Archive for June, 2010
Sanctions Won’t Stop Iran’s Nuke Program
The Obama administration labored strenuously to produce a fourth round of sanctions against Iran in the UN Security Council. The broader question is whether more sanctions are likely to persuade Iran to give up its pursuit of an indigenous nuclear capability—or even to get the regime to stop enriching uranium.
I know of no expert or government official who believes that will happen. It is always possible that this pessimism is wrong. Miracles occasionally happen. But the sanctions approach is unlikely to solve the problem.
Neither is the diplomatic offer brokered by Brazil and Turkey but rejected by Washington. Still, given the limited dividends promised by sanctions, Washington should have considered foregoing the sanctions in favor of the deal. The impact of the agreement, like the impact of the sanctions, would be limited, but it would have removed more than half of Iran’s existing fissile material and held a small possibility of a diplomatic resolution of the problem.
Instead, we are left waiting to see whether the new sanctions will cause a fundamental shift in Iran’s behavior.
Hayek’s Road to Serfdom #1 on Amazon
In yet another sign that the public is not only fed up with our lurch toward ever-bigger government, but also eager to educate themselves on the subject, F.A. Hayek’s classic The Road to Serfdom, written 66 years ago, has been in the top 100 on Amazon’s bestseller list for the last six days, and hit number 1 today. (Here’s why. h/t Greg Mankiw).
Writing in the Washington Post earlier this year, Professor Bruce Caldwell, director of Duke’s Center for the History of Political Economy, gave some reasons for the book’s continued appeal. For one thing, “it is actually readable.” That accessibility made it enormously influential when it “was condensed by Reader’s Digest in April 1945 [.pdf] just as the war in Europe was ending.”
Caldwell is General Editor of the the Collected Works of F.A. Hayek, a project begun at Duke University in the 1980s, aimed at publishing Hayek’s entire corpus in a multi-volume set. The Cato Institute is now a major supporter of the project, working with Duke and Professor Caldwell.
Caldwell provides further reasons for “the Hayek Boom,” as evidenced in sales of his most famous book:
In the end, however, I think that the underlying reason for the sustained interest in Hayek’s book is that it taps into a profound dissatisfaction in the public mind with the machinations of its government. Both Presidents Bush and Obama have presided over huge growth in the size of the federal government and in the size of the federal deficit, with little obvious effect on unemployment. Things seem out of control.
Furthermore, a recurrent theme in the news is that, in contrast to the millions who are suffering, the politically connected are doing just fine. The examples are everywhere, from bailed out financiers getting huge bonuses to public union employees getting hefty pensions, from auto companies that are nationalized instead of going belly up to politically savvy firms that get government subsidies to produce products that would be otherwise unprofitable.
For people upset by such trends, “The Road to Serfdom” opens a window onto another time, when debates about how best to restructure an economy emerging from wartime were taking place. Such debates, as the strong sales of the book clearly show, still have resonance today.
The publishing project is about halfway through with its work, and nine more volumes are scheduled to be published over the next seven years. If current trends are any indication, Hayek’s work will become ever more vital in the interim.
Pentagon Cost Saving Plan Does Not Save
As Secretary of Defense, Robert Gates has submitted a bigger defense budget each year, in real terms. Early reporting is that fiscal year 2012 will be no exception; the current Pentagon plan is to increase spending by roughly one percent above inflation.
The press can’t get this straight. Last year, for example, Gates recommended canceling several weapons procurement programs to offset increased operational and personnel spending. Much of Congress fought that shift, but the beef was about priorities, not total spending. Because people see the military budget as a collection of weapons programs, however, the media largely portrayed Gates as battling Congress to cut spending.
This year similar confusion abounds.
Still squeezed by rising costs in those accounts, the Secretary has asked the services to cut overhead to fund weapons and warfighters. More tooth, less tail. Good idea probably, but no savings for the taxpayer. Yet Fox writes: “Secretary Gates to Slash Pentagon Budget in Search of $10 Billion in Savings.” And MSNBC: “Gates: Urgent need to rein in defense costs.” Even CongressDaily makes the same mistake: “Pentagon maps out $100 billion cost savings plan.”
Because the plan does not lower spending, it is hard to see how it can be the model or “inspiration” for the Obama administration’s talk about actually doing so, by five percent, in other agencies, whatever the Washington Post tries to tell us.
Then we have the unfolding defense veto drama, with Gates cast as the fiscal prude and Congress the unrestrained villain. The reality is different of course. The Pentagon asked Congress for $113 billion in procurement funds for FY 2011, 6.5 percent more than last year, in real terms. The defense authorization committees, exercising a constitutional power, added half a billion for a back-up fighter engine, an addition amounting to roughly one thousandth of total defense spending. Gates and the White House threatened a veto. The Washington Post wrote that Congress was trying to “override efforts by Secretary Gates to cut defense spending,” when his efforts actually went to containing its growth slightly. And they do not really bother to explain what makes the second engine (which the GAO said might save money) waste and every penny Gates wants a security requirement.
Deficits have increased political pressure to control defense spending. The way to control it is to control the objectives it serves, the wars we imagine fighting. The danger is that that political pressure gets misused on quixotic efforts to run the Pentagon more efficiently–acquisition reform, jihads against “waste, fraud, and abuse,” tantrums against pork, calls to audit the Pentagon (like trying to lose weight by buying a better scale) and other hardy perennials of defense reform.
Guns Save Lives, Part XXXIVXX
John Lee still has his life and four children still have a father because Mr. Lee had a handgun when three criminals tried to kill him and take his money.
When John Q. Citizen takes out a gun and the criminals flee, reporters don’t consider the incident “news” (at least when there are no injuries)–so guns are typically on the evening news when they are used by criminals. As a result of that skewed coverage, it is no wonder that many people have a negative view about firearms.
On June 17, Cato will be hosting a forum about guns, crime, and self-defense. Speakers include John Lott, Jeff Snyder, and Paul Helmke of the Brady Campaign.
For related Cato scholarship, go here.
How Imports Raise Real Incomes
The Consumer Price Index (CPI-U) for “All Items” rose by about 23 percent over the course of the last decade.* That implies that—on average—a person whose salary was $50,000 in 2000 saw his real income rise (fall) if his nominal income was more (less) than $61,500 in 2009. By the same measure, an hourly worker earning $20 per hour in 2000 had to be earning more than $24.60 per hour in 2009 to have experienced an increase in his real wage.
Of course the CPI-U for “All Items” reflects the prices of a broad basket of products and services, many of which are not consumed by everyone, every year. Each worker as a consumer purchases a unique basket of goods and services over the course of a year, so technically, a personalized CPI comprising the prices of products and services actually consumed would provide a more accurate picture of changes to individual real incomes.
As the pictures below so clearly demonstrate, consumers who spend more of their incomes on products that are more likely to be imported get more buying power from the dollars they earn than do consumers who devote more of their budgets to products and services that are more difficult for foreigners to supply.
There is lots of competition from foreigner suppliers for the dollars we spend on televisions, photographic equipment, computer software, toys, clothing, furniture, automobiles, and furnishings, but virtually no such competition for our expenditures on movie tickets, auto repairs, dental services, trash collection, household electricity, medical services, and college tuition. And prices have responded accordingly.
Of course most individual consumption baskets include products from both of the charts above. The lesson here is that if we want to see prices kept in check, we should stop demonizing imports and stop throwing obstacles in their path. And we should do what we can to encourage more competition—both foreign and domestic—because more and taller blue bars, and fewer and shorter red bars, help raise real incomes.
* The CPI changes for “All Items” and all of the products listed in the subsequent charts were calculated from Bureau of Labor Statistics data by averaging the official CPI-U figures for the years 2000 and 2001, and comparing that result to the average CPI-U figures for the years 2008 and 2009. This was done to mitigate the effects of any anomalous price spikes or troughs in the first or last year of the decade.
John Whitehead on Nat Hentoff
John Whitehead of the Rutherford Institute has a nice post about Cato Senior Fellow Nat Hentoff.
Here’s an excerpt:
At the age of 85, Hentoff is a radical in the best sense of the word — a true freedom fighter and warrior journalist with a deep-seated intolerance of injustice. His integrity and willingness to buck the trends have earned him the well-deserved reputation of being one of our nation’s most respected, controversial and uncompromising writers.
Well said. At age 85, Nat Hentoff continues to write books and a weekly column. His new book is At the Jazz Band Ball: Sixty Years on the Jazz Scene.
Warning on a Go-Cart: ‘This Product Moves When Used’
For the 13th year, Bob Dorigo Jones has compiled the finalists for his annual Wacky Warning Label contest. Another, on a Bluetooth unit: “use of a headset that covers both ears will impair your ability to hear other sounds.” A few years back Jones compiled some of these into an amusing book entitled Remove Child Before Folding (from a stroller warning). For many more examples, check my blog Overlawyered, including warnings on not putting birthday candles in your ears, using your cocktail napkin for navigation, and ironing clothes while you’re wearing them.
Although regulatory agencies account for some of it, the main driving force behind over-warning is the “failure to warn” branch of modern product liability law, and the uncertainty it creates through its inability to generate clear guidance on what will and will not be considered adequate warning. Rather than invite suit — with its attendant risk of encountering a paternalistic, sympathy-driven or redistributionist judge or jury — most companies would rather include a silly or overbroad warning on the product, even at the cost of numbing consumers to the occasional warnings that really do deserve their attention.
Washington Post Cites ‘Regime Uncertainty’
I’ve been arguing for a while that “regime uncertainty” is stifling the economy’s ability to recover. Businesses are more reluctant to invest or hire when Washington pursues a policy agenda that could be detrimental to their bottom lines. The phrase was coined by economist Robert Higgs who observed that FDR’s anti-business policies prolonged the Great Depression.
Unfortunately, the media has generally ignored the possibility that uncertainty being generated by the president’s policies has been contributing to the nation’s continuing economic problems. However, an editorial in yesterday’s Washington Post could be a welcome sign that the media is beginning to take notice:
But as analysts ponder the mystery of weak private-sector hiring despite signs of economic growth, it’s worth asking what role is played by government-induced uncertainty. With the federal government promoting major changes in health care, financial regulation and energy law, it wouldn’t be surprising if some companies are more inclined to wait and see than they might otherwise be. And that’s especially true when they look at looming American indebtedness and the effect that could have on long-term interest rates.
The latest survey from the National Federation of Independent Business shows that big government remains the chief concern of the business community. When asked what their single most important problem was, 35 percent of small business owners cited “taxes” or “government regulations and red tape.” “Poor sales” was second at 30 percent.
The NFIB also cites uncertainty caused by Washington as a problem:
A huge help in moving toward a stronger economy for small business owners would be to “do no harm”. But Congress continues to pass and propose legislation that increases the cost of running a business and create huge uncertainty about future costs.
Only 3 percent of business owners cited finance as their chief problem. Yet, President Obama is pushing a $30 billion package to increase lending to small businesses. The business community doesn’t need more subsidized credit backed by taxpayers — it needs relief from the president’s agenda.
Dan Mitchell Gets Results
I gave a speech in Hungary about two weeks ago and now the government has announced a big step in the direction of better fiscal policy. My role was about as meaningful as the rooster crowing, followed by the sunrise, but this is still good news. According to Reuters, “Hungary’s new government plans to introduce a flat personal income tax of 16 percent from 2011, as well as a 15 percent cut in public sector wages.” Those are the headline initiatives, but the fiscal reform package includes other good policies. Here’s a blurb from The Economist.
After a three-day emergency cabinet meeting over the weekend, Viktor Orban, the prime minister, announced the government’s new economic programme this afternoon. The battered forint quickly jumped almost 2% in response. …The introduction of a 16% flat personal income tax is a daring move, and could have important repercussions beyond balancing the state’s books. Unemployment, or at least that element of it which is declared, is nudging 12%, and one reason is Hungary’s cumbersome bureacracy and heavy tax burden. Now Mr Orban has announced that corporation tax for companies with annual profits of less than 500m forints will be reduced from 19% to 10%. Ten more small and bothersome taxes are set to be abolished altogether.
A few years ago, when several nations each year were adopting the flat tax, I arbitrarily decided that this rock classic would be the theme song of the tax reform movement. Sadly, it doesn’t look like we’ll get to play it in America anytime soon.
A Public Thumb on the Election Scales
When taxpayers underwrite the campaign expenses of candidates for public office, serious questions arise: Not least, why should taxpayers subsidize candidates or ideas they oppose? But when taxpayers subsidize only one side in a campaign, there should be outrage. Perhaps there was at the Supreme Court this morning, when the Court blocked an appalling opinion out of, not surprisingly, the oft-overturned Ninth Circuit.
In McComish v. Bennett the Goldwater Institute is challenging Arizona’s Clean Elections Act, under which “candidates who run with public campaign subsidies receive an almost dollar-for-dollar match each time a privately funded opponent raises money above a certain amount,” the Goldwater press release states, “and additional matches when independent expenditures are made against the subsidized candidate.”
The problem for proponents of this Act is that the Supreme Court has said more than once that “leveling the playing field” is a forbidden rationale for campaign finance regulations. Moreover, and more precisely, in 2008, in Davis v. FEC, the Court held that the so-called Millionaires Amendment to the McCain-Feingold campaign finance act of 2002 was unconstitutional. Under that amendment the contribution caps that would otherwise apply to congressional candidates were lifted if a candidate was running against a self-financed opponent — a “millionaire” who, under the First Amendment, could not be restricted in funding his own campaign. Again, leveling the playing field won’t do. (Note also that that amendment put a lie to the main rationale for campaign finance restrictions – to prohibit corruption or its appearance. The caps are needed to prevent the candidate from being corrupted, so the argument runs – unless he’s running against a millionaire, in which case he won’t be corrupted by the added contributions. Such are the lengths to which campaign finance regulators are prepared to go to justify their schemes.)
Writing for the majority in Davis, Justice Alito went to the heart of the matter: “It is a dangerous business for Congress to use the election laws to influence the voters’ choices.” That it is, and it’s not through election laws alone that Congress – or states, as here – tries to influence voters choices through the use of taxpayer dollars. Do we need any better example, on this primary election day around the country, than publicly-funded National Public Radio?
In January, U.S. District Court Judge Roslyn Silver found Arizona’s Act unconstitutional under the First Amendment. But the state appealed, and last month a three-judge panel of the Ninth Circuit issued an opinion stating that the damage to free speech was minimal. This morning the Supreme Court issued an order to enforce the District Court’s injunction against the use of matching funds. As reported by the Goldwater Institute, the order says the injunction will remain in effect until the Court rules on the underlying appeal of the Ninth Circuit decision. The injunction also would be lifted if the Supreme Court decides not to consider the formal appeal. This is one to watch.
One From Silicon Valley: Leave Us Alone
A passionate plea from Michael Arrington TechCrunch, the number three tech blog in the country and the number four blog overall, according to Technorati’s current rankings:
Silicon Valley has fueled much of the growth in our economy over the last few decades and has created amazing (and highly profitable) companies that are making the world a much better and more interesting place to live. All that happened while the government ignored us.
We don’t want handouts. We don’t want “public-private partnerships,” and we sure as hell don’t want legislation. Just let us do our thing and maybe say thanks to those companies that create jobs by the hundreds of thousands and send in those humongous corporate tax payments on profits. Because all you can do is screw up something beautiful. Really.
While maintaining his hugely popular site, Arrington has made himself something of a controversialist. His policy preferences aren’t strictly libertarian, but his instincts are that freedom produces innovation much better than any alternative public policies.
Wonder Why We Are Drowning in Debt?
Look no further than Representatives David Obey (D-WI) and George Miller (D-CA), who gladly scream “fire” when there clearly is none to get $23 billion to politically precious special interest groups.
Bankrupting shamelessness, thy name is Washington.
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