Archive for August, 2010
The Spirit and Influence of Manuel Ayau (1925-2010)
Manuel Ayau, one of the people I most respected and admired, died today. Muso, as his friends called him, was a major figure in the international movement to promote liberty. He was a president of the Mont Pelerin Society and served on the board of directors of Liberty Fund and as a trustee of the Foundation for Economic Education. He will be most remembered, however, as the founder and president emeritus of the influential Francisco Marroquin University in his native Guatemala. He leaves an enormous legacy because he successfully combined clear thinking, entrepreneurship, intellectual curiosity, and a belief in the potential of free individuals to create what has become the center of classical liberal thinking in Latin America.
Well before he founded Francisco Marroquin University in 1971, Muso Ayau started a think tank (Centro de Estudios Economicos-Sociales) with a small group of Guatemalan friends in 1959. Thus began a lifelong project to discover and disseminate those ideas that best explain and provide solutions to underdevelopment. The process led him to the writings of the great market liberals—some of whom he invited to Guatemala for lectures or established friendships with, such as Ludwig von Mises or Milton Friedman—and culminated in the founding of FMU. Muso was not an academic (he had a degree in engineering), but he understood how the power of ideas can influence society, so he set about the long-term task of running an institution that would teach generations of Guatemalans about “the ethical, legal and economic principles of a society of free and responsible persons,” no matter what degree students pursued.
In his inaugural address in 1972, Muso stated:
We firmly believe in the capacity of imperfect human beings to be better able to realize their destiny when free and not when compelled by the collective entity personified by the state.
It took courage to found the University. When it began, the intellectual and political climate was not only hostile to libertarian ideas, it was violently opposed. Guatemala was in the midst of a civil war and neither side—with the military and business establishment on one side and leftist guerrillas on the other—particularly welcomed the message of limited government, free markets, and private property rights. In the early days, Muso gave graduation speeches wearing a bullet proof vest under his toga. In the 1980s, he would sometimes wear disguises when traveling in public and took extra security measures at home.
After the collapse of the Soviet Union and the end of Guatemala’s civil war in the 1990s, public opinion was of course much more open to market liberal ideas, but Guatemala’s mercantilist society still ensured that the battle against entrenched interests—business groups, unions, government bureaucracies—remained tough. By then, though, the prestige of Muso Ayau and of the university faculty and its well-trained graduates had grown as had the presence of their ideas. Anyone who has visited Guatemala during the past 20 years, as I have, can attest to the fact that market liberal ideas can be found every day in the op-ed pages and articles of the country’s leading newspapers and the electronic media as well. In some cases, this has translated into radical policy change—as in the case of Guatemala’s successful telecom reform or its law legalizing competing currencies.
Responding to Paul Krugman and Ezra Klein
I seem to have touched a raw nerve with my post earlier today on my International Liberty blog, comparing Reagan and Obama on how well the economy performed coming out of recession. Both Ezra Klein and Paul Krugman have denounced my analysis (actually, they denounced me approving of Richard Rahn’s analysis, but that’s a trivial detail). Krugman responded by asserting that Reaganomics was irrelevant (I’m not kidding) to what happened in the 1980s. Klein’s response was more substantive, so let’s focus on his argument. He begins by stating that the recent recession and the downturn of the early 1980s were different creatures. My argument was about how strongly the economy rebounded, however, not the length, severity, causes, and characteristics of each recession. But Klein then cites Rogoff and Reinhardt to argue that recoveries from financial crises tend to be less impressive than recoveries from normal recessions.
That’s certainly a fair argument. I haven’t read the Rogoff-Reinhardt book, but their hypothesis seems reasonable, so let’s accept it for purposes of this discussion. Should we therefore grade Obama on a curve? Perhaps, but it’s also true that deep recessions usually are followed by more robust recoveries. And since the recent downturn was more severe than the the one in the early 1980s, shouldn’t we be experiencing some additional growth to offset the tepidness associated with a financial crisis?
I doubt we’ll ever know how to appropriately measure all of these factors, but I don’t think that matters. I suspect Krugman and Klein are not particularly upset about Richard Rahn’s comparisons of recessions and recoveries. The real argument is whether Reagan did the right thing by reducing the burden of government and whether Obama is doing the wrong thing by heading in the opposite direction and making America more like France or Greece. In other words, the fundamental issue is whether we should have big government or small government. I think the Obama Administration, by making government bigger, is repeating many of the mistakes of the Bush Administration. Krugman and Klein almost certainly disagree.
A Rough Week for ObamaCare
Half way through the work week, and the White House has had an unusually difficult week concerning the progress of their signature piece of legislation. Let’s recap:
On Monday, a federal judge cleared a lawsuit brought forth by Virginia Attorney General Ken Cuccinelli regarding the Constitutionality of the recent health care legislation—specifically the individual mandate. This case will almost certainly be decided by the Supreme Court, but this was an important first step in that process.
Later that day, reports came out that Secretary of HHS Kathleen Sebelius had caught heat regarding misleading statements that claimed ObamaCare would simultaneously pay for the coverage of an additional 30 million Americans and extend the life of the Medicare Trust Fund. The $575 billion that CMS claims the Medicare program will save as a result of the legislation can be used for one purpose or the other, but not both.
Yesterday, a Congressional Research Service Study announced that it is impossible to estimate the number of new agencies created as a result of ObamaCare. Most estimates have the number at around 100, but CRS claims that the final tally is “unknowable” because of the uncertainty surrounding some of the language.
Meanwhile, throughout the course of the day yesterday, voters in Missouri were busy voting in favor of Proposition C, a law that would exempt the citizens of Missouri from the requirement to purchase health insurance, the centerpiece of ObamaCare. The referendum passed by a 3-to-1 margin, but the breakdown of votes is even more telling.
Nearly 670,000 people voted in favor of the proposition, approximately 85,000 votes more than the number of Republican and third-party primary votes. Even if the 40,000 or so voters who apparently cast a vote for Proposition C but not for a primary candidate all voted in favor of proposition, as well as every single Republican and third-party voter, that still leaves nearly 45,000 Democrats who must have also voted with their Republican constituents in upholding their right to obtain health insurance on a voluntary basis.
Keep in mind that these are not just ordinary, uninterested voters. These are the base of the Democratic Party, the most politically active citizens, and yet somewhere between 12-25% of them decided to oppose the individual mandate, notably in a state that is often the bellwether of national election campaigns.
If things continue this way, repeal should be on its way by next week.
Obamacare Lawsuits Gain Steam
David Boaz already noted Missourians’ overwhelming rejection of the individual mandate yesterday. That, combined with Monday’s decision in Virginia’s lawsuit — where the judge denied the government’s motion to dismiss, ruling that Virginia had standing to make its claims and that those claims had sufficient merit to proceed — should embolden Missouri’s Lieutenant Governor Peter Kinder. Kinder, in his personal capacity and joined by several other individuals, filed an Obamacare lawsuit last month.
I mention the Kinder suit to remind everyone that there are more challenges out there than just Virginia’s and the Florida-led 20-state suit. I have personal knowledge of groups and individuals who have sued in Michigan, Ohio, and D.C. — and there are plenty of others, I’m sure (for example, the Goldwater Institute will be filing in Arizona soon). As Michael Cannon has noted, the D.C. suit, filed by our friends at the Pacific Legal Foundation, has as its plaintiff a 29-year-old artist and former National Guardsman who served two tours in Iraq. PLF will host a liveblog to discuss their case starting at 3 p.m. today. You can read the complaint here.
Finally, PLF principal attorney and Cato adjunct scholar Tim Sandefur has a nice refutation of the argument that “well, gee, George Washington required able-bodied men to buy muskets and prepare for militia service under the Militia Act of 1792.” The upshot: sure, but 1) the Militia Act was passed under the Constitution’s militia clauses (not under the Commerce Clause, taxing power, or anything else being claimed as authority by Obamacare proponents); and 2) to say that the Constitution does not protect “a freedom from government-mandated purchases” is to read the Constitution backwards because the burden is on the government to prove that it has the constitutional authority to force people to do things they don’t want to do.
Repeal now.
Strip-Search Images Stored
The Transportation Security Administration will be sure to point out that it was not them—it was the U.S. Marshals Service—that kept ”tens of thousands of images recorded with a millimeter wave system at the security checkpoint of a single Florida courthouse,” according to Declan McCullagh of C|Net news.
The TSA has taken pains to make sure that their use of strip-search machines does not produce compromising images of the traveling public, but rules are made to be broken. How do you protect privacy in the use of a technology that is fundamentally designed to invade privacy?
Collateral Murder, Indeed
I finally found the time to go through the WikiLeaks’ Afghan War Diary entries containing accounts of my 2004 tour in Afghanistan (my third tour; appropriate bio and disclaimer can be found here).
I am underwhelmed. I am not sure what Julian Assange thought the release of these documents would tell people about the war in Afghanistan, beyond the fact that people are shooting at each other and that, generally speaking, war is Hell. If I identified the entries associated with my service in Afghanistan, you would read summaries of the firefights and rocket attacks that my unit faced, with metrics of rounds fired and received and associated casualties.
Parallel to Noah Schachtman’s excellent write-up contrasting his experiences while embedded with Marines in Helmand Province versus what WikiLeaks provides, you would have little visibility on the actual maneuver of troops, the relationship that they have with the populace, and the effectiveness of Afghan forces. Reading WikiLeaks alone would give you a picture of the Afghan War that falls short of what you can get from normal press outlets.
This skewed portrait of our policy comes at no small price. The identification of our intelligence contacts and sources is sure to put their lives in danger, as Steve Coll and (more importantly) Taliban spokesmen point out.
Unfortunately, Assange has taken Afghan War policy as an acceptable loss as well, no matter how you define it. Whether you support a COIN-centric approach, a reduced footprint in Afghanistan, a counterterrorism model, or even letting the CIA run the war, this is a disaster. This release of information is actually more damaging to downsizing strategies, since we will end up leaning on tribal alliances and intelligence assets more, not less.
Assange is facilitating the deaths of our intelligence contacts because he believes that the benefits outweigh the cost of their lives. That’s mighty rich, coming from a guy who labeled a 2007 case of mistaken identity in Iraq that resulted in the death of civilians as “collateral murder.” In that case, helicopter pilots misidentified a reporter’s zoom lens as the tail end of an RPG launcher, but armed men were in the reporters’ entourage that may have independently met the criteria for using force under the rules of engagement.
That’s (possibly) a mistake in the distinction of combatants, not an intentional approval of the loss of innocent life that is deemed acceptable in proportion to the direct military advantage anticipated. The latter is the definition of collateral damage, and Assange seems to have no problem with asserting his moral judgment in this realm.
Collateral murder, indeed.
Deflation
I was listening to NPR in the car yesterday, when a report came on about the implications of deflation — which apparently is the latest concern regarding financial markets. The report nearly made me fall out of my seat from bewilderment and frustration.
Adam Davidson, the NPR reporter, waxed eloquent about how deflation turns normal economic and investment calculus on its head. But his explanation was so poor that he ended up saying exactly the opposite of what he should have said.
Here’s how it went for me:
Davidson: “Ladies and gentlemen, I have an amazing investment opportunity for you. Give me $100, just a hundred, and in one year I promise it will be worth 93 bucks. We call it the deflation special.”
My reaction: No, sir! Under deflation, $100 today would increase in value to $107 (assuming your implicit rate of deflation). Help! Stop the car! …Wait, I’m the one driving…what just happened?
Davidson: “All right, seriously, nobody is giving anybody a hundred bucks just so they can lose seven.”
My reaction: No, no, please, please take my money! I’d give you a million dollars if I had that amount. I really would!
Davidson: “That’s the opposite of an investment opportunity, which is precisely why economists and central bankers get terrified when they hear the word deflation.”
New Attack Ad Provides an Early Look at the Fall Campaign
The Jack Conway for Senator campaign has run an attack ad on The New Republic website disguised as an article about Rand Paul by one of the magazine’s interns. The tipoff is the word “radical” which appears five times in a short article along with “eccentric,” “unconventional” and similar words. (Doesn’t TNR bother to edit the web-only stuff?) Yeah, yeah, you’re saying by the end of the article, I get it: Paul is a radical, weirdo libertarian.
The evidence so far suggests that the Conway for Senate campaign seeks to paint Paul as an extremist while Jack, of course, is a moderate who will provide plenty of pork and don’t worry about the debt. Like most Democrats, Conway is facing a tough electorate this year, and he is responding by the party’s political playbook: demonize, mobilize, and spend. He will have adequate funds to pursue that strategy along with more than a little help from affiliated outside groups like TNR.
Parts of the article provide a useful political analysis of Kentucky’s different regions, presumably provided by the Conway campaign. So the article does offer a look into how Conway thinks he can win this.
Our intern concludes that the Conway-Paul race “is suddenly a close race.” It is true that a survey at the end of June, cited by TNR, indicated an even division. But the article appeared on August 4, and three polls in July showed Paul up by 3 to 9 points, the last one having Paul over fifty percent for the first time. That most recent poll also indicated that Paul had the support of one-quarter of Democrats and two-thirds of independents in the state.
With TNR flailing around like this, the Conway campaign seems pretty desperate pretty early.
Taxpayer Choice + Parental Choice = Good, Constitutional Education Reform
Arizona grants income tax credits for contributions made to school tuition organizations (“STOs”). STOs must use these donations for scholarships that allow students to attend private schools. This statutory scheme broadens the educational opportunities for thousands of students by enabling them to attend schools they would otherwise lack the means to attend. Still, several taxpayers filed a lawsuit challenging the program as creating a state establishment of religion.
Although the Ninth Circuit acknowledged that increasing educational opportunities is a valid secular purpose for a legislative act, it found that the tax credit program nonetheless violates the Establishment Clause because many of the STOs—as it happens, a decreasing majority—provide scholarships for students to attend parochial schools. Earlier this year, Cato filed a brief supporting the request for Supreme Court review filed by the various parties defending the program. The Court granted cert.
Now Cato (led by Andrew Coulson and myself) has filed another brief, joined by four education reform groups, urging the Supreme Court to overturn the Ninth Circuit’s decision because it was based on faulty reasoning: It equated the private and voluntary choices of individuals who donate to religious STOs with state sponsorship of religion. The lower court also made the dubious assertion that Arizona parents feel pressured to accept scholarships to religious schools, in spite of the fact that the share of STO scholarships available for use at secular schools is almost twice as large as the share of families actually choosing secular schools. Moreover, the tax credit scheme is indistinguishable from similar charitable tax deduction programs that the Court has previously held to pass constitutional muster.
We urge the Court to reaffirm its longstanding jurisprudence—especially the 2002 school-choice case, Zelman v. Simmons-Harris—whereby instances of “genuine and independent choice” are insulated from Establishment Clause challenge. Far from being an impediment to parental freedom, the autonomy Arizona grants to taxpayers and STOs is ultimately essential to it. More generally, should the lower court’s opinion be allowed to stand, the progress made to broaden the educational opportunities of students across the country will be stifled.
The case of Arizona Christian School Tuition Organization v. Winn will be heard by the Court this fall, probably in November.
Missourians Don’t Like Mandate
As Roger Pilon mentioned, yesterday’s Politico question was “Is Health Care Repeal Gaining Steam?” A timely question in light of Monday’s court decision allowing a lawsuit against the health care mandate to proceed.
And perhaps an even more timely question today, now that 71 percent of Missouri voters have voted for a proposition to exempt the state from the mandate.
Polls show continuing opposition to the Obama-Reid-Pelosi health care overhaul. It’s constitutionally dubious. And now, in the only popular vote on the bill, it received a full 29 percent of the vote. Just maybe this wasn’t a good idea.
President of Mexico Calls for Debate on Legalization of Drugs
For the first time ever, Mexican President Felipe Calderón said yesterday that it was “fundamental” to have a debate on the legalization of drugs. Calderon, from the conservative National Action Party (PAN), had until now been reluctant to pay heed to the growing calls in Mexico and Latin America for a hemispheric debate on drug legalization. Once they left office, two of Calderón’s predecessors—Ernesto Zedillo and Vicente Fox—have also engaged in the debate, calling for the need to legalize drugs as a way to battle the drug violence that is crippling Mexico. Others, such as Jorge Castaneda, former foreign minister of Mexico, have also called for an end to prohibition.
In today’s edition, El Universal newspaper in Mexico City claims [in Spanish] that Calderón’s turn around had something to do with a meeting he had a few days ago with Juan Manuel Santos, president-elect of Colombia. According to the newspaper’s sources, Santos told Calderón that drug trafficking is not under control in Colombian territory and that Mexico should be the country leading a public debate on legalization or decriminalization of drugs.
As I’ve written before, there is a growing consensus within Latin America about the failure of the war on drugs and the need to implement a sensible approach to drug policy. The question remains: Is anyone in Washington paying attention?
Democrats Ignore 80% of Workers in Service Sector
In a bid to revive their sagging election prospects, congressional Democrats have hit on the theme of promoting domestic U.S. manufacturing. As a front-page story in the Washington Post reports today, the party has adopted the bumper-sticker slogan, “Make It in America.”
I’m all for making things in America, when it makes economic sense to do so. But the Democratic plan opens a window for all sorts of government intervention, including trade barriers, higher taxes on U.S.-owned affiliates abroad, and subsidies for “clean energy” and make-work infrastructure projects.
The campaign relies on two major but faulty assumptions: That U.S. manufacturing is in deep trouble, and that creating more manufacturing jobs is the key to prosperity. Neither assumption is true.
As I explained in a Washington Times column yesterday:
Despite worries about “de-industrialization,” America remains a global manufacturing power. Our nation leads the world in manufacturing “value-added,” the value of what we produce domestically after subtracting imported components. The volume of domestic manufacturing output, according to the Federal Reserve Board, has rebounded by 8 percent from the recession lows of a year ago. Even after the Great Recession, U.S. manufacturing output remains 50 percent higher than what it was two decades ago in the era before NAFTA and the WTO.
Manufacturing jobs have been in decline for 30 years, not because of declining production, but because remaining workers are so much more productive.
Again, I’m all for manufacturing jobs supported by a free market, but members of Congress need to wake up to the reality that America today is a middle-class service economy. As I wrote in the column yesterday:
More than 80 percent of Americans earn their living in the service sector, including a broad swath of the middle class gainfully employed in education, health care, finance, and business and professional occupations.
It is one of the big lies of the trade debate that manufacturing jobs are being replaced by low-paying service jobs. Since the early 1990s, two-thirds of the net new jobs created have been in service sectors where the average pay is higher than in manufacturing. Members of Congress who belittle the service sector are ignoring the interests of a large majority of their constituents.
Congress and the president should focus on economic policies that promote overall economic growth, not policies that favor one sector of the economy over all the others.
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