An Unfortunate Debate

I wrote this as a comment on another blog on Feb 18th. It addresses the debate over the non-binding resolutions. Since posting it, I have frequently referred back to things I wrote at the time, so I am including it as a post here. Taking adavantage of a couple weeks of hindsight, I have highlighted the most relevant points:

"Currently both sides of the debate are based on gross oversimplifications and laced with platitudes. While there is little public support for the hard-line opposition position, hard-line support for the president's position is doing more harm than good especially when it leaves the onus of devising an alternate plan to the other side.

"By leaving it to the war opponents to develop an alternative, war supporters are essentially embracing a policy that has been thoroughly discredited and in which few of them actually have much faith. Thus, the pro-war side does not hold out any promise of victory but just plays up the consequences of defeat. By not pushing their own alternative, the pro-war side implicitly equates support for the war with support for how the president has been and is fighting it.

"Unfortunately, Iraq has been a disaster for the war on terror. It has produced a breeding ground for terrorists and materially aided Al-Qiada in achieving its objectives. It has alienated the publics of the middle east and the world. It has divided the American public and reduced support for the war in Afghanistan. It has worn down the military and wrecked havoc on Iraqi society. It has severely damaged the credibility of the United States and our western institutions.

"Quite frankly, challenging the Democrats to come up with a better alternative sets the bar pretty low. In a situation where the public thinks the president's plan won't work, withdrawal may look like the lesser of two evils. Daring the Democrats to cut funding if they don't like it only legitimizes funding cuts as the logical alternative to the president's strategy and increases the likelihood of people supporting it if events in Iraq don't turn around. The administration (especially Cheney) bears a lot of responsibility not only for painting themselves into a corner but also for pushing Democrats into another corner. Unfortunately, the line of debate between these two corners does not promise to produce a strategy for success, but rather a compromise between two strategies for failure.

"What we need is an evolved position that is less pro-war and more pro-success. There are already several out there from both Republicans and Democrats. When you give these plans fair consideration (that is when you separate them form the surge, no surge debate), they have lots of merit. Just the other day Pat Buchanon was praising Joe Biden for taking the threat of terroism seriously and offering sensible options. We need to stake out some ground for people to say 'I support the war on terror but I want it done right.' "

It's the Diplomacy Stupid

I have been biding my time before commenting on the Surge. There has been more than enough commentary on it and I didn't have anything useful to add to the debate as it was framed. While I was very interested to see the Senate take up the debate and heartened to see Republicans coming out with their own positions.

The problem is that most of the focus has been on opposing the surge (with the question for most Senators being how much to oppose it). There have been plenty of strong arguments that the surge won't work, but little in the way of explaining why the surge would actually make the US worse off. Now we are beginning to see that the surge really isn't more than a gradual increase of one brigade a month (see "Iraq 'surge' little more than a trickle so far" ).

The critics are quite right in saying that an increase in troops won't make a difference, but they are misdirected in their opposition to the so-called "surge". Rather than putting their opposition to military deployments at the fore, Senators need to start jumping up and down about the lack of diplomacy. Perhaps those who are not running for president will move in this direction.

There is increased reason to think that diplomacy is not a dead end road. Syria is calling on the US to engage in negotiations (see "Syria can help quell Iraq violence, Assad tells ABC News") and Saudi Arabia is holding talks with Iran (see "Rivals Saudi Arabia and Iran now talking"). The doors of international diplomacy are rarely opened wider than this.

SOTU DOA

This year's State of the Union (SOTU) speech was one of the most substantial and moderate policy statements that President Bush has ever made. However, it also appears to be one of his most ineffectual speechs to date.

His call to balance the budget in 5 years was undercut by the fact that Democrats have already reestablished the PAYGO rules as part of their 100 Hour agenda and that this was done over Republican objections that it would endanger renewal of the Bush tax cuts. Given that Bush inherited a budget surplus and then ignored Greenspan's advice to include put triggers in the tax cuts to prevent lapsing back into deficit, I find Bush's calls for fiscal discipline particularly disengenuous. (I just hear Rene Zellweger in "Cold Mountain" saying "They make the weather and then cry 'It's raining!'")

As if this wasn't bad enough, the speech went on to propose huge tax deductions for individual health care along with more federal funding of state healthcare. While some level of inconsistency is to be expected in politics (people like to hear that they can eat their cake and have it too), this seemed to push the envelope. Most healthcare benefits are already tax exempt, expanding that exemption with a stanadard deduction won't change the coverage of people with exsiting benefits, and giving uninsured people a deduction whether they buy health insurance or not will do nothing to encourage them to get health insurance. As far as I can tell, it's a $100+ billion tax incentive with no incentive.

I could point out that as a lump sum tax cut, the proposal would stimulate consumption more than investment, and that, if it increases the deficit, it will decrease the funds available for investment in the economy. Thus, unlike cuts in the top rate, it will not stimulate supply side growth. But the thunderous silence the proposal has received since the speech suggests that it isn't going anywhere soon.

Then, there was the president's embrace of alternative fuels. Here he is reversing himself to be in line with the rest of Washington. If you are a free market proponent, tax incentives and government investment are problematic and insignificant in comparison to core market incentives (i.e., $70/barrel oil). This area of policy will probably be the most productive but one that will be more closely associated with the Democrats .

So with regard to domestic policy, Bush may have reached out to the Democrats, but he hasn't taken the intiative from them. If the two sides work together to balance the budget, the Democrats will be fulfilling one of their their 100 Hour promises. If Bush pushes his healthcare tax deducation proposal to counter the Democrats ideas, the proposal's price tag and inherent ineffectiveness will be its own undoing (much like his Social Security plan). Advances on alternative fuels are likely to garner opposition from Bush's base in the existing energy idustry and, therefore, will appear to be more the doing of the Democrats. It is probably safe to say that Democrats will do better with voters on the alternative fuel issue and Bush's efforts will simply raise the issue's importance. *

Then, there is Iraq. Again, Bush repeated the same mantra, "Failure will be a disaster, therefore my plan will work". He also continued to cast the varied conflicts in the Middle East into a monolithic movement of evil extremism. It is increasingly hard to characterize his stated worldview as anything other than dangerously divorced from reality. By linking disparate events and actors, whose only thing in common is their opposition to US and Israeli policy, he is obscuring not only the root causes of the conflicts, but the potential solutions to them. Unfortunately, complexity and perspective taking make for difficult politics and don't fit in an "Us vs Them = Good vs Evil" view of the world.

Even so, the next day more Republican senators were coming out in opposition to the president. Republican Chuck Hagel joined the Democrats on the Senate Foreign Relations Committee in voting for a resolution to declare Bush's strategy to be "not in the nation's best interest". More importantly, other Republicans were floating their own ideas for resolutions and Democrats were talking about amending their resolution to garner more Republican support. It may be illusory and fleeting, but this is the closest thing we've seen to bipartisanship on the war since the original authorizing resolution. It is also the most damning condemnation of Bush's policy to date and the best reason to declare the SOTU speech dead on arrival.


* By the Way: It is worth noting that none of the social conservative agenda was included in the speech. Bush will certainly face challenges on stem cell research and Democrats are probably drooling over the prospect of another veto. However, one wonders if both parties will casually ignore the culture wars in order to improve their chances in 2008. Hillary Clionton will certainly be doing everything in her power to act like a moderate. If Guliani and McCain remain the Republican frontrunners, it is unlikely that they will challenge each other to a match of "More Conservative than Thou". It will be even more interesting to see if the activists in each party let them get away with it. There is already a liberal group forming with the express purpose of preventing the parties slide to the right, and we know that Sam Brownback will be fanning the flames of religious conservatives. However, on the Republican side, the prospect of Hillary Clinton as president is likely to focus conservatives more on the electability of Republican primary candidates than on their conservativism.

Joe Biden's Plan

For years, I have looked to Joe Biden and John McCain for cues on American politics and foreign policy. I valued their perspective because of their centrist political stances, apparent intellect, and relative candor. Alas, they are both positioning themselves for a Presidential campaign and appear to be moving away from the center, dumbing down, and talking more like typical politicians.

Nevertheless, their viewpoints are better than most and worthy of consideration. McCain's support for a troop increase is well known, but what about Biden's view? The president has complained that critics are not offering alternatives, so I decided to see what Biden is putting out on the subject. It turns out that he is promoting 5 point plan on his website, http://biden.senate.gov/

FYI- Here is the "Biden Plan for Iraq":

A Five Point Plan for Iraq

1. Establish One Iraq, with Three Regions
Establish three largely autonomous regions with a strong but limited central government in Baghdad Put the central government in charge of border defense, foreign policy, oil production and revenues Form regional governments -- Kurd, Sunni and Shiite -- responsible for administering their own regions

2. Share Oil Revenues
Gain agreement for the federal solution from the Sunni Arabs by giving them 20 percent of all present and future oil revenues – an amount roughly proportional to their size – to make their region economically viable Empower the central government to set national oil policy and distribute the revenues, which would attract needed foreign investment and reinforce each community’s interest in keeping Iraq intact

3. Increase Reconstruction Assistance and Create a Jobs Program
Provide more reconstruction assistance, but clearly condition it on the protection of minority and women’s rights and the establishment of a jobs program to give Iraqi youth an alternative to the militia and criminal gangs. Insist that other countries make good on old commitments and provide new ones – especially the oil-rich Arab Gulf countries

4. Engage the Neighbors, Maintain Iraq’s Territorial Integrity
With the U.N., convene a regional security conference where Iraq’s neighbors, including Iran, pledge to respect Iraq’s borders and work cooperatively to implement this plan Engage Iraq’s neighbors directly to overcome their suspicions and focus their efforts on stabilizing Iraq, not undermining it Create a standing Contact Group, to include the major powers, that would engage Iraq’s neighbors and enforce their commitments

5. Drawdown US Troops
Direct U.S. military commanders to develop a plan to withdraw and re-deploy almost all U.S. forces from Iraq by the end of 2007. Maintain in or near Iraq a small residual force – perhaps 20,000 troops – to strike any concentration of terrorists, help keep Iraq’s neighbors honest and train its security forces

Another Entry for the Hall of Shame

Senators Byron Dorgan and Sherrod Brown wrote an Op-Ed piece for the Washington Post that I am literally using as a textbook example of savy politics and economic ignorance. Apparently, I'm not the only one.

Greg Mankiw blog at Harvard takes on their arguments that government and union protection of workers is essential to middle class prosperity. He writes:

There is no doubt that most Americans have seen dramatic improvements in living standards and workplace norms over the past century. But should we really give most of the credit to "worker activism, new laws and court decisions?" I don't think so.

I would give most credit to economic growth, which in turn is driven by technological progress, a market system, and a culture of entrepreneurship. As the economy grows, the demand for labor grows, and workers achieve better wages and working conditions.

Economic studies of unions, for example, find that unionized workers earn about 10 to 20 percent more by virtue of collective bargaining. By contrast, real wages and income per person over the past century have increased several hundred percent, thanks to advances in productivity.

Similarly, working conditions are poor in less developed countries today because productivity is low there. The key to improving lives in those nations is economic growth, not "worker activism, new laws and court decisions."

Dan Drezner at Tufts picks up on the Senators' use of the "Race to the Bottom" argument. He writes:

I've written previously about the dubious nature of the race to the bottom hypothesis. Indeed, I had updated and extended these arguments in the first draft of All Politics Is Global. Ironically, this section got cut from the final manuscript -- because the academic consensus is that the race to the bottom is so easy to refute, there was no point in devoting half a chapter to it.

Don Boudreux leaves no doubt how he feels when he likens the Senators view of economics to the view of physics in a Road Runner cartoon. Moving past the derision of the Senators he gets serious and writes:

I'll content myself here with pointing out that these buffoons' fretting over the large and growing size of the U.S. trade deficit is inconsistent with their (mistaken) belief that "a global race to the bottom" is underway -- a race among corporations to set up shop in low-wage, poor countries.

A large and growing U.S. trade deficit is evidence that investment capital is flowing generously into the United States rather than away from the high-wage, high-labor-standards American economy.

Pat Cleary at the National Associations of Manufacturers (NAM) blog gives the industry response when he writes

*Trade agreements don't cause the trade deficit. Over 90% of the manufacturing trade deficit is with countries with which we have no trade agreement;


*Trade agreements open markets to US manufacturers by lowering the barriers to entry of US-made goods;


*Some 90% of what US manufacturers make overseas stays overseas. It doesn't get shipped back to the US;


*The biggest reason manufacturers locate a plant is to be near the customer. Developing areas of the world are booming for that reason -- they are customers;


*We don't compete on the basis of wages in this country, never have. To put it differently, we've competed against low-wage countries forever and won, because we are the best, most competitive manufacturers in the world. That's still true. If wages were the driver, as our trade expert Frank Vargo likes to say, Haiti would be an international economic powerhouse. Think about it.

The Coming Surge

It appears fairly certain that the president will announce a surge of troops into Iraq. The preparations are well under way, and indeed troops here at FortBragg have already received their orders (one brigade is returning to Iraq after some of its troops have been home for less than 2 months).

The replacement of military commanders is fortuitous. Gen Patreaus is the primary architect of the Army's new counterinsurgency doctrine. He can be expected to put the troops to use in Clear and Hold operations. Admiral Fallon has been in command of the Pacific theater and has been presumably been working on contingencies to deal with North Korea. One would expect him to focus on the apparently similar (but totally different) problem of Iran while leaving Iraq more to Patreaus. Having an Admiral as a boss may give Patreaus a freer hand in using his forces, how ever many he has.

Which brings us to the size of the surge. Reports put the number anywhere from 9 to 40 thousand, with 20 being the most common number. Here we get to one of two big problems. At the low end of the scale, you are sending too few to make any difference. At the higher end (or even the middle), you are sending so many that you "break the bank" and impair the military's ability to maintain troop levels in the future. Undoubtedly this has been the number 1 technical issue discussed at the Pentagon.

The other big problem is that it doesn't matter how many troops you send or who you put in command. The problems are political and economic, and therefore need political and economic solutions. What comes out of State Department will be far more important than what comes out of the Pentagon (or Central Command).

I noted with interest the move of John Negroponte from Director of National Intelligence to Deputy Secretary of State. With his experience at the UN and in Baghdad, Negroponte is probably the best person in the administration to carry out the kind of diplomacy that is needed. Moving Khalizad from Baghdad to the UN may also help (although one wonders where his stock now stands with the administration).

I have no clue about sports, other than cycling, and so sports analogies are always tricky for me. However, the current situation could be likened to the second half of a football game and we are down at least two TDs. The military is our defensive line and everything to do with surges and generals is defense. The White House and State Department are the offensive line, and, if you want any hope of winning the game, you have to look to them for the victory.

Now, to torture this analogy, if the other side has the ball, you have to get it away from them. This is the argument behind the surge. Putting in troops to stabilize the situation so that political and economic progress can occur is the equivalent of forcing a turnover. And, just like a turnover, it depends on the other team's play (and luck) as much as on what our team does. (Stop the analogy, I want to get off before its too late.)

So in plain terms, a surge is a risky military strategy because it depends on the political strategy for success (i.e., what happens when you hold an area that you have cleared) and it diminishes the military resources available in the future (i.e., the more you commit now, the less you have later). A significant surge makes sense if it is link to aggressive diplomacy and decision to drawdown following the surge, regardless of the outcome. Indeed, the larger the surge, the more inevitable the drawdown. If it works, you'll be able to drawdown. If it is doesn't, militarily and politically you'll have to do it anyway.

Commentary on Lou Dobbs

I am generally a fan of CNN and normally question claims about bias in the netwrok's coverage. However, Lou Dobbs is an exception. His show increasingly seems to be a daily op-ed piece devoted to the doom-and gloom rhetoric of economic nationalism.

Donald Boudreaux provides an excellent example of how such simplistic views deflate in the face of economic research and analysis.

Christian Science Monitor, Jan 4, 2007
Middle-class woes? A letter to Lou Dobbs
By Donald J. Boudreaux

FAIRFAX, VA. - Dear Mr. Dobbs, Congratulations on having a large new bloc of voters bear your name! Politicians ignore the "Lou Dobbs Democrats" at their peril.
Every night on CNN you claim to speak for these people. They are America's middle class: decent folks who work hard and play by the rules but who, you insist, are abused by the powerful elite. Free trade is one of the policies allegedly supported by the elite and for which you reserve special vitriol. You thunder that imports destroy American jobs, reduce wages, and make the economy perilously "unbalanced."
But you are mistaken.
First, some basic facts about the state of middle-class Americans. The US unemployment rate now is at a healthy 4.5 percent. This rate is lower than the average annual unemployment rate for the 1970s (6.2 percent), the 1980s (7.3 percent), and even the high-growth 1990s (5.6 percent). Inflation, meanwhile, is running below the average for the 70s, 80s, and 90s.
Here's more good news for ordinary Americans. The percentage of Americans who own their own homes is higher than ever, even though the size of today's typical home is larger than ever. Workers' leisure time, too, is at historically high levels. And jobs are just as secure today as they were in the late 1960s, according to a research paper by University of California-Davis economist Ann Huff Stevens.
Perhaps you think that this prosperity exists only because so many of today's households require two income earners. But women started leaving homes for paid employment at least a century ago, with no jump since the end of World War II in the rate at which women enter the workforce, according to a recent report by the Bureau of Labor Statistics.
Had worker pay truly deteriorated in the past 30 years, and had families reacted by sending moms to the workforce, the rate at which women join the workforce would have increased. It did not.
Today, the percentage of household expenditures used to buy nonessential items is at an all-time high - about 50 percent compared with about 45 percent in the mid-1970s. That undercuts your notion that two incomes are needed just to scrape by. Not only is America's middle class not disappearing - it's thriving.
Perhaps you miss this fact because you are misled by familiar trade jargon. In your book, "Exporting America," in your columns, and on your television show you complain vigorously and often about America's trade deficit. You call it "staggering," and wonder how long America can continue to run such deficits.
Admittedly, the word "deficit" sounds ominous. In fact, though, America's trade deficit is evidence of its economic vigor and promise. Here's why:
When Americans buy foreign-made goods and services, foreigners earn dollars. The only way America would run no trade deficit is if foreigners spent all of these dollars buying goods and services from Americans. Instead, though, foreigners invest some of their dollars in America. They buy American corporate stock, they build their own factories and retail outlets in the US, they lend dollars to Uncle Sam, and they hold some dollars in reserve as cash.
Aren't you proud that so many people the world over eagerly invest their hard-earned wealth in America?
As an American, I'm proud and optimistic. Foreigners invest in the US so readily because its economy is so strong. And even better, these investments strengthen the economy by creating more capital for American workers. These investments raise workers' productivity and wages.
Remember: A trade deficit is not synonymous with debt.
I'm writing this letter on a new Sony computer that I bought with cash. I owe Sony nothing. If Sony holds the dollars it earned from this sale, or if it uses these dollars to buy stock in General Electric or land in Arizona - that is, as long as Sony invests its dollars in America in ways other than lending it to Americans - the US trade deficit rises without raising Americans' indebtedness.
Americans go more deeply into debt to foreigners only when Americans borrow money from foreigners. Uncle Sam, of course, borrows a lot of money, from both Americans and from non-Americans. I share your concern about the reckless spending and borrowing practiced by politicians in Washington.
Foreigners, however, are not to blame for this recklessness. Indeed, I'm grateful that foreigners stand ready to help us pay the cost of our overblown government. Fortunately, Washington's spending binges are not serious enough to cripple America's entrepreneurial economy. If they were, foreigners would refuse to invest here.
If you're still skeptical that America's trade deficit is no cause for concern, perhaps you'll be persuaded by Adam Smith, who wrote that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."
Smith correctly understood that with free trade, the economy becomes larger than any one nation - a fact that brings more human creativity, more savings, more capital, more specialization, more opportunity, more competition, and a higher standard of living to all those who can freely trade.
Sincerely, Donald J. Boudreaux Chairman, Department of Economics, George Mason University.