AEI » Blog http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Sat, 20 Dec 2014 19:14:14 +0000 en-US hourly 1 Obama’s Cuba mistake: A Q&A with Roger Noriegahttp://www.aei.org/publication/obamas-cuba-mistake-explained-seven-questions/ http://www.aei.org/publication/obamas-cuba-mistake-explained-seven-questions/#comments Fri, 19 Dec 2014 21:53:43 +0000 http://www.aei.org/?post_type=publication&p=825530 The question today is how the United States should go about lifting the Cuba sanctions. Do we do so to encourage key reforms, or do we do so in a unilateral gesture in exchange for nothing? Inexplicably, President Obama chose the latter course.

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On Wednesday, President Obama announced that he would take steps to restore diplomatic relations with Cuba, reversing a policy of isolation that has stood for over a half-century and through ten presidential administrations. Below AEI scholar Roger Noriega answers several important questions that have arisen in the wake of Obama’s dramatic move.

People refer to the Cuba sanctions as an anachronism.  After all, we trade and work with many dictatorships. For example, what’s the difference between Cuba and Communist China?

Cuba is in our neighborhood—in a region whose governments have committed themselves to representative democracy and respect for human rights.  Yes, we should expect more from that government, particularly in justifying a dramatic policy change.  By relaxing these standards to accommodate a totalitarian regime, other governments will find it easier to justify undemocratic behavior that hurts their people and undermines stability in the region.

The question today is how we should go about lifting the Cuba sanctions.  Do we do so to encourage key reforms, or do we do so in a unilateral gesture in exchange for nothing?  Inexplicably, President Obama chose the latter course.

The refusal of the Castro government to open up in any meaningful way for the last 55 years—in response to pressure from the United States or engagement from the rest of the world—demonstrates that the regime in Havana, not U.S. policy, is the problem.  So, Obama has forfeited leverage that might be useful down the road in way that buys the Castro regime more time in power.

In recent years, we’ve opened up a good deal towards Cuba.  Tourism is up, and hotels are being built.  Isn’t that actually helping the Cuban people?  And if not, why?

The tourism industry, like the rest of the Cuban economy, is dominated by military-run enterprises.  Foreign companies that do business in Cuba today must accept as their partner the Cuban state.  Employees are provided by the state, which receives payments for wages from the foreign company in dollars or euros and passes on meager peso salaries to the exploited workers.

To the extent the state can use this revenue to sustain its internal security apparatus upon which it depends to smother dissent and remain in power, Cubans pay a very dear price for foreign tourism.

There’s no question among serious people that the Castros have mismanaged Cuba’s economy and that the island floats economically on a sea of Venezuelan oil.  But Maduro in Venezuela has his own economic problems and the price of oil is really hurting his dictatorial regime and the Venezuelan people.  How do you see the intersection of Obama’s opening and the oil price crash for Venezuela and Cuba?

President Obama is throwing a lifeline to the Castro regime, precisely at a time when its survival strategy of sustaining itself off Venezuelan oil is threatened by the impending collapse of their patrons in Caracas.  In recent weeks, the Maduro government has reduced from 90,000 to 40,000 barrels per day, which should just cover Cuba’s internal consumption.  Surely, the Administration knows that the Cuban government will be severely tested as Venezuela’s largesse dries up.  In that case, U.S. leverage on Havana will increase.  Therefore, the decision to give Raúl Castro diplomatic relations without conditions is even less defensible.

Another commitment Obama made to Castro was to take Cuba off the terrorism list.  He can do that unilaterally if he certifies to Congress that Cuba is no longer a state sponsor of terrorism.  Can Secretary of State Kerry do that in good conscience?  Why is Cuba on the terrorism list?  

Cuba is on the terrorism list for its historic ties to European and Latin American terrorist organizations and for its refusal to renounce terrorism.  The Administration has turned a blind eye to Havana’s associations with rogue states, so it can claim that it does not have more information upon which to retain the terrorist designation.

The policy decision by President Obama leaves very little doubt that the State Department will rationalize a decision regarding Cuba.  The Bush Administration removed North Korea from the terrorist list in 2008 in an effort to salvage nuclear talks, in a move many criticized at the time as unjustified.

Why did President Obama make this decision now?

By making this decision now, the President is able to jumpstart his engagement of the Americas rather than be on the spot to defend a policy he obviously did not support.  The normalization of diplomatic ties also is a bid for the history books.

The release of Alan Gross, a U.S. aid worker held for over two years by the Cuban government, created a pretext for action.

Moreover, since the President’s election, the Cuban regime began to rally Latin American and Caribbean governments to its cause—pressing the United States to end its policy of isolation toward Havana.  In several encounters in regional summits, virtually every regional government—including key allies like Colombia—have insisted that Cuba be invited.  The next summit is scheduled for April in Panama.  President Obama had to decide whether to boycott that meeting or sit down with Raúl Castro.

What is the role of Congress in making Cuba policy, and what is expected in the coming year?

Congressional leaders already have indicated their opposition to unilateral concessions to the Castro regime, and any meaningful relaxation of the economic sanctions will require an act of Congress.  The Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 codifies the U.S. economic embargo, and restoring normal trade or commercial ties with Cuba will require an act of Congress.  There is a strong bipartisan majority in both houses of Congress that has resisted unilateral relaxation of the embargo.

Granting diplomatic recognition is wholly within the authority of the President in his normal conduct of foreign affairs.  The Senate must grant its consent to the designation of any U.S. ambassador to Havana.  Senator Marco Rubio (R-FL), who will assume the chairmanship of the Senate Foreign Relations Subcommittee on Western Hemisphere Affairs next January, already has expressed his opposition to this normalization of relations and designation of an ambassador.

Senator Lindsey Graham (R-SC), who will lead the Senate Appropriations Subcommittee on Foreign Operations, has announced his opposition to spending money to normalize relations.  The United States already maintains an “interests section” in Havana, which is staffed by U.S. Foreign Service officers and headed by a “chief of mission”; most of the costs of maintaining that staff and facility already are appropriated, so no new money will be required for these activities.

Regarding the travel and banking measures announced by the President, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury writes the regulations to implement U.S. law and executive action; these changes do not require an act of Congress.  Early in his term, the President exercised a degree of discretion to allow more family travel and cash remittances to the island. In light of the President’s intention to further relax existing travel and banking restrictions, OFAC’s proposed regulations will likely be scrutinized closely by Congress.

Last big picture question:  What will this mean for Cuba after the dust settles? Real change? Or…?

Those who know the intransigent nature of the Castro regime expect no meaningful steps toward liberalization of any kind—particularly because it has been handed a major victory in exchange for doing nothing.  The normalization of diplomatic relations will have very little positive impact on the lives of Cubans, unless President Obama rallies other countries to join us in pressing for economic and political change on the island.  If he fails to do follow up with a vigorous pro-democracy campaign, his decision will be proven as a blunder that prolonged the Castro dictatorship and accomplished little else.

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James Pethokoukis on C-SPAN, along with Carly Fiorina, Larry Kudlow, Arthur Laffer, and Steve Moorehttp://www.aei.org/publication/james-pethokoukis-c-span-along-carly-fiorina-larry-kudlow-arthur-laffer-steve-moore/ http://www.aei.org/publication/james-pethokoukis-c-span-along-carly-fiorina-larry-kudlow-arthur-laffer-steve-moore/#comments Fri, 19 Dec 2014 21:31:52 +0000 http://www.aei.org/?post_type=publication&p=825535 I was on a peppery panel yesterday at the Heritage Foundation with Carly Fiorina, Larry Kudlow, Arthur Laffer, and Steve Moore. Lots of good give-and-take on the right direction for 21st century tax policy.

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I was on a peppery panel yesterday at the Heritage Foundation with Carly Fiorina, Larry Kudlow, Arthur Laffer, and Steve Moore. Lots of good give-and-take on the right direction for 21st century tax policy.

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How crony capitalism is undermining US entrepreneurship and economic growthhttp://www.aei.org/publication/crony-capitalism-undermining-us-entrepreneurship-economic-growth/ http://www.aei.org/publication/crony-capitalism-undermining-us-entrepreneurship-economic-growth/#comments Fri, 19 Dec 2014 21:09:12 +0000 http://www.aei.org/?post_type=publication&p=825527 The Washington Post's multipart series -- led by Jim Tankersley and his team -- on America's struggling middle class is a must-read for policymakers. While I will have more to say on this next week, I did want to highlight the Thursday piece on the apparent decline on US entrepreneurship. Startups, especially those with dreams of expanding, are a huge source of jobs and innovation. They also apply competitive pressure on incumbents firms. Fewer startups means less competitive intensity in the economy. And crony capitalism relationship between business and government could mean fewer startups. Tankersley ...

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The Washington Post’s multipart series – led by Jim Tankersley and his team — on America’s struggling middle class is a must-read for policymakers. While I will have more to say on this next week, I did want to highlight the Thursday piece on the apparent decline in US entrepreneurship. Startups, especially those with dreams of expanding, are a huge source of jobs and innovation. They also apply competitive pressure on incumbents firms. Fewer startups means less competitive intensity in the economy. And a crony capitalist relationship between business and government could mean fewer startups. Tankersley:

This brings us to the second problem with U.S. entre­pre­neur­ship today: Those older firms appear to be growing more interested in what economist William Baumol called “unproductive entre­pre­neur­ship.” Put simply, that means companies are ramping up their efforts to win favors from the government — tax breaks, spending contracts or industry regulations that favor their firm over potential competitors. Many economists, such as Luigi Zingales of the University of Chicago, contend those efforts divert resources that could be boosting the economy and sparking more job creation.

From 1998 to the peak of the influence boom in 2010, after adjusting for inflation, American companies nearly doubled the money they spent lobbying federal lawmakers, according to the nonprofit Sunlight Foundation. There’s an index that tracks stock performance of the 50 companies that lobby the most, and in 2012, it outperformed the market as a whole by 30 percent.

A recent study for George Mason University’s Mercatus Center by economists Russell Sobel and Rachel Graefe-Anderson found that for companies, deep political connections (including high lobbying spending) and higher revenues go together. But instead of banking those extra revenues as profits, the firms appear to pass them on to their chief executives. The paper finds “a robust and significant positive relationship between political activity and executive compensation.”

Some economists see a link between the nation’s two entre­pre­neur­ship problems — the scarcity of start-ups and the rise in influence-peddling. By bending tax laws and new regulations to benefit them, those economists theorize, existing companies make it harder for anyone new to challenge for market share. Litan and Hathaway, the authors of the Brookings studies, say that theory would take decades of research to prove or disprove — but that it certainly appears today that established companies have unusual advantages over new companies.

Hey, devising new technology or techniques and generating consumer-relevant value is lot harder than writing a check to a politicians.

 

 

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On the economic nostalgia for manufacturing jobshttp://www.aei.org/publication/economic-nostalgia-manufacturing-jobs/ http://www.aei.org/publication/economic-nostalgia-manufacturing-jobs/#comments Fri, 19 Dec 2014 20:36:52 +0000 http://www.aei.org/?post_type=publication&p=825521 The only thing missing from America's manufacturing renaissance is, you know, actual factory workers. A strong upturn in output since the Great Recession, in the number of employees not so much. Here is MIT's Andrew McAfee (who also supplied the above chart): ...

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The only thing missing from America’s manufacturing renaissance is, you know, actual factory workers. A strong upturn in output since the Great Recession, in the number of employees not so much. Here is MIT’s Andrew McAfee (who also supplied the above chart):

So the problem is not that there’s been no renaissance, it’s that it’s been a jobless one — yet another example of how output is becoming decoupled from employment in our ever-more-technologically-advanced economy. This decoupling is evident from a graph that juxtaposes US manufacturing output and employment since the turn of the century.

Note that between the last two recessions manufacturing output (the blue line) went up quite steadily while employment (red line) did nothing but drop. Unfortunately for job seekers, I expect that pattern to resume in the very near future. Employment growth in manufacturing has recently tapered off, and I expect it to turn negative, even as output continues to increase. The historical pattern is very clear and very regular here, and I see no reason it won’t repeat itself.

In fact, as recent innovations in sensing, monitoring, robotics, 3D printing, and many other fields get adopted by manufacturers I predict that the output-up-while-employment-down trend will accelerate. Anyone see a good reason to believe otherwise?

Nostalgia for the 1950s and 1960s is a conceptual dead end, as is a policy bias in favor of jobs where  you “make stuff.” While Americans still overwhelmingly view manufacturing jobs as good jobs and important to the US economy, that view may be seriously outdated —  as this National Employment Law Project report suggests.

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Iran and al Houthi proxies threaten US counter-terrorism policy in Yemenhttp://www.aei.org/publication/iran-al-houthi-proxies-threaten-us-counter-terrorism-policy-yemen/ http://www.aei.org/publication/iran-al-houthi-proxies-threaten-us-counter-terrorism-policy-yemen/#comments Fri, 19 Dec 2014 14:57:49 +0000 http://www.aei.org/?post_type=publication&p=825475 The al Houthi militants' seizure of the al Hudaydah port raises questions as to the rebel group's objectives in Yemen and the sustainability of US-Yemen counter-terrorism cooperation, specifically in light of growing Iranian support for the rebel group.

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Al Houthi militants seized the strategic al Hudaydah port on Yemen’s coast on December 17. The move gives the al Houthis, a Zaydi Shi’a movement that has received Iranian financial and materiel support, direct access to shipping and smuggling routes in the Red Sea. The seizure of the al Hudaydah port fits into what appears to be the al Houthis’ larger scheme of securing key Yemeni infrastructure since the rebel group took power in Sana’a, Yemen’s capital, on September 21. The move also raises questions as to the al Houthis’ objectives in Yemen and the sustainability of US-Yemen counter-terrorism cooperation, specifically in light of growing Iranian support for the rebel group.

Let’s take a step back. The al Houthi leadership has been messaging that the group seeks political reform and will join the government once corruption is routed out of Yemeni state institutions. However, the al Houthis’ continued military presence in Sana’a and their blatant expansion of control over state infrastructure is in opposition to the group’s rhetoric. For example, the al Houthis have taken over the state-run newspaper and Yemen’s primary oil company, and  are also rumored to have set their sights on expanding their geographic influence south in Taiz, Yemen’s third-largest city, and east in Ma’rib, where Yemen’s main gas infrastructure is located.

These recent moves signal the al Houthis may be preparing to dominate the Yemeni state. And it is possible the group may contemplate direct cooperation with Iran to receive further funding and military aid in support of these efforts. Recent reporting indicates that Iran increased financial and materiel support to the al Houthis since September. Port access to the Red Sea could now facilitate even greater movement of arms from Iran. High-ranking al Houthis recently indicated their willingness to work with Tehran, praising Iran as the “axis of resistance” to the West.

What does this mean for US counter-terrorism policy in Yemen? Nothing good. The US strategy relies on a willing partner to combat al Qaeda in the Arabian Peninsula (AQAP). Currently, the Yemeni government serves that role. It’s becoming increasingly possible, however, that the al Houthis may become the only viable power brokers in the country. Which effectively means partnering with Iran, or nothing.

The al Houthis have fundamentally changed the Yemeni political landscape. Yet, US policy remains the same. It’s time the US assesses how the al Houthis’ de-facto control of the Yemeni government affects our current strategy to combat AQAP. Because we are in danger of losing our Arab and Sunni partners by aligning ourselves with Iran’s “axis of resistance” – which Tehran means to resist us.

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The magic and miracle of the marketplace: Christmas 1964 vs. 2014 – there’s no comparisonhttp://www.aei.org/publication/magic-miracle-marketplace-christmas-1964-vs-2014-theres-comparison/ http://www.aei.org/publication/magic-miracle-marketplace-christmas-1964-vs-2014-theres-comparison/#comments Fri, 19 Dec 2014 03:54:44 +0000 http://www.aei.org/?post_type=publication&p=825458 Pictured above are some color TVs from the 627-page 1964 Sears Christmas Catalog, available here at the WishbookWeb website along with many other Christmas catalogs from 1933 to 1988. The original prices are listed ($750 for the Sears Silvertone entertainment center and $800 for the more expensive one), and those prices are also shown converted [...]

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Pictured above are some color TVs from the 627-page 1964 Sears Christmas Catalog, available here at the WishbookWeb website along with many other Christmas catalogs from 1933 to 1988. The original prices are listed ($750 for the Sears Silvertone entertainment center and $800 for the more expensive one), and those prices are also shown converted to today’s 2014 dollars using the BLS Inflation Calculator: $5,700 for the basic 21-inch color TV model and $6,100 for the more expensive model.

To put that in perspective, the pictures below illustrate what about $5,700 in today’s dollars (actually only $5,600) would buy in the 2014 marketplace using current prices from the Sears and Best Buy websites:

appliances2014

Bottom Line: For an American consumer or household spending $750 in 1964, they would have been able to purchase the 21-inch color TV/entertainment center from the Sears Christmas catalog pictured above (includes phonograph and AM/FM radio). An American consumer or household spending that same amount of inflation-adjusted dollars today (about $5,600) would be able to furnish their entire kitchen with 5 brand-new appliances (refrigerator, gas stove and oven, washer, dryer, and freezer) and buy 7 state-of-the-art electronic items for their home (a Toshiba Satellite 14″ laptop computer, a Garmin 5 Inch GPS, a Canon EOS Rebel T5 DSLR Camera, a Sony 1,000 Watt, 5.1-Channel 3D Smart Blu-Ray Home Theater System, a Sharp 50 inch LED HDTV, an Apple iPod Touch 32GB MP3 Player, and an Apple iPhone 6 [with 2-year contract]). And of course, even a billionaire in 1964 wouldn’t have been able to purchase many of the items that even a teenager can afford today, e.g. laptop computer, GPS, iPhone, digital camera.

As much as we might complain about a slow economic recovery, the decline of the middle class, stagnant median household income, rising income inequality and a dysfunctional Congress, we have a lot to be thankful for, and we’ve made a lot of economic progress in the last 50 years as the example above illustrates, thanks to the “magic and miracle of the marketplace.”

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On the left’s dream of turning America into Scandinaviahttp://www.aei.org/publication/lefts-dream-turning-america-scandinavia/ http://www.aei.org/publication/lefts-dream-turning-america-scandinavia/#comments Thu, 18 Dec 2014 22:25:17 +0000 http://www.aei.org/?post_type=publication&p=825452 Many left-liberals have a real thing about the social democracies of Scandinavia. As University of Arizona sociologist Lane Kenworthy has put it, “Over the course of the next half century, the array of social programs offered by the federal government of the United States will increasingly come to resemble the ones offered by [the Nordic welfare states]." And he might be right, if Democrats have their way. No sooner the arrival of universal healthcare did Democrats move into their next project: universal preschool. And next perhaps a universal basic income. ...

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Many left-liberals have a real thing about the social democracies of Scandinavia. As University of Arizona sociologist Lane Kenworthy has put it, “Over the course of the next half century, the array of social programs offered by the federal government of the United States will increasingly come to resemble the ones offered by [the Nordic welfare states].” And he might be right, if Democrats have their way. No sooner the arrival of universal healthcare did Democrats move into their next project: universal preschool. And next perhaps a universal basic income. (Hey, where is the VAT to pay for all this stuff?) There are fans in the media, too. Again, here is New York Times reporter Neil Irwin on what lessons America can learn from Scandinavia’s high labor force participation rates  in creating a pro-work safety net:

In short, more people may work when countries offer public services that directly make working easier, such as subsidized care for children and the old; generous sick leave policies; and cheap and accessible transportation. If the goal is to get more people working, what’s important about a social welfare plan may be more about what the money is spent on than how much is spent. If correct, it could have broad implications for how the United States might better use its social safety net to encourage Americans to work. In particular, it could mean that more direct aid to the working poor could help coax Americans into the labor force more effectively than the tax credits that have been a mainstay for compromise between Republicans and Democrats for the last generation.

AEI’s Mike Strain, quoted in the Irwin piece, has a response here. So too does AEI’s Stan Veuger. Let me pull out a few of their insights. First, Strain:

I’m quoted in an article in the New York Times on the paper, and as the article reports I do think that we can learn some things from Scandinavia — better transportation, better public education — and I oppose expanding the government’s role in child care (we have enough middle-class entitlements, thank you very much). … I would make two other points as well. Americans might be willing to fork over more of their hard-earned cash to the government if they had more confidence that the government would spend the money in a productive way. … And, as I have written, very high marginal income tax rates would likely be very damaging to the long-term future of the United States. Why would a young person want to be a surgeon or an entrepreneur if the government will take seventy cents of her top dollars of income? Like Scandinavian culture, the longer-term reactions to high top rates — skill acquisition, occupational choice, general attitudes about work — are much harder to measure. And it is fine for economists to focus on what they can measure when writing their papers. But it is not fine for the public debate to assume that these effects are zero just because economists can’t measure them.

And Veuger:

But might policy and politics be downstream from culture? Well, that certainly appears to be the case once we look at Scandinavian culture. Scandinavians trust their fellow citizens. They think poor people have typically been unlucky instead of lazy. They vote actively and participate in civil society. They respect the rule of law, and they donate to charity. Professor Kleven recognizes all of these things, and ultimately chooses not to guess what causes what. Yet for the ambitions of American progressives, that distinction matters very much. If all of these things are so precisely because the Scandinavian countries are small and homogeneous and have been that way for quite some time, then there is not much to be learned from this Scandinavian business. The Scandinavians themselves seem quite confident that they know the answer: culture matters and that their countries are small and homogeneous matters. They are the most Euroskeptic peoples of the continent. Norway is not a member of the European Union, Sweden joined only recently, and none of the three adopted the eurozone’s common currency. They seem to like their small, homogeneous countries just fine. And perhaps that’s what Scandinavia ultimately teaches us: the value of subsidiarity, not of subsidies.

Other economists wonder if Nordic-style capitalism is as conducive to innovation. Certainly they file fewer patents and generate fewer superrich entrepreneurs. (Recall Strain’s remarks on taxes.) As economists Daron Acemoglu, James Robinson, and Thierry Verdier explain in their paper “Can’t We All Be More Like Scandinavians?”: “We cannot all be like the Scandinavians, because Scandinavian capitalism depends in part on the knowledge spillovers created by the more cutthroat American capitalism. … Some countries will opt for a type of cutthroat capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free-ride on the cutthroat incentives of the leaders and choose a more cuddly form of capitalism.”

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Negative interest rates: The Swiss Central Bank joins inhttp://www.aei.org/publication/negative-interest-rates-swiss-central-bank-joins/ http://www.aei.org/publication/negative-interest-rates-swiss-central-bank-joins/#comments Thu, 18 Dec 2014 22:02:31 +0000 http://www.aei.org/?post_type=publication&p=825451 Negative interest rates keep happening although economists generally assured us they couldn’t. They will soon apply to large deposits with the central bank of Switzerland, as today (December 18), the Swiss National Bank (SNB) joined the European Central Bank in the negative interest rate club.

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Negative interest rates keep happening although economists generally assured us they couldn’t. They will soon apply to large deposits with the central bank of Switzerland, as today (December 18), the Swiss National Bank (SNB) joined the European Central Bank in the negative interest rate club.

The SNB announced that starting January 22, 2015, demand deposits over a certain threshold held with it by banks and financial institutions will have a negative interest rate of -0.25%. Further, said the SNB, “we aim to take the three-month [Swiss franc] Libor into negative territory.”  Its target range for this rate will be -0.75% to -0.25%.

As it was in the 1970s, when the Swiss imposed negative interest rates on Swiss franc deposits by foreigners, the cause of this action is the unwanted pressure for further appreciation of the Swiss currency. “We are introducing negative interest rates,” they explain, “to support the minimum exchange rate.” More clearly stated, this phrase means: to cap the maximum appreciation of the Swiss franc.

How widespread can negative interest rates become? How negative can they get? Nobody, including economists, knows.

Follow AEIdeas on Twitter at @AEIdeas.

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‘Cuba the Morning After’http://www.aei.org/publication/cuba-morning/ http://www.aei.org/publication/cuba-morning/#comments Thu, 18 Dec 2014 21:15:02 +0000 http://www.aei.org/?post_type=publication&p=825440 Yesterday, President Obama announced a decision to reestablish diplomatic relations with Cuba. Discussions to reopen the relationship will begin immediately and will include efforts to reestablish an embassy in Havana.

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Yesterday, President Obama announced a decision to reestablish diplomatic relations with Cuba. Discussions to reopen the relationship will begin immediately and will include efforts to reestablish an embassy in Havana. The president’s announcement makes particularly relevant a book by AEI emeritus scholar and Latin American expert Mark Falcoff.

In “Cuba the Morning After: Confronting Castro’s Legacy” (AEI Press, 2003),  Falcoff surveys  the damage that decades of Communist rule have done to the people of Cuba including a prostrate economy, widespread poverty and political repression. Falcoff  argues that it will be difficult, perhaps impossible, to reverse the decades-long devastation and that to expect an instantly revitalized dynamic Cuba to emerge is unrealistic.

For more on Obama’s move to change the diplomatic relationship with Cuba, read Roger Noriega’s recent piece on the matter.

Follow AEIdeas on Twitter at @AEIdeas.

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The oil price collapse may end the ‘Texas Miracle’ — at least for nowhttp://www.aei.org/publication/oil-price-collapse-may-end-texas-miracle-least-now/ http://www.aei.org/publication/oil-price-collapse-may-end-texas-miracle-least-now/#comments Thu, 18 Dec 2014 18:08:11 +0000 http://www.aei.org/?post_type=publication&p=825418 The energy sector gives, and the energy sector takes. The stunning drop in oil prices looks like bad news for the "Texas Miracle." This from JPMorgan economist Michael Feroli: "As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession." ...

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The energy sector gives, and the energy sector takes. The stunning drop in oil prices looks like bad news for the “Texas Miracle.” (Texas is responsible for 40% of all US oil production — vs. 25% five years ago — and all of the net US job growth since 2007.) This from JPMorgan economist Michael Feroli: “As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession.”

So perhaps a minor key replay of what happened in the Lone Star State back in 1986 when oil prices also collapsed. The oil patch bust caused Texas unemployment to rise, housing prices to fall, and, eventually, a nasty banking crisis. On the positive side, natural gas prices have not fallen along with oil — unlike in 1986 — while the Texas  employment share from oil is less today than back then. But there are reasons to worry as well:

While these are all valid, they are not so strong as to signal smooth sailing for the Texas economy. Financially, oil is a fair bit more important than gas for Texas, both now and in 1986, with a dollar value two to three times as large. Moreover, while energy employment may be somewhat smaller now, we are not talking about night and day: the current share is about 3/4ths what it was in 1986. (And given the higher capital intensity there are some reasons to think employment may be greater now in sectors outside the traditional oil and gas sectors, such as pipeline and heavy engineering construction).

As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession. Such an outcome could bring with it the usual collateral damage that occurs in a slowdown. Housing markets have been hot in Texas. Although affordability in Texas looks good compared to the national average, it always does; compared to its own history, housing in some major Texas metro areas looks quite dear, suggesting a risk of a pull-back in the real estate market.

The post The oil price collapse may end the ‘Texas Miracle’ — at least for now appeared first on AEI.

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