Time to Junk the Corporate Tax. By MICHAEL J. BOSKIN
Nobel Laureate Robert Lucas says reform would deliver great benefits at little cost, making it "the largest genuinely true free lunch I have seen.'WSJ, May 06, 2010
President Obama has put tax reform on the agenda, but surprisingly little attention is being paid to fixing the most growth-inhibiting, anticompetitive tax of all: the corporate income tax. Reducing or eliminating the corporate tax would curtail numerous wasteful tax distortions, boost growth in both the short and long run, increase America's global competitiveness, and raise future wages.
The U.S. has the second-highest corporate income tax rate of any advanced economy (39% including state taxes, 50% higher than the OECD average). Many major competitors, Germany and Canada among them, have reduced their corporate tax rate, rendering American companies less competitive globally.
Of course, various credits and deductions—such as for depreciation and interest—reduce the effective corporate tax rate. But netting everything, our corporate tax severely retards and misaligns investment, problems that will only get worse as more and more capital becomes internationally mobile. Corporate income is taxed a second time at the personal level as dividends or those capital gains attributable to reinvestment of the retained earnings of the corporation. Between the new taxes in the health reform law and the expiration of the Bush tax cuts, these rates are soon set to explode.
This complex array of taxes on corporate income produces a series of biases and distortions. The most important is the bias against capital formation, decreasing the overall level of investment and therefore future labor productivity and wages. Also important are the biases among types of investments, depending on the speed of tax vs. true economic depreciation, against corporate (vs. noncorporate) investment, and in favor of highly leveraged assets and industries. These biases assure that overall capital formation runs steeply uphill, while some investments run more, some less uphill. It would be comical if the deleterious consequences weren't so severe.
Of course, the corporation is a legal entity; only people pay taxes. In a static economy with no international trade, the tax is likely borne by shareholders. The U.S. economy is neither static nor closed to trade, and taxes tend to be borne by the least mobile factor of production. Capital is much more mobile globally than labor, and the part of the corporate tax that is well above that of our lowest tax competitors will eventually be borne by workers. In a growing economy, the lower investment slows productivity growth and future wages.
There is considerable evidence that high corporate taxes are economically dangerous. In a 2008 working paper entitled "Taxation and Economic Growth," the Organization for Economic Cooperation and Development concluded that "Corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes." Virtually every major tax reform proposal in recent decades has centered on lowering taxes on capital income and moving toward a broad-based, low-rate tax on consumption. This could be accomplished by junking the separate corporate income tax, integrating it with the personal income tax (e.g., attributing corporate income and taxes to shareholders or eliminating personal taxes on corporate distributions), and/or allowing an immediate tax deduction (expensing) for investment (which cancels the tax at the margin on new investment and hence is the priority of most economists). The Hall-Rabushka Flat Tax, the Bradford progressive consumption tax, a value-added Tax (VAT), the FairTax retail sales tax, four decades of Treasury proposals and the 2005 President's Tax Commission proposals would all move in this direction.
Reducing or eliminating the negative effects of the corporate tax on investment would increase real GDP and future wages significantly. Junking both the corporate and personal income taxes and replacing them with a broad revenue-neutral consumption tax would produce even larger gains. Nobel Laureate Robert Lucas concluded that implementing such reforms would deliver great benefits at little cost, making it "the largest genuinely true free lunch I have seen."
Reducing taxes on new investment could help strengthen what is a historically slow recovery from such a deep recession. It would also strengthen the economy long-term. American workers would benefit from more jobs in the short run and higher wages in the long run.
However, if a new tax device is used to grow government substantially, it will seriously erode our long-run standard of living. The VAT has served that purpose in Europe and, while better than still-higher income taxes, the larger-size governments it has enabled there are the prime reason European living standards are 30% lower than ours. Trading a good tax reform for a much larger government is beyond foolish. No tax reform can offset losses that large. Hence, a VAT should only be on the table if it is not only revenue-neutral but accompanied by serious spending control.
Further, the fraction of Americans paying no income taxes is approaching 50%. That sets up a dangerous political dynamic of voting ever-rising taxes to pay for ever-rising spending. We need more people with a stake in controlling spending. Replacing corporate and personal income taxes with a broad-based consumption tax could increase the number of those with "skin in the game." But some reforms, for example a VAT, might be much less transparent and may not serve this purpose.
Congresses (and presidents) seem unable to avoid continually tinkering with the tax code. A tax reform that is quickly riddled with special features would lose much of its economic benefit. We need a stable tax system that changes much less frequently, so families and firms can more reliably plan their future. Current fiscal policy, loaded with immense deficits, ever-growing debt, and the prospect of higher future taxes, is the biggest threat to such stability. To balance proposed spending in Mr. Obama's budget in 2015, his Deficit Commission's target year, will require at least a 43% increase in everyone's income tax. Thus, spending control is vital to tax stability.
American companies and their workers compete in the global marketplace saddled with a costly, anachronistic corporate tax system. To compete successfully in the 21st century, we will need to reform corporate taxation. There are several paths to doing so, each with its advantages. Unfortunately, tax policy is headed in exactly the wrong direction, raising taxes on corporate source income. Business investment is growing again after the collapse in the recession, which is usual in a cyclical recovery with very low interest rates. But eventually structural drags, from our antiquated tax code to massive public debt, will impede investment and economic growth.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Thursday, May 6, 2010
Monday, May 3, 2010
Drilling in Deep Water - A ban on offshore production won't mean fewer oil spills
Drilling in Deep Water. WSJ Editorial
A ban on offshore production won't mean fewer oil spills.WSJ, May 04, 2010
It could be months before we know what caused the explosion and oil spill below the drilling rig Deepwater Horizon. But as we add up the economic costs and environmental damage (and mourn the 11 oil workers who died), we should also put the disaster in some perspective.
Washington is, as usual, showing no such restraint. As the oil in the Gulf of Mexico moves toward the Louisiana and Florida coasts, the left is already demanding that President Obama reverse his baby steps toward more offshore drilling. The Administration has partly obliged, declaring a moratorium pending an investigation. The President has raised the political temperature himself, declaring yesterday that the spill is a "massive and potentially unprecedented environmental disaster."
The harm will be considerable, which is why it is fortunate that such spills are so rare. The most recent spill of this magnitude was the Exxon Valdez tanker accident in 1989. The largest before that was the Santa Barbara offshore oil well leak in 1969.
The infrequency of big spills is extraordinary considering the size of the offshore oil industry that provides Americans with affordable energy. According to the Interior Department's most recent data, in 2002 the Outer Continental Shelf had 4,000 oil and gas facilities, 80,000 workers in offshore and support activities, and 33,000 miles of pipeline. Between 1985 and 2001, these offshore facilities produced seven billion barrels of oil. The spill rate was a minuscule 0.001%.
According to the National Academy of Sciences—which in 2002 completed the third version of its "Oil in the Sea" report—only 1% of oil discharges in North Americas are related to petroleum extraction. Some 62% of oil in U.S. waters is due to natural seepage from the ocean floor, putting 47 million gallons of crude oil into North American water every year. The Gulf leak is estimated to have leaked between two million and three million gallons in two weeks.
Such an accident is still unacceptable, which is why the drilling industry has invested heavily to prevent them. The BP well had a blowout preventer, which contains several mechanisms designed to seal pipes in the event of a problem. These protections have worked in the past, and the reason for the failure this time is unknown. This was no routine safety failure but a surprising first.
One reason the industry has a good track record is precisely because of the financial consequences of accidents. The Exxon Valdez dumped 260,000 barrels of oil, and Exxon spent $3.14 billion on cleanup. Do the math, and Exxon spent nearly 600 times more on cleanup and litigation than what the oil was worth at that time.
As for the environmental damage in the Gulf, much will depend on the weather that has made it more difficult to plug the leak and contain the spill before it reaches shore. The winds could push oil over the emergency containment barriers, or they could keep the oil swirling offshore, where it may sink and thus do less damage.
It is worth noting that this could have been worse. The Exxon Valdez caused so much damage in part because the state of Alaska dithered over an emergency spill response. Congress then passed the 1990 Oil Pollution Act that mandated more safety measures, and it gave the Coast Guard new powers during spill emergencies. We have seen the benefits in the last two weeks as the Coast Guard has deployed several containment techniques—from burning and chemical dispersants to physical barriers. America sometimes learns from its mistakes.
On the other hand, Washington's aversion to drilling closer to shore has pushed the industry into deeper, more difficult, waters farther out to sea. BP's well is 5,000 feet down, at a depth and pressure that test the most advanced engineering and technology. The depth complicates containment efforts when there is a disaster.
As for a drilling moratorium, it is no guarantee against oil spills. It may even lead to more of them. Political fantasies about ending our oil addiction notwithstanding, the U.S. economy will need oil and other fossil fuels for decades to come. If we don't drill for it at home, the oil will have to arrive by tanker and barges. Tankers are responsible for more spills than offshore wells, and those spills tend to be bigger and closer to shore—which usually means more environmental harm.
The larger reality is that energy production is never going to be accident free. No difficult human endeavor is, whether space travel or using giant cranes to build skyscrapers. The rest of the world is working to exploit its offshore oil and gas reserves despite the risk of spills. We need to be mindful of such risks, and to include prevention and clean up in the cost of doing business, but a modern economy can't run without oil.
A ban on offshore production won't mean fewer oil spills.WSJ, May 04, 2010
It could be months before we know what caused the explosion and oil spill below the drilling rig Deepwater Horizon. But as we add up the economic costs and environmental damage (and mourn the 11 oil workers who died), we should also put the disaster in some perspective.
Washington is, as usual, showing no such restraint. As the oil in the Gulf of Mexico moves toward the Louisiana and Florida coasts, the left is already demanding that President Obama reverse his baby steps toward more offshore drilling. The Administration has partly obliged, declaring a moratorium pending an investigation. The President has raised the political temperature himself, declaring yesterday that the spill is a "massive and potentially unprecedented environmental disaster."
The harm will be considerable, which is why it is fortunate that such spills are so rare. The most recent spill of this magnitude was the Exxon Valdez tanker accident in 1989. The largest before that was the Santa Barbara offshore oil well leak in 1969.
The infrequency of big spills is extraordinary considering the size of the offshore oil industry that provides Americans with affordable energy. According to the Interior Department's most recent data, in 2002 the Outer Continental Shelf had 4,000 oil and gas facilities, 80,000 workers in offshore and support activities, and 33,000 miles of pipeline. Between 1985 and 2001, these offshore facilities produced seven billion barrels of oil. The spill rate was a minuscule 0.001%.
According to the National Academy of Sciences—which in 2002 completed the third version of its "Oil in the Sea" report—only 1% of oil discharges in North Americas are related to petroleum extraction. Some 62% of oil in U.S. waters is due to natural seepage from the ocean floor, putting 47 million gallons of crude oil into North American water every year. The Gulf leak is estimated to have leaked between two million and three million gallons in two weeks.
Such an accident is still unacceptable, which is why the drilling industry has invested heavily to prevent them. The BP well had a blowout preventer, which contains several mechanisms designed to seal pipes in the event of a problem. These protections have worked in the past, and the reason for the failure this time is unknown. This was no routine safety failure but a surprising first.
One reason the industry has a good track record is precisely because of the financial consequences of accidents. The Exxon Valdez dumped 260,000 barrels of oil, and Exxon spent $3.14 billion on cleanup. Do the math, and Exxon spent nearly 600 times more on cleanup and litigation than what the oil was worth at that time.
As for the environmental damage in the Gulf, much will depend on the weather that has made it more difficult to plug the leak and contain the spill before it reaches shore. The winds could push oil over the emergency containment barriers, or they could keep the oil swirling offshore, where it may sink and thus do less damage.
It is worth noting that this could have been worse. The Exxon Valdez caused so much damage in part because the state of Alaska dithered over an emergency spill response. Congress then passed the 1990 Oil Pollution Act that mandated more safety measures, and it gave the Coast Guard new powers during spill emergencies. We have seen the benefits in the last two weeks as the Coast Guard has deployed several containment techniques—from burning and chemical dispersants to physical barriers. America sometimes learns from its mistakes.
On the other hand, Washington's aversion to drilling closer to shore has pushed the industry into deeper, more difficult, waters farther out to sea. BP's well is 5,000 feet down, at a depth and pressure that test the most advanced engineering and technology. The depth complicates containment efforts when there is a disaster.
As for a drilling moratorium, it is no guarantee against oil spills. It may even lead to more of them. Political fantasies about ending our oil addiction notwithstanding, the U.S. economy will need oil and other fossil fuels for decades to come. If we don't drill for it at home, the oil will have to arrive by tanker and barges. Tankers are responsible for more spills than offshore wells, and those spills tend to be bigger and closer to shore—which usually means more environmental harm.
The larger reality is that energy production is never going to be accident free. No difficult human endeavor is, whether space travel or using giant cranes to build skyscrapers. The rest of the world is working to exploit its offshore oil and gas reserves despite the risk of spills. We need to be mindful of such risks, and to include prevention and clean up in the cost of doing business, but a modern economy can't run without oil.
Sunday, May 2, 2010
The State Department is sitting on funds to free the flow of information in closed societies
Mrs. Clinton, Tear Down this Cyberwall. By L. GORDON CROVITZ
The State Department is sitting on funds to free the flow of information in closed societies.WSJ, May 03, 2010
When a government department refuses to spend money that Congress has allocated, there's usually a telling backstory. This is doubly so when the funds are for a purpose as uncontroversial as making the Internet freer.
So why has the State Department refused to spend $45 million in appropriations since 2008 to "expand access and information in closed societies"? The technology to circumvent national restrictions is being provided by volunteers who believe that with funding they can bring Web access to many more people, from Iran to China.
A bipartisan group in Congress intended to pay for tests aimed at expanding the use of software that brings Internet access to "large numbers of users living in closed societies that have acutely hostile Internet environments." The most successful of these services is provided by a group called the Global Internet Freedom Consortium, whose programs include Freegate and Ultrasurf.
When Iranian demonstrators last year organized themselves through Twitter posts and brought news of the crackdown to the outside world, they got past the censors chiefly by using Freegate to get access to outside sites.
The team behind these circumvention programs understands how subversive their efforts can be. As Shiyu Zhou, deputy director of the Global Internet Freedom Consortium, told Congress last year, "The Internet censorship firewalls have become 21st-century versions of Berlin Walls that isolate and dispirit the citizens of closed-society dictatorships."
Repressive governments rightly regard the Internet as an existential threat, giving people powerful ways to communicate and organize. These governments also use the Web as a tool of repression, monitoring emails and other traffic. Recall that Google left China in part because of hacking of human-rights activists' Gmail accounts.
To counter government monitors and censors, these programs give online users encrypted connections to secure proxy servers around the world. A group of volunteers constantly switches the Internet Protocol addresses of the servers—up to 10,000 times an hour. The group has been active since 2000, and repressive governments haven't figured out how to catch up. More than one million Iranians used the system last June to post videos and photos showing the government crackdown.
Mr. Zhou tells me his group would use any additional money to add equipment and to hire full-time technical staff to support the volunteers. For $50 million, he estimates the service could accommodate 5% of Chinese Internet users and 10% in other closed societies—triple the current capacity.
So why won't the State Department fund this group to expand its reach, or at least test how scalable the solution could be? There are a couple of explanations.
The first is that the Global Internet Freedom Consortium was founded by Chinese-American engineers who practice Falun Gong, the spiritual movement suppressed by Beijing. Perhaps not the favorites of U.S. diplomats, but what other group has volunteers engaged enough to keep such a service going? As with the Jewish refuseniks who battled the Soviet Union, sometimes it takes a persecuted minority to stand up to a totalitarian regime.
The second explanation is a split among technologists—between those who support circumvention programs built on proprietary systems and others whose faith is on more open sources of code. A study last year by the Berkman Center at Harvard gave more points to open-source efforts, citing "a well-established contentious debate among software developers about whether secrecy about implementation details is a robust strategy for security." But whatever the theoretical objections, the proprietary systems work.
Another likely factor is realpolitik. Despite the tough speech Hillary Clinton gave in January supporting Internet freedom, it's easy to imagine bureaucrats arguing that the U.S. shouldn't undermine the censorship efforts of Tehran and Beijing. An earlier generation of bureaucrats tried to edit, as overly aggressive, Ronald Reagan's 1987 speech in Berlin urging Mikhail Gorbachev: "Tear down this wall."
It's true that circumvention doesn't solve every problem. Internet freedom researcher and advocate Rebecca MacKinnon has made the point that "circumvention is never going to be the silver bullet" in the sense that it can only give people access to the open Web. It can't help with domestic censorship.
During the Cold War, the West expended huge effort to get books, tapes, fax machines, radio reports and other information, as well as the means to convey it, into closed societies. Circumvention is the digital-age equivalent.
If the State Department refuses to support a free Web, perhaps there's a private solution. An anonymous poster, "chinese.zhang," suggested on a Google message board earlier this year that the company should fund the Global Internet Freedom Consortium as part of its defense against Chinese censorship. "I think Google can easily offer more servers to help to break down the Great Firewall," he wrote.
The State Department is sitting on funds to free the flow of information in closed societies.WSJ, May 03, 2010
When a government department refuses to spend money that Congress has allocated, there's usually a telling backstory. This is doubly so when the funds are for a purpose as uncontroversial as making the Internet freer.
So why has the State Department refused to spend $45 million in appropriations since 2008 to "expand access and information in closed societies"? The technology to circumvent national restrictions is being provided by volunteers who believe that with funding they can bring Web access to many more people, from Iran to China.
A bipartisan group in Congress intended to pay for tests aimed at expanding the use of software that brings Internet access to "large numbers of users living in closed societies that have acutely hostile Internet environments." The most successful of these services is provided by a group called the Global Internet Freedom Consortium, whose programs include Freegate and Ultrasurf.
When Iranian demonstrators last year organized themselves through Twitter posts and brought news of the crackdown to the outside world, they got past the censors chiefly by using Freegate to get access to outside sites.
The team behind these circumvention programs understands how subversive their efforts can be. As Shiyu Zhou, deputy director of the Global Internet Freedom Consortium, told Congress last year, "The Internet censorship firewalls have become 21st-century versions of Berlin Walls that isolate and dispirit the citizens of closed-society dictatorships."
Repressive governments rightly regard the Internet as an existential threat, giving people powerful ways to communicate and organize. These governments also use the Web as a tool of repression, monitoring emails and other traffic. Recall that Google left China in part because of hacking of human-rights activists' Gmail accounts.
To counter government monitors and censors, these programs give online users encrypted connections to secure proxy servers around the world. A group of volunteers constantly switches the Internet Protocol addresses of the servers—up to 10,000 times an hour. The group has been active since 2000, and repressive governments haven't figured out how to catch up. More than one million Iranians used the system last June to post videos and photos showing the government crackdown.
Mr. Zhou tells me his group would use any additional money to add equipment and to hire full-time technical staff to support the volunteers. For $50 million, he estimates the service could accommodate 5% of Chinese Internet users and 10% in other closed societies—triple the current capacity.
So why won't the State Department fund this group to expand its reach, or at least test how scalable the solution could be? There are a couple of explanations.
The first is that the Global Internet Freedom Consortium was founded by Chinese-American engineers who practice Falun Gong, the spiritual movement suppressed by Beijing. Perhaps not the favorites of U.S. diplomats, but what other group has volunteers engaged enough to keep such a service going? As with the Jewish refuseniks who battled the Soviet Union, sometimes it takes a persecuted minority to stand up to a totalitarian regime.
The second explanation is a split among technologists—between those who support circumvention programs built on proprietary systems and others whose faith is on more open sources of code. A study last year by the Berkman Center at Harvard gave more points to open-source efforts, citing "a well-established contentious debate among software developers about whether secrecy about implementation details is a robust strategy for security." But whatever the theoretical objections, the proprietary systems work.
Another likely factor is realpolitik. Despite the tough speech Hillary Clinton gave in January supporting Internet freedom, it's easy to imagine bureaucrats arguing that the U.S. shouldn't undermine the censorship efforts of Tehran and Beijing. An earlier generation of bureaucrats tried to edit, as overly aggressive, Ronald Reagan's 1987 speech in Berlin urging Mikhail Gorbachev: "Tear down this wall."
It's true that circumvention doesn't solve every problem. Internet freedom researcher and advocate Rebecca MacKinnon has made the point that "circumvention is never going to be the silver bullet" in the sense that it can only give people access to the open Web. It can't help with domestic censorship.
During the Cold War, the West expended huge effort to get books, tapes, fax machines, radio reports and other information, as well as the means to convey it, into closed societies. Circumvention is the digital-age equivalent.
If the State Department refuses to support a free Web, perhaps there's a private solution. An anonymous poster, "chinese.zhang," suggested on a Google message board earlier this year that the company should fund the Global Internet Freedom Consortium as part of its defense against Chinese censorship. "I think Google can easily offer more servers to help to break down the Great Firewall," he wrote.
A Centrist Agenda for Economic Growth
A Centrist Agenda for Economic Growth. By JIM OWENS
Freer trade plus lower corporate and investment taxes would go a long way.WSJ, May 03, 2010
The long-term health of the U.S. economy is at risk. There are signs of recovery from the worst recession since the Great Depression. But not enough.
We need a renewed, centrist political agenda to support economic policies that will enhance our global competitiveness. America cannot sustain itself as a great country without a strong economy. Yet significant economic decisions are made in Washington with little consideration as to how they will affect the global competitiveness of the small and large companies that employ our citizens.
Here are a few policy suggestions:
• Restore fiscal discipline. Simply stated, we must balance the books. This means deciding how much government we want and the best way to generate the tax revenues to pay for it.
To get there, federal and state governments must be required to use the same transparent accounting standards required of corporations for employee retirement benefits. With baby boomers retiring, we have a ticking time bomb on our hands. Transparency would make it clear to everyone just where the unfunded obligations are and get us on road to begin funding them. Further, we should mandate that federal budget deficits be balanced over a business cycle.
• Simplify the federal tax code with flat personal income taxes. This means incentivizing savings and investment with significantly lower rates for dividends and long-term capital gains. Use consumption taxes to raise additional funds to achieve social goals, such as lowering emissions or tobacco consumption.
• Tax business only on profits earned in the United States. This means adopting a territorial tax system for U.S.-based global companies, which will encourage them to repatriate global profits (billions await) to the United States and increase the likelihood of investment here. We should also recruit foreign direct investment to serve U.S. customers and to pay taxes to our government.
Recognizing that the U.S. has one of the highest corporate tax rates in the world, the government should not eliminate the current provision that allows companies to "defer" paying a U.S. tax on foreign income until it is brought back into this country. Over time this would destroy U.S.-based global companies.
• Increase infrastructure investment. Since the 1970s U.S. investment in infrastructure has grown at only half the rate of GDP growth. Today, our roads are crumbling, bridges are in need of repair, and our power grid is inefficient. Meanwhile, emerging economies (notably China, India and Brazil) are making huge investments in modern infrastructure.
Infrastructure is the foundation for an economy's global competitiveness. We don't want to wake up in 10 years and find ourselves hopelessly behind.
• Free up international trade. The U.S. needs to provide leadership for completion of the World Trade Organizations' Doha Development Round of Trade Negotiations. Moreover, Americans need to pressure Washington to ratify the three Free Trade Agreements (FTAs)—for Panama, Colombia and South Korea—that have already been negotiated. Passage of these agreements will show the world we're open for business, create immediate exports and related jobs, and it would also strengthen the economies of three important allies.
• Improve the health-care system's cost effectiveness. To get there, the country needs to further reform its tort system and to continue to adopt better information technology. It's also critical that consumers have access to better information on health-care prices and outcomes and to be able to purchase competitively priced insurance offered in other states. Finally, citizens must have a personal stake in the costs of their care, which will enable them to make prudent decisions.
• Reform immigration laws to make existing "guest" workers legal, tax-paying employees. We should provide legal avenues for guest workers to apply for U.S. citizenship. It is to our advantage to grant more visas to the best and brightest students from around the world who come to our best universities. Students receiving qualifying advanced degrees (such as in math and science) should get an automatic green card to work in our country.
• Maintain the independence of the Federal Reserve. The task of the central bank is to manage money supply to keep inflation low (0%-2%), employment high and the financial system healthy. Excessive political influence could prevent the Fed from taking decisive actions when needed.
These recommendations are not particularly novel. In fact, the majority of economists and business leaders I've talked to agree with virtually all of them. Real GDP growth of 3.5% over the next decade is an aggressive target—but achievable. We need to think like winners.
Mr. Owens is chairman and CEO of Caterpillar Inc.
Freer trade plus lower corporate and investment taxes would go a long way.WSJ, May 03, 2010
The long-term health of the U.S. economy is at risk. There are signs of recovery from the worst recession since the Great Depression. But not enough.
We need a renewed, centrist political agenda to support economic policies that will enhance our global competitiveness. America cannot sustain itself as a great country without a strong economy. Yet significant economic decisions are made in Washington with little consideration as to how they will affect the global competitiveness of the small and large companies that employ our citizens.
Here are a few policy suggestions:
• Restore fiscal discipline. Simply stated, we must balance the books. This means deciding how much government we want and the best way to generate the tax revenues to pay for it.
To get there, federal and state governments must be required to use the same transparent accounting standards required of corporations for employee retirement benefits. With baby boomers retiring, we have a ticking time bomb on our hands. Transparency would make it clear to everyone just where the unfunded obligations are and get us on road to begin funding them. Further, we should mandate that federal budget deficits be balanced over a business cycle.
• Simplify the federal tax code with flat personal income taxes. This means incentivizing savings and investment with significantly lower rates for dividends and long-term capital gains. Use consumption taxes to raise additional funds to achieve social goals, such as lowering emissions or tobacco consumption.
• Tax business only on profits earned in the United States. This means adopting a territorial tax system for U.S.-based global companies, which will encourage them to repatriate global profits (billions await) to the United States and increase the likelihood of investment here. We should also recruit foreign direct investment to serve U.S. customers and to pay taxes to our government.
Recognizing that the U.S. has one of the highest corporate tax rates in the world, the government should not eliminate the current provision that allows companies to "defer" paying a U.S. tax on foreign income until it is brought back into this country. Over time this would destroy U.S.-based global companies.
• Increase infrastructure investment. Since the 1970s U.S. investment in infrastructure has grown at only half the rate of GDP growth. Today, our roads are crumbling, bridges are in need of repair, and our power grid is inefficient. Meanwhile, emerging economies (notably China, India and Brazil) are making huge investments in modern infrastructure.
Infrastructure is the foundation for an economy's global competitiveness. We don't want to wake up in 10 years and find ourselves hopelessly behind.
• Free up international trade. The U.S. needs to provide leadership for completion of the World Trade Organizations' Doha Development Round of Trade Negotiations. Moreover, Americans need to pressure Washington to ratify the three Free Trade Agreements (FTAs)—for Panama, Colombia and South Korea—that have already been negotiated. Passage of these agreements will show the world we're open for business, create immediate exports and related jobs, and it would also strengthen the economies of three important allies.
• Improve the health-care system's cost effectiveness. To get there, the country needs to further reform its tort system and to continue to adopt better information technology. It's also critical that consumers have access to better information on health-care prices and outcomes and to be able to purchase competitively priced insurance offered in other states. Finally, citizens must have a personal stake in the costs of their care, which will enable them to make prudent decisions.
• Reform immigration laws to make existing "guest" workers legal, tax-paying employees. We should provide legal avenues for guest workers to apply for U.S. citizenship. It is to our advantage to grant more visas to the best and brightest students from around the world who come to our best universities. Students receiving qualifying advanced degrees (such as in math and science) should get an automatic green card to work in our country.
• Maintain the independence of the Federal Reserve. The task of the central bank is to manage money supply to keep inflation low (0%-2%), employment high and the financial system healthy. Excessive political influence could prevent the Fed from taking decisive actions when needed.
These recommendations are not particularly novel. In fact, the majority of economists and business leaders I've talked to agree with virtually all of them. Real GDP growth of 3.5% over the next decade is an aggressive target—but achievable. We need to think like winners.
Mr. Owens is chairman and CEO of Caterpillar Inc.
The US EPA opens a re-re-evaulation of atrazine
The War on a Weed Killer. WSJ Editorial
The EPA opens a re-re-evaulation of a safe chemical.WSJ, May 03, 2010
With the headlines full of oil spills and immigration, the Obama Administration's regulatory agenda is getting little attention. That's a mistake. Consider the Environmental Protection Agency's effort to revive an assault on atrazine, one of the oldest, most well-established agricultural chemicals on the market. Just this past week, the EPA held its third "re-evaluation" hearing on atrazine.
Atrazine is the nation's second-most common herbicide. For 50 years it has been the farm industry's primary crop protector. In the U.S., the weed killer is used in the production of 60% of corn, 75% of sorghum and 90% of sugarcane.
Since atrazine's debut in 1959, 10 Administrations have endorsed its use. The EPA in 2006 completed a 12-year review involving 6,000 studies and 80,000 public comments. In re-registering the product, the agency concluded the cumulative risks posed "no harm that would result to the general U.S. population, infant, children or other . . . consumers." The World Health Organization has found no health concerns.
None of this has stopped the most politicized environmental groups, which oppose both chemicals and the idea of industrial farming itself. Organizations such as the Natural Resources Defense Council have spent years ginning up claims that atrazine in groundwater causes cancer, birth defects and other maladies. Manufacturers such as Syngenta have been required to conduct millions of dollars worth of studies investigating these alarmist claims. EPA staff routinely review the studies in atrazine's favor.
But now the Obama Administration has begun to fill such agencies with hires who are either sympathetic to, or even hail from, these activist groups. Consider the EPA's new head for toxic substances, Stephen Owens. As director of Arizona's Department of Environmental Quality, he so aggressively imposed an activist's climate agenda that the state legislature voted to strip his department of authority to enact greenhouse gas rules.
In August, the NRDC and the Pesticide Action Network began a new campaign against atrazine. In October, the EPA announced it would begin a re-re-evaluation of atrazine with a series of scientific panel meeting, and those are underway. The goal seems to be to lay the groundwork to ban atrazine.
Among the environmental lobby's new lines of attack is that some U.S. water systems occasionally show "spikes" in the chemical. This ignores that the EPA's drinking water standard for atrazine—three parts per billion—has a built-in, 1,000-fold safety factor. It ignores EPA findings that atrazine isn't likely to be carcinogenic to humans.
Also re-energized by the EPA's sudden interest in atrazine is, you guessed it, the plaintiffs bar. Tort kingpin Stephen Tillery, joined by Baron & Budd, filed a class action in 2004 against atrazine makers in tort-friendly Madison County, Illinois, but they've struggled even there. The EPA's re-re-evaluation is already helping the lawyers sign up more water-district plaintiffs—Mr. Tillery has filed a new federal class action—and it surely will provide ammunition in court.
There is an agenda here far more ambitious than getting one chemical. The environmental lobby wants more farmland retired to "nature," and one way to do that is to make farming more expensive. The EPA notes that eliminating atrazine would cost $2 billion annually in lost crop yields and substituting more expensive herbicides. Some farmers would go out of business or ask the federal government for more subsidies.
The environmental lobby also figures that if it can take down atrazine with its long record of clean health, it can get the EPA to prohibit anything. Sounds plausible. Between this and its determination to regulate greenhouse gases, the Obama EPA is proving itself a regulatory fundamentalist, with scant regard for good science or economics.
The EPA opens a re-re-evaulation of a safe chemical.WSJ, May 03, 2010
With the headlines full of oil spills and immigration, the Obama Administration's regulatory agenda is getting little attention. That's a mistake. Consider the Environmental Protection Agency's effort to revive an assault on atrazine, one of the oldest, most well-established agricultural chemicals on the market. Just this past week, the EPA held its third "re-evaluation" hearing on atrazine.
Atrazine is the nation's second-most common herbicide. For 50 years it has been the farm industry's primary crop protector. In the U.S., the weed killer is used in the production of 60% of corn, 75% of sorghum and 90% of sugarcane.
Since atrazine's debut in 1959, 10 Administrations have endorsed its use. The EPA in 2006 completed a 12-year review involving 6,000 studies and 80,000 public comments. In re-registering the product, the agency concluded the cumulative risks posed "no harm that would result to the general U.S. population, infant, children or other . . . consumers." The World Health Organization has found no health concerns.
None of this has stopped the most politicized environmental groups, which oppose both chemicals and the idea of industrial farming itself. Organizations such as the Natural Resources Defense Council have spent years ginning up claims that atrazine in groundwater causes cancer, birth defects and other maladies. Manufacturers such as Syngenta have been required to conduct millions of dollars worth of studies investigating these alarmist claims. EPA staff routinely review the studies in atrazine's favor.
But now the Obama Administration has begun to fill such agencies with hires who are either sympathetic to, or even hail from, these activist groups. Consider the EPA's new head for toxic substances, Stephen Owens. As director of Arizona's Department of Environmental Quality, he so aggressively imposed an activist's climate agenda that the state legislature voted to strip his department of authority to enact greenhouse gas rules.
In August, the NRDC and the Pesticide Action Network began a new campaign against atrazine. In October, the EPA announced it would begin a re-re-evaluation of atrazine with a series of scientific panel meeting, and those are underway. The goal seems to be to lay the groundwork to ban atrazine.
Among the environmental lobby's new lines of attack is that some U.S. water systems occasionally show "spikes" in the chemical. This ignores that the EPA's drinking water standard for atrazine—three parts per billion—has a built-in, 1,000-fold safety factor. It ignores EPA findings that atrazine isn't likely to be carcinogenic to humans.
Also re-energized by the EPA's sudden interest in atrazine is, you guessed it, the plaintiffs bar. Tort kingpin Stephen Tillery, joined by Baron & Budd, filed a class action in 2004 against atrazine makers in tort-friendly Madison County, Illinois, but they've struggled even there. The EPA's re-re-evaluation is already helping the lawyers sign up more water-district plaintiffs—Mr. Tillery has filed a new federal class action—and it surely will provide ammunition in court.
There is an agenda here far more ambitious than getting one chemical. The environmental lobby wants more farmland retired to "nature," and one way to do that is to make farming more expensive. The EPA notes that eliminating atrazine would cost $2 billion annually in lost crop yields and substituting more expensive herbicides. Some farmers would go out of business or ask the federal government for more subsidies.
The environmental lobby also figures that if it can take down atrazine with its long record of clean health, it can get the EPA to prohibit anything. Sounds plausible. Between this and its determination to regulate greenhouse gases, the Obama EPA is proving itself a regulatory fundamentalist, with scant regard for good science or economics.
Free Speech for Some - Unions get a pass from new campaign finance disclosure rules
Free Speech for Some. WSJ Editorial
Unions get a pass from new campaign finance disclosure rules.WSJ, May 03, 2010
Democrats in Congress last week introduced White House-backed legislation that would indirectly reinstate free-speech restrictions that the Supreme Court declared unconstitutional in January. Backers say the measure will force disclosure of corporate money in politics, but the real goal is to muzzle criticism—at least from some people.
The legislation, sponsored by Democrats Charles Schumer in the Senate and Chris Van Hollen in the House, would prevent government contractors and corporate beneficiaries of the Troubled Asset Relief Program from spending money on U.S. elections. It would also ban U.S. subsidiaries of foreign companies from making political contributions if a foreign national owns 20% or more of the voting shares in the company, or if foreign nationals comprise a majority of the board of directors.
The provisions are designed to undermine this year's landmark Supreme Court Citizens United decision, which held that limits on independent campaign expenditures by corporations or unions violate First Amendment free speech guarantees. But, under the bill, unions with government contracts would not be subject to the same restrictions as corporations.
If, as proponents claim, their worry is that a company will use campaign contributions to win government contracts (pay-to-play), why does their bill not show equal concern that labor unions will support candidates with the goal of getting government contracts driven to union companies? The legislation also fails to impose limits on the foreign involvement of unions with global reach, such as the Service Employees International Union or the International Brotherhood of Electrical Workers.
It's no coincidence that the lead authors of these bills are the current head of the Democratic Congressional Campaign Committee (Mr. Van Hollen) and the immediate past head of the Democratic Senatorial Campaign Committee (Mr. Schumer). And it's no surprise that Republicans have been reluctant to sign on. The House bill has two GOP sponsors and the Senate bill has none.
When President Obama berated the High Court earlier this year for its free speech ruling, he was very specific about whose free speech he opposed. "This is a major victory for Big Oil, Wall Street banks, health insurance companies and other powerful interests," said Mr. Obama of the decision, suggesting that despite the good governance rhetoric, this legislation is not about muzzling spenders generally so much as specific spenders who don't always salute the Democratic agenda.
Unions get a pass from new campaign finance disclosure rules.WSJ, May 03, 2010
Democrats in Congress last week introduced White House-backed legislation that would indirectly reinstate free-speech restrictions that the Supreme Court declared unconstitutional in January. Backers say the measure will force disclosure of corporate money in politics, but the real goal is to muzzle criticism—at least from some people.
The legislation, sponsored by Democrats Charles Schumer in the Senate and Chris Van Hollen in the House, would prevent government contractors and corporate beneficiaries of the Troubled Asset Relief Program from spending money on U.S. elections. It would also ban U.S. subsidiaries of foreign companies from making political contributions if a foreign national owns 20% or more of the voting shares in the company, or if foreign nationals comprise a majority of the board of directors.
The provisions are designed to undermine this year's landmark Supreme Court Citizens United decision, which held that limits on independent campaign expenditures by corporations or unions violate First Amendment free speech guarantees. But, under the bill, unions with government contracts would not be subject to the same restrictions as corporations.
If, as proponents claim, their worry is that a company will use campaign contributions to win government contracts (pay-to-play), why does their bill not show equal concern that labor unions will support candidates with the goal of getting government contracts driven to union companies? The legislation also fails to impose limits on the foreign involvement of unions with global reach, such as the Service Employees International Union or the International Brotherhood of Electrical Workers.
It's no coincidence that the lead authors of these bills are the current head of the Democratic Congressional Campaign Committee (Mr. Van Hollen) and the immediate past head of the Democratic Senatorial Campaign Committee (Mr. Schumer). And it's no surprise that Republicans have been reluctant to sign on. The House bill has two GOP sponsors and the Senate bill has none.
When President Obama berated the High Court earlier this year for its free speech ruling, he was very specific about whose free speech he opposed. "This is a major victory for Big Oil, Wall Street banks, health insurance companies and other powerful interests," said Mr. Obama of the decision, suggesting that despite the good governance rhetoric, this legislation is not about muzzling spenders generally so much as specific spenders who don't always salute the Democratic agenda.
How to Avoid a 'Bailout Bill' - A new bankruptcy process is the right way to deal with failing financial institutions
How to Avoid a 'Bailout Bill'. By JOHN B. TAYLOR
A new bankruptcy process is the right way to deal with failing financial institutions.WSJ, May 03, 2010
It's good news there's now bipartisan agreement that the financial reform bill should not be a "bailout bill," and that amendments to Connecticut Sen. Chris Dodd's draft legislation are being proposed and debated with this agreement in mind. The biggest challenge in this bailout reform debate is to avoid giving the federal government more discretionary power, whether by creating a special bailout fund or by providing more ways to bypass proven bankruptcy rules. Experience shows that such power would increase, not decrease, the likelihood of another crisis.
Some say that the government did not have enough power to intervene with certain firms during the financial crisis. But it had plenty of power and it used it, beginning with Bear Stearns. This highly discretionary power—to bail out some creditors and not others, to take over some businesses and not others, to let some firms go through bankruptcy and not others—was a major cause of the financial panic in the fall of 2008. The broad justification used for the bailout of Bear Stearns creditors led many to believe the government would again intervene if another similar institution, such as Lehman Brothers, failed.
But when the Federal Reserve and the Treasury Department could not persuade private firms to provide funds to Lehman to pay its creditors in September 2008, the Fed surprisingly cut off access to its funds. The examiner's report on Lehman makes it very clear there was no preparation for bankruptcy proceedings before the day the government suddenly cut off the funds. No wonder there was a disruption.
Then, the next day, the Fed reopened its balance sheet to make loans to rescue the creditors of AIG, including billions for Goldman Sachs. The funding spigot was then turned off again, and a new program, the Troubled Asset Relief Program (TARP), was proposed. This on-again off-again policy was part of a series of unpredictable and confusing government interventions which led to panic.
This experience demonstrates why it is dangerous for the "orderly liquidation" section of the Dodd bill to institutionalize such a process by giving the government even more discretion and power to take over businesses; the interventions are likely again to cause more harm than good, even with the best of intentions. Many experts doubt the ability of the Federal Deposit Insurance Corp. (FDIC) to take over large, complex financial institutions, as the current bill calls for, without causing disruption.
The moral hazard associated with protecting creditors will continue even if the FDIC has the discretionary authority to claw back later some of the funds it provides in the bailout. The proposed liquidation process would have the unintended consequence of increasing the incentive for creditors and other counterparties to run whenever there is a rumor that a government official is thinking about intervening. Who is going to be helped? Who is going to be hurt? It is up to government officials to decide, not the rule of law.
Fortunately, it is not necessary to provide this additional discretionary authority. During the past year since the administration proposed its financial reforms, bankruptcy experts have been working on a reform to the bankruptcy law designed especially for nonbank financial institutions. Sometimes called Chapter 11F, the goal is to let a failing financial firm go into bankruptcy in a predictable, rules-based way without causing spillovers to the economy and permitting, if possible, people to continue to use its financial services—just as people flew on United Airlines planes, bought Kmart sundries and tried on Hartmax suits when those firms were in bankruptcy.
What would a Chapter 11F amendment look like? It would create a special financial bankruptcy court, or at least a group of "special masters" consisting of judges knowledgeable about financial markets and institutions, which would be responsible for handling the case of a financial firm.
In addition to the normal commencement of bankruptcy petitions by creditors or debtors, an involuntary proceeding could be initiated by a government regulatory agency as prescribed by the new bankruptcy law, and the government would be able to propose a reorganization plan—not simply a liquidation. Defining and defending the circumstances for such an initiation—including demonstrating systemic risk using quantitative measures such as interbank credit exposures—is essential.
Third, Chapter 11F would handle the complexities of repurchase agreements and derivatives by enabling close-out netting of contracts in which offsetting credit exposures are combined into a single net amount, which would reduce likelihood of runs.
Fourth, a wind-down plan, filed in advance by each financial firm with its regulator, would serve as a blueprint for the bankruptcy proceedings.
The advantage of this bankruptcy approach is that debtors and creditors negotiate with clear rules and judicial review throughout the process. In contrast, the proposed "orderly liquidation" authority in the current bill is secretive and potentially capricious. Rather than a government official declaring "we will wipe out the shareholders" or "it's unfair for us to claw back so much from creditors," under Chapter 11F the rule of law applies.
A discretionary punishment can be just as harmful as a discretionary bailout. As George Shultz puts it in the book "Ending Government Bailouts As We Know Them," recently published by the Hoover Press, "Let's write Chapter 11F into the law so that we have a credible alternative to bailouts in practice."
What are the obstacles to following this sensible advice? One is that the proposals are new; much of the creative work was done in the past year since the administration first made its reform proposals. A common perception is that bankruptcy is too slow to deal with systemic risk situations in a large complex institution, but the new proposals would have a team of experts ready to go.
Another obstacle is that the Judiciary Committee rather than the Banking Committee has jurisdiction over bankruptcy law, and it is too hard to coordinate. But bureaucratic silos should not get in the way when the stakes are so high.
Yet another hurdle to reform is that the current bill was put together by many of the same people who were in government at the time of the bailouts. A typical government excuse for the crisis is that government did not have enough power, but a more likely explanation is that it had too much discretionary power and, as is so often the case, did not use it effectively.
You do not prevent bailouts by giving the government more power to intervene in a discretionary manner. You prevent bailouts by requiring adequate capital based on simple, enforceable rules and by making it possible for failing firms to go through bankruptcy without causing disruption to the financial system and the economy.
Mr. Taylor, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is co-editor with Kenneth Scott and George Shultz of "Ending Government Bailouts As We Know Them" (Hoover Press, 2010).
A new bankruptcy process is the right way to deal with failing financial institutions.WSJ, May 03, 2010
It's good news there's now bipartisan agreement that the financial reform bill should not be a "bailout bill," and that amendments to Connecticut Sen. Chris Dodd's draft legislation are being proposed and debated with this agreement in mind. The biggest challenge in this bailout reform debate is to avoid giving the federal government more discretionary power, whether by creating a special bailout fund or by providing more ways to bypass proven bankruptcy rules. Experience shows that such power would increase, not decrease, the likelihood of another crisis.
Some say that the government did not have enough power to intervene with certain firms during the financial crisis. But it had plenty of power and it used it, beginning with Bear Stearns. This highly discretionary power—to bail out some creditors and not others, to take over some businesses and not others, to let some firms go through bankruptcy and not others—was a major cause of the financial panic in the fall of 2008. The broad justification used for the bailout of Bear Stearns creditors led many to believe the government would again intervene if another similar institution, such as Lehman Brothers, failed.
But when the Federal Reserve and the Treasury Department could not persuade private firms to provide funds to Lehman to pay its creditors in September 2008, the Fed surprisingly cut off access to its funds. The examiner's report on Lehman makes it very clear there was no preparation for bankruptcy proceedings before the day the government suddenly cut off the funds. No wonder there was a disruption.
Then, the next day, the Fed reopened its balance sheet to make loans to rescue the creditors of AIG, including billions for Goldman Sachs. The funding spigot was then turned off again, and a new program, the Troubled Asset Relief Program (TARP), was proposed. This on-again off-again policy was part of a series of unpredictable and confusing government interventions which led to panic.
This experience demonstrates why it is dangerous for the "orderly liquidation" section of the Dodd bill to institutionalize such a process by giving the government even more discretion and power to take over businesses; the interventions are likely again to cause more harm than good, even with the best of intentions. Many experts doubt the ability of the Federal Deposit Insurance Corp. (FDIC) to take over large, complex financial institutions, as the current bill calls for, without causing disruption.
The moral hazard associated with protecting creditors will continue even if the FDIC has the discretionary authority to claw back later some of the funds it provides in the bailout. The proposed liquidation process would have the unintended consequence of increasing the incentive for creditors and other counterparties to run whenever there is a rumor that a government official is thinking about intervening. Who is going to be helped? Who is going to be hurt? It is up to government officials to decide, not the rule of law.
Fortunately, it is not necessary to provide this additional discretionary authority. During the past year since the administration proposed its financial reforms, bankruptcy experts have been working on a reform to the bankruptcy law designed especially for nonbank financial institutions. Sometimes called Chapter 11F, the goal is to let a failing financial firm go into bankruptcy in a predictable, rules-based way without causing spillovers to the economy and permitting, if possible, people to continue to use its financial services—just as people flew on United Airlines planes, bought Kmart sundries and tried on Hartmax suits when those firms were in bankruptcy.
What would a Chapter 11F amendment look like? It would create a special financial bankruptcy court, or at least a group of "special masters" consisting of judges knowledgeable about financial markets and institutions, which would be responsible for handling the case of a financial firm.
In addition to the normal commencement of bankruptcy petitions by creditors or debtors, an involuntary proceeding could be initiated by a government regulatory agency as prescribed by the new bankruptcy law, and the government would be able to propose a reorganization plan—not simply a liquidation. Defining and defending the circumstances for such an initiation—including demonstrating systemic risk using quantitative measures such as interbank credit exposures—is essential.
Third, Chapter 11F would handle the complexities of repurchase agreements and derivatives by enabling close-out netting of contracts in which offsetting credit exposures are combined into a single net amount, which would reduce likelihood of runs.
Fourth, a wind-down plan, filed in advance by each financial firm with its regulator, would serve as a blueprint for the bankruptcy proceedings.
The advantage of this bankruptcy approach is that debtors and creditors negotiate with clear rules and judicial review throughout the process. In contrast, the proposed "orderly liquidation" authority in the current bill is secretive and potentially capricious. Rather than a government official declaring "we will wipe out the shareholders" or "it's unfair for us to claw back so much from creditors," under Chapter 11F the rule of law applies.
A discretionary punishment can be just as harmful as a discretionary bailout. As George Shultz puts it in the book "Ending Government Bailouts As We Know Them," recently published by the Hoover Press, "Let's write Chapter 11F into the law so that we have a credible alternative to bailouts in practice."
What are the obstacles to following this sensible advice? One is that the proposals are new; much of the creative work was done in the past year since the administration first made its reform proposals. A common perception is that bankruptcy is too slow to deal with systemic risk situations in a large complex institution, but the new proposals would have a team of experts ready to go.
Another obstacle is that the Judiciary Committee rather than the Banking Committee has jurisdiction over bankruptcy law, and it is too hard to coordinate. But bureaucratic silos should not get in the way when the stakes are so high.
Yet another hurdle to reform is that the current bill was put together by many of the same people who were in government at the time of the bailouts. A typical government excuse for the crisis is that government did not have enough power, but a more likely explanation is that it had too much discretionary power and, as is so often the case, did not use it effectively.
You do not prevent bailouts by giving the government more power to intervene in a discretionary manner. You prevent bailouts by requiring adequate capital based on simple, enforceable rules and by making it possible for failing firms to go through bankruptcy without causing disruption to the financial system and the economy.
Mr. Taylor, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is co-editor with Kenneth Scott and George Shultz of "Ending Government Bailouts As We Know Them" (Hoover Press, 2010).
Saturday, May 1, 2010
India's Government By Quota - The affirmative-action plan to eliminate caste discrimination was supposed to last 10 years. Instead it has become a permanent, and divisive, fact of life
India's Government By Quota. By SHIKHA DALMIA
The affirmative-action plan to eliminate caste discrimination was supposed to last 10 years. Instead it has become a permanent, and divisive, fact of life.WSJ, May 01, 2010
For nearly half a century, group or racial preferences have been America's prescribed remedy for racism and other -isms standing in the way of social equality. But anyone wishing to study the unintended side-effects of this medicine on the body politic need only look at India. There reactionary groups are trying to co-opt a women's quota bill, not to create an egalitarian utopia, but its opposite.
India's ruling secular Congress party has joined hands with Hindu nationalist parties on a bill to guarantee 33% seats in the parliament and state legislatures to women. This is on top of a similar quota that women enjoy at the local or panchayat level. The bill sailed through the upper house but has met stiff resistance by India's lower-caste parties. Why? Because it threatens their monopoly on the country's quota regime.
Just as racism is the bane of America, caste is the bane of India; its rigid strictures for centuries sustained a stratified society where birth is destiny. Although caste has declined in India's large, cosmopolitan cities, elsewhere this system still restricts social mobility for the country's 100 million dalits (untouchables). They are not only consigned to demeaning jobs but they're not even allowed to pray in the same temples as upper castes.
But the scheme that India's founders devised to eradicate the caste system has actually deepened the country's caste divide, and created several more. The women's quota bill is only the latest development in the competition for victimhood status that has pitted every group with any grievance, real or imagined, against every other.
India's founders began on the right track, constitutionally banning untouchability in 1950 and, just as in America, guaranteeing equal treatment under the law for everyone regardless of caste, sex, religion or race. But then came the fatal leap. They created a list or "schedule" of all the dalit sub-castes deserving preferential treatment and handed them 17.5% of the seats in the parliament and state legislatures. They also gave them 22.5% of all public-sector jobs and guaranteed spots in public or publicly funded universities.
The scheme was supposed to last 10 years. Instead it assumed a life of its own, making scheduled-caste status a bigger driver of success than individual merit (at least before liberalization opened opportunities in the private sector).
The tipping point came in the late 1980s when the government's Mandal Commission. This body, charged with examining the plight of the poor and disenfranchised, concluded in its final report that the original list of scheduled castes was too short. It recommended a new, catch-all category called Other Backward Classes covering over half the population and called for reserving 49.5% government jobs and university seats for these groups
The report caused an uproar. Hindu students from nonscheduled castes, particularly from modest backgrounds, exploded into riots. Already rubbed raw from the existing quota regime which allowed academically inferior, scheduled-caste candidates to breeze into the best universities and land secure government jobs while they struggled, they took to the streets. A few immolated themselves, one big reason why the government collapsed in November 1990. But the quota system survived, and post-riot governments have slowly expanded it.
Quotas have become a fact of life in India because they are the major currency with which Indian politicians buy votes. In a few states with their own quotas, almost 70% of government jobs and university seats go to the reserved castes.
The major political resistance to the quota regime during the Mandal riots came from Hindu nationalist parties—but that was before they found a way to make it work for them. In some states like Rajasthan they have actually instituted quotas for the poor "forward castes"—code for upper-caste Hindus.
And these parties wholeheartedly back the latest women's quota bill because it will simultaneously allow them to: establish their progressive bona fides; once again stick it to Muslims, arguably the only genuinely disenfranchised minority without its own legislative quota; and consolidate their power base in parliament since the women elected are likely to be relatively well-off Hindus.
A tragi-comic note in this drama is Raj Thackeray, an ultra-nativist, Hindu politician from Mumbai who wants to chase all out-of-state residents out of his city. He is warning the lower-caste leaders to show respect for women by supporting this bill or else "they will be given a lesson on it."
Protests have broken out in the country, with Muslim and lower-caste women opposing it as currently written and urbane, city feminists demanding its immediate passage. But the lower-caste parties' only objection is that the quota bill doesn't contain a sub-quota for lower-caste women. In other words, the debate in India is no longer about using quotas to redistribute opportunity—it is about redistributing the quotas themselves. No politician or party is opposing this bill on principle.
It would be tempting to blame the abuse of quotas on the degraded state of Indian politics. But, in reality, India is demonstrating the reductio ad absurdum logic of quotas.
Progressives in India—as in America—believe that equal protection of individual rights is insufficient to create equality because it does nothing to address private discrimination. Protecting the property rights of persecuted castes is hardly enough if they can't get jobs in the first place. Hence, in their view, government has to give persecuted groups a leg up to equalize opportunity.
But this turns the system into a zero-sum game, triggering a race for the spoils in which powerful groups can seize the advantage. Because quotas or preferences don't originally apply to them, they become the new aggrieved—victims of "reverse discrimination." And it is easy for them to mobilize this sentiment into a political movement precisely because they are powerful.
India's lesson is that abrogating individual rights through group preferences or quotas institutionalizes the very divisions that these policies are supposed to erase. Human prejudice can't be legislated away. That requires social activism to coax, cajole and shame people out of their intolerance. There are no short cuts.
Ms. Dalmia is a senior analyst at the Reason Foundation and a Forbes columnist.
The affirmative-action plan to eliminate caste discrimination was supposed to last 10 years. Instead it has become a permanent, and divisive, fact of life.WSJ, May 01, 2010
For nearly half a century, group or racial preferences have been America's prescribed remedy for racism and other -isms standing in the way of social equality. But anyone wishing to study the unintended side-effects of this medicine on the body politic need only look at India. There reactionary groups are trying to co-opt a women's quota bill, not to create an egalitarian utopia, but its opposite.
India's ruling secular Congress party has joined hands with Hindu nationalist parties on a bill to guarantee 33% seats in the parliament and state legislatures to women. This is on top of a similar quota that women enjoy at the local or panchayat level. The bill sailed through the upper house but has met stiff resistance by India's lower-caste parties. Why? Because it threatens their monopoly on the country's quota regime.
Just as racism is the bane of America, caste is the bane of India; its rigid strictures for centuries sustained a stratified society where birth is destiny. Although caste has declined in India's large, cosmopolitan cities, elsewhere this system still restricts social mobility for the country's 100 million dalits (untouchables). They are not only consigned to demeaning jobs but they're not even allowed to pray in the same temples as upper castes.
But the scheme that India's founders devised to eradicate the caste system has actually deepened the country's caste divide, and created several more. The women's quota bill is only the latest development in the competition for victimhood status that has pitted every group with any grievance, real or imagined, against every other.
India's founders began on the right track, constitutionally banning untouchability in 1950 and, just as in America, guaranteeing equal treatment under the law for everyone regardless of caste, sex, religion or race. But then came the fatal leap. They created a list or "schedule" of all the dalit sub-castes deserving preferential treatment and handed them 17.5% of the seats in the parliament and state legislatures. They also gave them 22.5% of all public-sector jobs and guaranteed spots in public or publicly funded universities.
The scheme was supposed to last 10 years. Instead it assumed a life of its own, making scheduled-caste status a bigger driver of success than individual merit (at least before liberalization opened opportunities in the private sector).
The tipping point came in the late 1980s when the government's Mandal Commission. This body, charged with examining the plight of the poor and disenfranchised, concluded in its final report that the original list of scheduled castes was too short. It recommended a new, catch-all category called Other Backward Classes covering over half the population and called for reserving 49.5% government jobs and university seats for these groups
The report caused an uproar. Hindu students from nonscheduled castes, particularly from modest backgrounds, exploded into riots. Already rubbed raw from the existing quota regime which allowed academically inferior, scheduled-caste candidates to breeze into the best universities and land secure government jobs while they struggled, they took to the streets. A few immolated themselves, one big reason why the government collapsed in November 1990. But the quota system survived, and post-riot governments have slowly expanded it.
Quotas have become a fact of life in India because they are the major currency with which Indian politicians buy votes. In a few states with their own quotas, almost 70% of government jobs and university seats go to the reserved castes.
The major political resistance to the quota regime during the Mandal riots came from Hindu nationalist parties—but that was before they found a way to make it work for them. In some states like Rajasthan they have actually instituted quotas for the poor "forward castes"—code for upper-caste Hindus.
And these parties wholeheartedly back the latest women's quota bill because it will simultaneously allow them to: establish their progressive bona fides; once again stick it to Muslims, arguably the only genuinely disenfranchised minority without its own legislative quota; and consolidate their power base in parliament since the women elected are likely to be relatively well-off Hindus.
A tragi-comic note in this drama is Raj Thackeray, an ultra-nativist, Hindu politician from Mumbai who wants to chase all out-of-state residents out of his city. He is warning the lower-caste leaders to show respect for women by supporting this bill or else "they will be given a lesson on it."
Protests have broken out in the country, with Muslim and lower-caste women opposing it as currently written and urbane, city feminists demanding its immediate passage. But the lower-caste parties' only objection is that the quota bill doesn't contain a sub-quota for lower-caste women. In other words, the debate in India is no longer about using quotas to redistribute opportunity—it is about redistributing the quotas themselves. No politician or party is opposing this bill on principle.
It would be tempting to blame the abuse of quotas on the degraded state of Indian politics. But, in reality, India is demonstrating the reductio ad absurdum logic of quotas.
Progressives in India—as in America—believe that equal protection of individual rights is insufficient to create equality because it does nothing to address private discrimination. Protecting the property rights of persecuted castes is hardly enough if they can't get jobs in the first place. Hence, in their view, government has to give persecuted groups a leg up to equalize opportunity.
But this turns the system into a zero-sum game, triggering a race for the spoils in which powerful groups can seize the advantage. Because quotas or preferences don't originally apply to them, they become the new aggrieved—victims of "reverse discrimination." And it is easy for them to mobilize this sentiment into a political movement precisely because they are powerful.
India's lesson is that abrogating individual rights through group preferences or quotas institutionalizes the very divisions that these policies are supposed to erase. Human prejudice can't be legislated away. That requires social activism to coax, cajole and shame people out of their intolerance. There are no short cuts.
Ms. Dalmia is a senior analyst at the Reason Foundation and a Forbes columnist.
Friday, April 30, 2010
The North Korea Endgame - However difficult, unification must be the ultimate objective
The North Korea Endgame. By Nicholas Eberstadt
However difficult, unification must be the ultimate objective.WSJ, Apr 30, 2010
However difficult, unification must be the ultimate objective.WSJ, Apr 30, 2010
Ironing Out the Kinks in the Dodd Bill - Killing the $50 billion bailout fund would be a good start
Ironing Out the Kinks in the Dodd Bill. By PHILLIP SWAGEL
Killing the $50 billion bailout fund would be a good startWSJ, Apr 30, 2010
Imagine a future in which Sen. Chris Dodd's financial reform bill was law and a firm like AIG or Lehman Brothers failed. Without a vote of Congress, the government could guarantee the firm's debts or put money into the failing firm to keep it afloat and reduce the hit taken by creditors such as banks and pension funds that lent the firm money.
The temptation will be huge; after all, no government official will want to be blamed for allowing another post-Lehman meltdown. But so is the danger that risky behavior and bailouts will become more common.
This scenario is a key defect in the Dodd bill that the Senate has begun to debate. True, the shareholders of a failed financial firm would be wiped out, but creditors—the people who lent it the money that got it in trouble in the first place—will be bailed out. And this has real consequences, because if market participants know they can be rescued for imprudent behavior, they will likely behave more imprudently.
In coming days and weeks, as amendments to the Dodd bill are publicly offered and private negotiations proceed, removing the $50 billion bailout fund would be a good start. A more important way to address the problem of "too big to fail" is to have a resolution process centered on bankruptcy—and in which bailouts would require a vote of Congress. Bankruptcy would make it more likely that the division of resources would be in the hands of judges, not political officials using public money to support favored creditors. When GM and Chrysler were failing, the two firms were used as conduits for a transfer of TARP money to the auto unions.
Other aspects of the Dodd proposal are worrisome. One need not think too creatively to imagine a media-obsessed head of a new consumer financial protection agency looking to impose her will across all aspects of commerce, with attendant hits to lending for consumers and businesses, small and large. The idea of a systemic risk council empowered to gather data and ensure that no firm slips between regulatory cracks is useful—and on this there is bipartisan agreement. Yet regulators and bank supervisors have considerable power already and were not able to head off the recent crisis. Giving more power to a new regulatory agency is not a sure-fire solution and could have unintended negative consequences for jobs and growth.
The bill's approach to taking derivatives trading out of banks is similarly problematic. This trading takes place in large financial institutions for a reason: These are the firms with the expertise and large balance sheets needed to carry it out. And while derivatives can be misused, the bottom line is that they have socially useful purposes, including for financial firms. A community bank, for example, might legitimately want to use derivatives to offset some of the risk it faces from its lending for housing and commercial real estate in a local community. By hobbling this activity, the approach espoused by Sen. Dodd and Sen. Blanche Lincoln threatens to increase rather than limit risk.
Administration officials dissolve into mumbles when asked about the derivatives piece of the bill, suggesting that they recognize the problem. Hopefully they will have the courage to fix this even if it gives the appearance of seeming to "weaken" the bill.
Finally, financial regulatory reform will not be complete without addressing the awkward status of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) whose loan guarantees contributed to the housing bubble behind the crisis. It was appropriate to take over Fannie and Freddie to avoid further risk to the financial sector, but the continued conservatorship of the two firms means that taxpayers remain on the hook for their losses, including losses suffered intentionally to support the administration's public policy goals such as reducing foreclosures.
An appropriate future for Fannie and Freddie would focus them on the socially useful function of securitizing mortgages and thereby fostering housing liquidity. There might still be a role for a government backstop against another catastrophic decline in housing prices, but this public support should be made explicit and the GSEs should pay for it.
With the government standing behind Fannie and Freddie, their huge portfolios of mortgage-backed securities are no longer needed as a buyer of last resort for bundled mortgages to ensure that funding is available for housing. The portfolios were the channel through which Fannie and Freddie enjoyed private gains while imposing risks on taxpayers, and they were the source of systemic risk posed by the firms. The financial regulatory reform bill should ensure a new and sustainable model for Fannie and Freddie that makes explicit any public support for the firms and limits taxpayer exposure to future losses.
There is bipartisan agreement that financial reform is needed. But the details matter. On nonbank resolution, derivatives and consumer protection, the approach in the Dodd bill could well increase financial risks to the economy rather than heading them off. Fixing these issues, along with addressing the risks posed by Fannie and Freddie, will yield a reform that truly learns the lessons from the financial crisis.
Mr. Swagel is a visiting professor at the McDonough School of Business, Georgetown University, and nonresident scholar at the American Enterprise Institute. He was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009.
Killing the $50 billion bailout fund would be a good startWSJ, Apr 30, 2010
Imagine a future in which Sen. Chris Dodd's financial reform bill was law and a firm like AIG or Lehman Brothers failed. Without a vote of Congress, the government could guarantee the firm's debts or put money into the failing firm to keep it afloat and reduce the hit taken by creditors such as banks and pension funds that lent the firm money.
The temptation will be huge; after all, no government official will want to be blamed for allowing another post-Lehman meltdown. But so is the danger that risky behavior and bailouts will become more common.
This scenario is a key defect in the Dodd bill that the Senate has begun to debate. True, the shareholders of a failed financial firm would be wiped out, but creditors—the people who lent it the money that got it in trouble in the first place—will be bailed out. And this has real consequences, because if market participants know they can be rescued for imprudent behavior, they will likely behave more imprudently.
In coming days and weeks, as amendments to the Dodd bill are publicly offered and private negotiations proceed, removing the $50 billion bailout fund would be a good start. A more important way to address the problem of "too big to fail" is to have a resolution process centered on bankruptcy—and in which bailouts would require a vote of Congress. Bankruptcy would make it more likely that the division of resources would be in the hands of judges, not political officials using public money to support favored creditors. When GM and Chrysler were failing, the two firms were used as conduits for a transfer of TARP money to the auto unions.
Other aspects of the Dodd proposal are worrisome. One need not think too creatively to imagine a media-obsessed head of a new consumer financial protection agency looking to impose her will across all aspects of commerce, with attendant hits to lending for consumers and businesses, small and large. The idea of a systemic risk council empowered to gather data and ensure that no firm slips between regulatory cracks is useful—and on this there is bipartisan agreement. Yet regulators and bank supervisors have considerable power already and were not able to head off the recent crisis. Giving more power to a new regulatory agency is not a sure-fire solution and could have unintended negative consequences for jobs and growth.
The bill's approach to taking derivatives trading out of banks is similarly problematic. This trading takes place in large financial institutions for a reason: These are the firms with the expertise and large balance sheets needed to carry it out. And while derivatives can be misused, the bottom line is that they have socially useful purposes, including for financial firms. A community bank, for example, might legitimately want to use derivatives to offset some of the risk it faces from its lending for housing and commercial real estate in a local community. By hobbling this activity, the approach espoused by Sen. Dodd and Sen. Blanche Lincoln threatens to increase rather than limit risk.
Administration officials dissolve into mumbles when asked about the derivatives piece of the bill, suggesting that they recognize the problem. Hopefully they will have the courage to fix this even if it gives the appearance of seeming to "weaken" the bill.
Finally, financial regulatory reform will not be complete without addressing the awkward status of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) whose loan guarantees contributed to the housing bubble behind the crisis. It was appropriate to take over Fannie and Freddie to avoid further risk to the financial sector, but the continued conservatorship of the two firms means that taxpayers remain on the hook for their losses, including losses suffered intentionally to support the administration's public policy goals such as reducing foreclosures.
An appropriate future for Fannie and Freddie would focus them on the socially useful function of securitizing mortgages and thereby fostering housing liquidity. There might still be a role for a government backstop against another catastrophic decline in housing prices, but this public support should be made explicit and the GSEs should pay for it.
With the government standing behind Fannie and Freddie, their huge portfolios of mortgage-backed securities are no longer needed as a buyer of last resort for bundled mortgages to ensure that funding is available for housing. The portfolios were the channel through which Fannie and Freddie enjoyed private gains while imposing risks on taxpayers, and they were the source of systemic risk posed by the firms. The financial regulatory reform bill should ensure a new and sustainable model for Fannie and Freddie that makes explicit any public support for the firms and limits taxpayer exposure to future losses.
There is bipartisan agreement that financial reform is needed. But the details matter. On nonbank resolution, derivatives and consumer protection, the approach in the Dodd bill could well increase financial risks to the economy rather than heading them off. Fixing these issues, along with addressing the risks posed by Fannie and Freddie, will yield a reform that truly learns the lessons from the financial crisis.
Mr. Swagel is a visiting professor at the McDonough School of Business, Georgetown University, and nonresident scholar at the American Enterprise Institute. He was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009.
Wednesday, April 28, 2010
Attacking the motives of critics is not presidential
It's Only Called the Bully Pulpit. By Karl Rove
Attacking the motives of critics is not presidential.
WSJ, Apr 29, 2010
President Barack Obama's speech last week at New York Cooper's Union showcased two unattractive verbal leitmotifs. The first was the president's reliance on straw-man arguments. America, he said, need not "choose between two extremes . . . markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules."
Mr. Obama was right in calling this "a false choice." Who is suggesting that Wall Street should not be regulated?
The other, more troubling rhetorical device was Mr. Obama's labeling his opponents as "special interests," and demanding that they stop disagreeing with him and get on board his legislative express. Speaking to bank executives, he decried the "furious effort of industry lobbyists to shape" financial regulation legislation—a barb aimed at the investment bankers in the audience who have hired lobbyists. The president urged "the titans of industry" to whom he was speaking "to join us, instead of fighting us."
While criticizing political opponents is standard operating White House procedure, the practice of summoning critics to bully them in public is unpresidential and worrisome.
Before his health-care bill passed, Mr. Obama sent a tough letter to health-insurance CEOs and then castigated them 22 times in a follow-up prime-time televised speech. This is behavior worthy of a Third World dictator—not the head of a vibrant democracy.
Mr. Obama has also excoriated drug and health-insurance companies, while remaining content to have them spend tens of millions of dollars on ads supporting his health-care bill. This smacked of Chicago-style shake-down politics.
Too often, Mr. Obama disparages those who disagree with him as having venal, illegitimate motivations. In his Cooper Union speech he berated the "battalions of financial industry lobbyists" for their "misleading arguments and attacks." He blamed their "withering forces" for buckling "a bipartisan process" that had "produced . . . a common-sense, reasonable, non-ideological approach."
Maybe the renowned lecturer of constitutional law at the University of Chicago should reacquaint himself with Federalist No. 10. James Madison, a father of the Constitution, suggested that there are "two methods of curing the mischiefs of faction."
One was to destroy "the liberty which is essential to its existence"—something that is anathema to our democratic system. The other was to give "to every citizen the same opinions, the same passions, and the same interests," which is impossible.
"The latent causes of faction are thus sown in the nature of man," Madison wrote. Recognizing this led the Founders to create a system in which competition between interests restrains government, cools passions, and forces political compromise. This has kept our politics floating around the center.
Mr. Obama's attacks on his critics are not only unbecoming; they undermine a political process that would otherwise trend toward occasional bipartisan compromise. They are also hypocritical. Mr. Obama said in New York last week that "a lack of consumer protections and . . . accountability" created the credit crisis. As a senator in 2005, he joined Sen. Chris Dodd (D., Conn.) to threaten to filibuster a GOP effort to rein in Fannie Mae and Freddie Mac when it was still possible to diminish the role those companies would play in the financial crisis. He later voted for the Fannie and Freddie reforms after the two went belly up in 2008.
But it is the president's intimidation that is most troubling. Mr. Obama has the disturbing tendency to question the motives of those who disagree with him, often making them the objects of ad hominem attacks. His motives, on the other hand, are pure.
Mr. Obama often makes it seem illegitimate to challenge his views, and he isn't content to argue issues on the merits. Instead, he wants to make opponents into pariahs. And it's not just business executives who are on the receiving end. We've also seen this pattern with the administration's attacks on the tea party movement and those who attended town-hall meetings last summer on health care.
This is a bad habit—and a dangerous one. The presidency is a very powerful office, and presidents need to be careful not to use it to silence dissenting voices.
Mr. Obama will learn these efforts don't work. In a big, free nation like ours, people want to debate the issues. They don't take kindly to arrogant leaders who believe it is their right to silence the opposition—by either driving them out of the legislative process or pushing them out of the public debate with fiery rhetoric. Through the anonymity of a ballot box and beyond the power of presidential intimidation, voters can express their discontent and they will.
Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).
Attacking the motives of critics is not presidential.
WSJ, Apr 29, 2010
President Barack Obama's speech last week at New York Cooper's Union showcased two unattractive verbal leitmotifs. The first was the president's reliance on straw-man arguments. America, he said, need not "choose between two extremes . . . markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules."
Mr. Obama was right in calling this "a false choice." Who is suggesting that Wall Street should not be regulated?
The other, more troubling rhetorical device was Mr. Obama's labeling his opponents as "special interests," and demanding that they stop disagreeing with him and get on board his legislative express. Speaking to bank executives, he decried the "furious effort of industry lobbyists to shape" financial regulation legislation—a barb aimed at the investment bankers in the audience who have hired lobbyists. The president urged "the titans of industry" to whom he was speaking "to join us, instead of fighting us."
While criticizing political opponents is standard operating White House procedure, the practice of summoning critics to bully them in public is unpresidential and worrisome.
Before his health-care bill passed, Mr. Obama sent a tough letter to health-insurance CEOs and then castigated them 22 times in a follow-up prime-time televised speech. This is behavior worthy of a Third World dictator—not the head of a vibrant democracy.
Mr. Obama has also excoriated drug and health-insurance companies, while remaining content to have them spend tens of millions of dollars on ads supporting his health-care bill. This smacked of Chicago-style shake-down politics.
Too often, Mr. Obama disparages those who disagree with him as having venal, illegitimate motivations. In his Cooper Union speech he berated the "battalions of financial industry lobbyists" for their "misleading arguments and attacks." He blamed their "withering forces" for buckling "a bipartisan process" that had "produced . . . a common-sense, reasonable, non-ideological approach."
Maybe the renowned lecturer of constitutional law at the University of Chicago should reacquaint himself with Federalist No. 10. James Madison, a father of the Constitution, suggested that there are "two methods of curing the mischiefs of faction."
One was to destroy "the liberty which is essential to its existence"—something that is anathema to our democratic system. The other was to give "to every citizen the same opinions, the same passions, and the same interests," which is impossible.
"The latent causes of faction are thus sown in the nature of man," Madison wrote. Recognizing this led the Founders to create a system in which competition between interests restrains government, cools passions, and forces political compromise. This has kept our politics floating around the center.
Mr. Obama's attacks on his critics are not only unbecoming; they undermine a political process that would otherwise trend toward occasional bipartisan compromise. They are also hypocritical. Mr. Obama said in New York last week that "a lack of consumer protections and . . . accountability" created the credit crisis. As a senator in 2005, he joined Sen. Chris Dodd (D., Conn.) to threaten to filibuster a GOP effort to rein in Fannie Mae and Freddie Mac when it was still possible to diminish the role those companies would play in the financial crisis. He later voted for the Fannie and Freddie reforms after the two went belly up in 2008.
But it is the president's intimidation that is most troubling. Mr. Obama has the disturbing tendency to question the motives of those who disagree with him, often making them the objects of ad hominem attacks. His motives, on the other hand, are pure.
Mr. Obama often makes it seem illegitimate to challenge his views, and he isn't content to argue issues on the merits. Instead, he wants to make opponents into pariahs. And it's not just business executives who are on the receiving end. We've also seen this pattern with the administration's attacks on the tea party movement and those who attended town-hall meetings last summer on health care.
This is a bad habit—and a dangerous one. The presidency is a very powerful office, and presidents need to be careful not to use it to silence dissenting voices.
Mr. Obama will learn these efforts don't work. In a big, free nation like ours, people want to debate the issues. They don't take kindly to arrogant leaders who believe it is their right to silence the opposition—by either driving them out of the legislative process or pushing them out of the public debate with fiery rhetoric. Through the anonymity of a ballot box and beyond the power of presidential intimidation, voters can express their discontent and they will.
Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).
Monday, April 26, 2010
Views from Japan: Megumi Oyanagi's Blog
Views from Japan: Megumi Oyanagi's Blog
Megumi Oyanagi's views and insights about Japan from recent news (economy, society, politics and government, companies and management, people, culture, etc.) can be read in her blog at the link above.
Megumi Oyanagi's views and insights about Japan from recent news (economy, society, politics and government, companies and management, people, culture, etc.) can be read in her blog at the link above.
Saturday, April 24, 2010
Miss Me Yet? The Freedom Agenda After George W. Bush
Miss Me Yet? The Freedom Agenda After George W. Bush. By Bari Weiss
Dissidents in the world's most oppressive countries aren't feeling the love from President Obama.WSJ, Apr 24, 2010
Dallas
No one seems to know precisely who is behind the "Miss Me Yet?" billboard—the cheeky one featuring a grinning George W. Bush that looks out over I-35 near Wyoming, Minn. But Syrian dissident Ahed Al-Hendi sympathizes with the thought.
In 2006, Mr. Hendi was browsing pro-democracy Web sites in a Damascus Internet café when plainclothes cops carrying automatic guns swooped in, cuffed him, and threw him into the trunk of a car. He spent over a month in prison, some of it alone in a 5-by-3 windowless basement cell where he listened to his friend being tortured in the one next door. Those screams, he says, were cold comfort—at least he knew his friend hadn't been killed.
Mr. Hendi was one of the lucky ones: He's now living in Maryland as a political refugee where he works for an organization called Cyberdissidents.org. And this past Monday, he joined other international dissidents at a conference sponsored by the Bush Institute at Southern Methodist University to discuss the way digital tools can be used to resist repressive regimes.
He also got to meet the 43rd president. In a private breakfast hosted by Mr. and Mrs. Bush, Mr. Hendi's message to the former president was simple: "We miss you." There have been "a lot of changes" under the current administration, he added, and not for the better.
Adrian Hong, who was imprisoned in China in 2006 for his work helping North Koreans escape the country (a modern underground railroad), echoed that idea. "When I was released [after 10 days] I was told it was because of very strong messaging from the White House and the culture you set," he told Mr. Bush.
The former president, now sporting a deep tan, didn't mention President Obama once on or off the record. The most he would say was, "I'm really concerned about an isolationist mentality . . . I don't think it lives up to the values of our country." The dissidents weren't so diplomatic.
Mr. Hendi elaborated on the policy changes he thinks Mr. Obama has made toward his home country. "In Syria, when a single dissident was arrested during the administration of George W. Bush, at the very least the White House spokesman would condemn it. Under the Obama administration: nothing."
Nor is Mr. Hendi a fan of this administration's efforts to engage the regime, most recently by deciding to send an ambassador to Damascus for the first time since 2005. "This gives confidence to the regime," he says. "They are not capable of a dialogue; they don't believe in it. They believe in force."
Mr. Hong put things this way: "When you look at the championing of dissidents . . . and even the rhetoric, it's dropped off sharply." Under Mr. Bush, he says, there were many high-profile meetings with North Korean dissidents. "They went out of their way to show this was a priority."
Then there is Marcel Granier, the president of RCTV, Venezuela's oldest and most popular television station. He employs several thousand people—or at least he did until Hugo Chávez cancelled the network's license in 2007. Now, he's struggling to maintain an independent channel on cable: Mr. Chávez ordered the cable networks not to carry his station in January. Government supporters have attacked his home with tear gas twice, yet he remains in the country, tirelessly advocating for media freedom.
Like many of the democrats at the conference, Mr. Granier was excited by Mr. Obama's historic election, and inspired by the way he energized American voters. But a year and a half later, he's disturbed by the administration's silence as his country slips rapidly towards dictatorship. "In Afghanistan," he quips, "at least they know that America will be involved for the next 18 months."
This sense of abandonment has been fueled by real policy shifts. Just this week word came that the administration cut funds to promote democracy in Egypt by half. Programs in countries like Jordan and Iran have also faced cuts. Then there are the symbolic gestures: letting the Dalai Lama out the back door, paltry statements of support for Iranian demonstrators, smiling and shaking hands with Mr. Chávez, and so on.
Daniel Baer, a representative from the State Department who participated in the conference, dismissed the notion that the White House has distanced itself from human-rights promotion as a baseless "meme" when I raised the issue. But in fact all of this is of a piece of Mr. Obama's overarching strategy to make it abundantly clear that he is not his predecessor.
Mr. Bush is almost certainly aware that the freedom agenda, the centerpiece of his presidency, has become indelibly linked to the war in Iraq and to regime change by force. Too bad. The peaceful promotion of human rights and democracy—in part by supporting the individuals risking their lives for liberty—are consonant with America's most basic values. Standing up for them should not be a partisan issue.
Yet for now Mr. Bush is simply not the right poster boy: He can't successfully rebrand and depoliticize the freedom agenda. So perhaps he hopes that by sitting back he can let Americans who remain wary of publicly embracing this cause become comfortable with it again. For the sake of the courageous democrats in countries like Iran, Cuba, North Korea, Venezuela, Colombia, China and Russia, let's hope so.
Ms. Weiss is an assistant editorial features editor at the Journal.
Dissidents in the world's most oppressive countries aren't feeling the love from President Obama.WSJ, Apr 24, 2010
Dallas
No one seems to know precisely who is behind the "Miss Me Yet?" billboard—the cheeky one featuring a grinning George W. Bush that looks out over I-35 near Wyoming, Minn. But Syrian dissident Ahed Al-Hendi sympathizes with the thought.
In 2006, Mr. Hendi was browsing pro-democracy Web sites in a Damascus Internet café when plainclothes cops carrying automatic guns swooped in, cuffed him, and threw him into the trunk of a car. He spent over a month in prison, some of it alone in a 5-by-3 windowless basement cell where he listened to his friend being tortured in the one next door. Those screams, he says, were cold comfort—at least he knew his friend hadn't been killed.
Mr. Hendi was one of the lucky ones: He's now living in Maryland as a political refugee where he works for an organization called Cyberdissidents.org. And this past Monday, he joined other international dissidents at a conference sponsored by the Bush Institute at Southern Methodist University to discuss the way digital tools can be used to resist repressive regimes.
He also got to meet the 43rd president. In a private breakfast hosted by Mr. and Mrs. Bush, Mr. Hendi's message to the former president was simple: "We miss you." There have been "a lot of changes" under the current administration, he added, and not for the better.
Adrian Hong, who was imprisoned in China in 2006 for his work helping North Koreans escape the country (a modern underground railroad), echoed that idea. "When I was released [after 10 days] I was told it was because of very strong messaging from the White House and the culture you set," he told Mr. Bush.
The former president, now sporting a deep tan, didn't mention President Obama once on or off the record. The most he would say was, "I'm really concerned about an isolationist mentality . . . I don't think it lives up to the values of our country." The dissidents weren't so diplomatic.
Mr. Hendi elaborated on the policy changes he thinks Mr. Obama has made toward his home country. "In Syria, when a single dissident was arrested during the administration of George W. Bush, at the very least the White House spokesman would condemn it. Under the Obama administration: nothing."
Nor is Mr. Hendi a fan of this administration's efforts to engage the regime, most recently by deciding to send an ambassador to Damascus for the first time since 2005. "This gives confidence to the regime," he says. "They are not capable of a dialogue; they don't believe in it. They believe in force."
Mr. Hong put things this way: "When you look at the championing of dissidents . . . and even the rhetoric, it's dropped off sharply." Under Mr. Bush, he says, there were many high-profile meetings with North Korean dissidents. "They went out of their way to show this was a priority."
Then there is Marcel Granier, the president of RCTV, Venezuela's oldest and most popular television station. He employs several thousand people—or at least he did until Hugo Chávez cancelled the network's license in 2007. Now, he's struggling to maintain an independent channel on cable: Mr. Chávez ordered the cable networks not to carry his station in January. Government supporters have attacked his home with tear gas twice, yet he remains in the country, tirelessly advocating for media freedom.
Like many of the democrats at the conference, Mr. Granier was excited by Mr. Obama's historic election, and inspired by the way he energized American voters. But a year and a half later, he's disturbed by the administration's silence as his country slips rapidly towards dictatorship. "In Afghanistan," he quips, "at least they know that America will be involved for the next 18 months."
This sense of abandonment has been fueled by real policy shifts. Just this week word came that the administration cut funds to promote democracy in Egypt by half. Programs in countries like Jordan and Iran have also faced cuts. Then there are the symbolic gestures: letting the Dalai Lama out the back door, paltry statements of support for Iranian demonstrators, smiling and shaking hands with Mr. Chávez, and so on.
Daniel Baer, a representative from the State Department who participated in the conference, dismissed the notion that the White House has distanced itself from human-rights promotion as a baseless "meme" when I raised the issue. But in fact all of this is of a piece of Mr. Obama's overarching strategy to make it abundantly clear that he is not his predecessor.
Mr. Bush is almost certainly aware that the freedom agenda, the centerpiece of his presidency, has become indelibly linked to the war in Iraq and to regime change by force. Too bad. The peaceful promotion of human rights and democracy—in part by supporting the individuals risking their lives for liberty—are consonant with America's most basic values. Standing up for them should not be a partisan issue.
Yet for now Mr. Bush is simply not the right poster boy: He can't successfully rebrand and depoliticize the freedom agenda. So perhaps he hopes that by sitting back he can let Americans who remain wary of publicly embracing this cause become comfortable with it again. For the sake of the courageous democrats in countries like Iran, Cuba, North Korea, Venezuela, Colombia, China and Russia, let's hope so.
Ms. Weiss is an assistant editorial features editor at the Journal.
Friday, April 23, 2010
Europe's VAT Lessons - Rates start low and increase, while income tax rates stay high
Europe's VAT Lessons. WSJ Editorial
Rates start low and increase, while income tax rates stay high.
WSJ, Apr 15, 2010
As Americans rush to complete their annual tax returns today, there is still some consolation in knowing that it could be worse: Like Europeans, we could pay both income taxes and a value-added tax, or VAT. And maybe we soon will. Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT, so we thought you might like to know how it has worked in Europe.
A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. (See the nearby chart.) In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.
![[1VAT]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tSzd56Iu7_7g3CZfaV1eoUBlAFZBxvMBGDrs2IwrwXiUdTWHANGVA6aArbFDGu9CJekYEMgw9TqNC96mHXpTIxOlL5nwJI-Da-kLw6XD_yLJd9NObR66ceZUP6obgUkyx8YiCX6ByGhKMtVVKbdxwO0Q=s0-d)
VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.
Europe's individual income tax rates have fallen since the 1980s, following the U.S. lead in the Reagan era, and European corporate tax rates have come down even more sharply. But the drive of this decline has been global tax competition, not the offsetting burden of the VAT.
In the U.S., VAT proponents aren't calling for a repeal of the 16th Amendment that allowed the income tax—and, in fact, they want income tax rates to rise. The White House has promised to let the top individual rate increase in January to 39.6% from 35% as the Bush tax cuts expire, while the dividend rate will go to 39.6% from 15% and the capital gains rate to 20% next year and 23.8% in 2013 under the health bill, from 15% today. Even with these higher rates, or because of them, revenues won't come close to paying for the Obama Administration's new spending—which is why it is also eyeing a VAT.
One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.
Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.
It is precisely this revenue-generating ability that makes the VAT so appealing to liberal intellectuals and politicians. Even liberals understand that at some point high income tax rates stop yielding much more revenue as the rich change their behavior or exploit loopholes. The middle-class is where the real money is, and the only way to get more of it with the least political pain is through a broad-based consumption tax such as a VAT.
And one more point: In Europe, this heavier spending and tax burden has also meant lower levels of income growth and job creation. From 1982 to 2007, the U.S. created 45 million new jobs, compared to fewer than 10 million in Europe, and U.S. economic growth was more than one-third faster over the last two decades, according to the Bureau of Labor Statistics.
In 2008, the average resident of West Virginia, one of the poorest American states, had an income $2,000 a year higher than the average resident of the European Union, according to economist Mark Perry of the University of Michigan, Flint. The price of a much higher tax burden to finance a cradle-to-grave entitlement state in Europe has been a lower standard of living. VAT supporters should explain why the same won't be true in America.
Rates start low and increase, while income tax rates stay high.
WSJ, Apr 15, 2010
As Americans rush to complete their annual tax returns today, there is still some consolation in knowing that it could be worse: Like Europeans, we could pay both income taxes and a value-added tax, or VAT. And maybe we soon will. Paul Volcker, Nancy Pelosi, John Podesta and other allies of the Obama Administration have already floated the idea of an American VAT, so we thought you might like to know how it has worked in Europe.
A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. (See the nearby chart.) In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.
VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.
Europe's individual income tax rates have fallen since the 1980s, following the U.S. lead in the Reagan era, and European corporate tax rates have come down even more sharply. But the drive of this decline has been global tax competition, not the offsetting burden of the VAT.
In the U.S., VAT proponents aren't calling for a repeal of the 16th Amendment that allowed the income tax—and, in fact, they want income tax rates to rise. The White House has promised to let the top individual rate increase in January to 39.6% from 35% as the Bush tax cuts expire, while the dividend rate will go to 39.6% from 15% and the capital gains rate to 20% next year and 23.8% in 2013 under the health bill, from 15% today. Even with these higher rates, or because of them, revenues won't come close to paying for the Obama Administration's new spending—which is why it is also eyeing a VAT.
One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.
Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.
It is precisely this revenue-generating ability that makes the VAT so appealing to liberal intellectuals and politicians. Even liberals understand that at some point high income tax rates stop yielding much more revenue as the rich change their behavior or exploit loopholes. The middle-class is where the real money is, and the only way to get more of it with the least political pain is through a broad-based consumption tax such as a VAT.
And one more point: In Europe, this heavier spending and tax burden has also meant lower levels of income growth and job creation. From 1982 to 2007, the U.S. created 45 million new jobs, compared to fewer than 10 million in Europe, and U.S. economic growth was more than one-third faster over the last two decades, according to the Bureau of Labor Statistics.
In 2008, the average resident of West Virginia, one of the poorest American states, had an income $2,000 a year higher than the average resident of the European Union, according to economist Mark Perry of the University of Michigan, Flint. The price of a much higher tax burden to finance a cradle-to-grave entitlement state in Europe has been a lower standard of living. VAT supporters should explain why the same won't be true in America.
China and the US, Two Energy Giants: A Contrast In Approach
Two Energy Giants: A contrast in approach
IER, Apr 22, 2010
China’s economy is growing with dizzying speed, and the government is fueling the growth with plentiful energy. In fact, China’s electrification program and its ability to secure future oil supplies are second to none. By contrast, the U.S. economy is growing more slowly and its energy strategy is limiting that growth. The United States has slowed its electrification, adding only select forms of generating capacity, and has taken steps to reduce its flexibility in securing safe oil supplies.
China Setting Records: China Oil Demand, Coal Production and Vehicle Sales Up in 2010
During January, February, and March of this year, China was again setting records with huge year-over-year increases in oil demand. In February, China’s oil demand rose 19.4 percent over a year earlier, the second fastest rise on record. According to Reuters, China is the world’s second largest oil user (second to the United States) and consumed 8.65 million barrels of oil per day in February, an increase of 9.4 percent or 604,000 barrels per day over January’s consumption.[i] Oil imports were up 13.8 percent in March over February, reaching 4.95 million barrels per day, according to preliminary data from China’s General Administration of Customs.[ii] In part, these large oil increases are fueling China’s passenger car fleet. New passenger car sales rose 55 percent in February from a year earlier, following a 116 percent increase in January, most likely aided by the extension of government incentives to boost purchases of smaller vehicles and spur rural demand for cars. [iii]
China has spent nearly $200 billion on oil deals during the past few years, joining with more than 19 countries —including Russia, Turkmenistan, Kuwait, Yemen, Libya, Angola, Venezuela and Brazil— and paying for exploration, production, infrastructure construction, as well as “loans for energy” deals.[iv] Recently, China’s Sinopec International Petroleum Exploration and Production Company agreed to buy, for $4.65 billion, the 9 percent interest that ConocoPhillips holds in Syncrude,[v] a Canadian business involved in the production of oil sands (an asphalt-like heavy oil).[vi] Approval from the Canadian and Chinese governments is expected in the third quarter of this year.
Along with China’s Canadian oil pursuits, long thought to be a safe and secure supply for U.S. oil demand, the state-owned China Development Bank has promised to lend $20 billion to Venezuela to build new power plants, highways, and other projects, which will be repaid with Venezuelan crude oil. Venezuela’s President Hugo Chavez has long complained about the United States’ standing as the largest buyer of Venezuelan oil, and so he is more than pleased to offer his country’s oil to China instead.[vii] Both the Canadian crude and the Venezuelan crude are heavy oils, and the United States owns most of the refineries that can process heavy crude oils. So, to prepare itself for future heavy oil supplies, China has approved plans for construction of such a refinery. As the United States loses neighboring oil supplies to China, one wonders how the U.S. will meet future oil demand, especially as the Obama Administration has been slow to open new offshore areas to oil development (claiming further study is needed) but speedy at advocating climate legislation and a low-carbon fuel standard, both policies aimed at reducing the demand for fossil fuels without providing comparable energy substitutes.
Oil resources are not the only target on China’s energy wish-list. It also plans to increase its consumption of natural gas; last year, its liquefied natural gas imports rose by two-thirds, to 5.53 million tons or 7.7 billion cubic meters.[viii] China also continues to consume large quantities of its primary fuel, coal, in its industrial and electric generation sectors. According to China’s National Bureau of Statistics, the country’s coal output grew more than 28 percent, to well over 751 million tons in the first quarter of 2010. A report by China’s National Coal Association estimates China’s total coal production capacity exceeds 3.6 billion tons.[ix] This is in sharp contrast to coal mining in the United States, where the Environmental Protection Agency (EPA) has issued a new policy aimed at curbing mountain top removal mining[x] and is scrutinizing surface coal mine permits. EPA is revoking or blocking Clean Water Act permits for mountain top mining citing irreversible damage to the environment. Some of the permits were awarded years ago.[xi]
Seventy percent of China’s energy comes from coal,[xii] the most carbon-intensive fossil fuel. China already consumes more than twice the coal as the United States, and by 2030, China is expected to consume 3.7 times as much coal.[xiii] As a result, China emits more carbon dioxide than any other country in the world including the United States, and by 2030, it is expected to release 82 percent more carbon dioxide emissions than the United States.[xiv]
China’s Race to Electrification; U.S. Stagnation
Between 2004 and 2008, China added 346 gigawatts of generating capacity, of which 272 gigawatts were conventional thermal power (mostly coal) and 66 gigawatts were hydroelectric power. This compares to a total installed US hydroelectric capacity of 77 gigawatts. China is estimated to have added an additional 85 gigawatts in 2009, reaching a total of 874 gigawatts,[xv] about 15 percent less than the total capacity in the United States. Of the 85 gigawatts added in 2009, 51 gigawatts were conventional thermal, again mostly coal, 25 gigawatts were hydroelectric, and 9 gigawatts were wind power.[xvi] Many of China’s wind turbines were funded by the U.N.’s Clean Development Mechanism, under which wealthy countries fund projects in developing countries and receive carbon credits so long as those projects would not have been accomplished otherwise.[xvii]
In contrast, the United States added only 47 gigawatts of generating capacity from 2004 to 2008 (14 percent of the capacity China added), of which 26 gigawatts were natural gas-fired units and 18 gigawatts were wind turbines. New coal-fired capacity additions are practically non-existent in the United States primarily owing to objections regarding emissions of carbon dioxide. Coal-fired projects in the United States have either been cancelled or delayed because of permitting problems, reviews and re-reviews by EPA and resulting financing problems. While the United States has more coal than any other country in the world, with over 200 years of reserves at current usage rates, coal’s share of new U.S. generating markets has been replaced by natural gas and renewable units that are more politically in vogue.
China’s Economic Growth and Export Market
China’s economy, the second-largest in the world in terms of purchasing power, is currently about half the size of the U.S. gross domestic product. According to China’s central bank, the country’s economy grew at an annual rate of 10.7 percent in the fourth quarter of 2009,[xviii] a rate almost twice the U.S. rate of 5.6 percent for the same time period.[xix] And in the first quarter of 2010, China’s economy grew by 11.9 percent. Forecasters predict that China’s economy will exceed that of the United States in 10 to 15 years.[xx]
China became the world’s largest exporter last year, edging out Germany and the United States. Despite a decline in total world trade, China’s exports fell less than those of other big powers. A report by the World Trade Organization calculates that the total value of merchandise exports fell by 23 percent in 2009. Among the top ten exporters, Japan’s shipments were the worst affected, falling by 26 percent. Because China’s exports fell by only 16 percent, it is now the single largest exporter. The World Trade Organization expects trade to rebound by nearly 10 percent this year.[xxi]
Lessons to Be Learned
Many environmentalists and politicians seem to believe that China is winning the green energy race, but nothing could be further from reality.[xxii] China is in a race for energy—all forms of energy—to fuel its growing economy. The size and scope of its investments in conventional forms of energy dwarf their commitment to “green energy.” It is providing loans around the world to invest in future oil projects, and it cares not that the oil is less than the lightest and sweetest. Canadian oil sands and Venezuelan heavy crude are perfectly fine. China is building a coal-fired generating plant each and every week on average, and increasing its coal mining capacity to fuel them. This belies any stated concerns about increasing their carbon dioxide emissions, already the highest of any country in the world. China is building wind turbines too, but if wealthy countries are willing to pay—why not? It matters not at all that the transmission capacity is not yet there to operate almost a third of these wind turbines. And China’s large-scale hydroelectric projects are engineering feats par excellence, built regardless of environmental concerns.
China is ensuring energy supplies will be available to fuel its growing economy. The United States should take note.
References
China’s economy is growing with dizzying speed, and the government is fueling the growth with plentiful energy. In fact, China’s electrification program and its ability to secure future oil supplies are second to none. By contrast, the U.S. economy is growing more slowly and its energy strategy is limiting that growth. The United States has slowed its electrification, adding only select forms of generating capacity, and has taken steps to reduce its flexibility in securing safe oil supplies.
China Setting Records: China Oil Demand, Coal Production and Vehicle Sales Up in 2010
During January, February, and March of this year, China was again setting records with huge year-over-year increases in oil demand. In February, China’s oil demand rose 19.4 percent over a year earlier, the second fastest rise on record. According to Reuters, China is the world’s second largest oil user (second to the United States) and consumed 8.65 million barrels of oil per day in February, an increase of 9.4 percent or 604,000 barrels per day over January’s consumption.[i] Oil imports were up 13.8 percent in March over February, reaching 4.95 million barrels per day, according to preliminary data from China’s General Administration of Customs.[ii] In part, these large oil increases are fueling China’s passenger car fleet. New passenger car sales rose 55 percent in February from a year earlier, following a 116 percent increase in January, most likely aided by the extension of government incentives to boost purchases of smaller vehicles and spur rural demand for cars. [iii]
China has spent nearly $200 billion on oil deals during the past few years, joining with more than 19 countries —including Russia, Turkmenistan, Kuwait, Yemen, Libya, Angola, Venezuela and Brazil— and paying for exploration, production, infrastructure construction, as well as “loans for energy” deals.[iv] Recently, China’s Sinopec International Petroleum Exploration and Production Company agreed to buy, for $4.65 billion, the 9 percent interest that ConocoPhillips holds in Syncrude,[v] a Canadian business involved in the production of oil sands (an asphalt-like heavy oil).[vi] Approval from the Canadian and Chinese governments is expected in the third quarter of this year.
Along with China’s Canadian oil pursuits, long thought to be a safe and secure supply for U.S. oil demand, the state-owned China Development Bank has promised to lend $20 billion to Venezuela to build new power plants, highways, and other projects, which will be repaid with Venezuelan crude oil. Venezuela’s President Hugo Chavez has long complained about the United States’ standing as the largest buyer of Venezuelan oil, and so he is more than pleased to offer his country’s oil to China instead.[vii] Both the Canadian crude and the Venezuelan crude are heavy oils, and the United States owns most of the refineries that can process heavy crude oils. So, to prepare itself for future heavy oil supplies, China has approved plans for construction of such a refinery. As the United States loses neighboring oil supplies to China, one wonders how the U.S. will meet future oil demand, especially as the Obama Administration has been slow to open new offshore areas to oil development (claiming further study is needed) but speedy at advocating climate legislation and a low-carbon fuel standard, both policies aimed at reducing the demand for fossil fuels without providing comparable energy substitutes.
Oil resources are not the only target on China’s energy wish-list. It also plans to increase its consumption of natural gas; last year, its liquefied natural gas imports rose by two-thirds, to 5.53 million tons or 7.7 billion cubic meters.[viii] China also continues to consume large quantities of its primary fuel, coal, in its industrial and electric generation sectors. According to China’s National Bureau of Statistics, the country’s coal output grew more than 28 percent, to well over 751 million tons in the first quarter of 2010. A report by China’s National Coal Association estimates China’s total coal production capacity exceeds 3.6 billion tons.[ix] This is in sharp contrast to coal mining in the United States, where the Environmental Protection Agency (EPA) has issued a new policy aimed at curbing mountain top removal mining[x] and is scrutinizing surface coal mine permits. EPA is revoking or blocking Clean Water Act permits for mountain top mining citing irreversible damage to the environment. Some of the permits were awarded years ago.[xi]
Seventy percent of China’s energy comes from coal,[xii] the most carbon-intensive fossil fuel. China already consumes more than twice the coal as the United States, and by 2030, China is expected to consume 3.7 times as much coal.[xiii] As a result, China emits more carbon dioxide than any other country in the world including the United States, and by 2030, it is expected to release 82 percent more carbon dioxide emissions than the United States.[xiv]
China’s Race to Electrification; U.S. Stagnation
Between 2004 and 2008, China added 346 gigawatts of generating capacity, of which 272 gigawatts were conventional thermal power (mostly coal) and 66 gigawatts were hydroelectric power. This compares to a total installed US hydroelectric capacity of 77 gigawatts. China is estimated to have added an additional 85 gigawatts in 2009, reaching a total of 874 gigawatts,[xv] about 15 percent less than the total capacity in the United States. Of the 85 gigawatts added in 2009, 51 gigawatts were conventional thermal, again mostly coal, 25 gigawatts were hydroelectric, and 9 gigawatts were wind power.[xvi] Many of China’s wind turbines were funded by the U.N.’s Clean Development Mechanism, under which wealthy countries fund projects in developing countries and receive carbon credits so long as those projects would not have been accomplished otherwise.[xvii]
In contrast, the United States added only 47 gigawatts of generating capacity from 2004 to 2008 (14 percent of the capacity China added), of which 26 gigawatts were natural gas-fired units and 18 gigawatts were wind turbines. New coal-fired capacity additions are practically non-existent in the United States primarily owing to objections regarding emissions of carbon dioxide. Coal-fired projects in the United States have either been cancelled or delayed because of permitting problems, reviews and re-reviews by EPA and resulting financing problems. While the United States has more coal than any other country in the world, with over 200 years of reserves at current usage rates, coal’s share of new U.S. generating markets has been replaced by natural gas and renewable units that are more politically in vogue.
China’s Economic Growth and Export Market
China’s economy, the second-largest in the world in terms of purchasing power, is currently about half the size of the U.S. gross domestic product. According to China’s central bank, the country’s economy grew at an annual rate of 10.7 percent in the fourth quarter of 2009,[xviii] a rate almost twice the U.S. rate of 5.6 percent for the same time period.[xix] And in the first quarter of 2010, China’s economy grew by 11.9 percent. Forecasters predict that China’s economy will exceed that of the United States in 10 to 15 years.[xx]
China became the world’s largest exporter last year, edging out Germany and the United States. Despite a decline in total world trade, China’s exports fell less than those of other big powers. A report by the World Trade Organization calculates that the total value of merchandise exports fell by 23 percent in 2009. Among the top ten exporters, Japan’s shipments were the worst affected, falling by 26 percent. Because China’s exports fell by only 16 percent, it is now the single largest exporter. The World Trade Organization expects trade to rebound by nearly 10 percent this year.[xxi]
Lessons to Be Learned
Many environmentalists and politicians seem to believe that China is winning the green energy race, but nothing could be further from reality.[xxii] China is in a race for energy—all forms of energy—to fuel its growing economy. The size and scope of its investments in conventional forms of energy dwarf their commitment to “green energy.” It is providing loans around the world to invest in future oil projects, and it cares not that the oil is less than the lightest and sweetest. Canadian oil sands and Venezuelan heavy crude are perfectly fine. China is building a coal-fired generating plant each and every week on average, and increasing its coal mining capacity to fuel them. This belies any stated concerns about increasing their carbon dioxide emissions, already the highest of any country in the world. China is building wind turbines too, but if wealthy countries are willing to pay—why not? It matters not at all that the transmission capacity is not yet there to operate almost a third of these wind turbines. And China’s large-scale hydroelectric projects are engineering feats par excellence, built regardless of environmental concerns.
China is ensuring energy supplies will be available to fuel its growing economy. The United States should take note.
References
[i] Reuters, China oil demand rise second fastest, inventories drag, March 22, 2010, http://in.reuters.com/article/oilRpt/idINTOE62L01Z20100322?sp=true [ii] Reuters, Oil falls as demand, inventories weigh, April 12, 2010, http://www.reuters.com/article/idUSTRE6142V820100412
[iii] Reuters, China oil demand rise second fastest, inventories drag, March 22, 2010, http://in.reuters.com/article/oilRpt/idINTOE62L01Z20100322?sp=true
[iv] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb
[v] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413 and www.conocophillips.com
[vi] Syncrude, http://www.syncrude.ca/users/folder.asp?FolderID=5753
[vii] The Wall Street Journal, China’s $20 Billion Bolsters Chavez, April 18, 2010, http://online.wsj.com/article/SB10001424052748703594404575191671972897694.html
[viii] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413
[ix] China Daily, China’s coal output up 28.1% in Q1, April 15, 2010, http://www.chinadaily.com.cn/bizchina/2010-04/15/content_9736151.htm
[x] Environmental protection Agency, New Releases, EPA issues comprehensive guidance to protect Appalachian communities from harmful environmental impacts of mountaintop mining, April 1, 2010, http://yosemite.epa.gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/4145c96189a17239852576f8005867bd!OpenDocument
[xi] Associated Press, Arch Coal sues EPA over veto of W.Va. mine permit, April 2, 2010, http://news.yahoo.com/s/ap/20100402/ap_on_bi_ge/wv_epa_coal_lawsuit
[xii] Energy Information Administration, China, http://www.eia.doe.gov/emeu/cabs/China/Background.html
[xiii] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xiv] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xv] http://en.wikipedia.org/wiki/Energy_policy_of_China
[xvi] China’s power generation goes greener with total capacity up 10%, January 7, 2010, http://news.xinhuanet.com/english/2010-01/07/content_12771880.htm
[xvii] http://www.instituteforenergyresearch.org/2010/03/24/kyotos-clean-development-mechanism-is-it-producing-results-for-whom/
[xviii] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb
[xix] http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
[xx] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xxi] China overtakes Germany to become the biggest exporter of all, March 31, 2010, http://www.economist.com/daily/news/displaystory.cfm?story_id=15836406&fsrc=nwl
[xxii] http://www.instituteforenergyresearch.org/2010/03/15/the-u-s-in-the-world-race-for-clean-electric-generating-capacity/
[iii] Reuters, China oil demand rise second fastest, inventories drag, March 22, 2010, http://in.reuters.com/article/oilRpt/idINTOE62L01Z20100322?sp=true
[iv] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb
[v] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413 and www.conocophillips.com
[vi] Syncrude, http://www.syncrude.ca/users/folder.asp?FolderID=5753
[vii] The Wall Street Journal, China’s $20 Billion Bolsters Chavez, April 18, 2010, http://online.wsj.com/article/SB10001424052748703594404575191671972897694.html
[viii] Reuters, China bags oil sands stake, not finished yet, April 13, 2010, http://www.reuters.com/article/idUSTRE63C17X20100413
[ix] China Daily, China’s coal output up 28.1% in Q1, April 15, 2010, http://www.chinadaily.com.cn/bizchina/2010-04/15/content_9736151.htm
[x] Environmental protection Agency, New Releases, EPA issues comprehensive guidance to protect Appalachian communities from harmful environmental impacts of mountaintop mining, April 1, 2010, http://yosemite.epa.gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/4145c96189a17239852576f8005867bd!OpenDocument
[xi] Associated Press, Arch Coal sues EPA over veto of W.Va. mine permit, April 2, 2010, http://news.yahoo.com/s/ap/20100402/ap_on_bi_ge/wv_epa_coal_lawsuit
[xii] Energy Information Administration, China, http://www.eia.doe.gov/emeu/cabs/China/Background.html
[xiii] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xiv] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xv] http://en.wikipedia.org/wiki/Energy_policy_of_China
[xvi] China’s power generation goes greener with total capacity up 10%, January 7, 2010, http://news.xinhuanet.com/english/2010-01/07/content_12771880.htm
[xvii] http://www.instituteforenergyresearch.org/2010/03/24/kyotos-clean-development-mechanism-is-it-producing-results-for-whom/
[xviii] Politico, To compete with China, U.S. must tap natural gas, April 13, 2010, http://www.politico.com/news/stories/0410/35689.html#ixzz0kyYru8gb
[xix] http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
[xx] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html
[xxi] China overtakes Germany to become the biggest exporter of all, March 31, 2010, http://www.economist.com/daily/news/displaystory.cfm?story_id=15836406&fsrc=nwl
[xxii] http://www.instituteforenergyresearch.org/2010/03/15/the-u-s-in-the-world-race-for-clean-electric-generating-capacity/
Thursday, April 22, 2010
Federal Prez: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed."
The New Master of Wall Street. WSJ Editorial
Obama surveys the financial kingdom that may soon be his.WSJ, Apr 23, 2010
President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008. It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City. "I take no satisfaction in noting that my comments have largely been borne out by the events that followed."
We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history. The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking.
This is the most important fact to understand about the current financial reform debate. While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.
The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts. A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not. The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.
If you think Wall Street beats a path to the Beltway now, wait until the banks seek to influence how regulators will define, say, "proprietary trading." Whatever its flaws, the Glass-Steagall Act of 1932 clearly defined the difference between a commercial and investment bank. This time, the rules will be written by regulators at Treasury, the Federal Reserve, the CFTC, SEC and FDIC, among others. As he so often does, Mr. Obama yesterday denounced "the furious efforts of industry lobbyists to shape" the bill "to their special interests." But if his reform passes, this lobbying is certain to continue, more furiously.
Consider the esoteric matter of derivatives, most of which seem headed for daily settlement on exchanges and a clearinghouse if the bill passes. But not all derivatives. The new master of this universe would be Gary Gensler, a Goldman Sachs alumnus who now chairs the Commodity Futures Trading Commission. Under the bill moving through the Senate, he would decide which derivative transactions must be "cleared" and traded via electronic exchanges, and which can continue to be traded over-the-counter.
Perhaps Mr. Gensler is as wise as King Solomon, or at least John Paulson. Perhaps, like Mr. Obama in 2008, he—and his successors—will be able to foresee the next crisis and determine the derivatives contracts that pose the most future risk. He will need to be, because under such a reform some of the risk of a transaction moves from the two financial parties (say, J.P. Morgan and Goldman) to the clearinghouse—which will almost certainly be "too big to fail" if enough trades go awry in the next crisis.
Or consider the Senate provision, too little discussed, to let the SEC give shareholders more clout over corporate board elections. This would federalize what has long been state predominance in corporate law, while giving the largest and most activist investors far more leverage to impose their agendas on business.
In practice, this means giving more influence over corporate decisions to labor unions and their political surrogates who run the large public pension funds. Their goals are as likely as not to include political causes such as easier unionization, cap-and-trade regulation, or disinvestment in this or that unpopular business or country. This, too, comes down to giving more power to the political class to run business—in this case, even nonfinancial businesses.
The people who oppose these and other provisions do so for a variety of reasons, some principled, some self-interested. But they have every right to fight them. Yet Mr. Obama once again yesterday cast such opposition as dishonest: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate," he said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."
Perhaps Mr. Obama should consult Democrat Ted Kaufman of Delaware, who said recently on the Senate floor that "by expanding the [federal] safety net—as we did in response to the last crisis—to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade." Mr. Kaufman wants to break up the biggest banks, which may well be preferable to making them wards of the Treasury. Is he lying too?
As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.
Obama surveys the financial kingdom that may soon be his.WSJ, Apr 23, 2010
President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008. It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City. "I take no satisfaction in noting that my comments have largely been borne out by the events that followed."
We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history. The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking.
This is the most important fact to understand about the current financial reform debate. While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government. The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.
The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts. A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not. The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.
If you think Wall Street beats a path to the Beltway now, wait until the banks seek to influence how regulators will define, say, "proprietary trading." Whatever its flaws, the Glass-Steagall Act of 1932 clearly defined the difference between a commercial and investment bank. This time, the rules will be written by regulators at Treasury, the Federal Reserve, the CFTC, SEC and FDIC, among others. As he so often does, Mr. Obama yesterday denounced "the furious efforts of industry lobbyists to shape" the bill "to their special interests." But if his reform passes, this lobbying is certain to continue, more furiously.
Consider the esoteric matter of derivatives, most of which seem headed for daily settlement on exchanges and a clearinghouse if the bill passes. But not all derivatives. The new master of this universe would be Gary Gensler, a Goldman Sachs alumnus who now chairs the Commodity Futures Trading Commission. Under the bill moving through the Senate, he would decide which derivative transactions must be "cleared" and traded via electronic exchanges, and which can continue to be traded over-the-counter.
Perhaps Mr. Gensler is as wise as King Solomon, or at least John Paulson. Perhaps, like Mr. Obama in 2008, he—and his successors—will be able to foresee the next crisis and determine the derivatives contracts that pose the most future risk. He will need to be, because under such a reform some of the risk of a transaction moves from the two financial parties (say, J.P. Morgan and Goldman) to the clearinghouse—which will almost certainly be "too big to fail" if enough trades go awry in the next crisis.
Or consider the Senate provision, too little discussed, to let the SEC give shareholders more clout over corporate board elections. This would federalize what has long been state predominance in corporate law, while giving the largest and most activist investors far more leverage to impose their agendas on business.
In practice, this means giving more influence over corporate decisions to labor unions and their political surrogates who run the large public pension funds. Their goals are as likely as not to include political causes such as easier unionization, cap-and-trade regulation, or disinvestment in this or that unpopular business or country. This, too, comes down to giving more power to the political class to run business—in this case, even nonfinancial businesses.
The people who oppose these and other provisions do so for a variety of reasons, some principled, some self-interested. But they have every right to fight them. Yet Mr. Obama once again yesterday cast such opposition as dishonest: "What is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate," he said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."
Perhaps Mr. Obama should consult Democrat Ted Kaufman of Delaware, who said recently on the Senate floor that "by expanding the [federal] safety net—as we did in response to the last crisis—to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade." Mr. Kaufman wants to break up the biggest banks, which may well be preferable to making them wards of the Treasury. Is he lying too?
As in health care, Democrats are intent on ramming this reform through Congress, and Republicans ought to summon the will to resist. Absent that, the only certain result is that Washington will be the new master of the financial universe.
Cash for Tanners - A new subsidy for hitting the beach
Cash for Tanners. WSJ Editorial
A new subsidy for hitting the beach.WSJ, Apr 23, 2010
Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."
The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.
Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.
It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.
At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.
A new subsidy for hitting the beach.WSJ, Apr 23, 2010
Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."
The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.
Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.
It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.
At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.
Environmentalism as Religion - While people have worshipped many things, we may be the first to build shrines to garbage
Environmentalism as Religion. By PAUL H. RUBIN
While people have worshipped many things, we may be the first to build shrines to garbage.
WSJ, Apr 22, 2010
Many observers have made the point that environmentalism is eerily close to a religious belief system, since it includes creation stories and ideas of original sin. But there is another sense in which environmentalism is becoming more and more like a religion: It provides its adherents with an identity.
Scientists are understandably uninterested in religious stories because they do not meet the basic criterion for science: They cannot be tested. God may or may not have created the world—there is no way of knowing, although we do know that the biblical creation story is scientifically incorrect. Since we cannot prove or disprove the existence of God, science can't help us answer questions about the truth of religion as a method of understanding the world.
But scientists, particularly evolutionary psychologists, have identified another function of religion in addition to its function of explaining the world. Religion often supplements or replaces the tribalism that is an innate part of our evolved nature.
Original religions were tribal rather than universal. Each tribe had its own god or gods, and the success of the tribe was evidence that their god was stronger than others.
But modern religions have largely replaced tribal gods with universal gods and allowed unrelated individuals from outside the tribe to join. Identification with a religion has replaced identification with a tribe. While many decry religious wars, modern religion has probably net reduced human conflict because there are fewer tribal wars. (Anthropologists have shown that tribal wars are even more lethal per capita than modern wars.)
It is this identity-creating function that environmentalism provides. As the world becomes less religious, people can define themselves as being Green rather than being Christian or Jewish.
Consider some of the ways in which environmental behaviors echo religious behaviors and thus provide meaningful rituals for Greens:
• There is a holy day—Earth Day.
• There are food taboos. Instead of eating fish on Friday, or avoiding pork, Greens now eat organic foods and many are moving towards eating only locally grown foods.
• There is no prayer, but there are self-sacrificing rituals that are not particularly useful, such as recycling. Recycling paper to save trees, for example, makes no sense since the effect will be to reduce the number of trees planted in the long run.
• Belief systems are embraced with no logical basis. For example, environmentalists almost universally believe in the dangers of global warming but also reject the best solution to the problem, which is nuclear power. These two beliefs co-exist based on faith, not reason.
• There are no temples, but there are sacred structures. As I walk around the Emory campus, I am continually confronted with recycling bins, and instead of one trash can I am faced with several for different sorts of trash. Universities are centers of the environmental religion, and such structures are increasingly common. While people have worshipped many things, we may be the first to build shrines to garbage.
• Environmentalism is a proselytizing religion. Skeptics are not merely people unconvinced by the evidence: They are treated as evil sinners. I probably would not write this article if I did not have tenure.
Some conservatives spend their time criticizing the way Darwin is taught in schools. This is pointless and probably counterproductive. These same efforts should be spent on making sure that the schools only teach those aspects of environmentalism that pass rigorous scientific testing. By making the point that Greenism is a religion, perhaps we environmental skeptics can enlist the First Amendment on our side.
Mr. Rubin is a professor of economics at Emory University. He is the author of "Darwinian Politics: The Evolutionary Origin of Freedom" (Rutgers University Press, 2002).
While people have worshipped many things, we may be the first to build shrines to garbage.
WSJ, Apr 22, 2010
Many observers have made the point that environmentalism is eerily close to a religious belief system, since it includes creation stories and ideas of original sin. But there is another sense in which environmentalism is becoming more and more like a religion: It provides its adherents with an identity.
Scientists are understandably uninterested in religious stories because they do not meet the basic criterion for science: They cannot be tested. God may or may not have created the world—there is no way of knowing, although we do know that the biblical creation story is scientifically incorrect. Since we cannot prove or disprove the existence of God, science can't help us answer questions about the truth of religion as a method of understanding the world.
But scientists, particularly evolutionary psychologists, have identified another function of religion in addition to its function of explaining the world. Religion often supplements or replaces the tribalism that is an innate part of our evolved nature.
Original religions were tribal rather than universal. Each tribe had its own god or gods, and the success of the tribe was evidence that their god was stronger than others.
But modern religions have largely replaced tribal gods with universal gods and allowed unrelated individuals from outside the tribe to join. Identification with a religion has replaced identification with a tribe. While many decry religious wars, modern religion has probably net reduced human conflict because there are fewer tribal wars. (Anthropologists have shown that tribal wars are even more lethal per capita than modern wars.)
It is this identity-creating function that environmentalism provides. As the world becomes less religious, people can define themselves as being Green rather than being Christian or Jewish.
Consider some of the ways in which environmental behaviors echo religious behaviors and thus provide meaningful rituals for Greens:
• There is a holy day—Earth Day.
• There are food taboos. Instead of eating fish on Friday, or avoiding pork, Greens now eat organic foods and many are moving towards eating only locally grown foods.
• There is no prayer, but there are self-sacrificing rituals that are not particularly useful, such as recycling. Recycling paper to save trees, for example, makes no sense since the effect will be to reduce the number of trees planted in the long run.
• Belief systems are embraced with no logical basis. For example, environmentalists almost universally believe in the dangers of global warming but also reject the best solution to the problem, which is nuclear power. These two beliefs co-exist based on faith, not reason.
• There are no temples, but there are sacred structures. As I walk around the Emory campus, I am continually confronted with recycling bins, and instead of one trash can I am faced with several for different sorts of trash. Universities are centers of the environmental religion, and such structures are increasingly common. While people have worshipped many things, we may be the first to build shrines to garbage.
• Environmentalism is a proselytizing religion. Skeptics are not merely people unconvinced by the evidence: They are treated as evil sinners. I probably would not write this article if I did not have tenure.
Some conservatives spend their time criticizing the way Darwin is taught in schools. This is pointless and probably counterproductive. These same efforts should be spent on making sure that the schools only teach those aspects of environmentalism that pass rigorous scientific testing. By making the point that Greenism is a religion, perhaps we environmental skeptics can enlist the First Amendment on our side.
Mr. Rubin is a professor of economics at Emory University. He is the author of "Darwinian Politics: The Evolutionary Origin of Freedom" (Rutgers University Press, 2002).
On Presidential Rhetoric
On Presidential Rhetoric. WSJ Editorial
Obama's ad hominem method and the politics of polarization.WSJ, Apr 22, 2010
President Obama came to office promising an era of political comity, but even he has had to concede that his first 15 months in office haven't lived up to his campaign hope of transcending partisan divisions. While it takes two to tangle, we think the hyper-polarization owes more than a little to Mr. Obama's own rhetorical habits. More than any President in memory, Mr. Obama has a tendency to vilify his opponents in personal terms and assail their arguments as dishonest, illegitimate or motived by bad faith.
A notable instance is Mr. Obama's ad hominem attack on Mitch McConnell at a California fundraiser for Barbara Boxer on Monday. The Senate Minority Leader "paid a visit to Wall Street a week or two ago," Mr. Obama said, and "met with some of the movers and shakers up there. I don't know exactly what was discussed. All I can tell you is when he came back, he promptly announced he would oppose the financial regulatory reform."
In other words, the Kentucky Republican is merely a mouthpiece for the bankers. Mr. Obama added that Mr. McConnell's objections to the bill were not merely "just plain false" but also "cynical"—and then he repeated the attack on motives at another event the following evening.
We can't recall anything close to this kind of language from, say, Ronald Reagan toward House Speaker Tip O'Neill, or even George W. Bush after Harry Reid called him a "liar." But it is an Obama staple.
A few hours after the Supreme Court's vindication of political speech last year in Citizens United, Mr. Obama called the decision "a major victory for Big Oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans."
He later personalized his criticism by rebuking the Justices as they sat in front of him during the January State of the Union, accusing them of reversing "a century of law to open the floodgates for special interests—including foreign corporations—to spend without limit in our elections." So the Justices, too, are mere tools of corporate interests. Don't expect many of them at next year's SOTU.
The President is especially fond of employing this blunt rhetorical force against business. In a December interview, Mr. Obama said he "did not run for office to be helping out a bunch of fat cat bankers on Wall Street. . . . They're still puzzled why it is that people are mad at banks. Well, let's see," he continued. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in—in decades, and you guys caused the problem."
Amid the Beltway panic during the AIG bonus bonfire in March 2009, Mr. Obama played directly to the public anger. "This is a corporation that finds itself in financial distress due to recklessness and greed," said the President, and asked, "How do they justify this outrage to the taxpayers who are keeping this company afloat?"
He did the same with the Chrysler bondholders who had initially resisted the White House's bankruptcy terms that squeezed them in favor of the United Auto Workers. Mr. Obama characterized these investors in April 2009 as "a small group of speculators" who "were hoping that everybody else would make sacrifices, and they would have to make none." They quickly caved.
Likewise, in his September address to Congress on health care, Mr. Obama did not merely disagree with opponents but accused them of being "cynical and irresponsible," spreading "misinformation," and making "bogus," "wild" or "false" claims through "demagoguery and distortion."
He added that "If you misrepresent what's in this plan, we will call you out." He later singled out Anthem Blue Cross by name, describing the California insurer's behavior "jaw-dropping" in February after it attempted to raise consumer premiums.
Politics ain't beanbag, but most Presidents leave this kind of political attack to surrogates or Vice Presidents. Mr. Obama seems to enjoy being his own Spiro Agnew. A President may reap a short-term legislative gain from this kind of rhetoric, but he also pays a longer-term price in ill-will and needless polarization.
Presidents speak to all of America and they best build consensus through argument and persuasion—not by singling out political targets, cultivating resentment, questioning motives and mocking differences of principle or political philosophy. Mr. Obama's bellicosity is no more attractive than Sarah Palin's attempts to pit "the real America" against the big-city slickers. And his rhetorical method seems especially discordant coming from a President who still insists, in between these assaults, that he is striving mightily to change the negative tone of American politics.
If the President and his advisers are wondering why his approval ratings are falling even as the economy is recovering, they might look to his own divisive conduct and the contempt he too often shows for anyone who disagrees with him.
Obama's ad hominem method and the politics of polarization.WSJ, Apr 22, 2010
President Obama came to office promising an era of political comity, but even he has had to concede that his first 15 months in office haven't lived up to his campaign hope of transcending partisan divisions. While it takes two to tangle, we think the hyper-polarization owes more than a little to Mr. Obama's own rhetorical habits. More than any President in memory, Mr. Obama has a tendency to vilify his opponents in personal terms and assail their arguments as dishonest, illegitimate or motived by bad faith.
A notable instance is Mr. Obama's ad hominem attack on Mitch McConnell at a California fundraiser for Barbara Boxer on Monday. The Senate Minority Leader "paid a visit to Wall Street a week or two ago," Mr. Obama said, and "met with some of the movers and shakers up there. I don't know exactly what was discussed. All I can tell you is when he came back, he promptly announced he would oppose the financial regulatory reform."
In other words, the Kentucky Republican is merely a mouthpiece for the bankers. Mr. Obama added that Mr. McConnell's objections to the bill were not merely "just plain false" but also "cynical"—and then he repeated the attack on motives at another event the following evening.
We can't recall anything close to this kind of language from, say, Ronald Reagan toward House Speaker Tip O'Neill, or even George W. Bush after Harry Reid called him a "liar." But it is an Obama staple.
A few hours after the Supreme Court's vindication of political speech last year in Citizens United, Mr. Obama called the decision "a major victory for Big Oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans."
He later personalized his criticism by rebuking the Justices as they sat in front of him during the January State of the Union, accusing them of reversing "a century of law to open the floodgates for special interests—including foreign corporations—to spend without limit in our elections." So the Justices, too, are mere tools of corporate interests. Don't expect many of them at next year's SOTU.
The President is especially fond of employing this blunt rhetorical force against business. In a December interview, Mr. Obama said he "did not run for office to be helping out a bunch of fat cat bankers on Wall Street. . . . They're still puzzled why it is that people are mad at banks. Well, let's see," he continued. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in—in decades, and you guys caused the problem."
Amid the Beltway panic during the AIG bonus bonfire in March 2009, Mr. Obama played directly to the public anger. "This is a corporation that finds itself in financial distress due to recklessness and greed," said the President, and asked, "How do they justify this outrage to the taxpayers who are keeping this company afloat?"
He did the same with the Chrysler bondholders who had initially resisted the White House's bankruptcy terms that squeezed them in favor of the United Auto Workers. Mr. Obama characterized these investors in April 2009 as "a small group of speculators" who "were hoping that everybody else would make sacrifices, and they would have to make none." They quickly caved.
Likewise, in his September address to Congress on health care, Mr. Obama did not merely disagree with opponents but accused them of being "cynical and irresponsible," spreading "misinformation," and making "bogus," "wild" or "false" claims through "demagoguery and distortion."
He added that "If you misrepresent what's in this plan, we will call you out." He later singled out Anthem Blue Cross by name, describing the California insurer's behavior "jaw-dropping" in February after it attempted to raise consumer premiums.
Politics ain't beanbag, but most Presidents leave this kind of political attack to surrogates or Vice Presidents. Mr. Obama seems to enjoy being his own Spiro Agnew. A President may reap a short-term legislative gain from this kind of rhetoric, but he also pays a longer-term price in ill-will and needless polarization.
Presidents speak to all of America and they best build consensus through argument and persuasion—not by singling out political targets, cultivating resentment, questioning motives and mocking differences of principle or political philosophy. Mr. Obama's bellicosity is no more attractive than Sarah Palin's attempts to pit "the real America" against the big-city slickers. And his rhetorical method seems especially discordant coming from a President who still insists, in between these assaults, that he is striving mightily to change the negative tone of American politics.
If the President and his advisers are wondering why his approval ratings are falling even as the economy is recovering, they might look to his own divisive conduct and the contempt he too often shows for anyone who disagrees with him.
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