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August 15, 2013 9:42AM

Exiting the Obama Administration’s Bloody Mess in Egypt

Secretary of State John Kerry originally refused to characterize the coup in Egypt as a coup. Rather, he effectively endorsed the new military regime: “In effect, they were restoring democracy.”

Too bad the hundreds shot dead on Cairo streets won’t be able to vote in the new restored democracy. Washington needs to “reset” relations with Egypt.

As I wrote here, here, and here, there never was any doubt that the Egyptian military had staged a coup, and that it was essential for Washington to distance itself from the coming disaster. President Mohamed Morsi was no friend of liberty, but the army had no excuse for destroying democracy. Morsi did not control the military, police, or courts: he wasn't much of a dictator-to-be! 

The bloody crackdown in Egypt has clarified events.  The military staged a coup.  The civilian regime created by Gen. Abdul-Fattah al-Sisi was a façade. The secular liberals who hoped to ride into power atop army tanks sold their nation’s future for a mess of pottage. The military’s attempt to destroy the Muslim Brotherhood guarantees a violent future, likely including terrorism and perhaps ending in civil war. Despite having dumped $75 billion worth of “aid” into Cairo’s coffers over the years, Washington has no “leverage.”

Yet the Obama administration continues to mouth meaningless platitudes. Among the gems from Secretary of State John Kerry: “The promise of the 2011 revolution has simply never been fully realized.” The outcome “will be shaped in the hours ahead, in the days ahead.” The Egyptian government should “respect basic human rights including freedom of peaceful assembly and due process under the law.” The state of emergency “should end as soon as possible.”  “The only sustainable path for either side is one toward a political solution.”  And my personal favorite: despite the bloodshed, “I am convinced that that path is in fact still open.”

To limit future blowback after having blessed the coup and resulting military government, the administration must comply with U.S. law, which requires ending aid to any nation after military ouster of a democratically-elected government. Despite Barack Obama morphing into Bill Clinton by quibbling over the definition of “is,” even administration lawyers reportedly concluded that the statute applied to Egypt.  Now the administration will look like an apologist for murder if it fails to act.

If the administration fails to follow the law and good sense, then Congress should step in. Although the Senate rejected a recent proposal by Sen. Rand Paul (R-KY) to end aid to Egypt, events have proved him right. Both chambers should vote to end money for a military regime which appears determined to wreck a nation. The president might veto an aid cut-off, but Congress could vote to override.

Foreign aid does not promote economic development, nor does it buy political leverage. In Egypt, all those decades of “foreign assistance” have achieved is to successively identify the U.S. with two army-backed dictators, an unpopular Islamist president, and a brutal military regime. Washington should say no more and leave Egypt’s tragic future to be decided by the Egyptians.

August 14, 2013 4:01PM

Current Wisdom: Even More Low Climate Sensitivity Estimates

The Current Wisdom is a series of monthly articles in which Patrick J. Michaels, director of the Center for the Study of Science, reviews interesting items on global warming in the scientific literature that may not have received the media attention that they deserved, or have been misinterpreted in the popular press.

Our periodic compilations of low equilibrium climate sensitivity (ECS) estimates have become a big hit.

In our on-going effort to keep up with the science, today we update our previous summary with two additional recently published lower-than-IPCC climate sensitivity estimates—one made by Troy Masters and another by Alexander Otto and colleagues (including several co-authors not typically associated with global warming in moderation, or “lukewarming”).  There is also a third paper currently in the peer-review process.

The new additions yield a total of at least 16 experiments published in the peer-reviewed scientific literature beginning in 2011 that have found that the most likely value of the ECS to be well below the (previously?) “mainstream” estimate from the U.N.’s Intergovernmental Panel on Climate Change (IPCC). Since the negative impacts from global warming/climate change scale with the magnitude of the temperature rise, lower projections of future warming should lead to lower projections of future damages. We say “should” because one way around this, as the federal government has figured out, is to ignore all the new science indicating less expected future warming when calculating future damages, and inexplicably doubling the damages estimated to be caused by a given increment of carbon dioxide (a.k.a., social cost of carbon).

Here is a quick summary of the two new papers:

Examining the output of climate models run under increases in human emissions of greenhouse gas and aerosols, Troy Masters noted a robust relationship between the modeled rate of heat uptake in the global oceans and the modeled climate sensitivity. With this relationship in hand, he then turned to the observations to determine what the observed rate of oceanic heat uptake has been during the past 50 years or so. From the observed behavior, he was able to determine the climate sensitivity, and found it to be substantially less than that in the vast majority of the climate models. He found that the most likely value of the ECS from the observations was 1.98°C with a 90 percent range extending from 1.2°C to 5.15°C. He notes that the high end is driven by uncertainties in the oceanic heat uptake data earlier in the record.

Otto and colleagues used a simple energy budget model to relate observed global temperature changes to changes in the radiation climatology and the heat uptake in the earth system as humans have heaped various substances into the atmosphere. They conclude that the at best estimate for ECS is 2.0°C with a 90 percent range from 1.2°C to 3.9°C.

Both studies come with a long list of caveats relating to data quality, etc., that are common to all studies trying to estimate the ECS.

[Note: As mentioned, the third paper, which uses a similar methodology, is currently making its way through the peer-review process. The paper, authored by Ragnhild Skeie and colleagues finds the equilibrium climate sensitivity to be 1.8°C with a 90 percent range extending from 0.9°C to 3.2°C. If and when this paper is accepted, we’ll be sure to add the results to our chart. The paper is going through an open peer-review process, so you can follow its progress here.]

We’ve included these new results into our chart below (near the top just beneath the IPCC estimates; Otto et al. in red, Masters in dark purple).

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Climate sensitivity estimates from new research beginning in 2011 (colored, compared with the range given in the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4) (gray) and the IPCC Fifth Assessment Report (AR5; black), which  has yet to be published. The arrows indicate the 5 to 95 percent confidence bounds for each estimate along with the best estimate (median of each probability density function; or the mean of multiple estimates; colored vertical line). Ring et al. (2012) present four estimates of the climate sensitivity and the red box encompasses those estimates. The right-hand side of the IPCC AR4 range is dotted to indicate that the IPCC does not actually state the value for the upper 95 percent confidence bound of their estimate and the left-hand arrow only extends to the 10 percent lower bound as the 5 percent lower bound is not given. The light grey vertical bar is the mean of the 16 estimates from the new findings. The mean climate sensitivity (3.4°C) of the climate models used in the IPCC AR5 is 13 percent greater than the IPCC’s “best estimate” of 3.0°C and 70 percent greater than the mean of recent estimates (2.0°C).

The average value of the best estimate of the equilibrium climate sensitivity across all the new studies is about 2.0°C. The average climate sensitivity of the climate models used by the IPCC to project future climate changes (and their impacts) is about 3.4°C—some 70 percent higher than the recent studies indicate.

As we have discussed, these new studies (which grow in number every couple of months) spell serious trouble for the IPCC and everyone else who shirks the responsibility of their own independent analysis and defers to the IPCC climate change projections instead (that finger would be pointing at you, EPA).

How long national and international organizations created to promote (i.e., the IPCC) or actually develop regulations (i.e., the EPA) can ignore the groundswell of new science, and instead continue with their charade that climate change is proceeding according to plan will surely be tested in the months to come. If this test does not come in the court of public opinion, in part from the growing community of scientists who recognize the disconnect between IPCC and the science, then it will almost certainly come from a court of law, where the challenges to the EPA’s callous indifference to new science and the regulations which have been and are being built upon it will certainly take place.

References:

Aldrin, M., et al., 2012. Bayesian estimation of climate sensitivity based on a simple climate model fitted to observations of hemispheric temperature and global ocean heat content. Environmetrics, doi: 10.1002/env.2140.

Annan, J.D., and J.C Hargreaves, 2011. On the genera­tion and interpretation of probabilistic estimates of climate sensitivity. Climatic Change, 104, 324-436.

Hargreaves, J.C., et al., 2012. Can the Last Glacial Maximum constrain climate sensitivity? Geophysical Research Letters, 39, L24702, doi: 10.1029/2012GL053872

Intergovernmental Panel on Climate Change, 2007. Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Solomon, S., et al. (eds). Cambridge University Press, Cambridge, 996pp.

Lewis, N. 2013. An objective Bayesian, improved approach for applying optimal fingerprint techniques to estimate climate sensitivity. Journal of Climate, doi: 10.1175/JCLI-D-12-00473.1.

Lindzen, R.S., and Y-S. Choi, 2011. On the observational determination of climate sensitivity and its implica­tions. Asia-Pacific Journal of Atmospheric Science, 47, 377-390.

Masters, T., 2013. Observational estmates of climate sensitivity from changes in the rate of ocean heat uptake and comparison to CMIP5  models. Climate Dynamics, doi:101007/s00382-013-1770-4

Otto, A., F. E. L. Otto, O. Boucher, J. Church, G. Hegerl, P. M. Forster, N. P. Gillett, J. Gregory, G. C. Johnson, R. Knutti, N. Lewis, U. Lohmann, J. Marotzke, G. Myhre, D. Shindell, B. Stevens, and M. R. Alen, 2013. Energy budget constraints on climate response. Nature Geoscience, 6, 415-416,

Ring, M.J., et al., 2012. Causes of the global warming observed since the 19th century. Atmospheric and Climate Sciences, 2, 401-415, doi: 10.4236/acs.2012.24035.

Schmittner,  A., et al. 2011. Climate sensitivity estimat­ed from temperature reconstructions of the Last Glacial Maximum. Science, 334, 1385-1388, doi: 10.1126/science.1203513.

Skeie, R.B., T. Bernstsen, M. Aldrin, M. Holden, and G. Myhre, 2013. A lower and more constrained estimate of climate sensitivity using updated observations and detailed radiative forcing time series. Earth System Dynamics, in review.

van Hateren, J.H., 2012. A fractal climate response function can simulate global average temperature trends of the modern era and the past millennium. Climate Dynamics,  doi: 10.1007/s00382-012-1375-3.

 

 

 

August 14, 2013 3:26PM

President Obama Thinks Spying Revelations Are “Noise”

In a report on the latest of President Obama's attempts to circumvent Congress and govern by decree -- this time by getting the Federal Communications Commission to raise "fees" on cellphone users by billions of dollars to expand federal subsidies for high-speed Internet access in local schools -- the Washington Post also lets us know what the president thinks of revelations that the National Security Agency is scooping up all our emails and Internet traffic. We found out only later, though the president presumably knew back on June 6, that contrary to what we were told at the time, government officials also read some of the email. 

And what does the president think of these revelations that set off the "debate" he's so supportive of? He thinks they're "noise" getting in the way of announcements of programs that are, though of dubious constitutionality, "real and meaningful":

On the same day of Obama’s visit [to a school to announce his ConnectEd program], news reports were dominated by details of a wide-ranging National Security Agency surveillance program that has since become one of the major controversies of the president’s second term.

As Air Force One flew toward North Carolina that day, Obama lamented to his education secretary that one of the administration’s biggest ideas was going to be overtaken by other news.

“I remember him sort of saying, ‘It’s a shame that there’s going to be a focus on the noise rather than something that’s real and meaningful,’ ” [Arne] Duncan said.

 

August 14, 2013 3:22PM

Thomas Jefferson’s Sequester

As federal policymakers gear up to battle over federal spending and the budget sequester this Fall, it is interesting to consider past efforts at restraint. President Calvin Coolidge, for example, held the federal budget down to about $3 billion seven years in a row, while cutting taxes and bringing the federal debt down from $22 billion to $17 billion.

President Thomas Jefferson pursued his own rough sequester, and substantially reduced the federal debt that had accumulated under the Federalists. In a 1799 letter to Elbridge Gerry, Jefferson said “I am for a government rigorously frugal and simple, applying all the possible savings of the public revenue to the discharge of the national debt.” Jefferson more or less followed through over his two terms. He kept total federal spending at about $9 to $10 billion, although his downsizing efforts were thrown off by various contingencies.

Figure 1 shows the basic story. Federal spending rose substantially under Presidents George Washington and John Adams, but then flattened under Jefferson between 1801 and 1809. Federal debt fell from $83 million in 1801 to $57 million in 1809. The drop in debt was impressive, especially considering that the government swallowed $13 million of added debt during that period from the Louisiana purchase. The success of Jefferson—and his Treasury Secretary Albert Gallatin—in reducing debt stemmed not from cuts to overall spending, but from simply ensuring that revenue increases from a growing economy went toward paying down the debt rather than expanding the government.

 

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One lesson for today is that all we need to start getting our huge federal debt under control is some modest spending restraint. Large cuts would be better, but even holding overall spending roughly flat for a number of years would start the debt tumbling downward. Looking at CBO’s latest projections, for example, if policymakers held federal spending steady at this year’s $3.5 trillion, the rise in revenues in coming years would be enough to balance the budget by 2016.  

Let’s take a closer look at Figure 1, where each of the spending spikes tells a story. The spike in 1794-1795 stemmed from military expenses to put down the Whiskey Rebellion. The spike in the late-1790s was the Army and Navy build-up under President Adams. The spike in the middle of Jefferson’s tenure was partly from payments to Britain of about $1 million a year for three years as part of the earlier Jay Treaty. The costs of the Barbary War also added about half a million dollars to spending in both 1804 and 1805.

Looking at revenue, Jefferson and Gallatin enjoyed a gusher from import duties, which generated the bulk of federal receipts. Other federal revenues came from land sales and internal taxes, including whiskey taxes. Jefferson and Gallatin were the first advocates of “starve-the-beast” policies. Jefferson promised that he would repeal all internal taxes if elected, and he followed through in 1802. Internal taxes raised just eight percent of revenue, but Jefferson and Gallatin observed that they required a big bureaucracy to collect, imposed compliance costs on citizens, and abused civil liberties. So the Jefferson-Gallatin policy was to kill the most inefficient and odious type of tax, which is also a good lesson for tax reformers today.

Unfortunately, the War of 1812 sidetracked the Jefferson-Gallatin plans on tax and debt reduction for a number of years. The Embargo Act of 1807 slashed federal revenues, and internal taxes were reimposed in 1813 to help fund the war. However, internal taxes were repealed again under President James Monroe in 1817, and they were not reimposed until the Civil War. So the Jeffersonian tax reform approach did have long-lasting influence.

It’s a similar story with debt. Jefferson and Gallatin hated government debt, but their long-term plan to eliminate it was sidetracked by the war. After reaching a low of $45 million in 1812, federal debt soared to $127 million by 1816. But again, Jeffersonian ideas had lasting influence, and federal debt started falling again under President Monroe. Federal debt was eliminated by 1835, and although it started rising again after that, it remained at low levels until the Civil War. Between 1816 and 1860, the federal budget was balanced 30 out of 45 years.

Figure 2 compares annual average spending under the one term of John Adams and the two terms of Thomas Jefferson. Interest was by far the largest expense, and it was only toward the end of Jefferson’s second term that it started falling as the debt was reduced. The Jefferson-Gallatin spending cuts were mainly focused on the Army and the Navy. The increases to Foreign Affairs and Miscellaneous under Jefferson were mainly due to extraordinary expenses, including the Barbary War and the Jay Treaty payments. The “Civil List” was the basic federal bureaucracy, and it remained fairly flat between the two administrations. Finally, the Indian Department had an increase under Jefferson, which I imagine stemmed from the government continuing to sign new treaties, which usually entailed grabbing Indian land in return for long-term federal aid to the tribes.

 

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Here are some sources of historical budget data and analysis:

 

August 14, 2013 2:08PM

Foreign‐​Owned Airlines Should Fly U.S. Routes

Blogger Matt Yglesias proposes that in order to promote competition in the airline industry, foreign-owned airlines should be allowed to fly domestic routes here in the United States:


Let foreign airlines fly domestic routes in the United States.

This is one of those ideas that’s so commonsensical, people tend not to realize it isn’t permitted. But if you’re wondering why it is that, say, Emirates will fly you from Los Angeles to Dubai or from Dubai to New York but not from California to the East Coast, that’s the reason. It’s illegal.

...

To bolster competition, you need to let foreign airlines actually operate domestic routes.

In theory this might be accomplished through the ongoing negotiations for a Transatlantic Trade and Investment Partnership. The main promise of TTIP is to open up new frontiers in cross-border trade beyond the traditional transportation of manufactured goods. And while letting EasyJet or Aer Lingus fly from Seattle to San Antonio isn’t “trade” per se, the case for it is essentially the same general case for trade—American consumers will benefit if we are allowed to purchase from a wider range of options.

...

Let any company—regardless of where its headquarters are or who owns it—that’s capable of flying planes safely connect any two American cities, if the company thinks it can make it work.

This is a great idea, and I hope this gets done as part of the TTIP and other trade talks.  I just wanted to comment on his statement that this "isn’t 'trade' per se."  In fact, it is trade per se.  For two decades now, trade rules have covered trade in services, which can be carried out through a number of different "modes."  I don't want to get all technical (and believe me, this gets really technical), but when a foreign entity operates a service in the market of another country, that constitutes trade and can be part of trade liberalization commitments in trade agreements.

So, including airline trade liberalization in the TTIP would not be anything novel--it would just be good policy.

August 14, 2013 10:57AM

NSA Spying in the Courts

The National Security Agency’s collection of every American’s telephone dialing information is hotly contested in the court of public opinion and in Congress. It is now seeing its first test in the courts since its existence was revealed.

The Electronic Privacy Information Center, arguing that it has no other recourse, has filed an extraordinary appeal to the Supreme Court of the order requiring Verizon to turn over telephone calling information en masse to the government. EPIC is a Verizon customer that communicates by telephone with confidential sources, government officials, and its legal counsel.

Cato senior fellow and Georgetown University law professor Randy Barnett joined me this week on a brief to the Court urging it to accept the case so it can resolve statutory and constitutional issues that have “precipitated a juridical privacy crisis.”

The brief first argues that the Foreign Intelligence Surveillance Act does not authorize a sweeping warrant for all communications data. The law requires such a warrant to show relevance to an existing investigation, which is impossible when the data is gathered in support of future, entirely speculative investigations. Not only the text of the statute, but Congress’s intent and the structure of the statute support this interpretation.

If the Court finds that the statute allows this sweeping a warrant, we argue that it must consider the flat Fourth Amendment bar against general warrants, as well as the unreasonableness of collecting all information about Americans’ phone calls for speculative future investigations. The brief urges the Court to reconsider Smith v. Maryland and the “third-party doctrine,” which purports to deny Fourth Amendment protection for information people have shared with others. Smith will not survive its next encounter with the Supreme Court. In that case, police officers learned that a suspected burglar was calling the house of the woman he had stolen from. They asked the telephone company to install a pen register on the burglar’s phone, which the phone company did voluntarily. The Court found that this was reasonable and did not require a warrant.

It does not follow from the result in Smith that mass surveillance of all Americans’ phone calls is similarly reasonable. With this data, the government can draw inferences about the intimate relations, family life, legal counsel, business negotiations, and medical treatments of wholly innocent individuals. The Court should either distinguish or reverse Smith, and it should reject or reconsider the third-party doctrine, as Justice Sotomayor suggested in the 2011 Jones decision regarding attachment of GPS devices to people's cars.

Extraordinary appeals like this are rarely granted, and future cases will probably decide the fate of the NSA’s secret mass surveillance programs, but this brief informs the Court and the legal community about the issues. The Solicitor General, who ordinarily might ignore such an appeal, felt obligated to file a response to it. NSA spying will have a hard time when actual courts start to work on it. In our brief, Barnett and I argue that the Foreign Intelligence Surveillance Court is unlike any Article III court, and "more accurately conceived of as an advisory body."

August 14, 2013 10:01AM

More Compelling Evidence that America’s Corporate Tax System Is Pointlessly Destructive

It's probably not an exaggeration to say that the United States has the world's worst corporate tax system.

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We definitely have the highest corporate tax rate in the developed world, and we may have the highest corporate tax rate in the entire world depending on how one chooses to classify the tax regime in an obscure oil Sheikdom.

But America's bad policy goes far beyond the rate structure. We also have a very punitive policy of "worldwide taxation" that forces American firms to pay an extra layer of tax when competing for market share in other nations.

And then we have rampant double taxation of both dividends and capital gains, which discourages business investment.

Tax Attractiveness Top-Bottom 10

No wonder a couple of German economists ranked America 94 out of 100 nations when measuring the overall treatment of business income.

So if you're an American company, how do you deal with all this bad policy?

Well, one solution is to engage in a lot of clever tax planning to minimize your taxable income. Although that's probably not a successful long-term strategy because the Obama Administration is supporting a plan by European politicians to create further disadvantages for American-based companies.

Another option is to somehow turn yourself into a foreign corporation. You won't be surprised to learn that politicians have imposed punitive anti-expatriation laws to make that difficult, but the crowd in Washington hasn't figured out how to stop cross-border mergers and acquisitions.

And it seems that's a very effective way of escaping America's worldwide tax regime. Let's look at some excerpts from a story posted by CNBC.

Some of the biggest mergers and acquisitions so far in 2013 have involved so-called "tax inversions" – where a US acquirer shifts overseas, to Europe in particular, to pay a lower rate.

The article then lists a bunch of examples. Here's Example #1.

Michigan-based pharmaceuticals group Perrigo has said its acquisition of Irish biotech company Elan will lead to re-domiciling in Ireland, where it has given guidance it expects to pay about 17 per cent in tax, rather than an estimated 30 per cent rate it was paying in the US. Deutsche Bank estimates Perrigo will achieve tax savings of $118m a year as a result.

And Example #2.

New Jersey-based Actavis's acquisition of Warner Chilcott in May – will also result in a move to Ireland, where Actavis's tax rate will fall to about 17 per cent from an effective rate of 28 per cent tax, and enable it to save an estimated $150m over the next two years.

Then Example #3.

US advertising company Omnicom has said its $35bn merger with Publicis will result in the combined group's headquarters being located in the Netherlands, saving about $80m in US tax a year.

Last but not least, Example #4.

Liberty Global's $23bn acquisition of Virgin Media will allow the US cable group to relocate to the UK, and pay its lower 21 per cent tax rate of corporation tax.

And we can expect more of these inversions in the future.

[Mergers and acquisitions] advisers say the number of companies seeking to re-domicile outside the US after a takeover is rising. ...Increased use of tax inversion has coincided with an intensifying political debate on US tax – with Democrats, Republicans and the White House agreeing that the current code, which imposes a top rate of 35 per cent but offers a plethora of tax breaks, is in need of reform.

I'll close with a very important point.

It's not true that the current code has a "plethora of tax breaks." Or, to be more specific, there are lots of tax breaks, but the ones that involve lots of money are part of the personal income tax, such as the state and local tax deduction, the mortgage interest deduction, the charitable contributions deduction, the muni-bond exemption, and the fringe benefits exclusion.

There are some corrupt loopholes in the corporate income tax, to be sure, such as the ethanol credit for Big Ag and housing credits for politically well-connected developers. But if you look at the Joint Committee on Taxation's list of so-called tax expenditures and correct for their flawed definition of income, it turns out that there's not much room to finance a lower tax rate by getting rid of unjustified tax breaks.

So does this mean there's no way of fixing the problems that cause tax inversions?

If lawmakers put themselves in the straitjacket of "static scoring" as practiced by the Joint Committee on Taxation, then a solution is very unlikely.

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But if they choose to look at the evidence, they'll see that there are big Laffer-Curve effects from better tax policy. A study from the American Enterprise Institute found that the revenue-maximizing corporate tax rate is about 25 percent while more recent research from the Tax Foundation puts the revenue-maximizing tax rate for companies closer to 15 percent.

I should hasten to add that the tax code shouldn't be designed to maximize revenues. But when tax rates are punitively high, even a cranky libertarian like me won't get too agitated if politicians wind up with more money as a result of lowering tax rates.

You might think that's a win-win situation. Folks on the right support lower tax rates to get more growth and folks on the left support the same policy to raise more tax revenue.

But there's at least one person on Washington who wants high tax rates even if they don't raise additional revenue.