There Was No Place Like Canada

Speaking of myths about U.S. banking, another that tops my list is the myth that the Federal Reserve, or some sort of central-bank-type arrangement, was the best conceivable solution to the ills of the pre-1914 U.S. monetary system.

I encountered that myth most recently in reading America’s Bank, Roger Lowenstein’s forthcoming book on the Fed’s origins, which I’m reviewing for Barron’s. Lowenstein’s book is well-researched and entertainingly written. But it also suffers from an all-too-common drawback: Lowenstein takes for granted that those who favored having a U.S. central bank of some kind (whatever they called it and however they chose to disguise it) were well-informed and right-thinking, whereas those who didn’t were either ignorant hicks or pawns of special interests. He has, in other words, little patience with history’s losers, whether they be people or ideas. Like other “Whig” histories, his history of the Fed treats the past as an “inexorable march of progress towards enlightenment.”

Don’t get me wrong: I’m no Tory, and I certainly don’t think that the pre-Fed U.S. monetary system was fine and dandy. I know about the panics of 1884, 1893, and 1907. I know how specie tended to pile-up in New York after every harvest season, and that by the time it got there not one but three banks were likely to reckon it, or make claims to it, as part of their reserves. I also know how, when the harvest season returned, all those banks were likely to try and get their hands on the same gold, and how this made for tight money, if it didn’t spark a full-scale panic. Finally, I know that one way to avoid such panics, on paper at least, was to establish a central bank, or “federal” equivalent, capable of supplying banks with emergency cash when they needed it.

Yet I still think that the Fed was a lousy idea. How come? My reason isn’t simply that the Fed turned out to be quite incapable of preventing financial crises, though that’s certainly true. It’s that there was a much better way of fixing the pre-Fed system. That alternative was perfectly obvious to many who struggled to reform the U.S. system in the years prior to the Fed’s establishment. It could hardly have been otherwise, since it was then almost literally staring them in the face. But it should be equally obvious even today to anyone who delves into the underlying causes of the infirmities of the pre-Fed National Currency system.

The Progressive Increase of the Urban Heat Island’s Influence on Temperature Records

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

Perhaps no other climatic variable receives more attention in the debate over CO2-induced global warming than temperature. Its forecast change over time in response to rising atmospheric CO2 concentrations is the typical measure by which climate models are compared. It is also the standard by which the climate model projections tend to be judged; right or wrong, the correctness of global warming theory is most often adjudicated by comparing model projections of temperature against real-world measurements. And in such comparisons, it is critical to have a proper baseline of good data; but that is easier acknowledged than accomplished, as multiple problems and potential inaccuracies have been identified in even the best of temperature datasets.

One particular issue in this regard is the urban heat island effect, a phenomenon by which urban structures artificially warm background air temperatures above what they normally would be in a non-urbanized environment. The urban influence on a given station’s temperature record can be quite profound. In large cities, for example, urban-induced heating can be as great as Tokyo’s 10°C, making it all the more difficult to detect and discern a CO2-induced global warming signal in the temperature record, especially since the putative warming of non-urbanized areas of the planet over the past century is believed to be less than 1°C.  Yet, because nearly all long-term temperature records have been obtained from sensors initially located in towns and cities that have experienced significant growth over the past century, it is extremely important that urbanization-induced warming – which can be a full order of magnitude greater than the background trend being sought – be removed from the original temperature records when attempting to accurately assess the true warming (or cooling!) of the natural non-urban environment. A new study by Founda et al. (2015) suggests this may not be so simple or straightforward a task.

Federal Government: Too Big to Manage

One of the themes in my new study, “Why the Federal Government Fails,” is that the federal government has grown too large to manage with any reasonable level of efficiency and competence. Even if politicians worked diligently to advance the general interest, and even if federal bureaucracies focused on delivering quality services, the vast size of the government would still generate failure after failure.

Here’s an astounding fact: the federal government’s 2014 budget of $3.5 trillion was almost 100 times larger than the average state government budget of $36 billion, as shown in the figure. The largest state budget was California’s at $230 billion, but even that flood of spending was only one fifteenth the magnitude of the federal spending tsunami. Total state spending in 2014 was $1.8 trillion, which includes spending on general funds and nongeneral funds.

U.S. and NATO Fear Greek Fifth Column to Aid Russia

In the midst of bitter bailout negotiations between Greece and Europe, warnings proliferated of a possible Greek Fifth Column. The European Union and even NATO would collapse should Athens turn toward Russia. It is one of the stranger paranoid fantasies driving U.S. foreign policy.

For five years Athens has been arguing with its European neighbors over debts and reform. The issue doesn’t much concern the U.S. A European economic crisis would be bad for America, but Grexit is not likely to set off such a cataclysm.

Nevertheless, some analysts speculated that Athens might fall out of the European Union and NATO as well as the Eurozone, resulting in geopolitical catastrophe. Thus, the U.S. should insist that Europe pay off Greece. Despite an apparent bailout agreement, another crisis seems inevitable, in which case the specter of a Greek Trojan Horse likely will reemerge.

This fear betrays an overactive imagination. “You do not want Europe to have to deal with a Greece that is a member of NATO but which all of a sudden hates the West and is cozying up to Russia,” warned Sebastian Mallaby of the Council on Foreign Relations.

Free Trade Without Controversy

This is from the New York Times editorial board: 

More than 50 countries agreed on Friday to eliminate tariffs on a wide range of technology goods like medical devices, navigation equipment and advanced semiconductors in a trade agreement that should benefit American manufacturers, consumers and the global economy.

Signatories to the Information Technology Agreement, which covers 201 product categories, include the United States, the European Union, China, South Korea and other members of the World Trade Organization. International trade in those goods totals about $1.3 trillion a year, or about 7 percent of all trade. 

I worry that I’m speaking to soon, but so far at least, I have not seen any of the usual trade critics complain about this deal.  With trade negotiations such as the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, there are lots of groups who are fired up about protesting every stage of the process.  But with this deal to eliminate tariffs on tech goods, these same folks have not had much to say.  Which perhaps suggests a way forward for negotiating future trade deals – focus on lowering tariffs and other forms of pure liberalization, and stay away from “governance” issues such as intellectual property, labor and the environment.  The benefits are greater with this approach, and the controversy appears to be lower.

More Gridlocked Than Ever

Yesterday, the Senate passed a six-year transportation bill that increases spending on highways and transit but only provides three years of funding for that increase. As the Washington Post commented, “only by Washington’s low standards could anyone confuse the Senate’s plan with ‘good government.’”

Meanwhile, House majority leader Kevin McCarthy says the House will ignore the Senate bill in favor of its own five-month extension to the existing transportation law. Since the existing law expires at the end of this week, the two houses are playing a game of chicken to see which one will swerve course first and approve the other house’s bill.

As I noted a couple of weeks ago, the source of the gridlock is Congress’ decision ten years ago to change the Highway Trust Fund from a pay-as-you-go system to one reliant on deficit spending. This led to three factions: one, mostly liberal Democrats, wants to end deficits by raising the gas tax; a second, mostly conservative Republicans, wants to end deficits by reducing spending; and the third, which includes people from both sides of the aisle, wants to keep spending without raising gas taxes.

Fleeting American Public Support for Murky Wars

Calls are mounting in Congress (and among some influential opinion groups) for escalating Washington’s military intervention against ISIS in Iraq and Syria and for possible military action against Iran if the new nuclear agreement with that country falls apart.  Caution lights should be flashing about both the extent and durability of such sentiment for military action.  As I note in a recent article in the National Interest Online, this country has an unfortunate history of launching ill-considered armed crusades, often initially with enthusiastic public support.  But that support has a tendency to evaporate and turn to bitter recriminations unless certain conditions are met.  Policymakers need to appreciate that history as they consider intensifying U.S. involvement in the Middle East’s turbulent affairs.

Because most Americans believe that the United States embodies the values of individual liberty, human rights, and government integrity, a foreign policy that seems to ignore or violate those values is almost certain to lose the public’s allegiance sooner or later. That is what happened with such missions as the Vietnam War, the Iraq War and, more recently, the counterinsurgency war in Afghanistan.  It is not merely that the ventures failed to achieve quick, decisive results, although that aspect clearly played a role.  It was also that the United States was increasingly seen as expending blood and treasure on behalf of odious clients and dubious causes that had little or nothing to do with the republic’s vital interests.  A disillusioned public turned against those missions, and that development created or intensified bitter domestic divisions.

To sustain adequate public support for military ventures, the objective must be widely perceived as both worthy and attainable.  Without those features, public support for a policy either proves insufficient from the outset or soon erodes, and either development is fatal in a democratic political system.

Preserving public support requires officials to make an honest assessment of the issues at stake.  Too often, both during the Cold War and the post–Cold War eras, U.S. policymakers have hyped threats to American interests.  The alleged dangers posed by such adversaries as North Vietnam, Serbia, Saddam Hussein, the Taliban, and Syrian dictator Bashar al-Assad bordered on being ludicrous.  At times, it appears that U.S. officials have deliberately engaged in distortions to gin-up public support for purely elective wars.  On other occasions, officials seem to have succumbed to their own propaganda.  In either case, public support dissipates rapidly when evidence mounts that the supposed security threat to America is exaggerated.

That troubling history should reinforce the need for caution as U.S. leaders consider new military interventions, especially in the Middle East.  None of the proposed missions is likely to produce quick, decisive results—much less results with modest financial outlays and minimal casualties.  Moreover, escalating America’s involvement in the region’s myriad troubles puts the United States in a close de facto partnership with Saudi Arabia and its Gulf allies—some of the most corrupt, brutal governments on the planet.  Publics in the Middle East and around the world are watching, and the potential for unpleasant blowback is extremely high.  And as we saw with the wars in Vietnam, Iraq, and Afghanistan, the reaction of the American people to associations with sleazy foreign clients can become one of profound revulsion.  The conditions are in place for new foreign-policy debacles, if U.S. officials have not learned the appropriate historical lessons.