Archive for May, 2011
The IMF—A Reading List
Now that Dominique Strauss-Kahn has resigned as head of the International Monetary Fund, the debate has turned to who will lead the lending agency as it goes through its usual non-transparent and politicized selection process. (Of course, virtually all decisions at the IMF are politicized since it is primarily a political institution, a club in which rich countries’ governments with diverse interests and political priorities typically lend money to governments with track records of mismanaging their economies.)
The IMF is a fundamentally flawed institution, a problem independent of whether the new Fund chief is French or South African. Here’s a brief reading list for anybody more interested in the scandal of IMF lending than of the scandals of IMF personalities.
- In this Cato Handbook essay I provide an overview of the IMF’s poor record at promoting growth or reform, and of the moral hazard of providing big bailouts to countries, beginning with Mexico in 1995.
- In “The IMF’s Imprudent Role as Lender of Last Resort,” Charles Calomiris describes how IMF rescue packages undermine global financial stability.
- In this Cato study, I review the evolution of the IMF, show that its lending tends to last for decades rather than be short term, and that it tends to slow rather than accelerate reforms. I argue for market solutions to debt crises.
- In “International Financial Crises: Myths and Realities,” Anna Schwartz explains that financial contagion during the Asian financial crisis—a key justification for IMF intervention—was not occurring. Only countries with flawed economic policies suffered crises.
- Here, Swami Aiyar argues that the IMF has no business lending to Greece.
- In “Asian Problems and the IMF,” Allan Meltzer criticizes the Fund’s subsidization of risk.
- Here Anna Schwartz takes on the Fund’s “dubious proposal” to turn itself into a sort of bankruptcy court for nations.
- In this study Swami Aiyar takes on another bad idea: creating an IMF currency to rival the dollar.
An Accounting of Indiana’s Voucher Regulations
I’ve been trying to draw attention to the dangers that regulations like those in Indiana’s new voucher program pose for long-term educational freedom and choice.
It’s a difficult thing to do, in part because we have little freedom at all in the public school system that educates the vast majority of kids. Destroying the independence and diversity of the private education sector seems a reasonable risk to run for many if it means more choice for the majority of families. I disagree, and think that we’ll trade the possibility of a dynamic and innovative market in education for a new era of stagnant secular and religious public schools.
The other difficulty in explaining the threat of regulations like those in Indiana’s voucher law is that it is a complicated bill, linked to complicated existing state code.
In the interest of clarity and transparency, I’ve uploaded a two-page overview of the regulations, with citations and links for those who would like to take a look themselves. You can access it here: Regulations Associated with HB 1003 Indiana—2011-05-20
Let me know what you think, and whether I have missed or misinterpreted anything.
Matt Ladner replied to my concerns recently with some interesting qualifications and questions. He notes, “I haven’t seen an example yet of a voucher program in the United States swallowing up the private school sector and homogenizing them, but I agree that it is possible and a grave concern.”
The primary reason we haven’t seen this yet is that these programs have all been too small and constrained by funding caps. And that’s the problem with the Indiana plan and other plans to expand heavily regulated voucher programs; the better they are on coverage and access, the more devastating the consequences for educational freedom.
I find it horrifying to contemplate looking back 15 years from now at this moment of great opportunity and realize that, in the pursuit of choice, we imported the dysfunctions of government education and top-down control into the private sector and reduced both choice and freedom in the process.
Turns out State Schooling Isn’t Communist after all…
Albert Shanker, long-time head of the American Federation of Teachers union, said back in 1989 that:
It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve: it more resembles the communist economy than our own market economy.
But hang on a minute! Doesn’t the following description sound a lot like the work rules in our public schools:
Promotion was determined by the Table of Ranks…. An official could hold only those posts at or below his own personal rank…. [S]tandard intervals were set for promotion: one rank every three years from ranks 14 to 8; and one every four years from ranks 8 to 5…. This meant that, barring some heinous sin, even the most average bureaucrat could expect to rise automatically with age…. The system encouraged … time-serving mediocrity
That, ladies and gentleman, is not a description of the work rules of the communist-era Russian bureaucracy. It describes the rules in the Tsarist Russian bureaucracy (see Orlando Figes, “A People’s Tragedy,” p. 36).
The funny thing is, according to Figes, “By the end of the [19th] century, however, this system of automatic advancement was falling into disuse as merit became more important than age.”
So the modern U.S. system for promoting public school teachers was discarded as inefficient and unworkable… by the Tsars.
The End of the War Powers Resolution
Today is the 60th day since President Barack Obama notified Congress “U.S. military forces commenced operations to assist an international effort authorized by the United Nations (U.N.) Security Council and undertaken with the support of European allies and Arab partners, to prevent a humanitarian catastrophe and address the threat posed to international peace and security by the crisis in Libya.”
The War Powers Resolution of 1973 said that within 60 days of notifying the Congress of the use of force “the President shall terminate the use of United States Armed Forces” unless Congress has declared war or authorized the use of force, extended the 60 day period, or is physically unable to meet because the nation has been attacked.
President Obama has a few hours to go, but I doubt that he will stop American air attacks in Libya. Indeed, the attacks have spread to Libyan ships to counter Qadaffi’s forces.
Like earlier presidents, Obama said his notification of hostilities in Libya was “consistent with the War Powers Resolution.” Now the administration has apparently decided to ignore the law completely. Obama has not sought congressional approval for the bombing. He follows the example of Bill Clinton, who ordered air strikes in Bosnia in 1995 without seeking congressional approval.
Progress toward Marriage Equality
The Gallup Poll reports today, “For the first time in Gallup’s tracking of the issue, a majority of Americans (53%) believe same-sex marriage should be recognized by the law as valid, with the same rights as traditional marriages.”
Here’s the history of Gallup’s polling on the issue:
Gallup notes that the shift results from a substantial increase in support among Democrats and independents in the past year, but support among Republicans didn’t budge from 28 percent. The most striking number, though, is that support among young people 18-34 soared from 54 to 70 percent, mostly reflecting a shift among men, who are now almost as supportive as women.
The new poll comes just two days after Cato’s forum, “The Case for Marriage Equality: Perry v. Schwarzenegger,” featuring the prominent lawyers David Boies and Theodore Olson, who represent the plaintiffs in a lawsuit seeking to strike down California’s Proposition 8. Find video of the event here. The event also featured Robert A. Levy of the Cato Institute and John Podesta of the Center for American Progress, co-chairs of the advisory board of the American Foundation for Equal Rights, sponsor of the lawsuit. Read their Washington Post op-ed on the case.
Will Obama Comply with the War Powers Resolution?
Six Republican senators are challenging President Obama’s authority to conduct an open-ended war in Libya without congressional authorization. The six conservative lawmakers (Rand Paul (R-KY), Jim DeMint (R-SC), Mike Lee (R-UT), Ron Johnson (R-WI), Tom Coburn (R-OK), and John Cornyn (R-TX)) sent a letter to the president on May 18th asking if he intends to comply with the War Powers Resolution. The full text of the letter can be found here.
The law stipulates that the president must terminate military operations within 60 days, unless Congress explicitly authorizes the action, or grants an extension. The clock on the Libya operation started ticking on March 21, 2011. Congress has neither formally approved of the mission, nor has it granted an extension. Therefore, the 60-day limit expires tomorrow, May 20th.
Last week at The Skeptics, I noted Deputy Secretary of State James Steinberg’s testimony before the Senate Foreign Relations Committee, in which he suggested that the administration wanted to comply, but was consulting with Congress about how to do so. The New York Times presented some of the creative ideas that the administration was considering in order to adhere to circumvent the law. But the senators can read the Times, too. In their letter to the president, they write:
Last week some in your Administration indicated use of the United States Armed Forces will continue indefinitely, while others said you would act in a manner consistent with the War Powers Resolution. Therefore, we are writing to ask whether you intend to comply with the requirements of the War Powers Resolution. We await your response.
Let me be clear about one thing: I’m not a huge fan of the War Powers Resolution, per se. To me, it is silly, sort of like a law that affirmed the Congress’s authority to levy taxes, borrow and coin money, and establish Post Offices. In the same section where these powers are delegated, the Constitution clearly stipulates that Congress shall have the power to declare war. So why does there also need to be legislation?
Most presidents have complied with the spirit of the War Powers Resolution, but more out of deference to the notion that Congress has some role in whether the United States goes to war, not out of genuine conviction that Congress does/should have the most important role in deciding such things. By all appearances, President Obama is bypassing the charade.
I anxiously await his response to the senators’ letter, and am likewise curious to see if other senators raise questions about the administration’s intentions.
Fiscally Conservative, Socially Liberal Virginians
The Washington Post just did a major poll of Virginians and tantalizingly included this note in writing up the results:
In contrast to four years ago, about as many Virginians consider themselves to be liberal on social matters as call themselves conservative. Fiscal conservatism is on the rise, but on these social issues, it’s liberalism that’s ticked higher.
But those questions were not included in the published data. Thanks to the generosity of Post polling director Jon Cohen, I can report that the percentage of Virginians who said they were socially liberal or moderate and fiscally conservative went from 16 in 2007 to 23 in the latest poll. This reflects a small increase in the number of social liberals and a larger increase in the number of fiscal conservatives. And here are the tables on those questions:
We’ve written about fiscally conservative, socially liberal voters before, notably here and here, and in relation to Virginia and in the Republican party. Apparently when you ask people, “Would you describe yourself as fiscally conservative and socially liberal?”, you get a higher percentage than when you ask the questions separately, as the Post did. When the Zogby Poll asked that question to actual voters in 2006, fully 59 percent said yes. Broader background on the “libertarian vote” here.
UPDATE: Liu Cloture Fails
This morning I outlined the stakes of today’s seminal cloture vote on Goodwin’s Liu’s nomination to the Ninth Circuit. Well, now we have a result: cloture failed 52-43, with Senator Ben Nelson (D-NE) joining all voting Republicans except Lisa Murkowski (R-AK) against cloture. Three Republicans plus Max Baucus (D-MT) were absent, while Orrin Hatch (R-UT) voted present because of his previous strong position against filibusters.
This is the first judicial nominee filibustered since the Gang of 14 brokered an agreement on President Bush’s nominees in 2005, forestalling then-Senate Majority Leader Bill Frist’s use of the so-called nuclear option (changing Senate rules to eliminate the judicial filibuster). That agreement, to the extent it’s even still valid given the changed composition of the Senate (and with five of the 14 Gang members no longer in the Senate), allowed filibusters only in “extraordinary circumstances,” leaving that term undefined.
And so we may have just have witnessed the re-ignition of the war over judicial nominees. Stay tuned as to whether today’s vote will come to signify the “Water-Liu”—h/t Walter Olson—for one party or another, or for our judiciary.
The Consequences of Our War on Low-Skilled Immigrant Labor
Credit: Chiapas state government website
Authorities in Mexico intercepted two semi-trucks on Tuesday containing more than 500 migrants being smuggled across the border from Guatemala and presumably headed for the United States. An x-ray of one of the trucks that revealed the migrants struck me for its resemblance to those 18th century woodcarvings of slave ships crossing the Atlantic.
That analogy shouldn’t be taken too far, of course. According to the news reports, the migrants voluntarily paid $7,000 each for the chance to be smuggled into the United States. But like the slave ships, the conditions in the trucks were horrific, putting the lives of the men, women and some children in real danger.
People across the spectrum will try to make hay from this, but to me it argues that the status quo is unacceptable. No respectable party is in favor of illegal immigration. The real debate is over how to reduce it and all the underground pathologies that accompany it.
We can continue to ramp up border and interior enforcement, as we have relentlessly for more than a decade, driving low-skilled migrants further underground while driving smuggling fees higher and higher. Or we can expand opportunities for legal entry into the United States, and by doing so shrink the underground network of smuggling and document fraud.
Like the repeal of Prohibition in 1933, real immigration reform would go a long way to eliminating the human bootlegging that was exposed in Mexico this week. A robust temporary worker program would allow foreign-born workers to enter the country in a safe, orderly, and legal way through established ports of entry. It would allow resources now going to smugglers to be collected as fees by our government and otherwise put to work in our economy. It would save the lives of hundreds of people who needlessly die each year trying to re-locate for a better job.
If Congress enacted the kind of immigration reform we have long advocated in my department at Cato, our economy would be stronger and the human smuggling networks a lot less busy.
What Did Orwell Say?
Steve Simpson and Paul Sherman of the Institute for Justice have written an excellent short essay about Stephen Colbert’s effort to undermine the Citizens United decision. But the joke is on Colbert:
Campaign-finance laws are so complicated that few can navigate them successfully and speak during elections—which is what the First Amendment is supposed to protect. As the Supreme Court noted in Citizens United, federal laws have created “71 distinct entities” that “are subject to different rules for 33 different types of political speech.” The FEC has adopted 568 pages of regulations and thousands of pages of explanations and opinions on what the laws mean. “Legalese” doesn’t begin to describe this mess.
So what is someone who wants to speak during elections to do? If you’re Stephen Colbert, the answer is to instruct high-priced attorneys to plead your case with the FEC: Last Friday, he filed a formal request with the FEC for a “media exemption” that would allow him to publicize his Super PAC on air without creating legal headaches for Viacom.
How’s that for a punch line? Rich and successful television personality needs powerful corporate lawyers to convince the FEC to allow him to continue making fun of the Supreme Court. Hilarious.
Of course, there’s nothing new about the argument Mr. Colbert’s lawyers are making to the FEC. Media companies’ exemption from campaign-finance laws has existed for decades. That was part of the Supreme Court’s point in Citizens United: Media corporations are allowed to spend lots of money on campaign speech, so why not other corporations?
Because some animals are more equal than other animals, I suppose.
Europe Has Done Enough Harm to the IMF
With Dominique Strauss-Kahn (DSK to his friends and lovers) having finally resigned as head of the International Monetary Fund, the race has begun among those in Europe who wish to succeed him. First, the real debate should be over how soon can we shut down the IMF, not over who should be reaping the spoils. Its original purpose under Bretton Woods became irrelevant decades ago. And while it found a new role as bailout fund for international banks, this new role is not one we should be supporting.
Given we are probably stuck with the IMF, the question becomes who should run it. Europeans are now arguing that the European sovereign debt crisis displays the need for Europe to remain in control. In fact I believe it demonstrates the opposite: European politicians have time and time again proven they cannot be trusted with a large pot of taxpayer’s money, whether it is the Greek government or the IMF. To put another European in charge is the financial market equivalent of letting the alcoholic guard the liquor cabinet. Any European politician will likely hand out funds without any real strings attached. Just as a European-led IMF was all too happy to force restructuring on developing countries (rather than allow Western bondholders to take a loss), real reductions in government spending should be required of any country accepting IMF assistance. Else the losses should be imposed on those who gambled: the bondholders. If we fear such losses will push European banks into failure, then deal with those failures directly, honestly and transparently. Citizens around the world are tired of bank bailouts, backdoor or otherwise. As long as the political elite remained deaf to public objections to the bailouts, we should not entrust these same politicians with the IMF.
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