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• In the Boston Herald, Jeffrey A. Miron argues that states should balance their budgets by cutting spending rather than raising taxes.

• In the Detroit News, Doug Bandow argues that strengthening our economic ties with South Korea could increase American influence over the region even as China’s power grows.

• Listen to Will Wilkinson comment on the Chrysler bankruptcy on American Public Media’s Marketplace.

• Watch Dan Mitchell discuss offshore tax havens on The Today Show.

• Join the Cato Institute on June 1 for a conference on the lessons we can learn from the New Deal and the Great Depression.

• In Wednesday’s Cato Daily Podcast, Jason Kuznicki discusses the newest edition of Cato Unbound.

The ever-sensible Shaun Waterman has begun to tally the cost of overreaction to the fear outbreak inspired by the H1N1 flu strain. He reports in ISN Security Watch:

Even the precautions that you take against this kind of global flu pandemic could knock about 1.9 [or] 2 percent off global [economic production]. That’s about a trillion dollars,” according to journalist Martin Walker, who cited World Bank figures from a study last year.

The Economist reported last week that the crisis in Mexico was costing Mexico City’s service and retail industries $55m a day — not because of the handful of deaths but because of people’s reactions. And that was even before the national suspension of non-essential public activities called for this week by the authorities there, which was expected to double that cost.

Waterman also cites my joke about moving Vice President Biden to an undisclosed location in future crises — not for his protection or government continuity, but to keep him away from the media.

It’s comedic wrapping on a substantive point: As long as people look to government leaders in times of crises, leaders have a responsibility to communicate carefully, according to a plan, and with message discipline. If they don’t, the damage can be very high.

Even if all Americans knew to dismiss the words of the Vice President as if he’s a “Crazy Uncle Joe” — and they don’t — foreign tourists certainly don’t know that. Biden harmed the country simply by speaking off the cuff.

Here, an outbreak of flu appears to have caused billions of dollars in damage to the world economy. One billion lost to the U.S. economy is about 145 deaths (using the current $6.9 million valuation for a human life). When overreactions restrict economic activity, that reduces wealth and thus health and longevity.

Now, imagine what might happen if the United States encountered a novel, directed threat — some kind of attack that inspires widespread concern. Will Vice President Biden and officials from a half-dozen agencies rush forth with personal observations and speculation? The results could be devastating, especially to a country that is already suffering economically.

People die from poor situation management, and it makes Americans worse off. Political leaders should not get a free pass for failing to communicate well just because it’s hard to do.

The Obama Administration should learn from its many errors in handling the rather benign H1N1 flu situation. It should train up for communicating in the event of a real emergency. If the Obama Administration fails to soothe nerves in the event of some future terrorist attack, that will be a clear failure of leadership.

After the Senate’s rejection last week of allowing bankruptcy judges to re-write mortgage contracts, the so called “cramdown” provisions, it was starting to look as if the Senate cared about respecting private contracts. Sadly, such concern has been short-lived.

Tucked away in the mortgage bill is a provision that gives servicers of mortgages, that is, the entities that collect payments and perform modifications on behalf of the actual investors in mortgages, a “safe harbor” from any litigation by investors if the servicer chooses to follow the interests of the borrower or the government, rather than fulfilling their fiduciary duty to the investors.

Supporters of the safe harbor claim that too many foreclosures have taken place due to contractual restrictions on the ability of servicers to modify mortgages in a manner that would allow borrowers to stay in their homes. Most pooling and servicing agreements allow mortgage modifications without the investors’ approval if the modification increases the net present value of the mortgage. However, if the mortgage modification resulted in a loss to the investor, over what they would recover in a foreclosure, then they are not allowed under current contracts. The safe harbor intends to fix this “problem” by allowing the servicer to impose additional losses on investors, as long as that servicer follows President Obama’s foreclosure plan.

Allowing parties to a contract to ignore their contractual obligations as long as they sign-on to presidential initiatives is a dangerous precedent, and one that will ultimately raise the cost of entering into and enforcing contracts.

As these costs will have to be borne by someone, it is likely in the future that these efforts at undermining contracts in our credit markets will result in higher interest rates for all borrowers.

An attempt was made by Senator Corker to modify this provision, restoring some protections for basic contract rights. Rather than taking the opportunity to reduce the damage done to contracts from this provision, the Senate rejected Senator Corker’s amendment by a rather large margin.

After the President’s recent attacks on minority debt-holders in Chrysler, the President’s support for mortgage cramdown, and now the Senate moving on the so-called “safe harbor” provisions, it is becoming increasing clear that investors themselves will soon be in need of a safe harbor from Washington.

The Associated Press reports that Pakistani troops have taken the fight to militants in the Swat valley, ending a three month truce between the government and Taliban forces.

As I argued in the Washington Times almost a year ago, Pakistani government peace deals with militants have a tendency to collapse. Thus, we shouldn’t be too surprised to see the latest “Shariah for peace deal” in Swat already begin to fray.

With this in mind, U.S. policymakers and defense planners must keep in mind the constraints Pakistani leaders are operating under. After 9/11, Pakistan was caught in an unenviable and contradictory position: the need to ally openly with the United States and the desire to discreetly preserve their militant assets as a hedge to Indian influence.

For example, Maulana Fazlur Rahman, who heads Pakistan’s Islamist political party Jamiat Ulema-i-Islam, led large anti-US, anti-Muaharraf, and pro-Taliban rallies in major Pakistani cities after the U.S. began bombing Taliban strongholds in Afghanistan. JUI and other influential Islamist organizations fiercely criticized Musharraf and the military for aligning with the United States and Pervez Musharraf himself was condemned within Pakistan for aligning with America in the war on terror. This dynamic has not gone away.

As I argue here, Pakistan’s six-decade rivalry with India is the biggest impediment to success in Afghanistan. It’s an open secret that elements of Pakistan’s military-dominated national intelligence agency, Inter-Services Intelligence (ISI), assist the powerful jihadist insurgency U.S. and NATO troops are fighting in Afghanistan; Pakistan’s objective is to blunt the rising influence of their rapidly growing nemesis, India, which strongly supports Afghan President Hamid Karzai’s regime. Thus far, the United States has been unable to encourage Pakistan to ignore its traditional rival and ultimately, Pakistan’s civilian leaders and defense planners must determine if insurgents or India poses a greater threat.

Unfortunately, aerial drone strikes and other stop-gap measures do little to address the strategic drift between Washington and Islamabad. Unless President Obama can reassure hawks within Pakistan’s military and intelligence apparatus that India no longer poses an existential threat to their country (a promise impossible to guarantee) then the U.S.-NATO stalemate in Afghanistan will persist.

This clip from NBC Nightly News shows a DEA raid in Afghanistan:

As I have said before, the quickest way to create an insurgent is to burn a man’s livelihood. This may be a competent counternarcotics tactic, but it is an epic failure as a counterinsurgency strategy. We can fight a war against the Taliban or we can fight the war on drugs, but we can’t do both in the same place at the same time.

Related thoughts from Doug Bandow here.

Judge Sonia Sotomayor of the 2nd Circuit Court of Appeals has been mentioned as a possible Supreme Court nominee. She also has been caught on tape explaining her view of a judge’s role. Reports the Washington Post:

As White House press secretary Robert Gibbs put it, Obama is looking for “somebody who understands how being a judge affects Americans’ everyday lives.”

Congressional conservatives have reacted anxiously to that qualification, fearing that it means a nominee who is more interested in making the law than in interpreting it.

One possible candidate for the seat, Judge Sonia Sotomayor of the U.S. Court of Appeals for the 2nd Circuit, appeared to walk close to that line in a video that emerged yesterday. Sotomayor would be the first Latino and the third woman to serve on the high court.

Speaking at Duke University in 2005, Sotomayor said, “All of the legal defense funds out there, they’re looking for people with court of appeals experience” because “the court of appeals is where policy is made.”

She then sought to soften the statement, adding lightly, “I know this is on tape and I should never say that, because we don’t make law, I know. Um, okay. I know. I’m not promoting it, I’m not advocating it.” The audience laughed as she brushed off the statement, perhaps sarcastically.

Making policy. Yes, it is indisputable that that’s what judges often do. But is that what they are supposed to do? 

President Barack Obama seems to think so, when he talks about the importance of “empathy” in judges. (With whom do I empathize in this First Amendment case: the U.S. Attorney General or the New York Times? I vote for the Times!) However, the Senate might want to debate this issue before approving someone to fill Justice David Souter’s vacancy, especially if the nominee shares the president’s apparent view that empathy is a substitute for jurisprudence in interpreting the law and Constitution.

The coincidences that occur in Washington, D.C. are truly extraordinary. According to the Washington Post:

The headquarters of Murtech, in a low-slung, bland building in a Glen Burnie business park, has its blinds drawn tight and few signs of life. On several days of visits, a handful of cars sit in the parking lot, and no trucks arrive at the 10 loading bays at the back of the building.

Yet last year, Murtech received $4 million in Pentagon work, all of it without competition, for a variety of warehousing and engineering services. With its long corridor of sparsely occupied offices and an unmanned reception area, Murtech’s most striking feature is its owner — Robert C. Murtha Jr., 49. He is the nephew of Rep. John P. Murtha, the Pennsylvania Democrat who has significant sway over the Defense Department’s spending as chairman of the House Appropriations defense subcommittee.

Robert Murtha said he is not at liberty to discuss in detail what his company does, but for four years it has subsisted on defense contracts, according to records and interviews. He said Murtech’s 17 employees “provide necessary logistical support” to Pentagon testing programs that focus on detecting chemical, biological, radiological and nuclear threats, “and that’s about as far as I feel comfortable going.” Giving more details could provide important clues to terrorist plotters, he said.

Murtha said he does not advertise being the nephew of John Murtha and considers it “unfortunate” that some will unfairly assume Murtech received its federal contracts because of his uncle’s influence at the Pentagon.

“If we’re not doing our job well, we wouldn’t be doing our job,” he said. “I’m successful at the work I do because of the skill sets I have.… You don’t know how good someone is unless you work with them.”

A spokesman at Murtha’s office did not return calls seeking comment. The lawmaker, a former Marine, has said in the past that he is proud of his family’s service to the military and the government.

Over the years, John Murtha has proudly claimed credit for using his Appropriations Committee seat to steer hundreds of millions in Pentagon work to companies in his district, many of them fledgling enterprises run by campaign contributors. His influence also may be seen in the military improvements at the Johnstown airport that bears his name. The little-used commuter airport doubles as a wartime preparedness facility for the Pentagon after $30 million in improvements.

Murtha’s power has had beneficial effects within his family. His brother, Robert C. “Kit” Murtha, built a longtime lobbying practice around clients seeking defense funds through the Appropriations Committee and became one of the top members of KSA, a lobbying firm whose contractor clients often received multimillion-dollar earmarks directed through the committee chairman.

Of course there is no relationship between Rep. John Murtha’s position and the taxpayer money collected by his relatives. Still, it is amazing how things like this just seem to happen when Capitol Hill gets involved.