task of running its mail business. For more on that topic, see this Cato essay on the U.S. Postal Service.

[caption align=right]

Manssor Arbabsiar[/caption]

I was as shocked as most other people to hear Tuesday the Department of Justice unveiling charges against Manssor Arbabsiar, a 56-year old Iranian-American apparently linked to Iran’s Quds Force. If the facts as described in the government’s complaint [.pdf] were part of a crime novel I were editing, I’d tell the author it was far too outlandish and to do some more research. Now we’re finding out that the administration itself had “expressed concern that the plot’s cartoonish quality would invite suspicions and conspiracy theories.”

And cartoonish it was. I had figured that maybe I was the only one who thought the government’s story was shot through with gaping holes, but now I read that basically the entire roster of non-neoconservative Iran watchers can’t make sense of the plot.

For their part, reflexive hawks have taken the news in stride. James Jay Carafano explained that this is what happens when you act like Jimmy Carter, and the neocons’ Foundation for the Defense of Democracies has essentially taken over the WSJ op-ed page. (As one wag noted, the WSJ’s unsigned editorial invoked 9/11 in the first sentence.) But note the lack of critical thought in these pieces. Reuel Marc Gerecht uses the story as the latest hook for his “let’s bomb Iran” shtick, and another FDD/WSJ offering even says that “though details of the plot are still scarce,” “[t]o doubt the Iranian regime’s responsibility in the thwarted attack is to misunderstand its nature, or to somehow fall prey to the delusion that when an Iranian connection appears behind a terror plot, its perpetrators have gone rogue or are acting on behalf of some dark faction to undermine a nonexistent ‘moderate’ camp within the regime.” Well, maybe, but I like details.

I think there’s a pretty strong case for revisiting our assumptions about Iran, provided somebody can fill in the aforementioned holes. I had a bit more of a critical piece in CNN International, asking a number of questions that I’d like to see answered before deciding anything. I’ll just share with you one question I asked:

the accused seem to have believed that the [Mexican drug cartel the] Zetas would blow up [Saudi Ambassador Adel] al-Jubeir (and potentially a hundred people nearby, explicitly including possible U.S. senators) having only been fronted $100,000 of the $1.5 million payoff, and holding Arbabsiar as collateral.

There’s little evidence that the Zetas are stupid enough to cause themselves the trouble that blowing up a Washington restaurant containing the Saudi Ambassador and a hundred others would inevitably cause — especially for a potential payday of only $100,000 and a dead Iranian operative. Why did Arbabsiar or the IRGC think that the Zetas would be willing to do this deal?

To my mind, this is the biggest question out there, but I raise several others. For my provisional thoughts on the story, have a look at that piece.