September 2011

September 30, 2011 5:26PM

Competitiveness: Let Markets Lead the Way

The American Enterprise Institute’s Kevin Hassett held a conference the other day on the idea of international “competitiveness.” He invited me to comment on his new co‐​authored paper that tries to nail down the murky meaning of the word.

The paper suggests that for a solid definition of “competitiveness,” we should look to the literature on Tiebout competition, which is competition between local jurisdictions for inflows of labor and capital.

Kevin and co‐​authors suggest that as global labor and capital mobility have increased, countries are now competing with each other the same way that local jurisdictions do. In Global Tax Revolution, Dan Mitchell and I discuss why Tiebout competition is a positive force promoting fiscal reforms worldwide. This is competitiveness in a good way.

By contrast, Paul Krugman wrote an excellent article in 1994 criticizing the vacuous way that “competitiveness” was thrown around by pundits such as Robert Reich and Lester Thurow. Books by such authors suggest that the global economy is a giant wrestling match, and that other countries will slam Team America to the mat unless we have more government planning and subsidies.

At the AEI forum, I noted that America does have to adapt to the realities of globalization, but most of that adaptation can and should occur in the private sector. For example, America needs larger and more efficient seaports to handle rising volumes of international trade. But rather than shoveling more taxpayer money into our government seaports, we should privatize them so that they can expand in response to rising market demands.

The World Economic Forum publishes a well‐​known index of country competitiveness. Kevin and coauthors think the index is dubious, but the WEF report is packed with interesting data. One WEF indicator of competitiveness (page 391) is “quality of seaports.” Hong Kong is ranked #1, and its seaport is privately financed, owned, and operated. American seaports are ranked #22, and they are generally government‐​owned.

The upshot is that when thinking about America’s “competitiveness”—however it is defined—we should think about the proper roles of the public and private sectors. The public sector can pursue tax reform to make us more of a magnet for capital and skilled labor. But when it comes to such things as infrastructure, education, and investing in “industries of the future,” the government should get out of the way and let entrepreneurs and markets drive America’s prosperity in the global economy.

September 30, 2011 3:24PM

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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September 30, 2011 11:36AM

The First Rough Draft of the Solyndra Story

Just reading the headlines of the Solyndra stories in major newspapers the past month tells a story that just keeps getting more discouraging:

Obama‐​backed green firm shuts down
The Washington Post, September 1, 2011

Solar firm to cease operations; Solyndra had received a $535‐​million loan guarantee. It plans to seek Chapter 11.
Los Angeles Times, September 1, 2011

A Third Solar Company Files for Bankruptcy
The New York Times, September 7, 2011

FBI raids offices of solar‐​panel firm
The Washington Post, September 9, 2011

E‐​mails cite rush on loan to solar firm
The Washington Post, September 14, 2011

Treasury to probe loan to Solyndra; The Federal Financing Bank’s role in the failed firm’s borrowing will be the focus.
Los Angeles Times, September 16, 2011

White House official: Funding Solyndra further was risky
The Washington Post, September 16, 2011

Amid Solyndra probe, Energy Dept. moving billions in loans
The Washington Post, September 17, 2011

SOLAR FIRM’S OBAMA LINKS PROBED; A fundraiser’s role in a loan program that aided Solyndra stokes concern about the company’s influence.
Los Angeles Times, September 17, 2011

Questions Raised Over Letting Another Lender Help a Failing Solar Company
The New York Times, September 17, 2011

Justice Dept. urged to probe Solyndra
The Washington Post, September 20, 2011

Solyndra officials to invoke Fifth before House panel
The Washington Post, September 21, 2011

Solyndra’s ex‐​employees tell of high spending, factory woes
The Washington Post, September 22, 2011

In Rush To Assist A Solar Company, U.S. Missed Signs
The New York Times, September 23, 2011

Government OKs new green loans; Two execs of bankrupt solar firm Solyndra plead the 5th before a congressional panel.
Los Angeles Times, September 24, 2011

A solar pariah had Republican parents, too
The Washington Post, September 27, 2011

Where Solyndra said yes, others demurred
The Washington Post, September 27, 2011

Obama aides voiced doubts about loans like Solyndra’s; A top concern was that the vetting process wasn’t rigorous enough.
Los Angeles Times, September 27, 2011

Energy Dept. knew Solyndra had violated its loan terms
The Washington Post, September 29, 2011

U.S. Backs New Loans For Projects On Energy
The New York Times, September 29, 2011

Energy chief cleared Solyndra loan breaks
The Washington Post, September 30, 2011

I found these headlines on Nexis, but of course they can be found on the newspapers’ websites. I linked to two of the stories last week.

Some have tried to dismiss the Solyndra story. Private investors make plenty of mistakes, too. Companies fail, sometimes through no fault of their own. But this story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance — at least — of favors for political supporters, and the kind of promiscuous spending that has delivered us $14 trillion in national debt. It may end up being a case study in political economy.

September 30, 2011 11:34AM

Abolish the Department of Homeland Security

We’re ten years past 9/11, and over the last decade we’ve shed a number of our liberties and spent wildly to counter a terrorist threat that, as the recent model airplane plot demonstrated, isn’t existential. The bureaucratic legacy of 9/11, the Department of Homeland Security, has proven an unwieldy and pork‐​laden nightmare. It’s time to abolish it.

My recent policy analysis, Abolish the Department of Homeland Security, makes the case for doing so. To begin with, DHS is a management disaster by its very nature:

In creating Homeland Security, Congress lumped together 22 previously unconnected federal agencies under a new Cabinet secretary. That’s a problem, not a solution. And while members of Congress routinely clamor for consolidating Homeland Security oversight in one committee, that seems unlikely: 108 congressional committees and subcommittees oversee the department’s operations. If aggregating disparate fields of government made any sense in the first place, we long ago would have consolidated all Cabinet responsibilities under one person — the secretary of government.

Apart from the structural handicaps that DHS faces, the whole notion of “homeland security” is problematic. The “odiously Teutono/​Soviet” concept trends us ever closer to a police state and is particularly prone to pork‐​barrel spending. As I said in my recent op‐​ed on the topic:

It allows politicians to wrap pork in red, white and blue in a way not possible with defense spending. Not every town can host a military installation or build warships, but every town has a police force that can use counterterrorism funds to combat gangs or a fire department that needs recruits or a new fire station.

Congress must reform its grant programs and end this wasteful spending. While we’re at it, let’s end federal funding for fusion centers, local‐ and state‐​organized intelligence cells that duplicate FBI efforts in counterterrorism and end up labeling nearly anyone who expresses political dissent as a potential terrorist, a point I made at this Capitol Hill Briefing. I’ll be speaking at another Capitol Hill Briefing with Jim Harper today on abolishing the Transportation Security Administration. More information available here.

September 30, 2011 9:54AM

China Currency Legislation Is a Desperate Mistake

The good news for those craving harmony in Washington is that that mythical elixir called bipartisanship has been spotted in Congress. The bad news is that it is finding its expression in an outbreak of self‐​destructive China‐​bashing.

After 8 years of threatening punitive action to compel appreciation of the Chinese currency at a pace deemed acceptable by U.S. politicians (a period, by the way, in which the Yuan appreciated by 30% against the dollar in nominal terms—and by much more in real terms), lawmakers may just pull the trigger this time. If so, their action should be seen for what it is: a vote of no confidence in themselves as a body capable of producing solutions to the nation’s economic stagnation and monumental budget and debt woes.

China currency legislation is a diversion – a shell game. Despite the opinions of Harold Meyerson and Fred Bergsten, there simply isn’t any evidence that a stronger Yuan will produce a smaller bilateral trade deficit or that a smaller trade deficit will boost employment. Indeed, policymakers shouldn’t be targeting trade deficit reduction in the first place—let alone a bilateral trade deficit, which is meaningless in a world dominated by trade in intermediate goods.

As explained here and here, globalization with it transnational production sharing and cross‐​border investment has mitigated the impact of currency values on trade flows. Because the value of imported inputs accounts for about half of the value of Chinese exports, a stronger Yuan reduces the prices of imported inputs used to manufacture and assemble products in China for export to the United States and elsewhere. This dampens any expected impact of a rising currency. In fact, between July 2005 and July 2008 the renminbi rose 21% against the dollar, to $.1464 from $.1208, where it had been pegged since 1997. But the U.S. bilateral trade deficit increased from $202 billion to $268 billion over that period. Since June 2010, the Yuan has appreciated by 7 percent against the dollar, but the bilateral trade deficit is on target to be 34% larger in 2011 than it was last year. And (as described here and here) there is no discernible relationship between trade deficits and employment.

Broader support on Capitol Hill for currency legislation boils down to this: with public approval ratings hovering in the low‐​to‐​mid teens, an embattled Congress is looking for plausible scapegoats for the dismal state of U.S. economic affairs. Thanks to a lot of media‐​driven hype about China’s inexorable rise at U.S. expense, Americans fear China almost as much as they loathe Congress. A vote to reclaim American jobs stolen by China—as the currency legislation is so disingenuously characterized by some of its supporters—enables politicians to return to their states and districts with concrete evidence of the seriousness of their efforts.

Only it’s not serious. It’s deeply dismaying. Instead of working hard to change homegrown U.S. policies that inhibit investment, job creation, and growth, our elected officials would choose to lay the blame for our woes at China’s feet, then cross their fingers and hope that their provocative, unilateralist legislation doesn’t unleash a torrent of adverse consequences that would make economic matters even worse. Can there be a stronger admission of failure than to launch such a desperate Hail Mary?

September 29, 2011 3:21PM

Chicks with Guns

An interesting new book has hit the market, Chicks with Guns. It was put together by a photographer–so it’s a collection of portraits from women across the country with brief captions about why they choose to own guns. Here’s an excerpt from an MSNBC report:

Based on polling research and gun‐​sale statistics, an estimated 15 million to 20 million women in the United States own their own firearms. Dozens of those heat‐​packing women are documented in “Chicks with Guns,” a new book by photographer Lindsay McCrum that is sure to challenge almost anyone’s assumptions about gun ownership.

“Their numbers are really high but their profile is actually really low,” said McCrum, who spent three and a half years capturing artistic and arresting portraits of women with their weapons of choice.

“I was so surprised by the variety and breadth and diversity of these women,” McCrum said. “There are so many stereotypes about guns, mostly derived from popular culture, but the reality is so much more complex and varied than you can imagine.”

Image: "Chicks with Guns" book cover

The Vendome Press
“Chicks with Guns” reveals just how true that is. The book features nearly 80 portraits and captions in which women describe the role of guns in their lives in their own words. It quickly becomes apparent that rich women, poor women, young women, old women, athletic women, sedentary women and a fair number of confident girls possess guns for reasons that are peculiarly their own.

“I learned two main lessons while working on this book,” said McCrum, who divides her time between New York City and California when she isn’t traveling for work. “One is that on the subject of guns, nobody is neutral. And the other is that when you get outside of the blue‐​state cities, everybody has a gun.”

Read the whole thing.

 For Cato work on guns and gun control, go here. And here.

September 29, 2011 3:19PM

America’s Asymmetrically Politicized Military

[caption align=right]

Gen. Washington Resigning His Commission[/caption]

America is still laboring under the idea that the uniformed military is apolitical. It isn’t. Not only is the military increasingly politicized, it only expresses open political views on one side of the debate over America’s wars. Given the military’s influence on public opinion, that’s an unhealthy situation.

The most recent example is an op-ed this week published in the New York Times by an active-duty Army officer. Titled “This War Can Still Be Won,” the op-ed argues strongly for continuing the Afghanistan war. Although the piece is peppered with caveats, such as the author’s curious admission that “‘winning’ is a meaningless word in this type of war,” the argument is clearly a political one.

Now try to imagine for a moment an active-duty Army officer making the opposite argument, under his own byline, in the Times. It’s unimaginable, and for good reason. To hear officers openly arguing “this war cannot be won” would be devastating for morale. Still, members of the uniformed military do hold that view. You can see evidence of this in a “U.S. general and war-fighter’s” furtive comment to a Time reporter that in Afghanistan “there is no endgame and there hasn't been one from the start. There's all this talk about how we can't pull out, because if we do all the blood we spilled will have been wasted. Didn't we learn this lesson in Vietnam?”

When the American people hear the uniformed military speaking out loudly on matters of war and peace, they listen. In fact, they are so deferential to the military that one recent survey indicated 28 percent of Americans think civilian control of the military is a bad idea, with another 28 percent not sure. It’s tough to think of an idea more central to the principles on which this country was founded, yet Americans are increasingly deferential to military leaders.

It would be one thing to have a political military in which both sides of an argument could air their views openly, but the anti-war faction in the military is hamstrung by enduring norms of remaining outside politics and a noble abhorrence of doing anything to harm morale. Yet the American people have been hearing the views of one faction of the American military on our current wars for years, at least since Gen. David Petraeus became one of the most prominent and successful political figures in the country. The problem is that they’ve only been hearing one side.

I would prefer a situation in which we had a genuinely apolitical military. But if we’re going to politicize the military, we need to figure out a way to air the views of the uniformed skeptics, too.