The Beginning of the End of Private Health Insurance. By Ronald Bailey
How Obama's public health insurance option will quickly evolve into the only option
Reason, June 9, 2009
In his weekly radio address on Saturday, President Barack Obama declared that "it's time to deliver" on health care reform. In a letter to Sen. Edward Kennedy (D-Mass.) and Sen. Max Baucus (D-Mont.), President Obama wrote, "I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest." This week Sen. Kennedy released a draft of his proposed "American Health Choices Act" which includes one such optional public health insurance plan. The administration's goal is to report that bill out of the relevant Senate committees by the end of this month.
Earlier this week, Republican lawmakers sent a letter of their own, strongly warning the president that "Washington-run programs undermine market-based competition through their ability to impose price controls and shift costs to other purchasers. Forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition."
Sadly, we are already well on our way to a wholly government-run health insurance system. After fall, about 47 percent of all health care expenses today are paid for by federal, state, and local governments, e.g., Medicare, Medicaid, and State Children's Health Insurance Program (SCHIP). Establishing a public insurance scheme would dramatically increase the percentage of health care that is paid for by the federal government.
In April, the Lewin Group, a health care consultancy, issued an analysis of how the public health insurance option plan might affect the provision of private health insurance. Currently about 170 million Americans are covered by private health insurance plans, mostly through their employers.
The Lewin Group crunched the numbers through their health care model and found that premiums for the public option plan would be 30 to 40 percent lower than private plans. Sounds great, right? But these lower premiums are essentially achieved by imposing price controls. The Lewin Group assumed that the public option plan will pay doctors and hospitals at the same rates they currently receive from Medicare. And Medicare reimbursements already run 71 percent and 81 percent below what private health plans pay hospitals and doctors, respectively.
First, the somewhat good news. Lower public option premiums and an increase in Medicaid coverage would attract 28 million of the 48 million Americans who currently are not covered by health insurance. Now the bad news. The lower premiums would encourage employers to drop private health insurance and put their employees into the public plan. Overall, the Lewin Group estimates that if Medicare reimbursement rates are imposed, the number of Americans with private health insurance would decline by almost 120 million, leaving only 50 million Americans in the private insurance market.
Defenders of the public option quickly point out that Kennedy's American Health Choices Act promises to pay health care providers 10 percent more than Medicare. But as the Cato Institute's Michael Tanner noted at Cato@Liberty, "When Medicare began, proponents promised it would reimburse at the same rate as insurance. That promise didn't last long." In fact, in his letter to Kennedy and Baucus, Obama explicitly endorsed the idea of setting mandatory physician and hospital reimbursement rates through the Medicare Payment Advisory Commission. In other words, the payments would no longer be merely advisory.
The Lewin Group looked at another scenario similar to the Kennedy proposal, where the public option plan reimbursements to doctors and hospitals were set at the midpoint between Medicare and private plans. In that scenario, the number of Americans covered by private insurance would only drop by 67 million, instead of 120 million. Today, the number of Americans covered by Medicaid is 51 million, with another 45 million covered by Medicare, and 5 million covered by SCHIP. In addition, the Lewin Group estimates that an additional 10 million more would be covered by Medicaid under the Kennedy proposal. So the grand total of Americans likely to be initially covered by government health insurance once the public option is launched would come to 177 million out of 306 million, leaving 103 million privately insured and 20 million still uninsured.
The best result of creating a parallel public insurance scheme is that the United States would end up with an explicit two-tier medical system in which privately insured Americans have better access to better medical care. Such two-tier health care systems already exist in countries with national health care schemes such as the United Kingdom and Germany. In the United Kingdom, more and more Britons are opting for private health insurance instead of remaining with that country's National Health Service. Privately insured Americans would get higher quality health care, but because the market for medical innovation would be smaller, everybody will get worse care than they would otherwise have received had most health care not been nationalized.
The worst case scenario is that the public option plan would eventually absorb what remains of the private health care system. This could happen as the political constituency for private health care and insurance shrinks while more and more Americans become covered by government insurance. In addition, it will be hard for politicians to resist forcing wealthier patients to join the government plan as a way to make up for eventual shortfalls in revenues.
The Republican letter to President Obama presciently warns that a government insurance option will create a fatal dynamic, the end result of which "would be a federal government takeover of our healthcare system, taking decisions out of the hands of doctors and patients and placing them in the hands of a Washington bureaucracy." Once the vast majority of Americans are covered under various government "insurance" plans, the push to go all the way toward universal coverage will be almost irresistible.
Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.
Tuesday, June 9, 2009
Political and economic contradictions of the 'new GM'
Car Quandary. WaPo Editorial
Political and economic contradictions of the 'new GM'
WaPo, Tuesday, June 9, 2009
POOR BOB LUTZ. The vice chairman of General Motors loves "muscle cars" like the Camaro. He knows that, unless fuel prices go much higher and stay there, the American market for big cars is likely to exceed the market for small cars. Yet he has to build a little four-seat plug-in electric hybrid called the Chevrolet Volt, roll it out next year and try to sell it for $40,000 (not counting a likely $7,500 federal tax rebate). It doesn't make much sense economically, and the few thousand Volts that GM plans to produce at first won't dent U.S. carbon emissions much either. But, as Mr. Lutz told The Post's Michael Leahy, he feels pressure from Washington to do something spectacular on the electric car front. The Volt, he says, "is an important symbol. We need it. It has a chance to change our image."
When GM was still a privately owned company, this latest episode of Detroit agonistes would be no one's problem but GM's and its stockholders'. But soon, if they become owners of 60 percent of the company, taxpayers could be on the hook for the Volt. And Mr. Lutz's quandary epitomizes the political and economic contradictions of the "new GM." The taxpayers' interest is to get GM out of the red and back in private hands as soon as possible, consistent with environmental and fuel-efficiency standards. By that logic, the automaker's only goal would be to make what people want to buy; expensive "image" projects such as the Volt would wait. Yet the political pressures that drove GM to build the Volt in the first place -- namely, Congress's demand for a U.S.-made answer to the Toyota Prius -- are stronger than ever now that the government is about to own the company. So GM will build the Volt, even if it loses money, taxpayer money.
And members of Congress will delve into other aspects of the car companies' business. Rep. Barney Frank (D-Mass.), chairman of the House Banking Committee, has already prevailed on GM to extend the life of a plant in his district. GM and Chrysler dealers, thousands of whom are set to close in order to streamline the companies' sales efforts, have flocked to Capitol Hill demanding relief. In response, House members of both parties have introduced a bill that would block the closure of GM and Chrysler dealerships. If this proposal ever makes it to his desk, President Obama should veto it. America can have nationalized auto companies with a chance, however slim, of someday turning a profit. Or it can have nationalized firms subject to constant political tinkering. It can't have both.
Political and economic contradictions of the 'new GM'
WaPo, Tuesday, June 9, 2009
POOR BOB LUTZ. The vice chairman of General Motors loves "muscle cars" like the Camaro. He knows that, unless fuel prices go much higher and stay there, the American market for big cars is likely to exceed the market for small cars. Yet he has to build a little four-seat plug-in electric hybrid called the Chevrolet Volt, roll it out next year and try to sell it for $40,000 (not counting a likely $7,500 federal tax rebate). It doesn't make much sense economically, and the few thousand Volts that GM plans to produce at first won't dent U.S. carbon emissions much either. But, as Mr. Lutz told The Post's Michael Leahy, he feels pressure from Washington to do something spectacular on the electric car front. The Volt, he says, "is an important symbol. We need it. It has a chance to change our image."
When GM was still a privately owned company, this latest episode of Detroit agonistes would be no one's problem but GM's and its stockholders'. But soon, if they become owners of 60 percent of the company, taxpayers could be on the hook for the Volt. And Mr. Lutz's quandary epitomizes the political and economic contradictions of the "new GM." The taxpayers' interest is to get GM out of the red and back in private hands as soon as possible, consistent with environmental and fuel-efficiency standards. By that logic, the automaker's only goal would be to make what people want to buy; expensive "image" projects such as the Volt would wait. Yet the political pressures that drove GM to build the Volt in the first place -- namely, Congress's demand for a U.S.-made answer to the Toyota Prius -- are stronger than ever now that the government is about to own the company. So GM will build the Volt, even if it loses money, taxpayer money.
And members of Congress will delve into other aspects of the car companies' business. Rep. Barney Frank (D-Mass.), chairman of the House Banking Committee, has already prevailed on GM to extend the life of a plant in his district. GM and Chrysler dealers, thousands of whom are set to close in order to streamline the companies' sales efforts, have flocked to Capitol Hill demanding relief. In response, House members of both parties have introduced a bill that would block the closure of GM and Chrysler dealerships. If this proposal ever makes it to his desk, President Obama should veto it. America can have nationalized auto companies with a chance, however slim, of someday turning a profit. Or it can have nationalized firms subject to constant political tinkering. It can't have both.
Sotomayor decisions "defy depictions of her record as falling neatly into either a liberal or conservative category"
Yesterday's Odd Washington Post Story. By Roger Clegg
Bench Memos/NRO, Jun 09, 2009
The Washington Post yesterday had a long story arguing that Judge Sotomayor's decisions on "race, discrimination and the law" somehow "defy depictions of her record as falling neatly into either a liberal or conservative category." The article picks the eight cases that involved divided rulings. But, accepting arguendo the Post's methodology, I don't see how the article shows that Sotomayor is not a predictable liberal.
In six of the eight cases, it seems to me that the Post acknowledges that Judge Sotomayor came to a liberal result. Of the remaining two, one involved a policeman who was fired for mailing out racist and anti-Semitic fliers. Judge Sotomayor, in dissent, wanted to rule against the police department — just as the ACLU's New York affiliate had urged the court to do. Sure, her position favored a bigoted policeman, but she also wanted to use an aggressive interpretation of the First Amendment to tie the hands of the police department.
That leaves Hankins v. Lyght, involving a minister who sought to invoke the Age Discrimination in Employment Act when his church forced him to retire at age 70. The district court dismissed the case, but the Second Circuit remanded for the judge to consider whether applying the Religious Freedom Restoration Act (RFRA) would change the outcome; Judge Sotomayor dissented. Here's a link to the appellate opinions. Judge Sotomayor seemed especially unhappy that the panel went out of its way, in her view, to uphold the constitutionality of the RFRA; but that's an odd sort of "violat[ion] . . . of judicial restraint" (her words), and since RFRA was enthusiastically supported by the religious right, I'm not sure that her position is necessarily the un-liberal one. In any event, the appeal did not involve race and was more about procedure than substance, and it's hard to argue that this one ambiguous case out of eight proves the Post's thesis.
Bench Memos/NRO, Jun 09, 2009
The Washington Post yesterday had a long story arguing that Judge Sotomayor's decisions on "race, discrimination and the law" somehow "defy depictions of her record as falling neatly into either a liberal or conservative category." The article picks the eight cases that involved divided rulings. But, accepting arguendo the Post's methodology, I don't see how the article shows that Sotomayor is not a predictable liberal.
In six of the eight cases, it seems to me that the Post acknowledges that Judge Sotomayor came to a liberal result. Of the remaining two, one involved a policeman who was fired for mailing out racist and anti-Semitic fliers. Judge Sotomayor, in dissent, wanted to rule against the police department — just as the ACLU's New York affiliate had urged the court to do. Sure, her position favored a bigoted policeman, but she also wanted to use an aggressive interpretation of the First Amendment to tie the hands of the police department.
That leaves Hankins v. Lyght, involving a minister who sought to invoke the Age Discrimination in Employment Act when his church forced him to retire at age 70. The district court dismissed the case, but the Second Circuit remanded for the judge to consider whether applying the Religious Freedom Restoration Act (RFRA) would change the outcome; Judge Sotomayor dissented. Here's a link to the appellate opinions. Judge Sotomayor seemed especially unhappy that the panel went out of its way, in her view, to uphold the constitutionality of the RFRA; but that's an odd sort of "violat[ion] . . . of judicial restraint" (her words), and since RFRA was enthusiastically supported by the religious right, I'm not sure that her position is necessarily the un-liberal one. In any event, the appeal did not involve race and was more about procedure than substance, and it's hard to argue that this one ambiguous case out of eight proves the Post's thesis.
Caperton v Massey Coal - Where Empathy Takes You--Again
Where Empathy Takes You--Again. By Matthew J. Franck
Bench Memos/NRO, Jun 09, 2009
There is a nicely illustrative little decision by the Supreme Court today, in the case of Caperton v. Massey Coal. The coal company in question had been held liable in West Virginia courts for damages to the tune of $50 million. Then, while an appeal of the case pended in the state supreme court, the CEO of the company spent a lot of money—a few million dollars—helping to unseat a sitting justice of the court and replace him with another in the 2004 state elections.
The case came up on the docket after the election. The new justice, Brent Benjamin, declined to recuse himself from the case when it was moved that he do so (update: and the lower court was reversed by a one-vote margin—should've said that at first). No West Virginia statute or judicial code required his recusal. The question before the U.S. Supreme Court was whether the due process clause of the Fourteenth Amendment, understood to guarantee "a fair trial in a fair tribunal," required Justice Benjamin to recuse himself.
By a 5-4 vote, the Court ruled today that due process required Benjamin's recusal. Justice Anthony Kennedy, our current empathizer-in-chief, wrote for the majority. A first reading of Kennedy's opinion will tug at your sympathies as well. It sure does look awful bad when a fellow spends $3 million to get a judge elected and the judge declines to recuse himself and then rules in the fellow's favor. Why, it looks like Don Blankenship, the Massey Coal CEO, bought himself a supreme court justice!
But as Chief Justice John Roberts notes, in a dissent joined by Justices Scalia, Thomas, and Alito, this ruling opens up one serious can of worms. The Court's precedents had previously identified just two kinds of cases where the due process clause requires judicial recusal: when a judge has a palpable financial interest in the outcome, and when he could not be trusted not to act with antipathy toward a defendant in a criminal contempt case arising from the defendant's behavior in the judge's courtroom. The Caperton case goes way beyond those precedents and bodes very ill indeed, however much Justice Kennedy wants to keep repeating that it's an "extreme" case.
In the most devastating part of his opinion, Roberts begins to state, in numbered paragraphs, the sorts of questions "courts will now have to determine" without any real guidance from Kennedy's opinion. He then rolls out forty numbered paragraphs. Forty! And since most are multi-part questions, there are really about 100 questions—real, nagging, legal problems—prompted by this ruling. At the end of his list, Roberts understatedly says, "These are only a few uncertainties that quickly come to mind." I have this mental image of Roberts sitting in his chambers saying to his clerks, "Got another one? Oh, that one's good. And then what?" One of my favorites was number 10: "What if the [judicial] candidate draws 'disproportionate' support from a particular racial, religious, ethnic, or other group, and the case involves an issue of particular importance to that group?" The context, of course, is that of an elected judiciary, not our appointed federal judges, but somehow I couldn't help thinking of Judge Sonia Sotomayor. . . .
You really should read it all yourself. Caperton is a case study in the war between empathetic judging and intellectually coherent jurisprudence. As Justice Scalia notes in a brief additional dissent for himself alone, "The Court today continues its quixotic quest to right all wrongs and repair all imperfections through the Constitution." Precisely.
Bench Memos/NRO, Jun 09, 2009
There is a nicely illustrative little decision by the Supreme Court today, in the case of Caperton v. Massey Coal. The coal company in question had been held liable in West Virginia courts for damages to the tune of $50 million. Then, while an appeal of the case pended in the state supreme court, the CEO of the company spent a lot of money—a few million dollars—helping to unseat a sitting justice of the court and replace him with another in the 2004 state elections.
The case came up on the docket after the election. The new justice, Brent Benjamin, declined to recuse himself from the case when it was moved that he do so (update: and the lower court was reversed by a one-vote margin—should've said that at first). No West Virginia statute or judicial code required his recusal. The question before the U.S. Supreme Court was whether the due process clause of the Fourteenth Amendment, understood to guarantee "a fair trial in a fair tribunal," required Justice Benjamin to recuse himself.
By a 5-4 vote, the Court ruled today that due process required Benjamin's recusal. Justice Anthony Kennedy, our current empathizer-in-chief, wrote for the majority. A first reading of Kennedy's opinion will tug at your sympathies as well. It sure does look awful bad when a fellow spends $3 million to get a judge elected and the judge declines to recuse himself and then rules in the fellow's favor. Why, it looks like Don Blankenship, the Massey Coal CEO, bought himself a supreme court justice!
But as Chief Justice John Roberts notes, in a dissent joined by Justices Scalia, Thomas, and Alito, this ruling opens up one serious can of worms. The Court's precedents had previously identified just two kinds of cases where the due process clause requires judicial recusal: when a judge has a palpable financial interest in the outcome, and when he could not be trusted not to act with antipathy toward a defendant in a criminal contempt case arising from the defendant's behavior in the judge's courtroom. The Caperton case goes way beyond those precedents and bodes very ill indeed, however much Justice Kennedy wants to keep repeating that it's an "extreme" case.
In the most devastating part of his opinion, Roberts begins to state, in numbered paragraphs, the sorts of questions "courts will now have to determine" without any real guidance from Kennedy's opinion. He then rolls out forty numbered paragraphs. Forty! And since most are multi-part questions, there are really about 100 questions—real, nagging, legal problems—prompted by this ruling. At the end of his list, Roberts understatedly says, "These are only a few uncertainties that quickly come to mind." I have this mental image of Roberts sitting in his chambers saying to his clerks, "Got another one? Oh, that one's good. And then what?" One of my favorites was number 10: "What if the [judicial] candidate draws 'disproportionate' support from a particular racial, religious, ethnic, or other group, and the case involves an issue of particular importance to that group?" The context, of course, is that of an elected judiciary, not our appointed federal judges, but somehow I couldn't help thinking of Judge Sonia Sotomayor. . . .
You really should read it all yourself. Caperton is a case study in the war between empathetic judging and intellectually coherent jurisprudence. As Justice Scalia notes in a brief additional dissent for himself alone, "The Court today continues its quixotic quest to right all wrongs and repair all imperfections through the Constitution." Precisely.
Mother Nature, Serial Polluter
Re: Mother Nature, Serial Polluter. By Drew Thornley
Planet Gore/NRO, Jun 09, 2009
Oil rigs and tankers are always to blame, when it comes to oil polluting our oceans. But, as I highlighted in my recent Energy Myths report for the Manhattan Institute, more oil enters our nation's ocean waters from natural ocean-floor seepage than from human activities:
For example, ocean floors naturally seep more oil into the ocean than do oil-drilling accidents and oil-tanker spills combined. (However, such seepage generally does not rise to the surface or reach the coastlines and, thus, is not as apparent as oil-drilling spills.) According to the National Academies’ National Research Council, natural processes are responsible for over 60 percent of the petroleum that enters North American ocean waters and over 45 percent of the petroleum that enters ocean waters worldwide. Thus, in percentage terms, North America’s oil-drilling activities spill less oil into the ocean than the global average, suggesting that our drilling is comparatively safe for the environment.
Ironically, research shows that drilling can actually reduce natural seepage, as it relieves the pressure that drives oil and gas up from ocean floors and into ocean waters. In 1999, two peer-reviewed studies found that natural seepage in the northern Santa Barbara Channel was significantly reduced by oil production. The researchers documented that natural seepage declined 50 percent around Platform Holly over a twenty-two-year period, concluding that, as oil was pumped from the reservoir, the pressure that drives natural seepage dropped.
If you're interested in learning more, Stop Oil Seeps California is taking a little field trip this Saturday, June 13. From their e-mail:
We invite you to get a first hand look at the natural gas and oil seeps in the Santa Barbara Channel. At 25 knots, the Condor Express will calmly whisk you up the coastline to Coal Oil Point, the site of Santa Barbara County's prolific natural offshore seeps — the largest in the western hemisphere! Next you will motor over to Platform Holly for an up-close view of a working oil platform. The size of this facility is astounding and the marine life it supports is unique and fun to watch. The 25 minute ride back to the beautiful Santa Barbara Harbor should be relaxing and quite possibly filled with more marine surprises.
Planet Gore/NRO, Jun 09, 2009
Oil rigs and tankers are always to blame, when it comes to oil polluting our oceans. But, as I highlighted in my recent Energy Myths report for the Manhattan Institute, more oil enters our nation's ocean waters from natural ocean-floor seepage than from human activities:
For example, ocean floors naturally seep more oil into the ocean than do oil-drilling accidents and oil-tanker spills combined. (However, such seepage generally does not rise to the surface or reach the coastlines and, thus, is not as apparent as oil-drilling spills.) According to the National Academies’ National Research Council, natural processes are responsible for over 60 percent of the petroleum that enters North American ocean waters and over 45 percent of the petroleum that enters ocean waters worldwide. Thus, in percentage terms, North America’s oil-drilling activities spill less oil into the ocean than the global average, suggesting that our drilling is comparatively safe for the environment.
Ironically, research shows that drilling can actually reduce natural seepage, as it relieves the pressure that drives oil and gas up from ocean floors and into ocean waters. In 1999, two peer-reviewed studies found that natural seepage in the northern Santa Barbara Channel was significantly reduced by oil production. The researchers documented that natural seepage declined 50 percent around Platform Holly over a twenty-two-year period, concluding that, as oil was pumped from the reservoir, the pressure that drives natural seepage dropped.
If you're interested in learning more, Stop Oil Seeps California is taking a little field trip this Saturday, June 13. From their e-mail:
We invite you to get a first hand look at the natural gas and oil seeps in the Santa Barbara Channel. At 25 knots, the Condor Express will calmly whisk you up the coastline to Coal Oil Point, the site of Santa Barbara County's prolific natural offshore seeps — the largest in the western hemisphere! Next you will motor over to Platform Holly for an up-close view of a working oil platform. The size of this facility is astounding and the marine life it supports is unique and fun to watch. The 25 minute ride back to the beautiful Santa Barbara Harbor should be relaxing and quite possibly filled with more marine surprises.
Putinism's Piranha Stage: Russia's prime minister turns on his loyal friends
Putinism's Piranha Stage. By BRET STEPHENS
Russia's prime minister turns on his loyal friends.
WSJ, Jun 09, 2009
Time was when Oleg Deripaska was Vladimir Putin's best pet. The Russian metals magnate, a skiing buddy of Mr. Putin, was supposed to be the money behind Russia's 2014 Olympic dream. He was big on "patriotic" activities like supporting the Bolshoi. And he had taken the lesson of the ghosts of oligarchs past, which was never to question Mr. Putin's methods, much less his grip on power.
So what was Mr. Deripaska doing last week in the crummy little town of Pikalyovo, 130 miles from St. Petersburg, being led around one of his cement factories by a fire-breathing Mr. Putin, who likened the tycoon to a "cockroach" on Russian national TV?
"You have made thousands of people hostage to your ambitions, your lack of professionalism -- or maybe simply your trivial greed," Mr. Putin berated Mr. Deripaska, before forcing him to pay all outstanding wages and sign a contract for the factory. "Where is the social responsibility of business?" Following which the Russian prime minister was greeted by cheers from the grateful workers.
Welcome to the third stage of Putinism. In Stage One, Mr. Putin played the role of the determined technocratic modernizer who wanted to do nothing more than impose the rule of law on a young democracy spinning into anarchy. This stage ended in October 2003, with the arrest and subsequent conviction and imprisonment of oligarch Mikhail Khodorkovsky on dubious charges of tax evasion and fraud.
In Stage Two, Mr. Putin dispensed with the technocratic mien and, Bonaparte-like, effectively crowned himself czar, surrounded by a new breed of loyal oligarchs and ex-KGB cronies. They generously help themselves to other people's investments, foreign energy companies especially. This stage lasted as long as the rise in energy prices, culminating with last year's invasion of Georgia.
Now we're at Stage Three, in which Mr. Putin morphs into Hugo Chávez, as high-handed as before but with a populist twist. This is the stage in which guys like Mr. Deripaska allow themselves to be publicly humiliated by Mr. Putin, thinking they're taking one for the team when, in fact, they're taking it in the neck.
Here you must be thinking: It couldn't have happened to a nicer guy. Mr. Deripaska rose out of the so-called Aluminum Wars of the 1990s, in which battles for corporate control were waged at a price of dozens of lives. He was once denied a U.S. entry visa "amid concerns about the accuracy of statements he made" to the FBI, according to a 2007 story in this newspaper. (Bob Dole's law firm later resolved the problem for him.) Last year, Mr. Deripaska dismissed issues of press freedoms and democracy as so much humbug, while insisting that "it is a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want."
Whoops. Since offering that sage comment, the Russian economy has tanked, unemployment has jumped, the flow of credit has seized up, and Mr. Deripaska has lost about 90% of his previously estimated worth. Small factory towns like Pikalyovo have become the locus of potential civil unrest. In December, riot police had to be flown from Moscow to Vladivostok to deal with protests there. Last week's protest caused a traffic jam stretching a couple hundred miles.
Barring an improbable surge in commodity prices, it's only going to get worse. And while Mr. Putin can play the hero in Pikalyovo, he won't be able to do it for hundreds of other similarly situated towns, even if he winds up hounding Mr. Deripaska and friends into bankruptcy.
So what comes next? Conceivably, Mr. Putin could allow Mr. Deripaska and other oligarchs to rationalize their businesses through a combination of sales and closures. That's about as likely as the Obama administration choosing not to run GM.
More likely, Mr. Putin will try to harness anti-oligarch sentiments by expropriating their assets, keeping the factories running, and getting the state to purchase their output with increasingly worthless rubles. Inflation in Russia is already at 14%; he might gamble that Russians will put up with a spell of hyperinflation until the global economy recovers or a Middle East crisis sends oil prices soaring. (Look for Russia to play an especially unhelpful role vis-à-vis Iran.)
That's the system by which the Soviet Union carried on decade after dreary decade, the only difference being that the old Soviet leadership was sustained by sealed borders, a huge army, foreign adventurism, ideological confidence, and a massive apparatus of fear. Russia probably won't go that way, but don't discount the possibility.
In college I knew a guy who stocked his fish tank with goldfish and piranhas. First the piranhas ate the goldfish. It was horrible to watch. Then he stopped feeding the piranhas, so they ate each other. This was more interesting since there was no fish to feel sorry for. Finally one piranha was left. I don't remember my classmate restocking the tank. The champion piranha starved. This is the theory and logic of third-stage Putinism.
Russia's prime minister turns on his loyal friends.
WSJ, Jun 09, 2009
Time was when Oleg Deripaska was Vladimir Putin's best pet. The Russian metals magnate, a skiing buddy of Mr. Putin, was supposed to be the money behind Russia's 2014 Olympic dream. He was big on "patriotic" activities like supporting the Bolshoi. And he had taken the lesson of the ghosts of oligarchs past, which was never to question Mr. Putin's methods, much less his grip on power.
So what was Mr. Deripaska doing last week in the crummy little town of Pikalyovo, 130 miles from St. Petersburg, being led around one of his cement factories by a fire-breathing Mr. Putin, who likened the tycoon to a "cockroach" on Russian national TV?
"You have made thousands of people hostage to your ambitions, your lack of professionalism -- or maybe simply your trivial greed," Mr. Putin berated Mr. Deripaska, before forcing him to pay all outstanding wages and sign a contract for the factory. "Where is the social responsibility of business?" Following which the Russian prime minister was greeted by cheers from the grateful workers.
Welcome to the third stage of Putinism. In Stage One, Mr. Putin played the role of the determined technocratic modernizer who wanted to do nothing more than impose the rule of law on a young democracy spinning into anarchy. This stage ended in October 2003, with the arrest and subsequent conviction and imprisonment of oligarch Mikhail Khodorkovsky on dubious charges of tax evasion and fraud.
In Stage Two, Mr. Putin dispensed with the technocratic mien and, Bonaparte-like, effectively crowned himself czar, surrounded by a new breed of loyal oligarchs and ex-KGB cronies. They generously help themselves to other people's investments, foreign energy companies especially. This stage lasted as long as the rise in energy prices, culminating with last year's invasion of Georgia.
Now we're at Stage Three, in which Mr. Putin morphs into Hugo Chávez, as high-handed as before but with a populist twist. This is the stage in which guys like Mr. Deripaska allow themselves to be publicly humiliated by Mr. Putin, thinking they're taking one for the team when, in fact, they're taking it in the neck.
Here you must be thinking: It couldn't have happened to a nicer guy. Mr. Deripaska rose out of the so-called Aluminum Wars of the 1990s, in which battles for corporate control were waged at a price of dozens of lives. He was once denied a U.S. entry visa "amid concerns about the accuracy of statements he made" to the FBI, according to a 2007 story in this newspaper. (Bob Dole's law firm later resolved the problem for him.) Last year, Mr. Deripaska dismissed issues of press freedoms and democracy as so much humbug, while insisting that "it is a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want."
Whoops. Since offering that sage comment, the Russian economy has tanked, unemployment has jumped, the flow of credit has seized up, and Mr. Deripaska has lost about 90% of his previously estimated worth. Small factory towns like Pikalyovo have become the locus of potential civil unrest. In December, riot police had to be flown from Moscow to Vladivostok to deal with protests there. Last week's protest caused a traffic jam stretching a couple hundred miles.
Barring an improbable surge in commodity prices, it's only going to get worse. And while Mr. Putin can play the hero in Pikalyovo, he won't be able to do it for hundreds of other similarly situated towns, even if he winds up hounding Mr. Deripaska and friends into bankruptcy.
So what comes next? Conceivably, Mr. Putin could allow Mr. Deripaska and other oligarchs to rationalize their businesses through a combination of sales and closures. That's about as likely as the Obama administration choosing not to run GM.
More likely, Mr. Putin will try to harness anti-oligarch sentiments by expropriating their assets, keeping the factories running, and getting the state to purchase their output with increasingly worthless rubles. Inflation in Russia is already at 14%; he might gamble that Russians will put up with a spell of hyperinflation until the global economy recovers or a Middle East crisis sends oil prices soaring. (Look for Russia to play an especially unhelpful role vis-à-vis Iran.)
That's the system by which the Soviet Union carried on decade after dreary decade, the only difference being that the old Soviet leadership was sustained by sealed borders, a huge army, foreign adventurism, ideological confidence, and a massive apparatus of fear. Russia probably won't go that way, but don't discount the possibility.
In college I knew a guy who stocked his fish tank with goldfish and piranhas. First the piranhas ate the goldfish. It was horrible to watch. Then he stopped feeding the piranhas, so they ate each other. This was more interesting since there was no fish to feel sorry for. Finally one piranha was left. I don't remember my classmate restocking the tank. The champion piranha starved. This is the theory and logic of third-stage Putinism.
The Media Fall for Phony 'Jobs' Claims
The Media Fall for Phony 'Jobs' Claims. By WILLIAM MCGURN
The Obama Numbers Are Pure Fiction.
WSJ, Jun 09, 2009
Tony Fratto is envious.
Mr. Fratto was a colleague of mine in the Bush administration, and as a senior member of the White House communications shop, he knows just how difficult it can be to deal with a press corps skeptical about presidential economic claims. It now appears, however, that Mr. Fratto's problem was that he simply lacked the magic words -- jobs "saved or created."
"Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."
Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."
Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.
And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision. Harvard economist and former Bush economic adviser Greg Mankiw calls it a "non-measurable metric." And on his blog, he acknowledges the political attraction.
"The expression 'create or save,' which has been used regularly by the President and his economic team, is an act of political genius," writes Mr. Mankiw. "You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus."
Mr. Obama's comments yesterday are a perfect illustration of just such a claim. In the months since Congress approved the stimulus, our economy has lost nearly 1.6 million jobs and unemployment has hit 9.4%. Invoke the magic words, however, and -- presto! -- you have the president claiming he has "saved or created" 150,000 jobs. It all makes for a much nicer spin, and helps you forget this is the same team that only a few months ago promised us that passing the stimulus would prevent unemployment from rising over 8%.
It's not only former Bush staffers such as Messrs. Fratto and Mankiw who have noted the political convenience here. During a March hearing of the Senate Finance Committee, Chairman Max Baucus challenged Treasury Secretary Timothy Geithner on the formula.
"You created a situation where you cannot be wrong," said the Montana Democrat. "If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."
Now, something's wrong when the president invokes a formula that makes it impossible for him to be wrong and it goes largely unchallenged. It's true that almost any government spending will create some jobs and save others. But as Milton Friedman once pointed out, that doesn't tell you much: The government, after all, can create jobs by hiring people to dig holes and fill them in.
If the "saved or created" formula looks brilliant, it's only because Mr. Obama and his team are not being called on their claims. And don't expect much to change. So long as the news continues to repeat the administration's line that the stimulus has already "saved or created" 150,000 jobs over a time period when the U.S. economy suffered an overall job loss 10 times that number, the White House would be insane to give up a formula that allows them to spin job losses into jobs saved.
"You would think that any self-respecting White House press corps would show some of the same skepticism toward President Obama's jobs claims that they did toward President Bush's tax cuts," says Mr. Fratto. "But I'm still waiting."
The Obama Numbers Are Pure Fiction.
WSJ, Jun 09, 2009
Tony Fratto is envious.
Mr. Fratto was a colleague of mine in the Bush administration, and as a senior member of the White House communications shop, he knows just how difficult it can be to deal with a press corps skeptical about presidential economic claims. It now appears, however, that Mr. Fratto's problem was that he simply lacked the magic words -- jobs "saved or created."
"Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."
Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."
Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.
And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision. Harvard economist and former Bush economic adviser Greg Mankiw calls it a "non-measurable metric." And on his blog, he acknowledges the political attraction.
"The expression 'create or save,' which has been used regularly by the President and his economic team, is an act of political genius," writes Mr. Mankiw. "You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus."
Mr. Obama's comments yesterday are a perfect illustration of just such a claim. In the months since Congress approved the stimulus, our economy has lost nearly 1.6 million jobs and unemployment has hit 9.4%. Invoke the magic words, however, and -- presto! -- you have the president claiming he has "saved or created" 150,000 jobs. It all makes for a much nicer spin, and helps you forget this is the same team that only a few months ago promised us that passing the stimulus would prevent unemployment from rising over 8%.
It's not only former Bush staffers such as Messrs. Fratto and Mankiw who have noted the political convenience here. During a March hearing of the Senate Finance Committee, Chairman Max Baucus challenged Treasury Secretary Timothy Geithner on the formula.
"You created a situation where you cannot be wrong," said the Montana Democrat. "If the economy loses two million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs. You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."
Now, something's wrong when the president invokes a formula that makes it impossible for him to be wrong and it goes largely unchallenged. It's true that almost any government spending will create some jobs and save others. But as Milton Friedman once pointed out, that doesn't tell you much: The government, after all, can create jobs by hiring people to dig holes and fill them in.
If the "saved or created" formula looks brilliant, it's only because Mr. Obama and his team are not being called on their claims. And don't expect much to change. So long as the news continues to repeat the administration's line that the stimulus has already "saved or created" 150,000 jobs over a time period when the U.S. economy suffered an overall job loss 10 times that number, the White House would be insane to give up a formula that allows them to spin job losses into jobs saved.
"You would think that any self-respecting White House press corps would show some of the same skepticism toward President Obama's jobs claims that they did toward President Bush's tax cuts," says Mr. Fratto. "But I'm still waiting."
Canada's ObamaCare Precedent
Canada's ObamaCare Precedent. By DAVID GRATZER
Governments always ration care by making you wait. That can be deadly.
WSJ, Jun 09, 2009
Congressional Democrats will soon put forward their legislative proposals for reforming health care. Should they succeed, tens of millions of Americans will potentially be joining a new public insurance program and the federal government will increasingly be involved in treatment decisions.
Not long ago, I would have applauded this type of government expansion. Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.
My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.
The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.
Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist.
Indeed, Canada's provincial governments themselves rely on American medicine. Between 2006 and 2008, Ontario sent more than 160 patients to New York and Michigan for emergency neurosurgery -- described by the Globe and Mail newspaper as "broken necks, burst aneurysms and other types of bleeding in or around the brain."
Only half of ER patients are treated in a timely manner by national and international standards, according to a government study. The physician shortage is so severe that some towns hold lotteries, with the winners gaining access to the local doc.
Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts.
Ironically, as the U.S. is on the verge of rushing toward government health care, Canada is reforming its system in the opposite direction. In 2005, Canada's supreme court struck down key laws in Quebec that established a government monopoly of health services. Claude Castonguay, who headed the Quebec government commission that recommended the creation of its public health-care system in the 1960s, also has second thoughts. Last year, after completing another review, he declared the system in "crisis" and suggested a massive expansion of private services -- even advocating that public hospitals rent facilities to physicians in off-hours.
And the medical establishment? Dr. Brian Day, an orthopedic surgeon, grew increasingly frustrated by government cutbacks that reduced his access to an operating room and increased the number of patients on his hospital waiting list. He built a private hospital in Vancouver in the 1990s. Last year, he completed a term as the president of the Canadian Medical Association and was succeeded by a Quebec radiologist who owns several private clinics.
In Canada, private-sector health care is growing. Dr. Day estimates that 50,000 people are seen at private clinics every year in British Columbia. According to the New York Times, a private clinic opens at a rate of about one a week across the country. Public-private partnerships, once a taboo topic, are embraced by provincial governments.
In the United Kingdom, where socialized medicine was established after World War II through the National Health Service, the present Labour government has introduced a choice in surgeries by allowing patients to choose among facilities, often including private ones. Even in Sweden, the government has turned over services to the private sector.
Americans need to ask a basic question: Why are they rushing into a system of government-dominated health care when the very countries that have experienced it for so long are backing away?
Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.
Governments always ration care by making you wait. That can be deadly.
WSJ, Jun 09, 2009
Congressional Democrats will soon put forward their legislative proposals for reforming health care. Should they succeed, tens of millions of Americans will potentially be joining a new public insurance program and the federal government will increasingly be involved in treatment decisions.
Not long ago, I would have applauded this type of government expansion. Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.
My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.
The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.
Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist.
Indeed, Canada's provincial governments themselves rely on American medicine. Between 2006 and 2008, Ontario sent more than 160 patients to New York and Michigan for emergency neurosurgery -- described by the Globe and Mail newspaper as "broken necks, burst aneurysms and other types of bleeding in or around the brain."
Only half of ER patients are treated in a timely manner by national and international standards, according to a government study. The physician shortage is so severe that some towns hold lotteries, with the winners gaining access to the local doc.
Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts.
Ironically, as the U.S. is on the verge of rushing toward government health care, Canada is reforming its system in the opposite direction. In 2005, Canada's supreme court struck down key laws in Quebec that established a government monopoly of health services. Claude Castonguay, who headed the Quebec government commission that recommended the creation of its public health-care system in the 1960s, also has second thoughts. Last year, after completing another review, he declared the system in "crisis" and suggested a massive expansion of private services -- even advocating that public hospitals rent facilities to physicians in off-hours.
And the medical establishment? Dr. Brian Day, an orthopedic surgeon, grew increasingly frustrated by government cutbacks that reduced his access to an operating room and increased the number of patients on his hospital waiting list. He built a private hospital in Vancouver in the 1990s. Last year, he completed a term as the president of the Canadian Medical Association and was succeeded by a Quebec radiologist who owns several private clinics.
In Canada, private-sector health care is growing. Dr. Day estimates that 50,000 people are seen at private clinics every year in British Columbia. According to the New York Times, a private clinic opens at a rate of about one a week across the country. Public-private partnerships, once a taboo topic, are embraced by provincial governments.
In the United Kingdom, where socialized medicine was established after World War II through the National Health Service, the present Labour government has introduced a choice in surgeries by allowing patients to choose among facilities, often including private ones. Even in Sweden, the government has turned over services to the private sector.
Americans need to ask a basic question: Why are they rushing into a system of government-dominated health care when the very countries that have experienced it for so long are backing away?
Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.
Judges and 'Bias'
Judges and 'Bias'. WSJ Editorial
WSJ, Jun 09, 2009
The march away from a credible, accountable judiciary took another leap yesterday, as a 5-4 Supreme Court majority gave federal judges unprecedented oversight of state court recusal standards. This is more damaging than it sounds.
West Virginia's Massey coal company CEO Don Blankenship spent some $3 million in 2004 on the judicial election of Brent Benjamin to the state Supreme Court of Appeals, including donations to outside groups. When a case involving Massey later came before Judge Benjamin's court and he ruled in favor of Massey, the loser sued and claimed a denial of due process because the judge didn't recuse himself. According to the Supreme Court's majority in Caperton v. Massey, a judge who receives support that has a "significant and disproportionate influence" on his election can't then be trusted to be neutral on the bench.
Heretofore, judges needed to recuse themselves on due process grounds only if they had a direct financial interest in a case, and in criminal contempt cases in which the judge provoked the original courtroom outburst. Under Justice Anthony Kennedy's Caperton standard, judges must now recuse if there is a "probability of bias." But this would seem to be open to, well, judicial interpretation. If $3 million in donations meets the probable bias test, what about $1 million, or $10,000? For that matter, should we assume judges feel a "debt of hostility" toward those who contribute to opponents?
In his dissent, Chief Justice John Roberts lists 40 questions that represent only "a few uncertainties that quickly come to mind." The majority opinion "requires state and federal judges simultaneously to act as political scientists (why did candidate X win the election?), economists (was the financial support disproportionate?) and psychologists (is there likely to be a debt of gratitude?)"
Justice Kennedy tries to limit any judicial chaos by insisting that not every campaign contribution would demand recusal, and that this is an "exceptional case." But the support for this position by such opponents of judicial elections as the Brennan Center for Justice and the George Soros-funded Justice at Stake gives away the game.
These groups hope to brand all judicial elections with the taint of inevitable bias, and five Justices have now gone a long way to validating that claim. One result will be that far more decisions by elected judges will be challenged for bias, further tying up the courts and giving average citizens the impression that all judges can be bought. The ultimate goal of these groups is to have all judges selected by a club of lawyers and insiders that makes judges less accountable to average citizens.
Recusal standards are better handled at the state level, where individual judges are presumed to be impartial in their courtrooms. States have made their own rules for selecting judges, either through elections, or judicial selection commissions, or some variation of executive appointment and legislative confirmation. Allowing federal courts to second-guess state judges opens the door to unprecedented federal meddling.
Justice Kennedy may have indulged this intervention because his jurisprudence has always tended toward a presumption of judges as a superior, anointed class. He probably finds elections an untidy business. Yet the flood of challenges to judicial impartiality that he is unleashing will taint the entire judiciary by making most decisions appear personal. The cost of Mr. Kennedy's regrettable opinion will be a parade of Caperton motions, and a long shadow of doubt on courts across the country.
WSJ, Jun 09, 2009
The march away from a credible, accountable judiciary took another leap yesterday, as a 5-4 Supreme Court majority gave federal judges unprecedented oversight of state court recusal standards. This is more damaging than it sounds.
West Virginia's Massey coal company CEO Don Blankenship spent some $3 million in 2004 on the judicial election of Brent Benjamin to the state Supreme Court of Appeals, including donations to outside groups. When a case involving Massey later came before Judge Benjamin's court and he ruled in favor of Massey, the loser sued and claimed a denial of due process because the judge didn't recuse himself. According to the Supreme Court's majority in Caperton v. Massey, a judge who receives support that has a "significant and disproportionate influence" on his election can't then be trusted to be neutral on the bench.
Heretofore, judges needed to recuse themselves on due process grounds only if they had a direct financial interest in a case, and in criminal contempt cases in which the judge provoked the original courtroom outburst. Under Justice Anthony Kennedy's Caperton standard, judges must now recuse if there is a "probability of bias." But this would seem to be open to, well, judicial interpretation. If $3 million in donations meets the probable bias test, what about $1 million, or $10,000? For that matter, should we assume judges feel a "debt of hostility" toward those who contribute to opponents?
In his dissent, Chief Justice John Roberts lists 40 questions that represent only "a few uncertainties that quickly come to mind." The majority opinion "requires state and federal judges simultaneously to act as political scientists (why did candidate X win the election?), economists (was the financial support disproportionate?) and psychologists (is there likely to be a debt of gratitude?)"
Justice Kennedy tries to limit any judicial chaos by insisting that not every campaign contribution would demand recusal, and that this is an "exceptional case." But the support for this position by such opponents of judicial elections as the Brennan Center for Justice and the George Soros-funded Justice at Stake gives away the game.
These groups hope to brand all judicial elections with the taint of inevitable bias, and five Justices have now gone a long way to validating that claim. One result will be that far more decisions by elected judges will be challenged for bias, further tying up the courts and giving average citizens the impression that all judges can be bought. The ultimate goal of these groups is to have all judges selected by a club of lawyers and insiders that makes judges less accountable to average citizens.
Recusal standards are better handled at the state level, where individual judges are presumed to be impartial in their courtrooms. States have made their own rules for selecting judges, either through elections, or judicial selection commissions, or some variation of executive appointment and legislative confirmation. Allowing federal courts to second-guess state judges opens the door to unprecedented federal meddling.
Justice Kennedy may have indulged this intervention because his jurisprudence has always tended toward a presumption of judges as a superior, anointed class. He probably finds elections an untidy business. Yet the flood of challenges to judicial impartiality that he is unleashing will taint the entire judiciary by making most decisions appear personal. The cost of Mr. Kennedy's regrettable opinion will be a parade of Caperton motions, and a long shadow of doubt on courts across the country.
Holder Winks at Voter Intimidation
Holder Winks at Voter Intimidation. By HANS A. VON SPAKOVSKY
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
Leonard: Why many MEPs don't believe in the European Union
Europe's Self-Hating Parliamentarians. By Mark Leonard
Why many MEPs don't believe in the European Union.
WSJ, Jun 09, 2009
The European Parliament is in the throes of an early midlife crisis. Although newspaper headlines are focused on the strong performance of center-right parties, the 2009 vote is more likely to be remembered for the election of so many self-hating parliamentarians.
A substantial minority of members (MEPs) see their role as reducing rather than expanding the European Union's power. This is a remarkable change for a body that fought tooth-and-nail to extend its authority every time a new EU treaty was negotiated.
The paradox of the European Parliament is that as its power has grown, the public's interest in its activities has declined. Each election has brought lower voter turnout than the one before. Even more brutal than this year's turnout: Many of parliament's new members don't believe that the body in which they sit should be allowed to exist.
Take the colorful Geert Wilders, whose anti-Islamic-immigrant party shot up to second place in the Netherlands with 17% of the vote after the Christian Democrats, who won 19.9%. He ran on a manifesto that included a pledge to abolish the European Parliament. In the United Kingdom, the two biggest parties were the Conservative Party (committed to abolishing the Lisbon Treaty) and the Independence Party (committed to getting Britain out of the EU). The British National Party picked up two seats with its pledge to "end the blood-sucking scam" of the EU.
In Austria, the xenophobic Freedom Party got 13% of the vote with a call to remove the EU from Austria's affairs. A party set up to protest against the abuses of the European Parliament managed to pick up 17.9% of the vote. Anti-European populists also picked up significant support in Hungary, Denmark, Slovakia and Finland.
This trend tells us a lot about the dynamics of the EU as a political system. From the beginning, European integration has been defined by two trends: technocracy and populism.
On the one hand, the EU is the ultimate technocratic project. The so-called Monnet approach -- named after the key architect of European integration, the French official Jean Monnet -- is designed to generate a consensus among European diplomats for limited projects of practical cross-border cooperation. Each of these projects should lead to further integration in various policy areas.
The success of the technocrats has been phenomenal. They created first a coal and steel community, then a customs union, then a single market and even a single currency.
It was the very success of the EU as a bureaucratic phenomenon that fueled a populist backlash. This first started as a localized phenomenon, with Margaret Thatcher famously demanding a refund for Britain in the 1980s. Now, it is a pan-European force. The populists come from the left and right, but their common complaint is that the EU is an elite conspiracy, a project to build "Europe against the people." In its place, they plan to mobilize the "people against Europe."
Though people in Brussels talk about technocracy and populism as opposites, in fact they are mutually reinforcing. The more EU leaders try to remove European integration from national politics, the more brittle the EU's legitimacy becomes, which in turn means that policy makers want to further evade public opinion. And the more technocratic the EU becomes, the stronger the calls for democracy and referendums, which in turn create a space for populist parties to emerge.
Since the moment that Jean Monnet turned his mind to uniting Europe, technocracy has been a cornerstone of the EU. Populism has now been sanctified as part of the EU's structure through the introduction of referendums and elections to the European Parliament.
If national and EU officials are going to avoid total gridlock going forward, they will need to deepen their understanding of the domestic politics of the 27 states of the EU and spend time analyzing and engaging public opinion.
In order for the EU to emerge from its midlife crisis, the next generation of EU technocrats will need to be populists as well.
Mr. Leonard is executive director of the European Council on Foreign Relations.
Why many MEPs don't believe in the European Union.
WSJ, Jun 09, 2009
The European Parliament is in the throes of an early midlife crisis. Although newspaper headlines are focused on the strong performance of center-right parties, the 2009 vote is more likely to be remembered for the election of so many self-hating parliamentarians.
A substantial minority of members (MEPs) see their role as reducing rather than expanding the European Union's power. This is a remarkable change for a body that fought tooth-and-nail to extend its authority every time a new EU treaty was negotiated.
The paradox of the European Parliament is that as its power has grown, the public's interest in its activities has declined. Each election has brought lower voter turnout than the one before. Even more brutal than this year's turnout: Many of parliament's new members don't believe that the body in which they sit should be allowed to exist.
Take the colorful Geert Wilders, whose anti-Islamic-immigrant party shot up to second place in the Netherlands with 17% of the vote after the Christian Democrats, who won 19.9%. He ran on a manifesto that included a pledge to abolish the European Parliament. In the United Kingdom, the two biggest parties were the Conservative Party (committed to abolishing the Lisbon Treaty) and the Independence Party (committed to getting Britain out of the EU). The British National Party picked up two seats with its pledge to "end the blood-sucking scam" of the EU.
In Austria, the xenophobic Freedom Party got 13% of the vote with a call to remove the EU from Austria's affairs. A party set up to protest against the abuses of the European Parliament managed to pick up 17.9% of the vote. Anti-European populists also picked up significant support in Hungary, Denmark, Slovakia and Finland.
This trend tells us a lot about the dynamics of the EU as a political system. From the beginning, European integration has been defined by two trends: technocracy and populism.
On the one hand, the EU is the ultimate technocratic project. The so-called Monnet approach -- named after the key architect of European integration, the French official Jean Monnet -- is designed to generate a consensus among European diplomats for limited projects of practical cross-border cooperation. Each of these projects should lead to further integration in various policy areas.
The success of the technocrats has been phenomenal. They created first a coal and steel community, then a customs union, then a single market and even a single currency.
It was the very success of the EU as a bureaucratic phenomenon that fueled a populist backlash. This first started as a localized phenomenon, with Margaret Thatcher famously demanding a refund for Britain in the 1980s. Now, it is a pan-European force. The populists come from the left and right, but their common complaint is that the EU is an elite conspiracy, a project to build "Europe against the people." In its place, they plan to mobilize the "people against Europe."
Though people in Brussels talk about technocracy and populism as opposites, in fact they are mutually reinforcing. The more EU leaders try to remove European integration from national politics, the more brittle the EU's legitimacy becomes, which in turn means that policy makers want to further evade public opinion. And the more technocratic the EU becomes, the stronger the calls for democracy and referendums, which in turn create a space for populist parties to emerge.
Since the moment that Jean Monnet turned his mind to uniting Europe, technocracy has been a cornerstone of the EU. Populism has now been sanctified as part of the EU's structure through the introduction of referendums and elections to the European Parliament.
If national and EU officials are going to avoid total gridlock going forward, they will need to deepen their understanding of the domestic politics of the 27 states of the EU and spend time analyzing and engaging public opinion.
In order for the EU to emerge from its midlife crisis, the next generation of EU technocrats will need to be populists as well.
Mr. Leonard is executive director of the European Council on Foreign Relations.
WSJ Editorial page On Lebanese Elections
Cedar Evolution. WSJ Editorial
WSJ, Jun 09. 2009
In one of the year's most important elections, the Lebanese people voted Sunday and Iran's mullahs lost. The celebrations in Beirut were spontaneous, as were the sighs of relief in Washington, most Arab and European capitals and Jerusalem.
The result is a victory for moderation in the Middle East and a check on Tehran's regional ambitions. The Western-friendly "March 14" coalition increased its majority by one, winning 71 of 128 seats. Hezbollah -- the terrorist "Party of God" created in 1983 and since underwritten and armed by Tehran -- and its allies lost a seat to keep 57.
The outlook for Lebanon shifted far more dramatically than those numbers might suggest. In the last election, "March 14" ran as partners with Hezbollah. This time the Sunni, Christian and Druze coalition -- led by the son of former Prime Minister Rafik Hariri, who was assassinated in 2005 -- won its own mandate.
Iran spent millions on Hezbollah's campaign, and new redistricting lines favored them too. But Lebanese voters rebuffed the Shiite radicals who terrorize Beirut's democracy; no fewer than six members of parliament in the last parliamentary term were gunned down.
This being Lebanon, talks on building a governing coalition are bound to be difficult. But in the bigger picture, this election marks a step forward since the 2005 Cedar Revolution ended the Syrian occupation. And it's a vindication of America's policy of democracy promotion. In Pakistan, Turkey, Iraq and now Lebanon, extremist Muslim parties didn't fare as well as feared at reasonably free polls, and often lost ground. The outcome in Lebanon is another good reason for the Obama Administration to make democracy a priority of its so-called new relationship with the Muslim world -- even if George W. Bush also happened to think it was a good idea.
WSJ, Jun 09. 2009
In one of the year's most important elections, the Lebanese people voted Sunday and Iran's mullahs lost. The celebrations in Beirut were spontaneous, as were the sighs of relief in Washington, most Arab and European capitals and Jerusalem.
The result is a victory for moderation in the Middle East and a check on Tehran's regional ambitions. The Western-friendly "March 14" coalition increased its majority by one, winning 71 of 128 seats. Hezbollah -- the terrorist "Party of God" created in 1983 and since underwritten and armed by Tehran -- and its allies lost a seat to keep 57.
The outlook for Lebanon shifted far more dramatically than those numbers might suggest. In the last election, "March 14" ran as partners with Hezbollah. This time the Sunni, Christian and Druze coalition -- led by the son of former Prime Minister Rafik Hariri, who was assassinated in 2005 -- won its own mandate.
Iran spent millions on Hezbollah's campaign, and new redistricting lines favored them too. But Lebanese voters rebuffed the Shiite radicals who terrorize Beirut's democracy; no fewer than six members of parliament in the last parliamentary term were gunned down.
This being Lebanon, talks on building a governing coalition are bound to be difficult. But in the bigger picture, this election marks a step forward since the 2005 Cedar Revolution ended the Syrian occupation. And it's a vindication of America's policy of democracy promotion. In Pakistan, Turkey, Iraq and now Lebanon, extremist Muslim parties didn't fare as well as feared at reasonably free polls, and often lost ground. The outcome in Lebanon is another good reason for the Obama Administration to make democracy a priority of its so-called new relationship with the Muslim world -- even if George W. Bush also happened to think it was a good idea.
Obama Tells American Businesses to Drop Dead
Obama Tells American Businesses to Drop Dead. By Kevin Hassett
June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.
Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.
I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.
“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?
At issue is Obama’s policy to end the deferral of multinational taxation.
The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.
Tax Burden
U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.
The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.
Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.
Encourage Overseas Sales
Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”
So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.
It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.
Inexplicable Stance
So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.
If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
June 8 (Bloomberg) -- I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.
Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.
I know, it sounds like an exaggeration. But look at it this way. If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.
“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?
At issue is Obama’s policy to end the deferral of multinational taxation.
The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.
Tax Burden
U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.
The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.
Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.
Encourage Overseas Sales
Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”
So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.
It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.
Inexplicable Stance
So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.
If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
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