Topic: Government and Politics

Flex-Fuel Nonsense

Over at National Review Online today, Clifford May asks:

What if lawmakers could guarantee that the price you pay to fill your car’s tank will go down, not up, in the years ahead? What if they could launch a new industry that creates more jobs for more Americans? What if this would produce environmental benefits, too? Would that not send a message to the markets? And would that not represent the kind of change so many politicians have been promising?

All of this would come true, Mr. May believes, if the federal government would force auto makers to ensure that every new car sold in the United States could run on gasoline OR high blends of ethanol OR methanol OR fill-in-the-blank. After all, it would only cost about $100 up-front during the manufacturing process to make such “flex-fueled” cars a reality, a modest investment that would give motorists a ready-made ability to run their cars on whatever strikes their fancy.

Well, to answer Mr. May’s questions in the order they are posed, they can’t, they won’t, it wouldn’t, it would, and it wouldn’t.

Congress can no more guarantee that fuel prices will go down from now until the end of time than it can guarantee a robust sex life for fat, balding, middle-aged men. Fuel prices are subject to supply and demand curves that do not answer to Congress — particularly in global energy markets.

The conceit that government can create jobs by creating industries out of whole cloth glosses over the fact that the money needed to create those industries and those jobs starves other industries of cash that will, in turn, eliminate other jobs. While it’s not inconceivable that government could on balance create more jobs than it destroys in this manner (that is, that the industry created is more labor-intensive than the industries harmed), that’s still not a good reason to go forward. After all, one might on balance increase employment in the United States by banning modern farm machinery and food imports, which would put a lot of people into the fields. But no sane person would endorse such a thing on economic grounds. Economic growth occurs when we increase productivity, and we don’t necessarily do that by biasing investment toward labor-intensive activities.

Promoting alternative fuels is not necessarily good for the environment. Ethanol, for instance, increases urban smog without any corresponding reduction in greenhouse gas emissions. It drains already depleting groundwater reserves and pollutes those that remain. It puts millions of additional acres of land under the plow, which in turn kills ecosystems and further pollutes navigable waterways. In short, gasoline looks positively “Green” compared to many of the fuels Mr. May hopes to champion.

Mr. May is correct, however, about the fact a mandate like this would send a message to the markets. The message would be “Congress is not a serious legislative body.” But to be fair, it’s not as if the market hasn’t heard that message before.

Mr. May is wrong, however, to think that a flex-fuel mandate would represent the kind of “change” that most politicians are promising. Congress has told Detroit how to build its cars for decades now. Nothing new there.

The main reason that this sales pitch is hollow, however, has to do with the fact that, at present, there is no cheap alternative to gasoline. The problem isn’t that cars can’t use the fuel. The problem is the cost of the fuel. For instance, on wholesale spot markets as of Jan. 24, 87 octane was selling at $2.32 per gallon. Compare that to the price for alternative fuels (in the same spot wholesale markets) once you adjust for the differences in energy content:

• E100 ethanol — $3.53 per gallon
• B100 biodiesel — $3.97 per gallon
• Methanol — $4.22 per gallon

In short, there’s a good reason why auto companies aren’t popping flex-fuel capabilities into every engine sold: consumers don’t seem willing to spend the $100 extra for that extra. Well, to be precise, most consumers don’t seem that interested. Some are in fact buying flex-fueled vehicles right now — 4 million such vehicles are thought to be on the road at present and dozens of models are on sale right now. But some of us aren’t willing to fork over the extra money for the option to use those fuels over the lifetime of our new car.

Should Congress override consumer preferences in that regard? No. Given the high cost of alternatives, consumers are not acting irrationally when they say “no thanks” to flex-fueled vehicles.

Would auto companies be advantaged by a flex-fuel mandate? Mr. May thinks so, but auto executives tend to disagree. My guess is that Mr. May knows less about their business than they do.

If and when alternative fuels are cheaper than gasoline, you can rest assured that consumers will increase their demand for flex-fueled vehicles and that auto makers will supply them out of simple interest in profit. Government mandates are not necessary.

Less Fuel for the Trade Fire

John Edwards has announced that he is withdrawing his candidacy for the Democratic nomination for president. As I wrote in an op-ed the other week, John Edwards had by far the worst trade policy proposals of the front-running Democrats. It says something good about America that Mr Edwards’ brand of populist nonsense has been rejected by the primary voters.

Terrorism and Terrorism Counter-Strategy: Some Rudimentary, Necessary Thoughts

I share Tim Lee’s disagreements with our colleague Roger Pilon’s WSJ op-ed. Roger received far less gentle treatment elsewhere. I’m impressed, as usual, with Tim’s depth on the FISA law and the FISA debate.

This stir reminds me of a broader problem that pervades debates on anti-terror policies. Many perfectly intelligent public policy experts still lack a sound understanding of terrorism as a strategy. This degrades their ability to conceive of counter-strategic responses, causing them to promote ideas that would not help and that would even hurt our efforts to control terrorism.

In early January, I presented at a conference held by the International School on Disarmament and Research on Conflicts, the Italian branch of the 1995 Nobel-Prize-winning Pugwash Group. The topic of the conference was “Terrorism, Counterterrorism, and Human Rights.” I have done some work on the privacy implications of technical anti-terrorist efforts, of course, and am increasingly (and necessarily, it seems) focusing on terrorism strategy and counter-strategy. I presented on both and learned a great deal from the perspectives represented at the conference.

Though I don’t feel fully expert yet, I’d like to share some more detailed thinking about terrorism and counter-terrorism strategy. I hope more people will put their thinking into this kind of context.

To Define or Not to Define “Terrorism”

The terrorism definition I offered was: “a strategy used by the weak to goad the strong into self-injurious overreaction.” Rightly, my colleagues prompted me to refine this to “A strategy of violence used by the weak to goad the strong into self-injurious overreaction.” Civil disobedience is designed to elicit overreaction, of course, but it is as far from terrorism as one can get.

Some questions emerged during the conference that are relevant:

  • Can states use terrorism? Or is it only used by non-state actors? - These are important questions. My preference is to find that terrorism is only used by non-state actors. When a state tries to provoke another in some way (even using proxies who look like non-state terrorists), this can and should be treated as a tactic in war. The terrorism counter-strategy I’ll discuss below is inapposite for when a state does terrible things, and this should be treated as a separate problem.
  • Is terrorism only used by the weak? - Regrettably to me, I have heard the United States cited as a possible example of a “strong terrorist.” It is possible that the strong might use terror to provoke, but the strong are almost always states whose use of terror may be acts of war or crimes against humanity, but not acts of terrorism that can be addressed with terrorism counter-strategy.
  • Does terrorism require attacks on civilians? - I think not. Terrorism can be committed by attacks on civilian or military infrastructure, or even without attack - by making a credible threat. To the extent it can be defined at all, terrorism can not be defined with reference to specific targets or acts.
  • Is terrorism a crime or an act of war? - Placing terrorism in a conceptual box like this is a part of developing a counter-strategy, which I discuss below.

Intentional creation of fear would also seem to be an element of terrorism. Not all fear-creating is terrorism, of course. Legitimate war-making probably includes and requires instilling fear at key times in key populations.

Despite all this, I’m tentatively persuaded that it is not actually useful to spend a lot of time parsing it down to the “definitive definition” - not for these purposes, at least. Terrorism requires a definition if you’re going to extradite people for “terrorism,” but as I conclude below, terrorist acts are best treated as crimes and made extraditable as such. States, especially, will use the process of defining terrorism for self-preservation, treating all non-state violence as terrorism. They do this to have a rhetorical upper-hand when confronting any rebellion, even a legitimate one, fought fairly. George Washington’s army may have been considered “terrorist” by the British.

What matters is not the definition, but how terrorism works.

Terrorism at Work: Overreaction
I do believe that terrorism has a defining characteristic: it seeks to goad the strong into self-injurious overreaction, with results falling into the following categories:

  • Waste of Blood and Treasure - Terrorist attacks - or well-placed threats of attack - can prompt the victim to waste its own resources, both the blood of its soldiers and the wealth of its people. The U.S. response to the 9/11 attacks provides many examples of both. It terms of blood, there is the Iraq War. (n.b., I was sympathetic to the war at the beginning and quite capable of defending its rationale, but the result now is clear: that we have wasted many lives and much treasure.) The creation and operation of the Department of Homeland Security and the Transportation Security Administration are basically permanent multi-billion-dollar drains on the public fisc. The REAL ID Act and Western Hemisphere Travel Initiative are similarly wasteful, self-destructive programs. These are just a few examples and they all were prompted by a $500,000 al Qaeda investment. Ohio State professor John Mueller’s legendary Regulation article is required reading for anyone studying terrorism or thinking in terms of terrorism counter-strategy.
  • Recruitment and Sympathy Gains - A strong power victimized by terrorism is very likely to do violence or take other responses that are badly directed, or even entirely misdirected. This will tend to engender sympathy for the terrorists and aid in their recruiting and support. The Iraq War has drawn energy to al Qaeda, as the U.S. is widely perceived as a Middle East menace, its good intentions unknown. Not just the war-making matters, of course; its conduct does, as well. Think Abu Ghraib and Guantanamo - gigantic PR victories for terrorists, and many other opponents of U.S. power. Paddy Hillyard from Queen’s University Belfast has articulated well how British responses to IRA terror won sympathy and recruits for them. Lashing out against the communities in which terrorists live, or the places where they hide, forces local neutrals into the wrong camp. These are people who are uniquely positioned to undermine those terrorists should they so choose.
  • Weakened Political Order/Society - Finally, terrorism causes what I have tentatively called a “weakened political order/society.” Terror attacks on the Western democracies have caused them to come somewhat loose from their (classical) liberal moorings. In the U.S. since 9/11, we have seen proposals for massive domestic surveillance, we have seen Americans taken prisoner and held without charges, we have seen surveillance conducted in violation of the law. These are just a few of the more prominent examples. (A list Paddy Hillyard produced with reference to Northern Ireland looks remarkably familiar.) Now, naming all these “civil liberties violations” is not mere (neo) liberal carping. Mike German’s book Thinking Like a Terrorist shows that terrorists are battling for legitimacy. With little ability to build their own legitimacy, they can at least degrade their opponent’s. Overreaction by the victim state erodes its claim of moral authority to rule. This is more relevant when a terrorist group makes a credible claim on territory or when it represents a distinct population, of course, but look at how Osama bin Laden has occasionally offered to make “great power”-like deals with European states. This is a man seeking after legitimacy. Unfortunately, U.S. officials have given it to him in their rhetoric by allowing HIM to declare war! U.S. officials have likewise undermined U.S. legitimacy (and grown the terrorists’) by seeking excessive new powers, exaggerating threats, and undermining the rule of law. It is a successful execution of the terrorism strategy when an attack causes a state to deviate from its ordinary practices and founding ideals.

So now that we have the terrorism strategy in hand, and how it works, we can turn to counter-strategy. My potentially-clever line summarizing good terrorism counter-strategy is:

Do what you can – AND NOTHING MORE!

There are lots of things to do that can thwart terrorism and defend against terrorist attacks, such as infiltrating and disrupting terror groups. (They have to operate clandestinely so they are wonderfully paranoid. This can be exploited, and has been in the past.) Targeted, lawful surveillance of terrorists and terror suspects is good. Controlling access to weapons of mass destruction and WMD precursors - vital. Taking reasonable precautions to secure against likely vectors of attack on infrastructure. Preparing for attacks and their aftermaths. Communications that accurately convey risks and appropriate responses. These are all viable counter-terrorism activities - and it’s not nearly an exhaustive list.

The counter-strategy’s most interesting part, of course, is the “nothing more” part. This is the commonsensical but elusive idea that you should not take anti-terrorism measures that aren’t going to work. Believe it or not, this implies a slight preference for inaction (or perhaps under-action) in anti-terror efforts. If it isn’t provably a good idea, don’t do it!

This is not pacifist foolishness; this is hard-edged counter-strategy taking advantage of the fact that terrorism alone is inherently self-destructive. Only when joined with overreaction does terrorism become “productive.” Overreaction must be avoided.

So our counter-strategies, which map to the gains terrorists seek, are:

  • Hold on to Blood and Treasure - If at all possible, don’t go to war. As I said, I was sympathetic to the Iraq War at the outset. My intellectual superiors here at Cato did a better job of it at the time, and now continue to counsel less war over more. This is consistent with good terrorism counterstrategy.
  • Don’t Give the Gift of Overreaction - As I touched on above, terrorists want their opponents to strike at them and miss. They don’t even mind too much if they get hit - as long as there is some good collateral damage. Overreaction - in war, prisoner detention and mistreatment - even in the conduct of investigation - these things are all good for terrorists because it helps them get recruits and support.
  • Stand By the Values of Your Society - Similarly, deviating from the rule of law, seeking extraordinary powers, using mass surveillance - these things all give terrorists legitimacy by admitting their power. These things also undermine the legitimacy of an incumbent government by placing the state at odds with its people. (By the way, false security measures will do yet more to undermine a state’s legitimacy when they actually fail. Placing the government’s legitimacy on the table in a bet on “security theater” is anti-terrorism malpractice.) When the terror-victim-government simply behaves well, this can be a devastating blow to terrorism because it causes the bad behavior of terrorists to dominate public perceptions. It destroys terrorists’ legitimacy and it undercuts their support, sympathy, recruitment, and fundraising.

One thing about all this is important: “War” is the wrong reaction by any measure. Going to war literally saps a nation of blood and treasure. It also will result in damage that draws sympathy and support to the terrorists. The rhetoric of “war” also gives terrorist groups legitimacy in the eyes of their current and potential allies, supporters, or members. I get very frustrated when I hear U.S. public officials give Osama bin Laden this gift.

Rather than war, terrorism should be treated as a crime problem, for at least two reasons: First, that treatment is far less likely to lead to overreaction, and, second, treating terrorism as a crime is an energy-draining “dis” to terrorists themselves. My colleague Roger Pilon is mistaken to put our efforts against terrorism within the constitution’s “Commander in Chief” power, whatever its appropriate scope is. As far as extradition, terrorists should be extradited based on the criminal acts or criminal planning they have committed. (Perhaps certain conspiracies might be added to the substantive law in some countries.) Treating them fairly - as criminals - will quickly melt the “mystique” that terrorists try to mold around themselves.

There are many pieces missing from this discussion. There are certainly many details about which reasonable people can differ. One thing I think is certain: Failing to address terrorism counter-strategically has done our nation immense damage, and threatens still more. We need to change that.

John McCain: The Good, the Bad, and the Ugly

With his victory in Florida, Sen. John McCain has become the clear front runner for the Republican nomination. It’s worthwhile, therefore, to take a closer look at what kind of president he might be.

The Good: While Rush Limbaugh and Sean Hannity sometimes portray McCain as a virtual clone of Ted Kennedy, the fact is that he is a true fiscal conservative—certainly more of a fiscal conservative than, say, Mitt Romney. He is well known as an opponent of earmarks and pork barrel spending. But perhaps more importantly, he has long been an advocate of entitlement reform. He was early an ardent support of personal accounts for Social Security, and has pushed for serious Medicare reform, including means-testing. Almost alone among Republicans, he opposed the disastrous Medicare prescription drug benefit.

He has offered the best health care reform plan of any of the candidates. While Mitt Romney has embraced the basic tenants of HillaryCare, McCain would change the tax code to equalize the treatment between employer-provided and individually-purchased health insurance. This is a vital step in moving away from our employment-based health care system toward a more consumer-oriented system. And, he would allow the purchase of low-cost insurance across state lines, avoiding regulation and mandates.

During his time in the Senate, he has never voted for a tax increase. While he has taken much heat for voting against the Bush tax cuts, he now calls for making those tax cuts permanent (although he would retain a vestige of the estate tax at a reduced rate and increased exemption). And, McCain is right that cutting taxes has too often become an excuse for republicans to avoid the hard task of cutting spending. Cutting taxes reduces the pain of government spending (at least for now), allowing Congress to avoid difficult choices. While taxes need to be cut—and McCain supports a number of tax cuts including reductions in the business tax rates and capital gains taxes—future tax cuts should be linked with spending cuts. As I argue in my book, Leviathan on the Right, it’s the size of government, stupid.

He is a strong and unapologetic free trader.

The Bad: John McCain frequently makes Dr. Strangelove look like a peacenik. Its not just his desire to remain in Iraq “for a hundred years.” It’s his bellicosity toward every enemy and perceived enemy from Iran to North Korea. He’s a true believer in the neoconservative goal of remaking the world to fit our desires and beliefs. At best on foreign policy he would be a competent Bush. At worst, he appears a recipe for perpetual conflict.

On domestic policy, he has shown a disturbing predilection for elevating every personal pet peeve, from steroids in baseball to airplane service quality, to a federal issue. And, he has embraced heavily regulatory environmental policies and compulsory national service. Like George W. Bush, he tends to support federal power over federalism, executive authority over legislative, and generally leans toward the imperial presidency.

The Ugly: John McCain appears to have little more than contempt for the First Amendment and free speech generally. He is the principal author of a campaign finance bill that severely restricts political speech. Not content with those restrictions on political speech, he has continually sought to expand regulation to other groups. He has said that he “would rather have a clean government than one where, quote, First Amendment rights are being respected, that has become corrupt. If I had my choice, I’d rather have the clean government.” Any candidate who believes that respect for First amendment rights needs to be qualified by “quote,” raises serious concerns. Moreover, his general attitude appears to be that criticism of the government, the war, and in particular himself, is somehow unpatriotic.

Most worrisome of all appears to be McCain’s basic philosophy, which is unapologetically statist, as Matt Welch points out in his new book McCain: The Myth of a Maverick. McCain once said “each and every one of us has a duty to serve a cause greater than our own self-interest.” McCain believes that cause to be the good of the collective, often defined as the nation or the national community.

For believers in individual liberty and limited government, it’s a decidedly mixed bag. But, then again, aren’t they all?

Hillary’s Choices

When a politician has a vulnerability, there are different ways to deal with it. You can ignore it, stonewall questions, pretend it isn’t there. You can joke about it, as Ronald Reagan did with his age. Or you can embrace it, make it a virtue. In his early campaigns the rumpled and overweight Barney Frank (who has long since slimmed down and bought better suits) campaigned on the slogan “Neatness isn’t everything. Re-elect Barney.”

Hillary Clinton seems to have adopted the Barney Frank approach on the issue of corruption. Since 1991 or thereabouts, ethical questions have swirled around the Clintons–Whitewater, commodity trading, billing records, small-time grifters in the Cabinet, Travel Office firings, campaign fundraising, right on up to the midnight pardons as they left the White House. So she might have tried to run a squeaky-clean campaign to make people forget all that ancient history.

Tuesday night in Florida, however, it became pretty clear that that wouldn’t be her strategy. At her Florida victory speech, she was introduced by one of her national campaign co-chairs, Rep. Alcee Hastings. Back in 1988, Hastings was a federal judge. He was impeached by the House of Representatives on charges related to bribery and was removed by the Senate. Rep. John Conyers, now chairman of the Judiciary Committee, was one of the House impeachment managers. The House vote was 413 to 3.

On January 20, 2001, Bill Clinton pardoned William Borders, who was convicted and jailed in connection with the bribery of Hastings.

It looks like the Clintons are not embarrassed to be associated with other politicians who have been accused–and impeached–and indeed actually removed from office for unethical behavior. “Ethics isn’t everything. Bring back the Clintons.”

State of the Earmarks

Last night’s State of the Union address didn’t contain much in the way of new policy proposals. As I note in a podcast (Subscribe!), this is largely a reflection of President Bush’s limited political capital because of his lame duck status, low approval ratings, and the Democratic majority in Congress.

But one issue Bush did indicate he will tackle is the rampant earmarking on Capitol Hill. Bush said he would take a couple actions on this front – and while these might be modest steps in the right direction, the results will be far from earth shattering.

First, Bush will “issue an Executive Order that directs Federal agencies to ignore any future earmark that is not voted on by the Congress.” This is good step and one that fiscal conservatives on Capitol Hill have been urging for years. The President can ignore certain earmarks because Congressional appropriators routinely exclude them from the legislative text of spending bills. Instead they “airdrop” many earmarks into conference reports at the last minute. These reports are not technically part of the law, but serve as accompanying documents to inform the Executive Branch of Congress’s intentions. Appropriators do this to circumvent transparency measures and make questionable earmarks immune to points of order or striking amendments by critical members. Because the Executive branch has always played along, it has never been necessary for Congress to act otherwise.

Until now.

With the new Executive Order in place, Congress will presumably be forced to include earmarks in legislative text rather than putting them in nonbinding conference reports. This will likely increase transparency to some degree, but it’s unlikely to have a significant impact on earmarks beyond that. Enough support resides in Congress to continue to earmark funds and easily defeat procedural hurdles along the way. Furthermore, Bush missed a huge opportunity here. He could have applied the Executive Order to the current 2008 fiscal year and wiped out thousands of earmarks in the process.

Bush also indicated that he would veto appropriations bills that do not reduce the number or cost of earmarks by 50 percent. This might encourage appropriators to cut earmarks per the president’s request. But there is a danger here – rather than shooting for a significant reduction in earmarks, Congressional leaders could instead dole out more money for members’ pet projects in order to build a vested voting block large enough to override a veto. In terms of passing the annual spending bills, this could be an easier path for Congress to follow, as most spending bills already pass with large majorities. The result could be a net increase in earmarks.

Still, President Bush has made a good faith effort toward improving the earmarking process. And by discussing earmarks during his final State of the Union address, he brought a national spotlight to the issue. But few significant improvements will occur until members of Congress stop coveting earmarks and voters stop returning earmarkers to Congress.

Stimulus: Kindergarten Keynesianism

It is very curious that some top economists are pushing the Bush/Pelosi $100 billion stimulus giveaway.

  • For years, these same economists told us that more savings is good for the economy. Now they are saying that more consumption is good.
  • For years, these same economists have lambasted the budget deficit. Now, they support blowing a new $100 billion hole in the federal budget.
  • Finally, many economists have long complained that Americans are shopoholics and have far too much credit card debt. Now stimulus-supporting economists are demanding that Americans spend, spend, spend!

It is surprising that anyone takes economists seriously anymore.

Anyway, stimulus proponents say that mailing $100 billion of cash to families will cause the nation’s output to grow. Yet this simple Keynesian chart illustrates that the result will be higher prices, not more output.

The stimulus causes the aggregate demand curve to shift to the right, as proponents suggest. That moves us along the aggregate supply curve, which I believe should be drawn vertically in this case. The result is that prices jump up from P1 to P2, but output does not rise.

Stimulus proponents would argue that the aggregate supply curve should be sloped, at least in the short run. In that case, the figure would show a temporary bump upwards in output.

But that seems unlikely to me. Keynesian theories about why output might increase usually rely on imperfections in markets or information. Producers get fooled into increasing their output for a while, before the errors are worked out and output falls back to its long-term level.

But that wouldn’t seem to be the case here. Let’s say the rebate checks get mailed out in May and June. A U.S. cigarette producer may notice a slight uptick in sales in those months as smokers spend their government checks. But cigarette producers probably watch the news and they will know that this is just a temporary blip. As such, they won’t add any new workers or buy any new machines.

So output would stay pretty fixed, while prices would adjust upward slightly to clear markets. But I don’t claim to be a Keynesian expert, so if one of our Keynesian readers wants to tell me where I’m wrong, I’d be happy to hear it. Until then, I remain convinced that the Bush/Pelosi scheme is crack-pot.