Thursday, May 27, 2010

Obamacare's Cooked Books and the “Doc Fix”

Obamacare's Cooked Books and the “Doc Fix”, by James Capretta
May 26, 2010

The Obama administration continues to insist (see this post from White House budget director Peter Orszag) that the recently enacted health-care law will reduce the federal budget deficit by $100 billion over ten years and by ten times that amount in the second decade of implementation. They cite the Congressional Budget Office’s cost estimate for the final legislation to back their claims.

And it is undeniably true that CBO says the legislation, as written, would reduce the federal budget deficit by $124 billion over ten years from the health-related provisions of the new law.
But that’s not whole story about Obamacare’s budgetary implications — not by a long shot.

For starters, CBO is not the only game in town. In the executive branch, the chief actuary of the Medicare program is supposed to provide the official health-care cost projections for the administration — at least he always has in the past. His cost estimate for the new health law differs in important ways from the one provided by CBO and calls into question every major contention the administration has advanced about the bill. The president says the legislation will slow the pace of rising costs; the actuary says it won’t. The president says people will get to keep their job-based plans if they want to; the actuary says 14 million people will lose their employer coverage, many of whom would certainly rather keep it than switch into an untested program. The president says the new law will improve the budget outlook; in so many words, the chief actuary says, don’t bet on it.

All of this helps explain why the president of the United States would be so sensitive about the release of the actuary’s official report that he would dispatch political subordinates to undermine it with the media.

It’s not the chief actuary’s assignment to provide estimates of non-Medicare-related tax provisions, so his cost projections for Obamacare do not capture all of the needed budget data to estimate the full impact on the budget deficit. But it’s possible to back into such a figure by using the Joint Tax Committee’s estimates for the tax provisions missing from the chief actuary’s report. When that is done, $50 billion of deficit reduction found in the CBO report is wiped out.

And that’s before the other gimmicks, double counting, and hidden costs are exposed and removed from the accounting, too.

For instance, this week House and Senate Democratic leaders are rushing to approve a massive, budget-busting, tax-and-spending bill. Among its many provisions is a three-year Medicare “doc fix,” which will effectively undo the scheduled 21 percent cut in Medicare physician fees set to go into effect in June. CBO says this version of the “doc fix” would add $65 billion to the budget deficit over 10 years. The entire bill would pile another $134 billion onto the national debt over the next decade.

If the Obama administration gets its way, this three-year physician-fee fix will eventually get extended again, and also without offsets. Over a full 10-year period, an unfinanced “doc fix” would add $250 to $400 billion to the budget deficit, depending on design and who is doing the cost projection (CBO or the actuary).

Administration officials and their outside enthusiasts (see here) say the Democratic Congress shouldn’t have to find offsets for the “doc fix” because everybody knows a fix needs to be enacted and therefore should go into the baseline. (By the way, the history of the sustainable growth rate [SGR] that Ezra Klein provides at the link above is a misleading one. The SGR was a replacement for a predecessor program that too had run off the rails — the so-called “Volume Performance Standard” enacted by a Democratic Congress in 1989.)

But supporting a “doc fix” is not the same as supporting an unfinanced one on a long-term or permanent basis. Not everybody in Congress is for running up more debt to pay for a permanent repeal of the scheduled fee cuts, which is why such a repeal has never been passed before. In the main, the previous administration and Congresses worked to find ways to prevent Medicare fee cuts while finding offsets to pay for it.

But that’s not the policy of the Obama administration. The truth is the president and his allies in Congress worked overtime to pull together every Medicare cut they could find — nearly $500 billion in all over ten years — and put them into the health law to pay for the massive entitlement expansion they so coveted. They could have used those cuts to pay for the “doc fix” if they had wanted to, as well as for a slightly less expansive health program. But that’s not what they did. That wasn’t their priority. They chose instead to break their agenda into multiple bills, and “pay for” the massive health entitlement (on paper) while claiming they shouldn’t have to find offsets for the “doc fix.” But it doesn’t matter to taxpayers if they enact their agenda in one, two, or ten pieces of legislation. The total cost is still the same. All of the supposed deficit reduction now claimed from the health-care law is more than wiped out by the Democrats’ insistent march to borrow and spend for Medicare physician fees.

And the games don’t end there. CBO’s cost estimate assumes $70 billion in deficit reduction from the so-called “CLASS Act.” This is the new voluntary long-term-care insurance program that hitched a ride on Obamacare because it too created the illusion of deficit reduction. People who sign up for the insurance must pay premiums for at least five years before they are eligible to draw benefits. By definition, then, at start-up and for several years thereafter, there will be a surplus in the program as new entrants pay premiums and very few people draw benefits. That’s the source of the $70 billion “savings.” But the premiums collected in the program’s early years will be needed very soon to pay actual claims. Not only that, but the new insurance program is so poorly designed it too will need a federal bailout. So this is far worse than a benign sleight of hand. The Democrats have created a budgetary monster even as they used misleading estimates to tout their budgetary virtue.

There is much more, of course. CBO’s cost projections don’t reflect the administrative costs required to micromanage the health system from the Department of Health and Human Services. The number of employers looking to dump their workers into subsidized insurance is almost certainly going to be much higher than either CBO or the chief actuary now projects. And the price inflation from the added demand of the newly entitled isn’t factored into any of the official cost projections.

We’ve seen this movie before. When the government creates a new entitlement, politicians lowball the costs to get the law passed, and then blame someone else when program costs soar. Witness Massachusetts. Most Americans are sensible enough to know already that’s what can be expected next with Obamacare.

Wednesday, May 26, 2010

Zero-Sum Earmarks - A new study finds that pork hurts at home

Zero-Sum Earmarks. WSJ Editorial
A new study finds that pork hurts at homeWSJ, May 27, 2010

For Members of Congress, becoming a committee chairman means more power to spend and thus help for the home district, right? That's certainly the common wisdom. But according to new research from Harvard Business School, the increased federal spending causes local companies to lose sales and cut back on research, payroll and other expenses.

The results surprised Harvard professors Lauren Cohen, Christopher Malloy and Joshua Coval, who expected to see politically connected firms prosper from federal largesse. Instead, the research, which covered 1967 to 2008, found that "strong and widespread evidence of corporate retrenchment" accompanied Congressional seniority. According to Mr. Coval, the research shows federal dollars "directly supplant private sector activity—they literally undertake projects the private sector was planning to do on its own."

The chairmanship of a powerful Senate committee such as Finance or Appropriations typically brings an increase of 40% to 50% in earmark spending for the home state. In the House, top dogs haul an average of 20% more to their states. Yet in the first year after a chairman's rise, the paper notes, the average firm in his state "cuts back capital expenditures by roughly 15%." The behavior typically continues until the Congressman steps down, and it is felt in particular by firms that have the strongest ties to the home state.

Part of the problem is that public money is "crowding out" investment opportunities for firms. "Some of our results point towards the role of competition for state specific factors of production, including labor and fixed assets such as real estates," the authors write. "Public spending appears to increase demand for state-specific factors of production and thereby compel firms to downsize and invest elsewhere." They add that "We also find evidence that the effects are most pronounced in sectors that are the target of earmark spending."

The same side effects may now be observed as the federal stimulus program also ripples through the broader economy: In the first quarter of 2010, USA Today reported, private paychecks made up the lowest share of personal income in history as government spending rose to its highest levels ever. That trend inevitably leads to higher taxes and further economic harm.

Democrats and Republicans have promised earmark reform for years, only to abandon the effort in favor of "bringing home the bacon" and incumbent protection. The Harvard study suggests the Congressmen are really bringing home less economic prosperity.

Obama's Russia Tribute - What he gave away in return for watered-down Iran sanctions

Obama's Russia Tribute. WSJ Editorial
What he gave away in return for watered-down Iran sanctions.WSJ, May 27, 2010

When the Obama Administration last week secured the Kremlin's support for U.N. sanctions on Iran, the White House touted a big dividend from its "reset" in relations with Russia. Now the price for Moscow's cooperation is becoming clearer, and the only ones who should be cheering are the Russians and Iranians.

Three days after Secretary of State Hillary Clinton announced the deal on a diluted Security Council resolution, she quietly met an explicit demand from Russia's Foreign Minister Sergei Lavrov. Buried in last Friday's Federal Register, the State Department announced it was ending long-standing sanctions against four Russian entities that had helped Iran's nuclear weapons and missile programs.

The draft U.N. resolution also includes a loophole for Russia, which would be allowed to deliver the five S-300 surface-to-air missiles that Moscow agreed to sell Tehran in 2005. The S-300s can intercept missiles and aircraft but fall outside the U.N. resolution's ban on the sale of eight categories of conventional weapons to Iran. Mikhail Margelov, the head of the foreign affairs committee of Russia's upper house of parliament, crowed last Friday that sanctions "will not hit current contracts between Russia and Iran."

All of this came on top of the White House decision a week earlier to resubmit to Congress a civilian nuclear cooperation pact with Russia. This was another goodie for Moscow.

These so-called "123 agreements"—named after a section of the Atomic Energy Act of 1954—open the door to technology transfers, commerce in nuclear materials and joint research between the U.S. and select countries. The Bush Administration negotiated the deal with the Kremlin but shelved it after the Russians invaded Georgia in August 2008.

President Obama said that "the situation in Georgia need no longer be considered an obstacle" and that "the level and scope of U.S.-Russia cooperation on Iran are sufficient to justify" the deal. Unlike a treaty, Congress doesn't ratify the pact but has 90 days to act or the deal automatically goes into force. Democrat Edward Markey and Republican Jeff Fortenberry last week introduced a resolution in the House to stop the deal.

It's an uphill but worthy effort. Russia continues illegally to occupy Georgian territory, but the larger problem is its proliferation. Both Republican and Democratic Administration have turned a blind eye to Russian misbehavior. When the Bush Administration submitted the agreement for review, the Government Accountability Office criticized the mandatory accompanying "proliferation statement" on Russia as shoddy and incomplete.

Starting in the 1990s, Moscow sold Iran nuclear centrifuges and missile technology. One company sanctioned until last week, the state arms exporter Rosoboronexport, was put on the list as recently as 2008, while the Moscow Aviation Institute helped Iran develop ballistic missiles.

Nonetheless, the Obama Administration now says "Russia's approach to Iran has evolved," in the words of State spokesman P.J. Crowley. Gary Samore, the White House arms control coordinator, insists that "the Russians understand that the consequences [of shipping the S-300s] would be very severe."

These assurances don't square with Russian statements or actions. The week that President Obama sent the nuclear cooperation pact to Congress, Russian President Dmitry Medvedev was in Damascus touting future nuclear business with Iran's close ally in terrorism. "Cooperation [with Syria] on atomic energy could get a second wind," he said.

In return for all this, the Administration gets weak sanctions similar to the three sets the Bush Administration won without paying such a high tribute. If this represents what the Administration calls "smart diplomacy," we'd hate to see what we give up when we're dumb.

Press Briefing

May 27, 2010

Federal Prez: The Promise of Clean Energy
http://www.youtube.com/watch?v=ulyTh0VtZb8

The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill: May 26, 2010
http://www.whitehouse.gov/blog/2010/05/26/ongoing-administration-wide-response-deepwater-bp-oil-spill-may-26-2010

'Death panels' were an overblown claim – until now
http://dailycaller.com/2010/05/27/death-panels-were-an-overblown-claim-until-now/

Applying the Tools of 21st Century Statecraft to Public Engagement
http://blogs.state.gov/index.php/entries/tools_public_engagement/

Europe-Bank Lenders? Coalition of Unwilling
http://online.wsj.com/article/SB10001424052748703341904575266722784462634.html
Few Step Up to Risk Their Money for Long; New SEC Rule Makes Money Funds Even Less Interested

US State Dept: Citizen Safety in the Western Hemisphere
http://www.state.gov/p/wha/rls/fs/2010/142263.htm

The House has violated PAYGO rules by nearly $1 trillion
http://blog.heritage.org/2010/05/27/morning-bell-this-congress-has-no-shame

The Recovery Starts With Sound Money - The willingness to work for the sake of future prosperity is a universal human quality, but people must believe there is a link between effort and reward
http://online.wsj.com/article/SB10001424052748704026204575266251915530206.html

Notable & Quotable - John Fund on Chris Christie's political toughness
http://online.wsj.com/article/SB10001424052748704717004575268630100057138.html

Zero-Sum Earmarks - A new study finds that pork hurts at home
http://www.bipartisanalliance.com/2010/05/zero-sum-earmarks-new-study-finds-that.html

Congress Gets Mean - The Democratic tax bill's double whammy on carried interest firms
http://online.wsj.com/article/SB10001424052748704026204575266881281707488.html

How Democrats’ Government Takeover of Health Care Will Lead Employers to Drop Coverage
http://rpc.senate.gov/public/_files/ABitterPill.pdf

Rising Rate of Media Misrepresentation
http://www.acsh.org/factsfears/newsID.1468/news_detail.asp
MSNBC's Nightly News last night  devoted a short segment to an "Extreme  Eating" list of high-calorie restaurant meals compiled by the  Center for Science in the Public Interest (CSPI).

Remarks at the African Diplomatic Corp's Celebration of Africa Day. By Johnnie Carson, Assistant Secretary, Bureau of African Affairs
http://www.state.gov/p/af/rls/rm/2010/142261.htm

U.K. Prosecutors Will Drop AIG Financial Unit Probe
http://www.businessweek.com/news/2010-05-26/u-k-prosecutors-will-drop-aig-financial-unit-probe-update1-.html

Britain reveals extent of nuclear arsenal for first time
http://www.japantoday.com/category/world/view/britain-reveals-extent-of-nuclear-arsenal-for-first-time

The Sun is Shining on Solar Subsidies in California Today
http://www.instituteforenergyresearch.org/2010/05/26/the-sun-is-shining-on-solar-subsidies-in-california-today/

President Obama Talks Jobs in California
http://my.barackobama.com/page/community/post/elizabethchan/gGGj9k

Obama's Russia Tribute - What he gave away in return for watered-down Iran sanctions
http://www.bipartisanalliance.com/2010/05/obamas-russia-tribute-what-he-gave-away.html

A New Age of Reform - The mood in the country suggests the U.S. may be at the start of an era of political and economic reform
http://online.wsj.com/article/SB10001424052748704717004575268523673781674.html

The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill: May 25, 2010
http://www.whitehouse.gov/blog/2010/05/25/ongoing-administration-wide-response-deepwater-bp-oil-spill-may-25-2010

Yes, the Gulf Spill Is Obama's Katrina - Where was the White House plan, and why has it been so slow to make decisions?
http://online.wsj.com/article/SB10001424052748704717004575268752362770856.html

ObamaCare vs. Small Business - Why the National Federation of Independent Business supports the constitutional challenge to the health-insurance mandate
http://online.wsj.com/article/SB10001424052748704113504575264802756326086.html

Tuesday, May 25, 2010

Press Briefing

May 26, 2010

How We Created the First Synthetic Cell - The assembled genome is the largest chemically defined structure ever synthesized in the laboratory.
http://online.wsj.com/article/SB10001424052748704026204575266460432676840.html

Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output
http://www.cbo.gov/doc.cfm?index=11525

A Crisis of Competence in the Gulf
http://blog.heritage.org/2010/05/26/morning-bell-a-crisis-of-competence-in-the-gulf/

The Greatest Myth of the George W. Bush Presidency
http://www.instituteforenergyresearch.org/2010/05/25/the-greatest-myth-of-the-george-w-bush-presidency/

The Case Against the Land-Mine Treaty - Without the DMZ minefield, nuclear weapons would be the main deterrent protecting South Korea
http://online.wsj.com/article/SB10001424052748704852004575258433073503318.html

Corporations Against Corporate Welfare. Note: At least when the political costs outweigh the political favors.
http://online.wsj.com/article/SB10001424052748704026204575266601413204676.html

Of Politics and Oil - The Washington panic, and the realities of the Gulf Coast spill
http://online.wsj.com/article/SB10001424052748704026204575266903446455896.html

The Panic, Round Two: What Would Reagan Do?
http://online.wsj.com/article/SB10001424052748704113504575264940533857802.html
Giant pools of capital are sitting idle in unproductive deposits or inflation hedges. They could easily fund job growth if real, after-tax prospects improved.

The Subjects of the Constitution. By Nicholas Quinn Rosenkranz, Georgetown University Law Center
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1611210
Stanford Law Review, Vol. 62, No. 5, 2010

Reclaiming the Northern Border: The Future of Plan Ecuador
http://blogs.state.gov/index.php/entries/ecuador_future

John Paul Stevens, leader of the Resistance
http://www.scotusblog.com/2010/05/john-paul-stevens-leader-of-the-resistance

President Obama Needs More Legal Tactics Against Terrorists, by Benjamin Wittes, Senior Fellow, Governance Studies
http://www.brookings.edu/opinions/2010/0514_miranda_wittes.aspx

Remarks at Colby College Commencement, by Judith A. McHale, Under Secretary for Public Diplomacy and Public Affairs
Waterville, ME, May 23, 2010
http://www.state.gov/r/remarks/142197.htm

Stimulus by Spending Cuts: Lessons from 1946
http://www.cato.org/pubs/policy_report/v32n3/cp32n3-1.html

International Energy Outlook 2010-Highlights
http://www.eia.doe.gov/oiaf/ieo/index.html

Seniors Will Lose Big Under Obamacare
http://fixhealthcarepolicy.com/in-the-news/side-effects-seniors-will-lose-big-under-obamacare

Monday, May 24, 2010

American Jobbery Act - Dissecting this week's stimulus bill

American Jobbery Act. WSJ Editorial
Dissecting this week's stimulus billWSJ, May 25, 2010

President Obama and Democrats on Capitol Hill are publicly fretting about the dangers of spending and debt, which can mean only one thing: Another big spending "stimulus" bill is in the works. And sure enough, the House plans to vote this week on $190 billion in new spending, $134 billion of which it won't even pretend to pay for.

Sander Levin, the new Ways and Means Chairman, calls this exercise the American Jobs and Closing Tax Loopholes Act. Mr. Levin has waited 28 years to ascend to this throne and this is the best he can do? "Jobs" were also the justification in February 2009 for the $862 billion stimulus that has managed to hold the jobless rate down to a mere 9.9%. Maybe Mr. Levin's spending can hold it down to even greater heights.

The nearby table gives a flavor of what's in this grab bag of political payoffs, corporate welfare and transfer payments. There's $24 billion to help states pay the exploding tab for Medicaid, the same program that ObamaCare expands by some 16 million new recipients. The bill also offers $1 billion for summer jobs for teens, whose jobless rate is 25.4%. Congress could do far more to create teen jobs if it merely suspended last year's minimum wage increase to $7.25 an hour, which priced millions of young workers out of the labor market. But that would be too rational.


[1jobsbill.rno]

The biggest item is $65 billion to prevent a 21% cut in Medicare physician reimbursements. Democrats promised this to the American Medical Association in return for its ObamaCare support, but they left the $65 billion out of the health-care law to make it look less expensive. Now they're pushing it through under separate cover when they assume the press corps won't notice.

The $47 billion to extend unemployment insurance to nearly two full years will bring the total spent on this program to $137 billion during this recession—five times more than in either of the prior two recessions. That's nearly as much as the federal corporate income raised in 2009.
The sages in Congress continue to claim that these payments for not working will lead to more work. Representative Jim McDermott recently declared on the House floor that jobless payments are "one of the most effective forms of economic stimulus" because "every unemployment dollar spent returns $1.64 of economic benefits." So let's lay off everybody, pay them for not working, and watch the economy really boom. Where do they teach this stuff?

This bill is also one of the most expensive corporate welfare giveaways in recent years with subsidies for municipal bond traders, cotton farmers, yarn producers, sheep growers, Hawaiian sugar cane cooperatives, motor sports businesses, renewable energy firms, the steel lobby, and so on. Any industry that doesn't get a tax credit or other handout in this bill should fire its lobbyist.
All of this is "paid for," in the Beltway lingo, with a net tax increase on business of about $40 billion and at least $134 billion of new debt. There's a new 24 cent a barrel tax on oil companies, which would flow to consumers in higher gas prices, because Congress says the industry's profits are excessive.

U.S. multinational companies would pay a higher tax rate on their overseas income, which will not help them create more jobs here. The better way to discourage job outsourcing is to cut the corporate income tax rate, but Mr. Levin and his union allies will have none of that.
Managers of private equity and venture capital firms that provide the start-up and expansion funding to businesses would see their tax rate rise to as high as 35% from 15% today—a huge tax increase when businesses are starved for capital. And small, often family-owned Subchapter S companies that provide professional services would be required to subject more of their profits to the self-employment tax. These firms already pay up to 35% tax on these profits, so under the Democratic plan their tax rate could reach 50%.

Perhaps you're wondering what happened to the "pay as you go" budget rules that Mr. Obama announced to great media fanfare as recently as February. Democrats now say "paygo" doesn't apply because this spending qualifies as an "emergency." But while the new spending isn't paid for, Democrats are insisting that the bill's extension of the R&D tax credit and small business depreciation allowance must be offset by the tax increases.

Oh, and by the way, the President is unveiling a new line-item veto proposal this week to "rein in wasteful spending and hold Congress accountable," as Senator John Kerry put it yesterday in a press release. If any of them were remotely serious, they'd start by line-item vetoing this entire bill.

Press Briefing

May 25, 2010

U.S.-China Strategic and Economic Dialogue 2010 Outcomes of the Strategic Track
http://www.state.gov/r/pa/prs/ps/2010/05/142180.htm

We, Robot. By Peter W. Singer, Director, 21st Century Defense Initiative, The Brookings Institution
http://www.brookings.edu/opinions/2010/0519_drone_wars_singer.aspx

"Power"-less Pakistan. By Charles K. Ebinger, Director, Energy Security Initiative, & Kashif Hasnie, Expert on International Security and Natural Resource Management.
The Brookings Institution
http://www.brookings.edu/opinions/2010/0519_pakistan_ebinger.aspx

How High are Your State’s Electricity Prices?
http://www.instituteforenergyresearch.org/2010/05/04/how-high-are-your-states-electricity-prices/

The Brookings Institution: How We're Doing as Debt Fears Rise
http://www.brookings.edu/papers/2010/0523_recovery_renewal.aspx

Iran and North Korea March On - Pyongyang's behavior shows why we must stop the mullahs from getting the bomb
http://online.wsj.com/article/SB10001424052748704113504575264270768612284.html

Sufrage, Schooling, and Sorting in the Post-Bellum U.S. South. By Suresh Naidu
http://tuvalu.santafe.edu/~snaidu/papers/suffrage.pdf

Cap and Flee - California refutes its own 'green jobs' policy
http://online.wsj.com/article/SB10001424052748703559004575256981030653158.html

Come party with Lady Gaga. By Caitlin Moran
http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/music/article7129672.ece

The Tax Caps Cometh - Massachusetts shows how to put a lid on education spending increases
http://online.wsj.com/article/SB10001424052748704113504575264663842523880.html

Christopher Hitchens: 'I was right and they were wrong'
http://www.guardian.co.uk/books/2010/may/22/christopher-hitchens-decca-aitkenhead
From hero of the left to neocon turncoat, and still battling on: Christopher Hitchens talks to Decca Aitkenhead about old arguments and his new memoir

The Road To Economic Serfdom. By Peter Boone and Simon Johnson
http://baselinescenario.com/2010/05/23/the-european-road-to-economic-serfdom/

Briefing on Trip to Indonesia
http://www.state.gov/g/142165.htm

America’s amazing success since 1980: Why Krugman is wrong.
http://www.themoneyillusion.com/?p=5164

Angels (Back) in America. WSJ Editorial
Dodd spares start-up financiers.
WSJ, May 25, 2010
http://online.wsj.com/article/SB10001424052748703957904575252430233003388.html

We take our policy victories wherever we can get them amid Washington's march to Europe-dom, so we're pleased to report that the Senate finance reform that passed last week did not contain new regulations on investors who finance start-up companies.

Chris Dodd's original draft contained numerous provisions targeting angel investors, the wealthy individuals who directly fund innovative new businesses that are still too small to attract venture capital. Currently they can do so with minimum government interference, but the bill would have subjected entrepreneurs seeking angel capital to a 120-day Securities and Exchange Commission review, which would ensure that many of these budding companies die a slow bureaucratic death. Angel investors would also have been subject to net worth and income requirements more than double today's, as well as a 50-state regulatory scheme that would replace today's single federal standard.

This attack on the businesses that create most new jobs in the U.S. and had nothing to do with 2008's financial panic was too much even for the Senate, which removed these restrictions in an uncontroversial voice vote earlier this month. Special credit goes to Missouri Republican Kit Bond, who led the charge, though Mr. Dodd and other Democrats cosponsored Mr. Bond's amendment and at least had the sense to recognize a mistake.

Still, the fact that such a destructive provision made it that far shows how little the Members and staff now running Congress understand about wealth creation and the sources of American prosperity.


Washington's $1 Trillion Opportunity - It's been 60 years since we streamlined our federal government. These days there are plenty of savings to be found.
http://online.wsj.com/article/SB10001424052748704113504575264463277182700.html

Multinational banks: They did not run away during the crisis. By Giacomo Calzolari   Micol Levi   Giorgio Barba Navaretti   Alberto Franco Pozzolo
http://www.voxeu.org/index.php?q=node/5083

Federal President Ignores Sudan's Genocide - African hopes are fading as the U.S. lets President Omar al-Bashir escape justice
http://online.wsj.com/article/SB10001424052748704113504575264273090491244.html

The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis
http://www.cbo.gov/doc.cfm?index=11524

American Jobbery Act - Dissecting this week's stimulus bill
http://online.wsj.com/article/SB10001424052748704113504575264532051783298.html

How Civilization Deals with Torture States
http://mises.org/daily/4295

The Buck Stops Nowhere
http://blog.heritage.org/2010/05/24/morning-bell-the-buck-stops-nowhere

Japan's problem is supply, not demand
http://super-economy.blogspot.com/2010/05/paul-krugman-wrote-in-nyt-that-we-are.html

Sunday, May 23, 2010

Press Briefing

May 24, 2010

A Legal Analysis of the New Arizona Immigration Law
http://digs.by/cJ5UWM

Rand Paul's Constitution - The Kentucky candidate's bad history
http://online.wsj.com/article/SB10001424052748704852004575258483848750578.html

An Obama-Bush Victory. WSJ Editorial
http://online.wsj.com/article/SB10001424052748704226004575262821804852424.html

A court upholds Presidential war powers
WSJ, May 24, 2010

It isn't often we can say that the Bush and Obama Administrations have won a joint triumph in the war on terror, but they got one on Friday from the D.C. Circuit Court of Appeals. A three-judge panel ruled unanimously that detainees held by the U.S. military at Bagram Air Force base in Afghanistan do not have habeas corpus rights under the Constitution.

The anti-antiterror lobby filed the case on behalf of three unlawful enemy combatants to extend the reach of the Supreme Court's 2008 Boumediene v. Bush decision that gave habeas rights to Guantanamo detainees. The Bush Justice Department had opposed this intrusion on Presidential war powers, and to its credit the Obama Administration maintained the same position. A district court judge found for the detainees, but the D.C. Circuit reversed.

As the opinion by Judge David Sentelle points out, extending habeas to a facility in an active war zone such as Afghanistan would mean that any prisoner held anywhere by the U.S. military would have such rights. The opinion doesn't say so, but such a policy would put unelected lawyers in the middle of every wartime decision on military detention. Such meddling would put U.S. soldiers at greater risk, while giving them far less incentive to detain terrorists on the battlefield lest GIs have to play "CSI: Kandahar" to gather evidence so our enemies won't be released at the prodding of the ACLU.

The lawyers for the detainees vow to appeal to the Supreme Court, but it's notable that the D.C. Circuit panel included a Carter (Harry Edwards) and Clinton appointee (David Tatel) as well as Mr. Sentelle, who was appointed by Reagan. This is a bipartisan show of judicial deference that is worth applauding.


Weekly Address: President Obama Establishes Bipartisan National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling
http://www.whitehouse.gov/blog/2010/05/22/weekly-address-bp-spill-independent-commission

The New Lords of Finance - Why Wall Street and Washington both like 'reform'
http://online.wsj.com/article/SB10001424052748704852004575258582650393448.html

'60 Minutes' Gets it Wrong on Phthalates
http://www.acsh.org/factsfears/newsID.1458/news_detail.asp
CBS' 60 Minutes may be known for its investigative news, but on Sunday it failed to thoroughly examine the claims against phthalates, a group of chemicals that help to make plastic flexible. Sunday's segment perpetuates baseless allegations against these everyday chemicals, creating unfounded health scares in homes nationwide.

Strategic and Economic Dialogue Opening Session. By Hillary Rodham Clinton, Secretary of State. Great Hall of the People, Beijing, China
http://www.state.gov/secretary/rm/2010/05/142133.htm

Congress's Carried Interest Tax Folly - The latest soak-the-rich scheme will mean less capital investment and fewer new jobs
http://online.wsj.com/article/SB10001424052748704852004575258401601217646.html

No Dietary Cure for Autism
http://www.state.gov/s/ct/rls/rm/2010/142110.htm

EPA to BP: Disperse a Different Dispersant
http://www.acsh.org/factsfears/newsID.1451/news_detail.asp

A Message from the President: "They backed down". By Christopher Hass, barackobama.com
http://my.barackobama.com/page/community/post/obamaforamerica/gGGBRr
On Thursday, the Senate passed historic Wall Street reform. This movement proved again that the strongest special interests, who for so long have called the shots in Washington, can be beat.

America's new culture war: Free enterprise vs. government control. By Arthur C. Brooks
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/21/AR2010052101854.html

Secretary Clinton Highlights Importance of American Exports to Overseas Markets During Visit to Boeing Maintenance Facility in Shanghai, China
http://www.state.gov/secretary/rm/2010/05/142130.htm

Goldman and Washington's Wall Street Takeover - The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry
http://www.bipartisanalliance.com/2010/05/goldman-and-washingtons-wall-street.html

Macroprudential instruments and frameworks: report published by the Committee on the Global Financial System (CGFS)
http://www.bis.org/press/p100521.htm

Remarks At USA Pavilion Gala Dinner, by Hillary Rodham Clinton, Secretary of State, U.S. Pavilion at Shanghai Expo, Shanghai, China
http://www.state.gov/secretary/rm/2010/05/142123.htm

Americans Can’t Afford the Democrats’ $23 Billion State Bailout
http://rpc.senate.gov/public/_files/RPCEdFactsStateBailoutFINAL.pdf

Return of the Nervous Weekend - Two years ago the world looked to Washington and its 'Sunday night specials.' Now it's Europe's turn
http://online.wsj.com/article/SB10001424052748704852004575258302164643496.html

Goldman and Washington's Wall Street Takeover - The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry.

Goldman and Washington's Wall Street Takeover. By EDWARD JAY EPSTEIN
The SEC's case is weak, but it helped the government justify sweeping new powers over the financial industry.WSJ, May 22, 2010

When President Obama signs the new financial regulation act the government will assume sweeping new powers over Wall Street. The passage of this bill did not occur in a vacuum. The administration carefully laid the groundwork by inculcating public fear that the great financial houses betray investors by rigging securities to fail. Exhibit A: the SEC's recent fraud case against Goldman Sachs.

The agency's complaint alleges that Goldman Sachs defrauded the investors in its Abacus 2007-AC1 fund by not disclosing the role played in the fund's creation by John Paulson, a hedge fund operator who stood to make an immense profit if the fund failed. It might be a great conspiracy case—if the SEC could come up with a plausible conspiracy.

Mr. Paulson wanted to make a billion dollar wager that subprime-backed mortgages would collapse. So he went to Goldman Sachs, which, like the other major financial houses, is in the business of creating such customized gambling products for clients.

For a $15 million fee from Mr. Paulson, Goldman created Abacus 2007-AC1. It provided exposure to a portfolio of 90 subprime home mortgage-backed securities. If the underlying securities did not default, those who took the long side of Abacus would collect handsome profits. If the housing bubble burst, those who took the short side would win heavily.

Goldman found three participants to bet long—ACA Capital Holdings, a bond insurer, IKB Deutsche Industriebank (a Germany-based specialist in mortgage securities), and itself. ACA went long on the deal. It sold a $900 million credit default swap on Abacus and effectively invested most of the $40 million it got from selling the swap to Goldman in the Abacus deal itself. ACA's wholly owned subsidiary, ACA Management, had sole authority to pick every one of the 90 securities in the portfolio. IKB bought $150 million worth of Abacas's notes, and Goldman put up $90 million to complete the financing.

Mr. Paulson was the lone short, buying ACA's credit default swap from Goldman. All four participants in the Abacus deal had the same data about the 90 underlying securities. What separated them was their opinion of the direction of the housing market. Mr. Paulson felt it was headed toward a collapse; ACA considered this so unlikely that it gave nearly 20 to 1 odds on its credit default swap. Mr. Paulson won the bet.

So where is the fraud? The SEC says Goldman withheld material information from ACA and IKB by not disclosing the history of the deal, including Mr. Paulson's role in the creation of Abacus. Of course, ACA knew someone was short the deal, since it sold Goldman a $900 million credit default swap precisely for that purpose. Goldman did not say that Mr. Paulson was that counterparty. But his identity may not have been a mystery to ACA.

Mr. Paulson's top lieutenant in the deal, Paolo Pellegrini, testified to the SEC in its investigation of the matter in 2008 that he had informed ACA Management that Mr. Paulson's hedge fund was betting against the transaction. If so—and Mr. Pellegrini had no reason to perjure himself since he had no obligation to disclose anything—ACA possessed the information that Goldman withheld, and went ahead with the deal. IKB bank, which bought Abacus's AAA-rated notes, may not have known about Mr. Paulson's role in Abacus.

The real issue here turns on the term "material," which the SEC defines as facts an investor would reasonably want to know before making an investment. The agency contends that Mr. Paulson's role in suggesting securities to ACA was "material." Prior to this case, the SEC did not always consider a deal's history material, taking the position in hundreds of other such deals that how a fund was constructed, including how its rating was achieved with rating agencies, did not require disclosure. That was before Wall Street became a political bete noire.

Nevertheless, the SEC voted in a split decision (all the Republicans voting against) to accuse Goldman of civil fraud. It alleges that Mr. Paulson "heavily influenced" ACA Management to pick losers but provides no theory as to why ACA Management, whose corporate parent was risking $940 million, would do anything but pick the least risky subprime bonds. As it turned out, the subprime securities ACA picked for the portfolio failed. But so did the vast majority of securities based on subprime mortgages. Since 99% of them were marked down by the rating agencies by the end of 2008, Abacus would have likely suffered the same fate had ACA picked 90 other such securities.

ACA's losses on Abacus were less than 5% of the $22 billion in losses it suffered in its other subprime funds (in which Mr. Paulson was not involved). When the time came to pay off the Abacus wager, ACA, hit by $68 billion in credit default swaps, couldn't make good. Its Abacus debt fell to the Dutch bank ABN-AMRO, which had back-stopped ACA. The Royal Bank of Scotland, which had the misfortune of merging with the Dutch bank, paid Mr. Paulson.

No one can fault the SEC for wanting to restore faith in Wall Street by ferreting out financial frauds. But its case against Goldman Sachs does not add up. It implies a conspiracy without co-conspirators. If Goldman had designed its own fund to fail, it could have retained the credit default swap it got from ACA for its own account rather than selling it to Mr. Paulson. Instead, it invested $90 million of its own money into Abacus. Goldman's records showed it lost $75 million (after taking its $15 million fees into account). The SEC has issued no complaint against Mr. Paulson in this deal.

Not only is there no motive or logic for Goldman to have sabotaged its own fund, but the SEC complaint fails to cite any evidence it did. Nevertheless, it has brilliantly succeeded in implanting that idea in the media. On April 18, Paul Krugman stated in his New York Times column that "the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That's what I would call looting." In fact, the SEC complaint never alleges that Goldman deliberately designed any securities to fail.

Even though the widely echoed "designed to fail" charge is an invention, it helped convert a civil case of nondisclosure into one of Grand Theft Wall Street in the public imagination. The message—Wall Street deliberately betrays investors—served a political end. It helped provide cover for the government's desire to manage the financial universe.

Mr. Epstein is the author of "The Hollywood Economist" (Melville House, 2010).

Press Briefing

May 23, 2010

Remarks At The Council On Foreign Relations, by James B. Steinberg, Deputy Secretary of State. Washington, DC, May 19, 2010
http://www.state.gov/s/d/2010/142120.htm

Five Questions for Pres. Obama on Fuel Economy Standards
http://www.instituteforenergyresearch.org/2010/05/21/five-questions-for-pres-obama-on-fuel-economy-standards/

Travel Diary: Secretary Clinton Op-Ed on U.S.-China Achievements Beyond Expo
http://blogs.state.gov/index.php/site/entry/travel_diary_clinton_op-ed_us_china

Gross National Debt: $13 trillion and counting
http://rpc.senate.gov/public/_files/debtchartsv2.pdf

Born to Veto - Christie saves New Jersey from a tax increase
http://online.wsj.com/article/SB10001424052748704852004575258751835748206.html
"New Jersey does not have a tax problem; New Jersey has a spending and size of government problem."

Dennis Blair Departs - Another victim of intelligence reform
http://online.wsj.com/article/SB10001424052748704852004575258382267478018.html

Intelligence disputes are usually murky, though the sacking of Dennis Blair isn't among them. Explanations for the Director of National Intelligence's exit this week range from Mr. Blair's turf wars with the CIA and at the White House to the failure to pre-empt three domestic terror attacks, two of which failed out of blind luck. But Mr. Blair is really a casualty of the failed "intelligence reform" of the last decade.

Mr. Blair's successor will be the fourth DNI in the five years since the office was stood up in 2005, and this unfortunate man or woman will also supposedly integrate and manage the 16 intelligence satraps. As we and other critics predicted at the time, however, the DNI has merely become another bureaucracy layered on top of the other bureaucracies, with some 1,500 employees often doing what others elsewhere also do. In a bureaucratic classic, Mr. Blair and CIA chief Leon Panetta clashed last year over naming intelligence chiefs abroad. Mr. Panetta won.

As good an illustration as any of the dysfunction is the report that nominally precipitated the former Admiral's pink slip. The Senate Intelligence Committee identified 14 gaps that might have prevented Umar Farouk Abdulmutallab from boarding his Christmas Day flight, one being that "no one entity within the IC [intelligence community] has sole responsibility nor bears the entire burden of either connecting dots or accountability for failing to do so." Except that isn't a Senate conclusion: It comes from the official statement the National Counterterrorism Center—the only agency Mr. Blair controlled day to day—gave to investigators.

The Senate indictment is damning, though its Senate authors unfairly exempt themselves. The 2004 bill that putatively made the Counterterrorism Center the government's one responsible, accountable entity—a kind of antiterror CEO—passed the House 336-75 and the Senate 89-2, rushed along by the cheerleading of the 9/11 Commission. Mr. Blair is another memento of how pointless if not detrimental this reshuffling of the bureaucratic deck chairs was for the realities of the w— on t——.

Plotting a Democratic Comeback - Pennsylvania's governor, Ed Rendell, says the tea parties will throw up flawed GOP candidates like Rand Paul and that his party should run on the success of the stimulus.
http://online.wsj.com/article/SB10001424052748704852004575258261059419530.html

Lessons From a Torpedo - Placating Kim Jong Il doesn't change North Korea's behavior.
http://online.wsj.com/article/SB10001424052748703691804575254583245786418.html

Saturday, May 22, 2010

Press Briefing

May 22, 2010

Confronting a Resilient al-Qa'ida: The United States Strategic Response
Daniel Benjamin, Coordinator, Office of the Coordinator for Counterterrorism, The Washington Institute for Near East Policy. Washington, DC, May 21, 2010
http://www.state.gov/s/ct/rls/rm/2010/142110.htm

New nuclear deal is an Iranian triumph
http://www.thejc.com/news/world-news/32004/analysis-new-nuclear-deal-iranian-triumph

No More Crying ’Spanish Flu’. By Michael Fumento. Forbes.com, May 20, 2010
http://fumento.com/swineflu/spanish_flu.html

Every Day Is Trade Day. Dipnote, the US State Dept Blog
http://blogs.state.gov/index.php/site/entry/trade_day

Raising Arizona’s Defense
http://blog.heritage.org/2010/05/21/morning-bell-raising-arizonas-defense/

The Caribbean Basin Security Initiative: A Shared Regional Security Partnership
http://www.state.gov/r/pa/scp/fs/2010/142088.htm

Dismissing the Black Panthers and the Professionals at Justice
http://blog.heritage.org/2010/05/20/dismissing-the-black-panthers-and-the-professionals-at-justice

The Message to the U.S. in Germany’s Ascension
http://blog.heritage.org/2010/05/20/the-message-to-the-u-s-in-germany%E2%80%99s-ascension/

China Under Pressure - Chinese school stabbings. By Michelle Tsai
http://www.slate.com/id/2254176
After car accidents, for instance, drivers usually sort things out between themselves, figuring out how much money one owes the other and exchanging cash more or less on the spot. Most conflicts are settled peacefully in this way, but occasionally things get violent, and then an "eye for an eye" philosophy prevails.

Thursday, May 20, 2010

Press Briefing

May 21, 2010

United States reaffirms commitment to addressing global hunger and food security through Feed the Future initiative
http://www.usaid.gov/press/releases/2010/pr100520.html

NGO's BPA Report Intended to Frighten, Not Enlighten. By Robert L. Brent MD, PhD, D.Sc
http://www.acsh.org/factsfears/newsID.1445/news_detail.asp

The Dangerous Illusion of 'Nuclear Zero' - Why even speculate about a nuclear posture that would require world peace as a precondition?
http://www.bipartisanalliance.com/2010/05/dangerous-illusion-of-nuclear-zero-why.html

Timor-Leste Restoration of Independence Day
http://www.state.gov/secretary/rm/2010/05/142046.htm

The Never Ending Renewable Energy Handout: Senate Committee seeks to make renewable energy handout “permanent”
http://www.instituteforenergyresearch.org/2010/05/20/the-never-ending-renewable-energy-handout/

Privatization Can Help Greece - Keynesians warned against Thatcher's policies in 1981. They were proven wrong
http://www.bipartisanalliance.com/2010/05/privatization-can-help-greece.html

The Madness of Cotton - The feds want U.S. taxpayers to subsidize Brazilian farmers
http://www.bipartisanalliance.com/2010/05/madness-of-cotton-feds-want-us.html

Business Executives for National Security, Annual Policy Forum. Speech by Ellen Tauscher, Under Secretary for Arms Control and International Security
Washington, DC, May 19, 2010
http://www.state.gov/t/us/142005.htm

Goodbye, Employer-Sponsored Insurance - Companies are discovering that it's cheaper to pay fines to the government than to cover workers
http://online.wsj.com/article/SB10001424052748703880304575236602943319816.html

The Bankrupting of America - We have a ruinous collaboration of elected officials and unionized public workers
http://online.wsj.com/article/SB10001424052748703315404575250610059801620.html

State of Metropolitan America
http://www.brookings.edu/metro/StateOfMetroAmerica.aspx

The Fear Returns - Europe's policy panic is feeding another financial panic
http://online.wsj.com/article/SB10001424052748703559004575256843791551332.html

Estonia's Lessons for Greece - Europe's problem isn't the euro, but the failed fiscal policies of its political class
http://online.wsj.com/article/SB10001424052748703559004575256690853453952.html

United States to Assist Palestinian Refugees in Syria
http://www.state.gov/r/pa/prs/ps/2010/05/141996.htm

A Dose of Reality: Fact-Checking the White House on Health Insurance Policy
http://fixhealthcarepolicy.com/reality/

The White House Blog: Wall Street Reform and Sending Remittances
http://www.whitehouse.gov/blog/2010/05/20/wall-street-reform-and-sending-money-home

Junk Economics: A Closer Look at Those Shocking Health Insurance Profits
http://fixhealthcarepolicy.com/in-the-news/junk-economics-a-closer-look-at-those-shocking-health-insurance-profits

House Republicans Push Back Against Job-Killing Value-Added Tax
http://republicanleader.house.gov/blog/?p=884

The Dangerous Illusion of 'Nuclear Zero' - Why even speculate about a nuclear posture that would require world peace as a precondition?

The Dangerous Illusion of 'Nuclear Zero'. By DOUGLAS J. FEITH AND ABRAM N. SHULSKY
Why even speculate about a nuclear posture that would require world peace as a precondition?
WSJ, May 21, 2010

Moving toward "nuclear zero" is a signature theme of this administration. President Barack Obama's vision of a world without nuclear weapons is certainly grand. The problem is that our current policies lack coherence and rest on other-worldly assumptions.

Consider the administration's recently released Nuclear Posture Review (NPR). One of the conditions that would permit the United States and others to give up their nuclear weapons "without risking greater international instability and insecurity" is "the resolution of regional disputes that can motivate rival states to acquire and maintain nuclear weapons." Another condition is not only "verification methods and technologies capable of detecting violations of disarmament obligations," but also "enforcement measures strong and credible enough to deter such violations."

The first condition would require ending the Arab-Israeli conflict, settling the Korean War, resolving Kashmir and the other India-Pakistan disputes, and defusing Iran's tensions with its neighbors and with the U.S. It also means solving any other significant conflicts that might arise.

Verification would be tough, but even if technology could solve the problem, the question remains: What kind of "enforcement measures" do those who drafted the NPR imagine?

As of now, the U.N. Security Council is the only conceivable policing agency and its record is weak. What, for example, did the Security Council do when Iraq violated the Geneva Convention on poison gas in the 1980s, or when North Korea recently violated the Nuclear Non-Proliferation Treaty? There simply are no good grounds for relying on the Security Council's will to enforce treaties.

U.S. efforts to organize sanctions in response to Iran's illegal pursuit of nuclear weapons have been exercises in frustration. The Security Council deal announced on Tuesday falls far short of the "crippling sanctions" the administration had once intended. This experience undermines the credibility of any threat of enforcement measures—even against a state not allied with a veto-wielding Security Council member. And if China, Russia or an ally of either were someday to cheat on the ban, enforcement would be precluded by veto.

Is some kind of "world executive" envisioned to implement, or at least authorize, enforcement measures over objections from major powers? If so, it's hard to see how the U.S. or any other great power would relinquish its sovereign rights to independent action and self-defense.

"Strong enough" enforcement would have to include military measures. Is the idea here a U.N. military force that could fight large wars, as some diplomats proposed when the U.N. Charter was negotiated in the late 1940s? Or would military enforcement be the duty of the strongest state, presumably the U.S.? Only an arrangement verging on world government—an entity that could deploy overwhelming military power against a violator without interference by other powers—could possibly fill the bill.

The administration recognizes that knowledge about physics cannot simply be eradicated. "In a world where nuclear weapons had been eliminated but nuclear knowledge remains, having a strong infrastructure and base of human capital would be essential to deterring cheating or breakout, or, if deterrence failed, responding in a timely fashion," the NPR says. So even in a world of nuclear zero, the U.S. would have to remain able to rebuild its nuclear capability in a "timely" fashion. Presumably other nuclear-capable states would conclude the same for themselves.

In the event of a serious crisis, countries would race to reconstitute their nuclear arsenals. The winner would enjoy a fleeting nuclear monopoly, and then come under severe pressure to use its nuclear weapons decisively. The resulting instability could make the competitive mobilizations of the European armies in 1914 look like a walk in the park.

So what are the benefits of endorsing nuclear zero as America's goal? Proponents argue that embracing nuclear zero will increase cooperation from other countries against proliferators like North Korea and Iran. But what is this hope based on? America's embracing nuclear zero may take away a debating point from countries unwilling to cooperate with us, but it does nothing to change their interests. The deal Brazil and Turkey cut with Iran this week shows that Mr. Obama's embrace of nuclear zero does not translate into international cooperation where it really matters.

Endorsing nuclear zero makes it even harder for the U.S. government to maintain the nuclear infrastructure that the president says is essential for our security. Why should a bright young scientist or engineer enter a dying field—especially when innovation is discouraged by support for a permanent ban on weapons testing, and by the renunciation of new weapons development? The NPR states that the administration aims to "enhance recruitment and retention" of technical personnel, but its policies seem sure to drive them away.

The NPR stresses that the world's nonproliferation regime requires a strong U.S. nuclear umbrella. Yet the proposal can hardly increase confidence in America's determination to maintain its longstanding global role. U.S. friends overseas worry about their security in a world where America seems determined to shed its burdens as a nuclear power. This will likely spur nuclear proliferation—not discourage it.

President Obama has constructed U.S. nuclear-weapons policy on the assumption that it is helpful to set our goal as the complete abolition of such weapons. But the NPR makes clear that not even the Obama administration can really imagine a world without nuclear weapons. Meanwhile, the president's visionary notions appear likelier to undermine rather than further his own goals of nuclear nonproliferation and stability.

Mr. Feith, a former under secretary of defense for policy, is a senior fellow at the Hudson Institute and the author of "War and Decision: Inside the Pentagon at the Dawn of the War on Terrorism" (Harper, 2008). Mr. Shulsky is a senior fellow at the Hudson Institute and was director of strategic arms control policy at the Department of Defense from 1982 to 1985.

Privatization Can Help Greece - Keynesians warned against Thatcher's policies in 1981. They were proven wrong.

Privatization Can Help Greece. By ALLAN H. MELTZER
Keynesians warned against Thatcher's policies in 1981. They were proven wrong.
WSJ, May 21, 2010

What could the leaders of the International Monetary Fund and the European Union have had in mind when they agreed to lend Greece more than $100 billion in exchange for promises to restore stability? After initial relief, markets soon recognized that the program was not sufficient and not likely to be maintained.

When countries joined the common European currency, they gave up the right to use monetary policy to inflate or devalue. That left wage reduction and fiscal restraint as the only recourse in a crisis. With Greece's money wages and government debt too high, the IMF-EU relief effort does not add any new options. Instead it delays default by offering yet more debt as a solution to too much debt, and it gives the Greek government more time to do what it has been unable to do—lower public-sector wages by about 20% and reduce the budget deficit by 10% of GDP.

This only prolongs uncertainty and offers debt-holders a promise by the Greek government that will be hard to honor. No wonder markets are skeptical.

What would have worked? Much of Greece's industry and commerce, including much of the tourist industry, is owned by the state. It should be sold with the proceeds used to reduce public debt. That would make the remainder of the debt more sustainable and transfer workers to the private sector where competitive pressures for lower wages and increased productivity would more closely align employment costs and reality. If the socialist government returned more of the economy to the private sector, Greece would have a better chance of economic recovery.

Much of the Greek economy not owned by the state is "underground," in the so-called informal sector, where wages and incomes adjust quickly to the market. Greece also should offer an amnesty for unpaid back taxes to those who join the legal sector.

If after selling assets the remaining debt is still unsustainable, Greece will have to default (it will be called restructuring, but it is nonetheless default). To lessen the pain from losses borne by Greek and foreign lenders following default, the country should commit to fiscal policies monitored by the European Union. But it should reject the IMF-EU loan. More debt, even subsidized debt, is not the right answer.

The main benefit to Europe of the IMF-EU program is that the Spanish government has agreed to additional reductions in current and future spending. This was a difficult and unpopular political decision given the very high level of unemployment in Spain. A Spanish default would force France and Germany to choose either massive help to Spain or bailing out the losses on Spanish debt at German and French banks. German banks hold $240 billion of Spanish debt but only $43 billion of Greek debt.

Keynesians who think reducing public spending during a recession is a disastrous error should recall that they warned British Prime Minister Margaret Thatcher in 1981 that Britain would never recover if she continued with her tight fiscal and monetary policy during Britain's deep recession. Mrs. Thatcher declined to take their advice. Expectations about Britain's future changed for the better, and a long, productive recovery began soon after.

Greece's government should take heart from her example. The new government in Britain might remember this as well. And so might the Keynesians in the Obama administration.

Mr. Meltzer is a professor of economics at Carnegie Mellon University, the author of "A History of the Federal Reserve" (University of Chicago Press, 2004), and a visiting scholar at the American Enterprise Institute.

The Madness of Cotton - The feds want U.S. taxpayers to subsidize Brazilian farmers

The Madness of Cotton. WSJ Editorial
The feds want U.S. taxpayers to subsidize Brazilian farmers
WSJ, May 21, 2010

U.S. cotton farmers took in almost $2.3 billion dollars in government subsidies in 2009, and the top 10% of the recipients got 70% of the cash. Now Uncle Sam is getting ready to ask taxpayers to foot the bill for another $147.3 million a year for a new round of cotton payments, this time to Brazilian growers.

We realize that in today's Washington this is a rounding error. But the reason for the new payments to foreign farmers deserves attention. If it becomes a habit, it is unlikely to end with cotton.

Here's the problem: The World Trade Organization has ruled that subsidies to American cotton growers under the 2008 farm bill are a violation of U.S. trading commitments. The U.S. lost its final appeal in the case in August 2009 and the WTO gave Brazil the right to retaliate.

Brazil responded by drafting a retaliation list threatening tariffs on more than 100 U.S. exports, including autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruits, nuts and cotton. The exports are valued at about $1 billion a year, and the tariffs would go as high as 100%. Brazil is also considering sanctions against U.S. intellectual property, including compulsory licensing in pharmaceuticals, music and software.

The Obama Administration appreciates the damage this retaliation would cause, so in April it sent Deputy U.S. Trade Representative Miriam Sapiro to negotiate. She came back with a promise from Brazil to postpone the sanctions for 60 days while it considers a U.S. offer to—get this—let American taxpayers subsidize Brazilian cotton growers.

That's right. Rather than reduce the U.S. subsidies to American cotton farmers that are the cause of the trade fight, the Administration is proposing that U.S. taxpayers also compensate Brazilian cotton farmers for the harm done by the U.S. subsidies. Thus the absurd U.S. cotton program would dip into the Commodity Credit Corporation to pay what is a bribe to Brazil so it won't retaliate.

Talk about taxpayer double jeopardy. As Senator Richard Lugar (R., Ind.) said recently, the commodity credit program was established to assist U.S. agriculture, "not to pay restitution to foreign farmers who won a trade complaint against a U.S. farm subsidy program."

Mr. Lugar wants the subsidies to U.S. farmers cut by the amount that will have to be sent to Brazil. He adds that a better option would be to take on the trade-distortions of the cotton program. "I am prepared to introduce legislation to achieve these immediate reforms," he wrote in an April 30 letter to President Obama.

This is probably tilting at political windmills, since Mr. Obama has shown no appetite for trade promotion, much less confronting a cotton lobby supported by such Democrats as Arkansas Senator Blanche Lincoln. But we're glad to see that at least Mr. Lugar is willing to call out the absurdity of U.S. taxpayers subsidizing foreign farmers to satisfy the greed of a few American cotton growers.

Press Briefing

May 20, 2010

The Conference Room That Re-Arranges Itself
http://spectrum.ieee.org/automaton/robotics/robotics-software/the-conference-room-that-rearranges-itself

Scientists Create First Synthetic Cell, Opening New Era in Biology
http://digs.by/dwFN8r

Our Global Challenges: Improving the Resources Trade. By Robert D. Hormats. Under Secretary for Economic, Energy and Agricultural Affairs
CSIS-University of Miami Council on Foreign Relations Roundtable. Washington, DC, May 18, 2010
http://www.state.gov/e/rls/rmk/2010/141987.htm

The Tax Cuts Didn't Cause the Budget Deficit
http://www.heritage.org/Research/Commentary/2010/05/The-Tax-Cuts-Didnt-Cause-the-Budget-Deficit

Remarks by President Obama at Official Arrival Ceremony
http://www.whitehouse.gov/the-press-office/remarks-president-obama-official-arrival-ceremony

Dodd Bill is Just the Beginning of 'Too Big to Fail'
http://blog.heritage.org/2010/05/20/morning-bell-dodd-bill-is-just-the-beginning-of-too-big-to-fail

United States-Mexico Security Partnership: Progress and Impact
http://www.state.gov/r/pa/prs/ps/2010/05/142019.htm

How About a Good Catholic Story? - Cristo Rey students work hard inside and outside the classroom
http://atheistsforchristianism.blogspot.com/2010/05/cristo-rey-network-students-work-hard.html

Public Schools Need a Bailout - Washington didn't let Wall Street fail. Why should we do less for our kids? By Randi Weingarten, president, American Federation of

Teachers
http://online.wsj.com/article/SB10001424052748703957904575252760030285560.html

The Reduced Credit Act - Seventeen Senate Republicans vote for price controls
http://online.wsj.com/article/SB10001424052748703315404575250563499231670.html

Germany Shoots the Messengers - First thing we do, let's kill all the short sellers
http://online.wsj.com/article/SB10001424052748703691804575253994183448372.html

Deal with Fannie and Freddie Now or We'll Pay Later
http://www.heritage.org/Research/Commentary/2010/05/Deal-with-Fannie-and-Freddie-Now-or-Well-Pay-Later

Tuesday, May 18, 2010

The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain

Chuck Schumer vs. Free Speech. By Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold
The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain.
WSJ, May 19, 2010

Editor's note: The following article is co-authored by former Federal Election Commissioners Joan Aikens, Lee Ann Elliott, Thomas Josefiak, David Mason, Bradley Smith, Hans A. von Spakovsky, Michael Toner and Darryl R. Wold:

As former commissioners on the Federal Election Commission with almost 75 years of combined experience, we believe that the bill proposed on April 30 by Sen. Chuck Schumer and Rep. Chris Van Hollen to "blunt" the Supreme Court's decision in Citizens United v. FEC is unnecessary, partially duplicative of existing law, and severely burdensome to the right to engage in political speech and advocacy.

Moreover, the Democracy Is Strengthened by Casting Light On Spending in Elections Act, or Disclose Act, abandons the longstanding policy of treating unions and businesses equally, suggesting partisan motives that undermine respect for campaign finance laws.

At least one of us served on the FEC at all times from its inception in 1975 through August 2008. We are well aware of the practical difficulties involved in enforcing the overly complex Federal Election Campaign Act and the problems posed by additional laws that curtail the ability of Americans to participate in the political process.

As we noted in our amicus brief supporting Citizens United, the FEC now has regulations for 33 types of contributions and speech and 71 different types of speakers. Regardless of the abstract merit of the various arguments for and against limits on political contributions and spending, this very complexity raises serious concerns about whether the law can be enforced consistent with the First Amendment.

Those regulatory burdens often fall hardest not on large-scale players in the political world but on spontaneous grass-roots movements, upstart, low-budget campaigns, and unwitting volunteers. Violating the law by engaging in forbidden political speech can land you in a federal prison, a very un-American notion. The Disclose Act exacerbates many of these problems and is a blatant attempt by its sponsors to do indirectly, through excessively onerous regulatory requirements, what the Supreme Court told Congress it cannot do directly—restrict political speech.

Perhaps the most striking thing about the Disclose Act is that, while the Supreme Court overturned limits on spending by both corporations and unions, Disclose seeks to reimpose them only on corporations. The FEC must constantly fight to overcome the perception that the law is merely a partisan tool of dominant political interests. Failure to maintain an evenhanded approach towards unions and corporations threatens public confidence in the integrity of the electoral system.

For example, while the Disclose Act prohibits any corporation with a federal contact of $50,000 or more from making independent expenditures or electioneering communications, no such prohibition applies to unions. This $50,000 trigger is so low it would exclude thousands of corporations from engaging in constitutionally protected political speech, the very core of the First Amendment. Yet public employee unions negotiate directly with the government for benefits many times the value of contracts that would trigger the corporate ban.

This prohibition is supposedly needed to address concerns that government contractors might use the political process to steer contracts their way; but unions have exactly the same conflict of interest. So do other recipients of federal funds, such as nonprofit organizations that receive federal grants and earmarks. Yet there is no ban on their independent political expenditures.

Disclose also bans expenditures on political advocacy by American corporations with 20% or more foreign ownership, but there is no such ban on unions—such as the Service Employees International Union, or the International Brotherhood of Electrical Workers—that have large numbers of foreign members and foreign nationals as directors.

Existing law already prohibits foreign nationals, including corporations headquartered or incorporated outside of the U.S., from participating in any U.S. election. Thus Disclose does not ban foreign speech but speech by American citizen shareholders of U.S. companies that have some element of foreign ownership, even when those foreigners have no control over the decisions made by the Americans who run the company.

For example, companies such as Verizon Wireless, a Delaware corporation headquartered in New Jersey with 83,000 U.S. employees and 91 million U.S. customers, would be silenced because of the British Vodafone's minority ownership in the corporation. But competing telecommunications companies could spend money to influence elections or issues being debated in Congress.

The new disclosure requirements are unnecessary, duplicating information already available to the public or providing information of low value at a significant cost in reduced clarity for grass-roots political speech. In many 30-second ads, Disclose would require no fewer than six statements as to who is paying for the ad (the current law already requires one such statement). These disclaimers would take up as much as half of every ad.

The Disclose Act also creates new disclosure requirements for nonprofit advocacy groups that speak out. These groups already have to disclose their sponsorship, but Disclose requires them to go further and provide the government with a membership list. This infringes on the First Amendment rights of private associations recognized by the Supreme Court in NAACP v. Alabama. Groups can avoid this only by creating a new type of political action committee called a "campaign related activities account."

The result of these overly complex and unnecessary provisions is to force nonprofits to choose between two options that have each been found unconstitutional by the Supreme Court: Either disclose their members to the government or restrict their political spending to the campaign related activities account. This runs contrary to the explicit holding in Citizens United that corporations (and unions) may engage in political speech using their general treasuries.

These requirements will be especially burdensome to small businesses and grass-roots organizations, which typically lack the resources for compliance. So the end effect of all of this "enhanced disclosure" will be to ensure that only large corporations, unions and advocacy groups can make political expenditures—the exact opposite of what the sponsors claim to desire.

While the Disclose Act does include an exemption for major media corporations, it does not include websites or the Internet, which means the government can regulate (and potentially censor) political dialogue on the Web. Additionally, the law would require any business or organization making political expenditures to create and maintain an extensive, highly sophisticated website with advanced search features to track its political activities.

As a result, small businesses, grass-roots organizations, and union locals that maintain only basic websites would be discouraged from making any expenditures for political advocacy, because doing so would require them to spend thousands of dollars to upgrade their websites and purchase software to report information that is already readily available to the public from the FEC. Large companies and unions could probably meet this requirement, so once again the bill benefits large, institutional players over small businesses and grass-roots organizations.

The Disclose Act's abandonment of the historical matching treatment of unions and corporations will cause a substantial portion of the public to doubt the law's fairness and impartiality. It makes election law even more complex, more incomprehensible to ordinary voters, and more open to subjective enforcement by those seeking partisan gain.

Press Briefing

May 19, 2010

The White House Blog: "The Right Thing to Do"
http://www.whitehouse.gov/blog/2010/05/18/right-thing-do

Vanguard's Bailout Warning - The Senate lets regulators pick creditor favorites
http://online.wsj.com/article/SB10001424052748703957904575252671939962604.html

India's Fake Drugs Are a Real Problem - Global trade in counterfeits is huge and penalties are minimal
http://online.wsj.com/article/SB10001424052748703315404575249901511960396.html

A message from the Vice President on Elena Kagan's nomination
http://my.barackobama.com/page/content/bidenforkagan?source=TW

BPA's Missing Link
http://www.acsh.org/factsfears/newsID.1439/news_detail.asp

Background on the President's Events Today in Youngstown, Ohio
http://www.whitehouse.gov/the-press-office/background-presidents-events-today-youngstown-ohio

Hillary at the Buzzer: She avoids a debacle on Iran—for now.
http://online.wsj.com/article/SB10001424052748703957904575252600443502256.html

The Clearinghouse Rescue Plan
http://online.wsj.com/article/SB10001424052748704370704575228500068113796.html
Taxpayers will still be on the hook for risks in derivatives trading

FDA's Bad Blood
http://www.acsh.org/factsfears/newsID.1441/news_detail.asp

Chuck Schumer vs. Free Speech
http://www.bipartisanalliance.com/2010/05/disclose-act-would-make-election-law.html
The 'Disclose' Act would make election law even more incomprehensible and subject to selective enforcement for political gain.

Small Businesses Still Left Empty-Handed
http://blog.heritage.org/2010/05/18/side-effects-small-businesses-still-left-empty-handed

Dealing with Iran, by Ted Galen Carpenter
http://www.cato.org/pub_display.php?pub_id=11810

Akbar Ganji is someone U.S. officials should heed when it comes to policy toward his native Iran. Ganji, a writer and journalist who became the fifth biennial recipient of the Milton Friedman Award for Advancing Liberty on May 13, hasn't just talked the talk when it comes to working to establish a democratic Iran, he has walked the walk far beyond what most people could endure. During the late 1990s, he presented evidence that the mullahs were behind the assassinations of exiled Iranian dissidents and had committed various other outrages. For his efforts, he served six years in prison, much of it in solitary confinement, and suffered tortures that Persians had perfected over the centuries. If there was ever a person who had every right to endorse a U.S.-led campaign to oust the current Iranian regime, Akbar Ganji is that person. And yet he cautions American officials to adopt a very different course.


Climate Change and the Courts. WSJ Editorial
http://online.wsj.com/article/SB10001424052748704635204575242361135307650.html
A curious case of judicial recusal on the Fifth Circuit.

One of the most destructive mass litigation theories ever devised—the climate tort—is working its way through the courts, and now with a troubling twist. To wit, green plaintiffs may have found a way to handpick sympathetic judges.

In the class-action Comer v. Murphy Oil, a dozen Gulf Coast property owners whose homes were damaged by Hurricane Katrina are suing 33 energy companies for the "nuisance" of the carbon emitted when people use their products. The claim is that these emissions allegedly contributed to climate change that allegedly increased global surface air and water temperatures that allegedly caused sea levels to rise and thus allegedly compounded the storm's damage.

Last year, Comer was dismissed by a district judge, who sensibly ruled that the Mississippi residents couldn't trace the harm they suffered to any specific company because global warming is, well, global. But the case was resurrected by a three-judge panel of the Fifth Circuit Court of Appeals—prompting the entire court to rehear the appeal en banc. The full court was expected to affirm the original district court decision, though seven of the 16 judges recused themselves because they held stock in one or more of the companies being sued.

The en banc arguments were scheduled for this month, until the Fifth Circuit announced in April that "new circumstances have arisen that make it necessary for another judge to recuse." That move deprived the panel of a quorum and thus its ability to rehear Comer. No further explanation was offered, but it's likely another judge acquired a financial interest in one of the defendants. Judges have the discretion to disclose in a situation like this but aren't required to do so, and a court spokesman didn't return our call.

The climate tort is gaining a legal toehold in part because any judge with reasonably diversified investments will have some kind of conflict of interest and will therefore be disqualified. Since any energy company—or any business or exhaling person—contributes in some way to carbon emissions, anyone could be sued if the courts allow this theory to move forward. More ominously, plaintiffs can add defendants to the suit for the purposes of targeting judicial recusals and a more favorable hearing, given that federal financial disclosure forms are public information.

In Comer, did one of the more liberal Fifth Circuit judges buy stock specifically to blow up the quorum? That isn't as far-fetched as it sounds. One of the appellate judges who waved a similar suit through the Second Circuit last year, Peter Hall, admitted at a February conference that he doubted these nuisance cases stood much chance of success.

"Expert evidence, which is the kind of thing that will be needed in this case, ultimately, to prove causative action and whether that can be done beyond preponderance of the evidence, certainly remains an open question," Judge Hall said. But he added that the "nuisance action by nuisance action" approach was so burdensome and costly that it was like "a sword of Damocles" hanging over companies that would eventually force the political branches to adopt climate policies.

In other words, these suits are naked political intimidation meant to coerce cap and tax or some other expensive carbon crackdown regardless of what Congress wants. The same judge-shopping strategy could also apply to the Supreme Court, where Samuel Alito and Stephen Breyer hold stock in Comer defendants and Sonia Sotomayor heard the Second Circuit case. If the Comer plaintiffs succeeded in forcing one more Justice to recuse, the High Court would lack a quorum and be left unable to rule on the merits even if it wanted to.

The Fifth Circuit will decide what to do this week, and we hope the judges will find a way to reconstitute their quorum before this damaging legal theory gains any more traction.


United States and Brazil Collaborate on Racial Equality
http://www.state.gov/r/pa/prs/ps/2010/05/141967.htm

The No-Cost Stimulus: A little Sarbox relief, thank you. WSJ Editorial
http://online.wsj.com/article/SB10001424052748703315404575250693201556662.html

Senate Majority Leader Harry Reid wants a floor vote this week on financial regulatory reform, and he should first add at least one provision worthy of the name. Senators Kay Bailey Hutchison (R., Texas) and Mary Landrieu (D., La.) have offered an amendment to spare the smallest public companies from the worst bureaucratic horrors of the 2002 Sarbanes-Oxley law.

Sarbox, the Beltway's previous attempt at financial-regulatory reform, was intended to improve the information investors receive about public companies. The law did nothing to prevent poor disclosure at companies like Lehman Brothers but it did saddle the U.S. economy with billions in unexpected costs. Even the Securities and Exchange Commission, a Sarbox cheerleader, found in a 2009 survey that the average public company pays more than $2 million per year complying with the law's Section 404. The indirect costs may be much greater, as initial public offerings of U.S. companies have never returned to pre-Sarbox levels.

The SEC admits that compliance burdens fall disproportionately on smaller companies. This is one reason the two Senators aim to exempt companies with less than $150 million of shares held by the public from "internal-controls" audits.

These audits are piled on top of the traditional financial audit, and on top of a company's own internal-controls review. The result is that going public in the U.S., once the dream of entrepreneurs world-wide, has for too many company founders become something to avoid. If President Obama is hoping for an unemployment rate below 9%, encouraging these job creators is an obvious step.

Thanks to New Jersey's Republican Scott Garrett and Democrat John Adler, the House has already passed a similar reform. Now the Senate should allow America's most innovative companies to create jobs at no cost to taxpayers.


The White House Blog: Yes, You Can Keep Your Health Plan
http://www.whitehouse.gov/blog/2010/05/18/yes-you-can-keep-your-health-plan

No, You Can't Keep Your Health Plan - Insurers and doctors are already consolidating their businesses in the wake of ObamaCare's passage.
http://online.wsj.com/article/SB10001424052748703315404575250264210294510.html

Statement by President Obama on Oil Liability
http://www.whitehouse.gov/the-press-office/statement-president-obama-oil-liability

Iran's Nuclear Coup - Ahmadinejad and Lula expose Obama's hapless diplomacy.

Iran's Nuclear Coup. WSJ Editorial
Ahmadinejad and Lula expose Obama's hapless diplomacy.
WSJ, May 18, 2010

What a fiasco. That's the first word that comes to mind watching Mahmoud Ahmadinejad raise his arms yesterday with the leaders of Turkey and Brazil to celebrate a new atomic pact that instantly made irrelevant 16 months of President Obama's "diplomacy." The deal is a political coup for Tehran and possibly delivers the coup de grace to the West's half-hearted efforts to stop Iran from acquiring a nuclear bomb.

Full credit for this debacle goes to the Obama Administration and its hapless diplomatic strategy. Last October, nine months into its engagement with Tehran, the White House concocted a plan to transfer some of Iran's uranium stock abroad for enrichment. If the West couldn't stop Iran's program, the thinking was that maybe this scheme would delay it. The Iranians played coy, then refused to accept the offer.

But Mr. Obama doesn't take no for an answer from rogue regimes, and so he kept the offer on the table. As the U.S. finally seemed ready to go to the U.N. Security Council for more sanctions, the Iranians chose yesterday to accept the deal on their own limited terms while enlisting the Brazilians and Turks as enablers and political shields. "Diplomacy emerged victorious today," declared Brazil's President Luiz Inácio Lula da Silva, turning Mr. Obama's own most important foreign-policy principle against him.

The double embarrassment is that the U.S. had encouraged Lula's diplomacy as a step toward winning his support for U.N. sanctions. Brazil is currently one of the nonpermanent, rotating members of the Security Council, and the U.S. has wanted a unanimous U.N. vote. Instead, Lula used the opening to triangulate his own diplomatic solution. In her first game of high-stakes diplomatic poker, Secretary of State Hillary Clinton is leaving the table dressed only in a barrel.

So instead of the U.S. and Europe backing Iran into a corner this spring, Mr. Ahmadinejad has backed Mr. Obama into one. America's discomfort is obvious. In its statement yesterday, the White House strained to "acknowledge the efforts" by Turkey and Brazil while noting "Iran's repeated failure to live up to its own commitments." The White House also sought to point out differences between yesterday's pact and the original October agreements on uranium transfers.

Good luck drawing those distinctions with the Chinese or Russians, who will now be less likely to agree even to weak sanctions. Having played so prominent a role in last October's talks with Iran, the U.S. can't easily disassociate itself from something broadly in line with that framework.

Under the terms unveiled yesterday, Iran said it would send 1,200 kilograms (2,646 lbs.) of low-enriched uranium to Turkey within a month, and no more than a year later get back 120 kilograms enriched from somewhere else abroad. This makes even less sense than the flawed October deal. In the intervening seven months, Iran has kicked its enrichment activities into higher gear. Its estimated total stock has gone to 2,300 kilograms from 1,500 kilograms last autumn, and its stated enrichment goal has gone to 20% from 3.5%.

If the West accepts this deal, Iran would be allowed to keep enriching uranium in contravention of previous U.N. resolutions. Removing 1,200 kilograms will leave Iran with still enough low-enriched stock to make a bomb, and once uranium is enriched up to 20% it is technically easier to get to bomb-capable enrichment levels.

Only last week, diplomats at the U.N.'s International Atomic Energy Agency reported that Iran has increased the number of centrifuges it is using to enrich uranium. According to Western intelligence estimates, Iran continues to acquire key nuclear components, such as trigger mechanisms for bombs. Tehran says it wants to build additional uranium enrichment plants. The CIA recently reported that Iran tripled its stockpile of uranium last year and moved "toward self-sufficiency in the production of nuclear missiles." Yesterday's deal will have no impact on these illicit activities.

The deal will, however, make it nearly impossible to disrupt Iran's nuclear program short of military action. The U.N. is certainly a dead end. After 16 months of his extended hand and after downplaying support for Iran's democratic opposition, Mr. Obama now faces an Iran much closer to a bomb and less diplomatically isolated than when President Bush left office.

Israel will have to seriously consider its military options. Such a confrontation is far more likely thanks to the diplomatic double-cross of Turkey's Recep Tayyip Erdogan and Brazil's Lula, and especially to a U.S. President whose diplomacy has succeeded mainly in persuading the world's rogues that he lacks the determination to stop their destructive ambitions.

Press Briefing

May 18, 2010

Remarks by the President at the Signing of the Freedom of the Press Act
http://www.whitehouse.gov/the-press-office/remarks-president-signing-freedom-press-act

TThe New START Treaty. By Hillary Rodham Clinton, Secretary of State, Opening Remarks Before the Senate Committee on Foreign Relations
Washington, DC, May 18, 2010
http://www.state.gov/secretary/rm/2010/05/141960.htm

The New START Threat to Missile Defense
http://blog.heritage.org/2010/05/18/morning-bell-the-new-start-threat-to-missile-defense/

Cell Phones Safe, Rumors Persist
http://www.acsh.org/factsfears/newsID.1438/news_detail.asp
The WHO's International Agency for Research on Cancer completed a decade-long analysis of over 10,000 cell phone users and could not find a clear link between cell phone use and brain cancer risk.

NYT Blogs: The Twilight of the Welfare State?
http://roomfordebate.blogs.nytimes.com/2010/05/12/the-twilight-of-the-welfare-state

Readout of the President's Call with President Lee of the Republic of Korea
http://www.whitehouse.gov/the-press-office/readout-presidents-call-with-president-lee-republic-korea

Sens. Lieberman and Brown offer the wrong solution on dealing with citizen terrorists
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/16/AR2010051602948.html

Attributing systemic risk to individual institutions - BIS Working Papers No 308
by Nikola Tarashev, Claudio Borio and Kostas Tsatsaronis
http://www.bis.org/publ/work308.htm

Remarks by the First Lady at Healthy Weight Announcement Press Conference
http://www.whitehouse.gov/the-press-office/remarks-first-lady-healthy-weight-announcement-press-conference

Politically Correct = Scientifically Valid?
http://www.acsh.org/factsfears/newsID.1437/news_detail.asp
High-fat meals may increase inflammation in asthmatics and suppress their response to albuterol, a bronchodilator that increases air to the lungs, according to a weak study presented by Australian researchers at last week's American Thoracic Society's international conference in New Orleans. We are skeptic of it.

Statement by White House Press Secretary Robert Gibbs on Iran
http://www.whitehouse.gov/the-press-office/statement-white-house-press-secretary-robert-gibbs-iran

Iran's Nuclear Coup. WSJ Editorial
http://online.wsj.com/article/SB10001424052748703315404575250172000040654.html
Ahmadinejad and Lula expose Obama's hapless diplomacy

Public Enemies - Obama ratchets up his attacks even as Republicans begin to cooperate.
http://www.slate.com/id/2253835?wpisrc=xs_wp_0001
Obama's Attacks on Republicans Are Getting Feisty

Did the Federal Government Enable the Gulf Oil Spill?
http://blog.heritage.org/2010/05/17/morning-bell-did-the-federal-government-enable-the-gulf-oil-spill

Restoring Global Financial Stability: Part 1
http://www.cato.org/pubs/journal/cj30n2/cj30n2.html

US Department of State's Partnership with the National Italian American Foundation Assists the University of L'Aquila in its Earthquake Recovery
http://www.state.gov/r/pa/prs/ps/2010/05/141935.htm

Failure to Communicate, by Edward H. Crane
http://www.cato.org/pub_display.php?pub_id=11814

Kagan, Harvard, the US Military, and the Saudis
http://www.newt.org/newt-direct/kagan-harvard-us-military-and-saudis

Multipolarism sans the EU Pole? The Geopolitics of Europe's Economic Mess. By Leon T. Hadar
http://www.cato.org/pub_display.php?pub_id=11813

Fast Forward - Ethics and Politics in the Age of Global Warming. By William Antholis and Strobe Talbott, Brookings Institution Press 2010 c. 144pp.
http://www.brookings.edu/press/Books/2010/fastforward.aspx

The American Power Act: Climatologically Meaningless - Kerry-Liebermann
http://www.worldclimatereport.com/index.php/2010/05/13/the-american-power-act-climatologically-meaningless/

Monday, May 17, 2010

Beijing is poised to project ever greater power in the Pacific. The U.S. doesn't appear up to the challenge

Farewell to America's China Station. By MARK HELPRIN
Beijing is poised to project ever greater power in the Pacific. The U.S. doesn't appear up to the challenge.
WSJ, May 17, 2010

The United States and China are on a collision course in the Western Pacific. Far sooner than once anticipated, China will achieve effective military parity in Asia, general conventional parity, and nuclear parity. Then the short road to superiority will be impossible for it to ignore, as it is already on its way thanks to a brilliant policy borrowed from Japan and Israel.

That is, briefly, since Deng Xiaoping, China has understood that, without catastrophic social dislocation, it can leverage its spectacular economic growth into X increases in per-capita GDP but many-times-X increases in military spending. To wit, between 1988 and 2007, a tenfold increase in per-capita GDP ($256 to $2,539) but a 21-fold purchasing power parity increase in military expenditures to $122 billion from $5.78 billion. The major constraint has been that an ever increasing rate of technical advance can only be absorbed so fast even by a rapidly modernizing military.

Meanwhile, in good times and in bad, under Republicans and under Democrats, with defense spending insufficient across the board the United States has slowed, frozen, or reversed the development of the kind of war-fighting assets that China rallies forward (nuclear weapons, fighter planes, surface combatants, submarines, space surveillance) and those (antisubmarine warfare capacity, carrier battle groups, and fleet missile defense) that China does not yet need to counter us but that we need to counter it.

We have provided as many rationales for neglect as our neglect has created dangers that we rationalize. Never again will we fight two major adversaries simultaneously, although in recent memory this is precisely what our fathers did. Conventional war is a thing of the past, despite the growth and modernization of large conventional forces throughout the world. Appeasement and compromise will turn enemies into friends, if groveling and self-abasement do not first drive friends into the enemy camp. A truly strong country is one in which people are happy and have a lot of things, though at one time, as Edward Gibbon describes it in "The Decline and Fall of the Roman Empire," "So rapid were the motions of the Persian cavalry," that the prosperous and relaxed citizens of Antioch were surprised while at the theater, and slaughtered as their city burned around them. And the costs of more reliable defense and deterrence are impossible to bear in this economy, even if in far worse times America made itself into the greatest arsenal the world has ever known, while, not coincidentally, breaking the back of the Great Depression.

China is on the cusp of being able to use conventional satellites, swarms of miniature satellites, and networked surface, undersea, and aerial cuing for real-time terminal guidance with which to direct its 1,500 short-range ballistic missiles to the five or six aircraft carriers the United States (after ceding control of the Panama Canal and reducing its carrier fleet by one-third since 1987) could dispatch to meet an invasion of Taiwan. In combination with antiship weapons launched from surface vessels, submarines, and aircraft, the missile barrage is designed to keep carrier battle groups beyond effective range. Had we built more carriers, provided them with sufficient missile defense, not neglected antisubmarine warfare, and dared consider suppression of enemy satellites and protections for our own, this would not be so.

Had we not stopped production of the F-22 at a third of the original requirement, its 2,000-mile range and definitive superiority may have allowed us to dominate the air over Taiwan nonetheless. Nor can we "lillypad" fighters to Taiwan if its airfields are destroyed by Chinese missiles, against which we have no adequate defense.

With the Western Pacific cleared of American naval and air forces sufficient to defend or deter an invasion, Taiwan—without war but because of the threat of war—will capitulate and accept China's dominion, just as Hong Kong did when the evolving correlation of forces meant that Britain had no practical say in the matter. If this occurs, as likely it will, America's alliances in the Pacific will collapse. Japan, Korea, and countries in Southeast Asia and even Australasia (when China's power projection forces mature) will strike a bargain so as to avoid pro forma vassalage, and their chief contribution to the new arrangement will be to rid themselves of American bases.

Now far along in building a blue-water navy, once it dominates its extended home waters China will move to the center of the Pacific and then east, with its primary diplomatic focus acquisition of bases in South and Central America. As at one time we had the China Station, eventually China will have the Americas Station, for this is how nations behave in the international system, independently of their declarations and beliefs as often as not. What awaits us if we do not awake is potentially devastating, and those who think the subtle, indirect pressures of domination inconsequential might inquire of the Chinese their opinion of the experience.

In the military, economic, and social trajectories of the two principals, the shape of the future comes clear. In 2007, a Chinese admiral suggested to Adm. Timothy J. Keating, chief of U.S. Pacific Command, that China and the United States divide the Pacific into two spheres of influence. Though the American admiral firmly declined the invitation, as things go now his successors will not have the means to honor his resolution, and by then the offer may seem generous.

None of this was ever a historical inevitability. Rather, it is the fault of the American people and the governments they have freely chosen. Perhaps five or 10 years remain in which to accomplish a restoration, but only with a miracle of leadership, clarity, and will.

Mr. Helprin, a senior fellow at the Claremont Institute, is the author of, among other works, "Winter's Tale" (Harcourt), "A Soldier of the Great War" (Harcourt) and, most recently, "Digital Barbarism" (HarperCollins).