Archives: 02/2013

Sequestration Cuts in Perspective

According to the Congressional Budget Office, the $85 billion in sequestration spending cuts translates into $44 billion reduction in actual federal outlays for 2013. The following chart puts that figure in perspective. 

To balance the budget this year, the reduction in outlays would have to be almost 20 times larger. 

One might argue that it isn’t fair to compare the cuts to total spending because sequestration barely touches entitlement spending, which is the budget’s 800-lb gorilla. I acknowledge that sequestration isn’t the ideal for cutting spending. So by all means, let’s target the whole ball of wax and dramatically increase the amount to be cut. 

Permitting Oil and Gas Exports Is a No-Brainer

Following today’s deadline for interested party comments, the U.S. Department of Energy will begin to consider sixteen pending applications to export natural gas to countries like Japan with whom the United States does not have a free trade agreement.  The issue is a contentious one: energy producers, many other U.S. companies and a large, bipartisan swath of Congress have urged DOE to approve all export license applications, but opposition has materialized among certain domestic consuming industries and environmental groups.  As a result, the Obama administration has delayed consideration of all but one application, and is expected to eventually permit a portion of the remaining exports in an attempt to placate both sides of the debate.

As I explain in a new Cato Institute paper, however, such a Solomonic decision might achieve the administration’s political objectives but will do nothing to fix the fundamental problems raised by U.S. export regulations for natural gas or similar rules for crude oil.  These exports continue to be governed by licensing systems adopted when the United States was a net energy importer and dependent on fossil fuels for energy production – a picture far different from the production, price, and trade realities that exist today due to revolutionary fossil fuel extraction technologies like hydraulic fracturing (“fracking”) and horizontal drilling.  In fact, domestic production of crude oil and natural gas has skyrocketed in recent years, driving down prices, boosting downstream industries, creating ample export opportunities and potentially reversing the United States’ historic position as a net energy importer.  However, our gas and oil export licensing systems – respectively governed by the Natural Gas Act of 1937 and the Energy Policy and Conservation Act of 1975 – continue to treat fossil fuel exports as a rarity and subject them to a long, opaque approval process under which the federal government retains ample discretion to approve or deny most export license applications.

Perhaps unsurprisingly, these outdated systems, and the restrictions they impose on U.S. exports, create a host of problems:

  • First, by depressing domestic prices and subjecting export approval to the whims of government bureaucrats, the U.S. licensing systems retard domestic energy production, discourage investment in the oil and gas sectors, and destabilize the domestic energy market. Artificially low prices prevent producers from achieving a sustainable rate of return on the massive up-front costs required to drill and extract oil and gas, and investors lack any assurances under the discretionary licensing systems that domestic prices will not collapse when output increases.  Such concerns have led the IEA to recently warn that U.S. export restrictions put the “American oil boom” at risk.  And contrary to certain politicians’ claims, independent reports show that the exportation of oil and gas would not cause a traumatic spike in prices, thus enabling consumers to continue to benefit from hypercompetitive U.S. fuel and feedstock supplies.
  • Second, restricting U.S. gas and oil exports could hurt the U.S. economy. Recent studies indicate that these exports - even in unlimited quantities - would not only benefit U.S. energy producers, but also increase real household income.
  • Third, both export licensing systems raise serious concerns under global trade rules.  The General Agreement on Tariffs and Trade (GATT) prohibits WTO Members from imposing export restrictions implemented via slow or discretionary licensing systems like those at issue here.  Moreover, several nations, including the United States, impose anti-subsidy measures (called “countervailing duties” or “CVDs”) on downstream exports (e.g., steel) due to export restrictions on their upstream inputs (e.g., iron). Thus, the crude oil and natural gas licensing systems could lead to anti-subsidy duties on energy-intensive U.S. exports that negate the very price advantages created by the licensing systems – a heightened risk, given that American exporters are increasingly targeted by foreign CVD actions.
  • Fourth, current policy contradicts several other Obama administration priorities.  Most obviously, restricting oil and gas exports undermines the president’s National Export Initiative and stands in stark contrast to his full-throated advocacy of other energy exports, particularly renewables like biofuels and solar panels. Moreover, the use of export restrictions to benefit downstream industries contradicts longstanding U.S. policy of using countervailing duties to discourage foreign imports that unfairly benefit from export restrictions on upstream inputs.  Finally, the U.S. government has long opposed restrictive and opaque export licensing systems in WTO negotiations and dispute settlement.  The current U.S. export licensing regulations for oil and gas contradict these positions and undermine multilateral efforts to rein in such restrictions.

If President Obama really wants to develop America’s vast energy resources, grow the U.S. economy, restore some coherence to U.S. trade and energy policy, and avoid potentially embarrassing trade conflicts, he should order DOE to immediately approve all, not just some, of the pending license applications for natural gas and crude oil.  He then should pursue, with Congress, an overhaul of our archaic licensing systems so that they reflect the new American energy landscape and the United States’ position as a global export power.  Such reforms would bolster investment, production, and employment in the oil and gas sector, stabilize the U.S. energy market and benefit the overall economy, avoid the myriad policy and legal problems raised by the current system, and produce a rare moment of bipartisan comity in Washington.  It’s a no-brainer.

 

Proposals To Make Gun Owners Carry Liability Insurance

As the New York Times reports

Lawmakers in at least half a dozen states, including California, Connecticut, Maryland, Massachusetts, New York and Pennsylvania, have proposed legislation this year that would require gun owners to buy liability insurance — much as car owners are required to buy auto insurance. Doing so would give a financial incentive for safe behavior, they hope, as people with less dangerous weapons or safety locks could qualify for lower rates.

“Liability insurance” may be a misnomer in this discussion, however, since some of the proposals would require the purchase of bonds against intentional acts (which are commonly excluded from conventional liability coverage), and also against misadventures for which gun owners would not at present be held legally responsible (such as third party criminal use of a gun following a theft not occasioned by owner negligence.)  More: ReutersNelson Lund/GMUJessica Chasmar/Washington TimesTaranto/WSJJosh Blackman.

Would a mandatory bonding or insurance scheme survive judicial scrutiny if it were motivated by a desire to burden the exercise of a constitutional right? David Rifkin and Andrew Grossman, writing in the WSJ, suspect not:

Insurance policies cover accidents, not intentional crimes, and criminals with illegal guns will just evade the requirement. The real purpose is to make guns less affordable for law-abiding citizens and thereby reduce private gun ownership. Identical constitutionally suspect logic explains proposals to tax the sale of bullets at excessive rates.

The courts, however, are no more likely to allow government to undermine the Second Amendment than to undermine the First. A state cannot circumvent the right to a free press by requiring that an unfriendly newspaper carry millions in libel insurance or pay a thousand-dollar tax on barrels of ink—the real motive, in either case, would be transparent and the regulation struck down. How could the result be any different for the right to keep and bear arms?

[cross-posted and slightly adapted from Overlawyered]

Yes, Florida Voters Oppose ObamaCare’s Medicaid Expansion

Bloomberg’s Josh Barro criticizes the James Madison Institute’s poll showing that 65 percent of Florida voters oppose implementing ObamaCare’s Medicaid expansion. Barro is mostly wrong. But even when he’s right, he’s still wrong. Disclosure: I helped JMI formulate their poll questions.

Barro complains that JMI conducted a “push poll.” His first complaint is:

It starts by priming respondents with questions about the national debt and the size of Florida’s existing Medicaid budget.

Then it gives an inaccurate description of the terms of the expansion. Poll respondents were told that Medicaid currently covers people earning up to 100 percent of the federal poverty line. That’s not true: In Florida, the limit for adults is 56 percent of FPL, and you must have dependent children to qualify.

Though Barro slightly mischaracterizes the poll question, he is basically correct, and the inaccuracy is my fault.

The folks who originally drafted JMI’s poll questions aren’t health care wonks, so they ran their questions by me. This question was originally worded the way Barro claims the final question was: “Medicaid coverage is currently available for those with incomes up to 100% of the poverty line.” I hurriedly emailed the JMI folks, “Florida does not offer Medicaid coverage to everyone below 100 percent of poverty. See page 2 and table 3 of this report. You might replace ‘currently’ with ‘generally.’” So that’s what JMI did. In retrospect, Barro is right. “Generally” gives the impression that Medicaid is available to more Floridians below the poverty line than is actually the case, and I should have offered a better edit. Mea culpa.

His next complaint is not accurate:

Respondents also heard that after three years, the state would be on the hook for “more than 10 percent” of the cost of newly eligible adults. That’s not true, either: The state’s share would be exactly 10 percent.

Under current law, for the first three years the feds pay for 100 percent of the cost of claims for newly eligible adults. They do not pay 100 percent of the administrative costs of covering those adults. States have to pick up much of that cost (as well as other costs related to other parts of the expansion). So the question is accurate and Barro is wrong. He’s not a health care wonk, though, so he can be forgiven for this one.

But Barro’s third complaint is the real doozy:

Green Energy and the Fall of the Bulgarian Government

The Bulgarian government resigned on Wednesday after violent protests spread across the  country. The protesters complained about a variety of issues, including perceived government corruption and persistently low standards of living. A key complaint, it seems, was the high price of electricity. Yet when it comes to electricity price, Bulgarians ought to understand the pernicious role played by the European Union and its obsessive drive toward renewable energy targets.

The departing minority government of Prime Minister Boyko Borisov and his center-right party, the Citizens for European Development of Bulgaria, came to power in 2009. Under the leadership of respected former World Bank official and finance minister Simeon Djankov, the government cut the budget deficit from 4.3 percent in 2009 to 2 percent in 2011. Both Standard & Poors and Moody’s upgraded Bulgaria, the only sovereign upgrade in the EU since 2008. The country’s parliament also adopted the so-called “golden rules” that prohibit the government from running deficits higher than 2 percent of GDP and a debt-to-GDP ratio to exceed 40 percent. Growth, alas, proved elusive and Djankov was forced to resign on February 18.

That said, Bulgaria remains the EU’s poorest country. In 2010, for example, Bulgaria had the lowest average gross annual earnings of full-time employees, at 4,396 euros. Neighboring Romania was one spot ahead of Bulgaria with 5,891 euros per year. A comparable number for Denmark, the EU’s richest nation, was 58,840 euros. Bulgarian economic growth has been anemic in recent years, a reminder that membership in the EU is not a panacea for economic problems. In fact, Bulgaria’s membership in the EU may have worsened the lives of its neediest citizens by artificially increasing the price of electricity.

In March 2007, European leaders agreed to a binding requirement that renewable energy would comprise 20 percent of the EU’s final energy consumption by 2020. The Bulgarian target is a somewhat lower 16 percent. In a country as poor as Bulgaria, energy consumption can amount to a staggeringly high share of income. According to Eurasia Group, average Bulgarians pay as much as a quarter of their monthly earnings for electricity and all are forced to subsidize renewable energy production through additional fees amounting to some 8 percent of their pre-tax electricity bills.

How Much Do IR Academics and the Foreign Policy Community Disagree?

I was surprised but pleased to see that a blog post I wrote in 2009 started getting some attention yesterday. The post, which emerged from a paper I gave at the 2010 APSA, argued that there is a big gap between the views of U.S. grand strategy in the international relations academy versus the view in the foreign policy community (FPC), and that this gap is caused by domestic politics. In short, academics tend to think American strategy is unduly grandiose and FPC types think it’s great. Dan Drezner has a post up wondering whether this is generally true, or unique to the Iraq period.

To begin, I’m not sure why Drezner thinks that in order for my argument to be correct, “the foreign policy community should be united in dispatching military force at every opportunity since Iraq.” Neither the blog post nor the paper on which it was based argued that the foreign policy community should unanimously support every potential war, but rather that they were united around an activist strategy that produced Iraq.

That’s what made the recent article by Stephen Brooks, John Ikenberry, and Bill Wohlforth so edifying. It was the first defense of American grand strategy I can recall reading that was sophisticated enough to be published in a journal like International Security. And the reason they wrote it? Because according to “many of the most prominent security studies scholars—and indeed most scholars who write on the future of U.S. grand strategy” retrenchment’s time has come.

It’s worth noting that a disproportionate number of academics writing about grand strategy are realists, so that’s coloring the ideological content of what the academics are producing. Drezner has complained about realist victimhood before, but grand strategy is an elite sport, and even he admits that “America’s foreign policy elites are more hostile to realpolitik – though even here, things can be exaggerated.” Drezner then points to Henry Kissinger and Brent Scowcroft as bearers of the realist flag, but even if you would lump Kissinger and Scowcroft in with Posen and Walt (I wouldn’t), both men are in their late 80s. There is no realist faction in the FPC, if by “realist” we mean “person whose views on strategy comport with leading academic realists.”

Think about members of the FPC who work on strategy and scholars in the academy who do so. Is a potential strategy debate between, say, a Democrat like Anne-Marie Slaughter and a Republican like Robert Kagan very interesting? I don’t think so. It’s fought between the seven and nine-yard lines at the primacy end of the field. Then consider a debate between, say, Barry Posen or John Mearsheimer, on the one hand, and Kagan or Slaughter on the other. Pass the popcorn.

You can reconcile this one of two ways. One, you can say that there’s a problem in the academy. Primacy is so obviously the optimal grand strategy for the United States that it reflects poorly on the ivory tower that so many strategists there don’t get it. Two, you can conclude that the strategy is not self-evidently optimal, so there’s something wrong with the consensus in Washington.

While we’re here, though, let’s take Drezner’s question about whether the disagreement over Iraq was an aberration. Let’s look at two of the biggest strategic questions facing Washington over the last five and next five years: Afghanistan and Iran.

Afghanistan — I had a fairly easy time pulling together signatures from academics for the Coalition for a Realistic Foreign Policy’s letter to President Obama urging him not to surge into Afghanistan in 2009. Signatures from Beltway types were hard to come by. For his part, Columbia’s Jack Snyder characterized the view from the academy this way:

Pretty much everyone thinks that the conditions in Afghanistan are terrible, that the political situation is terrible, and thus that the conditions for successful counterinsurgency and state-building are inauspicious,” says Snyder, warning that the current war strategy “would be costly, would take a really long time, and might not work.

As always, more/better data would be better, but other than Stephen Biddle, I don’t know a lot of academics who thought Surge Part II was a movie worth seeing.

Iran — An awful lot of academics and others are saying we could live with a nuclear Iran without too much difficulty. The most recent TRIPs survey of IR academics had the “bomb Iran/live with a nuclear Iran” count at 20 percent to 80 percent. That’s not the order of battle in the FPC. Not in public, or in the political debate, anyway. For example, in a recent “national security insiders” poll from National Journal, a narrow majority of insiders did say—implicitly—that living with a nuclear Iran would be better than a war. But, importantly, those answers were given anonymously. And half of the public Beltway commentary over what to do about Iran does not say we could live with a nuclear Iran, which again points to the incentives facing defense intellectuals in Washington. People who appear to believe we could live with a nuclear Iran aren’t saying so forcefully, despite the important consequences. Why not?

The paper argues that domestic political factors are at work. I just uploaded the final edited version at SSRN, so give it a look and, as Drezner might ask, tell me what I’m missing.