Daniel in the Looter’s Den: My Adventures at the UN
I was at the United Nations yesterday for something called “The High Level Thematic Debate on the State of the World Economy.”
Most speakers, including the secretary general of the United Nations, the president of the European Commission, Paul Volcker, and Joseph Stiglitz, to varying degrees blamed private markets for the fiscal and financial problems of the world. Not surprisingly, there also was a consensus for more government—usually wrapped up in buzzwords such as “sustainable development” and “equitable growth” and ”coolective action”
I spoke in the afternoon as part of a roundtable on the economic crisis (see full schedule here). There were five speakers on my panel, including yours truly. Here are my thoughts on what the others said.
Dr. Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development, must have been part of the buzz-word contest I mentioned yesterday. Lots of rhetoric that theoretically was inoffensive, but I had the feeling that it translated into a call for more government. But maybe I’m paranoid, so who knows.
Professor Dato’ Dr. Zaleha Kamaruddin, rector of the International Islamic University of Malaysia, was an interesting mix. At some points, she sounded like Ron Paul, saying nice things about the gold standard and low tax rates. But she also called for debt forgiveness and other forms of intervention. She explicitly said she was providing Islamic insights, so perhaps the strange mix makes sense from that perspective.
Former U.S. senator Alan K. Simpson also was a mixed bag. Simpson was co-chair of President Obama’s fiscal commission, which I thought was a disappointment because it endorsed higher taxes and urged subpar entitlement changes rather than much-needed structural reforms. He also went after Grover Norquist because of the no-tax pledge, which I think is a valuable tool to keep Republicans from selling out for bigger government. All that being said, Senator Simpson is a promoter of smaller government and he wants lower tax rates. So while I disagree with some of his tactical decisions, he was an ally on the panel and would probably do a pretty good job if he was economic czar.
Last but not least, Professor Jeffrey Sachs of Columbia University was a statist, as one would expect based on what I wrote about him last year. We clashed the most, arguing about everything from tax havens to the size of government. Interestingly, we both said nice things about Sweden, but I was focusing on policies such as school choice and pension reform, while he admired the large public sector. But I will admit he was a nice guy. We sat next to each other and did find a bit of common ground in that we both were sympathetic to the way Sweden dealt with its financial crisis about 20 years ago (a version of the FDIC-resolution approach rather than the corrupt TARP bailout approach).
My message, by the way, was very simple: Higher taxes won’t work. The “growth” vs. “austerity” debate in Europe is really a no-win fight between those who want higher spending vs. those who want higher taxes. The only good answer is to restrain spending with—you guessed it—Mitchell’s Golden Rule.
The good news is that I wasn’t tarred and feathered. Indeed, I even got a modest amount of positive feedback. The bad news is that I doubt I moved the needle.
But at least the United Nations was willing to have contrary voices, unlike the Organization for Economic Cooperation and Development, which once threatened to cancel a Global Tax Forum because of my short-lived participation.
‘Lawsuit Contentions, Like Beer Itself, Can Be Dangerous When Over-Quaffed by the Naive’
To be fair about it, New York Times columnist Nicholas Kristof has written some pretty good stuff about the Drug War and other topics. But when he’s having a weak day, he’s weaker than watered beer, or so I conclude in a new Reason piece about his latest crusade.
Last week Kristof urged readers to boycott Anheuser-Busch products until the brewer cuts off beer sales near the alcoholism-ravaged Pine Ridge reservation of the Oglala Sioux. Whatever you think of the paternalistic premises at work here, Nebraska’s system of wholesaler-protective beer regulation appears to make it impossible, even unlawful, for the maker of Budweiser to do any such thing. And Kristof’s second proposal, to extend the boundaries of the reservation itself, fails to allow for obvious adaptive responses by both sellers and buyers.
Kristof has more insight than most of his colleagues into why the Drug War has failed. Why does he seem to forget those insights when it comes to the most familiar of legal drugs?
NATO Summit Will Reaffirm Afghanistan’s Weakness
The focus of the upcoming NATO summit in Chicago will be Afghanistan. President Obama is expected to speak of the need for solidarity from the international community. His only major success will be a pledge from NATO members to commit funds to Afghanistan well beyond 2014. Difficult questions surrounding the mission’s long-term sustainability will remain unanswered. But any long-term plan for stabilization must put Afghans in the lead. That is the country’s true path to self-sufficiency.
The estimated cost of paying for the 230,000-350,000-strong Afghan National Security Forces (ANSF) hovers between $4 billion and $6 billion, annually. The President will seek $1.3 billion from allies, which in an age of austerity will be difficult for NATO partners, leaving the United States to foot much of the bill.
Although it is cheaper to fund Afghan forces than deploy foreign troops, long-term operations, maintenance, and sustainment costs for the ANSF may continue through 2025. Building security and governance to the point where locals can stand on their own is an indefinite commitment, not an exit strategy.
The real story of the summit is that U.S. and NATO officials plan to extend their financial support to Afghanistan in the face of war-weary publics at home, brazen insurgent attacks in the capital, and a string of scandals involving coalition forces and their Afghan counterparts. Lingering issues that will go unresolved include the quality of the ANSF, the seemingly indefatigable insurgency, and the long-talked-about negotiated peace settlement with extremists and regional powers.
Beyond the cost and size of the security forces, President Obama will also speak of the lofty commitments in the recently signed U.S.-Afghanistan strategic partnership framework, which include “protecting and promoting shared democratic values” and “social and economic development.” What remains unanswered is what will happen if Afghanistan does not meet these ambitious benchmarks.
What will happen if the fundamental rights and freedoms of women are not protected? What will happen if the 2014 presidential elections are not free and fair? What will happen if security and national unity are not advanced? Does failure void the agreement, and for how long will Afghanistan rely on the United States if we do not see progress? These questions persist as American taxpayers spend $2 billion a week on an unpopular war, and as widespread local corruption and perceptions of social injustice continue to fuel passive support of the insurgency.
The international community’s pledge to never abandon Afghanistan is well-intentioned, especially since Washington was partly responsible for that country’s past and present turmoil. But it is also imperative that the international community not become Afghanistan’s perpetual crutch. Afghans desperately seek foreign assistance, but what really matters is the long-term sustainability of Afghanistan’s institutions. Sadly, social and political changes won’t be seen as legitimate if they depend on institutions that appear to be at odds with local traditions or are excessively reliant on foreign patronage.
Paradoxically, the United States and NATO may wind up both helping and hindering Afghanistan on its path toward self-sufficiency.
All Europe Needs Is a Massive Earthquake and Tsunami
Paul Krugman looks at the first-quarter growth results from some developed economies and notes Japan’s strong performance due to the post earthquake and tsunami reconstruction. He then compares it to Italy’s dismal results due to austerity measures (which, as I’ve pointed out here, consists almost exclusively of tax increases, not cuts in spending).
Krugman then says that “there seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it…” Is he really saying that what Europe needs to grow again is a massive earthquake and tsunami? Or maybe a nuclear accident? After all, Krugman once wrote that Fukushima’s “nuclear catastrophe could end up being expansionary” for the economy.
Speaking of economic lessons, has the good professor never heard of “the broken window fallacy”?
Next, the Sun
The Obama administration has acted to protect Americans from cheap access to solar energy, imposing tariffs of 31 percent and even 250 percent on solar cells and panels imported from China.
As I noted previously, this case echoes one of the most famous documents in the history of free-trade literature, Bastiat‘s famous ”Candlemakers’ Petition.” In that parody, the French economist and parliamentarian imagined the makers of candles and street lamps petitioning the French Chamber of Deputies for protection from a most dastardly foreign competitor:
You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity. . . .
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival … is none other than the sun.
For after all, Bastiat’s petitioners noted, how can the makers of candles and lanterns compete with a light source that is totally free? Chinese solar panels aren’t free, but they’re inexpensive enough to be attractive to American buyers.
Any source that supplies solar panels to American consumers and businesses is a competitor of the American industry. And any source that can deliver any product cheaper than American companies is a tough competitor. Domestic producers will no doubt gain by imposing a tariff on their Chinese competitors. But companies that install solar power will lose, by having to pay higher prices for panels.
Businesses would always prefer a world without competitors. If they can’t outcompete their rivals in the marketplace, they may be tempted to ask the government for protection. And our “antidumping” laws actually invite such complaints. But economists agree that consumers, and the businesses that use imported products, lose more on net than producers gain. Protectionism is a bad deal for the American economy. And in this case, a bad deal for anyone who wants to see more solar energy in the United States.
More on “antidumping” laws here.
NATO Has Become a Form of U.S. Foreign Aid
The NATO summit starts Sunday in Chicago and will be the largest gathering ever held by the alliance. This is fitting given NATO’s desire to act around the globe. While U.S. officials say no decisions on further expanding membership will be made at the meeting, they explain that the door remains open. Adding additional security commitments in this way would be a mistake.
The United States has always been and will continue to be the guarantor of NATO’s military promises. In reality, NATO could not pay its bills without the United States, much less conduct serious military operations. American alliance policy has become a form of foreign aid. Nowhere is that more true than in Europe.
America’s alliances once had a serious purpose: to increase U.S. security. NATO joined the United States and Western Europe to prevent the Soviet Union from dominating Eurasia. The alliance lost its raison d’être in 1989 when the Berlin Wall fell. Communist regimes throughout Eastern Europe had toppled. The Warsaw Pact soon dissolved. Ultimately the Soviet Union collapsed.
Yet 23 years later NATO labors on, attempting to remake failed societies and anoint winners in civil wars. There’s no big threat left: Russia isn’t going to revive the Red Army and conquer the European continent. Moscow was barely capable of beating up on hapless Georgia.
Moreover, the Euro zone crisis threatens to turn NATO’s military capabilities into a farce. Virtually every European state is cutting back on its military, even France and Great Britain, which traditionally had the most serious—and most deployable—forces. NATO always looked like North America and The Others. Today the only power prepared to battle even a decrepit North African dictatorship is America.
Yet like the Borg of Star Trek fame, the alliance wants to ever-expand, absorbing every country in its path. Bosnia—an artificial nation who military was cobbled together from three warring factions—hopes to join. So, too, Macedonia, which remains at odds with Greece over its very name. Georgia, which triggered a war with Russia in apparent expectation of receiving U.S. support, wants in. Montenegro, which has no military of note, is also interested.
There is even talk of adding Kosovo, another artificial country in which the majority ethnically cleansed national and religious minorities while under allied occupation. Serbia, bombed by NATO in 1999 and still resisting Kosovo’s secession, is on the long list. As is Ukraine, a country with a large Russophile population and a government that acts more Russian than Western.
Adding these countries would greatly expand America’s liabilities while adding minimal capabilities. The United States would have to further subsidize the new members to bring their militaries up to Western standards while making their disputes and controversies into America’s disputes and controversies. Worst would be expanding the alliance up to Russia’s southern border, giving further evidence to Moscow of a plan of encirclement. As Henry Kissinger once said, even paranoids have enemies. Indeed, Washington would not react well if the Warsaw Pact had included Mexico and Canada.
The United States cannot afford to take on more allies and effectively underwrite their security. It is not worth protecting Georgia at the risk of confronting Russia, for instance. Moreover, now is the time to end this foreign aid to wealthy European countries. The Europeans have a GDP ten times as large as that of Russia. Europe’s population is three times as big. The Europeans should defend themselves. If they want to expand their alliance all around Russia, let them. But the U.S. government, bankrupt in all but name, should finally focus on defending Americans, not most everyone else in the world.
Ignatius on Pakistan: Actually, We May Have Only Had One Year
In today’s Washington Post, David Ignatius writes that Pakistan is reaping the whirlwind of homegrown terrorism by having “squandered the opportunity presented” with a large-scale U.S. troop presence next door and for refusing to work with Washington to stabilize its mountainous tribal region. Recent history suggests a more complex reality.
Mr. Ignatius is correct when he writes that Pakistan has pursued self-defeating policies, as I have written about extensively and at length. In the seven-year period leading up to 9/11, Islamabad directly armed, funded, and advised the Taliban regime that provided sanctuary to al Qaeda. As former National Security Adviser Condoleezza Rice explained in April 2004:
Al-Qaida was both client of and patron to the Taliban, which in turn was supported by Pakistan. Those relationships provided al-Qaida with a powerful umbrella of protection, and we had to sever them. This was not easy.
Indeed, it was not. Years of assistance to select militant groups cemented ideological sympathies for radicalism among elements of that country’s armed forces and civilian political elite. Such sympathies cannot be turned off overnight. After former President-General Pervez Musharraf deployed 70,000 troops to the fractious tribal areas in early March 2004, and ordered the ham-fisted raid on Lal Masjid in July 2007, Pakistan and its porous border with Afghanistan became even more inflamed. Over the past couple of years, this author has become far more pessimistic about Pakistan’s viability as a functioning state, given the continuing devolution of power to incompetent local bodies and the disturbing increase of Punjabi militants.
Given all of this, it is mistaken for Mr. Ignatius to leap to the assumption that by deploying over 100,000 foreign troops to Afghanistan nearly a decade after 9/11, the U.S. and its allies could have miraculously stabilized the region. If anything, right after 9/11, Islamabad and Washington had dropped the ball. Back in 2008 when I was in Lahore, I bumped into a former head of Pakistan’s military-dominated spy agency, the Directorate for Inter-Services Intelligence. We had very brief and candid discussion about the forgotten war raging next door. He said quite explicitly that Pakistan was willing to relinquish support for the Taliban, but that after President George W. Bush lost Osama bin Laden and turned his sights on Iraq, the Pakistanis believed (and understandably so) that the United States didn’t care about the region. Pakistan continued to pursue its own objectives since the United States was focused elsewhere. In essence, he said, Washington had one year after the initial invasion to leverage Islamabad and persuade it to alter its strategic policies.
Of course, who knows for sure? Alas, we will never know, but it was immediately after the devastating terrorist attacks of September 11, 2001, and sadly, it seems, we may never recoup the goodwill we reaped and eventually—and gratuitously—squandered.
I Second That Skepticism
The ACLU’s Chris Calabrese notes that nominations to the Privacy and Civil Liberties Board were forwarded from the Senate Judiciary Committee to the full Senate this morning. Congress created the Board in August 2007, and we have waited, and waited, and waited while the Bush and Obama administrations neglected to appoint anyone to it.
Calabrese is rightly skeptical that the “PCLOB” can make a difference:
[T]he national security establishment is huge, with tens of thousands of employees and a budget of more than $60 billion. The NSA alone has more than 30,000 employees. Contrast that with the PCLOB. It’s currently authorized (if it finally gets filled) to spend a whopping $900,000 and hire ten full-time employees for the 2012 fiscal year. With this level of staffing, it’s hard to imagine that the Board and its investigators can even begin to understand this vast national security infrastructure, never mind properly oversee it.
I have a fair amount of experience with privacy oversight in the U.S. government, having served on the Department of Homeland Security’s Data Privacy and Integrity Advisory Committee. That experience has fairly well validated my thinking in 2001, before there were “privacy officers”:
The appointment of a privacy czar or creation of a privacy office is a poor substitute for directly addressing the voraciousness of many government programs for citizens’ personal information. Political leaders themselves should incorporate privacy into their daily consideration of policy options, rather than farming out that responsibility to officials who may or may not have a say in government policy.
To see how the PCLOB fits into government thinking, we can look at a 2007 speech given by Donald Kerr, principal deputy director of National Intelligence. To him, “privacy” is giving the government access to all the data it wants, subject to oversight.
[P]rivacy, I would offer, is a system of laws, rules, and customs with an infrastructure of Inspectors General, oversight committees, and privacy boards on which our intelligence community commitment is based and measured. And it is that framework that we need to grow and nourish and adjust as our cultures change.
That’s not privacy.
So don’t think for a minute that privacy will be better protected with a PCLOB in place, except perhaps marginally in the few programs that the Board dips into.
The membership of the board is slated to be: Jim Dempsey of the Center for Democracy and Technology, a sincere and knowledgeable privacy player, whose “player” role I find incompatible with producing good privacy outcomes; Elisebeth Collins Cook, a former Department of Justice lawyer who I had never heard of before her nomination; Rachel Brand, an attorney for the U.S. Chamber of Commerce also unknown to me; Patricia Wald, a former federal judge for the D.C. Circuit whose privacy work is unknown to me; and David Medine, currently a WilmerHale partner who will chair the board. Medine is unquestionably government-friendly. He was a Federal Trade Commission bureaucrat who helped draft the Gramm-Leach-Bliley financial privacy and the Children’s Online Privacy Protection Act (COPPA) regulations.
Freshman Republicans Switch from Tea to Kool-Aid
This week the Club for Growth released a study of votes cast in 2011 by the 87 Republicans elected to the House in November 2010. The Club found that “In many cases, the rhetoric of the so-called “Tea Party” freshmen simply didn’t match their records.” Particularly disconcerting is the fact that so many GOP newcomers cast votes against spending cuts.
The study comes on the heels of three telling votes taken last week in the House that should have been slam-dunks for members who possess the slightest regard for limited government and free markets. Alas, only 26 of the 87 members of the “Tea Party class” voted to defund both the Economic Development Administration and the president’s new Advanced Manufacturing Technology Consortia program (see my previous discussion of these votes here) and against reauthorizing the Export-Import Bank (see my colleague Sallie James’s excoriation of that vote here).
I assembled the following table, which shows how each of the 87 freshman voted. The 26 who voted for liberty in all three cases are highlighted. Only 49 percent voted to defund the EDA. Only 56 percent voted to defund a new corporate welfare program requested by the Obama administration. And only a dismal 44 percent voted against reauthorizing “Boeing’s bank.” That’s pathetic.
My suggestion to the House GOP freshmen who haven’t swallowed the Beltway Kool-Aid yet is to make it an objective to get as many roll call votes as possible on bills or amendments to terminate specific federal agencies and programs. That would help the taxpaying public separate the frauds from the friends. And if the frauds start taking some heat, maybe they’ll start to think twice before casting another vote in favor of the big government status quo that they campaigned against.
And Don’t Come Back!
Just when you thought the soak-the-rich arguments couldn’t get any more perverse, now comes a bill introduced this morning by Senators Chuck Schumer and Bob Casey, CNNMoney is reporting, “that would prevent [Facebook co-founder Eduardo Saverin] from ever returning to the United States.” The Brazilian-born Saverin became a U.S. citizen in 1998, but he’s been living in Singapore since 2009. He’s been in the news lately because he renounced his U.S. citizenship earlier this year, presumably to avoid income and capital gains taxes on his Facebook shares, which go on sale tomorrow.
As CNN describes the “Ex-PATRIOT Act:”
The proposal says that if a wealthy American seeks to renounce their [sic] citizenship, it will be presumed they have done so for tax purposes, unless the individual can convince the IRS otherwise.
If the person is unable to convince the IRS, they will be subject to 30% capital gains tax on future U.S. investments no matter where they live. Furthermore, they will not be allowed back into the United States. “Period,” Schumer said. “They could not set foot in this country again.”
Ingrate! In fact, that’s pretty much how Schumer looks at it:
“Saverin has turned his back on the country that welcomed him and kept him safe, educated him, and helped him become a billionaire,” Schumer said. “This is a great American success story gone horribly wrong.”
Do you suppose that what’s “gone horribly wrong” is a tax system that encourages people like Saverin to leave? Ask the people leaving California, Illinois, and New York.
Solar Panels Trade Case Mocks Washington’s Ways
Later today the U.S. Department of Commerce is expected to announce preliminary antidumping duties on solar panels from China. This case might normally be met with an exasperated sigh and chalked up as just another example of myopic, self-flagellating, capricious U.S. antidumping policy toward China.
But in this instance the absurdity is magnified by the fact that Washington has already devoted billions of dollars in production subsidies and consumption tax credits in an effort to invent a non-trivial market for solar energy in the United States. Imposing duties only undermines that objective. With brand new levies on imports to add to the duties already being imposed on the same products to “countervail” the lower prices afforded U.S. consumers by the Chinese government’s production subsidies, the administration’s already-expensive mission will become even more so – perhaps prohibitively so.
It’s not that President Obama and the Congress woke up one morning and agreed to craft policies that simultaneously promote and deter U.S. solar energy consumption. But that’s what Washington – with its meddling ethos and self-righteous politicians – has wrought: policies working at cross-purposes.
The Economic Report of the President in 2010 (published before Solyndra became a household name) boasts of the administration’s tens of billions of dollars in subsidies for production and tax credits for consumption of solar panels. This industrial policy continues to this day and there is no greater cheerleader for solar than the president himself. In this year’s State of the Union address, President Obama said:
I’m directing my administration to allow the development of clean energy on enough public land to power three million homes.
One month later, noting that 16 solar projects have been approved on public land since he took office, the president said:
[Solar] is an industry on the rise. It’s a source of energy that’s becoming cheaper. And more and more businesses are starting to take notice.
The president has couched his support for solar in terms of what he sees as the environmental imperative of reducing carbon emissions and slowing global warming. Thus his policy aim is to encourage consumption by making solar less expensive to retail consumers with production subsidies and consumption tax credits. (Of course, lower-cost solar is a mirage – accounting smoke and mirrors – because the subsidies come from current taxpayers and the tax credits deprive the Treasury of revenues already earmarked, forcing the government to borrow, burdening future taxpayers with principle and interest debt, which is paid with higher taxes down the road).
Cato to Host Navy Under Secretary to Discuss Surface Fleet
In its markup of the National Defense Authorization Act, the House Armed Services Committee proposed a number of changes to the Obama administration’s plans for the U.S. Navy. The NDAA rescinds the retirement of three cruisers and restricts retirement of ballistic missile submarines (so as not to fall below a minimum of 12). The bill also contains an amendment which authorizes a GAO review of the Littoral Combat Ship (LCS) program. The amendments collectively reflect the Committee’s concern that the Navy won’t be able to fulfill its current missions with fewer and perhaps less capable ships. Unfortunately, no one is asking whether any of those missions could be modified, eliminated, or shifted to others.
I will address some of those issues at a Cato policy forum this Monday, May 21, at noon. I am particularly thrilled to be joined by Under Secretary of the Navy Robert O. Work, Ben Freeman of the Project on Government Oversight, and Eric J. Labs of the Congressional Budget Office. Those three make this an all-star cast to discuss the future of a U.S. surface fleet that is undergoing some major changes. With the retirement of the Navy’s cruisers and frigates, the development of bigger and more complex destroyers, and the introduction of the LCS tomorrow’s surface fleet will look quite different than today’s.
Congress is particularly concerned about the LCS because of reports of design and construction flaws and operational problems, including this letter issued by the Project on Government Oversight, and a subsequent article in Aviation Week. But some are also concerned that even though LCSs eventually will constitute about one-third of the Navy’s surface combatants, the LCS is not supposed to engage in combat. In addition, its mission modules, especially the anti-submarine warfare package, are years away from operability.
Our panel will address many of the questions swirling around the surface fleet today, including: How will the replacement of thirty frigates with the still-untested LCS affect the Navy’s overall capability? Will the ballistic missile defense requirement reduce the availability of destroyers for other missions? Could the Navy pursue a different strategy to advance U.S. national security that could be executed with fewer ships? Of course, the answers to all of those questions are framed within the context of declining procurement budgets. Given that reality, one could argue that the greatest threat to the U.S. Navy’s surface fleet is its undersea fleet: the looming SSBN(X) program could devour the shipbuilding budget for a decade.
So, with no shortage of difficult and far-reaching decisions ahead for the Navy, it is a privilege to have Under Secretary Work, Ben, and Eric to help us navigate the way. I hope you can join us on Monday.
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