Texans should pay higher taxes

From Breitbart, “Drumbeat to raise gas tax extends to conservative event“:

Texans should pay higher gasoline taxes, a Texas Tech University professor advocated at a policy conference organized by the conservative Texas Public Policy Foundation in Austin on April 16. He acknowledged that how transportation dollars are spent must also be carefully considered.

Generally, I’m a “starve the beast” proponent, but I endorse the view expressed above. In fact, I said it.

“Fuel taxes serve as a road ‘user fee’,” said Michael Giberson, who serves on the faculty at Texas Tech’s College of Business. “Those who use the roads, pay for them.”

Giberson told the TPPF conference attendees that the tax should be increased to a level that brings in the same revenues as in 1991–when the tax was last increased.

Texans currently pay 20 cents per gallon, but to meet the 1991 spending power Giberson said the rate would need to be 33.7 percent. He also recommended tying the gas tax to inflation, so that it would increase automatically.

Giberson acknowledged that more fuel efficient engines and electric-powered cars mean the gas tax will continue to be a declining revenue source. He said other options, such as charging Texans on the basis of their miles-driven, should be considered even as he acknowledged concerns about privacy and practical implementation.

I’d quibble just a bit with the characterization of my presentation. I didn’t recommend a 33.7 cents/per gallon tax, but rather was illustrating the toll that inflation had taken since the state gasoline tax was last raised. I did suggest tying the tax to inflation, but commented that the current method allows the tax to diminish over time and forces the legislature into direct action to raise it. I like that latter idea better the more I think about it.

In Texas two things stand between the fuel taxes and the user fee concept. First, about half of the gasoline tax is federal, 18.4 cents/gallon for gasoline, and Texas gets only about 80 percent of the Texas-sourced federally-collected fuel taxes back from Washington DC. The money comes back with some federal strings attached and some of the money is diverted from projects that benefit fuel taxpayers. Second, the feds 20 percent cut off the top is actually better for Texas fuel taxpayers than the state’s cut. By law, 25 percent of fuel taxes collected in Texas go to state government educational funding, so Texas road users only get about 75 percent of the Texas-sourced state-collected fuel taxes back from Austin. The 25 percent cut of fuel taxes for education is enshrined in the state’s constitution (a holdover, I suspect, when fuel taxes were paid primarily by the wealthy).

In response I favored proposals circulating in Congress to radically cut the federal fuel tax and related spending, and shift the responsibility for revenue collection and spending to the states. Congress has a duty to protect interstate commerce, but that need not involve a massive federal overhead to manage. I’d like to claw back the 25 percent fuel tax take from state educational funding, too. We amend the state constitution in Texas just about every other year, so that is no big deal, but because the amendment would appear anti-education I see it as a hard sell.

I also urged more use of toll roads, which have become much more efficient these days, and congestion-based tolls on roads where congestion is a frequent issue. (Nothing annoys me more than some denizen of east coast metropolitan areas saying federal gasoline taxes ought to be higher because it will reduce congestion. For example. No amount of taxing my cross-Texas drives is going to speed your east coast metropolitan commute.)

In the Breitbart article TPPF Vice President Chuck DeVore pushed back against my tax-raising views. He hasn’t changed his views, but recently in response to President Obama’s transportation spending proposal, DeVore’s views and mine seem pretty close: cut the federal role dramatically and let the states decide the mix of taxes and tolls needed to fund transportation infrastructure for themselves.

The Texas Public Policy Foundation put together a great event, with a program organized largely by TPPF staff economist and recent Texas Tech econ PhD Vance Ginn. Happy to be part of it.

Links to video from the conference and presentations are posted, along with links to other media coverage of the event (mostly focused on the Dallas Fed chairman’s lunchtime remarks, not the “gasoline tax controversy”, but I tried). My presentation is second in the panel 1 video.

ADDED: After my presentation I had two promising suggestions from conference attendees. One is that, given that almost all of the actual wear and tear on the roads in Texas come from heavy trucks rather than cars and light trucks, we should tax large commercial vehicles more–probably on a vehicle-miles traveled basis–and the “user fee” for personal vehicles likely falls to something reflecting the modest consequences of driving relatively lightweight vehicles. Trucking companies would complain, and the political prospects of the idea are probably not good. Otherwise makes a lot of sense to me. The other suggestion was to employ certain oil and gas drilling fees currently in surplus for road work, at least for the road improvements needed in the parts of the state experiencing significant increases in commercial traffic due to the oil and gas drilling boom. The suggestion seems a bit kludge-y to me, but comes with enough symmetry between the payers and the beneficiaries to be plausible. Good enough for government work, as is said.

Virginia Postrel on Delta’s refinery purchase

Lynne Kiesling

Just a quick note to accompany the discussion in the comments on Mike’s post about Southwest Airlines, Delta Airlines, and fuel price hedging: a couple of weeks ago Virginia Postrel had a very good analysis of the reasons why the Delta-Conoco transaction is not a good idea, in her regular column at Bloomberg View. Virginia’s analysis emphasizes the extent to which vertical integration is only profitable when transaction costs make markets and contracting more expensive ways to accomplish the transaction. In this case, markets do not have substantial transaction costs.

But what about fuel price risk? Here Virginia quotes friend of Knowledge Problem Craig Pirrong:

The proposed purchase “doesn’t make a huge amount of economic sense — in fact quite the opposite,” says Craig Pirrong, a finance professor and director of the Global Energy Management Institute at the University of Houston’s Bauer College of Business.

You might think that owning a refinery would at least protect the airline from price fluctuations. But, Pirrong notes, crude oil prices affect the profits of airlines and oil refineries exactly the same way. When oil prices go up, their profits go down. Owning a refinery would simply magnify the effect. “If anything,” he says, “it increases the risk exposure that has bedeviled the airline industry for years.” …

Delta simply seems to be falling for the great fallacy of vertical integration: the belief that the inputs you get from an in-house supplier are cheaper than those you buy in the open market. There’s no markup. You’ve cut out the middle man!

But this story misses the real cost of those inputs.

Basically, if fuel prices are high, Delta will still not fly those costly half-full flights, but will instead sell their fuel in the low-transaction-cost markets. So what’s the point of owning the refinery when it’s not their comparative advantage and refining is such a low-margin business?

Southwest Airlines’s hedges

Michael Giberson

“We don’t know where the price of crude is going to be,” says [Southwest Airlines’s Chris] Monroe. But, he adds, “I think we have to be generally bullish just because we’re trying to protect against an increase … So we have a little bit of a bias that prices may go higher.”

He chuckles that he and [former SW treasurer Scott] Topping, longtime colleagues and friends, used to describe themselves as the “most conflicted” managers in the building — although low fuel prices would benefit Southwest overall, it would mean their carefully crafted hedging strategy wouldn’t pay off as well….

Still, “In my heart, I would love lower prices,” says Monroe. “Lower prices are good for everybody in our country, and especially good for an airline.”

From, “The ‘Fixer’ at Southwest Airlines,” CNBC.

Notice that Southwest trades crude oil options and other derivatives even though they are not in the physical crude oil market. Proposals that aim to limit trading to parties with “true” commercial interests in the underlying commodity could inadvertently trip up quite reasonable hedging strategies such as pursued by Southwest. (Presumably they find the liquidity available in the much more heavily traded crude oil markets attractive compared to trading in the less liquid jet fuel markets even though the crude oil price is an inexact proxy for the price of jet fuel.)

In related news, Delta Air Lines is buying a refineryfrom the Phillips 66 unit being spun off of ConocoPhillips. According to Dana Blankenhorn at SeekingAlpha, “Delta Refinery Deal All About Southwest.”

(I’m still with the skeptics on this deal. Is is really going to be cheaper for Delta to own a refinery and make jet fuel than just buy jet fuel in a reasonably competitive market? Another way of asking the question, why does Delta think it can do a better job of running the refinery than ConocoPhillips did? Surely contract-based cost management as practiced by Southwest will be more flexible and adaptable to changing conditions than Delta’s ownership of an aging refinery near Philadelphia.)

Be indomitable. Refuse to be terrorized.

Lynne Kiesling

This week we have many introspective analyses of the consequences of an evil act perpetrated 10 years ago. Those consequences are a mix of good and bad, ranging from no successful coordinated attacks in the U.S. to foreign wars with gruesome human and financial costs. The consequences in which I am most interested, and about which I am most concerned, are those attached to the growth of the surveillance state toward a police state.

For most of the past decade the federal government has implemented, and the American people have accepted, invasive search, extensive surveillance, and increased militarization of law enforcement, and have done so with little or no analysis of whether or not the benefits of reduced attacks are large enough to justify the enormous financial, social, and cultural costs of, in my opinion, the military-industrial complex that President Eisenhower warned us about in 1961. I wrote about this in May in the context of the TSA’s increasing use of untested x-ray radiation scanners that are ineffective at identifying weapons and explosives and invasive criminal-style frisks of airline passengers, referring to John Mueller’s and Mark Stewart’s performance of the benefit-cost analysis that the GAO repeatedly recommended that the Department of Homeland Security should do and has refused to do.

I think we should all be more concerned about, and pay more attention to, the consequences of our increasingly authoritarian/submissive society (can’t have one without the other!). Glenn Greenwald has been a stalwart voice, doing investigative analysis of the growth of the surveillance state, with this recent omnibus and link-filled post as a thorough compendium of the information- and data-related surveillance and secrecy authority and control that the federal government is exerting. I also wrote in May about how the Patriot Act has reduced our civil liberties, including economic liberties as an important component of our civil liberties. The government’s enforcement of the Constitutional protections of our rights to be free from unreasonable government search have evaporated into near-nonexistence (both at the airport and elsewhere), which increases our general uncertainty and reduces our productive and valuable social-economic engagement and interaction with others. In the process it also dehumanizes those who are in positions where they can exert this coercive authority and control, as anyone familiar with the Milgram experiment on obedience to authority and the Zimbardo Stanford prison experiment knows too well. Actually, one of my favorite quotes about authority is from Stanley Milgram:

The disappearance of a sense of responsibility is the most far-reaching consequence of submission to authority.

I fear that we have witnessed some disappearance of a sense of responsibility and individual moral agency in American culture, and that is one of the greatest costs of the evil act of a decade ago.

And to what end — how justified is this fear? High financial, human, cultural costs, to avert events that are one-quarter as likely as being struck by lightning. Some may criticize the performance of relative risk assessments between accidents and deliberate attacks, but it’s precisely these crucial relative risk assessments that enable us to recognize the unavoidable reality that neither accidents nor deliberate attacks can be prevented, and that to maintain both mental and financial balance we cannot delude ourselves about that, or give in to the panic that is the objective of the deliberate attacks in the first place. Thus the title of this post, which comes from two separate quotes from Bruce Schneier — the first from his excellent remarks at EPIC’s January The Stripping of Freedom event about the TSA’s use of x-ray body scanners, the second from his classic 2006 Wired essay of the same title:

The point of terrorism is to cause terror, sometimes to further a political goal and sometimes out of sheer hatred. The people terrorists kill are not the targets; they are collateral damage. And blowing up planes, trains, markets or buses is not the goal; those are just tactics.

The real targets of terrorism are the rest of us: the billions of us who are not killed but are terrorized because of the killing. The real point of terrorism is not the act itself, but our reaction to the act.

And we’re doing exactly what the terrorists want.

Other than the above links, I have found two recent essays on the subject exceptionally good. The first, from a symposium in the Chronicle of Higher Education, is from Alex Gourevitch on fear, in which he notes

The great lie of the war on terror is not that we can sacrifice a little liberty for greater security. It is that fear can be eliminated, and that all we need to do to improve our society is defeat terrorism, rather than look at the other causes of our social, economic, and political anxiety. That is the great seduction of fear: It allows us to do nothing. It is easier to find new threats than new possibilities.

A decade after 9/11, we look backward and find ourselves in all-too-familiar surroundings. We have, in fact, accomplished very little. We have yet to do any of the serious thinking that might carry us beyond the banal, stifling quest for security. That kind of thinking would require us to have a different relationship to fear: a willingness to accept it, even cause it.

The second is by American writer Paul Theroux, but is not to be found in an American publication, interestingly enough, but in the Telegraph. It is outstanding and thoughtful in its entirety, but this part really resonated with me:

Of all the agencies created by the panicky response to 9/11, the Transportation Security Agency [sic.; it’s Administration–ed.] (TSA) is the most visible and to me one of the most obnoxious for its obstinacy, its clumsiness, its inefficiency and its ubiquity. There was a time when bag searches and interrogation of travellers was purely a feature of travel in eastern Europe. Now such searches and screenings are a common feature of life in America; and that we have become habituated to it, submitting without complaint, is one of the saddest consequences of 9/11. I think of it as the Gestapo-with-a-grin, Stasi-with-a-smile method of intimidation, a species of security theatre that has redefined what a weapon is (a small bottle of liquid, a nail file, a hat pin, a shoe) – it has redefined the notion of privacy, of travel, of freedom.

Heck, even Business Week is arguing that it’s time to rethink counterterrorism spending.

So let’s get on with it. Be neither authoritarian nor submissive. Be indomitable. Refuse to be terrorized.

Raising MPG standards, part 2: Morris well explains the relative advantages of raising the gasoline tax

Michael Giberson

At the Freakonomics blog, transportation scholar Eric Morris favors President Obama’s recent deal to dramatically raise CAFE standards (Corporate Automobile Fuel Economy standards) by 2025. A gasoline tax would be far superior public policy, he said, but it won’t work politically. Because he thinks CAFE standards do work, technically and politically, he said we should go with this “second-best solution.”

To keep the discussion here in manageable chunks, I’m responding in two posts. In part 1 of “Raising MPG standards,” I explained why I wasn’t persuaded by Morris’s evidence that CAFE standards actually work. In this post I highlight what Morris explained well: why a gasoline tax can be the superior regulatory approach.

Here’s Morris:

[E]conomists generally prefer to do things with price signals as opposed to regulatory standards. Why?

Price signals inflict pain on consumers, but let them figure out what form they want to take it in. They in turn force producers to respond to their (altered) demand, but allow producers leeway in how that demand is met. This allows consumers and producers to change behavior in the most efficient possible manner.

Instead of CAFE, why not just raise the gas tax and let drivers figure out whether they want smaller cars, lighter cars, less powerful cars, more expensive cars, shorter-range cars, or, crucially, cars that are just as heavy, powerful, and cheap—but which get driven less?

This raises the true problem with CAFE. It misses out on a potentially key part of the solution to reducing fuel use: driving less. In fact, ironically, increased CAFE standards will have a perverse and unwelcome effect; better fuel economy will increase the fixed cost of driving (i.e. vehicle prices) but will actually reduce the marginal cost (i.e. fuel expenditures). To a degree, less thirsty cars will actually cause people to increase the number of miles they drive (as I’ve written about here).

With increased gas taxes, on the other hand, less driving will be part of the consumer’s toolkit. Some who absolutely need vehicles with poor fuel economy will have the option of avoiding the tax by driving less instead. As long as their fuel use goes down, why not give them that choice? Greater economic efficiency would result. In fact, the Congressional Budget Office ran the numbers in 2004 and found that cutting fuel use through taxes was considerably cheaper in the long run than raising CAFE.

Reducing driving through a higher gas tax would have other important benefits that improving fuel economy does not, like congestion relief and accident reduction…

Another advantage of a gas tax increase is that it would start working today. Since the car fleet takes so long to turn over (according to the US Department of Transportation, automobiles these days stay on the road an average of about 12 or 13 years), it will be a very long time before the new CAFE standards actually translate into meaningful changes in emissions. But increasing the gas tax would have immediate effects.

Sure, we can counter a call for higher gasoline taxes with a long list of negative consequences. The point is that an energy tax is relatively speaking transparent and efficient. However harmful a higher gasoline tax is, a CAFE regulation aiming at the same effects would be ten times (rough guess) more costly.

The social costs of raising CAFE are surely greater than the social benefits, so “second best” policy or not, we ought not to do it.

RELATED: In part I, I criticized the evidence that Morris put forward in favor of the view CAFE actually works.

Raising MPG standards, part 1: Morris is not persuasive in his claim that CAFE works

Michael Giberson

At the Freakonomics blog, transportation scholar Eric Morris favors President Obama’s recent deal to dramatically raise CAFE standards (Corporate Automobile Fuel Economy standards) by 2025. A gasoline tax would be far superior public policy, he said, but it won’t work politically. Because he thinks CAFE standards do work, technically and politically, he said we should go with this “second-best solution.”

To keep the discussion here in manageable chunks, this first post argues that Morris is not persuasive in his claim that CAFE works. A second post will highlight Morris’s more insightful discussion concerning gasoline taxes.

The evidence Morris offers that CAFE standards work is, to put it politely, weak. Here is his chart and accompanying explanation:

 This is not because CAFE doesn’t work; it does. In 1975, a few years before CAFE was implemented, average MPG for new cars and light-duty trucks was 13.1. In 2010 it was 22.5. Can this be attributed to CAFE? To a large degree, yes, as this graph makes clear:

Source: Eric Morris, Freakonomics blog.

CAFE standards were aggressively increased from 1978 to 1984, and, as the chart above shows, fuel economy responded. However, from 1985 until 2007 CAFE standards were no longer raised meaningfully—and MPG flatlined. The table makes it pretty clear that the CAFE standards created a floor under MPG for a 25-year period, when low gas prices (remember those?) rendered consumers otherwise indifferent to fuel economy.

Yes, gas prices, remember them? Beginning around 1976, gasoline prices jumped from about $1.73 (EIA data, annual average price per gallon of unleaded regular gasoline in constant 2005 $) to about $2.65 by 1981, then they drifted back to around $2.00 in 1985. In 1986, gasoline prices dropped under $1.50 and stayed around that level until about 2003. From 2003 to 2008 gasoline prices moved up with crude oil prices, in 2009 they started coming down again.

The big moves in measured CAFE came when gasoline prices were high. The long low-price period saw both measured automobile and light truck CAFE levels drifting downward.

Now look at the chart again: the average of measured “car” and “truck” CAFE levels (labelled “both” in the chart) fell faster than either the car or truck level.

How is it possible that the average of two data series fell faster than either of the component data series? Because “both” is a weighted average, and as gasoline prices stayed low consumers limited by their options in the more-tightly-regulated automobile category simply switched into light trucks (i.e., minivans and SUVs). Automakers, too, feeling constrained by CAFE standards, pushed consumers to make that shift. What exactly are the policy benefits from driving consumers out of station wagons and into SUVs and minivans of similar fuel economy performance?

CAFE “worked” when it has a supporting high gasoline price environment, but I suspect that the gasoline prices were doing most of the heavy lifting.

RELATED: In part II, I highlight what Morris explained well about gasoline taxes.

Homeland security: Eroding your human rights without any benefit-cost analysis

Lynne Kiesling

Over the past six months the TSA has started using whole-body imaging scanners as primary screening devices without explicit Congressional authorization. Congress has only authorized the TSA’s privacy officer to solicit public comment and publish a privacy impact statement (according to EPIC’s lawsuit), and their authorization of TSA practices is implicit in their budget authorization. But TSA’s response is to use scanners as primary, and to bully passengers into accepting it by making the opt-out frisk onerously invasive. For example, two women have recently made public the invasive frisks that they’ve endured and the pain it caused them: journalist Amy Alkon and former Miss USA Susie Castillo (note, in particular, Castillo’s video accompanying her post, and the response from TSA spokesperson Luis Casanova, claiming that the screener in her case followed proper procedure, which in a rational world would means that the procedure is morally bankrupt). To quote Amy Alkon from a comment on her post:

It is not just “unfortunate” that I (and many others) have had this experience. It is a dangerous threat to our rights and part of the near constant attempts to degrade them in the name of safety these days. This is not “the price you pay for wanting to fly.” This is the price you pay for complacency about government rights grabs. If I or any person smart enough to hold their own in this comments section wanted to get a weapon or a bomb on a plane, they could.

But, sleep tight, sheeple.

The DHS and TSA are following these policies without Congressional authorization and without performing either economic analysis or risk assessment, relying solely as executive agencies on the continuing support of the executive branch. (The TSA also fails to comply with the public comment and disclosure requirements of the Administrative Procedure Act, which is one aspect of EPIC’s lawsuit against them.)

Yet this technology is so fallible that in addition to failing to identify a gun on an agent 5 times as she passed through a scanner to test it, it will flag you for an anomaly even for a piece of lint in your trouser pocket. That anomaly marks you for a frisk, after having been scanned, so the “either-or” proposition turns into an intrusive “both-and” for many people (although we don’t know for sure how many, because the TSA refuses to compile and share such data).

In a recent post, Salon’s “Ask the Pilot” author Patrick Smith essentially summarizes my thinking on how ineffective, ludicrous, and offensive TSA policies are, and I encourage you to read his observations (and the comments on the post). In suggesting alternatives, he highlights the important political economy motives that are involved in the large expenditures on such ineffective technologies:

And I’m still waiting for somebody to explain the logic of the body scanners. Let’s ignore for a minute the audacity of these machines and our capitulation to their existence. (If, a decade ago, we were told that people would soon have to appear naked in order to board an airplane, such a claim would have been met by laughter and outrage. But here it has come to pass.) We’re asked to believe the scanners are a critical tool. Yet they are being deployed domestically rather than at airports overseas, and only sporadically at that. Should a bomber notice a scanner at one checkpoint, he merely needs to choose the next one down.

And here’s where it’s easy to be cynical. Instead of body scanners, why not rely on bomb-sniffing dogs? They’re highly effective, unobtrusive, and cheaper — not to mention cuter. I suspect it’s because there isn’t a big corporation somewhere that stands to earn billions of dollars from the deployment of dogs. It’s doubtful the scanners are making us safer. But rest assured they’re making somebody wealthy.

The one-two scan-frisk punch is both ineffective and a violation of our inalienable right to be free from unreasonable search, a right that in the US is supposed to be enforced by government employees who take an oath to uphold the Constitution. And yet the DHS and TSA have not performed any benefit-cost analysis to show whether their large tax-funded expenditures are worth it; even though the GAO has pushed them to do so, the feckless and irresponsible Congress has failed to hold the agencies accountable for this analysis. Such a benefit-cost analysis must include a risk assessment – not just a relative risk assessment among a set of security measures, but an absolute risk assessment of the probability of a terrorist attack and the value of its harm relative to other risks that we incur in our normal daily routines. Bruce Schneier makes this point eloquently in all of his writing about the security theater that we endure and pay for, and recently did so in a TED talk that I recommend.

Since Congress has failed in its fiduciary duty to American taxpayers, academic researchers have stepped into the breach and provided a benefit-cost analysis using the limited public data available. As this month’s Midwest Political Science Association annual meetings, Ohio State political scientist John Mueller and Australian civil engineering professor Mark Stewart presented a benefit-cost analysis of overall DHS (including TSA) expenditures over the past decade, as well as an analysis of the methodologies that DHS and TSA use to identify and prioritize their activities. Gulliver in the Economist also picked up on the paper over the weekend. The paper’s abstract:

The cumulative increase in expenditures on US domestic homeland security over the decade since 9/11 exceeds one trillion dollars. It is clearly time to examine these massive expenditures applying risk assessment and cost-benefit approaches that have been standard for decades. Thus far, officials do not seem to have done so and have engaged in various forms of probability neglect by focusing on worst case scenarios; adding, rather than multiplying, the probabilities; assessing relative, rather than absolute, risk; and inflating terrorist capacities and the importance of potential terrorist targets. We find that enhanced expenditures have been excessive: to be deemed cost-effective in analyses that substantially bias the consideration toward the opposite conclusion, they would have to deter, prevent, foil, or protect against 1,667 otherwise successful Times-Square type attacks per year, or more than four per day. Although there are emotional and political pressures on the terrorism issue, this does not relieve politicians and bureaucrats of the fundamental responsibility of informing the public of the limited risk that terrorism presents and of seeking to expend funds wisely. Moreover, political concerns may be over-wrought: restrained reaction has often proved to be entirely acceptable politically.

I strongly, heartily, fervently encourage you to read their analysis; while not ideal and obviously constrained by having to rely on some assumptions grounded in limited publicly-available data, their analysis makes conservative assumptions biased toward the case for increased expenditure. And yet they find that in order for this one trillion dollars increase in security spending to be worth it, we have to deter four attacks per day. This is a shocking result.

Their analysis starts with a question that too few people ask: is this expenditure worth it? They then critique DHS procedures that fail to perform benefit-cost analyses or accurate risk assessments:

Indeed, at times DHS has ignored specific calls by other government agencies to conduct risk assessments. In 2010, the Department began deploying full-body scanners at airports, a technology that will cost $1.2 billion per year. The Government Accountability Office specifically declared that conducting a cost-benefit analysis of this new technology to be “important.” As far as we can see, no such study was conducted. Or there was GAO’s request that DHS conduct a full cost/benefit analysis of the extremely costly process of scanning 100 percent of U.S.-bound containers. To do so would require the dedicated work of a few skilled analysts for a few months or possibly a year. Yet, DHS replied that, although it agreed that such a study would help to “frame the discussion and better inform Congress,” to actually carry it out “would place significant burdens on agency resources.”

Clearly, the DHS focuses all or almost all of its analyses on the contemplation of the consequences of a terrorist attack while substantially ignoring the equally important likelihood component of risk assessment as well as the key issue of risk reduction. In general, risk assessment seems to be simply a process of identifying a potential source of harm and then trying to do something about it without evaluating whether the new measures reduce risk sufficiently to justify their costs. (p. 4)

Of all of the disturbing points raised in the paper, Mueller’s and Stewart’s discussion of “probability neglect” and probability analysis is high on the list. Probability neglect is the tendency of people to focus on worst-case scenarios but not their likelihood, which is a substantial distortion when we are talking about very low probability, high cost events. DHS methods use this cognitive bias to their advantage. I can’t tell whether DHS uses probability analysis incorrectly due to their innumeracy or because it enhances their ability to extend their agenda and budget, but in either case this is unacceptable. Not only do they exploit probability neglect; they also do not apply probability analysis correctly:

What is necessary is due consideration to the spectrum of threats, not simply the worst one imaginable, in order to properly understand, and to coherently deal with, the risks to people, institutions, and the economy. The relevant decision-makers are professionals, and it is not unreasonable to suggest that they should do so seriously. Notwithstanding political pressures, the fact that the public has difficulties with probabilities when emotions are involved does not relieve those in charge of the requirement, even the duty, to make decisions about the expenditures of vast quantities of public monies in a responsible manner. …

A second stratagem for neglecting probability that is sometimes applied at DHS is to devise a rating scale where probabilities of attack are added to the losses. Thus, as a Congressional Research Service analysis points out, to determine whether a potential target should be protected, DHS has frequently assessed the target’s vulnerability and the consequences of an attack on it on an 80-point scale and the likelihood it will be attacked on a 20-point ranked scale. It then adds these together. Thus, a vulnerable target whose destruction would be highly consequential would be protected even if the likelihood it will be attacked is zero, and a less consequential target could go unprotected even if the likelihood it will be attacked is 100 percent.

This procedure violates the principles espoused in all risk assessment techniques such as those codified in international risk management standards supported by 26 countries including the United States. In these risk is invariably taken to be a product in which the attack probability is multiplied by the losses, not added to them. Essentially, what often seems to be happening is that DHS has a pot of money to dole out, and it has worked out a method for determining which projects are most worthy while avoiding determining whether any of them are actually worth any money at all. (pp. 6-7)

After describing their benefit-cost analysis and the results summarized in the abstract, they close with a much-needed discussion of “political realities”. Simply put, one common argument for Congress’ fecklessness on this topic is that individual members have no incentive to rein in DHS/TSA and hold them accountable for results and performance metrics because they fear that being seen as “soft on terrorism” will reduce their probability of election success. Mueller and Stewart provide evidence going back to the 1980s showing that such fears are overstated (but overstating fears seems to be the modus operandi here, doesn’t it?).

Moreover, individually and in aggregate Congress has a fiduciary duty to taxpayers to perform oversight and hold federal agencies accountable for how they spend taxpayer money. Why hasn’t Congress held these agencies accountable for the one trillion dollars spent over the past decade, which is clearly excessive? I endorse their statement that:

Political realities supply an understandable excuse for expending money, but not a valid one. In particular, they do not relieve officials of the responsibility of seeking to expend public funds wisely. If they feel they cannot do so, they should either resign or forthrightly admit they are being irresponsible, or they should have refused to take the job in the first place. To be irrational with your own money may be to be foolhardy, to give in to guilty pleasure, or to wallow in caprice. But to be irrational with other people’s money is to be irresponsible, to betray an essential trust. In the end, it becomes a dereliction of duty that cannot be justified by political pressure, bureaucratic constraints, or emotional drives. (p. 22)

Given this analysis, what are you going to do to fight such a fiscally irresponsible erosion of our rights? Among other things, I am going to call the offices of my three Congressional representatives, talk specifically to the staff member responsible for security issues, and send him/her this paper (which is a preview of their forthcoming book). I’m not sanguine about the impact of such an effort, so I solicit your suggestions for how we can, individually and collaboratively, rectify such irresponsibility. Otherwise I fear that T.S. Eliot and Thomas Jefferson were right:

This is the way the world ends

This is the way the world ends

This is the way the world ends

Not with a bang, but with a whimper

All tyranny needs to gain a foothold is for people of good conscience to remain silent.

UPDATE: I’ve fixed the link to the “Ask the Pilot” post, and corrected the attribution to Salon.