An Unconvincing Evasion

Michael Goldfarb of the Weekly Standard offers what I think is a pretty unconvincing defense of his post that I criticized yesterday.

The whole thing started because Goldfarb thought it would be appropriate to snicker at the fact that Greenwald had estimated China’s annual defense spending at $65 billion. His post was titled “When Lefties Pretend to Know Anything About the Military,” and he sneered at those “who act like they understand military spending but find themselves flummoxed over terms like ‘purchasing power parity.’”

But in truth it is Michael Goldfarb who demonstrates beyond doubt that he is flummoxed over PPP. We can see this in the fact that he refuses to back down from his claim that $450 billion is a “pretty good guess” for Chinese defense spending. It’s not a pretty good guess. It’s absolutely absurd, and if he can find one serious PLA analyst anywhere who will endorse it, I’ll buy him lunch.

For reference, the Pentagon, which has historically offered the high-end estimate of all estimates of Chinese defense spending, argued in 2007 (.pdf) that Chinese defense spending was between $85 and $125 billion, much closer to Greenwald’s estimate than to the one that Goldfarb continues to endorse of $450 billion.

I don’t want to dry up this otherwise juicy conversation with a long discussion of defense economics, but since they’re so central to understanding why the $450 billion figure is absurd, I’ll just refer readers again here. (Goldfarb for some reason omitted the link from his excerpt of my post.) You can’t do what Tkacik does, and just blanket the CIA’s figure for the PLA budget with the PPP converter and then take that number out and run with it. Moreover, the World Bank estimate of the PPP converter for China was recently revised downward by 40 percent, further undermining the figure. Goldfarb seems either uninterested or unaware of this.

There are even more problems with the Ramesh Ponnuru/Goldfarb argument that we should view the entirety of the rest of the world as “criminals” or “arsonists” against whom we should judge our defense budget:

We’d expect the police department to have a budget many times that of all the criminals combined, wouldn’t we? Fire departments spend a lot more fighting arson than arsonists spend.

This is just nuts. Here is a listing of the top 10 defense spenders out there, from Greenwald’s list (I’m not sure whether the rankings are still exactly right, but you get the idea):

1. United States
2. China
3. Russia
4. France
5. United Kingdom
6. Japan
7. Germany
8. Italy
9. South Korea
10. India

These are the “criminals” against whom we are supposed to be arming ourselves? Okay, so Russia and China are on the list, and we aren’t absolutely certain of their intentions. But England?!? Japan? Italy? India? Is it really America Alone, taking on the rest of the world? Please. Is this sort of thing supposed to pass for serious analysis?

$100 Oil

One of the big stories today is news that oil deliveries for February topped $100 for the first time in history yesterday and are again over $100 today. Lots of ink has predictably been spilled covering this story, but it’s unclear why. The $100 threshold is purely psychological and holds little import to the market. The macroeconomy is hardly more affected by $100 oil than it is by $98 oil. Likewise, the great public hunt for the “tipping point” at which oil price increases induce significant changes in consumer behavior is akin to Captain Ahab’s hunt for Moby Dick. Since oil prices began their run up in 2003, demand has remained relatively strong and consumers have responded far less robustly than they did during the price run-up from 1975-1980. Although it is unclear why consumers are so much less inclined to conserve fuel today than they were yesterday, there is little reason to expect any radical change in consumer response to fuel price increases in the short term.

The more interesting question is why oil prices have risen so dramatically since August of last year – one of the three or four largest price increases of the last 30 years. The standard explanations – turmoil in oil producing regions, demand growth in India and China, global crude oil shortages, speculation, and low oil inventories – are not very satisfactory. Turmoil in oil producing regions has, if anything, declined since August. Demand growth in India and China is hardly a new phenomenon. Oil production in the 3rd quarter of 2007 actually increased (4th quarter data is not yet in) and Middle Eastern producers are increasing discounts available to buyers of heavy crude. Oil inventories are likewise being liquidated - hardly a sign that speculators are hoarding oil to drive up price.

The only significant change in world crude oil markets has been the buy orders coming out of the United States for crude oil destined for the U.S. Strategic Petroleum Reserve. Oil economist Philip Verleger believes that most of the recent price movement can be traced to that fact alone, although the evidence for that proposition is not dispositive.

Regardless, there is little reason to succumb to panic. First, there is strong empirical evidence to suggest that consumers invest efficiently in automotive fuel efficiency. Hence, long-run demand response may prove much more robust than short-run demand response. Second, the economic burden of high gasoline prices today is greatly overstated relative to what that burden has been in the past given the increases in per capita and median household income. In fact, the “hardship price” of gasoline (that is, gasoline prices adjusted for inflation and changes in household income) is about average what it has been since the end of World War II. Third, belief that high oil prices are important macroeconomic events that are capable of triggering recessions or worse have been shattered by recent experience. Fourth, the fact that inventories are being released - not built up - tells us that market actors are betting that today’s high prices are not long for this world.

Taken together, those observations imply that government should treat high oil prices with benign neglect. If consumers want to reduce their fuel bills, there are ample opportunities available for them to do so. A good rule of thumb - even for non-libertarians - is that government should not do for you what you can do for yourself.

NCTC Acknowledges Foreign Policy Role in Radicalizing Muslims

Via Spencer Ackerman, the National Counterterrorism Center bends itself into all kinds of knots in its 2008 calendar. (?!?) The calendar apparently takes up some of the myths about radicalization. Among them:

MYTH: US foreign policy is the primary cause of radicalization.

REALITY: The grievances that fuel radicalization are diverse and vary across locations and groups. Radicalization frequently is driven by personal concerns at the local level in addition to frustration with international events.

So in the course of rebutting the “myth” that foreign policy is the primary cause of radicalization, the NCTC a) allows that foreign policy causes radicalism and b) declines to offer what it believes is the primary cause of radicalization. I think that’s what we’d call a “non-denial denial.” Somebody better tell Rudy Giuliani.

More on Chinese Military Spending

Michael Goldfarb of the Weekly Standard blog takes aim at this Glenn Greenwald post lamenting the fact that the U.S. spends more on defense than the rest of the world combined. In his post, Goldfarb protests that Greenwald is using a figure for Chinese defense spending that is too low and criticizes those “who act like they understand military spending but find themselves flummoxed over terms like ‘purchasing power parity.’”

Thankfully for all of us, Goldfarb called’s John Pike, who was able to inform him that attempting to ascertain the exact level of Chinese military spending is a “fiendishly complex problem…[that] approaches not even being a meaningful question.”

I say thankfully, because Goldfarb must have come to his senses since he last took a crack at Chinese military spending. That time he consulted with the Heritage Foundation’s John Tkacik, who has been touting his argument that China’s military spending is roughly equivalent to U.S. defense spending. For reasons I’ve laid out in detail before here, this is not a serious argument. It’s not clear why Goldfarb has chosen to jettison Tkacik’s figure in favor of Mr. Pike’s caution, but it’s a welcome development. Still, it would be good to know whether Mr. Goldfarb now thinks he was mistaken to tout the absurd figure last March.

Then Goldfarb takes it on himself to declare that those who advocate a lower defense budget “just don’t understand the issues. And they shouldn’t pretend to.” One might say the same thing about basically everybody who wrote for the Weekly Standard about Iraq before the war, but that would be uncharitable. But the larger point is that Goldfarb’s statement isn’t even true, unless he thinks he can write, say, Richard Betts out of the debate.

Even if one accepts Goldfarb’s criticism of Greenwald’s figure for China’s defense expenditures, it doesn’t affect the finding that the U.S. spends more on defense than the rest of the world combined. Unless Goldfarb then wants to repair to Tkacik’s argument about the Chinese defense budget, which I don’t imagine he wants to. Either way, it’s odd to see someone waving his hands and advising that we be cautious with figures of Chinese defense spending when he chose to tout the most outlandish figure out there just several months back…

Trade, Copyright, and Poetic Justice

Don’t miss Sallie James’s excellent write-up of the ongoing WTO dispute over the American gambling ban. Hollywood is being caught in the crossfire in the dispute, as one of the remedies the WTO is considering for the US’s non-compliance with WTO rulings is allowing other countries to ignore American companies’ copyrights.

As I point out over at Techdirt, I’m not sure it makes sense to paint Hollywood as an innocent victim here. After all, Hollywood has been pushing for decades to link trade policy and copyright law, going so far as to push for provisions in recent trade deals micro-managing other countries’ copyright policies and requiring them to enact laws like the DMCA as a condition of access to American markets. Free traders rightly object when special interests try to use free trade agreements to compel countries to enact their preferred labor and environmental policies. We should be equally incensed when Hollywood lobbies try to use trade agreements to compel countries to enact their preferred copyright policies. So there’s a certain amount of poetic justice in the fact that after decades of pushing to link trade and copyright issues, Hollywood has found its copyrights in the crosshairs of a trade dispute.

James also makes the excellent point that retaliatory tariffs are an insane way to impose damages on the losing country in a WTO dispute because tariffs hurt consumers in the “winning” country at the same time it hurts producers in the “losing” country. This is another reason we shouldn’t be too upset about copyright-based penalties for the losing party in trade disputes. If damages are imposed by targeting copyright law, consumers in the winning country will actually be made better off by lower prices for the copyrighted products in question. So while it would be best if Congress repealed its idiotic gambling ban, I’m not going too upset if Hollywood’s attempts to link copyright law to trade policy come back to bite them.

Britain, Canada, Germany, Italy, Spain, and Now Kuwait

To close out a year of remarkable corporate tax cutting around the world, Kuwait has passed a bill to sharply cut its uniquely high rate. Here is the one-sentence story in the Washington Post today (page D8):

Kuwait’s parliament passed a bill to cut taxes on profit of foreign companies to 15 percent, abolishing a progressive scale established in 1955 with a maximum rate of 55 percent, in a bid to attract investments and diversify the economy.

Progressive is the past; flat is the future.