Thursday, January 28, 2016

Iraqi Kurds Move One Step Closer to Secession

As the Republican Debate last night proved sadly uneventful, we'll be discussing a different topic today. The Iraqi Kurds have decided to hold a referendum on seceding from Iraq and becoming an independent state. Of course, it's big news any time a group is attempting to declare independence, but it's especially important in this case. If the Iraqi Kurds do in fact secede, it will have major implications for the US's undeclared war on ISIS, the stability of the Iraqi government, and several neighboring countries. But before we get there, first some context.

The Kurds are a distinct ethnic group of people that reside mostly in adjacent areas of present-day northeastern Iraq, northwestern Iran, southeastern Turkey, and northeastern Syria. In case your geography is a little rusty, here's a slightly dated map that shows the region we're talking about:

At present, some of the highlighted region, especially in northern Iraq is under the control of ISIS, but it still gives you the general idea. The only Kurds that will be participating in the referendum on independence are the ones located inside Iraq. The Iraqi Kurds have had significant autonomy within Iraq for a long time, but they have also aspired for outright independence. Many of the Kurds living in the other countries also aspire to independence. Thus, there is a legitimate possibility that if the Iraqi Kurds successfully secede from Iraq, that will fuel similar secession movements in the adjacent countries in an attempt to create a united Kurdistan. In the short-run, this could potentially lead to further instability in a region that has plenty already.

Adding to these general complications is the fact that the Iraqi and Syrian Kurds are viewed as some of the most reliable allies on the ground in the fight against ISIS. Indeed, many of the high profile victories against the Islamic State have been won by the Kurds--including at Kobani in Syria and Kirkuk in Iraq. But when we use the term reliable here, it's important to note that we're using a pretty low standard. We basically mean, least likely to give their weapons to Al Qaeda or commit obvious atrocities; two things we can't say for most of the other rebel groups in Syria (or in Libya before that).

And yet, recent evidence has emerged that casts some doubt on the Kurds' reputation for being reasonable partners in the region. Specifically, a new report from Amnesty International indicates that the Iraqi Kurds have had a policy of expelling Arab residents and deliberately burning down the towns that they liberate from ISIS. This, in turn, creates more suffering in Iraq and likely increases the appeal of ISIS for people in the region. It also helps illustrate just how convoluted the broad civil war in Iraq and Syria truly is. 

Our Take
Returning to the question of secession, some US politicians anticipated this move and have called for the US to openly support Kurdish independence. Others see the "territorial integrity" of Iraq as sacrosanct and believe the US should focus on trying to restore Iraq to its initial borders.

But ultimately, the answer is that the US should do neither. Like all people, we can privately hope that the Kurds get the chance to exercise self-determination, which may mean they decide to stay in Iraq or formally secede. But given the aspirations of adjacent Kurdish groups for independence of their own, it would be irresponsible to openly back the broader movement for independence with anything more than rhetoric. What if the Kurds in Turkey want to secede as well and Turkey objects? Should the US be committed to waging a war against its ally to enforce our position? Clearly, this is absurd, and such a policy is likely to lead to more tension in the region, not less.

That said, this does not mean we should be backing the Iraqi government's objections to Kurdish independence either. We already support government oppression in several other Middle Eastern nations; we don't need to formally add another. In addition, we happen to have a history of supporting the Iraqi government against the Kurds back when Saddam was a US ally. It did not turn out well.

In short, this is the perfect example of a complicated regional dispute that the US should not be involved in. It's not at all clear how we could make the situation better, but there are many ways we could make it worse. So instead of picking sides, the US should employ the Hippocratic Oath: First do no harm.

The Supreme Court Could Severely Damage Public Unions This Term

The Supreme Court is considering a very important case this term called Friedrichs v. California Teachers Association. In California, public employee unions like teachers unions require all government employees to contribute dues by all. Now, a teacher in California, Rebecca Friedrichs, has sued the teachers union over this. She is arguing that being compelled to support a union she disagrees with is a violation of her First Amendment rights.

On its face, this could seem like a slight stretch. What does a union have to do with free speech? Well, when that union is a public union, it turns out the answer is everything. Essentially everything a public union does is political in nature. If it's negotiating for higher wages and benefits, that might require the government to raise taxes or shift resources from other priorities. If the union is supporting certain political candidates that it perceives to be supportive of its cause, that obviously has a political agenda as well. Thus, in effect, public employees are being required to financially support these political moves regardless of whether they actually believe in them.

As an extreme example to drive the point home, imagine that a portion of your wages was automatically deducted and sent to the Clinton or Trump campaigns (or whichever candidate you love to hate right now). Obviously, that would be an infringement on your free speech. The same principle applies to the public employee union.* That's the essence of the argument being made in the Friedrichs case, and, happily, it appears to have a real chance at victory.

It's important not to think of this in the standard pro-union vs. pro-business dichotomy. For one thing, there's no business involved so it makes no sense. The question here is not whether unions should exist, whether they are a positive force on society, or whether we want public employees to make a decent living. The question at hand is whether a union should be allowed to compel an employee to give them money against their will. So if we still want to reduce public unions to a binary question, either of these might be better suited to the task:

Pro-coercion vs. Pro-worker
Pro-union vs. Anti-coercion

I mention this because we are all conditioned to have knee-jerk reactions based on whatever political tribe we happen to subscribe to. If you're a liberal, you might assume the pro-union position is correct; if you're a conservative, then you probably default to the opposite. But one of the things that's so great about this particular issue is that it mixes up all the usual messaging. Here's how the standard thinking would apply to this particular issue:

Liberals: We need to support the unions so we can protect those workers from being underpaid by those greedy the government?

Conservatives: We need to oppose the unions to preserve freedom of contract and give the employers more latitude to innovate and create efficiency... in the government?

Both: Aw hell.

See it all works out until you get to that last part. When the employer is the government, the conventional arguments break down. This is particularly true on the pro-union side, and it's worth exploring briefly before we close.

As I understand it, the general argument in favor of strong union legislation (including mandatory membership requirements), is to protect workers from the greed of profit-seeking employers. The idea seems to be that those heartless capitalists will stop at nothing to increase their own wealth, and thus unions need to exist as a counterweight to ensure workers can get treated fairly. Regardless of how you feel about that argument, we should all agree that it doesn't apply here. In the conventional understanding, the government's leadership has no clear incentive to underpay or mistreat its workers. They're paying them with tax dollars so it's not like they stand to earn less money as a result. Arguably, they have an incentive to avoid raising taxes during their term, but that's the only plausible financial constraint facing them. (And it's readily overcome by just promising long-term pension benefits instead of pay increases that might take effect this term.) This is clearly a much different environment than a private company that is faced with competitive threats and has direct financial incentives involved for the decision makers.

Indeed, given this understanding, it's a fair question to ask why the public employee union needs to exist at all? Yes, teachers may have an interest in advocating particular policies that they think would be beneficial (to the system or themselves). And perhaps police officers may have an interest in pushing for certain policies. But they don't need a union for that, and they certainly don't need to be able to compel workers to support their agenda.

It's important to remember that being pro-union and being pro-worker aren't necessarily the same thing. And in this case, being pro-worker means you should probably support their right to keep their own money.

If you're interested in learning more about this story, I'd encourage to check out these two articles from the Foundation for Economic Education. The first offers an in-depth background on the case, and the second gives an update on how the Supreme Court appears to be leaning after hearing the case--spoiler, they appear to poised to rule against the public unions.

The First Amendment Could Break the Grip of Government Unions

Court May Free Public Employees from Compulsory Union Dues

*Note that this argument should not necessarily hold for a private employer. In theory, private employers should have the ability to place various conditions on a prospective employee; if the employee consents to them, then there's no violation. Properly understood, the First Amendment protects your freedom of speech against the government; other restrictions that are voluntarily agreed between private parties are a different matter.

Wednesday, January 27, 2016

The Silver Lining of Bernie Sanders?

Bernie Sanders has proved to be a deeply interesting and polarizing figure this election cycle. On the left, some see him as a hopeless idealist that could endanger the viability Democratic Party. And on the right, his advocacy of democratic socialism is viewed as the antithesis to what America stands for. But in an election cycle where voters have gravitated towards anyone that didn't seem like a regular politician, he has emerged as a real contender. And while it remains to be whether he can beat the well-resourced Clinton for the nomination, a Sanders Presidency is worth contemplating.

At this point, it seems there are essentially four candidates that are likely to win the nomination: Donald Trump and Ted Cruz on the Republican side, and Bernie Sanders and Hillary Clinton. And of these remaining major candidates, it is our view that Bernie Sanders is probably the least bad option remaining.

Given the avowed libertarian leanings of this publication, this choice may seem surprising at first. But Bernie has some potential upsides that many have dismissed. (And before we proceed, I would like to clarify that Bernie is not my first choice among the major party candidates (which would be Rand Paul), but merely suggesting he's probably the best option in the top-tier. I also happen to live in a state where my vote has essentially zero probability of impacting either the primary or the general election.)

With those disclaimers aside, let us proceed. In particular, we'll touch on two major items: foreign policy, and economic issues.

Foreign Policy: Bernie's not Ron Paul, but he's also not Hillary
Bernie Sanders is not nearly as antiwar as he is often described. He voted against the Iraq War in 2003, and he supported the Iran Deal, which are undeniably positive things. But he's also taken many other positions that are contrary to the cause of peace. This article offers a helpful summary with many links, and I'll repeat some of the highlights here:

  • Supports sanctions on Russia over Ukraine
  • Voted in favor of an aid deal to the post-coup Ukrainian government
  • Supported the Israeli assault on Gaza in 2014
  • Supported the War in Kosovo
  • Supports the Saudi offensive on Yemen
  • Supports Obama's (confusing) policy on Syria
The general theme here is that Bernie tends to follow the Democratic Party line on most matters of foreign policy. Indeed, if you read Bernie's published platforms on foreign policy, I would challenge you to find much of anything that isn't mainstream rhetoric for Democrats. It's just not his top priority, so his basic plan seems to be continuing Obama's policies.

To drive this point home, it is instructive consider what he said in an interview on Meet The Press last fall. Here's how he responded to a direct question on foreign policy:
CHUCK TODD: What does counterterrorism look like in a Sanders administration? Drones? Special Forces, or what does it look like? 
BERNIE SANDERS: Well, all of that and more. 
CHUCK TODD: You're okay with the drone? Using drones-- 
BERNIE SANDERS: Look, drone is a weapon. When it works badly, it is terrible and it is counterproductive. When you blow up a facility or a building which kills women and children, you know what? Not only doesn't do us-- It's terrible. 
CHUCK TODD: But you're comfortable with the idea of using drones if you think you've isolated an important terrorist? 
CHUCK TODD: So that continues? 
Chuck Todd actually pressed him on the question, as if he expected a different answer. And yes, Bernie mentions concerns about civilian casualties, but President Obama does that too. Paying lip service to civilian casualties doesn't make Bernie antiwar; it just makes him a Democrat. And clearly, Obama's stated concerns about civilian casualties haven't been sufficient to stop his assassination policies.

With all that said, however, we mentioned at the outset that we are not discussing Bernie in a vacuum. The Republicans who have suggested targeting terrorists' families (Trump) and nuking Syria (Cruz) are clearly not going to be the best candidates for peace. But if we turn our focus to Bernie's main competitor, Hillary Clinton, it doesn't get much better. Clinton vehemently advocated for the disastrous overthrow of Libya, wants to strengthen the US's relationship with Israel and Prime Minister Netanyahu, called for new sanctions on Iran immediately after the Iran Deal was implemented, and has called for a no-fly zone over Syria.

In other words, what I'm saying is that Sanders basically wins on foreign policy by default. Sanders is not an antiwar candidate by any stretch of the imagination. But the rhetoric and records of his fellow contenders suggests that Bernie would probably kill and starve the fewest civilians. It's a low bar, but that's all it takes to be the least bad choice on foreign policy in race for the Presidency.*

Revolution vs. Gridlock -- A Win-Win
On economic issues, it's initially difficult to see Bernie's proposals as anything but catastrophic from a libertarian or free market perspective. In this area, Bernie and Trump are certainly competing to have the most destructive policies, but I think Bernie wins that contest. This owes partially to the fact Bernie has actually fleshed most of his policies out with legitimate proposals while Trump seems to just casually throw out bad ideas for attention.

I happen to agree that most of Bernie's economic policies would be devastating and generally harmful to the very people they are trying to help. You may not agree with that, but let's set that aside for another day. If you accept this premise, it leads to an interesting conclusion.

Since Bernie seems to have at least some principles on domestic issues, it is unlikely that he would do much compromising. Thus, there appear to be two likely scenarios in a Sanders Presidency. Either, he gets the political revolution he's hoping for and is able to successfully pass most of his ideas. Or, he gets utterly mired in gridlock and fails to achieve anything at all. I would like to suggest that this is actually a win-win scenario.

Let's take the revolution scenario first. In this case, Bernie manages to pass most of his economic program into law. That would include some or all of the following:
  • Dramatically increased minimum wage
  • Significant tax increases, especially (though not exclusively) on high-income earners
  • Single-payer healthcare, financed largely by higher payroll taxes
  • More protectionist trade policies (making imported items more expensive)
  • Expanded regulation, targeted especially at the financial and energy sectors
As a firm believer in free market-oriented understanding of economics, I am quite confident that these policies would be a calamity. They would create strong disincentives to productive activity (due to new taxes) and raise costs for businesses and consumers (regulations and trade restrictions). Further, if the tax rates are high enough, many individuals and companies will likely put more effort into avoiding taxes, legally or otherwise.

So as a result, if enough of Bernie's ambitious proposals are implemented, I believe the net result would be a sharp decline in the economy, which would lead to tax revenues that are lower than his campaign is projecting. This in turn, means larger deficits sooner and will further increase the US debt to even more unsustainable levels. And at some point, the US will no longer be able to borrow without consequences. I'm not so arrogant as to suggest I know what that level is, but I think it's a real possibility a Sanders Presidency could get us there.

In the short-run, this would be a disaster for the country and for me personally. (I work in one of the most cyclical industries in existence, and would almost certainly lose my job.) But the longer-term political consequences could be beneficial. Usually, when there's a crash in the economy, politicians are able to find a way to blame the free market. But if Bernie implemented radical reforms on a wave of progressive sentiment, and the economy failed and/or the US Government defaulted on its debt, shortly thereafter, it seems the culprit would be undeniable to everyone. The ensuing recovery would certainly be harsh, but a clearly government-made crisis could clear the way for dramatic free market reforms. If a short-term recession led to a major shift in opinion towards libertarian economic principles, I think an argument could be made that it would be worth it.

Before moving on, it's important to note that Bernie is the only one that could conceivably have the above persuasive effect. If the economy failed under a Clinton or Trump Presidency that did not see large progressive policies implemented, we would see a repeat of 2008 politically. The government's role would almost certainly be ignored and the proposed solutions would be more government, not less.

On the other hand, what if the revolution never comes? If Bernie's proposals were too radical to get any steam, then we would just have a preservation of the status quo. It's far from perfect, but it would be nice to get through one President without having any massive new programs. If all Bernie achieved was to complete legislative gridlock in Washington--and especially if that gridlock extended to foreign policy issues and prevented new wars--he could accidentally go down as the most libertarian president in the modern era.

Summing Up
No honest person should describe Bernie Sanders as a true antiwar candidate; his record and his official platform positions both disqualify him from such an honorable label. But of the individuals currently leading in the polls, it seems that Bernie is the best we'll get on this issue. When it comes to his domestic economic agenda, his policies are again problematic. However, I believe that the radically progressive nature of Bernie's domestic platform offer an accidental silver lining that the other leading candidates do not: gridlock or a government-owned economic crisis. In the former case, nothing happens except that the public continues lose faith in the Federal government's capacity to fix problems. And in the latter case, a short-term collapse could pave the way for sea change in public opinion back toward free market principles.

Cheering for the least bad option is never fun, and I don't expect any libertarians to shift their support to Bernie on the basis of these considerations. But if you're going to root for one of the top-tier candidates over another, the democratic socialist might be the best choice--not for what he stands for, but for what might come afterwards.

*Again, I'm here speaking exclusively of the top-tier candidates. Rand Paul and presumably almost any Libertarian Party candidate would be better on foreign policy on this metric.

Tuesday, January 26, 2016

The Problem with the "Fire in a Theatre" Attack on Free Speech

Today we're discussing the oft-cited but little understood quote about "fire in a theatre." If you've ever discussed free speech at any length in the American context, it's almost inevitable that someone has mentioned it. It's kind of like the free speech version of Godwin's Law.

In case some readers aren't familiar with this idea, here's the full quote from Justice Holmes: "The most stringent protection of free speech would not protect a man in falsely shouting fire in a theatre and causing a panic."

This idea is generally deployed as an argument to prove that some curtailment of free speech is acceptable--obviously, we can't allow a man to yell fire in a crowded theatre. Thus, it can change the entire nature of the free speech conversation. It's no longer a question of whether it is right and just that free speech can be punished; it is a question of how much and when. Suddenly, everything's on the table. Those antiwar protesters might be demoralizing the troops and imperiling our safety. Those civil rights protesters are clearly disturbing the peace and infringing on the rights of others. And so on.

However, it turns out the context of the "fire in a theatre" quote is very important. Writing at The Atlantic, Trevor Timm reminds us that in fact, this argument was offered as part of a case that had literally nothing to do with fires, theatres, or even yelling. Rather, it was a case in which President Woodrow Wilson's Administration was trying to prosecute an antiwar pamphleteer during World War I. And indeed, the Supreme Court agreed with the Administration, in the first of a series of damaging decisions to free speech. However, because the "fire in a theatre" quote had nothing to do with the case at hand, it did not constitute established legal precedent. It was merely the rhetorical flourish of a Justice who was trying to introduce his opinion, against free speech. In itself, the quote had no direct impact on the law at all, even at the time it was given.

Years later, its irrelevance was further cemented in Brandenburg v. Ohio, when the Supreme Court effectively overturned the earlier decision and restored free speech protections significantly. This decision was issued in 1969.

So in summary, the quote was not binding precedent when it was mentioned in an opinion in 1919, and in 1969, that entire opinion was reversed anyway. It never mattered, and it certainly does not matter today.

I confess I've always found the "fire in a theatre" argument rather annoying. On the one hand, it relies on the very lazy and unpersuasive technique of appealing to authority--in this case, the Supreme Court. Additionally, it's usually kind of beside the point. If you and I are having a theoretical (and entirely inconsequential) discussion about free speech protections, it makes no sense for you to base your argument on what is existing law. The point of the conversation would presumably be to discuss what we think the laws should be. Similarly, if we're having a debate on marijuana legalization, your main point cannot be "well, it's illegal."*

That said, since the Supreme Court is taken as the law of the land, it's inevitable that many people will weigh their judgment heavily. That is why the "fire in a theatre" argument matters, and why advocates of free speech must be prepared to discredit it.

Check out Timm's great article for more details on this:

*In case you wanted one more example, I'm inclined to note that Presidential Candidate Ben Carson employed similar reasoning in the context of gun rights. We wrote about that embarrassing episode here.

Monday, January 25, 2016

US Formalizes Hypocrisy on Saudi War Against Yemen

It has been known for some time that the US is supporting the Saudi War against Yemen. The human toll of the conflict has been significant, and is poised to grow worse as 21.2 million Yemenis are reported to be in need of humanitarian assistance. Unfortunately, the probability of them receiving that aid is unlikely due to a thorough blockade imposed by Saudi Arabia.

As some quick background here, you'll recall that the Yemen government was overthrown by the Houthi rebel movement in late 2014. Yemen has had a series of clashes between the government and the Houthis over the years, but the most recent one proved decisive. The former leader of Yemen was President Hadi who was backed by both the US and the Saudis. President Hadi was technically elected in 2012, but he was the only candidate. So while the Saudis launched their war with the stated goal of restoring the legitimate government of Yemen, the reality is they were trying to put a friendly dictator back in charge of a neighboring country. Since Saudi Arabia is a US ally and was upset by the nuclear negotiations with Iran, the US went along with the Saudi campaign in Yemen. One might think of it as an appalling international analogue to giving flowers after a lovers' quarrel. Just replace flowers with needless casualties and lovers with two countries that have very few things in common besides contempt for Iran. But I digress.

Anyways, it was reported early on in major media outlets that the US was supporting Saudi's campaign against Yemen, but the issue largely remained outside of the public eye. The reason for this silence is relatively straightforward. In Yemen, we have yet another case where the US would appear to be overtly on the side of oppressive governments. This was the case in Egypt at the beginning of the Arab spring, remains the case in Bahrain where the Navy's Fifth Fleet is stationed, and is also true for the Kingdom of Saudi Arabia itself. Indeed, in some ways, Yemen is an even more extreme case since it involves not only preservation of the status quo but an outright counterrevolution.

This silence was breached recently by Secretary of State John Kerry who formally indicated the US support for the Saudi War. While this does not tell us anything new about the conflict itself, it is important that the US government has decided to formally indicate its support for a very unpopular conflict. Further, one of the stated reasons that the US offered to justify its support was utter nonsense and is worth unpacking.

John Kerry specifically cited a need to fight Al Qaeda as well as the Houthi movement (also known as Ansarallah). This is odd because the Houthis--which follow a form a Shia Islam--are actually among the most effective opposition to Al Qaeda in Yemen--which is a radical offshoot of Sunni Islam. And since virtually all of the Saudi's focus in Yemen has been on the Houthis, the unfortunate by-product is that Al Qaeda forces in the region are growing stronger claiming more territory.

Coincidentally, this is a pattern that we have consistently seen throughout the Middle East in recent years. The US has frequently been engaged in fighting key opponents of radical Islamic groups, thereby strengthening the radical groups themselves. This description fits the 2011 intervention in Libya and our arming of rebels in Syria to weaken President Assad.

When you hear discussion of the Middle East today, occasionally, you will hear a rash remark about the US directly supporting ISIS or Al Qaeda. Given the information available currently, and assuming the smallest level of rationality within the CIA and Pentagon, this seems unlikely. However, it is true that these radical groups benefit indirectly as the US unwittingly destroys their opponents. Unfortunately, Kerry's recent acknowledgement of the US involvement in Yemen suggests that this will continue to be our official policy in Yemen for the foreseeable future.

So the Yemen War is poised to drag on. And the US is officially on board with reinstalling a former dictator at the cost of strengthening Al Qaeda.

For more on this story, check out Jason Ditz's write-up at

Friday, January 22, 2016

The Greedy Stoic Capitalist Fallacy and Bernie's Healthcare Tax

The Greedy Stoic Capitalist seems to be everywhere these days. She lies at the root of nearly every economic problem that faces us. And she is also central to most of the proposed solutions. From the minimum wage debate to rising healthcare costs, the Greedy Stoic Capitalist is there. Grasping and rapacious enough to cause income inequality and exploit her workers, yet also passive and patient enough to submit to new regulations and taxes without protest or evasion.

If this seems an unlikely description, that's because it is. Common sense tells us that the Greedy Stoic Capitalist doesn't really exist. And yet, their existence is taken as a given--used to wish away basic principles of economics.

To see what I'm talking about, let us consider a recent article that discussed the likely effects of Presidential Candidate Bernie Sanders' new single-payer health plan. Note that our source for the article is US Uncut, which is a left-leaning publication that appears to openly favor Sanders over Clinton. Here, we're going to be specifically interested in the taxes Bernie has proposed to pay for the plan. The article claims that Bernie's plan will save the average American over $5,000 a year on healthcare costs relative to the status quo. But the way it reaches this conclusion is very questionable, as we'll see in a moment.

Now, if you've followed presidential politics much this year, you are probably familiar with Bernie's general worldview. On economic issues, he's about as progressive as they come, and he refers to himself as a democratic socialist. He is very concerned about income inequality, the decline of the middle class**, rising tuition costs, healthcare costs, and in general, the plight of the poor. He also rails against Wall Street and the billionaire class, which he believes wield too much political power and do not pay enough in taxes. Thus, most of his proposed reforms rely on more progressive tax hikes where tax rates go up for the highest earners. His plans for paying for the new healthcare system certainly follow this model.

Here's how US Uncut summarizes Bernie's healthcare tax plan:
First, Sanders would impose a 6.7 percent payroll tax on employers, along with a 2.2 percent healthcare tax on those making less than $250,000 per year. Sanders includes higher percentages for incomes above $250,000 in his legislation (the richest 2 percent of the U.S. population) and a 5.4 percent surcharge on the wealthiest Americans whose modified adjusted gross income is above $1,000,000 (literally less than 1 percent of Americans). Sanders’ bill also includes a 0.02 percent financial transactions tax on Wall Street trading.
Obviously, that's a lot of new taxes. But you'll notice that, true to form, the majority are directed at the rich. The rich represent a small minority of the population, and presumably have money to spare by definition. Neither Bernie nor his liberal supporters care too much about this group. Bernie is more interested in the impact on the average American. Fair enough. We'll focus our attention there as well for the sake of this discussion.

Since the average American makes around $50k per US Uncut, this means we can disregard the taxes on the $250k+ and $1M+ groups. Additionally, since people making $50k are also unlikely to be able to invest much in the stock market, we'll also assume the financial transactions tax doesn't impact them. Meanwhile, Bernie's plan is designed to eliminate all healthcare premiums and insurance and simply pay for everything. Thus, it appears to be a relatively straightforward calculation to determine the savings. Here's what the article came up with:

At first glance, this looks pretty impressive--$5,000 in expected savings would surely be a big deal to someone making $50k. It's like a 10% raise. But one reason it looks so good is because they calculated the tax wrong. Yes, the 2.2% employee healthcare tax times $50k is $1,100; you're not going crazy. But what about the employer's 6.7% tax? Where'd that go?

This is where we see the Greedy Stoic Capitalist subtly working her magic. You see, one of the underlying progressive themes in the healthcare debate is that the employers are just too greedy to pay for their employees' healthcare costs. This piece from ThinkProgress captures the sentiment well, for example. So, if employers aren't willing to voluntarily pay for it, obviously the solution is to just force them to do so with a tax. What could go wrong?

Well, the problem is that "who pays the tax" does not determine "who bears the costs". To see this, let's consider an example that isn't as convoluted as payroll tends to be.

Let's imagine Bill's Food Truck is able to make a burrito for $5, and Bill wants to make $5 on every burrito so he sells it for $10. Bill also happens to be a deeply greedy and spiteful man. So if he can't make at least $5 on a burrito, he's just going to shut down his truck and do something else. Now suppose the government has decided it needs to collect at least $0.50 per burrito to fund a new program. Most commonly, it could do this through a 5% sales tax and require the vendor to collect it. In this case, the customer pays $10.50 per burrito, Bill still gets his precious $5 profit, and he eventually sends the government $0.50 in taxes. If you saw prices before and after the tax, it would probably be obvious that the customer was bearing the brunt of the tax.

Of course, the customer might get a bit irritated by such a tax. Thus, the government might try to be a bit sneakier about it by applying the tax directly to the seller instead--this is what a value-added tax does. To keep it simple, let's assume there's a 10% tax applied to burrito-makers based on the cost of their burrito. In our example, this would mean a $0.50 tax directly on the producer, that the customer doesn't see. Now what will the price be? Of course, the answer is still $10.50. We established upfront that Bill's a greedy Scrooge of a burrito-maker who demands $5 per burrito to get out of bed in the morning. So ultimately, even though the producer literally paid the tax to the government, and the customer may not have even known it existed, they still really bore the cost of the tax.

Bill was our archetypal greedy capitalist. He wanted to make a profit before the tax was imposed, and strangely enough, he still wanted to make a profit afterward. The government's decision to tax his transaction didn't inspire a religious awakening within him or a new political ethos. He's the same guy with the same priorities. So he adjusts his behavior and his prices to account for the tax and moves on with life.

The concept of "who bears the costs" is described in economics as the incidence of taxation, and it is very well understood. In the real world, who bears the costs is rarely an all or nothing situation; buyer and seller will usually each suffer some of the burden. Without having all the facts, it's impossible to know exactly how much will be absorbed by each group. But the general rule is that the party that is more desperate for the transaction to occur will bear a higher portion of the tax, because they are more willing to tolerate price changes.

Now we return back to the payroll taxes in Bernie's plan. We can't assume that the employer will bear all 6.7% of the employer tax, and we actually can't assume the employee will bear all 2.2% of the employee tax either. Instead, the right way to look at this is as a new 8.9% tax on salaries. We don't know exactly how much will fall on each group. But if the employee is making just $50k, chances are they are not in a highly skilled position, which means they may be easily replaceable. Further, if they have any kind of family obligations at $50k per year, they probably are pretty desperate to keep that job. So if we follow the general principle that the more desperate party pays more, that means the employee will probably bear more burden than their employer. That is, the employer will reduce the employee's salary to accommodate the new taxes. The employer will still literally pay more tax, but much of the real cost actually falls on the employee. If we're starting from the premise that the employers were greedy bastards that helped create the uninsured problem in the first place, we have to also assume they'd be willing to cut salaries.

Ultimately, we can't know for sure how the burden of the payroll tax would fall between employers and employees, and, frankly, it's probably the least important part of a massive single-payer overhaul. But we can say with some confidence that Sanders' claimed savings of $5,000 for the average American is almost certainly exaggerated. Even if we grant generous assumptions about the effectiveness of a single-payer system itself, there's no way to defend excluding the employer tax from consideration. It's tough to know whether this was done out of ignorance or as a clever political ploy, but either way, it's still wrong.

Of course, the larger point is the importance of the Greedy Stoic Capitalist in modern political discussions. Bernie may be the most frequent offender, but he is far from the only one. This assumption arises in many different areas, yet it's wrong in every instance. Fortunately, like so many other topics in economics, common sense gives us the right answer. We can't assume that people are greedy jerks in general but magically become generous and compliant when we draft policies that target them. The Greedy Stoic Capitalist doesn't exist, and we need to stop pretending otherwise.

*To keep ourselves on task, we're taking for granted that a single-payer system would not dramatically increase healthcare costs, diminish healthcare quality, etc. In our view, there's good reason to assume it would not work this well in practice, but we'll leave that subject for another day.

**As a matter of statistics, it's correct to say that the middle class is smaller today than it was many years ago. However, an important piece of context is often omitted from this sound byte. More people have graduated from the middle class to the upper middle class than fallen back into poverty.

Thursday, January 21, 2016

Democratic Hypocrisy Blocks Efforts to Audit the Fed

The Federal Reserve Transparency Act, better known as the Audit the Fed bill, failed in the Senate last week by a vote of 53 in favor and 44 against. (Note that the rules of the Senate effectively make 60 votes required to pass anything.) It is not surprising that the bill failed, but it is surprising how it failed. The vote fell almost entirely along party lines, with all but one present Republican voting in favor and virtually all Democrats voting against it. On its face, this seems confusing. The Republican party that gave us the legendary secrecy of the Cheney-Bush years voted in favor of transparency. Meanwhile, the Democratic party that talks ceaselessly about Wall Street's depravity and income inequality voted to shield an institution in the Fed that contributes directly to both. What can possibly account for this?

It's a obviously a bit depressing that a good bill like this cannot succeed, when horrible things get passed into law all the time. But there is a silver lining here, because it reveals how preposterous it is to be loyal to either political party. Neither Republicans nor Democrats have a consistent set of principles that guide their political positions. So if you happen to have consistent principles that matter to you--civil liberties, helping those in poverty, opposing war, etc.--chances are you'll wind up with strange bedfellows from time to time. The Audit the Fed bill is a perfect example of this. In order to see this and understand the full hypocrisy of the Democrats on this issue, let's take a deeper look at this issue.

Exposing Fed Monetary Policy
Critics of the Audit the Fed legislation correctly point out that the Fed already gets audited like any other institution. This is technically true, but it's also beside the point. The Department of Defense receives a financial statement audit too, but obviously that does not mean that Congress and the public shouldn't have some oversight of their activities. We don't apply that reasoning to any other aspect of the government; why should we apply it to the Fed?

Despite its name, this bill isn't really about conducting a financial statement audit of the Fed; it's about shining a light on the Fed's secretive monetary policy discussions and decisions. The Fed and its supporters have warned that making such discussions more transparent would harm the economy. But of course they're going to say that. Shadowy institutions will always fight to remain in the dark; otherwise they wouldn't be shadowy institutions.  Think of it this way. If everything is above board, then obviously releasing the details won't cause any harm. But if there is something sketchy going on that would outrage the public, well, then that's probably the exact sort of thing that needs to be public--such as the trillions of dollars made available to well-connected banks during the 2008 crisis.

Damaging Independence
When confronted with the straightforward arguments offered above, critics, such as Senator Elizabeth Warren (D), will argue that making monetary policy public risks jeopardizing the Fed's independence. You see, the Fed is technically a private entity that is supposed to be immune from the political mood of the day. In theory, this would allow the diligent economists at the Fed to make the monetary policy decisions they need to without worrying about the timing of the next election. Thus, according to mainstream economic thinking, this means that the Fed should expand the money supply* during depressions to stabilize the economy, and contract the money supply* during booms to prevent the economy from creating bubbles and collapsing. The much-hyped independence of the Fed is supposed to make this utopia possible.

But in practice, the Fed has not followed through on this strategy. During recessions, the Fed indeed expands the monetary supply to revitalize the economy. But during booms, the Fed pursues the exact same strategy, further expanding the money supply and exaggerating the boom. This, coincidentally, is precisely what the politicians would want the Fed to do. Pumping more money into the system during a boom perpetuates the appearance of a very strong economy, and incumbents perform well in elections under these circumstances. Of course, no one ever worries about the crash that invariably comes later.

If you don't find this policy trend compelling, perhaps it is useful to recall the political battle that took place when it came time for a Obama to pick a new chairperson of the Fed. Progressive Democrats supported and eventually nominated Janet Yellen, while many in the establishment preferred economist Larry Summers instead. But if the Fed is an independent organization that is immune from political considerations, why should it matter who leads it? Of course it shouldn't. So why was this such a row?

It turns out that Yellen and Summers had hinted that they would support different monetary policies. And ultimately, the candidate that succeeded was the one that wanted to implement a more expansionary monetary policy (the kind that helps the economy in the short-run).

Upon reading these details, a cynic might almost think the Fed is already politicized. Yet some specifically opposed Senator Rand Paul's Audit the Fed proposal on the grounds that it might lead politicians to try to influence monetary policy, an activity that already openly occurs.

Why Expansionary Monetary Policy Hurts the Poor
This fact is not widely understood, but it is intuitive once you understand the full effects of an expansionary monetary policy. We'll attempt to follow this through the full process to show the impact.

Expansionary Monetary Policy and Inflation
First things first. Expansionary monetary policy simply refers to a policy that causes more money to be added to the financial system. The mechanisms for how this occurs are not critical to understand.
Expansionary monetary policy has many effects, but one of the most direct effects is inflation. Adding to the amount of money to the system, does not add to the amount of goods available in the system as a whole. Thus, if more money represents the same amount of stuff in the economy, all else equal, it follows that prices will go up. These changes don't happen instantaneously and there are many other factors that may accelerate or delay the effect. But the end result is that prices will ultimately be higher.**

Ever since the Fed's came into being in 1913, we have seen a gradual decline in the value of the US dollar over time, or what is the same thing, a rise in the level of prices. At some point in your life, you've probably heard a crotchety old relative say they used to be able to buy a candy bar with a nickel. In fact, depending on how old they are, they might not be lying. Due to the impact of inflation, $0.05 in 1913 would be equivalent to $1.20 in the year 2015. Even if they're not centenarians, the disparity is still likely to be pretty shocking. And this is according to the US government's own inflation statistics.

One response to this might be who cares? We don't really want to carry around a bunch of coins all day. And who knows how much harder it would be to split a tab with friends if every nickel mattered? But if we set those issues aside, we realize this actually does create real problems.

Winners and Losers from Inflation
One problem with inflation is that it doesn't impact everyone equally. The new money that exists in the economy doesn't fall from the sky, giving everyone an equal shot to get some. Rather, it enters the economy primarily through the financial sector--banks and investment banks.

This matters because the people who get the new money first are the ones who benefit most from inflation. They get to spend the new money before prices have adjusted to account for the extra money. So let's say the investment bankers (group A) earn 50% extra profits in January based on the new money and can now spend more at their favorite restaurants, spas, and golf courses before any of their prices have changed. The owners of these restaurants, etc. (group B) have earned 30% extra profits based on the new money, and now in February, they can spend on their favorite grocery stores, movie theaters, etc (group C). Since some time has passed, prices for group B will be a little higher than they were in January (say, 15%), but the group is still better off. Group C starts earning extra profits (say 5%) thanks to extra business from B, but now it's April and other prices in the economy have already risen by 50%. Thus, even though Group C is technically "earning more money" on paper, they're actually worse off in reality.

The above numbers and time frames were made up, but that is ultimately how the process works. There's a kind of trickle down effect, where the people that get the new money last lose the most. And since poor people don't tend to have a lot of connections to the high-powered financial sector, they're usually the ones that get hit by inflation. In this way, the Fed's official policy goal of causing a steady increase in inflation tends to transfer wealth toward the financial sector and away from the poor.

Punishing Saving
The other problem with inflation is that it can create a powerful disincentive for individuals to save. And the higher the inflation, the stronger the disincentive. If I know a dollar I have today is going to be worth only 95 cents tomorrow, I'm less likely to save that dollar. I want to spend it today instead, when it's worth more.

A possible savings solution to the inflation problem is the interest-bearing savings account. As long as the bank pays an interest rate equal to or greater than the rate of inflation, I may be inclined to save again. Even if I'm not making much money, I can at least keep it safe from losing value.
But what if the Fed sets interest rates very low, as they have for the past several years? Now, if I want to save, I don't have any option that even keeps pace with inflation. Dissatisfied with the idea of knowingly losing money in a conventional savings account, therefore, I have to look for other ways to save money that can give a better return. I may get drawn into investing in the volatile stock market, hoping to ride the wave of stock price increases. Alternatively, I may decide to not save at all and just focus on consumption.

Notice how different this is from an economy that doesn't have new money entering the system to cause inflation. When there's no inflation, the average person can effectively save for the future by literally just saving money, either in a savings account or in physical form. There is virtually no risk of loss, short of robbery or their bank failing outright. And since, all things equal, production processes tend to get more efficient over time, this means that prices actually fall over time. The same amount of money in the economy, but with more stuff to buy, would tend to produce declining prices. This offers a reliable and safe option that encourages saving and discourages speculation in risky assets.

In an inflationary environment, however, the average person is likely to save less and put what savings they do have into more speculative investments like real estate or the stock market to avoid losing money to inflation. Ironically, since many people share this same problem, this forces more money into the investment market and drives prices higher than they otherwise would be. This in turn creates a bubble, and makes the market more unstable and prone to crashing. Thus, not only is it more likely that the average person will put money into speculative investments, it is also more likely these markets will crash hard when the boom ends, taking almost everyone's money down with it.
I say almost everyone, because very wealthy investors have a way to avoid the worst consequences. Wealthy investors can afford to hire sophisticated teams to ensure their investments are well-protected against risk. If they are wealthy and well-connected enough, they also have the opportunity to be bailed out by the government, as has happened numerous times in the past. All of this helps prevent rich individuals from getting wiped out to the same degree as everyone else when the next crash comes.

Finally, since the entire system encourages people to invest in stocks, bonds, and other investments that are sold by brokers, this artificially increases the amount of business received by those brokers. This is yet another benefit provided to the financial sector by expansionary policies.
Thus, we see that the general outcome of the Fed's expansionary monetary policy is to hurt the poor. Poor people's efforts to move upward are frustrated by the lack of reliable ways to save and the incentive to just consume. Meanwhile, the wealthy have unique abilities to protect themselves against instability of the markets that the average investor will not. And at each step of the process the financial sector is directly enriched.

It's tough to imagine a proposal that is more directly opposed to the purported priorities of the Democratic Party than the Fed's expansionary monetary policy. It benefits Wall Street at the expense of middle- and working-class. And the Democrats just voted to protect it from any scrutiny.

Summing Up
In the final analysis, one finds it difficult to exaggerate the hypocrisy of the Democrats on the Audit the Fed bill. Two members of the left, Senator Bernie Sanders and Senator Tammy Baldwin, were admirably willing to break with the President and support the bill. And they should absolutely be commended for doing so.

But for the rest of the Democrats, there's simply no excuse. Voting against Audit the Fed was a vote against governmental transparency, against social mobility, and in favor of more income inequality. So if you care about any of those issues, it turns out the Republicans were actually on your side on this one.

Of course, if you consider yourself a progressive, this doesn't mean you should run out to change your affiliation tomorrow or, so help me, pledge your support for Trump or Cruz. But it does mean you should reconsider being loyal to either party.

*The Fed has a few different tools to expand or contract the money supply, but the details of those mechanisms aren't necessary critical to understand. For the purposes of this article, just know that expanding and contracting the money supply mean exactly what they sound like they mean--increasing the amount of money in the economy or decreasing it.

**Technically, all we can say for sure about the nature of inflation is that prices will be higher than they otherwise would be. How much prices rise depends on how much and how quickly new money is added and how quickly the economy is growing. In recent US history, the net effect has been a small absolute rise in consumer prices. To simplify our discussion, we're assuming an absolute increase as well.

Wednesday, January 20, 2016

Sanctions Against Iran Lifted, Followed by New Sanctions

This weekend, Iran's compliance with the terms of last summer's nuclear deal was officially verified by the International Atomic Energy Agency. Shortly thereafter, the P5+1 nations (UN Security Council + Germany) proceeded to lift the majority of their sanctions against Iran, pursuant to the terms of the agreement. Additionally, coinciding with this agreement, the US and Iran successfully negotiated a prisoner swap whereby Iran released 5 US prisoners and got 7 Iranian prisoners released in return.

These were remarkably positive developments for all parties involved. Any reasonable fears remaining about Iran developing a nuclear weapon were mollified, and the Iranian people regained access to the world markets, which will surely be a boon to their economy. More importantly, it showed that diplomacy can produce success, and it was a win for the voices of restraint and moderation in both Iran and the United States. Trade was opened, and the war drums were muffled. Given Obama's record on virtually every other foreign policy issue of his presidency,* it almost seemed too good to be true. A day later, we learned that it was.

Dovetailing closely with Presidential Candidate Hillary Clinton's own calls for new sanctions against Iran, President Obama announced yesterday that the US would impose new sanctions against certain individuals and entities involved in Iran's ballistic missile program. This issue relates to the uproar that occurred last fall when Iran tested new ballistic missiles.

As a practical matter, these sanctions aren't nearly as bad for the Iranian people as the initial ones were. They are targeted in nature, and only 11 entities made the list. Presumably, this will have a negligible impact on the Iranian economy and will happily do very little to offset the gains from the lifted sanctions.

That said, these sanctions are important as a possible sign of things to come. On the heels of diffusing several long-standing diplomatic issues and avoiding a potential crisis last week, the US had a choice to make. We could either fully bring Iran in from the cold and treat it like any other nation, that is neither perfectly virtuous nor perfectly evil. Or we could continue to be hostile towards Iran to score domestic political points and appease our allies, principally Israel and Saudi Arabia. The new sanctions suggest that we are choosing the path of hostility.

We know this because the premise for these new sanctions is highly dubious. It is debated by some whether the recent ballistic missile tests violated the letter or spirit of UN resolutions against missile development. But this is the wrong debate. It is more important to ask why those UN resolutions against Iran existed in the first place. It turns out the restrictions against ballistic missile development were implemented in connection with the nuclear program. That is, the restrictions  were originally put in place to prevent Iran from developing a delivery vehicle for the nuclear weapons they were allegedly developing. So now that the nuclear issue is resolved, implementing new sanctions on the ostensibly related ballistic missile program doesn't make a lot of sense. Even if it is legal based on the letter of the restrictions, it's easy to see this as a show of bad faith by the US, especially coming a day after the triumph of lifting other sanctions.

Now, some have pointed out that it is wrong for people who support peace to oppose sanctions on weapons development. While this suggestion is understandable, it is flawed for two reasons.

First, this ban is not uniform. It's not a treaty restricting development of weapons across all nations or even a detente kind of agreement between rivals to lower tensions, which would certainly warrant support. Rather, it singles out one nation in particular for special, negative treatment. As we've said, practically, this is likely of little importance. But symbolically, it means Iran is still deemed a pariah state by some, which increases, rather than decreases tensions.

Second, it's tough to see how Iran has committed the kind of exceptional atrocities that might warrant entirely unique treatment. It is often pointed out by critics that Iran is a state sponsor of terrorism and has committed human rights abuses at home. Under any plausible definition of terrorism, this is certainly true. If nothing else, Iran's support for notoriously brutal Shiite militias in Iraq and their ongoing competition with Saudi Arabia and Pakistan for the most executions, would check both boxes. But, they are far from alone in this regard. Saudi Arabia, with its oppression at home, brutal campaign in Yemen, and support for jihadists in Syria, would qualify. Similarly, NATO ally Turkey's newly ramped up repression of press freedom at home and their collusion with Al Qaeda in Syria would also qualify. If we're going to sanction Iran on these grounds, consistency would seem to demand we cast a broader net. But obviously, it goes without saying that this is not the path the US will choose. Turkey is still an ally, and Saudi Arabia somehow has a seat on the UN Human Rights Council.

Opposition to sanctions, old or new, does not rest on a belief that Iran's government is a paragon of virtue. Nor does it require apologizing or exonerating them for their misdeeds. It only requires one to believe that the rule of law is just as important internationally as it is domestically; that Iran deserves the same consideration as other countries; and that sanctions and criticism should be issued based on a country's actions, not just their alliances. These latest sanctions do not follow that script. And right at the time when peace looked certain to emerge, they moved us one step back toward hostility. The new sanctions aren't about arms control, and they're moving us closer to war, not peace.

*I'm excluding Cuba here. We haven't fully normalized relations with them yet, but we're much closer than when Obama took office, and he deserves credit for that.

Tuesday, January 19, 2016

Remembering MLK's Other Legacy

A day late perhaps, but today we're recommending a piece that reminds us of Martin Luther King's other legacy--as an eloquent antiwar activist. King famously referred to the United States as "the greatest purveyor of violence in the world today." It was true then, and it remains true to this day.

King understood that which many fail to acknowledge today. The most bigoted and racist policies implemented by the US aren't found in the Drug War or the broader criminal justice system; they're in US foreign policy. How else can we account for the collective shrug at the current plight of Yemen, created with US cooperation; the general indifference to civilian casualties of the US targeted assassination program; or the complete lack of accountability for the US bombing of a hospital in Afghanistan or the torture program? We can use a euphemism like national security to make these sound okay, but it really comes down to the fact that to our government, some types of lives matter far more than others.

Read this great piece by Thomas Knapp, and then if you're feeling up to it, check out King's outstanding speech on the subject as well.

Friday, January 15, 2016

Progress Toward Closing Guantanamo: Ten More Prisoners Released

During President Obama's State of the Union address, he recommitted to his campaign promise to close Guantanamo Bay. And yesterday, he took a significant and welcome step toward this goal by releasing ten more Yemeni prisoners to the country of Oman. For those keeping score at home, this brings the remaining prisoner population down to 93.

This is undeniably good news, and President Obama should be applauded for it. But we should be careful to point out that Obama's stated reasons for closing Guantanamo leave something to be desired. In his State of the Union address, this was the rationale he offered:
It’s expensive, it’s unnecessary and it only serves as a recruitment brochure for our enemies.
All of that is true, but he missed the key point--that indefinite imprisonment without charges is inherently unjust. He may be framing it this way for political reasons, but it presents serious obstacles down the road. If it's just the expense, does that mean it would be okay if Republicans agreed to raise taxes to pay for it? Moreover, it's part of the military, and virtually no Republicans even pay lip service to the idea of cutting that. Many Republicans also claim that Guantanamo is necessary, so simply declaring it otherwise is hardly persuasive. And finally, most conservatives, and--depending on the speech, often Obama himself--reject the idea that terrorism is a reaction to US policies. Thus, we see that all of these arguments are easily countered by opponents using the same rhetoric they already use. This does not bode well for the future success of this effort. It also makes it possible for Obama to continue many of Guantanamo's most appalling features in the name of political expediency. Indeed, that appears to be the plan. More on this later.

The ten newly released prisoners had already been cleared for release some time ago. But the history of Guantanamo Bay has proved that getting cleared for release and actually being released are very different things. After this most recent release, there are still 34 men that remain in prison at Guantanamo, despite being cleared for release. Most or all of these had been cleared for release as early as 2010 and in some cases, even earlier than that. But due to the challenges of repatriating prisoners to unstable countries (like Yemen) and a combination of political obstruction (mostly from Republicans) and indifference (from just about everyone else), even the cleared prisoners have remained stuck in prison.

On its face, this is appalling. But it's made even worse when you realize what it means to say they have been "cleared for release." This does not mean that there just wasn't sufficient evidence to prove them guilty, but we all know the bastard did it, whatever "it" was. That's possible under our regular criminal justice system, but not at Guantanamo. The prevailing legal system in place at Guantanamo essentially switches the burden of proof to the defendant. Instead of innocent until proven guilty, it is guilty unless proven innocent. So when we say the prisoners were cleared, it doesn't just mean not guilty; in most cases, it means there was no reason to imprison them in the first place.

Since we're on the subject, it's worth clarifying what happens to the people that can't be proven innocent. They fall into two categories. If there's enough admissible evidence of wrongdoing, they may get charged for crimes and prosecuted, most likely in the military courts. But since the US tortured a lot of people at Guantanamo, most evidence is inadmissible and few people fall into this category. Instead, a new and nefarious legal classification was created and legitimized by the Obama Administration. In the words of the White House Press Secretary, these are the people that "too dangerous to transfer and...cannot be effectively prosecuted by justice system." That is, there isn't enough evidence to win a conviction, but they're still really dangerous. In a society that really believed in the rule of law, there's a far simpler label that would apply to such people: free to go. But as it stands, this group (estimated to be 27) is destined to be imprisoned forever, without ever being charged with anything. The existence of this group may explain why Obama is not making a moral or legal case against Guantanamo--because members of his Administration plan to continue the same abuses, just at a different facility located on the US mainland.

So the news out of Guantanamo today is some of the best news we've heard in a while on this issue. Ten innocent people are going to get to start rebuilding their lives, and the US is that much closer to closing the facility for good. But we should remember that the fundamental issue was never really Guantanamo; the problem was indefinite detention. And unfortunately, that problem looks like it is here to stay.

Thursday, January 14, 2016

No, Iran Didn't Commit an Act of Aggression

On Tuesday, a group of ten American service members on a training mission in the Persian Gulf were detained by Iran. Upon receiving the news, Secretary of State John Kerry called his counterpart in Iran to help secure the Americans' release. This was all over the news over the past few days here in the US and, in traditional media outlets, it was usually accompanied with a standard denunciation of Iran. In more extreme cases, the event was described as an act of aggression that demanded a response. For instance, Senator John McCain, that perpetual fount of wisdom, described this incident as another example of "Iran's provocative behavior."

Unfortunately, what was missing in much of mainstream media coverage of this event was any meaningful consideration of the facts. In reality, the US ships apparently drifted into Iranian waters, and were intercepted by the Iranians as a result. There's no dictionary in the world that defines that as aggression. If you break into my house, I have a right to defend myself. The same goes for countries. Iran clearly has a right to police its territorial waters, just as the US would have the right to detain an Iranian ship that found its way into San Francisco Bay. If something is self-defense, it can't also be aggression. The two terms are mutually exclusive.

Frankly, we're all lucky that cooler heads prevailed in the American and Iranian governments. It would have been all too easy for hardliners in Iran to (accurately) describe this as a breach of their territorial integrity and an act of aggression against them. Similarly, President Obama could have taken a cue from CNN and blamed Iran for the whole affair, omitting any mention of Iranian waters. Fortunately, this did not occur. An incident that could have dramatically raised tensions was basically over before it began. Yesterday morning, the detained Americans were promptly released, unharmed, by Iran, just as was promised.

It's hard to overstate how excited the US media appeared to be about the prospect of demonizing Iran and moving the ball closer to war. It's almost as if they were disappointed the soldiers were released because they no longer had a talking point. Fox News, for one, wasn't willing to let the story die so soon. Instead, they turned their attention to a video that's been circulating that apparently shows the detained soldiers and features one of them apologizing for ending up in Iranian waters. Assuming the video is authentic, it's tough to get outraged about this. Apologizing is what you do when you trespass on someone else's property, right? No, according to Fox News and their source, Rep. Duncan Hunter, this is "going to be misused to diminish American power." That's right, because excessive apologizing is the reason US influence is waning. It's not the bombing or the torture or the spying or the general instability we've caused, it's all those times we apologized for it.*

But of course, this is part and parcel of the Fox News brand. It's far worse when the more acceptable liberal outlets like CNN and The Daily Beast join in the "hate Iran" chorus, like they did in this case.

And all of that brings us to our recommended article for today. Glenn Greenwald at The Intercept has a great piece that chronicles the irresponsible media frenzy that surrounded this story, particularly at CNN. Here's the piece:

U.S. Media Condemns Iran's "Aggression" in Intercepting U.S. Ships--in Iranian Waters

*Yeah, that's a dead link. You didn't really think there was an example where the US apologized for something on foreign policy. Don't be absurd.

Wednesday, January 13, 2016

Recognizing Victims of US Wars and Gun Violence

Much fanfare has been made of the fact that President Obama left a seat empty at the State of the Union yesterday. This seat was supposed to serve as a stand-in for the usual random citizen anecdote. Instead of a particular person, it represented all the victims of gun violence that no longer have a voice.

Cute, I guess, if you're into that. But there was a great editorial out in USA Today that begs the question, why just those victims? Why not represent the victims of US foreign policy as well? They are, after all, far more numerous.

It's a rhetorical question of course. But it highlights an important an odd contradiction. President Obama is, just like George W. Bush before him, one of the greatest purveyors of violence and suffering in the world today. It is therefore somewhat bizarre that he has any legitimacy when passionately advocating for something he believes would save lives. If saving lives were really a priority, it seems like there are far easier and more certain paths to do it. For instance, we could stop helping Saudi Arabia bomb Yemen or stop drone strikes elsewhere.

I recognize that we're all supposed to accept the fundamentally bigoted idea that American lives are inherently more valuable than everyone else's. But if we set that premise aside, we realize that Obama would need a lot more than one empty chair to represent the victims he is responsible for. Not because he failed to act, but because he did act.

Here's the full editorial from James Bovard that's worth checking out:

Tuesday, January 12, 2016

More Ghost Soldiers in a US-created Military

New reports out of Afghanistan shed new light on the recent military gains made by the Taliban. Apparently, one of the key reasons for the Taliban's success is that as much as 40% of the local Afghan security forces exist are ghost soldiers, in that they exist only on paper.

If this story sounds familiar, it's probably because the exact same thing has happened in Iraq and helped explain how the Islamic State was able to overrun Iraqi forces so quickly in the summer of 2014.

In these cases, some of the ghost soldiers tend to be real people who simply don't show up for duty. In Iraq, there were cases where soldiers would arrange to give their commanders a cut of their pay to avoid actually doing any real work. (Er, win-win?) Other times, the "soldiers" are entirely fabricated to so the commanders can take the extra compensation for themselves. Either way, they are little help in fighting insurgents, and they represent a gaping flaw in the "They'll stand up; we'll stand down" theory of American support.

After destroying the ruling regimes in Iraq and Afghanistan, the US attempted to support the successor governments militarily by offering weapons and training. Though the details were different, the reality is that both successor regimes started on very unstable footing. Iraq's new Shia-led government lacked legitimacy among the minority Sunnis who were justifiably fearful of reprisals after they had been favored under Saddam. Meanwhile, in Afghanistan, we essentially re-empowered the corrupt warlords that had been thrown out by the Taliban. The new Afghan government was thus deeply unpopular from the start. It is in this context that the US attempted to prop up and support the new regimes. In theory, this was also our endgame. If we could successfully arm and train the new regimes, we would eventually be able to disengage without an immediate collapse in our wake. This is what is meant by the cliche I mentioned above: They'll take responsibility for ensuring their security; we'll get the hell out of there.

Obviously, the flaw of this theory was built-in. If we focus just on Afghanistan, we realize that the local security forces were being asked to serve a government of former warlords, that was created by an occupying army, that just spent several months bombing them and their countrymen. That is not an inspiring cause to fight for. The pay offered by the military may have convinced many desperate people to sign up, but it's easy to see that few would be fully invested. The evidence is in the results. Attacks by Afghan security forces against their American and NATO counterparts are so frequent they have a special name--Green-on-Blue attacks. The outgunned and outnumbered Taliban continue to achieve military victories. And now there's evidence some of the existing soldiers simply don't show up.

The problem of the literal ghost soldiers is somehow even worse than all of this. Here, we see that even those commanders that stand to gain the most in terms of personal status and prestige by achieving military victory, are so corrupt that they are happy to just siphon off paychecks instead. When even the people in power don't care about the success of their government, there's no chance the average citizen will.

Ultimately, this story reiterates once again the profound limitations of US influence, yes, even our military. We can destroy a great many things, but we are powerless to put them back together. Whether we want to admit it or not, Afghanistan is destined to collapse and just a couple more years of NATO training are not going to change that reality. Our continued presence has amounted to nothing more than delaying the inevitable. The Taliban is likely to return to power. At this point, it's worth remembering that the Taliban came to power initially because they were better than the warlord alternative. It may be a sad commentary on the corruption of Afghan, that the Taliban were the best option. But it was true then, and it may be true now as well. In the West, we may be appalled by this outcome, but we fail to grasp the alternative. The Taliban may be bad for human rights, but it's hard to see how perpetual war is any better.

Monday, January 11, 2016

Audit the Fed Bill Nears Vote - Contact your Senators

This week, the Senate will consider a bill to allow Congress to "Audit the Fed." This is a surprising development because the role of the Fed, the Federal Reserve Bank, doesn't come up much in the political discourse. Monetary policy is a complicated subject that isn't a key issue for most voters, and the Fed generally enjoys bipartisan support. At the more consistent ends on the left and the right, you will find people as diverse as Senator Bernie Sanders on the left, and former Congressman Ron Paul on the right who have tried to raise hell about the Fed. Unfortunately, they were lonely voices.

The Fed is a significant institution in our political system. It controls the amount of money in the eonomy, and ultimately impacts everything from the interest rates on car loans and home mortgages to the prices at the grocery store to the state of the economy itself. People often try to assign responsibility for the US economy to the President at the time--in this view, Bush was responsible for the crash of 2008 and Clinton was responsible for the prosperity that preceded it. In reality, though most of the credit, good or bad, belongs with the past and present leadership of the Fed. When times seemed (and were) too good to be true during the dot-com and housing bubble, the Fed was the chief culprit. And when those bubbles eventually popped, the Fed bears the lion's share of the responsibility for putting us on an unsustainable path.

Setting aside the Fed's role in creating bubbles, it is also important to note the Fed's supplemental bailouts during the most recent crisis. According to this report from Bloomberg, the Fed gave the largest and most politically-connected banks access to $7.77 trillion in financing at the depth of the crisis--that is over 10 times larger than the official Troubled Asset Relief Program (TARP) run through the Treasury Department. And all of that was undisclosed, revealed only years later through Freedom of Information requests by Bloomberg.

Now, a case can be made that such bailouts may have been necessary. I don't find it to be compelling, but it is at least debatable. But there is no justification for doing it in secret, and to the benefit of a few large institutions. The Fed will argue that releasing the names of the institutions that needed emergency financing would cause a loss of confidence among its depositors. But if you're one of the banks that needs billions of dollars of emergency funding to stay afloat, well, it seems like a loss of confidence is probably justified. Additionally, we must understand that ultimately, we were all affected by the grant of $7.77 trillion in financing because that money didn't come from anywhere. It is simply created. In the long-run, extra money in the system will cause prices to be higher.* 

The Audit the Fed** bill aims to bring some of these backroom activities into the public eye on a more timely basis. Introduced by Senator Rand Paul, this is a bill that the best on the left and right can both appreciate. For the left, this bill would make it harder for politically-connected banks like Goldman Sachs to benefit at the expense of regular Americans. For the right, auditing the Fed is the first step towards blocking future bailouts in general.

Remember that the vote is this week. So if you're interested in learning more and contacting your Senators, check out Downsize DC. They have more information and a convenient contact form that will send an email to all your Senators and Representatives through a single form. If you don't have much time, you can also use the pre-written note suggested by Downsize DC. (I've pasted that letter in its entirety at the end of this post.)

It's pretty rare that a decent bill comes up for a vote in either house, so we should enjoy the moment and take the opportunity to voice our support.

*Because this financing took various forms (commitments and guarantees, as well as actual loans), it's very unlikely that the full $7.7 trillion was literally provided to the institutions. But the fact that Fed committed to create that much money in a pinch, however, is still significant and taxpayers deserve to know how institutions were selected to receive such financing. We should also note that it's difficult to predict the timing or amount of inflation in a global financial system. The long-term effect, however, is that prices are higher than they otherwise would be. Thus, money creation is ultimately a wealth transfer from everyone that has saved US dollars, to the institutions that benefit form the new money.

**We should also note that the Fed already receives a financial audit from a public accounting firm. This covers the Fed's financial statements and ensures their accounting is appropriate. However, it does not address more detailed questions about the nature and merits of the Fed's activities. That is the purpose of the bill--to ensure that significant activities of the Fed can be subject to similar levels of oversight as other governmental agencies.

Suggested Letter:

It's time to "Audit the Fed." You must PASS S. 2232 the Federal Reserve Transparency Act.

The Fed regulates banks, influences interest rates, and determines the size of our money supply. The Fed's policies determine the value of our money, the health of the economy, and the rates we pay to borrow.

But for too long, the Federal Reserve Board has acted under a cloak of secrecy.
  • It's decision-making process is secret.
  • Minutes from meetings come three weeks after decisions are announced.
  • The Comptroller General is legally prohibited from auditing several important Fed activities.
But the economic consequences of Fed policies can be just as devastating to our lives as are taxes, regulations, and even war...
  • Many economists, including former Fed Chair Ben Bernanke, blame the Fed, in one way or another, for the Great Depression
  • Many also blame the Fed for harmful booms and busts
  • The Fed’s continued inflationary pumping cuts the value of your money, devastating savings and the well being of people on fixed incomes
Sen. Rand Paul of Kentucky introduced the Federal Reserve Transparency Act of 2015. 

It expands congressional oversight of the Fed and gives the Government Accountability Office the authority to review its monetary policy decisions. Now, the bill is "fast tracked" and scheduled for a vote on January 12.

I insist that you vote to Audit the Fed. Support the Federal Reserve Transparency Act. I'll be watching what you do.

Friday, January 8, 2016

The North Korea Nuke Test and Missile Defense Systems

Earlier this week, North Korea conducted an underground nuclear test. It was not a hydrogen bomb test as some news outlets, and North Korea itself, initially claimed. Rather, most sources agree that it was not a hydrogen bomb, but a regular atomic bomb. (We know this because the strength of the blast was too small to be a hydrogen bomb.*)

To be sure, this is not a positive development for world affairs. There's rarely an upside when any country announces that they have developed more powerful weapons. In the best case scenario, the weapons are never used and their development just wasted a lot of resources that could have been better spent on anyone else. And in the worst case, of course, the weapons actually are used. But while this is not good news, it is also not a reason to panic.

One reason we shouldn't panic is because there isn't a compelling reason to assume the leader of North Korea is a crazy person. Crazy evil perhaps, but not crazy in the literal sense. This is an important distinction that many people fail to recognize. The fact that he's a horrible dictator does not mean he lacks a rational interest in his own self-preservation. So even if he has a nuclear weapon that he could use against South Korea or Japan, he has no incentive to do so. Yes, doing so might strengthen his hold on power further, but such power is worth very little if your entire kingdom stands to be flattened by inevitable and overwhelming retaliatory force.

All North Korea's ownership of a nuclear weapon really means is that the US is unlikely to initiate force against the country. We don't attack countries that have a meaningful capacity for defense or retaliation. Thus, even though the US and the UN are criticizing North Korea for this latest test, it's unlikely this will escalate to overt violence. That's the other reason we shouldn't panic.

With that said, however, we obviously can't expect politicians to apply this same reasoning. Instead, many are jumping at the opportunity to blame Obama's weakness on foreign policy for this, and one of the favorite proposed counter-measures is to increase support for missile defense systems. Naturally, these missile defense systems are made by the same Defense contractors that make our weapons and tend to be significant campaign donors and lobbyists.

The concept of a missile defense system--shooting down a bad missile with a good one--is superficially appealing. In practice, these systems have consistently failed. And the reason they fail is intuitive. An effective missile defense system has to be able defend against every possible tactic an attacker can use. Meanwhile, an effective attacker only needs to find one method that isn't accounted for. So when dealing with an adversary that has any degree of sophistication, chances are good that they'll get through.** Thus, the only practical purpose missile defense systems usually serve is to transfer taxpayer money to large Defense contractors.

At The Intercept this week, they have a quick article summarizing some of the many costly failures of missile defense systems over time. Here's a link to that article:

*Although it's easy to confuse A-bombs (atomic) and H-bombs (hydrogen), they are actually significantly different. As the great whistleblower Daniel Ellsberg once said, it takes an A-bomb just to detonate an H-bomb. Indeed, H-bombs are about 1,000 times more powerful than A-bombs, and fortunately, H-bombs are also significantly harder to make.

**During the most Gaza War in 2014, the effectiveness of Israel's Iron Dome missile defense system was highly touted but disputed. Ultimately, this is beside the point because the rockets fired from the Gaza Strip are very unsophisticated and would have little in common with a missile that could carry a nuclear warheads.