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Archive for November, 2011

Once upon a time, local governments accounted for the lion’s share of economic policy-making in the United States. Before World War I, not only was the federal government’s economic policy-making activity strictly limited to areas such as international trade, management of federal lands, trust-busting, and food and drug regulation, but state governments themselves were also internally decentralized. In 1913, local government own-source revenues (revenues raised autonomously by local governments, thus excluding grants) as a percentage of total state and local revenues (including federal grants to state and local governments) stood at a whopping 82%, according to my calculations based on historical Census Bureau data. If we assume that revenues track economic policy activity closely, this figure implies that four-fifths of all state and local economic policy activity occurred at the local level.

Today, of course, local governments are quite limited in their economic policy autonomy, with the most important remaining policy role left largely to local governments being K-12 education. Local revenue decentralization (the variable described in the last paragraph) was just 38% in 2008. This chart shows the evolution of local revenue decentralization over time for the U.S. as a whole:

So who killed local autonomy in the U.S.? The answer is: (more…)

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Events in Europe should give us pause, as Eric Dash and Nelson D. Schwartz note in “Crisis in Europe Tightens Credit Across Globe.” (NYT)

Europe’s worsening sovereign debt crisis has spread beyond its banks and the spillover now threatens businesses on the Continent and around the world. From global airlines and shipping giants to small manufacturers, all kinds of companies are feeling the strain as European banks pull back on lending in an effort to hoard capital and shore up their balance sheets. The result is a credit squeeze for companies from Berlin to Beijing, edging the world economy toward another slump.

The deteriorating situation in the euro zone prompted the Organization for Economic Cooperation and Development on Monday to project that the United States economy would grow at a 2 percent rate next year, down from a forecast of 3.1 percent growth in May.

There is little reason to believe that we are even close to seeing the end of the economic crisis that began in 2007-08. While commentators in the US will focus on how the poor economic performance will impact on Obama’s reelection efforts, Gideon Rachman (FT) asks whether a modern version of the 1930s would lead Europe back to a dark era of nationalist parties and conflict.

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From The Hill:

Maxine Waters in line to take over from Frank on Financial Services.

I shudder at the thought.

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Top Thinkers

FP has released its list of the top 100 thinkers—something I always find enjoying reading.  Pileus readers may be pleased that the list includes Ron Paul, Paul Ryan, and Tyler Cowan.

For those who enjoy these types of things, are there any glaring sins of omission?

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Consider the source of the comment, but a New York Times report yesterday on the Eurozone crisis had this gem:

Bernard Connolly, a persistent critic of Europe, estimates it would cost Germany, as the main surplus-generating country in the euro area, about 7 percent of its annual gross domestic product over several years to transfer sufficient funds to bail out Europe’s debt-burdened countries, including France.

That amount, he has argued, would far surpass the huge reparations bill foisted upon Germany by the victorious powers after World War I, the final payment of which Germany made in 2010.

How can Germans accept this possible outcome to the Eurozone crisis?  And why should they given a chief cause of the problem is fiscal irresponsibility on the part of others within a currency union that isn’t optimal?  Unfortunately, it looks like it is very much the case that we’ll all suffer – not just Germans.  So the question is what is the least bad option that appreciates the problem of creating further moral hazard and the dangers (to liberty and economic welfare) from centralization (for those who favor even greater tightening of the European Union by centralizing fiscal policy) and other “solutions” being offered around the globe.

For the approximately 1,000,000th time, I wonder WWFD (What Would Friedman Do?).  Milton, not Tom, of course!

Not surprised to see Tyler also has something to say about this and some interesting links.

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In case you think only “isolationist” thinkers are opposed to using military force against Iran due to its nuclear weapons program, it is noteworthy that a slim majority (52%) of national security experts polled by National Journal believe that strikes should “not be carried out under any circumstances, despite a recent U.N. nuclear-watchdog report providing evidence of Iran’s ongoing pursuit of nuclear weapons.”

It might seem frightening that 48% don’t rule out strikes except that the question is worded in such a way that it doesn’t mean they favor using military force as the best policy option in the near term.  For example, one respondent who favored a coalition approach provided the caveat that “We are a good distance away from this being necessary.”

In case you are curious, here is a list of the experts polled – it isn’t exactly filled with Ron Paul-types!: (more…)

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Republican Presidential candidate Jon Huntsman during the foreign policy debate this past week:

His — history will tell. We missed the Persian spring. The president failed on that front. We go into Libya, where, to my mind, we don’t have any definable American interests. We’ve got Syria now on the horizon, where we do have American interests. It’s called Israel. We’re a friend and ally. They’re a friend and ally. And we need to remind the world what it means to be a friend and ally of the United States.

And we have nuclearization in Iran. Centrifuges spinning. At some point, they’re going to have enough in the way of fissile material out of which to make a weapon. That’s a certainty.

We had a discussion earlier tonight about sanctions. Everybody commented on sanctions. Sanctions aren’t going to work, I hate to break it to you. They’re not going to work because the Chinese aren’t going to play ball and the Russians aren’t going to play ball.

And I believe Iran has already — the mullahs have already decided they want to go nuclear.

Why?

They have looked at North Korea. They’ve got a weapon. Nobody touches them. They like [sic] at Libya. Libya gave up their weapon in exchange for friendship with the world. Look where they are.

So I say let’s let history be our guide. We saw the end of the Ottoman Empire in 1919. We saw the region transform and make itself into something different. We saw changes in 1947.

I think we do our national interests a disservice by jumping in too soon and taking up sides with people we don’t fully understand, Islamist groups, pan-Arab groups.

Our interest in the Middle East is Israel. And our interest is to ensure that Israel — that Iran does not go nuclear.

Interesting.   Several comments and questions:

1.  Unfortunately, Huntsman did not have a chance to specify exactly how the U.S. is going to ensure that “Iran does not go nuclear.”  He believes sanctions won’t work.  So what levers of statecraft would a President Huntsman use to meet this goal?

His earlier comment about missing the Persian Spring suggests he thinks one answer is that the U.S. could meddle more vigorously in the internal politics of Iran, help bring about regime change there, and then we can all live happily ever after.  But wouldn’t that require a pretty significant involvement that could seriously backfire?  Specifically, intervention along those lines only helps propel the sort of logic that Huntsman understands (with his comment about Libya) is behind Iran’s quest for nukes in the first place?  Moreover, Huntsman asks us to appreciate history – and wasn’t it American intervention in Iranian domestic politics that helped (and still helps) stimulate anti-U.S. opinion in Iran in the first place (see Mohammad Mosaddegh and the 1953 coup). And what about his line about being careful not to pick sides with people we don’t fully understand?  Lastly, if states have permanent interests regardless of regime type, isn’t it possible that a very different government in Tehran would still wish to acquire nuclear weapons given the geostrategic realities that face Iran?

Fortunately, Huntsman has been more clear about what he’d do about Iran in other forums – including in his October foreign policy address* – so we don’t have to guess.  Here, in bold unequivocal language, is what Huntsman said:

I cannot live with a nuclear-armed Iran. If you want an example of when I would consider the use of American force, it would be that.

Hard to see any wiggle room here.  He might hope for regime change leading to an end in Iran’s nuclear program.  He might hope for diplomacy doing what sanctions cannot.  But ultimately a President Huntsman would fight a war to prevent Iran from developing or acquiring a nuclear force.  This seems to be a bit incongruous with the rest of the speech, especially shortly after claiming “Simply put, we are risking American blood and treasure in parts of the world where our strategy needs to be rethought.” And unfortunately, his policy position does not leave room for the possibility of living with a nuclear Iran and relying on deterrence and diplomacy to keep the peace.

2.  Regardless of what one thinks of our relationship with Israel, Huntsman has an odd way of stating his view of it:  “Our interest in the Middle East is Israel.”  When I think of interests, I think of homeland security, economic welfare (for Americans), and even the preservation of the American way of life at home (including individual liberty) for lack of a better way of putting it.[1]  The American military, diplomacy, alliances, protection of freedom of the seas, etc. are possible ways/means to secure those interests.  But they are not interests themselves.  Now perhaps he meant that Israel’s security is a means for our other interests rather than an interest itself.  It is pretty common to use the language Huntsman did when we discuss our “interests” in a region or country.  Nonetheless, this kind of non-specific talk suggests that Huntsman may believe that the security of Israel or any other country is an end in itself.  And maybe he thinks that.  But otherwise it would be useful for Huntsman to tease out the logic here of how our relationship with Israel fits into our regional “interests” and how those particular means relate to securing our fundamental national interests.  I’m not saying it can’t be done, but since Israel seems to drive a lot of his approach to the Middle East, I’d like to see his argument more clearly articulated.

3.  States should change their minds and cut ties when their interests dictate.  See President Washington’s sound approach to France here on this point (sorry, fans of Jefferson, but he was bested here by Hamilton and the realists).  Nonetheless, I think Huntsman is right that our behavior vis-a-vis Qaddafi and Libya sends the wrong message to the world when he noted: “Libya gave up their weapon in exchange for friendship with the world. Look where they are.”  If you really care about non-proliferation and counterterrorism, it was the wrong move to help oust Qaddafi for the ultimately other-regarding or alliance-regarding (at best, and we were chain-ganged anyway) ends of U.S. intervention.  Washington dumped France for high gains.  We dumped Qaddafi for very little.

*This speech is one of the most interesting and insightful speeches of the primary season.  It can be read here in full.

[1] Similar to how SMU professor Seyom Brown discusses it on page 3-4 of Seyom Brown.  The Faces of Power.  New York: Columbia University Press, 1994.

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