Cato Comementary

Conservative politicians want to cut spending — except for the military. Where that's concerned, they sound like liberals. In fact, conservatives have adopted several liberal ploys to justify today's bloated military budget.

First, big spenders on the right argue that Washington must continue doing everything that it has ever done abroad. House Armed Services Committee Chairman Howard "Buck" McKeon (R-Calif.), one of the leading pork hawks, has denounced the idea of doing "less with less."

Yet the Department of Defense spends most of its money to protect other nations, including those that are populous and prosperous. All together, the Europeans have a larger GDP and population than America and ten times the GDP and three times the population of Russia. South Korea has 40 times the GDP and twice the population of North Korea. Why is the U.S. taxpayer still paying for their protection, 67 years after World War II ended?

Even worse has been Washington's foray into militarized nation-building. The Balkans remains a mess nearly two decades after Washington intervened. The Iraq War weakened America and strengthened Iran. The U.S. has been trying to create a competent, honest, and democratic central government in Kabul for a decade. None of these missions advances U.S. security.

But that raises the second excuse that phony conservatives use to justify a bloated Pentagon. Like liberals spending on education, these right-wingers equate money with results. Thus bigger Pentagon budgets mean increased national security. Only it's not true: greater military spending is strategic waste on a grand scale.

While the world is dangerous, it is not particularly dangerous to America. The U.S. is surrounded by oceans east and west and friendly neighbors north and south. America is allied with every major industrialized state save Russia and China. Washington already has a thousand military installations around the world. The American navy is equivalent to that of next 13 navies combined, 11 of which belong to U.S. allies.

Washington spends as much as the rest of the world — and spends more, in real terms, than at any point during the Korean War, Vietnam War, or Cold War. America could spend less and still possess far larger and more capable forces than anyone else.

Such overcapacity actually encourages Washington to meddle in foreign conflicts that foolishly deplete our military capital. As a result, guys using AK-47s and improvised explosive devices tied down the world's greatest power for years in both Iraq and Afghanistan.

Terrorism remains a threat, but not an existential one like the old Soviet Russia. Moreover, Al-Qaeda has been wrecked by relatively inexpensive techniques short of conventional war: good intelligence, Special Forces strikes, international cooperation, financial sanctions. In contrast, the invasion of Iraq created an entirely new class of terrorists, some of whom have migrated to other conflicts, such as Libya and Syria.

The third idea spendthrift militarists have recycled from the liberals of yesteryear is using "baseline budgeting" to complain that Barack Obama has "cut" defense outlays. This is the same way Democrats once charged that Ronald Reagan drastically "cut" domestic spending — by reducing the rate of increase.

Total military outlays were $306 billion in 2001. Since then they have risen steadily, breaching the $700 billion barrier under Barack Obama in 2011. In real, inflation-adjusted terms, expenditures increased 74.5 percent over the last decade. In the Obama administration's first two years inflation-adjusted military spending rose 16.8 percent. Outlays last year, in real terms, were 23.5 percent above the Korean War peak in 1953, 22.5 percent above the Vietnam War peak in 1968, and 35.8 percent above the Reagan build-up peak in 1989.

Spending will stop racing ahead this year but not because of real cuts: the administration has only proposed reducing planned increases over the coming decade by $487 billion. As former House Majority Leader Richard Armey observed, these "cuts" are "only from the bloated CBO baseline. This means that [Obama] is merely reducing projected military spending, as opposed to cutting current spending."

If Congress does not trim overall spending by $1.2 trillion over the coming decade, the sequestration agreed to during last summer's debt ceiling debate is supposed to kick in, with the equivalent amount in cuts divided equally between domestic and military outlays. This prospect has caused much neoconservative wailing and gnashing of teeth.

In fact, say Veronique de Rugy of the Mercatus Center and Ben Friedman of the Cato Institute, non-war outlays would still increase, only "by about 10 percent today, as opposed to the 18 percent the administration wants." (War expenses are exempted.) Overall, they figure, as a result of sequestration military expenditures would grow by 18 percent rather than 20 percent from now through 2021.

The present rate of growth is too much even for some hawks. "Under sequestration, the Defense Department would still be spending more money in 2021 than it is spending today," adds Andrew McCarthy of the Foundation for Defense of Democracies. "Moreover, that spending increase — not cut, increase — comes atop a decade-long spending bonanza."

Yet some of the most prominent neoconservatives are scaremongers. Max Boot of the Council on Foreign Relations cites an estimate that the combined effect of all "cuts" would result in a 31 percent drop in real military spending. But even if this "worst case" came to pass, real outlays would be at 2007 levels, which were 39 percent higher than in 2001. Moreover, the reduction would come when the U.S. was no longer fighting wars in Iraq and Afghanistan. America would still lap the rest of the world in the global arms race.

The fourth tactic for conservatives addicted to military-industrial pixie dust is playing the "Washington Monument" game — threatening to kill the most important programs (in this case, weapon systems) first. Just as liberals, faced with demands for cuts to local budgets, will threaten schools, police, and fire departments first, pork hawks want to claim that DoD reductions must come out of indispensable programs. Again, that's not true: military cutbacks should start with force structure, especially army units.

With allies capable of defending themselves, the U.S. should not plan on fighting a major land war in Europe or Asia. And there should be no more nation-building. The U.S. should maintain superior air and naval forces, but in smaller numbers sufficient to prevent attack on America rather than to police the globe. Such a strategic readjustment does not mean the end of our ability to project force abroad: America would continue to act as an off-shore balancer capable of aiding friendly states against a hostile power seeking Eurasian hegemony. This would not only be more affordable but makes greater strategic sense than behaving as an in-region meddler determined to micromanage local conflicts.

Could the unexpected occur? Of course. Should the U.S. have a surge capacity in the event of an emergency? Certainly. Should Washington adjust its plans if international circumstances change? Definitely. But it makes no sense to maintain an oversized military for decades because someday a country like China might behave badly. When that time comes, a bloated Defense apparatus would be too slow and encumbered to act.

The fifth and last resort of Washington big-spenders is demagoguery. Advocates of a colossal military trash their opponents as "isolationists" who want to undermine America. Columnist Lurita Doan accused President Obama of seeking "to render our military neither well-armed nor well-planned." New Zealand blogger Trevor Loudon — neoconservatives are nothing if not globalist — charged that "hard-bitten Leninists and disciplined Marxists" were behind plans to reduce U.S. military outlays.

Just look at the hype. Reductions in military spending, we are told, would be "totally destructive" and "very dangerous to the survival of the country," would "destroy" the Pentagon, set America on a "perilous course," be "dangerous and irresponsible," leave America "in the greatest peril," "would decimate our military," threaten America's "national security interests," be "totally devastating," send "a very horrible message" to America's enemies, create the "threat of gutting national security," "break" the military, "invite aggression," cause "severe and irreversible impact," leave America "teetering on the precipice of disaster," cause "catastrophic damage," "put our national security on the chopping block," leave "a hollow force," "disarm the United States unilaterally," result in "American lives lost," fail "to provide for the safety and security of our country," and call "into question our nation's ability to remain a free people."

All of this from returning military outlays to 2007 levels.

The fundamental question is whether military spending should respond to the threat environment. Leading Republicans answer no: America must always and in every situation spend more.

Pork hawks routinely denounce the post-Cold War drawdown, a 27.8 percent drop in real outlays from peak to trough that was erased in just six years. The Soviet Union had disintegrated. The Warsaw Pact had dissolved. Maoism had disappeared from China. Colin Powell observed that he was running out of enemies — down to Kim Il-sung and Fidel Castro. Still the pork hawks wailed. And some go farther. Max Boot decries every previous drawdown, including after the Revolutionary War.

Congressman J. Randy Forbes (R-Va.) complains that spending reductions would result in an America "that can go fewer places and do fewer things." But what if going to most of those "places" and doing most of those "things" does not advance U.S. interests? Secretary of Defense Leon Panetta has testified that military cutbacks might require reducing "our presence perhaps in Latin America, our presence in Africa." So?

There are bad actors in the world, but they need not automatically be America's problem. Gen. Robert H. Scales (ret.) argues that "We cannot pick our enemies; our enemies will pick us." Actually, in recent years Washington has done most of the picking and attacking: Haiti, Bosnia, Serbia, Iraq, Libya.

Max Boot similarly asserts: "Certainly there has not been — nor is there likely to be — a decreased demand for the armed forces. They are constantly having new missions thrown their way, from defending our nation's computer networks to deposing a dictator in Libya and providing relief to Japanese tsunami survivors." None of these tasks justifies maintaining a titanic military in a constitutional republic facing a troubled future of deficits, debts, and unfunded liabilities.

Even those who say military outlays can never be cut must ultimately decide how much is enough. Half of the world's outlays? Three-quarters? Four-fifths? Even if Washington could afford to spend ever more, the rest of the world might not go along with America's plan. If the U.S. spends more to contain China, China is sure to ramp up its outlays to deter us. After all, Americans would not stand idly by if another country placed bases in Mexico and Canada, used its fleets to patrol the Gulf of Mexico and both coasts, and casually talked of war to contain American ambitions. China will act no differently.

America is more secure today than at any point since before World War II. Military outlays should be reduced accordingly.

That will require scaling back Washington's international objectives. But the U.S. should stop garrisoning the globe, subsidizing rich friends, and reconstructing poor enemies. Instead, it's about time Washington focused on defending America and its people.

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Ronald Reagan.

Rick Santorum had a somewhat super Tuesday on February 7th. He won all three Republican presidential primaries, thereby reviving a campaign that had failed to follow up on his victory in Iowa. Santorum could become the sole alternative to Romney for the Republican nomination. If that happens, he could become the GOP nominee in 2012. Should libertarians vote for him?

Here's my (broad) definition of a libertarian. A libertarian cares about individual liberty and thus limited government. Those concerns lead to further commitments to free markets in economics, moral pluralism in culture, and realism and restraint in foreign policy. Government provides a legal order in which individuals pursue their vision of the good life. Politics is more about living together at peace than about making people virtuous.

By his own account, Santorum is anti-libertarian, describing the philosophy as "radical individualism" and a source of cultural decay. He opposes moral pluralism in favor of a society and government that recognizes and acts on Christian virtues. Santorum speaks of free markets, but his cultural commitments are bound to require limits on economic liberty. He also indulges in an economic populism that implies protectionist policies that favor the manufacturing sector. Like many Republicans these days, Santorum also seeks salvation for the Middle East through American military power.

So will libertarians support Obama in the fall? Not necessarily. They will be able to vote for former New Mexico governor Gary Johnson, the likely candidate of the Libertarian Party. He offers an easy way around choosing between the president and Rick Santorum.

Maybe not. Let's stipulate that Johnson cannot win. If libertarians vote for him, and not their second choice (either Obama or Santorum), they might cause the election of their third choice (Obama or Santorum). Hence we come to the question of the lesser evil.

Is Obama a correct second choice for libertarians? The president is similar to the former senator in one way: both see government as pursuing a moral crusade on behalf of some value. Like generations of progressives, Obama wishes to remake American society in pursuit of "social justice," not Christian morality. As Friedrich Hayek understood, Obama's search for "social justice" necessarily abridges economic liberty. Obama's Libya mission shows that his administration shares George W. Bush's disdain for realism in foreign policy.

As they say in sports, it's enough to make you wish they both could lose. But they can't.

Here's my libertarian case for Rick Santorum's nomination (though not his election). Since the early 1990s, Christian conservatives have formed an ever larger portion of the GOP. In Santorum, they would have what they have long sought: a candidate embodying their commitments to a politics of faith. Neoconservatives would also have a candidate committed to transforming the world through foreign policy and military action. The Obama-Santorum race would be more than just a struggle for power between two men. It would be a referendum on ideas and policies that have dominated the GOP for more than decade.

One recent poll has the former senator running even with Obama, but most polls have shown a decided gap of about eight points between the incumbent and Santorum. Right now the latter is not well-known to most voters. As Santorum becomes better known, he might close the gap with Obama. More likely, I think he would drive more secular and independent voters away from the GOP ticket. A ten-point Republican loss in a year when economic weakness suggested a close race would be a political disaster not just for the candidate and his party but also for the ideas they embody. Rick Santorum could be the George McGovern of his party.

Such a disaster might open the door for a different kind of GOP along lines indicated earlier, a party of free markets, moral pluralism, and realism in foreign affairs. Ron Paul has taken some steps this year toward creating such a party. He has attracted votes and inspired activism. His son or another candidate might take up the cause in 2016 and build on Paul's achievements. Fanciful thinking? Perhaps, but it may take an electoral disaster to free the GOP from the ideas and forces that Rick Santorum represents.

John Samples is director of the Center for Representative Government at the Cato Institute and the author of The Struggle to Limit Government.

The American public does not like the fact that Fed chairman Ben Bernanke has vastly expanded the size and scope of the nation’s central bank and bailed out Wall Street while Main Street suffered. Congressman Ron Paul (R-TX), chairman of the Subcommittee on Domestic Monetary Policy, has even argued for a return to the gold standard and ultimately the end of central banking in favor of free-market money.

Although the Federal Reserve is assumed be independent, the reality is that it is subject to strong political pressure, just like any other government agency. In an election year, with high unemployment and a sluggish economy, there will be more voices calling for stimulus than for constraint. Another round of quantitative easing — that is, the purchase of government bonds and mortgage-backed securities (MBS) — is likely, with the objective of reducing longer-term interest rates to induce spending and growth.

That strategy has not worked thus far. Moreover, expanding the Federal Reserve's already bloated balance sheet could further undermine its credibility in terms of safeguarding the future value of the dollar. The Fed faces a very dangerous tradeoff: risk higher inflation by expanding the monetary base (currency plus bank reserves) in a vain attempt to lower unemployment.

The Federal Reserve's dual mandate is to achieve both price stability and full employment. However, history has shown that when the Fed fails to achieve price stability, the result can be stagflation, as in 1970s — not real economic growth and full employment.

After expanding its balance sheet from less than $1 trillion before 2008 to nearly $3 trillion today, the Fed has had little impact on the rate of unemployment but has greatly altered the allocation of credit and distorted the yield curve. It is ironic that while Congress criticizes China for manipulating its exchange rate, little is said about the Federal Reserve's manipulation of interest rates and asset prices.

It is unnatural to have interest rates close to zero and to distort the yield curve by pegging longer-run bond prices at artificially high levels and suppressing yields. Keeping rates low to finance government debt is not a recipe for long-run growth or for credible U.S. monetary or fiscal policy. Purchasing MBS to fuel the housing market merely delays the readjustment of relative prices that needs to occur before the U.S housing market can return to normal.

Rather than engaging in pure monetary policy to ensure long-run price stability and prevent erratic changes in nominal GDP, the U.S. central bank has engaged in fiscal policy by allocating credit to favored groups and thus politicized monetary policy.

Moving forward, it is likely the Fed under chairman Bernanke will continue to bow to political pressures to stimulate the economy, allocate credit, and distort relative prices. The dismal situation in the eurozone, the long-term deficits in the United States, and the lack of pro-growth tax reform and other structural changes mean the Fed will be held responsible for performing miracles. But there are limits to what monetary policy can accomplish.

Theory and practice both tell us that printing money cannot generate economic growth or lower the natural rate of unemployment, but it can cause inflation. An excess supply of money can also distort relative prices and misdirect investment. The Federal Reserve helped create the bubble in the housing market by keeping interest rates too low for too long and is now creating another bubble in the bond market. Pegging the federal funds rate close to zero for another three years and twisting the yield curve to lower longer-term rates will continue to misprice credit, penalize saving, and encourage risk.

If the Fed engages in a third round of quantitative easing (QE3), designed to lower rates on longer-term securities, and monetizes additional government debt, inflationary expectations are likely to rise. Uncertainty about the future value of the dollar would increase. Moreover, if Congress does not make headway in significantly reducing its addiction to spending and debt, there could be a general downgrade of U.S. public debt. Inflating away the real burden of the debt is not a viable option. Creditors would demand higher nominal interest rates and the costs of servicing the debt would skyrocket.

Some asset prices need to come down. That readjustment is not deflation. It is the lowering of some prices relative to others in order to let markets clear. The Fed should be more concerned with maintaining a sound currency than with propping up housing prices and the prices of longer-term government securities, including agency debt.

Asking the Federal Reserve to stimulate the economy and lower unemployment is asking too much. Monetary policy can wreak havoc on an economy when it is erratic. But when it limits itself to safeguarding the long-run value of money, it can grease the wheels of commerce and allow markets to perform their magic.

No policymaker or economist knows the optimal amount of money in a dynamic market economy. Forecasting is a crude science, at best. No one at the Federal Reserve foresaw the financial crisis using their fancy stochastic dynamic general equilibrium models. Humility, not hubris, is appropriate when it comes to recognizing the limits of monetary policy.

The sluggish U.S. economy is not due to a deficiency of money, but to structural problems that have not been addressed. Those include chronic fiscal deficits due to overconsumption by the federal government, high marginal tax rates on capital, costly regulations imposed on the private sector, escalating health care costs, uncertainty about future fiscal and monetary policy, and huge unfunded liabilities in Medicare and Social Security.

Rules vs. Discretion

Ben Bernanke has called for greater transparency and better communication in formulating Fed policy. He has also noted that "monetary policy cannot be a panacea." Yet, he has led the charge to greatly expand the Fed's balance sheet and has let the monetary base rise to unprecedented levels. The Fed is highly leveraged and faces the risk of significant losses on its portfolio of MBS and longer-term government securities once interest rates rise, as they must. But the Fed has not told us when it will begin to normalize its balance sheet, and the expectation is that it will further expand its asset acquisition and influence the allocation of credit.

Indeed, some prominent economists are recommending that the Fed expand its balance sheet by another $2 trillion dollars and keep rates low for another 3 to 5 years. If inflation accelerates, then that is the price one has to pay for lower unemployment and higher growth. This Phillips curve (tradeoff) mentality has been proven wrong by decades of research and experience, yet the Fed continues to be under its spell.

Perhaps it is because the Fed must comply with the dual mandate and pay attention to both price stability and full employment. Congress expects the Fed to use expansionary monetary policy to lower unemployment and stimulate growth — even though the truth is that monetary policy cannot overcome structural problems to generate real growth. Many in Congress also want the Fed to monetize government debt to accommodate deficit spending, designed to win votes. Instead of a dual mandate, the Fed now appears to have adopted a triple mandate.

In this environment the Fed wants discretion, not binding rules. But discretion in a regime of pure fiat money can easily go awry. Central bankers simply do not have the knowledge necessary to fine-tune the economy or to determine the optimal quantity of money. Unlike the classical gold standard, there is no market feedback mechanism to bring the quantity of money in line with the demand for money while maintaining long-run price stability.

In the absence of convertibility into specie, there must be a monetary rule to anchor the nominal value of paper currency. As the world's primary reserve currency, the dollar's domestic purchasing power cannot be allowed to continuously drift downward, as it has since President Nixon closed the gold window in August 1971.

Various rules have been proposed, including a price-level rule (zero inflation), an inflation target rule (2 percent inflation), a nominal GDP target, and a Taylor rule designed to control the growth of nominal income by controlling the monetary base. All those rules would add some certainty to the current discretionary government fiat money regime.

The Future of Money

The existing fiat money regime with discretionary central banking may be coming to an end. The Federal Reserve and other central banks are coming under increasing scrutiny. Congress may require an audit of the Fed and constrain its powers, especially if the Republicans take over the presidency and both houses of Congress next November. Lawrence B. Lindsey, a former member of the Board of Governors of the Federal Reserve System, is open to the idea of free-market currencies, and there is a growing movement to incorporate gold into the global monetary system.

Until a transparent monetary rule that limits the power of the Federal Reserve to its constitutional duty of safeguarding the value of the dollar is enacted, or there is a return to convertibility into specie, which James Madison — the chief architect of the Constitution — called "the only adequate guarantee for the uniform and stable value of a paper currency," the world will face monetary uncertainty.

The challenge will be to engage on fundamental reform and return to sound money under a rule of law that safeguards persons and property, including the property right a person has in the future value of money. A rules-based regime would require less forecasting and generate more discipline than the current regime. As such, markets would be left to allocate credit more efficiently, and price stability would foster financial stability.

What we need is moral money: money that retains its value and can be trusted. The discretionary government fiat money regime has miserably failed on that score. We can do better. A good starting point is to recognize the limits of monetary policy.

James A. Dorn is vice president for academic affairs at the Cato Institute in Washington and editor of the Cato Journal.

Anyone still wondering why there is a disconnect between grassroots limited-government conservatives and the Washington establishment need look no farther than the latest highway bill currently making its way through Congress with support from Republican leaders in both houses.

The Senate version, SB 1813, would cost $109 billion over two years. The House bill, HR 7, which runs to 847 pages of pork and special-interest projects, raises the price tag to $260 billion, but extends it over five years, making it a couple billion cheaper on a year-by-year basis.

In theory, of course, the highway bill is supposed to be paid for out of the Highway Trust Fund. But according to the Congressional Budget Office, the Trust Fund, which is funded by the federal gas tax, will collect only $187 billion over the next five years, meaning that the House bill spends $73 billion more than it takes in. To fill this gap, the House would rely first on some $20 billion in unspent money currently in the Trust Fund. But this is just the same type of Washington bookkeeping we’ve seen with other “trust funds” such as Social Security. That money is not “unspent.” In reality it was spent long ago, and what the Trust Fund actually holds is simply government bonds that will have to be redeemed out of general revenues. Beyond these funds, the House bill includes a number of other revenue-raising mechanisms, such as royalty payments from allowing drilling in the Arctic National Wildlife Refuge and offshore areas. But those provisions will never survive the Senate, leaving a shortfall that will result in either greater budget deficits or higher gas taxes.

Left unasked is why the federal government should be involved in funding highway projects at all. The interstate highway system was at least ostensibly justified on national-security grounds, but it has been completed for more than two decades. Today’s highway bills are more about the type of local road construction and maintenance that is properly the province of state and local governments. The highway bill does little more than shift money around from one state to another, with an added layer of bureaucratic central planning. The result is that some states are big winners, while others foot the bill. Considering all previous highway bills, Alaska has received more than $5.38 for every dollar its citizens paid in gasoline taxes, while Texas received back just 80 cents. Other big winners have been Hawaii, Montana, Rhode Island, South Dakota, and the District of Columbia. Losers, who paid more in taxes than they received in highway funds, include Indiana, Michigan, and North and South Carolina.

And with Washington setting priorities, lawmakers get their pet projects funded — even in the absence of explicit earmarks — while true local concerns frequently go unfunded. In fact, much of the spending under the “highway bill” does not even involve roads or highways. Both the House and Senate bills divert at least 20 percent of the funds to mass-transit projects. And, while the House has stripped out many extraneous projects, the Senate bill requires that at least 10 percent of funds go to the usual mishmash of bicycle trails, hiking trails, and “traffic calming techniques.” It also sets up “safety and education for pedestrians and bicyclists” and programs to “encourage walking and bicycling to school.” Whatever the merits of such programs, how did they become the responsibility of the federal government?

Moreover, the strings that can accompany federal highway funding can actually make road building more expensive. Federal road standards are often higher than state standards, driving up the cost of projects. Federally funded projects also require payment of much higher union-scale wages (under the Davis-Bacon Act). These regulations can drove up road building costs by as much as 30 percent under previous highway bills, and often preempt local zoning laws and building plans. Federal administrative costs and paperwork can add another 5 percent to road-building costs.

A much better approach would be to revive the Reagan-era idea of abolishing the federal highway trust fund and eliminating the federal gasoline tax, returning a source of revenue to the states in order to design and fund their own transportation priorities.

Under other circumstances, this would be an opportunity for the Republican presidential candidates to cement their small-government credentials by speaking out against this boondoggle. But, unfortunately, this is yet another area where both Rick Santorum and Newt Gingrich have baggage. Santorum voted for both the 1998 and 2005 highway bills, which were even more costly and pork-laden than this one. (The latter, in fact, contained funding for the infamous “Bridge to Nowhere.”) And, as speaker, Gingrich was influential in pushing through the 1998 bill. Romney is more of a blank slate, never having had to take a position on earlier bills, although as governor he was, of course, happy to accept federal highway funds for his state. So far, though, he has been silent about this year’s bill.

The Republican leadership hopes that slipping in sweeteners such as a renewed push for the Keystone Pipeline will mollify restive conservatives. They miss the point. The upcoming vote over the highway bill is about much more than one bill. It is a question about whether the Republican congressional establishment got the message of 2010, or whether it will simply continue with business as usual.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Once isolated by the West, Burma, also called Myanmar, has chosen to join the rest of the world. Although Burma’s future course is not guaranteed, the country’s prospects are growing brighter. The United States should reward the government in Naypyidaw for further expanding democratic reforms.

The military first seized control in Burma in 1962.The junta varied between bizarre (long-time dictator Ne Win was guided by astrology) and brutal (suppressing democracy protests equally ruthlessly in 1988 and 2007). Callous incompetence after Cyclone Nargis in 2008 resulted in mass suffering. In eastern and northern Burma, the regime literally warred against its own people, with numerous ethnic groups seeking autonomy.

Over the years the United States withdrew its ambassador and imposed a range of economic sanctions. However, Washington only inconvenienced regime elites, who grew rich from their political connections.

The government, known as the State Law and Order Restoration Council and later the State Peace and Development Council, occasionally relaxed its control, only to return to repression. The regime voided the election of 1990 after the poll was won by Aung San Suu Kyi’s National League for Democracy (NLD). The Nobel laureate and daughter of one of Burma’s national heroes, Suu Kyi spent fifteen of the next twenty-one years under house arrest.

In 2010, the regime remade itself but offered little hope of genuine change. Top generals retired while creating a nominally civilian government dominated by officers who shed their uniforms. The constitution preserved the military’s dominance; the parliamentary election was rigged.

Blinded by Transition

Now, everything is changing. Suu Kyi has registered to run in an upcoming parliamentary by-election and recently made her first campaign trip. The Shan Nationalities League for Democracy, which came in second after the NLD in 1990, also has officially registered. Four amnesties over the last year have released many political prisoners. Censorship has been relaxed. Labor laws have been revised. Civic life is expanding. Ceasefires have been negotiated with several ethnic groups.

NLD deputy leader U Tin Oo said: “Everything is happening with a speed we couldn’t even foresee.” President Obama observed that “After years of darkness, we’ve seen flickers of progress.” Secretary of State Hillary Clinton visited Naypyidaw in December. European officials also have made the trek.

Burma still has far to go to become a liberal democracy, however. Some opposition activists remain skeptical. Aung Naing Oo, a Thai-based analyst, argued that “Suu Kyi’s power “will be severely limited” even if she and other NLD members are elected to parliament.

In its latest report, Human Rights Watchwarned: “Burma’s human rights situation remained dire in 2011... Freedoms of expression, association, and assembly remain severely curtailed... Ethnic conflict escalated in 2011.” With “abundant evidence of continuing systematic repression,” said HRW, the changes are welcome but “did not address ongoing, serious human rights violations in the country, especially abuses related to the long-running civil armed conflicts in ethnic minority areas.”

Indeed, increased liberties remain at the sufferance of the government. Moreover, fighting recently flared between the Burmese army and Kachin Independence Army along the border with China. Even Trade Minister U Soe Thane admitted: “A lot of things we have done, but many more we have to do in the near future. The democratic process is not finished yet.”

The Reformers

Leading the reform campaign is Burmese president U Thein Sein, a former prime minister. Suu Kyi said: “I believe he sincerely wants reform” and “He is a man capable of taking risks if he thinks they are worthwhile.” Sein is widely seen as honest, an unusual characteristic for the Burmese government.

Can he transform the system? Sein was only a secondary figure in the old regime, and his power even now is thought to be constrained by top military men (both active duty and retired) behind the scenes. Whatever the reason, Sein has overturned many of the junta’s policies if not directly challenged the military’s prerogatives. He explained in a Washington Post interview that the military was not involved in “the executive body,” though “we cannot leave the military behind because we require the military’s participation in our country’s development.”

Burma’s increasing discomfort with China’s close embrace may have encouraged the military regime to change course. In the face of U.S. and European sanctions, Naypyidaw looked to China for economic investment and political support. Beijing in turn backed Burma, including by blocking United Nations action against the junta.

But there has been increasing popular talk, even within the military leadership, about a “Chinese invasion,” the Chinese “plundering” of Burma’s resources and Beijing’s attempt to turn Burma into a “satellite state.” Last fall, Sein cancelled a China-backed dam. The People’s Republic of China obviously senses the changing environment, having sent its ambassador to meet with Suu Kyi. Zhu Feng of Peking University argued: “It’s some sort of signal that Beijing would like to lend a hand and support the new dynamic, the new political transformation.”

Whatever the reason, real and significant changes have occurred. Suu Kyi has established regular contact with the regime, itself a revolutionary reversal. One Western diplomat opined that “President Thein Sein and his government have clearly decided they’d rather have her inside their tent than out.”

Nor is Suu Kyi alone. Cho Cho Kyaw Nyein, who spent time in Burma’s prisons, said he first “didn’t believe a word of what they were saying” but now “What has happened in these last few months is a miracle for us.” Another political activist who was jailed for eleven years, Kin Zaw Win, observed: “There are still hardliners in government, but I feel a tipping point has been reached.”

Crafting a Strategy

Sending Secretary Clinton to Naypyidaw was the Obama administration’s opening gambit. She recently announced that the United States would return its ambassador to Burma after the release of political prisoners, which she called a “substantial step forward for democratic reform.” While the United States is not yet willing to lift sanctions, that issue soon will move to the fore. In effect, Washington is following President Ronald Reagan’s famous “trust but verify” approach after Soviet Communist Party general secretary Mikhail Gorbachev started dismantling Moscow’s totalitarian system.

The most important issue is economic sanctions. Washington has banned new investment in and imports from Burma, limited financial services and the gem trade, and frozen the assets of regime leaders and supporters. These restrictions are losing their raison d’être. Last fall, even Suu Kyi began talking about reintegrating Burma into the world economy. She explained: “We’ll have to study the whole package, if you like, and decide which sanctions we think should be lifted immediately.”

The Burmese people need investment and trade more than official development assistance, which has a dismal record of promoting sustained economic growth. Private capital would better encourage broad-based development and job creation, so desperately needed by one of the world’s poorest nations. Trade and investment also would strengthen the Burmese private sector, not government (through which most official “assistance” flows), helping to disperse power in a system characterized for decades by the dangerous combination of political and economic power.

The steady pilgrimage of Western political figures to Naypyidaw led Freedom House president David J. Kramer to muse “that we are moving a little too quickly.” Some observers also have talked of a “Burma Burnout,” stretching the limited capacity of the government to meet rising expectations at home and abroad. And caution remains justified, given the distance still to travel.

But there is no plausible course other than engagement. Years of sanctions and isolation failed to loosen the generals’ grip. Moving forward offers the best chance for promoting positive change. Washington should continue to reward additional Burmese moves toward democracy with modest concessions. This will allow the United States to reverse course if hard-liners reassert themselves in Naypyidaw. But Washington should indicate its willingness to fully normalize economic relations if reforms proceed.

American officials should work with other states. Europe also is liberalizing its approach to Burma. Moreover, though Burma’s neighbors have demonstrated less concern about human rights, they also can reward Naypyidaw for its reforms. For instance, in 2014 Burma is to chair the Association of Southeast Asian Nations, ASEAN.

Despite building euphoria about Burma’s new course, it is important to retain realistic expectations. Even with the best of intentions, the Sein government faces a difficult task. Shifting from authoritarian socialism to democratic capitalism is no easy feat, as Russia and other former communist states discovered.

Both military and economic elites in Burma are likely to be wary of turning power over to those who have suffered under their rule for decades. Moreover, those who benefit from today’s crony-kleptocracy are likely to fight to preserve their economic privileges even if democratization continues smoothly.

And while Burmese officials want to balance Beijing’s influence, they will not become tools of the West. China will remain Burma’s neighbor even if Naypyidaw rebalances the bilateral relationship. President Sein and his colleagues may be evolving democrats, but that does not make them geopolitical fools.

The United States and other democratic states should emphasize the reform process rather than any particular end point. But the long-term objective is simple: the Burmese people need to take charge of their own destiny. For the first time in literally decades, Burma’s future looks positive, even bright. Hopefully the “flickers of progress” now evident in Burma soon will burst into robust flame.

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Ronald Reagan.

Government corruption can take many forms. Last week, most of those forms could be seen in the actions of the Obama administration — everything from government officials taking simple bribes, to covering up wrongdoing, to using taxpayer money to pay off political supporters, to using government prosecutors to punish enemies, to failing to fulfill its fiduciary duty to citizens by not performing cost-benefit analyses before taking actions. Promulgating policies that knowingly hurt millions of people is far more serious than a government official requesting a cash bribe — as despicable as that may be. Pushing for tax increases without first getting rid of counterproductive or useless programs and cleaning up mismanagement is an example of policy corruption.

The results of the extensive moral, intellectual and policy corruption in the United States in recent years can be seen readily in the accompanying chart, which includes data from both right- and left-leaning organizations. According to the Heritage Foundation/Wall Street Journal measure of economic freedom, the United States has fallen from No. 6 to No. 10 since the end of the George W. Bush administration in 2009. The U.S. also has dropped rank in the ease of doing business, as measured by the World Bank, and in global competitiveness, as measured by the World Economic Forum.

The United States has dropped from No. 19 to No. 24 in Transparency International’s corruption index over the past three years. Reporters Without Borders‘ index shows an enormous drop in press freedom in the U.S. over the past three years, from a ranking of No. 20 to a dreadful No. 47.

As a result of policy corruption, specifically failing to make sure government spending and regulations meet reasonable cost-benefit tests, employment and income growth have lagged, with most Americans reporting lower after-inflation adjusted incomes than four years ago.

The Obama administration seems to have little regard for the rule of law. In hearings before Congress last week, Attorney General Eric H. Holder Jr. continued his cover-up in the Fast and Furious guns-to-drug-dealers’ scandal.

As you may recall, a couple of years ago, the Obama administration was giving grants to the Association of Community Organizations for Reform Now (ACORN). This organization was shown to be thoroughly corrupt, causing Congress to prohibit it from receiving grants. Now, the Justice Department is requiring the Bank of America, as part of its settlement for alleged “lending discrimination,” to make large contributions to leftist groups that are not connected to the suit, including groups that are little more than renamed ACORNs. Other banks also are being pressured to make similar “settlements.” These groups have close ties to Democrats.

At the same time, Justice is helping domestic wrongdoers who have ties to the Democratic Party and is attacking Wegelin, the oldest private bank in Switzerland, which has no U.S. presence and appears not to have violated Swiss law. The Justice Department indicted Wegelin last week, forcing a bank that has survived since 1741 to sell itself to a large German bank to protect its non-U.S. clients. Justice alleges that three of the bank’s account executives encouraged Americans who had accounts with UBS in Switzerland to move their accounts to Wegelin. If the department suspected that Americans were not paying taxes on the interest they received, it should have gone after the Americans rather than destroy a substantial bank that was complying with the laws of its country.

Americans who live abroad are already having great difficulty obtaining bank accounts in foreign countries because of regulatory overreach by the Internal Revenue Service and Treasury Department. Particularly after the Wegelin case, increasing numbers of foreign financial institutions will refuse to take any U.S. clients or invest in the United States because of the risk of inadvertently violating some U.S. laws and the costs of compliance.

Americans are justifiably enraged when occasionally a foreign government indicts U.S. citizens for violations of their laws even though the activity is legal and protected in the United States (such as selling bibles, criticizing foreign leaders, etc.). The U.S. government’s hypocrisy in attacking foreign financial institutions — which abide by their own country’s tax and privacy laws — is going to come back to bite Americans very hard. It will drive out of the country upward of $1 trillion in foreign investment and tens of millions of jobs as well as make life much more difficult and risky for U.S. citizens who travel internationally.

The IRS and Justice have not made cost-benefit analyses for most of these existing and proposed international tax regulations. The regulations often violate the basic right of privacy. It is intellectual corruption when catching a few tax cheats is deemed more important than creating growth, opportunity and jobs for millions of people. You can identify some of the most intellectually corrupt in Congress, the media and the administration. They are the ones who are most vocal in railing against tax cheats yet fall strangely silent when the IRS cheats taxpayers by forcing them pay taxes on imaginary capital gains and interest because of government-caused inflation.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

"Surely as a former constitutional law professor, President Obama must know..." — that's a fairly common refrain whenever Obama commits another constitutional atrocity.

I've said as much myself — but as a recovering law student, I should know better. Constitutional law professors should be kept as far away from nuclear weapons as possible.

The skill-sets they bring to the presidency just gives them the sophistry and brazenness necessary to invent new and creative ways of violating the constitutional oath of office.

Obama is the fourth former con law prof to serve as president, joining William Howard Taft (University of Cincinnati Law School), Woodrow Wilson (Princeton and New York Law School), and Bill Clinton, (University of Arkansas Law School).

Taft did comparatively little damage, but the rest hardly inspire confidence that familiarity with constitutional scholarship encourages fidelity to the national charter.

Wilson was a constitutional horror show, who imposed racial segregation in federal employment and waged war on free speech, imprisoning Americans opposed to World War I.

Clinton, who once lost a pile of his law students' final exams (he offered everyone a B+ in exchange) brought a cavalier, "dog ate my homework" approach to his constitutional responsibilities.

In 1999, he ignored three congressional votes denying him authority to wage war in Kosovo, and became the first president to wage an illegal war beyond the War Powers Resolution's 60-day time limit.

Last summer, as the bombs pounded Libya, the University of Chicago's Obama became the second.

"I've studied the Constitution as a student, I've taught it as a teacher," Obama proclaimed shortly after his inauguration, "we must never, ever, turn our back on its enduring principles for expedience's sake."

Not long after, in the Citizens United case, his administration argued that campaign finance laws gave the feds the power to ban books.

Still, some held out hope that this former law professor would be "our first civil libertarian president," as the New Republic's Jeffrey Rosen put it. In January 2009, Rosen argued that, as a constitutional scholar, Obama was "likely to articulate constitutional positions and then conform his presidential actions to them rather than take positions and then rely on lawyers to justify them."

Of course, that's precisely the opposite of how Obama has behaved, cherry-picking among his legal advisers until he got one to tell him his actions were legal. In Libya, Harold Koh, Obama's servile State Department legal adviser, provided the necessary cover.

The War Powers Resolution, requiring the president to terminate unauthorized U.S. engagement in "hostilities" after 60 days didn't apply in the absence of "U.S. casualties or a serious threat thereof."

Sure, we were bombing Libya, but we weren't engaged in "hostilities," you see. As Orwell once put it, "you have to belong to the intelligentsia to believe things like that. No ordinary man could be such a fool."

More recently, in order to ram through several appointments, Obama summarily declared that the Senate was in recess, despite the fact that the Senate's own rules said it was in session.

It's almost enough to make you miss George W. Bush's ham-fisted "I'm the decider" approach to constitutional law. "I'll do what I want" is a less insulting legal argument than "I'm not doing what you think I'm doing."

My Cato Institute colleague Walter Olson, author of "Schools for Misrule: Legal Academia and an Over-lawyered America", explains that "legal academia rewards cleverness in coming up with strained arguments for ideologically favored (or just expedient) positions; marginalizes as eccentric thinkers who favor original understanding as a guide" to the Constitution and often reduces law to "politics by other means."

Unfortunately, that training has served Obama well.

Gene Healy is a vice president at the Cato Institute and the author of The Cult of the Presidency: America's Dangerous Devotion to Executive Power.

Thanks mainly to the efforts of the Inspector General at the Securities and Exchange Commission (SEC), we know that the agency's staff was nothing less than asleep at the wheel as imbalances and frauds built up in our financial system. Worse, we also know several employees spent a considerable portion of their work day visiting pornographic websites, rather than monitoring the capital markets. The most obscene part, however, is that years after these discoveries have been made, the employees in question have yet to lose their jobs. Yes, some left the agency voluntarily, while others remain on paid administrative leave (sounds like a vacation to me). But none have been fired.

In an extreme instance, dealing with a SEC employee who ignored the warning signs of Bernie Madoff's Ponzi scheme, both the SEC's human resources department and an outside legal consultant recommended that the employee in question be terminated. SEC Chair Mary Schapiro's response? No, as such "would harm the agency's work." I'd think having incompetent employees would harm the agency's work.

Sadly, Madoff was not the only fraud ignored by the SEC. Allan Stanford ran a $7 billion Ponzi scheme. His 20,000 clients are still, years later, waiting to see how much they will recover. That delay did not stop the head of the SEC enforcement office in Dallas, which has oversight of Stanford, from leaving the SEC to represent Stanford. After a DOJ investigation, the SEC has reluctantly decided to bar said lawyer from appearing before the agency for a whole six months. So, apparently it's not just current SEC employees that get a pass, but also former employees as well.

Were these just isolated incidents one might be tempted to overlook them. Even the viewing of pornography by SEC employees was more widespread than commonly believed. Between the years of 2005 and 2010, as the worst of the housing bubble was building, 33 SEC employees or contractors were found to have viewed pornography using taxpayer funded laptops and office computers. Many of these were highly paid employees. Seventeen of 33 made between $100,000 and $220,000 annually. A Senior Counsel (lawyer) in the SEC's Enforcement Division was found with 775 pornographic images on his government computer. And contrary to the stereotypes, it wasn't all men.

A female accountant received nearly 1,800 access denials for pornographic websites using her SEC laptop in only a two-week period and had nearly 600 pornographic images on her laptop. Perhaps worst of all was a DC-based attorney, who admitted accessing pornography and downloading images to his SEC computer during work hours so often that he sometimes spent eight hours a day accessing pornography. He downloaded so much to his government computer that he filled the hard drive and needed to move images to CDs or DVDs that he accumulated in boxes in his office. And yes, all while getting a six figure paycheck from the taxpayer.

In the private sector any of these actions would be grounds for dismissal. One would be fired on the spot, with security escorting you from the building. In fact, a private sector employer wouldn't even have the option of deciding if your benefits to the company were worth the time wasted on Internet porn. Such activity would generally be interpreted as creating a hostile work environment; with the result that any company that didn't fire the employee in question would expose itself to litigation by other employees.

The government "solves" the problem of hostile work environment by letting the accused employee stay at home on indefinite paid level. So yes the agency's other employees are spared the harassment, but at great expense to the taxpayer. In addition, a federal employee is "entitled" to at least 30 days written notice of any effort to terminate said employee. On top of that the employee gets another seven days minimum to submit documents and evidence in support of keeping their job. I am all in favor of appropriate due process, but the current procedures for firing incompetent federal employees allow the process to drag out indefinitely with one required bureaucratic obstacle after another. Having spent a year managing a federal office, where we did attempt to terminate at least one employee who regularly missed work, I can say you almost have to hire someone whose sole job is to do the firing.

This is just another example, in a long list, of why relying on the relatively weak incentives of government regulatory oversight is inferior to relying on the strong incentives contained in market participants having their own wealth on the line. But then for such incentives to be effective, we need to end bailouts and have real market discipline. Sadly we are currently stuck in the worst of both worlds: incompetent and unaccountable regulators coupled with a neutering of market discipline by these very same regulators. If we continue along this path we will guarantee another financial crisis and future self-enrichment by government bureaucrats.

Mark Calabria is Director of Financial Regulation Studies at the Cato Institute.

The latest outbreak of violence in Egypt is a reminder of that country’s halting transition from dictatorship to democracy. The process of democratization in the Arab world that begun with the self-immolation of Tunisian street vendor Mohamed Bouazizi just over a year ago will likely continue, but the experience of ex-communist countries shows that economic growth and opportunity are at least as important as political freedom. Mr. Bouazizi, after all, was not protesting for a right to vote, but for a right to earn a living unmolested by the government.

The extraordinary events taking place in Arab countries — from the fall of Hosni Mubarak in Egypt and Muammar Gaddafi in Libya to the civil uprisings in Syria and Yemen — make it easy to forget that the Arab Spring started with a suicide of a Tunisian street vendor harassed and humiliated by government officials. Like millions of young Arab men and women, the 26-year-old failed to find formal employment. He started selling produce on the street instead. There he was preyed upon by corrupt policemen and abusive bureaucrats who repeatedly harassed him and confiscated his wares. Without the means to support his family, a frustrated Mr. Bouazizi set himself alight in front of the governor’s office. Reportedly, his last words were “how do you expect me to make a living?”

Egypt’s parliamentary elections were a direct result of the protests that spread through the Arab world following Mr. Bouazizi’s death. But restoring dignity to the Egyptian people requires more than allowing them to vote; history shows that freedom to exploit economic opportunities offered by an open and growing economy is just as important.

After the Berlin Wall fell, for example, ex-communist countries embarked on an uneven path toward economic freedom. Economic liberalization in Central Europe and the Baltics tended to be faster and deeper than that in the rest of the former Soviet bloc. On average, the rapid reformers received more foreign investment, grew more rapidly, and had lower inflation rates as well as lower poverty rates and more equal income distributions.

Crucially, the rapid reformers developed stronger democratic institutions. In fact, all of them became liberal democracies. In contrast, some of the countries that underwent only partial economic liberalization, like Ukraine and Russia, failed to develop into full-fledged democracies. Decision-making in those countries was “captured” by a small number of wealthy oligarchs.

The military junta that has run Egypt since Mr. Mubarak’s downfall has so far delivered neither political stability nor economic reforms. In the World Bank’s Doing Business report, Egypt fell from 94th place in 2010 to 110th place in 2011. Growth has declined from 5.1 percent to 1 percent. The overall unemployment rate rose from 9 percent to almost 12 percent, while youth unemployment remains at 24 percent. With the national debt approaching 80 percent and the budget deficit hitting 11 percent of GDP, the junta is running out of time and space to maneuver.

Unfortunately, there is little indication that the big winners of the recent parliamentary elections — the moderate Islamist Muslim Brotherhood and the Salafist Al Nour party received some two-thirds of the votes and will write Egypt’s new constitution — appreciate the gravity of Egypt’s economic situation or understand the importance of economic liberalization in sustaining high rates of growth. If anything, liberalization seems to be treated with suspicion, because the initial reforms of the Egyptian economy were pushed through by Mr. Mubarak and the corrupt business elite that surrounded him. Rather than wealth-creating, competitive capitalism, Egyptians got crony capitalism.

It would be a mistake to think that economic reform can wait until all of Egypt’s political problems are resolved. If the economy continues to stagnate, Egypt’s best and brightest will leave the country and millions of Egyptians will remain mired in poverty. Only a free and vibrant economy can provide the people of Egypt with meaningful jobs and the dignity that comes from being able to make a living and provide for one’s family. That is the real lesson that Egypt and other Arab countries ought to learn from the death of Mohamed Bouazizi.

Marian Tupy is a policy analyst at the Cato Institute's Center for Global Liberty and Prosperity in Washington, D.C.

For some time now, Republican hawks like Sen. John McCain and Rep. Howard P. "Buck" McKeon have been saying that our military budget is inadequate for the threats we face. They like to gripe that President Barack Obama is orchestrating the decline of American power.

Some of this is pure partisanship. Republicans criticize Democrats just as Democrats criticized President George W. Bush. The hawks, though, have a special devotion to the military budget. In their view, some military spending is good; more is even better. But if overspending on the military and promoting the United States as global policeman are benchmarks of approval, they should have little to complain about with our current president.

Contrary to his rhetoric of change, the president sounded like a neoconservative when he declared during his recent State of the Union address that the United States was, and would remain, the world's "indispensable nation." Obama's proposed Pentagon budget, released last week, affirmed his intention to retain most of the U.S. military's current missions, even when they aren't needed to safeguard the United States' vital security interests.

Meanwhile, the Pentagon's latest strategy document was carefully designed to convince allies and adversaries alike that the United States can continue to prosecute multiple armed conflicts in far-flung corners of the globe. Taken together, Obama's strategy document, budget and State of the Union remarks articulate a coherent philosophy on military spending and global engagement that ought to hold a lot of appeal for the neoconservatives in the GOP.

But partisan politics aside, what our foreign policy leaders have consistently ignored is an argument that should have strong sway at a time of economic uncertainty: This country's tax dollars can be better spent than on defending wealthy allies who are more than capable of protecting themselves.

The administration plans to withdraw some U.S. troops from Europe, but as many as 70,000 are likely to remain. Meanwhile, the number of troops in Asia will be increased. These troops serve to reassure our allies of our commitment to defend them. It is working as designed: Other countries do not spend enough to satisfy their defense needs.

The end result is that Americans pay more. The Obama administration's budget will cost every American nearly $2,000 next year. The figure rises by hundreds of dollars when one accounts for homeland security, payments to veterans, and the few billion dollars tucked away in the Department of Energy for the nation's bloated nuclear arsenal. All told, every American will likely shell out more than $2,700 on spending classified as national defense. That is at least 2½ times what the British spend, five times more than what the Germans spend, and six times what the Japanese spend.

It is hard to see how that is good news for Americans struggling to make ends meet. Obama's magnanimity is especially ironic given his emphasis on "fairness" and "shared sacrifice." His rhetoric apparently does not apply to people living outside the United States. American troops will continue to be tasked with policing the world, and American taxpayers will be on the hook to pay for it.

The administration has proposed to restrain the growth of military spending. But total U.S. military spending will remain well above pre-9/11 levels. The Obama administration is requesting $525 billion for the Pentagon's base budget in 2013, plus another $88.4 billion to pay for the war in Afghanistan. To put this in perspective, that is more than the annual average during Ronald Reagan's time in office (about $526 billion in today's dollars). One seldom hears GOP hawks speak of Reagan as a misguided dove who left the country vulnerable to attack.

Focusing only on budget numbers, however, misses the big picture. Instead, we must focus on what we will spend and why. The answer is clear: Our military budget is large by historical standards because Washington is unwilling to revisit the premise that Americans are responsible for everything that happens in the world, even things that have no connection to American security or prosperity.

Our fiscal crisis has created an opportunity to revisit our commitments abroad. We should focus American power on our core interests, and call on other countries to take responsibility for their own defense.

Intuitively, that exercise should satisfy both liberal demands that "everyone pay their fair share" and conservative demands that our government "live within its means." But given the rhetoric we have heard so far, it is doubtful that this election cycle will produce a leader who will seriously contemplate how we can most prudently provide for our common defense.

Christopher Preble is vice president for defense and foreign policy studies at the Cato Institute and the author of The Power Problem: How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free.

The Current Wisdom is a monthly Cato feature written by Senior Fellow Patrick J. Michaels on global climate change. These articles usually feature new and interesting items in the scientific literature with important implications for climate change regulations.

Prior to April, 2011, issues of this Wisdom, which began in 2010, are available at our blog Cato@Liberty (www.cato-at-liberty.org/).

This edition departs from our usual routine because of the very vitriolic fight that has broken as the result of publication of a January 27 op-ed titled “No Need to Panic about Global Warming” in The Wall Street Journal. Authored by 16 high-profile scientists, it made common-sense climate arguments that readers of this Wisdom and other Cato publications on climate science and policy are certainly familiar with.

The January 27 piece can be summarized as follows:

• There has been no net warming for “well over ten years;”

• Global warming forecasts confidently made by the UN in 1990 were clearly exaggerations;

• Carbon dioxide, the main “greenhouse” emission, stimulates plant growth;

• Climate scientists on the federal dole have a track record of punishing those who do not express alarmist views;

• Climate alarmism, public funding, and the growth of government and taxation create self-feeding mutual incentives; and

• Doing “nothing” about climate change in the next 50 years has little effect on climate mitigation compared to initiating taxation now.

None of the above are earthshaking propositions to any serious student of climate change. Monthly temperature departures from average show no significant trend going back to 1996. If one is concerned about biasing from the warm El Nino year of 1998, beginning post-2000 yields the same result. The UN was forecasting that global temperatures would be rising around twice the mean rate actually observed in surface temperatures. Greenhouse owners jack up the carbon dioxide concentration of their air several fold to stimulate plant growth. Alarmism breeds funding and new agencies that require more tax dollars, and funding begets tenure. The futility of politically feasible emissions reductions policies has been demonstrated for decades.

By January 30, the New York Times, whose editorial stance on global warming is (to put it mildly) different than that of the Journal, brought in their high-profile environmental blogger, Andrew Revkin, to carp principally about the last bullet item.

His post, “Scientists Challenging Climate Science Appear to Flunk Climate Economics,” claimed that the Journal scientists had misrepresented the work of Yale economist William Nordhaus, quoting the latter’s “wise policy” (no bias there) of slowly introducing a carbon tax.

Nordhaus responded that the Journal piece “completely misrepresented my work.”

At that point, Revkin opened up the controversy to commentary. Readers can decide for themselves.

Here is Nordhaus’s complete comment on the Journal op-ed:

The piece completely misrepresented my work. My work has long taken the view that policies to slow global warming would have net economic benefits, in the trillion of dollars of present value. This is true going back to work in the early 1990s (MIT Press, Yale Press, Science, PNAS, among others). I have advocated a carbon tax for many years as the best way to attack the issue. I can only assume they either completely ignorant of the economics on the issue or are willfully misstating my findings.

And here is the response of the Journal article authors:

We have accurately represented Professor Nordhaus’s findings in our Wall Street Journal editorial of 01-27-12, while making and intending no statement regarding his policy beliefs and advocacy. In his 2008 book, A Question of Balance, Weighing the Options on Global Warming Policies, Professor Nordhaus provided the computed discounted costs and benefits for a variety of policies, assuming the IPCC central value for warming due to increased atmospheric CO2 (3 degrees C for doubling of CO2).

He finds (Table 5.3 of the book) that a policy of delaying greenhouse gas controls for 50 years gives a benefit-to-cost ratio just slightly less than his “optimum” policy. The optimum policy is a universal harmonized carbon tax, which Professor Nordhaus advocates. It starts small and is increased gradually over decades. In terms of net benefits, the 50-year-delay policy is far better than more aggressive policies that would severely limit atmospheric concentrations of CO2 or model-calculated global temperature rises.

Both the 50-year-delay policy and the optimum policy allow world economies to continue to develop with relatively little disruption. Aggressive policies considered in the book do not have this characteristic and display sharply higher abatement costs and lower benefit-to-cost ratios.

As we note in the Wall Street Journal editorial, several more aggressive policies are negative return propositions.

Furthermore, in Chapters I and VI, Professor Nordhaus takes pains to explain that the requirement of universality of policy application is critical; regional, national, or group participation differences can be expected to lower policy effectiveness, perhaps substantially: “... there are substantial excess costs if the preponderance of sectors and countries are not fully included. We preliminarily estimate that a participation rate of 50 percent, as compared with 100 percent, will impose an abatement-cost penalty of 250 percent.” (Chapter 1, p.19). Therefore the optimum policy should be considered an ideal upper limit that may not be achieved in real world application.

We wish to emphasize once again that the above assumes that the IPCC climate results are correct and that significant environmental damage would result, both of which we strongly dispute. The statements made in the Wall Street Journal editorial report Professor Nordhaus’s findings accurately and do not bear on his policy advocacy.

Here is Table 5.3:

Of course, that wasn’t the end.

It seems that if one ever needs to start a fire in the woods, simply rub two climatologists together. So, in the wee hours of February 1, a response to the Journal article, signed now by 38 scientists, was published.

For clarity, let’s call this one “Trenberth et al.”, for its senior author, Kevin Trenberth of the U.S. National Center for Atmospheric Research.

Summarizing Trenberth et al.:

• The authors of the original Journal article were largely not climate scientists, and those that were, held “extreme views.”

• Warming has not “abated” in the last decade.

• Scientific societies worldwide concur that “the earth is heating up and humans are primarily responsible”. More than 97% of all actively publishing climate scientists “agree that climate change is real and human caused”.

• ”... The transition to a low-carbon economy will not only allow the world to avoid the worst risks of climate change, but could also drive decades of economic growth.”

Trenberth et al. is surprisingly weak and incomplete. The 16 original authors are all individuals that are highly competent in their fields, most are physicists of one stripe or another, and all can read and summarize a scientific literature. In fact, most would hold that climate science is nothing more than applied physics.

“Extreme views” lie in the eye of the beholder, and science only grudgingly backs away from established paradigms. For example, despite the obvious jigsaw-puzzle fit of the earth’s continents, it took 100 years of bickering before continental drift was accepted over geological stasis. And, in this case, the “extreme view” of the most prominent climate scientist of the 16, MIT’s Richard Lindzen, is hardly an outrage.

Lindzen holds that the “sensitivity” of surface temperature to changes in atmospheric carbon dioxide has been overestimated because of an inaccuracy in the way that computer models magnify warming. In and of itself, it is mainstream, not extreme, to entertain the hypothesis that doubling carbon dioxide on its own would only cause a bit more than 1 degree (C) of global surface warming. Computer models arrive at much higher values, around 3.5°C, by amplifying the carbon dioxide effect because a slightly warmer atmosphere contains more water vapor, which itself is a potent greenhouse gas. Clouds are also changed in a way that enhances warming. There is evidence from the outgoing radiation signal of the earth that the effects of water vapor and clouds have been overestimated.

The 38 must somehow disagree with Susan Solomon, whose 2010 article in Science attributing the lack of recent warming—that the 39 deny—to unanticipated changes in stratospheric water vapor with no known cause.

The 38 must somehow disagree with the global temperature sensing from satellites, which also shows no net warming for the last 14 years. Now, one could argue that the satellites are measuring temperatures above the surface in the lower atmosphere, but the computer models that the 38 find so accurate, predict that the lower atmosphere should be warming faster than the surface over most of the planet.

Finally "more than 97% of all actively publishing* climate scientists agree that climate change is real and human caused" is probably an underestimate, as virtually everyone acknowledges that the surface temperature is warmer than it was, and that multifarious human activities have some influence on climate. Rather, he misses the point well-made by the original Journal article, which is that the rise in surface temperature is clearly below the values first forecast by the UN in 1990. The core—unsettled—issue in climate science is the "sensitivity" of temperature to carbon dioxide, and there are several independent lines of evidence, including the surface temperature history and the water vapor problems, that argue that it has been substantially overestimated.

In global warming, it's not the heat, it's the sensitivity. But don’t expect much sensitivity and expect a lot of heat when climatologists voice their opinions.

* The part about “actively publishing” is saved for another day. The climategate emails—and there are plenty by, to, or about these 39 scientists, detail how difficult it is to publish anything they disagree with, thanks to intimidation and manipulation of editors, blackballing of those who disagree with them, and other blood sports.

Patrick J. Michaels is a Senior Fellow in Environmental Studies at the Cato Institute.

The Federal Reserve’s decision to release forecasts for short-term interest rates is supposed to clarify monetary policy and reassure the public. By keeping the federal funds rate close to zero for three more years, and switching from shorter to longer-term securities, the Fed hopes to spur investment and growth. The problem is that manipulating interest rates and allocating credit to favored parties fosters crony capitalism, not market liberalism.

Clarity in capital markets is not improved by distorting interest rates, which are relative prices. Nor is monetary policy improved by engaging in fiscal policy and the allocation of credit. Targeting inflation at 2 percent is 2 percent too much. Nominal interest rates should reflect real interest rates in a world of zero inflation, if they are to perform their function of allocating capital efficiently.

By pegging nominal interest rates at artificially low levels, the Fed is penalizing millions of people who have their assets in saving accounts or money market funds and are getting near zero nominal returns. With CPI inflation of 3 percent in 2011, the real rate on those assets is negative. The Fed’s low interest rate policy, designed to help fund big government and stimulate housing, is decapitalizing many households who do not want to take on more risky assets. Private virtue is being penalized by public vice.

Retirees, or those near retirement, typically prefer less risky assets. But with the average rate on a savings account at 0.24 percent, on a money market account at 0.22 percent, and on a 1-year CD at 0.53 percent, nominal returns are close to zero, and real returns are negative—even at relatively low rates of inflation.

The longer rates are held artificially low, the more savers will suffer, and the more tempted they will be to take on risks they never would have considered. Risk mismatches will complicate Fed policy when rates must rise to prevent serious inflation. Bond prices will collapse, and those investors who trusted the Fed to support longer-term asset prices will be especially harmed. There will be significant political pressure to keep all rates lower for longer, even if inflation is above the Fed’s 2 percent target. So how can that target be credible?

Fed chairman Ben Bernanke has said that he will put equal weight on price stability and full employment, as dictated by the Fed’s dual mandate. But “price stability” means zero inflation, not 2 percent. The Fed has no fixed anchor: there is no rule to guide it, only discretion. And that discretion is still influenced by Keynesian thinking and a Phillips Curve mentality.

Bernanke is willing to tolerate a little more inflation to try to engineer less unemployment. Yet, he must know this is a Faustian bargain that cannot work. Indeed, the Fed’s press release following the FOMC meeting on January 25 admits, “The maximum level of employment is largely determined by nonmonetary factors.”

The Fed has largely lost its independence. Congress has asked too much of the Fed, and Bernanke has vastly expanded the Fed’s powers and balance sheet to comply. Some asset prices have been inflated (especially gold and bonds), but overall inflation has remained relatively low because people and businesses have been holding large cash balances, and banks have parked their excess reserves at the Fed for a risk-free return. The Fed has helped create its own “liquidity trap” by paying interest on excess reserves, which has reduced the so-called money multiplier.

However, as the economy regains steam and loan demand increases, those excess reserves will enter the marketplace and increase nominal spending and prices. The Fed will need to reduce the size of its balance sheet and nip inflation in the bud; but policymakers may act too late. The result will be stagflation.

Bernanke has placed the Fed in a precarious position. There is no way the FOMC can accurately forecast interest rates or determine what the efficient allocation of capital should be. Interfering with market interest rates is an exercise in market socialism, not capitalism.

In his press conference following the historic January 25 policy meeting, Bernanke was asked whether the Fed’s inflation target of 2 percent was intended to depreciate the purchasing power of the dollar. Bernanke replied that the real purpose is to “avoid deflation.” He then tried to downplay the idea that mild inflation would erode the value of money, because most people would protect their money by investing it, and not put it under the mattress. He admitted that interest rates are low now, but in the long run they tend to “compensate” for inflation.

This was an artful dodge. In fact, inflation always erodes the domestic purchasing power of the dollar. At the current 3 percent CPI inflation rate, the average level of money prices would increase by 34 percent in a decade, and by 81 percent in 20 years. Even at 2 percent, the price level would double every 35 years—no matter what the interest rate is. By suppressing nominal interest rates, the Fed is denying savers the means to safeguard their property; yet Bernanke barely gives that failure a mention.

Transparency is a noble goal, but it is best achieved under a rule of law and freely determined prices. The Fed’s transparency crusade has not imposed any rule on the Fed or moved us closer to sound money. Forecasting short-term rates near zero for the foreseeable future sends the wrong signal—namely, that financial repression and crony capitalism will continue.

James A. Dorn is the vice president for academic affairs for the Cato Institute and editor of the Cato Journal.

Usually low-tier, last week President Obama signaled in both the State of the Union and a University of Michigan speech that higher education will loom large in Campaign 2012.

With Americans outraged over skyrocketing prices and student debt, it makes sense. Unfortunately, Obama's proposed solutions aren't similarly sensible.

In his speeches, the president talked tough about reining in colleges that raise prices at breakneck speeds, casting much needed attention to a decades-old problem.

But decrying symptoms doesn't cure a disease. That requires attacking root causes, which is where Obama fails: Rather than assault ever-expanding student aid, which practically begs colleges to inflate prices, the president wants to increase aid while imposing weak price controls on schools and states.

Obama isn't totally off, of course, in reasoning that colleges largely set their own tuition, so one way to control prices is to pressure schools. And he's right that states tend to slow funding for public colleges during bad economic times.

But how is it colleges can raise their prices at incredible rates and still get people to pay?

Because students use lots of money belonging to other people, and Washington ensures that the funding meets ever-ballooning bills.

Indeed, in 2010 the federal government disbursed roughly $140 billion in financial aid to students, a staggering amount that has exploded from roughly $30 billion, adjusted for inflation, in 1985.

And those tightfisted states?

According to data from the State Higher Education Executive Officers, inflation-adjusted state and local allocations to public institutions actually rose from $69.2 billion in 2000 to $74.9 billion in 2010.

Gov't Spending Up

In that same time, however, inflation-adjusted tuition and fees at public four-year colleges increased from $4,586 to $7,889.

Schools hiked their prices despite state and local appropriations rising.

Corroborating that cheap states aren't the primary drivers of college costs are private institutions. They haven't lost big state and local subsidies because they've never gotten them, yet they increased real prices from $21,013 in 2000 to $28,254 in 2010.

Still, on a per-student basis state and local funding has been decreasing, because enrollment has significantly grown.

Such losses might be regrettable were students graduating and moving on to high-paying jobs. But they aren't.

According to the federal Digest of Education Statistics, the latest six-year graduation rate for public four-year programs is a dismal 55 percent. In addition, about one-third of bachelor's holders are in jobs that don't require degrees. Finally, real earnings for people whose top attainment is a bachelor's have dropped over the decade.

Simply put, there are too many people in college. Unfortunately, to deal with these realities the president is proposing to increase aid, to which he'd couple a few soft price controls.

Too Many Students?

He proposes, for instance, increasing spending on Perkins Loans, Work Study, and Supplemental Educational Opportunity Grants to $10 billion, but giving less money through those programs to colleges that, according to the White House, "show poor value, or... don't act responsibly in setting tuition."

The president would also create a $1 billion "Race to the Top" that would "incentivize" states to, among other things, "maintain adequate levels of funding for higher education."

The White House doesn't define "adequate," but the implication is clear: Spend more taxpayer money, get more taxpayer money.

Ultimately the plan is a stinker, with the disaster-exacerbating aid increase the most likely part to pass. Few in Washington can resist doling out "free" money.

And the price controls?

Such controls are almost always bad, distorting supply and demand. But given the government-fueled Ivory Tower excess, perhaps weak controls would be helpful, at least in the short term.

But the ones proposed would have little power. Even plussed-up to $10 billion, the programs the president would employ for leverage would be dwarfed by Pell Grants, Stafford Loans, and tax incentives, which tally in the hundreds of billions. Most colleges could more than make up for slight Perkins or Work Study losses with other aid.

And Race to the Top? If it's at all like its K-12 cousin, it'll be a dud. Lots of states made huge fusses to get the money, but since it's been awarded the winners have shown little urgency to implement their promised reforms.

It's good that the president is focusing on higher education. But his remedies would do nothing to cure the disease.

Neal McCluskey is associate director of the Cato Institute's Center for Educational Freedom and author of Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.

I was thrilled to see this headline on the American Civil Liberties Union's website after the Supreme Court's unanimous Jan. 23 ruling on United States v. Jones: "Supreme Court GPS Ruling: Bringing the 4th Amendment Into the 21st Century" (aclu.org, Jan. 26). Wow!

And this dramatic praise from Marcia Hofmann, the senior staff attorney for leading digital civil liberties protector, the Electronic Frontier Foundation:

"The Supreme Court has unanimously confirmed that the Constitution prevents unbridled police use of new technologies to monitor our movements" ("Unanimous Supreme Court Ensures Americans Have Protections From GPS Surveillance," eff.org, Jan. 23).

Do you hear that, President Obama?

But as soon as I read Justice Antonin Scalia's decision, I knew the Supreme Court had committed no such all-encompassing attack on how George W. Bush, Dick Cheney and Barack Obama have turned us into a society constantly under surveillance by the government.

First, let's look at the actual case: In 2005, a joint FBI and Washington, D.C., police task force covertly placed a Global Positioning System (GPS) device on Antoine Jones' Jeep, which was parked in a public lot in Maryland. For four weeks, the GPS, using satellites, allowed the authorities to continuously monitor Jones' actions and movements as he drove his Jeep.

From what the authorities learned from the GPS's tracking, Jones was arrested and charged with conspiracy to distribute cocaine. Justice Scalia, joined by colleagues John Roberts, Anthony Kennedy, Clarence Thomas and Sonia Sotomayor, declared in the court's decision: "The government physically occupied private property for the purpose of obtaining information. We have no doubt that such a physical intrusion would have been considered a 'search' within the meaning of the Fourth Amendment when it was adopted."

Scalia is notably proud of being an "originalist" — relying on the language of the Constitution when our founders were here. Accordingly, he adds that he is applying in this case "an 18th-century guarantee against unreasonable searches."

However, Justice Samuel Alito, in a concurring opinion with the three other justices, argues that "it is almost impossible to think of late-18th-century situations that are analogous to what took place in this case... the use of longer-term GPS monitoring in investigations of most offenses impinges on expectations of privacy."

All four justices maintain that the familiar "expectation of privacy" involves much more than government infringement of our private property rights.

Strongly agreeing with Alito, the Rutherford Institute's president, John W. Whitehead, an incisively alert constitutionalist, reminds us:

"The government's arsenal of surveillance technologies now includes a multitude of devices which enable it to comprehensively monitor an individual's private life without necessarily introducing the type of physical intrusion into his person or property covered by the (Jones) ruling" ("U.S. v. Jones: The Battle for the Fourth Amendment Continues," rutherford.org, Jan. 23).

Scalia did not ignore Alito's reminder of the century we live in, but he tried to have the high court postpone doing anything about it, saying: "It may be that achieving the same result through electronic means without an accompanying trespass (on private property) is (also) an unconstitutional invasion of privacy, but the present case does not require us to answer that question."

What about those of us who still care about our privacy, sir, which is increasingly limited by so many other means?

Justice Sotomayor, one of the justices to concur with the court's ruling, gently chides Scalia, writing:

"People disclose the phone numbers that they dial or text to their cellular providers; the URLs that they visit and the email addresses with which they correspond to their Internet service providers; and the books, groceries and medications they purchase to online retailers.

"I, for one," she continues, "doubt that people would accept without complaint the warrantless disclosure to the government of a list of every website they had visited in the last week, or month, or year" — without the government having physically occupied their property.

A growing number of Americans and I would like to ask Justice Scalia and his four "let's stop here" colleagues why they're waiting to rule on our expectations of privacy in this century and others to come.

To those who are greatly overstating the significance of this decidedly limited U.S. v. Jones decision, I bring back John W. Whitehead, who does not mince his words:

"We have entered a new and frightening age when advancing technology is erasing the Fourth Amendment. Thankfully, in recognizing that the placement of a GPS device on Antoine Jones' Jeep violated the Fourth Amendment's protection against unreasonable search and seizure, the U.S. Supreme Court has sent a resounding message to government officials — especially law enforcement officials — that there are limits to their powers" ("Victory: In 9-0 Ruling in U.S. v. Jones, U.S. Supreme Court Declares Warrantless GPS Use by Police Unconstitutional," rutherford.org, Jan. 23).

But it's not "a resounding message." In reporters' parlance, U.S. v. Jones is now a dead story. I'm not aware of any urgency on either side in Congress to address our Fourth Amendment expectations of privacy in such a way that will exceed the private property essence of U.S. v. Jones.

We know that President Obama, if re-elected, is tone-deaf on reviving the Fourth Amendment and certain other parts of the Bill of Rights, not to mention the separation of powers. (Obama, after all, was the government in this case.) And, watching the endless Republican presidential candidates' debates, I've not sensed any deep concern among them, with the exception of Ron Paul, about the flickering remnants of our personal privacy.

Next week, John W. Whitehead (despite calling this particular ruling "a resounding message") and others detail the frightening ways that swiftly advancing technology is tracking us far beyond the personal property limits on government surveillance in U.S. v. Jones.

Have you asked your children what their expectations of privacy are? How many of them can tell the compelling, tumultuous history of the Fourth Amendment since the 18th century? Shouldn't they know?

Nat Hentoff is a senior fellow at the Cato Institute.

One of the few lines in President Obama’s State of the Union address that actually received bipartisan applause was his vow of “no bailouts, no handouts, and no cop outs.” Of course the president then went on to claim credit for his bailout of the auto industry and promise additional handouts to the “green energy” industry.

Both liberals and conservatives often succumb to a narrative that pits big government against big business. No doubt many of big government’s tax and regulatory policies do make it more difficult for businesses to expand and hire people. But just as often, big business and big government are all too happy to work hand in hand to thwart the free market.Confusing support for free markets with support for the corporate agenda is a bipartisan failing. In a free market, for example, corporations compete against one another on their merits. Government doesn’t pick winners and losers or prefer one type of industry over another.

Yet, Rick Santorum shares President Obama’s desire for special tax breaks for “manufacturing.” Both Newt Gingrich and Mitt Romney join President Obama in backing government subsidies for ethanol and other alternative energy.

And obviously, in a free market, when businesses fail because they made stupid investment decisions, they go bankrupt. But both Romney and Gingrich joined President Obama (and President Bush) in supporting TARP and the bailout of some of America’s biggest banks and investment firms. This was not a one-time situation brought about by a unique crisis: Dodd-Frank enshrines the principle of “too big to fail,” all but guaranteeing future bailouts.

The Cato Institute estimates that corporate welfare now tops $125 billion per year. Among the biggest beneficiaries are companies such as Boeing, Xerox, IBM, Motorola, Dow Chemical, and General Electric. At a time when we are facing a $15.3 trillion national debt and borrowing 34 cents out of every dollar we spend, should we really be spending money to subsidize McDonald’s advertisements for Chicken McNuggets overseas?

And, when they don’t get direct subsidies, businesses are forcing taxpayers to subsidize consumer purchases of their products.

For example, Big Pharma poured more than $150 million into advertising in favor of Obamacare. Why? Among other things, every insurance plan in America will now be required to cover pharmaceutical products. And, closing the Medicare Part D “donut hole” will encourage seniors to buy brand-name drugs rather than cheaper generics. Speaking of the Medicare prescription-drug program, guess who was the biggest lobby in favor of the entitlement expansion? The drug companies even funneled millions of dollars to Newt Gingrich’s Center for Health Transformation. No surprise, then, that Gingrich supported the Medicare expansion, calling it a cost-saving idea, even though it added $17 trillion to the Medicare’s unfunded obligations. Among the biggest supporters of Obamacare’s individual insurance mandate are the big insurance companies. After all, isn’t it great for the government to force people to buy your product? It certainly beats having to provide cheaper and higher-quality insurance.

Big businesses also use regulations to prevent competition or impose costs on their competitors. For example, General Electric is among the biggest supporters of President Obama’s “cap and trade” proposals. GE is not doing this out of some sense of altruistic global citizenship, but because it operates a unit that would trade cap-and-trade credits. The company stands to reap billions in profits were Obama’s plan to pass.

Similarly, Walmart stunned many by coming out in support of an employer health mandate. But it’s really not that surprising. Walmart actually spends more on employee health care than its competitor Target. Mandating that all companies provide health insurance will drive up Target’s costs, benefiting Walmart.

President Obama is planning to mount a reelection campaign that attempts to paint Republicans as the captives of special interests, ignoring his own addiction to corporate bailouts, handouts, and cop outs.

Polls show that despite the president’s drumbeat about inequality, Americans are not particularly concerned about income disparities. But there does seem to be a growing concern that the system seems to be rigged to benefit the powerful and well connected. Simply put, Americans don’t care about unequal outcomes as long as the system is fair.

If Republicans want to counter this, they will need to take a firm stand in favor of free markets, rather than special-interest corporatism. They should stop talking about how “pro-business” they are, and talk about the virtues of free-market capitalism — emphasis on the “free market.”

Will they do so?

Last week, both Romney and Gingrich came out in favor of sugar subsidies. That isn’t encouraging.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Drums are beating for a pre-emptive war to take out such nuclear facilities as Iran might have. But considerable caution is in order, because this is basically the same story Americans heard not so long ago, in 2003, to promote the pre-emptive war against Iraq. Although the United States “won” that war, intelligence about Iraq’s alleged weapons of mass destruction turned out to be wrong, the killing has gone on for nearly a decade, Sunni and Shiite factions appear to be going at each other again, and with Saddam Hussein gone, there’s a political/military vacuum that Iraq’s larger neighbor Iran is undoubtedly eager to exploit.

The calls for another pre-emptive war are particularly ironic considering that Iran used to be a friend of the United States. Our CIA helped the Shah secure his power in 1953, because he helped prevent Soviet penetration of the Mideast. But the Shah went on to establish a secular, authoritarian regime that made plenty of enemies. Ayatollah Khomeini became one of the Shah’s most formidable enemies as early as the 1960s. Because the U.S. backed the Shah, his enemies became our enemies, and they unexpectedly seized power in 1979. The U.S. affirmed its status as an enemy by backing Saddam Hussein after he attacked Iran the following year, in what became an eight-year blood bath.

Iranian leaders have done just about everything to convince the world that they are a bunch of dangerous fanatics, so the prospect of a nuclear Iran is scary. But by now we ought to have learned that a pre-emptive war can multiply the complications.

This is because war is the most costly, violent and unpredictable thing governments do. Again and again, even decisive victories can turn out to be serious mistakes, if not catastrophes, because of unintended consequences. While we might be able to control what we do, we cannot control how other people react to what we do.

Here are 6 reasons why wars go wrong:

1. Nations at war often try to avenge their suffering, which means they are likely to inflame hatreds that persist for a long time and provoke more wars.

In April 1917, President Woodrow Wilson led the United States into World War I. He claimed it was “the war to end wars.” He vowed that it would “make the world safe for democracy.” At that time, the war had been stalemated for three years — neither side able to impose its will on the other. By intervening on the side of the British and the French, Wilson made it possible to break the stalemate, win a decisive victory and dictate terms to the losers.

Wilson imagined he could negotiate peace on noble principles expressed in his January 1918 ”Fourteen Points” speech before a joint session of Congress. But almost a million British soldiers and civilians died in the war. Almost 1.7 million French soldiers and civilians died. Hundreds of thousands of soldiers succumbed to the influenza pandemic. In addition to battle-related destruction of property, retreating soldiers destroyed just about everything that might be useful for their adversaries. They cratered roads, burned homes, demolished factories, poisoned wells, flooded mines, ruined crops and slaughtered livestock.

Wilson, who had more formal education than any previous U.S. president, failed to understand how determined British Prime Minister David Lloyd-George and French Premier Georges Clemenceau were to avenge their grievances against Germany. Clemenceau, for instance, acknowledged that “My life hatred has been for Germany because of what she has done to France.” Wilson was hopelessly outmaneuvered during the postwar negotiations, and the result was the vindictive Versailles Treaty that had nothing to do with the Fourteen Points.

The treaty, forced on the Germans, triggered a nationalist firestorm that enabled a lunatic like Adolf Hitler to attract thousands of followers by promoting hatred and violence. If the United States had stayed out of the war, quite likely it would have ended with some kind of negotiated settlement and better long-term prospects for peace.

2. The overwhelming stresses of war can trigger economic chaos, political crises and totalitarian regimes.

As long as Woodrow Wilson was neutral during World War I, he didn’t have any reason to care what the Russians did. But when he entered the war, he had an incentive to keep Russia fighting on the Eastern Front. This tied up German soldiers there. If the Russians quit the war, as they were anxious to do, Germany would have been able to move some of their soldiers to the Western Front, causing more trouble for the British, French and Americans. So Wilson put pressure on the Russian government. His policy was “No fight, no loans.” He bribed the financially-strapped Russians.

But Russia had begun disintegrating from the day it entered the war in August 1914. Harvard historian Richard Pipes reported that “the army required each month a minimum of 100,000 to 150,000 new rifles, but Russian industry at best could provide only 27,000.” Large numbers of Russian soldiers were sent to the Eastern Front unarmed, and Russian mothers were outraged. The government conscripted some 11 million peasants into the army, which depopulated farms and caused chronic food shortages. In any case, there wasn’t enough railroad capacity both to ship soldiers to the front and ship food for the people — three-quarters of Russian railroad lines had just one track. Massive corruption undermined political support for the government. “There is no indication that the dark and violent history of Russia ever occupied Wilson’s attention,” American diplomat and historian George F. Kennan observed in Russia Leaves The War (1956), which won a Pulitzer Prize.

By keeping Russia in the war, Wilson unintentionally accelerated the disintegration of the Russian army. Kennan reported, “not only had Russia become involved in a great internal political crisis, but she had lost in the process her real ability to make war. The internal crisis was of such gravity that there was no chance for a healthy and constructive solution to it unless the war effort could be terminated at once.” Staying in the war, Kennan added, “provided grist to the mill of the agitator and the fanatic: the last people one would have wished to encourage at such a dangerous moment.” Lenin tried to seize power three times during the summer of 1917, but he failed even though hundreds of thousands of Russian soldiers were deserting. Lenin didn’t succeed until his fourth attempted coup in October 1917, when the Russian army had virtually collapsed.

On August 23, 1939, Lenin’s successor Josef Stalin approved a pact with Hitler, pledging (1) that Germany and the Soviet Union wouldn’t attack each other and (2) that they would carve up Poland. “By freeing Germany from the risk of waging war on two fronts,” noted the French historian Stéphane Courtois, “the pact led directly to the outbreak of World War II.” A week after the pack was approved, Hitler invaded Poland, and the war was underway. We might have been spared all that if Woodrow Wilson hadn’t been so anxious to have Russia continue fighting in World War I.

3. If allies have conflicting aims, a war is likely to have conflicting outcomes.

U.S. President Franklin Delano Roosevelt and British Prime Minister Winston Churchill embraced Stalin as an ally after Hitler ordered the invasion of the Soviet Union in June 1941, even though Hitler and Stalin had been odious allies up to that point. FDR and Churchill figured they needed all the help they could get.

But this marriage of convenience changed the nature of World War II. It was no longer a struggle for freedom, because Stalin ranked among history’s worst mass murderers — approximately 42 million deaths. Moreover, the Nazis developed concentration camps based on what they had learned about earlier Soviet concentration camps. Rudolf Hess, who organized Auschwitz, cited Nazi reports that “described in great detail the conditions in, and organization of, the Soviet camps, as supplied by former prisoners who had managed to escape. Great emphasis was placed on the fact that the Soviets, by their massive employment of forced labor, had destroyed whole peoples.”

Stalin exploited more opportunities to expand his Soviet empire after he allied with FDR and Churchill than before. Hundreds of millions of people were liberated from the Nazis, but most were re-enslaved by Stalin. He seized Estonia, Latvia, Lithuania, generous portions of Poland, Finland and Rumania. Moreover, Poland, Bulgaria, Czechoslovakia, East Germany, Hungary and Rumania became Soviet satellites.

On August 8, 1945, two days after the United States dropped an atomic bomb on Hiroshima, the Soviet Union declared war against Japan and grabbed more territory. The Soviet Union conquered Manchuria, Inner Mongolia, Sakhalin Island, the Kuriles and Korea. In addition, Stalin helped Mao Zedong who was fighting to establish a communist regime in China. Altogether, within five years after World War II the number of people subject to communist oppression in Europe and Asia soared from 170 million to about 800 million.

4. A vulnerable adversary can become unbeatable if it unexpectedly gains a big ally.

At the National Press Club, January 12, 1950, Secretary of State Dean Acheson gave a speech identifying nations that the United States pledged to defend from an attack. Acheson’s “defense perimeter” notably didn’t include South Korea. That nation, after all, had long been embroiled in conflicts involving its neighbors China, Russia and Japan.

Then on June 25, 1950, North Korean communist dictator Kim Il Sung attacked South Korea. North Korean soldiers crossed the 38th Parallel and entered South Korea. President Harry Truman decided to try stopping this communist aggression, even though South Korea was much less of an issue than China that had already fallen to the communists the previous year. On July 19, Truman asked Congress for $10 billion of emergency appropriations to fund a “police action” in Korea — he didn’t want to ask Congress for a declaration of war and risk having that defeated.

U.S. forces, led by General Douglas MacArthur, landed behind North Korean lines at Inchon — a very bold move — and within a few weeks he was advancing into North Korea. He did so well that Truman let him have a substantially free hand. In late 1950, MacArthur told reporters that the war was almost over.

He might have been wise to settle for occupying North Korea’s capital, Pyongyang, but he pushed his luck as he continued heading north toward the Yalu River on the Chinese border. Then came reports that indicated South Korean soldiers were “heavily engaged with a fiercely resisting [unidentified] enemy.” U.S. forces captured some prisoners who turned out to be Chinese. MacArthur began to hear that Chinese “volunteers,” as Chairman Mao called them, had crossed the border. MacArthur commented that the situation was “not alarming.” But the increasing number of shootouts suggested that a large number of Chinese soldiers might be in North Korea. Then the New York Times reported that “Chinese Communist hordes, attacking on horse and foot to the sound of bugle calls, cut up Americans and South Koreans in an Indian-style massacre.”

In fact, some 300,000 Chinese soldiers had swarmed across the border and forced MacArthur to retreat. The Chinese captured Seoul, South Korea’s capital. Eventually MacArthur battled his way back to the 38th Parallel, and the war became stalemated.. An armistice was signed on June 7, 1953. U.S. armed forces had doubled to 3 million, military spending had quadrupled, the war had cost an estimated $75 billion (real money back then), and 54,246 American lives had been lost. Six decades later, U.S. forces are still in South Korea.

5. Major powers can be thwarted by people who are fighting for their homeland, know their territory well and have nowhere else to go.

After running as a peace candidate during the 1964 election, President Lyndon Johnson authorized the escalation of the Vietnam War. He embraced the “domino theory” that a communist takeover in one country like Vietnam could result in other Asian countries falling to communists. But as noted, the biggest domino — China — had already fallen.

President Johnson seemed to view Vietnam as if it were a social welfare program. He declared, “Our foreign policy must always be an extension of our domestic policy” — namely, his Great Society entitlements. “I want to leave the footprints of America [in Vietnam]. I want them to say, ‘This is what Americans left — schools and hospitals and dams.’” Johnson’s Vice President Hubert Humphrey was even more carried away by the dream of doing good in Vietnamese jungles: “We ought to be excited about this challenge, because here’s where we can put to work some of the ideas about... nation-building... new concepts of education, development of local government, the improvement of health standards... and really the achievement and fulfillment of full social justice.”

Johnson made many mistakes besides having unrealistic expectations. He micro-managed the war and severely restricted what military commanders could do. His policy of gradual escalation seemed to convince the communist North Vietnamese that the United States was a reluctant warrior who could be defeated if they persisted long enough. Johnson and his top brass over-estimated the American advantages of superior weapons, especially air power.

Such policies led many observers to believe that if only the military had been unleashed, they could have won the Vietnam War, but there are reasons to doubt that. Vietnamese were fighting on their homeland. They knew the jungles well, they had nowhere else to go, and their survival was at stake. Americans didn’t know the jungles, everyone figured that eventually we would go home, and American survival wasn’t at stake, because the United States was more than 8,000 miles away. Moreover, since North Vietnamese insurgents wore ordinary civilian clothing, and they mingled among the South Vietnamese, American soldiers could never be sure which were the people they were trying to help and which were the enemies plotting for murder and mayhem. These are crucial advantages that native people always have when dealing with a foreign military presence. Such advantages go far to explain why major powers have become bogged down in guerrilla wars.

6. People don’t want somebody else building their nation, even when they’re making a mess of it — especially during a civil war.

In 1957, the U.S. Central Intelligence Agency fixed parliamentary elections in Lebanon. Former CIA officer Victor Marchetti recalled, “the CIA had helped elect so many pro-American candidates that the established Arab nationalist politicians were furious, realizing that the cheating was eroding their power base. The feud that had been brewing between Arab nationalists and the pro-Western Christians erupted into civil war. President Eisenhower sent in the marines. They were withdrawn after a few months, but what had been perhaps the most stable state in the Middle East was on the road to total polarization and eventual disintegration.”

A quarter-century later, U.S. and French forces were in Lebanon again. They attempted to serve as peacekeepers amidst the civil war that raged on. In October 1983, two truck bombs struck the barracks — an inviting stationary target. Among the dead were 58 French personnel and 241 Americans. The American death toll included three Army soldiers, 18 Navy seamen and 220 Marines. Apparently recognizing the futility of trying to referee a civil war, President Ronald Reagan ordered that U.S. forces be withdrawn from Lebanon.

In 1993, Bill Clinton imagined that the U.S. could build a nation in Somalia — or as Clinton’s then-UN ambassador Madeleine Albright put it: “nothing less than the restoration of an entire country.” The first step was to be the disarming of warlords. Of course, they wouldn’t be warlords without their guns, so the U.S. found itself embroiled in another civil war. Tragically, American soldiers were killed for nothing that involved a vital U.S. interest, certainly nothing that well-intended intervention was capable of resolving. Clinton recognized the futility of the intervention and withdrew U.S. forces.

The following year, however, Clinton was at it again. He ordered 20,000 U.S. soldiers to Haiti, so they could help alleviate hunger and establish a democracy. Eight years later, Haitian poverty rates were higher, literacy rates were lower than when the mission had begun, and political turmoil persisted. Why was anybody surprised at the futility of this intervention?. Since Haiti gained independence in 1804, Historians Robert Debs Heinl, Jr. and Nancy Gordon Heinl described it as “a country with nearly 200 revolutions, coups, insurrections and civil wars.”

After 9/11, President George W. Bush ordered U.S. forces into Afghanistan to destroy the camps where al-Qaeda terrorists were trained. This mission became a decade-long (and counting) nation-building project. Now, although almost 2,000 U.S. soldiers have died there and hundreds of billions of dollars have been spent fighting, Afghans continue to grow opium, stone women and engage in bloody power struggles. One might have thought that our sacrifices would have at least bought a loyal ally. But Afghan President Hamid Karzai declared his country would side with Pakistan in the event of a conflict with the United States. The British weren’t able to reform Afghanistan, nor could the Russians, and it’s doubtful whether we’ll be able to do any better.

Clearly, if government intervention cannot save relatively small nations like Lebanon, Somalia, Haiti or Afghanistan, there’s no reason to believe the world can be saved by having our government spend more money and order more American soldiers into harm’s way. Washington would do well if it could save itself from bankruptcy as a result of runaway spending and debt.

What people everywhere need is more freedom and free markets. We can’t force these things on others, but we can reverse anti-business policies that have throttled the American economy. When America becomes a dynamo again, more people overseas will find it in their self-interest to adopt the kinds of policies that work for us, much as millions of people embraced English as a principal language of business, science, technology and popular culture.

We need less foreign intervention, not more, to avoid gratuitously making enemies and contributing to difficult situations like we face with Iran now. This means restraining the government sector — the sector of bellicose rhetoric, seizures, embargoes, blockades, sanctions and wars. We need to encourage more voluntary, people-to-people international relations by businesses and nonprofits as well as individuals. Government can help do this by reducing restrictions on the movement of people, goods and capital.

Meanwhile, we need to be vigilant about maintaining a strong national defense that can protect us against aggression and perhaps more important, a strong national defense that can convincingly deter aggression. Deterrence is probably our best bet with Iran as it proved to be with the Soviet Union and China. Britain’s Prime Minister Margaret Thatcher paid Ronald Reagan a supreme compliment when she declared that “He won the cold war without firing a shot.”

Jim Powell, a senior fellow at the Cato Institute, is the author of FDR's Folly, Wilson's War, Bully Boy, The Triumph of Liberty and other books.

The class-warfare crowd is predictably outraged that Mitt Romney supposedly paid just 13.9 percent of his income to the crowd in Washington. Surely this is a sign of both inequity and iniquity. Meanwhile, previewing a theme for the general election, President Obama said in his State of the Union address that "millionaires and billionaires" should cough up at least 30 percent of their earnings to the IRS.

This is bad policy based on inaccurate data.

Let's deal first with the flawed numbers. Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent.

Here's a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren't allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments.

Welcome to the world of double taxation.

The Obama approach is also bad economics. Every economic theory — even socialism and Marxism — agrees that saving and investment are the key to long-run growth and higher living standards. So does it make sense to deprive the economy of productive capital by imposing punitive layers of double taxation? To make matters worse, double taxation means transferring the money to the buffoons in Washington, where it will be squandered on inefficient and wasteful programs.

Europe's welfare states are on the brink of collapse because they adopted the mentality that government spending was better than private saving and investment. Should we copy their failures?

The right way to ensure both fairness and growth is the flat tax. Get rid of the 72,000 pages of corruption and complexity in the Internal Revenue Service code and replace it with a postcard-sized flat tax. One low tax rate with no double taxation. That's good for the economy and competitiveness.

And if Mitt Romney makes 100,000 times more than me, he'll pay 100,000 times more in tax.

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.

Whenever Newt Gingrich has been asked to explain why he is supposedly more "conservative" than other Republican presidential candidates, he has repeatedly replied that he "helped Ronald Reagan and Jack Kemp develop supply-side economics." If that were true, I think I would know about it.

I was jointly responsible (with Jude Wanniski) for bringing the phrase "supply-side" economics into popular parlance in 1976. I helped write the economic policy chapters in Jack Kemp's 1978 book An American Renaissance. I worked with David Stockman and Larry Kudlow in the first Reagan transition team in 1981. I was research director of the Kemp Tax Reform Commission in 1995-96.

What I most recall about Newt Gingrich is that Kemp arranged for me to meet with him in 1982 because Jack worried that Newt was being seduced by OMB Director David Stockman's arguments that lower tax rates must take a back seat to deficit reduction. Stockman argued that deficits would absorb savings, crowd out investment and abort the 1983 recovery. I do not recall persuading Gingrich that Stockman was mistaken, but I believe Gingrich did oppose a 1982 law that rolled back incentives for business investment. Gingrich later opposed the Kemp-Kasten tax reform in 1986, but all was forgiven in 1990 when he tried to block the counterproductive "read my lips" tax hikes of the first President Bush. On balance, Gingrich was usually a political ally of Kemp and Reagan, like most of the young Republican congressmen at the time.

To suggest that the logic and evidence behind supply-side economics was in any sense "developed by" by Gingrich, rather than by numerous economists allied with Jack Kemp, is worse than the typical "Newtonian" exaggeration. It is simply preposterous. The story of what actually happened is ably retold in several books, most recently Econoclasts by historian Brian Domintrovic, and earlier in The Seven Fat Years by former Wall Street Journal editor Robert L. Bartley. There is no mention of Gingrich in such histories of supply-side economics.

The phrase "supply-side" was launched two years before Gingrich came to Congress. In April 1976 I persuaded Wall Street Journal editorial writer Jude Wanniski to embrace a label that Herb Stein coined at a conference I attended. Several of us had been talking and writing along similar lines since 1971, however, including Art Laffer, Nobel Laureate Bob Mundell and former Treasury Undersecretary Norm Ture.

If the test of supply-side authenticity was simply about who could dream up the lowest tax rate, nobody could beat Ron Paul's comment in a recent debate: "What's wrong with zero?" What's wrong with zero is that it won't get the bills paid. So, proposing to cut some taxes to zero (as Gingrich proposes for dividends and capital gains) necessarily means increasing some other taxes to fill the gap. Lower tax rates have often brought in more revenue than higher tax rates, particularly for capital gains and corporate profits, but that certainly does not mean that zero is the revenue-maximizing tax rate.

No well-crafted flat tax plan ever claimed to raise as much revenue as current law with a tax rate as low as 15 percent while keeping all the popular deductions. Asked about the obvious revenue losses, Newt says, "Terrific; that means we have to cut spending even more." We need a lot more specific information about such hypothetical spending cuts before any politician's hypothetical tax cuts might be taken seriously.

Repeatedly borrowing trillions more just to pay for unsustainable schemes like the 2010 payroll tax holiday is not what supply-side economics is about. Serious tax reform means finding ways of funding the government that will do the least possible damage to the economy, not assuming that faster economic growth alone can fix fiscal problems of the unprecedented size that we currently face. Runaway debt depresses growth precisely because it portends horrific future taxes.

Gingrich also gives himself great credit for "cutting taxes, cutting spending and balancing the budget for four years" as Speaker of the House from 1994 to 1998. He does deserve credit for persuading President Clinton to reduce the top capital gains tax to 20 percent from 28 percent in 1997. Revenues from capital gains subsequently soared to $89.1 billion in 1998 and $127.3 billion in 2000. But Newt can't have it both ways. If he takes credit for the revenue windfall from a capital gains tax of 20 percent — which contributed mightily to the balanced budget after 1998 — then Gingrich cannot turn around and promise a similar fiscal miracle from his proposed capital gains tax of zero.

Gingrich also deserves some credit for cutting non-defense spending from 17 percent of GDP in 1993 to 16 percent in 1998, although defense spending fell faster — from 4.4 percent of GDP to 3.1 percent in the same period. The task is much more challenging today. The publicly-held national debt was 40.6 percent of GDP at the end of 1989 when Reagan left office, and was still 40.2 percent at the end of 2008. But it jumped to 68.6 percent of GDP at the end of last year, and is projected to keep rising indefinitely. Non-defense spending in the Obama years has exploded to 20 percent of GDP, so trimming it by just one percentage point (as the Republican Congress did in 1994-98) is now far too timid a goal.

Newt Gingrich's alleged role in the development of supply-side economics sometimes looks like a deliberate distraction from deeper questions about why he claims to be more "conservative" than other candidates. Gingrich is the only candidate who repeatedly advocated federal legislation making health insurance compulsory. He has enthusiastically supported federal subsidies for ethanol and other green energy boondoggles. And he dismissed a thoughtful plan from Paul Ryan to slow the growth of entitlements as "right wing social engineering." Other candidates have their own faults. Romney seems hawkish for my taste, too prone to blaming our problems on China, and too harsh on immigration. But those are very common views among conservatives, arguably making Newt more moderate than Mitt in these respects.

For Newt Gingrich to toss out strikingly grandiose and obviously unworkable ideas about scrapping many taxes and slashing others is for him to reveal that he's far from moderate. But being immoderate is not the same as being conservative. And voicing flippant disregard for budget problems of the magnitude we face is not the same as being any sort of economist, supply-side or otherwise.

Alan Reynolds is a senior fellow at the Cato Institute and the author of Income and Wealth (Greenwood Press 2006).

A poster warning New York subway riders to avoid consuming too much sugary soda — by picturing a diabetic amputee — gained notoriety last week because, it turned out, the man pictured wasn't an amputee at all. He'd been photoshopped.

But the ad should have generated controversy for an entirely different reason: It's the latest inappropriate use of a scary, graphic image to try to produce a government-mandated change in consumer behavior.

Though fear is the weapon of choice for government health police — whether they're trying to stop people from eating fatty foods, smoking cigarettes or drinking too much — it simply doesn't work.

The case for alarmist warnings is based on four assumptions. First, people wish to avoid disease and death. Second, consumers suffer from an "information deficit," that is, they either don't understand the risks of a given behavior or they underestimate those risks. Third, once they know that a certain behavior or product can lead to disease and death, they will avoid it. And, fourth, warnings give people the information necessary for them to change their behavior.

The reality, however, is that assumptions two, three, and four are, for many people, false.

Many people filter out much of the information available to them because they find it neither relevant nor interesting. Also, warnings aren't processed because individuals tend to avoid information that has negative self-implications. Through a process known as "cognitive readjustment," people tend to exempt themselves as individuals who should be concerned with a warning. Even though someone has read and remembered a warning, they also can discount its personal applicability.

Even warnings that are read and processed are often discounted due to what experts call "warning fatigue," where the overabundance of warnings or the familiarity of a specific warning diminishes its effectiveness. Consequently, the empirical research on scary tobacco warnings, for example, turns conventional wisdom on its head. Such fear-based public health education campaigns simply do not work.

The evidence from empirical studies of their effects in real world settings demonstrates these types of warning failures are extensive. Almost a decade after the federal government mandated warnings on alcohol products, neither the risk perception nor the drinking behavior of those drinkers most likely to be a risk to themselves or others had changed. There is equally compelling evidence about the failure of food labeling. The USDA found that labeling is an ineffective policy tool.

The truth is that more often than not, scary or detailed warnings cause many consumers to disregard the information completely. A consumer's income is the key factor in determining which foods, for example, are purchased, and that income cancels out the effects of information.

The danger, however, is not simply that labels and warnings will fail; they may also be counterproductive. For example, large numbers of excessive risktakers display what psychologists call "reactance," in which there is a high level of resistance to the demands of outside authority and control.

For these individuals, a warning label represents an attempt to unreasonably (at least from their perspective) shape their behavior and makes them more likely to ignore rather than heed the warning. Warning labels also highlight risk, and for those attracted to risk-taking, this serves to make the very thing warned about more, rather than less, attractive.

The use of such warnings contradicts two of the central principles of medical ethics and the ethics of health promotion: beneficence — doing good — and nonmaleficence, avoiding harm where compelling evidence demonstrates that warnings will do no good and might cause harm. Curiously, the FDA now advocates scary tobacco warnings even though its own study found them ineffective.

Today's health warnings improperly utilize the state's legitimate authority in a manner that converts public health advertising into displays for the government's opinions.

New Yorkers have the right to shape their own lives, together with the responsibility for the results of doing so, without the intrusion of Mayor Bloomberg's taxpayer-funded advocacy.

Patrick Basham, a Cato Institute adjunct scholar, and John Luik, a Democracy Institute senior fellow, are the authors of "Health Warnings on Consumer Products: Why Scarier Is Not Better."

Last week Sotheby's auctioned off 13 French military paintings from the once legendary Forbes collection. It represents the end of an era.

Malcolm Forbes lived large with his eponymous Forbes magazine, adventurous motorcycle trips, and celebrity-drenched parties. Of even more interest to me, he amassed a fascinating and eclectic collection of most anything that caught his eye. There was military art — including the large paintings and watercolors by two of the finest French artists who worked around the time of the Franco-Prussian War for sale at Sotheby's.

More famous were the Faberge Eggs produced for the Russian czars before the Soviet Revolution. At one point Forbes owned more of the wondrous jeweled creations than were left in Moscow.

Forbes also accumulated a large number of autographs — indeed, years ago I sold a letter by Ronald Reagan which had been left in my hands at the close of his first presidential campaign to the collection. And there were the toy soldiers, enough to return any guy to his childhood.

Selections of Forbes' acquisitions were displayed at the offices of Forbes magazine, which I got to see on my occasional visits to friends on staff. Where else could you go for a business lunch and view paintings illustrating the Franco-Prussian War, the finest collectibles of the long-deposed Russian monarchy, and toys with which little boys played a century ago? My favorite were documents not just recording American history, but representing American history — such as Robert E. Lee's note to Ulysses S. Grant requesting a meeting to discuss surrender terms as the Civil War came to a close.

The Forbes Collection was a dream for anyone bitten by the collecting bug. Combine the interest, money, and opportunity to amass a collection with a fine building on Fifth Avenue in which to display the highlights to the public. And the contents had special appeal for me, since I enjoy history and especially military history. Indeed, I violated the Commandment against coveting my neighbor's possessions every time I visited the Forbes Museum.

Unfortunately, all good things must pass away. When Malcolm Forbes died the driving force behind the collection disappeared. The family didn't as much see the value of holding onto exotica like Faberge Eggs. So the items were gradually sold off.

The Eggs went as a group to a wealthy Russian businessman, thereby returning to their ancestral home. One auction disposed of the Reagan autograph that I once owned along with the Lee note — how I wish I had had the funds to bid on it. The toy soldiers went in another sale. And now the most important military art.

You have to be a collector to understand collecting. I inherited the collecting gene from my parents. We were stationed in Great Britain when I was in high school. I would travel with them around that glorious island on antiquing expeditions. My Dad liked clocks, my mother bought cameos, and both of them enjoyed pictures, pitcher and bowl sets, and oddities like bed warmers and knife cleaners. I picked up an occasional bladed weapon and chess set with my limited income from a paper route, bagging groceries at the commissary, baby-sitting, and mowing lawns.

Back in the U.S. my hobby went dormant while I was in college. Afterwards I checked out want ads for chess sets and picked up an occasional tourist set when overseas, but little more. Then I met a county fire official who was selling off a few chess sets. The ones I bought were nothing special, but I started "hitting the shops" with him, since his girlfriend had no interest in such nonsense.

Without Malcolm Forbes' money I couldn't create a collection to match his, of course, but I came up with my own interesting mix — a few chess sets, military pictures, icons, eagles, and autographs. For others these items acted as "conversation pieces" gathering dust. For me I got to touch history. Nothing quite so dramatic as Lee's surrender note, but still, a feeling that I was reaching across time.

Some of my favorite finds were part of history. For instance, I bought inexpensive busts of Felix Dzerzhinsky and Lavrenti Beria, heads of the Cheka and NKVD, as the Soviet secret police were variously called. What kind of a system celebrates mass murderers? I'm really not a com-symp, but I think Felix and Lavrenti, as well as the abundant plastic commie tchotchke that now fill my office are, well, cool. How else to explain it?

It's that desire to possess which unites collectors, from the extraordinary, such as Malcolm Forbes, and those of us on much smaller budgets. My buddy likes beer steins, as well as other items which variously catch and then lose his interest, such as the chess sets he sold me more than two decades ago. I've met women who collected napkin rings and hat pins. And a fellow with a passion (some would say obsession) with frogs, which filled his house. There was even the collector of the macabre whose day job was handling make-up for guests at one of the cable television channels.

Collectors share a fascination with the hunt, looking for that special find. The issue is less about value than uniqueness. Finally finding something for which we've been searching for years. An item which reminds us of our childhood, a special person, or a critical historical moment. Something which just speaks to us in a quirky way.

Our passions often are impossible to explain or even understand. A couple of years ago an analyst at Human Rights Watch, Marc Garlasco, was attacked because he collected German militaria, leading some to accuse him of being a Nazi-sympathizer. It was a convenient political meme, since he had criticized Israel's human rights practices.

Of course, Nazism generates a special, and well-warranted, revulsion for having attempted to eradicate an entire people. But the vast majority of collectors of Third Reich material do so because of its historical and military significance, not because they are hoping for a Nazi revival. Moreover, most German militaria have nothing to do with Nazism — the Iron Cross dates back to 1813, for instance. The finest German "regimental" beer steins, personalized drinking vessels purchased by members of individual military units, predate World War I. German material is the premier military collectible, highly sought by collectors. For most of them something with a swastika is just like my busts of Felix and Lavrenti.

However, most collectibles are non-controversial, at least other than raising questions about our sanity. Even I have limits. I mean, Beanie-Babies. They were mass produced, but turned into a financial bubble, a bit like houses (though far less costly, of course) today. Entire showcases at antique shops were filled with BBs; people presented themselves as BB "authenticators," who would make sure that everything, including the label, was authentic. The market eventually crashed, and now one often finds BBs tossed indiscriminately into big boxes and priced at a couple bucks each.

Still, collecting really is a harmless hobby, other than for spouses and kids forced to put up with the clutter. I remember a nature guide who commented that he felt things he couldn't explain when he saw a bird. A historian once told me of his pleasure in "fondling" books. Neither was involved in kinky sex. They just found their passions elsewhere.

Mine is collecting. A few years ago I bought a carved Soviet T-34 tank with a chess clock contained in one set of treads. Under the turret was space for the chess pieces. It's a homemade item that never would end up in a Sotheby's auction. But when I saw it, well, to coin a phrase, my blood ran cold. Some Red Army veteran and chess enthusiast probably made it after surviving the Great Patriotic War. I love both chess and history. What could be cooler?

I still drop by the Forbes Magazine offices from time-to-time, but it isn't the same with the collections being sold off. Still, I can continue to touch history in my own way. After all, Felix and Lavrenti are always there, staring down at me even as I write these words.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to Ronald Reagan, he is the author of Foreign Follies: America's New Global Empire (Xulon).