Free Market Arguments from National Security

Libertarians are not fans of wars or government spending, often for overlapping reasons. Consequently, libertarians often remain uninterested in foreign policy, writing off the entire area of study as something not worth engaging in. Given the current administration has found a way to be both not interested in global affairs (“America First“), while also highly anti-market and pro-government spending (especially defense spending), I believe there might be an alternative that both retains a small government approach to the economy, as well as an important role for American leadership in the world.

The overarching theme here is that China is a rising power, whose outlook is distinct from that of the U.S. and the liberal world order generally. We might have expected China to continue its trajectory towards a freer economy and perhaps even a freer political ideology even 10 years ago, but no longer. Economic reforms touted by Xi Jinping have not materialized, and in fact the Chinese Communist Party and the state have strengthened their hold on the economy and the role of state owned enterprises within it. The Chinese state has maintained a highly nationalistic ideology; American foreign policy has created plenty of messes, but has also done some good in promoting free trade and at least stated goals democracy and respect for human rights. China is looking to offer an alternative to the current American-dominated world, and it is likely one that is worse for the world. American policymakers need to do better. Here are ways they could do so.

Institute Fiscal Discipline

The first point is that any potential policy that looks to achieve American goals vs Chinese goals will cost money. The U.S. government had a deficit of $665 billion last year. This year it will probably exceed $1 trillion. Entitlement spending will cost money, military R&D will cost money, cybersecurity will cost money, projecting power near China will cost money. Yet, we have passed a massive tax cut with no way to pay for it. From a libertarian perspective, unfunded tax cuts could be argued either way; they reduce the tax burden on citizens, but they crowd out investment, don’t actually change the amount of government interference in the economy, and they could lead to higher taxes later on. But from a national security perspective, this fiscal policy is terrifyingly irresponsible.

I find it uninteresting who owns the national debt. Much has been made of the fact that the Chinese government owns large portions of our debt. So what? They will receive future interest payments, but the federal government received cash from outside the U.S. economy it could spend immediately.  That kept interest rates low in the U.S. while Chinese savings and taxes were taken by the U.S. government and used to pay for Medicare, Social Security, and the War in Iraq. This is just a trade and doesn’t even seem like a great investment from China’s perspective. China could dump its American debt holdings onto the market, pushing up interest rates in the U.S., but by flooding the market, they’d also be selling the debt at a discount, writing off the losses. Moreover, China only owns a bit over a trillion dollars of debt, compared to the national debt’s total size of almost $21 trillion.

China could have put that capital directly into infrastructure investment or education or buying off communist party officials to implement more complete market reforms or even malaria nets in sub-Saharan Africa! But instead they bought low yield American government bonds. Seems like a waste of capital in my opinion. Had China not purchased that debt, the federal government still would have issued it, but interest rates would have been higher. On the other hand, the fact that the treasury owes some of this debt to other entities in the government isn’t super comforting. Those government agencies need the cash too; if they aren’t paid, they won’t be functioning, and their employees won’t be working.

No matter who owns our debt, increases in interest payments, whether through interest rate rises or increases in the underlying total debt will make accomplishing any policy goals, including foreign policy, that much more difficult.

Stop Military Counter-Terrorist Interventions

Predictable point of any libertarian foreign policy critique? Yes, but it’s unfortunately unavoidable. The cost of the Iraq and Afghanistan Wars are hard to calculate exactly. Direct appropriations costs were over $1 trillion, but the Afghanistan War remains ongoing (are you sick of winning?). Long term costs including veterans benefits will probably be more than double the direct costs.

The U.S. has a long history of Middle East interventions, and they just don’t have much to show. There are still almost no democracies, Libya, Syria, and Yemen are still divided states living under various governments, Iraq has been suffering under a war with the Islamic State which has cost a hundred thousand lives and displaced millions. The Iranian nuclear deal prevented a theocratic autocracy from obtaining a nuclear weapon, which was said to be only a couple years away.  This would be one of the only bright spots in U.S. policy in the Middle East, yet the President has threatened to tear up the deal.

If China is to be the focus of an American foreign policy, we can no longer afford to sink resources into fighting small terrorist groups that kill 10 times fewer Americans per year than police officers. And despite Trump’s so-called “America First” approach, we are most certainly still wasting resources in the Middle East. The President has carried out operations in Syria, Iraq, Yemen, Afghanistan, Pakistan, Somalia, and Libya. There are also U.S. forces apparently in Niger, Chad, and Cameroon. Perhaps it’s too late, and China’s expanding influence means the U.S. has to maintain a military presence in developing countries around the world to offer an alternative, but it would have been nice to save those expenditures in the intervening 30 years between the end of the Soviet Cold War and the ratcheting up of whatever this new one is. As it is now, these interventions have left American foreign policy broke.

Reform the Military Budget

As (grudgingly) stated earlier, we will need to fund the Department of Defense if our goal is to geopolitically confront China. Nonetheless, the DoD budget needs serious reform, and perhaps should be torn down and rebuilt from the ground up. The Government Accountability Office (the best government office) has never been able to audit the DoD in over 20 years (see page 3). In 2010, Congress told the DoD it had seven years to get its act together and finances in order. It missed the deadline. This year, the Department will allegedly finally undergo an audit, the report to be released November 15. This is, of course, a step in the right direction, but we need so much more.

The procurement system in the DoD is a complete mess.  The F-35 fighter is way behind schedule and already $400 billion in. Last year, Lockheed Martin produced 66 planes. This exposé from 2014 is deeply disturbing. When the military isn’t pouring money into contractors who are making out like bandits, or paying for tanks it no longer wants nor needs, or blowing up perfectly usable munitions because it can’t keep track of what is needed and where it should go, it dumps its extra assets, including leaving thousands of humvees in Iraq that were eventually captured by the Islamic State.

This military budget needs a reckoning and I’m unsure Trump is up to the task.

Promote Free Trade

China is jumping off the free market ride, and the U.S. needs to pick up the slack. The best way to expand the benefits of markets is to expand markets themselves through trade. More to the point of this post, countries that have a stake in global trade and free movement of goods are much more likely to have economic goals and values that align with the U.S. and its allies. During the Cold War, there was a strong alternative to capitalism and trade, and while most countries didn’t have a “choice”, many countries did exist outside of the free trade liberal market order pushed by the West. After the fall of the Soviet Union, that alternative largely dried up. Today, if you want to have a successful, rich country, freer trade and openness to foreign investment are vital steps to take.

China is much more open to trade and markets than the Soviet Union ever was. Nevertheless, any policies or goals where their motivations are less market oriented and more nationalistic would be exactly where they would differ with that of western values/free trade/liberal markets. This is evident in their extensive protection of Chinese industries and even in non-tariff barriers such as the Great Firewall. To the extent that China seeks to offer an alternative to the United States’ world order, they support protectionism and oppose free trade.

This means increasing trade and integration into the global economy of an allied (or possibly allied) country is the national security interest of the United States. A hypothetical Cuba that was highly integrated into the U.S. economy would be much less likely to be flirting (metaphorically I think) with Chinese dignitaries. The Trans-Pacific Partnership played exactly this geopolitical role, integrating Pacific countries’ economies with the U.S. and its allies, while leaving China on the outside. Yet Trump declared that we should leave the TPP as soon as he entered office, effectively siding against American national security and promoting China’s geopolitical goals.

Tying U.S. policy to free trade and global markets is powerful. It’s very difficult for a country to become rich and successful without at least selling their products on the global market. Access to the global market is thus in every country’s national interest. If U.S. policy is to have open trade, then the American economy will be highly integrated into the global market, meaning it is in the national interest of other countries to gain access to the American market. U.S. trade policy has been to offer access to the American market as part of bilateral and multi-lateral free trade agreements, thus offering foreign countries’ national interest goals if they conform with American goals of free trade and free markets. Integration with the U.S. economically necessitates geopolitical alignment with the U.S. That’s why it’s not just obviously economically stupid to oppose free trade (like crazy stupid), it’s against American national interests.

Allow More Immigration

All of these points have been critiques of the current administration. Some of these might also be critiques of conservative positions generally, but that will depend on to what extent current Republican positions are defined by historical conservative positions or by Donald Trump. This final point may still be the most difficult for conservatives to hear.

As a matter of national security, the U.S. needs more immigrants.

Immigrants are more entrepreneurial. Immigrants are less likely to commit crimes. Economists widely agree that high skilled immigration would benefit the average American, and tend to believe that even low skilled immigration would benefit the average American (although they are more split on the second). If we are concerned about the political effect of immigrants, we should take Rush Limbaugh’s (fairly progressive) approach and allow immigrants to work and live in the U.S., but not vote for a long period of time. Perhaps that’s more politically difficult than I imagine, but it seems like a good compromise from a national security perspective (and voting is sort of worthless anyway). That’s also not the only solution; if today’s political climate means only highly skilled labor can be let in, then at least that should be done. This administration has instead made the H-1B visa process more arduous. Trump’s immigration allies in the Senate have also introduced a bill to reduce legal immigration, including high skilled immigrants.

Immigration is an important engine for economic growth, an engine that nationalistic Chinese policies will have a hard time replicating. America is better able to absorb and benefit from immigration than any nation on Earth; it should apply this strength.

The final point relates back to deficits; entitlement spending is projected to continue to grow and consume the federal budget. The ratio of workers to retirees is dropping. Immigration can help change that tide, keeping our working age population growing, when fewer Americans are entering the workforce, often because families are just having fewer children. It won’t be enough, entitlement reform is important as well, but immigration is tool that must be utilized.

Conclusion

I don’t know how much of a danger China really poses to the U.S. Xi Jinping’s recent power grab is a bad omen though, and a large highly nationalistic protectionist country led by a dictator is certainly worth keeping an eye on. But if Sino-American relations get worse in the next decade, U.S. policy is in a poor position to adapt. Trump has claimed to want to confront China, yet his policies are actively harming our national security.

 


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Is The Sledgehammer The Only Way To Cut Spending?

Remember when the federal government “cut” a measly $37 billion in spending in 2011 and Obama hailed it as the “largest annual spending cut in our history”? Apparently even those cuts were full of accounting gimmicks, like counting money for projects that were already finished or cancelled. My personal favorite:

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

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Homeland Security Spending Sprees

When you give governments lots of money to spend, they usually find ways to spend it. This week we learned that the Department of Homeland Security is funding “microphone-enabled surveillance systems on public buses that would give them the ability to record and store private conversations.”

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Everyone’s A Rent-Seeker, Wind Edition

With all the discussion about the “fiscal cliff” and the big expiring tax cuts and all, some of the normal, smaller expiring things are getting lost in the shuffle… like, say, the $12 billion wind Production Tax Credit. Local St. Louis representative Scott Sifton explained on the radio the other day why he thinks renewing it “shouldn’t be a partisan issue.”

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In Which Republicans Continue To Impress Me

Rand Paul is filibustering the annual Defense Authorization Act to try to get a vote on his amendment to “give American citizens being held by the military rights to a fair trial.” Last year’s NDAA encoded “indefinite detention,” or the authority of the government to hold an American citizen indefinitely with no right to trial or oversight by the courts. Terrorist suspect or no, it’s (in my eyes) a clear violation of the Constitution and a dangerous authority to give a government that is always subject to the “oops cost.”

Paul just wants to explicitly state a common-sense protection for citizens. Harry Reid doesn’t even want to let the Senate vote on it. I’m not familiar enough with Congressional procedures to know how long Paul can hold it up or how likely he is to even get a vote on his amendment, much less get it passed, but man he sure makes me glad he’s in the Senate sometimes. It’s amazing what even one Senator can do to hold back the forces that would trample liberty.

Department of Everything

But Paul’s not the only Republican Congressman impressing me lately, and his influence seems to be spreading. A month after his charge that “not every dollar spent on the military is sacred,” Senator Coburn has released a new “Department of Everything” report that identifies “non-defense defense spending” in the bloated military budget. Some of the most ridiculous highlights:

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Running Out of Money to Help the Poor

Illinois Public Radio reports:

More than 150,000 college students were left without financial help this spring when Illinois ran out of money for MAP Grants…

…Illinois’ Monetary Assistance Program, or MAP, which provides financial aid grants to low-income students. The program ran out of money in March last spring, leaving about 150,000 students – half of all who applied – without help.

That number could grow – this year’s state budget cuts money for the grants by 14%.

Illinois has one of the worst if not the worst budget deficit in the nation, and it’s starting to reveal itself in cuts to public services. Liberals like to signal that they care more about the poor than conservatives, but it doesn’t matter how much the government cares about the poor if the government runs out of money.

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Kicking The Student Loan Bill Can

While everyone was focused on the Obamacare ruling this week, the other branches of government worked out their disagreements and passed a giant bill yesterday for funding transportation and student loans, among other things.

Before Obamacare reclaimed the headlines, we heard lots of fretting that the interest rate on federal student loans would double form 3.4% to 6.8% if Congress didn’t extend them by June 30. The news rarely questioned whether or not extending the lower rate was a Good Thing, because it is an unquestioned assumption that Subsidizing Education is a Good Thing, and that More Subsidizing is always better than Less Subsidizing.

Additionally, media reports often implied that this was an unprecedented thing, leaving out the important fact that the rates were only lowered from 6.8% to 3.4% five years ago as part of a “temporary” five-year deal. Even worse, some reports called the doubling “an automatic increase that Congress enacted five years ago to save money,” implying not only that the rate has always been at 3.4%, but that a stingy Congress actively decided to increase it in 2012. The truth is that the rate had been 6.8% for a long time, and Congress decided to lower it in 2007 but only made it “temporary” so they could say they were making things better now while saying it only cost X amount (instead of raising taxes or cutting spending somewhere to pay for it permanently, because that would require pain and sacrifice).

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One Router to Service Them All

Once upon a time, the government decided to pass a giant stimulus. It had a noble goal of creating jobs, stimulating the economy, and upgrading necessary infrastructure all at the same time. But when the government starts handing out money, people start lining up to take it.

In 2010, West Virginia received a “$126 million federal stimulus grant to expand high-speed Internet” across the state. They decided to spend about $24 million buying fancy Cicso routers for schools and libraries that cost $22,000 each. These high-end routers were built to serve college campuses handling hundreds or thousands of computers, but many of them are being put in small rural buildings with less than five computers – even some that have “just one computer terminal.”

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Current Level of Defense Measured in What?

I got a kind card in the mail yesterday from my House Representative Todd Akin, summarizing what he and Congress accomplished last year and asking me to fill out a brief questionnaire to record my opinions on a few political topics. I think it’s great that Akin wants to solicit the opinions of his constituents, even if he is in a reliably conservative district (Missouri #2) that votes him in with like 80% support every two years.

Of course, the questions are loaded to the point of hilarity. I felt like I was taking a Republican quiz. When asking “what steps should Congress take to improve and reduce unemployment,” the available answers were:

A. Spend more taxpayer money in another “stimulus” bill….. [ ] YES     [ ] NO

B. Empower the private sector by cutting taxes & reducing government spending….. [ ] YES      [ ] NO

The word “stimulus” is in quotes, suggesting that it’s not really stimulus, so obviously the correct answer to A is NO!  And line B contains nice buzzphrases like “Empower the private sector”… obviously the answer is YES. I’m not really opposed to these opinions, but couldn’t he have just asked two simple questions like “Should Congress increase spending?” and “Should Congress cut taxes?” I guess that might make it harder to guess the, ahem, right answer.

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The Solyndra Scandal And The Dangers of Government Lending

More information is coming to light about Solyndra, the much-hyped solar-energy company that got a loan of half a billion dollars from the federal government before declaring bankruptcy. The feds, hot off a raid of Gibson Guitar Company, have raided Solyndra’s offices. Megan McArdle highlights a few facts that suggest the possibility of scandal. At worst, the Obama administration loaned bad money at a suspiciously low rate to a politically-connected company so it could tout the creation of “green jobs” without any evidence that the company was at all sustainable. At best, the U.S. Department of Treasury’s Federal Financing Bank got unlucky on an investment decision.

Ugh. I didn’t even know we had a “Federal Financing Bank.” (I’m still unsurprisingly surprised every time I find something new that our government does or has done.) This sounds like a classic case of the negative consequences of government doing something it shouldn’t be doing. It’s one thing to spend money on research that will hopefully lead to public discoveries and benefits. It’s quite another to loan money to specific for-profit companies. I don’t know how this works on the budget, but I’m assuming the government was assuming they’d get their $535 million back, and now they won’t. If private banks didn’t see fit to loan them that much money at that rate, what makes the government smart enough to think it’s OK?

It’s bad enough that government just isn’t smart enough to do things like pick the best companies to loan money to. But when you allow that kind of power to elected officials, it inevitably invites corruption. Now we’re getting suspicious facts about the political connections of an investor, or the number of times somebody from Solyndra visited the White House. For now I’m willing to give them the benefit of the doubt. There’s not enough information yet to prove that there was corruption involved in the decision to give a giant low-interest government loan to Solyndra instead of, say, some other less lucky company. But I can say that similar situations involving the power of government officials in the past have led to decisions where corruption was involved. That’s just part of the way these things work, and the cost of corruption has to be considered in any discussion about the potential benefits of giving power to government officials to favor some people or businesses over others.

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