Archive for July, 2005

CAFTA Passes Despite the Fear

Sunday, July 31st, 2005

Back in 1993, when Vice-President Al Gore represented the Conservative end of the then more Conservative Democratic Party, he debated millionaire and former presidential aspirant, Ross Perot on Larry King Live about the virtues and disadvantages of the North American Free Trade Agreement (NAFTA). The pact eliminated most trade barriers between the United States, Canada, and Mexico. NAFTA passed with the strong support of President Bill Clinton and Republicans in the House of Representatives. If only Democratic votes had counted, NAFTA would have failed in Congress. The vote marked the beginning of the end of the post World War II bi-partisan consensus in support of free trade.

In 1993, Perot cleverly used the metaphor of a “great sucking sound” to represent what he predicted would be the effect of NAFTA on US employment. Instead, the great sucking sound was the precipitous deflation of Perot’s pumped-up argument. When the Perot-Gore debate was held in October 1993, the unemployment rate was 6.8%, having decreased from a high of over 7%. During the subsequent years, the unemployment rate plummeted to a nearly all-time low of 4% and now is an historically low 5%. During a most recent recession, the unemployment rate peaked at only 6.3%. If someone had predicted such numbers for the unemployment rate for the years following 1993, they would have been labeled as unrealistically optimistic.

Now, it is at least plausible that without NAFTA the employment numbers would have been even rosier, but that was certainly not the implication of Perot’s rhetoric. Perot’s clever metaphor would have not had the same saliency if he argued that employment will decrease rapidly, but less rapidly with NAFTA. Twelve years later, it is fair to conclude that Perot was radically wrong. Free trade with Mexico and Canada is consistent with a vibrant and growing United States.

In addition, the reduction of unemployment in the US did not come at the cost of a reduction in wages. From 1993 to the present there has been an increase in real per capita income and median household income. These increases came in the face of downward wage pressure caused by high levels of illegal immigration.

NAFTA has not proven to be as advantageous for Mexico as first anticipated. Much of the growth in US imports has not come from Mexico, but rather from China. Mexican low wages were not sufficient to guarantee its success. Mexico, like China, must be willing to free up entrepreneurial forces from excessively regulatory and corrupt bureaucracy.

This week, Congress by the narrowest of margins and aided by creative time stretching, passed the Central American Free Trade Agreement (CAFTA). Similar to NAFTA, the agreement eliminates or reduces trade barriers between the US, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. Classically free trade in net benefits all trading partners, increasing economic efficiency and living standards.

However, even if the economic benefits for the US are marginal, it is hard to imagine opponents of CAFTA could believe that there could be much negative economic impact in trade with countries whose total gross national product (GDP) is less than 2% of the US GDP. The experience of NAFTA certainly does not support such apprehension. Moreover, the effect of trade will have the important foreign policy benefit of improving the economies of our neighbors and thus enhance their political stability. Whatever minor effects, positive or negative, there will be on the United States, free trade with the US will undoubtedly improve political and economic prospects for Central America.

Ironically, it is Democrats and the Left who claim concern for the poor of the world. Yet, there is no faster way for the developing countries to grow than by international trade. In latter half of the twentieth century, Japan, Europe, Taiwan, and South Korea recovered in a world of free trade. China and India are now growing rapidly fueled mostly through trade. Pouring aid into undeveloped countries made help in an acute disaster, but in the long run can have a debilitating influence. This is particularly true if aid enriches corrupt dictators rather than providing relief or assisting development. Trade, in general, and CAFTA in particular are the best ways to spread and share prosperity with Central America.

The disappointing aftermath of the CAFTA vote is the realization that most Democrats and many Republicans apparently see a fearful and apprehensive America, trembling at the economic might of Costa Rica. This is not the attitude that created an America that generates 25% of the world’s GDP. Rather, it is a vision that says more about the Congressmen and Senators who oppose CAFTA than it does about the United States. It is a vision that panders to fears, rather than appeals to hope.

Unsolicited Advice on the Roberts Nomination

Sunday, July 24th, 2005

One cannot help but feel a little sympathy at the frantic floundering of Liberals in the wake of the nomination of Judge John Roberts, Jr. to the Supreme Court. Liberals have the upsetting and accurate notion that Roberts is an attractive, smart Conservative with too little of a paper trail to criticize. The Bush Administration has carefully prepared the judicial nomination battle field by cutting off potential Liberal avenues of attack.

Roberts has the appearance and deportment of a choir boy, as opposed to the professorial pedant arrogance of Judge Robert Bork. Bork’s demeanor appealed to like-minded Conservatives, but scared off others. Moreover, when Bork was “borked” in 1987, the Reagan Administration was surprised and unprepared for the mean-spirited and personal assault on Bork from the Left. This episode initiated the current trend toward highly-polarized federal court confirmation confrontations. In the Roberts case, the Bush Administration was able to maintain secrecy until the formal announcement of the nomination, allowing the Administration to frame the nominee before opposition groups could effectively undermine Roberts.

In addition, President George Bush at least went through the motions of consulting with members of the Senate on both sides of the aisle. Lack of consultation can not be effectively used as an excuse to delay Roberts’ confirmation or even a vote on his confirmation.

Strategic planning and frustration have largely reduced Liberals to rambling incoherence. In order to excavate potentially incriminating information, some Liberals now argue that attorney-client privilege should be violated and written legal advice Roberts wrote on behalf of the government when in the Solicitor General’s Office ought to be released. Surely they can not really believe their own arguments in this regard.

Liberals are the ones who normally claim that the Constitution is a living and breathing document that should change with the times, unmoored by the text or the original understanding of the Founders. Yet now they are arguing it is extreme for the Courts to re-examine “settled law” (at least the Roe v. Wade abortion decision). In other words, Liberal victories are to be forever enshrined, but the Constitution should remain open to future Liberal extension. It is difficult to believe that there are some who maintain that same-sex marriage is a Constitutional right and at the same time claim Courts should not question settled law. Liberals find themselves in an intellectual pretzel, twisted and contorted by both their inability to win political victories and their undemocratic reliance on the courts to impose their agenda.

Unless there is some character issue lurking that will disqualify Roberts, the nominee will be confirmed. Democrats and Liberals (and Republicans and Conservatives for that matter) should exercise due diligence in vetting Roberts before the Senate Judiciary Committee and the full Senate. However, Liberals should avoid rancor and mean-spiritedness. If a nominee as squeaky clean and so obviously intellectually and temperamentally qualified for the Court as Roberts is attacked, then the Liberal opposition will lose what little credibility they have with the public. Such an erosion of credibility would make it difficult in the future for Liberals to oppose a more firebrand Conservative that Bush might nominate in the future.

Some Conservatives too need to take a deep breath and show a little faith that Bush’s nominee will not prove to be another Judge David Souter. David Souter was nominated by the first President George Bush and has moved to the Left end of the US Supreme Court. Firebrand polemicist Ann Coulter argues that Bush’s nominee is “Souter in Roberts’ Clothing.” Like-minded Conservatives would have preferred an outspoken Conservative Constitutionalist with a clear judicial record. This would have provided assurance that a Republican judicial nominee would not “grow” in the position and eventually and inevitably succumb to the temptation of the law and try to legislate from the Court.

In the Weekly Standard, Fred Barnes reports that the current Bush Administration too was concerned, if not pre-occupied, about avoiding another Souter. When Souter was nominated he was not carefully vetted or questioned by the administration of the first President Bush. In lieu of a careful examination, the first Bush relied on recommendations of Chief of Staff John Sununu and Republican Senator Warren Rudman. Barnes assures us that not only was Roberts questioned extensively on his judicial philosophy, but also that there were backdoor assurances by Conservative judicial saint and Associate Supreme Court Justice Antonin Scalia that Roberts would be a welcome addition to the Court.

Perhaps as important as Roberts’ judicial philosophy is his style. While the blunt and colorful decisions of Scalia and Justice Clarence Thomas are enjoyable to read, perhaps they tend to alienate judges who otherwise might be more sympathetic. Roberts’ quieter style and legal expertise might be able to sway more justices toward Conservative positions than Scalia and Thomas did. Given the narrow margin of some decisions, that talent might prove crucial.

Liberals should accept the unavoidable with uncharacteristic grace and Conservative should support Roberts without, an all too characteristic, excessive fear of mistakes past.

Blue State – Red State Movies

Monday, July 18th, 2005

It is hard to find the time to actually venture to a movie theater to share movies with a large audience and experience films the way they ought to be experienced. A poor substitute is to wait until movies manage to make it to DVD so they can be enjoyed in a moment of free time. This week I found the time to watch two films from 2004 that could not have been more different: Sideways and National Treasure. The first is a “blue state” movie, while the latter is a “red state” movie. The terms “blue state” and “red state” refer to those states that voted for John Kerry or George Bush for president in 2004, respectively. Here, we use those terms as a metaphor for the cultural elites who primarily dominate the northeast and the west coast, as opposed to middle-Americans with traditional values who dominate the south and the west.

Sideways is a small film about two dysfunctional middle-aged men, Miles (Paul Giamatti) and Jack (Thomas Haden Church), embarked on a wine-tasting trip through California wine country. The golf and sexual adventures punctuate the periods between wine consumption. Miles is a moping divorcee, failed novelist, and an unhappy middle school English teacher who doesn’t see the nobility of his profession. His only real passion is wine tasting, but even this often serves only to illustrate how skill and knowledge can quickly degenerate into sullenness. A typical wine-focused evening will begin with an erudite assessment of wine from the type of soil it was grown in, through fermentation, and aging. Ultimately, Miles descends into a drunken stupor that reveals his deep and amply justified self-loathing. It is hard to imagine a less interesting character. If possible, Jack is even shallower. He is an aging B-movie actor making up for lost celebrity and fading looks by bedding as many women as possible before his scheduled wedding at the end of the trip. These very different personalities are only linked by a shared history that began as roommates in college.

Of course, Sideways resonates with the New York Liberal angst and received five Oscar nominations. The New York Times review identified with Miles and averred that, “And therein lies the great cosmic joke of this heart-piercing film: without struggle and pain, Miles wouldn’t be half the good and decent man he is, though he certainly might complain a little less, venture a little more.” How is a middle-aged man who steals money from his mother to finance a wine adventure “good and decent” by anyone’s moral calculus?

There is little that is admirable in this movie. The only truly sympathetic character is Maya (Virginia Madsen), who is an earnest and fetching thirty-something divorcee working as a waitress while she earns a master’s degree. In the closing scene of the movie, when Miles tries to reconnect with Maya, we seem him knocking on Maya’s door. We are left to guess what happens next. If she is wise, Maya is hiding under the bed from this unappealing loser.

It is not surprising the seven professional critics at the Yahoo movie site rate the movie “A”, while the 14826 Yahoo users rate it “B.” This latter rating is probably as high as it is because the movie’s Oscar nominations influence opinion. Sideways could only be a “blue state” movie.

National Treasure is radically different. Rather than boring us in mediocrity, National Treasure is an action-adventure based on the premise that clues to a historically and monetarily valuable treasure were hidden by a small cadre of our Founding Fathers, members of the Masons. One key clue can be found on the back of the Declaration of Independence.

The film is historic in the same way that Star Trek is scientific. There are just enough legitimate historical or scientific references to allow a willing suspension of disbelief about the rest. Star Trek uses special effects to make us buy into the authenticity of its vision of the future, while National Treasure shoots many of its scenes on location: in the National Archive, on the steps of the Lincoln Memorial, the Library of Congress, or on the streets of the nation’s capital.

The hero Benjamin Franklin Gates (Nicolas Cage) is a descendent of Thomas Gates, a stable boy of Charles Carroll, the last-living signer of the Declaration of Independence. Desperate at the moment of his death, Carroll entrusts young Tom with the clue that the “Secret lies with Charlotte.” The clue, the story, and a passion to seek the treasure pass down through generations of the Gates family

It turns out Charlotte is the name of a ship which Ben Gates manages to find only to be provided other clues which ultimately lead to the Declaration of Independence and the treasure. Tension is provided by the fact that an alternate, less altruistic group, is seeking the same treasure and both are being pursued by the FBI launched into activity after Declaration is stolen.

Sure the plot is contrived, but the story is also heroic and admirable. Ben Gates is a man of genius and perseverance. The feminine interest is Dr. Abigail Chase (Diane Kruger), a curator at the National Archives. While in Sideways, the men exploit vulnerable women. In National Treasure, Dr. Chase is as smart and passionate as Gates. The happy circumstance of a brilliant and gorgeous woman is not common, except in “red state” fantasies. In “blue state” daydreams, women are attracted to dysfunctional men.

The New York Times complains that movies are too often populated by, “infallible heroes and comic-book morality.” What they really mean is that when we see mediocrity in film, it relieves us of the burden of expecting too much from ourselves. Gee, we are better than that guy. He has the same problems I have. The certainty that noble aspirations are unrealistic shoves hope into a corner.

In the world of the New York Times, morality is never clear but always cloudy and contingent. What the Times calls “comic book morality” is simply the realization that sometimes moral choices are clear. No matter how important a wine-tasting trip is, one should not steal money from one’s mother. No matter how attractive a woman is or how lonely we are, it is not right to exploit her sexually the very week before we marry another. What is so difficult for the Times to understand?

There is a place everywhere for ennobling films with conspicuous heroism. There is an even more important place everywhere for films that deal with moral conundrums with which good and honest people struggle. However, it is primarily in “blue states” where one finds a place of honor for self-indulgent films where flippancy, feigned urbanity, and verbal acuity trump decency and honor.

Decreasing Federal Debt Load

Sunday, July 17th, 2005

There are at least two common misuses of economic statistics in public policy: the belief that the science of economics is capable of making long-term predictions with any degree of accuracy, and the use of absolute economic statistics without context or proportion. These mistakes are even made by those who ought to know better.

Economists should never commit their predictions to paper, where they can later be checked. In a September 1982 memo to Martin Feldstein, the Chairman of President Ronald Reagan’s Council of Economic Advisors, Princeton Economist Paul Krugman and presently a NY Times columnist, with colleague Larry Summers who became Secretary of Treasury in the last two years of the Clinton Administration, marshaled their MIT/Yale/Harvard educations to make a now embarrassing prediction. Inflation had just cooled from over 10% to just under 6% and these professional economists confidently concluded “…that it is reasonable to expect a significant reacceleration of inflation in the near future…Our very rough guess is that correction of … distorted relative prices will add at least 5 percentage points to future increases in consumer prices… This estimate is conservative…” This would have put inflation back to over 10%. The 1932 graduate in economics from Eureka College, Ronald Reagan, followed his own counsel. Contrary to learned predictions, inflation continued to drop and remained 5% and lower (mostly lower) for the rest of the decade.

One measure of the maturity of a science is its ability to make accurate predictions. Astronomers can tell us the position of the moon will be centuries in the future with great precision. Other sciences are less mature. Meteorologists are largely constrained in their predictions by limited measurements of the present state of the atmosphere for predictions. Meteorologists can perhaps make predictions up to a week or so before the use of climatology is just as accurate.

What made the Krugman-Summers prediction so disappointing is that one could have made a more accurate prediction using the simple assumption that, in the short term, current trends would continue. Even the simpler assumption that things would not change from their current state — persistence — would have been more accurate. Modern scientists are usually able to bound the accuracy of their predictions, specifying increasing uncertainty as the prediction horizons increase. This is discipline and humility is too often lacking from economic predictions.

Last year, the government predicted a $426 billon budget deficit for 2005. We are now in 2005, additional data have come in, and this week the budget deficit estimate for this year was just reduced by $94 billion. This means that while pundits argue about the budget deficits years in the future, there is a demonstrable 22% error in budge deficit estimates less than a year old. The predictions of $500 billion deficits as a result of the Bush tax cuts never materialized. If the deficit predictions had been underestimates, one can be sure that this information would be ammunition in Liberal punditry against the Bush Administration. The rapid decrease in the budget deficits, will, of course, be duly reported, but will certainly escape notice of all but the most attentive.

Even when predictions are accurate or even when economic statistics of the past are presented, context is often not provided. Since the economy grows over time, the absolute value of economic statistics will continually dwarf those of the past. During good times, the absolute amount of dollar growth in the economy will be larger than that of the past, just as the dollar amount of declines will be larger. Relative values are to providing context. Fortunately, for inflation and unemployment relative numbers are usually given. We concern ourselves less with the absolute price or employment level, but with inflation and unemployment rates. Such is not typically the case, when budget deficits are the cited.

The true measure of budget deficits is relative debt load and whether this load is increasing. By analogy, which is a preferable economic situation for an individual: a $100,000 mortgage with a $100,000 income or a $150,000 mortgage with a $200,000 income? Most would choose the latter, because the debt is smaller in comparison with the ability to pay. One normalization of federal debt is the debt-to-Gross-Domestic-Product (GDP) ratio. In 1946, in the aftermath of World War II, the total US debt was $223 billion, tiny compared to the nearly $8 trillion present debt. However, the GDP was far smaller. In 1946, the debt-to-GDP ratio was 121%, a tremendous burden on the economy. In 2005, the debt-to-GDP ratio is just under 65%. This value puts the US pretty much in the middle of debt-to-GDP ratio for the largest modern economies. The European Union, as whole, has the debt-to-GDP ratio of 79%, with the values for France and Germany of 74% and 72% respectively. The United Kingdom’s debt load is smaller than that of the US at 46%.

Relative Debt Load
When there is a budget surplus and the economy is growing, it is clear that the debt load is decreasing. It is also possible for the debt to be growing, but if the economy is growing even faster, the debt load decreases. It is even, in principle, possible to have a budget surplus, but if the economy is contracting faster than the debt, then the debt load actually increases. For perspective, the attached figure shows the relative debt load with time. Recent budget numbers suggest that debt load increases are moderating. Indeed, last year’s projection predicted the 2006 budget deficit to be $390 billion. Given the recent $94 billion reduction in the current 2005 budget deficit, we will likely also see a downward adjustment for the 2006 budget deficit. Indeed, if the growth rates continue as projected, always an uncertain prospect, the budget deficit would have to be $441 billion in order for the debt load to increase in 2006. At the risk of making a reckless and irresponsible one-year projection, 2006 will see a decrease in the US government’s debt load. The only consolation in venturing such a prediction is that it would be harder to be more wrong than Krugman and Summers turned out to be.

War Over Nominees

Sunday, July 10th, 2005

The shrillness of the response on the Left at the prospect of President George W. Bush appointing a justice to the US Supreme Court after the retirement of Associate Justice Sandra Day O’Connor is a direct measure of just how out-of-kilter the jurisprudence of the Supreme Court has become. Even before knowing who the President’s nominee will be, Senator Chuck Schumer(D-NY) was overheard declaring, “We are contemplating how we are going to go to war over this.” The martial ardor of Schumer and his fellow Democrats and Liberals is a consequence of out-of-control judicial activism and repeated losses at the polls. After losing the Presidency, Congress, the Senate, and the bulk of state legislatures, the courts, led by judicial activists, remain the only way to implement the Liberal agenda. Elections matter. Reactionary Liberals are desperately trying to hold on to past gains and to implement laws that have been largely repudiated by the electorate.

If courts and the Supreme Court, in particular, just had sufficient self-discipline to interpret the law and the US Constitution according to the judicial philosophy of original understanding, then in principle the political inclinations of a judge is immaterial. If judges did not impose their own views of what the law ought to be, then their views would not be particularly relevant. However, Liberals have developed over a century a theory of jurisprudence whereby presumably enlightened judges, can breathe fresh life into laws and alter them to suit Liberal sensibilities. Once such jurisprudence is accepted, the political philosophy of the nominees becomes very important. Indeed, even a return to a judicial philosophy of original understanding becomes a threat.

There have been many controversial court decisions, most recently about the states’ right of eminent domain and about the appropriate interpretation of the First Amendment prohibition that Congress shall make “no law respecting an establishment of religion or prohibiting the free exercise thereof.” However, abortion is the colossal issue that has focused all the unwanted attention on the Supreme Court. Abortion decisions, from Roe v. Wade that prohibited the limitation of abortions before fetus viability to Madsen v. Women’s Health Center where the Court limited the free speech rights of protestors around abortion clinics, have done the most pernicious damage to constitutional jurisprudence. In order to permit the widest possible latitude for abortions, the Court has found it necessary to distort the Constitution far more than for other issues. It will be difficult for the Court to recover from this damage.

The irony is that if Roe v. Wade were overturned, laws affecting the bulk of pregnant woman would probably remain largely unchanged, consistent with the general disposition of the country. Most of the states would voluntarily allow abortions in the first trimester of pregnancy. However, against the desires of the rabid abortion lobby, many states would limit late-term abortions and require parental notification before minor girls are permitted to obtain an abortion. Liberals are fighting to retain a rather extreme position on abortion: unfettered of abortion on demand for anyone until birth.

On other issues, the eagerness of Schumer and his Liberal allies to go to “war” over a Supreme Court nomination is also a consequence of an accurate assessment that the public is largely against them on many questions from gay marriage to the Court’s excessive hostility to religion.

Since the Court has erected a fortress of extreme positions, it will take at least a couple of decades of Conservative decisions on the Court to restore judicial respect for the original understanding of the Constitution. Until the US Supreme Court returns to being a court rather than a super legislature, nominations to the Supreme Court will continue to be high-voltage disputes. Once restoration is achieved, Liberals, if they are to win political victories, will have to do so the hard way. They will have to persuade Americans of the prudence of their ideas.

Mending Mistakes by the High Court

Tuesday, July 5th, 2005

Liberals retain an inherent rhetorical advantage in arguing about legal cases before the US Supreme Court. When the current state of “settled law” is inconvenient for the Liberal agenda, Liberals have no problem arguing that the US Constitution should be a “living document” adapting to new exigencies. Those old rulings and precedents should not stay the hand of a modern court. On the other hand, if the current state of settled law favors Liberal positions, they criticize Conservatives for wanting to change previous US Supreme Court decisions. The result is a ratcheting effect. Liberal-activist victories are ensconced as permanent fixtures and immutable law, while Conservative-strict-constructionist victories are always provisional, subject to review and reinterpretation.Despite Conservative reverence for precedent, even Conservative jurisprudence recognizes that precedent is less constraining on the Supreme Court than it is in lower courts or legislatures. If a legislature gets a law wrong, it can always enact a new one. If a lower court interprets the law incorrectly, higher courts have an opportunity to over rule it. If the US Supreme Court gets it wrong, there is little recourse. Except in the extreme and difficult case of a Constitutional Amendment, the response by elected officials can at best be made along the margins. The US Supreme Court is the primary institution for correcting previously incorrect decisions. If not, the country would be burdened with incorrect decisions forever. Schools might still be segregated if the “separate but equal” interpretation of the Fourteenth Amendment in Plessy v. Ferguson could not have been overturned by a subsequent Court decision in Brown v. Topeka Board of Education.

The time between when the US Supreme Court makes an incorrect decision and later has an opportunity to correct it can be very long, many years or decades. This inertia is salutary. We would not want US Supreme Court jurisprudence flapping in the wind responding to every shifting judicial breeze. Legislatures can sometimes mitigate some of the more extreme inequities associated with bad Court decisions.

Recently, in a 5-4 decision, the US Supreme Court in Kelo v. New London extended the reach of eminent domain, allowing governments to seize private land not only for public use, but to transfer the land to private use for government convenience. The decision has largely been panned. In response, Congress this week passed by a strong bi-partisan 231-189 majority (192 Republicans for, 31 against, 39 Democrats for, 157 against) an amendment to an appropriations bill that would withhold federal funds from any project that uses this extended power to seize private land. The appropriations bill covers spending by the Departments of Transportation, Treasury, and Housing and Urban Development [1].

Despite any pleasure derived by circumventing an incorrect Court decision, Conservatives should always be a little wary against such federal bullying of state and local governments, since it undermines the spirit of federalism. By-and-large many matters should be left to the discretion of local governments. However, one can be excused in this case because the federal bullying is to mitigate the bullying of private land owners by state and local governments. Such are the compromises that must be made when the Supreme Court gets it wrong, way wrong.

[1] Allen, M. and C. Babington, “House Votes to Undercut High Court on Property: Federal Funds Tied to Eminent Domain,” Washington Post, July 1, 2005, A01.