Has Trade Saved Us from Recession?

Good news on the economy, sort of. The Commerce Department reported this morning that it has revised the economy’s growth rate in the first quarter of 2008 to 1.0 percent. That is slightly higher than the government’s earlier two estimates and it means we have probably dodged a technical recession, at least for the first half of this year.

Politicians on the campaign trail should take note of the report for a couple of reasons. First, let’s not exaggerate the U.S. economy’s current difficulties. Politicians love a full-blown crisis because it can be used to justify all sorts of regulatory and spending programs. This is not a crisis (and government “stimulus” efforts typically have little effect, anyway).

Second, they should give thanks to America’s more globalized economy for smoothing the business cycle and possibly saving us from full-blown recession this time around. Trade is one of the bright spots of the latest report. While the housing sector has contracted by a quarter, shaving more than a percentage point from overall GDP growth, exports have been going gangbusters. Exports rose by more than 5 percent in the first quarter on an annual basis, offsetting about two-thirds of the negative effect of the housing market.

As I wrote in a Cato Free Trade Bulletin earlier this year on the subject:

[E]xpanding trade and globalization have helped to moderate swings in national output by blessing us with a more diversified and flexible economy. Exports can take up slack when domestic demand sags, and imports can satisfy demand when domestic productive capacity is reaching its short-term limits. … A weakening dollar has helped to boost exports and earnings abroad, but the main driver of success overseas has been strong growth and lower trade barriers outside the United States.

Instead of blaming trade for our current economic slowdown, politicians should be thankful that trade has spared us from something worse.

Pawlenty, Clarified

My recent blog on Minnesota governor — and potential Republican vice presidential nominee — Tim Pawlenty brought a great deal of e-mail from Pawlenty partisans. Most of their criticism was of the “definition of ‘is’” variety. Governor Pawlenty doesn’t support “price controls” for the Medicare prescription drug program, he merely wants the government to “negotiate” prices. (Anyone who thinks that distinction is a difference should read this article by Robert Goldberg or this piece by Benjamin Zycher). And, while he supported one increase in the state’s minimum wage, he opposed a second increase. (So he only abandons conservative principles and basic economics sometimes.) However, in fairness to Governor Pawlenty, two of my criticisms do deserve clarification.

On SCHIP: Governor Pawlenty did not specifically oppose President Bush’s veto of the Democratic expansion of SCHIP. He did praise the bill for “increasing” SCHIP funding, and both individually and as head of the National Governors Program urged the program’s renewal, while the Democrats were trying to override the president’s veto. But he did not specifically call for overriding the veto.

And, on an individual health insurance mandate: Governor Pawlenty’s Health Care Task Force endorsed such a mandate. Although the governor initially hailed the task force report and called it “a framework” for reform in Minnesota, he did later distance himself from the recommendation for a mandate.

I don’t think any of this makes him less of a big-government conservative, but I want to make sure my criticism is as accurate as possible.

Supreme Court Crack-Up (and Down with Punitive Damages)

Certain commentators are noting the relative dearth of 5-4 decisions this term after a full third of last year’s cases were decided by that narrowest of margins (with Justice Kennedy in the majority in all of them).  That’s a bit premature, however, as already the last ten days have produced more 5-4 cases than the term leading up to them.  Tomorrow – with the contentious issues of energy deregulation, campaign finance, and, of course, the D.C. gun ban – will no doubt have even more.  They always leave the close cases for the end, folks, and none of today’s four cases were anywhere near unanimous. The two decisions that got all the attention, of course, were Kennedy v. Louisiana (capital child rape) and Exxon v. Baker (punitive damages from the Valdez spill).

I won’t say much about Kennedy, other than that, as he has so, so many times in the past, Justice Kennedy again shamelessly substituted his own policy preferences for the will of the people.  Regardless of one’s views on whether certain types of crimes short of murder (aggravated rape, child rape, treason, etc., etc.) warrant the death penalty, this is an issue properly left to the people and their elected representatives in state legislatures.  We do not pick nine (left alone five) black-robed lawyers to be our moral arbiters, philosopher-kings, or bureaucrats-in chief.  Kennedy versus Louisiana indeed!

As for Exxon, here we have the curious situation on the Court splitting 4-4 (Justice Alito having recused himself for owning Exxon stock) on the question of whether maritime law – the Court was only reviewing issues of federal maritime not constitutional law – permits punitive damages for the acts of agents.  This means that, on that issue, the Ninth Circuit’s opinion is summarily affirmed (without setting Supreme Court precedent), a terrible result because the Courts of Appeal are themselves split.  The Court went on, nevertheless and I think properly, by a 5-3 vote to vacate the $2.5 billion punitive damages award because, under maritime common law, punitives should be limited to the amount of compensatory damages (here $507.5 million).  The trial lawyers, as expected, are upset (about losing 80 percent of their contingency fee).  For further comment both on the issue of deadlock-producing recusals and punitive damages, I’ll save pixels here and refer you to my podcast. [Editor: Subscribe already!]

And again, stay tuned tomorrow for D.C. v. Heller (guns, for which my colleague Bob Levy is co-counsel and in which Cato filed an amicus brief), Davis v. FEC (campaign finance, in which we also have a brief), and Morgan Stanley v. Public Utility No.1 (electricity contracts).  The way the opinions have come down, smart money is on Scalia writing Heller (majority or plurarity) and Alito writing Davis.  Note that all three cases were long ago selected for inclusion in this year’s Cato Supreme Court Review.

Bush Watch

Over at RedState, they’re excited about a video narrated by Sen. Fred Thompson – remember him? – for the President’s Dinner of the National Republican Senatorial Committee and the National Republican Congressional Committee. It’s a fine video, full of stirring music and appeals to freedom and smaller government by Thompson, John McCain, and the President – Ronald Reagan, that is. In 5 minutes and 28 seconds, there was no room for a clip, a photo, or a mention of the current President, what’s his name, Bush.

Republicans are no dummies. If they haven’t had a president they’re proud to be associated with in the past 20 years, they’ll reach back 27 years ago to the first inaugural address of a president they can still sell.

So Much, Yet So Little

Depending on where you live, you might have seen a story in your local paper on a new report finding that test scores have improved under the No Child Left Behind Act, implying — but not outright saying — that NCLB is working.

So why would getting this news depend on where you live? Because the report looked primarily at state tests, and only about 28 states had sufficiently consistent data to do meaningful score analyses. The other 22 had changed their testing in so substantial a way since NCLB’s passage that not even three years of consistent results could be strung together. Which is the biggest non-finding finding of the report: NCLB has instigated so much test engineering — often to make assessments easier — that nearly half of all states have no useful long-term data. And don’t automatically assume that the other 28 haven’t changed things: the report itself notes that they could have made questions easier or harder, changed relative weights of questions, and made other, more subtle changes to their tests.

There are other problems with the study that make it impossible to credit score increases to NCLB, most of which the report is upfront about but news stories rarely feature: There’s no “control group” unaffected by NCLB against whom to compare students “treated” by the law, no ability to tease out the effects of NCLB versus other reforms, etc. The most obvious problem, though, is that in large part because of NCLB, lots of states have testing systems incapable of providing the consistent, long-term results that federal policymakers promised the law itself would deliver.

FISA Face-saving

Since the new FISA bill was announced last week, Democratic leaders have been desperately trying to spin the legislation as a hard-won compromise rather than a capitulation. Time has an article on the FISA bill that’s a classic of the genre:

A compromise deal to extend the federal government’s domestic spying powers, passed by the House on Friday and expected to sail through the Senate next week, has drawn attacks from both sides of the political spectrum. The right is unhappy at concessions made to protect civil liberties; the left is furious that the Democrats allowed the domestic spying powers to be extended in any form.

There’s just one problem with this framing of the issue: outside of the Democratic leadership and a few elite journalists, no one believes it. Conservatives sure don’t. If you look at what actual conservatives are writing about the deal, you’ll find most of them crowing in victory. National Review’s Ramesh Ponuru, for example, says “It sure looks like [House Democrats] got rolled.” National Review’s Andy McCarthy calls the deal “the best we could have hoped for under the circumstances.” Coverage of the announcement on Human Events quoted no outraged conservatives. Paul at Power Line calls it “a decent FISA deal that’s likely to pass.” John McCormack at the Weekly Standard gives a thumbs up, as does Michelle Malkin.

And then there are the Republicans in Congress. Virtually every Republican in the House voted for the bill (compared with fewer than half the Democrats), and Kit Bond said that “I think the White House got a better deal than they even had hoped to get.”

In short, I’m hard-pressed to find even one person on “the right” who is opposing the bill. Virtually every civil liberties advocate opposes the legislation; virtually every partisan for executive power is happy with it. That is not a compromise. The deal was an unqualified victory for the White House, and everyone except the Democratic leadership knows it.

The article also suggests that Pelosi capitulated because “Democrats still trail on national security, and that could hurt them in Congress.” It seems to me that this represents a fundamental misunderstanding of the politics of national security issues. Democrats are perceived as weak on national defense largely because they’ve failed to articulate a clear position on the issue and stick to it. This spring, they staked out the principled (and in my view, correct) position in favor of judicial oversight and against retroactive immunity and got some good press for it. Now, they’re backing off from that view. Were they wrong back in March, or are they unwilling to stand up for their convictions now? Either way, the performance doesn’t inspire confidence in their judgment.

The article rather badly mischaracterizes the immunity provisions of the legislation:

Under Administration proposals, the telecoms would have received full retroactive immunity from lawsuits brought by civil libertarians alleging they violated the Fourth Amendment by complying with Administration requests to conduct wiretaps following 9/11. In negotiations with Pelosi’s office, the telecoms offered a compromise: Let a judge decide if the letters they received from the Administration asking for their help show that the government was really after terrorist suspects and not innocent Americans.

If the legislation passes, the judge won’t decide if the administration was “really after terrorist suspects.” The judge will simply determined whether the telecom companies received a letter from the executive branch stating that the programs were legal. And we already know that the telecom companies received such a letter, because it says so in a report from the Senate Intelligence Committee. There is therefore absolutely no doubt that if the legislation passes, the lawsuits will be dismissed. The changes to the immunity provision were a face-saving exercise, not a substantive compromise.