Archives: 12/2010

Who Should Defuse the Korean Bomb?

Fear of war has become a new constant for the Korean peninsula.  On Monday South Korea initiated a military exercise in the Yellow Sea and North Korea threatened to retaliate.  Seoul went ahead without any response from the North, but the region retains the feel of a bomb with an unstable fuse.

In the short term Washington has no choice but to uphold its alliance obligations to the South.  However, Pyongyang’s increasingly erratic behavior offers a dramatic reminder of the most important cost of the unilateral security guarantee:  the threat of war.

The alliance was created at a different time in a different world—1953, after the conclusion of a war which had devastated the peninsula.  Only U.S. military support preserved South Korea’s independence.  Since then the South has developed economically and is well able to protect itself.  The U.S. should begin turning over defense responsibilities to Seoul, with an expeditious withdrawal of all American troops.  The defense treaty, with America’s promise to forever guard the South, irrespective of circumstance, should be turned into a framework for future cooperation in cases of mutual interest.

The U.S. no longer can afford to maintain Cold War alliances as if the Cold War still existed.  Commitments like that to South Korea are expensive, since they drive America’s military budget.  More important, as we see in Northeast Asia, alliances also increase the possibility of war for the U.S.  It is time to update America’s military commitments to reflect today’s world.

Breastfeeding and the Government

The media is reporting on a new study that finds long-term benefits to kids of breastfeeding.

Yet if health experts agree on the advantages of breastfeeding, why does the federal government subsidize mothers to use formula through the $7 billion Women, Infants, and Children program?

The WIC program is run by the Department of Agriculture, which summarized the subsidies as follows (page 1):

…infants participating in WIC consume about 54 percent of all formula sold in the United States. In most states, WIC participants use food vouchers or food checks to purchase their infant formula, free of charge, at participating retail grocery stores.

It’s true that in addition to handing out free formula, WIC administrators counsel women on the advantages of breastfeeding. But the counseling apparently isn’t working if WIC infants consume more than half of all formula. I am told that breastfeeding isn’t easy, so if you give moms a free alternative, many of them take it.

This is one of many examples we see of the government’s right hand working against its left. The Army Corps of Engineers destroys wetlands, while other federal agencies protect them. Milk and sugar programs push up food prices, while other programs subsidize food costs. Politicians complain about energy companies gouging consumers, yet federal ethanol policies push up energy costs.

The winners in each case are the political class – high-paid government administrators, members of Congress, and the groups hooked on federal subsidies. The losers are the rest of us – average taxpayers and consumers.

For more on federal food subsidies, see here.

This Week in Government Failure

Over at Downsizing Government, we focused on the following issues this week:

  • Downsizing Government was featured on C-SPAN.
  • Unfortunately, because government has come to dominate road construction, most citizens probably don’t stop to consider that the private sector can provide superior alternatives.
  • Evidence that higher education subsidies are counterproductive handouts.
  • The omnibus abomination makes it easy to understand why Congress’s approval rating is at a new low.
  • The United States is #1!  We now have the highest corporate tax rate among the 34 wealthy nations of the Organization for Economic Cooperation and Development.

GAO an Aggressor in War on For-Profits? At Least Someone Cares

Today, AEI’s Rick Hess and Andrew Kelly have a piece at Inside Higher Ed highlighting serious evidence of dirty-dealing in a highly influential Government Accountability Office report on for-profit colleges. Hess and Kelly’s piece is well worth a read and I’m glad they’re on the case.

Unfortunately, theirs is about the only cry of alarm over apparent bias at the supposedly incorruptible GAO — potentially a huge story — I’ve seen since I wrote the following last week:

Now, though much needs to be determined about why the myriad changes to the report were made, I wouldn’t be terribly surprised to learn that people at the GAO have actually been in on the crusade to demonize proprietary colleges. I also, unfortunately, won’t be surprised if no one pays attention to any of this, and the shameless, responsibility-dodging war on for-profits continues unabated.

Sadly, so far my fears have been realized. Other than Hess and Kelly no one, especially in the mainstream media, is giving this story any of the attention it deserves. Apparently, if someone who’s honest about trying to make a buck is being beaten in an alley, it’s easier just to look the other way.

Economic Slack and Inflation

While listening to NPR this morning, I was subjected to yet another economist claiming that we cannot have inflation in an environment of such high economic slack.  Setting aside the fact that perhaps this economist missed the 1970s, this is a vital question to examine, because it is the foundation of so much of Bernanke and the Federal Reserve’s current thinking.  That is, the notion that inflation is always and everywhere the result of an over-heating, or excess demand, economy.

One of the measures commonly followed by the Fed, and others of the slack-restrains-inflation school, is the measure of capacity utilization rate.  Setting aside some of the problems with this measure, are increases in capacity utilization associated with increasing inflation, as would be suggested by the slack-restraint school?  It turns out not.  Since 1967, when the data series begins, the correlation between capacity utilization and inflation, as measured by the consumer price index (CPI), has been negative.  That is, as more and more industrial and economic resources have been brought into use, inflation has actually fallen, rather than risen (as would be predicted).  A negative correlation also implies that low or falling capacity utilization does not mean low inflation.

Now what is positively correlated with inflation is the growth in the money supply.   The chart below shows annual changes in both CPI and M2.  Even just eye-balling the chart, one can see the positive correlation, which also shows up under statistical analysis. 

Another question one often hears in today’s economic discussions is what would Milton Friedman say?  I won’t claim to be able to channel Milton (or anyone else), but I do think the empirical evidence continues to support the conclusion that inflation is always and everywhere a monetary phenomenon.

Omnibusted

Taxpayers received a rare, albeit small and temporary, victory late last night when Senate Democrats were forced to shelve a pork-laden omnibus bill after establishment Republicans withdrew their support. Instead, Congress will now pass a continuing resolution to fund the government at current levels until the new Congress is seated in January.

The Washington Post nicely summed up what would be a fitting end to the 111th Congress’s two-year spend-a-thon:

The majority leader’s surrender on the spending bill marked a final rebuke for this Congress to the old-school system of funding the government, in which the barons of the Appropriations Committee decided which states would receive tens of millions of dollars each year.

Republicans will crow that they succeeded in preventing a repudiated lame-duck Congress from handing out political Christmas candy on its way out the door—and to a certain extent they’re right. But it also means that the GOP will have to craft long-term funding measures of their own when their new members take office next month. That’s when we will see how serious Republicans are about adhering to the belt-tightening mandate handed up by voters in November.

Republicans had better be just as serious about cutting spending as they were in stopping Democrats from increasing taxes. Prior to the death of the omnibus bill, taxpayers received a reprieve from a massive tax hike scheduled for the first of the year. Unfortunately, the tax bill contained additional spending and no spending cuts, which will mean even more debt if Republicans don’t get their act together next year.

For far too long, Republicans have fixated on tax cuts without lifting a finger to get the spending side of the ledger under control. With Democrats seemingly never able to spend enough, the result has been a major expansion of the federal government and skyrocketing debt. Only substantial spending cuts combined with a reduction in the scope of the federal government’s activities can prevent a fiscal calamity.