Tag: obama

Week in Review: No End to Spending and Regulation in Sight

Geithner to Propose Unprecedented Restrictions on Financial System

geithnerThe Washington Post reports, “Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system… The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities.”

Calling Geithner’s plan another “jihad against the market,” Cato senior fellow Jerry Taylor blasts the administration’s proposal:

What President Obama is selling is the idea that government must be the final arbiter regarding how much risk-taking is appropriate in this allegedly free market economy. It is unclear, however, whether anybody short of God is in the position to intelligently make that call for every single actor in the market.

Cato senior fellow Gerald P. O’Driscoll reveals the real reason behind the proposal:

Federal agencies have long had extensive regulatory powers over commercial banks, but allowed the banking crisis to develop despite those powers. It was a failure of will, not an absence of authority.   If the authority is extended over more institutions, there is no reason to believe we will have a different outcome.  This power grab is designed to divert attention away from the manifest failure of, first, the Bush Administration, and now the Obama Administration to devise a credible plan to deal with the crisis.

A new paper from Cato scholar Jagadeesh Gokhale explains the roots of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector. Gokhale argues that recovery is likely to be slow with or without the government’s bailout actions.

In the new issue of the Cato Policy Report, Cato chairman emeritus William A. Niskanen explains how President Obama is taking classic steps toward turning this recession into a depression:

Four federal economic policies transformed the Hoover recession into the Great Depression: higher tariffs, stronger unions, higher marginal tax rates, and a lower money supply. President Obama, unfortunately, has endorsed some variant of the first three of these policies, and he will face a critical choice on monetary policy in a year or so.

Obama Defends His Massive Spending Plan

President Obama visited Capitol Hill on Wednesday to lobby Democratic lawmakers on his $3.6 trillion budget proposal. Both the House and Senate are expected to vote on the plan next week.

obama-budget1In a new bulletin, Cato scholar Chris Edwards argues, “Sadly, Obama’s first budget sets a course for more government bloat, more economic distortions, and ultimately lower standards of living for everyone who is not living off of federal hand-outs.”

On Cato’s blog, Edwards discusses Obama’s misguided theory on government spending:

Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Obama’s budget calls for a massive influx of government jobs. Writing in National Review, Cato senior fellow Jim Powell explains why government jobs don’t cure depression:

If government jobs were the secret of success, then the Soviet Union wouldn’t have collapsed, because it had nothing but government jobs. Communist China, glutted with government jobs, would have generated more income per capita than Hong Kong where, at least before the Communist takeover, there were hardly any government jobs, but Hong Kong’s per capita income was about 20 times higher than that on the mainland.

Multiplying the number of government jobs did nothing then and does nothing now to revive the private sector that pays all the bills, in large part because of the depressing effect of taxes required to pay for government jobs.

Cato on YouTube

Cato Institute is reaching out to new audiences with our message of individual liberty, free markets and peace. Last year, we launched our first YouTube channel, which has garnered thousands of views and subscriptions. Here are a few highlights:

No No-Fly Zones over Darfur

Should the United States lead a Western coalition to enforce a no-fly zone over Darfur, Sudan?

This idea, which has been kicking around since at least 2006, was articulated recently in the Washington Post by former Air Force Chief of Staff and Obama advisor Tony McPeak, writing with Kurt Bassuener. Back when they were campaigning, President Obama, Vice President Joe Biden and Secretary of State Hillary Clinton all backed it. So it stands a good chance of becoming US policy.

The goal is to protect Darfurians from their nominal government without a costly US effort. But the opposite seems a more likely outcome. The no-fly zone may increase the violence in Darfur. And by committing the US to Darfur’s protection and failing, it may suck us deeper into Sudan’s civil war.

Like most advocates of U.S. intervention in Sudan, McPeak and Bassuener avoid saying that what is occurring in Sudan is a war with sides rather than an irrational slaughter.  Attacks on civilians in Darfur, however reprehensible, are a tactic used by a weak, brutal central government to maintain power.

Sudan has some helicopters and Russian cargo aircraft converted into bombers that they use to support a counterinsurgency campaign executed mainly by its army and allied militias, some of which used to be rebels. The militias, in particular the horse-riding Janjaweed, kill and displace civilians because Darfur’s insurgent groups rely on them for things rebels need: intelligence, supply, and recruits.  According to the Christian Science Monitor, about 400 civilians died as result of air strikes in 2007 and 2008, a fraction of the total killed by ground forces.

Take away the air strikes, McPeak and Bassuener say, and you get leverage over Sudan’s government. The leverage can be used to compel Sudan to accept a UN peacekeeping force to augment the largely useless African Union force there now.

Leaving aside the question of logistics (patrolling Darfur would be very costly given its the massive size), this plan simply doesn’t bear much logical scrutiny.

It is an application of strategic airpower theory, which tends to make magical assumptions about the political impact of aircraft.  That theory tends to depict the enemy as an extremely cost sensitive actor ripped from the pages of economic textbooks rather than what we find in history:  governments motivated by nationalistic norms to pursue their political aims at extraordinary cost.  Sudan is not going to give up trying to unify its country because we won’t let helicopters and aircraft fly over it.

Because Darfur’s rebels could arm and police their territory behind the peacekeeper lines, allowing a real peacekeeping force into Sudan would be de facto recognition of Darfur’s secession. What leader of Sudan would accept that?

Beyond that, a no-fly zone is likely to make life worse for Darfur’s civilians. As Alan Kuperman notes, a no-fly zone, rather than forcing Khartoum to the table, is likely to drive it to increase ground attacks. We might see accelerated ethnic cleaning and slaughter occurring beneath NATO aircraft powerless to stop it, a repetition of past experience. Likewise, a no-fly zone may further discourage Darfurian rebels from coming to terms with the government, pouring further accelerant on the war. It would also keep Sudan from allowing aid workers to travel to Darfur.

A no-fly zone will also symbolize a US commitment to the dissolution of Sudan and the protection of Darfurian civilians. By accomplishing neither, it would likely produce calls for a more robust intervention – either US boots on the ground or air strikes against people on the ground. Acceding to these calls would make the United States a combatant in Sudan’s civil war. Those who push military intervention in Sudan should recognize that is the logical result of their position.

That position is not unreasonable. Full fledged intervention might protect civilians. And who wouldn’t be sympathetic to a revolt against an awful central government like Sudan’s?

But the United States needs to get out of the other people’s civil war business, not double down.  We are participating in two civil conflicts abroad now. That is too many already. And Darfur is not the world’s only humanitarian nightmare. Peacekeeping the Congo might have more humanitarian payoff.  We can’t fix everything.

That does not mean doing nothing. We should push Sudan to allow humanitarian workers full access to Darfur, condemn atrocities, and push the rebel factions to sign the peace deal outlined in 2006 or something like it.

Here’s A “Toxic Asset” for You…

The Obama administration seems obsessed with making American taxpayers eat toxic assets. And I’m not talking about bad paper, derivatives, or any other inscrutable financial stinkers. I’m talking about good ol’ American public schooling.

Truth be told, after listening to the president’s presser last night, even I started to think that the key to American economic success is “investing” in education. After all, once you’ve heard something for about the twentieth time, you start to believe it. I mean, that’s how propaganda works, right? But somehow my mind refused to give in, and it forced me to remember:

We’ve been “investing” in government schools for decades, and have been reaping nothing but AIG-like results!

I actually laid out the startlingly awful returns we’ve gotten for our education dollars in several blog entries last month, but thought I’d revisit the basic, revolting facts one more time. I want it to be absolutely clear that lavishing more money on education isn’t change, nor, given what we get for the money, could it possibly be the key to long-term economic success.

So what have we invested? Let’s start with total outlays for elementary through post-secondary education, taken from table 26 of the latest Digest of Education Statistics. In 1969 we spent a total of $347 billion in inflation-adjusted dollars. In 2007, we spent $981 billion, a 183 percent increase.

How about public k-12 spending on a per-pupil basis? Again using Digest data (table 181) – which understates total expenditures by excluding such things as “state administration expenditures” – we can see that we’ve been spending increasingly sizable amounts. After adjusting for inflation, in 1969 we spent $5,161 per child. By 2005, that number had more than doubled, hitting $11,643. And what has that “investment” yielded?

Other than massive bloat, bupkus! Looking at National Assessment of Educational Progress long-term trend scores for 17-year-olds – essentially, our schools’ final products – we see almost complete academic stagnation. In mathematics, the average scale score was 304 (out of 500) in 1973, and only a measly 3 points higher in 2004! That’s a one percent increase in math outcomes for a roughly 100 percent increase in funding! And that actually beats the “return” in reading, where 17-year-olds were at 285 in 1971 and, yup, 285 in 2004!

How about higher education? Here we don’t have very good outcome measures and it is difficult to break down overall per-pupil expenditures. What we do have, however, suggests another bad investment.

To get a feel for expenditures, we can examine the State Higher Education Executive Officers report (figure A) showing that total revenue collected per full-time-equivalent student at public institutions, adjusted for inflation, grew from $8,463 in 1983 to $11,037 in 2008, a 30 percent increase. We can also look at aid per student, most of which came through government. According to data from the College Board (table 3), in 1983 the average full-time-equivalent student received $3,769 in inflation-adjusted aid. In 2007 she got $10,392, a 176 percent increase.

What are the returns on these investments? Again, lots of bloat, but from what we can tell, relatively little of educational value. Graduation rates, for one thing, seem to be falling.

According to the Population Studies Center, within eight years of graduating high school, 51.1 percent of students in the high school class of 1972 had finished college degrees. In contrast, only 45.3 percent of 1992’s high school class had done the same. And grads seem to be getting less well educated; according to the National Assessment of Adult Literacy, between 1992 and 2003 literacy levels dropped for both Americans whose education maxed out at a bachelor’s degree and those with graduate degrees. Whether it was graduates’ ability to read prose, documents, or handle math, scores went down while costs went up.

So all told, what do we have to show for our education investment? Pretty much just empty bank accounts. And yet, some politicians just can’t seem to get enough of those toxic assets!

This Is Who’s Minding the Store?

There was a revealing colloquy during President Obama’s press conference last night.

I’ve edited it for brevity, leaving in the relevant sections. See if you can pick out the most interesting tidbit. The President called on ABC News’ Jake Tapper:

OBAMA: Jake?

QUESTION: Thank you, Mr. President.

Right now on Capitol Hill, Senate Democrats are writing a budget. And according to press accounts and their own statements, they’re not including the middle-class tax cut that you include in the stimulus, they’re talking about phasing that out, they’re not including the cap-and-trade that you have in your budget, and they’re not including other measures.

I know when you outlined your four priorities over the weekend, a number of these things were not in there. Will you sign a budget if it does not contain a middle-class tax cut, does not contain cap-and- trade?

OBAMA: Well, I’ve emphasized repeatedly what I expect out of this budget. I expect that there’s serious efforts at health care reform and that we are driving down costs for families and businesses, and ultimately for the federal and state governments that are going to be broke if we continue on the current path.

[President highlights other policy priorities]

Now, we never expected, when we printed out our budget, that they would simply Xerox it and vote on it. We assume that it has to go through the legislative process. I have not yet seen the final product coming out of the Senate or the House, and we’re in constant conversations with them.

[more on policy priorities]

Our point in the budget is: Let’s get started now. We can’t wait. And my expectation is that the Energy Committees or other relevant committees in both the House and the Senate are going to be moving forward a strong energy package. It will be authorized. We’ll get it done. And I will sign it.

OK?

QUESTION: (OFF-MIKE) willing to sign a budget that doesn’t have those two provisions?

OBAMA: No, I – what I said was that I haven’t seen yet what provisions are in there. The bottom line is, is that I want to see health care, energy, education, and serious efforts to reduce our budget deficit.

And there are going to be a lot of details that are still being worked out, but I have confidence that we’re going to be able to get a budget done that’s reflective of what needs to happen in order to make sure that America grows.

Hey, Jake? The President doesn’t sign the budget resolution. Here’s one of many budget process primers you can look over.

The Fourth Estate is pretty weak on budget process, which contributes to the poor results that come out of Congress. Since the passage of omnibus legislation completing spending for this fiscal year (2009), WashingtonWatch.com has begun to highlight how the administration and Congress are falling behind schedule for fiscal year 2010. I’ve not seen anything in the mainstream media about the impending collapse of the budget process for the coming fiscal year.

Update: Jake Tapper contacted me about this post to explain that he was using the term “budget” as a shorthand for the reconciliation legislation that Congress often produces in the budget process. It’s clear to me now that Jake Tapper knows the budget process – and that he handles criticism well.

Who’s Blogging about Cato

Here’s the latest round-up of bloggers who are writing about, citing and linking to Cato research and commentary:

  • Blogging about Real ID, AxXiom for Liberty posted Jim Harper’s piece about DHS officials who skirted open meeting laws to promote the program.
  • No Land Grab, a blog covering eminent domain abuse, posted the latest Cato video on the Susette Kelo case. Jason Pye, who wrote a commentary on the case for the Georgia Public Policy Foundation, linked to it as well.
  • Sights on Pennsylvania blogged about international health care systems, citing Michael D. Tanner’s January article on health care reform and a 2008 Hill Briefing that compared various systems around the world.
  • Wes Messamore, AKA The Humble Libertarian, is compiling a list of 100 libertarian blogs/Web sites, and looking for recommendations. Last week, Wes penned his thoughts on the role of the U.S. in foreign policy, making heavy use of a recent Cato article by Benjamin Friedman and a 1998 foreign policy brief by Ivan Eland, citing military intervention overseas as a cause of terrorist activity against Americans.

If you’re blogging about Cato, contact Chris Moody at cmoody [at] cato [dot] org (subject: blogging%20about%20Cato) .

Week in Review: Bailout Bonuses, Marijuana and Eminent Domain Abuse

House Approves 90 Percent ‘Bonus Tax’

Sparked by outrage over the bonus checks paid out to AIG executives, the House approved a measure Thursday that would impose a 90 percent tax on employee bonuses for companies that receive more than $5 billion in federal bailout funds.

Chris Edwards, Cato’s director of tax policy studies, says the outrage over AIG is misplaced:

While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion — an amount 7,200 times greater than the $165 million of AIG retention bonuses.

So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.

Cato executive vice president David Boaz says this type of selective taxation is a form of tyranny:

The rule of law requires that like people be treated alike and that people know what the law is so that they can plan their lives in accord with the law. In this case, a law is being passed to impose taxes on a particular, politically unpopular group. That is a tyrannical abuse of Congress’s powers.

On a related note,  Cato senior fellow Richard W. Rahn defended the use of tax havens in a recent Wall Street Journal op-ed, saying the practice will only become more prevalent as taxes increase in the United States:

U.S. companies are being forced to move elsewhere to remain internationally competitive because we have one of the world’s highest corporate tax rates. And many economists, including Nobel Laureate Robert Lucas, have argued that the single best thing we can do to improve economic performance and job creation is to eliminate multiple taxes on capital gains, interest and dividends. Income is already taxed once, before it is invested, whether here or abroad; taxing it a second time as a capital gain only discourages investment and growth.

Obama to Stop Raids on State Marijuana Distributors

Attorney General Eric Holder announced this week that the president would end federal raids on medical marijuana dispensaries that were common under the Bush administration.

It’s about time, says Tim Lynch, director of Cato’s Project on Criminal Justice:

The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.

The Cato Institute hosted a forum Tuesday in which panelists debated the politics and science of medical marijuana. In a Cato daily podcast, Dr. Donald Abrams explains the promise of marijuana as medicine.

Cato Links

• A new video tells the troubling story of Susette Kelo, whose legal battle with the city of New London, Conn., brought about one of the most controversial Supreme Court rulings in many years. The court ruled that Kelo’s home and the homes of her neighbors could be taken by the government and given over to a private developer based on the mere prospect that the new use for her property could generate more tax revenue or jobs. As it happens, the space where Kelo’s house and others once stood is still an empty dustbowl generating zero economic impact for the town.

• Daniel J. Ikenson, associate director of Cato’s Center for Trade Policy Studies, explains why the recent news about increasing protectionism will be short-lived.

• Writing in the Huffington Post, Cato foreign plicy analyst Malou Innocent says Americans should ignore Dick Cheney’s recent attempt to burnish the Bush administration’s tarnished legacy.

• Reserve your spot at Cato University 2009: “Economic Crisis, War, and the Rise of the State.”

Update: Obama on Iran

In response to President Obama’s video message to the Iranian people this morning, Iranian presidential aide Aliakbar Javanfekr is quoted as saying, “The Obama administration so far has just talked. By words and talking the … problems between Iran and America cannot be solved.”

I wish we knew the reaction of Khamene’i, but I do find myself fearing that the CIA may continue its major covert operations to undermine Tehran’s clerical regime. The administration has yet to repudiate this official policy. If Obama decides to repeal it, and dialogue with Iran falls through, Bush administration officials will trumpet that their policy could have had a chance to succeed.

Obama may be in a tough spot, but history is on his side. As we witnessed in 1953 with the overthrow of Mossadegh, covert activities, at least in the long-term, hold no promise of achieving our desired objectives.