Archives: 07/2011

We’re In This for the Long Haul

Today POLITICO Arena asks:

Is it the Senate’s turn to take a crack at the debt ceiling?

My response:

Speaker Boehner has both the Constitution and convention on his side — “money bills” arise in the House. In fact, the Constitution is his strongest ally in his struggle to win the support of recalcitrant Tea Party members. They revere the document, after all, and no one has put the point better than Charles Krauthammer in this morning’s Washington Post.

Boehner’s bill, just to be clear, is a far cry from what this debt-ridden nation needs. As my colleague Chris Edwards put it yesterday, even the revised plan “doesn’t cut spending at all.” It “cuts” only from the CBO baseline, which assumes constantly rising spending. If Congress were serious about addressing our deficit and debt problems, Edwards says, it would have “to start abolishing programs, privatizing activities, and making other lasting reforms.”

Absolutely. But now step back and look at the larger context at the moment. As Krauthammer says,

We’re in the midst of a great four-year national debate on the size and reach of government, the future of the welfare state, indeed, the nature of the social contract between citizen and state. The distinctive visions of the two parties — social-democratic vs. limited-government — have underlain every debate on every issue since Barack Obama’s inauguration.

And the terms of that debate have shifted radically since the Tea Party came on to the scene. The “cuts” in the Boehner plan are modest, to be charitable, but there are no new taxes, which in an earlier day would have been taken as essential. And the focus in Congress and in the nation, as long as the Tea Party keeps up the pressure, is not on new programs but on eliminating old ones — when that is possible.

But right there we bump up against constitutional realty. As Krauthammer puts it, “you cannot govern from one house alone.” We’re light years beyond living under the substantive Constitution, which authorizes only limited government, not the out-of-control welfare state that got us into this mess. But we still live under the procedural Constitution, which means that Reid and Obama can block Boehner’s modest plan. Posturing aside, that’s not likely at this late date. Yet if Tea Party members overplay their hand, they play right into Obama’s hand, politically, going into 2012, when the battle over real change will be waged.

No war — and that’s what we’re in — was won in a day. It took 80 years for John Locke’s ideas about liberty to find their way into the Declaration of Independence. It took another 90 years for those ideas to bring an end to slavery. The limited-government ideas that the Tea Party has brought back to the surface are just now being felt in Congress. This is no time to abandon them. But neither is it a time to set the course of events back, perhaps irretrievably, by employing them unwisely. Take what you can, and live to fight another day, on the battlefield that lies just ahead.

John McCain: Ever Confused, Always for War

Sen. John McCain has exhibited personal courage, but his geopolitical judgment is uniformly awful.  Over the last 30 years there has been no war or potential war that he has opposed.  In 2008 he wanted to confront nuclear-armed Russia over its neighbor Georgia, which started their short and sharp conflict.  It would have been ironic had the Cold War ended peacefully, only to see Washington trigger a nuclear crisis in order to back Georgia as it attempted to prevent the territories of Abkhazia and South Ossetia from doing what Kosovo did with U.S. military aid:  achieve self-determination (by seceding from Georgia).

Now Senator McCain is banging the war drums in Libya.  But he seems to have trouble remembering who are the good guys and who are the bad guys.

Although now crusading against Moammar Qaddafi, two years ago he joined Sens. Joe Lieberman and Lindsey Graham in Tripoli to sup with the dear colonel.  There the three opponents of tyranny whispered sweet nothings in the dictator’s ear, offering the prospect of military aid.  After all, the former terrorist had become a good friend of America by battling terrorists.

Andrew McCarthy reported on the sordid tale from the WikiLeaks disclosures:

A government cable (leaked by Wikileaks) memorializes the excruciating details of meetings between the Senate delegation and Qaddafi, along with his son Mutassim, Libya’s “national security adviser.” We find McCain and Graham promising to use their influence to push along Libya’s requests for C-130 military aircraft, among other armaments, and civilian nuclear assistance. And there’s Lieberman gushing, “We never would have guessed ten years ago that we would be sitting in Tripoli, being welcomed by a son of Muammar al-Qadhafi.” That’s before he opined that Libya had become “an important ally in the war on terrorism,” and that “common enemies sometimes make better friends.”

Obviously, that was then and this is now.  Along the way Senator McCain and his fellow war enthusiasts realized that Qaddafi wasn’t a nice guy after all.  Who knew?  I mean, he had only jailed opponents, conducted terrorist operations against the United States, and initiated a nuclear weapons program.  So earlier this year they demanded that the United States back the rebels, the new heroes of democracy. 

Until now, anyway.

Anyone who has covered civil wars won’t be surprised to learn that the insurgents aren’t always playing by Marquess of Queensbeerry rules.  Indeed, the opposition is united only by its hatred of Qaddafi.  It includes defectors, including  Qaddafi’s former interior minister who was just assassinated under mysterious circumstances; jihadists and terrorists, some of whom fought against U.S. forces in Iraq; tribal opponents of Qaddafi; and genuine democracy advocates devoted to creating a liberal society.  Unfortunately, there is no guarantee that the good guys will win any power struggle certain to follow Qaddafi’s ouster.

The Obama administration claimed to enter the war to protect civilians.  Yet NATO has occasionally threatened to bomb the rebels if they harm civilians.  Reports of summary executions and looting by insurgent forces have emerged.  Now Senator McCain has written the opposition a letter—more polite than sending a drone, I suppose—demanding that the Transition National Council stop being mean to former Qaddafi supporters.

Reports the British Independent newspaper:

In his letter to the TNC, dated 20th July, Senator McCain, writing as “your friend and supporter,” pointed out “recent documentation of human rights abuses committed by opposition figures in the western Libyan towns of al-Awaniya, Rayayinah, Zawiyat al-Bagul, and al-Qawalish”. He continued: ” According to Human Rights Watch, a highly credible international non-governmental organisation, rebel fighters and supporters have damaged property, burned some homes, looted from hospitals, homes and shops, and beaten some individuals alleged to have supported government forces.

“I am confident you are aware of these allegations…. It is because the TNC holds itself to such high democratic standards that it is necessary for you and the Council to take decisive action to bring any human rights abuses to an immediate halt.”

Who would have imagined that a civil war could be nasty and that not everyone who opposes a dictator is a sweet, peace-loving liberal?  Certainly not John McCain.

The point is not that Qaddafi is a nice guy.  The world would be a better place if he “moves on,” so to speak.  But there’s no guarantee that a rebel victory will result in a liberal democracy dedicated to international peace and harmony.  And there’s nothing at stake that warrants involving the United States in yet another war in a Muslim nation—the fifth ongoing, if one counts the extensive drone campaigns in Pakistan and Yemen, along with Iraq and Afghanistan.

When Senator McCain urges Washington to bomb or invade the sixth Islamic state, which is inevitable given his past behavior, it would be worth remembering how he has managed to be on every side of the Libya issue, supporting tyranny before he opposed it.  When it comes to war, the best policy is to do the opposite of what he advises.  Only then will America find itself finally at peace.

What to Read on the Financial Crisis, Part III: Scholarly

Previously I’ve offered suggested readings for understanding the financial crisis.  Part II focused on “popular” works.  What follows is my list of suggested books, written mostly by academics, that give a more scholarly analysis of the crisis.  Also see my Part I.  They are, by definition, less accessible than the popular works, but they do generally offer consistent frameworks for understanding the crisis and rely more on explaining underlying forces, rather than focus on individuals.  All of these are also written for general audiences.  Again this is a highly selective list based upon the writings I’ve found insightful.

1. Getting Off Track, by John Taylor. (4 stars) Short and focused on role of monetary policy in driving housing bubble. While incomplete, a must-read.

2. The Rise and Fall of US Mortgage and Credit Markets, by James Barth. (4 stars) No better single source of data on U.S. mortgage markets and their connection to the crisis. Great reference, a book I come back to repeatedly.

3. This Time is Different, by Carmen Reinhart and Kennethy Rogoff. (5 stars) Read now, do not delay.

4. Fault Lines, by Raghuran Rajan. (4 stars) Solid analysis of the bubble and its political economy. Weak when he ventures into “safety net” discussions, but still a great read.

5. What Caused the Financial Crisis, edited by Jeff Friedman. (4 stars) A collection of essays by different scholars (from John Taylor to Joe Stiglitz). Editor’s intro/overview alone is worth the price of the book.

6.  A Call For Judgment, by Amar Bhide. (3 stars) More a corporate finance take on the crisis, interesting and unique read, but also narrowly focused.

7. A Failure of Capitalism, by Richard Posner. (1 star) One of the least original books from one of the most original thinkers.  Reminds you that Posner is at heart a micro guy, way off when it comes to macroeconomics (and finance). Skip this one.

8. The Origin of Financial Crises, by George Cooper. (3 stars) Brief and insightful take, focused on monetary and credit policy. Far from only thing you should read, but worthwhile addition.

9. Financial Fiasco, by Johan Norberg. Published by Cato, written by Cato scholar, what more do I need to say.

10. Too Big to Save? by Robert Pozen. (4 stars)  Scholarly take from a major player in the financial markets. Somewhat best of both worlds. Lots of useful data.

11. Subprime Solution, by Robert Shiller. (3 stars) Policy solutions don’t really flow from the analysis, but Shiller’s insights into bubbles are always interesting.

12. The Housing Boom and Bust, by Thomas Sowell. (3 Stars) Breezy read from ever entertaining Sowell, but also far too narrow in focus to serve as a primary source.

13. Slapped by the Invisible Hand, Gary Gorton. (3 stars) Too narrow a focus on “shadow banking” but also no better analysis of its role. So if you are going to read several, add this one.

14. Guaranteed to Fail, various NYU professors. (3 stars) Good data and analysis of our mortgage finance system and its role in the crisis.

There are way too many great journal articles to mention, most of which aren’t accessible to the lay reader, but several recent issues of the Journal of Economic Perspectives have contained great reading material on the crisis.  Some of these articles are free for download (others are not).

Leave Iraq to the Iraqis

Many advocates of promiscuous military intervention angrily reject the claim that America is an “empire.” Granted, the U.S. doesn’t directly rule its imperial dependents. But Washington policymakers do insist on maintaining a military presence wherever and whenever possible, irrespective of America’s defense needs.

The Obama administration’s attempt to pressure the Iraqi government into “inviting” the U.S. to remain is almost comical. Rather than requiring Baghdad to demonstrate why a continuing American presence is necessary, U.S. officials have been begging to stay. Former Defense Secretary Robert Gates said: “I hope they figure out a way to ask.” His successor, Leon Panetta, recently blurted out: “dammit, make a decision.”

However, it is Washington that should make a decision and bring home America’s troops.

The U.S. continues to garrison Europe, Japan, and South Korea, decades after American forces first arrived. All of these international welfare queens could defend themselves. Despite President Bill Clinton’s promise that American troops would spend just a year occupying the Balkans, an area of minimal security interest to the United States, some troops remain to this day. And uber-hawks talk about maintaining a permanent presence in Afghanistan, as distant from conventional U.S. defense interests as any nation on the planet.

But right now Iraq is exciting the most concern, since the United States is supposed to withdraw its combat forces by year-end. Gen. Jeffrey Buchanan, the top military spokesman in Iraq, said Washington “has committed to an enduring partnership with Iraq,” but it would be easier if the Iraqis spoke up “while we have troops here and infrastructure here.”

From start to (almost) finish, the Iraqi operation has been a tragic fiasco. The United States invaded to seize non-existent WMDs. American forces destroyed the country’s system of ordered tyranny, turning the country into a bloody charnel house, killing hundreds of thousands and forcing millions to flee. Washington’s occupation transferred democracy to Iraq without the larger liberal culture necessary for democracy to thrive. U.S. intervention empowered Iran while destroying Baghdad’s ability to control its own borders.

Yet President Obama wants to stick around, meddling in Iraq’s domestic affairs and defending it in foreign matters.

The United States should not have invaded Iraq. Washington can’t undo the ill effects of the war, but it can avoid the costs of a permanent occupation.

America’s job in Iraq is done. The Iraqis should be left in charge of their national destiny. All U.S. troops should be withdrawn. Washington should stop collecting increasingly dangerous dependencies for its empire.

Cross-posted from The National Interest

Boehner’s New Plan Doesn’t Cut Spending

House Speaker John Boehner has revised his budget plan in response to an unfavorable analysis by the CBO. The CBO has examined Boehner’s new plan and finds that it would cut spending by $917 billion over 10 years. Of the total, only $761 billion would be cuts to programs. The rest of the savings would be from reduced interest costs.

Actually, the revised Boehner plan doesn’t cut spending at all. The chart shows the discretionary spending caps in the new Boehner plan. Spending increases every year—from $1.043 trillion in 2012 to $1.234 trillion in 2021. (These figures exclude the costs of wars in Iraq and Afghanistan).

The “cuts” in the Boehner plan are only cuts from the CBO baseline, which is an assumed path of constantly rising spending. If Congress wanted to, it could require CBO to increase its “baseline” spending by, say, $5 trillion over the next decade. Then Boehner could claim that he was “cutting” spending by $5.9 trillion, even though his plan hadn’t changed. You can see that discretionary “cuts” against baselines don’t mean anything.

The way to make real spending cuts is to abolish programs and agencies. But it’s been eight months since a landslide election that focused on the issue of spending cuts, and the Republican leadership hasn’t proposed any major terminations. 

Senator Tom Coburn told us exactly where he wants to cut spending in this 620-page report. Senator Rand Paul has detailed $500 billion in specific cuts. Where are the spending cut plans of the other fiscal conservatives in Congress?

Members need to step up to the plate and tell us where they would cut the budget. (For help, they can look here). The reality of ongoing $1 trillion deficits is that Congress has to start abolishing programs, privatizing activities, and making other lasting reforms. Promising to reduce spending growth a bit from projected baseline increases won’t do the job.

Monks Successfully Defend Their Right to Earn an Honest Living

Last week, a federal court in Louisiana ruled that a state law prohibiting sales of caskets by non-licensed merchants was unconstitutional.  A monastery that has made caskets for over a century sued the state to protect their modest casket business. It should come as no surprise that our friends at the Institute for Justice were leading the charge against the law:

Under Louisiana law, it was a crime for anyone but a government-licensed funeral director to sell “funeral merchandise,” which includes caskets.  To sell caskets legally, the monks would have had to abandon their calling for one full year to apprentice at a licensed funeral home and convert their monastery into a “funeral establishment” by, among other things, installing equipment for embalming.

The Honorable Stanwood Duval of U.S. District Court for the Eastern District of Louisiana ruled, “Simply put, there is nothing in the licensing procedures that bestows any benefit to the public in the context of the retail sale of caskets.  The license has no bearing on the manufacturing and sale of coffins.  It appears that the sole reason for these laws is the economic protection of the funeral industry which reason the Court has previously found not to be a valid government interest standing alone to provide a constitutionally valid reason for these provisions.”

Thus, even though merely economic liberty was at issue and therefore courts need apply only “rational basis” scrutiny to the regulation at issue, this regulation fails for being completely beyond any conceivable rational basis. And indeed, like so many regulations, this one was nothing more nor less than a barrier to entry for small businesses. Established funeral directors had used the power of the government to illegally control the market, eliminating competition and artificially driving up the prices of caskets. Not only was the funeral-director cartel denying the monks their right t earn an honest living, but they were taking advantage of the people they serve (ultimately, everyone in Louisiana) by extracting ill-gotten profit – often at the time of their customers’ greatest sorrow.

You can read the full opinion here and watch a video that tells the monastery’s story below. Congratulations to the monks of St. Joseph Abbey and the great attorneys at IJ!

Republicans Employ Education Weapons, Too

A couple of days ago I blasted President Obama for, in repugnant tradition, using “education” as a political weapon, invoking it to scare Americans into demanding increased taxes for “the rich.” House Speaker John Boehner, thankfully, did not abuse education similarly in his rebuttal. But his proposal for raising the debt ceiling illustrates just how weak the GOP’s commitment is to returning the federal government to its constitutional – and affordable – size. And I say this not because of the relative puniness of his proposed cuts, but what the proposal would do in education, the only area it specifically targets: increase funding for Pell Grants.

Now, I know what many people will say to this: Pell is a de facto entitlement; it has a big shortfall; and Boehner’s bill would offset the Pell increase by eliminating federal student loan repayment incentives and grad student interest subsidies. And do you just hate education, McCluskey, or poor people?

On the first points, yes to all of those, and the CBO even projects that over ten years Boehner’s bill would achieve some savings from his student-aid moves. But ten years is a long time, during which a lot of things – especially spending increases – could happen. And the seemingly forgotten fact of the matter is that we have a $14.3 trillion debt and are sooner or later going to need big, tough cuts. And though Pell Grants sound so nice – they give poor kids money to go to college! – they should be eliminated for several reasons well beyond  frightening fiscal reality:

  1. They are unconstitutional: None of the Federal government’s enumerated – and only – powers say anything about paying for college.
  2. They are inflationary: Maybe Pell Grants, because they target low-income students better than federal loans and tax-based aid, aren’t the biggest drivers of tuition inflation, but research suggests they are a driver, especially at private institutions. There is also good reason to believe that schools target their own aid dollars to other, better-off students when they can use taxpayer dough for low-income ones.
  3. They take money from real human beings – taxpayers – to make others rich: Okay, maybe not rich, but as higher ed advocates will quickly tell you, on average a person with a college degree will make roughly $1 million more over her lifetime than someone without one. There’s a lot of play in that number, but the point is generally correct: A degree helps to significantly increase earnings. How, then – even absent a mind-blowingly colossal debt – can we justify taking money from taxpayers, many of whom did not go to college, and just giving it away to others so that they can get a lot wealthier? At the very least Pell should be made into a federally backed loan program – recipients should at least have to return taxpayers’ “investment” – which Boehner could have put into his bill.

Republicans might not be as quick as Democrats to rattle education-tipped missiles, but they’re fully committed to keeping them in their arsenal.