The Fed Should Quit Making Interest-Rate Promises

If there’s anything we ought to have learned from the recent boom and bust, it’s that a Fed commitment to keep interest rates low for any considerable length of time, like the one Greenspan’s Fed made in 2003, is extremely unwise. 

The problem isn’t simply that interest rates should be higher, or that the Fed should have a different plan for how it will adjust them in the future.  It’s that the Fed shouldn’t be making promises about future interest rates at all, because it can’t predict whether a rate chosen today will be consistent with stability in six months, or in one month, or even in a week.

Instead of making promises about future interest rates, the Fed should promise to change its interest rate target whenever doing so will serve to maintain a reasonable level of nominal spending or nominal gross domestic product, which is the best way to avoid causing either a boom or a bust.

Yemen’s Chronic Instability

The last few days have brought dramatic news from Yemen: rebels occupied the presidential palace, initially forcing constitutional concessions and then the resignation of President Abdurabuh Mansur Hadi. The president was, at least nominally, a U.S. ally, cooperating with U.S. forces on drone strikes against Al Qaeda in Yemen (AQAP).

Yemen itself had even been hailed as one of the few successes of the Arab Spring, with a negotiated transition resulting in steps toward democracy. But such an interpretation glosses over Yemen’s long history of instability, as well as intervention by foreign powers. The current conflict is not only a popular uprising, it’s a proxy war, one that has been worsened by U.S. policy in Yemen.

Yemen has experienced chronic instability throughout its history, in large part because of interference from Saudi Arabia, which has long been worried about Yemeni influence. The first Saudi king, Abdulaziz, is reputed to have called his senior sons to his deathbed, admonishing them to “keep Yemen weak.” The Kingdom has at various times provided funds not only to the Yemeni government, but also to various opposing tribal leaders.

The most recent iteration of Yemeni instability is a decade-long civil conflict between the Saudi-backed Yemeni government, Sunni militias, and a Zaidi Shi’a militia group known as the Houthis. This latter is also known as the Shabaab al-Marmineen (or the Believing Youth), and is believed to receive large quantities of funding and arms from Iran (and formerly Syria). The insurgency has spanned a decade, with only sporadic ceasefires, resulting in widespread death and displacement. The Houthis even initiated cross-border attacks against Saudi Arabia in 2009, which led to a large-scale Saudi invasion of Northern Yemen.

The Houthis were also heavily involved in the 2011 protests against Yemeni dictator Ali Abdullah Saleh, although they rejected the Saudi-negotiated transfer of power to then–Vice President Hadi. Since late last year, the Houthis have controlled large parts of the capital Sanaa, although power has remained nominally vested in the hands of the Hadi government.

The crisis in Yemen is thus not only a civil conflict, but also a proxy conflict between Saudi Arabia and Iran. In this, it is similar to the early Syrian civil war, which was initially driven by Saudi support for rebel groups and Iranian support for the Assad regime. While the situation in Yemen is unlikely to deteriorate in this way, it is worth focusing on the fact that many conflicts in the Middle East are actually driven by larger regional actors, some of them U.S. allies.

U.S. involvement in Yemen has also helped to worsen this crisis. The Hadi government’s support for U.S. drone strikes against AQAP contrasts strongly with Yemeni popular opinion, which has been widely outraged by the killing of innocents. Such unfortunate killings are driven by U.S. reliance on Yemeni targeting data: Yemeni leaders have a tendency to present political rivals as terrorists in order to engineer their demise. These deaths have driven growing anger at the Hadi government.

Ironically, the Houthi fighters are themselves strongly opposed to AQAP and actively engage in combat against the group. There is even evidence that the United States has cooperated with the Houthis on targeting AQAP.

The situation in Yemen remains fluid. The country appears to have no leader, and it is unclear whether the Houthi occupation of the capital constitutes a coup or not. But in either case, the United States should stay out of the conflict, evacuating the embassy if Sanaa becomes too dangerous. The crisis in Yemen is typical of the country’s long-running instability, and the pressures it faces from regional powers. U.S. involvement won’t help.

#CatoSOTU: A Libertarian Take on the State of the Union Address

On Tuesday night, President Obama delivered his sixth annual State of the Union address. Cato scholars took to Twitter to live-tweet not only the President’s address, but also the Republican and Tea Party responses—delivered by Sen. Joni Ernst and Rep. Curt Clawson respectively—focusing, as always, on what the policies being discussed would mean for the future of liberty. 

Many on Twitter joined the discussion, which was billed as a chance to ask experts what to expect from the policy world in 2015; the hashtag #CatoSOTU has been used over 4,400 times since Tuesday, a number which will likely continue to grow as Cato scholars and members of the public continue the online conversation.

Over the years, the State of the Union has become an annual spectacle much larger than the founding fathers would ever have expected, and Cato scholars were quick to put it in context:

The World Misery Index: 108 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on “misery.”

Below the jump are the index scores for 2014. Countries not included in the table did not report satisfactory data for 2014.

The five most miserable countries in the world at the end of 2014 are, in order: Venezuela, Argentina, Syria, Ukraine, and Iran. In 2014, Argentina and Ukraine moved into the top five, displacing Sudan and Sao Tome and Principe.

The five least miserable are Brunei, Switzerland, China, Taiwan, and Japan. The United States ranks 95th, which makes it the 14th least miserable nation of the 108 countries on the table.

Sheldon Silver and the Price of Doing Science

Rumors of ethics problems have long swirled around long-time New York assembly speaker Sheldon Silver, many of them connected with his role as a private lawyer associated with a personal-injury firm whose interests extend to many government- and policy-related matters. This morning, according to multiple reports, the FBI took Silver into custody following a corruption investigation. 

The complaint (courtesy WSJ, more here and here) alleges improprieties with Silver’s income both from a real estate law firm patronized by developers and from asbestos-injury legal work. On the latter, it alleges that Silver directed hundreds of thousands of dollars in state research money to a university doctor in Manhattan, and that the doctor referred lucrative cases over asbestos-related mesothelioma to Silver’s law firm. The doctor is described as a “well-known expert” who “conducts mesothelioma research” at a center at his university dedicated to that purpose. The unnamed “Doctor-1” “has entered into an agreement with the USAO SDNY [U.S. Attorney’s Office for the Southern District of New York] under which he will not be prosecuted for the conduct described herein, and that obligates him to provide truthful information to and cooperate with the government.” [pp. 24-25]

As science has grown more dependent on government funding, libertarians have warned that the money isn’t really free. Whatever the stated intentions at first, legislators come to scrutinize science budgets with an eye toward what’s in it for them: promoting a favored policy initiative, catering to the whims of some constituent or family member, employing the right people in the right districts. And how deeply embarrassing it must be – assuming the truth of the prosecutors’ allegations, which of course are at this stage unproven – to support one’s work through state grants for medical research while quietly referring patients to the assembly speaker’s law firm. According to the complaint, the state paid $500,000 to the research center, while the asbestos-suit referrals brought Silver more than $3 million.

There must be a better way to fund scientific inquiry, and maybe that way involves less appropriation of tax moneys and more voluntary action. [adapted in part from a post at Overlawyered]

U.S. Sugar Maple Tree Distribution Expands with Warmer Temperatures

One of the major concerns with forecast CO2-induced global warming is temperatures might rise so rapidly that many plant species will be driven to extinction, unable to migrate fast enough toward cooler regions of the planet to keep pace with the projected warming. The prospect of species demise and potential extinction have served as a rallying cry in calls for restricting CO2 emissions. But how much confidence should be placed in this climate-extinction hypothesis? Do real world data support these projections? Are plants really as fragile as model projections make them out to be? 

A new paper published in the research journal Botany investigates this topic as it pertains to sugar maple trees, and the findings do not bode well for climate alarmists. In this work, Hart et al. (2014) analyzed “the population dynamics of sugar maple (Acer saccharum Marsh.) trees through the southern portion of their range in eastern North America,” selecting this particular species for this specific task because its range “has been projected to shift significantly northward in accord with changing climatic conditions” by both Prasad et al. (2007) and Matthews et al. (2011).

The three U.S. researchers

analyzed changes in sugar maple basal area, relative frequency, relative density, relative importance values, diameter distributions, and the ratio of sapling biomass to total sugar maple biomass at three spatial positions near the southern boundary of the species’ range using forest inventory data from the USDA Forest Service’s Forest Inventory and Analysis program over a 20-year observation period (1990-2010),” during which time temperatures increased and summer precipitation declined.  

North Korea Wants Attention: Let’s Talk to Pyongyang

North Korea has been in a conciliatory mood recently, suggesting a summit with South Korean President Park Geun-hye.  Pyongyang also indicated that it would suspend nuclear tests if the United States cancelled joint military exercises with the South. 

The United States refused and went ahead with the naval maneuvers.  In fact, the Obama administration recently expanded sanctions on North Korea in response to the Kim regime’s apparent hacking of Sony pictures.  Alas, past experience suggests the Democratic People’s Republic of Korea likely will respond with new provocations, perhaps another nuclear test.

Frustration with the Kim regime led retired Gen. John Macdonald to propose turning the movie ‘The Interview’ into reality:  “We’ve got to do something.”

Since Pyongyang hasn’t changed its behavior, the United States should try a different approach, but not an assassination attempt on Kim Jong-un.  Washington should start by dropping the annual military exercise and reducing America’s military presence.  The administration also should develop a comprehensive engagement plan for North Korea.

Obviously, there’s no guarantee that engagement would yield a more positive result.  However, the People’s Republic of China’s growing frustration with the younger Kim provides an unexpected opportunity for Washington. 

So far, Beijing has proved unwilling to apply significant pressure on the DPRK lest the result be a messy collapse with advantage to a united Korea allied with America.  But China has tired of the antics of its irresponsible neighbor, especially the latter’s nuclear weapons program. 

The PRC nevertheless remains reluctant to cooperate with Washington unless the United States reduces the perceived threat to North Korea.  The United States should express its willingness to negotiate with the North, and even create a low-key diplomatic presence, such as a small consular office. As I point out in National Interest:  “Whatever the North’s response, the U.S. would gain a useful window into a mysterious political system and provide the Kim regime with something to lose for bad behavior.”