As recent posts in this space indicate, advocates of individual liberty have a variety of views on the proper policy response to illegal immigration. Whatever the disagreements, I suspect there’s some degree of consensus that certain proposed remedies are entirely too Draconian. From the California Labor and Employment Law Blog:

The U.S. Attorneys Office in San Diego has recently criminally prosecuted a French bakery for allegedly engaging in an intentional pattern and practice of hiring unauthorized workers. As part of the indictment, the Government is seeking hefty monetary fines, prison time for the owner and management, and asset forfeiture of the entire business to the Government. While the Government does not have experience running a French bakery, they are getting very serious about enforcing I-9 regulations.

More details on the French Gourmet prosecution can be found at the San Diego Union-Tribune and Restaurant Hospitality.

When government began pushing for asset forfeiture powers, some imagined that the formidable power would remain mostly confined to use in, say, illegal drug or money laundering prosecutions. But that’s not how it has worked. And immigration is hardly the only area in which employers should be worried about the expanding bounds of criminalization. Bills pending in Congress would criminalize “misclassification” of employees — which commonly consists of disagreeing with the government or with labor unions as to whether particular employees should count as independent contractors not covered by overtime and similar federal labor laws. Are we far from the day when prosecutors will start proposing forfeitures against employers over such infractions?

Feds Propose Forfeiture as Immigration Employer Sanction is a post from Cato @ Liberty - Cato Institute Blog

Why blame only media and politicians for the public’s confusion about imports and trade deficits? Surely economists deserve some scorn. Some of the misunderstanding can be traced to the famous National Income Identity, which expresses gross domestic product, as: Y = C + G + I + (X-M). That is, national output (Y) equals personal consumption (C) plus government spending (G) plus investment (I) plus exports (X) minus imports (M).

The expression clearly lends itself to the wrong interpretation. The minus sign preceding imports suggests a negative relationship with output. It is the reason for the oft-repeated fallacy that imports are a drag on growth. Here’s why that conclusion is wrong.

The expression is an accounting identity, which “accounts” for all of the possible channels for disposing of our national output. That output is either consumed in the private sector, consumed by government, invested by business, or exported. The identity requires subtraction of aggregate imports because consumption, government spending, business investment, and exports all contain, in various amounts, import value. Americans consume domestic and imported products and services, the aggregate of which shows up in Consumption. Likewise, Government purchases include domestic and imported products and services; businesses Invest in domestic and imported machines and inventory; and, eXports often contain some imported intermediate components. Thus, the identity would overstate national output if it didn’t make that adjustment for iMports. After all, imports are not made on U.S. soil with U.S. factors of production, so they shouldn’t be included in an expression of our national output.

To reiterate, it is a simple matter of accounting: as an expression of national output, the National Income Identity subtracts imports only because imports are that portion of consumption, government spending, investment, and exports that are not produced on U.S. soil with U.S. factors of production. If we did not subtract an aggregate import value, then national output would be overstated.

But what unnecessary confusion that identity has created. Economists are often indecipherable, but here was an opportunity to actually connect with the public and describe a relatively easy concept in relatively easy terms. Why has it not been commonplace to use notation that conveys in no uncertain terms that C and G and I and X include some amount of imports? Maybe something like this:

Y=C(d)+C(m)+G(d)+G(m)+I(d)+I(m)+X(d)+X(m)-M,

where (d) connotes domestic; (m) connotes imported; and M=C(m)+G(m)+I(m)+X(m).

Again, imports are subtracted, not because they are a drag on output, but because imports are included in the other constituent elements of the identity. I’ve always found it misleading that the parentheses go around X-M – which isolates the expression “net exports,” but in the process can obscure the fact that imports are subtracted from the whole expression.

Finally, if the description above makes sense, then you’ll agree that imports have NO impact on national output. Regardless of how large or small, the import value embedded in the four constituent elements of national output is fully deducted by subtracting M. Thus, imports are neither a drag on GDP, nor can they cause GDP to rise. That conclusion may sound like it contradicts one of my assertions in yesterday’s post—that imports are pro-cyclical—(at least that was the claim of a NBER economist responding my post yesterday), but I think the conclusions are harmonious. To say imports are pro-cyclical means that they rise when the economy is growing and fall when the economy is contracting. It says nothing about causation.  That pattern has been amply and consistently demonstrated through expansion, recession, and recovery.

Another Reason Imports Get a Bad Rap is a post from Cato @ Liberty - Cato Institute Blog

The most interesting libertarian-related conversation I’ve read today comes from Rortybomb, by way of Andrew Sullivan, with commentary by Megan McArdle. Here’s a challenge to libertarians from Rortybomb, aka Mike Konczal:

I want to pitch to the credit card and financial industry a new innovative online survey. It is targeted for older, more mature long-time users of our services. We’ll give a $10 credit for anyone who completes it. Here is a sense of what the questions will look like:

- 1) What is your age?
- 2) What day of the week are you taking this survey?
- 3) Many rewards offered are for people with more active lifestyles: vacations, flights, hotels, rental cars. Do you find that your rewards programs aren’t well suited for your lifestyle?
- 4) What is the current season where you live? Are any seasons harder for you in getting to a branch or ATM machine?
- 5) Would rewards that could be given as gifts to others, especially younger people, be helpful for what you’d like to do with your benefits?
- 6) Would replacing your rewards program with a savings account redeemable for education for your grandchildren be something you’d be interested in?
- 7) Write a sentence you’d like us to hear about anything, good or bad!
- 8 ) How worried are you you’ll leave legal and financial problems for your next-of-kin after your passing?

Did you catch it? Questions 1,2,4,7 are taken from the ‘Mini-mental State Examination’ which is a quick test given by medical professionals to see if a patient is suffering from dementia. (It’s a little blunt, but we can always hire some psychologist and marketers for the final version. They’re cheap to hire.) We can use this test to subtly increase limits, and break out the best automated tricks and traps mechanisms, on those whose dementia lights up in our surveys. Anyone who flags all four can get a giant increase in balance and get their due dates moved to holidays where the Post Office is slowest! We’d have to be very subtle about it, because there are many nanny-staters out there who’d want to coddle citizens here. . .

I smell money — it’s like walking down a sidewalk and turning a corner and then there is suddenly money all over the sidewalk. One problem with hitting up sick people, single mothers, college kids who didn’t plan well and the cash-constrained poor with fees and traps is that they’re poor. Hitting up people with a lifetime of savings suffering from dementia is some real, serious money we can tap as a revenue source.

Clearly, only an evil person (or a libertarian!) would allow a scam like this one. Megan responds, I think rightly:

I’m not sure why this is supposed to be a hard question for libertarians. I mean, I might argue that preventing people from ripping off the marginally mentally impaired would, in practice, be too difficult. Crafting a rule that prevented companies from identifying people who are marginally impaired might well be impossible — I’m pretty sure that if I wanted to, I could devise subtler tests than “What day of the week is it?” And while the seniors lobby is probably in favor of not ripping off seniors, they’re resolutely against making it harder for seniors to do things like drive or get credit, which is the result that any sufficiently strong rule would probably have.

But it’s pretty much standard libertarian theory that you shouldn’t take advantage of people who do not have the cognitive ability to make contracts. Marginal cases are hard not because we think it’s okay, but because there is disagreement over what constitutes impairment, and the more forcefully you act to protect marginal cases, the more you start treating perfectly able-minded adults like children.

The elderly are a challenge precisely because there’s no obvious point at which you can say: now this previously able adult should be treated like a child. Either you let some people get ripped off, or you infringe the liberty, and the dignity, of people who are still capable of making their own decisions.

I’d add two responses of my own.

First, I can’t believe there’s all that much money to be had here. Anyone who wanders into Tiffany’s and back out again without remembering what they bought is, generally speaking, a bad credit risk. Mildly irresponsible people — those who slightly overspend, then have to make it up later — those are probably great for creditors. Lesson learned: If you’re not demented, don’t be irresponsible. (If you are demented, you’re not going to follow my advice anyway.)

Second, I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.

What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be. We presume that all mentally competent adults are worthy of liberty until they prove themselves otherwise.

The boundary cases are still there, but they are fewer and more tractable. Konczal just wandered into one of them. It proves much less than he thinks.

Credit Card Dementia and Boundary Cases is a post from Cato @ Liberty - Cato Institute Blog

The recent focus in Washington on mortgage modifications once again illustrates one of the most fundamental flaws in current political debate:  the notion of using government to threaten or force the “voluntary” transfer of wealth from one group of citizens to another.

Just this week Rep. Barney Frank warned the banking industry if they don’t “voluntarily” do more to reduce foreclosures, Congress will step in and make them do so, by allowing bankruptcy judges to re-write mortgage contracts.  This proposal is really nothing more an ex poste transfer of wealth from investors in mortgage backed assets to borrowers.

Of course, Rep. Frank and others respond that they are only trying to “bring lenders to the table” in order to keep negotiations going.  In the words of many “consumer” advocates, this is just a “stick” to the motivate the lenders.  I could think of few things more offensive to a free society.  In a government truly constituted on the notion of the common good or general welfare, it would be no more appropriate to use the stick of the state on lenders than it would be on borrowers.  Government quite simply should not take sides in purely private disputes. 

One would think that if anyone could understand the principle that government should not interfere in the private, voluntarily entered relationships of consenting adults, it should be Mr. Frank.

Mortgage Mods: Congressman Prefers Coercion over Cooperation is a post from Cato @ Liberty - Cato Institute Blog

As I have written previously, President Obama and the members of Congress who voted to kill funding for the F-22 did the right thing.

The Washington Post reports:

The Senate voted Tuesday to kill the nation’s premier fighter-jet program, embracing by a 58 to 40 margin the argument of President Obama and his top military advisers that more F-22s are not needed for the nation’s defense and would be a costly drag on the Pentagon’s budget in an era of small wars and counterinsurgency efforts.

While this vote marks a step in the right direction, the fight isn’t over. The F-22′s supporters in the House inserted additional monies in the defense authorization bill, and the differences will need to be reconciled in conference. But the vote for the Levin-McCain amendment signals that Congress will take seriously President Obama and Secretary Gates’ intent to bring some measure of rationality to defense budgeting.

The Raptor’s whopping price tag— nearly $350 million per aircraft counting costs over the life of the program— and its poor air-to-ground capabilities always undermined the case for building more than the 187 already programmed.

In the past week, Congress has learned more about the F-22′s poor maintenance record, which has driven the operating costs well above those of any comparable fighter. And, of course, the plane hasn’t seen action over either Iraq or Afghanistan, and likely never will.

Beyond the F-22 and the Joint Strike Fighter, we need a renewed emphasis in military procurement on cost containment. This can only occur within an environment of shrinking defense budgets. Defense contractors who are best able to meet stringent cost and quality standards will win the privilege of providing our military with the necessary tools, but at far less expense to the taxpayers. And those who cannot will have to find other business.

Senate Votes to End Production of F-22 Raptor is a post from Cato @ Liberty - Cato Institute Blog

Last week, I had the opportunity to testify before the House Science Committee‘s Subcommittee on Technology and Innovation on the topic of “cybersecurity.” I have been reluctant to opine on it because of its complexity, but I did issue a short piece a few months ago arguing against government-run cybersecurity. That piece was cited prominently in the White House’s “Cyberspace Policy Review” and — blamo! — I’m a cybersecurity expert.

Not really — but I have been forming some opinions at a high level of generality that are worth making available. They can be found in my testimony, but I’ll summarize them briefly here.

First, “cybersecurity” is a term so broad as to be meaningless. Yes, we are constructing a new “space” analogous to physical space using computers, networks, sensors, and data, but we can no more secure “cyberspace” in its entirety than we can secure planet Earth and the galaxy. Instead, we secure the discrete things that are important to us — houses, cars, buildings, power lines, roads, private information, money, and so on. And we secure these things in thousands of different ways. We should secure “cyberspace” the same way — thousands of different ways.

By “we,” of course, I don’t mean the collective. I mean that each owner or controller of a prized thing should look out for its security. It’s the responsibility of designers, builders, and owners of houses, for exmple, to ensure that they properly secure the goods kept inside. It’s the responsibility of individuals to secure the information they wish to keep private and the money they wish to keep. It is the responsibility of network operators to secure their networks, data holders to secure their data, and so on.

Second, “cyber” threats are being over-hyped by a variety of players in the public policy area. Invoking “cyberterrorism” or “cyberwar” is near-boilerplate in white papers addressing government cybersecurity policy, but there is very limited strategic logic to “cyberwarfare” (aside from attacking networks during actual war-time), and “cyberterrorism” is a near-impossibility. You’re not going to panic people — and that’s rather integral to terrorism — by knocking out the ATM network or some part of the power grid for a period of time.

(We weren’t short of careless discussions about defending against “cyber attack,” but L. Gordon Crovitz provided yet another example in yesterday’s Wall Street Journal. As Ben Friedman pointed out, Evgeny Morozov has the better of it in the most recent Boston Review.)

This is not to deny the importance of securing digital infrastructure; it’s to say that it’s serious, not scary. Precipitous government cybersecurity policies — especially to address threats that don’t even have a strategic logic — would waste our wealth, confound innovation, and threaten civil liberties and privacy.

In the cacophony over cybersecurity, an important policy seems to be getting lost: keeping true critical infrastructure offline. I noted Senator Jay Rockefeller’s (D-WV) awesomely silly comments about cybersecurity a few months ago. They were animated by the premise that all the good things in our society should be connected to the Internet or managed via the Internet. This is not true. Removing true critical infrastructure from the Internet takes care of the lion’s share of the cybersecurity problem.

Since 9/11, the country has suffered significant “critical-infrastructure inflation” as companies gravitate to the special treatments and emoluments government gives owners of “critical” stuff. If “criticality” is to be a dividing line for how assets are treated, it should be tightly construed: If the loss of an asset would immediately and proximately threaten life or health, that makes it critical. If danger would materialize over time, that’s not critical infrastructure — the owners need to get good at promptly repairing their stuff. And proximity is an important limitation, too: The loss of electric power could kill people in hospitals, for example, but ensuring backup power at hospitals can intervene and relieve us of treating the entire power grid as “critical infrastructure,” with all the expense and governmental bloat that would entail.

So how do we improve the state of cybersecurity? It’s widely believed that we are behind on it. Rather than figuring out how to do cybersecurity — which is impossible — I urged the committee to consider what policies or legal mechanisms might get these problems figured out.

I talked about a hierarchy of sorts. First, contract and contract liability. The government is a substantial purchaser of technology products and services — and highly knowledgeable thanks to entities like the National Institutes of Standards and Technology. Yes, I would like it to be a smaller purchaser of just about everything, but while it is a large market actor, it can drive standards and practices (like secure settings by default) into the marketplace that redound to the benefit of the cybersecurity ecology. The government could also form contracts that rely on contract liability — when products or services fail to serve the purposes for which they’re intended, including security — sellers would lose money. That would focus them as well.

A prominent report by a working group at the Center for Strategic and International Studies — co-chaired by one of my fellow panelists before the Science Committee last week, Scott Charney of Microsoft — argued strenuously for cybersecurity regulation.

But that begs the question of what regulation would say. Regulation is poorly suited to the process of discovering how to solve new problems amid changing technology and business practices.

There is some market failure in the cybersecurity area. Insecure technology can harm networks and users of networks, and these costs don’t accrue to the people selling or buying technology products. To get them to internalize these costs, I suggested tort liability rather than regulation. While courts discover the legal doctrines that unpack the myriad complex problems with litigating about technology products and services, they will force technology sellers and buyers to figure out how to prevent cyber-harms.

Government has a role in preventing people from harming each other, of course, and the common law could develop to meet “cyber” harms if it is left to its own devices. Tort litigation has been abused, and the established corporate sector prefers regulation because it is a stable environment for them, it helps them exclude competition, and they can use it to avoid liability for causing harm, making it easier to lag on security. Litigation isn’t preferable, and we don’t want lots of it — we just want the incentive structure tort liability creates.

As the distended policy issue it is, “cybersecurity” is ripe for shenanigans. Aggressive government agencies are looking to get regulatory authority over the Internet, computers, and software. Some of them wouldn’t mind getting to watch our Internet traffic, of course. Meanwhile, the corporate sector would like to use government to avoid the hot press of market competition, while shielding itself from liability for harms it may cause.

The government must secure its own assets and resources — that’s a given. Beyond that, not much good can come from government cybersecurity policy, except the occassional good, long blog post.

Some Thinking on “Cyber” is a post from Cato @ Liberty - Cato Institute Blog

After the Senate’s rejection last week of allowing bankruptcy judges to re-write mortgage contracts, the so called “cramdown” provisions, it was starting to look as if the Senate cared about respecting private contracts. Sadly, such concern has been short-lived.

Tucked away in the mortgage bill is a provision that gives servicers of mortgages, that is, the entities that collect payments and perform modifications on behalf of the actual investors in mortgages, a “safe harbor” from any litigation by investors if the servicer chooses to follow the interests of the borrower or the government, rather than fulfilling their fiduciary duty to the investors.

Supporters of the safe harbor claim that too many foreclosures have taken place due to contractual restrictions on the ability of servicers to modify mortgages in a manner that would allow borrowers to stay in their homes. Most pooling and servicing agreements allow mortgage modifications without the investors’ approval if the modification increases the net present value of the mortgage. However, if the mortgage modification resulted in a loss to the investor, over what they would recover in a foreclosure, then they are not allowed under current contracts. The safe harbor intends to fix this “problem” by allowing the servicer to impose additional losses on investors, as long as that servicer follows President Obama’s foreclosure plan.

Allowing parties to a contract to ignore their contractual obligations as long as they sign-on to presidential initiatives is a dangerous precedent, and one that will ultimately raise the cost of entering into and enforcing contracts.

As these costs will have to be borne by someone, it is likely in the future that these efforts at undermining contracts in our credit markets will result in higher interest rates for all borrowers.

An attempt was made by Senator Corker to modify this provision, restoring some protections for basic contract rights. Rather than taking the opportunity to reduce the damage done to contracts from this provision, the Senate rejected Senator Corker’s amendment by a rather large margin.

After the President’s recent attacks on minority debt-holders in Chrysler, the President’s support for mortgage cramdown, and now the Senate moving on the so-called “safe harbor” provisions, it is becoming increasing clear that investors themselves will soon be in need of a safe harbor from Washington.

Mortgage ‘Safe Harbor’ Anything But Safe is a post from Cato @ Liberty - Cato Institute Blog

In Washington, the symbolic almost always trumps the substantive.  Thus, legislators complain, for good reason, about pork and earmarks, which ran about $35 billion at their maximum, and ignore entitlements, which entail some $100 trillion in unfunded liabilities.

So it is with President Obama.  He continues the endless bailouts, which cumulatively now run around $13 trillion.  He proposed a $3.6 trillion budget and will leave us with a $1.4 trillion deficit next year–and nearly $5 trillion in additional debt on top of the massive deficits already projected over the coming decade.  But he asked his Cabinet officers to chop $100 million in administrative expenses.

And he says he doesn’t need a new helicopter.  Fiscal responsibility in action.

Alas, the helicopter, while costing billions, isn’t an easy budget target.

Reports the New York Times:

At a Washington conference on fiscal responsibility in February, President Obama tried to set the tone by saying he did not need the new costly presidential helicopters that had been ordered by the Bush administration.

“The helicopter I have now seems perfectly adequate to me,” he said to laughter. On a more serious note, he added, “I think it is an example of the procurement process gone amok. And we’re going to have to fix it.”

But the president is learning that in the world of defense contracting, frugality can be expensive. Some lawmakers and military experts warn that his effort to avoid wasting billions of dollars could end up doing just that.

The administration’s plan to halt the $13 billion helicopter program, announced this month, will leave the government with little to show for the $3.2 billion it has spent since the Bush administration set out to create a futuristic craft that could fend off terrorist attacks and resist the electromagnetic effects of a nuclear blast.

Critics say the Pentagon would also spend at least $200 million in termination fees and perhaps hundreds of millions to extend the life of today’s aging fleet. As a result, several influential lawmakers and defense analysts are now calling for a compromise that would salvage a simpler version of the helicopter that is already being tested.

They say it could be a more palatable alternative in tough economic times than seeking new bids for a more advanced craft, which has proved difficult to develop.

No wonder Washington is known as a place where everything about government is permanent.  Once you start spending money on a program, it becomes extremely hard to stop.  Part of that is the political dynamic of interest groups, the problem so well dissected by the Public Choice economists.  And part of it is legal and procedural.  Contracts are let, cancellation fees are due.  It’s bad to waste money on a gold-plated helicopter.  It seems even worse to waste money developing a gold-plated helicopter, and then getting nothing at all by canceling it.

There is, however, an amazingly simple solution, of which Congress and the president apparently are not aware.

Don’t spend the money in the first place.  Eschew new programs.  Say no to special interests.  Let taxpayers keep more of their own money.

This approach would seem to make sense at any time.  But especially today, with the federal government facing a deficit approaching $2 trillion in 2009.

Didn’t Nancy Reagan lecture us to “just say no”?  We should invite her back for a return tour of Washington, only she should talk about federal spending this time.

The Politics of Budget-Cutting is a post from Cato @ Liberty - Cato Institute Blog

Here are a few highlights from Cato Today, a daily email from the Cato Institute.

• Dan Ikenson and Scott Lincicome argue in a new study that restoring the pro-trade consensus must be a top priority for the Obama administration.

• In the DC Examiner, Gene Healy discusses Obama’s first 100 days and argues that he’s massively expanded the power of government in a short period of time.

• In the Asia Times Online, David Isenberg discusses private security contractors in the war in Iraq.

• Watch Patrick J. Michaels discuss energy on CNBC.

• In Tuesday’s Cato Daily Podcast, Peter Van Doren discusses the interaction between Congress and regulators on the issue of food safety.

New at Cato is a post from Cato @ Liberty - Cato Institute Blog

Here are a few highlights from Cato Today, a comprehensive daily email from the Cato Institute. You can subscribe, here.

• In a new study, “NATO at 60: A Hollow Alliance,”  Ted Galen Carpenter argues that NATO has outlived whatever usefulness it once had.

• Doug Bandow weighs the usefulness of NATO in the American Spectator.

• David Isenberg discusses the use of private military and security contractors in war for United Press International.

• Timothy Lynch and Ilya Shapiro take on illegal searches in a legal brief submitted to the Supreme Court.

• In Monday’s Cato Daily Podcast, Dambisa Moyo, author of Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, discusses the failure of government aid to Africa.

New at Cato is a post from Cato @ Liberty - Cato Institute Blog

G-20 Summit Agrees to International Spending Plan

The Washington Post reports, “Leaders from more than 20 major nations including the United States decided Thursday to make available an additional $1 trillion for the world economy through the International Monetary Fund and other institutions as part of a broad package of measures to overcome the global financial crisis.”

Cato scholars Richard W. Rahn, Daniel J. Ikenson and Ian Vásquez commented on the London-based meeting:

Rahn: “President Obama of the U.S. and Prime Minister Brown of the U.K. will be pressing for more so-called stimulus spending by other nations, despite the fact that the historical evidence shows that big increases in government spending are more likely to be damaging and slow down recovery than they are to promote vigorous economic expansion and job creation.”

Vásquez: “The push by some countries for massive increases in spending to address the global financial crisis smacks of political and bureaucratic opportunism. A prime example is Washington’s call to substantially increase the resources of the International Financial Institutions… There is no reason to think that massive increases of the IFIs’ funds will not worsen, rather than improve, their record or the accountability of the aid agencies and borrower governments.”

Ikenson: “Certainly it is crucial to avoid protectionist policies that clog the arteries of economic recovery and help nobody but politicians. But it is also important to keep things in perspective: the world is not on the brink of a global trade war, as some have suggested.”

Ikenson appeared on CNBC this week to push for a reduction of trade barriers in international markets.

With fears mounting over a global shift toward protectionism, Cato senior fellow Tom Palmer and the Atlas Economic Research Foundation are circulating a petition against restrictive trade measures.

Obama Administration Forces Out GM CEO

President Obama took an unprecedented step toward greater control of a private corporation after forcing General Motors CEO  Rick Wagoner to leave the company. The New York Post reports “the administration threatened to withhold bailout money from the company if he didn’t.”

Writing for the Washington Post, trade analyst Dan Ikenson explained why the government is responsible for any GM failure from now on:

President Obama’s newly discovered prudence with taxpayer money and his tough-love approach to GM and Chrysler would both have more credibility if he hadn’t demanded Rick Wagoner’s resignation, as well. By imposing operational conditions normally reserved for boards of directors, the administration is now bound to the infamous “Pottery Barn” rule: you break it, you buy it. If things go further south, the government is now complicit.

Wagoner’s replacement, Fritz Henderson, said Tuesday that after receiving billions of taxpayer dollars, the company is considering bankruptcy as an option. Cato scholars recommended bankruptcy months ago:

Dan Ikenson, November 21, 2008: “Bailing out Detroit is unnecessary. After all, this is why we have the bankruptcy process. If companies in Chapter 11 can be salvaged, a bankruptcy judge will help them find the way. In the case of the Big Three, a bankruptcy process would almost certainly require them to dissolve their current union contracts. Revamping their labor structures is the single most important change that GM, Ford, and Chrysler could make — and yet it is the one change that many pro-bailout Democrats wish to ignore.”

Daniel J. Mitchell, November 13, 2008:  ”Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe. But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity — under court supervision — to reduce costs and streamline operations.”

Dan Ikenson, December 5, 2008: “The best solution is to allow the bankruptcy process to work. It will be needed. There are going to be jobs lost, but there is really nothing policymakers can do about that without exacerbating problems elsewhere. The numbers won’t be as dire as the Big Three have been projecting.”

Cato Links

• Is Portugal an example for the future of drug policy? Cato released a new case study this week by Salon writer Glenn Greenwald entitled, “Drug Decriminalization in Portugal: Lessons for Creating Fair and Successful Drug Policies.”

• As the North Atlantic Treaty Organization celebrates its 60th birthday, there are signs of mounting trouble within the alliance and increasing reasons to doubt the organization’s relevance regarding the foreign policy challenges of the 21st century. In a new study, Cato scholar Ted Galen Carpenter argues that NATO’s time is up.

• Should immigration agents target businesses knowingly hiring illegal immigrants? Cato scholar Jim Harper weighs in on a Fox News debate.

• Cato scholar Gene Healy warns, “Beware of the Cult of Obama,” in this week’s Washington Examiner column.

• Sign up today for  Cato University 2009: Economic Crisis, War, and the Rise of the State.

Week in Review: ‘Saving’ the World, Government Control and Drug Decriminalization is a post from Cato @ Liberty - Cato Institute Blog

In Downsizing the Federal Government, I discussed some of the corruption surrounding former Senator Ted Stevens:

Another example of abuse engineered by Senator Stevens involves Alaska Native Corporations. Because of rule changes slipped in by Stevens, these shadowy businesses based in his state are allowed to circumvent normal federal procurement rules and win no-bid contracts. The result of such loopholes is that taxpayers do not get value for their money. For example, in 2002 a half billion dollar contract for scanning machines at U.S. border crossings was given to a native corporation with little experience in the technology, instead of established leaders in the field who were not allowed to bid.

The Washington Post did a good job of bringing the scandal of ANCs to light a few years ago. Did the spotlight on ANCs and connections to disgraced Senator Stevens convince Congress to move ahead with reforms? Hardly. From Government Executive today:

In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned a record $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000 … ANCs earned two-thirds of the $24 billion they accumulated in prime contracts since fiscal 2000 through the Small Business Administration’s 8(a) Business Development program … Federal acquisition specialists said the data shows that the program, which was designed to help small and disadvantaged companies, has been undermined by a system that rewards companies that earn hundreds of millions in annual revenue.

In the story, Steven Schooner, of George Washington University, summed up the scam well: “The ANC program, as currently implemented, is a blunt instrument that distorts the procurement system, injects well-founded cynicism into the process, and reinforces the belief that government procurement is more about allocating political spoils than ensuring that the government receives value for taxpayer money.”

President Obama has promised procurement reform. He could start be eliminating ANCs and other forms of procurement favoritism.

Corruption Rewarded in Government is a post from Cato @ Liberty - Cato Institute Blog