John Dunn on American Exceptionalism (2005)

No government can make a country prosper; but any government can ruin one; and most today are in a position to do so very rapidly and extremely thoroughly. The country of which this is least clearly true is the United States of America; and the obstacles which stand in the way of its doing so are still a plain legacy from the efforts of Madison and his colleagues...
--John Dunn, Setting the People Free: The Story of Democracy (2005), p. 135 and n.

Obama's Green Offensive against Investors

The Obama budget aims to raise $645.7 billion dollars through 2019 by selling green-house gas permits to emitters. The administration calls this plan a "cap and trade" program for the control of greenhouse gas emissions. But the Obama plan is quite different from the cap and trade program in force in Europe or that proposed in 2007 for the United States by Joe Lieberman (and endorsed in principle by John McCain). The European system and the Lieberman plan allocate rights to emit greenhouse gases to existing emitters. Such plans reduce emissions by reducing in subsequent years the amount of greenhouse gases these certificates permit.

The Obama plan, by contrast, calls for one hundred percent of the rights to emit to be auctioned off by the government. The industrial plant of emitters, therefore, whether we are speaking of coal-fired power plants, steel factories, or oil refineries, will be worthless without the permits.

The effect of the Obama scheme will thus be to auction off the investments in existing emitters to the purchasers of emissions permits. Obama's scheme for "a hundred percent auction," as he called it during the campaign, is in fact an expropriation of the capital invested in emitting plants. Obama wants to expropriate capital for the benefit of the government, which gains the revenue from the sale of permits.

Such a capital levy is bad economics, destructive of investors' confidence not only in the prospects of emitting corporations but in the Obama administration's attitude toward investment capital as a whole.

A capital levy of this kind is bad economics because it poses the threat of subsequent capital levies in future years. The problem was demonstrated by the economists Finn Kydland and Edward Prescott in a 1977 paper which helped win them the 2004 Nobel Prize. If auctioning off the industrial plant of "carbon polluters" is a good idea in 2009, Kydland and Prescott teach us to ask, why not do it again in 2010? All one has to do is auction off a new set of required permits and raise further revenue in 2010. True, such a move would expropriate those who bought permits in the 2009 auction, but if expropriating the original owners didn't bother us back in 2009, why should expropriating the new owners in 2010?

Stock markets have declined precipitously since the inauguration in good part because of the threat that something like Obama’s “one-hundred percent auction” will be implemented. Stocks of carbon emitters, especially utilities, have taken a big hit because of the threat of government seizure of the value of their assets. Moreover, investors fear that similar "one hundred percent auctions" are in store for other sectors of the economy as well. Imagine how much revenue can be raised by expropriating the value of nuclear power plants if the government auctions off the right to store nuclear waste, or from the HMO industry if the government auctions off the right to bill Medicare, or from the pharmaceutical industry if the government auctions off the right to sell FDA-approved drugs.

Of course, this path paved with capital levies is the road to ruin for investors, that is to say pretty much everybody with a pension plan, 401-K, IRA or life insurance policy. What is bad for investors is bad for the American economy as a whole. Avoiding such policies, as Prescott says in his 2004 Nobel lecture, is the most important thing the government can do to produce economic success, or in America's current plight, economic recovery.

Because the Obama plan is bad economics, it also violates the economic reasoning embodied in the Fifth Amendment of the Constitution, which forbids the taking of private property for public use, "without just compensation." The Obama plan takes the private property of investors in emitting plants, and raises revenue precisely to the extent that it denies these investors just compensation. If the relevant public purpose is control of greenhouse gas emissions, a genuine cap and trade program as proposed by Senator Lieberman answers the purpose without engaging in unconstitutional raids on our savings.

Fortunately there are effective steps that legislators can take to stop the Obama scheme before it does any more harm. The first step is for enough Democrats to join with Republicans to keep the Obama plan from being rammed through in the budget process, which does not allow for debate sufficient to air the economic and constitutional difficulties with the Obama plan.

When control of greenhouse gas emissions comes up in the ordinary legislative process, it is the duty of legislators to consider some variant of the Lieberman scheme. That plan at least avoids expropriating capital, because it gives the emission rights largely to the existing emitters. Some of those existing emitters would doubtless shut their plants, finding it more profitable to sell their emission rights to more efficient emitters. A coal-fired power plant, for example, might turn off the boilers and sell its allocation of permits to a natural gas-fired power plant, because natural gas-fired power plants produce about twice the amount of electricity that coal-fired power plants do for the same emission of greenhouse gases. But the lost investment in the coal-fired plant would be compensated by the resale value of the emissions permits.

As the Europeans have learned through hard experience, any cap and trade scheme will impose large burdens on consumers through higher prices for electricity, gasoline, and pretty much the whole range of manufactured products. This is reasonable if greenhouse gas caps will indeed do enough to mitigate climate change to outweigh the caps' very large costs.

But however that scientific and economic debate should go, allocating the right to emit to existing emitters, along the lines of the Lieberman scheme, accomplishes the putative public purpose of reducing greenhouse gas emissions without threatening investors or the Constitution.

Levis A. Kochin, Department of Economics, University of Washington
Michael S. Kochin, Department of Political Science, Tel Aviv University (corresponding author)
kochin@post.tau.ac.il

Thoughts on Failing to Win

As some of you may know, when I first published my views on the Winograd preliminary report on the Israel Political Science Association email list, commission member Yehezkel Dror responded to the whole list by recommending three books on evaluating war results. These are, for those of you who want to do your homework:

1. Dominic D. P. Johnson and Dominic Tierney, Failing to Win: Perceptions of Victory and Defeat in International Politics. Cambridge, MA:Harvard University Press, 2006.

2. Robert Mandel, The Meaning of Military Victory. Boulder, CO: Lynne Rienner, 2006.

3. William C. Martel, Victory in War: Foundations of Modern Military Policy. Cambridge, UK: Cambridge University Press, 2007.

I have now read Johnson and Tierney, Failing to Win (I will get to the others eventually, insh'allah).

This is a good book, which examines 4 cases (The Cuban missile crisis, Tet, the Yom Kippur War, Somalia '92-93, and The War on Terror/War in Iraq) where perceptions of victory differ markedly from what a neutral observer "keeping score" might expect. For example, Tet was in military terms a massive defeat for the Viet Cong, which was more or less destroyed as an organization, and for North Vietnam. But the magnitude of the offensive transformed American elite and popular opinion from supportive of the US war in Vietnam to skeptical. Most importantly, Johnson and Tierney show that democracies tend to be biased against themselves in assessing who won or lost.

From reading this book one can learn a lot about why it would be difficult for the Israeli public to get an accurate view of the battlefield results and political/diplomatic consequences of the second Lebanon war.

But the Winograd commission was not appointed to explain why Israelis think the war was a failure. Presumably, the public knows what it thinks. The commission was appointed to examine whether it was a failure, and if so, which decision-makers and/or rooted institutional habits were responsible.

I often see references to the Winograd commission as an expert commission, which it certainly is. Its members include two major generals, a distinguished retired judge, and two first-rate academics, a public administration scholar and a jurisprude. But it has no former cabinet members, no diplomats, no intelligence experts, and no academics from Middle East Studies or international relations, the professions most relevant to inquiring into the actual consequences of the war.

Eli Yishai and Bombing Lebanese Infrastructure

Today I read Eli Yishai's testimony. Yishai serves in the Olmert Government and Minister of Industry and Commerce, and as the senior minister from Shas he is a deputy Prime Minister and member of the inner cabinet that made operational decisions during the war.

What I learned from Yishai's testimony is that Olmert's decision not to bomb the power infrastructure in Lebanon, as Halutz proposed and as Yishai and apparently Haim Ramon favored, turned out, at least in retrospect, to be one of the crucial decisions of the war. But to see why is a little complicated.

The whole strategy proposed by Halutz and approved by Peretz was based on provoking international (i.e. American/French) intervention to the end the war with a diplomatic solution that achieved Israel's goals. Olmert was told by the Americans not to bomb the power stations or attack the electric grid (as the Clinton administration did in Kossovo, in what was the model for Halutz and Olmert), and so he refused to allow this part of Halutz's plan.

But Yishai, according to his testimony, thought that it was crucial to bomb the power stations so as to first, make Lebanon as a whole pay for harboring Hezbollah hostiles, and second, to provoke the international intervention that would end the war.

In retrospect is is hard to say whether Yishai was right and Olmert was wrong. Certainly, the Olmert government failed to anticipate that they would be given a free hand even after the first few days of fighting, and so they engaged for the remaining weeks of the war in search of some way to end it and get the diplomatic solution they wanted from the process of ending the war. On the other hand perhaps Olmert was right that bombing the electrical infrastructure in Lebanon would indeed have provoked Western intervention, but not on terms favorable to Israel.

The kicker, and the motivating reason for this whole blog, is that Israel's principal diplomatic goals (getting the Lebanese army into the South, and getting the Government of Lebanon to acknowledge its sovereign responsibility to prevent cross-border attacks on Israel) were indeed accomplished by Olmert's policy. So whether Yishai was right or not, the long-run difference is pretty small. Of course, if the diplomatic success of the war was better understood, we wouldn't be in this mess and I wouldn't be blogging.

Kochin vs. Sivan on Outcome of the Second Lebanon War

Went last Wednesday night to the IDC in Herziliya to hear a panel on the Winograd report.

The presentation that really struck me was Emmanuel Sivan's. Sivan is generally regarded as Israel's leading Arabist.

Sivan argued that the Olmert government failed to appreciate the nature of the changes in Lebanon since 2005, that these changes were favorable to Israel, and that by going to war last summer Israel had put a brake on these changes.

When I got a chance to ask a question, I asked Sivan that since Nasrallah was trying to put a brake on these changes himself, would it be more accurate to say that Halutz et al. were trying to speed them up? And weren't they successful in speeding them up?

Sivan proceeded to agree with me. It is true, Sivan said, that Hezbollah was much weaker because its independent armed struggle has been delegitimated in Lebanese public opinion, and the Lebanese Army and (now-reinforced) UNIFIL are deployed in Southern Lebanon. But, Sivan claimed, all this had been accomplished by accident, through no design of Olmert and Halutz.

Amnon Rubinstein, who was also on the panel, agreed with Sivan's claim that the beneficial consequences of the war had nothing to do with the Olmert Government's attempt to bring about these consequences.

Personally, I think that if somebody sets out to bring about a certain state of affairs, and then that state of affairs comes about, one needs some actual evidence to refute the presumption of causality.

Clausewitz רון בן ישי נגד

בן-ישי מאשים את חלוץ בראייה אסטרגית ומדינית, בזה שחלוץ רואה ניצחון המערכה כאמצעי ולא כמטרה.
מאשים אותו על הבנה שלבנון של 2006 אחרי רצח חרירי הוא לא לבנון של דין וחשבון וענבי זעם.
מאשים את חלוץ בהבנה שלהפציץ לעומק לבנון זה לא כמו החלפת אש רחב היקף לאורך הגבול.
לחלוץ, כמו שכתוב במאמר, מתגלגל עיקר האחריות על תוצאות המלחמה.
אבל מי שמסתכל ברצינות על החזבאללה כרגע זה (וראה הטור של טום פרידמאן בשבוע שעבר) מבין שהתוצאה:
ניצחון מדיני ישראלי

The Winograd Report and the Results Test

The Winograd Report, in its preliminary version issued 30 April, covers four main areas: First, it provides an account of the situation on Israel's northern border from the unilateral withdrawal from Lebanon in May 2000 up until the Hezbollah attack on an Israeli patrol and the abduction of Ehud Goldwasser and Eldad Regev. Second, it provides a factual account of the events and decisions in the first six days of the Second Lebanon War, 12 -17 July, 2006. Third, it provides theoretical criteria for assessing political decision-making. Finally, it assesses the functioning of the three principal officials involved in the decisions of the first five days: the Prime Minister, Ehud Olmert, the Minister of Defense, Amir Peretz, and the then Chief of the General Staff, Dan Halutz.

As the report itself admits, the usual way to assess a political decision is by its consequences: "The results test is the usual test for behavior on the public plane" (p. 22 n.1). It would therefore appear that the first thing we have to do in assessing the conduct of our leaders in the Second Lebanon War is to assess the consequences of their decisions. Only once we have determined that those consequences were negative is it reasonable to go on to try to identify those responsible for those negative consequences, and to assess their measure of responsibility. The Winograd commissioners claim that "we have abstained from applying criticism where the failure was not clear and manifest on the face of things" (p.23 chapter 2, section 9). It is a different question whether this standard, to criticize decision-makers only on the basis of a clear judgment of failure to achieve desired or desirable consequences, was in fact carried out systematically in the Winograd report.

The commissioners at times ostensibly abstain from offering a categorical verdict on the consequences of the Second Lebanon War. They write regarding the damage inflicted on Hezbollah (chapter 1. sec. 7, p. 11): "The level of damage and loss of life to Hezbollah from the war was very heavy. Hundreds of its fighters were killed, and their strategic capacity was damaged. Their center in the Dayhiyya neighborhood of Beirut was destroyed. The effect of the war on [Hezbollah's] standing in Lebanon and the Arab world is unclear." Regarding the far more important political and strategic effects of the war, they continue (sec. 8): "The war ended 48 hours after the approval of resolution 1701 in the [United Nations] Security Council. Resolution 1701 and the processes that made it possible contain a number of important achievements for Israel. The Hezbollah no longer sits on the border, and its capacity to initiate an attack on soldiers or on the settlements is less significant. It is possible that the decision, and the processes that fed into it, could be an opening for positive developments in the region."

The commissioners go from these hypothetical claims in chapter 1, which leave the reader with a positive picture of the consequences of the war, to stating, in a footnote in chapter 7 that "the consequences of the battle in Lebanon are conceived by a few as a failure and by others as mixed or even as partial victory" (p. 114 n. 5). Yet that same chapter 7 is devoted to a scathing critique of the triumvirate Olmert-Peretz-Halutz that appears to depend on a negative assessment of the consequences of the war. Surely it is only compelling to describe the decision-making procedures employed by the triumvirate and the Olmert government as a whole as flawed, arguing as the commissioners do on the basis of the case of the Second Lebanon War, if indeed the Olmert Government failed to achieve a positive result from the Second Lebanon War.

The reader of the report therefore must hunt for the evidence it supplies that the war indeed had negative consequences. Most emphatically, the commissioners emphasize that the war was not a clear military victory (p. 11, chapter sec 9), and, moreover, that the military means chosen were not sufficient to bring about a knock-out military victory on the battlefield (p. 77). Since military victory ought only to be sought as a means to political or strategic ends, the absence of a "knock-out" blow to Hezbollah is not decisive for assessing the most important consequences of the war. The means the Olmert Government, as advised by Lt. Gen. Halutz, chose to employ airstrikes against Hezbollah targets and Lebanese transportation infrastructure, tactical ground operations to eliminate the Hezbollah positions that loomed over the northern border itself, together with an air and sea blockade. The Government and the General Staff knew that these measures could not lead to such a knock-out blow, and were not aiming to achieve such a knock-out (p. 79). The political purpose of the war was to bring about such intervention by the international community and the recognized government of Lebanon so as to end the threat from Hezbollah to the North of Israel, principally by bringing the Government of Lebanon to act on its responsibilities as lawful sovereign over Southern Lebanon.

Second, the commissioners make much of the extensive rocketing of the North, and demonstrate that the military means Israel chose, while provoking these attacks, did little to mitigate their effects. But the report in its preliminary version does not provide a systematic or quantitative assessment of the consequences of these rocket attacks. These attacks, the reader must remind herself, while personally tragic for those affected, killed fewer people than one major suicide bombing and had no long-term or structural consequences for the Israeli economy as a whole or the economy of the Israeli North in particular. Without a comprehensive assessment of the consequences of these attacks the reader cannot assess whether the short run costs of the war might be outweighed by the apparent long term benefits of replacing Hezbollah with the government of Lebanon as the ruler over the territories bordering the Galilee.

Third, and apparently decisively for the commissioners themselves, the public believes that the war was a failure, for otherwise the commission would not have been created (e.g. Chap. 7 secs. 9, 132, pp. 114, 135). Yet if the public believes the war was a failure, this is because the public believes that the consequences of the war were, on the balance, adverse to Israel. Yet the reader is left at loss to understand why the commission with its ample staff, time, and resources, accepts as evidence for the consequences of the Second Lebanon War what the comparatively ill-informed and distracted general public believes to be the consequences of that wars.

If this reading of the preliminary report is correct, then on the basis of a logically flawed inference "the public believes the war was a failure, therefore the war was a failure," the Winograd commission has plunged Israel into a political crisis. There is only one healthy way out of the crisis: the Israeli public, but especially opinion makers in politics, journalism, the army, the wider intelligence community, and academia, need to hold a factually informed public debate as to the actual consequences of the war, focusing principally on events in Lebanon during and subsequent to the war and their wider ramifications. Only should we come to agree with the hidden but implied premise of the Winograd report that the Olmert Government's decision to go to war and the mode in which it conducted that war failed to achieve sufficiently worthy ends, can we consider whether the personal "conclusions" and structural "recommendations" proposed in the preliminary version of the Winograd report are generally justified, and whether their application is desirable.