Archives: 09/2009

A Harsh Climate for Trade

Although it has very much taken a back-seat to health care, and a press report [$] today say it could be bumped down yet another notch on the administration’s hierarchy of goals, climate change is shaping up to be a major battle if the others don’t prove to be prohibitively exhausting. So today I am weighing in on the debate by releasing my new paper on the dangers of using trade measures as a tool of climate policy.

The Democrats were keen to pass a climate change bill in advance of the December meeting in Copenhagen designed to agree on a successor regime to the Kyoto protocol, which expires in 2012.  However, opposition from a number of quarters and the fear of health-care-town-halls-mark-II has cooled their heels. Senate leaders have pushed back the deadline for passing bills out of committees a number of times.

The reason why climate change legislation has become so controversial is that businesses and consumers are, quite understandably, fearful about any policies that threaten to increase their costs. I’ll leave it to others to blog about the effect of emissions-reductions policies on jobs and profits, but even the fear of losses has led to calls for special deals for “vulnerable industries”, in the form of free emission permits and/or protection from imports that are sourced from countries that purportedly take insufficient steps to limit emissions.

H.R. 2454, the so called Waxman-Markey bill passed by the House in June, contains both free permits and provisions for carbon tariffs. I’ve blogged before about the efforts of trade-skeptic senators to introduce the same kinds of protections in the senate bill. To that end, Sen. Sherrod Brown (D, OH) is reportedly meeting with Sen. Barbara Boxer, Chairwoman of the Senate Environment and Public Works Committee next week about trade protections for manufacturing industries.  As my paper makes clear, I think these efforts are misguidedly ineffective at best, and harmful at worst.

I’m looking forward to discussing these issues in more detail tomorrow at a Hill briefing in Washington DC. Registration for the event was closed very early because of overwhelming demand, but you can watch the event when the video becomes available on the Cato website.

So Much for Making Money on the Bailout

Reports the Washington Post:

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers’ rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report, which is scheduled to be released Wednesday.

Well, it’s only money.  And with the taxpayers facing more than $100 trillion worth of unfunded liabilities, what’s a few more wasted dollars?!

Sticking Around Afghanistan Forever?

I’ll confess one of the arguments that I’ve never understood is the claim that the U.S. “abandoned” Afghanistan after aiding the Mujahadeen in the latter’s battle against the Soviet Union.  Yet Secretary of Defense Robert Gates apparently is the latest proponent of this view.

Reports the Washington Post:

Defense Secretary Robert M. Gates said in an interview broadcast this week that the United States would not repeat the mistake of abandoning Afghanistan, vowing that “both Afghanistan and Pakistan can count on us for the long term.”

Just what does he believe we should have done?  Obviously, the Afghans didn’t want us to try to govern them.  Any attempt to impose a regime on them through Kabul would have met the same resistance that defeated the Soviets.  Backing a favored warlord or two would have just involved America in the ensuing conflict. 

Nor would carpet-bombing Afghanistan with dollar bills starting in 1989 after the Soviets withdrew have led to enlightened, liberal Western governance and social transformation.  Humanitarian aid sounds good, but as we’ve (re)discovered recently, building schools doesn’t get you far if there’s little or no security and kids are afraid to attend.  And a half century of foreign experience has demonstrated that recipients almost always take the money and do what they want – principally maintaining power by rewarding friends and punishing enemies.  The likelihood of the U.S doing any better in tribal Afghanistan as its varied peoples shifted from resisting outsiders to fighting each other is a fantasy.

The best thing the U.S. government could do for the long-term is get out of the way.  Washington has eliminated al-Qaeda as an effective transnational terrorist force.  The U.S. should leave nation-building to others, namely the Afghans and Pakistanis.  Only Afghanistan and Pakistan can confront the overwhelming challenges facing both nations.

Research Shows $100 Billion Ed. Stimulus Likely Hurting Economy

Tomorrow morning, the president’s Council of Economic Advisers will release a report assessing the short and long-term effects of the stimulus bill on the U.S. economy. As with previous iterations, this report will attempt to forecast overall effects of the stimulus across its many different components and the different economic sectors it targets. In doing so, it ignores the clearest research findings available pertaining to a key portion of the stimulus: k-12 education.

The president has committed $100 billion in new money to the nation’s public school systems, and required that states accepting the funds promise not to reduce their own k-12 spending. The official argument for this measure is that higher school spending will accelerate U.S. economic growth. But a July 2008 study in the Journal of Policy Sciences finds that, to the authors’ own surprise, higher spending on public schooling is associated with lower subsequent economic growth. Spending more on public schools hurts the U.S. economy.

How is that possible? There is little debate in academic circles that raising human capital – improving the skills and knowledge of workers – boosts productivity. So an obvious interpretation of the JPS study is that raising public school spending must not increase human capital. While this possibility surprised study authors Norman Baldwin and Stephen Borrelli, it is consistent with the data on U.S. educational productivity over the past two generations.

Since 1970, inflation adjusted public school spending has more than doubled. Over the same period, achievement of students at the end of high school has stagnated according to the Department of Education’s own long term National Assessment of Educational Progress. Meanwhile, the high school graduation rate has declined by 4 or 5%, according to Nobel laureate economist James Heckman. So the only thing higher public school spending has accomplished is to raise taxes by about $300 billion annually, without improving outcomes.

The fact that more schooling without more learning is not a recipe for economic growth is confirmed by the independent empirical work of economists Eric Hanushek and Ludger Woessmann. Their key finding is that academic achievement, not schooling per se, is what matters to economic growth.

Based on this body of research, the president’s decision to pump $100 billion into existing public school systems is likely slowing the U.S. economic recovery.

Cato Health Care Experts Live-Blogging Obama’s Address

Cato health care policy experts offered live-commentary to President Obama’s address to Congress on Wednesday night. To review their comments, click the replay button below.

The video player has the speech in full.

Visit msnbc.com for Breaking News, World News, and News about the Economy

What Principle is Guiding Obama’s Honduras Policy?

The Obama administration is threatening not to recognize the result of Honduras’ presidential election in late November unless Manuel Zelaya returns to the presidency beforehand.

The presidential poll was already scheduled prior to Zelaya’s (constitutional) removal from office last June. The candidates had already been selected by their parties through an open primary process. The current civilian interim president, Roberto Micheletti, is not running for office and plans to step down in January as stipulated by the Constitution. Both major presidential candidates supported the ouster of Zelaya. The political campaign is playing out in an orderly manner, and there’s a significant chance that the candidate from the opposition National Party will win the presidency. The independent Electoral Tribunal is overseeing the process.

And yet the U.S. Department of State is signaling that it won’t recognize the result of the poll in the name of defending Zelaya’s return to power. However, the administration’s defense of ousted leaders seems to have some caveats.

Last July, The Economist reported that Mauritania’s General Muhammad Ould Abdelaziz, the head of the military junta who led the coup that overthrew that country’s first democratically-elected president, got himself elected as civilian president after an election that the opposition called an “elected coup.” However, despite “a certain number of irregularities,” Washington recognized Abdelaziz’s election as a reflection of the “will of the Mauritanian people” and stated its willingness to work with his government.

Why is it that the election in Mauritania—with its many blatant flaws—passed the Obama administration’s legitimacy litmus test but the one in Honduras already seems set to fail it? What foreign policy principle is the administration applying in Honduras? Certainly not respect for democracy or the rule of law, both of which Zelaya was trying to subvert when he was removed from office.

We’re Terribly Czarry

My former colleague Dave Weigel makes the excellent point that the supposed explosion of “Czars” under this administration is, in significant part, a function of journalists trying to make the same old “deputy undersecretary” sound sexier. Which is a shame, since it means that the pernicious and the benign get lumped together under the same sensationalist label – one whose public effect is to normalize the idea of unaccountable individuals within the executive branch given sweeping powers to solve specific problems, whether or not that picture is accurate.

I don’t know how much it can be attributed to the Czarmania, but I’m especially puzzled by the apparent emergence of legal scholar and prospective OIRA Adminstrator Cass Sunstein as the new hot bogeyman for conservatives. The Office of Information and Regulatory Affairs, which Sunstein’s been tapped to head, was created in 1980 and is precisely the sort of agency conservatives should love – tasked with catching inefficient and excessively burdensome regulations before they go into effect. It has, unsurprisingly, been most active under conservative presidents, and is one of the few offices where fans of limited government should want a vigorous, influential, and intellectually formidable director at the helm.

Now, Cass Sunstein is not somebody I agree with on a great number of things. On the day he’s tapped for a seat on the Supreme Court bench, I’ll break out in hives. But it’s awfully hard to imagine any realistic alternative – anyone Obama might actually have appointed – who would be better in the OIRA post from a limited government perspective. (I considered some of the specific concerns being raised about Sunstein back in the spring and found that they ranged from exaggerated to simply mendacious.) That’s one reason hardcore progressives have, in fact, been freaking out over his nomination. They must be pinching themselves  now that it seems Glenn Beck is out to do their work for them. Say what you will about the tenets of “libertarian paternalism,” but at least it’s an ethos that would demand a far lighter touch on markets than the unreconstructed technocracy of your average regulator.