Archive for October, 2011
Create Jobs? China Currency Bill Is at Least 300 Percent More Likely to Destroy Jobs
Supporters of the so-called China Currency legislation fall into two camps. There are those frustrated by the fact that the Chinese government no longer asks “How high?” when U.S. policymakers shout “jump!” For this camp, the legislation is a therapeutic exercise in venting – the legislative equivalent of road rage. It might make trade relations and the economy worse, but boy does teeing off on those Chinese upstarts sure feel good. This is hardly the recipe for smart policy.
The other camp of supporters believes that the Currency Exchange Rate Oversight Reform Act of 2011 will, in fact, produce a positive outcome. This camp accepts three sequential premises (whether they realize it or not): (1) the legislation under consideration will compel China toward faster yuan appreciation; (2) a rising yuan will reduce the bilateral trade deficit, and; (3) a smaller bilateral trade deficit with lead to U.S. job creation. In short, this camp sees the legislation as a jobs bill.
But the likelihood of that sequence of events playing out is remote. Indeed, the ensuing analysis finds the legislation under consideration to be at least 300 percent more likely (or, if you prefer, four times as likely) to destroy U.S. jobs than it is to create them.
Let’s start by evaluating the second premise. What is the likelihood that a rising yuan will reduce the bilateral trade deficit? Well, from 1997 to July 2005, the yuan was pegged at a dollar value of about 12.08 cents. Between July 2005 and July 2008, the value of the yuan in dollar terms increased by 21 percent to 14.64 cents. Surely, proponents of the legislation would want to cite the dramatic reduction in the bilateral trade deficit that followed this period of yuan appreciation to support their position. Alas, during that period, the bilateral trade deficit increased by 33 percent from $202 billion to $268 billion. Since June 2010, the Yuan has appreciated by another 7 percent against the dollar. And the bilateral trade deficit? It’s on target for to be one-third larger in 2011 than it was last year.
So, recent evidence doesn’t support the premise of an inverse relationship between the value of the yuan and the size of bilateral U.S. deficit. Instead, both have increased simultaneously. Yet proponents of the law insist that a rising yuan will lead to a reduced bilateral deficit. Where is any evidence of this?
The truth is that the relationship between currency values and final goods trade flows has been complicated by the fact of intermediate goods trade. Globalization and the proliferation of transnational supply chains—which means far more intermediate goods trade than in the past—has dulled the impact of currency values on final goods trade.
Four Thoughts on the Anwar Al-Awlaki Assassination
As Bob Levy has already ably probed the legal issues surrounding the killing of Anwar al-Awlaki, I’ll just append a few miscellaneous thoughts.
First, over the last decade we have been repeatedly told by foreign policy hawks that it is foolish, and even borderline offensive, to suggest that aggressive U.S. action abroad may have the counterproductive and unintended consequence of swelling the ranks of terror groups. When evaluating the wisdom of drone strikes or invasions of other countries, we need not even factor in the downside risk of “blowback” stemming from such actions, because “they hate us for our freedoms.” In other words, radical Islamist terrorists are fundamentally motivated by a vision of a global caliphate, not by any grievances stemming from real or perceived injuries inflicted by U.S. policy. I think of this as the “No Marginal Terrorist” Theory, because it posits that people are motivated to join terror groups strictly for reasons connected with either personal psychology or theology, such that reactions to specific U.S. actions never make the difference at the margin.
At the same time—and often by the same people—we are told that Anwar al-Awlaki posed a grave threat to the United States, not so much because of any particular logistical genius he possessed, but because he was so dangerously effective as a recruiter and propagandist who could inspire people already living in the West to jihad. Surely, then, it’s relevant to inquire into the nature of this lethally effective propaganda. Here is an excerpt from what The Guardian calls one of ”his most direct, English-language statements endorsing terror attacks on Americans”:
With the American invasion of Iraq and continued U.S. aggression against Muslims, I could not reconcile between living in the U.S. and being a Muslim, and I eventually came to the conclusion that jihad against America is binding upon myself just as it is binding on every other Muslim….
To the Muslims in America, I have this to say: How can your conscience allow you to live in peaceful coexistence with a nation that is responsible for the tyranny and crimes committed against your own brothers and sisters?
Possibly al-Awlaki is just a sort of Salafist James Earl Jones, and the sheer hypnotic beauty of his voice is what compels people to sacrifice their lives for him, without regard to the specific contents of his sermons. Still, it seems to be a problem for the No Marginal Terrorist Theory if a propagandist who was believed to be uniquely effective at motivating people to become terrorists used rhetoric like this to do it.
Second, a good deal of the coverage I’ve been seeing has treated the conclusions of U.S. intelligence analysts about al-Awlaki’s role and status within al Qaeda in the Arabian Peninsula (AQAP) as ironclad facts rather than contestable inferences from necessarily patchy data—even though the past decade should have made it abundantly clear that analysts sometimes get it wrong. Certainly al-Awlaki is no “innocent” in any sense of the word, but on the crucial claim that he’d progressed from terrorist mascot to mastermind, it’s worth noticing how much of the case depends on plots that the cleric was “linked to” or “believed to have had a hand in planning.” At least one Yemen expert has argued that al-Awlaki’s status within AQAP has been wildly inflated, describing him as a “midlevel religious functionary.”
While there is some public evidence that certainly seems to support the conclusion that al-Awlaki had gone “operational”—that he did not merely advocate jihad in principle, but played a key role in planning and directing terrorist acts—the bulk of it remains classified. As we learned to our great cost after the invasion of Iraq, a top secret clearance does not actually grant omniscience, and sometimes a case that seems like a slam-dunk on the surface falls apart under impartial scrutiny. Paradoxically, the administration’s refusal to submit to that scrutiny seems to have given its determinations an aura of oracular certainty.
David H. Padden, R.I.P.
All of us at the Cato Institute are saddened to announce the passing of David H. Padden, one of our original Board members, at the age of 84. Dave took Emeritus Director status a couple of years ago, but for our entire 34 years he was closely involved in Cato’s activities, as director, contributor, and constant reminder of the principles on which we were founded. Ed Crane, Cato’s co-founder and president, often called him “the conscience of the Cato Institute.”
Dave was a Chicago businessman, the president and founder of Padden and Co. and Padco Lease Corp. A onetime conservative, he saw the light in the 1970s and became a radical and devoted libertarian. He created the Loop Libertarian League, a group that met monthly at the Union League Club in downtown Chicago to discuss politics and philosophy. At various times he was a director of Citizens for a Sound Economy, the Acton Institute, the Bionomics Institute, the Foundation for Economic Education, and the Center for Libertarian Studies. Besides his long service with Cato, he was best known as the founder of the Heartland Institute, where he served as chairman from 1984 to 1995.
Dave graduated from Loyola University in Chicago and received an MBA from Harvard. And while he devoted a great deal of time to studying liberty and helping build institutions to protect it, he knew that politics isn’t all of life. He was married to Joan for 61 years, a father of 7, a devoted grandfather and great-grandfather, a director of St. Xavier College and the Epilepsy Foundation, and a lifelong supporter of the Lyric Opera of Chicago. R.I.P.
Will GPS Tracking Render the Fourth Amendment Quaint?
If the government put a GPS monitor on your car and used it to track every vehicular movement of yours for four weeks, do you think that would violate your Fourth Amendment rights? The government would like to be able to do that kind of thing without getting a warrant, and the Supreme Court will soon decide whether it can.
On November 8th, the Court will hear oral argument in U.S. v. Jones. Yours truly was the lead author of Cato’s amicus brief in the case, which may have a significant effect on how Fourth Amendment law intersects with new information technologies for decades to come.
In 2004, suspecting that Antoine Jones was dealing drugs, the FBI secretly attached a GPS tracking device to his car without a valid warrant. The FBI used this device to monitor and record the car’s movements, noting its location every ten seconds when it was in motion, for nearly a month before finally arresting Jones. The U.S. Court of Appeals for the D.C. Circuit found that the FBI’s action was unconstitutional because it violated Jones’s “reasonable expectation of privacy”—the two-part Fourth Amendment standard developed in the landmark case of Katz v. United States. Though he traveled on public roads, the totality of his movements was available to nobody and thus was private.
Our brief argues that the government’s conversion of Jones’s vehicle into a surveillance device was an unreasonable seizure under the Fourth Amendment. Even though he didn’t lose a “possessory” interest in his car, the government invaded Jones’s various property rights, including the right to exclude, the right to manage, the right to use, and the right to the profits. Similarly, using his car to collect detailed data on his movements over this extended period without getting a warrant was an unreasonable search. The data reflecting his movements would never have come into existence without the government attaching its GPS device to his car. These are tough, interesting issues arising in the new circumstances created by information technology.
We spent as much time in the brief on the “reasonable expectations of privacy” test. The product of one Justice’s lone concurrence in the Katz case, it holds that if a person has an actual (subjective) expectation of privacy and that expectation is one society is prepared to accept, then the Fourth Amendment protects the object of that expectation.
Courts have never faithfully applied this test, and for good reason: it’s a doctrinal mess that reverses the Fourth Amendment’s focus. Courts have second-guessed what the citizenry thinks in terms of privacy rather than examining government action to see if it is reasonable. Under “reasonable expectations” doctrine, things that are left in plain view are always available to the government while things that are hidden—well, the Court will look to see whether keeping it private comports with “reasonable expectations.”
The majority ruling in Katz rested on physical and legal protection that Katz had given to the sound of his voice when he entered a telephone booth. Because Katz had secured the privacy of his conversation, the government wasn’t allowed to access it using a wiretap—not without a warrant. That’s the rule the Court should apply here. The government can’t use uncommon surveillance technology to access private information, including private information about things that happened “in public,” without a valid warrant.
With information technology still rapidly increasing in power, it is critically important that the Supreme Court update Fourth Amendment law while maintaining its consistency with ancient property principles. Doing so will ensure that technology doesn’t render the Fourth Amendment’s protections for our “persons, papers, houses, and effects” quaint.
You can read more, and our brief, on the Cato.org page about U.S. v. Jones.
Finally, a Vote on the Three Trade Agreements
Almost a thousand days into his term, President Obama has at last submitted the trade agreements with South Korea, Colombia, and Panama for an up or down vote in Congress.
All three agreements appear to have majority support in both the House and the Senate. Organized labor is putting up its usual anti-free-trade fight against all three, with AFL-CIO boss Richard Trumka coming out swinging in a Politico op-ed this week. He makes the standard union argument that Colombia is an unworthy free-trade partner because of ongoing violence against union members in that country.
In a Free Trade Bulletin earlier this year, my Cato colleague Juan Carlos Hidalgo and I examined the commercial benefits of the agreement with Colombia as well as the hollowness of the union charge. In the past decade, Colombia has made tremendous progress against violence in general, and especially violence aimed at union members. In fact, as we write in the FTB:
The statistics on the number of killings against union members vary depending on the source, with the figure from the government’s Ministry of Social Protection being lower than that of the National Union School (ENS for its acronym in Spanish), a Colombian nongovernmental organization affiliated with the labor movement. However, both sources show a steep decline in the number of killings since 2001. Moreover, when compared with the total number of homicides in the country, killings of union members clearly have dropped at a faster rate than those of the general population (see Figure 1).
Critics of the FTA fail to recognize that violent crime affects all levels of Colombian society, not only trade unions. What is more, the statistics show that union members enjoy more security than the population at large.
Looking at the homicide rate as defined by the number of murders per 100,000 inhabitants, the rate for the total population in 2010 was 33.9 per 100,000, whereas the rate for union killings was 5.3 per 100,000 unionists that same year (using the statistics of the ENS). That means that the homicide rate for the overall population is 6 times higher than that for union members.
Having just returned from a speaking trip last week to Medellín, Colombia, I can vouch that, after a difficult period of battling Marxist guerrillas and drug cartels, Colombia has once again become a normal country with a growing economy. Medellín is a bustling, business-oriented city with the usual challenges of traffic congestion. The students I spoke with at EAFIT University seemed eager for closer ties with the United States, and they do not understand why it has taken almost five years since the signing of the agreement for Congress to schedule a vote on it.
As I explained in an interview with the city’s leading newspaper (conducted in English, but translated here in Spanish), the politicians in Washington have run out of excuses for not establishing free trade between our two countries.
[Our Cato colleague Doug Bandow made the case for a trade agreement with South Korea in a study we released last year.]
How Does Your School District Compare to the International Average? Now You Can Find Out…
The often ingenious Jay Greene has been ingenious again. Greene chairs the Department of Education Reform at the University of Arkansas, and with his co-author Josh McGee has come up with a way of ranking every school district in the United States against the international average. The idea is simple: 1) find out how each district performs in mathematics compared to the other districts in its state, 2) find out how that state compares to the U.S. national average, 3) find out how the U.S. compares to the international average, and 4) do a few straightforward statistical manipulations to make each of those findings comparable to the others, and then add them together. Rinse and repeat with reading scores.
The results, of course, vary from one district to another. The single most elite district I could think of in Washington state, Mercer Island, manages an international percentile ranking in the low 80′s—well above the international average (by definition = 50) but still a good ways away from the top of the international heap. Many other elite districts do dramatically worse. How about yours?
The one caveat I’d offer for this ranking is that it uses the PISA test to compare the performance of nations, and there are good reasons to prefer the TIMSS test as a measure of academic performance. Results on the two tests are highly correlated overall—as is the case for virtually all academic tests—but their results can differ quite substantially when a nation’s curriculum is aligned with one and not the other (Finland is a case in point, ranking #1 on TIMSS, but having ranked between 10th and 14th the last time it decided to participate in TIMSS, a decade ago).
I’d love to see Jay and Josh plug the TIMSS results into their model and provide the alternate rankings it would generate. Any chance of that, guys?
Government at War With Itself
An op-ed in the Washington Post discusses why federal farm subsidies don’t even make sense from an activist government point of view. Most farm subsidies go for animal-feed crops, which can be viewed as a subsidy for meat production. At the same time, the government propagandizes the public to follow healthy habits and eat lots of fruit and vegetables, but not so much meat.
At www.DownsizingGovernment.org, we’ve come across many federal policies that are contradictory. The government tells the public that X is good, but then it takes actions to do the opposite. Here are some examples:
- Government health experts tell new moms to breastfeed, but the government spends billions of dollars a year on the WIC program, which subsidizes baby formula for moms.
- The government imposes strict rules on property owners to protect wetlands, but the government’s Corps of Engineers and Bureau of Reclamation have destroyed vast amounts of wetlands.
- The government enforces strict anti-pollution laws, but the Department of Energy and other federal agencies have been notorious polluters.
- The Corps of Engineers has spent billions of dollars building levees to protect against flooding, but its own infrastructure has worsened the damage caused by hurricanes.
- The government imposes tight rules to ensure proper funding and to prevent abuse in private pension plans, but its own “pension plan”—Social Security—is a Ponzi scheme.
- The Constitution says that the federal government is created to “insure domestic tranquility,” but the government has spurred violence with alcohol prohibition and now the drug war.
My Cato colleagues are probably aware of many other contradictions, and it seems that the more the government intervenes in society, the more it will work against both the people and itself.
Making and Taking
In a column on what Jane Jacobs would have thought of the Wall Street protests, Sandy Ikeda quotes a line from her book Systems of Survival:
[W]e have two distinct ways of making a living, no more no less. . . . First, we’re able to take what we want – simply take, depending of course, on what’s available to be taken. That’s what all other animals do. . . . But in addition, we human beings are capable of trading – exchanging our services for other goods and services, depending, again, on what’s available, but in this case what’s available for exchange rather than taking. [51-2]
And that reminded me of a cartoon from 2002 that I found last week in moving my office (upstairs to the Cato Institute’s beautiful new seventh floor):
Ikeda goes on to urge the Wall Street protesters to follow Jane Jacobs’s advice:
The “commercial moral syndrome” that underlies free markets and trade counsels: “shun force, come to voluntary agreements, be honest, collaborate easily with strangers and aliens, compete, respect contracts, use initiative and enterprise, be open to inventiveness and novelty, be efficient, promote comfort and convenience, dissent for the sake of the task, invest for productive purposes, be industrious, be thrifty, and be optimistic.”
On the other hand, the “guardian moral syndrome” that underlies government and forced takings counsels: “shun trading, exert prowess, be obedient and disciplined, adhere to tradition, respect hierarchy, adhere to tradition, be loyal, take vengeance, deceive for the sake of the task, make rich use of leisure, be ostentatious, dispense largesse, be exclusive, show fortitude, be fatalistic, and treasure honor.”
Which of these best fits the personality profile of the young, iconoclastic but peaceful, ideologically driven protesters with their iPhones, Twitter, and leaderless organization? Now which of these best fits their enemy?
They really are the two choices that have faced us throughout history. And fortunately, as Deirdre McCloskey and Steven Pinker have pointed out in very different recent books, human life has been enhanced by the fact that people have perceived that making and trading are better than taking.
Entitlements vs. Liberty
A reporter asked me about the rise in entitlement programs and the problems created with so many people suckling on the federal teet. I’ve reported that the federal government has more than 2,000 different subsidy programs.
Another way to track the growth of America’s subsidy culture is to look at the usage frequency of “entitlement” over time using a Google tool that shows word usage in books published in the United States.
The first chart shows the sharp rise in the use of “entitlement” in the 1970s (and a curious fall since 2000).
The second chart shows an antonym: liberty. It’s usage fell throughout the 20th century, and it plunged in the 1970s. However, a hopeful sign is the upward spike in “liberty” in the last year of the chart, which was 2008. Was that a sign of the beginning of the revolt that would become the tea party?
Conservative? Say It Ain’t So
In the New York Times my old friend Tyler Cowen writes:
Another conservative economist and Nobel laureate, James M. Buchanan, emeritus professor of economics at George Mason University,…
I guess Tyler has never read Buchanan’s 2005 book, Why I, Too, Am Not a Conservative, reviewed here by another distinguished economist, William A. Niskanen.
Gov. Christie, Bill Kristol, and the Future of the GOP
The interest in New Jersey governor Chris Christie as a possible 2012 presidential candidate is understandable. His tough line against state spending, his willingness to take on entrenched interests in the Garden State, and his candor and blunt manner of speaking all appeal to Republicans weary of the current candidates. But while his views on domestic policy are relatively clear, Christie’s foreign-policy views aren’t. Indeed, governors have little reason to speak out on foreign-policy issues unless they run for president.
Without a track record, however, no one can know how a former governor will perform what is arguably a president’s most important job: deciding whether, where and when to deploy U.S. troops abroad. Recall George W. Bush’s plea for a humble foreign policy and his senior foreign policy adviser Condoleezza Rice’s assertion that the U.S. military should not be in the business of “escorting kids to kindergarten” in foreign lands. This was all forgotten by the time that Bush and Rice exited Washington eight years later. Rice essentially recanted her earlier opposition to nation building, and Bush had presided over a foreign policy that was anything but humble.
With that huge caveat in mind, can we venture a guess about Chris Christie’s foreign policy views? Not quite. But this passage from Christie’s speech at the Reagan Library hints at a measure of humility and pragmatism that is long overdue:
The United States must…become more discriminating in what we try to accomplish abroad. We certainly cannot force others to adopt our principles through coercion. Local realities count; we cannot have forced makeovers of other societies in our image. We need to limit ourselves overseas to what is in the national interest so that we can rebuild the foundations of American power here at home.
Such sentiments strike most Americans as eminently sensible. Numerous polls show that Americans want to stop fighting other people’s wars and building other people’s countries. Most believe it is better to husband our power and deploy our military abroad only when vital U.S. security interests are threatened. We should lead by our example, build a society that others wish to emulate, and avoid the temptation to meddle in other people’s affairs.
Not so, says William Kristol, Weekly Standard editor and Fox News commentator. In a famous essay co-authored with Robert Kagan in 1996 the two made the case for “benevolent global hegemony.” Kristol and Kagan especially took issue with those conservatives who:
succumb easily to the charming old metaphor of the United States as a “city on a hill.”
[…]
Because…the responsibility for the peace and security of the international order rests so heavily on America’s shoulders, a policy of sitting atop a hill and leading by example becomes in practice a policy of cowardice and dishonor.
So why would Kristol be pushing Christie to run for president?
Tarkenton Finds Truth Open on the 10 Yard Line and…
NFL Hall-of-Famer Fran Tarkenton writes in the WSJ this morning that lifetime tenure and fixed salary scales would make football as awful as they have made our public school system. Seems obvious enough… and that’s where truth comes in, which is said to go through three phases: first ridiculed, then violently opposed, then accepted as if it had been obvious to everyone from the start.
With regard to the bankruptcy of state monopoly schooling, we’re in stage two, teetering on the brink of stage three. And that’s good. But let’s all remember that acknowledging the wrongheadedness of the education monopoly does not imply the automatic understanding of the most effective alternative—or even of a good alternative. So once Truth gets the ball on the ten yard line, let’s be careful not to fumble it. That means empirically determining which policies will create lasting free markets in education, accessible to all, and which will not.
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