Tag: aid

Suspending Egypt’s Military Aid: Too Little, Too Late

Three months since the military coup in Egypt, U.S. military aid to the country is being reconsidered. It appears that the administration will

withhold the delivery of several big-ticket items, including Apache attack helicopters, Harpoon missiles, M1-A1 tank parts and F-16 warplanes, as well as $260 million for the general Egyptian budget.

The details of the freeze have not been disclosed. But after its refusal to call the events in Egypt a coup and a half-hearted cancellation of joint military exercises scheduled for September, this is certainly a step in the right direction. Unfortunately, it is too small and too equivocal as the administration is stressing that it wants to keep a door open to restore the aid in its entirety. More importantly, the announcement comes too late to make a meaningful difference to Egyptians.

Why all the reluctance? For years, Americans were told that aid to Egypt was a mechanism that gave the U.S. government leverage over developments in the most populous Arab country. The only sense in which that has worked is that aid has helped to deeply entrench authoritarian rule in the country. Egypt’s military has slowly built an opaque economic empire and a network of patronage with very little accountability. And even if one believes that a strong military and an autocratic secular state is what it takes to save Egypt from becoming a theocracy, there is nothing for Americans to gain from being complicit in the process and in everything that might possibly go wrong.

Indeed, many things have already gone wrong. The bloody aftermath of the coup might be just a foretaste of more violence looming on the horizon. Following the crackdown on the Muslim Brotherhood, Egypt has seen a rise in Islamic radicalization, especially in the Sinai. In the meantime, the secular government has shown itself no more capable of tackling the country’s numerous economic challenges than the thoroughly inept cabinet of Hisham Qandil. And as American money keeps flowing in, ordinary Egyptians will keep blaming the United States for the rebirth of the militarized authoritarian state in their country and for its ugly repercussions.

Moody’s Caves In to Political Pressure on Municipal Bonds

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

Weekend Links

  • The hard truth about end-of-life care in America.
  • If current trends continue, the U.S. government will soon spend a greater portion of GDP on Medicare and Medicaid than Canada now spends on its entire single-payer government-run system. Here’s a way to fix that.

So Much for Making Money on the Bailout

Reports the Washington Post:

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers’ rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report, which is scheduled to be released Wednesday.

Well, it’s only money.  And with the taxpayers facing more than $100 trillion worth of unfunded liabilities, what’s a few more wasted dollars?!

Sticking Around Afghanistan Forever?

I’ll confess one of the arguments that I’ve never understood is the claim that the U.S. “abandoned” Afghanistan after aiding the Mujahadeen in the latter’s battle against the Soviet Union.  Yet Secretary of Defense Robert Gates apparently is the latest proponent of this view.

Reports the Washington Post:

Defense Secretary Robert M. Gates said in an interview broadcast this week that the United States would not repeat the mistake of abandoning Afghanistan, vowing that “both Afghanistan and Pakistan can count on us for the long term.”

Just what does he believe we should have done?  Obviously, the Afghans didn’t want us to try to govern them.  Any attempt to impose a regime on them through Kabul would have met the same resistance that defeated the Soviets.  Backing a favored warlord or two would have just involved America in the ensuing conflict. 

Nor would carpet-bombing Afghanistan with dollar bills starting in 1989 after the Soviets withdrew have led to enlightened, liberal Western governance and social transformation.  Humanitarian aid sounds good, but as we’ve (re)discovered recently, building schools doesn’t get you far if there’s little or no security and kids are afraid to attend.  And a half century of foreign experience has demonstrated that recipients almost always take the money and do what they want – principally maintaining power by rewarding friends and punishing enemies.  The likelihood of the U.S doing any better in tribal Afghanistan as its varied peoples shifted from resisting outsiders to fighting each other is a fantasy.

The best thing the U.S. government could do for the long-term is get out of the way.  Washington has eliminated al-Qaeda as an effective transnational terrorist force.  The U.S. should leave nation-building to others, namely the Afghans and Pakistanis.  Only Afghanistan and Pakistan can confront the overwhelming challenges facing both nations.

Federal Pay: Response to the Critics

My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:

First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).

Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.

Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.

Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.

A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).

That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.

Bringing the States Back In

afghanistanIt’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.”  That said, let me engage in a little bit of it.

What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff.  And to an extent, it is about each of those things.  But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.

The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.

Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan.  When that happens, India and Pakistan are still going to live in the neighborhood.  They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much.  Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan.  In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country.  Until you grasp that nettle, you’re really just fumbling around in the dark.

Find a solution for that in your COIN manual.