Category: Uncategorized

Another Tax Cut?

There are rumors going around that Bush will propose another tax cut next year, which is not coincidentally an election year. Roll Call quotes a "White House insider", who says that Bush aides hope the new plan with cause "Democrats

Iraqi Debt Coming to a Head

The NYT fronts with news that the U.S. Coalition Provisional Authority is going to give up some power in order to attract donors to the cause of Iraqi reconstruction. We'll leave the "I told you so" work to others. Instead we'll focus on the discussion of debt: $120 billion dollars, in addition to "tens of billions" in unpaid war reparations. The NYT says the World Bank and international funds aren't going to pony up the loans until that debt is settled. We wondered about this just a few days ago. Much of the debt is owed to France, Germany and Russia, who will almost certainly demand a debt payment plan before they begin participating in any reconstruction effort. It's possible the the United States will flex its muscle and force a default to prevent these nations from being paid: Iraq accumulated this debt by breaking the UN embargo, after all. On the other hand, a default would damage the already stuttering Iraqi economy, and the United States would be cutting off its nose to spite its face. That makes a default unlikely. Instead, the debt will be restructured. This isn't much better. Ideally, Iraq would arrange to pay the interest on the debt until it is back on its feet -- like getting a forbearance on your student loan. That won't happen, though: again, the gang from Bretton Woods wants to see that debt reduced before they make any meaningful loans. This dovetails into last week's spat in the U.S. Congress over a bill offering Iraq $20 billion in aid -- a number of Republican Senators mutinied, and demanded that half that amount be converted into a loan. This makes good political sense for the Senators: with cutbacks everywhere in the U.S. budgets, it's hard to sell a massive foreign aid package to constituents. Unfortunately, a loan would mean exacerbating Iraq's debt problem. That means that Iraq will almost certainly have to start paying off its debts -- and it will be a terrible burden. "But what about all that oil," you ask? Iraqi oil won't close the gap -- the UN has $1 billion in contracts under the oil-for-food program, and the infrastructure just can't handle the required output. The World Bank itself issued an assessment document, acknowledging "it is currently not possible to predict offsetting expenditures on principal and interest payments on Iraq's very sizeable external debt." Someone has to put down their gun, or Iraq will not get the money it needs. This should make the upcoming donor summit in Madrid very interesting.

The Craven Rep. Mica

From the "Do As I Say, Not As I Do" Dept.:

House Aviation panel chairman [John] Mica, scrambling to pass a proposal allowing privatization of some air-traffic control towers, tells Republicans he would exempt those in their states in exchange for votes. "I have a bill to pass," he says; the proposal is in a larger bill reauthorizing the Federal Aviation Administration. Democrats aren't given the same offer: "They want to scuttle the bill," a Mica aide says.
Thanks to WaPo and CalPundit.

Where’s the Old Iraqi Debt?

A brief, rhetorical question: what will happen to the foreign debt accumulated by Iraq during the sanctions? There are millions of dollars owed to Russia, France and Germany. Why aren't they staying more engaged in the reconstruction process, since that would ostensibly ensure they get a seat during the debt renegotiation? Why isn't Washington holding that money over their heads to get more cooperation? With all the talk about the $87 billion we're spending, why hasn't there been more coverage on these questions?

North Korea Pimps Out Citizens to Russia

Reuters has a fascinating account of North Korean forced labour in Russia. The North Korean government ships labor teams, a holdover from the Soviet era, to Vladivostok where they live in dormitories and work for Russians under the strict supervision of plainclothes DPRK police. North Korea's compelled to turn out their labor force to gain hard currency. The North Korean labor force is all over it: officials in the DPRK are being bribed for spots on the teams. The piece doesn't mention it, but there would certainly be consequences to allowing these labor teams to see how a capitalist system works -- even if it's Russia.

Bush Loss On Every Front

After President Bush's well-publicized speech and weeks of haggling, the United States finally secured a resolution from the UN Security Council on the future of Iraq. The resolution finally passed because everyone agreed to disagree: the U.S. will still run the show, and will transition to an Iraqi-led government "as soon as is practicable." It contains no timetable, and no commitments of money or troops. Do not let anyone tell you that this is a diplomatic success: the actual positions of the Security Council members has not changed a bit. The Beeb was good enough to point out that while the Security Council was voting, the U.S. Senate converted $20 billion in reconstruction costs into loans, despite heavy lobbying by the Bush Administration. "It's very hard for me to go home and explain that we have to give $20 billion to a country sitting on $1 trillion worth of oil," said Republican Senator Lindsey Graham. More substantive discussion can be found at NewsDay. This loss is especially stinging for the Administration, and is yet another indication that they are losing control of Congress on this issue. Lugar
Last weekend, Senator Richard G. Lugar, the Republican of Indiana who is chairman of the Senate Foreign Relations Committee, publicly chastised the President for losing control of Iraq policy. This is the guy in charge of getting the President's $87 billion budget request approved. Morale Trouble
Stars and Stripes, hardly a mouthpiece of the liberal press, announced survey results that indicated low morale, and a lack of faith in the mission. At the same time, the Army admitted that 13 soliders stationed there had committed suicide. A shocking 35% of respondents said that they had no clear mission. This revelation, publicized by the Washington Post, was especially bad on the heels of what Josh Micah Marshall describes as the Great Push-Back, an effort by the White House to characterize media coverage on Iraq as overly pessimistic and unpatriotic. All this, and the President's approval rating has leveled off around 50%. Clearly, the wartime injection of goodwill has run its course. It looks as though Bush will now have to fight for re-election with both the economy and Iraq, pillars of his administration, flagging.

More PAM Defenders

Today's NYT has an editorial by Todd G. Buchholz, a former economic advisor to the White House. He has the first well-reasoned critique of PAM and the "terrorist futures" market we've read thus far. Unlike the other analysis in these past two days, this is grounded in some solid thinking. In short: the market is a fine idea, but won't work because it must be "deep and liquid," meaning that there must be a high transaction volume and many participants. There are also problems with the frequency of terrorist attacks: they're so rare, that the market would have difficulty speculating on them. There are also unpleasant side-effects: if the payouts are too large, there's incentive to fix the market. In his words, "market manipulation can show up not as a forged buy order but as a bullet." He also asserts that the market is, in fact, unnecessary. The existing financial markets already incorporate PAM-like analysis: South African instability, for instance, is reflected in the trading price of the rand. It seems that a more sophisticated analysis of the markets already in place would yield similar results, without the attendant problems. His final point is the most important: that DARPA, which collaborated with the Economist Intelligence Unit on PAM, is doing its job. It was chartered to come up with groundbreaking ideas exactly like these. In the past, DARPA has given us revolutionary technologies -- not the least of which is the Internet. We should be encouraging this, and it's important that yesterday's Congressional rebuke doesn't stifle its initiative.

Terrorism Futures Market

Admiral Poindexter's Office of Information Awareness is at it again. Fresh from the sound drubbing they received in Congress for their Orwellian information-collection program, they have a new tool they think will help predict terrorist events. Rather than collecting more information, which the intelligence agencies are already drowning in, this program intends to improve the analysis of that information -- which is where the agencies have been failing. The tool is the Policy Analysis Market. It's a joint venture between the venerable Economist Intelligence Unit and the Defense Advanced Research Projects Agency (DARPA). This should be familiar to anyone who's played the Hollywood Stock Exchange. It is a futures market for events in the Middle East. Traders place bets on when certain events occur, collecting money when they're right and losing money when they fail. The idea is that markets can be excellent indicators for future events -- each analyst's individual opinion is aggregated with the others, creating a consensus which is represented by the price. The OIA wants to harness the analytic power of this market by opening a seperate market for terrorism futures, alongside the markets for stability and military posture in Syria, Iran, and elsewhere. "Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant," say Senators Byron Dorgan (D-North Dakota) and Ron Wyden (D-Oregon). What's more, they feel that the market would actually influence the terrorists themselves -- if they know when the market thinks the next attack will be, they will obviously try to beat the oddsmakers. They have a fair point, in that individual actors can more easily subvert the predictions of a theoretical market than any single person could influence the price of gold. Their revulsion at the premise of the market itself, though, is short-sighted. The market would provide a valuable service, in the form of relatively accurate predictions. They are not revolted by the other markets, like the date of the overthrow of the Jordanian monarchy, and it is foolish to say that a terrorism futures market is qualitatively different. Other comments from the Senators belie the other forces at work: "They still didn