A Jersey Lesson in Voter Fraud. By Thomas Fleming
My grandmother died there in 1940. She voted Democratic for the next 10 years.The Wall Street Journal, February 6, 2013, on page A11
http://online.wsj.com/article/SB10001424127887323829504578272250730580018.html
Some youthful memories were stirred by the news this week that the president plans to use his State of the Union speech next Tuesday to urge Congress to make voter registration and ballot-casting easier. Like Mr. Obama, I come from a city with a colorful history of political corruption and vote fraud.
The president's town is Chicago, mine is Jersey City. Both were solidly Democratic in the 1930s and '40s, and their mayors were close friends. At one point in the early '30s, Jersey City's Frank Hague called Chicago's Ed Kelly to say he needed $2 million as soon as possible to survive a coming election. According to my father—one of Boss Hague's right-hand men—a dapper fellow who had taken an overnight train arrived at Jersey City's City Hall the next morning, suitcase in hand, cash inside.
Those were the days when it was glorious to be a Democrat. As a historian, I give talks from time to time. In a recent one, called "Us Against Them," I said it was we Irish and our Italian, Polish and other ethnic allies against "the dirty rotten stinking WASP Protestant Republicans of New Jersey." By thus demeaning the opposition, we had clear consciences as we rolled up killer majorities using tactics that had little to do with the election laws.
My grandmother Mary Dolan died in 1940. But she voted Democratic for the next 10 years. An election bureau official came to our door one time and asked if Mrs. Dolan was still living in our house. "She's upstairs taking a nap," I replied. Satisfied, he left.
Thousands of other ghosts cast similar ballots every Election Day in Jersey City. Another technique was the use of "floaters," tough Irishmen imported from New York who voted five, six and even 10 times at various polling places.
Equally effective was cash-per-vote. On more than one Election Day, my father called the ward's chief bookmaker to tell him: "I need 10 grand by one o'clock." He always got it, and his ward had a formidable Democratic majority when the polls closed.
Other times, as the clock ticked into the wee hours, word would often arrive in the polling places that the dirty rotten stinking WASP Protestant Republicans had built up a commanding lead in South Jersey, where "Nucky" Johnson (currently being immortalized on TV in HBO's "Boardwalk Empire") had a small Republican machine in Atlantic City.
By dawn, tens of thousands of hitherto unknown Jersey City ballots would be counted and another Democratic governor or senator would be in office, and the Democratic presidential candidate would benefit as well. Things in Chicago were no different, Boss Hague would remark after returning from one of his frequent visits.
I have to laugh when I hear current-day Democrats not only lobbying against voter-identification laws but campaigning to make voting even easier than it already is. More laughable is the idea of dressing up the matter as a civil-rights issue.
My youthful outlook on life—that anything goes against the rotten stinking WASP Protestant Republicans—evaporated while I served in the U.S. Navy in World War II. In that conflict, millions of people like me acquired a new understanding of what it meant to be an American.
Later I became a historian of this nation's early years—and I can assure President Obama that no founding father would tolerate the idea of unidentified voters. These men understood the possibility and the reality of political corruption. They knew it might erupt at any time within a city or state.
The president's party—which is still my party—has inspired countless Americans by looking out for the less fortunate. No doubt that instinct motivated Mr. Obama in his years as a community organizer in Chicago. Such caring can still be a force, but that force, and the Democratic Party, will be constantly soiled and corrupted if the right and the privilege to vote becomes an easily manipulated joke.
Mr. Fleming is a former president of the Society of American Historians.
Showing posts with label political appointees. Show all posts
Showing posts with label political appointees. Show all posts
Wednesday, February 6, 2013
Monday, December 24, 2012
A case study in the dangers of the Law of the Sea Treaty
Lawless at Sea. WSJ Editorial
A case study in the dangers of the Law of the Sea Treaty.
The Wall Street Journal, December 24, 2012, on page A12
http://online.wsj.com/article/SB10001424127887324407504578187523862827016.html
The curious case of the U.S. hedge fund, the Argentine ship and Ghana is getting curiouser, and now it has taken a turn against national sovereignty. That's the only reasonable conclusion after a bizarre ruling this month from the International Tribunal for the Law of the Sea in Hamburg.
The tribunal—who knew it existed?—ordered the Republic of Ghana to overrule a decision of its own judiciary that had enforced a U.S. court judgment. The Hamburg court is the misbegotten child of the 1982 United Nations Convention on the Law of the Sea. Sold as a treaty to ensure the free movement of people and goods on the high seas, it was rejected by Ronald Reagan as an effort to control and redistribute the resources of the world's oceans.
The U.S. never has ratified the treaty, despite a push by President Obama, and now the solons of Hamburg have demonstrated the wisdom of that decision. While debates on the treaty have centered around the powers a country might enjoy hundreds of miles off its coast, many analysts have simply assumed that nations would still exercise control over the waters just offshore.
Now the Hamburg court has trampled local law in a case involving a ship sitting in port, and every country is now on notice that a Hamburg court is claiming authority over its internal waters.
Specifically, Hamburg ordered Ghana to release a sailing ship owned by the Argentine navy. On October 2, a subsidiary of U.S. investment fund Elliott Management persuaded a Ghanaian judge to order the seizure of the vessel. The old-fashioned schooner, used to train cadets, was on a tour of West Africa.
U.S. hedge funds don't normally seize naval ships, but in this case Elliott and the Ghanaian court are on solid ground. Elliott owns Argentine bonds on which Buenos Aires has been refusing to pay since its 2001 default. Elliott argues that a contract is a contract, and a federal court in New York agrees. Argentina had freely decided to issue its debt in U.S. capital markets and had agreed in its bond contracts to waive the sovereign immunity that would normally prevent lenders from seizing things like three-masted frigates.
To his credit, Judge Richard Adjei-Frimpong of Ghana's commercial court noted that Argentina had specifically waived its immunity when borrowing the money and that under Ghanaian law the ship could therefore be attached by creditors with a valid U.S. judgment registered in Ghana. He ordered the ship held at port until Buenos Aires starts following the orders of the U.S. court.
But in its recent ruling, which ordered Ghana to release the ship by December 22, the Hamburg court claimed that international law requires immunity for the Argentine "warship," as if Argentina never waived immunity and as if this is an actual warship. On Wednesday, Ghana released the vessel, and the ship set sail from the port of Tema for its trans-Atlantic voyage.
So here we have a case in which a small African nation admirably tried to adhere to the rule of law. Yet it was bullied by a global tribunal serving the ends of Argentina, which has brazenly violated the law in refusing to pay its debts and defying Ghana's court order. The next time the Senate moves to ratify the Law of the Sea Treaty, Ghana should be exhibit A for opponents.
A case study in the dangers of the Law of the Sea Treaty.
The Wall Street Journal, December 24, 2012, on page A12
http://online.wsj.com/article/SB10001424127887324407504578187523862827016.html
The curious case of the U.S. hedge fund, the Argentine ship and Ghana is getting curiouser, and now it has taken a turn against national sovereignty. That's the only reasonable conclusion after a bizarre ruling this month from the International Tribunal for the Law of the Sea in Hamburg.
The tribunal—who knew it existed?—ordered the Republic of Ghana to overrule a decision of its own judiciary that had enforced a U.S. court judgment. The Hamburg court is the misbegotten child of the 1982 United Nations Convention on the Law of the Sea. Sold as a treaty to ensure the free movement of people and goods on the high seas, it was rejected by Ronald Reagan as an effort to control and redistribute the resources of the world's oceans.
The U.S. never has ratified the treaty, despite a push by President Obama, and now the solons of Hamburg have demonstrated the wisdom of that decision. While debates on the treaty have centered around the powers a country might enjoy hundreds of miles off its coast, many analysts have simply assumed that nations would still exercise control over the waters just offshore.
Now the Hamburg court has trampled local law in a case involving a ship sitting in port, and every country is now on notice that a Hamburg court is claiming authority over its internal waters.
Specifically, Hamburg ordered Ghana to release a sailing ship owned by the Argentine navy. On October 2, a subsidiary of U.S. investment fund Elliott Management persuaded a Ghanaian judge to order the seizure of the vessel. The old-fashioned schooner, used to train cadets, was on a tour of West Africa.
U.S. hedge funds don't normally seize naval ships, but in this case Elliott and the Ghanaian court are on solid ground. Elliott owns Argentine bonds on which Buenos Aires has been refusing to pay since its 2001 default. Elliott argues that a contract is a contract, and a federal court in New York agrees. Argentina had freely decided to issue its debt in U.S. capital markets and had agreed in its bond contracts to waive the sovereign immunity that would normally prevent lenders from seizing things like three-masted frigates.
To his credit, Judge Richard Adjei-Frimpong of Ghana's commercial court noted that Argentina had specifically waived its immunity when borrowing the money and that under Ghanaian law the ship could therefore be attached by creditors with a valid U.S. judgment registered in Ghana. He ordered the ship held at port until Buenos Aires starts following the orders of the U.S. court.
But in its recent ruling, which ordered Ghana to release the ship by December 22, the Hamburg court claimed that international law requires immunity for the Argentine "warship," as if Argentina never waived immunity and as if this is an actual warship. On Wednesday, Ghana released the vessel, and the ship set sail from the port of Tema for its trans-Atlantic voyage.
So here we have a case in which a small African nation admirably tried to adhere to the rule of law. Yet it was bullied by a global tribunal serving the ends of Argentina, which has brazenly violated the law in refusing to pay its debts and defying Ghana's court order. The next time the Senate moves to ratify the Law of the Sea Treaty, Ghana should be exhibit A for opponents.
Monday, December 17, 2012
Gérard Depardieu's letter to the French Prime Minister
Gérard Depardieu's letter to the French Prime Minister
Dec 16, 2012
Minable, vous avez dit << minable >>? Comme c’est minable.
Je suis né en 1948, j’ai commencé à travailler à l’âge de 14 ans comme imprimeur, comme manutentionnaire puis comme artiste dramatique. J’ai toujours payé mes taxes et impôts quel qu’en soit le taux sous tous les gouvernements en place.
À aucun moment, je n’ai failli à mes devoirs. Les films historiques auxquels j’ai participé témoignent de mon amour de la France et de son histoire.
Des personnages plus illustres que moi ont été expatriés ou ont quitté notre pays.
Je n’ai malheureusement plus rien à faire ici, mais je continuerai à aimer les Français et ce public avec lequel j’ai partagé tant d’émotions!
Je pars parce que vous considérez que le succès, la création, le talent, en fait, la différence, doivent être sanctionnés.
Je ne demande pas à être approuvé, je pourrais au moins être respecté.
Tous ceux qui ont quitté la France n’ont pas été injuriés comme je le suis.
Je n’ai pas à justifier les raisons de mon choix, qui sont nombreuses et intimes.
Je pars, après avoir payé, en 2012, 85% d’impôt sur mes revenus. Mais je conserve l’esprit de cette France qui était belle et qui, j’espère, le restera.
Je vous rends mon passeport et ma Sécurité sociale, dont je ne me suis jamais servi. Nous n’avons plus la même patrie, je suis un vrai Européen, un citoyen du monde, comme mon père me l’a toujours inculqué.
Je trouve minable l’acharnement de la justice contre mon fils Guillaume jugé par des juges qui l’ont condamné tout gosse à trois ans de prison ferme pour 2 grammes d’héroïne, quand tant d’autres échappaient à la prison pour des faits autrement plus graves.
Je ne jette pas la pierre à tous ceux qui ont du cholestérol, de l’hypertension, du diabète ou trop d’alcool ou ceux qui s’endorment sur leur scooter : je suis un des leurs, comme vos chers médias aiment tant à le répéter.
Je n’ai jamais tué personne, je ne pense pas avoir démérité, j’ai payé 145 millions d’euros d’impôts en quarante-cinq ans, je fais travailler 80 personnes dans des entreprises qui ont été créées pour eux et qui sont gérées par eux.
Je ne suis ni à plaindre ni à vanter, mais je refuse le mot "minable".
Qui êtes-vous pour me juger ainsi, je vous le demande monsieur Ayrault, Premier ministre de monsieur Hollande, je vous le demande, qui êtes-vous? Malgré mes excès, mon appétit et mon amour de la vie, je suis un être libre, Monsieur, et je vais rester poli.
Gérard Depardieu
http://www.lejdd.fr/Politique/Actualite/Gerard-Depardieu-Je-rends-mon-passeport-581254
Dec 16, 2012
Minable, vous avez dit << minable >>? Comme c’est minable.
Je suis né en 1948, j’ai commencé à travailler à l’âge de 14 ans comme imprimeur, comme manutentionnaire puis comme artiste dramatique. J’ai toujours payé mes taxes et impôts quel qu’en soit le taux sous tous les gouvernements en place.
À aucun moment, je n’ai failli à mes devoirs. Les films historiques auxquels j’ai participé témoignent de mon amour de la France et de son histoire.
Des personnages plus illustres que moi ont été expatriés ou ont quitté notre pays.
Je n’ai malheureusement plus rien à faire ici, mais je continuerai à aimer les Français et ce public avec lequel j’ai partagé tant d’émotions!
Je pars parce que vous considérez que le succès, la création, le talent, en fait, la différence, doivent être sanctionnés.
Je ne demande pas à être approuvé, je pourrais au moins être respecté.
Tous ceux qui ont quitté la France n’ont pas été injuriés comme je le suis.
Je n’ai pas à justifier les raisons de mon choix, qui sont nombreuses et intimes.
Je pars, après avoir payé, en 2012, 85% d’impôt sur mes revenus. Mais je conserve l’esprit de cette France qui était belle et qui, j’espère, le restera.
Je vous rends mon passeport et ma Sécurité sociale, dont je ne me suis jamais servi. Nous n’avons plus la même patrie, je suis un vrai Européen, un citoyen du monde, comme mon père me l’a toujours inculqué.
Je trouve minable l’acharnement de la justice contre mon fils Guillaume jugé par des juges qui l’ont condamné tout gosse à trois ans de prison ferme pour 2 grammes d’héroïne, quand tant d’autres échappaient à la prison pour des faits autrement plus graves.
Je ne jette pas la pierre à tous ceux qui ont du cholestérol, de l’hypertension, du diabète ou trop d’alcool ou ceux qui s’endorment sur leur scooter : je suis un des leurs, comme vos chers médias aiment tant à le répéter.
Je n’ai jamais tué personne, je ne pense pas avoir démérité, j’ai payé 145 millions d’euros d’impôts en quarante-cinq ans, je fais travailler 80 personnes dans des entreprises qui ont été créées pour eux et qui sont gérées par eux.
Je ne suis ni à plaindre ni à vanter, mais je refuse le mot "minable".
Qui êtes-vous pour me juger ainsi, je vous le demande monsieur Ayrault, Premier ministre de monsieur Hollande, je vous le demande, qui êtes-vous? Malgré mes excès, mon appétit et mon amour de la vie, je suis un être libre, Monsieur, et je vais rester poli.
Gérard Depardieu
http://www.lejdd.fr/Politique/Actualite/Gerard-Depardieu-Je-rends-mon-passeport-581254
Sunday, December 16, 2012
Leszek Balcerowicz on America's mistakes and the better way to heal from a financial crisis
Leszek Balcerowicz: The Anti-Bernanke. By Matthew Kaminski
Leszek Balcerowicz, the man who saved Poland's economy, on America's mistakes and the better way to heal from a financial crisis.The Wall Street Journal, December 15, 2012, on page A15
http://online.wsj.com/article/SB10001424127887323981504578179310418828782.html
Warsaw
As an economic crisis manager, Leszek Balcerowicz has few peers. When communism fell in Europe, he pioneered "shock therapy" to slay hyperinflation and build a free market. In the late 1990s, he jammed a debt ceiling into his country's constitution, handcuffing future free spenders. When he was central-bank governor from 2001 to 2007, his hard-money policies avoided a credit boom and likely bust.
Poland was the only country in the European Union to avoid recession in 2009 and has been the fastest-growing EU economy since. Mr. Balcerowicz dwells little on this achievement. He sounds too busy in "battle"—his word—against bad policy.
"Most problems are the result of bad politics," he says. "In a democracy, you have lots of pressure groups to expand the state for reasons of money, ideology, etc. Even if they are angels in the government, which is not the case, if there is not a counterbalance in the form of proponents of limited government, then there will be a shift toward more statism and ultimately into stagnation and crisis."
Looking around the world, there is no shortage of questionable policies. A series of bailouts for Greece and others has saved the euro, but who knows for how long. EU leaders closed their summit in Brussels on Friday by deferring hard decisions on entrenching fiscal discipline and pro-growth policies. Across the Atlantic, Washington looks no closer to a "fiscal cliff" deal. And the Federal Reserve on Wednesday made a fourth foray into "quantitative easing" to keep real interest rates low by buying bonds and printing money.
As a former central banker, Mr. Balcerowicz struggles to find the appropriate word for Fed Chairman Ben Bernanke's latest invention: "Unprecedented," "a complete anathema," "more uncharted waters." He says such "unconventional" measures trap economies in an unvirtuous cycle. Bankers expect lower interest rates to spur growth. When that fails, as in Japan, they have no choice but to stick with easing.
"While the benefits of non-conventional [monetary] policies are short lived, the costs grow with time," he says. "The longer you practice these sorts of policies, the more difficult it is to exit it. Japan is trapped." Anemic Japan is the prime example, but now the U.S., Britain and potentially the European Central Bank are on the same road.
If he were in Mr. Bernanke's shoes, Mr. Balcerowicz says he'd rethink the link between easy money and economic growth. Over time, he says, lower interest rates and money printing presses harm the economy—though not necessarily or primarily through higher inflation.
First, Bernanke-style policies "weaken incentives for politicians to pursue structural reforms, including fiscal reforms," he says. "They can maintain large deficits at low current rates." It indulges the preference of many Western politicians for stimulus spending. It means they don't have to grapple as seriously with difficult choices, say, on Medicare.
Another unappreciated consequence of easy money, according to Mr. Balcerowicz, is the easing of pressure on the private economy to restructure. With low interest rates, large companies "can just refinance their loans," he says. Banks are happy to go along. Adjustments are delayed, markets distorted.
By his reading, the increasingly politicized Fed has in turn warped America's political discourse. The Lehman collapse did help clean up the financial sector, but not the government. Mr. Balcerowicz marvels that federal spending is still much higher than before the crisis, which isn't the case in Europe. "The greatest neglect in the U.S. is fiscal," he says. The dollar lets the U.S. "get a lot of cheap financing to finance bad policies," which is "dangerous to the world and perhaps dangerous to the U.S."
The Fed model is spreading. Earlier this fall, the European Central Bank announced an equally unprecedented plan to buy the bonds of distressed euro-zone countries. The bank, in essence, said it was willing to print any amount of euros to save the single currency.
Mr. Balcerowicz sides with the head of Germany's Bundesbank, the sole dissenter on the ECB board to the bond-buying scheme. He says it violates EU treaties. "And second, when the Fed is printing money, it is not buying bonds of distressed states like California—it's more general, it's spreading it," he says. "The ECB is engaging in regional policy. I don't think you can justify this."
"So they know better," says Mr. Balcerowicz, about the latest fads in central banking. "Risk premiums are too high—according to them! They are above the judgments of the markets. I remember this from socialism: 'We know better!'"
Mr. Balcerowicz, who is 65, was raised in a state-planned Poland. He got a doctorate in economics, worked briefly at the Communist Party's Institute of Marxism-Leninism, and advised the Solidarity trade union before the imposition of martial law in 1981. He came to prominence in 1989 as the father of the "Balcerowicz Plan." Overnight, prices were freed, subsidies were slashed and the zloty currency was made convertible. It was harsh medicine, but the Polish economy recovered faster than more gradual reformers in the old Soviet bloc.
Shock or no, Mr. Balcerowicz remains adamant that fixes are best implemented as quickly as possible. Europe's PIGS—Portugal, Italy, Greece, Spain—moved slowly. By contrast, Mr. Balcerowicz offers the BELLs: Bulgaria, Estonia, Latvia and Lithuania.
These EU countries went through a credit boom-bust after 2009. Their economies tanked, Latvia's alone by nearly 20% that year. Denied EU bailouts, these governments were forced to adopt harsher measures than Greece. Public spending was slashed, including for government salaries. The adjustment hurt but recovery came by 2010. The BELL GDP growth curves are V-shaped. The PIGS decline was less steep, but prolonged and worse over time.
The systemic changes in the BELLs took a while to work, yet Mr. Balcerowicz says the radical approach has another, short-run benefit. He calls it the "confidence effect." When markets saw governments implement the reforms, their borrowing costs dropped fast, while the yields for the PIGS kept rising.
Greece focused on raising taxes, putting off expenditure cuts. They got it backward, says Mr. Balcerowicz. "If you reduce through reform current spending, which is too excessive, you are far more likely to be successful with fiscal consolidation than if you increase taxes, which are already too high."
He adds: "Somehow the impression for many people is that increasing taxes is correct and reducing spending is incorrect. It is ideologically loaded." This applies in Greece, most of Europe and the current debate in the U.S.
During his various stints in government in Poland, the name Balcerowicz was often a curse word. In the 1990s, he was twice deputy prime minister and led the Freedom Union party. As a pol, his cool and abrasive style won him little love and cost him votes, even as his policies worked. At the central bank, he took lots of political heat for his tight monetary policy and wasn't asked to stay on after his term ended in 2007.
Mr. Balcerowicz admits he was an easy scapegoat. "People tend to personalize reforms. I don't mind. I take responsibility for the reforms I launched." He says he "understands politicians when they give in [on reform], but I do not accept it." It's up to the proponents of the free market to fight for their ideas and make politicians aware of the electoral cost of not reforming.
On bailouts, Mr. Balcerowicz strikes an agnostic note. They can mitigate a crisis—as long as they don't reduce the pressure to reform. The BELL vs. PIGS comparison suggests the bailouts have slowed reform, but he notes recent movement in southern Europe to deregulate labor markets, privatize and cut spending—in other words, serious steps to spur growth.
"Once the euro has been created," Mr. Balcerowicz says, "it's worth keeping it." The single currency is no different than the gold standard, "which worked pretty well," he says. In both cases, member countries have to keep their budget deficits in check and labor markets flexible to stay competitive. Which makes him cautiously optimistic on the euro.
"It's important to remember that six, eight, 10 years ago Germany was like Italy, and it reformed," he says. Before Berlin pushed through an overhaul of the welfare state, Germany was called the "sick man of Europe." "There are no European solutions for the Italians' problem. But there are Italian solutions. Not bailouts, but better policies."
Why do some countries change for the better in a crisis and others don't? Mr. Balcerowicz puts the "popular interpretation of the root causes" of the crisis high on the list.
"There is a lot of intellectual confusion," he says. "For example, the financial crisis has happened in the financial sector. Therefore the reason for the crisis must be something in the financial sector. Sounds logical, but it's not. It's like saying the reason you sneeze through your nose is your nose."
The markets didn't "fail" but were distorted by bad policies. He mentions "too big to fail," the Fed's easy money, Fannie Mae FNMA 0.00% and the housing boom. Those are the hard explanations. "Many people like cheap moralizing," he says. "What a pleasant feeling to condemn greed. It's popular."
"Generally in the West, intellectuals like to blame the markets," he says. "There is a widespread belief that crises occur in capitalism mostly. The word crisis is associated with the word capitalism. While if you look in a comparative way, you see that the largest economic and also human catastrophes happen in non-market systems, when there's a heavy concentration of political power—Stalin, Mao, the Khmer Rouge, many other cases."
Going back to the 19th century, industrializing economies recovered best after a crisis with no or limited intervention. Yet Keynesians continue to insist that only the state can compensate for the flaws of the market, he says.
"This idea that markets tend to fall into self-perpetuating crises and only wise government can extract the country out of this crisis implicitly assumes that you have two kinds of people. Normal people who are operating in the markets, and better people who work for the state. They deny human nature."
Gathering the essays for his new collection, "Discovering Freedom," Mr. Balcerowicz realized that "you don't need to read modern economists" to understand what's happening today. Hume, Smith, Hayek and Tocqueville are all there. He loves Madison's "angels" quote: "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."
This Polish academic sounds like he might not feel out of place at a U.S. tea party rally. He takes to the idea.
"Their essence is very good. Liberal media try to demonize them, but their instincts are good. Limited government. This is classic. This is James Madison. This is ultra-American! Absolutely."
Mr. Kaminski is a member of the Journal's editorial board.
Leszek Balcerowicz, the man who saved Poland's economy, on America's mistakes and the better way to heal from a financial crisis.The Wall Street Journal, December 15, 2012, on page A15
http://online.wsj.com/article/SB10001424127887323981504578179310418828782.html
Warsaw
As an economic crisis manager, Leszek Balcerowicz has few peers. When communism fell in Europe, he pioneered "shock therapy" to slay hyperinflation and build a free market. In the late 1990s, he jammed a debt ceiling into his country's constitution, handcuffing future free spenders. When he was central-bank governor from 2001 to 2007, his hard-money policies avoided a credit boom and likely bust.
Poland was the only country in the European Union to avoid recession in 2009 and has been the fastest-growing EU economy since. Mr. Balcerowicz dwells little on this achievement. He sounds too busy in "battle"—his word—against bad policy.
"Most problems are the result of bad politics," he says. "In a democracy, you have lots of pressure groups to expand the state for reasons of money, ideology, etc. Even if they are angels in the government, which is not the case, if there is not a counterbalance in the form of proponents of limited government, then there will be a shift toward more statism and ultimately into stagnation and crisis."
Looking around the world, there is no shortage of questionable policies. A series of bailouts for Greece and others has saved the euro, but who knows for how long. EU leaders closed their summit in Brussels on Friday by deferring hard decisions on entrenching fiscal discipline and pro-growth policies. Across the Atlantic, Washington looks no closer to a "fiscal cliff" deal. And the Federal Reserve on Wednesday made a fourth foray into "quantitative easing" to keep real interest rates low by buying bonds and printing money.
As a former central banker, Mr. Balcerowicz struggles to find the appropriate word for Fed Chairman Ben Bernanke's latest invention: "Unprecedented," "a complete anathema," "more uncharted waters." He says such "unconventional" measures trap economies in an unvirtuous cycle. Bankers expect lower interest rates to spur growth. When that fails, as in Japan, they have no choice but to stick with easing.
"While the benefits of non-conventional [monetary] policies are short lived, the costs grow with time," he says. "The longer you practice these sorts of policies, the more difficult it is to exit it. Japan is trapped." Anemic Japan is the prime example, but now the U.S., Britain and potentially the European Central Bank are on the same road.
If he were in Mr. Bernanke's shoes, Mr. Balcerowicz says he'd rethink the link between easy money and economic growth. Over time, he says, lower interest rates and money printing presses harm the economy—though not necessarily or primarily through higher inflation.
First, Bernanke-style policies "weaken incentives for politicians to pursue structural reforms, including fiscal reforms," he says. "They can maintain large deficits at low current rates." It indulges the preference of many Western politicians for stimulus spending. It means they don't have to grapple as seriously with difficult choices, say, on Medicare.
Another unappreciated consequence of easy money, according to Mr. Balcerowicz, is the easing of pressure on the private economy to restructure. With low interest rates, large companies "can just refinance their loans," he says. Banks are happy to go along. Adjustments are delayed, markets distorted.
By his reading, the increasingly politicized Fed has in turn warped America's political discourse. The Lehman collapse did help clean up the financial sector, but not the government. Mr. Balcerowicz marvels that federal spending is still much higher than before the crisis, which isn't the case in Europe. "The greatest neglect in the U.S. is fiscal," he says. The dollar lets the U.S. "get a lot of cheap financing to finance bad policies," which is "dangerous to the world and perhaps dangerous to the U.S."
The Fed model is spreading. Earlier this fall, the European Central Bank announced an equally unprecedented plan to buy the bonds of distressed euro-zone countries. The bank, in essence, said it was willing to print any amount of euros to save the single currency.
Mr. Balcerowicz sides with the head of Germany's Bundesbank, the sole dissenter on the ECB board to the bond-buying scheme. He says it violates EU treaties. "And second, when the Fed is printing money, it is not buying bonds of distressed states like California—it's more general, it's spreading it," he says. "The ECB is engaging in regional policy. I don't think you can justify this."
"So they know better," says Mr. Balcerowicz, about the latest fads in central banking. "Risk premiums are too high—according to them! They are above the judgments of the markets. I remember this from socialism: 'We know better!'"
Mr. Balcerowicz, who is 65, was raised in a state-planned Poland. He got a doctorate in economics, worked briefly at the Communist Party's Institute of Marxism-Leninism, and advised the Solidarity trade union before the imposition of martial law in 1981. He came to prominence in 1989 as the father of the "Balcerowicz Plan." Overnight, prices were freed, subsidies were slashed and the zloty currency was made convertible. It was harsh medicine, but the Polish economy recovered faster than more gradual reformers in the old Soviet bloc.
Shock or no, Mr. Balcerowicz remains adamant that fixes are best implemented as quickly as possible. Europe's PIGS—Portugal, Italy, Greece, Spain—moved slowly. By contrast, Mr. Balcerowicz offers the BELLs: Bulgaria, Estonia, Latvia and Lithuania.
These EU countries went through a credit boom-bust after 2009. Their economies tanked, Latvia's alone by nearly 20% that year. Denied EU bailouts, these governments were forced to adopt harsher measures than Greece. Public spending was slashed, including for government salaries. The adjustment hurt but recovery came by 2010. The BELL GDP growth curves are V-shaped. The PIGS decline was less steep, but prolonged and worse over time.
The systemic changes in the BELLs took a while to work, yet Mr. Balcerowicz says the radical approach has another, short-run benefit. He calls it the "confidence effect." When markets saw governments implement the reforms, their borrowing costs dropped fast, while the yields for the PIGS kept rising.
Greece focused on raising taxes, putting off expenditure cuts. They got it backward, says Mr. Balcerowicz. "If you reduce through reform current spending, which is too excessive, you are far more likely to be successful with fiscal consolidation than if you increase taxes, which are already too high."
He adds: "Somehow the impression for many people is that increasing taxes is correct and reducing spending is incorrect. It is ideologically loaded." This applies in Greece, most of Europe and the current debate in the U.S.
During his various stints in government in Poland, the name Balcerowicz was often a curse word. In the 1990s, he was twice deputy prime minister and led the Freedom Union party. As a pol, his cool and abrasive style won him little love and cost him votes, even as his policies worked. At the central bank, he took lots of political heat for his tight monetary policy and wasn't asked to stay on after his term ended in 2007.
Mr. Balcerowicz admits he was an easy scapegoat. "People tend to personalize reforms. I don't mind. I take responsibility for the reforms I launched." He says he "understands politicians when they give in [on reform], but I do not accept it." It's up to the proponents of the free market to fight for their ideas and make politicians aware of the electoral cost of not reforming.
On bailouts, Mr. Balcerowicz strikes an agnostic note. They can mitigate a crisis—as long as they don't reduce the pressure to reform. The BELL vs. PIGS comparison suggests the bailouts have slowed reform, but he notes recent movement in southern Europe to deregulate labor markets, privatize and cut spending—in other words, serious steps to spur growth.
"Once the euro has been created," Mr. Balcerowicz says, "it's worth keeping it." The single currency is no different than the gold standard, "which worked pretty well," he says. In both cases, member countries have to keep their budget deficits in check and labor markets flexible to stay competitive. Which makes him cautiously optimistic on the euro.
"It's important to remember that six, eight, 10 years ago Germany was like Italy, and it reformed," he says. Before Berlin pushed through an overhaul of the welfare state, Germany was called the "sick man of Europe." "There are no European solutions for the Italians' problem. But there are Italian solutions. Not bailouts, but better policies."
Why do some countries change for the better in a crisis and others don't? Mr. Balcerowicz puts the "popular interpretation of the root causes" of the crisis high on the list.
"There is a lot of intellectual confusion," he says. "For example, the financial crisis has happened in the financial sector. Therefore the reason for the crisis must be something in the financial sector. Sounds logical, but it's not. It's like saying the reason you sneeze through your nose is your nose."
The markets didn't "fail" but were distorted by bad policies. He mentions "too big to fail," the Fed's easy money, Fannie Mae FNMA 0.00% and the housing boom. Those are the hard explanations. "Many people like cheap moralizing," he says. "What a pleasant feeling to condemn greed. It's popular."
"Generally in the West, intellectuals like to blame the markets," he says. "There is a widespread belief that crises occur in capitalism mostly. The word crisis is associated with the word capitalism. While if you look in a comparative way, you see that the largest economic and also human catastrophes happen in non-market systems, when there's a heavy concentration of political power—Stalin, Mao, the Khmer Rouge, many other cases."
Going back to the 19th century, industrializing economies recovered best after a crisis with no or limited intervention. Yet Keynesians continue to insist that only the state can compensate for the flaws of the market, he says.
"This idea that markets tend to fall into self-perpetuating crises and only wise government can extract the country out of this crisis implicitly assumes that you have two kinds of people. Normal people who are operating in the markets, and better people who work for the state. They deny human nature."
Gathering the essays for his new collection, "Discovering Freedom," Mr. Balcerowicz realized that "you don't need to read modern economists" to understand what's happening today. Hume, Smith, Hayek and Tocqueville are all there. He loves Madison's "angels" quote: "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."
This Polish academic sounds like he might not feel out of place at a U.S. tea party rally. He takes to the idea.
"Their essence is very good. Liberal media try to demonize them, but their instincts are good. Limited government. This is classic. This is James Madison. This is ultra-American! Absolutely."
Mr. Kaminski is a member of the Journal's editorial board.
Sunday, December 9, 2012
Mobilizing Resources, Building Coalitions: Local Power in Indonesia
Mobilizing Resources, Building Coalitions: Local Power in Indonesia, by Ryan Tans
Honolulu: East-West Center, 2012
Policy Studies, No. 64
ISBN: 978-0-86638-220-5
http://www.eastwestcenter.org/publications/mobilizing-resources-building-coalitions-local-power-in-indonesia
What have been the local political consequences of Indonesia's decentralization and electoral reforms? Some recent scholarship has emphasized continuity with Suharto's New Order, arguing that under the new rules, old elites have used money and intimidation to capture elected office. Studies detail the widespread practice of "money politics," in which candidates exchange patronage for support from voters and parties. Yet significant variation characterizes Indonesia's local politics, which suggests the need for an approach that differentiates contrasting power arrangements.
This study of three districts in North Sumatra province compares local politicians according to their institutional resource bases and coalitional strategies. Even if all practice money politics, they form different coalition types that depend on diverse institutions for political resources. The three ideal types of coalitions are political mafias, party machines, and mobilizing coalitions. Political mafias have a resource base limited to local state institutions and businesses; party machines bridge local and supra-local institutions; and mobilizing coalitions incorporate social organizations and groups of voters. Due to contrasting resource bases, the coalitions have different strategic option "menus," and they may experiment with various political tactics.
The framework developed here plausibly applies in other Indonesian districts to the extent that similar resource bases--namely local state institutions, party networks, and strong social and business organizations--are available to elites in other places.
About the Author: Ryan Tans is a doctoral student in political science at Emory University. Previously, he received a Master of Arts in Southeast Asian Studies from the National University of Singapore.
Honolulu: East-West Center, 2012
Policy Studies, No. 64
ISBN: 978-0-86638-220-5
http://www.eastwestcenter.org/publications/mobilizing-resources-building-coalitions-local-power-in-indonesia
What have been the local political consequences of Indonesia's decentralization and electoral reforms? Some recent scholarship has emphasized continuity with Suharto's New Order, arguing that under the new rules, old elites have used money and intimidation to capture elected office. Studies detail the widespread practice of "money politics," in which candidates exchange patronage for support from voters and parties. Yet significant variation characterizes Indonesia's local politics, which suggests the need for an approach that differentiates contrasting power arrangements.
This study of three districts in North Sumatra province compares local politicians according to their institutional resource bases and coalitional strategies. Even if all practice money politics, they form different coalition types that depend on diverse institutions for political resources. The three ideal types of coalitions are political mafias, party machines, and mobilizing coalitions. Political mafias have a resource base limited to local state institutions and businesses; party machines bridge local and supra-local institutions; and mobilizing coalitions incorporate social organizations and groups of voters. Due to contrasting resource bases, the coalitions have different strategic option "menus," and they may experiment with various political tactics.
The framework developed here plausibly applies in other Indonesian districts to the extent that similar resource bases--namely local state institutions, party networks, and strong social and business organizations--are available to elites in other places.
About the Author: Ryan Tans is a doctoral student in political science at Emory University. Previously, he received a Master of Arts in Southeast Asian Studies from the National University of Singapore.
Thursday, December 6, 2012
Remarks of Under Secretary for Domestic Finance Mary Miller at the Office of Financial Research (OFR) and Financial Stability Oversight Council (FSOC) Conference on “Assessing Financial Intermediation: Measurement and Analysis”
Remarks of Under Secretary for Domestic Finance Mary Miller at the Office of Financial Research (OFR) and Financial Stability Oversight Council (FSOC) Conference on "Assessing Financial Intermediation: Measurement and Analysis"
Dec 6, 2012
http://www.treasury.gov/press-center/press-releases/Pages/tg1789.aspx
As Prepared for Delivery
WASHINGTON – Good morning and thank you to the OFR and the Council for the opportunity to join you here today.
It is a pleasure for me to note that this is the second annual conference hosted by the OFR and the Council. These two organizations have come a long way since their creation in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Conferences like this one are a key way that the OFR and the Council are leveraging their expertise by calling on experts from academia, industry, and elsewhere in government to bring diverse perspectives on questions related to system-wide financial stability.
The Dodd-Frank Act designed the OFR to act as a catalyst to foster a broad examination of questions related to financial stability. One of the OFR’s goals involves cultivating a virtual network of academics, researchers, and others to enrich and expand the OFR’s reach in fulfilling its mission.
The Council and the OFR work together to produce important and timely research and analysis on a range of issues—for example, on the risks presented by money market funds. In addition, the OFR plays a central role in the international initiative to implement a global data standard to identify uniquely the entities in financial transactions. This legal entity identifier, or LEI, is essential for governments and the financial industry to assess exposures and interconnections within the vast network of financial market participants. And both the Council and the OFR have published detailed annual reports to engage the public with their work.
Today’s conference provides an opportunity to build on those accomplishments and to continue a discussion on the best ways to promote financial stability.
The financial services marketplace is constantly changing, as market participants seek new and better ways to do business, as technology and techniques evolve, and as government adjusts the regulatory and supervisory framework.
This process of evolution creates exciting opportunities, but it also represents a moving target of possible risks that can grow into potential threats to financial stability. That is where the Council and the OFR come in and that is where this conference will turn its focus.
Before the Dodd-Frank Act, the United States did not have one single agency tasked with looking at systemic risk across the financial system and considering how to respond to it – what we call a macroprudential approach. That shortcoming resulted in a critical blind spot to risks building in the financial system and, once the crisis began, blocked a clear view of what was happening as the nation plummeted into the financial crisis.
The Council and the OFR are designed to correct that lack of comprehensive vision – to provide visibility across the financial services marketplace and across the areas of the compartmentalized responsibility of federal and state financial regulators. It also allows us to inspect the inner workings of the financial system for an understanding of the interconnections that can transmit and compound systemic risks.
As 2012 draws to a close and Dodd-Frank implementation continues, our resolve is stronger than ever to resist any attempt to roll back these reforms and return our country to the precarious environment of misplaced incentives and inadequate controls that got us into such serious trouble.
We must also be mindful that, as the economy continues to recover, we must remain vigilant about detecting emerging risks and taking appropriate action.
In my experience, you are never handed the same script for a financial crisis or shock. The next financial crisis is unlikely to look like the last. Innovative thinking is essential as we recognize that the past approaches for assessing and managing system-wide risks are inadequate for facing the challenges of today and tomorrow. New ideas must be applied to these problems and government cannot generate all of the good new ideas on its own. There must be a partnership with academics, industry, and others—and conferences like this one are incubators for new ideas to emerge and begin to develop.
I would like to thank all of the conference participants for contributing to this effort and for helping to expand our collective knowledge of financial stability. Your time and energies are providing a valuable service to our country, its economy, and its citizens.
###
Dec 6, 2012
http://www.treasury.gov/press-center/press-releases/Pages/tg1789.aspx
As Prepared for Delivery
WASHINGTON – Good morning and thank you to the OFR and the Council for the opportunity to join you here today.
It is a pleasure for me to note that this is the second annual conference hosted by the OFR and the Council. These two organizations have come a long way since their creation in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Conferences like this one are a key way that the OFR and the Council are leveraging their expertise by calling on experts from academia, industry, and elsewhere in government to bring diverse perspectives on questions related to system-wide financial stability.
The Dodd-Frank Act designed the OFR to act as a catalyst to foster a broad examination of questions related to financial stability. One of the OFR’s goals involves cultivating a virtual network of academics, researchers, and others to enrich and expand the OFR’s reach in fulfilling its mission.
The Council and the OFR work together to produce important and timely research and analysis on a range of issues—for example, on the risks presented by money market funds. In addition, the OFR plays a central role in the international initiative to implement a global data standard to identify uniquely the entities in financial transactions. This legal entity identifier, or LEI, is essential for governments and the financial industry to assess exposures and interconnections within the vast network of financial market participants. And both the Council and the OFR have published detailed annual reports to engage the public with their work.
Today’s conference provides an opportunity to build on those accomplishments and to continue a discussion on the best ways to promote financial stability.
The financial services marketplace is constantly changing, as market participants seek new and better ways to do business, as technology and techniques evolve, and as government adjusts the regulatory and supervisory framework.
This process of evolution creates exciting opportunities, but it also represents a moving target of possible risks that can grow into potential threats to financial stability. That is where the Council and the OFR come in and that is where this conference will turn its focus.
Before the Dodd-Frank Act, the United States did not have one single agency tasked with looking at systemic risk across the financial system and considering how to respond to it – what we call a macroprudential approach. That shortcoming resulted in a critical blind spot to risks building in the financial system and, once the crisis began, blocked a clear view of what was happening as the nation plummeted into the financial crisis.
The Council and the OFR are designed to correct that lack of comprehensive vision – to provide visibility across the financial services marketplace and across the areas of the compartmentalized responsibility of federal and state financial regulators. It also allows us to inspect the inner workings of the financial system for an understanding of the interconnections that can transmit and compound systemic risks.
As 2012 draws to a close and Dodd-Frank implementation continues, our resolve is stronger than ever to resist any attempt to roll back these reforms and return our country to the precarious environment of misplaced incentives and inadequate controls that got us into such serious trouble.
We must also be mindful that, as the economy continues to recover, we must remain vigilant about detecting emerging risks and taking appropriate action.
In my experience, you are never handed the same script for a financial crisis or shock. The next financial crisis is unlikely to look like the last. Innovative thinking is essential as we recognize that the past approaches for assessing and managing system-wide risks are inadequate for facing the challenges of today and tomorrow. New ideas must be applied to these problems and government cannot generate all of the good new ideas on its own. There must be a partnership with academics, industry, and others—and conferences like this one are incubators for new ideas to emerge and begin to develop.
I would like to thank all of the conference participants for contributing to this effort and for helping to expand our collective knowledge of financial stability. Your time and energies are providing a valuable service to our country, its economy, and its citizens.
###
Sunday, December 2, 2012
How dare Fannie and Freddie try to charge for their risks?
Senators for Housing Busts. WSJ Editorial
How dare Fannie and Freddie try to charge for their risks.The Wall Street Journal, December 1, 2012, on page A14
http://online.wsj.com/article/SB10001424127887324352004578139543792750584.html
For proof that politicians have learned nothing from the Federal Housing Administration's insolvency, look no further than a November 19 Senate letter to Edward DeMarco of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae FNMA 0.00% and Freddie Mac FMCC 0.00% . Mr. DeMarco wants to let the toxic mortgage twins charge higher fees to cover their risks. Oh, the horror.
At issue is a little-noticed September FHFA proposal to discriminate between states with efficient foreclosure practices and those where judicial and regulatory burdens prolong the process. Specifically in Connecticut, Florida, Illinois, New Jersey and New York, foreclosures can take years.
Starting next year, Fannie and Freddie would charge borrowers in those states a one-time upfront fee of between 0.15% and 0.30%, which on a 30-year, $200,000 fixed-rate mortgage equates roughly to "an increase of approximately $3.50 to $7.00" on a monthly mortgage payment, according to FHFA.
The agency explained that the fees Fan and Fred charged before the housing crisis "proved inadequate to compensate for the level of actual credit losses" the duo sustained, which "contributed directly to substantial financial support being provided to the two companies by taxpayers." Total taxpayer cost so far: $138 billion. The change would relieve borrowers in low-cost states from subsidizing those in high-cost states. FHFA would lower or eliminate the levy if states sped up their foreclosure processes, which would also speed up the housing recovery.
Cue the outrage from Capitol Hill. "As you know, certain state and local governments have put in place increased regulatory and judicial scrutiny of foreclosures to protect consumers from mortgage loan servicing and foreclosure abuses," Democratic Senators from New York, New Jersey, Connecticut and Florida, plus Independent Joe Lieberman, declared. They want the higher fees withdrawn.
Translation: The Senators are embarrassed that FHFA is exposing the cost of their antiforeclosure crusade and are trying to pin the blame on bankers. Recall that the "robo-signing" scandal never unearthed a wave of current borrowers wrongly ejected from their homes. The politicians want Fan and Fred to keep churning out below-market-rate mortgage insurance, regardless of the eventual cost to taxpayers.
This is the kind of thinking that led Fan and Fred to supercharge the subprime lending boom and pushed the FHA into its money-losing expansion. As long as politicians run the housing markets, they will continue promoting such behavior. Kudos to Mr. DeMarco, a career civil servant, for trying to impose a more rational policy, but don't be surprised if the Obama Administration tries to replace him in a second term.
How dare Fannie and Freddie try to charge for their risks.The Wall Street Journal, December 1, 2012, on page A14
http://online.wsj.com/article/SB10001424127887324352004578139543792750584.html
For proof that politicians have learned nothing from the Federal Housing Administration's insolvency, look no further than a November 19 Senate letter to Edward DeMarco of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae FNMA 0.00% and Freddie Mac FMCC 0.00% . Mr. DeMarco wants to let the toxic mortgage twins charge higher fees to cover their risks. Oh, the horror.
At issue is a little-noticed September FHFA proposal to discriminate between states with efficient foreclosure practices and those where judicial and regulatory burdens prolong the process. Specifically in Connecticut, Florida, Illinois, New Jersey and New York, foreclosures can take years.
Starting next year, Fannie and Freddie would charge borrowers in those states a one-time upfront fee of between 0.15% and 0.30%, which on a 30-year, $200,000 fixed-rate mortgage equates roughly to "an increase of approximately $3.50 to $7.00" on a monthly mortgage payment, according to FHFA.
The agency explained that the fees Fan and Fred charged before the housing crisis "proved inadequate to compensate for the level of actual credit losses" the duo sustained, which "contributed directly to substantial financial support being provided to the two companies by taxpayers." Total taxpayer cost so far: $138 billion. The change would relieve borrowers in low-cost states from subsidizing those in high-cost states. FHFA would lower or eliminate the levy if states sped up their foreclosure processes, which would also speed up the housing recovery.
Cue the outrage from Capitol Hill. "As you know, certain state and local governments have put in place increased regulatory and judicial scrutiny of foreclosures to protect consumers from mortgage loan servicing and foreclosure abuses," Democratic Senators from New York, New Jersey, Connecticut and Florida, plus Independent Joe Lieberman, declared. They want the higher fees withdrawn.
Translation: The Senators are embarrassed that FHFA is exposing the cost of their antiforeclosure crusade and are trying to pin the blame on bankers. Recall that the "robo-signing" scandal never unearthed a wave of current borrowers wrongly ejected from their homes. The politicians want Fan and Fred to keep churning out below-market-rate mortgage insurance, regardless of the eventual cost to taxpayers.
This is the kind of thinking that led Fan and Fred to supercharge the subprime lending boom and pushed the FHA into its money-losing expansion. As long as politicians run the housing markets, they will continue promoting such behavior. Kudos to Mr. DeMarco, a career civil servant, for trying to impose a more rational policy, but don't be surprised if the Obama Administration tries to replace him in a second term.
Friday, September 28, 2012
Current economic policies: pro and con
Today’s Economic Data. By Alan Krueger
The White House, September 27, 2012 11:57 AM EDT
http://www.whitehouse.gov/blog/2012/09/27/today-s-economic-data
More than the usual amount of economic statistics were released this morning. As a whole, today’s economic news shows that while we are still fighting back from the worst economic crisis since the Great Depression, we are making progress. We lost more than 8 million jobs and GDP contracted by almost 5 percent as a result of the Great Recession. We have more work to do, but incorporating today’s preliminary benchmark revision to the employment figures released by the Bureau of Labor Statistics with their earlier data indicates that the economy has added nearly 5.1 million private sector jobs, on net, over the past 30 months. BLS announced that total employment likely grew by 386,000 more jobs than previously announced during the 12 months from March 2011 to March 2012, and by 453,000 more private sector jobs in that same time period. In the past decade, the absolute difference between the preliminary and final benchmark revision has averaged 37,000 jobs.
We also saw revised data released today showing that real GDP grew in the second quarter of 2012 by 1.3 percent at an annual rate. Real GDP growth in the second quarter was revised down due, in part, to a downward revision to agriculture inventories as a result of the devastating drought our nation faced this summer. The Obama Administration continues to take all available steps to mitigate the impacts of the drought, and has called on Congress to pass a farm bill that would spur growth and provide rural Americans with the certainty they deserve. We also learned today that the advance report of durable goods orders declined in August, largely as a result of a decline in orders for transportation equipment. Excluding the volatile transportation category, durable goods orders fell by 1.6 percent.
Today’s news shows that we must do more to strengthen our economy and promote job creation. Over a year ago, President Obama proposed the American Jobs Act – a plan that independent economists have said would create up to 2 million jobs. The President will continue to push policies that will continue this progress we have made, including incentives to strengthen the American manufacturing industry, investments in our nation’s infrastructure, and the extension of the tax cuts for 98 percent of Americans and 97 percent of small businesses.
While we are still rebuilding our economy and working to recover from the worst crisis since the Great Depression, we are making progress and the last thing we should do is return to the economic policies that failed us in the past. The revisions announced in today’s reports are a reminder that economic data are subject to large revisions. As a whole the pattern of revisions suggest that the recession that began at the end of 2007 was deeper than initially reported, and the jobs recovery over the last 2.5 years has been a bit stronger than initially reported, although much work remains to be done to return to full employment.
-----------------------------------------------------
As Good As It Gets? WSJ Editorial
Growth of 1.7% isn't what Team Obama promised four years ago.The Wall Street Journal, September 28, 2012, page A16
http://online.wsj.com/article/SB10000872396390444813104578016873186217796.html
Excerpts:
Bob Schieffer: "The fact is, unemployment is up. It is higher than when [President Obama] came to office, the economy is still in the dump. Some people say that is reason enough to make a change."
Bill Clinton: "It is if you believe that we could have been fully healed in four years. I don't know a single serious economist who believes that as much damage as we had could have been healed."
CBS's "Face the Nation," September 23, 2012
---
[Growth Gap: http://si.wsj.net/public/resources/images/ED-AP847A_1obam_D_20120927170003.jpg]
Well, let's see. We can think of several serious people who said we could heal the economy in four years. There's Joe Biden, Nancy Pelosi, Harry Reid, Christina Romer, Jared Bernstein, Mark Zandi, and, most importantly, President Obama himself.
Mr. Obama told Americans in 2009 that if he did not turn around the economy in three years his Presidency would be "a one-term proposition." Joe Biden said three years ago that the $830 billion economic stimulus was working beyond his "wildest dreams" and he famously promised several months after the Obama stimulus was enacted that Americans would enjoy a "summer of recovery." That was more than three years ago.
In early 2009 soon-to-be White House economists Ms. Romer and Mr. Bernstein promised Congress that the stimulus would hold the unemployment rate below 7% and that by now it would be 5.6%. Instead the rate is 8.1%. The latest Census Bureau report says there are nearly seven million fewer full-time, year-round workers today than in 2007. The labor participation rate is the lowest since 1981.
So it has gone with nearly every prediction the President has made about where the economy would be today. Mr. Obama promised that the deficit would be cut in half in four years, but the fiscal 2012 deficit (estimated to be above $1 trillion) will be twice the 2008 deficit ($458 billion).
Mr. Obama said that his health-care plan would "cut the cost of a typical family's premium by up to $2,500 a year," but premiums for employer-sponsored family coverage have gone up $2,370 since 2009, according to the Kaiser Family Foundation.
He said that the linchpin for a growing economy would be renewable energy investment, and he promised to "create five million new jobs in solar, wind, geothermal" energy. Mr. Obama did invest some $9 billion in green energy, but his job estimate was off by at least a factor of 10 and today many solar and wind industry firms are fighting bankruptcy. The growth in domestic U.S. energy production that he now takes credit for has come almost entirely from the fossil fuels his Administration has done so much to obstruct.
There's nothing unusual about candidates making grandiose promises that don't come true. And it's a White House tradition to blame one's predecessor when things don't get better. (Usually these Presidents end up one-termers.)
The bad faith wasn't then. It's now. Mr. Obama really believed that government spending would unleash a robust recovery in employment and housing—an "economy built to last." Now that this hasn't happened and with the Congressional Budget Office predicting a possible recession for 2013, Team Obama claims these woeful results were the best that could have been expected.
The problem with this line is that every President who has inherited a recession in modern times has done better. (See nearby table.) Under Mr. Obama, measured on the basis of jobs, GDP growth and incomes, this has been by far the meekest recovery from the past 10 recessions.
When George W. Bush was elected, he inherited a mild recession from Mr. Clinton amid the bursting of the dot-com bubble, some $7 trillion of wealth eviscerated. Nine months later came the 9/11 terrorist attacks. Yet by 2003 the economy was growing by more than 3% and eight million jobs were created over the next four years.
The Administration and its acolytes claim that the nature of the 2008 financial collapse was different from past recessions, and that it can take up to a decade to restore growth after such a financial crisis. Economist Michael Bordo [http://online.wsj.com/article/SB10000872396390444506004577613122591922992.html] rebuts that claim with historical economic evidence nearby.
In reality, the biggest difference between this recovery and others hasn't been the nature of the crisis, but the nature of the policy prescriptions. Mr. Obama's chief anti-recession idea was a near trillion-dollar leap of faith in the Keynesian "multiplier" effect of government spending. It was the same approach that didn't work in the 1930s, didn't work in the 1970s, didn't work in 2008, and didn't work in such other nations as Japan. It didn't work again in 2009.
Ronald Reagan also inherited an economy loaded with problems. The stock market had been flat for 12 years, inflation rates neared 14%, and mortgage rates almost 20%. The recession he endured in 1981-82 to cure inflation sent unemployment to 10.8%, higher than Mr. Obama's peak of 10%. But the business and jobs recovery by early 1983 was rapid and lasted seven years.
Reagan used tax-rate cuts, disinflationary monetary policy and deregulation to reignite growth—more or less the opposite of the Obama policy mix. Liberals tried to explain the Reagan boom that they said would never happen by arguing that there was nothing unusual about the growth spurt after such a deep recession. So why didn't that happen this time?
When campaigning to be President in 1960, John F. Kennedy denounced slow growth under Eisenhower and Nixon and said "We can do bettah." Growth was 7.2% in 1959 and 2.5% in 1960. Since the recession ended under Mr. Obama, growth has been 2.4% in 2010, 1.8% in 2011 and, after Thursday's downward revision for the second quarter, 1.7% in 2012.
[...]
The White House, September 27, 2012 11:57 AM EDT
http://www.whitehouse.gov/blog/2012/09/27/today-s-economic-data
More than the usual amount of economic statistics were released this morning. As a whole, today’s economic news shows that while we are still fighting back from the worst economic crisis since the Great Depression, we are making progress. We lost more than 8 million jobs and GDP contracted by almost 5 percent as a result of the Great Recession. We have more work to do, but incorporating today’s preliminary benchmark revision to the employment figures released by the Bureau of Labor Statistics with their earlier data indicates that the economy has added nearly 5.1 million private sector jobs, on net, over the past 30 months. BLS announced that total employment likely grew by 386,000 more jobs than previously announced during the 12 months from March 2011 to March 2012, and by 453,000 more private sector jobs in that same time period. In the past decade, the absolute difference between the preliminary and final benchmark revision has averaged 37,000 jobs.
We also saw revised data released today showing that real GDP grew in the second quarter of 2012 by 1.3 percent at an annual rate. Real GDP growth in the second quarter was revised down due, in part, to a downward revision to agriculture inventories as a result of the devastating drought our nation faced this summer. The Obama Administration continues to take all available steps to mitigate the impacts of the drought, and has called on Congress to pass a farm bill that would spur growth and provide rural Americans with the certainty they deserve. We also learned today that the advance report of durable goods orders declined in August, largely as a result of a decline in orders for transportation equipment. Excluding the volatile transportation category, durable goods orders fell by 1.6 percent.
Today’s news shows that we must do more to strengthen our economy and promote job creation. Over a year ago, President Obama proposed the American Jobs Act – a plan that independent economists have said would create up to 2 million jobs. The President will continue to push policies that will continue this progress we have made, including incentives to strengthen the American manufacturing industry, investments in our nation’s infrastructure, and the extension of the tax cuts for 98 percent of Americans and 97 percent of small businesses.
While we are still rebuilding our economy and working to recover from the worst crisis since the Great Depression, we are making progress and the last thing we should do is return to the economic policies that failed us in the past. The revisions announced in today’s reports are a reminder that economic data are subject to large revisions. As a whole the pattern of revisions suggest that the recession that began at the end of 2007 was deeper than initially reported, and the jobs recovery over the last 2.5 years has been a bit stronger than initially reported, although much work remains to be done to return to full employment.
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As Good As It Gets? WSJ Editorial
Growth of 1.7% isn't what Team Obama promised four years ago.The Wall Street Journal, September 28, 2012, page A16
http://online.wsj.com/article/SB10000872396390444813104578016873186217796.html
Excerpts:
Bob Schieffer: "The fact is, unemployment is up. It is higher than when [President Obama] came to office, the economy is still in the dump. Some people say that is reason enough to make a change."
Bill Clinton: "It is if you believe that we could have been fully healed in four years. I don't know a single serious economist who believes that as much damage as we had could have been healed."
CBS's "Face the Nation," September 23, 2012
---
[Growth Gap: http://si.wsj.net/public/resources/images/ED-AP847A_1obam_D_20120927170003.jpg]
Well, let's see. We can think of several serious people who said we could heal the economy in four years. There's Joe Biden, Nancy Pelosi, Harry Reid, Christina Romer, Jared Bernstein, Mark Zandi, and, most importantly, President Obama himself.
Mr. Obama told Americans in 2009 that if he did not turn around the economy in three years his Presidency would be "a one-term proposition." Joe Biden said three years ago that the $830 billion economic stimulus was working beyond his "wildest dreams" and he famously promised several months after the Obama stimulus was enacted that Americans would enjoy a "summer of recovery." That was more than three years ago.
In early 2009 soon-to-be White House economists Ms. Romer and Mr. Bernstein promised Congress that the stimulus would hold the unemployment rate below 7% and that by now it would be 5.6%. Instead the rate is 8.1%. The latest Census Bureau report says there are nearly seven million fewer full-time, year-round workers today than in 2007. The labor participation rate is the lowest since 1981.
So it has gone with nearly every prediction the President has made about where the economy would be today. Mr. Obama promised that the deficit would be cut in half in four years, but the fiscal 2012 deficit (estimated to be above $1 trillion) will be twice the 2008 deficit ($458 billion).
Mr. Obama said that his health-care plan would "cut the cost of a typical family's premium by up to $2,500 a year," but premiums for employer-sponsored family coverage have gone up $2,370 since 2009, according to the Kaiser Family Foundation.
He said that the linchpin for a growing economy would be renewable energy investment, and he promised to "create five million new jobs in solar, wind, geothermal" energy. Mr. Obama did invest some $9 billion in green energy, but his job estimate was off by at least a factor of 10 and today many solar and wind industry firms are fighting bankruptcy. The growth in domestic U.S. energy production that he now takes credit for has come almost entirely from the fossil fuels his Administration has done so much to obstruct.
There's nothing unusual about candidates making grandiose promises that don't come true. And it's a White House tradition to blame one's predecessor when things don't get better. (Usually these Presidents end up one-termers.)
The bad faith wasn't then. It's now. Mr. Obama really believed that government spending would unleash a robust recovery in employment and housing—an "economy built to last." Now that this hasn't happened and with the Congressional Budget Office predicting a possible recession for 2013, Team Obama claims these woeful results were the best that could have been expected.
The problem with this line is that every President who has inherited a recession in modern times has done better. (See nearby table.) Under Mr. Obama, measured on the basis of jobs, GDP growth and incomes, this has been by far the meekest recovery from the past 10 recessions.
When George W. Bush was elected, he inherited a mild recession from Mr. Clinton amid the bursting of the dot-com bubble, some $7 trillion of wealth eviscerated. Nine months later came the 9/11 terrorist attacks. Yet by 2003 the economy was growing by more than 3% and eight million jobs were created over the next four years.
The Administration and its acolytes claim that the nature of the 2008 financial collapse was different from past recessions, and that it can take up to a decade to restore growth after such a financial crisis. Economist Michael Bordo [http://online.wsj.com/article/SB10000872396390444506004577613122591922992.html] rebuts that claim with historical economic evidence nearby.
In reality, the biggest difference between this recovery and others hasn't been the nature of the crisis, but the nature of the policy prescriptions. Mr. Obama's chief anti-recession idea was a near trillion-dollar leap of faith in the Keynesian "multiplier" effect of government spending. It was the same approach that didn't work in the 1930s, didn't work in the 1970s, didn't work in 2008, and didn't work in such other nations as Japan. It didn't work again in 2009.
Ronald Reagan also inherited an economy loaded with problems. The stock market had been flat for 12 years, inflation rates neared 14%, and mortgage rates almost 20%. The recession he endured in 1981-82 to cure inflation sent unemployment to 10.8%, higher than Mr. Obama's peak of 10%. But the business and jobs recovery by early 1983 was rapid and lasted seven years.
Reagan used tax-rate cuts, disinflationary monetary policy and deregulation to reignite growth—more or less the opposite of the Obama policy mix. Liberals tried to explain the Reagan boom that they said would never happen by arguing that there was nothing unusual about the growth spurt after such a deep recession. So why didn't that happen this time?
When campaigning to be President in 1960, John F. Kennedy denounced slow growth under Eisenhower and Nixon and said "We can do bettah." Growth was 7.2% in 1959 and 2.5% in 1960. Since the recession ended under Mr. Obama, growth has been 2.4% in 2010, 1.8% in 2011 and, after Thursday's downward revision for the second quarter, 1.7% in 2012.
[...]
Sheila Bair: 'Insolvent Institutions Should Be Closed'
Sheila Bair: 'Insolvent Institutions Should Be Closed.' By Robert L Pollock
Political Diary
Wall Street Journal, September 27, 2012, 12:28 p.m. ET
http://online.wsj.com/article/SB10000872396390443328404578022363414879722.html
If you were one of the people scratching your forehead in 2008 as the federal government bailed out Bear Stearns, let Lehman Brothers fail, and then showered hundreds of billions of dollars on the banking system to avert the alleged threat of a "systemic" collapse, you were hardly alone. In fact Sheila Bair, then head of the Federal Deposit Insurance Corporation, shared many of your concerns.
Ms. Bair stopped by the Journal Wednesday as part of a tour to promote her new book on the financial crisis. The headline revelations: She was very skeptical about why the likes of Citibank were deemed worthy of moving heaven and earth to save, and she also doesn't quite understand what Tim Geithner and Hank Paulson were talking about when they used the phrase "systemically important" institutions.
Of Mr. Geithner and Citi, Ms. Bair said you just have to "look at his phone logs" to see the outsized concern he had with preserving the financial giant. He was talking with Citi CEO Vikram Pandit a lot, she says. You got the impression "he was going to stand behind Citi management no matter what . . .. He viewed me as a threat with my desire to impose losses on bondholders."
So what would Ms. Bair have done? "At least make them clean up their balance sheet," instead of just throwing money at them. "If our system is so fragile that a blatantly mismanaged, poorly run bank can't be subject to some market discipline because the whole system is gonna come down, let's just socialize everything."
"It was a joke" what happened, Ms. Bair continued. Now "they're a zombie bank," like so many Japanese financial institutions.
So does Ms. Bair think the concept of systemic risk makes any sense at all? "I think it's a really, really overused word. It's never backed with analysis. It's just 'You gotta do this because it's the system.' I think if you're throwing government money around" you better have a good explanation why letting an institution fail through the normal FDIC process would be a problem.
Ms. Bair's radical alternative to panicked and inconsistent decision making in Washington? "The insolvent institutions should be closed."
"The original sin was with Bear Stearns . . .. I've never seen a good analysis why Bearn Stearns was systemic," she says. But after Bear was bailed out in early 2008, the much bigger Lehman Brothers expected a bailout, too. When it didn't get one, the crisis of fall 2008 began in earnest. "There were so many missteps leading up to this that created market uncertainty."
Political Diary
Wall Street Journal, September 27, 2012, 12:28 p.m. ET
http://online.wsj.com/article/SB10000872396390443328404578022363414879722.html
If you were one of the people scratching your forehead in 2008 as the federal government bailed out Bear Stearns, let Lehman Brothers fail, and then showered hundreds of billions of dollars on the banking system to avert the alleged threat of a "systemic" collapse, you were hardly alone. In fact Sheila Bair, then head of the Federal Deposit Insurance Corporation, shared many of your concerns.
Ms. Bair stopped by the Journal Wednesday as part of a tour to promote her new book on the financial crisis. The headline revelations: She was very skeptical about why the likes of Citibank were deemed worthy of moving heaven and earth to save, and she also doesn't quite understand what Tim Geithner and Hank Paulson were talking about when they used the phrase "systemically important" institutions.
Of Mr. Geithner and Citi, Ms. Bair said you just have to "look at his phone logs" to see the outsized concern he had with preserving the financial giant. He was talking with Citi CEO Vikram Pandit a lot, she says. You got the impression "he was going to stand behind Citi management no matter what . . .. He viewed me as a threat with my desire to impose losses on bondholders."
So what would Ms. Bair have done? "At least make them clean up their balance sheet," instead of just throwing money at them. "If our system is so fragile that a blatantly mismanaged, poorly run bank can't be subject to some market discipline because the whole system is gonna come down, let's just socialize everything."
"It was a joke" what happened, Ms. Bair continued. Now "they're a zombie bank," like so many Japanese financial institutions.
So does Ms. Bair think the concept of systemic risk makes any sense at all? "I think it's a really, really overused word. It's never backed with analysis. It's just 'You gotta do this because it's the system.' I think if you're throwing government money around" you better have a good explanation why letting an institution fail through the normal FDIC process would be a problem.
Ms. Bair's radical alternative to panicked and inconsistent decision making in Washington? "The insolvent institutions should be closed."
"The original sin was with Bear Stearns . . .. I've never seen a good analysis why Bearn Stearns was systemic," she says. But after Bear was bailed out in early 2008, the much bigger Lehman Brothers expected a bailout, too. When it didn't get one, the crisis of fall 2008 began in earnest. "There were so many missteps leading up to this that created market uncertainty."
Wednesday, September 19, 2012
New Report Aims to Improve the Science Behind Regulatory Decision-Making
New Report Aims to Improve the Science Behind Regulatory Decision-Making
http://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/New-Report-Aims-to-Improve-the-Science-Behind-Regulatory-Decision-Making.html
WASHINGTON, D.C. (September 18, 2012) – Scientists and policy experts from industry, government, and nonprofit sectors reached consensus on ways to improve the rigor and transparency of regulatory decision-making in a report being released today. The Research Integrity Roundtable, a cross-sector working group convened and facilitated by The Keystone Center, an independent public policy organization, is releasing the new report to improve the scientific analysis and independent expert reviews which underpin many important regulatory decisions. The report, Model Practices and Procedures for Improving the Use of Science in Regulatory Decision-Making, builds on the work of the Bipartisan Policy Center (BPC) in its 2009 report Science for Policy Project: Improving the Use of Science in Regulatory Policy.
"Americans need to have confidence in a U.S. regulatory system that encourages rational, science-based decision-making," said Mike Walls, Vice President of Regulatory and Technical Affairs for the American Chemistry Council (ACC), one of the sponsors of the Keystone Roundtable. "For this report, a broad spectrum of stakeholders came together to identify and help resolve some of the more troubling inconsistencies and roadblocks at the intersection of science and regulatory policy."
Controversies surrounding a regulatory decision often arise over the composition and transparency of scientific advisory panels and the scientific analysis used to support such decisions. The Roundtable's report is the product of 18 months of deliberations among experts from advocacy groups, professional associations and industry, as well as liaisons from several key Federal agencies. The report centers on two main public policy challenges that lead to controversy in the regulatory process: appointments of scientific experts, and the conduct of systematic scientific reviews.
The Roundtable's recommendations aim to improve the selection process for scientists on federal advisory panels and the scientific analysis used to draw conclusions that inform policy. The report seeks to maximize transparency and objectivity at every step in the regulatory decision-making process by informing the formation of scientific advisory committees and use of systematic reviews. The Roundtable's report offers specific recommendations for improving expert panel selection by better addressing potential conflicts of interest and bias. In addition, the report recommends ways to improve systematic reviews of scientific studies by outlining a step-by-step process, and by calling for clearer criteria to determine the relevance and credibility of studies.
"Conflicted experts and poor scientific assessments threaten the scientific integrity of agency decision making as well as the public's faith in agencies to protect their health and safety," said Francesca Grifo, Senior Scientist and Science Policy Fellow for the Union of Concerned Scientists. "Given the abundance of inflamed partisan dialogue around regulatory issues, it was refreshing to be a part of a rational and respectful roundtable. If adopted by agencies, the changes recommended in the report have the potential to reduce the ability of narrow interests to weaken regulations' power to protect the public good."
The Keystone Center and members of the Research Integrity Roundtable welcome additional conversations and dialogue on the matters explored in and recommendations presented in this report.
For more information, access the Roundtable's website at: www.Keystone.org/researchintegrity.
Wednesday, September 12, 2012
China's Solyndra Economy. By Patrick Chovanec
China's Solyndra Economy. By Patrick Chovanec
Government subsidies to green energy and high-speed rail have led to mounting losses and costly bailouts. This is not a road the U.S. should travel.WSJ, September 11, 2012, 7:21 p.m. ET
http://online.wsj.com/article/SB10000872396390443686004577634220147568022.html
On Aug. 3, the owner of Chengxing Solar Company leapt from the sixth floor of his office building in Jinhua, China. Li Fei killed himself after his company was unable to repay a $3 million bank loan it had guaranteed for another Chinese solar company that defaulted. One local financial newspaper called Li's suicide "a sign of the imminent collapse facing the Chinese photovoltaic industry" due to overcapacity and mounting debts.
President Barack Obama has held up China's investments in green energy and high-speed rail as examples of the kind of state-led industrial policy that America should be emulating. The real lesson is precisely the opposite. State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.
Unveiled in 2010, Beijing's 12th Five-Year Plan identified solar and wind power and electric automobiles as "strategic emerging industries" that would receive substantial state support. Investors piled into the favored sectors, confident the government's backing would guarantee success. Barely two years later, all three industries are in dire straits.
This summer, the NYSE-listed LDK Solar, the world's second largest polysilicon solar wafer producer, defaulted on $95 billion owed to over 20 suppliers. The company lost $589 million in the fourth quarter of 2011 and another $185 million in the first quarter of 2012, and has shed nearly 10,000 jobs. The government in LDK's home province of Jiangxi scrambled to pledge $315 million in public bailout funds, terrified that any further defaults could pull down hundreds of local companies.
Chinese solar companies blame many of their woes on the antidumping tariffs recently imposed by the U.S. and Europe. The real problem, however, is rampant overinvestment driven largely by subsidies. Since 2010, the price of polysilicon wafers used to make solar cells has dropped 73%, according to Maxim Group, while the price of solar cells has fallen 68% and the price of solar modules 57%. At these prices, even low-cost Chinese producers are finding it impossible to break even.
Wind power is seeing similar overcapacity. China's top wind turbine manufacturers, Goldwind and Sinovel, saw their earnings plummet by 83% and 96% respectively in the first half of 2012, year-on-year. Domestic wind farm operators Huaneng and Datang saw profits plunge 63% and 76%, respectively, due to low capacity utilization. China's national electricity regulator, SERC, reported that 53% of the wind power generated in Inner Mongolia province in the first half of this year was wasted. One analyst told China Securities Journal that "40-50% of wind power projects are left idle," with many not even connected to the grid.
A few years ago, Shenzhen-based BYD (short for "Build Your Dreams") was a media darling that brought in Warren Buffett as an investor. It was going to make China the dominant player in electric automobiles. Despite gorging on green energy subsidies, BYD sold barely 8,000 hybrids and 400 fully electric cars last year, while hemorrhaging cash on an ill-fated solar venture. Company profits for the first half of 2012 plunged 94% year-on-year.
China's high-speed rail ambitions put the Ministry of Railways so deeply in debt that by the end of last year it was forced to halt all construction and ask Beijing for a $126 billion bailout. Central authorities agreed to give it $31.5 billion to pay its state-owned suppliers and avoid an outright default, and had to issue a blanket guarantee on its bonds to help it raise more. While a handful of high-traffic lines, such as the Shanghai-Beijing route, have some prospect of breaking even, Prof. Zhao Jian of Beijing Jiaotong University compared the rest of the network to "a 160-story luxury hotel where only 11 stories are used and the occupancy rate of those floors is below 50%."
China's Railway Ministry racked up $1.4 billion in losses for the first six months of this year, and an internal audit has uncovered dangerous defects due to lax construction on 12 new lines, which will have to be repaired at the cost of billions more. Minister Liu Zhijun, the architect of China's high-speed rail system, was fired in February 2011 and will soon be prosecuted on corruption charges that reportedly include embezzling some $120 million. One of his lieutenants, the deputy chief engineer, is alleged to have funneled $2.8 billion into an offshore bank account.
Many in Washington have developed a serious case of China-envy, seeing it as an exemplar of how to run an economy. In fact, Beijing's mandarins are no better at picking winners, and just as prone to blow money on boondoggles, as their Beltway counterparts.
In his State of the Union address earlier this year, President Obama declared, "I will not cede the wind or solar or battery industry to China . . . because we refuse to make the same commitment here." Given what's really happening in China, he may want to think again.
Mr. Chovanec is an associate professor of practice at Tsinghua University's School of Economics and Management in Beijing, China.
Government subsidies to green energy and high-speed rail have led to mounting losses and costly bailouts. This is not a road the U.S. should travel.WSJ, September 11, 2012, 7:21 p.m. ET
http://online.wsj.com/article/SB10000872396390443686004577634220147568022.html
On Aug. 3, the owner of Chengxing Solar Company leapt from the sixth floor of his office building in Jinhua, China. Li Fei killed himself after his company was unable to repay a $3 million bank loan it had guaranteed for another Chinese solar company that defaulted. One local financial newspaper called Li's suicide "a sign of the imminent collapse facing the Chinese photovoltaic industry" due to overcapacity and mounting debts.
President Barack Obama has held up China's investments in green energy and high-speed rail as examples of the kind of state-led industrial policy that America should be emulating. The real lesson is precisely the opposite. State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.
Unveiled in 2010, Beijing's 12th Five-Year Plan identified solar and wind power and electric automobiles as "strategic emerging industries" that would receive substantial state support. Investors piled into the favored sectors, confident the government's backing would guarantee success. Barely two years later, all three industries are in dire straits.
This summer, the NYSE-listed LDK Solar, the world's second largest polysilicon solar wafer producer, defaulted on $95 billion owed to over 20 suppliers. The company lost $589 million in the fourth quarter of 2011 and another $185 million in the first quarter of 2012, and has shed nearly 10,000 jobs. The government in LDK's home province of Jiangxi scrambled to pledge $315 million in public bailout funds, terrified that any further defaults could pull down hundreds of local companies.
Chinese solar companies blame many of their woes on the antidumping tariffs recently imposed by the U.S. and Europe. The real problem, however, is rampant overinvestment driven largely by subsidies. Since 2010, the price of polysilicon wafers used to make solar cells has dropped 73%, according to Maxim Group, while the price of solar cells has fallen 68% and the price of solar modules 57%. At these prices, even low-cost Chinese producers are finding it impossible to break even.
Wind power is seeing similar overcapacity. China's top wind turbine manufacturers, Goldwind and Sinovel, saw their earnings plummet by 83% and 96% respectively in the first half of 2012, year-on-year. Domestic wind farm operators Huaneng and Datang saw profits plunge 63% and 76%, respectively, due to low capacity utilization. China's national electricity regulator, SERC, reported that 53% of the wind power generated in Inner Mongolia province in the first half of this year was wasted. One analyst told China Securities Journal that "40-50% of wind power projects are left idle," with many not even connected to the grid.
A few years ago, Shenzhen-based BYD (short for "Build Your Dreams") was a media darling that brought in Warren Buffett as an investor. It was going to make China the dominant player in electric automobiles. Despite gorging on green energy subsidies, BYD sold barely 8,000 hybrids and 400 fully electric cars last year, while hemorrhaging cash on an ill-fated solar venture. Company profits for the first half of 2012 plunged 94% year-on-year.
China's high-speed rail ambitions put the Ministry of Railways so deeply in debt that by the end of last year it was forced to halt all construction and ask Beijing for a $126 billion bailout. Central authorities agreed to give it $31.5 billion to pay its state-owned suppliers and avoid an outright default, and had to issue a blanket guarantee on its bonds to help it raise more. While a handful of high-traffic lines, such as the Shanghai-Beijing route, have some prospect of breaking even, Prof. Zhao Jian of Beijing Jiaotong University compared the rest of the network to "a 160-story luxury hotel where only 11 stories are used and the occupancy rate of those floors is below 50%."
China's Railway Ministry racked up $1.4 billion in losses for the first six months of this year, and an internal audit has uncovered dangerous defects due to lax construction on 12 new lines, which will have to be repaired at the cost of billions more. Minister Liu Zhijun, the architect of China's high-speed rail system, was fired in February 2011 and will soon be prosecuted on corruption charges that reportedly include embezzling some $120 million. One of his lieutenants, the deputy chief engineer, is alleged to have funneled $2.8 billion into an offshore bank account.
Many in Washington have developed a serious case of China-envy, seeing it as an exemplar of how to run an economy. In fact, Beijing's mandarins are no better at picking winners, and just as prone to blow money on boondoggles, as their Beltway counterparts.
In his State of the Union address earlier this year, President Obama declared, "I will not cede the wind or solar or battery industry to China . . . because we refuse to make the same commitment here." Given what's really happening in China, he may want to think again.
Mr. Chovanec is an associate professor of practice at Tsinghua University's School of Economics and Management in Beijing, China.
Friday, August 24, 2012
Regulators Captured - WSJ Editorial about the SEC and money-market funds
Regulators Captured
The Wall Street Journal, August 24, 2012, on page A10
http://online.wsj.com/article/SB10000872396390444812704577607421541441692.html
Economist George Stigler described the process of "regulatory capture," in which government agencies end up serving the industries they are supposed to regulate. This week lobbyists for money-market mutual funds provided still more evidence that Stigler deserved his Nobel. At the Securities and Exchange Commission, three of the five commissioners blocked a critical reform to help prevent a taxpayer bailout like the one the industry received in 2008.
Assistant editorial page editor James Freeman on the SEC's nixing a proposed rule that would hold money market funds more accountable.
SEC rules have long allowed money-fund operators to employ an accounting fiction that makes their funds appear safer than they are. Instead of share prices that fluctuate, like other kinds of securities, money funds are allowed to report to customers a fixed net asset value (NAV) of $1 per share—even if that's not exactly true.
As long as the value of a fund's underlying assets doesn't stray too far from that magical figure, fund sponsors can present a picture of stability to customers. Money funds are often seen as competitors to bank accounts and now hold $1.6 trillion in assets.
But during times of crisis, as in 2008, investors are reminded how different money funds are from insured deposits. When one fund "broke the buck"—its asset value fell below $1 per share—it triggered an institutional run on all money funds. The Treasury responded by slapping a taxpayer guarantee on the whole industry.
SEC Chairman Mary Schapiro has been trying to eliminate this systemic risk by taking away the accounting fiction that was created when previous generations of lobbyists captured the SEC. She made the sensible case that money-fund prices should float like the securities they are.
But industry lobbyists are still holding hostages. Commissioners Luis Aguilar, Dan Gallagher and Troy Paredes refused to support reform, so taxpayers can expect someday a replay of 2008. True to the Stigler thesis, the debate has focused on how to maintain the current money-fund business model while preventing customers from leaving in a crisis. The SEC goal should be to craft rules so that when customers leave a fund, it is a problem for fund managers, not taxpayers.
The industry shrewdly lobbied Beltway conservatives, who bought the line that this was a defense against costly regulation, even though regulation more or less created the money-fund industry. Free-market think tanks have been taken for a ride, some of them all too willingly.
The big winners include dodgy European banks, which can continue to attract U.S. money funds chasing higher yields knowing the American taxpayer continues to offer an implicit guarantee.
The industry shouldn't celebrate too much, though, because regulation may now be imposed by the new Financial Stability Oversight Council. Federal Reserve and Treasury officials want to do something, and their preference will probably be more supervision and capital positions that will raise costs that the industry can pass along to consumers. By protecting the $1 fixed NAV, free-marketeers may have guaranteed more of the Dodd-Frank-style regulation they claim to abhor.
The losers include the efficiency and fairness of the U.S. economy, as another financial industry gets government to guarantee its business model. Congratulations.
The Wall Street Journal, August 24, 2012, on page A10
http://online.wsj.com/article/SB10000872396390444812704577607421541441692.html
Economist George Stigler described the process of "regulatory capture," in which government agencies end up serving the industries they are supposed to regulate. This week lobbyists for money-market mutual funds provided still more evidence that Stigler deserved his Nobel. At the Securities and Exchange Commission, three of the five commissioners blocked a critical reform to help prevent a taxpayer bailout like the one the industry received in 2008.
Assistant editorial page editor James Freeman on the SEC's nixing a proposed rule that would hold money market funds more accountable.
SEC rules have long allowed money-fund operators to employ an accounting fiction that makes their funds appear safer than they are. Instead of share prices that fluctuate, like other kinds of securities, money funds are allowed to report to customers a fixed net asset value (NAV) of $1 per share—even if that's not exactly true.
As long as the value of a fund's underlying assets doesn't stray too far from that magical figure, fund sponsors can present a picture of stability to customers. Money funds are often seen as competitors to bank accounts and now hold $1.6 trillion in assets.
But during times of crisis, as in 2008, investors are reminded how different money funds are from insured deposits. When one fund "broke the buck"—its asset value fell below $1 per share—it triggered an institutional run on all money funds. The Treasury responded by slapping a taxpayer guarantee on the whole industry.
SEC Chairman Mary Schapiro has been trying to eliminate this systemic risk by taking away the accounting fiction that was created when previous generations of lobbyists captured the SEC. She made the sensible case that money-fund prices should float like the securities they are.
But industry lobbyists are still holding hostages. Commissioners Luis Aguilar, Dan Gallagher and Troy Paredes refused to support reform, so taxpayers can expect someday a replay of 2008. True to the Stigler thesis, the debate has focused on how to maintain the current money-fund business model while preventing customers from leaving in a crisis. The SEC goal should be to craft rules so that when customers leave a fund, it is a problem for fund managers, not taxpayers.
The industry shrewdly lobbied Beltway conservatives, who bought the line that this was a defense against costly regulation, even though regulation more or less created the money-fund industry. Free-market think tanks have been taken for a ride, some of them all too willingly.
The big winners include dodgy European banks, which can continue to attract U.S. money funds chasing higher yields knowing the American taxpayer continues to offer an implicit guarantee.
The industry shouldn't celebrate too much, though, because regulation may now be imposed by the new Financial Stability Oversight Council. Federal Reserve and Treasury officials want to do something, and their preference will probably be more supervision and capital positions that will raise costs that the industry can pass along to consumers. By protecting the $1 fixed NAV, free-marketeers may have guaranteed more of the Dodd-Frank-style regulation they claim to abhor.
The losers include the efficiency and fairness of the U.S. economy, as another financial industry gets government to guarantee its business model. Congratulations.
Friday, September 30, 2011
EPA Inspector General Statement on Greenhouse Gases Endangerment Finding Report - Data Quality Processes
EPA Inspector General Statement on Greenhouse Gases Endangerment Finding Report - Data Quality Processes
Press Statement - U.S. Environmental Protection Agency
For Immediate Release
Office of Inspector General
Washington, D.C., September 28, 2011Contact: John Manibusan. Phone: (202) 566-2391
http://www.epa.gov/oig/reports/2011/IG_Statement_Greenhouse_Gases_Endangerment_Report.pdf
WASHINGTON, D.C. – Statement of Inspector General Arthur A. Elkins, Jr., on the Office of Inspector General (OIG) report Procedural Review of EPA’s Greenhouse Gases Endangerment Finding Data Quality Processes:
Press Statement - U.S. Environmental Protection Agency
For Immediate Release
Office of Inspector General
Washington, D.C., September 28, 2011Contact: John Manibusan. Phone: (202) 566-2391
http://www.epa.gov/oig/reports/2011/IG_Statement_Greenhouse_Gases_Endangerment_Report.pdf
WASHINGTON, D.C. – Statement of Inspector General Arthur A. Elkins, Jr., on the Office of Inspector General (OIG) report Procedural Review of EPA’s Greenhouse Gases Endangerment Finding Data Quality Processes:
“The OIG evaluated EPA’s compliance with established policy and procedures in the development of the endangerment finding, including processes for ensuring information quality. We concluded that the technical support document that accompanied EPA’s endangerment finding is a highly influential scientific assessment and thus required a more rigorous EPA peer review than occurred. EPA did not certify whether it complied with OMB’s or its own peer review policies in either the proposed or final endangerment findings as required. While it may be debatable what impact, if any, this had on EPA’s finding, it is clear that EPA did not follow all required steps for a highly influential scientific assessment. We also noted that documentation of events and analyses could be improved.
We made no determination regarding the impact that EPA’s information quality control systems may have had on the scientific information used to support the finding. We did not test the validity of the scientific or technical information used to support the endangerment finding, nor did we evaluate the merit of EPA’s conclusions or analyses.
We make recommendations that we think will strengthen EPA’s control over data quality processes. EPA disagreed with our conclusions and did not agree to take any corrective actions in response to this report. All the report’s recommendations are unresolved.”
###
Tuesday, July 19, 2011
Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?
A new IMF working paper by Nese Erbil "examines the cyclicality of fiscal behavior in 28 developing oil-producing countries (OPCs) during 1990-2009. After testing five fiscal measures - government expenditure, consumption, investment, non-oil revenue, and non-oil primary balance - and correcting for reverse causality between non-oil output and fiscal variables, the results suggest that all of the five fiscal variables are strongly procyclical in the full sample. Also, the results are not uniform across income groups: expenditure is procyclical in the low and middle-income countries, while it is countercyclical in the high-income countries. Fiscal policy tends to be affected by the external financing constraints in the middle- and high-income groups. However, the quality of institutions and political structure appear to be more significant for the low-income group."
Excerpts (notes excluded):
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You can also request a PDF from us for free.
Excerpts (notes excluded):
Both the neoclassical and Keynesian theories support the idea that effective fiscal policy should smooth the volatility of output during the business cycle. Barro’s (1973) ―tax-smoothing‖ hypothesis of optimal fiscal policy suggests that, for a given path of government expenditure, tax rates should be held constant over the business cycle, and the budget surplus should move in a procyclical fashion. According to the Keynesian approach, however, if the economy is in recession, policy should increase government expenditure and lower taxes to help the economy out of the recession. During economic booms, the government should save the surpluses that emerge from the operation of automatic stabilizers and, if necessary, go further with discretionary tax increases or spending cuts. As a result, fiscal policies are expected to follow countercyclical patterns through automatic stabilizers and discretionary channels. In other words, one would expect a positive correlation between changes in output and changes in the fiscal balance or a negative correlation between changes in output and changes in government expenditure.
However, empirical studies show that fiscal policies are procyclical in developing countries and in OPCs.5 They increase spending with an increase in oil revenue during an oil price boom. They are forced to reduce spending because of a revenue decline as a result of a drop in oil prices. Since, in general, these countries are not able to accumulate savings in years with high oil revenues, they can only finance deficits by cutting expenditure during revenue shortfalls. Fouad and others (2007), Abdih and others (2010), and Villafuerte and Lopez-Murphy (2010) find that oil-producing countries followed procyclical fiscal policies during the recent oil price cycle. Baldini (2005) and De Cima (2003) also present evidence for the procyclicality of fiscal policies in two oil-producing countries, Venezuela and Mexico. More recent studies, e.g. Ilzetzki and Vegh (2008), find, using instrumental variable regression, strong evidence of procyclical fiscal policy in developing countries.
Two broad arguments that have been proposed as an explanation for procyclical policies in developing counties also apply to OPCs: constraints on financing (or limited access to credit markets) and factors related to the structure of the economy ( the budget, political, power, and social structure, and weak institutions). In general, these factors are presented separately but they go together and are likely to reinforce each other. For example, weak institutions, the budget structure, or a corrupt government may hinder prudent fiscal policies, which may, in turn, affect fiscal sustainability and creditworthiness by amplifying the financing constraints.
Liquidity and borrowing constraints emerge when a developing country needs financing the most--during a downturn--and that is when it is least likely to be able to obtain it. Many countries do not have significant foreign assets or developed domestic financial markets to raise funds. When these countries face large terms of trade shocks (i.e., a sharp fall in oil prices in the case of OPCs), investors may lose confidence and be less likely to lend, because they fear that the lack of policy credibility and discipline may force the government to run up large budget deficits and to default.6 Governments in this situation will also experience recurring credit constraints in world capital markets (―sudden stops,‖ as explained in Calvo and Reinhart (2000)), which hamper their ability to conduct countercyclical policies.
Oil stabilization funds have been increasingly used by OPCs as an instrument to cope with oil revenue volatility. These funds are aimed at stabilizing budgetary revenues: when oil revenues are high, some portion of the revenue would be channeled to the stabilization fund; when oil revenues are low, the stabilization fund would finance the shortfall. However, the creation of such funds is found to have no impact on the relationship between oil export earnings and government expenditure in countries where no sound and transparent fiscal and macroeconomic policies were implemented.7 Moreover, some oil funds have operated outside existing budget systems and are often accountable to only a few political appointees. This makes such funds especially susceptible to abuse and political interference. Therefore, stabilization funds should not be regarded as a substitute for sound fiscal management.
The other argument proposed to explain the difficulty in implementing countercyclical policy focuses on procyclical government spending due to three aspects of the economy and the government: the budget structure, the weak political structure and institutions, and corruption in government.
First, developing countries run procyclical fiscal policies because of their budget structure. These countries have a few automatic stabilizers built into their budgets. As a result, government spending in developing and emerging countries displays less of a countercyclical pattern than in industrial countries. For example, Gavin and Perotti (1997) note that Latin American countries spend much less on transfers and subsidies than do richer OECD economies (24 percent of total government spending, compared with 42 percent in the industrial countries). Furthermore, most developing countries and OPCs cannot raise revenue effectively through taxes since they usually suffer from inefficient tax collection systems, owing to the low level of compliance with tax laws, insufficient political commitment, and a lack of capacity, expertise, and resources.8 Additionally, non-oil tax bases in these countries are in general very low.9
Second, weak institutions and political structure encourage multiple powerful groups in a society to attempt to grab a greater share of national wealth by demanding higher public spending on their behalf. This behavior, called the ―voracity effect‖ by Tornell and Lane (1999), results in fiscal procyclicality arising from common pool problems, whereby a positive shock to income leads to a more than proportional increase in public spending, even if the shock is expected to be temporary. This is discussed extensively in ―resource curse‖ literature as a reason for low economic growth in resource-rich countries.10 Moreover, fiscal policies are more intense in countries with political systems having multiple fiscal veto points and higher output volatility (Stein, Talvi, and Grisanti, 1998;and Talvi and Végh, 2000). Similarly, Lane (2003) and Fatas and Mihov (2001) find that countries with power dispersion are likely to experience volatile output and procyclical fiscal behavior.
Lastly, Alesina and Tabellini (2005) argue that a more corrupt government displays more procyclical fiscal policies as voters, who do not trust the government, demand higher utility when they see aggregate output rising. This behavior would be more prevalent in democracies since a corrupt government is accountable to the voters, whereas, in a dictatorship, the government would not be accountable and, even if corruption were widespread, voters could not influence fiscal policy. Alesina and Tabellini conclude that corrupt governments in democracies, rather than credit market imperfections, are the underlying cause of procyclical fiscal policy.
[...]
The results confirm that political and institutional factors, as well as financing constraints, play a role in the cyclicality of fiscal policies in the OPCs. Most of the variables on the quality of institutions and the political structure appear to be significant for the low- income group. Two of the variables are significant for the middle-income countries: the composite institution index and checks and balances. None of the institutional variables turns out to be significant for the high-income countries.21 Domestic financing constraints seem to matter for the low-income group. But fiscal policy is affected more by the external financing constraint in the middle- and high-income groups, as they may be more integrated into the global financial system than the low-income countries.
Despite their many differences, all the OPCs face volatile and unpredictable oil revenues, a situation that makes fiscal management challenging. For this reason, it is imperative for them to formulate effective countercyclical fiscal policies by which they can smooth government expenditure, decouple it from the volatile oil revenues, and prevent boom-and-bust cycles. Breaking away from a procyclical fiscal policy will enable them to sustain long-term growth and keep the safety net that the poor need. Sound fiscal policies and discipline require strong institutions, a higher-level bureaucracy, and more transparency. Strong institutions and transparency would also help reduce the ―voracity effect,‖ which, in turn, would facilitate the accumulation of financial assets and build up confidence among investors to raise funds when needed.
Order a printed copy here (broken link as of today): http://www.imfbookstore.org/IMFORG/WPIEA2011171
You can also request a PDF from us for free.
Friday, December 24, 2010
Europeans are approving important new drugs more rapidly than we are
The FDA Is Evading the Law. By SCOTT GOTTLIEB
Europeans are approving important new drugs more rapidly than we are.
WSJ, Dec 24, 2010
http://online.wsj.com/article/SB10001424052748704034804576025981869663212.html
This year, the Food and Drug Administration rejected the only medicine capable of treating the rare and fatal lung disease known as idiopathic pulmonary fibrosis. Pirfenidone, which has been available in Japan since 2008 and was just approved in Europe, was spurned by the FDA because the drug only showed efficacy in a single big trial—not the two large studies the FDA now requires. The decision to ban the drug is one of a rash of recent decisions that shows the FDA is making it more and more difficult for promising drugs to reach severely ill patients.
Last week, the FDA revoked an approval for the cancer drug Avastin because it said that evidence supporting its use in breast cancer wasn't strong enough. (The drug was judged ineffective because it merely stalls the spread of tumors.) European regulators, looking at the same data, made the opposite decision.
It wasn't supposed to be this way. In 1997, Congress passed the FDA Modernization Act, which gave the FDA broad discretion to reduce the quantity and rigor of clinical data needed to approve drugs targeting grave illnesses. The purpose of the law was to save lives by reducing the cost and time needed to launch such medicines.
But the FDA has steadily disregarded many of the law's provisions. Longer, larger trials that require drug makers to evaluate "hard" endpoints (like how long a cancer patient lives) rather than "surrogate" endpoints (like a drug's ability to shrink tumors) give FDA reviewers more statistical confidence. Reviewers prefer these drawn-out trials because they insulate the FDA from critics who say that it isn't focused enough on safety. But bigger trials increase the time needed to develop a drug, keeping it out of the hands of patients.
The Modernization Act also allowed the FDA to conduct drug trials in which patients are treated with an experimental medicine in a single group or "arm," and the trial can be completed in less than a year. But the FDA doesn't often opt for such trials. The agency commonly requests more complex, "multi-arm" and "placebo controlled" studies, which can take three years to finish and are much more expensive. Each patient enrolled in a trial adds over $30,000 to drug-development costs.
Of 76 cancer drugs approved since 2005, the FDA gave only 13 "accelerated approval"—another process created under the Modernization Act to expedite drug development. From 2001 to 2003, 78% of the novel cancer drugs approved were granted accelerated approval. Since then only 32% got the designation.
What's more, the clinical trial requirements that the FDA is imposing on cancer drugs with accelerated approval are now as burdensome as the requirements imposed on regular drugs. So, practically speaking, having "accelerated approval" doesn't mean anything.
Europeans are now approving novel drugs an average of three months more rapidly than we do. Of 82 novel drugs that were submitted for approval in both the U.S. and Europe between 2006 to 2009, 11 were approved only in Europe. One is for relapsed ovarian cancer, another for bone cancer.
To reverse these discouraging trends, Congress should reaffirm the provisions of the Modernization Act. It should spell out in legislation that the FDA "shall"—rather than "may"—approve drugs for severe conditions on the basis of a single study, or a more lenient statistical orthodoxy than "two, randomized, placebo controlled trials."
While Congress may not want to get into the business of establishing the FDA's analytical methods, it can call on the agency to convene an advisory panel to cultivate principles that are more permissive when it comes to very bad diseases. And it could go a step further, empowering patient groups with a mechanism to seek review of FDA decisions.
Congress also needs to modernize the way the FDA's review process is organized in order to increase efficiency and enable more cooperation. The science embedded in the most novel drugs is increasingly complex, requiring collaboration across many disciplines, including clinical medicine, pharmacology and statistical modeling.
But in recent years, the FDA has carved out each scientific discipline into its own distinct office. In addition, new work rules allow drug reviewers to spend two days each week working from home. The result is that FDA scientists don't collaborate well. Reviewers rarely meet as full teams, so they struggle to resolve internal debates and provide timely feedback to drug makers. The FDA's scientists should be organized around areas of therapeutic expertise—not broken into discrete offices based on what degree they have.
Finally, the FDA should be required to disclose its reasons for rejecting a drug.
The next Congress will reauthorize a user fee program that funds the FDA's review process. It should use this legislation to revive the FDA's fundamental mission: giving very sick Americans the best medical options available.
Dr. Gottlieb, a former deputy commissioner of the Food and Drug Administration, is a fellow at the American Enterprise Institute and a practicing internist. He invests in and consults with drug companies.
Europeans are approving important new drugs more rapidly than we are.
WSJ, Dec 24, 2010
http://online.wsj.com/article/SB10001424052748704034804576025981869663212.html
This year, the Food and Drug Administration rejected the only medicine capable of treating the rare and fatal lung disease known as idiopathic pulmonary fibrosis. Pirfenidone, which has been available in Japan since 2008 and was just approved in Europe, was spurned by the FDA because the drug only showed efficacy in a single big trial—not the two large studies the FDA now requires. The decision to ban the drug is one of a rash of recent decisions that shows the FDA is making it more and more difficult for promising drugs to reach severely ill patients.
Last week, the FDA revoked an approval for the cancer drug Avastin because it said that evidence supporting its use in breast cancer wasn't strong enough. (The drug was judged ineffective because it merely stalls the spread of tumors.) European regulators, looking at the same data, made the opposite decision.
It wasn't supposed to be this way. In 1997, Congress passed the FDA Modernization Act, which gave the FDA broad discretion to reduce the quantity and rigor of clinical data needed to approve drugs targeting grave illnesses. The purpose of the law was to save lives by reducing the cost and time needed to launch such medicines.
But the FDA has steadily disregarded many of the law's provisions. Longer, larger trials that require drug makers to evaluate "hard" endpoints (like how long a cancer patient lives) rather than "surrogate" endpoints (like a drug's ability to shrink tumors) give FDA reviewers more statistical confidence. Reviewers prefer these drawn-out trials because they insulate the FDA from critics who say that it isn't focused enough on safety. But bigger trials increase the time needed to develop a drug, keeping it out of the hands of patients.
The Modernization Act also allowed the FDA to conduct drug trials in which patients are treated with an experimental medicine in a single group or "arm," and the trial can be completed in less than a year. But the FDA doesn't often opt for such trials. The agency commonly requests more complex, "multi-arm" and "placebo controlled" studies, which can take three years to finish and are much more expensive. Each patient enrolled in a trial adds over $30,000 to drug-development costs.
Of 76 cancer drugs approved since 2005, the FDA gave only 13 "accelerated approval"—another process created under the Modernization Act to expedite drug development. From 2001 to 2003, 78% of the novel cancer drugs approved were granted accelerated approval. Since then only 32% got the designation.
What's more, the clinical trial requirements that the FDA is imposing on cancer drugs with accelerated approval are now as burdensome as the requirements imposed on regular drugs. So, practically speaking, having "accelerated approval" doesn't mean anything.
Europeans are now approving novel drugs an average of three months more rapidly than we do. Of 82 novel drugs that were submitted for approval in both the U.S. and Europe between 2006 to 2009, 11 were approved only in Europe. One is for relapsed ovarian cancer, another for bone cancer.
To reverse these discouraging trends, Congress should reaffirm the provisions of the Modernization Act. It should spell out in legislation that the FDA "shall"—rather than "may"—approve drugs for severe conditions on the basis of a single study, or a more lenient statistical orthodoxy than "two, randomized, placebo controlled trials."
While Congress may not want to get into the business of establishing the FDA's analytical methods, it can call on the agency to convene an advisory panel to cultivate principles that are more permissive when it comes to very bad diseases. And it could go a step further, empowering patient groups with a mechanism to seek review of FDA decisions.
Congress also needs to modernize the way the FDA's review process is organized in order to increase efficiency and enable more cooperation. The science embedded in the most novel drugs is increasingly complex, requiring collaboration across many disciplines, including clinical medicine, pharmacology and statistical modeling.
But in recent years, the FDA has carved out each scientific discipline into its own distinct office. In addition, new work rules allow drug reviewers to spend two days each week working from home. The result is that FDA scientists don't collaborate well. Reviewers rarely meet as full teams, so they struggle to resolve internal debates and provide timely feedback to drug makers. The FDA's scientists should be organized around areas of therapeutic expertise—not broken into discrete offices based on what degree they have.
Finally, the FDA should be required to disclose its reasons for rejecting a drug.
The next Congress will reauthorize a user fee program that funds the FDA's review process. It should use this legislation to revive the FDA's fundamental mission: giving very sick Americans the best medical options available.
Dr. Gottlieb, a former deputy commissioner of the Food and Drug Administration, is a fellow at the American Enterprise Institute and a practicing internist. He invests in and consults with drug companies.
Thursday, December 23, 2010
Taxes and the Top Percentile Myth
Taxes and the Top Percentile Myth. By Alan Reynolds
A 2008 OECD study of leading economies found that 'taxation is most progressively distributed in the United States.' More so than Sweden or France.
WSJ, Dec 23, 2010
http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html
When President Obama announced a two-year stay of execution for taxpayers on Dec. 7, he made it clear that he intends to spend those two years campaigning for higher marginal tax rates on dividends, capital gains and salaries for couples earning more than $250,000. "I don't see how the Republicans win that argument," said the president.
Despite the deficit commission's call for tax reform with fewer tax credits and lower marginal tax rates, the left wing of the Democratic Party remains passionate about making the U.S. tax system more and more progressive. They claim this is all about payback—that raising the highest tax rates is the fair thing to do because top income groups supposedly received huge windfalls from the Bush tax cuts. As the headline of a Robert Creamer column in the Huffington Post put it: "The Crowd that Had the Party Should Pick up the Tab."
Arguments for these retaliatory tax penalties invariably begin with estimates by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of U.C. Berkeley that the wealthiest 1% of U.S. households now take home more than 20% of all household income.
This estimate suffers two obvious and fatal flaws. The first is that the "more than 20%" figure does not refer to "take home" income at all. It refers to income before taxes (including capital gains) as a share of income before transfers. Such figures tell us nothing about whether the top percentile pays too much or too little in income taxes.
In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers.
A 2008 study of 24 leading economies by the Organization of Economic Cooperation and Development (OECD) concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."
The OECD study—titled "Growing Unequal?"—also found that the ratio of taxes paid to income received by the top 10% was by far the highest in the U.S., at 1.35, compared to 1.1 for France, 1.07 for Germany, 1.01 for Japan and 1.0 for Sweden (i.e., the top decile's share of Swedish taxes is the same as their share of income).
A second fatal flaw is that the large share of income reported by the upper 1% is largely a consequence of lower tax rates. In a 2010 paper on top incomes co-authored with Anthony Atkinson of Nuffield College, Messrs. Piketty and Saez note that "higher top marginal tax rates can reduce top reported earnings." They say "all studies" agree that higher "top marginal tax rates do seem to negatively affect top income shares."
What appears to be an increase in top incomes reported on individual tax returns is often just a predictable taxpayer reaction to lower tax rates. That should be readily apparent from the nearby table, which uses data from Messrs. Piketty and Saez to break down the real incomes of the top 1% by source (excluding interest income and rent).
The first column ("salaries") shows average labor income among the top 1% reported on W2 forms—from salaries, bonuses and exercised stock options. A Dec. 13 New York Times article, citing Messrs. Piketty and Saez, claims, "A big reason for the huge gains at the top is the outsize pay of executives, bankers and traders." On the contrary, the table shows that average real pay among the top 1% was no higher at the 2007 peak than it had been in 1999.
In a January 2008 New York Times article, Austan Goolsbee (now chairman of the President's Council of Economic Advisers) claimed that "average real salaries (subtracting inflation) for the top 1% of earners . . . have been growing rapidly regardless of what happened to tax rates." On the contrary, the top 1% did report higher salaries after the mid-2003 reduction in top tax rates, but not by enough to offset losses of the previous three years. By examining the sources of income Mr. Goolsbee chose to ignore—dividends, capital gains and business income—a powerful taxpayer response to changing tax rates becomes quite clear.
The second column, for example, shows real capital gains reported in taxable accounts. President Obama proposes raising the capital gains tax to 20% on top incomes after the two-year reprieve is over. Yet the chart shows that the top 1% reported fewer capital gains in the tech-stock euphoria of 1999-2000 (when the tax rate was 20%) than during the middling market of 2006-2007. It is doubtful so many gains would have been reported in 2006-2007 if the tax rate had been 20%. Lower tax rates on capital gains increase the frequency of asset sales and thus result in more taxable capital gains on tax returns.
The third column shows a near tripling of average dividend income from 2002 to 2007. That can only be explained as a behavioral response to the sharp reduction in top tax rates on dividends, to 15% from 38.6%. Raising the dividend tax to 20% could easily yield no additional revenue if it resulted in high-income investors holding fewer dividend- paying stocks and more corporations using stock buybacks rather than dividends to reward stockholders.
The last column of the table shows average business income reported on the top 1% of individual tax returns by subchapter S corporations, partnerships, proprietorships and many limited liability companies. After the individual tax rate was brought down to the level of the corporate tax rate in 2003, business income reported on individual tax returns became quite large. For the Obama team to argue that higher taxes on individual incomes would have little impact on business denies these facts.
If individual tax rates were once again pushed above corporate rates, some firms, farms and professionals would switch to reporting income on corporate tax forms to shelter retained earnings. As with dividends and capital gains, this is another reason that estimated revenues from higher tax rates are unbelievable.
The Piketty and Saez estimates are irrelevant to questions about income distribution because they exclude taxes and transfers. What those figures do show, however, is that if tax rates on high incomes, capital gains and dividends were increased in 2013, the top 1%'s reported share of before-tax income would indeed go way down. That would be partly because of reduced effort, investment and entrepreneurship. Yet simpler ways of reducing reported income can leave the after-tax income about the same (switching from dividend-paying stocks to tax-exempt bonds, or holding stocks for years).
Once higher tax rates cause the top 1% to report less income, then top taxpayers would likely pay a much smaller share of taxes, just as they do in, say, France or Sweden. That would be an ironic consequence of listening to economists and journalists who form strong opinions about tax policy on the basis of an essentially irrelevant statistic about what the top 1%'s share might be if there were not taxes or transfers.
Mr. Reynolds is a senior fellow at the Cato Institute and the author of "Income and Wealth" (Greenwood Press 2006).
A 2008 OECD study of leading economies found that 'taxation is most progressively distributed in the United States.' More so than Sweden or France.
WSJ, Dec 23, 2010
http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html
When President Obama announced a two-year stay of execution for taxpayers on Dec. 7, he made it clear that he intends to spend those two years campaigning for higher marginal tax rates on dividends, capital gains and salaries for couples earning more than $250,000. "I don't see how the Republicans win that argument," said the president.
Despite the deficit commission's call for tax reform with fewer tax credits and lower marginal tax rates, the left wing of the Democratic Party remains passionate about making the U.S. tax system more and more progressive. They claim this is all about payback—that raising the highest tax rates is the fair thing to do because top income groups supposedly received huge windfalls from the Bush tax cuts. As the headline of a Robert Creamer column in the Huffington Post put it: "The Crowd that Had the Party Should Pick up the Tab."
Arguments for these retaliatory tax penalties invariably begin with estimates by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of U.C. Berkeley that the wealthiest 1% of U.S. households now take home more than 20% of all household income.
This estimate suffers two obvious and fatal flaws. The first is that the "more than 20%" figure does not refer to "take home" income at all. It refers to income before taxes (including capital gains) as a share of income before transfers. Such figures tell us nothing about whether the top percentile pays too much or too little in income taxes.
In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers.
A 2008 study of 24 leading economies by the Organization of Economic Cooperation and Development (OECD) concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."
The OECD study—titled "Growing Unequal?"—also found that the ratio of taxes paid to income received by the top 10% was by far the highest in the U.S., at 1.35, compared to 1.1 for France, 1.07 for Germany, 1.01 for Japan and 1.0 for Sweden (i.e., the top decile's share of Swedish taxes is the same as their share of income).
A second fatal flaw is that the large share of income reported by the upper 1% is largely a consequence of lower tax rates. In a 2010 paper on top incomes co-authored with Anthony Atkinson of Nuffield College, Messrs. Piketty and Saez note that "higher top marginal tax rates can reduce top reported earnings." They say "all studies" agree that higher "top marginal tax rates do seem to negatively affect top income shares."
What appears to be an increase in top incomes reported on individual tax returns is often just a predictable taxpayer reaction to lower tax rates. That should be readily apparent from the nearby table, which uses data from Messrs. Piketty and Saez to break down the real incomes of the top 1% by source (excluding interest income and rent).
The first column ("salaries") shows average labor income among the top 1% reported on W2 forms—from salaries, bonuses and exercised stock options. A Dec. 13 New York Times article, citing Messrs. Piketty and Saez, claims, "A big reason for the huge gains at the top is the outsize pay of executives, bankers and traders." On the contrary, the table shows that average real pay among the top 1% was no higher at the 2007 peak than it had been in 1999.
In a January 2008 New York Times article, Austan Goolsbee (now chairman of the President's Council of Economic Advisers) claimed that "average real salaries (subtracting inflation) for the top 1% of earners . . . have been growing rapidly regardless of what happened to tax rates." On the contrary, the top 1% did report higher salaries after the mid-2003 reduction in top tax rates, but not by enough to offset losses of the previous three years. By examining the sources of income Mr. Goolsbee chose to ignore—dividends, capital gains and business income—a powerful taxpayer response to changing tax rates becomes quite clear.
The second column, for example, shows real capital gains reported in taxable accounts. President Obama proposes raising the capital gains tax to 20% on top incomes after the two-year reprieve is over. Yet the chart shows that the top 1% reported fewer capital gains in the tech-stock euphoria of 1999-2000 (when the tax rate was 20%) than during the middling market of 2006-2007. It is doubtful so many gains would have been reported in 2006-2007 if the tax rate had been 20%. Lower tax rates on capital gains increase the frequency of asset sales and thus result in more taxable capital gains on tax returns.
The third column shows a near tripling of average dividend income from 2002 to 2007. That can only be explained as a behavioral response to the sharp reduction in top tax rates on dividends, to 15% from 38.6%. Raising the dividend tax to 20% could easily yield no additional revenue if it resulted in high-income investors holding fewer dividend- paying stocks and more corporations using stock buybacks rather than dividends to reward stockholders.
The last column of the table shows average business income reported on the top 1% of individual tax returns by subchapter S corporations, partnerships, proprietorships and many limited liability companies. After the individual tax rate was brought down to the level of the corporate tax rate in 2003, business income reported on individual tax returns became quite large. For the Obama team to argue that higher taxes on individual incomes would have little impact on business denies these facts.
If individual tax rates were once again pushed above corporate rates, some firms, farms and professionals would switch to reporting income on corporate tax forms to shelter retained earnings. As with dividends and capital gains, this is another reason that estimated revenues from higher tax rates are unbelievable.
The Piketty and Saez estimates are irrelevant to questions about income distribution because they exclude taxes and transfers. What those figures do show, however, is that if tax rates on high incomes, capital gains and dividends were increased in 2013, the top 1%'s reported share of before-tax income would indeed go way down. That would be partly because of reduced effort, investment and entrepreneurship. Yet simpler ways of reducing reported income can leave the after-tax income about the same (switching from dividend-paying stocks to tax-exempt bonds, or holding stocks for years).
Once higher tax rates cause the top 1% to report less income, then top taxpayers would likely pay a much smaller share of taxes, just as they do in, say, France or Sweden. That would be an ironic consequence of listening to economists and journalists who form strong opinions about tax policy on the basis of an essentially irrelevant statistic about what the top 1%'s share might be if there were not taxes or transfers.
Mr. Reynolds is a senior fellow at the Cato Institute and the author of "Income and Wealth" (Greenwood Press 2006).
Thursday, June 17, 2010
Cisneros Rewriting HUD History
Cisneros Rewriting HUD History
Posted by Tad DeHaven, Cato, June 17, 2010 @ 1:50 pmIn a recent speech to real estate interests, former Clinton HUD secretary Henry Cisneros preposterously claimed that the recent housing meltdown “occurred not out of a governmental push, but out of a hijacking of the homeownership process by some unscrupulous interests.”
The only criticisms Cisneros could muster for the government’s housing policies over the past 20 years were that regulations weren’t tough enough and it should have focused more on rental subsidies.
The reality is that Cisneros-era HUD regulations and policies directly contributed to the housing bubble and subsequent burst as a Cato essay on HUD scandals illustrates:
- Cisneros’s HUD pursued legal action against mortgage lenders who supposedly declined higher percentages of loans for minorities than whites. As a result of such political pressure, lenders begin lowering their lending standards.
- On Cisneros’s watch, the Community Reinvestment Act was used to pressure lenders into making more loans to moderate-income borrowers by allowing regulators to deny merger approvals for banks with low CRA ratings. The result was that banks began issuing more loans to otherwise uncreditworthy borrowers, while purchasing more CRA mortgage-backed securities. More importantly, these lax standards quickly spread to prime and subprime mortgage markets.
- The Clinton administration’s National Homeownership Strategy, prepared under Cisneros’s direction, advocated “financing strategies, fueled by creativity and resources of the public and private sectors, to help homebuyers that lack cash to buy a home or income to make the payments.” In other words, his policies encouraged the behavior that he now calls “unscrupulous.”
- Cisneros’s HUD also put Fannie Mae and Freddie Mac under constant pressure to facilitate more lending to “underserved” markets. It was under Cisneros’s direction that HUD agreed to allow Fannie and Freddie credit toward its “affordable housing” targets by buying subprime mortgages. Fannie and Freddie are now under government conservatorship and will cost taxpayers hundreds of billions of dollars.
“Unscrupulous” would be a good word to describe the millions of dollars Cisneros has made in the real estate industry following his exit from government.
From the Cato essay:
In 2001, Cisneros joined the board of Fannie Mae’s biggest client: the now notorious Countrywide Financial, the company that was center stage in the subprime lending scandals of recent years. When the housing bubble was inflating, Countrywide and KB took full advantage of the liberalized lending standards fueled by Cisneros’s HUD. In addition to the money he received as a KB director, Cisneros’s company, in which he held a 65 percent stake, received $1.24 million in consulting fees from KB in 2002.
When Cisneros stepped down from Countrywide’s board in 2007, he called it a “well-managed company” and said that he had “enormous confidence” in its leadership. Clearly, those statements were baloney—Cisneros was trying to escape before the crash. Just days before his resignation, Countrywide announced a $1.2 billion loss, and reported that a third of its borrowers were late on mortgage payments. According to SEC records, Cisneros’s position at Countrywide had earned him a $360,000 salary in 2006 and $5 million in stock sales since 2001.
Sunday, May 2, 2010
The State Department is sitting on funds to free the flow of information in closed societies
Mrs. Clinton, Tear Down this Cyberwall. By L. GORDON CROVITZ
The State Department is sitting on funds to free the flow of information in closed societies.WSJ, May 03, 2010
When a government department refuses to spend money that Congress has allocated, there's usually a telling backstory. This is doubly so when the funds are for a purpose as uncontroversial as making the Internet freer.
So why has the State Department refused to spend $45 million in appropriations since 2008 to "expand access and information in closed societies"? The technology to circumvent national restrictions is being provided by volunteers who believe that with funding they can bring Web access to many more people, from Iran to China.
A bipartisan group in Congress intended to pay for tests aimed at expanding the use of software that brings Internet access to "large numbers of users living in closed societies that have acutely hostile Internet environments." The most successful of these services is provided by a group called the Global Internet Freedom Consortium, whose programs include Freegate and Ultrasurf.
When Iranian demonstrators last year organized themselves through Twitter posts and brought news of the crackdown to the outside world, they got past the censors chiefly by using Freegate to get access to outside sites.
The team behind these circumvention programs understands how subversive their efforts can be. As Shiyu Zhou, deputy director of the Global Internet Freedom Consortium, told Congress last year, "The Internet censorship firewalls have become 21st-century versions of Berlin Walls that isolate and dispirit the citizens of closed-society dictatorships."
Repressive governments rightly regard the Internet as an existential threat, giving people powerful ways to communicate and organize. These governments also use the Web as a tool of repression, monitoring emails and other traffic. Recall that Google left China in part because of hacking of human-rights activists' Gmail accounts.
To counter government monitors and censors, these programs give online users encrypted connections to secure proxy servers around the world. A group of volunteers constantly switches the Internet Protocol addresses of the servers—up to 10,000 times an hour. The group has been active since 2000, and repressive governments haven't figured out how to catch up. More than one million Iranians used the system last June to post videos and photos showing the government crackdown.
Mr. Zhou tells me his group would use any additional money to add equipment and to hire full-time technical staff to support the volunteers. For $50 million, he estimates the service could accommodate 5% of Chinese Internet users and 10% in other closed societies—triple the current capacity.
So why won't the State Department fund this group to expand its reach, or at least test how scalable the solution could be? There are a couple of explanations.
The first is that the Global Internet Freedom Consortium was founded by Chinese-American engineers who practice Falun Gong, the spiritual movement suppressed by Beijing. Perhaps not the favorites of U.S. diplomats, but what other group has volunteers engaged enough to keep such a service going? As with the Jewish refuseniks who battled the Soviet Union, sometimes it takes a persecuted minority to stand up to a totalitarian regime.
The second explanation is a split among technologists—between those who support circumvention programs built on proprietary systems and others whose faith is on more open sources of code. A study last year by the Berkman Center at Harvard gave more points to open-source efforts, citing "a well-established contentious debate among software developers about whether secrecy about implementation details is a robust strategy for security." But whatever the theoretical objections, the proprietary systems work.
Another likely factor is realpolitik. Despite the tough speech Hillary Clinton gave in January supporting Internet freedom, it's easy to imagine bureaucrats arguing that the U.S. shouldn't undermine the censorship efforts of Tehran and Beijing. An earlier generation of bureaucrats tried to edit, as overly aggressive, Ronald Reagan's 1987 speech in Berlin urging Mikhail Gorbachev: "Tear down this wall."
It's true that circumvention doesn't solve every problem. Internet freedom researcher and advocate Rebecca MacKinnon has made the point that "circumvention is never going to be the silver bullet" in the sense that it can only give people access to the open Web. It can't help with domestic censorship.
During the Cold War, the West expended huge effort to get books, tapes, fax machines, radio reports and other information, as well as the means to convey it, into closed societies. Circumvention is the digital-age equivalent.
If the State Department refuses to support a free Web, perhaps there's a private solution. An anonymous poster, "chinese.zhang," suggested on a Google message board earlier this year that the company should fund the Global Internet Freedom Consortium as part of its defense against Chinese censorship. "I think Google can easily offer more servers to help to break down the Great Firewall," he wrote.
The State Department is sitting on funds to free the flow of information in closed societies.WSJ, May 03, 2010
When a government department refuses to spend money that Congress has allocated, there's usually a telling backstory. This is doubly so when the funds are for a purpose as uncontroversial as making the Internet freer.
So why has the State Department refused to spend $45 million in appropriations since 2008 to "expand access and information in closed societies"? The technology to circumvent national restrictions is being provided by volunteers who believe that with funding they can bring Web access to many more people, from Iran to China.
A bipartisan group in Congress intended to pay for tests aimed at expanding the use of software that brings Internet access to "large numbers of users living in closed societies that have acutely hostile Internet environments." The most successful of these services is provided by a group called the Global Internet Freedom Consortium, whose programs include Freegate and Ultrasurf.
When Iranian demonstrators last year organized themselves through Twitter posts and brought news of the crackdown to the outside world, they got past the censors chiefly by using Freegate to get access to outside sites.
The team behind these circumvention programs understands how subversive their efforts can be. As Shiyu Zhou, deputy director of the Global Internet Freedom Consortium, told Congress last year, "The Internet censorship firewalls have become 21st-century versions of Berlin Walls that isolate and dispirit the citizens of closed-society dictatorships."
Repressive governments rightly regard the Internet as an existential threat, giving people powerful ways to communicate and organize. These governments also use the Web as a tool of repression, monitoring emails and other traffic. Recall that Google left China in part because of hacking of human-rights activists' Gmail accounts.
To counter government monitors and censors, these programs give online users encrypted connections to secure proxy servers around the world. A group of volunteers constantly switches the Internet Protocol addresses of the servers—up to 10,000 times an hour. The group has been active since 2000, and repressive governments haven't figured out how to catch up. More than one million Iranians used the system last June to post videos and photos showing the government crackdown.
Mr. Zhou tells me his group would use any additional money to add equipment and to hire full-time technical staff to support the volunteers. For $50 million, he estimates the service could accommodate 5% of Chinese Internet users and 10% in other closed societies—triple the current capacity.
So why won't the State Department fund this group to expand its reach, or at least test how scalable the solution could be? There are a couple of explanations.
The first is that the Global Internet Freedom Consortium was founded by Chinese-American engineers who practice Falun Gong, the spiritual movement suppressed by Beijing. Perhaps not the favorites of U.S. diplomats, but what other group has volunteers engaged enough to keep such a service going? As with the Jewish refuseniks who battled the Soviet Union, sometimes it takes a persecuted minority to stand up to a totalitarian regime.
The second explanation is a split among technologists—between those who support circumvention programs built on proprietary systems and others whose faith is on more open sources of code. A study last year by the Berkman Center at Harvard gave more points to open-source efforts, citing "a well-established contentious debate among software developers about whether secrecy about implementation details is a robust strategy for security." But whatever the theoretical objections, the proprietary systems work.
Another likely factor is realpolitik. Despite the tough speech Hillary Clinton gave in January supporting Internet freedom, it's easy to imagine bureaucrats arguing that the U.S. shouldn't undermine the censorship efforts of Tehran and Beijing. An earlier generation of bureaucrats tried to edit, as overly aggressive, Ronald Reagan's 1987 speech in Berlin urging Mikhail Gorbachev: "Tear down this wall."
It's true that circumvention doesn't solve every problem. Internet freedom researcher and advocate Rebecca MacKinnon has made the point that "circumvention is never going to be the silver bullet" in the sense that it can only give people access to the open Web. It can't help with domestic censorship.
During the Cold War, the West expended huge effort to get books, tapes, fax machines, radio reports and other information, as well as the means to convey it, into closed societies. Circumvention is the digital-age equivalent.
If the State Department refuses to support a free Web, perhaps there's a private solution. An anonymous poster, "chinese.zhang," suggested on a Google message board earlier this year that the company should fund the Global Internet Freedom Consortium as part of its defense against Chinese censorship. "I think Google can easily offer more servers to help to break down the Great Firewall," he wrote.
The US EPA opens a re-re-evaulation of atrazine
The War on a Weed Killer. WSJ Editorial
The EPA opens a re-re-evaulation of a safe chemical.WSJ, May 03, 2010
With the headlines full of oil spills and immigration, the Obama Administration's regulatory agenda is getting little attention. That's a mistake. Consider the Environmental Protection Agency's effort to revive an assault on atrazine, one of the oldest, most well-established agricultural chemicals on the market. Just this past week, the EPA held its third "re-evaluation" hearing on atrazine.
Atrazine is the nation's second-most common herbicide. For 50 years it has been the farm industry's primary crop protector. In the U.S., the weed killer is used in the production of 60% of corn, 75% of sorghum and 90% of sugarcane.
Since atrazine's debut in 1959, 10 Administrations have endorsed its use. The EPA in 2006 completed a 12-year review involving 6,000 studies and 80,000 public comments. In re-registering the product, the agency concluded the cumulative risks posed "no harm that would result to the general U.S. population, infant, children or other . . . consumers." The World Health Organization has found no health concerns.
None of this has stopped the most politicized environmental groups, which oppose both chemicals and the idea of industrial farming itself. Organizations such as the Natural Resources Defense Council have spent years ginning up claims that atrazine in groundwater causes cancer, birth defects and other maladies. Manufacturers such as Syngenta have been required to conduct millions of dollars worth of studies investigating these alarmist claims. EPA staff routinely review the studies in atrazine's favor.
But now the Obama Administration has begun to fill such agencies with hires who are either sympathetic to, or even hail from, these activist groups. Consider the EPA's new head for toxic substances, Stephen Owens. As director of Arizona's Department of Environmental Quality, he so aggressively imposed an activist's climate agenda that the state legislature voted to strip his department of authority to enact greenhouse gas rules.
In August, the NRDC and the Pesticide Action Network began a new campaign against atrazine. In October, the EPA announced it would begin a re-re-evaluation of atrazine with a series of scientific panel meeting, and those are underway. The goal seems to be to lay the groundwork to ban atrazine.
Among the environmental lobby's new lines of attack is that some U.S. water systems occasionally show "spikes" in the chemical. This ignores that the EPA's drinking water standard for atrazine—three parts per billion—has a built-in, 1,000-fold safety factor. It ignores EPA findings that atrazine isn't likely to be carcinogenic to humans.
Also re-energized by the EPA's sudden interest in atrazine is, you guessed it, the plaintiffs bar. Tort kingpin Stephen Tillery, joined by Baron & Budd, filed a class action in 2004 against atrazine makers in tort-friendly Madison County, Illinois, but they've struggled even there. The EPA's re-re-evaluation is already helping the lawyers sign up more water-district plaintiffs—Mr. Tillery has filed a new federal class action—and it surely will provide ammunition in court.
There is an agenda here far more ambitious than getting one chemical. The environmental lobby wants more farmland retired to "nature," and one way to do that is to make farming more expensive. The EPA notes that eliminating atrazine would cost $2 billion annually in lost crop yields and substituting more expensive herbicides. Some farmers would go out of business or ask the federal government for more subsidies.
The environmental lobby also figures that if it can take down atrazine with its long record of clean health, it can get the EPA to prohibit anything. Sounds plausible. Between this and its determination to regulate greenhouse gases, the Obama EPA is proving itself a regulatory fundamentalist, with scant regard for good science or economics.
The EPA opens a re-re-evaulation of a safe chemical.WSJ, May 03, 2010
With the headlines full of oil spills and immigration, the Obama Administration's regulatory agenda is getting little attention. That's a mistake. Consider the Environmental Protection Agency's effort to revive an assault on atrazine, one of the oldest, most well-established agricultural chemicals on the market. Just this past week, the EPA held its third "re-evaluation" hearing on atrazine.
Atrazine is the nation's second-most common herbicide. For 50 years it has been the farm industry's primary crop protector. In the U.S., the weed killer is used in the production of 60% of corn, 75% of sorghum and 90% of sugarcane.
Since atrazine's debut in 1959, 10 Administrations have endorsed its use. The EPA in 2006 completed a 12-year review involving 6,000 studies and 80,000 public comments. In re-registering the product, the agency concluded the cumulative risks posed "no harm that would result to the general U.S. population, infant, children or other . . . consumers." The World Health Organization has found no health concerns.
None of this has stopped the most politicized environmental groups, which oppose both chemicals and the idea of industrial farming itself. Organizations such as the Natural Resources Defense Council have spent years ginning up claims that atrazine in groundwater causes cancer, birth defects and other maladies. Manufacturers such as Syngenta have been required to conduct millions of dollars worth of studies investigating these alarmist claims. EPA staff routinely review the studies in atrazine's favor.
But now the Obama Administration has begun to fill such agencies with hires who are either sympathetic to, or even hail from, these activist groups. Consider the EPA's new head for toxic substances, Stephen Owens. As director of Arizona's Department of Environmental Quality, he so aggressively imposed an activist's climate agenda that the state legislature voted to strip his department of authority to enact greenhouse gas rules.
In August, the NRDC and the Pesticide Action Network began a new campaign against atrazine. In October, the EPA announced it would begin a re-re-evaluation of atrazine with a series of scientific panel meeting, and those are underway. The goal seems to be to lay the groundwork to ban atrazine.
Among the environmental lobby's new lines of attack is that some U.S. water systems occasionally show "spikes" in the chemical. This ignores that the EPA's drinking water standard for atrazine—three parts per billion—has a built-in, 1,000-fold safety factor. It ignores EPA findings that atrazine isn't likely to be carcinogenic to humans.
Also re-energized by the EPA's sudden interest in atrazine is, you guessed it, the plaintiffs bar. Tort kingpin Stephen Tillery, joined by Baron & Budd, filed a class action in 2004 against atrazine makers in tort-friendly Madison County, Illinois, but they've struggled even there. The EPA's re-re-evaluation is already helping the lawyers sign up more water-district plaintiffs—Mr. Tillery has filed a new federal class action—and it surely will provide ammunition in court.
There is an agenda here far more ambitious than getting one chemical. The environmental lobby wants more farmland retired to "nature," and one way to do that is to make farming more expensive. The EPA notes that eliminating atrazine would cost $2 billion annually in lost crop yields and substituting more expensive herbicides. Some farmers would go out of business or ask the federal government for more subsidies.
The environmental lobby also figures that if it can take down atrazine with its long record of clean health, it can get the EPA to prohibit anything. Sounds plausible. Between this and its determination to regulate greenhouse gases, the Obama EPA is proving itself a regulatory fundamentalist, with scant regard for good science or economics.
Tuesday, February 23, 2010
My Gift to the Obama Presidency - Bush lawyers were protecting the executive's power to fight a vigorous war on terror
My Gift to the Obama Presidency. By JOHN YOO
Though the White House won't want to admit it, Bush lawyers were protecting the executive's power to fight a vigorous war on terror.
WSJ, Feb 24, 2010
Barack Obama may not realize it, but I may have just helped save his presidency. How? By winning a drawn-out fight to protect his powers as commander in chief to wage war and keep Americans safe.
He sure didn't make it easy. When Mr. Obama took office a year ago, receiving help from one of the lawyers involved in the development of George W. Bush's counterterrorism policies was the furthest thing from his mind. Having won a great electoral victory, the new president promised a quick about-face. He rejected "as false the choice between our safety and our ideals" and moved to restore the law-enforcement system as the first line of defense against a hardened enemy devoted to killing Americans.
In office only one day, Mr. Obama ordered the shuttering of the detention facility at Guantanamo Bay, followed later by the announcement that he would bring terrorists to an Illinois prison. He terminated the Central Intelligence Agency's ability to use "enhanced interrogations techniques" to question al Qaeda operatives. He stayed the military trial, approved by Congress, of al Qaeda leaders. He ultimately decided to transfer Khalid Sheikh Mohammed, the planner of the 9/11 attacks, to a civilian court in New York City, and automatically treated Umar Farouk Abdulmutallab, who tried to blow up a Detroit-bound airliner on Christmas Day, as a criminal suspect (not an illegal enemy combatant). Nothing better could have symbolized the new president's determination to take us back to a Sept. 10, 2001, approach to terrorism.
Part of Mr. Obama's plan included hounding those who developed, approved or carried out Bush policies, despite the enormous pressures of time and circumstance in the months immediately after the September 11 attacks. Although career prosecutors had previously reviewed the evidence and determined that no charges are warranted, last year Attorney General Eric Holder appointed a new prosecutor to re-investigate the CIA's detention and interrogation of al Qaeda leaders.
In my case, he let loose the ethics investigators of the Justice Department's Office of Professional Responsibility (OPR) to smear my reputation and that of Jay Bybee, who now sits as a federal judge on the court of appeals in San Francisco. Our crime? While serving in the Justice Department's Office of Legal Counsel in the weeks and months after 9/11, we answered in the form of memoranda extremely difficult questions from the leaders of the CIA, the National Security Council and the White House on when interrogation methods crossed the line into prohibited acts of torture.
Rank bias and sheer incompetence infused OPR's investigation. OPR attorneys, for example, omitted a number of precedents that squarely supported the approach in the memoranda and undermined OPR's preferred outcome. They declared that no Americans have a right of self-defense against a criminal prosecution, not even when they or their government agents attempt to stop terrorist attacks on the United States. OPR claimed that Congress enjoyed full authority over wartime strategy and tactics, despite decades of Justice Department opinions and practice defending the president's commander-in-chief power. They accused us of violating ethical standards without ever defining them. They concocted bizarre conspiracy theories about which they never asked us, and for which they had no evidence, even though we both patiently—and with no legal obligation to do so—sat through days of questioning.
OPR's investigation was so biased, so flawed, and so beneath the Justice Department's own standards that last week the department's ranking civil servant and senior ethicist, David Margolis, completely rejected its recommendations.
Attorney General Holder could have stopped this sorry mess earlier, just as his predecessor had tried to do. OPR slow-rolled Attorney General Michael Mukasey by refusing to deliver a draft of its report until the 2008 Christmas and New Year holidays. OPR informed Mr. Mukasey of its intention to release the report on Jan. 12, 2009, without giving me or Judge Bybee the chance to see it—as was our right and as we'd been promised.
Mr. Mukasey and Deputy Attorney General Mark Filip found so many errors in the report that they told OPR that the entire enterprise should be abandoned. OPR decided to run out the clock and push the investigation into the lap of the Obama administration. It would have been easy for Mr. Holder to concur with his predecessors—in fact, it was critical that he do so to preserve the Justice Department's impartiality. Instead the new attorney general let OPR's investigators run wild. Only Mr. Margolis's rejection of the OPR report last week forced the Obama administration to drop its ethics charges against Bush legal advisers.
Why bother fighting off an administration hell-bent on finding scapegoats for its policy disagreements with the last president? I could have easily decided to hide out, as others have. Instead, I wrote numerous articles (several published in this newspaper) and three books explaining and defending presidential control of national security policy. I gave dozens of speeches and media appearances, where I confronted critics of the administration's terrorism policies. And, most importantly, I was lucky to receive the outstanding legal counsel of Miguel Estrada, one of the nation's finest defense attorneys, to attack head-on and without reservation, each and every one of OPR's mistakes, misdeeds and acts of malfeasance.
I did not do this to win any popularity contests, least of all those held in the faculty lounge. I did it to help our president—President Obama, not Bush. Mr. Obama is fighting three wars simultaneously in Iraq, Afghanistan, and against al Qaeda. He will call upon the men and women serving under his command to make choices as hard as the ones we faced. They cannot meet those challenges with clear minds if they believe that a bevy of prosecutors, congressional committees and media critics await them when they return from the battlefield.
This is no idle worry. In 2005, a Navy Seal team dropped into Afghanistan encountered goat herders who clearly intended to inform the Taliban of their whereabouts. The team leader ordered them released, against his better military judgment, because of his worries about the media and political attacks that would follow.
In less than an hour, more than 80 Taliban fighters attacked and killed all but one member of the Seal team and 16 Americans on a helicopter rescue mission. If a president cannot, or will not, protect the men and women who fight our nation's wars, they will follow the same risk-averse attitudes that invited the 9/11 attacks in the first place.
Without a vigorous commander-in-chief power at his disposal, Mr. Obama will struggle to win any of these victories. But that is where OPR, playing a junior varsity CIA, wanted to lead us. Ending the Justice Department's ethics witch hunt not only brought an unjust persecution to an end, but it protects the president's constitutional ability to fight the enemies that threaten our nation today.
Mr. Yoo, a law professor at the University of California, Berkeley and visiting scholar at the American Enterprise Institute, was a Justice Department official from 2001-03. He is the author, among other books, of "Crisis and Command: A History of Executive Power from George Washington to George W. Bush" (Kaplan, 2010).
Though the White House won't want to admit it, Bush lawyers were protecting the executive's power to fight a vigorous war on terror.
WSJ, Feb 24, 2010
Barack Obama may not realize it, but I may have just helped save his presidency. How? By winning a drawn-out fight to protect his powers as commander in chief to wage war and keep Americans safe.
He sure didn't make it easy. When Mr. Obama took office a year ago, receiving help from one of the lawyers involved in the development of George W. Bush's counterterrorism policies was the furthest thing from his mind. Having won a great electoral victory, the new president promised a quick about-face. He rejected "as false the choice between our safety and our ideals" and moved to restore the law-enforcement system as the first line of defense against a hardened enemy devoted to killing Americans.
In office only one day, Mr. Obama ordered the shuttering of the detention facility at Guantanamo Bay, followed later by the announcement that he would bring terrorists to an Illinois prison. He terminated the Central Intelligence Agency's ability to use "enhanced interrogations techniques" to question al Qaeda operatives. He stayed the military trial, approved by Congress, of al Qaeda leaders. He ultimately decided to transfer Khalid Sheikh Mohammed, the planner of the 9/11 attacks, to a civilian court in New York City, and automatically treated Umar Farouk Abdulmutallab, who tried to blow up a Detroit-bound airliner on Christmas Day, as a criminal suspect (not an illegal enemy combatant). Nothing better could have symbolized the new president's determination to take us back to a Sept. 10, 2001, approach to terrorism.
Part of Mr. Obama's plan included hounding those who developed, approved or carried out Bush policies, despite the enormous pressures of time and circumstance in the months immediately after the September 11 attacks. Although career prosecutors had previously reviewed the evidence and determined that no charges are warranted, last year Attorney General Eric Holder appointed a new prosecutor to re-investigate the CIA's detention and interrogation of al Qaeda leaders.
In my case, he let loose the ethics investigators of the Justice Department's Office of Professional Responsibility (OPR) to smear my reputation and that of Jay Bybee, who now sits as a federal judge on the court of appeals in San Francisco. Our crime? While serving in the Justice Department's Office of Legal Counsel in the weeks and months after 9/11, we answered in the form of memoranda extremely difficult questions from the leaders of the CIA, the National Security Council and the White House on when interrogation methods crossed the line into prohibited acts of torture.
Rank bias and sheer incompetence infused OPR's investigation. OPR attorneys, for example, omitted a number of precedents that squarely supported the approach in the memoranda and undermined OPR's preferred outcome. They declared that no Americans have a right of self-defense against a criminal prosecution, not even when they or their government agents attempt to stop terrorist attacks on the United States. OPR claimed that Congress enjoyed full authority over wartime strategy and tactics, despite decades of Justice Department opinions and practice defending the president's commander-in-chief power. They accused us of violating ethical standards without ever defining them. They concocted bizarre conspiracy theories about which they never asked us, and for which they had no evidence, even though we both patiently—and with no legal obligation to do so—sat through days of questioning.
OPR's investigation was so biased, so flawed, and so beneath the Justice Department's own standards that last week the department's ranking civil servant and senior ethicist, David Margolis, completely rejected its recommendations.
Attorney General Holder could have stopped this sorry mess earlier, just as his predecessor had tried to do. OPR slow-rolled Attorney General Michael Mukasey by refusing to deliver a draft of its report until the 2008 Christmas and New Year holidays. OPR informed Mr. Mukasey of its intention to release the report on Jan. 12, 2009, without giving me or Judge Bybee the chance to see it—as was our right and as we'd been promised.
Mr. Mukasey and Deputy Attorney General Mark Filip found so many errors in the report that they told OPR that the entire enterprise should be abandoned. OPR decided to run out the clock and push the investigation into the lap of the Obama administration. It would have been easy for Mr. Holder to concur with his predecessors—in fact, it was critical that he do so to preserve the Justice Department's impartiality. Instead the new attorney general let OPR's investigators run wild. Only Mr. Margolis's rejection of the OPR report last week forced the Obama administration to drop its ethics charges against Bush legal advisers.
Why bother fighting off an administration hell-bent on finding scapegoats for its policy disagreements with the last president? I could have easily decided to hide out, as others have. Instead, I wrote numerous articles (several published in this newspaper) and three books explaining and defending presidential control of national security policy. I gave dozens of speeches and media appearances, where I confronted critics of the administration's terrorism policies. And, most importantly, I was lucky to receive the outstanding legal counsel of Miguel Estrada, one of the nation's finest defense attorneys, to attack head-on and without reservation, each and every one of OPR's mistakes, misdeeds and acts of malfeasance.
I did not do this to win any popularity contests, least of all those held in the faculty lounge. I did it to help our president—President Obama, not Bush. Mr. Obama is fighting three wars simultaneously in Iraq, Afghanistan, and against al Qaeda. He will call upon the men and women serving under his command to make choices as hard as the ones we faced. They cannot meet those challenges with clear minds if they believe that a bevy of prosecutors, congressional committees and media critics await them when they return from the battlefield.
This is no idle worry. In 2005, a Navy Seal team dropped into Afghanistan encountered goat herders who clearly intended to inform the Taliban of their whereabouts. The team leader ordered them released, against his better military judgment, because of his worries about the media and political attacks that would follow.
In less than an hour, more than 80 Taliban fighters attacked and killed all but one member of the Seal team and 16 Americans on a helicopter rescue mission. If a president cannot, or will not, protect the men and women who fight our nation's wars, they will follow the same risk-averse attitudes that invited the 9/11 attacks in the first place.
Without a vigorous commander-in-chief power at his disposal, Mr. Obama will struggle to win any of these victories. But that is where OPR, playing a junior varsity CIA, wanted to lead us. Ending the Justice Department's ethics witch hunt not only brought an unjust persecution to an end, but it protects the president's constitutional ability to fight the enemies that threaten our nation today.
Mr. Yoo, a law professor at the University of California, Berkeley and visiting scholar at the American Enterprise Institute, was a Justice Department official from 2001-03. He is the author, among other books, of "Crisis and Command: A History of Executive Power from George Washington to George W. Bush" (Kaplan, 2010).
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