Archive for June, 2011
AEI on the Spectre of ‘Isolationism’
As David Boaz notes below, a few blocks away at 17th and M, the foreign policy and defense analysts at the American Enterprise Institute have discovered a threat that’s even more disturbing than the possibility of a Chinese “Space Force” armed with particle-beam weapons [.pdf]. It seems there’s a spectre haunting America–the spectre of “isolationism.”
It’s such a threat that AEI, one of our leading conservative think tanks, is calling on President Obama to man the bully pulpit and use his magic rhetorical skills to raise awareness. I did a double-take on Tuesday when I saw a post at AEI’s blog titled, “With Growing Isolationism, We Need Obama to Lead Now More Than Ever.” And yet, when I got up the next day, I heard AEI veep Danielle Pletka on NPR, lamenting “Republican isolationism” and the fact that Obama hadn’t yet stepped up to “explain to the American people” the “tough, important decisions” he’d made in foreign policy.
What’s the evidence for this supposedly burgeoning “isolationism” in the Republican party and the country at large? AEI’s Alex Della Rocchetta cites a recent poll showing that only 26 percent of likely voters support Obama’s Libyan adventure and the Pew Center survey David links to below, that has a rising number of Americans agreeing with the statement that the US should “mind its own business internationally.”
But is it “isolationism” to doubt the wisdom of bombing Libya, a country that the president’s own secretary of defense admits isn’t “a vital interest of the United States” or to think minding your own business abroad is better than minding other peoples’ business? As my colleague Justin Logan has pointed out, “isolationism” has always been a smear word designed to shut off debate. Tim Carney’s sardonic definition has it right: “Isolationist: n. Someone who, on occasion, opposes bombing foreigners.”
But, rhetorical games aside, AEI’s hawks have reason to worry that interventionism is increasingly unpopular. It had to hurt when even sometime AEI scholar Newt Gingrich–a guy so threat-addled that he once called for zapping a North Korean missile test with lasers–struck a note of restraint at the last GOP debate. As the New York Times noted, that debate showed that “the hawkish consensus on national security that has dominated Republican foreign policy for the last decade is giving way to a more nuanced view.”
Maybe GOP pols are beginning to catch on that, for quite some time now, ordinary Americans have overwhelmingly rejected the globocop role forced on them by liberal and conservative elites. Indeed, there’s a huge disconnect between the foreign policies Americans favor and those the Beltway Consensus delivers. Nearly three-quarters of the American public wants to get out of Afghanistan yesterday; meanwhile, 57 percent of National Journal’s “National Security Insiders” think we need to waste more blood and treasure on armed “community organizing.”
It’s almost like there’s a “culture war” going on, but not one of the usual God, Guns, and Gays variety. On one side, you’ve got the sound, mind-your-business instincts of the American people; on the other, there’s a gaggle of intellectual elites, determined to extend the reach and power of the American state. A “Battle,” if you will. You could write a book about it.
Is There a Rise in Isolationism?
At the Encyclopedia Britannica Blog, I take a look at the new hysteria about “isolationism” in the Republican party. There’s lots of hand-wringing at the American Enterprise Institute, and the Sunday morning shows were full of denunciations. But, I note:
What they’re really worried about is not so much the Republican leaders as the people. The country folk just don’t see the British coming any more. Rubin noted “a distinct isolationist streak that was very much in evidence in the questions from the audience last night.” Della Rocchetta’s main concern was “a growing isolationist sentiment espoused by the U.S. public”…
But here’s the specter that is haunting the neocons, a graph from the Pew center (using Gallup data) showing a striking rise in “mind our own business” sentiment:
Boost the Money Supply, Raise Interest Rates
The rate of broad money growth (M3) in the United States is weak (see the accompanying chart). The ultra-low federal funds rate (0.25%) has acted to keep a lid on broad money growth and, in turn, economic activity. Yes, “low” interest rates imposed by the Fed are contributing to a credit crunch and anemic money growth. But, wait. This is counter-intuitive. And if that’s not enough, it’s not what the textbooks tell us, either.
While the Fed has pumped huge quantities of so-called high powered money into the economy, the U.S. is paradoxically facing a credit crunch. Banks have utilized their liquidity to pile up cash and accumulate government bonds and securities. In contrast, bank loans have actually decreased since May 2008. And since credit is a source of working capital for businesses, a credit crunch acts like a supply constraint on the economy. Even though it appears as though the economy has loads of excess capacity, the supply-side of the economy is, in fact, constrained by the credit crunch. It is not surprising, therefore, that the economy is not firing on all cylinders.
To understand why, in the Fed’s sea of liquidity, the economy is being held back by a credit crunch, we have to focus on the workings of the loan markets. Retail bank lending involves making risky forward commitments. A line of credit to a corporate client, for example, represents such a commitment. The willingness of a bank to make such forward commitments depends, to a large extent, on a well-functioning interbank market — a market operating without counterparty risks and with positive interest rates. With the availability of such a market, even illiquid (but solvent) banks can make forward commitments (loans) to their clients because they can cover their commitments by bidding for funds in the wholesale interbank market.
At present, the major problem facing the interbank market is what can be termed a zero-interest rate trap. In a world in which the fed funds rate is close to zero, banks with excess reserves are reluctant to part with them for virtually no yield in the interbank market. Accordingly, the interbank market has dried up — thanks for the Fed’s “zero” interest-rate policy. And, with that, banks have been unwilling to scale up their forward loan commitments.
But, how can banks make money without making wholesale and/or retail loans? Well, it’s easy and “risk free” to boot. By holding the federal funds rate near zero, the Fed creates an opportunity for banks to borrow funds at virtually no cost and use them to purchase two-year U.S. Treasury notes which yield around 40 basis points. That doesn’t sound like much. But, considering that banks don’t have to hold capital against U.S. Treasuries, their positions in U.S. government securities can be leveraged to the moon. Well, not really. But, at a leverage ratio of 20, a bank can do quite well by playing the Treasury yield curve.
It’s time for the Fed to recognize market realities and raise the federal funds rate. A higher fed funds rate would release the credit squeeze created by the Fed’s misguided “low” interest-rate policy. If the Fed boosted the funds rate to 2%, the all-important broad money measure — M3 — would get a boost, and so would the slumping economy.
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this past week:
- The threat of terrorism is so low in the United States and the efficacy of the funds in mitigating it so uncertain that the right amount of homeland security spending in most parts of the United States is none.
- With trillion dollar deficits and mounting federal debt, will Congress finally get serious about cutting farm subsidies?
- Sen. Jim DeMint cites Cato’s Downsizing Government work in a Wall Street Journal op-ed on the Economic Development Administration.
- Chris Edwards on a debt limit deal: Will the cuts be phony?
- I told the Senate Small Business Committee that the Small Business Administration should be abolished.
Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.
Tonight on C-SPAN: Hayek!
Cato’s panel discussion on Hayek’s Constitution of Liberty, featuring Ronald Hamowy, Bruce Caldwell, Richard Epstein, and George Soros, will air tonight at 7:18 p.m. on Book TV, on C-SPAN2.
C-SPAN schedule here. C-SPAN listing for this video here.
Of course, you don’t have to wait for tonight. Watch Cato’s video, or read my summary.
Abolish the NLRB (and the NLRA)
The National Labor Relations Board is in the news for meddling in Boeing’s decision to build some aircraft in South Carolina rather than in Washington state. To most economists, the idea that a small regulatory board in D.C. should try to centrally plan $1 billion of private business investment is crackers.
However, the vast bureaucratic state in D.C. was built by overactive left-wing lawyers, not free-market economists. Consider that the federal government apparently has complex legal rules to determine when U.S. businesses are allowed to move investment and jobs from one state to another. The NLRB’s General Counsel Lafe Solomon said that in deciding whether it allows businesses like Boeing to adjust their production: “For us, it’s a motive analysis.”
“Motive analysis?” We’ve got obscure labor lawyers in the federal bureaucracy trying to mind-read the nation’s business executives on their huge capital investment decisions? That doesn’t sound like a very good prescription for U.S. competitiveness in the global economy.
This NLRB case highlights just one anti-growth and anti-freedom aspect of New Deal-era labor union laws. These laws–particularly collective bargaining–have no place in the modern economy. The NLRB should be abolished. Indeed, the entire National Labor Relations Act of 1935 ought to be repealed, according to Professor Charles Baird in his essay at DownsizingGovernment.org.
Economist Ludwig von Mises noted that “collective bargaining” is a euphemism for “bargaining at the point of a gun.” The system is not based on voluntarism and freedom of association. Voluntary unions would be fine, but current labor laws allow the creation of monopoly unions, which are inconsistent with a free economy and a free society.
The Non-war War in Libya
On Sunday, the Obama administration will have made war in Libya for more than 90 days without authorization from Congress. This violates both the Constitution and the War Powers Resolution. The administration claims it does not violate the latter because the war in Libya is not actually a war for legal purposes. The non-war war argument is not going over well; even the New York Times editorial page says the administration’s case “borders on sophistry.”
Beyond the headlines and the political struggle, the administration’s efforts to expand the presidential power to start wars also shifts political authority from the U.S. Congress to the United Nations. For more on the problems of Obama’s radical moves in foreign policy, see my essay here.
That’s Not Healthy: ‘They Said What?’ Edition
Some quick hits from today’s health care news:
- As I predicted, the physicians lobby balks at ObamaCare‘s accountable care organization (ACOs) program, saying, obliquely: “Give us more money.”
- GOP presidential candidate Tim Pawlenty left AHIP members and some reporters confused about how a person can support ACOs but still want to repeal ObamaCare. He and they should have read my column on ACOs.
- Pawlenty also endorsed a public option when he said his Medicare reform proposal would preserve Parts A, B, and D. He should have read my papers on a public option and Medicare reform (with Chris Edwards).
- Sen. Jay Rockefeller (D-WV) says he will fight “to the end” to keep low-income Americans dependent on lousy government health care programs.
- Turns out, potential GOP presidential candidate Jon Huntsman has endorsed an individual mandate after all: “I wouldn’t shy away from mandates. I think if you’re going to get it done and get it done right, [a] mandate has to be part of it…I’m not sure you get to the point of serious attempt without some sort of mandate.”
- Former Senate Majority Leader Tom Daschle (D) gushes over ObamaCare’s rationing board.
- Ezra Klein enlightens Washington Post readers by telling them Medicaid could save money someday if the government somehow became really, really smart. Klein, too, should read my column on ACOs.
- According to one mother of a diabetic child, Washington state’s death panel members “knew nothing about type 1 diabetes. And they’re making this huge, important decision that affects all these people. It was mind-boggling,” while a death-panel defender non-ironically laments, “That’s what’s been driving health care — the whiteness of the hair, the more bravado, the more clout you have in politics — that’s what’s making health care not healthy.”
Filed under: Cato Publications; General; Government and Politics; Health Care
Are Unions Really Good for Democrats?
Charles Krauthammer’s latest column is titled “The Union-Owned Democrats.” In it, he recounts a litany of economically ruinous actions being pursued by unions around the country, from blocking free trade agreements to hobbling Boeing’s efforts to compete with Airbus. He writes that “unions need Democrats — who deliver quite faithfully,” and that “Democrats need unions.”
Like a hole in the head.
Yes, it’s been a politically and financially symbiotic relationship for many decades. Unions get rents, Democrats get elected. But, as I argue in a cover story for The American Spectator this month (now on-line: “A Less Perfect Union“), it can’t last.
The biggest unions of all are the public school employee unions—the AFT and the NEA—with well over 4 million members between them. As I point out in my Spectator piece, these unions have become too successful for their own good—and for the good of the Democratic party.
In their game of Monopoly with American kids and taxpayers they have created staggering bloat in public school employment (which has grown 10 times faster than student enrollment over the past 40 years), and they have wheedled total compensation packages worth $17,000 more per year than those of their private sector counterparts (who, according to most of the research, outperform them in the classroom).
But the union-led public school spending spree has nearly bankrupted states all over the country. If California’s public schools had just maintained the same level of efficiency they’d had in 1970 (not gotten better, as other fields have, just stagnated), it would turn the state’s $26 billion deficit hole into a surplus.
Americans are rapidly running out of money to pay for their states’ school monopolies, and they are rapidly introducing school choice bills (42 states have done so this year), to give families alternatives. But as families escape the highly unionized monopoly and send their kids to school in the largely non-unionized private sector, teachers union power will implode. And resentment at having been gored for so long by the now bankrupt and discredited system will focus on the party that fought to preserve it until the bitter end… Democrats.
In my Spectator piece, I explain why that would be a bad thing, and what Democrats could do to avoid that fate. “Public schooling” is just a tool, and an ineffective, unaffordable one at that. Public education is a set of goals and ideals that can be advanced much more effectively by other policy mechanisms. The sooner Democrats realize that, the less likely they are to be dragged to the bottom of the political sea by the sinking union-helmed school monopoly.
Huntsman Right to Rethink Afghanistan
Jon Huntsman’s recent comments about the U.S. mission in Afghanistan and the need to reduce our military footprint have drawn a good amount of media coverage this week. Huntsman, who will announce his candidacy for the Republican presidential nomination next week, is the latest among the field to call for rethinking our strategy in Afghanistan. Huntsman is advocating a reduced presence in the country, in the area of 10 to 15,000 troops, to fight a narrowly focused counterterrorism mission. Coincidentally, a just-released Cato paper makes a similar recommendation.
Today, ForeignPolicy.com examines Huntsman’s comments and the “Drawdown Debate” in a round table of opinion pieces. My contribution: “Huntsman’s Right: Bring ‘em Home:
Jon Huntsman is on the right track with his call for a much smaller U.S. military presence and a more focused mission in Afghanistan. His suggestion makes sense for at least three reasons. First, the current nation-building mission is far too costly relative to realistic alternatives, particularly at a time when Americans are looking for ways to shrink the size of government. Second, nation-building in Afghanistan is unnecessary. We can advance our national security interests without crafting a functioning nation-state in the Hindu Kush. And third, the current mission is deeply unconservative, succumbing to the same errors that trip up other ambitious government-run projects that conservatives routinely reject here at home.
…
Alas, although many rank and file Republicans agree with Huntsman, many GOP leaders do not. Perhaps that will change when they realize that, at least in this instance, good policy and good politics go hand in hand. We should bring most of our troops home, and focus the attention of the few thousand who remain on hunting al Qaeda. The United States does not need to transform a deeply divided, poverty-stricken, tribal-based society into a self-sufficient, cohesive, and stable electoral democracy, and we should stop pretending that we can.
40 Years of Drug Prohibition
It was 40 years ago today that President Richard Nixon said the “drug menace” had reached the dimensions of a “national emergency.” Nixon asked Congress to allocate $155 million to fight drug abuse and requested a new central office in the White House to coordinate governmental efforts on the problem. Thus began the modern drug war. It’s true that criminal laws were already in place in many jurisdictions, but it was Nixon’s call for a “new, all-out offensive” that really started to ramp things up. Each year brought calls for more money–and that meant more police, more raids, more wiretaps, more arrests, and more prisons. And more foreign intervention.
The Associated Press ran a good article that examined the 40 year policy and the trillion dollars that went into the policy. Here’s an excerpt:
Using Freedom of Information Act requests, archival records, federal budgets and dozens of interviews with leaders and analysts, the AP tracked where [all the] money went, and found that the United States repeatedly increased budgets for programs that did little to stop the flow of drugs. In 40 years, taxpayers spent more than:
— $20 billion to fight the drug gangs in their home countries. In Colombia, for example, the United States spent more than $6 billion, while coca cultivation increased and trafficking moved to Mexico — and the violence along with it.
— $33 billion in marketing “Just Say No”-style messages to America’s youth and other prevention programs. High school students report the same rates of illegal drug use as they did in 1970, and the Centers for Disease Control and Prevention says drug overdoses have “risen steadily” since the early 1970s to more than 20,000 last year.
— $49 billion for law enforcement along America’s borders to cut off the flow of illegal drugs. This year, 25 million Americans will snort, swallow, inject and smoke illicit drugs, about 10 million more than in 1970, with the bulk of those drugs imported from Mexico.
— $121 billion to arrest more than 37 million nonviolent drug offenders, about 10 million of them for possession of marijuana. Studies show that jail time tends to increase drug abuse.
— $450 billion to lock those people up in federal prisons alone. Last year, half of all federal prisoners in the U.S. were serving sentences for drug offenses.
Read the whole thing.
I hosted a debate this week to mark this unfortunate policy milestone. Cato senior fellow Jeff Miron squared off against Dr. Robert DuPont, who was one of the key policy staffers in the Nixon White House in 1971. Dr. DuPont remains convinced that the present policy approach is essentially correct. Watch the event and decide for yourself.
In my 2000 book, After Prohibition, Milton Friedman noted that America’s drug war policy had dozens of negative consequences. One consequence that he believed received too little attention was the policy’s effect on other people around the world. Friedman said the policy was responsible for the deaths of “hundreds of thousands of people at home and abroad by fighting a war that should never have been started.” The violence in Mexico confirms Friedman’s analysis. The Los Angeles Times recently reported that more than 34,000 people have been killed during the government’s crackdown over just the past four years.
Ending the drug war is one of the signature issues for the Cato Institute. The other think tanks in Washington, DC–Brookings, AEI, and Heritage–support the drug war. We believe the drug war will eventually be widely recognized as a tragic mistake in much the same way as we presently look back upon the days of alcohol prohibition.
For additional Cato work related to drug policy, go here.
Spending Transparency Gets a Head of Steam
It has been a promising week for spending transparency.
On Monday, Rep. Darrell Issa (R-CA) introduced the Digital Accountability and Transparency Act (the DATA Act), to promote spending transparency in the federal government. Among other things it would establish standardized reporting requirements for recipients of money from the federal government, with that data to be collected in and distributed from a central, independent database. It would collect all agency expenditure data, as well, and combine it with the recipient-reported data.
Think of it as double-entry bookkeeping: you collect spending data from agencies, you collect receipt data from recipients, and if the numbers don’t match up, you go look there. There’s a lot more complexity to it than that, of course, but this is a significant bill from a Republican House leader who is working to follow through on his caucus’s commitment to transparency.
Not to be outdone (but really I don’t know whether it was coincidental or inspired by Representative Issa’s bill), Vice President Biden issued a statement mid-week about spending transparency and the Recovery.gov Web site’s new “Recovery Explorer” feature, which allows users to create and customize charts and graphs with the recipient-reported data. The more information, the better, though raw data about government deliberations, management, and results is the ideal.
The DATA Act turned bicameral and bipartisan yesterday with its introduction in the other house by Senator Warner (D-VA). It simply makes sense that the government’s books should be legible to the public, and Senator Warner obviously recognizes that.
Kudos to Senator Warner, Vice President Biden, and Representative Issa for focusing the light on spending transparency this week.
Shining a light is one thing, of course. We’ll look forward to the follow-up to this promising week in transparency—the week when federal spending in transparency in once-and-for-all delivered.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
