Heartening news from the Appropriations Committee yesterday: they voted to cut aid to farmers generally, and to make significant changes to an egregious cotton program. But first, some background.  You’ll recall the embarrassing deal made by the Obama administration last year to head off Brazil’s right to impede American exports in retaliation for WTO-illegal cotton support. The United States is, in other words, now sending almost $150m worth of “technical assistance” and “capacity building” funds to Brazil, just so we can continue to subsidize American cotton growers without penalty (so much for U.S. promotion of the rule of law in international commercial relations). Rep. Ron Kind (D-WI) tried to end that deal earlier this year, but to no avail. Big Ag’s friends in Congress argued, unfortunately successfully, that any changes to the cotton bribes should be dealt with in the context of the 2012 Farm Bill, and by the agriculture committees (good luck with that).

But yesterday, the Appropriations Committee approved by voice vote an amendment from Rep. Jeff Flake (R-AZ) to take the fiscal 2013 payment to Brazil from funds that would normally go to supporting U.S. cotton growers. According to an article [$] in the Congressional Quarterly, Rep. Flake argued that “American cotton growers should pay the bill since the United States was making the payment on their behalf.” Well played, sir.  Rep. Rosa DeLauro (D-CT) filed an amendment that would send the FY2012 cotton payment to the Women’s, Infants and Children nutrition program instead.

The Committee also voted to lower the income eligibility cap to $250,000 AGI.

The CQ article did contain this worrying footnote, however:

Support for the amendments may be tenuous — especially if lawmakers cannot hide behind the anonymity of a voice vote. After winning the voice vote in committee, Flake sought a roll call, prompting appropriators of both parties to suggest that he did not need the recorded vote. Flake took their advice and demurred.

 Leglislators are usually shy about publicizing their positions only when they think it could get them in political hot water, so let’s not uncork the champagne yet.

The (Beginning of the) End of the Shameful U.S. Cotton Deal? is a post from Cato @ Liberty - Cato Institute Blog

A brand new Harvard University study finds that American students perform very poorly in math compared to their peers in other nations.

What’s that? You’ve heard this all before? Not quite.

This study compares the percentages of students scoring at advanced levels across countries, and it controls for the confounding effects of differing populations of disadvantaged groups. When the researchers looked exclusively at white students and at students with at least one parent with a college degree, the results remained largely the same. Among white students, for instance, 8 percent of Americans scored “advanced” in math, landing us in 25th place among nations for which scores were available–behind nearly every other advanced industrialized nation on Earth. And the highest ranked U.S. state, Massachusetts, trails the overall averages of 14 nations.

This may come as a shock to those who imagined that America’s educational shortcomings were restricted to inner cities or disadvantaged populations, but it is entirely consistent with results reported more than a decade ago as part of the Third International Mathematics and Science Study, showing that U.S. students taking advanced mathematics and physics classes lagged their peers in other industrialized nations at the end of high school, often by wide margins.

So how, then, have we remained an economic superpower for so long if our school system is so bad? The answer is that we have historically enjoyed one of the freest economies on Earth, a relatively unfettered labor market, and comparatively low taxes–all of which have drawn to our shores many of the world’s best and brightest. Regrettably, our comparative advantage in those areas has eroded over the past several years.

Perhaps, instead of continuing to make our economy more like our failing centrally planned school monopoly, we should allow our education system to benefit from the freedoms and incentives of the marketplace that was always the engine of our prosperity….

“Dear Foreigners, You Do the Math” –USA is a post from Cato @ Liberty - Cato Institute Blog

In honor of World Trade Week—and for its decreed purpose of educating Americans about trade—this post is about U.S. trade policy working at cross-purposes with other policies or goals of the administration. So numerous are these examples of trade policy dissonance, that a committed wonk could devote an entire website to the task of documenting them.

If the administration were serious about making trade policy work—rather than just paying it lip service—it would compile its own exhaustive list of laws, regulations, policies, and practices that actually undermine its stated objectives of facilitating economic growth, investment, and job creation through expanded trade opportunities. Then, it would make the changes necessary to ensure that our policies are paddling in the same direction. But that is not happening—at least as far as I can see.

At the beginning of the year, President Obama announced his goal of doubling U.S. exports in five years. He even formalized the goal by granting it an official name—the National Export Initiative. Well, I see no imminent harm in setting the ambitious goal of reaching $3 billion in exports by 2015 (although I am wary of the tactics under consideration and the evocation of Soviet Five-Year Plans). But it betrays a lack of true commitment to that goal when nothing is being done to reduce the competitive burdens imposed on U.S. exporters by our own myopic, anachronistic trade remedies regime. The president exhorts U.S. exporters to win a global race, yet he overlooks the fact that Congress has tied many of their shoes together.

The costs of the U.S. Antidumping and Countervailing Duty laws on U.S. exporters are manifest in various forms, but this post concerns the burdens imposed on U.S. producer/exporters who rely on the raw materials and other industrial inputs that are subject to AD and CVD measures. Indeed, most of the products subject to the 300 U.S. AD and CVD orders currently in effect (like steel and chemicals) are, in fact, inputs to downstream U.S. producers, many of whom compete (or try to compete) in foreign markets. (Just take a look at this list and decide for yourself whether these are products that you’d buy at the store or if they are inputs a U.S. producer would use to produce something else that you might buy at a store.)

AD and CVD duties squeeze these U.S. producer/exporters’ profits, first by raising their input costs and then by depriving them of revenues lost to foreign competitors, who, by producing outside of the United States, have access to that crucial input at lower world-market prices, and can themselves price more competitively. This is not hypothetical. It is a routine hindrance for U.S. exporters. And one that has eluded the president’s attention, despite his soaring rhetoric about the economic importance of U.S. exports.

Consider the case of Spartan Light Metal Products, a small Midwestern producer of aluminum and magnesium engine parts (and other mechanical parts), which presented its story to Obama administration officials, who were dispatched across the country earlier this year to get input from manufacturers about the problems they confronted in export markets.

Beginning in the early-1990s, Spartan shifted its emphasis from aluminum to magnesium die-cast production because magnesium is much lighter and more durable than aluminum, and Spartan’s biggest customers, including Ford, GM, Honda, Mazda, and Toyota were looking to reduce the weight of their vehicles to improve fuel efficiency. Among other products, Spartan produced magnesium intake manifolds for Honda V-6 engines; transmission end and pump covers for GM engines; and oil pans for all of Toyota’s V-8 truck and SUV engines.

Spartan was also exporting various magnesium-cast parts (engine valve covers, cam covers, wheel armatures, console brackets, etc.) to Canada, Mexico, Germany, Spain, France, and Japan. Global demand for magnesium components was on the rise.

But then all of a sudden, in February 2004, an antidumping petition against imports of magnesium from China and Russia was filed by the U.S. industry, which comprised just one producer, U.S. Magnesium Corp. of Utah with about 370 employees. Prices of magnesium alloy rose from slightly more than $1 per pound in February 2004 to about $1.50 per pound one year later, when the U.S. International Trade Commission issued its final determination in the antidumping investigation. By mid-2008, with a dramatic reduction of Chinese and Russian magnesium in the U.S. market, the U.S. price rose to $3.25 per pound (before dropping in 2009 on account of the economic recession).

By January 2010, the U.S. price was $2.30 per pound, while the average price for Spartan’s NAFTA competitors was $1.54. Meanwhile, European magnesium die-casters were paying $1.49 per pound and Chinese competitors were paying $1.36 per pound. According to Spartan’s presentation to Obama administration officials, magnesium accounts for about 40-60% of the total product cost in its industry. Thus, the price differential caused by the antidumping order bestowed a cost advantage of 19 percent on Chinese competitors, 17 percent on European competitors, and 16 percent on NAFTA competitors.

As sure as water runs downhill, several of Spartan’s U.S. competitors went out of business due to their inability to secure magnesium at competitive prices. According to the North American Die Casting Association, the downstream industry lost more than 1,675 manufacturing jobs–more than five-times the number of jobs that even exist in the entire magnesium producing industry!

Spartan’s  outlook is bleak, unless it can access magnesium at world market prices. Its customers have turned to imported magnesium die cast parts or have outsourced their own production to locations where they have access to competitively-priced magnesium parts, or they’ve switched to heavier cast materials, sacrificing ergonomics and fuel efficiency in the face of rapidly-approaching, federally-mandated 35.5 mile per gallon fuel efficiency standards.

And to add insult to injury, the Obama administration recently launched a WTO case against China for its restraints on exports of raw materials, including magnesium. Allegedly, since January 2008, the Chinese government has been imposing a 10 percent tax on magnesium exports. How dissonant, how incongruous, how absolutely imbecilic it is that, in the face of China’s own restraints on its exports (which the U.S. government officially opposes), the U.S. antidumping order against imported magnesium from China persists!  How stupid.  How short-sighted.

Spartan’s is not an isolated incident. Routinely, the U.S. antidumping law is more punitive toward U.S. manufacturers than it is to the presumed foreign targets. Routinely, U.S. producers of upstream products respond to their customers’ needs for better pricing, not by becoming more efficient or cooperative, but by working to cripple their access to foreign supplies. More and more frequently, that is how and why the antidumping law is used in the United States. Increasingly, it is a weapon used by American producers against their customers—other American producers, many of whom are exporters.

If President Obama really wants to see exports double, he must implore Congress to change the antidumping law to explicitly give standing to downstream industries so that their interests can be considered in trade remedies cases. He must implore Congress to include a public interest provision requiring the U.S. International Trade Commission to assess the costs of any duties on downstream industries and on the broader economy before imposing any such duties.

The imperative of U.S. export growth demands some degree of sanity be restored to our business-crippling trade remedies regime.

U.S. Antidumping Regime Restrains U.S. Export Growth is a post from Cato @ Liberty - Cato Institute Blog

In a Cato paper released earlier this month, I argued that the glacial pace of America’s economic recovery and its growing public debt juxtaposed against China’s almost uninterrupted double-digit annual economic growth and its role as Congress’s sugar daddy have bred insecurity among U.S. opinion leaders, many of whom now advocate a more strident approach to China, or emulation of its top-down approach.

I cite, among others, Thomas Friedman of the New York Times, who is enamored of autocracy’s capacity to facilitate China’s singularity of purpose to dominate the industries of the future:

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power, and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.

Friedman’s theme—but less googoo eyed and more all-hands-on-deck!—is echoed in an op-ed by China-expert James McGregor, which ran in yesterday’s Washington Post.  McGregor conveys what he describes as an emerging sentiment within the U.S. business community in China.  That is: the Chinese government is hell bent on creating national economic champions; is using its increasing leverage (as global financier and fastest-growing market) to impose its own interpretations of the global rules of economic engagement in support of its comprehensive industrial policy, and, ultimately; the United States must wake up and rise to the challenge by crafting some top-down industrial policy of its own.

I don’t dispute some of McGregor’s premises.  China’s long process of market liberalization has slowed down, halted, and even reversed in some areas.  Policies are proliferating that favor local companies (particularly state-owned enterprises), hamper the operations of foreign-owned firms, and impede market access for imports.  Indeed, many of these policies are likely the product of industrial planning. 

But McGregor’s conclusion is extreme:

The time has come for a White House-led, public-private, comprehensive examination of American competitiveness against a clear-eyed view of China’s very smart and comprehensive industrial development policies and plans…What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation? How do we retool the U.S. government’s inadequate and outdated trade bureaucracy to provide thoughtful strategic focus and interagency coordination? How do we overcome the fundamental disconnect between our system of scattered bureaucratic responsibilities and almost no national economic planning vs. China’s top-down, disciplined and aggressive national economic development planning machine?

Central planning may be more en vogue in Washington than usual nowadays, but to even come close to reaching his conclusion requires disregarding many facts, which is how McGregor gets there sans tongue in cheek.

First, in an effort to preempt any suggestion that China’s protectionism is nothing exceptional and can be remedied through the World Trade Organization and other channels, McGregor offers this blanket statement: “Chinese policymakers are masters of creative initiatives that slide through the loopholes of WTO and other international trade rules.”  I realize that op-ed writing forces one to economize on words, but that statement, which serves as McGregor’s springboard to socialism, cannot suffice for an analysis of the facts.  One of those facts is that the United States has been successful in compelling changes in China’s protectionist practices in all of the formal WTO disputes it has lodged that have been resolved thus far (6 of 8 formal cases have been resolved).  If China violates the agreed rules of trade, and its actions impair benefits or impose costs on U.S. interests that are too large to ignore, pursuing a WTO case is a legitimate and proven channel of resolution. Chinese protectionism can be addressed without the radical changes McGregor counsels. 

But I think McGregor—sharing the tactics of other in the media and politics—exploits public angst over a rising China to promote his idea as the obvious and only solution to what he sells as a rapidly-metastasizing problem.  McGregor argues that China is aiming to create national champions through subsidies and other preferential policies, while charging foreign companies admission to its market in the form of technology transfer, joint-venturing requirements, and local content rules.  McGregor claims, that this appropriation of foreign technology will be used to “create Chinese ‘indigenous innovations’ that will come back at us globally.”  Ultimately, McGregor fears that “American technology companies could be coerced to plant the seeds of their destruction in the fertile China market.”

It is telling that McGregor doesn’t consider U.S. government expropriation of those companies’ technology assets as planting the seeds of their own destruction.  Indeed, it is nothing short of expropriation when technology that is owned by individual companies in the private sector, making unique decisions to improve their own bottom-lines on behalf of their own shareholders is suddenly subject to the questions McGregor wants answered: What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation?  Those questions, let alone the answers, imply that the U.S. government should have at least de facto ownership and control over these privately-held technology assets.

What is wrong with allowing each of these companies to decide for themselves whether they want to license or transfer some of their technology to Chinese companies, as the price of doing business in China?  Some will, some won’t, but the presupposition that those who do are selling the golden goose is not based on fact.  Let companies decide for themselves how to use their resources, and don’t treat industry as a monolith, as in “What are our commercial strategic imperatives as a nation?” 

Had we tried to answer and implement the answer to that question in the face the Japanese “threat” two decade ago, we’d be bereft of some of the most ingenious technological breakthroughs and the hundreds of industries and thousands of products that “our system of almost no national economic planning” has yielded.

When we peel away the chicken-little rhetoric, when we dispense with neo-Rahm Emanualism (“Never manufacture a good crisis and then let it go to waste”), when cooler heads and analytical minds prevail, the economic question boils down to this: What has been more successful at creating growth, central planning or decentralized dynamism?  For both China and the United States, it has been the latter. 

My bet is that China’s re-embrace of greater central planning will be brief, as it wastes resources, yields few -if any- national champions, and limits innovation.  For similar reasons, U.S. opinion leaders will eschew central planning, as well.

Beware of Americans Proselytizing the Chinese Economic Model is a post from Cato @ Liberty - Cato Institute Blog

Businessweek has a story quoting a former federal prosecutor in Brooklyn, Michael Wildes, speculating that Faisal Shahzad, the would-be Times Square bomber, made so many mistakes (leaving his house keys in the car, not knowing about the vehicle identification number, making calls from his cellphone, getting filmed, buying the car himself) that he may be the “dumbest terrorist in the world.” But Wildes can’t accept the idea that an al Qaeda type terrorist would be so incompetent and suggests that Shahzad was “purposefully hapless” to generate intelligence about the police reaction for the edification of his buddies back in Pakistan.

Give me a break. This incompetence is hardly unprecedented. Three years ago Bruce Schneier wrote an article titled “Portrait of the Modern Terrorist as an Idiot,” describing the incompetence of several would-be al Qaeda plots in the United States and castigating commentators for clinging to image of these guys as Bond-style villains that rarely err.  It’s been six or seven years since people, including me, started pointing out that al Qaeda was wildly overrated. Back then, most people used to say that the reason al Qaeda hadn’t managed a major attack here since September 11 was because they were biding their time and wouldn’t settle for conventional bombings after that success. We are always explaining away our enemies’ failure.

The point here is not that all terrorists are incompetent — no one would call Mohammed Atta that — or that we have nothing to worry about. Even if all terrorists were amateurs like Shahzad, vulnerability to terrorism is inescapable. There are too many propane tanks, cars, and would-be terrorists to be perfectly safe from this sort of attack. The same goes for Fort Hood.

The point is that we are fortunate to have such weak enemies. We are told to expect nuclear weapons attacks, but we get faulty car bombs. We should acknowledge that our enemies, while vicious, are scattered and weak. If we paint them as the globe-trotting super-villains that they dream of being, we give them power to terrorize us that they otherwise lack. As I must have said a thousand times now, they are called terrorists for a reason.  They kill as a means to frighten us into giving them something.

The guys in Waziristan who trained Shahzad are probably embarrassed to have failed in the eyes of the world and would be relieved if we concluded that they did so intentionally. Likewise, it must have heartened the al Qaeda group in Yemen when the failed underwear bomber that they sent west set off the frenzied reaction that he did.  Remember that in March, al Qaeda’s American-born spokesperson/groupie Adam Gadahn said this:

Even apparently unsuccessful attacks on Western mass transportation systems can bring major cities to a halt, cost the enemy billions and send his corporations into bankruptcy.

As our enemies realize, the bulk of harm from terrorism comes from our reaction to it.  Whatever role its remnants or fellow-travelers had in this attempt, al Qaeda (or whatever we want to call the loosely affiliated movement of internationally-oriented jihadists) is failing. They have a shrinking foothold in western Pakistan, maybe one in Yemen, and little more. Elsewhere they are hidden and hunted. Their popularity is waning worldwide. Their capability is limited. The predictions made after September 11 of waves of similar or worse attacks were wrong. This threat is persistent but not existential.

This attempt should also remind us of another old point: our best counterterrorism tools are not air strikes or army brigades but intelligence agents, FBI agents, and big city police.  It’s true that because nothing but bomber error stopped this attack, we cannot draw strong conclusions from it about what preventive measures work best. But the aftermath suggests that what is most likely to prevent the next attack is a criminal investigation conducted under normal laws and the intelligence leads it generates. Domestic counterterrorism is largely coincident with ordinary policing. The most important step in catching the would-be bomber here appears to have been getting the vehicle identification number off the engine and rapidly interviewing the person who sold it. Now we are seemingly gathering significant intelligence about bad actors in Pakistan under standard interrogation practices.

These are among the points explored in the volume Chris Preble, Jim Harper and I edited: Terrorizing Ourselves: Why U.S. Counterterrorism Policy is Failing and How to Fix It — now hot off the presses. Contributors include Audrey Kurth Cronin, Paul Pillar, John Mueller, Mia Bloom, and a bunch of other smart people.

We’re discussing the book and counterterrorism policy at Cato on May 24th,  at 4 PM. Register to attend or watch online here.

‘The Dumbest Terrorist In the World’? is a post from Cato @ Liberty - Cato Institute Blog

The apparent drug gang killings of U.S. consular employees this weekend in Juarez, Mexico are a bloody reminder that President Obama is getting the United States involved in yet another war it cannot win. Drug gang killings also occurred in Acapulco, with a total of 50 such fatalities nationwide over the weekend.

Unfortunately, Obama has responded to the latest incident by following the same failed strategy as his predecessors when confronted with drug war losses: a stronger fight against drugs.

Though the deaths are the first in which Mexican drug cartels appear to have so brazenly targeted and killed individuals linked to the U.S. government, illicit drug trade violence has killed some 18,000 people in Mexico since President Calderon came to power in December 2006—more than three times the number of American military personnel deaths in the Iraq and Afghanistan wars combined.

The carnage only shot up after Calderon declared an all-out war on drug trafficking upon taking office. After more than three years, the policy has failed to reduce drug trafficking or production, but it is weakening the institutions of Mexican democracy and civil society through corruption and bloodshed, which are the predictable products of prohibition.

The 29 people killed in drug-related violence this weekend in a 24 hour period in the state of Guerrero sets a dubious record for a Mexican state. And an increasing number of Mexicans, including former Mexican Foreign Minister Jorge Castañeda, are calling for a thorough rethinking of anti-drug policy in Mexico and the United States that includes legalization. Legalization would significantly reduce drug cartel revenue and put an end to an enormous black market and the social pathologies that it creates.

Drug Violence in Mexico is a post from Cato @ Liberty - Cato Institute Blog

President Obama is taking a break today from promoting a more federalized health-care system to sign a bill creating a federalized tourist promotion campaign.

In a closed ceremony at the White House, the president signed the Travel Promotion Act. After gaining final passage by the Senate last week, the bill will raise an estimated $200 million a year by imposing a $10 tax on visitors to the United States from countries where they are not required to obtain a visa. The revenue will be used to create and fund a new agency, the Corporation for Travel Promotion, that would work with the U.S. tourism industry to promote the United States as a global travel destination.

I’m all for promoting tourism to the United States. Tourism is an important “service export” that generates more than $100 billion a year in earnings from foreign travelers to the United States. But a new federal agency and a new tax on travel are not the right way to drum up more tourism business.

First, just on principle, promoting a particular industry should be the business of that industry, not the business of government. Americans also export billions of dollars worth of farm goods, semiconductors, machinery, aircraft, pharmaceuticals, and chemicals, along with financial, education, insurance, and other services. None of those industries deserves their own tax-financed promotion board either. If the payoff from promotion is so huge, the industry should be willing to bear its cost without the aid of the government.

More practically, it goes against basic economic logic to promote tourism to the United States by imposing new costs on tourists. Granted, $10 is not a large amount, but the demand curve for tourism is downward sloping – as it is in every other market. A higher price will lead to less demand, not more. As a spokesman for the International Air Transport Association told ABC News:

It’s absolutely counterintuitive. To us, we’re saying we’d love to see more people visit the United States, but we’re going to charge you more for the privilege of entering the country. We are in favor of increased tourism and visitation… but let’s look at our priorities. We don’t think that videos and billboards are necessarily a priority. Instead, we should be focusing on how to make customs and immigration easier for people.

As I argued in a previous post, the U.S. government should be doing more to keep dangerous people off  flights to the United States instead of making it even more difficult for perfectly harmless tourists and business travelers to get on those same flights.

Will Taxing Foreign Visitors Promote Tourism? is a post from Cato @ Liberty - Cato Institute Blog

If you want to witness the clash of two worldviews on trade, check out the online debate I’m having with Ian Fletcher of the U.S. Business and Industry Council. A self-described protectionist, Fletcher has written a new book with the unambiguous title, Free Trade Doesn’t Work: What Should Replace it and Why. In the opposite corner, I argue for eliminating barriers to trade, drawing on my own recent book, Mad about Trade: Why Main Street America Should Embrace Globalization.

The debate is being hosted by the International Economic Law and Policy Blog. We’ve already filed two 600-word posts each, with a third to come at the end of this week and concluding arguments early next week.

A Clash of Worldviews on Free Trade is a post from Cato @ Liberty - Cato Institute Blog

Last evening on FoxNews, host Bret Baier reported that the Iranians had launched a rocket carrying ”a mouse, two turtles, and a can of worms” into space. He asked the panelists to speculate on the implications.

Charles Krauthammer inveighed “if you can put a mouse into space, you can put a nuke in New York, in principle.” Given that they are clearly developing the technological capabilities that would allow them to nuke New York, Krauthammer concluded, “our only hope on the nuclear issue or any other is a revolution and to help that revolution ought to be our task.”

Well.

To her credit, Jennifer Loven of the AP wasn’t having any of it. “It’s an incredibly large leap,” she pointed out, ”between a mouse in space and a nuke in New York….[I]t’s a…ginormous gap.”

How “ginormous”? The analogies are imperfect, but I can throw a football a fair distance. In principle, I could start in the Super Bowl.

More seriously, there are modest parallels to the subject of my first book — the mythical missile gap of the late 1950s. The missile gap was precipitated by the launch of the Sputnik satellite in October 1957. Millions of Americans became convinced that the beeping silver sphere orbiting the earth signified that the Soviets could, in principle, drop a nuclear weapon on any city in the United States. This misconception was helped along by some opportunistic fearmongering by, chiefly, Democrats who delighted in embarassing President Dwight Eisenhower. And the ploy worked. The Dems rolled up huge victories in the mid-term election of 1958, and John F. Kennedy capitalized on the missile gap to help get elected president in 1960.

The actual missile gap — in the U.S. favor — was irrelevant. It would have been equally irrelevant if the roles were reversed, with the Soviets in possession of hundreds of ICBMs, and the U.S. with only a handful of shorter range weapons. Even if the Soviets had perfected the ability to throw a nuclear warhead onto U.S. territory, what ultimately prevented them from doing so was not technological but psychological — they were deterred by our vast arsenal. And they continued to be so deterred for decades until the entire edifice of Soviet power came crashing down, from within, without any significant assistance from the United States.

Would Krauthammer contend that Eisenhower’s refusal to overthrow the Soviet regime in 1958 was “an embarassing failure?” The Soviets did, after all, actually have nuclear weapons, many of them. The Iranians have none, and have not even mastered the enrichment cycle, let alone the long process toward weaponization.  By implying that the only thing that stops the Iranians from immediately nuking New York is their technical capabilities, Krauthammer demonstrates a shocking ignorance of some of the most basic principles of international relations, beginning with deterrence. This makes him a horrible political scientist.

But as a rocket scientist, he’s even worse.

Charles Krauthammer, Rocket Scientist is a post from Cato @ Liberty - Cato Institute Blog

• Gene Healy on today’s election in Massachusetts: “If Republican Scott Brown wins the Massachusetts special election Tuesday, the Bay State will have its first GOP senator since the era when disco was king. And Brown will have the much-derided Tea Party legions to thank.”

• Why opportunistic politicians need to stop using times of crisis for their own ends and let the next one go to waste.

• George W. Obama? “Bush’s successor—who actually taught constitutional law at the University of Chicago—is continuing much of the Bush-Cheney parallel government and, in some cases, is going much further in disregarding our laws and the international treaties we’ve signed.”

• Can Google beat China? Cato’s Timothy B. Lee tackles the question in The New York Times Online.

• Podcast: “Our America Initiative” featuring former New Mexico Governor Gary Johnson. Johnson discusses out of control government spending, immigration, the Bush years, the drug war, defense policy and more.

Tuesday Links is a post from Cato @ Liberty - Cato Institute Blog

• Cato Vice President Gene Healy grades President Obama. (Hint: He doesn’t give him a “B+”).

• Afghanistan: A war we cannot afford. “Democrats say raise taxes. Republicans say no worries. The best policy would be to scale back America’s international commitments.”

• Doug Bandow: The war in Afghanistan was justified at the beginning, but to escalate now is the  “geopolitical equivalent of shutting the barn doors after the horses have fled.”

• How U.S. membership in the World Trade Organization enhances the liberty and prosperity of all Americans.

• Podcast: “TARP: A Congressional Failure” featuring John Samples.

Tuesday Links is a post from Cato @ Liberty - Cato Institute Blog

Import competition can throw Americans out of work. Even advocates of free trade like me will readily acknowledge that fact. And nobody needs to remind the people of Hickory, North Carolina.

On the front page of the Washington Post this morning, under the headline, “In N.C., damage not easily mended: Globalization drives unemployment to 15% in one corner of state,” the paper reports in detail how the people of that community are struggling to adjust to a more open U.S. economy:

The region has lost more of its jobs to international competition than just about anywhere else in the nation, according to federal trade-assistance statistics, as textile mills have closed, furniture factories have dwindled and even the fiber-optic plants have undergone mass layoffs. The unemployment rate is one of the highest in the nation–about 15 percent.

Nobody wants to lose their job involuntarily, but a story like this needs to be read in perspective. As I document in my new Cato book Mad about Trade, the large majority of Americans who lose their jobs each year are not displaced by trade. Technology is the great job disruptor, but Americans also lose their jobs because of domestic competition, changing consumer tastes, and recessions.

For every person who loses their job because of globalization, I estimate there are 30 who have lost their jobs for other reasons. I’m waiting for a front-page story on all the newspaper workers who have lost their jobs because of the Internet, or the 30,000 workers laid off by Kodak in the past 5 years because of the spread of digital cameras and plunging film sales, or the book stores and record stores that have shut down and laid off workers because of Amazon.com and iTunes.

Trade is not a cause of higher unemployment nationwide, either, as the Post story seems to imply. Imports have fallen sharply during the latest recession along with the trade deficit. In contrast, imports were rising at double-digit rates when the unemployment rate was below 5 percent. Like technology, trade can put people out of work, but it also creates new and generally better paying opportunities for employment, while raising our overall standard of living.

Imports Wrongly Blamed for Unemployment is a post from Cato @ Liberty - Cato Institute Blog

Stuart Taylor has a very good article this week about the Obama administration, international law, and free speech.  This excerpt begins with a quote from Harold Koh, Obama’s top lawyer at the State Department:

“Our exceptional free-speech tradition can cause problems abroad, as, for example, may occur when hate speech is disseminated over the Internet.” The Supreme Court, suggested Koh — then a professor at Yale Law School — “can moderate these conflicts by applying more consistently the transnationalist approach to judicial interpretation” that he espouses.

Translation: Transnational law may sometimes trump the established interpretation of the First Amendment. This is the clear meaning of Koh’s writings, although he implied otherwise during his Senate confirmation hearing.

In my view, Obama should not take even a small step down the road toward bartering away our free-speech rights for the sake of international consensus. “Criticism of religion is the very measure of the guarantee of free speech,” as Jonathan Turley, a professor at George Washington University Law School, wrote in an October 19 USA Today op-ed.

Even European nations with much weaker free-speech traditions than ours were reportedly dismayed by the American cave-in to Islamic nations on “racial and religious stereotyping” and the rest.

Read the whole thing.

Obama, International Law, and Free Speech is a post from Cato @ Liberty - Cato Institute Blog

In the latest example of “We had to burn the village to save it” logic, Sen. Sherrod Brown (D-OH) argues in a letter in the Washington Post this morning that the way to “support more trade” in the future is to raise barriers to trade today.

Brown criticizes Post columnist George Will for criticizing President Obama for imposing new tariffs on imported tires from China. Like President Obama himself, Brown claims that by invoking the Section 421 safeguard, the president was merely “enforcing” the trade laws that China agreed to but has failed to follow. He scolds advocates of trade for talking about the “rule of law” but failing to enforce it when it comes to trade agreements. Brown concludes, “If America is ever to support more trade, its people need to know that the rules will be enforced. And Mr. Obama did exactly that.”

Nothing in U.S. trade law required President Obama to impose tariffs on imported Chinese tires. As my colleague Dan Ikenson explained in a recent Free Trade Bulletin, Section 421 allows private parties to petition the U.S. government for protection if rising imports from China have caused or just threaten to cause “market disruption” to domestic producers. If the U.S. International Trade Commission recommends tariff relief, the president can decide to impose tariffs, or not.

The law allows the president to refrain from imposing tariffs if he finds they are “not in the national economic interest of the United States or … would cause serious harm to the national security of the United States.”

As I argue at length in my new Cato book Mad about Trade, trade barriers invariably damage our national economic interests and weaken our national security, and the tire tariffs are no exception. If the president had followed the letter and spirit of the law, he would have rejected the tariff.

And since when is causing “market disruption” something to be punished by law? Isn’t that what capitalism and market competition are all about? New competitors and new products are constantly disrupting markets, to the discomfort of entrenched producers but to the great benefit of the general public and the economy as a whole.

Human beings once widely practiced an economic system that minimized market disruption. It was called feudalism.

C/P Mad About Trade

Curbing Free Trade to Save It is a post from Cato @ Liberty - Cato Institute Blog

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.

More Evidence on America’s Socialism is a post from Cato @ Liberty - Cato Institute Blog

Item: The Coalition for a Realistic Foreign Policy, a group of concerned scholars and authors who work on international security and U.S. foreign policy, have issued an open letter to President Obama warning him not to expand U.S. involvement in that country.  (Full disclosure: I was a signatory.)  The list of signatories includes many of the scholars who urged President Bush not to invade Iraq.  Politico was the first to run the story: see here.

Item: Via Michael Cohen, former CIA counterterrorism honcho Paul Pillar takes to the pages of the Washington Post to think through the concept of “safe havens” in Afghanistan.  His conclusion?

Among the many parallels being offered between Afghanistan and the Vietnam War, one of the most disturbing concerns inadequate examination of core assumptions. The Johnson administration was just as meticulous as the Obama administration is being in examining counterinsurgent strategies and the forces required to execute them. But most American discourse about Vietnam in the early and mid-1960s took for granted the key — and flawed — assumptions underlying the whole effort: that a loss of Vietnam would mean that other Asian countries would fall like dominoes to communism, and that a retreat from the commitment to Vietnam would gravely harm U.S. credibility.

The Obama administration and other participants in the debate about expanding the counterinsurgency effort in Afghanistan can still avoid comparable error. But this would require not merely invoking Sept. 11 and taking for granted that a haven in Afghanistan would mean the difference between repeating and not repeating that horror. It would instead mean presenting a convincing case about how such a haven would significantly increase the terrorist danger to the United States. That case has not yet been made.

Item: Michael Crowley offers a piece in the New Republic that strongly implies but doesn’t quite come out and say that President Obama should ignore the skeptics and the political risks and wade deeper into Afghanistan.  The piece swallows whole the conventional wisdom narrative on Iraq–that the Surge amounted not to a combination of defining down “victory” and appeasement of Sunni tribes but rather a borderline miracle whereby Gen. Petraeus loosed his wonder-working COIN doctrine on the maelstrom of violence in that country and produced a strategic victory.  Crowley then uses this narrative to frame the decision before President Obama.  Still, he writes

[I]f the definition of success isn’t clear to the Obama team, the definition of defeat may be. Bush argued unabashedly that Iraq had become “the central front in the war on terror” and that withdrawing before the country had stabilized would hand Al Qaeda not only a strategic but a moral victory. Current administration officials don’t publicly articulate the same rationale when discussing Afghanistan. But former CIA official Bruce Riedel, a regional expert who led the White House’s Afghanistan-Pakistan review earlier this year, cited it at the Brookings panel held in August. “The triumph of jihadism or the jihadism of Al Qaeda and the Taliban in driving NATO out of Afghanistan would resonate throughout the Islamic World. This would be a victory on par with the destruction of the Soviet Union in the 1990s,” Riedel said. “[T]he stakes are enormous.”

Obama may have one last thing in common with Bush: personal pride. Bush was determined to prevail in Iraq because he had invaded it. And, while Obama, of course, had nothing to do with the invasion of Afghanistan, he has long supported the campaign there–including during the presidential campaign as a foil for his opposition to the Iraq war. Speaking before a group of veterans last month, Obama called Afghanistan a “war of necessity”–a phrase which politically invests him deeper in the fight. “The president has boxed himself in,” says one person who has advised the administration on military strategy. “The worst possible place to be is that our justification for being in a war is that we’re in a war.”

Lots to chew on.

Another Day, Another Tranche of Afghanistan Reading Material is a post from Cato @ Liberty - Cato Institute Blog

Republicans made many big mistakes when they controlled Washington earlier this decade, so picking the most egregious error would be a challenge. But continued American involvement with the Organization for Economic Cooperation and Development would be high on the list. Instead of withdrawing from the OECD, Republicans actually increased the subsidy from American taxpayers to the Paris-based bureaucracy. So what do taxpayers get in return for shipping $100 million to the bureaucrats in Paris? Another international organization advocating for big government.

The OECD, for example, is infamous for trying to undermine tax competition. It also has recommended higher taxes in America on countless occasions. And now it is suggesting that Iceland impose high tax increases – even though Iceland’s economy is in big trouble and the burden of government spending already is about 50 percent of GDP:

Both tax increases and spending cuts will be needed, although the former are easier to introduce immediately. The starting point for the tax increases should be to reverse tax cuts implemented over the boom years, which Iceland can no longer afford. This would involve increases in the personal income tax… Just undoing the past tax cuts is unlikely to yield enough revenue. In choosing other measures, priority should be given to those that are less harmful to economic growth, such as broadening tax bases, or that promote sustainable development, such as introducing a carbon tax.

Using Gasoline to Douse a Fire? OECD Thinks Higher Tax Rates Will Help Iceland’s Faltering Economy is a post from Cato @ Liberty - Cato Institute Blog

It’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.”  That said, let me engage in a little bit of it.

What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff.  And to an extent, it is about each of those things.  But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.

The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.

Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan.  When that happens, India and Pakistan are still going to live in the neighborhood.  They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much.  Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan.  In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country.  Until you grasp that nettle, you’re really just fumbling around in the dark.

Find a solution for that in your COIN manual.

Bringing the States Back In is a post from Cato @ Liberty - Cato Institute Blog

A thorough new study of 30 nations from the Institut Constant de Rebecque in Switzerland reveals serious shortcomings in America’s tax system.

The report, entitled “Tax burden and individual rights in the OECD: An International Comparison,” creates a Tax Oppression Index based on three key variables: the overall tax burden, public governance, and taxpayer rights. The good news is that the United States has a comparatively low aggregate tax burden, though America’s score on this measure would be much better in the absence of a punitively high corporate tax rate. The bad news is that corruption and inefficiency in Washington drag down America’s score for public governance. The ugly news is that America has a very low rating for protecting taxpayer rights — largely because politicians have tilted the playing field to favor the IRS, including the fact that taxpayers lose the presumption of innocence provided in the Constitution.

Here is a brief description of the study:

The OECD’s campaign against “harmful tax competition” and “tax havens” has overshadowed the essential issue, namely the important roles that both tax competition and “tax havens” play for capital preservation and formation, leading to higher prosperity and better protection of individual rights throughout the OECD.

The tax oppression index is based on 18 representative criteria measuring fiscal attractiveness, public governance and financial privacy in the 30 member states of the OECD. Switzerland appears as the country with the lowest tax oppression — due to a relatively low tax burden and a more [classical] liberal institutional order, including its citizens’ right to veto legislation, political decentralization, and protection of financial privacy. Germany and France, on the other hand, whose governments have supported the OECD’s efforts, are among the most questionable states in terms of safeguarding their residents’ individual rights.

…The tax oppression index evaluates the 30 OECD member states on three complementary dimensions quantified by 18 representative criteria, on the basis of OECD and World Bank data. The index enables relevant conclusions about the tax burden and individual rights among those countries.

Switzerland earns the top ranking in the report, followed by Luxembourg, Austria, Canada, and Slovakia. Italy and Turkey have the worst systems, followed by Poland, Mexico, and Germany. The United States is tied for 19th, behind the welfare states of Scandinavia. With Obama promising to raise tax rates and increase the power of the IRS, it may just be a matter of time before the United States is competing for the world’s most oppressive tax regime.

Tax Oppression Index Ranks America in Bottom Half of Industrialized Nations is a post from Cato @ Liberty - Cato Institute Blog

Cato’s tax experts, Chris Edwards and Dan Mitchell, have written extensively on international tax competition. Their research shows that countries can help attract investment and spur economic growth by lowering their tax rates.

Could countries employ this same strategy to make their sports teams better?

Real Madrid, one of the most popular and successful soccer teams in the world, recently purchased the rights to two of the sport’s top players. They acquired Kaka, who was named the world’s best soccer player in 2007, from Italian powerhouse, AC Milan. And they lured Cristiano Ronaldo, the world’s top player in 2008, away from Manchester United, the reigning champions of the English Premier League.

There are a number of reasons why Kaka and Ronaldo are moving to Spain, but it’s pretty clear that taxes played a significant role. That’s because in 2005, Spain passed a tax break for foreign workers, including soccer players. This gives Spanish teams a huge advantage in bidding wars with teams from higher-tax countries like Italy and England. To make matters worse, England recently raised its top income tax rate.

“The new tax rate in England is going to make things much harder for English clubs,” noted Jonathan Barnett, a leading sports agent whose clients include Glen Johnson, Ashley Cole and Peter Crouch. “It will hinder the [English] Premier League and help the Spanish league because Spain has big tax discounts for footballers, so there’s an enormous advantage to go there. Someone like Ronaldo could be offered the same money at Real Madrid but be 25% better off.”

Similarly, a frustrated executive from AC Milan blames Kaka’s departure on the Italian tax system: “I repeat, this is all a matter of different types of taxation. If we were a Spanish club, we would have saved €40 million.”

Policymakers and soccer fans alike should take note.

An Uneven Playing Field is a post from Cato @ Liberty - Cato Institute Blog