Conservative politicians want to cut spending — except for the military. Where that's concerned, they sound like liberals. In fact, conservatives have adopted several liberal ploys to justify today's bloated military budget.

First, big spenders on the right argue that Washington must continue doing everything that it has ever done abroad. House Armed Services Committee Chairman Howard "Buck" McKeon (R-Calif.), one of the leading pork hawks, has denounced the idea of doing "less with less."

Yet the Department of Defense spends most of its money to protect other nations, including those that are populous and prosperous. All together, the Europeans have a larger GDP and population than America and ten times the GDP and three times the population of Russia. South Korea has 40 times the GDP and twice the population of North Korea. Why is the U.S. taxpayer still paying for their protection, 67 years after World War II ended?

Even worse has been Washington's foray into militarized nation-building. The Balkans remains a mess nearly two decades after Washington intervened. The Iraq War weakened America and strengthened Iran. The U.S. has been trying to create a competent, honest, and democratic central government in Kabul for a decade. None of these missions advances U.S. security.

But that raises the second excuse that phony conservatives use to justify a bloated Pentagon. Like liberals spending on education, these right-wingers equate money with results. Thus bigger Pentagon budgets mean increased national security. Only it's not true: greater military spending is strategic waste on a grand scale.

While the world is dangerous, it is not particularly dangerous to America. The U.S. is surrounded by oceans east and west and friendly neighbors north and south. America is allied with every major industrialized state save Russia and China. Washington already has a thousand military installations around the world. The American navy is equivalent to that of next 13 navies combined, 11 of which belong to U.S. allies.

Washington spends as much as the rest of the world — and spends more, in real terms, than at any point during the Korean War, Vietnam War, or Cold War. America could spend less and still possess far larger and more capable forces than anyone else.

Such overcapacity actually encourages Washington to meddle in foreign conflicts that foolishly deplete our military capital. As a result, guys using AK-47s and improvised explosive devices tied down the world's greatest power for years in both Iraq and Afghanistan.

Terrorism remains a threat, but not an existential one like the old Soviet Russia. Moreover, Al-Qaeda has been wrecked by relatively inexpensive techniques short of conventional war: good intelligence, Special Forces strikes, international cooperation, financial sanctions. In contrast, the invasion of Iraq created an entirely new class of terrorists, some of whom have migrated to other conflicts, such as Libya and Syria.

The third idea spendthrift militarists have recycled from the liberals of yesteryear is using "baseline budgeting" to complain that Barack Obama has "cut" defense outlays. This is the same way Democrats once charged that Ronald Reagan drastically "cut" domestic spending — by reducing the rate of increase.

Total military outlays were $306 billion in 2001. Since then they have risen steadily, breaching the $700 billion barrier under Barack Obama in 2011. In real, inflation-adjusted terms, expenditures increased 74.5 percent over the last decade. In the Obama administration's first two years inflation-adjusted military spending rose 16.8 percent. Outlays last year, in real terms, were 23.5 percent above the Korean War peak in 1953, 22.5 percent above the Vietnam War peak in 1968, and 35.8 percent above the Reagan build-up peak in 1989.

Spending will stop racing ahead this year but not because of real cuts: the administration has only proposed reducing planned increases over the coming decade by $487 billion. As former House Majority Leader Richard Armey observed, these "cuts" are "only from the bloated CBO baseline. This means that [Obama] is merely reducing projected military spending, as opposed to cutting current spending."

If Congress does not trim overall spending by $1.2 trillion over the coming decade, the sequestration agreed to during last summer's debt ceiling debate is supposed to kick in, with the equivalent amount in cuts divided equally between domestic and military outlays. This prospect has caused much neoconservative wailing and gnashing of teeth.

In fact, say Veronique de Rugy of the Mercatus Center and Ben Friedman of the Cato Institute, non-war outlays would still increase, only "by about 10 percent today, as opposed to the 18 percent the administration wants." (War expenses are exempted.) Overall, they figure, as a result of sequestration military expenditures would grow by 18 percent rather than 20 percent from now through 2021.

The present rate of growth is too much even for some hawks. "Under sequestration, the Defense Department would still be spending more money in 2021 than it is spending today," adds Andrew McCarthy of the Foundation for Defense of Democracies. "Moreover, that spending increase — not cut, increase — comes atop a decade-long spending bonanza."

Yet some of the most prominent neoconservatives are scaremongers. Max Boot of the Council on Foreign Relations cites an estimate that the combined effect of all "cuts" would result in a 31 percent drop in real military spending. But even if this "worst case" came to pass, real outlays would be at 2007 levels, which were 39 percent higher than in 2001. Moreover, the reduction would come when the U.S. was no longer fighting wars in Iraq and Afghanistan. America would still lap the rest of the world in the global arms race.

The fourth tactic for conservatives addicted to military-industrial pixie dust is playing the "Washington Monument" game — threatening to kill the most important programs (in this case, weapon systems) first. Just as liberals, faced with demands for cuts to local budgets, will threaten schools, police, and fire departments first, pork hawks want to claim that DoD reductions must come out of indispensable programs. Again, that's not true: military cutbacks should start with force structure, especially army units.

With allies capable of defending themselves, the U.S. should not plan on fighting a major land war in Europe or Asia. And there should be no more nation-building. The U.S. should maintain superior air and naval forces, but in smaller numbers sufficient to prevent attack on America rather than to police the globe. Such a strategic readjustment does not mean the end of our ability to project force abroad: America would continue to act as an off-shore balancer capable of aiding friendly states against a hostile power seeking Eurasian hegemony. This would not only be more affordable but makes greater strategic sense than behaving as an in-region meddler determined to micromanage local conflicts.

Could the unexpected occur? Of course. Should the U.S. have a surge capacity in the event of an emergency? Certainly. Should Washington adjust its plans if international circumstances change? Definitely. But it makes no sense to maintain an oversized military for decades because someday a country like China might behave badly. When that time comes, a bloated Defense apparatus would be too slow and encumbered to act.

The fifth and last resort of Washington big-spenders is demagoguery. Advocates of a colossal military trash their opponents as "isolationists" who want to undermine America. Columnist Lurita Doan accused President Obama of seeking "to render our military neither well-armed nor well-planned." New Zealand blogger Trevor Loudon — neoconservatives are nothing if not globalist — charged that "hard-bitten Leninists and disciplined Marxists" were behind plans to reduce U.S. military outlays.

Just look at the hype. Reductions in military spending, we are told, would be "totally destructive" and "very dangerous to the survival of the country," would "destroy" the Pentagon, set America on a "perilous course," be "dangerous and irresponsible," leave America "in the greatest peril," "would decimate our military," threaten America's "national security interests," be "totally devastating," send "a very horrible message" to America's enemies, create the "threat of gutting national security," "break" the military, "invite aggression," cause "severe and irreversible impact," leave America "teetering on the precipice of disaster," cause "catastrophic damage," "put our national security on the chopping block," leave "a hollow force," "disarm the United States unilaterally," result in "American lives lost," fail "to provide for the safety and security of our country," and call "into question our nation's ability to remain a free people."

All of this from returning military outlays to 2007 levels.

The fundamental question is whether military spending should respond to the threat environment. Leading Republicans answer no: America must always and in every situation spend more.

Pork hawks routinely denounce the post-Cold War drawdown, a 27.8 percent drop in real outlays from peak to trough that was erased in just six years. The Soviet Union had disintegrated. The Warsaw Pact had dissolved. Maoism had disappeared from China. Colin Powell observed that he was running out of enemies — down to Kim Il-sung and Fidel Castro. Still the pork hawks wailed. And some go farther. Max Boot decries every previous drawdown, including after the Revolutionary War.

Congressman J. Randy Forbes (R-Va.) complains that spending reductions would result in an America "that can go fewer places and do fewer things." But what if going to most of those "places" and doing most of those "things" does not advance U.S. interests? Secretary of Defense Leon Panetta has testified that military cutbacks might require reducing "our presence perhaps in Latin America, our presence in Africa." So?

There are bad actors in the world, but they need not automatically be America's problem. Gen. Robert H. Scales (ret.) argues that "We cannot pick our enemies; our enemies will pick us." Actually, in recent years Washington has done most of the picking and attacking: Haiti, Bosnia, Serbia, Iraq, Libya.

Max Boot similarly asserts: "Certainly there has not been — nor is there likely to be — a decreased demand for the armed forces. They are constantly having new missions thrown their way, from defending our nation's computer networks to deposing a dictator in Libya and providing relief to Japanese tsunami survivors." None of these tasks justifies maintaining a titanic military in a constitutional republic facing a troubled future of deficits, debts, and unfunded liabilities.

Even those who say military outlays can never be cut must ultimately decide how much is enough. Half of the world's outlays? Three-quarters? Four-fifths? Even if Washington could afford to spend ever more, the rest of the world might not go along with America's plan. If the U.S. spends more to contain China, China is sure to ramp up its outlays to deter us. After all, Americans would not stand idly by if another country placed bases in Mexico and Canada, used its fleets to patrol the Gulf of Mexico and both coasts, and casually talked of war to contain American ambitions. China will act no differently.

America is more secure today than at any point since before World War II. Military outlays should be reduced accordingly.

That will require scaling back Washington's international objectives. But the U.S. should stop garrisoning the globe, subsidizing rich friends, and reconstructing poor enemies. Instead, it's about time Washington focused on defending America and its people.

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Ronald Reagan.

American public does not like the fact that Fed chairman Ben Bernanke has vastly expanded the size and scope of the nation's central bank and bailed out Wall Street while Main Street suffered. Congressman Ron Paul (R-TX), chairman of the Subcommittee on Domestic Monetary Policy, has even argued for a return to the gold standard and ultimately the end of central banking in favor of free-market money.

Although the Federal Reserve is assumed be independent, the reality is that it is subject to strong political pressure, just like any other government agency. In an election year, with high unemployment and a sluggish economy, there will be more voices calling for stimulus than for constraint. Another round of quantitative easing — that is, the purchase of government bonds and mortgage-backed securities (MBS) — is likely, with the objective of reducing longer-term interest rates to induce spending and growth.

That strategy has not worked thus far. Moreover, expanding the Federal Reserve's already bloated balance sheet could further undermine its credibility in terms of safeguarding the future value of the dollar. The Fed faces a very dangerous tradeoff: risk higher inflation by expanding the monetary base (currency plus bank reserves) in a vain attempt to lower unemployment.

The Federal Reserve's dual mandate is to achieve both price stability and full employment. However, history has shown that when the Fed fails to achieve price stability, the result can be stagflation, as in 1970s — not real economic growth and full employment.

After expanding its balance sheet from less than $1 trillion before 2008 to nearly $3 trillion today, the Fed has had little impact on the rate of unemployment but has greatly altered the allocation of credit and distorted the yield curve. It is ironic that while Congress criticizes China for manipulating its exchange rate, little is said about the Federal Reserve's manipulation of interest rates and asset prices.

It is unnatural to have interest rates close to zero and to distort the yield curve by pegging longer-run bond prices at artificially high levels and suppressing yields. Keeping rates low to finance government debt is not a recipe for long-run growth or for credible U.S. monetary or fiscal policy. Purchasing MBS to fuel the housing market merely delays the readjustment of relative prices that needs to occur before the U.S housing market can return to normal.

Rather than engaging in pure monetary policy to ensure long-run price stability and prevent erratic changes in nominal GDP, the U.S. central bank has engaged in fiscal policy by allocating credit to favored groups and thus politicized monetary policy.

Moving forward, it is likely the Fed under chairman Bernanke will continue to bow to political pressures to stimulate the economy, allocate credit, and distort relative prices. The dismal situation in the eurozone, the long-term deficits in the United States, and the lack of pro-growth tax reform and other structural changes mean the Fed will be held responsible for performing miracles. But there are limits to what monetary policy can accomplish.

Theory and practice both tell us that printing money cannot generate economic growth or lower the natural rate of unemployment, but it can cause inflation. An excess supply of money can also distort relative prices and misdirect investment. The Federal Reserve helped create the bubble in the housing market by keeping interest rates too low for too long and is now creating another bubble in the bond market. Pegging the federal funds rate close to zero for another three years and twisting the yield curve to lower longer-term rates will continue to misprice credit, penalize saving, and encourage risk.

If the Fed engages in a third round of quantitative easing (QE3), designed to lower rates on longer-term securities, and monetizes additional government debt, inflationary expectations are likely to rise. Uncertainty about the future value of the dollar would increase. Moreover, if Congress does not make headway in significantly reducing its addiction to spending and debt, there could be a general downgrade of U.S. public debt. Inflating away the real burden of the debt is not a viable option. Creditors would demand higher nominal interest rates and the costs of servicing the debt would skyrocket.

Some asset prices need to come down. That readjustment is not deflation. It is the lowering of some prices relative to others in order to let markets clear. The Fed should be more concerned with maintaining a sound currency than with propping up housing prices and the prices of longer-term government securities, including agency debt.

Asking the Federal Reserve to stimulate the economy and lower unemployment is asking too much. Monetary policy can wreak havoc on an economy when it is erratic. But when it limits itself to safeguarding the long-run value of money, it can grease the wheels of commerce and allow markets to perform their magic.

No policymaker or economist knows the optimal amount of money in a dynamic market economy. Forecasting is a crude science, at best. No one at the Federal Reserve foresaw the financial crisis using their fancy stochastic dynamic general equilibrium models. Humility, not hubris, is appropriate when it comes to recognizing the limits of monetary policy.

The sluggish U.S. economy is not due to a deficiency of money, but to structural problems that have not been addressed. Those include chronic fiscal deficits due to overconsumption by the federal government, high marginal tax rates on capital, costly regulations imposed on the private sector, escalating health care costs, uncertainty about future fiscal and monetary policy, and huge unfunded liabilities in Medicare and Social Security.

Rules vs. Discretion

Ben Bernanke has called for greater transparency and better communication in formulating Fed policy. He has also noted that "monetary policy cannot be a panacea." Yet, he has led the charge to greatly expand the Fed's balance sheet and has let the monetary base rise to unprecedented levels. The Fed is highly leveraged and faces the risk of significant losses on its portfolio of MBS and longer-term government securities once interest rates rise, as they must. But the Fed has not told us when it will begin to normalize its balance sheet, and the expectation is that it will further expand its asset acquisition and influence the allocation of credit.

Indeed, some prominent economists are recommending that the Fed expand its balance sheet by another $2 trillion dollars and keep rates low for another 3 to 5 years. If inflation accelerates, then that is the price one has to pay for lower unemployment and higher growth. This Phillips curve (tradeoff) mentality has been proven wrong by decades of research and experience, yet the Fed continues to be under its spell.

Perhaps it is because the Fed must comply with the dual mandate and pay attention to both price stability and full employment. Congress expects the Fed to use expansionary monetary policy to lower unemployment and stimulate growth — even though the truth is that monetary policy cannot overcome structural problems to generate real growth. Many in Congress also want the Fed to monetize government debt to accommodate deficit spending, designed to win votes. Instead of a dual mandate, the Fed now appears to have adopted a triple mandate.

In this environment the Fed wants discretion, not binding rules. But discretion in a regime of pure fiat money can easily go awry. Central bankers simply do not have the knowledge necessary to fine-tune the economy or to determine the optimal quantity of money. Unlike the classical gold standard, there is no market feedback mechanism to bring the quantity of money in line with the demand for money while maintaining long-run price stability.

In the absence of convertibility into specie, there must be a monetary rule to anchor the nominal value of paper currency. As the world's primary reserve currency, the dollar's domestic purchasing power cannot be allowed to continuously drift downward, as it has since President Nixon closed the gold window in August 1971.

Various rules have been proposed, including a price-level rule (zero inflation), an inflation target rule (2 percent inflation), a nominal GDP target, and a Taylor rule designed to control the growth of nominal income by controlling the monetary base. All those rules would add some certainty to the current discretionary government fiat money regime.

The Future of Money

The existing fiat money regime with discretionary central banking may be coming to an end. The Federal Reserve and other central banks are coming under increasing scrutiny. Congress may require an audit of the Fed and constrain its powers, especially if the Republicans take over the presidency and both houses of Congress next November. Lawrence B. Lindsey, a former member of the Board of Governors of the Federal Reserve System, is open to the idea of free-market currencies, and there is a growing movement to incorporate gold into the global monetary system.

Until a transparent monetary rule that limits the power of the Federal Reserve to its constitutional duty of safeguarding the value of the dollar is enacted, or there is a return to convertibility into specie, which James Madison — the chief architect of the Constitution — called "the only adequate guarantee for the uniform and stable value of a paper currency," the world will face monetary uncertainty.

The challenge will be to engage on fundamental reform and return to sound money under a rule of law that safeguards persons and property, including the property right a person has in the future value of money. A rules-based regime would require less forecasting and generate more discipline than the current regime. As such, markets would be left to allocate credit more efficiently, and price stability would foster financial stability.

What we need is moral money: money that retains its value and can be trusted. The discretionary government fiat money regime has miserably failed on that score. We can do better. A good starting point is to recognize the limits of monetary policy.

James A. Dorn is vice president for academic affairs at the Cato Institute in Washington and editor of the Cato Journal.

Anyone still wondering why there is a disconnect between grassroots limited-government conservatives and the Washington establishment need look no farther than the latest highway bill currently making its way through Congress with support from Republican leaders in both houses.

The Senate version, SB 1813, would cost $109 billion over two years. The House bill, HR 7, which runs to 847 pages of pork and special-interest projects, raises the price tag to $260 billion, but extends it over five years, making it a couple billion cheaper on a year-by-year basis.

In theory, of course, the highway bill is supposed to be paid for out of the Highway Trust Fund. But according to the Congressional Budget Office, the Trust Fund, which is funded by the federal gas tax, will collect only $187 billion over the next five years, meaning that the House bill spends $73 billion more than it takes in. To fill this gap, the House would rely first on some $20 billion in unspent money currently in the Trust Fund. But this is just the same type of Washington bookkeeping we’ve seen with other “trust funds” such as Social Security. That money is not “unspent.” In reality it was spent long ago, and what the Trust Fund actually holds is simply government bonds that will have to be redeemed out of general revenues. Beyond these funds, the House bill includes a number of other revenue-raising mechanisms, such as royalty payments from allowing drilling in the Arctic National Wildlife Refuge and offshore areas. But those provisions will never survive the Senate, leaving a shortfall that will result in either greater budget deficits or higher gas taxes.

Left unasked is why the federal government should be involved in funding highway projects at all. The interstate highway system was at least ostensibly justified on national-security grounds, but it has been completed for more than two decades. Today’s highway bills are more about the type of local road construction and maintenance that is properly the province of state and local governments. The highway bill does little more than shift money around from one state to another, with an added layer of bureaucratic central planning. The result is that some states are big winners, while others foot the bill. Considering all previous highway bills, Alaska has received more than $5.38 for every dollar its citizens paid in gasoline taxes, while Texas received back just 80 cents. Other big winners have been Hawaii, Montana, Rhode Island, South Dakota, and the District of Columbia. Losers, who paid more in taxes than they received in highway funds, include Indiana, Michigan, and North and South Carolina.

And with Washington setting priorities, lawmakers get their pet projects funded — even in the absence of explicit earmarks — while true local concerns frequently go unfunded. In fact, much of the spending under the “highway bill” does not even involve roads or highways. Both the House and Senate bills divert at least 20 percent of the funds to mass-transit projects. And, while the House has stripped out many extraneous projects, the Senate bill requires that at least 10 percent of funds go to the usual mishmash of bicycle trails, hiking trails, and “traffic calming techniques.” It also sets up “safety and education for pedestrians and bicyclists” and programs to “encourage walking and bicycling to school.” Whatever the merits of such programs, how did they become the responsibility of the federal government?

Moreover, the strings that can accompany federal highway funding can actually make road building more expensive. Federal road standards are often higher than state standards, driving up the cost of projects. Federally funded projects also require payment of much higher union-scale wages (under the Davis-Bacon Act). These regulations can drove up road building costs by as much as 30 percent under previous highway bills, and often preempt local zoning laws and building plans. Federal administrative costs and paperwork can add another 5 percent to road-building costs.

A much better approach would be to revive the Reagan-era idea of abolishing the federal highway trust fund and eliminating the federal gasoline tax, returning a source of revenue to the states in order to design and fund their own transportation priorities.

Under other circumstances, this would be an opportunity for the Republican presidential candidates to cement their small-government credentials by speaking out against this boondoggle. But, unfortunately, this is yet another area where both Rick Santorum and Newt Gingrich have baggage. Santorum voted for both the 1998 and 2005 highway bills, which were even more costly and pork-laden than this one. (The latter, in fact, contained funding for the infamous “Bridge to Nowhere.”) And, as speaker, Gingrich was influential in pushing through the 1998 bill. Romney is more of a blank slate, never having had to take a position on earlier bills, although as governor he was, of course, happy to accept federal highway funds for his state. So far, though, he has been silent about this year’s bill.

The Republican leadership hopes that slipping in sweeteners such as a renewed push for the Keystone Pipeline will mollify restive conservatives. They miss the point. The upcoming vote over the highway bill is about much more than one bill. It is a question about whether the Republican congressional establishment got the message of 2010, or whether it will simply continue with business as usual.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Once isolated by the West, Burma, also called Myanmar, has chosen to join the rest of the world. Although Burma’s future course is not guaranteed, the country’s prospects are growing brighter. The United States should reward the government in Naypyidaw for further expanding democratic reforms.

The military first seized control in Burma in 1962.The junta varied between bizarre (long-time dictator Ne Win was guided by astrology) and brutal (suppressing democracy protests equally ruthlessly in 1988 and 2007). Callous incompetence after Cyclone Nargis in 2008 resulted in mass suffering. In eastern and northern Burma, the regime literally warred against its own people, with numerous ethnic groups seeking autonomy.

Over the years the United States withdrew its ambassador and imposed a range of economic sanctions. However, Washington only inconvenienced regime elites, who grew rich from their political connections.

The government, known as the State Law and Order Restoration Council and later the State Peace and Development Council, occasionally relaxed its control, only to return to repression. The regime voided the election of 1990 after the poll was won by Aung San Suu Kyi’s National League for Democracy (NLD). The Nobel laureate and daughter of one of Burma’s national heroes, Suu Kyi spent fifteen of the next twenty-one years under house arrest.

In 2010, the regime remade itself but offered little hope of genuine change. Top generals retired while creating a nominally civilian government dominated by officers who shed their uniforms. The constitution preserved the military’s dominance; the parliamentary election was rigged.

Blinded by Transition

Now, everything is changing. Suu Kyi has registered to run in an upcoming parliamentary by-election and recently made her first campaign trip. The Shan Nationalities League for Democracy, which came in second after the NLD in 1990, also has officially registered. Four amnesties over the last year have released many political prisoners. Censorship has been relaxed. Labor laws have been revised. Civic life is expanding. Ceasefires have been negotiated with several ethnic groups.

NLD deputy leader U Tin Oo said: “Everything is happening with a speed we couldn’t even foresee.” President Obama observed that “After years of darkness, we’ve seen flickers of progress.” Secretary of State Hillary Clinton visited Naypyidaw in December. European officials also have made the trek.

Burma still has far to go to become a liberal democracy, however. Some opposition activists remain skeptical. Aung Naing Oo, a Thai-based analyst, argued that “Suu Kyi’s power “will be severely limited” even if she and other NLD members are elected to parliament.

In its latest report, Human Rights Watchwarned: “Burma’s human rights situation remained dire in 2011... Freedoms of expression, association, and assembly remain severely curtailed... Ethnic conflict escalated in 2011.” With “abundant evidence of continuing systematic repression,” said HRW, the changes are welcome but “did not address ongoing, serious human rights violations in the country, especially abuses related to the long-running civil armed conflicts in ethnic minority areas.”

Indeed, increased liberties remain at the sufferance of the government. Moreover, fighting recently flared between the Burmese army and Kachin Independence Army along the border with China. Even Trade Minister U Soe Thane admitted: “A lot of things we have done, but many more we have to do in the near future. The democratic process is not finished yet.”

The Reformers

Leading the reform campaign is Burmese president U Thein Sein, a former prime minister. Suu Kyi said: “I believe he sincerely wants reform” and “He is a man capable of taking risks if he thinks they are worthwhile.” Sein is widely seen as honest, an unusual characteristic for the Burmese government.

Can he transform the system? Sein was only a secondary figure in the old regime, and his power even now is thought to be constrained by top military men (both active duty and retired) behind the scenes. Whatever the reason, Sein has overturned many of the junta’s policies if not directly challenged the military’s prerogatives. He explained in a Washington Post interview that the military was not involved in “the executive body,” though “we cannot leave the military behind because we require the military’s participation in our country’s development.”

Burma’s increasing discomfort with China’s close embrace may have encouraged the military regime to change course. In the face of U.S. and European sanctions, Naypyidaw looked to China for economic investment and political support. Beijing in turn backed Burma, including by blocking United Nations action against the junta.

But there has been increasing popular talk, even within the military leadership, about a “Chinese invasion,” the Chinese “plundering” of Burma’s resources and Beijing’s attempt to turn Burma into a “satellite state.” Last fall, Sein cancelled a China-backed dam. The People’s Republic of China obviously senses the changing environment, having sent its ambassador to meet with Suu Kyi. Zhu Feng of Peking University argued: “It’s some sort of signal that Beijing would like to lend a hand and support the new dynamic, the new political transformation.”

Whatever the reason, real and significant changes have occurred. Suu Kyi has established regular contact with the regime, itself a revolutionary reversal. One Western diplomat opined that “President Thein Sein and his government have clearly decided they’d rather have her inside their tent than out.”

Nor is Suu Kyi alone. Cho Cho Kyaw Nyein, who spent time in Burma’s prisons, said he first “didn’t believe a word of what they were saying” but now “What has happened in these last few months is a miracle for us.” Another political activist who was jailed for eleven years, Kin Zaw Win, observed: “There are still hardliners in government, but I feel a tipping point has been reached.”

Crafting a Strategy

Sending Secretary Clinton to Naypyidaw was the Obama administration’s opening gambit. She recently announced that the United States would return its ambassador to Burma after the release of political prisoners, which she called a “substantial step forward for democratic reform.” While the United States is not yet willing to lift sanctions, that issue soon will move to the fore. In effect, Washington is following President Ronald Reagan’s famous “trust but verify” approach after Soviet Communist Party general secretary Mikhail Gorbachev started dismantling Moscow’s totalitarian system.

The most important issue is economic sanctions. Washington has banned new investment in and imports from Burma, limited financial services and the gem trade, and frozen the assets of regime leaders and supporters. These restrictions are losing their raison d’être. Last fall, even Suu Kyi began talking about reintegrating Burma into the world economy. She explained: “We’ll have to study the whole package, if you like, and decide which sanctions we think should be lifted immediately.”

The Burmese people need investment and trade more than official development assistance, which has a dismal record of promoting sustained economic growth. Private capital would better encourage broad-based development and job creation, so desperately needed by one of the world’s poorest nations. Trade and investment also would strengthen the Burmese private sector, not government (through which most official “assistance” flows), helping to disperse power in a system characterized for decades by the dangerous combination of political and economic power.

The steady pilgrimage of Western political figures to Naypyidaw led Freedom House president David J. Kramer to muse “that we are moving a little too quickly.” Some observers also have talked of a “Burma Burnout,” stretching the limited capacity of the government to meet rising expectations at home and abroad. And caution remains justified, given the distance still to travel.

But there is no plausible course other than engagement. Years of sanctions and isolation failed to loosen the generals’ grip. Moving forward offers the best chance for promoting positive change. Washington should continue to reward additional Burmese moves toward democracy with modest concessions. This will allow the United States to reverse course if hard-liners reassert themselves in Naypyidaw. But Washington should indicate its willingness to fully normalize economic relations if reforms proceed.

American officials should work with other states. Europe also is liberalizing its approach to Burma. Moreover, though Burma’s neighbors have demonstrated less concern about human rights, they also can reward Naypyidaw for its reforms. For instance, in 2014 Burma is to chair the Association of Southeast Asian Nations, ASEAN.

Despite building euphoria about Burma’s new course, it is important to retain realistic expectations. Even with the best of intentions, the Sein government faces a difficult task. Shifting from authoritarian socialism to democratic capitalism is no easy feat, as Russia and other former communist states discovered.

Both military and economic elites in Burma are likely to be wary of turning power over to those who have suffered under their rule for decades. Moreover, those who benefit from today’s crony-kleptocracy are likely to fight to preserve their economic privileges even if democratization continues smoothly.

And while Burmese officials want to balance Beijing’s influence, they will not become tools of the West. China will remain Burma’s neighbor even if Naypyidaw rebalances the bilateral relationship. President Sein and his colleagues may be evolving democrats, but that does not make them geopolitical fools.

The United States and other democratic states should emphasize the reform process rather than any particular end point. But the long-term objective is simple: the Burmese people need to take charge of their own destiny. For the first time in literally decades, Burma’s future looks positive, even bright. Hopefully the “flickers of progress” now evident in Burma soon will burst into robust flame.

Doug Bandow is a senior fellow at the Cato Institute and former special assistant to President Ronald Reagan.

Government corruption can take many forms. Last week, most of those forms could be seen in the actions of the Obama administration — everything from government officials taking simple bribes, to covering up wrongdoing, to using taxpayer money to pay off political supporters, to using government prosecutors to punish enemies, to failing to fulfill its fiduciary duty to citizens by not performing cost-benefit analyses before taking actions. Promulgating policies that knowingly hurt millions of people is far more serious than a government official requesting a cash bribe — as despicable as that may be. Pushing for tax increases without first getting rid of counterproductive or useless programs and cleaning up mismanagement is an example of policy corruption.

The results of the extensive moral, intellectual and policy corruption in the United States in recent years can be seen readily in the accompanying chart, which includes data from both right- and left-leaning organizations. According to the Heritage Foundation/Wall Street Journal measure of economic freedom, the United States has fallen from No. 6 to No. 10 since the end of the George W. Bush administration in 2009. The U.S. also has dropped rank in the ease of doing business, as measured by the World Bank, and in global competitiveness, as measured by the World Economic Forum.

The United States has dropped from No. 19 to No. 24 in Transparency International’s corruption index over the past three years. Reporters Without Borders‘ index shows an enormous drop in press freedom in the U.S. over the past three years, from a ranking of No. 20 to a dreadful No. 47.

As a result of policy corruption, specifically failing to make sure government spending and regulations meet reasonable cost-benefit tests, employment and income growth have lagged, with most Americans reporting lower after-inflation adjusted incomes than four years ago.

The Obama administration seems to have little regard for the rule of law. In hearings before Congress last week, Attorney General Eric H. Holder Jr. continued his cover-up in the Fast and Furious guns-to-drug-dealers’ scandal.

As you may recall, a couple of years ago, the Obama administration was giving grants to the Association of Community Organizations for Reform Now (ACORN). This organization was shown to be thoroughly corrupt, causing Congress to prohibit it from receiving grants. Now, the Justice Department is requiring the Bank of America, as part of its settlement for alleged “lending discrimination,” to make large contributions to leftist groups that are not connected to the suit, including groups that are little more than renamed ACORNs. Other banks also are being pressured to make similar “settlements.” These groups have close ties to Democrats.

At the same time, Justice is helping domestic wrongdoers who have ties to the Democratic Party and is attacking Wegelin, the oldest private bank in Switzerland, which has no U.S. presence and appears not to have violated Swiss law. The Justice Department indicted Wegelin last week, forcing a bank that has survived since 1741 to sell itself to a large German bank to protect its non-U.S. clients. Justice alleges that three of the bank’s account executives encouraged Americans who had accounts with UBS in Switzerland to move their accounts to Wegelin. If the department suspected that Americans were not paying taxes on the interest they received, it should have gone after the Americans rather than destroy a substantial bank that was complying with the laws of its country.

Americans who live abroad are already having great difficulty obtaining bank accounts in foreign countries because of regulatory overreach by the Internal Revenue Service and Treasury Department. Particularly after the Wegelin case, increasing numbers of foreign financial institutions will refuse to take any U.S. clients or invest in the United States because of the risk of inadvertently violating some U.S. laws and the costs of compliance.

Americans are justifiably enraged when occasionally a foreign government indicts U.S. citizens for violations of their laws even though the activity is legal and protected in the United States (such as selling bibles, criticizing foreign leaders, etc.). The U.S. government’s hypocrisy in attacking foreign financial institutions — which abide by their own country’s tax and privacy laws — is going to come back to bite Americans very hard. It will drive out of the country upward of $1 trillion in foreign investment and tens of millions of jobs as well as make life much more difficult and risky for U.S. citizens who travel internationally.

The IRS and Justice have not made cost-benefit analyses for most of these existing and proposed international tax regulations. The regulations often violate the basic right of privacy. It is intellectual corruption when catching a few tax cheats is deemed more important than creating growth, opportunity and jobs for millions of people. You can identify some of the most intellectually corrupt in Congress, the media and the administration. They are the ones who are most vocal in railing against tax cheats yet fall strangely silent when the IRS cheats taxpayers by forcing them pay taxes on imaginary capital gains and interest because of government-caused inflation.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.