Bruce Schneier <3's TSA

Yesterday, Bruce Schneier wrote a blog post about abolishing the Department of Homeland Security. It was based, in large part, on a CATO report calling for the same citing that

DHS has too many subdivisions in too many disparate fields to operate effectively. Agencies with responsibilities for counterfeiting investigations, border security, disaster preparedness, federal law enforcement training, biological warfare defense, and computer incident response find themselves under the same cabinet official. This arrangement has not enhanced the government's competence. Americans are not safer because the head of DHS is simultaneously responsible for airport security and governmental efforts to counter potential flu epidemics.

Schneier agrees, citing his own writing from 2003:

Our nation may actually be less secure if the Department of Homeland Security eventually takes over the responsibilities of existing agencies. [...] Security is the responsibility of everyone in government. We won't defeat terrorism by finding a single thing that works all the time. We'll defeat terrorism when every little thing works in its own way, and together provides an immune system for our society. Unless the DHS distributes security responsibility even as it centralizes coordination, it won't improve our nation's security.

But Schneier takes issue with CATO's suggestion, later in the above linked report, that the TSA should abolished. Instead, he believes

abolishing the TSA isn't a good idea. Airport security should be rolled back to pre-9/11 levels, but someone is going to have to be in charge of it. Putting the airlines in charge of it doesn't make sense; their incentives are going to be passenger service rather than security. Some government agency either has to hire the screeners and staff the checkpoints, or make and enforce rules for contractor-staffed checkpoints to follow.

It would be very easy, at this point, to attack Schneier on the basis that the TSA is a colossal failure. However, that TSA is not a failure of epic proportions is not what he is arguing. In fact, Schneier himself is the progenitor of the idea that exactly "two things have made flying safer: the reinforcement of cockpit doors, and the fact that passengers know now to resist hijackers". Furthermore, just this week, he penned an article calling the TSA irrelevant. So, let's look at exactly what he did say: that airline security should return to pre-9/11 levels with the government being in charge of it, either directly (government-hired goons staffing the checkpoints) or indirectly (private contractors acting under government regulation). If we hearken back to the pre-9/11 days, we find that his statement is redundant. Prior to 9/11, the government via the FAA was in charge of airline security, and what Schneier is suggesting is exactly how we arrived -- ignoring the reason(s) for the attacks themselves -- at 9/11 in the first place.

Before addressing Schneier's claim that putting the airlines in charge of airport security doesn't make sense, let's start with why his own solution doesn't make sense. First, there is the empirical evidence. As I just pointed out, 9/11 happened on the government's watch. While I agree that airline security should be rolled back to pre-9/11 levels, putting/leaving the government in charge of it is ludicrous, and the reason for that is that the government's interests do not align with that of the traveling public. Ostensibly, both care about flight safety. But in reality, as Schneier himself points out relentlessly, the TSA fails to provide this on any level. Just last month, a Vanity Fair writer explained how Schneier helped him circumvent TSA security to meet Schneier at the gate when his flight arrived. Then there's my own personal experience: after leaving the screening area (without being screened), the TSA demanded that I return because they feared that I may have an explosive device on my person. Why would they usher me back to the most crowed area of the airport if they feared that I had explosives? In reality, the government's interest(s) lie in an ever increasing role in security. This provides, not an actual increase in security, but an ever increasing ability to funnel money to favored contractors and further ratchet up the police state apparatus for the same reason.

The other reason that having the government in charge of airline security doesn't make sense is the same reason that letting the airlines manage their own security does: the profit and loss test. The basic idea is that when a business produces a product that consumers want at a cost that is less than what consumers are willing to pay, then the business profits. If any of these conditions are not met, the business suffers a loss. If the business does not change, then it goes out of business, government intervention notwithstanding.

Let's apply this test to the government's handling of airline security. It is producing a product that consumers want, namely, security. It is producing it at a cost of approximately $8.8 billion per year according to the federal government's 2011 budget. But this is where the profit and loss test ends for the TSA or any government entity. The profit and loss test requires that consumers of a product voluntarily pay or not pay for it. The government is funded via compulsory taxation. Therefore, the government need not concern itself with whether or not it is producing a product that people want or, more importantly, in a way that they want. That the government acts in exactly this way is borne out by reality. The TSA's budget during its first full year of funding in 2003 was $4.8 billion. It's current budget, only 8 years on, is a near 100% increase from that initial budget. This comes despite repeated TSA bungles including sleeping on the job, physically harassing passengers, allowing criminal activity to bypass security, stealing from passengers... the list goes on and on. If the TSA was a private corporation, consumers would have put it out of business almost 10 years ago. Instead, its costs are higher than ever and rising with no end in sight. In fact, the TSA's only measurable goal is total security, something that requires an absolute police state. Despite the desire on the part of the traveling public for total security, I'd wager that none would actually want to pay for it in terms of money or liberty required to implement said police state.

Now we can return to Schneier's claim that putting airline security in the hands of the airlines makes no sense. He believes this because he thinks that the airlines' focus will be on passenger service instead of security. Somebody didn't think through his rationale, completely. Tsk, tsk. Security is part and parcel of the service provided by the airlines. No passenger is going to be concerned about a glass of soda and a bag of peanuts or that he didn't get a blanket and a fluffy pillow if his plane is commandeered or blown up by a terrorist. Not only that, but the loss of a plane costs an airline hugely. There is of course the capital loss of the plane and the fuel, but more than that, if the airline wants to stay in business it's not only going to have to beef up its security, but it is going to have to figure out how to prove to passengers that it had changed its ways so that they'd be willing to fly again. We see then, that the airlines' interests, unlike the government's, align perfectly with the traveling public. In addition, airlines carry insurance for their operations. This means that airlines want their operations to be safe and secure because they don't want their premiums to rise in the event of an accident, and the airlines' insurance companies have every incentive to pressure the airlines to keep their operations safe and secure lest the insurance company have to pay out a multi-million, possibly billion, dollar claim.

"We can't trust the airlines", I hear you scream. "They're greedy capitalists!" Indeed they are, and that's exactly why the system would work. The airlines, unlike the government, cannot just take consumers' money to fund their operations. They must induce consumers to voluntarily give money to them. Thus, the airlines are subject to the profit and loss test described earlier. If the airlines provide too little security, passengers won't be willing to fly. The airlines will have saved some money by skimping on security, but the lack of income will ultimately result in losses. If they provide too much security, either the costs will drive ticket prices to a level that consumers are unwilling to pay, or consumers will find alternate means of travel because they find the security required by the airlines too onerous. In either event, the airlines will again find themselves losing money. In order to make money, the airlines will have to provide enough security to satisfy their passengers' desire for safety and their insurance companies' risk tolerance while not imposing so much security that passengers seek other airlines or other modes of travel entirely to avoid the costs and hassles.

Astonishingly, a self-correcting and self-policing system like this hasn't taken hold. Part of the reason for this is human nature. Humans have demonstrated a surprising inability to correlate events with the likelihood of their occurrence. For example, very few people are concerned about choking to death on their own vomit. However, it turns out that one is 9 times more likely to die by this method than via an act of terrorism. This is a topic that Bruce Schneier has also written about repeatedly. Because of this, people always demand ever more security in the event of some kind of accident or attack. Normally, the costs of these demands would temper them somewhat, but this doesn't happen because of government involvement. This is the other reason that a free market system has not taken hold: the government provides moral hazard. The airlines prefer that the government be involved because by using government provided security and/or standards, responsibility for security failures falls on the government, not the airlines. When something tragic occurs, the airlines can point to the government as the failure. Insurance companies are likewise not terribly worried about having to pay airline claims because the government has proven willing to bail them out. Even consumers are unwitting accomplices in this system because the costs of security have been separated from the cost of a ticket. Instead, these costs are (or would normally be) imposed as taxes, but even if one went looking for them, they would be difficult to find as the government has taken to inflating the currency in order to finance its operations. The increased costs of security are found in the rising prices of everyday items like milk, rent, electricity, and gasoline.

The government's involvement in airline security is not only an abject failure but an impediment to allowing a free(d) market to discover what the people really want when it comes to airline security. Bruce Schneier is a smart guy, and he's one of the TSA's harshest critics. He's written extensively about security and the trade-offs made in its name; he's no stranger to economics, especially when it comes to security. In light of this, I can only conclude from his desire to keep the government involved in airline security that he secretly loves the TSA.

Empire and its imminent demise

Glenn Greenwald writes today that the U.S is a collapsing empire. As evidence, he points to a number of surveys and studies showing the rapid decline in life expectancy, infant mortality, literacy in math and science, and the "soundness" of our banks and, by extension, financial system. He wrote a column a few months back on the same topic, though the examples provided there were more direct. On the bright side, though, he points out in the current column that the U.S. is only fifth in the world in executions and continues to best all comers in incarceration rates.

In addition, a few days ago, Ron Paul said that he thinks that a collapse of the U.S. currency system is "95% likely" and that a war with Iran would only hasten its demise. This all has a very "the sky is falling!" ring to it, but look back at the bank "soundness" rankings, mentioned earlier. The U.S. ranks 108th in the world, out of 133 countries on the list. That puts it 63 places behind Greece, a country that just received a 146 billion dollar bailout from the EU.

Peter Schiff, on a related subject, writes about the massive inflationary expedition on which the Federal Reserve is about to embark. Even I wrote about this a week or so ago. Unlike me, Mr. Schiff researches and writes about this stuff for a living (and does quite well at it), so when he speaks, it's probably a good idea to listen. Aside from the normal, "gold, silver, and commodities are rising; the dollar is falling" talk, he explains why bonds are currently acting the way they are:

A confounding factor is the strong performance of US dollar-denominated bonds. When the Fed creates inflation, that erodes the value of fixed-asset investments like bonds, which can't adjust their returns to the new price level. So many commentators are pointing to the record low bond yields as evidence that inflation is not a threat. But this is a misreading of the situation.

What is overlooked is that when the Fed prints more dollars, it typically uses them to buy bonds. Traders know this, so they are stocking up on bonds at ridiculous prices just to flip them to the Fed. They don't care that, in the long run, the Fed's policies will destroy the bonds' value because in the short run, the weak dollar policy serves as a tremendous subsidy to bond sellers.

I'll leave you with this quote, attributed to George Washington, and let you draw your own conclusion(s) about where our government is headed:

The last official act of any government is to loot the treasury.

Currency wars

I hear a lot on the radio and in the news lately about the U.S. and other central banks' grumbling about China's refusal to let its currency rise. I have (what I think is) a pretty good understanding of inflation and deflation and how central banks' policies affect their currency, but I had never really put much thought into why China refusing to let their currency rise was a bad thing. This morning NPR did a story about possible coming currency wars, and finally spoon fed me the information that I was too lazy or apathetic to discover for myself.

The U.S. Federal Reserve wants to inflate the dollar, or in the parlance of the previous paragraph, make it fall. Make sure you really take that in; the Fed wants to devalue the dollar. It wants to do that because when the dollar is weak, then U.S. exports become cheaper overseas. This is because foreign currency, in relation to the dollar, rises. Therefore, that foreign currency can buy more of a given U.S. good than it could have previously. The thinking over at the Fed is that if our exports rise, then businesses will begin producing more which will require them to hire more which will eventually start the economy growing again.

The reason the U.S. is upset at China is that it is doing the exact same thing. By refusing to let its currency rise, China is making its exports cheap for foreign buyers. So, the U.S. is mad at China for doing the very thing that it is trying to do.

This is yet another case of "its okay when we do it but not when they do it", but it's so much worse than that. There's no guarantee that China will play along. There is no guarantee that the Fed will inflate the currency just enough to "goose" the economy but no so much that it creates hyperinflation. There's no guarantee that the Fed will "revalue" the dollar if the economy starts moving again; in fact, it's more likely that that value will be forever lost. Even more basic that that, does it concern anyone that twelve people at the Federal Reserve can take money out of everyone's pockets in the U.S. whenever they want by devaluing the dollar?