Archives: 07/2016

The South China Sea Arbitration Ruling: An Opportunity for US, China to De-escalate

Tuesday’s long-anticipated ruling by the Permanent Court of Arbitration (PCA) regarding the territorial disputes in the South China Sea (SCS) between the Philippines and China was a big win for the Philippines. China’s sweeping claim to sovereignty over the SCS embodied by the infamous “nine-dash line” was invalidated. The court also admonished China for causing ecological damage with island building activities, and generally aggravating the SCS dispute.

As policymakers in Washington and Beijing think about what to do next they should consider the ruling as an opportunity to counteract the dangerous escalation of tensions in the SCS. Both sides can take relatively low-cost actions that could keep a lid on tensions and help manage the dispute.

It will be more difficult for China to de-escalate than the United States given the fiery official rhetoric surrounding the PCA ruling. Beijing also took provocative actions before the PCA ruling was issued, most notably conducting military exercises in the SCS and declaring a “no-sail zone” in the area of the exercises. However, despite the (expected) bombastic rhetoric, China has shown considerable restraint in its actions or, more accurately, its lack of action. Ankit Panda at The Diplomat notes, “Beijing has not declared an air defense identification zone in the SCS, moved to begin reclamation at Scarborough Shoal, sanctioned the Philippines, or announced an intent to withdraw from the UN Convention on the Law of the Sea.” The gap between official rhetoric and restrained behavior in the wake of the PCA ruling means that China’s long-term intentions are unclear, but restraint from Beijing is a positive development.

Policymakers in Washington will likely feel compelled to enforce the PCA ruling, but they should formulate U.S. policy very carefully. While the PCA’s ruling is legally binding on the Philippines and China, the court lacks an enforcement mechanism. Protecting the “rules-based international order” is an important U.S. foreign policy interest, which means that it will likely take on enforcement responsibilities. Any freedom of navigation operations conducted in support of the PCA ruling should be done without the media fanfare that has accompanied past operations. Additionally, the United States should try to influence other states that want to conduct their own freedom of navigation operations. For example, given the historical animosity and ongoing territorial dispute in the East China Sea between China and Japan, Washington should discourage Tokyo from conducting its own freedom of navigation operations in the SCS.

There are other examples of low-cost actions that the United States and China could take to reduce tensions in the SCS. First, the United States should support dialogue among the other claimants and China. Two days after the PCA ruling, the new president of the Philippines, Rodrigo Duterte, asked a former president of the Philippines to help start talks with China. Second, China could play a more active role in environmental protection in the SCS through the creation of a “marine peace park” in the Spratleys. Claimants would suspend territorial claims to allow the replenishment of depleted fisheries and the recovery of damaged coral reefs. This would be a low-cost policy for Beijing because it would not have to permanently abandon its territorial claims.

The SCS has become a more dangerous place over the last year. The PCA ruling is a prime opportunity for China, the United States, and the Philippines, as well as other claimants, to put a lid on tensions and work with one another to resolve disputes peacefully. It would be impractical to force either side to back down from their core policy positions. But small adjustments in areas such as freedom of navigation operations and environmental cooperation would be a step in the right direction. 

Mike Pence a Solid Fiscal Conservative

It looks like Indiana Governor Mike Pence may be chosen as Donald Trump’s running mate. On tax and budget matters, that would be a good choice. While Trump has followed an erratic approach to economic policy issues, Pence has been a solid fiscal conservative.

Cato scored Pence on the 2014 edition of the Fiscal Policy Report Card on America’s Governors. He was only one of four governors who received a grade of “A.” The report noted:

Mike Pence of Indiana has been a champion tax cutter, and he has held the line on spending. He signed into law a 2013 tax package that cut the individual income tax rate from 3.4 to 3.23 percent and repealed the state’s inheritance tax. In 2014 he approved cuts to the corporate income tax rate and to business property taxes, both of which will be phased in over time.

When Pence came to office in fiscal 2013, Indiana’s general fund spending was $14.25 billion. In fiscal 2017, it’s going to be about $15.56 billion. That translates into annual average growth of 2.2 percent, which is substantially less than the 50-state average over those years of 4.2 percent.

Look for a new Cato fiscal report card in October.

Want to End War? Privatize the VA.

A while back, the Cato Institute’s vice president for defense and foreign policy studies and director of health policy studies took to the pages of the New York Times to explain why privatizing the Veterans Health Administration would lead to less war and better health care for veterans. 

Today in The Hill, I discuss why this proposal has enduring relevance:

As Britain Tries to Learn from Iraq Mistakes, So Should the U.S. — by Privatizing the VA

[…]

Many Democrats remain angry with their presumptive presidential nominee Hillary Clinton for voting as a U.S. senator from New York to authorize the Iraq invasion in 2002. Clinton later wrote, “I had acted in good faith and made the best decision I could with the information I had … But I still got it wrong.”

There is a reform that could have given Clinton and other policymakers better information about the costs of invading Iraq – information that could conceivably have prevented the invasion altogether or at least shortened the U.S. occupation.

Read the whole thing.

If Black Lives Matter, Repeal the Minimum Wage

The civil unrest following last week’s police shootings of black men in Louisiana and Minnesota, followed by the sniper attack on police officers in Dallas, has sparked a new bout of public concern over the hardships of Black America. Those hardships include significantly higher violent crime victimizationhigher joblessness, higher poverty, and lower income than the general U.S. population.

Previous moments of such concern have prompted politicians to respond with the standard, tired slate of policies that supposedly would “empower” and “lift” African Americans. All too often, those policies mainly empowered government employees and vendors, while the gap between Black America and the rest of the country remains. By the time the policy failures became obvious, public and political interest had waned, and little else happened until new headlines brought new concern.

Perhaps this time will be different, and policymakers will try some different ideas that might actually help. Cato offers many recommendations for reforming education, criminal justice, and the social safety net that would especially help black Americans.

To those, add this simple, seemingly counterintuitive recommendation: repeal the minimum wage.

Though some politicians deny it, the link between the minimum wage and unemployment is well established; denying that empirical research is akin to denying the research on climate change. Among the findings is that the minimum wage’s detrimental effects fall hardest on young black males: the same group that suffers some of the worst hardships of Black America. Perhaps if they had greater opportunities to take starter jobs that would give them both income and the work experience that leads to better-paying jobs, they’d have a better chance to escape violence and poverty. (Meanwhile, far too many young African American males are pushed into the black market, where they earn sub-minimum wages for dangerous work.) Indeed, the empirical work suggests that there’s a direct causal relationship between the minimum wage and crime.

Repealing the minimum wage for the sake of black youth would be a great piece of historical closure. The minimum wage was established, in part, to push blacks and women out of jobs that progressives believed should go to white family men. The economic struggles of African Americans today reflect, in part, how well the progressives’ plan worked.

Oldsters vs. Youngsters

Ten years ago, if you walked down the street looking at faces passing by, you could have counted off “young, young, young, young, young, old …”. Fifteen years from now, if you do the same, it’s going to be “young, young, young, old …”.

That’s a striking bit of data included in new CBO budget projections. America has already grayed, but it’s nothing like what’s ahead. The number of old folks is going to soar over the next 20 years. The chart below shows that the ratio of oldsters (age 65+) to youngsters (age 20 to 64) is rising from 1-to-5 to more than 1-to-3. Is America ready for that radical shift?

The federal budget isn’t ready. Politicians have failed to reform oldster subsidy programs, with the sad result that the livelihoods of youngsters will be dragged down by an anchor of debt and taxes. The first, third, and fourth largest federal programs (Social Security, Medicare, Medicaid) transfer vast and increasing resources from young taxpayers to old retirees. There’s no justice in that, and social tensions will rise as the unfairness becomes ever more obvious in coming years.  

There is good news, however. When I’m flipping around radio stations in my car today, it’s teen pop, teen pop, teen pop, classic rock. But when I’m an oldster in the 2030s, it’s going to be classic rock, classic rock, classic rock. To me at least, that will be fair and just.

The Six Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

The Congressional Budget Office has just released the 2016 version of its Long-Term Budget Outlook.

It’s filled with all sorts of interesting data if you’re a budget wonk (and a bit of sloppy analysis if you’re an economist).

If you’re a normal person and don’t want to wade through 118 pages, you’ll be happy to know I’ve taken on that task.

And I’ve grabbed the six most important images from the report.

First, and most important, we have a very important admission from CBO that the long-run issue of ever-rising red ink is completely the result of spending growing too fast. I’ve helpfully underlined that portion of Figure 1-2.

And if you want to know the underlying details, here’s Figure 1-4 from the report.

Once again, I’ve highlighted the most important portions. On the left side of Figure 1-4, you’ll see that the health entitlements are the main problem, growing so fast that they outpace even the rapid growth of income taxation. And on the right side, you’ll see confirmation that our fiscal challenge is the growing burden of federal spending, exacerbated by a rising tax burden.

And if you want more detail on health spending, Figure 3-3 confirms what every sensible person suspected, which is that Obamacare did not flatten the cost curve of health spending.

Medicare, Medicaid, Obamacare, and other government health entitlements are projected to consume ever-larger chunks of economic output.

Now let’s turn to the revenue side of the budget.

Figure 5-1 is important because it shows that the tax burden will automatically climb, even without any of the class-warfare tax hikes advocated by Hillary Clinton.

And what this also means is that more than 100 percent of our long-run fiscal challenge is caused by excessive government spending (and the Obama White House also has confessed this is true).

Let’s close with two additional charts.

We’ll start with Figure 8-1, which shows that things are getting worse rather than better. This year’s forecast shows a big jump in long-run red ink.

There are several reasons for this deterioration, including sub-par economic performance, failure to comply with spending caps, and adoption of new fiscal burdens.

The bottom line is that we’re becoming more like Greece at a faster pace.

Last but not least, here’s a chart that underscores why our healthcare system is such a mess.

Figure 3-1 shows that consumers directly finance only 11 percent of their health care, which is rather compelling evidence that we have a massive government-created third-party payer problem in that sector of our economy.

Yes, this is primarily a healthcare issue, especially if you look at the economic consequences, but it’s also a fiscal issue since nearly half of all health spending is by the government.

P.S. If these charts aren’t sufficiently depressing, just imagine what they will look like in four years.

Should Police Robots Prompt a Use-of-Force Rethink?

Last week police in Dallas used an explosive attached to a robot to kill a man suspected of killing five Dallas-area police officers and wounding eleven other people, including two non-officers. The detonation-by robot is widely believed to be the first killing of its kind in the history of American policing, and has prompted much discussion and debate. In the days since the Dallas shooting, questions have been raised concerning when police should be permitted to kill citizens and if lethal use-of-force policy should change depending on the tool police officers use the kill citizens. While it is tempting to view new technologies as devices worthy of a special set of rules, policymakers should consider regulations that make police-citizen interactions safer and less frequent rather than craft new use-of-force rules for robots.

For the purposes of this post, assume that what Dallas Police Chief David Brown said about the killing of the suspect is true. According to Brown, following hours of failed negotiation “[Dallas police] saw no other option but to use our bomb robot and place a device on its extension for it to detonate where the suspect was.” He also said, “Other options would have exposed our officers to grave danger.”

Given America’s federalist system, it is appropriate that there is no universal use-of-force policy guiding this country’s roughly 18,000 law enforcement agencies. Yet police officers are generally permitted to use force in order to make a suspect comply with a lawful order or arrest. Such force is deemed excessive when it goes beyond what is necessary, although there isn’t a nationwide consensus on what is deemed excessive. For instance, in some jurisdictions chokeholds are permitted while in others they’re banned.  

Despite the diversity of American police departments, most use-of-force policies allow for a police officer to use deadly force if he reasonably believes that a suspect poses a threat of serious injury or death to the officer himself or others. The Dallas shooting suspect clearly fits into this category.

While the use of robots to kill suspects may prompt a sense of unease among some–evoking scenes from dystopian science fiction movies–there are few reasons to think that a robot should be treated differently from a handgun or sniper rifle under deadly use-of-force policy.