The Pentagon Is Not Reporting the Good News from Iraq

The Pentagon said yesterday that violence in Iraq soared this fall to its highest level on record and acknowledged that anti-U.S. fighters have achieved a “strategic success” by unleashing a spiral of sectarian killings by Sunni and Shiite death squads that threatens Iraq’s political institutions.

In its most pessimistic report yet on progress in Iraq, the Pentagon described a nation listing toward civil war, with violence at record highs of 959 attacks per week, declining public confidence in government and “little progress” toward political reconciliation.

The Washington Post

Milton Friedman Days

The Loudoun County, Virginia Board of Supervisors is meeting today to pass a resolution recognizing Milton Friedman’s contributions to the nation and to the principle of human liberty – and they are naming July 31st, his birthday, Milton Friedman day.  Interestingly, the University of Chicago and others have designated January 29, 2007 as Milton Friedman Day.

As someone who was very fond of Milton, and committed to the same ideals, all I can say is: two down, 363 to go.


Republicans and the Libertarian Voters

Writers in both National Review and the New Republic have dismissed David Kirby’s and my warning that Republicans are losing libertarian voters by noting that President Bush’s percentage of the vote went up in 2004 even though he lost libertarian votes. Thus, Ramesh Ponnuru and Jonathan Chait say, losing libertarian votes is no problem for the Republicans.

In National Review, Ponnuru writes:

The electorate as a whole swung toward Bush during those years: He increased his percentage of the overall vote from 48 to 51. Libertarians swung one way; the remaining 85 percent of the electorate swung the other way, and swung far enough to overwhelm the libertarians.

In the New Republic Chait agrees:

Boaz and Kirby …stress that President Bush’s share of the libertarian vote dropped precipitously between 2000 and 2004. But, during that time, Bush’s total share of the vote rose by almost 3 percent.

It’s true enough that Bush increased his percentage of the total vote even as libertarians were swinging away from him. But Chait and Ponnuru would have us believe that Bush succeeded because his policies alienated libertarians and appealed to a larger group of non-libertarian voters. But what policies would those be? Did he achieve re-election on the strength of the war in Iraq? His massive over-spending and prescription drug entitlement? His support for the gay marriage amendment? Not likely. (For a discussion of state marriage amendments and the 2004 vote, see here.)

Indeed, the large question about 2004 is why a president with a strong economy won only 51 percent of the vote, 6 points behind what economic models of presidential elections predicted. The biggest answer is the war in Iraq, which was increasingly unpopular by November 2004 and which likely turned off both libertarians and other independent and centrist voters.

Meanwhile, along with the economy, what accounted for Bush’s gains from 2000 to 2004?

It’s terrorism, stupid. The most important number in the 2004 exit polls was this: 58 percent of respondents said they trusted Bush to handle terrorism, while only 40 percent trusted Kerry. You can’t win a post-9/11 election if only 40 percent of voters trust you to protect them against terrorists; people may not have been happy with the war in Iraq, but many of them thought terrorism was the bigger issue. Indeed, our study found that libertarian-leaning voters who cited “terrorism” as the most important issue in 2004 voted heavily for Bush, while those who cited some other issue gave a majority of their votes to Kerry.

And of course, our post-election 2006 data found that libertarians again gave Democrats a larger share of their votes than they had historically done. And this time it did cost the Republicans. Independents–many of them libertarian-minded–turned sharply away from Republican candidates. Disgruntled libertarians probably cost the Republicans congressional seats in New Hampshire, Montana, Arizona, and Colorado, Nevada, and Iowa, and possibly also in Florida, Ohio, and Pennsylvania.

If Republicans can’t win New Hampshire and the Mountain West, they can’t win a national majority. And they can’t win those states without libertarian votes. This may be good news for Democrat Chait. But Ponnuru should worry about it.

Antidumping Reformers Rejoice

Antidumping policy moves incrementally in the right direction only on rare occasions.  In that regard, last week was nothing short of historic.  In addition to the U.S. International Trade Commission deviating from its conventional script and revoking 15 longstanding antidumping measures on key steel products (described here), the Office of the U.S. Trade Representative announced to Congress the administration’s decision to implement a critical change to the Commerce Department’s antidumping calculation methodology, which, if implemented in good faith, will likely reduce the incidence and disruptive impact of antidumping measures henceforth. 

In response to a series of rulings from the dispute settlement body of the World Trade Organization, which found a U.S. methodological practice known as “zeroing” to violate Article 2.4.2 of the WTO’s Antidumping Agreement, Commerce decided (albeit, grudgingly) to change it’s policy.  I have described zeroing and its impact in a few previous papers and in this blog post, but here’s a brief summary.

In a typical antidumping investigation, the sales and cost data of each foreign company under investigation are subject to a series of calculations before the bottom line “dumping margin” is produced.  Usually, the Commerce Department calculates average net prices for each product (i.e., widget model 1, widget model 2, etc.) sold in the U.S. and home markets.  The average U.S. and average home market prices of widget model 1 are compared, the average prices of widget model 2 are compared, and so on.  In some cases there may be few comparisons, and in others there may be hundred or even thousands of comparisons.  Some of those comparisons may generate positive dumping margins (when average home market price exceeds average U.S. price) and some may generate negative dumping margins (when U.S. price is higher).

Commerce then calculates from all of these model-specific comparisons an overall weighted-average dumping margin.  But before calculating the overall average, Commerce tinkers with the mathematics by zeroing.  Zeroing refers to the practice of assigning a value of zero to all of the comparisons that generate a negative dumping margin.  Only after zeroing does Commerce calculate the average dumping margin.  So, in other words, zeroing precludes the negatively dumped sales from having the proper impact on the “average” dumping margin.  Thus, if 99 of 100 comparisons generate large negative dumping margins and 1 of 100 produces a positive dumping margin, zeroing ensures that the average dumping margin calculated is positive.  Pretty fair, huh?

In research that Brink Lindsey and I conducted a few years ago, we found that zeroing is highly distorting.  In a sample of 18 actual antidumping determinations, we found that calculated dumping margins would have been on average 86% lower had zeroing not been employed.  Five of those 18 cases would have resulted in the cases being dropped, and antidumping measures never having been imposed.  So the change in policy is laudable and potentially very significant. 

I say “potentially” because zeroing reform remains incomplete.  The policy change announced last week pertains to zeroing in what are called average-to-average comparisons.  In some cases, the Commerce Department compares average prices to transaction-specific prices and in others it compares transaction-specific to transaction-specific prices.  It is possible that Commerce will use these methodologies more frequently now and continue to zero (at least until zeroing under these comparison methodologies is found in violation of our WTO commitments as well).

And there is one other possible obstacle on the road to implementing this change: Congress.  Although zeroing is not mandated by law, the practice has been in use for a very long time.  Cases have been heard in the Court of International Trade and the Court of Appeals for the Federal Circuit concerning the question of whether zeroing is even permitted under the statute.  Both courts have ruled that zeroing is a permissible interpretation of the statue, which has been taken by some in Congress to mean, wrongly, that zeroing is a requirement of the statute. 

Congress, which is bipartisan in its broad support of a strong (i.e., menacing and unfair) antidumping law, may seek a fight with the administration over the propriety of changing the zeroing practice without input from the legislative branch.  But, by and large, last week’s zeroing announcement was another rare victory for antidumping reform.

Beam Me Up, Mr. (Ex-)Speaker!

Say what you will about Newt Gingrich, but he has that rare political gift: he sounds captivating and forceful even while talking complete dreck.  I witnessed that up close a couple of years ago when I crashed a meeting of conservative activists, and saw Gingrich take the floor to urge everyone to get behind the president’s prescription-drug bill.  Given that the plan represented the greatest expansion of the welfare state since the Great Society, you’d think this would be a tough sell.  But to hear Gingrich tell it, signing onto the president’s bill would be a stroke of genius for limited government activists.  The bill would cause a “plate-tectonic shift in the continental architecture of the modern welfare state.”  Or something.  I didn’t understand what that meant then and I still don’t.  Yet so confident was the pitch, so bold the hand gestures, that Gingrich probably convinced a few people who knew better. 

Those talents were on display again yesterday morning, when the former Speaker appeared on Meet the Press to play coy about his presidential aspirations.  He may or may not be running; but as always, he’s pushing Big Ideas.  Among the highlights: “The only exit strategy in Iraq is victory.”  That’s right: and the only treatment for cancer is remission.  To be fair, Gingrich did go into a little more detail on how we win.  It had something to do with FDR’s Civilian Conservation Corps. 

He also talked a bit about his latest passion: creating some kind of bipartisan debate or series of debates that would in turn create “a wave of new ideas, a wave of new solutions. And see how that ferments.”  Apparently, the catchphrase for this crusade is “Real change requires real change.”   Which is less a slogan than a mind-blowing zen koan.  

Host Tim Russert pressed Gingrich to explain his remarks in Manchester, NH a couple of weeks ago, where, as the featured speaker at the “Nackey S. Loeb First Amendment award” dinner, Gingrich called for rethinking the First Amendment.  On Meet the Press, Gingrich wouldn’t back down:

FMR. REP. GINGRICH: You close down any Web site that is jihadist.

MR. RUSSERT: But who makes that judgment?

FMR. REP. GINGRICH: Look, I—you can appoint three federal judges if you want to and say, “Review this stuff and tell us which ones to close down.” I would just like to have them be federal judges who’ve served in combat.

Now depending on the details, this could mean a major overhaul of First Amendment doctrine in the areas of incitement and prior restraint.  But put that aside. “Three federal judges who’ve served in combat?”  What does that have to do with anything?  Is this a legal question or a military one?  What a stunningly illiberal non sequitur.    

And on it went, for more than half the program.  A half an hour of that sort of thing, and you’re almost ready to put up with Tom Friedman’s soundbitten wisdom in the “roundtable” portion of the program.  Did you know that in Iraq, “the shortest distance between two points isn’t a straight line?”

The Good News behind This Morning’s Trade Deficit Report

This morning the U.S. Commerce Department reported another record deficit in the America’s broadest trade account with the rest of the world. In the July-September quarter of 2006, the U.S. current account deficit reached $225 billion, another record. The current account is the broadest measure of America’s international commerce, comprising not only trade in goods and services but also income flows from foreign investment and unilateral transfers such as foreign aid worker remittances.

The report is bound to throw more fuel on the debate over U.S. trade policy. Here’s how the Associated Press described the political fallout from the latest trade numbers:

“Democrats, who took over control of the House and Senate in the November elections, attacked President Bush’s trade policies, charging that the administration has run up record deficits for five straight years by failing to protect U.S. workers from unfair foreign trade practices.” 

To all this hand-wringing about the trade deficit, I say, “Bah Humbug.” The trade deficit itself tells us very little about the success or failure of U.S. trade policy. It is largely driven by differing rates of savings and investment in the United States and our major trading partners. (Check out for the details.)

Obsession with the trade deficit also obscures the real story behind this morning’s trade numbers: Both our imports and exports are rising at a healthy rate.

Compared to the third quarter of last year, U.S. imports of goods and services from the rest of the world are up 12.7 percent while our exports are up an even steeper 14.1 percent. America’s total two-way trade with the world, including income from investments, is up a spectacular 16.4 percent from a year ago. Imports, exports and investment income have all reached record levels.

The bottom line: Despite the complaints of politicians, Americans have never earned or spent a higher share of their income in the global economy than we do today. We are voting with our dollars every day for more trade and globalization.