Tuesday, September 13, 2016

New Site Launched

Thanks for checking out The Daily Face Palm.

We're pleased to announce that we've finally completed our actual website. This is the domain; it's very predictable:


We hope to see you over there!

Other notes

This site will still remain available and accessible, at least until we become clever enough to get the redirect links working properly.

Additionally, if you're on the email list, we'll be transferring that over soon. Until then, we'll probably post them in both spots, so the feeds continue to go out like normal.

Feel free to let us know if you have questions in the comments!

Monday, September 12, 2016

September 12, 2016

New ceasefire deal in Syria reached, but may encounter problems

A new ceasefire deal in Syria has been reached by Russia and the US. The ceasefire set to go into effect at sundown today, and represents the most promising chance in weeks for any reduction in violence in Syria.

Unfortunately, that chance still isn't very good. As Bloomberg reports, the Al Qaeda-linked faction in Syria and ISIS will both be excluded from the ceasefire, as terrorist groups. Meaning the all sides in the conflict--US, Russia, Turkey, Kurds, Hezbollah, other rebel groups, and the Syrian government--will be free to continue engaging them. A logical exception, but in practice, it proved fatal to a previous ceasefire deal.

The problem is that, as is widely acknowledged, the supposedly moderate rebel factions that the US supports are known to collaborate with the Al Qaeda group--recently rebranded as Jabhat Fatah al-Sham. This, of course, raises the question of how moderate any group can be if it collaborates with people who still celebrate the 9/11 attacks against the US? In any case, it creates substantial practical problems, especially for the Russians. Frequently throughout the Syrian War, Russia has claimed to bomb the Al Qaeda groups, only to have Western countries accuse them of hitting US-backed assets in the region. In reality, both claims can be true simultaneously, given the well-known collaboration between Al Qaeda fighters in Syria and the "moderate" rebels.

Secretary of State John Kerry, in a statement regarding the ceasefire, acknowledged the situation above and warned the US-backed factions that associating with the Al Qaeda group "would not be wise". It remains to be seen, however, whether this sober tone will be maintained when Russian and Syrian bombs continue falling on Al Qaeda and its often US-backed associates (and civilians too, undoubtedly).

For the sake of the Syrian people, we should hope that the ceasefire is thorough and lasts as long as possible.

Hillary Clinton thinks roughly 25% of Americans are "deplorables", but regrets saying so

Hillary Clinton took a page from Donald Trump's playbook this weekend by grabbing the headlines with an offensive quote. Here's how CNN summarized the comments, which were made at a private fundraiser on Friday night (emphasis mine):

"To just be grossly generalistic, you can put half of Trump supporters into what I call the basket of deplorables," Clinton said. "Right? Racist, sexist, homophobic, xenophobic, Islamaphobic, you name it." 
She added: "And unfortunately, there are people like that and he has lifted them up. He has given voice to their websites that used to only have 11,000 people, now have 11 million. He tweets and retweets offensive, hateful, mean-spirited rhetoric."
Clinton went on to call them both "irredeemable" and "not America".

Given the inflammatory and incredible nature of the comments--effectively condemning a fourth of US voters--one would think this was probably some kind of off-the-cuff remark said in the heat of the moment. But in fact, it appears to be rhetoric that was planned out in advance.

Indeed, speaking just a day earlier on an Israeli television network, Clinton used strikingly similar language, including the odd "basket of deplorables" bit. Again, from CNN (emphasis added):
"If I were to be grossly generalistic, I would say you can take Trump supporters and put them in two big baskets," Clinton said. "There are what I call the deplorables -- the racists, you know, the haters, and the people who are drawn because they think somehow he's going to restore an America that no longer exists. So just eliminate them from your thinking, because we've always had an annoying prejudicial element within our politics."
Once the language went viral, Clinton apologized for the comments--you know, sort of:
Last night I was 'grossly generalistic,' and that's never a good idea. I regret saying 'half' -- that was wrong.
In other words, she apologized for overestimating the size of the "basket of deplorables". This seems reasonable, given that she also implied the number might be close to 11 million, which is obviously nowhere near half of Trump's supporters. We get it; fractions are hard.

More important than Clinton's tenuous grasp of fractions, however, this episode reveals the distinct similarities between the Trump and Clinton campaigns for anyone who's willing to look. Trump's comments often focus on demonizing illegal immigrants and Muslims. Meanwhile, Clinton focuses on attacking Trump's supporters (for being racists, usually), and the Russians (for being Russians). The themes and targets may differ, but the strategy is remarkably similar: dehumanize the "other" to frighten people into voting for you.

Clinton's campaign slogan may be "Stronger Together" and Trump might want to "Make America Great Again". But the fact is that once the election is over, the America they will be leading will be more divided than it has been in a very long time. And when that day comes, both candidates and both mainstream parties will deserve blame for making it so.

Another stumble for Clinton campaign--this time, it's literal

With our apologies, our third story is also about the election. It was a busy weekend.

After a 90-minute stint at the New York memorial ceremony for the 9/11 attacks, Hillary Clinton decided to leave the event early. Unfortunately, (at least) two videos captured the moment of her getting in the van to leave. It didn't go well.

In the videos, Clinton appears to stumble or even faint as she steps off the curb. Her assistants were able to hold her up, but not quickly enough to make it unnoticeable. The result was another viral negative story for Team Clinton that needed an explanation.

Given the public nature of the episode and uniquely bad timing--presidential candidate faints(?) while remembering 9/11 attacks--the incident quickly gained traction. The Clinton campaign acknowledged the incident and first said that Hillary "overheated", before explaining later in the day that Clinton had been diagnosed with pneumonia on Friday.

This is certain to be a downer for the Clinton Campaign and has led to new questions about transparency. What we find more interesting, however, is the choice of wording.

As a general rule, cars, computers, and a great many other devices can overheat. But people are not among them. That's why it's kind of an odd phrase to use. This is particularly true when one recalls that an earlier viral Clinton gaffe involved her saying she "may have short-circuited". So wait, it overheats and short-circuits; are you sure we're talking about a human?

Kidding aside, this language is used in an attempt to downplay episodes--in this case, because they probably wanted to avoid saying she was ill, tired, exhausted, etc. But ironically, it actually makes the incidents more memorable. Last time, Donald Trump capitalized on the "short-circuit[ing]" by making an ad about "Robot Hillary" with sparks and all. One imagines a sequel will now be forthcoming shortly.

Thursday, September 8, 2016

Apple, Taxes, and Bad Arguments

I've recently acquired a kind of masochistic hobby--subjecting myself to the economic journalism at the progressive media outlet, The Intercept. I'm not entirely sure why I do it. But whatever the reason, every once in a while I come across some delightfully infuriating gems. Today was one of those days.

Unsubtly titled "Paying Taxes Is A Lot Better Than Phony Corporate Courage, Apple", the piece was prompted by Apple's fall product conference, which The Intercept aptly described as a "quasi-pagan" ritual for Mac lovers. But as the title implies, the real focus of the piece was on criticizing Apple's thorough tax avoidance. Apparently, Apple's CEO used the word "courage" during the day's event, and The Intercept is humbly implying that paying taxes would be a much more courageous act for them than whatever they're doing now.

We have previously touched on the Apple-EU tax feud, and won't rehash the details here. However, the piece is still striking for at least two reasons:
  • It shows the ease with which progressive-leaning commentators can simultaneously acknowledge the existence of incentives and disregard their implications.
  • It assumes, without evidence, that increased tax revenues mean better government services, specifically in the realm of education

On the first point, the relevant section from The Intercept reads as follows (emphasis in original):
[Apple's] official corporate position is now effectively We’ll pay what we want, and you’ll deal with it; Tim Cook himself has said Apple will only repatriate its vast billions to the U.S. if it’s at a rate he considers “fair.”
Now, the writer uses scare quotes to denote the apparent absurdity of Apple's position. But the implication should still be relatively clear. If the tax rates were lower (fairer, in Apple's verbiage), Apple wouldn't bother with intricate and onerous tax planning strategies to avoid them. In other words, if the incentive to avoid taxes was lower, companies and people would be less likely to avoid taxes.

This idea should be obvious at a moment's contemplation. But in The Intercept's telling, this fact is not even worth considering. Instead, we're stuck in a world rich in platitudes and poor in reasoning. The reader is left to conclude Apple is just a greedy corporation, but if they were courageous, they'd pay taxes to help the children. Who needs cause and effect when you have bulletproof logic like that?

Second, The Intercept makes much ado about Apple's marketing emphasis on education. Apple's apparent contribution to this worthy cause is an improvement to their collaborative office software, iWork. Of course, one wonders how helpful it will be given that Google Docs has existed for years and happens to be free.

The Intercept happens to share my skepticism about Apple's iWork plan, but they offer a questionable remedy:
It seems unlikely this will make a substantial difference in the quality of education for children around the world — particularly in countries where public schools are underfunded because companies like Apple deliberately avoid paying taxes.
Again, the takeaway is clear. If Apple and others like them would pay more taxes, public education wouldn't be as bad as it is. This seems reasonable on the surface--the idea that if more money were spent on public schools, the quality would go up. In practice, however, the relationship is not so clear. Indeed, many studies have shown that, at least in developed countries like the US or the EU countries which have been allegedly cheated of tax revenues by Apple, the effect of increasing spending on public education on educational outcomes is negligible. The nature of statistics being what it is, I have no doubt you could find studies suggesting the opposite. But the point here is that the question is very much in dispute.

This odd phenomenon stems from the very unique way we assess problems in governmental institutions relative to the way we assess problems in private institutions. If you went to a store and had a poor experience, what would you think of that business? Depending on the details, you might think they were lazy or incompetent or rude, or some combination thereof. Most likely, your first instinct would not be this:
You know, they probably just don't have enough money. I'm going to keep going back to that store and insist on giving them extra money to help them get on track.

Of course, you wouldn't think that way because it's silly. And yet, that is the default response most of us have when it comes to failures of government. We don't assume that the managers of the government institutions are incompetent and lazy. Instead, we implicitly assume they are blameless in the whole affair and they just need more funding. In some cases, that might be true. But it is clearly unreasonable to assume so by default.

Unfortunately, The Intercept doesn't heed this warning. Instead, the reader is treated to an improbable understanding as a way to criticize Apple.
Assumption 1: Public schools perform badly because they lack funding.
Assumption 2: Public education lacks funding because companies like Apple dodge taxes.
Therefore: Apple could help solve the public education problem if only they paid more taxes.

Both of the supporting assumptions are extremely dubious, but they sound true until you dig deeper. In this way, it's a microcosm for many economic notions advanced under the banner of progressivism--superficially plausible but unable to withstand basic scrutiny.

Summing Up

Obviously, there are many things that are more newsworthy for our purposes than the dimensions Apple's latest iPhone. However, The Intercept's take is fascinating because it shows how many dubious economic assumptions can be subtly baked into an argument without readers, and perhaps without even the author himself, realizing it.

*Also, for what it's worth, I'll have you know I'm not an Apple fanatic by any means. Quite the opposite really. In my adult life, I've bought exactly one Apple device, and in that case, I did so begrudgingly, and as a gift. I don't have any special reason for opposing Apple; their products (and prices) just don't do it for me. On the topic of courage, however, I will say my opinion of Apple rose considerably when they stood up to the FBI last winter on encryption. Paying taxes probably doesn't require much courage; standing up for civil liberties to the most powerful government in the world, on the other hand, most certainly does.

Wednesday, September 7, 2016

September 7, 2016

Legacy polishing and regret in Laos as Obama discusses US bombing

Recently, we discussed the legacy-polishing period that comes in the months and weeks before politicians leave office. We explained that President Obama is squarely in that period now, and happily, appears to be trying to redeem himself for the things he failed to accomplish, and the various tragedies he helped create, like Libya and more recently, Yemen. (I'm here assuming he probably recognizes them for what they are, even if he won't acknowledge them as such publicly, for obvious reasons.)

When we last visited the subject, he was making considerable headway towards closing the Guantanamo Bay detention facility and his administration had just taken a symbolic but important stand against private prisons. This week, it appears this generally positive trend will continue, as he became the first active US president to visit the country of Laos, which the US secretly and massively bombed during the Vietnam War.

The bombing of Laos checks all the requisite boxes we would later come to expect of a US foreign policy initiative: illegal, brutal, and utterly useless (if not outright counterproductive). The ostensible purpose for bombing Laos was to destroy supply lines used by the North Vietnamese, but this ultimately proved ineffective. However, this wasn't for lack of trying. As Obama noted during his remarks in Laos, the US reportedly dropped more bombs on Laos during the war than it did on Germany and Japan in WWII, combined.

While this would be bad enough by itself, the ongoing tragedy of Laos is that many of the bombs and cluster munitions that were dropped did not actually explode. While this might initially appear to be a good thing, the result is that the country remains littered with de facto landmines that can explode without warning if disturbed. Many Laotians still die each year when they encounter this unexploded ordinance (UXO). Aid organizations have been working for years to help clear Laotian land of UXO, but it is, by its very nature, a very slow and resource-intensive process.

Which brings us to the practical outcome of President Obama's remarks. He committed to giving $90 million to Laos over the next three years to dramatically expand the bomb clean-up effort. Of course, this is still a pittance, when one considers that the US spends roughly $600 billion on Defense spending each year and gives the first-world nation of Israel roughly $3 billion a year in foreign aid that it clearly does not need (and that amount is about to go up). But still, according to ABC, this will be a significant expansion of US aid for this remediation effort.

Given US culpability for the problem and the fact that US discretionary spending tends to be actively destructive, Obama's gesture and financial commitment is a welcome sigh of relief. Taxation may still be theft as we libertarians like to say, but it is tough to imagine a more deserving cause than repairing the damage caused by a past US war. Now, if only we thought about taking this approach to other parts of Asia as well...

Clinton's coughing attack and conspiracy theories

In stark contrast with Donald Trump, Hillary Clinton has kept a conspicuously low profile during the election season. Yesterday, we got a reminder why that strategy was probably wise.

While speaking at a rally in Ohio, which was being broadcast live on MSNBC, Clinton suffered intermittent coughing fits that prevented her from saying much of anything. They were so pronounced that the MSNBC anchor had to comment on it, and they eventually had to cut away from the rally altogether.

Naturally, this has fueled speculation that Clinton, who is about to be 69, may not be as healthy as she claims. If you're a Clinton supporter, this is automatically dismissed as a conspiracy theory that's probably sexist. While if you're a Trump supporter, it's a real concern and a useful line of attack.

Our own take is that it's clearly legitimate to question a candidate's health, and Clinton clearly, despite being younger than Trump, seems to be the less spry of the two. That said, whatever her health condition happens to be in reality, it's probably the least important reason to be concerned about a Clinton presidency. (Her hawkish foreign policy is far more troubling.)

Indeed, I'm actually of the opinion that everyone is looking at this the wrong way. If Clinton really is ill, to the point that it interferes with her job as the FBI investigation report implied, this is really a feature, not a bug. Assuming Hillary's health does limit her capacity to make decisions as president, one of two things seems likely to happen. Perhaps her Vice President Tim Kaine would take a more prominent role--this would be a good thing because Kaine cannot possibly be as bad as she is on foreign policy. Alternatively, she might just be an incompetent leader who can't effectively implement many of her policies. Given that virtually all of her proposed policies are likely to be deleterious, as we've previously discussed, this too is a win.

After all, I'd take an incompetently destructive government over an efficiently destructive government any day. Wouldn't you?

In any case, you can check out the Zero Hedge's full take on the 'Clinton coughing' story and the hypocritical media reaction to it.

ITT Technical Institute shuts down

The for-profit parent company of the ITT Technical Institute colleges has announced it is shutting down all its schools and firing most of its employees. The move comes after the Department of Education announced that prospective students of the colleges could not use federal student aid, and its accreditation was in serious jeopardy.

Certainly, this development calls for sympathy for the nearly 40,000 active ITT students who are now stuck in limbo as a result--with a partially completed education that will most likely have to be scrapped altogether. However, sympathy for the school itself is a bit harder to muster.

At first glance, this could seem to be a case of government regulations and enforcement cracking down on corporation providing a valuable service to willing consumers. Were that the case, ITT's bankruptcy might be a cause for grief.

However, the specific catalyst for the crackdown shows why this reaction is inappropriate. The cessation of federal student aid spelled doom for their business. This essentially means that, but for the government subsidizing its consumers (students), the business model did not work. In turn, ITT's demise is not a case of the free market being stamped out by big government. Rather, it appears to be a case where a company lived off of the government and died by the government's hand.

So progressives can celebrate the death of another hated for-profit college, and libertarians can take solace in the demise of another corporate welfare recipient (if indirectly). Additionally, perhaps the void left by ITT will let more students discover truly free market education alternatives to a traditional university--alternatives like this awesome apprenticing program, for example.

Tuesday, September 6, 2016

September 6, 2016

Filipino President Duterte profanely calls US bluff on human rights

The outspoken Filipino President Rodrigo Duterte has quickly gained a reputation for his extreme "law and order" politics and his irreverent behavior. Indeed, he is occasionally described as the Filipino Donald Trump. And like Donald Trump (or any other probable US president) would surely do, Duterte has apparently violated human rights routinely. The alleged violations include summary executions of drug traffickers and some users as part of an aggressive and foolish crackdown on drugs in the country.

It in this context that things recently got interesting. Duterte was scheduled to meet with President Obama in the coming days, and a reporter asked Duterte how he would respond if Obama questioned the Filipino leader on his human rights record. His response was remarkable:
Who does he think he is? I am no American puppet. I am the president of a sovereign country and I am not answerable to anyone except the Filipino people, nobody but nobody. You must be respectful. Do not just throw questions. Son of a bitch I will swear at you in that forum.
That's right. An ostensible ally of the United States called the US president a "son of a bitch". Just as notable, however, Duterte went on to discuss the history of US colonization of the Philippines, and ultimately stated the obvious:
Everybody has a terrible record of extra-judicial killing. Why make an issue about fighting crime?...Look at the human rights of America along that line.
In short, Duterte's utter lack of a filter led him to say what countless other leaders must always think when they get questioned by the US government about human rights. Because anytime that happens, it is the ultimate case of the cat calling the kettle black. It is the height of irony and absurdity alike that the US government--which has conducted three aggressive wars (counting conservatively) in the past 15 years, oversaw a massive torture program (for which no high-ranking officials have been punished), and claims the legal authority to assassinate alleged terrorists anywhere, without due process--makes a point to criticize other governments on their human rights records.

Perhaps if Obama was the leader of Sweden or Switzerland, this could make sense. As it is, US posturing on human rights is nothing more than a joke that most everyone is in on.

But of course, herein lies the tragedy. Because if true, Duterte's extrajudicial killings warrant criticism and condemnation as soon as possible, in the hopes of preventing further bloodshed. The problem is that message cannot come from institutions and governments that are complicit in equivalent policies in other parts of the world. That's why Duterte can call "BS" in advance, and the US president cannot offer any credible defense.

This should be seen as just another negative consequence of US's disastrous interventions in the Middle East and elsewhere. There was a time in the not-so-distant past that the US really was viewed by many countries as a defender of freedom and human rights, accurately or otherwise. Today, after 15 years of perpetual war under Republican and Democratic administrations alike, few observers could be so naive.

Yet another downside, Duterte's comments led to the meeting being cancelled altogether. It probably makes sense, but it strikes me that we will miss out on what could have been a very entertaining press conference.

You can read more on Duterte's remarks here from Zero Hedge.

Angela Merkel's party takes 3rd place in elections in her home state behind nationalist party

The latest evidence of the rise of right-wing nationalist movements came in Germany over the weekend as parliamentary elections were held in Angela Merkel's home state of Mecklenburg-Western Pomerania. Merkel's party of Christian Democrats took home third place behind the radical Alternative for Germany (AfD) party, which took second place. AfD's finish was remarkable given that it only formed in 2013.

Because Germany's parliamentary elections don't take place nationwide simultaneously, the election doesn't mean that Merkel is going anywhere, at least for the moment. However, it does demonstrate the very significant political risks associated with rapid changes in immigration policy.

That's because AfD has made a name for itself in part for opposing the EU, but primarily for criticizing open immigration policies and the alleged problem posed by a large number of Muslim migrants. In 2015 alone, Germany welcomed over 1 million refugees, predominantly Muslims.

Undoubtedly, an influx of impoverished peoples on that scale was likely to put some strain on the state's welfare system. And inevitably, some small portion of the migrant population (or any other population that size) was going to commit violent crimes, resulting in sensational headlines.

But the real problem is that Germany's immigration policy was so aggressive and public that it was bound to be a convenient scapegoat for otherwise unrelated problems. Worried about your own economic future? It's probably because the immigrants drove down wages in your industry. Worried about rising crime? Yep, that's probably the immigrants too.

Whether these things are actually true is beside the point. They sound convincing enough that a party like AfD can use them to become a major party in Germany.

It remains to be seen how Germany's politics will ultimately shake out. But early indications suggest an alarming backlash. Ironically, an "open door" immigration policy motivated by compassion and tolerance on the part of Merkel appears to have cultivated the exact opposite sentiments among a growing segment of the German people.

Taco truck proliferation and government regulations

The Trump campaign has inadvertently offered another incredible quote / gaffe that is just too good to pass up. Speaking on CNN, the founder of Latinos for Trump gave a hilarious reason to oppose immigration:
My culture is a very dominant culture, and it’s imposing and it’s causing problems. If you don’t do something about it, you’re going to have taco trucks on every corner.
Naturally, this raised two important questions. First, is the Trump Campaign so committed to getting publicity that they're doing these things on purpose? One assumes not, but it can only happen so many times before you have to wonder.

And second, much more importantly, why exactly aren't there taco trucks on every corner?

It turns out the answer is quite predictable. It's the same answer that usually explains why good ideas and products aren't as widespread and abundant as we'd like. That answer is government regulation.

We'll leave it to Charles Johnson at the Foundation for Economic Education to lay out the specifics. He offers an interesting insight on an otherwise silly story.

Here's hoping that, if elected, Donald Trump's vague and occasional praise for deregulation might accidentally unleash the spicy and delicious dystopia that his supporter feared.

Friday, September 2, 2016

September 2, 2016

US Auto Sales Decline Substantially in August
Auto sales data for August was released yesterday, and it proved to be a big disappointment. Every major manufacturer sold less than what was expected, and all but one showed outright declines in sales compared to August 2015. The chart below sums up the negative results fairly well.

Obviously, this is a bad sign for the individual companies involved. But it's also a pessimistic sign for the shape of the US economy in general. Auto sales are often viewed as a gauge of consumer confidence--since people tend to buy new cars when they are optimistic about their financial situation. Thus, weak growth and outright declines among most manufacturers appear to be one more data point that suggests an economic contraction may be on the horizon.

Speaking about these lackluster results, Ford executives indicated that they believed auto sales have reached a plateau. They clearly intended that to be a positive spin, but Zero Hedge points out that there might still be cause for concern:
That's the crazy thing about "plateaus" there's a cliff on both sides.
Read more on these numbers in Zero Hedge's write-up.

EU Attacks Apple and Ireland on Taxes
As part of an ongoing effort to stamp out whatever life remains in the European economy, the European Union recently declared that Apple owes billions of euros in back taxes to the government of Ireland. Ironically, said government of Ireland is apparently joining Apple in an effort to fight the ruling.

The dispute stems from the fact that Ireland, an EU member, has made the conscious decision to establish a very friendly tax environment, featuring a mere 12.5% corporate tax rate (as compared to 35% in the US at the federal level). In fact, various incentives and other carve-outs in the tax code meant that Apple had to pay an effective tax rate of just 0.005% to Ireland.  As a result of such policies, it's no surprise that many large corporations including Apple have chosen to move parts of their organization to Ireland in order to take advantage.

Understandably, the EU claims that corporations in other EU countries can't compete against companies that face such a low tax burden. This is likely true, but it is actually an argument in favor of Ireland's system. If companies with significant Irish operations are more successful and competitive, this is clearly a good thing for the Irish economy in general. But instead of encouraging other EU members to become more like Ireland, it is trying to coerce Ireland to drag itself down.

It's an open question whether the EU's coercion will prove successful, however. And over at the Foundation for Economic Education, Dan Sanchez makes a hopeful case that this dispute might pave the way for an "Irexit" out of the EU. Read his take here.

Israel Approves New Settlements in the West Bank
Continuing a long trend, Israel announced approvals of more settlements in the West Bank this week. As usual, it drew moderate criticism from the US State Department, though even the government sources that spoke to Reuters acknowledged that the underlying policy will remain the same.

And that US policy is an odd mixture of annoyed tolerance on the one hand and unconditional financial support on the other.

Settlement building is really just a euphemism for slow-motion colonization. Or, if one prefers a more modern term, the policy amounts to large scale eminent domain, implemented primarily on ethnic grounds. If that sounds awful, it should. Settlement expansion involves the government of Israel expropriating land from Palestinians in the West Bank and transferring it to Jewish citizens for development. The government of Israel then provides extensive security for these settlements.

The West Bank was conquered by Israel militarily in 1967 and has been occupied militarily ever since. Of course, not even the radical Israeli government would claim that superior firepower is a legitimate basis for claiming property rights. Instead, the ostensible reason settlements are legal is based on religion and collective historical property rights. As Reuters puts it (emphasis added):
Israel, which captured the West Bank in a 1967 war, rejected the criticism by Nickolay Mladenov, the U.N.'s special coordinator for the Middle East peace process. It said Jews had lived in Judea, the biblical term for the West Bank, for thousands of years.
So in this vein, the Israeli government isn't stealing land from Palestinians; rather, they are restoring the property rights of long lost heirs. You know, just like John Locke would have wanted them to.

If we take for granted that Jewish peoples of some sort did live in the West Bank decades and centuries ago, this point is still irrelevant for determining property rights today. To believe otherwise leads quickly to absurdity.

For instance, my last name is German, and presumably, at some point before my ancestors saw fit to drop the umlauts, some of them lived in or around Germany. That said, it is clearly not reasonable for me to show up in Germany today at an immigrant's house and demand their keys. While some of the specifics differ, Israel's justification for settlement expansion and eminent domain in the West Bank is not fundamentally different from this.

That's why this policy of the Israeli government should be criticized. And if the US criticism were sincere, it would also involve cutting off the billions of dollars provided in foreign aid to Israel each year. But with Hillary or Trump in the White House, we should probably shouldn't get our hopes up.

Thursday, September 1, 2016

September 1, 2016

Hillary Clinton Channels Republican Foreign Policy in Speech to Veterans
In an anticipated speech to the American Legion in Cincinnati, Ohio, Hillary Clinton continued to strike a hawkish tone on US foreign policy. This was not unexpected, but it should be depressing. On the whole, it is safe to say that Clinton is positioned to the right of Donald Trump on matters of war and peace.

If you care about US foreign policy, that's bad news. Between the two major party candidates, we effectively have a choice between a candidate in Clinton who is predictably pro-war and a candidate in Trump who is not predictable at all, on everything except Russia (which he is thankfully decent on most of the time).

So what exactly did she say? Well, it involved some cringe-worthy nationalism that used to (and still should) make folks on the left squirm. Like this gem:
We are an exceptional nation because we are an indispensable nation. In fact, we are the indispensable nation.
Got that? We're the best country in the world, and not only that, the world needs us. At this point in history, however, one wonders whether the world feels the same way about us...

The speech also involved some completely disingenuous rhetoric for good measure:
We can't cozy up to dictators.
Apparently a swipe at Trump, this is actually a much better attack on Clinton herself. As one of many examples to choose from, she once famously referred to the (now former) dictator of Egypt and his wife as "friends of my family".

For more on the speech, check out this write-up from Daniel Larison at The American Conservative.

New Trump Immigration Speech Same Unworkable Policy
In related news on the campaign trail, Donald Trump gave a major speech on immigration. Some were expecting a softening of his previous proposals, but that's not what they got.

Instead, Trump stayed firm on the idea that amnesty would not be granted and the "beautiful" wall will go up. The only real nuance was added by omission. Trump reiterated his pledge to deport illegal immigrants who happen to be criminals (I.e. broke laws other than immigration ones), but he did not spell out his plan for dealing with the remaining undocumented immigrants, estimated to be around 11 million.

The hardline conservative position on the matter is to deport all of them, but this is mistaken on several levels. First, it's clearly wrong from an ethical perspective. Illegal immigration, as such, is a perfect example of a victimless crime. The harm caused by someone from Mexico moving to Texas is no different than a California resident moving to Portland, where I live. In both cases, the harm is zero. It's possible they could receive more government benefits than they pay in taxes, but if you are concerned about that, the solution lies in reducing the welfare state not deporting immigrants. Similarly, it's possible some undocumented immigrants may steal or commit violent acts. But these things are already illegal--and again, problems that are in no way uniquely caused by immigrants.

Moreover, even if one rejects the moral argument, deportation is so obviously impractical that it's odd we even discuss it. If the undocumented immigrants made up a country, it would be roughly 1/3 the population of Iraq. But instead of trying to simply occupy it, the goal of a mass deportation plan would involve rounding up every single one of them, presumably against their will, and transporting them elsewhere. The expenses associated with such a program are difficult to imagine. More importantly, the expansion of government police and surveillance powers needed to implement such a program would surely erode the liberties of all Americans--not just the immigrants being targeted.

In spite of these obvious flaws, however, it appears Trump and the media are content with pretending this is a real policy consideration. Fortunately, the rest of us know better. No matter what he says, Trump isn't going to deport 11 million immigrants, because frankly, there's virtually no way he could pull it off even if he wanted to.

For more on this story, check out this take from CNN, which offers a reasonably fair summary of Trump's speech as well as his recent visit with Mexican President Peña Nieto. Happily, the latter event ultimately proved to be oddly civil and uneventful.

Large Container Shipping Company Declares Bankruptcy
In a move that is likely to have major ripple effects, the international container shipping company Hanjin Shipping filed for bankruptcy this week. According to Zero Hedge, this is the largest bankruptcy for a container shipping company in history.

The immediate fallout is likely to be substantial, as the bankruptcy filing process is likely to disrupt shipments that were in process. This occurs because ports may not allow them to dock if they are unsure Hanjin ships will still be able to pay fees.

In the slightly longer term, the bankruptcy is likely to make a substantial dent in the balance sheets of the banks that lent to it, given the size of the company. The exact magnitude and distribution of this cost will be evident as the bankruptcy process proceeds.

Finally, perhaps the most important aspect of this story is what it says about the state of the global economy. The profits of the container shipping industry rise and fall with the global economy since they are the key intermediary for international trade. If the economy is doing well, more goods are shipped, and the container shipping industry performs well. When times are bad, the container shippers are among the hardest hit.

It is possible that Hanjin is just a one-off occurrence, and its bankruptcy stems from poor management. However, it seems more likely that their failure is further evidence that the global economy is very weak, even if Janet Yellen and the Fed would like to protest otherwise.

For further details on this, check out the main write-up at Zero Hedge here and a follow-up piece indicating several Hanjin ships have indeed been stranded off the California coast.

Wednesday, August 31, 2016

August 31, 2016

Another US Hack Blamed on Russia, Of Course
There's another political hack story in the news this week. This time the target was the voter registration systems of Illinois and Arizona.

Since it's a political hack story, it's naturally being blamed on Russia. Apparently, US politicians are under the impression that the long-deteriorating relationship with Russia has not quite been tense enough. Thus, they feel perfectly comfortable making strong accusations without meaningful evidence.

For more on this story, read Antiwar.com's write-up, which explains that this is all just the worst form of electoral politicking. You can also check out our related article, out today, which makes a humble request to the Clinton campaign and the US media:

Hillary Clinton Deleted Emails Related to Benghazi Scandal
In spite of the FBI's decision not to prosecute Hillary (which wrote about here), the scandal surrounding her email server is alive and well.

That's because new shady information comes out about it seemingly every day. You can be forgiven if you're no longer shocked by any of it (or if you're bored by all of it). But with that disclaimer, the story that broke today is still worth your attention.

According to the State Department, as reported by AP, the FBI investigation recovered some 30 emails related to the Benghazi attack that killed a US ambassador in 2012. And critically, an "undetermined number" of these emails was not turned over by Clinton to the FBI for the purposes of the investigation. Instead, they were apparently deleted, either before the investigation occurred or as part of the "personal" emails.

This is a big deal. The Benghazi scandal is what Republicans were attempting to investigate when the private email server was discovered. Thus, it's virtually impossible to claim emails related to that scandal were legitimate to delete. We've also written previously about the Benghazi scandal itself, noting that it was really a distraction from the larger issue of the Libyan War. Still, it was a legitimate thing to investigate and Clinton was required to fully cooperate with that investigation. This latest report suggests that she and her team may have obstructed that investigation, and the investigation into the email server itself, more explicitly than previously understood.

64 Legislators Sign Letter to Delay Arms Deal for Saudi Arabia
In better news, 64 House members have signed a letter to President Obama to delay finalizing a recently announced arms deal with Saudi Arabia. In the letter, they specifically cite concerns about the ongoing atrocities being committed by the Saudis in the Yemen War, which you may recall, is a war to reinstall a dictator friendly to Saudi Arabia.

The United States Government has been supporting the war to appease its allies in Saudi Arabia, in spite of its clearly anti-democratic purpose and the immense suffering it has caused. This has included rhetorical support (if the issue even comes up, which is rare), and outright logistical support for the Saudi air force. That's why it's good news that there's some pushback on US efforts to provide even more support for the Saudis as they continue to prosecute the war in Yemen.

Granted, 64 isn't a majority. And they aren't trying to stop the arms sale outright yet or block explicit US support altogether. But it's a start.

Also, lest we be accused of hypocrisy, we should note that this situation is markedly different than the arms sanctions imposed on Iran, which we discussed and opposed earlier this year. The reason to oppose new arms sales to Saudi Arabia is because it's currently engaged in a brutal and baldly illegal aggressive war. The goal is to cut off supplies in the hopes that the aggressor might run out of supplies needed to keep the war going. If Iran was engaged in a similarly aggressive act, then we would oppose arms sales to them also. Right now, they aren't. (Iranian participation in the Syrian and Iraqi civil wars is in collaboration with the respective governments.)

Read Daniel Larison at The American Conservative for more on this story.

Please Get Your Russia Conspiracies Straight

Another public hacking episode is in the news this week, and naturally, Russia is being blamed for it.

Not that there appears to be much evidence as of yet that Russia is truly responsible. And such evidence is unlikely to be found, even if they did do it. Hacking cases are notoriously difficult if not impossible to definitively attribute. And attribution becomes even more unlikely if you're assuming the hackers have the effectively unlimited resources of a nation-state to fund very sophisticated attacks.

This all leads to a kind of Catch 22. Either Russia's state hacking apparatus is extraordinarily formidable and advanced--in which case, their culpability is not likely to be proved. Or, they are incompetent fools who can't even cover their own tracks--in which case, how much of a threat could they really be? Which one is it?

Sadly, that's not the only cognitive dissonance going on here.

The target of the latest purported "Russia" hacks was two state voter registration systems. This fits well with the useful campaign narrative that Putin is trying to manipulate the election to favor Donald Trump. But a moment's thought reveals that this story has contradictions of its own. On the one hand, we are told that we must fear the recklessness of Donald Trump and be appalled at the idea he would have control of nuclear weapons. But on the other hand, the reckless Donald Trump is also allegedly a "puppet" of Vladimir Putin, the leader of the other nuclear country that the US is most likely to exchange nuclear weapons with. How do we possibly reconcile this?

To believe both of those ideas simultaneously is to believe that Russia is trying to manipulate the elections in Donald Trump's favor, so that once elected, Donald Trump will start a nuclear war against Russia. Sure, no one ever says it like that. But if you believed both narratives that the Clinton campaign advances, that's where you end up. Hopefully, you don't need me to tell you that is crazy.

Thus, we have a humble suggestion. If you're going to demonize Russia, ideally try to use some actual facts. But if you can't muster that, at least get your conspiracy theories straight. It would save the rest of us a lot of needless frustration.

Tuesday, August 30, 2016

August 30, 2016

The Rest of What Colin Kaepernick Said
Last Friday, a new scandal erupted when San Francisco 49ers Quarterback Colin Kaepernick remained seated during the national anthem before a preseason game. Interviewed later, Kaepernick said it was a deliberate act of protest. And the reason for his protest that was most widely reported was about racial inequality, specifically his comment that "not going to stand up to show pride in a flag for a country that oppresses black people and people of color."

Thus, the controversy fell along familiar racial lines. Conservatives get to be outraged that someone would not be proud of their government and its symbols. After all, what could be more un-American than not showing blind loyalty to a government one finds oppressive? If only we had some kind of national precedent for protesting an unjust form of government...

Meanwhile, progressives could rejoice in the fact the issue of racial injustice was in the news and most--if football fanaticism didn't take precedent--surely supported him. However, it must have been a hollow joy. Because while it was getting attention, a significant portion of that attention amounted to a collective eye-roll.

The outcome for all concerned might have been considerably better if the media had decided to report the rest of what Kaepernick said. In fact, while concern about racism was part of the message, it was probably not the most interesting part. In particular, this is what he had to say about the presidential election--and what's notable is that his contempt was decidedly bipartisan in nature:
You have Hillary who has called black teens or black kids super predators, you have Donald Trump who’s openly racist. We have a presidential candidate who has deleted emails and done things illegally and is a presidential candidate. That doesn’t make sense to me because if that was any other person you’d be in prison. So, what is this country really standing for?
One might think it would be an important news story when a black celebrity, who's in the news for political reasons anyway, decides to call out Donald Trump and Hillary Clinton for being racist. But instead, the news focused on a comfortable, simpler narrative without that nuance.

Read more about Kaepernick's interview at Zero Hedge.

More US Allies Committing Atrocities
Reuters is reporting that the Shi'ite militias that the US backs in Iraq engaged in a series of atrocities after capturing Fallujah from ISIS. Fallujah was an overwhelmingly Sunni city, and the Shi'ite militias apparently tried to get revenge on many Sunni civilians. According to Reuters, the violence involved hundreds of victims and the use of both torture and execution. The exact death toll is uncertain, however, as nearly 700 people remain missing.

This story should be a reminder that, as we often say, there are no good guys in a civil war. The longer they drag on, the more brutal all parties to the conflict tend to become as more moderate and peaceful people flee or die in the cross-fire. This is also an excellent reason for the US not to intervene on any side. Any other course of action will invariably lead us to support atrocities in some form.

Read the quick summary from Antiwar.com on this story, or the full report from Reuters.

Instant Runoff Voting on the Ballot in Maine
Closing with a more optimistic story today, The Intercept is reporting that voters in the state of Maine will get the chance to vote on a election process in November. The proposal is referred to as Instant Runoff Voting, and it's nice because it effectively removes the "wasted vote" excuse for voting for a Republican or Democrat when you actually prefer someone else.

We've previously written at length on why the "wasted vote" excuse is nonsense in the first place. But since, sadly, only a small portion of Americans are regular readers of The Daily Face Palm (for now), we're delighted to see formal, structural solutions to the problem emerge.

The basic idea is that voters rank their choices of candidates, so that if their first choice can't win a majority, then perhaps their second choice will. So instead of a vote for Johnson being a vote for Trump / Clinton (depending which party is warning you), it would make formally ensure that a vote for Johnson is only, well, a vote for Johnson. That's how it should be. In practice, it sounds like the legislation will only apply to statewide elections at first not the presidency, but still it could be a big step.

Read The Intercept's full article for more on this system and the background on Maine politics. Naturally, they approach the story from an overtly progressive lens, but the content is still good. And the fact is that this system, if implemented, would likely help minority ideas of all sorts, right, left, and libertarian.

Monday, August 29, 2016

August 29, 2016

Fed Continues To Pretend Obviously False Thing Is True
In a dramatically over-hyped meeting in Jackson Hole, Wyoming last week, the leaders of the Federal Reserve met for an annual symposium. Naturally, Fed Chair Janet Yellen was the one everyone was focused on, and her talk was decidedly ambiguous--which is what we've come to expect from the Fed in recent years.

Perhaps the most important line in her speech was her note that the Fed could consider purchasing "a broader range of assets". This is an indirect way of saying the Fed could consider buying corporate bonds and potentially stocks, instead of just government bonds to stimulate the economy with quantitative easing (which is money created out of nothing). This program has already been implemented by both the Bank of Japan and European Central Bank, and it's a truly terrible idea. In essence, it amounts to directly transferring wealth from the general public to people invested in the stock and bond market in order to prevent stock market from falling. Thus, not only does such a program explicitly prop up asset bubbles (which most of us frown upon), it also amounts to a wealth redistribution program from the poorest people (those with little or no financial investments) to the rich (who hold many such assets).

Fortunately, the Fed contends that this awful idea is merely something that should be considered and researched for the future, rather than something they are actively contemplating in the present. That said, we should have little doubt that they will attempt to implement this policy when the next recession strikes.

The other notable aspect of Friday's speech is that Yellen stated that the case for a rate hike is "strengthening". And in case the market didn't get the message, Fed Vice Chair Stanley Fischer noted in an interview that Yellen's comments were "consistent with a possible September hike".

Here, the Fed is once again pretending that 1) the economy is strong enough to tolerate a rate hike without chaos and 2) that it's confident enough in this, that it will risk hiking rates a month before the election. Of course it is possible that the Fed drinks its own Kool-aid, but this should be viewed with a heavy dose of skepticism. The behavior of the stock market in the last three months prior to a presidential election has an uncanny correlation with election results--if the stock market is rising, the incumbent party wins; if it's falling, the opposition party wins. This has been true 86% of the time, dating back to 1928.

No doubt, the Federal Reserve is also aware that the shape of the stock market has a significant impact on the presidential election as well. And that's why, despite their repeated protestations to the contrary, they probably are not foolish enough to raise rates in September. Time will tell.

Reason Triumphs A Little in Illinois Pension Debate
Last week, we discussed the precarious situation of the Illinois Teachers' Retirement System (TRS) pension plan, and the ongoing feud about the assumed rate of return.

Basically, the politicians wanted to keep the assumed rate of investment return high because it makes the pension plan look better than it really is. This, in turn, means the state government doesn't need fork over millions of dollars to the pension fund right away in an effort to keep the fund afloat. And because Illinois already has major budgetary issues, this is a very big problem for the politicians.

There's been an update on this story, and incredibly, reality triumphed over political imperatives. That doesn't usually happen.

Specifically, the TRS lowered its assumed rate of return to 7.0% from 7.5%. This is still very unrealistic, but it is slightly less unrealistic. That's still a win.

This development is good news if you're a TRS pensioner because it means the government will have to contribute more money to the plan and your pension payments won't run out quite as soon. If you're an Illinois taxpayer on the other hand, a new round of financial pain is about to start forthwith.

Turkey Invades Syria
The cluster that is the Syrian War got even more complicated last week when Turkish troops invaded Syria to participate in the assault on Jarabalus, in the country's north. ISIS was holding Jarabalus prior to the assault, and apparently, most of the ISIS fighters fled in the face of overwhelming firepower from the Turkey's troops and the rebel groups that they accompanied.

The immediate goal of the assault was about getting rid of ISIS, and that was one of the effects. However, the more important purpose of this attack was that Turkey wanted to prevent the Syrian Kurds from expanding their territory along the northern border. Readers will recall that the US backs the Syrian Kurds and even has special ops troops embedded with some of them; however, Turkey views the Syrian Kurds as a major threat.

Thus, the practical effect of the new Turkish intervention--which expanded to more villages over the weekend--is create even more fault lines in the Syrian conflict. The US and Russia back the Syrian Kurds, and now Turkey is directly confronting them. Turkey is on-board with fighting ISIS, along with Russia, Syria, and the US. Turkey also backs other Islamist rebels that are fighting Assad; the US is broadly on board with this policy, but Russia staunchly opposes it. Any one of these tensions could quickly lead to escalation, and that's why it's alarming that Turkey just added one more.

The only good news is that there's a new round of peace talks this week that hold more promise than most; here's hoping the US is finally willing to give up on regime change so a real ceasefire can be reached.

Read Patrick Cockburn for an in-depth take on the latest developments.

Thursday, August 25, 2016

EpiPen Price Hikes Are a Product of Government Failure, Not Market Failure

The EpiPen price hike story is tailor-made for political outrage. It involves a large for-profit corporation, a life-saving device, triple-digit price hikes, and as usual, poor people and their children are the ones that suffer the most.

For many people, it's a textbook example of market failure that demands government intervention.

In fact, it's a perfect example of government failure, and the best solution will be found in freer markets, not increased regulation.

Before we get to the economics of it, it's worth rehashing the basics of this scandal.

The EpiPen is used to treat life-threatening allergic reactions on the spot. It works by delivering a preset dose of the drug epinephrine. The tool is simple enough that even people who are panicking during an allergic reaction can self-administer the medication they need. It's a great idea, and it's been around since the 1970s. Epinephrine has also been around for some time, and is available in cheap generic forms today.

The problem is that one company, Mylan, owns the rights to the EpiPen device, and it has had a near-monopoly on the market. Thus, depending on where you read it, the price of the EpiPen has increased by 400 or 500 percent since around 2007. Given the critical nature of the device for people with serious allergies, these price hikes have not been too popular.

But this is where economics comes into play. Companies don't raise prices in a vacuum, and precious few could manage a four-fold increase and live to tell about it. If companies are raising prices dramatically and still making money, one of the following must be true:

  1. Their product is perceived to be so much better than the competition that their customers are willing to pay more. (Think Apple vs. PC.)
  2. Their product, and the underlying resources are in very short supply, and all companies in the industry are being forced to raise prices as a result. (For instance, this can happen for building materials after a natural disaster takes place.)
  3. Or more commonly, the company has little to no competition. And the government is keeping the competition out.
This last scenario is what accounts for the EpiPen's meteoric price rise.

In particular, the Food and Drug Administration has to approve any competing product before it can be sold in the US. And getting products approved by the FDA is a notoriously time-consuming and expensive process. As Reason notes, many companies are trying to compete in the epinephrine injection market, and the FDA has blocked most of them.

Meanwhile, the one product that has been approved by the FDA, Adrenaclick, has also been subtly sabotaged as a meaningful substitute. How? The FDA made it illegal for pharmacists to substitute a different version of the epinephrine injector for the EpiPen unless explicitly called for by the prescribing physician.

In other words, there's a reason that Mylan has been able to raise the price of a life-saving technology by 400 percent over the past decade. And that reason is government, not capitalism.

The Story and the Snapshot
The EpiPen is a new story, but in some ways, it's just a new version of the same story. It goes something like this:
The government steps in to regulate the market in order to protect consumers. 
These regulations have unintended consequences, and serve to restrict the amount of competition and supply in the market. 
Prices rise as a result.
Consumers complain about the price increases, and government introduces subsidies or other programs to offset the cost. Invariably, some consumers will fall through the cracks and find themselves without any access to the product they want or need. 
Even if we assume the best, purest intentions of government at every step of the way, the above story is still the likely result. The government starts with a good intention and ends up harming the very people it aimed to help. Of course, if we assume any corruption exists, the result deteriorates further.

It is near the last stage in the process above that these stories go viral, with politicians and everyday people starting to take note. 

And at this stage, all that gets reported is a snapshot--prices are extravagant, consumers are suffering, and usually, some corporation is making a lot of profit off all of it. And in that snapshot, capitalism really does look like it's at fault. Calling for more government intervention is the default response--after all, capitalism failed right?

But when we look beyond the snapshot, we see that capitalism is just the scapegoat for failed government policies. And if government intervention got us here in the first place, it's not likely a new intervention is going to provide the cure.

Wednesday, August 24, 2016

How Political Incentives Ensure a Pension Collapse

The State of Illinois just offered a wonderfully explicit example of how political incentives can lead to financial ruin.

The topic at hand was one of the state's numerous government pension funds--the Teachers' Retirement System (TRS). And like most, if not all, government pension programs, this one is deeply underfunded. As it stands, the pension fund's assets are estimated to cover just 42% of its obligations.

In essence, this means that under current assumptions about workers' life expectancy, future benefit payments, future investing returns on the pension assets, and future government contributions to the pension fund, the plan would have to start paying 42 cents on the dollar to pensioners right now in order to be sustainable in the long term. That gives you some sense of how bad things are.

But in reality, however, things are actually much worse.

The problem is that at least one of the assumptions used to calculate the pension's status is entirely implausible. The TRS assumes that they will earn an average 7.5% investing return on its funds. But the Federal Reserve's aggressive monetary stimulus efforts have pushed interest rates and bond yields to extremely low levels. And rates have stayed that way for years on end. For example

All of this has severe negative ramifications if you're a pension fund that invests in bonds to provide a safe and reliable return. As of this writing, even long-term US government debt like the 30-year Treasury yields a mere 2.24% return, and corporate debt doesn't offer much higher returns. Thus, in the current environment, pensions can no longer count on earning a 7.5% return with an acceptably low level of risk. But when the pension accountants go to calculate just how deep in the hole they are, this reality is forgotten. The accounting assumes the fund pension will continue to make 7.5% in spite of the fact that it has no realistic chance of doing so.

And this is where politics come into play. A growing number of analysts and observers are starting to note the obvious--that it is clearly absurd for pensions to assume a 7.5% return. Some have suggested a more modest figure like 4% would be much more credible and achievable, and honest, for anyone who cares about that.

But if this reality were acknowledged for a pension like the TRS, then the government would be obligated to contribute dramatically more funds to the pension to try to make it sustainable. This means higher tax rates or less spending in other areas--neither of which are going to be politically popular.

Thus, the governor of Illinois, Bruce Rauner, is trying to do everything in his power to kick disaster down the road, and presumably beyond his tenure as governor. There's nothing especially novel about a politician trying to ignore reality and delay negative consequences. But this case is still exceptional for just how bluntly they are willing to explain this rationale.

As Reuters reports, a senior adviser wrote a memo on the TRS pension situation, which included the following:
If the (TRS) board were to approve a lower assumed rate of return, taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services.
And so, Illinois' Senate Minority Leader Christine Radogno proposed a bold political solution. Just kidding. Here's what she said:
This issue is important enough at the very least to put the TRS board on notice [that] we don’t want them taking any action that could cost taxpayers $200 to $300 million without appropriate scrutiny.
In other words, the TRS needs to continue to pretend that all is well with its investments, so that Illinois isn't forced to take action to address the problem now.

Of course, a compelling case could be made that the pensions in Illinois are already well-beyond saving. But what this latest exchange shows us is that even if they could be saved, mathematically and economically, it will always be impossible to save them politically.

Faced with the current pension crisis, the right response economically is to start acknowledging and addressing the problem as soon as possible. That would allow the financial pain, to pensioners and/or taxpayers, to be spread out over a longer time frame and could avoid an outright collapse. But the right response politically is to deny a problem exists to avoid causing voters any pain until the problem is too big to ignore (or fix).

In a case where rational long-term decision-making could produce a softer landing for the pension problem, politically motivated decision-making all but ensures the problem will end in full-on collapse.

It's true for Illinois and it's true for Social Security. It's not because the politicians are bad or stupid (though they may be). It's just that their incentives are wrong.

We can't trust people with short-term incentives to make good long-term decisions, yet that's what government pension programs ultimately require. Thus, we should not be surprised to see them slowly, tragically crumbling all around us.

(For readers interested to read more about this story and additional context on the Illinois pension crisis, this summary from Zero Hedge offers an excellent analysis.)

How Government Helps Perpetuate Poverty

Poverty may be the worst thing that conservatives and progressives agree on.

It's not on policy, mind you. But their policy proposals are both motivated by same basic assumption about what causes poverty--namely, the ignorance and incompetence of poor people themselves.

Some may surely bristle at this description, so it's useful to see how this concept is evident in the ideas that are explicitly advanced by both conservatives and progressives.

Conservatives tend to assume that poor people are poor because they make bad life choices. Maybe drugs, maybe having sex and getting pregnant too early, or maybe just spending more than they can afford to. And from this, conservatives often conclude we need not use government policy to help poor people. After all, they brought it on themselves, so how can we hope to save them from their own bad choices?

As appalling that position may sound, the progressive take is not really much better. Painting with a broad brush, progressives generally believe poor people are poor because an array of systemic forces stand in their way of a better life. They aren't wrong about this, but they are wrong about what those forces are.

Usually, progressives view the poor as a victim of the capitalist system, and every business they interact with is hellbent on exploiting them. Employers want to pay them too little, landlords want to charge them too much, and grocery stores probably want to sell them junk food--culminating in the relatively new issue of food deserts.

But notice what the progressive story also entails. In a capitalist system, people can't be (legally) exploited without their consent. What progressives are often ultimately saying about poor people is that they don't know what's really in their best interest.

Splitting a flat with another family might be necessary to save on the cost of rent. But it would be too degrading to their dignity so it shouldn't be allowed; city planning codes can make it illegal to solve this problem. This may make housing too expensive, no matter. No matter, we'll have the government depress interest rates and build affordable housing to fill the void.

Working overtime might help poor people make ends meet. But as we know from Mr. Sanders, progressives believe that if you work 40 hours a week, you should earn enough to not be in poverty. Thus, employers should be punished for making anyone work more than that and they are--in particular, employers have to pay time and a half for every hour above 40 per week. This seems like a benefit to the worker, but in practice, it serves to eliminate choice and flexibility. If the 41st hour of the week costs 50% more than other labor, employers will be reluctant to pay for it. So poor people who need to work more than 40 hours to get by may need to find a second job instead, since working overtime has become artificially expensive for employers and that much harder to find.

Not to worry, this has a solution too. If working 40 hours isn't enough to get by right now, then we just need to raise the minimum wage. And so on, and so forth.

Each progressive intervention creates problems that warrant new interventions to solve them. But the root cause in all of it is the same. Poor people are not smart enough to make good decisions for themselves--what wage is appropriate, how much they should work, how they should live, etc. Instead it's up to the high-minded and selfless progressive to craft policy to make certain unsavory choices illegal--thereby preventing the poor from being exploited.

Thus we see that, while the motivations and policy prescriptions may differ markedly, the fundamental assumption about poor people is the same for many conservatives and progressives alike: poor people are poor because they don't act in their own best interest. For conservatives, this is a justification for doing nothing at all, a defense of the status quo. For progressives, it's a justification for an endless series of interventions in the economy designed to help the poor, without regard for likely consequences.

Libertarians take a different approach.

Broadly speaking, we agree with progressives that there are a myriad of systemic forces that exist today that help keep people in poverty. The problem is that we believe most of those forces are the creation of government, not of capitalism.

We believe that poor people are in the best position to decide what is right for themselves. And each intervention that restricts their choices, no matter how well-intentioned, is likely to make them worse off.

To see exactly how this phenomenon manifests in practice, we recommend this excellent article from Charles Johnson at the Foundation for Economic Education. In it, Johnson shows how well-meaning policies on everything from housing to food safety have created a world where it is extremely difficult for poor people to get ahead or even get by. It's an essential read for anyone who cares about these issues.

Here's the link:

Scratching by: How Government Creates Poverty As We Know It

Monday, August 22, 2016

US Declares De Facto No-Fly Zone in NE Syria

Without debate and with little fanfare, the US has announced a major escalation in the Syrian conflict. In a move pregnant with disaster, the Pentagon has declared an "exclusion zone" over a part of northeastern Syria around the town of Hasaka.

This is an extension of a dangerous development over the weekend in which the US scrambled fighter jets to intercept Syrian planes that were attempting to bomb targets in Hasaka. That episode did not see any shots fired between the planes. However, with the new announcement, it is possible that future encounters could result in dogfights between US and Syrian warplanes. And since Syria is backed by both Iran and Russia, this would be a major progression of the indirect proxy war going on currently.

All of which might have a reasonable person wondering why any of this is occurring? Why did the US escalate the conflict, and why now?

The answer from the Pentagon is... self-defense. That's not a joke. Here was how Pentagon Spokesman Peter Cook explained it:
Our warning to the Syrians is the same that we've had for some time, that we're going to defend our forces and they would be advised not to fly in areas where our forces have been operating.
Seen in isolation, that statement sounds sort of reasonable. But in context, it is not at all.

What Cook is referring to is the open but little-discussed fact that the US has special operations troops on the ground in Syria. These troops are embedded with a Syrian Kurdish faction called the YPG, which is generally regarded as one of the US's more reliable allies in the fight against ISIS. And for the most part, the YPG has kept its focus on ISIS. Partly this may have been a matter of priorities, but it could also be explained by geography. The Kurdish forces are located primarily in the northern parts of Syria, and so most of the adjacent territory is held by ISIS rather than forces affiliated with the Syrian government. Thus, they are usually pitted against ISIS in the current conflict.

Hasaka, however, is the exception to the general rule above. Here, the YPG and the pro-government forces had generally split control of the city with relative peace, but fighting broke out in recent days.

It's not clear who started the fighting, but it is clear that the fighting has continued for multiple days. And because US special operations troops are embedded with the YPG, this means the US forces are now engaged, directly or indirectly, with forces aligned with the Syrian government.

While US proxies of some description have been engaged against the pro-government troops routinely in other parts of country, to my recollection, this is the first time a force that contained US troops was fighting directly against the Syrian regime or its partners.

And that's how we get to the pretense of self-defense advanced by the Pentagon. In an overt violation of Syrian sovereignty, international law, and the US Constitution, the US sent some 300 troops into Syria to embed with an insurgent group. This group is now fighting pro-government forces. And so the US is declaring that it will shoot down Syrian warplanes who attempt to bomb the insurgent group.

To put a finer point on it, analogies are always helpful. Of course, it's somewhat silly to speak of another country invading the US, but please humor me. Imagine the Vermont secession movement took an inexplicably violent, imperialist turn and sought to conquer the rest of New England before breaking away into an independent country. Ever interested in revenge, suppose Russia backed this secession movement and embedded some of its own elite officers within New England to help them out. Next, the US attempted to conduct airstrikes against the secessionists only to be threatened by Russian fighter jets. And Russia declares an "exclusionary zone" over the conflict area in order to "defend its forces".

That is the equivalent of the US position in Syria right now. First, we invaded, then we got in a battle with government forces, and now we are claiming self-defense. It is equal parts reckless, ridiculous, and illegal, and it is the official US policy in Syria.

This is how conflicts spiral out of control.

Newly protected from government airstrikes, the YPG is less likely to pursue a ceasefire in Hasaka against government forces. The Syrian government is similarly unlikely to surrender more territory without a fight, for fear of establishing precedent. And the US is unlikely to back down from this new policy, for fear of the domestic political fallout. (Can't you just imagine the ready-made attack lines--"The Democrats abandoned our allies on the ground in Syria, so they could appease Assad and the Ayatollah of Iran!")

The end result is an incredibly combustible situation. And if and when it explodes, there's little doubt that American politicians will breathlessly decry it as an act of aggression by the other side.

Sunday, August 21, 2016

Iran "Ransom" Scandal Is Back...and It's Still Nonsense

The purported Iran "ransom" scandal is back in the news after the State Department confirmed that it didn't allow Iran to take possession of the cash until the release of the American prisoners was confirmed. The State Department called it "leverage" while anyone looking for a reason to disparage Iran or President Obama calls it "ransom". The question is who is right?

When this story first broke, we argued that the whole issue was much ado about the nothing. In spite of the latest news, that assessment still stands.

To see why, first it is important to clarify the definition of ransom. Wikipedia uses the following definition, which seems appropriate: “Ransom is the practice of holding a prisoner or item to extort money or property to secure their release.”

Assuming the payment of $400 million was a prerequisite for the prisoner exchange to occur, as it now appears, a very narrow interpretation of the facts would call it either ransom or a bribe. Arguably, since prisoners were released on both sides rather than just from Iran, the payment would be more of a bribe to ensure the transaction took place. However, given that bribing a foreign government and paying ransom to it, are similarly blameworthy, this distinction is not critical. What matters is whether the payment truly constituted either in any meaningful sense. I would argue it does not.

The reason is that the US already acknowledged that it owed this money (and more) to Iran. This is critical. The connotation of ransom is that the kidnappers are trying to get money that does not otherwise belong to them, thus making it akin to theft. Obviously, the average criminal doesn’t kidnap for the purpose of trying to collect a legal debt that already exists. That would be absurd.

When I make my mortgage payment to US Bank, I’m not being extorted. It’s true that if I did not pay, they could eventually foreclose on the house and evict me. However, we don’t consider it extortion because there was a debt involved. Meanwhile, if criminals threatened to seize my house unless I paid them, this clearly would be extortion. The question of whether a debt existed beforehand is fundamental. And just as we don’t think it’s extortion when a legal debt is involved, it seems we shouldn’t think of it as ransom if the payment in question is, in fact, a repayment of funds that were already owed.

Based on this, one of two conclusions on the latest Iran scandal could be warranted. If one believes the debt involved to be legitimate, then the Obama Administration’s actions in the negotiations itself are not problematic. The US paid a debt that was owed; a prisoner swap ensued; and two longstanding issues that inspired hostility on both sides of the relationship—and thereby increased the chance for another needless war—have now been put to rest.

Alternatively, if one believes the debt in question is not legitimate and the US government did not owe any money to Iran, then the Obama Administration’s settlement is a problem, and constitutes either a bribe or ransom. In this case, the entire $1.7B that the US agreed to pay should be the amount that we object to. Unless we assume the US government will shirk on the unpaid balance, there is no reason to be up in arms exclusively about the $400 million paid in January.

If there’s an argument to be made about why the US did not owe Iran any money related to the old contract, then let’s hear it. Otherwise, it is difficult to understand why this should be a big scandal. Surely, the circumstances of the payment were cartoonishly suspicious (literally, flown-by-night), and the Obama Administration's shifting position on the story looks like a scandal--first, the negotiations on the debt and the prisoners were totally separate, and now we know there was some overlap. But the Obama Administration's failure to stick with a single version of events over the past few weeks does not change the facts of the underlying story. And that story is not a scandal; it is, instead, a very rare instance of diplomacy being used in the Obama years instead of coercion.

Also, it’s also worth noting that the $1.7B settlement is not a new story. The Wall Street Journal is (understandably) trying to play up the importance of their reporting, but all that’s new here is the timing and form of the payment—not that payments were going to be made. The settlement itself was widely reported back in January. So again, if we’re going to object, it seems like we should have been objecting to it in January, when the US agreed to pay the money, not just now that we learned some of the money was actually paid.

If you're a libertarian or someone else who supports peace, the knee-jerk criticism of the Obama Administration is somewhat understandable. It stems from a bias I share—namely, that if the Obama Administration did it, it’s probably awful. This bias has proven to be an extraordinarily reliable predictor in foreign policy over the past eight years, but it’s not right all of the time. And Iran is one of the cases where it's wrong.

Indeed, the Iran nuclear deal, and the side deals at issue here, is essentially the only significant foreign policy action President Obama undertook that moved the US closer to peace. US policies elsewhere in the region were an utter disaster for peace--a disaster that is still playing out to this day, in Afghanistan, Syria, Libya, and Yemen, to name just a few. But Iran is the one issue he ultimately helped improve. And he deserves credit for that, just as surely as he deserves to be impeached for overthrowing a sovereign government in Libya.

The point here is that there are plenty of legitimate and well-founded reasons to criticize President Obama. There is absolutely no need to manufacture scandals. 

Friday, August 19, 2016

The Obama Administration Did Two Great Things This Week

It appears to be legacy-polishing time at the White House. This is the time late in the second term where presidents start to recall the various terrible decisions they made over their tenure in office, and start looking to balance out the ledger so they'll still be remembered favorably. And since they aren't standing for reelection anyway, they tend to undertake actions regardless of their popularity politically.

For this reason, it's a time for both anxiety and cautious excitement, assuming there are at least a few issues where you share common ground with the president.

The goals of the legacy-polishing period are two-fold:

  1. To prevent any complete chaos or crisis from breaking out in the last days of your term, and
  2. To finally make progress on old campaign promises and pet projects alike.
We saw the first goal manifest itself in the renewal of the war in Libya last week--a war which even the Pentagon concedes is open-ended. The objective there, presumably, is to prevent ISIS from formally taking control of any high-profile city, at least until the next president is inaugurated.

While this is clearly terrible, there was also some genuinely good news to emerge. Interestingly, both items relate to prisons, which are not normally sources of hope and optimism.

More Releases from Guantanamo Bay
First up, reports emerged this week that the US had approved the release of 15 more detainees from Guantanamo Bay to the United Arab Emirates. This is the largest single release in the Obama years, and it brings the remaining population in Guantanamo down to just 61. Arguably even more impressive is that, according to The Washington Post, one of the detainees was slated for indefinite detention without trial.

Indefinite detention is an obviously illegal practice that is reserved for those detainees that the Administration has determined (without due process) to be "too dangerous to release" but impossible to convict. Although it probably won't be stated as such, the assumption here is that they wouldn't be able to convict them because some of the key evidence was derived through torture and thus wouldn't be admissible in court.

That's why it is particularly hopeful that a detainee managed to get off the "forever detention" list and actually get released. It's not clear exactly how many such prisoners remain at Guantanamo, but it's a win for due process that this dubious status is, at least in some cases, possible to be removed.

As with most decisions, there are risks associated with releasing prisoners, as there are with many political decisions. Many of these people have been tortured and denied their freedom for years by the American government. Frankly, it would be shocking if none of them hated America at this point, but the actual number of known violent incidents by former detainees is surprisingly small. In any case, the fact is that releasing people who cannot be prosecuted is still clearly the right thing to do. They may pose some danger to innocent people. But then again, a government that is empowered to incarcerate people indefinitely without trial poses a pretty strong danger to innocent people as well.

The End of Private Prisons, Sort Of
The second piece of great news is that Obama's Justice Department recently announced guidelines aimed at ending the use of private prisons for federal incarceration.

This is a big positive step. But it is more important symbolically than it is practically. The new guidelines do not do anything immediately; they merely instruct the federal government to either let contracts on the private prisons expire (and not renew them) or at least, substantially reduce the involvement of for-profit companies in the future. So again, today, nothing happens. And it's not a law, so technically, these guidelines could be overturned if, say, a law and order candidate got elected and decided private prisons were good for his brand.

Just as important, federal private prisons only hold around 22,000 inmates, out of the 2.3 million overall. Thus, even if these new guidelines were faithfully implemented, their direct impact is relatively small.

With all those qualifiers added, however, this is still a big step because it's going to refocus the debate on this subject. That's a good thing.

It's important to note that the problem with for-profit prisons is not a problem with for-profit companies in general. As the name implies, for-profit companies exist for one primary purpose, generating profits. In most markets, the incentives point in a direction that is beneficial. Companies produce profits by giving customers what they want, at a better price than the competition. It's a win-win.

However, a major problem arises when there are no customers to satisfy. And this is the case with private prisons. The people that deal with the private prisons the most are the prisoners themselves, but unlike customers, the prisoners don't have the ability to leave if the company behaves poorly. This, in turn, means companies have no incentive to meet the prisoners' needs, and these needs often go unmet.

A private prison corporation gets its revenue by winning contracts through the political process, not the market process. And once they win a contract, they are likely to preserve it as long as they avoid any major damaging scandals that could harm elected officials. Clearly, that is a very low bar for performance.

The result is that private prisons tend to be at least as bad as publicly run prisons. Then the private prison corporations recycle the profits into the political process to lobby for tougher crime legislation (and thus, greater demand for their services). In essence, the incentives are bad at nearly every step in the process.

That's why it's great news that the Administration is coming out publicly against this system--even if it doesn't have any immediate effect beyond crashing the stock prices of the prison corporations. It remains to be seen whether any state governments, who hold most of the US prisoners, will follow the federal lead.

It's not that often that we get the chance to praise President Obama, or any other politician, for that matter. But this week, at least on these narrow issues, he deserves credit. As the legacy-polishing continues, let's hope he sticks with the criminal justice theme. If he veers back into economics or foreign policy, it might not turn out so well.