Archive for February, 2011
Debunking the Myth of Oil Dependence
An article in today’s Boston Globe might help to debunk one of the more pervasive myths that distorts U.S. foreign policy: the belief that access to oil from the Middle East is a vital national security issue for the United States.
I discuss the issue in my book, The Power Problem (pp. 107-114). In addition, the Cato Institute and/or Cato scholars have published no fewer than five papers and articles over the past two decades documenting the many reasons why access to oil — or any other natural resource, for that matter — should not be cast as a national security threat. (See, e.g. here, here, here, here and here).
An article in the journal Security Studies expands on the last of these papers, published by Eugene Gholz, at the University of Texas, and Daryl Press, at Dartmouth College. (Justin Logan deserves credit for locating an early version of this paper, and working with Gholz and Press to publish the paper in Cato’s Policy Analysis series in 2007).
But the Gholz/Press plea that U.S. policy not fall victim to ”energy alarmism” isn’t particularly controversial. Or, at least, it shouldn’t be. Writes the Globe‘s Jeremy Kahn:
Gholz and Press are hardly the only researchers who have concluded that we are far too worried about oil shocks. The economy also faced a large increase in prices in the mid-2000s, largely as the result of surging demand from emerging markets, with no ill effects. “If you take any economics textbook written before 2000, it would talk about what a calamitous effect a doubling in oil prices would have,” said Philip Auerswald, an associate professor at George Mason University’s School of Public Policy who has written about oil shocks and their implications for US foreign policy. “Well, we had a price quadrupling from 2003 and 2007 and nothing bad happened.” (The recession of 2008-9 was triggered by factors unrelated to oil prices.)
And yet, the idea that is rejected by most economists is almost universally believed by politicians, and hyped by interest groups who stand to gain by stoking public fears. Auerswald explains:
“This argument is like the familiar old jeans of American politics,” he said. “They are nice and cozy and comfortable and everyone can wear them. Because of ethanol, the farm lobby loves it; for coal, well it’s their core argument; for the offshore drilling folks, they love it.” Even the environmental movement relies on it, he said, because they use it as bogeyman to scare Americans into taking renewable energy and energy conservation more seriously. As for the US military, “The US Navy is not interested in hearing that one of their two main theaters of operation has no justification for being,” Auerswald said.
Here’s hoping that Jeremy Kahn’s article will help to set the record straight.
Obama the Born-again Budget Cutter?!?
Chalk up another victory — at least on the rhetorical level — for the Tea Party.
President Obama will release his fiscal year 2012 budget tomorrow and he’s apparently become a born-again fiscal conservative. Here are some excerpts from a Washington Post story:
President Obama will respond to a Republican push for a drastic reduction in government spending by proposing sharp cuts of his own in a fiscal 2012 budget blueprint that aims to trim record federal deficits by $1.1 trillion over the next decade. …two-thirds of the savings would come from spending cuts that are draconian by Democratic standards… When it lands Monday on Capitol Hill, Obama’s plan will launch a bidding war with Republicans over how deeply and swiftly to cut, as the two parties seek a path to fiscal stability for a nation awash in red ink.
I’m skeptical of battlefield conversions, particularly when politicians utilize the dishonest Washington definition of a budget cut — increasing spending by less than previously planned. So the first thing I’ll do when the budget is released is to visit the Historical Tables of the Budget website and see what spending is projected to be in 2011 and what Obama is asking for in 2012.
Those numbers probably won’t be accurate since the Obama administration (like previous ones) will use best-case assumptions, but at least we’ll get a sense of whether:
a) spending actually is being cut (I’m not holding my breath for this miracle), or
b) spending is frozen at current levels (this approach would balance the budget by 2017, but it’s almost as unlikely at the first option), or
c) spending is being restrained (perhaps 2 percent growth, enough to keep pace with inflation), or
d) spending is growing far too fast (say 4 percent growth, pushing America quickly in the wrong direction), or
e) spending is continuing to explode (5 percent growth, 6 percent growth, or even more, meaning we’ll be Greece sooner than we think).
My guess, for what it’s worth, is that the Obama administration will claim (d) but will actually be proposing (e) if more realistic assumptions are used.
Needless to say, I hope I’m wrong. But other parts of the Washington Post story give me little reason for hope. The White House apparently is ignoring entitlements. Heck, the administration apparently isn’t even planning on meeting the President’s own deficit goal.
The blueprint ducks the harder task of tackling the biggest drivers of future deficits: Social Security, Medicare and Medicaid… Obama’s blueprint does not even hit the short-term goal he set for his commission – reducing deficits to 3 percent of the economy by 2015.
The White House also plans to play a shell game with certain parts of the budget. Supposed spending cuts in health care won’t generate taxpayer savings. Instead, they’ll be used to finance more spending on Medicare, enabling the President to cancel savings that were promised as part of Obamacare. The interest groups win and the taxpayers lose.
The Obama blueprint also seeks to eliminate two budget gimmicks that Congress has long used to mask the true depth of the red ink: His proposal would offset higher Medicare payments to doctors by cutting $62 billion from other areas of federal health spending. And it would adjust the alternative minimum tax through 2014 to prevent it from hitting middle-class taxpayers, covering the cost by limiting the value of itemized deductions such as charitable contributions and mortgage interest for wealthy households.
The same shell game takes place on the tax side of the fiscal ledger. The White House plans to cancel one future tax increase and “pay” for that change by imposing another future tax increase. Once again, taxpayers get the short end of the stick.
Unless the Washington Post story is completely inaccurate, the Obama administration is not changing course. There may not be any major initiatives to expand the burden of government, like the failed stimulus or the budget busting government-run healthcare scheme, but it certainly does not seem like there are any plans to reverse direction and shrink the burden of government.
Actually, Texans Save $600 Million a Year
A Texas tax official estimates in this story that Texas loses an estimated $600 million in Internet sales taxes every year. Its part of a long-running debate about whether state governments should be able to collect taxes from out-of-state retailers who send goods into their jurisdictions.
What happens with the $600 million depends on what you mean by “Texas.” If you mean the government of the state of Texas in Austin, why, yes, the government appears not to collect that amount, which it wants to. If by “Texas” you mean the people who live, work, and raise their families throughout the state–Texans–they actually save $600 million a year. They get to do what they want with it. After all, it’s their money.
The Texas tax collector is complaining because the last thing state taxing agents want to do is collect money in the form of use taxes, which means something like going door to door to collect money from voters based on what they bought from out of state. Revenuers intensely prefer to hide the process, collecting their residents’ money from out-of-state companies.
Amazon.com is Texas’ target–it’s the great white whale for tax-hungry jurisdictions nationwide. With no retail outlets and few offices or fulfillment centers around the country, it’s not subject to tax jurisdiction in lots of places that would like to tap it for revenue. Having a fulfillment center in Texas may make Amazon liable for $600 million of its customers’ money, so it’s doing the sensible thing: getting out.
And thank heavens it can! Amazon is a cog in the extremely virtuous process of tax competition. Its ability to move operations means that it can escape states with burdensome taxes and tax collections oblibations, like Texas. Tax competition among states puts downward pressure on taxes, which in turn puts upward pressure on the wealth and well-being of state residents.
The pro-tax folks have been working for years to eliminate tax competition. The “Streamlined Sales Tax Project” continues work it began in 2000 to pave the way for nationwide sales taxation. “Streamlining” sounds so good, doesn’t it? But the result would be uniform–and uniformly high–sales taxes that every state might impose on every retailer that sends goods across state lines.
The Web site of the pro-tax coalition sounds good, too: the “Alliance for Main Street Fairness,” at the URL standwithmainstreet.com. Who wouldn’t want to “stand with Main Street”? Lovers of limited government, for one.
“Fairness” here means uniform high sales taxes and interstate tax collection obligations. The site doesn’t say who’s behind it, but the campaign to impose taxes on Amazon and other remote sellers is almost certainly a project of big national chain retailers. Rather than fight to lower taxes nationwide, they think they should just saddle their online competitors with tax collection obligations.
As long as the Streamlined Sales Tax Project continues to fail, tax competition in this area survives, and retailers like Amazon can provide lower costs to all of us–including that $600 million in savings enjoyed by Texans each year.
Cyber-Intrigue and Miscalculation
If you haven’t been following the intrigue around Wikileaks and the security companies hoping to help the government fight it, this stuff is not to be missed. Recommended:
- “How One Man Tracked Down Anonymous—And Paid a Heavy Price,” on Ars Technica.
- “A Disturbing Threat Against One of Our Own,” on Salon.
The latter story links to a document purporting to show that a government contractor called Palantir Technologies suggested unnamed ways that Glenn Greenwald (author of this excellent Cato study) might be made to choose “professional preservation” over his sympathetic reporting about Wikileaks. A later page talks of “proactive strategies” including: “Use social media to profile and identify risky behavior of employees.”
Wikileaks has no employees. I take this to mean that the personal lives of Wikileaks supporters and sympathizers would be used to undercut its public credibility. Because Julian Assange hasn’t done enough…
While we’re on credibility: This may well be Wikileaks’ rehabilitation. Wikileaks erred badly by letting itself and Julian Assange become the story. We’re not having the discussion we should have about U.S. government behavior because of Assange’s self-regard.
But now defenders of the U.S. government are making themselves the story, and they may be looking even worse than Wikileaks and Assange. (N.B.: Palantir has apologized to Greenwald.) That doesn’t mean that we will immediately focus on what Wikileaks has revealed about U.S. government behavior, but it could clear the deck for those conversations to happen.
The concept of “miscalculation” seems more prominent in international affairs and foreign policy than other fields, and it comes to mind here. Wikileaks and its opponents are joined in a negative duel around miscalculation. The side that miscalculates the least will have the upper hand.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- Another example of cost overruns and mismanagement in government. This time it’s the National Archives.
- President Obama will release his budget blueprint for fiscal 2012 next week. If an op-ed penned by his budget director is any indication, the administration intends to continue fiddling while the government’s finances burn.
- End, don’t mend, the dozens of wasteful federal job training programs.
- With House Republicans and the White House proposing tiny cuts, get ready for a barrage of slasher stories in the press. Readers are invited to submit the best (worst?) “slasher story” they come across.
- Vice President Joe Biden’s recent pitch for high-speed rail brings to mind the classic Simpsons episode in which a con-man convinces the town’s residents to waste money on an exciting-sounding high-speed train that turns out to be a boondoggle. Watch the clip and judge for yourself.
Rising Exports — and Imports — Are Good News for U.S. Economy
The U.S. trade deficit rose in 2010, and the bilateral deficit with China reached a record high last year, according to the monthly trade report released this morning by the U.S. Commerce Department. The usual critics (such as Peter Morici of the University of Maryland) are already spinning it into yet another indictment of trade, but the report contains a lot of good news for the U.S. economy.
Last year, Americans bought $2,330 billion worth of goods and services from other countries, while selling $1,832 billion, for a trade deficit of $498 billion. Our bilateral deficit with China grew to a record $273 billion.
Politicians and commentators love to focus on the trade deficit, as though it were a scorecard of who is winning in global trade. But the real measure is the total volume of trade. As economies expand, so does trade, both imports and exports. Exports help us reach new markets and expand economies of scale, while imports bless consumers with lower prices and more choices, while stoking competition, innovation, and efficiency gains among producers.
By this measure the trade report was good news all around, and one more sign that the U.S. and global economies continue to recover from the Great Recession. Last year, U.S. exports of goods were up 21 percent from 2009, while imports were up 23 percent. In contrast, in the recession year of 2009, exports of goods dropped 18 percent from the year before while imports plunged 26 percent. (Unemployment soared in 2009, but, hey, at least the trade deficit was “improving”!)
Our trade with China last year tells the same story. The value of goods imported from China rose 23 percent in 2010 (the same rate as imports from the rest of the world), while the value of the goods we exported to China jumped by 32 percent. That’s a rate of export growth that is 50 percent higher than export growth to the rest of the world. Members of Congress who complain that China’s managed currency is somehow a major barrier to U.S. exports should take note.
Young Man Control
Instead of directing their energies on gun control, P. J. O’Rourke says liberals might want to focus on the real source of violence in our society and propose some “Young Man Controls,” such as longer young man waiting periods and young man registration. Not a ban, but common sense young man controls.
Hey, there’s already some movement in that direction—in the crucial pre-young man phase.
For Cato work on gun control, go here.
Administration Punts on Reform of Fannie and Freddie
Remember that “tough study” promised by Senator Chris Dodd to deal with Fannie Mae and Freddie Mac? Well it is finally out. All 22 pages (of doubled-spaced large font). And less than half those pages actually discuss Fannie and Freddie.
While the report does say a lot of the right things — such as protecting the taxpayer — it is awfully short on any real details. And in many areas, the report makes clear that the Obama administration intends to keep the taxpayer on the hook for future losses arising from Fannie and Freddie. For instance, after assuring us that the GSEs will have sufficient capital to meet their obligations, including debt, the report tells us that such capital will not come from investors, but from the taxpayer. One has to wonder whether this report was written for the benefit of the Chinese Central Bank (one of the largest GSE debtholders) or for the benefit of the U.S. taxpayer.
Equally vague is the discussion of “winding down” Fannie and Freddie. While that sounds great, how is this to be accomplished? And how long will it take? Again it seems that this “wind-down” will be financed by the taxpayer. It is suggested that the GSE guarantee fees will increase. Again, by how much and when?
Paragraph 2 of Section 1074 of the Dodd-Frank act, which required this study, also requires an “analysis” of various options and impacts. In all due respect to HUD and Treasury and their efforts, there is nothing in this report that remotely resembles an “analysis” — just vague generalities.
I appreciate the administration’s stated desire to move us closer to a private market solution, but we’ve heard these empty promises before. Remember that financial reform was going to end “too big to fail” and bailouts? Health care reform was going to “bend the cost curve”? It is past the time of fluff. We need actual details and an actual plan.
For details of immediate action that can be taken, see my testimony from earlier this week.
Mubarak Steps Down … Finally
Hosni Mubarak’s decision to step down as president of Egypt is welcome news. He could have taken a cue from Tunisia’s Zine El Abidine Ben Ali, resigning quickly in the face of overwhelming popular opposition. Such a move on Mubarak’s part would have avoided much of the confusion that has gripped Egypt for more than two weeks. At least 300 people have been killed during the protests, but thankfully Mubarak’s exit was achieved without even more bloodshed.
These protests were driven by popular discontent with Mubarak, rising food prices, rampant corruption, and limited political and economic opportunity. The Obama administration generally resisted calls to place the United States in the middle of what was a purely internal matter.
Those who called for a heavy-handed U.S. role in this whole affair—many of them the same people who have called for U.S. intervention in dozens of other places over the the past few decades—have been proven wrong once again. While the ideas of liberty are universal, the spark for change, and the energy that carries it forward, must come from within. The Egyptian people started this, and the Egyptian people should finish it.
Discussing Afghanistan at CPAC
I’m speaking on a panel at CPAC tomorrow discussing Afghanistan (“How to Think about Afghanistan,” Marriott Ballroom, 2:30 to 3:15 pm), and I’m inclined to include a few new data points, and one fresh anecdote, in my brief remarks.
The first piece of information has to do with money. Our deepening military presence in Afghanistan will cost American taxpayers in excess of $100 billion in FY 2011. Some estimates put the figure closer to $120 billion. This in a country with an official GDP of about $16.6 billion (and not more than $30 billion using purchasing power parity).
The second thing to consider is the current mission in Afghanistan. President Obama claimed in his December 2010 policy review that the focus of the U.S. mission is al Qaeda, but it doesn’t take 100,000 U.S. troops and a few tens of thousands more of allied troops and civilians to hunt a couple hundred al Qaeda, most of whom are in Pakistan. Claims that al Qaeda and the Taliban are synonymous, and therefore that preventing the Taliban from returning to power is essential to preventing future terrorist attacks in the United States, were always dubious. A just-released report casts still further doubt, and recommends renewed attempts to peel the two unlikely allies apart from one another. That wise strategy would not require us to build a capable, credible government on the shaky foundation that is Hamid Karzai.
I’m likely to close with some recent polling statistics that reveal deepening public discontent with the Afghan mission. (For example, here and here.) Even many conservatives, a majority in some surveys, question the known cost and the anticipated benefit. They worry that the mission — standing up a functioning nation-state, complete with a national army — is likely to fail and would not be worth the time and money that would be required to eventually succeed. (“Eventually” being synonymous with “many decades.”)
TSA’s Pistole Says ‘Risk-Based,’ Means ‘Privacy Invasive’
There is one thing you can take to the bank from TSA administrator John Pistole’s statement that he wants to shift to “risk-based” screening at airports: it hasn’t been risk-based up to now. That’s a welcome concession because, as I’ve said before, the DHS and its officials routinely mouth risk terminology, but rarely subject themselves to the rigor of actual risk analysis.
What Administrator Pistole envisions is nothing new. It’s the idea of checking the backgrounds of air travelers more deeply, attempting to determine which of them present less of a threat and which prevent more. That opens security holes that the risk-averse TSA is unlikely to actually tolerate, and it has significant privacy and Due Process consequences, including migration toward a national ID system.
I wrote about one plan for a “trusted traveler”-type system recently. As the details of what Pistole envisions emerge, I’ll look forward to reviewing it.
The DHS Privacy Committee published a document several years ago that can help Pistole with developing an actual risk-based system and with managing its privacy consequences. The Privacy Committee itself exists to review programs like these, but has not been used for this purpose recently despite claims that it has.
If Pistole wants to shift to risk-based screening, he should require a full risk-based study of airport screening and publish it so that the public, commentators, and courts can compare the actual security benefits of the TSA’s policies with their costs in dollars, risk transfer, privacy, and constitutional values.
Wal-Mart Could Help DC in More Ways than One
It’s good news for residents of Washington, D.C., that Wal-Mart is planning on opening four stores in the District. Yet Washington Post columnist Robert McCartney reports today on one curious source of opposition:
“There’ll probably be a lot of shoplifting going on. They’ll need a lot of security,” Terriea Sutton, 35, said.
Brenda Speaks, a Ward 4 ANC commissioner, actually urged blocking construction of the planned store in her ward at Georgia and Missouri avenues NW partly because of that risk. Addressing a small, anti-Wal-Mart rally at City Hall on Monday, Speaks said young people would get criminal records when they couldn’t resist the temptation to steal.
Of course, that’s a rationale for banning all stores, not just Wal-Mart. Perhaps we should isolate these youths and consign them to abject poverty, so they’ll never be around anything worth stealing. (A Wal-Mart spokesman commented that with regard to crime, “there is no more concern over these District locations than any other store locations.”)
Or we could recognize that Wal-Mart helps pull people out of poverty. As Obama economic adviser Jason Furman reminds us:
Wal-Mart’s low prices help to increase real wages for the 120 million Americans employed in other sectors of the economy. And the company itself does not appear to pay lower wages or benefits than similar companies, or to cause substantially lower wages in the retail sector…
[T]o the degree the anti-Wal-Mart campaign slows or halts the spread of Wal-Mart to new areas, it will lead to higher prices that disproportionately harm lower-income families…
By acting in the interests of its shareholders, Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.
Wal-Mart could do even more good for District residents if these four new stores sold guns. That would quintuple the number of firearms retailers in the District, make self-defense affordable for low-income residents, and might just add some lobbying heft to the campaign to roll back D.C.’s ridiculous gun regulations.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
