Michael D. Tanner
It has become the go-to policy argument for many liberals and the media: People will die. Repeal Obamacare … and people will die. Cut any social-welfare program by so much as $1 … and people will die. Reform unsustainable entitlement programs like Social Security and Medicare, and, you guessed it, people will die.
While in some cases this argument is debatable and in others it’s ridiculous, it is always politically potent. Who wants to argue about economic incentives when lives are at stake?
The reality, born out by hundreds, if not thousands, of years of experience, is that economic growth does more to save lives than any government program ever could.
In the bigger picture, though, it gets things exactly wrong. The reality, born out by hundreds, if not thousands, of years of experience, is that economic growth does more to save lives than any government program ever could. After all, nothing, except maybe war, kills like poverty. Yet poverty globally is at an all-time low. And, as a result, life expectancies have soared. A century ago, the average person could expect to live to around 54 years old. A boy born today can expect to live to be 76, and a girl can expect to live about five years longer than that.
Consider what daily life is like in this country today compared to just just 100 years ago. By every measure we are better off. Even the poor today have access to goods and services that were undreamed of by the rich not so long ago. As recently as the 1960s, for instance, nearly a third of poor households had no telephone. Today, telephone ownership is nearly universal. Roughly half of poor households own a computer, more than 98 percent have a television, and two-thirds have two or more TVs. In 1970, less than half of all poor people had a car; today, two-thirds do.
It is not government that has brought all this progress about, but the economic growth that comes from free-market capitalism. As the economist Deidre McClosky points out, if all the profits generated by American businesses were immediately handed over to “the workers,” those workers would be roughly 20 percent better off than they are today. On the other hand, the rise in real wages since, say, 1800, has made workers roughly 9,900 percent better off.
Not only do we know the benefits of economic growth, but we also know what leads to it: the rule of law, a stable currency, free trade, liberal labor policies, and limited government intervention. Policies — such as high taxes, out-of-control spending, and excessive regulation — that slow economic growth may do far more harm than good. One might even say that those policies mean people will die, reductive though such an argument would be.
Too often, advocates of big government look only at one side of the equation: They see the theoretical benefits of whatever program they are proposing while ignoring the costs it will impose on the economy.
Some 250 years ago, the French economist and philosopher Frederic Bastiat referred to the example of a farmer who plans to hire a worker to dig a ditch on his property, but is unable to do so because the money he’d have used to pay the ditch-digger went instead to pay taxes. A government bureaucrat is able to use those taxes to spend on various projects. Of course, everyone can see the results of that spending, which undoubtedly makes the bureaucrat popular. But what goes unseen is the loss suffered by the poor ditch digger.
In fact, he might even die.Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.
Christopher A. Preble
In his address to the nation on Monday evening, President Donald Trump explained that his “original instinct,” when he came into office, “was to pull out” of Afghanistan. But “decisions are much different when you sit behind the desk in the Oval Office,” and so he, like his two predecessors, has determined that U.S. forces will remain there. “The American people are weary of war without victory,” he explained. So victory is what the president promised them.
Specifically, he pledged to apply force strategically in order “to create the conditions for a political process to achieve a lasting peace.”
On five separate occasions, President Trump referred to a “new strategy” for Afghanistan, but the details are sketchy. Don’t be distracted by the assertions that Trump expects more of our Afghan partners, or that he will put pressure on Pakistan—and we really mean it this time. The relevant point is this: presented with an opportunity to end the U.S. war in Afghanistan, Trump chose to keep it going. And going. “A core pillar of our new strategy,” he explained, is “a shift from a time-based approach to one based on conditions.” Withdrawal, should it ever come, won’t be based on “arbitrary timetables.” Although he said “our commitment is not unlimited, and our support is not a blank check,” make no mistake: the U.S. military presence is open-ended.
Why did a man who regularly railed against Washington insiders for their foolish wars ultimately sign onto a continuation of America’s longest one?
Trump’s skepticism of the war in Afghanistan goes back at least six years. For example, on October 7, 2011, he asked on Twitter “when will we stop wasting our money on rebuilding Afghanistan?” Less than six months later, he tweeted “It is time to get out of Afghanistan…It is not in our national interest.” In August 2012, he called the war in Afghanistan “a complete waste.” And declared it’s “time to come home.” As late as December 2014, he blasted President Barack Obama for “keeping our soldiers in Afghanistan for at least another year.”
Based on these comments, and Trump’s professed skepticism of the foreign policy establishment’s playbook, it wouldn’t have been a great shock if he chose to walk away.
On the other hand, Donald Trump hates losing. And leaving Afghanistan in its present state would look a lot like a loss.
What’s more, if he were to withdraw all U.S. troops from Afghanistan, and something bad were to happen at a later date (e.g. terrorism here, attacks against Americans there, Taliban resurgent) he would forever be blamed.
He could, and probably would, attempt to shift blame to his predecessors. But the fact would stand: Trump chose to withdraw U.S. troops after his predecessors had chosen to leave them in place, and the bad thing happened on his watch. That that bad thing would not have happened if the troops had stayed will be assumed, although such claims are untested and untestable. Just ask Barack Obama. On Monday evening, as he had many times previously, Donald Trump blamed the rise of ISIS on Obama’s decision to withdraw from Iraq in 2011.
President Trump’s rhetoric echoes the conventional wisdom in Washington. Few presidents are criticized for using military force. More often, they are hit for not intervening often enough. Or trying hard enough. Or long enough. Withdrawal without victory is a particularly odious sin.
Therefore, when Donald Trump was presented with an opportunity to redirect U.S. attention and resources, he ignored both the reasonable and well-considered suggestions to withdraw, as well as the foolish and quixotic proposals. Instead, he chose to kick the can down the road. Although he didn’t tell the American people how many additional troops will be sent to Afghanistan, increasing the size of the force already there will not be sufficient to turn the tide there, a point that he admitted during his speech. American military power is insufficient to bring an enduring political settlement to a country the size of Afghanistan.
But while leaving U.S. troops in Afghanistan hasn’t made it easier to win (whatever that means), Trump has made it harder for his successor to leave at a later date.
Imagine a scenario in the late summer of 2021, in which the next occupant of the White House is confronted with a choice on whether to stay or withdraw. He or she will agonize over it—as Trump did, and as Obama did, too.
In all likelihood, that successor will also conclude that leaving isn’t worth the political hit. President 46 will leave the force in place, or modestly increase it, but without expecting to ever actually win, or ever quit. The object, as with Trump, will be to avoid the appearance of defeat.
Lather, rinse, repeat. It’s a recipe for continual conflict.
When any president is given the option of either backing away from the use of American military power, or doubling down on past efforts, the easiest course—politically—is to continue the war.
President Trump has chosen the easiest course. The man who prides himself on ignoring polls and focus groups, and making decisions on the basis of what is best for the country, has behaved no differently than his predecessors.Christopher Preble is vice president for defense and foreign-policy studies at the Cato Institute and the author of The Power Problem: How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free.
A. Trevor Thrall and Erik Goepner
Last night, Donald Trump took full ownership of the war in Afghanistan, a war he has criticized for years. By Trump’s own admission, and that of his secretary of defense, that war has been going very poorly. Using his first nationally televised prime-time address to articulate a new strategy for “winning,” Trump has firmly yoked his legacy to making serious progress in Afghanistan.
Unfortunately for Trump, and even worse for the United States, this war will not end in victory.
The first problem with Trump’s strategy is his full-throated embrace of a vague and expansive definition of American goals, which now include “attacking our enemies, obliterating ISIS, crushing Al Qaeda, preventing the Taliban from taking over Afghanistan …” Why does Trump believe that the United States can solve these problems now when solutions have eluded both of his predecessors for the past 16 years?
In the end, Trump’s bold claims about keeping America safe by going on the offensive in Afghanistan ring hollow.
Disrupting Al Qaeda was a discrete and achievable goal, one quickly realized in 2001. But defeating Al Qaeda “and every terrorist group of global reach” was not. When nations — even powerful ones like the United States — identify impossible tasks as their goals, they are doomed to fail.
Beyond that, although Trump claimed his strategy represents a clear break from the past, it is so far only a slightly more muscular version of the policy he inherited from Obama. And, in fact, it remains a much less forceful version of Obama’s surge in 2009 and 2010, when the total number of American troops reached 100,000. That surge provided only temporary and partial relief to the Afghan government. There is no evidence, from the Trump administration or elsewhere, to suggest that things will be different this time. The facts on the ground are stubborn and longstanding. Neither a few thousand more troops nor a few more years will tame the Taliban or turn the tide of the conflict.
Nor should the public believe that there is anything new in Trump’s focus on Pakistan. Though the President is right to reconsider the aid the U.S. provides to Pakistan given its support of the Taliban, Trump’s call to hold Pakistan accountable amounts to a recycling of previous U.S. efforts. In 2001, the U.S. put “extraordinary pressure” on Pakistan. In 2006, the U.S. praised Pakistan for its “unfaltering” fight against terrorism. A similar to and fro continued during the Obama presidency. None of these efforts have amounted to much to date. Carrying them too far, on the other hand, may amplify the conflict in Pakistan, further destabilizing the region.
In the end, Trump’s bold claims about keeping America safe by going on the offensive in Afghanistan ring hollow. The truth is that for all the talk of terrorism safe havens and American influence, neither propping up Afghanistan nor defeating the Taliban are necessary to ensure American security.
Al Qaeda, the threat that justified the invasion in the first place, is a pale shadow of its former self, nor is Afghanistan a safe haven for ISIS. Sadly, the greatest danger to Americans comes not from terrorists based overseas, but from people living in the United States who decide to commit violent acts.
After more than 2,400 American casualties and hundreds of billions of dollars spent in Afghanistan over the past 16 years, there is still no end in sight to America’s longest war. But rather than acknowledge the United States has done all it could there, Trump’s strategy ensures that the United States will keep paying a steep price for continued failure in Afghanistan.
Trump may also pay a political price for Afghanistan. He admitted that his initial instinct was to pull out of Afghanistan, but that was before he “studied Afghanistan in great detail and from every conceivable angle.” Having successfully attacked Obama for continuing failed policies in the war on terror, there is little upside for Trump with his “America First” base. If U.S. efforts in Afghanistan don’t “work quickly” as the President promised, he will have provided potential opponents — both Democratic and Republican — with a powerful issue with which to attack him in 2020.A. Trevor Thrall is senior fellow in defense and foreign policy at the Cato Institute and associate professor in the Schar School of Policy and Government at George Mason University. Erik Goepner commanded military units in Afghanistan and Iraq and is a visiting research fellow at the Cato Institute and doctoral candidate at George Mason University.
The Afghanistan war now belongs to President Donald Trump. His “path forward” with more troops and fighting will take America more deeply into a conflict it should have exited years ago.
Indeed, the president recently complained: “we’ve been there for now close to 17 years, and I want to find out why we’ve been there.” But if he learned the answer, he didn’t share it with the American people. Defense Secretary Jim Mattis admitted to Congress in June that “We’re not winning Afghanistan right now.” Unfortunately, the president’s new policy of escalation will do no better.
The news in Afghanistan continues worsen. Civilian casualties rose to record levels in the first half of the year. Afghan soldiers and police also are dying in increasing numbers. The Taliban is fighting to control the most territory since America first intervened. As of February the Kabul government controlled or influenced just 60 percent of the country, down from 72 percent more than a year before. And Shashank Joshi of the Royal United Services Institute in London noted that “a lot of [Kabul’s] control is pretty tenuous.”
The issue is more than territory: the Taliban gained influence over an additional 3.4 million people. The insurgents operate openly an hour away from U.S. bases. As yet the Taliban cannot conquer and hold cities, but even Kabul is insecure. Reported Susanne Koebl for Spiegel online, the capital “resembles a fortress. It is currently undergoing its bloodiest period since the beginning of the U.S.-led invasion.”
When I visited Kabul six years ago caution was necessary but there was life beyond the walls of expatriate compounds. Alas, departing Wall Street Journal reporter Jessica Donati detailed how the city has become a war zone, where “The U.S. embassy deems the five-minute drive to the airport so risky that it shuttles staff there by helicopter.”
The Afghan government frantically lobbied the Trump administration to keep American forces there. Reported the Washington Post, the Afghans “said a clear signal of continued support from Washington is urgently needed to keep the fragile Kabul government on its feet amid an explosion of public unrest and organized opposition from a variety of groups.” Yet U.S. support is not the answer. Argued Abdul Bari Barakzai of the High Peace Council: “people have lost trust in the government. No matter how many troops you bring now, it will have no lasting impact unless there is real reform and good governance.” Which no one expects.
U.S. military personnel are among the most cynical critics of the mission. Journalist Douglas Wissing observed: “Soldiers I met in Afghanistan complained about billions being spent on often-spurious development projects, while their own families back home were struggling. I encountered many offices desperately trying to reconcile their sense of duty with contempt for the extravagant U.S. support for the predatory Afghan government.”
Washington intervened in 2001 to destroy al-Qaeda, which organized the 9/11 attacks, and oust the Taliban government, which hosted the terrorist organization. These objectives were achieved within months, but the Bush administration shifted from counter-terrorism to nation-building, attempting to create a government in America’s image.
President Barack Obama initiated a double escalation, and U.S./allied troops levels peaked at 100,000/140,000, backed by almost 120,000 civilian contractors. Although the U.S. won any number of individual firefights, Washington could not resolve the larger political struggle. The central government survived only at foreign sufferance. President Barack Obama slowed his planned withdrawal, leaving the issue to President Trump.
So far the U.S. has sacrificed some 6000 lives (roughly 2400 military and 3500 contractor) and spent almost a trillion dollars—plus 1100 more lives and billions more dollars lost by allied nations. Yet most Afghans want neither foreign nor national rule: their world is the village and the valley. The U.S.-created central government is noted primarily for incompetence and corruption. The economy is largely based on opium and war. Kabul’s effective writ runs little beyond the capital city’s limits. The likelihood of the Afghan government sustaining itself without continuing allied support is nil.
The U.S. still has around 8400 troops, along with 5000 more allied personnel and 26,000 contractors, in Afghanistan. Americans continue to die. Earlier this year Gen. John Nicholson, commander of U.S. forces in Afghanistan, called the situation a “stalemate.” When asked whether America was winning or losing, he responded neither.
His “path forward” with more troops and fighting will take America more deeply into a conflict it should have exited years ago.
What to do now? Before his election President Donald Trump called the war “a complete and total disaster” that had “wasted billion and billions of dollars and more importantly thousands of thousands of lives.” He wanted America to “get out of Afghanistan.” He added that “We made a terrible mistake getting involved there in the first place” and wondered if “at some point, are they going to be there for the next 200 years.”
After the election he shifted position, suggesting that the U.S. might have to stay because of “Pakistan, which has nuclear weapons.” Last December he told Afghan President Ashraf Ghani that he “would certainly continue to support Afghanistan security.” Earlier this year the president authorized the Pentagon to send another 3900 troops, but his obvious reluctance to back continued military involvement in Afghanistan caused Defense Secretary Jim Mattis to withhold the additional forces.
Administration officials struggled over strategy. Now, the president declared, the U.S. will do more of the same, only without specifics. Apparently additional military forces with fewer restrictions. More demands on allies to contribute. More pressure on Pakistan to abandon the Taliban. More requests for assistance from neighboring states. And a commitment to “victory,” which in this case mostly means goals, such as defeating al-Qaeda and ISIS and preventing terrorist attacks, beyond Afghanistan. There the president merely proposed “preventing the Taliban from taking over,” which sounds like something decidedly short of what most people would consider to be “victory.”
National Security Adviser H.R. McMaster apparently backed an expanded and open-ended commitment, buttressed by a 3000 to 5000 personnel increase. One objective was to build up Afghan security forces which must, declared the Pentagon in its June report on Afghanistan, “weather the storm from the insurgency and deny the Taliban strategic victories on the battlefield, fight ISIS-[Khorasan], grow and train the [Afghan Special Security Forces], conduct planning to realign forces within the [Ministries of Defense and Interior], and posture itself to become a more offensive force in 2018.”
That would be a daunting agenda at any time, despite substantial U.S. backing for the Afghan army and police alike. For instance, Marines returning to Helmand Province noted the need for a robust Afghan police force to hold the territory they retook from the Taliban. However, explained the New York Times, “Despite years of Western training, the police forces, crucial to establishing government rule, are still seen as corrupt, tangled in tribal rivalries and the opium economy. They have little presence beyond the provincial capital.” The army, though performing better, suffers from similar defects. Additional U.S. trainers aren’t likely to remedy the underlying problems.
McMaster also argued that a troop increase would show resolve and help pressure the Taliban into talks. Similarly, explained Gen. Patrick J. Donahoe, “The end state is reconciliation with the Taliban, not a return to an ISAF and American combat role against the Taliban.” Vance Serchuk of the KKR Global Institute claimed that “Making such a commitment would send the unequivocal message to the Taliban that it cannot hope to prevail on the battlefield and must therefore pursue political reconciliation seriously.” Afghan officials have made similar assertions.
Yet there’s no evidence the administration has any plan for negotiations. Nor any means to manage brutally complicated Afghan politics, including: Pashtuns versus smaller ethnic groups, Pashtun ties over the “Durand line” into Pakistan, divisions among Pashtuns (particularly Durranis versus Ghilzais), rural religious conservatives versus urban religious liberals, and sundry regional warlords battling for money and control. Beyond Afghanistan other nations, especially Pakistan, treat the nation as a covert battleground. The State Department said that it is pursuing “a new, integrated regional strategy,” but Pakistan will continue to promote its national interests despite U.S. promises and threats.
Moreover, the modest troop increases apparently contemplated by the president would only marginally enhance the Ghani government’s capabilities. If a fighting force of 140,000 couldn’t achieve “victory,” how would 20,000 do so? Indeed, Aaron O’Connell at the University of Texas argued that “an increase in troop levels might make things worse, because the Taliban has historically responded to American surges with escalations of its own.” More foreign troops fighting in more areas likely would enhance Taliban recruiting, he warned.
Even the military appears to have but limited expectations. The most recent Pentagon report said America’s objectives were to defeat al-Qaeda’s threats, support Afghan security forces, and “give the Afghan people the opportunity to succeed and stand on their own.” Secretary Mattis hoped that Kabul could contain the fighting with limited America aid despite “frequent skirmishing.”
Gen. Nicholson spoke of breaking the “stalemate” which has developed in the war. Former U.S. commander in Afghanistan David Petraeus and the Brookings Institution’s Michael O’Hanlon hoped “an intensified military effort could arrest the gradual loss of territory held by the government in recent years” and “regain battlefield momentum.” Finally, the president called for a “victory” in nothing but name: “preventing the Taliban from taking over Afghanistan.”
Although the force increase would be small, in practice the aid would be unlimited. True, the president declared that “our commitment is not unlimited, and our support is not a blank check,” but who believes that having put his credibility on the line he is prepared to leave if the Afghans and others fail to play the roles assigned to them? Imagine the dire warnings of America’s lost credibility and respect.
Some observers advocate dropping the pretense of relying on the Afghan government and returning U.S. forces to a combat role. For instance, retired Army Gen. Jack Keane proposed sending in units to fight with Afghan government forces—for “maybe two fighting seasons at the most,” though recent experience suggests that limitation is unrealistic. Senate Armed Services Committee Chairman John McCain forthrightly advocated permanent war, demanding “a strategy to win,” which would “require more troops, thousands more. It’s going to require more effort, it’s going to require more money.” And more lives.
Of course, officials routinely develop impressive-sounding plans with the usual imperatives: improve the number and training of Afghan security personnel, reduce corruption, promote political stability, defang warlords, convince the Taliban victory is unattainable, end Pakistani sanctuary and support for the Taliban and Haqqani Network, persuade average Afghans (and Americans) that the government in Kabul is worth dying for, and more. But these all have been objectives for years. The claim that the latest in a long line of grand schemes will deliver the desired success seems particularly fantastic. Like many other advocates of increased action, the president doesn’t bother to specify how he would, finally, overcome the many past barriers to success.
Most important, even if real success beckoned, why should Washington go to such effort? What U.S. interest would be served?
White House Chief of Staff John Kelly, who lost a son in Afghanistan in 2010, contended: “If you think this war against our way of life is over because some of the self-appointed opinion-makers and chattering class grow war-weary, because they want to be out of Iraq or Afghanistan, you are mistaken. This enemy is dedicated to our destruction.”
Yet his assumptions are completely wrong. The opinion-makers and chattering classes in Washington are overwhelmingly pro-war, led by the same ivory tower warriors who so often plot grand crusades with other people’s lives. Average folks who saw their family members and friends die in Afghanistan for no reason are most dissatisfied with the endless war. Only rarely do Washington elites, such as Kelly, bear the costs.
Moreover, America’s real enemy in 2001 was not the Taliban but al-Qaeda, which since has been scattered, only to find sanctuary elsewhere. Washington had to strike in neighboring Pakistan, a nominal U.S. ally to kill the group’s leader, Osama bin Laden. The Taliban is a national Islamic insurgency, not a transnational terrorist organization, and would not likely invite back a group which previously misused its hospitality, triggering a foreign invasion. The Taliban wants to kill Americans fighting against it in Afghanistan, not those living across an ocean thousands of miles away.
Central Asia intrinsically has little importance for Washington. Of course, as a superpower America has “interests” everywhere, but few much matter, and especially enough to warrant going to war. The U.S. worried about the Soviet invasion of Afghanistan in 1979 because of its impact on the larger Cold War struggle and the possibility that Moscow might advance further in an attempt to dominate the Persian Gulf. Today an invasion by Martians is about as likely.
Even more so, the U.S. has little interest in who governs Afghanistan. The kind of government and degree of central control didn’t matter to the U.S. until a specific terrorist attack in a world which no longer exists. Al-Qaeda remains a threat, but no longer is tied to Afghanistan. The Taliban does not threaten America. The Islamic State has arrived in Afghanistan, but should be left to the Taliban, which has battled the new organization. Of course, it would be best if Afghanistan developed in a humane, liberal direction, but sympathy cannot justify years of military intervention.
President Trump claimed that “the security threats we face in Afghanistan and the broader region are immense,” pointing to the “20 U.S.-designated foreign terrorist organizations … active in Afghanistan and Pakistan,” which are there despite 16 years of war in Afghanistan. He cited chaos and violence in Pakistan, which is exacerbated by the conflict in its neighbor.
The president also worried about “tense relations” between India and Pakistan, which go back to the two nations’ joint founding and about which Washington can do little. Indeed, the U.S. has fueled anger in Islamabad by essentially taking India’s side in Afghanistan. The president compounded that problem by insisting that Pakistan change its behavior while talking up America’s “strategic partnership with India.”
The president presented escalation as an attempt to redeem the lives of those who have already died: “our nation must seek an honorable and enduring outcome worthy of the tremendous sacrifices that have been made, especially the sacrifice of lives.” Making a similar plea was Ahmad Shah Katawazai, a defense liaison at the Afghan embassy in Washington,: “We need to send a message to the families of the fallen that the mission their loved ones gave their valuable lives for has been accomplished.”
Economists call this the fallacy of sunk costs. What has been spent is gone. Those who have died cannot be resurrected. The president’s overriding responsibility is to the living. The best way to honor the dead is to send no more to die needlessly. Only future gains could justify sacrificing more lives, and Afghanistan promises few of those.
What of American credibility? The ever-hawkish Wall Street Journal announced: “U.S. Presidents can’t withdraw from national commitments without consequences.” However, commitments should be tied to American security and are not immutable. A stubborn refusal to adjust to changing circumstances creates its own credibility problems.
Without America’s heavy presence, could Afghanistan draw surrounding nations into the conflict? Russia, China, India, Pakistan, and Iran all have significant interests in Afghanistan’s orientation and future. Which ensures that all will remain involved irrespective of Washington’s wishes since all have far more at stake in Afghanistan than does America. As the president noted, nuclear-armed Pakistan is a particular concern, but the ongoing conflict, highlighted by Washington’s pressure on Islamabad to act against its perceived interest, increases the danger.
Barnett Rubin of the Center on International Cooperation argued that “a sustained diplomatic effort, coordinated with military and economic aid, might be able to deescalate” regional tensions. But Washington has not been inactive over the last 16 years. And the hope seems wildly overoptimistic, given America’s role as a combatant and difficult relations with most of the surrounding states. Better for American troops to be out of the conflict.
Finally, most advocates of continued intervention, including the president, point to the threat of terrorism. Last night he warned that “a hasty withdrawal would create a vacuum” that could be filled anew by terrorists. Secretary Mattis told the Senate Appropriations Committee that “Our primary national interest and the international interest in Afghanistan is ensuring it does not become an ungoverned space from which attacks can be launched against the U.S., other nation, or the Afghan people.” Petraeus and O’Hanlon similarly warned against allowing the country to become “once again a sanctuary for transnational extremists.”
These, at least, are mature presentations of the argument. Unsurprisingly, Sen. Lindsey Graham (R-S.C.) offered a simpleton’s version: “Every soldier over there is an insurance policy against our homeland being attacked.” Katawazai turned the claim into pure parody: “If the streets in Kabul are not secure, we cannot secure the streets of New York, Washington, London or Paris.” With a similar mindset Petraeus and O’Hanlon argued that casualties in Afghanistan “would likely remain far fewer than the losses from another major terrorist attack in the U.S.”
Such claims ignore reality. Gen. Nicholson missed the obvious connection when he told Congress that after years of conflict Afghanistan “has the greatest concentration of terrorist organizations in the world.” Unsurprisingly, war has fostered terrorism. Expanding the conflict will do more of the same. And there currently is plenty of Afghan territory beyond Kabul’s (and America’s) reach available for terrorists.
Ironically, a Taliban victory would close off some of those so-called havens since the movement would not likely want a repeat of its previous ouster because of al-Qaeda’s activities. Of course, a peaceful, stable, liberal, pro-Western Afghanistan also is possible—in an alternate universe. But even then Afghanistan would contain substantial remote and inhospitable terrain.
Moreover, there also are plenty of ungoverned spaces elsewhere, including within U.S. allies, such as Pakistan. Afghanistan is largely irrelevant to the problem of terrorism. Better for America to employ a targeted counter-terrorism operation when needed than impose an endless occupation when it is not. Washington also should emphasize making fewer foreign enemies and improving domestic security.
Proposals to turn the war over to military contractors wouldn’t relieve the U.S. government of having to decide how many fighters and how much money for how long and for what purpose. It is more difficult for the Pentagon to oversee contractors that its own personnel. Nevertheless, Afghans would see contractors as representing Washington and hold the U.S. government responsible for their actions. Worse, Americans still would be paying and dying in a mistaken war.
Afghanistan is a great tragedy. But the question of who will govern that nation is of little concern to America. Neither is the country itself. Unlike other, uglier times, there are no hegemonic, totalitarian states with malign intent ready to fill the proverbial vacuum. Today few problems in other nations require Washington’s attention, let alone intervention.
Yet Washington’s involvement the Afghan is rapidly approaching the 16-year mark. U.S. military forces long ago fulfilled their initial objectives of wrecking al-Qaeda and ousting the Taliban. In contrast, nation-building has been a failure. The Taliban is gaining, the Islamic State is threatening, and the Kabul government is faltering. American forces can’t even trust the Afghan troops they train.
Americans have been fighting in Afghanistan almost five times longer than in World War II. It is time to end Washington’s longest war.
Four years ago Donald Trump tweeted: “We should leave Afghanistan immediately. No more wasted lives.” He was right then. That should be his administration’s policy today.Doug Bandow is a Senior Fellow at the Cato Institute, former Special Assistant to President Ronald Reagan, and a Senior Fellow in International Religious Persecution with the Institute on Religion and Public Policy.
A. Trevor Thrall and Erik Goepner
Monday night Donald Trump announced a “new strategy” for Afghanistan and South Asia. He said the new strategy is predicated on three conclusions he drew regarding U.S. interests in Afghanistan. Those conclusions are the “immense” threat posed by Afghanistan and the region, the need for an “honorable and enduring outcome” and the pitfalls of a rapid exit.
How this will change U.S. strategy, though, was not entirely clear. He spoke of holding Pakistan accountable — not new; following a conditions-based schedule rather than a time-based one — also not new; easing use of force and targeting policies — again, not new.
In the end, though, Trump focused on killing terrorists: “attacking our enemies, obliterating ISIS, crushing al-Qaida…”
And most critically, throughout his speech he reminded Americans of his penchant for “winning.” On 10 occasions he affirmed that “we will always win,” or “in the end, we will win…”
President Trump’s new strategy ignores the evidence amassed over 16 hard-fought years, and, as a result, more American treasure will be lost as this unnecessary war continues.
His “winning” rhetoric, like that of previous administrations, makes it sound as though this is America’s war to win or lose. It is not.
In the aftermath of a previous war that did not go America’s way, an American military officer told his counterpart, “You know, you never defeated us on the battlefield.” To which the Vietnamese officer replied, “That may be so. But it is also irrelevant.” A similar exchange could take place today. Thanks to its military might, the U.S. has exclusive control over who wins on the battlefield. However, the U.S. has very little control over how the Afghan government will govern or how Afghan security forces will fight. America, therefore, has little power to affect the outcome of Afghanistan’s civil war.
Ever since the signing of the Bonn Accords in late 2001, the U.S. and the international community have endeavored to stand up a fledgling Afghan democracy. That has failed. Based on the lack of political rights and civil liberties available to Afghans, Freedom House rates the country as “not free,” the lowest rating. Afghanistan also remains abysmally corrupt, ranking 169 out of 176 countries in the Corruption Perceptions Index.
If civil wars occur, in part, because citizens rebel when they have enough grievances against their government, then it seems unlikely Afghan insurgents will lay down their weapons now to support one of the world’s most corrupt and least capable governments and live in a country that is not free.
Afghan security forces are similarly lackluster. There are approximately 350,000 Afghan military, police and local constables facing 35,000 to 45,000 Taliban and other insurgent groups. Despite being dramatically outnumbered, out-trained and out-equipped, the Taliban now control or contest 40 percent of Afghan districts, more than at any other time since 2001.
If civil wars occur, in part, because the government cannot prevent them, it seems unlikely, after 16 years and billions of dollars of effort, that additional U.S. troops and money will motivate and professionalize the Afghan security forces enough to secure its citizens.
The failure of the Afghan government and security forces is, primarily, a failure of Afghans. The U.S. can adjust its strategy as often as it would like, but Americans should not expect substantially different outcomes until Afghans find their own way.
And Trump’s suggestion that we can kill our way to victory is similarly unsupported by the evidence. Despite invading two countries, toppling three regimes and conducting military strikes in seven nations, the estimated number of Islamist-inspired terrorists has grown from approximately 32,000 before initiation of the war on terror to 109,000 now.
Some may find these to be tough truths. Yet the reality is that all these issues are manageable because no vital U.S. interests are at stake. The terrorist safe haven argument does not hold water, as Americans since 9/11 have been and remain quite safe. Homeland security efforts have successfully kept foreign terrorists out of the country even as the number of Islamic State group, al-Qaida and similar terror group numbers have multiplied. And if terror safe havens were a vital national interest, then a number of other countries would require U.S. action well before Afghanistan: Pakistan, Syria, Yemen and Iraq, chief among them.
President Trump’s new strategy ignores the evidence amassed over 16 hard-fought years, and, as a result, more American treasure will be lost as this unnecessary war continues. There will be no winning for the U.S. in Afghanistan.A. Trevor Thrall is a senior fellow at the Cato Institute’s Institute’s Defense and Foreign Policy Department and associate professor at George Mason University’s Schar School of Policy and Government. Erik Goepner is a retired colonel from the U.S. Air Force. During his military career, he commanded units in Afghanistan and Iraq.
The Iran nuclear deal is increasingly at risk, with President Trump threatening to overrule his top national security advisers and defy the assessment of international monitors to declare Iran non-compliant with the agreement’s stipulations. The problem for the administration, however, is that no viable alternative is better than the Joint Comprehensive Plan of Action. If Trump rips up the JCPOA, the U.S. would forfeit the stringent limitations placed on Iran’s enrichment activities and the international community would lose the unprecedented transparency it now has on Iran’s nuclear program. Even more daunting, the United States would become isolated in its approach to Iran, opposed by Europe, Russia, China, and much of the rest of the world.
Perhaps a more realistic concern is the prospect that the administration will nominally uphold the deal, while engaging in aggressive covert action against Iran. Increasingly, when traditional military and diplomatic options appear too costly, states turn to cyber warfare. But a stepped-up cyber offensive against Iran is very unlikely to yield desirable results. Not only is it unlikely to be effective in its immediate objectives, but it risks antagonizing Iran into precisely the kinds of behavior the hawks want to forestall.
Cyber-attacks fall into two basic categories: Computer Network Exploitation and Computer Network Attack. CNE essentially equates to espionage. It is simply the newest method of engaging in one of the oldest activities of states: snooping on enemies. CNA, on the other hand, is the practice of attacking foreign systems or infrastructure in order to destroy or incapacitate enemy networks.
A renewed campaign of covert network attacks is more likely to spur Tehran’s nuclear efforts than hinder them.
When cyber weapons complement the use of conventional power, as when Israel employed a CNA to incapacitate Syrian air defense systems before it bombed a suspected nuclear enrichment facility in 2007, their tactical utility can be quite high.
However, cyber power is not very effective as an independent tool of coercion. Successful coercion requires the targeted state to know both the identity of the attacker and the attacker’s intended message. This is often difficult in cyberspace because the identity of the attacker is frequently obscured and because isolated cyber-attacks don’t clearly communicate intended messages, making the target’s compliance unlikely.
Other factors also undermine the utility of CNA operations. Collateral damage and spillover effects are frequently unavoidable, for example. Cyber weapons are also effectively single-use tools of foreign policy because a targeted adversary can generally diagnose and patch whatever vulnerability allowed the attack. As well, CNA weapons carry a high probability of blowback. Targeted states can reverse-engineer the malicious code, replicate it, and then use it themselves. This only increases the likelihood that adversaries will respond to a cyber-attack, not with capitulation, but with defiance or counter-attack.
The Stuxnet virus is often held up as a fantastic success. As part of a larger U.S.-Israeli effort to sabotage Iran’s nuclear facilities, Stuxnet is probably the most sophisticated, complex, and powerful cyber weapon ever used. According to Wired magazine, Stuxnet “was unlike any other virus or worm that came before. Rather than simply hijacking targeted computers or stealing information from them, it escaped the digital realm to wreak physical destruction on equipment the computers controlled.”
Initial estimates exaggerated the damage caused by Stuxnet, claiming it set back the Iranian nuclear program by three to five years. Later assessments said the computer worm damaged only about 980 centrifuges (at the time, one-fifth of the total at the Natanz plant), and delayed Iran’s overall nuclear program by a matter of months. The International Atomic Energy Agency (IAEA) reported that, during Stuxnet’s attack window in 2009 to 2010, Iran actually increased the number of operating centrifuges, and increased production of low-enriched uranium from 80 kilograms per month to 120 kilograms per month. This suggests that Iran was spurred to boost production in the face of cyber-attacks.
In the aftermath of Stuxnet, and indeed right up until the November 2013 Joint Plan of Action interim agreement in which Iran agreed to temporarily freeze portions of the nuclear program as negotiations with the P5+1 continued, Iran’s number of operating centrifuges and stockpile of enriched uranium continued to grow. From 2008 to 2013, Iran’s stockpile of low-enriched uranium grew from 839 kilograms to 8,271 kilograms, almost a ten-fold increase.
“At best,” according to the University of Toronto’s Jon Lindsay, “Stuxnet thus produced only a temporary slow-down in the enrichment rate itself.” Other experts are even more skeptical. Ivanka Barzashka, Research Associate at King’s College London and a Fellow at Stanford, argues that “evidence of the worm’s impact is circumstantial and inconclusive.” Brandon Valeriano and Ryan Maness, in their book Cyber War Versus Cyber Realities contend, “It is wholly unclear if the Stuxnet worm actually had a significant impact on Iran.”
The broader diplomatic picture adds weight to these skeptical analyses. To the extent that Stuxnet’s objective was to delay enrichment production and coerce Iran to make more dramatic concessions in diplomatic negotiations than it otherwise would have, it seems to have failed. Indeed, Iran had demonstrated a willingness to engage in pragmatic diplomacy with the United States and make concessions on its nuclear program long before Stuxnet.
In a secret diplomatic overture sent to the Bush administration through the Swiss embassy in 2003, Iran offered to open up the their nuclear program to intrusive international inspections and to sign the Additional Protocol of the Non-Proliferation Treaty in exchange for an end to America’s hostile policy toward Iran. At the time, they had only 164 operating centrifuges, compared to the 5,060 they got under the JCPOA.
And again in 2010, after lower-level negotiations with the United States on an interim agreement stalled, Iran, with help from Turkish and Brazilian negotiators, agreed to the benchmarks of an Obama administration proposal to ship out Iran’s low-enriched uranium to a third-party country to satiate concerns about weaponization. Though this coincided with the period of the Stuxnet attack, the virus was not revealed as such until months later and there is no indication the damaged centrifuges actually motivated Iran to agree to the fuel swap.
Iran’s willingness to make concessions in return for American accommodation makes the utility of Stuxnet seem dubious. According to Trita Parsi, the president of the National Iranian American Council who has interviewed Iranian officials on the issue at length, Iran was deliberately doubling down on its nuclear program in order to show the West that the coercive approach would not work in the absence of diplomatic concessions.
In addition to the meager, even counterproductive, impact of Stuxnet on Iran’s nuclear program, the unprecedented cyber-attack wrought other negative consequences. First, it had notable spillover effects. Though the Stuxnet worm was designed not to “propagate beyond Iranian nuclear centrifuges…it infected over 100,000 computers worldwide before it could be stopped,” according to West Point scholars Erica D. Borghard and Shawn W. Lonergan.
Second, Stuxnet drew blowback: it motivated Iran to launch multiple waves of cyber-attacks against American banks and Saudi Arabia’s Aramco oil company. Then-Defense Secretary Leon Panetta, in a hyperbole typical of official statements on cyber security, said Iran’s retaliatory cyber-attacks were “probably the most destructive attack the private sector has seen to date.”
The Trump administration has limited options on its Iran policy outside of the JCPOA. Whether or not the president makes good on his threats to effectively abrogate the deal, one thing is for sure: a renewed covert cyber war is unlikely to produce any benefits worth the trouble. Such an approach will only antagonize Iran and boost the regime’s motivation to once again pursue a nuclear weapons capability in earnest.John Glaser is associate director of foreign-policy studies at the Cato Institute.
At an August 12th “Unite the Right” rally in Charlottesville, Virginia, Nazi-sympathizer James Alex Fields Jr. allegedly drove his car into a group of counter-protesters and murdered Heather D. Heyer. In the aftermath, virtually all commentators condemned the attack and the ideology that inspired it. But then some partisan commentators began to argue that Antifa, a self-styled group of anti-fascist protesters who want to beat up Nazis, were also inciting violence at Charlottesville.
There are certainly plenty of Left Wing thugs and terrorists, but there have not been many attempts to compare them to other ideologically-inspired terrorists who have committed murder on American soil, until my recent Cato Institute blog on the subject.
Information on terrorist attacks and the terrorists themselves in the United States is available from the Global Terrorism Database, the RAND Corporation, and other sources. I further grouped the ideology of the attackers into four broad categories of Left Wingers, Nationalists and Right Wingers, Islamists, and Unknown/Others.
Terrorists murdered 3,342 people on U.S. soil from 1992 through August 12, 2017. Islamist terrorists are responsible for 92% of all those murders. The 9/11 attacks, by themselves, killed about 89% of all the victims during this time. During this time, the chance of being murdered in a terrorist attack committed by an Islamist was about 1 in 2.5 million per year.
Keeping these numbers in perspective should help cut through the partisan spin after the Charlottesville terrorist attack.
Nationalist and Right Wing terrorists are the second deadliest group by ideology, as they account for 6.6% of all terrorist murders during this time. The 1995 Oklahoma City bombing, the second deadliest terrorist attack in U.S. history, killed 168 people and accounted for 77% of all the murders committed by Nationalist and Right Wing terrorists. The chance of being murdered in a Nationalist or Right Wing terrorist attack was about 1 in 33 million per year.
Left Wing terrorists killed only 23 people in terrorist attacks during this time, about 0.7% of the total number of murders, but 13 since the beginning of 2016. Nationalist and Right Wing terrorists have only killed five since then, including Charlottesville. Regardless, the annual chance of being murdered by a Left Wing terrorist was about 1 in 330 million per year.
Terrorists inspired by Nationalist and Right Wing ideology have killed about 10 times as many people as Left Wing terrorists since 1992. Terrorists with unknown or other motivations were the least deadly. Islamists swamped them all.
There is some ambiguity in counting terrorist attacks by ideology, but only with a minority of deaths. Islamists and unknown/other terrorists are easy to categorize. Left Wing terrorists included communists, socialists, animal rights activists, anti-white racists, LGBT extremists, attackers inspired by Black Lives Matter, and ethnic or national separatists who embrace Socialism. Nationalist and Right Wing terrorists include white nationalists, neo-Confederates, non-socialist secessionists, anti-communists, fascists, anti-Muslim attackers, anti-immigration extremists, sovereign citizens, bombers who targeted the IRS, militia movements, and abortion clinic bombers.
My terrorism research focuses on deaths committed by terrorists because that is the easiest and the least ambiguous metric to analyze the damage committed by terrorism. Attacks could be as minor as a pipe bomb left by a bulldozer that explodes at 2:30 a.m., or as deadly as the 9/11 attacks that killed 2,983 people and caused billions in property damage, so counting the number of attacks by ideology does not reveal much.
The risk of being killed in a terrorist attack on U.S. soil is small. The chance of being murdered in a non-terrorist homicide from 1992 through 2017 was about 1 in 17,000 a year, which is about 133 times as great as being killed by a terrorist. Islamist terrorists are the deadliest in U.S. history-and certainly since 1992. Islamism is an ideology created overseas, while much of the ideology that inspires Nationalist, Right Wing, and Left Wing terrorism is homegrown.
The number of people killed in terrorist attacks on U.S. soil is small, but some ideologies inspire more terrorism than others. Islamists have killed about 14 times as many people as Nationalist and Right Wing terrorists who, in turn, have killed about 10 times as many people as Left Wing terrorists. Keeping these numbers in perspective should help cut through the partisan spin after the Charlottesville terrorist attack.Alex Nowrasteh is an immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity.
North Korea has been dominating international headlines. Journalists have breathlessly reported on the possibility of nuclear war. Death and destruction appear to be just one missile launch away.
And it’s been all about America.
Yet the country that should be most concerned about events in the Democratic People’s Republic of Korea (DPRK) is South Korea. The peninsula was divided seventy-two years ago, after Japan’s surrender in World War II. Mass refugee flows left numerous families separated at the end of the Korean War in 1953. Reunification remains the formal objective of Seoul. Many residents of the South view those in the DPRK as long lost, if slightly misguided, brothers and sisters.
Moreover, before developing ICBMs Pyongyang was only able to threaten the Republic of Korea (ROK). By stationing troops on the peninsula and in nearby nations, Washington provided North Korea with convenient targets. But South Korea was uniquely vulnerable. The North’s forces were spring-loaded forward, ready to roll south. If war erupted, the ROK, not America, would be the battlefield.
Seoul should use the current crisis as the opportunity to take charge of its future.
The South also suffered disproportionately over the years when the Korean cold war occasionally turned hot. American military personnel occasionally died, and the USS Pueblo was seized in 1968, but the ROK suffered actual attack. For instance, in 2010 the North sank a South Korean corvette and bombarded a South Korean island, killing sailors and civilians. Over the years the DPRK is thought to have abducted South Koreans, as well as Japanese citizens, and held many of the ROK fishermen it detained over the years.
Today Pyongyang’s development of nuclear weapons most threatens the South. North Korea’s arsenal is filled with short-range missiles capable of carrying chemical and biological weapons and presumably any nukes that have been miniaturized. The threat is real, not potential. Abundant artillery also threatens Seoul, the South’s political, industrial and population heart. The DPRK just might be able to make good on its threat to turn South Korea’s capital into a “lake of fire.”
Finally, the North’s future development is of vital interest to the ROK but of only marginal relevance to the U.S. liberalization or reunification would offer Americans greater economic and travel opportunities, but little more. What Washington most wants from North Korea is to end of any military threats. For the South, the DPRK’s future could be transformational. A united, democratic, capitalist Korea would be a significant player in Northeast Asia. Domestic life would change even more dramatically.
Yet Seoul is but a bit player in the ongoing Korean drama. President Donald Trump is threatening “fire and fury.” U.S. officials are attempting to moderate and explain the U.S. position. American military forces would be called on in any conflict. Advice from around the globe pours into Washington on how to deal with the North. Those living in Northeast Asia have become even more desperate than Americans in attempting to divine the hidden meaning behind the latest tweet from the U.S. president. In contrast, no one much cares what South Korean President Moon Jae-in thinks.
It isn’t for wont of trying. He long has supported restarting the “Sunshine Policy” of engagement with the North, implemented by the last left-wing president, Roh Moo-hyun, for whom Moon worked. Since being elected in May, President Moon has pressed for talks with the Kim regime. But the phrase “can’t get no respect” might have been coined for him.
One problem is President Trump, first breathing fire weeks ago while threatening to send an “armada” off of North Korea’s coast. Moreover, the Trump administration was emphasizing sanctions rather than negotiations. While preparing for his June summit with President Trump, the South Korean leader claimed that there were no differences between the two. It brought to mind President Bill Clinton’s discussion of “what your definition of is is.” In the case of the ROK it depends on how to define “differences.”
President Moon’s second problem is the North. It dismissed a succession of South Korean proposals as “insincere,” deceptive, sophistry, and “nonsense.” When I visited Pyongyang in June officials with whom I spoke denounced the “puppets” in the South. For North Korea, only Washington really matters.
But South Koreans shouldn’t be surprised at the lack of respect. They have turned responsibility for the Korean peninsula over to the United States. Washington views the ROK as a junior partner. And the North considers Seoul’s opinions as irrelevant. Even the Moon government recently was reduced to celebrating the Trump administration’s promise not to spring any surprises on the ROK, or “catch the South off guard,” as reported by the New York Times. The only question is whether President Moon is fooling his people or deluding himself. Who imagines President Trump living up to a pledge not to surprise and shock his own aides, let alone foreign officials?
South Korean presidential spokesman Park Soo-hyun said the two governments agreed to “coordinate with each other closely and transparently.” That’s not the issue, however. Washington might be transparent, but only in telling the ROK what to do. The United States has plenty of alliances; however, it never treats them as agreements among equals. Rather, American officials view other states as supplicants for the simple reason that they almost always are supplicants.
The “Mutual Defense Treaty” between the United States and South Korea was never really “mutual.” There wasn’t even the pretense of equality when the pact was inked in 1953. The ROK was a wreck and could only survive with America’s support. Even today Washington provides the big guns, including nuclear weapons. And the South continues to insist that America maintain wartime direction of the former’s forces, an extraordinary concession of sovereignty. Nevertheless, Washington is interested in going to war only when necessary for America’s, not South Korea’s, interest.
The DPRK also understands that its future depends on policies in Washington, not Seoul. If there is to be war, the decision almost certainly will be made by America, not South Korea. If Pyongyang is to win acceptance as a nuclear power, the United States will make the decision. If the North is to break out of its isolation and end its debilitating dependence on China, America must drop what DPRK calls the latter’s “hostile policy.” It isn’t even obvious that Seoul has much ability to convince President Trump to act one way or another.
It isn’t easy to live so close to danger knowing that one’s defense depends on another nation. As the risks rise—absent a miracle, eventually the North will be able to target American cities with nukes—U.S. interests will dictate that Washington back away, leaving the ROK vulnerable. It is one thing to defend Seoul if the cost would be largely confined to military personnel fighting over there. But if the price includes the possible destruction of American cities, then the U.S. president, any U.S. president, would be obligated to drop the alliance.
Thus, it would be best for the ROK to step up now to take over responsibility for its conventional defense. Populous and prosperous, the South should augment its military, accept wartime responsibility for its forces, and send U.S. troops home. The South Korean people should decide their security, not leave it to officials and bureaucracies in other lands.
Seoul also should engage in a serious debate over nuclear policy. Do South Korean officials believe there is much chance of stripping away the North’s nuclear capabilities? If not, is the ROK government prepared to trust its nation’s future to an American “nuclear umbrella” which will fray ever more rapidly as Pyongyang enhances its nuclear arsenal? While there are good reasons to oppose the spread of nuclear weapons, in Northeast Asia nonproliferation operates a bit like domestic gun control: only the bad guys, in this case China, Russia and North Korea, have the bomb. Everyone else wants Washington’s protection, which is least likely to be maintained when it is most needed.
Seoul taking back control of its own security would have the additional advantage of forcing both the United States and North Korea to treat the South as an equal. The ROK would possess the military means to ignore Washington and punish the DPRK, if necessary. Neither ally nor adversary could take South Korea for granted any more.
The North’s Kim Jong-un has moved both America and the South into a new, less certain world. Le’ affaire DPRK affects the ROK even more than the United States. South Korea should use the current crisis as the opportunity to take charge of its future.Doug Bandow is a senior fellow at the Cato Institute and a former Special Assistant to President Ronald Reagan.
Finally, and good riddance: The U.S. Department of Justice is officially putting an end to Operation Choke Point, the Obama-era effort to cut off from access to banking services a long list of lawful-but-disfavored businesses including gun dealers and makers of small loans. That welcome news comes after a long campaign by Republican members of Congress including Rep. Blaine Luetkemeyer, R-Mo. and Sen. Ted Cruz, R-Texas.
But the issues Choke Point raised are not going away.
The news came in an Aug. 16 letter from Assistant Attorney General Stephen Boyd to House Judiciary chair Bob Goodlatte, R-Va. and other congressional leaders, calling the program “a misguided initiative.” “We share your view that law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor,” Boyd wrote.
When it got its start in 2013, with help from a presidential task force working with several banking agencies, Choke Point wasn’t announced to the public or its intended targets.
The fate of Choke Point should serve as a warning that it’s dangerous to allow those in power to flag legal-but-suspect domestic businesses for shaming and commercial ostracism.
Among the first to notice something amiss were porn actresses and payday lenders whose banks announced the sudden closing of their longstanding accounts without explanation.
Asking their bank why this had happened, even though they had caused no overdrafts or other problems, they got either no clear answer or vague talk about being “high risk.”
More reports began coming in of account closures — from the firearms business, in particular.
The Obama administration denied that anything was up, much as it denied that the IRS’s slow-walking of tax exemption for right-of-center groups was anything more than bureaucratic bumbling.
Eventually, a list of 30 disfavored businesses surfaced. They included online gambling, fireworks dealers, “Home-Based Charities,” “As Seen on TV” sales lines, and online sellers of tobacco and pharmaceuticals. Maybe some of these categories are especially likely to skip town or default and leave bank lenders holding the bag.
But others, such as many firearms dealers and pawn shops, are stable local businesses that rely on community reputation. Do they really carry a risk of large losses when banks lend to support their inventories or cash flow?
Yet the Federal Deposit Insurance Corporation, one of the banking agencies involved in the crackdown, had warned banks of “unsatisfactory Community Reinvestment Act ratings, compliance rating downgrades, restitution to consumers, and the pursuit of civil money penalties” if they ignored relevant guidelines.
Banks got the message, scurrying en masse to avoid a risk that seemed more political than based on probability of financial blowups.
Even if some lines of business are riskier than others, isn’t the point of private bank lending to find ways of serving a range of risks, perhaps by charging higher interest or demanding more collateral from the dicier ones?
Nor did the list of 30 businesses seem randomly chosen.
Payday lending was under heavy political fire from liberal groups, though Congress had not banned the practice. Likewise with the gun trade. Online gambling, drugstore, and tobacco businesses, along with sex-related businesses, were all disfavored by policy at one or another level of government.
Conspicuously absent from the list were business lines that might make for risky lending for banks because they relied on outmoded technology or retail models, but had done nothing to offend authorities.
The fate of Choke Point should serve as a warning that it’s dangerous to allow those in power to flag legal-but-suspect domestic businesses for shaming and commercial ostracism — especially if the process is covert, and especially if the result is to cut off the outcasts from access to the basics of economic life.
At the same time, it’s significant that the answer to Choke Point was *not* to pass some new law compelling banks to do business with payday lenders, fireworks stands, or X-rated studios.
Part of a free society is that we shouldn’t force commercial relationships on private actors. Businesses — and that includes providers of credit and payments services — should legally be free to follow their conscience.
That leaves real, knotty problems — such as, for example, when public campaigns seek to pressure business gatekeepers in the Internet and electronic payments system to cut off “bad” clients, which can mean ideologically despised ones.
Aside from making sure its own legal architecture has not given businesses a position as monopoly gatekeeper, government should stay out of such decisions.Walter Olson is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Cato Institute and edits Overlawyered.
Jeffrey A. Singer
A record 33,000 people died from an opioid overdose in 2015, the majority from heroin. The Affordable Care Act (ACA) might actually deserve a share of the blame.
The ACA requires insurance companies to charge the same insurance premiums to individuals regardless of whether they already have expensive health conditions. This policy, known as community rating, has had the effect of causing premiums to skyrocket across the board, as was shown in a recent study by McKinsey and Company. The ACA’s “risk-adjustment” program, meanwhile, was intended to compensate insurers for the cost of taking on enrollees who are already sick, but the program systematically underpays. It amounts to an effective penalty on networks that are seen as having the most appealing benefits for insurance enrollees who are already sick.
The opioid overdose crisis and the ACA mandates—especially community rating—combine to create a perfect storm.
As a consequence, insurers have started designing health plans to have narrower provider networks, drug formularies, and prescription copayment schedules that are unattractive to such patients, hoping they will seek their coverage elsewhere. This race to the bottom between the health plans may result in decreased access and suboptimal health care for many of the sickest patients.
And that’s where the opioids come in. Researchers at the University of Texas and Harvard University, in a National Bureau of Economic Research working paper, show “some consumers are unprofitable in a way that is predictable by their prescription drug demand,” and “…Exchange insurers design formularies as screening devices that are differentially unattractive to unprofitable consumer types,” resulting in lower levels of coverage for patients in those categories.
The researchers rank drug classes by net-loss to the insurer (per capita enrollee spending minus per capital enrollee revenue). Drugs classified as opioid antagonists used to treat opioid addiction, such as naltrexone and naloxone, exact the third-highest penalty on insurers, about $6,000 for every opioid antagonist user. (See Table 2.)
This suggests that patients suffering from opioid dependency and/or addiction (there is a difference) are victims of the race to the bottom spawned by the ACA’s community rating price controls.
And it’s probably not a coincidence that insurance companies are taking major steps to get their participating providers to curtail their prescriptions of opioids. States have been taking steps to cut back the prescription rate as well. Forty-nine states have monitoring programs to surveil both doctors and patients as a part of that effort, and many states have caps on the number of opioid pills that may be prescribed to patients in any given timeframe.
This is having an effect. The latest report from the CDC shows prescriptions of opioids over the past few years are steadily coming down. But opioid overdose deaths continue to rise, and heroin is replacing prescription opioids as the major culprit.
There is growing evidence that, as doctors curtail their opioid prescriptions for genuine pain patients, many in desperation seek relief in the illegal market, exposing them to adulterated opioids as well as heroin.
Thus, the opioid overdose crisis and the ACA mandates—especially community rating—combine to create a perfect storm. Insurers team up with state and federal regulators to curtail the prescription of opioids for chronic pain patients, leading many to suffer needlessly and driving some, in desperation, to the illegal drug market and the risk of death from overdose. Meanwhile, the ACA penalizes insurers who help patients seeking rescue from the torment of dependency and addiction.Jeffrey A. Singer practices general surgery in Phoenix and is a senior fellow at the Cato Institute.
Roger Taney won’t have a statue for much longer at the Maryland State House. After years of discussion, Gov. Larry Hogan has asked the State House Trust to seek a new home for the Civil War-era chief justice.
Taney did many things in an illustrious legal career but is remembered for only one: the disastrous Dred Scott decision, which served to entrench slavery.
Taney was not a Confederate, and his monuments were probably not erected at the time in any wish to glorify his great error. In a long career as chief justice, he administered the oath of office to Abraham Lincoln as well as six other presidents. Legal historians remember him for many actions, including the great case of Ex parte Merryman, in which he defended the ancient writ of habeas corpus, vital to civil liberty, against the Lincoln administration’s suspension of it.
Change in the display of public memorials is natural and inevitable.
Taney was also the first Roman Catholic chief justice at a time when Catholics were not generally found in positions of such eminence in America’s national government. But times change, and those seeking Catholic role models in American law now have many others to choose from.
Change in the display of public memorials is natural and inevitable. Cemeteries may aspire to present an unaltered face over centuries. Both cemeteries and battlefield sites appropriately look backward rather than forward. But much-used public places are meant for the living and are ordinarily under tougher scarcity constraints.
A hundred and fifty years later, Taney’s only significance beyond specialized law circles is for the one thing in a distinguished career he got tragically and disastrously wrong. By entrenching slavery, deepening the complicity in it of non-slave states, and blocking any path toward its eventual removal, the decision set the nation — at least so many historians contend — on a path to calamitous Civil War.
In the city of Frederick, where Taney practiced law, Taney’s bust was recently removed from its place in front of City Hall following civil discussion and the development of a public consensus. He remains a subject of historical interest, and his former house is open to visitors. No one has erased him from the history books — the Dred Scott case itself makes sure of that.
The city of Frederick is looking for a taker for its Taney bust, such as a historical or war memorial society, but has not found one yet. That it hasn’t is a clue to how slender a constituency still feels a real historical tie to the man.
Some conservatives now cry that we are on a slippery slope. What next — take Jefferson off the nickel, rename the city and state of Washington?
But each and every modern society chooses to live partway down the slippery slope of “not remembering history.” (Unless you believe that Warsaw, Prague and Budapest should have left their statues of Lenin in place.) Like Europe, America can take advantage of big, comfortable stopping points short of tearing down and renaming everyone and everything. For example, few if any memorials to Jefferson honor him for being a slaveholder. On the other hand, most statues of Confederate leaders do honor their service to that specific cause. Writes libertarian law professor Ilya Somin: “government should not honor people whose principal claim to fame was fighting a war in defense of the evil institution of slavery.”
On one big point, conservatives are very right: Mob actions and vandalism seldom end well. A crowd in Durham, North Carolina, has already pulled down one statue unlawfully, and similar actions have been taken elsewhere. Unless civil society is undergoing an outright revolution, as did the former Soviet bloc in 1990, we should leave the decisions to public deliberations in accordance with law.
Yes, we should resist making unwise changes just because a noisy crowd of the moment demands them. But we should also not dig in to positions that make no particular sense just to show our ability to resist crowd sentiment.
In the end, under our system, the majority tends to get its way, and a majority of citizens in Maryland, as elsewhere, can tell the difference between a Confederate general and George Washington.
Instead of crying that there’s no stopping point short of universal takedown, conservatives should propose a few lines to draw that would serve as principled stopping points.
That, and propose new subjects and people to memorialize. We need that too.Walter Olson is a senior fellow at the Cato Institute and a Frederick County resident.
According to a report by the state-run Korean Central News Agency (KCNA), Kim Jong-un has been briefed on a plan for bracketing Guam with Hwasong-12 intermediate-range ballistic missiles. However, Kim gave no indication that he would order his military to carry out the plan in the immediate future. Instead Kim is adopting a wait-and-see approach to “watch a little more the foolish and stupid conduct of the Yankees” before the plan is put into motion.
At first glance the KCNA report looks like merely another volley in the war of words between the United States and North Korea, but if U.S. policymakers can look beyond the perennial bluster of the supreme leader they should see an opening to avoid escalation.
If U.S. policymakers can look beyond the perennial bluster of Kim Jong-un, then they should see an opening to avoid escalation.
Based on the most recent KCNA report and last week’s statement from the spokesman of North Korea’s Strategic Forces, the threat to bracket Guam with missiles is an option for preempting U.S. military action against North Korea. If the United States continues to conduct B-1B bomber flights out of Guam, then Kim will order his military to fire missiles around Guam to demonstrate their ability to hold the island at risk. The flip side of this threat is that Kim should not launch the missiles if the United States stops conducting bomber flights. Additionally, North Korea also wants the United States to halt large-scale military exercises with South Korea that are scheduled to begin at the end of August. This is a prime example of coercive diplomacy.
The ball is now in the United States’ court and the Trump administration has two broad options from which to choose. First, the United States could consider North Korea’s threat to be either empty or not costly enough to change U.S. behavior, and bomber flights and military exercises would continue. Second, the United States could change its military behavior somewhat to mollify North Korea and try to get momentum behind a general de-escalation of current tensions. Neither option is without risk, but the second option has lower potential costs and greater potential benefits than the first.
Based on a general tendency to double-down rather than change course, the Trump administration will likely draw a hard line on North Korea’s threat. The ability of the U.S. military to launch a devastating retaliation against a North Korean provocation reduces the credibility of threats against Guam by raising the costs Pyongyang would have to absorb if it carried out its threat. Moreover, acquiescence to North Korea could embolden it to make similar coercive threats in the future.
Refusing to bend to North Korea’s coercive threat is a relatively low-risk option, so long as North Korea will not follow through on its threat to bracket Guam. The two key ingredients for a credible coercive threat are the capability and will to carry out the threat. Recent improvements in missile technology mean that North Korea does have the capability to carry out its threat, but it is more difficult to nail down whether or not it has the will to follow through. The Trump administration evidently believes that North Korea will not want to risk a U.S. retaliation and therefore will not make good on its threat. However, if this calculation is incorrect, then the United States could be forced into further escalation of the crisis, which is not in the nation’s interests.
If the United States has relatively little to lose and more to gain from adjusting its military activity, then making such adjustments in a nod to North Korea may be the more prudent policy choice. There are two forms of U.S. military activity that Pyongyang wishes to stop: B-1B flights out of Guam and large U.S.-South Korean exercises. The United States can refrain from these activities temporarily at negligible cost.
North Korea’s fear of the B-1B is based in large part on the erroneous assumption that the bomber carries nuclear weapons. This threat perception may be out of line with reality, but it plays an important role in North Korea’s coercive diplomacy. The United States could take advantage of North Korea’s fears. Temporarily halting B-1B flights out of Guam would be a major concession to Pyongyang with little negative impact on Washington’s ability to deter North Korea with other military forces stationed in the region. Agreeing to freeze B-1B flights would be a low-cost way to test whether or not North Korea is serious about de-escalating tensions.
Freezing annual U.S.-South Korean military drills is also on North Korea’s coercive diplomacy wish list, but this would be less likely in the near term. However, changing some aspects of the exercises could serve as an olive branch to Pyongyang without requiring a complete freeze. For example, during the Foal Eagle exercises earlier this year, F-35 jets and U.S.-South Korean special forces practiced attacking North Korea’s nuclear and missile facilities. Canceling this portion of future exercises would make it harder for the United States and South Korea to eliminate North Korea’s nuclear weapons in a conflict, but this could reduce the incentives that North Korea currently faces to “use or lose” its nuclear weapons early in a crisis.
Giving in to North Korean coercive threats is an unappealing and risky choice for the United States. However, acceding to some North Korean demands could offer valuable information about the country’s willingness to negotiate, and there are ways for the United States to minimize the costs of acquiescence.
Refusing to budge on North Korea’s demands may force Pyongyang to back down, but if this assumption is false, then the United States would face pressure to further escalate current tensions. Kim Jong-un has provided the Trump administration with a potential off-ramp to de-escalate the current crisis. There are risks to taking it, but continuing down the current path is unlikely to bring victory.Eric Gomez is a policy analyst for defense and foreign-policy studies at the Cato Institute.
Does marijuana have medical uses? Which chemicals in marijuana have positive medicinal effects? Which have negative effects? Does using marijuana have negative effects on teenagers’ brains? Is it addictive?
These and many other questions are still open to scientific clarification, and for decades it’s been the federal government’s fault we don’t know the answers.
Now, Attorney General Jeff Sessions wants to continue to hinder what limited scientific research can be conducted in America into marijuana’s effects. According to The Washington Post, quoting one senior Drug Enforcement Agency official, Sessions’ Department of Justice “has effectively shut down” an Obama administration initiative to expand the number of suppliers of marijuana for scientific research.
“The standoff is the latest example of the nation’s premier narcotics enforcement agency finding itself in disagreement with the new administration,” the Post reports, noting that “The DEA is no shrinking violet when it comes to marijuana enforcement.”
It might surprise you to learn that, as far as the federal government is concerned, cocaine is less dangerous than marijuana. Cocaine is a Schedule II drug under the Controlled Substances Act, meaning the government recognizes both a high potential for abuse and legitimate medical uses, while marijuana is Schedule I, meaning it has no recognized legitimate medical uses—just a potential for abuse.
Once again, a committed drug warrior ignores and blocks legitimate scientific research, then cites the fact that science hasn’t proven the drug ‘safe’ as his reason for doing so.
For decades marijuana’s Schedule I status has made it incredibly difficult to study. But it’s even more difficult to study marijuana than other Schedule I drugs like LSD, heroin, and bath salts. Would-be marijuana researchers looking to do clinical studies first need a license from the DEA, then approval from the FDA, and finally access to the single authorized source of legal cannabis, which is heavily controlled by the National Institute on Drug Abuse (NIDA). Whereas there are many sources for drugs like MDMA—in many cases, multiple labs have been contracted to synthesize it—marijuana researchers must be granted access to a supply that is consistently inadequate in both quantity and quality. On top of that, if NIDA doesn’t like the study, they may just deny it anyway.
Late in the Obama administration, the DEA took a small but important steptoward relaxing the constraints on the production of marijuana for scientific research by allowing other groups to apply for authorization to grow the plant for research. Unsurprisingly, Jeff Sessions’ Department of Justice is now stopping that process, according to the Post report, leaving scientific study of marijuana mired in antiquated rules that are more than 50 years out of date.
For nearly a century, marijuana—unlike other, more dangerous drugs—has activated peculiar revulsions in our most prohibitionist lawmakers and federal officials. To Harry J. Anslinger, commissioner of the Federal Bureau of Narcotics from 1930 to 1962, young people were “slaves” to marijuana, “continuing addiction until they deteriorate mentally, become insane, [and] turn to violent crime and murder.”
When Anslinger found out that professor Alfred Lindesmith of Indiana University began studying scientifically marijuana and challenging Anslinger’s hyperbolic claims, Anslinger had Lindesmith harassed by his agents and wiretapped. In 1944, a commission created by NYC Mayor Fiorella LaGuardia published a study challenging the idea that marijuana caused crime and violent behavior. Anslinger attacked LaGuardia and the report’s authors viciously, saying he would throw them in jail if they ever studied marijuana again without his permission. And, although the American Medical Association initially endorsed the study’s scientific validity, the organization oddly changed course after Anslinger wrote them a letter. The LaGuardia study was now “unscientific,” according to the AMA, and scientists should “continue to regard marihuana as a menace wherever it is purveyed.”
By the late 1960s, marijuana research was still in a sorry state. The Controlled Substances Act of 1970 placed marijuana in Schedule I, but, understanding that many questions about the drug were still unanswered, it also provided for a special commission to study the drug. The Shafer Commission, as it became known, recommended decriminalizing personal marijuana use and “increased support of studies which evaluate the efficacy of marihuana to the treatment of physical impairments and disease.” President Nixon—who believed communists and left wingers were pushing “homosexuality, dope, immorality in general” in order to destroy America—of course didn’t care. “I am against legalizing marijuana,” he said. “Even if the Commission does recommend that it be legalized, I will not follow that recommendation.” He didn’t.
And history has kept repeating itself. In 1988, in response to a petition for rescheduling filed by NORML in 1972, Judge Francis Young, the DEA’s own administrative law judge, ruled that “by any measure of rational analysis marijuana can be safely used within a supervised routine of medical care.” Then-DEA Administrator John Lawn also didn’t care. He simply overruled Judge Young.
Enter Attorney General Jeff Sessions, who has slid neatly into the role formerly played by Anslinger, Nixon, and Lawn. It’s a part in a tragicomic farce with Groundhog Day elements. Committed drug warriors ignore and block legitimate scientific research and then cite the fact that science hasn’t proven the drug “safe” as a reason to continue Schedule I prohibition. Rinse and repeat.
Until Sessions and others of his ilk stop living in the past, we will continue to be inexcusably ignorant of marijuana’s harms and benefits.Trevor Burrus is a research fellow in the Cato Institute’s Center for Constitutional Studies and managing editor of the Cato Supreme Court Review.
Following the violence in Charlottesville, Internet businesses have been disassociating themselves from far-right political groups. PayPal decided to prohibit users from accepting donations “to promote hate, violence and intolerance”; 34 organizations were affected by the ban. Earlier, both GoDaddy and Google refused to host The Daily Stormer, a neo-Nazi site. Spotify announced that it would remove any streaming music “that favors hatred or incites violence against race, religion, sexuality or the like.” Dating site OkCupid deleted the profile of a white supremacist who was featured in a Vice TV segment about the Charlottesville, Va., rally, barring him for life.
Most Americans won’t worry much about neo-Nazis losing access to the public forum we call the Internet. Their ideas are repugnant, and we did fight a war against their kind not that long ago. End of story?
Not really. Experts, such as Cloudflare CEO Matthew Prince, say that for technical reasons a small number of tech companies may soon “largely determine what can and cannot be online.” Some argue that Silicon Valley is abusing its monopoly power over the Internet to suppress free speech. These critics would have Congress regulate the companies as a natural monopoly in order to restore basic rights.
Internet companies are not the government. They can exclude speech from their domains without violating the First Amendment.
Is there truly such a monopoly over the Internet? After reading that Facebook employees were suppressing conservative articles, Andrew Torba created Gab, a social-networking service open to voices from the right. Gab isn’t as popular as Facebook, but its existence does show that the dominant companies do not have a stranglehold on speech.
In any case, these decisions to deny service do not violate the freedom of speech. The First Amendment applies only to government actions. The man posting at @realdonaldtrump, arguably acting as a private citizen exempt from the First Amendment, may block comments critical of his posts. If the same man posts at @WhiteHouse, he is a government official and may not “abridge the freedom of speech” by blocking critics. PayPal and Google are private corporations, not the government. Moreover, in our nation businesses usually have no obligation to serve others if they do not wish to do so. That too is part of the free market.
Still, Americans in general and conservatives in particular have reason to suspect the tech companies might not be neutral toward content on the Internet. The James Damore case — in which a Google engineer circulated a memo suggesting the tech giant hired and promoted based on gender and race — indicates the leaders and employees of Google have strong leftwing political views. Indeed, Silicon Valley is known to lean to the left. It’s not implausible to imagine that censorship of certain views might ensue.
What then can be done to protect free speech without the courts?
Markets will do part of the job. These companies are unlikely to deny service to mainstream political voices. After all, a person evicted from a service is no longer a paying customer, and their eviction might convince others to depart. Driving diversity critics out of Google would forego considerable revenue. Many people, not just extremists, have reasonable doubts about aspects of diversity policies.
Fear of the government will also constrain Internet censorship. Critics want to make Internet companies into public utilities because alt-right extremists have been denied service. Imagine what would happen if more legitimate voices were evicted from Google and the federal government responded by forcing the companies to behave better.
No one should want that. Law professor Danielle Citron has suggested several ways Internet companies can protect speech online.
First, affirm a commitment to American norms about free speech. The Internet giants operate globally, subjecting them to European regulations that offer less protection for free speech than does the United States. Europeans punish speech offensive to groups or religions (so-called “hate speech”) that we protect. American law draws the liberty line for speech at incitement to violence.
The companies mentioned promoting hate and violence as justification for evicting the alt-right. They seem to be following European norms. So far as the companies have discretion, they should affirm their support for the more liberal American norms. They should clearly define speech that will lead to being banned from a platform. That definition should focus on a close connection between problematic speech and violence and not on ambiguous terms like “hate speech.”
Second, companies should enact private due process for their regulation of speech. Clear definitions of the rules are essential in avoiding arbitrary and personal decisions about banning speech. The process of applying such rules should also be public. That could mean a formal public statement by the company of the rationale for banning some users of their social networks. It might also mean being public about how a company goes about identifying and prohibiting problematic speech. Such transparency about rules and methods will be open to public comment and inevitably criticism. It may also build trust among critics who fear arbitrary and politicized attacks on political speech.
Third, Internet companies should appoint an ombudsman to inform and report on their regulation of speech. They would act as a voice for free speech inside a company, a voice that should be dedicated to American norms on speech.
Internet companies are not the government. They can exclude speech from their domains without violating the First Amendment. But if they use their power to exclude in an arbitrary and political way, the nation will be worse off and the companies may suffer — and not just at the bottom line.John Samples is vice president and publisher at the Cato Institute.
It was strange seeing the picturesque college town where I attended graduate school appear on the news, transformed into a painful spectacle of angry tiki torch-bearing protesters and violence. In the aftermath of what happened last weekend in Charlottesville, it can be easy to feel as though the world is deteriorating into ever-greater brutality and chaos, and to lose hope.
There is reason for hope. Just look at the data.
White supremacists are estimated to be only 0.02 percent of the U.S. population, hardly a dominant social movement. That is not to say that complacency is acceptable — violence has declined precisely because of the actions of individuals working towards greater peace and tolerance.
Amplifying the voice of the small number of white supremacists with wall-to-wall media coverage and lengthy profiles of the movement’s leaders, headed by glamorous photographs, is probably inadvisable.
Although some violent extremists may stand opposed to the trend towards greater peace and tolerance, violence is slowly receding.
The media’s tendency to highlight that which is rare and dramatic instead of long-term trends is one of the reasons that the public has such a distorted view of the world. Most people have no idea how much life has improved in the past few decades, for example.
The website HumanProgress.org, of which I am managing editor, aims to bridge the gap between widespread perceptions and reality by making data from reliable third-party sources more widely available.
Judging the state of the world by looking at empirical evidence, rather than by how grisly the headlines are, leads to surprisingly heartening conclusions.
International wars between nation states have almost disappeared. Homicides are becoming rarer globally, and despite a recent slight uptick, the U.S. homicide rate is still at an historic low point. Violence against women has declined in the United States, as has child abuse.
Despite the overall trend away from violence, it is important to note that progress is not linear nor inevitable, and that human action determines the course of the future.
Terrorism represents one of the few areas where violence has become worse, although it remains rare. On an average day, terrorists kill 21 people worldwide, while natural or technological disasters kill more than 100 times as many. Perspective is as important as vigilance against threats.
You are unlikely to die at the hands of an Islamist terrorist, and even less likely to be killed in a right-wing terrorist attack like the one that occurred in Charlottesville.
My colleague Alex Nowrasteh calculated the breakdown of deadly U.S. terrorist attacks by ideology and found that Islamists committed 92 percent of such murders, right-wing extremists committed 7 percent and left-wing terrorists were responsible for less than 1 percent (although that is increasing).
The threat of terrorism, whether by white supremacists, Islamists, or any other group, should be guarded against but not blown out of proportion. While honoring the victims of tragedies and taking care not to magnify the views of a few fanatics or overreact with policies that pointlessly restrict human liberty, we should take heart from the facts.
Although some violent extremists may stand opposed to the trend towards greater peace and tolerance, violence is slowly receding.
As Harvard University’s Steven Pinker put it: “For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible.”Chelsea Follett is the managing editor of HumanProgress.org, a project of the Cato Institute.
The Republicans are supposed to be the party of state autonomy and strict limits on federal power. But you would not know it based on the first six months of the Trump administration. On a variety of major issues involving immigration, law enforcement, and the “war on drugs,” the administration’s policies exemplify the phenomenon of “fair-weather federalism”: respecting limits on federal power only when politically convenient.
Last week, the city of Chicago filed a lawsuit challenging the constitutionality of Attorney General Jeff Sessions’s plan to coerce “sanctuary cities” into helping enforce federal immigration law. The Justice Department policy threatens to deny cities some federal law-enforcement grants in order to compel obedience. The plan blatantly violates the constitutional requirement that conditions on federal grants must be clearly stated in advance by Congress, so that state and local governments can make an informed choice. They cannot be imposed after the fact by the executive.
In January, President Trump issued an executive order, much like Sessions’s new policy, that unconstitutionally commandeers state officials and imposes new conditions on federal grants — conditions to which the cities never consented. Fortunately, the order was invalidated by a federal court. Ideally, Sessions’s policy will meet the same fate. But the struggle over these issues is far from over.
The Left and the Right can unite to increase state and local autonomy.
Should the administration prevail, it will set a dangerous precedent that goes far beyond the specific issue of sanctuary cities. If the president can unilaterally add new conditions to one federal grant program, he can do the same thing with others. Conservatives who may be cheering Sessions now are likely to regret it when a future Democratic president uses similar tactics to force states to increase gun control or adopt a “common core” curriculum.
Sessions has also undermined federalism by reinstating a federal asset-forfeiture program. Under this policy, known as “equitable sharing,” federal officials work with state law-enforcement agencies to seize the property of people, many of whom have never been charged or convicted of any crime. Asset forfeiture disproportionately victimizes the poor, racial minorities, and others who lack resources and political clout.
The policy also enables state and local law enforcement to profit from these seizures, even in the many states that have banned such practices. The federal program allows law-enforcement agencies to circumvent state restrictions by funneling the assets through the federal government, which then disburses some of the profits back to state and local cops. As a result, law-enforcement agencies will have incentives to prioritize drug cases that are likely to net them money. Curbing violent crime, and other objectives that state governments might value more, will be a lower priority. Control over the funding and priorities of state and local law enforcement is a core element of state sovereignty. Sessions’s asset-forfeiture policy is a frontal attack on it.
The administration also appears to be planning an extensive federal crackdown on marijuana, even in the many states that have legalized it. This too is an assault on state autonomy.
Sadly, the Trump administration and the GOP are far from the only fair-weather federalists in politics. Many of the liberal Democrats currently relying on federalism principles to protect sanctuary cities against Trump decried those very constraints in the past, when they impeded progressive priorities.
Both the Left and the Right could benefit from a more principled commitment to limiting federal power. In a large and diverse nation, it is unlikely that we can find a workable, one-size-fits all approach to numerous contentious policy issues involving law enforcement, health care, and drug use, among others. This is especially true in an era of deep partisan polarization, when Democrats and Republicans are farther apart on most issues than they have been in decades.
Decentralization of power can also help defuse the partisan hatred that is poisoning our politics. If the federal government had less control over our lives, both sides would have less to fear from their opponents’ victories at the national level. Each group could still pursue its preferred policies at the state and local level. Competition and experimentation by states and localities would offer more opportunities for people to better their lot by voting with their feet and moving to new locales.
Some people understandably fear that restricting federal power might open the door to oppressive state and local policies. The federal government undoubtedly has a role to play in enforcing constitutional rights and preventing unconstitutional discrimination by state and local governments. But carrying out those functions does not require anything approaching the sweeping authority currently wielded by Washington. Robust federal antidiscrimination efforts do not require virtually unlimited federal power to regulate anything that might have some effect on the economy, or nearly unconstrained federal authority to use conditional grants to pressure states and localities to do their bidding. As the sanctuary-cities litigation demonstrates, the latter is likely to be a menace to vulnerable minority groups rather than a benefit to them. Moreover, unlike in some previous eras, many minority groups today often have greater clout at the state and local level than in Washington.
Since the election of Trump, leading progressive scholars such as National Constitution Center president Jeffrey Rosen and Yale Law School dean Heather Gerken have urged the Left to take a more favorable view of federalism. Left and Right are unlikely to come to a complete consensus on federalism any time soon. But there is considerable potential for agreement nonetheless. A new bipartisan and cross-ideological appreciation for limits on federal power could become one of the few beneficial developments of the Trump era. Together, we might yet make federalism great again.Ilya Somin is a professor of law at George Mason University, an adjunct scholar at the Cato Institute, and the author of Democracy and Political Ignorance: Why Smaller Government is Smarter.
The fear that machines or robots are coming for our jobs has echoed through time. The militant weavers and textile workers of the early 19th century, known as “Luddites”, went as far as destroying machinery to seek to prevent technological unemployment, or at least the usurpation of their skills. For the past five years we’ve been constantly forewarned about a coming technological revolution, which will render millions of jobs obsolete.
Economists tend to dismiss such thinking as fallacious, at least at a macroeconomic level. The evidence of the past two centuries, after all, suggests progress broadly brings rising wealth and opportunity, rather than mass worklessness. Certainly, though, some demographic groups are likely to be affected more than others. Such a trend also brings into question the wisdom of policies that artificially raise the cost of low-skilled labour and speed up these investments.
New evidence suggests that speeding up automation of low-skilled jobs is precisely the effect of raising minimum wage rates. Logically, the costs of raising statutory pay rates can be borne by shareholders in the form of lower profits, consumers through higher prices, or workers in the form of less labour demand. In a new paper, Grace Loren of the London School of Economics and David Neumark at the University of California show that between 1980 and 2015, minimum-wage increases led to a significant increase in the automation of low-skilled work in the US.
Making more low-skilled jobs uneconomic by artificially hiking the cost of labor substantially could exacerbate this change at a time before new investments would otherwise make economic sense.
We see evidence of this phenomenon all around us, in the US and the UK. Supermarkets have replaced cashiers with self-service checkouts. Airline check-in assistants have seen their numbers dwindle. Many labour-intensive manufacturing activities have become completely automated with robots. Coffees and fast-food now can be ordered through apps, without the need to interact with a human. In fact, several fast-food chains have even been working on burger-making robots to operate alongside app-based ordering technologies.
No doubt a very high proportion of these investments and changes occurred because it was profitable for the businesses to undertake them. But Neumark and Loren suggest the rising cost of low-skilled labour driven by minimum wage policy was a key factor. Across all industries, they find that raising a minimum wage by $1 results in a decline in “automatable” jobs by 0.43pc, with the effect much higher in manufacturing.
Of course, this is not the complete picture. Replacing low-skilled workers with machines leads to other jobs, such as those utilising or servicing the machines, which we might expect to be higher skilled and higher paying positions. The net effect on overall employment might therefore be small. But Neumark and Loren suggest that low-skilled workers younger than 25 and older than 40, especially women, are particularly affected by the automation effects.
Younger workers tend to get displaced across a range of industries, whereas for older workers the negative effects occur mainly in manufacturing and public administration. Evidence suggests these groups then find it more difficult to find employment elsewhere.
A higher minimum wage, by raising the cost of labour, is therefore in effect an industrial policy to encourage labour-saving innovation. It is like a subsidy for substituting machines for labour - a regulation that makes as-yet uneconomic technologies economic.
It is no surprise that in France, for example, with high levels of labour regulation, high minimum wage rates and a large payroll tax, fast-food chains such as McDonald’s trialled self-ordering machines as long as five years ago. Pushing for a higher minimum wage to compensate workers for the effects of automation makes no sense.
Some commentators labour under the delusion that this encouragement to invest is good for the economy, because it helps to boost productivity and living standards. It’s certainly good for the workers able to maintain their jobs with a higher minimum wage.
But “regulating to innovate”, subsidising the introduction of some technologies before they are actually high quality and cost effective, does not come for free. It drives up costs and hence prices for consumers. And it eliminates the sorts of low-skilled, entry-level jobs that allow the development of human capital and transferable skills, such as punctuality, customer service and being able to work in a team.
The introduction of the National Living Wage here and the push for higher minimum wages in certain states therefore looks a risky gamble. A recent paper from the University of Washington suggested that payroll spending on low-skilled workers fell in Seattle after its recent wage hike to such an extent that the average employees’ earnings fell by $125 (£97) per month in 2016.
In the UK, the Government’s own projections on the effects of the National Living Wage suggested that it would lead to 60,000 fewer jobs overall by 2020. Loren and Neumark’s work suggests that looking at this estimate - the net effect - could hide much bigger impacts on workers nearer the start and end of their working careers.
The social consequences of this could be profound. If we are moving into a period when technological innovations are speeding up, we could be hiking minimum wages dramatically at just the wrong time. It will prove enough of a policy challenge as it is, to equip people with new skills to adapt in a rapidly changing labour market. Making more low-skilled jobs uneconomic by artificially hiking the cost of labour substantially could exacerbate this change at a time before new investments would otherwise make economic sense.
Being worried about this consequence is not to be anti-technology or anti-innovation. We all recognise that mechanisation and technological innovation are the only way to sustainably raise living standards. But encouraging new investments by raising business costs and driving out low-skilled jobs is another matter entirely.
Just because Luddite efforts to destroy machines was economically harmful does not mean that destroying low-skilled employment opportunities would be beneficial.Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.
Simon Lester and Inu Manak
As the Nafta renegotiation opened this week, U.S. Trade Representative Robert Lighthizer spared little time in setting a tone that sharply contrasted with his Canadian and Mexican counterparts.
Lighthizer reiterated Donald Trump’s familiar talking point that “Nafta has fundamentally failed many, many Americans, and needs major improvement,” starting with addressing US trade deficits.
By contrast, in their opening remarks, Canada’s Foreign Affairs Minister, Chrystia Freeland, and Mexico’s Secretary of Economy, Ildefonso Guajardo, struck a collegial note, highlighting the benefits of Nafta to all three countries, and the importance of modernizing the agreement.
Though these divergent views on the priorities for renegotiation do not bode well for a quick deal, there are many points on which Canada, Mexico and the United States could agree on.
First, everyone seems to agree that Nafta, which came into force 23 years ago, does not address many new issues that have developed since then. For example, e-commerce was just beginning to develop when Nafta was signed, and is now a central part of international trade.
Those who appreciate the benefits of free trade must save NAFTA from protectionism.
Canada and Mexico have maintained strict restrictions on online purchases from companies in other countries, allowing orders valued at only $20 and $50, respectively, to qualify for duty free entry. The US, on the other hand, allows for purchases of up to $800 to enter duty free, and has pushed for Canada and Mexico to raise their thresholds. Including provisions on e-commerce will be an important step forward for Nafta, and borrowing from those developed in the Trans-Pacific Partnership (TPP) would be a good place to start.
International trade barriers have also undergone a transformation in the years since Nafta took effect. A 2016 study by the National Board of Trade in Sweden found that non-tariff barriers are increasingly used as a tool of protectionism. Addressing some of these barriers through regulatory cooperation efforts would be extremely valuable.
Canada’s recent trade agreement with the European Union (CETA) is the first to include a regulatory cooperation chapter, which provides a forum for discussing regulatory divergence. Canada and the United States already have a mechanism for regulatory cooperation (outside Nafta), which could be expanded on for this purpose.
Then there are the parts of Nafta that time has revealed to be flawed, and badly in need of an update. For instance, the core dispute settlement provision (Chapter 20), by governments can bring complaints against each other for violating the agreement, has not functioned well. In fact, some complaints have been dropped or never seen the light of day simply because defending governments have prevented the establishment of a panel to hear the dispute, effectively blocking the process.
Other elements of dispute settlement could also be revised. Rules on investor-state disputes (Chapter 11) and reviews of antidumping and countervailing duties (Chapter 19) raise concerns about special protections given to corporations and the role of international courts in applying domestic law. The three governments should conduct a review of these provisions and consider amending them or dropping them entirely, as there is little evidence to suggest these ad-hoc panels are more effective than pursuing cases through existing domestic courts.
Third, there are longstanding trade frictions that have gone unresolved. Facing domestic industry pressure, Canada’s supply management system for dairy, poultry and eggs was excluded from the original negotiations.
The liberalisation of services was also limited, and barriers to telecommunications and broadcasting are prevalent in both Canada and Mexico. The renegotiation could try to address these protectionist barriers.
Though the softwood lumber dispute may not be resolved in the course of negotiations, an effort to do so would be beneficial for both sides. The United States should live up to both its Nafta and WTO obligations, and open its market to Canadian lumber. If the US continues to be unhappy with the result, it should consider filing a dispute under the WTO’s subsidies agreement to settle the issue.
While some common ground or compromise may be found in these three overarching categories of potential reforms, there remain a number of sticking points that could derail the modernisation of the agreement altogether. For instance, if Ambassador Lighthizer devotes a great deal of effort to “fixing” the trade deficit, much energy will be wasted on what most economists agree is a non-issue.
Making rules of origin more restrictive would also be a major distraction, as Nafta already has the most stringent rules of origin of any trade agreement in the world.
At present, Nafta rules require cars to have 62.5 per cent North American content; increasing this figure, or requiring a greater portion of it to be US value added, could push companies to forgo Nafta preferential treatment entirely, and source more parts outside of North America because of this preference loss.
Finally, altering government procurement rules to increase the ability to use Buy America provisions would also be unwise, only serving to increase market distorting practices.
As Freeland recently noted, local content requirements “for major government contracts are political junk-food, superficially appetising, but unhealthy in the long run.” This statement reflects the consensus between Canada and Mexico more broadly, that the Nafta renegotiations should not roll back liberalisation, but rather be used as an opportunity to deepen and strengthen the deal.
It remains to be seen whether the Trump administration’s first big trade negotiation can be successful. Some of their rhetoric suggests they are looking for changes that US trading partners and Congress will not agree to. But hopefully they will recognise the political and economic realities, and take a constructive approach to the renegotiation.
If the United States, Canada, and Mexico use these negotiations to improve and modernise Nafta, they can enhance North American competitiveness, set a template for modern trade agreements, and perhaps, restore the lost momentum for trade liberalisation in the rest of the world.Simon Lester is a Trade Policy Analyst at the Cato Institute. Inu Manak is a Visiting Scholar at the Cato Institute.
The headlines were predictable: If President Trump halts Obamacare subsidies for insurance companies, the Congressional Budget Office predicts, premiums for “Silver” plans will skyrocket by 20 percent next year. Buried halfway through the CBO’s report, however, was an important qualification: The executive branch could stop the payments “of its own volition or in response to a court order.”
You see, terminating the “BAILOUTS for insurance companies,” as President Trump has threatened to do, would not be an act of sabotage but rather a welcome step toward promoting the rule of law. Congress has never appropriated the funding for the subsidies, and every penny paid to the insurers is unlawful. For two years congressional Republicans argued the payments were illegal, and they even sued the Obama administration to halt them. Last year, a federal judge agreed, ruling that the payments were unconstitutional.
Yet, remarkably, for the first seven months of the Trump administration, the payments have continued without disruption. Even more remarkably, Speaker Paul Ryan — who commenced the initial investigation into the payments — is content to allow the administration to keep breaking the law.
These payments are illegal. Republicans used to say as much
Congress’s only true option is to follow the Constitution and appropriate the funds. Otherwise, members can only look the other way while the separation of powers is being violated.
The Affordable Care Act employed two strategies to make health insurance more affordable. Section 1401 of the law provides for the payment of subsidies to consumers to reduce premiums. Section 1402 provides payments to insurers to offset cost-sharing reductions (CSRs) for lower-income enrollees, such as reduced deductibles and co-pays. But while the ACA funds the subsidies under Section 1401 with a permanent appropriation, to date, Congress has not provided an annual appropriation for the cost-sharing subsidies under Section 1402.
>Last year, a federal court ruled that Congress did not “squeeze the elephant of Section 1402 reimbursements into the mousehole of Section 1401.” Mr. Obama’s policy “violates the Constitution,” the court concluded. “Congress is the only source for such an appropriation, and no public money can be spent without one.” And Congress is the only branch with the power to authorize these expenditures.
After the election, I expected the Trump administration would halt the payments. I was wrong. There has been no change in course. In April, the Department of Health and Human Services admitted that “there has been no policy change in the current administration.” Within the administration there seems to be some dispute, as President Trump has flirted with the idea of stopping the illegal subsides yet has never pulled the trigger.
Even more surprising has been the reversal by House Speaker Paul Ryan. In February 2015, as chair of the Ways and Means Committee, Ryan launched the investigation into the legality of the CSR payments. In a letter to the Obama administration, Ryan demanded that the Obama administration explain the legal justification for making the payments. (See page 90.) “The Treasury Department has made and continues to make these payments,” Ryan charged, “even though no funds are lawfully available to do so.” After a thorough oversight investigation, the House concluded that the “Administration has spent an estimated $13 billion on CSR payments without a lawful congressional appropriation.” Throughout the entire process, Ryan backed the investigation and the litigation. Yet, after the election, he began to sing a different tune.
In April, the speaker confirmed that he would not include funding for the CSR payments in the budget. “Obviously, we’re not doing that,” he said. “That’s not in an appropriation bill. That’s something separate that the administration does.” In other words, Ryan was content to let the Trump administration continue making the same payments that he’d previously sued Obama for making. Talk about chutzpah.
Fortunately, many other Republicans are standing on principle. Representative Kevin Brady of Texas, who now chairs the House Ways and Means Committee, explains that Congress should act within its “constitutional authority now to temporarily and legally fund cost-sharing reduction payments as we move away from Obamacare.” Doing so, Brady explained, would “help stabilize the insurance market and help lower premiums for Americans trapped in Obamacare.”
Likewise, Representative Greg Walden of Oregon, who chairs the Energy and Commerce Committee, insisted that Congress should fund the subsidies. “I will do everything I can to make sure that the cost-sharing reduction payments get made,” he said. Making those payments, Walden added, is “an obligation we have not only to the insurers” but also to consumers, and “we cannot leave them high and dry.”
Brady and Walden are exactly right. Their proposals are both constitutionally necessary and economically proper. Creating an appropriation for these payments will strengthen the separation of powers and fortify the insurance marketplaces. It will promote the rule of law and reduce premiums. It is a win-win situation all around.
Congress has only one choice: appropriate the funds. If the House and Senate do not act, President Trump has no option but to halt the payments.Josh Blackman is a constitutional-law professor at the South Texas College of Law in Houston, an adjunct scholar at the Cato Institute, and the author of Unraveled: Obamacare, Religious Liberty, and Executive Power.
Steve H. Hanke
1. Question: What were the two greatest economic catastrophes in the U.S. of the last 100 years?
Answer: The Great Depression (1929-1933) and the Great Recession (2007-2009). It is worth mentioning that most Americans date the start of the Great Recession as 2008, when Lehman Brothers collapsed. In fact, the crisis started on August 9, 2007. That’s when France’s BNP Paribas barred investors from accessing three money-market funds that had subprime mortgage exposure, citing a “complete evaporation of liquidity.” With that, Northern Rock, a bank that was formerly a building society, started to wobble, and eventually faced the first bank run in the U.K. since the Great Depression. This solvent institution eventually collapsed because the bank of England failed to make “lender of last resort” loans efficiently and promptly. This fiasco was clearly the result of government, not market, failure. These troubles eventually worked their way across the pond.
2. Question: What did the Great Depression and the Great Recession have in common?
Answer: Huge economic slumps accompanied both. Also, the diagnoses and prescriptions were the same. Both catastrophes were laid at the feet of market failure (read: the capitalist system is inherently flawed and prone to failure). To correct for the alleged market failure associated with the Great Depression, Roosevelt came up with the New Deal. In short, the prescription was a massive increase in the scope and scale of the government’s reach and involvement in the economy. This type of intrusive response has also followed the Great Recession, ushering in a plethora of government regulations, particularly those that affect banks and financial institutions. And why not? After all, the politicians told us that banks (and bankers) caused the Great Recession (read: market failure).
It is interesting to note that about the only ones who are happy about Dodd-Frank and the 1000s of regulations that it has given birth to are the members of an unholy alliance: the bank regulators and compliance officers. Yes, Dodd-Frank has produced “jobs for the boys!”
3. Question: Why were the diagnoses of and prescriptions for the Great Depression and Great Recession so completely wrong?
Answer: For a diagnosis of the course of economic activity, one needs a model. So, just what determines national income? What is a reliable model? Well, money dominates. The quantity of money, broadly defined, will set the course for nominal economic activity (read: real growth plus inflation). The chart below shows that, in the major economies of the world, there is a rather tight relationship between the growth rates in money, broadly defined, and nominal GDP growth.
If we apply a monetary approach to national income determination for the Great Depression, we find that the money supply, broadly measured (M3), plunged by 40% in the 1929-1933 period. Milton Friedman and Anna Schwartz, in their famous work, A Monetary History of the United States 1867-1960, showed just how the blame for the Great Depression can be laid at the doorstep of the Fed. Yes, it was a central bank, a government institution, that was the cause of, and should have borne the blame for, the Great Depression.
Never mind. The Federal Reserve (the Fed) was not blamed at the time. Instead, capitalism was fingered, and in consequence we had the New Deal. Misguided government policies not only caused the Great Depression, but also resulted in a deeper and longer depression. As Robert Higgs summarizes in his book, Against Leviathan: Government Power and a Free Society, Washington D.C. compounded the monetary problems generated by the Fed. The New Deal created regime uncertainty. In the words of Higgs:
Roosevelt and Congress, especially during the congressional sessions of 1933 and 1935, embraced interventionist policies on a wide front. With its bewildering, incoherent mass of new expenditures taxes, subsidies, regulations, and direct government participation in productive activities, the New Deal created so much confusion, fear, uncertainty, and hostility among businessmen and investors that private investment and hence overall private economic activity never recovered enough to restore the high levels of production and employment enjoyed during the 1920s.
In the face of the interventionist onslaught, the U.S. economy between 1930 and 1940 failed to add anything to its capital stock: net private investment for that eleven-year period totaled minus $3.1 billion. Without ongoing capital accumulation, no economy can grow….
The government’s own greatly enlarged economic activity did not compensate for the private shortfall. Apart from the mere insufficiency of dollars spent, the government’s spending tended, as contemporary critics aptly noted, to purchase a high proportion of sheer boondoggle.
In the Great Recession, we witnessed the same pattern as we did in the Great Depression. The money supply, broadly measured (M3), was growing at a year-over-year clip of 17.4% in March of 2008. From that peak rate, it plunged to a negative 6.1% (yr/yr) in June 2010. With this plunge in the money supply, nominal GDP plunged, too. Both inflation and real growth came down hard—not because of market failure, but because of government failure.
4. Question: What were the contours of the key markers in the Great Recession?
Answer: Like the Great Depression, the government was quick to blame flaws in the capitalist system and the alleged excesses they created. Bankers and banks came in for a thrashing. To make the economy safe from these alleged culprits, the Dodd-Frank legislation was passed, Basel III was imposed, and a plethora of other regulations and mandates were introduced to the financial industry.
How did such a misdiagnosis occur? By ignoring the monetary interpretation of national income determination, the “Doctors” will always misdiagnose. Let’s look at what was happening: In the July 2008 - November 2008 period, the U.S. dollar soared by 25% against the euro, the price of gold plunged by 19%, and the price of oil dropped by 57%. Also, the consumer price index went from its elevated level of 5.6% per year in July 2008 to 0% in January 2009, and further dropped to a negative 2.1% in July 2009. All these price indicators should have signaled that the Fed was way too tight with the money supply reins during the early phase of the Great Recession. But, Chairman Bernanke and his colleagues, the central bank, failed to act. This does not represent a case of market failure. No. It represents government failure—the application of a misguided set of pro-cyclical economic policies.
For a detailed and correct diagnosis of the Great Recession, allow me to recommend a book that has just been released by Tim Congdon (ed.), Money in the Great Recession: Did a Crash in Money Growth Cause the Global Slump. Among others, I contributed the chapter on the U.S. “The Basel Rules and the Banking System: An American Perspective.”
5. Question: Where are we now?
Answer: Aggregate demand, which is represented by Final Sales to Domestic Purchasers in the U.S. is shown below. As can be seen, we had the Great Recession, and we remain, ten years after the start of the slump, in a growth recession. We are growing, but still growing at below the trend rate of growth. Thanks to Washington’s regulatory zeal that has kept bank credit (the major contributor to broad money, accounting for over 80% of its total) squeezed. Yes, during a growth recession the U.S. has endured a credit crunch (read: thanks to government failure). If we look at the money supply growth, measured by M3, it remains “slow” and has been slowing down slightly, as the Fed starts a “tightening” cycle. In addition, there is a considerable amount of regime uncertainty in Washington, D.C. Both of these factors pose cause for concern. Indeed, there will probably be no “Trump Boom.”
6. Question: Where should one invest?
Answer: This is always a difficult one to answer. That said, for the risk averse investor, I like Treasury Inflation Protected Securities (TIPS). Inflation expectations will eventually start to change from deflationary to inflationary, and when they do, TIPS, which are mispriced at the present, will generate a nice capital gain. For those with larger risk appetites, there are several special situations available. For example, one promising case is represented by distressed debt in India. Lastly, there are always mispriced equities out there for the picking. That is, if you have the right valuation methodology, which I think I do. Indeed, by applying my “Probabilistic Discounted Cash Flow Model,” which I have developed over the past 25 years, my class at Johns Hopkins, over the past two years, has been able to pick stocks that have generated returns that are almost double those of the S&P 500.Steve Hanke is Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Member of the OMFIF Advisory Board.