GM’s long-rumored initial public stock offering will take place Thursday and self-anointed savior of the U.S. auto industry, Steven Rattner, is pretty bullish about the prospect of investors turning out in droves. 

I’ve been saying for a while that I thought the government’s exposure [euphemism for taxpayer losses] in the auto bailout was in the $10-billion to $20-billion range.

But since investor interest has pushed the initial price up from the $26-to-$29 per share range to the $32-$33 range, Rattner now believes:

[T]his exposure is in the single-digit billion range, and arguably potentially better.

I won’t argue with Rattner’s numbers.  After all, they affirm one of my many criticisms of the bailout: that taxpayers would never recoup the value of their “investment.”  My bigger problem is with Rattner’s cavalier disregard for the other enduring—and arguably more significant—costs of the auto bailouts.

Rattner is like the foil in Frederic Bastiat’s excellent, but not-famous-enough, 1850 parable, That Which is Seen and That Which is Unseen.    Rattner touts what is seen, namely that GM and Chrysler still exist.  And they exist because of his and his colleagues’ commitment to a plan to ensure their survival, along with the hundreds of thousands (if not millions, as some “estimates” had it) of jobs that were imperiled had those companies vanished.  (For starters, I very much question even what is seen here. I am skeptical of the counterfactual that GM and Chrysler would have disappeared and that there would have been significantly more job loss in the industry than there actually was during the recession and restructuring.  But I’ll grant his view of what is seen because, frankly, the specifics are irrelevant in the final analysis).

For what is seen, Rattner admirably admits of a cost.  And that cost is not insignificant.  It is anywhere from $65 billion to $82 billion (the range of the cost of the bailout) minus what is being paid back and what investors are willing to pay for GM shares—in the “single-digit billion range,” as Rattner says.  But Rattner is willing to stand by that trade-off, claiming his efforts and the billions in “government exposure” were a small price to pay for saving the U.S. auto industry, as it were.  It’s merely a difference in philosophy or compassion that animates bailout critics, according to this position.

No.  Not so fast.  All along (quite contemptuously in this op-ed, which I criticized here) Rattner has been unwilling to acknowledge the costs that are unseen.  Those unseen costs include:

• the added uncertainty that pervades the private sector and assigns higher risks and thus higher costs to investing and hiring (whom might government favor or punish next?);
• the diversion of resources from productive to political purposes in the business community (instead of buying that machinery to churn out better or more lawn mower engines, better to hire lobbyists to keep Washington apprised of how important we are or how this or that policy might be beneficial to the national employment picture!);
• excessive risk-taking and other uneconomic behavior that falls under the rubric of moral hazard from entities that might consider themselves too-big-to-fail (perhaps, even, the New GM!);
• growing aversion to—and rising cost of—corporate debt (don’t forget what happened to Chrysler’s “preferred” bondholders in the bankruptcy process!);
• the sales and market share that should have gone to Ford or Honda or VW as part of the evolutionary market process;
• the fruitful R&D expenditures of those more disciplined companies;
• the expansion of job opportunities at those companies and their suppliers;
• productivity gains passed on to workers in the form of higher wages or to consumers as lower prices;
• the diminution of the credibility needed to discourage foreign governments from meddling in markets, often to the detriment of U.S. enterprises.

 The list goes on.

 Yet, Rattner, seemingly oblivious to the fact that the economy remains stuck in the mire, speaks triumphantly of the successful auto bailout.  But nobody ever doubted that taxpayer resources in the hands of policymakers willing to push the bounds of legality could “rescue” GM from a fate it deserved.  The concern was that policymakers would do just that, leaving behind wreckage to our institutions not immediately discernible.  But anemic economic activity, 9.6 percent unemployment, and a private sector unwilling to invest is pretty darn discernible at this point.

Rattner should take off the tails, put down the champagne flute, and acknowledge what was originally unseen.

The GM ‘Turnaround’ in Bastiat’s View is a post from Cato @ Liberty - Cato Institute Blog

The Federal Housing Administration is heading toward a taxpayer bailout, yet the president’s latest mortgage modification plan would further increase the agency’s exposure to risky mortgages. Mark Calabria calls it a “Backdoor Bank Bailout.”

The administration’s plan would encourage borrowers who owe more than their house is worth to refinance into FHA-insured mortgages. Therefore, the risk of a future foreclosure on these mortgages would fall to the government and taxpayers instead of private lenders.

A recent study from economists at New York University found that the FHA is underestimating its risk exposure. One of the problems is that the FHA isn’t properly accounting for the risk to underwater FHA mortgages that have been refinanced into new FHA mortgages. So it’s hard to see how the president’s plan to refinance private underwater mortgages into FHA mortgages won’t further exacerbate the situation.

To get these mortgages in better shape so the FHA can insure them, $14 billion in TARP money is going to be used to pay private lenders to reduce the amount borrowers owe on their mortgages. Some of this money will also be used to cover eventual losses on these loans. As a taxpayer whose mortgage is underwater, and who would rather go bankrupt than accept a government handout, I find it infuriating that my tax dollars are being used to bail out others in a similar situation.

But with government housing programs, it’s standard practice for officials to cannonball into the pool and worry about who gets splashed by the water later. On Sunday, CNN.com reported on “FHA’s Florida Fiasco,” where the collapse of the heavily FHA-insured condo market has contributed to the possibility of a FHA bailout. The FHA has now tightened its condo standards, but once again it’s a day late and possibly more than few bucks short.

The new FHA initiative is the latest in a series of efforts to “stabilize” the housing market with more subsidies. Policymakers seem oblivious that it was government interventions that helped instigate the housing meltdown to begin with. The housing market would stabilize itself if the supply of and demand for housing was allowed to be brought back into equilibrium. There would be pain in the short-term, but in the long-term we would have a smoother functioning housing market. Unfortunately, for politicians the long-term means the next election.

Obama to Increase FHA Risk is a post from Cato @ Liberty - Cato Institute Blog

Most international comparisons conclude that America’s health care sector under-performs those of other advanced nations.  Aside from other serious flaws, those studies typically ignore each nation’s contribution to medical innovation — the discovery of new knowledge and practices that improve health in all nations. Today, the Cato Institute releases a new study — the most comprehensive study of its kind — that helps fill that void.

In “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” economist Glen Whitman and physician Raymond Raad conclude that the United States far and away outperforms other nations on medical innovation, but that the legislation moving through Congress threatens America’s ability to innovate.  From the executive summary:

To date…none of the most influential international comparisons have examined the contributions of various countries to the many advances that have improved the productivity of medicine over time…

In three of the four general categories of innovation examined in this paper — basic science, diagnostics, and therapeutics — the United States has contributed more than any other country…In the last category, business models, we lack the data to say whether the United States has been more or less innovative than other nations; innovation in this area appears weak across nations.

In general, Americans tend to receive more new treatments and pay more for them — a fact that is usually regarded as a fault of the American system. That interpretation, if not entirely wrong, is at least incomplete. Rapid adoption and extensive use of new treatments and technologies create an incentive to develop those techniques in the first place. When the United States subsidizes medical innovation, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.

Policymakers should consider the impact of reform proposals on innovation. For example, proposals that increase spending on diagnostics and therapeutics could encourage such innovation. Expanding price controls, government health care programs, and health insurance regulation, on the other hand, could hinder America’s ability to innovate.

Raad will discuss the study this Friday at noon at a policy forum at the Cato Institute.

Will America Keep “Bending the Productivity Curve”? is a post from Cato @ Liberty - Cato Institute Blog

Over at Flypaper, Andy Smarick can’t figure out what the Obama administration thinks is the proper federal role in education.

A couple of weeks ago, commenting on a speech by U.S. Secretary of Education Arne Duncan, Smarick couldn’t tell whether Duncan was advocating that the feds be friendly Helpy Helpertons, no-excuses disciplinarians, or something in between. Yesterday, Smarick revisited the whither-the-feds theme, pointing out the frustrating contradiction when Duncan both praises local and state education control and blasts states for doing stuff he doesn’t like.

But Duncan isn’t alone in his fuzziness, according to Smarick, who says he’s ”yet to come across anyone with a comprehensive, water-tight argument for what the feds should and should not do.”

I’m sure this is not the case, but from reading that you’d think Smarick had never run across a little thing called “the Constitution,” which furnishes just the “water-tight argument for what the feds should and should not do” that he seeks.  It also appears that he’s never encountered numerous things that I’ve written pointing this out. For instance, in Feds in the Classroom I wrote:

Because two of the sundry words that do not appear among the few legitimate federal functions enumerated in the Constitution are “education” and “school,” the federal government may have no role in schooling.

Ah, but what of the “general welfare” clause that comes before the enumerated powers in the Constitution’s Article I, Section 8? Doesn’t that give the feds authority to do anything that is in the nation’s best interest? At the very least, doesn’t it break the water-tight seal against federal education intervention?

Nope. I give you James Madison on the general welfare clause in Federalist no. 41:

For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power? Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars.

The general welfare clause confers no authority on the federal government, it just introduces the specific, enumerated powers that follow it. Among them, you’ll find not a peep about education.

Many educationists will think me hopelessly retrograde for bringing up the Constitution, although Duncan at least mentioned the dusty old document in his recent federalism speech. Unfortunately, he engaged it with all the courage and gusto of Sir Robin. But at least he acknowledged its existence — too many policymakers and wonks ignore the Constitution completely because it forbids Washington from doing the sundry things they want it to do.

But why shouldn’t the Constitution be treated like an ancient grandfather, a nice old guy whose utterances, in a half-hearted effort to be respectful, we acknowledge in the same tone we’d use with a toddler and then promptly ignore?

Because it is the Constitution that clearly establishes the bounds of what the federal government can and cannot do, that’s why! And because when we ignore the Constitution we get exactly the sort of government that is confounding Smarick: government that is capricious, often incoherent, and is ultimately an existential threat to freedom because government officials can claim power without bounds. See TARP, campaign finance, and executive pay for just a few examples of this last threat coming to fruition.

Which leaves all of the people who want Washington to have some role in education, but are frustrated by not knowing what else the feds might do, with only one choice. They can either continue to face inscrutable and ultimately unlimited federal power in hopes of getting what they want, or they can acknowledge what they keep choosing to ignore: That the Constitution is the supreme law of the land, and it gives the federal government no authority to govern American education.

The Constitution? Not That Old Thing! is a post from Cato @ Liberty - Cato Institute Blog

In an effort to achieve “network neutrality” online, the FCC is starting to write new regulations for Internet providers.  Reuters reports:

U.S. communications regulators voted unanimously Thursday to support an open Internet rule that would prevent telecom network operators from barring or blocking content based on the revenue it generates.

The proposed rule now goes to the public for comment until Jan. 14, after which the Federal Communications Commissions will review the feedback and possibly seek more comment. A final rule is not expected until the spring of next year.

Cato Director of Information Policy Studies Jim Harper appeared on Fox News this week to discuss the FCC decision. “This is governmental tinkering with a market place that is working really well and growing right now,” said Harper. “The last thing we need is to cut that off.”

Watch:

There are ways to achieve net neutrality without regulation, says Timothy B. Lee:

An important reason for the Internet’s remarkable growth over the last quarter century is the “end-to-end” principle that networks should confine themselves to transmitting generic packets without worrying about their contents. Not only has this made deployment of internet infrastructure cheap and efficient, but it has created fertile ground for entrepreneurship. On a network that respects the end-to-end principle, prior approval from network owners is not needed to launch new applications, services, or content.

…Like these older regulatory regimes, network neutrality regulations are likely not to achieve their intended aims. Given the need for more competition in the broadband marketplace, policymakers should be especially wary of enacting regulations that could become a barrier to entry for new broadband firms.

Read the whole thing.

Understanding the Consequences of Internet Regulation is a post from Cato @ Liberty - Cato Institute Blog

• More  policymakers coming around to the idea that it is wrong to jail drug users as criminals.

• How Obama’s protectionist policies are hurting the poor.

• More stifling of political speech.

• “Checks and balances” be damned: “In a democratic country, you’d think that before the executive branch could regulate CO2–a ubiquitous substance essential to life–the legislature would have to vote on the issue. But you’d be wrong.” Somewhere, Thomas Friedman is smiling.

• Podcast: Next week marks eight years since the U.S. invaded Afghanistan. It’s time to get out. Read the exit strategy.

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

President Obama’s address to the United Nations General Assembly this morning, and his chairing of the UN Security Council on Thursday, is a grand attempt to tell the world–after eight years of George W. Bush–that the United States will no longer go it alone.

The president has a very difficult task, however, if he expects to invest the United Nations with renewed credibility. The UN is a weak and fractured institution, whose limited power and authority has been steadily undermined by a progression of U.S. presidents, both Democrats and Republicans. We should not forget that President Bill Clinton explicitly circumvented the UN Security Council when he chose to intervene militarily in Kosovo in 1999. Clinton’s evasion of the UNSC established a precedent for future military intervention that the Bush administration happily capitalized upon to send troops into Iraq in 2003.

Susan Rice, our current UN ambassador, endorsed this approach in 2006 when she called for U.S. military action against Sudan. Prior UN approval of such a mission was unlikely, but ultimately unnecessary, Rice argued at the time, because of the precedent set by President Clinton in Kosovo.

For American policymakers who have demonstrated such disdain for the UN in the past to now profess great respect for the institution should not surprise us. The UN is only as relevant as the member states wish it to be. In areas of common concern, the desire to cooperate and compromise may temporarily trump concerns over protecting state sovereignty and preserving freedom of action to deal with urgent security threats. In most cases, however, we can expect the member states, with the United States in the lead, to pursue policies that they believe (not always correctly, as we learned in Iraq) will advance their security. And if the UN weakly sanctions such actions after the fact, or refuses to do so, that will only reveal its irrelevance.

Curb Your Enthusiasm: Americans Should Not Expect Much from Obama’s Visit to the UN is a post from Cato @ Liberty - Cato Institute Blog

• Should more troops be sent to Afghanistan? Cato’s Malou Innocent weighs in alongside the policymakers.

• What does the end of the missile defense system in Central Europe means for U.S.-Russian relations?

• Signals indicate that the market just might be on the rebound. That’s great,  but it’s important not to get ahead of ourselves, says Johan Norberg.  “We must never forget that the light at the end of the tunnel can be an approaching train.”

• A few thoughts on the new rise of the Taliban in Afghanistan, and what it means for Pakistan and India.

• Michael Cannon continues his debate in the LA Times: The dirty little secret is that “Obama-care” isn’t about reducing health care costs or making coverage more secure. It’s about robbing Peter to pay Paul.

• Podcast: If you’d like to see what Obama wants to do to the U.S. health care system, don’t listen to his rhetoric…look at what he’s doing to Medicare.

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

Matt Yglesias has a lot of smart things to say about the pervasive illiteracy plaguing the Afghan National Army. Upwards of 75 to 90 percent (according to varying estimates) of the ANA is illiterate.

As Ted Galen Carpenter and I argue in our recent Cato white paper Escaping the Graveyard of Empires: A Strategy to Exit Afghanistan, this lack of basic education prevents many officers from filling out arrest reports, equipment and supply requests, and arguing before a judge or prosecutor. And as Marine 1st Lt. Justin Greico argues, “Paperwork, evidence, processing—they don’t know how to do it…You can’t get a policeman to take a statement if he can’t read and write.”

Yglesias notes:

This strikes me as an object lesson in the importance of realistic goal-setting. The Afghan National Army is largely illiterate because Afghanistan is largely illiterate…we just need an ANA that’s not likely to be overrun by its adversaries. But if we have the more ambitious goal of created [sic] an effectively administered centralized state, then the lack of literacy becomes a huge problem. And a problem without an obvious solution on a realistic time frame [emphasis mine].

Such high levels of illiteracy serves to highlight the absurd idea that the United States has the resources (and the legitimacy) to “change entire societies,” in the words of retired U.S. Army lieutenant colonel John Nagl. Eight years ago, Max Boot, fellow for National Security Studies at the Council on Foreign Relations, likened the Afghan mission to British colonial rule:

Afghanistan and other troubled lands today cry out for the sort of enlightened foreign administration once provided by self-confident Englishmen in jodhpurs and pith helmets…This was supposed to be ‘for the good of the natives,’ a phrase that once made progressives snort in derision, but may be taken more seriously after the left’s conversion (or, rather, reversion) in the 1990s to the cause of ‘humanitarian’ interventions. [emphasis mine]

But as I highlighted yesterday at the Cato event “Should the United States Withdraw from Afghanistan?” (which you can view in its entirety here), policymakers must start narrowing their objectives in Afghanistan, a point Yglesias stresses above. Heck, as I argued yesterday, rational people in the United States are having difficulty convincing delusional types here in America that Barack Obama is their legitimate president. I am baffled by people who think that we have the power to increase the legitimacy of the Afghan government. It’s also ironic that many conservatives (possibly brainwashed by neo-con ideology) who oppose government intervention at home believe the U.S. government can bring about liberty and peace worldwide. These self-identified “conservatives” essentially have a faith in government planning.

Yet these conservatives share a view common among the political and military elite, which is that if America pours enough time and resources—possibly hundreds of thousands of troops for another 12 to 14 years—Washington could really turn Afghanistan around.

However, there is a reason why the war in Afghanistan ranks at or near the bottom of polls tracking issues important to the American public, and why most Americans who do have an opinion about the war oppose it (57 percent in the latest CNN poll released on Sept. 1) and oppose sending more combat troops (56 percent in the McClatchy-Ipsos survey, also released on Sept. 1). It’s because Americans understand intuitively that the question about Afghanistan is not about whether it is winnable, but whether it constitutes a vital national security interest. An essential national debate about whether we really want to double down in Afghanistan has yet take place. America still does not have a clearly articulated goal. This is why the conventional wisdom surrounding the war—about whether we can build key institutions and create a legitimate political system—is not so much misguided as it is misplaced.

The issue is not about whether we can rebuild Afghanistan but whether we should. On both accounts the mission looks troubling, but this distinction is often times overlooked.

Pervasive Illiteracy in the Afghan National Army is a post from Cato @ Liberty - Cato Institute Blog

The housing boom and bust that occurred earlier in this decade resulted from efforts by Fannie Mae and Freddie Mac — the government sponsored enterprises with implicit backing from taxpayers — to extend mortgage credit to high-risk borrowers. This lending did not impose appropriate conditions on borrower income and assets, and it included loans with minimal down payments. We know how that turned out.

Did U.S. policymakers learn their lessons from this debacle and stop subsidizing mortgage lending to risky borrowers? NO. Instead, the Federal Housing Authority lept into the breach:

The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can’t make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

And what is the result of this surge in FHA insurance?

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

This is madness. Repeat after me: TANSTAAFL (There ain’t no such thing as a free lunch).

C/P Libertarianism, from A to Z

Housing Bailouts: Lessons Not Learned is a post from Cato @ Liberty - Cato Institute Blog

Health care “reformers” (meaning those who want to effectively nationalize America’s medical system) have long understood that their best hope in the new political environment is to ram through legislation with the claim that it is an emergency and won’t wait.  The longer the American people think about the increased cost, decreased choice, and other negative impacts of a a government takeover, the less likely they are to support it.

Thankfully, the government health express has slowed noticeably in recent weeks.  Even supporters are coming to doubt that legislation can be approved before Congress goes home in August.  Reports Politico:

Health care reform proponents are growing pessimistic that they can meet President Barack Obama’s August target for passing a bill — saying the next four weeks must fall together perfectly, without a hitch or a hiccup.

The number of weeks that’s happened recently? Zero.

A series of setbacks has made the task of completing floor votes in both chambers virtually insurmountable, given the plodding pace of the Senate. The official line from the White House and the congressional leadership is it’s possible, but privately, there are a dwindling number of aides who would put money on it.

And without a deal by August, the ripple effects could start to endanger the prospect of health care reform this year altogether — chief among them, the closer it gets to the 2010 midterm elections, the harder it will be to get members to make the toughpolitical decisions needed to vote on a bill.

This is good news.  The U.S. health system needs fixing.  But the more rushed they are, the less likely policymakers are to do the right thing.  We need a medical system that is more responsive to consumers and market forces rather than to political forces and government dictates.

Good News: Health Care Express Slows is a post from Cato @ Liberty - Cato Institute Blog

In this morning’s Washington Post, former Deputy Secretary of Defense Paul Wolfowitz has some advice for the Obama administration regarding the protests in Iran:

[T]he reform the Iranian demonstrators seek is something that we should be supporting. In such a situation, the United States does not have a “no comment” option. Coming from America, silence is itself a comment — a comment in support of those holding power and against those protesting the status quo.

I just did a quick search on www.WhiteHouse.gov, and I did not find the words “no comment” as it pertains to the Iranian elections. I did, however, find two statements on the protests by President Obama:

• Speaking to reporters following a meeting with Italian Prime Minister Silvio Berlusconi on June 15th, President Obama said:

I am deeply troubled by the violence that I’ve been seeing on television.  I think that the democratic process — free speech, the ability of people to peacefully dissent — all those are universal values and need to be respected.  And whenever I see violence perpetrated on people who are peacefully dissenting, and whenever the American people see that, I think they’re, rightfully, troubled.

and

I think it would be wrong for me to be silent about what we’ve seen on the television over the last few days. And what I would say to those people who put so much hope and energy and optimism into the political process, I would say to them that the world is watching and inspired by their participation…

and

[P]articularly to the youth of Iran, I want them to know that we in the United States do not want to make any decisions for the Iranians, but we do believe that the Iranian people and their voices should be heard and respected.

• The following day, the president hosted South Korean President Lee  Myung-Bak. Despite the fact that they had a number of very urgent topics to discuss, President Obama took time to state that while it was “not productive, given the history of U.S.-Iranian relations,” for the U.S. president to be “meddling in Iranian elections,” he wished to repeat his remarks from the previous day:

[W]hen I see violence directed at peaceful protestors, when I see peaceful dissent being suppressed, wherever that takes place, it is of concern to me and it’s of concern to the American people. That is not how governments should interact with their people.

and

I do believe that something has happened in Iran where there is a questioning of the kinds of antagonistic postures towards the international community that have taken place in the past, and that there are people who want to see greater openness and greater debate and want to see greater democracy. How that plays out over the next several days and several weeks is something ultimately for the Iranian people to decide. But I stand strongly with the universal principle that people’s voices should be heard and not suppressed.

So, President Obama has not been silent, and he has never said “no comment.”

Judging from the text of his op-ed, Wolfowitz seems most frustrated that the Iranian election dispute might not prove a precursor to regime change in Iran on par with the overthrow of Ferdinand Marcos in the Philippines in 1986 and the ascension of Boris Yeltsin in Russia in 1991.

Wolfowitz admits that no historical analogy is perfect, but he doesn’t dwell on what really differentiates the overthrow of Marcos in 1986 and the Yeltsin countercoup of 1991 from the situation today in Iran: a pattern of trust and amicable relations on the one hand, and an equally clear pattern of suspicion and hostility on the other.

In 1986, the United States had been supporting the Filipino government for roughly 40 years. No one could have painted Aquino and her spontaneous “people power” protests as the leading edge of a regime-change operation funded and choreographed by the CIA. When Ronald Reagan’s personal emissary, Sen. Paul Laxalt, communicated with Marcos privately, the message was crystal clear: time’s up.

In a similar vein, George H.W. Bush’s close ties to Mikhail Gorbachev, painstakingly cultivated for several years, built an atmosphere of trust that extended beyond Gorbachev’s personal circle of advisers. The United States had not been engaged during the Bush adminstration — and not even during the closing days of the Reagan administration, for that matter — in attempting to overthrow the Soviet government. The collapse came from within. When the counter-counter-revolutionaries attempted to take back power, Yeltsin never feared being tarred as an agent for the West. Instead, he sought out and embraced U.S. support. And yet, the most important communications between Washington and Moscow were conducted in private.

Contrast this conduct with what the neocons have done and would have us do. The Reagan and first Bush administrations engaged in “diplomacy”: back-channel communications, moral suasion, gentle pressure. The neocons have painstakingly sought to destroy the very concept, equating “diplomacy” with “appeasement.” Having succeeded in thwarting efforts to resolve the stand-off with Iraq by peaceful means, they got their war, and now they’ve moved on. They have since drifted off to the private sector and friendly think tanks from whence they can write op-eds on what to do next.

In truth, their efforts began years ago.

Mere weeks after the United States invaded Iraq, Richard Perle said publicly of neighboring Iran and any other country who would dare to oppose the United States: “You’re next.” Behind the scenes, the Iranians are reported to have approached the Bush administration in the spring of 2003 with an offer to negotiate an end to their nuclear program in exchange for normalized relations (Nicholas Kristof posted the docs on the NYT blog).

The Bush administration’s response? “No comment.” Instead, they effectively let Richard Perle do the talking for them. Within a few years, the small circle of reformers who had been willing to reach out to the United States were gone from power, replaced by Holocaust-denier Mahmoud Ahmadinejad.

Since then, pro-democracy advocates in Iran have had a simple message for the Americans who purport to be their saviors: butt out. Most notable among this group is Nobel-laureate Shirin Ebadi, who has been outspoken in calling the elections a fraud, but has been equally clear in urging American leaders not to anoint the Iranian reform movement as America’s choice. Ebadi has praised Obama’s approach. A more outspoken, or even hostile, posture by Washington would certainly evoke a counterreaction among fiercely nationalistic Iranians.

In short, the louder the neocons become in their braying for a free and fair counting of the election results, the less likely it is to occur. In their more candid moments, a few are willing to admit that they would prefer Ahmadinejad to Mousavi.

Before the election, Daniel Pipes told an audience at the Heritage Foundation (starting at 1:29:26 in the clip), “I’m sometimes asked who I would vote for if I were enfranchised in this election, and I think I would, with due hesitance, vote for Ahmadinejad.”

The reason, Pipes explained, is that he would “prefer to have an enemy who’s forthright and blatant and obvious, who wakes people up by his outlandish statements, than a slier version of that same policy as respresented by” Mousavi. “If you get someone…who is saying the nice things that people want to hear, then there’ll be a relaxation, which would be the wrong step for us.”

Max Boot sees things in a similar light. “In an odd sort of way,” wrote Boot on Commentary blog last Sunday:

[A] win for Ahmadinejad is also a win for those of us who are seriously alarmed about Iranian capabilities and intentions. With crazy Mahmoud in office — and his patron, Ayatollah Khameini, looming in the background — it will be harder for Iranian apologists to deny the reality of this terrorist regime.

This does make sense, “in an odd sort of way” — if that is all you care about. Mousavi, for example, was instrumental in restarting Iran’s nuclear program (it had been initiated by our ally the Shah in the 1970s). It would be logical to guess, therefore, that he won’t willingly give it up.

And given that he doesn’t carry Admadinejad’s baggage, he might be more capable of convincing outside powers to normalize relations with Iran, and to allow his country to continue with a peaceful uranium enrichment program in exchange for a pledge not to weaponize. This must frighten those who refuse to countenance an Iranian nuclear program on par with that of, for example, Japan.

Perhaps that is what this loud talk is really all about?

It is possible to view President Obama as a more credible messenger, given that he opposed the Iraq war from the outset and has shown a willingness to reach out to the Iranian people. Perhaps a full-throated, morally self-righteous, public address in support of Mousavi’s supporters might have tipped the scales in the right direction.

It seems more likely, however, that Obama’s patient, measured public response to recent events is well suited to the circumstances. As the president said earlier this week, Americans are right to feel sympathy for the Iranian protesters, and we should all be free to voice our sentiments openly. But it is incumbent upon policymakers to pursue strategies that don’t backfire, or whose unintended consequences don’t dwarf the gains that we are trying to achieve. In many cases, the quiet, private back channel works well. And if we discover that there is no credible back channel to Iran available, similar to those employed in 1986 and 1991, then we’ll all know whom to blame.

Who Said “No Comment”? is a post from Cato @ Liberty - Cato Institute Blog

Will Obama Raise Middle-Class Taxes to Fund Health Care?

President Obama is promoting an expansion in federal health care spending, and Democratic leaders are scrambling to find ways to pay for it. The plan is expected to cost about $1.5 trillion over the next decade, but the administration has promised that health care legislation won’t add to already huge federal budget deficits. In a new paper, Cato scholars Michael D. Tanner and Chris Edwards argue that expanding government health care will likely involve huge tax increases on the middle class.

Tanner warns of “Obamacare” to come, saying that Obama’s new health care plan will give “government control over one-sixth of the U.S. economy, and over some of the most important, personal, and private decisions in Americans’ lives.” Don’t miss Tanner’s in-depth analysis of the new health care plan that is making its way through Congress, which “would dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients.”

A part of the plan would include “public option” (read: government-run) health care, which would allow the government to compete against private health care providers. Tanner says it would be the first step toward wiping out the private insurance market as we know it:

Regardless of how it is structured or administered, such a plan would have an inherent advantage in the marketplace because it would ultimately be subsidized by taxpayers. It could, for instance, keep its premiums artificially low or offer extra benefits, then turn to the U.S. Treasury to cover any shortfalls. Consumers would naturally be attracted to the lower-cost, higher-benefit government program.

…It is unlikely that any significant private insurance market could continue to exist under such circumstances. America would be firmly on the road to a single-payer health care system with all the dangers that presents. That would be a disaster for American taxpayers, physicians, and—most importantly—patients.

Treasury Seeks to Control Executive Pay Across the Private Sector

Fox Business reports, “The Treasury Department on Wednesday took new steps to rein in executive compensation, saying the Obama Administration would introduce legislation that could create stricter limits on pay; it also appointed an official to head up efforts on the issue.”

In a 2008 Policy Analysis Ira T. Kay and Steven Van Putten explain the misconceptions many people have about executive pay, and why the market is a better arbiter than any bureaucrat in Washington:

Such populist sentiments are often based on misunderstandings about the role of corporate executives in the economy and the vigorous competition that exists for these highly skilled leaders. In the past, federal regulatory efforts based on such misunderstandings have generated unintended consequences, which have damaged the economy and hurt the ability of the market for executives to self-regulate over time.

The labor market for executives and the associated pay levels are already subject to high levels of regulation. Indeed, U.S. corporations are subject to more stringent executive pay disclosure requirements than corporations anywhere else in the world. Before additional regulatory and legislative efforts are unleashed, policymakers should examine the rationale for current pay structures and the strong links between executive pay and corporate performance.

In a Washington Times op-ed, Alan Reynolds says efforts to cap executive pay are wholly misguided:

Congressional hearings to barbecue Wall Street executives are as fun as a circus, but with more clowns. Presidential politics is now taking such political distractions to a lower level.

…Most top executives who were actually in charge during the craze of overinvestment in mortgage-backed securities have been fired. Executives who are fired are not in a position to be “giving themselves” anything.

In reality, top executives are mainly paid by accumulating a big stockpile of company stock and stock options. Estimates of annual CEO pay that Congress and the press have been focusing on look as high as they do only because of the high value of restricted stock or stock options at the time.

Writing in 2007 (before the first round of major bailouts), Cato scholars Jerry Taylor and Jagadeesh Gokhale took it a step further: “Pay Bosses More!”:

Excessive executive compensation harms no one but perhaps the stockholders who put up with it. And stockholders put up with it because there’s good reason to believe that sizable CEO compensation packages help — not harm — corporate performance, which redounds to their benefit, and that of the firms’ workers.

Companies pay workers what they must to deliver their products and services to the market, and supply and demand establishes executive compensation packages the same way it establishes consumer prices. Any overcompensation comes out of the firm’s bottom line — at a loss to the shareholders, not the workers.

North Korea Sentences Two U.S. Journalists to 12 Years Hard Labor

Two American journalists were convicted of entering North Korea illegally while on assignment, and exhibiting “hostility toward the Korean people.” This week, a North Korean court sentenced them to 12 years in a labor prison.

Cato scholar Doug Bandow comments:

Washington should publicly downplay the controversy and present the issue to the Kim regime as a humanitarian matter. The Obama administration should indicate its willingness to open a broader dialogue with North Korea, but indicate that positive results will be possible only if Pyongyang responds with cooperation instead of confrontation. Releasing the two journalists obviously would provide evidence of the former.

Regrettably, Laura Ling and Euna Lee are political pawns. As such, Washington’s best strategy to achieve their release is to simultaneously reduce their perceived value to Pyongyang and ease tensions between the U.S. and North Korea. Patience may be the Obama administration’s highest virtue and Ling’s and Lee’s greatest hope.

In a Cato Daily Podcast, Bandow discusses what can be done for the American prisoners, and how the U.S. government should react.

Week in Review: Health Care Battles, Pay Caps and North Korean Prisoners 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

My colleague Chris Edwards made a good point yesterday in his post on the injustice of federal subsidies.  The wrangling between the states to haul in the federal largesse is wasteful, and getting worse.  But the underlying issue in the article Chris cites — a state using taxpayer money to lure a company away from another state — is another wasteful activity that is all too common.

Instead of competing with other states to attract industry by lowering taxes and reducing regulations, it seems most state governors prefer a politically opportunistic method I call “press release economics.”  Here’s how it works:

A state “economic development” agency offers an out-of-state company (or even an out-of-country company) tax breaks and/or direct subsidies to locate some or all of its business operations in that state.  Most likely, the business would have located there anyhow due to myriad factors including demographics, transportation logistics, and workforce capabilities.  Sometimes several states will engage in a “bidding war” to get a business to set up shop within their borders.  The governor of the “winning” state will then issue a press release citing the new jobs and capital his administration has just brought to the state.  The locating company usually tells the press that the winning state’s package helped seal the deal.  The company and the governor’s press staff then typically arrange a photo-op at an orchestrated ground-breaking ceremony for the new facilities.

If a state is already bleeding jobs, as is often the case in the current economy, such press releases and photo-ops can be a political coup.  Moreover, the governor will have given up, or foregone, relatively little in tax revenue in comparison to, say, cutting the state corporate income tax.  This also leaves the governor with more money to spend on various vote-buying programs. I’m picking on governors, but the legislature generally prefers the press-release economics route for similar reasons.  And if you’re a governor, why risk the headache of engaging the legislature in a fight over reducing corporate taxes, unemployment taxes, or any other tax — including personal income taxes and sales taxes — that effect industry when you can take the easy win?

Am I too cynical?  Actually, I had first-hand experience with this issue when I worked in state government.  My suggestion that the governor eliminate or reduce the state’s high corporate income tax rate, and “pay for it” — at least in part — by getting rid of the state’s corporate welfare apparatus, was routinely ignored for the reasons I cited above.  That one would be hard-pressed to find support among the economics profession for the state corporate welfare give-away game means little to the majority of policymakers and their minions who naturally favor short-term political gain over long-term economic gain.  That other companies already located within the state are stuck paying the regular tax rate, and are thus put at a competitive disadvantage, is a secondary or non-concern as well.

Another issue that I won’t delve into here is the fact that these giveaways often blow up in a state’s face when the locating company ends up not producing the jobs it promised and/or it relocates to another state or country after pocketing the free taxpayer money.  Anyhow, journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.”  Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.

Note: South Carolina Gov. Mark Sanford proposed late last year to do exactly what I recommended: eliminate the state’s corporate income tax, offset in part by the elimination of corporate tax incentives.  There is hope.

Injustice of State Subsidies is a post from Cato @ Liberty - Cato Institute Blog

A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases.  Today, the House Republican leadership released a list of proposed spending cuts.

I’d love to say I’m impressed, but I can’t.

Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.

The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.

First, it should be cut — period.  Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture.  At least, defense spending, which is almost entirely discretionary, should be included in any cap.  But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.

The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out.  That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.

According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years.  Like the specific cuts in the president’s proposal, they’re all good cuts.  But the president detailed $17 billion in cuts for one year and I generously called it “measly.”  What am I to call the House Republican leadership specifying $5 billion a year in cuts?

Take for example, proposed cuts to the Department of Housing and Urban Development (HUD), which is likely to spend around $65 billion this year.  Having recently spent a couple months analyzing HUD’s past and present, I can state unequivocally that it’s one of the sorriest bureaucracies the world has ever seen.  Yet, the House Republican leadership comes up with only one proposed elimination: a $300,000 a year program that gives “$25,000 stipends for 12 students completing their doctoral dissertation on issues related to housing and urban development.”  The only other proposed cut to HUD would be $1.7 billion over five years to the Community Development Block Grant (CDBG) program.  This notoriously wasteful program is projected to spend over $8 billion this year alone.  Eliminate it!

The spending cuts the country needs must be substantial, serious, and put forward in the spirit of recognizing that the federal government’s role in our lives must be downsized.  Half-measures are not enough, and from the Republican House leadership, wholly insufficient for winning back the support of limited-government voters who have come to associate the GOP with runaway spending and debt.  For a more substantive guide to cutting federal spending, policymakers should start with Cato’s Handbook chapter on the subject.

The GOP Is Not Serious about Cutting Down Spending is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post writes about how President Obama became obsessed with grabbing our complex energy systems by the scruff of the neck and shaking them into something more appealing to Ivy League planners. I was struck by this vignette:

But even before the late-night session in July, Obama had begun to educate himself about energy and climate and to use those issues to define himself as a politician, say people who have advised him. He read a three-part New Yorker series on climate change, for instance, and mentioned it in three speeches.

It’s great that he read a three-part series in the New Yorker. But has the president ever actually read anything by a climate change skeptic? Actually, a better term would be “a climate change moderate.” Leading “skeptic” Patrick J. Michaels, for instance, of Cato and the University of Virginia, isn’t skeptical about the reality of global warming. His summary article in the Cato Handbook for Policymakers begins:

Global warming is indeed real, and human activity has been a contributor since 1975.

But he also notes that climate change is complex, and its policy implications are at best unclear. “Although there are many different legislative proposals for substantial reductions in carbon dioxide emissions, there is no operational or tested suite of technologies that can accomplish the goals of such legislation.” The flawed computer models on which activists rely cannot reliably predict the future course of world temperatures. The apocalyptic visions that dominate the media are not based on sound science. The best guess is that over the next century there will be very slight warming, without serious implications for our environment our society. Michaels’s closing appeal to members of Congress would also apply to President Obama and his advisers:

Members of Congress need to ask difficult questions about global warming.

Does the most recent science and climate data argue for precipitous action? (No.) Is there a suite of technologies that can dramatically cut emissions by, say, 2050? (No.) Would such actions take away capital, in a futile attempt to stop warming, that would best be invested in the future? (Yes.) Finally, do we not have the responsibility to communicate this information to our citizens, despite disconnections between perceptions of climate change and climate reality? The answer is surely yes. If not the U.S. Congress, then whom? If not now, when? After we have committed to expensive policies that do not work in response to a misperception of global warming?

Please, President Obama — in addition to the lyrical magazine articles on the apocalyptic vision that you read, please read at least one article by a moderate and widely published climatologist before rushing into disastrously expensive policies.

Obama’s Energy Reading is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post reports that there is growing interest among politicians for a form of national sales tax known as the value-added tax (VAT). But rather than use the VAT to replace the income tax, the politicians want a new source of revenue to expand the burden of government. The story explains:

With… President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need… At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate. “There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.” …”While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers,” said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag. Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book “Health Care, Guaranteed.” Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT. “Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan.

Not surprisingly, the Washington Post did not bother to quote any free-market people who oppose giving politicians a new source of money. For what it is worth, I wrote a piece for National Review in 2005 that explains why a VAT is a terrible idea. The core arguments are just as relevant today as they were then:

A VAT might have some theoretically attractive features, but it is a perniciously effective way of raising revenues and inevitably leads to bigger government. The best evidence comes from Europe. Back in the mid-1960s, the burden of government in Europe wasn’t that much higher than it was in the United States. Tax revenues consumed about 30 percent of gross domestic product in Europe. The U.S. had a small advantage: The tax burden, including state and local governments, was about 27 percent of GDP. But then European governments started adopting the VAT. Denmark was the first to do so in 1967. France and Germany followed, with many other European nations imposing the tax within 5 years. For politicians, the VAT was great news. Besides being a new source of revenue, the VAT has been a disturbingly easy tax to increase since it’s built into the price of products and hidden from consumers. Moreover, even small increases generate a big pile of revenue because the tax base is so broad. The tax has become so easy to raise that VAT rates in Europe average more than 20 percent. For taxpayers, however, the news has been disastrous. Thanks to this levy, the burden of government in Europe today is much higher than it is in the U.S. On average, taxes consume about 41 percent of Europe’s economic output. While other taxes have also climbed, the VAT certainly has helped finance the explosion of social welfare spending that creates such a drag on European economies. In the U.S., by contrast, the total tax burden as a share of GDP is about where it was 40 years ago — 27 percent… Many European governments…claimed that more destructive taxes would be reduced or repealed once the VAT was implemented. In the short term, this was true: As late as 1975, taxes on income and profits were lower in the EU than they were in the U.S. But this was a transitory phenomenon. Income-tax rates quickly began climbing and almost immediately jumped above U.S. levels. Ironically, the VAT facilitated higher tax rates on income since politicians often argued that a higher VAT had to be accompanied by higher income-tax burdens to ensure the tax burden wasn’t being shifted to lower-income taxpayers. There is only one scenario that would make a VAT acceptable. If U.S. lawmakers were willing to repeal the 16th Amendment and abolish all taxes on income, a VAT would be an acceptable risk. But until that happens, taxpayers should vigorously resist the Europeanization of America.

Greedy Politicians Intrigued by Value-Added Tax to Finance European-Style Welfare State in America is a post from Cato @ Liberty - Cato Institute Blog

It has long been recognized that many capitalists are the greatest enemies of capitalism.  They want free enterprise for others, not themselves.

Unfortunately, organized labor tends to be even more statist in orientation.  Unions now routinely lobby for government to give them what they cannot get in the marketplace.

Labor influence is greatest in the public sector.  And as government’s power has expanded during the current economic crisis, so has the influence of unions.  Observes Steve Malanga in the Wall Street Journal:

Across the private sector, workers are swallowing hard as their employers freeze salaries, cancel bonuses, and institute longer work days. America’s employees can see for themselves how steeply business has fallen off, which is why many are accepting cost-saving measures with equanimity — especially compared to workers in France, where riots and plant takeovers have become regular news.

But then there is the U.S. public sector, where the mood seems very European these days. In New Jersey, which faces a $3.3 billion budget deficit, angry state workers have demonstrated in Trenton and taken Gov. Jon Corzine to court over his plan to require unpaid furloughs for public employees. In New York, public-sector unions have hit the airwaves with caustic ads denouncing Gov. David Paterson’s promise to lay off state workers if they continue refusing to forgo wage hikes as part of an effort to close a $17.7 billion deficit. In Los Angeles County, where the schools face a budget deficit of nearly $600 million, school employees have balked at a salary freeze and vowed to oppose any layoffs that the board of education says it will have to pursue if workers don’t agree to concessions.

Call it a tale of two economies. Private-sector workers — unionized and nonunion alike — can largely see that without compromises they may be forced to join unemployment lines. Not so in the public sector.

Government unions used their influence this winter in Washington to ensure that a healthy chunk of the federal stimulus package was sent to states and cities to preserve public jobs. Now they are fighting tenacious and largely successful local battles to safeguard salaries and benefits. Their gains, of course, can only come at the expense of taxpayers, which is one reason why states and cities are approving tens of billions of dollars in tax increases.

The government’s increased power over the economy also gives organized labor a new hook to lobby for more special interest privileges.  For instance, the AFL-CIO is arguing that the federal bailout of the auto industry should bar the companies from moving factories overseas.

Explains the union federation:

The pundits and politicians inside the Washington Beltway don’t get: If the United States continues to send its manufacturing jobs [1] overseas—as [2] General Motors and Chrysler are now proposing—the result will be more low-income U.S. families.

So today, workers, economists, academics and business and union leaders, fresh from the “[3] Keep It Made in America” bus tour through the nation’s heartland, brought that message to the policymakers’ doorstep as part of a teach-in on Capitol Hill.

The 11-day, 34-city bus tour showcased the ripple effect on communities of the lost jobs in manufacturing. ([4] See video.) Today, during the teach-in, those who took part brought the stories they heard along the tour and presented principles for revitalizing the auto industry to members of Congress and the press. 

Labor officials have been making similar arguments about bank lending.  If you got bailed out by Washington, then you have an obligation to keep funding bankrupt concerns.  Never mind getting paid back, and paying back the taxpayers.

Markets are resilient, but can survive only so much political interference.  If the American people aren’t careful, they might eventually find themselves living in an economy more appropriate for Latin America than North America.

Labor’s Waxing Political Influence is a post from Cato @ Liberty - Cato Institute Blog

White House Official Says Government Will Stop Using Term ‘War on Drugs’

The Wall Street Journal reports that White House Drug Czar Gil Kerlikowske is calling for a new strategy on federal drug policy and is putting a stop to the term “War on Drugs.”

The Obama administration’s new drug czar says he wants to banish the idea that the U.S. is fighting ‘a war on drugs,’ a move that would underscore a shift favoring treatment over incarceration in trying to reduce illicit drug use…. The Obama administration is likely to deal with drugs as a matter of public health rather than criminal justice alone, with treatment’s role growing relative to incarceration, Mr. Kerlikowske said.

Will Kerlikowske’s words actually translate to an actual shift in policy? Cato scholar Ted Galen Carpenter calls it a step in the right direction, but remains skeptical about a true change in direction. “A change in terminology won’t mean much if the authorities still routinely throw people in jail for violating drug laws,” he says.

Cato scholar Tim Lynch channels Nike and says when it comes to ending the drug war, “Let’s just do it.” In a Cato Daily Podcast, Lynch explained why the war on drugs should end:

Cato scholars have long argued that our current drug policies have failed, and that Congress should deal with drug prohibition the way it dealt with alcohol prohibition. With the door seemingly open for change, Cato research shows the best way to proceed.

In a recent Cato study, Glenn Greenwald examined Portugal’s successful implementation of a drug decriminalization program, in which drug users are offered treatment instead of jail time. Drug use has actually dropped since the program began in 2001.

In the 2009 Cato Handbook for Policymakers, David Boaz and Tim Lynch outline a clear plan for ending the drug war once and for all in the United States.

Help Wanted: Supreme Court Justice

Justice David Souter announced his retirement from the Supreme Court at the end of last month, sparking national speculation about his replacement.

Calling Souter’s retirement “the end of an error,” Cato senior fellow Ilya Shapiro makes some early predictions as to whom President Obama will choose to fill the seat in October. Naturally, there will be a pushback regardless of who he picks. Shapiro and Cato scholar Roger Pilon weigh in on how the opposition should react to his appointment.

Shapiro: “Instead of shrilly opposing whomever Obama nominates on partisan grounds, now is the time to show the American people the stark differences between the two parties on one of the few issues on which the stated Republican view continues to command strong and steady support nationwide. If the party is serious about constitutionalism and the rule of law, it should use this opportunity for education, not grandstanding.”

Obama Pushing for Credit Card Regulation

President Obama has called for tighter regulation of credit card companies, a move that “would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18,” according to CBSNews.com.

But Cato analyst Mark Calabria argues that this is no time to be reducing access to credit:

We are in the midst of a recession, which will not turn around until consumer spending turns around — so why reduce the availability of consumer credit now?

Congress should keep in mind that credit cards have been a significant source of consumer liquidity during this downturn. While few of us want to have to cover our basic living expenses on our credit card, that option is certainly better than going without those basic needs. The wide availability of credit cards has helped to significantly maintain some level of consumer purchasing, even while confidence and other indicators have nosedived.

In a Cato Daily Podcast, Calabria explains how credit card companies have been a major source of liquidity for a population that is strapped for cash to pay for everyday goods.

Week in Review: The War on Drugs, SCOTUS Prospects and Credit Card Regulation is a post from Cato @ Liberty - Cato Institute Blog