Archives: June, 2012

Oh, the Uses of the ‘Cyber’ Prefix: Cyberbellicosity, for Example

Senate Majority Leader Harry Reid’s (D-Nev.) announcement yesterday of upcoming Senate action on cybersecurity legislation coincides nicely with reporting that the recently discovered Flame virus has similarities to Stuxnet. You see, the best example of a cyberattack having kinetic effects—causing physical damage—is Stuxnet. It targeted Siemens industrial software and equipment used in Iran’s nuclear program, causing damage to some centrifuges used in that program.

Stuxnet is widely believed to be a product of the U.S. and Israeli governments. Flame’s kinship with Stuxnet adds to the story: Our government is a top producer of cyberattacks.

The methods used in these viruses will be foreclosed as researchers unpack how they work. Our technical systems adapt to new threats the way humans develop antibodies to disease. But in the near term the techniques in Stuxnet and Flame may well be incorporated into attacks on our computing infrastructure.

The likelihood of attacks having extraordinary consequences is low. This talk of “cyberwar” and “cyberterror” is the ugly poetry of budget-building in Washington, D.C. But watch out for U.S. cyberbellicosity coming home to roost. The threat environment is developing in response to U.S. aggression.

This parallels the United States’ use of nuclear weapons, which made “the bomb” (Dmitri) an essential tool of world power. Rightly or wrongly, the United States’ use of the bomb spurred the nuclear arms race and triggered nuclear proliferation challenges that continue today. (To repeat: Cyberattacks can have nothing like the consequence of nuclear weapons.)

Senator Reid has gone hook, line, and sinker for the “cyber-9/11” idea, of course. Like all politicians, his primary job is not to set appropriate cybersecurity policies but to re-elect himself and members of his party. The tiniest risk of a cyberattack making headlines to use against his party justifies expending taxpayer dollars, privacy, and digital liberties. This it not to prevent cyberattack. It is to prevent political attack.

Politics is well understood by the authors of the letter Senator Reid cited in his statement about bringing cybersecurity legislation to the Senate floor. They are mostly from the party opposite his. Several of them participated at some level in developing our nation’s cyberbellicose world posture. And several now make their living in consulting and contracting firms that respond to the danger they helped create.

They are:

  • Michael Chertoff, Homeland Security secretary under President Bush, is now co-founder and Managing Principal of The Chertoff Group, which “provides business and government leaders with the same kind of high-level, strategic thinking and diligent execution that have kept the American homeland and its people safe since 9/11.”
  • Mike McConnell, former director of the National Security Agency and National Intelligence under President Bush, is now Vice Chairman of Booz Allen Hamilton.
  • Paul Wolfowitz was a deputy defense secretary under President Bush, now a visiting scholar at AEI.
  • General Michael Hayden, former director of the NSA and the CIA under President Bush, is now a principal at the Chertoff Group, and in January 2011 was elected to the Board of Directors of Motorola Solutions, which “provides business- and mission-critical communication products and services to enterprises and governments.”
  • Gen. James Cartwright, former vice chairman of the Joint Chiefs of Staff, is on the board of advisors of TASC, Inc. TASC “provides advanced systems engineering, integration and decision–support services to the Intelligence Community, Departments of Defense and Homeland Security and civilian agencies of the federal government. We deliver honest counsel, forward–thinking engineering and advanced technologies that help our customers protect Americans at home, in the air, on the battlefield and in cyberspace.”
  • Hon. William J. Lynn III, former deputy defense secretary, is now Chairman & CEO of DRS Technologies, a Defense and Security Electronics Division of Italian industrial group Finmeccanica. DRS Technologies is “leading supplier of integrated products, services and support to military forces, intelligence agencies and prime contractors worldwide.”

Can the Government Destroy Propety Values ‘Temporarily’ Without Compensation?

This blogpost was co-authored by Trevor Burrus.

A seemingly complicated legal case that has caught Cato’s attention, CCA Associates v. United States, boils down to a simple constitutional question: If the government reneges on a contract and forces a property owner to rent apartments at below-market rates for longer than originally agreed, does it constitute a taking under the Fifth Amendment (which would require the government to pay just compensation)?

In 1961, Congress amended the National Housing Act to create incentives for private builders to supply housing to low- and moderate-income families. Builders were given below-market mortgages backed by the federal government and, in return, the owners agreed to certain restrictions from the Department of Housing and Urban Development, the most relevant being limitations on raising rent. Owners were also given the right to pre-pay the 40-year mortgage after 20 years, however, freeing them at that time from their rent-control obligations.

In 1990, as one 20-year period came to a close, Congress took away the owners’ right to pre-pay their mortgages. In 1996, however, Congress returned the property owners’ right to pre-pay. Therefore, between 1991 (when the original 20-year period would have lapsed) and 1996, the property owners were forced to rent at below-market rates.

CCA Associates is one of many similarly situated property owners who are suing the federal government for its clear act of duplicity. CCA Associates’ case, among many others, has been bouncing back and forth between the Court of Federal Claims and the Federal Circuit for many years.

One of the key questions is how to determine the degree to which the government’s actions economically affected CCA Associates’ property. One view is that there was substantial economic impact during the five-year period between when Congress eliminated and then restored the pre-pay right – CCA Associates lost approximately 81% of the property’s possible value during those five years. Another view looks at the impact during the five-year period as fraction of the entire life of the property, not just the diminished value during the five-year period. Under this calculation, CCA Associates only lost 18% of the total value of the property.

The Federal Circuit adopted the latter formula and held that 18% is not a substantial enough economic impact to constitute a Fifth Amendment taking. Cato has joined the National Federation of Independent Business, the Center for Constitutional Jurisprudence, and Professor Steven Eagle of George Mason University Law School on an amicus brief urging the Supreme Court to take CCA Associates’ case.

We argue that adopting the Federal Circuit’s answer to the so-called “denominator question” – that is, whether the denominator in the “economic impact” fraction should be the entire life of the property or the shorter (here five-year) period during which the government temporarily took the owners’ right to rent at the market price – could preclude all possible claims that the government committed a “temporary taking.” By choosing a big-enough denominator, courts can always characterize an economic impact as being below the constitutional threshold.

We also argue that, in applying the Supreme Court’s factors in the famous 1978 Penn Central case (which set up the analytical framework for regulatory takings), the Federal Circuit incorrectly treated the factors as a magic formula and ignored other relevant factors. Finally, we point out how courts are obviously confused about the proper standards to apply in these cases, thus creating a perfect time for the Supreme Court’s guidance.

The Court will decide this fall whether to hear CCA Associates v. United States.

Pushing Ukraine Back to the Soviet Union?

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP:  Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.

How to Destabilize the Hong Kong Dollar

Mr. Joseph Yam, former chief executive of the Hong Kong Monetary Authority, has proposed a package of policy changes that, if implemented, would undermine and destabilize the Hong Kong dollar—a unit that has been rock solid ever since Hong Kong established its currency board in 1983.  And if you doubt that dire conclusion, reflect on the fact that Argentina blew up its famed convertibility system (OK—it wasn’t a currency board, but only an unusual pegged setup) in 2001 by adopting a series of Yam-like measures.

Libertarians, Conservatives, and the Social Issues

Like Walter Olson, I was struck yesterday by Tim Carney’s admonition that “Libertarians need to reassess their allegiances on social matters” in light of government infringements on religious liberty. Walter did a good job of demonstrating that libertarians, even those who are not themselves religious, have been “on the front lines” in defending religious liberty in such cases as Catholic hospitals’ objections to paying for birth control and the wedding photographer in New Mexico who didn’t want to photograph a gay wedding. Libertarians don’t have to be conservatives to object to “liberal” infringements on personal and religious freedoms.

But there’s another problem with what Carney wrote. I’m not quite sure what “Libertarians need to reassess their allegiances on social matters” means. But perhaps he means that libertarians should stop thinking of themselves as “fiscally conservative and socially liberal” and recognize that a lot of infringements on freedom come from the left. In my experience libertarians are well aware that in matters from taxes to gun ownership to Catholic hospitals, liberals don’t live up to the ideal of true liberalism.

But what about conservatives? Are conservatives really the defenders of freedom? Carney seems to want us to think so, and to line up with conservatives “on social matters.” But the real record of conservatives on personal and social freedom is not very good. Consider:

  • Conservatives, like National Review, supported state-imposed racial segregation in the 1950s and 1960s. (I won’t go back and claim that “conservatives” supported slavery or other pre-modern violations of freedom.)
  • Conservatives opposed legal and social equality for women.
  • Conservatives supported laws banning homosexual acts among consenting adults.
  • Conservatives still oppose equal marriage rights for gay couples.
  • Conservatives (and plenty of liberals) support the policy of drug prohibition, which results in nearly a million arrests a year for marijuana use.
  • Conservatives support state-imposed prayers and other endorsements of religion in public schools.
Conservatives have a bad record on social freedom. It is, in a word, illiberal. Carney may be right that,
This is how the culture war generally plays out these days: The Left uses government to force religious people and cultural conservatives to violate their consciences, and then cries “theocracy” when conservatives object.
But conservatives earned the skepticism of liberals and libertarians on social issues over long decades during which they supported far greater intrusions on personal freedom than the ones Carney is writing about—which are nevertheless illiberal and should be opposed by all who adhere to the principles of freedom.

Elinor Ostrom, RIP

Elinor Ostrom, the first woman to receive the Nobel Prize in economics—though that is hardly the most significant aspect of her work—has died at 78. My old friend Mario Rizzo of New York University examined her scholarly accomplishment in 2009 when she won the Prize:

The work of Elinor Ostrom, the first woman to receive the Nobel Prize in economics, is not very well-known among economists. In fact, I would venture the guess than most economists had not heard of her before the prize was announced yesterday morning.

Two reasons for this are that her degree is in political science and she has written for publications outside of the mainstream economics journals. Additionally, her work, by and large, lacks the high degree of mathematical formalism now so characteristic of economics.

Yet the Nobel Prize Committee has done a great service to economics and the greater social-scientific community. When a well-known economist receives the prize little is gained apart from the recognition of a job well done and perhaps some wider public recognition. I do not think that great contributions are made in any discipline because of the incentive effects of an improbable prize. However, in this case the Nobel Committee has brought extraordinary work to the attention of an economics discipline that has become excessively specialized and, perhaps increasingly irrelevant to the real world, as Paul Krugman and others have recently suggested.

Professor Ostrom’s work is highly relevant to important issues in economic development, common-pool resources, the development of social norms, and the solution of various collective action problems. Her work is also methodologically diverse. She uses experimental methods, field research, and evolutionary game theory. She is not afraid to draw on various disciplines when appropriate: economics, political science, evolutionary psychology, cultural anthropology and so forth.

She is a very worthy intellectual descendant of Adam Smith who realized that the study of trade based on self-interest needed to be supplemented by a broader view of humankind – individuals capable of the so-called “moral sentiments” like honesty, benevolence, and loyalty, as well as the standard vices.

Much of Ostrom’s work centers on developing and applying a broader conception of rationality than economists usually employ. The standard conception of rationality is not the rationality of real human beings but the rationality of cognitively-unlimited lightning-fast calculators. This is a purely imaginary construct. On the other hand, Olstrom’s “thick rationality” is the result of trial and error, use of relatively simple heuristics, employment of rules, and the embodiment of cultural norms. To reject standard, improbable rationality is notto reject rationality. It is rather to develop more sophisticated, and yet more realistic, models of rationality.

“Thick rationality” is a bottom-up phenomenon. It recognizes the importance of local knowledge and diverse approaches in the management of resources. For example, many top-down irrigation projects in developing countries have failed because they have concentrated on the physical aspects of water delivery. Ostrom believes that the institutional aspects are more important. Irrigation systems built by farmers themselves are often more efficient. They deliver more water, are better repaired, and result in higher farm productivity than those built by international agencies. Often these agencies take no notice of local customs, knowledge and incentive structures; the knowledge of the bureaucrat is inferior to the knowledge of the individuals on the ground.

The central problem on which her employment of the notion of “thick rationality” can shed light is what she calls “social dilemmas.” These are circumstances in which interacting individuals can easily succumb to maximizing their short-term interests to the detriment of their long term interests. To return to our irrigation example, suppose farmers share the use of a creek for irrigation. They face a collective problem of organizing to clear out the fallen trees and brush from the previous winter. Each farmer would like to have the others do it. There are incentives to free-ride on the “public spiritedness” of others – however, everyone may think this way and nothing will get done. Ostrom finds that cooperation will often take place while the “thin” theory of rationality predicts that it will not. She finds that factors such as face-to-face contact (likely when there are small numbers), the equality of each farmer’s stake in the benefits of irrigation, and the ease of monitoring the farmer’s contribution to brush removal all make the likelihood of cooperation greater.

Elinor Ostrom has and continues to expand the power of a broader conception of rationality – one that Adam Smith would have recognized and been comfortable with – to explain the multifarious forms of human cooperation that conventional economists have been unable to explain. This is a major contribution.

Paul Dragos Aligica and Peter Boettke of George Mason University showed excellent prescience in publishing a book in the summer of 2009, just a few months before the Nobel Prize was awarded, on the work of Ostrom, her husband Vincent, and their colleagues at Indiana University, Challenging Institutional Analysis and Development: The Bloomington School.

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