Archives: June, 2013

Using Metadata to Find Paul Revere

What stood out to me in David Brooks’ amateur psychologizing about NSA leaker Edward Snowden on Monday was his claim that Snowden “has not been able to point to any specific abuses.” Brooks’ legal skills are even worse than his psychologizing. He didn’t notice that the document Snowden leaked was a general warrant. It fails to satisfy the Fourth Amendment’s requirements of probable cause and particularity. That’s an abuse.

I gather that it’s hard to apply the principles of liberty and our nation’s founding charter to the new world of data. In aid of your consideration, I offer you the fun essay: “Using Metadata to Find Paul Revere,” which recounts how metadata (so-called) reveals relationships and, from the perspective of King George, sedition.

The essay concludes:

[I]f a mere scribe such as I—one who knows nearly nothing—can use the very simplest of these methods to pick the name of a traitor like Paul Revere from those of two hundred and fifty four other men, using nothing but a list of memberships and a portable calculating engine, then just think what weapons we might wield in the defense of liberty one or two centuries from now.

The present-day federal surveillance programs revealed in media reports are “the tip of the iceberg,” Rep. Loretta Sanchez (D-CA) said Wednesday after being briefed Tuesday.

On Iran’s Inflation Bogey

With Friday’s Iranian Presidential election fast approaching, there has been a cascade of reportage in the popular press about that opaque country. When it comes to economic data, Iran has resorted to lying, spinning and concealment – in part, because of its mores and history, and more recently, the ever-tightening international sanctions regime. In short, deception has been the order of the day.

The most egregious example of this deception concerns one of Iran’s most pressing economic problems – rampant inflation. Indeed, while the rest of the world watched Iran’s economy briefly slip into hyperinflation in October of 2012, the Statistical Centre of Iran and Iran’s central bank both defiantly reported only mild upticks in inflation.  

It is, therefore, rather surprising that the major international news outlets have continued to report the official inflation data without so much as questioning their accuracy. Even today, with official data putting Iran’s annual inflation rate at a mere 31 percent, respectable news sources faithfully report these bogus data as fact.

As I have documented, regimes in countries undergoing severe inflation have a long history of hiding the true extent of their inflationary woes. In many cases, such as the recent hyperinflation episodes in Zimbabwe and North Korea, the regimes resort to underreporting or simply fabricating statistics to hide their economic problems. Often, they stop reporting economic data all together; or, when they do report economic statistics, they do so with such a lag that the reported data are of limited use by the time they see the light of day.

Iran has followed this course – failing to report important economic data in a timely and replicable manner. Those data that are reported by tend to possess what I’ve described as an “Alice in Wonderland” quality. In light of this, it is fair to suggest that any official data on Iran’s inflation be taken with a grain of salt.

So, how can this problem be overcome? At the heart of the solution is the exchange rate. If free-market data (usually black-market data) are available, the inflation rate can be estimated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable estimate. Indeed, PPP simply states that the exchange rate between two countries is equal to the rates of their relative price levels. Accordingly, if we can obtain data on free-market exchange rates, we can make a reliable estimate of the inflation rate.

In short, changes in the exchange rate will yield a reliable implied inflation rate, particularly in cases of extreme inflation. So, to calculate the inflation rate in Iran, a rather straightforward application of standard, time-tested economic theory is all that is required.

Using this methodology, it is possible to estimate a reliable figure for Iran’s annual inflation rate. At present the black-market IRR/USD exchange rate sits at 36,450. Using this figure, and a time series of black-market exchange rate data that I have collected over the past year from currency traders in the bazaars of Tehran, I estimate that Iran’s current annual inflation rate is 105.8 percent – a rate almost three and a half times the official annual inflation figure (see the accompanying chart). 

Turkey’s Uncertain Journey into the Future: It Ain’t the Arab Spring

Protests continue across Turkey.  There’s a lot of loose talk about the “Arab Spring” coming to Turkey, but Prime Minister Recep Tayyip Erdogan’s Justice and Development Party (AKP) was democratically elected.  One of his great accomplishments was dismantling the military-dominated “Deep State” system which effectively controlled the Republic of Turkey since its founding in 1923. 

Modern Turkey evolved out the ruin of the Ottoman Empire and was ruled by Mustafa Kemal Pasha, who took on the name Ataturk (“Father of the Turks”).  His image still dominates the modern nation.  He was a modernizer, not a democrat.  Those who followed him enforced a ruthless nationalism and secularism; the military routinely interfered in politics, effectively destroying the predecessor party to the AKP in 1997. 

These were not the “good old days.”  The military jailed, tortured, and murdered opponents.  The Kurds were brutally repressed.  Liberals of all sorts were prosecuted, fired, and threatened for their views.  Prime Minister Erdogan ended most of these abuses. 

Unfortunately, however, power seems to have corrupted the prime minister.  As I explain in my new article:

tragically, however, Prime Minister Erdogan has stopped acting as a liberator, and increasingly begun acting as oppressor at home.  His government has used preexisting security laws to prosecute civilians, including many journalists, as well as military officers for alleged crimes, some going back many years.  While those who in their time persecuted others deserve little sympathy, misuse of the law puts the liberties of all into jeopardy.  Warned the U.S. State Department in its latest human rights report:  “Broad laws against terrorism and other threats to the state and a lack of transparency in the prosecution of such cases significantly restricted access to justice.”

Particularly threatening is the prosecution of journalists.  Last year the Journalists Union of Turkey counted 94 reporters in prison, while another group figured that number at 104. The New Yorker’s Dexter Filkins cited “an extraordinary climate of fear among journalists,” leading many editors to expressly discourage criticism of the prime minister.

The government could respond to the latest protests by returning to the reform track.  If not, the public needs to solve the problem of unaccountable political power through the ballot box.  Ironically, Prime Minister Erdogan has made further democratic transformation of Turkey possible by breaking the military’s hold over politics.  Now it is up to the Turkish people to act.

A Middle East Aflame Needs Economic Freedom

The small Persian Gulf kingdom of Dubai is an oasis in a region aflame. Even NATO member Turkey has been inundated with protests. 

The region’s best hope for the future is greater economic opportunity. It’s an issue that I recently discussed with businessman Waleed Moubarak of Alghanim Industries.

The Emirate of Dubai is one of seven kingdoms which make up the United Arab Emirates. The latter is a kingdom, not a democracy, which is reflected in its human rights record. However, the country is doing better on economics. Overall the UAE comes in at number 11 on the Economic Freedom of the World Index.

Dubai’s oil has run low, which may be the key to its recent success. Moubarak argued that Dubai was “forced to develop” because it “doesn’t have the oil resources that its neighbors do.” 

As I explain in my latest Forbes online column:

One of Dubai’s most important steps has been to set up more than a score of free zones, covering financial, auto, internet, media, gold, and other services.  Additional zones for auto parts, carpets, flowers, maritime, and textiles are planned.  The areas offer tax exemptions, full foreign ownership, and free capital repatriation. 

Among the most important innovations within the Dubai International Financial Center are independent commercial laws and common law courts.  The DIFC attracts judges from common law jurisdictions elsewhere, such as Great Britain, Hong Kong, and Singapore.  The system offers legal predictability and stability, essential to attract substantial foreign investment.  Two years ago Dubai allowed businessmen outside of the zone to rely on DIFC courts.  Apparently Abu Dhabi intends to create a competing financial free zone.

Moubarak and Alghanim also are involved in Injaz, an international charity which, Moubarak explained, seeks to train Arab youth to “give them a skill set to go out and succeed” so they don’t have to settle for “the traditional goal to get in government and get a sinecure.”   It is a wonderful objective.  He added:  “Injaz, in a small way, tries to change that mindset and to give the Arab youth a sense of the possibilities that the private sector has to offer.” 

The Middle East is filled with human potential that is being squandered.  The region needs democracy and human rights.  It also needs economic freedom and entrepreneurship.   We all have a stake in the Mideast finding the way to peace and prosperity.

Senate Moving Forward with Immigration Reform Bill

Yesterday, senators voted to proceed with debating the immigration reform bill on the floor of the Senate. The Gang of Eight’s bill was amended numerous times in the Judiciary Committee but now it will face input and criticism from the rest of the Senate. There are four big areas of the legislation to watch for amendments and criticisms:

Welfare

Numerous amendments will be introduced to further block non-citizen access to the welfare state. Cato colleagues and I have done a lot of work on this issue, including a forthcoming policy analysis, that has provided some of the intellectual ammunition demonstrating the viability of building a wall around the welfare state while increasing lawful immigration.

Border Security

Senators like John Cornyn (R-TX) are deeply worried that the current bill does not provide enough border security. The current bill adds billions of dollars to an enforcement system that has grown along with the rest of the government over the last few decades. The best way to limit unlawful immigration is to increase legal immigration opportunities, such as temporary guest worker visas and other broader measures. Senator Cornyn’s border security amendment will be crucial for the bill’s political success but will not much affect the policy outcome of the legislation—except to make it more expensive.

E-Verify

With scandals about government invasions of privacy, one would think a national electronic employment eligibility system like E-Verify would raise opposition.  Designed to weed unlawful immigrants out of the work force, the system is fraught with problems and raises numerous privacy concerns that my colleague Jim Harper has explored here.  Given how internal enforcement has almost zero deterrent effect on unlawful immigration, it’s a mystery why so many so-called limited government conservatives support it in the first place.

Legal Immigration 

The guest worker provisions of the bill are too regulated, too restricted, and too limited for workers of every skill category.  Applied retroactively, the proposed guest worker visa system would not be big enough to channel most unlawful workers who came in previous years into the legal market.  Regardless, the immigration reform bill is a step in the right direction for guest workers—albeit a small one.

There are other important policy and political issues going forward, from controversy over the net fiscal cost of immigration reform to the tremendous economic benefits of increasing the number of productive people, but these are the big ones to follow for libertarians and fellow travelers.

Korean Déjà vu: North Koreans Back Begging for Money

The world has moved on to the latest crisis du jour, but it wasn’t that long ago when North Korea’s Kim Jong-un was dominating global headlines threatening to nuke places like Austin, Texas.  (Why Austin?  Maybe because Cato Senior Fellow Ted Galen Carpenter now resides there, but that’s only speculation on my part!)

Since then Pyongyang has gone largely silent.  But on Sunday representatives from the so-called Democratic People’s Republic of Korea met with South Korean officials and plotted expanded talks for later this week.  As Yogi Berra once observed, it’s déjà vu all over again.

The DPRK has been threatening the peace in Northeast Asia since its founding in 1948.  In the 1990s the Republic of Korea decided to try appeasement, providing roughly $10 billion in aid and investment to the North in ensuing years.  Alas, Pyongyang simply took the cash from the so-called Sunshine Policy and built more nuclear weapons.

Andrei Lankov, who as a Soviet student studied in Pyongyang and now teaches in the South, argues that the Kim family regime is unlikely to ever reform, since doing so would threaten its survival.  Any change is likely to lead to an eventual South Korean takeover.  So the DPRK regime tries to extort money out of other nations.

The ROK again is the chief target, since the upcoming talks were expected to focus on reopening the Kaesong Industrial Complex, closed by the North during its recent provocative cycle.  The KIC provides Pyongyang with $90 million annually in salary revenue alone.  Apparently the North also wants to restart tourist tours elsewhere, which would provide more hard currency.

Seoul would be foolish to agree.  As I argue on American Spectator online:

What possible argument is there for keeping the subsidies going after Kim Jong-un’s recent fire-and-brimstone tirade?  South Koreans are putting money into the hands of the North’s barbaric elite which is threatening to destroy the ROK.  Every won sent north can be used to add more nuclear weapons, miniaturize nuclear bombs, and extend the range of nuclear-capable missiles.

The argument that making North Korean officials feel warm and fuzzy will convince them to cast off their collective security coat has been disproved by experience.  Lankov still argues that in the long-term the subversive impact of KIC on the North Korean population makes it worth the cost.  That might be true if the money didn’t act as a direct subsidy for the regime.  Cutting the North’s financial windpipe would seem to be a better strategy.

Of course, the South Korean government can set its own policy.  But American taxpayers should not protect a country which is subsidizing its potential enemy.  In effect, Seoul is paying Kim & Co. to build weapons which would be used to kill the very Americans guarding the ROK.

At the last minute the Kim government pulled out of the planned talks.  The official reason was a tiff over relative rank of the negotiators.  More likely the DPRK is playing its usual game of raising positive expectations and then creating tension, with the plan to soon return to whisper sweet nothings in Seoul’s ear.

Whatever happens to the latest round of talks, as I’ve long argued it is time for Washington to disentangle itself from the Korean peninsula.  American troops should come home; America’s defense guarantee should end.  North Korea should become its neighbors’ problem.  Then maybe Seoul would spend millions more dollars directly on the South Korean military rather than indirectly on the North Korean military.