Learning from Trade Wars Past
David Rockefeller, the former chairman and CEO of Chase Manhattan Bank, makes a compelling historical case in today’s New York Times for pursing free trade policies. Rockefeller has been around long enough to remember the Smoot-Hawley tariff bill of 1930 and the Great Depression that followed. In an op-ed piece titled, “Present at the Trade Wars,” he writes:
I lived through the stock market crash of 1929 and the Great Depression that followed it, and I saw that there was no direct cause and effect relationship. Rather, there were specific governmental actions and equally important failures to act, often driven by political expediency, that brought on the Depression and determined its severity and longevity.
One critical mistake was America’s retreat from international trade. This not only helped to turn the 1929 stock market decline into a depression, it also chipped away at trust between nations, paving the way for World War II.
On the eve of the G-20 summit in Pittsburgh this week, Rockefeller offers a timely warning to President Obama not to repeat the mistakes of the past.
McChrystal’s Assessment
In his review of the war in Afghanistan, states that “failure to gain the initiative and reverse insurgent momentum in the near-term (next 12 months)—while Afghan security capacity matures—risks an outcome where defeating the insurgency is no longer possible.”
I would hope that Congress and the American people hold McChrystal to his “12 month” prediction, because if President Obama sticks to McChrystal’s ambitious strategy, U.S. forces could remain in Central Asia for decades.
McChrystal argues that the U.S. military must devote more effort to interacting with the local population and elevating the importance of governance. How? Does America defeat the Taliban in order to build an Afghan state, or does America build an Afghan state in order to defeat the Taliban? Winning the support of the population through a substantial investment in civilian reconstruction cannot take place without some semblance of stability on the ground. The mission’s multi-disciplinary approach (“an integrated civilian-military counterinsurgency campaign”) is understandable, but oftentimes its feasibility is simply assumed.
Unfortunately, the United States has drifted into an amorphous nation building mission with unlimited scope and unlimited duration. Our objective must be narrowed to disrupting al Qaeda. To accomplish that goal, America does not need to transform Afghanistan into a stable, modern, democratic society with a strong central government in Kabul—or forcibly democratize the country, as our current mission would have us do, or as McChrystal states “Elevat[ing] the importance of governance.” These goals cannot be achieved at a reasonable cost in blood and treasure in a reasonable amount of time—let alone the next 12 months.
Pakistan: More Aid, More Waste, More Fraud?
Pakistan long has tottered on the edge of being a failed state: created amidst a bloody partition from India, suffered under ineffective democratic rule and disastrous military rule, destabilized through military suppression of East Pakistan (now Bangladesh) by dominant West Pakistan, dismembered in a losing war with India, misgoverned by a corrupt and wastrel government, linked to the most extremist Afghan factions during the Soviet occupation, allied with the later Taliban regime, and now destabilized by the war in Afghanistan. Along the way the regime built nuclear weapons, turned a blind eye to A.Q. Khan’s proliferation market, suppressed democracy, tolerated religious persecution, elected Asif Ali “Mr. Ten Percent” Zardari as president, and wasted billions of dollars in foreign (and especially American) aid.
Still the aid continues to flow. But even the Obama administration has some concerns about ensuring that history does not repeat itself. Reports the New York Times:
As the United States prepares to triple its aid package to Pakistan — to a proposed $1.5 billion over the next year — Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption, American and Pakistani officials say. A procession of Obama administration economic experts have visited Islamabad, the capital, in recent weeks to try to ensure both that the money will not be wasted by the government and that it will be more effective in winning the good will of a public increasingly hostile to the United States, according to officials involved with the project.
…The overhaul of American assistance, led by the State Department, comes amid increased urgency about an economic crisis that is intensifying social unrest in Pakistan, and about the willingness of the government there to sustain its fight against a raging insurgency in the northwest. It follows an assessment within the Obama administration that the amount of nonmilitary aid to the country in the past few years was inadequate and favored American contractors rather than Pakistani recipients, according to several of the American officials involved.
Rather than pouring more good money after bad, the U.S. should lift tariff barriers on Pakistani goods. What the Pakistani people need is not more misnamed “foreign aid” funneled through corrupt and inefficient bureaucracies, but jobs. Trade, not aid, will help create real, productive work, rather than political patronage positions.
Weekend Links
- Nat Hentoff has a few tough questions for doctors who aided CIA torture.
- Is public option a private insurer killer? Larry McNeely and Michael Cannon debate.
- Fed Chairman Ben Bernanke says the recession is probably over. But was he the man who saved the economy?
- Podcast: Should the government have the power to punish you for speaking your mind? Many Americans think it should…so long as it’s people with whom they don’t agree.
Why Chile Is More Economically Free Than the United States
In the 2009 Economic Freedom of the World Report, Chile is now #5, one place ahead of the United States.
In 1975, of 72 countries, Chile was No 71. How did this happen? The explanation lies in what I call the “Chilean Revolution,” because it was as important and transformative to my country as the celebrated American Revolution that gave birth to the United States.
The exceptional political circumstances of this period have obscured the fact that from 1975 to 1989 a true revolution took place in Chile, involving a radical, comprehensive, and sustained move toward economic and political freedom (from a starting point where there was neither one nor the other). This revolution not only doubled Chile’s historic rate of economic growth (to an average of 7% a year, 84-98), drastically reduced poverty (from 45% to 15%), and introduced several radical libertarian reforms that set the country on a path toward rapid development; but it also brought democracy, restored limited government, and established the rule of law.
In 1998, The Los Angeles Times described the importance of the Chilean Revolution to the world:
In a sense, it all began in Chile. In the early 1970s, Chile was one of the first economies in the developing world to test such concepts as deregulation of industries, privatization of state companies, freeing of prices from government control, and opening of the home market to imports. In 1981, Chile privatized its social-security system. Many of those ideas ultimately spread throughout Latin America and to the rest of the world. They are behind the reformation of Eastern Europe and the states of the former Soviet Union today… which demonstrates, once again, the awesome power of ideas.
Thursday Links
- A new T-shirt for Senator Baucus: I worked for six months with half a dozen members of the Senate Finance Committee, and all I got was this lousy 223-page summary of what I hope the new health care bill will look like.
- Why should evidence even matter in education policy? I mean, we’re doing this for the children.
- Videos reveal tax-funded organization being used to help those who want to open a brothel and illegally bring underage girls into the United States as “sex workers.” Meet the two 20-somethings who exposed it.
- It’s time to narrowly define the mission in Afghanistan. “The United States does not have the patience, cultural knowledge or legitimacy to transform what is a deeply divided, poverty stricken, tribal-based society into a self-sufficient, non-corrupt, and stable electoral democracy.”
- Podcast: The future of health insurance: You buy it, or else.
That Costly Mandate
The Wall Street Journal notes that Sen. Max Baucus’s allegedly moderate health care plan “would increase the cost of insurance and then force people to buy it, requiring subsidies. Those subsidies would be paid for by taxes that make health care and thus insurance even more expensive, requiring even more subsidies and still higher taxes.” Other than that, it’s not so bad. The Journal also digs up a great graphic produced by the 2008 presidential campaign of a little-known Illinois senator named Barack Obama:
And speaking of health care mandates and how much they’re going to cost young people, as the Washington Post was yesterday, I just had lunch with Clark Ruper, program manager for Students for Liberty, who told me he’d be on the Newshour with Jim Lehrer on PBS tonight. In the interview he told them that as a young healthy person he has voluntarily chosen not to purchase health insurance and instead invests in his own savings. And he thinks a lot of young people make such choices and don’t want a government mandate requiring them to buy government-approved insurance. Check it out tonight on PBS.
Response to Matthew Yglesias re: Uncle Sam’s $4 Million Bike Rack
In response to my criticism of the new federally-financed $4 million bike center set to open at Union Station in Washington, DC, Think Progress blogger Matthew Yglesias says:
I look forward to the day when the Cato Institute does a blog post denouncing each and every publicly financed parking lot or garage in the United States of America.
I’ll take that bait…sort of…
I denounce each and every federally financed parking lot or garage in the United States of America on non-federal property. I’m one of those quaint individuals who recognizes that the Constitution grants the federal government specific enumerated powers. Using federal tax dollars to finance local parking garages, lots, bike centers and racks is not one of the powers granted to the federal government. So let me rephrase my statement from yesterday: Look, I harbor no animosity against [car drivers], but under what authority — legal or moral — does the federal government tax me in order to build [parking garages or lots] for parochial, special interests?
By the way, for an excellent study on the problems with federal subsidies to state and local government, please see my colleague Chris Edwards’ “Federal Aid to the States: Historical Cause of Government Growth and Bureaucracy.”
Here are a few additional random thoughts…
I know so-called “progressives” like Yglesias don’t lose sleep over how much money the federal government spends, but $4 million to park a hundred or so bikes? As Chris Moody noted to me today, if bike security is the major issue, why not pay a guard $12 an hour to stand watch?
Isn’t it possible, just possible, that a bike center with even more racks could have been built for a lot less? Isn’t that the question that people like Yglesias, who want more people on bikes and less in cars, should be asking?
I don’t see anything inherently governmental about building and operating parking garages or bike centers. The absolutely sorriest, most poorly run parking garage system I’ve ever experienced is the one managed by the State of Indiana where I used to work. I recall an overcrowding situation — exacerbated by lousy management — in which the solution put forward was to just build another garage. Hey, someone else is going to pay for it so who cares, right? I often tell people that young libertarians should spend a couple years working in the bowels of government in order to reinforce their belief system with hands-on experience. I’m starting to think “progressives” and other unwavering fans of all-things-government should do the same.
CAP’s Proposal to Add ‘Public Members’ to Corporate Boards Is Flawed
Today the Center for American Progress rolled out its proposal that we add “public directors” to the boards of companies that have been bailed out by the government. CAP scholar Emma Coleman Jordan argues that “public directors will provide a corrective to the boards of the financial institutions that helped cause the crisis.”
One has to wonder whether Ms. Jordan has ever heard of Fannie Mae and Freddie Mac. If she had, she might recall that a substantial number of the board members of Fannie and Freddie were so-called “public” members appointed by the President. Perhaps she can ask CAP adjunct scholar and former Fannie Mae executive Ellen Seidman to review the history of those companies for her.
Bob McDonnell: The Modern Republican
This is from the Reagan administration’s deregulatory 1981 energy plan: “All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”
Many modern Republicans claim devotion to Ronald Reagan’s ideas, but they often seem to forget about the “minimum of government” thing. The following points are from Republican Virginia gubernatorial candidate Bob McDonnell’s “More Energy, More Jobs” plan:
- “McDonnell was the chief sponsor of legislation creating the Virginia Hydrogen Energy Plan.”
- “McDonnell also supported grant programs for solar photovoltaic manufacturing, tax exemptions for solar energy and recycling property, and tax credits for solar energy equipment.”
- “In order to protect Virginia’s citizens from the skyrocketing wholesale prices of electricity seen in other states, McDonnell brought together all the necessary stake holders to re-regulate electricity in Virginia.”
- “Currently, Virginia is the second largest importer of electricity behind California. This is unacceptable.”
- “Bob McDonnell will establish Virginia as a Green Jobs Zone to incentivize companies to create quality green jobs. Qualified businesses would be eligible to receive an income tax credit equal to $500 per position created per year for the first five years.”
- “The Virginia Alternative Fuels Revolving Fund was established to assist local governments that convert to alternative fuel systems . . . Bob McDonnell will expand the purpose of this fund to include infrastructure such as refueling stations, provide seed money and aggressively pursue additional grants.”
- “Bob McDonnell will make Southwest and Southside Virginia the nation’s hub for traditional and alternative energy research and development…To assist with the attraction, building and operation of major energy facilities in Southside and Southwest Virginia, we will also support the establishment of the Center for Energy.”
- “To help Virginia universities gain access to federal stimulus money, as Governor, Bob McDonnell will establish the Virginia Universities Clean Energy Development and Economic Stimulus Foundation.”
- “As Governor, Bob McDonnell will leverage stimulus funding to incentivize individuals and businesses to conduct energy audits and encourage public private partnerships between small businesses and government.”
It’s true that McDonnell’s plan has some free market elements, and also that Ronald Reagan supported some wasteful energy boondoggles. However, the degree to which the modern Republican wants to micromanage and manipulate the energy industry is remarkable. McDonnell is almost setting out a Soviet five-year plan for a substantial part of the Virginia economy. For goodness sakes, he wants to treat Virginia like a separate country and try to fix the supposed problem that it is “importing” too much energy from other states!
It’s not just energy. Look at the top-down central planning ideas that McDonnell has for “creating jobs”:
Have the Democrats Outsmarted the Republicans on Health Care?
In their attempt to defeat Obamacare, Republicans have focused their criticism on the public option, painting it as the most objectionable feature of existing proposals. Senator Max Baucus, (D-Mont.), has now proposed a plan without the public option. This leaves the Republicans in an awkward position, especially since Baucus’s plan is projected to cost less than earlier proposals.
If Republicans oppose the Baucus plan, they surely risk the ire of voters who will be told during the mid-term elections, “The Republicans blocked a plan that would have covered the uninsured and reduced the deficit.”
The problem is, the public option was never the crucial issue; instead, it was the mandate to purchase insurance. Once government mandates insurance coverage, it gets to define what constitutes insurance, which means it can ban pre-existing condition clauses and the like. The mandate also”justifies” large subsidies for insurance, to avoid non-compliance with the mandate. So, an individual mandate, which the Baucus plan includes, implies a rapid takeover of the entire health care system by the federal government.
Something like the Baucus plan will pass. It will either cost far more than existing projections, if government administrators fail to impose the restrictions on reimbursements that generate the projected cost savings, or it will involve massive rationing of care.
The Democrats played it perfectly. The Republicans got sucker-punched.
More Evidence on America’s Socialism
KPMG has released its annual survey of personal income tax rates around the world. The survey covers 86 countries, including all the high-income nations and many middle- and lower-income nations, such as Brazil, China, and India.
The chart shows the top personal income tax rates in 2009 for national governments, per the KPMG study. The current top U.S. rate is 35 percent, which is substantially above the 86-country average of 28.9 percent. The Obama administration plans to let the U.S. rate jump to 39.6 percent in 2011, which would be almost 11 points higher than the international average.
Worse still, the United States has state income taxes with rates up to 10 percent that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or most, of them do not.
Finally, note that supporters of government health care expansion have been eyeing further increases in the top U.S. tax rate above 40 percent. Alas, we need more of the Global Tax Revolution to sweep across our shores.
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