Archives: 10/2009

A Novel Interpretation of “Green Tariffs”

Here’s a nice follow up to my blog post on Tuesday: firms importing solar panels to the United States face a $70 million bill because of unpaid duties.

It seems to me that a government truly concerned about global warming–putting aside the merits of that position–would want to encourage the adoption of solar panels, including by keeping them as cheap as possible. Nor, I would have thought, is this the time to add more fuel to the fire that is starting to characterize the U.S. trade relationship with China. There’s plenty enough fuel for that already.

Lies Our Professors Tell Us

On Sunday, the Washington Post ran an op-ed by the chancellor and vice chancellor of the University of California, Berkeley, in which the writers proposed that the federal government start pumping money into a select few public universities. Why? On the constantly repeated but never substantiated assertion that state and local governments have been cutting those schools off.

As I point out in the following, unpublished letter to the editor, that is what we in the business call “a lie:”

It’s unfortunate that officials of a taxpayer-funded university felt the need to deceive in order to get more taxpayer dough, but that’s what UC Berkeley’s Robert Birgeneau and Frank Yeary did. Writing about the supposedly dire financial straits of public higher education (“Rescuing Our Public Universities,” September 27), Birgeneau and Yeary lamented decades of “material and progressive disinvestment by states in higher education.” But there’s been no such disinvestment, at least over the last quarter-century. According to inflation-adjusted data from the State Higher Education Executive Officers, in 1983 state and local expenditures per public-college pupil totaled $6,478. In 2008 they hit $7,059. At the same time, public-college enrollment ballooned from under 8 million students to over 10 million. That translates into anything but a “disinvestment” in the public ivory tower, no matter what its penthouse residents may say.

Since letters to the editor typically have to be pretty short I left out readily available data for California, data which would, of course, be most relevant to the destitute scholars of Berkeley. Since I have more space here, let’s take a look: In 1983, again using inflation-adjusted SHEEO numbers, state and local governments in the Golden State provided $5,963 per full-time-equivalent student. In 2008, they furnished $7,177, a 20 percent increase. And this while enrollment grew from about 1.2 million students to 1.7 million! Of course, spending didn’t go up in a straight line – it went up and down with the business cycle – but in no way was there anything you could call appreciable ”disinvestment.” 

Unfortunately, higher education is awash in lies like these. Therefore, our debunking will not stop here! On Tuesday, October 6, at a Cato Institute/Pope Center for Higher Education Policy debate, we’ll deal with another of the ivory tower’s great truth-defying proclamations: that colleges and universities raise their prices at astronomical rates not because abundant, largely taxpayer-funded student aid makes doing so easy, but because they have to!

It’s a doozy of a declaration that should set off a doozy of a debate! To register to attend what should be a terrific event, or just to watch online, follow this link.

I hope to see you there, and remember: Don’t believe everything your professors tell you, especially when it impacts their wallets!

Congress Boosts Its Budget

Politico reports: ” Congress is on the verge of giving itself a bump in its annual budget — even as local governments, families and businesses across the country are tightening their belts in the worst recession in decades.”

Spending on the legislative branch of the federal government is set to rise 5.8 percent in fiscal 2010, and Politico details some of the dubious activities that will receive increased funding.

One statement in the story particularly caught my eye:

” ‘We have not seen a significant increase in overall legislative branch expenditures since nearly 2001,’ said Jonathan Beeton, a spokesman for Rep. Debbie Wasserman Schultz (D-Fla.).”

Who is he trying to fool? The bill under consideration will provide $4.7 billion in funding for Congress in 2010, which is way up from the $2.7 billion spent in 2001, according to the Congressional Research Service (page 3). 

That’s a 74 percent increase in nine years, representing a very robust 6.4 percent annual average growth rate.

And consider that the “customer base” for this spending has not increased–the number of members of Congress has remained fixed at 535. So while supporters of, say, an education program may say that spending needs to rise because the number of students is rising, much of the increased spending on the legislative branch would seem to go directly into fattening the paychecks of politicians and their staffers.

Reflections on China’s 1949 “Liberation”

During a speaking trip to China three years ago, the young tour guide in Beijing kept referring to “the liberation.” I soon realized that she meant the October Revolution of 1949, in which Mao Tse Tung and the communists seized power and began their rule 60 years ago today.

Far from liberating China, the reign of Mao represents one of the worst tyrannies in the history of mankind. Opposition parties, free speech and freedom of religion were quickly eliminated. The Great Leap Forward of 1958-61 forced the collectivization of agriculture, resulting in a famine that killed tens of millions. The Cultural Revolution of 1966-76, while not as deadly, unleashed chaos that crippled the economy and scarred a generation. As Gordon Chang writes in a Wall Street Journal op-ed this morning, the celebration by the Chinese people will be understandably muted.

China’s real liberation began not 60 years ago, but 30 years ago, with the reforms of Deng Xiaoping. While China remains an oppressive, one-party state politically, its economy has taken a true great leap forward in the past three decades because of market reforms in agriculture, industry, and trade. China’s liberation has far to go, but the Chinese people today are much more free of government interference in their personal, daily lives than they were in the time of Mao.

When I point to China’s economic progress as an example of what trade liberalization can deliver, my debate opponents will sometimes counter that China is a communist country. But China’s dramatic growth has not occurred because of its residual communism. For 30 years now, its government has been in the process of abandoning the communist economic policies of Mao and his fellow “liberators,” much to the benefit of the Chinese people and the world.

The VAT Debate: Should Politicians in Washington Get a Huge New Source of Tax Revenue as a Reward for Overspending?

Based on five criteria, James Pethokoukis of Reuters connects the dots and warns that President Obama is going to propose a value-added tax.

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. …Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. …Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans. And it’s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. …Liberals love the idea of a VAT because it’s, well, so European — also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.

While the timing is unclear, his prediction is correct. The politicians in Washington want much bigger government, but they know that it will be difficult to achieve that goal without a big new source of revenue. The VAT would be perfect from their perspective. It is a form of national sales tax, but would be hidden in the price of products and therefore easy to increase. Moreover, every time they increase the VAT, they would use that as an excuse to raise income tax rates for “distributional fairness.” It is no exaggeration to say that the VAT is the biggest fiscal threat to the cause of limited government.

One final point about the column. Economists don’t love the VAT, per se, but they do view it as being less destructive - per dollar raised - than the income tax. But less destructive is still destructive. And since the VAT would be in addition to the taxes we have now (and actually create the conditions for higher income tax rates), its enactment would create a lose-lose situation for taxpayers.

What to Do When Your Ally Is the Aggressor?

That’s what Washington should ask itself after the new European Union report on the Russo-Georgian war last year.  The EU has affirmed what long seemed apparent to independent observers:  America’s ally, the government of President Mikheil Saakashvili, started the conflict.  Which means in supporting Saakashvili the Bush administration backed the aggressor.

Russia comes in for abundant criticism – after all, it took advantage of Saakashvili’s irresponsible aggressiveness to retaliate destructively.  But on the essential point the EU blamed Tbilisi.  Reports the Wall Street Journal:

In a statement, Ms. Tagliavini was blunt. “In the Mission’s view, it was Georgia which triggered off the war when it attacked Tskhinvali with heavy artillery on the night of 7 to 8 August 2008. …In particular, there was no massive Russian military invasion under way,” she said.

Washington’s support for the Georgian government probably encouraged Saakashvili to attempt the military conquest of South Ossetia, which had seceded with Russia’s assistance.  After all, you are likely to take far greater risks if you believe the U.S. has your back.  And if he was willing to start a war in expectation of U.S. military support against Moscow outside of NATO, imagine what he would do with his nation as a member of NATO.

Many Americans apparently believe that Russia is a paper tiger and would never challenge a U.S. security guarantee.  But both World Wars I and II began in spite of alliance commitments. Deterrence failed.  And it likely would have failed in the Caucasus even if Tbilisi had belonged to NATO.  Russia’s border security is a vital interest to Moscow but largely irrelevant to America.  Thus, Russia still would have had strong cause to act, while it still would have been in Washington’s interest to do nothing.  The result likely would have been the same:  a Georgian defeat, magnified by even greater humiliation of America and Europe, forced to stand by as their official ally was crushed.

The only worse result would have been the U.S. and “Old Europe” putting force behind their NATO commitment.  We survived the Cold War without conflict between the major nuclear-armed powers.  To risk a nuclear confrontation over a war started by an authoritarian nationalist contrary to American interests would be foolhardy beyond belief.

Georgia illustrates how carelessly collecting allies and passing out security guarantees is a prescription for insecurity and potential disaster.  Americans should sympathize with the Georgian people, who have been ill-served by their own government as well as mistreated by the Russian government.  But that’s no reason to risk war on Tbilisi’s behalf.   Instead of continuing to expand NATO, Washington should begin the process of turning Europe’s security over to Europe.

Is the U.S. Government Behaving Strategically With Regard to Al Qaeda?

To its credit, the Department of Homeland Security distributes important documents via email. (Subscribe on their home page by scrolling down to find the “Subscribe to E-mail Updates:” box in the right column, then select your preferences.)

Yesterday DHS sent me a copy of the written testimony by Michael E. Leiter, Director of the National Counterterrorism Center, for a Senate Homeland Security and Governmental Affairs Committee hearing titled: “Eight Years After 9/11: Confronting the Terrorist Threat to the Homeland.”

As I read Leiter’s (relatively brief) testimony, I wondered how well it squares with the strategic counsel offered by Audrey Kurth Cronin, Professor of Strategy at the U.S. National War College, Senior Research Associate in the Changing Character of War Programme at Oxford University, and a participant in Cato’s January counterterrorism strategy conference.

In her Institute for International Strategic Studies paper, “Ending Terrorism: Lessons for Defeating Al-Qaeda,” she offered several counterterrorism strategy pointers:

The first prong of a successful strategy to counter al-Qaeda’s terrorism is to clarify to audiences around the globe exactly what al-Qaeda is and what it is not. This is not just of academic interest. It is partly because there is so much vague use of the name ‘al-Qaeda’ that it seems superhuman and ubiquitious… . When politicians and experts employ the term ‘al-Qaeda’ loosely, they help its propagandists to construct and perpetuate their desired image and to mobilise support.

Violent internal cleavages and bickering are endemic to the al-Qaeda movement, and have been from the outset, and the second prong in a successful strategy against al-Qaeda is consciously to exploit them.


The third element in a successful strategy against al-Qaeda is to disaggregate the many elements of the movement and develop more sophisticated, targeted counter-terrorism policies tailored to its constituent parts. The aim must be to enlarge the movement’s internal inconsistencies and differences … .

At our counterterrorism conference, terrorism expert Marc Sageman similarly said, “We often unify our enemies needlessly… . Let’s not unify our enemy and give it strength that way.”  (If you don’t watch all of panel III, you can start at minute 66.)

Read Michael E. Leiter’s testimony for yourself and see how well it reflects the counsel of these experts.