November 28, 2012 2:45PM

Mexico’s Drug War and U.S. Policy: New Cato Video

Since President Felipe Calderon took office six years ago and decided to aggressively fight Mexican drug cartels, Mexico has seen some 60,000 drug-war-related deaths. That’s “more than the number of Americans who died in Vietnam, but in a country with one third the U.S. population,” says former Mexican Foreign Minister Jorge Castañeda.

In a new Cato video released during President-elect Enrique Peña Nieto’s visit to Washington this week, Ted Carpenter explains why the U.S.-backed drug war has been a disaster and urges an end to prohibition. For an in-depth look at the issue, read Ted’s new book, The Fire Next Door: Mexico’s Drug Violence and the Danger to America.

You can read more Cato scholars' writings on the War on Drugs here.

November 28, 2012 2:45PM

Adventures in FOIA‐​Land (or: Red Tape Is Not Transparent)

The Justice Department's Inspector General has just completed their most recent review of surveillance under the FISA Amendments Act of 2008, which is set to expire at the end of this year. The report, however, is classified—meaning the public is unlikely to see it before Congress votes to reauthorize the law for another five years during the lame duck session. Steven Aftergood of the Federation of American Scientists is trying to get a declassified version released—but he's probably got a long wait ahead of him.

As regular readers of the Cato blog may recall, I recently wrote about my efforts to get even earlier versions of this report out of the government, in hopes of understanding something about the National Security Agency's use of the sweeping surveillance powers granted by the FISA Amendments Act. Because it authorizes broad, programmatic interception of international communications without individualized search warrants, Congress insisted that the intelligence community produce a semi-annual report evaluating the NSA's compliance with the law's various procedures and safeguards, and highlighting potential civil liberties issues. Given the vast scale of surveillance under the FAA, it's hardly a guarantee of adequate oversight, but it's something. The ACLU had managed to get the first few such reports released, under the Freedom of Information Act, so way back in June, I filed a FOIA request of my own for the most recent reports. I asked for expedited review, arguing that since Congress is expected to extend those surveillance powers before the end of December, there was a strong public interest in getting these evaluations out as early as possible. Let me say again: I submitted this request in June.

In September—long past the statutory deadline of 20 business days—I finally heard back from the Justice Department, which said they could "neither confirm nor deny the existence" of reports that were required by federal law. Unsurprisingly, I appealed this facially ridiculous denial of my request—and to her credit, the senior FOIA officer at DOJ immediately acknowledged that this response had been inappropriate.  By mid-September, just under three months after my initial request went in, I was informed that they'd identified the reports I was looking for and forwarded them to the Office of the Director of National Intelligence (ODNI) for a declassification review, which they expected would be completed by early November. Joy! Would we actually get information about an intelligence program out of the government without a lawsuit? Maybe even in time to have a semi-informed public debate?

Well, no. ODNI informed me earlier this month that they were wrapping up their review and redaction Any Day Now, at which point... their redacted version would be forwarded, one at a time, to every other intelligence agency whose activities were referenced in the report. At each agency, it would go to the back of the line of FOIA requests, exactly as though it had just been submitted for the first time. Estimated time before a heavily censored version of these reports see the light of day: Another six months. At least. By which time, it won't matter much what these reports say about NSA's use of its sweeping powers, because Congress will have already given them another five years of spying authority.

Notice what this means in practice: Even though a court has already established, thanks to an ACLU lawsuit, that they are legally required to release redacted versions of these reports to the public on request, a cumbersome bureaucratic process effectively guarantees that it takes a solid year to get this information out, which means at best you're working with what the assessment found two reports ago, allowing the government to assert that they've fixed whatever problems were found. In this case, the timing of the review process conveniently guarantees that whatever we learn will come far too late to influence this year's vote on FAA powers, but be old news by the time Congress takes up the question again. It's a little hard to swallow the claim that all this delay is remotely necessary: Are we really supposed to believe that the Office of the Director of National Intelligence will be so slipshod about letting sensitive classified information through that their work has to be independently double checked by every other intelligence agency? And that this process has to take six months or longer, even after ODNI has done their initial review and redaction? Of course it doesn't: This is a bureaucratic procedure designed, not to protect national security, but to allow stalling on the release of politically inconvenient information that the courts won't allow to be completely hidden from the public.

This is, needless to say, a far cry from early promises that Obama would preside over "the most transparent administration in history"—and it's part of a larger pattern of failure on that front. What we should really be asking is why I had to submit this request at all. In his first days in office, after all, President Obama issued a directive not only urging agencies to err on the side of disclosure, but to adopt a policy of proactive release of documents likely to be of public interest. Surely if there were any doubt about the public interest in the use of sweeping surveillance powers, it should have been put to rest after the ACLU won release of the earliest compliance reports. So why didn't the Justice Department follow President Obama's directive and draft these reports with an eye toward preparing a declassified public version, knowing full well that civil liberties groups would come asking? Well, because then they wouldn't be able to obfuscate and delay for months and months. Because then the public might be able to have an informed discussion about the secret surveillance powers we've given our spy agencies before we vote to extend them. Heaven forfend.

So will there be any consequences for officials who've so flagrantly disregarded the president's transparency directive? Or was the "order" to adopt more transparent policies just a bit of political theater, delivered with a wink and a nudge? I have my suspicions, but Obama still has time to prove me wrong.

November 28, 2012 12:09PM

Jobs and Trade Agreements

Well-meaning if misguided politicians often tout job creation when they promote preferential trade agreements: freer trade will mean higher exports (the benefits of imports are almost never mentioned), and more exports means more production, which means more jobs. That narrow focus is understandable, especially in times of above-acceptable unemployment, when every bill seems to need a jobs angle to sell: witness, for example, Secretary of Agriculture Tom Vilsack's verbal gymnastics in a statement yesterday, when he referred to the multi-year spending binge that is the Farm Bill as the "Food, Farm and Jobs Bill". Politicians, not being the most courageous of creatures, don't usually have the stomach/spine/etc. to make a principled stand in favor of free exchange across borders for its own sake (if you want to read more on the case for free trade, there are plenty of publications available at the Herbert A. Stiefel Center for Trade Policy Studies website, starting with our position statement at the bottom of the homepage).

Unfortunately, the extent of job creation is hard to quantify, and the case may be oversold. Edward Alden at the Council for Foreign Relations yesterday drew our attention to a recent International Trade Administration study that looks at the jobs created by exports and finds, well, that exports create fewer jobs than often is promised, and that the "job intensity" of exports is falling:

In 1993, which turns out to be the first year for which data are available, the report says that each $1 billion of exports supported just over 12,000 jobs... By 2011, however, that same $1 billion in exports supported only 5,000 jobs. About one-quarter of the difference is due to rising prices over the past two decades, but most of the difference is the result of higher productivity in export-intensive sectors which has reduced the need for labor.

That makes perfect sense. Some three-quarters of U.S. exports are in the goods sector, one-third of those directly in manufacturing, and many of the rest in industries that support manufacturing exports. From 1993 to 2011, labor productivity in the manufacturing sector doubled, compared with just a 50 percent increase in overall productivity. In other words, today it takes many fewer workers than in 1993 to produce the same $1 billion in exported products.

The consequence is that even rapidly growing exports have created very few new jobs. Given the average annual productivity improvements over the past two decades, exports need to grow by roughly 5 percent each year just to support the same number of jobs. Even with the extremely strong U.S. export performance over the past two decades, the total number of U.S. jobs supported by exports in 2011 — 9.7 million jobs – is up just 27 percent from the number of jobs in 1993...

The implication of these figures is fairly stark. As the Obama administration has noted often, export jobs are good jobs – employees in export-intensive industries earn some 20 percent more on average than comparable workers in industries that produce goods and/or services only for the domestic market. But there are simply too few of them to make a significant dent in unemployment, or to lift household incomes which have been flat for the past two decades. The largest number of export jobs are in technology-intensive industries such as aerospace, semiconductors, and motor vehicles. [links in original]

Is there anything wrong with making specious claims about jobs in support of something that is in the best interests of the economy? I guess that depends on your tolerance for spurious means in pursuit of worthy ends. For my part, I worry that when jobs claims are discredited, the case for free trade (and hence public support for it) is eroded. So my advice to politicians when it comes to prognostications about jobs created by trade agreements is: don't go there. Be brave.

November 28, 2012 11:19AM

A Laffer Curve Warning about the Economy and Tax Revenue for President Obama and other Class Warriors

Being a thoughtful and kind person, I offered some advice last year to Barack Obama. I cited some powerful IRS data from the 1980s to demonstrate that there is not a simplistic linear relationship between tax rates and tax revenue.

In other words, just as a restaurant owner knows that a 20-percent increase in prices doesn't translate into a 20-percent increase in revenue because of lost sales, politicians should understand that higher tax rates don't mean an automatic and concomitant increase in tax revenue.

This is the infamous Laffer Curve, and it's simply the common-sense recognition that you should include changes in taxable income in your calculations when trying to measure the impact of higher or lower tax rates on tax revenues.

No, it doesn't mean lower tax rates "pay for themselves" or that higher tax rates lead to less revenue. That only happens in unusual circumstances. But it does mean that lawmakers should exercise some prudence and judgment when deciding tax policy.

Moreover, even though I'm a strong believer in the importance of good tax policy, it's also important to understand that taxation is just one of many factors that determine economic performance. So lower tax rates, by themselves, are no guarantee of economic vitality, and higher tax rates don't necessarily mean the world is coming to an end.

With those caveats in mind, take a look at this table from the Congressional Budget Office's most recent Budget and Economic Outlook. Taken from page 109, it shows what will happen if the economy grows just a tiny bit less than the baseline projection. Not a recession, by any means, just a drop in the projected growth rate of just 1/10th of 1 percent.

Media Name: CBO-Sensitivity-Table.jpg

As you can see, the 10-year impact is $314 billion, mostly due to lower tax receipts, though there is some impact on outlays because of higher interest costs and a bit of additional entitlement spending.

So why am I sharing these numbers? Because let's now think about President Obama's proposed class-warfare tax hike. He wants higher tax rates on investors, entrepreneurs, small business owners and other "rich" taxpayers. And he wants more double taxation of dividends and capital gains. And a higher death tax rate, even higher than the ones imposed by France and Venezuela.

I think some opponents are exaggerating when they claim that this tax hike will cause a recession and cripple the economy. But I do think that it's reasonable to contemplate the degree to which the Obama tax hikes will slow growth. More than 1/10th of 1 percent? Less than that? Would the damage occur in the first few years? Would it be spread out over time?

Those questions are hard to answer. Ask five economists and you'll get nine answers, but there is compelling evidence that higher tax rates do have a negative impact.

But some people assume that taxes don't matter at all. Using models that, for all intents and purposes, naively assume a simplistic linear relationship between tax rates and tax revenue, the number-crunching bureaucrats in Washington estimate that Obama's proposed tax hikes will generate about $800 billion over 10 years.

I'm not going to pretend I know the economic impact of those higher tax rates, but for the sake of argument, let's assume that the impact is minor. Indeed, let's assume that it's only 1/10th of 1 percent. Based on the CBO sensitivity analysis above, that means that about 40 percent of the projected deficit reduction will fail to materialize.

And that's not even considering the fact that politicians will probably increase the burden of government spending because of the expectation of additional tax revenue.

Just something to keep in mind as this debate unfolds.

P.S. I actually shared this exact same data when testifying to the Senate Budget Committee earlier this year. Needless to say,  in some cases I think my testimony went in one ear and out the other.

P.P.S. The revenue-maximizing tax rate is not the ideal point on the Laffer Curve.

November 28, 2012 9:03AM

From the Bank of Canada to Threadneedle Street – Finally

On July 1st 2013, Bank of Canada Governor Mark Carney will assume the position of Governor of the Bank of England . Will Carney’s hat-switching be good for the UK? At present, one thing is certain; Carney has delivered to Canada the one thing that matters – money .

A quick comparison of the money supply in Canada to that of the UK shows the stark differences in the health of their respective money supplies  (and thus, of their respective economies).


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Media Name: UK-M3.jpg

The Canadian money supply has managed to stay near trend throughout the post-Lehman era. In fact, the Canadian total money supply is currently 0.5% above trend, while the UK’s money supply is a dismal 12.1% below trend – no wonder the UK keeps flirting with recession. Although Canada’s GDP growth rates are less than stellar, they are above the average of the 34 OECD nations . Indeed, Canada’s overall economic outlook is much stronger than that of the UK .

In his new position, Carney will face the formidable challenge of turning around the UK’s slumping money supply. Regardless of Carney’s success in Canada, we will have to wait and see if he’ll be able to pull it off on the other side of the pond.

November 27, 2012 3:00PM

French President Demands and Gets Firing of Opposition Editor

According to the New York Times, French Socialist president François Hollande demanded and received the dismissal of the editor of Le Figaro, the country's leading conservative newspaper. If that sounds impossibly high-handed, consider the background, as reported in the Times:

The publisher, Serge Dassault, is a senator from [ousted President Nicolas] Sarkozy’s political party [and thus opposed to Hollande]. But Mr. Dassault also heads a major military contractor, and there was widespread speculation that [Figaro editor Étienne] Mougeotte’s ouster was meant to put the Dassault group in good stead with the new president.

For an American reader, it would be natural to turn the page with a murmur of thanks that such things don't go on in our country. Don't be so sure:

[Since-convicted Illinois Gov. Rod] Blagojevich, Harris and others are also alleged [in the federal indictment] to have withheld state assistance to the Tribune Company in connection with the sale of Wrigley Field. The statement says this was done to induce the firing of Chicago Tribune editorial board members who were critical of Blagojevich.

And in 1987, at the secret behest of the late Sen. Edward Kennedy (D-MA), Sen. Ernest Hollings (D-SC) inserted a legislative rider aimed at preventing Rupert Murdoch from simultaneously owning broadcast and newspaper properties in Boston and New York. The idea was to force him to sell the Boston Herald, the most persistent editorial voice criticizing Kennedy in his home state. Kennedy's and Hollings's actions drew criticism in places like the Harvard Crimson and from syndicated columnist R. Emmett Tyrrell, but no national furor developed.

One moral is that we cannot expect our First Amendment to do the whole job of protecting freedom of the press. Yes, it repels some kinds of incursions against press liberty, but it does not by its nature ward off the danger of entanglement between publishers and closely regulated industries, stadium operators, and others dependent on state sufferance. That's one reason there's such a difference in practice between a relatively free economy, where most lines of business do not require cultivating the good will of the state, and an economy deeply penetrated by government direction, in which nearly everyone is subject to (often implicit) pressure from the authorities. France has been unable to avoid the perils of the latter sort of economy. Can we?

November 27, 2012 2:47PM

Indiana Police Chief: Legalize Marijuana

From WFPL News:

The leader of Indiana State Police says he has no objection to legislative efforts to ease penalties for marijuana possession in the Hoosier State.

When asked about the drug in a budget committee meeting, ISP Superintendent Paul Whitesell said he’s spent some 40 years trying to enforce various marijuana laws.

"It’s here, it’s going to stay, there’s an awful lot of victimization that goes with it. If it were up to me, I do believe I would legalize it and tax it, particularly in sight of the fact that several other states have now come to that part of their legal system as well," he said.

There is a wonderful organization called Law Enforcement Against Prohibition (LEAP) that keeps growing  and growing.