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Three surprising things about the North Korean threat I learned on a recent trip to South Korea - Discussing the geopolitical risk of the protests in Iran: Rubin on CNBC's 'Power Lunch' - AEI

Tue, 01/02/2018 - 14:54

In December 2017, I participated in a delegation trip to Seoul organized by the National Bureau of Asian Research and sponsored by the Korea Foundation. During the week, we met with dozens of officials and scholars. We focused our discussion on the North Korean threat, to include discussions of US-ROK coordination, the relationship with Japan, and the role of China. Even though I have spent time researching the North Korea nuclear issue, there were a number of new and diverse perspectives articulated in our meetings.

North Korea’s leader Kim Jong Un speaks during a New Year’s Day speech in this photo released by North Korea’s Korean Central News Agency (KCNA) in Pyongyang on January 1, 2018. KCNA/via REUTERS

First, one of the main reasons the United States has not launched limited strikes on North Korean nuclear and missile launch facilities is the fear that North Korea would retaliate by launching a barrage of artillery at Seoul. The North Korean People’s Army Artillery Command reportedly oversees about 12,000 pieces of tube artillery and 2,300 pieces of multiple launch artillery. The consensus that Pyongyang had “enough artillery to turn Seoul into a ‘sea of fire’” is the main reason cited for why the Clinton administration did not launch such an attack in the 1990s. This could escalate to a full-blown conflict, which could result in an estimated 20,000 casualties per day.

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However, a number of South Korean interlocutors questioned the assumption that if the United States launched a limited surgical strike North Korea would respond in this manner. The artillery threat is Kim’s trump card; he knows that if he does launch such an attack on Seoul it most certainly means a major US military response. Kim understands that a second Korean War would end with his demise, and therefore he has incentives to avoid such escalation. Assuming Kim is rational then, it is possible that the United States could conduct a limited surgical strike and North Korea’s response would be minimal. This perspective is not widespread in the United States, but should be seriously considered as it has implications for the costs and benefits of US military options.

Second, the views on President Trump’s North Korea policy were more mixed than expected. On the one hand, South Korean political and military elites expressed support for the fact that North Korea is President Trump’s top priority in Asia. The perception is that lack of priority among past presidents — President Clinton, President Bush, and President Obama — allowed the problem to develop to the current tipping point. Therefore, President Trump’s focus and urgency on ending the nuclear threat is welcomed.

However, there was a split in perceptions about the role of military options in President Trump’s strategy. A senior Ministry of Foreign Affairs official articulated that the ROK and the US are actually on the same page in addressing the North Korean nuclear threat. Both believe in a “maximum pressure, maximum engagement” strategy — with the US stressing the former and the ROK the latter. In this context, President Trump is not seriously considering military options, but is only threatening to escalate as a part of the diplomatic strategy. However, some other interlocutors, mostly retired officials or scholars, disagreed. They thought the US threats to use military force were real, and that many in the United States were not adequately considering the lives and livelihoods of South Koreans when they considered the costs of their actions. A senior adviser to South Korean President Moon has been quoted as saying if the United States attacks North Korea without coordination with South Korea it would mean the end of the alliance.

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Third, the case of East and West Germany is not a useful analogue for Korea. There was no animosity between East and West Germany — but the North and South fought a bloody war against each other and have now lived almost seven decades in a state of war. Moreover, the North Korean regime has been actively brainwashing its population with propaganda against the South that will make it difficult for the two populations to accept each other. Currently, there are 30,000 North Korean defectors living in South Korea. These individuals go through a special process of reeducation so they can learn how to live in a capitalist, open, and democratic society like that of South Korea. But North Koreans undoubtedly struggle in South Korean society, and are easily identified by language and appearance, if not by geography since after reunification most North Koreans would stay in the North. It will be a difficult social challenge for North Koreans to not be second-class citizens in a reunified Korean society.

Additionally, the economic costs of reunification are unparalleled. East Germany was the jewel of the Soviet empire — the situation never reached the dire level of North Korea today in which the average person has no access to education, healthcare, or basic markets. Most of the population lives off subsistence farming. When compared to the vibrant economy of the South, the contrast is much starker. Korean unification also would happen at the apex of Chinese power, while German reunification happened as the Soviet Union collapsed. This increases the likelihood of third party involvement. For all these reasons, it is no surprise that unlike Germans, many South Koreans do not want reunification, especially the younger generations.

In short, the prospect of reunification on the Korean peninsula will be much riskier, more uncertain, and costlier than any such occurrence in history.

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America can reform welfare with important lessons from Europe - Discussing the geopolitical risk of the protests in Iran: Rubin on CNBC's 'Power Lunch' - AEI

Tue, 01/02/2018 - 14:25

Both President Trump and Speaker Paul Ryan have said that welfare reform will be a priority after tax reform to enable people on welfare rolls to move back into the workforce. Reforming welfare is a good idea, not so much because people are gaming the “system,” as Trump has said, but because welfare in America is not a system at all, and lacks a coherent approach to improving the lives of low-income people. Modernizing welfare into a safety net focused on upward mobility through work would fix this. It would also track with mainstream American values.

A majority of Americans, including 55 percent of people living in poverty, believe the purpose of welfare is to help people get on their feet, not just to dispense benefits. Eight in 10 low-income respondents believe working should be required to receive welfare benefits.

But our current approach to welfare does not track well with these American aspirations. Welfare in America is a patchwork of programs with differing rules and requirements, encouraging work in one program, discouraging it in another, and sometimes penalizing a recipient whose earnings increase. The largest — including Medicaid, food stamps, disability insurance, the earned income tax credit, temporary housing assistance and cash assistance — are each administered by different federal agencies.

Speaker of the House Paul Ryan speaks at a news conference following a closed House Republican conference meeting on Capitol Hill in Washington, U.S., December 19, 2017. REUTERS/Aaron P. Bernstein

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours and could easily find Republican admirers in Congress.

For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement.

Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system.

Lessons from Europe should help American welfare reformers to focus on three objectives. The first and most important is that all welfare programs should focus on getting people who can work into employment, or work training, as quickly as possible. Our programs currently work against each other. For instance, as economist David Autor has shown, even though work is required to receive temporary assistance or earned income tax credit benefits, America’s disability insurance program has become a de facto welfare program for some people who are fit enough to work but choose not to do so.

The second objective is eliminating penalties on increased earnings so low-income workers do not have to think twice about getting a pay raise or a better job. The Congressional Budget Office estimates that a worker whose earnings grow from the federal poverty level to 150 percent of that level experiences the equivalent of a tax increase from 17 percent to 65 percent because of how welfare benefits phase out. Welfare reform should align phase-out rates so that as earnings increase, benefits decrease along a sliding downward scale at the same rate in all programs, as in the British system.

The third goal is granting maximum flexibility to local agencies and organizations so they can combine resources to address a wider range of obstacles to work than is allowed under current law. This is important because, according to Census data, most poor people who are not working do so mostly for reasons other than not being able to find a job. States should have the flexibility to combine resources to help cover costs associated with caregiving, auto repairs, moving, and whatever else is preventing someone from being able to hold down a job.

Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Ryan Streeter is director of domestic policy studies at the American Enterprise Institute. He served as deputy chief of staff for policy for Indiana Governor Mike Pence, special assistant for domestic policy to President George W. Bush, and policy adviser to Indianapolis Mayor Stephen Goldsmith. You can follow him on Twitter @StreeterRyan.

The 2018 patent horizon: What should we expect? - Discussing the geopolitical risk of the protests in Iran: Rubin on CNBC's 'Power Lunch' - AEI

Tue, 01/02/2018 - 11:00

As we ring in 2018, here are some of the issues brewing in the patent world this coming year:

Via Twenty20

Will the Supreme Court kill Patent Office trials?

As discussed previously in this space, Congress’ 2011 America Invents Act inaugurated trials in the Patent Office as a quicker, cheaper, and easier alternative to district courts for testing patent validity. Since these proceedings were established, thousands of patent claims have been wiped out across a variety of technological areas.

But in the Oil States Energy Services, LLC v. Greene’s Energy Group LLC case currently before the Supreme Court, one company whose patents were extinguished by a Patent Office trial is challenging the constitutionality of the system.

As reported here in December, during oral argument, the high court turned a skeptical eye toward the proceedings, with some justices expounding a strong view of patents as private property that may be removed only by a judge duly appointed by the president and confirmed by the Senate, which the administrative law judges handling the Patent Office trials are not.

While other justices appeared more favorably inclined to the proceedings, we won’t know for sure likely until June whether they will pass constitutional muster.

How will venue law evolve?

The last Supreme Court term saw a significant ruling affecting the landscape of patent litigation that will continue to ramify throughout 2018.

In the TC Heartland case, the Supreme Court upended long-standing practice relating to venue, or the geographic location in which a patent case can be filed.

The high court ruled that such cases could be brought only where the defendant is incorporated or has a “regular and established place of business.”

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One prominent judge in the patent-heavy Eastern District of Texas sought to interpret “regular and established” by examining factors including the defendant’s physical presence in the district, its representations about its local business, the benefits it receives in the district, and its targeted interactions with the district.

But the Federal Circuit Court of Appeals rejected that approach, noting instead that venue requires a physical place of business in the district that is a regular and established place of business and that belongs to the defendant itself.

Courts around the country will continue to refine the Federal Circuit’s formulation, and already certain large corporations with retail outlets in many districts have begun to concede that venue is appropriate in their situations. But expect debates to rage over employees working from home offices, telecommuters, coworking spaces, and the like.

Will legislative patent reform (finally) return?

In last year’s patent preview, we asked the same question, and the answer in 2017 turned out to be, mostly, a resounding “no.” With Congress bogged down in (unsuccessfully) repealing Obamacare and (successfully) enacting tax reform, the patent issue fell by the wayside.

And it’s tempting to think that in a midterm election year, with budget and other battles looming, legislative patent reform will remain on the back burner.

At the same time, President Trump’s Federal Trade Commission has signaled greater engagement in the debate, and many in the computer tech industry continue to press for changes that would stamp out what they regard as patent abuse.

In addition, some in Congress have turned their attention to the recent trend of patent holders transferring their patents to Native American tribes to shield them from Patent Office proceedings.

The House Oversight and Government Reform Committee requested detailed information from Allergan, which had transferred patents critical to its Restasis medicine to the Saint Regis Mohawk Tribe. Sen. Claire McCaskill (D-MO) introduced legislation to bar the practice. And a federal judge expressed “serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed.”

Such narrow issues may represent more likely targets for Congress, but 2018 may also see a broader revisiting of the patent system.

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Things to read to understand the Iran protests - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 12/31/2017 - 18:41

I’ve written over the years about Iranian politics, Iranian security agencies and tactics, and the Iranian quest for freedom. As Iran’s largest post-revolutionary protests enter their fourth day, here are a few stories that might be of interest:

  • Iran: The Case for Regime Change,” Commentary Magazine, April 2010. (This lengthy essay discusses a lot of the soft power options the United States and Europe have at their disposal.)
  • To Keep America Safe We Must Address Our Intelligence Failures In Iran,” Fox News, October 12, 2011. (Politicians always talk about what we know about Iran; this essay looks at our intelligence gaps, and what they might mean when Iran faces another uprising.)
  • Crackdown demonstrates Iran’s cyber capabilities,” Operational Environment Watch, November 2014. (Operational Environment Watch is the flagship publication of the US Army’s Foreign Military Studies Office. Its articles are apolitical, focusing on analysis of foreign publications. In this particular example, the Iranian police are bragging about their ability to crack down on social media, something we have again seen in recent days.)
  • Who Will Stand with the Iranian People?Commentary Magazine, January 10, 2016. (A blog post asking every candidate to formulate a policy to address the likelihood their presidency would witness a new Iranian uprising.)
  • Iran’s Achilles’ heel: Unfulfilled expectations,” AEIdeas, March 1, 2017. (This blog post questions whether Iranians would tolerate the fact that they wouldn’t see any of the cash flowing back into regime coffers.)
  • Both sides undermine regime change in Iran,” AEIdeas, July 19, 2017. (This blog post takes to task those on both sides of the US political divide who engage in activities that do more harm than good. Repeat after me, Iranian freedom shouldn’t be a political football.)
  • Iran: Policing the Internet and Social Media,” Operation Environment Watch, September 2017. (Iran has a cyberpolice force. Here’s an overview of some of their recent activities.)

There’s much more, of course. Here, for example, is a whole list of my recent AEI work on Iran. And here are some pieces dating back from the 2009 Iranian uprising. All of these provide some background. But the important thing now is to realize that while American strategy and planning matter, what’s going on wasn’t caused by the United States and isn’t about the United States. It’s about a basic human desire for freedom and liberty, something Iranians deserve. Let’s hope they succeed.

The 10 worst things Trump has done in his first year in office - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 12/30/2017 - 17:00

In his first year in office, President Trump has done many positive things — from enforcing Barack Obama’s red line in Syria to recognizing Jerusalem as Israel’s capital, withdrawing from the Paris climate agreement, driving the Islamic State from its physical caliphate, getting NATO allies to kick in more money for our collective security, reversing Obama’s Afghan withdrawal, enacting historic tax and regulatory reforms, and installing conservative judges who will preside for decades.

But his record of conservative achievement has been overshadowed by a series of self-inflicted wounds. On Wednesday, I gave my list of the 10 best things Trump has done in his first year in office. Here are the 10 worst:

10. He has made no effort at bipartisanship. Both Bill Clinton and George W. Bush reached across the aisle in their first year in office, but Barack Obama told Republicans that “elections have consequences” and “I won.” Instead of repeating Obama’s mistake, Trump should have reached out across party lines. Perhaps the “Resistance” would have refused, but Trump would have gotten credit for trying.

9. He has spent more time attacking Republicans than Democrats. Trump needs to expand his Senate majority if he wants to pass his agenda. Yet he spent an inordinate amount of time in his first year at war with members of his own party.

8. He is empowering al-Qaeda in Syria. By forging a de facto alliance with Russia and Iran to defeat the Islamic State, Trump is driving Sunni Arabs into the waiting arms of al-Qaeda — which is preparing to replace the Islamic State and is much more dangerous.

7. He is giving Miranda rights to captured terrorists. Trump promised to start treating captured terrorists as enemy combatants again, but instead of intelligence-driven interrogation and sending terrorists to Guantanamo Bay, he has continued Obama’s criminal-justice approach to terrorist detention.

6. He has attacked the FBI and the intelligence community. Trump is right to be angry about leaks of private conversations with foreign leaders and the political bias of some individuals involved in the Russia probe. But the vast majority of those in the FBI, the Justice Department and the CIA are good, decent and honorable patriots who deserve the president’s respect. Trump should not undermine our institutions because of the corrupt or illegal actions of some individuals.

5. His noxious tweets undermine his presidency. He overshadowed his policy achievements, his excellent address to Congress and speeches in Saudi Arabia, Warsaw and South Korea by tweeting about Obama “wiretapping” him, gloating over Arnold Schwarzenegger’s failure on “The Apprentice” and attacking the hosts of “Morning Joe.” Trump fails to understand that the power and grandeur of the presidency are greater than any of the smash-mouth tactics that got him into the office.

4. He fired James B. Comey. If he wanted a change in FBI leadership, he should have announced it the day after the election. Comey’s belated firing led directly to the Mueller probe, which hangs over the Trump presidency like the Sword of Damocles.

3. He has dismissed Russian interference in the 2016 election. During his trip to Asia, Trump said he really believes that when Vladimir Putin tells him Russia did not interfere in the 2016 election, Putin believes it. This is patently absurd. Putin directed Russia’s meddling. It is possible to accept that Russia sought to influence our election without accepting that there was any collusion. The fact that a foreign government tried to undermine our democracy should outrage all Americans, regardless of party — including the president.

2. He stood by Roy Moore. His endorsement of an alleged sex predator was morally indefensible and sent a message to women everywhere that Republicans do not believe that credible allegations of a grown man molesting teenage girls are disqualifying. And that message has been received. Polls show a significant increase in the percentage of women who favor Democrats over Republicans in 2018.

1. He has failed to condemn the alt-right. His “many sides” response to Charlottesville was shameful. There a lot of things about the presidency that are hard, but condemning neo-Nazis isn’t one of them. While Trump eventually did so, as white nationalist Richard Spencer pointed out, “Trump has never denounced the Alt-Right. Nor will he.” Sadly, Spencer is right. Trump’s failure to condemn the right’s fever swamps hurts his presidency and the conservative movement.

Trump should be celebrating a year of achievement, but instead his administration is hemorrhaging public support. When Trump took office, he had 45 percent approval. Yet today — despite policy successes at home and abroad, economic growth exceeding 3 percent and unemployment at a 17-year low — his approval has dropped 10 points to 35 percent, the lowest of any modern president at this time in his administration. If Trump wants to understand why, he can start with this list.

America’s forgotten communities | Viewpoint - America's forgotten communities | Viewpoint - AEI

Fri, 12/29/2017 - 18:46

Chris Arnade has a PhD in physics and was a Wall Street trader. After a crisis of conscience following the 2008 financial crash, Chris abandoned his banking job to travel the country and chronicle the lives of America’s forgotten masses. But more compelling than the photos were the real conversations that Chris had with real people across the United States.

Expect America’s tensions with China and Russia to rise in 2018 - America's forgotten communities | Viewpoint - AEI

Fri, 12/29/2017 - 18:39

Yesterday’s 2017 review and forecast for 2018 focused on the most urgent challenges the Trump administration faces: the volatile Middle East, international terrorism and the proliferation of nuclear, chemical and biological weapons. Today, we examine the strategic threats posed by China and Russia and one of President Trump’s continuing priorities: preserving and enhancing American sovereignty.

Read Part 1:

China has likely been Trump’s biggest personal disappointment in 2017, one where he thought that major improvements might be possible, especially in international trade. Despite significant investments of time and attention to President Xi Jinping, now empowered in ways unprecedented since Mao Tse Tung, very little has changed in Beijing’s foreign policy, bilaterally or globally. There is no evidence of improved trade relations, or any effort by China to curb its abuses, such as pirating intellectual property, government discrimination against foreign traders and investors, or biased judicial fora.

Even worse, Beijing’s belligerent steps to annex the South China Sea and threaten Japan and Taiwan in the East China Sea continued unabated, or even accelerated in 2017. In all probability, therefore, 2018 will see tensions ratchet up in these critical regions, as America (and hopefully others) defend against thinly veiled Chinese military aggression. Japan in particular has reached its limits as China has increased its capabilities across the full military spectrum, including at sea, in space and cyberwarfare.

Taiwan is not far behind. Even South Korea’s Moon Jae In may be growing disenchanted with Beijing as it seeks to constrain Seoul’s strategic defense options. And make no mistake, what China is doing in its littoral periphery is closely watched in India, where the rise of Chinese economic and military power is increasingly worrying. The Trump administration should closely monitor all these flash points along China’s frontiers, any one of which could provoke a major military confrontation, if not next year, soon thereafter.

North Korea’s nuclear weapons program is where China has most disappointed the White House. Xi Jinping has played the United States just like his predecessors, promising increased pressure on Pyongyang but not delivering nearly enough. The most encouraging news came as 2017 ended, in the revelation that Chinese and American military officers have discussed possible scenarios involving regime collapse or military conflict in North Korea. While unclear how far these talks have progressed, the mere fact that China is engaging in them shows a new level of awareness of how explosive the situation is. So, 2018 will be critical not only regarding North Korea’s nuclear weapons threat but also whether Sino-American relations improve or take a distinct turn for the worse.

On Russia, the president has not given up on Vladimir Putin, at least not yet, but that may well come in 2018. Putin is an old-school, hard-edged, national interest-centered Russian leader, defending the “rodina” (the motherland), not a discredited ideology. Confronted with U.S. strength, Putin knows when to pull back, and he is, when it suits him, even capable of making and keeping deals. But there is no point in romanticizing the Moscow-Washington dynamic. It must be based not on personal relationships but on realpolitik.

No better proof exists than Russia’s reaction to Trump’s recent decision to supply lethal weapons to Ukraine, which is now a war zone entirely because of Russian aggression. To hear Moscow react to Trump’s weapons decision, however, one would think he was responsible for increased hostilities. President Obama should have acted at the first evidence of Russia’s military incursion into Ukraine, and even Trump’s aid is a small step compared to President Bush’s 2008 proposal to move Kiev quickly toward NATO membership. Nonetheless, every independent state that emerged from the Soviet Union, NATO member or not, is obsessed with how America handles Ukraine. They should be, because the Kremlin’s calculus about their futures will almost certainly turn on whether Trump draws a line on Moscow’s adventurism in Ukraine.

Just as troubling as Russia’s menace in Eastern and Central Europe is its reemergence as a great power player in the Middle East. Just weeks ago, the Russian Duma ratified an agreement greatly expanding Russia’s naval station at Tartus, Syria. In 2015, Obama stood dumbfounded as Russia built a significant air base in nearby Latakia, thus cementing the intrusion of Russia’s military presence in the Middle East to an extent not seen since Anwar Sadat expelled Soviet military advisers and brought Egypt into the Western orbit in the 1970s.

This expansion constitutes a significant power projection for the Kremlin. Indeed, it seems clear that Russia’s support (even more than Iran’s) for Syria’s Assad regime has kept the dictatorship in power. Russia’s assertiveness in 2017 also empowered Tehran, even as the ISIS caliphate was destroyed, to create an arc of Shia military power from Iran, through Iraq and Syria, linking up with Hezbollah in Lebanon. This Russian-Iranian axis should rank alongside Iran’s nuclear-weapons program on America’s list of threats emanating from the Middle East.

Finally, the pure folly of both the U.N. Security Council and the General Assembly crossing the United States on the Jerusalem embassy decision was a mistake of potentially devastating consequences for the United Nations. Combined with the International Criminal Court’s November decision to move toward investigating alleged U.S. war crimes in Afghanistan, there is now ample space for the White House to expand on the president’s focus on protecting American sovereignty.

Trump’s first insight into the rage for “global governance” among the high minded came on trade issues, and his concern for the World Trade Organization’s adjudication mechanism. These are substantial and legitimate, but the broader issues of “who governs” and the challenges to constitutional, representative government from international bodies and treaties that expressly seek to advance global governing institutions are real and growing. America has long been an obstacle to these efforts, due to our quaint attachment to our Constitution and the exceptionalist notion that we don’t need international treaties to “improve” it.

No recent president has made the sovereignty point as strongly as Trump, and the United Nations and International Criminal Court actions in 2017 now afford him a chance to make decisive political and financial responses in 2018. If 2017 was a tumultuous year internationally, 2018 could make it seem calm by comparison.

John R. Bolton (@AmbJohnBolton) served as U.S. ambassador to the United Nations and as undersecretary for arms control and international security affairs at the U.S. Department of State under President George W. Bush. He is now a senior fellow at the American Enterprise Institute.

China and President Trump’s National Security Strategy: Will the administration persevere? - America's forgotten communities | Viewpoint - AEI

Fri, 12/29/2017 - 15:34

The Trump administration’s National Security Strategy (NSS) document has received generally favorable, though certainly mixed, reviews — ranging from “daring” and “clear-eyed” to “confusing, contradictory, and incoherent.” The interest here, however, is narrower: What are the implications from the NSS premises and declarations for a potential US-China clash over trade and investment policy?

US President Donald Trump takes part in a welcoming ceremony with China’s President Xi Jinping at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj

Expert opinions on the China portion of the NSS are also divided. My AEI colleague Dan Blumenthal argues the Trump administration has “crafted a strong and comprehensive” NSS that recognizes that “under the rule of the Chinese Communist Party, China will never be a ‘responsible stakeholder’ in a US-created liberal world order, as it would rather be the sole owner of a China-led world order.” But AEI also published a piece by Oriana Mastro dissenting from this view. Mastro holds that the NSS swings “so far to an extreme, it eliminates the strategic foundation for managing China’s rise peacefully.”

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In presenting her case, Mastro does make a valid point: that China should be seen — as with the US — as pursuing its own national interests, not necessarily trying to upend the entire international order. Mastro, however, posits as her main dissent the fact that the NSS

basically states that the nature of the Chinese system, not necessarily how it behaves, makes it a potential enemy of the United States. . . . Tying the threat to the political system is dangerous, because this is something that is unlikely to change and that we cannot shape. . . . China’s biggest fear is that the United States will not accommodate its newfound position no matter how it wields that power because of the nature of its domestic system.

On this latter contention, Blumenthal has the more accurate vision.  Let me illustrate with the fractious trade and investment issues. The Chinese defense of its highly protectionist policies in these areas is tied directly to its authoritarian political system. Again and again, particularly with the advent of the Xi Jinping administration, Beijing invokes national security or “public order and public morals” as the basis for its economic restrictions on foreign firms. The Great Firewall, its all-pervasive censorship system, is thus both a central pillar in upholding a still-Leninist Communist Party structure, and also a key element in implementing an anti-competitive domestic industrial policy. In recent years, even better security/protectionist combinations have emerged with the passage of the National Security Law and Cybersecurity Law.

Against this background, my major worry about the Trump administration’s plans to counter the Chinese mercantilist security state is that the administration will ultimately lack perseverance and thoroughness. Blumenthal noted that the “US is a tad late in the game.” The “tad late” point is key to understanding the large challenges the Trump administration faces.  For the last two decades, Chinese leaders have — with few interdictions — constructed a web of policies and regulations that systematically restrict and exclude foreign companies (particularly in high-tech sectors) from competing in the Chinese economy.

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The term Great Firewall, then, should be seen as encompassing policy areas well beyond the extensive censorship system, to include forced technology transfer, forced partnership with Chinese partners, ever more sophisticated theft of intellectual property, demands that internet data be “secure and controllable,” legislation allowing government officials to demand access to software source code, and denial of access for major internet platform companies such as Google, Amazon, and Facebook.

To its credit, the Trump administration has tasked the US Trade Representative to document and recommend responses to Chinese IP theft and forced technology transfer. But it is not clear that the president and his advisers understand that the web of policies behind the Great Firewall will necessitate a sustained set of challenges to policies already in place for many years.  Nor have they given any indication that they have established priorities in tackling this protectionist web. While Japan and the Europeans have recently signaled support for such challenges, in the end the US will bear the brunt of the trade and investment action.

Beyond this, there are three other realities: First, whatever actions the US (and its allies) take will provoke retaliation from Beijing; second, the US business community will remain divided over confronting Chinese protectionism, with many companies still holding out hope for successfully competing in the Chinese market; and third, much of US (and other nations’) action will have to be outside the purview of the World Trade Organization. Particularly in the crucial high-tech sectors, WTO rules — last updated in 1995 — have little or no bearing or relevance to current trade grievances.

At this point, as the US moves toward confrontation with Beijing, it is by no means clear that the Trump administration and US political leaders in both parties are prepared to ride through the consequences of a trade/investment conflict involving upwards of a trillion dollars of economic activity.

This is the first of several blog postings on the impending clash between the US and China on trade.

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Hooked on realism: democracy promotion at State - America's forgotten communities | Viewpoint - AEI

Fri, 12/29/2017 - 15:07

Just before Christmas, an unclassified memo authored by Brian Hook, head of the State Department’s Policy Planning Staff, to Secretary of State Rex Tillerson was leaked. The memo was written shortly after the secretary’s appearance in early May at a “town hall” meeting for State Department employees in which he argued that advancing American “values” should be mostly an afterthought to the exercise of American diplomacy. Hook’s memo, while ostensibly written to give the secretary a bit of history behind the debate his remarks engendered, is more accurately described as an attempt to give his boss intellectual top cover for his views.

US President Donald Trump, flanked by Secretary of State Rex Tillerson, holds a cabinet meeting at the White House in Washington, US, December 20, 2017. REUTERS/Jonathan Ernst

Hook starts off by writing that on the one hand there are the Wilsonian idealists and on the other there are hardheaded realists. And although he writes that “both are authentically American,” it is clear which of the two he favors.

In Hook’s account, liberalism is a “value.” As such, Hook implicitly reduces it to something we, as Americans, put value on but others can legitimately have a different view about. This of course would have been news to the signers of the Declaration of Independence, who believed that “life, liberty, and the pursuit of happiness” were universal rights and over which we fought a bloody civil war. America’s attachment to liberalism and popular government isn’t something cooked up by Woodrow Wilson a hundred years ago, but has been part of the country’s DNA from the start.

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In contrast, Hook writes that, under the realist rubric, “our diplomacy with other countries should focus primarily on their foreign policy behavior rather than on their domestic practices.” He then lines up a supporting cast of Roosevelt, Truman, Eisenhower, and Reagan as adherents.

In lining things up the way he does, Hook simplifies complex policy judgments and muddies the actual history in which considerable American resources went into building and sustaining democracies in the 1940s and 1950s. Yes, at times, previous administrations have worked with autocratic allies, and in the case of Stalin during World War II, even with a brutal totalitarian regime. But being prudent about what might be thought necessary at times doesn’t mean one should turn those exceptions into a policy norm.

More often than not, a state’s foreign policy behavior is tied to its domestic practices. An autocrat’s interest in staying in power at home will almost certainly inform his actions with neighbors and the larger world. Moreover, there is plenty of fact-based scholarship that shows liberal democracies are more peaceful toward each other, more likely to be better trade partners, and less likely to adopt policies that create the internal distortions that lead to civil wars, coups, and mass migrations. In short, there are solid strategic (that is, realist) reasons to push for liberal democracy abroad.

In short, there are solid strategic (that is, realist) reasons to push for liberal democracy abroad.

Hook spends a good bit of his memo arguing that President Reagan adopted the more realist perspective that Hook lays out, quoting Reagan’s 1980 convention speech that “one takes the world as it is, and seeks to change it by leadership and example; not by harangue, harassment or wishful thinking.” But faced with the fact that Reagan, as president, didn’t follow his own advice — helping to push out autocrats in South Korea, Chile and the Philippines — Hook can only say that Reagan’s administration “began to move in the direction of a more pointed pressure for liberalization.”

This understates just how direct the interference was. It also ignores any attempt to ask why candidate Reagan’s views changed as they did once he became president, or why, in perhaps his most famous speech, given before the British Parliament in Westminster in 1982, he called for boosting support for democratic change around the globe and a year later created the National Endowment for Democracy.

Hook tries to mitigate the shift in the Reagan administration’s thinking by arguing that one could push for change in South Korea, Chile, and the Philippines because it was understood that there were “viable democratic and pro-American forces” in each. But that’s Monday Morning Quarterbacking. There were of course such forces but just how dependable and viable they were was unclear. These are classic judgment calls, but ones which turned out as they did precisely because the administration was leaning forward when it came to promoting democracy and not sitting on its “realist” hands. If Hook’s view had been the dominant view then, those decisions would never have been made.

See also:

Oddly, Hook then cites Reagan’s policy of “constructive engagement” with the apartheid-ruling white-led regime of South Africa as an approach that “in the long run worked.” And while it can be cited as an example of Reagan not following through on his own democracy rhetoric, it can hardly be seen as policy approach that worked. To the contrary, it was a policy that was put aside when Congress overrode a Reagan veto in 1986 and imposed more robust economic sanctions on South Africa. It was those sanctions, along with their tougher implementation from the follow-on Bush administration and increased hard pressure from the rest of the West, which finally led the South African government in 1991 to end apartheid.

Bringing his argument up to the present, Hook writes that “in the case of US allies such as Egypt, Saudi Arabia, and the Philippines, the Administration is fully justified in emphasizing good relations for a variety of important reasons, including counter-terrorism, and in honestly facing up to the difficult tradeoffs with respect to human rights.” That there are tradeoffs to be made between important goals and principles when making policy is true enough. But the thrust of Hook’s memo is that, as a realist, you actually don’t have to make those tradeoffs or reasoned assessments. Essentially, Tillerson is being told, it’s okay to “leave well enough alone.”

Except, well enough may not be good enough in time. None of the three states Hook mentions are stable. One can hope that, when change does come, it will be in a direction favorable to the US. But hope is not a policy. Who governs and how they govern is in America’s interest.

Hook concludes by arguing that, if democracy and human rights rhetoric has any place in this administration, it’s to be used as a tool in our competition with the likes of China, Russia, North Korea, and Iran. “Pressing those regimes on human rights is one way to impose costs, apply counter-pressure, and regain the initiative from them strategically.” But of course there is a real price to be paid in downplaying or ignoring the flaws of partners while calling out those of adversaries. It doesn’t make America look great, just hypocritical.

Learn more:

Discussing the impact of the GOP tax bill: Strain on CNBC’s ‘Squawk Box’ - America's forgotten communities | Viewpoint - AEI

Fri, 12/29/2017 - 12:30
John G. Searle Scholar and Director of Economic Policy Studies Michael Strain discusses the implications the GOP tax bill may have on the American economy when it takes effect in the new year.

Military use of space is coming, Trump can help America prepare - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 12/28/2017 - 19:35

President Donald Trump’s National Security Strategy set a new course by focusing on rebuilding the domestic economy as central to national security and its aim at “rival powers, Russia and China, that seek to challenge America influence, values, and wealth.” Critics observed that the White House seemed to reverse past presidents’ emphasis on advancing democracy and liberal values, reject both reducing global warming and spreading free trade as national security goals, and elevating American sovereignty over international cooperation.

Less noticed but perhaps equally revisionist, the National Security Strategy reverses the Obama administration’s lead-from-behind approach to outer space. As American military and civilian networks have increased their dependence on satellite networks, the Obama White House deferred to European efforts to develop a “Code of Conduct” that would reduce the chances of armed conflict in space.

Rejecting these treaties and vague international norms, the Trump administration instead relies on unilateralism: “any harmful interference with or an attack upon critical components of our space architecture that directly affects this vital U.S. interest will be met with a deliberate response at a time, place, manner, and domain of our choosing.”

Trump has the central issue right: control of space underlies the United States’s predominant position in world affairs. Communications satellites provide the high-speed data transfer that stitches the U.S. Armed Forces together, from generals issuing commands to pilots controlling drones. Other satellites monitor rival nations for missile launches, strategic deployments, or troop movements. America’s nuclear deterrent itself uses space: land- or sea-based ballistic missiles leave and then reenter the atmosphere, giving them a global reach that is difficult to defend against.

The global positioning system (GPS) allows U.S. aircraft, naval vessels, and ground units to locate their whereabouts and to direct their fire with precision. The stunning speed of the initial invasion of Iraq in 2003, like the earlier triumph of the Persian Gulf War in 1991, demonstrates the lethal success of military operations that integrate satellite communications and information gathering. The drone campaign against terrorist leaders in the Middle East and Pakistan depends on satellites to locate targets, conduct real-time surveillance, and then control the fire systems of the drones.

The future holds even more advances in store. Building on precision-guided munitions, the U.S. Defense Department is developing a “prompt global strike” system that will use GPS satellites to guide hypersonic missiles, armed with conventional warheads, to targets anywhere in the world within an hour.

Civilian networks similarly depend on space. GPS has transformed the transportation industry. Navigation products allow for quicker driving for individual cars, more efficient cargo transport by trucks, rail, and ships, and fuel-saving routes for airplanes. Autonomous cars, ride-sharing, and delivery services similarly rely on GPS. Other satellites predict the weather, while yet others transmit communications and data.

Private industry has also begun to exploit the commercial potential of space. The space economy is now estimated to be a $330 billion global commercial enterprise, $251 billion of which is contributed by private commercial actors, with the rest of the revenue being generated by government spending.

The U.S. Defense Department relies on commercial satellites for about 40 percent of its communication needs. The idea of sending civilians into space is even beginning to take flight. Elon Musk’s SpaceX has developed rockets to transport cargo to the International Space Station, while Virgin Galactic is already selling seats for space tourism.

While space-based systems enhance military operations and civilian networks, they also expose vulnerabilities. Enemy destruction of U.S. reconnaissance satellites would blind its strategic monitoring and degrade its operational and tactical abilities. Anti-satellite attacks could even the technological odds against western powers that have developed information-enhanced operations. Chinese strategists discuss countering U.S. superiority in conventional and nuclear weapons with “soft kill” attacks on American satellites, which would blind American forces and interfere with U.S. communications and control.

While China has steadily advanced its manned space program, it has also developed the technologies necessary for anti-satellite (ASAT) weapons. In 2007, for example, China tested a ground-launched missile to destroy one of its own weather satellite in low-Earth orbit, in the same region inhabited by commercial satellites. “For countries that can never win a war with the United States by using the methods of tanks and planes, attacking an American space system may be an irresistible and most tempting choice,” a Chinese analyst wrote in a much-noticed comment.

The potential for space warfare has led to calls to ban the “militarization” of space. Such efforts began as early as the Outer Space Treaty of 1967, which declares its purpose “to promote international co-operation in the peaceful exploration and use of outer space.” The Treaty forbids the stationing of nuclear weapons (and other WMD) in orbit and bans military installations or operations on the moon and other celestial bodies. The Treaty also forbids any nation from claiming sovereignty over the moon and planets or even the space above their territory (unlike airspace, for example).

Ever since, some have argued that space must be an arms-free zone, and any use of space for military purposes, even non-aggressive ones, violates international law. The United Nations General Assembly has repeatedly passed resolutions “to prevent an arms race in outer space.” The Obama administration gave into such hopes with its quiet support of the European space Code of Conduct, which sought to restrain arms competition in space.

While the Trump NSS is a document, but not an operating strategy, it shows that the administration is making the right moves in rejecting utopian visions of space as conflict-free zone. The great powers have already carefully crafted treaties to limit a nuclear arms race in outer space. But at the same time they have left open significant routes for other military uses of space. Current law, for example, does not prohibit the passage of weapons through space, such as ballistic missiles, the stationing of reconnaissance satellites, or the basing of conventional weapons in orbit. States can use force in these ways to achieve the same goals as with other high-tech weapons: for self-defense, to pursue terrorist groups, to stop international crises, and to resolve disputes between states.

While the Trump NSS recognizes the value of space, it sets no agenda for more effective use of the arena. It calls for more commercialization and exploration of space, but little else. The Trump administration should devote more resources to the development of space-based weapons, both to prevent ballistic missiles from rogue nations such as North Korea and Iran, and to defend against anti-satellite attacks from China and Russia.

Combat in space will raise the same questions as with other technologies, due to the integration of civilian and military networks in space. But it also realizes the same benefits: greater precision in attack, a reduction in battle casualties, and clearer signaling between great powers, which should help settle their controversies.

Nations can coordinate to place certain areas of space off limits to occupation, such as the moon or planets, rendering them akin to the legal status of Antarctica. But it would deny reality to expect the United States and its competitors to ignore the military and technological advantages made possible by space.

John Yoo is a professor at the UC Berkeley Law School and a visiting scholar at the American Enterprise Institute. He is the author (with Jeremy Rabkin) of Striking Power: How Cyber, Robots, and Space Weapons Change the Rules for War (Encounter Books).

Exposing the minimum wage fallacy — it’s an ironclad law of economics that to stimulate one group (workers) you have to un-stimulate another group (businesses) - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 12/28/2017 - 18:38

In a 2014 letter written by the Economic Policy Institute (EPI) to President Obama and congressional leaders in support of an increase in the federal minimum wage to $10.10 an hour, more than 600 economists apparently agreed with, and endorsed this statement:

Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

More recently, EPI endorsed a $15 an hour federal minimum wage and estimated that:

The rising wage floor would generate $144 billion in additional annual wages, which would ripple out to the families of these workers and their communities. Because lower-paid workers spend much of their extra earnings, this injection of wages would help stimulate the economy and spur greater business activity and job growth.

Seems almost like economic magic right? Through a government edict in the form of an artificial price control (minimum wage law), we can stimulate the entire US economy and increase national income, prosperity, and jobs!

And here’s the latest from EPI on the pending increases in the minimum wage next week:

At the beginning of 2018, 18 states will increase their minimum wage, providing more than $5 billion in additional wages to 4.5 million workers across the country. In a majority of these states, minimum wage increases (ranging from $0.35 in Michigan to $1.00 in Maine) are the result of legislation or ballot measures approved by voters in recent years. Eight of these states (Alaska, Florida, Minnesota, Missouri, Montana, New Jersey, Ohio, and South Dakota) will have smaller automatic increases that adjust the minimum wage to keep pace with price growth.

According to the narrative of minimum wage proponents like EPI, that $5 billion in additional wages will get spent by low-skilled workers on goods and services, and with the power of a mythical multiplier that spending will ripple through the economy and magically stimulate the entire economy, create jobs, and bring about prosperity!

But here’s a question that never gets asked (or answered) by EPI and minimum wage advocates: Where will the $5 billion in additional wages come from? While thinking about this overlooked question that reveals an important economic fallacy, I was reminded of a similar economic fallacy illustrated by Henry Hazlitt’s famous essay on the broken window, which exposed the economic fallacy of the “blessings of destruction.” Using Henry Hazlitt’s essay as a template (which is actually based on Bastiat’s original essay on the broken window fallacy from 1850), I’ve written a new essay below to expose what might be called the “blessings of the minimum wage” fallacy on the eve of the 18 minimum wage increases schedule to take place next week.

From Henry Hazlitt’s Economics in One Lesson, we learn that “the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence: The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Let us begin with a simple illustration: the 18 minimum wage hikes that will take place next Monday on January 1.

As a result of 18 state laws mandating that minimum wage workers will get paid $0.35 (in Michigan) to $1 an hour more (in Maine) on January 1, a young teenage worker named Alex working full-time at a small neighborhood pizza restaurant in Maine would make $160 in additional income every month (ignoring taxes). Alex would spend that additional monthly income of $160 at local merchants on items like food, clothing, footwear, Uber rides, movies, computer games, and electronics items. The local merchants who receive that $160 from Alex’s additional spending now have additional income and profits every week, and they can spend some of that additional income and profits on goods and services. Alex’s additional monthly income, therefore, ripples through the local Maine economy with an amazing multiplier effect that almost magically increases spending and income throughout the local economy. The pro-minimum wage crowd points to these many positive income effects from Maine’s pending $11 an hour minimum wage and Alex’s additional income, and many might even suggest that a minimum wage far above $11 an hour would create even greater and more positive benefits for workers like Alex and the local merchants who would be the beneficiaries of an even higher minimum wage. For example, EPI suggests that a $15 an hour federal minimum wage would lift wages for 41 million American workers.

But let us take another and closer look at the situation. The minimum wage crowd is at least right in its first conclusion about Alex’s spending, which is just a small part of the much larger $5 billion in additional wages and spending EPI estimates for next year. The public policy of artificially raising wages through government fiat will mean more business and billions of dollars in greater sales revenues for local merchants around the country. The local merchants will be no more unhappy to learn of the magical spending from 18 minimum wage hikes in 2018 than an undertaker to learn of a death.

However, we haven’t yet considered the situation that will now face hundreds of thousands of merchants and small business owners next year, including Alex’s boss – Mrs. Alice Johnson who owns the small pizza restaurant in Bangor where Alex works. As a result of Alex’s good fortune to receive $160 in extra income every month (and nearly $2,000 during the entire year) as a result of government fiat, his boss and sole-proprietor Alice Johnson now has $160 less every month (and $1,920 for the year) because she has to pay Alex out of her own income or profits. The Johnson family now has to cut back on their household spending by $160 every month that they would have spent on food, clothing, Uber rides and electronics products at local merchants. Alex’s gain of $160 each month comes at the direct expense of the Johnson family, who are now worse off in the same amount that Alex is made better off. (And if Mrs. Johnson employs more minimum wage workers than just Alex, she and her family are worse off by $160 per month, and $1,920 per year, for each worker.) If we consider that Alex and the Johnson family are a part of the same local community in Bangor, the community’s income hasn’t changed – rather, there’s only been a transfer of income of $1,920 per year from the Johnson family to Alex; but no net gain in community income, wealth, jobs, or prosperity has been achieved.

For the entire state of Maine, the $80 million in higher wages that EPI’s estimates next year as a result of the $1 an hour increase in the state’s minimum wage have to come from somewhere or someone. And that “somewhere” or “someones” are the thousands of local merchants in Maine like Mrs. Johnson who will be made collectively worse off by $80 million in 2018.

The people in the pro-minimum wage crowd think narrowly of only two affected groups from minimum wage hikes: Alex, the minimum wage worker, and the merchants that gained his business from his artificial increase in income. The minimum wage advocates forget completely about the third parties involved, namely small business owners and their families like the Johnsons in Maine, and the local merchants that now lose their business because the labor costs for small businesses have been artificially increased by government fiat. Minimum wage advocates will easily see Alex’s increased income and spending because it is immediately visible to the eye and easy to calculate ($5 billion next year according to EPI, and $144 billion annually if the federal minimum wage is increased to $15 an hour). They fail to see the lost income and subsequent reduction in spending by the Johnson family that otherwise would have occurred – because it’s less visible and harder to calculate.

The minimum wage example above exposes an elementary fallacy about its alleged positive income effects. Anybody, one would think, would be able to avoid that fallacy after a few moments thought. Yet the minimum wage fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by labor union leaders, by editorial writers and newspaper columnists, by progressive politicians and progressive think-tanks, by learned statisticians using the most refined techniques, and even by professors of economics in our best universities who sign statements in support of the minimum wage. In their various ways, they all perpetuate the minimum wage fallacy.

The minimum wage supporters see almost endless benefits despite the economic destruction that characterizes minimum wage laws. They see miracles of multiplying prosperity, increased income, and more jobs coming from minimum wage hikes, a form of economic magic enacted in state capitals, by city councils, and the federal government. But once we trace the long-term effects of such public policy on all groups in the economy, and analyze both what is seen and what is unseen, we should easily understand that the minimum wage cannot, and will not, have overall positive effects. At best it can only transfer income from one group (business owners like Mrs. Johnson above and/or their customers in the form of higher prices) to another group (low-skilled, limited-experienced workers), but with no net gain. It’s an ironclad law of economics that to stimulate one group with public policies like the minimum wage, protective tariffs, or farm subsidies, another group in the economy has to be equally “un-stimulated.” In the case of the 18 increases next week in state minimum wages, the EPI’s estimate of $5 billion in additional wages will stimulate low-skilled workers next year by the exact same amount that it will “un-stimulate” merchants, businesses, business owners and their families in those 18 states – by $5 billion.

When one considers all of the long-term effects on all groups that would result from minimum wage laws: the economic distortions, the misallocation of resources, the loss of employment opportunities for low-skilled workers and the lifetime consequences of not gaining work experience at an early age, and the businesses that close or are never opened, one can only come to one conclusion: the minimum wage law is a very bad and very cruel public policy that makes local communities and the entire economy overall much worse off, not better off.

MP: Groups like EPI that support increasing the minimum wage do a great job of addressing the benefits of higher wages to low-skilled workers, but then completely ignore the costs of those artificial wage increases. That is, they never answer the most important question of all, posed above: Where will the $5 billion in additional annual wages from the 18 minimum wage hikes next year come from?

For example, in a 60-page document released earlier this year by EPI’s senior economic analyst David Cooper, “Raising the minimum wage to $15 by 2024 would lift wages for 41 million American workers,” there is extensive coverage on every page of the estimated benefits of artificially higher wages ($144 billion annually) to various workers by demographics (age, gender, race/ethnicity, education, family status, children, geography, etc.) that would result from a $15 an hour federal minimum wage. But you won’t find a single sentence in the 60-pages of text that explains where the $144 billion will come from if the federal minimum wage is increased to $15 an hour!

There’s not a single mention in the EPI report of the word “business” except for a reference to a $15 minimum wage “spurring greater business activity and job growth.” There’s also not a single mention of what should be relevant terms like “higher prices,” “labor costs,” “profits,” “adjustments” or “reduced hours” that would give us some idea of the costs of a $15 an hour minimum wage, who pays those costs (businesses), and how those higher costs will offset the benefits. And that’s the essence of the “blessings of the minimum wage fallacy” that EPI has fallen prey to — a $15 minimum wage sounds like good public policy only when you count all of the blessings (benefits) to workers while ignoring the costs to businesses.

Bottom Line: In the same way that we learned from Bastiat and Henry Hazlitt that broken windows and other forms of destruction can’t increase a community’s overall income, employment, and economic prosperity, neither can the 18 minimum wage hikes scheduled to take place next Monday have overall, positive net economic benefits in 2018. Any public policy looks good when you look merely at the immediate effects, but not the longer effects; when you consider the consequences for just one group (workers in the case of the minimum wage) but for all groups (businesses), and only emphasize the benefits (to workers) while completely ignoring the costs (to employers). But that’s not sound economics or economic analysis; rather it’s advocacy for an economic fallacy and a violation of the ironclad law of economics described above. Or as Milton Friedman described it in 1966, it’s a “monument to the power of superficial thinking.”

Update: As Not Sure points out in the comment section, there is an additional cost to employers when the minimum wage increases because of the 7.65% payroll tax imposed on employers for Social Security and Medicare. Therefore, the $5 billion in higher wages next year for minimum wage workers would actually cost their employers $5.3825 billion.

The 10 best things Trump has done in his first year in office - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 12/28/2017 - 14:00

As we approach the end of President Trump’s first year in office, the list of extraordinary things he has done — for both good and ill — is nothing short of remarkable. Trump inspires such deep emotions in his critics and supporters that many have struggled to objectively assess his presidency. Some are so blinded by their hatred of Trump that they refuse to acknowledge the good he has done, while others are so blinded by devotion that they overlook almost any transgression.

In my columns, I’ve tried to give Trump the credit he deserves when he does the right thing, while calling him out when he does the wrong thing. So, here is my list of the 10 best things Trump has done in his first 11 months. (On Friday, I will give you my list of the 10 worst.)

10. He enforced President Barack Obama’s red line against Syria’s use of chemical weapons. When the regime of Bashar al-Assad used a toxic nerve agent on innocent men, women and children, Trump didn’t wring his hands. He acted quickly and decisively, restoring America’s credibility on the world stage that Obama had squandered.

9. He has taken a surprisingly tough line with Russia. Trump approved a $47 million arms package for Ukraine, sent troops to Poland’s border with Russia and imposed new sanctions on Moscow for violating the Intermediate-Range Nuclear Forces Treaty.

8. He recognized Jerusalem as Israel’s capital. Four American presidents promised to do it, but only one actually did. This is why the American people elected Trump. He does what he promises to do, for better or for worse — in this case, definitely for the better. Even Jeb Bush tweeted his approval.

7. He withdrew from the Paris climate agreement. After George W. Bush pulled out of the disastrous Kyoto treaty, U.S. emissions went down faster than much of Europe. The same will be true for Trump’s departure from the Paris accord. Combined with his approval of the Keystone XL pipeline, and opening the Arctic National Wildlife Refuge to exploration, Trump is helping usher in a new age of American energy development.

6. He got NATO allies to kick in $12 billion more toward our collective security. Decades of pleading by the Bush and Obama administrations failed to get NATO allies to meet their financial commitments to the alliance, but Trump’s tough talk and reticence to affirm America’s Article V commitment did the trick. NATO is stronger as a result.

5. He has virtually eliminated the Islamic State’s physical caliphate. Trump removed the constraints Obama placed on our military and let it drive the terrorists from their strongholds.

4. He admitted he was wrong on Afghanistan and reversed Obama’s disastrous withdrawal. In a rare admission, Trump declared: “My original instinct was to pull out . . . But all my life, I’ve heard that decisions are much different when you sit behind the desk in the Oval Office. . . . A hasty withdrawal would create a vacuum for terrorists.”

3. He enacted historic tax and regulatory reform that has unleashed economic growth. Trump signed the first comprehensive tax reform in three decades and removed the wet blanket of Obama-era regulations smothering our economy. We are now heading into our third consecutive quarter of above 3 percent growth.

2. He is installing conservative judges who will preside for decades. With his appointment of Neil M. Gorsuch, Trump secured a conservative majority on the Supreme Court, and he is moving at record pace to fill the federal appeals courts with young conservative judges.

1. He, not Hillary Clinton, was inaugurated as president. Trump delivered the coup de grace that ended the corrupt, dishonest Clinton political machine.

There are many other significant achievements that did not make the top 10. Trump has taken a clear, strong stand against the narco-dictatorship in Venezuela, and he renamed the “Asia-Pacific” the “Indo-Pacific” to include India in the larger task of preventing Chinese hegemony in Asia. Trump has made clear that he is willing to use force to stop North Korea from deploying nuclear intercontinental ballistic missiles capable of destroying U.S. cities — which has prompted China to finally put real pressure on Pyongyang. We’ll see if it works.

The record of achievement suggests that, despite the noxious tweets and self-inflicted wounds emanating from the White House, Trump has the potential to become one of the most consequential conservative presidents in modern American history. The question is: Does all this good outweigh the bad? We’ll review the 10 worst things Trump has done in Friday’s column.

Threats of 2017 — Mideast, weapons, terror — will linger in the new year - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 12/28/2017 - 12:00

Domestically and internationally, President Trump finished 2017 in dramatic fashion. Obtaining the most sweeping tax cuts in 30-plus years (and repealing ObamaCare’s most philosophically oppressive aspect, the individual mandate) was a landmark achievement. And, by recognizing Jerusalem as Israel’s capital, then suggesting major changes in U.S. funding of the United Nations, he disrupted foreign-policy conventional wisdom on both the Middle East and “global governance.”

The administration’s national security strategy, published this month, centered its foreign policy in the conservative mainstream, but there is little time for complacency. On Inauguration Day, the president inherited acute dangers and longer-range strategic challenges, ignored or mishandled for years. While Trump has emphasized his intention to reverse course, the national security agencies have a mixed record in actually following his lead. Events in 2018 could well determine whether America resumes control of its international fate, or whether it continues to be buffeted by threats it could overcome but chooses not to.

In this article today, we review the administration’s 2017 record and 2018 prospects in three critical near-term areas: Middle East turmoil, international terrorism, and the proliferation of weapons of mass destruction. Tomorrow, we consider the longer-term risks posed by China and Russia, and the overarching issue of U.S. sovereignty.

Trump’s Jerusalem decision had the virtue of recognizing reality and simultaneously erasing libraries of arid scholasticism on the “Middle East peace process.” The long-predicted violent reaction by the “Arab Street” largely failed to materialize, despite palpable efforts by Turkey’s President Erdogan and Tehran’s ayatollahs to foment trouble. And the inevitable efforts in the U.N. Security Council and General Assembly were essentially charades, ritualistic theater that now makes even the participants weary. The lasting consequences of bashing America in New York will more likely be felt within the United Nations, as we will see tomorrow, rather than in the Middle East.

Moreover, Saudi Arabia and other Arab states are undergoing sweeping changes, the full dimensions of which cannot yet be confidently predicted. These changes have, in Israeli Prime Minister Benjamin Netanyahu’s view, opened prospects for resolving the Palestinian and broader regional issues heretofore beyond reach. The behind-the-scenes White House peace initiative, also unconventional, has given the foreign policy establishment a case of the vapors.

Now unleashed, Riyadh’s “modernization” efforts, in economic and social policy as well as religion, may appear unstoppable, but it would be a mistake for the administration simply to assume so. The Shah of Iran had far less distance to travel to “modernize” his country, and seemingly lighter opposition than the Saudi monarchy faces today. Nonetheless, the 1979 Islamic Revolution deposed the shah, leaving Iran repressed by the brutal theocratic regime founded by the Ayatollah Khomeini.

Both Saudi reformers and Washington need to remember this catastrophe, primarily to avoid the possibility of radical backlash, but also to put in place contingency plans should there be either a countercoup or a religious eruption similar to 1979 Iran. The last thing we want is history recording we weren’t ready, that we didn’t try to prevent such a crisis, that the inevitable spiking oil prices and violent global market fluctuations surprised us.

Despite America’s 16 years combating radical Islamist terrorism since 9/11, serious threats against friendly Middle East regimes are entirely predictable. These threats underline the unfinished business of eliminating ISIS (following its caliphate’s destruction in 2017), Al Qaeda, Hamas, Hezbollah and other, still nascent terrorist groups. Against entrenched resistance from Obama-era judges, Trump has tried protecting the homeland through stricter immigration controls. The Supreme Court will likely resolve several key legal issues in 2018.

The real fight, however, will continue to be in the anarchic regions where the terrorists take root, whether Afghanistan, the hollow shells of Syria and Iraq, Yemen, Libya or the chaotic seam between Saharan and sub-Saharan Africa where Boko Haram and its ilk continue their depredations. America requires what the British once called “forward defense” against the terrorists, at least until the current wave of radical Islamism finally burns itself out in distant decades and until its financial supporters like Iran turn off the flow of money and weapons. Indeed, it is the nuclear, chemical and biological weapons threat from rogue states and their terrorist proxies that was and will continue to be the gravest danger facing America and its friends worldwide.

In 2017, the president acted on his critique of the fatally flawed Iran nuclear agreement by refusing to certify it under the Corker-Cardin legislation. Because, however, Washington did not actually withdraw from the deal, it still provides cover and legitimacy to the terrorist regime of the ayatollahs and allows Europe, Russia and China to trade and invest, thereby subsidizing nuclear proliferation and terrorism. Just a few weeks into 2018, the White House will face yet another certification decision, which will afford the Iran agreement’s vociferous supporters within the permanent bureaucracy yet another opportunity to keep it on life support. Trump should abrogate the deal as early as possible and think seriously about how to thoroughly denuclearize Iran.

Trump also jettisoned President Obama’s failed “strategic patience” with North Korea, and not a moment too soon. Pyongyang’s threat will almost certainly come to a head in 2018. The past year showed dramatic improvements in both the North’s nuclear and ballistic-missile programs. China could act decisively, as it has the unique capability to do, to overthrow Kim Jong Un’s regime, allowing the Korean peninsula to be reunified or installing a new regime and, with America, jointly denuclearizing the North.

If not, Washington will face an unattractive but unavoidable binary choice: Either we will have to consider using preemptive military force to destroy North Korea’s nuclear and missile facilities, or we and our allies will have to endure Kim Jong Un with deliverable nuclear weapons. And it won’t just be a threat from the North but from ISIS or Al Qaeda, Iran, and other rogue states with nuclear aspirations and hard currency to which Pyongyang can sell. This year was fraught on all these issues, but 2018 will be even more so. Tomorrow, we consider the long-term strategic threats the Trump administration faced this year — and could confront head-on next year.

John R. Bolton (@AmbJohnBolton) served as U.S. ambassador to the United Nations and as undersecretary for arms control and international security affairs at the U.S. Department of State under President George W. Bush. He is now a senior fellow at the American Enterprise Institute.

Like Odysseus, new Fed chairman must navigate troubled waters - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 23:03

Homer’s Odysseus navigated successfully the dangerous straits between Scylla and Charybdis. It remains to be seen how successful present day Federal Reserve Chairman Jay Powell will be in navigating the dangerous straits in which the U.S. economy now finds itself.

His yet-to-be-tested skill at the Fed’s helm will be a key determinant for both the U.S. and the global economic outlooks in the year immediately ahead.

It would be a gross understatement to say that Powell has inherited from former Chairwoman Janet Yellen a very difficult economic situation to manage.

Years of low interest rates and massive Fed bond buying, which saw an increase in the Fed’s balance sheet from $800 billion in 2008 to around $4.5 trillion at present, did succeed in returning the U.S. economy to close to full employment.

However, along with similar massive bond buying programs by the Bank of England, the European Central Bank and the Bank of Japan, it has also created a global asset bubble of major proportions.

Compounding Powell’s challenge is how pervasive today’s global asset price bubble is. Whereas in 2008, the asset price bubble was largely confined to the U.S. housing and credit markets, today’s bubbles are to be found in all too many asset markets around the world.

As former Federal Reserve Chairman Alan Greenspan recently warned, years of highly unorthodox monetary policy by the world’s major central banks have created a global government bond bubble, with long-term interest rates plumbing historically low levels.

He might have added that this bubble has hardly been confined to the sovereign bond market. Indeed, global stock values are at lofty heights that have been reached only three times in the last century.

At the same time, housing bubbles are all too evident in key countries like Australia, Britain, Canada and China, while interest rates have been driven down to unusually low levels for high-yield debt and emerging-market corporate debt.

Past experience suggests that asset price bubbles tend to burst when the central banks start raising interest rates. It also suggests that when major asset price bubbles burst, they tend to stress the financial system, which in turn can lead to a marked economic downturn.

To paraphrase Warren Buffet, when the liquidity tide turns out, we will find out which financial institutions have been swimming naked. We will also find out how interconnected the global financial system remains.

The emergence of an asset price bubble at a time that the economy is close to full employment presents Powell with an unenviable policy dilemma. If he has the Fed raising interest rates too quickly, he risks bursting the bubble.

If on the other hand, he does not raise interest rate sufficiently quickly, he risks both further inflating the bubble and inviting a return of inflation to the U.S. economy.

It would seem that the inflation risk is not to be underestimated. While to be sure, inflation is currently lower than most economists would have expected, the conditions seem to be in place for inflation to return.

Unemployment is now down to very low levels, and the economy is humming along at a good clip. The economy would now also seem to be getting an important boost from the powerful combination of still abnormally low interest rates, the 25-percent increase in stock prices since the start of the year and the president’s large, unfunded tax cut.

Hopefully, like Odysseus before him, Powell will have the skill to steer the U.S. economy through the difficult straits in which it now finds itself. If he does not, we should brace ourselves for some very rough sailing in both the U.S. and the global economies in the year immediately ahead.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

Reconnecting health care policy with economics: Finding and fixing distortive incentives - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 15:48

In his new book “The Economics of US Health Care Policy” (Routledge, 2017), Charles Phelps locks in on the many ways that public policy has distorted the behavior of consumers and providers throughout our health care system for more than half a century. He then targets the most important ones for removal and remedy. His proposals include eliminating the favored tax treatment for employer-paid health insurance premiums, improving the operations of health insurance exchanges, and leveling the playing field for competitive alternatives to Medicare fee for service coverage.

The bottom line remains that we still have to fix our health care system, before we go broke. Join AEI and several other world-class health policy scholars as we examine the unfinished to-do list of repair and reconstruction work ahead.

Join the conversation on social media with @AEI on Twitter and Facebook.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

The politics of rural education | Viewpoint - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 15:45

Outsiders might assume that school reform in small, rural communities is simple, especially when compared to big, urban school districts. But, as Ashley Jochim explains, the politics of rural school reform — for reasons related to history, culture, policy, and more — aren’t only different, they can be just as complicated. Interview conducted by AEI’s Andy Smarick.

When reforming the UN, the cure can be worse than the disease - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 14:51

In a powerfully argued op-ed earlier this week, John Bolton explained how one could defund the UN by making contributions voluntary. He then lays into the agencies he cares most about for their wide and deep array of failures.

US Ambassador to the United Nations Nikki Haley, November 17, 2017. REUTERS/Brendan McDermid

I have no reason to doubt Bolton’s criticism of security related agencies and UN practices, but he is wrong to assume that “technical agencies” like the World Health Organization are competent and not political. The WHO is one of the more statist, poorly managed, politically-driven and often technically incompetent agencies I’ve ever encountered.

John Bolton:

But more important than whether Bolton’s rhetorical olive branch to the technical agencies is incorrect is whether his suggestion that we could move to voluntary contributions is viable. Bolton suggests that voluntary contributions would make the UN and its agencies more responsive to nations’ demands, and in the case of its largest donor make it impossible to ignore US concerns.

But take the WHO. WHO is in many respects a terrible agency, but if it didn’t exist you’d have to invent it. We require a global body to assist with pandemic preparedness and act as a forum to agree to security rules in case of public health emergencies, like SARS or a bird flu epidemic. The problem is that UN member states have their pet projects and fund these voluntarily. Nation-states want the imprimatur of WHO approval on their concerns. So funding is given voluntarily for efforts on obesity, deep vein thrombosis, and other areas that most folks would assume would not be a priority for a global health agency. This dilutes and even supplants major global concerns. The voluntary budget is now larger than the mandatory one.

So the problem with voluntary contributions is that being at the whim of donations means doing the bidding of donor nations. This would replace a wasteful corrupt bureaucracy that often ignores US concerns with one that may have competing efforts with no focus at all.

I’m not sure which is worse, but voluntary contributions is no panacea.

See also:

Discussing the tax bill: Brill on CNBC’s ‘Squawk Box’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 13:30
Resident Fellow Alex Brill discusses the implications of the newly passed tax bill.

The top 10 RHSU columns of 2017 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Wed, 12/27/2017 - 13:00

Well, 2017 is about to go in the books, and that’s okay by me. It’s been a bizarre, overheated year, and I’m more than ready to give 2018 a shot. Before we do, though, it’s worth taking one last look at the year just past—at the good, the bad, and the ugly of 2017. In that spirit, my uber-RAs Amy Cummings and Grant Addison and I sat down to comb the 2017 RHSU archives and flag this year’s top ten columns. We took into account web hits, reader reaction, our personal preferences, and the secret algorithm cooked up at our bunker in Burbank, to come up with the “best” of RHSU, circa 2017.

So, without further ado, here’s our take on the top 10 RHSU columns of 2017:

10. 5 School-Improvement Tips for Civic and Community Leaders, October 17, 2017: In many places, perhaps the most important mission for civic leaders is to provide the persistence, patience, and maturity that can help turn a vicious cycle into a virtuous one.

9. Letters to a Young Education Reformer, April 25, 2017: In Letters to a Young Education Reformer, I offer some hard-learned advice on the lessons I’ve learned after a quarter century in and around schools and reform.

8. Teachers Unions Blow an Easy Chance to Walk the Walk, September 26, 2017: More than a quarter of teachers miss more than two weeks each year, above and beyond scheduled breaks and holidays. That’s a problem. And the fact that union leaders can’t say so is perhaps a bigger one.

7. Of ESSA Plans and TPS Reports, May 31, 2017: All the recent fascination with states’ ESSA plans brings to mind the infamous TPS reports from the movie Office Space.

6. What We’ve Forgotten About School Reform: Courtesy of Messrs. Tyack, Cuban, and Payne, September 21, 2017: If we’re going to refashion a 19th-century model of schooling for the 21st century (and I think we need to), how we go about it will be at least as important as what we try to do.

5. About That ‘White Supremacist’ Bedsheet Which Greeted Betsy DeVos’ Speech at Harvard, October 12, 2017: Let’s set aside the Beltway stuff to talk a bit about that sign and what lately strikes me as the remarkably promiscuous use of that term—white supremacist—in education circles.

4. How Not to Argue for School Choice, April 7, 2017: Here are three pro-choice lines of argument I’ve heard a lot in 2017 and a couple of thoughts as to why passionate advocates might want to lean on some different talking points.

3. The Patriots and the ‘Unpopular Stuff’ of Excellence, February 2, 2017: As the Patriots prepare to play for the Super Bowl on Sunday, it seems especially timely to reflect again on some critical insights education reformers can gather from professional football.

2. Reading and Math Scores: ‘Handle With Care’, June 15, 2017: Test score gains tell us something useful. But, until we get more insight into what’s causing them, they should be stamped “Handle with care.”

1. Picturing Trump as the School Choice Guy, June 8, 2017: The White House is apparently poised to launch a big school choice push, and I can just imagine what President Trump’s nationally televised Oval Office address might sound like.

Would welcome your thoughts and comments. Meanwhile, 2018, here we come.

This post originally appeared on Rick Hess Straight Up.

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