The National Republican Trust PAC Is Wrong

I support the right of the National Republican Trust PAC to advocate any issue it wants in any way it wants. It shouldn’t even have to file reports with the government. It’s the job of the public to distinguish messages it should believe and messages it shouldn’t.

So let me help you with that now: An email being circulated by the National Republican Trust PAC is despicable and wrong.

“Obama’s Plan: Mohamed Atta Gets His Driver’s License,” it blares. [I’ve been able to find no online version to link to.] The email reads:

Did you know that Mohamed Atta, the 9/11 ring leader, had a valid Florida driver’s license?

Did you know 13 of the 19 hijackers had obtained valid driver’s licenses? Armed with these licenses, eight of the hijackers even registered to vote!

Here is the shocking fact: Obama strongly supports giving illegal aliens in America driver’s licenses.

He said as much during two Democratic debates earlier this year.

This is terror-pandering of the highest order. While it’s true that several 9/11 hijackers got driver’s licenses and other documents, this has the same relationship to the success of their attacks as the brand of shoes they wore. They could have used their Saudi passports to board flights that day, and the same people in the same circumstances could get on planes today. Even if the REAL ID Act were implemented and we all carried a national ID, terrorists would not be prevented from boarding U.S. flights.

Yet there is no reason to fear. Our protection against a subsequent 9/11-style attack is the direct security of hardened cockpit doors and the awareness and vigilance of airline crews and passengers.

If it’s true that Obama would allow illegal aliens to get driver’s licenses — by the way, it wouldn’t be his decision because driver’s licenses are issued by states — it wouldn’t affect our security against terrorism.

By all appearances, this message looks like it is designed as much to raise money for the National Republican Trust PAC as to discredit Obama. Certainly, it doesn’t bring credit to Senator John McCain. In fact, it hurts him. To folks who don’t know campaign finance law, it looks like a desperate and venal grasp by McCain for an issue against Obama.

Hyping terror threats damages our country by provoking overreeactions that can be more damaging than direct attacks themselves. This message from the National Republican Trust PAC is offensive.

The Blame Game

In the now-heated effort of D.C. policymakers and pundits to afix blame for the current financial mess, some fingers are being pointed at the Federal Reserve. The criticism: the Fed kept interest rates too low in the early 2000s, resulting in a lot of easy money. That money, in turn, created the housing bubble and subsequent collapse, ushering in the financial crisis.

Is this criticism sound?

Figure 1 shows the three-month Treasury Bill rate and the Federal funds rate over the past several years. It indicates that, yes, money was easy in the early 2000s, but not because of the Fed. The Fed was forced to reduce and maintain a low Fed funds rate in response to the market’s high price (and corresponding low interest rate) for short-maturity securities such as 3-month T-Bills.

So why were market rates so low?

Chairman Bernanke has suggested that foreign capital inflows were the true cause of easy money earlier this decade. Figure 2 shows that net international capital inflows surged beginning in 1998 and remained high thereafter. Superficially, the interest rate vs. international capital inflows correlation is not strong enough to clinch his argument. Critics could ask why interest rates did not fall until January 2001. Perhaps the answer would be that a strong U.S. economy and stock market during the late 1990s held up interest rates for a time. But then why did asset markets tank in January 2000, followed by the economy in January 2001? Some folks might respond that the Fed funds rate was unsustainably high during 2000. But we don’t really know the answer as yet.

Another question is why did market short-term interest rates increase after mid-2004 despite strong capital inflows? I don’t think anyone has a good answer for that, either.

But let’s return to the fact that the Fed had to cut its funds rate earlier this decade in order to keep pace with declining short-term market interest rates. So long as the Fed’s objective is to maintain the amount of bank reserves in circulation at a level that is just enough to achieve its non-inflationary growth objective and to do so through an interest rate targeting operation, it has no choice but to set the Fed funds rate as close as possible to short-term market interest rates. Otherwise, the Fed would risk injecting too much (or too little) liquidity into the economy — precisely what it’s now being incorrectly blamed for.

This brings us to the question of what, in light of the current crisis, the Fed should do to achieve its sometimes-conflicting objectives of maximizing non-inflationary growth and also ensuring systemic stability — that is, to avoid widespread failures among large financial institutions of the kind we have witnessed this year. The Fed appears to have no systematic approach or tools to achieve its second objective.

One possible method is stricter imposition of regulatory constraints, to prevent home price inflation from incentivizing excess and risky mortgage lending. But that approach was rejected by Fed and Treasury officials (see yesterday’s NYT). And they did that, possibly, for good short-term reasons: a buoyant asset sector returns political dividends, but the systemic problems happen on someone else’s watch. Or, more charitably, Fed officials may have genuinely believed that financial innovations (such as dynamic hedging) meant that the risks were spread so broadly that they didn’t matter anymore.

Another possibility is for the Fed to incorporate asset prices in its measure(s) of price stability — that is, include home and stock prices instead of just consumer goods when trying to determine if inflation is occurring. Doing so could lead the Fed to implement pre-emptive monetary strikes against perceived systemic risks in order to avoid an asset inflation party. That would be consistent with the definition of the Fed’s role (take away the punch-bowl just before the party really gets going), but it may not be any less “socialist.” Fed officials have now acknowledged that they are studying this issue and the jury is still out on it.

However, now we are paying the price for the lack of a proper market-oriented governance framework for dealing with systemic instability — by gravitating toward direct socialist control of the financial sector in an unproductively panicked manner.

The End of American Capitalism?

At the top of today’s front page, the Washington Post joins other Big Media in dancing on the grave of capitalism and smaller government. And compared with such past headlines as “A Fresh Look at the Apostle of Free Markets” or “Crisis Turns Free Marketeers into Regulators,” the Post goes all the way: “The End of American Capitalism?” It does have a question mark.

But what is the Post’s evidence that “American-style capitalism” is a casualty of the financial crisis? Well, for one, “The Bush administration is considering a partial nationalization of some banks.” I’m not sure that an administration that has given us nationalized schools, expanded entitlements, burdensome Sarbanes-Oxley securities regulations (how’d those work out, by the way?), nation-building around the world, and a trillion-dollar increase in federal spending is exactly an example of free-marketers finally giving in to the lure of big government.

But it’s not just American politicians, the Post tells us, who have lost faith in capitalism. “European leaders … are calling for broad new international codes to impose scrutiny on global finance.” So the people who run the U.S. government and the people who run European governments are united in seeking more power for governments.

But wait, there’s more. “To some degree, those calls are even being echoed by the International Monetary Fund.” So even an intergovernmental organization devoted to forced wealth transfers also wants more power for governments.

Also Nobel laureate Joseph Stiglitz: “We told them if you wanted to be like us, here’s what you have to do — hand over power to the market. The point now is that no one has respect for that kind of model anymore given this crisis.” So the most left-leaning Nobel laureate thinks our policies should move to the left. But if reporter Anthony Faiola had interviewed such recent laureates as Vernon Smith, Ed Prescott, Robert Mundell, Gary Becker, Myron Scholes, Douglass North, or James Buchanan, he might have gotten a different answer.

There’s no question that the global financial crisis is causing people to question how well capitalism works. But we’re still not in any Great Depression. And the evidence in this article is almost entirely that governments are — as usual — taking advantage of a crisis to expand their scope and power.

Of course, if this crisis leads us to question “American-style capitalism” — the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans — well, it might be a good thing to reconsider that “American-style capitalism.”

More Eavesdropping

Brian Ross of ABC News is reporting allegations from two whistleblowers who say the federal government eavesdropped on hundreds of international phone calls between Americans. The surveillance continued even when there was no indication of espionage or terrorism.

Question for the White House: Is this another disgraceful news report? After all, it reminds the terrorists that the NSA listens in on calls.

Questions for CIA director Michael Hayden and NSA director Lt. General Keith Alexander: When you say the ‘law’ is always followed, would you remind us as to what, exactly, constitutes illegal eavesdropping? And how many government officials and employees have been disciplined, discharged, or prosecuted for illegal surveillance over the past 10 years?

Question for Congress: What does Sen. Jay Rockefeller (D-WV) mean when he says an oversight hearing may be necessary? How many whistleblowers have to come forward to warrant a hearing?

For more, read Glenn Greenwald. For related Cato scholarship, go here.  

Litigating the 4th Amendment in the Supreme Court

In this first week of the new term, the Supreme Court heard two Fourth Amendment cases.  The first, Herring v. United States, asked whether evidence obtained based on an erroneous arrest warrant (called in by a police clerk from a neighboring county) should be suppressed.  The second, Arizona v. Gant, looked into whether the long-standing “Belton“ rule that a police officer may search the passenger compartment of an arrested person’s car should be set aside when the the search – typically justified on “officer safety” grounds – occurs after the arrested person is handcuffed and locked in the back of a squad car.  The easy legal answers would seem to be yes and yes (though I have qualms about the exclusionary rule – which is fairly unique to America – as a matter of policy), but then it’s hard to craft a readily administrable legal rule that would get you there without creating an equally unjust result in other circumstances.  Hard cases, as they say, make bad law.

But my point is not to argue the finer points of Fourth Amendment doctrine.  Instead,  it is to highlight the difficulty of arguing those points in the rarefied air of the Supreme Court.  As the SCOTUSblog analysis of the arguments in the above cases concluded:

The arguments in these cases illustrate the complexity of arguing Fourth Amendment cases before this Court.  It is not simply a question of appealing to Justices’ support for, or skepticism of, the exclusionary rule or broad discretion for law enforcement officers.  Many of the Justices are also concerned about need for clear, administrable rules, while others simultaneously resist the inflexibility and illogical results a bright-line rule inevitably gives rise to.  And while some Justices are more than ready to abandon old decisions and doctrines they believe were wrongly adopted or no longer make sense (be it the exclusionary rule or Belton) others feel strongly about the Court’s obligation to adhere to its prior precedent absent strong justification for departure.  And to make matters worse, these various considerations often point in different directions and cut across the traditional liberal-conservative lines on the Court: Justices Breyer and Alito worry about stare decisis, while Justice Thomas is much less concerned; Justice Kennedy wants a rule that makes pragmatic sense, while Justice Scalia doesn’t care if the rule is nonsensical if it has a historical pedigree; Scalia worries about a vague standard for applying the exclusionary rule, but the Chief Justice not so much.  In the end, the cross-currents can sometimes give advocates more to work with in crafting arguments that can attract five votes.  But at the same time, it sometimes makes the task of holding together a coalition quite complicated.

In short, separating out death penalty cases, it is in criminal law where the justices can be the least predictable.

No, It Wasn’t Joe Biden

But I couldn’t help thinking of him when I read this Washington Post headline:

Ex-Sailor Guilty of Pretending to Be an Admiral
Delaware Man Gave Speech to Vietnamese American Group in Va.

And I was transported back to 1987, when Biden withdrew from the presidential race after appropriating the details of British Labor Party leader Neil Kinnock’s life in his speeches, falsely claiming to have three college degrees, and boasting of a much higher rank in his law school class than he actually achieved.

I remembered a purported “Joe Biden resume” that circulated widely back in 1987. Being from prehistoric days, alas, it’s not on the World Wide Web, so I have to recall it from memory. But as I recall, in standard resume fashion it recounted Biden’s achievements in life: NCAA basketball championship, Heisman Trophy, top of his law school class, chairman of the Joint Chiefs of Staff, Nobel Prize in physics, Pulitzer Price for literature, Oscar, chief justice of the United States, and so on.

Of course, if he actually had all those accomplishments, Sarah Palin would dismiss him as an elitist.