Archives: April, 2013

Colonel Gian Gentile on the War in Afghanistan

Last Friday, Colonel Gian Gentile, an award-winning historian, associate professor of history, and director of the military history program at the U.S. Military Academy at West Point, spoke at the Cato Institute about the misapplication of counterinsurgency in Afghanistan for the purpose of destroying al Qaeda. In a new Cato video, conducted with Cato multimedia director Caleb Brown, Colonel Gentile elaborates on America’s narrow aim of defeating al Qaeda. He also explains how that aim can be pursued without a costly, multi-decade, troop-heavy campaign, and puts the application of counterinsurgency doctrine in a historical context.

On a slightly different note, mainly for those readers concerned about leaving the Taliban unmolested, the United States and its coalition allies have come to accept the region’s geopolitical landscape, in which it seems there is no way to avoid the Taliban and other anti-Afghan government forces becoming part of some future political order. Consider this statement by Philip Mudd, the former deputy director of the CIA’s Counterterrorist Center and the FBI’s National Security Branch: “On September 12, 2001, can you imagine asking the question: Is the Taliban really a threat? Today, 12 years later, I’d say, well clearly it’s not a threat!”

Food for thought. Check out the video below.

According to Washington Post Exposé, People Who Utilize Tax Havens Are Far More Honest than Politicians

Using data stolen from service providers in the Cook Islands and the British Virgin Islands, the Washington Post published a supposed exposé of Americans who do business in so-called tax havens.

Since I’m the self-appointed defender of low-tax jurisdictions in Washington, this caught my attention. Thomas Jefferson wasn’t joking when he warned that “eternal vigilance is the price of liberty.” I’m constantly fighting against anti-tax haven schemes that would undermine tax competition, financial privacy, and fiscal sovereignty.

Even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I’m being disloyal to America. Or, in this case, if it simply means I’m debunking demagoguery.

The supposedly earth-shattering highlight of the article is that some Americans linked to offshore companies and trusts have run afoul of the legal system.

Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.

But the real revelation is that people in the offshore world must be unusually honest. Fewer than 1 percent of them have been named in a lawsuit, much less been involved with a criminal case.

This is just a wild guess, but I’m quite confident that you would find far more evidence of misbehavior if you took a random sample of 4,000 Americans from just about any cross-section of the population.

Investigative Reporters Tackle the Small Business Administration

When it comes to reporting on the Small Business Administration, it seems to me that most journalists simply assume that if a government agency exists to “help” small businesses then it must be good. So I was pleased to read a weekend piece from two investigative journalists with the Dayton Daily News that challenges the conventional wisdom on the SBA. 

As the reporters explain, the SBA’s main job is to back loans issued by private lenders to small businesses that couldn’t get financing on market terms. The result is that taxpayers end up holding the bag when these naturally riskier loans go bad. 

And quite a few go bad as this Cato essay on the Small Business Administration explains. 

Lenders have little skin in the game so for them it’s heads they win, tails they win. Thus it was shocking – absolutely shocking – that a representative from the SBA and the head of the Ohio Bankers Association provided the reporters with the most favorable quotes.  

The entire piece is worth reading, but the authors did a particularly good job of turning the spotlight on the racket that exists between the SBA, lenders, and national franchisors: 

Franchises are major consumers of SBA loans, according to the Daily News analysis — and sub sandwich franchises top the list. Subway and Quiznos franchises dominated the list of businesses borrowing the government guaranteed loans. Subway franchises took out at least 4,649 of the 7(a) loans since the beginning of 1990, the data show, while Quiznos took out 2,586. 

But the battle of the sub shops went in drastically different directions, according to the loan data. While Subway borrowed more than 2,000 more loans than Quiznos, its loan failure rate was about one-fifth of Quiznos restaurants. Only 4.8 percent of Subway franchise SBA loans were charged off as of the end of February, while almost a quarter — 23.4 percent — of Quiznos franchise loans ended in failure and were discharged to the Treasury. 

Quiznos also led all franchises with $43.5 million in defaulted loan guarantees that SBA had to pay the lending banks. Cold Stone Creamery was second with $29.6 million, followed by Days Inn with $16.9 million and Ramada Inn with $14.3 million.

The sub shops also dominate the nine-county Dayton region in numbers of SBA loans, but the disparity is even more stark. While Subway franchises took out more than twice as many 7(a) loans as Quiznos (35 to 16), only one Subway loan (2.9 percent) failed and was charged off compared to six (37.5 percent) of the Quiznos loans. 

Nationwide, the 50 franchises that cost the SBA the most totaled more than $411 million in discharged loans. 

Corporate franchisors such as Quiznos and Subway contract with individual owners to operate the business, but some corporations take a bigger share of the profits than others.

Quiznos’ cut from its operators makes it harder for them to be profitable, said Robert Purvin, chief executive officer for the American Association of Franchises and Dealers. 

“My bet is lurking behind every failure there is price gouging to the franchisee,” said Purvin. “We’ve been after SBA for years to make no loans to franchisors that are bad players.” 

He said the SBA is essentially subsidizing these big corporate franchisors because the loan money is often used to pay the franchise fees, royalties and sometimes payments on leases controlled by the franchisor. 

What does it say about the state of American capitalism that federal policymakers think it is necessary and proper for the government to subsidize the creation of more Subway shops? 

The defaults and wasted capital aside, it is a quote from the Ohio chapter of the National Federation of Independent Business that gets to the fundamental problem with government-backed lending: 

“Many small business owners see this as an unnecessary program of government intrusion, of picking winners and losers,” said Roger Geiger, Ohio chapter executive director of the National Federation of Independent Business. “They most certainly wonder how equitable it is when it’s their tax dollars being used to fund what could potentially be a competing business.”

As former Sen. Scott Brown (R-MA) demonstrated a couple of years ago, the average policymaker doesn’t grasp that there are major problems with the federal government picking winners and losers in the market. 

Or else they just don’t care. 

The inconvenient truth is that from the SBA’s inception it has existed for politicians to show that they “care” about small businesses. For politicians who support economic policies that are destructive to businesses small and large, demonstrating support for the SBA allows them to pretend otherwise. 

Thatcher: Anecdotes From a Biographer

Her greatness as a political leader aside, and her penetrating moral critique of socialism and communism (so closely intertwined with that greatness) also aside, Margaret Thatcher was almost infinitely quotable.  On the economic folly she fought so tenaciously: “The problem with socialism is that you eventually run out of other people’s money.”  On popularity: “If you just set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.” On productiveness and the charitable instinct: “No one would remember the Good Samaritan if he’d only had good intentions; he had money as well.” On the hostile press: “If my critics saw me walking over the Thames they would say it was because I couldn’t swim.” And many others, some of the best collected at the U.K. Spectator

If you have time to read only one longer Thatcher article today, you could do worse than this terrific, anecdote-filled 2011 Vanity Fair piece by her biographer Charles Moore. Like so many others, Moore is fascinated by Thatcher’s force of personality, which so often drew adjectives like “steely” and “indomitable.” Thatcher, like Ronald Reagan, was entirely willing to reinvent herself on a personal level more than once, in the “self-made” manner that is often seen as particularly American. Thus as she approached the world stage, she studied how to dress and speak the part, taking lessons (at the suggestion of Sir Laurence Olivier) from the speech coach at the National Theater. 

Pro-intellectual, Thatcher was one of the first to spot the potential of think tanks: 

Her greatest political mentor, Sir Keith Joseph, was almost perfect in her eyes, being intellectual, good-looking, Jewish, and upper-class [four categories she approved of]. … He diagnosed — and blamed himself for — a British postwar disease of socialism, state intervention, debauched currency, weakened incentives, and overly powerful trade unions. The Tories, he declared, had been complicit in all of this… They must devise a new strategy, he said, and he set up a think tank, called the Centre for Policy Studies, to do so. Margaret Thatcher became its vice chairman and his disciple.

Thatcher made many mistakes, but often learned from them and eventually revised her views, as when she concluded that she had been too enthusiastic about the project of European integration: “We have not successfully rolled back the frontiers of the state in Britain only to see them re-imposed at a European level, with a European super-state exercising a new dominance from Brussels.”

“I am extraordinarily patient, provided I get my own way in the end,” Thatcher memorably remarked. And mostly she did, to the benefit of Britain and the world.

Current Wisdom: U.S. Precipitation Changes and Climate Model Expectations—If It Doesn’t Fit, You Must Acquit

The Current Wisdom is a series of monthly articles in which Patrick J. Michaels, director of the Center for the Study of Science, reviews interesting items on global warming in the scientific literature that may not have received the media attention that they deserved, or have been misinterpreted in the popular press.

In this Current Wisdom we report further on our ongoing effort to prepare comments on the latest, greatest (or, more aptly, most recent, most indecent) edition of the government’s assessment of climate change impacts in the United States (if you are interested in submitting your own comments, you should hurry, because the public comment period closes on this Friday, April 12).

A disturbing yet ubiquitous aspect of the current draft National Climate Assessment (and for that matter, both earlier editions of the NCA) is the use of future projections of climate change before demonstrating that they work in the recent past, as greenhouse-gas concentrations have increased.

Discussions of future impacts from changes in precipitation resulting from human emissions of greenhouse gases are everywhere in the report and they are usually bad—increased droughts, floods, and longer dry spells, for example.  The NCA folks weren’t quite so enthusiastic at generating many forecasts of salutary changes.  Perhaps Dr. Pangloss is their spiritual adviser. 

NCA’s precipitation forecasts turn out to be uglier than Candide’s fair Cunegonde became.  Do  the models accurately simulate past changes that have been observed? If the answer is “no,” then the whole impact exercise is meaningless because the models provide no reliable information about what the future may bring.

The answer isn’t just “no.” It’s NO, NON, ONAY, NEIN.

Silicon Valley Addresses Homelessness by Picking at the Scab

It’s frustrating to see homelessness documented in my beloved Silicon Valley, not only because homelessness is regretable, but because of the way it’s documented in this Bill Moyers piece.

Homelessness exists “in the shadow of Google, in the shadow of Oracle, in the shadow of Apple Computer,” says AP writer Martha Mendoza, whose story inspired the Moyers video. And there’s certainly editorial in the video’s images of wealthy neighborhoods and manicured corporate campuses: Wealth causes poverty, it appears.

But would Teresa Frigge really be doing better if Larry Ellison had been held to middle class wealth? In an alternate universe where Larry Page and Sergey Brin co-own the McDonalds at El Camino and Santa Cruz in Menlo Park, how is Teresa better off?

Rather than dumb juxtaposition, look for actual causes of inequality. Is it the loss of chip manufacturing? That was already declining in 1987.

Housing is hard to find in the Valley. Fifteen years ago, “for every five jobs they were adding, they were building two units of housing,” Mendoza reports.

Disambiguate “they.” For every five jobs Silicon Valley businesses were adding, Silicon Valley builders were building two units of housing.

The reason why? Zoning laws are strangling Silicon Valley. (Liberals agree.) The cap on housing artificially raised the cost of labor, driving chip manufacturing out of Silicon Valley, which still designs chips for manufacture elsewhere. The result is class striation.

But zoning reform is nowhere to be found in the reporting on this issue. Instead, Mendoza features San Jose’s increase in the minimum wage—from $8 to $10. That means that people who cannot provide well more than $20,000 in value per year to prospective employers may not work legally in that city.

The laws say that you may not work in this area if you’re not skilled, and you may not live there if you’re not rich. I don’t think it’s wealth that’s causing this homelessness.

Margaret Thatcher: A Brief Personal Recollection

For many people, Margaret Thatcher’s resignation (and now her death) will be one of those moments that they will never forget. Like the Kennedy assassination for the previous generation, many will always remember what they were doing when they heard the sad news.  

It was November 22, 1990 and I was about to leave my parents’ apartment in Zilina, Czechoslovakia, to meet a friend. Walking out of the door, I heard the radio announce the shocking news - Margaret Thatcher has resigned. How could it be? Wasn’t she a great success at home and a titan on the world stage? To us – the people of Eastern Europe who were enjoying their first year of freedom – she was much more than the first female British Prime Minister.  

She was an outspoken voice against communist oppression and a fearless promoter of the free markets. The communist media in Eastern Europe (and socialist media in Britain, one might add) spewed poison against her with obsessive regularity. For us that was very reassuring: if they hated her, she must have been good.  

Growing up behind the Iron Curtain, I never thought I would leave my hometown, let alone travel abroad and meet her. But meet her I did. It was October 5, 2002 and I was on a layover in London. Next day, I would board a plane for Washington and begin my work at the Cato Institute.  

My friends - Roger Bate, now at the AEI, and Richard Tren, now at the Searle Foundation – invited me to a dinner celebrating the launch of the Frederic Bastiat prize for free market journalism. One of the winners, coincidentally, was Amity Shlaes, whom I will have the pleasure of introducing at a Cato event this Thursday.   As Margaret Thatcher arrived – descending the stairs together with Denis - there was a sudden hush followed by great applause. By that time, she no longer made speeches and her public appearances were increasingly rare. Still, her presence added gravitas to the proceedings and launched a great prize that continues to this day.  

My friend Veronique De Rugy sat next to Mrs. Thatcher throughout the dinner and so, at some point, I walked over to say hello. Thatcher shook my hand and asked where I was from. When I said that I came from Czechoslovakia, she seemed genuinely delighted. I reminded her that people of Eastern Europe had a genuine affection for her and were grateful for what she did to bring about the end of communism. “You know,” I said, “the communists really hated you.” “Good, good,” she laughed, “I’m glad they did.” Then she gave me one of her piercing looks and said, “We won in the end.”

Yes you did, Margaret.