Cato Recent Op-eds

Fuel Standards Are Killing GM by Alan Reynolds

Wed, 01 Jul 2009 23:00:00 CDT

General Motors can survive bankruptcy far more easily than it can survive President Barack Obama's ambitious fuel economy standards, which mandate that all new new vehicles average 35.5 miles per gallon by 2016.

The actual Corporate Average Fuel Economy (CAFE) results will depend on the mixture of fuel-thrifty and fuel-thirsty vehicles consumers choose to buy from each manufacturer — not on what producers hope to sell. That means only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

Sales of Toyota's Prius, Yaris, Corolla and Scion, for example, allow and encourage Toyota to market more Lexus 460s, Sequoia SUVs and Tundra pickups in the U.S. without incurring fines. Hyundai's success selling Accent and Elantra compacts allows it to sell 368-horsepower Genesis sedans.

Similarly, Ford has the Toyota-licensed hybrid Fusion and will soon produce the European Ford Fiesta in Mexico. Chrysler will soon have Fiats. But what does GM have?

No independent reviewer suggests that the Chevy Aveo and Cobalt are credible contenders in the small car field. Even the president's auto task force finds the electric Chevy Volt "unviable," since it will lose money unless priced above a Cadillac CTS. The Opel-engineered 2011 Chevy Cruze will face tough competition from Asian cars whose reliability is better established. Launching such new models will be even tougher in the future, now that GM has lost control of Opel.

GM accounted for about 19% of vehicle sales so far this year, but the company had a much smaller share of the market for small cars and SUVs (which accounted for 20% of total sales through May). To continue offering a Toyota-like array of larger cars and trucks under ever-tighter CAFE rules, GM would have to capture a much larger share of the market for small and/or diesel-powered vehicles. Unfortunately, European and Asian car makers have decades more experience building reliable subcompact cars and diesel engines for their local markets — where consumers face steep taxes on gasoline and large engines.

General Motors does produce competitive cars and trucks, but not one of them is small. Consumer Reports recommends three GM cars and three GM trucks. The recommended cars are the Chevy Malibu (the unrecommended hybrid has been dropped), the large Buick Lucerne and the Cadillac DTS. Consumer Reports recommends the Chevy Avalanche and Silverado and the GMC Sierra trucks. Car enthusiast magazines insist on adding Camaro, Corvette and the 556-horsepower Cadillac CTS-V to that list.

Among those nine best GM vehicles, only the four-cylinder Malibu achieved as much as 25 mpg in Consumer Reports testing. The others get 12-17 mpg, yet they are no less fuel-efficient than comparable foreign brands. The Environmental Protection Agency rates the mileage of the Toyota Sienna van and Nissan Titan pickup as worst in their class, and comparable Chevys as best. Unlike GM, however, Japanese car companies sell enough small cars to offset the large and thus hold down the average figures.

General Motors is likely to become profitable only if it is allowed to specialize in what it does best — namely, midsize and large sedans, sports cars, pickup trucks and SUVs. The company can't possibly afford to scrap billions of dollars of equipment used to produce its best vehicles simply to please politicians who would rather see GM start from scratch, wasting more taxpayer money on "retooling" to produce unwanted and unprofitable subcompacts and electric cars. The average mileage of GM's future cars won't matter if nobody buys them.

Politicians are addicted to CAFE standards because they create an illusion of doing something sometime in the future without voters experiencing the slightest inconvenience in the present. Tighter future CAFE rules will have no effect at all on the type of vehicles we choose to buy. Their only effect will be to compel us to buy larger and more powerful vehicles from foreign manufacturers. Americans will still buy Jaguars, but from an Indian firm, Tata, rather than Ford. They'll buy Hummers, but from a Chinese firm, Tengzhong, rather than GM. The whole game is a charade; symbolism without substance.

As a matter of practical politics, rescuing GM from strangulation by CAFE will require offering economically literate environmentalists a greener alternative, i.e., one that works. Luckily, the government has two policy tools that, with minor modifications, really could discourage people from buying the least fuel-efficient vehicles.

One is the federal excise tax on "gas guzzlers," which could take some fun out of the horsepower race except that it applies only to cars, not to SUVS, vans and trucks. Why not apply this tax to all types of gas guzzling vehicles? Owners of trucks used for business could deduct the tax in proportion to miles used for business, as they do with other vehicular expenses. Phase it in after 2011 to encourage buyers to snap up the unsold inventory of gas guzzling trucks quickly — a timely "stimulus plan."

Second, the federal fuel tax is highest on the most efficient fuel (diesel) and below zero on the least efficient fuel (ethanol). Cars get about 30% better mileage on diesel than on gasoline, and cars running mainly on gasoline get about 30% better mileage than they would using 85% ethanol.

To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. This would add funds to the depleted federal highway trust. More importantly, it would remove an irrational tax penalty on buying diesel-powered cars — arguably the most cost-effective way to improve mileage without reducing car size or performance.

These two proposals are a greener alternative to CAFE, because they'll work. But they'll only work if Congress totally and permanently abandons the charade of CAFE. It is arguably worthwhile to accept a modest tax increase in exchange for an end to harmful regulations, but that exchange is effective precisely because it is not painless.

Unifying fuel taxes and broadening the excise tax on gas guzzlers makes sense as an alternative to CAFE. Otherwise it's just more pain with no gain.

If politicians insist on tightening fleet average mileage standards for bankrupt auto companies, how could those rules be enforced? The only penalty for violating CAFE rules is a big fine. If consumers keep refusing to buy enough small cars from GM and Chrysler to allow them to meet the CAFE rules, how are those companies expected to pay the fines?

The government is already planning to spend about $50 billion bailing out General Motors plus $7 billion for Chrysler. Will President Barack Obama provide Detroit auto makers with even more subsidies to pay CAFE fines?

Maybe so. That would be only slightly more bizarre than current plans to bribe folks with $4,500 to sell their "clunkers," or to offer huge tax credits to those rich enough to buy a $73,000 hybrid Cadillac Escalade or an $88,000 Fisker Karma.

The bottom line is that CAFE standards are totally unenforceable and ineffective. Regardless of how much damage the rules do to GM and Chrysler, Americans can and will continue to buy big and fast vehicles from German, Japanese, Korean, Chinese and Indian car companies. CAFE standards might just be another foolhardy regulatory nuisance — were it not for the fact that they could easily prove fatally dangerous for any auto maker overly dependent on the uniquely overregulated U.S. market.

More Tax Oppression by Richard W. Rahn

Wed, 01 Jul 2009 23:00:00 CDT

Why did a bare majority (219-212) of the members of the U.S. Congress vote for the largest tax increase in American history this past Friday, under the claim it was a vote to save the climate?

Before you answer the question, consider the following facts. The proponents claim this tax bill will reduce U.S. carbon dioxide emissions, which are purported to cause global warming. First, despite the claims of President Obama, House Speaker Nancy Pelosi and many in the media, there is no consensus in the scientific community about how much climate change, other than the normal cycles, is taking place, nor how severe it will be, and how much man-made CO2 is responsible. None of the climate models predicted the unexpected global cooling of the last decade.

It is known that the legislation will have a negligible effect on global CO2 emissions, particularly since the big polluters, such as China and India, are not playing ball. It is also known that the "cap and trade" system that the legislation calls for has been a failure in Europe, where it has been in operation for the last few years, in that it has proven to be far more costly than envisioned, has not met the CO2 reduction targets, and has been highly susceptible to corruption and abuse.

In addition, because the legislation requires Americans to use more inefficient energy (wind and solar) sources, it cannot help but raise costs for American businesses and citizens, and hence will kill jobs rather than create them (as contrasted to what Mr. Obama and Mrs. Pelosi have incorrectly claimed).

In sum, serious people understand the legislation will hurt the U.S. economy, reduce the standard of living and yet not accomplish its claimed intent; therefore, why were so many members of Congress willing to vote for it?

Are they idiots, or do they have another agenda? Yes, a few are not that bright, but many more see this as an opportunity to extract wealth from one group of Americans, give it to other groups of Americans they favor, and to their political cronies who will reward them in campaign contributions and in other ways — both seen and unseen. They are willing to engage in more tax oppression in exchange for more political power to themselves.

The tendency for political leaders — even those fairly elected — to look out more for their own personal interests rather than the greater good is not confined to America. The Organization for Cooperation and Development (OECD), whose 30 members are the major industrialized democratic countries, was formed half a century ago to promote policies to increase economic growth and free trade.

Unfortunately, political leaders in high-tax states (notably France and Germany) have captured part of the OECD and are using it as an instrument — by creating "black" and "gray" lists — to squash tax competition from low-tax-rate countries and financial freedom and privacy (which are important for global economic growth).

A European economic policy organization, Institut Constant de Rebecque, has just published an important study, "Tax burden and individual rights in the OECD: an international comparison." As part of the study, the author, Pierre Bessard, created a Tax Oppression Index by using OECD and World Bank data to measure the overall tax burden, public governance, and taxpayer rights. Italy and Turkey were judged to have the most tax oppression, while Austria, Luxembourg and Switzerland were judged to have the least oppressive tax systems. A sample of the major countries in the index can be seen in the accompanying table.

Those who advocate bigger governments and more repressive tax systems claim that the additional tax revenue is needed to promote the common good. In 2007, the government spending in Switzerland was equal to 35.7 percent of GDP (very close to the government share of GDP in the United States of 37.4 percent) while the Italians had a government sector equal to 48.5 percent of GDP.

The Italians and the Swiss share a long peaceful border, but Italy is far richer in natural resources and access to the sea than land locked Switzerland. Yet the Swiss are far more prosperous and do a much better job in delivering government services than do the Italians (or French with 52.4 percent of government spending) while, at the same time, engage in far less tax repression. The Austrian government spends 48.2 of its GDP, which is almost equal the size of the Italian government spending, but manages to raise the necessary tax money in a far less oppressive way.

The United States is in about the middle of the pack, but could have a lower score if it improved its public governance by reducing the corruption and inefficiency in Washington, and did a much better job in protecting taxpayer rights. (The U.S. Constitution explicitly gives citizens the presumption of innocence, but the Internal Revenue Service chooses to ignore the Constitution in this and many other matters.)

The world would be richer and more just if the low-tax-rate countries that protect taxpayer rights and privacy could penalize the states that engage in high levels of tax oppression, rather than vice versa, which is now the case.

The empirical evidence from the new Institut Constant study clearly shows (as have many other studies) that it is not necessary to have high tax rates or deny taxpayers basic rights and financial privacy for the government to obtain all of the revenue it legitimately needs. But as the vote on the "climate" (tax) bill in the Congress clearly showed last week, for all too many politicians, tax policy is not about revenue but political power and control.

A Rare Influence in the Lives of Others by Richard W. Rahn

Tue, 30 Jun 2009 23:00:00 CDT

Mary Lou Forbes was one of those rare people who changed many lives for the better. She had the courage to challenge prevailing opinion by running columns written by knowledgeable economic, political, scientific and social dissidents to provoke readers into thinking about the consequences of existing policies and beliefs.

As a result, her Commentary pages tended to be on the cutting edge of policy debates, which often resulted in constructive change. She truly was a great lady - principled, wise and always of good humor.

As is the case with many academic and professional economists, I occasionally wrote articles for papers such as The Washington Times and the Wall Street Journal, but never really considered doing it on a regular basis. About eight years ago, Mary Lou called me and said "Richard, you have a knack for making complex economic issues understandable and interesting, and I encourage you to write a regular column for us." Obviously, I was highly flattered and readily agreed to give it a try. And thus, after several other careers, I became a middle-aged protege of Mary Lou.

Mary Lou and I had dinner every couple of months where I was often treated to Virginia and Washington area history lessons. Over her long career as a reporter and commentator, she had known most of the key players who made what the modern Virginia is today. Her stock of knowledge on the evolution of Virginia from a largely segregated rural state to a very civil, prosperous, high-tech powerhouse was unrivaled. She had begun to work on a book about how the leaders of Virginia finally gathered the courage and wisdom to manage the desegregation of the state in a civil manner. We can only hope she had sufficient notes so that the project can be completed as one of the many lasting tributes to her.

My last dinner with Mary Lou was on June 10. As I took her home, she said: "Richard, thank you for taking an old lady to dinner, because it is always fun for me." And yet I was thinking I was the lucky one to have been in the company of a most remarkable entertaining and interesting lady.

The Dangers of a "Public Plan" by Michael D. Tanner

Tue, 30 Jun 2009 23:00:00 CDT

In the editorial "Socialized ignorance" (June 22), the Post-Dispatch took critics of President Barack Obama's health care reform plan, including the Cato Institute, to task for calling it "socialized medicine."

It is true that President Obama, who during the campaign said that if he were designing a health-care system from scratch his preference would be for a single-payer system "managed like Canada's," has not proposed a system where "the government owns hospitals and clinics; employs doctors and nurses; and pays for everyone's care," in the Post-Dispatch's words. However, "socialized medicine" is not just about ownership. It also is about who ultimately controls the resources and makes the decisions.

And there can be no denying that under the plans currently being considered by Congress and supported by President Obama, the government would control more and more of those resources and make more and more of those decisions.

Government would force Americans to purchase health insurance and control what benefits that insurance would have to include. Even Americans who are happy with their insurance today might have to switch to a plan that includes the benefits that the government requires. That insurance could be more expensive or include benefits that people don't want or are morally opposed to. White House spokesmen have said that President Obama's oft-repeated pledge that you can keep your current insurance is not meant to be taken literally.

The government would undertake comparative-effectiveness and cost-effectiveness research, and use the results of that research to impose practice guidelines on providers, initially in government programs such as Medicare and Medicaid, but possibly eventually extending those guidelines to private insurance plans. Private health insurance companies would exist, at least initially, but they would be reduced to little more than public utilities, operating much like the electric company, with the government regulating nearly every aspect of its operation.

That by itself would "socialize" much of the health care system. But it wouldn't stop there.

President Obama also wants to set up a government-run health plan (a single-payer plan, if you will), that would compete with private insurance.

Regardless of how it was structured or administered, such a government-run plan would have an inherent advantage in the marketplace because it ultimately could be subsidized by American taxpayers. The government plan could keep its premiums artificially low or offer extra benefits since it could turn to the U.S. Treasury to cover any shortfalls. Consumers naturally would be attracted to the lower-cost, higher-benefit government program, thus undercutting the private market.

A government program also would have an advantage since its enormous market presence would allow it to impose much lower reimbursement rates on doctors and hospitals the way Medicare and Medicaid do today. Providers would shift their costs to private insurance, driving up premiums, making private insurance even less competitive with the taxpayer-subsidized public plan. True, advocates of the public option promise that it would play by the same rules as private insurance and pay reimbursement rates higher than Medicare. But, politicians made the same promise back when Medicare was created.

The actuarial firm Lewin Associates estimates that, depending on how premiums, benefits, reimbursement rates and subsidies were structured, as many as 118.5 million people, roughly two-thirds of those with insurance today, would shift from private to public coverage — or be pushed. Businesses would have every incentive to dump their workers into the public plan. The result would be a death spiral for private insurance. In the end, the vast majority of Americans would have no choice. They would be stuck in a government plan, putting the government in charge of which doctors they see or which treatments they could receive.

To see how this would work, one need only look to other areas where the government has set up insurance programs "in competition" with private insurance, such as crop insurance, flood insurance or some workers' compensation plans. The government programs have squeezed out private competition.

As a candidate, President Obama talked about how "it may be that we end up transitioning to [a single-payer] system." Under the program he has proposed, that is far more probability than possibility.

In the end, President Obama would bring us a health care system under which the government would control one-sixth of the U.S. economy and some of the most important, personal and private decisions in our lives. Socialized medicine? Government-run health care? It doesn't really matter what you call it. It's a bad idea.

The China Card by Doug Bandow

Tue, 30 Jun 2009 23:00:00 CDT

North Korea appears to have moved from intermittent to constant provocation. The only nation with real influence in Pyongyang is China. South Korea's President Lee Myung-bak visited Washington two weeks ago but a solution is no closer. American diplomacy should focus on encouraging Beijing to do its utmost to "solve" the problem of the North's criminal regime.

The challenge posed by the so-called Democratic People's Republic of Korea (DPRK) is obvious to all. Probably the most murderous government on earth, Kim Jong-il's regime has presided over the death by famine of at least a half million people. His regime's brutality is both tragic and legendary. While impoverishing his people, he has maintained an oversize military, including an active nuclear-weapons program. And he has created a unique marriage of communism and monarchy, apparently designating his youngest son, now called the "brilliant comrade," to be his successor, just as he succeeded his father, Kim Il-sung. Although evil, he is not suicidal. Kim Jong-il enjoys his virgins in this life rather than desiring them in the next one. Nevertheless, eliminating his regime would be an obvious humanitarian and security plus.

Unfortunately, no easy solution presents itself. Kim's latest confrontational tactics do not prevent a negotiated settlement—U.S. special envoy Stephen Bosworth has emphasized the administration's desire to engage Pyongyang—but the likelihood of diplomacy resulting in a demilitarized peninsula grows ever smaller. Even if the DPRK proves willing to halt any new nuclear activities, it is very unlikely to turn over existing nuclear materials. And while Washington should continue to pursue both bilateral and multilateral negotiations, the process may yield little other than frustration. Tighter sanctions also offer but a forlorn hope. Amid reports that the North is planning a new nuclear test, the UN Security Council voted to tighten sanctions. America's UN ambassador, Susan Rice, said the measure provided a "strong, very credible, very appropriate response." But it in fact offered little in the way of increased enforcement. North Korea already is the world's most isolated state. Moreover, the regime has never let the suffering of its people affect its policies. A government which allowed a half million people to starve is not likely to be moved by increased hardship for those who remain alive.

Only Beijing has the clout necessary to influence the DPRK. The former provides the bulk of the North's food, fuel and consumer goods; trade between the two nations has been rising. Severing that lifeline could bring the North Korean economy to a standstill. However, so far the People's Republic of China (PRC) has demurred. Indeed, before passage of the latest Security Council resolution the PRC called for an "appropriate and balanced" measure and emphasized "calmness and restraint." Even now, China's government appears to fear a North Korean collapse more than a North Korean nuclear weapon.

The last option is war—either a limited strike on Pyongyang's atomic bases or a more general attack. Washington obviously could destroy nuclear facilities above ground and perhaps underground. Whether doing so would permanently block the North's nuclear efforts and eliminate its existing atomic capabilities are less clear.

Moreover, an attack probably would result in war. The Kim regime likely would see a strike as the first step in an attempt at coercive regime change. Moreover, to do nothing would wreck its credibility at home and stature abroad. While it is not likely to foolishly start a losing war, the DPRK government isn't likely to passively accept a conflict begun by the United States. Although the North would lose any conflict, it could cause massive damage to the South, whose capital, Seoul, lies close to the Demilitarized Zone and thus within range of both artillery and Scud missiles. Other possible consequences include the dispersion of nuclear debris and creation of mass refugee flows.

So is a North Korean nuclear arsenal inevitable? Maybe not. The China card has yet to be played.

Cynicism about Beijing's role in the North Korean crisis abounds. Some analysts believe that the PRC can do little to move Pyongyang, which has steered an independent course for decades. Others accuse China of consciously orchestrating the North's destabilizing course. And the mainstream view is that the PRC is unwilling to risk its relationship with Pyongyang or accept the costs of the regime's potential collapse. Indeed, Beijing has treated North Korean refugees, who face prison and even death when repatriated, with unconscionable brutality.

However, Washington might be able to change China's calculus. It's certainly worth attempting to do so. The PRC could cut off aid and commerce. Beijing also might be able to undertake covert action to transform the North Korean system.

Some analysts would risk the U.S.-China relationship in an attempt to pressure Beijing to pressure the DPRK. For instance, former–Undersecretary of State Robert Joseph advocates imposing unspecified costs on Beijing if it fails to comply. However, much more than just trade is at stake with America's relationship with China. And the PRC is unlikely to bend in response to public pressure.

Beijing's concern over the economic consequences of a North Korean collapse is understandable but should not be conclusive. With a population of more than 1.3 billion people and a GDP of $4.2 trillion ($7.8 trillion by purchasing-power parity), the PRC is capable of absorbing all of the North's 23 million people if necessary. But it isn't necessary.

First, the United States should indicate that it is willing to share the cost of caring for any refugees who end up over the border in China (or Chinese humanitarian activities in the North in the aftermath of a collapse). The price would be small compared to the cost of North Korea's current regime. And over the long-term a stable, reform-oriented government in the North or a reunified peninsula would offer Beijing obvious economic benefits. The PRC already trades more with South Korea than does the United States. It likely would enjoy a similar advantage in a more prosperous North Korea.

Second, the Republic of Korea, with a nearly $900 billion GDP, should join Washington in making such an offer. The cost of German reunification caused Seoul to hope for at least a modest North Korean economic revival before reunification on the peninsula. However, Pyongyang's increasingly provocative behavior suggests that the price of immediate reunification would be smaller than that of a war or arms race.

Third, the United States should enlist Japan, with the world's second largest GDP of $4.8 trillion, in this effort. Nearly one million ethnic Koreans live in Japan, with the majority hailing from the North. Tokyo could pledge its financial support, as well as indicate its willingness to accept the return of the one hundred thousand ethnic Koreans who emigrated to the DPRK during the 1960s along with their estimated two hundred thousand family members. In return, a new regime in Pyongyang might be more willing to satisfy Japan's demands for an accounting of its citizens kidnapped over the years.

Fourth, the Korean Diaspora could offer its private support. There are more than two million Korean-Americans, more than two hundred thousand ethnic Koreans in both Canada and Russia, about one hundred twenty-five thousand in Australia, and tens of thousands each in countries throughout Asia and Europe. All could assist in the event of a messy end to the Kim regime.

Fifth, the Obama administration should promise the PRC that the United States would not take geopolitical advantage of Chinese intervention. Thus, Korean reunification would not result in American troops on China's border. Instead, U.S. forces would come home. They aren't needed even today to defend the South. And they certainly wouldn't be required if the DPRK disappeared.

Sixth, Washington should point to the risk of further proliferation throughout East Asia. A nuclear North Korea is more a problem for its neighbors than for America. China should not assume that the United States would or could forever restrain the ROK and Japan from responding in kind if they found themselves facing a hostile, nuclear-armed North. Nor is it in the interest of America to remain in the middle of such an unstable geopolitical mix. In short, Beijing would share the nightmare of a nuclear DPRK.

Finally, the United States, backed by leading Asian and European states, should point out that Chinese leadership in resolving the problem of North Korea would enhance the PRC's international reputation. China has emphasized its determination to "rise" peacefully; there would be no better evidence of its good intentions or leadership potential than helping to rid the world of the brutal, threatening regime in Pyongyang.

Of course, the success of Chinese intervention would not be guaranteed. But all other options have less likelihood of success. Neither banking on the goodwill of Kim Jong-il nor triggering a second Korean War is a hopeful strategy. It's time for the Obama administration to play the China card.

Obama's Statist Ambitions by Gene Healy

Mon, 29 Jun 2009 23:00:00 CDT

"I am a firm believer in the power of the free market," President Obama told the Wall Street Journal recently. The "irony" surrounding his public image as a collectivist, the president insisted, was that "I actually would like to see a relatively light touch when it comes to the government."

Either Obama is as confused about the definition of irony as pop singer Alanis "rain on your wedding day" Morrisette, or he was being disingenuous. Given the president's ambitious, state-bloating agenda and longtime disdain for free enterprise, the latter is more likely the case.

Back in 2008, then-presidential candidate Hillary Clinton declared "we need a president who is ready on day one to be commander in chief of our economy." You can't find that role in the Constitution, but Barack Obama has embraced it nonetheless. The president is hell-bent on further extending government control over Americans' health care, and the administration-backed cap and trade bill that passed the House Friday, would, among other things, create a national building code. A "light touch," indeed.

Despite what the president told the Journal, there's little in his biography to suggest he's ever been a defender of markets. To recognize that, you don't need conspiracy theories about connections to leftist radicals; you need only look at what Obama himself has said in his franker moments.

Fresh out of college, before becoming a community organizer, Obama took a job with a consulting firm that helped American companies operating abroad. The horror of editing business manuals for a year gave Obama a lesson in the "coldness of capitalism," he told biographer David Mendell. "I would imagine myself as a captain of industry, barking out orders, closing the deal, before I remembered who it was that I had told myself that I wanted to be."

As his career progressed, Obama tempered his critique of capitalism, and developed an uncanny ability to make free-marketeers believe he's simpatico. Meanwhile, he amassed one of the least business-friendly records in the Senate (the "most liberal senator" in 2007, according to the nonpartisan National Journal.)

But in a 2005 commencement address at Illinois' Knox College, Obama let his guard down, and let loose a leftist stemwinder that would have done Rep. Dennis Kucinich, D-OH, proud.

"There is no individual salvation without collective salvation," Obama proclaimed, making clear that government would stand in for God as our savior.

In that speech, Obama excoriated President George W. Bush's "Ownership Society" as "Social Darwinism — every man or woman for him or herself;" an oddly venomous take on an umbrella term for increased citizen control over health care and retirement options. The "Ownership Society" was hardly capitalism unbound: it included giveaways like free pills for seniors and down-payment assistance for low-income homebuyers.

In his inaugural address, Obama took aim at the "cynics" who dared to "question the scale of our ambitions" (was that the royal first person plural?) Lately, though, the cynics have been making a comeback. Even the president's supporters are wondering if his reach has exceeded his grasp.

Nearly half of Americans now think the unspent portion of the stimulus package should be cancelled. Fewer than half approve of Obama's "speculator"-denouncing, CEO-firing approach to the auto bailouts, and six in 10 tell pollsters that he lacks a clear plan for taming our burgeoning deficit.

Cap-and-trade is likely to stall in the Senate, and with the Congressional Budget Office scoring the leading health-care bill at $1.6 trillion over 10 years, "sticker shock" may kill Obamacare as well.

Obama's popularity remains substantially higher than that of his policies. But that gap can't persist indefinitely. Our last Democratic president, Bill Clinton, came into office with ambitious plans to take over the health-care sector, then one-seventh of the US economy. The electorate slapped him back. Will Obama meet a similar fate?

Obama is as dedicated to enhancing federal power as any president in 50 years. But increasing public resistance may yet frustrate Obama's ambitions. If so, it may turn out that, when the final record is tallied, the nominally pro-market George W. Bush will — with TARP, the Iraq War, and the prescription drug entitlement — have done more to grow government than the dedicated statist Barack Obama. Wouldn't that be ironic?

Turning Fat People into Social Outcasts by Patrick Basham and John Luik

Mon, 29 Jun 2009 23:00:00 CDT

A new report chastising fat celebs as a bad influence is part of a worrying campaign to "denormalize" chubbiness.

Fat celebrities are the latest victims of the UK public health establishment's attempt to socially engineer our cultural and political environment so that the public becomes less tolerant of obesity and those the government categorises as obese. Through such nanny-state paternalism, the government seeks to ensure that people behave in "appropriate" ways, as defined by itself and a coterie of public health bureaucrats and academics.

Professor Michael McMahon, author of this week's Nuffield Health report on the influence of fat celebrities on obese people's attitudes to weight, says fat stars are seen as role models, helping to make being overweight acceptable. Professor McMahon's anti-fat stance epitomises the public health establishment's increasing use of a "denormalization" campaign against fat people.

As employed by the government and the anti-obesity industry, denormalization is a made-up word that functions as both a noun and as a verb to describe both a state in which the obese are perceived to be abnormal, aberrant, even deviant, and a series of activities designed to achieve this end.

In practice, denormalization means that the government attempts to shame adults into changing their behaviour. For the government's denormalization campaign to succeed these adults must be stigmatised; that is, they will be placed apart from the rest of civilised society until and unless they learn to behave in the approved manner.

Denormalization pushes the obese from being a health hazard to being a moral hazard, nothing less than blots on the nation's moral landscape. The environmental approach to obesity epitomized by denormalization is spelled out by Dr Kawshi De Silva of the Problem Gambling Foundation of New Zealand, who states: "The perceptions and beliefs in society about obesity can profoundly influence behaviour change and resistance to it."

The prominent American journalist, Morton Kondracke, recently called for being fat, let alone obese, to be made as socially unacceptable as smoking. Earlier this year, a London Evening Standard columnist advocated the public ridicule of fat people eating chocolate. In some quarters, it is predicted that the language of denormalization will soon be the main ingredient in the obesity debate.

The anti-obesity movement has accepted the argument of those, such as Australian nutritionist Dr. Rosemary Stanton, who have argued that: "We need to learn from the successes in tobacco control in tackling the obesity epidemic." Clearly, the anti-obesity campaign has modelled its denormalization campaign on the politically, if not empirically, successful tobacco denormalization campaign. Hence, the anti-obesity lobby employs public policy tactics to denormalize the use of the food industry's products.

There are significant downsides to the obesity denormalization campaign. In a recent article, published in Health Promotion International, L MacLean et al express a well-founded concern regarding the stigmatization of obese people, particularly of children. While there is much written about stigma and how it is exacerbated, these researchers point out that few, if any, guidelines exist for public health managers and practitioners who may attempt to design and implement obesity prevention programmes that minimize stigma. They examine the stigmatization of obese people and the deeply negative consequences of this social process, and discuss how stigma is manifest in the provision of public health services.

Recently published research by CD Elliott published in the Journal of Canadian Studies is particularly insightful in demonstrating the obesity denormalization campaign's dangerous ambitions. Elliott is unequivocal in concluding that the obesity denormalization campaign is central to the connection between obesity and citizenship in contemporary Western society.

This particular piece of research examines how denormalization has connected one's physical body to that of one's citizenry. In tracing the evolving narrative, Elliott explains why denormalization campaigners believe that the ideal citizen is, literally and figuratively, a "fit" citizen.

The person with the larger body is quite simply categorised as a lesser citizen than his or her smaller countrymen. Elliott outlines the ways in which the fat body or "failed body project" is equally positioned to that of the "failed citizen." Elliott points out that the figurative concept of citizen fitness is often mistakenly conflated with the visible look of leanness.

Given that public health reports such as this week's from Nuffield Health officially classify the majority of adults as overweight or obese, the framing of the fat body as the failed citizen is, to put it mildly, of considerable significance to both policymakers and non-policymakers alike.

We may draw several general conclusions from the denormalization experience to date. First, the obesity denormalization campaign represents yet another failure to address particular social problems, such as eating disorders.

Second, the fact that the denormalization campaign has failed to work in the tobacco arena apparently means nothing to the public health establishment, which has confidently prescribed comparable denormalization campaigns for the food, gambling and drinks industries.

Third, these campaigns dehumanize whole categories of people, which is arguably the most damning conclusion possible. Whatever one may or may not think of smoking and of smokers themselves, one unavoidable truth is that the smoker's social status (or lack thereof) in the modern era foreshadowed the current, lowly social status of the fat person.

Fourth, the obesity denormalization campaign is also worrisome because it wastes large sums of taxpayer money to satisfy the new Puritanism's anti-obesity agenda.

A potentially greater worry, however, stems from the reality that this denormalization campaign represents a new and dangerous assault on our core democratic traditions of choice about risk and lifestyle. Like so much in the "war on obesity," denormalization is a very bad prescription for supposedly good public health.

Private Contractors Still Lack Adequate Oversight by David Isenberg

Sun, 28 Jun 2009 23:00:00 CDT

The grim, continuing story of just how bad oversight and accountability are in the world of private military contracting received its latest confirmation June 10, when the congressionally mandated U.S. Commission on Wartime Contracting released its interim report, "At What Cost? Contingency Contracting in Iraq and Afghanistan."

The report found that "there is a critical shortage of qualified contract-management personnel in theater, and those that are there are stretched too thin. In particular, the process for designating and training contracting officer's representatives to check contractor performance in theater is broken."

To cite just three of the commission's numerous findings: Neither the military nor the federal civilian acquisition work forces have expanded to keep pace with recent years' enormous growth in the number and value of contingency contracts; contract auditors are not employed effectively in contingency contracting; and the government still lacks clear standards and policy on inherently governmental functions.

This shortcoming has immediate salience given the decisions to use contractors in armed security and life-support tasks for military units. One might feel better about this if it at least appeared that the military was learning from past mistakes, but there is little reason to think that is happening.

The commission noted, "As military units withdraw from bases, the number of contractor employees needed to handle closing or transfer tasks and to dispose of government property will increase. Strong government oversight will be required, but preparations for this major shift out of Iraq and into Afghanistan or other areas are sketchy."

This dismal state of affairs is compounded when one considers that many of these same conclusions were stated in the November 2007 report of the independent Commission on Army Acquisition and Program Management in Expeditionary Operations. Known as the Gansler report after the commission's chairman, Jacques Gansler, the report stated that significant failures were found in the Army's contracting and contract management.

Back then, the commission found that the expeditionary environment requires more trained and experienced military officers and noncommissioned officers. Yet, only 3 percent of Army contracting personnel are active-duty military, and there are no longer any Army contracting career general officer positions.

Not Prepared for Modern Challenges

The Army's acquisition work force is not adequately staffed, trained, structured or empowered to meet the needs of the 21st-century deployed war fighter.

Notwithstanding a sevenfold workload increase and greater complexity of contracting, the institutional Army is not supporting this key capability. There are nearly as many contractor personnel in the Kuwait, Iraq and Afghanistan theaters as there are U.S. military, yet the operational Army does not recognize the impact of contracting and contractors in expeditionary operations and on mission success.

If there has been one constant in the use of private military contractors over the years, predating the U.S. invasion of Iraq, it is that government oversight is woefully inadequate. Why that is remains a puzzle. By now, most of the major contracting processes have been in operation for decades.

The Logistics Civil Augmentation Program was established by the Army in 1985, and was first used officially in Somalia in December 1992.

The State Department's use of private security firms such as DynCorp or Blackwater (now Xe) through its Worldwide Personal Protective Services contract goes back to the aftermath of the bombing of the U.S. Embassy in Beirut in 1983.

The unpleasant truth is that until recently, the U.S. government simply was not prepared - and in some cases, not particularly interested - in doing oversight and holding contractors accountable. The numerous inefficiencies, especially in contract oversight, management and transparency, in the U.S. contracting process have been known for many years.

Since the release of the Gansler report, the Pentagon has taken steps to better prepare its forces to work with contractors, including expanding the jurisdiction of the Special Inspector General for Iraq Reconstruction, establishing the Office of the Special Inspector General for Afghanistan Reconstruction, requiring coordination among the Pentagon, State Department and the U.S. Agency for International Development on matters relating to contracting in Iraq and Afghanistan, and requiring the Comptroller General to review annually all contracts.

But insofar as contracting officer representatives (CORs) - the essential building blocks of oversight - are concerned, little has changed. Their experience and training remain limited, and the time they have available to devote to their oversight responsibilities for these contracts is insufficient.

The government still selects CORs with limited or no direct contract management experience, provides them on-the-job training, and then assigns them other principal duties, increasing the government's vulnerability.

It is unclear what can be done about this, besides training many more CORs and auditors. The Commission on Wartime Contracting will not release its final report with recommendations until next year.

Clearly, better planning is crucial. Military staffs should establish contracting planning cells to determine what is contracted, and establish the proper command authority before contracts are written, much less before contractors arrive in the field.

Better enforcement of existing laws is crucial. The best way to accomplish this is to target the bottom lines of private military contractors. If a for-profit company loses money as a result of its employees' behavior, it will have more incentive to ensure its employees perform according to contract.

The Consequences of the Culture of Death by Doug Bandow

Sun, 28 Jun 2009 23:00:00 CDT

The culture of death continues to claim victims, this time abortionist George Tiller. The tragedy of his murder is compounded by the obvious contradiction of someone killing him in the name of life. Perhaps it should not surprise that murder is seen as the answer in a society which devalues life.

Protecting life is the foundation for a republic such as our own. Indeed, the most fundamental liberty is to life itself.

Tiller's murder obviously violates both a commitment to life and the rule of law. No free society can survive if its members believe themselves authorized to mete out their personal version of justice on others.

The murder has turned Tiller into a martyr to some yet, ironically, his lifework was death. Celebrated by the Center for Reproductive Rights as "a stalwart and fearless defender of women's fundamental health and rights," Tiller was known for performing partial birth abortions. That often meant delivering and then killing a fetus well past "viability," that is, the ability to survive on its own.

There's no doubt that the circumstances of many of those seeking abortions are difficult. Nor can any defender of liberty feel comfortable advocating government intrusion in such a personal matter as childbirth.

Yet a baby is not the property of his or her mother. Few people disagree that children have the full right to life like adults. Moreover, the moment of birth makes no difference in the moral value of life. Even some abortion advocates are uncomfortable with the brutality of many late term abortions, of which the late Sen. Daniel Patrick Moynihan said "This is too close to infanticide."

Nevertheless, "viability" should have no more moral significant than birth. Once formed, every human life is unique. That death is presented as the preferred option for "unwanted" children is bizarre. With families desperate to adopt, how can one advocate killing babies as a solution?

The strongest argument for not restricting abortion is personal liberty. Yet liberty always has been constrained when another person is involved. Especially when the other person exists only because of one's free choice.

Abortion is not a matter of choice, but an attempt to flee from responsibility. Other than in the case of rape, pregnancy results from the decision to have sex, freely made. People are, rightly, legally free to have sex with whomever they desire whenever they desire. That being the case, they also should be held responsible for the consequences of their decisions. One of those consequences is a baby.

One can argue about the appropriate responsibility of putative parents for their child. But surely they cannot argue that, having freely brought a life into being, they have an untrammeled right to snuff it out. Yet that is the position of the far precincts of the "pro-choice" movement.

Indeed, some see abortion as a positive good. Consider the "National Day of Appreciation for Abortion Providers," celebrated last March 10. As people, including the young, have turned against abortion — a recent poll showed a pro-life majority — Katha Pollitt of the Nation declared: abortion providers could "use some love." If only they showed a little love to the most helpless among us.

Pro-abortion forces now dominate the White House, Congress, the courts, and the media. Indeed, this is the most extreme administration since Roe v. Wade — in contrast to such leading Democrats as Richard Gephardt, Al Gore, and Bill Clinton, in running for president Barack Obama didn't have to flip-flop away from any earlier pro-life votes or decisions. Yet abortion advocates remain on the defensive, angry that social disapproval leads so many medical professionals to refuse to provide and even to learn how to provide abortions.

So we see the demand not just for the right to abortion, including essentially up to the day of birth. We also see the demand to force medical students to learn and hospitals to provide abortion. And for pharmacies to provide abortifacients. Freedom of conscience is twisted to mean the denial of freedom of conscience. As a result, the Obama administration, despite the president's eloquent appeal to find "common ground," is rolling back the Bush administration rule protecting health care workers who refuse to participate in abortion. Sen. Patty Murray (D-Wash.) complained: "It threatens the health and well-being of women and the rights of patients across the country." In her view, apparently, women not only have a right to get an abortion, but to force doctors to provide an abortion.

Although federal institutions are firmly under the control of abortion advocates, many states are not. So the battle there continues, with state governments declaring the unborn to be persons and requiring that pregnant women be informed of fetal development and view ultrasounds of their babies. Opponents complain of "emotional blackmail," but surely women should be aware that it is a life they are ending before they choose to abort their unborn children. Thus, congressional abortion proponents, backed by the administration, are pushing the so-called "Freedom of Choice Act" to override state restrictions on abortion.

President Obama's policies are resolutely pro-abortion, but at least he does what many of his backers refuse to do: extend a "presumption of good faith" to those who oppose abortion and "honor the conscience of those who disagree with abortion." Indeed, admitted the president, "abortion is never a good thing." In contrast, many abortion activists are angered that anyone would make a moral judgment about abortion. A live baby. A dead baby. What's the difference, they seem to ask?

"At some level, the views of the two camps are irreconcilable," said President Obama in his speech at Notre Dame. Sad but true. Thus, the battle over abortion must continue.

Peaceful battle, that is. Pro-life must mean pro-life. The murder of abortionists — there have been five since Roe — must be roundly condemned by anyone committed to the protection of life. There can be no moral justification for murder.

Instead, the battle must be one of persuasion. There progress is being made. And ultimately there the fight will be won.

Tax Credits, Not Vouchers, Are Keeping School Choice a Viable Option by Adam B. Schaeffer

Wed, 24 Jun 2009 23:00:00 CDT

Many school choice supporters are discouraged after having suffered a series of setbacks on the voucher front, ranging from the loss of Utah's nascent voucher program last year to the recent death sentence handed to the D.C. Opportunity Scholarship program. A rambling and inaccurate article in the normally supportive City Journal got the chorus of naysayers rolling more than a year ago with the cry "school choice isn't enough."

The bright spot for vouchers in recent years has been the success of special-needs programs. Yet the Arizona Supreme Court ruled recently that school vouchers for disabled and foster children violate the state constitution, which forbids public money from aiding private schools.

Naturally, the pessimists and opponents of choice are forecasting the death of the voucher movement. They're wrong, because there never was a voucher movement to begin with. It has always been movement for educational freedom, and it is still going strong.

Over the past several years, there has been a gradual shift in focus from vouchers to an alternative mechanism: education tax credits. Illinois, Minnesota and Iowa already provide families with tax credits to offset the cost of independent schooling for their own kids. Florida, Pennsylvania, Arizona and three other states provide tax credits for donations to nonprofit scholarship organizations that subsidize tuition for lower-income families.

The fundamental difference between these programs and vouchers is that while vouchers use public money, credits do not. Credits are targeted tax cuts, and no public dollars are spent with them. That single distinction is the reason Arizona's Supreme Court struck down two voucher programs in March, but upheld the state's scholarship donation tax credit program in 1999.

In fact, tax credit programs have withstood every lawsuit raised against them. Since 1995, seven tax credit programs have been passed and all are still in operation. Four voucher programs (in Florida, Colorado and now two in Arizona) have been struck down by the courts in that same time.

This does not mean that credits are invulnerable. Arizona credits just received a temporary setback from the 9th Circuit Court of Appeals that is sure to be reversed by the U.S. Supreme Court, as is the case with so many other 9th Circuit Court decisions. Vouchers have certainly enjoyed some important legal victories, but vouchers' use of government funds opens them up for attacks to which credits are far less susceptible.

Credit programs have not simply survived, they have thrived. Scholarship donation programs now support more than three times as many low-income children as do voucher programs, though they are generally of more recent vintage. Direct K-12 education tax credits are benefiting hundreds of thousands of families, albeit in more modest dollar amounts.

However, these are not the only reasons that supporters of educational freedom have increasingly begun to favor credits over vouchers. Credits better preserve the autonomy of independent schools, and they extend choice and accountability to taxpayers as well as parents. Taxpayers get to choose to participate in credit programs as well as pick the recipient organization for their funds if they do. In addition, credits command increasingly bipartisan political support.

So while advocates of educational freedom regret that vouchers have been under heavy fire in many states, tax credit programs can be created or expanded to accommodate the children formerly served by vouchers.

Who Are We as Americans? by Nat Hentoff

Wed, 24 Jun 2009 23:00:00 CDT

President Obama, in his May 21 speech at the National Archives Museum in Washington said that "we can defeat Al Qaeda ...if we stay true to who we are...anchored in our timeless ideals." A much more somber note, however, was in a warning by retiring Supreme Court Justice David Souter the day before at Georgetown University Law Center.

Deeply concerned at how little knowledge Americans have of how this republic works, Justice Souter cited as an example that the majorities of the public can't name — according to surveys — the three branches of government.

Who we are, Souter continued, "can be lost, it is being lost, it is lost, if it is not understood." What is needed, he said, "is the restoration of the self-identity of the American people. ... When I was a kid in the eighth and ninth grades, everybody took civics. That's no longer true. (Former Justice) Sandra Day O'Connor says 50 percent of schools teach neither history nor civics." Justice Souter continued that when he was in school, "civics was as dull as dishwater, but we knew the structure of government."

This alert to the citizenry was almost entirely ignored by the press.

Admirably, O'Connor is trying to engage students in learning who they are as Americans through her Web site: Our Courts - 21st Century Civics (www.ourcourts.org). The site asks students what part of government they would most want to be a part of. And she invites teachers to click and "find lesson plans that fit your classroom needs."

Two years ago, David Boaz of the Cato Institute (where I am a senior fellow) quoted from a Washington Post article by Naomi Wolf: "Teenagers and young adults ... have little idea what liberty is. Few (young Americans) realize that 'due process' means that they can't be locked up in a dungeon by the state and left to languish indefinitely."

And the 2008 annual "State of the First Amendment" survey by the First Amendment Center (www.firstamendmentcenter.org) reported that 66 percent of Americans at least mildly agreed that the government should require TV broadcasters to offer an equal allotment of time to conservative and liberal broadcasters, and that 62 percent of Americans would apply the same requirement to newspapers.

In this republic, the government must regulate the fairness and balance of what we free citizens see and read? Not even King George III insisted that Tom Paine, Samuel Adams and Thomas Jefferson must be fair and balanced.

It was Jefferson — as you can see near the main entrance of the Library of Congress' James Madison Memorial Building — who told future generations of Americans how to never forget who they are:

"What spectacle can be more edifying or more seasonable, than that of Liberty and Learning, each leaning on the other for their mutual & surest support?"

Jefferson also counseled: "If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. ... Let our countrymen know that the people alone can protect us against the evils (of misgovernment)."

How deep our ignorance of who are has grown since Alexis De Tocqueville wrote in 1831 (Democracy in America): "In New England, every citizen receives the elementary notions of human knowledge; he is moreover taught the doctrines and the evidences of his religion, the history of his country, and the leading features of its Constitution.

"In the States of Connecticut and Massachusetts, it is extremely rare to find a man imperfectly acquainted with all these things, and a person wholly ignorant of them is a sort of phenomenon."

Am I exaggerating in speculating that now in our schools, homes and streets, there are many such phenomena largely ignorant of why they are Americans. Also, I would add the many in our state legislatures and in Congress.

And Obama, asking us to be "anchored in our timeless ideals," says nothing about his National Security Agency's accelerating attacks on our individual privacy as its enormous supercomputer (code name: "Black Widow") devours the Fourth Amendment in our Bill of Rights. The Baltimore Sun's national security correspondent, David Wood (Oct. 26, 2008), reports:

"(The Black Widow) scans millions of domestic and international phone calls and e-mails every hour" as it extracts "key words and patterns" of our communications to harvest and database possible threats to national security.

There's no way to get your name removed from that bottomless hole of suspects because you can't find out whether it's there. Imagine Jefferson's reaction if he'd been able to foresee the Government Black Widow at large in this republic.

The National Center for Constitutional Studies' book, The 5000 Year Leap: A Miracle That Changed the World, tells of a popular textbook for children, a Catechism of the Constitution — with questions and answers on the foundations of who we are as citizens. It was published in 1828! Any such children's books now?

In the continuing debate on amending No Child Left Behind — and other federal surges in educational reform — I have seen hardly any mention of the imperative need of what Justice David Souter calls for: "the restoration of the self-identity of the American people."

On the eve of the American Revolution, James Madison spoke of a "spirit of liberty and patriotism animating all degrees and denominations of men." What happened to it?

NATO Gains Weight by Doug Bandow

Wed, 24 Jun 2009 23:00:00 CDT

Vice President Joe Biden is heading to Georgia and Ukraine next month. His trip will continue a foreign policy which has taken on the trappings of junior-high school: an endless search for new allies. More "friends" are believed to be better, irrespective of U.S. security. Instead, Washington should be shedding allies.

NATO has become the worst example of America's junior-high foreign policy. Washington and its more traditional allies have welcomed a succession of new members which are security black holes, bringing with them geopolitical conflicts rather than security assets. Little pretense could be made that expanding NATO to Albania, Romania and similar states enhanced American security.

Even worse are proposals to add Georgia and Ukraine to the alliance. Both border Russia, have unresolved or potential territorial disputes with their nuclear-armed neighbor, and are politically immature. Bringing them into NATO would directly challenge Moscow's border security and turn American foreign policy over to smaller powers of dubious reliability.

In fact, a new European Union report highlights the danger of extending U.S. protection to Georgia. Washington continues to press for NATO membership and in the interim has declared Tbilisi to be a "strategic partner." The Georgian government had high hopes for the agreement; incoming Georgian Ambassador Batu Kutelia said that "cooperation with our strategic partner is almost the only assurance of our security."

But what of American security?

Obviously, Georgia is geopolitically peripheral to the United States. Georgia was not only part of the Soviet Union. It was part of the Russian Empire. And the status of the territories of Abkhazia and South Ossetia has varied over time — they enjoyed special autonomy even during the Soviet era. Who rules which of these lands matters to the people there, not to Americans. The presence of energy pipelines in Georgia changes little. Caspian Basin energy is useful, not critical, to the United States and the West's access is not likely to be impeded short of war. Americans should be sympathetic to the Georgian people, given misgovernment at home and threats from abroad. But friendly feelings do not warrant promises of military intervention.

Some alliance advocates believe that no harm would come from guaranteeing Georgian security, since Moscow would not dare test America's promise. However, history is littered with defense commitments that failed to deter. The major World War I alliances proved to be transmission belts of — rather than firebreaks to — war. The British and French guarantees to Poland in 1939 did not stop Germany from attacking; instead, they pulled the two countries into a conflict for which they were not prepared.

Moreover, Russia already has demonstrated that it views its border security as worth war. Further, geopolitics in the Caucasus matters far more to it than to America. Moscow is likely to discount U.S. threats, figuring that American policy makers are unlikely to risk Washington to protect Tbilisi. Exactly how the United States would defend Georgia against Russia isn't clear, and how the United States would prevent any conflict from quickly escalating is even less clear. Think of the Cuban missile crisis: Washington was able to stare down Moscow for a number of reasons, including the fact that the United States had far more at stake and could bring far more force to bear near its border. The situation in Georgia is reversed.

Formalizing a security guarantee for Tbilisi also would make conflict more likely by insulating the Georgian government from the consequences of its own provocative actions. Here, too, history is replete with disastrous examples. In the summer of 1914, both Serbia and Austria-Hungary acted more provocatively because they could count on their allies' support; Germany's famous "blank check" to the latter made war a virtual certainty. More recently, former Taiwanese President Chen Shui-bian spent eight years challenging China in the belief that the United States would come to his aid in any conflict. Washington's attempt to moderate Chen's behavior proved unavailing. Yet Beijing seemed to downplay the threat of American intervention. Similar irresponsibility was evident last August in Georgia. There was plenty of evidence of President Mikheil Saakashvili's aggressive intentions in winning back the separatist territories of Abkhazia and South Ossetia with force. His own officials indicated that they discounted the likelihood of Russian intervention and expected U.S. support.

Georgia's role in triggering the crisis has been affirmed by an investigative commission established by the European Union after the war. Reports Spiegel online: "a majority of members tend to arrive at the assessment that Georgian President Mikhail Saakashvili started the war by attacking South Ossetia on August 7, 2008. The facts assembled . . . refute Saakashvili's claim that his country became the innocent victim of 'Russian aggression' on that day." Retired British Colonel Christopher Langton said: "Georgia's dream is shattered, but the country can only blame itself for that." The office of Heidi Tagliavini, who heads the inquiry, countered that her work "is continuing" and that she had "the sole and exclusive responsibility" for final report. However, the apparent opinions of her panel's experts are not new. Spiegel online had earlier reported:

One thing was already clear to the officers at NATO headquarters in Brussels: They thought that the Georgians had started the conflict and that their actions were more calculated than pure self-defense or a response to Russian provocation. In fact, the NATO officers believed that the Georgian attack was a calculated offensive against South Ossetian positions to create the facts on the ground."

OSCE observers on the ground drew much the same conclusion. Although commission members apparently criticize both nations' conduct of the war, they reportedly have compiled evidence that President Saakashvili long considered a military solution. Indeed, the panel is said to have found no evidence that, as he claimed, Russian tanks entered on August 7, initiating hostilities. These judgments are consistent with the testimony of Erosi Kitsmarishvili, Georgia's former ambassador to Moscow, to the Georgian parliament that "Saakashvili wanted that war, he has been bracing for that during the last four years."

The point is not that Russia was blameless, but that Georgia contributed greatly to its own plight. Added Kitsmarishvili: "Georgia broke out the war in South Ossetia, and Russia provoked it." Unfortunately, it apparently didn't take that much provoking. Despite subsequent claims of Russian aggression made by his government, Ambassador Kutelia, then-deputy defense minister, said Tbilisi hadn't expected Moscow to respond with force: "We did not prepare for this kind of eventuality."

Moreover, some commission members reportedly were suspicious about the American role. They wished they could ask what U.S. Ambassador to Georgia John Tefft knew and when he knew it. The panel also pointed to a remark by then-Assistant Secretary of State Daniel Fried that President Saakashvili "went out of control." It seems unlikely that Washington promoted a Georgian attack. However, the Bush administration's extravagant gestures of support and rhetorical backing for Tbilisi could have been misinterpreted by the impulsive, authoritarian and erratic Saakashvili.

Indeed, while some friends of Georgia portray Saakashvili as a great liberal, human-rights groups tell a different story. For instance, Human Rights Watch reported that his policies seemed "to fuel rather than reduce abuses." He has used force to put down opposition demonstrations. Investigative journalist Nino Zuriashvili complained that "there was more media freedom before the Rose Revolution," which propelled Saakashvili to power. NATO membership likely would make him more repressive and irresponsible. In particular, a formal defense guarantee would encourage Saakashvili to adopt more confrontational policies towards Moscow. For the alliance then to abandon Tbilisi in a crisis would wreck NATO's credibility. However, a proposal for armed intervention would divide the alliance, with the older core members likely unwilling to initiate war against Russia. And large-scale conflict with Moscow — avoided during the entire cold war — would be a catastrophe for all concerned.

The Georgian people deserve our sympathy. But they are not entitled to Americans' blood and treasure. It would extremely foolish to put the full military faith and credit of the United States on the line in the Caucasus. The way to make the United States more secure is to reduce, not increase, its security commitments.

Omens of a Downward Spiral by Richard W. Rahn

Tue, 23 Jun 2009 23:00:00 CDT

Victoria Station — look around this 150-year-old rail station and you can see the rise and fall, and rise and now again decline of the British nation. Victoria Station is just a few blocks from Buckingham Palace and was for many decades the connecting station with the "Continent" (Europe) and the greater world, much like the large international airports of the present day. The kings and queens of England would greet the various European royals and other heads of state at Victoria Station.

Most of the parts of the station that were built in the late 19th century are still there — the great steel trusses and the Victorian brickwork. In its time, it was state-of-the-art, befitting what was the superpower of its day. After World War I, the station slowly was allowed to decay, as was the British economy. Beginning with the Thatcher reforms, England had a quarter-century run as the fastest-growing major economy in Europe, but still slower than that of the United States. Yet the basic structure of Victoria Station was only partially renovated during the good years, even though rail privatization and sleek new trains began to reinvigorate rail travel.

Victoria Station now resembles a poorly designed shopping mall where passengers can shop in small modern stores for the latest in consumer electronics or go to a variety of food servers — from unsightly and even somewhat dirty fast-food outlets to better-maintained, but not elegant, restaurants. Thus, the station is a rather unsightly hodgepodge of shops and trains. The neighborhood directly surrounding Victoria Station, however, has been almost totally rebuilt in recent years with tasteful, modern glass buildings and upscale renovations.

British government spending grew rapidly as a percentage of gross domestic product (GDP) from about 36 percent of GDP in 1950 to a peak of about 48 percent in 1980, which was one of the causes of the economic stagnation and seedy look of Victoria Station that persisted during that time.

In the early 1980s, Prime Minister Margaret Thatcher was able to reduce the relative size of government and the very destructive high marginal income tax rates. But government spending, as in the United States, has been allowed to drift higher during the past decade.

Professor David Smith, a former Bank of England economist and well-known commentator on the British economy, has forecast a rise in government spending to more than 53 percent of national income by 2010, the highest level since World War II. To fund this expanded public sector, net borrowing will increase from 8 percent of national income last year to more than 14 percent next year.

Mr. Smith argues, "There must be serious doubt whether deficits on this scale can be financed in a non-inflationary manner without very large capital inflows from abroad.

And it is hard to see why such inflows should be forthcoming now that the British economy has become so highly taxed by international standards."

If President Obama carries through on his threats to greatly increase U.S. taxes on carbon, etc.; allows the George W. Bush tax cuts to expire next year; and does not begin seriously to reduce spending, many economists will be able to say the same things about the U.S. economy next year that Mr. Smith says about the United Kingdom's economy today.

Mr. Smith also says: "The rise in nonproductive government spending as a share of GDP since 2000 is likely to have cut the U.K.'s sustainable growth rate by some 1.0 to 1.7 percent per annum."

The evidence shows that almost the identical economic slowdown has occurred in the United States over the past decade as government spending has increased as a percentage of GDP. Many studies have shown there are no discernible benefits in terms of objective measures of human welfare from raising the share of government spending beyond the 25 percent to 30 percent mark, yet Britain is slated to go over the 50 percent mark and America over the 40 percent mark.

The British and Americans seem to be in a suicidal race as to which country can put in the most destructive economic policies. The British are ahead at the moment. Unfortunately, there are no winners.

The Non-Debate over Non-Reform by Arnold Kling

Tue, 23 Jun 2009 23:00:00 CDT

As the discussion of health-care policy unfolds, what we are seeing is a non-debate over non-reform. The Democratic proposals promise to entrench the status quo, which does not fit with the principles of personal responsibility and fails to allocate resources sensibly.

To show what I mean, hold up ten fingers. Each finger represents 10 percent of health-care spending in the United States. Five fingers — half — represent what is paid for by government programs, such as Medicare and Medicaid. Four of the remaining fingers represent what is paid for by private health insurance. One finger represents what individuals pay out of their own pockets.

To move in the direction of personal responsibility, we have to make more of our health-care system look like the one finger — as was the case as recently as 1960, when the share of medical expenses paid for by individuals out of pocket was 50 percent. This is a radical idea for reform, and neither political party is talking about it. Instead, the Democrats are trying to incrementally make the system look more like the five fingers now represented by government. And in opposing the Democrats' reforms, the Republicans risk being put in the position of trying to protect the four fingers of private health insurance.

Our health-care system is wasteful. We spend far too much money with relatively little to show for it. That would be of little concern if individuals were wasting their own money. However, because close to 90 percent of personal health-care spending is paid for by third parties, we are wasting each other's money. This approach has its attractions; as individuals, we all want unlimited access to medical services without having to pay for them.

However, this is not sustainable. Employer-provided health insurance is unraveling, as workers are getting less take-home pay while employers are shelling out more to compensate workers in the form of health care. Medicare is even less viable. It faces tens of trillions of dollars in unfunded liabilities, meaning the gap between what future beneficiaries have been promised and the taxes that we expect to collect to fund those promises. Rather than make hard choices to restrain costs, the political mechanism works to satisfy existing constituencies now and pass the liability on to future generations.

Some form of restraint in our choice of medical procedures is going to be necessary. The debate we should be having is over whether restraint in our use of medical services should be initiated by government officials or left to consumers. The Democrats want to avoid that debate. Instead, they make it sound as if they can make excess health-care spending disappear by magic. But even if we were to stipulate for the sake of argument that all of the supposed savings from preventive care, electronic medical records, and eliminating the waste and greed supposedly inflicted by insurance companies and doctors will actually materialize, the excessive use of medical procedures would still be the main problem with our health-care system.

Both government rationing and consumer cost-sharing seem unpleasant. The debate between the two approaches would not be one-sided. But until Democrats are willing to stand up toe-to-toe and have that debate, we will not see any move toward cost-effective health-care reform.

Assuming such a debate took place, how might one advocate consumer-driven health care within it? I believe we need to do three things.

First, government assistance should take the form of vouchers, given to people based on need. Government must end the practice of reimbursing health-care providers for services. Instead, consumers with low incomes or expensive pre-existing conditions should be given vouchers that compensate for their disadvantages. Consumers can then decide which health-care services best meet their needs, based on what they can afford given their own resources and the vouchers.

Second, Medicare should be phased out — by gradually raising the age of eligibility — in favor of a system that encourages people to save for the health coverage they will need in their old age. This is the only way to fund health care for the elderly on a sustainable basis. People should be given savings targets and tax credits that help them meet those targets.

And third, private health insurance should be deregulated. Affordable health insurance requires radical changes to the way health-insurance policies are designed today. In order to get there, we need less regulation of health insurance, not more. My hope is that the industry would come up with plans that pay claims to only those who fall within the top 2 or 3 percent in terms of health-care needs; those who need basic care would pay out of pocket. Health insurance would look like fire insurance. Few of us would make claims, and premiums would be affordable.

I am under no illusion that my ideas for health-care policy are going to play a role in the debate this year. However, by the same token, the public ought to be under no illusion that what the politicians are calling health-care reform offers any hope for a real solution to the compounding cost of American health care.

Cap-and-Trade-War by Patrick J. Michaels and Sallie James

Tue, 23 Jun 2009 23:00:00 CDT

Despite indications that much of President Obama's agenda is meeting intra-party skepticism all over Capitol Hill, there is one policy nexus where congressional leaders are still doggedly determined to move the country left: energy and the environment. Speaker Pelosi will reportedly allow a vote on the controversial Waxman-Markey "cap-and-trade" legislation at the end of this week.

And it gets even better. Not content to tempt political fate by imposing huge carbon taxes on the American middle class, Democrats have added a provision which imposes stiff tariffs on our trading partners if they don't adopt aggressive carbon restrictions of their own.

You heard correctly: progressives have authored a bill that earns the mortal enmity of domestic energy consumers and our most crucial trading partners at the same time. Economy-killing climate policies and a trade war — together at last!

What happened is this: An early draft of Waxman-Markey already contained triggers that gave the president the choice to introduce carbon tariffs if jobs and industry "leak" overseas to countries that don't constrain emissions so dramatically. (China and India come to mind.) The original version empowered the president to impose the carbon-linked tariffs beginning in 2025.

But though the language is not public yet, the House Ways and Means Committee is reportedly considering provisions that will give extra comfort to protectionists. Leaks from Hill offices indicate that the president would now be forced to impose the carbon tariffs — and could only opt out of doing so with permission from both chambers of Congress. Carbon-intensive imports would be subject to penalties at the border unless the country of origin requires emission reduction measures at least 80 percent as costly as ours. (The original Waxman-Markey bill had a threshold of 60 percent.)

Unfortunately for the amendment's authors, World Trade Organization rules make fairly clear that trade-limiting measures imposed to protect the environment should have the purpose of protecting the environment, and not to address any adverse competitiveness effects on domestic industry. Break that connection between measure and purpose, and you've got yourself a problem. The result could be litigation, retaliatory tariffs, or both. Does anyone really expect China to stand idly by in 2025 as their trade is embargoed?

And just for the sake of discussion, exactly how much global warming will be prevented by this assurance of future trade turmoil? Well, let's use the federal government's own model which — we are not making this up — is called MAGGIC (Model for the Assessment of Greenhouse-gas Induced Climate Change). It comes from the National Center for Atmospheric Research in Boulder, Colorado.

Let's compare the effects of Waxman-Markey to the United Nations' "business-as-usual" emissions scenario that's in their big 2007 climate change compendium. If the U.S. only adopts Waxman-Markey, global warming would be reduced by a grand total of 0.2ºF by 2100. This is too small to even detect, because global temperatures bounce around by about this amount every year. For those who like to think more near-term, the amount of warming prevented by 2050 would be 0.07 of a degree.

According to the UN, without Waxman-Markey the warming from 1990 to 2050 would be 2.8ºF, and 5.3º by 2100. (Of course, observed warming since 1990 is running about 40 percent below the expected rate, largely because there hasn't been any net warming since the very warm year of 1998.)

Now, let's be completely unrealistic and assume that every nation that has "obligations" under the (failed) Kyoto Protocol cuts emissions as much as we do. Then the saved warming balloons all the way to 0.14ºF by 2050 and 0.4º by 2100, or 5 and 7 percent, respectively, of the "business-as-usual" total.

Let's add it all up. We don't do anything measurable to reduce global warming, we alienate some of our biggest trade partners, we risk a trade war, and Americans are allowed to emit the same carbon volumes as the average citizen did in 1867. What's not to hate?

All of which explains why Waxman-Markey is being rushed to the floor. If people find out what is really in it, how risky it is and how small the purported benefits, it is hard to believe that it will pass.

Health Care Reform: Questions for the President by Michael F. Cannon

Tue, 23 Jun 2009 23:00:00 CDT

Health care reform is on life support," says Rep. Jim Cooper of Tennessee. And he's a Democrat.

President Obama has spent months building momentum for health care reform. But when the Congressional Budget Office put the price tag near $2 trillion, it stopped reform dead in its tracks.

What Senate Finance Committee chairman Max Baucus, D-Mont., once called "nearly inevitable" now seems much less so — and that's before supporters have confronted the really tough questions.

Before this debate is over, Obama should answer a few questions about his plans for reform, including:

Mr. President, in your inaugural address and elsewhere, you said you are not interested in ideology, only what works. Economists Helen Levy of the University of Michigan and David Meltzer of the University of Chicago, where you used to teach, have researched what works. They conclude there is "no evidence" that universal health insurance coverage is the best way to improve public health. Before enacting universal coverage, shouldn't you spend at least some of the $1 billion you dedicated to comparative-effectiveness research to determine whether universal coverage is comparatively effective? Absent such evidence, isn't pursuing universal coverage by definition an ideological crusade?
A draft congressional report said that comparative-effectiveness research would "yield significant payoffs" because some treatments "will no longer be prescribed." Who will decide which treatments will get the axe? Since government pays for half of all treatments, is it plausible to suggest that government will not insert itself into medical decisions? Or is it reasonable for patients to fear that government will deny them care?
You recently said the United States spends "almost 50 percent more per person than the next most costly nation. And yet ... the quality of our care is often lower, and we aren't any healthier." Achieving universal coverage could require us to spend an additional $2 trillion over the next 10 years. If America already spends too much on health care, why are you asking Americans to spend even more?
You have said, "Making health care affordable for all Americans will cost somewhere on the order of $1 trillion." Precise dollar figures aside, isn't that a contradiction in terms?
Last year, you told a competitiveness summit that rising health care costs are "a major anchor on the ability of American business to compete." In May, you wrote, "Getting spiraling health care costs under control is essential to ... making our businesses more competitive." The head of your Council of Economic Advisors says such claims are "schlocky." Who is right: you or your top economist?
You recently told an audience, "No matter how we reform health care, we will keep this promise to the American people. ... If you like your health care plan, you'll be able to keep your health care plan, period. No one will take it away, no matter what." The Associated Press subsequently reported, "White House officials suggest the president's rhetoric shouldn't be taken literally." You then clarified, "What I'm saying is the government is not going to make you change plans under health reform." Would your reforms encourage employers to drop their health plans?
You found $600 billion worth of inefficiencies that you want to cut from Medicare and Medicaid. If government health programs generate that much waste, why do you want to create another?
You and your advisors argue that Medicare creates misaligned financial incentives that discourage preventive care, comparative-effectiveness research, electronic medical records, and efforts to reduce medical errors. Medicare's payment system is the product of the political process. What gives you faith that the political process can devise less-perverse financial incentives this time?
You claim a new government program would create "a better range of choices, make the health care market more competitive, and keep insurance companies honest." Since when is having the government enter a market the remedy for insufficient competition? Should the government have launched its own software company to compete with Microsoft? Are there better ways to create more choices and more competition?
When government entered the markets for workers compensation insurance, crop and flood insurance, and disaster insurance, it often completely crowded out private options. Do you expect a new government health insurance program would do the same?
You have said there are "legitimate concerns" that the government might give its new health plan an unfair advantage through taxpayer subsidies or by "printing money." How do you propose to prevent this Congress and future Congresses from creating any unfair advantages?

President Obama needs to address questions these directly. The health of millions depends on his answers.

Staying in Afghanistan Is the Wrong Strategy by Gene Healy

Mon, 22 Jun 2009 23:00:00 CDT

There were echoes of Bush-style "deciderism" in President Obama's peremptory announcement of an Afghanistan troop "surge" in February.

Likewise, it was hard to miss the Iraq parallels in last week's House vote for "emergency" funding to continue the nearly eight-year long Afghan war. Several skeptical Democrats switched their vote to "yes" at the last minute, citing loyalty to their party's president. (The more things change….)

"Quagmire" probably isn't the right metaphor for arid Afghanistan, but once again, we seem stuck in a costly, dangerous foreign adventure. And Obama's strategy for success, such as it is, is heavy on the "hope," light on the "change."

At the outset of the Iraq War, Gen. David Petraeus famously asked an embedded reporter, "tell me how this ends." Last year, Petraeus inherited oversight of the Afghan war when he became head of U.S. Central Command.

And when the general testified about Afghanistan before the Senate Armed Services Committee recently, Sen. Jim Webb, D-VA, turned the question back on him.

Petraeus didn't have a good answer. He spoke vaguely about the Afghans eventually "shoulder[ing] the responsibilities of their own security." Webb followed up: "When was the last time that Afghanistan had an actual functioning national army"? "More than 30 years ago," Petraeus admitted.

The Obama administration has no better answer, as is apparent from its recently released strategic review of operations in the "Af-Pak" region. The paper touts "realistic and achievable objectives."

But how realistic is the administration's call for "a dramatic increase in Afghan civilian expertise" that will--presto!--"create economic alternatives to the insurgency"? Or "breaking the link between narcotics and the insurgency?" That might be a tall order, given that Afghanistan produces 93 percent of the world's opium crop--and little else.

Each year of the war brings greater violence than the last, with 2008 the deadliest yet for U.S. soldiers and Afghan civilians. Civilian deaths dropped somewhat in 2009, but coalition casualties continue to rise--up 62 percent from last year.

Army chief of staff George Casey recently told reporters that the situation will get worse before it gets better, and that "anything you put [in Afghanistan] will be in there for a decade."

No surprise there: Nation-building is extraordinarily hard. The good news is that it's almost always unnecessary--and especially so in Afghanistan.

Gen. Colin Powell's famous "Pottery Barn" principle--"you break it, you own it"--doesn't apply in this case. We didn't "break" Afghanistan. We went to war to disrupt Al Qaeda and demonstrate that no government could get away with sheltering a group that killed nearly 3,000 Americans--goals we achieved more than seven years ago.

If Al Qaeda operatives are foolish enough to set up new training camps in Afghanistan, we won't need boots on the ground to destroy them. Thanks to advances in Unmanned Aerial Vehicle technology, we're no longer limited to Clintonian gestures like lobbing cruise missiles at empty tents. Since 9/11 we've repeatedly used UAVs to kill Al Qaeda operatives in countries we're not occupying, like Yemen and Pakistan.

The new, bipartisan conventional wisdom is that in order to fight Al Qaeda, we'll have to keep fighting bloody counterinsurgencies in "failed states." Why anyone believes that is a mystery.

Al Qaeda operates in some 60 countries worldwide, and launched its biggest strike from a "base" in Hamburg, Germany. Law enforcement and intelligence are key to fighting terrorism—occupying armies do more harm than good.

Recent events made that clear. Having pushed the Taliban over the Afghan border into Western Pakistan, we watched nervously last April as jihadists surged to within 60 miles of Islamabad.

The situation has dramatically improved since, but is giving Afghanistan a functional government--assuming that's possible--worth destabilizing nuclear-armed Pakistan?

As Sen. Hillary Clinton, D-NY, fell behind Obama in the 2008 Democratic primaries, she complained that she had "a lifetime of experience," while Obama had "a speech he made in 2002," referring to the then-state-senator's remarks at an antiwar rally in Chicago. But it was a smart speech about what Obama called "a dumb war," and it was instrumental in winning him the nomination.

Afghanistan wasn't a "dumb war" at the outset; unlike Iraq, it was a necessary war. But staying looks less and less wise every day.

Book Review: Money, Markets and Sovereignty by Doug Bandow

Mon, 22 Jun 2009 23:00:00 CDT

Money, Markets and Sovereignty
by Benn Steil and Manuel Hinds
Yale University Press, 288 pages

The era of laissez-faire capitalism is over, it is said, as if the era of laissez-faire capitalism ever really began. Still, globalization has helped open markets around the world.

At a time of economic crisis, Benn Steil and Manuel Hinds mount a well-documented defense of globalization, "the extension of consensual economic exchange across borders." They warn: "[C]harges that financial markets and institutions, such as the International Monetary Fund (IMF), are violating fundamental rights of states remain largely unchallenged and have a natural and growing appeal to organized interests who are only too willing to harness the powers of state organs in the name of reclaiming lost sovereignty."

Money, Markets and Sovereignty is a surprisingly easy read, given the complicated issues covered. In it, Mr. Steil and Mr. Hinds consistently challenge today's statist nostrums.

Critics often treat globalization as a new phenomenon. Yet, the authors observe, "broadly speaking, the view that increasing economic and cultural interconnections across the globe are a positive development, to be advanced rather than resisted — has a much older and historically esteemed pedigree than is widely recognized."

The authors explore the relationship between "globalist thought" and "the notion that individuals have certain natural universal rights that transcend the will of rulers." This history "highlights the fact that today's trade mythology — that autarky is the natural state of affairs and that people should not buy from foreigners except with dispensation from the state — is hardly one with a compelling pedigree."

Particularly beneficial has been the development of private commercial law. But, note Mr. Steil and Mr. Hinds: Many globalization critics hope "to preempt the organic development of common international commercial practice and expectations, and instead to dictate ex nihilo the form and scope of permissible facets of globalization."

The authors bust several anti-globalization myths. Mr. Steil and Mr. Hinds explain: "Anti-globalization writers, in contrast to their pro-globalization counterparts, do not tether their arguments to the history of ideas. They do not defend a philosophy; they endorse no particular principles of just conduct or lawmaking. Rather, their arguments are largely based on defending visions of a sublime past, now being supplanted by what are alleged to be new and illegitimate forces."

Does globalization violate sovereignty, the authors ask? Yes — just as sovereignty has been routinely limited throughout history. Critics complain about the adverse impact of individual choice, an argument that, Mr. Steil and Mr. Hinds argue, often turns out to be "an open invitation to authoritarianism. It is, not surprisingly, heartily endorsed by Chinese state censors."

Complaints about income inequality actually acknowledge globalization's positive impact on international poverty. The authors explain: "Following conspicuously pro-globalization strategies over the past decade, [China's and India's] exceptional progress in bringing hundreds of millions out of poverty has forced critics of outward-oriented economic policies to shift their focus away from poverty and toward the wealth gap."

The claim that globalization somehow "destroys nations" could not be "more welcome to despotic rulers of poor nations and less conducive to the interests of their people." Finally, the benefits of globalization, the authors contend, are real, not just theory; unfortunately, costs often are more visible and thus politically more salient.

Money, Markets and Sovereignty also addresses monetary "sovereignty," the increasing control of nation states over money and its value. Mr. Steil and Mr. Hinds discuss the creation of money, which originally was largely commodity-based and served to greatly expand commerce.

Even as countries moved toward issuing paper currency, the leading states backed their money with gold. The authors think highly of commodity-based money, though the flawed systems established after World Wars I and II created problems that "were eminently foreseeable — and indeed were not only foreseen but loudly warned of by a few souls." President Nixon ended the convertibility of dollars into gold in 1971, leaving the United States with purely "fiat" money — that is, money whose value is set by government.

The result has not been pretty. As Mr. Steil and Mr. Hinds write, much international economic disorder that has "come to pass is once again being widely blamed on a lack of economic sovereignty — this despite the fact that it was a predictable, and indeed predicted, result of a return to economic sovereignty in the monetary sphere."

Previously, trade and monetary liberalization tended to move together. In recent years, trade has been increasingly freed while money has been increasingly regulated.

In theory, politicians, with economists in tow, "could systematically outsmart the market, making it dance to their tune. Through the manipulations of monetary variables, such as the rate of monetary creation, the nominal interest rate, and the exchange rate, they could durably improve the performance of the real economy." Unfortunately, governments have mostly failed.

Mr. Steil and Mr. Hinds close with a discourse on the dollar's future. They warn: "There is little basis for presuming that this premium [to dollar-denominated assets] will persist, that investors will indefinitely sacrifice yield vis-a-vis investments denominated in other credible currencies." To restrict currency manipulation by Washington, the authors advocate "a renewed statutory framework for the Fed, one which explicitly acknowledges the global role of the dollar and the dependence of the U.S. economy on foreign confidence in it."

More broadly, they contend that it is critical to resist attacks on globalization. In their view, the issue is not so much philosophical, even though globalization reflects ideas deeply imbedded in the Western experience. The principal issue is practical. Warn Mr. Steil and Mr. Hinds: "Rolling back economic liberalism in the cause of reclaiming 'sovereignty' is a well-documented recipe for stifling wealth creation, entrenching poverty, and ratcheting up international conflict."

Ethanol Standards: Why Federal Policy Is Crazy by Harry de Gorter and David R. Just

Mon, 22 Jun 2009 23:00:00 CDT

Farm state Democrats are threatening to vote against climate change legislation unless the EPA excludes emissions generated by the indirect changes in land-use that follow from ethanol subsidies in their calculation of a "sustainability standard." This standard requires ethanol to emit at least 20 percent less CO2 relative to gasoline as a condition for federal mandates and subsidies. While ethanol subsidies as a general matter are not a good idea, these legislators are right: The EPA standards at issue make no sense and should be scrapped.

Ethanol is sustainable by definition. The CO2 sequestered by growing corn is exactly offset by the CO2 emissions that follow from burning the fuel in a car. The same observation applies to, say, drinking bourbon made from corn.

Are CO2 emissions due to operating an automobile any worse than emissions due to digestion? The only difference is that ethanol can replace gasoline—bourbon cannot. Hence, a logical sustainability standard would be tougher on bourbon and all other products made from corn —products that can negatively impact health, like beef, bacon, butter, Buffalo wings etc. – and a lot easier on ethanol which is more greenhouse-friendly than other corn-based products and saves lives by powering ambulances to hospitals.

The EPA's sustainability standard is based on "life-cycle accounting" (LCA), a "well to wheel" measure of greenhouse gas emissions in the production of gasoline and a "field to fuel tank" measure for ethanol production. While attractive in theory, LCA fails to recognize that if incentives are given for ethanol producers to use relatively "clean" inputs (e.g., natural gas and land previously used for soybean cultivation), the "dirtier" inputs (e.g., coal and land previously dedicated to rainforests) that might otherwise have been used will simply be used by other producers to make products not covered by the sustainability standard.

In short, sustainability standards reshuffle who is using what inputs with no net reduction in national emissions. LCA measures are therefore misleading and may not measure the actual greenhouse gas emissions saved by ethanol production.

Rather than try to get LCA right, the entire exercise should be scuttled altogether. The difficulties associated with a sensible calculation are simply too great.

LCA assumes, for instance, that ethanol will replace gasoline, but it may actually replace coal or other energy sources, especially since oil supply is generally thought of as "finite" while coal is considered "unlimited in supply." This is not simply a matter of theory. In developing countries like Brazil, electricity is generated by harnessing leftover sugar cane, thereby potentially replacing coal-based electricity. It is also possible for biofuels to replace wood currently used for home cooking and heating, both of which impose huge health and environmental costs in developing countries. The upshot is that LCA will almost certainly undercount the greenhouse gas emissions that are "saved" by ethanol as well as other problematic air emissions.

Nor is LCA any easier when we apply it to the oil sector. The direct and indirect effects of oil pollution in the Ecuadorian jungle, for instance, would have to be measured, as would the environmental impacts of site specific drilling everywhere else on the globe.

To make matters worse, the argument over sustainability standards diverts attention from the contradictory and wasteful stew of federal ethanol policies – import tariffs, tax credits, mandates and production subsidies – which exist whether ethanol is sustainable or not. Our research shows that these policies generate tens of billions of dollars per annum of economic inefficiencies. Ensuring that ethanol is "sustainable" does not make those costs disappear. To just take one example, combining a tax credit for ethanol with a binding mandate requiring a minimum level of consumption will subsidize gasoline consumption instead of ethanol consumption, resulting in an increase in CO2 emissions, traffic congestion, and dependence on foreign oil.

Sustainability standards for ethanol make no sense. If we want to tackle greenhouse gas emissions, the most efficient means of doing so it to impose a carbon tax (explicitly through the tax code or implicitly with a cap & trade emissions program) on oil and natural gas at the refinery, coal at the plant using the coal, and land at time of conversion into the production of biofuels, bourbon, shopping malls, etc. That covers all of the relevant sectors of the economy in a fair and efficient manner. "Fair" and "efficient," however, are not words one would use to describe sustainability standards for ethanol.

Smoke Gets in the Government's Eyes by Patrick Basham and John Luik

Mon, 22 Jun 2009 23:00:00 CDT

Tobacco displays do not lead young people to light up, so why on earth are UK officials banning them?

Professor James Heckman, the Nobel Prize-winning economist, has devoted a decade to understanding what makes young people engage in risky behaviours, such as smoking and illegal drug use, and what can be done to prevent this.

Given that a UK House of Commons committee is currently debating how to prevent youth smoking through legislation that requires shopkeepers to hide all tobacco products from sight, it would be reasonable to assume that the committee would talk to Professor Heckman.

But it hasn't. And the reason the committee is not doing so speaks volumes about the debased state of public policy debate.

The basis of the UK government's legislation is the claim that one of the major reasons why young people smoke is that they see tobacco displays in shops. If you find this claim more than a little odd, you are not alone.

When the legislation was debated in the House of Lords, the government was unable to produce any credible and compelling scientific evidence that seeing tobacco displays in shops led anyone to smoke or that removing tobacco displays had led to a decline in youth smoking. Indeed, the international evidence from a variety of countries that had tried this 'silver bullet' to stop youth smoking showed that adolescent tobacco use had either increased following a display ban or stayed the same.

In an attempt to bolster their less than robust case, the government touted a study by professor Gerard Hastings, which argued that the more young people were aware of tobacco brands the more likely they were to 'intend' to smoke (notice, not smoke, but intend to smoke).

Regrettably, the Hastings study (which was not published in a peer-reviewed journal) has several defects. Since it wasn't a study establishing cause and effect, it could never counter the commonsense response that the reason young 'intending' smokers knew more tobacco brands is because they were young intending smokers. Their smoking led to their interest in brands, not the other way round.

It also failed to provide a demonstrated connection between increased awareness of tobacco brands and tobacco displays in shops, which is, after all, what the legislation is about. Finally, Hastings' research is contradicted by a host of other studies, including some cited by the government itself, which showed that tobacco brands are not important in the process of taking up smoking.

Where does this leave Heckman? The reason that Hastings addressed the Commons committee rather than Heckman is because Hastings' research supports the government's tobacco control policy, while Heckman's work exposes the government's nonsensical arguments.

Heckman does this in two ways. First, his work shows that studies like Hastings' and claims about shop displays causing young people to start smoking are instances of flawed science: they don't meet the rigorous standards necessary to establish the government's claim that 'tobacco displays cause young people to begin smoking'.

Heckman argues that the government and public health advocates consistently make both strong assertions about the supposed causes of youth smoking and push draconian policies like display bans based on simplistic and flawed statistical methods that would not pass muster in other areas of public policy. Their studies never show that the particular focus of a policy, such as tobacco displays, is the cause of a problem such as youth smoking.

Nor do they ever consider and control for the role of other factors in initiating youth smoking. Nor are the studies replicable by other researchers. As a result, public policies and enormous resources are being focused on alleged 'causal factors', such as tobacco displays, 'that have not been scientifically established but merely assumed to affect smoking initiation'.

As a result, public policies for dealing with youth smoking and drug use are put forward without any connection to the problem for which they are intended. This means that by their very nature they miss the mark and fail. For example, if tobacco displays don't cause young people to smoke, banning them won't do anything to prevent youth smoking. Such measures are nothing more than window dressing and they fail to come to terms with the root causes of what drives smoking.

Second, Heckman's work provides real answers to the question of what leads young people to start smoking and what can be done to prevent it.

In a series of recently published research studies, Heckman showed that two factors, both malleable — family environment and school environment — are crucial in the development of two skill sets: cognitive skills and non-cognitive skills, such as motivation, determination, self-esteem, and self-regulation.¹

These two skill sets are both strongly and consistently related to the probability of becoming a regular smoker by age 18. Moreover, the foundations for both of these skill sets are developed at an early age. In short, the higher one's cognitive and non-cognitive skills, the less likely it is that one will become a smoker.

Heckman's research finds considerable support in recent research on youth smoking in the UK. Several studies have found that youth smoking is strongly correlated with living in areas of high social and economic deprivation, failing schools and dysfunctional families — precisely the sorts of environments that fail to provide for the development of the cognitive and non-cognitive skills that Heckman finds so important.

The implications of Heckman's research for smoking policy are therefore enormous. Instead of focusing on things like tobacco displays that are unrelated to youth smoking, the essence of the government's tobacco strategy ought to be three-fold:

designing early childhood interventions to develop crucial cognitive and non-cognitive skills in those areas with the worst performing schools and the highest youth smoking rates (these tend to overlap);
removing the causes of social and economic deprivation in those with the highest youth smoking rates;
creating novel interventions to address the sources of family dysfunction in those areas with the highest youth smoking rates.

The great benefit of such a tobacco policy is that, in addition to dramatically reducing smoking, it would reap significant benefits in a host of other areas.

It's a real tragedy that the Commons isn't hearing from James Heckman on youth smoking. This isn't just because his analysis cuts through the government's cant and shows how unsupported its policies, such as a display ban, really are. Far more importantly, his enormous knowledge of what really does cause smoking may help prevent a generation of British kids from lighting up.

¹ See 'An Assessment of Causal Inference in Smoking Initiation Research and a Framework for Future Research, by James Heckman, in Economic Inquiry, January 2008.