Conservatives outright reject the idea that big-government gun-control schemes would reduce mass shootings like the recent murders committed at a Planned Parenthood clinic in Colorado Springs. So why do so many conservatives seem to believe a big-government mental-health-care scheme, like the bill sponsored by psychologist and congressman Tim Murphy (R-PA), would be any more effective?
Murphy’s bill would reorganize and expand the federal government’s involvement in mental-health care. It would create a new Assistant Secretary for Mental Health and Substance Use Disorders at the U.S. Department of Health and Human Services. It would create an Interagency Serious Mental Illness Coordinating Committee. It would encourage telepsychiatry–by subsidizing it. It would expand Medicare and Medicaid subsidies for mental-health goods and services. It would leverage federal grants to coerce control how states treat mental-health patients suspected of being a threat to others. It would do other things.
Conservatives have lauded the bill and demonized its opponents. In October, National Review editorialized basically that Murphy’s bill would manage mental-health treatment from Washington better than Washington has ever managed mental-health treatment before. Last week, The Wall Street Journal editorialized that opponents, including some Republicans, “object to involuntary commitment for the mentally ill, despite overwhelming evidence of the risks to society and the sick.” The Journal neglected either to recognize that involuntary commitment is a dangerous power for the government to wield, one with both benefits and costs, or to offer evidence that the benefits to society and the sick of broader involuntary commitment would exceed those costs.
The best way for government to aid the mentally ill is not a medical question. It is an economic one. What makes conservatives think that command-and-control economics will work better in mental health than in any other area? (Or are they just looking for a talking point in response to mass shootings?)
The Congressional Budget Office projects the Murphy bill would increase federal spending by a mere $3 billion over 10 years. But that projection comes with a very big asterisk.
The bill contains a weird quirk. It allows, and creates the expectation of, broader federal subsidies for mental-health services under both Medicare and Medicaid (much of it for ObamaCare’s new Medicaid-expansion population). But that broader coverage can happen if and only if the chief actuary of the Centers for Medicare and Medicaid Services certifies that such additional coverage will not increase net Medicare or Medicaid spending. The idea being, presumably, that this coverage expansion will be budget-neutral because the feds will pay for that additional stuff (much of which is currently being paid for by states) if and only if it produces, or CMS can otherwise find, offsetting savings elsewhere in Medicare and Medicaid. Without that funny little requirement, CBO projects the Murphy bill would increase net federal spending by as much as $66 billion over 10 years.
In other words, if those required certifications can be gamed–and political pressure from states and mental-health-care providers to game it will be considerable–the Murphy bill would increase federal spending by as much as 22 times the official projections. That’s not just an asterisk: it’s an exponent.
What does all this have to do with a Balanced Budget Amendment? It seems ideologically inconsistent for rock-ribbed, limited-government conservatives at the Wall Street Journal and National Review to support a bill like Murphy’s. But in a world of deficit spending, it costs them little. ‘Meh,’ they can say, ‘$3 billion over 10 years is a drop in the bucket.’ And it is easier to hand-wave away the looming threat of an additional $66 billion of federal spending.
Were there a constitutional requirement that federal spending must be financed by current taxation rather than deficit spending (i.e., a promise to raise taxes in the future), these conservatives probably would think twice about a bill like this because of the tax increases it portends.
Interestingly, both the Wall Street Journal and National Review have long editorialized against a Balanced Budget Amendment. Their principal objections are (1) to be effective, the impetus for a balanced budget must be political, not constitutional, and (2) a constitutional amendment would be difficult to enforce and, therefore, easy for politicians to game.
What these objections fail to appreciate is that the very process of ratifying a Balanced Budget Amendment would alter the political landscape, by creating expectations and thus a political constraint that augments the constitutional constraint and helps to make that constraint binding.
No Balanced Budget Amendment would or could be flawless. It would just be a vast improvement over what we have right now. Consider: following that ratification process, the politics of government spending might be sufficiently altered such that, when politicians presented conservatives with (say) a new big-government mental-health bill, conservatives would be forced to think about the additional taxes required to fund it, and would, therefore, reject it out of hand.
U.S. military personnel are heading to Iraq and Syria. The administration continues its slow progression to renewed ground combat.
Defense Secretary Ashton Carter informed Congress that a “specialized expeditionary targeting force” would be sent to Iraq on top of the 3,500 personnel already there. They were sent with the authority to operate in Syria too. Where greater opportunities appear to work with local forces, he added, “We are prepared to expand it.”
Unfortunately, no matter how combat-effective these forces, they won’t turn around a 16-month deadlock. The more men and materiel the president commits to “win”–whatever that means–the more he will have to introduce after the failure of every successive escalation. The president’s promise not to commit “boots on the ground” was trampled underfoot in October, when a Delta Force soldier was killed while accompanying Kurdish forces on a raid in Iraq.
Presidential wannabe Sen. Lindsey Graham and Sen. John McCain also proposed a 100,000 man “regional army to go into Syria.” Of this force, the United States would provide perhaps 10,000. Alas, waiting for Saudi Arabia, Turkey, Egypt, and other Sunni states to contribute the rest would be akin to waiting for the Easter Bunny or Great Pumpkin to appear.
The lessons of the Iraq War have been forgotten–or, perhaps, never learned. Yet retired Lt. Gen. Michael Flynn, U.S. Special Forces Commander in both Afghanistan and Iraq and director of the Defense Intelligence Agency, recently observed that the invasion and overthrow of Saddam Hussein unleashed the Islamic State and was “a huge error.”
The Obama administration is attempting to do everything, which means it likely will achieve nothing. Washington hopes to simultaneously defeat ISIL and defenestrate Syrian President Bashar al-Assad, the single strongest force opposing the Islamist radicals. The administration wants to re-establish Baghdad’s authority nationwide while convincing Iraqi leaders to grant more authority to the Sunnis, with whom they have effectively been at war since the U.S. invasion.
American officials are trying to persuade Sunni allies such as Saudi Arabia and Turkey to focus their efforts on ISIL, a Sunni group which is the strongest force deployed against Assad, their top priority. Washington is working closely with Kurdish forces, which Ankara views as an existential threat dedicated to breaking up Turkey.
The United States has devoted a lot of money and effort to bolstering the weak and decreasingly effective “moderate” insurgents in the hopes that they can defeat both Assad and the Islamic State. Now Washington is caught in between Turkey and Russia as they confront each other over Assad’s survival.
Nor is ISIL easy to defeat. How long is America prepared to occupy yet another Arab country or two in order to establish order, remake the state, impose liberal institutions, and ensure the preservation of the foregoing?
A better policy would be for the United States to back away. In fact, ISIL never threatened the United States directly because it was focused on creating a caliphate, or quasi-nation state.
Having a return address made the group susceptible to retaliation. Only recently has it begun to employ terrorist attacks—against Russia, Lebanon’s Hezbollah, France, and probably Turkey’s Kurds—as retaliation for their active operations against the Islamic State.
Indeed, the Islamic State prospers only because of the weakness of its adversaries. Without America’s presence, they would have to confront a much more serious ISIL threat.
As I point out in Forbes online: “Powers which Washington cannot force into a coherent coalition might more informally reach a complicated, regionalized modus vivendi. At the same time, the United States could concentrate its resources on incapacitating or killing those dedicated to striking America even after Washington’s disengagement.”
There is still time for the president to reverse course, pulling the United States out of yet another extended ground war in the Middle East. For more than a decade, Washington has been engaged in what historian Barbara Tuchman referred to in another time and circumstance as “the march of folly.” It is time to call a halt.
The Telegraph has just published a fascinating map, showing how long it took to get from London to anywhere else in the world in 1914.
Created by John George Bartholomew, a British royal cartographer who worked for King George V… the colorful grid is sectioned by isochrones – lines that connect all the points on the map that are accessible within the same amount of time from London.
As you can see, to get from London to, for example, Sydney took between 35 and 40 days.
Today it takes 23 hours.
After initial public offerings (IPOs) had a robust 2014, it looks like 2015 has been a bit quieter, according to a recent article in the Wall Street Journal. But not because companies aren’t growing. The companies are doing fine; they’re just not going public, opting instead to court buyers and quietly sell themselves. The trend away from IPOs isn’t a new one; it’s been in the works at least since the late 1990s. While some celebrated 2014 as a return to vibrant public capital markets in the Unoted States, it may be that the year was simply an anomaly.
The question, of course, is whether this trend is a bad one. The answer depends on the cause. For any one company, the decision to sell may be exactly the right one, no matter what the IPO environment. Some business models may work better as a business line within a larger organization, or the two companies may be able to exploit synergies and create a new company that is greater than the sum of its parts. But it’s not clear that these motives are what’s driving the current trend.
The Journal found that at least 18 companies that had filed papers with the SEC abandoned their IPOs due to acquisition. This suggests that companies that are otherwise interested in going public nonetheless find acquisition the more attractive option. The process of going public and maintaining good standing as a public company has been increasingly difficult (and expensive) over the last several years, due to increasing the regulatory requirements imposed by Sarbanes-Oxley and other follow-on regulation. Increased regulatory compliance imposes both direct and indirect costs. Direct costs include the expense of paying internal and external experts (mostly accountants and lawyers) to provide guidance and prepare disclosures. Indirect costs include the risk of facing either litigation or an enforcement action (or both) due to a misstep in the compliance process.
Another reason companies may forgo the IPO is that the private capital markets have become roomier. One of the key drivers behind going public has always been the need to access cash, and lots of it. Recent changes in the securities laws have made it easier for a company to stay private even while amassing shareholders, and to reach out to potential investors. Even with these changes, however, companies must still register with the SEC (i.e., go public) when they have more than $10 million in assets and more than a certain number of shareholders. And for a growing company, $10 million is not really that much money. Which means that at a certain point, rapidly growing companies will face a choice: artificially cap growth to stay below the $10 million ceiling; go public; or merge.
Of course, a merger is not the same as an IPO. A large number of mergers without complementary growth in new companies tends to result in consolidation and decreased competition. Decreased competition tends to result in decreased innovation. Also, in a merger where one or both of the parties is privately held, valuation can be more art than science (with a dose of conjecture as well). Publicly traded securities benefit from the market’s price discovery mechanism. While the securities of non-public companies can be traded, these trades are subject to a number of restrictions and lack the transparency that trading on a public exchange provides.
A company that sells itself provides an exit for its early investors and a liquidity event for its employee shareholders. It is not, however, a true substitute for raising capital. To the extent that a company’s management and owners would prefer to keep building rather than sell their creation, they should not be stopped because the regulatory burden of becoming a public company is too daunting.
In the late 1990s, as the Banco Central de Ecuador rapidly expanded the quantity of its currency–the sucre–prices denominated in sucres soared into hyperinflation. In response, Ecuadorians spontaneously adopted the U.S. dollar as a far safer savings vehicle, a far less chaotic pricing unit, and a far more reliable medium of exchange. Demand to hold sucres all but disappeared. With the collapse of the sucre, Ecuador’s government finally bowed to the market verdict and officially dollarized in January 2000. (I have previously written about these events here).
Dollarization has been a clear success. The Ecuadoran monetary and banking systems have been much more stable and trustworthy (real bank deposits have grown considerably) since dollarization, and the economy has enjoyed better growth despite being ruled by a political party that speaks and acts in anti-market tones. Because of its success, dollarization is enormously popular. Even President Rafael Correa, who has complained that dollarization is a “straitjacket” because it prevents expertly managed monetary policy (this is in fact its greatest virtue), promises not to undo dollarization.
This background is useful for considering a recent Wall Street Journal news analysis article entitled “Cheap Oil and Strong Dollar: Ecuador’s Twin Troubles” by Carolyn Cui and Manuela Badawy. As many other writers have done, Cui and Badawy suggest that dollarization is currently hurting Ecuador, that the country “has the misfortune to be an oil producer with a ‘dollarized’ economy that uses the U.S. currency as legal tender.”
Compared to what are these misfortunes? Having oil resources is better than not having them (provided that the wealth is not entirely squandered in battles to control it). And being dollarized has clearly been better for Ecuador than the unanchored monetary policy that preceded it.
Cui and Badawy acknowledge that “dollarization helped officials rein in inflation in 2000.” But this is oddly put. Dollarization is not a policy that local experts can manipulate as a tool, so it is odd to say that it “helped officials” to reduce inflation. Dollarization itself has reined-in inflation. Local officials merely got out of the way. Under dollarization, arbitrage in traded goods ties the dollar price level in Ecuador to the dollar price level in the United States, more or less tightly, just as it ties the California price level to the overall U.S. price level. Inflation rates cannot widely diverge. No local management is needed.
Cui and Badawy immediately continue with the supposed downside: “Now, [dollarization] is depriving them of the relief valve a depreciating local currency can provide at a time when the drop in oil prices is hurting its exports.” This is exactly the line taken by President Correa, who a year ago said that “Dollarization was a bad decision” and that “Right now, it is doing exactly the opposite of what it must do to address the scenario of falling oil prices.”
How might a depreciating currency provide a “relief valve” in a period of declining oil export revenues? Relief can’t come from changing the world prices of Ecuador’s other main exports. Just as oil is competitively and flexibly priced in dollars on world markets, so too are fresh flowers, fresh fruit, and seafood. Flowers grown in a weak-currency country do not have a selling-price advantage over flowers grown in a strong-currency country. The coherent argument for a “competitive depreciation” is rather that considered in dollar terms it cuts wages and other input payments that are priced in local currency. Such input price reductions, the argument goes, are appropriate given the reduced demand for labor and other inputs that follows from the drop in oil revenue (or similar negative productivity shock). And depreciation makes the reductions faster (in a world of “sticky” wages and prices) than can be achieved by waiting for unemployment to force reductions in nominal wages and other input prices. Non-oil export businesses can take advantage of higher profit margins to expand their output and sales.
For the sake of argument, let us suppose that a prompt reduction of wage rates in dollar terms by a certain percentage is indeed prudent in this case and that a timely, well-measured depreciation of the local currency could accomplish this. Is this a cost of dollarization? Yes. It is nonetheless a mistake to think that it follows that the country would be better off with a monetary regime in which the currency sometimes depreciates against the dollar.
Depreciation is not a measure that can be considered in isolation. It is only possible under a different monetary regime. We need to compare total costs and benefits of alternative regimes. Or in statistical terms: a regime that commits some Type I errors may still be much better than a regime that commits massive costly Type II errors.
There are two alternative regimes to dollarization to consider: an adjustable peg against the dollar and freely floating exchange rates. The first problem with an adjustable peg is that no expert knows in real time exactly how much wages and other input prices should be cut in dollar terms, and therefore the central bank cannot know just how much to devalue the currency against the dollar. It can easily err in the direction of overdoing it. The second and larger problem is that a pegging regime is simply not viable in a world of free capital flows. When the market begins to suspect that a devaluation is coming, speculators attack the currency, draining dollar reserves from the central bank, and forcing a devaluation that is likely to be larger than what was theoretically desired.
A freely floating exchange rate regime avoids the problem of speculative attack. And the market rather than the local central bank adjusts the exchange rate. But floating has its own fundamental problem: it removes the constraint that dollarization provides against the chronic problem of excessive money creation by the central bank. The “fear of floating” historically exhibited by many Latin American countries is justified: floating makes the inflation rate and the exchange rate unpredictable, which damages local capital markets and the financing of productive investment. High devaluation risk means highly risky real returns on long-term claims denominated in the local currency (call it “pesos”). The market for long-term peso bonds and mortgages evaporates. Foreign investors with dollars are similarly discouraged from bringing them into the peso economy by devaluation risk. Economic growth suffers.
The relevant alternative to dollarization is thus not an imagined regime in which precisely calibrated depreciations of the local currency’s exchange rate are administered by experts to adjust wages. To give a central bank like Ecuador’s discretion in issuing its own currency is to discard the dollar anchor that currently holds the public’s inflation expectations in place and thereby stabilizes the system. There is no way for the central bank to make a credible pre-commitment to use depreciation only for warranted real wage corrections.
The replacement of the dollar by a New Sucre that can be depreciated by the Banco Central would immediately be greeted by justified suspicion that, as with the old sucre, the New Sucre will be copiously issued and depreciated. Few would voluntarily switch from dollars to the New Sucre. Forced conversions of currency and deposit holdings would be necessary to get the new currency into circulation, hardly a sign that the new regime would improve consumer welfare. Inflation expectations would once again be unmoored, and indeed the public would justifiably fear a return to very high inflation. Speculative attacks would likely drive depreciation far beyond any extent desired by the experts. Exchange-rate chaos would return.
The lesson here is that Ecuador’s exchange rate against the dollar cannot be re-pegged while the benefits of dollarization are retained. Re-pegging implies a fundamental change in the monetary regime, which history and theory tell us would be a strong turn for the worse. The suggestion that dollarization is hurting Ecuador is based on a very myopic accounting of the costs and benefits.
The sharp defeat of Narendra Modi’s Bharatiya Janata Party in the state of Bihar has put the prime minister’s reform plan and political legacy at risk. He still has time to act, but governments usually grow more timid the longer they hold office.
A trading people who had succeeded at commerce around the globe, Indians long were held back by an officious bureaucracy notable for its inefficiency and corruption. The first systematic economic reforms were implemented in the 1980s, but a succession of weak governments never allowed their people to fulfill India’s high promise. According to the Economic Freedom of the World report, in 2013, the latest year for which numbers are available, India ranked a dismal 114 out of 157 nations rated.
Eighteen months ago Modi won a dramatic victory and seemed poised to transform India’s economy and more. Some called him the Indian Reagan.
However, his government has not delivered much change. One reason was that the opposition continues to control the legislature’s upper chamber. Moreover, Modi always was more pro-business than free market.
Finally, the government has been timid despite its sizeable legislative majority. Deficits continue. Banking remains state-directed. Privatization has disappointed. The law still discourages creation of family firms.
Many reformers worry that Modi missed his chance to transform the economy during the “honeymoon” period immediately after his election triumph. Since then, Modi has lost his electoral magic.
In February a new anti-corruption party won the vote in Delhi. Last month a coalition of two regional parties worked with other opposition parties, such as Congress, and triumphed in Bihar state.
Nevertheless, it would be foolish to count Modi out.
The list of necessary reforms is long. Everyone points to lifting restrictions on foreign investment, modernizing the sclerotic legal system, and creating a comprehensive bankruptcy code. Public sector banks are loaded with bad debt. There’s also electricity restructuring, privatization, subsidy reductions, tax reform, and labor rules.
The economy is not the only issue requiring the premier’s attention. In Bihar the BJP pandered to religion and caste.
Religious intolerance—which mostly means majority Hindu attacks on Muslims and Christians—has worsened since Modi’s election. The latest incidents have been mob attacks on Muslims thought to have eaten or smuggled cattle.
Popular Bollywood star Aamir Khan brought the issue to India’s mainstream when last month he criticized the sense of “insecurity and fear” felt even by his own family. The harsh response to him only reinforced Khan’s point.
Sectarian violence does more than harm innocent Indians. It also discourages foreign investment. Religious intolerance provides skittish investors with another reason to put their money elsewhere.
More state elections are pending. To win, the BJP should focus on economics, which is what boosted Modi and his party to last year’s overwhelming victory. With an expanding population India needs strong economic growth to move people out of poverty. The Minister of State for Finance, Jayant Sinha, said India needs at least eight percent growth annually for decades to provide sufficient jobs.
This kind of progress isn’t easy or common. Yet India’s current growth rate, around seven percent so far this year, suggests that India could take off after sustained, real economic reform.
As I wrote for Forbes: “Despite the recent challenges to his government, Modi retains a rare opportunity to advance his nation. Moreover, given his Hindu nationalist background, Modi also is well-positioned to reinforce tolerance and secularism in government. Doing so would promote domestic stability in a nation with tens of millions of people of different religious faiths, strengthen economic growth by encouraging foreign investment, and enhance India’s international influence.”
Will the 21st Century be another American Century, the Chinese Century, or something else? If Prime Minister Modi makes tough decisions in leading his country forward, the 21st Century might end up being the Indian Century. But if so, he can’t delay much longer in putting his words into action.
As the hype volume goes into Everest territory at the big climate summit in Paris, we’ll be a bit more succinct and just point out the Whopper of the Day.
Here’s France’s President conferring with African leaders, who told him of the expansion of the Sahara Desert. To wit, from today’s Associated Press story:
“Hollande heard from 12 African leaders who described the Sahara Desert encroaching on farmland…”
Below is the change in planetary greening measured by satellite over the last two+ decades. As you can see, the southern side of the Sahara is getting much greener over time (the northern boundary is the Mediterranean Sea). In fact, that’s the largest “greening” on the entire planet earth! What a whopper Hollande was told in Paris!
Figure 1. Spatial trends in net primary plant productivity, 1981-2006 (source: de Jong, et al., 2011, Remote Sensing of the Environment).
Many more Syrians are living in Saudi Arabia and the Gulf States than at the beginning of the Syrian civil war in 2011. The World Bank reports that 1,000,000 Syrians resided in Saudi Arabia in 2013, a whopping 795 percent increase over 2010. There were 1,375,064 Syrian migrants living in the Gulf States in 2013, a 470 percent increase over 2010. Excluding Oman, the 2013 Syrian population in every Gulf State has increased dramatically since right before the beginning of the Syrian civil war.
Syrian Population Residing in Each Country2010 2013 Increase Since 2010 Saudi Arabia
Source: World Bank Bilateral Migration Indices, 2010 and 2013
These Syrians are technically not “refugees” because Saudi Arabia and the other Gulf States are not signatories to the 1951 UNHCR convention that created the modern international refugee system.
NGOs that work in the region are harshly critical of the Gulf States’ response to the Syrian crisis. Gulf State spokesmen also haven’t gotten their stories or numbers straight when explaining their policies. Nabil Othman, acting regional representative to the Gulf States at the UNHCR, said Saudi Arabia has accepted 500,000 Syrian refugees but called them “Arab brothers and sisters in distress.” Kuwait extended the residency permits for Syrians stranded there. Spokesmen for the Gulf States have issued other statements claiming that they have accepted many Syrian refugees.
Most likely, Syrians living in the Gulf States are largely workers and some could be related to the Syrian communities in Saudi Arabia and Kuwait that existed before the civil war. Legal conventions, treaties, and the technical definition of the word “refugee” aside, there are many more Syrian migrants living in every Gulf State (except Oman) in 2013 than in 2010. Every additional Syrian migrant living in the Gulf States is one fewer potential refugee elsewhere. Many immigrant groups in the 19th and 20th centuries were also refugees even though there was no legal category for them at the time.
Some Americans and Arab critics argue that the Gulf States should accept more refugees. They should, but that shouldn’t blind us to the large number of Syrians who have settled there since the outbreak of the civil war. Gulf State intentions aside, allowing Syrians to live in their territory has helped relieve the humanitarian crisis somewhat.
A note on the numbers and quotes here: The World Bank data may be limited, omit some return flow numbers, be inaccurate in other ways, or/and updated spreadsheets may show a completely different situation. I cannot verify the statements from the Gulf State countries because their publicly available government documents are in Arabic.
The Every Student Succeeds Act, the intended successor to the No Child Left Behind Act, is better than the law it would replace. That is what many analysts are saying as they hail the legislation as a good step in the right direction. But let’s be honest: you couldn’t set a bar much lower than NCLB. And there are some potential problems that could make the ESSA just as dangerous as the law it would supplant.
To be fair, the ESSA is, overall, probably better than NCLB, and it may well have been the best compromise possible given political reality. Most notably, it eliminates NCLB’s uber-intrusive requirement that numerous groups of students make “adequate yearly progress” on state tests lest schools be subject to a cascade of punishments. It also tries to keep the Secretary of Education from requiring the use of specific curriculum standards such as the Common Core, though it should be noted that the Core was pushed not by the letter of NCLB, but funding from the 2009 “stimulus” and Obama administration NCLB waivers that were almost certainly illegal.
It is in responding to the power grabs of the current administration that the ESSA may fall, in practice, very short of actually eliminating executive – much less federal – control over the public schools. The bill would keep federal requirements that states have curriculum standards – indeed, “challenging” standards – and tests, and hold schools accountable for performance on them. Moreover, while the bill says the Secretary shall not “mandate, direct, control, coerce, or exercise any direction or supervision” over state standards, it also says that the Secretary must approve state accountability plans. In other words, as I’ve written before, it does not appear that the Secretary can state specifically what a plan must have, but the Ed Sec could potentially veto plans that he deems inadequate until – wink, wink – he gets what he wants.
The bill, it appears, tries to square the circle of demanding challenging standards without empowering the Secretary to define “challenging” by stating that “the Secretary shall not, through regulation or as a condition of approval of the State plan or revisions or amendments to the State plan, promulgate a definition of any term used in this part, or otherwise prescribe any specification for any such term,” if doing so is inconsistent with prohibitions against prescribing specific standard or accountability elements.
Now, I’m no expert in legislative language, but that strikes me as a flimsy – and confusing – defense against overreach, given both that the bill seems to demand that Washington decide if a state’s standards are challenging, and because the current administration, in taking an NLCB waiver provision and simply asserting that it could attach conditions to waivers, has shown how easily legislative language can be stretched.
The second dangerous ambiguity, as pointed out by the deft reporters at Education Week’s Politics K-12 blog, involves the elements in state accountability systems. Basically, there is potentially a huge problem determining what must be the breakdown of academic and non-academic factors in evaluating schools. What percentage of the evaluation should be standardized test scores, graduation rates, school climate, etc.? This problem appears to create especially fertile ground for continued regulatory micromanagement.
Of course, there are other major problems. For instance, the ESSA would enshrine in the flagship K-12 law a preschool program that had previously been created by appropriators. It is not germane to the Elementary and Secondary Education Act – of which NCLB and ESSA are just reauthorizations – nor is spending money on preschool logical given the dearth of empirical evidence such programs actually help. Speaking of non-germane, the bill also features an utter non sequitur: a “posthumous pardon” for boxer John “Jack” Johnson. The pardon may well be deserved, I don’t know, but it has nothing to do with elementary and secondary education. Then there is the bill’s sheer size: 1,061 pages of legislative lingo, a huge amount for anyone to digest. (Indeed, if I messed anything up here I blame that!) Yet the House, as of the most recent report I’ve seen, plans to vote on the bill in the next few days. And, of course, there’s this: the federal government has no constitutional authority to do almost any of this, and the federal government’s woeful education track record reveals just how wise the Framers were.
So is the ESSA better than No Child Left Behind? Probably. But that isn’t saying a whole lot.
The FDA likes to claim that its warnings on packs of cigarettes have saved thousands of lives in the last five decades. That may be true, but the increasing number of premature deaths caused by its food labeling standards could potentially outweigh those lives saved.
The issue is simple: The current food labelling standards provide a big nudge for people to eat less saturated fats and more carbohydrates, and an increasing body of scientific knowledge is telling us that this is a grievous mistake: saturated fats are much less deleterious to health than previously thought, while eating carbohydrates is the absolute worst thing that a person can do if he wants to control his weight.
The steady increase in obesity over the last two decades, which social scientists have blamed on a variety of social ills like urban “food deserts” and duplicitous marketing strategies by food producers is, it appears, actually a direct result of government intervention in the market. The Wall Street Journal recently laid out a scathing indictment of the failure of food labels at protecting consumers. If thousands of people have likely died prematurely owing to this policy, why on earth is it still being enforced?
And there’s been no sign that this administration is going to prod the FDA to fix this problem: In fact, Sam Batkins and I documented in a recent issue of Regulation that until a few months ago the FDA was trying to make delis and food trucks and other entities that sell semi-prepared food to come up with a way to provide their customers with the same dietary information that processed foods must provide. Only a concerted effort from the affected businesses managed to delay this rule–and a delay may be all it is, as the government said it would revisit the issue in the future.
If president Obama were to repeal the food labeling regime immediately it would not be an admission of failure: His administration wasn’t the one that originally issued these rules–in fact, it was the George HW Bush Administration that made them more stringent. Inaction on this represents nothing but bureaucratic ossification.
If a person were to approach the administration’s refusal to consider repealing this stupid rule from the perspective that class-based distinctions determine many actions in society today, here’s what he might conclude: Today it can be difficult at first blush to distinguish between the upper class coastal elites and the hoi polloi of flyover country. These days they don’t dress that much differently and the last few years have fallen rapidly in the small towns and rural communities as well, and reginoal accents have largely gone by the wayside as well, so it can be difficult to distinguish at first blush between an Ivy League man and some bumpkin from Sheboygan.
However, the typical small town denizen is a couple of pants sizes bigger than his cosmopolitan counterpart and that’s difficult to hide and even more difficult to change. As long as we’ve got this handy-dandy way to separate the Sneetches, why mess with it?
Suggesting such a thing would be the height of cynicism, of course. But the longer the FDA refuses to propose new labeling rules or their outright abolition, the more plausible it becomes.
Several science-fiction-like advances in transportation are currently underway. They may revolutionize the way people get around. Among the most exciting are hoverboards, driverless cars, and even fully re-usable rockets that could radically reduce the cost of space launches.
Hoverboards are now a reality. You might even receive one as a present during the holidays. While they may not look exactly like the ones in Back to the Future, actual self-balancing, hands-free scooters are now on the market. Unfortunately, government regulations prohibit you from riding one outside if you live in the United Kingdom , or in New York City.
Driverless cars are another promising technology. Just last week, Google patented a way for driverless cars to communicate with pedestrians, as well as a way for the company’s driverless cars to automatically unlock as their passenger approaches by recognizing the passenger’s Bluetooth device. As if the potential convenience of a computerized personal chauffeur weren’t enough, you may never need to fumble looking for your car keys again.
Hopefully regulatory traffic won’t prevent you from purchasing a driverless car for much longer—right now the government seems to be the only thing preventing driverless cars from hitting the market. Regulators cite safety concerns as their motivation for slowing down the arrival of driverless cars, but these cars are already so safe that the greatest danger of riding in one may be the other cars on the road that still have human drivers.
Market competition is also helping to drive forward spaceflight. Last week a private sector rocketry company called Blue Origin nailed a game-changing spaceflight achievement: fully re-usable rockets. Rockets, not fuel, are the most expensive part of taking off into space. Fully re-usable rockets cut the expense of space launches dramatically—bringing us closer to economical space tourism, which is the goal of Blue Origin as well as its chief market competitor in that realm, Virgin Galactic.
It’s abundantly clear that markets are steering transportation into the future, from hoverboards that take you around the block in style to rockets that could take you on a vacation that is truly out of this world. Hopefully regulations won’t decelerate transportation progress too severely, especially in the case of driverless cars.
Relations between the U.S. and China have grown tenser as the latter has developed economically and advanced internationally. Few Americans want to cede their dominant position while most Chinese are determined to regain what they believe to be Beijing’s rightful influence.
The two nations are waging a bitter but so far nonviolent struggle in Burma, or Myanmar. And the U.S. appears to be winning.
For decades Burma’s military ruled ruthlessly. The West responded by isolating and sanctioning the generals, who renamed their nation Myanmar over popular opposition.
The junta turned to China for military cooperation and economic support. Beijing, which desired Burma’s natural resources, including minerals, timber, and water, was happy to oblige. The embrace from Burma’s northern neighbor grew ever tighter—too tight, in the view of many Burmese.
In 2008 the military began a gradual process of carefully limited political reform, which culminated in legislative elections in November. The junta’s members had not undergone a miraculous conversion to liberalism. Rather, an important, though largely unarticulated, objective was to reduce reliance on the People’s Republic of China.
For years Burma was a pariah state almost akin to North Korea. There was only limited interaction with both the U.S. and Europe, the most obvious sources of aid, investment, and trade. While Asian tigers roared, Burma slumbered.
While Burma benefited economically from its ties with the PRC, the costs were high and resentment was palpable. In fact, Burma is not alone in this regard. High-handed Chinese behavior in Africa sparked public protests and turned Beijing’s role into an election issue. North Korea remains tied to the PRC but continues to look for new friends, most recently in Moscow.
For Burma opening to the West was the answer. Sanctions were eased, Western leaders rushed to visit, and business investment flowed in.
Unfortunately, reforms have slowed. Nevertheless, the country has moved dramatically from “the bad ole’ days.” It would be very difficult for the military to reverse democratization even if it wanted to. Which means China no longer is the essential investor.
The PRC has noticed. Policy analysts and university students alike have complained to me that the U.S. was undermining Beijing’s relationship with Burma. Merely being willing to engage Burma has allowed the West to shift the geopolitical balance.
At the same time bilateral problems between China and Burma have multiplied. Four years ago the latter suspended the Chinese-financed Myitsone Dam, whose power was destined for the PRC. Earlier this year 155 Chinese loggers were arrested and prosecuted for illegal activity, before being deported.
Insurgents in Burma’s Kokang area are ethnic Chinese and some 30,000 refugees have crossed into the PRC. In March while targeting Kokang rebels Burmese airstrikes killed five and injured eight Chinese citizens. In May several Chinese were injured by artillery fire. The PRC responded with a live fire exercise along the border. Burma later accused Beijing of discouraging the Kachin and Wa ethnic groups, long engaged in the illicit gem and timber trade, from signing a national ceasefire.
Concerned over relations, Beijing hosted Nobel Laureate Anng San Suu Kyi in June, an extraordinary step by a regime which fears elections and opposes meddling in other nations’ affairs. Although Suu Kyi expressed her desire for better relations, her government is unlikely to be as close to China as was the junta.
India and Japan offer friendship at lower cost. Moreover, she obviously prizes access to the large, sophisticated Western economies, and knows that she would still be under house arrest if China had continued to dominate Burmese affairs.
Burma’s shift demonstrates fistfuls of cash, whether yuan or dollars, are not enough. As I wrote for China-US Focus: “No one likes to be treated as a client state. In Burma the U.S. only had to offer the junta a way to join the global economy. Without deploying a ship or threatening a shot, Washington found an effective balance to the PRC.”
In late October, I blogged about a weird case out of Chicago where the sheriff decided to crusade against online-commerce site Backpage.com (similar to Craigslist). The law wouldn’t allow Cook County Sheriff Thomas Dart to go after Backpage directly, so he sent strongly worded letters to financial institutions in hopes that they would stop processing Backpage’s payments. The tactic worked, so Backpage went to court to save its business.
Well, on Monday, as free-speech advocates returned from their Thanksgiving breaks, the U.S. Court of Appeals for the Seventh Circuit overturned a district court decision to deny Backpage’s request for a preliminary injunction against Sheriff Dart. The opinion, authored by Judge Richard Posner, denounces Dart’s attempts in his official capacity to “starv[e Backpage] by pressuring credit card companies to cut ties with its website.” (The opinion was joined by Judge Diane Sykes, who was Cato’s 2014 B. Kenneth Simon Lecturer, which lecture you can read in the most recent edition of the Cato Supreme Court Review.)
Backpage offers 11 categories of ads, primarily facilitating mundane transactions like used-lawnmower sales and vacation rentals but also with an “adult” section broken down into titillating subcategories such as “dom[ination] & fetish” and “body rubs.” Sheriff Dart had unsuccessfully sued Craigslist over the content of its adult section in 2009 (though Craiglist removed its adult section a year later). Having previously failed with that approach, Dart employed a different technique in his persecution of Backpage, sending a letter on his official stationary to Visa and Mastercard, among others, that suggested that he could use his authority to initiate investigations into “institutions” that “willfully play a central role in an industry that reaps its cash from the victimization of girls and women across the world” unless they ceased to allow their credit cards to be used to purchase ads on Backpage.
Given that the potential brand damage from allegations of complicity in sex trafficking dwarfs the lost revenue from a relatively small website, Visa and Mastercard got the drift and stopped servicing Backpage. Judge Posner described this maneuver as an attempt to “kill a person by cutting off his oxygen supply rather than by shooting him.”
While Dart’s actions are troubling as an abuse of government power beyond the scope of his office, they also present serious First Amendment issues. While government officials are allowed to engage in expressive speech, even if we disagree on what constitutes government speech, they can’t intimidate private citizens or otherwise censor legal speech they find distasteful. Judge Posner asks,
[W]here would such official bullying end, were it permitted to begin? Some public officials doubtless disapprove of bars, or pets and therefore pet supplies, or yard sales, or lawyers, or “plug the band” (a listing of music performances that includes such dubious offerings as “SUPERCELL Rocks Halloween at The Matchbox Bar & Grill”), or men dating men or women dating women—but ads for all these things can be found in non-adult sections of Backpage and it would be a clear abuse of power for public officials to try to eliminate them not by expressing an opinion but by threatening credit card companies or other suppliers of payment services utilized by customers of Backpage, or other third parties, with legal or other coercive governmental action.
Citing a long line of precedent, Posner concludes that “threatening penalties for future speech goes by the name of ‘prior restraint,’ and a prior restraint is the quintessential first-amendment violation.”
Opponents of government overreach – not just free-speech advocates – should celebrate this ruling because it serves as a direct rebuke to attempts by officials to bully organizations to do their bidding, against their best interests.
One further note: While the legal substance of the court’s opinion deals with the aforementioned First Amendment/government-intimidation issues, the nominal impetus behind Dart’s crusade against Backpage is the alleged growth of sex trafficking. Cato, along with frequent collaborators Reason Foundation and DKT Liberty Project, addressed this assumption in ourr amicus brief supporting Backpage. Judge Posner cited the brief, noting that “as explained in an amicus curiae brief filed by the Cato Institute, Reason Foundation, and DKT Liberty Project, citing voluminous governmental and academic studies, there are no reliable statistics on which Sheriff Dart could base a judgment that sex trafficking has been increasing in the United States.”
Perhaps the most interesting development in education policy this year has been Nevada’s adoption of the first education savings account program to offer nearly universal eligibility. Students who attended a charter or district school in the previous year are eligible to have a portion of the state funds that would have been spent on them instead deposited into an account that they can use to purchase a wide variety of educational goods and services. By empowering families with more alternatives to the generally low-performing district schools, the ESA program is also a pressure relief valve for Nevada’s severely overcrowded schools.
Overall, half of the nearly 3,100 applications submitted as of Oct. 28 list an address in a ZIP Code among the top 40 percent of median households in Nevada. That’s in contrast to just 10.7 percent of applications from households with median incomes in the bottom 40 percent.
It’s important to note that these are not the final ESA enrollment figures. As Matthew Ladner of the Foundation for Excellence in Education pointed out, these are merely the “earliest of the early adopters.” At the time of the Review-Journal report, Nevada families still had more than two months to apply for an ESA before the program commenced. Nevertheless, opponents of parental choice have seized on the development:
“It’s what we expected,” said Sylvia Lazos, policy director for the education reform group Educate Nevada Now [which is suing to end the ESA program].
The ESA program “was not tailored to low-income parents. It was not tailored to parents with children in (low-performing) schools,” she said. “With every program of this nature, it’s just the reality that affluent and high middle-income families are always in the best position to take advantage of government programs.”
Yet nowhere is this more true than in the government schools. Because the government assigns students to district schools based on the location of the home their parents can afford, wealthier families have access to district schools that are safer and higher quality than those to which low-income students are assigned. It’s not resources that account for the difference in performance – Washington, D.C. spends nearly $30,000 per pupil for one of the worst school districts in the nation. Culture certainly plays an important role, but so does the ability to exit.
Bill Gates can send his children to their assigned district school at no charge (beyond what he already paid in taxes), but he can also afford to enroll them elsewhere. Because Gates and other higher-income families can afford to leave, the district schools have to be responsive to their needs in order to keep them (and the state funds allocated based on their enrollment). By contrast, low-income families often have no financially viable alternative. Their assigned district schools have no financial incentive to be responsive to a captive audience.
Unlike a geography-based school system, a market-based system creates incentives for all schools to be responsive to parents’ wishes and to find ways to provide a better education at a lower cost. That is why it is the poor, not the rich, that that stand to gain the most from a market in education. As Milton and Rose Friedman explained in Free to Choose:
Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy. The rich in Ancient Greece would have benefited hardly at all from modern plumbing: running servants replaced running water. Television and radio? The Patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading actors as domestic retainers. Ready-to-wear clothing, supermarkets – all these and many other modern developments would have added little to their life. The great achievements of Western Capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful. [Emphasis added.]
A perfect example of this is the $10 smartphone that Walmart is selling that has better specs than the original iPhone:
For less than $10 (plus the cost of data access) the user gets access to the Google Play app store, giving him or her the power to summon transportation at the push of a button, instantly connect with friends, and watch livestreams from all over the world. A bona fide smartphone, in other words.
It’s perhaps even more impressive when you consider that its modest specs—a 3.8-inch display, 3G and Wi-Fi networking, and a 3-megapixel camera—surpass those of the original iPhone, which was referred to in the tech press at the time as the “Jesus phone.”
Higher-income individuals were the early adopters of the iPhone and other smartphones. They paid a premium which allowed tech companies to recoup their investment in research and development and earn a significant profit. Those profits created incentives for them to expand production and for other companies to follow suit. Over time, real prices fell even as quality improved dramatically. The original iPhone models sold for $499 to $599 but later generations already sell for much less, making them accessible to the poor. Indeed, even as of 2012, more than half of American 18- to 24-year-olds earning less than $15,000 per year owned a smartphone. At just $10 a piece, smartphones will be ubiquitous.
Of course, the wealthy still have access to better quality (and much more expensive) smartphones with the latest and greatest features. But as Michael McShane of the American Enterprise Institute has explained, “markets work when the spectrum of relative quality drives improvements in absolute quality.” [Emphasis added.] Wealthier individuals continue to pay a premium for the cutting-edge technology, which later becomes standard and more affordable for everyone.
Likewise, higher-income families may be the first adopters of ESAs, but expanding the market in education will benefit everyone in the long run. Even in the short run, the initial research on ESA programs shows that low-income families benefitted the most from greater educational opportunity. In 2013, Jonathan Butcher of the Goldwater Institute and I conducted the first parental-satisfaction survey of Arizona families using ESAs. All of the respondents had students with special needs who had previously attended their assigned district schools. Unsurprisingly, low-income families were the least satisfied with their district schools:
By contrast, the lowest-income families were the most satisfied with the education they purchased with their ESA:
This does not mean that educational-choice advocates can remain complacent. If anything, the Review-Journal report shows that greater efforts are needed to inform low-income families about the choices that are available to them. Fortunately, those efforts are already underway.
Senators Benjamin L. Cardin and John McCain will soon get their wish for a U.S. arms sale to Taiwan. Last Wednesday, Josh Rogin of Bloomberg View reported that the Obama administration will formally announce a $1 billion arms sale in December. Congress has not been notified of a new arms sale to Taiwan in four years.
The changing balance of power in the Taiwan Strait warrants a serious examination of the existing U.S.-Taiwan security relationship, which is held up by two pillars: a U.S. commitment to sell “defensive” arms to Taiwan; and the pledge to take “appropriate action” in response to any “threat to the security…of the people on Taiwan.”
The arms sales and vague security pledge have contributed to peace in the Taiwan Strait, but the status quo may not last much longer. A recent RAND report concluded that China is catching up to the United States’ military capabilities to defend Taiwan. America could absorb the rising cost of defending Taiwan, but the reunification of Taiwan and mainland China is a core interest of the Chinese government. Since China has more at stake, it has an incentive to keep raising the costs of confrontation until the United States is no longer willing to absorb them.
This argues for dropping Washington’s pledge to come to Taiwan’s aid. Supporters of the pledge worry about the message that a reduced commitment would send to allies in East Asia. But there is a significant difference between a formal security commitment defined in a treaty, and an informal one like America’s to Taiwan.
Washington’s formal treaty commitments in East Asia (Japan, South Korea, and the Philippines) are more clearly stated and some are supported by forward-deployed U.S. forces. Failing to come to the aid of a formal treaty ally would be a significant blow to U.S. credibility, but Taiwan does not enjoy such status.
However, arms sales to Taiwan should continue for several reasons. First, the arms sales have not significantly damaged U.S.-China relations. Second, ending both arms sales and the pledge would be unnecessarily disruptive. Third, the United States still has a legitimate interest in a peaceful resolution of the cross-strait dispute, but defending Taiwan’s quasi independent status through military intervention against a nuclear-armed and conventionally powerful China would have high costs for limited benefits. Moreover, the costs of intervention would likely increase over time, while the benefits would remain flat.
Future arms sales should emphasize weapons systems that allow Taiwan to mount an effective asymmetric challenge to Chinese forces. The United States should also make future arms sales contingent on Taiwan’s investment in indigenously-produced capabilities and increased military spending independent of spending on U.S. arms. Ending the already vague pledge to come to Taiwan’s defense while continuing arms sales is a low-cost policy that reduces the probability of a U.S.-China war over Taiwan while preserving Taiwan’s ability to defend itself.
Former president Kim Young-sam was laid to rest in Seoul. Kim long battled against military rule. In 1992 he was elected president.
His reputation suffered when the Republic of Korea was engulfed by the Asian economic crisis. But Kim may have prevented the Second Korean War.
Early during Kim’s tenure the first nuclear crisis exploded. The so-called Democratic People’s Republic of Korea had embarked on a nuclear program, centered at Yongbyon.
President Bill Clinton, Secretary of Defense William Perry, and Assistant Secretary of Defense Ashton Carter, the current Pentagon chief, decided to strike. War was a truly mad idea.
Carter and Perry later explained that they had “readied plans for striking at North Korea’s nuclear facilities and for mobilizing hundreds of thousands of American troops for the war that probably would have followed.” Nevertheless, they expected to limit deaths to “thousands of U.S. troops and tens of thousands of South Korean troops” due to the allies’ overwhelming military superiority.
However, the two underplayed likely civilian casualties. With mass artillery dug in along the Demilitarized Zone, abundant Scud missiles available for attack, and mass armor poised only a few miles north of Seoul, the casualties and destruction could be enormous. Nuclear radiation also would threaten.
Perhaps most extraordinary, the Clinton administration planned for war without involving Seoul. When informed, Kim argued with Clinton, causing the latter to relent, but only temporarily. Former President Jimmy Carter then visited the North, transmitting Kim Il-sung’s offer to negotiate.
Ashton Carter continued to propose war against the DPRK. In 2002 Carter and Perry coauthored an article for the Washington Post: “Today, just as in 1994, a conventional war would be incredibly dangerous, but not as dangerous as allowing North Korea to proceed with this new [uranium] program,” they wrote. Thus, “North Korea now needs to proceed with the understanding that the United States would not tolerate a North Korean program to build nuclear weapons.”
In 2006 the two were at it again. This time they were worried about the North’s planned missile test. They wrote: “the United States should immediately make clear its intention to strike and destroy the North Korean Taepodong missile before it can be launched.” If the DPRK retaliated, no worries: the U.S. could bolster its forces.
Obviously, it is undesirable for Pyongyang to possess nuclear weapons or missiles. However, while the North’s Kim dynasty gives no evidence of being suicidal. Preserving the peace should be the number one objective on the peninsula given the costs of a Korean War rerun.
Which Kim well understood.
One problem with well-reasoned military proposals counting on the North’s rational restraint is that Pyongyang would be extremely foolish to rely on any assurances. After all, the U.S. has routinely imposed regime change.
Those who know best doubt Pyongyang’s forbearance. A North Korean defector said the military was determined to take the initiative in any war. Gen. Gary Luck, former U.S. commander in Korea, opined: “If we pull an Osirak, they will be coming south.”
The second problem is that the DPRK may well choose a limited military option commensurate with the U.S. attack. An hour long bombardment of Seoul, for instance, accompanied by the demand to expel U.S. forces. What then? It isn’t clear whether the South Korean public would be angrier with North Korea or the U.S.
U.S. war proposals are especially foolish since North Korean threats against the South as well as Japan are not threats against America. Indeed, Washington is of interest to the DPRK mostly because the former has unnecessarily intruded in a struggle between the two Koreas. Given the South’s extraordinary advantages—40 times the GDP, twice the population—there’s no reason for Washington to stay, let alone plot new wars.
As I wrote in Forbes: “Kim was political hero, but his most important legacy probably was preserving peace. Thousands, at least, and perhaps many more South Koreans and Americans have him to thank for their lives. Kim Young-sam, rest in peace.”
Turkey’s rash decision to shoot down a Russian plane for allegedly violating its airspace isn’t likely to trigger World War III. But Ankara demonstrated that it stands with the Islamic State and against the West.
The Obama administration’s war against ISIL is turning into another interminable conflict that serves the interests of other nations far more than America. U.S. policy has been impossibly incoherent.
While Russia’s September entry into the war outraged Washington, Moscow showed clarity and realism. Russia simply sought to bolster Syria’s President Bashar al-Assad against insurgents dominated by radical Islamists. Ironically, this approach is far more likely than the administration’s confused policy to advance America’s core interests.
However, Turkish President Recep Tayyip Erdogan played the fool when his military downed a Russian aircraft for allegedly violating his nation’s airspace. It’s not enough to “discourage any escalation,” as President Barack Obama insisted. Washington should drop the alliance relationship.
Turkey is a growing threat to Western interests and values. Ankara never has been a true friend of the West. Turkey was a useful ally during the Cold War, though it always seemed readier to go to war with Greece than the Soviet Union.
President Erdogan and his Justice and Development Party (AKP) came to power in 2002. Initially then-Prime Minister Erdogan played the liberator. But he eventually gained control of the police and judiciary; conducted multiple mass conspiracy trials; and attacked independent journalists, opposition politicians, and business critics.
President Erdogan also is moving Turkey in a more Islamist direction. Worse, his government has aided the Islamic State. Despite agreeing to assist Washington, the Erdogan government appears to have played the U.S., directing most of Turkey’s fire against America’s Kurdish allies.
Shooting down the Russian aircraft was even more irresponsible. Ankara knew that no attack on Turkish forces was planned. Downing the plane was a direct attack on Moscow for supporting the Assad government.
Turkey demonstrates that NATO is a bad deal for America. Military alliances should serve U.S. interests. But any existential threat against Turkey ended along with the Cold War.
At the same time, the shared interests between Turkey and the West dissipated. The alliance should not be responsible for defending Ankara as the latter promotes Islamist radicals and, even worse, commits a gratuitous act of war seemingly designed only to provoke Moscow.
Indeed, Turkey is merely the latest example of alliance members seeking to drag the U.S. into conflicts of no interest to America. Britain and France largely orchestrated the Libya war, in which Washington helped deconstruct yet another Muslim country without purpose.
Moscow is a better and more reliable partner than Turkey for America in the Middle East. Vladimir Putin is a nasty character. At home he has suppressed the civil liberties and political freedoms Americans value. But President Erdogan differs little from President Putin in this regard.
Where Presidents Putin and Erdogan dramatically diverge is their policies toward radical Islamists. As noted earlier, Ankara has consistently backed the murderous jihadists of most concern to America.
In contrast, as I point out on Forbes online: “in the Middle East U.S. and Russian interests broadly coincide. Exactly why the U.S. feels duty-bound to oust Assad isn’t clear. Both Iraq and Libya dramatically demonstrated that it’s not enough to get rid of the bad guy. You need a good guy as successor. Washington has none in Syria.”
In fact, American policy in the Mideast has failed catastrophically. Yet the Obama administration is committed to doing more of the same in the forlorn hope of achieving a different result.
Cooperating with Russia doesn’t require befriending President Putin. Rather the two governments simply should work together when doing so serves both nations’ interests. That’s more than occurs with Turkey today.
Washington should abandon outdated alliances and stop covering for Ankara. Russia may not be an ally, but at least it is friendlier and less dangerous than Turkey today.
There are several reasons and none of them are good. But if you had to pick one cause for all the mess, it would be the fact that politicians have worked with interest groups and lobbyists to create myriad deductions, credits, exclusions, preferences, exemptions, and other loopholes.
This is a great deal for the lobbyists, who get big fees. It’s a great scam for politicians, who get lots of contributions. And it’s a great outcome for interest groups, who benefit from back-door industrial policy that distorts the economy.
But it’s not great for the American people or the American economy.
Writing for Reason, Veronique de Rugy of the Mercatus Center explains that the net result is a Byzantine tax code that imposes very harsh compliance costs on the productive sector.
According to a 2012 study from the Internal Revenue Service (IRS) and the Treasury Department, …corporations alone spent $104 billion complying with the tax code in 2012. …The cost to individuals may be even higher. According to a 2013 study by Jason Fichtner and Jacob Feldman of the Mercatus Center, Americans face nearly $1 trillion annually in hidden tax-compliance costs. …Why does tax compliance cost so much? The answer is largely that the Internal Revenue Code…is riddled with exclusions, exemptions, deductions, preferential rates, and credits.
And she also points to a solution.
Genuine reform would cut out loopholes that tilt the playing field in favor of those with political connections. It would also aim to provide lower tax rates, fewer tax brackets, and less double taxation of income that is saved and invested. Such measures would be good for growth, but they would also mean taking on the interest groups that benefit from swapping tax preferences for campaign cash.
Since I want to rip up the tax code and replace it with a simple and fair flat tax, this is music to my ears.
Of course, achieving genuine tax reform won’t be easy.
There’s the obvious political obstacle since all the groups that benefit from the current system (politicians, lobbyists, bureaucrats, cronyists, interest groups, and other insiders) will fiercely resist reform.
There’s also a policy obstacle because many people oppose loopholes in theory but they haven’t paid sufficient attention to the nuts-and-bolts details.
With that in mind, let’s set out a set of guiding principles for the elimination of tax loopholes and the creation of a neutral tax system.
1. A loophole exists when income isn’t taxed - In libertarian Nirvana, the central government is so small that there’s no need for an income tax. Until we get to that point, though, we’re stuck with the internal revenue code and the goal should be to collect revenue (hopefully a modest amount) in a way that minimizes the economic damage per dollar collected. And that means a tax code that doesn’t have loopholes, which are best defined as provisions that enable people to avoid any tax based on how they earn income or how they spend income. In a neutral system, all income is taxed one time.
2. The economy performs better without a loophole-riddled tax code - Most people understand that high tax rates are bad for growth because they penalize people for earning income. They also generally understand that double taxation of saving and investment is bad for growth because it creates a bias against capital formation. But there’s not nearly enough appreciation of the fact that loopholes in the code are bad for growth since they are a back-door form of industrial policy that exist for the purpose of incentivizing people to make decisions on the basis of tax rather than on the basis of what makes economic sense. A neutral tax system means less economic damage.
3. It’s not a loophole to protect income from double taxation or to require income to be measured correctly - The bad news is that the current system forces taxpayers to overstate their income and it also imposes multiple layers of tax on income that is saved and invested. The good news is that there are provisions in the tax code - such as IRAs, 401(k)s, deferral, bonus depreciation - that seek to mitigate these biases. These parts of the system oftentimes are needlessly complex and they frequently will alleviate penalties in a discriminatory manner, but they are not loopholes. In a neutral system, all income is taxed only one time.
4. Loopholes should be eliminated as part of a plan to lower tax rates, not in order to give politicians more money - If loopholes are a corrupt and distorting dark cloud, the silver lining to that cloud is that all the special favors in the tax code deprive the government of tax revenue. Even the most egregious of loopholes, such as ethanol, have this redeeming feature. This is why loopholes should only be eliminated as part of an overall tax reform plan that also lowers tax rates and reduces double taxation. A neutral tax system shouldn’t enable bigger government.
There are some important implications that follow from these four guiding principles.
As a practical matter, we can now identify provisions in the tax code that are clearly loopholes, such as the healthcare exclusion, the municipal bond exemption, and the state and local tax deduction (the mortgage interest deduction is misguided, but isn’t technically a loophole since one of the goals of tax reform is to give business investment the same tax-income-only-one-time treatment now reserved for residential real estate).
We also know that the capital gains tax rate isn’t a “preferential” loophole, but instead is the mitigation of a penalty that shouldn’t exist. Similarly, it’s not a loophole when companies deduct expenses when calculating income. And you’re not getting some sort of handout simply because Uncle Sam isn’t imposing double taxation on your retirement account. At the risk of repeating myself, all income should be taxed in a neutral system, but only one time.
Let’s close by looking at a few secondary - but still important - implications of a neutral tax code.
First, getting rid of loopholes won’t put a burden on poor and middle-income taxpayers for the simple reason that an overwhelming share of the benefits of these provisions go to high-income taxpayers.
I’ve already shown how the vast majority of charitable deductions are taken by those making more than $200,000 per year.
The same is true for the state and local tax deduction and the healthcare exclusion.
And the Washington Post just editorialized that the home mortgage interest deduction is a boon for rich taxpayers as well.
The mortgage interest deduction is also a significant cause of after-tax income inequality: The top 20 percent of earners get 75 percent of the benefits; the top 1 percent get 15 percent, according to the Congressional Budget Office. …Specifically, 10 metropolitan “hot spot” counties (among them Los Angeles in California and Fairfax in Virginia) with the greatest number of mortgages larger than $500,000 accounted for 45.1 percent of all such mortgages nationally. Just eight California urban and suburban counties accounted for 40 percent of the national total. Outside of such tony coastal precincts, the only big-mortgage hot spots were resort destinations such as Martha’s Vineyard, Mass., and Vail, Colo. — where many homes are vacation places, not primary residences.
To be sure, the Post is misguided in that it wants to restrict tax preferences in order to finance a larger burden of government spending.
So I’m not expecting the editors to join a coalition for pro-growth tax reform.
The second implication is that a neutral tax system means less corruption.
To cite one example, consider the oleaginous way that politicians deal with so-called tax extenders. Marc Short and Andy Koenig explain in a column they wrote for the New York Times.
Congress will soon take up the so-called tax extenders package, which has more than 50 tax breaks affecting a variety of industries and issues. …this bill mostly helps the wealthy and the well connected.
The fact that rich insiders benefit is no surprise, but what makes “tax extenders” so odious is that what began in 1988 as a supposedly one-time fix now has become a regular part of the process, a scam that gives lobbyists and politicians a way of generating fees and contributions.
The first tax-extender package…opened a door that lobbyists and lawmakers were all too willing to run through. …A 2014 analysis by Americans for Tax Fairness found that more than one out of every 10 lobbyists in Washington focused specifically on the extenders package. Given that this bill comes up about every year or two, special interests constantly have the opportunity to demand new handouts.
By the way, some of the extenders actually are good policy. They’re in the mitigation-of-penalties category I discussed above.
But those good provisions should be made permanent and the bad provisions should be jettisoned.
Unfortunately, that’s not in the interests of the politicians and lobbyists who benefit from an annual extender package, so the problem doubtlessly will fester.
Last but not least, let’s consider the moral component.
For those of us who believe in justice, it is ethically offensive that some rich and powerful taxpayer get better treatment simply because they know how to manipulate the political process.
This violates the important principle that the law should treat everyone alike. Yet another reason to have a simple and fair flat tax.
P.S. At the risk of being a nit-picker about my own writing, I should confess that a flat tax is not a purely neutral tax system. There will still be a penalty on earning income. But the penalty presumably will be modest if there is a low rate and that penalty won’t be exacerbated by penalties and loopholes that distort how people earn income and spend income.
P.P.S. Here, in one image, is all you really need to know about the economics of taxation.
In this post-Thanksgiving atmosphere, here is another installment in Human Progress’s series of posts on incremental (and sometimes revolutionary) ways in which our world is becoming a better place. This week we look at anti-aging drugs, falling maternal mortality deaths and death rates, prosthetic hands with a sense of touch and a potential breakthrough in air travel.
British Company to ‘Transform’ Air and Space Travel with Pioneering New Engine Design
BAE Systems has recently bought a minority stake of a small technology company called Reaction Engine. The support of BAE will allow Reaction Engine to continue working on its breakthrough engine, known as Sabre. This versatile engine can be used for both air and space travel, reaching up to five times the speed of sound for air travel and twenty-five times the speed of sound for space travel. Using these high rates of speed, it could be possible to fly anywhere in the world in four hours within the next ten to fifteen years. Reaction Engine hopes that the first Sabre engine will be tested within the decade.
World’s First Anti-Aging Drug Could See Humans Live to 120
The aging process is not inevitable. Our cells contain a DNA blueprint that can, theoretically, keep our bodies functioning forever. However, overtime our cells divide rapidly, leading to an increased likelihood of “errors” occurring. These “errors” cause diseases like cancer and dementia. Recently, the FDA approved a human trial for a drug called Metformin, which has been proven to increase the lifespan of animals. The trial contains around 3,000 people who are between the ages of 70 and 80. If similar results occur with humans as with animals, the human lifespan could increase by up to 50 percent.
Maternal Mortality Falls by Almost 50% - UN Report
The United Nations has been monitoring maternal mortality, which is defined as the number of mothers who die during pregnancy or shortly thereafter, for a number of decades. According to a recent report, global maternal mortality has dropped from 532,000 deaths in 1990 to 303,000 in 2015. That’s a reduction of 44 percent. Eastern Asia made the most substantial progress, with maternal mortality rates dropping from 95 deaths for every 100,000 live births to 27. Maternal mortality, once ubiquitous throughout the world, is now almost exclusively (99 percent) found in poor countries. Once again, economic development and income growth are the keys to further progress.
A Prosthetic Hand that Can Feel
Researchers at Case Western Reserve University have recently created a prosthetic hand that allows the patient to not only grip objects more accurately, but also enjoy a sense of touch. The technology works by creating a connection between the artificial hand and the brain. When the prosthetic hand senses pressure, it sends a neural code to the brain through an artificial pathway. Igor Spetic, who lost his hand about five years ago due to a workplace accident, is one of the first patients to receive the artificial hand. Because of his newly acquired treatment, Igor is now able to cut up fruits and vegetables, confidently grip cups, and open bags and containers. Researchers are currently developing a wireless version of this technology, which they hope to have finished within the next five years.