Archives: February, 2009

Stepping on My Posse Comitatus Nerve

My colleague Ben Friedman has previously blogged on the brigade-sized homeland defense element that the Army is putting on standby for domestic emergencies. Like Ben, I think that this sets a bad precedent for future domestic military deployments.

Plenty of civilian officials and military officers share this sentiment and don’t want to make homeland security a military proposition, like this Air Force JAG officer writing on the fictional military coup of 2012, and this Army JAG reservist discussing the pre-9/11 erosion of the Posse Commitatus Act. It is worth noting that the Department of Justice would be the prosecuting agency for Posse Commitatus violations, so you would need an ahistorical self-policing executive branch to provide real deterrence.

So color me a little bothered by a joint military police-highway patrol DUI checkpoint. While it is passed off as a “show of good relations between our two departments,” it is not a sight that the American public should get too accustomed to. Neither is a National Guard exercise using a local town for cordon and search training. As a unit representative explains, “[w]e will need to identify individuals that are willing to assist us in training by allowing us to search their homes and vehicles and to participate in role-playing.” Count me out. At least the guy acknowledges that “this operation could be pretty intrusive to the people of Arcadia.”

In many ways, the line between civilian and military spheres of government is the line of liberty. Separating our common defense from our domestic tranquility was the vision of the Founders, and we shouldn’t turn our back on it lightly.

UPDATE: Since I wrote this, the National Guard decided to scale back the exercise. So much for my career as a Third Amendment crusader.

Those Federal Strings that Come with Bail-Out Cash

Companies tend to like getting bailed out.  Heck, I wouldn’t mind a personal bail-out.  I mean, that nice Nigerian fellow promised me a share of the unclaimed bank account from his country’s late dictator.  It isn’t my fault the deal didn’t work out!

Government cash has led naturally to restrictions on employee compensation.  It has also encouraged people to turn to politicians to get loans from banks.  There was the notorious case in Chicago (full, it seems, of notorious cases!) where workers demanded that Bank of America bail out their failing firm because it canceled the line of credit to the firm.  After all, BoA had received federal money.  That meant it was supposed to willy-nilly give cash away, irrespective of the prospect of being repaid.  Illinois politicians piled on and naturally the bank caved.

Now people are calling their congressmen when they get rejected for a loan at banks that collected government checks.  Reports McClatchy Newspapers:

Rep. Mel Watt is used to dealing with constituents who need help with government agencies.

But once Congress passed a $700 billion bailout of the banking system, some people started turning to the Charlotte Democrat for help with the private sector. They’ve asked him to assist their appeals of rejected loan applications from banks that collected federal bailout money.

It’s an unusual type of request for Watt, who views the pleas as a sign of the times. An increasingly unsettled American public is looking for help with their own economic hardship but also asking for accountability because banks and other big businesses are getting bailed out by the government.

On the one hand, this is outrageous.  On the other hand, if the taxpayers have to support the banks, why shouldn’t the banks support the taxpayers?  The logic is obvious even if the consequences are potentially catastrophic.

It won’t be easy to roll back the federal government’s leap into socialism American-style.  But if we don’t halt the federal subsidy express, there might not be much real “free enterprise” left in America when we finish.

David Brooks — An Update

After carefully transcribing and then posting the nearly indecipherable argument forwarded yesterday on NPR’s All Things Considered by David Brooks, I thought, well, even the smartest people in the world can make a verbal hash of things when put on the spot with a live radio or television interview.  I had a nagging feeling that there must have been a well-thought-ought perspective knocking around in those words somewhere.  Was I being unfair to the man?  

And this morning — what do you know! — I open up Friday’s New York Times (I didn’t get to it yesterday) and see an op-ed length treatment of the very argument Brooks tried to make on NPR.  Alas, even when Brooks had a couple of days to think about each and every word, he still managed to be only a smidge less opaque than on NPR.

David Brooks: Thumbs Up for the Housing Bailout

On Friday’s All Things ConsideredNew York Times columnist David Brooks was dismissive of Rick Santelli’s now-celebrated rant against President Obama’s housing bailout.  Brookes conceded that there was a “fundamental unjustice [sic]” associated with the bailout, but…

We’re not just individuals; we have a system, a system we all share.  And the system right now is so unsteady that we have no individual responsibility in our own system because the economy is so unsteady.  If you deserve a job sometimes you get laid off, if you don’t deserve, sometimes you don’t get laid off.  And the government’s fundamental responsibility right now is to make sure the system is stable. And that may reward people who took unnecessary risks but we just have to live with that. The primary responsibility here is not to worry about the moral hazard; it’s to keep the stability of the system as a whole intact.  And I think that the housing plan is a pretty moderate and respectable way to go about that.

If you can figure out what the heck Brooks is saying here, my hat’s off to you.  As best as I can tell, Brooks is arguing that the economy is in free fall and the only way to arrest the collapse is to stop the foreclosures.  If that means bailing out the irresponsible, then bail them out we must.  At least, I think that’s what he’s saying.

But do foreclosures equal macroeconomic collapse?  It’s not obvious that they do.  Foreclosures should only bother the unforeclosed if they reduce the value of their homes.  Do they?  Empirical investigation suggests that the impact of foreclosures on unforeclosed housing values is quite small.  It’s vacant homes that (sometimes) drive down the value of neighboring inhabited homes.  But if foreclosures are quickly followed by sales to new owners, that problem does not arise.  And even if it takes a while for the empty houses to sell, the impact on neighborhood housing value is temporary.  That is, as long as you’re not trying to sell when all the for-sale signs are littering the neighborhood, you’ll be OK.  Hence, the problem here is excess housing stock — empty houses that can’t find buyers — not foreclosures per se.

Will Obama’s plan reduce the excess housing stock?  It’s hard to see how.  Foreclosures have been most heavily concentrated in places where housing supply is elastic and prices remain well above construction costs.  As long as that is the case, new construction will go on — and has gone on — even in the teeth of the ongoing house price collapse.

But maybe Brooks isn’t really worried about foreclosures.  Maybe he’s worried about the decline in housing prices and the related collapse of securities built on existing mortgages.  Maybe he’s arguing that propping-up — or at the very least, stabilizing — housing prices is the only way to rescue the trillions of dollars worth of assets tied to the housing market and, thus, to rescue the economy as a whole.  If so, then good luck. Harvard economist Edward Glaeser makes a very strong argument that nothing the feds can do will keep housing prices at the inflated levels reached over the last decade.  And even were such a thing possible, Glaeser argues it would be economically counterproductive:  

Artificially boosting prices will distort construction decisions and redistribute wealth from buyers to sellers. Moreover, most schemes seem unlikely to significantly raise prices, especially in the elastic areas that have seen the largest reductions in prices. Against these uncertain benefits, the costs of many of the schemes seem quite large.  Using hundreds of billions of dollars to buy or refinance mortgages represents a large transfer from taxpayers to current homeowners… Moreover, a large-scale intervention that makes the government a vast lender is likely to create permanent institutions that impose large future costs on taxpayers. Recent events at Fannie Mae and Freddie Mac certainly suggest the difficulties that result when government-sponsored enterprises play mortgage lender to the nation. 

Nor is Glaeser sympathetic with the political rush to save those threatened with foreclosure:

As foreclosure becomes more difficult, the value of mortgages declines, which reduces the value of banks assets. Direct aid to distressed homeowners may be less problematic, but it isn’t clear that the government can or should be trying to keep people in homes they can’t afford at any reasonable interest rate.  In most cases, a small amount of aid to help in moving would be a more sensible, and cost effective, response to foreclosures.  We do need action to fix our banking system, but those actions should be targeted towards the banking system itself, not towards the housing market.

While public intellectuals like Brooks are — for the moment anyway — inclined to lecture the Rick Santellis of this world about the necessity of housing bailouts for the greater good, there is far less substance to that lecture than one might think.

So You Don’t Like Marketing, Huh?

Many of my privacy-advocate friends were pleased by the restrictions on uses of health data for marketing that went into the giant “economic stimulus” bill. (Germaneness? Not many people even know what that means around here.)

It’s a sensitive area, no doubt, and health information should be handled carefully and discreetly, but direct marketing is one of the best ways to get information about new treatments to people with diabetes, arteriosclerosis, depression, and hundreds of other diseases and conditions.

Heaven forbid that new parents should be subjected to marketing like this:

Where can I sign up to have my health information made available for marketing?

New Podcast: ‘Prospects for Drug Policy Reform’

Federal drug policy has changed only slightly in the last 30 years, but Ethan Nadelmann, executive director of the Drug Policy Aliance, an organization that promotes policy alternatives to the drug war, says he’s optimistic about the future.

He spoke at the Cato Institute this week to address the increasing violence in Mexico between the government and drug cartels. In today’s Cato Daily Podcast, Nadelmann discusses how the nation’s approach to drug policy could change under the new administration:

I’m feeling strangely optimistic these days. I think part of it is that Obama’s coming into office has just opened up a sense of something new being possible… These Democrats—Pelosi, George Miller, Henry Waxman, John Conyers, Barney Frank, and others—they understand that the drug war is a failure. They’re not going to show real leadership on this issue in the short-term future, but there’s at least an understanding about what’s so fundamentally wrong.

Talking up a Trade War

It seems the media are so obsessed with romanticizing the 1930s that a good trade war is all we need to complete the effect. Today’s Washington Post contains yet another trade scare story, the contents of which don’t even come close to supporting the bold headline or the lead.

“U.S.-China Trade Ties Erode Amid Accusations” is the attention grabbing headline, presumably chosen by someone other than the story’s writer, Ariana Eunjung Cha. But Ms. Cha is also guilty of promising her readers more than she delivers. “The global financial crisis is bringing out the worst in the trade relationship between the United States and China” is the story’s lead.

Here’s her supporting point number 1:

U.S. Treasury Secretary Timothy F. Geithner accused China of “manipulating” its currency, vowing in written testimony submitted for his confirmation hearing that the United States would act “aggressively” to remedy the situation.

Excuse me for not gasping, but I find that example rather bland. Legislation to compel China to allow the yuan to rise has been considered in every Congress since 2003. It’s nothing particularly new. Geithner was testifying before Senators who has sponsored some of those currency bills, and his uncertain confirmation prospects probably meant that he new what the committee wanted to hear.

Besides, later in her article, Cha concedes about Geithner’s testimony that:

The comments were later tempered by the Obama administration saying it hadn’t made any formal decision on the issue and Obama discussed the remarks with Chinese President Hu Jintao in a telephone call shortly after taking office.

Supporting point number 2:

The U.S. Trade Representative’s office, in a harshly worded and wide-ranging complaint to the World Trade Organization in December, alleged that China uses cash grants, cheap loans and other subsidies to illegally aid its exporters.

So a Bush Administration action from December is her second most compelling piece of evidence that the ‘financial crisis is bringing out the worst in the trade relationship”? Bringing cases to the WTO, instead of passing into law provocative unilateral trade sanctions (which scaremongering like Cha’s article is likely to encourage), is the ultimate sign of respect for the system. It is the proper way to resolve trade disputes, and I am positive that the Chinese are not affronted by that approach.

Supporting point number 3:

China, for its part, has bashed the “Buy America” program embedded in the just-passed stimulus package, calling it “poison to the solution” of the global economic crisis.

Well who hasn’t? The Canadians said the same thing and President Obama was in Ottawa yesterday assuring Prime Minister Harper that our countries remain best buds.

Supporting point number 4:

At the World Economic Forum meeting in Davos three weeks ago, Chinese Premier Wen Jiabao, without naming the United States explicitly, blamed the financial crisis on “unsupervised capitalism.”

Now them’s fightin’ words. Time to shut the borders to Chinese imports and close down all those American-owned factories in Shenzhen.

But the most compelling piece of analysis supporting the assertion that “U.S.-China Trade Ties Erode Amid Allegations” is supporting point number 5:

The crisis has pushed the China-U.S. relationship to a flash point. From now on, it will either become more stable or more confrontational,” said Mei Xinyu, a trade expert with the Chinese Commerce Ministry’s research arm.

Yes, and in 25 years I’ll be either alive or dead.

The remainder of the article goes on to cite old parochial grievances, clichés really, like U.S. textile industry complaints about a surge in Chinese imports or steel industry complaints about dumping and subsidization. Whining for protection by the textile and steel industries is nothing new. It has nothing to do with the financial crisis or global demand contraction per se.

But what is more troubling than these perennially parasitic industries demanding wealth transfers from unsuspecting Americans is the willingness of mainstream media to accept their adversarial narrative as an objective worldview.