Share |

Some Perspective on What We Have to Be Thankful For

Marian L. Tupy

Of the original 102 Pilgrims who arrived in North America aboard the Mayflower in the fall of 1620, only about half survived to celebrate the first Thanksgiving, in November 1621. The rest perished through starvation and lack of shelter. The survivors gave thanks to God for a plentiful harvest. And good local harvests were vital, for in a world without global commodity markets or effective transport and communications, food shortages often meant starvation.

Today, most Americans are concerned with eating too much rather than too little. That fact is all the more remarkable considering that between 1600 and 2013 the population of what would later become the United States rose 21,000%, while the proportion of Americans employed in agriculture decreased at least 98%.

Contemporary Americans live longer, healthier, richer and safer lives than at any other period in history. In fact, an ordinary person today lives better than most kings of yesteryear.

To appreciate the astonishing improvements in the standards of living of ordinary people, consider the life of the 17th century’s grandest figure, Louis XIV. The Sun King ruled France and Navarre between 1643 and 1715. During his life, Louis became synonymous with wealth and power. His Versailles palace had 2,000 windows, 700 rooms, 1,250 chimneys and 67 staircases and cost, at a minimum, $3.2 billion in today’s dollars.

Yet here was a man who almost died of smallpox when he was 9 years old and lost nearly all of his legitimate heirs — his son, a grandson and a great-grandson — along with his younger brother, another grandson and a great-grandson, to smallpox. Eventually, he was succeeded by his second great-grandson, who became Louis XV and died (you guessed it) of smallpox.

In America, smallpox is usually associated with the decimation of Native Americans, but Europeans were not immune to the disease. As late as the 18th century, for example, smallpox killed about 400,000 Europeans annually. The overall mortality rate was 20% to 60%. Among infants, it was more than 80% and was one of the reasons for the low overall life expectancy of 20 to 30 years. The disease was eradicated in 1980. Today, we don’t think of smallpox any more than we think of the bubonic plague, which, in five short years, killed almost one-third of all Europeans in the 14th century.

One outcome of that epidemic was to make the Europeans suspicious of bathing. According to some medical experts of the day, “once heat and water created openings (pores) through the skin, the plague could easily invade the entire body.” As such, hygiene got progressively worse. Queen Elizabeth I, for example, who ruled over England and Ireland between 1558 and 1603, supposedly said that she bathed once a month, “whether she needed it or not.” Her successor, James I, however, only washed his fingers.

The “journal de la santé,” which was kept for Louis XIV by his doctors from infancy until 1711, describes the king’s daily life in microscopic detail, but mentions bathing only once. According to the journal, the king was often sick and wore extravagant wigs not only to hide his hair loss, but also to keep him warm. Rightly so, for according to one contemporary account, “people froze in those vast salons of marble and gold.… The wife of the Duke of Orleans wrote, ‘It is so cold here [Versailles] that at the king’s table wine as well as water froze in the glasses.’”

Contemporary Americans live longer, healthier, richer and safer lives than at any other period in history.”

The palace also was ill equipped to deal with human waste. People relieved themselves wherever they could. Thus, shortly before Louis XIV died, an ordinance decreed that feces be removed from the corridors of Versailles once a week. All that filth meant that disease-spreading parasites were rife. Before the 19th century, people had no idea about the germ theory of disease, and doctors often caused more harm than good.

If this was the life of Europe’s richest and most powerful man, imagine what ordinary people’s lives must have been like. People lacked basic medicines and died relatively young. They had no painkillers, and people with ailments spent much of their lives in agonizing pain. Entire families lived in bug-infested dwellings that offered neither comfort nor privacy. They worked in the fields from sunrise to sunset, yet hunger and famines were commonplace. Transportation was primitive, and most people never traveled beyond their native villages or nearest towns. Ignorance and illiteracy were rife.

More often than not, we tend to overlook our truly spectacular rise from grinding poverty to previously unimaginable abundance. And so, during this Thanksgiving holiday, let us give thanks for accountable government, market economy and scientific progress that make a king out of each of us.

Marian L. Tupy is a senior policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity and editor of HumanProgress.org.

Share |

NSA Reform — The Consequences of Failure

Patrick G. Eddington

If you were expecting this to be a detailed post-mortem on the demise of the USA Freedom Act, you will be disappointed. As others have covered that ground, I want to focus on the consequences of the failure to rein in NSA to date, and what a failure to do so in 2015 will mean for this country.

In the absence of real reform, people and institutions at home and abroad are taking matters into their own hands. In America, the NSA’s overreach is changing the way we communicate with and relate to each other. In order to evade government surveillance, more and more Americans are employing encryption technology. 

The veritable explosion of new secure messaging apps like SurespotOpenWhisper’s collaboration with WhatsApp, the development and deployment of open source anti-surveillance tools like Detekt, the creation of organizationally-sponsored “surveillance self-defense” guides, the push to universalize the https protocol, anti-surveillance book events featuring free encryption workshops— are manifestations of the rise of the personal encryption and pro-privacy digital resistance movement. Its political implications are clear: Americans, along with people around the world, increasingly see the United States government’s overreaching surveillance activities as a threat to be blocked.

The failure of the Congress and the courts to end the surveillance state is only fueling the growing resistance movement.”

The federal government’s vacuum-cleaner approach to surveillance—manifested in Title II of the PATRIOT Act, the FISA Amendments Act, and EO 12333—has backfired in these respects, and the emergence of this digital resistance movement is one result. Indeed, the existence and proliferation of social networks hold the potential to help this movement spread faster and to more of the general public than would have been possible in decades past. This is evidenced by the growing concern worldwide about governments’ ability to access reams of information about people’s lives with relative ease. As one measure, compared to a year ago, 41% of online users in North America now avoid certain Internet sites and applications, 16% change who they communicate with, and 24% censor what they say online. Those numbers, if anywhere close to accurate, are a major concern for democratic society.

But it’s unclear that the privacy technologies offered as solutions will prove effective over the long-term. In the ongoing cat-and-mouse game between digital defenders and surveillance practitioners, it will only be a matter of time before someone finds a way around today’s latest defenses, which will prompt the creation of fresh defenses. This very interaction can also chill freedom of expression and association. That is, one can imagine that every turn in this game, including each launch of a new counter-surveillance technology, will be another reminder to individuals that their digital transactions are potentially being monitored by a government they no longer trust—and why continued efforts to keep the government out are necessary.

Even if commercially available privacy technology proves capable of providing a genuine shield against warrantless or otherwise illegal surveillance by the United States government, it will remain a treatment for the symptom, not a cure for the underlying legal and constitutional malady.

In April 2014, a Harris poll of US adults showed that in response to the Snowden revelations, “Almost half of respondents (47%) said that they have changed their online behavior and think more carefully about where they go, what they say, and what they do online.” Set aside for a moment that just the federal government’s collection of the data of innocent Americans is itself likely a violation of the Fourth Amendment. The Harris poll is just one of numerous studies highlighting the collateral damage to American society and politics from NSA’s excesses: segments of our population are now fearful of evenassociating with individuals or organizations executive branch officials deem controversial or suspicious. Nearly half of Americans say they have changed their online behavior out of a fear of what the federal government might do with their personal information. The Constitution’s free association guarantee has been damaged by the Surveillance State’s very operation.

Also at risk is the First Amendment’s guarantee of a free press able to investigate potential government abuses of power in the national security arena without reporters fearing that its communications are being monitored and potentially used to unmask sources.

We now live in an age where the federal government is willing to prosecute journalists in an effort to compel them to reveal their sources in national security leak cases. The most recent example is the Justice Department’s multi-year legal assault on New York Timesnational security reporter James Risen. Even at the height of the Pentagon Papers case four decades ago, the Nixon administration did not go as far as the Bush 43 and Obama administrations have gone in trying to intimidate journalists into revealing their sources in national security leak cases. Since Snowden’s revelations in June 2013, the climate for journalists working issues like the NSA surveillance scandal has only become more hostile.

In the preface to his new book, @War, Shane Harris notes how the executive branch’s war on leakers meant that his sources

“…risked criminal prosecution in talking to me. The Obama administration has historically been hostile to government employees who share information with journalists. The Justice Department has prosecuted more people for disclosing classified information than all previous administrations combined. Simply put, it is a dangerous time to talk to journalists. And this risk extends to former government employees and military personnel. Several former intelligence officials have told me that within the past year they were explicitly told by the intelligence agencies where they’re still employed as contractors that they should stop talking to journalists if they want to continue doing business with the government.”

The failure of the Congress and the courts to end the surveillance state, despite the repeated efforts by a huge range of political and public interest actors to effect that change through the political process, is only fueling the growing resistance movement. Federal officials understand this, which is why they are trying—desperately and in the view of some, underhandedly—to shut down this digital resistance movement. This action/reaction cycle is exactly what it appears to be: an escalating conflict between the American public and its government. Without comprehensive surveillance authority reforms (including a journalist “shield law” and ironclad whistleblower protections for Intelligence Community contractors) that are verifiable and enforceable, that conflict will only continue.

Patrick G. Eddington was senior policy advisor to Rep. Rush Holt for over 10 years. He is currently a Policy Analyst in Homeland Security and Civil Liberties at the Cato Institute.

Share |

Bury Lenin’s Body and the Rest of Communism: In Red Square He Lies in State, Mocking Humanity

Doug Bandow

Moscow—Red Square remains one of the globe’s most iconic locales. Enter by walking past the statue of World War II general Georgy Konstantinovich Zhukov on horseback. The Kremlin dominates on the right, GUM Department Store on the left, and St. Basil’s Cathedral looms in front. Before the Kremlin wall is a small, squat, pyramidal building: Vladimir Ilyich Ulyanov Lenin’s mausoleum.

The tomb may be most famous as the reviewing stand for Communist Party leaders. Studying who stood where was an important part of the game of Kremlinology. Who was to the General Secretary’s right and left, who was moving up or down in the Kremlin power ladder? No where was the leadership symbolism more dramatic.

Kremlinology has disappeared as an occupation. But the mausoleum remains. Along with Lenin’s body. Dressed in a black suit, his face is grim and his right fist is clenched, as if he was ready to smite the capitalists who now dominate even his own nation’s economy.

Lenin is one of history’s most consequential individuals. Without him there likely would have been no Bolshevik Revolution, slaughter of the Czarist royal family, and murderous civil war. No Joseph Stalin, brutal party purges, mass starvation in Ukraine, and Hitler-Stalin pact to fuel what became World War II. No post-conflict occupation of Eastern Europe and Cold War with the West. No Soviet support for China’s revolution and a mix of dictatorship and insurgency in smaller states around the globe. No North Korea and Korean War. No Cuban missile crisis. No Berlin Wall to fall in 1989. No tens of millions of people murdered by what Ronald Reagan rightly called the Evil Empire.

Of course, without Lenin there still would have been a Bolshevik movement. But it would have lacked his intellect, tactical skills, and, most important, determination. He promoted Marxist revolution while imprisoned and in exile. He insisted on dictatorial leadership within the social democratic party, holding his Bolshevik (“majority”) faction together against the Menshevik (“minority”) members and even some of his own supporters angered by his intransigence. So feared was he by his enemies that he became Germany’s secret weapon against Russia; in 1917 Berlin allowed him to travel in a sealed train from his exile in Zurich to Petrograd (now St. Petersburg) in order to spread the bacillus of radical revolution. And he did, with devastating effect.

Lenin pushed the Bolsheviks toward power as the authority of the moderate Provisional Government, which had ousted the Czar, bled away. At the behest of Russia’s Entente allies the moderate revolutionaries continued the war, leaving the Bolsheviks to demand “peace, land, and bread” for millions of soldiers fighting in a meaningless conflict. In November came Lenin’s moment, the famous putsch (“revolution”) in Petrograd. Almost alone in his party Lenin then forced peace with Germany. He had contempt for the “idiot” Czar Nicholas who had been deposed and the “windbag” Aleksandr Kerensky, the last premier in the Provisional Government. But Lenin recognized that the German Army could end Communist rule. The Bolsheviks then fought a multi-year, multi-sided civil war from Archangel to Sebastopol to Vladivostok to consolidate power.

Lenin was no humanitarian whose dream was perverted by his successors. He likely ordered the murder of the deposed Czar and the latter’s entire family. Lenin insisted on solitary Bolshevik rule, brooked no dissent even within the party, established the Cheka secret police, employed terror against opponents, and led the victorious side, with the assistance of Leon Trotsky, Joseph Stalin, and others, in one of history’s most horrid civil wars.

Burying Vladimir Lenin, perhaps the person more responsible than anyone else for the horror known as the Soviet Union, would be a powerful symbolic gesture to close an era.”

As Chairman of the Council of People’s Commissars he was the dominant power within a regime filled with murderous activists, such as Trotsky and Stalin. Despite his later complaint that the latter was “rude,” Lenin seemed unconcerned with Stalin’s equally brutal commitment to preserve power irrespective of human cost. Lenin created the institutions used by Stalin to wreak so much human havoc. Tens of millions of people ultimately died as slaughter became routine. Wrote social scientist R.J. Rummel: “murder and arrest quotas did not work well. Where to find the ‘enemies of the people’ they were to shoot was a particularly acute problem for the local NKVD, which had been diligent in uncovering ‘plots.’ They had to resort to shooting those arrested for the most minor civil crimes, those previously arrested and released, and even mothers and wives who appeared at NKVD headquarters for information about their arrested loved ones.” This is what Lenin’s Russia became.

Lenin had his first stroke in May 1922. Two more strokes left him helpless. He died on January 21, 1924, just 53 years old. His death triggered a complex power struggle which left Stalin in control. (Since Lenin had turned against Stalin, who was using his position as party general secretary to amass increasing power, some suspect the latter of speeding Lenin’s demise through poison.)

Lenin’s body lay in state for four days, during which nearly a million people passed by. Petrograd was renamed Leningrad. Many statues followed. Perhaps most momentous, however, was the idea broached within a week of his death: preserve his body. His family opposed the idea and, ironically, Lenin had previously criticized attempts to turn Communism into a quasi-religion: “every god is a necrophilia.”

However, despite some internal opposition, the party—spurred by Stalin, who made convenient use of Lenin’s legacy—decided otherwise. It declared: “the mausoleum with his remains will be the place of the pilgrimage of all those who are oppressed and offended by the current system. In the future, this will become the site of the pilgrimage of the entire liberated humanity.” At least that part of humanity not murdered by the Communists.

Officials first proposed to freeze his body, but eventually had it embalmed. A secret laboratory was created to make Lenin look better than when he died. Cynics wonder if a wax figure has been substituted for the real corpse, but the official word is that the body is real. He is preserved by professional teams including anatomy professors and doctors, which have helped with other special embalmings, such as of Vietnam’s Ho Chi Minh and North Korea’s Kim Il-sung and Kim Jong-il.

The mausoleum started as wood and turned into the current granite and marble structure in 1929. Lenin’s body was temporarily moved from Moscow after the German invasion in 1941, and Stalin’s body was added from 1953 to 1961, before being reburied as part of the de-Stalinization campaign. The latter’s corpse now lies in a tomb topped by a marble bust between the mausoleum and Kremlin wall. Joining him is a rogue’s gallery including Felix Dzerzhinsky, first Cheka head; Leonid Brezhnev, general secretary; Mikhail Suslov, party ideologist; and Yuri Andropov, KGB chief and general secretary.

The mausoleum attracted more than ten million visitors through 1972. It remains open (and free), though it no longer is the must-see attraction that it once was. The lines now are shorter and include many foreigners, like me, with the main delay going through metal detectors and checking cameras, which cannot be carried into the building. The mausoleum is small and dark; a couple hallway turns take you by soldiers and then to the body under glass. The contrast with Mao Zedong’s Mausoleum in Beijing couldn’t be greater—large, well-lit, long lines, visitors bearing flowers.

What is Lenin’s future in a post-Communist world? Obviously, it would be difficult to remove every sign of the Communist ancien regime. Lubyanka serves the Russian state still, despite decades as the locus of murder and repression for the KGB and its predecessor agencies. The famed “Seven Sisters,” distinctive buildings erected by Stalin in inimitable Soviet style, continue to house the Russian foreign ministry, Moscow State University, Hotel Ukraina (now the Radisson-Royal Hotel), and more.

Nevertheless, less functional Communist imagery came under attack with the dissolution of the Soviet Union. The Soviet flag was lowered from the Kremlin. Older Russian symbols replaced the Soviet hammer and sickle. Leningrad was renamed St. Petersburg. Lenin statues disappeared. A crowd pulled down Dzerzhinsky’s prominent statue in front of Lubyanka.

A debate even emerged about the holiest Communist relic of all: Lenin’s mummy.

Two decades ago Moscow’s anti-communist mayor backed burying the corpse and restoring Red Square to its pre-revolutionary state. The Orthodox Church also urged burial. Boris Yeltsin, the first president of non-Communist Russia, removed the honor guard from the mausoleum and proposed to bury Lenin. Yeltsin’s chief of staff said Lenin’s corpse would be “definitely removed.” But as Yeltsin’s health faltered and political strength weakened he abandoned plans to challenge the still powerful mythology surrounding the Soviet Union’s founding.

When in power the last Communist Party general secretary, Mikhail Gorbachev, refused to consider de-deifying Lenin. Since then, however, Gorbachev changed his mind: “I think that we will come to this point at some state. But I do not think that we should be forcing things.”

The time has come. While Russia cannot escape its history, it should stop glorifying the country’s turn down one of history’s great deadends. Although an unjust despotism, Imperial Russia still fostered the hope of liberal reform. The obstacles to change remained great as the Czar backed away from reforms promised in response to the 1905 Revolution. Nevertheless, the imperial regime could have been transformed into some form of constitutional rule.

But by entering World War I the Czarist autocracy sacrificed that opportunity and its future—and for that deserved its fate. The regime sacrificed millions of its people in pursuit of imperial aggrandizement. Why would any sensible Russian, at least one without an extensive landed estate and access to the royal court, defend such a system?

The Provisional Government, led by liberal constitutionalists and democratic socialists, promised a better and fairer society. Yet these political leaders put the previous regime’s commitment to war before the Russian people’s interests. When the Bolsheviks struck the Kerensky government there was virtually no one to defend it. The war was the one issue which the Bolsheviks, and only the Bolsheviks, got right: the people wanted, indeed needed and deserved, peace above all else. Only Lenin and his party promised to give it to the Russian people.

Nothing else did the Bolsheviks get right, despite the delusions of acolytes in the West. “I have seen the future and it works,” declared journalist Lincoln Steffens in 1919. That future may have worked for Lenin and the revolutionary elite, but no one else. They suppressed free markets, stole private property, crushed political dissent, murdered political opponents, imposed materialist ethics, and exalted ruthless dictatorship. The result, as even Steffens came to see, was a sustained assault on the history, traditions, ethics, and very essence of the Russian people.

Tens of millions died under the lash employed by the new, even more brutal elite. The spirit of a nation and people died as well. Although after more than seven decades Russians finally were able to turn back from this deadly detour, they have yet to find their way to a future built on respect for the lives and dignity of all. Alas, the same old authoritarianism has been born again, repackaged to make it more palatable to both older Russians cynical about past abuses and younger Russians entering a more globalized world.

Burying Vladimir Lenin, perhaps the person more responsible than anyone else for the horror known as the Soviet Union, would be a powerful symbolic gesture to close an era. That still might not help the West understand what Vladimir Putin is, but it would emphatically show what he is not. And that would be no small feat at a time of dangerously rising tensions between Russia and the West.

Someday Russians will be free. Not just from Communism, but also less forms of authoritarianism. Liberation will come only through the Russian people’s own efforts, however, not from the West. Only they can make their own future. The day liberty arrives will be the real Russian Revolution.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is the author of several books, including Foreign Follies: America’s New Global Empire. (Xulon Press).

Share |

America’s Dangerous Double Standard on Air and Sea “Provocations”

Ted Galen Carpenter

The United States and its NATO allies are mightily agitated about the increase in Russian air and naval activity near the Baltic republics. According to NATO Secretary General Jens Stoltenberg, alliance warplanes have scrambled 400 times in 2014 in response to Russian military flights, an increase of 50 percent over 2013. Western officials repeatedly denounce Moscow’s maneuvers as dangerous and provocative.

Statements by U.S. and NATO leaders, along with Western media accounts, foster the impression that Russian ships and aircraft arrogantly penetrate the airspace and territorial waters of alliance members. But when pressed, officials concede that the vast majority of incidents do not involve such illegality. Stoltenberg stated that most of the flights “are close to NATO airspace,” but he admitted that there were “a very limited number of violations.”

Reading the fine print of other Western complaints reveals similarly misleading imagery. Baltic leaders express anger that a Russian warship entered Latvia’s exclusive economic zone, but it turns out that the location was still some nine nautical miles outside the country’s territorial waters.Latvia’s Ministry of Defense fumed that Russian warships had “approached” Latvian waters some fifty times in 2014 and had “come close” to Latvian airspace some 200 times. Yet the Ministry did not cite verifiable violations of its territorial waters or airspace.

The United States needs to examine its own actions before it smugly denounces those of rival powers.”

The actual substance of other episodes likewise seems far less dramatic than the scare headlines that have become routine in the Western press. NATO F-16 jets intercepted a Russian Ilyushin transport plane over the Baltic Sea on November 12, after it “approached” Estonian and Lithuanian airspace. Similar incidents took place between NATO aircraft and Russian Su-27 fighter planes on November 15 and 17. Again, the Russian offense was that its aircraft were found “near Latvia’s territorial seas” in the former case and had “approached Estonian and Lithuanian airspace” in the latter. Despite such complaints, the encounters indisputably took place over international waters, Western governments acknowledged.

Calling the Russian actions provocative has some merit. Nations understandably become jittery when foreign ships and aircraft operate near their territory. That nervousness mounts when the foreign power has tense relations with one’s own country, and that is certainly the case, given the deterioration of relations between Russia and the NATO states in response to the Ukraine crisis. Adding to the tension is that Russian military planes are operating without activating their transponders, thereby increasing the hazard to commercial air traffic.

But one might at least expect the United States and its allies to be consistent about their attitude toward provocative air and naval maneuvers. Instead, the United States has adopted a blatant double standard when it comes to the actions of its own armed forces. China, for example, has asked that U.S. (as well as Japanese and South Korean) military aircraft respect Beijing’s air defense identification zone in the East China Sea and provide timely information about flights entering that area. Washington and its allies not only refuse to do so, they refuse even to recognize the legitimacy of that zone. Yet such resistance is not considered to be provocative or creating a threat to aircraft safety.

In addition, the United States routinely operates reconnaissance flights barely outside China’s territorial airspace, including near a major Chinese submarine base on Hainan Island. Those flights, and China’s dispatch of fighter planes to intercept them, have led to a number of nasty incidents, including a near collision earlier this year and an actual collision in 2001. Yet Washington has brushed off Beijing’s complaints, noting that the reconnaissance planes are operating in international airspace. Indeed, U.S. officials chastise China for trying to intercept and harass the spy flights.

All parties need to adopt a more prudent approach and recognize that what may be legitimate under international law is not necessarily wise. The United States has a legal right to send its spy planes near the Chinese coast to monitor sensitive Chinese military installations. And Russia has every legal right to operate military ships and planes in areas close to the boundaries of NATO member states. But such actions by both countries are also provocative and dangerous. As the 2001 U.S. incident with China confirmed, the risk of an accident or miscalculation is unacceptably high. That episode created a major crisis between Washington and Beijing. An incident involving Russian and NATO planes in the Baltic region could easily escalate, leading to a frightening military confrontation between the West and Moscow.

One would hope that all relevant governments would step back and seek ways to reduce the level of risk. In addition, the United States needs to examine its own actions before it smugly denounces those of rival powers. As matters now stand, Washington is guilty of hypocrisy, as well as provocative behavior regarding air and naval maneuvers.

Ted Galen Carpenter, a senior fellow at the Cato Institute and a contributing editor at The National Interest, is the author of nine books, the contributing editor of ten books, and the author of nearly 600 articles and policy studies on international affairs.

Share |

Currency Wars, the Ruble and Keynes

Steve H. Hanke

The specter of currency wars once again haunts the international chattering classes. Remember back in 2011, when Brazilian finance minister Guido Mantega blamed the U.S. for deliberately weakening the greenback to gain a competitive advantage? Well, now the shoe is on the other foot.

The Yen — an important regional currency — recently sank to a sevenyear low against the now mighty U.S. dollar (USD). This is putting downward pressure on the Korean won and other Asian currencies. The situation is similar in Africa where the Kenyan shilling has hit a three-year low against the USD; the Nigerian naira recently set an all-time low against the dollar; the Ghanaian cedi has shed over 25 percent of its value against the greenback this year. The big Latin American loser is the Venezuelan bolivar, followed by the hopeless Argentine peso. Moving to Europe, Ukraine’s hryvnia has lost over 88 percent of its value against the USD this year, while the Russian ruble has racked up a loss of over 43 percent against the greenback in the same time span. The list could go on, but let’s focus on Russia and the travails of the ruble.

The ruble, while it has not been hit as hard as the hryvnia, has sharply depreciated because of the Russian- Ukrainian conflict and the sanctions that it has spawned. The sanctions are, of course, a mug’s game. Indeed, sanctions have almost universally failed to achieve their objectives. The one thing they do, though, is to impose real costs on many intended and unintended victims, including the international economic system. It is noteworthy just how predictable the unintended consequences are. While the sanctions imposed against Russia have clearly contributed to ruble weakness, they have massively strengthened President Vladimir Putin’s hand.

Thanks to the sanctions imposed against Russia, President Putin’s support rose to 88 percent in October, according to Russia’s most independent polling group, the Levada Center. Undoubtedly, Putin got another boost in the polls after the shabby treatment he received in Brisbane, Australia at the meeting of the Group of Twenty (G20).

Diplomacy is dead. This is dangerous. As Clifford Gaddy, a Russian expert at the Brookings Institution in Washington, D.C., recently remarked, “I fear very much that there is an element of sleepwalking in the policies of key players in today’s world.” Gaddy was alluding to Christopher Clark’s recent book, The Sleepwalkers, which chronicles the origins of the First World War.

In addition to the Russian- Ukrainian conflict, the ruble has been put under pressure because of the recent slide in the price of oil. As the accompanying chart shows, Russia’s fiscal accounts balance when the price of oil is about $102 per barrel. If the present price of less than $80 per barrel persists, it will put most oil producers, including Russia, in a fiscal squeeze.

The ruble’s dive has been associated with the plunge in the price of oil, coupled with a series of damaging events (see the accompanying chronology). These events are indicated on the next chart which shows the course of the ruble against the USD. Also shown are the 10- and 40-day moving averages for the RUB/USD exchange rate, as well as the price of Brent crude per barrel.

But, that’s not the end of the story. As the next chart shows, the ruble’s volatility has soared. Indeed, whiplash collars should be standard issue for the brave souls who are trading the ruble.

The ruble charts look pretty ugly, but they contain a bit of a silver lining, in the short-term. The depreciating ruble means that Russian imports will be more expensive and exports more competitive. This combination will help keep Russia’s current account positive, which will offset some of Russia’s massive capital flight.

In addition, Russia’s fiscal accounts are denominated in depreciating rubles and its oil exports are invoiced in an appreciating USD. So, the fiscal blow from lower oil prices will be cushioned by a weak ruble. Perhaps it was a weak ruble strategy that Putin was alluding to when he recently stated that Russia was braced for a “catastrophic” slump in oil prices.

image

The ruble’s dive has been associated with the plunge in the price of oil, coupled with a series of damaging events (see the accompanying chronology). These events are indicated on the next chart which shows the course of the ruble against the USD. Also shown are the 10- and 40-day moving averages for the RUB/USD exchange rate, as well as the price of Brent crude per barrel.

image

image

But, there are limits to any temporary benefits from a ruble rout. When a currency takes a dive, the specter of inflation is always right around the corner. And with inflation, Putin will see his poll numbers come off their highs. What to do?

image

The ruble charts look pretty ugly, but they contain a bit of a silver lining, in the short-term. The depreciating ruble means that Russian imports will be more expensive and exports more competitive. This combination will help keep Russia’s current account positive, which will offset some of Russia’s massive capital flight.

In addition, Russia’s fiscal accounts are denominated in depreciating rubles and its oil exports are invoiced in an appreciating USD. So, the fiscal blow from lower oil prices will be cushioned by a weak ruble. Perhaps it was a weak ruble strategy that Putin was alluding to when he recently stated that Russia was braced for a “catastrophic” slump in oil prices.

But, there are limits to any temporary benefits from a ruble rout. When a currency takes a dive, the specter of inflation is always right around the corner. And with inflation, Putin will see his poll numbers come off their highs. What to do?

Russia should abandon the floating exchange-rate regime, which it adopted on November 10th. Oil and other commodities that Russia exports, are priced and invoiced in U.S. dollars. By embracing a floating exchange-rate regime, Russia is inviting instability. The ruble’s nominal exchange rate will fluctuate with oil and other commodity prices. When the price of oil rises (falls) the ruble will appreciate (depreciate), and Russia will experience a roller-coaster ride distinguished by deflationary lows and inflationary highs. To avoid these wild rides, most of the big oil producers — Saudi Arabia, Kuwait, Qatar and the United Arab Emirates — link their currencies to the U.S. dollar. Russia should do the same.

To get things right, Russia should lift a page from John Maynard Keynes’ Russian playbook and establish a currency board.

Under a currency board system a central bank issues notes and coins. These are convertible into a foreign reserve currency at a fixed rate and on demand. As reserves, the monetary authority holds high-quality, interest bearing securities denominated in the reserve currency. Its reserves are equal to 100 percent, or slightly more, of its notes and coins in circulation, as set by law. A central bank operating under a currency board rules does not accept deposits and it generates income from the difference between the interest paid on the securities it holds and the expense of maintaining its note and coin in circulation. It has no discretionary monetary policy. Instead, market forces alone determine the money supply.

There is an historical precedent in Russia for a currency board. After the Bolshevik Revolution, when troops from Britain and other allied nations invaded northern Russia, the currency was in chaos. The Russian civil war had begun, and every party involved in the conflict was issuing its own near-worthless money. There were more than 2,000 separate issuers of fiat rubles.

To facilitate trade, the British established a National Emission Caisse for northern Russia in 1918. The Caisse issued “British ruble” notes. They were backed by pounds sterling and convertible into pounds at a fixed rate. Kurt Schuler and I discovered documents at the archives in the British Foreign Office which prove that the father of the British ruble was none other than John Maynard Keynes, who was a British Treasury official at the time.

Despite the civil war, the British ruble was a great success. The currency never deviated from its fixed exchange rate with the British pound. In contrast to other Russian rubles, the British ruble was a reliable store of value. Naturally, the British ruble drove other rubles out of circulation. Unfortunately, the British ruble’s life was brief: The National Emission Caisse ceased operation in 1920, after allied troops withdrew from Russia.

Yes, it is time for Putin to lift a page from Keynes and follow what most large non-U.S. oil producers already do: link the ruble to the greenback.

Steve H. Hanke is Professor of Applied Economics at the Johns Hopkins University in Baltimore, MD. He is also a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, D.C. You can follow him on Twitter: @Steve_Hanke. Sign up to receive Prof. Hanke’s articles and distributions.

Share |

Bad Laws Lead to Bad Executive Orders

Alex Nowrasteh

Governing by executive order is no way to run an immigration policy, let alone an entire government. But the resort to unilateral action does not happen in a vacuum; it is borne out of poorly written, arbitrary and confusing laws. The GOP-controlled Congress should respond to Obama’s executive order by passing a bill that simplifies the immigration system.

Our immigration laws are “second only to the Internal Revenue Code in complexity,” according to California Associate Justice Harry E. Hull Jr. Like the income tax code, our immigration laws contain numerous provisions for the president to exercise arbitrary power, inflict cruel punishments for minor offenses and limit legal immigration with quota numbers seemingly picked by a random number generator.

Rampant unlawful immigration is the result of this legal mess.

Rather than charging directly at Obama’s executive order, Republicans should circle behind him and offer their own reform package.”

Any set of laws this muddled and confused begs for one of two resolutions. The first is for the president to issue an executive order on dubious constitutional grounds to provide temporary relief for problems caused by a fundamentally broken system. The second resolution is for Congress to change those terrible laws and make them work so they don’t attract executive orders like honey attracts flies.

If Congress simply passed constructive and conservative immigration reform, it could effectively nullify the president’s executive action, guarantee that immigration reform will adhere to free-market principles and remove the future possibilities for executive overreaches on immigration. Only a simplification and liberalization of these laws will eliminate the unauthorized immigration mess that is prompting Obama’s executive order.

Immigration reform should reduce unlawful immigration by creating a functional guest worker visa program so workers can enter the country lawfully rather than having to sneak in as they currently do. A guest worker visa program in the 1950s decreased illegal immigration by 90 percent and it can do so again. Allowing more lawful immigration would allow the government to actually regulate who can and cannot enter.

Reform should also remove the arbitrary penalties that prevent some immigrants from earning green cards. All immigrants who are not security or health threats but who are closely related or married to Americans should be able to earn green cards through the current legal system regardless of whether they were here unlawfully. This would allow millions of current unlawful immigrants to use the legal system — an option currently closed to them — rather than creating a special pathway.

Further reforms should build a high wall around the welfare state, limiting all means-tested welfare and the earned income tax credit to American citizens only.

A Republican-led Congress should also legalize as many unlawful immigrants as possible. They can create two avenues toward legal status. The first should be very cheap and easy, but it will only lead to a permanent green card without the chance of becoming a citizen. The second should be expensive and difficult but lead to eventual citizenship. Most of them will choose the former path.

Last, but not least, the Republican Congress should pass the Dream Act, allowing unlawful immigrants who were brought here as children to earn a green card and eventually naturalize. This bill is not only good policy but it also makes the rest of the conservative reform ideas veto-proof if they are combined into a single bill. Obama is pursuing his immigration executive orders to legalize as many Dreamers as possible — he can’t veto anything containing the Dream Act. A Republican reform bill might be too conservative or not comprehensive enough for the president, so he might veto a simple increase in legal immigration. Incorporating the Dream Act guarantees that won’t happen.

To create respect for the law, the laws themselves must be respectable. Removing the demand for executive action by fundamentally reforming the immigration system is the only way forward. Rather than charging directly at Obama’s executive order, Republicans should circle behind him and offer their own reform package that will transform our immigration laws from a confused mess into a coherent and functional system whose victims don’t demand executive actions to save them from it. 

Alex Nowrasteh is the immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity.

Share |

America’s Leadership Crisis–and Its Economic Implications

John A. Allison

One of the underlying causes of the Great Recession and its abnormally slow recovery is a failure of leadership. We have a leadership crisis at the individual, organizational and societal level that has exacerbated our economic problems and handicapped the fundamental motivating principle at the heart of our country, the pursuit of happiness.

In my new book, “The Leadership Crisis and the Free Market Cure,” I lay out what it takes to be an effective leader. Leaders must live and communicate the fundamental values that are necessary for human flourishing. They must create the processes that incentivize superior performance and design a purposeful, rational mission to meet objective goals. This requires education, feedback and the honing of behaviors that produce excellent results.

During my almost 20-year tenure as CEO of BB&T, the company grew from $4.5 billion to $152 billion in assets. In our leadership development program, we educated employees by requiring them to read “Atlas Shrugged, Economics in One Lesson,” and other books on the principles that underlie a free society and free markets.

Individual, organizational, and societal success are all based on the same principles that are derived from the laws of nature and human beings’ fundamental nature.”

Drawing lessons from these principles was critical to the success of the company. For example, we decentralized the decision-making structure in a way that enabled BB&T to weather the financial crisis without a single quarterly loss. This was in stark contrast to the example of some other financial institutions that centralized and focused on ill-gotten short-term gains in a toxic regulatory environment plagued by excessive meddling by the government and the Federal Reserve.

Excessive government interference distorts the economy

The crux of America’s economic problems lies in this irrational system of excessive government interference that distorts the proper functioning of the economy. Most of the goals that are described by political leaders are based on an assumption that the country is one monolithic whole. In reality, a country is millions of individuals with wildly varying goals that are too complex for central planners to account for.

Unfortunately, the flawed fundamentals that led to the terrible financial crisis in 2008-2009 are still around and have been amplified since the crash. Recent presidential leadership has discouraged businesses and entrepreneurs to invest for the future. More regulations, higher taxes, government-chosen winners and losers — these are not the ingredients of a healthy economy and they indicate a dangerous lack of leadership.

What politicians and business leaders need to understand is that the same fundamental concepts that are appropriate for individual behavior are also appropriate for organizations and for society and government.

Economy is essentially a collection of individuals

Boiled down to its essentials, the economy is simply a collection of individuals. A leader will recognize this and create an environment wherein honest feedback is encouraged. Many leaders fail because they do not receive meaningful feedback. Sometimes this is a personality issue in that they intimidate their team members, who are therefore hesitant to express the truth. Sometimes leaders only seek feedback from those who are most likely to agree with them.

When I was CEO, BB&T operated with 33 community banks. I would visit each of these banks in a systematic fashion and listen to employee concerns. The feedback from a single employee was not always that meaningful. However, if there was recurring theme from a number of high-performing team members, there must be an issue that requires action.

There are some significant societal leadership implications of this issue. You would not want to vote for a president who was not able to get feedback from those who disagree with him. Presidents with a penchant for executive action, disregarding the Constitution’s checks and balances or ignoring criticism from those in a position to have special knowledge of an issue, exemplify poor leadership.

Creating win-win partnerships

Another important lesson from the market is the value of creating win-win partnerships. In the more than 100 mergers we executed at BB&T during my tenure, we approached them in this mindset and practically all of them were successful. It’s not enough to outsmart or mislead in any way a future partner. If they are not objectively energized by the potential of the partnership, then it will be better for both parties to part ways.

For partnerships to work, they must be based on voluntary agreements. They cannot be forced. Government, by contrast, is all about force. And that’s why, in the long term, government-forced partnerships will not work. If we want optimal outcomes in terms of economic growth, government should be limited to preventing the initiation of force by private individuals, and not much else.

I am often asked by students whether my intention when I joined BB&T was to become CEO and make a lot of money. I liked being CEO and enjoyed earning a lot of money, but neither of those things was an objective. My goal was always to do whatever I did better than it had ever been done before and to understand how what I did related to the rest of the organization.

Individual, organizational, and societal success are all based on the same principles that are derived from the laws of nature and human beings’ fundamental nature. Purposeful, ethical individuals are the foundation for human flourishing. “Life, Liberty, and the Pursuit of Happiness” is one of the most profound insights in human history. We must put those leadership principles back into use if we are to flourish in the future.

John Allison is the president and CEO of the Cato Institute.

Share |

Advertising, Credit Reporting, and ‘Anti-Objectification’

By Jim Harper

You need a set of priors that I lack to stay interested in the forthcoming Suffolk University Law Review article, “Selling Consumers, Not Lists: The New World of Digital Decision-Making and the Role of the Fair Credit Reporting Act.” I think the thing animating authors Ed Mierzwinski and Jeff Chester is what I call “anti-objectification,” a desire at the outskirts of the privacy concept. It is bad, anti-objectifiers appear to believe, when a person is treated as a mere object of commerce, observed and communicated with on that basis alone.

Without anti-objectification, I can’t find much of anything wrong in their description of the emerging world of digital data collection and marketing. There is an impressive and complex array of techniques coming online to discover what people want, learn when they want it, and communicate with them in ways that will spur them to act on their desires.

Given the wrongs they perceive in these developments—which, again, I must guess at—Mierzwinski and Chester make a broad pitch to have online marketing drawn under the blanket of Fair Credit Reporting Act regulation. Not only the Federal Trade Commission, but the new, unconstrained Consumer Financial Protection Board, should look at bringing online advertising within the FCRA, they say.

Given the paucity of (apparent) harms to be rectified, one struggles to examine how broadening regulation of the information economy would improve things. But I don’t know why the Fair Credit Reporting Act would be a model anyway. In forty years, the FCRA has not cured the ills that Senator Proxmire (D-WI) recited when he introduced the law—to judge by the words of self-styled consumer advocates, at least. New challenges have emerged, and the FCRA has turned credit bureaus to the government’s use in financial surveillance. The FCRA preempted state common law—you can’t sustain a defamation action against a credit bureau, no matter how wrong its reporting is—replacing it with opaque and unwieldy bureaucratic procedures for those who believe their credit bureau records are inaccurate.

The FCRA already reduces consumer welfare by keeping new entrants out of the credit reporting business. When companies edge toward providing data that might be used for credit decisions, employment screening, housing, and the like, they quickly learn to eschew that market so they can avoid the FCRA’s obligations and regulator inquests. The result? Our economy is making less intelligent decisions about credit, employment, and housing. Efficiences that would lower costs to consumers across the board are not being found.

I drew lessons from the failure of the Fair Credit Reporting Act to fix things in my paper “Reputation under Regulation: The Fair Credit Reporting Act at 40 and Lessons for the Internet Privacy Debate.”

Advertising, Credit Reporting, and ‘Anti-Objectification’ is a post from Cato @ Liberty – Cato Institute Blog

Share |

Today Is Bill of Rights Day

By Tim Lynch

Today is Bill of Rights Day. So it’s an appropriate time to consider the state of our constitutional safeguards.

Let’s consider each amendment in turn.

The First Amendment says that “Congress shall make no law… abridging the freedom of speech.” Government officials, however, have insisted that they can gag recipients of “national security letters” and censor broadcast ads in the name of campaign finance reform.

The Second Amendment says the people have the right “to keep and bear arms.” Government officials, however, make it difficult to keep a gun in the home and make it a crime for a citizen to carry a gun for self-protection.

The Third Amendment says soldiers may not be quartered in our homes without the consent of the owners. This safeguard is one of the few that is in fine shape — so we can pause here for a laugh.

The Fourth Amendment says the people have the right to be secure against unreasonable searches and seizures. Government officials, however, insist that they can conduct commando-style raids on our homes and treat airline travelers like prison inmates by conducting virtual strip searches.

The Fifth Amendment says that private property shall not be taken “for public use without just compensation.” Government officials, however, insist that they can use eminent domain to take away our property and give it to other private parties who covet it.

The Sixth Amendment says that in criminal prosecutions, the person accused is guaranteed a right to trial by jury. Government officials, however, insist that they can punish people who want to have a trial—“throwing the book” at those who refuse to plead guilty—which explains why 95 percent of the criminal cases never go to trial.

The Seventh Amendment guarantees the right to a jury trial in civil cases where the controversy “shall exceed twenty dollars.” Government officials, however, insist that they can impose draconian fines on people without jury trials.

The Eighth Amendment prohibits cruel and unusual punishments. Government officials, however, insist that a life sentence for a nonviolent drug offense is not cruel.

The Ninth Amendment says that the enumeration in the Constitution of certain rights should not be construed to deny or disparage others “retained by the people.” Government officials, however, insist that they will decide for themselves what rights, if any, will be retained by the people.

The Tenth Amendment says that the powers not delegated to the federal government are reserved to the states, or to the people. Government officials, however, insist that they will decide for themselves what powers they possess, and have extended federal control over health care, crime, education, and other matters the Constitution reserves to the states and the people.

It’s a disturbing snapshot, to be sure, but not one the Framers of the Constitution would have found altogether surprising. They would sometimes refer to written constitutions as mere “parchment barriers,” or what we call “paper tigers.” They nevertheless concluded that having a written constitution was better than having nothing at all.

The key point is this: A free society does not just “happen.” It has to be deliberately created and deliberately maintained. Eternal vigilance is the price of liberty. To remind our fellow citizens of their responsibility in that regard, the Cato Institute has distributed more than five million copies of our pocket Constitution. At this time of year, it’ll make a great stocking stuffer.

Let’s enjoy the holidays but let’s also resolve to be more vigilant about defending our Constitution. To learn more about Cato’s work in defense of the Constitution, go here. To support the work of Cato, go here.

Today Is Bill of Rights Day is a post from Cato @ Liberty – Cato Institute Blog

Share |

Sen. Casey Finds Political Opportunity in NHL Lockout

By Tad DeHaven

The Small Business Administration was created in the 1950s to make it appear as though federal politicians cared about the plight of the “little fellow.” A more helpful expression of concern would have been a rollback of the federal government’s increasingly heavy hand in the post-New Deal economy. Instead, they went with the more politically alluring option of using the heavy hand to deliver handouts.

As Veronique De Rugy and I discuss in an essay on the Small Business Administration, it didn’t take long for the politicians to turn the new agency into a favor dispenser:

Once the SBA seed was planted, it grew. SBA lending quadrupled between 1954 and 1960, and its staff jumped from 550 to 2,200 employees. In 1958, Eisenhower’s Budget Bureau warned that the SBA was “an uncontrollable program,” but both parties wanted to signal that they supported the “little fellow.” Also, members of Congress enjoyed using the SBA to distribute money and favors to their constituents. Members sometimes leaned on the agency to declare a particular business “small” or to have a constituent’s competitor declared “not small.”

Decades later, the SBA is still being used by politicians to show that they care.

For those who don’t follow hockey, almost half of the National Hockey League’s season has been lost because owners and players have yet to agree on a new labor deal. That’s obviously bad news for restaurants, bars, and other small businesses located near hockey arenas. But owning and operating a business comes with risks and an unexpected drop in walk-in traffic is one of them.

According to Sen. Bob Casey (D-PA), however, it’s the federal government’s job to mitigate such risks by placing it on taxpayers instead. On Wednesday, Casey sent a letter to the head of the SBA asking her to – wink, wink, nod, nod – keep in mind the needs of small businesses located near the homes of the Pittsburgh Penguins and Philadelphia Flyers:

Small businesses are the backbone of our economy and their success is vital to our continued recovery. I appreciate your willingness to offer free counseling to businesses that rely heavily on NHL crowds for business. I also urge you to continue to monitor the situation and to make yourself available in case these businesses should require additional resources and guidance. I stand ready to assist you with this. If you have any questions, please feel free to reach out to me directly.

And with that, Sen. Casey shows that he cares. I would argue, however, that if he really cared about making life easier on small business owners, he would be leading an effort in the Senate to rein in taxes and government red tape. After all, those two categories combined represent the “single most important” problem facing small businesses according to the latest survey from the National Federation of Independent Business. But, like most politicians, it’s simply a lot easier –and more politically rewarding – to hand out other people’s money.

Note: While I appreciate the argument that Pittsburgh businesses deserve SBA assistance but not Philly businesses because the former support a franchise that recently won its third Stanley Cup while the latter hasn’t hoisted it since 1975, I still don’t think the federal government should be picking winners and losers in the marketplace – or in that case, picking a winner over a loser.

Sen. Casey Finds Political Opportunity in NHL Lockout is a post from Cato @ Liberty – Cato Institute Blog