Archives: 09/2013

Profits: Liberal Theorizing vs. the Real World

The Washington Post’s Steve Pearlstein published a lengthy diatribe against corporate profits yesterday. Or at least it was against firms wanting to earn profits now in the current quarter rather than some time period later on. An exception is that a firm may earn lots of quarterly profits right now if, like Apple, it is making customers happy, but only if it doesn’t tell anyone that the profits benefit shareholders. And remember that high corporate profits were a good thing prior to the 1970s, but these days firms that strive for high profits might be doing something wrong.

I’m confused, as I bet other readers of Pearlstein’s piece are. For a clearer understanding of the role of profits in the economy, read this excellent piece yesterday by the Post’s Thomas Heath about a Maryland industrial company. Heath profiles Shapiro and Duncan, which has $100 million in annual sales from making piping for HVAC systems and other uses.

The company earned good profits before the recent recession, but the downturn hammered their sales and they started losing money. At first, the owners decided to go “for revenue instead of profit,” but they soon realized their mistake. To rebuild their business, they needed to focus on maximizing profits. The owners proceeded with a major capital investment to improve productivity. It was a risky bet, but the striving for profitability apparently drove this company’s decision to increase investment and make various cost-cutting changes, which have ultimately benefited owners, workers, and the Maryland economy.

Here’s One Way to Fix the High-Tech Patent Mess

It’s been over a month since the Obama Administration took the unusual step of intervening in a patent case at the International Trade Commission to prevent the agency from banning the importation of Apple iPhones and iPads.  Multiple commentators (including myself) have chimed in with a range of views.  Most, but not all, think that something is wrong with the U.S. patent system, though they don’t necessarily agree on what exactly.

Some have claimed that the President’s intervention will have negative consequences for U.S. foreign economic relations.  Showing favoritism to a U.S. company in a private dispute with its major rival (Korea-based Samsung) could lead to accusations of protectionism and cronyism.  Some commentators have worried that the veto will undermine the U.S. trade agenda of encouraging stronger intellectual property protection around the world. 

These criticisms reveal a shallow understanding of the patent policy debate that drove the president to intervene.  The ITC enforces patents by issuing an import ban for any product it finds to be infringing a U.S. patent.  It operates much like a court in this capacity, but with faster procedures and only one available remedy.  There are certain situations, however, where patent infringement simply does not necessitate taking the offending products off the shelf.  To be brief, the Apple case was one of those, and the president’s veto was good for patent policy.

Claude Barfield at the American Enterprise Institute has provided an excellent explanation of the issue in a recent essay, which I encourage you to read in its entirety.  Recognizing that the current system is undesirable, he poses a number of critical policy questions.  I’d like to take a shot at answering them.


Secrecy Is Delegation of Power

With allegations (and denials) of economic espionage and reports of broad access to cell phone data joining last week’s blockbuster revelation that the National Security Agency has worked to undermine encryption, it’s hard to keep up.

But Julian had it right on the jaw-dropping encryption news in his post last week, “NSA’s War on Global Cybersecurity.” A national-security-aimed attack on encryption systems that protect all our communications and data—our financial transactions, privileged communications with attorneys, medical records, and more—is like publishing faulty medical research just to prevent a particular foreign dictator from being cured. It is penny-wise and pound-foolish. It had been looking to me for a while like the U.S. government may be hoarding vulnerabilities and cultivating new attacks rather than contributing to worldwide security by helping to close gaps in vulnerable technologies. And now we have the proof.

Shane Harris’s excellent Foreign Policy article today looks at NSA administrator General Keith Alexander, calling him “The Cowboy of the NSA.” Fast and loose with the law, his folksy demeanor has allowed him to downplay the significance of his efforts. Meanwhile, Alexander and his “mad scientist” advisor James Heath have done anything they want—and lobbied for it adroitly—awash in taxpayer money. Harris reports:

When he was running the Army’s Intelligence and Security Command, Alexander brought many of his future allies down to Fort Belvoir for a tour of his base of operations, a facility known as the Information Dominance Center. It had been designed by a Hollywood set designer to mimic the bridge of the starship Enterprise from Star Trek, complete with chrome panels, computer stations, a huge TV monitor on the forward wall, and doors that made a “whoosh” sound when they slid open and closed. Lawmakers and other important officials took turns sitting in a leather “captain’s chair” in the center of the room and watched as Alexander, a lover of science-fiction movies, showed off his data tools on the big screen.


“He moved fairly fast and loose with money and spent a lot of it,” [a] retired officer says. “He doubled the size of the Information Dominance Center and then built another facility right next door to it. They didn’t need it. It’s just what Heath and Alexander wanted to do.” The Information Operations Center, as it was called, was underused and spent too much money, says the retired officer. “It’s a center in search of a customer.”

I find myself nonplussed by the glib reaction of some conservatives to this wanton bureaucratic behavior. Cracking the encryption systems that protect us all cannot be waved off as “the task we’ve given the NSA.” So I offer this framework for thinking about the NSA and its behavior: Secrecy is a delegation of power from elected officials to unaccountable bureaucrats.

This is not to deny that there is some need for secrecy sometimes, but, at the scope we’ve seen, secrecy has the same, and worse, effects as other delegations of power that conservatives and libertarians object to.

The Political Class Regarding Syria

The good people at C-SPAN Radio re-air the five Sunday morning news programs in the afternoon, and then the roundtable discussions again on Monday morning. I missed the programs yesterday, but caught the roundtables this morning. The results were illuminating, if not actually surprising. At a time when Americans oppose military action in Syria by wide margins, the views of the political class appearing on the Sunday shows tilted decisively in the other direction: Washington wants air strikes; many here want more than that. If Congress ultimately votes to grant President Obama approval to attack Syria, it will be obvious who the members are listening to: their cocktail party and green room friends, not their constituents back home.  

By my quick calculation, 81 percent (9 of 11) of the morning show panelists or hosts clearly favored military action, while only 2 of 11 were clearly opposed. Washington’s pro-intervention bias is even more apparent when one counts those participants who appeared to lean yes (9); while only one leaned no (1). Few came out and said, “I support,” or “I don’t support,” so I’ve tried to infer from what they did say. And 6 of the 27 people appearing on the shows didn’t hint sufficiently one way or the other. I did not consider what these individuals might have said or written elsewhere. I’m going solely on the basis of what they said on yesterday’s programs. One can check my admittedly subjective coding below.* If you disagree, send me an email.

Newt Gingrich, one of the new hosts of CNN’s relaunched “Crossfire,” made the best succinct case in opposition to strikes from the perspective of the American people: “A) I don’t understand why it’s our problem, B) I doubt very much that we can fix it, and C) the guys who are against Assad strike me as about as sick as Assad is.”

The case for intervention boiled down to chemical weapons are bad, and, in the words of Juan Williams on Fox News Sunday, “We are not the world’s policeman,” but “now we have to act as a fireman because the world is on fire.”

I expect better from the Obama administration officials who will try to convince the American people–or, failing that, members of Congress–to go along. The White House’s full-court press started yesterday, and will build to a crescendo this week, highlighted perhaps by the president’s prime-time speech tomorrow evening. (I’ll be live blogging, check back here). In the meantime, various lobbies are pushing for intervention, but a few, including FreedomWorks and Heritage Action on the right, are lobbying against. FreedomWorks’ foray into foreign policy is particularly noteworthy, because the organization has typically avoided such fights. FreedomWorks President Matt Kibbe explained that the organization had been “overwhelmed” with requests for help in rallying opposition to strikes. Linking this position to the group’s traditional focus on fiscal matters, Kibbe said that even limited military action could have serious consequences for the U.S. economy.

This is one of the most contentious fights that I’ve seen in recent years, and it is all the more interesting because it does not break down neatly along partisan lines. Among the 18 morning show advocates for intervention (yes or lean yes), nearly half (8) traditionally support Republican candidates and causes.

In short, if Obama gets his way, he’ll have Republicans in Washington to thank. And nearly everyone here will have ignored the public’s wishes.

* In favor of military action, 9 (David Axelrod, Donna Brazile, Jane Harman, Rep. Adam Kinzinger (R-IL), Bill Kristol, Danielle Pletka, Karl Rove, Dan Senor, Juan Williams); lean yes, 9 (Candy Crowley, Stephanie Cutter, David Frum, Ana Navarro, Bob Schieffer, George Stephanopoulos, Greta Van Susteren, Chuck Todd); opposed, 2 (Newt Gingrich, Katrina vanden Heuval); lean no, 1 (Van Jones). No clear opinion, 6 (David Gregory, Brit Hume, Howard Kurtz, David Sanger, Chris Wallace, Bob Woodward).


Even Proponents of War with Syria Should Question the Intelligence Sources

Contrary to the Orwellian reasoning of Secretary of State John Kerry, launching missile strikes on a foreign country does constitute war. Opponents of a U.S. attack on Syria argue that Syria does not pose a credible security threat to the United States, and the bulk of the evidence supports their conclusion. And for foreign policy realists, the absence of such a threat is sufficient to reject military action.

But many war advocates contend that even if the Assad government does not directly threaten America’s security, the regime’s alleged use of chemical weapons on innocent civilians is an outrage that warrants a U.S.-led punitive response. Those who take that position should at least ask hard questions about the source and reliability of the intelligence information.

Specifically, they should insist on knowing how much of the information was gathered directly by U.S. intelligence agencies and how much was obligingly provided by third parties who have their own policy agendas and ulterior motives. That is an extremely important consideration. Countries such as Turkey and Saudi Arabia are the principal sponsors of the insurgents seeking to oust Bashar al-Assad’s government. Although Israel is more ambivalent about the Syrian rebels, Israeli loathing of the Assad family goes back more than four decades and Israeli leaders want to see Washington take an even more active military role in the Middle East. Information that such sources provide is hardly unbiased and should be assessed with caution.

That is doubly true of any intelligence that the Syrian rebels provide. Not only does that faction have an obvious, massive incentive to have Washington intervene militarily against Assad’s forces, but the insurgents have already been caught peddling bogus atrocity stories. The most notorious example was the attempt to use nearly decade-old photos of slaughtered civilians in the Iraq war as “evidence” of Syrian army abuses. Given that track record, alleged intelligence from rebel sources should have virtually no credibility.

Obama administration officials are insistent that information about the Assad regime being responsible for chemical attacks is indisputable, and that this case is nothing like the fiasco of the faulty intelligence that led to the Iraq war. But of course, we were told that the Iraq intelligence was rock-solid at the time, so that assurance is less than compelling. Moreover, it is important to remember that most of the phony evidence of Saddam Hussein’s supposed weapons of mass destruction was supplied by Iraqi exiles, specifically the notorious (and aptly named) source “Curveball” that the Iraqi National Congress produced. We must be doubly careful not to be manipulated in that fashion again.

The time to ask rigorous questions is before the missiles start flying. It is small comfort to know after the fact that we entered the Iraq war based on erroneous information. Given that precedent, it would be shameful to be fooled in the same way with regard to Syria.

As Congress Prepares for Vote, Syria’s Inflation Hits 257%

As prospects of a U.S.-led military intervention in Syria hang in limbo, the foreign exchange black market for the Syrian pound (SYP) has become increasingly volatile. In countries with troubled currencies, such as Syria, black-market exchange rates provide a reliable gauge of economic expectations. Judging by the erratic performance of the black-market Syrian pound/U.S. dollar (USD) exchange rate, the Syrian people’s expectations have been on quite the roller coaster ride, as the U.S. Congress prepares for what will likely be a very close vote on a Use of Force resolution.

  • Following Secretary of State John Kerry’s initial call for military intervention in Syria, on August 26th, the SYP experienced a one-day drop of 24%—reflecting Syrians’ heightened fears of U.S. military conflict.  
  • On August 29th, two events occurred that reversed this slide. In Damascus, the Syrian government renewed its attempts to crack down on black-market currency trading. And, over 4,000 miles away in London, the British Parliament voted down a motion authorizing military action in Syria. In consequence, the SYP rebounded by a whopping 26% over the course of two days.
  • The U.S. Senate Foreign Relations Committee’s consideration of a use of force resolution seems to have once again raised Syrians’ expectations of a U.S. military strike, as it set the SYP on another slide. Since September 3rd, the pound has lost 10% of its value.

For some perspective on how the West’s march to war has affected Syria’s currency, and ultimately inflation, let’s take a look at how things have changed over the course of the past month: On August 6th, the black-market SYP/USD exchange rate was 205, yielding an implied annual inflation rate of 191%. As of September 6th, the black-market SYP/USD exchange rate sits at 250, yielding an implied annual inflation rate for Syria of 257%.

For more on the Syrian pound, see the Troubled Currencies Project.

NSA’s War on Global Cybersecurity

In its myopic quest to ensure that no digital communication remains hidden from its panoptic gaze, the National Security Agency has worked to undermine the security of all Internet users, a new story in the New York Times reveals. As security expert Bruce Schneier aptly summarizes the report, “Government and industry have betrayed the internet, and us.” 

In this case, the Times notes, the NSA has not just arrogated power to itself in secret, but has done so after unambiguously losing an extended public political debate in the 1990s over whether the government should be legally provided with backdoor access to encrypted communications, or attempt to prevent strong encryption software from being available to users around the world. As security experts understood, and successfully argued at the time, ensuring that companies and individual users around the world could trust the security of their communications was vastly more important than ensuring the NSA or FBI would never encounter a message they couldn’t decipher—something that, in any event, would be impossible to guarantee.

Having justly lost the public debate, the NSA secretly decided to sacrifice the rest of the world’s interests to its own goals anyway:

According to an intelligence budget document leaked by Mr. Snowden, the N.S.A. spends more than $250 million a year on its Sigint Enabling Project, which “actively engages the U.S. and foreign IT industries to covertly influence and/or overtly leverage their commercial products’ designs” to make them “exploitable.” Sigint is the acronym for signals intelligence, the technical term for electronic eavesdropping. […]

Simultaneously, the N.S.A. has been deliberately weakening the international encryption standards adopted by developers. One goal in the agency’s 2013 budget request was to “influence policies, standards and specifications for commercial public key technologies,” the most common encryption method.

Cryptographers have long suspected that the agency planted vulnerabilities in a standard adopted in 2006 by the National Institute of Standards and Technology and later by the International Organization for Standardization, which has 163 countries as members.

Classified N.S.A. memos appear to confirm that the fatal weakness, discovered by two Microsoft cryptographers in 2007, was engineered by the agency. The N.S.A. wrote the standard and aggressively pushed it on the international group, privately calling the effort “a challenge in finesse.”