ScaifeNet because we can't let Soros have all the fun...

Conservative politicians want to cut spending — except for the military. Where that's concerned, they sound like liberals. In fact, conservatives have adopted several liberal ploys to justify today's bloated military budget.

First, big spenders on the right argue that Washington must continue doing everything that it has ever done abroad. House Armed Services Committee Chairman Howard "Buck" McKeon (R-Calif.), one of the leading pork hawks, has denounced the idea of doing "less with less."

Yet the Department of Defense spends most of its money to protect other nations, including those that are populous and prosperous. All together, the Europeans have a larger GDP and population than America and ten times the GDP and three times the population of Russia. South Korea has 40 times the GDP and twice the population of North Korea. Why is the U.S. taxpayer still paying for their protection, 67 years after World War II ended?

Even worse has been Washington's foray into militarized nation-building. The Balkans remains a mess nearly two decades after Washington intervened. The Iraq War weakened America and strengthened Iran. The U.S. has been trying to create a competent, honest, and democratic central government in Kabul for a decade. None of these missions advances U.S. security.

But that raises the second excuse that phony conservatives use to justify a bloated Pentagon. Like liberals spending on education, these right-wingers equate money with results. Thus bigger Pentagon budgets mean increased national security. Only it's not true: greater military spending is strategic waste on a grand scale.

While the world is dangerous, it is not particularly dangerous to America. The U.S. is surrounded by oceans east and west and friendly neighbors north and south. America is allied with every major industrialized state save Russia and China. Washington already has a thousand military installations around the world. The American navy is equivalent to that of next 13 navies combined, 11 of which belong to U.S. allies.

Washington spends as much as the rest of the world — and spends more, in real terms, than at any point during the Korean War, Vietnam War, or Cold War. America could spend less and still possess far larger and more capable forces than anyone else.

Such overcapacity actually encourages Washington to meddle in foreign conflicts that foolishly deplete our military capital. As a result, guys using AK-47s and improvised explosive devices tied down the world's greatest power for years in both Iraq and Afghanistan.

Terrorism remains a threat, but not an existential one like the old Soviet Russia. Moreover, Al-Qaeda has been wrecked by relatively inexpensive techniques short of conventional war: good intelligence, Special Forces strikes, international cooperation, financial sanctions. In contrast, the invasion of Iraq created an entirely new class of terrorists, some of whom have migrated to other conflicts, such as Libya and Syria.

The third idea spendthrift militarists have recycled from the liberals of yesteryear is using "baseline budgeting" to complain that Barack Obama has "cut" defense outlays. This is the same way Democrats once charged that Ronald Reagan drastically "cut" domestic spending — by reducing the rate of increase.

Total military outlays were $306 billion in 2001. Since then they have risen steadily, breaching the $700 billion barrier under Barack Obama in 2011. In real, inflation-adjusted terms, expenditures increased 74.5 percent over the last decade. In the Obama administration's first two years inflation-adjusted military spending rose 16.8 percent. Outlays last year, in real terms, were 23.5 percent above the Korean War peak in 1953, 22.5 percent above the Vietnam War peak in 1968, and 35.8 percent above the Reagan build-up peak in 1989.

Spending will stop racing ahead this year but not because of real cuts: the administration has only proposed reducing planned increases over the coming decade by $487 billion. As former House Majority Leader Richard Armey observed, these "cuts" are "only from the bloated CBO baseline. This means that [Obama] is merely reducing projected military spending, as opposed to cutting current spending."

If Congress does not trim overall spending by $1.2 trillion over the coming decade, the sequestration agreed to during last summer's debt ceiling debate is supposed to kick in, with the equivalent amount in cuts divided equally between domestic and military outlays. This prospect has caused much neoconservative wailing and gnashing of teeth.

In fact, say Veronique de Rugy of the Mercatus Center and Ben Friedman of the Cato Institute, non-war outlays would still increase, only "by about 10 percent today, as opposed to the 18 percent the administration wants." (War expenses are exempted.) Overall, they figure, as a result of sequestration military expenditures would grow by 18 percent rather than 20 percent from now through 2021.

The present rate of growth is too much even for some hawks. "Under sequestration, the Defense Department would still be spending more money in 2021 than it is spending today," adds Andrew McCarthy of the Foundation for Defense of Democracies. "Moreover, that spending increase — not cut, increase — comes atop a decade-long spending bonanza."

Yet some of the most prominent neoconservatives are scaremongers. Max Boot of the Council on Foreign Relations cites an estimate that the combined effect of all "cuts" would result in a 31 percent drop in real military spending. But even if this "worst case" came to pass, real outlays would be at 2007 levels, which were 39 percent higher than in 2001. Moreover, the reduction would come when the U.S. was no longer fighting wars in Iraq and Afghanistan. America would still lap the rest of the world in the global arms race.

The fourth tactic for conservatives addicted to military-industrial pixie dust is playing the "Washington Monument" game — threatening to kill the most important programs (in this case, weapon systems) first. Just as liberals, faced with demands for cuts to local budgets, will threaten schools, police, and fire departments first, pork hawks want to claim that DoD reductions must come out of indispensable programs. Again, that's not true: military cutbacks should start with force structure, especially army units.

With allies capable of defending themselves, the U.S. should not plan on fighting a major land war in Europe or Asia. And there should be no more nation-building. The U.S. should maintain superior air and naval forces, but in smaller numbers sufficient to prevent attack on America rather than to police the globe. Such a strategic readjustment does not mean the end of our ability to project force abroad: America would continue to act as an off-shore balancer capable of aiding friendly states against a hostile power seeking Eurasian hegemony. This would not only be more affordable but makes greater strategic sense than behaving as an in-region meddler determined to micromanage local conflicts.

Could the unexpected occur? Of course. Should the U.S. have a surge capacity in the event of an emergency? Certainly. Should Washington adjust its plans if international circumstances change? Definitely. But it makes no sense to maintain an oversized military for decades because someday a country like China might behave badly. When that time comes, a bloated Defense apparatus would be too slow and encumbered to act.

The fifth and last resort of Washington big-spenders is demagoguery. Advocates of a colossal military trash their opponents as "isolationists" who want to undermine America. Columnist Lurita Doan accused President Obama of seeking "to render our military neither well-armed nor well-planned." New Zealand blogger Trevor Loudon — neoconservatives are nothing if not globalist — charged that "hard-bitten Leninists and disciplined Marxists" were behind plans to reduce U.S. military outlays.

Just look at the hype. Reductions in military spending, we are told, would be "totally destructive" and "very dangerous to the survival of the country," would "destroy" the Pentagon, set America on a "perilous course," be "dangerous and irresponsible," leave America "in the greatest peril," "would decimate our military," threaten America's "national security interests," be "totally devastating," send "a very horrible message" to America's enemies, create the "threat of gutting national security," "break" the military, "invite aggression," cause "severe and irreversible impact," leave America "teetering on the precipice of disaster," cause "catastrophic damage," "put our national security on the chopping block," leave "a hollow force," "disarm the United States unilaterally," result in "American lives lost," fail "to provide for the safety and security of our country," and call "into question our nation's ability to remain a free people."

All of this from returning military outlays to 2007 levels.

The fundamental question is whether military spending should respond to the threat environment. Leading Republicans answer no: America must always and in every situation spend more.

Pork hawks routinely denounce the post-Cold War drawdown, a 27.8 percent drop in real outlays from peak to trough that was erased in just six years. The Soviet Union had disintegrated. The Warsaw Pact had dissolved. Maoism had disappeared from China. Colin Powell observed that he was running out of enemies — down to Kim Il-sung and Fidel Castro. Still the pork hawks wailed. And some go farther. Max Boot decries every previous drawdown, including after the Revolutionary War.

Congressman J. Randy Forbes (R-Va.) complains that spending reductions would result in an America "that can go fewer places and do fewer things." But what if going to most of those "places" and doing most of those "things" does not advance U.S. interests? Secretary of Defense Leon Panetta has testified that military cutbacks might require reducing "our presence perhaps in Latin America, our presence in Africa." So?

There are bad actors in the world, but they need not automatically be America's problem. Gen. Robert H. Scales (ret.) argues that "We cannot pick our enemies; our enemies will pick us." Actually, in recent years Washington has done most of the picking and attacking: Haiti, Bosnia, Serbia, Iraq, Libya.

Max Boot similarly asserts: "Certainly there has not been — nor is there likely to be — a decreased demand for the armed forces. They are constantly having new missions thrown their way, from defending our nation's computer networks to deposing a dictator in Libya and providing relief to Japanese tsunami survivors." None of these tasks justifies maintaining a titanic military in a constitutional republic facing a troubled future of deficits, debts, and unfunded liabilities.

Even those who say military outlays can never be cut must ultimately decide how much is enough. Half of the world's outlays? Three-quarters? Four-fifths? Even if Washington could afford to spend ever more, the rest of the world might not go along with America's plan. If the U.S. spends more to contain China, China is sure to ramp up its outlays to deter us. After all, Americans would not stand idly by if another country placed bases in Mexico and Canada, used its fleets to patrol the Gulf of Mexico and both coasts, and casually talked of war to contain American ambitions. China will act no differently.

America is more secure today than at any point since before World War II. Military outlays should be reduced accordingly.

That will require scaling back Washington's international objectives. But the U.S. should stop garrisoning the globe, subsidizing rich friends, and reconstructing poor enemies. Instead, it's about time Washington focused on defending America and its people.

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Ronald Reagan.

A three-judge panel of the Ninth Circuit Court of Appeals has ruled that California's ban on same-sex marriage — enacted in 2008 in a popular vote on Proposition 8 — violates the constitutional right to equal protection. Cato's chairman Robert A. Levy, also co-chair of the advisory board to the American Foundation for Equal Rights (which sponsored the suit) has argued: "The principle of equality before the law transcends the left-right divide and cuts to the core of our nation's character. This is not about politics; it's about an indispensable right vested in all Americans."

• "The Circuit Court Ruling on Proposition 8," by David Boaz
• "Marriage Equality for All Couples," by Robert A. Levy and John D. Podesta
• "The Constitutional Case for Marriage Equality," Cato Video

Kevin Dowd is a visiting professor at the Pensions Institute at Cass Business School in London. He is an expert on free banking, central banking, financial regulation, banking history, financial risk management and pensions. He spoke at the Cato Institute's 29th Annual Monetary Conference in November, 2011.

featuring Mark A. Calabria

Columnist Glenn Greenwald discusses the success of Portugal's drug decriminalization experiment.

While Fannie Mae, Freddie Mac, and private subprime lenders have deservedly garnered the bulk of attention and blame for the mortgage crisis, other federal programs also distort our mortgage market and put taxpayers at risk of having to finance massive financial bailouts. In a new paper, Cato scholar Mark A. Calabria argues that one such agency, the Federal Housing Administration (FHA), should be scaled back immediately, and an emphasis should be placed on improving its credit quality. "At the same time," says Calabra, "the agency should be placed on a path to ultimately be eliminated, with its risk-taking being transferred back to the private sector."

• "Fixing Mortgage Finance: What to Do with the Federal Housing Administration?," by Mark A. Calabria

Government corruption can take many forms. Last week, most of those forms could be seen in the actions of the Obama administration — everything from government officials taking simple bribes, to covering up wrongdoing, to using taxpayer money to pay off political supporters, to using government prosecutors to punish enemies, to failing to fulfill its fiduciary duty to citizens by not performing cost-benefit analyses before taking actions. Promulgating policies that knowingly hurt millions of people is far more serious than a government official requesting a cash bribe — as despicable as that may be. Pushing for tax increases without first getting rid of counterproductive or useless programs and cleaning up mismanagement is an example of policy corruption.

The results of the extensive moral, intellectual and policy corruption in the United States in recent years can be seen readily in the accompanying chart, which includes data from both right- and left-leaning organizations. According to the Heritage Foundation/Wall Street Journal measure of economic freedom, the United States has fallen from No. 6 to No. 10 since the end of the George W. Bush administration in 2009. The U.S. also has dropped rank in the ease of doing business, as measured by the World Bank, and in global competitiveness, as measured by the World Economic Forum.

The United States has dropped from No. 19 to No. 24 in Transparency International’s corruption index over the past three years. Reporters Without Borders‘ index shows an enormous drop in press freedom in the U.S. over the past three years, from a ranking of No. 20 to a dreadful No. 47.

As a result of policy corruption, specifically failing to make sure government spending and regulations meet reasonable cost-benefit tests, employment and income growth have lagged, with most Americans reporting lower after-inflation adjusted incomes than four years ago.

The Obama administration seems to have little regard for the rule of law. In hearings before Congress last week, Attorney General Eric H. Holder Jr. continued his cover-up in the Fast and Furious guns-to-drug-dealers’ scandal.

As you may recall, a couple of years ago, the Obama administration was giving grants to the Association of Community Organizations for Reform Now (ACORN). This organization was shown to be thoroughly corrupt, causing Congress to prohibit it from receiving grants. Now, the Justice Department is requiring the Bank of America, as part of its settlement for alleged “lending discrimination,” to make large contributions to leftist groups that are not connected to the suit, including groups that are little more than renamed ACORNs. Other banks also are being pressured to make similar “settlements.” These groups have close ties to Democrats.

At the same time, Justice is helping domestic wrongdoers who have ties to the Democratic Party and is attacking Wegelin, the oldest private bank in Switzerland, which has no U.S. presence and appears not to have violated Swiss law. The Justice Department indicted Wegelin last week, forcing a bank that has survived since 1741 to sell itself to a large German bank to protect its non-U.S. clients. Justice alleges that three of the bank’s account executives encouraged Americans who had accounts with UBS in Switzerland to move their accounts to Wegelin. If the department suspected that Americans were not paying taxes on the interest they received, it should have gone after the Americans rather than destroy a substantial bank that was complying with the laws of its country.

Americans who live abroad are already having great difficulty obtaining bank accounts in foreign countries because of regulatory overreach by the Internal Revenue Service and Treasury Department. Particularly after the Wegelin case, increasing numbers of foreign financial institutions will refuse to take any U.S. clients or invest in the United States because of the risk of inadvertently violating some U.S. laws and the costs of compliance.

Americans are justifiably enraged when occasionally a foreign government indicts U.S. citizens for violations of their laws even though the activity is legal and protected in the United States (such as selling bibles, criticizing foreign leaders, etc.). The U.S. government’s hypocrisy in attacking foreign financial institutions — which abide by their own country’s tax and privacy laws — is going to come back to bite Americans very hard. It will drive out of the country upward of $1 trillion in foreign investment and tens of millions of jobs as well as make life much more difficult and risky for U.S. citizens who travel internationally.

The IRS and Justice have not made cost-benefit analyses for most of these existing and proposed international tax regulations. The regulations often violate the basic right of privacy. It is intellectual corruption when catching a few tax cheats is deemed more important than creating growth, opportunity and jobs for millions of people. You can identify some of the most intellectually corrupt in Congress, the media and the administration. They are the ones who are most vocal in railing against tax cheats yet fall strangely silent when the IRS cheats taxpayers by forcing them pay taxes on imaginary capital gains and interest because of government-caused inflation.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

"Surely as a former constitutional law professor, President Obama must know..." — that's a fairly common refrain whenever Obama commits another constitutional atrocity.

I've said as much myself — but as a recovering law student, I should know better. Constitutional law professors should be kept as far away from nuclear weapons as possible.

The skill-sets they bring to the presidency just gives them the sophistry and brazenness necessary to invent new and creative ways of violating the constitutional oath of office.

Obama is the fourth former con law prof to serve as president, joining William Howard Taft (University of Cincinnati Law School), Woodrow Wilson (Princeton and New York Law School), and Bill Clinton, (University of Arkansas Law School).

Taft did comparatively little damage, but the rest hardly inspire confidence that familiarity with constitutional scholarship encourages fidelity to the national charter.

Wilson was a constitutional horror show, who imposed racial segregation in federal employment and waged war on free speech, imprisoning Americans opposed to World War I.

Clinton, who once lost a pile of his law students' final exams (he offered everyone a B+ in exchange) brought a cavalier, "dog ate my homework" approach to his constitutional responsibilities.

In 1999, he ignored three congressional votes denying him authority to wage war in Kosovo, and became the first president to wage an illegal war beyond the War Powers Resolution's 60-day time limit.

Last summer, as the bombs pounded Libya, the University of Chicago's Obama became the second.

"I've studied the Constitution as a student, I've taught it as a teacher," Obama proclaimed shortly after his inauguration, "we must never, ever, turn our back on its enduring principles for expedience's sake."

Not long after, in the Citizens United case, his administration argued that campaign finance laws gave the feds the power to ban books.

Still, some held out hope that this former law professor would be "our first civil libertarian president," as the New Republic's Jeffrey Rosen put it. In January 2009, Rosen argued that, as a constitutional scholar, Obama was "likely to articulate constitutional positions and then conform his presidential actions to them rather than take positions and then rely on lawyers to justify them."

Of course, that's precisely the opposite of how Obama has behaved, cherry-picking among his legal advisers until he got one to tell him his actions were legal. In Libya, Harold Koh, Obama's servile State Department legal adviser, provided the necessary cover.

The War Powers Resolution, requiring the president to terminate unauthorized U.S. engagement in "hostilities" after 60 days didn't apply in the absence of "U.S. casualties or a serious threat thereof."

Sure, we were bombing Libya, but we weren't engaged in "hostilities," you see. As Orwell once put it, "you have to belong to the intelligentsia to believe things like that. No ordinary man could be such a fool."

More recently, in order to ram through several appointments, Obama summarily declared that the Senate was in recess, despite the fact that the Senate's own rules said it was in session.

It's almost enough to make you miss George W. Bush's ham-fisted "I'm the decider" approach to constitutional law. "I'll do what I want" is a less insulting legal argument than "I'm not doing what you think I'm doing."

My Cato Institute colleague Walter Olson, author of "Schools for Misrule: Legal Academia and an Over-lawyered America", explains that "legal academia rewards cleverness in coming up with strained arguments for ideologically favored (or just expedient) positions; marginalizes as eccentric thinkers who favor original understanding as a guide" to the Constitution and often reduces law to "politics by other means."

Unfortunately, that training has served Obama well.

Gene Healy is a vice president at the Cato Institute and the author of The Cult of the Presidency: America's Dangerous Devotion to Executive Power.

Thanks mainly to the efforts of the Inspector General at the Securities and Exchange Commission (SEC), we know that the agency's staff was nothing less than asleep at the wheel as imbalances and frauds built up in our financial system. Worse, we also know several employees spent a considerable portion of their work day visiting pornographic websites, rather than monitoring the capital markets. The most obscene part, however, is that years after these discoveries have been made, the employees in question have yet to lose their jobs. Yes, some left the agency voluntarily, while others remain on paid administrative leave (sounds like a vacation to me). But none have been fired.

In an extreme instance, dealing with a SEC employee who ignored the warning signs of Bernie Madoff's Ponzi scheme, both the SEC's human resources department and an outside legal consultant recommended that the employee in question be terminated. SEC Chair Mary Schapiro's response? No, as such "would harm the agency's work." I'd think having incompetent employees would harm the agency's work.

Sadly, Madoff was not the only fraud ignored by the SEC. Allan Stanford ran a $7 billion Ponzi scheme. His 20,000 clients are still, years later, waiting to see how much they will recover. That delay did not stop the head of the SEC enforcement office in Dallas, which has oversight of Stanford, from leaving the SEC to represent Stanford. After a DOJ investigation, the SEC has reluctantly decided to bar said lawyer from appearing before the agency for a whole six months. So, apparently it's not just current SEC employees that get a pass, but also former employees as well.

Were these just isolated incidents one might be tempted to overlook them. Even the viewing of pornography by SEC employees was more widespread than commonly believed. Between the years of 2005 and 2010, as the worst of the housing bubble was building, 33 SEC employees or contractors were found to have viewed pornography using taxpayer funded laptops and office computers. Many of these were highly paid employees. Seventeen of 33 made between $100,000 and $220,000 annually. A Senior Counsel (lawyer) in the SEC's Enforcement Division was found with 775 pornographic images on his government computer. And contrary to the stereotypes, it wasn't all men.

A female accountant received nearly 1,800 access denials for pornographic websites using her SEC laptop in only a two-week period and had nearly 600 pornographic images on her laptop. Perhaps worst of all was a DC-based attorney, who admitted accessing pornography and downloading images to his SEC computer during work hours so often that he sometimes spent eight hours a day accessing pornography. He downloaded so much to his government computer that he filled the hard drive and needed to move images to CDs or DVDs that he accumulated in boxes in his office. And yes, all while getting a six figure paycheck from the taxpayer.

In the private sector any of these actions would be grounds for dismissal. One would be fired on the spot, with security escorting you from the building. In fact, a private sector employer wouldn't even have the option of deciding if your benefits to the company were worth the time wasted on Internet porn. Such activity would generally be interpreted as creating a hostile work environment; with the result that any company that didn't fire the employee in question would expose itself to litigation by other employees.

The government "solves" the problem of hostile work environment by letting the accused employee stay at home on indefinite paid level. So yes the agency's other employees are spared the harassment, but at great expense to the taxpayer. In addition, a federal employee is "entitled" to at least 30 days written notice of any effort to terminate said employee. On top of that the employee gets another seven days minimum to submit documents and evidence in support of keeping their job. I am all in favor of appropriate due process, but the current procedures for firing incompetent federal employees allow the process to drag out indefinitely with one required bureaucratic obstacle after another. Having spent a year managing a federal office, where we did attempt to terminate at least one employee who regularly missed work, I can say you almost have to hire someone whose sole job is to do the firing.

This is just another example, in a long list, of why relying on the relatively weak incentives of government regulatory oversight is inferior to relying on the strong incentives contained in market participants having their own wealth on the line. But then for such incentives to be effective, we need to end bailouts and have real market discipline. Sadly we are currently stuck in the worst of both worlds: incompetent and unaccountable regulators coupled with a neutering of market discipline by these very same regulators. If we continue along this path we will guarantee another financial crisis and future self-enrichment by government bureaucrats.

Mark Calabria is Director of Financial Regulation Studies at the Cato Institute.

The Department of the Interior oversees more than 500 million acres of land through the Bureau of Land Management, the National Park Service, the Fish and Wildlife Service, the Bureau of Indian Affairs, and the Bureau of Reclamation. Much of this land is productive, rich in natural resources, and popular with recreational visitors. Yet rather than generate a net return for taxpayers, the department consumes billions of dollars a year in subsidies. On DownsizingGovernment.org, Cato scholars analyze the department's spending and recommend cuts to save taxpayers $8 billion annually.

• Downsizing the Department of the Interior

featuring Chris Edwards

The latest outbreak of violence in Egypt is a reminder of that country’s halting transition from dictatorship to democracy. The process of democratization in the Arab world that begun with the self-immolation of Tunisian street vendor Mohamed Bouazizi just over a year ago will likely continue, but the experience of ex-communist countries shows that economic growth and opportunity are at least as important as political freedom. Mr. Bouazizi, after all, was not protesting for a right to vote, but for a right to earn a living unmolested by the government.

The extraordinary events taking place in Arab countries — from the fall of Hosni Mubarak in Egypt and Muammar Gaddafi in Libya to the civil uprisings in Syria and Yemen — make it easy to forget that the Arab Spring started with a suicide of a Tunisian street vendor harassed and humiliated by government officials. Like millions of young Arab men and women, the 26-year-old failed to find formal employment. He started selling produce on the street instead. There he was preyed upon by corrupt policemen and abusive bureaucrats who repeatedly harassed him and confiscated his wares. Without the means to support his family, a frustrated Mr. Bouazizi set himself alight in front of the governor’s office. Reportedly, his last words were “how do you expect me to make a living?”

Egypt’s parliamentary elections were a direct result of the protests that spread through the Arab world following Mr. Bouazizi’s death. But restoring dignity to the Egyptian people requires more than allowing them to vote; history shows that freedom to exploit economic opportunities offered by an open and growing economy is just as important.

After the Berlin Wall fell, for example, ex-communist countries embarked on an uneven path toward economic freedom. Economic liberalization in Central Europe and the Baltics tended to be faster and deeper than that in the rest of the former Soviet bloc. On average, the rapid reformers received more foreign investment, grew more rapidly, and had lower inflation rates as well as lower poverty rates and more equal income distributions.

Crucially, the rapid reformers developed stronger democratic institutions. In fact, all of them became liberal democracies. In contrast, some of the countries that underwent only partial economic liberalization, like Ukraine and Russia, failed to develop into full-fledged democracies. Decision-making in those countries was “captured” by a small number of wealthy oligarchs.

The military junta that has run Egypt since Mr. Mubarak’s downfall has so far delivered neither political stability nor economic reforms. In the World Bank’s Doing Business report, Egypt fell from 94th place in 2010 to 110th place in 2011. Growth has declined from 5.1 percent to 1 percent. The overall unemployment rate rose from 9 percent to almost 12 percent, while youth unemployment remains at 24 percent. With the national debt approaching 80 percent and the budget deficit hitting 11 percent of GDP, the junta is running out of time and space to maneuver.

Unfortunately, there is little indication that the big winners of the recent parliamentary elections — the moderate Islamist Muslim Brotherhood and the Salafist Al Nour party received some two-thirds of the votes and will write Egypt’s new constitution — appreciate the gravity of Egypt’s economic situation or understand the importance of economic liberalization in sustaining high rates of growth. If anything, liberalization seems to be treated with suspicion, because the initial reforms of the Egyptian economy were pushed through by Mr. Mubarak and the corrupt business elite that surrounded him. Rather than wealth-creating, competitive capitalism, Egyptians got crony capitalism.

It would be a mistake to think that economic reform can wait until all of Egypt’s political problems are resolved. If the economy continues to stagnate, Egypt’s best and brightest will leave the country and millions of Egyptians will remain mired in poverty. Only a free and vibrant economy can provide the people of Egypt with meaningful jobs and the dignity that comes from being able to make a living and provide for one’s family. That is the real lesson that Egypt and other Arab countries ought to learn from the death of Mohamed Bouazizi.

Marian Tupy is a policy analyst at the Cato Institute's Center for Global Liberty and Prosperity in Washington, D.C.

For some time now, Republican hawks like Sen. John McCain and Rep. Howard P. "Buck" McKeon have been saying that our military budget is inadequate for the threats we face. They like to gripe that President Barack Obama is orchestrating the decline of American power.

Some of this is pure partisanship. Republicans criticize Democrats just as Democrats criticized President George W. Bush. The hawks, though, have a special devotion to the military budget. In their view, some military spending is good; more is even better. But if overspending on the military and promoting the United States as global policeman are benchmarks of approval, they should have little to complain about with our current president.

Contrary to his rhetoric of change, the president sounded like a neoconservative when he declared during his recent State of the Union address that the United States was, and would remain, the world's "indispensable nation." Obama's proposed Pentagon budget, released last week, affirmed his intention to retain most of the U.S. military's current missions, even when they aren't needed to safeguard the United States' vital security interests.

Meanwhile, the Pentagon's latest strategy document was carefully designed to convince allies and adversaries alike that the United States can continue to prosecute multiple armed conflicts in far-flung corners of the globe. Taken together, Obama's strategy document, budget and State of the Union remarks articulate a coherent philosophy on military spending and global engagement that ought to hold a lot of appeal for the neoconservatives in the GOP.

But partisan politics aside, what our foreign policy leaders have consistently ignored is an argument that should have strong sway at a time of economic uncertainty: This country's tax dollars can be better spent than on defending wealthy allies who are more than capable of protecting themselves.

The administration plans to withdraw some U.S. troops from Europe, but as many as 70,000 are likely to remain. Meanwhile, the number of troops in Asia will be increased. These troops serve to reassure our allies of our commitment to defend them. It is working as designed: Other countries do not spend enough to satisfy their defense needs.

The end result is that Americans pay more. The Obama administration's budget will cost every American nearly $2,000 next year. The figure rises by hundreds of dollars when one accounts for homeland security, payments to veterans, and the few billion dollars tucked away in the Department of Energy for the nation's bloated nuclear arsenal. All told, every American will likely shell out more than $2,700 on spending classified as national defense. That is at least 2½ times what the British spend, five times more than what the Germans spend, and six times what the Japanese spend.

It is hard to see how that is good news for Americans struggling to make ends meet. Obama's magnanimity is especially ironic given his emphasis on "fairness" and "shared sacrifice." His rhetoric apparently does not apply to people living outside the United States. American troops will continue to be tasked with policing the world, and American taxpayers will be on the hook to pay for it.

The administration has proposed to restrain the growth of military spending. But total U.S. military spending will remain well above pre-9/11 levels. The Obama administration is requesting $525 billion for the Pentagon's base budget in 2013, plus another $88.4 billion to pay for the war in Afghanistan. To put this in perspective, that is more than the annual average during Ronald Reagan's time in office (about $526 billion in today's dollars). One seldom hears GOP hawks speak of Reagan as a misguided dove who left the country vulnerable to attack.

Focusing only on budget numbers, however, misses the big picture. Instead, we must focus on what we will spend and why. The answer is clear: Our military budget is large by historical standards because Washington is unwilling to revisit the premise that Americans are responsible for everything that happens in the world, even things that have no connection to American security or prosperity.

Our fiscal crisis has created an opportunity to revisit our commitments abroad. We should focus American power on our core interests, and call on other countries to take responsibility for their own defense.

Intuitively, that exercise should satisfy both liberal demands that "everyone pay their fair share" and conservative demands that our government "live within its means." But given the rhetoric we have heard so far, it is doubtful that this election cycle will produce a leader who will seriously contemplate how we can most prudently provide for our common defense.

Christopher Preble is vice president for defense and foreign policy studies at the Cato Institute and the author of The Power Problem: How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free.

featuring Clayton E. Cramer

Clayton E. Cramer

The ostensible purpose of gun control legislation is to reduce firearm deaths and injuries. But if policymakers are truly interested in harm reduction, they should pause to consider how many crimes are thwarted each year by ordinary persons with guns. A new paper from Clayton E. Cramer and David Burnett uses a collection of news reports of self-defense with guns over an eight-year period to survey the circumstances and outcomes of defensive gun uses in America. The authors conclude that the vast majority of gun owners are ethical and competent, and tens of thousands of crimes are prevented each year by ordinary citizens with guns.

• "Tough Targets: When Criminals Face Armed Resistance from Citizens," by Clayton E. Cramer and David Burnett
• Defensive Gun Use: An Interactive Map

The Current Wisdom is a monthly Cato feature written by Senior Fellow Patrick J. Michaels on global climate change. These articles usually feature new and interesting items in the scientific literature with important implications for climate change regulations.

Prior to April, 2011, issues of this Wisdom, which began in 2010, are available at our blog Cato@Liberty (www.cato-at-liberty.org/).

This edition departs from our usual routine because of the very vitriolic fight that has broken as the result of publication of a January 27 op-ed titled “No Need to Panic about Global Warming” in The Wall Street Journal. Authored by 16 high-profile scientists, it made common-sense climate arguments that readers of this Wisdom and other Cato publications on climate science and policy are certainly familiar with.

The January 27 piece can be summarized as follows:

• There has been no net warming for “well over ten years;”

• Global warming forecasts confidently made by the UN in 1990 were clearly exaggerations;

• Carbon dioxide, the main “greenhouse” emission, stimulates plant growth;

• Climate scientists on the federal dole have a track record of punishing those who do not express alarmist views;

• Climate alarmism, public funding, and the growth of government and taxation create self-feeding mutual incentives; and

• Doing “nothing” about climate change in the next 50 years has little effect on climate mitigation compared to initiating taxation now.

None of the above are earthshaking propositions to any serious student of climate change. Monthly temperature departures from average show no significant trend going back to 1996. If one is concerned about biasing from the warm El Nino year of 1998, beginning post-2000 yields the same result. The UN was forecasting that global temperatures would be rising around twice the mean rate actually observed in surface temperatures. Greenhouse owners jack up the carbon dioxide concentration of their air several fold to stimulate plant growth. Alarmism breeds funding and new agencies that require more tax dollars, and funding begets tenure. The futility of politically feasible emissions reductions policies has been demonstrated for decades.

By January 30, the New York Times, whose editorial stance on global warming is (to put it mildly) different than that of the Journal, brought in their high-profile environmental blogger, Andrew Revkin, to carp principally about the last bullet item.

His post, “Scientists Challenging Climate Science Appear to Flunk Climate Economics,” claimed that the Journal scientists had misrepresented the work of Yale economist William Nordhaus, quoting the latter’s “wise policy” (no bias there) of slowly introducing a carbon tax.

Nordhaus responded that the Journal piece “completely misrepresented my work.”

At that point, Revkin opened up the controversy to commentary. Readers can decide for themselves.

Here is Nordhaus’s complete comment on the Journal op-ed:

The piece completely misrepresented my work. My work has long taken the view that policies to slow global warming would have net economic benefits, in the trillion of dollars of present value. This is true going back to work in the early 1990s (MIT Press, Yale Press, Science, PNAS, among others). I have advocated a carbon tax for many years as the best way to attack the issue. I can only assume they either completely ignorant of the economics on the issue or are willfully misstating my findings.

And here is the response of the Journal article authors:

We have accurately represented Professor Nordhaus’s findings in our Wall Street Journal editorial of 01-27-12, while making and intending no statement regarding his policy beliefs and advocacy. In his 2008 book, A Question of Balance, Weighing the Options on Global Warming Policies, Professor Nordhaus provided the computed discounted costs and benefits for a variety of policies, assuming the IPCC central value for warming due to increased atmospheric CO2 (3 degrees C for doubling of CO2).

He finds (Table 5.3 of the book) that a policy of delaying greenhouse gas controls for 50 years gives a benefit-to-cost ratio just slightly less than his “optimum” policy. The optimum policy is a universal harmonized carbon tax, which Professor Nordhaus advocates. It starts small and is increased gradually over decades. In terms of net benefits, the 50-year-delay policy is far better than more aggressive policies that would severely limit atmospheric concentrations of CO2 or model-calculated global temperature rises.

Both the 50-year-delay policy and the optimum policy allow world economies to continue to develop with relatively little disruption. Aggressive policies considered in the book do not have this characteristic and display sharply higher abatement costs and lower benefit-to-cost ratios.

As we note in the Wall Street Journal editorial, several more aggressive policies are negative return propositions.

Furthermore, in Chapters I and VI, Professor Nordhaus takes pains to explain that the requirement of universality of policy application is critical; regional, national, or group participation differences can be expected to lower policy effectiveness, perhaps substantially: “... there are substantial excess costs if the preponderance of sectors and countries are not fully included. We preliminarily estimate that a participation rate of 50 percent, as compared with 100 percent, will impose an abatement-cost penalty of 250 percent.” (Chapter 1, p.19). Therefore the optimum policy should be considered an ideal upper limit that may not be achieved in real world application.

We wish to emphasize once again that the above assumes that the IPCC climate results are correct and that significant environmental damage would result, both of which we strongly dispute. The statements made in the Wall Street Journal editorial report Professor Nordhaus’s findings accurately and do not bear on his policy advocacy.

Here is Table 5.3:

Of course, that wasn’t the end.

It seems that if one ever needs to start a fire in the woods, simply rub two climatologists together. So, in the wee hours of February 1, a response to the Journal article, signed now by 38 scientists, was published.

For clarity, let’s call this one “Trenberth et al.”, for its senior author, Kevin Trenberth of the U.S. National Center for Atmospheric Research.

Summarizing Trenberth et al.:

• The authors of the original Journal article were largely not climate scientists, and those that were, held “extreme views.”

• Warming has not “abated” in the last decade.

• Scientific societies worldwide concur that “the earth is heating up and humans are primarily responsible”. More than 97% of all actively publishing climate scientists “agree that climate change is real and human caused”.

• ”... The transition to a low-carbon economy will not only allow the world to avoid the worst risks of climate change, but could also drive decades of economic growth.”

Trenberth et al. is surprisingly weak and incomplete. The 16 original authors are all individuals that are highly competent in their fields, most are physicists of one stripe or another, and all can read and summarize a scientific literature. In fact, most would hold that climate science is nothing more than applied physics.

“Extreme views” lie in the eye of the beholder, and science only grudgingly backs away from established paradigms. For example, despite the obvious jigsaw-puzzle fit of the earth’s continents, it took 100 years of bickering before continental drift was accepted over geological stasis. And, in this case, the “extreme view” of the most prominent climate scientist of the 16, MIT’s Richard Lindzen, is hardly an outrage.

Lindzen holds that the “sensitivity” of surface temperature to changes in atmospheric carbon dioxide has been overestimated because of an inaccuracy in the way that computer models magnify warming. In and of itself, it is mainstream, not extreme, to entertain the hypothesis that doubling carbon dioxide on its own would only cause a bit more than 1 degree (C) of global surface warming. Computer models arrive at much higher values, around 3.5°C, by amplifying the carbon dioxide effect because a slightly warmer atmosphere contains more water vapor, which itself is a potent greenhouse gas. Clouds are also changed in a way that enhances warming. There is evidence from the outgoing radiation signal of the earth that the effects of water vapor and clouds have been overestimated.

The 38 must somehow disagree with Susan Solomon, whose 2010 article in Science attributing the lack of recent warming—that the 39 deny—to unanticipated changes in stratospheric water vapor with no known cause.

The 38 must somehow disagree with the global temperature sensing from satellites, which also shows no net warming for the last 14 years. Now, one could argue that the satellites are measuring temperatures above the surface in the lower atmosphere, but the computer models that the 38 find so accurate, predict that the lower atmosphere should be warming faster than the surface over most of the planet.

Finally "more than 97% of all actively publishing* climate scientists agree that climate change is real and human caused" is probably an underestimate, as virtually everyone acknowledges that the surface temperature is warmer than it was, and that multifarious human activities have some influence on climate. Rather, he misses the point well-made by the original Journal article, which is that the rise in surface temperature is clearly below the values first forecast by the UN in 1990. The core—unsettled—issue in climate science is the "sensitivity" of temperature to carbon dioxide, and there are several independent lines of evidence, including the surface temperature history and the water vapor problems, that argue that it has been substantially overestimated.

In global warming, it's not the heat, it's the sensitivity. But don’t expect much sensitivity and expect a lot of heat when climatologists voice their opinions.

* The part about “actively publishing” is saved for another day. The climategate emails—and there are plenty by, to, or about these 39 scientists, detail how difficult it is to publish anything they disagree with, thanks to intimidation and manipulation of editors, blackballing of those who disagree with them, and other blood sports.

Patrick J. Michaels is a Senior Fellow in Environmental Studies at the Cato Institute.

The Federal Reserve’s decision to release forecasts for short-term interest rates is supposed to clarify monetary policy and reassure the public. By keeping the federal funds rate close to zero for three more years, and switching from shorter to longer-term securities, the Fed hopes to spur investment and growth. The problem is that manipulating interest rates and allocating credit to favored parties fosters crony capitalism, not market liberalism.

Clarity in capital markets is not improved by distorting interest rates, which are relative prices. Nor is monetary policy improved by engaging in fiscal policy and the allocation of credit. Targeting inflation at 2 percent is 2 percent too much. Nominal interest rates should reflect real interest rates in a world of zero inflation, if they are to perform their function of allocating capital efficiently.

By pegging nominal interest rates at artificially low levels, the Fed is penalizing millions of people who have their assets in saving accounts or money market funds and are getting near zero nominal returns. With CPI inflation of 3 percent in 2011, the real rate on those assets is negative. The Fed’s low interest rate policy, designed to help fund big government and stimulate housing, is decapitalizing many households who do not want to take on more risky assets. Private virtue is being penalized by public vice.

Retirees, or those near retirement, typically prefer less risky assets. But with the average rate on a savings account at 0.24 percent, on a money market account at 0.22 percent, and on a 1-year CD at 0.53 percent, nominal returns are close to zero, and real returns are negative—even at relatively low rates of inflation.

The longer rates are held artificially low, the more savers will suffer, and the more tempted they will be to take on risks they never would have considered. Risk mismatches will complicate Fed policy when rates must rise to prevent serious inflation. Bond prices will collapse, and those investors who trusted the Fed to support longer-term asset prices will be especially harmed. There will be significant political pressure to keep all rates lower for longer, even if inflation is above the Fed’s 2 percent target. So how can that target be credible?

Fed chairman Ben Bernanke has said that he will put equal weight on price stability and full employment, as dictated by the Fed’s dual mandate. But “price stability” means zero inflation, not 2 percent. The Fed has no fixed anchor: there is no rule to guide it, only discretion. And that discretion is still influenced by Keynesian thinking and a Phillips Curve mentality.

Bernanke is willing to tolerate a little more inflation to try to engineer less unemployment. Yet, he must know this is a Faustian bargain that cannot work. Indeed, the Fed’s press release following the FOMC meeting on January 25 admits, “The maximum level of employment is largely determined by nonmonetary factors.”

The Fed has largely lost its independence. Congress has asked too much of the Fed, and Bernanke has vastly expanded the Fed’s powers and balance sheet to comply. Some asset prices have been inflated (especially gold and bonds), but overall inflation has remained relatively low because people and businesses have been holding large cash balances, and banks have parked their excess reserves at the Fed for a risk-free return. The Fed has helped create its own “liquidity trap” by paying interest on excess reserves, which has reduced the so-called money multiplier.

However, as the economy regains steam and loan demand increases, those excess reserves will enter the marketplace and increase nominal spending and prices. The Fed will need to reduce the size of its balance sheet and nip inflation in the bud; but policymakers may act too late. The result will be stagflation.

Bernanke has placed the Fed in a precarious position. There is no way the FOMC can accurately forecast interest rates or determine what the efficient allocation of capital should be. Interfering with market interest rates is an exercise in market socialism, not capitalism.

In his press conference following the historic January 25 policy meeting, Bernanke was asked whether the Fed’s inflation target of 2 percent was intended to depreciate the purchasing power of the dollar. Bernanke replied that the real purpose is to “avoid deflation.” He then tried to downplay the idea that mild inflation would erode the value of money, because most people would protect their money by investing it, and not put it under the mattress. He admitted that interest rates are low now, but in the long run they tend to “compensate” for inflation.

This was an artful dodge. In fact, inflation always erodes the domestic purchasing power of the dollar. At the current 3 percent CPI inflation rate, the average level of money prices would increase by 34 percent in a decade, and by 81 percent in 20 years. Even at 2 percent, the price level would double every 35 years—no matter what the interest rate is. By suppressing nominal interest rates, the Fed is denying savers the means to safeguard their property; yet Bernanke barely gives that failure a mention.

Transparency is a noble goal, but it is best achieved under a rule of law and freely determined prices. The Fed’s transparency crusade has not imposed any rule on the Fed or moved us closer to sound money. Forecasting short-term rates near zero for the foreseeable future sends the wrong signal—namely, that financial repression and crony capitalism will continue.

James A. Dorn is the vice president for academic affairs for the Cato Institute and editor of the Cato Journal.

Ilya Shapiro, a senior fellow in Constitutional Studies at the Cato Institute, evaluates the state of the Union with respect to the rule of law.

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