New York Times Op-ed on Infrastructure

My op-ed in today’s New York Times has prompted numerous critical comments on the NYT website. Let me address some of them.

Some readers questioned the linked source for my statement that infrastructure spending in the United States is about the same level as in other high-income countries. This fact does need some explanation, but I didn’t have room to include it in the op-ed. The data I cited were emailed to me by the author of the linked OECD report. It is national accounts data on gross fixed investment. I charted the data here in Figure 2.

Some readers wondered about my definition of “infrastructure.” That word is often used loosely. The definition that makes sense to me is the broad one of gross fixed investment, which includes such items as government highways and private pipelines and factories. The data are available from BEA Table 1.5.5, where you can see that private investment—even aside from residential—dwarfs government investment.

One reader expressed a common view that in traveling abroad you often find nicer airports than in this country. I think that’s correct, and often those foreign airports are private or partly private, while ours are government-owned.

Numerous readers pointed to shortcomings of particular private companies, and some of those complaints are surely correct. Private companies often screw up, but my experience is that governments screw up more because of deep, structural incentive problems. Furthermore, private markets have the powerful built-in mechanism of competition to fix problems over time, whereas government shortcomings often go unaddressed. Where there is a lack of competition in private markets, policymakers should focus on opening entry to increase it.

North Korea: Dealing with a Human Rights Scourge and Security Threat

The Democratic People’s Republic of Korea long has been recognized as one of the globe’s most difficult challenges.  For two decades concern over Pyongyang’s nuclear program has dominated international attention toward the Korean peninsula. 

What to do about The North Korea Problem has troubled three successive U.S. administrations.  The result is a tentative nuclear state seemingly ruled by an immature third-generation dictator willing to terrorize even his own family. 

Particularly unlucky are the residents of North Korea.  There never has been any question about the extraordinary nature of DPRK tyranny.  But the United Nations just released its own gruesome analysis. 

The finding is simple: “systematic, widespread and gross human rights violations have been and are being committed” by the DPRK.  “In many instances, the violations found entailed crimes against humanity based on State policies.” 

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

Yet the challenge facing the U.S. and other nations regarding human rights in the North is a lot like the security problem:  what to do?  The Kim dynasty has demonstrated no interest in disarming.  Nor has it ever hinted at the slightest interest in treating the North Korean people better.  Arguing that human rights should be an international priority doesn’t change matters.

Trying to convince the isolated and militaristic regime that a more pacific policy is in its interest so far hasn’t worked.  Trying to convince the same leadership that it also should dismantle the political system that it dominates is even less likely to succeed. 

However, the human rights report might be more effectively directed at another nation, the People’s Republic of China.  The PRC is North Korea’s chief enabler.  (For a time South Korea shared that title, with its bountiful subsidies as part of the Sunshine Policy.)  

The reasons are understandable if not necessarily laudable.  Washington’s push for Beijing to press the DPRK more seriously, repeated during Secretary of State John Kerry’s recent China visit, founders on the PRC’s perception of its interests. 

The North is unpredictable, except for always being ever unreasonable and difficult.  Nevertheless, Beijing fears destabilizing the peninsula more than it fears North Korea nuclearizing the peninsula.

To change China’s position requires addressing that government’s concerns, particularly regarding the impact of a united Korea allied with America at a time when the U.S. appears committed to a policy of soft containment.  The DPRK’s growing reputation as a human rights outlaw might help.

Beijing obviously is sensitive to the issue, given its own human rights failings.  Nevertheless, there is no comparison between the two nations.  China also has much at stake in the global order, including its reputation, which will be tarnished if it continues to be widely seen as the only reason the Kim regime survives.

Simply bashing Pyongyang won’t be enough.  Washington needs to develop a positive package for a reform North Korean leadership: peace treaty, trade, aid, and integration.  The U.S. also should involve South Korea and Japan.

This approach should directed as much at the PRC as North Korea.  Even Chinese officials frustrated with the DPRK tend to blame the U.S. for creating the hostile threat environment which led the North to develop nuclear weapons.

The PRC still might decide the price of cooperating with America is too high.  But the allies have no better alternative approach.  The DPRK has spent recent years alternating whispers of sweet nothings with screams of blood-curdling threats, tossing in occasional missile and nuclear tests for good measure.  Nothing suggests that the younger Kim has abandoned brinkmanship as Pyongyang’s preferred policy and decided to negotiate away his nation’s most important weapon.

Some day monarchical communism will disappear from the Korean peninsula.  It will do so sooner if China uses its considerable influence—and threatens to withdraw its even more important aid—to press Pyongyang to reform.  The UN’s scathing report on DPRK human rights practices might help win Beijing’s cooperation.

Raise Minimum Wage, Kill Jobs

During his State of the Union address, President Obama announced that he intended to raise minimum wages to $10.10/hour for certain workers. Based on data from EU countries, it is clear that minimum wage laws kill jobs. I concluded that hiking the minimum wage will kill jobs in the U.S., too. Executives surveyed in the Duke University/CFO Magazine Global Business Outlook Survey agree.

Chief Financial Officers from around the world were interviewed and the majority of them concurred: a minimum wage increase from $7.25/hour to $10.10/hour would kill a significant number of jobs.

Here’s what the CFOs had to say:

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.

Progress in De-Escalating the War on Drugs

Earlier today, Attorney General Eric Holder asked the U.S. Sentencing Commission to reduce sentences for a broad range of federal drug crimes.  This is a long way from legalization, but it goes in the right direction.  More broadly, Holder’s action signals that drug crime will continue to fade as an enforcement priority for the federal government.  This makes it easier for state and city governments to scale back enforcement as well.

As long as drug prohibition is on the books, it has potential for great harm.  In particular, a new administration can easily reverse the Obama administration’s enforcement priorities.

But the harm from prohibition increases with the level of enforcement, so any de-escalation is welcome. And perhaps political realities dicate that gradualism is the way to eventually eliminate prohibition entirely.

 

On Corrupting the Constitutional Order

Michael Gerson, former speechwriter to Bush the Younger and perennial libertarian antagonist, has denounced Rand Paul’s foreign policy views. That should surprise no one, but the manner in which he did so bears discussing.

Gerson’s bill of particulars is as follows:

The younger Paul has proposed defense cuts, criticized foreign aid, led opposition to U.S. involvement in Syria, raised the possibility of accepting and containing a nuclear Iran and railed against “possible targeted drone strikes against Americans on American soil.”

Each of these is its own argument, but what’s more interesting is how Gerson broadens the discussion in an attempt to paint the younger Paul in a conspiratorial light:

His libertarian foreign policy holds that America is less secure because it has been “too belligerent” and that decades of international engagement have both corrupted our constitutional order and corrupted other nations with our largess or militarism.

Reasonable people can disagree about the extent to which U.S. foreign policy has gone off the deep end in recent decades. Also, with due acknowledgment of the victims of U.S. “engagement” in places from Laos to Iraq, people could also disagree about the extent to which our militarism has “corrupted other nations.” But nobody with a lofty perch like Gerson’s should dispute the idea that international engagement has corrupted our constitutional order.

You could fill a library with the volumes that demonstrate how war and preparation for war—which is what Gerson means by “engagement”—have contributed to the growth of the state and the evolution of American political, economic and legal institutions. As that last link shows, influential American legal scholars are hailing Nazi jurist Carl Schmitt as “our hero” in providing the legal case for an unchecked presidency, with James Madison playing the republican bad guy.

And it is the height of irony that Gerson holds up for ridicule the idea that our foreign policy has corrupted our constitutional order the very same week that a U.S. Senator—who is a strong partisan of the CIA—gave a 40 minute speech lambasting the Agency for spying on the legislature in the context of the latter’s investigation of the CIA’s use of torture, or if you prefer, “enhanced interrogation techniques.”

Warrantless NSA spying on Americans, senior Executive Branch officials baldly lying to Congress about it with no consequences, the tortured legal reasoning that led to Guantanamo Bay, the American president claiming the power to assassinate a US citizen with no meaningful legal or legislative oversight on the grounds that he’s talked it over with his legal team, the internment of more than a hundred thousand American citizens for the crime of having had the wrong ancestors… One could go on.

The people who framed our constitution were the sort of people who opposed forming a standing army at a time when European empires were mucking around in the Western hemisphere. So whatever his disagreements with Rand Paul on foreign policy, Gerson could stand to consider—or better yet, do some reading—about how war and militarization have “corrupted our constitutional order.” It’s a bit of an open-and-shut case.

Obama’s Overtime Edict: Anything But a Free Lunch

As the New York Times reported yesterday, President Obama intends to barge unilaterally into a hotly contested area of employment law by ordering the Department of Labor to develop regulations “to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as ‘executive or professional’ employees.” As with the expansion by decree of minimum wage law, it will be interpreted in some quarters as an undiluted boon to the employees it covers – their employers will either raise their pay or limit the hours they are expected to work, or both, and how could they be anything but happy about that? But as the piece quotes Cato’s Dan Mitchell as warning, There’s no such thing as a free lunch… If they push through something to make a certain class of workers more expensive, something will happen to adjust.”

At Forbes, Daniel Fisher explains some of the mechanisms by which that will happen. It will probably become harder to retain exempt status, for example, for “management-plus” jobs, such as one where a shift manager is expected to fill in occasionally at the register during a cashier’s break. That will hit smaller establishments especially hard, while yanking away transitional positions by which ambitious hourly hires can cross over to management. Moreover: 

…non-exempt employees will be watched more closely to avoid tripping the sort of litigation threat that increasing numbers of labor lawyers are looking out for. Working at home could become taboo, since the employer has more difficulty monitoring hours and working conditions. Employees who harbor the perhaps foolish idea that by working hard and taking on greater responsibilities they can move up in the organization will instead be told to go home and relax.

Already, wage-and-hour lawsuits are a thriving hub of litigation, since the law sets up a retrospective guessing game as to whether or not exemption will be upheld: “Enterprising plaintiff attorneys have made hundreds of millions of dollars pursuing lawsuits on behalf of stockbrokers, mortgage loan officers and other white-collar professionals not normally associated with punch-the-clock, shop-floor labor.” 

For years, some lawyers have been advising clients not to hand out company-paid cellphones to any workers who lack a lawful overtime exemption, lest a claim later be made that work was done on the phones during evenings and weekends. Where the law is particularly stringent about calculation of lunch breaks, as in California, some lawyers have advised employers to make it a firing offense to do any work during the allotted break.

Obama’s edict is anything but a done deal: it will first enter the slow and contentious Department of Labor regulatory process, and if the Senate turns Republican with this November’s election, the chances of stopping it in Congress will improve. Should it go into effect, however, it will sow widespread disruption in the business sector, deepen suspicion and polarization at the workplace, and frustrate ambitious individuals who willingly tackle long hours to rise into management ranks. Increasingly, Obama’s binge of executive orders and unilateral decrees to bypass Congress is coming to resemble a toddler’s destructive tantrum.