Cato At Liberty

A recent study from the Center for a New American Security (CNAS) looks at how China’s military capabilities in Asia make forward-deployed U.S. bases there vulnerable. The report warns, “the growing capability of China to threaten U.S. bases in the region” may represent “the greatest military threat to U.S. vital interests in Asia.”

“In the event of an unforeseen U.S.-China crisis,” the report explains, “a preemptive missile strike against the forward bases that underpin U.S. military power in the Western Pacific could be a real possibility…particularly if China perceives that its attempts at deterrence of a major U.S. intervention—say in a cross-strait Taiwan crisis or in a brewing dispute over the Senkaku Islands—have failed.”

Two important points need to be made in response to this assessment. First, it explores a scenario—an outbreak of war between the U.S. and China—that is extremely improbable. While it is true that Chinese strategic planners have discussed striking U.S. bases in the unlikely scenario that inadvertent escalation results in an outbreak of conflict, deterrence remains robust in Asia. China in particular has little interest in getting into a shooting war with the United States. Not only do both countries have conventional capabilities devastating enough to make any war too costly to contemplate, but nuclear deterrence and economic interdependence make a military clash not even close to being worth the fight.

Furthermore, the Defense Department describes China’s posture as “strategically defensive” and “rooted in a commitment not to attack, but to respond aggressively once an adversary decides to attack.” Indeed, China has been far less assertive than often depicted. As MIT’s M. Taylor Fravel puts it, Beijing “has compromised more frequently than it has used force,” and “has been less belligerent than leading theories of international relations might have predicted for a state with its characteristics.”

Second, even with the understanding that an all-out Chinese attack on U.S. bases in Asia is a very low probability event, it seems to me, as I argue in a recent Cato Policy Analysis, that this is a good reason to withdraw from U.S. bases in Asia, thereby making American military assets and troops less vulnerable. Granted, this would mark a truly dramatic change in U.S. foreign policy, but it wouldn’t undermine the core economic and security interests of the United States.

The authors of the CNAS report have a very different view. They recommend spending billions of dollars on missile defense systems to better protect U.S. bases. Notably, they concede this would be an extremely expensive way to not even solve the problem: this “admittedly expensive investment in several billion dollars of missile defense forces” would only marginally reduce the damage done to U.S. bases and troops. These new missile defense systems, they admit further, would still be “overwhelmed by sheer numbers” of Chinese ballistic missiles.

A far wiser, and cheaper, solution would be to withdraw U.S. bases from the region and encourage allies to build up some of the same surveillance, targeting, and missile defense technology China possesses. Another Pentagon boondoggle to inappreciably shore up America’s outdated strategic force posture in Asia is not the way to go.

A Wall Street Journal report, “Colleges Pull Back Tuition’s Long Rise,” includes a graph showing the cumulative increases in consumer price indexes (CPI) since 1990 for College Tuition, Medical Care, and All Consumer Prices.

Adding up nearly three decades of increases looks dramatic, but doesn’t show when various prices changes accelerated or slowed. More important, prices for college tuition and medical care are dominated by skilled human services, so they should be properly compared with service prices in general rather than with all items. 

All Consumer Prices (shown as an erratic black line in the graph) includes falling quality-adjusted prices for such tech products as computers and televisions, for example, and cyclically-volatile prices of internationally traded commodities such as oil, steel, and grain.

Service prices largely reflect wages and benefits for skilled labor, which (unlike commodity prices) almost never fall. If service prices did not increase faster than the CPI in general, then real compensation in service sectors could never rise.

This graph omits college tuition because that CPI item is particularly problematic due to averaging large differences in quality and “financial aid” (selective discounts from sticker prices). The Bureau of Labor Statistics explains some of the difficulties:

“The inclusion of financial aid has added to the complexity of pricing college tuition. Many selected students may have full scholarships (such as athletic), and therefore their tuition and fixed fees are fully covered by scholarships. Since these students pay no tuition and fees, they are not eligible for pricing. In addition, there are other students who pay a very small fee to the college since the majority of their tuition and fixed fees are covered by scholarships. When these situations are priced by BLS Field Staff, normal increases in tuition/fees and minor declines in scholarship awards can provide extremely large changes for entry in the CPI index. For some of these same quotes, minor tuition declines or minor scholarship award increases can actually result in negative prices, which make the quotes ineligible for use in the CPI.”

The graph compares two decades of year-to-year price increases for Medical Care and Services in general. The CPI for medical services alone (not shown in the graph) has actually increased somewhat less than the CPI for all Medical Care, which suggests prices of drugs and medical devices increased faster than physician and hospital fees. There have been major improvements in the quality of drugs and medical devices, however, and economists doubt the CPI adequately adjusts for quality improvement. As a BEA report notes, “If there are unobserved attributes that change over time (e.g. perceived efficacy or experience with the drug), these indexes will count any price increases associated with these changes as increases in price, not quality.”

Have Medical Care prices risen faster than Services prices in general? Yes, but the difference in annualized price increases was typically smaller than one percentage point except in 2002 and 2010, when recession’s aftermath depressed other services prices more than (heavily-subsidized) medical care prices. 

Recessions’ impact on commodity prices pushed the year-to-year overall CPI below zero at times, which underscores the inaptness of comparing prices of medical or educational services to any price index such as the CPI which is heavily weighted by goods.