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New Market Tax Credits Fail to Deliver

Tue, 08/12/2014 - 14:06

Nicole Kaeding

Created in 2000 as part of the Community Renewal Tax Relief Act, the federal New Markets Tax Credit (NMTC) program provides tax credits to “spur new or increased investments into operating businesses and real estate projects in low-income areas.” Two new reports, one from the Government Accountability Office (GAO) and the second from Senator Tom Coburn’s office, question the effectiveness of NMTC in accomplishing that goal.

The program provides tax credits to investors in low-income neighborhood development projects equaling 39 percent of the investment value over seven years. For example, a $1 million investment provides a $390,000 tax credit to the investor—a healthy sum. Congress has provided $40 billion in tax credits since 2003 with banks and other financial institutions receiving “nearly 40 percent of all NMTC[s]” since 2007.

But the program’s structure is flawed. According to GAO, the Treasury Department—which oversees the program—does not have adequate oversight of the program. For instance, the Treasury is unable to determine if a project has failed even after receiving seven years of tax credits. Treasury’s reporting on numerous aspects of the program is incomplete and missing.

Like many federal programs originally premised on helping low-income areas, the NMTC program now spreads the subsidies widely. In fact, the program’s structure results in “virtually all of the country’s census tracts” being eligible for the program according to the Congressional Research Service.  

NMTC projects are heavily subsidized. They frequently receive additional government funding from other programs. Sixty-six percent of projects from 2010 to 2012 received funding from other federal, state, or local sources, with 33 percent receiving additional federal funds. This program is one of 23 community development tax programs and 80 discretionary economic development programs.

Projects often receive NMTCs, historic tax credits, and benefits from tax-exempt bond issuances, which adds up to heavy subsidization. For instance, a streetcar project in St. Louis received $15 million from NMTC allocations, $25 million from a federal Urban Circulator grant, a Surface Transportation Program grant, and a grant from the Congestion Mitigation & Air Quality Improvement Program. “The trolley’s total cost of $43 million is almost completely paid for through federal funding,” according to Coburn’s office.

We are used to superb investigative reports from Senator Coburn’s office profiling waste in government. His staff has done it again with the new NMTC report, which provides numerous silly and wasteful examples of NMTC projects. Many tax credits have benefited wealthy investors for low-value projects or projects that should have been funded privately or by local governments.

The NMTC program funded the expansion of the world’s largest aquarium in Atlanta. The new dolphin exhibit, with ticket prices of $65, received $40 million. Money was spent producing an original music score to accompany the performance. Project supporters publicly acknowledge that private funding was available for the aquarium’s expansion.  

The program also funded a classic car museum in Washington state,  a baseball stadium in Kentucky, and a NFL Youth Center in Indianapolis as part of the city’s Super Bowl bid. These projects are surely not the low-income development Congress envisioned when starting the program.

Unfortunately, these reports are not the first to document the NMTC program’s failings. GAO has issuance reports in 2004, 2007, and 2010 highlighting the program’s numerous flaws. Yet, Congress continues to reauthorize the program wasting billions of dollars.

The GAO report suggests that the Treasury Department should increase monitoring of the program. This is a good, first step to reforming the program. Ideally, Congress should follow Senator Coburn’s proposal and let this unneeded program expire.

Categories: Policy Institutes

If an Interest Group Says We Need to Spend More Money, Check It Out

Tue, 08/12/2014 - 11:27

David Boaz

Young journalists are told, “If your mother says she loves you, check it out.” Every day journalists follow that advice, protecting us all from reading rumors and unconfirmed stories in the morning papers (though of course the increasing pressure to be first with the news is threatening this rule).

But journalists are still too quick to take the word of special interests without seeking other viewpoints, especially in stories about things the taxpayers need to spend money on. Take this morning’s story about water infrastructure on Marketplace Radio:

Following the expensive water-main break that flooded UCLA’s campus, Los Angeles officials say they’re trying to aggressively fix the city’s aging infrastructure. 

The costs are daunting. It’s going to take the city of Los Angeles billions of dollars to fix.

“They estimate some over 20 millions of gallons of water were lost and of course it wound up on that new floor at the Pauley Pavilion Basketball Arena,” says Greg DiLoreto, former president of the American Society of Civil Engineers. “We have some 240,000 water main breaks a year in this country. And the age of our water infrastructure continues to get older and older and older.”

DiLoreto says the country needs something like $84 billion dollars in water infrastructure investments between now and 2020.

Carolyn Berndt, program director at the National League of Cities, says local governments haven’t had the access to the kind of capital they need to make these upgrades.

“The traditional method has been through the state revolving loan funds,” Berndt says. “Those numbers have been declining in recent years.”

Berndt says if cities are going fix their leaky pipes, they’ll need more financing than just a drop in the bucket.

That’s the whole story. And maybe them’s the facts, though Chris Edwards would beg to differ. But the information comes entirely from the National League of Cities, speaking for cities that want more money, and the American Society of Civil Engineers, the people who would be called on to design and build new or improved infrastructure. Journalists shouldn’t rely entirely on the oil industry for the facts on the Keystone pipeline, or the teachers union for the facts about education, and they shouldn’t rely entirely on civil engineers or asphalt manufacturers for the facts on infrastructure.

Categories: Policy Institutes

People Shouldn't Be Able to Sue Think Tanks When They Disagree with Us

Tue, 08/12/2014 - 09:21

Ilya Shapiro

What’s worse than a public policy debate that turns bitter and impolite? Well, for one, having the courts step into the marketplace of ideas to judge which side of a debate has the best “facts.”

Yet that’s what Michael Mann has invited the D.C. court system to do. In response to some scathing criticism of his methodologies and an allegation of scientific misconduct, the author of the infamous “hockey stick” models of global warming – because they resemble the shape of a hockey stick, with temperatures rising drastically beginning in the 1900s – has taken the global climate change debate to a record low by suing the Competitive Enterprise Institute, National Review, and two individual commentators. The good Dr. Mann claims that some blogposts alleging his work to be “fraudulent” and “intellectually bogus” were libelous. (For more background on the matter, see this excellent summary by NR’s editor Rich Lowry; linking to that post is partly what led Mann to target CEI.)

The D.C. trial court rejected the defendants’ motion to dismiss this lawsuit, holding that their criticism could be taken as a provably false assertion of fact because the EPA, among other bodies, have approved of Mann’s methodologies. In essence, the court seems to cite a consensus as a means of censoring a minority view. The defendants appealed to the D.C. Court of Appeals (the highest court in the District of Columbia).

Cato has now filed a brief, joined by three other think tanks, in which we urge the court to stay out of the business of refereeing scientific debates. (And if you liked our “truthiness” brief, you’ll enjoy this one.)

We argue that the First Amendment demands that failing to leave room for the marketplace of ideas to operate stifles academic and scientific progress, and that judges are ill-suited to officiate policy disputes – as history has shown time and again. The lower court clearly got it wrong here – and there are numerous cases where courts have more judiciously treated similarly harsh assertions for what they really are: expressions of disagreement on public policy that, even if hyperbolic, are among the forms of speech most deserving of constitutional protection. 

The point in this appeal is that courts should not be coming up with new terms like “scientific fraud” to squeeze debate over issues impacting government policy into ordinary tort law. Dr. Mann is not like a corner butcher falsely accused of putting his thumb on the scale or mixing horsemeat into the ground beef. He is a vocal leader in a school of scientific thought that has had major impact on government policies.

Public figures must not be allowed to use the courts to muzzle their critics. Instead, as the U.S. Supreme Court has repeatedly taught, open public debate resolves these sorts of disputes. The court here should let that debate continue outside the judicial system.

Categories: Policy Institutes

Need for Short-Term Loans is No Joke

Mon, 08/11/2014 - 16:23

Mark A. Calabria

I’m a little behind on my comedy watching, as I get a regular dose just living in Washington DC, but last week comedians John Oliver and Sarah Silverman focused an entire segment on payday lending, which are short-term advances against a future paycheck.  Matt Yglesias at Vox has posted the video, as well as making the important point “people end up at payday lenders because stuff happens.”  Yglesias is correct here: there is an undeniable need for short-term credit products. Even Dodd-Frank recognized this need by creating a government subsidized payday loan product (Section 1205 of Dodd-Frank).

The alternative to payday proposed by Oliver and Silverman?  Do anything else but payday. I’m sympathetic to such. A payday loan should never be your first choice. I hope to never have to use a payday lender. But then, I hope my car never breaks down either. Silverman goes as far as suggesting just steal instead. I’d hope she was joking but it seems so many in Washington have already taken that advice to heart.

Yglesias’s alternative is at least a little more thoughtful than stealing: he suggests allowing the postal service to offer short term loans, because apparently he believes the USPS could offer payday without “without taking nearly as big a cut”.  Now “big” is subjective but scholars have examined this question. In research reported in 2012 in Regulation, UC-Davis Professor Victor Stango compared the performance of traditional payday loans to those offered by credit unions. Some of his conclusions: “there is little to suggest that credit unions can offer a payday loan with competitive terms. Existing credit union payday loans often have total borrowing costs that are quite close to those on standard payday loans.” Maybe the USPS has a better cost structure than the typical credit union, but that seems unlikely as the USPS isn’t exactly known for its efficiency.

Professor Stango also reports survey evidence that payday borrowers highly value the convenience of payday lender’s hours and locations. Yglesias doesn’t address this, but last time I went to a Post Office, the hours were about as convenient (or less so) than that of a traditional bank. And of course USPS isn’t exactly known for its consumer friendly approach.  In all, it seems highly unlikely that without a major revamp and cultural change that the USPS could be a serious competitor to payday. Perhaps as important, the USPS would likely be viewed as “too big to fail”, so that allowing USPS to make high risk payday loans could easily result in a taxpayer bailout. Getting USPS into payday makes about as much sense as getting Fannie Mae into subprime mortgages.

Oh wait, we did that.

Categories: Policy Institutes

Maybe U.S. Should Defend South Korea by Letting it Develop Nuclear Weapons

Mon, 08/11/2014 - 15:27

Doug Bandow

U.S. foreign and defense policy long has been brain dead.  ‘Whatever has been must ever be’ seems to be the Pentagon’s mantra.  That’s the typical response to the idea that Washington should bring home its troops and allow South Korea to defend itself.

The Republic of Korea has grown up and surged past the North. The ROK should use its abundant wealth and larger population to close the military gap.  Just as most Americans expect those on welfare to get a job to take care of themselves and their families, the ROK should step up and take care of itself.

There may be good arguments against the proposal. But I have yet to hear them. Instead, what dominates is the tyranny of the status quo. 

Perhaps the best, or at least most interesting, counter is that America must babysit the ROK lest a frightened Seoul go nuclear in response to the DPRK.  In fact, Washington’s conventional forces do nothing to forestall a North Korean nuclear bomb. 

But will the ROK believe in America’s nuclear umbrella without a conventional guarantee?  Washington has risked war on Seoul’s behalf for six decades. If that’s not enough, the problem might be the weak case for Washington to turn other nations’ nuclear wars into America’s nuclear wars. 

If Pyongyang eventually develops a miniaturized nuclear warhead and reasonably accurate ICBM, what risks would Washington take on South Korea’s behalf?  Why should the United States turn a peripheral geopolitical problem into an existential threat?

Nonproliferation is a political sacred cow which can cause greater problems than proliferation. In Northeast Asia, for instance, nonproliferation has become the international equivalent of gun control: only the bad guys have guns. 

Russia, China, and North Korea all are nuclear powers. Therefore, Washington is supposed to defend Japan and South Korea, at least, and maybe some other nations, such as Australia and Taiwan, from nuclear attack. 

One might hope that rationality would constrain any Asian confrontation, but a number of years ago, a Chinese general challenged a U.S. official:  you won’t risk Los Angeles for Taipei.  And America’s president shouldn’t risk Los Angeles for Taipei—or Seoul, Tokyo, Sydney, or any other foreign city.

The alternative is to allow, if not encourage, Washington’s allies to build countervailing nuclear weapons.  The mere possibility would create a powerful incentive for the People’s Republic of China to take a more active role in preventing North Korea from proceeding along the nuclear path.

Even if Pyongyang moved ahead there is no guarantee that the South and Tokyo would follow.  Nevertheless, not long ago assemblyman and past presidential candidate Chung Mong-joon, who founded the Asan Institute, argued that the ROK should be “given this leeway as a law-abiding member of the global community who is threatened by a nuclear rogue state.”

The possibility also is periodically mooted in Tokyo. Would possession of nuclear weapons by South Korea and Japan be so bad for America?

More nations would have The Bomb, expanding possibilities for leakage. But the new nuclear states would be more responsible than the DPRK and more reliable than China and Russia. 

Beijing, especially, would be more constrained in challenging either Japan or South Korea. Moreover, the South no longer would be in the uncomfortable position of subcontracting out its security to Washington.

No one wants North Korea to have The Bomb.  But virtually no one believes that the North will give up its atomic arsenal. If Pyongyang moves ahead, then what?

As I argue on Forbes online: “Leaving Seoul free to develop nuclear weapons might be the best way to respond to the DPRK’s persistent threat to turn most everything everywhere into a ‘lake of fire’.”

There are worse things than nuclear weapons spreading to responsible, democratic allies–like leaving Pyongyang with a small state nuclear monopoly. It’s time to think the unthinkable rather than enshrine the tyrannical status quo as Washington’s Korea policy.

Categories: Policy Institutes

The Challenges of Being a Superpower

Mon, 08/11/2014 - 12:16

Doug Bandow

The foreign policy meme is fixed that President Barack Obama is weak and therefore responsible for virtually every global ill.  It’s hard for the denizens of Washington to accept that not everything in the world is about them. 

As I point out in National Interest online:  “People elsewhere have interests and ambitions.  Like the obstreperous British colonists in North America more than two centuries ago, foreigners are willing to defy major powers in order to achieve their ends.”

Government and guerrilla leaders still may worry about what Washington thinks. But they judge American threats based on a perception of U.S. interests more than abstract “credibility.” 

Little would have changed had President Obama launched military strikes in response to Syria’s use of chemical weapons. No other country would have feared military attack for different reasons.

For instance, what happens in Ukraine matters to Washington, but not enough to confront Russia, which considers the issue an essential matter of security. The United States might be willing to attack another largely helpless Middle Eastern state for peripheral stakes, but it won’t do the same against a nuclear-armed great power.

Unfortunately, top officials routinely put U.S. credibility at stake by issuing proclamations better left to second tier State Department desk officers. In the midst of the African summit, for example, the Obama administration complained that the president of the Democratic Republic of Congo, Joseph Kabila, might run for a third term. 

Why is it Washington’s job to micro-manage Congo’s political system? How would American politicians react if foreign leaders insisted that the United States impose term limits on Congress?

However, this is but one of many indignities that U.S. officials are suffering as they attempt to reorder the globe. Washington Post columnist Jackson Diehl offered a list of horrors. 

For instance, despite American protests the Georgian government has filed criminal charges against former president Mikheil Saakashvili and four leaders of his party. Yet Tbilisi “was warned repeatedly by the Obama administration” not to do so, explained Diehl.

The action might be political as Diehl claimed, but Saakashvili was no poster child for democracy, despite his high standing in Washington.  Is the United States entitled to protect unseemly friends irrespective of their guilt?  Would Obama administration officials accede to foreign demands that Washington not prosecute NSA whistle-blower Edward Snowden?

Diehl also was angered by Egypt’s ostentatious insult to Secretary of State John Kerry and the coup in Thailand over American objections.  Also Burma’s disappointing retreat from political reform.

However, it shouldn’t shock any foreign policy observer that foreign militaries put domestic power before foreign acceptance. Moreover, most of these and other rebuffs are rooted in circumstances running back before the Obama administration. 

Yet, argued Diehl, “An international consensus seems to have gelled that the United States can’t be counted on to uphold its commitments and red lines, even with allies; the result is a free for all that can be seen as much in the nose-thumbing of Georgia as in Israel’s high-profile rejection of U.S. diplomacy.”

But Tbilisi didn’t much worry about human rights criticism during the Bush administration and Israel long has rejected American dictates. Third World dictators allied with America routinely jailed opponents throughout the Cold War. The Soviet Union cared even less about U.S. opinion than does Russia.

The biggest problem is the frivolous nature of American demands. None of the forgoing affects substantial, let alone vital, U.S. interests. Americans don’t always know best. Yet Washington should “punish and deter such governments” for their defiance, argued Diehl.

President Obama’s foreign policy doesn’t impress, but not for lack of “will” or “credibility.”  America has never been very good at micro-managing other nations’ affairs.  Washington should abandon its quixotic quest to engage in social engineering around the globe.

Categories: Policy Institutes

Bigger Bounties for Tax Tipsters

Mon, 08/11/2014 - 09:52

Walter Olson

I’ve got a guest post up at Reason on how bounty-seeking informants are bypassing the Internal Revenue Service tipster-reward program in favor of selected state False Claims Acts, such as New York’s, which enable richer recoveries for disloyal employees and others who charge defendants with underpaying taxes. Excerpt:

Will the spread of a culture of informants sow distrust and disloyalty in the workplace, while encouraging dissident executives and their lawyers to shake settlements out of risk- and publicity-averse targets by seizing on doubtful, gray-area legal theories? That’s part of the game too. Lately hedge funds and litigation finance firms have moved in to bankroll the filing of likely “whistleblower” cases. …

…by getting pro-plaintiff laws through the legislature in just a few states — New York liberalized its law four years ago — advocates can set the stage for a nationwide informant push.

In Illinois, a single Chicago lawyer was reported in 2012 to have used that state’s whistleblower law to file at least 238 lawsuits against retailers, pocketing millions in settlements, over alleged failure to charge sales tax on shipping-and-handling.

Whole thing here.

 

 

Categories: Policy Institutes

Foreign Policy Solyndra

Mon, 08/11/2014 - 09:00

Ted Galen Carpenter

Washington’s track record over the decades of selecting honest, effective, and democratic political leaders to support in developing countries is as dismal as the government’s attempts to pick economic winners in this country.  We have endured a lengthy series of foreign policy equivalents of the notorious Solyndra scandal.  I discuss that depressing record in a new article over at the American Conservative.  

U.S. officials habitually make one of two blunders.  On some occasions, they back a foreign client who is willing to do Washington’s bidding, even if that person lacks meaningful internal political support from the very beginning.  On other occasions, the chosen client may initially have respectable domestic backing, but soon dissipates that support through pervasive corruption and brutality, often funded by U.S. tax dollars. 

Washington’s diplomatic love affair with Ahmed Chalabi, leader of the Iraqi National Congress, was a prime example of the first type of fiasco. U.S. policymakers during the administrations of Bill Clinton and George W. Bush wildly overestimated Chalabi’s popularity inside Iraq.  When the U.S-led military intervention ousted Saddam Hussein, American officials acted as though the Iraqi people would choose Chalabi as their new leader virtually by acclamation.  The actual extent of his domestic support became apparent in Iraq’s first free parliamentary elections in 2005. Chalabi’s party received a paltry 0.5 percent of the vote and failed to win a single seat.

The enthusiasm for Ferdinand Marcos in the Philippines was a typical example of the second type of embarrassment.  Marcos won his first election as president in 1966 in legitimate fashion, but he soon displayed all the usual characteristics of a tinpot dictator. Yet Washington continued to back him diplomatically and financially until his imminent overthrow in a popular revolution could no longer be ignored. More recently, Washington’s enthusiasm for Afghanistan’s Hamid Karzai and Iraq’s Nouri al-Maliki proved equally misplaced over the long term.

Those experiences (and many others) should teach U.S. officials not to fall in love with superficially attractive foreign political clients.  Instead of reflexively backing glib figures who are adept at telling American policymakers what they know those policymakers want to hear, we should approach all foreign players with caution, coldly evaluating how much popularity and staying power they are likely to command. The United States also needs to be far more skeptical about whether backing any particular client serves the best interests of the American republic.   

Categories: Policy Institutes

Japan Moves Closer to Defending Itself like a Normal Country

Mon, 08/11/2014 - 08:00

Doug Bandow

Prime Minister Shinzo Abe has begun to transform Japan into a normal country. Tokyo plans to take a more active role internationally. Eventually it should take over responsibility for defending itself.

As military occupier after World War II, the United States imposed Article Nine of the Japanese constitution, disarming Tokyo.  But in recent years, Washington has pushed Japan to do more militarily. 

So far, Tokyo simply has revised its interpretation of Article Nine. Japan’s “Self Defense Force” will be allowed to cooperate with other countries in combat. 

Overseas the response was mixed.  Naturally, the United States was pleased. China was unhappy. Other nations, such as Australia, were supportive.

Some critics still worry about Tokyo’s ultimate intentions, as if the Japanese had a double dose of original sin.  But Japan, with a stagnant economy, middling (and declining) population, and pacifist ethos, doesn’t look much like the next global dominatrix.

Instead, Japan’s well-established desire to do nothing has run aground because the world looks ever more dangerous. Moreover, basic economics suggests that Washington will have to reduce its role. As Prime Minister Abe recognized in 2012: “With the U.S. defense budget facing big cuts, a collapse of the military balance of power in Asia could create instability.” 

Thus, though the new interpretation is an important advance, it is not nearly enough. Tokyo needs to do much more. 

For almost seven decades, the United States has played the dominant role in protecting Japan. The justification for doing so is long over. 

Instead of relying on America, Japan should defend itself, including contested islands under Tokyo’s administration. The United States has an interest in preserving Japan’s independent existence, but that suggests a backup role. 

Moreover, Japan should promote regional security.  There’s no reason for America alone to preserve open sea lanes, especially those critical for Japanese commerce. 

Tokyo should cooperate closely with other democratic nations in Asia, such as South Korea and India. Japan also should continue building better relations with less democratic states that desire to maintain a regional balance of power, such as Burma and Vietnam.

Tokyo needs to spend more on its military, adding missiles and missile defenses, as well as bolstering its air and naval forces.  Tokyo’s objective should be to create armed forces sufficient to deter Beijing from acting recklessly.

Of course, as I point out in National Interest online:  “it’s not Washington’s place to tell Tokyo what kind of military to field.  What the United States should do, however, is inform Japan what the former will not do.” 

America will not maintain forces in Japan to defend that nation.  America will not get into a war with the PRC over contested territories claimed by Tokyo. Japanese officials, then, would be forced to debate their nation’s security objectives, potential threats, and military requirements. 

Retiring the U.S. security guarantee to Japan would be good sense, not “isolationism.”  Washington could continue to work with Tokyo in such areas as aid, environment, terrorism, proliferation, and more. 

Americans and Japanese would still trade. Preserving military and intelligence cooperation for both parties’ benefit would also remain important.

Of course, with or without the United States, events in the region could go badly.  However, the possibility of war should cause Washington to stay out of regional conflicts absent a compelling justification otherwise.  America shouldn’t play games of naval chicken over worthless rock piles.

The United States would remain interested and involved in Asia, ready to act as an “off-shore balancer” if a dangerous hegemonic power threatened the region. But China isn’t there yet. And it might never get there.

After seven decades ,Washington should finally shift responsibility for defending Japan to Japan. The United States no longer can afford to play globocop.  And it need not do so, since its prosperous allies, such as Tokyo, are able to take over.

Categories: Policy Institutes

More Questions than Answers on Iraq

Sat, 08/09/2014 - 12:46

Christopher A. Preble

The U.S. bombing campaign being waged against the Islamic State in Iraq and Syria (ISIS) raises more questions than it answers. Ben Friedman noted the muddle of U.S. policy here. Among the most vexing questions for me:

- What is the actual end game? Can it be achieved by the means being employed?

The narrow, short-term mission that President Obama laid before the American people on Thursday evening is almost entirely humanitarian: this is about saving the lives of desperate people, including women and children stranded without food and water. But unlike relief operations after hurricanes or earthquakes, where the U.S. military’s efforts face little resistance, the suffering in Iraq today is man-made. ISIS has targeted particular groups for persecution, or worse. The first order of business, therefore, after delivering essential food and water, is to allow these stranded people to escape.

But this will not be an easy task. As Richard Betts explained nearly two decades ago, there is no such thing as an impartial humanitarian intervention. What Obama has actually committed to, then, involves, at a minimum, sufficiently degrading ISIS’s military capabilities, prying open the vice being tightened around these people, and establishing a corridor through which they can flee to an as-yet undetermined safe haven. A long-term solution involves creating an Iraqi state (or more than one?) that can produce and maintain sufficient fighting power of its own.

That final point isn’t new. It has been the object since the fall of Saddam Hussein in 2003, or, arguably, since Hussein’s ouster from Kuwait in 1991, when George H.W. Bush hoped for a new political order in Iraq, but refused to risk large numbers of American lives to achieve it. The end game hasn’t really changed, yet the president failed to explain why our efforts this time will be more successful than at any time in the last quarter century.

- Can the U.S. role remain limited? How?

This is presumably a major concern among the American people, who are staunchly opposed to restarting a war that most think was a mistake. But public opposition to military intervention isn’t limited to Iraq. Recall the outcry when Secretary of State John Kerry proposed an “unbelievably small” military operation in Syria. The public feared then that small wars can easily become big ones. That attitude hasn’t changed in the past year. If anything, the public is even more opposed to missions involving the U.S. military.

- If ISIS poses such a threat, why aren’t others responding at least as forcefully as the United States?

This isn’t strictly a matter of capacity. The groups fighting ISIS would surely like to have better weapons and training (who wouldn’t?), but they are not fighting a modern nation-state with the full range of military capabities, including, especially, air power. ISIS is believed to have some modern weapons, including those captured from the Iraqi military, and, therefore, some U.S. weapons. But ISIS fighters lack training to properly use these weapons. Fanaticism alone cannot explain why this rag-tag band, wielding pilfered weapons, has so far bested organized military forces or other determined militias. 

- Related, what has happened to the Kurds?

The vaunted peshmerga were supposedly driven away without much of a fight. Most of ISIS’s recent gains, including those that left thousands starving and deperate on a mountainside, were in Kurdish territories. So, either the peshmerga’s fighting prowess was overstated, or they haven’t fully committed to stopping ISIS’s advance. Perhaps the territory that they’ve surrendered so far isn’t a vital interest for them; they’ve merely redeployed to more strategically significant areas. If so, the fight isn’t over, and ISIS’s path to control over most of Iraq is still far from certain. Recent reports suggest fierce fighting between Kurdish and ISIS forces, including near the crucial city of Erbil.

The Kurds might have been holding back because they were more fearful of the Iraqi government than of ISIS. This might seem to be pretty shortsighted, particularly as ISIS continues to take territory, but it wouldn’t be the first time that an ethnic minority group in Iraq behaved that way.

 

Categories: Policy Institutes

Murky Goals in Iraq

Fri, 08/08/2014 - 18:23

Benjamin H. Friedman

The goals that animate the renewed U.S. bombing campaign in Iraq are a muddle. Any rationale for bombing Sunni militants there today suggests prolonged campaign against them. Any effort we make against Sunni insurgents in Iraq contradicts our pro-insurgency policy in Syria. And while President Obama claims fidelity to the hope of making Iraq a stable multi-ethnic state, by defending Iraq’s Shi’ite regime and Kurdish North against Sunnis, the bombing may hasten Iraq’s dissolution.

The president’s stated goals are clear enough. Last night, he said that the airstrikes have two aims. First, they will protect Americans—several dozen diplomats and military personnel are apparently in Erbil, which is threatened by the recent advances of the Islamic State in Iraq and Syria (ISIS). Second, the president said that the strikes will defend civilians from the Yazidi minority. Tens of thousands of them are said to be encircled by ISIS militants. According to the president, U.S. aircraft will both drop supplies to the Yazidi and attack ISIS positions to break the siege.  

The first goal doesn’t require bombing. If we are simply concerned about the well-being of U.S. personnel in Erbil, we would evacuate them. But they are there largely to help Iraqis fight ISIS in the first place. Seemingly, we are after some broader objective. Protecting the Yazidi from starvation and slaughter makes sense. But that objective can easily slide into broader ones.

As President Obama more or less said, the humanitarian danger in Iraq comes mostly from the success of ISIS and more broadly from the civil war. Getting the Yazidi to safety will not end the danger to civilians in Iraq. The logic that compels us to stop ISIS’s advance today seems likely to suggest bombing it continually.  If ISIS is our problem, we are probably on the wrong side of the Syrian civil war. " title="<--break-->">

The conventional wisdom in Washington is that we should aide moderate opponents of Bashir al-Assad’s government. But aiding any rebels there hurts the main Syrian force going after ISIS. We cannot foster insurgency in Syria and suppress one Iraq without contradiction.  The president says that the bombing in Iraq falls under the “broader strategy that empowers Iraqis to confront this crisis” by creating a “new government that represents the legitimate interests of all Iraqis.” He promises increased U.S. support once a new government forms. The implicit message is that if the next Iraqi government has someone other than Nouri al-Maliki heading it and takes steps to deal with Sunni grievances, more support will flow. But bombing ISIS might increase Maliki or some other Shi’ite leader’s security, reducing their incentive to give ground to Sunnis.

If it’s stability in Iraq we are after, however, unity may be the problem, not the solution. Keep in mind that the United States has long gone along with near independence for the Kurds. Is there a greater increment of autonomy that would placate the Sunnis? Might Iraq’s stability and its unity be contradictory goals? 

Responsible policymaking requires choosing among competing objectives. President Obama was right to get out of Iraq, but irresponsible to insist that we sacrificed nothing in doing so. The United States has been bombing Iraq on and off for more than two decades, each time with our leaders insisting a bit more force will do the trick. We ought to admit the impossibility of producing a satisfying result, tragic as that may be.

Categories: Policy Institutes

Jury Rejects Self-Defense Claim in Murder Case

Fri, 08/08/2014 - 13:43

Tim Lynch

Yesterday a Detroit jury convicted a homeowner of second degree murder and manslaughter. Theodore Wafer shot Renisha McBride through a screen door in the middle of the night. McBride had crashed her car nearby and found her way to Wafer’s front porch, where she made some loud noises. Wafter says he awoke to the noise, feared for his life, and shot the unarmed McBride.

Remember all the talk in the aftermath of the Trayvon Martin killing and, then, the acquital of George Zimmerman, about how defective our laws were? People kept making the claim that the United States has crazy gun laws, that all one had to do was utter “I shot him because I was afraid!!” and then the shooter could escape murder charges.

Except it doesn’t work that way. Wafer claimed self-defense, but the jury found otherwise. Note that Michigan has a castle doctrine law on its books, but that law does not confer blanket immunity for anyone claiming to have fired a weapon in fear.

For additional background, go here.

Categories: Policy Institutes

Russia Imposes Embargo on Itself

Fri, 08/08/2014 - 11:37

David Boaz

The American economist Henry George wrote, “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.” In Russia, Vladimir Putin started a war and then, in response to mild American and European sanctions, retaliated by imposing greater sanctions—on his own people.

Even American journalists, whose economic acumen I have been known to question, have noted the likely effects of Putin’s sanctions. See Michael Birnbaum in the Washington Post:

Russia on Thursday banned most imports of Western food products, a sweeping escalation in an economic war that will deal a multibillion-dollar hit to affected nations but will also unreel wide-ranging consequences at home.

The measures were a signal that Russia is not backing down from a confrontation that has sent Western-Russian tensions to heights not seen since the Cold War—and that it is willing to risk barer shelves and higher food prices at home in the name of striking a blow against countries that have tried to punish it over its role in the Ukraine conflict.

Russia has suspended imports of meat, fish, fruit, vegetables and milk products from the United States, the 28-nation European Union, Norway, Canada and Australia for a year. The move came in retaliation for sanctions those countries imposed on Russia….

In Russia, the food measures promised to hit not just city centers, where the urban middle class has grown accustomed to visiting supermarkets overflowing with high-quality imported European cheeses, fish and sausages. Analysts warned that food prices also would increase and that a wide range of Russian industries, including food processing plants, shippers and retailers, would be affected….

“It will be quite sensitive,” said Yevsey Gurvich, the head of the Economic Expert Group. “Not only rich people will feel it, but literally every family will be affected.” He said he estimated that Russian consumer prices would go up 2 percent this year because of the measures.

“Alternatives to imported foods will be more costly, and, anyway, I believe they will be insufficient, and our supplies will diminish. And, hence, prices will go up,” he said.

Americans who wished for more painful sanctions on Russia than President Obama has imposed are getting their wish—thanks to Putin. 

Categories: Policy Institutes

Boris Johnson on National I.D. Cards

Fri, 08/08/2014 - 09:34

Walter Olson

The intelligence and entertainment value of national British politics are likely to rise now that Boris Johnson, the euro-skeptical, cosmopolitan Conservative mayor of London, is looking to re-enter Parliament. A steady critic of the European Union’s regulatory and welfare schemes precisely because he believes in an outward-facing and trade-oriented Britain, Johnson may well be the most quotable British politician since Margaret Thatcher. As former David Cameron aide Alex Deane makes clear in a piece in City A.M., Johnson, like Thatcher, is unafraid to speak in terms of individual liberty derived from classical liberalism, even if (also like Thatcher) he has not always lived up to his preachings in office. (Or as the outspoken mayor once himself said: “My policy on cake is pro having it and pro eating it.”)

Reading the Deane column, this quote from Johnson caught my eye from nine years ago when national I.D. cards were under debate:

I will in no circumstances carry one and even were I compelled to do so, I would take it out and destroy it on the spot were I ever asked to produce it. It is a plastic poll tax that will do nothing to assist the struggle against terrorists and will hugely expand the powers of the state over the individual.

Bring back that Boris. 

Categories: Policy Institutes

Cotton subsidies and the upside of wasteful government incompetence

Thu, 08/07/2014 - 16:58

K. William Watson

An internal audit by the U.S. Department of Agriculture of the “Economic Adjustment Assistance to Users of Upland Cotton Program” (EAAP) has revealed widespread misuse of subsidies given to owners of textile mills.  The program pays mills based on how much cotton they buy and requires that they spend the money on capital improvements at the mill.  It turns out some owners were just buying whatever the heck they wanted with the money—and that’s probably a good thing.

The primary purpose of the EAAP is to increase the demand for cotton.  The money goes to the mills, but the intended beneficiary is the cotton farmer, who gets an overpaying customer.  By conditioning the payment on an equivalent reinvestment in the cotton mill, the program also hopes to artificially increase the supply of cotton mills.  This, too, is meant to benefit cotton farmers by keeping their customers invested in buying their product. 

If the textile mill owners are using the subsidies to purchase—as the Washington Free Beacon reports—“Ford Explorers, artwork, sound systems, and elephant lamps,” then the program is ultimately less distortive of the U.S. and global cotton market.  That’s a good thing.  If the government is going to take money from some people and give it to others, at the very least we should hope that they do it in the least destructive way possible.

On the other hand, if the mill owners get the money with no strings attached, that increases the incentive for them to take the subsidy in the first place.  My guess, though, is that paying people to buy things they actually want is less distortive than paying them to buy things the government wants them to buy.

So, a toast to government incompetence (this time).  If someone’s going to do bad things, I’m glad it’s these idiots.

Categories: Policy Institutes

Russia, Sanctions, and Food

Thu, 08/07/2014 - 16:42

Daniel R. Pearson

The Russian government announced on August 6 that it will ban imports of most food and agricultural products from Australia, Canada, the European Union, Norway and the United States for one year.  The full extent of the ban, as well as its effects on exporters and Russian consumers, are not yet clear.  It is interesting, though, to contrast this action with an earlier effort to use food sanctions as a diplomatic weapon:  the 1980 embargo of U.S. grain sales to the Soviet Union. 

The Soviets had invaded Afghanistan in December 1979 with 80,000 troops and 1800 tanks.  President Carter responded by cancelling private contracts to supply 17 million metric tons (MMT) of U.S. wheat and corn to the Soviet Union.  However, he chose to allow shipment of 8 MMT that had been agreed as part of the 1975 U.S.-Soviet Grains Agreement.  Sales in excess of the level assured in the Grains Agreement were embargoed.

Because grains are relatively fungible, and because numerous countries had surpluses available for export, the Soviets were able to replace most of the embargoed grain from willing suppliers.  Argentine agriculture did particularly well during that timeframe.  U.S. agriculture did not do so well.  Market prices had been relatively high, in large part due to strong export demand.  When a considerable portion of that demand evaporated with the stroke of a pen, commodity prices fell precipitously. 

The grain embargo became a potent political issue in the 1980 presidential campaign.  Ronald Reagan’s opposition to the embargo helped to boost his campaign in rural areas.  He took office in January 1981 and revoked the embargo three months later.

In retrospect, the grain embargo generally is seen as supporting the proposition that economic sanctions often inflict greater costs on the country imposing them than on the country at which they are aimed.

The new sanctions are expected to cut off some $15 billion in Russian imports from the EU.  Russia has been Europe’s second largest (behind the United States) export market for foodstuffs, accounting for 10 percent of the EU’s total foreign sales.  The United States has a smaller stake, with only $1.3 billion of food/ag exports to Russia.  That country has been the third largest market for U.S. poultry exports.  About 7 percent of U.S. poultry exports – valued at over $300 million – were shipped to Russia last year, down from 20 percent as recently as 2008.  Russia’s WTO commitments should prevent import restrictions based on political pressures.  Nonetheless, trade in poultry appears to have fluctuated over time in response to the influence of Russia’s domestic poultry producers.  (It’s worth noting that Russia’s import ban does not include either baby food or wine.  It’s not clear how those omissions should be interpreted.)

Russia’s food and agricultural economy has changed greatly since 1980.  Both Russian farmers and consumers have benefitted from the end of central planning.  Despite continuing weaknesses in the rule of law, market forces have led to substantial productivity improvements in Russian agriculture.  Over the past four decades, that country has gone from being one of the world’s largest wheat importers to one of the top five exporters.  The U.S. Department of Agriculture forecasts Russia’s wheat exports for 2013/14 to be 18.5 MMT, which would amount to about 11 percent of the global total.

Russian consumers also face far more favorable circumstances than in 1980.  No longer do they stand in lines in front of grocery stores hoping that meat, vegetables or bread will be available.  Instead, the market forces that have encouraged more domestic production of grains also have encouraged imports of a wide variety of meats, fruits, vegetables, dairy products and processed foods.  Russia imported over $43 billion of food and raw agricultural materials last year, amounting to more than 40 percent of the country’s total food supplies. Over 60 percent of food sold in Moscow and other major cities is believed to have been imported. This relatively high level of import penetration suggests that at least some Russian consumers are likely to notice the import ban quite quickly. 

Over time, at least some food items currently imported from countries subject to the ban are likely to be obtainable from other countries.  Finding new suppliers no doubt will take awhile, and the costs to transport fresh fruits and vegetables from countries outside Europe may be noticeably higher.  An increase in food inflation – already 7.9 percent for the first half of 2014 – seems probable. 

Russia’s import ban certainly will create some pain and inconvenience for producers and exporters in the targeted countries.  It seems quite likely, though, that once again the country imposing trade sanctions will be hurt by them far more than the countries against which they are aimed. In the case of the old Soviet grain embargo, political pressures by U.S. farmers helped lead to its demise.  It will be interesting to see whether discontent on the part of Russian consumers plays any role in the eventual end of this new trade restriction.

Categories: Policy Institutes

Police Misconduct -- The Worst Case in July

Thu, 08/07/2014 - 15:21

Tim Lynch

Over at Cato’s Police Misconduct web site we have identified the worst case for the month of July.

It was the case of Eric Garner, who was killed by New York City police officers using a banned chokehold maneuver. A cell phone video of the incident shows Garner (who stood at least 6’3” and 350+ lbs.) arguing with police officers in an agitated state, then pulling back when officers tried to arrest him. Almost immediately, one of the officers started using an illegal chokehold maneuver to subdue Garner, at which point the 350+ pound asthmatic can be heard saying “I can’t breathe” repeatedly.  Garner was pronounced dead a short time later.  The medical examiner has ruled the death a homicide.

Garner was accused of and being arrested for selling single, untaxed cigarettes on the street corner.

Chokeholds have been banned since 1994 because they were determined to be too dangerous. Every officer and recruit is trained not to use them.  In response to the incident, NYC Police Commissioner Bill Bratton has ordered a top-to-bottom review of use of force training methods, with retraining programs likely to follow. It’s a good step, but it won’t do Eric Garner and his six children any good.

___________________________________________________________

The sexting case from Virginia is too awful and bizarre not to include as a “runner up” for the worst case in July.

Seventeen-year old Trey Sims had been arrested for allegedly sending a video of his erect penis to his girlfriend, also a minor. Prince William County prosecutors charged the teen with two felony charges: for possession of child pornography and manufacturing child pornography. These charges could have landed him in jail until he reached 21 years of age and then put him on the sex offender list, potentially for the remainder of his life. All for ‘sexting’ his girlfriend.

If it wasn’t bad enough already that prosecutors were willing to go forward with such drastic charges—and ones intended to protect children like Trey from adult predators—it gets worse. Manassas city police had already forcibly taken pictures of the teen’s penis when he was arrested, but that, apparently, wasn’t enough. Commonwealth’s attorney Claiborne Richardson told the teen’s lawyer that he either had to plead guilty or they would obtain a search warrant for pictures of his erect penis—which would be obtained by bringing the teen to a hospital and forcing him to take an erection-inducing drug while police officers took pictures of his forcibly-erect penis. Apparently, special software would then be used to compare the penises. When he did not plead guilty, substitute Juvenile Court Judge Jan Roltsch-Anoll granted the search warrant.  Thankfully, it was never actually served.

When word got out about what was happening, the government agents backed off a bit.  Sims just recently agreed to a year of probation to avoid the more serious charges.

Categories: Policy Institutes

Industry Groups Cloaked with State Power Shouldn't Get Antitrust Immunity

Thu, 08/07/2014 - 08:35

Timothy Sandefur and Ilya Shapiro

Under a 1943 Supreme Court decision called Parker v. Brown, state governments and private parties who act on state orders are typically immune from prosecution under federal antitrust laws. Thus, while private parties who create cartels face severe penalties, state governments can authorize the same anti-competitive behavior with impunity. 

Still, the Supreme Court has held that this kind of immunity only applies if the private parties who engage in cartel behavior are “actively supervised” by state officials. A case now before the Supreme Court, N.C. State Board of Dental Examiners v.FTC, presents an opportunity to expand on that directive.

Beginning in about 2003, the North Carolina Board of Dental Examiners issued cease-and-desist orders to beauticians and others who were offering “teeth whitening” services (in which a plastic strip treated with peroxide is applied to the teeth in order to make them brighter). Although teeth-whitening is perfectly safe—and can even be done at home with an over-the-counter kit—the state’s licensed dentists want to limit competition in this lucrative area.

The Board is made up entirely of practicing dentists and hygienists and is elected by other licensed dentists and hygienists—with no input from the general public—and evidence later revealed that the Board issued orders on this subject in response to complaints from dentists, not consumers. The Federal Trade Commission charged the Board with engaging in anticompetitive conduct. Although the Board argued that it should enjoy Parker immunity, the FTC, and later the U.S. Court of Appeals for the Fourth Circuit, rejected that argument, holding that the Board was not “actively supervised” by the state, but was instead a group of private business owners exploiting government power.

Whatever one’s opinion of antitrust law—Cato’s isn’t too favorable—existing immunity doctrines are irrational and dangerous, and allow private entities to use government power to raise prices and restrict consumer choice. Worse, state-established cartels can frequently harm constitutional rights, such as the right to earn a living, by barring new businesses from opening. The North Carolina case is a prime example of private entities arbitrarily abusing government power to block entrepreneurs from entering an industry and providing for themselves and their families.

Cato and the Pacific Legal Foundation filed a Supreme Court brief supporting the FTC—you know it’s a bad case when we’re on the federal government’s side!—and arguing that courts should only rarely immunize private parties who act on government’s behalf. The Fourth Circuit was not only correct in applying the “active supervision” requirement, but existing immunity doctrines are too lax. Instead, courts should grant antitrust immunity to private entities acting under color of state law only where their restraint on competition is commanded by state law, and where that restraint substantially advances an important state interest. This test would help protect the constitutional right to economic liberty against the only entity that can normally create monopolies and yet which today enjoys immunity from antimonopoly laws: the government.

The case will be argued at the Supreme Court on October 14.

Categories: Policy Institutes

Virginia Reaches Deal With Uber and Lyft

Wed, 08/06/2014 - 18:44

Matthew Feeney

Today the Commonwealth of Virginia reached a temporary agreement with Uber and Lyft, both of which provide ridesharing services via their apps. Under the terms of the agreement, both companies have been granted broker’s licenses and are allowed to operate provided they meet a number of conditions, which are outlined in today’s press release from Virginia Attorney General Mark Herring’s office.

Uber and Lyft have both praised the agreement, which comes two months after the Virginia DMV issued the companies cease and desist letters.

It is welcome news that Virginia Gov. Terry McAuliffe and Attorney General Herring have worked out an agreement with Uber and Lyft. However, the agreement is temporary and lawmakers in Virginia and elsewhere in the U.S. need to implement permanent legislation that allows for innovative companies such as Uber and Lyft to fairly compete against taxis, as R Street Institute policy analyst Zach Graves stated in a news release:

Public interest advocates should be wary that this is only a temporary measure, and the battle over transportation services regulation in Virginia is certain to come up again in the 2015 legislative session. Ultimately, policymakers in Virginia and other states need to advance legislation that offers permanent legalization for all transportation network companies, without imposing additional anti-competitive regulations at the behest of the Taxi industry.

The concluding paragraph of the attorney general’s press release mentions that that the Virginia DMV is conducting a study as part of working towards such legislation:

Virginia DMV is currently leading a study at the request of the General Assembly to developing [sic] a long-term legislative solution that addresses services provided by Uber, Lyft, and similar companies, while also ensuring a level playing field for taxicabs and all other passenger transportation services. The study is scheduled to be completed in time for the 2015 legislative session. This temporary authority agreement can serve as a foundation for potential legislation and will also provide valuable data on the operations of these companies as legislation is crafted.

Let’s hope that the Virginia DMV does propose a solution that really would level the playing field. Companies like Uber and Lyft do, thanks to their business model, occupy mostly uncharted regulatory territory. It would be good to see Virginia among the first U.S. jurisdictions to successfully adapt to the rise of the so-called sharing economy, which will continue to grow.  

Categories: Policy Institutes

How the Sharing Economy Can Help Developing Nations

Wed, 08/06/2014 - 12:04

Matthew Feeney

While many sellers and buyers in the so-called sharing economy might like it for its convenience, there is a case to be made that in the developing world decentralized and peer-to-peer economies could help solve a crippling informational problem in environments with weak property rights and bad regulatory regimes.

Writing in Forbes earlier this week, Adam Ozimek, Director of Research and Senior Economist at Econsult Solutions, Inc., pointed out that the rating systems used by companies such as Uber and Airbnb allow for customers to “do what we previously thought tight regulations and even natural monopolies were needed to do.” Before the rise of the technologies that allowed for Uber and Lyft to exist, the taxi industry could argue that customers might face rip-offs or safety concerns  iin the absence of regulation. Thanks to the rating system used by companies in the sharing economy, this informational problem can be overcome.

Ozimek believes that the technologies used by the sharing economy could transform the developing world:

What I think is notable is how much more transformative these technologies should be for the developing world.

In developing countries you can find a lack a (sic) government that functions well enough to provide an effective regulatory regime. In addition, unreliable governance and weak property rights can make it hard to attract the investment required to build large companies with significant reputational capital. But a decentralized, crowd-based ratings system doesn’t require lots of capital investment. It doesn’t require effective regulatory bodies and good governance. It lowers the capital and regulatory bar for the existence of an effective services industry.

After all, in a country with a corrupt government, would you be more confident having a cab driver with a long list of good reviews or one with a bureaucratically issued license?

Of course, the rise of the sharing economy is dependent upon access to the necessary technologies, which many people in the developing world lack. Earlier this year Pew published findings on the use of cellphones and the Internet in emerging nations. According to Pew, in every nation surveyed, smartphones remain a minority of cell phones used. However, these minorities are significant in a number of countries such as China and Lebanon, where 37 percent and 45 percent of people respectively own smartphones.

A Gallup poll  conducted at the end of last year found that in the 62 percent of adults in the United States have access to smartphones with Internet access. 88 percent of Americans between 18 and 29-years-old said that they owned a smartphone.

Ozimek’s Forbes post was published on the same day that the U.S.-Africa leaders’ summit began in Washington, D.C. Pew’s findings show that the percentage of people who occasionally use the Internet or have a smartphone in the African nations examined ranges from the very low (Uganda at 12 percent) to the comparatively high (South Africa at 43 percent). Pew also found an unsurprising strong correlation between Internet use and national income.

As my colleague Marian Tupy pointed out a few days ago, Sub-Saharan Africa is “one of new millennium’s success stories,” with economic freedom and growth in the region resulting in a drop in poverty. Tupy also mentioned that there have been important recent improvements to the social standing of girls and women in Africa, which has become more peaceful since 1990.

Ozimek is right that the technologies used in the sharing economy will overcome the informational problem affecting much of the developing world. However, increased access to these technologies will require economic prosperity and growth, which Tupy pointed out comes about thanks to economic freedom, not aid.

 

 

Categories: Policy Institutes

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