Tag: united states

Five Lessons for America from the European Fiscal Crisis

I’ve written about the fiscal implosion in Europe and warned that America faces the same fate if we don’t reform poorly designed entitlement programs such as Medicare and Medicaid.

But this new video from the Center for Freedom and Prosperity, narrated by an Italian student and former Cato Institute intern, may be the best explanation of what went wrong in Europe and what should happen in the United States to avoid a similar meltdown.

I particularly like the five lessons she identifies.

1. Higher taxes lead to higher spending, not lower deficits. Miss Morandotti looks at the evidence from Europe and shows that politicians almost always claim that higher taxes will be used to reduce red ink, but the inevitable result is bigger government. This is a lesson that gullible Republicans need to learn - especially since some of them want to acquiesce to a tax hike as part of the “Supercommitee” negotiations.

2. A value-added tax would be a disaster. This was music to my ears since I have repeatedly warned that the statists won’t be able to impose a European-style welfare state in the United States without first imposing this European-style money machine for big government.

3. A welfare state cripples the human spirit. This was the point eloquently made by Hadley Heath of the Independent Women’s Forum in a recent video.

4. Nations reach a point of no return when the number of people mooching off government exceeds the number of people producing. Indeed, Miss Morandotti drew these two cartoons showing how the welfare state inevitably leads to fiscal collapse.

5. Bailouts don’t work. This also was a powerful lesson. Imagine how much better things would be in Europe if Greece never received an initial bailout. Much less money would have been flushed down the toilet and this tough-love approach would have sent a very positive message to nations such as Portugal, Italy, and Spain about the danger of continued excessive spending.

If I was doing this video, I would have added one more message. If nations want a return to fiscal sanity, they need to follow “Mitchell’s Golden Rule,” which simply states that the private sector should grow faster than the government.

This rule is not overly demanding (spending actually should be substantially cut, including elimination of departments such as HUD, Transportation, Education, Agriculture, etc), but if maintained over a lengthy period will eliminate all red ink. More importantly, it will reduce the burden of government spending relative to the productive sector of the economy.

Unfortunately, the politicians have done precisely the wrong thing during the Bush-Obama spending binge. Government has grown faster than the private sector. This is why this new video is so timely. Europe is collapsing before our eyes, yet the political elite in Washington think it’s okay to maintain business-as-usual policies.

Please share widely…before it’s too late.

Who’s Winning the Race to Fiscal Destruction: Europe or the United States?

Even though the unwashed masses decided that I didn’t win my stimulus debate in New York City, I continue my fight for the hearts and minds of the American people.

I’m now taking part in a debate for U.S. News & World Report on “Who Is Handling Its Debt Crisis Better: United States or Europe?”

This was a tough question. I asked the organizer whether I could vote none of the above, but I was told I had to pick an option.

As you can see, I said the United States was doing a better job - but only by default.

Our long-run outlook is grim, but at least we still have time to reform the entitlement programs and save America… The only major difference is that European nations are farther down the path to fiscal collapse. The welfare state was adopted earlier in Europe and government spending among euro nations now consumes a staggering 49 percent of economic output. This heavy fiscal burden, especially when combined with onerous tax systems, helps explain why growth is anemic. …the United States still can turn things around. Greece, Italy, and other welfare states have probably passed the point of no return, but it’s still possible for American lawmakers to fix the entitlement crisis by turning Medicaid over to the states , modernizing Medicare into a premium-support system, and transitioning to a system of personal retirement accounts for younger workers. If those reforms don’t take place, the consequences won’t be pleasant. To be blunt, there won’t be an IMF to bail out the United States.

For all intents and purposes, I contend that America can be saved if something like the Ryan budget is approved.

You can vote on this page on whether you like or dislike what I said, as well as what the other participants said.

How Sweden Profits from For-Profit Schools

The brass ring of education reform is to find a way to ensure that the best schools routinely scale-up to serve large audiences, crowding out the mediocre and bad ones. Over the past twenty years, the United States and Sweden have taken two very different approaches to achieving that goal, which I wrote about in a recent op-ed.

In the U.S., our main strategy has been for philanthropists to fund the replication of what they deem to be the academically highest-performing networks of charter schools. In a recent statistical analysis of California, the state with the most charter schools, I discovered that this is not working out particularly well for us. There is no correlation between charter school networks’ academic performance and the philanthropic funding they’ve raised. And, at any rate, charter schools still enroll less than 3 percent of the nation’s students.

In 1992, Sweden introduced a nation-wide public and private school choice program. Private schools went from enrolling virtually no one to enrolling about 11 percent of the entire student population–a figure that continues to grow with each passing year. Moreover, recent research finds that these new private schools outperform the public schools. And which private schools are growing the fastest? The chains of for-profit schools that are in greatest demand, and that have an incentive to respond to that demand by opening new locations. The popular non-profit private schools tend not to expand much over time.

Given that Sweden is universally regarded as a liberal nation, and the U.S. is seen as a bastion of capitalism, one wonders why they got to the brass ring first, and why it is taking us so very long to get there now that they’ve shown us the way.

The Legitimacy of the Libyan War

President Obama’s speech last evening offers a chance to assess the implications of the war in Libya.

President Obama is not the first president to order attacks on another nation without the authorization of Congress.  This case, however, seems different. Prior to the intervention, the President’s national security advisors had determined that the nation had no vital interest at stake in the Libyan civil war. Secretary of Defense Robert Gates has repeated that conclusion after the intervention began. For his part, President Obama emphasized in last night’s speech and before, that the war would preclude a “humanitarian catastrophe.” Why did that rationale win out over the realism of his advisors?

President Obama tends to see our nation and the world as divided between oppressors (victimizers) and the oppressed (victims).  In this view, politics should help the oppressed and do justice (i.e. harm) to the oppressor.  In Libya, this outlook provides a clear division between a oppressor (Qaddafi and his loyalists) and his victims (the rebels). Morality thus demands war against the oppressor on behalf of his victims.

But there is a problem with America acting alone. Many people in the Middle East and elsewhere see the United States not as a vindicator of the oppressed but rather as a oppressor.  Truth be told, more than few Americans share that view.

Those who share this view believe that the United States cannot act unilaterally to help the victims in Libya. This would be true even if Congress authorizes the war as required under Article I of the United States Constitution.  The authorization to go to war must come from someone else other than an American political official or institution.

Hence, President Obama sought international authorization for the war in Libya. True, he sought that authority for pragmatic reasons. A coalition meant shared burdens and (Obama believes) a quick way out of Libya. But the authorizations by the U.N. Security Council and earlier by the Arab League also could be seen as giving legitimacy to the enterprise. Those authorizations meant the United States could go to Libya as a true protector of the oppressed.

If you doubt any of this, examine closely what the President has said about the war. In his speech, the rebels become victims at the mercy of an oppressor. Congress gets a fleeting mention related to consultation about, rather than authorization of, war. True legitimacy for the war comes from a “U.N. mandate and international support.” In his letter to Congress announcing the war, the first sentence reads “at my direction, U.S. military forces commenced operations to assist an international effort authorized by the United Nations (U.N.) Security Council and undertaken with the support of European allies and Arab partners, to prevent a humanitarian catastrophe…” Here again the legitimacy for the war comes the United Nations, the European allies, and the Arab League. Congress has neither power to deny the president nor legitimacy to bestow on his work.

There is much to say about these reasons for war. Some people might see in Libya a civil war between two armed gangs. Lacking the frame of oppressor and victims, they will be less willing than the President to assume that the people in the territory called Libya wear either black or white hats. We may learn to our cost that our new allies are victims now and oppressors later.  If we take the President seriously, we will be obligated to make war against them, too.

We have now taken on a default obligation to help every victim and to punish every oppressor throughout the world. We have two constraints on fulfilling that obligation. The first, mentioned by the president, is costs. Eventually the financial markets may limit our efforts on behalf of victims. Second, and more important legally, a president must seek authorization for war from the United Nations, the European union, the Arab League or….well, anyone except the United States Congress.

It is not just that this president, like others before him, ignored Article I of the Constitution. Nor is this president the first to shun moral complexity in favor of a Manichean outlook. President Obama is the first, however, to assert that his broad powers to initiate war should be limited primarily by people who are outside the American social compact.  On this account, sotto voce, the Constitution is not just ignored. It is irrelevant.

Another Dubious Record in Mexico’s Drug War

Mexico ends 2010 with 15,000 illicit drug-related murders for the year—a record for the Calderon administration that began its term four years ago by declaring an all-out war on drug trafficking. Drug war violence skyrocketed since Calderon took office, claiming more than 30,000 lives. Though it is an unwinnable war whose consequences also include the rise of corruption and the weakening of the institutions of civil society, it is being used by drug warriors and skeptics alike to push for pet projects ranging from increased development aid to more military cooperation.

A recent example comes from the Washington Post this week. It editorialized in favor of an Obama administration plan to stem the flow of arms to Mexico, and it ran a story the same day citing the claim that 90 percent of guns in Mexico’s drug war come from the United States (though the Post also noted that the Mexican and U.S. governments refuse to release the results of their weapons traces). My colleague David Rittgers notes here that the proposed gun regulation is unlawful and here he has explained that a more realistic figure for guns of U.S. provenance is about 17 percent. In a Cato bulletin earlier this year, former Mexican foreign minister Jorge Castañeda calculated a similar figure and explained why attempts at controlling the trade in U.S. arms are a waste of time:

In fact, we only know with certainty that about 18 percent of guns come from the United States, according to Mexican and U.S. sources. The rest is surely coming from Central America, countries of the former Soviet Union, and beyond. And as countries as diverse as Brazil, Paraguay, Somalia, and Sudan attest — all countries with a higher arms per capita than Mexico — you don’t need a border with the United States to gain easy access to guns. Nevertheless, the possibilities of really limiting the sales of weapons in the United States is not imminent, to put it mildly. Moreover, asking the United States to stop arms trafficking from north to south is like asking Mexico to control its border from south to north, whether it is for drugs, people, or anything else. It’s not going to happen.

Will the Deficit Compel Congress to Cut Military Spending?

Over at National Journal’s National Security Experts blog, Megan Scully notes the military spending cuts contained within a proposal by Erskine Bowles and Alan Simpson, the co-chairs of the president’s deficit reduction commission. Scully asks: “How feasible would it be for lawmakers to make these kinds of cuts to defense?…What kind of sway will fiscal hawks have in the next Congress - and will it be enough to push through sweeping defense cuts over the objections from pro-defense members of their party?”

Government spending across the board must be cut, I explain, beginning especially with entitlements.  I continue:

Other spending must also be on the table, however, and that includes the roughly 23 percent of the federal budget that goes to the military. This often poses a particular challenge for Republicans given their traditional support for military spending and their professed commitment to fiscal discipline. But it need not be particularly difficult. If Republicans reaffirm that the core function of government, many would say one of the only core functions of government, is defense (strictly speaking), then the path to a politically sustainable and economically sound defense posture is clear: a military geared to defending the United States and its vital national interests, and not permanently deployed as the world’s policeman and armed social worker. Such a posture would allow for a smaller Army and Marine Corps as the wars in Iraq and Afghanistan are drawn to a close (as they should be), deep cuts in the Pentagon’s civilian work force, which has grown dramatically over the past 10 years, and sensible reductions in the nuclear arsenal. More modest cuts are warranted in intelligence and R&D. Finally, significant changes in a number of costly and unnecessary weapons and platforms, including terminating the V-22 Osprey and the Expeditionary Fighting Vehicle, and greater scrutiny of the F-35 program, for example, must also be in the mix….

Serious cuts to military spending… must be part of a broader strategic reset that ends the free-riding of wealthy and stable allies around the world, and that takes a more balanced and objective view of our relative strategic advantages and our enviable security.

 You can read the rest of my response here.

Don’t Be Afraid of the Chinese Economic Tiger

The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy.

Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom — which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per-capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per-capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Scores have improved, but the Economic Freedom of the World report ranks China 82 out of 141 nations, just one spot above Russia, and the Index of Economic Freedom has an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. That would be good for the Chinese people. And since rich neighbors are better than poor neighbors, it also would be good for America.