These Posts moved to new blog...

[Further posts and updated versions of these have been moved to retitled blog site here.] 

Locked Out: The Roots of Arab Spring

An earlier post looked at the dysfunctional legal systems of the Middle East that lock most young people out of the formal economy (Economic Freedom Policies for the Middle East and International Terrorism). In that post, the Institute for Liberty and Democracy's research on Egypt's economy is discussed, with a link to DeSoto's Wall Street Journal oped summarizing the findings.

Izzit.org has a new twenty-minute educational video on the topic: Locked Out: The Roots of Arab Spring, and segments can be viewed on this Izzit.org web page.

Teachers (including homeschool parents) can request a free Izzit.org educational video once a year. For the Middle East or international terrorism topic, any of the Hernando de Soto videos will be valuable. In fact all of the Hernando de Soto videos are worth watching even neither Middle East or international terrorism topics are chosen, or for those not planning to compete in NCFCA policy debate.

Izzit.org videos cover key economic issues and the various Hernando de Soto videos are valuable for geography and history as well as government and development economics.

[Further posts and updated versions of these have been moved to retitled blog site here.] 

Economic Misunderstanding and the Shaky Foundations of U.S. Middle East Policy

[This post has been updated and reposted on blog with slightly different name http://astoundingideasmiddleeast.blogspot.com/ -- and this post is updated here: http://astoundingideasmiddleeast.blogspot.com/2014/06/economic-fallacies-form-shaky.html ]

Military generals are charged with managing national security, and that has included protecting access to "needed" natural resources. U.S. military goals have been further stretched to securing access to resources "needed" for economic security. Economists have long argued that these claims are based on economic misunderstandings, yet they are still cited as political justifications for military deployment of U.S. forces in the Middle East. These policies along with past military interventions are at the root of international terrorism directed at the United States.

What resources are "needed" for national security can be hard to identify. Oil and uranium to power U.S. ships, tanks, and jets, along with rare earth minerals needed for military uses seem good examples. But there is now plenty of oil produced and refined in the U.S., and plenty of uranium stockpiled and available worldwide. Rare earth minerals are available in the U.S., though major mines have been closed due in part to environmental regulations.

Claims of overseas natural resources like oil being "needed" for economic security are even harder to defend as U.S. oil and gas production have surged over the last five years.

This November 2012 NPR segment on oil and U.S. Middle East policy gives a nice overview of the issues. (The claim at the end from the head of the Sierra Club is confused, I think. Environmental groups continue to argue for more government subsidies of wind and solar power.)

Still, the "oil dependency" story has shifted dramatically over the last ten years. First, sustained higher oil prices combined with technology advances turned endless and useless Canadian tar sands into vastly valuable oil reserves. Even without federal approval of the XL Pipeline, Canada is the largest source of imported oil, and Saudi oil imports continue to decline.

Advances in hydraulic fracturing and horizontal drilling, also funded by huge investments and continued high prices, opened astonishing new natural gas and oil fields in Texas, North Dakota, Louisiana, Pennsylvania and Ohio. U.S. oil production has surged beyond projections year after year as drilling technology becomes more efficient and new oil pipelines and oil trains direct oil to refineries.

Oil from Canada, the U.S., and other Western Hemisphere locations plus new offshore fields in West Africa, continue to reduce "dependence" on Middle East oil, and therefore further undermine the case for deployment of military resources to defend Mideast oil production and sea lanes.

I put quotes around "dependence" and "need" because economists further argue that the U.S. never "needed" oil from the Middle East nor was the U.S. "dependent" on Mideast oil imports. Instead, it would be more accurate to argue Saudi Arabia and other Mideast countries were dependent on cash from oil exports to purchase food, clothing, housing, and to fund the opulent lifestyles of their ruling elites. The U.S. has always been able to ramp up alternate supplies of oil and gas, as well as stockpile supplies and develop oil fields elsewhere around the world.

Supply disruptions of mideast oil would cause turmoil, much as hurricane Katrina did when it slammed the Mississippi and Louisiana coast and knocked out major oil production and refineries. Oil and gas prices rose dramatically, and U.S. consumers and industry, guided by high prices and profit opportunities, quickly and adroitly adapted to reduce use in the short term, and then bring in oil and gas from nearby locations.

The U.S. has such a powerful and dynamic economy that even before the shale oil revolution of the last five years, there was limited economic or strategic justification for deploying military forces to the Middle East. (This is a debatable claim of course, but one that economists have rigorously researched and documented. This 2007 Independent Institute study (pdf) by economist David Henderson of the Naval Postgraduate School makes the case for markets rather than military forces, as does this 2013 post on the 10th anniversary of the U.S. invasion of Iraq. )

Looking back further into this story, did the United States really "need" oil from the Middle East when President Carter announced what came to be the Carter Doctrine in his 1980 State of the Union Address? President Carter announced:

An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force. http://www.airforcemag.com/MagazineArchive/Pages/2010/April%202010/0410keeper.aspx

There is much mixed-up economics in this State of the Union Address (though that's not unusual for such speeches). The address begins by deploring "terrorism and anarchy" in the Middle East:

At this time in Iran, 50 Americans are still held captive, innocent victims of terrorism and anarchy. Also at this moment, massive Soviet troops are attempting to subjugate the fiercely independent and deeply religious people of Afghanistan. These two acts—one of international terrorism and one of military aggression—present a serious challenge to the United States of America and indeed to all the nations of the world. Together, we will meet these threats to peace. 

For NCFCA students considering topics on changing Middle East policy and international terrorism policy, it is interesting to see both policies front and center in 1980, some 34 years ago.

Justifying U.S. military intervention in the Middle East, according to President Carter was the: "overwhelming dependence of the Western democracies on oil supplies from the Middle East..."

How did this happen? How did the U.S. become so "dependent" on oil from the Middle East? A significant cause was wage and price controls declared by President Nixon in 1971, and kept in place for domestic oil prices through the decade. Here is the story from The Commanding Heights:

Only one segment of the wage-and-price control system was not abolished -- price controls over oil and natural gas. Owing in part to the deep and dark suspicions about conspiracy and monopoly in the energy sector, they were maintained for another several years. But Washington's effort to run the energy market was a lasting lesson in the perversities that can ensue when government takes over the marketplace. ... The oil-price-control system established several tiers of oil prices. The prices for domestic production were also held down, in effect forcing domestic producers to subsidize imported oil and providing additional incentives to import oil into the United States. The whole enterprise was an elaborate and confusing system of price controls, entitlements, and allocations. [Source.]

There is much more to the story, which involves loose monetary policy, the IMF, and leaving the gold standard. When President Nixon took the U.S. the rest of the way off the gold standard (by closing the "gold window"), the Federal Reserve was able to expand money creation to cover increasing government deficits funding the war in Vietnam as well as expanded welfare state spending and new environmental programs.

Creating money faster than the expansion of goods and services causes inflation. Prices were rising and rather than fix monetary policy or reduce spending, Nixon tried a dramatic intervention to freeze all wages and prices. Inflation continued to push nominal costs up across the economy, including for oil exploration, drilling, transportation, processing and retailing. But the prices oil companies could charge was first frozen and then tightly regulated. Oil companies responded by reducing exploration and slowing production when their costs were higher than the prices they were allowed to charge. So more oil was imported from the Middle East to make up the difference.

Looking back a bit further, students can look at the last decades of colonial policies in the Twentieth Century, and the Japanese efforts after World War I to develop its own empire and push colonial powers out of Asia.

When the Roosevelt Administration blocked oil exports from the Philippines (then a U.S. territory) to Japan, Japan responded by bombing Pearl Harbor. The U.S. oil embargo was a response to Japan's military expansion into Indochina which threatened rubber and other raw material exports to the (soon to be) allies in Europe.

Japan’s aggression in China, military alliance with Hitler, and proclamation of a “Greater East Asian Co-Prosperity Sphere” that included resource-rich Southeast Asia were major milestones along the road to war, but the proximate cause was Japan’s occupation of southern French Indochina in July 1941, which placed Japanese forces in a position to grab Malaya, Singapore, and the Dutch East Indies. Japan’s threatened conquest of Southeast Asia, which in turn would threaten Great Britain’s ability to resist Nazi aggression in Europe, prompted the administration of Franklin D. Roosevelt to sanction Japan by imposing an embargo on U.S. oil exports upon which the Japanese economy was critically dependent. Yet the embargo, far from deterring further Japanese aggression, prompted a Tokyo decision to invade Southeast Asia. [Source.]

And... stepping back still further we can review the United States first military involvement in North Africa as President Jefferson refused to continue making payments to the Barbary Pirates and sent the U.S. Navy over instead. That turned out to be an explosive project, as have so many U.S. interventions in the Middle East.

[Image: Edward Moran's Burning of the Philadelphia.

Oil on canvas, 60" by 42", by Edward Moran (1829-1901), signed and dated by the artist, 1897. It depicts USS Philadelphia, previously captured by the Tripolitans, ablaze after she was boarded and set afire by a party from the ketch Intrepid led by Lieutenant Stephen Decatur.]

[Further posts and updated versions of these have been moved to retitled blog site here.] 

Economic Freedom Policies for Middle East and International Terrorism

Posted earlier on federal election law page as "transition" to new topics...

NCFCA debaters have spent the year advocating federal election law reforms and arguing against opponents' reforms. With at least two of next year's proposed topics we have an important, if not obvious, connection with federal election laws.

On Facebook this morning, Alina Dimofte, a former debater from Romania, linked to a recent Princeton study noting that U.S. governance is more an oligarchy now than a democracy. (Who better than Princeton scholars to report on oligarchy?) The article offers this definition of an oligarchy:

An oligarchy is a system where power is effectively wielded by a small number of individuals defined by their status called oligarchs. Members of the oligarchy are the rich, the well connected and the politically powerful, as well as particularly well placed individuals in institutions like banking and finance or the military.

Middle Eastern countries are rules by oligarchies. Intermarried military, political, religious, and business elites make and enforce regulations that govern countries from Iraq to Egypt. These elites take positions in government enterprises and bureaucracies and find similar positions for their relatives. Efforts to remove oligarchies ruling in Libya and Syria led quickly to violence as tribal groups battle for regional and national political control.

This 2011 Freeman article, "The Roots of Egypt's Revolt" reports on the history of Egypt's oligarchic economic system (link to pdf handout). U.S. policy toward the Middle East has for decades helped maintain Egypt's corrupt political and economic system. Consider: "United States has given the Egyptian government over $2.1 billion, including $1.3 billion in military aid, every year since 1980." The Egyptian government is funded by tourism, the Suez Canal, and U.S. aid. That money flows to oligarchs who control the economy.

Okay, so what's the link to federal election law reform? The Princeton study article above laments the U.S. shifting to oligarchy from democracy. By this they mean that wealthy and connected elites control the country rather than American citizens "governing" through their elected politicians.

The ideal of citizens "controlling a country through voting" is itself the problem, both in America and in the Middle East. Jefferson, Madison, and other Founders were critical of democracy, which they saw as a kind of mob rule. Direct voting was limited by the Constitution to the House of Representatives, and the Constitution was established not by a national vote, but by state by state ratification. Populist enthusiasm for democracy is a core misunderstanding, a constant source of conflict in both domestic and foreign policy. More voting won't solve America's problems, won't bring peace or prosperity to the Middle East, and won't reduce terrorism around the world.

[U.S. policy to promote "democracy" around the world is understood to mean a political system with a constitution and representative democracy. Voting in theory gives people a say in their government. But constant elections and ever-changing constitutions add uncertainty and keep society politicized. The powers Constitutions give to governments are key, of course, and each new government shouldn't be able to draft its own constitution for majority vote. Egyptian President Morsi had his 2012 constitution approved, replacing a 2011 constitution passed after Mubarak was removed from power. Then in 2013 the Egyptian military suspended the 2012 constitution, ousted Morsi, and had a new new constitution passed in 2014. Constitutions that can be so easily altered and replaced do little to limit the size and scope of government power.]

Our purple finger policy for Afghanistan, Ukraine, and the Middle East pushes for everyone to vote and by that vote be obligated to submit to those elected. This is counterproductive in the U.S., and deadly for Middle Eastern countries. People advocating cases to encourage more voting by felons, District of Columbia residents, immigrants, folks in Guam or other U.S. territories are apparently under the illusion that more people voting makes for a more just, peaceful, and prosperous societies.

Beyond the challenges of democracy in general are deeper problems of pushing political change on other countries, each with their own history and cultures. U.S. and U.K. governments, military, and aid agencies have been active in Middle East countries for over a century. This Cato Institution Commentary from 2003 reflects on President Bush's initiative to promote democracy in the Middle East:

    In his recent speech before the National Endowment for Democracy, President Bush pledged that the United States would embark on a decades-long commitment to bring democracy to the Middle East. But democracy is not a gift President Bush can bestow on people in distant lands.
    Although the goal is laudable, the Bush administration will be disappointed with its effort to establish a stable liberal democracy in any Middle Eastern nation. That’s the verdict rendered by history, the contemporary reality of the region, and our own government experts.
    Today, the Middle East lacks the conditions, such as a democratic political history, high standards of living, and high literacy rates, which stimulated democratic change in, for example, central Europe and East Asia. Ironically, many Arab countries are ruled by authoritarian leaders who are more liberal than the citizenry they lead.

People should have a say in their governance, but not a say in how other people's lives should be governed. Richard Pipes in Property and  Freedom explains that government was considered just when it enforced the laws already existing in society. Grotius and other legal scholars emphasized that society was not the state, and the state's legitimate reach did not extend to private life, liberty and property. These views of just government were debated and those defending divine rule and absolute authority for English kings lost the debate. The Dutch model of a commercial society self-governed with royalty of limited power came to England with William of Orange, replacing the French model James II had recently installed by force across the country. (Highly recommended summer reading:  1688: The First Modern Revolution.)

A lot depends on what people are voting for. With nearly fifty millions Americans using food stamps, would it be a good idea to make voting a requirement for those receiving food stamps? This would boost voter turnout. Though most people would rather have rewarding and well-paid jobs than be on food stamps, if faced with a choice between candidates"for" and "against" food stamps, they would likely vote their interests.

Imagine if food stamps were awarded by ethnic or tribal group, and candidates' campaigns promised to deliver more food stamps to their ethnic group. This is what much of democracy in the Middle East and Africa is about. Mideast governments tax, subsidize, and regulate the economy and they direct foreign aid and foreign investment flows through politicians, the military, and extensive state bureaucracies.

When the candidate from one ethnic group or tribe loses, so does the entire ethnic group or tribe. All of a sudden they lose subsidies and their protection from complex and detailed regulations. When their politicians are out of power, police and other government officials see their property and businesses as fair game for exploitation or expropriation. When we in America hear news from abroad of "ethnic unrest" or "tribal conflict" it is usually between those in political power and those out of power. "Terrorists" and "revolutionaries" are mostly tribal and ethnic gangs battling rival groups in government. When the Irish ran Boston, Irish entrepreneurs had an advantage in business. During the Jim Crow era in the South, African-American entrepreneurs and businessmen had to get permits from white government officials to run or expand their businesses. (Echos of Jim Crow laws still survive in local licensing regulations, like this one restricting hair-braiding in Utah.)

Economic freedom is the key to peace and prosperity in the Middle East. Democracy can as easily fuel conflict as contribute to stable governance. Voting should be for deciding who will run the government, but not for what the government will do once in power. Constitutional economics is all about limiting government authority so that voting doesn't turn into a war of all against all, of each ethnic, tribal and regional group against all others.

Across the Middle East, fast population growth has crashed into closed economies where only elites find jobs in government and connected businesses, while majorities struggle to make a living in the informal sector.  By "informal" we mean they work in enterprises without business permits. They live in houses their families may have lived in for generations, but they can't get title for the land under their home.  Life is insecure because livelihood is insecure. Only elites in the oligarchy have access to the formal legal system.

Because the U.S intervention in Iraq wasn't able to promote economic freedom there, and secure opportunities for everyday people to start business enterprises, Iraq continues to be a failed state. Megan McArdle's Atlantic article reports on the lack of economic freedom in Iraq. McArdle's blog post on the story is here.

Hernando de Soto led a research team to detail economic problems in Egypt, and writes about the findings in a 2011 WSJ article "Egypt's Economic Apartheid More than 90% of Egyptians hold their property without legal title." (google full title for access to article.) This short post in The Atlantic quotes from the article:

     The examples are legion. To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.
     All this helps explain why so many ordinary Egyptians have been "smoldering" for decades. Despite hard work and savings, they can do little to improve their lives.

Power of the Poor is online, including terrorism segment.

U.S. policy has for decades contributed these problems with foreign aid. Here is a Jim Bovard study for the Cato Institute from 1986 (nearly three decades ago!) on The Continuing Failure of Foreign Aid. A search for "Egypt," finds these costly US Agency for International Development failures:

   AID has provided almost $200 million to help Egypt establish a domestic cement industry to enable the country to produce at home what it previously purchased from abroad.[51] The idea was that a domestic cement industry would save Egypt valuable foreign exchange. AID funds were channeled into a "public/private" cement company, with cement production scheduled to begin in 1980. Hundreds of millions of dollars later, the factories are still not producing, owing to construction delays, faulty machinery, inept labor, and dismal contracting practices. The company that was hired to construct one cement plant was so incompetent that its employees could not even read blueprints. Plant construction was slowed on account of a persistent shortage of hand tools for workers. The Egyptian construction company refused to sign contracts that would obligate it to complete tasks within a specified time frame, in order to avoid being fined for delays.

And from concrete failures to failed baking centralization:

   AID spent $24 million in Egypt over five years trying to construct 29 government-run and 10 private bakeries.[52] Egypt decided to decrease bread-production costs by centralizing bread baking, but the project was badly mismanaged: rather than hustling to build the bakeries, the contractor placed the original grant money in interest-bearing accounts. The first loaf of bread has yet to be baked in the AID bakeries. But even if the project had succeeded, the results would have been undesirable because the government would have driven scores of small private bakers out of business. 

Oligopolies try to control elections and voting
As past posts have argued, campaign financing is crucial for politicians in power. FEC and IRS policies serve to make it much harder for outsiders to raise campaign funds which by their nature threaten elected officials. In the Middle East, as everywhere in unfree economies, governments control newspapers and television and block news reporting critical of the government. Text messages, Facebook, Twitter, and blogs help those with wireless access stay informed and organize resistance.

Federal election laws that limit campaign funding also limit freedom of speech and press by reducing access to newspaper and television advertising critical of those in power. IRS investigators challenge the tax-status of associations critical of politicians and oligarchs, and threaten donors with fines and jail for "illegal contributions." Similar policies and threats exist wherever government officials claim power to regulate freedom of speech or of the press.

The fear is that "the rich" will have too much influence if campaign donation limits are lifted. But if Microsoft spends billions to advertise Windows 8, will that make people buy it? Bill Gates and Warren Buffett are the richest in America. They have significant influence in being able to get on Oprah Winfrey or 60 Minutes or late night television to promote whatever campaign they favor. But Bill Gates can't make people buy Windows 8 or XBox (or Common Core) nor can Warren Buffett make people eat at Dairy Queen or buy Geico insurance (no matter how many times the Brit lizard is on TV trying to charm and amuse).

Background to federal election reform cases is the U.S. Constitution. What role should elections play in a free society, and what limits are set or should be set by the U.S. Constitution on elections?

Expanded faith in voting and elections by progressives opened the door for expanded government. That is, voting for politicians who advocated a much larger role for the federal government was thought to make it okay for elected officials to take new powers and establish new bureaucracies for education, retirement, labor, energy, technology, science, housing, charity, medical care (and many others). The Constitutional system was designed to put these powers beyond the reach of officials by limiting federal government powers to those enumerated in the Constitution. Progressive era and New Deal policies broke through these constraints of federal power (once the Supreme Court was replaced with more progressive judges).

Whichever political party receives the most votes claims a "mandate" to put it's transition team to work modifying and expanding policies across this whole spectrum of industries, drafting new regulations, subsidies, and tax proposals. The Obama Administration's targeted subsidies to solar and wind energy firms and to electric car companies are just a few examples, and nearly all President since Nixon have rolled out large scale subsidies said to reduce "dependence" on imported oil.  (Oil "dependency" being the justification for energy policies and subsidies, as well as military intervention and bases in the Middle East. And U.S. military bases in the Middle East were the spur to Islamic terrorists.)

This ever-expanding federal regulatory, tax, and spending power slows growth and creates economic turmoil, and it politicizes more and more of the U.S. economy. The oligarchy that Princeton researchers complain of is a natural consequence of so many economic and investment decisions being politicized. Federal prosecutors and government agencies like the SEC can bankrupt any bank, investment firm, or insurance company by the way they interpret and enforce existing regulations. The FDA can damage pharmaceutical firms by granting or withholding drug or medical device approval. Most colleges can be brought to heel by threats to withhold federal research grants or tuition funding. Climate researchers who wander off the climate alarm reservation have trouble getting papers published and federal research grants. Elon Musk claims his SpaceX lost a major federal rocket contract to military contractors Lockheed Martin and Boeing because he didn't employ a government lobbyist (though Musk's Tesla benefits from expansive state and federal grants and subsidies).

And all this in our relatively free society and open economy. The U.S. economy is free relative to Middle Eastern economies. Turkey and Qatar are important exceptions where relatively more economic freedom has enabled local entrepreneurs and enterprises to create more prosperity for the entire economy. Below are images from Qatar and Istanbul.

[Further posts and updated versions of these have been moved to retitled blog site here.]