Topic: Political Philosophy

RIP Economist and Cato Friend Walter Oi: An Advocate for Liberty and the Volunteer Military

With most people focused on the coming of Christmas, the death of economist Walter Oi received little attention.  Educated at the University of Chicago and appointed professor at the University of Rochester, Oi was an outstanding labor economist.  He was no mere ivory tower advocate of liberty.  He was a Nisei, or second-generation Japanese-American.  At age 13 during World War II his family was interned in California.

Life didn’t get easier for him.  His eyesight steadily deteriorated, and he could not read text upon entering college.  He fully lost his sight in 1956.  Yet he went on to gain a PhD, teach, research, serve on presidential commissions, and gain a long list of honors.  His career should embarrass the rest of us.

Moreover, like Cato’s late chairman, Bill Niskanen, Oi stood on principle irrespective of cost.  In warm tribute to the latter, economist David Henderson, a University of Rochester colleague and another Cato Institute friend, pointed to Oi’s criticism of the future prospects for agriculture when teaching at Iowa State University and opposition to proposals for government reparations for the internment of Japanese-Americans.

Oi’s research interests were many but, Henderson wrote:  “If you are an American male younger than 66, you should take a moment and give thanks to economist Walter Oi.  Walter died on Christmas Eve 2013.  Even though you probably haven’t heard of him, he has had a profound effect on your life.  He helped end military conscription in the United States.”

I am one of those who was able to choose my own way, rather than be subject to presidential diktat and sent off to fight in a stupid, unnecessary foreign war.  Tens of thousands of Americans would have been alive had the draft not been available in the 1960s to provide a guaranteed supply of cannon fodder for Lyndon Johnson’s and Richard Nixon’s misadventure in Vietnam.

Many people played critical roles in causing this self-proclaimed free society to rely on a free people for its defense.  Richard Nixon, who proposed the All-Volunteer Force.  Martin Anderson, for whom I later worked in the Reagan White House, who convinced Nixon to tackle the issue.  Milton Friedman, who served on the famous “Gates Commission,” which recommended the shift.

And Walter Oi, who served as a staff economist on the latter panel.

As Henderson, who now educates military officers at the Naval Postgraduate School, explained, Oi’s “passion for free labor markets was what motivated his work on the draft.  His contribution was to point out—and estimate two costs.  First, there was the hidden cost imposed on draftees and ‘draft-induced’ or ‘reluctant’ volunteers.  …  The second cost Oi estimated was the increased annual budget outlay needed to eliminate the draft.”

The AVF obviously was a moral triumph.  It also turned out to be a practical achievement.  The military did far better recruiting people who wanted to serve than impressing those who only wanted out.  Today America has the finest military it has ever fielded, and the best in the world. 

As I wrote in a Cato Policy Analysis:

Indeed, a draft would degrade the military’s performance, requiring induction of less-qualified personnel, who are rejected today, and raising the rate of ‘indiscipline’ by filling the armed services with people who don’t want to serve.  It comes as no surprise that the military leadership opposes conscription.

Walter Oi was sui generis.  He personally suffered from tyrannical though democratic government.  He overcame disability without complaint.  He risked job and opposed government benefits because he valued honesty and principle.  He backed his commitment to liberty with wide-ranging and quality economic research.  And he made a huge difference in the lives of tens of millions of his countrymen.

RIP Walter.

Chinese Liberal Mao Yushi Turns 85

Mao Yushi accepts the 2012 Milton Friedman Prize for Advancing Liberty

All lovers of liberty and limited government should celebrate Mao Yushi’s 85th birthday on January 14.  He was a signatory to Charter 08 and the recipient of the 2012 Milton Friedman Prize for Advancing Liberty.  As chairman of the Unirule Institute of Economics in Beijing, Mao Yushi has been instrumental in spreading classical liberal ideas in China.  In 1998, he commissioned the first Chinese translation of F. A. Hayek’s classic text, The Constitution of Liberty.  Unirule (Tianze or “Universal Rule”) conveys the fundamental principle of liberty under the law. 

Mao was educated as a mechanical engineer but later became interested in economics and how China could make the transition from central planning to a market economy.  In 1957, he was purged from the Chinese Communist Party during the Anti-Rightest Campaign, and he lost his job as a railroad engineer.  Later, during the Cultural Revolution, he lost his property when Mao Zedong outlawed private ownership. 

After Deng Xiaoping’s opening to the outside world in 1978, Mao Yushi was invited to rejoin the CCP but refused.  Instead, he became a leading critic of the Party’s monopoly on power and an advocate of free markets and civil society. 

In a recent essay, “Returning Mao Zedong to Human Form,” he argued that Chairman Mao should be subject to open criticism and not be viewed as a god—and called for removing Mao’s picture from Tiananmen Square and from the Chinese currency. As Nobel Peace Prize winner Liu Xiaobo has said, Mao Yushi’s “bravery is worth our respect.”

At Unirule, Mao Yushi has attracted many younger scholars to discuss the institutions necessary for a market economy, particularly private property rights and a legal system that protects basic human rights.  He holds that the state should protect the people who should be free to choose—an idea that goes back to Lao Tzu. 

In addition to drawing from the work of Hayek, Mao Yushi and his colleagues at Unirule have developed the ideas of Nobel Laureate economists Douglass North and Ronald Coase, focusing on the “new institutional economics.”  Peaceful development requires nurturing the right institutions and, in Coase’s words, requires a “market for ideas,” not just for goods and services.

In China’s Future: Constructive Partner or Emerging Threat? (Cato Institute, 2000), Mao Yushi wrote, “”The major obstacle to developing market institutions in China is the special privilege rights that lie beyond, and conflict with, human rights.”  That obstacle is still present, and Mao is still fighting for the people’s rights.  His courage in advancing freedom and civil society in China—through his writings, Unirule, Fuping Development Institute, and, most recently, the Humanism Economics Society—deserves our admiration and respect.

Uncertainty and Economic Fluctuations

Economist Nicholas Bloom (Stanford) has produced a nice summary of his work on uncertainty and economic fluctuations:

This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.

The crucial unanswered question is why uncertainty increased in 2008.

One possibility is that consumers and firms could not readily judge the severity of the financial crisis.

A different possibility is that consumers and firms were confused by the federal government’s aggressive new policies (e.g., bailouts) and uncertain about whether the incoming Obama administration would emphasize fiscal responsibility (e.g., scaling back entitlements) or expanded redistribution (e.g., Obamacare and higher tax rates).

The two possibilities are not mutually exclusive. But it matters a great deal which is quantitatively more important.  With luck, Bloom’s future work will address this issue.

Freedom of Thought Under Siege Around the Globe: When You are Not Free to Not Believe

Much of the world has just celebrated the most sacred Christian holiday, yet persecution of Christians has never been fiercer, especially in the Middle East.  Other faiths also suffer varying degrees of persecution. 

Nonbelievers also often are mistreated.  The lack of religious belief is less likely to be punished by communist and former communist regimes.  But such systems penalize almost all independent thought. 

Moreover, atheists and other freethinkers are at special risk in theocratic and especially aggressively Muslim states.  The International Humanist and Ethical Union recently published its second annual report, Freedom of Thought 2013: A Global Report on the Rights, Legal Status, and Discrimination Against Humanists, Atheists, and the Non-religious.

America’s Founders enshrined religious liberty in the U.S. Constitution because they understood the imperative of freedom of conscience and thought.  If a state is unwilling to respect a person’s most fundamental and intimate views, it is unlikely to leave them free to act.  Argued IHEU, “when thought is a crime, no other freedom can long survive.”

Freedom of Thought 2013 addresses the status of the non-religious.  Unfortunately, governments routinely violate the liberty not to believe. 

Concluded IHEU:  “the overwhelming majority of countries fail to respect the rights of atheists and freethinkers.  There are laws that deny atheists’ right to exist, revoke their right to citizenship, restrict their right to marry, obstruct their access to public education, prohibit them from holding public office, prevent them from working for the state, criminalize their criticism of religion, and execute them for leaving the religion of their parents.” 

Restrictions are many. IHEU figured that “in effect you can be put to death for expressing atheism in 13 countries,” all Muslim.

Persecution often fades into less virulent but still offensive discrimination.  Noted IHEU:  “Other laws that severely affect those who reject religion include bans on atheists holding public office, and some governments require citizens to identify their religion—for example on state ID cards or passports—but make it illegal, or do not allow, for them to identify as an atheist or as non-religious.” 

Moreover, “Religious privilege is one of the most common forms of discrimination against atheists.”  More controversially the organization includes “religious discrimination, or religious privilege, in this report even when its supporters claim it is merely ceremonial or symbolic.”  The latter is common in the U.S.

Not all persecution emanates from government.  Extra-legal violence is common and governments often do little or nothing in response. 

As I point out in my latest column for Forbes online:

Some religiously faithful may be inclined to dismiss the freedom not to believe.  However, Matt Cherry, the report’s lead author, emphasizes that “the fight for the rights of the non-religious [are] inextricable from the fight for the rights of the religious.”  All possess a fundamental right of belief and conscience, and an equally fundamental right to act on belief and conscience.

Obviously, one can disagree over details, including IHEU’s individual assessments.  Nevertheless, Freedom of Thought 2013 addresses a genuine and very serious threat to liberty.  Governments the world limit the most basic freedoms of belief, thought, and expression.  Moreover, it is easy to ignore the impact on individual lives if one shares the majority’s religious or other worldviews. 

IHEU judges 46 countries (counting the Palestinian territories) as involving “severe discrimination.”  The greatest problems come from the 29 nations categorized as guilty of “grave violations”:  Afghanistan, Bangladesh, Brunei, China, Comoros, Egypt, Eritrea, Gambia, Indonesia, Iran, Iraq, Jordan, Kuwait, Libya, Malaysia, Maldives, Mauritania, Morocco, Nigeria, North Korea, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Swaziland, United Arab Emirates, and Yemen.

Americans should review their practices at home.  Moreover, U.S. officials should include the liberty of non-believers in Washington’s human rights dialogue with other nations.

The rest of us also should promote freedom of conscience abroad.  Not by coercing and invading other countries, but by convincing, encouraging, pestering, pushing, pressuring, and embarrassing.  Everyone, from citizens to policymakers, has a stake in expanding liberty for those around us. 

China Grapples with Mao Zedong’s Legacy at His 120th Birthday

December 26 is the 120th anniversary of Mao Zedong’s birth, typically a date of great celebration in China. But this year the Chinese government seems somewhat ambivalent about celebrating Mao’s disastrous achievements. It’s about time. 

Many countries have a founding myth that inspires and sustains a national culture. We’ve just seen South Africa and the world celebrate the accomplishments of Nelson Mandela, the founder of that nation’s modern, multi-racial democracy. In the United States we look to the American Revolution and especially to the ideas in the Declaration of Independence of July 4, 1776. 

The Declaration of Independence, written by Thomas Jefferson, is the most eloquent libertarian essay in history, especially its philosophical core:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The ideas of the Declaration, given legal form in the Constitution, took the United States of America from a small frontier outpost on the edge of the developed world to the richest country in the world in scarcely a century. The country failed in many ways to live up to the vision of the Declaration, notably in the institution of chattel slavery. But over the next two centuries that vision inspired Americans to extend the promises of the Declaration—life, liberty, and the pursuit of happiness—to more and more people.

China of course followed a different vision, the vision of Mao Zedong. Take Mao’s speech on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness”  in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

Congress Fakes Fiscal Responsibility as Uncle Sam Heads toward Bankruptcy

The new budget bill has passed, hiking spending and taxes.  Capitol Hill is back to the bipartisan business of mulcting taxpayers.

Unfortunately, Washington can’t afford to wait for fiscal reform.  The Congressional Budget Office’s most optimistic estimate, the so-called “baseline,” is that Uncle Sam will add $6.3 trillion more in red ink over the next decade.  Annual deficits are expected to begin moving up again in 2016.   

More realistic is CBO’s “alternative” scenario, given how politicians usually behave.  In this case Uncle Sam would run up $8.8 trillion more in red ink. 

These estimates presume good economic times ahead and a minimum of new bail-outs.  Unfortunately, that seems over-optimistic.  Even the Postal Service continues to lose money.

Moreover, the entitlement tsunami—Social Security, Medicare, Medicaid, and now health insurance subsidies—will not have fully developed by 2023.  As a result, warned CBO, without substantial policy changes “debt will rise sharply relative to GDP after.”  Put everything together and economist Laurence Kotlikoff figures that unfunded federal liabilities currently exceed $220 trillion. 

There’s more.  Because federal debt crowds out private investment, CBO estimates that every additional dollar of government debt reduces national saving by 57 cents.  As a result, the GDP likely will drop between four and seven percent, or perhaps even more, by 2038. 

As I observe in my new column in American Spectator online:

In short, borrowing more causes us to owe more and pay more in interest.  At the same time, we will be saving, producing, and earning less.  It’s a prescription for economic and budget disaster.

Unwilling to cut spending, Uncle Sam instead would have to raise taxes or borrow ever more.  Under the alternative scenario the official (exclusive of Social Security-Treasury transfers) debt to GDP ratio would run around 190 percent by 2038, greater than Greece at its worst.  In a paper for the U.S. Monetary Policy Forum earlier this year, economists David Greenlaw, James D. Hamilton, Peter Hooper, and Frederick S. Mishkin posited one scenario under which “The debt/GDP ratio would rise much more rapidly, hitting 304 % of GDP by 2037.”

Moreover, explained CBO, “Growing federal debt would increase the probability of a fiscal crisis, when … the government would thereby lose its ability to borrow at affordable rates.”  Based on international experience, David Greenlaw and his colleagues warned “that countries with debt above 80 percent of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics.”  In that case federal liabilities likely would explode, as they did in the 2008 financial crisis. 

The feedback loop would continue to worsen.  Noted Greenlaw, et al., “If U.S. government finances are not put on a sustainable path, … then the public might expect the Federal Reserve to be forced to monetize this debt.  What would then unhinge inflation expectations would be the fear of fiscal dominance, which could then drive up inflation quickly.”

Amazingly, observed David Greenlaw, et al., “As recently as the 1990s, the United State government was running budget surpluses and there was serious discussion of what would happen if the federal government was able to retire its debt.”  That world is long gone, probably forever. 

Still, Washington is celebrating Good News!  For the first time in five years, the annual federal deficit has dropped below $1 trillion. 

Alas, the cheery interlude will be brief.  Soon the red ink again will be growing, and the more government spends and taxes, the worse will be the economic impact.  No wonder CBO warned of “the unsustainable nature of the federal government’s current tax and spending policies.” 

Washington only faces “difficult choices,” in CBO’s words.  America’s political leaders should be choosing among them instead of passing another dishonest feel-good budget agreement.

North Korea’s Kim Dynasty Consumes Its Own: No Love in this Family

North Korea’s “Dear Leader” Kim Jong-il has been dead not quite two years, but his son, Kim Jong-un, appears to have taken control.  And in a much bloodier fashion than predicted, with the execution of his uncle and one-time mentor Jang Song-taek.  However, no one knows whether the regime is stabilizing or destabilizing.

The ascension of Kim fils never seemed certain.  Not yet 30 when his father passed, Kim had had little time to secure the levers of power.  Moreover, Pyongyang is a political snake-pit. 

Over the last two years hundreds of officials, many in the military, have been removed from office.  Until Jang the most dramatic defenestration was of army chief of staff Ri Yong-ho.  His departure in July 2012, alleged for reasons of health, was dramatic and sudden. 

Of greater concern to the West was North Korean policy.  The country had established a reputation for brinkmanship and confrontation.  The new government reinforced this approach. 

For instance, rhetorical attacks on and threats against South Korea and the U.S. rose to unprecedented heights.  The Democratic People’s Republic of Korea recently detained an 84-year-old American Korean War veteran and tourist for six weeks on bizarre charges.

Equally important, there is no evidence of reform, either economic or political.  Observed Bruce Klingner of the Heritage Foundation:  Kim Jong-un “has increased public executions, expanded the gulags for political prisoners, and increased government punishment for anyone caught with information from the outside world.” 

Now comes Jang’s ouster.  There is no reason for the West to mourn his passing.  But previously family members only disappeared. 

Jang’s execution could demonstrate that Kim Jong-un is solidifying his rule.  Removing another minder appointed by his father would seem to leave Kim more securely in charge.  Moreover, a willingness to execute likely deters anyone but the most determined or desperate from challenging the leadership. 

Nevertheless, the DPRK could be heading for further instability.  The episode is unprecedented, which suggests that something is amiss in paradise.  Jang could have been the casualty of a messy power struggle likely to grow worse.  If he can be taken down, no one is safe.  Fear may widen leadership divisions, spur internal resistance, and draw in the military. 

As I point out in my latest article in National Interest online:

Political uncertainty in Pyongyang almost certainly will reduce the already minimal likelihood of domestic reform and foreign engagement.  If Kim truly has consolidated power, he might feel freer to act.  However, even then orchestrating a wider purge would absorb time and effort.  And if he fears continuing opposition to his reign he probably will put off any potentially controversial policies, especially if they conflict with the interests of the military, which still potentially wields ultimate power.

Further, Jang was associated with economic reform and China relations.  After his death Jang was criticized for his economic activities.  It is hard to imagine economic reform speeding up in a government sundered by a power struggle in which a top economic official was just executed.

The greatest danger is that Kim Jong-un’s apparent ruthlessness may be less constrained internationally than that of his father and grandfather.  If the younger Kim is taking on full dictatorial power, he might misperceive domestic authority as translating into international strength.  Or if his authority is under challenge at home, he might be tempted to provoke a foreign crisis. 

The DPRK long has been the land of no good options, the geopolitical problem with no good answers.  Even if Jang’s execution changes nothing, it reminds us that North Korea remains a threatening yet mysterious presence in Northeast Asia.  And the ongoing leadership transition—whether solidified or unsettled—isn’t likely to bring peace or stability to the region.