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Earthquakes and Economic Development
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Mamblog Section - Economics and Financial Services
Written by William F. Shughart II   
Thursday, 21 January 2010

Earthquakes and Economic Development 
January 21, 2010
William F. Shughart II
San Francisco Examiner, Middletown Press, Union Daily Times, Sun Herald, Wayne Independent

Every natural disaster, like the proverbial dark cloud, supposedly has a silver lining.

Images of the devastation visited on Haiti by the major earthquake that struck the island recently have prompted outpourings of heartfelt sympathy for the tens of thousands of people who lost their lives and promises of aid for those who miraculously survived.

But after grieving over the human toll, some commentators have pointed to the golden opportunity the tragedy supplies for jumpstarting economic development in the hemisphere’s poorest country.

Think of all the jobs that will be created in rebuilding Port-au-Prince’s presidential palace, its port facilities and other infrastructure destroyed by nature’s wrath! Money will pour in from the United States, China, and Western Europe to succor the earthquake’s victims and to finance repairs and new construction activity. Haiti will rise from the ashes and be lifted out of poverty. Or so the story goes.

Nothing could be further from the truth.

In a pamphlet titled “What Is Seen and What Is Not Seen,” published in 1850, Frederic Bastiat tells the story of a young man caught breaking a pane of glass at a local bakery. Seeing the shattered glass on the sidewalk, passersby are in agreement: “It’s an ill wind that blows no good. [But] such accidents keep industry going . . . What would become of glaziers if no one ever broke a window?”

A glazier is called to replace the pane for a fee of, say, $100, and goes home saying a silent prayer for juvenile delinquents. Seeing only this, the passersby are erroneously led to conclude that, because a job has been “created,” breaking the window wasn’t such a bad thing after all.

Yet what the passersby fail to see is that the baker has lost $100. Because he has been forced to replace the broken window, he will not be able to spend that sum on anything else, such as a new apron, the flour needed to bake more bread, or a promised bonus to his employees. The glazier is better off, but the baker is equally worse off. Before the boy appeared on the scene, the baker had both $100 in the bank and a serviceable window; afterwards he has only a window.

Bastiat’s story teaches that there is no benefit to society in general when property is destroyed, whether by young hooligans or by Mother Nature. Spending necessary to replace existing assets cannot be used to create new ones.

Its reconstruction financed largely by monies transferred from taxpayers living beyond the earthquake’s reach, Haiti, like the glazier, will receive an injection of wealth. But, concluding that the world as a whole is better off commits the fallacy of the broken window. On the contrary, like the baker, donor nations are made worse off. Before the earthquake struck, the United States had the $100 million it has committed to spend and Port-au-Prince was habitable; afterwards, we will have a rebuilt nation but not $100 million.

Massive injections of new monies earmarked for relief and reconstruction also predictably lead to corruption and waste. Donors therefore can expect fewer benefits for Haiti than they thought they were paying for.

It is absurd to say that the earthquake will be good for Haiti’s economy. If that were true, why did the world await natural disaster? If Haiti needed an economic boost, we should have carpet-bombed it years ago. The plain fact is that disasters make everyone permanently poorer by the values of the lives and property they destroy. Earthquakes have no silver linings.


William F. Shughart II is a Senior Fellow at The Independent Institute, Frederick A. P. Barnard Distinguished Professor of Economics at the University of Mississippi, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.

 


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Open Letter to Sebastian Pinera
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Mamblog Section - Politics
Written by Alvaro Vargas Llosa   
Wednesday, 20 January 2010

Open Letter to Sebastian Pinera 
January 20, 2010
Alvaro Vargas Llosa

WASHINGTON—Your election as president of Chile is reverberating far beyond your country.

As a group of friends have had the chance to discuss with you in recent months, Latin America’s traditional enemy has been what Chilean historian Claudio Veliz called in his seminal book the “centralist tradition,” alluding to the concentration of power. Eventually that authoritarian legacy crystallized in the radicalization of the left through revolutionary terrorism and the radicalization of the right through state terrorism.

Your country was emblematic in that process—which is why Chile’s subsequent progress turned it into a “model.” People speak of Chile’s democracy and the reduction of poverty, but those are byproducts of a more basic phenomenon—the moral cleansing of the left and the right. The governments of the last 20 years have largely renounced the ideology of Salvador Allende, whose radicalization led to Augusto Pinochet’s murderous regime. Less obvious—because they were in opposition—was the embrace of the rule of law on the part of the right. Your triumph, with many votes from a young generation of Chileans who look beyond the Allende-Pinochet paradigms, turns that page.

Your leadership in the modernization of the right has been impressive. You were a student at Harvard when Pinochet staged his coup. You worked as an academic during the dictatorship, opposed Pinochet’s constitution in 1980 and campaigned for a “No” vote in the referendum in which the dictator tried to perpetuate his regime. Later, you opposed attempts to stop proceedings against accused human rights violators in the military, and have supported the Museum of Memory in honor of the victims even though the project was unfairly monopolized by the center-left government. On a different front, you have led a number of reluctant conservatives to accept the legalization of divorce, same-sex civil unions and the sale of the morning-after pill.

Your victory also challenges the mentality of many Latin Americans. At a time when the remnants of the authoritarian left are cannibalizing liberal democracy in certain countries, your vision of the region as a dictator-free zone of enterprise and rule of law is salutary. In the process of moderation of the left in part of Latin America, one thing has been missing: decisive regional leadership. The result has been a failure to fight back against the meddling of the revolutionary states and a paralyzing complex whenever there has been an opportunity to think big—the chance was missed to eliminate barriers to free trade across the hemisphere. You will not be able to change this landscape on your own, nor would it be good politics to engage in political warfare with every leftist autocrat. But your leadership could have an energizing effect on others, particularly since several presidential elections are likely to lead to changes of government.

Your victory could help reshape the way Latin Americans think of business. According to surveys by Global Enterprise Monitor, the region’s population is one of the most enterprising in the world. Yet the “centralist tradition” has sullied the image of business people. The fact that one of Latin America’s greatest investors has won a popular election in a continent known for economic inequality is a reminder that it will take enterprise and business acumen to help Latin Americans triple their per capita income.

You are often compared with Silvio Berlusconi. But unlike your Italian counterpart, you have acted more as a Warren Buffett-like investor than a manager of your companies. You placed your estate in a blind trust this year and you are selling your stake in LAN Airlines and the Las Condes clinic, and turning Chilevision into a foundation. You have said that the separation of business and politics is of paramount importance. Your friends as well as your enemies will hold you—implacably—to this standard.

I have been disillusioned too often by public figures and learned to be cautious. Politics is not the realm in which Latin America’s virtues have traditionally shone. It is also apparent that several constraints will hold you back—the powerful left-wing opposition, a right-wing party that will not be too comfortable with your overtures to other sectors, and the legal arrangements that give the military a disproportionate stake in the country’s copper wealth. But it has been a long time since anything coming out of Latin American politics has been so encouraging. Please, don’t let the cause of freedom down.


Alvaro Vargas Llosa
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Alvaro Vargas Llosa
 is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America. 

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New from Alvaro Vargas Llosa!
LESSONS FROM THE POOR: Triumph of the Entrepreneurial Spirit

Half the people in the world live on two dollars or less per day and roughly 600 million live on no more than one dollar per day. With thousands of international relief organizations, strategic government programs, and billions of dollars in foreign aid, why do so many underdeveloped countries remain unable to grow their economies beyond mere survival? Learn More »»

 


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The Next Crisis for Obama?
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Mamblog Section - Foreign Policy, Military and War
Written by Ivan Eland   
Wednesday, 20 January 2010

The Next Crisis for Obama? 
January 20, 2010
Ivan Eland

Since taking office, Barack Obama has had to deal with an economy in free fall, a self-generated health care “crisis” and his attempt at “reform,” and a rising Taliban insurgency in Afghanistan. So far, Iraq has been quiet enough that many in the media and public have redirected their attention to the wars du jour of Afghanistan, Yemen, and Somalia. The relative peace (punctuated by an occasional violent attack) in Iraq may be about to evaporate and cause yet another crisis for the president.

The Iraqi Accountability and Justice Commission dispenses neither, operates in secret, and is headed by Ahmed Chalabi, a suspected Iranian agent who duped the overly receptive Bush administration into invading Iraq, and Ali Faisal al-Lami, who was detained for terrorism. The commission has disqualified more than 500 candidates for the upcoming parliamentary elections in March. The candidates were mostly Sunni, and the disbarment could very well re-ignite a Sunni insurgency or Shi’ite-Sunni civil war.

The ban, endorsed by Shi’ite Prime Minister Nouri al-Maliki, conveniently helps his electoral mixed Shi’ite-Sunni alliance, ironically named State of the Law Coalition, by undermining his chief rival, the similarly mixed coalition of Iraqiya, which features a vice president, former prime minister, and a prominent Sunni politician who has been banned from running. Of course, in a conflict of interest so typical in Iraq, the Shi’ite coalition of Chalabi and al-Lami also benefits from the disbarment of Sunni candidates.

In 2005, the Sunnis also felt disenfranchised, which led to the rising insurgency and civil war with the Shi’ites in 2006 and 2007. So this kangaroo commission’s decision could have dramatic consequences.

The ruling seemed to shock American and foreign diplomats, who believe that the reduced violence in Iraq has occurred because U.S.-led “institution-building,” artificially imposed at gunpoint, has been working. But in most societies, laws and institutions usually follow a societal consensus and informal compact among factions. Little of that exists in Iraq, so the constitution, the laws, and the institutions adopted under pressure from an occupying power are just a veneer. The bald disqualification of candidates, more typical of autocracies such as Iran, is merely a symptom of the continued fractured nature of Iraqi society.

Until those underlying fissures are dealt with, the reduction in violence will only be temporary—caused primarily by American paying off of Sunni insurgents, prior ethnic cleansing that separated warring factions, and sheer exhaustion from war rather than the forming of a societal consensus in an artificial country. Historically, in other similar ethno-sectarian conflicts, violence has ebbed and flowed over time. As baseball great Yogi Berra quipped, “It ain’t over till it’s over.” And it won’t be over soon.

In addition to the barring of candidates from the election, other symptoms of the continuing factionalism have been the difficulties in passing laws governing the March election and control over oil resources, the internal infighting in the much touted mixed electoral coalitions (especially in the newly announced Iraqiya), the Shi’ite-dominated army imposing de facto martial law in Sunni areas of Baghdad, and, most ominously, the seeming loyalty of certain units in the Iraqi security forces to their Kurdish, Shi’ite, or Sunni ethno-sectarian factions rather than the Iraqi state.

Because a repeat of Sunni disenfranchisement and hostile reaction is possible, pressure is building for a strong U.S. intervention to motivate Iraqi coalitions to reach a compromise on the disbarred candidates, thus avoiding violence and ensuring a smoother electoral process. Yet even if a compromise is reached, it doesn’t deal with the underlying artificiality of the U.S. project to hold Iraq together.

The disbarment of candidates for the election is a canary in the coal mine and dramatically highlights the threat that renewed violence poses to Obama’s laudable plan to withdraw U.S. forces from Iraq by the end of next year.


Ivan Eland
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Ivan Eland is Senior Fellow and Director of the Center on Peace & Liberty at The Independent Institute. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, and he spent 15 years working for Congress on national security issues, including stints as an investigator for the House Foreign Affairs Committee and Principal Defense Analyst at the Congressional Budget Office. He is author of the books Partitioning for Peace: An Exit Strategy for Iraq, and Recarving Rushmore.
Full Biography and Recent Publications

 


The Empire Has No ClothesNew from Ivan Eland!
THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed (Updated Edition)

Most Americans don’t think of their government as an empire, but in fact the United States has been steadily expanding its control of overseas territories since the turn of the twentieth century. In The Empire Has No Clothes, Ivan Eland, a leading expert on U.S. defense policy and national security, examines American military interventions around the world from the Spanish-American War to the invasion and occupation of Iraq. Learn More »»

 

 


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Fuzzy Unemployment Math
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Mamblog Section - Economics and Financial Services
Written by Robert Higgs   
Friday, 15 January 2010

Fuzzy Unemployment Math 
January 15, 2010
Robert Higgs
Washington Times

2009 was a bad year, but it wasn't 1933

---------

With another 85,000 net jobs lost in December and the unemployment rate still at 10 percent, some in Washington are calling for additional measures to stimulate the economy.

But what makes anybody think additional government spending will be any more effective than the hundreds of billions Washington already has spent?

I have no desire to minimize the severity of unemployment or the hardship it causes. Most of us have had to deal with it at some time. But the statistics also provide a lot of wiggle room for manipulation and mischief.

Since 1940, the Bureau of Labor Statistics (BLS) has provided a variety of information on the population’s employment status, derived from the Current Population Survey, a complicated monthly random sample of approximately 60,000 households used to compute various measures of the unemployment rate.

For the past two months, for example, the rate designated U-3—“total unemployed, as a percent of the civilian labor force (official unemployment rate)”—has stood at 10 percent. In October, it was 10.2 percent. Those “official” unemployed are basically those who are not working but have attempted to find a job in the past four weeks.

The broadest measure of unemployment is “U-6.” BLS defines this as “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.” This rate stands at 17.3 percent.

There’s more to the story. A note attached to the BLS research explains: “Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market-related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”

One doesn’t need to devote a lifetime to studying how these statistics are defined and measured to realize that they tend to overstate unemployment.

For example, people designated U-3—or officially unemployed—can have taken any number of actions to qualify as having actively sought a job over the past four weeks, including (1) “contacting: an employer directly or having a job interview; a public or private employment agency; friends or relatives; a school or university employment center”; (2) “sending out resumes or filling out applications”; (3) “placing or answering advertisements”; (4) “checking union or professional registers”; and (5) “some other means of active job search.”

So, if you are out of work and tell CPS data collectors that three weeks ago you asked Uncle Charlie whether he knew of any jobs, you qualify as officially unemployed. Many of those classified as “marginally attached workers” and included in the U-6 measure are even more questionable. After all, they admit they are neither working nor actively searching. Merely saying “they want and are available for a job” but have looked though not in a month, doesn’t show much interest in employment.

Many commentators have insisted from the onset of the recession that we have plunged into a second Great Depression. The evidence so far does not confirm such severity.

By taking an extremely loose view of what constitutes unemployment, we can say that perhaps one worker in six is out of work. But in 1933, the official unemployment rate was nearly 25 percent, and perhaps another 25 percent of the labor force was made up of persons working part-time who wanted full-time work. So the U-6 rate then was close to 50 percent.

Last year may not have been the best of years, but it was miles away from 1933.


Robert Higgs
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Robert Higgs is Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War. 

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New from Robert Higgs!
NEITHER LIBERTY NOR SAFETY: Fear, Ideology, and the Growth of Government

Economist and historian Robert Higgs illustrates the false trade-off between freedom and security by showing how the U.S. government’s economic and military interventions have reduced the liberty, prosperity, and genuine security of all Americans. Learn More »»

 


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Politics Gets in the Way of Obama’s Perceptiveness
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Mamblog Section - Foreign Policy, Military and War
Written by Ivan Eland   
Wednesday, 13 January 2010

Politics Gets in the Way of Obama’s Perceptiveness 
January 13, 2010
Ivan Eland

President Barack Obama recently expressed a reluctance to send U.S. forces to Yemen and Somalia, two “failed states” where al-Qaeda is active. Obama seemed to realize that such a U.S. military presence might make the terrorism problem worse. If he understands this effect in these two nations, why doesn’t the same principle apply to the war in Afghanistan?

In resisting pressure to send U.S. troops to Yemen in the wake of the underwear bomber’s connections there, Obama commented on sending American forces to places such as Yemen and Somalia. He said that he had “no intention of sending U.S. boots on the ground in those regions” while the local governments remain effective partners. Obama also concluded that Washington must ponder “how we project ourselves to the world, the message we send to Muslim communities . . . the overwhelming majority of which reject al-Qaeda but where a handful of individuals may be moved by a jihadist ideology.” Obama advocates “a larger process of winning over the hearts and minds of ordinary people and isolating these violent extremists.” He had expressed similar sentiments during his famous speech in Cairo.

These are mostly valid sentiments but contrast sharply with his acceleration of the war in Afghanistan. The governments of Yemen and Somalia are no stronger, less corrupt, more competent, or in control of more of their own territory than the Afghan government. Yet more U.S. troops are seen as beneficial in Afghanistan but as counterproductive in Yemen and Somalia. Obama would likely say that added American forces are needed in Afghanistan because the central leadership of al-Qaeda operates in the Afghanistan-Pakistan border region. Yet if Obama realizes that more U.S. troops in Yemen or Somalia would counterproductively create more jihadists ready to throw out the “infidels,” then the same effect should be and is occurring in Afghanistan—regardless of whether or not the al-Qaeda leadership is nearby.

Therefore, applying his logic for Yemen and Somalia to Afghanistan, Obama has inadvertently admitted that his troop surge to that country will merely fuel the Taliban insurgency there and a rising Islamic militancy in Pakistan—the country where Osama bin Laden and the other leaders of al-Qaeda may be hiding. Instead of making these problems worse, the U.S. should be trying to co-opt or buy off the Taliban instead of driving it closer to al-Qaeda. Studying the few successful counterinsurgency campaigns in history indicates that the most likely way to win is to split the opposition. In the short-term, this is what Gen. David Petraeus did in Iraq, turning the Sunni Awakening against al-Qaeda (but which will likely fail in the long-term because Iraq is so fractured among Kurds and Sunni and Shi’ite Arabs).

Yet Obama does the opposite in Afghanistan. Why? Because he has fallen victim to the perpetual worry among Democrats that they will be labeled as weaklings on national security, especially at a time when he has pledged to withdraw U.S. forces from the quagmire in Iraq. To appear strong and show that he is doing something about terrorism, he has halfheartedly escalated the unpopular war in Afghanistan, while at the same time making noises about eventual withdrawal, and has taken former Vice President Dick Cheney’s bait by reiterating that the U.S. is in a “war on terror.”

Instead, Obama should simply have announced that the Bush administration-initiated “war on terror” had failed and cited the statistics to back it up. Compared to Sept. 11, 2001, and before, worldwide monthly fatalities from terrorism have jumped more than 150 percent. Much of the failure of the “war on terror” can be attributed to post-9/11 non-Muslim occupation of and interference in Muslim lands—the very reason that Osama bin Laden has said he attacks the United States. Thus, Obama should follow the physician’s motto—do no harm—and reconsider his escalation of the war in Afghanistan, which increases the ranks of Islamist militants and terrorists worldwide and which even he has admitted cannot eradicate the Taliban.


Ivan Eland
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Ivan Eland is Senior Fellow and Director of the Center on Peace & Liberty at The Independent Institute. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, and he spent 15 years working for Congress on national security issues, including stints as an investigator for the House Foreign Affairs Committee and Principal Defense Analyst at the Congressional Budget Office. He is author of the books Partitioning for Peace: An Exit Strategy for Iraq, and Recarving Rushmore.
Full Biography and Recent Publications

 


The Empire Has No ClothesNew from Ivan Eland!
THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed (Updated Edition)

Most Americans don’t think of their government as an empire, but in fact the United States has been steadily expanding its control of overseas territories since the turn of the twentieth century. In The Empire Has No Clothes, Ivan Eland, a leading expert on U.S. defense policy and national security, examines American military interventions around the world from the Spanish-American War to the invasion and occupation of Iraq. Learn More »»

 

 


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