Archives: 10/2009

Wednesday Links - Afghanistan Edition

Today marks the eighth anniversary of the U.S. war in Afghanistan. Cato foreign policy experts have been following and analyzing the war since the beginning. Here’s a round up of their assessment thus far:

  • In today’s podcast, foreign policy analyst Malou Innocent discusses the future of policy in the region.
Topics:

New Paper: Why Sustainability Standards for Biofuel Production Make Little Economic Sense

The U.S. sustainability standard currently requires ethanol production to emit at least 20% less CO2 than the gasoline it is assumed to replace. In a new study, authors Harry de Gorter and David R. Just argue that sustainability standards for ethanol are, by definition, illogical and ineffective. Moreover, say de Gorter and Just, those standards divert attention from the contradictions and inefficiencies of ethanol import tariffs, tax credits, mandates, and subsidies, all of which exist whether ethanol is sustainable or not.

Eyewitness to Government’s Robbery of Chrysler Creditors

Further to Ilya Shapiro’s post this morning, let me also point you to a concise chronology of events culminating in the government’s robbery of Chrysler creditors.

The story is that of Richard Mourdock, Treasurer of the State of Indiana and the man responsible for stewardship of the state’s pension funds, some of which were victimized by the Obama administration’s pre-packaged and then forced-fed bankruptcy deal for Chrysler. I strongly urge you to read Mr. Mourdock’s testimony, which is at once revealing, sobering, compelling and, regrettably, a frightening sign of the times.

Mourdock will be speaking on this very topic at Cato, along with bankruptcy law expert David Skeel, on Thursday, October 15 at noon. Reserve your seat now.

Exiting the Afghan Quagmire

Maleeha Lodhi, Pakistan’s former ambassador to Washington, and Anatol Lieven, a professor at King’s College London, discuss in the Financial Times how we can exit the Afghan quagmire:

The west should therefore pursue a political solution, open negotiations with the Taliban and offer a timetable for a phased withdrawal in return for a ceasefire. This should begin with the military pulling out of specific areas in return for Taliban guarantees not to attack western bases and Afghan authorities in those areas. If the Taliban refuses such terms, then military pressure should continue. The point should not be to eliminate the Taliban – which is impossible – but to persuade it to agree to a deal.

Lodhi and Lieven’s argument echoes one that David Axe, Jason Reich, and I made yesterday on ForeignPolicy.com.

… regime change, and democracy, are not necessary for counterterrorism. Propping up President Hamid Karzai’s Western-style government in Kabul does not make operations against al Qaeda any easier or more successful. If anything, it distracts from the conceptually simpler task of finding and killing terrorists. Without U.S. and NATO protection, Karzai’s regime would, sooner or later, probably fall to the Taliban. But U.S. observers should not equate that eventuality with “losing” the war. The war is against terrorists, not Islamist governments. The United States should be prepared to make peace, and amends, with a resurgent Taliban – and to encourage the group to excise its more extreme elements.

I admit talking to the Taliban sounds weird and scary. But my contention is that there is no shortage of Pashtun militants willing to fight against what they perceive to be a foreign occupation of their region. Certainly the Taliban does not enjoy support among the majority of Pashtuns—as Lodhi and Lieven point out—but neither did the IRA in Northern Ireland or the FLN in Algeria. The point is not exclusively about popularity (although that’s a critical component, along with local legitimacy), but the fact that these indigenous groups are willing to fight the United States and NATO indefinitely. Indeed, it is the western military presence that is driving support for the Taliban both in Afghanistan and in Pakistan.

Moreover, the notion that we must protect Pakistan from the Taliban is ludicrous. Pakistan’s intelligence service helped create the Taliban and they continue to protect the Afghan Taliban to keep India at bay. From this point of view, deploying more troops would be irrelevant to the fight against al Qaeda and counterproductive in our attempts to pacify the region. For more on what we should do, check this out.

The Government Robbed Chrysler Creditors

In January 2009, Chrysler stood on the brink of insolvency.  Purporting to act under the Emergency Economic Stabilization Act, the Treasury extended Chrysler a $4 billion loan using funds from the Troubled Asset Relief Program (TARP).  Still in a bad financial situation, Chrysler initially proposed an out-of-court reorganization plan that would fully repay all of Chrysler’s secured debt.  The Treasury rejected this proposal and instead insisted on a plan that would completely eradicate Chrysler’s secured debt, hinging billions of dollars in additional TARP funding on Chrysler’s acquiescence. 

When Chrysler’s first lien lenders refused to waive their secured rights without full payment, the Treasury devised a scheme by which Chrysler, instead of reorganizing under a chapter 11 plan, would sell its assets free of all secured interests to a shell company, the New Chrysler.  Chrysler was thus able to avoid the “absolute priority rule,” which provides that a court should not approve a bankruptcy plan unless it is “fair and equitable” to all classes of creditors. 

Cato joined the Washington Legal Foundation, Allied Educational Foundation, and George Mason law professor Todd Zywicki on a brief supporting the creditors’ petition asking the Supreme Court to review the transaction’s validity.  We argue that the forced reorganization amounted to the Treasury redistributing value from senior, secured creditors to debtors and junior, unsecured creditors. 

The government should not be allowed, through its own self-dealing, to hand-pick certain creditors for favorable treatment at the expense of others who would otherwise enjoy first lien priority.  Further, a lack of predictability and consistency with regard to creditors’ expectations in bankruptcy will result in a destabilization of existing and future credit markets. 

The Court will be deciding whether to hear the case later this fall.  Thanks very much to Cato legal associate Travis Cushman for his help with the brief.

Free Speech, Hate Speech, and Canada’s Section 13

NewMajority.com has a great series of videos showing the testimony of Mark Steyn and Ezra Levant against Section 13 of the Canadian Human Rights Act.

That section empowers the Canadian Human Rights Commission to punish telecommunications that are “likely to expose a person or persons to hatred or contempt” owing to their protected minority status. It is, in short, a hate speech law.

Penalties are harsh, and can include large fines as well as a lifetime publication ban. For a supposedly liberal country like Canada, Section 13 is an extraordinarily illiberal law.

Section 13 has also lined the pockets of one Richard Warman, a former employee of the Commission who has been responsible for the overwhelming majority of prosecutions in the last decade. Steyn and Levant show in their testimony how Section 13 has prompted computer hacking, the planting of false hate speech, and other underhanded techniques from Warman and the rest of its enforcers. Levant suggests that Warman, a privileged white male lawyer, has been the single greatest beneficiary of the law.

Business regulation boards commonly get taken over by the friends of big business. This is a huge problem in the study of law and economics, one with its very own name – regulatory capture.

Censorship agencies are a bit different. They don’t usually get taken over by the friends of publishers, who might be lenient. Instead, they attract the most aggressive would-be censors, the ones who would most enjoy the powers that a censorship board can offer. Once these arrive, few others will have the stomach to continue serving. Agencies like the Canadian Human Rights Commission suffer from regulatory capture, not by the businesses they regulate, but by the most censorious people around. That’s one reason why it’s a huge problem to have a censorship board in the first place.

In early September, Section 13 was ruled unconstitutional by the Canadian Human Rights Tribunal. (Confusingly for this Yankee, the tribunal conceded that it could not actually strike down Section 13 but could only decline to apply it in the case at hand.) An appeal is in the works, and Parliament is now considering whether to modify or even scrap the law.

Canadian newspapers across the political spectrum have lined up to support repeal or at least reform. Meanwhile, it appears that Canada’s Conservative government doesn’t want to be seen as “too conservative” – and thus it has been reluctant to act. Politically, it’s easy to pose as the defender of an outraged minority. It’s much, much harder to be the reluctant-but-principled defender of the right of neo-Nazis to spew hatred.

Much like the Megan Meier Cyberbullying Prevention Act, Section 13 is clearly well-intentioned. No one likes people who say cruel or hurtful things, whether on the Internet or anywhere else. Neo-Nazis are disgusting, and it pains even me to have to defend their rights. But a free society is different from an unfree one precisely in that free societies allow distressing speech to take place. The other option, in which the litigious have undue power over all of us, is more distressing still.

An Omen in the Cash for Clunkers Results

Chris Edwards is right. Tad DeHaven is right. Cash for Clunkers was a shell game and an utter waste of taxpayer money. But C4C offers another teachable lesson, which is that the 35.5 mile per gallon by 2016 fuel efficiency standard will kill General Motors.

In just the latest example of government policies working at cross-purposes, the president buys a 60 percent stake in GM at a cost to taxpayers of $50 billion (conservatively), and simultaneously supports a mandate—in the rigid CAFE standard—that will severely handicap GM, while assisting the competition.

C4C gave consumers the opportunity to express their preferences in the high mileage vehicle market, and GM failed miserably. Consumers of high mileage vehicles prefer Toyotas, Hondas, Fords, Nissans and Hyundais, whose offerings comprise the top ten best sellers list under the program. Not a single GM (or Chrysler) product made the top ten under C4C.

GM’s competitive strength is in the luxury car, muscle car, SUV, and pick-up truck categories. But to sell those cars in 2016, GM will need to sell many, many more small cars than it does now to achieve an average fleet fuel efficiency of 35.5 mpg. So, while GM’s competitors are free to target the gas-guzzling market because there is already plenty of demand for their high-mileage vehicles, GM’s capacity to compete where it is strongest will be conditioned on its ability to cultivate an obviously very skeptical market for its small cars. And that bodes very poorly for GM’s future.

For more on GM’s future and the damage done to important U.S. institutions, like private property rights, the rule of law, the free enterprise system, and the proper separation of economy and state as a result of the Bush/Obama auto intervention, you are welcome to join us for a policy forum at Cato on October 15 at noon.