Friday, July 31, 2009

WaPo: Will there be any consequence for Venezuela's material support for Colombian insurgents?

Rockets for Terrorists. WaPo Editorial
Will there be any consequence for Venezuela's material support for Colombian insurgents?
WaPo, Friday, July 31, 2009

WHEN THE Colombian government last year unveiled extensive evidence that the government of Venezuela had collaborated with a Colombian rebel movement known for terrorism and drug trafficking, other Latin American governments and the United States mostly chose to look the other way. The evidence was contained on laptops captured in a controversial raid by the Colombian army on a guerrilla base in Ecuador. Venezuelan President Hugo Chávez denounced the e-mails and documents as forgeries, and the potential consequences of concluding that Venezuela was supporting a terrorist organization against a democratic government -- which could include mandatory U.S. sanctions and referral to the U.N. Security Council -- were more than the Bush administration was prepared to contemplate.

Now Colombia has made public evidence that will be even more difficult to ignore. In a raid on a camp of the Revolutionary Armed Forces of Columbia (FARC), a group officially designated a terrorist organization by the United States and the European Union, Colombian forces captured sophisticated, Swedish-produced antitank rockets. A Swedish investigation confirmed that they were originally sold to the Venezuelan army by the arms manufacturer Saab. What's more, FARC e-mails from the laptops captured in Ecuador appear to refer to the weapons; in one, a FARC operative in Caracas reports discussing delivery of the arms in a 2007 meeting with two top Venezuelan generals, including the director of military intelligence, Hugo Armando Carvajal Barrios.

Colombia privately asked Mr. Chávez's government for an explanation of the rockets several months ago; Sweden is now asking as well. But the only response has been public bluster by the Venezuelan caudillo, who on Tuesday withdrew his ambassador from Colombia and threatened to close the border to trade. If he follows through, U.S. drug authorities may well be pleased: A report released last week by the U.S. Government Accountability Office said Venezuela had created a "permissive environment" for FARC that had allowed the group to massively increase its cocaine smuggling across that border. "By allowing illegal armed groups to elude capture and by providing material support, Venezuela has extended a lifeline to Colombian illegal armed groups, and their continued existence endangers Colombian security gains achieved with U.S. assistance," the GAO reported.

This all sounds an awful lot like material support for terrorism -- which raises the question of whether the State Department will look again at whether Mr. Chávez's government or its top officials belong on its list of state sponsors of terrorism. The Bush administration's Treasury Department last year imposed sanctions on Gen. Carvajal and several other officials for supporting the FARC's drug trafficking. But that hardly covers the supply of antitank rockets to a designated terrorist organization. At the moment, the State Department is busy applying sanctions to members of Honduras's de facto government, which is guilty of deposing one of Mr. Chávez's clients and would-be emulators. Perhaps soon it can turn its attention to those in the hemisphere who have been caught trying to overturn a democratic government by supplying terrorists with advanced weapons.

Human Rights Watch and Palestians in Arab countries

Double Standards and Human Rights Watch. By NOAH POLLAK
The organization displays a strong bias against Israel.
WSJ, Jul 31, 2009

Over the past two weeks, Human Rights Watch has been embroiled in a controversy over a fund raiser it held in Riyadh, Saudi Arabia. At that gathering, Middle East director Sarah Leah Whitson pledged the group would use donations to “battle . . . pro-Israel pressure groups.”

As criticism of her remark poured in, Ms. Whitson responded by saying that the complaint against her was “fundamentally a racist one.” And Kenneth Roth, executive director of Human Rights Watch, declared that “We report on Israel. Its supporters fight back with lies and deception.”

The facts tell a different story. From 2006 to the present, Human Rights Watch’s reports on the Israeli-Arab conflict have been almost entirely devoted to condemning Israel, accusing it of human rights and international law violations, and demanding international investigations into its conduct. It has published some 87 criticisms of Israeli conduct against the Palestinians and Hezbollah, versus eight criticisms of Palestinian groups and four of Hezbollah for attacks on Israel. (It also published a small number of critiques of both Israel and Arab groups, and of intra-Palestinian fighting.)

It was during this period that more than 8,000 rockets and mortars were fired at Israeli civilians by Palestinian terrorist groups in Gaza. Human Rights Watch’s response? In November 2006 it said that the Palestinian Authority “should stop giving a wink and a nod to rocket attacks.” Two years later it urged the Hamas leadership “to speak out forcefully against such [rocket] attacks . . . and bring to justice those who are found to have participated in them.”

In response to the rocket war and Hamas’s violent takeover of Gaza in June 2007, Israel imposed a partial blockade of Gaza. Human Rights Watch then published some 28 statements and reports on the blockade, accusing Israel in highly charged language of an array of war crimes and human rights violations. One report headline declared that Israel was “choking Gaza.” Human Rights Watch has never recognized the difference between Hamas’s campaign of murder against Israeli civilians and Israel’s attempt to defend those civilians. The unwillingness to distinguish between aggression and self-defense blots out a fundamental moral fact—that Hamas’s refusal to stop its attacks makes it culpable for both Israeli and Palestinian casualties.

Meanwhile, Egypt has also maintained a blockade on Gaza, although it is not even under attack from Hamas. Human Rights Watch has never singled out Egypt for criticism over its participation in the blockade.

The organization regularly calls for arms embargoes against Israel and claims it commits war crimes for using drones, artillery and cluster bombs. Yet on Israel’s northern border sits Hezbollah, which is building an arsenal of rockets to terrorize and kill Israeli civilians, and has placed that arsenal in towns and villages in hopes that Lebanese civilians will be killed if Israel attempts to defend itself. The U.N. Security Council has passed resolutions demanding Hezbollah’s disarmament and the cessation of its arms smuggling. Yet while Human Rights Watch has criticized Israel’s weapons 15 times, it has criticized Hezbollah’s twice.

In the Middle East, Human Rights Watch does not actually function as a human-rights organization. If it did, it would draw attention to the plight of Palestinians in Arab countries. In Lebanon, hundreds of thousands of Palestinians are warehoused in impoverished refugee camps and denied citizenship, civil rights, and even the right to work. This has received zero coverage from the organization.

In 2007, the Lebanese Army laid siege to the Nahr al-Bared Palestinian refugee camp for over three months, killing hundreds. Human Rights Watch produced two anemic press releases. At this very moment, Jordan is stripping its Palestinians of citizenship without the slightest protest from the organization. Unfortunately, Human Rights Watch seems only to care about Palestinians when they can be used to convince the world that the Jewish state is actually a criminal state.

Mr. Pollak is a graduate student in international relations at Yale University.

Repealing ERISA—II

Repealing Erisa—II. WSJ Editorial
The House bill would harm businesses’ ability to offer insurance.
The Wall Street Journal, p A16, Jul 31, 2009

The worst thing that can be said about the House health bill is what’s in it. Presumably that explains why Speaker Nancy Pelosi’s office zapped as “false and misleading” one of our recent editorials—on the 1974 federal law known as Erisa that lets large businesses offer insurance with minimal government interference. Among the rebuttals is the “fact” that Democrats will give “all American families more choices of quality, affordable health care.”

Then again, 151 businesses and industry groups that depend on Erisa agree that the House bill will result in fewer insurance choices for employees, not more, once all benefits are exposed to political tampering. In a letter to Mrs. Pelosi this week, the coalition—including everyone from American Airlines to Xerox—says the bill includes “numerous provisions that increase the requirements and burdens on employer-sponsored coverage and limit employer flexibility to meet the needs of their workforce by requiring them to meet federal one-size-fits-all standards after a five-year ‘grace period.’”

That’s what we said. Ms. Pelosi and allies like Henry Waxman don’t dispute that new Erisa standards are built into the bill but say most employers won’t have any trouble meeting them. “The House bill actually protects and increases employer-sponsored insurance,” reads another fact-check item. But why regulate what they admit is already working?

The reality is that once Erisa is broken the whole universe of business benefits will be distorted by Congress’s gravitational pull. For instance, some employers are trying to save on insurance costs by giving workers financial incentives to lose weight or exercise more. Pressure groups such as AARP and the American Federation of State, County and Municipal Employees are demanding that Democrats prohibit this practice as discriminatory. “If you give one person a discount, someone else is going to end up paying more,” an AARP lobbyist told Kaiser Health News. Well, yes. That’s the point.

The employer-sponsored system has its problems, but one of them is not a lack of Congressional supervision. The House Erisa provisions are definitive proof that ObamaCare would in fact erode "the health care you have."

Farmers Can Feed the World - Better seeds and fertilizers, not romantic myths, will let them do it

Farmers Can Feed the World. By NORMAN E. BORLAUG
Better seeds and fertilizers, not romantic myths, will let them do it.
WSJ, Jul 31, 2009

Earlier this month in L’Aquila, Italy, a small town recently devastated by an earthquake, leaders of the G-8 countries pledged $20 billion over three years for farm-investment aid that will help resource-poor farmers get access to tools like better seed and fertilizer and help poor nations feed themselves.For those of us who have spent our lives working in agriculture, focusing on growing food versus giving it away is a giant step forward.

Given the right tools, farmers have shown an uncanny ability to feed themselves and others, and to ignite the economic engine that will reverse the cycle of chronic poverty. And the escape from poverty offers a chance for greater political stability in their countries as well.

But just as the ground shifted beneath the Italian community of L’Aquila, so too has the political landscape heaved in other parts of the world, casting unfounded doubts on agricultural tools for farmers made through modern science, such as biotech corn in parts of Europe. Even here at home, some elements of popular culture romanticize older, inefficient production methods and shun fertilizers and pesticides, arguing that the U.S. should revert to producing only local organic food. People should be able to purchase organic food if they have the will and financial means to do so, but not at the expense of the world’s hungry—25,000 of whom die each day from malnutrition.

Unfortunately, these distractions keep us from the main goal. Consider that current agricultural productivity took 10,000 years to attain the production of roughly six billion gross tons of food per year. Today, nearly seven billion people consume that stockpile almost in its entirety every year. Factor in growing prosperity and nearly three billion new mouths by 2050, and you quickly see how the crudest calculations suggest that within the next four decades the world’s farmers will have to double production.

They most likely will need to accomplish this feat on a shrinking land base and in the face of environmental demands caused by climate change. Indeed, this month Oxfam released a study concluding that the multiple effects of climate change might “reverse 50 years of work to end poverty” resulting in “the defining human tragedy of this century.”

At this time of critical need, the epicenter of our collective work should focus on driving continued investments from both the public and private sectors in efficient agriculture production technologies. Investments like those announced by the G-8 leaders will most likely help to place current tools—like fertilizer and hybrid seeds that have been used for decades in the developed world—into the hands of small-holder farmers in remote places like Africa with the potential for noted and measured impact.

That investment will not continue to motivate new and novel discoveries, like drought-tolerant, insect-resistant or higher-yielding seed varieties that advance even faster. To accomplish this, governments must make their decisions about access to new technologies, such as the development of genetically modified organisms—on the basis of science, and not to further political agendas. Open markets will stimulate continued investment, innovation and new developments from public research institutions, private companies and novel public/private partnerships.

We already can see the ongoing value of these investments simply by acknowledging the double-digit productivity gains made in corn and soybeans in much of the developed world. In the U.S., corn productivity has grown more than 40% and soybeans by nearly 30% from 1987 to 2007, while wheat has lagged behind, increasing by only 19% during the same period. Lack of significant investment in rice and wheat, two of the most important staple crops needed to feed our growing world, is unfortunate and short-sighted. It has kept productivity in these two staple crops at relatively the same levels seen at the end of the 1960s and the close of the Green Revolution, which helped turn Mexico and India from starving net grain importers to exporters.

Here, too, the ground seems to be slowly shifting in the right direction, as recent private investments in wheat and public/private partnerships in maize for Africa re-enter the marketplace. These investments and collaborations are critical in our quest to realize much needed productivity gains in rice and wheat to benefit farmers around the world—and, ultimately, those of us who rely on them to produce our daily food.

Of history, one thing is certain: Civilization as we know it could not have evolved, nor can it survive, without an adequate food supply. Likewise, the civilization that our children, grandchildren and future generations come to know will not evolve without accelerating the pace of investment and innovation in agriculture production.

Mr. Borlaug, a professor at Texas A&M University, won the 1970 Nobel Peace Prize for his contributions to the world food supply.

Thursday, July 30, 2009

Brookings: Effective Development Assistance Through Competition

Effective Development Assistance Through Competition. By Clifford F. Zinnes, Senior Fellow, IRIS Center, Department of Economics and Affiliate Faculty, Maryland School of Public Policy at the University of Maryland
The Brookings Institution

Download (PDF)

July 2009 — Introduction

I is now generally accepted that development interventions can only be successful and sustainable if they are accepted by stakeholders and implemented in accordance with local institutions, culture and norms. “Tournament Approaches to Policy Reform—Making Development Assistance more Effective,” by Clifford Zinnes (Brookings Press, 2009), identifies a new class of emerging development intervention designs fitting this mold. In these designs the intervention is approached as a “game” with players, predefined—and, therefore, prospective—rules and payoff s, strategies, and beliefs in which players must compete to achieve the best implementation. “Winning” is based on scores on preannounced purpose-built indicators. Rewards are the sponsor’s aid. While players can be individual organizations (such as schools or even water companies), they are typically jurisdictions (from countries down to villages) so the underlying class of incentive mechanism is called “prospective inter-jurisdictional competition” (PIJC).

This brief summarizes an evaluation of past PIJC applications running from reducing red tape, youth unemployment, and pollution through to increasing literacy, public services, and governance. It asks how successful and sustain able they have been across a variety of situations and whether the approach merits replication and scaling up, particularly for improving the effectiveness of development assistance

Can the Fed Identify Bubbles Before They Happen?

Can the Fed Identify Bubbles Before They Happen? By DONALD L. LUSKIN
The New York Fed’s president says it can. If only it were that easy.
WSJ, Jul 30, 2009

President Barack Obama proposed last month that the Fed act as an overall “systemic risk” regulator, with consolidated supervisory responsibility over “large, interconnected firms whose failure could threaten the stability of the system.” Now William C. Dudley, the ex-Goldman Sachs economist just appointed president of the New York Federal Reserve, has upped the ante. He thinks the Fed should be responsible for identifying and preventing asset-price bubbles. Considering that the Fed’s track record reveals more skill at causing bubbles than preventing them, this is a very dangerous idea.

In a speech in late June in Switzerland, Mr. Dudley said, “I think that this crisis has demonstrated that the cost of waiting to clean up asset bubbles after they burst can be very high. That suggests we should explore how to respond earlier.” Mr. Dudley claims that “Asset bubbles may not be that hard to identify—especially large ones” and suggests “additional policy instruments”—that is, new regulatory powers for the Fed to “more directly influence risk premia.” Because risk premia are a key element in determining asset prices, Mr. Dudley is effectively asking for the power to control asset prices.

Fed Chairman Ben Bernanke and former Chairman Alan Greenspan both disagree. Mr. Greenspan once said that he doubted “that bubbles, even if identified early, could be pre-empted short of the central bank inducing a substantial contraction in economic activity—the very outcome we would be seeking to avoid.” According to Mr. Bernanke, even if the Fed “could identify bubbles, monetary policy is far too blunt a tool for effective use against them.” For these experienced central bankers, policy is a matter of risk-management under uncertainty; they don’t imagine that they are wise enough to detect every problem and solve it.

Mr. Dudley seems surer of himself. He notes confidently, by way of example, that “the housing bubble in the United States had been identified by many by 2005.” Well, that’s true. But it is only true in retrospect. It offers no justification for a leap toward government control of asset prices.

If the housing bubble hadn’t burst, the “many” who identified it in 2005 would have been wrong. The reality is that at all times in markets there are multiple opinions. There can be no assurance that those who hold the correct ones about what is or is not a bubble will end up at the Fed, where they can make prescient policy decisions.

Consider Mr. Dudley himself. In a 2006 speech at a conference of the National Bureau of Economic Research, when he was still with Goldman Sachs, Mr. Dudley listed “five bubbles that one could reasonably have identified in real time.” He said that he’d “tried to speculate against three of the five bubbles” but confessed his speculations met only “with limited success.”

Second, Mr. Dudley’s claim that the housing bubble had been identified in 2005 is a red herring, because by then the bubble was already well advanced (the peak in home prices came in May 2006). To do any good, the Fed would have to identify bubbles before they even happen.

But by 2005, Alan Greenspan had already begun gradually raising interest rates a year earlier, referring to “signs of froth in some local markets.” Mr. Dudley is asking for new regulatory powers based on faulting the Fed for not having or acting on insights that it, in fact, did have and did act on. He has not adduced an example of a bubble that could have been identified and prevented before it happened.

More broadly, there’s little reason to expect the Fed can deal effectively even with a bubble identified well before the fact, or that it might not do more harm than good trying. While John Maynard Keynes and Milton Friedman didn’t agree on much, they did agree that the Great Depression was caused less by the stock market crash of 1929 than by the Fed’s tight-money policies aimed at curbing stock speculation (which those policies failed to do).

It seems unproductive, as we try to extract lessons from the present recession, to go back to the regulatory policies that caused the Great Depression—and to put them on steroids with “additional policy instruments.”

In the end all these concerns, however urgent, are merely pragmatic. The overarching philosophical concern is whether we ought to empower the Federal Reserve to determine asset prices. If so, then on what basis?

In the case of oil, many argue that its price is too high because of speculation. Yet many also say it’s too low, because markets aren’t pricing the negative externalities of carbon emissions.

Which bubble should the Fed prevent—with arbitrary leverage restrictions, position limits, transaction taxes, and who knows what else—the speculation bubble or the carbon bubble?
And if we don’t want the Fed controlling asset prices, then how do we tell the central bank where to stop once we’ve given it a new mandate (on top of the many it already has) to prevent asset bubbles? If the Fed is to determine the price of the overall housing market, or stock market, or oil market, how is that different in principle from having it determine the price of every individual item at Wal-Mart, or the salary of every individual who works there?
This brings us back to politics. The issues involved with bubbles are of more than merely philosophical concern.

Mr. Bernanke’s term as Fed chairman expires in January. Based on his track record, he’s likely a shoo-in for reappointment. But in politics, the winner is often the candidate who makes the biggest promises. So perhaps we’ll be hearing more about preventing bubbles from Mr. Dudley.

Mr. Luskin is chief investment officer at Trend Macrolytics LLC.

The bipartisan Senate negotiators are leaning toward proposing a health-care Fannie Mae

Fannie Med. WSJ Editorial
The bipartisan Senate negotiators are leaning toward proposing a health-care Fannie Mae.
The Wall Street Journal, p A16, Jul 30, 2009

The details of the Senate Finance Committee’s hush-hush health talks aren’t fully known, but leaks suggest that one all-but-certain highlight will be new federally created health “cooperatives” to compete against private insurers. The onus is on Republican negotiators Chuck Grassley and Mike Enzi to explain why this isn’t merely the House “public option” in a better suit.

North Dakota Democrat Kent Conrad floated the co-op concept last month, to attract Republicans who oppose President Obama’s state-run plan. According to Mr. Conrad, these nonprofits—modeled on local electricity or rural farm co-ops—fulfill the liberal goal of competing against private insurers, yet avoid “government control,” since they will be member-owned. Presto, a Beltway splitting of the political baby.

And in theory, health-care co-ops needn’t be destructive. Blue Cross and Blue Shield began as nonprofit health insurers, and some state Blues still are. Organizations like the Group Health Cooperative of Puget Sound are consumer-owned and compete with private plans.

But the Senate is talking about government-sponsored co-ops, and that means multiple devils are in the details. Mr. Conrad confirmed this week that the current plan is to have the feds provide $6 billion in start-up cash, then appoint an “interim” national board to set policies for a network of state or regional co-ops. Mr. Conrad said this new network could attract 12 million people, making it the third-largest health insurer in the country.

Here’s where the trouble starts. At least with the public option, Washington acknowledges that taxpayers are subsidizing public plans. With co-ops, the government role is more subtle, if nearly as corrosive. Start with Mr. Conrad’s $6 billion in “seed money,” which is more than the total annual revenue of all but 20 of the nation’s private plans. This would provide a lower cost of capital than private firms and an implicit claim on any other money the co-ops need. The feds may also exempt co-ops from the taxes that private insurers pay, which average about 1.2% of premiums. This would let co-ops offer lower prices and poach customers with government-subsidized premiums.

The Senators may also exempt co-ops from the state mandates that now drive up the cost of private policies. We’ve long wanted the feds to let individuals or groups (such as the National Federation of Independent Business) form risk pools and buy insurance across state lines free of these costly requirements. But liberals have killed attempts at such Association Health Plans, which suggests their goal in exempting these “government-sponsored health enterprises” from state mandates is merely to give them another pricing edge.

Mr. Conrad suggests the federal board overseeing this network would be temporary, meaning at some point government appointees would be replaced by elected private directors. Mr. Grassley is said to be resisting federal control, but even if he succeeds for now, neither he nor Mr. Conrad can bind a future Congress. When was the last time government supervision became less onerous over time, especially in health care?

All of which makes these co-ops sound a lot like a health-care Fannie Mae and Freddie Mac, which Congress created because there was supposedly no secondary mortgage market. The duo proceeded to use their government subsidy to dominate the market and drive out private competitors.

And all of this is before Congressional liberals get their hands on these co-ops. “We’re going to have some type of public option, call it ‘co-op,’ call it what you want,” Senate Majority Leader Harry Reid said earlier this month. New York’s Chuck Schumer wants $10 billion to seed a single, nationwide co-op that will be governed by a federal board and have the authority to impose price controls. At the very least, liberals will demand to load up co-ops with the minimum-coverage mandates they’ve already included in the House and rival Senate legislation—from maternity care to government-funded abortion.

Messrs. Grassley and Enzi and Maine’s Olympia Snowe are under great pressure to agree to a deal, as Democrats grow more desperate to get political cover for reform that is sinking fast in the polls. The co-op idea might have begun as a benign proposal, but it is likely to become a mini-me public option. Senate Republicans can best serve the cause of bipartisan reform and fiscal sanity by opposing any form of new government health care, and urging Mr. Baucus to turn to the Plan B of helping the uninsured with tax credits.

Workers will pay for the new health-care payroll levy

The Pelosi Jobs Tax. WSJ Editorial
Workers will pay for the new health-care payroll levy.
The Wall Street Journal, page A16, Jul 30, 2009

Even many Democrats are revolting against Speaker Nancy Pelosi’s 5.4% income surtax to finance ObamaCare, but another tax in her House bill isn’t getting enough attention. To wit, the up to 10-percentage point payroll tax increase on workers and businesses that don’t provide health insurance. This should put to rest the illusion that no one making more than $250,000 in income will pay higher taxes.

To understand why, consider how the Pelosi jobs tax works. Under the House bill, firms with employee payroll of above $250,000 without a company health plan would pay a tax starting at 2% of wages per employee. That rate would quickly rise to 8% on firms with total payroll of $400,000 or more. A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers.

So who bears the burden of this tax? The economic research is close to unanimous that a payroll tax is a tax on labor and is thus shouldered mostly if not entirely by workers. Employers merely collect the tax and then pass along its costs in lower wages or benefits. This is the view of the Democratic-controlled Congressional Budget Office, which advised on July 13: “If employers who did not offer health insurance were required to pay a fee, employee’s wages and other forms of compensation would generally decline by the amount of that fee from what they otherwise would have been.”

To put this in actual dollars, a worker earning, say, $70,000 a year could lose some $5,600 in take home pay to cover the costs of ObamaCare. And, by the way, this is in addition to the 2.5% tax that the individual worker would have to pay on gross income, if he doesn’t buy the high-priced health insurance that the government will mandate. In sum, that’s a near 10-percentage point tax on wages and salaries on top of the 15% that already hits workers to finance Medicare and Social Security.

Even Democrats are aware that his tax would come out of the wallets of the very workers they pretend to be helping, so they inserted a provision on page 147 of the bill prohibiting firms from cutting salaries to pay the tax. Thus they figure they can decree that wages cannot fall even as costs rise. Of course, all this means is that businesses would lay off some workers, or hire fewer new ones, or pay lower starting salaries or other benefits to the workers they do hire.

Cornell economists Richard Burkhauser and Kosali Simon predicted in a 2007 National Bureau of Economic Research study that a payroll tax increase of about this magnitude plus the recent minimum wage increase will translate into hundreds of thousands of lost jobs for those with low wages. Pay or play schemes, says Mr. Burkauser, “wind up hurting the very low-wage workers they are supposed to help.” The CBO agrees, arguing that play or pay policies “could reduce the hiring of low-wage workers, whose wages could not fall by the full cost of health insurance or a substantial play-or-pay fee if they were close to the minimum wage.”

To make matters worse, many workers and firms would have to pay the Pelosi tax even if the employer already provides health insurance. That’s because the House bill requires firms to pay at least 72.5% of health-insurance premiums for individual workers and 65% for families in order to avoid the tax. A Kaiser Family Foundation survey in 2008 found that about three in five small businesses fail to meet the Pelosi test and will have to pay the tax. In these instances, the businesses will have every incentive simply to drop their coverage.

A new study by Sageworks, Inc., a financial consulting firm, runs the numbers on the income statements of actual companies. It looks at three types of firms with at least $5 million in sales: a retailer, a construction company and a small manufacturer. The companies each have total payroll of between $750,000 and $1 million a year. Assuming the firms absorb the cost of the payroll tax, their net profits fall by one-third on average. That is on top of the 45% income tax and surtax that many small business owners would pay as part of the House tax scheme, so the total reduction in some small business profits would climb to nearly 80%. These lower after-tax profits would mean fewer jobs.

To put it another way, the workers who will gain health insurance from ObamaCare will pay the steepest price for it in either a shrinking pay check, or no job at all.

Revenge of the ‘Shoe Bomber’ - The terrorist sues to resume his jihad from prison, the Fed Gov't caves in

Revenge of the ‘Shoe Bomber’. By DEBRA BURLINGAME
The terrorist sues to resume his jihad from prison. The Obama administration caves in.
WSJ, Jul 30, 2009

Last May at the National Archives, President Barack Obama warned that “more mistakes would occur” if Congress continued to politicize terrorist detention policy and the closure of Guantanamo Bay. “[I]f we refuse to deal with those issues today,” he predicted, “then I guarantee you, they will be an albatross around our efforts to combat terrorism in the future.”

On June 17, at the Administrative Maximum (ADX) penitentiary in Florence, Colo., one of those albatrosses, inmate number 24079-038, began his day with a whole new range of possibilities. Eight days earlier, the U.S. Attorney’s office in Denver filed notice in federal court that the Special Administrative Measures (SAMs) which applied to that prisoner—Richard C. Reid, a.k.a. the “Shoe Bomber”—were being allowed to expire. SAMs are security directives, renewable yearly, issued by the attorney general when “there is a substantial risk that a prisoner’s communications, correspondence or contacts with persons could result in death or serious bodily injury” to others.

Reid was arrested in 2001 for attempting to blow up American Airlines Flight 63 from Paris to Miami with 197 passengers and crew on board. Why had Attorney General Eric Holder decided not to renew his security measures, kept in place since 2002?

According to court documents filed in a 2007 civil lawsuit against the government, Reid claimed that SAMs violated his First Amendment right of free speech and free exercise of religion. In a hand-written complaint, he asserted that he was being illegally prevented from performing daily “group prayers in a manner prescribed by my religion.” Yet the list of Reid’s potential fellow congregants at ADX Florence reads like a Who’s Who of al Qaeda’s most dangerous members: Ramzi Yousef and his three co-conspirators in the 1993 World Trade Center bombing; 9/11 conspirator Zacarias Moussaoui; “Millennium bomber” Ahmed Ressam; “Dirty bomber” Jose Padilla; Wadih el-Hage, Osama Bin Laden’s personal secretary, convicted in the 1998 U.S. Embassy bombing that killed 247 people.

In December 2008, the Department of Justice filed a motion to dismiss Reid’s lawsuit. It cited the example of ADX inmate Ahmed Ajaj as an illustration of “the dangers inherent in permitting a group of inmates, of like mind in their opposition to the United States, to congregate for a prayer service conducted in a language not understood by most correctional officers.”

While imprisoned for passport fraud in 1992, Ajaj assisted in the plans to destroy the World Trade Center on Feb. 26, 1993, making phone calls to Ramzi Yousef and speaking in code to elude law enforcement monitoring. Ajaj tried to get his “training kit” to Yousef, which included videotapes and notes he had taken on bomb-making while attending a terrorist camp on the Pakistan-Afghanistan border.

Reid’s own SAMs on correspondence had been tightened in 2006 after the shocking discovery that three of the 1993 World Trade Center bombers at ADX, not subject to security directives, had sent 90 letters to overseas terrorist networks, including those associated with the Madrid train bombing. The letters, exhorting jihad and praising Osama bin Laden as “my hero of this generation,” were printed in Arabic newspapers and brandished like trophies to recruit new members.

When setting restrictions on inmate religious practice, the Bureau of Prisons need only meet a reasonableness standard, a very low bar in the case of Muslim terrorists. Justice would easily have prevailed against Reid’s lawsuit; nevertheless it dropped the security measures on Reid after he missed 58 meals in a hunger strike that required medical intervention and forced feeding in April.

On July 6, Justice Department lawyers informed the court that Reid will be given a “new placement” in a “post-SAMs setting.” Whether that entails stepped down security in a different unit or transfer to a less secure facility, the Bureau of Prisons won’t say, and Justice refuses to comment.

Mr. Obama likes to observe that “no one has escaped from supermax,” but if Reid is moved from ADX Florence, he will be the first convicted terrorist to use the First Amendment to sue his way out.

What drove the Obama administration’s decision to cave in to Reid’s demands? The president after all has repeatedly pitched supermax and the federal prison system as a secure alternative to Guantanamo, citing the fact that it handles “all manner of violent and dangerous criminals.” Yet the last thing he needs, as his administration engages in its hasty effort to shut Gitmo down by a fast-approaching deadline, is for lawyers and human-rights activists to use a hunger-striking, near-death prisoner to launch a propaganda campaign fashioned right out of the Gitmo detainees’ playbook. Lawyers who shamelessly compared Gitmo to Nazi concentration camps would think nothing of casting supermax as the next “symbol of America’s shame” and a “rallying cry for our enemies.”

From the outset of his administration, Mr. Obama has been trying to thread the needle between national security policy and his ideological affinity with civil liberties lawyers and human-rights activists, meeting with and consulting them prior to making detainee-related decisions. Though his executive order shutting Guantanamo closely followed the blueprint provided by Human Rights First, leaders of key organizations were stunned when he revealed in an awkward, off-the-record meeting the day before his public announcement at the National Archives that he planned to continue President George W. Bush’s policy of preventive detention.

Michael Ratner, whose human rights organization, the Center for Constitutional Rights, filed the first successful detainee lawsuit in 2002, called Mr. Obama’s proposed U.S. detention scheme a “road to perdition” and nothing more than a plan to “repackage Guantanamo.” Leaders of the so-called Gitmo bar appear poised to launch a flurry of legal challenges the moment the last departing detainee’s feet touch U.S. soil.

In January, the American Civil Liberties Union (ACLU) of Colorado issued a statement saying that conditions at supermax are “simply another form of torture” worse than Gitmo which “make a mockery of ‘innocent until proven guilty.’” Last month, the ACLU filed a civil lawsuit mirroring Reid’s religious rights claim on behalf of two terrorism inmates held at the Communications Management Unit inside a medium security prison in Terre Haute, Ind.

One of those inmates is Enaam Arnaout, a Syrian-born U.S. citizen serving a 10-year sentence for diverting Muslim charity money to militant Islamic groups in Bosnia and Chechnya. The other, Randall Royer, is serving 20 years for his role recruiting young Muslims in the “Virginia Jihad Network,” a group that used paintball games in 2000-2001 to train for holy war.

Mr. Obama has repeatedly suggested that the security challenge of bringing more than 100 trained and dangerous terrorists onto U.S. soil can be solved by simply installing them in an impenetrable fortress. This view is either disingenuous or naïve. The militant Islamists at Guantanamo too dangerous to release believe that their resistance behind the wire is a continuation of holy war. There is every reason to believe they will continue their jihad once they have been transported to U.S. soil where certain federal judges have signaled a willingness to confer upon them even more rights.

The position of civil rights activists with regard to these prisoners is plain. “If they cannot be convicted,” says ACLU lawyer Jameel Jaffer, “then you release them.”

Meanwhile, in order to appease political constituencies both here and abroad, the Obama administration is moving full steam ahead, operating on the false premise that giving more civil liberties to religious fanatics bent on destroying Western civilization will make a difference in the Muslim world. In a letter sent to his father as he began his hunger strike, Reid provided a preview of how he will exercise his newly enlarged free speech rights, calling Mr. Obama a “hypocrite” who is “no better than George Bush.” His lawsuit remains active while the Department of Justice works out a settlement that satisfies the man who declared, “I am at war with America.”

Ms. Burlingame, a former attorney and a director of the National September 11 Memorial Foundation, is the sister of Charles F. “Chic” Burlingame III, the pilot of American Airlines Flight 77, which was crashed into the Pentagon on Sept. 11, 2001.

Tuesday, July 28, 2009

Conservative on Israel and Iran: After years of failed diplomacy no one will be able to call an attack precipitous

It’s Crunch Time for Israel on Iran. By JOHN BOLTON
After years of failed diplomacy no one will be able to call an attack precipitous.
WSJ, Jul 29, 2009

Legions of senior American officials have descended on Jerusalem recently, but the most important of them has been Defense Secretary Robert Gates. His central objective was to dissuade Israel from carrying out military strikes against Iran’s nuclear weapons facilities. Under the guise of counseling “patience,” Mr. Gates again conveyed President Barack Obama’s emphatic thumbs down on military force.

The public outcome of Mr. Gates’s visit appeared polite but inconclusive. Yet Iran’s progress with nuclear weapons and air defenses means Israel’s military option is declining over time. It will have to make a decision soon, and it will be no surprise if Israel strikes by year’s end. Israel’s choice could determine whether Iran obtains nuclear weapons in the foreseeable future.

Mr. Obama’s approach to Tehran has been his “open hand,” yet his gesture has not only been ignored by Iran but deemed irrelevant as the country looks inward to resolve the aftermath of its fraudulent election. The hardliner “winner” of that election, President Mahmoud Ahmadinejad, was recently forced to fire a deputy who once said something vaguely soothing about Israel. Clearly, negotiations with the White House are not exactly topping the Iranian agenda.

Beyond that, Mr. Obama’s negotiation strategy faces insuperable time pressure. French President Nicolas Sarkozy proclaimed that Iran must re-start negotiations with the West by September’s G-20 summit. But this means little when, with each passing day, Iran’s nuclear and ballistic missile laboratories, production facilities and military bases are all churning. Israel is focused on these facts, not the illusion of “tough” diplomacy.

Israel rejects another feature of Mr. Obama’s diplomatic stance. The Israelis do not believe that progress with the Palestinians will facilitate a deal on Iran’s nuclear weapons program. Though Mr. Gates and others have pressed this fanciful analysis, Israel will not be moved.

Worse, Mr. Obama has no new strategic thinking on Iran. He vaguely promises to offer the country the carrot of diplomacy—followed by an empty threat of sanctions down the road if Iran does not comply with the U.S.’s requests. This is precisely the European Union’s approach, which has failed for over six years.

There’s no reason Iran would suddenly now bow to Mr. Obama’s diplomatic efforts, especially after its embarrassing election in June. So with diplomacy out the door, how will Iran be tamed?

Mr. Gates’ mission had extraordinary significance. Israel sees the political and military landscape in a very inauspicious light. It also worries that, once ensnared in negotiations, the Obama administration will find it very hard to extricate itself. The Israelis are probably right. To prove the success of his “open hand,” Mr. Obama will declare victory for “diplomacy” even if it means little to no gains on Iran’s nuclear program.

Under the worst-case scenario, Iran will continue improving its nuclear facilities and Mr. Obama will become the first U.S. president to tie the issue of Israel’s nuclear capabilities into negotiations about Iran’s.

Israel understands that Secretary of State Hillary Clinton’s recent commitment to extend the U.S. “defense umbrella” to Israel is not a guarantee of nuclear retaliation, and that it is wholly insufficient to deter Iran from obliterating Israel if it so decides. In fact, Mrs. Clinton’s comment tacitly concedes that Iran will acquire nuclear weapons, exactly the wrong message. Since Israel, like the U.S., is well aware its missile defense system is imperfect, whatever Mr. Gates said about the “defense umbrella” will be politely ignored.

Relations between the U.S. and Israel are more strained now than at any time since the 1956 Suez Canal crisis. Mr. Gates’s message for Israel not to act on Iran, and the U.S. pressure he brought to bear, highlight the weight of Israel’s lonely burden.

Striking Iran’s nuclear program will not be precipitous or poorly thought out. Israel’s attack, if it happens, will have followed enormously difficult deliberation over terrible imponderables, and years of patiently waiting on innumerable failed diplomatic efforts. Absent Israeli action, prepare for a nuclear Iran.

We should listen to Chinese warnings on the dollar

The Customer Is Right. WSJ Editorial
Mr. Obama should listen to Chinese warnings on the dollar.
WSJ, Jul 29, 2009

"We exercise our leadership best when we are listening," President Obama said in April, when asked how his foreign policy differs from that of George W. Bush. Let’s hope that he and Congress were listening when Chinese officials visited the U.S. this week.

The unambiguous message from these investors who hold more than $800 billion in U.S. Treasury debt: Washington needs to take better care of their investment. Yesterday, China Vice Premier Wang Qishan urged the U.S. to get a handle on its soaring debt to protect the value of the dollar. “As a major reserve currency-issuing country in the world, the U.S. should balance and properly handle the dollar’s supply,” Mr. Wang said through an interpreter. Well put.

Like investors everywhere, the Chinese are concerned that America will simply print money to pay off its ballooning debts. The visitors from Beijing were so concerned about the Federal Reserve’s money-creation binge that Fed Chairman Ben Bernanke had to reassure them that he had an exit strategy from what has been the most accommodative U.S. monetary policy since the 1970s. Our guess is that after a decade of Fed missteps, the Chinese are in a Missouri state of mind about this and will want Mr. Bernanke to show them he means it.

The Chinese also zeroed in on Uncle Sam’s finances. “We sincerely hope the U.S. fiscal deficit will be reduced, year after year,” Assistant Finance Minister Zhu Guangyao said on Monday. We have long held that deficits per se are less important than their size relative to the overall economy, and that the real burden on taxpayers is the spending that creates deficits. However, Mr. Obama and Congressional Democrats have been rapidly raising both. One has to go back to the era of World War II to see deficits consuming so large a percentage of GDP as this year’s 13%.

The Chinese might have cause to be less worried if these deficits were poised to fall quickly amid an economic expansion. But the tragedy is that this blowout of the U.S. balance sheet was used to finance spending, largely on transfer payments like Medicaid and jobless benefits, rather than pro-growth tax cuts. The recession is already bottoming out, but the danger is that the expansion to come will be too mediocre to drive job creation and raise revenues enough to reduce the deficit the way it did in the 1980s.

These deficits must eventually be paid for with cash taken from taxpayers, which limits economic growth, or with inflation, which robs investors of the value of their savings. With the U.S. deficit exceeding $1.8 trillion in 2009, and likely to stay high for years to come, investors in China and around the world have every right to be concerned. The Chinese have economic problems of their own, but when they come visiting with a message of sound money and spending restraint, Americans ignore them at our peril.

Some pre-emptive scapegoating over rising oil prices

The Politics of ‘Speculation’. WSJ Editorial
Some pre-emptive scapegoating over rising oil prices.
WSJ, Jul 29, 2009

The oil speculators are back—that is, back in the cross-hairs of the political class. On Tuesday, Commodity Futures Trading Commission Chairman Gary Gensler uttered the Pentagon-like phrase that “every option must be on the table” to curb “excessive speculation.” If you’re wondering what makes speculation “excessive,” in Washington the answer is this: Speculation becomes excessive when prices move in a politically inconvenient direction. Which brings us to the real meaning of the three days of theater, er, hearings that Mr. Gensler is conducting this week.

Last summer, as oil prices were peaking, the CFTC launched an investigation into whether $100-plus oil was the result of market manipulation by those “speculators.” That interim report, issued in July 2008, concluded that price movements were largely driven by—wait for it— supply and demand.

The report noted, among other findings, that so-called speculators were net short during some of the biggest run-ups in oil prices over the past several years. In other words, they were, if anything, putting downward pressure on prices during some big spikes. The CFTC also found that markets in which futures trading is outlawed altogether—such as onions (yes, onions)—price volatility tended to be even greater than in commodities like oil with deep and efficient futures markets.

Oil prices began their six-month, 80% slide about the time that report was issued. But since last December oil prices have climbed back up again, and consumer gasoline prices have climbed along with them. This is not popular with voters. Three weeks ago, British Prime Minister Gordon Brown and French President Nicolas Sarkozy warned on these pages about the dangers of “damaging speculation.” Now the U.S. is getting into the act in the form of Obama appointee Mr. Gensler—and Congress can’t be far behind.

So the Gensler CFTC is now poised to issue a follow-up repudiating the commission’s earlier findings. This week’s hearings are being held without the benefit of the CFTC’s actual findings, which are due out in August—but no matter. The CFTC’s about-face is all about the politics, not the economics, of price discovery. And the real goal is not to blame the evil speculators for last year’s price spike or this year’s oil rally, but to lay the groundwork for explaining away the commodity-price bull run that we’re likely to see as a result of the Federal Reserve’s easy money and the Obama Administration’s spending and debt party.

As the CFTC’s 2008 report noted, price signals drive discovery and exploration, albeit with a lag. Low prices today beget shortages tomorrow, while high prices today encourage the discovery and development of future supply. Those prices, in turn, are not the product of any economic model or forecast, but are the sum total of the bids and offers available on the spot and futures markets.

In all of this, what nobody has managed to explain is what, exactly, happened to the omnipotent speculators between July and December 2008. Did they all go on vacation? Perhaps they paused for a six-month drinking binge with their winnings before returning to manipulate us anew in 2009.

No, what we really have here is the age-old scapegoating that our superstitious ancestors would have recognized. The only twist in Mr. Gensler’s case is that he’s trying to scape the goats pre-emptively. On our current fiscal and monetary policy course, the dollar is not done falling and interest rates have barely begun to rise. Both of these market moves will be felt in the commodities markets, as they were after Alan Greenspan cut short-term rates to 1% in 2003-2004. So better to send the posse after the speculators now than to confront the consequences of Washington’s policy errors.

There is an alternative to the market price—it’s called price controls. And the danger is that this is where we’re headed politically. If curbing speculation by limiting trader positions or restricting the ability of “non-commercial” buyers to trade is a politically acceptable way to dampen volatility (remember the onions), the logical next step is a political diktat that oil will not be bought or sold above a certain price.

Truth is, we need more speculators, not less. They’re the people who can help prices find the right level, because there is no “right” level other than the one the market gives us. And that’s why, in turn, excessive speculation is nothing more—or less—than a convenient fiction for when prices don’t move the way politicians would like.

Is There a ‘Right’ to Health Care?

Is There a ‘Right’ to Health Care?. By Theodore Dalrymple
In Britain, its recognition has led to substandard care.
WSJ, Jul 29, 2009

If there is a right to health care, someone has the duty to provide it. Inevitably, that “someone” is the government. Concrete benefits in pursuance of abstract rights, however, can be provided by the government only by constant coercion.

People sometimes argue in favor of a universal human right to health care by saying that health care is different from all other human goods or products. It is supposedly an important precondition of life itself. This is wrong: There are several other, much more important preconditions of human existence, such as food, shelter and clothing.

Everyone agrees that hunger is a bad thing (as is overeating), but few suppose there is a right to a healthy, balanced diet, or that if there was, the federal government would be the best at providing and distributing it to each and every American.

Where does the right to health care come from? Did it exist in, say, 250 B.C., or in A.D. 1750? If it did, how was it that our ancestors, who were no less intelligent than we, failed completely to notice it?

If, on the other hand, the right to health care did not exist in those benighted days, how did it come into existence, and how did we come to recognize it once it did?

When the supposed right to health care is widely recognized, as in the United Kingdom, it tends to reduce moral imagination. Whenever I deny the existence of a right to health care to a Briton who asserts it, he replies, “So you think it is all right for people to be left to die in the street?”

When I then ask my interlocutor whether he can think of any reason why people should not be left to die in the street, other than that they have a right to health care, he is generally reduced to silence. He cannot think of one.

Moreover, the right to grant is also the right to deny. And in times of economic stringency, when the first call on public expenditure is the payment of the salaries and pensions of health-care staff, we can rely with absolute confidence on the capacity of government sophists to find good reasons for doing bad things.

The question of health care is not one of rights but of how best in practice to organize it. America is certainly not a perfect model in this regard. But neither is Britain, where a universal right to health care has been recognized longest in the Western world.

Not coincidentally, the U.K. is by far the most unpleasant country in which to be ill in the Western world. Even Greeks living in Britain return home for medical treatment if they are physically able to do so.

The government-run health-care system—which in the U.K. is believed to be the necessary institutional corollary to an inalienable right to health care—has pauperized the entire population. This is not to say that in every last case the treatment is bad: A pauper may be well or badly treated, according to the inclination, temperament and abilities of those providing the treatment. But a pauper must accept what he is given.

Universality is closely allied as an ideal, ideologically, to that of equality. But equality is not desirable in itself. To provide everyone with the same bad quality of care would satisfy the demand for equality. (Not coincidentally, British survival rates for cancer and heart disease are much below those of other European countries, where patients need to make at least some payment for their care.)

In any case, the universality of government health care in pursuance of the abstract right to it in Britain has not ensured equality. After 60 years of universal health care, free at the point of usage and funded by taxation, inequalities between the richest and poorest sections of the population have not been reduced. But Britain does have the dirtiest, most broken-down hospitals in Europe.

There is no right to health care—any more than there is a right to chicken Kiev every second Thursday of the month.

Theodore Dalrymple is the pen name of Anthony Daniels, a British physician. He is a contributing editor to the City Journal.

The CFTC’s Flip Flop on Oil Speculation

The CFTC’s Flip Flop on Oil Speculation
IER, July 28, 2009

People, personalities, policies, drapes – just a few of the things the American people have come to expect will change from year to year, and from administration to administration, depending on the philosophy, interest and artistic sensibility of the chief executive.

Here’s what’s not suppose to change: the facts of existence, and the substance of the truth. Unfortunately, in the case of President Obama’s Commodity Futures Trading Commission (CFTC), every bit of analysis the agency did previous to the current regime can be tossed out the window – not because it was wrong then, but because it’s politically inconvenient now.

Observe the latest news from the CFTC this week. On Tuesday, the Commission announced that it will release a report in mid-August blaming the 2008 swings in oil prices on speculators (spoiler alert!) The announcement raises eyebrows because in 2008, the CFTC itself decisively concluded that fundamental supply and demand, not speculation, drove oil up to record highs in the summer of 2008. Bummer if you happen to make a political living off of scaring your constituents with shadows and straw men.

Could it be that the CFTC’s flip flop has something to do with the Obama Administration’s desire to further regulate the financial markets? By placing arbitrary limits on which institutions are allowed to spend their money on certain financial products, the government will make oil prices more volatile, and it will steer even more profits into the huge, politically connected firms on Wall Street. Meanwhile, the American people are still waiting for the government to remove the roadblocks to the offshore energy they were promised last year when two separate bans were finally and formally put out to pasture.

The Social Function of Oil Speculation

The essential insight of Adam Smith was that a market economy harnesses the self-indulgence of individuals and motivates them to serve the common welfare. In a free market, one becomes affluent by creating better and cheaper products or services that consumers are willing to buy.

In the case of speculation, this process actually reduces the volatility of price swings. We have all heard the successful speculator’s motto of “buy low, sell high.” To be more specific, the phrase should really be “short-sell high, cover low.” What this means it that if some investors believe that oil prices will rise sharply in a month, they can profit from this hunch by buying oil futures contracts. If and when the price of oil does rise as they had anticipated, their futures contracts will be adjusted, booking a profit to their trading accounts. (On the flip side, if some investors think oil prices will fall, they can sell—“go short”—oil futures contracts.)

It’s true, as the critics point out, that an investor who purchases oil futures contracts will indirectly pull up the current price of oil. This happens because producers have an incentive to reduce current sales when the futures price gets pushed up. They are effectively diverting some of their scarce supplies of oil to the future, rather than selling it all in the present.

But even if futures purchases push up current oil prices, the speculators perform a service to everybody else so long as they correctly anticipated a price spike. If oil is currently selling at $50, and an investor believes it will jump up to $70 in one month, then the investor will buy futures contracts until the “futures price” gets pushed up to reflect his forecast. In the process, his actions may have pushed the current, spot price up to $55. But that’s a good thing, because now the price will approach $70 more gradually; it won’t shock the market as much when oil hits $70.

Of course, if speculators are wrong, then they do make market prices more volatile. If a price is actually going to fall in the future, and speculators foolishly buy futures contracts because they mistakenly expect a price hike, then yes that does distort markets. But the government doesn’t need to crack down on this antisocial behavior, because the market has a built-in penalty: speculators who guess wrong lose money. And in fact, many investors lost a bundle of money when oil prices collapsed in the fall of 2008. And you didn’t hear the politicians praising speculators for the run down in the price of oil either.

The other thing producers do, and perhaps the most important thing for consumers, is that they are encouraged by the higher price to invest in finding more oil, because they will get a higher price for the oil. They buy equipment, hire people and buy services. They explore for new supplies and add new capacity. By combining their risked capital, additional human resources and intelligence, they bring new oil to the markets. New oil supplies help producers meet the increased demand and prices fall. This is supply and demand working to meet the wants and needs of consumers and there is nothing sinister about it.

Even Paul Krugman Agreed that Speculators Didn’t Cause the 2008 Spike

So we see that even when speculators move prices, so long as their forecasts are correct, they are actually helping to stabilize prices. Ironically, the point is moot regarding the 2008 price swings, because many analysts from across the political spectrum did not believe that speculation drove those movements. Instead, the underlying supply and demand conditions were the best explanation for why oil rose so high by the summer of 2008, and then collapsed in the fall.

The “smoking gun” in this conclusion was the fact that oil inventories were not rising during oil’s large ascent. Independent analyses by IER and the CFTC pointed to this fact, and Paul Krugman has recently reminded his readers that he too does not believe oil speculators were responsible for the 2008 movements.

All three analyses noted that the only way for speculators to drive up prices, is by giving an incentive for people to take oil off the current market and stockpile it for future sale. Since there was no obvious accumulation of oil inventories during the first half of 2008, oil speculation couldn’t have been the driving force. The reason the spot price of oil rose so much through the summer, was that worldwide supply still lagged behind demand for much of the year.Putting

New Curbs on Financial Markets Will Hurt Consumers

Of course, the real reason behind the CFTC’s change of heart is that it needs to justify its desire to expand its regulatory purview and slap on even more regulations of the financial markets. Specifically, the CFTC wants the power to limit “speculative” purchases of oil futures and other derivatives. The idea is that “physical hedgers”—such as airlines and oil producers—can trade in futures contracts as much as they want, because in theory they are just shielding their businesses from sensitive oil price moves. In contrast, the CFTC wants to crack down on those who buy futures contracts out of purely speculative motives.

This is a false dichotomy, and certainly we can’t trust bureaucrats to know the difference in practice. Airline companies can hold an opinion on oil prices too, and “bet” accordingly—that’s why some airlines invest more heavily than others in futures contracts. So even institutions that are directly related to the oil business can dabble in speculative transactions that will affect oil prices based on their forecasts.

On the other hand, investors who are completely isolated from the oil market might buy oil futures as a “hedge.” For example, during 2008 many portfolio managers gained more and more exposure to oil, meaning they “went long” on oil futures contracts. But they weren’t doing this in order to bet on higher prices. Rather, they could see that as oil kept rising, it was hurting the share prices on many major companies. So in order to protect their clients, the portfolio managers diversified their holdings, by selling off some of their stock and bond holdings in order to buy commodity futures. New government regulations could hinder this very useful tool to shield average investors from large price swings.

Finally, we need to realize that CFTC regulations will not stop large speculators from changing the world price of oil. Politically connected investment firms will easily be able to qualify as an “approved” purchaser of oil futures. And if nothing else, rich investors who want to bet on the price of oil can always take their business to foreign exchanges. Does anybody really think George Soros won’t be able to find someone else in the whole wide world willing to take the opposite position of an oil trade he wants to make?

Of course, we will have to suspend final judgment until we see the CFTC’s new report. It’s possible that every single analyst at the CFTC missed something last year when they concluded that speculation wasn’t driving oil prices. But one can’t help but note the timing of the CFTC’s about face – just as the Obama Administration is pushing for more regulation of energy markets.

Resistance to mind-altering substances is futile, according to a new "Secret History of Getting High in America"

Why we say yes to drugs. By Laura Miller
Resistance to mind-altering substances is futile, according to a new "Secret History of Getting High in America"
Salon, Jul. 20, 2009

Not long ago, I was talking with a couple of friends who are about a decade younger than I am. We got onto the subject of recreational drugs and how my friends had recently sworn off Ecstasy. "I know a guy who used to love it, and he's quitting, too," one of them explained. "He's learned a lot about it and says it's just too hard on your body." I remarked that since Ecstasy is the sort of drug most people take only very occasionally, it probably wasn't as dangerous as something like cocaine, which can be addictive, expensive and lethal. "Oh, cocaine's not that bad," said my friend, looking puzzled and leaving me surprised. Hadn't he ever worked for someone who'd gotten so tweaked on coke that he burned out his septum, emptied his bank account and triggered a heart attack? Hasn't every journalist worked with someone like that?

Ryan Grim would understand this disconnect perfectly. One of the theses of his new book, "This is Your Country on Drugs: The Secret History of Getting High in America" -- a cornucopia of unconventional wisdom about our relationship to mind-altering substances -- is that the popularity of drugs waxes and wanes according to a complex sum of factors. One of those factors is the "perceived risk" of using a particular chemical, which also fluctuates. There's a tendency to idealize new drugs, as the Boston Medical and Surgical Journal did with a recently isolated narcotic in 1900. "There's no danger of acquiring a habit," it assured its readers about the drug that had just emerged from the labs of the aspirin manufacturer, Bayer. They named it heroin.

Even when we ought to know better, we don't. "It takes about seven years," Grim writes, "for folks to realize what's wrong with any given drug. It slips away, only to return again as if it were new." I came of age professionally at a time when older journalists and editors were wrecking themselves on cocaine right and left; as a result, I still think of the drug as equal parts perilous and pathetic, as well as hopelessly uncool. My friend, no doubt, came up during a coke lull.

A political reporter who currently works at the Huffington Post, Grim wrote a 2004 article for Slate inspired by a curious observation: LSD, which had been "a fixture of my social scene since the early '90s," seemed to have vanished from that scene. No one he knew was taking it or selling it, and when he approached a drugs-policy researcher for some hard data, they discovered that according to several metrics, acid use was at "an historic low: 3.5 percent." By 2003, it was down to 1.9 percent. Why?

It wasn't just that LSD had gone out of style, although it had, somewhat. Grim found evidence of a perfect storm of causes for the decline. In 2000, the DEA had arrested a man named William Pickard, thought to be the manufacturer of as much as 95 percent of the available acid in the U.S. The Grateful Dead, whose concerts provided an opportunity for suppliers and users to connect and network, had stopped touring after the 1995 death of Jerry Garcia, and Phish, a jam band that had stepped in to fill the gap, also stopped touring by the end of 2000. The rave scene began to fade away under pressure from authorities who threatened to arrest organizers for drug offenses committed at their events.

But if Grim has learned anything from his forays into the tangled world of drug laws (he once worked for the Marijuana Policy Project, which lobbies for the repeal of pot prohibition), it's that the American passion for getting high turns enforcement-centered strategies into a vast game of Whack-a-Mole. "Policies enacted to counter other drugs -- marijuana and cocaine, for example -- have ended up encouraging the meth trade, as have laws against meth itself," he writes. Crackdowns on pot smuggled from Mexico during the 1970s caused growers, dealers and users to turn to heroin, meth and especially cocaine, the last of which was brought in from Colombia via the Caribbean and Miami. When federal authorities finally got around to draining the swamp of crime and corruption in Miami (where one-fifth of all real estate transactions were paid for in cash), coke smuggling migrated to Mexico, and when attacked there, it scattered throughout the region, "creating the cartel structure that exists today." This year, the National Drug Threat Assessment has described Mexican cartels as "the greatest organized crime threat to the United States," whose violence has spilled over the border and whose influence "over domestic drug trafficking is unrivaled."

Grim has a knack for digging up facts and crunching statistics to get unexpected results. The meth "epidemic" that has recently inspired so much media alarm is already in decline, while crack use, never as pervasive as it was depicted in the 1980s, has remained fairly steady since then. Today's kids aren't smoking much pot because pot is a "social" drug, shared among peers who gather in parking lots and other hangouts; teens have less unstructured time now and tend to socialize online. They still get high, only on prescription drugs pilfered from adults or ordered off the Internet. "There's no social ritual involved," he observes, "just a glass of water and a pill," which "fits well into a solitary afternoon."

There's more. Early American settlers drank like fish, even the Puritans (though, as Grim fails to note, this was likely a habit transferred from Europe, where the water in many communities wasn't potable). In the 19th century, the heyday of temperance campaigns, it was more socially acceptable to consume opium than alcohol, and by the end of the 1900s, America was a "pharmacopoeia utopia" in which coke, heroin and morphine were all readily available, either with a doctor's prescription or in patent medicines and products like Coca-Cola, once a cocaine-containing beverage marketed as "a substitute for alcohol." Traditionally, attempts to regulate or prohibit drugs in America have come from the left rather than the right; only with the advent of the counterculture did this change.

Some of Grim's arguments are familiar, but with a twist. By now, most informed people know that anti-drug education and P.R. campaigns directed at children don't work, but Grim has noted several studies indicating that they may actually foster experimentation. He sees the mini-boom in drug use among 10th graders in the late '90s as caused by a confluence of the "inner child" therapy boom exhorting parents to encourage children's curiosity and programs like D.A.R.E. (Drug Abuse Resistance Education), which inadvertently directed that curiosity toward exotic chemicals. Despite ample proof of its ineffectiveness, D.A.R.E. continues to be used in three-quarters of all American school districts on some 25 million children. (President Obama even proclaimed April 8 "National D.A.R.E. Day" in honor of the organization's "important work.") Grim thinks that D.A.R.E. and similarly wasteful programs persist simply because they relieve parents from the duty of having awkward (and possibly "hypocritical") conversations with their kids about drugs. Also because no one knows what else to do.

Even less excusable in Grim's eyes is the predominance of law enforcement strategies in America's disastrous war on drugs, initiated by the Reagan administration. Drug courts, in which offenders are directed to court-monitored treatment programs instead of into prison, are, according to Grim, both cheaper and more successful. Yet even politicians inclined to support a treatment-oriented approach to diminishing the American appetite for illegal drugs have opted to emphasize enforcement in order to position themselves as "tough" on crime.

For just this reason, President Clinton replaced his first, reform-minded drug czar, Lee Brown, with retired Gen. Barry McCaffrey, who squandered billions on a scandal-ridden media campaign (planting secret anti-drug messages in prime-time TV dramas) and combating the medical marijuana movement, which is supported by a majority of Americans. Worse yet, overseas enforcement campaigns lead to horrific blowback. Grim points out that aggressive attacks on growers and suppliers cause centralization of the drug trade (only big organizations can afford the losses) and this in turn leads to corruption, as cartel leaders parlay their fortunes into political influence. Not only are we pissing away our own resources on ineffectual enforcement efforts, we have "brought the Mexican government to the brink of collapse, making the prospect of a failed state on America's southern border a very real possibility."

For Grim, most of these mistakes have roots in an elementary error, the inability to accept that "altering one's consciousness is a fundamental human desire." The craving to be more relaxed or more alert, more outgoing or more reflective, happier or deeper or even just sillier and less bored -- in one form other another, this drive has always been and always will be with us, though many of us refuse to admit it. As a result, our political response to drug problems tends to be blinkered. "In reality, there's no such thing as drug policy," Grim writes. "As currently understood and implemented, drug policy attempts to isolate a phenomenon that can't be taken in isolation. Economic policy is drug policy. Healthcare policy is drug policy. Foreign policy, too, is drug policy. When approached in isolation, drug policy almost always backfires, because it doesn't take into account the powerful economic, social and cultural forces that also determine how and why Americans get high."

Yet a simplistic call for legalization fails to take into account the fact that almost all drugs can be very dangerous, and that the impulse to control them may run as deep as the desire to enjoy them. People who trust themselves to use drugs wisely don't necessarily want their kids, or their irresponsible neighbors, or their troubled relatives to enjoy unfettered access to previously controlled substances. For that reason, Grim -- who exhibits a distinct preference for hallucinogens and is prone to idealizing the "psychonauts" who use them to "expand consciousness" -- stops short of calling for the repeal of all drug prohibitions, for the most part, apparently, because he thinks it just won't last. "What would happen if drugs were legalized?" he asks, referring to the "pharmacopoeia utopia" of the late 1800s. "Well, it happened. And history suggests that if we ever legalize them again, it won't be long before we ban them all over again."

"Realism" seems to be the most Grim can bring himself to hope for, which is why he applauds cable TV series like "Weeds," "Breaking Bad" and "The Wire" for their nuanced depictions of the drug trade and the people who ply it. The library-like Web site emerges as one of the few real heroes in "This Is Your Country on Drugs," due to its curators' fierce commitment to objectively and thoroughly substantiating the vast amounts of information -- positive and negative -- they present about virtually every drug under the sun. A little realism would certainly help with regard to cocaine, whose "perceived risk" is rapidly shrinking in my own (admittedly highly anecdotal) experience. In the final pages of the book, Grim remarks that his own observations suggest that "coke's next honeymoon could be right around the corner." Sounds prescient, but not more so than his world-weary conclusion that "America has shown just about zero capacity to learn from its long and complicated history with drugs."

Germany and the U.K. resist France and the U.S. on green tariffs

Resisting Green Tariffs. WSJ Editorial
Germany and the U.K. resist France and the U.S. on green tariffs.
WSJ, Jul 28, 2009

One of the most dangerous but least reported undercurrents of the global-warming movement is trade protectionism. Now some politicians in Europe are beginning to push back, and we’re delighted to see it.

A carbon tariff has been popular on the intellectual left for some time, as a way to sell heavy new energy taxes to Western voters worried that their jobs will get shipped to countries that don’t also punish carbon use. The U.S. House of Representatives wrote a tariff provision into its recent cap-and-tax bill, rolling over the muted objections of President Obama. Coming from the world’s largest economy and ostensible free-trade leader, the bill is an invitation to the world’s protectionists to camouflage their self-interest in claims of green virtue.

French President Nicolas Sarkozy—a mercantalist in the best of times—escalated the threat last month by suggesting import duties to “level the playing field” with countries that oppose binding greenhouse-gas targets at December’s United Nations climate talks in Copenhagen. Just what a world trying to rebound from recession needs: beggar-thy-neighbor environmentalism.

Now other leaders are beginning to recognize and speak up about the peril. With typical British understatement, U.K. Secretary of State for Energy and Climate Change Ed Miliband said Saturday his government was “skeptical” about the French proposal for carbon tariffs. Germany’s Deputy Environment Minister Matthias Machnig was even more forthright on Friday, branding the exercise as “eco-imperialism” for attempting to punish countries that don’t follow these green dictates. “We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations,” he added. Both statements are notable coming as they do from parties on the political left.

Berlin’s criticism is especially important. Germany has been at the forefront of Europe’s eco-movement from the start, enriching the French language with such words as “le Waldsterben,” a German compound meaning “forest death.” The idea of the man-made destruction of Europe’s trees was the great green scare of the 1970s and 1980s. The forests are still with us, and scientists now believe that the tree decline was as much due to natural phenomena as to “acid rain.” That episode is a lesson in the need for skepticism about proposals that would do tangible economic harm in the heat of environmental manias.

A climate tariff would be damaging even on its own green terms. To the extent it reduced global trade, carbon protectionism would slow the rise in income that we know from the last half century has been crucial to antipollution progress. The richer people are, the more of their income they are willing to devote to cleaner air and water. Several hundred million people have risen from poverty in the last generation thanks to expanding trade, and the world doesn’t need a reversal thanks to old-fashioned protectionism dressed in green drag.

India Picks Economic Growth Over Carbon Dioxide Caps

India Picks Economic Growth Over Carbon Dioxide Caps
IER, July 27, 2009

The Obama Administration and European governments continue to lobby developing countries, such as India and China, to reduce their carbon dioxide emissions. But India and China reject these calls because they understand that artificial restrictions on carbon dioxide emissions will harm their economies.

During her recent visit, India’s Environment Minister reminded Secretary of State Hillary Clinton that India would not accept caps on their carbon dioxide emissions. According to the Washington Post:

But the clash between developed and developing countries over climate change intruded on the high-profile photo opportunity midway through Clinton’s three-day tour of India. Indian Environment Minister Jairam Ramesh complained about U.S. pressure to cut a worldwide deal, and Clinton countered that the Obama administration’s push for a binding agreement would not sacrifice India’s economic growth.

As dozens of cameras recorded the scene, Ramesh declared that India would not commit to a deal that would require it to meet targets to reduce emissions. “It is not true that India is running away from mitigation,” he said. But “India’s position, let me be clear, is that we are simply not in the position to take legally binding emissions targets.” [emphasis added]

It is refreshing to see that at least some government officials—though not from this country – understand that when you take options away from businesses, you reduce economic activity. If it were really true, as Secretary of State Clinton alleges, that reducing emissions will actually spur job creation and economic growth, then why would the government need to force its plan on the private sector? (See video.)

Furthermore, why stop with caps on carbon dioxide emissions? Why not impose a cap-and-trade plan on the use of steel? All those businesses currently using steel as an input would then have to scramble to find higher-priced substitutes, and this would create jobs in the plastics industries.

Of course the above “logic” is nonsense. Steadily shrinking the cap on permissible emissions will hamper U.S. economic growth and because businesses will be forced to switch to lower-carbon-intensive techniques than they otherwise would have chosen, their output will be lower and the productivity of labor will fall. That is, of course, the intent of the proponents of cap and trade plans including the Waxman-Markey bill that recently passed in the House of Representatives. The so-called “green jobs” created in some sectors, such as wind turbines and solar panels, will be counterbalanced by job destruction in other sectors that rely on fossil fuels and inexpensive energy.

Indian officials have it exactly right: They are being asked to sacrifice the welfare of their own citizens by Western leaders whose countries were built on a foundation of abundant energy.
India’s declaration also undermines the entire rationale for the Waxman-Markey bill. Taken in isolation, some experts contend that the Waxman-Markey caps on U.S. emissions will have virtually no impact on the trajectory of global warming, even taking the standard climate models at face value. Even the most outspoken scientists on global warming agree that unilateral American efforts are pointless, without similar targets being adopted by the developing world.

Proponents of cap and trade have justified its economically crippling, yet environmentally irrelevant, constraints on the U.S. by saying it will provide American negotiators with moral authority when seeking worldwide restrictions on industry. The idea is that we need to impose limits on the U.S. economy before other governments will agree to shackle their own economies in turn.

India, rightly so, has just declared that it will do no such thing. Let us hope that our leaders see the flaws in their logic and reverse course on this job-killing cap and trade plan before it is too late.

Monday, July 27, 2009

Fukuyama: Iran, Islam and the Rule of Law

Iran, Islam and the Rule of Law. By FRANCIS FUKUYAMA
Islamic political movements have been one form of revolt against arbitrary government.
WSJ, Jul 28, 2009

When Columbia University President Lee Bollinger introduced Iranian President Mahmoud Ahmadinejad at his school in September 2007, he denounced him as a “petty tyrant.”
Ahmadinejad is many bad things, including a Holocaust denier and a strong proponent of a nuclear Iran. But as recent events have underlined, Iran is not quite a tyranny, petty or grand, and the office Ahmadinejad occupies does not give him final say in Iranian affairs. That role is more truly occupied by Ayatollah Ali Khamenei, head of the Council of Guardians and Iran’s supreme leader.

A real tyranny would never permit elections in the first place—North Korea never does—nor would it allow demonstrations contesting the election results to spiral out of control. Yet Iran is no liberal democracy. So what kind of beast is it? And in what ways should we want its regime to evolve?

Political scientists categorize the Islamic Republic of Iran as an “electoral authoritarian” regime of a new sort. They put it in the same basket as Hugo Chávez’s Venezuela or Vladimir Putin’s Russia. By this view, Iran is fundamentally an authoritarian regime run by a small circle of clerics and military officials who use elections to legitimate themselves.

Others think of Iran as a medieval theocracy. Its 1979 constitution vests sovereignty not in the people, but in God, and establishes Islam and the Quran as the supreme sources of law.

The Iranian Constitution is a curious hybrid of authoritarian, theocratic and democratic elements. Articles One and Two do vest sovereignty in God, but Article Six mandates popular elections for the presidency and the Majlis, or parliament. Articles 19-42 are a bill of rights, guaranteeing, among other things, freedom of expression, public gatherings and marches, women’s equality, protection of ethnic minorities, due process and private property, as well as some “second generation” social rights like social security and health care.

The truly problematic part of the constitution is Section Eight (Articles 107-112) on the Guardian Council and the “Leader.” All the democratic procedures and rights in the earlier sections of the constitution are qualified by certain powers reserved to a council of senior clerics.

These powers, specified in Article 110, include control over the armed forces, the ability to declare war, and appointment powers over the judiciary, heads of media, army and the Islamic Revolutionary Guard Corps. Another article lays out conditions under which the Supreme Leader can be removed by the Guardian Council. But that procedure is hardly democratic or transparent.

One does not have to go back to the Middle Ages to find historical precedents for this type of constitution. The clearest parallel would be the German Constitution adopted after the country was unified in the 1870s. Pre-World War I Germany had an elected parliament, or Reichstag, but reserved important powers for an unelected Kaiser, particularly in foreign policy and defense. This constitution got Germany into big trouble. The unelected part of the leadership controlled the armed forces. Eventually, though, it came to be controlled by the armed forces. This seems to be what’s unfolding in Iran today.

Compared to Section Eight, the references in the Iranian Constitution to God and religion as the sources of law are much less problematic. They could, under the right circumstances, be the basis for Iran’s eventual evolution into a moderate, law-governed country.

The rule of law was originally rooted in religion in all societies where it came to prevail, including the West. The great economist Friedrich Hayek noted that law should be prior to legislation. That is, the law should reflect a broad social consensus on the rules of justice. In Europe, it was the church that originally defined the law and acted as its custodian. European monarchs respected the rule of law because it was written by an authority higher and more legitimate than themselves.

Something similar happened in the pre-modern Middle East. There was a functional separation of church and state. The ulama were legal scholars and custodians of Shariah law while the sultans exercised political authority. The sultans conceded they were not the ultimate source of law but had to live within rules established by Muslim case law. There was no democracy, but there was something resembling a rule of law.

This traditional, religiously based rule of law was destroyed in the Middle East’s transition to modernity. Replacing it, particularly in the Arab world, was untrammeled executive authority: Presidents and other dictators accepted no constraints, either legislative or judicial, on their power.

The legal scholar Noah Feldman has argued that the widespread demand for a return to Shariah in many Muslim countries does not necessarily reflect a desire to impose harsh, Taliban-style punishments and oppress women. Rather, it reflects a nostalgia for a dimly remembered historical time when Muslim rulers were not all-powerful autocrats, but respected Islamic rules of justice—Islamic rule of law.

So what kind of future should we wish for Iran, in light of the massive demonstrations? My own preference would be for Iran to some day adopt a new, Western-style constitution guaranteeing religious freedom, a secular state, and sovereignty vested firmly in the people, rather than God.

But a considerable amount of anecdotal evidence (we don’t have anything better) suggests this is not necessarily the agenda of the protesters. Many of them, including opposition candidate Mir Hossein Mousavi, say they want Iran to remain an Islamic Republic. They look at the radical regime change that occurred in next door Iraq and don’t want that for themselves. What they seem to wish for is that the democratic features of the constitution be better respected, and that the executive authorities, including the Guardian Council, and the military and paramilitary organizations, stop manipulating elections and respect the law.

Iran could evolve towards a genuine rule-of-law democracy within the broad parameters of the 1979 constitution. It would be necessary to abolish Article 110, which gives the Guardian Council control over the armed forces and the media, and to shift its function to something more like a supreme court that could pass judgment on the consistency of legislation with Shariah. In time, the Council might be subject to some form of democratic control, like the U.S. Supreme Court, even if its members needed religious credentials.

Eliminating religion altogether from the Iranian Constitution is more problematic. The rule of law prevails not because of its formal and procedural qualities, but because it reflects broadly held social norms. If future Iranian rulers are ever to respect the rule of law as traditional Muslim rulers once did, it will have to be a law that comes from the hearts of the Iranian people. Perhaps that will one day be a completely secular law. That is unlikely to be the case today.

Unfortunately, Iranians may never get to make the choice for themselves. The clerical-military clique currently exercising power is likely to drag Iran into conflict with other countries in the region. This could easily consolidate its legitimacy and power. Let us hope that the country’s internal forces push for an evolution of the political system towards genuine rule of law and democracy first.

Mr. Fukuyama, professor of international political economy at the Johns Hopkins School of Advanced International Studies, is author of “America at the Crossroads: Democracy, Power, and the Neoconservative Legacy” (Yale, 2006).

Sunday, July 26, 2009

Morality and Charlie Rangel’s Taxes

Morality and Charlie Rangel’s Taxes. WSJ Editorial
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009

Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.

Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.

The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.

Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.

Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.

Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)

Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.

The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.

The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.

All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.