Category: News and politics

Life and Death in Boston

We will all die and can hope that our passing and the passing of our loved ones will be peaceful and painless. It is sad when anyone dies prematurely. It is very disturbing when someone’s death is the result of a deliberate act. And is seems worse yet, when the targets of murder are random. How should we react to each of these?

I am struck by how differently we have reacted to the terrorist attack at the Boston Marathon that killed (initially) 3 innocent soles and injured over 180, the Texas fertilizer plant blast two days later that killed 14 (at the time of this writing) and injured about 200, and the 88 deaths on American highways on average every day (down from the high of 150 per day in 1972). No one would think to propose closing all of the highways, yet much of the area around Boston and Cambridge has been locked down (a term I know very well from my many trips to Iraq and Afghanistan) for over a day.

There is of course an important difference between the dangers of driving and a 19-year-old killer on the loose. However, Ed Crane’s comment (in a private email) introduces what I wish to reflect on: “Since when does the government shut down half of Massachusetts (stay in your house!) to catch one 19-yr-old?  If everyone in Boston had a gun there would be no shut down.  Just a dead 19-yr-old.” Ed is the founder and until last month the President of the Cato Institute here in Washington D.C.

Where it is possible and/or necessary to take precautionary measures to protect the public safety, it is prudent to do so. However, zero risk is not the standard we live by or automobiles and much else would be banned. Were we safer or did we feel safer a few years ago when signs and laud speakers kept announce that the city was code orange so be on alert?  At best such measures were silly and at worst they were part of a pernicious campaign to make us all feel more dependent on the government.

Public safety is a legitimate concern, but needs to be pursued sensibly. But what about the impact of our reactions on those wishing to terrorize us? We do not yet know what motivated the Chechnyan brothers Tamerlan, 26, and Dzhokhar, 19, Tsarnaev to blow up some joggers. Young Dzhokhar lived in the United States most of his life. What was his point? If it was to terrorize us, for whatever reason, our reactions have fulfilled that goal beyond his wildest dreams.

This brings to mind another recent case where our reaction to intimidation has surely rewarded the intimidator, another near child, beyond any reasonable expectation. I am speaking of (probably) 29 year old man child Kim Jong Un, the ruler of North Korea.  It is only prudent for the U.S. government to take defensive measures in response to the daily threats coming from young Kim. But why reward his behavior so loudly with such importance and publicity.

Consider the comments by Professor Andrei Lankov from Seoul’s Kookmin University: “The North Koreans are very, very rational. … Why do the foreign media, why do people overseas consider Kim Jong Un to be suicidal? … If he attacks he will be dead in 10 or 15 minutes and he knows it perfectly well. He is not suicidal. He is a young boy who is madly in love with his wife, who loves fast cars and a slice of pizza. And the people around him are not suicidal. They are hard-nosed, cynical Machiavellians who survived decades in the cutthroat world of a Stalinist palace. … They are not ideological zealots. They are just brilliant manipulators.” “Threats and crises are just normal North Korean diplomacy”

I am not suggesting that it is easy or obvious what measures should be taken to keep the risks of living in balance with its joys. But life has always been a risky undertaking. If our big brother government insists on trying to reduce its risks to near zero, which is not possible anyway, it will not be worth living.

The Cyprus Game Changer

Early banks were established by wealthy men that depositors could trust to return their money when they wanted it. Bank owners had unlimited liability for the trust placed in them. Any losses that exceeded what the bank owed its creditors (primarily depositors) had to be made up from the personal wealth of their owners.

With the introduction of limited liability banks, bank owners invested in significant amounts of capital (the difference between the value of the bank’s assets and liabilities) to reassure depositors that the bank was safe. They also advertised the conservatism with which they lent and invested depositor money. Some countries granted bank owners a liability limited to double the capital they paid into the bank in order to increase depositor protection without tying as much money up in capital.  In the much of the nineteenth century in the United States banks held capital well above 50% of their loans.

These early experiences with banking without any deposit insurance or any expectation by depositors that someone would bail them out (repay their deposits) if the bank failed (failure was the result of the bank not having enough money to repay depositors), maximized the market’s discipline of bank risk taking. Depositors paid close attention to the safety and soundness of the bank they put their money in.

During the great depression, the U.S. and most other countries introduced limited deposit insurance for small depositors thought to be too unsophisticated to evaluate the soundness of their banks. Such deposit insurance pretty much eliminated bank runs by panicked depositors. The level of deposits covered by insurance has risen considerably in most places (in the U.S. it is $250,000 and in Europe €100,000) thus reducing market discipline to some degree.

But outside of the United States, where the Federal Deposit Insurance Corporation (FDIC) has broad intervention and resolution powers to take over insolvent banks and to keep them going (if that is the least cost resolution) by reducing shareholder, bondholder, and uninsured depositor claims, almost no country allows its banks to fail (though this has begun to change in the last decade or two). If a bank experienced large enough losses that it became unable to pay off its depositors (i.e. became insolvent), governments would almost always bail it out one way or another. Depositors never lost anything. This practice and the market expectation it created made a joke of limited deposit insurance (because ALL deposits were implicitly guaranteed) and significantly reduced market discipline of bank behavior. This required more active supervision and regulation of banks to take the place of market regulation.

After a very bad start in Cyprus last week (see my blog from last week: https://wcoats.wordpress.com/2013/03/23/cyprus-and-the-euro/) the resolution of Cyprus’ two largest banks, Cyprus Popular Bank and the Bank of Cyprus, is taking the form intended by the banking law. Rather than bailing out the bank (the Cyprus government doesn’t have the money to do so, hence its need to turn to external help –EU/IMF/ECB and to accept the conditions attached), the shareholders, bondholders, and uninsured depositors (in that order) are being bailed in to cover the losses. The insured deposits of the Cyprus Popular Bank, aka Laiki, will be transferred to the Bank of Cyprus along with good assets of equivalent value. Laiki, the “bad bank”, will be put into receivership and its uninsured depositors will receive whatever value can be realized from the sale of its remaining assets (they are expected to lose about 80% of the value of their deposits). The Bank of Cyprus, the “good bank”, will continue to operate but will be recapitalized by wiping out the shareholders, bondholders and about 40% of the value of uninsured deposits. Depositor risk and the market discipline it provides to banks has returned with a vengeance. Hopefully this will be the practice throughout Europe going forward, which could then stop ignoring its no bailout rule.

In a Financial Times interview Jeroen Dijsselbloem, the Dutch finance minister and Eurogroup chairman stated that: “If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on….’ That’s an approach that I think we, now that we are out of the heat of the crisis, should consequently take.”

This is a very promising change in European attitudes. Sadly it shocked so many EU officials that Mr. Dijsselbloem had to back track by saying: “Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday. Macro-economic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used.” (quoted in the March 26 WSJ “Shocked about Cyprus”) The big unknown is whether this was too rapid a restoration of market discipline. Changing the rules is always problematic and government explanations to their publics of the situation and their policies for dealing with it have been poor to date. The coming days will be interesting indeed.

Cyprus and the Euro

Does the Euro need to be supported by closer European fiscal integration? Many countries do just fine without their own currency and no fiscal coordination with their currency’s issuer. Panama has used the U.S. dollar for well over a century with good success. Ecuador and El Salvador have used the dollar as their own currency for a much shorter time and are doing better for it. Etc.

The major failing of the Euro, along with its considerable benefits for the Euro zone countries and those doing business or traveling among them, has been the failure of lenders to properly price the risk of lending to the Greece’s and Italy’s of the world. The spread between Greek government bonds over German government bonds collapsed to near parity after Greece replaced its inflation prone currency with the low inflation Euro. Greeks, both private and public, responded by borrowing with abandon. Greece has many other structural problems that keep its productivity lower than its neighbors, but credit markets indulged its borrowing binge on the assumption that there was little to no risk that the Greek government would be allowed to default on its debt.  This gave Greece the illusion of a higher standard of living for a while. Richer brothers to the north would surely step in and bail it out if it couldn’t repay its debts. And so it was for a while.

Against German resistance, Greece finally defaulted on much of its debt (the so-called voluntary haircut – write down — of its debt held by banks to about 30% of its full value). This was an important restoration of market risk and hence market discipline of Greek and other EU periphery countries’ borrowing. It will potentially help save the Euro. Most banks were able to absorb their resulting loss, but some big Cyprus banks apparently were not.

The EU/ECB/IMF (the troika) have offered conditional financial assistance to Cyprus but not to cover the cost of recapitalizing Cyprus’s underwater banks. Cyprus is required to raise those funds themselves. At least this is my assumption. Press reports on what the external support covers are almost totally lacking and the conditions for the deal are not yet final anyway. There is a relatively straightforward approach to resolving these banks, though the details would depend on the particulars of its banking and bankruptcy laws. I do not know the details of these laws nor of the conditions of these banks (Laiki and Bank of Cyprus), but I assume that they are viable if recapitalized and worth more as going concerns than from liquidating them.

The insolvent banks should be put into receivership and instantly split into a good, fully capitalized, bank and a bad bank (i.e. what ever is left) to be liquidated. The good banks would be fully capitalized by leaving some of their liabilities with the bad bank, starting with its shareholders, then bondholders (of which there are not many), then uninsured depositors. These creditors would, in effect, be written off. This would enable the new good banks to continue operating without serious interruption. The only real debate should be about how far to cut into depositors (so-called bailing creditors in) to rebalance assets and liabilities. The Economist argues that the write-offs should stop with shareholders and bondholders and all depositors should be made good via bailout funds from the European Stability Mechanism.

Depending on the particulars of the banking law, an insolvent but otherwise viable bank is put into receivership. This removes the shareholders from any control over the bank. Immediately the good assets of the bank, including its branch network and equipment, and staff would be sold to a new bank, which would assume all insured deposits and a proportionate amount of the uninsured deposit sufficient to match the value of the assets purchased. Ideally the new bank would be sold immediately to new private owners. But if more time is needed to organize its sell, it would be sold temporarily to the government for one Euro. What remains of the old bank would be liquidated and the proceeds would be apportioned in accordance with the priorities provided in the law to the credits (deposits that were not transferred to the new bank). As all of the good assets were transferred to the good bank, there would be virtually no further assets in the bad bank to recover and the remaining creditors would receive little to nothing.  The overall loss to depositors will depend on the losses incurred by the bank on its assets that made it insolvent in the first place. The orderly resolution described above almost always result it much smaller losses to creditors than a disorderly default in which the bank closes its doors totally.

Market discipline would clearly be more strengthened if uninsured depositors were also at risk of losing money. But increasing that risk unexpectedly and to too large an extent could cause deposit runs throughout Euro (and the world). Ultimately, but maybe not at the moment, this would be a good thing for the banking sector. Banks would have to behave more prudently or run the risk of losing deposits. Such market discipline is more effective in limited excessive risk taking by banks than is tighter supervision; though required capital and senior convertible bonds should be significantly increased in the future. In my view, the full recapitalization of all insolvent banks should be financed by bailing in as many uninsured depositors as needed to cover their capital deficiency. The IMF’s position, opposed by the EU, was that a good bank should assume only the insured depositors and receive sufficient good assets to cover them. This would leave all uninsured deposits in the bad bank, which were expected to suffer losses of 20 to 40 percent of their value.

The Cypriote officials originally proposed something quite different. They proposed a one-time levy on all depositors with a lower tax rate on smaller insured deposits. Thus both insured and uninsured depositors in good banks as well as bad ones would be paying to cover the losses of insolvent ones. Not exactly a boost to market discipline of banks. Depositors everywhere and especially in the Euro zone were shocked and the Cyprus Parliament rejected the proposal.

It will be interesting to know what motivated this crazy idea. For one thing it protects the shareholders from the loss of their shares and control of their banks, which is not a good idea from the point of view of the health of the banking system, though it may have been a deliberate goal of the plan (the shareholders are likely to be influential people in Cyprus). Antonis Samaras, the President of Cyprus, suggested that he wished to diminish the loss to large depositors (which include many wealthy Russians, some of whom have dealings with his law firm). Steve Hanke states that about half of Cyprus banks’ deposits are owed to Russians (including those of Russian subsidiaries established in Cyprus).

Whether lightening the burden of large depositors (sharing the burden more equitably according to the President) involved murky deals with Russians or the mistaken belief that it might save the large offshore deposit business Cyprus had developed (the deposit liabilities of its banks were eight time Cyprus’s GDP) only time will tell (maybe). Cyprus’s banking business is more like that of Iceland or Ireland before they crashed and burned several years ago, than the typical off shore financial centers like Cayman. The deposits in Cyprus are with Cyprus banks. If they become insolvent, depositors (or tax payers somewhere) lose. Foreign depositors in Cayman banks are actually depositing in branches of international banks with headquarters and assets elsewhere. Loses incurred by Cayman branches would be a small fraction of the total assets of the global bank and more easily absorbed.

Cyprus’s misguided attempt to spare large depositors at the expense of depositors in general, even if rejected in the end, greatly unnerved depositors everywhere and is likely to weaken rather than strengthen market discipline of bank risk taking.  By making the depositor haircut a levy/tax, Cyprus intended to bypass the bankruptcy/resolution provisions of the banking law and deposit insurance provisions. They created a mess.

The Sequester

Everyone agrees that the sequester, an $85 billion cut from the planned increase for this fiscal year, applied across the board within the broad categories of Defense ($42.5 billion) and non defense discretionary ($42.5 billion) is the worst way to allocate cuts. This is apparently why President Obama proposed it as a sort of poison pill. (See Bob Woodward: bob-woodward-obamas-sequester-deal-changer/).   Indeed it is. Little else is clear about the sequester. It is worth clarifying the facts and context of the size of the cuts and their distribution after a quick review of how we got here.

Background

Republicans want to bring federal government spending down to traditional levels, which can be fully financed with existing taxes, while Democrats want to raise taxes to finance a larger government (currently at 24.3 percent of GDP reflecting, in part, great recession related factors, and averaging 19.8 percent from 1960 to 2007).  Many efforts have been made to forge a compromise package that would be accepted by both the Republic majority House and the Democrat majority Senate. So far, none has succeeded.

Three years ago President Obama established a bipartisan budget reform commission—Bowles-Simpson commission, which in December 2010 recommended spending cuts and tax increases that would slow down the ballooning of debt over the next ten years by 4 trillion dollars, 3 trillion in spending cuts and 1 trillion in tax increases (largely from closing tax loopholes). As the base line projected increase over that period was $10 trillion, the Bowles-Simpson proposals would hold the increase in the debt to $6 trillion. Sorting out what Bowles-Simpson actually proposed became so complicated (e.g., they actually used an eight year period rather than ten and for incomes over $250,000 assumed a return to pre-Bush tax cuts rates) that even President Obama ignored the report. http://www.cbpp.org/cms/index.cfm?fa=view&id=3844

Soon thereafter (January 2011) three Republican and three Democrat Senators, the so-called gang of six, began discussions to find an acceptable compromise, eventually announcing failure in May of that year. Later that same year the Bipartisan Policy Center’s Debt Reduction Task Force co-chaired by Pete V. Domenici, former Republican U.S. Senator from New Mexico, and Alice M. Rivlin, founding director of CBO, former OMB director, and former Vice Chairman of the Board of Governors of the Federal Reserve, made similar recommendations.

On several occasions President Obama and Speaker of the House, Republican John Boehner, were close to a “grand bargain” that included some tax revenue increase and entitlement cuts. Efforts failed when Boehner concluded that he could not obtain enough Republican votes in the House. The President may have had the same problem with his party in the Senate if he had tried to present it to them. Other efforts, such as one led by Vice President Biden, met similar fates.

To avoid the sharp curtailment of government spending that would result from hitting the debt ceiling, preventing any further government borrowing in late 2011, the Budget Control Act of 2011 increased the authorized debt ceiling by $2.3 trillion and cut $841 billion from the projected deficit increase over the next ten years by capping the annual increases in discretionary spending over that period. The caps do not constrain increases in war related expenditures (Afghanistan), natural disasters, or entitlements. It also established as special joint committee of Congress charged with agreeing on an additional $1.2 trillion in deficit reduction over the next ten years with everything on the table (entitlements and defense cuts, tax increases, etc). If this so-called Super Committee was unable to reach an agreement or Congress did not approve it, the same amount would be cut according to the now infamous sequester. (Super Committee Sequestration) The sequester provision was deliberately meant by all sides to be so unpalatable that the Super Committee could not possibly fail to reach a compromise.

However, on November 20, 2011, the co-chairs of the Super Committee stated that “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”

Two things were scheduled to happen if nothing changed. First, $1.2 trillion of automatic across-the-board spending cuts would kick-in on Oct 1, 2012. Second, the Bush tax cuts would expire for everyone at the end of that year. In addition, the temporary cuts in the payroll tax and the extension of unemployment benefits might not be continued. These three items constituted the infamous fiscal cliff, which was averted at the last-minute by making the Bush tax cuts permanent for everyone except those with incomes above $400,000, indexing the Alternative Minimum Tax and a few other things. The start of the sequester was delayed until January 1, 2013 and then again until March 1. This is a very simplified summary (trust me) of how we got to the sequester.

The Sequester

The sequester does not reduce total spending. Total Federal government’s spending in 2012 was $3,538 billion and planned spending (no actual budget has been approved for three years) for 2013 (which ends September 30) was (before the sequester) $3,796 billion. Reducing this amount by the $85 billion as required by the sequester still leaves an increase of $173 billion, which even after adjusting for inflation is a real increase. http://www.usfederalbudget.us/federal_budget_estimate_vs_actual

The often misleading practice in Washington of referring to reductions in increases as “cuts” is illustrated by the following statement by Sen. Bernard Sanders (I-Vt.), a member of the Budget Committee: “Some of us believe very strongly that it would be absolutely wrong to cut Social Security benefits.” He was referring to the proposal offered by President Obama to John Boehner to shift the index used to increase Social Security benefits over time to one that would increase them more slowly (the chain CPI index, which would preserve the real value of benefits).  Senate-democrats-budget-challenges-obama-on-medicare-social-security-cuts

While the sequester does not cut total spending, the way in which it is allocated does cut spending in some areas. Half of the cut comes from Defense, which was already being cut (cuts that actually reduce spending below the previous year) before the sequester. The other half of the cut falls on discretionary spending (sparing the entitlements – social security, Medicaid, etc, and the Department of Veteran’s Affairs). As such non-military discretionary spending is only about 15% of total spending, taking half of the total cut from items that are only 15% of the total is about an 8% cut. These figures apply to this year only. Like this year’s “cuts,” the sequestered spending over the next ten years are to be taken from the ever-increasing base line amounts and thus just slows down the previously planned increases.

The Budget Control Act of 2011 also specified that within the categories identified above, the cuts must be applied across-the-board (i.e. proportionally) to each Budget Account (BA), of which there are 1200, and each of which consolidates a number of programs, projects and activities (PPA).  Within each Budget Account, the executive branch of government is responsible for prioritizing the cuts, i.e. for cutting those things least valuable (most wasteful). The government rarely spends money on things that have no value at all (some of my friends will challenge me on this statement), but that is not the correct standard of judgment. The correct standard (in part) is whether the money spent on a valuable project would have produced even more value if spent on something else (whether by the government or the taxpayer).

To review, the President proposed the cross the board cuts to defense and non-defense discretionary spending and Congress accepted the idea in the Budget Control Act of 2011 believing, with the President, that it would never need to be applied. However, we are now there and the cuts must be made. But within the cuts required for each Budget Account, it is the Administration that is responsible for what to cut. Like the CEO of any company faced with limited resources, Department heads are responsible for cutting those activities of least value and preserving those of greatest value.

Smoke

Any cut hurts someone even if it benefits the economy over all. Consider, for example, the loss of four air traffic controllers at the Garden City, Kansas airport. “THE $85 BILLION in across-the-board budget cuts known as sequestration have begun to affect places like Garden City, the Kansas county seat (pop. 26,880) whose airport will lose $318,756 in Federal Aviation Administration funds that pay for four air traffic controllers. As The Post’s Stephanie McCrummen reported, Garden City Regional Airport’s control tower is one of 238 affected by sequestration, which will reduce total FAA spending in fiscal 2013 from about $16.7 billion to $16.1 billion. Small towns are lamenting the potential impact on air safety and local economies.” A Washington Post editorial on March 8 notes that of the two commercial flights that take off and land there each day one already does so when the control tower is closed (Small-town-airports-propped-up-with-200-million). The Post concludes that the $200 million a year the federal government spends to subsidize commercial flights to small lightly used airports is a waste that deserves to end.

A considerable fuss was raised about the Administration’s cutting the White house tours. Was this the least costly cut from the White House or Secret Service budget? I have no idea.  The Washington Post editorialized that: “THE DECISION to drop White House tours always had a whiff of what’s known as Washington Monument syndrome. The ham-handed tactic is employed when government is faced with budget cuts and officials go after the services that are most visible and appreciated by the public.” (Reopen-the-white-house-to-tourists) The government could not threaten to close the Washington Monument because it has already been closed for several years for repairs from earthquake damage.

On the other side of the ledger, the Administration’s release of non dangerous illegal immigrants held in federal prisons is more likely a case of doing what the Administration and many others consider the right thing to do anyway and using sequestration as an excuse (the release was weeks before the sequestration). Wasting-money-lives-through-the-detention-of-immigrants

The proposal to cut back on Congressional junkets abroad was made by a columnist, not the administration for obvious reasons. Everyone can find their own favorite wasteful spending. Budget decisions are never easy and resources are always limited so careful prioritization is a normal and essential part of the management of any organization.

Lies

Then there were the claims of cuts that never occurred. Education Secretary Arne Duncan’s false claim of pink slips for teachers earned him 4 Pinocchios (big lie) from The Washington Post’s Fact Checker. And Duncan is one of the good guys:  4-pinocchios-for-arne-duncans-false-claim-of-pink-slips-for-teachers

On March 1 at his press conference President Obama stated: “Starting tomorrow everybody here, all the folks who are cleaning the floors at the Capitol. Now that Congress has left, somebody’s going to be vacuuming and cleaning those floors and throwing out the garbage. They’re going to have less pay. The janitors, the security guards, they just got a pay cut, and they’ve got to figure out how to manage that. That’s real.” But it wasn’t. It also received 4 Pinocchios from the Fact Checker.  sequester-spin-obamas-incorrect-claim-of-capitol-janitors-receiving-a-pay-cut

The Congressional janitors seemed to be a particular concern of the administration. Gene Sperling, director of the White House economic council, on ABC News’ “This Week,” March 3, 2013 observed: “You know, those Capitol janitors will not get as much overtime. I’m sure they think less pay, that they’re taking home, does hurt.”

On March 4, White House spokesman Jay Carney observed at his news briefing: “On the issue of the janitors, if you work for an hourly wage and you earn overtime, and you depend on that overtime to make ends meet, it is simply a fact that a reduction in overtime is a reduction in your pay.”  But none of this was true and drew 4 more Pinocchios from the Post Fact Checker. Capitol-janitors-making-ends-meet-with-overtime-nope

Though the President already has the responsibility of deciding where to cut within Budget Accounts, Republicans have offered to broaden the range of his discretion to determine what to cut and what to keep. Senator Toomey (R-Penn) reported this to us at the Heritage Foundation the day after his dinner with the President at the Jefferson Hotel. He and Sen. James Inhofe (R-Okla) have introduced a bill in the Senate to this effect. The President said no thanks. If you believe that the president has the best interests of the nation at heart, this is a shocking revelation. The President seems to prefer to blame the Republicans for forcing harmful cuts on the nation because after having accepted tax increases on the wealthy they refuse to raise taxes more without some cuts in entitlement programs. This was confirmed in a revealing article by Ezra Klein How-to-fix-sequestration-without-raising-taxes

The way forward

The Budget Act of 1974 requires the president to submit a budget request to Congress on the first Monday in February. He has yet to do so (written March 14th). His recent step into the leadership role normally played by Presidents on major budget matters is welcomed and will be essential if compromise is to be achieved.

White-house-delay-budget-proposal-infuriates-republicans. For the first time in three years the Senate is on the way to adopting a budget as well. Given the budget already passed by the House (the Ryan budget), for the first time in several years the two chambers will have written proposals to negotiate, and hopefully reconcile, with each other.

Most Republicans don’t want to raise taxes or cut defense. Most Democrats don’t want to touch entitlements. Most everyone accepts that the current path is not sustainable. “Sen. Mark R. Warner (D-Va.) argued — to the “consternation” of people “on my side,” he said — that Democrats will have to do more to prevent Social Security and Medicare from bankrupting the nation as the population ages. I share the belief of even my most progressive colleagues that Medicare and Social Security are among the greatest programs ever implemented. But I also believe that the basic math around them doesn’t work anymore,” Warner said. The longer we put off this inevitable math problem,” he said, “the longer we fail to come up with a way to make sure that the promise of Medicare and Social Security is not just there for current seniors but for those 30 years out.” (in the previously cited Post article). Demographics alone will dramatically increase Social Security, Medicaid and Medicare spending even if benefits for each person are not increased as the ratio of old and retire people to working people increases dramatically over the next thirty. Increasing immigration, reducing benefits and increasing tax revenue are the only things that can help. Both sides will need to compromise.

My preference is to cut the Defense department a bit more and “cut” entitlements a lot (which would have little to no effect for a number of years but is critical for the future), and modestly increase the State Department and infrastructure repair spending. Medicare and Medicaid will be more difficult because they require structural changes that actually reduce the cost of medical care, not just arbitrary cuts that must be made up by paying customers picking up other peoples’ bills. Social Security is much easer to fix: Saving Social Security

There are many reasons for reducing the size of our government. Keep-it-lean, How-to-measure-the-size-of-government.

Whether it increases tax revenue or not our tax system needs major overhaul: “US Federal Tax Policy”. At a minimum personal income tax loopholes (deductions) should all be closed and if the corporate income tax can’t be eliminated yet, its rate should be lowered to the levels found in Europe.

But Obama won the last election. I will not get what I want. Republicans will also have to compromise. The battle should be fought over spending. The question should be what government programs and at what level are we willing to pay for with our tax revenue. Some tax increases and spending cuts have already been adopted. More are needed.  It is time for Congress and the Executive to get back to their jobs of evaluating priorities and trade offs and develop and adopt a real budget. Hopefully this time they will succeed. Much depends on it.

Protecting our Civil Liberties

Richard Nixon reminded us of the great dangers to our cherished liberties inflicted by the powers available to our government. Remember his “enemies list.” Or if you are too young to remember it real-time, hopefully you have read about it (Watergate!! Remember?). Nixon was forced to resign because of it.  It was a victory of our free press.

Or if you want something more recent, what about “Filegate.” According to Wikipedia: “The White House FBI files controversy of the Clinton Administration, often referred to as Filegate, arose in June 1996 around improper access in 1993 and 1994 to Federal Bureau of Investigation security-clearance documents. Craig Livingstone, director of the White House‘s Office of Personnel Security, improperly requested, and received from the FBI, background reports concerning several hundred individuals without asking permission. The revelations provoked a strong political and press reaction because many of the files covered White House employees from previous Republican administrations, including top presidential advisors. Under criticism, Livingstone resigned from his position. Allegations were made that senior White House figures, including First Lady Hillary Rodham Clinton, may have requested and read the files for political purposes, and that the First Lady had authorized the hiring of the underqualified Livingstone.”

I feel bad using the above example after Bill Clinton’s wonderful article in today’s Washington Post calling for the repeal of DOMA, which he had signed into law in an earlier time.

Any power that government has can potentially be abused, so our Constitution strictly limited them and required checks and balances on their use. When I was in college – U of C Berkeley in the mid 1960s—George Orwell’s 1984 was still several decades in the distant future. Big Brother (an all-powerful government that looked after our safety and its own), with its ability to spy on our every activity to ensure that we behaved in the country’s (i.e. the government’s) interest, was a fictional nightmare that we couldn’t imagine happening in America.

Then came 9/11 and the Patriot Act. The American Civil Liberties Union flagged three powers in the Act, even after it was renewed in May 2011, that go too far:

“The three expiring provisions of the Patriot Act give the government sweeping authority to spy on individuals inside the United States, and in some cases, without any suspicion of wrongdoing. All three should be allowed to expire if they are not amended to include privacy protections to protect personal information from government overreach.

                  Section 215 of the Patriot Act authorizes the government to obtain “any tangible thing” relevant to a terrorism investigation, even if there is no showing that the “thing” pertains to suspected terrorists or terrorist activities. This provision is contrary to traditional notions of search and seizure, which require the government to show reasonable suspicion or probable cause before undertaking an investigation that infringes upon a person’s privacy. Congress must ensure that things collected with this power have a meaningful nexus to suspected terrorist activity or it should be allowed to expire.

                  Section 206 of the Patriot Act, also known as “roving John Doe wiretap” provision, permits the government to obtain intelligence surveillance orders that identify neither the person nor the facility to be tapped. This provision is contrary to traditional notions of search and seizure, which require government to state with particularity what it seeks to search or seize. Section 206 should be amended to mirror similar and longstanding criminal laws that permit roving wiretaps, but require the naming of a specific target. Otherwise, it should expire.

                        Section 6001 of the Intelligence Reform and Terrorism Prevention Act of 2004, or the so-called “Lone Wolf” provision, permits secret intelligence surveillance of non-US persons who are not affiliated with a foreign organization. Such an authorization, granted only in secret courts is subject to abuse and threatens our longtime understandings of the limits of the government’s investigatory powers within the borders of the United States. This provision has never been used and should be allowed to expire outright.”

Now our government has hinted that it might have the power to undertake extra judicial killing of Americans on American soil via drone attacks. I have been stunned in recent years at the relatively quiet acquiescence of many Americans to these dangerous extensions of unchecked or under-checked government powers. They happily send their neighbors’ sons and daughters to far off lands to fight “our” enemies and to sometimes die there, while not having the courage to tell our government here at home to back off.

Today’s “The New Yorker” headlined “The Borowitz Report” with: “Poll: Majority of Americans Opposed to being Killed by Drone.” This is meant to be satirical, of course. But until Rand Paul filibustered in the U.S. Senate against the confirmation of John Brennan unless the government would state clearly that it would not target Americans in the U.S. without due process, you might have thought that Americans didn’t care much. Earlier this week Attorney General Eric Holder “wouldn’t rule out the possibility of a drone strike against Americans on U.S. soil. But he said the administration wasn’t planning on such a strike and would use the option only under extreme circumstances.” (CNN: http://www.cnn.com/2013/03/07/us/drones-five-things/index.html)

Following Senator Paul’s filibuster the Attorney General sent a new letter to the Senator stating:

“It has come to my attention that you have now asked an additional question: ‘Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?’ ” Holder wrote. “The answer to that question is no.” (CNN)  This is a small but important victory for restraining Leviathan and protecting our liberties and it has taken a long time. I wrote on this same subject almost exactly one year ago: https://wcoats.wordpress.com/2012/03/22/extra-judicial-killing/

Thank you Rand Paul.

I have spoken out in defense of our constitutional liberties on a number of occasions as well, including: https://wcoats.wordpress.com/2012/09/15/further-thoughts-on-free-speech/,   https://wcoats.wordpress.com/2012/09/29/freedom-of-speech-final-thoughts-for-a-while-at-least/

“The price of liberty is eternal vigilance”

Our Government, or Lack There Of

Some of you thought my recent complaints against uncompromising Republicans toward the fiscal cliff were somewhat one sided. It takes two to tango in the compromise game, of course. I would like to suggest a structural change in the U.S. budgetary rules that I think will help reduce our deficits and our debt while at the same time making government more effective. It shifts the focus of the debt reduction discussion from taxation to expenditures, which is the side of the equation on which the Democrats have been irresponsible and uncompromising. The Democrat controlled Senate has not even passed our government’s budget for the last three years.

The subject of taxation divides into its structure (what is taxed and how the burden is shared among the population—these are issues of fairness and the economic consequences), and its level (how much revenue is raised). Getting the structure right is very important for economic growth and for public acceptance of and cooperation with paying the taxes chosen. My views on taxation were reviewed four years ago: https://wcoats.wordpress.com/2008/09/06/how-to-measure-the-size-of-government/ and more extensively almost 40 years ago: http://works.bepress.com/warren_coats/29/.

My proposal, which is really a bit of left over unfinished business from the Reagan administration, is that the level of tax revenue should be set to pay for all of government’s expenditures over the business cycle. Deficits would be allowed during recessions (the so called automatic stabilizers), which would have to be paid for with surpluses during booms. I would like to see a constitutional amendment that imposes this requirement in place of legislated debt ceilings. If the public really wants more government spending, taxes will need to be raised to pay for it.

The focus on taxation, and the refusal of many Republicans to raise them, has been very counterproductive. The Republicans have done a terrible job of making the case for smaller government and I blame a lot of that on their emphasis on taxes rather than spending. If we insist that Obama’s spending programs must be financed by tax revenue rather than borrowing (except for automatic stabilizers during recessions – e.g., increases in unemployment insurance and the natural fall in tax revenue when incomes fall), people would start focusing on the fact that they will have to pay for these expenditures. It would make fighting for more restrained spending easier.

The government (federal, state and local) should be involved in some areas of our lives, but we should make the case for such involvements carefully because the nature of government, if not firmly and continuously resisted, is to keep growing. The defense industry in the United States is large and powerful. It has an obvious profit interest in seeing the government’s defense expenditures increase and it has the economic means to help influence such an outcome. The taxpayers’ representatives in government need the counter pressure those taxpayers can provide to evaluate defense spending and all other government programs carefully and to apply rigorous cost benefit analysis to every proposal.

Even then, it is well known in public choice literature that it is difficult for the diverse and defused public interest of taxpayers to dominate over the individual special interests of bankers, pharmaceuticals, farmers, teachers unions, etc. If these special interests are able to gain special favors from the government (e.g., farm subsidies) they benefit greatly but the cost is spread widely over all taxpayers. These forces push government to grow into activities that can harm the economic efficiency and growth that benefits us all. But they also invariably push and ultimately cross the boundaries of honest advocacy into blatant corruption. I expounded on this dangers in (at least) two earlier blogs:

https://wcoats.wordpress.com/2009/12/23/keep-it-lean/ and http://dailycaller.com/2011/01/17/ikes-farewell-address-fifty-years-on/

Liberal (in the classical meaning defined by John Stewart Mill) and democratic societies are the exception in history. They are not easily defended.

“The price of liberty is eternal vigilance.”

Happy New Year.

Republicans and the Fiscal Cliff: What are they thinking?

Our government, whether headed by a Republican or a Democrat, governs for all of us. The Republicans lost this time around, though they still control the House of Representatives. They are in the minority. The Democrats, who control the Senate and the Executive branch, rightly expect to introduce and oversee policies that are more aligned with their view of what is best for the country than the views of the party that lost. But if they are wise and have the best interests of the country at heart they will take into account the views of the rest of the country as well. Compromise is part of the art of governing a diverse people successfully. Limiting the scope of government is another. See my comments on this theme over four years ago: “The Death of the Right?”

Many Republicans, however, are behaving as if they think they should force their views on the majority.  Not only is this unwillingness to compromise unacceptable in our democracy, it is producing worse outcomes for those of us who would like to keep government smaller. These republicans rejected a deal last year tentatively agreed between House Speaker John A. Boehner (R-Ohio) and President Obama that would have increased tax revenue by $800 billion over the next ten years in exchange for spending cuts three times that.  Without some sort of agreement by the end of this week, falling over the “fiscal cliff” will increase tax revenue by around $5,000 billion over the same period. That won’t happen, of course, as both parties want to restore the existing income tax rates for all but the wealthy. The Democrat controlled Senate has already passed such a bill, which would increase tax revenue by $700 billion over the next ten years. That would become the base line from which Obama would bargain for more tax revenue in exchange for budget cuts.

I assume that some minimalist agreement will be reached in the next week that will eliminate the worst tax effects from going over the cliff, but that will only perpetuate and prolong uncertainty over how our currently unsustainable future spending commitments will be rained in and/or financed. This uncertainty is a major factor contributing to the slow recovery of investment and the economy in general. The current impasse will continue to do great damage to the county.

According to Ezra Klein: “If Boehner had taken the White House’s deal in 2011, he could’ve stopped the tax increase at $800 billion. If he took their most recent deal, he could stop it at $1.2 trillion. But if he insists on adding another round to the negotiations — one that will likely come after the White House pockets $700 billion in tax increases — then any deal in which he gets the entitlement cuts he wants is going to mean a deal in which he accepts even more tax increases than the White House is currently demanding.

“Today, Boehner wishes he’d taken the deal the president offered him in 2011. A year from now, he might wish he’d taken the deal the president offered him in 2012.”[1] See also: “The GOPs worst cliff myth”[2]

For the sake of the country and for the sake of the principles in which many Republicans believe, they must recover (with the cooperation of Democrats) the art of governing.

[1] Ezra Klein, “Obamas small deal could lead to bigger tax increases” The Washington Post, Dec 22, 2012

[2] Ezra Klein, The Washington Post, Dec 24, 2012.

The Newtown, Connecticut Tragedy

Most public disputes involve issues for which there is no obvious solution. If there were, it would have been taken already. Even our fractious politicians have been able to pluck the low hanging fruit. To reduce the number of innocent people slain by crazy gunmen (they have all been men/boys) should we tighten gun controls, liberalize institutionalization of the (probably) insane, or restrict violent games and movies or all or none of these. Any of these measures involve tradeoffs between safety and freedom. The preferred boundary shifts from time to time in the face of events and public sentiment. The following two articles are particularly insightful on this topic.

Charles Krauthammer:  “The roots of mass murder”   http://www.washingtonpost.com/opinions/charles-krauthammer-the-roots-of-mass-murder/2012/12/20/e4d99594-4ae3-11e2-b709-667035ff9029_story.html

Senator Jon Manchin:  “Obama and the NRA both fall short”  http://www.washingtonpost.com/opinions/sen-joe-manchin-between-obama-and-the-nra-another-path-to-stopping-mass-violence/2012/12/21/181d4e94-4adc-11e2-9a42-d1ce6d0ed278_story.html

Our Unsupportable Empire

Most of you are grudgingly aware that the U.S. government has promised us more than we want to or can easily pay for.  China is no longer willing to fill the gap knowing that we will not be capable of repaying it.  This is on top of the existing national debt from past borrowing to cover the government’s current and past spending in excess of its revenue of $16 trillion, about the same as the United States’ total annual output.  These numbers pale in comparison with the government’s unfunded commitments (those not covered by the revenue expected from existing tax laws and user charges) to future retirees and recipients of medical care (social security, medicare and Medicaid). The present value of the revenue short fall to pay for these future commitments (the government’s unfunded liabilities) is currently around $50 trillion for an astonishing total debt of around $66 trillion, which is larger than the total annual output of the world per year.

Naturally, these promises must be pared back because they can’t be paid for. To some extent a healthy, growing economy will also increase our capacity (lighten the burden) to pay for them but by itself growth will not be enough. This is one, but only one, of the reasons that we also need to reconsider our military promises around the world, while reducing and reorienting our military budget and modestly increasing our diplomatic (State Department) expenditures.

Our promise to provide security to most of the world suffers from the same moral hazard as does an overly generous welfare state.  Incentives matter. When access to welfare is easy and the level of support is generous, more people will choose it over taking a job that doesn’t interest them much.  When President Bill Clinton signed “The Personal Responsibility and Work Opportunity Reconciliation Act of 1996” (PRWORA) on August 22, 1996 (with strong Republican support), he fulfilled his campaign pledge to “end welfare as we have come to know it.” The law ended welfare as an entitlement by introducing tighter conditions for receiving it. Welfare costs dropped following adoption of the law. “A broad consensus now holds that welfare reform was certainly not a disaster–and that it may, in fact, have worked much as its designers had hoped.”[1] While some people remain skeptical, Sweden’s welfare reforms of the last two decades have demonstrated very similar results.[2]

The United States spends more on its military than the next 14 largest military spenders combined (China, Russia, UK, France, Japan, Saudi Arabia, India, Germany, Brazil, Italy, South Korea, Australia, Canada, and Turkey). We are policing/protecting most of the world. This has two negative effects. The first, similar to chronic welfare recipients, is that other nations spend less on their own defense, taking a free ride on the United States’ ability to keep the world safe for everyone else. The second is that by diverting so much of our productive resources into the military, we reduce the resources available for developing and strengthening our economy. It is our powerful economy that underlies our influence in the world as much, if not more, than our military power. Moreover, our military might is made possible by our economic power. So we need to get the balance right. I urge you to read David Ignatius’ recent discussion of this issue in The Washington Post, (“The foreign policy debate we should be having”, Oct 21, 2012, page A15)

But there are more reasons that our military adventurism and spending should be reduced and more resources given to diplomacy. Our national security and the freedoms America was founded to establish and protect will be strengthened as a result.

American hegemony rests largely on our economic and military power, but also on widespread respect for the American way of life (our respect for human freedom and dignity and our prosperity). Our efforts to promote democracy via military interventions have generally not gone well.  The talents and spirit of enterprise that have served us so well at home have not generally contributed to success in building new democratic nations where we have militarily intervened. Books like Joseph Heller’s, Catch 22 (about WWII) and movies like Robert Altman’s Mash (about Viet Nam) entertainingly introduced us to the bureaucratic problems of fighting and/or governing in foreign lands. We have the best trained and most well equipped military history has ever known, but it has failed for the last ten years to win in Afghanistan, which is now the longest war in American history. Our powerful military is not good at nation building, nor should we expect it to be. The military is not the right tool for promoting the values we believe in around the world. That is a job for diplomacy (with our powerful military well in the background).

We have been more successful at promoting our values and our economic interests through our promotion of and participation in international organizations like the International Monetary Fund, the World Bank, and the World Trade Organization and a wide range of international agreements and cooperation that facilitate free trade, and capital movements, and that extend the protection of property and human rights internationally. These organizations and agreements have developed the international legal frameworks for telecommunications, patents, financial and product standards, etc. that underlie the explosion of globalization that has dramatically raised the standard of living for much of the world’s population.

Rajiv Chandrasekaran, has written an excellent exposition of our military efforts in Afghanistan, which I urge you to read “Afghan security forces rapid expansion comes at a cost as readiness lags” (The Washington Post, Oct 21, 2012, page 1). Every few years America’s military strategy has changed: from counter terrorism, to counter insurgency, to building and training (and equipping) an Afghan National Army and Afghan National Police. As each approach fails, the Joint Chief’s extract the lessons learned and try a new one until it fails. In recent years, our military commanders have correctly emphasized the fact that “success” cannot be achieved by the military alone (it amazes me that anyone could have thought so – no wonder they are so eager to start wars).

But those are far from the only reasons for reducing our military footprint and budget. I believe in keeping government relatively small and encumbered with the organizational and political checks and balances meant to replace the role of competition in the private sector in bending self-interest to the public good. People are influenced by their self-interest whether they are in government or the private sector. However, in the private sector success comes from serving the needs of others in the market. This exerts a strong incentive on individual behavior. (Dishonesty can exist in either sector and can only be addressed by embracing appropriate moral standards and consistent punishment of breaches of those standards) In place of market discipline (acceptance or rejection), government must rely more on checks and balances to ensure that government officials behave as intended and they can only go so far to keep government honest and impartial in serving the public. The power of the government to coerce, and the expenditure of large sums of money by the government create enormous temptations for personal gain by those in positions of power in the government. The bigger government gets the more difficult it is to prevent some in government from yielding to the temptations to direct its power and money to their own good rather than the general good.

The firms in our large and important military support industry (Lockheed Martin, Boeing, Northrup Grumman, General Dynamics, Raytheon, Halliburton, United Technologies, Computer Sciences, BAE Systems, General Electric, Bechtel, and Honeywell International, to name a few), do not have a disinterested view about the most appropriate and cost-effective military technology the defense budget should provide for. The millions of dollars they spend attempting to influence the choices of the services and congress are, in a sense, “honest” efforts to promote their self-interested view of what best serves our national security. The growing behemoth of the industrial military complex of which Eisenhower warned us over fifty years ago now both defends and threatens our liberties. See my earlier comments on Ike’s famous farewell address: http://dailycaller.com/2011/01/17/ikes-farewell-address-fifty-years-on/

The risks of the misallocation of our resources and waste are directly related to the size of our military (and government more generally). The boundary between honest differences of opinion over the best military equipment and systems and simple cronyism is fuzzy.  Consider, for example, the recent award of a large contract to build 100,000 homes in war-torn Iraq to HillStone International, a newcomer in the business of home building. When its president David Richter was asked how the newcomer swung such a big deal, he replied that it really helps to have “the brother of the vice president as a partner” (James Biden).[3] It would not be fair to disqualify bidders because they are friends or relatives of high government officials (As Afghan President Karzai’s brother Mahmoud said to us with regard to the shares of Kabul Bank given to him by its founders. The Bank is now in receivership as the result of the bank lending 95% of its deposits to its shareholders), but how can you tell what is merit and what is cronyism?

My point is that the defense budget needs to be on the table when our elected officials finally confront the cuts that must be made to the government’s expenditures to save the country. Defense spending needs to be cut not just because we can’t afford it, but also because our oversized military is weakening our economic base on which both our military and our political power in the world rest. And perhaps most important of all, over reliance on military power to the exclusion of diplomacy has actually weakened our security and standing in the world.

[1] The New Republic, editorial September 4, 2006, page 7.

[2] The Economist, “Sweden: The New Model” October 13, 2012.

Freedom of Speech – Final Thoughts (for a while at least)

Our right of free speech is not a partisan issue in America. Democrats and Republicans, both President Obama and Presidential aspirant Romney, vigorously support its value and its constitutional guarantee. The extent of that right, which is not without limits, is greater in the U.S. than in any other country. The right to speak in some countries is simply at the whim of the existing government. The residents in some counties, such as Egypt, have more limited but legally defined (in principle at least) rights. Even the UK limits its press more than it is in the U.S. (think of the invasion of the privacy of the Queen and her family, though British standards are evolving too).

On this as with so many other issues, the world would benefit from a civil but vigorous discussion of the value of free speech to a healthy society and as a check on the powers of government and of where it is most appropriate to define its boundaries with the right to privacy and other values. We also need to understand and respect (but not necessarily agree with) the boundaries established by other countries and cultures.

President Obama reflected the American view well in his UN speech September 25.

“As president of our country, and commander in chief of our military, I accept that people are going to call me awful things every day. And I will defend their right to do so…. We do so because in a diverse society, efforts to restrict speech can become a tool to silence critics, or oppress minorities. We do so because given the power of faith in our lives, and the passion that religious differences can inflame, the strongest weapon against hateful speech is not repression, it is more speech — the voices of tolerance that rally against bigotry and blasphemy, and lift up the values of understanding and mutual respect…. There are no words that excuse the killing of innocents. There is no video that justifies an attack on an embassy. There is no slander that provides an excuse for people to burn a restaurant in Lebanon, or destroy a school in Tunis, or cause death and destruction in Pakistan.”

The next day, to the same UN audience, Egyptian President Mohamed Morsi defined a different position: “The obscenities that I have referred to that were recently released as part of an organized campaign against Islamic sanctities are unacceptable. We reject this. We cannot accept it. We will not allow anyone to do this by word or deed…. Egypt respects freedom of expression, [but] not a freedom of expression that targets a specific religion or a specific culture.”[1]

Any real dialog over this issue requires a deeper understanding of just President Morsi means when he says “we will not allow anyone to do this.” He clarified this in the same speech: “Egypt respects freedom of expression,… [but] not a freedom of expression that targets a specific religion or a specific culture.”[2]

The arrest in Cairo of Alber Saber, a 27-year-old Coptic Christian Egyptian illustrates an application of what President Morsi means. Saber was accused of providing a link on his Facebook page to the inflammatory video “Innocence of Muslims”, which he denies.  He “was arrested two weeks ago on charges of disdaining religion and ridiculing religious beliefs and rituals….  Showing contempt toward what Egyptian statutes call the “heavenly” religions — Christianity, Islam and Judaism — is punishable by up to five years in prison.

“The same day, [as Obama’s UN address] Egyptian authorities announced that charges would be filed against a prominent Islamist activist and TV personality, Ahmed Mohammed Abdullah, who tore up a copy of the Bible during a demonstration outside the U.S. Embassy in Cairo…. But liberal activists here say the blasphemy laws are so vague, and applied almost exclusively when people allegedly defame Islam, that they are nothing more than a political tool.”[3]

Clearly Egypt has a very different standard of free of speech than we do. We have very good reasons for believing that our more liberal standards are better and we should defend that view. But obviously views differ and those differences must be respected.

The freedom of speech is not absolute anywhere. All Americans know that we are not free to shout fire in a theater unless we think there is one. We are not allowed to deliberately tell lies about others in public. But that already puts us in some difficult waters, as the distinction between deliberate and unknowing lies is not easy to establish. In seeking the best balance between free speech and the right to privacy, American libel laws have set different standards for public (politicians, movie stars, etc.) and private individuals on the grounds that by choosing to become “public” officials or celebrities, such people have chosen to forgo some of their privacy.

For most of our country’s existence, free speech was thought to apply primarily to political speech and religious expression. America’s legal system evolved from English Common Law, which set a rather low standard for the prosecution of publishers of libelous material, who could be jailed for material that damaged the reputation of a member of the community. In 1734 New York publisher John Peter Zenger was imprisoned for printing political attacks against the colonial governor of New York.  However, his lawyer established a new legal precedent by arguing successfully that truth was a proper defense in libel cases. Prior to that, truth of allegedly libelous statements was not relevant to whether libel had been committed. Since the Zenger case, however, someone can sue successfully for libel only if the defamatory information is proven to be false.

Since the 1964 Supreme Court ruling in the case of New York Times Co. v. Sullivan, “public officials no longer could sue successfully for libel unless reporters or editors were guilty of ‘actual malice’ when publishing false statements about them…. Retired Justice William J. Brennan, Jr., who wrote the Sullivan decision, defined it as ‘knowledge that the [published information] was false’ or that it was published ‘with reckless disregard of whether it was false or not.’ In other words, public officials no longer could sue for libel simply by proving that something that had been broadcast or printed about them was false. Now they would have to prove that a journalist had knowingly printed false information while making little, if any, attempt to distinguish truth from lies.”[4] Egypt obviously has a different balance between conflicting rights in mind.

Even in the United States, freedom of speech is under constant attack from within. Columnist George Will, with his usual flare for sarcasm reports on bone chilling attempts by North Carolina’s Board of Dietetics/Nutrition to stop Steve Cooksey from offering nutritional advice on his internet blog based on his personal experience with losing 75 pounds. They argue that he does not have a license to offer such advice (hopefully the self interested protection of the right of only their members to offer such advice doesn’t need to be explained).[5]

Finding the best balance between free and acceptable speech is an ongoing quest and different societies, even the same society at different points in its history, define it differently. I, like most of my countrymen and our constitution, believe that we have very good and compelling reasons to tightly limit exceptions to and limits on free speech to the minimum. In defending this view to others, we must respect that they may prefer a different balance, while at the same time explaining the reasons for our view.

That said, the quality of any society also depends on what actually gets said. A society in which most residents adhere to the values of mutual respect and make public pronouncements that are thoughtful and well meaning is clearly a more desirable one that where many are rude and thoughtless and speak hatefully. But the freedom of all members of society to speak freely is, in my view, is the best way to develop a thoughtful and civil society.

[1]Anne Gearan, “Egypt’s president Morsi tells UN insults to Muhammad unacceptable” The Washington Post, September 27 Page A2.

[2] Ibid

[3] William Booth, “Egyptian blogger Alber Saber’s arrest shows differences over freedom of speech” The Washington Post, September 27, 2012, page A9

[5] George Will, “Bureaucrats declare war on free advice”, The Washington Post, September 27, 2012.