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Judging Rand Paul: Not Just the Distance of the Apple From the Tree

February 28, 2013 in Blogs

By Robin Koerner The greatest ideological achievement of Margaret Thatcher, the Conservative Prime Minster of Britain from 1979 to 1990, was arguably not the redefinition of the right of British politics, but the redefinition of its left, and therewith, its middle. She has a legacy not because she destroyed her opponents or their political philosophies, but because her practical success as a politician forced them to incorporate much of hers.

With that in mind, Rand Paul’s efforts as both a libertarian Republican and a constitutional conservative — both phrases he used to describe himself in a recent interview with Sean Hannity — are more interesting, and likely to be more effective, than many have yet given him credit for.

At the end of the interview, Hannity — a conservative host with an overwhelmingly conservative audience, including plenty of dyed-in-the-wool self-identified Republican voters (and that means many recent Romney voters) noted that Rand Paul is one of the “four strong conservative voices” in the Senate that he looks to “to bring sanity back to Washington.” He didn’t call Rand, “one of the four libertarian voices” in the Senate, and yet the four Senators he mentioned (Paul, Lee, Cruz and Rubio) are without much doubt the most pro-liberty members of that house).

And what “strong conservative” views did Rand Paul proceed to elucidate as Hannity endorsed his conservative credentials? They were as follows.

The need to audit the Pentagon, the need for term limits, the GOP’s need to win in New England and on the west coast, the fact that he (Rand) is a libertarian Republican, which approximates to a constitutional conservative, the need for the GOP to appeal to Independents, recognition that America doesn’t need to be involved in every war around the world, the fact that people shouldn’t be locked up for 20 years for taking drugs, and the need to embrace immigrants.

This is not your grandfather’s conservatism. But it is slowly looking more like it might become Hannity’s — and (much more importantly) your grandson’s.

Take note. Here is an established conservative host in mainstream media recognizing as conservative the least neo-con version of that creed that has been heard from a Republican for decades. How far all this is from the only conservatism that was “licensed” by the GOP just a decade ago.
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Central Banks Debunked

February 28, 2013 in Economics

By Joseph Salerno

Gerald P. O’Driscoll’s hard-hitting piece in today’s Wall Street Journal, Debunking the Myths about Central Banks is well worth reading. Among others, O’Driscoll addresses the myth that “central banks are intrinsically necessary for market economies.” As O’Driscoll points out, however,

A gold, or any commodity, standard places a natural limitation on money creation, which is the resource cost of extracting the commodity. It is only with fiat (paper) money that central banks are necessary to control the money supply

One should not conclude from this that O’Driscoll fallls prey to the myth of a central bank that is able to scientifically control the supply of fiat money independently of politics. In fact, he explodes this myth by pointing to the Fed under Chairmans Martin, Burns, Volcker, and Bernanke all of whose polices were powerfully shaped by the interests of the Presidents they served under. O’Drisoll concludes: “A central bank is necessary as long as an economy is wedded to a fiat currency. And it may at times behave independently—but not in the face of large-scale budget deficits, as we have today.”

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The Great Sequester Ho-Hum

February 28, 2013 in Economics

By Mark Thornton

Economist and former Texas US Senator Phil Gramm recalls the budget sequesters in today’s Wall Street Journal:

The president’s response to the sequester demonstrates how out of touch he is with the real world of working families. Even after the sequester, the federal government will spend $15 billion more than it did last year, and 30% more than it spent in 2007. Government spending on nondefense discretionary programs will be 19.2% higher and spending on defense will be 13.8% higher than it was in 2007.

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Debunking the Myths about Central Banks

February 28, 2013 in Economics

By Gerald P. O'Driscoll Jr.

Gerald P. O'Driscoll Jr.

Myths govern modern central banking. Like many myths, they contain an element of truth that has been distorted by exaggeration and misapplication. This year marks the 100th anniversary of the U.S. Federal Reserve System—an appropriate time for some long-overdue myth-busting.

The first myth is that central banks are intrinsically necessary for market economies. History and theory belie this.

The Federal Reserve was not founded until 1913, and it had no monetary role. The U.S. operated under a gold standard and had no need for a central bank to control the money supply. A gold, or any commodity, standard places a natural limitation on money creation, which is the resource cost of extracting the commodity. It is only with fiat (paper) money that central banks are necessary to control the money supply.

The Bank of Canada was not founded until 1935. The Canadian banking system survived the Great Depression with no major bank failures. By contrast, thousands of U.S banks failed, despite the existence of the Federal Reserve. These large-scale failures were ended by FDR’s bank holiday, not by any Fed contribution to banking stability.

The second myth is that central banks are needed as a lender of last resort—that is, to supply liquidity in times of financial stress when short-term lending freezes up. The Federal Reserve’s lending in the aftermath of Lehman’s collapse in 2008 is the new textbook example of this function. But this argument has the causality exactly backwards.

Walter Bagehot, the eminent 19th-century British economic journalist, coined the phrase “lender of last resort” in his classic book, “Lombard Street.” He recognized this was an essential function for the Bank of England.

However, the context is often dropped. Bagehot knew that a central bank inevitably resulted in a concentration of reserves within that institution, making it the lender of last resort. But he did not believe that a central bank was inevitable or desirable.

Does an economy need a lender of last resort? Is the Fed really independent? It’s time for some rethinking.”

For Bagehot, “the natural system” was the one “which would have sprung up if Government had let banking alone.” There would have been “many banks of equal or not altogether unequal size.” He described this as “the many reserve system,” in which each bank held reserves for itself, which he believed would have meant a stronger banking system. In modern parlance, Bagehot’s celebrated “lender …read more
Source: OP-EDS

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Taiwan Challenges Its Neighbors

February 28, 2013 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

The territorial disputes between China and its Southeast Asian neighbors over islands in the South China Sea have received considerable attention from an anxious international community. There has been even more global angst about the flare up of tensions between China and Japan over the Diaoyu/Senkaku Islands in the East China Sea. Concern about those feuds—especially the Sino-Japanese confrontation—is understandable, given the potential for miscalculation and escalation.

But it’s important to note that there is another, increasingly assertive party to both disputes: Taiwan. And the Taiwanese have not been shy about pressing their claims. That adds a volatile element to the controversies.

Taipei has not only asserted ownership of portions of the South China Sea; it has managed to establish a significant physical presence there. Taiwan controls the Pratas—the largest island group, known locally as the Donghsa Islands—and Taiping, the largest of the hotly contested Spratly Islands. In September 2012, a group of thirty prominent Taiwanese, including national legislators, landed on Taiping to inspect the security situation. The coast guard conducted a live-fire exercise for the delegation during that visit, much to the annoyance of countries with competing claims.

The Taiwanese government summarily rejected all complaints. “Taiping Island is part of the Republic of China’s territory,” stated Wang kuo-jan, an official with the Ministry of Foreign Affairs, in response to Vietnam’s diplomatic protest. He added that “no one has the right to protest over Taiwan’s exercise of its sovereignty rights there.”

But incidents between Taipei and other claimants in the South China Sea have been mild compared to the tensions with Japan over the Diaoyu/Senkaku Islands. Matters came to a head in late September 2012 when a comic-opera naval battle involving water cannons erupted between Japanese patrol ships and a flotilla of dozens of Taiwanese fishing boats and coast guard vessels.

Taiwan is now a wild card in what are already some tense, worrisome confrontations.”

It might be tempting to smirk at such an episode, but anti-Japanese ethnic animosity has flared on Taiwan. Indeed, there have been angry demonstrations in Taiwanese cities, punctuated by burning the Japanese flag, just as on the mainland. Thus far, there has been markedly more hostility directed against Tokyo’s claims than against Beijing’s. Indeed, PRC officials have sought to spin Taiwan’s conduct as proof that “all Chinese,” irrespective of political differences on other issues, consider the islands Chinese territory.

Some of the …read more
Source: OP-EDS

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A Sequestration Solution for the Pentagon

February 28, 2013 in Economics

By Benjamin H. Friedman

Benjamin H. Friedman

The sequestration drama in Washington is less severe and intractable than you have heard. A partial solution: Block the across-the-board cut of $42.5 billion in military funds this year — the Pentagon’s portion of $85 billion due March 1 — and spread the savings over several years by tweaking military spending caps already on the books.

Because this option preserves deficit reduction without raising taxes and lets the military drawdown intelligently, a congressional majority might support it.

Pentagon leaders are sounding the alarm — warning about the impending sequester and the additional $500 billion reduction in spending over a decade. Furloughed civilian employees, extended deployments, reduced naval patrols and procurement delays, they say, will leave the military unable to perform its job and deter U.S. enemies.

President Barack Obama and congressional leaders nod gravely — then blame the other party. Democrats suggest replacing sequestration with new taxes and spending cuts, some to the military. Most Republicans talk about replacing sequestration only with spending cuts and prefer reducing the federal workforce, entitlement spending or other domestic programs’ budgets.

We can avoid military sequestration’s vice and keep the virtue.”

This politicking obscures much — including common ground. First, the Friday deadline is soft. Legislation can reverse sequestration after it hits. The Pentagon can use other funds to delay the reckoning until later this year. Congressional leaders know this, which is why their negotiations don’t match the urgency of their rhetoric. Talks should pick up before March 27, though, when the temporary measure funding the government is due to expire.

Second, our leaders avoid explaining that there are two kinds of sequester. Only one slashes arbitrarily. The other enforces spending caps, which cut while encouraging prioritization. Pentagon leaders hoping to dodge any cuts conflate the two, seeking to confront Congress with an all-or-nothing conundrum.

The 2011 Budget Control Act said that if Congress failed that year to schedule $1.2 trillion in deficit reduction over a decade (compared to the projected baseline), the Treasury would take (sequester) a year’s worth of those savings at the start of 2013 — half from the Pentagon. The New Year’s tax deal shrank and delayed that cut — hence the $85 billion due Friday.

This sequester is designed to induce a deal via anticipated pain. It cuts more than 8 percent of the Pentagon’s non-war budget. Because it applies equally to every “program, activity and account” (except military …read more
Source: OP-EDS