Archive for November, 2008
Everything Is a Security Issue
Anyone who sells to the Pentagon can claim that theirs is a strategic industry. In a war, enemies could cut off shipments from foreign producers, subsidy seekers say. Government then needs to protect American steel makers, shippers, shipbuilding, and so on. Those making these arguments avoid discussing the long odds that foreign supply will be interdicted or that the United States will fight a war that lasts long enough for it to matter.
Consider Wesley Clark’s op-ed in Monday’s New York Times. Clark notes that the Army buys a lot of vehicles from US automobile companies. Therefore, he says, bailing out the big three is a security issue. But letting US automakers go bankrupt does not mean they will stop making trucks. Even if they did, there are still foreign automakers that manufacture in the United States and would be happy to sell to Uncle Sam. And even if domestic automobile production disappeared entirely, we could still import. No imaginable enemy could close the sea-lanes that we use to bring in vehicles from Europe and Japan. Clark doesn’t address any of these holes in his argument. Nor does he let his lack of experience in the automobile business stop him from telling Detroit how to run its business.
In Sunday’s Washington Post, Joby Warrick offers similarly shaky analysis about the financial crises’ effect on US security. Economic difficulty impacts every security issue, so you can always find an expert to tell you how the downturn heightens the odds of some particular nightmare.
Warrick suggests that lowered federal revenue could require cuts in defense spending, leaving us more vulnerable. Maybe, but the doubling of non-war defense spending since 2001 has bought us plenty of security to spare, by this logic. Warrick cites specialists who say increased global poverty will cause instability, which will cause terrorism. But there is no clear link between instability and terrorism.
Warrick says “many government and private terrorism experts say the financial crisis has given al-Qaeda an opening,” which they may use to “probe for weakening border protections and new gaps in defenses.” Does anyone know what that means? The article never explains what defenses we’re talking about, let alone what gaps a downturn will open in them. It does not tell us why we should we view Al Qaeda as a carefully reckoning organization that probes and times its attack to US events, rather than groups of guys who attack when they can. The article cites analysts who say that the downturn could speed the day where China overtakes us economically. But China is not immune from economic distress. Nor it is clear that China’s rise is bad for US security.
The article could be turned on its head: “Global Downturn likely to slow China’s rise, undermine terrorist fund-raising, and eliminate wasteful defense spending, experts say.”
Gridlock Puts Brakes on Big 3 Bailout (for Now)
The Associated Press is reporting today that “Stalemate dims prospects for $25B auto bailout.”
Here’s the lead:
WASHINGTON (AP) – Prospects dimmed Monday for enactment of a $25 billion bailout for the faltering auto industry before year’s end, as congressional Democrats and the Bush administration seemed headed for a stalemate. Help for Detroit’s Big Three, which have been battered by the economic meltdown that has choked their sales and frozen their credit, is falling victim to a partisan fight over where the money should come from. Senate Democrats said they would press ahead with their plan to carve out a portion of the $700 billion Wall Street bailout to pay for the loans, but aides in both parties and lobbyists tracking the plan acknowledged they did not currently have the votes to do so. The White House and congressional Republicans insist that the automaker bailout money instead come from redirecting a separate $25 billion loan program approved by Congress to help the industry develop more fuel-efficient vehicles.
The story is already making me nostalgic for partisan gridlock and divided government, which will officially end on January 20, 2009.
My trade center teammate Dan Ikenson has been ably making the case in recent days that the bailout is a bad idea. What appears to be saving our country from wasting this huge amount of money is the much-bemoaned gridlock.
A key word in the story is “currently.” The plan does not “currently” have the votes to pass, but all that will change in 64 days.
In Education, the Big-Gov Battle Is On!
Last week, I heartily embraced the possibility, as voiced by the Fordham Foundation’s Mike Petrilli, that congressional Republicans might soon renounce their ill-fated foray into federal education control. The impetus for Petrilli’s conclusion was a Wall Street Journal letter from Michigan Rep. Pete Hoekstra (R), in which Hoekstra rebuked Republicans for abandoning principle and embracing “compassionate conservatism,” the big-government philosophy that brought us the No Child Left Behind Act.
Fights over federal education policy could very well be the battle for the GOP’s soul in microcosm, and big-government types have quickly pushed back against Hoekstra.
- On November 15, the WSJ ran a letter by former Vermonters for Better Education Executive Director Libby Sternberg, who blamed Hoekstra and others like him for undermining NCLB and, as a result, “making it very difficult for grassroots education reform and school-choice activists to push forward the principles of choice and accountability embodied in” the law.
- Today, Petrilli piles on and pitches for — you guessed it — national standards! (National standards that somehow aren’t “federal,” as you’ll see in the Washington Times piece Petrilli links to, but are nonetheless adopted as a result of federal “incentives.” See the illogic with which I have to deal?)
- Not to be outdone, Petrilli’s boss, Chester E. “Checker” Finn, joins the fray, employing one of the uglier tactics of NCLB apologists: Finn implies that Hoekstra and his ilk don’t care about the poor. “I don’t doubt that his view of education is pleasing to the party’s ‘base,’” Finn writes. “But if it prevails, members of that base may cast the only Republican votes in future elections—and all those poor, minority and inner-city kids who live in districts other than Hoekstra’s will continue to be trapped in the miserable schools that NCLB, however clumsily, sought to transform (or extricate them from).”
Clearly, the big-government types want to tussle. Well let’s get it on!
The Surreptitious Socialism of the Strong
George Will despairs that we already have a good bit of the socialism that John McCain warned about in the waning moments of his decade-long quest for Rooseveltian power. That is, we already have a lot of government redistribution of wealth, though we have almost no overt advocacy of socialism: ”This is partly because Americans are an aspirational, not an envious, people. It is also because the socialism we do have is the surreptitious socialism of the strong, e.g., sugar producers represented by their Washington hirelings.”
Rent-seeking, economists call it–using the government to get privileges, such as a grant, a subsidy, a tariff, or a restriction on one’s competition. It’s one of those things we free-marketers rail against all the time, in papers on free trade, corporate welfare, government spending, and virtually every other activity of the modern state. More broadly, we point out, as Will did, that it’s impossible to have nonpolitical allocation of trillions of dollars of taxpayers’ money handed out by government. If you don’t want the powerful to lobby and manipulate in order to get their share of the money, then leave it in the marketplace. If you put it in the hands of politicians, expect political allocation.
Responding to Will, Christopher Orr at the New Republic says, “insofar as there are two kinds of spreading the wealth around, ‘rent-seeking’ (which we can all agree is bad) and ‘socialism’ (which Will implicitly concedes is less bad), conservatives are relatively more friendly to the former and liberals are relatively more friendly to the latter.” Hmmm. Is that so? I suppose if you think of the Bush administration as “conservatives,” then you have a good case. And Orr may be too young to remember actual conservatives back in the days B.G.W.B.
But I’m not. And I recall, for instance, the first program that Democrats rallied around when the Reaganites stormed ashore in 1981 with their pitchforks and meat cleavers in hand. Nexis confirms that a day after the administration made a broad budget-cutting proposal, these words led page A1 of the Washington Post: “The entire Democratic leadership in the House joined yesterday in warning the Reagan administration to keep its budget-cutting hands off the synthetic fuels subsidy program Congress created last year.” Democrats love corporate welfare, and even liberal intellectuals are far less critical of it than are libertarians and free-market conservatives.
And it’s not just corporate welfare. All the elements of the liberal interventionist state are both product and generator of rent-seeking. You can say that rent-seeking is an unfortunately inevitable by-product of having the government do good. But to want a $3 trillion federal government with vast regulatory powers that isn’t awash in rent-seeking is, as Milton Friedman wrote, like saying “I would like to have a cat, provided it barked.” Cats meow, and government money flows to those with political power.
Are Think Tank Donors Getting What They Pay for?
Political scientist Jay Greene has an interesting blog post running down what the various free market and “free market” think tanks had to say in the run-up to Bailout Mania 2008. If you’re a limited government type, and you support any of these organizations, it’s worth a look.
Is Cato Asleep at the Switch on Copyrights and Patents?
In today’s installment of Cato Unbound, Dean Baker calls libertarians to task for their failure to take a more skeptical stance toward the government-granted monopolies we call copyright and patent protections:
Their enforcement efforts have required terrorizing people for making unauthorized copies of copyrighted material. In a recent case, a single mother was fined several hundred thousand dollars for allowing her computer to be used to download 24 songs over the web. The entertainment industry has gotten the government to prohibit the production of electronic devices because they had inadequate protection against duplicating copyrighted material. They had a Russian computer scientist arrested when he visited the United States because he gave an academic lecture that explained how an encryption lock could be broken. They even went after the Girl Scouts for singing copyrighted songs without permission.
The extraordinary abuses that we see every day as a result of patent protection for prescription drugs and copyright protection should be sending libertarians through the roof, and perhaps it does. But, where are the libertarians’ research programs on alternatives to patents for financing drug research or alternatives to copyrights for financing creative and artistic work?
My area of expertise is information technology policy, so I haven’t written much about pharmaceutical patents, but as a Cato scholar I’ve certainly spilled plenty of ink criticizing the excesses of copyright and patent law as it applies to information technology. Here is the study I did in 2006 criticizing the Digital Millennium Copyright Act, which was responsible for putting that Russian computer scientist in jail. Here is an op-ed I wrote for the New York Times last year pointing out that software patents have become an impediment to innovation in the software industry. Here is an article I wrote this summer for Reason magazine pointing out the problems the DMCA is creating for music consumers. And I’ve done dozens of posts at the Technology Liberation Front criticizing the recent expansion of copyright and patent restrictions. For example, in 2006 I did about 20 posts examining various software patents and pointing out how they were impeding progress in the software industry.
Moreover, we’ve written extensively about methods for producing creative works without copyright protection. These include free software, selling advertising, catering to core fans, selling security, and selling services. Cato published an excellent study in 2006 about the rise of “amateur-to-amateur” culture, which largely thrives outside the constraints of copyright. The growth of these alternative approaches to content creation suggests that in the future, copyright is likely to be less, rather than more, important than it was in the 20th Century.
New York Can’t Afford NOT to Have School Choice
I wrote recently about the bad economy causing parents to pull their kids from private schools and enroll them in public school; it costs school districts and taxpayers a bundle of money to educate these new kids.
The New York Post reports today that Catholic schools are hemorrhaging students:
In the Archdiocese of New York – which operates schools in Manhattan, Staten Island, The Bronx and northern suburbs – enrollment at elementary and high schools dropped by nearly 6,000 students in one year, to 88,273, officials said.
Those 6,000 students put taxpayers on the hook for another $120 million dollars at New York’s current $20,000 in per-student spending if they go to public school.
Regardless of what you think about educational choice, governments and taxpayers are in no shape to pony up that kind of cash. It’s a lot cheaper to keep those kids in Catholic schools with an education tax credit.
A little more than a quarter of current public per-student spending – $5,500 in tax credit funds – would pay for the entire average Catholic high school tuition. An education tax credit that size would mean a savings of $14,500 for every kid that stays in private school because of the credit. A credit like that might have saved taxpayers more than $80 million if it kept those 6,000 students in the school of their choice.
And that’s just Catholic schools . . . private schools are losing students across the board because many parents can’t afford to pay both school taxes and private tuition in this economy. Every kid they lose is a huge cost to public schools and taxpayers.
A recent Cato fiscal analysis found that a broad-based tax credit could save New York more than $15 billion in the first ten years . . . and that doesn’t even count savings from kids who would otherwise have gone to public schools without the credit.
New York and other states in financial trouble need education tax credits – they can’t afford not to have school choice.
Health Insurance: Why Markets Are a Better Bet Than Government
Two trends in job-based health benefits demonstrate why markets are a better bet than government for containing health-care costs and preserving choice.
Today’s New York Times reports:
even if they are fortunate enough to have a job at a company that still offers health benefits, many workers are finding that the buffet of options has been trimmed to a very short menu…
this year, at more than 100 large companies and hundreds of smaller ones . . . high-deductible plans are the employee’s single take-it-or-leave-it option. One of those companies is the automaker Nissan, which is offering only high-deductible plans to its 15,000 United States employees for the coming year. Another is Delta Airlines.
Expect to hear the usual nonsense about how employers are cost-shifting to workers (they aren’t) and how high-deductible coverage will harm workers’ health (it won’t).
The real lessons to be taken from this news are:
- Markets are better than government at cost-control. The cost of both public and private health insurance is rising. Despite being badly hampered by government intervention, the private sector is responding by cutting back on overly generous health coverage, a move that will reduce use and cost growth. How is the government responding? By expanding public subsidies, which contribute to cost growth.
- Forced pooling reduces choice. In unregulated markets, the healthy quite happily subsidize the sick. But when government forces the healthy to do so, healthy people bolt from comprehensive health plans, which then causes those plans to collapse. One of the ways that government badly hampers private health-insurance markets is by herding us all into job-based insurance pools, in an attempt to force the healthy to subsidize the sick. And wouldn’t you know, employers are now having to drop comprehensive plans.
There must be a lesson in here for Obauckennewyden.
No Experience Needed
The Washington Post reports today that job-seeking Americans who peruse employment listings for the ensuing holiday shopping season are likely to find far fewer openings than last year. That is hardly a surprise: unemployment is rising, and people are looking for work in places and industries that they wouldn’t have considered previously.
It is far more surprising that President-elect Obama’s job listings for personnel to fill the top posts in his new administration seem to all be prefaced with ”only experienced persons need apply.” This from a man whose lack of experience did not block his path to the Oval Office, and might ultimately have cleared the way.
Don’t get me wrong: I much prefer a skilled surgeon to one who is performing his first operation. An accountant who has worked for dozens of clients will likely make far fewer errors than the person who has just started her own practice. But experience doesn’t automatically translate into competence; wisdom and insight might actually be impeded by years of working in the same field, exposed only to the canon of the profession.
New thinking is particularly needed in new industries. Most of the people that Jeff Bezos hired to staff his start-up had never worked in the Internet business, and quite a few had never worked in any business at all. Today, Amazon.com is a retailing juggernaut.
New thinking – and new faces – are also welcome in old, tired industries that have run out of new ideas. (Yes, that means you Detroit automakers.)
Alas, the Washington foreign policy community has also largely run out of ideas, and the men and women in both established institutions and those newly created are still marketing products that Americans no longer want to buy. Ignoring the manifest lessons of Iraq, “experienced” Washingtonians on both the left and the right are clamoring for new and better ways to build foreign countries and fight other people’s wars; Beyond-the-Beltway Americans want to build our own country, and bring an end to our own wars.
Given his recent victory, Barack Obama clearly understands the public’s desire for change. But that applies to both foreign and domestic policy. The debacle known as the Iraq War won the support of left-leaning think tanks and academics — and 29 of 50 Senate Democrats – and yet the President-elect appears to be turning to this same, small cadre to staff his new administration. Maybe he didn’t mean it when he said that good judgment matters more than experience? Or maybe he doesn’t fully appreciate just how harmful our foreign policies since the end of the Cold War have been, and therefore misses the urgency of the need for change at Foggy Bottom and the NSC?
What Does It Mean If the Marxists Are Excited about an Obama Administration?
More from our Marxist friend Norman Markowitz, contributing editor of PoliticalAffairs.net (motto: “Marxist Thought Online”):
Obama certainly has a mandate, and it is a mandate for change. Obama’s slogan, “Change We Can Believe In,” was reminiscent of slogans like the “New Deal” of Roosevelt’s 1932 campaign and the “Great Society” banner under which Johnson won in 1964. In the latter cases, those slogans translated into the major policy domestic agendas of those administrations.
For the people who elected Obama and the increased Democratic majority, “change we can believe in”. . . is about creating a national public health care program more than 50 years after it was established in other major industrial nations . . . [a] “single payer” national health system – known as “socialized medicine” in the rest of the developed world . . .
The right-wing propaganda machine will scream socialism, and that is also a good thing. Because the more socialism comes to be identified with real policies that raise the standard of living and improve the quality of life for the working class and the whole people, the more socialism will be looked at seriously. A stronger left that follows the tradition of the Communist Party in its unbreakable commitment to a socialist future and to educating people about the value and necessity of socialist policies in the present could follow.
It would be a stretch to say that this guy speaks for president-elect Barack Obama, or anyone who voted for Obama.
But it is interesting how excited the Marxists are about Obama’s presidency. In particular, his health-care plan.
Filed under: Cato Publications; General; Health Care; Political Philosophy
Would an Auto Bailout Lead to National Greatness?
There have been plenty of criticisms here of neoconservatism and “national greatness conservatism,” but two of the occasional targets, Charles Krauthammer and David Brooks, have just published devastating critiques of the auto industry bailout. Here’s Krauthammer in the Washington Post:
First, the arbitrariness. Where do you stop? Once you’ve gone beyond the financial sector, every struggling industry will make a claim on the federal treasury. What are the grounds for saying yes or no?
The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House. To the companies heavily concentrated in the districts of committee chairmen. To clout. Is this not precisely the kind of lobby-driven policymaking that Obama ran against?
Second is the sheer inefficiency. Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping to shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations and unworkable work rules such as “job banks,” a euphemism for paying vast numbers of employees not to work.
The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It’s the ultimate in lemon socialism.
Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is “retool” Detroit to make cars for the coming green economy.
Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.
And David Brooks in the New York Times:
This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.
Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?
It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state.
Hear, hear. The intellectual case for the bailout–if there was one–surely can’t survive these two clear and analytical critiques in the nation’s most influential newspapers. But then, protectionism couldn’t survive the analytical critique of Adam Smith in 1776, and yet it persists. So we can’t assume that members of Congress will read Brooks and Krauthammer and sheepishly drop the idea of handing a big pile of taxpayers’ money to corporate managers, stockholders, and unions who have dug themselves into a deep hole.
Krauthammer and Brooks both make a careful distinction between the financial bailout and the proposed auto industry bailout. Krauthammer posits the Wall Street intervention as “an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.” But bailing out Detroit is put forth as a scheme to save jobs, and where does that process stop? Krauthammer warns that the “drift toward massive industrial policy threatens to grow into the guaranteed inefficiencies of command-economy maximalism.”
For those of us who opposed all the taxpayer bailouts, starting back with Bear Stearns―or with Chrysler in 1979―all these bad ideas may seem to run together. Bear Stearns, AIG, the general financial industry, the auto industry―it’s all government intervening with taxpayers’ money to favor some businesses or industries that made mistakes. Perhaps because they weren’t so critical of the measures to deal with the financial crisis, Krauthammer and Brooks find it easier to see what’s very different about the Detroit bailout. And they both make crucial points: the dangers of political allocation of resources, the benefits of bankruptcy and restructuring, the industry’s partially self-inflicted wounds, the desire of some Democrats for political power over corporate decisionmaking, the dangers of corporate capitalism. Let’s hope members of Congress read and underline both columns.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
