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  • Author: John H. Makin
  • Publication Date: 08-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In a July 9 interview in Tokyo with the Financial Times about the surging, liquidity-driven financial sector, Citigroup chief executive Chuck Prince characterized the situation in global financial markets more insightfully than some investors might have wished: “When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.” Prince elaborated further, saying that (as the article paraphrased it) “the way big Wall Street banks and hedge funds had picked up troubled subprime mortgage lenders was an example of how 'liquidity rushes in' to fill the gap as others spot a buying opportunity.”
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, Tokyo
  • Author: John H. Makin
  • Publication Date: 07-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The bond “conundrum” that Alan Greenspan spoke of toward the end of his tenure at the Federal Reserve is disappearing. Chairman Greenspan was drawing attention to unusually low longterm interest rates worldwide on bonds.1 More recently, however, in less than a month interest rates on U.S. ten-year notes have risen by 60 basis points with no change in expected inflation. The shift is all the more unusual because of its abruptness and relative magnitude: in statistical terms, it is a rise of three standard deviations in “real” (inflation-adjusted) rates in a market that has been quiet over the past five years. Moreover, the few “surprise” moves since the tech-stock bubble burst in 2000 have mostly been in a downward direction.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The American consumer is a very persistent spending machine. It is American consumption growth running at higher than 4 percent annualized— well above its long-term average—that has kept the economy comfortably out of recession for the past six months as the housing slowdown has subtracted more than a percentage point from growth. Even with a substantial additional drag on the U.S. economy from other areas—inventory liquidation, weakening net exports, and rapidly rising gasoline prices—the American consumer's spending surge has still been enough to keep GDP growth in positive territory.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Friday, April 13, the Wall Street Journal's lead story on the unlucky U.S. economy was “Economy Enemy No. 1: Soft Capital Spending.” The nation's leading business newspaper was acknowledging a six-month slowdown in capital spending that has, along with the drag from the housing sector, been lowering U.S. growth.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 01-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Top economic policymakers from China and the United States met in Beijing in mid-December 2006 for the first round of what has been called the U.S.-China Strategic Economic Dialogue (SED). There is a lot more at stake than the level of China's currency when the world's premier economic sprinter—China—meets with the world's premier economic long-distance runner—America. The fundamental issue at hand is the creation and preservation of wealth of two nations, each of which has much to teach the other. The right outcome from the dialogue would provide a substantial boost to the global economy in coming years, while the wrong outcome would threaten the continuation of global prosperity.
  • Topic: International Relations, Economics
  • Political Geography: United States, China, Beijing, Asia
  • Author: Charles Murray
  • Publication Date: 02-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In January, W. H. Brady Scholar Charles Murray stepped back from current education debates about reauthorization of the 2002 No Child Left Behind Act and education funding in the president's budget to ask more fundamental questions about the goals that should shape American education in the future. This On the Issues is adapted from essays published in the Wall Street Journal on January 16, 17, and 18, 2007.
  • Topic: Development, Education, Government
  • Political Geography: United States, America
  • Author: Kenneth P. Green, Steven F. Hayward
  • Publication Date: 02-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On February 2, an AEI research project on climate-change policy that we have been organizing was the target of a journalistic hit piece in Britain's largest left-wing newspaper, the Guardian. The article's allegation—that we tried to bribe scientists to criticize the work of the United Nations Intergovernmental Panel on Climate Change (IPCC)—is easy to refute. More troubling than the article is the growing worldwide effort to silence anyone with doubts about the catastrophic warming scenario that Al Gore and other climate extremists are putting forth.
  • Topic: International Relations, Environment, United Nations
  • Political Geography: Britain, United States
  • Author: Thomas Donnelly, Colin Monaghan
  • Publication Date: 03-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The White House has recently taken important steps to ensure that the tenets of the Bush Doctrine endure beyond the end of President George W. Bush's administration, including a new strategy in Iraq and an increase in the size of U.S. land forces. But as time grows short, the president needs to attend closely to three matters. The first of these—a surge in U.S. efforts in Afghanistan—was discussed in the February 2007 edition of National Security Outlook, is a need as obvious and pressing as Iraq and an important factor in the urgency of rebuilding land forces, especially the Army. The second and third factors are less frequently discussed but essential for the long-term viability of the Bush Doctrine and the continuation of the Pax Americana: articulating a strategy for the “Long War” in the greater Middle East and devising a genuinely global response to the rise of China. This issue of National Security Outlook is devoted to the second factor, the strategy for winning the Long War in the Middle East.
  • Topic: Government, National Security, War
  • Political Geography: Afghanistan, United States, China, Iraq, America, Middle East, Asia
  • Author: Thomas Donnelly
  • Publication Date: 02-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: With the recent announcements of a new strategy for Iraq and a commitment to begin increasing the size of U.S. land forces, the White House has taken two important steps to ensure that the tenets of the Bush Doctrine endure beyond the end of President George W. Bush's administration. Since 9/11 and indeed since the beginning of this administration, strategy has been made by an odd combination of ad hoc improvisation and expansive rhetoric. The day-to-day business of fitting means to ends and filling in the policy blanks has either been delegated to subordinates, left to the bureaucracy, or put in the “too hard” box. As time grows short, Bush needs to attend closely to three further matters. The first is as obvious and pressing as Iraq and an important factor in the need to rebuild land forces, especially the Army: a surge in U.S. efforts in Afghanistan. The second and third factors are less frequently discussed but essential for the long-term viability of the Bush Doctrine and the continuity of the Pax Americana: articulate a strategy for the “long war” in the greater Middle East and devise a genuinely global response to the rise of China. This issue of National Security Outlook begins a series devoted to these three measures of the enduring meaning of the Bush Doctrine.
  • Topic: International Relations, Government, National Security
  • Political Geography: Afghanistan, United States, China, Iraq, America, Asia
  • Author: Roger F. Noriega
  • Publication Date: 02-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: "America is addicted to oil," President George W. Bush told the nation in his January 31 State of the Union address, "which is often imported from unstable parts of the world." Spelling out a plan for using technology "to develop cleaner, cheaper, more reliable alternative energy sources," the president set a worthy goal to "make our dependence on Middle Eastern oil a thing of the past." Although the president's long-term vision is of a country less dependent on petroleum, a near-term solution for being less reliant on "unstable" sources of energy can be found in encouraging resource-rich nations in the Western Hemisphere to adopt sound policies for developing their oil and gas industries. Without a concerted effort right now engaging government and industry, however, we may witness some countries with vast potential embrace statist models that squander their natural resources and make them less reliable and less stable partners.
  • Topic: Economics, Energy Policy, Environment
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 12-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: A weak housing sector has accompanied every American recession since 1965, but not every episode of housing weakness has accompanied a recession. An annual drop in the growth rate of residential investment (a good measure of homebuilding activity) of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965. (In 1967 and in 1995, declines in residential investment occurred without a recession.) A significant drop in residential investment therefore appears to be a necessary condition, but not a sufficient condition, for a U.S. recession.
  • Topic: Economics, Human Welfare, Markets
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 11-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The U.S. economy has slowed to a level below its trend growth rate during the second half of 2006. Trend growth, the rate that can be sustained over time without rising inflation, is probably about 3 percent, having been reduced by a quarter of a percentage point by weaker productivity data. As has often been the case over the past five years, the slowdown itself has set into motion market adjustments that may mitigate or even reverse it. Since August, interest rates on benchmark tenyear treasuries have dropped by about 60 basis points. That reduction, coupled with a stock market that is rising in part because of lower interest rates, has caused an easing of financial conditions equal to nearly 100 basis points since late June on the Goldman Sachs Financial Conditions Index. Meanwhile, since August, the price of oil has dropped by about $18 per barrel—which, if sustained, would be enough to add about 0.7 percentage points to U.S. growth over the next year.
  • Topic: Development, Economics, Markets
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 05-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The new Federal Reserve chairman, Ben Bernanke, is making what cynics would call a serious mistake: he is being honest with the markets. The Fed is uncertain about the future path of U.S. growth and inflation. The most basic tenet of the theory of economic policy is that in circumstances of elevated uncertainty, policymakers should do less. Therefore, in his April 27 testimony to the Joint Economic Committee of Congress, Bernanke suggested that the Fed might start doing less: Even if in the Committees judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook [emphasis added]. The new Federal Reserve chairman, Ben Bernanke, is making what cynics would call a serious mistake: he is being honest with the markets. The Fed is uncertain about the future path of U.S. growth and inflation. The most basic tenet of the theory of economic policy is that in circumstances of elevated uncertainty, policymakers should do less. Therefore, in his April 27 testimony to the Joint Economic Committee of Congress, Bernanke suggested that the Fed might start doing less: Even if in the Committees judgment the risks to its objectives are not entirely balanced, at some point in the future the Committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook [emphasis added]. After its May 10 meeting, the Feds Open Market Committee reinforced the message of more uncertainty about the direction of the economy, saying: The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information [emphasis added]. Chairman Bernanke and virtually all of his colleagues on the Open Market Committee have made it clear, most forcefully in their May 10 statement, that they view the Federal Reserves most important mandated objective as one of maintaining low and stable inflation. A glance at any long-run chart of U.S. growth and inflation data clearly demonstrates the basis for this view. Since the early 1980s, when inflation was reduced and held to low and stable levels, U.S. economic performance has improved markedly. Growth has been higher and steadier; productivity growth picked up especially after 1995 and has remained higher ever since. Virtually all macroeconomic data have stabilized in a way that has reduced the duration and severity of recessions, so that the last recession (in 2001) was barely detectable. The Great Moderation is an often-used term that describes policymakers pride and satisfaction with the beneficial results of bringing down inflation and holding it at low levels.
  • Topic: Economics, Government, Markets, Monetary Policy
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 05-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. The G7, significantly, also called for an increased role for the International Monetary Fund (IMF) to help countries, including those in the G7 but also China and others in emerging Asia, meet the macroeconomic and financial policy challenge of globalization. Specifically, the G7 supported the strengthening of IMF surveillance, including through increased emphasis on the consistency of exchange rate policies with domestic policies and a market-based international monetary system and on the spillover effects of domestic policies on other countries. The G7s endorsement of greater exchange-rate flexibility and of an enhanced IMF role in implementing it is important. The IMF, having been founded after World War II to maintain stable exchange rates among major economies, has become an advocate on behalf of the major economies of global exchange-rate flexibility. The lesson regarding the need for G7 currency flexibility was learned after Americas August 1971 abandonment of fixed exchange rates, which was followed by a decade of adjustments to higher oil prices that would have wreaked havoc under fixed exchange rates. The lesson for needed currency flexibility in emerging markets was learned after the disastrous attempt, fostered in part by the IMF, to impose fixed exchange rates during the Asian and Russian crises of 1997 and 1998, which prolonged and exacerbated the market gyrations caused by the crises. Sadly, China response to the G7-IMF call for greater currency flexibility has been both negative and misguided. China's foolishly insouciant attitude, captured in a comment by Zhou Xiao-chuan, governor of the Peoples Bank of China, carries with it serious risks both for China and for the world economy. Zhous remark was quoted on April 24 in the Wall Street Journal: [T]he speed of moving forward (on yuan appreciation) is OK. Its good for China and welcomed by many other countries. China's currency has appreciated only 1.2 percent since its initial 2.1 percent revaluation last July 21. That is less than OK. The total 3.3 percent revaluation against the dollar really represents no adjustment at all in view of the 1 to 2 percent inflation differential (lower in China) that has persisted between the United States and China over the past two years. If China had allowed prices to rise instead of mandating caps on prices of important commodities like gasoline, there would be less pressure for the yuan to rise in value. Both the intervention to cap the yuans appreciation and the capping of domestic prices are building up potentially disruptive inflation pressure inside China, as we shall see below. The most dangerous aspect of China's increased efforts to prevent yuan appreciation, as measured by accelerating reserve accumulation over the past year, is the rising pool of liquidity inside China that has resulted. The level of excess reserves in Chinese banks is now larger, relative to GDP, than the level of excess reserves built up in Japan from 2001 to 2005 during the years of a prolonged, desperate struggle against deflation. China's currency undervaluation, coupled with the massive liquidity buildup in its banking system, has resulted in excessive investment in China's state enterprises that have close traditional ties with the liquidity-sodden banks. The usual Chinese response to excess reserves has been to boost reserve requirements for its banks. But to absorb the huge pool of excess reserves now in place, reserve requirements would have to be boosted by 5 percentage points to 12.5 per-cent, going far beyond previous moves of 0.5 to 1 percentage point, and far beyond what China's shaky, insolvent banks could endure. When the Peoples Bank of China boosted its one-year benchmark lending rate on April 26 by 27 basis points (to 5.85 percent), it took a tiny step that will do little to tighten China's monetary stance.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States, China, Washington
  • Author: John H. Makin
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Concerns over deflation have dominated monetary policy during the past several years in Japan, and also in the United States as recently as 2003. As a result, the Bank of Japan and the Federal Reserve have been highly accommodative. In Japan, this took the form of a zero interest rate. In the U.S. context, it was manifest in rates at well below normal yardsticks, such as nominal GDP growth that would call for U.S. policy interest rates close to 6 percent rather than at current levels below 5 percent. Unusually accommodative monetary policies and the substantial liquidity flows they have entailed have boosted asset values and compressed risk spreads. Consequently, demand growth has persisted at high levels for long enough to cause modestly higher inflation. The time has come for tighter monetary policy, and central banks in the United States, Europe, and Japan have all begun to apply it.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Japan, Europe, Israel, East Asia
  • Author: John H. Makin
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Tuesday, January 18, the yield on fifty-year inflation-protected U.K. government bonds (what the British call "indexed-linked gilts") dropped to 0.38 percent, about one-seventh the historical average of just over 2.6 percent for such debt instruments. Just a few months earlier, that yield had been over 1 percent, still extraordinarily low by historical standards, and especially low in an economy that has experienced fifty-three consecutive quarters of positive growth. A yield drop from 1 percent to 0.38 percent on a fifty-year bond corresponds to a 30 percent rise in its price over a period of just three months. That is an annual return of over 100 percent, much higher than the 13 percent annual increase in U.S. house prices at midyear and the 20 to 30 percent gains seen in the stock market before the March 2000 crash. The asset bubble has spread to long-term government bonds, especially those with inflation protection. What is going on here?
  • Topic: Economics, Government, International Trade and Finance
  • Political Geography: United States, United Kingdom, Europe
  • Author: Dan Blumenthal, Gary J. Schmitt
  • Publication Date: 10-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The recent election of Shinzo Abe to the premiership of Japan has raised a host of issues about the direction in which Japan is headed. Conventional wisdom holds that Abe will lead the country in an increasingly nationalistic course, but Abe's nationalism is democratic, and one that should be welcomed by the United States.
  • Topic: International Relations, Nationalism, Politics
  • Political Geography: United States, Japan, Israel
  • Author: Nicholas Eberstadt
  • Publication Date: 09-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Without a clearer understanding of the serious flaws in the government's official measure of poverty, most initiatives aimed at reducing poverty in the United States will be needlessly ineffective. New measures that take into account contemporary lifestyles and the dynamic U.S. economy will be more useful in helping the poor.
  • Topic: Economics, Government, Poverty
  • Political Geography: United States
  • Author: James Q. Wilson
  • Publication Date: 08-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: When President George W. Bush said that America hopes to spread democracy to all the world, he was echoing a sentiment many people support. Though Americans do not put “extending democracy” near the top of their list of foreign policy objectives (preventing terrorism is their chief goal), few would deny that if popular rule is extended it would improve lives around the world. Democracy, of course, means rule by the people. But the devil is in the details. By one count, the number of democracies quintupled in the second half of the twentieth century, but there are freedom- loving and freedom-disdaining democracies. Fareed Zakaria calls the latter “illiberal democracies.” Among them are Kazakhstan, Pakistan, Ukraine, and Venezuela.
  • Topic: International Relations, Democratization, Government
  • Political Geography: Pakistan, United States, Ukraine, Kazakhstan, Venezuela
  • Author: James Q. Wilson
  • Publication Date: 08-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Federal district court Judge Anna Diggs Taylor has ruled that the warrantless interception of telephone and Internet calls between a foreign agent and American persons is illegal and unconstitutional. It is possible that she is right about the illegality, but she is almost surely wrong that it is unconstitutional. The government has appealed this decision to the Sixth Circuit. No one can say what it will decide, although other appeals courts have tolerated such surveillance. Ultimately the Supreme Court will have to decide the matter. The Constitutional arguments against the surveillance are unpersuasive. A Washington Post editorial dismissed them as “throat clearing.” Judge Taylor refers to the free speech provision of the First Amendment but fails to explain how listening to a conversation or reading e-mail abridges anyone's right to speak. Taken literally, a Constitutional ban on intercepts would make it impossible to overhear the mafia plotting murders or business executives fixing prices.
  • Topic: Civil Society, Human Rights, Politics
  • Political Geography: United States, Washington
  • Author: Vance Serchuk
  • Publication Date: 07-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: When rioting sparked by a fatal traffic accident involving the U.S. military suddenly broke out in Kabul in May, most in the city were taken by surprise. Less shocking was the response of the Afghan National Police (ANP) to the unrest. Rather than dispersing the mobs and restoring order, Kabul's cops were reported fleeing their posts and, in some cases, joining the looters. “The reaction of our police was really shameful,” acknowledged Jawed Ludin, chief of staff to President Hamid Karzai. Unfortunately, the sorry performance of the ANP was not an isolated event, but a reflection of a much bigger problem. Nearly five years since the ouster of the Taliban and more than three since the fall of Saddam, the Bush administration has repeatedly stumbled in its efforts to create effective foreign police forces. In marked contrast to the army-building efforts in Iraq and Afghanistan, which have begun to yield encouraging results, the indigenous police in both countries appear stuck in a transition to nowhere, slaughtered by insurgents and infiltrated by militias and warlords.
  • Topic: Government, Terrorism, War
  • Political Geography: Afghanistan, United States, Iraq, Middle East, Taliban, Kabul
  • Author: Peter J. Wallison
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In December, the London Stock Exchange celebrated a record year for foreign company new issues, with 129 new listings by companies from twenty-nine different countries. In contrast, the New York Stock Exchange registered a net gain of six foreign listings (a gain of nineteen and a loss of thirteen) in 2005, and NASDAQ gained a net of fourteen. According to a press report by the London Stock Exchange on its success, “about 38 per cent of the international companies surveyed said they had considered floating in the United States. Of those, 90 per cent said the onerous demands of the new Sarbanes-Oxley corporate governance law had made London listing more attractive.” By now, it is well-known what harm Sarbanes-Oxley has done to the attractiveness of the U.S. securities markets, but what is not well- known is that the lack of resources available to a relatively obscure accounting group—engaged in the development of a technical-sounding disclosure system called XBRL—may also threaten not only the current primacy of the U.S. financial markets, but also the future competitiveness of U.S. companies.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, New York, London
  • Author: Michael Rubin
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On February 2, 2006, the International Atomic Energy Agency will meet in Vienna to discuss the nuclear crisis in Iran and, in all likelihood, refer Iran to the United Nations Security Council for being in breach of the Nuclear Non-Proliferation Treaty's safeguards agreement. Such a referral will mark a turning point in a decade-long saga. Europe's engagement with Iran has failed. The United States and its European allies have been resolute in their condemnation of the Iranian government decision to resume uranium enrichment. In contrast to previous diplomatic impasses with Tehran, neither Washington nor its European allies appear willing to make further concessions. On January 23, U.S. secretary of state Condoleezza Rice said, “I don't see much room for further discussion in any format [with Iran].” At a January 13, 2006, press conference with German chancellor Angela Merkel, George W. Bush condemned Iran. “Iran, armed with a nuclear weapon, poses a grave threat to the security of the world,” Mr. Bush said. “We will not be intimidated,” Ms. Merkel added. Already, though, there has been one casualty of the diplomatic crisis: the European Union's policy of engagement.
  • Topic: International Relations, Nuclear Weapons, United Nations
  • Political Geography: United States, Europe, Iran, Washington, Middle East, Tehran, Germany, Vienna
  • Author: Edward Blum, Roger Clegg, Abigail Thernstrom
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Government memos leaked to the press are nothing new in Washington, yet they can still command a front-page, above-the-fold headline. The latest came on December 2, 2005, when the Washington Post trumpeted, “Justice Staff Saw Texas Districting as Illegal; Voting Rights Finding on Map Pushed by DeLay Was Overruled.” (Part of this story was recycled by the Post on Monday, January 23, in another front-page, above-the-fold story.) The story that followed loosely described the contents of a 2003 internal Department of Justice memo written by career staffers in the voting section of the civil-rights division. Those staffers—five lawyers and two analysts—had concluded that the Congressional redistricting plan Texas had recently submitted to them for approval was in violation of the 1965 Voting Rights Act because it “retrogressed”—or, more simply, “diminished”—the electoral position of blacks and Hispanics. Then attorney general John Ashcroft and the political appointees in the civil-rights division—as well as, incidentally, a career lawyer higher in the chain of command (a fact that the Post failed to note)—rejected the memo's findings and allowed Texas to implement the new plan.
  • Topic: Civil Society, Government, Politics
  • Political Geography: United States, Washington
  • Author: Frederick W. Kagan
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The debate about American policy and strategy in Iraq has veered off course. A number of myths have crept into the discussion over the past two years that distort understanding and confuse discussion. It is possible and appropriate to question the wisdom of any particular strategy proposed for Iraq, including the Bush administration's strategy, and there is reason to be both concerned and encouraged by recent events there. But constructive dialogue about how to choose the best way forward is hampered by the distortions caused by certain myths. Until these myths recede from discussions about Iraq strategy, progress in those discussions is extremely unlikely.
  • Topic: Security, War
  • Political Geography: United States, Iraq, America, Middle East
  • Author: Thomas Donnelly
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: For the world's unreconstructed monarchies, autocracies, and tyrannies—the demographic of aggressive states— and for those like Osama bin Laden, Ayman al-Zawahiri, and Abu Musab al-Zarqawi who aspire to create such states, there is not much to like about American geopolitical preeminence. Indeed, it sometimes appears as though it is the United States that is the aggressive, rising power. President George W. Bush's desire to maintain a “balance of power that favors freedom,” coupled with hyper-powerful means, prevents the United States from acting like a traditional, status-quo power. Viewed from the outside, the Pax Americana can appear less than peaceful.
  • Topic: International Relations, Security, Foreign Policy, Sovereignty
  • Political Geography: United States
  • Author: Katrina Kosec, Scott Wallsten
  • Publication Date: 09-2005
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Government policies are routinely subjected to rigorous cost analyses. Yet one of today's most controversial and expensive policies—the ongoing war in Iraq—has not been. The $212 billion allocated by the U.S. Treasury has been widely reported. But the real, direct economic costs include more than budgetary allocations. Other costs include lives lost, injuries, and lost civilian productivity of National Guard and Reserve troops mobilized for the conflict. The conflict, however, also has gene rated cost savings, especially in terms of resources no longer being used to enforce UN sanctions and people no longer being killed by Saddam Hussein's regime.
  • Topic: Economics, War
  • Political Geography: United States, Iraq, Middle East, Palestine
  • Author: Veronique de Rugy
  • Publication Date: 09-2005
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Congress should direct home land security funding to program s that provide the greatest return in the most crucial security missions. Since the number of possible attacks is effectively unlimited and the resources we can devote to the fight against terror are limited, spending should not occur without a careful cost-benefit analysis. Most importantly, it is perfectly reasonable to decide not to implement an antiterrorism measure, not because it has no benefit, but because the costs are too high compared to the potential benefits. Of course, program s that are not cost effective should never be implemented.
  • Topic: Security, Defense Policy, Economics
  • Political Geography: United States
  • Author: Gautam Adhikari
  • Publication Date: 06-2005
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: From October 2003 to October 2004, the American Enterprise Institute hosted a series of roundtable discussions and public events to examine expanding and deepening relations between the United States and India. This document is a summary of issues emerging from these discussions, and includes a select list of observations made at the roundtable sessions. Participants included scholars, journalists, diplomats, officials, foreign policy analysts, economists, business executives, entrepreneurs, and visiting Indian parliamentarians.
  • Topic: International Relations
  • Political Geography: United States, America, India, Asia
  • Author: Veronique de Rugy
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: International terrorism is probably the greatest security challenge America faces today. Policymakers have responded in two ways--going after terrorists abroad and improving security against terrorism at home by boosting homeland security funding. Regarding the latter, total spending directed to homeland security activities will be at least $50 billion for FY2006.Yet, the important question is whether America is getting the maximum level of benefit in exchange for this increase in spending. This paper performs a detailed review of homeland security's spending practices. First, it takes a look at the economics of homeland security spending and contrasts that with the politics of decision-making in this area. Second, it examines the state of homeland security spending. Finally, the paper analyzes how homeland security funds are being allocated and asks whether this is conducive to achieving improved security in the United States. This updated version also includes a review of federal spending to bolster port security.
  • Topic: International Relations, Economics, Terrorism
  • Political Geography: United States, America
  • Author: Karlyn H. Bowman
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: What do Americans think about the health of the Social Security system and proposals to reform it? This AEI Public Opinion Study looks at how different pollsters have approached the issue. It provides historical data and includes trends on aspects of the debate from major pollsters.
  • Topic: Security, Economics, Government
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 10-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Japan's stock market, one of the world's strongest this year, is up about 20 percent since spring. It is doing remarkably well for a country whose nominal GDP is still below its 1997 level. By contrast, the U.S. stock market has been drifting lower all year. The S 500 Index is down about 4 percent in the last five months, even more when the highflying energy sector is excluded. This is the case despite U.S. nominal GDP having grown by a cumulative 46 percent since 1997. Clearly, stock markets are looking ahead and seeing a brighter future for Japan than for the United States.
  • Topic: International Relations, Development, Economics
  • Political Geography: United States, Japan, Israel, East Asia
  • Author: John H. Makin
  • Publication Date: 10-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The U.S. economy was in recession when the 9/11 terrorist attacks struck New York and Washington, D.C. Yet within a few months, despite fears of a collapse in confidence, consumption growth surged to a fourth-quarter annualized rate of nearly 5 percent, up sharply from a 1 percent rate during the third quarter. That consumption surge was enough to drag the economy out of what turned out to be a mild recession. By the first quarter of 2002, overall growth reached a booming 5 percent rate.
  • Topic: Development, Economics, Environment, Terrorism
  • Political Geography: United States, New York, Washington
  • Author: John H. Makin
  • Publication Date: 08-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Among the more remarkable features of the U.S. economy over the past five years—through a tech-stock collapse (from which we have still not recovered), the 9/11 disaster, and numerous chastening corporate scandals —has been the extraordinary resilience of American consumers. To paraphrase H. L. Mencken, no one has ever gone broke (at least not recently) by overestimating the willingness of Americans to spend money.
  • Topic: Development, Economics, Government
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 08-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The persistence of annualized economic growth of about 3.5 percent—despite crude oil prices between $50 and $60 per barrel—has led many analysts to claim that the U.S. economy has already "absorbed" the shock of $2.35-plus-pergallon prices for self-serve regular gasoline along with a rise in heating oil costs of more than 30 percent over the last year. As if to underscore their insouciance over energy costs, American consumers accelerated the volume of vehicle purchases in June, especially those of light trucks that get only twelve or thirteen miles per gallon.
  • Topic: Development, Economics, Government
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 06-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Paul Samuelson once quipped elegantly that (falling) stock prices had predicted seven out of the last three recessions. There is indeed wisdom in the suggestion to ignore wiggles in the financial markets as indicators of the behavior of the real economy that produces goods and services.
  • Topic: Development, Economics, Government
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 05-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The Federal Reserve's measured move toward a "neutral" federal funds rate, the short-term rate that keeps the economy growing at about 3.5 percent, is a tricky process. No one knows with certainty what the neutral fed funds rate is, and it changes over time. As long as the Fed keeps raising rates and the economy keeps growing at or above trend, it is reasonable to infer that the neutral fed funds rate is higher than the current rate. The corollary to that proposition is that rates have to be boosted above the neutral rate, inducing an asset market collapse, a real economy slowdown, or both to infer that the neutral rate has been exceeded. It is beginning to appear as though the current rate of 2.75 percent is at or above neutral. If so, that would be about a full percentage point below what many were guessing.
  • Topic: Development, Economics, Government
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 02-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The average forecast for 2005 U.S. growth is 3.5 percent, with some prognosticators hoping for 4 percent. This forecast is predicated upon the assumption that the economy is on a sustainable expansion path, where consumption will be supported by steady growth of employment and household incomes. The 3.5 percent growth forecast for 2005 is identical to the mean growth rate of the U.S. economy since 1947. However, there is good reason to believe that the consensus forecast is too high. This possibility has important consequences because U.S. growth must be sustained at least at average levels to avoid a sharp drop in global growth. There are no signs of higher growth in Europe and Asia. Growth in Japan is looking weaker, while Chinese growth is moderating.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, Japan, China, Europe, Asia
  • Author: John H. Makin
  • Publication Date: 01-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The pundits who have been predicting higher interest rates based on large U.S. budget and current account deficits have some explaining to do. Beyond the fact that very little systematic empirical evidence exists of a close link between deficits of any kind and interest rates, many high-profile commentators such as Robert Rubin and Pete Peterson, not to mention Pimco's Bill Gross, have consistently warned that long-term interest rates would rise as America's budget and current account deficits rose. Actually, U.S. longterm interest rates have been falling-from 4.8 percent in early June to 4.1 percent at year-end. Despite this stellar performance, Gross has even gone so far as to suggest that U.S. government liabilities should be downgraded from their top rating of AAA to AA.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: James Q. Wilson
  • Publication Date: 12-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: My fellow Americans, we are winning, and winning decisively, in Iraq and the Middle East. We defeated Saddam Hussein's army in just a few weeks. None of the disasters that many feared would follow our invasion occurred. Our troops did not have to fight door to door to take Baghdad. The Iraqi oil fields were not set on fire. There was no civil war between the Sunnis and the Shiites. There was no grave humanitarian crisis. Saddam Hussein was captured and is awaiting trial. His two murderous sons are dead. Most of the leading members of Saddam's regime have been captured or killed. After our easy military victory, we found ourselves inadequately prepared to defeat the terrorist insurgents, but now we are prevailing.
  • Topic: Civil Society, Government
  • Political Geography: United States, Middle East, Baghdad
  • Author: James Q. Wilson
  • Publication Date: 12-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: National Review, at its founding in 1955, had as its mission stating and defending a conservative view in a nation that many believed had known only a liberal tradition. It was a difficult task, not only because of liberalism's apparent supremacy, but because it was not easy to define a conservative alternative. Conservatism could mean free-market economics, the reassertion of a traditional morality, or the endorsement of a religious or classical basis for moral thought. In the spirited discussions that took place in this magazine and elsewhere, each of these views had its proponents, and—as they made quite clear—their views were often in conflict. Individualism and free-market economics could leave morality to personal and even aberrant judgments, but a revival of moral thought and a reassertion of its religious basis could easily suppress individual choice and impose regulatory restraints on the market.
  • Topic: Civil Society, Ethnic Conflict, Human Rights
  • Political Geography: United States, America
  • Author: Frederick W. Kagan
  • Publication Date: 12-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Is retreat from, withdrawal from, or defeat in Iraq inevitable? Almost all opponents of the Bush administration say it is. As Representative John Murtha (D-Pa.) put it in mid-November, when demanding the “immediate redeployment of U.S. troops” consistent with their safety, “The United States cannot accomplish anything further in Iraq militarily. It is time to bring the troops home.” This was echoed more recently by Democratic National Committee chairman Howard Dean: “The idea that we're going to win this war is an idea that, unfortunately, is just plain wrong.” Advocates of withdrawal point to continuing attacks on coalition and Iraqi targets and to the steady, somber flow of U.S. casualties, as well as the increasing fear that our army will break under the strain of prolonged occupation. Administration supporters of course share these concerns, and some seem (privately) to share the view that the war may be unwinnable. Even a few inside the administration may have their doubts. In any case, the administration clearly believes that it has to promise a significant reduction of U.S. forces in Iraq—“conditions permitting”—in 2006. Reports are circulating that preparations for troop reductions have already begun.
  • Topic: International Relations, War
  • Political Geography: United States, Iraq, Middle East
  • Author: Michael S. Greve
  • Publication Date: 10-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Berlin is far from Baghdad, and the Germans at least want to keep it that way. But for all the obvious differences, Germany's inconclusive election results and the impending constitutional referendum in Iraq point to some identical obstacles to effective and constitutional government. These obstacles are proportional representation and “cooperative federalism.” As it happens, well-meaning UN officials, NGOs, and U.S. advisers have been urging these constitutional arrangements upon numerous fledgling democracies, including Iraq. That may not be good advice.
  • Topic: Government, United Nations
  • Political Geography: United States, Iraq, Europe, Middle East, Baghdad, Germany, Berlin
  • Author: Michael Rubin
  • Publication Date: 09-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Iraqis gathered around television sets as midnight approached on August 22. They watched as constitutional-drafting committee members and political elites whispered among themselves. When the speaker of the national assembly, Hachim al-Hasani, declared, “We have received a draft of the constitution,” the assembly erupted in applause. “But,” he added, “there are some points that are still outstanding and need to be addressed in the next three days.” Late into the night, politicians and activists continued to meet in the Baghdad homes of the major powerbrokers, grappling with the roles of federalism and Islam in the new Iraq. While U.S. diplomats and Washington advisers continue to facilitate compromise among Iraq's disparate sectarian, ethnic, and political groups, the reality emerging outside Baghdad is directly challenging Iraq's aspirations to constitutionalism. The U.S. government has spent hundreds of thousands of dollars to bring outside experts to Baghdad for a period of a few days or a few weeks, but Iraqi powerbrokers dismiss their advice as naive or irrelevant. Massoud Barzani in the Kurdish north and Abdul Aziz al-Hakim and Muqtada al-Sadr in the Shiite south have rejected the experts' academic proposals, and have chosen instead a model perfected by Yasser Arafat, the late chairman of the Palestine Liberation Organization.
  • Topic: International Relations, Politics
  • Political Geography: United States, Iraq, Washington, Middle East, Baghdad
  • Author: Richard Vedder
  • Publication Date: 09-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: As college students begin a new academic year, many parents are reeling from tuition charges. This fall's estimated 8 percent average increase at public universities, added onto double-digit hikes in the two previous years, means tuition at a typical state university is up 36 percent over 2002—at a time when consumer prices in general have risen less than 9 percent. In inflation-adjusted terms, tuition today is roughly triple what it was when parents of today's college students attended school in the 1970s. Tuition charges are rising faster than family incomes, an unsustainable trend in the long run. This holds true even when scholarships and financial aid are considered. One consequence of rising costs is that college enrollments are no longer increasing as much as before. Price-sensitive groups such as low-income students and minorities are missing out. A smaller proportion of Hispanics between eighteen and twenty-four attends college today than in 1976. The United States is beginning to fall below some other industrial nations in population-adjusted college attendance.
  • Topic: Development, Economics, Education, Government
  • Political Geography: United States
  • Author: R. Glenn Hubbard
  • Publication Date: 09-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Ceremonial gift-giving is an integral part of doing business in China. The value lies not so much in the gift (whose packaging is often more elaborate), but in the possibility of cementing a mutually beneficial relationship. And so it was a few weeks ago with the headline-grabbing announcement that China would revalue the yuan against the U.S. dollar. The modest gesture may make more possible a comprehensive economic dialogue between China and the United States in the interest of both nations. The announcement on July 21 by the People's Bank of China that it would revalue the yuan, abandoning the eleven-year-old peg of 8.28 yuan per U.S. dollar, caught financial markets by surprise. The jolt led market participants to gauge effects of current (and perhaps future) revaluations on currency values and interest rates. And, some U.S. political leaders claimed a victory in the campaign to blame Chinese “market manipulation” for external imbalances facing the United States.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, China, Asia
  • Author: John R. Lott Jr.
  • Publication Date: 06-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Statistical evidence indicates that qualifications, experience, and potential influence are far greater factors in delaying or rejecting judicial nominees than perceptions of extremism.
  • Topic: Development, Government, Politics
  • Political Geography: United States
  • Author: Michael Rubin
  • Publication Date: 05-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Although the mistakes of the past two years in relations between the United States and Turkey cannot be undone, Washington and Ankara stand to lose a great deal if relations continue to deteriorate. If differences can be overcome, however, this partnership could help to resolve important regional issues such as the status of Kirkuk and Iraqi constitutional debates, and to ensure Iraqi stability and Turkish security.
  • Topic: International Relations, Foreign Policy, Democratization, Economics
  • Political Geography: United States, Iraq, Turkey
  • Author: Roger Bate
  • Publication Date: 02-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Without pressure from outside nations, upcoming elections in Zimbabwe are almost certain to hasten the country's slide into dictatorship under longtime leader Robert Mugabe. Pressure must be brought to bear on Zimbabwe's Southern African neighbors to enforce the agreed election protocols or they, and not just Zimbabwe, should face the withdrawal of aid, trade deals, and other U.S. largesse.
  • Topic: International Relations, Government
  • Political Geography: Africa, United States
  • Author: John H. Makin
  • Publication Date: 02-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Alarmists who call for American households to save more point to a steady drop in the conventionally measured U.S. saving rate to about 1 per- cent at the end of last year and to a rise in household debt to a level well over 100 percent of personal disposable income. The current account deficit, our external deficit, measures national dis-saving at close to 6 percent of GDP. The federal government's budget deficit contributes about 4 percentage points to national dis-saving and it, too, is the subject of considerable hand-wringing by those who point to a need for higher U.S. saving at both the household and national levels.
  • Topic: Security, Economics, Government
  • Political Geography: United States, America