Biden Should Not Have Apologized

Vice President Joe Biden has reportedly apologized to the leaders of Turkey, the United Arab Emirates, and other Middle East countries for his previous comments that they had, perhaps inadvertently, supported Sunni extremists in the Syrian civil war.  The uproar occurred because Biden had stated that Turkey, Qatar, and the UAE had given “billions of dollars and tens of thousands of tons of weapons” to Syrian Sunni fighters seeking to overthrow Bashar al-Assad’s regime.  Those governments, he charged, had been willing to give aid to “anyone who would fight Assad.  Except that the people who were being supplied were al-Nusra and al-Qaeda and the extremist elements of jihadis coming from other parts of the world.”  

It is unfortunate that Biden felt the need to retract those comments, because his criticism was quite accurate.  As I point out in a recent article on Aspenia Online,  the rise of ISIS is the latest phase of a regional struggle for power between Sunnis and Shiites.  The primary arena is Syria, where a fight rages between largely Sunni insurgents and Assad’s governing coalition of Alawites (a Shiite offshoot), Christians, and other religious minorities who are petrified about possible Sunni domination.  Saudi Arabia, Qatar, Turkey, and the UAE enthusiastically backed the insurgents, and although the Obama administration might prefer to forget its role in the rise of ISIS, the United States provided aid to them as well.

The other, closely related, arena is Iraq with its continuing sectarian animosity.  Eliminating Saddam Hussein’s rule ended decades of Sunni domination of that country’s politics and economy.  The new Shiite-led government was in no mood for conciliating the displaced elite that had stifled their faction for so long.  Instead, the regime seemed to go out of its way to marginalize and humiliate the Sunni minority.  Iraq has seethed for years because of sectarian hatred, drifting to the brink of civil war in 2006 and 2007, and finally exploding into a full-blown internecine conflict this year.  Some Iraqi Sunnis may harbor worries about the extremist nature of ISIS, but they also see the group as the one entity capable of mounting a serious armed challenge to the Baghdad government.      

The U.S. Fall in Economic Freedom and the Rule of Law

The United States is the 12th  freest economy in the world according to the new Economic Freedom of the World report. Co-published today by Cato and the Fraser Institute, it finds a strong relationship between economic freedom and human well-being.

The U.S. ranking is part of a worrisome decline in economic freedom that began more than a decade ago. For decades, the United States ranked in second or third place on the index. In 2000 it was #2, yet by 2005 it ranked 8 and it continued its precipitous fall until recently. On a 0-10 scale, the U.S. rating is now 7.81 compared to 7.74 last year, a slight improvement. The level of economic freedom in the United States is lower today than it was in 1980. Since 2005, Canada has ranked higher than the United States.

The authors of the report note that the United States has fallen in all five areas that they measure: size of government; legal system and property rights; sound money; freedom to trade; and regulation. But the rule-of-law indicator (legal system and property rights) has seen the biggest decline and, as the graph shows, it has been enormous.

The U.S. Decline

The measured deterioration in the rule of law is consistent with scholarship in that field and, according to the report, is a result of “increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs,” and other property rights violations. Because the rule of law is of course a cornerstone not just of economic freedom but of all freedoms, and because there is a strong relationship between economic freedom and other liberties (civil and political), all Americans should be concerned with the findings of the report.

A deterioration in the rule of law should also be of special concern to Hong Kong, the top ranked territory in the index, where recent protests highlight the danger that Beijing’s interference in its legal system, including the perception of such, poses to the overall freedoms and economic success of Hong Kong.

Bush, Obama, and the Expansion of Government

A John Allison who is not the president of the Cato Institute makes a pretty good point in today’s Washington Post letters column:

Charles Krauthammer, in his Oct. 3 op-ed column, “Why winning the Senate matters,” wrote proudly about the “power of no,” which he advanced as key to blocking President Obama’s ideological agenda since 2010. “And Republicans should not apologize for it,” he said. “With an ideologically ambitious president committed instead to expanding entitlements, regulation and government itself, principle alone would compel the conservative party to say stop.” Whoa, Nellie. Let’s go to the tape.

Rewind to 2006, when Republicans controlled both houses of Congress. Here is the same sentence modified to reflect the 2006 reality: With an ideologically ambitious president (George W. Bush) committed instead to expanding entitlements (Medicare Part D, the largest expansion of the welfare state since the creation of Medicare and an unfunded program), regulation (under Mr. Bush, regulatory budget and staffing levels increased while the total regulatory burden continued to increase in absolute terms) and government itself (total government employment and total obligation authority both rose significantly under Mr. Bush), principle alone didn’t compel the conservative party to say stop at all. In fact, conservatives were behind the expansion in all three areas.

I am not sure what principle means to conservatives. Perhaps Mr. Krauthammer can define it for us in a later column.

John Allison, Williamsburg

Mr. Allison has a point about conservatives at the time, but my libertarian colleagues and I did point out President Bush’s offenses against the Constitution and the Republican Party’s professed principles a few times.

Foreign Investment Disputes in International Courts

In a recent opinion piece, Washington Post columnist Harold Meyerson criticized something called the “investor-state dispute settlement” (ISDS) mechanism, which is included in some trade agreements. My colleague Dan Ikenson responded here; I wrote a letter to the Post, which said:

Harold Meyerson made valid points about the Investor-State Dispute Settlement (ISDS) clause in trade agreements in his Oct. 2 op-ed column, “A flawed trade clause.” However, with all the misinformation that exists on this issue, it is important to be precise. Foreign investors cannot sue “over any rules, regulations or changes in policy that they say harm their financial interests.”

Rather, they can sue if the host government has discriminated against an investor because it is foreign; if an investment has been expropriated, either directly or indirectly; or if the investor has experienced bad treatment of a more general sort (this controversial standard is known as “fair and equitable” treatment).

In a sense, the ISDS provision creates international judicial review of national laws and regulations, with such review available only to foreign investors. That is certainly a controversial proposition, but it is important to keep the debate focused on the facts, rather than on myths that have been put forward.

You only get so much space for these letters, so I thought I’d elaborate here.

ISDS allows foreign investors to challenge any and all domestic government actions before an international tribunal.  That includes local, state, and national measures, by legislators, regulators, or courts.  In terms of the substance of the claims that can be made, they look a lot like certain constitutional doctrines: Equal Protection, Takings, and Due Process.  What you end up with, in effect, is a special international “constitutional” court (of sorts), available only to foreign investors.  (It can’t strike down the domestic laws, of course, but it can award damages for violations.)

Supreme Court Shows Active Restraint in Not Taking Up Marriage Cases

Confounding the expectations of most commentators, the Supreme Court this morning denied petitions for review in all seven same-sex marriage cases pending before it. I wasn’t so bullish on the petitions’ chances – the justices are increasingly reluctant to entertain controversial subjects except when they absolutely must – but see a sort of practical wisdom in this noteworthy inaction. Although it’s unusual for the Court to deny review in those rare cases where all parties urge it, there’s no current “circuit split” – all appellate courts have struck down the challenges to various states’ marriage laws – so the justices’ demurral signals a desire to let public opinion shift even further in favor of allowing same-sex marriage before the Court wades in with a definitive constitutional ruling. By doing so, and thereby postponing any eventual ruling (perhaps until a circuit court goes the other way, if one does), the Court is lessening the chance that its involvement will warp American legal and political discourse the way Roe v. Wade did.

In the meantime, once today’s “decision not to decide” works its way through the lower courts, same-sex couples will be able to marry in 30 states and the District of Columbia. That’s a good thing.

Brazil’s Presidential Election: More Surprises to Come?

The first chapter of Brazil’s presidential election was a roller-coaster: It kicked off with the country’s demoralizing exit from the World Cup, then its economy entered into a recession and widespread corruption charges engulfed the ruling Workers Party (PT). In August, Eduardo Campos, the candidate of the Socialist Party and a rising star in Brazilian politics, suddenly died in a plane crash.  His VP candidate, Marina Silva, also a charismatic figure, ran in his stead and experienced a meteoric rise in the polls to the point that two weeks ago she looked certain to defeat President Dilma Rousseff in a runoff. But Silva’s support steadily eroded in the last week, and yesterday it was Aécio Neves, from the Social Democratic Party (PSDB), who finished a strong second and will challenge the president in a runoff three weeks from now.

With so many things going on, it’s difficult to pinpoint the precise factors behind the electoral result or predict what will happen next. But here are some of my impressions:

El-Sisi the Reformer?

Is Egypt’s economy taking a turn for the better? The government is hosting an economic summit in February next year, aiming to attract foreign investment, with the participation of not just private investors but also of the International Monetary Fund.

[Christine] Lagarde said Egyptian authorities’ “recent reform efforts” were “encouraging” and expressed her hope that participants in the upcoming summit will see how these reforms can “help restore durable economic stability and sustainable growth to Egypt.”

On the surface, it appears that Egypt’s government is making tangible progress addressing the country’s fiscal problem. The planned energy subsidies cuts are under way, although these are also accompanied by tax increases, mainly through a planned introduction of a value-added tax, hikes to tobacco and alcohol taxes and a new tax on capital earnings.

Experience from other countries, most notably from Europe in the aftermath of the global financial crisis, shows that fiscal consolidations that rely on revenue increases lead to worse outcomes than consolidations that consist of permanent reductions to government spending.

But, whatever one thinks about this particular question, there are two additional reasons to be skeptical. First, putting aside the fuel price hikes that have already occurred, much of the praise directed at the Egyptian government presupposes that it will deliver on its promise to slash subsidies by one third in the fiscal year 2014/2015. That would be welcome news but it is worth remembering that similar reform targets were set in the past and were systematically missed:

According to the budget for the past fiscal year, 2013–2014, the subsidies to oil materials were already supposed to be close to EGP100bn ($14bn). Yet, the actual spending was drastically higher, perhaps by as much as an additional EGP70bn ($10bn)

Second, it is deceptive to look at the fiscal question in isolation, as a technocratic problem that can be solved by clever tweaks to existing policies. Egypt’s economic problem is political in nature, and will continue to plague the country as long it is governed by a kleptocratic, unaccountable elite.

The government – more specifically its military forces – own and run a large part of the economy, shielded from competition, and generating rents. The military coup last year led to the strengthening of the opaque network of cronyism that has long characterized military-run enterprises. Some estimates suggest that as much as half of last year’s stimulus, worth around $4bn and funded predominantly by funds from the United Arab Emirates, has been directed at military-controlled enterprises that became involved in road construction and other forms of infrastructure works, displacing the traditional construction companies.

Just as it was a mistake to see Vladimir Putin as a market reformer in the early 2000s, notwithstanding some of the real policy shifts (such as the introduction of a flat tax), it would be a mistake to see President Abdel Fattah el-Sisi as somebody aiming to open Egypt’s economy to competition and raise the living standards of Egyptians through increased economic freedom. If economic reforms occur, they will occur with the narrow goal of strengthening his hold on power and satisfying the material needs of the generals backing him.

In Egypt, as in other countries of the region, economic and political oppression go hand in hand and are mutually reinforcing. Nothing is a bigger threat to a military dictatorship than an economically empowered citizenry. For this reason, we should not expect genuine reforms to be very high on Mr. el-Sisi’s list of priorities.