Archive for December, 2009
Obama’s Nobel Speech
I have two complaints about the President’s Nobel Prize acceptance speech, one factual, one theoretical. The first concerns his repetition of the common claim that we live in a world of growing instability and civil war. The president said:
The resurgence of ethnic or sectarian conflicts; the growth of secessionist movements, insurgencies, and failed states — all these things have increasingly trapped civilians in unending chaos.
Truth requires changing “increasingly” to “decreasingly.” Andrew Mack’s Human Security Brief makes the point. The chart below shows that civil war (intrastate war) — what Obama is talking about here — has become less common over the last several decades. Elsewhere in the report, you can also see that civil war now kills far fewer people than it used to.
My second gripe is Obama’s failure to acknowledge that peace is a value that competes with others. Human beings get along not by reconciling all differences but by tolerating them. Nations avoid war by accepting the small dangers others pose rather than making larger dangers by trying to achieve total safety. If the United States had sacrificed its desire to promote anti-communism and free trade and contain Communism in Korea in 1950, as we did Eastern Europe, we could have avoided the Korean War. By accepting some risk from Iranian nuclear weapons, we avoid preventive war. We keep the peace with Sudan because we do not enforce humanitarian norms in Darfur. We could overthrow the government of Zimbabwe or North Korea and save people from disease and starvation. But we prefer peace. Pakistan undermines its uneasy peace with India because it wants Kashmir back. Israel does something similar in the West Bank.
However one judges these choices, it is important to recognize them as such. Rightful winners of peace prizes are people who sacrificed something important to avoid war, or at least advocated doing so.
It isn’t surprising that the President, given his job, would celebrate the morality of American military hegemony and disregard arguments that it isn’t a source of peace. It was predictable that he would defend the idea that peace in the long term often requires sacrificing it in the short, as we are fighting two wars in the name of stability. What got me was that he failed to mention that peace also requires sacrifice.
To the extent a message unites the speech, it is this: All good things go together. We do not have to choose peace at the expense of U.S. military activism, democracy, justice, or economic development abroad — they all serve that end. The President basically defined peace as a world rid of poverty and injustice. He said, for example, that peace within states is not durable without the sense of justice provided by liberal ideology, because autocratic government causes unrest and violence. Aside from the creative use of history, what’s remarkable here is the failure to acknowledge that maintaining peace with autocracies is usually virtuous but tragic.
Deficit Commission: Wrong Target, Wrong Approach
Legislation being considered on Capitol Hill would create a supposed deficit reduction commission. If politicians were bound by truth-in-advertising, this proposal would be called a tax increase commission. It creates a mechanism that will — at best — replicate the 1982 and 1990 budget summits, both of which were fiscal disasters from the perspective of those who favor limited government. The inevitable result of a “bipartisan” process is a 50/50 deal of “spending cuts” and “tax increases,” but the spending cuts are off the “baseline” (which assumes spending goes up), so even if the changes are real (and they rarely are), they are merely reductions in increases. The tax increases, meanwhile, are real and come on top of all the revenue growth built into current law. Moreover, many of the so-called spending cuts are actually increases in revenue (the “offsetting receipts” charade). Last but not least, this legislation is a stalking horse for VAT (that’s what all the talk about an “antiquated” tax system that needs to be “modernized” is all about).
What’s remarkable about this proposal is how Democrats are almost transparent in their desire to lure Republicans into committing political suicide. As demonstrated by the 1982 and 1990 budget deals, everything is examined through the prism of distribution tables once a budget summit or commission commences and the GOP inevitably comes across as the bad guys who try to protect the rich at the expense of the poor. Of course, if Republicans are really stupid enough to travel down this path, they’ll deserve exactly what happens. But some people in Washington are aware that the proposed commission is a recipe for a major tax hike. The Financial Times cites Cato’s Chris Edwards in its report:
The push for a bipartisan commission to deal with the fiscal challenges facing the US gained momentum on Wednesday as 27 senators sponsored revised legislation that would create such a task force. The bill, introduced by Democrat Kent Conrad and Republican Judd Gregg, both fiscal hawks, would charge an 18-member group of serving legislators and administration officials with coming up with a plan to solve what they called “the nation’s long-term fiscal imbalance”. …In a sign that the concept of such a commission is gaining ground politically, anti-tax activists immediately attacked the proposal, saying it would lead to tax increases. Grover Norquist, head of Americans for Tax Reform, published an open letter saying the “commission is unacceptable from a taxpayer perspective” because “it would lead to a guaranteed tax increase”. …Chris Edwards, director of tax policy at the small-government Cato Institute, said a commission was likely to put too much emphasis on tax increases when “long-term projections reveal a spending catastrophe, not a revenue challenge”.
One final comment. It is utterly absurd to categorize Senator Kent Conrad as a fisal hawk. This term supposedly suggests a member who actively pursues deficit reduction. Yet according to the vote rating of the National Taxpayers Union, Conrad’s most recent rating is an F. Which is the same grade he got the previous year, and the year before that, and the year before that. Indeed, Conrad “earned” failing grades in 14 out of 17 years, and got a D in the other three years.
“Send Us Your Tired, Your Poor, But Only if They’re ‘Culturally Unique’”
That’s the title of a Wall Street Journal article detailing the latest idiocy to come out of our immigration system. It seems that if you’re a musician trying to get a visa to perform in the United States, you have to prove to some bureaucrat’s satisfaction that your music either is “culturally unique” or has “achieved international recognition and acclaim.” (Query: Does the Department of Homeland Security now require immigration caseworkers to have degrees in musicology or fine arts?)
The article chronicles the various travails of performers who are either so innovative — perish the thought! — as to not fit into an easily defined cultural category or haven’t yet reached U2-like levels of popularity.
Reads one denial: “The evidence repeatedly suggests the group performs a hybrid or fusion style of music … [which] cannot be considered culturally unique to one particular country, nation, society, class, ethnicity, religion, tribe or other group of persons.”
Reads another: “Being internationally acclaimed is not equivalent to performing on stages overseas.”
You can’t make this stuff up! It reminds me of my own immigration plight – which ended happily earlier this year — whereby I shot myself in the foot by, among other ridiculous things, getting my education in the United States instead of acquiring legal expertise abroad (at lesser institutions, making myself less valuable to the U.S. legal market).
I’ve heard some talk that Congress will take up immigration reform after it finishes with health care, though I can’t imagine that happening in an election year. In any event, I’ve long believed that our immigration non-policy is the worst part of the U.S. government (which should say something, coming from someone at Cato).
For more on our work on immigration policy, go here.
Thursday Links
- You call this a “moderate compromise?”: The public option’s rotten replacement.
- Why Copenhagen is all pain and no gain. Meanwhile, Brookings finds that “meeting the Waxman-Markey emissions targets would result in a loss of personal consumption from $1 trillion to $2 trillion; GDP would be lower by 2.5 percent by 2050; and there would be 1.7 million fewer jobs.”
- Dear U.S. government: This is how you create a job.
- Podcast: “Recounting the cost of ObamaCare.“
How to Kill a Company: A Beginner’s Guide (Chapter 1, P. 1.)
As described in the current Cato Policy Report, one of the “Hard Lessons from the Auto Bailout” is that management at GM is likely to be “highly erratic, as the president and Congress wrestle for decisionmaking primacy at this majority taxpayer-owned entity.” The “dealerships” issue is Exhibit A.
One of GM’s first decisions upon emerging from bankruptcy was to announce closures of a number of dealerships to help reduce costs. Then-nominal-CEO Fritz Henderson explained that the planned closings would save GM about $100 in distribution costs per vehicle–a few hundred million dollars per year when factoring in the millions of units GM expects to produce.
But many of GM’s congressional CEOs cried foul, demanding reconsideration from a company that had taken public funds. The House of Representatives even passed a bill requiring companies that received federal funds to reestablish terminated dealership agreements, though no action was taken in the Senate.
However, as reported in The Hill today, Congress is fast-tracking legislation to restrict GM’s (and Chrysler’s) closings, by subjecting each decision to an arbitrator, who will “balance the economic interests of the terminated dealership, the car companies and the general public.” A Senate aide is cited as saying legislators intend to pass this measure before Christmas.
Well, look, EVERY decision GM makes will produce winners and losers in terms of real and opportunity costs. Hence, EVERY decision is just as worthy of legislative or executive scrutiny, if the dealership issue is the litmus test.
With 537 CEOs, all but one of whom have bigger priorities than GM’s bottom line, GM’s future will be dictated by splitting differences, political logrolling, and managing by consensus–tactics that will assure GM’s demise.
Government and GDP
The expansion in government and poor state of the economy got me thinking about how government growth is reflected in measured gross domestic product. So here is a wonky look at the treatment of government in the Bureau of Economic Analysis GDP data.
Data notes: By “government,” I mean total federal, state, and local. For 2009, I’m using the average of second and third quarter data. All data from BEA Tables here.
GDP measures total production. In 2009, government production was 20.7 percent of U.S. GDP. Government production is roughly the sum of government value-added (the stuff it produces itself) and government purchases. The first item, government value-added, was 12.4 percent of GDP and mainly consists of employee compensation. For example, the Pentagon produces output by adding together fighter pilots, which it hires, and fighter jets, which it buys.
A more commonly cited measure of government is total government spending. In 2009, that was 38 percent of GDP. The difference between this number (38 percent) and the production number (20.7 percent) is 17.3 percent, and represents the sum of government interest payments and transfer payments to individuals and businesses.
Figure 1 shows how the three measurements of government size have changed over time. Government production has remained fairly stable as a share of the economy, but total government spending has soared. The growing gap between these two lines mainly represents the massive growth in transfer (or subsidy) programs, such as Social Security.
Health Care Mandate Is Unconstitutional — and Don’t Leave Home Without the Cato Constitution
Yesterday the Heritage Foundation released a new paper on the unconstitutionality of the proposed health care mandate. Think tanks aren’t normally in the habit of promoting their peer institutions’ work, but this paper is incredibly timely and its lead author is Cato senior fellow Randy Barnett. You really should go read it.
Interestingly, at the event unveiling the paper, Eugene Volokh (of UCLA Law School and the Volokh Conspiracy blog) at one point wanted to quote the Constitution and realized he wasn’t carrying one! Eugene asked if anyone had a Heritage Constitution. Former Attorney General Ed Meese, now chairman of Heritage’s Center for Legal and Judicial Studies, saved the day by passing Eugene his… handy, dandy, Washington Post-bestselling Cato Constitution. It seems that General Meese likes our version because it’s smaller and so fits easier into your pocket. (I would add that it also features the Declaration of Independence — as does Heritage’s — as well as a preface by my boss, Roger Pilon.)
You can watch the entire health care event, which features Senator Orrin Hatch along with Randy and Eugene, here (the Constitution bit starts at about 40:15; I ask a question at 1:04:46). The bottom line — beyond the health care abomination — is that you should always carry your Cato pocket Constitution wherever you go. Like Josh Blackman, I keep one in every suit jacket (as well as backpacks, totebags, briefcases, and roll-aboards). You never know when you — or someone else — may need it.
They also make great stocking stuffers and gifts for any night of Hanukkah (as does the latest Cato Supreme Court Review, though you may need a slightly larger stocking).
Red Team, Blue Team
In a report on Attorney General Eric Holder’s approach to seeking the death penalty, NPR reports:
A few months after Holder made that statement, he authorized a capital prosecution in Vermont, a state that does not have the death penalty. When Ashcroft brought a federal death penalty case in Vermont seven years ago, the mayor of Burlington called it “an affront to states’ rights” and “not consistent with the values of a majority of Vermonters.” But this time, there was hardly any outcry.
So the former antiwar movement doesn’t complain about President Obama’s expansion of the wars in Iraq and Afghanistan. And opponents of capital punishment don’t protest the Obama administration’s seeking the death penalty in liberal Vermont. It’s beginning to look a lot like the Bush years, when conservatives put up with a great deal from a Republican administration that would have sent them into apoplexy if it had been done by Democrats.
More Federal Health Care Fraud
Another day brings another example of federal health care fraud. Today’s story comes from “the nation’s healthcare fraud capital” of Miami-Dade County. The government’s crack investigators realized it was fishy that a single county was accounting for more than half of Medicare’s total payments for the treatment of homebound patients with diabetes. Miami-Dade doesn’t even have Florida’s highest rate of diabetes.
According to the Miami Herald, the defrauding isn’t sophisticated – it’s just good ole fashioned bribery:
Medicare officials, along with FBI agents and federal prosecutors, say some home healthcare agencies pay $100 bribes to doctors for each referral, and between $700 and $1,500 in monthly kickbacks to patients to use their Medicare numbers. Home-care operators also bribe patients with groceries, housekeeping, even flat-screen TVs.
The article points to why Medicare is so fraud prone:
Medicare, established by Congress in 1965, has been notoriously slow in responding to scams involving durable medical equipment, HIV infusion services and physical therapy this past decade. The annual estimated loss from fraud alone: $60 billion…The government healthcare program for the elderly and disabled is extremely vulnerable to fraud because of its policy of paying claims fast without verifying them.
I noted last week that government health care is awash in waste. Yet the Obama administration and its allies in Congress are hell bent on expanding government health care. In fact, Senate Majority Leader Harry Reid (D-NV) just announced agreement on a plan that would allow people ages 55 to 64 to “buy in” to Medicare. As Michael Tanner put it, “Allowing younger workers to join the program is the equivalent of crowding a few more passengers onto the Titanic.”
Buying Boomers
Trident Launch
More hot defense news from InsideDefense — the Navy wants a bailout.
The Navy’s draft ship-building plan apparently warns of massive cuts in the size of its future fleet and consolidation of the ship-building industry unless Congress provides new funds for shipbuilding. It wants $80 billion extra over the fourteen years starting in 2019 to cover the cost of buying twelve new boomers (SSBN or ballistic missile submarines) to replace the fourteen Trident SSBNs slated for retirement starting in 2029. Without the extra cash, the Navy says it will have to buy less of everything else, shrinking the fleet to roughly 237 ships rather than the planned 324. The bulk of cuts will come from large surface combatants; we will wind up with 53 rather than the planned 96. The number of amphibious ships and attack submarines will also decrease. With so few ships coming into the fleet, the document implies, we’ll have to close some shipyards.
As the four people who read my recent book chapter on naval politics know, that is not going to happen, and Navy knows it. Defense production facilities are like hungry children that politicians feed by extracting work from the Pentagon. The six major and several minor shipyards that sell to the government in this country are largely jobs programs. They offer far more production capacity than the Navy and Coast Guard need. Even though General Dynamics and Northrop Grumman now own all six major yards, the firms have no interest in achieving economies of scale by closing yards. Politicians protect work for the yards as long as they stay open. Maintaining extra yards means that the Navy pays a large overhead premium for its ships, but doing so widens its base of Congressional support.
The Navy has been is playing a bit of chicken with the Office of the Secretary of Defense, leaving the cost of boomers out of its last shipbuilding plan in the hope that OSD would find the money elsewhere. OSD may do so yet, but in the meantime the Navy is trying to bring around Congress, taking “hostages” that powerful congressmen will have to free. Big surface combatants are made in Bath, Maine by General Dynamics and Pascagoula, Mississippi by Northrop. Susan Collins (R-ME) and Roger Wicker (R-MS) are on the Senate Armed Services Committee. Gene Taylor (R-MS) chairs the House Armed Services subcommittee that oversees the Navy. Chellie Pingree (R-ME) sits on it. By targeting surface combatants, the Navy is pushing those members to go find some money for it to save local jobs.
The most likely outcome here is that the Navy shipbuilding account will get a slight planned boost but far from what the service requests. Meanwhile the fleet will continue to shrink, because the ships’ complexity keeps their cost high. No shipyard will close, so each will get enough work to stay afloat, adding cost.
In a more austere and competitive budget environment, we would see more hard choices. The other services would start asking the White House whether it is worth aiming for a three hundred ship Navy with no obvious enemy to justify it. The Navy might tell the White House that carriers do what the Air Force’s fighters do, so cut their budget. Congressional leaders looking for savings might ask why we still need to deliver nuclear weapons three ways, by submarine-launched ballistic missile, intercontinental ballistic missile and bomber. A monad with twelve boomers is all the survivable nuclear deterrent we need.
Is Keynesian Stimulus Working?
In his Brookings Institution speech yesterday, President Obama called for more Keynesian-style spending stimulus for the economy, including increased investment on government projects and expanded subsidy payments to the unemployed and state governments. The package might cost $150 billion or more.
The president said that we’ve had to “spend our way out of this recession.” We’ve certainly had massive spending, but it doesn’t seem to have helped the economy, as the 10 percent unemployment rate attests to.
It’s not just that the Obama “stimulus” package from February has apparently failed. The total Keynesian stimulus is not measured by the spending in that bill only, but by the total size of federal government deficits.
The chart shows that while the federal deficit (the total ”stimulus” amount) has skyrocketed over the last three years, the unemployment rate has more than doubled. (The unemployment rate is the fiscal year average. Two months are included for FY2010.)
The total Keynesian stimulus of recent years has included the Bush stimulus bill in early 2008, TARP, large increases in regular appropriations, soaring entitlement spending, the Obama stimulus package from February, rising unemployment benefits, and falling revenues, which are “automatic stabilizers” according to Keynesian theory.
The deficit-fueled Keynesian approach to recovery is not working. The time is long overdue for the Democrats in Congress and advisers in the White House to reconsider their Keynesian beliefs and to start entertaining some market-oriented policies to get the economy moving again.
Does CRA Undermine Bank Safety?
A recent policy forum here at Cato discussed the role of the Community Reinvestment Act (CRA) in the financial crisis. While the forum focused on the federal push for ever expanding homeownership to marginal borrowers, the analysis did not touch directly upon the question of whether CRA lending undermines bank safety.
Fortunately this is a question that one economist at the Federal Reserve Bank of Dallas bothered to ask. While his research findings were available before the crisis, they were clearly ignored.
In a peer-reviewed published article, appearing in the journal Economic Inquiry, economist Jeff Gunther concludes that there is “evidence to suggest that a greater focus on lending in low-income neighborhoods helps CRA ratings but comes at the expense of safety and soundness.” Specifically he finds an inverse relationship between CRA ratings and safety/soundness, as measured by CAMEL ratings.
In another study Gunther finds that increases in bank capital are associated with an increase substandard CRA ratings. Apparently bank CRA examiners prefer that capital to be lend out, rather than serve as a cushion in times of financial distress.
Given the current attempts in Washington to expand CRA, it seems some people never learn. One can always argue over how CRA should work, but the evidence is quite clear how it has worked, once again proving: there’s no free lunch.
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