Don't Shoot the Pollster - Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent

Don't Shoot the Pollster. By PATRICK CADDELL AND DOUGLAS E. SCHOEN
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010

Polling is both an art and a science, but recently it's also become a subject of political intimidation.

One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:

"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."

Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.

A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.

Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.

"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.

"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."

Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.

Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.

The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.

The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.

As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.

This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.

Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.

Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.

Don't Like the Numbers? Change 'Em

Don't Like the Numbers? Change 'Em. By MICHAEL J. BOSKIN
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010

Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.

The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.

A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.

With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.

There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).

In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.

America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.

The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.

The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.

Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.

Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.

The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).

Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.

One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.

As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.

Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Where U.S. Health Care Ranks Number One - Isn't 'responsiveness' what medicine is all about?

Where U.S. Health Care Ranks Number One. By MARK B. CONSTANTIAN
Isn't 'responsiveness' what medicine is all about?
WSJ, Jan 08, 2010

Last August the cover of Time pictured President Obama in white coat and stethoscope. The story opened: "The U.S. spends more to get less [health care] than just about every other industrialized country." This trope has dominated media coverage of health-care reform. Yet a majority of Americans opposes Congress's health-care bills. Why?

The comparative ranking system that most critics cite comes from the U.N.'s World Health Organization (WHO). The ranking most often quoted is Overall Performance, where the U.S. is rated No. 37. The Overall Performance Index, however, is adjusted to reflect how well WHO officials believe that a country could have done in relation to its resources.

The scale is heavily subjective: The WHO believes that we could have done better because we do not have universal coverage. What apparently does not matter is that our population has universal access because most physicians treat indigent patients without charge and accept Medicare and Medicaid payments, which do not even cover overhead expenses. The WHO does rank the U.S. No. 1 of 191 countries for "responsiveness to the needs and choices of the individual patient." Isn't responsiveness what health care is all about?

Data assembled by Dr. Ronald Wenger and published recently in the Bulletin of the American College of Surgeons indicates that cardiac deaths in the U.S. have fallen by two-thirds over the past 50 years. Polio has been virtually eradicated. Childhood leukemia has a high cure rate. Eight of the top 10 medical advances in the past 20 years were developed or had roots in the U.S.

The Nobel Prizes in medicine and physiology have been awarded to more Americans than to researchers in all other countries combined. Eight of the 10 top-selling drugs in the world were developed by U.S. companies. The U.S. has some of the highest breast, colon and prostate cancer survival rates in the world. And our country ranks first or second in the world in kidney transplants, liver transplants, heart transplants, total knee replacements, coronary artery bypass, and percutaneous coronary interventions.

We have the shortest waiting time for nonemergency surgery in the world; England has one of the longest. In Canada, a country of 35 million citizens, 1 million patients now wait for surgery and another million wait to see specialists.

When my friend, cardiac surgeon Peter Alivizatos, returned to Greece after 10 years heading the heart transplantation program at Baylor University in Dallas, the one-year heart transplant survival rate there was 50%—five-year survival was only 35%. He soon increased those numbers to 94% one-year and 90% five-year survival, which is what we achieve in the U.S. So the next time you hear that the U.S. is No. 37, remember that Greece is No. 14. Cuba, by the way, is No. 39.

But the issue is only partly about quality. As we have all heard, the U.S. spends a higher percentage of its gross domestic product for health care than any other country.

Actually, health-care spending now increases more moderately than it has in previous decades. Food, energy, housing and health care consume the same share of American spending today (55%) that they did in 1960 (53%).

So what does this money buy? Certainly some goes to inefficiencies, corporate profits, and costs that should be lowered by professional liability reform and national, free-market insurance access by allowing for competition across state lines. But the majority goes to a long list of advantages that American citizens now expect: the easiest access, the shortest waiting times the widest choice of physicians and hospitals, and constant availability of health care to elderly Americans. What we need now is insurance and liability reform—not health-care reform.

Who determines how much a nation should pay for its health? Is 17% too much, or too little? What better way could there be to dedicate our national resources than toward the health and productivity of our citizens?

Perhaps it's not that America spends too much on health care, but that other nations don't spend enough.

Dr. Constantian is a plastic and reconstructive surgeon in New Hampshire.

Wahid and the Voice of Moderate Islam - Indonesia's first democratic president espoused a philosophy of religious and ethnic tolerance

Wahid and the Voice of Moderate Islam. By Paul Wolfowitz
Indonesia's first democratic president espoused a philosophy of religious and ethnic tolerance.
WSJ, Jan 07, 2010

Abdurrahman Wahid, who died last week at the age of 69, was the first democratically elected president of Indonesia, the world's fourth largest country and third largest democracy. It has the largest Muslim population of any country in the world. Although he was forced from office after less than two years, he nevertheless helped to set the course of what has been a remarkably successful transition to democracy.

Even more important than his role as a politician, Wahid was the spiritual leader of Nahdlatul Ulama, the largest Muslim organization in Indonesia, and probably in the world, with 40 million members. He was a product of Indonesia's traditionally tolerant and humane practice of Islam, and he took that tradition to a higher level and shaped it in ways that will last long after his death.

Wahid recognized that the world's Muslim community is engaged in what he called in a 2005 op-ed for this newspaper "nothing less than a global struggle for the soul of Islam" and he understood the danger for Indonesia, for Islam and for all of us from this "crisis of misunderstanding that threatens to engulf our entire world."

Wahid was one of the most impressive leaders I have known. Although his formal higher education was limited to Islamic studies in Cairo and Arabic literature in Baghdad, his breadth of knowledge was astounding. With a voracious appetite for knowledge and a remarkably retentive memory, he seemed to know all of the important Islamic religious and philosophical texts. He also loved reading a wide range of Western literature (including most of William Faulkner's novels) as well as Arabic poetry. He enjoyed French movies, and cinema in general, and could identify the conductor of a Beethoven symphony simply by listening to a recording. He was an avid soccer fan and once compared the different styles of two German soccer teams to illustrate two alternative strategies for economic development. He loved jokes, particularly political ones. During Suharto's autocratic rule he published a collection of Soviet political humor in Indonesian, with the obvious purpose of teaching his own people how to laugh at their rulers.

Despite all that learning, Wahid had a common touch that enabled him to express his thoughts in down-to-earth language. He thus gained broad legitimacy for a moderate and tolerant vision. He could speak to young Indonesians, grappling with the relationship between religion and science by explaining to them the thoughts of a medieval Arab philosopher like Ibn Rushd (known to Christian philosophers as Averroes). And he was all the more effective because he himself had grappled with controversial ideas.

Wahid had been somewhat attracted in his youth by the writings of Said Qutb and Hasan al Banna, the founders of the Muslim brotherhood, but his deep humanism led him to reject them. When I visited him recently he told me of a long-ago visit to a mosque in Morocco where an Arabic translation of Aristotle's "Nichomachean Ethics" was on display. Seeing that book had brought tears to his eyes and Wahid explained: "If I hadn't read the 'Nichomachean Ethics' as a young man, I might have joined the Muslim brotherhood."

No doubt, what had so impressed Wahid was that Aristotle could arrive at deep truths about matters of right and wrong without the aid of religion, based simply on the belief that "the human function is activity of the soul in accord with reason" (Nichomachean Ethics, Book I). But his tears must have reflected the thought of how close he had come to accepting a cramped and intolerant view of life and humanity.

Throughout his public career, three ideas were central to Wahid's thinking. First was that true belief required religious freedom. "The essence of Islam," he once wrote, is "encapsulated" in the words of the Quran, "For you, your religion; for me, my religion." Indonesia, he believed, needs "to develop a full religious tolerance based on freedom of faith." Second was his belief that the fundamental requirement for democracy—or any form of just government—is equal treatment for all citizens before the law. Third, that respect for minorities is essential for social stability and national unity, particularly for Indonesia with its extraordinary diversity.

Throughout his career Wahid spoke up forcefully for people with unpopular ideas—even ones he disagreed with—and for the rights of ethnic and religious minorities. He was admired by the Christian and Chinese minorities for his willingness to do so. One of his first acts as president was to participate in prayers at a Hindu temple in Bali where he had earlier spent several months studying Hindu philosophy. Later he removed a number of restrictions on ethnic Chinese and made Chinese New Year an optional national holiday.

Even after leaving office, Wahid's role as a defender of religious freedom was extremely important. Indonesian voters have rejected extremist politics at the polls—and the leadership of the current president, Susilo Bambang Yudhoyono deserves much credit for that. Nevertheless, extremist views and even violent extremism too often go unchallenged. A recent report from The Wahid Insitute (which he founded in 2004) notes that a minority with extremist views, now in control of the Indonesian Ulama Council, has issued religious rulings against "deviant" groups. An even smaller minority that espouses violence, particularly the Islamic Defender Front, has attacked Christian churches and the mosques of the small Muslim Ahmadiyah sect.

Wahid was one of the few prominent Indonesians to defend the rights of the Ahmadiyah or to speak out forcefully against the Islamic Defender Front. Doing so takes courage. But he was always courageous, whether in defying President Suharto at the height of his power or in his personal struggle against encroaching blindness and failing health.

Although optimistic that "true Islam" will prevail, as he wrote in his 2005 op-ed, Wahid did not underestimate the dangers facing the world from an "extreme . . . ideology in the minds of fanatics" who "pervert Islam into a dogma of intolerance, hatred and bloodshed" and who justify their brutality by declaring "Islam is above everything else." This fundamentalist ideology, he said, "has become a well-financed, multifaceted global movement that operates like a juggernaut in much of the developing world." What begins as a misunderstanding "of Islam by Muslims themselves" becomes a "crisis of misunderstanding" that afflicts "Muslims and non-Muslims alike, with tragic consequences."

No one who knew Abdurrahman Wahid can believe that those fanatics who preach hatred and violence speak for the world's Muslims. Even though the extremist ideology represents a distinct minority of Muslims, it is well-financed and well-organized. To confront it, Muslim leaders like himself need, as he wrote in 2005, "the understanding and support of like-minded individuals, organizations and governments throughout the world . . . to offer a compelling alternate vision of Islam, one that banishes the fanatical ideology of hatred to the darkness from which it emerged."

That support includes material support, but it also includes the moral support that comes from international recognition and attention for Muslim leaders who speak out with the courage that Wahid did.

When Wahid was only 12 he was riding in a car with his father, Wahid Hasyim, himself a prominent Muslim leader at the time of Indonesian independence, when the car slid off a mountain road and his father suffered fatal injuries. What Wahid most remembered from that tragic event was the sight of thousands of people lining the roads as his father's casket traveled the 80 kilometers from Surabaya to his burial at Jombang. Overwhelmed by the affection people had for his father, he wondered "What could one man do that the people would love him so?"

As the funeral procession for Wahid himself traveled the same route on the last day of 2009, thousands of mourners, deeply moved, again lined the road. What had he done that Indonesians so loved him? Perhaps the question is answered by the words that he asked to have on his tomb: "Here lies a humanist." That he was and a great one as well. No one can replace him, but hopefully he has inspired others to follow in his path.

Mr. Wolfowitz, a former U.S. ambassador to Indonesia and assistant secretary of state for East Asia, is a visiting scholar at the American Enterprise Institute.

The Real Blackwater Scandal - Another example of prosecutorial abuse in a political case

The Real Blackwater Scandal. WSJ Editorial
Another example of prosecutorial abuse in a political case.
WSJ, Monday, January 4, 2010

No, not as the left would have it, that Blackwater still exists. The scandal is that the Justice Department's case against five former security guards for the military contractor unraveled late last week in what appears to be another instance of gross prosecutorial misconduct, as abusive Justice lawyers went after an unsympathetic political target.

The indictments—which were thrown out by D.C. District Judge Ricardo Urbina in a derisive and detailed 90-page opinion—stemmed from a 2007 firefight in Baghdad's Nisour Square that left 14 Iraqis dead and others wounded. The government contends that five Blackwater guards, who were providing tactical support for the State Department after an IED exploded in the vicinity of a meeting with Iraqi officials, went on an unprovoked killing spree against unarmed civilians. The guards maintain that they came under attack by insurgents and were responding in self-defense to a mortal threat.

Judge Urbina dismissed the charges because prosecutors misused sworn statements the guards were compelled to make to investigators after the shooting, under the threat of job loss. This was routine practice under military contracting rules, though the statements could not be used in criminal prosecutions. Promptly after the Nisour incident these statements were also leaked to the media, which ran with the narrative of modern-day Hessians gone berserk.

"In their zeal to bring charges against the defendants in this case," Judge Urbina ruled, prosecutors had violated Fifth Amendment protections against self-incrimination by using these compelled statements to formulate their case and ultimately obtain indictments against the guards. The judge calls it "the government's reckless violation of the defendants' constitutional rights."

Because of prior contact with the compelled statements, the Justice Department's entire criminal division had recused itself from the case, which was handed over to national-security prosecutors and later to Assistant U.S. Attorney for the District of Columbia Kenneth Kohl. The veteran Justice public-integrity lawyer Raymond Hulser was eventually assigned to lead a "taint team" to rebuild the case without using the off-limits statements, and he repeatedly warned the trial team that their evidence was "thoroughly tainted."

"By all accounts these prophylactic measures fell well short of expectations," Judge Urbina notes with some understatement. In "direct contravention of the clear directives" of Mr. Hulser, the statements were used to obtain a search warrant against Blackwater, figured into plea discussions, and exposed in testimony to the grand jury, forcing Justice to withdraw the case and present it to a new panel.

In the second round that featured redacted testimony from the first grand jury, prosecutors also excised what Judge Urbina calls "substantial exculpatory evidence." The judge goes on to say that Justice's "inconsistent, extraordinary explanations" for its conduct "smack of post hoc rationalization and are simply implausible," and ultimately "lacking in credibility."

Certainly the shootings at Nisour are a tragedy that strained U.S. relations with the Iraqi government, though the details seem reminiscent of the 2005 incident at Haditha, which the Washington political class played as another My Lai massacre but in reality was the product of the complex, asymmetrical combat conditions in a war zone. The courts martial against all but one of the Marines at Haditha have been dismissed or collapsed.

In this case, too, one question is whether prosecutors felt they could get away with such abusive behavior because Blackwater was such a politically unpopular defendant. The firm had political ties to Republicans, and Democrats and their media allies had made Blackwater a whipping boy to further undermine public support for the Iraq war. (Blackwater is now renamed Xe Services and no longer contracting in Iraq.)

This marks the fourth recent example in which judges have tossed out cases citing Justice Department abuse involving easy political targets. In the last year it has become clear that the ethics conviction against former Alaska Senator Ted Stevens was likely a miscarriage of justice, with prosecutors covering up evidence and trying to keep a witness from testifying.

There's also the vendetta against two former executives at Broadcom in the forgotten political uproar over backdating stock options. That case was thrown out last month after a judge ruled that prosecutors had improperly pressured witnesses and leaked information to the press. Earlier this decade, a federal judge tossed out multiple tax evasion cases against former KPMG partners.

Something is rotten in the culture of Justice, leading ambitious government crusaders to think they can get away with flouting due process when the political winds are blowing hot. Congress and the press corps may be too politically implicated to police this prosecutorial malpractice, so it may be up to the judiciary to apply more stringent sanctions.

Uncertainty and the Slow Recovery - A recession is a terrible time to make major changes in the economic rules of the game

Uncertainty and the Slow Recovery. By GARY S. BECKER, STEVEN J. DAVIS AND KEVIN M. MURPHY
A recession is a terrible time to make major changes in the economic rules of the game.
WSJ, Monday, January 4, 2010

In terms of U.S. output contractions, the so-called Great Recession was not much more severe than the recessions in 1973-75 and 1981-82. Yet recovery from the latest recession has started out much more slowly. For example, real GDP expanded by 7.7% in 1983 after unemployment peaked at 10.8% in December 1982, whereas GDP grew at an unimpressive annual rate of 2.2% in the third quarter of 2009. Although the fourth quarter is likely to show better numbers—probably much better—there are no signs of an explosive take off from the recession.

We believe two factors are behind this rather tepid rebound. An obvious one is the severe financial crisis that precipitated this recession, with many major financial institutions receiving large bailouts from the federal government. The confidence of bankers and venture capitalists has been shattered, at least for a while, and it will take time for them to recover from the financial turmoil of the past couple of years. The household sector also faces a difficult period of financial retrenchment in the wake of a major collapse in home prices, overextended debt positions for many, and high unemployment.

The second factor is less obvious, but possibly also of great importance. Liberal Democrats won a major victory in the 2008 elections, winning the presidency and large majorities in both the House and Senate. They interpreted this as evidence that a large majority of Americans want major reforms in the economy, health-care and many other areas. So in addition to continuing and extending the Bush-initiated bailout of banks, AIG, General Motors, Chrysler and other companies, Congress and President Obama signaled their intentions to introduce major changes in taxes, government spending and regulations—changes that could radically transform the American economy.

The efforts to transform the economy began with a fiscal stimulus package of nearly $800 billion. While some elements served the package's stated purpose and helped to soften the recession's impact, the overall package was not well designed to foster a speedy recovery or set the stage for long-term growth. Instead, the "stimulus" was oriented to sectors that liberal Democrats believe are deserving of much greater federal help. This explains why much of the stimulus money is going toward education, health, energy conservation, and other activities that would do little to soak up unemployed resources and stimulate the economy.

In terms of discouraging a rapid recovery, other government proposals created greater uncertainty and risk for businesses and investors. These include plans to increase greatly marginal tax rates for higher incomes. In addition, discussions at the Copenhagen conference and by the president to impose high taxes on carbon dioxide emissions must surely discourage investments in refineries, power plants, factories and other businesses that are big emitters of greenhouse gases.

Congressional "reforms" of the American health delivery system have gone through dozens of versions. The separate bills passed by the House and Senate worry small businesses, in particular. They fear their labor costs will increase because of mandates to spend much more on health insurance for their employees. The resulting reluctance of small businesses to invest, expand and hire harms households as well, because it slows the creation of new jobs and the growth of labor incomes.

The administration also indicated early on that it would take a different approach to antitrust policy, reversing a 30-year trend toward more consumer-based interpretations of antitrust laws. Likewise, the installation of a pay "czar" in Washington is scary, even though his activities are so far confined to companies that received substantial bailout assistance from the Treasury. Perhaps as a next step, Congress will decide that executive pay is too high generally and levy special taxes on bonuses, or impose other controls over executive compensation—as the British and French have done. Congress is also considering major new regulations on consumer financial products.

In its efforts to combat the financial crisis and recession, the Fed created over $1 trillion of excess reserves at banks through various bailout programs and open market operations. When banks draw on these reserves for loans to businesses and households, there is a potential for the money supply to grow rapidly, possibly producing a substantial inflation. How hard the Fed will fight inflationary pressures through open market sales and other actions that raise interest rates is a significant source of uncertainty about future inflation and about the potential for monetary policy tightening to choke off the recovery.

The uncertainty about monetary policy has important political dimensions as well. The Fed now faces greater political pressures than at any other time in the past quarter century, as seen from the grilling the Senate Banking committee gave to Fed Chairman Ben Bernanke in deciding whether to approve his reappointment. These pressures may intensify greatly if, and when, future Fed actions to restrain inflation conflict with politicians' desires to prop up housing and the major government enterprises enmeshed in housing finance.

Even though some of the proposed antibusiness policies might never be implemented, they generate considerable uncertainty for businesses and households. Faced with a highly uncertain policy environment, the prudent course is to set aside or delay costly commitments that are hard to reverse. The result is reluctance by banks to increase lending—despite their huge excess reserves—reluctance by businesses to undertake new capital expenditures or expand work forces, and decisions by households to postpone major purchases.

Several pieces of evidence point to extreme caution by businesses and households. A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows. The same survey reveals that only 7% of small businesses see the next few months as a good time to expand. Only 8% of small businesses report job openings, as compared to 14%-24% in 2008, depending on month, and 19%-26% in 2007.

The weak economy is far and away the most prevalent reason given for why the next few months is "not a good time" to expand, but "political climate" is the next most frequently cited reason, well ahead of borrowing costs and financing availability. The authors of the NFIB December 2009 report on Small Business Economic Trends state: "the other major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy. The 'turbulence' created when Congress is in session is often debilitating, this year being one of the worst. . . . There is not much to look forward to here."

Government statistics tell a similar story. Business investment in the third quarter of 2009 is down 20% from the low levels a year earlier. Job openings are at the lowest level since the government began measuring the concept in 2000. The pace of new job creation by expanding businesses is slower than at any time in the past two decades and, though older data are not as reliable, likely slower than at any time in the past half-century. While layoffs and new claims for unemployment benefits have declined in recent months, job prospects for unemployed workers have continued to deteriorate. The exit rate from unemployment is lower now than any time on record, dating back to 1967.

According to the Michigan Survey of Consumers, 37% of households plan to postpone purchases because of uncertainty about jobs and income, a figure that has not budged since the second quarter of 2009, and one that remains higher than any previous year back to 1960.

These facts suggest that it was a serious economic mistake to press for a hasty, major transformation of the U.S. economy on the heels of the worst financial crisis in decades. A more effective approach would have been to concentrate first on fighting the recession and laying solid foundations for growth. They should have put plans to re-engineer the economy on the backburner, and kept them there until the economy emerged fully from the recession and returned to robust growth. By failing to adopt a measured approach to economic policy, Congress and the president may be slowing the economic recovery, and thereby prolonging the distress from the recession.

The authors are economists at the University of Chicago. Messrs. Becker and Murphy are also fellows of the Hoover Institution of Stanford University. Mr. Davis is also a visiting scholar at the American Enterprise Institute.

How Abdulmutallab got on the plane - was granted Fourth Amendment reasonableness rights

Intelligence Is a Terrible Thing to Waste. By L. GORDON CROVITZ
President Obama doesn't need an investigation to figure out how Umar Farouk Abdulmutallab got on a Detroit-bound plane.
WSJ, Monday, January 4, 2010

Intelligence about terror threats rarely comes on such a silver platter: A Nigerian banker went to the U.S. Embassy in Lagos to warn that his son had fallen under "the influence of religious extremists based in Yemen" and was a security risk. This came after months of U.S. intelligence intercepts about al Qaeda plans for an attack using a Nigerian man. Umar Farouk Abdulmutallab paid for his ticket with cash and didn't check any luggage.

Yet a headline in the Washington Post summed up the current state of our intelligence: "Uninvestigated Terrorism Warning About Detroit Suspect Called Not Unusual."

President Obama promises to investigate what went wrong, but there's no big mystery. He should simply review testimony put in the public record in early December, before the Christmas Day incident. Sen. Joe Lieberman's Homeland Security Committee heard an explanation of how U.S. intelligence agencies decide when to put suspected terrorists on a watch list or a no-fly list.

Timothy Healy, the head of the FBI's Terrorist Screening Center, explained the unit's "reasonable suspicion" standard like this:

"Reasonable suspicion requires 'articulable' facts which, taken together with rational inferences, reasonably warrant a determination that an individual is known or suspected to be or has been engaged in conduct constituting, in preparation for, in aid of, or related to, terrorism and terrorist activities, and is based on the totality of the circumstances. Mere guesses or inarticulate 'hunches' are not enough to constitute reasonable suspicion."

If this sounds like legalistic language, it is. Indeed, a quick Web search was a reminder that this language is adapted from Terry v. Ohio, a landmark Supreme Court case in 1968 that determined when Fourth Amendment protection against unreasonable searches allows the police to frisk civilians or conduct traffic stops. In other words, foreign terrorists have somehow now been granted Fourth Amendment reasonableness rights that courts intended to protect Americans being searched by the local police. Thus was Abdulmutallab allowed on the airplane with his explosives.

The difference between law-enforcement procedures and preventing terrorism could not be clearer. If a well-respected banker takes the initiative to come to a U.S. embassy in Nigeria to report that he thinks his son is a terrorist, we expect intelligence officers to make "hunches," such as that this person should have his visa reviewed and be searched before getting on a plane. Information is our defense against terrorism, but evidence of terror plots is often incomplete, which is why intelligence requires combining facts with hunches.

The result of prohibiting hunches was that Abdulmutallab was waved through. Information about suspected terrorists flows into a central Terrorist Screening Database, which is then analyzed by the Terrorist Screening Center, where FBI agents apply the "reasonable suspicion" standard to assign people to various watch lists including "selectee" lists and the "no-fly" list. It's at this point where an approach based on domestic law enforcement trump prevention, undermining the use of information.

Aside from concluding that we are misapplying a reasonableness test, the Abdulmutallab investigation likely will conclude that information in the databases of the National Security Agency, CIA and State Department weren't properly mined to connect dots. His name went onto the list of 400,000 people who might have links to terror, but not the list of 14,000 subject to multiple screenings before boarding an airplane or the list of 3,400 people who are not permitted to fly.

The Obama administration has leaned toward treating terrorism as a matter for domestic law enforcement, such as trying terrorists in civilian courts instead of in military tribunals. But this legalistic culture also undermined intelligence in the Fort Hood case in November. The FBI knew that Maj. Nidal Malik Hasan had been exchanging emails with a Yemen-based imam with ties to the 9/11 hijackers. The agency, operating by the standards of domestic law enforcement instead of applying information to prevention, surmised that the "content was explainable by his research" and failed to warn the Army of its potential risk.

In contrast, British authorities last May denied Abdulmutallab the right to re-enter the United Kingdom, where he had been president of an Islamic Society while in college. In Britain, domestic intelligence is the job of M15, which unlike the FBI has no power to arrest or responsibility for criminal prosecutions. Instead, it is free to focus on gathering intelligence, making hunches and preventing wrongdoing. The British ban on Abdulmutallab didn't require any FBI-like "reasonable suspicion" test.

After 9/11, the key political issue that went unresolved was what Americans expect from their intelligence agents. We send the mixed message that we want them to prevent attacks, but only if they operate under strict restrictions based on rules crafted for domestic law enforcement.

We have a choice. We can limit how information is used or we can allow smart use of information to prevent attacks. If we continue to choose to limit how information can be used in our defense, we shouldn't be surprised when our defenses fail.

The Biggest Losers - Behind the Christmas Eve taxpayer massacre at Fannie and Freddie

The Biggest Losers. WSJ Editorial
Behind the Christmas Eve taxpayer massacre at Fannie and Freddie.
WSJ, Monday, January 4, 2010

Happy New Year, readers, but before we get on with the debates of 2010, there's still some ugly 2009 business to report: To wit, the Treasury's Christmas Eve taxpayer massacre lifting the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow.

The Treasury is hoping no one notices, and no wonder. Taxpayers are continuing to buy senior preferred stock in the two firms to cover their growing losses—a combined $111 billion so far. When Treasury first bailed them out in September 2008, Congress put a $200 billion limit ($100 billion each) on federal assistance. Last year, the Treasury raised the potential commitment to $400 billion. Now the limit on taxpayer exposure is, well, who knows?

The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: "We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury."

The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. Most of their losses are still coming from subprime and Alt-A mortgage bets made during the boom, but Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter.

The government wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. But at least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers.

Even better for the political class, much of this is being done off the government books. The White House budget office still doesn't fully account for Fannie and Freddie's spending as federal outlays, though Washington controls the companies. Nor does it include as part of the national debt the $5 trillion in mortgages—half the market—that the companies either own or guarantee. The companies have become Washington's ultimate off-balance-sheet vehicles, the political equivalent of Citigroup's SIVs, that are being used to subsidize and nationalize mortgage finance.

This subterfuge also explains the Christmas Eve timing. After December 31, Team Obama would have needed the consent of Congress to raise the taxpayer exposure beyond $400 billion. By law, negative net worth at the companies forces them into "receivership," which means they have to be wound down.

Unlimited bailouts will now allow the Treasury to keep them in conservatorship, which means they can help to conserve the Democratic majority in Congress by increasing their role in housing finance. With the Federal Reserve planning to step back as early as March from buying $1.25 trillion in mortgage-backed securities, Team Obama is counting on Fan and Fred to help reflate the housing bubble.

That's why on Christmas Eve Treasury also rolled back a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion. Risk-taking will now increase, so that the government can once again follow Barney Frank's infamous advice that the companies "roll the dice" on subsidies for affordable housing.

All of which would seem to make the CEOs of Fannie and Freddie the world's most overpaid bureaucrats. A release from the Federal Housing Finance Agency that also fell in the Christmas Eve forest reports that, after presiding over a combined $24 billion in losses last quarter, Fannie CEO Michael Williams and Freddie boss Ed Haldeman are getting substantial raises. Each is now eligible for up to $6 million annually.

Freddie also has one of the world's highest-paid human resources executives. Paul George's total compensation can run up to $2.7 million. It must require a rare set of skills to spot executives capable of losing billions of dollars.

Where is Treasury's pay czar when we actually need him? You guessed it, Fannie and Freddie are exempt from the rules applied to the TARP banks. The government gave away the game that these firms are no longer in the business of making profits when it announced that the CEOs will be paid entirely in cash, though it is discouraging that practice at other big banks. Who would want stock in the Department of Housing and Urban Development?

Meanwhile, these biggest of Beltway losers continue to be missing from the debate over financial reform. The Treasury still hasn't offered its long-promised proposals even as it presses reform on banks that played a far smaller role in the financial mania and panic. Senate Banking Chairman Chris Dodd (D., Conn.) and ranking Republican Richard Shelby recently issued a joint statement on their "progress" toward financial regulatory reform, but their list of goals also doesn't mention Fannie or Freddie.

Since Mr. Shelby has long argued for reform of these government-sponsored enterprises, their absence suggests that Mr. Dodd's longtime effort to protect Fan and Fred is once again succeeding. It would be worse than a shame if, having warned about the iceberg for years, Mr. Shelby now joins Mr. Dodd in pretending that these ships aren't sinking.

In today's Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money. The politicians have used the panic as an excuse to reform everything but themselves.

A tax increase that will cause many seniors to lose private benefits

ObamaCare on Drugs. WSJ Editorial
A tax increase that will cause many seniors to lose private benefits.
The Wall Street Journal, page A10, Jan 02, 2009

Democrats are starting to mash together the Senate and House health-care bills, all of the negotiations taking place in secret. One reason to keep quiet is so voters don't discover items like the Senate's destructive change in the way retiree health benefits are taxed. This is a revenue grab that will cost many retirees their private drug benefit coverage, with knock-on harm for the federal budget and financial markets.

When the Medicare prescription drug benefit was created in 2003, one concern was that businesses that provided private drug coverage for seniors would dump them into the new taxpayer-funded plan. So Congress created a modest tax subsidy—equal to 28% of the total cost of a drug plan—to encourage employers to maintain coverage for retirees who would otherwise enroll in Medicare. On average, this subsidy will cost the government about $665 per person in 2011, according to the Employee Benefit Research Institute, while the same Medicare coverage would run about $1,209.

Currently, the $665 a business gains by providing benefits—and keeping one senior off Medicare—is not taxed. By instead treating the subsidy as income taxed at the 35% corporate rate, Democrats expect to raise about $5.4 billion for ObamaCare—and while that's a pittance in the scheme of a new multitrillion-dollar price tag, it's also based on a static tax analysis that is surely wrong.

The cost of offering drug benefits will rise by about $233 per retiree, making Medicare a far more attractive option for businesses. Private drug coverage is already on the decline, but Verizon, Xerox, Boeing, Metlife, Caterpillar and other companies are already warning that they may be forced to cut benefits. (Consider this another reward for the Business Roundtable's decision to promote ObamaCare.)

As more employers drop drug coverage, Congress won't be dispensing as many subsidies with the one hand that it can tax with the other, so revenue will fall. The retirees who lose private benefits will simply move onto Medicare, so public drug spending will also rise. The American Benefits Council, which represents the largest employers, estimates the tax will be a net loser for the government if just one out of four retirees is crowded out of private coverage.

That $233 may not sound like a lot, but under an accounting rule established in 1990, companies are required to report and expense their long-term retiree health liabilities on their financial statements, including actual paid claims and certain future payments. The deferred losses from the tax change thus must be immediately reflected on their balance sheets, which would take a huge bite out of reported earnings in 2010. Given the shaky economy, not to mention the political uncertainty that Washington continues to generate, is this really the best idea?

This is merely one example of how careless Democrats have been about the details as they dash to pass ObamaCare, even as they behave as if the results of their major changes to the health market will match perfectly with their perfectly unrealistic rhetoric.

"One of the things I've learned is that the Econ 101 approach to life where all that matters is the direct financial incentives or penalties is just wrong," Obama budget director Peter Orszag said in December. "Not to say that it doesn't matter, but exclusive focus on rational, perfectly optimizing behavior is just not, not where it's at."

When even the budget scorekeeper spurns economic incentives, you know pure politics is in charge. We suspect the White House will discover soon enough that everyone is a lot more rational, and a lot smarter, that it presumes.

Why the Health-Care Bills Are Unconstitutional. - If the government can mandate the purchase of insurance, it can do anything

Why the Health-Care Bills Are Unconstitutional. By Orrin Hatch, J Kenneth Blackwell and Kenneth Klukowski
If the government can mandate the purchase of insurance, it can do anything.
The Wall Street Journal, page A11, Jan 02, 2009

President Obama's health-care bill is now moving toward final passage. The policy issues may be coming to an end, but the legal issues are certain to continue because key provisions of this dangerous legislation are unconstitutional. Legally speaking, this legislation creates a target-rich environment. We will focus on three of its more glaring constitutional defects.

First, the Constitution does not give Congress the power to require that Americans purchase health insurance. Congress must be able to point to at least one of its powers listed in the Constitution as the basis of any legislation it passes. None of those powers justifies the individual insurance mandate. Congress's powers to tax and spend do not apply because the mandate neither taxes nor spends. The only other option is Congress's power to regulate interstate commerce.

Congress has many times stretched this power to the breaking point, exceeding even the expanded version of the commerce power established by the Supreme Court since the Great Depression. It is one thing, however, for Congress to regulate economic activity in which individuals choose to engage; it is another to require that individuals engage in such activity. That is not a difference in degree, but instead a difference in kind. It is a line that Congress has never crossed and the courts have never sanctioned.

In fact, the Supreme Court in United States v. Lopez (1995) rejected a version of the commerce power so expansive that it would leave virtually no activities by individuals that Congress could not regulate. By requiring Americans to use their own money to purchase a particular good or service, Congress would be doing exactly what the court said it could not do.

Some have argued that Congress may pass any legislation that it believes will serve the "general welfare." Those words appear in Article I of the Constitution, but they do not create a free-floating power for Congress simply to go forth and legislate well. Rather, the general welfare clause identifies the purpose for which Congress may spend money. The individual mandate tells Americans how they must spend the money Congress has not taken from them and has nothing to do with congressional spending.

A second constitutional defect of the Reid bill passed in the Senate involves the deals he cut to secure the votes of individual senators. Some of those deals do involve spending programs because they waive certain states' obligation to contribute to the Medicaid program. This selective spending targeted at certain states runs afoul of the general welfare clause. The welfare it serves is instead very specific and has been dubbed "cash for cloture" because it secured the 60 votes the majority needed to end debate and pass this legislation.

A third constitutional defect in this ObamaCare legislation is its command that states establish such things as benefit exchanges, which will require state legislation and regulations. This is not a condition for receiving federal funds, which would still leave some kind of choice to the states. No, this legislation requires states to establish these exchanges or says that the Secretary of Health and Human Services will step in and do it for them. It renders states little more than subdivisions of the federal government.

This violates the letter, the spirit, and the interpretation of our federal-state form of government. Some may have come to consider federalism an archaic annoyance, perhaps an amusing topic for law-school seminars but certainly not a substantive rule for structuring government. But in New York v. United States (1992) and Printz v. United States (1997), the Supreme Court struck down two laws on the grounds that the Constitution forbids the federal government from commandeering any branch of state government to administer a federal program. That is, by drafting and by deliberate design, exactly what this legislation would do.

The federal government may exercise only the powers granted to it or denied to the states. The states may do everything else. This is why, for example, states may have authority to require individuals to purchase health insurance but the federal government does not. It is also the reason states may require that individuals purchase car insurance before choosing to drive a car, but the federal government may not require all individuals to purchase health insurance.

This hardly exhausts the list of constitutional problems with this legislation, which would take the federal government into uncharted political and legal territory. Analysts, scholars and litigators are just beginning to examine the issues we have raised and other issues that may well lead to future litigation.

America's founders intended the federal government to have limited powers and that the states have an independent sovereign place in our system of government. The Obama/Reid/Pelosi legislation to take control of the American health-care system is the most sweeping and intrusive federal program ever devised. If the federal government can do this, then it can do anything, and the limits on government power that our liberty requires will be more myth than reality.

Mr. Hatch, a Republican senator from Utah, is a former chairman of the Senate Judiciary Committee. Mr. Blackwell is a senior fellow with the Family Research Council and a professor at Liberty University School of Law. Mr. Klukowski is a fellow and senior legal analyst with the American Civil Rights Union.

Questions for Abdulmutallab - The would-be airplane bomber needs to be interrogated

Questions for Abdulmutallab. By VICTORIA TOENSING
The would-be airplane bomber needs to be interrogated.
WSJ, Dec 31, 2009

On the third day after Umar Farouk Abdulmutallab's attempt to blow up a Detroit-bound airliner, President Barack Obama finally interrupted his Hawaiian vacation to announce that our government "will not rest until we find all who were involved and hold them accountable." But how are we going to do that now that the terrorist is lawyered up and is even challenging what should be a legal gimme: giving the government a DNA sample?

It was not wise to try enemy combatants such as Zacarias Moussaoui, the so-called 20th hijacker in the 9/11 attacks, in our regular criminal courts. And it is unwise that Mr. Obama has decided to try some Guantanamo detainees in New York City. Never in our country's history prior to 2001 have we done so, for good reason.

The constitutional protections designed to ensure a person is not wrongfully convicted have no relevance to wartime military needs. The argument that our system is strong enough to try a terrorist is a non sequitur. It equates to the argument that if a person is in excellent health, she can withstand being set ablaze.

Moussaoui tied the Virginia federal court in knots for over three years, principally by insisting on the Brady rule, which requires that the defendant be given access to any evidence that could be exculpatory. (Moussaoui was convicted because he pleaded guilty, not because there was a trial and jury decision.)

The Brady rule is a needed constitutional protection for the accused bank robber, where the government wants to produce only the one witness who identifies the defendant as the perpetrator but not the other six witnesses who cannot identify him. It does not work where a terrorist demands access to all the servicemen and women who witnessed his capture on the battlefield.

Yet even the legal issues of a trial are of little importance compared to the threat to our security putting this terrorist into the regular criminal justice system presents. Abdulmutallab is in effect in possession of a ticking bomb, but we cannot interrogate him. His right to remain silent, as required by the Miranda rule, thwarts Mr. Obama's hollow attempt on Tuesday to "assure" us he is "doing everything in [his] power" to keep us safe.

Questions need to be answered. Where was Abdulmutallab trained? Who trained him? Where is the training facility located? Where is the stash of PETN, the explosive used in the bomb? What are the techniques he was told to use for getting through airport security? Was there a well-dressed man who helped him board the plane without a passport as claimed by another passenger? And, most important, are future attacks planned?

Yes, we could try him first and then interrogate him. But by then the information is stale, especially if he utilizes the same legal challenges Moussaoui did to drag out the process for years.

As the president told us, there were indeed "human and systemic failures" that "contributed to this potential catastrophic breach of security." By placing this terrorist into the regular criminal process, he continues and magnifies those failures, which could leave to an actual catastrophe.

Abdulmutallab is not a United States citizen. By detonating a bomb on an airplane filled with 269 civilians, he committed an illegal act of war. A military commission, which has been used for such conduct since Gen. George Washington, will give him due process. But first, he must be interrogated.

Ms. Toensing was deputy assistant attorney general in the Reagan administration, where she supervised all terrorist cases.

Comentarios al post "California: Caos democrático" en Abilene blog

Comentarios al post "California: Caos democrático" en Abilene blog
Dec 28, 2009

hola, creo que hay varias cosas que no acaban de capturar realmente la esencia de las diferencias del sistema federal y el europeo continental:

“Con este hecho se demuestran las dificultades de articular estados en los que gobiernan políticos cuyas ideologías y planes de acciones han resultado fracasadas.”

A qué ideologías se refieren? Porque las dos cámaras son, sorpresa, de mayoría demócrata, cosa que no sé si se puede deducir del artículo (aunque sí del artículo de P Krugman). Parece, de otros trozos del mismo, que se refiere a que los fracasados son los republicanos.

Me parece ver aquí una habitual confusión: en política europea el primer ministro es elegido en la cámara popular, vamos a decir, por lo que muy difícilmente piensan distinto la mayoría de la cámara y el Ejecutivo (salvo el caso italiano), mientras que en los EE UU lo normal es que haya dos cámaras iguales (puede haber una) y el Ejecutivo sea elegido al margen de las mismas. Gobiernan todos, el Legislativo y el Ejecutivo. No hay que confundir gobernador o presidente federal con mayoría en la cámara baja, que es el caso de aquí.

Acerca de esto otro:

“Los ciclos legislativos desfasados del ciclo del país provocan que mientras hay una renovación política en EEUU, aun siguen gobernando en algunos estados las anteriores corrientes de poder (recordemos que en las elecciones generales B. Obama se proclamó vencedor en California, A. Schwarzenegger es republicano).”

un par de cosas:

- Lo de “siguen gobernando en algunos estados las anteriores corrientes de poder” da la impresión de que el autor cree que, ya que en las elecciones federales ha habido mayorías demócratas en las cámaras federales y el Ejecutivo federal, por ello debería haber casi 50 de los 50 estados con mayorías demócratas en Legislativo y Ejecutivo. Esto es totalmente ajeno a cómo funciona el sistema. De hecho, más o menos la mitad de los estados son republicanos y más o menos la mitad son demócratas, simplificando. Eso es al margen de quién consiga la presidencia federal.

- Como dije antes, las dos cámaras son demócratas (lo que hace que se vea especialmente flojo el análisis sociológico de “Sólo una minoría de los californianos se molesta en votar habitualmente, los votantes tienden a ser mayores, más blancos y más ricos que la mayoría predominante de la población”, según eso y las creencias del autor debería haber mayoría republicana en ambas cámaras). Que el gobernador sea republicano (y muchos republicanos dirían que es un RINO, Republican In Name Only) es irrelevante para esta discusión. Lo que falta es una mayoría suficiente de demócratas en las cámaras, pero si la gente prefiere la parálisis (y es bastante común tener el Ejecutivo de un partido y las cámaras o al menos una de ellas con mayoría de otro partido opuesto, ejemplo parálisis en la época Clinton), es lo que se necesita en ese momento, aunque visto desde Europa parezca incomprensible.

Por último, cree de verdad el autor que P Krugman es parte desinteresada en los análisis? Cree que se le puede recomendar como lectura única, sin equilibrar con otra visión después de frases como éstas?:

. “los miembros restantes del partido [republicano] se han vuelto cada vez más radicales, cada vez menos interesados en la labor de gobernar.”

. “el creciente extremismo del partido [republicano]”

. “Dicho sin rodeos: los últimos acontecimientos indican que el Partido Republicano se ha vuelto loco al perder el poder”

. “Los pocos moderados que quedaban [entre otras cosas] han huido”

Los que votan republicano son, como los que votan demócrata, cerca de la mitad del electorado y más o menos del país. Acusar a cualquiera de las mitades de creciente extremismo, haberse vuelto locos, haber hecho huir a los moderados, o estar boicoteando la labor de gobierno revela los odios y amores del profesor, que no parece una fuente que los historiadores puedan citar en el futuro sin añadir inputs de otras fuentes.

Jackson Toby's "The Lowering of Higher Education in America"

On Campus, Unprepared. By BEN WILDAVSKY
Colleges are filled with unserious students learning too little. What should be done?
WSJ, Dec 23, 2009

When President Barack Obama announced earlier this year that the U.S. should aim to have the world's highest proportion of college graduates by 2020, he was staking out an ambitious but hardly a maverick goal. It is widely recognized, by Republicans and Democrats alike, that the gap between the earnings of high-school graduates and college graduates has become a chasm in recent decades. More college graduates would mean more prosperity for individuals—and for the nation, too. Bowing to this logic, governments around the world—from China and India to the Middle East—are trying to boost college attendance for their knowledge-hungry populations.

As Mr. Obama's goal suggests, there is plenty of room for improvement in the U.S. While nearly seven in 10 high-school graduates go on directly to two- or four-year colleges (up from 49% in 1972), many students are poorly prepared for college and end up taking remedial courses. And huge numbers fail to graduate. Reformers believe, not without reason, that such problems can be solved in part by improved high-school preparation and better college instruction. But is it possible that aiming to increase the number of American college graduates is actually a fool's errand?

A few skeptics think so. Most prominent among them is Charles Murray, who in "Real Education" (2008) argued that most young people are just not smart enough to go to college and should be encouraged to take other paths instead, especially vocational training. Now comes Jackson Toby with "The Lowering of Higher Education in America," a provocative variation on Mr. Murray's theme.

Mr. Toby draws on social-science data as well as personal experience—he taught sociology at Rutgers University for 50 years before retiring a few years ago—to decry the intellectual conditions that prevail on the American campus. Sidestepping the matter of students' innate abilities, he blames low academic standards mostly on the easy availability of financial aid to undergraduates who are unqualified for college-level coursework.

Early on, Mr. Toby concedes that education has become the country's "main economic escalator." But he is alarmed at how few students are prepared to meet even the minimal demands of a real college education. He faults lax college-admission standards that give high schools little incentive to push their students harder. Too many undergrads can't write with minimal competence or understand basic cultural references. Students often take silly, politicized courses. And they feel entitled to inflated grades: Mr. Toby reports that one of his students spewed obscenities at him for ending the young man's straight-A record.

Perhaps this kind of experience accounts for Mr. Toby's seeming bitterness toward unserious students, whom he calls "unprepared, half-asleep catatonics who drift in late and leave early." Most undergrads, Mr. Toby suggests, enjoy a steady diet of extracurricular hedonism while skating through their coursework (though it's unclear how this claim jibes with his complaints about low graduation rates).

Worst of all, he says, students have been misled about the value of their degrees. Yes, a bachelor of arts degree commands a wage premium, but less because of a graduate's acquired knowledge than because of the signal that his degree sends to employers about the abilities that got him into college and about a variety of soft skills, such as reliability and problem-solving capacity. Graduates in undemanding majors—in the humanities, for example, or most of the social sciences—are unlikely to earn what their more studious counterparts in, say, engineering can. They are thus disproportionately likely to be saddled with debt and prone to default, Mr. Toby argues. He claims that this pattern amounts to the kind of unsound lending that led to our recent credit crisis—one that he darkly suggests may soon be repeated in higher education. He believes that today's "promiscuous" system of college grants and loans—which, at the federal level, is based largely on financial need—ought to be retooled to focus on academic merit.

But his platform is less radical than his book's subtitle promises ("Why Financial Aid Should Be Based on Student Performance"). He acknowledges that quite a few states already have merit-based aid. And in a concession to political reality he would continue the federal Pell Grant program, which focuses on need alone. Mr. Toby's main proposal, then, is to require good grades and test scores from those seeking federal student loans. This requirement, he believes, would improve incentives for academic performance and mitigate the inevitable trade-off between widening access to college and maintaining educational standards.

Strangely, Mr. Toby does not address the biggest objection to merit aid, which is that it usually subsidizes middle- and upper-income students who would go to college anyway. By contrast, need-based aid often provides make-or-break help to low-income applicants: Without grants and student loans, they would probably not go to college at all.

Mr. Toby sees reduced college opportunities as the price of keeping under-prepared students off campus. But that is one trade-off we should not make, especially when a college degree carries so much value in the marketplace. Our vast and varied college system, to its credit, enrolls all sorts of students. Mr. Toby delineates the system's manifold shortcomings, which badly need to be remedied. And to be sure, academic merit deserves a place in our financial aid system. But the indisputable benefits of college ought to be spread more widely, not less.

Mr. Wildavsky, a senior fellow at the Kauffman Foundation and a guest scholar at the Brookings Institution, is the author of "The Great Brain Race: How Global Universities Are Reshaping the World," to be published next spring.

Time for a Climate Change Plan B

Time for a Climate Change Plan B. By NIGEL LAWSON

The world's political leaders, not least President Barack Obama and Prime Minister Gordon Brown, are in a state of severe, almost clinical, denial. While acknowledging that the outcome of the United Nations climate-change conference in Copenhagen fell short of their demand for a legally binding, enforceable and verifiable global agreement on emissions reductions by developed and developing countries alike, they insist that what has been achieved is a breakthrough and a decisive step forward.

Just one more heave, just one more venue for the great climate-change traveling circus—Mexico City next year—and the job will be done.

Or so we are told. It is, of course, the purest nonsense. The only breakthrough was the political coup for China and India in concluding the anodyne communiqué with the United States behind closed doors, with Brazil and South Africa allowed in the room and Europe left to languish in the cold outside.

Far from achieving a major step forward, Copenhagen—predictably—achieved precisely nothing. The nearest thing to a commitment was the promise by the developed world to pay the developing world $30 billion of "climate aid" over the next three years, rising to $100 billion a year from 2020. Not only is that (perhaps fortunately) not legally binding, but there is no agreement whatsoever about which countries it will go to, in which amounts, and on what conditions.

The reasons for the complete and utter failure of Copenhagen are both fundamental and irresolvable. The first is that the economic cost of decarbonizing the world's economies is massive, and of at least the same order of magnitude as any benefits it may conceivably bring in terms of a cooler world in the next century.

The reason we use carbon-based energy is not the political power of the oil lobby or the coal industry. It is because it is far and away the cheapest source of energy at the present time and is likely to remain so, not forever, but for the foreseeable future.

Switching to much more expensive energy may be acceptable to us in the developed world (although I see no present evidence of this). But in the developing world, including the rapidly developing nations such as China and India, there are still tens if not hundreds of millions of people suffering from acute poverty, and from the consequences of such poverty, in the shape of malnutrition, preventable disease and premature death.

The overriding priority for the developing world has to be the fastest feasible rate of economic development, which means, inter alia, using the cheapest available source of energy: carbon energy.

Moreover, the argument that they should make this economic and human sacrifice to benefit future generations 100 years and more hence is all the less compelling, given that these future generations will, despite any problems caused by warming, be many times better off than the people of the developing world are today.

Or, at least, that is the assumption on which the climate scientists' warming projections are based. It is projected economic growth that determines projected carbon emissions, and projected carbon emissions that (according to the somewhat conjectural computer models on which they rely) determine projected warming (according to the same models).

All this overlaps with the second of the two fundamental reasons why Copenhagen failed, and why Mexico City (if our leaders insist on continuing this futile charade) will fail, too. That is the problem of burden-sharing, and in particular how much of the economic cost of decarbonization should be borne by the developed world, which accounts for the bulk of past emissions, and how much by the faster-growing developing world, which will account for the bulk of future emissions.

The 2006 Stern Review, quite the shoddiest pseudo-scientific and pseudo-economic document any British Government has ever produced, claims the overall burden is very small. If that were so, the problem of how to share the burden would be readily overcome—as indeed occurred with the phasing out of chorofluorocarbons (CFCs) under the 1987 Montreal Protocol. But the true cost of decarbonization is massive, and the distribution of the burden an insoluble problem.

Moreover, any assessment of the impact of any future warming that may occur is inevitably highly conjectural, depending as it does not only on the uncertainties of climate science but also on the uncertainties of future technological development. So what we are talking about is risk.

Not that the risk is all one way. The risk of a 1930s-style outbreak of protectionism—if the developed world were to abjure cheap energy and faced enhanced competition from China and other rapidly industrializing countries that declined to do so—is probably greater than any risk from warming.

But even without that, there is not even a theoretical (let alone a practical) basis for a global agreement on burden-sharing, since, so far as the risk of global warming is concerned (and probably in other areas too) risk aversion is not uniform throughout the world. Not only do different cultures embody very different degrees of risk aversion, but in general the richer countries will tend to be more risk-averse than the poorer countries, if only because we have more to lose.

The time has come to abandon the Kyoto-style folly that reached its apotheosis in Copenhagen last week, and move to plan B.

And the outlines of a credible plan B are clear. First and foremost, we must do what mankind has always done, and adapt to whatever changes in temperature may in the future arise.

This enables us to pocket the benefits of any warming (and there are many) while reducing the costs. None of the projected costs are new phenomena, but the possible exacerbation of problems our climate already throws at us. Addressing these problems directly is many times more cost-effective than anything discussed at Copenhagen. And adaptation does not require a global agreement, although we may well need to help the very poorest countries (not China) to adapt.

Beyond adaptation, plan B should involve a relatively modest, increased government investment in technological research and development—in energy, in adaptation and in geoengineering.

Despite the overwhelming evidence of the Copenhagen debacle, it is not going to be easy to get our leaders to move to plan B. There is no doubt that calling a halt to the high-profile climate-change traveling circus risks causing a severe conference-deprivation trauma among the participants. If there has to be a small public investment in counseling, it would be money well spent.

Lord Lawson was U.K. chancellor of the exchequer in the Thatcher government from 1983 to 1989. He is the author of "An Appeal to Reason: A Cool Look at Global Warming" (Overlook Duckworth, paperback 2009), and is chairman of the recently formed Global Warming Policy Foundation (www.thegwpf.org).

Industry views: Five Troubling Aspects of the Copenhagen Accord

Five Troubling Aspects of the Copenhagen Accord

IER, December 21, 2009

Even though the climate change PR machines are spinning away in the aftermath of Copenhagen’s COP 15, a few of the Copenhagen Accord’s more troubling consequences are not getting the attention they deserve.

Senator McCain called “the agreement to take note of the accord” reached by the United States and a handful of developed nations a “nothing burger.” Senator Kerry, on the other hand, believes the accord is important and called China’s participation “the most critical thing” to ensuring Senate passage of the national energy tax, even though few observers believe China will actually do anything to curtail their growing use of carbon-based energy. Meanwhile, the question of whether the outcome in Denmark was enough to advance international efforts to control emissions can best be summarized by Henry Derwent, president of the Geneva-based International Emissions Trading Association, who noted that the climate talks were a “step backward” in terms of a signal that will support carbon prices.

While the Copenhagen Accord does not represent a major change from the status quo, there are a few troubling aspects of the U.S. effort in Copenhagen worth noting.

First, U.S. negotiators opposed efforts from China and India to ban the use of border tariffs on energy-intensive exports. That means the U.S. actively fought to leave the prospect of Smoot-Hawley-type trade wars on the table for Senate cap-and-trade negotiators. The United States has benefited greatly from free trade; now the U.S. government is opposing free trade.

Second, unlike China and other developing countries, the U.S. will allow “international consultations and analysis” of our greenhouse gas emissions. It is not clear how intrusive these international consultations will be, but with millions of sources of greenhouse gas emissions, it’s hard to believe that they won’t in some way encroach on U.S. sovereignty.

Third, the U.S.’s commitment to hand over billions of dollars a year in taxpayer money was a premature gesture that will only serve as the new floor for developing nations in the next round of international talks. Why would nations in the third world operate under this agreement if they can now see that the starting point for COP 16’s bargaining talks is $30 billion?

Fourth, we must consider the sheer size of the U.S. delegation; press accounts reveal that in addition to the President, five cabinet officials, four other high ranking officials, one czar, over thirty Members of Congress and a host of staff attended all or part of the conference. The United States spent millions to send a small army to Copenhagen to forge a non-binding “accord” that very few Americans view as a priority.

Finally, contrary to Senator Kerry’s hopes, China’s willingness to sit at a non-binding negotiating table will not ease the pain a national energy rationing cap-and-trade tax will cause for American families and is certainly not a sufficient gesture to justify its passage.

Ultimately, Copenhagen will have no impact on the outcome of the cap-and-trade legislation moving through Congress. As we have just seen in the health care debate, Senate passage of this increasingly unpopular measure will depend on how much taxpayer money Majority Leader Reid is willing to give away to his fence-sitting colleagues to reach the 60 votes necessary to move this bill forward.

The Backdating Molehill Revisited

The Backdating Molehill Revisited. By Holman W Jenkins, Jr
Why are the prosecutions going so badly? Maybe because there was no crime.
WSJ, Dec 16, 2009

It pains us, naturally, to see our forecasts and premonitions borne out in such exacting detail in the government's backdating prosecutions—why didn't we take our moment of searing foresight to the dog track instead?

Yesterday a judge threw out, with resort to unceremonious language, criminal charges against Broadcom co-founder Henry Nicholas III.

Mr. Nicholas, a physically large man, with an erratic personality, and accused of patronizing drug dealers and prostitutes, must have seemed a prosecutors' dream, since he gave them so much to talk about besides the details of backdating, which when examined closely invariably lead careful reasoners to wonder: Where's the crime here?

Mr. Nicholas did not benefit from any backdated stock options. He was Broadcom's largest shareholder, thus had no natural or unnatural interest in overpaying employees with backdated stock options. The company's outside auditor also appears to have blessed the essential no-no here, which amounts to reading into accounting rules a logic and coherence that didn't exist at the time.

The goal of backdating, it becomes clearer than ever, was to motivate employees at the lowest possible cost to shareholders. This was done by granting stock options that, at the date of issue, were "in the money"—because, it appears, Broadcom and hundreds of other Silicon Valley companies discovered in practice what a Nobel Prize in economics had discovered in theory: That people overvalue a seeming bird in the hand.

As far as we know, no court has gotten to the essential nullity of the backdating "wrong," but U.S. District Judge Cormac J. Carney seems to have gotten close. Less than a week earlier, he had thrown out the conviction of Broadcom co-founder Henry Samueli—who had pleaded guilty—saying he did not believe Mr. Samueli had committed a crime.

Yesterday he dismissed the remaining criminal charges against Mr. Nicholas and the company's former chief financial officer William J. Ruehle, saying the government's behavior had been "shameful," that it had made a "mockery" of a defendant's constitutional rights, and that prosecutors had "intimidated and improperly influenced" three crucial witnesses, including threatening one with prosecution if he repeated testimony already given to the SEC in a civil proceeding.

Now, call us cynical, but aren't threats often used against employees to turn them into friendly witnesses for the government? The judge complained that prosecutors had improperly leaked details of the investigation to the press—also unattractive behavior by government servants, but not exactly unusual.

Indeed, it's hard to escape the sense that such behavior was judged especially beyond the pale in this case because it was in the service of a prosecution that fundamentally never deserved to be brought.
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To be sure, because of the incoherence of the applicable accounting rules, Broadcom had to take the biggest charge of any company to rectify its accounting for employee stock options: $2.2 billion. Investors would have understood, though, that this was not real cash, that indeed under then-regnant accounting rules Broadcom could have tried to give away the entire market cap of the company to employees without taking an accounting charge, had it simply issued "at the money" options instead of "in the money" options.

As we say, most backdating cases amount to companies trying to behave rationally amid irrational accounting rules, rather than the media's standard trope of businessmen a-lyin' and a-stealin'. Deep, rich and disappointing, then, is the irony of a recent decision by federal prosecutors to have a second go at another former Silicon Valley CEO, Gregory Reyes, of Brocade Communications

All that distinguished the Brocade case from hundreds of other instances of backdating was a prosecutor's allegation that, in order to effect backdating, Mr. Reyes had misled the company's own finance department.

This was laughable, since the SEC was simultaneously charging two former heads of Brocade's finance department with participating in and profiting from backdating. The prosecution's sole witness on the vital point recanted almost as soon as she got off the stand, and a federal appeals court eventually overturned Mr. Reyes's conviction on grounds of prosecutorial misconduct.

Why a U.S. attorney in San Francisco would want to try Mr. Reyes again is a mystery to us, but maybe it's time for an investigation of backdating investigations.

We can't close without mentioning the exemplary diligence and enterprise with which, way back when, certain reporters and editors uncovered the backdating phenomenon, and then the intellectual sluggishness with which they analyzed it.

They found an interesting story (one that fit well under the current interest in behavioral economics) and then got it fundamentally wrong by insisting on shoving it into a procrustean off-the-shelf narrative of executive "greed."

Indeed, for want of a single paragraph explaining why backdating could be (in the words of a recent academic paper) a case of optimum contracting between companies and employees, we might have avoided the waste and injustice of these misguided backdating prosecutions.

Endangering the Economy in an Attempt to Pass Cap-and-Trade

IER, December 15, 2009

For years Congress has struggled to pass legislation to regulate carbon dioxide emissions because Americans know that the regulation of carbon dioxide emission is a tax on energy. Today, the Obama Administration is pushing a new scheme that would create regulations so burdensome that Congress is forced to pass a cap-and-trade bill to reduce the economic pain caused by the regulations. The Administration admits their plan will harm the economy, but they are using it as a threat in order to urge Congress to pass their proposal to tax and regulate energy use.

The Administration’s Plan to Coerce Congress to Pass Cap-and-Trade—Force Congress to Rescue the Economy from the Administration’s Heavy-Handed, Command-and-Control Regulations

During the Presidential campaign Obama’s advisors promised to have the Environmental Protection Agency (EPA) regulate carbon dioxide. Today, the President made good on that promise and EPA published a rule in the Federal Register regulating carbon dioxide and greenhouse gases by declaring that these gases “endanger public health or welfare.” (This is why it is called the “endangerment finding” because EPA is finding that greenhouse gases “endanger public health and welfare.”) This announcement was timed to coincide with the opening of the United Nations Climate Change Conference in Copenhagen.

Last week, a top White House economic official explained the Administration’s cynical strategy to reporters:

“If you don’t pass this legislation, then … the EPA is going to have to regulate in this area,” the official said. ”And it is not going to be able to regulate in a market-based way, so it’s going to have to regulate in a command-and-control way, which will probably generate even more uncertainty.”

In other words, the Administration realizes that these regulations will harm the economy, but is trying to push Congress to pass a law they say will reduce the harm. Amazingly, a week and a half after holding a summit to discuss how to create jobs, the Administration is promoting a policy that it admits will harm job prospects. As one news report stated, a White House “official warned that the kind of ‘uncertainty’ generated by unilateral EPA action would be a huge ‘deterrent to investment,’ in an economy already desperate for jobs.” The Administration was acting, in the words of another newspaper writer, like Tony Soprano saying essentially, “Nice economy you got there, Congress. Now either youze guys pass da capntrade deal or my associate here, Ms. Jackson, breaks its legs.”

EPA Was Not Forced to Regulate Greenhouse Gases

The endangerment finding is a response to the Supreme Court’s decision in Massachusetts v. EPA. That decision required EPA to make a finding, but it did not require EPA to find that greenhouse gases endanger human health and welfare. As the Supreme Court explained, “We need not and do not reach the question whether on remand EPA must make an endangerment finding, or whether policy concerns can inform EPA’s actions in the event that it makes such a finding. We hold only that EPA must ground its reasons for action or inaction in the statute.”[1]

What’s really disingenuous about the Administration’s ploy is that even if the Senate had already passed the Kerry-Boxer cap and tax bill, the Supreme Court decision would still stand, meaning the EPA would still have to determine whether CO2 endangers public health and welfare

Thus the entire premise of the Administration’s claim that Congress must pass a bill because if they don’t “EPA is going to have to regulate in this area” is bogus. Whether or not Congress passed a cap-and-trade bill, the Supreme Court ruling required EPA to either reject or issue an endangerment finding.

Command-and-Control versus “Market-Based” Approach

EPA’s threat is misleading in yet another way. By contrasting a top-down regulatory approach with the ostensibly market-based approach of cap-and-trade, one is led to the assumption that the Waxman-Markey and Kerry-Boxer bills simply augment the market price of carbon to reflect the alleged “social cost of carbon” and then let the magic of the market take control.

This is nonsense. In the first place, IER has already demonstrated the tremendous thicket of command-and-control regulations in Waxman-Markey besides its cap-and-trade program. To contrast EPA’s admittedly top-down, command-and-control-style approach with the climate bills in Congress is a false dichotomy. They are both command-and-control.

Second, even the cap-and-trade programs in Waxman-Markey and Kerry-Boxer are not what environmental economists would have recommended to correct the “externality” of possible future climate damages. Many (perhaps most) economists who actually publish academic articles on the issue think that if the government is going to take “market-based” action, it should set a straightforward carbon tax and use the proceeds to reduce other taxes. Failing that, they would argue that the government should implement a cap-and-trade program with full auctioning of permits, and then use the receipts to reduce other taxes. No academic economist endorses the hodge-podge of allowance handouts, “offsets,” and subsidies to various “green” recipients contained in the two pending bills. The only way to justify them is to say “that’s how politics works.”

Follow the Money

So, if the Obama Administration wasn’t legally required to issue regulations but did so—knowing full well they would be harmful to jobs and the economy—why did they do it? The answer is simple—to force Congress to enact the policies the White House really wants: cap-and-trade—and the money that goes along with it. Regulation by EPA only gives the Administration regulatory authority over 85 percent of our energy use (energy from coal, oil, and natural gas) but there is no real revenue increase for the federal government. Cap-and-trade provides huge revenue increases to the federal government. The Administration’s proposed budget called for raising $646 billion in new fees from cap-and-trade between 2012 and 2019. A senior aide later admitted the number could be 2 to 3 times that much, or $1.3 to $1.9 trillion. That makes it the largest tax increase in world history. And this tax will only go up over time as emissions prices go up.

Legislative proposals such as the Waxman-Markey bill and the Kerry-Boxer bill do not raise as much revenue for the federal government as Obama’s budget proposal, but instead the bills redistribute trillions of dollars to preferred interest groups. Under EPA regulation, the government cannot collect taxes or sell credits for carbon dioxide. Under the cap-and-trade plan, it makes out like a bandit and gets to choose economic winners and losers. Government power and money would increase, paid for with the people’s economic liberties.

Conclusion

The Supreme Court did not require EPA to find that greenhouse gases endanger public health and welfare. The Obama Administration chose to make that finding, even though it understands that EPA regulations would be very harmful to a struggling economy. Now the Administration is trying to leverage the harm they have created to force Congress to pass the largest tax increase in the history. We should reject this cynical strategy. Instead of passing legislation to regulate greenhouse gases, Congress could restore the original intent of the Clean Air Act by removing EPA’s ability to regulate greenhouse gases under the Clean Air Act. Those actions would protect the American people from the Administration’s economically harmful regulations.

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[1] 549 U.S. 497, 533–34 (2007).