Archives: 05/2012

Nation Building Comes to Honduras

Sunday’s New York Times featured a front-page article by Thom Shanker on the U.S. military’s presence in Central America. In Honduras, American Special Forces operate out of three outposts—modeled on forward bases in Afghanistan and Iraq—providing support to Honduran Special forces. 600 U.S. troops operate across Central America and try to maintain a “discrete footprint” and do not, it seems, engage in many offensive operations. Nonetheless, the ease with which U.S. military personnel can be deployed practically anywhere is disturbing (though not surprising, given our recent experience). That some simply presume a need for having the U.S. military deploy to the jungles of Honduras is equally troubling.

Shanker explains that the U.S. military is implementing many of the lessons learned from counterinsurgency campaigns in Iraq and Afghanistan. Just as our presence in those countries was supposed to bring stability—along with democracy, economic development, human rights, and the rule of law— so it goes in Honduras:

“By countering transnational organized crime, we promote stability, which is necessary for external investment, economic growth and minimizing violence,” Colonel Brown said. “We also are disrupting and deterring the potential nexus between transnational organized criminals and terrorists who would do harm to our country.” (emphasis mine)

According to Colonel Brown, the U.S. military has deployed to Honduras to encourage foreign companies to invest there. It is hard to square this with the military’s core mission to “provide for the common defence.” Some in Washington still perceive a connection between economic development, drug eradication, and U.S. national security. But the most recent scholarship has largely debunked the belief that Americans must build/rebuild foreign countries in order to be secure here at home.

It isn’t enough to learn lessons from our recent experiences in Iraq and Afghanistan. It is equally important that we learn the right lessons. Until we do, it appears we are doomed to repeat our nation-building follies again and again.

Krugman’s Love Affair with the Kirchner Model in Argentina

Paul Krugman once again praises Argentina as a “remarkable success story” in a recent blog post. He blames biased economics reporting for the bad news recently associated with the country (though he is careful not to mention nationalizations, massive capital flight, cooking of official statistics, bans on the importation of books, attacks on freedom of the press, etc.). He points to this graph to prove the “basic fact” that Argentina’s growth outperforms that of neighboring Brazil, and thus it should be taken more seriously:

Krugman’s dismissal of economics reporting about Argentina may explain why he doesn’t mention the fact that the administration of Cristina Fernández de Kirchner cooks the inflation numbers. The story was recently highlighted in The Economist, which even removed the official inflation figure from its indicators page. As the magazine put it, “Since 2007 Argentina’s government has published inflation figures that almost nobody believes.” Apparently, nobody but Paul Krugman.

Since Argentina’s Consumer Price Index significantly understates true inflation (the official figure for 2011 was 9.7% whereas private estimates put the figure at 24.4%), the country’s real GDP is overestimated. By how much is difficult to asses. However, in a report [requires free subscription] for the Argentine consultancy firm Elypsis, economists Eduardo Yeyati and Luciano Cohan, constructed an “Elypsis Coincident Activity Index” (ECAI) using 9 series of economic data from the Monthly Index of Economic Activity (MIEA)—a proxy for the GDP. As expected, they found a high correlation between the ECAI and the MIEA until 2007, when the government fired the head of the statistics office and politicized it. After that year, both indicators increasingly deviate.

Based on Elypsis’ index, I’ve recalculated the GDP performance of Argentina and compared it to Brazil’s:

* GDP performance since 2007 estimated on the ECAI.

As we can see, Argentina’s GDP doesn’t outperform Brazil’s in the last decade. Moreover, I should note three things: First, by using 2000 as the year base, Krugman neglects to show that Argentina was already 2 years into a recession, thus giving an impression of a especially strong performance in the last decade. Second, nobody denies that even when corrected, Argentina has experienced strong growth in the last 7-8 years. However, that has to do with high commodity prices, especially of soybeans, and an expansive fiscal policy that can’t be sustained for much longer (thus the high inflation). Third, by comparing it to Brazil, Krugman picked a low standard of economic performance in Latin America. As I pointed out in an op-ed a year and a half ago, Brazil’s economic growth is far from stellar: “In the last decade, 10 Latin American countries enjoyed higher growth rates than Brazil.”

Paul Krugman’s love affair with the Kirchner economic model in Argentina should be taken for what it is and certainly not as a guide for economic recovery in the U.S. and Europe.

Did You Read the Federalist Papers in College? Grad School? Law School?

In the Wall Street Journal, Peter Berkowitz says you probably didn’t. And it shows:

It would be difficult to overstate the significance of The Federalist for understanding the principles of American government and the challenges that liberal democracies confront early in the second decade of the 21st century. Yet despite the lip service they pay to liberal education, our leading universities can’t be bothered to require students to study The Federalist—or, worse, they oppose such requirements on moral, political or pedagogical grounds. Small wonder it took so long for progressives to realize that arguments about the constitutionality of ObamaCare are indeed serious.

Explains a lot, really.

A Contradiction in Keynesian Fiscal Policy

There’s an internal contradiction in the way that Keynesian-oriented economists and policymakers address the federal budget situation. I’ve noticed it over and over. A passage in a Washington Post op-ed today by Mohamed El-Erian of Pimco captures it perfectly:

[T]he U.S. fiscal situation requires a carefully designed and well-timed overhaul to make government finances more efficient and fairer—among other things, combining immediate stimulus with a credible set of medium-term tax and entitlement reforms and a sustainable effort to reduce the deficit over time.

El-Erian seems to want more deficit-fueled “stimulus” now, combined with a “credible” plan that would reduce the deficit later on. We hear similar things from administration economists and centrist and liberal budget experts all the time.

Yet how can a Keynesian administration or Keynesians in Congress ever make a “credible” medium- or long-term commitment to deficit reduction? As soon as the next recession hits, they will demand ripping up any previous deficit-reduction deal so that they can stimulate aggregate demand some more.

To Keynesians, the short run is always more important than the long run, so it’s impossible for them to have a “credible” long-run commitment to deficit reduction. Even today, prominent Keynesian economists are demanding more “stimulus,” but the economy is not in recession and the budget deficit (which is “stimulus” to Keynesians) is already over $1 trillion. What happens if the economy slips into recession in 2013 or 2014? The Keynesians would surely break any budget deal and push for a $2 trillion deficit.

Everybody knows that federal policymakers usually break prior deals on discretionary budget caps and agreed-to entitlement cuts. The dominance of Keynesian-minded policymakers and advisers in Washington these days further reduces the believability of any long-term budget deal that policymakers may come up with.

Thus, the best way for policymakers to be truly “credible” on deficit reduction is to start cutting spending right now. Then cut spending more next year, and chop it further the year after that, and then keep on going.

A Quick College Policy Primer

As the story of Julia—America’s favorite two-dimensional, life-long ward of the state—makes clear, higher education is likely to figure prominently in the upcoming presidential campaign. In addition, as the student loan interest uproar has progressed, I’ve realized that a lot of well-meaning people have little or no clue about higher ed reality. As a result, I’ve put together a few links to some foundational information for reporters, policymakers, and the public to get some much-needed perspective on higher ed. The list isn’t exhaustive, but it gets at the really big issues:

Let Taxpayers Eat Ramen: We hear a lot about supposedly starving students, but almost nothing about the living, breathing people who are supplying all the public funds for higher ed. The Cato report How Much Ivory Does This Tower Need? What We Spend on, and Get from, Higher Education calculates the total burden for those forgotten folks, and how it has changed over the past few decades. And the result is, well, ”Let the taxpayers eat Ramen!”

For-Profit Colleges Are Bad, All Others Are Saints:  If politicos ever decide to go after colleges and universities, it’s usually only those that are openly and officially for-profit. You know, because seeking profit is inherently evil and exploitative. But here’s the thing: As revealed in Federal Higher Education Policy and the Profitable Nonprofits, most of the ivy-clad institutions that wouldn’t stoop to something as squalid as profit-making are actually making big bucks off of undergrads. They just use the booty to reward the people already in the schools rather than investors. Turns out you don’t trade in your self-interest when you take on a career of the mind.

Heartless State Legislatures Are the Problem: Maybe taxpayers are providing more student aid, but they wouldn’t have to if state legislators would stop cutting subsidies to public postsecondary institutions. Or maybe not:  As itemized in my two posts here—one of which includes some back-of-the-online-spreadsheet estimates for every state—it’s not true that state and local governments have been slashing overall aid to public colleges. It’s a teensy bit closer to true on a per-pupil basis, but public institutions have generally raised tuition revenue well in excess of subsidy losses.

Student Aid: The Reverse Chinese Finger Trap: With a Chinese finger trap, the harder you pull, the tougher it is to escape. For college affordability, the harder we pump in student aid, the tougher it is to escape ridiculous college prices. Basically—though many in higher ed will swear it doesn’t happen—colleges raise their prices to capture aid, rendering the aid largely self-defeating. The “how” and “why” of this is explained in the Cato analysis Making College More Expensive: The Unintended Consequences of Federal Tuition Aid, and I pinpoint some of the empirical research—as well as furnish a brief explanation of the limits of such research—here.

Hopefully, these links will be of value as some try to establish Eden for Julia. Because, for the rest of us, doing so will likely require a move decidedly to the east.

New Hampshire Says No to National ID

New Hampshire has been a bellwether state in national ID debates before. I wrote about its push-back against the E-Verify federal background check system in a recent post entitled “Cardless National ID and the E-Verify Rebellion.”

The bill that was the subject of that post, HB 1549 by Rep. Seth Cohn (R-Merrimack 6), has now passed the Senate, and it is on its way to Governor John Lynch’s desk for his signature.

It is pared down from its original version, but it now makes clear that state driver’s license records cannot be used in a national identification system. That is what E-Verify is rapidly becoming, and New Hampshire has rapidly said “No.”