Dean Baker
The Hankyoreh, June 8, 2015

Mark WeisbrotÚltimas Noticias, 7 de junio, 2015

June 5, 2015

June 5, 2015

June 5, 2015 (Jobs Byte)

Image of flooding at Caracol EKAM Shelter site from internal USAID document. Caption reads: “Site flooding due to improper drainage”

Despite USAID allocating some $1.7 billion for the reconstruction effort in Haiti, its projects have exhibited varying levels of success and face serious sustainability challenges, according to a report [PDF] released yesterday by the U.S. Government Accountability Office (GAO). The GAO analyzed 23 USAID projects across all eight sectors of USAID’s portfolio. Each program was allocated at least $10 million. The GAO report found that because of delays, USAID has extended its Haiti strategy for three more years, through 2018.

According to USAID officials, the factors leading to cost overruns, delays and poor results were a “lack of staff with relevant expertise, unrealistic initial plans, challenges encountered with some implementing partners, and delayed or revised decisions from the Haitian government.”

The Miami Herald’s Jacqueline Charles reports:

The release of the report by the GAO, which works for Congress, came a day ahead of a visit to Haiti by U.S. congressional staffers from the House Foreign Affairs committee. Led by Eddy Acevedo, senior policy advisor to U.S. Rep. Ileana Ros-Lehtinen, the delegation plans to visit some of the projects, including empty housing plots, where work stalled because the agencies that were supposed to build the homes on behalf of USAID pulled out.

The GAO report found that five of USAID’s six major infrastructure projects had to reduce planned outcomes and “encountered delays in 4 of these activities.” Non-infrastructure activities also faced delays and reduced outcomes, but to a lesser extent. The various delays have led USAID to extend its time frame for Haiti work by three years, through 2018.

Though results varied across sectors, the GAO report revealed that in the 17 non-infrastructure projects analyzed, not a single one met or exceeded all of its performance indicators. In the case of infrastructure projects, the results were even worse. The auditors report that during a site visit to the Caracol EKAM shelter program:

we observed unresolved concerns such as blocked drainage pipes and ditches that led to flooding in the settlement after heavy rains, and blocked and crushed sewage pipes. We also observed open water catchment tanks adjacent to some houses that had become breeding areas for mosquitoes.

The report notes that the original plan was to prepare 15,000 lots and build 4,000 homes, but that “The mission had reduced the planned number of plots to 2,013, or by 87 percent, with 906 of the houses to be built by USAID, a reduction of 77 percent.” Meanwhile, costs per house increased, for an original plan of $8,000, on average, to over $24,000 by September 2014. Unmentioned in the GAO report, however, is that the two contractors responsible for the program have been suspended from receiving further government contracts and are under a legal investigation for using shoddy materials and disregarding contractual obligations.

But above and beyond the missed timelines and reduced outcomes, perhaps the most damning part of the GAO report focuses on USAID policies around the sustainability of its projects.

Mark WeisbrotAl Jazeera America, June 4, 2015

(Updated June 4, 2015, 11:34 a.m. to include references to NPR's report.)ProPublica’s Justin Elliott and NPR’s Laura Sullivan have published damning new exposés on the American Red Cross’ work in Haiti following the 2010 earthquake (ProPublica's here; NPR

The Washington Post is apparently pulling out all the stops in pushing its agenda on trade. It ran a front page news story that included several heroic acts of mind reading and flagrant misrepresentations to help push the deal to its readers.

In the later category, the second paragraph told readers:

"members of the New Democrat Coalition [a group of centrist Democrats in Congress] heard from frustrated tech executives who pleaded with them to help boost global growth and demanded to know why the president’s party was not lining up behind his trade push."

In fact the tech executives were not pleading with them to help "boost global growth," or if they were they were not being honest. There are no models that show the TPP having more than a trivial impact on global growth. In fact, the United States Department of Agriculture projected that the impact on growth in the United States would be too small to measure.

If the tech executives were pleading with the New Democratic Coalition to "boost global growth" it was an argument of the form, "give me money, it will be good for the economy." The reality is that they of course want a deal that they helped craft to make themselves richer.

Contrary to the assertions in this article, the TPP is absolutely not about expanding trade. In fact, it increases protectionism in important areas in the form of stronger and longer patent and copyright protections. No models have sought to estimate the costs to the economy of these government granted monopolies. It is likely these costs are substantial since they can raise the price of the protected items by a hundredfold or more. (The patent protected price of the Hepatitis C drug Sovaldi is $84,000 per treatment in the United States. A high quality generic is available in India for less than $1000.) This increase in prices is equivalent to a 10,000 percent tariff. It leads to exactly the sort of distortions and corruption that economists predict from high tariffs.

The NYT ran a column on helping low income homeowners by Elysse Cherry, the chief executive of Boston Community Capital. The piece includes various proposals designed to help low income homeowners who were hit by the collapse of the housing bubble, but it also includes the bizarre complaint:

"In many areas, housing prices are stuck below their inflated pre-bubble levels. Until we deal with this fact, entire communities will continue to struggle with high foreclosure rates and a lack of economic mobility. ....

"However, the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth, according to government data. Meanwhile, real wages for most Americans have been flat or falling for decades. Absent an extraordinary increase in income for low-income families, home prices in low-income areas aren’t going anywhere.

"This disparity between high- and low-income neighborhoods is evident in the numbers. The Standard & Poor’s/Case-Shiller National Home Price Index for March was over the March 2004 index, and national median home prices, according to the real estate website Zillow, are just over what they were 10 years ago."

There are two problems with this complaint. First, it is factually wrong, or at least misleading. The weak price performance of lower cost homes depends very much on the time window being considered. If homeowners bought near the peak of the bubble, which disproportionately affected lower income neighborhoods, then their prices would still be depressed, however if they bought before the bubble they would be doing quite well.

American Enterprise economist Andrew Biggs again warned about public pension funding in a Wall Street Journal piece. He’s not altogether wrong. Biggs points out that many states continue to badly underfund their pensions. He also cautions against pension funds taking too much risk with their investments. These points are well taken, but I would raise a few issues about Bigg’s argument.

First, it’s good to see that Kansas is Bigg’s poster child as one of the states with a poorly funded pension plan looking for higher market returns rather than making its required contributions. This is worth noting because Kansas is one of the most Republican states in the country, with a very conservative governor. It certainly it is not a hotbed of public sector unionism. This point is important. It was not public sector unions that caused states to have problems with pension funding, it was bad management by elected officials, both Democrats and Republicans.

Second, Biggs somewhat misrepresents the issues on returns. He argues the return assumptions used by public pension plans are considerably higher than the recommendations of a group of investment consultants and asset managers. However the asset mix for which this group made their projections was a portfolio of 70 percent equities and 30 percent bonds. The mix of assets held by pensions tends to be oriented towards somewhat higher return assets, with holdings in private equity and venture capital. The returns assumed by the pension funds are much closer the returns recently recommended in a report by the Pension Consulting Alliance.

It is also worth noting one source of confusion in these comparisons. Many pension funds assume higher rates of inflation than we have been seeing recently or are expected in the future. For example, the Kansas plan cited by Biggs assumes a 3.0 percent average rate of inflation over its planning horizon. The Congressional Budget Office and most other forecasters assume a 2.0 percent inflation rate. The difference in inflation assumptions should translate one to one into differences in returns. In other words, a 6.0 percent return assumption with a 2.0 percent inflation rate translates into a 7.0 percent return assumption with a 3.0 percent inflation rate.

However Biggs is right to raise a flag about some of the risky investments being pursued by pension funds. Private equity and venture capital can both be very risky. In the past these investments have provided a better return than the overall market, but pension funds would be wise to exercise caution if they are relying on this continuing in the future.