The ‘unbelievably small’ deployment of Special Operations Forces to Syria

Today, the president reneged on his longstanding promise not to deploy American ground troops to Syria.

It may be tempting to view this development as a change in the administration’s strategy, or even as a sign that they have finally recognized that degrading and destroying the Islamic State will take more than airstrikes and relying on other forces to conduct ground operations.

Regretfully, neither appears to be true, as this deployment will neither be sufficient in size nor capability to make significant headway in the fight against ISIS.

(L to R) Russian Foreign Minister Sergei Lavrov, US Secretary of State John Kerry, Saudi Foreign Minister Adel al-Jubeir and Turkish Foreign Minister Feridun Sinirlioglu stand before a meeting in Vienna, October 30, 2015. Kerry said on Friday he hoped progress could be made in Vienna at finding a political solution to Syria’s four-year-old civil war. REUTERS/Brendan Smialowski.

In the wake of the disastrous and now cancelled mission to train Syrian rebels, to say nothing of the Russian military’s confident and brazen return to the Middle East, the US needs to show that it is doing something—anything—to support the moderate rebels in Syria. Earlier this month, Washington announced that they would provide 50 tons of ammunition to rebels organized under the Syrian Arab Coalition via airdrops. Although the initial airdrops were successful, the risk of munitions not reaching the intended recipients has evidently grown so high that the administration will now deploy fewer than 50 special operations forces to primarily serve in a “logistical”  and “advisory” role in Northern Syria.

Is the dedication of ground troops to Syria a sign that the administration is finally realizing the fundamental role that ground forces must play in any successful strategy to defeat ISIS? Doubtful. Is it a shrewd move to establish American turf in what is becoming an increasingly international conflict? Perhaps. But it is equally telling that this deployment will only comprise a few dozen soldiers. A “surge” this most certainly is not.

After going against the wishes of many in the American public and finally deploying ground troops to Syria, it would be logical to maximize the value and utility of this micro-deployment. Yet the Pentagon has assured us that the new group of special operations troops will not actually see combat. Do we think that Russia and Iran have applied similarly restrictive rules of engagement to the soldiers that they have deployed to Syria in recent weeks? Why would we limit the actions of the troops that we are placing in harm’s way, which represent some of the most highly trained and capable soldiers in the force, to logistics and advice?

The answer is that the administration is trying to have it both ways. It is dedicating troops, but only the minimum necessary to establish a visible and credible presence. It’s finally making public that American forces will conduct “direct action” missions on the ground in an effort to appear resolute, even though the US is known to have conducted raids into Syrian territory in the past. It is dedicating additional air assets to the region, but the amount of air strikes conducted over Syria has actually decreased since the beginning of Russia’s bombing campaign. It is trying to keep its intervention “unbelievably small,” while still adding touches of additional capabilities to an otherwise inadequate response.

Forty special operations troops may have been enough to make an impact in the fight against the ISIS of 2012, but not the ISIS of 2015. A pinprick force will only have a pinprick impact, that is, unless they are allowed to exercise the full range of capabilities that they have been trained to bring to bear.

The deployment of special operations forces to northern Syria is a public relations campaign and a last-gasp tactic masquerading as prudence and strategy.

What’s needed in Syria is a real strategy, one that matches America’s aims with its capabilities; a display of unequivocal strength instead of incrementalism and hesitation. The “unbelievably small” approach didn’t work before, and as the conflict grows in complexity, there’s no reason to believe that it will work now.

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A trilateral in name only

When leaders of Japan, South Korea, and China gather in Seoul this weekend, it may be best to paraphrase Sigmund Freud: Sometimes, a meeting is just a meeting.

The Seoul confab will be the first trilateral meeting of Northeast Asia’s main powers since May 2012. This time, however, a new face will represent China, current premier Li Keqiang, who will be making his first visit to South Korea. That is leading some observers to predict that the agenda will be focused more on economic issues than political and security ones. Such an approach would probably suit Japan’s leader, Prime Minister Shinzo Abe, just fine. After all, avoiding the bitterly controversial issues that dog Japan’s relations with South Korea and China – including wartime sexual slavery and comments questioning Japans’ overall war guilt – is possibly the best way to try and restart relations with both Beijing and South Korean President Park Geun-hye. Indeed, Ms. Park and Mr. Abe have not yet had a formal bilateral meeting together since she came to power two years ago.

Any meeting between the leaders of Asia’s largest economies is to be welcomed. Yet it would not be amiss to see it, not only as a most hesitant step towards normalizing high-level diplomacy among the three, but also as an encounter in which Mr. Abe will likely feel that he is facing a largely united Sino-Korean front. After all, Ms. Park has met Chinese President Xi Jinping six times since being elected in 2013. China has made clear its support for Korea on the question of war memory and has even built a museum in honor of the Korean student who assassinated a Japanese prime minister back in 1905. So close have Ms. Park and Mr. Xi become that some in Washington are questioning whether Seoul is beginning to move towards Beijing permanently.

There is little danger in the short-run that South Korea will turn its back on the United States, as well as refuse to maintain working relations with Japan. Yet Mr. Abe has a difficult task ahead of him this week. He must convince Mr. Li and Ms. Park that it is in their best interests, indeed in Asia’s best interests, that their countries develop robust relations with Japan on economic and political issues. At the same time, his long-term interest should be in trying to bring South Korea closer to Japan on a bilateral basis.

A deeper Japan-South Korea relationship makes sense on many different levels. They are both democracies, both allies of the United States. They are liberal societies with a free press, highly educated consumer class, and governed by the rule of law. They both face the specter of an increasingly powerful, coercive, and suspicious China, whose maritime claims could threaten the freedom of navigation on which they both depend as maritime trading nations. Working more closely together, and with bonds of real trust, could make a significant difference in helping shape Beijing’s perceptions of regional stability and what is in China’s own interests.

So far, however, there is little evidence that such a relationship will emerge. A trilateral approach is fine, but it is by definition going to be focused on lowest-common denominator issues. If the three leaders can agree on a free-trade zone, that would be a big move forward in tying them closer together. But there is little likelihood that any meaningful political or security agreements will emerge. For that to happen, it may well be that East Asia’s leading liberal nations – Japan and South Korea – will have to find a way to strengthen their own relationship before tackling the question of how to help ensure that China acts as a cooperative partner helping ensure Asia’s future prosperity and stability.

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Liberté de la mer: A case for French naval operations in Asia

A French frigate is docked at Zhanjiang in Guangdong province this week for a good will visit, and two Australian naval vessels will, in the coming days, engage in bilateral exercises with Chinese warships. After they conclude their activities with the Chinese navy, all three of these ships should head for Subi Reef and other (formerly) low-tide elevations in the South China Sea.

There has been much talk about American allies joining it in combined freedom of navigation operations (FONOPS) like the one the USS Lassen carried out late Monday. Such cooperation would be well and good, but it may be even more important for others to carry out FONOPs on their own.

Soldiers of Chinese People’s Liberation Army (PLA) navy look on as French navy command ship Dixmude (L9015) arrives at the Wusong naval port in Shanghai, China, May 9, 2015. REUTERS/Stringer.

Unilateral Australian FONOPs, for example, would convey that defending freedom of the seas is a national priority for Canberra outside the confines of the US-Australia alliance. It would signal a willingness to incur Chinese opprobrium all on its own, despite the fact that China is Australia’s top trading partner by a wide margin (Australia’s trade with China is nearly three times larger than its trade with the United States).

Perhaps even more significant would be French FONOPs in the Spratly islands. France is no longer a global power, but it does have global responsibilities. Indeed, it is a resident power in the Pacific: French Polynesia, New Caledonia, Wallis and Futuna are all French dependencies.

France also has island holdings in the eastern Pacific and southern Indian Ocean (Réunion was in the news earlier this year when debris from MH 370 washed ashore). French concern with freedom of the seas in Asia, then, should extend beyond concerns for its €54 billion of exports to the region.

French FONOPs in the South China Sea would, moreover, signal a renewed commitment to upholding the liberal international order, which has been under strain in Eastern Europe of late. If that order fails in one region, it fails everywhere. It’s about time America’s European partners recognize that.

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Paul Krugman thinks voters should give Democrats the benefit of the doubt on debt and spending. Hmm …

Paul Krugman on the GOP presidential economic plans:

So now we have candidates proposing “wildly unaffordable” tax cuts. Can we start by noting that this isn’t a bipartisan phenomenon, that it’s not true that everyone does it? Hillary Clinton isn’t proposing wildly unaffordable stuff; Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.

And proposing wildly unaffordable stuff is itself a declaration of priorities: Rubio is saying that keeping the Hair Club for Growth happy is more important to him than even a pretense of fiscal responsibility. Or if you like, what we’ve seen is a willingness to pander without constraint or embarrassment. Also, his insistence that the magic of supply-side economics would somehow pay for the cuts is a further demonstration of priorities: allegiance to voodoo trumps all.

Krugman is right that the GOP economic plans bleed too much red ink, even before their spending cut plans. But I don’t think any of the candidates, at least not of the major ones, is claiming his or her tax cuts will pay for themselves.

Paul Krugman speaks during an interview in New York, May 4, 2012. REUTERS/Brendan McDermid,

More importantly, he gives today’s Democrats, and the left in general, too much credit for fiscal responsibility. For instance, we “can be sure,” he says, that Bernie Sanders “would propose something” to pay for his $18 trillion spending plan. Really? As Jeff Spross write in The Week:

The conclusion, by now, should be obvious: Government deficits are too low, and have been too low for a good long while. … What’s funny is that Sanders might be gearing up to make this very argument. His chief economic adviser, University of Missouri-Kansas City economist Stephanie Kelton, is a fan of something called modern monetary theory: a batch of ideas that sketches out a very similar case to the one above. Of course, Sanders hasn’t done this yet. And maybe he won’t. But if he ever chose to throw down in favor of bigger deficits and more money-printing — on the national stage of a presidential election, no less — he’d be doing the country a tremendous service.

And more from Vox’s Dylan Matthews on Kelton:

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I. The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy.

MMT may still be a minority position on the left, but I certainly sense a growing tolerance of higher spending under the belief that interest rates will stay very low, making borrowing more affordable than CBO and other budget experts think. And is proposing “wildly unafforadable stuff” by proposing wildly unlikely tax hikes — for both political and policy reasons — really mean you are fiscally prudent? And this from Tyler Cowen:

In most demand-side liquidity trap and secular stagnation models, there is a shortage of safe assets and that is a major problem which requires remedy.  Rubio’s plan, as I understand it, would raise the budget deficit and by a lot because it is unlikely to prove self-financing in the Lafferian sense.  By current Keynesian views, that should be a feature not a bug.

You might rather the deficit be increased by cutting taxes for the middle class, or by building productive infrastructure, but still the Rubio plan would be better than just sitting tight and doing nothing. Furthermore the wealthy will take their new surplus of funds and invest most of it and maybe spend some of it too.  That boosts aggregate demand, and…if you think the multiplier still is high…well, you can see where this is heading.

Are we all ready to turn “C + I + G” into a mere “C + G”?  I hope not.

And while the Fed is legally constrained from buying corporate bonds and other non-zero-ROR assets, wealthy people most certainly are not, so they could spend their Rubio tax cuts on equity, venture capital, and the like.  In essence we would be using wealthy people, and fiscal policy, to make asset swaps which the central bank cannot.  So liquidity trap arguments should not make this tax cut impotent and arguably they should necessitate it all the more.  You might even (heaven forbid) wish to target the tax cut toward the wealthy, if they are the most likely to take cash and buy relatively risky assets with it.  Right? So by the standards of the current New Old Keynesianism, what exactly is wrong with Marco Rubio’s fiscal plan?  Except that some other plan might be better yet.  Inquiring minds wish to know.

I think what’s happening here is that Krugman is using whatever argument is handy to attack the political party he disfavors.

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It’s mad to forgo missile defense

American thinking about missile defense has been incoherent from the very beginning. The issue is superficially simple: the Soviet Union threatened the American people with nuclear missiles, so the US should naturally have tried to defend them against those missiles. Missile defense is among the most unequivocally defensive military systems one can imagine. It cannot be used for attack. Yet the US signed the Anti-Ballistic Missile Treaty with the Soviets and has refrained from serious efforts to build and deploy large-scale missile defense ever since. This policy never made sense and now makes even less. The proliferation of long-range precision missiles that can strike the US and our allies with either nuclear or conventional warheads requires that America develop and field effective missile defense against all likely foes.

Objections to missile defense have always been based on the belief that it would be de-stabilizing. The US persuaded itself that the most effective way to prevent nuclear war with the USSR was through “mutual assured destruction” or MAD, under which stability in a nuclear world required the nuclear states to know that all would be destroyed if any started a war. The Soviets, interestingly, did not accept this view and strove instead to achieve nuclear predominance. They feared that American technological advantages would allow the US to field an effective defensive system, however, that would nullify their growing lead in missiles and warheads. So they lent their propaganda resources eagerly to the fight against the Strategic Defense Initiative pursued by Ronald Reagan, with a large measure of success.

Whatever sense MAD might have made in the 1970s, it makes no sense today. America would not be more secure, nor the world more stable, if our potential adversaries such as Iran and China, to say nothing of al-Qaeda, knew that they could destroy us utterly at the outbreak of major war. Presidents Bush and Obama have both seemed to realize this fact and worked somewhat tepidly to deploy and enhance systems that could defend against Iranian missiles aimed at Europe or at our forces in and around the Persian Gulf.

The nuclear agreement with Iran heightens the urgency of missile defense because of the way the Iranians have interpreted the deal.

They reject any constraints on their ability to deploy missiles of all ranges and payload-weights, and claim that the agreement itself does not impose any such constraints upon them.

They are right about that—the constraints, such as they are, are in the UN Security Council Resolution endorsing the agreement, not the agreement itself.

They have gone beyond claiming their rights to develop missiles, moreover, and are ostentatiously building, testing, and fielding them. Tehran went out of its way, in fact, to test a missile that violated a UN Security Council resolution just days before that resolution was to be cancelled.

Iran is serious about building a long-range missile arsenal whatever its designs on a nuclear weapon might be.

Yet the legacy suspicion of missile defense continues to paralyze the US, helped, once again, by Russia.

Geometry shows that missile defenses designed to protect Europe or the US from Iranian missiles should be placed in Eastern Europe. It also shows that defenses located there cannot interfere with Russian missiles launched against the US. Yet Vladimir Putin has persuaded many people that the deployment of American missile defense systems in Eastern Europe would be an intolerable provocation of Russia and has largely scuttled them.

Putin’s claims were nonsensical as well as unscientific when he began making them because the US had no desire or intention of trying to defend itself against Russian missiles, despite the fact that Russia’s nuclear arsenal is still large enough to destroy America completely. His intrusion into the discussion of how to defend against Iranian missiles seemed to come from nowhere because Americans gave no thought to Putin’s missiles.

But we must now relook at the complacency with which we contemplate Russia’s arsenal. Putin has threatened to use his nuclear weapons on numerous occasions, including in response to non-nuclear attacks.

He has upgraded Russia’s missile delivery systems and deployed them further west as part of an effort to intimidate Europe.

He has thus deprived us of the ability to protect against Iranian missiles even as he has increased the threat his own missiles pose.

This nonsense must end. Both American and Israeli technology has been demonstrated to be able to shoot down incoming ballistic missiles with very high accuracy. Such systems should be expanded and forward deployed to protect US bases and our allies in Europe and the Middle East from any and all potential missile attacks. But missile development has continued, and we now face increasing threats from cruise missiles and from hypersonic missiles, against both of which current systems would likely prove ineffective. So another round of missile defense research must be launched to respond to those new threats.

Missile defense is not destabilizing. It does not cause war. It saves lives. Just ask the people of Israel living under the shadow of Iron Dome. Developing effective defense against the most dangerous weapons on the planet is a strategic and moral imperative.

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Flat taxes and gold: A few thoughts on Ted Cruz’s economic plan

Full disclosure: I have written critically of the flat tax and gold standard as appropriate policy choices for the modern US economy. Frequently, in fact.

So there goes Ted Cruz in Wednesday’s debate endorsing both policies (kind of regarding the gold standard): “If you want a 10 percent flat tax where the numbers add up, I rolled out my tax plan today. … And I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.”

Some thoughts:

1) Cruz has momentum in the betting/prediction markets. Now that may have mostly, if not entirely, to do with his sharp attack on the media. But I can see how his economic plan would score well with many GOP primary voters who (a) think the tax code is hopelessly broken and (b) fret that the Fed’s “money printing” will lead to surging inflation or financial crisis.

Ted Cruz speaks during the Heritage Action for America presidential candidate forum in Greenville, South Carolina September 18, 2015. REUTERS/Chris Keane.

2) To be fair, Cruz didn’t specifically say “gold standard.” I suppose you could just make Fed policy more dependent on what gold is signaling about inflation without returning to late 19th, early 20th century monetary system.

That said, here is the great free-market economist Milton Friedman on the gold standard (thanks to economist Roger Farmer for the pointer) in Capitalism and Freedom:

Even during the so-called great days of the gold standard in the nineteenth century, when the Bank of England was supposedly running the gold standard skillfully, the monetary system was far from a fully automatic gold standard. Even then it was a highly managed standard. And certainly the situation is now more extreme as a result of the adoption by country after country of the view that government has responsibility for ‘full employment.’ [A gold standard] is not desirable because it would involve a large cost in the form of resources used to produce the monetary commodity. It is not feasible because the mythology and beliefs required to make it effective do not exist. This conclusion is supported not only by the general historical evidence referred to but also by the specific experience of the United States.

Again, I think the consensus GOP take on monetary policy is misguided.

3)  My AEI colleague Alan Viard wrote a must-read post yesterday on the Cruz tax plan, which combines a low flat income tax with a value-added tax — though Cruz doesn’t use that term.  A key bit from Viard:

A VAT is much more growth-friendly than the income tax because it does not penalize saving and investment. However, it places more of the tax burden on those who are less well off. And, giving the government another major revenue source might make it harder to restrain entitlement spending growth.

The concern about spending growth is heightened because Paul’s and Cruz’s proposed VATs would be hidden from public view – their plans do not include either of the two steps that can be taken to make VATs visible to the public .A VAT can be split into a business cash flow tax and a wage tax, with the wage tax collected as an employee payroll tax that shows up on workers’ pay stubs. Or, the total VAT collected from businesses along the production chain can be listed as a separate line item on the final customer’s receipt, the way state and local retail sales taxes are listed. But, the Paul and Cruz plans would collect the VAT from businesses without listing it on customer receipts, ensuring that neither workers nor consumers would ever see the tax.

It’s a politically clever plan that allows Cruz to offer a super-low flat income tax at a rate not seen for a century. But it doesn’t lose the sort of revenue one might think because of the VAT. The Donald Trump plan, for instance, would lose $12 trillion ($10 trillion on a dynamic basis), according to the Tax Foundation, with a progressive tax code and 25% top rate. The Cruz plan would lose just $3.6 trillion statically, $800 billion dynamically. (Not that those revenue losses aren’t still pretty big.)

As the Tax Foundation’s Alan Cole explains:

It’s a powerful tax that captures pretty much all of the income in the country.  … Ted Cruz has proposed combining the corporate income tax, the payroll tax, and some of the income tax into a single, larger, broader tax assessed on businesses. … The Cruz plan would give us a rate of equivalent to 19 percent, by the invoice credit method. Furthermore, if you counted sales taxes levied at the state and local level, this plan would put our consumption tax rate at around 26 percent, tax-exclusive. That is actually towards the high end of the range of ordinary OECD countries. For example, in Denmark and Sweden, the overall consumption tax rates are in the mid to high twenties. In Australia, the rate is ten percent, and in Japan and Switzerland, the rate is in the single digits. With this high VAT revenue (and much lower government spending than other OECD countries) the U.S. could sustain low income tax rates, such as the ten percent proposed by Senator Cruz.

4) Indeed, if one assumes the future US tax burden will need to rise for demographic reasons, the VAT provides an efficient mechanism for raising taxes in a less economically harmful way. Some Democrats talked about a VAT after President Obama’s 2008 election to pay for healthcare reform.

I would guess Cruz’s primary opponents will attack his VAT as enabling bigger government, especially given its “hidden” nature. But it does have some big economic merits, deficits aside.

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China scraps one-child policy: Country’s great age of reform begins in the bedroom

Governmental reform plans have been known since Hammurabi drafted his first set of law codes over 3,000 years ago. The repeated cycles of reform and reaction are as much an exercise designed to keep government scribes and bureaucrats busy, as they are intended to affect the activities of the people under central control. Rarely, however, does reform directly impact the most intimate matters of the lives of citizens or subjects.

Such is not the case with China’s announcement Wednesday that the country’s 35-year old infamous one-child policy is to be scrapped.

Imposed when Chinese leaders feared that their then-800 million strong population would grow to an extent that would make it impossible to feed or control, the policy was perhaps the most egregious imposition of state control on the lives of Chinese citizens.

No one will ever know the true figures, but anywhere from 200 to 400 million births were “averted” thanks to the policy. Its brutality, also, was legendary, as pregnant women were forced to undergo abortions or sterilization.

The policy may have successfully retarded the growth of China’s population, but as with all large-scale or intrusive central government plans, it resulted in significant unanticipated consequences.

Perhaps the most damaging was a skewing of the sex ratio at birth, thanks to sex-selective abortions practiced by expectant parents. Since male babies are valued more for their eventual labor abilities, female fetuses were aborted as a matter of practice. China now has one of the most imbalanced sex rations, with 116 males born for every 100 females. This already is leading to the inability of millions of Chinese men to find mates; by some estimates up to 25 percent of Chinese males cannot find brides.

Another consequence was the number of Chinese who got around the prohibition, sometimes by giving birth outside the country, other times by simply ignoring the edict. Yet, overall, it was wildly successful.

Now, China faces the fruits of its policy: an aging population. China’s fertility rate slipped below replacement rate back in the early-1990s, and now the country is facing the beginnings of a labor shortage. Over the next 20 years, China’s working age population (15-64 years of age) is expected to shrink by nearly 60 million. This means further stress on wages, which have been increasing and leading to reduced competitiveness for Chinese companies, and a drag on the manufacturing sector.

It also means that a bulge of older citizens will have to be supported by fewer workers, increasing the pressure on government to provide a firmer social safety net.

In short, as is now common to say, China will become old before it becomes rich.

Hence the dramatic announcement that the government will step out of China’s bedrooms, at least partially. After hesitant reform in 2013, to allow rural families to have more than one child, all Chinese will now be allowed to have two children. While the state will ostensibly still monitor the reproductive activity of its citizens, the move is perhaps the beginning of a major wave of reform in China, spurred by the recognition that the country’s golden era of growth is over.

Slowing economic growth will drive the Chinese Communist Party to make difficult choices. While any type of political liberalization appears to be off the table, especially given the tightening of control by President Xi Jinping, China’s leaders may have to allow a greater loosening of entrepreneurial spirit and individual activity.

Allowing couples to have two children might well be seen as tacit recognition that the private sphere in China will have to be respected more in the future.

Yet there are no easy solutions to China’s looming problems. In fact, the modicum of greater freedom given by the government to the family planning of its citizens may in fact not result in a new baby boom. Like many maturing economies, China may find that its younger generations don’t want to accept the burdens of raising more children in a more uncertain and expensive economic environment. That, ironically, could result in more drastic action being taken by Beijing, though as their neighbors the Japanese can attest, there is little bureaucrats can do to make more babies.

In the end, what the end of the one-child policy represents may be as simple as a dramatic recognition that the next era in Chinese history will be one of trying to find solutions to problems that have simmered for decades.

There will be successes and failures, but the big picture will be one of a government torn between accepting the need for real reform while avoiding any moves that may undermine its hold on power.

Call it the Great Era of Muddling Through.

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How the national debt affects your family: Hassett on Fox News’ ‘Special Report’

 

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China, South Korea, and Japan: What to expect from the trilateral summit

After a three-year hiatus, South Korea, Japan, and China will convene for a trilateral summit on Sunday, November 1, 2015.

The high-level meeting, though largely symbolic, is intended to address several ongoing regional disputes including historical grievances over Japan’s wartime past, Chinese military aggression in nearby waters, and prospects for a trilateral free trade agreement. Some thoughts on challenges and opportunities for progress.

South Korea’s President Lee Myung-bak (L), China’s Premier Wen Jiabao (C) and Japan’s Prime Minister Yoshihiko Noda stand in front of their national flags during a joint news conference of the fifth trilateral summit among the three nations at the Great Hall of the People in Beijing, May 13, 2012. REUTERS/Petar Kujundzic.

Michael Auslin

When leaders of Japan, South Korea, and China gather in Seoul later this week, it will be the first trilateral meeting of Northeast Asia’s main powers since May 2012.

While any meeting between the leaders of Asia’s largest economies is to be welcomed, it will most likely not result in a major step towards normalizing high-level diplomacy among the three countries. During the meeting, Mr. Abe will likely feel that he is facing a largely united Sino-Korean front. So close have Ms. Park and Mr. Xi become that some in Tokyo and Washington are questioning whether Seoul is beginning to move towards Beijing permanently.

There is little danger in the short-run that South Korea will turn its back on the United States, as well as refuse to maintain working relations with Japan. A deeper Japan-South Korea relationship makes sense on many different levels. They are both democracies, both allies of the United States. They are liberal societies with a free press, highly educated consumer class, and governed by the rule of law. They both face the specter of an increasingly powerful, coercive, and suspicious China, whose maritime claims could threaten the freedom of navigation on which they both depend as maritime trading nations. Working more closely together could make a significant difference in helping shape Beijing’s perceptions of regional stability.

A trilateral approach is fine, but it is by definition going to be focused on lowest-common denominator issues. If the three leaders can agree on a free-trade zone, that would be a big move forward in tying them closer together. But there is little likelihood that any meaningful political or security agreements will emerge.

Dan Blumenthal

This weekend’s trilateral summit between Li Keqiang, Park Geun-hye, and Shinzo Abe will be the first of its kind since 2012. While a great deal of attention has been paid to the trilateral, US policy makers should be primarily concerned with the outcome of the Abe-Park bilateral sideline meeting on Monday. The two leaders met informally at the UNGA in September 2015 and at Lee Kuan Yew’s funeral earlier this year, but this will mark their first formal summit.

The two countries have had a difficult past, and Imperial Japan’s behavior on the peninsula was reprehensible. But democratic Japan is not Imperial Japan — since WWII Tokyo has been a force for good in the world. It is now up to the Seoul and Tokyo to engage in private diplomacy to decide how to best deal with the past and look to the future.

A top priority for US policy is a strong trilateral alliance structure among Washington,Seoul, and Tokyo. Such an alliance would solidify Northeast Asian security by strengthening the containment and deterrence of a nuclear North Korea and pushing backing against China’s aggrandizement. South Korean leaders know that the peninsula is indefensible without Japan, just as Japanese leaders know that their security will be enhanced through cooperation with the ROK on nuclear deterrence. The pieces of a new alliance structure are in place, it will now take leadership to put it together.

Michael Mazza

 On November 1, the leaders of China, Japan, and South Korea will gather for a trilateral summit—their first since 2012. Since that time, China and South Korea have gotten very buddy-buddy, while South Korea and Japan have managed to avoid talking to each other even though their overriding strategic interests demand it. Perhaps the best that can be said about Japan and China is that they’ve avoided war.

In one sense, then, it’s notable that Li Keqiang, Shinzo Abe, and Park Geun-hye have found a way to sit down together for some good, old-fashioned summitry. But although it is easy to get excited about these leaders talking to, rather than yelling at, each other, there’s little reason to expect the meeting will kick off a winter of warmer relations.

What should we expect? Boilerplate language on denuclearizing the Korean peninsula, deepening trilateral economic ties, and increasing dialogue seems likely. But even on these issues, national interests are not entirely aligned.

Beijing’s primary interest in North Korea has never been denuclearization, but rather stability, and President Park’s talk about unification likely makes Xi Jinping nervous. Progress on a trilateral free trade agreement has been slow, while South Korea has expressed interest in joining the recently concluded Trans-Pacific Partnership, in which Japan is a member and from which China is currently excluded. Japan and China have seen increased dialogue over the past year or so, but an agreement on a maritime hotline—seemingly low-hanging fruit—remains out of reach.

Much more important than the trilateral summit is the expected bilateral Abe-Park meeting. Although there appears to be little prospect of South Korea and Japan resolving their historical differences, they do have much of importance to discuss—planning for North Korea contingencies, coordinating efforts to preserve order in and over the East China Sea, intelligence sharing, regional missile defense initiatives, South Korean inclusion in the TPP…the list goes on.

If President Park and Prime Minister Abe can find their inner statesmen and prove they can engage in substantive discussions, it will pave the way for more consequential trilateral diplomacy—that between Washington, Tokyo, and Seoul.

 

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Diagnosing the urge to run for office

Editor’s note: The following is an excerpt contributed by AEI’s Sally Satel in Politico Magazine’s “Diagnosing the urge to run for office,” November/December 2015.

‘No reason to suspect aberration as a general rule’

A few months before the 1964 presidential election, the now-defunct Fact magazine surveyed the membership of the American Psychiatric Association about the personality of Barry Goldwater, the Republican nominee. The psychiatrists savaged Goldwater, calling him “warped” and a “paranoid schizophrenic” who harbored unconscious hatred of his Jewish father and endured rigid toilet training. This absurd analysis prompted the APA to formulate the Goldwater Rule, advising members that it is “unethical for psychiatrists to offer a professional opinion unless he/she has conducted an examination and has been granted proper authorization for such a statement.”

This is not to say that careful psychometric evaluations are invalid. In such studies, presidents (who were once candidates, of course) rate more highly than the average person in terms of narcissism. But there is no reason to suspect aberration as a general rule. A 2006 study by Duke University psychiatrists found that, over their lifetimes, presidents displayed no greater incidence of psychiatric diagnoses than the rest of the population. (The authors acknowledge that the raw data they had to rely on were not perfect and that politicians’ psychological difficulties, if they do manifest, may emerge as a result of the pressures of office.)

Still, for psychological insight on important political figures, we may do better to turn to biographers like William Manchester, Robert Caro and Lou Cannon. Beyond the obvious, and objectively documented, preponderance of ambition, outsized self-confidence and related traits in presidential candidates, anyone who offers fanciful theories about candidates’ psychological health or explanations of their foibles involving the neurotransmitter dopamine is probably just spinning. —Sally Satel, resident scholar at the American Enterprise Institute and lecturer in psychiatry at the Yale School of Medicine

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No Medicare premium spike…for now

The fix is in, but seniors have little reason to celebrate. About 16 million Medicare beneficiaries were facing an unprecedented 52 percent increase next year in their premiums for Part B, which pays for physician services. The budget deal worked out by the White House and Congress held that to a more manageable 15 percent increase. But this kicks the cost down the road, leaving an even bigger problem for seniors in future years.

Most Medicare beneficiaries are protected by a “hold harmless” provision, which ensures that their monthly Social Security checks will not be reduced when Medicare’s Part B premiums increase. The consumer price index used to adjust Social Security payments for inflation actually declined over the past year, resulting in no cost-of-living increase for recipients. In contrast, Part B spending increased about 6 percent. Despite the higher cost, premiums are not allowed to increase under the hold harmless provision. Any premium increase would reduce the Social Security check paid to millions of seniors.

Like other government guarantees, this one is not free. The 36 million beneficiaries protected by hold harmless pay $104.90 a month, about $15 less in premiums than they would without the provision. The 16 million who are not protected under hold harmless – including high-income seniors who already pay larger premiums than most others, new enrollees, Medicare beneficiaries who are also enrolled in Medicaid (for whom state Medicaid programs pay their Medicare premiums), and individuals (primarily civil servants) who never qualified for Social Security – make up the loss in revenue.

The premium increases would have been breathtaking. Most beneficiaries who are not protected by hold harmless were slated to pay $159.30 every month next year. Seniors with high incomes would have paid substantially more, with premiums exceeding $500 a month for those in the top bracket.

The Bipartisan Budget Act of 2015 reduces the premium increase for those not covered by hold harmless, who will pay $120.70 a month next year. Beneficiaries with high incomes will pay more, but even those in the highest income bracket will be charged about $100 a month less than would have been the case. By my estimate, that creates an $8 billion hole in the Part B trust fund which will be repaid by charging everyone who is not protected under hold harmless an additional $3 a month for as long as it takes.

That’s what the press statements say, but that is not how it will work out. Conveniently overlooked is what happens to premiums in 2017.

If inflation remains flat and the Social Security cost-of-living adjustment is zero, then we have a repeat of the fix in 2017 with most Medicare beneficiaries paying the same $104.90 monthly premium for another year. But that is not likely. Instead, we could see consumer prices rise somewhat even with continuing weakness in the economy. If that happens, the hold harmless provision will again impose very large increases in premiums for millions of seniors.

Here’s a rough calculation. The average retired worker receives $1,335 a month in Social Security benefits. If prices rise about 1 percent over the next year, then the average cost-of-living adjustment increase for 2017 will be about $14 a month. For Medicare beneficiaries protected by hold harmless, that is the most that Part B premiums can increase that year.

That will not be enough to avoid having to substantially increase the premiums paid by millions who are not covered by hold harmless. Even ignoring the $8 billion loss of revenue in 2016 caused by the Bipartisan Budget Act, premiums would increase by at least $35 a month for seniors who are not protected by hold harmless. Depending on how quickly the Medicare trustees want to re-establish a balance in the trust fund that is consistent with past practice and industry standards, the increase could be much higher.

That’s not the end of the story. The budget act explicitly denies the secretary of health and human services the authority to use the fix after 2017. That provision was included because White House and congressional negotiators know they did not solve the problem. We will continue to have a mismatch between rapid health spending and low general inflation, and that will lead to future “hold harmless” political crises. This is a symptom of a program that is on an unsustainable path, and no amount of budget maneuvering can fix it.

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State of the race: Ponnuru on MSNBC’s ‘MTPDaily’

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On energy security, Obama should follow David Cameron’s example

Less than a decade ago U.S. energy security was in crisis. Domestic oil production had been declining steadily from a peak of 10 million barrels per day in 1970 to only half that amount in 2005. Our reliance on oil imports and OPEC had risen to an all-time high ten years ago. U.S. natural gas production had been flat for more than 30 years and was slipping behind growing domestic demand. We were on track to become a major natural gas importer, a future that energy experts the world over agreed was nearly inevitable.

Despite countless promises about breaking — or at least significantly reducing — our reliance on overseas energy sources, our energy security was going from bad to worse. Fortunately, innovation, “petropreneurship” and free market capitalism had other plans.

In the last decade, the U.S. has become the world’s largest oil and natural gas producer. America now stands poised to become a leading natural gas exporter and, should the outdated crude oil export ban finally fall, a considerable oil exporter as well. Refined petroleum products like gasoline and diesel fuel have already become the largest source of U.S. exports every year since 2011, according to the Bureau of Economic Analysis.

The shale revolution made all of this possible. Our unplanned and unexpected energy turnaround has become the envy of our allies and foes alike. Many nations blessed with their own energy-rich shale formations have watched their dependence on foreign energy grow in recent years. For them, recreating the American shale revolution has become a policy imperative.

In the United Kingdom, the Cameron government has stepped into local debates about shale development to ensure it proceeds. While Britain has proven shale resources, not a single well has been fully fracked there since 2011. Public opposition to fracking — driven largely by the same kind of misinformation and hysteria that stubbornly remains in the U.S, despite evidence to the contrary — has obstructed shale production in the U.K. But many more open-minded Brits see shale and fracking as both a tremendous economic opportunity for the U.K. and as a critical energy source to shore up the nation’s energy security.

Like much of Europe, the British fear their growing dependence on Russian natural gas and further petro-fueled bullying from Vladimir Putin. Russian imports already account for 15 percent of the U.K.’s natural gas and that reliance is projected to increase. Shale development provides an important and increasingly necessary alternative. The Cameron government, growing increasingly impatient with the permitting delays that local regulators are imposing on natural gas development, recently imposed a strict deadline of 16 weeks for regulators to review drilling permit applications. Foot dragging and delays will no longer be tolerated.

While the Cameron government is actively supporting its domestic shale industry, the Obama administration seems to be doing its best to obstruct further production, having apparently already reaped the rewards of surging shale oil and natural gas production. It’s a remarkable contrast.

It we weren’t discussing the Obama administration, this might seem too odd to be true. The shale revolution has arguably broken the back of OPEC, transformed the U.S. into an energy superpower, jumpstarted the economy following the Great Recession and even provided the cheap, clean natural gas that has driven carbon emissions from electric power plants to their lowest level in almost a quarter century.

The oil and gas industry’s “Thank You” from the president for the most remarkable energy success story in U.S. history? Try new regulations governing hydraulic fracturing on federal lands, newly proposed methane and ozone regulations, blocking the Keystone XL pipeline and the threat of a veto to block any legislation that would lift the crude export ban.

Has Team Obama lost its collective mind? If we care at all about preserving and hopefully further bolstering U.S. energy security in the future, America should be encouraging the shale revolution, not hampering it. It would be an unforgivable mistake to let the energy achievements of the past few years slip away. Perhaps President Obama needs a reminder from David Cameron about just how good he has it as president of a country that has entered a new era of energy abundance and security.

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The family foundations of economic growth

It is often hard to understand exactly what drives economic growth. By definition, economic growth is the amalgamation of labor, capital and technological change. As individuals, we understand that we contribute to this process in our daily lives through our decisions to work, save, consume and invest. Yet it is often difficult to foresee how these choices yield the larger, macroeconomic process of economic development and growth. In his recent paper, economist Robert Gordon, documents the long history of U.S. economic growth, linking periods of slow and rapid growth to three industrial revolutions: steam and railroads; electricity and the internal combustion engine; and the recent advent of computers, the internet and mobile phones. He claims, however, that even if we continue to innovate rapidly, economic growth may be weak and lower than the average growth between 1860 and 2007. Technological change will not be enough to offset the pullback from the “headwinds” of rising income inequality, falling labor force participation rates, lack of widespread education and changing demographic structures. Therefore, looking deeper into socioeconomic factors rather than just the technological aspects of economic growth is critical. Exploring the family foundations and the role of changing family structures in influencing these headwinds is key to fostering sustainable growth.

The Link Between Family and Growth

Why do family structures matter for growth? In an earlier study, Bradford Wilcox and Robert Lerman showed that the decline in traditional two-parent married families is associated with rising income inequality, lower median incomes and lower labor force participation rates. Looking at data from 1980 to 2012, they found that among married parent families, the median family income rose 30 percent, while for unmarried parents, family incomes rose only 14 percent over the same period. In addition, their work also suggested that this retreat from marriage is correlated with lower labor force participation rates for men.

Since marriage seems to imply better economic outcomes for families, do states with a larger share of such traditional families fare better? In a new study, Bradford Wilcox, Joseph Price and Robert Lerman answer precisely this question. The authors study the role of families in influencing the economic development of a state. They find that the higher the proportion of married parents in a state, the better the economic outcomes. Higher levels of marriage are strongly correlated with more state GDP per capita, greater levels of upward economic mobility, lower levels of child poverty, and higher median family incomes. In comparing states in the top quintile of married parent families with those in the bottom quintile, they find that being in the top quintile is associated with a $1,451 higher per capita GDP, 10.5 percent greater upward income mobility for children from low income families and a 13.2 percent decline in the child poverty rate.

These results are not altogether surprising. Other research has shown that changing demographic structures, such as an increase in the share of single mother families, is associated with higher rates of poverty, particularly for children. Moreover, growing up with both parents is associated with a 15 percentage point lower probability of dropping out of high school. Raj Chetty and his colleagues show that family structure plays a large role in economic mobility, and communities with a larger share of single mothers are less upwardly mobile than those with a smaller share of single mother households.

Family stability can affect economic growth in other, not-so-obvious ways as well. In “Power of the Family,” economists Alberto Alesina and Paola Giuliano analyze the effect of strong family ties on economic outcomes using cross-country data. They find that with stronger family ties, the labor force participation of women is lower and there is more home production rather than reliance on the market. Moreover, women are less likely to go to college and are therefore less educated. These effects would, on average, reduce economic output and growth, since home production is not included in statistical calculations of GDP. Overall, however, the paper reports that families with stronger ties are likely to report higher levels of happiness and satisfaction with their lives, suggesting that income, may tell only part of the story.

These findings are corroborated by the Wilcox et al. study which shows that in the U.S., married mothers are less likely to be in the labor force than their counterparts. However, on average, it appears that the gains associated with married parenthood when it comes to men’s labor force participation, work hours and income exceed the losses in women’s labor force participation, work hours and income.

What Can Policy Achieve?

From a policy perspective, a question often asked is whether it is important to encourage marriages since married parent families clearly have better outcomes? Married parent families tend to have higher incomes than single parent families, which implies that they have access to better schools, better neighborhoods and better job opportunities. They are also more likely to commit more time and resources to raising their children. Therefore these advantages persist not only across the parents’ own lifetimes but are transferred across generations. Single parents, particularly single mothers, are more likely to live in poverty, less likely to be able to devote time and resources to their children, and therefore more likely to allow the persistence of poverty across generations.

It is unrealistic to expect that policy can “encourage” marriages if individuals in society in fact choose to not be married. However, it is important to remember that often single motherhood is not a choice. As Isabel Sawhill points out, more than 70 percent of single mothers under the age of 30 claim that their pregnancy was unwanted or mistimed. This is particularly true for low-income women. So perhaps instead of targeting marriage rates, policy could focus on reducing the number of unwanted pregnancies to unmarried, low-income mothers. Another likely successful intervention may be to expand the Earned Income Tax Credit to boost incomes for low-income households so that they have more resources to spend on their children. If these changes result in higher labor force participation rates, higher incomes, higher education investments and lower persistence of poverty across generations, we may come closer to sustaining high rates of economic growth, even if we fail to achieve what data suggests may be the ideal: the stable, two-parent family.

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Bad IMF advice for China

In the context of China’s bid for its currency to be included in the IMF’s Special Drawing Right (SDR) basket, the International Monetary Fund (IMF) seems to be dispensing poor policy advice to China with respect to its exchange rate and external capital account management. By pushing the Chinese policymakers to further liberalize their country’s exchange rate and to open up their capital account at this delicate juncture for both the Chinese and the global economies, the IMF risks not only heightening China’s present economic difficulties, but also undermining the global economic outlook.

Amid mounting evidence that China’s economy is now slowing and that its outsized credit market bubble is bursting, Chinese residents have been exporting capital abroad at an alarming rate. According to the country’s official international reserve data, over the past year. China experienced capital outflows in excess of $500 billion. Much of that outflow occurred in the third quarter of 2015 in the immediate aftermath of China’s surprise August decision to allow its currency to depreciate by around 2 percent.

Last week, in an effort to stimulate China’s flagging economy, the People’s Bank of China cut interest rates for the sixth time over the past year. By so doing, it further reduced the incentive for Chinese savers to keep money at home, particularly at a time when the Federal Reserve is mulling an interest rate hike and when doubts have arisen as to the stability of the Chinese currency.

Full text of this article is available at TheHill.com.

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China’s new Two-Child Policy and the fatal conceit

It is the latest twist in the most ambitious and ruthless social-engineering program ever undertaken by a modern state: Beijing announced Thursday that the Chinese Communist Party will officially abandon its one-child policy. Yet it has no plans to relinquish authority over its subjects’ birth patterns; rather, Beijing has simply changed the ration. Now two children per family will be permitted.

The first partial relaxation came two years ago, when Chinese authorities decreed that spouses who were both an only child would be allowed to have two children. This fine-tuning was expected to result in several million additional births—but only a fraction of that number of couples even applied for a second ration coupon. Now, after 3½ decades of attempted one-child enforcement, the government can no longer ignore that its policy of forcible population control has been a disaster. As the Communist Party prepares for its 13th five-year plan, it must survey what its quest to remold the Chinese family has wrought.

The one-child mandate is the single greatest social-policy error in human history. AfterMao Zedong’s death in 1976, his legatees were horrified to discover how little they had inherited. Despite almost three decades of “socialist construction,” China was still overwhelmingly rural and desperately poor. More than 97% of the country lived below the World Bank’s notional $1.25 a day threshold for absolute poverty, according to recent Chinese estimates. With a population still rapidly growing, China seemed on the brink of losing the race between mouths and food.

In their attempt to process these facts, Chinese leaders stumbled into an elementary neo-Malthusian misdiagnosis. Rather than focus solely on undoing the crushing inefficiencies of their Maoist economy, they blamed abysmal productivity on the childbearing patterns of their subjects. The outcome was involuntary birth control, promulgated through a vast scheme of quotas and an army of family-planning agents.

This was Socialist “scientism”—ideology masquerading as science—of the highest order. The broad outline was established on calculations by a Moscow-minted engineer in China’s nuclear program. These computations bore no relation to the actual ways in which Chinese men and women thought about family life. As soon as the policy was rolled out in 1980 and 1981, it collided with human realities.

First came alarming reports that female infanticide, an ancient practice, had once again erupted throughout the countryside. China’s 1982 census, released some years later, showed an unnatural imbalance in the sex ratio for birth-year 1981 on the order of hundreds of thousands of missing baby girls.

Infanticide was then replaced by mass sex-selective abortion, made possible in the late 1980s by increased rural access to ultrasound machines. China’s sex ratio climbed to nearly 120 baby boys for every 100 baby girls, where it plateaued around 2000. Although a war against baby girls is evident in other countries—India and Taiwan among them—leading Chinese demographers have suggested that half or more of China’s imbalance may directly result from the one-child policy.

The precise long-term effects have yet to be accurately estimated. Chinese authorities claim that the country has 400 million fewer people due to the one-child policy, because they have overseen that many abortions. But this misleading metric ignores the distinction between forced and voluntary abortions.

To the extent that the policy has achieved its objective, it magnified the demographic problems that Communist planners are apparently only now beginning to acknowledge. Fertility levels in urban China were already well below replacement by 1980. Today the country is on track to go gray at a shocking tempo. Two years ago, working-age manpower began to decline, according to Chinese authorities. The only close comparator is post-bubble Japan: not a cheering vision for what remains a relatively poor society.

And China’s cities are now producing a new family type utterly unfamiliar to Chinese history: only children begotten by only children. They have no siblings, cousins, uncles or aunts, only ancestors (and perhaps, one day, descendants). But in a low-trust society, extended social networks, known in Chinese as guanxi, play a vital economic role. They reduce uncertainty and transaction costs by providing the reassurance supplied elsewhere by rule of law and transparency. How will Chinese economic performance be affected by the atrophy of the extended family?

Beijing’s latest adjustments to population plans seem to have been prompted by economic concerns, yet these changes will have only modest demographic repercussions. Like other East Asian locales without forced population control, the average desired family size in China appears to be far below replacement. Beijing also can’t rely on immigration for demographic help. Even modest gains from the new policy will take decades to have an economic impact.

Contemporary China has a host of top-flight demographers and population economists—and so far as I can tell, almost all are critics of their country’s population program. Some are concerned with human-rights violations; most pragmatically regard the one-child policy as painfully, obviously counterproductive. A number of these experts wrote a letter to the State Council a decade ago urging “reconsideration” (translation: complete scrapping) of the one-child norm—to no effect.

Why has Beijing stubbornly ignored the advice of its own top talent? My baffled Chinese colleagues speculate on possible explanations: the difficulty of re-tasking the vast army of population-control bureaucrats; the value of the hefty fines exacted for out-of-quota births; the neo-Malthusian ideology to which China’s bosses still seem to be slave.

All of these are plausible, but they overlook a key piece: the Chinese government’s undying claim to totalitarian control over the most basic details of its subjects’ lives, revealed as well by the retrograde hukou system of residence permits that makes urban China’s migrant workers illegal aliens in their own country. For all the talk of “reforming”—and we have been hearing it overseas for almost two decades now—the Chinese government has been unwilling to dispense with these instruments of social control precisely because they are instruments of social control.

The “fatal conceit” (to borrow Friedrich Hayek’s term) of China’s population planners was that they could micro-calibrate the behavior of the men and women under their command. The new two-child policy suffers the same flaw. As long as Beijing deforms Chinese society with these misbegotten tools, the nation’s future will be compromised, poorer and sadder than it otherwise could be.

Mr. Eberstadt is a political economist at the American Enterprise Institute in Washington, D.C.

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NAEP and political meaning

The 2015 reading and math results from the National Assessment of Educational Progress (NAEP) were released yesterday. The national news is unpleasant: only 35% of fourth graders and 33% of eighth graders scored at proficient or better in reading, and only 39% of fourth graders and 32% of eighth graders scored proficient or better in math.

Results for each subgroup are not great either: math and reading scores for white and black fourth- and eighth-graders remained the same or dropped since 2013; reading scores rose for Hispanic fourth graders but dropped in eighth grade; and eighth grade math and reading scores for Asian students, who are the top performers in the nation, dropped.

Although the changes are far from astronomical, it is the first time in 25 years that the NAEP math scores have decreased. What does this mean? It depends on perspective.

Public Domain. National Center for Education Statistics – National Center for Education Statistics.

Many scholars, lawmakers, journalists, and advocates have expressed well thought-out opinions about what the “Nation’s Report Card” says about the state of American education. Some national spokespersons blame lackluster NAEP scores on teachers or their unions. Others blame a school choice movement that has attracted some of the public schools’ best test takers. Select members of the anti-Common Core, PARCC or Smarter Balance camps are sporting “I told you so” grins. At the ground level, state chiefs and local superintendents are pointing to recent improvements in SAT or ACT scores for comfort, while subgroup advocates walk the line of poverty, race, class and financial inequities in search of an explanation.

At the end of the day, everyone has an opinion and, absent a clear answer for why NAEP scores have declined and what this means for American education, all are plausible.

But all of these opinions ultimately put too much stock in NAEP as a tool for evaluating academic rigor nationwide. NAEP is a political ritual, not a flashlight, and our narrative says more about bureaucratic symbolism than it does about academic vitality. This ritual plays out with the release of all standardized test scores, but especially with NAEP because of its national import and methodological rigor.

While a state education leader in Virginia and Florida, and during my time as a researcher in Wisconsin, I participated in the ritual. I waved the flag when news was good for my state or district(s) and cried foul when it was not. After huddling with our education department researchers and communication specialists, I released a press statement that highlighted our gains and massaged our drops. We fed our message to reporters, as did school boards and interest groups. After a week of coverage, winners and losers were determined by appearances above the newspaper fold or by hits on social media. We promised to do better the next time, then moved on to the next education issue.

This year, let us shift the discussion from political ritual to practical advice. Here are a few suggestions to bring some academic meaning to the discussion:

• When running for office, governors frequently promise to create jobs and boost the state economy, both of which require a qualified workforce. In light of the NAEP results, governors should explain to their constituents what NAEP is and, more importantly, what NAEP does and does not mean to the state and its economy.

• State education chiefs should host video or conference calls with current and former state teachers of the year, parent organizations, and employers. The goal should be to gather their insight about what the NAEP results mean to them. Understanding what these constituencies think about the results, and about our education system more broadly, is useful for two reasons: first, to help explain the findings to other teachers and to the public, and second, to hear ideas for improving education from outside the political bubble.

• Researchers should take advantage of the opportunity to study this new data set. My AEI colleague Nat Malkus highlights differences in public and private schools’ scores as a good example of a question from the NAEP data that begs to be analyzed. And, when sharing their findings, researchers should strive to reach the public, not just the ivory tower, by writing for a lay audience and in the popular press.

Despite NAEP scores taking an unprecedented tumble this year, one thing remains the same as in 2013: the results prompt a flurry of opinions and political maneuvering, but not much substantive discussion.

It’s time to replace political ritual with a practical exploration of how we got these NAEP scores and, most importantly, how the NAEP data can guide our math and reading education for the next group of 4^th and 8^th graders. To paraphrase a common saying, fool us once, shame on you; fool us twice, shame on us.

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Another proposal for a hidden VAT

Following Senator Rand Paul’s lead, Senator Ted Cruz has released a tax reform plan that includes a substantial value added tax (VAT).

Cruz’s plan would abolish the payroll and self-employment tax, the corporate income tax, and the estate and gift tax, and would also slash  individual income tax rates to a flat 10%. The plan would recoup part of the revenue loss by adopting a 16% VAT, slightly larger than Paul’s proposed 14.5% VAT.

Republican presidential candidate Senator Ted Cruz speaks at the North Texas Presidential Forum hosted by the Faith & Freedom Coalition and Prestonwood Baptist Church in Plano, Texas October 18, 2015. REUTERS/Mike Stone.

Like Senator Paul (and Herman Cain in 2011), Senator Cruz shies away from the V word. In his Wall Street Journal op-ed, he calls his VAT a “Business Flat Tax.” Rather than saying that each business would pay tax on its value added, he says that it would pay tax on its “gross receipts from sales of goods and services, less purchases from other businesses, including capital investment” – a precise, but not very transparent, definition of value added. As the Tax Foundation and a Cato Institute scholar point out, Cruz’s proposed tax, like Paul’s proposed tax, is a “subtraction-method value added tax.”

Scaling back the income tax system and instituting a VAT would have advantages and disadvantages. Thanks to their VAT revenue, the Paul and Cruz plans achieve deeper income tax cuts, with smaller revenue losses, than other Republican presidential candidates’ tax plans. A VAT is much more growth-friendly than the income tax because it does not penalize saving and investment. However, it places more of the tax burden on those who are less well off. And, giving the government another major revenue source might make it harder to restrain entitlement spending growth.

The concern about spending growth is heightened because Paul’s and Cruz’s proposed VATs would be hidden from public view – their plans do not include either of the two steps that can be taken to make VATs visible to the public.

A VAT can be split into a business cash flow tax and a wage tax, with the wage tax collected as an employee payroll tax that shows up on workers’ pay stubs. Or, the total VAT collected from businesses along the production chain can be listed as a separate line item on the final customer’s receipt, the way state and local retail sales taxes are listed. But, the Paul and Cruz plans would collect the VAT from businesses without listing it on customer receipts, ensuring that neither workers nor consumers would ever see the tax.

If the United States is to have a VAT, it should be adopted in the light of day, not snuck through as a “business tax.” And, once adopted, its tax burden should be made visible to the American people, who have a right to know the full cost that they’re paying for their government.

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Free stuff can turn out to be a bad buy

Free college! That’s what the Democratic candidates were offering in their presidential debate. And it’s likely that, if the subject had come up, they would have offered something like free home mortgages as well, to judge from Hillary Clinton’s statement that she had urged Wall Street to stop mortgage foreclosures. Sounds a lot like free houses!

Free stuff sounds good to many people, and it’s not just Democrats who promise it. Republican candidates have been talking about reducing college costs too, and George W. Bush was as passionate a supporter as Bill Clinton of encouraging home ownership for blacks and Hispanics.

Such policies are not necessarily examples of political demagoguery, though some are. They are based on observations of undisputed facts. College graduates over the years tend to make more money than non-graduates. Homeowners over the years tend to accumulate wealth and to build communities more than renters.

From these observations, policymakers have drawn the following conclusion. If we just get more people — especially minorities — into college, they will make more money. If we just get more people — especially minorities — to become homebuyers, they will accumulate more wealth. And what easier way to do that than to make these things free, or close to that?

This argument has special appeal to those oldsters born in the 1940s — Bernie Sanders, Bill and Hillary Clinton, George W. Bush, Donald Trump. Back then most Americans did not own homes and only a small minority graduated from college.

These politicians saw how public policies like the FHA and VA home loans and the G.I. Bill of Rights, together with unexpected postwar prosperity, changed that. By 1960, more than 60 percent of Americans were homeowners. By the 1970s most high school graduates were going on to some form of higher education. If old public policies could increase college attendance and homeownership, shouldn’t new public policies be able to increase them still more?

Over the last quarter-century we have had such policies, with some unhappy results. By 2007, 69 percent of American adults were homeowners. In 2009, 70 percent of young Americans went on to some form of higher education. But those numbers have slipped down since.

Government grants and subsidized loans have enabled many people to afford higher ed. But they haven’t guaranteed that recipients graduate or that graduates find satisfactorily remunerative work. The availability of government subsidy has prompted colleges and universities to raise tuitions far more rapidly than inflation, with much of the proceeds going into administrative bloat. That has left many borrowers with enormous debts which they cannot shed in bankruptcy.

Government policies, aided and abetted by Fannie Mae and Freddie Mac, promoted low- or no-down-payment mortgages for buyers previously considered uncreditworthy, many of them black or Hispanic. Policymakers, lenders and buyers all assumed that housing prices would always rise so that homeowners could always refinance any money problems away.

Oops. Housing prices fell sharply starting in 2006, and financial firms ended up with mortgage-backed securities which regulators classified as safe but for which they suddenly could find no buyers — and the economy crashed. Mortgage foreclosures soared, and by my estimate about one-third of those foreclosed on were Hispanics in California, Nevada, Arizona and Florida, whose recent low- or no-down-payment mortgages left them deep underwater when prices plummeted.

In response many politicians, mainly Democrats, are calling for iatrogenic policies: more of the medicine that caused the malady. Free college (actually, just free tuition) falls in this category, giving colleges and universities a more direct pipeline to government funds but not guaranteeing better results for students. Junior college is already largely free, but most enrollees don’t graduate.

And the Obama administration is seeking to reinstate Clinton and Bush administration policies providing low- and no-down-payment mortgages to those who do not meet traditional credit standards. What could go wrong?

Recent experience should tell us that college and homeownership are not for everyone. Many people lack the cognitive skills for higher education but have other abilities which can make them productive and successful adults. Many people, like those who move frequently, are better off renting than paying the transaction costs of buying a home.

Maybe policymakers got causation backwards. Increased college and homeownership, they thought, would upgrade people, and for a long while it did. But we seem to have reached the point of diminishing returns, when making things free will hurt the intended beneficiaries more than help.

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Jeb’s journey

A CBS News/New York Times national poll released earlier before last night’s CNBC-GOP debate provided strong hints of how people would react to Jeb Bush’s debate performance. No, I’m not talking about the question about the Republican field, in which Bush came in fourth among self-described Republican primary voters after Ben Carson’s presidential campaign, Donald Trump, and a little behind Marco Rubio. Nor am I talking about the question that asked these same Republicans who had the best chance of winning next November. In that question, Bush came in third, far behind Trump and a little ahead of Rubio. (In August, Bush was essentially tied with Trump for the top spot).

The question that caught my eye in the CBS/Times poll was the one that asked these Republicans about their enthusiasm for various candidates if they became the nominee. Forty-eight percent said they would enthusiastically support Ben Carson, and around 30 percent said they would feel that way about Rubio, Fiorina, and Trump. Twenty-six percent said they would strongly support Ted Cruz. But only 18 percent said they would support Jeb with such gusto. Perhaps even more devastating, 24 percent said they would support him only because he was the party’s nominee, and another 25 percent said they wouldn’t support him.

A one-on-one debate between Jeb Bush and Hillary Clinton would be a match of equals. Both are deeply substantive, and both would do their homework. Bush would be a worthy adversary in that situation. But he flails in the multicandidate encounters with people who have stronger personalities.

Particularly embarrassing in last night’s debate was his exchange with Marco Rubio, not because Rubio had a clear or compelling response to the question about his attendance record in the Senate, but because Bush just didn’t seem himself in delivering the punch. The attack seemed scripted by the campaign, but that doesn’t work if the candidate can’t pull it off.

Is Jeb’s journey at an end? The old cliché “time will tell” is all we can say at this point, but he is uniquely unsuited to the thrust and parry of multicandidate forums. And there are more of those to come. Even if the candidates can get some changes in the debate format, as some seemed eager to do after last night’s spectacle, it will still be an uphill climb for the candidate who was once the front runner.

 

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Ecuador: Is there a future beyond Correa?

Key Points

• Elected president in 2007 as a maverick outsider, Rafael Correa has centralized economic and political power in his hands, outmaneuvered potential rivals, and bullied the independent media.
• Correa benefited from unsustainable social spending and artificial economic growth, buoyed by the oil and commodity boom, but internal opposition is growing as he is forced to reduce spending and raise taxes.
• As he considers an unprecedented fourth term, it remains to be seen whether Correa will resort to authoritarian tactics to manage the economic downturn and burgeoning opposition.

Read the PDF.

Since taking office as a maverick outsider nearly nine years ago, Ecuadorian President Rafael Correa has transformed the country by centralizing economic and political power under his authority and suppressing potential opponents in the private sector, media, and civil society. He has implemented a costly populist agenda, which has bolstered his popularity—initially tapping increased oil revenue but gradually becoming more dependent on Chinese loans and investments.[1] The steep decline in the price of oil and other commodities has forced Correa to cut spending and to propose tax increases. As a result, popular unrest has intensified in the last year, testing his popularity just as he decides whether to seek an unprecedented fourth term.

Mercurial and belligerent, Correa took power by railing against his country’s old political order—much like Hugo Chávez in Venezuela. Mimicking Chávez, Correa has waged a controversial battle with independent media and civil society, drawing increasing criticism from the international community for cracking down on freedom of expression; an editorial in the Washington Post in January 2012 branded him “Ecuador’s bully.”[2] Yet, in spite of his irascible behavior and numerous corruption scandals involving members of his family and political inner circle, Correa’s fragmented opposition has yet to coalesce around a significant rival.[3]

Recent polls show that Correa’s approval remains at more than 60 percent.[4] Analysts attribute his resilient popularity to the windfall from oil prices earlier in his term, significant growth in the public-sector payroll, and cash transfers to well over one million low-income Ecuadorians. A slowing economy and fiscal deficit will curtail Correa’s ability to shore up support through social spending, so only the depth of Ecuador’s economic crisis will determine his political fate.

The Economy

Throughout most of his time in office, Correa’s import substitution policies and high protective tariffs have benefited the country’s powerful private sector, and generous social programs have helped Ecuador’s poor. Economic growth was respectable until this year. However, in the face of declining petroleum and commodity prices, Correa imposed strict import and banking controls and proposed new capital gains and inheritance taxes, which alienated a growing segment of the private sector.

From 2009 to 2014, his administration has doubled public spending, reaching a record 44 percent of gross domestic product (GDP). Coupled with a poor record on debt repayment, his economic and fiscal policies have discouraged investment and private-sector growth and weakened the country’s international competitiveness significantly. Foreign direct investment in Ecuador made up just 0.6 percent of GDP in 2014, one of South America’s lowest rates.[5]

A recent report from Fitch Ratings found that “economic growth is heavily dependent on fiscal stimulus. Government intervention, real exchange appreciation, and a weak business environment weigh on private investment, economic diversification, and the development of oil reserves.” The dollarization of Ecuador’s economy 15 years ago has limited excessive government manipulation and has generally been a source of economic stability.[6] However, Correa has complained that dollarization limits his government’s ability to mitigate the effects of an economic crisis, and he may be tempted to scuttle this policy to stimulate growth.[7]

Until recently, substantial oil revenues and favorable trade and investment with China have sustained economic growth and mitigated the impact of Correa’s statist policies. Today, Ecuador is heavily dependent on the sale of oil and other commodities. Primary products made up 77 percent of Ecuador’s total exports in 2014, with oil alone representing 28 percent of public revenue.[8]

China’s large-scale construction projects and loans in Ecuador’s energy sector, including building dams and an oil refinery, have raised expectations for the state-dominated oil sector, but these Chinese investments are not without controversy. The Coca Codo Sinclair hydroelectric power plant provides a snapshot of the typical complaints that arise from such projects, including criticism about low wages, the project’s energy output, and unsafe work conditions. The latter was highlighted by a tragic flooding accident on the hydropower plant’s worksite in December 2014, which killed 14 workers.[9] Another complaint is that Ecuador is awarding contracts to China with overly favorable and unsustainable terms.

As with many oil-rich countries, Ecuador has been hit hard by the drop in commodity prices. The county’s oil revenue is expected to decline by as much as 48 percent in 2015, dramatically affecting the government’s budget and the broader economy. So far in 2015, Ecuador has announced cuts to public spending totaling $2.2 billion.[10] Ecuador’s annual growth rate—which averaged 5 percent from 2010 to 2014—also has decelerated significantly, with Fitch recently revising its growth forecast for 2015 to just 0.4 percent.[11] Financial analysts also have noted dropping consumer confidence, a 14.4 percent decline in cash deposits in the nation’s banks, and doubts about Correa’s ability to navigate the economic crisis.[12]

As a US-trained economist, Correa is certainly aware that he cannot sustain current spending and economic policies. In the wake of the commodity bust, he has realized he must embark on a new campaign to attract much-needed foreign direct investment. For example, the Correa administration imposed prohibitive taxes of 50 percent or more on the mining sector; the mining giant Kinross Gold Corporation abandoned a billion-dollar investment in Ecuador in 2013 after Ecuador demanded a 70 percent windfall tax. Now, Correa’s government hopes to entice $2 billion in mining investment over the next two years by offering access to gold and copper reserves.[13] However, given his past disregard for the interests of the private sector, investors may be wary that Correa will revert to his profligate spending and shortsighted policies once the economy recovers.

Perhaps nothing symbolizes Correa’s misguided public-sector investment strategy better than the hundreds of millions of dollars spent developing Yachay Tech University, located north of Quito, to replicate Silicon Valley in Ecuador. In 2015 the university’s rector, Fernando Albericio, resigned, charging widespread corruption, mismanagement, and political favoritism. Afterward, Albericio reported receiving death threats. To date, the university has produced no graduates and no new private investment, becoming a significant international embarrassment for Correa and his party.[14]

Correa never employed the kind of draconian economic measures that Chávez used to bring most of Venezuela’s private sector under state control. Until his proposed tax hikes, most of Ecuador’s private sector rarely felt threatened by Correa’s policies. In the end, however, Correa’s economic mismanagement and lack of fiscal discipline during the commodity and oil boom may make it harder for Ecuador to withstand and rebound from the ongoing downturn. He also squandered the opportunity to retool the economy to prepare for the challenges of the 21st century.

Read the full report.

Notes

1. Lily Kuo, “Ecuador’s Unhealthy Dependence on China Is about to Get $1.5 Billion Worse,” Quartz, August 27, 2014, http://ift.tt/1AW1BZj.
2.  Editorial Board, “Ahmedinejad Trip to Ecuador: A Meeting of International Pariahs,” Washington Post, January 11, 2012, http://ift.tt/1SbW359. The published version of this editorial was titled “Ecuador’s Bully.”
3. “Rafael Correa demanda a los autores del libro ‘El Gran Hermano’” [Rafael Correa Sues Authors of the Book “The Big Brother”], El Universo, March 17, 2011, http://ift.tt/1MwobBb.
4. “Gestión del presidente de Ecuador registra 63,4% de calificación positiva” [Approval Rating of President of Ecuador Registers at 63.4%], Agencia Pública de Noticias del Ecuador y Suramérica, October 12, 2015, http://ift.tt/1Ga3AzV.
5. Economist Intelligence Unit, “Ecuador Economy: Quick View — Potential Payment to Occidental Highlights Fiscal Strains,” October 15, 2015.
6. Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable,” October 2, 2015, http://ift.tt/1MwobBf.
7. Steve Hanke, “Ecuador’s Ambassador Misses the Point: Dollarization,” Huffington Post, October 10, 2015, http://ift.tt/1ThnQFu.
8. Fitch Ratings, “Ecuador: Full Ratings Report,” October 8, 2015.
9. Clifford Kraus and Keith Bradsher, “China’s Global Ambitions, with Loans and Strings Attached,” New York Times, July 24, 2015, http://ift.tt/1KnWUMS.
10. Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable.”
11. International Monetary Fund, “IMF Executive Board Concludes 2015 Article IV Consultation with Ecuador,” October 21, 2015, http://ift.tt/1SbW5tS; and Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable.”
12. Analytica Investments, “Weekly Report for October 5–October 9, 2015,” http://analytica.ec/.
13. “Ecuador Seeks Foreign Investment for New Mining Areas,” Reuters, October 26, 2015, http://ift.tt/1MwobBl.
14. Fernando Albericio, interview, “Las verdades del despedido rector de Yachay” [The Truth behind the Departure of the Rector of Yachay], La Historia, July 29, 2015, http://ift.tt/1SbW5tT.

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