Blinder & Zandi: Methodology & Impact

As promised, I took the time to review Blinder and Zandi's full report, paying particular attention to methodology outlined in Appendix B. It's all pretty straight forward and nothing jumped out at me as particularly specious.

One reaction to my post yesterday and the report was that government spending (G) doesn't result in increased demand. This is a patently false statement because the aggregate demand equation in the short-run is essentially the GDP equation restated.

If G becomes larger, then AD becomes larger. I would also restate I have not seen any evidence of government spending crowding-out private investment.

On a slightly divergent note, the stimulus bill has been criticized because it has not created jobs, but if you look at where the stimulus bill put money, the largest part that has currently paid is in tax cuts ($188 billion). I would argue that President Obama was wrong to seek some sort of commen ground with Republicans in the Senate that had him approving a bill that didn't put enough people back to work. Instead, the bill was meant to entice private industry to hire workers with a payroll tax holiday. This is an indirect process that has paid very limited dividends.

Finally, I'll close on this point. In the New York Times article John B. Taylor of the Hoover Institution is quoted as saying that the stimulus program had, "very little impact." Little impact, as he observes it, is still an impact. In this situation, when private investment had dried up and the gears of the economy had threatened to halt entirely policy measures were taken that averted a crisis.

It's fine to discuss the levels of impact of these measures, but I haven't heard any serious economist say they had absolutely zero positive impact on our economic situation.

Mission Creep in Somalia

It looks like the African Union will deploy an additional 2,000 peacekeepers to Somalia. At the same time, the AU may loosen the peacekeepers’ rules of engagement, rendering that moniker even less apt than it is already.

While the AU’s commitment to its Somali mission is admirable—and a hopeful sign for the continent’s future in some respects—it may be extraordinarily misplaced. The truth of the AU mission is that there was no peace for the peacekeepers to keep at the outset. Instead, the AU really served a stop-gap function, allowing Ethiopia to withdraw its troops after it invaded Somalia and toppled the ICU. In the wake of Ethiopia’s withdrawal, the AU troops have functioned as international props for the Transitional Federal Government—a western-backed farce. Increasing the number of AU troops and loosening their rules of engagement will likely only serve to transform the peacekeepers ever more into the TFG’s security service, enmeshing the AU’s mission ever more into the international community’s quixotic attempts to deliver the TFG Somalia.

Unfortunately, the AU and the TFG cannot hope to succeed. Foreign troops are incredibly unpopular in Somalia, the TFG is a Potemkin government of war lords and would-be elites without any real power base—think an entire Iraqi government, formed in Damascus, composed of Chalabis, and then delivered to the Green Zone. The only likely resolution to Somalia’s persistent anarchy is a homegrown, indigenous government. Don’t laugh—it is just such a government that has preserved stability and more than a semblance of democracy in Somaliland. Such a government requires local support, a local constituency, credibility, and of course legitimacy—all things lacking in the TFG.

Grading Government Intervention in the Great Recession

The New York Times reported on a new paper by two leading economists, Alan Blinder and Mark Zandi, that used econometric modeling to demonstrate how government intervention helped stem a second Great Depression and kept us at a Great Recession.

The paper notes, "that without the Wall Street bailout, the bank, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year. In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation."

Immediately critics will point out that Blinder worked in the Clinton administration and Zandi is a registered Democrat. I would humbly suggest that party affiliation doesn't make someone's research automatically irrelevant.

And I'll note that i haven't read the whole paper, but will be in the next 24 hours to look at some of the assumptions and the models they used. I mean, I should use my bachelors degree for something, right?

Finally, I'll request that people looking to question the conclusions Blinder and Zandi reach base their criticism on the paper and its methodology, not just knee jerk rejection that a registered Democrat couldn't possible comment on the stimulus. Thanks.

Bruce Bartlett on Republican Intellectual Emptiness

I read this post on the Democracy in America blog at Economist.com. They posed 6 questions to Bruce Bartlett about the economy and the deficit. I don't think one can call Bruce a liberal, (though maybe a European conservative) but his comments parallel what Paul Krugman, who is unapologetically a liberal, has been saying. Here are some selected passages:

"Which Should be a higher priority for the federal government at the moment, deficit reduction or economic stimulus?"

"Clearly, economic stimulus."

On Taxation

"I would add that I do disagree with the Republican fixation on taxation. Federal taxes as a share of GDP are at their lowest level in two or more generations—14.9% versus a postwar average of 18.2%. There is not one iota of evidence that the economy is suffering from excessive taxation and no evidence that the sorts of tax cuts favoured by Republicans—mainly tax cuts for the wealthy—would do any good given the nature of the economy’s problems. Tax cuts don’t help those with no incomes because they are unemployed, businesses running at a loss, or investors with a large stock of capital losses. In my view, the Republican obsession with taxes is based on pure dogma, not analysis."

On which party has credibility on fiscal issues:

"The Republicans don’t have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama’s health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office...The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won’t say so...Consequently, I have far more hope that Democrats will do what has do be done. The Democratic Party is now the “adult” party in American politics, willing to do what has to be done for the good of the country. The same cannot be said of Republicans."

It's been clear for a while that President Obama and the Democratic leadership have not had a good faith partner across the aisle and it's refreshing that someone with the conservative credentials of Bruce Barlett is helping to call a spade a spade.

The Northwest Passage

Back in 2007, I wrote a short paper that argued, with the warming of the world's oceans and the opening of the mythic Northwest Passage, competition for the suddenly accessible mineral, natural, and hydrocarbon resources could result in armed conflict. Thus, this passage from George Friedman's The Next 100 Years, struck me:

[I]t was Mahan, the American, who understood two crucial factors. The collapse of the Soviet Union originated in American sea power and also opened the door for U.S. naval power to dominate the world. Additionally, Mahan was correct when he argued that it is always cheaper to ship goods by sea than by any other means. As far back as the fifth century BC, the Athenians were wealthier than the Spartans because Athens had a port, a maritime fleet, and a navy to protect it.

Getting Out is Hard To Do

Richard Haass purports to offer a way out of Afghanistan in this week’s Newsweek. In fact, Haass offers little more than fanciful and ultimately counterproductive policy suggestions.

Haass argues that the United States must clearly assess what are its Afghan objectives—a point with which I agree. He believes there are two American goals: “to prevent Al Qaeda from reestablishing a safe haven and to make sure that Afghanistan does not undermine the stability of Pakistan.” Unquestionably, these two goals are the United States’ prime objectives in Afghanistan.

However, the policy prescriptions Haass offers will not achieve either of the goals he outlined. Effectively, Haass believes that the United States should abandon the corrupt, ineffectual Karzai government in favor of power devolved to the provinces, coupled with rapprochement with the Taliban.

Haass arrives at this prescription in an eminently reasonable way. He argues that al-Qaeda and the Taliban are not one in the same—absolutely true. He argues that the two organizations have different goals—true, as well. He argues that there are a very small number of al-Qaeda in Afghanistan—true according to Leon Panetta, DCI. He argues that large troop deployments (over 100,000) intended to kill such a small number (60-100) is ineffective—yes, very true. He argues that the Taliban are predominantly Pastun—true, again. And that this renders the war in Afghanistan, against the Taliban, really an tribal-ethnic civil war—true, to a point.

Where Haass falters, and falters drastically, is his presumption that the war in Afghanistan is static. Haass believes that the United States can change tactics in Afghanistan, to focus on killing al-Qaeda in Pakistan, without causing a significant shift in al-Qaeda from Pakistan to Afghanistan. He believes this because he believes that the United States can convincingly deter the Taliban from harboring al-Qaeda. Remarkably, he believes that the US can do this after allowing a de facto partition of the country, with the Taliban operating what is effectively a Pashtunistan in South and Eastern Afghanistan.

The ability of the United States to affect the deterrent that Haass describes is questionable from both tactical and strategic perspectives. From a tactical perspective, the deterrent would require the United States to develop substantial intelligence among an extraordinarily hostile population—difficult in any environment, more difficult in an environment where you have 1. no US presence; 2. you’ve abandoned what of the civilian population that had assisted you in a 9 year counterinsurgency to their fates at the hands of the kin they turned on to assist you. From a strategic perspective, an effective deterrent would require something more than cruise missile or drone strikes, a presence the American people will not likely support after leaving Afghanistan once. The deterrent might sound good on paper but it will not be effective.

Further, even assuming the United States is able to affect a convincing deterrent, there is little reason to believe that even a co-opted Taliban will be able to prevent al-Qaeda from reestablishing itself in their territory. Even in the late 1990s, when al-Qaeda moved into Afghanistan, it was not apparent that they did so with overt support from the Taliban. The relationship, I think, is better described as parasitic. The Taliban were a weak government, al-Qaeda was cohesive. In that environment, al-Qaeda was able to carve out a fiefdom in Afghanistan, irrespective of Taliban desires.

Finally, while Haass should be commended for his willingness to recognize the differences between al-Qaeda and the Taliban, we should remember that not all militants are created equally—at least vis-à-vis Pakistan. The government of Pakistan describes the world in terms of “good” and “bad” Taliban. Good Taliban are those Taliban that focus on Afghanistan (and Kashmir, but that’s a different matter) and do not harbor Pakistani ambitions. Bad Taliban are those Taliban (and al-Qaeda) that oppose the state of Pakistan. Under the aegis of Bad Taliban fit both al-Qaeda and Tehrik-i-Taliban Pakistan. A vacuum in Afghanistan, or a weak Taliban controlled space in South and Eastern Afghanistan will likely offer safe haven for these so-called Bad Taliban to launch attacks in Pakistan, contributing to Pakistan’s destabilization and thereby undermining one of the twin goals of the United States in Afghanistan.

Tehran Bazaar on Strike

Arang Keshavarizan reports on a story I missed last week at Foreign Policy. The Tehran Bazaar was on strike for seven days. Support from the Bazaar has proved critical, historically, to regime capacity in Iran.

The Import of Somalia

Fareed Zakaria’s column in today’s Washington Post, seeking to dissect Somalia and the problem it poses—or to Zakaria, doesn’t pose—to US national security is wrong both on the merits of the argument and in its retelling of Somali history.

Let us begin with the history. The collapse of Somalia is usually dated to 1991—not Zakaria’s 1992—when Said Barre was finally driven from Mogadishu in January. In fact, Somalia was without effective government for at least several years before Barre’s ouster as the country struggled to address multiple anti-regime armed movements and recover from its disastrous war with Ethiopia.

The United States did not give tacit support to Ethiopia’s 2006 invasion of Somalia. The United States gave material support to Ethiopia, providing Ethiopia with intelligence and air support for its invasion.

The Islamic Courts Union, the emerging indigenous government of Somalia that Ethiopia and the United States help to oust, is a difficult movement to color broadly. They really were an alliance of Islamic courts that exercised extremely localized jurisdiction. Some of the courts were relatively moderate, while others were draconian in their interpretation and implementation of Sharia. To describe the ICU as a “radical movement” is, I think, overbroad—in fact, one of the erstwhile leaders of the ICU is now the president of the US-backed Transitional Federal Government.

As to whether the United States has suffered deleterious effects owing to the chaos in Somalia, the only answer to this question must be yes. In the governmental void of Somalia, members of al-Qaeda have reportedly found safe haven; the al-Shabab has been born, grown and strengthened; pirates operate with impunity from Somalia’s coast, reaching into the Red Sea, the Gulf of Aden, and even the wider Indian Ocean. These waterways, particularly the Red Sea and Gulf of Aden, are critical avenues of international shipping. Simply glancing at the IMB’s Live Piracy Map communicates the intensity of piracy occurring in and around the Horn of Africa as compared to the rest of the world. Reading the IMB’s Piracy Prone Areas and Warnings does an even better job. Somalia-based pirates have driven up the costs of ship insurance 4,000%; the costs of maintaining the naval flotilla in the Gulf of Aden—to which the United States contributes vessels and manpower—approaches $300 million. The impact of Somalia-based piracy on global trade has been estimated as high as $16 billion annually.

Beyond piracy, the strongest pole of power in Somalia, currently, is the extremely radical al-Shabab which emerged from the ashes of the ICU. Its links with al-Qaeda are worrisome in themselves, more worrisome in the wake of the Kampala bombings, which demonstrate an ability to mount at least regional operations. Again, this was the first cross-border operation mounted by al-Shabab and therefore represents a sea change in the behavior of a heretofore Somalia-centric organization. Finally, transit between Somalia and Yemen is common, frequent, and unregulated, making it possible, even likely, that al-Qaeda affiliates in Yemen and Somalia physically communicate.

Stimulus != War in Iraq

Today, in an article discussing Pres. Obama's legislative success yet "unpopularity," Sheryl Gay Stolberg of the New York Times compares the passage of the stimulus package, comprehensive healthcare reform, and financial regulation to Pres. Bush's taking the United States into an unnecessary war. No, really:

It is an argument that sounds eerily similar to the one Mr. Obama's predecessor, George W. Bush, made to justify an unpopular war in Iraq as he watched his own poll numbers sink lower.

Just because two presidents claim that their unpopular actions are in the best interest of the country does not make the actions themselves equivalent. The war in Iraq was predicated on nonsense. The stimulus package, financial reform, and comprehensive healthcare reform--what ever you think of the policy choices themselves--were reactions to actual problems, actually doing harm to the United States.

The Economy - Let someone smarter explain it

This post on the Economist.com Democracy in America space pretty much sums up the current economic situation and the current impotent political situation in this country better then I ever could.

Bottom line, Republicans are disingenuous and Democrats are chicken shit.

The Kampala Bombings

Al-Shabab, the al-Qaeda linked militants that control most of Somalia, have claimed responsibility for the bombings—and attempted bombing—in Kampala on Sunday. The Kampala attacks represent the first time al-Shabab has launched an attack outside of the territory of Somalia—excepting, of course, a spate of attacks last autumn in Somaliland.

In the past, Al-Shabab has threatened to attack Kenya and Ethiopia for their support of the Transitional Federal Government and their occupation of Somalia, respectively. It would appear that the bombings in Kampala fit the pattern of al-Shabab reacting against what it views as foreign interference in Somalia—Uganda has provided a large contingent of the AU peace keepers currently operating in Somalia; al-Shabab threatened further attacks against Uganda and Burundi if their troops do not leave Somalia. Notably, the United States also backs the TFG and provided military and intelligence support to Ethiopia during its invasion in 2006—the invasion that sparked al-Shabab.

Despite this apparent causal relationship, the US Assistant Secretary for African Affairs is quoted in today’s New York Times as saying, “[Al-Shabab] was a localized cancer, but the cancer has metastasized into a regional crisis. It is a crisis that has bled across borders and is now infecting the international community.”

It is not clear, at this point, that al-Shabab has or even desires to obtain the capacity to operate on a global level and truly “infect[] the international community.” Nevertheless, al-Shabab’s now demonstrated ability to operate at least regionally, and its supposed close links to al-Qaeda, should make the United States very nervous.

The Kampala bombings demonstrate quite clearly:

• The international community’s policy in Somalia has been an abject failure. The TFG should be abandoned and a clear eyed reassessment of US interests and local actors should be undertaken.
• In the territory of Somalia controlled by al-Shabab, terrorists are able to plan, train, and launch at least regional, cross-border terrorist assaults of a relatively sophisticated nature.
• In the territory of Somalia not controlled by al-Shabab, pirates have free rein and are able to act with impunity.

Thus, it is only the territory of Somalia governed by unrecognized Somaliland that does not present a threat to the international community. In fact Somaliland’s cooperation with the West, its government’s ability to control its territory, and its working judicial system, make it something of bulwark against the international insecurity festering in rump Somalia. A good step forward, from a security policy perspective, would be to recognize Somaliland.

Stimulus and Unemployment

Federal Reserve Working Paper on the effect of the Stimulus Package: 800,000 jobs saved or created by May 2010, down from approximately 2 million in March 2010.

NPR reporting on a Moody's Analytics study demonstrating the economic impact of unemployment benefits versus tax cuts. Mark Zandi, Chief Analyst for Moody's and a former advisor to Sen. McCain's 2008 campaign, testified similarly before Congress.

A Good Regulation

A new federal regulation imposing steep fines--$27,500 per passengers—on airlines that subject passengers to 3 hour or longer tarmac delays may be bearing fruit. In May, the first full month in which the regulation was in effect, only 5 flights suffered 3 hour or longer tarmac delays—compared to 34 in May 2009.

The airline industry trade group argues that the number of 3 hour or longer tarmac delays has been in decline for over year. BTS data, however, reveals a more mixed picture. April and March 2010 were likewise significantly lower than the numbers for 2009, but February 2010 was actually higher by 50%.

Read USA Today’s article on the new regulation here. See the BTS data for yourself here.

The Glory of Deregulation

The other day, our friend and foil at To Get Rich is Glorious put up a couple of posts, one called "Questions for Progressives" and the other "What Inflation?" both included references to the airline industry.  What Inflation purported to demonstrate that airfares have decreased in real terms over the last decade while Questions for Progressives included this bit: "Deregulation of the airline and trucking industries are widely credited with producing lower costs and improved service. What are the lessons should be taken from this experience?"  Both of these items raised my hackles, particularly for the reference to the airline industry.  I had set about to write a post describing, contra the premise in Questions for Progressives, the long decline of the airline industry since deregulation.  But, TIME has done my work for me, relating the history of decreased service and increased prices since deregulation.

Highlights:

• The disappearance of in-flight meals.
• The end of checked baggage for free (or, rather, included in your ticket price).
• Charging for blankets and pillows.
• The death of stand-by.
• The impending end of carry-on baggage--which, nicely dovetails with being charged for checked baggage.

And, the best part of most of these added fees?  Well, the best part is that they occur after ticket purchase meaning the Bureau of Travel Statistics does not count them as airfare--leading to the apparent real decline airfares!

John McCain's Kagan Op-Ed

Sen. John McCain pens an Op-Ed in today's USA Today outlining his opposition to Elena Kagan's nomination to the Supreme Court. Sen. McCain's argument against Solicitor General Kagan is built on her actions as Dean of Harvard Law School in opposition to Don't Ask, Don't Tell. While the bulk of the Op-Ed rehashes Kagan's actions, McCain goes completely off the rails in the second section of his piece when he attempts to link Kagan's action as Dean to a judicial philosophy.

According to McCain, because the Supreme Court disagreed with actions like Kagan's, Kagan "stepped beyond public advocacy . . . into the realm of usurping the prerogative of the Congress and the president to make law and the courts to interpret it." One would be justified in asking how exactly an university administrator could possibly "usurp[] the prerogative of the Congress?" The statement is so baldly irrational it really defies critical examination. McCain's criticism might sound in reason if he were extrapolating her actions as Dean to some indication of judicial temperament--this too would be an extraordinary leap--but McCain goes out of his way not to do that. Instead he writes, "I do not believe judges should stray beyond their constitutional role and act as if they have greater insight than representatives who are elected by the people. Given the choice to uphold a law that was unpopular with her peers and students or interpret the law to achieve her own political objectives, she chose the latter." But Kagan's duty was to the students of Harvard Law School--all of those students, regardless of sexuality--it was to not interpret the Constitution of the United States. She embraced the rather long and generally celebrated tradition of American academia staking out positions that sometimes contravene current law in pursuit of justice and equality.

Don't Ask, Don't Tell was and is a stupid, half-measure of policy that has served only to discriminate against patriotic Americans. It is one thing for the Congress to pass such a law and for the Supreme Court to interpret it in accord with its plain meaning, however they manage to rationalize it with the principles of the American Constitution. It is entirely another matter for the Dean of an institution of higher learning--to say nothing of one dedicated to educating students in the law and justice--to invite onto campus recruiters compelled to discriminate in hiring against one or another minority.

Kagan's actions were civil disobedience. They were not an example of one branch of government overreaching and insulting another branch of government. I should hope that every future Supreme Court nominee in a position like Kagan's during the era of Don't Ask, Don't Tell--or any other patently discriminatory regime--would take similar action on behalf of her students.

Time to Recognize Somaliland

On Friday, the newest President of Somaliland, Ahmed Mohamed Silanyo, declared his intention to make Somaliland’s international recognition his top priority. In truth, recognition has been a top priority of Somaliland’s political leadership since it declared its independence over nineteen years ago. Analysts and observers have been quoted in the few articles and bulletins announcing Somaliland’s election results pronouncing that this election—graded free and fair—will encourage the international community to extend Somaliland recognition.

It is not the first time a successful democratic process in Somaliland has inspired hope that now, finally, Somaliland will receive international recognition. Similar hopes attended the referendum ratifying Somaliland’s constitution in 2001, its first presidential election, and its parliamentary elections. In fact, Somaliland’s short, nineteen year history is a string of disappointments for the people of a country that is doing all the things that vex post-conflict societies all over the world: disarmament, reconstruction, establishment of the rule of law, and adoption of democratic institutions. Somaliland has done all these things without outside assistance and in the face of outright hostility by the international community.

Somaliland’s story would be remarkable and triumphant anywhere in the world. In a place nominally under the jurisdiction of Somalia—a state synonymous with failure and anarchy—it is unthinkable. But the incongruity of the international community’s refusal to recognize Somaliland is not limited to its juxtaposition with its neighbor to the south. No, what makes Somaliland’s nonrecognition bizarre is Somaliland’s cooperation with the international community which refuses to recognize it. While Somalia serves as a haven for al-Qaeda linked militants and pirates, Somaliland cooperates with NATO and prosecutes captured pirates and terrorists.

On this, the two hundred-and-thirty-fourth anniversary of our independence, the United States, through a simple act of diplomacy, has the power to secure the dreams of independence of a small nation. In doing so, the United States will both be manifesting its own values and securing an ally who shares those values in a region of the world with few nations evincing commitments to democracy and rule of law.

It is time to recognize Somaliland.

Conflict Minerals