Tag: Wall Street Journal

Confusion over Confusion

On August 29th, I penned “Lagarde Confused, Again.” In it, I argued that Christine Lagarde, the new managing director of the International Monetary Fund, misdiagnosed Europe’s banking crisis.

Ms. Lagarde’s assertion that Europe’s banks “need urgent recapitalization” is based on faulty economics. While the higher capital-asset ratios that Ms. Lagarde extols are intended to strengthen banks (and economies), higher ratios destroy money and are “deflationary.” This is not what a struggling Europe needs. Indeed, higher capital-asset ratios imposed on Europe’s banks at this juncture would virtually ensure that Euroland would take another dive. In consequence, some of the banks that were made “safer” by Ms. Lagarde’s medicine would go to the wall.

Today, the Wall Street Journal’s lead editorial “A TARP for Europe?” adds to the confusion by enthusiastically endorsing Ms. Lagarde’s prescription.

The Minefield of American Criminal Law

Over the weekend, the Wall Street Journal ran an excellent article about the problem of overcriminalization—the proliferation of criminal laws and how more and more people can find themselves on the wrong side the law without even realizing it. Here’s an excerpt:

In 2009, Mr. Anderson loaned his son some tools to dig for arrowheads near a favorite campground of theirs. Unfortunately, they were on federal land. Authorities “notified me to get a lawyer and a damn good one,” Mr. Anderson recalls.

There is no evidence the Andersons intended to break the law, or even knew the law existed, according to court records and interviews. But the law, the Archaeological Resources Protection Act of 1979, doesn’t require criminal intent and makes it a felony punishable by up to two years in prison to attempt to take artifacts off federal land without a permit.

Read the whole thing.

It’s great that this phenomenon is getting more attention. Too many people in Washington seem to think that the more laws Congress enacts, the better the job performance of the policymakers. That’s twisted. Before an elected official can take any action whatsoever, he or she must first take an oath to uphold and preserve the Constitution—and the role of the federal government in the criminal area is supposed to be quite limited. I testified before a congressional committee two summers ago on this subject. And Judge Alex Kozinski, quoted in the WSJ article above, has a terrific essay in my book, In the Name of Justice, about the score of federal criminal laws now on the books. And Cato adjunct scholar Harvey Silverglate authored a fine book on the problem, called Three Felonies a Day. More here (pdf) and here.

Does Asia Need a Larger U.S. Handout?

Yesterday, AEI scholars Dan Blumenthal and Michael Mazza authored an interesting op-ed in the Wall Street Journal with a perplexing title: “Asia Needs a Larger U.S. Defense Budget.” There are a couple of more sensible arguments you could make: For instance, that Asian countries need larger defense budgets, or that U.S. interests in Asia require larger military expenditures that Asian countries can’t or won’t make themselves . Blumenthal and Mazza gesture at both of those arguments but don’t really make either one. As such, the piece is an emblem of what’s wrong with the Asia policy discussion–to the extent it exists–in Washington today.

In the opening paragraph, the authors state that “it is…difficult to assess how much cuts [to military spending] will cost tomorrow,” but in the next sentence defy that claim by promising that “in Asia, the price will be unacceptably high.” Either it is difficult to assess how much cuts will cost tomorrow, or we know that the price of cuts in Asia will be unacceptably high, but not both. The authors also are apparently unaware of the facts when they argue that U.S. military spending has been “slashed.”  It hasn’t even been cut. (For its part, the Asia studies department at AEI was last seen disseminating wildly inflated estimates  of Chinese military spending and then refusing to answer queries about how they came up with the figures.)

Blumenthal and Mazza then swerve widely to avoid explaining China’s military buildup, writing that

The international trade that has fueled the region’s economic boom is dependent upon the immeasurable strategic tasks undertaken by the U.S. military–from keeping safe maritime shipping to reassuring friends and allies while deterring China and North Korea.

The reason that China is building up its military forces and narrowly targeting them at securing their sea lines of communication (and perhaps a bit further out) is that they quite rationally do not want to rely on the eternal beneficence of the United States to do it for them, particularly when prominent Asia scholars mention in the same breath deterring and containing China as a primary goal of the U.S. in Asia.

There are other contradictions. For instance, Blumenthal and Mazza assert flatly that

If America skimps on its military, China will become the regional hegemon.

That’s one possibility, but aren’t there others? One paragraph later, the authors allow that sure there are: the alternative is that

Asian countries might find ways to resist Chinese pressure themselves.

So then maybe it’s not foreordained that China will run amok in East Asia absent Washington as its balancer-of-first-resort. But that brings us back around to the weirdness of the title of the piece: saying that Asia needs a larger U.S. defense budget is like saying that Greece needs more German stabilization money. (While we’re here, AEI calling for more military spending is like rock legend Bruce Dickinson calling for more cowbell.)

These kinds of arguments ought to at least try to show why the best way to achieve German (or American) interests is to dole out more largesse to third parties. That may or may not be true, but it would be good to at least see an argument to that effect, rather than all the hand waving and then backing down from the strongest claims in the article.

Gay Marriage in New York

In the Wall Street Journal today, Cato senior fellow Walter Olson praises the New York legislature both for passing a marriage equality bill and for including guarantees of religious freedom in the bill:

For those of us who support same-sex marriage and also consider ourselves to be right of center, there were special reasons to take satisfaction in last Friday’s vote in Albany. New York expanded its marriage law not under court order but after deliberation by elected lawmakers with the signature of an elected governor. Of the key group of affluent New Yorkers said to have pushed the campaign for the bill, many self-identify as conservative or libertarian. A GOP-run state Senate gave the measure its approval….

To their credit, New York lawmakers devoted much attention to the drafting of exemptions to protect churches and religious organizations from being charged with bias for declining to assist in same-sex marriages. Exemptions of this sort are sometimes dismissed as a mere sop to placate opponents. But in fact they’re worth supporting in their own right—and an important recognition that pluralism and liberty can and should advance together as allies….

Critics have charged that same-sex marriage will constrict the free workings of religious institutions and violate the conscience of individuals who act on religious scruples. Many of the examples they give are by now familiar….

Observe, however, that it isn’t the legal status of same-sex marriage that keeps generating these troublesome cases; it’s plain old discrimination law. Thus New York’s highest court ordered Yeshiva University, an Orthodox Jewish institution, to let same-sex couples into its married-student housing. But that ruling happened a decade ago and had nothing to do with last week’s vote in Albany. In the case of the wedding photographer ordered not to act on her scruples, New Mexico didn’t then and doesn’t now recognize same-sex marriage. While some of these rulings are to be deplored as infringements on individual liberty, they’re not consequences of the state of marriage law itself.

Also: Cato’s forum on the legal challenge to California’s Proposition 8, featuring Ted Olson, David Boies, John Podesta, and Robert Levy. And an earlier forum on gays and conservatism featuring Andrew Sullivan, Maggie Gallagher, and British Cabinet minister Nick Herbert.

Ricardo Paging Alan Blinder

I almost hesitate to suggest that anyone actually read Alan Blinder’s defense of Keynesian economics in today’s Wall Street Journal, except that the piece lays out clearly in my mind why Blinder is so wrong.  The only part you really need to read is:

In sum, you may view any particular public-spending program as wasteful, inefficient, leading to “big government” or objectionable on some other grounds. But if it’s not financed with higher taxes, and if it doesn’t drive up interest rates, it’s hard to see how it can destroy jobs.

So in Blinder’s world, deficits are explicitly not future taxes, despite what I believe is a fairly strong consensus among economists that some form of Ricardian equivalence holds (see John Seater’s literature review and conclusion, “despite its nearly certain invalidity as a literal description of the role of public debt in the economy, Ricardian equivalence holds as a close approximation.”).  Perhaps Blinder is blind to the fact that deficits are so much a part of the public debate today because households absolutely see those deficits as future taxes.

I also think Blinder misses that fact that crowding out can occur without raising interest rates.  As Cato scholar Steve Hanke points out, the Fed’s current policies have basically killed the interbank lending market, which has encouraged banks to load up on Treasuries and Agencies, rather than lend to the productive elements of the economy.  While I sadly don’t expect most mainstream macroeconomists to focus on the link between the banking sector and the macroeconomy, Blinder has no excuse; he served on the Fed board.

As I have argued elsewhere, banks are indeed lending, but to the government, not the private sector.  The simplistic notion that crowding out can only occur via higher interest rates, as if price is ever the only margin along which a decision is made, has done serious harm to macroeconomics.  But then if macroeconomists actually understood the mechanics of financial markets, then we might not be in this mess in the first place.

El Salvador’s Unfortunate Lesson

Two years ago in a Cato study I documented El Salvador’s remarkable liberalization process and the significant progress in economic and social indicators that resulted from those free market reforms. I also warned then about how those achievements were threatened by the likely victory of the former Marxist guerrilla group, FMLN, in the presidential election of 2009.

Even though Mauricio Funes, the then FMLN candidate now turned president, has proven to be a relatively moderate figure when compared to his radical left-wing party, El Salvador is reversing many of the gains of the past decade. Mary O’Grady’s column in the Wall Street Journal today, which describes how “the wheels came off” of the “once thriving Salvadoran economy,” is a reminder to all countries not to take progress for granted.

It’s Bigger Than the Budget

Today POLITICO Arena asks:

Do the cuts (and increases) contained in the six-month spending bill House Republicans posted overnight make sense, and do they go far enough in attacking the deficit and national debt?

My response:

Today’s Arena question captures perfectly what’s missing from our current budget debate. In listing a few of the compromises contained in the six-month spending bill House Republicans posted overnight, and asking whether those cuts (and increases) go far enough in attacking the deficit and national debt, it invites us to imagine that America is one big family, arguing over how “we” should spend “our” money.

We’re not. As I wrote in last Thursday’s Wall Street Journal, we’re a constitutional republic, populated by discrete individuals, each with our own interests. Today’s question, perfectly understandable in the current climate, socializes us. The Framers’ Constitution freed us, to make our own individual choices.

To be sure, we have to start where we are today. But if that’s as far as we go, we’re doomed to never grasping the real problem. The Constitution was written precisely to check our appetite for “public goods.” It authorizes only a few, truly public goods. Not health care. Not education. Not most of what we spend “our” money on today. We’ve ignored the discipline it imposes, and we’re paying the price.