Some Context on Pentagon Spending

General David Petraeus and Brookings Fellow Michael O’Hanlon recently took to the Wall Street Journal to assure the American people that, despite sequestration, there is no military readiness crisis. A few days later, Thomas Donnelly and Roger Zakheim published a rebuttal in the National Review claiming that the challenges of too few personnel and aging, overextended equipment induced a “wasting disease.” They alleged that the size of the defense budget was a misleading statistic without context.

So, here’s some context. After a rapid demobilization following World War II, the United States slowly rebuilt its forces to balance against the Soviet Union. Spending remained far above pre-World War II levels for the remainder of the decades-long conflict, and ever since. The Pentagon budget averaged $462 billion from 1948–1990 (in FY2017 dollars), with notable spikes for the Korean War, Vietnam War, and the Reagan build up in the 1980’s (See Figure 1). With the end of the Cold War, we see a fairly steep decline in military spending during the H.W. Bush and Clinton years. In the aftermath of the 9/11 terrorist attacks, the reductions of the 90s gave way to much larger Pentagon budgets, as the George W. Bush administration embarked on the wars in Afghanistan and Iraq. Defense spending during the early years of the Obama administration remained above $750 billion as the president ramped up the war in Afghanistan while working to end the war in Iraq. In constant, 2017 dollars, annual Pentagon spending during Bush 43’s eight years in office averaged $612 billion; under Obama, the average is $675 billion (See Figure 2).

One side-note regarding the grouping by presidential administration: Taken alone, the picture can be misleading, in that Reagan inherited Carter’s final budget, Clinton inherited H.W. Bush’s, etc. And, besides, Congress, not any single president, makes the final decision on what the government spends. It is also true, however, that Congress has typically deferred to presidential preferences, particularly when it comes to military spending. Had Clinton wanted more, he likely would have gotten it (and did, starting in 1999); Obama, meanwhile, could have requested less (and, eventually, did). Those variations within four- or eight-year terms get lost in a graph that lumps all the years together in one fat bar for each president.

With respect to whether current spending levels are far too low, far too high, or somewhere in between, the Budget Control Act (BCA) of 2011 and its threat of sequestration tried to rein in spending on both defense and non-defense discretionary spending, but has been only partly successful. Congress has found ways around the defense caps, in part by funneling extra money to the base budget through the Overseas Contingency Operations (OCO) account, which is exempted under the BCA. And, under the BCA caps revised late last year, estimated military spending would average at least $551 billion from 2017 to 2021 (.pdf, see page 15) – and likely more than that if Congress doesn’t kick its OCO addiction. That’s 28 percent higher than in 2000, and 19 percent higher than the Cold War average.

In short, if there is a readiness gap, it’s not due to lack of funding. The BCA, by itself, has not resulted in significant cuts in military spending. In inflation-adjusted dollars, we spend more today than during the average Cold War year, and more than we spent at the start of the War on Terror. It would appear that we are mostly getting less “bang for our buck” than during previous generations.

In Marijuana Policy, States Lead the Way

This November’s election could be a decisive turning point in the struggle to end U.S. marijuana prohibition. ​It’s been a long time coming.

As recently as the 90s, every major political faction was squarely in favor of prohibition. Only drug-addled hippies and libertarians thought otherwise. With just a few honorable exceptions, every significant public intellectual supported prohibition too. We libertarians walked a lonely road, patiently pointing out prohibition’s high costs and doubtful benefits. In some ways we’re still alone, because we certainly wouldn’t stop with marijuana. But let’s consider what progress we’ve made.

In November’s election, five states – Arizona, California, Maine, Massachusetts, and Nevada – may each legalize recreational marijuana for adults. State-level opinion polling is notoriously unreliable, but so far it’s favorable in Maine and Nevada​, and overwhelmingly favorable in California. It’s unfavorable in Arizona and Massachusetts, though the Massachusetts poll only asked a generic marijuana legalization question and did not reference the specific initiative. If recent history is any guide, things look good for this November: Of the seven legalization initiatives offered to voters since 2012, five have passed, in Alaska, Colorado, Oregon, Washington, and Washington DC.

Things look especially good in California, which is poised to be a nationwide gamechanger. ​​California’s Proposition 64 is up by almost a 2:1 margin​, and​ the Los Angeles Times predict​s​ passage as well. If ​Prop 64​ does pass, the statewide implementation of a generous recreational pot regime – in the nation’s most populous state – is sure to have some significant economic and regulatory effects.​ It could hardly do otherwise.​

Some nationwide economic effects of legalization have already been seen. Marijuana prices nationwide have flattened or declined as new large-scale suppliers have come online. Seasonal price fluctuations seem to be disappearing as growers increasingly work in the open. And still-illegal Mexican growers have had to abandon marijuana because they can’t compete with the domestic ​free market, small as it​ still​ is.

And again, California is no ordinary state; already it produces more marijuana than Mexico – and by one estimate it​s medical marijuana regime​ grows nearly half the total legal U.S. production. And​ that’s ​before the near-certain growth of the industry in a recreational regime.

All this suggests that when California goes fully legal, the federal ​government ​will ​have to react somehow. ​The DEA has​ been reluctant to reschedule cannabis so far, but already many activists are dismissing the DEA’s Schedule I classification as irrelevant. Rob Kampia of the Marijuana Policy Project writes:

State and federal laws are simply two coexistent systems. But 99 percent of all marijuana arrests are made under state and local laws, not federal law. There simply aren’t enough DEA agents and other federal enforcers to wage an inclusive war on marijuana users, and the federal government cannot require states to enforce federal law on behalf of the federal government…

So we don’t really care whether marijuana is in Schedule I or II. In fact, my organization and other advocates of marijuana legalization don’t desire rescheduling, but rather the removal of federal penalties for marijuana and, furthermore, an explicit recognition that states should be able to determine their own policies without federal interference.

As more and more states legalize, that Schedule I classification looks more and more ridiculous.​ Soon the federal government may have to decide whether to follow the states – and the will of the people – or whether to crack down on legalization. But as time goes on, cracking down looks more and more illegitimate, and inaction looks more and more like a joke. Something’s got to give.

America’s Allies Deserve to be Disturbed

America collects allies like Americans collect Facebook friends. As a result, Washington defends more than a score of prosperous European states, several leading Asian nations, and a gaggle of Middle Eastern regimes.

Yet most of the countries on the Pentagon dole appear to be perpetually unhappy, constantly demanding reassurance of Washington’s love. Their sense of entitlement exceeds that of the typical trust fund baby.

As a result, the U.S. is expected to protect virtually every prosperous, populous, industrialized nation. But that’s just a start. Washington also must coddle and otherwise placate the same countries.

Once great powers, they now believe it to be America’s duty to handle their defense. Alas, U.S. officials are only too willing to enable this counterproductive behavior.

Except for Donald Trump.

There is much to say about his candidacy, most of it bad. Nevertheless, he’s right not to be interested in reassuring allies.

Which has horrified the gaggle of well-to-do nations on America’s defense dole. For instance, the New York Times reported “an undercurrent of quiet desperation” among European officials. They went to Hillary Clinton’s campaign begging for, yes, reassurance!

As for Washington’s major Asian defense dependents, Bloomberg explained that they found Trump’s views “baffling.” The South Korean newspaper JoongAng Daily proclaimed itself to be “dumbfounded.”

Alas, both Republicans and Democrats rushed to promise well-heeled allies that they shouldn’t lose any sleep over Trump’s message, that nothing will change. Indeed, the Times reported European leaders visiting the Democratic convention, where they found the message “soothing.”

Washington officials have lost sight of why America should participate in an alliance. Alliances should be a means to an end.

Their purpose is to increase American security. They aren’t particularly useful where there’s no significant threat to the U.S., Washington can easily deter any adversary on its own, and/or America’s friends are capable of protecting their own interests. Which is the case for most U.S. allies today.

Common Core? Agency Fees? No Thanks!

Yesterday the 10th annual Education Next survey of American opinion on K-12 education came out, and right away Jason Bedrick deftly distilled the school choice findings. I want to quickly discuss two other, ripped-from-the-headlines subjects: opinion on the Common Core national curriculum standards, and agency fees charged to teachers who don’t want to join a union.

As perhaps reflected in the latest version of the Elementary and Secondary Education Act—the recently enacted Every Student Succeeds Act (ESSA)—many Americans across the ideological spectrum are none too pleased with the Common Core, which the ESSA goes so far as to mention by name as off limits to further federal coercion. According to the survey, federal politicians read the tea leaves correctly when they took off against the Core. Despite the survey using a wording likely to bias respondents in favor of the Core—saying it will be used “to hold schools accountable for their performance”—the general public was evenly split: 42 percent supportive and 42 percent against. Even more telling has been the Core’s trajectory since first being addressed in the 2012 survey. The trend data do not include people who were neutral on the Core, but among those who offered opinions for or against, support plummeted from 90 percent to just 50 percent.

That said, the survey’s overall message is not entirely hopeful if you aren’t fond of centralized standards and testing. Among other things, 55 percent of the general public supports generic, identical state standards in reading and math used “to hold public schools accountable for their performance.” Of course, that wording makes it impossible to know if respondents are mainly reacting to uniform standards, accountability, or both, but the uniformity inclination does not bode well for fans of local control of public schools. Then again, the public opinion trajectory is similar to what we saw when the Common Core was mentioned by name: support dropped from 92 percent of people who offered an opinion in 2012, to 66 percent today.

Did Welfare Reform Increase Naturalizations?

The 1996 Welfare Reform Act (PRWORA) made it more difficult for non-citizens to access means-tested welfare benefits.  However, that law also allowed states to use their own funds to extend means-tested welfare benefits to non-citizens and some took advantage of this.  After 1996, the only sure-fire way for a non-citizen to get welfare benefits was to naturalize and become a citizen. 

Twelve states did not change non-citizen eligibility for four large welfare programs (TANF, SNAP Medicaid, and SSI) in response to PRWORA while the other 39 states and the District of Columbia became more restrictive.  If non-citizens responded to welfare reform by naturalizing in order to gain access to benefits then there would be a larger increase in naturalizations in states with more restrictive post-PRWORA policies.  The evidence bears this out for immigrants based on country of origin.  The state by state evidence is more mixed. 

I then compared the increased percent in the number of naturalizations per state from the 1993-1995 period (first period) to the 1997-1999 period (second period).  Unfortunately, the 1996 data is unusable because some of it is unavailable and computer problems delayed naturalizations for that year, causing a 100 percent drop off in some states that had nothing to do with welfare reform.    

Massachusetts to Impose Tax on Ride-Hailing Companies to Subsidize Their Traditional Taxi Competitors

Republican Governor Charlie Baker recently signed statewide regulations for ride-hailing platforms like Lyft and Uber and this package has the ignominy of including “a subsidy that appears to be the first of its kind in the United States,” as Reuters calls it. This comes in the form of a new 5-cent per trip tax on ride-haling companies that will be funneled to the traditional taxi company. This is part of the total 20-cent per trip fee with the rest of the revenues being split between local governments and the state transportation fund.

There are approximately 2.5 million rides per month in Massachusetts just through Uber and Lyft, with more coming through other, smaller ride-hailing companies.  This means that the 5-cent tax and subsidy will transfer at least $1.5 million to traditional taxi companies each year, and likely much more as the total number of ride-hailing trips continues to rise in the coming years.

As it is written now the “taxi tax,” as Brittany Hunter has dubbed it, is scheduled to be collected through 2021 and the entire 20 cent surcharge will be in effect through 2026. Now that traditional taxi competitors have gotten a taste of being subsidized by their more successful competitors, it seems unlikely they would let a fruitful source of new ‘revenue’ expire without a fight.

While the regulation promises “riders and drivers will not see the fee because the law bars companies from charging them” there is no way the ride-hailing companies will passively absorb all of these additional costs. Instead, the most likely scenario is that they will indeed find a way pass on these costs and the most likely channels are higher prices for consumers or lower compensation for drivers.

Is the U.S. Trade Deficit a Problem to Solve?

Since 1975 – for 41 straight years – the United States has registered annual trade deficits with the rest of the world.  That means that year after year, Americans spend more on foreign-produced goods and services than foreigners spend on U.S.-produced goods and services or, put simply, the dollar value of U.S. imports exceeds the dollar value of U.S. exports.

For almost as long, some economists have been arguing that trade deficits are unsustainable – they sap economic growth, bleed jobs, and saddle our descendants with debt.  Perhaps if one looks at the trade deficit (or the slightly broader current account deficit) in isolation, these concerns might seem to have merit.  But looking at the U.S. trade or current account deficits without considering the capital account surplus is a meaningless, misleading exercise.

Yesterday, I published this piece at Forbes online, explaining why the trade deficit is not only not a problem, but that the associated capital surplus (the excess of inward investment over outward investment), which includes high-quality foreign direct investment, bestows huge advantages on the U.S. economy.  In that piece, I ask trade deficit hawks (or scolds, as I call them) to furnish their best, fact-based, comprehensive arguments – to finally step up to the plate and explain why it is that the trade deficit is a problem to solve.  

It would be of immense public policy value if we were to be able to catalogue and compare the arguments of both sides (and those who may be in the middle).  After all, one of the reasons that trade is so maligned is that the public has been lead to believe that the trade account is a scoreboard, with the deficit indicating that Team America is losing – and it’s losing on account of poorly negotiated trade deals and foreign cheating.  Helping the public reach that conclusion (rather than find the truth) may be the goal of some noisy contributors, but I suspect there are plenty of trade deficit hawks with purer motives, if not convincing arguments.

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