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Saving international adoption - Career and technical education: More than just a fad? | In 60 Seconds - AEI

Mon, 10/29/2018 - 16:15

International adoption has fallen by about 80 percent since its peak in 2004. Around the world, millions of orphaned and vulnerable children need safe, permanent homes. Yet many governmental officials, international bureaucrats, and social commentators claim that international adoption deprives children of their “birth culture,” threatens their racial identity, and even leads to child trafficking.

In their new book, “Saving International Adoption: An Argument from Economics and Personal Experience” (Vanderbilt University Press, 2018), Mark Montgomery and Irene Powell argue that the empirical evidence contradicts these claims and that this opposition to international adoption is often a smokescreen for protecting national pride.

Please join AEI as Dr. Montgomery and Dr. Powell present the findings from their book. Jedd Medefind, president of the Christian Alliance for Orphans, will also discuss the policy and cultural implications of the decline in international adoption for religious communities.

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.

Tuberculosis rates may rise due to inferior treatment - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 14:08

It is an unusual day when I agree with a large group of socialist health groups. But activists correctly raise the alarm that changes in policies by large multilateral donors may lead to the rise of inferior tuberculosis medicines and poor patient outcomes.

Tuberculosis patients outside Chiulo Hospital in Angola on February 22, 2018. REUTERS/Stephen Eisenhammer

Donor policy changes were understandable and inevitable. Taxpayers in richer nations cannot be expected to fund health programs in emerging markets forever. There have to be transition policies in place so that as a nation (like China) moves from relative poverty to riches, it should fund its own programs. This is both rational and self-interested of the donor bodies, since if they don’t demand transition they will lose taxpayer support.

But recipient nations become addicted to financial support and rarely handle transitions well. And when it comes to drug procurement, the health activists have themselves partly to blame. It was the mantra of Western health activists that local production of medicines was part of the solution to expensive medicines. Dozens of times over the past two decades I’ve interacted with emerging market officials, several Western officials who should have known better, and most health groups that claim that drugs would be more available and cheaper if only they were made locally.

That such companies can rarely maintain standards or keep costs down never really bothered activists whose main aim seemed to be to bash Western pharma companies. As a result, nascent pharma industries have sprung up in emerging markets. The one I looked at closely myself was Quality Chemicals of Uganda, part-owned by the president’s family (nepotism is rife on such companies). On the surface it wasn’t a bad operation, but ignoring quality control concerns, it couldn’t compete with Western companies, let alone Indian generics companies, on price.

The temptation to favor local producers with tariffs or quotas on imports starts as local companies cannot hope to compete. And as donors now start to pull back from nations and programs, local companies are likely to win business since they employ people and pay taxes locally.

But the outcome for TB patients, and possibly malaria and HIV patients, is not a good one. Expect quality to go down and price to go up.

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Conservation programs in the 2018 Farm Bill - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 13:15

Key Points

  • Conservation programs that have been included in farm bills since the New Deal originally set out to protect the country’s agricultural productive capacity and to provide income support for important farm constituencies.
  • Since 1985, conservation programs have been expanded in terms of their scope (to include wetlands preservation and wildlife habitat), complexity of programs, and levels of funding for conservation payments to farm businesses.
  • The House and Senate draft reauthorizations of the 2018 Farm Bill retain most of the current features of agricultural conservation programs but include changes that may lead to efficiencies (for example, reducing and rationalizing the numbers of programs) and other changes that do little to improve program effectiveness.

Read the full PDF. 



Executive Summary 

In April and June 2018, the House and Senate independently voted to approve two distinct versions of a new farm bill that, with respect to conservation programs, have many similarities but differ in some important ways. Both bills would retain funding for conservation programs at close to current levels, but with modest overall cuts. Nevertheless, with expected annual average outlays of close to $6 billion between 2019 and 2023, they would continue to account for about 30 percent of all federal spending on farm programs.

Both bills would also retain support for two broad categories of the program. The first category includes paid land diversion programs that shift acres from agricultural production to conserving uses. The second category consists of working lands programs that pay farmers to adopt or continue to use conservation practices. Both legislative initiatives continue a trend of shifting funds toward working lands programs and away from paid land diversion programs.

To a large extent, both bills would concatenate the wide range of paid land diversion programs available under the 2014 Farm Bill into two major initiatives: the Conservation Reserve Program (CRP) and the Agricultural Conservation Easement Program (ACEP). The CRP would continue to focus resources on land diversion in the Midwest and the Great Plains, rather than in more populated regions where water-quality issues are of considerable concern and benefits are likely to be higher. The House bill exacerbates that problem by freezing the geographic distribution of current CRP enrollments. In addition, funds would be shifted modestly toward the ACEP, although there are substantial questions about whether conservation easement programs, which result in more permanent land diversion, provide much in the way of environmental and other conservation benefits.

Three programs account for the bulk of spending on working lands initiatives: the Environmental Quality Incentives Program (EQIP), the Conservation Stewardship Program (CSP), and the Regional Conservation Partnership Program (RCPP). Both the Senate and House bills include modest increases in funding for the RCPP, which focuses on major projects that cut across state boundaries addressing explicit national environmental problems such as water quality in extensive watersheds (for example, the Chesapeake Bay). The House bill limits funding to shorter time periods than the Senate bill does even though such projects often take many years to have their full effects. The Senate bill retains the EQIP and CSP programs as separate and distinct entities. The House bill restricts the scope of conservation practices eligible for subsidies by replacing CSP contracts with stewardship contracts under EQIP, with a corresponding reallocation of funds toward the EQIP initiative.

Overall, none of the changes in the House and Senate bills would substantively increase the environmental benefits derived from outlays on the CRP, EQIP, and CSP programs that account for 90 percent of all federal spending on conservation programs. Some efficiencies in program implementation would be obtained through rationalizing the number of conservation programs. Further, the modest expansion in funding for the RCPP at the expense of support for the CRP, EQIP, and CSP could, at the margin, increase the environmental benefits obtained from federal conservation programs.

Introduction 

From their earliest days of the 1930s New Deal, farm bills in the US have included conservation programs. Those programs have always had multiple goals, which have evolved as the US economy has changed. Initially, there were two major objectives: (1) protecting the country’s agricultural productive capacity by conserving essential resources such as soils and water and (2) providing income support for important farm constituencies by reducing the amount of cropland in production as a means of increasing prices. The rise of the 1970s environmental movement motivated adding new goals, notably protecting water quality and wildlife habitat and, somewhat later, preservation of wetlands, grasslands, and farming more generally— all of which were essentially grafted onto the existing program rootstock.1

That expansion of goals signaled an increase in the importance of conservation in the farm bill and was correspondingly accompanied by increases in spending on conservation. In 1990, for instance, spending on conservation programs amounted to $1.9 billion, most of which paid for retirement of highly erodible land. By 2014, spending on conservation programs had almost doubled, due to expansion of both highly erodible land retirement and subsidies for conservation on working farmland. In 1990, conservation programs accounted for about a fifth of direct federal farm program payments to farmers. By 2014, the conservation program share of direct federal farm program payments to farmers had increased to about a third.2

Since the New Deal programs of the 1930s, the federal government has used two general types of policy instruments in pursuit of conservation goals: (1) paying farmers to divert farmland into some form of conservation use such as grassland, forest, or wetlands and (2) paying farmers to install and maintain farming practices on working farmland that reduce erosion and runoff or protect wildlife habitat. Currently, five major programs implement one or both of these conservation strategies.

The Conservation Reserve Program (CRP) and Agricultural Conservation Easement Program (ACEP) use the first approach. The CRP pays farmers to convert cropland (and some grassland) to conservation uses, while the ACEP pays farmers to maintain or restore wetlands or grasslands. The Environmental Quality Incentives Program (EQIP) and Conservation Stewardship Program (CSP) use the second approach. EQIP subsidizes up to 75 percent of the cost of installing approved conservation structures or equipment on working farmland, while the CSP pays farmers an annual fee to maintain a suite of approved conservation management practices on working farmland. The fifth program, the Regional Conservation Partnership Program (RCPP), funds projects at a regional or watershed scale that are undertaken by governmental or nonprofit entities. Those projects can include both land diversion and subsidies for conservation on working farmland and technical assistance to farmers provided by those projects.

Over the past 30 years, subsidies for conservation on working farmland have increased in importance relative to subsidies for land diversion. In 1990, for instance, the CRP accounted for virtually all conservation spending under the farm bill. By 2017, its share had fallen to under half, while EQIP and CSP combined accounted for a little over half.3 The RCPP is quite small, accounting for only 2 percent of spending on major conservation programs since its inception in the Agricultural Act of 2014.

Both the Senate (Agriculture Improvement Act of 2018)4 and House (Agriculture and Nutrition Act of 2018)5 draft reauthorizations of the farm bill retain the current status of conservation programs in terms of the overall level of spending on conservation and the importance of conservation subsidies relative to other direct payments to farmers. Both legislative proposals also arrest the trend toward conservation on working farmland at the expense of land diversion by retaining the division of expenditures at roughly current levels. The Congressional Budget Office (CBO) projects that both bills would increase outlays on these five major conservation programs by roughly $310–$350 million over fiscal year (FY) 2019–23, or about 1 percent relative to a baseline of $28.7 billion (Figure 1).6

According to the CBO projections, outlays on conservation programs under both the Senate and House farm bills would total about a third of combined spending on the programs that account for most of the direct payments to farmers (commodity programs, crop insurance, and conservation) over that same period. Under both bills, as in the Agricultural Act of 2014, outlays on subsidies for conservation on working farmland (EQIP and CSP) would account for over half of conservation spending, and outlays on payments for land diversion (CRP and ACEP) would account for under half, while the share of outlays under RCPP would increase by 1 or 2 percentage points (Figure 2).

However, the Senate and House farm bills would affect the structures of the individual programs differently (Figure 3). Both bills increase funding for ACEP and decrease funding for CRP while keeping the overall share of spending on land diversion roughly constant. The House bill eliminates the CSP and incorporates some, but not all, of its provisions into EQIP. Both bills feature increases in RCPP spending.

The two bills differ in important details within each program as well. The following sections compare the changes the two bills would make to each of the five major conservation programs, and evaluate the potential advantages and disadvantages of those changes.

Read the full report. 

Notes

  1. Erik Lichtenberg, “The Farm Bill, Conservation, and the Environment,” American Enterprise Institute, November 13, 2017, http:// www.aei.org/publication/the-farm-bill-conservation-and-the-environment/.
  2. US Department of Agriculture, Economic Research Service, “Government Payments by Program,” https://data.ers.usda.gov/ reports.aspx?ID=17833.
  3. Lichtenberg, “The Farm Bill, Conservation, and the Environment.”
  4. Agriculture Improvement Act of 2018, S. 3042, 115th Cong.
  5. Agriculture and Nutrition Act of 2018, H.R. 2, 115th Cong.
  6. Congressional Budget Office, “Cost Estimate, S. 3042 Agriculture Improvement Act of 2018,” June 21, 2018; Congressional Budget Office, “Cost Estimate, H.R. 2, Agriculture and Nutrition Act of 2018,” May 2, 2018; and Congressional Budget Office, “USDA’s Mandatory Programs—SBO’s April 2018 Baseline,” April 2018.

The midterms of 2018 aren’t so earth-shaking after all - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 10:00

Because voting is voluntary in our country, political activists have to find some way to rev up Americans to do their civic duty. One old standby is calling the next election “the most important in history,” or “a generation.”

It’s easy to make fun of this trope, but elections do vary in their importance. The stakes really were higher in 1860 than they usually are. In 2012, I wrote that the election that year would be the most important since 1980. Republicans had a chance to hold the House and take the Senate and White House, and if they had, significant changes to Medicare would have been on the table. Obamacare would have been dismantled before most of it took effect.

The 2016 election was an important one, too. The outcome determined whether the Supreme Court would have a liberal or a conservative majority. The nomination of Donald Trump also marked a major change in our politics that voters had to decide whether to ratify or at least accept.

Midterms, too, can matter. The 2010 election, by putting Republicans in charge of the House, brought an end to the march of big liberal legislation. President Barack Obama would go on to serve six more years, but his major legislative accomplishments ended.

This year’s national elections are already unusual in the emotional intensity they have generated. They may have turnout to match. But the truth is that the stakes this time are relatively low.

A good result for the Republicans would be holding their majority in the House and adding a seat or two to their majority in the Senate. A good result for the Democrats would be winning a majority in the House and a bare majority in the Senate. If the Democrats take the Senate, the Trump administration’s drive to move the judiciary to the right will come to a halt. If they take either chamber, the administration will face meaningful oversight.

But that’s pretty much all that turns on the election results. If the Republicans win, they are unlikely to send Trump major legislation to sign. They may try to overhaul Obamacare again. But they passed a bill through the House with only four votes last time, and their margins are going to be smaller next time.

They will not have the votes to get much done, and they don’t have the appetite to legislate anyway. They will not be under the impression that they need to enact laws to win the next election, since they will just have won an election with no thanks to legislative accomplishments. (Their only big win on that front was their tax cut, which nobody thinks is doing a lot to help their campaigns.)

If the Democrats win, they will be stymied by a narrow majority in the Senate and possibly one in the House as well. They may not have the votes to overcome filibusters, or to weaken the minority’s ability to use them.

Forget about a new ban on assault weapons. And even if Democrats got big legislation through Congress, they surely won’t have the votes to override Trump’s vetoes on any issue where he has a significant number of voters in his corner.

Even if House Democrats impeach the president, it will be a largely symbolic move so long as there is no prospect that two-thirds of senators will agree to remove him from office — and that won’t happen based on anything close to today’s fact pattern.

Trade policy might see different legislative outcomes depending on who wins the election, but the impact would be trifling. Partisanship might get Trump’s deal with Canada and Mexico through a Republican Congress and get it rejected by a Democratic Congress. But the deal makes only minor changes to existing policies in North America. It would make a difference, to be sure, if the prospect of a congressional defeat provoked Trump into leaving Nafta. But in that case it would be executive action, not the congressional decision, that mattered.

Some people argue that it’s vital for Democrats to win the election, not because they are seeking different legislative outcomes but because they want to see a national rebuke of the Trump-led Republican Party. Republicans, they think, have to be shown that continuing to support Trump will lead them to political ruin.

Sorry to anyone who harbors this hope, but a Democratic wave won’t accomplish this result either. The House Republicans who lose this year are practically guaranteed to be disproportionately the ones who are most critical of Trump (since they are in swing districts). On average the House Republicans who remain after the election will be more supportive of the president than the ones in Congress today.

If Democrats take the House, they will become a better foil for Trump that helps him maintain his grip on Republican voters. And Trump will remind both Republican politicians and voters, correctly, that the party in power usually loses seats in the midterms. The only rebuke that would matter to Trump and Republicans would be his losing re-election in 2020.

The low stakes in the election don’t mean that people shouldn’t vote. Oversight and judicial confirmations are at issue in any competitive national elections, and they matter. (Even if the Supreme Court will have a conservative majority regardless of this year’s elections, the make-up of many appellate courts will turn on their outcome.)

Many states are also holding elections that could have a larger impact on their residents. But while neither party has an interest in saying it, this is one of the least important national elections we have had in years.

A look at the growing consensus on online privacy legislation: What’s missing? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 10/29/2018 - 10:00

Six years seems like a century in tech policy. While there is now a growing consensus among the tech industry, regulatory advocates, and policymakers on the need for comprehensive privacy legislation, a blueprint proposed in President Barack Obama’s 2012 Consumer Privacy Bill of Rights proved unsuccessful. Had Congress taken up legislation in 2012, it may have forestalled the egregious regulations the EU and California adopted.

Representatives from AT&T, Amazon, Google, Twitter, Apple, and Charter Communications testify before the Senate Commerce, Science and Transportation Committee in Washington, DC, September 26, 2018. via REUTERS.

In any case, the principles agreed on today generally align with those proposed in 2012. They’re hardly controversial: individual control, transparency, security, accountability, and strengthened enforcement at the Federal Trade Commission (FTC). The 2012 proposal supported using multi-stakeholder processes to develop enforceable codes of conduct through Section 5 of the FTC Act and global interoperability. Importantly, the Obama administration was adamant about the need for preemption of state laws that would contradict the national standard. It expected states to participate in multi-stakeholder processes and believed that states proposing more stringent requirements would diminish incentives for firms to adopt the codes of conduct.

Moreover, the administration wanted Congress to codify forbearance from enforcement of state laws for companies already compliant with the FTC’s codes of conduct. Fortunately there is bipartisan agreement in Congress — Sens. Amy Klobuchar (D-MN) and John Kennedy’s (R-LA) bill — offering a win-win for both parties and a common set of rules for all consumers online. This blog briefly reviews the areas of policy agreement and unresolved issues.

A growing consensus on the principles of consumer online privacy

Reviewing the statements of principles from many in the industry (US Chamber of Commerce, Information Technology Industry Council, Verizon, and Spectrum, to name a few) shows common ground:

  • Transparency. Enterprises must provide clear, easy to understand information about their practices for the collection, use, and sharing of information. And they must be able to make available to the consumer, without undue cost or delay, the information the consumer provided to the enterprise and a description of the types of additional information the enterprise may have about the user.
  • Accountability. Companies must put in place reasonable security measures to protect consumers’ information and should notify consumers when breaches occur and threaten harm. Companies have also offered to establish rigorous governance procedures to ensure compliance with legal requirements.
  • Safe harbor. There is agreement that legislation should give firms that follow the law confidence that they are not in danger of arbitrary prosecution. Moreover, companies need to have the ability to experiment with and improve on data privacy systems without fear of punishment. Policymakers should also consider the role of incentives for design and experimentation with privacy-enhancing technologies, such as grants, awards, prizes, and competitions. Better privacy enhancing systems will drive competition and global preeminence.
  • Opt-in requirements for “sensitive” personal information. Categories of data such as health, financial, age (for children), and precise geolocation are deemed “sensitive personal information,” and many are already regulated under existing laws. Any online entity collecting this information would need to provide a clear opportunity for consumers to affirmatively opt in to the collection, use, and sharing of this information. (Note that while the Federal Communications Commission’s 2015 online privacy rules required internet service providers to get opt-ins for all information collected, even if it was not sensitive, no such obligation was required for search engines, social media, or other online entities. Congress wisely struck down these arbitrary and asymmetrical rules that confused consumers about which protections were offered for competing services.)
  • Consistency. Another consumer-centric principle is a common set of rules for all Americans for all online entities, enforced by the FTC with the support of state attorneys general under federal law.

Issues to be resolved

The FTC is best equipped to handle these new responsibilities because of its experienced staff, mature processes, and deep privacy and security expertise: There should be a glide path to integrate the duplicative consumer protection functions from other federal agencies into the FTC to maximize the value of federal dollars and enforcement effectiveness.

In the meantime, the FTC can learn from the current multi-stakeholder efforts to develop codes of conduct, such as the one on artificial intelligence and algorithms the Brookings Institution supports This represents another key opportunity for any potential federal policy to leapfrog ahead of the EU’s General Data Protection Regulation, which involves regulations so onerous that on strict reading they effectively nullify next generation information processing.

A proper national policy removes rent-seeking incentives for states and litigants. Sadly, many US states are under financial distress because of historically bad management, and America’s connected digital industries offer an untapped source of revenue even if they have not violated privacy rules. However lucrative it may be to sue these companies, the better option is for states to make their economic environments friendlier to enterprise and to earn revenue by taxing legitimate business activity. If we do nothing, California’s misguided rules will become the standard. Even worse, US policy could devolve into 50 sets of rules, frustrating the seamless, connected digital economy we enjoy today. We need good legislation to keep bad regulation away.

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Econ 101 predicted Trump would widen the trade deficit - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 10/28/2018 - 13:30

It would be a gross understatement to say that President Trump has failed in delivering on his campaign promise to close the U.S. trade deficit with a view to promoting manufacturing jobs at home.

Indeed, under his watch, not only has the U.S. trade deficit steadily widened over the past two years. It has now reached an all-time high, running at an annual rate of close to a staggering $1 trillion.

Sadly, with his administration’s budget and trade policies, there is every prospect that the trade deficit will continue to widen during the remainder of his first term in office.

While the unwelcome widening of the U.S. trade deficit might have come as a surprise to President Trump and his economic team, it should have come as no surprise to anyone who had bothered to take an introductory course in international economics.

Such a course would have taught that the main determinant of trade deficits is not so much the level of a country’s import tariffs but it is rather a question of whether the country saves enough to finance its investment.

If a country reduces its savings and increases its investment level, its trade deficit will necessarily widen. That has proved once again to have been the case for the U.S. over the past two years.

A basic economic course would also have taught that the level of the dollar is an important determinant of both exports and imports. A strengthening dollar makes it more difficult to export and cheaper to import.

Yet another lesson from an Economics 101 class is that with a floating exchange rate, an increase in a country’s capital account surplus will necessarily be matched by a widening in its current account deficit.

Looking ahead, there is every reason to expect that over the next two years, the U.S. trade deficit will rise to well over $1 trillion a year.

Among the main reasons for expecting this to happen is the Trump administration’s budget policy, which holds out the prospect of a major decline in the country’s savings level.

That policy includes an unfunded tax cut which is estimated by the Congressional Budget Office to increase the U.S. public debt by a mind-boggling $1.5 trillion over the next 10 years. It also includes support of a Congress-approved $300 billion increase in public spending over the next two years.

As a result of the administration’s expansive budget policy at this late stage in the economic cycle, it is widely expected that over the next two years, the U.S. budget deficit will rise to a peace-time high of over $1 trillion.

This makes it all too likely that we will be revisiting the famous twin-deficit problem of the Reagan presidency when we had both an outsized budget deficit and an outsized trade deficit.

Yet another reason to fear that the U.S. trade deficit will widen in the year ahead is that a strengthening dollar will discourage exports and incentivize imports. Already, over the past year, the U.S. dollar has appreciated by around 10 percent.

That strengthening is all too likely to continue in the period ahead as U.S. monetary policy becomes increasingly out of synch with that of our major trade partners.

Indeed, at a time that an expansive budget policy is forcing the Federal Reserve to keep raising interest rates to prevent economic overheating, the European Central Bank and the Bank of Japan are keeping their foot on the pedal to provide support to their lackluster economies. In the process, they are increasing the relative attractiveness of U.S. financial assets.

Another factor likely to contribute to a further strengthening of the U.S. dollar is the current global financial market turmoil that is being caused in part by the uncertainty engendered by President Trump’s “America First” trade policy.

As has happened so often in the past in times of global turmoil, too much capital is likely to be repatriated to the United States in search of a safe haven for investment. As a matter of arithmetic, under a floating exchange rate regime, as the U.S. capital account surplus strengthens, its external current account and trade account deficits must be expected to widen.

Judging by his past behavior, it would be too much to expect that President Trump will assume responsibility for the country’s disappointing trade behavior under his watch. However, if he is wanting to assign blame, a good place to start might be with his economic team.

After all, they all took Economics 101 classes, and they should have learned that an unfunded tax cut coupled with public spending increases runs the all-too-real risk of having the country revisit the twin deficit problem of the 1980s.

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.

Will Fuad Hussein’s appointment as finance minister sink Abdul-Mahdi’s reform efforts? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 10/28/2018 - 12:51

More than five months after elections, Iraq’s new government is taking shape. With the announcement of 14 cabinet picks and their parliamentary confirmation, Prime Minister Adil Abdul-Mahdi can begin governing. He has his work cut out for him. Fifteen years after the U.S. invasion, Iraqis remain frustrated at poor or inadequate government services, corruption and the seeming impunity of the ruling class. No longer can even Shi’ite and Kurdish politicians expect constituents to excuse their failings as the price of ridding the country of Baathist dictatorship. After all, 40 percent of Iraqis were born after Saddam’s fall. Well over half of Iraqis have no direct memory of Saddam Hussein. Rather than compare their plight to times past, Iraqis instead take the freedom to criticize for granted and compare their standard of living to Iran, Turkey, and the Gulf countries.

Then Iraqi President Fuad Masum speaks at the opening ceremony of the World Economic Forum on the Middle East and North Africa at the King Hussein Convention Centre at the Dead Sea May 20, 2017. Reuters

Is Fuad Hussein competent to take on finance?

Iraqis debate Abdul-Mahdi’s longevity: Not only is he more than a decade older than his predecessor, Haider Abadi, he also resigned from his two previous posts. Circulating around Baghdad earlier this month, it seemed many politicians were jockeying as much for posts in Abdul-Mahdi’s government as they were positioning themselves for his fall. After all, patience is thin and the clock is ticking: The summer surge in electrical demand is only seven months away. Abdul-Mahdi’s promises to preside over a technocratic government and his announcement that he would move his office outside the Green Zone are meant to assuage a cynical public. But, while his symbolism might be apt, his choice of Fuad Hussein as finance minister suggests political weakness and the need to appease Kurdistan Democratic Party (KDP) leader Masud Barzani will trump any meaningful effort to tackle corruption or continue Abadi’s economic reforms.

Hussein’s main credential was that he was for more than a decade chief-of-staff—essentially, consigliore—to Barzani. By education, he is a teacher rather than economist or engineer. If service to Barzani was his only credential, it would suggest emptiness to Abdul-Mahdi’s rhetoric about prioritizing technocratic ability over patronage. But, after years being partner to if not supervising implementation of every major Kurdistan Regional Government (KRG) policy, the track record of the policies Hussein championed in the KRG are worth examining. Because the KRG became free from Baathist rule 12 years before the rest of Iraq and remained both secure and stable while insurgency raged through newly-liberated areas of the country, the Kurdish region had an economic head start upon the rest of Iraq. Alas, through both corruption and poor economic policy, KRG squandered that lead. Consider, for example, that the KRG is on par with Cuba in terms of percentage of residents on the state payroll. While Abadi was working to reduce payroll and create incentives—a private pension scheme for example—to ensure financial stability at times of lower oil prices, the KRG increased its dependence on oil.

Did the KRG mishandle oil contracts and revenue?

While the KRG sold itself as “an emerging market offering excellent opportunities,” oil industry corruption has also tarnished Iraqi Kurdistan’s reputation. On November 27, 2015, for example, Dana Gas, a United Arab Emirates-based energy company and one of the largest investors in Iraqi Kurdistan, won a London Court of International Arbitration ruling worth nearly $2 billion against the KRG. The case exposed bribery and extortion at the highest levels of the KRG. If Hussein was unaware of the corruption, he was either blind or incompetent. If he was complicit, then that bodes no better for his tenure at the finance ministry. The problem, of course, was not just corruption. The Dana impasse and arbitration caused a six-year delay in development, which meant lost profits on undeveloped fields and dissuaded further investment in Kurdistan.

While the KRG subsequently blamed defaults on the fight against the Islamic State and the pressures of caring for refugees, profligate spending by Kurdish political elites and the lack of austerity at top levels of the KRG belied such claims. KRG Oil Minister Ashti Hawrami acknowledged, “If the KRG carried on as before with its uncurbed spending and without real reforms, then even if we reached 1 million barrels of crude oil production per day and oil returned to $100 per barrel we would still not cover our financial requirements”. The KRG contracted PricewaterhouseCoopers to audit the region but never released the results of its audits. Nor did the KRG release audits by Deloitte and Ernst & Young. Given Hussein’s central role in managing government at the time, shouldn’t Abdul-Mahdi demand their release and parliamentary examination? Given the Iraqi public’s sensitivity about corruption, shouldn’t Abdul-Mahdi seek to have his finance minister explain the difference between Barzani, KDP, and public party in the KRG? Perhaps parliament might ask why, if Barzani no longer serves as KRG president, he continues to occupy a mountaintop resort appropriated first by Saddam and then, after 1992, for the KRG presidency?

Will Fuad Hussein forgo prudence to Barzani demands?

Not all KRG financial failure can be laid at Hussein’s team. Hussein, after all, was simply a cog in corrupt KRG machinery, albeit a prominent one. And, during the time of Hussein’s service, an oil dispute between Baghdad and Erbil led the Iraqi government to withhold cash transfers to the KRG. This alone did not leave the KRG in such dire financial straits, but it does raise further questions about Hussein’s intentions. Does Hussein support the Iraqi government position that the KRG is due 12.67 percent of Iraqi oil revenue, or does he support reversion back to 17 percent, a figure not commensurate with KRG population? If the latter—and it is likely this is why Barzani fought to place his nominee in the finance ministry—then what would this mean for the Iraqi budget? Should the shortfall come from electricity generation or water sanitation? Should there be less money to rebuild Mosul? Or should the government hire fewer teachers? Iraqis deserve to know whether Abdul-Mahdi, his rhetoric aside, has betrayed their demands for a clean government and transparent finances in order to win Barzani’s support.

Will Fuad Hussein continue to discourage modern banking?

No Iraqi prime minister has inherited as healthy an Iraqi economy as did Abdul-Mahdi. Prime Minister Nouri al-Maliki had run Iraq’s economy largely into the ground and when Abadi took over, not only had oil prices crashed, but the Islamic State precipitated a national emergency. While Abadi stabilized the Iraqi economy and helped make Iraq investor-friendly, Western businesses say the missing piece in Iraq is a modern banking sector. But, while modern banking lags in Iraq, in Iraqi Kurdistan it is positively old-fashioned. Alas, for the KRG, this was by design. Kurdistan remains largely a cash society; credit cards are rarely accepted and cash machines rare. To collect salaries, many Kurds must queue in their offices, peshmerga must go to force headquarters, and police must visit their directorate. Pensioners likewise must show up every month or two to collect what they are owed. It need not have been this way. When, six years ago, a representative from one of the United Kingdom’s top companies offered to install a network of ATMs and electronic banking centers—more than 1,500 in all—across Kurdistan, the KRG refused. The issue was not expense: The company would have provided the machines for free and sought only a miniscule commission on transactions at less than one-percent, far less than the going international rate.

Rather, the apparent reason for Barzani’s refusal was that electronic banking would have ruined ghost employee and embezzlement schemes and also undercut efforts to monitor suspicious cash. When electronic banking is the norm, watchdogs can question, for example, how it could be that a mid-level government employee suddenly deposited $100,000 into his account. Given Hussein’s record obscuring corruption rather than exposing it, can international partners and investors expect any significant progress modernizing Iraq’s banking sector?

How does Fuad Hussein propose tackling corruption?

While almost every Iraqi complains about corruption, prosecuting corruption is more than a matter of political will. Outdated laws hamper the anti-corruption fight in Iraq. Iraqi Criminal Code No. 111 of 1969, section one, focuses on bribery the penalty for which is a maximum of ten years in prison and confiscation of the bribe. Section two addresses embezzlement for which penalties range from a fine to life imprisonment with a restitution of the funds stolen, and section three criminalizes “officials who overstep the bounds of their duty” and misuse public authority. Article 330 deals with the common Iraqi practice of wasta, the use of connections to avoid application of law. But, Iraq’s penal code has not been updated to address cross border crimes, cybercrimes, or basic conflicts of interest such as the common Iraqi practice of using sons, cousins, or in-laws as business agents for politicians. If Abdul-Mahdi and Hussein are serious about fighting corruption, what new laws or amendments will they or the parties supporting them submit to parliament to update Iraq’s legal code?

Will Fuad Hussein exploit Abdul-Mahdi’s style?

Abdul-Mahdi enters office with a very different leadership style than his predecessors. Maliki sought to pepper the bureaucracy with loyalists and created an informal, shadow cabinet to control policy outside the formal ministries. Abadi, meanwhile, could call up the minutiae of technical details of financial reform, the oil industry, and infrastructure. While many Iraqis complained about backlogs of decisions in the prime minister’s office, without exaggeration, Abadi often had a better grasp of ministry portfolios than many ministers. Abdul-Mahdi, however, delegates. His goal is to allow ministers to run their portfolio and sink or swim by his results. If the ministers were technocrats and had the betterment of Iraq as their goals, that might be noble. But Fuad Hussein is neither a technocrat nor does he have a track record of economic success. He was pivotal to efforts to dismantle Iraq just over a year ago. Perhaps Barzani forced Hussein upon Abdul-Mahdi as the price of his political support. That Abdul-Mahdi violated his promise not to engage in the usual political horse-trading surprises no one, but it bodes poorly that he did not hold firm to demand a more competent figure. Abdul-Mahdi may mean well, but sometimes it is the early compromise which determines whether a prime minister will succeed or not. Alas, Abdul-Mahdi’s compromise gives little reason for optimism, at least in the financial and anti-corruption spheres.

AEI Events Podcast: AEI Election Watch- The 2018 contests - AEI Events Podcast: AEI Election Watch- The 2018 contests - AEI

Fri, 10/26/2018 - 21:20

On this episode of the AEI Events Podcast, join AEI’s Election Watch team- Michael Barone, Karlyn Bowman, John Fortier, Sean Trende, Henry Olsen, and Norman Ornstein- as they give a comprehensive briefing on where the 2018 contests stand and what the outcomes may mean for 2019 and beyond.

Drawing on their deep experience in analyzing elections, the panelists examine specific contests, the polls, levels of enthusiasm, key voting groups, the issues, and what the results will mean for the Democratic and Republican parties and for Trump’s coalition and the resistance. In addition, they address whether America’s election systems are ready for November.

This event took place on October 10, 2018.

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

How strong is the conservative case for a carbon tax? - Farm subsidies: Where the money goes | In 60 Seconds - AEI

Fri, 10/26/2018 - 18:00

In the debate over anthropogenic climate change, one important difference has emerged among self-described economic and political conservatives: Would a tax on greenhouse gas emissions, whether imposed by the US alone or by international agreement, further the goals of environmental improvement and enhanced economic growth? This debate has become more prominent recently, with formal proposals for such a tax presented in both detailed policy papers and proposed legislation.

Join AEI for a discussion on this important issue. The panel will offer sharply contrasting views, with the larger goal of moving the climate policy debate forward in a rigorous fashion.

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.

Bush-Obama education policy: Lessons learned | reTHINK TANK - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 14:16

The Bush and Obama administrations represented the high-water mark of federal involvement in education policy, with issues like teacher accountability and teacher evaluation front and center. So, what lessons have we learned from the past two decades? AEI’s Frederick M. Hess walks through a few of the key takeaways from the Bush-Obama years.

Can the president lower drug prices? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 13:20

The president has announced a new initiative to lower certain drug prices. There is no doubt cheaper drugs can be bought from overseas, as he threatens. My own research, most of which has appeared in the peer review literature, shows that the prices of medicines bought from overseas via web pharmacies are overwhelmingly cheaper than US-sourced medicines.

All of the medicines above passed quality control and were authentic. There were some substandard and fake medicines sourced mainly from China and India, but these were not bought from credentialed web pharmacies, only from sites not credentialed by www.pharmacychecker.com or the Canadian Internet Pharmacy Association.

The pharma industry makes a lot of noise about the risks of procuring inferior medicines, but from credentialed sites I found no problem from the seven types of medicines sampled over 500 times.

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What Betsy DeVos can learn from Bush-Obama school reform - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 12:00

Madam Secretary, as you well know, American education suffers from more than its share of posturing, invective, hype, and spin. All that noise too often drowns out lessons that experience might otherwise teach. When we look at the George W. Bush or Barack Obama education legacies, for instance, it’s all too easy to find glossy PR or ad hominem critiques. Much harder to find are analyses that tease out practical lessons. In our new book, Bush-Obama School Reform: Lessons Learned, we tried to identify those, with the aid of a double handful of thoughtful analysts more interested in seeking insights than in scoring points. In this memo, we’ve sketched four key takeaways that might help inform the Education Department’s efforts today.

Aaron Clamage Photography (C) American Enterprise Institute

1. Uncle Sam is good at making schools give tests and at promoting research and reporting, but lousy at making schools improve. Your rhetoric sometimes suggests that there’s nothing Washington does well when it comes to K-12 schooling. That’s not the case. Indeed, your critique is most compelling when it recognizes that there are some areas where Washington has a useful role to play. The legacy of No Child Left Behind is instructive. NCLB yielded a wealth of data on how students were faring in reading and math. NCLB created a uniform, consistent national framework for testing—yielding a boom in transparency, research, and data-informed practice. It was NCLB’s “adequate yearly progress” measure, its remedies for “low performing” schools, and its legacy of top-down compliance that were defective, requiring unwieldy standardization and putting an undue faith in bureaucratic routine.

Takeaway: When it comes to federal guidelines governing school discipline or addressing state plans under the Every Student Succeeds Act, don’t simply denounce the federal role or grudgingly bow to procedural requirements. Rather, move forward with the recognition that federal efforts can be a boon for transparency and research. At the same time, keep explaining, over and over, that Washington may be good at making schools perform simple tasks, like giving tests—but is poorly equipped to steer more complicated improvement processes.

2. Nationalizing a policy can make things tougher for state-level coalitions. When the Common Core State Standards or Race to the Top-style teacher evaluation took on the veneer of “national” initiatives, backed by directives from the U.S. Department of Education, these became fixed in the public mind as Washington’s handiwork. This made it tougher for local leaders to credibly argue that their approach was sensitive to the local context—no matter how true that might be. Given that the educational and political dynamics are different in New Jersey and Nebraska, and that Washington is disliked almost everywhere, this invited blowback—especially in places where the president was unpopular.

Takeaway: America doesn’t need a 50-state effort on school choice. The lack of federal leadership has allowed school choice advocates in places as different as California, Arizona, Louisiana, and Indiana to build powerful, broad-based coalitions that don’t suffer from the need to rally around a dictate cooked up in President Donald Trump’s Washington. While it may be tempting to pursue a big win, such a path would exact a huge cost—tarring the issue, making coalitions more fragile, and potentially doing more to stymie school choice than to stimulate it.

3. Public officials are forced to operate on political timelines, but those timelines can undermine reforms. Rebooting policies, training educators, revising instructional materials, and changing what happens in classrooms is a slow, frustrating process, especially when the goal is competence and not merely compliance. Yet, political realities lead officials to think in terms of expedited timelines. Elected officials want results in time for re-election. Appointees to the Education Department know that they have only a few years to make their mark. NCLB and President Bush’s Reading First program sprinted out of the gate, only to be hobbled by myriad design flaws that weren’t immediately apparent. The Obama administration pursued teacher accountability even as new standards and tests were being rolled out and value-added assessment was still being pioneered—leaving little opportunity to work out the kinks.

Takeaway: This is one place where your distrust of Washington serves you especially well. The Bush and Obama teams were racing to implement a raft of new federal initiatives, and those wound up tripping over one another. As you look to move forward on higher education reform and your efforts to promote “rethinking” in K-12, you’ll do well if that deliberate and measured impulse continues to guide you.

4. It’s politically potent to wrap education advocacy in the garb of “civil rights,” but doing so carries costs. Casting school reform as a civil rights issue, a hallmark of both the Bush and Obama years, has lent the cause heft and urgency. It also, however, has made it harder to accommodate practical concerns about how reforms were working. After all, civil rights enforcement is a moral absolute. Once that flag is planted, any perceived softening on testing, accountability, or school improvement—even when necessary and appropriate—risks being depicted as a “retreat” on civil rights. This rigidity magnified NCLB’s impact in the early years, but it also ensured that the law’s provisions would eventually become less tenable, and thus less sustainable.

Takeaway: The power of framing school reform in terms of civil rights cuts both ways. More importantly, it is at odds with the kind of bureaucratic humility that you have sought to bring to the department. Try to resist the temptation to use claims that your stance is the only one consistent with a respect for civil rights. Avoid using that as a cudgel with which to promote school choice or higher education reform.

Madam Secretary, we know that your job looks a lot easier from the outside. But it’s also the case that there are lessons which it may be easier to see from outside than from within. So, if you’ll permit, we’ll close with a final thought. There’s great pressure for those in your position to say: “We have to do something!” But the hard lesson is that clumsy action in Washington can poison the well for promising ideas and undermine ongoing efforts, and that restraint is sometimes the wisest course.

This article first appeared in Education Week as What Betsy DeVos Can Learn From Bush-Obama School Reform on October 22, 2018. Reprinted with permission from the author.

In praise of divided government - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:30

Right now, the broad consensus among nonpartisan experts is that in this year’s midterm elections, Republicans will hold control of the Senate while the Democrats will win back control of the House of Representatives. If this turns out to be true, we will once again return to divided government.

Division between the two parties has been the norm since 1981. In the past 38 years, one side or the other has had total control of the government for only ten years. Neither Republicans nor Democrats have held a decisive advantage over the other. Rather, temporary unity in government has quickly transformed into divided control, again and again.

Pundits like to lament this state of affairs, for both its gridlock and its tendency to produce hyperpartisan rhetoric, but I think it has several virtues that are often unappreciated.

Fifty years ago, a popular theory among political scientists was the notion of “alignments” in American politics. The thinking was that certain political coalitions dominate for epochs of American history (typically lasting about 40 years), and while the opposition could win elections, they still had to swim against the current of public opinion.

In recent years, scholars have moved away from this idea, in no small part because the finer details of American politics do not match up with this grand, sweeping theory. Take Franklin Roosevelt. He supposedly inaugurated a new age of liberal policymaking . . . except that a conservative coalition of Northern Republicans and Southern Democrats took control of Congress in 1938 and more or less retained control for the next half century.

The theory of alignments or eras has performed pretty badly since Ronald Reagan, too. Reagan governed as a bold conservative, which should have signaled the end of the New Deal era. But subsequent Democrats did not follow suit. Bill Clinton is famous for his triangulation, but the 103rd Congress of 1993–94 was decidedly liberal on taxes and gun control. Similarly, Barack Obama governed as a bold liberal, perhaps suggesting a new epoch, but Trump has governed in the opposite way.

Instead, I would posit another framework to understand politics over the past 40 years, one in which the two parties are basically evenly matched, strong ideologues dominate the bases of both sides, and a decisive quantum of voters in the middle is up for grabs. This process has yielded a general pattern that seems to repeat: One party surges to control the government, but this is short-lived; the opposition quickly gains a foothold; and divided government persists until the opposition finally takes total control, repeating the cycle.

We have seen something like this happen for Ronald Reagan, Bill Clinton, George W. Bush, and Barack Obama, and if the trends continue through Election Day, we will see it with Donald Trump as well. Each president enjoyed a period, early in his term, when he was able to work his will on Congress. Clinton, Bush, and Obama had partisan majorities on their side. In 1981 Reagan had a Republican Senate and a conservative majority in the House. Subsequent midterms cut down on presidential influence, and eventually the opposition wins the White House with majorities of its own in Congress.

This theory is not perfectly efficient. George H. W. Bush managed to win a third consecutive term for Republicans — a feat unprecedented in the postwar era (except for Harry Truman, who won a fifth consecutive term for Democrats). And Republicans won back the Senate under George W. Bush in 2002. But still, this process has more or less held in place for nearly 40 years.

Is this a good thing? On balance, I believe it is. It makes our politics vitriolic on a day-to-day basis, as both sides, always having recently experienced a governing majority, are cutthroat in their efforts to reclaim it. But it offers the country a way to self-correct on public policy. Democrats tend to peel back Republican tax cuts, while Republicans tend to peel back Democratic regulations — except those provisions on both sides that are broadly popular. This does not lead to coherent public policy, but at least it is moderate in sum.

The other advantage of this system is that it keeps both sides invested in the process. Recent Democratic caterwauling about the Senate notwithstanding, both sides appreciate that a small shift in political fortunes can sweep one side in and one side out. So, unlike in the 1850s, when the South was calling for fundamental changes to the political process in recognition that it was now a permanent minority, both sides are basically content to play the game according to the rules.

Again, it is now an ugly game, on a day-to-day basis. But if we think about politics over the course of the past two generations, it definitely has had its advantages. Both sides have been able to enjoy a taste of power, and the public has had regular opportunities to dial back policy excesses.

Nobody is blameless in the rising acrimony of American politics - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:30

Whether the packages delivered to leading Democrats and liberals turn out to be functioning bombs or dummy devices intended to send a message, the effect is largely the same: American politics is descending further into the logic of the vendetta.

If you read about famous feuds or intergenerational rivalries — Hatfields vs. McCoys, Israelis vs. Palestinians, etc. — one simple truth makes everything much more complicated: Everybody has a valid point. The Hatfields shout, “Your family shot my uncle!” The McCoys reply, “Well, you folks hanged my father!”

And they’re both right.

And they’re both wrong.

They’re right that the other side did something bad, but they’re wrong that the first bad act justifies the second.

They’re also wrong because, outside of war, “sides” don’t really kill people; people kill people. If someone named Smith kills someone named Goldberg, I have no right to kill some different person named Smith, who did nothing wrong, simply because I happen to be a Goldberg, too.

Until now, I’ve been speaking mostly metaphorically. We’re not a failed state where competing coalitions visit bloody reprisals on each other. We’re not Ancient Rome either. But we’re getting closer. And you can tell by the way we’re talking.

In response to this still-unfolding crime, the overwhelming response from Democrats and most of the mainstream media is that this is all Donald Trump’s fault.

“Time and time again, the president has condoned physical violence and divided Americans with his words and his actions,” Senate minority leader Chuck Schumer and House minority leader Nancy Pelosi said in a joint statement Wednesday. “Expressing support for the congressman who body-slammed a reporter, the neo-Nazis who killed a young woman in Charlottesville, his supporters at rallies who get violent with protestors, dictators around the world who murder their own citizens, and referring to the free press as the enemy of the people.”

Trump’s calls for unity in response to mail-terror attacks “ring hollow,” they added. And they’re right.

Indeed, Trump seemed to demonstrate the hollowness the following morning in a tweet: “A very big part of the Anger we see today in our society is caused by the purposely false and inaccurate reporting of the Mainstream Media that I refer to as Fake News. It has gotten so bad and hateful that it is beyond description. Mainstream Media must clean up its act, FAST!”

On one level, this tweet is loopy. We don’t know the motives of the bomb mailer yet, but it seems unlikely that he or she was sending explosive devices to Barack Obama, Robert De Niro and Representative Maxine Waters to teach the “fake news” a lesson. That would be some serious three-dimensional media criticism right there.

But Trump has a point, too. His “enemy of the people” rhetoric is irresponsibly hyperbolic, but it resonates with millions of people who have good reason to believe that much of the media has gone off the rails in its animosity toward Trump and toward Republicans generally.

More relevant, Trump’s most loyal defenders leapt to make the case that Schumer, Pelosi, and all of the Democrats and pundits blaming Trump for fomenting a climate of violence are hypocrites given the things they’ve said and done. Fox News host Sean Hannity had a furious monologue recounting all of the uncivil things Trump’s liberal critics have said, from Waters encouraging mobs to harass Republicans in public to Hillary Clinton saying civility isn’t an option for Democrats.

Put aside the asininity of acting as if the most pressing issue of the moment is liberal hypocrisy when bomb-laden packages are still being discovered. Hannity still has a point. Ricin was sent to Trump. GOP representative Steve Scalise was shot at a practice for a charity baseball game by a man motivated by liberal rhetoric.

The point is not about “whataboutism” or “both sides-ism.” As a conservative who is critical of Trump, the Democrats, and the mainstream media, I have no team here. The point is that everybody is using the real or perceived hypocrisy of the “other side” to justify their refusal to look squarely at their own side’s irresponsible words and deeds.

It’s obvious to me that Trump’s demonizing rhetoric, his inveterate lying, and his insinuations that his supporters are the only real Americans are dangerously irresponsible. His responsibilities as president of the whole country do not change regardless of what his critics say about him. But the reactions to Trump are often irresponsible, too. And saying “Trump is worse” doesn’t change that.

Yes, everybody is right. But that doesn’t mean everybody isn’t wrong, too.

What pro-Trump votes in the House don’t tell us - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:00

Dean Phillips, the Democrat trying to oust Republican Erik Paulsen from his Minneapolis-area House seat, blasts the incumbent for having “voted 98 percent of the time with Donald Trump.” Jennifer Wexton makes an identical charge against Barbara Comstock in their northern Virginia race — she calls her “Barbara Trumpstock.” California Republican congressmen Mimi Walters, from Orange County, and David Valadao, from the San Joaquin Valley, have taken the same hit from their opponents. Ads against Peter Roskam have zinged him over his pro-Trump votes twice.

The data on how much each congressman has voted with Trump comes from the website FiveThirtyEight. What follows isn’t a criticism of the site’s employees for collecting and disseminating this data. Instead I offer four related reasons that voters should not read too much importance into the percentages.

First: Republicans don’t get high scores because they are slavish followers of Trump; he’s the one following them. They’re mostly voting according to the party’s longstanding preferences, and he, partly under their influence, has gone along. That’s why most Republicans have percentages in the 90s.

Second: Votes on fairly uncontroversial legislation boost the percentages for nearly everyone. The House vote on the Stop School Violence Act, a priority for the group Sandy Hook Promise, was 407-10. The scores went up for everyone in that majority, since Trump backed the bill.

Third: The scorecard has the potential to make bipartisanship on the part of Democrats look like weakness toward Trump. Forty-one House Democrats crossed the aisle to vote to let Obamacare’s tax credits be used to defray premium costs for Cobra coverage, and 50 voted to expand Medicaid funding for the treatment of cocaine- and opioid-use disorders. Probably none of them (or the Republicans) voted that way because of pressure from Trump, or to signal their friendliness toward him.

The policies at issue in those votes have nothing to do with the reasons Trump inspires strong emotions, pro and con. If either vote had gone the other way, it would have inflicted very little political damage on the administration. Yet the scorecard could leave the impression that the Democrats who voted no are better members of the “resistance” than the ones who voted yes.

Fourth: The vote percentages are an extremely imperfect proxy for which congressmen are most and least helpful to Trump. Kyrsten Sinema is a House Democrat who is running for Senate from Arizona. Walter Jones is a conservative Republican from North Carolina. According to the scorecard, she is significantly Trumpier than he is. I’d say their respective scores tell you something about those two people, but more about the limits of this measure.

Among Republicans, the relative moderates are more likely to have high Trump scores than harder-right conservatives. (Which helps explain why so many of the moderates have been hit by the scorecard ads: They have high scores, and they’re in swing districts where being seen as too tight with Trump hurts.)

The harder-right congressmen were more likely to vote against budget compromises and bipartisan initiatives. The 69 Republicans who voted against disaster relief for Puerto Rico all lowered their scores by doing so. In no important sense did their vote undermine their alliance with the president.

Representative Thomas Massie, a conservative Republican from northeastern Kentucky, has been much less critical of Trump than Barbara Comstock has. But his pro-Trump score is much lower than hers — in part because he voted against the Puerto Rico bill and budget agreements, opposed a bipartisan bill to combat opioid abuse, and was one of the 10 votes against the school-safety bill.

Trump himself does not seem to be too upset about many of the votes “against him.” Former GOP representative Ron DeSantis has fulsomely praised Trump and, in return, won the president’s endorsement in his race to be governor of Florida. But dozens of Republicans in the House had more “pro-Trump” records than he did. Likewise, Representative Matt Gaetz, another Floridian, regularly carries Trump’s water on television, but he has one of the lowest pro-Trump scores of Republicans (although it’s still 81.5 percent).

If you oppose Trump, you may reasonably wish to punish congressmen for being close allies of his. Put too much stock in these percentages, though, and you may punish the wrong things.

Bloomberg’s ‘bombshell’ (or dud) on Chinese espionage: Even if true, what’s new? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 10:00

We are now three weeks past the publication of Bloomberg Businessweek’s “bombshell” story that claimed that groups associated with the Chinese military had managed to introduce malicious server chips during the manufacturing process in China. According to Bloomberg, the tiny chip corrupted thousands of servers that were subsequently used by some 30 US companies, including Apple and Amazon.

Specifically, the report alleges that the chips had been inserted during assembly of server motherboards by the US company Supermicro, a major supplier for a number of high-tech companies. According to the Bloomberg reporters, Chinese intelligence officials had coerced or bribed at least four Chinese subcontractors for Supermicro to allow the introduction of the malicious chips. (The “backdoor” chips can either take control of the server, giving it secret directions, or just lie in wait for the opportunity to control other more valuable servers.)

Chinese President Xi Jinping and Gen. Fang Fenghui, chief of the general staff of the Chinese People’s Liberation Army, in Beijing, China August 17, 2017. via REUTERS

The Bloomberg team of reporters had worked on the story for over a year, and the actual espionage dated from 2014 to 2015. Bloomberg cited some 17 independent sources, almost all of whom were anonymous, in support of the veracity and accuracy of its claims.

Still, the story produced a storm of denials and even scorn. Both Apple and Amazon issued strong statements (as did Supermicro), asserting that they had searched their servers and had not found evidence of secret chips, neither earlier nor currently. They were joined by cautious statements by the UK cybersecurity agency (“no reason to doubt the detailed assessments made by . . . Apple”), the Department of Homeland Security, and the director of national intelligence. And in recent days, Apple and Amazon (and Supercmicro) have stepped up their campaign against the story, with demands now that Bloomberg publicly retract the story. Generally, with some exceptions, outside cybersecurity experts are also skeptical. But up to this point, Bloomberg is holding to its account, leaving a standoff.

Here are a few observations about the incident.

  • We may never know exact details, as US intelligence will be reluctant to disclose full details. Ironically, the one group we know has all the answers are Chinese intelligence officials, who no doubt have watched this saga unfold with amusement and — depending on the truth — satisfaction or wistful puzzlement.
  • Although cracking hardware for spying purposes is very difficult, it is now impossible. It is also true that the Snowden revelations some years ago produced evidence that US intelligence agencies used a variety of tools to glean information from the vast amounts of internet traffic that passed through the US, including by penetrating fiber-optic cables. The National Security Agency has also been successful in introducing malware into foreign (Chinese) equipment in carrying out its own intelligence mission — of just observing or potentially introducing misinformation.
  • Thus, one should be careful about the “bombshell” aspects of the Bloomberg story. US intelligence agencies, given their own capabilities and missions, cannot have been surprised that Chinese intelligence agencies would probe and even possibly penetrate some US supply chains.
  • Finally, whatever the truth of the Bloomberg assertions, the episode does represent a vital wake-up call. Digital supply chains are vulnerable, and both the US government and American high-tech companies will have to accept the necessity of ever-deeper defensive programs to detect and ferret out “secret chips,” malware, or other threats. It is simply not technically or economically feasible to pull back and produce all the myriad of advanced electronic parts and components in the US.

Specifically, as cybersecurity expert Nicholas Weaver has recommended:

Hardware manufacturers should aim to reduce the “trusted base,” the components that need to execute with integrity, to something far more manageable. Then, the goal should not be to remove China from supply chain — just to remove China from the trusted base. Manufacturers know how to design computers that don’t need to “trust” the motherboard. They should work to make that the standard design.

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CNB’s Jim Cramer eats crow for pushing Nucor, as Trump’s tariffs backfire even for US steelmakers - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 10/26/2018 - 03:16

In the video above from tonight’s Mad Money Show on CNBC, host Jim Cramer breaks down why Trump’s steel tariffs aren’t working, even for US steelmakers like Nucor who were supposed to be the main beneficiaries of the artificially high steel prices.

Let me tell you what caught me by surprise. The steel tariffs aren’t working in the way we thought they would… for the steel industry. Remember the first major shot fired in this trade skirmish was the President’s 25% tariff on imported steel – something the steel industry had been aggressively pushing for. The idea here was that the steelmakers needed to be protected from government-subsidized Chinese competition that was flooding the global market. Sure everybody who buys steel would have to pay more, but our steelmakers, wouldn’t they be in better shape, that makes sense right? Or at least that was the theory.

In practice, the steel stocks have been slaughtered since the tariffs went into effect. Just look at the stock of Nucor, the best steelmaker in America, and the chief proponent of the 25% steel tariff on steel imports. Nucor is down by $10 since the tariffs were announced! Counterintuitive? How the heck is that possible? The whole point of this exercise was to help the US steelmakers by making foreign competition more expensive, and allowing companies like Nucor to raise their prices to levels where they could get a decent return.

And yet here we are. Wow! Last week Nucor reported an underwhelming quarter. Tepid guidance. And the stock is now at its lowest level since late last year. The tariffs aren’t helping the steel industry, in fact they might be hurting the steel industry. So how in the world did this happen? What’s going on here?

Before I get into the details I need to eat some crow myself. I recommended Nucor stock over and over again as the big beneficiary of Trump’s protectionism. The CEO John Ferriola has been pushing for the government to get involved for ages. He was very bullish about the positive impact of steel tariffs, and I believed him! In retrospect, I think Ferriola and I may have been mistaken. What can I say, mea culpa! I got it wrong. So what went wrong?

So why is Nucor suffering so badly instead of practically being able to print money due to the protective tariffs that insulate it from foreign competition? The “Mad Money” host floated three ideas, and they are all related to the steel tariffs, which were intended to raise prices on government-subsidized steel from other countries in order to revive business at U.S. steelmakers like Nucor.

“First of all, when the government slaps a 25% tax on imported steel — basically a federally-mandated price increase — that’s going to reduce demand,” Cramer said. “We just spoke to Barry Sternlicht, the CEO of Starwood Capital — a major real estate developer and lender — and he said the price of steel has gotten so excessive that it’s actually starting to limit demand.”

Second, the United States is now in the throes of a “genuine trade war with China,” and tariffs being passed back and forth between the two countries is “bad for business” in the near term.

“Unfortunately, the steelmakers are very economically sensitive,” Cramer said. “Which brings me to the final problem: all of these tariffs raise prices, and when the Federal Reserve sees prices going up, they get very worried about inflation. That’s one of the reasons the Fed’s gotten so aggressive about raising interest rates. And, look, you do not want to own the steelmakers when the Fed is tightening aggressively.”

MP: If this is the Protectionist-in-Chief’s idea of winning, when both domestic steelmakers like Nucor, and domestic steel-using firms like Ford, GM and Caterpillar are suffering from the steel tariffs, what exactly would losing look like?

How to fix America’s entitlements: A long-read Q&A with James Capretta - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 19:30

“The entitlement crisis is real, and it is worse than you think.” So argue James Capretta and Yuval Levin in a recent cover story in The Weekly Standard. As they write, the CBO projects that under plausible assumptions, the government’s cumulative debt will grow from 78 percent of GDP this year to 148 percent in 2038 and to 210 percent of GDP in 2048 — and even a total repeal of last year’s tax cuts won’t come close to mitigating that rise. To discuss how deleterious this debt load will be for the United States, and what steps can be taken to prevent it, I was joined by my AEI colleague James Capretta.

James is a resident fellow and holds the Milton Friedman Chair at AEI, where he studies health care, entitlements, and US budgetary policy. An associate director at the White House’s Office of Management and Budget from 2001 to 2004, he was responsible for all health care, Social Security, welfare, and labor and education issues. What follows is a lightly-edited transcript of our conversation. You can download the episode by clicking the link above, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Let me start with a line from the essay: “The United States is likely to have more room for borrowing without facing the most dire consequences, but no one can know for sure just when its luck will run out. Once that invisible line is crossed interest rates can spike, raising borrowing costs even more, which can quickly spark a serious crisis.”

Whenever I go out and talk to folks about the economy, I always get this question. They hear these huge numbers that we are borrowing and the huge size of our debt and they ask, where is the tipping point? Are we close, or do we have a ways to go? How do you answer that question?

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Is Arizona getting away from Kyrsten Sinema? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 10/25/2018 - 18:00

Is Arizona getting away from Kyrsten Sinema? That was the question on everyone’s mind after a series of bombshell videos leaked from earlier in Sinema’s career. Sinema’s enviable position in the polls is at least in part due to her recent history as a moderate “Blue Dog” Democrat in Congress. But before her election to Congress, she cut a more liberal profile.

The videos revealed her referring to her state as the “meth lab of Democracy.” She at one point seemed to intimate that she did not care whether someone left to join the Taliban, and called (in her telling, jokingly) stay-at-home Moms “leeches.” In a state that still leans Republican, this is a problematic turn of events, to say the least.

But so far, the polling suggests that Sinema’s standing hasn’t been affected much.  The New York Times, in conjunction with Siena College polling, released a poll that showed McSally up 48 to 46.  But this is consistent with polling this cycle, which has consistently showed Sinema pulling in 46 percent of the vote. It is also consistent with polls we saw in early September that showed Sinema up by a couple of points.

The more likely explanation is that Arizona is still a red state, albeit a reddish-purple one, and that undecided voters are breaking toward the Republicans. Ascribing causation is a tricky business, and it may be that these voters were ready to break away from Democrats and just needed some prompting. Or, it could just be statistical noise. Regardless, it does not seem to be consistent with a collapse in Sinema’s poll numbers that we might expect after news such as this.

Join the AEI Election Watch team on November 8 for lunch to discuss what happened and what it means. Click here for details.

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