The Skeptics

Let Sequestration Happen

The Skeptics

Some members of Congress are anxious to undo sequestration, ignoring the inconvenient fact that they created the process in the first place. Instead of accepting responsibility, they are proposing legislation that would force the White House to outline the effects of the cuts. And people wonder why Congress’s approval rating is at an all-time low.

But there is more than enough blame to go around. The Republican-controlled House, the Democratic-led Senate and the Obama White House had a chance to implement a range of proposals aimed at deficit reduction last summer. They chose to kick the can down the road, empowering an independent, bipartisan panel to make the tough choices for them. That effort failed.

If the Super Committee was unable to hammer out a compromise when the conditions were ripe last summer, it is unlikely that one will materialize this summer. Sequestration may be the only way to achieve real spending cuts. Let’s let it happen.

To be clear, sequestration is not the best way to cut the military budget, or federal spending overall. It wasn’t supposed to happen at all; the threat of spending cuts was supposed to compel the various parties to reach a compromise. But it may be the only feasible way to cut spending. And it isn’t going to get any easier in the future.

The Democrats are beginning to show their hand: this was never about cutting spending; it was always about raising taxes. Sen. Patty Murray explained yesterday that her party would allow the cuts in defense and nondefense spending to go forward, and the Bush tax cuts to expire, if Republicans didn’t agree to tax hikes on the wealthy. That isn’t likely to happen, and not just because the GOP is being stubborn. A sizable majority of Americans, Republicans and Democrats alike, are in favor of cutting military spending. More than half want to extend the Bush tax cuts for all.

Still, there are some Republican politicians who always have been willing to raise taxes in order to protect the Pentagon, despite what the public says it wants. I don’t fault Democrats for holding Pentagon spending hostage as much as I fault Republicans for allowing themselves to be maneuvered into a corner.

The GOP has a straightforward way out of the box: allow the defense and nondefense cuts to go forward, refuse a tax increase and renegotiate a debt reduction deal that doesn't leave entitlements—the real drivers of our long-term fiscal calamity—off the table.

Sequestration likely won’t be as bad as special interests and those in favor of ever-increasing military spending claim. The reductions would only apply to FY 2013 budget authority, not outlays. The Pentagon and Congress will then have greater flexibility starting in FY 2014 to adjust the reductions under the BCA spending caps. In the meantime, many programs could continue on funding already authorized.

We also must keep the cuts in proper perspective. The DOD base budget under sequestration would total $469 billion, about what we spent in 2006, not exactly a lean year for the Pentagon. And as for the claim that the military cuts will result in perhaps one million lost jobs, that seems implausible considering that the cuts would amount to less than three tenths of 1 percent of GDP.

More to the point, the defense budget should never be seen as a jobs program. In a dynamic, market economy, capital and resources adjust to changing demand. Some regions and municipalities that are relatively more dependent upon military spending might suffer some short-term effects, but there is evidence that economies reliant on the military can recover. Some regions could emerge stronger and more diversified. Other reporting indicates that some businesses are already positioning themselves to weather reduced government spending.

Americans spend more today on our military—in real, inflation-adjusted terms—than during the high point of the Reagan buildup. Some might justify these expenditures by claiming that the world is much more dangerous today. But the evidence for that is pretty thin. The Soviet Union on its worst day could do more damage in a few minutes than Al Qaeda has managed to inflict in over a decade. We are safer than most politicians are willing to admit.

If they embraced our good fortune, policy makers could cut military spending without undermining U.S. security. Shifting resources from a relatively unproductive and inefficient sector to a more productive one would be good for the economy. And lower military spending could even improve our foreign policy.

It simply isn't fair to saddle fewer troops with more missions. If we cut spending and reduced the size of the U.S. military, policy makers would have to be more discriminating in the use of force. But greater restraint by the United States would encourage other countries to take responsibility for their own security and share in the costs and risks of policing the global commons.

Strategic spending cuts informed by a realistic assessment of today’s threats would be ideal. Sequestration may not reach this ideal, but it may be the only way to achieve actual cuts in military spending.

Image: iStockPhoto

TopicsCongressDomestic PoliticsDefensePublic OpinionThe PresidencyPolitical EconomyPolitics

Sequestration: It’s Not That Bad

The Skeptics

Sequestration, the automatic budget cuts scheduled for January 2013, looms large over Washington, and it seems that almost everyone wants it to go away, Democrats and Republicans alike. The epitome of sequestration doomsaying is a recent comment by the chairman of the House Armed Services Committee, Rep. Buck McKeon (R-CA). At a May 31 dinner honoring the congressman, he claimed that sequestration was an existential threat, warning that it “will do what the Soviets exhausted themselves attempting. It will do what countless tin pot dictators, ideological madmen, and ruthless suicide bombers have failed to do.”

There’s fantastic irony in making such a statement after receiving the Eisenhower Award, given each year by the National Defense Industrial Association (yet more irony). They are either unaware of or ignore the fact that, at the height of the Cold War, President Eisenhower cut defense spending by 27 percent. Nevertheless, McKeon’s statement and others like it are simply attempts to scare us into believing that sequestration means a ravaged defense budget and a weakened economy. It’s not that bad.

In reality, sequestration means that we will have roughly the defense budget of 2007, when spending (in real terms) was at its highest since the apex of the Vietnam War in 1968, a more dangerous time for Americans than 2012. Furthermore, we can spend less on war as we have withdrawn from Iraq and continue to withdraw from Afghanistan. Some point to the need to reset the force after a decade of war. To a certain extent, that may be necessary. But before we recapitalize, we should think about what we’re resetting for. A post-sequester budget would certainly be big enough to protect Americans, but our leaders should take this opportunity to make long-neglected choices about our national security interests abroad.

Some complain that sequestration doesn’t allow for those choices because it slashes all programs indiscriminately. However, across-the-board sequestration affects budget authority, not outlays, and occurs only in FY2013. From FY2014 through FY2021, spending caps enforce budget limits. So, even though the initial cut will be broad and blunt, most programs will survive on previously appropriated funds until 2014, when the Pentagon and Congress will have greater flexibility to tailor reductions under those caps.

Another worry is that sequestration will further increase unemployment and damage the industrial base. Recent reports claim at least one million jobs will be lost (over two years) and GDP will suffer. A closer read of those reports reveals that the majority of those supposed losses would be private sector jobs, many of which are not directly related to the defense industry. It is far from certain that local retail, restaurants, or even many contractors will lay off workers or close up shop, especially if they are allowed to keep the taxes they are currently spending on the bloated defense budget.

During the significant defense drawdown of the 1990s (36 percent), when taxes went up, the economy not only survived, it flourished. Unemployment did initially rise from 5.4 percent in 1990 to 7.3 percent in 1992. But by 1995, it had dropped to 5.6 percent, and by 2000, it was 4 percent. Meanwhile, GDP grew from $5.7 trillion in 1990 to $9.8 trillion in 2000. The answer for those who say, “Yes, but there were other factors involved in that growth!” is, of course, “Exactly!” It is extremely difficult to predict the effects of cutting inefficient government spending equal to three-tenths of one percent of GDP per year in an economy so large that Americans can spend $110 billion every year on fast food alone. While some regions heavy with defense industry will indeed feel some effects, history has shown that those areas can and have recovered in a relatively short time.

As legislation goes, sequestration is awful. But it is not the end of the world; it is not the end of the United States; it is not even the end of the defense industry. It is merely a symptom of a long-approaching budgetary reckoning and a symbol of Congress’s cowardice. If it’s as bad as McKeon fears, we are facing no less than the combined cataclysm of invasion, metropolitan destruction and foreign domination. Thankfully, it’s not that bad.

TopicsCongressDefensePolitical EconomySecurity

War Is Too Easy, but a Draft Is Not the Solution

The Skeptics

In yesterday’s New York Times, Thomas Ricks penned an op-ed calling for the draft to be reinstituted. Ricks offers that under his plan for military conscription, libertarians who object could opt out provided they don’t partake of Uncle Sam’s other goodies such as federally subsidized mortgages, Medicare and college loans. As a libertarian who objects to a draft but who also received an NROTC scholarship in exchange for an active-duty commission, I think that Ricks is offering conscientious objectors a raw deal.

Those opting out, of course, could not refuse to pay the taxes that are used to fund government programs. That would be great for the government—compel people to pay for services that they will never use—but it is profoundly unfair, especially to young adults.

Mr. Ricks’s plan will certainly cost more money than our current all-volunteer force, especially in the near term. For example, we can expect tuition to skyrocket as soon as college administrators realize that the taxpayers are on the hook to pay for these new conscripts’ secondary education. The long-term savings that Ricks anticipates from changes to the military retirement are likely to prove equally elusive; past attempts to rein in costs for military retirees, including changes to eligibility rules, have repeatedly failed. There are sensible ideas for fixing the problem, but the politics are still really tough.

A draft is unlikely to save us money, but it will certainly abridge young people’s freedom. It is unfair to older adults, too, who would see their taxes rise. To add insult to injury, many older adults would see their tax dollars go to pay low-wage workers who would then be competing with them for jobs. Mr. Ricks thinks it’s outrageous that a fifty-year old janitor earns $106,000 a year, plus overtime; the janitor would disagree. Others who would suddenly be forced to compete with a taxpayer-funded horde of eighteen-year-olds include day-care providers, nurses and construction workers.

Libertarians want minimal government, as Mr. Ricks claims, but his plan would dramatically expand government power, abridge individual liberty and distort the labor market. Despite his claims that the draft would be beneficial to the economy, economists long ago concluded that the all-volunteer force is superior to conscription. Conscription is a superficially great deal for the government but a net loss for the taxpayer and draftee in hidden costs and lost freedom.

I am sympathetic to Mr. Ricks’s desire to avoid rushing headlong into other foolish wars. It is too easy for the United States to wage war and send resources—drones, special operations forces—to low-level conflicts. Congress has abdicated its responsibility to declare war and deficit spending kicks the monetary costs down the road. But the draft is not the answer. Instead, let’s begin our search for a solution by forcing the advocates for such wars to a higher standard of proof and holding them accountable when their rosy predictions of quick success prove erroneous.

TopicsBureaucracyCongressDemocracyDomestic PoliticsDefensePublic OpinionPolitical EconomyState of the MilitarySociety

The Roiling South China Sea Dispute

The Skeptics

The always troublesome South China Sea territorial dispute between China and its neighbors is heating up again. Vietnam and the Philippines currently present the principal challenges to China’s expansive claims in those waters. Unfortunately, Washington seems inclined to back those challenges, which creates the danger of entangling the United States in this emotional dispute.

Tensions flared this spring when the Philippines deployed several ships around Scarborough Shoal (which China calls Huangyan Island) to strengthen its claim. Beijing reacted harshly to that move, gradually sending numerous fishing vessels and naval-patrol boats to the area. It appeared that the bilateral quarrel was easing in June when the government of Benigno S. Aquino ordered his country’s ships to leave the area. The Chinese foreign ministry promptly praised that move as a welcome, conciliatory gesture.

But the cordial atmosphere between the two countries soon faded. Reports circulated that the Aquino government intended not only to have the Philippine ships return to the disputed waters but also that Manila would ask the United States to initiate patrols by aerial drones to monitor Chinese moves in the area. Although Aquino later denied that his government is seeking such patrols, Beijing’s reaction to the reports was just short of furious. An editorial in China Daily accused Manila of being “obsessed with playing the role of troublemaker in the South China Sea.” The latest episode, the editorial went on, “shows Manila is determined to drag Washington into its maritime dispute with China. By seeking backup from the U.S. in its quarrel with Beijing, Manila has ignored the goodwill shown by Beijing and is trying hard to complicate the issue.”

Unfortunately, Washington’s behavior over the past year gives some credibility to China’s accusations. While attending an economic summit in Bali in November 2011, President Obama went out of his way to highlight the importance of the U.S. defense alliance with the Philippines and pledged to strengthen the relationship. Chinese officials considered his comment worrisome because it immediately followed Secretary of State Clinton’s strongly pro-Philippines statements regarding the rival claims in the South China Sea. “Any nation with a claim has a right to exert it,” Clinton said during a visit to Manila on November 16, “but they do not have a right to pursue it through intimidation or coercion.” She added that “the United States will always be in the corner of the Philippines and we will stand and fight with you.” The Obama administration backed up such rhetoric in early 2012 with a decision to deploy additional troops to that country—ostensibly to assist the Manila government in combating terrorism.

Such rhetorical meddling is especially troubling because the United States has a defense treaty with the Philippines. If Chinese and Philippine forces ever come to blows in the South China Sea, Washington is going to be in an awkward and dangerous position. There certainly will be pressure, both from domestic hawks and other U.S. allies in East Asia, not to appease China. But the potential damage to the crucial bilateral relationship with China if the United States chose to back the Philippines militarily—even if outright war could be averted—is enormous.

As the world’s leading maritime power, the United States is understandably concerned about the South China Sea territorial dispute—especially China’s breathtaking claims to well over half of the waters. Beijing’s position has important economic and strategic implications. Many of the crucial oceanic routes leading to Japan, South Korea and other countries in East Asia run through the South China Sea. Chinese control of that body of water would give Beijing a grip on the economic jugulars of all of those nations and might cause Washington’s East Asian allies to reassess their close ties to the United States.

Nevertheless, the Obama administration should be wary of embroiling the United States in the South China Sea dispute by reflexively backing Manila’s position. It would not be the first time that a small client state, emboldened by the perceived backing of a large, powerful patron, managed to entangle that patron in a dangerous quarrel. Washington needs to back off.

TopicsGlobal CommonsInternational LawRising PowersSecurity RegionsChinaNortheast AsiaSoutheast AsiaPhilippinesVietnam

Libya: A Mixed Bag

The Skeptics

Libyans voted for a new parliament over the weekend. President Barack Obama called the elections “another milestone on their extraordinary transition to democracy.” Political and regional fault lines, though, are derailing that transition.

Libya remains divided between its oil-rich East and its politically dominant West. Even though Western rebels ended up capturing Tripoli, it was Eastern rebels who had fought most of the civil war against Qaddafi’s regime. Qaddafi marginalized the East for decades. New election laws have reinvigorated that sense of political alienation.

The Associated Press reports, “The laws allocate the east less than a third of the parliamentary seats, with the rest going to the western region that includes Tripoli and the sparsely-settled desert south.” [Emphasis added] Particularly noteworthy is that the election laws were issued by Libya’s National Transitional Council, previously chaired by Qaddafi’s former economics minster, Mahmoud Jabril.

Backed by their own council and army, some rebel commanders and tribal leaders have teamed up and declared self-rule. To pressure a cancellation of this weekend’s vote, armed militias and former rebels calling for semi-autonomy for the East attacked election offices in Benghazi and Ajdabiya and captured oil refineries in Ras Lanouf, Brega and Sidr.

Last month, Dirk Vandewalle, who has lived and worked in Libya for almost fifteen years and just recently returned from Libya as a senior political advisor to the Carter Center’s Election Observation Mission in Libya, spoke at Cato on what Libya’s long-simmering East/West division portends for its transition to democracy. Authorities, he finds, have thus far proved incapable of controlling militias that seek greater autonomy.

As a former rebel commander in the East put it: “We don't want Tripoli to rule all of Libya.” The crux of Libya’s challenges, which Vandewalle was careful to differentiate, is state building—the institutions that make a country governable—and nation building—national consensus to govern once institutions are in place. These grievances and divisions are compounded by competing visions offered by ultraconservative Salafists and jihadists inspired by Al Qaeda. Formal elections may give a voice to many in Libya, but their hardest days may still lie ahead.

TopicsCivil SocietyDemocracyEconomic DevelopmentElectionsPolitical EconomyPost-ConflictRogue StatesSociety RegionsLibya

What Sequestration Might Mean for San Diego (and Other Places)

The Skeptics

Convair XA-41 engine testing.A few days ago, I wrote about the fight looming between taxpayer advocates and defense contractors over whether Congress should scrap the Budget Control Act (BCA) and allow the Pentagon’s budget to grow. The contractors and their allies, led by the Aerospace Industries Association (AIA), contend that cuts in military spending will have a harmful (some say devastating) impact on the sluggish economy; taxpayers groups point out that the Pentagon’s budget has risen dramatically over the past decade and object to suggestions that we should raise taxes or incur more debt to pay for additional increases.

In my earlier post, I focused on the politics of this fight, here I focus on economics. I’m not convinced—and neither are a number of others—by the AIA’s claims that sequestration will wreck the economy.

For starters, we should keep an eye on the bottom line. If there is no deal to undo the BCA, the Pentagon’s base budget in 2013 will be about the same as in 2007. The budget, in short, is not being gutted, slashed, cut to the bone, etc. (pick your favorite metaphor). In real, inflation-adjusted terms, Pentagon spending will remain near historic highs and well above the spending levels of the 1990s. As for the economic effects of the spending cuts contemplated under sequestration, these are likely to be small because the cuts are tiny relative to the economy as a whole, less than three tenths of 1 percent of GDP per year over the next decade.

Those small cuts are likely, in the big picture, to generate overall benefits. It’s easy to focus exclusively on the companies and individuals hurt by the cuts and forget that the taxed wealth that funded them is being employed elsewhere. Provided that defense-spending cuts allow for lower taxes, people will have more disposable income to spend. If they spend it wisely (and even if they don’t), that will generate new economic activity that will offset the job losses elsewhere.

Of course, regions disproportionately dependent upon military spending are more likely to feel squeezed. Even in these defense-heavy localities, however, the effects of military-spending cuts are likely to be temporary, and the eventual transition of workers out of the defense industry into other fields should have beneficial effects. That goes for areas with sufficient economic activity—especially diversification—to help ease the transition.

That is what we hope will happen. But it is more than just hope; my attitudes toward the economic effects of military spending cuts are also shaped by personal experience, especially a trip that I took to San Diego in the summer of 1997.

I was there to do some research on the missile gap and the presidential election of 1960. John F. Kennedy and Richard Nixon had both campaigned in Southern California, and both alleged that their opponent’s decisions with respect to military spending would drive thousands of people out of work. I located some interesting information at UC-San Diego and San Diego State. The most memorable moment, however, occurred during a visit to General Dynamics’s Convair facility, not far from the San Diego Airport (aka Lindbergh Field).

Consolidated Vultee Aircraft Corporation (Convair) had been a major manufacturer of manned aircraft during World War II and then later moved into the design and manufacture of missiles and rockets. Operated as a division of General Dynamics after the two companies merged in 1954, Convair was one of the largest civilian employers in San Diego for several decades. Convair employment in San Diego peaked at more than fifty thousand in 1961, fell to less than six thousand by 1976 and then spiked again in the 1980s to more than twelve thousand employees. But orders for Convair products collapsed following the collapse of the Soviet Union. By June 1995, GD’s Convair Division counted a mere 1,432 workers in its San Diego facility. When I arrived at the Convair plant, two years later, in June 1997, I found a single construction trailer that served as the office for Convair’s final two employees. As I explained in the epilogue to my book, John F. Kennedy and the Missile Gap, “I witnessed a dying company breathing its last.”

Although it was just one company, one might expect Convair’s demise to have had a devastating ripple effect, given its signal importance to the San Diego economy over the years. It didn’t. Likewise, the other Pentagon cuts of the early 1990s (holding constant for inflation, DoD outlays fell by 29 percent from the peak in 1987 to the trough in 1999) did not do irreparably harm. For example, San Diego’s unemployment rate was the same as the national average in 1996 (5.4 percent), and well below that of the rest of California (7.3 percent) at the time. By 1999, San Diego’s unemployment rate had fallen to just 3.1 percent, more than a full point below the national average (4.2 percent), and more than two points below California state-wide (5.3 percent).

Why did San Diego fare so well? As one study of the region observed in May 2001:

the defense engineers and managers diverted, by the loss of their jobs, into entrepreneurial pursuits . . . helped the region emerge from the severe economic challenge posed by defense cutbacks at the beginning of the 1990s. Today, San Diego’s economy is growing and contains a more diverse set of industries.

Of course, we will never know if San Diego might have experienced even stronger economic growth in the absence of defense cutbacks in the early 1990s. Nor can we be certain that it will respond to the looming defense drawdown under sequestration as well as it did to the far deeper cuts of the late 1980s and early 1990s. But this one case study shows that even defense-heavy localities can adapt to lower levels of defense spending. At a minimum, the story serves as an important counterpoint to the AIA’s claims of impending doom.

TopicsEconomicsDomestic PoliticsEconomic DevelopmentDefenseK StreetPolitical EconomyState of the Military

NATO and Turkey: Moribund Alliances, Military Snares and Unnecessary Wars

The Skeptics

NATO fulfilled its Cold War role by deterring rather than sparking conflict. Yet if Turkey and Syria come to blows, the transatlantic alliance could turn into a transmission belt of war for America.

Syria’s developing civil war has spilled over into Turkey. Moreover, Ankara has begun to meddle in the conflict next door. Despite Turkey’s denials, the Erdogan government appears to be channeling arms shipments to rebels and sheltering Syrian opposition activists.

Thus, tension between the two governments was rising even before the Syrian military destroyed a Turkish RF-4E reconnaissance plane. Damascus claimed the aircraft was in Syrian airspace; Ankara said the jet had strayed over Syrian territory but was over international waters when downed. The plane may have been on a surveillance mission: the Erdogan government has been pressing for NATO military action against Syria.

After the shoot-down, Prime Minister Recep Tayyip Erdogan said “any military approach to the Turkish border from the Syrian side will be perceived as a threat and will be dealt with accordingly.” Ankara also sought backing from NATO’s members: “We consider this act to be unacceptable and condemn it in the strongest terms,” explained alliance chief Anders Fogh Rasmussen.

Rasmussen said that Article 5, regarding use of military force in defense, had not been discussed. And he stated “It is my clear expectation that the situation won’t continue to escalate.” Wars have a way of happening unexpectedly, however. If Turkey attacks Syrian military units in their own territory, sparking retaliation by Damascus followed by a call from Ankara to NATO for support, the United States could find itself, however reluctantly, at war.

Alliances make sense when directed against an overwhelming outside threat. The Soviet Union constituted one. Syria does not. NATO has turned into an association that drags members into everyone else’s wars, actually reducing collective security.

The United States pulls Europe into Afghanistan, a mission widely opposed by the European people. Europe pulls America into Libya, a mission widely opposed by the American people. Turkey could pull both America and Europe into Syria, a mission generally opposed by both the American and European people.

The security argument for Washington’s defense of Europe disappeared years ago. The worsening confrontation between Turkey and Syria offers a sharp reminder that NATO is not only unnecessary but dangerous. The United States should drop this outmoded security commitment before it draws America into yet another war in the Middle East.

Image: Roberta F.

TopicsNATOInternational InstitutionsHumanitarian InterventionSecurity RegionsSyriaTurkey

More Drug-War Failures in Latin America

The Skeptics

Two news stories over the past week underscore both the futility and the damaging side effects of the supply-side component of the war on drugs in Latin America. The degree of futility can be gauged from a lengthy article in the Wall Street Journal about the rebound of cocaine production in Peru. Just a few years ago, U.S. officials were hailing Peru as a great success story, noting that cocaine production there had been declining steadily since the early 1990s. What they conveniently forgot to mention is that during that same period, production in Colombia was soaring—more than doubling by 2001.

As my Cato Institute colleague Juan Carlos Hidalgo points out, drug warriors typically ignore data that doesn’t fit their overall narrative that progress is being made in the campaign against the scourge of illegal drugs. White House drug czar Gil Kerlikowske, for example, likes to emphasize that cocaine production in Colombia dropped some 61 percent between 2001 and 2009. But that decline merely reversed a portion of the surge that had taken place during the previous decade. The reality is that cocaine production coming out of Colombia is still more than twice what it was in 1990. That’s hardly a success story.

Moreover, as production in Colombia has sagged, it has been on the increase again not only in Peru but also in Bolivia. Utilizing data from the United Nations Office on Drugs and Crime, Hidalgo shows clearly that overall cocaine production in the Andean region of South America is higher today than it was two decades ago. The only thing that has happened is an ebb and flow of output involving the various countries. When a crackdown (invariably in response to pressure from Washington) occurs in one producing country, that decline is offset by a boost in output from one or more of the other countries where the pressure is not as intense. This is the notorious “balloon” or “push down, pop up” effect that has plagued drug warriors for decades. Despite periodic claims of success, as long as robust consumer demand exists for drugs, an adequate supply will emerge. Only the specific geographic source of the supply will vary.

The supply-side campaign’s futility is bad enough, but even worse is the damage that Washington’s obsession with waging a war on drugs has done to other countries. In previous writings, I’ve noted the havoc that policy has caused in Mexico. Increasingly, it is also creating problems for Mexico’s more fragile neighbors in Central America. Now, evidence is emerging that there is an extensive presence by the Drug Enforcement Administration as well as more than six hundred U.S. troops in Honduras. Washington’s assistance to that country’s security forces, which have long had a dubious human-rights record, has already led to the deaths of civilians and an outpouring of anger from the Honduran people.

It has now been more than four decades since President Richard Nixon declared a “war” on illegal drugs. There have been few positive results to show for that enormous effort. On the other hand, the United States has expended vast financial resources, filled America’s prisons with nonviolent drug offenders, enriched and empowered the brutal Mexican drug cartels, and caused bloody societal dislocations in several hemispheric neighbors. That is a good operational definition of a policy fiasco.

TopicsCivil SocietyTradeSecurity RegionsCentral AmericaSouth AmericaColombiaMexicoPeru

The Defense Lobby's Greatest Fear

The Skeptics

Bloomberg’s Roxana Tiron reports that Congress is nearing a deal to postpone some of the most contentious provisions of last year’s Budget Control Act (BCA) until March 2013 or later. This is good news for the Aerospace Industries Association (AIA), which has been lobbying since late last year to undo at least that portion of the BCA that pertained to the Pentagon’s budget (i.e. that portion that threatens to cut most deeply into its members’ profits).

Although the mechanics of sequestration’s across-the-board cuts are problematic, the scale of the Pentagon build-down would be modest by historical standards. And yet, the mere suggestion that sequestration might actually occur has sent the industry into apoplexy. The AIA’s campaign has included the release of a new report claiming that the BCA cuts could result in over one million lost jobs and warnings that hundreds of thousands of workers would be receiving pink slips just a few days before the November elections.

In short, sequestration is a horror show, a Texas chainsaw massacre, and the AIA’s public-relations effort is designed to scare the wits out of the audience. “Sequestration,” explains Della Williams, the chief executive of Fort Worth-based Williams-Pyro Inc., “is surgery with a chain saw.”

But just as some people aren’t easily scared by campy slasher flicks, there are still a few people in Washington—especially Grover Norquist, President of Americans for Tax Reform (ATR)—who are cheering for the guy with the chainsaw.

The two sides squared off in separate events last Thursday. At the Bloomberg Government Defense Conference, AIA President Marian Blakey, Reps. Norm Dicks (D-WA) and Randy Forbes (R-VA) and Sens. Carl Levin (D-MI) and John McCain (R-AZ) called for bipartisan compromise on taxes in order to fund further Pentagon spending increases. Judging from the number of times that speakers invoked his name, Norquist posed a greater threat to national security than China or Iran. Levin, in particular, scorned ATR’s famed taxpayers’ pledge and suggested that it was largely responsible for the impending catastrophe.

Norquist is characteristically unfazed by all this special-interest pleading for more money. While Blakey and her congressional friends were attempting to rally the troops and rustle up more money, Norquist was reaffirming his opposition to higher taxes—including the closing of tax loopholes that generate more revenue—at a meeting on Capitol Hill. There is no Pentagon-budget escape hatch in ATR’s pledge. If the defense industry wants more, it will have to get it from elsewhere in the budget.

The fight over sequestration, taxes and the defense budget reveals textbook cases of two perennial public-policy realities: the politics of concentrated benefits, diffuse costs; and the economics of the seen vs. the unseen.

With respect to the first case, the defense industry, broadly defined, benefits disproportionately from Pentagon spending. And that industry can count many interested parties within its coalition. In addition to the defense companies, including the executives and the shareholders, there are also the workers at these firms (often represented by a union). Then there are the mayors and local officials who represent communities that are home to defense firms.

Given what is at stake, it is understandable that all of these groups have amped up their lobbying efforts to fend off sequestration. To take just one example, a single F-35 will cost, on average, nearly $125 million ($112.5 million for the aircraft, plus another $22 million for the engine). Prime contractor Lockheed Martin spent $15 million on lobbying in 2011 and is expected to spend even more this year. Such expenses can easily be justified to investors and shareholders if they are seen as protecting the company’s cash cow.

Individual taxpayers, by contrast, have little incentive to organize and even less incentive to pool their money to fight against the AIA. The cost of the F-35, spread around to every taxpayer, amounts to about a dollar (if we just count the 122 million people who paid federal income taxes). Generally speaking, people do not scrutinize where every tax dollar goes; indeed, payroll-tax withholding causes Americans to ignore what they pay in monthly taxes.

A few groups, including Norquist’s ATR, try to offset this imbalance of interests, and they have been reasonably successful. But Norquist’s pledges would be worthless if voters didn’t agree with him. But many do. In this poll (.pdf), for example, half of all respondents were opposed to having their taxes go up in order to pay for higher Pentagon spending.

The AIA’s other line of attack—the claim that substantial cuts in military spending will have a devastating impact on the economy, resulting in a million or more lost jobs—reveals the age-old broken-window fallacy. The AIA wants people to focus on that which is seen—defense workers who are laid off—and to ignore any consideration of how the economy as a whole will be better off if the resources that had previously gone to building planes and rockets are allocated elsewhere in the economy. These transitions are certainly difficult and painful for the individuals and firms involved, but they can be expected, all other factors being equal, to have salutary aggregate effects, especially over the long term. I’ll have more to say on that point later this week, drawing on my previous study of San Diego in the late 1950s, the early 1990s and the early 2000s.

In the meantime, I encourage you to read a succinct explanation of the broken-window fallacy from Henry Hazlitt’s Economics in One Lesson. And, if you’re really motivated, consider reading a less succinct, but more colorful, discussion of the phenomenon by Hazlitt’s intellectual forefather, the French philosopher Frédéric Bastiat.

TopicsCongressDomestic PoliticsDefenseK StreetPolitical EconomyState of the MilitaryPolitics

The Establishment Is Confused on Egypt

The Skeptics

Bruce Riedel has written a piece arguing that proponents of cutting U.S. aid to Egypt believe that doing so will “leverage” its military “to back down” and that the act of cutting aid is a “good threat” that only works once.

I found the piece confusing, but I think the problem partly lies in a decades-long policy that fails to “leverage” the aid we currently give.

Riedel writes, “the aid lever probably helped persuade the generals in 2011 not to use brute force to smash the revolution.” Here he separates Egypt’s riot-control police from the body of senior generals, even though both groups are appendages of the same repressive regime. Moreover, in mid-April 2011, a military tribunal sentenced political activist Maikel Nabil to three years in prison for insulting the military. Days before Nabil’s arrest, security forces in Cairo fatally shot two protesters and detained dozens more for violating the national curfew and a ban on demonstrations. Don’t these measures constitute “brute force to smash the revolution”?

Riedel then pivots to another argument for U.S. aid: Israel. He says U.S. aid amounts to “a large bribe to persuade the officer corps to back what most believe to be a humiliating peace treaty.” If, as Riedel argues, aid was an emollient intended to soothe Egypt’s wounded pride, then that has little to do with persuading Egpyt to not start a war with Israel. If aid is just a bribe to maintain decent relations with Israel, isn’t the expectation of other behavior ancillary? Besides, the cooperation we got in exchange for our "large bribe" was not always smooth.

In 2008, a top U.S. diplomat reported that when U.S. officials talked to leaders of Egypt’s Ministry of Defense about border security, counterterrorism, civil defense and peacekeeping, these efforts were met with limited success, and Egypt strongly resisted—and only later supported—millions in U.S. foreign military funding for a countersmuggling system on the Gaza-Egyptian border. Furthermore, in 2007, the director of the Israel Security Agency reported to U.S. diplomats that Egyptians seal up tunnels under the Rafah border crossing but have done nothing to shut down extensive smuggling operations that bring explosives from Sudan, and perhaps Yemen and Libya, and that Egypt could have acted to cut off much of the smuggling but did not.

Moving on, at the end of his piece, Riedel seems to contradict his advocacy of U.S. aid: “The United States should not fund a military coup even to save the peace treaty.” Do we not agree? U.S. aid continues to flow even as Egypt’s illiberal democracy backslides. Indeed, U.S. aid continues to support a brutal regime that maintains its authority through the denial of free speech, arbitrary imprisonment, savage repression and routine torture.

Riedel’s piece aside, recent news reporting has focused on Egypt’s new president, Mohamed Morsi. Morsi has claimed that Egypt will adhere to its international commitments, but U.S. officials may want to take that pledge with a grain of salt. Aspects of the U.S.-brokered Camp David Peace Agreement, such as Egypt’s sale of natural gas to Israel below the global market rate, will certainly be up for review. Moreover, even though Morsi professes freedom for all Egyptians, including women and Coptic Christians, the Muslim Brotherhood (of which Morsi is a part) has a history of going back on its promises. Last year, it claimed it would not run a candidate for president. It has argued for free-market policies even as Morsi invokes the need for minimum and maximum wages.

Let us hope that the situation in Egypt progresses, but the liklihood of significant liberal economic and political reforms does not look good.

TopicsAutocracyCivil SocietyDemocracyEconomic DevelopmentElectionsHuman RightsForeign AidPolitical EconomySociety RegionsIsraelEgypt