America is a curious great power. It cowers before international lightweights, begging the least significant nations to let it defend them. Such as the Philippines.
President Rodrigo Duterte has gained notoriety for the official murder of thousands of drug users and dealers. He then publicly insulted President Obama for criticizing this murderous policy.
United States credibility suffers when a nation long subsidized and defended by America shows such ostentatious disrespect. The Philippine president shouldn’t be treated like a co-equal and ally if he doesn’t behave like one.
President Duterte is not a reliable ally. The U.S. should not allow such an unpredictable regime to be a trigger for war.
Moreover, the Philippines needs America far more than America needs the Philippines. Manila spends less than 1 percent of its gross domestic product on its military and its best ships are U.S. cast-offs. It doesn’t help defend the United States from anyone.
Rather, Manila expects Washington’s protection even though the archipelago matters little for the United States. America retains the Pacific as a barrier and faces no serious threats to its homeland.
Of course, Washington sees domination of East Asia as an American birthright. Base access obviously helps the U.S. attempt to enforce its will. However, convenience does not translate into interests substantial enough to risk war.
The region matters far more to nearby China, which understandably does not want to be contained. It also costs Beijing far less to deter U.S. intervention than it does for America to project power: missiles and subs are less costly than aircraft carrier groups. With no one threatening free navigation, Washington must decide what kind of risk it is willing to take on behalf of what remain primarily other nations’ territorial interests.
Insisting on defending the Philippines irrespective of its actions is particularly dangerous. Manila relies on American support rather than its own military in confronting China and could drag the United States into a conflict easily.
Washington should drop the “mutual” defense treaty and joint patrols. Maintaining base access is good insurance but does not require a security guarantee, especially over contested territory, such as Scarborough Shoal. Moreover, such access is not worth paying any price: America lost no influence when Subic Bay and Clark Airfield closed decades ago.
President Duterte is not a reliable ally. The United States should not allow such an unpredictable regime to be a trigger for war.Doug Bandow, a former special assistant to President Ronald Reagan, is a senior fellow at the Cato Institute. He is the author of “Beyond Good Intentions: A Biblical View of Politics.”
Steve H. Hanke
On June 23rd, the voters in the United Kingdom (UK) turned a collective thumbs-down on the European Union (EU). The Brexit advocates won the day, shocking the establishment and temporarily unsettling the markets. It also poured fuel on a simmering Italian fire — a fire that could result in an Italian, as well as a Eurozone, doomsday scenario.
The results of stress tests for European banks (reported on July 29th) showed that Italy’s Banca Monte dei Paschi di Siena (MPS) was the only European bank (of the 51 tested) to have its capital wiped out in the stress test scenario. Following the release of those results, Monte Paschi announced it would raise capital by issuing stock, and the Italian treasury indicated that there would not be a bailout of Italian banks. In addition, Fabrizio Viola, MPS’s CEO, got the axe and was replaced by Marco Morelli. So, the stage is set to raise €5 billion in new capital and dispose of about €30 billion in non-performing loans at MPS.
But, storm clouds remain on the horizon. MPS has already burnt through €12 billion of capital raised since 2008. Why won’t it burn through another €5 billion? Also, there are questions about the ability to raise new bank capital in Italy — where banks are loaded with non-performing loans (approximately €200 billion) and their shares are trading below book value.
If the new private capital for MPS is not raised, and raised post-haste, Italy and the EU will butt heads, and therein lies the potential for a storm. Without new capital, MPS’s bondholders would be forced to take losses (a bail-in) before any government bailout money can be deployed under EU rules. But, a “bail-in” would be political suicide for Prime Minister Renzi because retail investors hold a big chunk of Italian bank debt (bonds). These retail investors vote in large numbers and, suffering losses from a bail-in, bondholders would probably vote in the October referendum against Renzi’s proposed changes to Italy’s constitution. Such an outcome would probably force Renzi out and open the door for the populist Five Star Movement. So, the Italian political landscape looks unsettled.
What about the economy? A look at the economy requires a model of economic activity. The monetary approach posits that changes in the money supply, broadly determined, cause changes in nominal national income and the price level. Sure enough, the growth of broad money and nominal GDP are closely linked.
Italy’s money supply (M3) growth rate since 2010 has been well below its trend rate (6.53 percent) for most of the period (see the accompanying chart). Not surprisingly, Italy’s nominal GDP growth rate during the 2010-2015 period was only 0.4 percent per year.
If we break down the contribution to the money supply growth, only 17 percent of Italy’s M3 is accounted for by State money produced by the European Central Bank (ECB). The remaining 83 percent is Bank money produced by commercial banks through deposit creation. So, Italy’s banks are an important contributor to the money supply and the economy. However, recently, banks have been struggling and anything that would cause their loan books to contract — which would cause the money supply and credit to the private sector in Italy to slow down — would plunge Italy into another recession.
Monte Paschi is not the only problem child. All of Italy’s big banks could use some additional capital, but issuing new shares is unattractive because their shares are trading below book value (Intesa Sanpaolo’s P/B is 0.77; UniCredit is 0.27; UBI Banca is 0.24; Banco Popolare is 0.22; and Monte Paschi is 0.07).
Without new private capital, an Italian state rescue is the most attractive source for the recapitalization. Otherwise, the Italian banks will be bailed-in by the bondholders, Renzi’s constitutional changes will go down in flames, and Renzi’s government will collapse. With that, the Five Star Movement will probably form a government, and Italy will exit the Eurozone. So, if the EU does not bend and allow one of the loopholes in its rules to be used, the Boys in Brussels could set a doomsday machine into motion.Steve H. Hanke is a professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C.
Ted Galen Carpenter
Donald Trump stirred controversy yet again in the second presidential debate when he threatened, if elected, to send his opponent to prison. Hillary Clinton’s defenders immediately fumed that this was another piece of evidence that Trump’s temperament was unsuited for the vast powers of the presidency. What he was advocating, they charged, was typical of the politics of third-world dictatorships. America should not be a banana republic where the loser of an election has to fear such vengeance from political opponents.
It is a valid worry, although in fairness Trump only pledged to appoint a special prosecutor to investigate Clinton’s alleged crimes. He did not threaten to jail her based on an executive decree or blatant kangaroo judicial proceedings, which is the usual method in dictatorships. Still, such a step would be unprecedented, and we should proceed cautiously before venturing down that path.
Those who contend that only dictatorships prosecute political adversaries are factually wrong, however. There have been cases in which democratic governments have done so. Two cases stand out. In 1987, Roh Tae-woo became South Korea’s first elected president following decades of military rule. Roh, a candidate favored by the military, won with a plurality of the vote because the center-left opposition was divided between two prominent candidates and split the anti-military vote. Nevertheless, outside observers confirmed that the balloting was free and fair.
Those who contend that only dictatorships prosecute political adversaries are factually wrong.
Six years later, the opposition was united and elected Kim Young-sam as the nation’s new president. One of the administration’s first actions was to prosecute Roh, as well as the last military dictator, Chun Doo-hwan, for various crimes. Both were sentenced to prison. Kim then decided to show mercy—and avoid alienating conservative South Koreans—and pardoned Roh.
Another case of a high-level political prosecution in a democratic country occurred in Taiwan. Chen Shui-bian served as Taiwan’s president from 2000 to 2008, during which time he pushed the agenda for the island’s de facto independence from Beijing. As the first president from the upstart Democratic Progressive Party, Chen was bitterly resented by the long-governing political elite of the opposing Kuomintang (KMT) Party. When the KMT regained the presidency in 2008, Chen’s successor, Ma Ying-jeou, prosecuted Chen on a lengthy list of corruption charges. He was convicted and sentenced to prison.
In both cases, it is difficult to separate how much the proceedings were motivated simply by political revenge and how much by a genuine desire to demonstrate that no one is above the law. There is little doubt that South Korea’s military rulers jailed and tortured critics and committed other crimes. Likewise, the evidence of Chen’s corruption was rather strong—although cynics argued that it would have been possible to convict any Taiwanese political office holder, of either party, on similar charges. In all likelihood, there was a mixture of the two motives for the prosecutions.
Americans face a similar issue when it comes to proposals to prosecute Hillary Clinton. There does seem to be an unhealthy element of political vengeance at work. On the other hand, her behavior has been murky at best, and critics have made the credible argument that people without her political connections would certainly have at least been prosecuted for the mishandling of classified material in connection with her email scandal.
Moreover, public cynicism is rising that there are very different legal standards for the politically connected and the rest of Americans. There is good reason for that cynicism. Former National Security Adviser Sandy Berger was caught removing classified documents from the National Archives (by stuffing them down his pants), yet his penalty was nothing more than a fine and probation. Similarly, Gen. David Petraeus gave classified documents to his mistress so that she could write a glowing biography. His “punishment” likewise was probation and a fine equal to about three-quarters of what he typically receives for one speaking fee. Meanwhile, individuals without such connections, including whistleblowers such as Edward Snowden, face or have served substantial prison terms for comparable—and arguably better-motivated—offenses.
Investigation of and possible prosecution of a former U.S. senator, former secretary of state, and presidential candidate would certainly go far toward restoring the proposition that no one is above the law. It is a fateful decision, one that would set a powerful precedent, and it certainly should not be undertaken lightly. But it is not necessarily the hallmark of a dictatorship.Ted Galen Carpenter, a senior fellow at the Cato Institute, is the author of ten books and more than 600 articles on international affairs.