Archive for September, 2011
Competitiveness: Let Markets Lead the Way
The American Enterprise Institute’s Kevin Hassett held a conference the other day on the idea of international “competitiveness.” He invited me to comment on his new co-authored paper that tries to nail down the murky meaning of the word.
The paper suggests that for a solid definition of “competitiveness,” we should look to the literature on Tiebout competition, which is competition between local jurisdictions for inflows of labor and capital.
Kevin and co-authors suggest that as global labor and capital mobility have increased, countries are now competing with each other the same way that local jurisdictions do. In Global Tax Revolution, Dan Mitchell and I discuss why Tiebout competition is a positive force promoting fiscal reforms worldwide. This is competitiveness in a good way.
By contrast, Paul Krugman wrote an excellent article in 1994 criticizing the vacuous way that “competitiveness” was thrown around by pundits such as Robert Reich and Lester Thurow. Books by such authors suggest that the global economy is a giant wrestling match, and that other countries will slam Team America to the mat unless we have more government planning and subsidies.
At the AEI forum, I noted that America does have to adapt to the realities of globalization, but most of that adaptation can and should occur in the private sector. For example, America needs larger and more efficient seaports to handle rising volumes of international trade. But rather than shoveling more taxpayer money into our government seaports, we should privatize them so that they can expand in response to rising market demands.
The World Economic Forum publishes a well-known index of country competitiveness. Kevin and coauthors think the index is dubious, but the WEF report is packed with interesting data. One WEF indicator of competitiveness (page 391) is “quality of seaports.” Hong Kong is ranked #1, and its seaport is privately financed, owned, and operated. American seaports are ranked #22, and they are generally government-owned.
The upshot is that when thinking about America’s “competitiveness”—however it is defined—we should think about the proper roles of the public and private sectors. The public sector can pursue tax reform to make us more of a magnet for capital and skilled labor. But when it comes to such things as infrastructure, education, and investing in “industries of the future,” the government should get out of the way and let entrepreneurs and markets drive America’s prosperity in the global economy.
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this past week:
- Comparing the U.S. Postal Service and the federal government.
- We spend too much on our military because we ask our troops to do too much. To spend less, we must do less.
- The federal unemployment insurance system fosters unemployment.
- The Principal of the United States returns.
- Abolish the Department of Homeland Security.
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The First Rough Draft of the Solyndra Story
Just reading the headlines of the Solyndra stories in major newspapers the past month tells a story that just keeps getting more discouraging:
Obama-backed green firm shuts down
The Washington Post, September 1, 2011
Solar firm to cease operations; Solyndra had received a $535-million loan guarantee. It plans to seek Chapter 11.
Los Angeles Times, September 1, 2011
A Third Solar Company Files for Bankruptcy
The New York Times, September 7, 2011
FBI raids offices of solar-panel firm
The Washington Post, September 9, 2011
E-mails cite rush on loan to solar firm
The Washington Post, September 14, 2011
Treasury to probe loan to Solyndra; The Federal Financing Bank’s role in the failed firm’s borrowing will be the focus.
Los Angeles Times, September 16, 2011
White House official: Funding Solyndra further was risky
The Washington Post, September 16, 2011
Amid Solyndra probe, Energy Dept. moving billions in loans
The Washington Post, September 17, 2011
SOLAR FIRM’S OBAMA LINKS PROBED; A fundraiser’s role in a loan program that aided Solyndra stokes concern about the company’s influence.
Los Angeles Times, September 17, 2011
Questions Raised Over Letting Another Lender Help a Failing Solar Company
The New York Times, September 17, 2011
Justice Dept. urged to probe Solyndra
The Washington Post, September 20, 2011
Solyndra officials to invoke Fifth before House panel
The Washington Post, September 21, 2011
Solyndra’s ex-employees tell of high spending, factory woes
The Washington Post, September 22, 2011
In Rush To Assist A Solar Company, U.S. Missed Signs
The New York Times, September 23, 2011
Government OKs new green loans; Two execs of bankrupt solar firm Solyndra plead the 5th before a congressional panel.
Los Angeles Times, September 24, 2011
A solar pariah had Republican parents, too
The Washington Post, September 27, 2011
Where Solyndra said yes, others demurred
The Washington Post, September 27, 2011
Obama aides voiced doubts about loans like Solyndra’s; A top concern was that the vetting process wasn’t rigorous enough.
Los Angeles Times, September 27, 2011
Energy Dept. knew Solyndra had violated its loan terms
The Washington Post, September 29, 2011
U.S. Backs New Loans For Projects On Energy
The New York Times, September 29, 2011
Energy chief cleared Solyndra loan breaks
The Washington Post, September 30, 2011
I found these headlines on Nexis, but of course they can be found on the newspapers’ websites. I linked to two of the stories last week.
Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance — at least — of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy.
Abolish the Department of Homeland Security
We’re ten years past 9/11, and over the last decade we’ve shed a number of our liberties and spent wildly to counter a terrorist threat that, as the recent model airplane plot demonstrated, isn’t existential. The bureaucratic legacy of 9/11, the Department of Homeland Security, has proven an unwieldy and pork-laden nightmare. It’s time to abolish it.
My recent policy analysis, Abolish the Department of Homeland Security, makes the case for doing so. To begin with, DHS is a management disaster by its very nature:
In creating Homeland Security, Congress lumped together 22 previously unconnected federal agencies under a new Cabinet secretary. That’s a problem, not a solution. And while members of Congress routinely clamor for consolidating Homeland Security oversight in one committee, that seems unlikely: 108 congressional committees and subcommittees oversee the department’s operations. If aggregating disparate fields of government made any sense in the first place, we long ago would have consolidated all Cabinet responsibilities under one person — the secretary of government.
Apart from the structural handicaps that DHS faces, the whole notion of “homeland security” is problematic. The “odiously Teutono/Soviet” concept trends us ever closer to a police state and is particularly prone to pork-barrel spending. As I said in my recent op-ed on the topic:
It allows politicians to wrap pork in red, white and blue in a way not possible with defense spending. Not every town can host a military installation or build warships, but every town has a police force that can use counterterrorism funds to combat gangs or a fire department that needs recruits or a new fire station.
Congress must reform its grant programs and end this wasteful spending. While we’re at it, let’s end federal funding for fusion centers, local- and state-organized intelligence cells that duplicate FBI efforts in counterterrorism and end up labeling nearly anyone who expresses political dissent as a potential terrorist, a point I made at this Capitol Hill Briefing. I’ll be speaking at another Capitol Hill Briefing with Jim Harper today on abolishing the Transportation Security Administration. More information available here.
China Currency Legislation Is a Desperate Mistake
The good news for those craving harmony in Washington is that that mythical elixir called bipartisanship has been spotted in Congress. The bad news is that it is finding its expression in an outbreak of self-destructive China-bashing.
After 8 years of threatening punitive action to compel appreciation of the Chinese currency at a pace deemed acceptable by U.S. politicians (a period, by the way, in which the Yuan appreciated by 30% against the dollar in nominal terms—and by much more in real terms), lawmakers may just pull the trigger this time. If so, their action should be seen for what it is: a vote of no confidence in themselves as a body capable of producing solutions to the nation’s economic stagnation and monumental budget and debt woes.
China currency legislation is a diversion – a shell game. Despite the opinions of Harold Meyerson and Fred Bergsten, there simply isn’t any evidence that a stronger Yuan will produce a smaller bilateral trade deficit or that a smaller trade deficit will boost employment. Indeed, policymakers shouldn’t be targeting trade deficit reduction in the first place—let alone a bilateral trade deficit, which is meaningless in a world dominated by trade in intermediate goods.
As explained here and here, globalization with it transnational production sharing and cross-border investment has mitigated the impact of currency values on trade flows. Because the value of imported inputs accounts for about half of the value of Chinese exports, a stronger Yuan reduces the prices of imported inputs used to manufacture and assemble products in China for export to the United States and elsewhere. This dampens any expected impact of a rising currency. In fact, between July 2005 and July 2008 the renminbi rose 21% against the dollar, to $.1464 from $.1208, where it had been pegged since 1997. But the U.S. bilateral trade deficit increased from $202 billion to $268 billion over that period. Since June 2010, the Yuan has appreciated by 7 percent against the dollar, but the bilateral trade deficit is on target to be 34% larger in 2011 than it was last year. And (as described here and here) there is no discernible relationship between trade deficits and employment.
Broader support on Capitol Hill for currency legislation boils down to this: with public approval ratings hovering in the low-to-mid teens, an embattled Congress is looking for plausible scapegoats for the dismal state of U.S. economic affairs. Thanks to a lot of media-driven hype about China’s inexorable rise at U.S. expense, Americans fear China almost as much as they loathe Congress. A vote to reclaim American jobs stolen by China—as the currency legislation is so disingenuously characterized by some of its supporters—enables politicians to return to their states and districts with concrete evidence of the seriousness of their efforts.
Only it’s not serious. It’s deeply dismaying. Instead of working hard to change homegrown U.S. policies that inhibit investment, job creation, and growth, our elected officials would choose to lay the blame for our woes at China’s feet, then cross their fingers and hope that their provocative, unilateralist legislation doesn’t unleash a torrent of adverse consequences that would make economic matters even worse. Can there be a stronger admission of failure than to launch such a desperate Hail Mary?
Chicks with Guns
An interesting new book has hit the market, Chicks with Guns. It was put together by a photographer–so it’s a collection of portraits from women across the country with brief captions about why they choose to own guns. Here’s an excerpt from an MSNBC report:
Based on polling research and gun-sale statistics, an estimated 15 million to 20 million women in the United States own their own firearms. Dozens of those heat-packing women are documented in “Chicks with Guns,” a new book by photographer Lindsay McCrum that is sure to challenge almost anyone’s assumptions about gun ownership.
“Their numbers are really high but their profile is actually really low,” said McCrum, who spent three and a half years capturing artistic and arresting portraits of women with their weapons of choice.
“I was so surprised by the variety and breadth and diversity of these women,” McCrum said. “There are so many stereotypes about guns, mostly derived from popular culture, but the reality is so much more complex and varied than you can imagine.”
The Vendome Press
“Chicks with Guns” reveals just how true that is. The book features nearly 80 portraits and captions in which women describe the role of guns in their lives in their own words. It quickly becomes apparent that rich women, poor women, young women, old women, athletic women, sedentary women and a fair number of confident girls possess guns for reasons that are peculiarly their own.“I learned two main lessons while working on this book,” said McCrum, who divides her time between New York City and California when she isn’t traveling for work. “One is that on the subject of guns, nobody is neutral. And the other is that when you get outside of the blue-state cities, everybody has a gun.”
Read the whole thing.
America’s Asymmetrically Politicized Military
Gen. Washington Resigning His Commission
America is still laboring under the idea that the uniformed military is apolitical. It isn’t. Not only is the military increasingly politicized, it only expresses open political views on one side of the debate over America’s wars. Given the military’s influence on public opinion, that’s an unhealthy situation.
The most recent example is an op-ed this week published in the New York Times by an active-duty Army officer. Titled “This War Can Still Be Won,” the op-ed argues strongly for continuing the Afghanistan war. Although the piece is peppered with caveats, such as the author’s curious admission that “‘winning’ is a meaningless word in this type of war,” the argument is clearly a political one.
Now try to imagine for a moment an active-duty Army officer making the opposite argument, under his own byline, in the Times. It’s unimaginable, and for good reason. To hear officers openly arguing “this war cannot be won” would be devastating for morale. Still, members of the uniformed military do hold that view. You can see evidence of this in a “U.S. general and war-fighter’s” furtive comment to a Time reporter that in Afghanistan “there is no endgame and there hasn’t been one from the start. There’s all this talk about how we can’t pull out, because if we do all the blood we spilled will have been wasted. Didn’t we learn this lesson in Vietnam?”
When the American people hear the uniformed military speaking out loudly on matters of war and peace, they listen. In fact, they are so deferential to the military that one recent survey indicated 28 percent of Americans think civilian control of the military is a bad idea, with another 28 percent not sure. It’s tough to think of an idea more central to the principles on which this country was founded, yet Americans are increasingly deferential to military leaders.
It would be one thing to have a political military in which both sides of an argument could air their views openly, but the anti-war faction in the military is hamstrung by enduring norms of remaining outside politics and a noble abhorrence of doing anything to harm morale. Yet the American people have been hearing the views of one faction of the American military on our current wars for years, at least since Gen. David Petraeus became one of the most prominent and successful political figures in the country. The problem is that they’ve only been hearing one side.
I would prefer a situation in which we had a genuinely apolitical military. But if we’re going to politicize the military, we need to figure out a way to air the views of the uniformed skeptics, too.
The Goofy Face of Terror
Meet Rezwan Ferdaus. The 26-year-old punk drummer and Northeastern University physics grad is also the latest in a string of “limousine jihadis” arrested as part of an
FBI sting operation. No doubt his fiendish scheme to “decapitate” the American military will soon be added to the list of “thwarted terrorist attacks” that the Heritage Foundation maintains to discourage “complacency in the War on Terror.” It’s instructive to take a closer look at this plot, as spelled out in the affidavit laying out the charges against Ferdaus.
Seemingly inspired more by Lex Luthor than Sayid Qutb, our wannabe jihadi concocted a detailed plan to load a 6-foot fiberglass remote controlled plane with explosives, which he would then fly into the steel-reinforced concrete outer wall of the Pentagon using some form of GPS-guided autopilot. Then, in a scene cribbed from The Matrix, he would lead a ground assault to “take out” the people fleeing the building with automatic rifles. Apparently lacking much experience shooting, however, Ferdaus suggested that he’d have to take a few guns into the woods first in order to “learn how to do it.” Since he was unemployed and living with his parents in the suburbs, there was also the little matter of financing. The FBI (through undercover agents posing as Al Qaeda recruiters) had to foot the bill for the plane, as well as a trip to Washington, DC, where Ferdaus scoped out his target. Oh, and the explosives? He had to ask his bogus comrades to acquire those for him as well.
Wanna-be Mass. Terrorist Incompetent, Lacked Resources
The media has again provided us with a breathless report of a terror plot. This time it’s a 26 year-old Massachusetts man, Rezwan Ferdaus, who planned to fill three remote controlled airplanes with explosives and then fly them into the Pentagon and the U.S. Capitol.
Ferdaus’s accomplices were FBI agents. As with many past cases, the FBI agents were crucial to his plot. Without the FBI’s men, money, and “explosives,” there is very little chance that Ferdaus could have successfully committed an act of terrorism.
Ferdaus, broke and living with his parents, had a plan that should make us question his mental competence. He planned to fly two remote-controlled airplanes, each packed with five pounds of explosives, into the Pentagon using GPS-guidance, and another similarly loaded plane into the U.S. Capitol’s dome, which he apparently thought would cave in. Following that, he would somehow destroy the bridges at the Pentagon complex and a six-man team armed with AK-47s would attack the complex. Whom he would recruit with the ability to launch such an audacious assault is not clear. The affidavit never identifies a non-FBI accomplice. At one point, Ferdaus says that he told a friend about his idea, but that his friend declined to participate and suggested that it would be easier to shoot up a military recruitment center. So, absent FBI assistance, Ferdaus’s plan would have been impossible until he had found several more willing participants.
Another impediment was money. Ferdaus purchased only one of the remote control planes for a total of $7,500, which was provided by the FBI. He needed several thousand dollars more to buy the other two. Ferdaus even needed the FBI’s help to pay the $450 fee for a rental facility where he planned to store his material and construct his bombs.
Even if Ferdaus had succeeded in finding others and buying the planes and other necessary electronics, he would still have needed to create a proper explosive that could be detonated at precisely the right time. He initially planned to use several grenades that would have had their pins pulled exactly three seconds before impact using a “detonation servo” device. He later decided to use “plastic explosives,” or C-4, as long as it was “obtainable.” As directed, the FBI undercover agents provided him with 25 pounds of C-4, only 1.25 pounds of which was real. They also delivered six fully-automatic AK-47s.
Wanna-be terrorists face numerous obstacles to success, starting with their own incompetence. We should applaud the FBI’s investigative zeal but keep in mind that without them, Ferdaus probably wouldn’t have launched an attack, let alone succeeded in it. Here we have a ”Darwin Award nominee,” not the hypercompetent home-grown terrorist the authorities keep telling us to expect. Saying so is a way to avoid being terrorized.
Obamacare Legal News Gone Wild
Developments in the Obamacare lawsuits are coming at us so quickly that it’s hard to keep up. After a month and a half of speculation on what the administration would do after it lost in the 26-state/NFIB lawsuit (Florida v. U.S. Dept. of Health & Human Services), in the last week the D.C. Circuit heard argument in yet another case on appeal, the government decided not to seek en banc review in the Eleventh Circuit, yesterday we went from zero to three cert. petitions in that case, and the government filed a reply in the Thomas More (Sixth Circuit) case. Here’s a breakdown:
1. D.C. Circuit Argument
This past Friday, the D.C. Circuit heard the appeal of Seven-Sky v. Holder (in which Cato filed this brief). There wasn’t much media coverage, in part because the reporting came in on a Friday afternoon but more because the appellate developments after the Eleventh Circuit created a split from the earlier pro-government Sixth Circuit ruling are somewhat anticlimactic — because the action has moved to the Supreme Court. I attended the hearing and can report a few key points:
(a) The government still has not managed to come up with an example of something it cannot do under its reading of the Commerce Clause. This is shocking. Solicitor General Verrilli (who did not argue here), a word of unsolicited advice before Justice Scalia asks you the same question: come up with a couple of outlandish things and move on. Unless, you know, you think the government really can do anything it wants if a congressional majority exists for it.
(b) Judge Bret Kavanaugh, Bush II appointee and rising star in the conservative judicial establishment, had some serious concerns regarding the Anti-Injunction Act (the jurisdictional issue on which the Fourth Circuit based its decision to dismiss the Liberty University case). Beth Brinkmann, arguing for the government and after floundering on the Commerce Clause (see above), seemed to have done a great job in putting Kavanaugh’s mind at ease — or at least getting him over the jurisdictional hump.
(c) Judge Laurence Silberman, Reagan appointee and author of many significant opinions over the years, has a really wide interpretation of government power under Wickard v. Filburn, the 1942 wheat-farming case. I’m not sure that puts his vote in danger — he was also the one who most went after the government — but it does raise an eyebrow.
(d) Overall, I cautiously predict a 2-1 ruling in favor of the plaintiffs, but we won’t know till later this fall. For a more detailed analysis of the hearing, see Randy Barnett’s post at the Volokh Conspiracy.
Obama and Civil Liberties
Jonathan Turley has a terrific column about President Obama and his deplorable record on civil liberties. Here’s an excerpt:
Obama failed to close Guantanamo Bay as promised. He continued warrantless surveillance and military tribunals that denied defendants basic rights. He asserted the right to kill U.S. citizens he views as terrorists. His administration has fought to block dozens of public-interest lawsuits challenging privacy violations and presidential abuses.
But perhaps the biggest blow to civil liberties is what he has done to the movement itself. It has quieted to a whisper, muted by the power of Obama’s personality and his symbolic importance as the first black president as well as the liberal who replaced Bush. Indeed, only a few days after he took office, the Nobel committee awarded him the Nobel Peace Prize without his having a single accomplishment to his credit beyond being elected. Many Democrats were, and remain, enraptured.
This was not all that surprising to me. As soon as Obama started making actual decisions (instead of just speeches), one could see he where he was going. Joe Biden for Vice President? Rahm Emanuel for chief of staff? Civil liberties was never going to be a priority. Jonathan Turley is right that beyond Obama’s own misguided policies, the worst thing is that he has devastated not only the movement for civil liberties but also the anti-war movement. Oh well, at least Obama has put our financial house in order!
Tim Geithner: The Forrest Gump of World Finance
One almost feels sorry for Treasury Secretary Tim Geithner.
He’s a punchline in his own country because he oversees the IRS even though he conveniently forgot to declare $80,000 of income (and managed to get away with punishment that wouldn’t even qualify as a slap on the wrist).
Now he’s becoming a a bit of a joke in Europe. Earlier this month, a wide range of European policy makers basically told the Treasury Secretary to take a long walk off a short pier when he tried to offer advice on Europe’s fiscal crisis.
And the latest development is that the German Finance Minister basically said Geithner was “stupid” for a new bailout scheme. Here’s an excerpt from the UK-based Daily Telegraph.
Germany and America were on a collision course on Tuesday night over the handling of Europe’s debt crisis after Berlin savaged plans to boost the EU rescue fund as a “stupid idea” and told the White House to sort out its own mess before giving gratuitous advice to others.German finance minister Wolfgang Schauble said it would be a folly to boost the EU’s bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.”I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense,” he said.
All that’s missing in the story is Geithner channeling his inner Forrest Gump and responding that “Stupid is as stupid does.”
...at birth?
Separated...
This little spat reminds me of the old saying that there is no honor among thieves. Geithner wants to do the wrong thing. The German government wants to do the wrong thing. And every other European government wants to do the wrong thing. They’re merely squabbling over the best way of picking German pockets to subsidize the collapsing welfare states of Southern Europe.
But that’s actually not accurate. German politicians don’t really want to give money to the Greeks and Portuguese.
The real story of the bailouts is that politicians from rich nations are trying to indirectly protect their banks, which – as shown in this chart – are in financial trouble because they foolishly thought lending money to reckless welfare states was a risk-free exercise.
Europe’s political class claims that bailouts are necessary to prevent a repeat of the 2008 financial crisis, but this is nonsense – much as American politicians were lying (or bamboozled) when they supported TARP.
It is a relatively simple matter for a government to put a bank in receivership, hold all depositors harmless, and then sell off the assets. Or to subsidize the takeover of an insolvent institution. This is what America did during the savings & loan bailouts 20 years ago. Heck, it’s also what happened with IndyMac and WaMu during the recent financial crisis. And it’s what the Swedish government basically did in the early 1990s when that nation had a financial crisis.
But politicians don’t like this “FDIC-resolution” approach because it means wiping out shareholders, bondholders, and senior management of institutions that made bad economic choices. And that would mean reducing moral hazard rather than increasing it. And it would mean stiff-arming campaign contributors and protecting the interests of taxpayers.
Heaven forbid those things happen. After all, as Bastiat told us, “Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.”
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