GOP Governors Lead the Way!

In recent years, Republican governors have been doing a fantastic job of carrying the torch for fiscal conservatism and burnishing the GOP’s brand name as the tax-cutting party. This leadership is clear from two stories in State Tax Notes today [subscription req’d]:

  • “In an effort to break the budget impasse that has lasted over a month, California Gov. Arnold Schwarzenegger (R) has proposed a temporary 1 percentage point sales tax increase. The increase would run for three years and is expected to raise between $5 billion and $6 billion yearly, or over $15 billion for the three-year period.”
  • “Mississippi Gov. Haley Barbour (R) said August 4 that he would plug the state’s $90 million Medicaid funding hole by raising taxes on state hospitals. Barbour wants to raise hospitals’ gross revenue assessment – the tax hospitals pay on the money that flows into their coffers – from 0.45 percent to 1.08 percent. … The increased tax rate would raise $88 million; the remaining $2 million would be saved by cutting funds from other services. But don’t expect the state’s hospitals to accept this plan lying down. The Mississippi Hospital Association filed a lawsuit against the governor in 2005 when he proposed something similar. …’It’s a good, fair deal that taxes the hospitals, not our citizens – and rightly so,’ Barbour said in a press release describing the plan.”

Voters and taxpayers in these states will appreciate the strong conservative thrust of these policies. Schwarzenegger’s tax hike is only “temporary,” and will surely expire after runaway state spending has been cut and current fiscal problems solved. And Barbour wisely wants to impose his tax hike on hospitals, which clearly won’t burden the people of Mississippi or the state economy at all.

Putin: “War Has Started” with Georgia

Some unfortunate “he said/he said” violence in the breakaway Georgian province of South Ossetia looks likely to escalate into full-blown war. Unsurprisingly, Eduard Kokoity, the leader of the province, and the Russian prime minister and president are blaming the Georgians for starting it. The Georgians are blaming the Russians for starting it. Washington is several thousand miles away, so it’s hard to tell from here.

What’s not hard to tell, however, is how dangerous the situation is. Recall that President Bush made a full-court press to get Georgia (and Ukraine) onto Membership Action Plans at the recent NATO summit in Bucharest. In a heroic move, the Germans spiked the deal, saving us from ourselves. But both Barack Obama and John McCain favor Georgian accession into NATO — and with it, a full-on security commitments as Article V of the NATO charter makes clear. 

Here’s Barack Obama’s absurd statement on the question from last month:

As I stated in April this year, I am committed to upholding the sovereignty and territorial integrity of Georgia. This commitment has long been a fundamental building block of U.S. policy, and it will not change under the Obama administration. I also affirm Georgia’s right to pursue NATO membership. This aspiration in no way threatens the legitimate defense interests of Georgia’s neighbors.

I’m sure the Russians are interested to learn that Obama considers himself an expert on “the legitimate defense interests” of their country. I wonder what the Kremlin thinks are the legitimate defense interests of the United States. 

Unfortunately, of course, McCain is hardly a paragon of good sense on the question. He has been fairly pawing at the ground for years to get a run at Russia, and this opportunity seems as good as any.

Also of note is the fact that McCain’s chief foreign policy adviser, Randy Scheunemann, was a paid lobbyist for Georgia until March of this year — even acting simultaneously as McCain’s chief adviser on foreign policy while he was being paid by the Georgians.  A man of many hats, Scheunemann apparently could separate out (a) being paid by the Georgians to lobby for them, (b) advising McCain on foreign policy (including, presumably, U.S.-Georgia relations), while (c) lobbying McCain’s Senate staff on behalf of Tbilisi.

The other point is how robust U.S. support for Georgian NATO membership may have created a moral hazard situation where the Georgians may have convinced themselves — any official urgings from the U.S. administration aside — that they would have U.S. backing should any conflict break out.

For any U.S. president, current or future, to give so much as a second’s thought of committing American blood and treasure to the defense of a tiny Caucasian country that few Americans could so much as point to on a map is ridiculous and unforgivably reckless. It would raise the prospect of restarting the Cold War, and completely poisoning our relations with a country that happens to possess both a large quantity of nuclear weapons and a permanent spot on the UN Security Council.

We sometimes joke that the worst ideas in Washington are bipartisan. Here’s another data point to support that thesis.

Update: Commentary magazine’s Gordon G. Chang is now calling for President Bush to make clear, publicly, to Prime Minister Putin that the United States “is prepared to cut off diplomatic relations, end trade, and use military force to protect this young democracy.”

Inflate Your Tires; Save 100% of Your Gasoline

Here’s how.

Get your favorite politician. Democrat, Republican, or whatever; it doesn’t matter.

Connect mouth to valve.

Ask, “What’s your energy policy.” Hot air will inflate tire.

“What about the environment?” More inflation.

“Should wind be subsidized?” And so forth, until tire blows.

Flat tire! Now you aren’t going anywhere.

And — voila! — gas consumption now zero.

You’ve saved 100 percent of your gas.

… Only problem – you’ll need a new tire, which is mainly petroleum.

Update on Berwyn Heights Botched Raid

Things are getting worse for Prince George’s County, Md. police officials after last week’s botched no-knock raid (previously chronicled on C@L here). 

Not only did the police not have a warrant to conduct a no-knock raid, but it now appears they were well-aware that a drug ring was delivering large shipments of marijuana to innocent addressees’ homes in the D.C. suburbs. The packages would then be intercepted by other members of the ring, all without the addressees’ knowledge or involvement. Nonetheless, the cops executed their guns-ablazin’ raid on the home of Berwyn Heights mayor Cheye Calvo and his wife Trinity Tomsic, where the cops shot the couple’s black Labs and detained Calvo and his mother-in-law in handcuffs for hours.

The cops have now arrested the delivery truck driver and an accomplice who apparently orchestrated the Berwyn Heights shipment, and P.G. Police Chief Melvin C. High has conceded, “Most likely, [Calvo and Tomsic] were innocent victims.”

Astoundingly, High refuses to admit that police did anything wrong in the raid. He says in today’s Washington Post:

In some quarters, this has been viewed as a flawed police operation and an attack on the mayor, which it is not. This was about an address, this was about a name on a package … and, in fact, our people did not know that this was the home of the mayor and his family until after the fact.

I correct Chief High: When police officers execute a no-knock raid though they have no warrant or cause to do so, when they blast and shoot their way into a home without first learning who lives there, then they’ve carried out a flawed police operation. That’s the case regardless of whether Calvo and Tomsic are guilty of trafficking drugs.

In Prince George’s County, flawed law enforcement isn’t unusual. At least, in this case, the victims of the botched raid may have the social stature to fight back.

UPDATE (8/8): It took a week, but P.G. County police chief Melvin High has finally conceded that Calvo and Tomsic were not involved in drug trafficking.

Unfortunately, Chief High did not issue an apology for the police action or admit that the raid was botched. That raises an interesting question: Is he trying to protect his department, or does he really think the Berwyn Heights incident exemplifies how law enforcement is supposed to act?

A Falling Oil Price Is NOT Lower Inflation

I recently explained that, “If [the price of] oil keeps falling, then headline inflation will drop below the ex-energy rate, and the ex-energy rate will itself drop thanks to cheaper transportation and petrochemicals.”  This followed my equally controversial (at the time) June 3 column, “Get Ready for the Oil-Price Drop.”

Blogger Stefan Karlsson thought I had said “inflation is not a problem.”  Huh?

What I said was that a monthly or year-to-year increase in the overall CPI “gives us a fair picture of what has happened to the cost of living over the past month or year. But it’s near-useless for telling us where inflation is headed in the future.” 

I offered a graph and several examples. The price of oil fell this February, for instance, and that month’s CPI was unchanged - zero.  Did that mean inflation was zero?  Of course not. Should the Fed have eased that month because oil prices fell?  Of course not.  So why couldn’t reporters follow that same common sense when oil prices spiked in June?

The May 1991 CPI was 5 percent from a year earlier, I noted, “but it dropped to 2.9 percent within five months, as oil fell 35.3 percent.” When that happens again this year, it will not mean inflation is any less of a problem than it is right now.  It will just mean the price of oil came down.

What I wrote is backed by recent research within the Federal Reserve:

  • Todd Clark of the Kansas City Fed found “the CPI ex-energy offers statistically significant explanatory power for future [headline] inflation.” 
  • Robert Rich and Charles Steindel of the New York Fed found “the ex-energy measure generally maintained its better forecasting record for … inflation over the longer sample period.”
  • On a closely related topic, Rajeev Dhawan and Karsten Jeske of the Atlanta Fed found that “using headline inflation” to guide Fed policy “appears to be a bad idea, both in terms of the output drop and the inflation impact.” 

Those who thought the Fed should have raised interest rates in June because oil prices pushed the CPI up will soon be logically obliged to say the Fed should keep interest rates low or lower just because falling oil prices will be pushing the CPI down.  I agree with Dhawan and Jeske on this.  I think the Fed should and will raise the (fed funds and discount) interest rates on bank reserves.  But I won’t revise that opinion with every up and down in the price of oil.

Disclosure: I own shares in an ETF that shorts oil (DUG) and a mutual fund than shorts precious metals (SPPIX).  This is called putting your money where your mouth is. SPPIX was $16.81 on July 18 when my inflation article appeared, but up 26% to $21.22 by August 5.