This week, experts at the (neo)conservative American Enterprise Institute (AEI) released a report on how to deal with a nuclear-armed Iran.

The authors argue that because of the “rising consensus” that a preemptive attack is unappealing, and that sanctions likely will fail, they recommend “a coherent Iran containment policy.” That approach entails, among other things, that America “work toward a political transformation, if not a physical transformation, of the Tehran regime.” Leaving aside the fact that Washington has already once “physically transformed the Tehran regime” — when alongside the British it overthrew Iran’s democratically elected prime minister in 1953 and restored the Shah — there is a broader problem that comes with listening to proponents of the calamitous decision to invade Iraq.

Take, for instance, report co-author Danielle Pletka, who years ago decreed “Saddam’s entire Ba’athist government must be replaced.” Little surprise that someone who promoted a war based on a web of misleading information is now peddling the notion that Iran is less than a year from obtaining a nuclear weapon.

More credible voices suggest otherwise. The nonprofit Arms Control Association (ACA) observed that the most-recent IAEA report suggests “[I]t remains apparent that a nuclear-armed Iran is still not imminent nor is it inevitable.” Iran was engaged in nuclear weapons development activities until it stopped in 2003, and as Cato’s Justin Logan observes, the IAEA’s own report shows there is no definitive evidence of Iran’s diversion of fissile material.

When Pletka was called out for her “less than a year” prediction, she turned up her nose and snapped:

Quibblers will suggest that there are important “ifs” in both these assessments. And yes, the key “if” is “if” Iran decides to build a bomb. So, I suppose when I said “less than a year away from having a nuclear weapon,” I should have added, “if they want one.” But… isn’t that the point? Do we want to leave this decision up to Khamenei?

Confronted with ambiguous information, and forced to infer intentions, hawks evince the very same arrogance and overconfidence that helped open the door for Iranian influence in the region in the first place by toppling Saddam Hussein’s regime (Pletka advocated repeatedly for this leading up to the 2003 invasion). Pletka and others who years ago had the gall to argue that Iraq “will end when it ends” are today worthy of being ignored on Iran.

Cross-posted from the Skeptics at the National Interest.

Ignore the Hawks on Iran, Too is a post from Cato @ Liberty - Cato Institute Blog

It’s probably never wise to inject oneself into the middle of a food fight, but since I think both sides actually have something right and something wrong, its been a worthwhile debate to follow.  That is the ongoing debate between Peter Wallison at the American Enterprise Institute and David Min at the Center for American Progress (at least we can all agree we love America) on the role of Fannie Mae (and Freddie Mac) in the financial crisis.  If you can’t guess, Peter says Fannie/Freddie caused the crisis, David says they didn’t.

David makes an interesting point, one I’ve actually argued, in his latest retort.  That is, this wasn’t exclusively a housing crisis/bubble.  Other sectors, like commercial real estate, boomed and then went bust; other countries, with different housing policies, also had bubbles.  True from what I can tell.  I will also add that the U.S. office market actually peaked and fell before the housing market, so we can safely say there wasn’t contagion from housing to other parts of the real estate market. 

But the problem with this argument, at least for David, is that it undercuts the Dodd-Frank Act, which he has regularly defended.  The implicit premise of Dodd-Frank is that predatory mortgage lending caused the crisis, so now we need Elizabeth Warren to save us from evil lenders.  But how does predatory lending explain the office market bubble?  Do we really believe that deals between sophisticated parties, poured over by lawyers, were driven by predatory lending practices?  Do we also believe that other countries were also plagued by bad mortgage brokers?  Again, I think David is right about the problem being beyond housing, but he can’t have it both ways.

What is the common factor driving bubbles in commercial real estate, housing, and foreign real estate markets?  Maybe interest rates.  This was a credit bubble after all.  Especially since the Fed basically sets interest rate policy for the world.  It is hard for me to believe that three years (2002–2004) of a negative real federal funds rate isn’t going to end badly.  This is what I think Peter misses, the critical role of the Federal Reserve in helping blow the bubble.  But Dodd-Frank does nothing to change this. 

Now there are a ton of things I think both still miss.  We could argue all day about what a subprime mortgage is.  I think the definitions used by Wallison (and Pinto) are reasonable.  There is also a degree, a large one, to which David and Peter are just talking past each other.  For instance, there is something special about the U.S. housing market that transfers much of the risk to the taxpayer.  In contrast, the bust in the office market didn’t leave the taxpayer to pick up the tab.  That has to count for something, unless one just doesn’t care about the taxpayer. 

There are a few other issues that make Fannie/Freddie uniquely important in the crisis, but I lack the space to go into them here. Instead, I’ll wrap up by saying that their role in the overnight repurchase (re-po) market is under-appreciated and their ability to essentially neuter the Fed was critical in keeping the bubble going.  What’s for dessert?

The CAP-AEI Fannie Mae Food Fight is a post from Cato @ Liberty - Cato Institute Blog

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.

AEI on the Spectre of ‘Isolationism’ is a post from Cato @ Liberty - Cato Institute Blog

The New York Times recently ran a story portraying the Gates Foundation as the puppeteer of American education policy, bribing or bullying scholars and politicians into dancing as it desires. Rick Hess, of the American Enterprise Institute, feels that the story misrepresented his position on the potentially corrupting influence of foundations, making it sound as though he were referring to the Gates Foundation in particular when in fact he was referring to the impact of foundations generally.

Hess told the Times, among other things, that

As researchers, we have a reasonable self-preservation instinct. There can be an exquisite carefulness about how we’re going to say anything that could reflect badly on a foundation. We’re all implicated.

Next Monday, the Cato Institute will publish a study titled: “The Other Lottery: Are Philanthropists Backing the Best Charter Schools?” In it, I empirically answer the titular question by comparing the academic performance of California’s charter school networks to the level of grant funding they have received from donors over the past decade. The results tell us how much we should rely on the pairing of philanthropy and charter schools to identify and replicate the best educational models. Considerable care went into the data collection and regression model. As for the description of the findings, it’s as simple and precise as I could make it. I doubt it will be hailed as exquisite.

Does Scholar Self-Interest Corrupt Policy Research? is a post from Cato @ Liberty - Cato Institute Blog

There has been an on-going discussion recently about the Tea Party’s foreign policy views and how this might influence the upcoming election and new members of Congress.  In an essay at the Daily Caller last week, the Heritage Foundation’s Jim Carafano addressed this question and the claim that the new “Defending Defense” initiative— led by Heritiage, AEI, and the Foreign Policy Initiative—is aimed at co-opting the Tea Party movement (for more on the substance, or lack thereof, of “Defending Defense,” see Justin Logan’s response here).

Over at The Skeptics blog, I take issue with Carafano’s assessment of the Tea Party’s foreign policy views:

With respect to Carafano’s assessment of the Tea Partiers’s views on foreign policy and military spending, most of what he puts forward is pure speculation. Little is actually known about the foreign policy views of a movement that is organized primarily around the idea of getting the government off the people’s backs. It seems unlikely, however, that a majority within the movement like the idea of our government building other people’s countries, and our troops fighting other people’s wars.

Equally dubious is Carafano’s claim that the Tea Party ranks include “many libertarians who don’t think much of the Reagan mantra ‘peace through strength’” but an equal or larger number who are enamored of the idea that the military should get as much money as it wants, and then some. Carafano avoids a discussion of what this military has actually been asked to do, much less what it should do. By default, he endorses the tired status quo, which holds that the purpose of the U.S. military is to defend other countries so that their governments can spend money on social welfare programs and six-week vacations.

Tea Partiers are many things, but defenders of the status quo isn’t one of them. This movement is populated by individuals who are incensed by politicians reaching into their pockets and funneling money for goo-goo projects to Washington. It beggars the imagination that they’d be anxious to send money for similar schemes to Brussels, Paris, Berlin and Tokyo, and yet that is precisely what our foreign policies have done — and will do — so long as the United States maintains a military geared more for defending others than for defending us.

Click here to read the entire post.

The Tea Party and Foreign Policy is a post from Cato @ Liberty - Cato Institute Blog

Bill Kristol has a plan to help the US military

George F. Will has called neoconservatism “a spectacularly misnamed radicalism” whose adherents are “the most radical people in this town.”  (It is a shame that the Heritage Foundation has fallen so far from its sensible opposition to the neoconservative vision and evidently bought into the neoconservative program in toto.)

Like other radicals, however, they are pretty good at politics, which is clear from reading their latest offering, a talking points document [.pdf] produced by the “Defending Defense” initiative intended to demonstrate that U.S. military spending is not that large and should not be cut.

I have several things to say about the document, but all of the internet sniping and providing adversarial quotes to journalists probably aren’t the best way to adjudicate the debate.  To that end, on behalf of my colleagues I extend the offer of an open, public, live debate to the Defending Defense people:  Let’s debate the security of the United States, the strategy to best protect it, and the resources needed to fund the strategy.  Any time, any place.

The overarching problem in this debate is that the big spenders keep inserting the red herring of defense expenditures as a percentage of GDP into the debate.  This is relevant only as it pertains to their claim that “current levels of defense spending are affordable,” but last time I checked the mere fact that something wouldn’t, in itself, bankrupt the country is not a sufficient conservative justification for a government program.

The logic of basing the military budget on a percentage of GDP would imply that security and economic growth are inversely related.  Of course, the simple fact is that economic growth does not pose a threat to the United States and economic contraction does not make us safer.  During World War II we spent roughly 40 percent of GDP on our military, and given where we were, that seems sensible to this analyst.  But the “given where we were” part of that sentence is doing a lot of work.  Where are we today?  What are the threats we face?  How should we deal with them?  How much would it cost to do so?  Answers to those questions should provide the grounding for our military budget, not the deeply unconservative justification that “it won’t bankrupt us.”

Another point: It might sound pedantic, but many of what they characterize as “myths” can’t be myths.  They might be wrong.  They might be poor analytic points.  But they can’t be “myths.”  To correct just a few of what they call “myths”:

“Pentagon budgets were a “gusher” of new money in the Bush Administration.”
-    A metaphor can’t be a myth.

“The United States should not be ‘the world’s policeman.’”
-    Preferences aren’t myths.

“Defense spending should focus primarily on ‘winning the wars we’re in.’”
-    Again, preferences aren’t myths.

Myths are mistaken empirical claims that people believe, or the stories surrounding mistaken empirical claims that cause people to believe them.  For example, lots of people think President Obama signed the TARP.  That’s a myth.  President Bush did it.  The way the neoconservatives are using the word “myth” in the document is something more like “argument I disagree with.”

But let’s take these “myths” one by one and have a look at the analysis.

1)    “Additional defense spending is unnecessary as the United States already spends more on defense than half the world combined.”

Interestingly, the authors nowhere argue that additional military spending is necessary, although they strongly imply that it is.  In 2005 Tom Donnelly and Gary Schmitt wanted 5 percent of GDP to go to defense, which today would be roughly $730 billion.  It wasn’t clear whether they wanted to keep the supplementals going with the 5 percent comprising just the base budget, but with the wars we’re already spending roughly $730 billion on the military as it is.  (Also, just a factual correction, the best estimate is that we spend just under what the rest of the world spends combined, not just over.)

The authors also spirit in a normative claim in the first sentence to fend off scrutiny: “No other country in the world has the enduring vital national interests of the United States, and therefore the U.S. military has global reach and responsibilities.”  Given the weight hung around this claim, it would have been good if the authors could have offered even a superficial defense of it.  They did not.

Instead, they move on to observing that using purchasing power parity, Chinese defense spending is closer to $150 billion than the $78 billion that market exchange rates would indicate.  This is solid analysis.  I am glad to see that someone has convinced Heritage president Ed Feulner, a leader of “Defending Defense,” to distance himself from his problematic 2007 judgment that “Beijing’s military spending, in purchasing power parity terms, would be around $450 billion – about what America spends.”  (Maybe he read my blog post correcting him.)

2)    “Pentagon budgets were a ‘gusher’ of new money in the Bush Administration.”

Again, “a gusher” is in the eye of the beholder.  For facts, you should turn to the study authored by my colleagues Ben Friedman and Chris Preble.  There they point out that U.S. military spending has risen by 50 percent over the last 12 years, not including inflation or the wars.  If you include the wars, U.S. military spending has increased by more than 80 percent since 1998.  Military spending constitutes 23 percent of the federal budget.  That’s real money where I come from.

3)    “Cutting waste and excess from the Pentagon budget will provide sufficient funds to make up for shortfalls.”

Depending on whether we change our grand strategy, this is definitely true.  Our foreign policy is insolvent today.  Given our commitments, defense spending is too low, but the commitments are the problem.  We could spend less with fewer commitments and still be safe.

4)    “Current levels of defense spending are unaffordable.”

Even though the rhetoric the authors assemble to knock down this claim isn’t very good, I agree with them.  (I agree based primarily on Stephen Brooks and William Wohlforth’s excellent book, which makes a strong case that the United States can afford a massive military budget.)  Big, fabulously wealthy countries like ours can afford to do lots of expensive things, like Medicare Part D or funding a chunk of the defense of Europe, Japan, South Korea, and Israel ourselves.  But it doesn’t mean we should, necessarily.

5)    “The United States should not be ‘the world’s policeman.’”

Again, this is a preference, not a myth.  But the authors’ central defense of the implied claim that we should be the world’s policeman comes in the argument that “the cost of preserving America’s role in the world is far less than would be the cost of having to fight to recover it or, still greater, the cost of losing it altogether.  While many Americans would prefer to see our allies and partners play a larger part in securing the blessings of our common liberty, no president of either political party has backed away from America’s global leadership role —a bipartisan consensus that remains strong evidence that American leadership is still necessary to protect the nation’s vital interests.”

This argument, in turn, is based on an unstated theoretical premise, which is that when America isn’t somewhere, all hell breaks loose, and that when all hell breaks loose, it tends to land on our heads.  The balance of power doesn’t work, we live in a bandwagoning world not a balancing world, and therefore if we aren’t everywhere, chaos will be, and if chaos is everywhere, it’s going to hit us eventually.

I think this is a silly claim, and I also think the theoretical roots of neoconservative foreign-policy thought are underdeveloped, but it would be good if an actual neoconservative could speak for himself about his own theory of international politics rather than allowing others to try to assemble coherent theoretical groundings for his ideas.

6)    “Defense spending should focus primarily on ‘winning the wars we’re in.’”

This might be a surprising area of agreement, but as someone who has long thought that the wars we’re in are dumb (and deeply unconservative), I believe strongly that focusing our defense dollars on winning the wars we’re in is a dumb idea.

Again, though, there’s lots left to discuss, so let’s hope AEI, Heritage, or the Foreign Policy Initiative will agree to a debate.

The ‘Spectacularly Misnamed Radicals’ Fire Back on Military Spending is a post from Cato @ Liberty - Cato Institute Blog

Mark Schneider, a former National Center for Education Statistics commissioner and current American Enterprise Institute scholar, has put together a very insightful — and disturbing — four-part blog series on the oft-cited Programme for International Student Assessment (PISA) and its creator, the Organization for Economic Cooperation and Development. Basically, Schneider writes, the much-hyped PISA figures very prominently in the “international benchmarking” of coming national curriculum standards — which the Obama Administration is coercing states to adopt — despite the paucity of meaningful evidence that doing well on PISA actually translates into desirable educational outcomes.

Now, Schneider throws out some debatable stuff himself. For instance, he emphasizes early-grade progress on the federal, National Asessessment of Educational Progress while ignoring utterly flat results for 17-year-olds. He also reiterates several things that I have already pointed out in “Behind the Curtain: Assessing the Case for National Curiculum Standards.” Still, his points overall are generally very fresh, and very important.  It is also heartening to see growing critiques, even if somewhat oblique, of the national standards that many on the left and right are hoping to impose on us in the coming months.

Now International Curriculum Standards? is a post from Cato @ Liberty - Cato Institute Blog

I’m pleased to report that Walter Olson, known to many Cato@Liberty readers for his Overlawyered website, has joined the Cato Institute. Wally led the Manhattan Institute’s litigation reform program for more than a quarter of a century. He’ll be a senior fellow in our Center for Constitutional Studies, with a wide-ranging portfolio.

A Yale graduate, Wally began his career at Regulation magazine, back when it was published by the American Enterprise Institute. He has authored three books, 1991′s The Litigation Explosion, 1997′s The Excuse Factory, and 2003′s The Rule of Lawyers, and countless articles. And another book will be out in the fall on bad ideas coming from the legal academy, Schools for Misrule. At PointofLaw.com, Jim Copland, director of Manhattan’s Center for Legal Policy, gives us a rich account of Wally’s contributions. We’re delighted to have Wally on board.

Walter Olson Joins Cato is a post from Cato @ Liberty - Cato Institute Blog

The new budget from the White House contains all sorts of land mines for taxpayers, which is not surprising considering the President wants to extract another $1.3 trillion over the next ten years. While that’s a discouragingly big number, the details are even more frightening. Higher tax rates on investors and entrepreneurs will dampen incentives for productive behavior. Reinstating the death tax is both economically foolish and immoral. And higher taxes on companies almost surely is a recipe for fewer jobs and reduced competitiveness.

The White House is specifically going after companies that compete in foreign markets. Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral. The White House thinks that this income should be taxed right away, though, claiming that “…deferring U.S. tax on the income from the investment may cause U.S. businesses to shift their investments and jobs overseas, harming our domestic economy.”

In reality, deferral protects American companies from being put at a competitive disadvantage when competing with companies from other nations. As I explained in this video, this policy protects American jobs. Coincidentally, the American Enterprise Institute just held a conference last month on deferral and related international tax issues. Featuring experts from all viewpoints, there was very little consensus. But almost every participant agreed that higher taxes on multinationals will lead to an exodus of companies, investment, and jobs from America. Obama’s proposal is good news for China, but bad news for America.

Obama’s Big Tax Hike on U.S. Multinationals Means Fewer American Jobs and Reduced Competitiveness is a post from Cato @ Liberty - Cato Institute Blog

My difference with the President on releasing photos of Abu Ghraib notwithstanding, he exhibits an understanding of terrorism and how to counter it — an understanding that was not on display at the other end of Pennsylvania Avenue this week or at the American Enterprise Institute today.

Here’s a portion of President Obama’s speech today showing that he knows how overreaction to terrorism (such as resorting to torture) plays into the terrorism strategy:

As commander-in-chief, I see the intelligence, I bear responsibility for keeping this country safe, and I reject the assertion that these are the most effective means of interrogation. What’s more, they undermine the rule of law. They alienate us in the world. They serve as a recruitment tool for terrorists, and increase the will of our enemies to fight us, while decreasing the will of others to work with America. They risk the lives of our troops by making it less likely that others will surrender to them in battle, and more likely that Americans will be mistreated if they are captured. In short, they did not advance our war and counter-terrorism efforts – they undermined them, and that is why I ended them once and for all.

. . . But Obama Generally Comprehends Terrorism is a post from Cato @ Liberty - Cato Institute Blog

I was a panelist at an American Enterprise Institute forum today discussing the proliferation of federal tax credits, particularly for low-income families.

AEI scholars Kevin Hassett, Larry Lindsey, and Aparna Mathur have a draft paper that looks at the idea of consolidating current individual credits into one supercredit. The idea would be to simplify the system and reduce the economic distortions created by these credits, which are valued at about $170 billion in 2009.

My observations included:

• Obama’s Make Work Pay credit is valued at about $60 billion per year, much of which is ”refundable.” (That means it is partly a spending increase not a tax cut). Coincidentally, Obama’s proposed tax hikes for higher-income individuals are also about $60 billion per year. So Obama is damaging the economy with “Make Work Not Pay” tax increases at the top in order to fund dubious work incentives at the bottom. It makes no economic sense.
•  The AEI scholars provide interesting calculations about how we could make the $170 billion of redistribution in these credits simpler. That’s fine as far as it goes, but I’d like to end the redistribution altogether. Let’s provide a large basic exemption in the tax code for folks at the bottom, but we don’t need any complex credits. Instead, let’s repeal federal policies that damage the budgets of struggling families at the bottom, such as import barriers that raise the price of clothing and federal milk cartels that raise the price of  dairy products.
• Here’s my compromise redistribution plan. Let’s chop the $170 billion in tax credits in half and use the extra funds to cut the corporate income tax rate. With a purely static calculation, that would allow cutting the corporate rate  from 35% to 25%. Assuming some behaviorial feedbacks, the $85 billion in credit savings would easily allow us to reduce the corporate rate to 20% or so.
• What do corporate taxes have to do with the workers who currently get all these tax credits? As Hassett and Mathur explained in a 2006 paper, corporate tax cuts would increase investment, improve productivity, and that in turn would raise wages of average American workers. We don’t need President Obama’s fancy new Make Work Pay credits. Instead, we need to cut the corporate tax rate to make the economy boom and raise worker’s wages and incomes in the private marketplace.

AEI Tax Forum is a post from Cato @ Liberty - Cato Institute Blog

When President Obama opened today’s summit on health care  reform at the White House, he said:

In this effort, every voice has to be heard. Every idea must be considered.

Of course, he spoke those words to a room that contained not a single advocate of free-market health care reform.

• No one from the American Enterprise Institute (ranked the #5 think tank in the world for health policy)
• No one from the Cato Institute (ranked #7)
• No one from the National Center for Policy Analysis (ranked #10)
• No one from the Manhattan Institute
• No one from the Pacific Research Institute
• No one from the Galen Institute
• No one from the Heritage Foundation
• The list goes on…

Obama did, however, invite people from left-wing think tanks, including avowed advocates of socialized medicine.  That makes Obama’s pledge of openness a farce, and today’s event a charade.

Or as my colleague Wayne Crews puts it: it’s a ditch, not a summit.

A Ditch, Not a Summit is a post from Cato @ Liberty - Cato Institute Blog