Waxman-Markey Cost-Benefit Analysis. By Jim Manzi
The Corner/NRO, Wednesday, May 20, 2009
There has been widespread agitation in the influential blogosphere for a cost-benefit analysis of the Waxman-Markey cap-and-trade proposal. This sure seems like a reasonable request to me, and you have to wonder why the sponsors and advocates of this bill — who are, after all, proposing an enormous commitment of resources — haven’t provided one. So I tried to do a quick version of it. I have a longer and more complete version of this coming in the next National Review, but wanted to get the bones of the analysis out for discussion as rapidly as possible.
Background Analysis
According to the authoritative U.N. Intergovernmental Panel on Climate Change (IPCC), under a reasonable set of assumptions for global economic and population growth, the world should expect (Table SPM.3) to warm by about 2.8°C over the next century. Also according to the IPCC (page 17), a global increase in temperature of 4°C should cause the world to lose about 3 percent of its economic output. So if we do not take measures to ameliorate global warming, the world should expect to be about 3 percent poorer sometime in the 22nd century than it otherwise would be. This is very far from the rhetoric of global destruction. Because of its geographical position and mix of economic activities, the United States is expected (Table 3) to experience no net material economic costs from such warming through the end of this century, and to begin experiencing net costs only thereafter.
A government program to force emissions reductions to avoid some of these potential future losses would impose a cost of its own: The loss in consumption we would experience if we used less energy, substituted higher-cost sources of energy for fossil fuels, and paid for projects — which are termed “offsets” — to ameliorate the effect of emissions (an example would be planting lots of trees). It’s complicated to estimate the cost of an emissions-reduction program, but the leading economists in this area generally agree that it would be large, and that we should simply let most emissions happen, because it would be more expensive to avoid them than to accept the damage they would cause. This makes sense, if you consider that most such plans (for example, Waxman-Markey) call for eliminating something like 80 percent of carbon dioxide emissions within the next 40 years or so. Even if the economy becomes more efficient over this period, such a quick transition away from our primary fossil-fuel sources will be expensive.
If a) the total potential benefit of emissions abatement is about 3 percent of economic output more than 100 years from now, b) we can avoid only some of this damage, and c) it’s expensive to prevent those emissions that we can prevent, the net benefit of emissions reduction will likely be a very small fraction of total economic output. William Nordhaus, who heads the widely respected environmental-economics-modeling group at Yale, estimates (page 84) the total expected net benefit of an optimally designed, implemented, and enforced global program to be equal to the present value of about 0.2 percent of future global economic consumption. In the real world of domestic politics and geostrategic competition, it is not realistic to expect that we would ever have an optimally designed, implemented, and enforced global system, and the side deals made to put in place even an imperfect system would likely have costs that would dwarf 0.2 percent of global economic consumption. The expected benefits of emissions mitigation do not cover its expected costs. This is the root reason that proposals to mitigate emissions have such a hard time justifying themselves economically. (If interested, you can read much more about this here).
Costs vs. Benefits of Waxman-Markey
Let’s start with the costs. The Environmental Protection Agency (EPA) has done the first cost estimate for Waxman-Markey. It finds (page 17) that by 2020 Waxman-Markey would cause a typical U.S. household to consume about $160 less per year than it otherwise would, and about $1,100 less per year by 2050 (before any potential benefits from avoiding warming). That doesn’t sound like the end of the world, but this cost estimate is based on a number of assumptions that seem pretty unrealistic, to put it mildly.
First, it assumes that every dollar collected by selling the right to emit carbon dioxide will be returned to taxpayers through rebates or lowered taxes. Waxman-Markey establishes this intention but doesn’t (as of the time I’m writing this) describe how it would be achieved, which reflects the political difficulty of achieving it. Second, it assumes no costs for enforcement and other compliance measures, which would be awfully nice. Third, it assumes that large numbers of foreign offsets will be available for purchase; without these, costs would be far higher. Fourth, it assumes that the rest of the world will begin similar carbon-reduction programs. Lack of such foreign action would either increase U.S. costs or risk a trade war if we tried to compensate for lack of international cooperation with targeted tariffs. Fifth, it assumes that there will be no exemptions or other side deals — that is, no economic drag created by the kind of complexity that has attached to every large, long-term revenue-collection program in history. And so on.
The EPA forecast is something like an estimate of the pure loss in economic productivity from replacing some fossil fuels with less economically efficient fuels or conservation in a laboratory setting; in the real world, expected costs are far above 0.8 percent of economic consumption by 2050. The EPA does not forecast costs beyond 2050.
Remember that the U.S. should not expect any net economic damage from global warming before 2100. That is, the bill’s benefits would accrue to U.S. consumers — who are also bearing its costs — sometime in the next century. The EPA underestimate has costs rising from zero to 0.8 percent of consumption between now and 2050, and offers no projection beyond that year; but to what level would costs rise over the more than 50 years between 2050 and the point in 22nd century when we might actually expect some net economic losses from global warming? The answer is likely to be much higher.
Now consider the benefits. Climatologist Chip Knappenberger has applied standard climate models to project that, under the scenario for global economic and population growth referenced above (A1B), Waxman-Markey’s emissions reductions would have the net effect of lowering global temperatures by about 0.1°C by 2100. Remember that the estimated cost of a 4°C increase in temperature (40 times this amount) is about 3 percent of global economic output. Assume for the moment that global warming has the same impact on the U.S. as a percentage of GDP as it does on the world as a whole (an assumption that almost certainly exaggerates the impact on the U.S.). A crude estimate of the U.S. economic costs that Waxman-Markey would avoid sometime later than 2100 would then be about one-fortieth of 3 percent, or about 0.08 percent of economic output. This number is one-tenth of 0.8 percent, the EPA’s estimate of consumption loss from Waxman-Markey by 2050. To repeat: The costs would be more than ten times the benefits, even under extremely unrealistic assumptions of low costs and high benefits. More realistic assumptions would make for a comparison far less favorable to the bill.
I’ve had to rely on informal studies and back-of-envelope calculations to do this cost/benefit analysis. Why haven’t advocates and sponsors of the proposal done their own? Why are they urging Congress to make an incredible commitment of resources without even cursory analysis of the net economic consequences? The answer should be obvious: This is a terrible deal for American taxpayers.
Two Potential Objections
One potential objection to my analysis is that the bill is part of a global drive for all countries to reduce emissions, and that the U.S. needs to “show leadership.” By this logic, we should ascribe much larger benefits to the Waxman-Markey bill — specifically, the benefits to American consumers of the whole world’s engaging in similar programs. There are two obvious problems with this argument, however. First, ascribing all of the benefits of a global deal to reduce emissions to a specific bill that does not create such a commitment on the part of any other countries is loading the dice. The benefit we should ascribe to the bill is rather that of an increase in the odds of such a global deal. But would Waxman-Markey actually increase them, or would it decrease them instead? Whenever one nation sacrifices economic growth in order to reduce emissions, the whole world can expect to benefit, because future temperature should decrease for the entire globe. Every nation’s incentive, therefore, is to free ride on everybody else. Our most obvious leverage with other emitting nations would be to offer to reduce our emissions if they reduced theirs. Giving up this leverage and hoping that our unilateral reductions would put moral pressure on China, Russia, Brazil, and similar countries to reduce their emissions reveals a touchingly sunny view of human nature, but it strikes me as a poor negotiating strategy. Second and more fundamentally, even if the whole world were to enact similar restraints on emissions, the cost/benefit economics would still not be compelling, for the reasons outlined at the beginning of this post.
A second and more serious potential objection to my analysis is that while Waxman-Markey may not create benefits if the projections I offered above turn out to be accurate, climate science is highly inexact, and the bill is an insurance policy against higher-than-expected costs. Now, climate and economics modelers aren’t idiots, so it’s not as though this hadn’t occurred to them. Competent modelers don’t assume only the most likely case, but build probability distributions for levels of warming and associated economic impacts (e.g., there is a 5 percent chance of 4.5°C warming, a 10 percent chance of 4.0°C warming, and so on). The economic calculations that compose, for example, the analysis by William Nordhaus that I cited earlier are executed in just this manner. So the possibility of “worse than expected” impacts means, more precisely, the possibility of “impacts worse than those derived from our current probability distribution.” That is, we are concerned here with the inherently unquantifiable possibility that our entire probability distribution is wrong.
This concept has been called, somewhat grandiosely, the “Precautionary Principle.” Once you get past all the table-pounding, this is the crux of the argument for emissions abatement. It is an emotionally appealing political position, as it easy to argue that we should reduce some consumption now to head off even a low-odds possibility of disaster. The most compelling version of this argument, by far, has been presented by Martin Weitzman. You can read my detailed response here (note that this was to a slightly earlier edition of the paper). The essence of my response is that in order to drive a decision, Weitzman must take his argument from the conceptual idea of a “fat-tailed distribution” of danger to a numerical estimate of risk. He recognizes that the logic of his argument entails this. In his article, he ends up having to do the kind of armchair climate science that has been the bane of the “global warming is all a hoax” set. He uses a couple of ice bore studies to develop his own probability distribution for potential warming that calls for a 1% chance of 22.6C or more of warming by 2100. To put this in perspective, a 22.6C increase in the earth’s temperature would mean that the average global year-round temperature would be the same as summertime Death Valley is today. If you could convince me that there was a reliably-quantified 1% chance of this happening, you wouldn’t need all of the mathematical formalism of Weitzman’s paper — I’d be the biggest emissions-mitigation proponent on earth. The problem is that the IPCC has already built a distribution of potential temperature changes (see Figure 10.28, page 808) that looks nothing like this. If you don’t want to believe me, read Cass Sunstein’s book about why the Precautionary Principle, even in sophisticated form, is a very bad decision rule.
In the end, clarity about costs and benefits is the enemy of Waxman-Markey. It is hard to get around the conclusion that it can not be justified rationally based on the avoidance of climate change damages.
Wednesday, May 20, 2009
Cancer and the Government
Cancer and the Government, by Michael D. Tanner
Cato, May 20, 2009
The American Cancer Society Cancer Action Network announced recently that it will spend $3 million over the next several months not on urging Americans to stop smoking or get mammograms, but on campaigning for a government takeover of the U.S. health-care system. This is perverse: It's hard to imagine anything worse for cancer patients than government-run health care.
For all its faults and all the criticism that it has received, the United States' free-market health-care system has made America the place you want to be if you have a serious illness.
Cancer patients understand this. The overall five-year survival rate for all types of cancer for men in America is 66.3 percent, and 62.9 percent for women, the best outcome in the world.
We shouldn't be surprised. The one common characteristic of all national health-care systems is that they ration care.
Sometimes they ration it explicitly, denying certain types of treatment altogether. More often, they ration more indirectly — imposing global budgets or other cost constraints that limit the availability of high-tech medical equipment or imposing long waits on patients seeking treatment.
In the United States, there are no such government-set limits, meaning that the most advanced treatment options are far more available. This translates directly into saved lives.
A prime example of denying patients treatment that has the potential to, if not save, at least prolong one's life comes from the much vaunted National Health System (NHS) in the United Kingdom. In order to keep the budget under control, the U.K. government established the National Institute for Health and Clinical Excellence (or NICE). NICE acts as a comparative-effectiveness tool for NHS, comparing various treatments and determining whether the benefits the patient receives, such as prolonged life, are cost-efficient for the government. Outlines for reform put forth by President Obama and Democrats in Congress include a comparative-effectiveness body similar to NICE.
NICE, however, is not simply a government agency that helps bureaucrats decide if one treatment is better than another. With the creation of NICE, the U.K. government has effectively put a dollar amount to how much a citizen's life is worth. To be exact, each year of added life is worth approximately $44,305 (£30,000). Of course, this is a general rule and, as NICE chairman Michael Rawlins points out, the agency has sometimes approved treatments costing as much as $70,887 (£48,000) per year of extended life.
Approval for expensive treatments, regrettably, is the exception and not the rule. Such treatments are only approved if it can be shown they extend life by at least three months and are used for illnesses that affect fewer than 7,000 new patients per year. After all, as Rawlins notes, "We have a finite pot of money."
This unfortunate truth has led to many controversial decisions in Britain. Most recently, in August 2008, NICE refused to approve four new treatments for kidney cancer, three of which had already been approved for use in the U.S. for a year or more. In April 2009 NICE reversed its ban on one drug, Sutent. Sutent can double the life expectancy of patients and costs around $35,465 (£24,000) per year. For the other three drugs, however, NICE confirmed its ban, despite each having similar costs to Sutent.
The advantages of free-market health care go far beyond an absence of rationing. With no price controls, free-market U.S. medicine provides the incentives that lead to innovative breakthroughs in new drugs and other medical technologies. U.S. companies have developed half of all the major new medicines introduced worldwide over the last 20 years.
In fact, Americans played a key role in 80 percent of the most important medical advances of the last 30 years. Eighteen of the last 25 winners of the Nobel Prize in Medicine either are U.S. citizens or work here.
If the American Cancer Society got the government-run national health-care system it wants, we would eliminate consumer choice and put a stop to the innovations we count on to improve our health. It would condemn thousands of cancer sufferers to waiting lists and denied care. In the end, it would cost lives.
If the Cancer Society truly wants to help Americans suffering from that complex array of diseases called cancer, it will get back to campaigning for mammograms and quitting smoking, and keep the government out of the picture.
Cato, May 20, 2009
The American Cancer Society Cancer Action Network announced recently that it will spend $3 million over the next several months not on urging Americans to stop smoking or get mammograms, but on campaigning for a government takeover of the U.S. health-care system. This is perverse: It's hard to imagine anything worse for cancer patients than government-run health care.
For all its faults and all the criticism that it has received, the United States' free-market health-care system has made America the place you want to be if you have a serious illness.
Cancer patients understand this. The overall five-year survival rate for all types of cancer for men in America is 66.3 percent, and 62.9 percent for women, the best outcome in the world.
We shouldn't be surprised. The one common characteristic of all national health-care systems is that they ration care.
Sometimes they ration it explicitly, denying certain types of treatment altogether. More often, they ration more indirectly — imposing global budgets or other cost constraints that limit the availability of high-tech medical equipment or imposing long waits on patients seeking treatment.
In the United States, there are no such government-set limits, meaning that the most advanced treatment options are far more available. This translates directly into saved lives.
A prime example of denying patients treatment that has the potential to, if not save, at least prolong one's life comes from the much vaunted National Health System (NHS) in the United Kingdom. In order to keep the budget under control, the U.K. government established the National Institute for Health and Clinical Excellence (or NICE). NICE acts as a comparative-effectiveness tool for NHS, comparing various treatments and determining whether the benefits the patient receives, such as prolonged life, are cost-efficient for the government. Outlines for reform put forth by President Obama and Democrats in Congress include a comparative-effectiveness body similar to NICE.
NICE, however, is not simply a government agency that helps bureaucrats decide if one treatment is better than another. With the creation of NICE, the U.K. government has effectively put a dollar amount to how much a citizen's life is worth. To be exact, each year of added life is worth approximately $44,305 (£30,000). Of course, this is a general rule and, as NICE chairman Michael Rawlins points out, the agency has sometimes approved treatments costing as much as $70,887 (£48,000) per year of extended life.
Approval for expensive treatments, regrettably, is the exception and not the rule. Such treatments are only approved if it can be shown they extend life by at least three months and are used for illnesses that affect fewer than 7,000 new patients per year. After all, as Rawlins notes, "We have a finite pot of money."
This unfortunate truth has led to many controversial decisions in Britain. Most recently, in August 2008, NICE refused to approve four new treatments for kidney cancer, three of which had already been approved for use in the U.S. for a year or more. In April 2009 NICE reversed its ban on one drug, Sutent. Sutent can double the life expectancy of patients and costs around $35,465 (£24,000) per year. For the other three drugs, however, NICE confirmed its ban, despite each having similar costs to Sutent.
The advantages of free-market health care go far beyond an absence of rationing. With no price controls, free-market U.S. medicine provides the incentives that lead to innovative breakthroughs in new drugs and other medical technologies. U.S. companies have developed half of all the major new medicines introduced worldwide over the last 20 years.
In fact, Americans played a key role in 80 percent of the most important medical advances of the last 30 years. Eighteen of the last 25 winners of the Nobel Prize in Medicine either are U.S. citizens or work here.
If the American Cancer Society got the government-run national health-care system it wants, we would eliminate consumer choice and put a stop to the innovations we count on to improve our health. It would condemn thousands of cancer sufferers to waiting lists and denied care. In the end, it would cost lives.
If the Cancer Society truly wants to help Americans suffering from that complex array of diseases called cancer, it will get back to campaigning for mammograms and quitting smoking, and keep the government out of the picture.
Federal President at the Auto Buffet: With no resistance, he ate the whole thing
Obama at the Auto Buffet. By Holman W Jenkins, Jr.
With no resistance, he ate the whole thing.
WSJ, May 20, 2009
With his latest installment of ever-higher fuel mileage requirements for the auto industry, Barack Obama embraces a momentary, crisis-spawned expansion of the art of the possible, unleavened by any art of the rationally desirable.
Detroit is dependent on Washington loans for survival. The industry's lobbyists and its congressional allies have collapsed in a heap, offering no resistance. So why not go for broke? If you're alone in front of the shrimp buffet, why not eat all the shrimp -- even if it makes you barf later?
Defenders of the Obama administration's Chrysler bankruptcy finagle misguidedly argue that, if not for taxpayer money, the company's secured creditors would have gotten as little or less than they did in the imposed settlement.
They miss the point. Anyone can always imagine an outcome more "fair" than the outcome provided by people duly exercising -- and the legal process duly upholding -- their rights. Fairness in a law-abiding society is due process. In the Chrysler bankruptcy, the administration hijacked the legal forms for a political end that it could have delivered honestly by the government buying Chrysler out of liquidation and handing it to the UAW.
But then Mr. Obama's purposes would have been exposed a little too nakedly for public consumption.
Already, of course, the swim of events has moved on, into deeper and more chaotic waters. The union will own 55% of Chrysler, and it would be quite rational to prefer an additional dollar of wages and benefits to 55 cents of earnings (55 cents being the union's share of a dollar of earnings).
Even this overstates the union's incentive to concern itself with the auto maker's profitability. The Chrysler stake would actually be owned not for the benefit of current workers but for retirees, since its ostensible purpose is to fund retiree health care. Yet power would still rest with a union chief elected exclusively by active members.
The administration at least understands the conflict it has set in motion. Under a reported new Chrysler contract dictated by the White House, the union surrenders its right to strike for the next six years. A redolent fact, though, is that Ron Bloom, the administration's real acting car czar in this case, was a principal in the now-defunct investment banking firm of Keilin & Bloom, which secured the 55% stake for the unions in United Airlines in the mid-1990s.
United's pilots did not strike in pursuit of what eventually became the richest contract in the industry. They did engage in work slowdowns that led to thousands of canceled and delayed flights and ferocious anger among the airline's customers. Pilot leader Rick Dubinsky told management in 2000: "We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg." United filed for bankruptcy two years later.
So far, the Obama administration has yet to lay out its magical thinking on how the homegrown auto makers are to become "viable" when required to subordinate every auto attribute that consumers find desirable in favor of achieving a passenger-car average of 39 miles per gallon by 2016. Nonetheless the answer has quietly seeped out: Taxpayers will write $5,000 or $7,000 rebate checks to other taxpayers to bribe them to buy hybrids and plug-ins at a price that lets Detroit claim it's earning a "profit" on its Obamamobiles.
Mr. Obama was supposed to be smart. His administration was supposed to be a smart administration. But the policy coming out has not been smart. It has been a brute shifting of power to the president's political allies, justified by the shibboleths of copybook liberalism (though Mr. Obama is clever enough to know that nothing he's done will have a meaningful effect on atmospheric carbon or climate change or the country's need for oil imports).
With no overarching philosophy in evidence, the art of the possible has come to define the Obama administration. One thing that has proved possible is an untrammeled power grab over the auto industry. Yet it all seems mainly to testify to the limitations of Saul Alinsky as a political philosopher. The doyen of community organizing, his views profoundly influenced Mr. Obama. The late Alinsky was unsentimental about power, and about accumulating it in order to extract from "the system" benefits for his constituents.
But a president also has to represent the system. He has to care about whether the setup is sustainable and ultimately meets a nation's needs and reflects its values. In delivering unlimited sway over the domestic auto makers to the greens and labor, Mr. Obama is creating a catastrophically unbalanced "system" with no effective pushback on behalf of profits (aka "viability") -- that is, except from consumers, who ultimately will doom his attempt. How so? By declining to pay enough for the forthcoming Obamamobiles to cover the cost of designing and building them.
With no resistance, he ate the whole thing.
WSJ, May 20, 2009
With his latest installment of ever-higher fuel mileage requirements for the auto industry, Barack Obama embraces a momentary, crisis-spawned expansion of the art of the possible, unleavened by any art of the rationally desirable.
Detroit is dependent on Washington loans for survival. The industry's lobbyists and its congressional allies have collapsed in a heap, offering no resistance. So why not go for broke? If you're alone in front of the shrimp buffet, why not eat all the shrimp -- even if it makes you barf later?
Defenders of the Obama administration's Chrysler bankruptcy finagle misguidedly argue that, if not for taxpayer money, the company's secured creditors would have gotten as little or less than they did in the imposed settlement.
They miss the point. Anyone can always imagine an outcome more "fair" than the outcome provided by people duly exercising -- and the legal process duly upholding -- their rights. Fairness in a law-abiding society is due process. In the Chrysler bankruptcy, the administration hijacked the legal forms for a political end that it could have delivered honestly by the government buying Chrysler out of liquidation and handing it to the UAW.
But then Mr. Obama's purposes would have been exposed a little too nakedly for public consumption.
Already, of course, the swim of events has moved on, into deeper and more chaotic waters. The union will own 55% of Chrysler, and it would be quite rational to prefer an additional dollar of wages and benefits to 55 cents of earnings (55 cents being the union's share of a dollar of earnings).
Even this overstates the union's incentive to concern itself with the auto maker's profitability. The Chrysler stake would actually be owned not for the benefit of current workers but for retirees, since its ostensible purpose is to fund retiree health care. Yet power would still rest with a union chief elected exclusively by active members.
The administration at least understands the conflict it has set in motion. Under a reported new Chrysler contract dictated by the White House, the union surrenders its right to strike for the next six years. A redolent fact, though, is that Ron Bloom, the administration's real acting car czar in this case, was a principal in the now-defunct investment banking firm of Keilin & Bloom, which secured the 55% stake for the unions in United Airlines in the mid-1990s.
United's pilots did not strike in pursuit of what eventually became the richest contract in the industry. They did engage in work slowdowns that led to thousands of canceled and delayed flights and ferocious anger among the airline's customers. Pilot leader Rick Dubinsky told management in 2000: "We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg." United filed for bankruptcy two years later.
So far, the Obama administration has yet to lay out its magical thinking on how the homegrown auto makers are to become "viable" when required to subordinate every auto attribute that consumers find desirable in favor of achieving a passenger-car average of 39 miles per gallon by 2016. Nonetheless the answer has quietly seeped out: Taxpayers will write $5,000 or $7,000 rebate checks to other taxpayers to bribe them to buy hybrids and plug-ins at a price that lets Detroit claim it's earning a "profit" on its Obamamobiles.
Mr. Obama was supposed to be smart. His administration was supposed to be a smart administration. But the policy coming out has not been smart. It has been a brute shifting of power to the president's political allies, justified by the shibboleths of copybook liberalism (though Mr. Obama is clever enough to know that nothing he's done will have a meaningful effect on atmospheric carbon or climate change or the country's need for oil imports).
With no overarching philosophy in evidence, the art of the possible has come to define the Obama administration. One thing that has proved possible is an untrammeled power grab over the auto industry. Yet it all seems mainly to testify to the limitations of Saul Alinsky as a political philosopher. The doyen of community organizing, his views profoundly influenced Mr. Obama. The late Alinsky was unsentimental about power, and about accumulating it in order to extract from "the system" benefits for his constituents.
But a president also has to represent the system. He has to care about whether the setup is sustainable and ultimately meets a nation's needs and reflects its values. In delivering unlimited sway over the domestic auto makers to the greens and labor, Mr. Obama is creating a catastrophically unbalanced "system" with no effective pushback on behalf of profits (aka "viability") -- that is, except from consumers, who ultimately will doom his attempt. How so? By declining to pay enough for the forthcoming Obamamobiles to cover the cost of designing and building them.
Free markets are the worst economic system except for all the others
Why Government Can't Run a Business. By John Steele Gordon
Politicians need headlines. Executives need profits.
WSJ, May 20, 2009
The Obama administration is bent on becoming a major player in -- if not taking over entirely -- America's health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government's track record in running economic enterprises. It is terrible.
In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.
When the plant was finally finished, however -- three years after World War I had ended -- it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.
Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.
These examples are not aberrations; they are typical of how governments run enterprises. There are a number of reasons why this is inherently so. Among them are:
1) Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen. The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms.
And politicians tend to favor parochial interests over sound economic sense. Consider a thought experiment. There is a national widget crisis and Sen. Wiley Snoot is chairman of the Senate Widget Committee. There are two technologies that are possible solutions to the problem, with Technology A widely thought to be the more promising of the two. But the company that has been developing Technology B is headquartered in Sen. Snoot's state and employs 40,000 workers there. Which technology is Sen. Snoot going to use his vast legislative influence to push?
2) Politicians need headlines. And this means they have a deep need to do something ("Sen. Snoot Moves on Widget Crisis!"), even when doing nothing would be the better option. Markets will always deal efficiently with gluts and shortages, but letting the market work doesn't produce favorable headlines and, indeed, often produces the opposite ("Sen. Snoot Fails to Move on Widget Crisis!").
3) Governments use other people's money. Corporations play with their own money. They are wealth-creating machines in which various people (investors, managers and labor) come together under a defined set of rules in hopes of creating more wealth collectively than they can create separately.
So a labor negotiation in a corporation is a negotiation over how to divide the wealth that is created between stockholders and workers. Each side knows that if they drive too hard a bargain they risk killing the goose that lays golden eggs for both sides. Just ask General Motors and the United Auto Workers.
But when, say, a school board sits down to negotiate with a teachers union or decide how many administrators are needed, the goose is the taxpayer. That's why public-service employees now often have much more generous benefits than their private-sector counterparts. And that's why the New York City public school system had an administrator-to-student ratio 10 times as high as the city's Catholic school system, at least until Mayor Michael Bloomberg (a more than competent businessman before he entered politics) took charge of the system.
4) Government does not tolerate competition. The Obama administration is talking about creating a "public option" that would compete in the health-insurance marketplace with profit-seeking companies. But has a government entity ever competed successfully on a level playing field with private companies? I don't know of one.
5) Government enterprises are almost always monopolies and thus do not face competition at all. But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.
When the federal government nationalized the phone system in 1917, justifying it as a wartime measure that would lower costs, it turned it over to the Post Office to run. (The process was called "postalization," a word that should send shivers down the back of any believer in free markets.) But despite the promise of lower prices, practically the first thing the Post Office did when it took over was . . . raise prices.
Cost cutting is alien to the culture of all bureaucracies. Indeed, when cost cutting is inescapable, bureaucracies often make cuts that will produce maximum public inconvenience, generating political pressure to reverse the cuts.
6) Successful corporations are run by benevolent despots. The CEO of a corporation has the power to manage effectively. He decides company policy, organizes the corporate structure, and allocates resources pretty much as he thinks best. The board of directors ordinarily does nothing more than ratify his moves (or, of course, fire him). This allows a company to act quickly when needed.
But American government was designed by the Founding Fathers to be inefficient, and inefficient it most certainly is. The president is the government's CEO, but except for trivial matters he can't do anything without the permission of two separate, very large committees (the House and Senate) whose members have their own political agendas. Government always has many cooks, which is why the government's broth is so often spoiled.
7) Government is regulated by government. When "postalization" of the nation's phone system appeared imminent in 1917, Theodore Vail, the president of AT&T, admitted that his company was, effectively, a monopoly. But he noted that "all monopolies should be regulated. Government ownership would be an unregulated monopoly."
It is government's job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely -- and rightly -- end up in jail.
But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it -- and a largely unquestioning Washington press corps -- called budget "surpluses." But the national debt still increased in every single one of those years because the government was borrowing money to create the "surpluses."
Capitalism isn't perfect. Indeed, to paraphrase Winston Churchill's famous description of democracy, it's the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.
Mr. Gordon is the author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).
Politicians need headlines. Executives need profits.
WSJ, May 20, 2009
The Obama administration is bent on becoming a major player in -- if not taking over entirely -- America's health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government's track record in running economic enterprises. It is terrible.
In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.
When the plant was finally finished, however -- three years after World War I had ended -- it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.
Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.
These examples are not aberrations; they are typical of how governments run enterprises. There are a number of reasons why this is inherently so. Among them are:
1) Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen. The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms.
And politicians tend to favor parochial interests over sound economic sense. Consider a thought experiment. There is a national widget crisis and Sen. Wiley Snoot is chairman of the Senate Widget Committee. There are two technologies that are possible solutions to the problem, with Technology A widely thought to be the more promising of the two. But the company that has been developing Technology B is headquartered in Sen. Snoot's state and employs 40,000 workers there. Which technology is Sen. Snoot going to use his vast legislative influence to push?
2) Politicians need headlines. And this means they have a deep need to do something ("Sen. Snoot Moves on Widget Crisis!"), even when doing nothing would be the better option. Markets will always deal efficiently with gluts and shortages, but letting the market work doesn't produce favorable headlines and, indeed, often produces the opposite ("Sen. Snoot Fails to Move on Widget Crisis!").
3) Governments use other people's money. Corporations play with their own money. They are wealth-creating machines in which various people (investors, managers and labor) come together under a defined set of rules in hopes of creating more wealth collectively than they can create separately.
So a labor negotiation in a corporation is a negotiation over how to divide the wealth that is created between stockholders and workers. Each side knows that if they drive too hard a bargain they risk killing the goose that lays golden eggs for both sides. Just ask General Motors and the United Auto Workers.
But when, say, a school board sits down to negotiate with a teachers union or decide how many administrators are needed, the goose is the taxpayer. That's why public-service employees now often have much more generous benefits than their private-sector counterparts. And that's why the New York City public school system had an administrator-to-student ratio 10 times as high as the city's Catholic school system, at least until Mayor Michael Bloomberg (a more than competent businessman before he entered politics) took charge of the system.
4) Government does not tolerate competition. The Obama administration is talking about creating a "public option" that would compete in the health-insurance marketplace with profit-seeking companies. But has a government entity ever competed successfully on a level playing field with private companies? I don't know of one.
5) Government enterprises are almost always monopolies and thus do not face competition at all. But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.
When the federal government nationalized the phone system in 1917, justifying it as a wartime measure that would lower costs, it turned it over to the Post Office to run. (The process was called "postalization," a word that should send shivers down the back of any believer in free markets.) But despite the promise of lower prices, practically the first thing the Post Office did when it took over was . . . raise prices.
Cost cutting is alien to the culture of all bureaucracies. Indeed, when cost cutting is inescapable, bureaucracies often make cuts that will produce maximum public inconvenience, generating political pressure to reverse the cuts.
6) Successful corporations are run by benevolent despots. The CEO of a corporation has the power to manage effectively. He decides company policy, organizes the corporate structure, and allocates resources pretty much as he thinks best. The board of directors ordinarily does nothing more than ratify his moves (or, of course, fire him). This allows a company to act quickly when needed.
But American government was designed by the Founding Fathers to be inefficient, and inefficient it most certainly is. The president is the government's CEO, but except for trivial matters he can't do anything without the permission of two separate, very large committees (the House and Senate) whose members have their own political agendas. Government always has many cooks, which is why the government's broth is so often spoiled.
7) Government is regulated by government. When "postalization" of the nation's phone system appeared imminent in 1917, Theodore Vail, the president of AT&T, admitted that his company was, effectively, a monopoly. But he noted that "all monopolies should be regulated. Government ownership would be an unregulated monopoly."
It is government's job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely -- and rightly -- end up in jail.
But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it -- and a largely unquestioning Washington press corps -- called budget "surpluses." But the national debt still increased in every single one of those years because the government was borrowing money to create the "surpluses."
Capitalism isn't perfect. Indeed, to paraphrase Winston Churchill's famous description of democracy, it's the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.
Mr. Gordon is the author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).
Bankrupt companies making 39 mpg autos. Are we nuts?
Car Crazy. WSJ Editorial
Bankrupt companies making 39 mpg autos. Are we nuts?
WSJ, May 20, 2009
At the end of his Rose Garden explanation yesterday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are "working together." The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.
Mr. Obama's fleet-mileage partners yesterday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.
All that's left to arrive at the President's new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.
Start with technology. The President's proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that "the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety."
The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?
Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."
All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn't interested in subsidies or taxes.
That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.
Mr. Obama said a lot yesterday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can't sell, or can't sell profitably. That might not be a problem if you're now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.
The real carrot the Administration offered the industry yesterday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called "consistency."
So yes, it is possible to see why this disparate group came together yesterday. The UAW may soon be the government's partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.
We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we're nuts.
Bankrupt companies making 39 mpg autos. Are we nuts?
WSJ, May 20, 2009
At the end of his Rose Garden explanation yesterday of the new U.S. fuel-efficiency standards, President Obama remarked on the good that can be accomplished when we are "working together." The President may be getting ahead of himself. Watching the unlikely coalition arrayed behind him as Mr. Obama committed the U.S. to an astonishing passenger-car mileage average of 39 miles per gallon by 2016, it looks truer to say we are merely standing together in this adventure, for better or worse.
Mr. Obama's fleet-mileage partners yesterday included the two auto companies that have fallen into his arms, Chrysler and GM, still-independent Ford, the major foreign manufacturers, United Auto Workers chief Ron Gettelfinger, and beaming representatives from the Sierra Club, Environmental Defense Fund and the Union of Concerned Scientists.
All that's left to arrive at the President's new destination for the American way of driving are huge, unanswered questions about technology, financing and the marketability of cars that will be small and expensive.
Start with technology. The President's proposed standards would raise fuel economy goals higher and faster than even the National Highway Transportation Safety Administration believes is practical. Last year, NHTSA issued a proposed rule making that would have raised fuel economy to 32.2 mpg by 2015 for cars and light trucks combined. Its 376-page report notes that "the resources used to meet overly stringent CAFE standards . . . would better be allocated to other uses such as technology research and development, or improvements in vehicle safety."
The new U.S. fleet will almost certainly be made up of hybrids and electric cars. This comports with the explicit intention of the President and his environmental partners to back out fossil fuels. One may ask: Once Detroit is forced to build these cars, will free Americans want to buy them, at any price?
Unless we outlaw the bigger cars that recent sales figures have shown Americans prefer any time gas prices fall below $4 per gallon, Detroit will need help marketing these small vehicles. As GM's Bob Lutz put it not long ago, "Very few people will want to change what has been their 'nationality given' right to drive big and bigger if the price of gas is $1.50 or $2 or even $2.50. Those prices will put the CAFE-mandated manufacturers at war with their customers."
All solutions to this problem flow from Washington. One would be to give substantial tax subsidies to buyers. Another would be to impose a federal gas tax to jack up the price of gasoline to $4 per gallon and keep it there. This is the solution that keeps Europeans driving small cars with tiny engines. High gasoline prices have become a political third rail in U.S. politics, and the Obama Administration insists it isn't interested in subsidies or taxes.
That puts the burden back on the beleaguered auto makers. The Detroit Three already sell small cars at a loss to meet the current 27.5 mpg fleet average. The car companies may hope that if the whole industry is forced to move up the fuel-economy ladder, consumers will have no choice other than to buy these cars. But experience suggests companies that have specialized in making smaller cars, such as the Japanese-owned auto makers, are more likely to be able to sell them at a profit.
Mr. Obama said a lot yesterday about the promised benefits of all this for the environment but not much about return on investment for the auto sellers. These public goals notwithstanding, it still looks as if Ford, Chrysler and GM will be making cars they can't sell, or can't sell profitably. That might not be a problem if you're now Gettelfinger Motors. But still-independent Ford has private shareholders and creditors to answer. While GM and Chrysler attempt to meet the new standards with taxpayer money, Ford will have to do so on its own.
The real carrot the Administration offered the industry yesterday was a detour from the nightmare of state-mandated standards. California has been seeking a waiver from the Administration to impose its own higher mileage standards, and a number of other states have followed suit. The Obama national proposal indeed offers the industry what he called "consistency."
So yes, it is possible to see why this disparate group came together yesterday. The UAW may soon be the government's partner in ownership of GM and Chrysler, and it has a strong incentive not to bite the hand feeding it a huge equity stake in the car makers. Ford and the other foreign-owned auto makers, which will have to raise private capital to make changes that U.S. taxpayers will fund at Chrysler and GM, no doubt want to maintain their political viability by not standing athwart this regulatory steamroller.
We wish these folks luck "working together" with the Obama auto-design team. One thing seems certain by 2016: Taxpayers will be paying Detroit to make the cars Americans don't want, and then they will pay again either through (trust us) a gas tax or with a purchase subsidy. Even the French must think we're nuts.
WSJ Editorial Page: After negotiation failed, Sri Lanka pursued a military solution
A Terrorist Defeat. WSJ Editorial
After negotiation failed, Sri Lanka pursued a military solution.
WSJ, May 20, 2009
The war on terror scored a big victory this weekend with the Sri Lankan army's battlefield defeat of the terrorist Liberation Tigers of Tamil Eelam. The event vindicates one of the major lessons of September 11: Most of the time, terrorists have to be defeated militarily before political accommodation is possible.
President Mahinda Rajapaksa announced that the army had routed the Tigers from their last redoubt in the island's Northern Province, killing Tiger leader Velupillai Prabhakaran and several hundred top militant leaders. Prabhakaran's apparent demise is the Sri Lankan equivalent to killing Osama bin Laden. It's much less likely the cadres will continue a low-level terrorist insurgency.
How Sri Lanka got here is worth recounting. The island's conflict started in 1983. After Sri Lanka's independence from Britain, the ethnic Sinhalese majority pursued many discriminatory policies against the Tamil minority: a Sinhala-only language policy, preferences for Sinhalese in university admissions and government hiring, and the exclusion of Tamils from the police.
The war quickly became more about Prabhakaran's determination to form an independent Tamil state under the exclusive control of his Marxist Tigers than about those Tamil grievances. The Tigers killed many moderate Tamil politicians who would have been willing to cooperate politically with Colombo.
Prabhakaran made extensive use of suicide bombers -- including a teenage girl who blew herself up to assassinate former Indian Prime Minister Rajiv Gandhi in 1991 -- and relied heavily on child soldiers. Sri Lanka's conflict has claimed 70,000 lives by most counts. It should have been clear early on that government negotiation would go nowhere with such a committed killer.
Mr. Rajapaksa, elected in 2005, put an end to the "peace process" with Prabhakaran and focused on winning the military fight. In 2007, with the help of a Tiger splinter group, the government subdued the Eastern Province; the first elections were held there last year. The fighting then moved to the North. It has not been cheap or easy. Military spending in the 2009 budget is $1.7 billion, 5% of GDP and 20% of the government's budget.
Colombo also learned lessons from its earlier failures. The military improved its training in counterinsurgency tactics, and Colombo invested the resources to enable the army to hold territory it won. Moves by the United States, Britain, Canada and other countries to freeze Tiger fundraising among the Tamil diaspora helped weaken the Tigers. Mr. Rajapaksa wisely ignored international calls for a ceasefire as he got closer to victory, including threats from the Obama Administration to block $1.9 billion in International Monetary Fund aid money.
The government now faces a potential humanitarian crisis in housing, feeding and clothing the more than 200,000 Tamil civilians who have fled the fighting. Sri Lanka has to more fully address the political grievances of moderate Tamils and ensure that there are economic opportunities for all Sri Lankans. After decades of socialism, several rounds of liberalization have since paved the way for 6% to 8% annual growth even amid a civil war.
As Colombo starts to grapple with those post-conflict problems, everyone else can take note: Thanks to a strategy of defeating the insurgency, Sri Lanka is now in a position to talk seriously about peace and economic growth. When negotiating with terrorists doesn't work, Plan B is defeating them.
After negotiation failed, Sri Lanka pursued a military solution.
WSJ, May 20, 2009
The war on terror scored a big victory this weekend with the Sri Lankan army's battlefield defeat of the terrorist Liberation Tigers of Tamil Eelam. The event vindicates one of the major lessons of September 11: Most of the time, terrorists have to be defeated militarily before political accommodation is possible.
President Mahinda Rajapaksa announced that the army had routed the Tigers from their last redoubt in the island's Northern Province, killing Tiger leader Velupillai Prabhakaran and several hundred top militant leaders. Prabhakaran's apparent demise is the Sri Lankan equivalent to killing Osama bin Laden. It's much less likely the cadres will continue a low-level terrorist insurgency.
How Sri Lanka got here is worth recounting. The island's conflict started in 1983. After Sri Lanka's independence from Britain, the ethnic Sinhalese majority pursued many discriminatory policies against the Tamil minority: a Sinhala-only language policy, preferences for Sinhalese in university admissions and government hiring, and the exclusion of Tamils from the police.
The war quickly became more about Prabhakaran's determination to form an independent Tamil state under the exclusive control of his Marxist Tigers than about those Tamil grievances. The Tigers killed many moderate Tamil politicians who would have been willing to cooperate politically with Colombo.
Prabhakaran made extensive use of suicide bombers -- including a teenage girl who blew herself up to assassinate former Indian Prime Minister Rajiv Gandhi in 1991 -- and relied heavily on child soldiers. Sri Lanka's conflict has claimed 70,000 lives by most counts. It should have been clear early on that government negotiation would go nowhere with such a committed killer.
Mr. Rajapaksa, elected in 2005, put an end to the "peace process" with Prabhakaran and focused on winning the military fight. In 2007, with the help of a Tiger splinter group, the government subdued the Eastern Province; the first elections were held there last year. The fighting then moved to the North. It has not been cheap or easy. Military spending in the 2009 budget is $1.7 billion, 5% of GDP and 20% of the government's budget.
Colombo also learned lessons from its earlier failures. The military improved its training in counterinsurgency tactics, and Colombo invested the resources to enable the army to hold territory it won. Moves by the United States, Britain, Canada and other countries to freeze Tiger fundraising among the Tamil diaspora helped weaken the Tigers. Mr. Rajapaksa wisely ignored international calls for a ceasefire as he got closer to victory, including threats from the Obama Administration to block $1.9 billion in International Monetary Fund aid money.
The government now faces a potential humanitarian crisis in housing, feeding and clothing the more than 200,000 Tamil civilians who have fled the fighting. Sri Lanka has to more fully address the political grievances of moderate Tamils and ensure that there are economic opportunities for all Sri Lankans. After decades of socialism, several rounds of liberalization have since paved the way for 6% to 8% annual growth even amid a civil war.
As Colombo starts to grapple with those post-conflict problems, everyone else can take note: Thanks to a strategy of defeating the insurgency, Sri Lanka is now in a position to talk seriously about peace and economic growth. When negotiating with terrorists doesn't work, Plan B is defeating them.
Get Ready for Another North Korean Nuke Test
Get Ready for Another North Korean Nuke Test. By John Bolton
Iran could soon be following Pyongyang's example.
WSJ, May 20, 2009
The curtain is about to rise again on the long-running nuclear tragicomedy, "North Korea Outwits the United States." Despite Kim Jong Il's explicit threats of another nuclear test, U.S. Special Envoy Stephen Bosworth said last week that the Obama administration is "relatively relaxed" and that "there is not a sense of crisis." They're certainly smiling in Pyongyang.
In October 2006, North Korea witnessed the incredible diplomatic success it could reap from belligerence. Its first nuclear test brought resumption of the six-party talks, which gave Kim Jong Il cover to further advance his nuclear program.
Now, Kim is poised to succeed again by following precisely the same script. In April, Pyongyang launched a Taepodong-2 missile, and National Security Council official Gary Samore recently confirmed that a second nuclear test is likely on the way. The North is set to try two U.S. reporters for "hostile acts." The state-controlled newspaper calls America "a rogue and a gangster." Kim recently expelled international monitors from the Yongbyon nuclear complex. And Pyongyang threatens to "start" enriching uranium -- a capacity it procured long ago.
A second nuclear test is by no means simply a propaganda ploy. Most experts believe that the 2006 test was flawed, producing an explosive yield well below even what the North's scientists had predicted. The scientific and military imperatives for a second test have been strong for over two years, and the potential data, experience and other advantages of further testing would be tremendous.
What the North has lacked thus far is the political opportunity to test without fatally jeopardizing its access to the six-party talks and the legitimacy they provide. Despite the State Department's seemingly unbreakable second-term hold over President Bush, another test after 2006 just might have ended the talks.
So far, the North faces no such threat from the Obama administration. Despite Pyongyang's aggression, Mr. Bosworth has reiterated that the U.S. is "committed to dialogue" and is "obviously interested in returning to a negotiating table as soon as we can." This is precisely what the North wants: America in a conciliatory mode, eager to bargain, just as Mr. Bush was after the 2006 test.
If the next nuclear explosion doesn't derail the six-party talks, Kim will rightly conclude that he faces no real danger of ever having to dismantle his weapons program. North Korea is a mysterious place, but there is no mystery about its foreign-policy tactics: They work. The real mystery is why our administrations -- Republican and Democratic -- haven't learned that their quasi-religious faith in the six-party talks is misplaced.
Secretary of State Hillary Clinton recently rejected "linkage" in Russia policy as "old thinking." Disagreement in one area, she argued, shouldn't prevent working on "something else that is of overwhelming importance." Whatever the merits of linkage vis-à-vis Russia, de-linking a second North Korean nuclear test from the six-party talks simply hands Pyongyang permission to proceed.
Even worse, Iran and other aspiring nuclear proliferators will draw precisely the same conclusion: Negotiations like the six-party talks are a charade and reflect a continuing collapse of American resolve. U.S. acquiescence in a second North Korean nuclear test will likely mean that Tehran will adopt Pyongyang's successful strategy.
It's time for the Obama administration to finally put down Kim Jong Il's script. If not, we better get ready for Iran -- and others -- to go nuclear.
Mr. Bolton, a senior fellow at the American Enterprise Institute, is the author of "Surrender Is Not an Option: Defending America at the United Nations and Abroad" (Simon & Schuster, 2007).
Iran could soon be following Pyongyang's example.
WSJ, May 20, 2009
The curtain is about to rise again on the long-running nuclear tragicomedy, "North Korea Outwits the United States." Despite Kim Jong Il's explicit threats of another nuclear test, U.S. Special Envoy Stephen Bosworth said last week that the Obama administration is "relatively relaxed" and that "there is not a sense of crisis." They're certainly smiling in Pyongyang.
In October 2006, North Korea witnessed the incredible diplomatic success it could reap from belligerence. Its first nuclear test brought resumption of the six-party talks, which gave Kim Jong Il cover to further advance his nuclear program.
Now, Kim is poised to succeed again by following precisely the same script. In April, Pyongyang launched a Taepodong-2 missile, and National Security Council official Gary Samore recently confirmed that a second nuclear test is likely on the way. The North is set to try two U.S. reporters for "hostile acts." The state-controlled newspaper calls America "a rogue and a gangster." Kim recently expelled international monitors from the Yongbyon nuclear complex. And Pyongyang threatens to "start" enriching uranium -- a capacity it procured long ago.
A second nuclear test is by no means simply a propaganda ploy. Most experts believe that the 2006 test was flawed, producing an explosive yield well below even what the North's scientists had predicted. The scientific and military imperatives for a second test have been strong for over two years, and the potential data, experience and other advantages of further testing would be tremendous.
What the North has lacked thus far is the political opportunity to test without fatally jeopardizing its access to the six-party talks and the legitimacy they provide. Despite the State Department's seemingly unbreakable second-term hold over President Bush, another test after 2006 just might have ended the talks.
So far, the North faces no such threat from the Obama administration. Despite Pyongyang's aggression, Mr. Bosworth has reiterated that the U.S. is "committed to dialogue" and is "obviously interested in returning to a negotiating table as soon as we can." This is precisely what the North wants: America in a conciliatory mode, eager to bargain, just as Mr. Bush was after the 2006 test.
If the next nuclear explosion doesn't derail the six-party talks, Kim will rightly conclude that he faces no real danger of ever having to dismantle his weapons program. North Korea is a mysterious place, but there is no mystery about its foreign-policy tactics: They work. The real mystery is why our administrations -- Republican and Democratic -- haven't learned that their quasi-religious faith in the six-party talks is misplaced.
Secretary of State Hillary Clinton recently rejected "linkage" in Russia policy as "old thinking." Disagreement in one area, she argued, shouldn't prevent working on "something else that is of overwhelming importance." Whatever the merits of linkage vis-à-vis Russia, de-linking a second North Korean nuclear test from the six-party talks simply hands Pyongyang permission to proceed.
Even worse, Iran and other aspiring nuclear proliferators will draw precisely the same conclusion: Negotiations like the six-party talks are a charade and reflect a continuing collapse of American resolve. U.S. acquiescence in a second North Korean nuclear test will likely mean that Tehran will adopt Pyongyang's successful strategy.
It's time for the Obama administration to finally put down Kim Jong Il's script. If not, we better get ready for Iran -- and others -- to go nuclear.
Mr. Bolton, a senior fellow at the American Enterprise Institute, is the author of "Surrender Is Not an Option: Defending America at the United Nations and Abroad" (Simon & Schuster, 2007).
The new corporation: a devoted core surrounded by a cloud of contractors and free-lancers
Ready For a Change - WSJ.com
The new corporation: a devoted core surrounded by a cloud of contractors and free-lancers. Like the Huffington Post.
Review of The Future Arrived Yesterday
By Michael S. Malone (Crown Business, 294 pages, $27.50)
The new corporation: a devoted core surrounded by a cloud of contractors and free-lancers. Like the Huffington Post.
Review of The Future Arrived Yesterday
By Michael S. Malone (Crown Business, 294 pages, $27.50)
Tuesday, May 19, 2009
The irresponsible Office of Professional Responsibility
Obama's Injustice Department, by Michael Stokes Paulsen
The irresponsible Office of Professional Responsibility.
The Weekly Standard, May 25, 2009, Volume 014, Issue 34
Government lawyers in the Department of Justice's Office of Professional Responsibility (OPR) appear to have leaked to the press parts of a confidential--and classified--draft report concerning the actions of Bush administration lawyers. The report calls for state bar associations to investigate, and perhaps discipline, attorneys who provided sensitive legal advice to President Bush's administration concerning the legal limits of coercive interrogation methods against high-level al Qaeda terrorists. That advice was, of course, controversial. It is now, in the current political climate, highly unpopular in certain circles. OPR has determined, apparently, that it was "unethical" to give it and that the lawyers involved should be punished.
How many things are wrong with this picture? From the perspective of legal ethics, constitutional law, and good government, I count at least five big problems.
1. The leak itself: Trial by innuendo and media exploitation is a McCarthyite tactic and is forbidden by the canons of legal ethics. So too is a breach of a lawyer's duty of confidentiality. Here, the original leak dates back to December, and it is not hard to discern a reason behind it: OPR's draft report was emphatically rejected by then-Attorney General Michael Mukasey. What's a bureaucrat to do, when his views are repudiated by his boss? In Washington, the answer is to leak the views to the press. But for a lawyer, such conduct is among the most fundamental of ethical violations: The ABA's Rules of Professional Conduct state: "A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent."
Violating client confidentiality is a grave ethical breach. It is the type of conduct for which shoddy lawyers are routinely disbarred or suspended from the practice of law. In this case, to the extent the disclosure involves classified information, such conduct may well be a federal crime.
If the leak came from, or involved the knowing assistance of, lawyers in the OPR or elsewhere, they should be investigated and disciplined. It is outrageous to think that government "ethics" lawyers would engage in such blatantly unethical conduct. Who watches these watchdogs? OPR's reported actions suggest that the real need is for an ethics investigation of the Justice Department's ethics office.
2. Unconstitutionally outsourcing federal ethics responsibility: Then there is OPR's cowardly attempt to farm out ethics investigations to state bar authorities. This is a transparently political maneuver. It is also contrary to longstanding federal policy--and arguably to the Constitution. The Department of Justice has maintained that regulation of the ethics and conduct of federal government attorneys is a matter for the federal government, acting through the attorney general--not for state bar panels. Were it -otherwise, state officials could interfere with the conduct of federal officials. (Constitutional lawyers will recognize this as a problem under the Supreme Court's famous 1819 decision in McCulloch v. Maryland, which held that state laws may not interfere with federal officers' actions.)
Why would OPR recommend this? To impose political punishment (of a sort) on Bush attorneys, but without bearing accountability. The Obama Justice Department is, rightly, reluctant to take "disciplinary" action itself with respect to the attorneys who advised the prior administration. In the first place, it is not clear what it meaningfully could do since those involved no longer work for the executive branch. Second, it would smack of partisan payback (which it is). What better solution than to outsource the task to "neutral" bar authorities? But this is a transparent façade that should fool no one. And it is a ruse that would come back to harm Democratic as well as Republican administrations: Whenever you disagree strongly with lawyers' advice from a previous administration, don't just change the legal advice, ask state bar associations to investigate. This is an excellent formula only if your goal is to chill candid legal advice and government service by licensing retaliation against lawyers in prior administrations with whose views you disagree.
3. Incompetently assessing lawyers' professional roles: OPR seemingly has no comprehension of the basic principle of legal ethics that a lawyer does not endorse everything his client may wish to do, within the bounds of the law. A lawyer acts properly when he seeks to help his client figure out exactly where the lines are. ABA Rule 1.2(d) provides that lawyers may not counsel clients to engage in conduct they know is illegal, but that a lawyer "may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law." It is plain from reading the memos involved that this is exactly what the Bush Justice Department lawyers were doing--discussing with their clients the legal consequences of what they proposed to do and endeavoring to assist them to ascertain the meaning and scope of the laws and constitutional provisions involved.
The leaks suggest that OPR has reviewed internal emails and found what it thinks are indications that the client agencies (the CIA or the White House) wanted the Department of Justice attorneys to come out a certain way or consider specific issues or arguments--that they had a desired or preferred outcome, which would permit harsh interrogations to go forward. Surprise! Clients always have a desired result in mind and would prefer that their lawyers say yes rather than no. Government agencies are, in my experience, no different from any other client in this regard.
But so what? In the absence of smoking-gun evidence that the lawyers had concluded that a proposed course of conduct was illegal, but that they then agreed to provide a "cover" memo whose advice was contrary to that conclusion, there is no ethical problem here at all. There is nothing wrong with a lawyer exhaustively studying all plausible legal avenues that might sustain a client's desired course of conduct. There is nothing wrong with exploring additional arguments that may support a client's proposed course of action, even if those might not have been part of a lawyer's initial thinking. There is nothing wrong even with a lawyer reconsidering or modifying his initial views in the course of such a process.
For OPR to suggest anything else--to suggest that this is a violation of legal ethics principles--would be, in my opinion, an incompetent analysis of the law of legal ethics.
4. Incompetence about competence: Which brings me to a fourth huge flaw in what OPR is said to be reporting: the suggestion that the Bush administration lawyers' legal work failed to satisfy professional standards of "competence." The notion is that failure to cite some specific case, or to discuss some historical precedent, renders the Bush team's legal analysis incompetent.
As a matter of legal ethics law, as applied to the memos in question, this is simply ludicrous. One may well disagree with the conclusions reached in one or more of the memos, or with some of the arguments contained therein. One may well think that the memos should have been written differently--discussed certain points not included, omitted certain arguments that were included; said less, said more. But there is a world of difference between Monday-morning quarterbacking and incompetent lawyering. Anyone who does not recognize that is not thinking straight--is either not himself a good lawyer or is blinded by a partisan agenda. One can make many fair criticisms of the legal memos, but incompetence is not a charge that can fairly be made.
5. Incompetence about the underlying law: Constitutional law, in addition to legal ethics, is one of my areas of teaching and scholarship. In my opinion, the most basic problem with any suggestion of incompetence is that the memos' essential legal conclusions are correct. There is a fundamental distinction in the law between what constitutes actual, legal "torture" under applicable standards and what may be harsh, aggressive, unpleasant interrogation tactics but not, legally, "torture." Reasonable people will come to different conclusions as to where that line is, but the Bush administration's lawyers' conclusions are certainly defensible and, I think, ultimately correct. As a matter of constitutional law, moreover, the Bush administration memos' most sweeping and categorical conclusion--that at all events no statute or treaty may limit the president's sole constitutional powers as military commander in chief to direct and conduct the use of U.S. force--is in my opinion unquestionably correct.
This view is informed by my experience both as a law professor and, nearly two decades ago, as an attorney in the Office of Legal Counsel (OLC) of the Department of Justice--the same office that provided the advice in question during President George W. Bush's administration. The types of constitutional and statutory arguments made in the disputed memos are consistent with longstanding OLC positions with respect to presidential power under Article II of the Constitution. They involve subtle niceties of constitutional law and history. OPR attorneys are, as a rule, not as conversant in such matters. To put the point in terms of legal ethics: Were the Office of Professional Responsibility to purport to pass judgment on the competence of the constitutional and statutory analysis of the OLC memos, it would be straying far beyond its areas of purported competence.
When I teach legal ethics, I tell my students that one aspect of competence is to know what you know and to know what you don't know, and to stay away from the latter. It is fair to wonder whether staff attorneys in OPR--whose actions with respect even to the law of legal -ethics appear so dubious--possess the requisite professional skill, expertise, and knowledge to competently evaluate (let alone second-guess) OLC lawyers' analysis of constitutional law, treaties, international law, and complicated criminal statutes. We will see: If OPR's leaked report becomes public and indeed takes the Bush team to task on grounds of professional legal competence, it will be fair to ask whether OPR attorneys really understand the substantive law they are talking about--or whether the charge of incompetence falls more heavily on their own heads.
Unethical leaks and confidentiality violations; outsourcing federal responsibilities; basic misunderstandings of legal ethics principles; incompetent analysis of constitutional, international, treaty, and statutory law. What more could be wrong with an ethics office's actions? It is hard to know for sure--without seeing OPR's report--the full extent to which it contains all of these problems. But leaked accounts of the OPR's draft report so far call that office's ethics and professionalism into question more than they do those of anyone else.
Michael Stokes Paulsen is university chair and professor of law at the University of St. Thomas, in Minneapolis. He was an attorney-adviser in the Office of Legal Counsel from 1989-91.
The irresponsible Office of Professional Responsibility.
The Weekly Standard, May 25, 2009, Volume 014, Issue 34
Government lawyers in the Department of Justice's Office of Professional Responsibility (OPR) appear to have leaked to the press parts of a confidential--and classified--draft report concerning the actions of Bush administration lawyers. The report calls for state bar associations to investigate, and perhaps discipline, attorneys who provided sensitive legal advice to President Bush's administration concerning the legal limits of coercive interrogation methods against high-level al Qaeda terrorists. That advice was, of course, controversial. It is now, in the current political climate, highly unpopular in certain circles. OPR has determined, apparently, that it was "unethical" to give it and that the lawyers involved should be punished.
How many things are wrong with this picture? From the perspective of legal ethics, constitutional law, and good government, I count at least five big problems.
1. The leak itself: Trial by innuendo and media exploitation is a McCarthyite tactic and is forbidden by the canons of legal ethics. So too is a breach of a lawyer's duty of confidentiality. Here, the original leak dates back to December, and it is not hard to discern a reason behind it: OPR's draft report was emphatically rejected by then-Attorney General Michael Mukasey. What's a bureaucrat to do, when his views are repudiated by his boss? In Washington, the answer is to leak the views to the press. But for a lawyer, such conduct is among the most fundamental of ethical violations: The ABA's Rules of Professional Conduct state: "A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent."
Violating client confidentiality is a grave ethical breach. It is the type of conduct for which shoddy lawyers are routinely disbarred or suspended from the practice of law. In this case, to the extent the disclosure involves classified information, such conduct may well be a federal crime.
If the leak came from, or involved the knowing assistance of, lawyers in the OPR or elsewhere, they should be investigated and disciplined. It is outrageous to think that government "ethics" lawyers would engage in such blatantly unethical conduct. Who watches these watchdogs? OPR's reported actions suggest that the real need is for an ethics investigation of the Justice Department's ethics office.
2. Unconstitutionally outsourcing federal ethics responsibility: Then there is OPR's cowardly attempt to farm out ethics investigations to state bar authorities. This is a transparently political maneuver. It is also contrary to longstanding federal policy--and arguably to the Constitution. The Department of Justice has maintained that regulation of the ethics and conduct of federal government attorneys is a matter for the federal government, acting through the attorney general--not for state bar panels. Were it -otherwise, state officials could interfere with the conduct of federal officials. (Constitutional lawyers will recognize this as a problem under the Supreme Court's famous 1819 decision in McCulloch v. Maryland, which held that state laws may not interfere with federal officers' actions.)
Why would OPR recommend this? To impose political punishment (of a sort) on Bush attorneys, but without bearing accountability. The Obama Justice Department is, rightly, reluctant to take "disciplinary" action itself with respect to the attorneys who advised the prior administration. In the first place, it is not clear what it meaningfully could do since those involved no longer work for the executive branch. Second, it would smack of partisan payback (which it is). What better solution than to outsource the task to "neutral" bar authorities? But this is a transparent façade that should fool no one. And it is a ruse that would come back to harm Democratic as well as Republican administrations: Whenever you disagree strongly with lawyers' advice from a previous administration, don't just change the legal advice, ask state bar associations to investigate. This is an excellent formula only if your goal is to chill candid legal advice and government service by licensing retaliation against lawyers in prior administrations with whose views you disagree.
3. Incompetently assessing lawyers' professional roles: OPR seemingly has no comprehension of the basic principle of legal ethics that a lawyer does not endorse everything his client may wish to do, within the bounds of the law. A lawyer acts properly when he seeks to help his client figure out exactly where the lines are. ABA Rule 1.2(d) provides that lawyers may not counsel clients to engage in conduct they know is illegal, but that a lawyer "may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law." It is plain from reading the memos involved that this is exactly what the Bush Justice Department lawyers were doing--discussing with their clients the legal consequences of what they proposed to do and endeavoring to assist them to ascertain the meaning and scope of the laws and constitutional provisions involved.
The leaks suggest that OPR has reviewed internal emails and found what it thinks are indications that the client agencies (the CIA or the White House) wanted the Department of Justice attorneys to come out a certain way or consider specific issues or arguments--that they had a desired or preferred outcome, which would permit harsh interrogations to go forward. Surprise! Clients always have a desired result in mind and would prefer that their lawyers say yes rather than no. Government agencies are, in my experience, no different from any other client in this regard.
But so what? In the absence of smoking-gun evidence that the lawyers had concluded that a proposed course of conduct was illegal, but that they then agreed to provide a "cover" memo whose advice was contrary to that conclusion, there is no ethical problem here at all. There is nothing wrong with a lawyer exhaustively studying all plausible legal avenues that might sustain a client's desired course of conduct. There is nothing wrong with exploring additional arguments that may support a client's proposed course of action, even if those might not have been part of a lawyer's initial thinking. There is nothing wrong even with a lawyer reconsidering or modifying his initial views in the course of such a process.
For OPR to suggest anything else--to suggest that this is a violation of legal ethics principles--would be, in my opinion, an incompetent analysis of the law of legal ethics.
4. Incompetence about competence: Which brings me to a fourth huge flaw in what OPR is said to be reporting: the suggestion that the Bush administration lawyers' legal work failed to satisfy professional standards of "competence." The notion is that failure to cite some specific case, or to discuss some historical precedent, renders the Bush team's legal analysis incompetent.
As a matter of legal ethics law, as applied to the memos in question, this is simply ludicrous. One may well disagree with the conclusions reached in one or more of the memos, or with some of the arguments contained therein. One may well think that the memos should have been written differently--discussed certain points not included, omitted certain arguments that were included; said less, said more. But there is a world of difference between Monday-morning quarterbacking and incompetent lawyering. Anyone who does not recognize that is not thinking straight--is either not himself a good lawyer or is blinded by a partisan agenda. One can make many fair criticisms of the legal memos, but incompetence is not a charge that can fairly be made.
5. Incompetence about the underlying law: Constitutional law, in addition to legal ethics, is one of my areas of teaching and scholarship. In my opinion, the most basic problem with any suggestion of incompetence is that the memos' essential legal conclusions are correct. There is a fundamental distinction in the law between what constitutes actual, legal "torture" under applicable standards and what may be harsh, aggressive, unpleasant interrogation tactics but not, legally, "torture." Reasonable people will come to different conclusions as to where that line is, but the Bush administration's lawyers' conclusions are certainly defensible and, I think, ultimately correct. As a matter of constitutional law, moreover, the Bush administration memos' most sweeping and categorical conclusion--that at all events no statute or treaty may limit the president's sole constitutional powers as military commander in chief to direct and conduct the use of U.S. force--is in my opinion unquestionably correct.
This view is informed by my experience both as a law professor and, nearly two decades ago, as an attorney in the Office of Legal Counsel (OLC) of the Department of Justice--the same office that provided the advice in question during President George W. Bush's administration. The types of constitutional and statutory arguments made in the disputed memos are consistent with longstanding OLC positions with respect to presidential power under Article II of the Constitution. They involve subtle niceties of constitutional law and history. OPR attorneys are, as a rule, not as conversant in such matters. To put the point in terms of legal ethics: Were the Office of Professional Responsibility to purport to pass judgment on the competence of the constitutional and statutory analysis of the OLC memos, it would be straying far beyond its areas of purported competence.
When I teach legal ethics, I tell my students that one aspect of competence is to know what you know and to know what you don't know, and to stay away from the latter. It is fair to wonder whether staff attorneys in OPR--whose actions with respect even to the law of legal -ethics appear so dubious--possess the requisite professional skill, expertise, and knowledge to competently evaluate (let alone second-guess) OLC lawyers' analysis of constitutional law, treaties, international law, and complicated criminal statutes. We will see: If OPR's leaked report becomes public and indeed takes the Bush team to task on grounds of professional legal competence, it will be fair to ask whether OPR attorneys really understand the substantive law they are talking about--or whether the charge of incompetence falls more heavily on their own heads.
Unethical leaks and confidentiality violations; outsourcing federal responsibilities; basic misunderstandings of legal ethics principles; incompetent analysis of constitutional, international, treaty, and statutory law. What more could be wrong with an ethics office's actions? It is hard to know for sure--without seeing OPR's report--the full extent to which it contains all of these problems. But leaked accounts of the OPR's draft report so far call that office's ethics and professionalism into question more than they do those of anyone else.
Michael Stokes Paulsen is university chair and professor of law at the University of St. Thomas, in Minneapolis. He was an attorney-adviser in the Office of Legal Counsel from 1989-91.
WaPo: The Supreme Court turns back a detainee's lawsuit against top Justice Department officials
Abuse and Accountability. WaPo Editorial
The Supreme Court turns back a detainee's lawsuit against top Justice Department officials.
WaPo, Tuesday, May 19, 2009
JAVAID IQBAL was one of the hundreds of Muslim or Arab men rounded up in the United States after Sept. 11, 2001, and held captive in a detention center in Brooklyn. Mr. Iqbal asserted that he was beaten, subjected to daily strip and cavity searches, deprived of adequate food, and forced to endure solitary confinement under extreme temperatures. The Pakistani native later sued dozens of U.S. officials, including then-Attorney General John D. Ashcroft and FBI Director Robert S. Mueller III, whom Mr. Iqbal claimed "each knew of, condoned, and willfully and maliciously agreed to subject" Mr. Iqbal to harsh conditions "as a matter of policy, solely on account of" his "religion, race, or national origin" and "for no legitimate penological interest."
In dismissing the claims against Mr. Ashcroft and Mr. Mueller yesterday, the Supreme Court concluded that Mr. Iqbal had not presented enough evidence to support his allegations. "It should come as no surprise that a legitimate policy directing law enforcement to arrest and detain individuals because of their suspected link to the attacks would produce a disparate, incidental impact on Arab Muslims, even though the purpose of the policy was to target neither Arabs nor Muslims," a 5 to 4 majority ruled.
Government officials are usually -- and sensibly -- shielded from being sued personally for actions they take in their official capacities. Officials must be free to carry out their duties without the fear of being held personally liable for millions of dollars in damages and without the lost time and energy that inevitably accompanies lawsuits. That immunity, however, can be pierced if there is sufficient evidence that directly links officials to unconstitutional acts. This is the kind of evidence the majority concluded that Mr. Iqbal lacked against Mr. Ashcroft and Mr. Mueller.
The justices sent the case back to the New York-based U.S. Court of Appeals for the 2nd Circuit, which now must decide whether to allow Mr. Iqbal to try to present more evidence to substantiate his claims. Mr. Iqbal's claims against lower-level officials, including guards and supervisors at the detention center, are unaffected by the court's ruling.
Government officials must be held accountable, and there are several ways in which this can be accomplished, including by public hearings, elections, prosecutions and private lawsuits. The court has rightly set a high -- but not insurmountable -- bar when private litigation serves as the vehicle: Plaintiffs should name as defendants only those for which there is credible evidence of direct involvement in constitutional breaches. They can add defendants to the litigation when they amass information that directly and credibly implicates others.
The Supreme Court turns back a detainee's lawsuit against top Justice Department officials.
WaPo, Tuesday, May 19, 2009
JAVAID IQBAL was one of the hundreds of Muslim or Arab men rounded up in the United States after Sept. 11, 2001, and held captive in a detention center in Brooklyn. Mr. Iqbal asserted that he was beaten, subjected to daily strip and cavity searches, deprived of adequate food, and forced to endure solitary confinement under extreme temperatures. The Pakistani native later sued dozens of U.S. officials, including then-Attorney General John D. Ashcroft and FBI Director Robert S. Mueller III, whom Mr. Iqbal claimed "each knew of, condoned, and willfully and maliciously agreed to subject" Mr. Iqbal to harsh conditions "as a matter of policy, solely on account of" his "religion, race, or national origin" and "for no legitimate penological interest."
In dismissing the claims against Mr. Ashcroft and Mr. Mueller yesterday, the Supreme Court concluded that Mr. Iqbal had not presented enough evidence to support his allegations. "It should come as no surprise that a legitimate policy directing law enforcement to arrest and detain individuals because of their suspected link to the attacks would produce a disparate, incidental impact on Arab Muslims, even though the purpose of the policy was to target neither Arabs nor Muslims," a 5 to 4 majority ruled.
Government officials are usually -- and sensibly -- shielded from being sued personally for actions they take in their official capacities. Officials must be free to carry out their duties without the fear of being held personally liable for millions of dollars in damages and without the lost time and energy that inevitably accompanies lawsuits. That immunity, however, can be pierced if there is sufficient evidence that directly links officials to unconstitutional acts. This is the kind of evidence the majority concluded that Mr. Iqbal lacked against Mr. Ashcroft and Mr. Mueller.
The justices sent the case back to the New York-based U.S. Court of Appeals for the 2nd Circuit, which now must decide whether to allow Mr. Iqbal to try to present more evidence to substantiate his claims. Mr. Iqbal's claims against lower-level officials, including guards and supervisors at the detention center, are unaffected by the court's ruling.
Government officials must be held accountable, and there are several ways in which this can be accomplished, including by public hearings, elections, prosecutions and private lawsuits. The court has rightly set a high -- but not insurmountable -- bar when private litigation serves as the vehicle: Plaintiffs should name as defendants only those for which there is credible evidence of direct involvement in constitutional breaches. They can add defendants to the litigation when they amass information that directly and credibly implicates others.
How Washington Rations -- ObamaCare: a case study on cost control
How Washington Rations. WSJ Editorial
ObamaCare: a case study on cost control
WSJ, May 19, 2009
Try to follow this logic: Last week the Medicare trustees reported that the program has an "unfunded liability" of nearly $38 trillion -- which is the amount of benefits promised but not covered by taxes over the next 75 years. So Democrats have decided that the way to close this gap is to create a new "universal" health insurance entitlement for the middle class.
Such thinking may be a non sequitur, but it will have drastic effects on the health care of all Americans -- and as it happens, this future is playing out in miniature in Medicare right now. Desperate to prevent medical costs from engulfing the federal budget, the program's central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.
At issue are "virtual colonoscopies," or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard "optical" procedure, which involves anesthesia and threading an endoscope through the lower intestine.
Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, "If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." In other words, duplication would be too pricey.
This is precisely the sort of complexity that the Democrats would prefer to ignore as they try to restructure health care. Led by budget chief Peter Orszag, the White House believes that comparative effectiveness research, which examines clinical evidence to determine what "works best," will let them cut wasteful or ineffective treatments and thus contain health spending.
The problem is that what "works best" isn't the same for everyone. While not painless or risk free, virtual colonoscopy might be better for some patients -- especially among seniors who are infirm or because the presence of other diseases puts them at risk for complications. Ideally doctors would decide with their patients. But Medicare instead made the hard-and-fast choice that it was cheaper to cut it off for all beneficiaries. If some patients are worse off, well, too bad.
Medicare is already the country's largest purchaser of health care. Private carriers generally adopt its rates and policies, and the virtual colonoscopy decision may run this technology out of the marketplace. Now multiply that by the new "public option" that Democrats favor, which would transfer millions of patients to a new insurance program managed by the federal government. Washington's utilitarian judgments about costs would reshape the practice of medicine.
Initially, the open-ended style of American care will barely be touched, if only for political self-preservation. Health planners will adjust at the margins, as with virtual colonoscopy. But scarcity forces choices. As the Medicare trustees note in their report, the tax increases necessary to fund merely the current benefit schedule for the elderly would cripple the economy. The far more expensive public option will not turn into a pumpkin when cost savings do not materialize. At that point, government will clamp down with price controls in the form of lines and rock-bottom reimbursement rates.
Mr. Orszag says that a federal health board will make these Solomonic decisions, which is only true until the lobbies get to Congress and the White House. With virtual colonoscopy, radiologists and gastroenterologists are feuding over which group should get paid for colon cancer screening. Companies like General Electric and Seimens that make CT technology are pressuring Medicare administrators too. More than 50 Congressmen are demanding that the decision be overturned.
All this is merely a preview of the life-and-death decisions that will be determined by politics once government finances substantially more health care than the 46% it already does. Anyone who buys Democratic claims about "choice" and "affordability" will be in for a very rude awakening.
ObamaCare: a case study on cost control
WSJ, May 19, 2009
Try to follow this logic: Last week the Medicare trustees reported that the program has an "unfunded liability" of nearly $38 trillion -- which is the amount of benefits promised but not covered by taxes over the next 75 years. So Democrats have decided that the way to close this gap is to create a new "universal" health insurance entitlement for the middle class.
Such thinking may be a non sequitur, but it will have drastic effects on the health care of all Americans -- and as it happens, this future is playing out in miniature in Medicare right now. Desperate to prevent medical costs from engulfing the federal budget, the program's central planners decided last week to deny payment for a new version of one of life's most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.
At issue are "virtual colonoscopies," or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard "optical" procedure, which involves anesthesia and threading an endoscope through the lower intestine.
Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, "If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." In other words, duplication would be too pricey.
This is precisely the sort of complexity that the Democrats would prefer to ignore as they try to restructure health care. Led by budget chief Peter Orszag, the White House believes that comparative effectiveness research, which examines clinical evidence to determine what "works best," will let them cut wasteful or ineffective treatments and thus contain health spending.
The problem is that what "works best" isn't the same for everyone. While not painless or risk free, virtual colonoscopy might be better for some patients -- especially among seniors who are infirm or because the presence of other diseases puts them at risk for complications. Ideally doctors would decide with their patients. But Medicare instead made the hard-and-fast choice that it was cheaper to cut it off for all beneficiaries. If some patients are worse off, well, too bad.
Medicare is already the country's largest purchaser of health care. Private carriers generally adopt its rates and policies, and the virtual colonoscopy decision may run this technology out of the marketplace. Now multiply that by the new "public option" that Democrats favor, which would transfer millions of patients to a new insurance program managed by the federal government. Washington's utilitarian judgments about costs would reshape the practice of medicine.
Initially, the open-ended style of American care will barely be touched, if only for political self-preservation. Health planners will adjust at the margins, as with virtual colonoscopy. But scarcity forces choices. As the Medicare trustees note in their report, the tax increases necessary to fund merely the current benefit schedule for the elderly would cripple the economy. The far more expensive public option will not turn into a pumpkin when cost savings do not materialize. At that point, government will clamp down with price controls in the form of lines and rock-bottom reimbursement rates.
Mr. Orszag says that a federal health board will make these Solomonic decisions, which is only true until the lobbies get to Congress and the White House. With virtual colonoscopy, radiologists and gastroenterologists are feuding over which group should get paid for colon cancer screening. Companies like General Electric and Seimens that make CT technology are pressuring Medicare administrators too. More than 50 Congressmen are demanding that the decision be overturned.
All this is merely a preview of the life-and-death decisions that will be determined by politics once government finances substantially more health care than the 46% it already does. Anyone who buys Democratic claims about "choice" and "affordability" will be in for a very rude awakening.
The Arms-Control Dinosaurs Are Back. Why invite Russia to veto the nuclear progress we've been making on our own?
The Arms-Control Dinosaurs Are Back. By Marc A Thiessen
Why invite Russia to veto the nuclear progress we've been making on our own?
WSJ, May 19, 2009
When John Bolton served in the State Department during the Bush administration, he often walked the halls of Foggy Bottom wearing his trademark dinosaur ties -- a self-deprecating nod to those who thought his political views somewhat Jurassic. Today other dinosaurs have replaced him. The aging arms controllers who once haggled with Soviet officials are staging a comeback in the Obama administration.
This week in Moscow they'll pick up where they left off nearly two decades ago, sitting across the table from their Russian counterparts negotiating a renewal of the 1991 U.S.-Soviet Strategic Arms Reduction Treaty (Start). One of the U.S. negotiators, Assistant Secretary of State Rose Gottemoeller, refers to herself as a "Sputnik baby." She told the Washington Post after initial talks in New York earlier this month: "We've all been looking around and chuckling and saying 'We're all over 50.'"
President Barack Obama's goal of "a world without nuclear weapons" notwithstanding, the State Department is reportedly scrambling to staff its arms-control bureau because so many arms-control experts have retired and there's no one coming up in the ranks to replace them. Apparently not many young policy wonks are aware that cutting nuclear deals with Moscow is again the fast track to a high-flying diplomatic career.
The Obama revival of arms control comes at an odd moment. The past eight years have seen the fewest arms-control negotiations in a generation and some of the deepest nuclear weapons reductions in history. Thanks to the work of the Bush administration, the U.S. nuclear stockpile is now one-quarter the size it was at the end of the Cold War -- the lowest level since the Eisenhower administration. When George W. Bush took office, the U.S. had more than 6,000 operationally deployed strategic nuclear warheads. Today, that number has been reduced to less than 2,200. The U.S. had originally planned to reach this milestone on Dec. 31, 2012, but instead met its goal this February.
How did the U.S. achieve such dramatic reductions so quickly? Answer: By abandoning traditional arms control. When Mr. Bush took office, he decided not to engage in lengthy, adversarial negotiations with Russia in which both sides kept thousands of weapons they did not need as bargaining chips. He did not establish standing negotiating teams in Geneva with armies of arms-control experts doing battle over every colon and comma. If he had done so, the two sides would probably still be negotiating today.
Instead, Mr. Bush simply announced his intention to reduce the U.S.'s operationally deployed strategic nuclear warheads by some two-thirds and invited Russia to do the same. President Vladimir Putin accepted his offer. These unilateral reductions were then codified in the 2002 Moscow Treaty, a three-page pact that took just six months to negotiate. By contrast, the Start treaty signed by President George H.W. Bush and Soviet President Mikhail Gorbachev -- and now being revived by the Obama team -- is 700-pages long and took nine years to negotiate.
Even as he enacted massive reductions in nuclear weapons, George W. Bush took other actions to reduce nuclear dangers. His administration launched the Global Threat Reduction Initiative, which secured more than 600 vulnerable nuclear sites around the world and helped convert 57 nuclear reactors in 32 countries from highly-enriched uranium to low-enriched uranium, removing enough weapons-grade material from countries around the world for more than 40 nuclear bombs.
With G-8 leaders, Mr. Bush launched the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction -- a $20 billion international effort to secure and dispose of nuclear and fissile materials and help former weapons scientists find new lines of work. The U.S. and Russia launched the Global Initiative to Combat Nuclear Terrorism, a coalition of 75 nations that is working to stop the illicit spread of nuclear materials. The U.S. and Russia also launched the Bratislava Initiative, which has secured nearly 150 Russian sites containing nuclear warheads and hundreds of metric tons of weapons-quality material.
Despite this record of achievement, the arms controllers see the Bush era as a dark age from which they must rescue the world. They are intent on reviving the antiquated and adversarial approach to arms reductions. As serious negotiations begin, Russia will use these negotiations on arms reductions as leverage to get the U.S. to give up its planned deployment of ballistic missile defenses in Poland and the Czech Republic. Unlike Ronald Reagan at Reykjavik, it is not clear that Mr. Obama would walk away from a deal to preserve these vital defenses.
In addition to a new Start treaty, the Obama administration also reportedly plans to press the Senate to approve the Comprehensive Test Ban Treaty (CTBT), a fatally flawed agreement that was rejected by the Senate in 1999 because it would undermine reliability of our nuclear stockpile. Instead of pressing the Senate to act on the CTBT, the administration should be calling on Congress to restore the funding it eliminated last year for the Reliable Replacement Warhead program, which would allow us to develop new warheads without the need for nuclear testing and thus ensure the reliability of America's nuclear deterrent.
Mr. Obama will visit Moscow in July where he and President Dmitry Medvedev will discuss progress on their stated goal to "move beyond Cold War mentalities and chart a fresh start in relations." Bringing back Cold War-era arms-control negotiations is a strange way to do so. In the 21st century, arms-control agreements are as antiquated as cave drawings. We no longer need pieces of parchment and armies of arms-control aficionados to achieve deep reductions in nuclear weapons. This fact is lost on the Sputnik babies now inhabiting the State Department.
Mr. Thiessen served as chief speechwriter to President George W. Bush and Secretary of Defense Donald Rumsfeld. In 2002, he traveled to Russia with Mr. Rumsfeld for the negotiations of the Moscow Treaty.
Why invite Russia to veto the nuclear progress we've been making on our own?
WSJ, May 19, 2009
When John Bolton served in the State Department during the Bush administration, he often walked the halls of Foggy Bottom wearing his trademark dinosaur ties -- a self-deprecating nod to those who thought his political views somewhat Jurassic. Today other dinosaurs have replaced him. The aging arms controllers who once haggled with Soviet officials are staging a comeback in the Obama administration.
This week in Moscow they'll pick up where they left off nearly two decades ago, sitting across the table from their Russian counterparts negotiating a renewal of the 1991 U.S.-Soviet Strategic Arms Reduction Treaty (Start). One of the U.S. negotiators, Assistant Secretary of State Rose Gottemoeller, refers to herself as a "Sputnik baby." She told the Washington Post after initial talks in New York earlier this month: "We've all been looking around and chuckling and saying 'We're all over 50.'"
President Barack Obama's goal of "a world without nuclear weapons" notwithstanding, the State Department is reportedly scrambling to staff its arms-control bureau because so many arms-control experts have retired and there's no one coming up in the ranks to replace them. Apparently not many young policy wonks are aware that cutting nuclear deals with Moscow is again the fast track to a high-flying diplomatic career.
The Obama revival of arms control comes at an odd moment. The past eight years have seen the fewest arms-control negotiations in a generation and some of the deepest nuclear weapons reductions in history. Thanks to the work of the Bush administration, the U.S. nuclear stockpile is now one-quarter the size it was at the end of the Cold War -- the lowest level since the Eisenhower administration. When George W. Bush took office, the U.S. had more than 6,000 operationally deployed strategic nuclear warheads. Today, that number has been reduced to less than 2,200. The U.S. had originally planned to reach this milestone on Dec. 31, 2012, but instead met its goal this February.
How did the U.S. achieve such dramatic reductions so quickly? Answer: By abandoning traditional arms control. When Mr. Bush took office, he decided not to engage in lengthy, adversarial negotiations with Russia in which both sides kept thousands of weapons they did not need as bargaining chips. He did not establish standing negotiating teams in Geneva with armies of arms-control experts doing battle over every colon and comma. If he had done so, the two sides would probably still be negotiating today.
Instead, Mr. Bush simply announced his intention to reduce the U.S.'s operationally deployed strategic nuclear warheads by some two-thirds and invited Russia to do the same. President Vladimir Putin accepted his offer. These unilateral reductions were then codified in the 2002 Moscow Treaty, a three-page pact that took just six months to negotiate. By contrast, the Start treaty signed by President George H.W. Bush and Soviet President Mikhail Gorbachev -- and now being revived by the Obama team -- is 700-pages long and took nine years to negotiate.
Even as he enacted massive reductions in nuclear weapons, George W. Bush took other actions to reduce nuclear dangers. His administration launched the Global Threat Reduction Initiative, which secured more than 600 vulnerable nuclear sites around the world and helped convert 57 nuclear reactors in 32 countries from highly-enriched uranium to low-enriched uranium, removing enough weapons-grade material from countries around the world for more than 40 nuclear bombs.
With G-8 leaders, Mr. Bush launched the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction -- a $20 billion international effort to secure and dispose of nuclear and fissile materials and help former weapons scientists find new lines of work. The U.S. and Russia launched the Global Initiative to Combat Nuclear Terrorism, a coalition of 75 nations that is working to stop the illicit spread of nuclear materials. The U.S. and Russia also launched the Bratislava Initiative, which has secured nearly 150 Russian sites containing nuclear warheads and hundreds of metric tons of weapons-quality material.
Despite this record of achievement, the arms controllers see the Bush era as a dark age from which they must rescue the world. They are intent on reviving the antiquated and adversarial approach to arms reductions. As serious negotiations begin, Russia will use these negotiations on arms reductions as leverage to get the U.S. to give up its planned deployment of ballistic missile defenses in Poland and the Czech Republic. Unlike Ronald Reagan at Reykjavik, it is not clear that Mr. Obama would walk away from a deal to preserve these vital defenses.
In addition to a new Start treaty, the Obama administration also reportedly plans to press the Senate to approve the Comprehensive Test Ban Treaty (CTBT), a fatally flawed agreement that was rejected by the Senate in 1999 because it would undermine reliability of our nuclear stockpile. Instead of pressing the Senate to act on the CTBT, the administration should be calling on Congress to restore the funding it eliminated last year for the Reliable Replacement Warhead program, which would allow us to develop new warheads without the need for nuclear testing and thus ensure the reliability of America's nuclear deterrent.
Mr. Obama will visit Moscow in July where he and President Dmitry Medvedev will discuss progress on their stated goal to "move beyond Cold War mentalities and chart a fresh start in relations." Bringing back Cold War-era arms-control negotiations is a strange way to do so. In the 21st century, arms-control agreements are as antiquated as cave drawings. We no longer need pieces of parchment and armies of arms-control aficionados to achieve deep reductions in nuclear weapons. This fact is lost on the Sputnik babies now inhabiting the State Department.
Mr. Thiessen served as chief speechwriter to President George W. Bush and Secretary of Defense Donald Rumsfeld. In 2002, he traveled to Russia with Mr. Rumsfeld for the negotiations of the Moscow Treaty.
Iran's Nuclear Shopping List
Iran's Nuclear Shopping List. WSJ Editorial
Morgenthau: 'It's late in the game.'
WSJ, May 19, 2009
Back when the Bush Administration was warning about Iran's nuclear progress, or its deadly meddling in Iraq, the typical Democratic and media response was to treat the Islamic Republic as innocent until proven guilty. This month, Democrat Robert Morgenthau supplied the proof.
In testimony to the Senate Foreign Relations Committee that was largely ignored by the media, the legendary Manhattan District Attorney opened a window on how Iran is secretly obtaining the ingredients for an arsenal of mass destruction. Mr. Morgenthau, whose recent cases have exposed illicit Iranian finance and procurement networks, has discovered what he calls "Iran's shopping list for materials related to weapons of mass destruction." They add up to "literally thousands of records."
Missile accuracy appears to be a key Iranian goal. In one of Mr. Morgenthau's cases -- the prosecution of Chinese citizen Li Fang Wei and his LIMMT company for allegedly scamming Manhattan banks to slip past sanctions on Iran -- the DA uncovered a list that included 400 sophisticated gyroscopes and 600 accelerometers. These are critical for developing accurate long-range missiles. He also found that Iran was acquiring a rare metal called tantalum, "used in those roadside bombs that are being used against our troops in Iraq and Afghanistan." So much for the media notion that Iran has played no part in killing American GIs.
Mr. Morgenthau also noted that the material shipped by LIMMT "included 15,000 kilograms of a specialized aluminum alloy used almost exclusively in long-range missile production; 1,700 kilograms of graphite cylinders used for banned electrical discharge machines which are used in converting uranium; more than 30,000 kilograms of tungsten-copper plates; 200 pieces of tungsten-copper alloy hollow cylinders, all used for missiles; 19,000 kilograms of tungsten metal powder, and 24,500 kilograms of maraging steel rods . . . especially hardened steel suitable for long-range missiles."
Lest anyone think that these materials may have innocent uses, Mr. Morgenthau added that "we have consulted with top experts in the field from MIT and from private industry and from the CIA. . . . Frankly, some of the people we've consulted are shocked by the sophistication of the equipment they're buying."
Mr. Morgenthau's information is corroborated by a staff report for the Foreign Relations Committee, chaired by Democrat John Kerry, which notes that Iran is making nuclear progress on all fronts, and that it "could produce enough weapons-grade material for a bomb within six months." The committee also notes that "Iran is operating a broad network of front organizations," and that authorities suspect "some purchases for Iran's nuclear and missile programs may have come through an elaborate ruse to avoid U.S. financial sanctions on dealing with Iranian banks."
As we've reported, Lloyds bank entered into a deferred prosecution agreement in January with Mr. Morgenthau's office in which it admitted to a $300 million "stripping" scheme designed to hide the Iranian origin of banking transfers from 2001 to 2004. Several other banks are also in the crosshairs of Mr. Morgenthau and the Justice Department.
All this should put to rest any doubts about the Iranian regime's purposes and determination. As for what the U.S. should do about it, the committee report insists that "direct engagement" must be a part of American strategy, and so it seems fated to be under the Obama Administration. The least it can do is heed Mr. Morgenthau's central point about everything he's learned about Iran's nuclear progress: "It's late in the game, and we don't have a lot of time."
Morgenthau: 'It's late in the game.'
WSJ, May 19, 2009
Back when the Bush Administration was warning about Iran's nuclear progress, or its deadly meddling in Iraq, the typical Democratic and media response was to treat the Islamic Republic as innocent until proven guilty. This month, Democrat Robert Morgenthau supplied the proof.
In testimony to the Senate Foreign Relations Committee that was largely ignored by the media, the legendary Manhattan District Attorney opened a window on how Iran is secretly obtaining the ingredients for an arsenal of mass destruction. Mr. Morgenthau, whose recent cases have exposed illicit Iranian finance and procurement networks, has discovered what he calls "Iran's shopping list for materials related to weapons of mass destruction." They add up to "literally thousands of records."
Missile accuracy appears to be a key Iranian goal. In one of Mr. Morgenthau's cases -- the prosecution of Chinese citizen Li Fang Wei and his LIMMT company for allegedly scamming Manhattan banks to slip past sanctions on Iran -- the DA uncovered a list that included 400 sophisticated gyroscopes and 600 accelerometers. These are critical for developing accurate long-range missiles. He also found that Iran was acquiring a rare metal called tantalum, "used in those roadside bombs that are being used against our troops in Iraq and Afghanistan." So much for the media notion that Iran has played no part in killing American GIs.
Mr. Morgenthau also noted that the material shipped by LIMMT "included 15,000 kilograms of a specialized aluminum alloy used almost exclusively in long-range missile production; 1,700 kilograms of graphite cylinders used for banned electrical discharge machines which are used in converting uranium; more than 30,000 kilograms of tungsten-copper plates; 200 pieces of tungsten-copper alloy hollow cylinders, all used for missiles; 19,000 kilograms of tungsten metal powder, and 24,500 kilograms of maraging steel rods . . . especially hardened steel suitable for long-range missiles."
Lest anyone think that these materials may have innocent uses, Mr. Morgenthau added that "we have consulted with top experts in the field from MIT and from private industry and from the CIA. . . . Frankly, some of the people we've consulted are shocked by the sophistication of the equipment they're buying."
Mr. Morgenthau's information is corroborated by a staff report for the Foreign Relations Committee, chaired by Democrat John Kerry, which notes that Iran is making nuclear progress on all fronts, and that it "could produce enough weapons-grade material for a bomb within six months." The committee also notes that "Iran is operating a broad network of front organizations," and that authorities suspect "some purchases for Iran's nuclear and missile programs may have come through an elaborate ruse to avoid U.S. financial sanctions on dealing with Iranian banks."
As we've reported, Lloyds bank entered into a deferred prosecution agreement in January with Mr. Morgenthau's office in which it admitted to a $300 million "stripping" scheme designed to hide the Iranian origin of banking transfers from 2001 to 2004. Several other banks are also in the crosshairs of Mr. Morgenthau and the Justice Department.
All this should put to rest any doubts about the Iranian regime's purposes and determination. As for what the U.S. should do about it, the committee report insists that "direct engagement" must be a part of American strategy, and so it seems fated to be under the Obama Administration. The least it can do is heed Mr. Morgenthau's central point about everything he's learned about Iran's nuclear progress: "It's late in the game, and we don't have a lot of time."
Monday, May 18, 2009
Cap and Trade Will Cost a Whole Lot—They Said It
Cap and Trade: They Said It
Policymakers Honest About One Thing—This Bill Will Cost a Whole Lot
The Institute for Energy Research, May 18, 2009
PRESIDENT BARACK OBAMA: “Under my plan of a cap and trade system, electricity prices would necessarily skyrocket. . . . Because I’m capping greenhouse gases, coal power plants, natural gas—you name it—whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.” – January, 2008
OMB DIRECTOR PETER ORSZAG: “Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away. Indeed, the price increases would be essential to the success of a cap-and-trade program because they would be the most important mechanism through which businesses and households would be encouraged to make investments and behavioral changes that reduced CO2 emissions.” – April 24, 2008
TREASURY SECRETARY TIM GEITNER: “For people whose behavior in energy use doesn’t change, their costs will go up. You can’t achieve these objectives if you don’t change the incentives.” – March 18, 2009
REP. JOHN DINGELL (D-Mich.): “Nobody in this country realizes that cap and trade is a tax, and it’s a great big one.” – April 24, 2009
REP. CHARLIE RANGEL (D-NY): “Whether you call it a tax, everyone agrees that it’s going to increase the cost to the consumer.” – May 14, 2009
CBO DIRECTOR DOUGLAS ELMENDORF: “Under a cap and trade program, consumers would ultimately bear most of the costs of emission reductions.” – May, 2009
More from IER on energy tax legislation:
Press Release: Finger-Wagging Lawmakers Should Look in the Mirror
Study: Cap and Trade Primer
Blog: Understanding Renewable Electricity Mandates
Policymakers Honest About One Thing—This Bill Will Cost a Whole Lot
The Institute for Energy Research, May 18, 2009
PRESIDENT BARACK OBAMA: “Under my plan of a cap and trade system, electricity prices would necessarily skyrocket. . . . Because I’m capping greenhouse gases, coal power plants, natural gas—you name it—whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.” – January, 2008
OMB DIRECTOR PETER ORSZAG: “Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away. Indeed, the price increases would be essential to the success of a cap-and-trade program because they would be the most important mechanism through which businesses and households would be encouraged to make investments and behavioral changes that reduced CO2 emissions.” – April 24, 2008
TREASURY SECRETARY TIM GEITNER: “For people whose behavior in energy use doesn’t change, their costs will go up. You can’t achieve these objectives if you don’t change the incentives.” – March 18, 2009
REP. JOHN DINGELL (D-Mich.): “Nobody in this country realizes that cap and trade is a tax, and it’s a great big one.” – April 24, 2009
REP. CHARLIE RANGEL (D-NY): “Whether you call it a tax, everyone agrees that it’s going to increase the cost to the consumer.” – May 14, 2009
CBO DIRECTOR DOUGLAS ELMENDORF: “Under a cap and trade program, consumers would ultimately bear most of the costs of emission reductions.” – May, 2009
More from IER on energy tax legislation:
Press Release: Finger-Wagging Lawmakers Should Look in the Mirror
Study: Cap and Trade Primer
Blog: Understanding Renewable Electricity Mandates
WaPo: Addressing climate change is a job for Congress, not the Endangered Species Act
Cold Reality. WaPo Editorial
Addressing climate change is a job for Congress, not the Endangered Species Act
WaPo, Monday, May 18, 2009
INTERIOR SECRETARY Ken Salazar ruffled more than a few feathers this month when he let stand a Bush administration decision to prohibit the use of the Endangered Species Act to regulate greenhouse gas emissions. It was the right call when it was made in 2008, and it is the right call now. Tackling climate change -- and all the implications that has for the economy -- should be dealt with by the people's representatives in Congress, not through a 36-year-old law not designed for such a complex task. Just how complex will be on full display today when the House begins its scheduled debate on the American Clean Energy and Security Act.
Inaction by the Bush administration led environmental groups to find backdoor ways to force it to deal with climate change. When then-Interior Secretary Dirk Kempthorne listed the polar bear as "threatened" under the Endangered Species Act because global warming was melting its Arctic Sea ice habitat, activists geared up to use the decision to challenge high- carbon-emitting projects across the country. But Mr. Kempthorne wisely limited the law's reach by prohibiting "global processes" from triggering further action to protect a listed species' habitat.
That both the Bush and Obama administrations have had to contort Interior Department policies to ensure that it doesn't get dragged into setting U.S. climate policy shows why action on Capitol Hill is vital. The American Clean Energy and Security Act would seek to slash 2005 greenhouse gas emission levels 83 percent by 2050 through a cap-and-trade system in which government would set a declining limit on the amount of carbon dioxide that could be emitted and would issue allowances to emitting companies that could buy and sell those rights.
Shaping the bill, sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.), was no easy exercise. Regional concerns, particularly those of members from coal-producing areas such as Rep. Rick Boucher (D-Va.), forced a number of compromises that have left all sides grumbling. Initially, 85 percent of the carbon trade allowances would be given away. This is a far cry from the 100 percent auction position espoused by President Obama during the campaign. But the committee staff believes that this is necessary to ease the transition to a carbon-constrained economy for industries and states and to help limit direct consumer rate increases. By 2030, all the pollution permits would be auctioned.
The work on this bill is far from done, and the debate on the House floor promises to be spirited, as it should be. We continue to hope that Congress will consider a simpler carbon tax rebated to all taxpayers or less bureaucratic versions of cap-and-trade, such as that proposed by Rep. Chris Van Hollen (D-Md.). But it's encouraging that lawmakers are undertaking to meet the challenges of climate change. The responsibility is theirs, not that of unelected bureaucrats using laws far beyond their intended purpose.
Addressing climate change is a job for Congress, not the Endangered Species Act
WaPo, Monday, May 18, 2009
INTERIOR SECRETARY Ken Salazar ruffled more than a few feathers this month when he let stand a Bush administration decision to prohibit the use of the Endangered Species Act to regulate greenhouse gas emissions. It was the right call when it was made in 2008, and it is the right call now. Tackling climate change -- and all the implications that has for the economy -- should be dealt with by the people's representatives in Congress, not through a 36-year-old law not designed for such a complex task. Just how complex will be on full display today when the House begins its scheduled debate on the American Clean Energy and Security Act.
Inaction by the Bush administration led environmental groups to find backdoor ways to force it to deal with climate change. When then-Interior Secretary Dirk Kempthorne listed the polar bear as "threatened" under the Endangered Species Act because global warming was melting its Arctic Sea ice habitat, activists geared up to use the decision to challenge high- carbon-emitting projects across the country. But Mr. Kempthorne wisely limited the law's reach by prohibiting "global processes" from triggering further action to protect a listed species' habitat.
That both the Bush and Obama administrations have had to contort Interior Department policies to ensure that it doesn't get dragged into setting U.S. climate policy shows why action on Capitol Hill is vital. The American Clean Energy and Security Act would seek to slash 2005 greenhouse gas emission levels 83 percent by 2050 through a cap-and-trade system in which government would set a declining limit on the amount of carbon dioxide that could be emitted and would issue allowances to emitting companies that could buy and sell those rights.
Shaping the bill, sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.), was no easy exercise. Regional concerns, particularly those of members from coal-producing areas such as Rep. Rick Boucher (D-Va.), forced a number of compromises that have left all sides grumbling. Initially, 85 percent of the carbon trade allowances would be given away. This is a far cry from the 100 percent auction position espoused by President Obama during the campaign. But the committee staff believes that this is necessary to ease the transition to a carbon-constrained economy for industries and states and to help limit direct consumer rate increases. By 2030, all the pollution permits would be auctioned.
The work on this bill is far from done, and the debate on the House floor promises to be spirited, as it should be. We continue to hope that Congress will consider a simpler carbon tax rebated to all taxpayers or less bureaucratic versions of cap-and-trade, such as that proposed by Rep. Chris Van Hollen (D-Md.). But it's encouraging that lawmakers are undertaking to meet the challenges of climate change. The responsibility is theirs, not that of unelected bureaucrats using laws far beyond their intended purpose.
Soak the Rich, Lose the Rich
Soak the Rich, Lose the Rich. By Arthur Laffer and Stephen Moore
Americans know how to use the moving van to escape high taxes.
WSJ, May 18, 2009
With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.
Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."
Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.
And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."
More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.
Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the "soak the rich" tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.
This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.
We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.
They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.
Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.
One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.
The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of "Rich States, Poor States" (American Legislative Exchange Council, 2009).
Americans know how to use the moving van to escape high taxes.
WSJ, May 18, 2009
With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.
Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."
Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.
And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."
More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.
Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the "soak the rich" tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.
This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.
We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.
They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.
Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.
One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.
The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of "Rich States, Poor States" (American Legislative Exchange Council, 2009).
Netanyahu and Obama Have a Shared Interest in Iran
Netanyahu and Obama Have a Shared Interest in Iran. By R M Gerecht
The success of both men depends on stopping the mullahs from getting the bomb.
WSJ, May 18, 2009
Can the United States and its European allies peacefully prevent Iran from developing nuclear weapons? And if not, would Israel try to do so militarily, even if doing so greatly angered President Barack Obama? Israeli Prime Minister Benjamin Netanyahu is in Washington today. These questions could well make or break his premiership and Mr. Obama's presidency.
With increasing vigor and resources, the clerical regime has advanced a massive -- and until 2002 clandestine -- program for producing fissile material. It's a good bet that the Europeans have never really believed that Iran could be deterred from developing a bomb by either engagement or sanctions acceptable to all of the EU's members. Nevertheless, the Europeans have tried, offering generous trade and credit terms while psychologically stroking the Islamic Republic.
Yet as Thérèse Delpech, a leading nonproliferation expert at France's Atomic Energy Commission, warned last October at a Brookings Institution lecture, "We [the Europeans] have negotiated during five years with the Iranians . . . and we came to the conclusion that they are not interested at all in negotiating, but . . . [only] in buying time for their military program." In those five years, she also noted, Tehran never implied that if only the Americans were at the table the clerical regime would be amenable to compromise.
We shouldn't be surprised if the Israelis reach a conclusion at odds with Washington's near-consensus against pre-emptive strikes on Iran's nuclear facilities. In 1981, Jerusalem certainly surmised that a raid against Iraq's Osirak nuclear reactor could make Saddam Hussein furious and that he possessed conventional and unconventional means of getting even. But they went ahead and destroyed the reactor.
The consensus in Israel is just as widespread about the correctness of last year's strike against the secret North Korean-designed reactor at Dir A-Zur in Syria -- a project that may well have had Iranian backing. Prime Minister Ehud Olmert ordered the attack although the Bush administration opposed it. And in 1967, Israelis believed that pre-emptive action saved their nation from an Arab-initiated, multifront offensive that could have proved lethal.
For the Israelis today, Iran has become an unrivalled threat. Although anti-Semitism has been widespread in the Middle East since the 1930s, the strain among Tehran's ruling elite is akin to what European Jews observed in Austria, Germany and Russia in the early 20th century.
Americans and Europeans don't like to dwell on the problem of anti-Semitism in the region, preferring to see it as tangential to geopolitics and economics and treatable by the creation of a Palestinian state. But Israelis are acutely conscious that unrelenting anti-Semitism and anti-Zionism are important factors in the Shiite Islamic Republic's increasing popularity among Arab Sunni fundamentalists -- especially in Egypt, where the Muslim Brotherhood would probably triumph in a free election. In Iran, the anti-Jewish passion among the revolutionary elite appears to have actually increased as ordinary Iranians have soured on theocracy and state-sanctioned ideology.
Never before have the Israelis had to confront a rabidly anti-Semitic enemy with nuclear weapons and a long track record of supporting deadly killers such as Hezbollah and Hamas. Americans and Europeans can seem to Israelis all-too-nonchalant about the challenge they face -- and Western counsel to calm down and get used to the idea of mullahs with nukes doesn't sit well with a people who have already lived through the unthinkable.
The Western advice may be sage: The threat of an Israeli retaliatory nuclear strike might be a sufficient threat to discourage Tehran's mullahs from using a nuclear weapon directly, or from leveraging its protective nuclear umbrella indirectly to more aggressively support anti-Israeli jihadists. But Iran's penchant for terrorism, its extensive ties to both radical Sunnis and Shiites, its vibrant anti-Semitism, and the likelihood that Tehran will become more aggressive (as has Pakistan in Kashmir) with an atom bomb in its arsenal doesn't reinforce the case for patience and perseverance.
Consider: If Saddam Hussein had had a nuke in 1990, would George H.W. Bush have risked war? Consider as well the near certainty that ultra-Sunni Saudi Arabia will go nuclear in response to a Shiite Persian bomb. The prospect of another virulently anti-Semitic Arab state -- deeply permeated with supporters of al Qaeda -- possessing an atomic weapon cannot comfort Jerusalem. A pre-emptive strike offers Israel a chance that this nuclear contagion can be stopped.
A tidal wave of Western sanctions might convince the Israelis that the Americans and Europeans are finally serious about countering Tehran. Sanctions against Iran's importation of gasoline -- the country lacks sufficient refining capacity -- could shock the regime. The bipartisan Iran Refined Petroleum Sanctions Act, recently introduced in Congress, gives the White House the authority to make foreign companies choose between doing business with the U.S. or exporting gasoline to Iran. A European effort to cripple Iran's production and transport of liquefied gas -- an enormous future financial reservoir for Iran given its reserves -- could cause a political earthquake in Tehran. The mullahs just might suspend uranium enrichment.
But the Obama administration appears deeply conflicted about using "sticks." Is it willing to coerce the Europeans into implementing economy-strangling energy sanctions if the Europeans prove unwilling to punish Iran severely? The administration appears to be entertaining a German- and British-backed idea of allowing Tehran to proceed with uranium enrichment -- in return for which sanctions against the regime would be cancelled -- if it is "monitored." Yet even if Iran would agree to intrusive monitoring, the Israelis -- and others in the region -- would surely view such a concession as one big step closer to an Iranian bomb.
Mr. Obama has repeatedly described Iran's nuclear ambitions as "unacceptable" and warned against the threat that a nuclear-armed clerical regime poses to the world. Yet the administration has tried to keep Iran, and its Iran point man Dennis Ross, out of the headlines. One suspects that this is not because the administration is devising an all-encompassing grand bargain, but because it cannot get the clerical regime to meaningfully engage.
One can sympathize with the reluctance of this administration, like its predecessor, to confront the mullahs. But whether the Israelis strike or not, another storm is gathering in the Middle East. It could prove far more tumultuous than the earlier ones in Iraq.
Mr. Gerecht, a former Central Intelligence Agency officer, is a senior fellow at the Foundation for Defense of Democracies.
The success of both men depends on stopping the mullahs from getting the bomb.
WSJ, May 18, 2009
Can the United States and its European allies peacefully prevent Iran from developing nuclear weapons? And if not, would Israel try to do so militarily, even if doing so greatly angered President Barack Obama? Israeli Prime Minister Benjamin Netanyahu is in Washington today. These questions could well make or break his premiership and Mr. Obama's presidency.
With increasing vigor and resources, the clerical regime has advanced a massive -- and until 2002 clandestine -- program for producing fissile material. It's a good bet that the Europeans have never really believed that Iran could be deterred from developing a bomb by either engagement or sanctions acceptable to all of the EU's members. Nevertheless, the Europeans have tried, offering generous trade and credit terms while psychologically stroking the Islamic Republic.
Yet as Thérèse Delpech, a leading nonproliferation expert at France's Atomic Energy Commission, warned last October at a Brookings Institution lecture, "We [the Europeans] have negotiated during five years with the Iranians . . . and we came to the conclusion that they are not interested at all in negotiating, but . . . [only] in buying time for their military program." In those five years, she also noted, Tehran never implied that if only the Americans were at the table the clerical regime would be amenable to compromise.
We shouldn't be surprised if the Israelis reach a conclusion at odds with Washington's near-consensus against pre-emptive strikes on Iran's nuclear facilities. In 1981, Jerusalem certainly surmised that a raid against Iraq's Osirak nuclear reactor could make Saddam Hussein furious and that he possessed conventional and unconventional means of getting even. But they went ahead and destroyed the reactor.
The consensus in Israel is just as widespread about the correctness of last year's strike against the secret North Korean-designed reactor at Dir A-Zur in Syria -- a project that may well have had Iranian backing. Prime Minister Ehud Olmert ordered the attack although the Bush administration opposed it. And in 1967, Israelis believed that pre-emptive action saved their nation from an Arab-initiated, multifront offensive that could have proved lethal.
For the Israelis today, Iran has become an unrivalled threat. Although anti-Semitism has been widespread in the Middle East since the 1930s, the strain among Tehran's ruling elite is akin to what European Jews observed in Austria, Germany and Russia in the early 20th century.
Americans and Europeans don't like to dwell on the problem of anti-Semitism in the region, preferring to see it as tangential to geopolitics and economics and treatable by the creation of a Palestinian state. But Israelis are acutely conscious that unrelenting anti-Semitism and anti-Zionism are important factors in the Shiite Islamic Republic's increasing popularity among Arab Sunni fundamentalists -- especially in Egypt, where the Muslim Brotherhood would probably triumph in a free election. In Iran, the anti-Jewish passion among the revolutionary elite appears to have actually increased as ordinary Iranians have soured on theocracy and state-sanctioned ideology.
Never before have the Israelis had to confront a rabidly anti-Semitic enemy with nuclear weapons and a long track record of supporting deadly killers such as Hezbollah and Hamas. Americans and Europeans can seem to Israelis all-too-nonchalant about the challenge they face -- and Western counsel to calm down and get used to the idea of mullahs with nukes doesn't sit well with a people who have already lived through the unthinkable.
The Western advice may be sage: The threat of an Israeli retaliatory nuclear strike might be a sufficient threat to discourage Tehran's mullahs from using a nuclear weapon directly, or from leveraging its protective nuclear umbrella indirectly to more aggressively support anti-Israeli jihadists. But Iran's penchant for terrorism, its extensive ties to both radical Sunnis and Shiites, its vibrant anti-Semitism, and the likelihood that Tehran will become more aggressive (as has Pakistan in Kashmir) with an atom bomb in its arsenal doesn't reinforce the case for patience and perseverance.
Consider: If Saddam Hussein had had a nuke in 1990, would George H.W. Bush have risked war? Consider as well the near certainty that ultra-Sunni Saudi Arabia will go nuclear in response to a Shiite Persian bomb. The prospect of another virulently anti-Semitic Arab state -- deeply permeated with supporters of al Qaeda -- possessing an atomic weapon cannot comfort Jerusalem. A pre-emptive strike offers Israel a chance that this nuclear contagion can be stopped.
A tidal wave of Western sanctions might convince the Israelis that the Americans and Europeans are finally serious about countering Tehran. Sanctions against Iran's importation of gasoline -- the country lacks sufficient refining capacity -- could shock the regime. The bipartisan Iran Refined Petroleum Sanctions Act, recently introduced in Congress, gives the White House the authority to make foreign companies choose between doing business with the U.S. or exporting gasoline to Iran. A European effort to cripple Iran's production and transport of liquefied gas -- an enormous future financial reservoir for Iran given its reserves -- could cause a political earthquake in Tehran. The mullahs just might suspend uranium enrichment.
But the Obama administration appears deeply conflicted about using "sticks." Is it willing to coerce the Europeans into implementing economy-strangling energy sanctions if the Europeans prove unwilling to punish Iran severely? The administration appears to be entertaining a German- and British-backed idea of allowing Tehran to proceed with uranium enrichment -- in return for which sanctions against the regime would be cancelled -- if it is "monitored." Yet even if Iran would agree to intrusive monitoring, the Israelis -- and others in the region -- would surely view such a concession as one big step closer to an Iranian bomb.
Mr. Obama has repeatedly described Iran's nuclear ambitions as "unacceptable" and warned against the threat that a nuclear-armed clerical regime poses to the world. Yet the administration has tried to keep Iran, and its Iran point man Dennis Ross, out of the headlines. One suspects that this is not because the administration is devising an all-encompassing grand bargain, but because it cannot get the clerical regime to meaningfully engage.
One can sympathize with the reluctance of this administration, like its predecessor, to confront the mullahs. But whether the Israelis strike or not, another storm is gathering in the Middle East. It could prove far more tumultuous than the earlier ones in Iraq.
Mr. Gerecht, a former Central Intelligence Agency officer, is a senior fellow at the Foundation for Defense of Democracies.
WSJ Editorial Page: Your latest donation to the IMF
What's Another $108 Billion? WSJ Editorial
Your latest donation to the IMF.
WSJ, May 18, 2009
Ah, transparency. Perhaps you've read that the new era of candor in government spending has arrived. Except, apparently, when it comes to the $750 billion that the Obama Administration and other nations have agreed to provide the International Monetary Fund. In this case, it's all opacity all the time.
At the G-20 meeting in April, the world's big shots promised to provide $500 billion under credit lines to the IMF known as "new arrangements to borrow." The U.S. share was said to be $100 billion, which last week we learned is actually $108 billion. The Obama Administration is now asking Congress to appropriate the cash, except that the Congressional Budget Office is only scoring the cost at $5 billion. How so? Because the transaction is being called an "exchange of assets," which means the U.S. gives the IMF the $108 billion and the IMF gives the U.S. a promissory note. Which raises a question: If it costs so little, why not make it $200 billion. Or a trillion? It's free!
Of course it is not. The loan carries risk and that risk may be higher than in the past. IMF rules have long been clear that the IMF's "new arrangement" funds can only be used in an emergency that threatens the stability of the "international monetary system." There has also been an understanding that the money will be repaid in short order.
But in April the G-20 announced that the credit line is to be "expanded and more flexible." An IMF spokesman says the idea of increasing flexibility is that the "money becomes part of the general resources of the fund and if the managing director decides that the fund needs to step in somewhere, it can." This makes it less like an emergency credit line and more like a general contribution to the IMF's overall money pot.
But look on the bright side: At least there's a chance this money will be repaid. Not so with the other big commitment President Obama made in London. We refer to the U.S. portion of the eight-fold increase in the IMF's special drawing rights, or SDRs. SDRs are IMF credit allocations redeemable for subsidized loans from hard-currency fund countries. These loans are almost never repaid.
Prior to last week, there were about $32 billion in SDRs, the U.S. portion of which costs American taxpayers more than $300 million a year. For 12 years Congress has refused to go along with an IMF request to double the SDR account, but Mr. Obama swept all that debate under the carpet in London and agreed to take the total to $250 billion. The U.S. exposure? A cool $40 billion. And since all IMF members are eligible, Iran, Zimbabwe, Sudan, Venezuela and Burma are all candidates for Mr. Obama's generosity.
Speaking of inmates running the asylum, certain "emerging-market" members -- such as China, Brazil, Russia and India -- announced they would not join the U.S. in providing more IMF resources via credit lines for countries in crisis. Instead, they want the fund to issue short-term notes to finance their "contribution," which they could later oh-so-conveniently off-load in the secondary market. These notes will have the implicit guarantee of the U.S., adding one more liability to Washington's balance sheet.
The wheels are greased in Congress to pass this before the public notices, but South Carolina Republican Jim DeMint is trying to force a Senate floor vote on the $108 billion. He'll lose, but at least he's honoring Mr. Obama's pledge of transparency.
Your latest donation to the IMF.
WSJ, May 18, 2009
Ah, transparency. Perhaps you've read that the new era of candor in government spending has arrived. Except, apparently, when it comes to the $750 billion that the Obama Administration and other nations have agreed to provide the International Monetary Fund. In this case, it's all opacity all the time.
At the G-20 meeting in April, the world's big shots promised to provide $500 billion under credit lines to the IMF known as "new arrangements to borrow." The U.S. share was said to be $100 billion, which last week we learned is actually $108 billion. The Obama Administration is now asking Congress to appropriate the cash, except that the Congressional Budget Office is only scoring the cost at $5 billion. How so? Because the transaction is being called an "exchange of assets," which means the U.S. gives the IMF the $108 billion and the IMF gives the U.S. a promissory note. Which raises a question: If it costs so little, why not make it $200 billion. Or a trillion? It's free!
Of course it is not. The loan carries risk and that risk may be higher than in the past. IMF rules have long been clear that the IMF's "new arrangement" funds can only be used in an emergency that threatens the stability of the "international monetary system." There has also been an understanding that the money will be repaid in short order.
But in April the G-20 announced that the credit line is to be "expanded and more flexible." An IMF spokesman says the idea of increasing flexibility is that the "money becomes part of the general resources of the fund and if the managing director decides that the fund needs to step in somewhere, it can." This makes it less like an emergency credit line and more like a general contribution to the IMF's overall money pot.
But look on the bright side: At least there's a chance this money will be repaid. Not so with the other big commitment President Obama made in London. We refer to the U.S. portion of the eight-fold increase in the IMF's special drawing rights, or SDRs. SDRs are IMF credit allocations redeemable for subsidized loans from hard-currency fund countries. These loans are almost never repaid.
Prior to last week, there were about $32 billion in SDRs, the U.S. portion of which costs American taxpayers more than $300 million a year. For 12 years Congress has refused to go along with an IMF request to double the SDR account, but Mr. Obama swept all that debate under the carpet in London and agreed to take the total to $250 billion. The U.S. exposure? A cool $40 billion. And since all IMF members are eligible, Iran, Zimbabwe, Sudan, Venezuela and Burma are all candidates for Mr. Obama's generosity.
Speaking of inmates running the asylum, certain "emerging-market" members -- such as China, Brazil, Russia and India -- announced they would not join the U.S. in providing more IMF resources via credit lines for countries in crisis. Instead, they want the fund to issue short-term notes to finance their "contribution," which they could later oh-so-conveniently off-load in the secondary market. These notes will have the implicit guarantee of the U.S., adding one more liability to Washington's balance sheet.
The wheels are greased in Congress to pass this before the public notices, but South Carolina Republican Jim DeMint is trying to force a Senate floor vote on the $108 billion. He'll lose, but at least he's honoring Mr. Obama's pledge of transparency.
Tax Audits Are No Laughing Matter - WSJ.com
Tax Audits Are No Laughing Matter - WSJ.com
A president shouldn't even joke about abusing IRS power
At his Arizona State University commencement speech last Wednesday, Mr. Obama noted that ASU had refused to grant him an honorary degree, citing his lack of experience, and the controversy this had caused.
After this, the Federal President said: "President [Michael] Crowe and the Board of Regents will soon learn all about being audited by the IRS."
A president shouldn't even joke about abusing IRS power
At his Arizona State University commencement speech last Wednesday, Mr. Obama noted that ASU had refused to grant him an honorary degree, citing his lack of experience, and the controversy this had caused.
After this, the Federal President said: "President [Michael] Crowe and the Board of Regents will soon learn all about being audited by the IRS."
O'Grady: Finally, a Real Revolution - WSJ.com
O'Grady: Finally, a Real Revolution - WSJ.com
A civil-society movement emerges in Central America
A civil-society movement emerges in Central America
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