The Revenue Limits of Tax and Spend - Whether rates are high or low, evidence shows our tax system won't collect more than 20% of GDP

The Revenue Limits of Tax and Spend. By DAVID RANSON
Whether rates are high or low, evidence shows our tax system won't collect more than 20% of GDP.
WSJ, May 17, 2010

The Greeks have always been trendsetters for the West. Washington has repudiated two centuries of U.S. fiscal prudence as prescribed by the Founding Fathers in favor of the modern Greek model of debt, dependency, devaluation and default. Prospects for restraining runaway U.S. debt are even poorer than they appear.

U.S. fiscal policy has been going in the wrong direction for a very long time. But this year the U.S. government declined to lay out any plan to balance its budget ever again. Based on President Obama's fiscal 2011 budget, the Congressional Budget Office (CBO) estimates a deficit that starts at 10.3% of GDP in 2010. It is projected to narrow as the economy recovers but will still be 5.6% in 2020. As a result the net national debt (debt held by the public) will more than double to 90% by 2020 from 40% in 2008. The current Greek deficit is now thought to be 13.6% of a far smaller GDP. Unlike ours, the Greek insolvency is not too large for an international rescue.

As sobering as the U.S. debt estimates are, they are incomplete and optimistic. They do not include deficit spending resulting from the new health-insurance legislation. The revenue numbers rely on increased tax rates beginning next year resulting from the scheduled expiration of the Bush tax cuts. And, as usual, they ignore the unfunded liabilities of social insurance programs, even though these benefits are officially recognized as "mandatory spending" when the time comes to pay them out.

The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth.

[Hauser's Law http://sg.wsj.net/public/resources/images/ED-AL524A_ranso_NS_20100516181943.gif]

The nearby chart shows how tax revenue has grown over the past eight decades along with the size of the economy. It illustrates the empirical relationship first introduced on this page 20 years ago by the Hoover Institution's W. Kurt Hauser—a close proportionality between revenue and GDP since World War II, despite big changes in marginal tax rates in both directions. "Hauser's Law," as I call this formula, reveals a kind of capacity ceiling for federal tax receipts at about 19% of GDP.

What's the origin of this limit beyond which it is impossible to extract any more revenue from tax payers? The tax base is not something that the government can kick around at will. It represents a living economic system that makes its own collective choices. In a tax code of 70,000 pages there are innumerable ways for high-income earners to seek out and use ambiguities and loopholes. The more they are incentivized to make an effort to game the system, the less the federal government will get to collect. That would explain why, as Mr. Hauser has shown, conventional methods of forecasting tax receipts from increases in future tax rates are prone to over-predict revenue.

For budget planning it's wiser and safer to assume that tax receipts will remain at a historically realistic ratio to GDP no matter how tax rates are manipulated. That leads me to conclude that current projections of federal revenue are, once again, unrealistically high.

Like other empirical "laws," Hauser's Law predicts within a range of approximation. Changes in marginal tax rates do not make a perceptible difference to the ratio of revenue to GDP, but recessions do. When GDP falls relative to its potential, tax revenue falls even more. History shows that, in an economy with no "output gap" between GDP and potential GDP, a ratio of federal revenue to GDP of no more than 18.3% would be realistic.

In this form, Hauser's Law provides a simple basis for testing the validity of any government's revenue projections. Today, since the economy already suffers from a large output gap that is expected to take many years to close, 18.3% must be a realistic upper limit on the ratio of budget revenues to GDP for years to come. Any major tax increase will reduce GDP and therefore revenues too.

But CBO projections based on the current budget show this ratio reaching 18.3% as early as 2013 and rising to 19.6% in 2020. Such numbers implicitly assume that the U.S. labor market will get back to sustainable "full employment" by 2013 and that GDP will exceed its potential thereafter. Not likely. When the projections are tempered by the constraints of Hauser's Law, it's clear that deficit spending will grow faster than the official estimates show.

Mr. Ranson is the head of research at H. C. Wainwright & Co. Economics.

Press Briefing

May 15, 2010

The White House Blog: Developing Our Sustainable Future. By Secretary Shaun Donovan on May 14, 2010 at 06:32 PM EDT
http://www.whitehouse.gov/blog/2010/05/14/developing-our-sustainable-future

Weekly Address: President Obama "Wall Street Reform Will Bring Greater Security to Folks on Main Street"
http://www.whitehouse.gov/the-press-office/weekly-address-president-obama-wall-street-reform-will-bring-greater-security-folks

Transmittal of the New START Treaty Documents to the United States Senate
http://www.state.gov/t/vci/trty/126118.htm

A late look at a troubling treaty - On New START
http://www.nypost.com/p/news/opinion/opedcolumnists/late_look_at_troubling_treaty_3JDfbEm5ULFcy2dY3rVcPO

Briefing On the U.S.-China Human Rights Dialogue. By Michael H. Posner, Assistant Secretary, Bureau of Democracy, Human Rights, and Labor.
Washington, DC, May 14, 2010
http://www.state.gov/r/pa/prs/ps/2010/05/141899.htm

New York Minorities More Likely to Be Frisked
http://www.nytimes.com/2010/05/13/nyregion/13frisk.html

Distorting the Truth About Crime and Race - The New York Times is at it again
http://city-journal.com/2010/eon0514hm.html

Why Liberal Education Matters - The true aim of the humanities is to prepare citizens for exercising their freedom responsibly
http://online.wsj.com/article/SB10001424052702303695604575182313286840550.html

Obama's Union Favors - The latest rule change slams the airlines
http://online.wsj.com/article/SB10001424052748703339304575240350067273536.html

Hobbling Charter Schools - They often lack the freedom they've been promised
http://online.wsj.com/article/SB10001424052748703961104575226433392497538.html

The Fed's Monetary Dissident - 'I really don't think we should be guaranteeing Wall Street a margin by guaranteeing them a zero or a near zero interest rate.' Talk with

Kansas City Federal Reserve Bank President Thomas Hoenig
http://online.wsj.com/article/SB10001424052748703460404575244050343571436.html

Very Low Fertility in Asia: Is There a Problem? Can It Be Solved? by Sidney B. Westley, Minja Kim Choe, and Robert D. Retherford. AsiaPacific Issues, No. 94.

Honolulu: East-West Center, May 2010.
http://www.eastwestcenter.org/pubs/3448
Fifty years ago, women in Asia were having, on average, more than five children each, and there was widespread fear of a "population explosion" in the region. Then birth

rates began to fall--in several countries more steeply than anyone had anticipated. This unexpected trend has now raised concerns about the social and economic impact

of extremely low fertility. Today, four of Asia's most prosperous economies--Japan, Singapore, South Korea, and Taiwan--have among the lowest birth rates in the world.

With women having, on average, only one child each, these societies have expanding elderly populations and a shrinking workforce to pay for social services and drive

economic growth. And in Japan, overall population numbers are already going down. Why are women choosing to have so few children? How are policymakers

responding to these trends? Government leaders have initiated a variety of policies and programs designed to encourage marriage and childbearing, but to what effect?

Given current social and economic trends, it is unlikely that Asia's steep fertility decline will be reversed, at least not in the foreseeable future.

Remarks by the President on the Ongoing Oil Spill Response
http://www.whitehouse.gov/the-press-office/remarks-president-ongoing-oil-spill-response

Tinkering With Miranda - Eric Holder's gambit on terrorist rights is too clever by half.
http://online.wsj.com/article/SB10001424052748704250104575239140685298952.html

Dispatch: Perchlorate in the Water
http://www.acsh.org/factsfears/newsID.1432/news_detail.asp
Reuters Health reports, “Everyday exposure to perchlorate, an industrial chemical found in drinking water and a range of foods, may not impair thyroid function in pregnant women, a new study suggests.” The CDC study found perchlorate in the urine of all 2,820 subjects tested.

“Perchlorate is found in all groundwater, as it is residue of various industrial processes,” explains ACSH’s Dr. Gilbert Ross. “Doctors use perchlorate in the treatment of overactive thyroid, since it does interfere with thyroid hormone production at sufficiently high doses. You could say it’s an actual endocrine disruptor, in that case.

However, the amount found in drinking water is five orders of magnitude less than the amount needed to affect thyroid function, and it has no effect whatsoever on human health at these environmental levels.

“As this study demonstrated, you can find perchlorate in the tissues or urine of anyone you analyze for it. So the lesson from this story is three-fold: First, environmental perchlorate does not affect thyroid function in pregnant women; second, the dose makes the poison; third, as we’ve always known about biomonitoring, being able to find trace amounts of a substance in someone’s body does not help you predict health outcomes.”

“We have to give credit to Reuters Health for publishing this report about the study,” says ACSH’s Jeff Stier. “All too often, the media reports when a study finds a supposed health hazard, and almost never when a study finds something to be safe. The public is left with a skewed point of view, thinking that every chemical causes every ailment, so it’s nice to see Reuters Health acknowledge that there is such a thing as a non-finding in scientific studies.”


Dispatch: Activist A-List
http://www.acsh.org/factsfears/newsID.1433/news_detail.asp
ACSH staffers can’t help but notice that the list of reviewers enumerated in appendix A of the President’s Cancer Panel’s recent report seems unbalanced.

“The report was an incredible distortion of cancer epidemiology,” says ACSH’s Dr. Elizabeth Whelan. “One of the panel’s recommendations to avoid cancer is to take your shoes off before you go into your home. It’s absolutely insane. So it’s no surprise to see how many of the people who contributed their input to the report are affiliated with radical ‘environmentalist’ groups like the Silent Spring Institute, the Breast Cancer Fund, and the Environmental Working Group.

“Even the American Cancer Society (ACS), which is generally mute on debates like these, came out and said that the report misrepresented the science of cancer. So my question is: Why haven’t we heard from the National Cancer Institute (NCI) on this? There were a number of NCI employees that signed their name to this list, and so far they haven’t stepped up like ACS to point out how unscientific this report is.”


Dispatch: PCBs in Red Hook
http://www.acsh.org/factsfears/newsID.1434/news_detail.asp
New York City officials will be investigating claims that the soil of Brooklyn’s Red Hook Park is contaminated with 110 times the EPA-established limit for the concentration of polychlorinated biphenyls (PCBs), which the state claims is a result of effluvia from the nearby, now-defunct manufacturing plant of plastics-additive maker Chemtura Corp.

“There are two questions here that, of course, no one has thought to ask,” says Dr. Ross. “First, has anyone measured PCB levels in anyone in Red Hook to see if they are being affected by this? More importantly, has anyone said there’s an adverse health outcome associated with PCBs at these contaminated sites? It seems to me that this has nothing to do with public health, and is all a question of regulatory adherence.”

In Defense of Over-the-Counter Derivatives - Swaps grew out of the banking system because writing risky, custom contracts is a lot like making loans

In Defense of Over-the-Counter Derivatives. By MARK C. BRICKELL
Swaps grew out of the banking system because writing risky, custom contracts is a lot like making loans.
WSJ, May 14, 2010

In 1989, there were $2.5 trillion of swaps outstanding, according to the International Swaps and Derivatives Association. Today there are $464 trillion. Why?

Few business activities grow by 30% annually for decades, so this success deserves scrutiny. The first step is to understand that swaps—as federal law calls the custom-tailored derivatives that banks and their corporate customers privately negotiate—help companies shed the risks they don't want and take on risks they prefer to manage.

McDonalds, for example, is expert in training young workers, marketing, and managing global real estate. But if selling hamburgers worldwide generates revenue in Japanese yen and New Zealand dollars, it also means smaller profits when those currencies decline in value. A swap contract can shift that risk to a bank that is as good at managing currency risk as the corporation is at buying beef. By outsourcing the management of its financial risks, a company can focus on its true sources of comparative advantage. That strengthens the firm and speeds economic growth.

Within the financial system, transferring risks is no less important. Different banks specialize in managing different risks and have customers with differing needs. If banks lent money to or wrote swaps with no one but their clients, they would accumulate too much risk in their portfolios. They manage this by writing swaps with other banks or nonbank risk-takers like hedge funds to transfer some risks away.

More companies, governments and banks are using swaps for two reasons.

First, swaps can be custom tailored in helpful ways. For example, anticipating falling interest rates, a company with fixed-rate debt can "swap" from fixed to floating by having its bank pay the fixed interest rate on the firm's five-year bonds, precisely to the dollar and to the day. In return, the company pays the bank the floating rate of interest, as it changes during those five years. Simpler derivatives, like futures, lack this attribute because they must be standardized to trade on futures exchanges.

Swap contracts are also customized to manage the credit risk of losing money if a counterparty defaults. Using private credit information, banks can decide to make a swap without taking collateral, just as they would to make an unsecured loan.

Futures traders, in contrast, outsource the credit risk of all their derivatives to central counterparties called clearinghouses, which require cash collateral or "margin" payments. If American companies were required to make such margin payments on their swaps, they would have to set aside billions of dollars that would no longer be available, as 3M testified last year, to build more factories or create new jobs.

Second, it costs less to move risks with swaps than with cash. The treasurer of the company that prefers floating-rate liabilities could ask his investment banker to track down the investors who own his fixed-rate securities and buy them back. He could negotiate a new, floating-rate bank loan to pay for it. But think of the transaction costs involved. One phone call to a swap desk achieves the same result at less cost.

You can see why swap activity grew out of the banking system. Writing custom-tailored, long-term contracts with credit risk is a lot like making loans to companies. That's why a very high proportion of interest-rate, currency, equity, and credit default swaps has a bank on at least one side of the deal.

This is also why, in this country, a policy consensus has existed for more than 20 years that swaps are not appropriately regulated as futures or securities. Instead, swap activity has been monitored for the most part by the banking authorities. Banking supervisors have had a good window on the business, and the opportunity to give a nudge when they think banks need it. The contracts the banking supervisors don't see (the ones between nonbanks) are unlikely to be systemically important. They are fewer, smaller and shorter term—and with proper credit analysis even these swaps will pop up on the radar of banks and their supervisors.

Good business systems improve as they grow. Recently, swap banks have chosen to send roughly $200 trillion of interbank swap contracts to central clearinghouses. They have created central data repositories to record their deals and give all regulators a wider window on the business. They have increased their use of technology to confirm trades. All this was achieved without new laws or regulations.

But what of AIG? That federally regulated thrift holding company lost billions by writing mortgage insurance, purchasing mortgage-backed securities, and writing credit default swaps that guaranteed mortgage bonds owned by others. Its losses across multiple business lines were not a swaps problem, they were a mortgage problem—and what was true for AIG was true across the financial system.

More than a trillion dollars of losses accrued when virtually every institution in the housing finance chain, including mortgage lenders, securities underwriters, rating agencies, Fannie Mae and Freddie Mac, investors, and the federal regulator at each step of the process underestimated the likelihood of an increase in defaults by mortgage borrowers. No one, certainly not the federal banking supervisors who already have reviewed derivatives activity before and during the crisis, has attributed this problem to swaps. But swaps did enable a few, wiser investors to let some air out of the housing bubble by putting on short positions efficiently.

A system-wide misjudgment of mortgage risk caused the financial crisis; understanding how that happened is the essential first step toward the policy reforms that will help us achieve the goal of financial stability. Legislation that targets over-the-counter derivatives will not further that goal.

Mr. Brickell was a managing director at J.P. Morgan and served as chairman of the International Swaps and Derivatives Association.

U.S. Alliances in East Asia: Internal Challenges and External Threats

U.S. Alliances in East Asia: Internal Challenges and External Threats. By William Breer, Senior Adviser, Center for Strategic and International Studies
The Brookings Institution, May 2010

May 20 marks the 60th anniversary of the ratification of the U.S.-Japan alliance by Japan’s House of Representatives. While the alliance is a bilateral arrangement, it has had a significant impact on Asia as a whole and is regarded by other nations as a key part of the regional security structure. The following is a brief survey of the treaty's role in the maintenance of peace and stability in the Asia-Pacific. It also demonstrates that the tensions currently confronting the U.S.-Japan alliance are not unique, but in fact have been faced by various bilateral alliances in the region; some have been resolved successfully and some have not.

Most experts believe that the series of alliances the United States created after World War II was one of the most astute and far-sighted acts of diplomacy in history. The alliance with Japan laid the foundation for reconciliation between two enemy nations and the groundwork for the reconstruction of a nation whose industrial power, infrastructure, and morale lay in shambles but which rose to become the world’s second largest economy. The alliance played a key role in the Cold War by allowing the United States to cover the USSR's eastern flank and demonstrating to China and North Korea that we would defend our interests and those of our allies in East Asia.

The arrangements with Japan provided a base from which the U.S. was able to defend its Republic of Korea ally from aggression by the North. Although the Korean War ended in an armistice—not a victory for the ROK, U.S., and their allies—without the use of facilities in Japan the peninsula could have been lost. Another plus was that American protection relieved Japan of having to acquire an offensive military capability, possibly including nuclear weapons. This reassured Japan’s neighbors that it would not again become a threat to their independence.

The result has been five decades of peace in Northeast Asia without a serious arms competition and remarkably few serious threats to the peace. This, along with the stimulus of Korean War procurement, enabled Japan to devote its resources to economic development which resulted in a previously unimaginable economic expansion and improvement in living standards. The ROK, Taiwan, and later China, piggy-backing on Japan's success and partaking of Japan's foreign aid and investment policies, replicated Japan's experience and delivered even faster rates of economic growth and prosperity to their people. None of this would have been possible without the American alliance system and the stability it provided throughout the region. The American presence in East Asia has been reassuring to allies, and our naval and air deployments beyond the region have played a major role in protecting the key energy trade routes through the Malacca Strait and Indian Ocean.

American alliances around East Asia

While the results have been good and generations of alliance managers on both sides can take considerable satisfaction in their accomplishments, the presence of foreign military bases in sovereign countries is not necessarily a natural phenomenon. Many Americans feel that we are motivated by altruism in undertaking to defend other peoples and that our actions are benign. But this view is not necessarily shared by citizens of host countries, many of whom view the American presence as an extension of the occupation in the case of Japan, an intrusion on sovereignty, or as a nuisance. These feelings are reinforced by a complex legal regime governing our bases and serious incidents (rape, hit-and-run accidents, etc.) involving American personnel. At the same time, the base arrangements provide significant employment opportunities for local populations there are some who welcome their presence. The policies of the new Hatoyama government reflect these contradictory views.

Governments have responded to these issues in different ways. In Japan we have developed mechanisms for dealing with problems and have accumulated a great deal of experience in working together. As a result Japanese citizens have tolerated a foreign military presence remarkably well. This may be a historic first. The leaderships of both nations realize the important role that the alliance plays in maintaining stability in East Asia and have striven to protect it.

In the Philippines, where we had maintained major naval and air facilities for many decades, a combination of domestic political pressure, the destruction of one base by a volcanic eruption rendering it unusable, and a strategic reassessment in Washington resulted in the withdrawal of U.S. forces, but the continuation of the defense treaty. In recent years, small numbers of U.S. military advisors have assisted the Philippine armed forces in countering Muslim insurgents in the southern islands of Mindanao and the Sulu Archipelago.

This was followed a few years later by the New Zealand government's refusal to allow port calls by U.S. Navy vessels, as clearly envisioned in the ANZUS treaty, without a prior finding by the prime minister of New Zealand that the ships in question were not carrying nuclear weapons. This was contrary to our long-standing policy of neither confirming nor denying the presence of nuclear weapons aboard our ships and put at risk our arrangements with Japan. The result was a suspension of our defense relationship with New Zealand and strained relations with this ally for a number of years. When the U.S. Navy revised its "neither confirm nor deny" policy our defense relationship gradually improved. However, as Secretary of State George Shultz stated at the time of the break in 1986, "We remain friends, but we are no longer allies."

We do not have a security treaty with Taiwan and do not maintain forces on the island. Under the Taiwan Relations Act, however, we are obligated to provide certain defensive weapons and equipment and it is understood that we would come to Taiwan's defense in a clear-cut emergency. While this is not an explicit or legal commitment, U.S. policy toward Taiwan has assured the people of Taiwan and other countries in the region that the United States takes the security of Taiwan seriously and that only a peaceful, non-coercive resolution of the political issues across the Taiwan Strait would be satisfactory.

Under our mutual defense treaty with the Republic of Korea we deploy sizable ground and air forces to the peninsula to backup ROK defenses in the event of aggression by North Korea. We have made clear to the North that the American commitment to the defense of South Korea is rock solid, and the peace has been maintained. While the U.S. posture has effectively deterred North Korea from a frontal attack, it has not prevented North Korea from mounting provocations, ranging from the capture of the USS Pueblo in 1968, through the tree-cutting incident in 1976, to the recent apparent sinking of an ROK warship. The biggest challenge posed by North Korea is its determination to acquire deployable nuclear weapons which would threaten U.S. interests throughout East Asia, potentially pose an existential threat to Japan, and create a proliferation problem of vast proportions. Our treaty relationships with Japan and Korea, and our many decades of experience working together, have greatly facilitated our cooperation on this issue.

From time to time, base issues (one of our major bases is in the center of Seoul) and occasional incidents caused by American personnel have aroused latent nationalism among the people, which has in the past resulted in large scale demonstrations, strains in our relations with the host government, and pressure to relocate our facilities. That we are making necessary adjustments to our deployments without significantly reducing our support for the ROK or the effectiveness of our deterrent is a credit to the common sense and foresight of Korean and American officials, many of whom have devoted entire careers to the management of the defense of the ROK.

Australia and Southeast Asia have been direct beneficiaries of America's alliance structure. While Australia is a member of ANZUS it has never become a platform for large scale American deployments. It has a keen interest in the stability and economic well-being of Northeast Asia because of its enormous and profitable economic ties with the region. It is also a beneficiary of American attention to the sea lanes to its West and North on which it depends for the bulk of its international commerce. Australia has been a valued ally in a large number of military operations in which the U.S. has engaged over the last fifty years, despite periodic internal opposition to American policy.

What about the future?

Despite periodic outbursts of opposition to nuclear ship home-porting or other aspects of the U.S. deployment in Japan, support among the Japanese people for the security relationship has remained at a remarkably high level. As a result the U.S. has had a relatively free hand in the use of our facilities and in the deployment of forces there. Generations of Japanese leaders have cooperated with U.S. security needs. These include a contribution of $13 billion in support of the first Gulf War, the dispatch of ground forces in support of our operations against Saddam Hussein, and generous foreign assistance to many places in which we have a strategic interest, including Afghanistan. Japan has also for the past 25 years made major contributions - $4-5 billion per year - to the support of U.S. forces in Japan. Who would have imagined 60 years ago that there would be significant U.S. military facilities in Japan in 2010?

There are some clouds on the horizon. The planned relocation of Marine Corps Air Station Futenma has posed major political issues for both Japan and the United States. Okinawa is host for the majority of U.S. forces in Japan and has endured the lion's share of the impact of foreign bases. Under considerable local pressure, Tokyo and Washington in 2006 reached an agreement to move the noisy Futenma facility from a densely populated area in central Okinawa to a sparsely populated region in the north. But the new Japanese administration, which took office in September 2009, ran on a platform calling for the removal of the facility from Okinawa. The U.S. side has adamantly insisted that the agreement be implemented as is and the two sides have reached an impasse which could result in the resignation of the prime minister. This is not a satisfactory situation, especially when it is not clear that the Marine Corps deployment in Okinawa is a vital piece of our deterrent posture on which it is worth Japan spending more than $10 billion to relocate.

The decision to attack Iraq in 2003 and the sloppy execution of the war called into question American judgment and leadership. Uncertain progress in Afghanistan has compounded this. Neither of these has significantly weakened Japanese support for the alliance, but these creeping doubts, coupled with an increasingly inward-looking Japanese public, have helped create an era in which American strategic assessments and solutions will be viewed with greater skepticism. Another serious incident involving U.S. military personnel would put further strain on the relationship. This is not to say that we cannot cooperate on a wide range of issues, but such cooperation will require higher level USG attention and a willingness on both sides to listen more attentively to the other's point of view. On the Japanese side, it will require the development of greater expertise among its political leaders and greater awareness among the general public of the changing environment. The increasing economic, military, and political importance of China demands that our two nations work together to assure a successful outcome in Asia.

Press Briefing

May 14, 2010

Gender-Based Violence Must Be Addressed in Fight Against HIV/AIDS
http://blogs.state.gov/sgwi/index.php/site/entry/gbv_aids

The Wrong Kind of Toyotathon, by Ronald Bailey
http://reason.com/archives/2010/05/14/the-wrong-kind-of-toyotathon
The unintended consequences of an unintended acceleration panic

Remarks with Afghan President Hamid Karzai in a Moderated Conversation
http://www.state.gov/secretary/rm/2010/05/141825.htm

New START Will Require Diligent Senate Consideration
http://rpc.senate.gov/public/_files/EvalProcessNewStartFINAL_Public.pdf

The European Rescue Plan: Opportunities and Limitations. By Domenico Lombardi, Nonresident Senior Fellow, Global Economy and Development
The Brookings Institution, May 13, 2010
http://www.brookings.edu/interviews/2010/0513_euro_lombardi.aspx

Congress’ Historic Decision to Ignore Its Basic Duty
http://blog.heritage.org/2010/05/14/morning-bell-congress-historic-decision-to-ignore-its-basic-duty

Hello Supply Side, by Alan Reynolds
http://www.cato.org/pub_display.php?pub_id=11808
On Kevin D. Williamson's Goodbye Supply Side

Can We Revoke Faisal Shahzad's Citizenship? - The challenge of terrorists with U.S. passports is serious. We are not powerless to deal with it.
http://online.wsj.com/article/SB10001424052748704250104575238754192957856.html

Joint Statement By The Delegations Of The Russian Federation And The US On New Start Treaty
http://www.state.gov/r/pa/prs/ps/2010/05/141827.htm

In Defense of Over-the-Counter Derivatives - Swaps grew out of the banking system because writing risky, custom contracts is a lot like making loans
http://www.bipartisanalliance.com/2010/05/in-defense-of-over-counter-derivatives.html

The David and Nick Show - Call it the audacity of hope. [On David Cameron and Nick Clegg]
http://online.wsj.com/article/SB10001424052748704635204575242080717711608.html

Still Segregating Voters - Texas defies racial gerrymandering. WSJ Editorial
http://online.wsj.com/article/SB10001424052748704250104575238392761660272.html
WSJ, May 14, 2010

The courts and the U.S. Congress continue to insist that racially gerrymandered voting districts are necessary to elect minority candidates, but election returns tell another story.

On Saturday, Irving, Texas held its first city council elections under a new system imposed by a federal court last year. Hispanic activists had sued the city, which is more than 40% Latino, arguing that Irving's at-large system was discriminatory because no Hispanic had ever won a council seat. As part of the settlement, Irving created six single-member voting districts—including one that was drawn specifically to ensure the election of an Hispanic—and two at-large districts. So what happened?

The newly created "Hispanic district" was won by Mike Gallaway, a black candidate who easily beat Trini Gonzalez, an Hispanic. And Roy Santoscoy, another Hispanic, defeated a white incumbent for one of the open at-large seats that was supposedly out of reach to Hispanics due to Irving's allegedly racist voting system.

Texas is hardly an outlier when it comes to upending the notion that racial gerrymandering is necessary because whites vote in lock step against minority candidates. U.S. Representatives Keith Ellison of Minnesota and Emanuel Cleaver of Missouri are black Democrats who represent districts that are more than 60% white. In 2008 President Obama did better among white voters in North Carolina, South Carolina, Virginia, Georgia and Texas than either John Kerry or Al Gore had done.

"The irony is that the American voter has moved on," says Edward Blum, an expert on the Voting Rights Act at the American Enterprise Institute. "He's willing to take race and ethnicity out of the election equation, yet the liberal advocacy groups and the courts refuse to accept this reality."


The Credit Raters Brawl - Al Franken wants a cartel and a trial lawyer payday. George LeMieux rides to the rescue
http://online.wsj.com/article/SB10001424052748704635204575242381255759008.html

Hypothetical, Preemptive Alarmism on Replacements for BPA
http://www.acsh.org/factsfears/newsID.1431/news_detail.asp

Is Free-Range Meat Making Us Sick?
http://www.acsh.org/factsfears/newsID.1430/news_detail.asp
http://www.theatlantic.com/food/archive/2010/05/is-free-range-meat-making-us-sick/56333/

US-China Ten-Year Framework for Cooperation on Energy and Environment
http://www.state.gov/r/pa/prs/ps/2010/05/141822.htm

U.S. Alliances in East Asia: Internal Challenges and External Threats
http://www.bipartisanalliance.com/2010/05/us-alliances-in-east-asia-internal.html

Joint Statement on US-Russian Consultations on Adoption
http://www.state.gov/r/pa/prs/ps/2010/05/141820.htm

Eating soybeans increases soybean-specific IgG antibodies
http://academicsreview.org/reviewed-content/genetic-roulette/section-1/1-15-roundup-ready-soy-is-safe-6/

Incentives vs. Government Waste - What if bureaucrats could benefit financially from finding cost savings?
http://online.wsj.com/article/SB10001424052748703915204575104113794207730.html

Kagan and the 'Public Safety Exception' - Does the nominee share Justice Stevens's view on Miranda warnings?
http://online.wsj.com/article/SB10001424052748704635204575242013817367060.html

U.S. Satellite Shootdown: The Inside Story
http://spectrum.ieee.org/aerospace/satellites/us-satellite-shootdown-the-inside-story

The Case for the New START Treaty, by Secretary Gates

The Case for the New START Treaty. By ROBERT M. GATES
The treaty has the unanimous support of America's military leadership.
WSJ, May 13, 2010

I first began working on strategic arms control with the Russians in 1970, an effort that led to the first Strategic Arms Limitation Agreement with Moscow two years later.

The key question then and in the decades since has always been the same: Is the United States better off with an agreement or without it? The answer for each successive president has always been "with an agreement." The U.S. Senate has always agreed, approving each treaty by lopsided, bipartisan margins.

The same answer holds true for the New START agreement: The U.S. is far better off with this treaty than without it. It strengthens the security of the U.S. and our allies and promotes strategic stability between the world's two major nuclear powers. The treaty accomplishes these goals in several ways.

First, it limits significantly U.S. and Russian strategic nuclear arsenals and establishes an extensive verification regime to ensure that Russia is complying with its treaty obligations. These include short-notice inspections of both deployed and nondeployed systems, verification of the numbers of warheads actually carried on Russian strategic missiles, and unique identifiers that will help us track—for the very first time—all accountable strategic nuclear delivery systems.

Since the expiration of the old START Treaty in December 2009, the U.S. has had none of these safeguards. The new treaty will put them back in place, strengthen many of them, and create a verification regime that will provide for greater transparency and predictability between our two countries, to include substantial visibility into the development of Russian nuclear forces.

Second, the treaty preserves the U.S. nuclear arsenal as a vital pillar of our nation's and our allies' security posture. Under this treaty, the U.S. will maintain our powerful nuclear triad—ICBMs, submarine launched ballistic missiles (SLBMs) and bombers—and we will retain the ability to change our force mix as we see fit. Based on recommendations of the Joint Chiefs of Staff, we plan to meet the Treaty's limits by retaining a triad of up to 420 ICBMs, 14 submarines carrying up to 240 SLBMs, and up to 60 nuclear-capable heavy bombers.

Third, and related, the treaty is buttressed by credible modernization plans and long-term funding for the U.S. nuclear weapons stockpile and the infrastructure that supports it. This administration is proposing to spend $80 billion over the next decade to rebuild and sustain America's aging nuclear infrastructure—especially our national weapons labs, and our science, technology and engineering base. This week the president is providing a report to the Congress on investments planned over the next 10 years to sustain and modernize our nuclear weapons, their delivery systems, and supporting infrastructure.

Fourth, the treaty will not constrain the U.S. from developing and deploying defenses against ballistic missiles, as we have made clear to the Russian government. The U.S. will continue to deploy and improve the interceptors that defend our homeland—those based in California and Alaska. We are also moving forward with plans to field missile defense systems to protect our troops and partners in Europe, the Middle East, and Northeast Asia against the dangerous threats posed by rogue nations like North Korea and Iran.

Finally, the treaty will not restrict America's ability to develop and deploy conventional prompt global strike capabilities—that is, the ability to hit targets anywhere in the world in less than an hour using conventional explosive warheads fitted to long-range missiles.

These delivery systems—be they land or sea based—would count against the new treaty limits, but if we deploy them it would be in very limited numbers. We are currently assessing other kinds of long-range strike systems that would not count under the treaty.

The New START Treaty has the unanimous support of America's military leadership—to include the chairman of the Joint Chiefs of Staff, all of the service chiefs, and the commander of the U.S. Strategic Command, the organization responsible for our strategic nuclear deterrent. For nearly 40 years, treaties to limit or reduce nuclear weapons have been approved by the U.S. Senate by strong bipartisan majorities. This treaty deserves a similar reception and result—on account of the dangerous weapons it reduces, the critical defense capabilities it preserves, the strategic stability it maintains, and, above all, the security it provides to the American people.

Mr. Gates is secretary of defense.

Press Briefing

May 13, 2010

Gender-Based Violence Must Be Addressed in Fight Against HIV/AIDS
http://blogs.state.gov/sgwi/index.php/site/entry/gbv_aids

The Struggle for Mastery of the Pacific, by Yuriko Koike
http://www.project-syndicate.org/commentary/koike5/English

Can We Avoid Becoming Europe?
http://blog.heritage.org/2010/05/13/morning-bell-can-we-avoid-becoming-europe

Remarks At the 40th Washington Conference on the Americas. By Hillary Rodham Clinton, State Sec.
Loy Henderson Auditorium, Washington, DC, May 12, 2010
http://www.state.gov/secretary/rm/2010/05/141760.htm

Presidential Memorandum--Oil Supplemental Package
http://www.whitehouse.gov/the-press-office/presidential-memorandum-oil-supplemental-package

Autonomous Car Learns To Powerslide Into Parking Spot
http://spectrum.ieee.org/automaton/green-tech/advanced-cars/autonomous-car-learns-to-powerlslide-into-parking-spot

CPSS and IOSCO consult on policy guidance for central counterparties and trade repositories in the OTC derivatives market. May 12, 2010
http://www.bis.org/press/p100512.htm

Ermakova’s findings defy logic: Feeding Roundup Ready soy doesn’t result in infant mortality
http://academicsreview.org/reviewed-content/genetic-roulette/section-1/1-14-roundup-ready-soy-is-safe-5/

The Case for the New START Treaty - The treaty has the unanimous support of America's military leadership. By Robert M Gates, Defense Secretary
http://www.bipartisanalliance.com/2010/05/case-for-new-start-treaty-by-secretary.html

What's Happening to Faisal Shahzad? - The lack of a court appearance suggests prosecutors are getting information. But they shouldn't have to improvise.
http://online.wsj.com/article/SB10001424052748704250104575238620455479284.html

Notable & Quotable - Jacob Sullum and Michael Barone on Supreme Court nominee Elena Kagan
http://online.wsj.com/article/SB10001424052748703339304575240291154629742.html

Washington's Bungling Auto Engineers - Congress is designing everything from the braking system in your next car to the loan with which you'll finance it. Be very afraid.
http://online.wsj.com/article/SB10001424052748703880304575236373875947794.html

Obama's Kagan Admission - Confirmation and double standards
http://online.wsj.com/article/SB10001424052748703339304575240573955534404.html

Surveillance and Shahzad - Are wiretap limits making it harder to discover and pre-empt jihadists?
http://online.wsj.com/article/SB10001424052748704250104575238444182924962.html

The Treasury-Financial Complex - The Dodd bill is perfectly designed to create the largest and most powerful crony system in history
http://online.wsj.com/article/SB10001424052748704250104575238841836433282.html


The We're-Not-Europe Party - The bill comes due for a life of fairness at the expense of growth
http://online.wsj.com/article/SB10001424052748703339304575240591350076252.html

Remarks by the First Lady at National Military Family Association Summit
http://www.whitehouse.gov/the-press-office/remarks-first-lady-national-military-family-association-summit

Senator Kerry and Lieberman release their new energy tax bill
http://www.instituteforenergyresearch.org/2010/05/12/senator-kerry-and-lieberman-release-their-new-energy-tax-bill/

White House Task Force Hops on Activist Bandwagon - Obesity link to plastics!
http://www.acsh.org/factsfears/newsID.1425/news_detail.asp

Additional Information on the Potential Discretionary Costs of Implementing the Patient Protection and Affordable Care Act (PPACA)
http://www.cbo.gov/ftpdocs/114xx/doc11493/Additional_Information_PPACA_Discretionary.pdf

Statement by President Obama on Financial Reform
http://www.whitehouse.gov/the-press-office/statement-president-obama-financial-reform

No-More-Bailouts Bill Springs a Leak: Fannie and Freddie Ask for More
http://blog.heritage.org/2010/05/10/no-more-bailouts-bill-springs-a-leak-fannie-and-freddie-ask-for-more

How Badly Will the Democrats Do? - Rove on a few trends to watch ahead of November.
http://digs.by/adCGy3

The Price of Wind - The 'clean energy revolution' is expensive

The Price of Wind. WSJ Editorial
The 'clean energy revolution' is expensive
WSJ, May 12, 2010

The ferocious opposition from Massachusetts liberals to the Cape Wind project has provided a useful education in green energy politics. And now that the Nantucket Sound wind farm has won federal approval, this decade-long saga may prove edifying in green energy economics too: Namely, the price of electricity from wind is more than twice what consumers now pay.

On Monday, Cape Wind asked state regulators to approve a 15-year purchasing contract with the utility company National Grid at 20.7 cents per kilowatt hour, starting in 2013 and rising at 3.5% annually thereafter. Consumers pay around nine cents for conventional power today. The companies expect average electric bills to jump by about $1.59 a month, because electricity is electricity no matter how it is generated, and Cape Wind's 130 turbines will generate so little of it in the scheme of the overall New England market.

Still, that works out to roughly $443 million in new energy costs, and that doesn't count the federal subsidies that Cape Wind will receive from national taxpayers. It does, however, include the extra 6.1 cents per kilowatt hour that Massachusetts utilities are mandated to pay for wind, solar and the like under a 2008 state law called the Green Communities Act. Also under that law, at least 15% of power company portfolios must come from renewable sources by 2020.

Two weeks ago, U.S. Interior Secretary Ken Salazar approved Cape Wind, placing it in the vanguard of "a clean energy revolution." A slew of environmental and political outfits have since filed multiple lawsuits for violations of the Endangered Species Act, the National Environmental Policy Act, the Outer Continental Shelf Lands Act, certain tribal-protection laws, the Clean Water Act, the Migratory Bird Treaty Act and the Rivers and Harbors Act.

There's comic irony in this clean energy revolution getting devoured by the archaic regulations of previous clean energy revolutions. But given that taxpayers will be required to pay to build Cape Wind and then required to buy its product at prices twice normal rates, opponents might have more success if they simply pointed out what a lousy deal it is.

Press Briefing

May 12, 2010

Egypt's Renewal of State of Emergency. By Hillary Rodham Clinton, Secretary of State. Washington, DC, May 11, 2010
http://www.state.gov/secretary/rm/2010/05/141736.htm


Club-K Container Missile System - See video
http://blog.heritage.org/2010/05/11/video-the-very-real-short-range-missile-threat-obama-is-ignoring

How to Prevent Another Trading Panic - The SEC should require price limits for sell orders
http://online.wsj.com/article/SB10001424052748703880304575236303198364676.html

Pennsylvania Kids Deserve School Choice - Bad public schools hurt poor and rural children the most. By Anthony H Williams, state senator from Pennsylvania and a candidate in the May 18 Democratic primary for governor.
http://online.wsj.com/article/SB10001424052748704448304575196191596419272.html

The Minnesota Prelude - Land of 10,000 tax increases
http://online.wsj.com/article/SB10001424052748704250104575238213436787960.html

OTC derivatives market activity in the second half of 2009
http://www.bis.org/press/p100511.htm

Finally, a passing grade in DC
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/11/AR2010051104207.html

Myths of Cap-and-Trade and Clean Energy Policies
http://www.instituteforenergyresearch.org/2010/05/11/myths-of-cap-and-trade-and-clean-energy-policies/

Microsoft gets more aggressive with free software
http://www.japantoday.com/category/technology/view/microsoft-gets-more-aggressive-with-free-software

Deadly Rotavirus Vs. Harmless Pig Virus
http://www.acsh.org/factsfears/newsID.1422/news_detail.asp

The Price of Wind - The 'clean energy revolution' is expensive
http://www.bipartisanalliance.com/2010/05/price-of-wind-clean-energy-revolution.html

Fannie the Unreformable - Democrats leave Chris Dodd alone to defend the indefensible.
http://online.wsj.com/article/SB10001424052748704250104575238641146885632.html

Press Briefing by Press Secretary Robert Gibbs and FEMA Administrator Craig Fugate
http://www.whitehouse.gov/the-press-office/press-briefing-press-secretary-robert-gibbs-and-fema-administrator-craig-fugate

Extend the Bush Tax Cuts—For Now —— Deficits are a real problem but the recovery is still too fragile to choke off growth with higher rates
http://online.wsj.com/article/SB10001424052748704370704575228123196462504.html

Shahzad and the Pre-9/11 Paradigm - In the 1990s we mocked the ineptness of jihadists and were confident civilian courts could handle them. Look where that got us.
http://www.bipartisanalliance.com/2010/05/shahzad-and-pre-911-paradigm-in-1990s.html

On Elena Kagan: "She is certainly a fan of presidential power." By Radley Balko
http://reason.com/blog/2010/05/10/she-is-certainly-a-fan-of-pres

Our Unsustainable Debt, by Veronique de Rugy - America is on the verge of financial disaster
http://reason.com/archives/2010/05/11/our-unsustainable-debt

Side Effects: Higher Premiums from Adult “Children” on Parents’ Health Plans
http://blog.heritage.org/2010/05/11/side-effects-higher-premiums-from-adult-children-on-parents-health-plans/

Side Effects: Get Ready to Lose Your Doctor
http://blog.heritage.org/2010/05/10/side-effects-get-ready-to-lose-your-doctor

Side Effects: Let the Employer Penalties Begin
http://blog.heritage.org/2010/05/04/side-effects-let-the-employer-penalties-begin

Side Effects: Physician-Owned Hospitals Face New Regulations, Limits on Growth
http://blog.heritage.org/2010/05/06/side-effects-physician-owned-hospitals-face-new-regulations-limits-on-growth

Will the Obama administration enable more of Hosni Mubarak's autocracy?
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/11/AR2010051104204.html

Shahzad and the Pre-9/11 Paradigm - In the 1990s we mocked the ineptness of jihadists and were confident civilian courts could handle them

Shahzad and the Pre-9/11 Paradigm. By MICHAEL B. MUKASEY
In the 1990s we mocked the ineptness of jihadists and were confident civilian courts could handle them. Look where that got us.
WSJ, May 12, 2010

Some good news from the attempted car bombing in Times Square on May 1 is that—at the relatively small cost of disappointment to Broadway theater-goers—it teaches valuable lessons to help deal with Islamist terrorism. The bad news is that those lessons should already have been learned.

One such lesson has to do with intelligence gathering. Because our enemies in this struggle do not occupy a particular country or location, intelligence is our only tool for frustrating their plans and locating and targeting their leaders. But as was the case with Umar Faruk Abdulmutallab, who tried to detonate a bomb aboard an airplane over Detroit last Christmas Day, principal emphasis was placed on assuring that any statements Faisal Shahzad made could be used against him rather than simply designating him an unlawful enemy combatant and assuring that we obtained and exploited any information he had.

On Sunday, Attorney General Eric Holder said that in regard to terrorism investigations he supports "modifying" the Miranda law that requires law enforcement officials to inform suspects of their rights to silence and counsel. But his approach—extension of the "public safety exemption" to terror investigations—is both parsimonious and problematic. The public safety exemption allows a delay in Miranda warnings until an imminent threat to public safety—e.g., a loaded gun somewhere in a public place that might be found by a child—has been neutralized. In terror cases it is impossible to determine when all necessary intelligence, which in any event might not relate to an imminent threat, has been learned.

The lesson from our experience with Abdulmutallab, who stopped talking soon after he was advised of his rights and did not resume for weeks until his family could be flown here to persuade him to resume, should have been that intelligence gathering comes first. Yes, Shahzad, as we are told, continued to provide information even after he was advised of his rights, but that cooperation came in spite of and not because of his treatment as a conventional criminal defendant.

Moreover, once Shahzad cooperated, it made no more sense with him than it did with Abdulmutallab to publicize his cooperation and thereby warn those still at large to hide and destroy whatever evidence they could. The profligate disclosures in Shahzad's case, even to the point of describing his confession, could only hinder successful exploitation of whatever information he provided.

The Shahzad case provides a reminder of the permanent harm leaks of any kind can cause. An Associated Press story citing unnamed law enforcement sources reported that investigators were on the trail of a "courier" who had helped provide financing to Shahzad.

A courier would seem oddly out of place in the contemporary world where money can be transferred with the click of a mouse—that is, until one recalls that in 2006 the New York Times disclosed on its front page a highly classified government program for monitoring electronic international money transfers through what is known as the Swift system.

That monitoring violated no law but was leaked and reported as what an intelligence lawyer of my acquaintance referred to as "intelliporn"—intelligence information that is disclosed for no better reason than that it is fun to read about, and without regard for the harm it causes. Of course, terrorists around the world took note, and resorted to "couriers," making it much harder to trace terrorist financing.

In the hours immediately following the discovery and disarming of the car bomb, media outlets and public figures fell all over themselves to lay blame as far as possible from where it would ultimately be found. Secretary of Homeland Security Janet Napolitano suggested the incident was entirely isolated and directed her agency's personnel to stand down. New York Mayor Michael Bloomberg sportingly offered to wager a quarter on the proposition that the bomb was the work of a solitary lunatic, perhaps someone upset over passage of the health-care bill, and much merriment was had over how primitive the bomb had been and how doomed it was to fail.

This sort of reaction goes back much further than this administration. Consider the chain of events leading to the 1993 World Trade Center bombing and eventually 9/11.

In November 1990, Meir Kahane, a right-wing Israeli politician, was assassinated after delivering a speech at a Manhattan hotel by El-Sayid Nosair, quickly pigeonholed as a lone misfit whose failures at work had driven him over the edge. The material seized from his home lay largely unexamined in boxes until a truck bomb was detonated under the World Trade Center in 1993, when the perpetrators of that act announced that freeing Nosair from prison was one of their demands.

Authorities then examined the neglected boxes and found jihadi literature urging the attacks on Western civilization through a terror campaign that would include toppling tall buildings that were centers of finance and tourism. An amateur video of Kahane's speech the night he was assassinated revealed that one of the 1993 bombers, Mohammed Salameh, was present in the hall when Nosair committed his act, and the ensuing investigation disclosed that Nosair was supposed to have made his escape with the help of another, Mahmoud Abouhalima, who was waiting outside at the wheel of a cab.

Nosair jumped into the wrong cab and the terrified driver pulled over and ducked under the dashboard, at which point Nosair tried to flee on foot and was captured. Salameh was captured when the vehicle identification number on the truck that carried the bomb led investigators to a rental agency, where he showed up days later to try to retrieve the deposit on the truck so that he could finance his escape.

Despite the toll from the first World Trade Center blast—six killed, hundreds injured, tens of millions of dollars in damage—and the murder of Kahane, much sport was made of how inept the perpetrators were.

Nosair and the 1993 Trade Center bombers were disciples of cleric Omar Abdel Rahman, known as the "blind sheikh," who was tried and convicted in 1995 along with nine others for conspiring to wage a war of urban terror that included not only that bombing and the Kahane assassination but also a plot to bomb simultaneously the Holland and Lincoln Tunnels, the George Washington Bridge and the United Nations.

One of the unindicted co-conspirators in that case was a then-obscure Osama bin Laden, who would declare in 1996 and again in 1998 that militant Islamists were at war with the United States. In 1998, his organization, al Qaeda, arranged the near-simultaneous bombing of American Embassies in Kenya and Tanzania.

Despite the declaration of war and the act of war, the criminal law paradigm continued to define our response. Along with immediate perpetrators, and some remote perpetrators including Khalid Sheikh Mohammed, bin Laden was indicted, and the oft-repeated vow to "bring them to justice" was repeated. Unmoved, and certainly undeterred, bin Laden in 2000 unleashed the attack in Yemen on the destroyer USS Cole, killing 17.

That was followed by Sept. 11, 2001, and it appeared for a time that Islamist fanaticism would no longer be greeted with condescending mockery. To the phrase "bring them to justice" was added "bring justice to them." The country appeared ready to adopt a stance of war, and to be ready to treat terrorists as it had the German saboteurs who landed off Long Island and Florida in 1942—as unlawful combatants under the laws of war who were not entitled to the guarantees that the Constitution grants to ordinary criminals.

There have been more than 20 Islamist terrorist plots aimed at this country since 9/11, including the deadly shooting by U.S. Army Maj. Nidal Hasan, those of Abdulmutallab and Shahzad, and those of Najibullah Zazi and his cohorts, Bryant Neal Vinas and his, against commuter railroads and subways in New York; of plotters who targeted military personnel at Fort Dix, N.J., Quantico, Va., and Goose Creek, S.C., and who murdered an Army recruiter in Little Rock, Ark.; of those who planned to blow up synagogues in New York, an office building in Dallas, and a courthouse in Illinois, among others.

Yet the pre-9/11 criminal law paradigm is again setting the limit of Attorney General Holder's response, even to the point of considering the inapposite public safety exception to Miranda as a way to help intelligence gathering. He continues to press for a civilian trial for Khalid Sheikh Mohammed and others who had long since been scheduled to be tried before military commissions.

A significant lesson lurking in Shahzad's inadequacy, and the history that preceded it, is that one of the things terrorists do is persist. Ramzi Yousef's shortcomings in the first attempt to blow up the World Trade Center were made up for by Khalid Sheikh Mohammed. We should see to the good order of our institutions and our attitudes before someone tries to make up for Faisal Shahzad's shortcomings.

Mr. Mukasey was attorney general of the United States from 2007 to 2009.

Press Briefing

May 11, 2010

EIA's Annual Energy Outlook 2010
http://www.eia.doe.gov/oiaf/aeo/index.html

US Missile Defense and Regional Security. By Frank A. Rose, Deputy Assistant Secretary, Bureau of Verification, Compliance, and Implementation. Remarks At the First Annual Israel Multinational Ballistic Missile Defense Conference. Tel Aviv, Israel, May 5, 2010
http://www.state.gov/t/vci/rls/141673.htm

What’s Worse Than Energy Taxes? Renewable Electricity Standards
http://blog.heritage.org/2010/05/11/morning-bell-whats-worse-than-energy-taxes-renewable-electricity-standards

$145 Billion and Counting - Fannie and Freddie lose it all for you
http://online.wsj.com/article/SB10001424052748703880304575236270385307174.html

Kagan and the Military: What Really Happened - As dean, she upheld a policy already in place
http://online.wsj.com/article/SB10001424052748703880304575236502953055276.html

The World's Dollar Drug - Expect the greenback to remain the world's reserve currency, but that won't be a sign of U.S. strength
http://online.wsj.com/article/SB10001424052748704342604575222701291563876.html

K[G]L 101: A Glossary of Terms
http://www.instituteforenergyresearch.org/2010/05/10/kgl-101-a-glossary-of-terms/

Rats fed Roundup Ready Soy —no effect on pancreas
http://academicsreview.org/reviewed-content/genetic-roulette/section-1/1-11roundup-ready-soy-is-safe-2/

Purposes and Principles of US Engagement in Burma, by Kurt M. Campbell, Assistant Secretary, Bureau of East Asian and Pacific Affairs. Rangoon, Burma, May 10, 2010
http://www.state.gov/p/eap/rls/rm/2010/05/141669.htm

Defending Freedom Is a Choice, by Kim R. Holmes, Ph.D. Heritage Foundation, May 3, 2010
http://www.heritage.org/Research/Reports/2010/05/Defending-Freedom-Is-a-Choice

A Renewable Electricity Standard: What It Will Really Cost Americans. By David Kreutzer, Ph.D., Karen Campbell, Ph.D., William Beach, Ben Lieberman and Nicolas Loris. Heritage Foundation, May 5, 2010
http://www.heritage.org/Research/Reports/2010/05/A-Renewable-Electricity-Standard-What-It-Will-Really-Cost-Americans

Press Briefing

May 10, 2010

http://digs.by/cgspol Remarks at the East-West Center's 50th Anniversary Celebration, by Judith A. McHale, Undersecretary for Public Diplomacy and Public Affairs. Capital Hilton Hotel, Washington, DC, May 6, 2010

http://digs.by/bdNTtP One of the Nation's Leading Legal Minds: The President Nominates Elena Kagan for the Supreme Court

http://digs.by/ccFPg5 Kagan Nomination Launches Constitutional Debate + http://digs.by/9HoCRb Supreme Court Nominee Elena Kagan

http://digs.by/b4eau0 Five Reasons Not to Support a Bailout of Greece

http://digs.by/cr09j1 The Carbon Recession - CO2 emissions plunge, along with the economy. Washington rejoices

http://www.bipartisanalliance.com/2010/05/euros-tribulations-dont-blame-single.html The Euro's Tribulations - Don't blame the single currency for the failures of Keynesian economics

http://digs.by/alQbF1 The FCC vs. Broadband Investors - The last thing Internet entrepreneurs need is a new period of regulatory uncertainty

http://digs.by/drVDrs Corporate governance: much better job than they get credit for, but here are a few suggestions for improvement

http://digs.by/dfMg6B Weekly Address: President Obama Praises the Benefits and Successes of Health Reform Already in Effect

http://digs.by/dBb9JN ObamaCare's Phony Medicaid 'Deal' - The new health law unconstitutionally coerces the states.

http://digs.by/91RSgh The Euro's Tribulations - Don't blame the single currency for the failures of Keynesian economics

http://digs.by/bFfSuO Arizona's Real Problem: Drug Crime - Violence in the border is not committed by migrant laborers.

http://digs.by/bNbJdi Islam's Nowhere Men-- Millions like Faisal Shahzad are unsettled by a modern world they can neither master nor reject

The Euro's Tribulations - Don't blame the single currency for the failures of Keynesian economics

The Euro's Tribulations. WSJ Editorial
Don't blame the single currency for the failures of Keynesian economics.WSJ, Monday,May 10, 2010

Twelve years ago, economist Robert Mundell wrote a series of articles in these pages under the headline, "The Case for the Euro," touting the benefits of the single European currency due in 1999. The subsequent decade exceeded the rosiest scenarios set out by the "father of the euro." Sixteen countries came to enjoy prosperity and stability in the world's second most successful zone of sound money and free commerce (after the U.S.).

This year, the party has come to a crashing halt with Greece's financial meltdown, and one consequence has been a run on confidence in the euro. Last week, as the European Union and International Monetary Fund approved a €110 billion rescue and the Greeks adopted an austerity package, the euro tumbled to 14-month lows.

The euro will be tested in the coming months and years by policy makers and markets. The challenges ahead include continued economic weakness, particularly across a Mediterranean flirting with insolvency from Greece to Portugal, political tensions and calls to winnow euroland to the strong economies, or to shelve the euro altogether.

Europe's unprecedented monetary union can no doubt be improved, but its benefits in economic efficiency and monetary discipline should not be ignored, much less tossed away at the first serious challenge. It's also important to understand that the single currency is the scapegoat du jour for a crisis whose real causes are inconvenient for the political class.
***

In one anti-euro corner are weak-money neo-Keynesians. Greece was their model pupil, spending its way to supposedly drive growth. But when the time came to pay the piper, the lament now heard from Paul Krugman and elsewhere is that the Greeks are unjustly shackled by the euro. Take back national control over monetary policy and the EU's weak economies can once again devalue their way out of trouble. Blaming the euro for the failures of Keynesianism sets a new standard for chutzpah, and this prescription would debase not only the currencies but the middle class for a generation.

Then there's the idea to save the euro by creating a European super-state to set economic policy, harmonize taxes and ease transfers from rich countries to the poor. George Soros stands in this camp, as does prominent German central banker Otmar Issing, who earlier this year wrote that "starting monetary union without having established a political union was putting the cart before the horse." This is really a call for imposing on all countries the welfare state agenda that got Europe into this jam in the first place.

Before offering cures, let's diagnose the Greek disease properly. Joining the euro gave the poorer southern EU countries a perfect opportunity to "pull up their socks," in Professor Mundell's words. Some, like Italy and Spain, did so for a while. But sitting pretty inside the euro club, many politicians took the foot off the pedal of unpopular reforms, such as liberalizing labor codes or lowering costs to business.

Greek politicians in particular lived beyond their means and put much of this spending, in Wall Street parlance, off their balance sheet. The euro did enable bad habits by letting Greece borrow at German interest rates. This postponed the day of reckoning for the failures of reform, until a new Athens government last year came clean about the lies and the mess. But don't blame a currency for irresponsible leadership.

Europe isn't experiencing a currency crisis. It is a debt crisis driven by overborrowing, large and inefficient government, and insufficient economic growth. Some of the sickest countries use the euro as their legal tender, but others don't. Iceland, Latvia, Romania and Hungary were all forced into the arms of the IMF, though none of them is in the euro zone. Britain is also outside the euro bloc but is facing its own day of debt reckoning.

Iceland is a sobering might-have-been for the Greeks. The small Arctic island's financial crisis was compounded by a currency crisis. It's now fast-tracking an application to join the EU and the euro. The Icelanders understand that small countries with shallow capital markets are most vulnerable to currency volatility in a world of floating exchange rates.

Before Greece or Portugal seriously consider bringing back the drachma and escudo, and devaluing their way out of trouble, recall that Argentina took this advice in late 2001. Dropping its dollar peg, the Argentines beggared their people and avoided policy changes. They ended up defaulting and continue to fall behind Brazil and Chile.

The Greeks can leave the euro if they prefer, and neither Berlin nor Brussels would spill many tears. But the costs of dropping out would be substantial. The bulk of Greek financial contracts are in euros. Were a reconstituted drachma devalued by 50%, the public debt to GDP ratio would essentially double—in Greece's case to well over 200% of GDP. Our guess is that the Greeks restructure their debts or default before they drop out of the single currency.
***

While not the cause of this crisis, the euro has been tarnished by it. Greece's Madoff-like bookkeeping broke the mutual trust that is essential to any monetary compact, and this will take time to restore.

Shortcomings in the rules governing the euro zone were evident long before this crisis, and they now need to be addressed. In one of his 1998 Journal articles, Mr. Mundell wrote that the rules on fiscal deficits and public debts in the Stability and Growth Pact—adopted by euro-zone countries to govern the single currency—needed bite to guard against the obvious free-rider problem: Countries would be tempted to take advantage of a colossal and low-interest bond market believing that "when the chips are down the union will act as lender of last resort." He essentially predicted the problems of Greece and the proposed EU-IMF bailout.

Fines were decreased and the stability pact was never seriously enforced. Germany and France, which pushed hardest for strict penalties, were the first to break the rules without suffering any consequences. Five years ago, Berlin and Paris shot down the European Commission's proposal to oversee national statistical agencies to safeguard against Greek-like cheating.

On Tuesday, the Commission plans to unveil proposals on closer surveillance of euro-zone budgets. Next it should restore some teeth to the stability pact. These modest steps won't excite euro federalists as much as a grand and unrealistic political union, but they might do some actual good.
***

The future of the euro in the next decade depends on the will of European politicians. First the beggar-thy-currency crowd must be ignored. The European Central Bank has, at least so far, been a bulwark against such talk. On the other hand, the EU's decision to create a "bailout fund" tells creditors and borrower governments alike that they will always be rescued, increasing moral hazard and the odds of another crisis. If asked to foot the bill again, unhappy German or Dutch taxpayers may decide the euro isn't worth the price and themselves push for its dissolution.

Above all, the euro will thrive only if Europe thrives. Austerity plans intended to stem the fiscal hemorrhaging are no substitute for policies to promote growth. Should Europe use this crisis to make itself more competitive and rein in the welfare state, the Continent would be even better placed to take advantage of a huge single market underpinned by a stable currency and low inflation. And if that were to happen, the second decade of the euro could turn out to be better than the first.

Press Briefing

May 07, 2010

http://bit.ly/a816l3 Yuriko Koike: How to Undermine an Alliance

http://digs.by/bz8N5M Future Nuclear Arms Control and Nonproliferation: New START and Beyond, by Rose Gottemoeller, Assistant Secretary, Bureau of Verification, Compliance, and Implementation. Remarks at National Defense University, Center for the Study of Weapons of Mass Destruction 10th Annual Symposium. Washington, DC, May 5, 2010

http://digs.by/9uXyU7 Sergei Karaganov: The Dangers of Nuclear Disarmament

http://digs.by/cLRm3d The Next Capital Insurgency- In 1978 Jimmy Carter signed a cap gains cut to lift a sagging economy.

http://digs.by/dkxApG History is littered with tales of men who turned to violence because of bad real-estate investments

http://digs.by/aSKNOB Julius Caesar of the Internet - The FCC puts another industry under political control

http://digs.by/9rhbN8 At Last, More Jobs - The latest jobs report

http://digs.by/bcdSoY Moms to the Barricades - 'The tea parties are an extension of our need to protect the future for our children.'

http://digs.by/c0swOd The Markets Have Good Reasons To Be Nervous - Nobody will trust the euro like they used to.

http://digs.by/dvaCvj Cancer and the Environment

http://digs.by/a68PnA Deepwater Horizon - Focus on Cleanup, Not Politics

Derivatives Clearinghouses Are No Magic Bullet - Another kind of institution that's too big to fail?

Derivatives Clearinghouses Are No Magic Bullet. By MARK J. ROE
Will the Dodd bill create another kind of institution that's too big to fail?WSJ, May 06, 2010

As the Senate finalizes its financial reform legislation, a consensus is developing that if we could just get derivatives traded through a centralized clearinghouse we could avoid a financial crisis like the one we just went through. This is false. Clearinghouses provide efficiencies in transparency and trading, but they are no cure-all. They can even exacerbate problems in a financial crisis.

If I agree to sell you a product next month through a clearinghouse, I'll deliver the product to the clearinghouse and you'll deliver the cash to the clearinghouse on the due date. Let's say we both have many trades going through the clearinghouse and we've posted collateral to cover any single trade that fails. This is more efficient than each of us posting collateral privately for each trade. Moreover, we're not worried that I won't deliver or you won't pay because we both count on the clearinghouse to deliver and pay up if one of us doesn't.

This clearing system makes trading more efficient. If you default, the cost is spread through the clearinghouse so I don't get hurt severely. And if the clearinghouse has enough collateral from you, there's no loss to spread. But there's also a potential downside: The clearinghouse reduces our incentives to worry about counterparty risk. Your business might collapse before you need to pay up, but that's not my problem because the clearinghouse pays me anyway. The clearinghouse weakens private market discipline.

Still, if the clearinghouse is as good or better at checking up on your creditworthiness as I am, all will be well. But one has to wonder how good a clearinghouse will be, or can be.

Consider two of our biggest derivatives-related failures—Long-Term Capital Management in 1998 and the subprime market in 2008. When Russia's ruble dropped unexpectedly, LTCM was exposed on its more than $1 trillion in interest-rate and foreign-exchange derivatives. It could not pay up and collapsed. Ten years later the market rapidly revalued subprime mortgage securities, rendering several institutions insolvent. AIG was over-exposed in credit default swaps tied to the value of subprime mortgages.

Could a clearinghouse really have been ahead of the curve in getting sufficient capital posted before these problems became serious and well-known? I'm not so sure. Worse yet, major types of derivatives have built-in discontinuities—"jump-to-default" in derivatives-speak.

For a credit default swap, one counterparty guarantees the debt of another company to you, in return for you paying a fee for that guarantee. If no one goes bankrupt, the counterparty just collects the fees from you. But if the guarantee is called because the company you were worried about goes bankrupt, the counterparty must all of a sudden pay out a huge amount immediately.

Yet the guarantor is often called upon to pay in a weak economy, just when it can itself be too weak to pay. You get credit default protection on your real-estate investments from me, just in case the economy turns sour. But just when you need me the most, in a sour economy, I turn out to be so overextended I can't pay up. Collateralizing and monitoring such discontinuous obligations will not be so easy for the clearinghouse.

Moreover, if trillions of dollars of derivatives trading goes through a clearinghouse, we will have created another institution that's too big to fail. Regulators worried that an interconnected Bear or AIG could drag down the economy. Imagine what an interconnected clearinghouse's failure could do.

AIG needed $85 billion in government cash to avoid defaulting on its debts, including its derivatives obligations. Could one clearinghouse meet even a fraction of that call without backup from the U.S.? True, we could have many clearinghouses, each not too big to fail—but then maybe each would be too small to do enough good.

The Senate bill would allow a clearinghouse to grab new collateral out from failing derivatives-trading banks to cover old, but suddenly toxic, debts the banks owe to the clearinghouse. This could harm other creditors and cause the firm to suffer a run. Nevertheless, to protect itself in a declining market, a clearinghouse would have to make those big collateral calls. That's good if it protects the clearinghouse. But it's bad if it starts a run on a weakened but important bank.

One key but missing element in the search for reform has yet to gain traction in Washington. Derivatives players obtained exceptions from typical bankruptcy and bank resolution rules in the past few decades for their contracts with a bankrupt counterparty. This allowed them to grab and keep collateral other creditors cannot. That gives derivatives traders reason to pay less attention to their counterparties' riskiness and weakens market discipline. These rules should be changed before the Senate is done.

To say that a clearinghouse solution is very incomplete is not to say there is an easy solution out there. We may be unable to do more than to make incomplete improvements and muddle through.

Derivatives trades first of all should not just be centrally cleared, but should also be taken out from the government-guaranteed entities, such as commercial banks (or at least we need to impose tight capital requirements on those banks that deal in derivatives). Derivatives traders like doing business with Citibank because they know the government won't let Citibank go down. But this puts taxpayers at risk. It would be better to run those trades through an affiliate, not through the bank, so counterparties realize they might not be bailed out if the affiliate failed. If a banking affiliate's counterparty is the clearinghouse, then the clearinghouse will have incentives to make sure that the affiliate is well-capitalized. This is particularly so if the clearinghouse won't get any special priority treatment in a bankruptcy.

Critics of proposals to establish separate bank affiliates for derivatives trading complain about the large amount of capital that would be needed for such affiliates. But the capital that might be needed to buttress a bank affiliate indicates some level of the value (i.e., the taxpayer subsidy) to derivatives players of trading with a too-big-to-fail entity that they know the government will step in to save. They are implicitly getting insurance and should pay for it.

And, since a clearinghouse is itself at risk of being too big to fail, regulators need to police its capital and collateral requirements. If the derivatives market sees the clearinghouse as too big to fail, the potential for derivatives players making overly risky derivatives trades becomes real. Clearinghouses can help manage some systemic risk if they're run right. If not, they can become the Fannie and Freddie of the next financial meltdown.

Mr. Roe is a professor at Harvard Law School, where he teaches bankruptcy and corporate law.

Time to Junk the Corporate Tax

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.

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.

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.