Bush's trust in Musharraf (remember, he trusted Putin, too)

The US is funding Pakistan to arm itself against India - not what I want my tax dollars to go for.

"When [Musharraf] looks me in the eye and says, ... 'there won't be a Taliban and won't be al Qaeda,' I believe him, you know?" So said George W. Bush of then Pakistani President Pervez Musharraf in September 2006. The U.S. president's trust had been forged in a deal made five years earlier: Pakistan would train, equip, and deploy its Army and intelligence service in counterterrorism operations, and Washington promised to reimburse its partner with billions of dollars in weapons, supplies, and cold hard cash. The plan was simple enough, and since 2001, the United States has lived up to its pledge, pouring as much as $12 billion in overt aid and another $10 billion in covert aid to Pakistan.

But today, as the Obama administration re-examines the deal, there is devastating evidence that the billions spent in Pakistan have yielded little in return. For the last eight years, U.S. taxpayers' money has funded hardly any bona fide counterterrorism successes, but quite a bit of corruption in the Pakistani Army and intelligence services. The money has enriched individuals at the expense of the proper functioning of the country's institutions. It has provided habitual kleptocrats with further incentives to skim off the top. Despite the U.S. goal of encouraging democratization, assistance to Pakistan has actually weakened the country's civilian government. And perhaps worst of all, it has hindered Pakistan's ability to fight terrorists....

Pakistan did not use the majority of the funds for the agreed objective of fighting terrorism. Instead, the money was used in the way it has been for the last six decades: to train and stock the Army for conventional warfare, with India viewed as the main threat. The Army spent the vast majority of U.S. funds on types of military equipment that are practically useless against terrorists. It bought an air defense radar system costing $200 million, for example, even though the terrorists in the frontier region have no air capability. The military bought F-16 fighter jets, aircraft-mounted armaments, and anti-ship defense systems. And the U.S. Department of Defense signed off on it. [FP.com]

Thoughts on a Fuel Tax

I want to thank my faithful readers for responding to a post from a few weeks ago where I announced I was in favor of a fuel tax. In case you haven't looked at the comments, I'm copying them here:

1. A very sensible solution if you live in one of the big eastern cities with lots of available public transportation. Quite a different story if you live here in the west, where our cities grew in the era of the automobile and public transportation is practically non-existent.

2. I,too, listened to that NPR story and found it convincing. Then again, there is no reliable public transportation around me, so I have to drive to work. What happens to those who can least afford the tax? They can do without other "sins", but not their paycheck.

3. So how are you going to feel when you have to pay more for all your goods and services? Merchandise arrives in stores with the help of gasoline. The stores aren't going to absorb that cost for you. And service providers...plumbers, electricians, housekeepers...are sure to add on a fuel surcharge. So even though you are an urban dweller, don't think you wouldn't be affected.

Further thoughts on fuel efficiency

As I was driving yesterday, I was listening to some commentary on NPR about the Obama plan to raise CAFE standards so that cars will have higher fuel efficiency. The argument of the speaker was that higher efficiency means that the cars will be less expensive to operate, thereby encouraging people to drive more, perhaps 10-15% more. In the end, this may not reduce our overall gasoline and oil consumption or our carbon output, but instead will lead to more driving, more congestion etc.

In other words, the only way to decrease driving is to make it more expensive, by putting a higher federal tax on gasoline. That is probably politically impossible, but it makes sense to me.

As an urban dweller who doesn't drive that much, I'm all for a high gasoline tax. Governments put sin taxes on alcohol and cigarettes to discourage their consumption. Why not a sin tax on gasoline? What do the rest of you think?

FT's take on Obama's car efficiency plan

Although a tax of $1 or $2 per gallon of petrol would be more effective in altering consumer behaviour and giving a clear demand signal to manufacturers to produce more fuel-efficient vehicles, it would not get through Congress.

But it is an inefficient – and probably ineffective – way of meeting the twin aims Mr Obama has set out for the motor industry and the US carmakers: to curb fuel consumption and dependence on foreign oil and to help the Detroit three “once more outcompete the world”.

The corporate average fuel economy (CAFE) rules that Mr Obama wants to tighten have a history of causing unintended consequences. They were passed in 1975, following the oil crisis, to get drivers to buy smaller and more efficient cars, but instead gave Detroit an incentive to make sports utility vehicles.

The basic problem with the CAFE standards is that, rather than altering patterns of demand, they attempt to ration supply. This flaw is exacerbated by the divide in the rules between standards for “cars” and for “light trucks”, which Detroit has ingeniously exploited.

By the 1980s, petrol was cheap again and drivers did not want to buy the lighter, less powerful cars that were fuel-efficient. Instead, they switched en masse to people carriers and SUVs that were classified as light trucks, and so could be thirstier...

A petrol tax is a rare example of a policy that would be simple, let the market operate, and be likely to achieve Mr Obama’s aims. “This is a noble long-term goal, but a gas tax is an immediate incentive to change,” says David Gerard, an economist at Carnegie Mellon university.

Unfortunately, raising the federal petrol tax, which is currently 18 cents per gallon, to levels that would make it bite is not politically achievable in the US. Instead, the president has had to rally everyone around a clunky and leaky regulatory alternative. That really is extraordinary. [FT]

Piracy - a military matter? or a commercial matter?

First of all, here's a link to a very interesting map of pirate attacks around the world. They certainly are clustered around Somalia, but there are some off the Americas as well.

My bigger question, raised when the US military got involved with the latest big act of piracy and hostage taking:
Is this a military matter, where commerce is part of the national interest and should be protected?

Or is it a commercial matter, where insurance against piracy is simply the cost of doing business? This seems to be the attitude, by and large, up to this point.

Here's my opinion: dealing with piracy should be a private, commercial matter. The consumers of the goods being shipped will pay the additional costs for the safety of transport. If the matter is taken over by the military then you and I, the taxpayers, are subsidizing the businesses that choose to use this shipping lane. Why should I do that? If I'm a purchaser of those goods, I'll make the decision whether or not I'm still going to purchase at a higher price and then the market sends a clear signal on whether that shipping lane should be used.

I haven't seen any media discussion of this. Has anyone?

Palin: Pro-entrepreneur?

And for an angle on Palin I hadn't thought of before. Making life easy for small business is a very good thing for everyone:

"As Mayor and CEO of the booming city of Wasilla, my team invited investment and encouraged business growth by eliminating small business inventory taxes, eliminated personal property taxes, reduced real property tax mill levies every year I was in office, reduced fees, and built the infrastructure our businesses needed to grow and prosper."