Coyote Blog

Frankly, I do not know how folks like Mark Perry and Don Boudreaux do it.  They are able to keep going, day after day, year after year, refuting the same stupid anti-trade arguments over and over again.  I don't have the patience or endurance.  Long-time readers will remember I used to spend a lot of time on climate.  But the debate never went anywhere.  It was like Groundhog Day.  At some point I just thought "I've said what I have to say, and now I am done"  (though I actually do have a climate update in the works).

Anyway, Trump has put tariffs on Mexican and Canadian steel and aluminum and is poised to do so for European products soon, a tax that will ultimately be paid by every American consumer.  Sigh.  This is just so economically ignorant it is hard to take it seriously, yet here it is.  In the name of 150,000 or so US steelworkers and a bare handful of obviously politically well-connected corporations, we are going to raise prices on essential raw materials that are consumed in one way or another by a huge number of American businesses and hundreds of millions of US consumers.   Two or three years ago when US manufacturers are moving oversees for lower raw material costs, you will know why.

Republicans are really supposed to know better on this sort of thing, which to me is just proof #12,465 that our political parties represent tribal rather than consistent ideological differences.  Republicans have twisted themselves in so many knots trying to support Trump while knowing better on tariffs that some have actually brought back a version of madman theory.

I am not entirely sure of the intellectual and historical origins of madman theory, but I have always ascribed it to Nixon and Kissinger.

President Richard Nixon and his national security adviser Henry Kissinger believed they could compel "the other side" to back down during crises in the Middle East and Vietnam by "push[ing] so many chips into the pot" that Nixon would seem 'crazy' enough to "go much further," according to newly declassified documents published today by the National Security Archive.

The documents include a 1972 Kissinger memorandum of conversation published today for the first time in which Kissinger explains to Defense Department official Gardner Tucker that Nixon's strategy was to make "the other side ... think we might be 'crazy' and might really go much further" — Nixon's Madman Theory notion of intimidating adversaries such as North Vietnam and the Soviet Union to bend them to Washington's will in diplomatic negotiations

Speaking of Kissinger, the new Conservative explanation of Trump trade (and foreign) policy also includes an element of old-time brinksmanship.  I remember reading something in college from Kissinger, which I can't find now so maybe I have it wrong, but I would paraphrase it as, "it is very dangerous to go to the brink over an issue, but one can never make progress without going to the brink."

Some Conservatives are now arguing that Trump's protectionism is "good" protectionism because it is an opening move in a bargaining game where the US can make headway and perhaps get better rules all around.  As such, Trump's seeming irrationality and willingness to ignore basic economics is a feature, not a bug, supporting the madman model of negotiation.

Ugh.  This might perhaps all be reasonable strategy in a zero-sum game such as, say, negotiating shares of the assets in a bankruptcy settlement (something Trump is actually super experienced at).  Trade, though, is not a zero-sum game.  By definition, trades that are executed voluntarily have to help both parties, or else they would not be agreed to.  As such, anything that reduces the amount of trade between people in two countries is guaranteed to be a net loss for BOTH groups of people.  There are no winners.

The Washington Post has a very good article on failures of Obamacare exchange implementation.  The Left is finding the article to be convincing evidence that the failures were all ... wait for it .. the Republican's fault.

Every single failure, save one, in the article (we'll come back to that one in a minute) was due to the Administration's fear of Republican criticism.  So results were hidden, bad decisions were made, and key steps were delayed until after the last election.  All because the Obama Administration appears to incredibly thin-skinned about criticism.

But blaming these decisions on Republicans and other Obamacare opponents is absurd.  One could easily say that the bad decisions made by the Nixon administration to cover up Watergate and other campaign shenanigans were driven by a fear of political reprisals by Democrats, but no one would be crazy enough to blame the Democrats for them.  It reminds me of the folks who wanted to blame failures in the Vietnam war on the anti-war movement.  But that is exactly what is going on here, and the amazing thing is just how many people seem willing to enable and support this incredible evasion.

The one other example that Republicans are supposedly to blame is latched onto by Kevin Drum, among others, quite eagerly.  Apparently, the PPACA legislation, which was written entirely by Democrats and passed without a single Republican vote, failed to actually provide financing for an enormous new organization to build and run the exchanges.  And, amazingly enough, Republicans refused to fix the Democrat's problem with the Democrat-written legislation in a law they hated and wanted repealed.  So the Obama Administration had to build the exchanges within the existing CMS organization, which botched the implementation.  And for THAT, apparently Republicans are to blame for it all.

Of course, beyond the just bizarre "buck stops anywhere but here" mentality, there are other problems with this logic.  First, it is hard to believe that a brand new greenfield organization run entirely by Obama's policy folks and completely without any systems experience would have done better than an organization that at least has some health care systems experience.  Further, would the schedule really have been aided by having to start an entirely new organization from scratch?  Finally, it is clear from the article that a large part of the reason for moving the work to CMS was not just money but a desire to avoid transparency, to bury and hide the work.  Even had the financing mistake** not been made, one gets the sense that Obama might have buried the effort inside CMS anyway.

In fact, this is the overriding theme from the entire article.  Every decision made for the Obamacare implementation seemed to be driven by political expediency first, avoiding transparency and accountability second, and actual results last.  It is well worth reading yourself to see what conclusions you draw.

** I am not entirely convinced it was a mistake.  Remember, the Democrats were scrambling to make the PPACA seem budget neutral.  They might easily have left out key bits of financing they know they needed, thinking they could hide the appropriation later.   A plan that died when Scott Brown was unexpectedly elected.

I grew up in the 1970's, a time when a lot of Americans post-Vietnam were questioning the value, even the sanity, of war.  Opinions were certainly split on the subject, but one thing I remember is that the concept of "punitive bombing" was widely mocked and disdained.  Which is why I find it amazing to see bipartisan, multi-country support for exactly this tired old idea as applied to Syria.  Has bombing ever done anything but radicalize the bombed civilian population against the bombers?  The reaction to the London Blitz was not to have the English suddenly decide that they had been wrong in supporting Poland.  Nor did Germans or Japanese generally reprimand their leaders for the past policies as as result of our firebombing Tokyo or Dresden.  Or look at drone strikes in Afghanistan -- do you get the sense anyone there is saying, "Boy, have we ever been taught a lesson."

In the comments, readers are welcome to contribute examples of countries who "learned their lesson" from punitive air strikes and changed their behavior.

PS-  Apparently the reason we "must" have at least air strikes is that we have established a policy that we will "do something" if countries use chemical weapons.  And if we don't have air strikes, the world will think we are weak, right?  But the problem is that this logic never ends.  If the country then ignores our air strikes and behaves as before, or perhaps performs an FU of their own by using chemical weapons openly, then what?  Aren't we obligated to do something more drastic, else the world will think we are weak?

I am a bit late to the game in addressing Krugman's comments several days ago when he said:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

This was in response to the implosion of Cyprus banks, which was exacerbated (but not necessarily caused) by the banks being a home for a lot of international hot money - deposits so large they actually dwarfed the country's GDP.

I generally rely on Bastiat's definition of the role of the economist, which I will quote from Wikipedia (being too lazy on this Friday morning to find a better source):

One of Bastiat's most important contributions to the field of economics was his admonition to the effect that good economic decisions can be made only by taking into account the "full picture." That is, economic truths should be arrived at by observing not only the immediate consequences â€“ that is, benefits or liabilities â€“ of an economic decision, but also by examining the long-term second and third consequences. Additionally, one must examine the decision's effect not only on a single group of people (say candlemakers) or a single industry (say candlemaking), but on all people and all industries in the society as a whole. As Bastiat famously put it, an economist must take into account both "What is Seen and What is Not Seen."

By this definition, Krugman has become the world's leading anti-economist.  Rather than reject the immediate and obvious (in favor of the larger picture and the unseen), he panders to it.  He increasingly spends his time giving intellectual justification to the political predilection for addressing symptoms rather than root causes.  He has become the patron saint of the candle-makers petition.

I am not naive to the fact that there are pools of international hot money that seem to be some of the dumbest money out there.  Over the last few years it has piled into one market or another, creating local asset bubbles as it goes.

But to suggest that international capital flows need to be greatly curtailed merely to slow down this dumb money, without even considering the costs, is tantamount to economic malpractice.

You want to know what much of the world outside of Western Europe and the US would look like without free capital flows?  It would look like Africa.  In fact, for the younger folks out there, when I grew up, countries like China and India and Taiwan and Vietnam and Thailand looked just like Africa.  They were poor and economically backwards.  Capital flows from developed nations seeking new markets and lower cost labor has changed all of that.  Over the last decade, more people have escaped grinding subsistence poverty in these nations than at any other time in history.

So we have the seen:  A million people in Cyprus face years of economic turmoil

And the unseen:  A billion people exiting poverty

By pandering to those who want to expand politicians' power based on a trivial understanding of the seen and a blindness to the unseen, Krugman has failed the most important role of an economist.

Other thoughts:  I would offer a few other random, related thoughts on Cyprus

• Capital controls are like gun and narcotics controls:  They stop honest people and do little to deter the dishonest.  In the case of Cyprus, Krugman obviously would have wanted capital controls to avoid the enormous influx of Russian money the overwhelmed the government's effort to stabilize the banks.  But over the last several weeks, the Cyprus banks have had absolute capital controls in place - supposedly no withdrawals were allowed.  And yet when the banks reopened, it become increasingly clear that many of the Russians had gotten their money out.  Capital controls don't work as a deterrence to money that is already corrupt and being hidden.
• No matter what anyone says, the huge capital inflows into Cyprus had nothing to do with the banking collapse.  The banks had the ability to invest the money in a range of international securities, and the money was tiny compared to the size of those security pools.  So this is not like, say, a housing market where in influx of money might cause a bubble.   The only harm caused by the size of the Russian investments is that once the bank went bad, the huge size of the problem meant that the Cyprus government did not have the resources to bail out the bank and protect depositors from losses.
• Capital controls are as likely to make bubbles worse as they are to make them better.  Certainly a lot of international money piling into a small market can cause a bubble.  But do capital controls really create fewer bubbles?  One could easily argue that the Japanese asset bubble of the late 80's would have been worse if all the money were bottled up in the country. When the Japanese went around the world buying up American movie studios and landmark real estate, that was in some sense a safety valve reducing the inflationary pressure in Japan.
• Capital controls are the worst sort of government expropriation.  You hear on the news that the "haircut" taken by depositors in Cyprus might be 20% or 80% or whatever.  But in my mind it does not matter.   Because once the government put strict capital controls in place, the haircut effectively became 100%, at least for honest people that don't have the criminal ability or crony connections to beat the system.  Cyprus basically produces nothing.  Since money is only useful to the extent that it can buy or invest in something, then bottling up one's money in Cyprus basically makes it worthless.
• Capital controls are a prelude to protectionism.   First, international trade is impossible without free flow of capital.   No way Apple is going to sell ipods in Cyprus if they cannot at some point repatriate their profits.  Capital controls can also lead to export controls.  If I can't export money, I might instead buy jets, fly them out of the country, and then sell the jets.
• Let's not forget that the core of this entire problem is a government, not a private, failure.  Banks and investors treated sovereign euro-denominated debt as a risk-free investment, and banking law (e.g. Basil II) and pension law in most countries built this assumption into law.  Cyprus banks went belly-up because the Greeks, in whom they had (unwisely) invested most of their funds, can't exercise any fiscal responsibility in their government.  If European countries could exercise fiscal responsibility in their government borrowing, 80% of the banking crisis would not exist (housing bubbles and bad mortgage securities have contributed in some countries like Spain).  There is a circle here:  Politicians like to deficit spend.  They write regulations to encourage banks to preferentially invest in this government paper.  When the government debt gets iffy, and the banks face collapse, the governments have to bail them out because otherwise there is no home for their future debt.  The bailouts get paid for with more debt, which gets crammed back into increasingly over-leveraged banks.    What a mess.
• All of this creates an interesting business school problem for the future:  What happens when there are no longer risk-free investments?  Throughout finance one talks about risk free rates and all other risks and risk premiums and discussed in reference to this risk-free benchmark.  In regulation, much of banking capital regulation and pension regulation is based on there being a core of risk free, liquid investments.  But what if these do not exist any more?
• I have thought a lot about a banking model where the bank accepts deposits and provides basic services but does no lending - a pure deposit bank with absolute transparency on its balance sheet and investments.  I think about a web site depositors can check every day to see exactly where depositors money is invested and its real time values.  Only listed, liquid securities with daily mark to market.   Open source investing, as it were.  In the past, deposit insurance has basically killed this business model, but I think public confidence in deposit insurance just took a big-ass hit this week.

Postscript:  I don't want to fall into a Godwin's law trap here, but I am currently reading Eichmann in Jerusalem and it is impossible for me to ignore the role strict capital controls played in Nazi Germany's trapping and liquidation of the Jews.

PS#2:  Oops,

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

Obama Secretary of State John Kerry, in his famous Winter Solider remarks to Congress about the Vietnam War:

... it seems the Government of this country is more concerned with the legality of where men sleep than it is with the legality of where they drop bombs.

Obama Spokeman Jay Carney, today:

these [drone] strikes are legal, they are ethical, and they are wise

Remember, Jay Carney is talking about the President's claimed right to bomb US citizens, as well as anyone else he thinks (but can't necessarily prove in a court) might kind of sort of have something to do with a terrorist group.  And civilian casualties, so much a part of Kerry's concerns back in the 1970's?  They are just asking for it.

Anyway, I have not had a chance to digest the Administration's white paper on targeted killing (I can't even believe I am writing that phrase -- our Constitution specifically banned bills of attainder but now the executive claims the ability to kill at whim).  Jacob Sullum has some thoughts at the link.  I will write more if and when I have a chance to read it, but I am sure I will find it horrifying.

Since I am on the subject today of topics my thinking has changed on over the last 30 years, I will link this post from Kevin Drum arguing that we need to make war hard again.  I have not read Rachel Maddow's book and am unlikely to, if for no other reason than style issues, but I must say that I have come around to the point Drum derives from it

If you can get past that, though, there's a deadly serious argument here that deserves way more attention than it gets. The book is, basically, a series of potted histories that explain how we drifted away from our post-Vietnam promise to make sure we never again went to war without the full backing and buy-in of the American public. Maddow's premise is that, just as the founders intended, our aim was to make war hard. Presidents would need Congress on their side. The Abrams Doctrine ensured that reserves would have to be called up. Wars would no longer unfold almost accidentally, as Vietnam did.

And for a while that was the case. ...

Maddow's argument is that we need to start rolling back these changes of the past two decades. When we go to war, we should raise taxes to pay for it. We should get rid of the secret military. The reserves should go back to being reserves. We should cut way back on the contractors and let troops peel their own potatoes. And above all, Congress should start throwing its weight around again. It's fine to criticize presidents for accreting ever more power to themselves, but what do you expect when Congress just sits back and allows it happen? Our real problem is congressional cowardice: they don't want the responsibility of declaring war, but they also don't want the responsibility of stopping it. So they punt, and war becomes ever more a purely executive function.

I am mostly in agreement with this (though I am not sure why soldiers rather than contractors should peel potatoes).  War has become way too easy -- though I would argue that Drum needs to look in a mirror a bit here.  He has been a huge supporter of Obama using executive powers to end-around Congressional opposition on things like the budget.  It's hard for him to credibly turn around and say that this same executive end-around Congress is bad in war-making.   I will be consistent and say it's bad for both.

I have not read the book, so perhaps this is covered, but I would argue that there are external factors driving this change in addition to internal factors.

The current Presidential ability to fight small wars without much Congressional backing is not entirely unprecedented.  Teddy Roosevelt did much the same thing with his gunboat diplomacy.  There were two external conditions that allowed TR to get away with this that are similar to conditions that obtain today.  One, we had a decisive economic and technological advantage over the countries we were pushing around (e.g. Columbia).  And two, there was no superpower willing to challenge us when we meddled in small countries, particularly in Latin America where the major European powers were willing to let us do whatever we wanted.

I would argue that these conditions again obtain since the fall of the Soviet Union, and allow the US to lob around cruise missiles (the gunboat diplomacy of the 21st century) with relative impunity.

I grew up in Houston.  Around and embedded in Houston are a number of small cities and villages with their own police forces.  You generally really, really did not want to encounter these folks.  They often hired the dregs of large police forces, preferentially taking the hard cases even the larger forces could not tolerate.  I remember the small village next to my high school hired one of the Houston Police officers who beat Joe Campos Torres to death (after Texas courts gave the two leaders of the beating probation and at $1 fine for killing the Vietnam vet).  These police forces are famous for their hostility to non-whites.

So it comes as no surprise, but never-the-less with great irritation, to see another such Houston-area independent city (in this case Bellaire) refusing to punish criminal officers who gunned down an innocent man in his own driveway for the apparent crime of driving while black

Cop runs license check on a suspicious vehicle. Although they apparently committed no traffic violation, cop insists that his decision to run a check had nothing to do with the fact that the occupants were black, and happened to be driving in an affluent, predominately white neighborhood. The cop’s partner apparently then enters the wrong license number, which returns a car that had been reported stolen. So cop follows car into driveway, which happens to be the home of the driver’s parents, where he lives. Cop approaches driver and occupant with his gun drawn. Driver’s parents come out to see what’s causing the commotion. Cop roughs up driver’s mother. Driver gets up from ground to tell cop to lay off of his mother. Cop shoots driver, a full 32 seconds after pulling into the driveway.

The driver, who was unarmed, will now carry a bullet in his liver for the rest of his life. The cop was charged with first degree aggravated assault. A jury acquitted him. Now this week, U.S. District Judge Melinda Harmon dismissed the driver’s lawsuit against both the cop that fired his gun and the cop who entered the wrong license plate number, citing qualified immunity. According to Harmon, the officer acted “reasonably,” and moreover, wrongly accusing an unarmed man of stealing a car, pointing a gun at him, then shooting him in the liver, “did not violate [his] constitutional rights.”

Both cops are back on the force. The guy with the bullet in his liver? Tough luck. He’ll be paying his own medical bills.

I have a hard time seeing how anyone can deny that drafted soldiers are slaves of the state.  They are giving their time and labor only under compulsion, and while they may be better off than ante-bellum slaves in that they may eventually get freed after their term is over, to some extent they may be worse off as their time in servitude is a) more dangerous and b) involves taking morally more questionable actions (e.g. killing people).

I have assumed that those who supported the draft either were arguing that that threats in wartime justified this awful step or they were statists that already saw all the rest of us as slaves anyway.

However, Bryan Caplan had a useful observation on this:

It's tempting to dismiss all this as doublethink, but after many years of reflection I think I finally figured out what most people are thinking.  Namely: They implicitly regard slavery not as mere involuntary servitude, but as low-status involuntary servitude.  Since most of us honor, respect, and even adore all our soldiers, conscripts have high status - and therefore can't be slaves.  From this point of view, saying "conscription is slavery" isn't righteously standing up for the rights of conscripts; it's wickedly denying them their high status.  Sigh.

This rings true to me, but offers another avenue for those of us who oppose the draft -- the draft reduces the perceived status of those who serve voluntarily, something I certainly think happened in the Vietnam War.  In a way, it is reminiscent of how the existence of affirmative action tends to undermine the perceived accomplishments of successful minorities.

This was a real time warp for me: (NY Times via Cato@Liberty)

As President Obama prepares to release a review of American strategy in Afghanistan that will claim progress in the nine-year-old war there, two new classified intelligence reports offer a more negative assessment and say there is a limited chance of success unless Pakistan hunts down insurgents operating from havens on its Afghan border.

The reports, one on Afghanistan and one on Pakistan, say that although there have been gains for the United States and NATO in the war, the unwillingness of Pakistan to shut down militant sanctuaries in its lawless tribal region remains a serious obstacle. American military commanders say insurgents freely cross from Pakistan into Afghanistan to plant bombs and fight American troops and then return to Pakistan for rest and resupply.

The findings in the reports, called National Intelligence Estimates, represent the consensus view of the United States' 16 intelligence agencies, as opposed to the military, and were provided last week to some members of the Senate and House Intelligence Committees. The findings were described by a number of American officials who read the reports' executive summaries.

Perhaps someone who knows better can accuse me of making a shallow comparison, but doesn't this sound exactly like the situation that plagued the US Army in Vietnam, where enemy fighters would hide out across the border in Cambodia?  From Wikipedia:

The People's Army of Vietnam had been utilizing large sections of relatively unpopulated eastern Cambodia as sanctuaries into which they could withdraw from the struggle in South Vietnam to rest and reorganize without being attacked. These base areas were also utilized by the communists to store weapons and other material that had been transported on a large scale into the region on the Sihanouk Trail. PAVN forces had begun moving through Cambodian territory as early as 1963

The Bush administration is in the unenviable but not historically unprecedented position of not really being able to accomplish much of anything over the next two years.  Bush's credibility is such that a solid majority in Congress may oppose any plan he suggests, just because he suggested it.  Also, it is unlikely that any third-rail-type reforms will be considered in a presidential election cycle.  And I am generally OK with government legislative inaction.  In fact, it would be great if the Democrats chose to pursue impeachment hearings, not because Bush is any more or less a lying sack of shit than other politicians, but because it would divert Congress onto an enforced lassaiz faire path on every other issue.

However, one thing Bush could productively accomplish is to open up relations with Cuba.  If we are ready to pull out of Iraq after five years, even at the cost of being seen as "losing," we should be ready to reconsider our cold war with Cuba after over 46 years.  After all, our cold war with Russia, if dated from the end of WWII, only lasted 44 years.  We trade freely with communist China, and even with communist Vietnam, despite the fact that we were in a shooting war with them more recently than the Castro takeover.  And what have we accomplished?  Cuba is nowhere close to an anti-communist revolution, and its people suffer.  In fact, I think the embargo on Cuba, by turning Cuba's attention away from its natural trading partner the US, causes it to look for allies in places like Venezuela.

I think history has proven time and time again the power of open commerce and interchange in bringing closed, unfree societies into the modern age.  I can't for the life of me figure out why we still pursue the proven-pointless embargoes against Cuba except:

• The sugar lobby like it that way
• The Cuban expat community, operating on wounded latin pride, have stubbornly made it clear that anyone who suggests opening up to Cuba will lose the typically tight vote for Florida's key electoral votes.

With GWB's lame-duckracy and his brother moving on from the Florida governor's mansion, no Bush has to run for election in Florida again. With Castro's death (I'm not dead yet - yes you are, you'll be stone dead in a moment) the anti-Castro movement in the expat community loses focus, and might be reshaped into what it should be, that is pro-Cuba rather than anti-Castro.  I think these two stars are lining up to provide a unique opportunity to do something about Cuba, and in fact might be a useful step in counterpoint to Hugo Chavez's recent actions. 

Vioxx went to 3 for 6 in jury verdicts today as Merck lost a case in Texas (WSJ $).  Merck got hit with $7 million in damages plus $25 million in punitive damages, presumably since Merck was so clearly at fault as to be considered to have acted recklessly.  With that in mind, consider a couple of facts in the case:  First, the plaintiff..

died of a heart attack after taking Vioxx for less than a month.

I know what you are thinking.  How, after less than a month of use (and maybe as little as a week), could any plaintiff prove their heart attack was from Vioxx?   I mean, out of the thousands of people who took Vioxx, some statistically were due for a heart attack even had they not taken the drug.  Having one event (the heart attack) follow another (Vioxx use) does not prove causation, after all.  I guess the jury decided that this guy was not at risk for a heart attack otherwise.  Of course, they admitted that:

Mr. Garza, a Vietnam veteran who was 71 years old when he died in 2001,
had a history of smoking, had suffered a prior heart attack in 1981 and
had quadruple bypass surgery in 1985.

But I'm sure that had no bearing on his heart attack.  It must have been from the week of Vioxx.  His lawyers mitigated this by arguing:

he had a stress test shortly before his heart attack that showed he was in good health

Do you know how many men die of heart attacks within months of having a clean stress test?  A lot.

The plaintiffs initially asked for a billion dollars, so I guess if only by comparison the verdict was reasonable.  I wrote more about the danger of making uninformed juries the arbiter of what risk trade-offs we as individuals can take with our medications here and here and here.  I questioned multiple punitive damage awards for the same offense in the context of double jeopardy here.

A recent editorial in the NY Times by Stanford professor David Kennedy really has me flabbergasted. So much so that I have rewritten this post three times and still not been able to adequately communicate my horror of this editorial.   Mr. Kennedy argues that the all volunteer, non-drafted, non-coerced-service army is a huge threat to America.

But the modern military's disjunction from American society is even more
disturbing. Since the time of the ancient Greeks through the American
Revolutionary War and well into the 20th century, the obligation to bear arms
and the privileges of citizenship have been intimately linked. It was for the
sake of that link between service and a full place in society that the founders
were so invested in militias and so worried about standing armies, which Samuel
Adams warned were "always dangerous to the liberties of the people."

By the way, his words "disjunction from American society" are his coy way of saying a volunteer army is not somehow as representative of America as a draft army.  This
article, as far as I can tell, is totally and completely about the
benefits of
draft (without ever actually using the word).  He is arguing that
forced compulsory military service is somehow more democratic and more appropriate for a free society than voluntary
service.  Forgetting how stupid this is for a minute, why is the volunteer army so "disturbing" to him?   It is really hard to figure out.  He keeps saying things like "the danger is obvious" but I guess I am just stupid - I can't find a clear statement of the danger in his editorial.  The closest I get is this:

But thanks to something that policymakers and academic experts grandly call
the "revolution in military affairs," which has wedded the newest electronic and
information technologies to the destructive purposes of the second-oldest
profession, we now have an active-duty military establishment that is,
proportionate to population, about 4 percent of the size of the force that won
World War II. And today's military budget is about 4 percent of gross domestic
product, as opposed to nearly 40 percent during World War II.

The implications are deeply unsettling: history's most potent military force
can now be put into the field by a society that scarcely breaks a sweat when it
does so. We can now wage war while putting at risk very few of our sons and
daughters, none of whom is obliged to serve. Modern warfare lays no significant
burdens on the larger body of citizens in whose name war is being waged.

This is not a healthy situation. It is, among other things, a standing
invitation to the kind of military adventurism that the founders correctly
feared was the greatest danger of standing armies - a danger made manifest in
their day by the career of Napoleon Bonaparte, whom Jefferson described as
having "transferred the destinies of the republic from the civil to the military
arm."

So in other words, its bad that wars are much less costly in lives and property.  If wars are less costly, and the combatants volunteers rather than conscripts, then we as a nation are more susceptible to military adventurism.  His bio says he is a historian, but what possible historical evidence does he bring forward for this?  None.   

In fact, there is no evidence that the government is any less likely to send a non-volunteer army (e.g. Korea, Vietnam) into harms way than a volunteer army (e.g. Afghanistan, Iraq).  In fact, we may actually be starting to see, via reenlistment rates, that the volunteer army provides a useful check against unpopular wars.  The author wants to imply that we would fight fewer bad wars with a draft, non-volunteer army.  But does anyone think we could have fought the increasingly unpopular Vietnam War with a volunteer army?  Only the draft made continuation of that war possible.  So where is his argument now?

Beyond the fact that his logic does not hold together, how morally bankrupt is it to long for the day when wars were much more costly in terms of lives and property?  Oh for the good old days of the 1960's when we could watch those much higher draft army body counts on the nightly news.  My guess is that he is not actually arguing that we should go back to higher body counts, but that the bodies we do have should represent a broader cross section of America.  In other words, he wants more elite rich white bodies (but not elite rich white Stanford bodies, since he and the Stanford faculty actively oppose all sorts of military recruiting and ROTC programs on campus). 

I have zero tolerance for this kind of forced-to-be-free fascism.  I have no idea what the author's politics are, but his argument reeks of collectivism and totalitarianism.  Think I am exaggerating?  Here is how he concludes:

The life of a robust democratic society should be strenuous; it should make
demands on its citizens when they are asked to engage with issues of life and
death. The "revolution in military affairs" has made obsolete the kind of huge
army that fought World War II, but a universal duty to service - perhaps in the
form of a lottery, or of compulsory national service with military duty as one
option among several

Sorry, but in a free society, there is not universal duty to service.   There is not "link between service and a full place in society."  When someone starts arguing that you have a "duty to service" and that government should "make demands on its citizens" rather than the other way around, run the other way because they are selling totalitarianism.

Update:  This is a pretty compelling article about a volunteer army at work.  Would they really be better off with a draft?

The south gate of Muthanna army barracks in Baghdad is one of the most
frequently bombed sites in Iraq.

Suicide bombers have killed 198 people here since last year.
Almost all were potential recruits to the country's fledgling armed forces.
Another 465 have been wounded.

Body parts that had been hurled by an explosion over the 30ft
high concrete wall a week earlier were still being picked up when the second
suicide bomber struck last week.

But, in an extraordinary display of optimism, the youngsters
hopeful of being recruited into the forces still come to queue....

The young men and handful of women in the queues say they are as
keen for the private's salary of $400 a month as they are to serve their country
to rid it off insurgents.

There are others who have had friends and relatives among the
estimated 25,000 civilians killed over the past two years. Some also believe
that the only way to get an American withdrawal from Iraq is to build a secure
and substantial security force.

But all have an air of defiance, and in some of the fresh
recruits there is a hint of gratitude for just making it through the queue at
the murderous south gate, on Zawraa Road.

Postscript:  I'm not really into the patriotism finger-pointing exercises so many people are into nowadays, but if you want some of that, try conservative blogger Captains Quarters writing on this same editorial.

First, a couple of disclaimers:  The human rights situation in Cuba still sucks, and Castro still is a reprehensible leader.

That all being said, its time to try a different policy vis a vis Cuba.  While the strict embargo of all things and all people back and forth to Cuba may well have been appropriate in the 1960's to make sure Cuba and the world understood our displeasure with Castro, its not working for us now.  Forty-five or so years later, nothing has really changed in Cuba.  Heck, that's more years than the Cold War with Russia lasted.  And, since the economic blockade has become pretty much unilateral, with the US about the only country in the world still observing it, its hard to see Castro throwing up the white flag any time soon.

The US has made its point -- we think Castro is a brutal totalitarian.  Castro has made his point -- Cuba is not going to fall based on US economic pressure.  Its time to try engagement.  This does not mean that the US sanction the human rights situation in Cuba.  It does mean that we acknowledge that engagement with western ideas through trade and commerce have done more to liberalize countries like China, India, and southeast Asia than any other policy we have tried.

Fareed Zakaria has a nice article in the International Edition of Newsweek advocating just this approach, not just in Cuba, but all over the world:

For almost five decades the United States has
put in place a series of costly policies designed to force Cuba to
dismantle its communist system. These policies have failed totally.
Contrast this with Vietnam, also communist, where Washington has
adopted a different approach, normalizing relations with its former
enemy. While Vietnam remains a Leninist regime in many ways, it has
opened up its society, and the government has loosened its grip on
power, certainly far more than that of Fidel Castro. For the average
person in Libya or Vietnam, American policy has improved his or her
life and life chances. For the average person in Iran or Cuba, U.S.
policy has produced decades of isolation and economic hardship.

Don't
get me wrong. I think the regimes in Tehran and Havana are ugly and
deserve to pass into the night. But do our policies actually make that
more likely? Washington has a simple solution to most governments it
doesn't like: isolate them, slap sanctions on them and wait for their
downfall....

Critics could argue that I'm forgetting the many surprising places
where regimes have fallen and freedom has been given a chance to
flourish. Who would have predicted that Ukraine, Georgia and Kyrgyzstan
would see so much change in the past year and a half? But these
examples only prove my point. The United States had no "regime change"
policy toward any of these countries, and it had relations with all of
them. In fact, these relationships helped push the regimes to change
and emboldened civil-society groups.

Ah, you might say, but these regimes were not truly evil. Well, what
about Mao's China at the height of the Cultural Revolution? Nixon and
Kissinger opened relations with what was arguably the most brutal
regime in the world at the time. And as a consequence of that opening,
China today is far more free"”economically and socially"”than it has ever
been. If we were trying to help the Chinese people, would isolation
have been a better policy?

For years I think we feared to normalize relations with Cuba because we were afraid of looking weak;  however, today, after kicking regimes out of Afghanistan and Iraq and threatening four or five others, I am not sure this is a concern.  Besides, we are normalizing relations with Vietnam, who we actually fought a war against and who are at least as bad at human rights as Cuba. 

I fear that what may be preventing a new policy with Cuba is the electoral college.  Or, more specifically, the crucial status of Florida as a tightly-contested presidential election swing state and the perception (reality?) that there is a large high-profile Cuban population in Florida that opposes normalization, at least as long as Castro can still fog a mirror.

After my earlier post on Walmart, I got to thinking about a number of Walmart-related topics.  My brain is a bit too fried on Friday night to organize these thoughts too much, so here they are, roughly following my stream of consciousness:

Exxon may have finally handed off the Great Satan title

The socialists of this country (who now generally call themselves progressives but its pretty much the same thing) usually need a company they can focus their attention on.  In the 1960's, this was probably General Motors, though defense contractors in the Vietnam War made a run at the title.  After the oil embargo of 1972, that title clearly moved to Exxon. I remember in one month in the early 1970's, the head of Exxon got called into Congress twice in a few weeks, once to combat the urban myth that oil companies were greedily holding oil off the market to drive up prices, and once to explain to Congress why they were greedily trying to expand oil production in Alaska.  My family and many of my friends worked for large oil companies, and we had several friends who were injured by letter bombs from domestic leftist terrorists (though the media did not call them terrorists then).

Exxon held the great Satan title for a long time.  It probably could have shed the title with low oil prices in the 80's, but the stupidity of the Valdez mess in the mid-80's and the vociferous opposition to the politically correct Kyoto accords in the mid-90's help them retain the title for a record number of years.

Finally, however, it appears that a new contender is at hand.  Walmart, so recently the most admired corporation in America, has become the new socialist whipping boy and lawsuit magnet.  Just search for Walmart in Google and you will get pages and pages of Wal-mart bashing sites.  Its kind of an amazing story how the former blue collar low-price hero of the working man trying to make ends meet has suddenly become a class enemy.  However, coming from a family that had many members who worked for Exxon, it comes as some relief to pass the Great Sata title on.

I wish everyone at Walmart could make $100,000 per year

In this, I am exactly in the same boat as Walmart detractors.  I would love for everyone at Walmart to make a ton of money.  Whether this is realistic is another story.

In America, people take jobs voluntarily

I would generally class this as a blinding glimpse of the obvious, but it appears that it has to be said.  And, if you accept that people are operating in their own rational self-interest (by the way, this is not a given -- many on the left do not think the average American is smart enough to make decisions for themself and that they need smart technocrats to look after them).  Anyway, were was I?  Oh yes, if you accept that people operate in their own rational self-interest, then by definition the job for Walmart employees is their best option, and any other option is worse.

This is the logical fallacy of those who attack Walmart (or offshore companies) for paying too low of wages.  Their concern is that these wages are lower than they, as an outside obviously smarter than everyone else observer, think they should be.  The reality is that these wages are higher than that employee's other options, and therefore is an improvement over that job not existing at all.  Note this story I told in an earlier post:

Progressives do not like American factories appearing in third world
countries, paying locals wages progressives feel are too low, and
disrupting agrarian economies with which progressives were more
comfortable.  But these changes are all the sum of actions by
individuals, so it is illustrative to think about what is going on in
these countries at the individual level. 

One morning, a rice farmer in southeast Asia might face a choice.
He can continue a life of brutal, back-breaking labor from dawn to dusk
for what is essentially subsistence earnings.  He can continue to see a
large number of his children die young from malnutrition and disease.
He can continue a lifestyle so static, so devoid of opportunity for
advancement, that it is nearly identical to the life led by his
ancestors in the same spot a thousand years ago.

Or, he can go to the local Nike factory, work long hours (but
certainly no longer than he worked in the field) for low pay (but
certainly more than he was making subsistence farming) and take a shot
at changing his life.  And you know what, many men (and women) in his
position choose the Nike factory.  And progressives hate this.  They
distrust this choice.  They distrust the change.  And, at its heart,
that is what opposition to globalization is all about - a deep seated
conservatism that distrusts the decision-making of individuals and
fears change, change that ironically might finally pull people out of
untold generations of utter poverty.  (update:  good post in the Mises blog on Taco Bell and wages here)

It's Wages vs. Prices, not Wages vs. Profits

In aggregate, because they have so many stores, Walmart makes about $10 billion a year in pre-tax net income.  Which is a lot.  But when looked at as a percentage of sales, it is pathetic.  Given its nearly $300 billion in sales, this is about a 3.5% return on sales, which while not unusual for retailers, in the grand scheme of American business is pathetically low.  I would have to shut down my business tomorrow if I only made 3.5% of sales -- I couldn't support the investments I have to make.

Its illuminating to compare this to all those small family owned boutique
businesses that Walmart supposedly shuts down.  So here is a little
example.  Lets say that the alternative to Walmart in Smallsville, USA would be a series of boutique stores, like
the mythical Nan's Clothing Shop.  Lets
say Nan does $250,000 a year in sales,which
would actually make her shop more successful than average, particularly for smaller town mid-America.  If Nan had to live with Walmart's profit margin of 3.5%, she would end up with an annual profit of  ... $8,750.   And, if Nan is working full-time trying to make the store work, and assuming 2300 hours a year, which is probably low for a small business person, she would be making a whopping  $3.80 an hour running her store, such that she would be much better off (leaving out the personal satisfaction of running your own business) working for Walmart at the average wage there of $6.50 an hour. 

While socialists and progressives are programmed in the deepest recesses of their DNA to blame everything on profit, the wage savings Walmart may get are not going to profit.  Their profit margins are low, in fact lower than most of the smaller stores they are replacing.  If there is a wage trade-off going on, it is between lower wages and lower prices to consumers.  Which obviously makes socialist demagoguery a bit less compelling, since it means that in some sense consumers and not Walmart are to blame if wages are too low, since presumably it is consumers who make the choice to switch from the higher cost traditional boutique alternatives to Walmart.

Walmart detractors have one good point - Walmart gets far too much preferential tax treatment

I don't know why it is, but Walmart is a magnet for taxpayer subsidies.  Not only does the government love to hand out tax breaks to Walmart, it local governments go so far as to use eminent domain to put together land parcels for them.  If I was a local retailer and had my tax money used to subsidize a new competitor, or worse got my land siezed to hand over to Walmart, I would be pissed off too.

I have not really studied Walmart's tactics in this, but my sense is that they have gotten good at getting neighboring communities competing with each other.  This is a crock and a waste of taxpayer money, and nearly as bad as subsidizing sports teams.  I have a long post on the sad practice of subsidizing business relocations here.

A final thought on the most unpublicized economic miracle of the last century

Since many of Walmart's attackers focus on their treatment of women, in part due to numerous accusations of discrimination in pay and promotions, it led me to a final thought about a great economic miracle that occurred in this country in the last decades of the 20th century.

Check this data out, from the BLS:

• In 1968, the unemployment rate was 3.8%.  22.9 million women were employed in non-farm jobs, accounting for 34% of the work force.
• In 2000, the unemployment rate was 4.0%.  62.7 million women were employed in the work force, accounting for 48% of the total
• In these years, the number of women employed increased every single year.  Even in the recession years of 1981-1983 when employment of men dropped by 2.5 million, women gained 400,000 jobs

This is phenomenal.  After years of being stay-at-home moms or whatever, women in America decided it was time to go to work.  This was roughly the equivalent of having 40,000,000 immigrants show up on our shores one day looking for work.  And you know what? The American economy found jobs for all of them, despite oil embargos and stagflation and wars and "outsourcing".

I would love to see women at Walmart making more money, and some day they probably will.  Even so, though, the fact that so many have found work there is a miracle unto itself. Remember that the alternative to a $6.50 job at Walmart if the left is successful in eliminating these jobs is probably not new $15.00 jobs - it is no job at all.  Just ask the French.  Also see my recent post on the minimum wage.

Update:  This is some pretty smart PR by Wal-Mart to deflect the sprawl argument often used against it.  By the way, I challenge someone to define sprawl adequately for me in the context it is used by people who are decrying it.

Back some years (decades, eek!) ago when I was in college, I used to really burn hot in political arguments. I could not let any statement go from anyone without an argument. And, being a libertarian, I could always find something to disagree with someone about. Since then I have mellowed a lot, and can let a lot of things pass.

Today, its hard to resist arguing about the war in Iraq, but I often find myself in the odd position of opposing the war in Iraq but disagreeing with most of the premises and assumptions of other people I meet who are opposed to the war. Though I oppose the war, I find myself sharing assumptions about the world that are more prevalent among proponents of the war. This might have made me uncomfortable at one point of my life, but as a small-government individual-rights libertarian you get used to this kind of thing, after seeing everyone argue if the government should be in the boardroom (Democrats and increasingly Republicans) or the bedroom (Republicans and some Democrats) or both (Pat Buchanan).

Over time, I have devised a couple of tests to get at these conflicting assumptions. These tests have evolved over time but they seem to retain their power to sort out people who are operating in an alternate reality.

Here are the two tests, in their current form (though longer for this print edition). In each case, choose either A or B, based on which seems more correct to you. Elements of both A and B will have been true from time to time and in isolated incidents. Try to choose which represents the fundamental truth to you.

Continue reading ‘Before We Argue - Lets See If We Are Living In The Same Universe’ »