Archive for April, 2010
The Libertarian Take on Iran
In this video, David Boaz makes an excellent case for tamping down our overblown perception of Iran.
In the clip, Boaz argues persuasively that far from being suicidal, the track record of Iranian behavior shows pragmatism and calculating temperament when attempting to advance its interests in the region. Thus, rather than assessing Iran based on their leaders’ repulsive and provocative rhetoric, U.S. officials should deduce future Iranian intentions based on how it has reacted when confronted with overwhelming force. While no one can predict the future, regional experts—not hawkish, misinformed policy analysts or neo-conservative ideologues who advocate regime change—insist that the clerical regime has valued self-preservation and in the future can be deterred.
My colleague, Justin Logan, argues here that U.S. policymakers must press for direct diplomacy with the Iranian leadership and have a plan “B” in case that diplomacy fails. Of course, the problem is that those who endorse a tougher approach toward Iran insist that we have tried diplomacy before. That is not true. Washington typically offers halfhearted gestures and then falsely concludes that diplomacy does not work. Americans must reject the alarmist rhetoric and tortured rationales that have thus far proved counterproductive for arriving at a long-term solution toward Iran.
Do Earmarks Crowd Out Local Private Investment?
The extent to which government spending either complements or crowds out private investment has long been one of the most heated debates in economics (and politics). Generally economic theorists posit that an increase in government spending drives up interest rates, which increases the cost of private investment, accordingly reducing such investment. Most macroeconomic models are build on this relationship.
In an interesting new working paper, a trio of economists attack the question from a different angle. They measure the impact of increased earmarks on the local economy receiving those earmarks, and compare the impact to areas not receiving the increased earmarks, which allows them to control for the overall macroeconomic environment. Their finding: even in a setting where government spending is “free” to the recipients (but not free to the rest of us), such spending reduces private investment.
More specifically, the authors examine what happens to a state when one of its senators becomes a chair of a powerful committee. First, the obvious, upon taking a power chairmanship, the value of earmarks increase almost 50%. This results in roughly a $200 million annual increase to the state. But the authors find this is not simply a transfer from the rest of the country to the state, it also depresses private capital investment and R&D spending in the state. On average, once a state has a senator obtain a powerful chairmanship, state level private investment in capital expenditures decreases $39 million annually and state private R&D decreases $34 million annually.
For states seeking to get your senator into a powerful chairmanship: be careful of what you wish for. There’s no free lunch, even when someone else is paying.
What’s a Libertarian?
In a new episode of Stossel, Cato’s David Boaz and Jeffrey Miron join a panel of experts to discuss where libertarians stand on a host of major issues facing the nation today. They tackle libertarian views on war, abortion, the welfare state, gay rights and more.
Watch the videos below for a full re-cap.
The first video covers the so-called culture wars, including gay marriage, abortion and immigration:
More videos after the jump.
Terrorism Is Not an Existential Threat, But Fear Doesn’t Care About That
Last week, coincidence brought together a pair of worthy articles attacking the political adage that terrorism is an “existential” threat.
Gene Healy debunked “existential” in his Examiner column. “Conservatives understand that exaggerated fears of environmental threats make government grow and liberty shrink,” he writes. “They’d do well to recognize that the same dynamic applies to homeland security.”
John Mueller and Mark Stewart, meanwhile, have an article on Foreign Affairs’ web site titled: “Hardly Existential: Thinking Rationally About Terrorism.” They show that conventional assessment methods place terrorism so low on the scale of risks that additional spending to further reduce its likelihood or consequences is probably not justified.
But some readers literally can’t absorb what appears in the two paragraphs above. You might be one of them.
Exquisitely rational arguments like these are “cognitively invisible” in the face of fear, as Priscilla Lewis puts it in the forthcoming Cato book Terrorizing Ourselves. I assume the arguments of Healy, Mueller, and Stewart will be dismissed out of hand by people who view terrorism through their personal lens of fear.
Mueller and Stewart touch on this problem briefly:
Because they are so blatantly intentional, deaths resulting from terrorism do, of course, arouse special emotions. And they often have wide political ramifications, as citizens demand that politicians “do something.” Many people therefore consider them more significant and more painful to endure than deaths by other causes. But quite a few dangers, particularly ones concerning pollution and nuclear power plants, also stir considerable political and emotional feelings, and these have been taken into account by regulators when devising their assessments of risk acceptability.
We know enough to be confident of our security. The questions remaining include: How do we convince others to join the ranks of the indomitable Americans? How do we undercut the political advantage taken of terror fears? And how do we rein in the massive government growth produced by terror politics?
Did the IMF Deliberately Exaggerate the 2008 Financial Crisis?
This month, two vice-presidents of the Czech National Bank (CNB) have made very serious allegations against the International Monetary Fund. Below is the summary of their claims so far:
- Speaking to the Austrian daily newspaper Der Standard on April 2, Mojmir Hampl, the vice-president of the CNB, said that the IMF under Dominique Strauss-Kahn “wanted to expand its role in Eastern Europe and obtain new financial resources.” Hampl claimed that the IMF exaggerated problems with the financial systems in Eastern Europe. “We have always emphasized that the instability of the financial system [in 2008] was a Western European problem. That proved correct… According to a recent EU report, only nine out of 27 EU member states did not have to introduce any financial stabilization measures [during the crisis]. All nine were new [mostly Eastern European] member states.”
- Hampl’s claim was echoed by his colleague, CNB vice-president Miroslav Singer, in today’s edition of the Czech daily Hospodarske Noviny. According to Singer, “I cannot say nice things about the IMF’s role in the 2008 crisis.” The Financial Times, Singer continued, carried a lot of nonsensical stories about the state of the Czech financial sector prior to the crisis. Instead of dispelling those stories, the IMF produced a study about the Czech Republic based on incorrect data and then leaked it to the Financial Times. “It is difficult to be certain… that the IMF wanted to harm the Czechs, Slovaks or Poles on purpose… More likely it was a combination of panic, lack of expertise and a desire to see problems everywhere.”
If true, these claims raise troubling questions about the incentives behind the largest increase of resources in the Fund’s history.
Give Us Liberty, or Give Us ‘Gamesmanship’!
There may be no area of public policy more dominated by platitudes and pie-in-the-sky pronouncements than education. Case in point: the oft-repeated declaration that we must put aside our differences about what kids should be taught — whole language or phonics, old math or new math, creationism or evolution — so that we can just get down to teaching.
USA Today is currently offering an editorial providing just such trenchant advice. Using the social studies brouhaha in Texas as their jumping off point, the editorialists lament standards that are skewed to either the left or right in states around the country:
[T]his sort of agenda-driven revisionism isn’t narrow and isn’t confined to Texas. Nearly half the states have a centralized curriculum system, often dominated by a politically elected or appointed board.
Kansas has been tied in knots for a decade over teaching evolution. At the other end of the politically correct spectrum, California regulates the portrayal of genders, minority groups, the elderly and the disabled. According to the Los Angeles Times, publishers have even been discouraged from labeling the residents of poor countries as, well, poor. Negative stereotyping, you know.
Members of the Texas board and their backers say they’re just trying to restore balance to an academic system they view as skewed to the left. But that misses the point. Standards should be set by professionals in their fields. They should not be a vehicle for scoring points in the culture wars….
[W]hy should students in Texas, or anywhere, have their education warped by political and ideological gamesmanship?
Sayeth USA Today, ideologues and politicians, with their nettlesome opinions, should just butt out of curriculum setting and let the “professionals” set the standards.
There are numerous major problems with this.
First, what if the professionals are not a monolithic group and there’s disagreement among them? Who among them should dictate the curriculum? The vaunted “consensus?” But what if the consensus is wrong? It has happened, you know.
Then there’s this: What if the “professionals” are every bit as political and ideological as everyone else? Hard to believe, but there is actually a mammoth left-wing bias among academics in many fields, and those are often the “professionals” we’re supposed to let unilaterally decide what our kids will learn.
Wait. No one said it had to be a unilateral decision. Except if it isn’t, you are right back to gamesmanship square-one. Why? Because if non-professionals get a say, all of those diverse Americans with their infuriatingly varied opinions, values, and educational desires will be right back to having input into what the system of schools they all must support will teach! And many of those people – shockingly! — will go right back to fighting to get the schools to teach what they want their kids to learn, not what the liberal, or conservative, or atheist, or whatever down the street wants their own children taught.
Frankly, this is not hard to figure out, and once one thinks it through it becomes obvious that just saying that things should be different, without changing the one-size-must-fit-all system, will never work. Indeed, short of eliminating all diversity in the nation, or forcing all schools under the boot of a dictator, only one system of education can end the fighting: universal school choice, which lets every family choose what they want their kids taught as long as there’s an educator willing to teach it. Nothing is forced, so no one must fight.
Ultimately, this is what it comes down to: Either give us liberty, or give us “gamesmanship”!
Cutting Government Spending in a Recession
One of the topics Chris Edwards will be discussing with Glenn Beck this evening (5:00 EST, Fox) is the “Not-So-Great Depression” of 1920-21.
Cato Senior Fellow Jim Powell notes that President Warren G. Harding inherited from his predecessor Woodrow Wilson “a post–World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit.”
However, instead of calling for bigger government to right the economy, as President Obama did upon inheriting George Bush’s mess, Harding pushed for spending and tax cuts.
The result?
With Harding’s tax and spending cuts and relatively non-interventionist economic policy, GNP rebounded to $74.1 billion in 1922. The number of unemployed fell to 2.8 million— a reported 6.7 percent of the labor force— in 1922. So, just a year and a half after Harding became president, the Roaring Twenties were underway. The unemployment rate continued to decline, reaching an extraordinary low of 1.8 percent in 1926. Since then, the unemployment rate has been lower only once in wartime (1944), and never in peacetime.
The following chart shows federal spending from 1920 to 1940:
You Want It All, But You Can’t Have It
It certainly seems like there are an awful lot of folks on the American political scene willing to pay at least lip service to smaller government, so you’d think at least we might see a trend over time of wax alternating with wane, following “the zig-zag of politics,” as Robert Nozick called it. Instead, it seems to just keep on growing. (Though as David Boaz recently noted, that’s not the same as saying we’ve gotten steadily less free on net over the centuries.) Various cogent explanations for this have been floated, but John Sides and Annie Lowery both point out that there’s an enormous contributing factor that fits neatly into a single pair of graphs:
In short, the things people are willing to consider cutting to balance the budget already make up an infinitesimal portion of the whole. Of the real bank-breakers—Medicaid, Medicare, Social Security, and Defense—only Defense finds even a fifth of respondents prepared to countenance cuts. The only area where a majority support cuts is foreign aid—about 1 percent of the budget. And as The Economist notes, the same problem probably recurs even within the foreign aid category. Are people ready to cut aid to Israel, Iraq, or Afghanistan? Because those three represent 39 percent of our foreign aid outlays.
You can, I suppose, see this as confirmation that the democratic process works—for some values of “works”: At least we’re spending ourselves into penury for programs people are fairly attached to. But it also means there’s not much low-hanging fruit worth plucking. It’s fun to take potshots at the earmarks for research on manatee appreciation of dubstep, but any serious effort to control the budget requires tackling programs that are actually popular. One approach to this, of course, is to try and make the popular programs less popular—or at least to convince people that their growth can be constrained without some sort of catastrophe ensuing. Another is to try to insulate political actors against backlash, and attempt to bundle cuts so that the public can be presented with a binary up-or-down choice about a deficit reduction package. That doesn’t make the individual cuts any more popular, of course, but it at least makes it harder to dodge reality by pretending one just opposes cutting this vital program, while remaining strongly committed to fiscal responsibility by other, unspecified means.
Hence the appeal of expert commissions, or the suggestion in a recent David Brooks column that we take “a dozen handpicked senators and House members and stick them in a room three times a week for six months.” Stuff like this is easy to mock—and it invariably is mocked—as a water-headed attempt to wish away deep substantive disagreements and intransigent conflicting interests. But I think at least part of the appeal of such schemes comes from the perception that polarized popular political rhetoric actually masks substantial agreement among policy experts across the spectrum. I’m no entitlements wonk, of course, but my sense is that just about everyone who seriously studies the situation agrees that the growth trajectory of these programs is unsustainable, and that some mix of benefit reductions and tax increases will be required to address the problem. The exact proportions are obviously contested, but surely it would be a vast improvement if pundits and elected officials would admit even this much—that there is no serious question of “whether” but only “how much of each.” It would scarcely end debate, but it might be a precondition for productive debate.
The glimmer of hope in that graph is that—perhaps because most deficit hawks tend to be hawk-hawks as well—we don’t see a whole lot of arguments for the one path to greater fiscal responsibility that’s both realistic and palatable to at least a substantial minority: Cutting military spending. I’m proud to note that my Cato colleagues are an exception here. Could this be one of the few proverbial $5-bills-on-the-sidewalk in American politics?
Can Romney Lead the Fight against ObamaCare?
Both the Wall Street Journal and the New York Times have just run major stories on presidential candidate Mitt Romney’s difficulties in getting people to understand the difference between his Massachusetts universal-health-care plan, which featured an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions, and the Obama-Reid-Pelosi plan, which features an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions.
President Obama is putting Romney on the spot by telling Matt Lauer that his bill is similar to Romney’s. Daniel Gross of Newsweek recommends that Obama hire Romney — someone who has management experience, no current job, and “relevant experience in implementing a large-scale health-care reform program, ideally one that involved using an individual mandate and the private insurance system to attain near-universal health insurance” — to run ObamaCare.
As Romney attacks the Obama bill as an unconstitutional “government takeover,” he makes two basic arguments in defending his own plan: First, that the Massachusetts law was passed on a bipartisan basis, hardly a substantive defense. Second, that his was a state plan, not a federal intrusion on state authority. He also offered a “conservative” defense of the individual mandate:
But he did so by adopting a more GOP-friendly vocabulary, declaring it a matter of “personal responsibility” for all people to buy into insurance pools so that “free riders” without insurance can’t stick taxpayers with their hospital bills.
“We are a party and a movement of personal responsibility,” he said at a book signing in Manchester. He invoked the same idea at the college, calling it a “conservative bedrock principle.”
That’s a point that Stuart Butler of the Heritage Foundation made as far back as 1992, but most conservatives didn’t embrace the argument. And they’ve strongly opposed the mandate in the Obama bill.
Conservatives have campaigned for more than a year against the Obama health care bill, with its mandate, subsidies, and insurance regulations. Now they are backing “Repeal It!” efforts and lawsuits to have it declared unconstitutional. Yet such conservative leaders as Rush Limbaugh and the editors of National Review endorsed Mitt Romney, the man who wrote the prototype for ObamaCare, in 2008. Romney is leading Republican polls for the 2012 nomination. Romney just won the straw poll at the Southern Republican Leadership Council (with only 24 percent, to be sure, and just 1 vote ahead of Rep. Ron Paul). Can the Republican effort to defeat President Obama and repeal ObamaCare really be led by the first American political leader to impose a health care mandate on citizens?
Will Reductions in the Size of the Nuclear Arsenal Make the U.S. More Vulnerable?
Over at the National Journal’s Security Experts Blog, Paul Starobin asks “Is An Obama ‘No Nukes’ World Likely To Be A Safer One?”:
Is President Obama on the right track with his new commitment to unilaterally scale back America’s threat to use nuclear weapons to deter attacks on the U.S. and its allies? And as world leaders assemble in Washington on April 12 to discuss matters of global nuclear security, is Obama’s cherished goal of ridding the world of nukes ever likely to be a reality? Would a nukes-free world in fact be a safer, more peaceful one? Even if Obama is right that he is not likely to see a nuclear-free world in his lifetime, will a trend toward declining global nuclear arsenals make America more or less safe?
It was inevitable that Republicans would knock President Obama for being soft on national security, and it is likely to be an issue in this year’s mid-term elections, and in the 2012 campaign. This has been the standard mantra from the GOP playbook for over a generation, and the party’s leaders show no sign of backing away from it. But the Democrats shouldn’t be too worried. They easily turned aside such criticisms in 2006 and 2008 by pointing out that policies promoted by a Republican president, and supported by a Republican Congress — especially the ruinous Iraq war — had significantly undermined U.S. security.
With respect to nuclear weapons, the president and his allies have more than enough ammunition to refute the charges that reductions in the size of the U.S. arsenal make the U.S. more vulnerable to attack. Leaders in Washington and Moscow figured out long ago that a stable, secure and credible deterrent need not include many thousands of nuclear warheads. A Republican president, Richard Nixon, initiated the very first round of reductions in the early 1970s, and another Republican, George H.W. Bush, made even deeper cuts at the end of the Cold War. George W. Bush tacked on additional reductions under the Moscow Treaty signed with Vladimir Putin. The modest cuts envisioned by New START and implied in the Nuclear Posture Review (NPR) are consistent with this bipartisan trend.
But what of President Obama’s goal of a world free of nuclear weapons? He concedes that this is unlikely to occur in his lifetime, and that is almost surely the case. He is not the first U.S. leader to pledge to reduce the importance of nuclear weapons in U.S. security policy; this is a commitment the United States made under the Nuclear Non-Proliferation Treaty. What will take the place of nuclear weapons if they were to be abolished? We can glean the answer from the NPR. The United States first shifted to nuclear weapons in the 1950s because they presented a far more cost effective deterrent than conventional military assets. Not surprisingly, the NPR envisions that conventional weapons — namely a forward U.S. troop presence and ballistic missile defenses — will take on greater importance as nuclear weapons recede.
This is a costly proposition at a time when U.S. military spending is already at a post-World War II high. The Obama administration does not dwell on the costs, I suspect, because many Americans are not enamored with extending an indefinite and costly security umbrella over other countries who can — and should be encouraged to — defend themselves. In short, President Obama’s determination to reduce and eventually eliminate nuclear weapons will accelerate this costly trend unless he is also willing to revisit the purpose of U.S. military power and our global posture.
New Video Exposes Nightmare of IRS Complexity
My former intern, Hiwa Alaghebandian, has just narrated a new Economics 101 video about the cost of the tax code. I won’t spoil the surprise by giving the details, but you if you’re not angry now, you will be after watching.
In the video, Ms. Alaghebandian notes that a study from 1996 (back when the tax code was not nearly as complex) estimated that a flat tax would reduce the compliance burden of the income tax by 94 percent. In my video on the flat tax, I mostly focused on how a single-rate, consumption-base system would boost growth and competitiveness, but simplicity also would be a remarkable achievement. Not only would real tax reform reduce compliance costs by hundreds of billions of dollars, it would also put a big dent in the corrupt practice of distorting economic choices with deductions, exemptions, credits, preferences, shelters, and other loopholes. That’s a profitable game for politicians and lobbyists, but the rest of us pay the price because the tax code is even more of a nightmare.
There is also an under-appreciated connection between simplicity and fairness. My colleague Will Wilkinson sagely observed that “…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people.” The tax code is a good example. Many leftists want the tax system to penalize success with high tax rates. I’ve explained why this is economically misguided in a video on class-warfare tax policy, but it’s also worth pointing out that a simple and fair tax system like the flat tax makes it much more difficult for the well-connected to take advantage of complexity. Simply stated, the tax system should not punish the rich with high rates (notwithstanding the neurotic views of self-loathing trust-fund heirs), and it shouldn’t reward them with special deals.
The good news is that we know the policies that will fix the current system. The bad news is that politicians keep making the system worse. Putting the IRS in charge of enforcing key parts of Obamacare is just the latest example of why America needs a tax revolt.
Exiled Iranian Journalist Awarded $500,000 Milton Friedman Prize for Advancing Liberty
Akbar Ganji, an Iranian writer and journalist who spent six years in a Tehran prison for advocating a secular democracy and exposing government involvement in the assassination of individuals who opposed Iran’s theocratic regime, has been named the 2010 winner of the Cato Institute’s Milton Friedman Prize for Advancing Liberty.
Ganji may be best known for a 1999 series of articles investigating the Chain Murders of Iran, which left five dissident intellectuals dead. Later published in the book, The Dungeon of Ghosts, his articles tied the killings to senior clerics and other officials in the Iran government, including former President Ali Akbar Hashemi Rafsanjani. Ganji was arrested for spreading propaganda against the Islamic system and “damaging national security.” He was eventually sentenced to six years in prison, much of it spent in solitary confinement.
Ganji was released from prison in March of 2006 and left Iran shortly thereafter. Many countries around the world offered him honorary citizenship, and he traveled extensively, giving talks promoting democracy in Iran and exposing major human rights abuses by the Iranian government. Despite his battle with Iran’s theocracy, Ganji remains steadfastly opposed to military action by the United States in both Iran and Iraq, saying “you cannot bring democracy to a country by attacking it.”
Established in 2002 and presented every two years, the Milton Friedman Prize for Advancing Liberty is the leading international award for significant contributions to advancing individual liberty.
The Friedman Prize biennial dinner and award presentation will be held at the Hilton Washington Hotel in Washington, D.C, on May 13, 2010. Reserve your table now to attend.
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