NSA Hackers, Hacked

Screenshot of files from the Equation Group Hack

The Equation Group was like something out of a Hollywood film: A hacking team of unparalleled sophistication and skill who cracked open computer systems around the world like pistachio shells, yet escaped detection for 14 years until being noticed by the security researchers at Kaspersky Lab last year. They were also widely believed to be affiliated with the National Security Agency—most likely working with or from the NSA’s elite Tailored Access Operations unit.  Last weekend, the world learned that these hackers nonpareil had themselves apparently been hacked, when a group calling themselves the Shadow Brokers (likely a reference to the popular Mass Effect video game series) posted a cache of what they claimed were some of Equation Group’s “cyberweapons,” or computer exploitation tools, on the Web for all to see—along with an offer to sell even more valuable intrusion software they’d obtained to the highest bidder.

Remembering Boris Yeltsin’s Finest Moment

Yeltsin on tankTwenty-five years ago today I was driving back to Boston from Cape Cod. Two stories dominated the radio news that morning. Hurricane Bob was headed straight for New England, putting my return to Washington in doubt. And Russian hard-liners had staged a coup against Mikhail Gorbachev, who was being held incommunicado in his dacha in Crimea. Eventually I got back to Washington, by a very slow train rather than by plane. The other story had more lasting consequences.

On that morning of August 19, 1991, as the coup plotters issued a declaration of a new Soviet president and seized control of Russian media, supporters of democracy gathered at the Russian parliament. And Boris Yeltsin, the new president of the Russian Soviet Socialist Federal Republic, decided to go out and speak to the soldiers and people outside the parliament building. He climbed up on a tank and rallied opposition to the coup. Two days later it collapsed, and Yeltsin was a national hero. As I wrote when Yeltsin died in 2007:

More than any other man, Boris Yeltsin moved the Russian people from tyranny to a rough approximation of freedom. For that he is one of the authentic heroes of the 20th century.

In a way he personalizes Mikhail Gorbachev’s accidental liberation of the Russian and Soviet people. Gorbachev intended to reform and reinvigorate communism. He brought Yeltsin from the rural region of Sverdlovsk in 1985 to shake up the stagnant party as the Moscow party boss. But Gorbachev set in motion forces that he couldn’t contain. Once people were allowed to criticize the communist system and glimpse an alternative, things moved rapidly–partly because of Yeltsin’s unexpectedly radical leadership.

Two years later Gorbachev and the party hierarchy pushed him out of the Politburo. But he turned around and ran for the Congress of People’s Deputies, won, and then was elected to the Supreme Soviet. He created Russia’s first parliamentary opposition (in the Supreme Soviet) and then won election to the new Russian parliament. Against the continuing opposition of Gorbachev, he was elected to the chairmanship of that body, thus becoming president of the Russian Soviet Federative Socialist Republic.  He stunned politicos by resigning from the Communist Party.

And then in 1991, less than four years after being pushed out of politics by Gorbachev, Boris Yeltsin became the first elected leader in a thousand years of Russian history, winning a popular election for president. Six weeks later he hit his high point. When hard-line communists tried to stage a coup, Yeltsin courageously raced to parliament to rally opposition.  He jumped on a tank to address the crowd, creating one of the iconic images of the collapse of communism.

He went on to effectively dismantle the Soviet Union and to let 14 of the Soviet republics go their own way. He set about freeing prices and privatizing state property, the largest privatization in the history of the world. It was far from an ideal privatization process. But there weren’t many models for wholesale transformation of a communist economy into a market economy. As I wrote in 2007,

Yeltsin wasn’t perfect. He was often boorish and apparently had an excessive taste for alcohol. Despite letting the other Soviet republics go, he launched the devastating war in Chechnya. He unconstitutionally dissolved parliament in 1993; when communist lawmakers defied him, he sent tanks to shell parliament.  But it should be noted that Yeltsin at that time was seeking to defend liberal democracy against a return to communism. Imagine if Nazi legislators had stayed in the German parliament into 1949, resisting Adenauer’s policies and threatening to bring back National Socialism. Would it be undemocratic to call out the military to counter them? Fareed Zakaria’s worry in 1997 that Yeltsin’s creation of a “Russian super-presidency” might be abused by his successors looks all too prescient now. But a reversion to communism would have been worse.

And finally, after becoming the first elected leader in Russia’s history, he became something even more important–the first Russian leader to voluntarily give up power. True, he turned Russia over to Vladimir Putin, making him more like Ronald Reagan, who delivered the United States to the Bushes, than George Washington, who left us in the capable hands of John Adams and Thomas Jefferson.

Still, the words that President Reagan addressed the American soldiers who invaded Normandy could also be applied to Boris Yeltsin: “These are the champions who helped free a continent. These are the heroes who helped end a war.”

For all his mistakes, Yeltsin helped to free a continent and end the Cold War. And 25 years ago today was his finest hour.

 

Stop Counterproductive Western Whining about North Korea

Washington long has told the rest of the world what to do. But the world usually pays little attention. When ignored, U.S. officials typically talk tougher and louder, with no better result.

That describes American policy toward North Korea. It would be better for Washington to say less than frantically denounce every provocation. The U.S. and its allies typically respond with angry complaints and empty threats, which only encourages the Democratic People’s Republic of Korea to provoke again.

North Korea recently launched two missiles. It was more of the same, barely worth a second thought.

Will Hillary Clinton’s Foreign Policy Match Her Campaign Rhetoric? Or Her Record?

A number of outspoken hawks have praised Hillary Clinton’s approach to foreign policy over the past few months, with at least one stepping up to raise funds for her campaign. This might be surprising if one assumes that hawks tend to support Republicans. It also doesn’t make sense if one believes Donald Trump’s contention that Clinton’s approach to the world is identical to Barack Obama’s, and that Obama is a naïve and foolish dove.

It is not surprising that hawks prefer Clinton over Trump, however, if you realize that Hillary Clinton supported every one of the last seven U.S. military interventions abroad, plus two others we ended up not fighting. Given this, it seems that the members of America’s interventionist class doubt that she would be as reluctant to initiate new wars, or expand the current ones, as her campaign rhetoric has suggested.

For much of her career, Hillary Clinton has been one of the most hawkish Democrats in Washington, and one of the more hawkish American politicians, period (my Cato colleague Caroline Dorminey helped compile an early report card here). Clinton has supported the use of the U.S. military for a range of issues, not simply or primarily to advance U.S. national interests, but also to defend the security of other countries and pursue humanitarian objectives.

As Micah Zenko of the Council on Foreign Relations wrote, “It’s impossible to know which national security crises she [Hillary] would be forced to confront, of course. But those who vote for her should know that she will approach such crises with a long track record of being generally supportive of initiating U.S. military interventions and expanding them.”

As First Lady, Hillary Clinton encouraged her husband to intervene in Bosnia in 1995–1996, and then again in Kosovo in 1999. Two years later, Senator Hillary Clinton voted for the Authorization for Use of Military Force (AUMF) following the September 11th attacks, and then for the Iraq war AUMF in September 2002, a vote she now claims to regret. Notably, she also regrets voting against the Bush administration’s Iraq “surge” in January of 2007.

Reforming Last-Resort Lending: The Flexible Open Market Alternative

Having spent the last month or so poring over writings on last-resort lending,* and especially writings dealing with the recent crisis and its aftermath, with the particular aim of discovering the best means for supplying last-resort credit when it’s called for, and for not supplying it when it isn’t, I’ve reached a number of tentative conclusions that seem worth reporting. I report them despite their tentative nature so that I might be convinced sooner rather than later that I’m barking up the wrong tree, and also because, if I’m actually on to something, I might get others to help me flesh-out my ideas.

I hasten to add that I regard any need for last-resort lending as reflecting, not the inherent shortcomings of private financial markets, but the debilitating effects of misguided regulatory interference with the free development of those markets. Some of the least regulated banking systems of the past, including systems that lacked central banks, were also famously crisis-free, or close to it.

Modern banking systems are, sadly, a far cry from those ideal arrangements. It’s quite impossible, for that reason, to suppose that we might safely dispense altogether with central bank last-resort lending, without first undertaking other, major reforms. In the meantime, we can strive to  reform last-resort lending arrangements, so that they might lower the risk of future crises, instead of making them more likely by contributing to moral hazard, or by otherwise misallocating credit.

Don’t Exaggerate Cuban Immigration Surge

More Cubans will flee their island to the United States this year than any year in decades, according to new data obtained by the Pew Research Center. But the flow should not be exaggerated. The United States has handled much larger influxes of Cubans in the past, and the large Cuban American community in the United States is fully capable of integrating the newcomers. Moreover, Cuban asylees are not attempting to sneak into the country, but rather presenting themselves for security checks to agents at ports of entry.

As can be seen in Figure 1, net Cuban immigration was at its highest level in the 1960s following the communist takeover of the Island. From 1960 to 1970, the number of Cuban immigrants living in the United States grew more than fourfold—by nearly 360,000, according to the Census Bureau. No decade has seen such rapid growth in percentage or absolute terms. Since 1970, the U.S. Cuban-born population has grown more gradually to reach almost 1.2 million in 2014. 

Figure 1: Cuban Foreign-Born Population in the United States

Sources: Census (1960-2000); American Community Survey (2005-2014)

Figuring out the number of annual arrivals is much more difficult. The immigration service keeps the number of aliens obtaining lawful permanent residence (LPR) each year, so that gives an approximation of the number of newcomers. Because the Cuban Adjustment Act requires Cuban immigrants to wait a year to apply for LPR status, however, the numbers reflect arrivals that occurred earlier. This impacts the figures in the 1980s most significantly. More Cubans arrived in 1980 than any other year on record, 125,000 in six months alone, but the surge overwhelmed the service and it waited until 1985, 1986, and 1987 to process their LPR applications.

While imprecise, the LPR numbers give us some context. In terms of annual in-flow, the United States saw much greater influxes in 1968, 1977, and 1980. On a per-capita basis, this year will likely see less than half the rate of immigration in1968 and 1980.

Figure 2: Cubans Obtaining Legal Permanent Residency (FY1960-2014)

 

Sources: Immigration and Naturalization Service/DHS Statistical Yearbooks (1978-2014); Annual Reports of the Immigration and Naturalization Service (1960-1978)

The LPR figures also don’t indicate how the person came to the United States—whether they presented themselves at a port of entry, were apprehended crossing the border, or came with a visa. Over the last decade, roughly 60 percent of all Cubans identified by DHS presented themselves at a legal point of entry—such as an airport or border crossing station—without a visa, compared to just 14 percent who were apprehended without documentation away from a port. The other 26 percent came to the United States legally, either as refugees or immigrants.  

Figure 3: Mode of Identification of Cubans Arriving in the United States by Homeland Security

Sources: Congressional Research Service; DHS Statistical Yearbooks; State Department; Pew (2016 10-month total is annualized)

The reason that Cubans present themselves at ports of entry is that the vast majority receive legal permanent residency through the Cuban Adjustment Act (CAA) of 1966, which grants Cubans asylum automatically upon reaching land in the United States. The CAA obviates the need to avoid detection and immigrate illegally. After one year in asylee status, Cubans can adjust to permanent residency. Overall, roughly three quarters of all Cuban immigrants since 1960 have used this law to receive permanent residency in the country.

Figure 4: Cubans Obtaining Permanent Residency by Type of Immigration

Sources: DHS Statistical Yearbooks

Although the increases in Cuban arrivals in the past couple of years are dramatic, they are not unprecedented or alarming from the standpoint of how they are occurring. Americans should and will welcome them just like they have welcomed each wave of Cubans who escaped the communist island in the past.

There Are Worse Things than Libertarian Fantasies

So says I, in commenting on Amar Bhidé’s ill-informed opinion piece in yesterday’s FT.

Here, with some minor edits (which I failed to fix on time in the original), is what I wrote:

Were Mr. Bhidé’s own suggestions for monetary policy reforms sound, his swipe at fundamental criticisms of central banking as “libertarian fantasies” would be perfectly gratuitous, but no worse than that. In fact, the idea that we’d be better off starting with a clean slate than trying to fix central banks seems to me considerably less fantastic than Mr. Bhidé’s suggestion that the Fed might manage money responsibly simply by checking commercial banks’ imprudent lending. That the Fed has a miserable track record when it comes to detecting, much less discouraging, imprudent lending, is the least of it: Bhidé’s more fundamental error consists of not imagining that merely by keeping an eye on imprudent lending the Fed would also avoid gross mismanagement of the money supply, and the macroeconomic disturbances consequences thereof. If there’s a theory that supports this view, I’d like to see it!

Nor is it true, despite what Mr. Bhidé claims, that the Fed managed the money supply in its early years merely by discouraging imprudent bank lending. It isn’t true, first, because the Fed’s management of the U.S. money stock was in fact notoriously irresponsible in its first decades (consider the rampant post-WWI inflation, the depression of 1920-21, the boom of the late 1920s, and the Great Monetary Contraction of the early 1930s); second, because “checking imprudent lending” wasn’t the Fed’s mandate then (it was “providing an elastic currency” — an entirely different matter); and third, because the long-run behavior of the money stock was constrained by the working of the gold standard.

Mr. Bhidé is right in one respect: he is right to regard the Fed’s dual mandate as supplying an insufficient check against imprudent Fed actions. The fix, though, isn’t Mr. Bhidé’s even more unsound prescription. It consists of replacing the dual mandate with a single stable spending growth mandate. Unlike Mr. Bhidé’s proposal, such a mandate would place definite limits on inflation, though ones that would vary with the economy’s productivity. It would, to be sure, not suffice to rule out imprudent actions by commercial bankers. But then, no monetary policy mandate should be expected to serve that purpose.

On a separate note, I do wish that Mr. Bhidé and other persons inclined to dismiss arguments to the effect that we’d be better off without central banks as “libertarian fantasies,” or the equivalent (besides Mr. Bhidé, Paul Tucker comes to mind), would grapple with the actual arguments of central bank critics, instead of merely labeling them. As for economists calling things “fantasies” because they seem far from politically possible, it seems to me that by making such pronouncements they shirk their proper duty, which consists of altering the boundaries of the politically possible through their influence upon people’s beliefs. Where would we be today had Adam Smith chosen, not to elaborate upon the potential benefits of free trade, but to dismiss the idea as a “libertarian fantasy?”

[Cross-posted from Alt-M.org]