If You Love Something, Set It Free

“The European Union [...] has ceased to be completely reliable.” So says Robert Cottrell,  formerly of The Economist, a couple of days ago in The Financial Times, arguing that one has to “set the euro loose from the EU.”  According to Cottrell the strict links between the EU and the European Central Bank (ECB) and thus the Eurozone should be broken. This would allow the currency to float freely and would allow countries such as Ukraine or Turkey, or even Paraguay to join the Eurozone, without joining the EU. However, there would be one strict rule governing this new free floating currency zone. No bail outs for basket cases. This all seems eminently sensible, but I did notice one small flaw in the argument. If anybody can join the ‘zone,’ then surely anybody can leave as well?

Courting Politics: A Supreme Moment in American History

Taranto & Miniter on the Supreme Court, abortion, The Wall Street Journal, and the chances of Hillary in 2008

America is not a democracy, but an oligarchy of nine unelected old men (and women) dressed in robes. Since the 1973 abortion ruling (Roe v Wade) the justices of the Supreme Court have forced an agenda of social and moral engineering upon the fifty states of the American Union. Through broadly interpreting or re-interpreting laws and constitutional amendments the judicial branch of the government has usurped the powers of the legislative branch. The same phenomenon has infected Europe. While the judiciary may sometimes – such as earlier this week in Germany  – protect citizens against the usurpation of the legislative powers by the executive branch of government or by unaccountable and unelected national or supranational bureaucracies, on the whole the judges’ eagerness for political power threatens our freedoms. In democracies citizens can vote power-abusing politicians out of office, but not the justices of their supreme courts who have been appointed for life and can only be replaced when they die or voluntarily resign.

As a consequence, the rare occasions on which a democratically elected president can appoint a new justice in the Supreme Court have become decisive factors in the way many Americans vote during presidential elections. Pat Buchanan, a fierce adversary of the war in Iraq, endorsed George W. Bush  in 2004 because, as he wrote: “Should Kerry win, the courts will remain a battering ram of social revolution and the conservative drive in Congress to restrict the jurisdiction of all federal courts, including the Supreme Court, will die an early death.”

After the retirement of justice Sandra Day O’Connor, early this month, President Bush’s choice of replacement will be crucial for the future development of American society. If Bush appoints someone who favours a restrictive interpretation of the powers of the judiciary, then American democracy can be saved. If Bush has the opportunity to appoint two or three justices (which is not unrealistic, as some of the remaining justices are in poor health), he may become the president who leaves the most important mark on America in half a century.

Last year I was the only journalist in Belgium and the Netherlands to predict that George W. Bush was going to win the elections because he appealed to the voters on moral values. This assertion seemed so preposterous to European ears that major newspapers in Flanders and the Netherlands, including the leading Dutch paper NRC-Handelsblad for which I have occasionally written since 1985, turned down my op-ed piece “God will win the American elections,” predicting a Bush victory. In the end, the article ran in the small religious Dutch paper Reformatorisch Dagblad.

Ironically, if Bush succeeds in appointing two (or more) additional conservatives among the nine justices, thereby tipping the balance decisively in the direction of the legal restrictionists, moral values are less likely to play a major role in the 2008 presidential elections. This will enhance the chances of Rudolph Giuliani, who is not a social conservative, of winning the Republican nomination, but also the chances of a liberal Democratic nominee, such as Hillary Clinton, of winning the elections.

Last week, two American journalists, James Taranto and Rich Miniter, were in Brussels. We extensively discussed American politics and taped some of our conversations. James works for The Wall Street Journal in New York, where he edits OpinionJournal.com, while Rich is a former collaborator of The Wall Street Journal Europe in Brussels and is currently a free-lance author.

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Blue Shirt Brigade: Taranto, Belien and Miniter, three (present and former) Wall Street Journal writers

The power of the courts is undermining free society


Paul Belien: Americans are currently in debate about the Supreme Court. I would like to have your opinion on how the Supreme Court will develop. Will the Court become more conservative?

James Taranto: Sandra O’Connor is retiring. She has been on the Supreme Court since 1981. She was Ronald Reagan’s first appointee. She has been what we call a moderate.

PB: She has been a disappointment for many conservatives. Do you share this opinion?

JT: Yes, somewhat.

Rich Miniter: Didn’t she vote with [chief justice William] Rehnquist [who is a conservative] 84% of the time, though?

JT: I don’t remember the numbers. She has been very good on certain issues from the standpoint of conservative legal philosophy. She has been good on federalism: on limiting the power of the federal government vis-à-vis the states. She wrote a blistering dissent in the case of Kelo v New London, which was the eminent domain case. Eminent domain is the power of the state to appropriate private property for its own use without the owner’s consent. The Supreme Court decided that the government can also take property from citizens to give to other private interests, which was an outrageous decision. Eminent domain is permissible but it should only be for public use. O’Connor has certainly been good on some issues, but on other issues she does not seem to have a consistent legal philosophy. She seems to make her decisions on a political basis.

PB: She is known as a pragmatist.

JT: Well, she is known as a political judge, and that is a problem if you believe that a judge’s role is to interpret the law and not to make the law. For example, O’Connor joined a five justice majority in 1992 to uphold Roe v Wade, the abortion case, and basically the argument that she and two other justices made was: We have decided this case before and there has been a lot of political pressure about the case: if we overrule the precedent, we would be giving in to political pressure and that would damage the prestige of the Court. OK, but I wonder if whether the case was decided rightly in the first place does not make a difference? In any case, if the court overruled Roe v Wade it would not be making new policy, it would simply be leaving the case to the democratic process where it belongs since the constitution is silent on the subject of abortion.

In terms of what is going to happen on the Court, I think that most likely we will see President Bush appoint somebody who is more conservative [this interview was taped before Bush appointed John G. Roberts  – pb] because he is determined to leave his mark on the Court. I do not think the Democrats in Congress, who have only 45 seats out of a 100 in the Senate, are going to have the power to force too much of a compromise. Of course, they can filibuster, which is the procedure by which 41 senators can block a vote and delay confirmation, but they used that procedure in the last congres in 2003-2004 to block a lot of lower court nominees and they paid a political price for that. Hence, moderate Democrats struck a deal to avoid filibustering in the future, so I do not think that is going to happen. I think Bush will pick somebody conservative, there may be a lot of fury over it, but the nominee will get through and the court will move decidely to what you might call the “right” – although there is a problem with using these political labels for the judiciary.

PB: That is a very optimistic view. Do you share this, Rich?

RM: On balance I do. James is a better political judge of events like this than I am. I want to step back and make a bigger point. During the last thirty years in North America, both the United States and Canada, and in Western Europe we have seen power ebb away from elected bodies, parliaments, legislatures, congresses, whatever, to judges, and certainly you talk about this in your book, Paul.

PB: It is, indeed, the same in Belgium, where the courts actually decide whether a political party is allowed to function or not.

RM: That is right, the courts have become a profoundly I would say aristocratic, certainly anti-democratic force. If you look at the formation of the EU, for example, much of it has been done not through treaty, certainly not through referendum or votes in parliament, but by court order. The same is true in the US where vast amounts of policy relating to highly local matters like schools, housing, crime, is done by the courts. They essentially write laws on whatever basis suits them, often citing precedents from Europe, but even from Zimbabwe.

 

We have a major problem, because as courts make law without democratic legitimacy – and people increasingly see judges as the political actors that they are – the legitimacy of the entire political process comes into question. It also tends to promote extremes, as James often points out in his columns. When the Supreme Court got involved in the abortion debate in 1973 it stopped the democratic process. It is quite possible that a number of states, in the northeast and on the west coast, would have made abortion legal, but not as far-reaching as in Roe v Wade. The democratic process was not moving fast and consistently enough in the direction that the Supreme Court wanted. So it simply took this test case, argued by pro abortion lawyers for a hapless woman who called herself Jane Roe, to push an activist agenda.

If the Supreme Court had allowed the democratic process to work, different states would have come to different views and people for whom this is deeply important, and there are millions of Americans who feel deeply about abortion, would be able to choose under which set of laws they want to live. The same on other matters would be true in Europe, for example in the Netherlands with euthanasia where the courts have refused to prosecute, from the 1980s onwards, doctors who have intentionally killed their patients. Again, unelected people have been creating law. Ultimately we are not living in a free democratic society.

PB: Americans seem to care a lot about this. It is said that George Bush won the last elections on the issue of moral values. We also notice in the Democratic Party that Mrs. Clinton is lately becoming more of a moderate on issues like abortion.

JT: She is only making conservative noises. I do not think she can be categorised as a moderate.

PB: It is said she does this because she knows that otherwise she has no chance of winning the presidential elections. Even in the Democratic Party you see this move to a more conservative position on ethical issues.

JT: Abortion is a difficult issue. Very few people are on one extreme or the other. Even though those extremes are the official party positions, the candidates who win the presidential elections are always the ones who say things like Bill Clinton said in 1992 “I want abortion to be safe, legal and rare,” or, as George W. Bush said in 1999, “the country is not ready to outlaw abortion.” They are willing to see both sides, or at least they talk as if they are.

Most Americans are ambivalent about abortion. Hence, a moderate position is what appeals to them. Of course, it is easier for the Republicans to be moderate about abortion because Roe v Wade and subsequent decisions take off the table any restriction on abortion except for the most obvious ones. There is a case now making its way across the courts about partial birth abortions, a monstruous procedure that is done usually towards the end of pregnancy. The child is partially delivered and then his brains are sucked out while he is still in the birth canal. It would be murder if that was done two minutes later. In 2000 the Supreme Court overturned a state law banning partial birth abortions by a five to four ruling.  O’Connor was in the majority on that. Now there may be a chance to reconsider it.

Republicans favour as a practical matter these very sensible and moderate restrictions: a ban on partial birth abortions and the obligation of parental notification. These are the sort of thing that large majorities are in favour of. Republicans are moderate in practice and extreme only in theory. The Democrats are forced to take the extreme positions.

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Luc Van Braekel filming and recording Taranto, Belien and Miniter for The Brussels Journal and Radio Free Brussels


PB: To enter a more philosophical discussion, it strikes me that you, James, work for The Wall Street Journal and you, Rich, have worked for The Wall Street Journal. This paper is known in Europe as the capitalist flagship of the American media. In Europe, if you are a capitalist or in favour of free markets, you do not make this connection between moral values and the morality that also underpins economic freedom. Why is it so important for The Wall Street Journal to stress these moral values?

JT: You may be overestimating the degree to which we stress these moral values. I think we are very centrist. We are not in favour of a ban on abortion. We are very critical of Roe v Wade because we think these issues should be decided democratically. I do think, however, there is something to be said for the argument that a free society needs to have a moral underpinning. You need people who act according to some sort of moral rules, otherwise you risk having anarchy.

RM: I think tax cuts are the moral issue that concerns the Journal more than anything. I do not remember that the Journal has ever editorialised directly on abortion. I would be surprised if that were the case.

PB: You know that fifteen years ago I was fired from a Belgian Christian-Democratic newspaper because [on 5 April 1990] I had published an article on abortion in The Wall Street Journal.  An article that was considered to be too critical on abortion could not be published in a Christian Belgian newspaper, while it could in the Journal.

RM: That is right. You correctly predicted that the [Belgian] King would abdicate for a day in order to allow the [Belgian abortion] law to pass through.

JT: We have published signed opinion pieces, including some that I have written, on both sides of the abortion issue. I guess you can even include the ones that I have written as being on both sides. I wrote an essay on abortion in 1999 called “In praise of waffling.”  That kind of sums up the Journal’s editorial position. We have never said we think abortion should be legal or illegal under certain circumstances. I think we even endorsed a sort of moderate pro-choice position at some time in the past, but I could not cite you chapter and verse.

RM: I think the line the Journal has taken is that it should be up to the democratic process. You know there is a lot of sense in this. A free society allows individuals using the democratic process to come to their own decisions about these things. Why have an elite, with an ideological agenda, press its views through the authoritarian powers of the courts rather than trying to persuade the majority of the fellow citizens to agree with them? If their position is so wise they should be able to persuade a majority to go along with them and also be able to persuade that majority to stay with them as they go through the process of making this the law of the land.

JT: The pro-choice slogan is “who decides?” and their answer to that in 1973 was: seven old men in robes.

RM: Exactly.

PB: Let us now turn to politics. Some people hope that the next race for president will be between Hillary Clinton and Condoleezza Rice.

RM: I think the chances of that happening are approximately zero, but it is wonderful to think about.

PB: Who is going to win?

RM: I think Hillary Clinton could win no matter what Republican opponent she faces. Hillary is an enormous political machine in terms of fundraising. She will get the support of the media overwhelmingly, she has a tremendous direct mail list. Look, the Democratic Party as a party has almost ceased to exist. It is a handful of interest groups that essentially provides its machinery, moveon.org for example is one of those. The fight for the control of the Democratic Party is about controlling those machines. Hillary has her own machine and she may be able to control other machines, which means that she could almost certainly get the nomination. And, you know, Americans get tired of having one party in power for too long. It is quite possible that in 2008 they want someone else. Also, the Republican field, I think – and you, James, may have a different view – is pretty darn weak.

PB: And Jeb Bush?  He is sometimes mentioned as a possible Republican candidate.

RM: That will be the fight everyone wants. Bush versus Clinton, that is the headline, heavy weight box up that everybody wants. I do not think Jeb will run. It is too early and they do not want accusations of a family dynasty and that type of thing.

However, if it is 2007 and if the field does not get any better people may come hat in hand to Jeb Bush, the Governor of Florida, and say: please, run. If you look at the Republicans who are more or less announced, like Bill Frist,
the Senate majority leader – Frist is probably the most boring man in American politics after Bob Dole. Do you think he has a chance, James?

JT: No, Bill Frist, I think, is a weak candidate. However, I would quibble with your characterisation of the Republican field as weak. The field is still wide open. You cannot really pick out anyone yet who looks like an obvious choice for the nominee. There are a lot of candidates who are plausible, but it is too early to say.

RM: Who do you consider plausible?

JT: There are any number of these governors, it may be Mitt Romney, it may be Jeb Bush.

RM: Romney, the Governor of Massachusetts, a Mormon! I just do not think that Americans are ready to elect a Mormon.

JT: Oh, that is religious bigotry. But now on Condoleezza Rice, I would be willing to bet you, Paul, on twenty of those funny euro-dollars that you have here that she does not run. She has never held elected office. We have not had a presidential candidate who came from the cabinet since Herbert Hoover,  and remember how well that worked out. I do not think that is going to happen.

PB: Some people say that she does not stand a chance because she is black. Do you think that is still true?

JT: No, I think she is unlikely to run. If she were to run, she might stand a chance. If she does not stand a chance it is for other reasons than because she is black.

PB: Final question. We know that your favourite president is George Washington, at least in the book you have written.

JT: I edited a book called Presidential leadership: Rating the Best and the Worst in the White House, the new paperback edition of which will be out in September. It is based on a survey of an ideologically balanced group of scholars in politics, law and history.

PB: So most Americans consider their first president the best they have ever had. Has it been downhill from George Washington on?

JT: Washington finishes first in the scholarly polls. When you do public opinion polls you come up with very different results. People tend to admire very recent presidents. Washington kind of gets short shrift, Lincoln does all right but not as well as he should. You know, a lot of people say: “Clinton is the best president in American history.” People do not necessarily know that much about history.

PB: And who is your best president, Rich?

RM: I admire Ronald Reagan. I think Reagan and Thatcher had a moment in which the fate of their nations and in some way the fate of the world hung on their decisions. They took deeply unpopular decisions based on principle and pragmatic observation. And it worked out. Communism fell. They also saved their domestic economies which were supposed to be in permanent malaise – you remember all this left-wing talk about “late capitalism?” It was all going to spiral downward and this was the end. By embracing capitalism, Reagan and Thatcher saved Britain and America. The problem is that Germany, France and Belgium did not have the same revolution, even now. Angela Merkel is not promising all that much in that direction. But for Reagan, America would be like Western Europe. Thank God we are not. We are 44% of the world’s economy and 6% of its population. I think we owe some of that to Ronald Reagan.

PB: Where was Reagan in the survey in your book, James?

JT: In the first survey he finished 8th out of 39, and the new version of the survey will be out in September, so ask me then.

America Is Winning the War on Terror, Says Expert

According to Richard Miniter, an American investigative journalist who is an expert on Islamic terrorism, the West is capable of winning the war on terror. In fact, he thinks it is winning. Miniter, who is a weekly guest on Fox News, has travelled extensively all over the globe and was in Brussels early this week on his way to Afghanistan. The Brussels Journal interviewed him.

Paul Belien: Rich, you have written two bestselling books about terrorism so far. The first one, “Losing Bin Laden,” is a chronicle of what happened under Bill Clinton’s presidency and the second one, “Shadow War,” is about the war on terror during the first term of George W. Bush. In this last book you argue that America is winning the war on terror. Europeans find this hard to believe. Given the London bombing early this month, do you still think that we are winning the war on terror?

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Richard Miniter in Brussels
Rich Miniter: Yes, I think that on balance we are winning, I think this for several reasons. Since 9/11 more than 5,000 al Qaeda members have been killed or captured in 102 countries. The war on terror is a lot larger than the war in Afghanistan and Iraq. It occurs on a global stage. A tremendous number of terrorist plots by al Qaeda and its organisations against Western targets have been forded. A plan to bomb the U.S. Embassy in Paris was prevented, as well as an attempt to sink U.S. and British war ships in the Strait of Gibraltar by ramming zodiac inflated rafts loaded with bombs into the hulk of these ships. In fact, the intelligence that led to the unravelling of these plots came from prisoners held in Guantanamo Bay, Cuba. That alone, I think, justifies holding those prisoners.

PB: Some people, however, say that we have called terrorism upon ourselves by the invasion of Iraq. It seems that the threat of terrorism is worse now than ever before.

RM: I don’t think that is true. I have a minority contrarian view, but here it is: The death toll on September 11, 2001 of the attacks on New York, the Pentagon and Pennsylvania was more than 3,000 people. The Bali bombing on October 12, 2002 killed 202 people. In the Madrid bombing of March 11, 2004  191 people perished. That is one order of magnitude less than on 9/11. In London earlier this month 53 people died. That is a second order of magnitude less than on 9/11. If anything, the lethality of al Qaeda is decreasing over time. The terrorists are losing their ability to carry out large, complicated operations, where they need perfect surprise in order to succeed and perfect coordination in order to have mass casualties. With the exception of the bombings in 2003 in Turkey, no al Qaeda cell has been able to strike twice in quick succession in the same country. American, European and Allied governments have been very successful in breaking up these cells.

As for this idea that Iraq has brought terrorism onto Europe and onto America, do not forget that 9/11 occurred before the Iraq war. Let us also remember what happened in the 1990s when we had a series of al Qaeda attacks on American, British and French interests from 1992 onwards. In one of these attacks, on August 7, 1988, two U.S. embassies were hit, one in Kenya, the other in Tanzania, killing hundreds of people, mostly Muslim Africans. That certainly was not brought on by the Iraq war. The November 13, 1995 attack in Riyadh which killed five Americans, two Indian nationals and an unknown number of Saudis, that was not brought on by Iraq either. Nor were the attack on U.S. forces in Somalia on October 3, 1993, which we now know was organised by elements of al Qaeda, the 1993 WTC bombing, which killed seven people (I say seven because I also count the unborn son of Monica Smith), the attack on the USS Cole in October 2000,  the attempt to destroy the Eifel Tower by driving a plane into it in 1994, and the attempt to kill the Pope in the Philippines in 1994.

PB: Some people say we have exacerbated the hostile feelings among Muslims by invading Iraq.

RM: How do we measure public opinion in Muslim lands when these are all but one, Iraq, dictatorships?

PB: They mean Muslim populations in Western Europe.

RM: This is simply asserted but not proven. How can they possibly know? There has never been a scientific series of polls which has measured Muslim public opinion in Europe over time, using the same methods. I do not know whether to believe or disbelieve this assertion because I do not think there is enough evidence one way or another to know for sure. What is amazing to me is that people make assertions without feeling the obligation to bring forth some kind of evidence that muslim public opinion in Europe or America or anywhere has changed.

PB: Some people fear that if our secret services are going to control the Muslim populations in Europe, then our civil liberties will have to be limited and restricted. There was an article recently by Daniel Pipes in the NY Sun in which he says that France is doing a better job in fighting terrorism than Britain because the British allow too many liberties to Muslim groups.  What do you think about that?

RM: I think it is fairly well established that the French have the most restrictive counterterrorist policies in Europe and perhaps in the Western world.

PB: And is it a good thing to have such restrictive policies?

RM: There are two questions here: one, does it work, and two, is it morally justified? I do not know if it works. Certainly the French have stopped a great number of plots, and France has not seen a widespread attack like London, like Madrid, and like New York. So, is it because they are very good or is it because they are lucky? I don’t know. However, France is a wonderful case for those who say we have to diminish civil liberties in order to crack down on terrorism. France has the most restrictive and perhaps the most effective counterterrorism policy, but France is still by and large a free country. The biggest threat journalists face in France is not censorship by the government but lawsuits by interested parties that do not like what they have to say, and that is, of course, a problem in other European countries, too, but is unrelated to the counterterrorism policies. If Britain, Germany, America and other countries were to pursue a more aggressive counterterrorism strategy it would probably look a lot like France, which is not a nightmare scenario. France, for better or worse, is not Nazi Germany, it is not Egypt, it is not Saudi Arabia, it is not Poland in 1981, it is a state with a strong instinct for the survival of its people and, so far, it seems to have been pretty effective.

PB: You are working on a third terrorism book: “Misinformation.” By this, I think, you mean how the Western media are helping the terrorists in certain ways.

RM: I think that is actually overstating my case a little bit. I do not think the media are actively helping, with a few exceptions, the terrorists. However, they have created an environment of poisonous scepticism, raising questions about things where the truth is very easily known and is exactly the opposite of what they are saying. Newsweek recently ran the story of the Quran being flushed down the toilet to intimidate Muslims in the U.S. prison at Guantanamo. Newsweek had this story from what it considered to be a reliable source but the magazine failed to do some basic investigation.

Here are the questions that it did not ask: How many Qurans were distributed by the U.S. military to prisoners in Guantanamo and elsewhere, how many do they have now, are any missing? What are the dimensions of those Qurans? This is important to know whether it is physically possible to flush such a book down the toilet. In fact, the toilets they use at Guantanamo are not flush toilets but chemical toilets. The Qurans could not have been flushed, and even if they were put in a toilet they could not have gone down because the access pipe is too small. If a journalist is given information by sources he has an obligation to check out the facts that are knowable and see whether the assertions are physically possible.

PB: But that is just an example of sloppy journalism. We also had that during the Cold War. Can you give us another example of misinformation?

RM: A classic example is the assertion that Osama bin Laden is on dialysis. This was misinformation put out by the ISI, the Pakistani intelligence service, in late 1998. The Pakistanis were getting a lot of pressure from the Clinton administration to turn over bin Laden for the attacks on the embassies in Africa. Bin Laden was probably in Afghanistan, but the Taliban government in Kabul had been set up by the Pakistanis. In fact, if you talk with Pakistani officials they will very rarely refer to the border between Afghanistan and Pakistan. Instead they refer to the Durand Line. They consider Afghanistan to be an extension of Pakistan. So Pakistan set up the Taliban in order to control that territory. It was a government created and funded by the ISI. The Pakistanis did not want bin Laden to be handed over, because he would reveal the degree of collusion between the Taliban, bin Laden and the Pakistanis themselves. Moreover, they had future uses for him. The Pakistanis were very shrewd. They figured out that if they could give the Clinton administration a plausible excuse not to act, then it would not act. They told the Americans: “Bin Laden is on dialysis and he will probably die anyway.”

This myth has continued long after 9/11 in the absence of any evidence. In fact, there is lots of evidence to the contrary. After Bin Laden’s personal doctor, who was captured in Pakistan and held in U.S. custody for more than three months, was released he gave a number of interviews. He said that bin Laden had a bad back and other health problems but he certainly was not on dialysis and had no kidney problems. Bin Laden himself has said to a Pakistani journalist that he has no health problems at all. Doctors and intelligence agents with medical backgrounds, who study bin Laden on his tapes, point out that people who are on dialysis for years acquire a discoloration of the skin and certain features none of which bin Laden displays.

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Clinton lost Bin Laden, but Rich Miniter didn't lose Clinton!

PB: You are going to Afghanistan next week. Do you think Afghanistan is the place where bin Laden is hanging around nowadays?

RM: It is certainly possible. The Pakistanis say that he is in Afghanistan. The Afghans say that he is either in Pakistan or in Iran. Certainly the Afghans have a reason to turn him over. The Karzai government is continuously destabilised by elements of al Qaeda and by the Taliban. To this day there is major fighting in the Paktia province and other eastern and southeastern provinces along the border with Pakistan. I do not think that there has been enough scepticism of Pakistan’s role in the war on terror. In one sense they have done a lot. They have captured more than 700 al Qaeda members since 9/11, more than any other nation including Iraq or Afghanistan, but we should be far more critical, not just on the human rights record of Pakistan, but their general behaviour.

PB: Pakistan is not on the list of the rogue states of the United States. So Washington considers it to be an ally.

RM: It is an ally, but it is a very two-sided ally. As in the Cold War, in the war on terror you will have to choose your enemies and your allies, and sometimes you are choosing from the same pool.
 
PB: That takes us to another traditional ally of the United States: Saudi Arabia. It is said that a group of rich Saudis is actually funding Muslim fundamentalists. This seems to be an ally that is not really an ally. What do you think about the Saudi position regarding the fight against al Qaeda?

RM: They are technically our friends. I do not think the Saudi state has funded al Qaeda since 9/11, but individual sheiks and Saudi princes have continued to fund it.

PB: If the state knows it, it can crack down on them and try to stop the funding of al Qaeda.

RM: Let us first try to understand a little bit about Saudi Arabia. I am not making excuses for them but I am saying that if we are going to criticise them let us do it in an informed way. Saudi Arabia is run by two clouts of people – and I say “clouts” because they are very loosely affiliated and yet they all matter. There are the clerics, about 4,000 of them, and there are the princes, also about 4,000 of them. For anything to get done you need unanimity or near unanimity with these two groups of people. Any kind of crackdown threathens not just that consensus but the legitimacy of the state. What Saudi Arabia has to offer the residents of Arabia is order. That is basic. They provide very little in terms of welfare, in terms of schooling, there still are less than one hundred hospitals, very few universities, very few education opportunities, despite the immense oil wealth. More than one third of the world’s proven oil reserves are in Saudi Arabia, but the per capita income when you take away the money that is used for the princes, is low.

PB: They use the money to fund fundamentalist mosques in Europe.

RM: Yes, but of course the European governments are complicit in that. If Europe was serious about counterterrorism it would say that no religious institution, church, mosque, synagogue, or whatever can receive funding from outside the country, and it would further stipulate that the congregation must provide at least half of the funds necessary before the state could provide any funds. In a more radical view I do not think that the state should finance religion at all. I think state funding of religion is ultimately bad for religion as well as bad for the state. I think the promotion of religion is healthy for a state because something beyond economic self-interest has to hold the country together. There has to be something higher, intangible, mystical, methaphysical, but nonetheless present and real. Religion has traditionally in every society known to man provided some of that connecting tissue that makes a group of people into a nation and a nation into a country. When you finance religion, however, you necessarily change it and warp it to serve the politicians.

PB: In Western Europe it is the state that finances religion. In the United States it is not. If you are a Muslim in the US you can ask the Saudi princes for subsidies.

RM: I think there have to be some restrictions. I think that the money should not be able to come from abroad. I do not think that would be a problem if you extend this restriction to the Catholics. In our countries the church money goes to Rome, it does not come from Rome. Hence applying that restriction here would not have deleterious effects. But you have to stop the overseas funding.

I am prepared to believe that most of the Muslims are moderate. They have left a more fundamentalist society to come to the West. If they wanted to be fundamentalist they find more opportunity and scope to do that in their home countries. They are interested in economic opportunity, which means that in some small way they are interested in changing. And maybe they think they are going to change in small ways in terms of improving their economic outlook and improving their education, but in the course of doing these two things, things about you change. Europe has to think about how it wants to make these people assimilate, because they must be made to assimilate or they will become a mortal threat to our societies over time. When I want to frighten Europeans I say: who is going to pay your social security when the average European prays five times a day?

 

James Taranto on Blogging and Journalism

Blogger-journalist James Taranto of The Wall Street Journal is spending a two week vacation in Europe. Before visiting Bruges, London and Stockholm, he was in Brussels last weekend, where I had the chance to ask him a few questions about his job. The paper version of The Wall Street Journal has a daily circulation in the US of 1.8 million copies. The web version WSJ.com has 700,000 paying subscribers. The paper has a separate website for columns and op-eds, called OpinionJournal.com. Besides contributions from guest writers, OpinionJournal has a daily summary of remarkable news on the web, called Best Of The Web Today. It is written by James Taranto, the editor of OpinionJournal. Because of the huge number of links and quotes and the dense humor, Best Of The Web Today strongly resembles a blog. On the web, it has some 120,000 daily visitors, but it is also available as an e-mail newsletter.

James Taranto
James Taranto, vacationing in a Brussels backyard

Reaganomics, a Success Story

Time, Sep. 21, 1981
The economic policy pursued by president Ronald Reagan was called “Reaganomics” (sometimes written as “Reagonomics”) or “supply-side economics”. This policy meant a radical rupture with Keynesianism where consumption was stimulated by massive government spending. Keynes put the emphasis of economic policy on the demand-side (consumption). Reagan, by contrast, put the emphasis on the supply-side (production). Keynes believed that demand would create supply, but Reaganomics started from the opposite idea, namely that supply would create demand. In this way of thinking, the supply side of the economy (economic activity, production etc…) had to be stimulated in order to create wealth. The best way to do this was to cut the marginal tax rates on personal income. Such a tax cut would create a strong incentive to increase economic activity and would have spectacular effects on growth, investment, risk-taking and saving.

BELGIAN ADMIRATION AND INTEREST IN REAGANOMICS
Verhofstadt (right) with LVB (left), 1998
Our non-Belgian readers may be surprised that that the Belgian prime minister Guy Verhofstadt recently spoke out in favor of Reaganomics in an interview with Flemish weekly Humo. He underlined some of the concepts introduced by Reaganomics, which are taken for granted today.
When I think of Reagan, I'm thinking of Reaganomics and the Laffer curve. (Enthusiastically:) Do you remember: a tax cut could create more revenues! Reagan is dead now, but several of his ideas are now self-evident. The Flemish government lowered the estate and gift taxes. Surprisingly, the government got more income.

Few Belgians have analyzed Reaganomics in such an exhaustive way as the retired financial consultant Willy De Wit from Antwerp. Today, he is a member of the Flemish independent think thank WorkForAll. Recently, he gave a lecture for “FACS” (Free Association for Civilization Studies), a Flemish libertarian think tank lead by Martin De Vlieghere. Loaded with facts and figures, De Wit proved that Reaganomics did deliver results and was a success story.

CRITICS OF REAGAN'S ECONOMIC POLICY
But before summarizing the lecture of Willy De Wit, let us listen to the opponents. Numerous they are and their voices ring loud in the media. In November 2001 Mia Doornaert, a well-known Belgian journalist, wrote: “Ronald Reagan was not a great American President”. In the same leading Flemish newspaper De Standaard, Evita Neefs wrote three days after Reagan's death: "America is losing a sympathetic blockhead. He was not particularly intelligent, but extremely charming". These sentences are typical for the prejudice against Reagan and his economic policy, a policy, that - according to the opponents - made the poor poorer and the rich richer and created a huge budget deficit and a gigantic public debt. Moreover (still in the opinion of the opponents) unemployment could only be reduced by low paid McJobs, or “hamburger jobs” as they are called in Belgium.

Reaganomics is probably the only economic doctrine that made its way into a pop song. In 1985, the British group Simply Red criticized the 'antisocial' policy of Reagan in their song “Money’s Too Tight To Mention” (actually, a cover version of an original American song by the Valentine Brothers from 1982).

I been laid off from work my rent is due
My kids all need brand new shoes
So I went to the bank to see what they could do
They said: son look like bad luck got a hold on you

Money's too tight to mention
I can't get an unemployment extension
Money's too tight to mention
[...]

We're talking about Reaganomics
Oh lord down in the Congress
They're passing all kinds of bills
From down Capitol Hill - we've tried them

Money's too tight to mention
Oh money money money money
Money's too tight to mention
Cutbacks!
[...]

The popular perception of Reaganomics is clear: an antisocial policy with a curtailment of social expenses. But criticizing Reaganomics is not the monopoly of the left. Even classical (i.e. pro free market) liberals and libertarians are convinced that although Reagan stimulated the economy, it came at the cost of an enormous budget deficit.

Even George Herbert Walker Bush was initially very sceptical of the economic ideas of Reagan. In 1980 he spoke about “voodoo economics”. He changed course when Reagan chose him as running mate for the presidency.

WILLY DE WIT: REAGANOMICS SAVED THE ECONOMY
Willy De Wit
Willy De Wit
In the sixties and seventies, Keynes' economic theory was applied on a large scale. Keynes developed his ideas in the deep economic recession of the thirties, with its high unemployment. Keynes argued that governments should stimulate aggregate demand by massive spending and infrastructure works in order to invigorate the economy. Through the “multiplier” effect every dollar spent by the government would create a multiple in income. Unemployment would vanish, the tax base would broaden, and the budget deficit would disappear, Keynes argued. But during the oil crisis of the seventies, it became clear that Keynesianism did not work. Higher public spending did not resolve unemployment. On the contrary, unemployment increased in line with the increase of government spending. Moreover, unemployment and inflation appeared simultaneously, a fact which could not be explained by the dogmas of Keynesian thinking. The only thing they were able to do, was to give it a name : “stagflation”, which meant that we had a combination of creeping inflation, recession and unemployment. During the Carter years, inflation was at a staggering 13%. Huge interest rates were necessary to fight it. The interest rate on credit facilities reached the unbelievable level of 21%. The drama was complete when taxes were increased to fight both inflation and government deficits. During the Carter years, the top marginal tax rate on personal income rose to the insane record level of 70%. Experts dit not know how to agree on any economic policy. They simply had no solution!

THE FUNDAMENTAL FLAW IN KEYNESIAN LOGIC
A lot of recent studies indicate that an increase in public spending (as advocated by Keynes) does not stimulate the economy. The main reason is that money that could otherwise be spent efficiently by the private sector, is instead siphoned off for pork-barreling public works, very often with little or no return. Money to pay for deficit spending must come from somewhere else and, as usual, it is the taxpayer who must pay. The fundamental flaw in Keynesian logic is that it hardly makes sense to tax money away from productive people, thereby reducing their rewards, so as to spend it on unproductive goals. Some call it robbing Peter to pay Paul. The United Kingdom, home of Keynesianism, experimented with this medicine for years - only to get sicker and sicker, until Margaret Thatcher stopped it. A more recent example is Japan. This country has provided one of history’s best demonstrations that the Keynesian demand stimulus is a deeply flawed economic philosophy. Despite huge government outlays, the Japanese economy is still wallowing in the slump that has afflicted it for more than ten years. This point of view is confirmed by a recent study (based on multiple regression analysis) from the Flemish independent think tank WorkForAll. According to their analysis of the relationship between economic growth and the size of governments in 16 European countries, the two main causes leading to poor growth performance are excessive government spending and a demotivating tax structure, which put a heavy burden on work, income and profit.



Moreover, many influential economists have come to the conclusion that the multiplier effect does not exist. See Paul A. Samuelson (“Economics", edition 1973, page 229), Harvard's Robert J. Barro (“Macroeconomics”, third edition page 301) and “The Wall Street Journal", November 3, 1992: ( “Keynes is still dead”)

STAGFLATION BECAME RECESSION, EXPANSION FOLLOWED
Four young economists (Paul Craig Roberts, Robert Mundell, Norman Ture and Steve Entin) and a journalist (Jude Wanniski) convinced Reagan to completely reverse the economic policy of that time. Their point of view was that high marginal tax rates were a disincentive to produce, to take risk, to invest and to save. In their opinion this “economy of discouragement” had to be transformed into an “economy of encouragement”. The reasoning was as follows: people are producing because it pays to do so. Consumption alone will not result in increased production when the incentives to do so are not there. When tax rates are raised, people reduce their participation in taxed activities, such as working, risk taking, saving and investing. When tax rates fall, people increase their participation. Fortunately, Reagan understood this logic immediately. Few people know that Reagan had a major in economics, which he obtained at the Eureka College (Illinois) in 1932. The economic theory he was taught was untouched by Keynesian thinking and, as a consequence, very appropriate to the problems of the eighties. Reagan followed the advice and took action. The top marginal tax rate of 70% was lowered in two phases: to 50% with the “ERTA” (Economic Recovery Tax Act of October 1, 1981) and in a later phase to 28% (The Tax Act of 1986). These tax cuts created 18 million new jobs in 8 years, lowered inflation to 4.3% and cut unemployment from 9.7% to 5.4%. One of the longest and strongest economic expansions since World War II had begun, with an average annual growth rate of 3.5%. But the first two years (1981 and 1982) were lost for Reagan. Fed chairman Paul Volcker fought inflation with a tight monetary policy and high interest rates. The Reagan administration urged Volcker to decrease monetary growth by a maximum of 50%, in order not to kill the tax cut program. But as the Federal Reserve is totally independent, Volcker cut money growth by 75% in 1981. The recession became even worse, and unemployment rose further. But after inflation had been defeated, money growth resumed and the Reagan expansion took shape.

DID THE POOR GET POORER AND THE RICH RICHER?
“Reagan gave money away to the rich, at the expense of the poor”, many critics claim. The table below proves the contrary. At the end of the Reagan presidency, the rich paid comparatively more taxes than before. As for the poor, their share in total tax revenues decreased. There was a simple reason for this: the lower tax rates were an important incentive for the rich to expand their economic activity.The tax base had become broader, and the lower rate on the broader tax base resulted in higher tax revenues.

Percentage of paid income tax
Income Percentage of taxes paid

1984 1986 1987
$0 - $15,000 5.8% 4.0% 2.8%
$15,000 - $30,000 21.1% 16.8% 14.7%
$30,000 - $50,000 29.0% 25.9% 23.0%
$50,000 - $100,000 22.0% 24.3% 27.7%
$100,000 - $200,000 8.6% 10.2% 11.9%
+ $200,000 13.4% 18.9% 19.8%

100.0% 100.0% 100.0%
Source: IRS

In the table below we can see that the poor benefited most from the economic growth. Not only did they pay less taxes, but the 20% poorest people enjoyed an increase in income of 77 % in 9 years.

Incomes and Social Mobility
(1991 dollars)
Average Family Income of 1977 Quintile Members in
1977 Quintile19771986% Change
Bottom 20%$15,853$27,99877%
Second 20%$31,349$43,04137%
Third 20%$43,297$51,79620%
Fourth 20%$57,486$63,314 10%
Top 20%$92,531$97,1405%
All $48,101 $56,658 18%
Source: Urban Institute

HAMBURGER JOBS?
Critics claim that the growth in employment was realized mainly through the creation of crappy “hamburger jobs”. De Wit: "This is not correct. Universities could not follow to deliver enough high qualified graduates. As you can see in the following table, job growth was mainly in managerial functions. Low paid jobs in services increased very little and in farming, employment decreased".

Job Creation in the Eighties
Jobs Created, Jan. 1982 – Dec. 1989
Job Category Number (Mils.) Percentage Increase 1989 Median Earnings
Managerial/Professional 7.600 33.10% $32,873
Production 2.194 19.00% $25,831
Technical 6.630 21.80% $20,905
Operators 1.374 8.20% $19,886
Services 2.210 16.80% $14,858
Farming -0.116 -3.70% $13,539
Total 19.892 20.30% $23,333
Source: Bureau of Labour Statistics (employment), Census Bureau (earnings)


ENORMOUS PUBLIC DEBT?
It is often claimed that the budget deficit had risen to enormous proportions during the Reagan years. But between 1981 and 1989 the budget deficit increased only slightly, from 2.6% to 2.9% of GDP. The deficit peaked in 1983 to 6.1% of GDP (the Volcker recession with tight money). During the same years the Belgian budget deficit varied between 7% and 13% of GDP. The average budget deficit for the G-7 countries was only slightly lower than that of the US.

The public debt of the US as a percentage of GDP, remained below that of the G-7 countries, i.e. below 32% of GDP. But Belgian public debt, the result of years of Keynesian policy, was higher than 100% of GDP and remains around 100% at this moment.

Net Public Debt as a percentage of GDP

1983 1984 1985 1986 1987 1988
USA 24.1% 25.2% 27.3% 29.6% 30.9% 31.2%
G7 28.4% 29.8% 31.4% 32.9% 32.7% 31.8%
Belgium 103.2% 108.2% 112.3% 116.7% 121.4% 123.1%




WHY THE CRITICISM?
It seems strange that these figures and these facts are not better known, says Willy De Wit. But probably it is not surprising, when we consider that a right wing ("conservative") president discredited the left wing ("liberal") economic policy. Increasing social outlays doesn’t make sense when you have previously created unemployment and poverty with a wrong economic policy. Reagan has shown that the redistribution of wealth with high tax rates brings no solution. Instead of redistributing wealth, it distributes poverty. The main reason for the opposition to Reagan’s economic policy, however, was that this policy was completely misunderstood at that time, mainly by the economic establishment. They did not see the fundamental difference between Keynesian thinking to stimulate demand, and the new supply-side approach by Ronald Reagan.

Keynesian thinking explained the economic achievement in terms of the level of spending. Deficit spending will keep employment high and will stimulate the economy. Cutting the deficit (for the Keynesians) would reduce spending and throw people out of work, raising the unemployment rate, reduce national income and hence produce less tax revenues. Reagan on the contrary brought a totally new perspective to economic policy. Instead of putting the emphasis on spending, supply-side economists showed that tax rates directly affect the supply of goods and services. Lowering tax rates mean better incentives to produce, to save, to invest and to take risks. In other words lower tax rates stimulate supply and not demand. The broader tax base will compensate at least partially for the lost revenue caused by the tax cut. Higher savings will result in increased investment and unemployment will disappear. Instead of pumping up demand to stimulate the economy, reliance would be placed on improving incentives on the supply side.

The entire economic profession, along with the media could not believe that a former movie actor could come up with a revolutionary economic policy that completely contradicted the famous Keynesian theory. The reaction was fierce.

Another reason is that public opinion and most of the politicians in Europe are against the US. Roland Leuschel, a Belgian investment stategist with German roots and a good friend of Jack Kemp with whom he wrote a book in German, "Die Amerikanische Idee" (which was also published in Dutch but is out of print), dedicated a complete chapter of this book to this phenomenon: “the favorite sport of the European intelligentsia: anti-Americanism”.


REAGAN, NOT THE FIRST AND NOT THE ONLY ONE
Ludwig Erhard
Time, Nov. 1, 1963
Ronald Reagan was not the first government leader to practise supply-side economics, says Willy De Wit. After World War II Ludwig Erhard put in practice supply-side economics in Western Germany in 1948. At that time he was in charge of economic policy. He introduced an economic shock therapy completely in line with Reaganomics. He abolished rationing and price-controls, although he restricted his own power with this measure. Erhard believed in the self regulation of the market. Not only the Social Democrats were vehement opponents of the abolishment of price-control, but also Lucius D. Clay, the US. military governor, was furious. Erhard had pushed through the economic deregulation without ever asking the general. Clay called Erhard to account, thundering that the professor had infringed upon the Allies’ privileges by changing the rationing regulations. Erhard coolly responded : “you are mistaken, sir, I have not changed them, I have abolished them.”

Later on Erhard, as secretary for the economy, cut the high marginal tax rate in two steps: first from 95% to 63% and afterwards to 53%. The first 8000 DM earned became tax free.

The decisions taken by Ludwig Erhard allowed West-Germany to rebuild itself at a pace never seen. No surprise that he was called the “father of the wirtschaftswunder”.

The German economic miracle cannot be explained by the Marshall Plan. Britain and France received Marshall money too, but they wasted their chances. Britain voted Labour, which brought rationing and price controls. France opted for economic protectionism, which prevented Marshal help to be used in an efficient way.

After Reagan, the theory of supply-side economics was applied in numerous countries. In Iceland, David Oddson became prime minister in 1991. He inherited a poorly performing economy burdened by heavy income taxes. He lowered the corporate tax rate from 50% to 30%. During the next five years the economy grew by 5% per year. Government income did not fall and social outlays could be maintained.

Ireland is another example. In 1987 this country was the “sick man” of Europe, with a public debt of 135 % of GDP. After the elections of 1987 a new economic policy was introduced. Corporate tax rate was reduced from 32% to 12.5% and capital gains tax was lowered from 40% to 20%. Ireland is now the fastest growing country of the EU. Japan, to the contrary, is a classic example of the failure of a Keynesian demand-side policy. The economy has been in shambles for many years and public debt has risen to a gigantic 170% of GDP.

The following graph compares government spending and GDP per capita in Ireland and Belgium between 1960 and 2003. The Irish 'turning point' came with the adoption of supply-side economics.



REAGANOMICS, STILL RELEVANT TODAY
During the Reagan Presidency (1980-1988) an economic revolution unfolded. An unprecedented welfare expansion took place with the creation of 18 million new jobs. The understanding of the mechanism behind this economic miracle is important, because it can offer some tools to revive the economies in countries with overregulation and big governments.

Willy De Wit: "Belgian politicians apparently have no knowledge about supply-side economics. Universities are still teaching the theory of Keynes and the economic establishment does not seem to understand Reaganomics nor supply-side economics. Hence it is not surprising that Belgium has one of the heaviest levels of taxation in the world, a high unemployment rate and an increasing number of companies that are leaving the country. The media are still praising Keynes. Paul D’Hoore, the economics advisor of the Flemish public television service VRT is an admiror of Keynes. His book “De 100 kapitale vragen van Paul D’Hoore over mensen en geld” (100 major questions on people and money) is mainly about micro-economics. The few lines on macroeconomics are completely in line with Keynesian thinking. Meanwhile the economic time-bomb is ticking for Belgium: high unemployment figures, an ageing population and the pension problem, the brain drain and an unbearable tax burden".

A REAGANOMICS PLAN FOR BELGIUM
Willy De Wit has a six point blueprint for the Belgian economy, based on Reaganomics. "My program can create 600.000 jobs", he claims.

  1. A gradual but considerable cut of the highest marginal tax rates to 28%.
  2. The complete abolition of corporate taxes, with a repeal of all subsidies to corporations.
  3. The abolition of taxes on dividends. Investment and risk taking has to be encouraged, not punished. A reduction (or abolition) of tax rates can make investment opportunities profitable that formerly were not.
  4. The abolition of all agricultural subsidies. At this moment 45% of the total EU budget goes to agricultural subsidies, respresenting the huge amount of 45 billion euro per year. This is not only dramatic for the tax payers, but it is also very harmful for the developing world, mainly for the poor countries in Africa. As a consequence of the subsidies, European agricultural products are dumped (at prices far below the cost) on the markets of these countries, preventing them from competing on the world markets with their own products. To pacify our conscience for this scandalous behaviour, policy makers have created a government department for foreign aid. Allegedly, this is a compensation for the money we stole from the poor countries through agricultural subsidies for our own products. The tax payer has to pay twice: first for the subsidies and then for the foreign aid. It is a shame that Europe is pumping such huge amounts into agriculture, a sector we hardly need.
  5. A shrinking of the size of government. One out of four Belgians are working for the government. According to an analysis of the independent Flemish think tank Workforall the total cost of government in Belgium could be reduced by 50%.
  6. Abolition of the transfers of tax money from Flanders to Wallonia. About 10 billion euro is transferred each year from the Flemish tax payers to the French speaking part of Belgium. The reason invoked for these transfers is that Wallonia has an unemployment rate of 18% compared with 8% for Flanders. But the socialist political parties and the unions in Wallonia refuse to take structural measures to reinvogorate their economy. So long as Flanders continues to pay the unemployment benefits for Wallonia the latter have no stimulus to do so. A solution could be the splitup of Belgium into two parts. In a recent study, "The Size of Nations", professors Alesina and Spolaore demonstrate that it is easier for small countries to become rich than for large countries. Of the ten richest countries in the world (in terms of GDP), only four have more than 1 million inhabitants, and only one (the US) has more than 10 million. Flanders, Wallonia and Brussels could prosper more as separate states or as a confederation, compared to the present situation in a united Belgium.

Evolution of government employment in Belgium - source: KBC & WorkForAll. From top to bottom: defense, railways, postal service, education, police and justice, administration.


DEFENSE SPENDING
I asked Willy De Wit the following question. Public spending increased during the Reagan era, mainly due to the growth of defense expenditures. The Soviet Union could not keep up with the arms race and its economy was slowing down. Within three years after the end of the Reagan Presidency, we saw the iron curtain fall and the Soviet Union collapse. Was this military buildup a Keynesian measure, a disguised subsidy to the defense industry? Surely this defense spending was not a supply-side stimulus, because it created an artificial demand for military equipment?

Willy De Wit: You are completely right. Defense spending is a typical Keynesian demand-side policy and is certainly not a supply-side approach. Supply-side economics has nothing to do with expenses, but with the creation of incentives to produce, to take risk, to work, to invest and to save. Reagan saw the increase of defense expenditures as a necessary evil, to safeguard the security of the US in the long term. Without this defense buildup (which was the main cause of the increase in public spending) government outlays would have been considerably lower, and the success of Reaganomics would have been even more pronounced. Indeed, supply-side economics has taught us that an increase in government spending does not boost economic growth. On the contrary, recent studies have clearly shown that there is an inverse relation between economic growth and the level of public spending. This means that the increase of the defense expenditures during the Reagan era has lowered economic growth. Money invested in defense was lost for more productive investments in the private sector. Anyway, we must keep in mind that the Reagan budget deficit was not caused by the tax cuts, but by the increase in spending (mainly for defense), and paradoxically by an increase in social outlays, i.e. 2.9% per year during the first four years of the Reagan Presidency. That is an indication that Reagan was not an anti-social president.

SUPPLY-SIDE ECONOMICS AND THE LAFFER CURVE
Laffer curve
Supply-Side economics is widely misinterpreted as the Laffer curve. Arthur Laffer, an economics Professor at University of Southern California claimed that an important feature of supply-side economics is that tax cuts will pay for themselves. Laffer became famous after he illustrated this idea on a napkin in a restaurant in Washington in 1974. But the question is not whether tax cuts pay for themselves, but whether they are more effective in creating economic growth and welfare, compared to a Keynesian policy of increasing government spending. The difference between Keynesianism and the supply side school centers on fiscal policy. Does a successful fiscal policy work by incentives (tax cuts) or by increasing demand (spending)? The important question is not whether such a fiscal policy will pay for itself. The Keynesians stress demand, supply-siders stress incentives. Changing fiscal policy by creating incentives will change the behaviour of people. If tax rates rise, people will reduce their participation in taxed economic activities, such as working, risk-taking, investment and saving. When tax rates go down, people are motivated to increase their economic activity. The economic expansion that will follow a tax cut is far more important than the fact that tax cuts should pay for themselves. Most politicians in Western Europe have not yet understood this very important distinction. Even worse: the media in Europe have killed Reaganomics because they do not understand this difference.

WHAT ABOUT A FLAT TAX?
An even better solution than the above six point program, would be the introduction of a flat tax rate, not only in Belgium, but also in the (original) 15 EU countries. The flat tax is a system with only one tax rate for all income and profits. If for instance a flat tax of 20% were introduced it would apply to all personal income and corporate profits. All reliefs, deductions, allowances and subsidies will be eliminated. Loopholes would be impossible. The system would be so simple that it will perhaps take no more than five minutes to file a tax return. In the last decade, the flat tax system has been introduced in several countries of "the new Europe", namely Romania, Slovakia, Servia, Lithuania, Latvia, Estonia and also in Russia, Ukraine and Georgia with rates varying from 12% to 33% (average rate of 19%). Estonia was the first to introduce this system in 1994 (at a rate of 26 %) and has seen its economy expand at a fast rate.

A low level of a flat tax is important. The well-known Richard K. Armey, previous Majority Leader of the House of Representatives advocates a tariff for the US of maximum 17%. But this rate could even be lower. An analysis by the French economist Philippe Manière indicates that a flat tax rate of 10% in France would maintain the government revenues at the present level.

For Belgium, the introduction of a flat tax rate of maximum 20% would have enormous advantages a.o. :
  1. The economic growth rate will explode. Indeed a strong incentive is created to produce, to take risk, to work, to invest and to save.
  2. Unemployment will disappear completely.
  3. Tax Evasion will belong to the past. People are willing to pay the correct tax burden when tax rates are low.
  4. An important part of a suffocating government bureaucracy can be eliminated and the employees can be switched to more productive tasks.
CONCLUSION
Will Reaganomics or supply-side economics ever be applied in Belgium? In the UK, Ireland, Iceland and Eastern Europe current economic policy has strong supply-side influences. Currently Germany is in a worse socio-economic situation than Belgium. Who knows, some day Germany might return to the successful formula of Ludwig Erhard and create a new Wirtschaftswunder, by applying supply-side economics. Such an example could show the way for Belgium and other countries.

MORE READING ON REAGANOMICS
"Reagonomics or 'voodoo economics'?", BBC News, 5 June 2004
Reaganomics on Wikipedia, the free encyclopedia
"Reagan changed the world", Paul Craig Roberts, Townhall.com, 7 June 2004
"Reagonomics -- Then, Now, and Forever", Larry Kudlow and Stephen Moore, The Club for Growth, 12 June 2004
Reaganomics, William A. Niskanen, The Concise Encyclopedia of Economics
The Myths of Reaganomics, Murray N. Rothbard, Ludwig von Mises Institute
Supply Tax Cuts and the Truth About the Reagan Economic Record, William A. Niskanen and Stephen Moore, The Cato Institute
The Seven Fat Years and How to Do It Again, Robert Bartley

Flanders, Where Moustaches Grow

snorren.jpg
Handlebar, Walrus, Van Dyck Combo
What is it with those moustaches? For a foreigner in Flanders one thing that one quickly notices is the enormous variety of facial furniture still worn by the inhabitants. However though the preponderance is marked, it is even more marked in certain occupations. The police, the fire brigade and dustmen are keen Snorr carriers. Indeed a fine handlebar grins from the side of every Brussels dump truck.

 

Women’s Lives on the Line

image1_sujet1_180.jpg
A Le Soir journalist and one of his victims

Le Soir is the voice of Belgium’s establishment. An American friend who used to work for The Wall Street Journal in Brussels and is now a free-lance writer on international terrorism returned to Brussels last week to discover that his furnished apartment, which, while travelling abroad to Iraq, Afghanistan and various other places, he had let for a year to an Irish journalist working for Le Soir, had been almost stripped. His beautiful crockery had disappeared, as well as part of his furniture, posters and drawings, and many of his books. The man from Le Soir had also cashed the money which our friend had sent him on a monthly basis to pay the phone and internet bills, so that telephone and cable connections had been cut off.

 

Clairvoyance and the Panoptican State

For those readers who fail to have the good fortune to be born UK citizens or subjects, the current goings on over the putative introduction of ID cards must seem odd in the extreme. Our government has been trying to force the blasted things upon us for years now. First calling them 'entitlement cards' - suggesting that we are illegitimate if we do not carry one and shouldn't be able to avail ourselves of the ill formed services currently provided. Next owning up in public as to their identity role and threatening to charge us £350 for the privilege of affirming our existence.

The Constitution Is In Force

You may have got the impression that the European Constitution was dead: that the French had felled it, and the Dutch pounded a stake through its heart. If so, think again. The constitution is being brought in, clause by clause, as if those two countries had voted “Yes”.

Al-Qaeda Suspect Free Because German Constitution Overrules European Act

The German Constitutional Court, the Bundesverfassungsgericht, decided today that the European Arrest Warrant Act of 2002,  which replaced the various national extradition systems by a unified European one, is incompatible with the German Constitution. According to the Bundesverfassungsgericht the German Constitution overrules European Union legislation. Consequently a German citizen cannot be extradited automatically to other EU member states to be taken to court there, but is entitled to a verdict by German courts.

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