Category: Congress

USAID

“When Marco Rubio testified during his confirmation to become Secretary of State, he said that one of the things that frustrated him the most about the U.S. Agency for International Development was that it didn’t ‘brag’ enough to show other countries ‘what the United States is doing to help their societies.’

“The comment followed years of praise from Rubio for the billions of dollars in lifesaving aid that USAID distributed overseas to boost America’s image and counter the influence of rivals such as China.”  “Washington Post: Marco Rubio on USAID”

From my own experience, I agree with Rubio. After retiring from the International Monetary Fund in 2003, I had a contract from USAID from May 2004  – Sept 2005 to help the Central Bank of Iraq establish financial markets important for monetary policy as well as its capacity to formulate and implement monetary policy. Under this contract I reported to and was supervised by the US Treasury. I have also worked closely with USAID banking supervision contractors (BearingPoint and Deloitte) in Afghanistan, Bosnia, Kosovo, and South Sudan, all post conflict countries. They did an outstanding job, and I am sure that I was well worth the money I earned as well.

Quite aside from the insanity of suspending payments and projects in midair, wasting millions of dollars (and lives) in the process, the proper question of our government is whether these projects (or which of these projects) serve American interests and do so more effectively than would alternative uses of the same money. “As Secretary of State Marco Rubio has said, ‘Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?’” “State Department: Implementing the president’s executive order on reevaluating and realigning United States foreign aid”

A proper answer to those three objectives should take a long run perspective. America is safer and more prosperous when the rest of the world (our trading partners) is also more prosperous. We are stronger when we have earned the rest of the world’s respect and cooperation. USAID, by providing humanitarian and development assistance to other countries, gains their respect and gratitude, which promotes their cooperation. When President John F Kennedy established the USAID in 1961 he made this case calling it American soft power. Following Congress’s adoption of the Foreign Assistance Act in September1961, Kennedy consolidated several foreign aid agencies into the USAID in order to improve coordination and efficiency.  It is fair to ask whether this is the most efficient way of packaging these activities and coordinating them with other departments. https://www.youtube.com/watch?v=QLzwsc3XGNA

USAID has missions in over 100 countries. Congress authorizes USAID’s programs in the Foreign Assistance Act, which Congress supplements through directions in annual funding appropriation acts and other legislation. As an official component of U.S. foreign policy, USAID operates subject to the guidance of the president, Secretary of State, and the National Security Council.

Of USAID’s total budget of almost $8 billion in 2001 and $34 billion in fiscal 2024 (less than 1% of total federal budget), one third goes to public health and the rest to disaster relief, and economic and government capacity building. Its programs to treat HIV and malaria have saved millions of lives, largely in Africa, over the last two decades. It played a major role in implementing George W Bush’s “President’s Emergency Plan for AIDS Relief (PEPFAR) which saved over 25M lives globally. “State Department: About US PETFAR” It played an important role in ending smallpox and increasing global literacy.

When I asked several USAID staff what they considered the agency’s greatest successes they sighted South Korea which is now a major US trading partner, and Columbia which has risen from a failed state to a secure middle-income country and a major US trading partner. But we can no longer access the details of these programs as USAID’s website was taken down February 1.   

Those lives saved, plus the technical assistance in governance, infrastructure, and building stronger economies has raised incomes in these countries and their sales to and purchases from the US and other countries abroad (trade). As the U.S. benefits economically from these stronger economics, American citizens are also kept safer.  With stronger economies comes stability for citizens to live peaceful, prosperous lives, turning away from the perils of extremism and increasing security on the ground. Thus, American aid has not only gained respect, good will, and cooperation from the aid recipients but increased trade, income, and security in the US as a result. In a statement made by then U.S. Senator Marco Rubio, he highlighted that six of the United States’ ten largest trading partners had graduated from assistance provided by the U.S. Agency for International Development (USAID). In a 2015 Senate Foreign Relations Committee hearing, for instance, Rubio said USAID “not only is doing what is right, but we are also furthering our national interests.” “Washington Post: Marco Rubio USAID”

The mean average managed foreign assistance disbursed in the fiscal years 2001 to 2024 by USAID was $22.9 billion in inflation adjusted to 2023 dollars; 2023 was an exceptional year because of an extra $16 billion of funds for Ukraine. America’s military budget over this period was almost $850 billion dollars per year. Since 9/11, the United States has spent an estimated $8 trillion on wars and counterterrorism efforts globally. This figure includes direct military operations in Afghanistan, Iraq, Syria, and other countries, as well as related costs like veteran care and interest on borrowed funds to finance the wars. Over 7,000 American servicemen died in these wars and deaths many multiples of that were suffered by our allies and our enemies over that period. Total Defense Department expenditures over this period were $14 trillion compare with USAID’s expenditures of 0.6 trillion with many lives saved and almost none lost. The State Department’s annual budget ranged from $50 to $60 billion over the same period. Soft power is clearly a bargain for the American taxpayers seeking a safer, stronger, more prosperous America. Why does President Trump want to shut it down?

Not all projects have been successful in achieving their objectives. But many claims of waste and corruption are not supported by facts:

“In 2025, the Trump administration accused USAID of ‘wasting massive sums of taxpayer money’ over several decades, including during Trump’s first presidency from 2017 to 2021. The administration highlighted a list of twelve projects, totaling approximately $400 million—less than 1% of USAID’s annual budget—dating back to 2005. Among the examples cited were $1.5 million for LGBT workplace inclusion in Serbia, $2.5 million to build electric vehicle chargers in Vietnam, $6 million for tourism promotion in Egypt, and ‘hundreds of millions of dollars’ (the largest item) purportedly allocated to discourage Afghanistan farmers from growing poppies for opium, which allegedly ended up supporting poppy cultivation and benefiting the Taliban. Fact checkers found that these claims were largely false, ‘highly misleading,’ or wrong.” “Wikipedia: United States Agency for International Development” 

For another example, claims that USAID funded major media organizations like Politico or BBC News were false. Payments were for subscriptions or grants to independent media projects, not direct funding of news operations. 

But neither USAID nor any other government agency is perfect. Some functions should be eliminated and others automated or streamlined and oversight strengthened. But in order to properly review its programs and operations most operations should continue until a broad consensus is achieved on what reforms are desirable how they can must efficiently be executed. For functions that survive: “’The end goal is replacing much of the human workforce with machines,’ said a U.S. official closely watching DOGE activity. ‘Everything that can be machine-automated will be. And the technocrats will replace the bureaucrats.’”  “Washington Post: DOGE Musk goals” These are worthy goals.

This “convinced Democratic lawmakers and financial columnists, who have long promoted the analogy between citizens and consumers, that DOGE could be a good idea. ‘Streamlining government processes and reducing ineffective government spending should not be a partisan issue,’ announced Congressman Jared Moskovitz (D-FL) when he joined the DOGE caucus in December. ‘If Doge can actually unleash digital reform in the US government, and in a non-corrupt manner, that would be an unambiguously good thing,’ Gillian Tett wrote last month in the Financial Times.”   “Speed-up-the-breakdown”

But suddenly suspending programs and payment while undertaking a review is the wrong approach. To take but one example, Trump’s foreign aid freeze is having unintended effects in Latin America, including halting programs aimed at stopping the flow of fentanyl. Trump has vowed to impose tariffs unless Mexico stops the trafficking of fentanyl, a major killer of young adults in the US, but the aid freeze has halted funding that Mexican authorities rely on to destroy clandestine labs, Reuters reported. Countries across Latin America are scrambling to respond to the cuts, which have dealt a blow to humanitarian programs designed to slow migration to the US — which Trump has also promised to crack down on — as well as conservation efforts in Brazil and coca eradication in Peru.

USAID’s budget and the projects it finances generally arise from the recommendations of USAID Missions in the countries it operates in accordance with the development objectives captured by the respective Country Development Cooperation Strategy (CDCS) created in concert with the host government and civil society. Almost two-thirds of its employees are locally employed staff, many from the upper echelons of the political and social classes of that country, which means stronger ties and partnerships for USAID and the host country government political figures. Some of these local staff go on to join the host country government as Members of Parliament, establishing connections between the USG and the host country government that are unmatched in terms of influence. USAID operates with an understanding of the local institutions and culture that is deep and strongly influences the projects it recommends. These recommendations are reviewed and vetted by multiple entities, including USAID regional bureaus, the State Department Office of Foreign Assistance, the Office of Management and Budget, and by the House and Senate Foreign Affairs and Operations Committees.  These oversight tools include USAID answering inquiries sent directly to regional USAID Bureaus by individual members of Congress  and through the Congressional Notification process, where every USAID project and dollar is reviewed through Hill briefings and questioning of USAID officials by Congress for its approval, which has full oversight of their execution, and gives Congress the ability to place “holds” on funding preventing obligations of funds to take place before answering their inquiries.

As with other government agencies USAID’s operations are reviewed by an independent Inspector General. USAID Inspector General Paul Martin was officially fired on February 11, one day after his office issued a critical report warning that nearly $500 million in food was about to go bad due to President Donald Trump’s freeze on the agency. Rather than the announcement coming from Secretary of State Marco Rubio, the current acting director of the USAID, it was announced by the White House Office of Presidential Personnel. Martin’s office published a six-page report the day before that argued that the recent pause on foreign assistance programs and the slashing of USAID staff has prompted ‘risks and challenges’ to the safeguarding and distribution of the $8.2 billion in humanitarian assistance. Among other things confidence in America health aid in many cases was shattered by its sudden suspension thus undermining its benefit to the US.

“One U.S. official credited Rubio with pushing for the 10,000-person agency to keep on the job roughly 600 staffers as essential workers instead of the 290 suggested by some Trump officials.” .”  “Washington Post: Marco Rubio on USAID”  Whether that is the right number or not (i.e. the staff needed to perform the functions that best serve American interests) the sledgehammer being swung by DOGE is not the right, and certainly not the cheapest, approach to determining it.

Conclusion

The government does more than is best for the country and many programs should be ended or reformed. Freezing them in order to undertake a review is the wrong approach. Lasting positive reforms must be a careful consultative process. The debate over a big bang vs a more gradual approach following the collapse of the Soviet Union is illuminating. Anyone who thinks they can work with a “blank slate” is a fool. Such an approach has never been successful.

The USAID has generally been very successful and should not be “shut down.” To date the DOGE approach has done harm to American standing, safety and prosperity and reduced taxpayer safeguards of who their money is spent rather than strengthened them. The USAID website has been removed thus eliminating the transparency of its operation to public scrutiny. The USAID’s Inspector General has been fired thus eliminating independent oversight, though the Supreme Court may overturn this executive action. The overall approach of DOGE to reform with worries about conflicts of interest is doing more harm than good.

Checks and Balances

Americans have flourished under the freedoms and rules of community life provided by a government with limited enumerated powers that are divided between legislative, executive, and judicial branches to provide checks and balances against abuse of power and a civic culture of mutual respect. As a result, America itself has flourished. In 1900 median American income, valued in 2024 dollars was approximately $18,000 and 40% of the population lived in poverty. In 2024 median American income was $80,020 and 11.1% lived in poverty.  

The share of government spending (Federal, state and local) in the US was approximately 5.5% in 1900 and 37.5% in 2024. Following WWII GDP growth rate declined as government spending rose as a share of GDP. During the 34 years from 1950 – 1984 GDP growth averaged 3.5% per annum while over the next 34 years from 1984-2019 average annual growth rate fell to 2.5%. But the lower growth rate also reflects the burden of increased regulation.

The incoming Trump administration is claiming, with good justification, that the slowing of economic growth reflects excessive government spending and regulation. It has assigned Elan Musk and his new Department of Government Efficiency (DOGE) to reduce Federal government spending and counterproductive regulations.

Some government programs violate or at least stretch its powers as enumerated in the Constitution.  Some regulations fail to pass the cost/benefit test and thus reduce incomes. To identify waste and fraud, DOGE employees have been given access to confidential employee and or beneficiary data bases. “Late Friday, a federal judge in Washington declined to block DOGE access to Labor Department data but expressed concern about young DOGE staffers who ‘never had any training with respect to the handling of confidential information’ accessing ‘the medical and financial records of millions of Americans.’ And on Saturday, a federal judge in New York temporarily blocked DOGE staff from accessing sensitive payment systems at the Treasury Department, citing the risk of ‘irreparable harm.’

“After the New York ruling, Musk defended DOGE methods, tweeting that his team had sought to add routine information to outgoing Treasury payments to help spot fraud — “super obvious and necessary changes” that “are being implemented by existing longtime career government employees, not anyone from @DOGE.”   “Washington Post – DOGE and Musk goals”

 I support modernizing administrative systems to improve government employee’s productivity (i.e. reduce the number of employees needed for a task) and I support eliminating functions that exceed government’s enumerated powers or do not serve a clear need that can only be met by government, and I support eliminating regulations that fail cost/benefit criteria. Examining these functions and systems and associated databases are surely part of such a careful determination.  But what if Musk and Trump have other objectives such as driving out or punishing their enemies?

“The Trump administration is giving hints it may ignore a federal judge’s ruling restricting Elon Musk and his associates in DOGE, the Department of Government Efficiency, from accessing the Treasury Department’s critical payment systems. In his decision, U.S. District Judge Paul Engelmayer warned about the ‘disclosure of sensitive and confidential information and the heightened risk that the systems in question will be more vulnerable than before to hacking.’ Vice President JD Vance responded to the ruling by writing on social media that ‘judges aren’t allowed to control the executive’s legitimate power.’ Elon Musk also called for the judge to be impeached.”   “Democracy Now – constitutional crisis Trump admin hints it will ignore judge’s ruling to block Musk from Treasury records”

Trump has been issuing executive orders that ignore Congress’s authority (such as the adoption of tariffs, and impounding congressionally authorized expenditure). A federal judge in Rhode Island, John J. McConnell Jr., has ordered the Trump administration to immediately restore federal funds that were frozen under a controversial directive. This followed evidence that the administration failed to comply with a prior temporary restraining order (TRO) issued in January, which prohibited freezing federal grants and assistance programs. The funding freeze, initiated by a memo from the Office of Management and Budget (OMB), affected programs tied to the Inflation Reduction Act and bipartisan infrastructure law, as well as initiatives like Head Start and health research grants.

While the legality of Trump’s executive actions in these areas is doubtful, its wisdom is totally lacking. Collective (i.e. government) action requires broad consensus which is obtained by public discussion in which all views are aired. Cutting off programs and expenditure in the middle of existing contracts bound to be harmful to those involved and to generate public outrage quite unnecessarily. It’s probably illegal as well as just bad policy.

Each administration has the right to put managers in place who support its programs. But the pure execution of administrative functions is not, or should not be, a partisan matter. In the earlier years of our republic working for the government was often a way of rewording family or party members. The resulting quality of the services performed was often poor.

The Pendleton Civil Service Reform Act, signed into law by President Chester A. Arthur on January 16, 1883, marked a turning point in U.S. federal employment practices. It was enacted to dismantle the corrupt “spoils system,” which awarded government jobs based on political loyalty rather than merit.

  • The act required certain federal positions to be filled through competitive examinations, ensuring that candidates were selected based on their qualifications rather than political connections.
  • It prohibited the firing or demotion of employees for political reasons and banned mandatory political contributions (known as “assessments”) from federal workers.
  • The act established the Civil Service Commission to oversee the implementation of merit-based hiring and enforce its provisions.

Initially, only about 10% of federal jobs were covered, but presidents were allowed to expand its reach. By 1980, over 90% of federal positions fell under its protections. President Trump intends to roll back such protection to make more political appointment. Is this to insure that he can appoint managers committed to the faithful execution of his policies? Why then have many of his cabinet appointments been so unqualified to care out their responsibilities? An even bigger question is why the Republican controlled Congress has silently approved their appointments and why have they remained silent in the face of Trump’s many violation of law?

Kash Patel, Trump’s nominee to head the FBI, has publicly outlined plans to go after individuals he perceives as part of the “deep state,” including journalists, Democrats, and former Trump allies. Trump has asked for the names of all FBI agents who work on the investigation of his violations of the law and he threatens to fire them. This sound more like an administrative coup than putting a strong team in place to “make America Great again.”

To take one example of executive actions that undermine rather than serve America interests, consider his strong support of Israel’s war against Palestinians, which even goes beyond Biden’s “blank check” support for Israel. After his threats to Mexico, Canada, Greenland, and Panama, he now plans to take control of Gaza, displace its two million Palestinian residents, and transform the area into a U.S. owned resort-like destination. In interviews, Trump described Gaza as having the potential to become “the Riviera of the Middle East” and suggested relocating Palestinians to neighboring countries like Jordan and Egypt, citing safety and redevelopment needs. He emphasized that Palestinians would not have a right to return under this plan, claiming they would be resettled in “better housing” elsewhere. Thus, Trump would join Israel’s ethnic cleansing of Palestinians directly.

On February 11, when meeting with Trump at the White House, Jordanian King Abdullah II was told that Jordan risked billions of dollars in U.S. foreign aid that Amman receives every year if he did not back Trump’s Gaza displacement plan and admit millions of displaced Palestinians. Later Trump softened but did not withdraw his threat.

Trump has taken a number of other measures that signal his supporters will be exempt from the law. He pardoned approximately 1,500 people connected with the Jan 6 attack on the capital. “Rod Blagojevich and Eric Adams got off because they played the Trump card. Is that how justice now works in America?  “Trump-Rod Blagojevich-Eric Adams lawfare corruption pardon”

“In a further jaw-dropping move…, Trump issued an Executive Order that suspends the Foreign Corrupt Practices Act (FCPA) for 180 days, giving a greenlight to megabanks on Wall Street and other U.S. corporations to bribe officials in foreign countries to get business deals approved.”  “Trump gives the greenlight to Goldman Sachs and JPMorgan Chase to return to bribing foreign officials”

To express his anger at what he considered disloyalty by former Trump administration officials such as Mike Pompeo, Brian Hook, John Bolton, and Mark Esper, Trump terminated their security protection.

All of these reflect Trump’s willingness to punish those who cross him. This provides a possible explanation for why Republicans have remained silent in the face of Trump’s violations of Congress’s laws and quietly approved unqualified cabinet appointments. They are afraid of his retribution.

So what do we do about DOGE’s freezing projects and payments and accessing confidential data bases. Is it for good or evil?

Checks and balances should be supplemented by independent inspectors and auditors. But Trump recently fired 17 Inspectors General from various federal agencies. All members of DOGE given access to confidential data should receive security clearances. Edward Coristine, a 19-year-old member of Elon Musk’s Department of Government Efficiency (DOGE), launched an image-sharing website called tesla.sexy in 2021. The site featured custom “shitposting” web addresses that redirected to content hosted on his platform. Some of these URLs referenced inappropriate and illegal content, including child sexual abuse material and racist themes.  He was recently appointed as a senior adviser to the State Department’s Bureau of Diplomatic Technology without a security clearance!!!

I am perplexed. I would like DOGE to identify waste and fraud and help reduce the scope of government and make what remains more efficient and effective. Understaffing air traffic control under Biden didn’t work out so well for the 67 people who died when a helicopter crashed into a passenger plane at Reagan National. Proper government functions should be properly performed.  But I do not want it to become a weapon of a thin-skinned bully punishing those who oppose him. Among other things the president should not be able to remove oversight inspectors or otherwise weaken independent scrutiny.

The latest on Social Security Benefits

If no changes are made to the Social Security law: “Starting in 2034… Social Security will only have enough money to pay 79% of its promised benefits.” “Day of reckoning for Social Security draws closer”  The system promises a given pension upon retirement (a defined benefit) that is financed by a given payroll tax. It is not a pool of saving that is drown down at retirement. It is pay as you go. “Saving Social Security”.

This financial problem results from the fact that Americans are living longer and thus receive their SS pension for more years if there is no change in the retirement age. Moreover, the growth in the population has slowed so that the ratio of workers (i.e. those paying the tax financing the pensions of the retired) to retirees has fallen from approximately 3.3 in 1970 to 2.9 in 2020. It is projected to fall further to 2.0 by 2030.

The system must and will change, the only question is how. Legal immigration could be increased to increase the number of workers. The wage tax could be increased. Retirement age could be increased (20% voluntarily work after retirement already). As people live longer many choose to work longer for more than just the extra income. Pension benefits could be indexed to inflation rather than to wage growth (which has been greater than inflation). But more recently I have proposed replacing Social Security and other safety net programs with a Universal Basic Income for every man, woman and child without exception. Such a remake of our social safety net would have several very good features. “Replacing Social Security with a Universal Basic Income”

The Houthi’s and Us

After almost a decade of trying to end Saudi Arabian bombing of the Houthi government in Northern Yemen, President Biden has ordered multiple American bombing attacks on Northern Yemen because of Houthi attacks on ships sending arms to Israel in support of its genocide in Gaza. You might need to read that sentence again to get all its parts.

The first point is that once again the U.S. Constitution’s requirement that the Congress must authorize war before the President can launch one, has been violated. And why did Biden think it necessary to bomb Yemen? Because the Houthi attacks were interfering with our shipment of weapons to Israel in support of Israel’s vicious murder of Palestinians by bombing and starvation. “The group’s official spokesman reiterated that attacks on vessels transiting the Bab el-Mandeb Strait toward the Suez Canal will continue until “Gaza [receives] the food and medicine it needs.” That shouldn’t be hard to accomplish.

Even if the US Congress authorized the American bombing of Yemen, it would be bad policy for the U.S., for the Palestinians, and for Israel. “Weighing additional US responses to Houthi Red Sea attacks” America’s interest should be peace and prosperity for all in the Middle East (and all the world). Supporting Israel’s genocidal war in Gaza does not serve that goal and makes the U.S. complicit in Israel’s genocide. Moreover, Europe’s relative silence and the silence of any of us to Israel’s inhuman war in Gaza (including Biden, Trump and Nikki Haley) makes them all complicit. “War in Gaza exposes European philosophy ethically bankrupt”

The march toward the aridification of Palestinians from Gaza and the West Bank is too unbelievably savage to spell out. Such a fate should not be wished on any people. “Unfolding genocide as ever single person in Gaza goes hungry” “Israel’s Netanyahu its Cromwell”

But this war, following a century of Zionist mistreatment of Palestinians in their homeland, is destroying Israel. “Israel is facing existential threats from inside and out-there’s one solution” Israel is committing suicide. To survive, Israel must become a secular democratic state that give equal rights and fair treatment to all who inhabit it. “One state solution for Palestine/Israel”

U.S. leadership is failing once again and is waning. The lust for war by the hawks has overpowered American self-interest once again. War with Iran can’t be far behind. Taiwan can wait (a bit).  “Gaza and Yemen sound death knell for US led rules based global order”

Monopolies

A company that produces a really attractive product or service and does so efficiently and thus at lower cost than can potential competitors, will grow and potentially dominate and even monopolize that market. It is tempting for such very successful companies to seek laws and regulations that protect their dominance by making it harder for potential competitors to enter those markets with lower costs. But as a company enjoys its increasingly protected monopoly, it tends to lose the edge that put it on top in the first place. Its drive to innovate is reduced. It tends to become lazy and even corrupt in the defense of its monopoly position. While economist differ on what policies are best when dealing with a monopolist, there is generally consensus that monopolies are bad in the long run.

The same is true of countries that grow to international dominance. With the collapse of the Soviet Union and the resulting unipolar dominance of the United States, the U.S. increasingly behaves like a bully and disregards the rules of international commerce and diplomacy that it helped establish and demands that others follow.

The United States was founded on an extremely well-conceived set of principles designed to protect its individual citizens to lead their own lives and pursue their own flourishing as they each saw fit. The American constitution limited what the government may do to enumerated powers and provided checks and balances on the actions of each branch of government. For the most part these restrictions have held, and our government has provided the defense, protection, and framework needed for our individual flourishing.

But as we gained strength and dominance and especial during our brief period of unipolarity, we increasingly violated the rules we demanded that others follow. For example, we joined others to sponsor the World Trade Organization to establish the rules of fair trade in order to maximize the benefits of higher incomes for everyone made possible by trade.  We properly challenged China for dumping its excess steel on the market as a violation of WTO rules. But President Trump’s tariffs on Canadian, European, as well as Chinese steel in the name of national defense violated WTO rules as well as common sense. And how do President Biden’s multibillion dollar subsidies for domestic semiconductor chip production differ from “China’s state-led, non-market approach to the economy and trade” we object to?

Though the U.S. won most of the cases it brought to the WTO Appellate Body, the WTO’s dispute resolution body, that Body has not been able to function since December 2019 because the US has blocked the appoint of new judges.

But it gets worse. We have rightly condemned Russia for violating the sovereignty of Ukraine by invading it, while overlooking our equally illegal violations or attempted violations of the sovereignty of Cuba, Iraq, and Libya among others.  

But it gets worse still. In reaction to Canadian Prime Minister Justin Trudeau’s accusation that the government of India was responsible for the assassination of Canadian Sikh activist Hardeep Singh Nijjar on Canadian soil, Adrienne Watson, the White House National Security Council spokesperson, said “targeting dissidents in other countries is absolutely unacceptable and we will keep taking steps to push back on this practice.” Had she forgotten the dozens of such assassinations carried out by the U.S. on foreign soil? Of the more recent was the drone attack in Yemen that killed Anwar al-Awlaki and his young grandson on September 30, 2011. Al-Awlaki was an Islamic scholar and lecturing living here in Arlington Va.  Our assassination of Qasem Soleimani in Baghdad on January 3, 2020, again with a drone attack, raised considerable international criticism. Soleimani was the Commander of the Quds Force of the Islamic Revolutionary Guard Corps. We were not at war with either Iran or (at that time) Iraq.

With our near monopoly of political power in the world, the ability of our defense industry to protect and promote its profitable supply of weapons is strong. We can be thankful of their capacity to produce the weapons that defend us. But our military industrial complex that President Eisenhower warned us of profits however and by whom ever its products are used. Its profits are strengthened and sustained by our forever wars and those we supply. Ike knew of what he spoke.

Of the 2023 FY budget (ending next week) of $1.7 trillion in discretionary spending (yes trillions if you can swallow that), $860 billion (or 50.6%) was for defense. Half of that was paid to the defense industry. Most of that is for weapons. But they provide other services as well. When I was living in Baghdad as part of the Coalition Provisional Authority in 2004, Halliburton (the company Dick Chaney had been Chairman and CEO of) provided our meals in the Embassy mess hall (Saddam Hussein’s Presidential Palace). Lockheed alone gets more of its annual revenue from the federal government than the annual GDP of all but the top 81 countries (about half) in the world.

While our constitution’s checks and balances go a long way to protect our government from capture by the defense and other industries, the honestly of our elected representatives (devotion to the interests of their constituents and our country rather than to the size of their corporate contributions) still matters. It is hard to understand otherwise why we send our sons and daughters off to fight and die in foreign lands or encourage Ukraine to fight to the last Ukrainian.

Our government and foreign policy have been corrupted by our unipolar dominance. But our very arrogance—abide by our rules while we do what we want—has and will increasingly weaken our global influence. There are faint signs that we are being to recognize this new reality and tempering our behavior. The demise of our monopoly behavior and our return to fair and proper competition should be encouraged.

It makes sense to restrict trade of important military products. National Security Advisor Jake Sullivan was right to claim that we should aim for a “small yard with a high fence” to protect military supplies while otherwise maximizing beneficial trade. But the profit motive of our defense industries to expand the size of that yard as much as possible is strong and has been and will be hard to resist.

Student Loan Forgiveness

“Writing for a 6-3 majority split along ideological lines, Chief Justice John Roberts ruled in Biden v. Nebraska that President Biden lacks the authority to enact his signature student loan cancellation plan by executive fiat.” “What’s going on with student loans?”

Please note that the Court said nothing about the merits of forgiving such debt nor that Congress could not do so if it so decided. It said that the President does not have the authority to do so without Congressional authorization. So, it is now back to Congress to debt the merits of the issue. I expressed my views on several occasions, most recently last November.

Econ 101:  Student Loan Forgiveness

The Debt Deal

CNN reported today on the compromise bill to raise the Federal debt ceiling agreed between Biden and McCarty, saying that:” The Congressional Budget Office estimates the bill would reduce budget deficits by $1.5 trillion over the next 10 years, and reduce discretionary spending by a projected $1.3 trillion from 2024 to 2033.”

Language can be tricky. Debt and deficit are not the same.  Reducing projected spending need not mean a reduction in actual spending. In fact, the package agree to by Biden and McCarthy will continue to increase the Federal debt (though at a slower rate than was proposed initially by Biden) and all categories of spending will continue to grow.  Not only will they continue to grow, they will be growing from the abnormally high levels reached during the COVID pandemic.

If we really want all of these expenditures, we should, and will ultimately need to, raise taxes to pay for them.  But do all of them pass the cost benefit test? Do all of them contribute to American wellbeing?

One Republican blind spot is defense spending (which, by the way does not include foreign aid to, for example, Ukraine). The defense budget for 2023 is 9.8% higher than in 2022 and is projected in the Biden/McCarthy package to continue to grow over the next two years covered by that deal. Our huge defense budget has resulted from (or encouraged?) American military adventurism that does not contribute to our security.

The District of Columbia

A foreigner dropping into “The District” from wherever, would be flabbergasted by the local debate over Statehood, home rule, etc. for the District.

The powers of Congress enumerated in Article 1, Section 8, of the U.S. Constitution include the power to govern a federal district:

  • “Clause 17: To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;”

The Residence Act passed by Congress on July 17, 1790, established what is now called the District of Columbia, or Washington D.C., as the capital of the United States. Maryland and Virginia ceded between them 100 square miles of their territory for this purpose.  Congress moved from its first capital in Philadelphia to Washington in December 1800. On February 27, 1801, 212 years ago today, the so-called Organic Act was approved giving control of the District to Congress “and took away the right of residents to vote in federal elections.” District of Columbia retrocession – Wikipedia

And in 1812 our British friends burned down the White House forcing James Madison to live in what is now the Arts Club of Washington (of which Ito and I are members).

In March 1847, Congress and Virginia’s General Assembly approved the return (“retrocession”) of Virginia’s contribution to the District of Columbia but the retrocession of Maryland’s contribution failed to pass Congress. Turning Maryland’s part of the district into a new state makes no sense to me at all. But neither does Congress’s continued control over all of Maryland’s portion of the District.

The provisions of the Constitution giving Congress legislative power over the lands needed for and occupied by its facilities would be fully met by returning most of the District to Maryland (thus restoring full voting and other citizen rights to its residents). Virginia did it and so can (and should) Maryland.

Fair Tax Act of 2023

While I will not hold my breath, I am thrilled to see the introduction of H.R.25 – FairTax Act of 2023 in the House of Representatives by Rep. Carter Earl L. “Buddy” (R-GA-1) on January 9.

“This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions.

Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.” “Fair Tax Act of 2023”

I have written a great deal about taxation, a necessary feature of government spending, and how to make it fair and economically neutral (minimal distortion of the allocation of resources in our economy). Income taxation—especially corporate income taxation—fail these tests. A universal consumption tax passes them. It is especially suitable for our globalized world where companies produce and sell in many countries. “Tax reform and the press”   “The corporate income tax”

But the issue of fairness is somewhat in the eyes of the beholder. I have also supported a Universal Basic Income (UBI), in place of our many safety net transfers including Social Security. “Our social safety net”  Not only does a UBI better fit American’s strong commitment to individual liberty and choice, but when combined with a flat consumption tax it produces a progressive impact on income that satisfies my notion of fairness. “Replacing social security with a universal basic income”

As I understand the new (actually a return to the old) and improved House rules, after consideration by the House Ways and Means Committee, the bill will be debated on the floor of the full House. This is a giant step in a very good direction.  

Restoring Regular Order to Congress

In my “Hopes for the New Year” blog last week I listed among my hopes: “Restore Congressional Leadership. Enforce the War Powers Act. Restore regular order and cross aisle cooperation to address real problems. “Our dysfunctional Congress”

The promises made by Kevin McCarthy to gain the required majority support for his Speakership of the House, largely deliver my wish. They weaken the power of the overly powerful Speaker and increased the power of your and my Congressman or Congresswoman. Each appropriation will be properly and separately considered (first by the relevant committee) rather than the all in one rush package no one has time to read in the final minutes before the government must shut down. The issues and proposed remedies were presented a few days ago by Bruce Fein “Deliverance from the Republican House”

OK guys, please get on with addressing the issues and needs of the country that depend on law. The term “guys” here is a standard reference to both men and women. It reminds me of the many meetings we had in 2000 in Istanbul with the new head of the new Turkish Banking Supervision body created to manage Turkey’s exchange rate and banking crises. We (our IMF team) met with him and his team daily and often well into the night and he often referred to us as “girls” or in his better moods “ladies.”