More Cheap Money from the Fed

The Federal Reserve announced that it would create $1.2 trillion out of thin air and use it to buy mortgage-backed securities and Treasury bonds, even though

Some Fed leaders have resisted buying Treasurys in the past because they were unsure whether it would help reduce borrowing costs and because they feared that it would appear that the central bank was simply printing money to finance the government’s deficit, a hallmark of countries with poorly managed economies.

Obama’s First Signing Statement

obama-signs-billPresident Obama issued his first signing statement last week. While approving the $410 billion omnibus appropriations bill, he reserved the right to reinterpret, evade, or ignore a number of the bill’s provisions. To some conservatives, that smelled like vindication; and some liberals found it fishy. Who’s right? Both, to some extent.

During the Bush years, “signing statements” came to stand for a much broader set of issues than the practice itself. After President Bush used one to basically announce that, veto-proof majority or no, he didn’t have to follow the McCain Detainee Treatment Act, “signing statements” in the public mind became shorthand for the Bush theory that the president is sole constitutional “decider” on all matters related to national security—in much the same way that the PATRIOT Act became shorthand for overzealousness in homeland security. The obnoxiousness of each—open defiance in the signing statement case, the dopey Orwellianism of the acronym with PATRIOT—made them symbols, even though neither represented the worst abuses in the fight against terrorism.

But what really matters is the underlying constitutional theory, not the particular quasi-legislative device it’s reflected in. Which is worse: openly announcing that you’re not going to obey new congressional restrictions on torture—as Bush did with the 2006 McCain Amendment—or secretly violating the old ones for years? The latter, clearly. At least a signing statement puts you on notice.

On the campaign trail in 2008, Obama, unlike McCain, never promised to end the practice of signing statements entirely. Obama’s position was more nuanced. When it comes to signing statements, some nuance is appropriate. I don’t agree with the ABA’s blanket condemnation of the practice. As the Congressional Research Service has pointed out, despite the Supreme Court’s 1983 repudiation of the legislative veto, Congress continues to smuggle legislative vetoes into omnibus spending bills. One could argue that the president’s only recourse is to veto the bill–and more vetoes of spending bills would surely be welcome. But it seems to me that in such cases, issuing a signing statement is a venial sin at worst. There’s a vast difference between that sort of signing statement and one that asserts that the president cannot be bound by a law barring torture.

Most of the objections Obama lodged in his signing statement fall well short of the Bush-Cheney end of the spectrum. But there’s at least one that looks particularly dodgy:

United Nations Peacekeeping Missions. Section 7050 in Division H prohibits the use of certain funds for the use of the Armed Forces in United Nations peacekeeping missions under the command or operational control of a foreign national unless my military advisers have recommended to me that such involvement is in the national interests of the United States. This provision raises constitutional concerns by constraining my choice of particular persons to perform specific command functions in military missions, by conditioning the exercise of my authority as Commander in Chief on the recommendations of subordinates within the military chain of command, and by constraining my diplomatic negotiating authority. Accordingly, I will apply this provision consistent with my constitutional authority and responsibilities.

Here Obama echoes Bushian claims about the extent of the president’s authority under the commander-in-chief clause. But given the context, perhaps the better parallel is with Bill Clinton. President Clinton also asserted the power to ignore congressional restrictions on his ability to place U.S. troops under foreign command. That sort of executive unilateralism in the service of multilateralism was distinctly troubling. As one commentator noted in 2000:

Responding to congressional efforts to stop the new policy, the Clinton administration has claimed a broad constitutional power in the president to delegate military command authority to any person. According to the administration, the president’s commander in chief power allows him to select whomever he believes necessary for military success…. That position has serious constitutional and policy defects. First, the administration’s legal justification for its recent multilateral command policy fails to account for the Constitution’s limitation on the delegation of federal power outside of the national government….

You know who wrote that? John Yoo. My head hurts.

Third-World Accommodations

In the 2003 film The Barbarian Invasions, a patient’s wealthy son offers a handsome bribe to the administrator of a decrepit, chaotic, state-run hospital in Montreal that is (mis)treating his dying father.  “This is silly,” the startled administrator exclaims.  “We’re not in the Third World.”

Britain’s health-care system is perhaps slightly less state-dominated than Canada’s.  Yet today comes the following report:

The British government apologised Wednesday after a damning official report into a hospital likened by one patient’s relative to “a Third World” health centre…

Between 400 and 1,200 more people died than would have been expected in a three-year period at the National Health Service (NHS) hospital, according to an investigation by the Healthcare Commission watchdog.

Receptionists with no medical training were left to to assess patients arriving at the hospital’s accident and emergency department, the report found.

Julie Bailey, whose 86-year-old mother Bella died in the hospital in November 2007, said she and other family members slept in a chair at her bedside for eight weeks because they were so concerned about poor care.

“What we saw in those eight weeks will haunt us for the rest of our lives,” said the 47-year-old. “We saw patients drinking out of flower vases they were so thirsty.

“There were patients wandering around the hospital and patients fighting. It was continuous through the night. Patients were screaming out in pain because you just could not get pain relief.

“It was like a Third World country hospital. It was an absolute disgrace.”

The politicians quoted in the story promised, again, that, you know, they would improve things.

The Incredible Expanding Stimulus Programs

Get on a media list, and you get lots of emailed press releases. Like this one today:

APPLIANCE AND RETAIL INDUSTRY URGE QUICK ACTION ON CONSUMER REBATE PROGRAM FOR APPLIANCES

In case you’re wondering, it’s from the Association of Home Appliance Measures (AHAM). And it won’t surprise you to hear that “The Association of Home Appliance Manufacturers (AHAM) and the Retail Industry Leaders Association (RILA) urge the U.S. Department of Energy (DOE) to quickly disburse funding to state energy offices for the Energy Efficient Appliance Rebate Programs so that consumer rebates will be available for the summer months to purchase ENERGY STAR appliances.” Yes, indeed, that’s the way to get the economy moving again: get people out there buying new appliances.

You know what I think would really stimulate the economy? Federal tax credits for contributions to free-market think tanks. Nonprofits are facing diminished revenues and layoffs during these tough times. A tax credit would “create or save up to 4 million jobs.” OK, maybe not quite 4 million, but some number “up to” that. And by focusing the credit on free-market think tanks, you’d help to encourage sound long-term economic policy. It’s a win-win idea. I should get out a press release.

Wednesday Podcast: ‘The Science of Medical Marijuana’

Photo: Kelly Anne CreazzoSpeaking at a Cato forum Tuesday, Dr. Donald Abrams, director of Clinical Programs at the University of California Osher Center for Integrative Medicine, discussed the science behind medicinal marijuana, and explained why the drug should be allowed for patients who suffer from a variety of symptoms.

After the event, Abrams spoke with Caleb Brown for Wednesday’s Cato Daily Podcast, explaining the promise of marijuana as medicine:

One of the reasons I am in favor of people using the plant is because… we no longer have a health care system in the United States, we have a disease management system, and it is very expensive largely due to pharmaceuticals. If there is a plant that is a medicine that people can grow for themselves in their own backyard then I think we can really go a long way to decrease some of the costs of health care. But if we are saying that a physician is going to be able to prescribe this entity to a patient then unfortunately, or fortunately depending on how you look at it, it does need to be regulated or approved and the only way to do that is through the standard route.

Too Much Hysteria about Trade

The World Bank issued a press release on Tuesday announcing the results of a study published March 2, which concludes that 17 of the 20 so-called G-20 countries have invoked at least some protectionist measures since pledging last November to avoid protectionism for at least one year.

Of course the Washington Post—which now specializes in printing run-of-the-mill stories about trade that rarely come close to justifying the sensational headlines, provocative subheads, or gripping leads — jumped all over the report as evidence that: “Trade Barriers Could Threaten Global Economy: World Bank Finds Protectionist Trend.”

Well, we all know that trade barriers do threaten the global economy — in times of economic expansion and contraction. But most of the measures cited in the report are not particularly spectacular or unusual from a trade perspective. For better or worse, most WTO member countries do have some latitude to raise trade barriers — sometimes unconditionally. But also, in any given year, governments institute policies that happen to have adverse affects on trade (even if the measure wasn’t intended to be protectionist).

Sometimes aggrieved interests in affected countries prevail upon their governments to protest or otherwise seek resolution. And more often than not, under those circumstances, resolution is achieved. But sometimes, a protectionist measure doesn’t even provoke any kind of protest. So, quantifying protectionist measures is one thing, but qualifying them is quite another, more important exercise, if one is interested in making judgments about protectionist trends.

The by-line of the WP story belongs to Anthony Faiola, who last week wrote story titled: “U.S. to Toughen Its Stance on Trade: New Policy Reflects Growing Dissatisfaction With Global Markets.” The lead paragraph of the story read:

The Obama administration is aggressively reworking U.S. trade policy to more strongly emphasize domestic and social issues, from the displacement of American workers to climate change.

But nothing in the story supports the assertion that anyone is “aggressively reworking U.S. trade policy.” Nothing supports the subhead that there is a growing dissatisfaction with global markets. Trade policy may be in for some changes simply because there’s a new sheriff in town, who is beholden (to what extent we shall see) to interests that oppose competition, but not because of dissatisfaction with global markets.

Certainly there is no evidence of dissatisfaction with global markets in the story, which was occasioned by Ron Kirk’s confirmation hearing as U.S. Trade Representative. Kirk testified—before a Senate that already has before it legislation to make enforcement, rather than negotiation, the priority of trade policy for the next couple years—that he intends to focus on enforcement, rather than negotiation. Well, duh! What else is a nominee whose fate depends on the blessing of the people who want more enforcement going to say? For the record, it’s been known for quite some time that the administration would focus on systematizing enforcement efforts, so that’s not really news.

What is newsworthy, however, are the parts of Ron Kirk’s testimony that went unrevealed in Faiola’s reporting. For example, Kirk said that “at an appropriate time and with proper congressional input and concerns addressed,” the administration would ask Congress to grant the president fast-track trade negotiating authority, which is a tool required only by presidents interested in negotiating and expanding trade.

Kirk also said that “We are mindful that the benefits of trade are diffuse, while its pain is often concentrated. It is within that context that we seek to restore and build new bipartisan support for a progressive trade agenda for America.”  Where, then, is the reporting that the Obama administration does not reject trade? Where is the headline that Obama seeks support for a progressive trade agenda? (Cato is publishing a paper next month by Scott Lincicome and me that explains how President Obama can help restore the pro-trade consensus, which includes a large section on the role the media has played in perpetuating destructive myths about trade and globalization).

Where is the reporting that Democrats in Congress are not all opposed to trade liberalization? Senate Finance Committee chairman Max Baucus told Kirk during the hearing: “I also want to find a way to begin consideration of the three pending trade agreements. We should start with Panama. That’s the agreement that’s most ready for action. And it’s the agreement that will win the greatest level of support.” Reporting on these matters would be newsworthy and constructive since so few in the media seem to be willing to publish stories that contravene conventional wisdom about trade.

The fact of the matter is that there isn’t any discernible trend toward protectionism in the United States or in the world right now. World leaders issue warnings about the consequences of protectionism, but there are not trends. There are incidences, but no trends. The ballyhooed World Bank paper cites 78 trade measures “proposed and/or implemented,” 66 of which involved trade restrictions, 47 of which eventually took effect. The long footnote associated with the presentation of these numbers (footnote 1) includes the following sentence: “It is important to note that it is difficult to distinguish the trade policy measures that are taken in response to the current crisis from measures that might have been taken anyway.”

Most of the 47 measures cited in the report happened in November and December of 2008, and Faiola already ranted about them in the WP on December 22, 2008:

Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.

There may be nothing necessarily incorrect about the facts reported. But the tone and implications are possibly misleading. It is hard to accept the otherwise marginally significant facts without also accepting the provocative metaphors and sense of impending doom. Those actions have less antagonistic explanations and more benign interpretations.

For example, the actions of Indonesia, Argentina, and Brazil are consistent with their rights under the WTO agreements and will have a negligible collective impact on world trade. Russia is not even a member of the WTO and frequently behaves outside of international norms, so its actions have very limited representative value. And France has intervened to block foreign takeovers of French companies on other occasions this decade, so its actions are not particularly noteworthy.

At least the World Bank study is careful enough to report some of the positive trade developments and reasons for optimism that I discuss in more detail in this paper that Cato published last week. The World Bank notes 10 instances of trade liberalization around the world, which presumably includes Mexico’s admirable decision to reduce tariff rates on 70 percent of the products listed in its tariff schedule; Brazil’s decision to scrap tariffs on certain raw materials, components, capital goods; China’s decision to forego inclusion of Buy China provisions in its own massive spending bill; and the signing of new free trade agreements between Australia, New Zealand, and the ASEAN countries.

The WB study, like my paper, points out that the sturdy legal and institutional infrastructure of the GATT/WTO system combined with the fact of growing interdependence between countries that are now linked by transnational supply chains will likely diminish prospects for more consequential protectionist indulgences.

Of course Anthony Faiola is not the only person at The Washington Post guilty of hyping protectionist rhetoric and war metaphors in trade stories (and the WP is not the only media outlet engaging in hype). But one of the more egregious disconnects between headline/subhead/lead and the body of the story is found in an article on U.S.-China trade relations by Faiola’s colleague, Ariana Eunjung Cha (which is dissected and analyzed here).

World policymakers and policy watchers do need to be vigilant about ensuring that the world doesn’t descend into a protectionist abyss. They will have plenty of help from their domestic constituencies who rely on open trade in both directions. But some vigilance must be reserved for a media that, if left unchallenged, could provoke a trade war on its own. The more reporting there is about protectionist measures—even if it is just more reporting about the same protectionist measures (as today’s WP article is)—the more justified or compelled policymakers will eventually feel in turning to that poison. If a Congressman’s aide can point to articles that cite rising protectionism, even if the measures cited don’t justify the label of protectionism, it becomes less taboo to propose or support protectionist policies. That kind of fear mongering needs to be identified as such.

Yes, some countries are likely to dabble in some degree of protectionism—either with border measures or the more camouflaged regulatory variety. But the costs of that protectionism will quickly become apparent in a world where capital and talent flow to the jurisdictions with the fewest physical and administrative frictions.

Maybe that story will be written as the economy is on its way back up.

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Matt Yglesias on School Choice in Sweden

Following up on Dana Goldstein’s American Prospect blog post, Matt Yglesias calls the Swedish system and U.S. charter schools better education policy models than education tax credits.

He doesn’t say why, and I’d be interested to hear his reasoning. As I documented on Cato-at-Liberty in response to Goldstein, the econometric evidence shows that the greatest margin of superiority over state-run schooling is enjoyed by truly market-like education systems. By that I mean systems that are minimally regulated with respect to content, staffing, prices, etc., and which are funded at least in part directly by the families they serve.

Yglesias also claims that choice supporters want to “eliminate public education.” On the contrary, choice supporters are fundamentally more committed to public education than anyone who refuses to consider the market alternative.

“Public Education” is a set of ideals. It is not a particular institution. It is the ideal that all children should have access to a good education, regardless of family income; that schools should prepare students not just for success in private life but for participation in public life; and that our schools should foster harmonious relations among the various groups making up our pluralistic society – or at the very least not create unnecessary tensions among them.

School choice advocates are more committed to those ideals than is anyone wedded to the current district-based school system, because that system is inferior in all of the above respects to a universally accessible education marketplace. This is documented in the literature review linked-to above, in my book Market Education: The Unknown History, and in the work of James Tooley, E.G. West, my Cato colleagues, and many others.

The education tax credit programs my colleagues and I have proposed would ensure universal access to the education marketplace, while leaving essentially intact the freedoms and incentives responsible for the market’s success. I know of no other policy capable of achieving this. Certainly charter schools and the Swedish system fail to do it.