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  • Syria Could Be Washington's Next Big Foreign Policy Failure    (Doug Bandow, 2018-02-16)
    Doug Bandow President Donald Trump criticized candidate Hillary Clinton for her interventionist tendencies. Now he plans to maintain U.S. forces amid battling Kurds, Turks, Russians, Iranians and contending Syrian factions. Washington’s policy is frankly mad. Having attained its primary objective, defeating the Islamic State, or ISIS, the Trump administration should wrap up American operations in Syria. As a superpower the United States has interests all over, but few of them are important, let alone vital. Syria is peripheral to America economically and militarily. It is a humanitarian tragedy, but the United States has remained aloof from worse conflicts. Although the Assad government is odious, the country’s civil war featured numerous murderous, undemocratic, radical and otherwise undesirable factions. President Barack Obama resisted the temptation to intervene directly in the Syrian imbroglio. In contrast, President Trump launched airstrikes against the Assad government. He quadrupled the number of U.S. troops to about two thousand. Moreover, reported Reuters, “U.S. forces in Syria have already faced direct threats from Syrian and Iranian-backed forces, leading to the shoot-down of Iranian drones and a Syrian jet last year, as well as to tensions with Russia.” Now the president is going all in, planning an extended occupation and expansive nation-building program, and risking conflict with multiple antagonists. Some analysts have even less realistic ambitions. Declared the Washington Post: “The United States cannot prevent a resurgence of Al Qaeda and the Islamic State, prevent Iran from building bases across Syria, or end a civil war that has sent millions of refugees toward Europe without maintaining control over forces and territory inside the country, just as Russia and Iran do. Only by being a factor on the ground will Washington be taken seriously as it seeks the implementation of a UN peace plan for Syria — a road map calling for nationwide democratic elections — that Russia and the regime of Bashar al-Assad are trying to bury.” How did the United States get into this mess? Seriously? Officials in Washington, with a few troops on the ground, are going to deter terrorist organizations, constrain Iran, end sectarian fighting, cow Moscow, and create a democratic Syria? Washington spent decades wrecking the region through misguided meddling and now is going to fix the mess in a few months or couple years? It is a delusion, a fantasy. With the defeat of the Islamic State, Syria’s civil war has changed form. The Syrian government, with Iranian and Russian support, is targeting the few remaining Sunni Arab insurgents while Turkey has turned several Sunni rebel groups into anti-Kurdish proxies. Russia has deployed S-400 antiaircraft missiles, giving it leverage against Turkey and the United States. Washington plans a permanent military presence in northern Syria. The administration is backing an independent Kurdish military, a policy guaranteed to run afoul of Turkey, Syria and Iran. Just as Iraqi Kurds used the chaos of war to expand their control, the Kurdish Democratic Union Party (PYD) expanded Kurdish influence in Syria and now controls roughly a quarter of the country, called the Democratic Federation of Rojava. The United States worked with the Syrian Democratic Forces, dominated by the Kurdish Popular Protection Units (YPG), to defeat the Islamic State. After the defeat of ISIS Washington promised to end weapons transfers to Kurdish forces. But then the Trump administration announced plans for a new Kurdish border force to prevent an ISIS revival. Ankara responded with “Operation Olive Branch” against Afrin, just over the Syrian border, and threatened to march east on Manbij, which contains American troops. Washington’s friends, including non-Kurdish troops, have begun breaking away to aid their compatriots — using U.S.-supplied weapons. President Recep Tayyip Erdogan and many of his backers view America as an adversary, determined to do Turkey ill. Indeed, in few nations is popular antagonism toward Washington greater. Erdogan has benefited politically from escalating Turkey’s war against Kurdish separatists at home and abroad. How did the United States get into this mess? With the Arab Spring the United States called for Syrian president Bashar al-Assad’s overthrow. His regime was odious, but threatened no one outside his borders, certainly not the United States. Washington’s designation of Damascus as a state sponsor of terrorism was political, reflecting Syria’s support for Arab organizations hostile to Israel. The United States made half-hearted efforts to support groups seeking to oust Assad. Alas, genuine moderates were few and ineffective, so Washington ended up backing more radical groups. Much of America’s aid ultimately ended up in the hands of jihadists who viewed the United States no more favorably than the Assad government. While seeking to oust Assad, Washington improbably sought to simultaneously defeat ISIS, back so-called moderates, avoid radicals, support PYD, use YPG, cooperate with Turkey, oppose Iran, and sidestep Russians. As always, Washington’s ambitions greatly exceeded its ability. Now the administration assures us that it has an even better idea, an extended occupation by combat troops amid multiple contending armed forces, highlighted by forcing Assad from office, fixing war-ravaged areas, building up Kurdish forces, satisfying the Turkish government, banishing Tehran’s influence, and avoiding confrontation with Russia. There is no risk of overreach or mission creep. And certainly no need for Congress to vote on the issue. Secretary Tillerson recently set forth the administration’s Syria policy. His talk ignored the consistent failure of American Mideast policy, starting with Syria. The United States also has been involved in Afghanistan since 2001 and Iraq since 2003 — at the cost of thousands of lives and trillions of dollars — and neither country is remotely peaceful or stable. Washington helped wreck Libya, spreading chaos throughout the region. The U.S.-backed equally destructive intervention by Saudi Arabia in Yemen. Now, the Trump administration says it has the answer. “It is vital for the United States to remain engaged in Syria” and “crucial to our national defense to maintain a military and diplomatic presence in Syria,” said Tillerson. He added: “Syria remains a source of severe strategic threats and a major challenge for our diplomacy.” Threat to what? America was secure when Syria was united, allied with Moscow, and periodically at war with Israel. The United States was secure when the Assad regime lost control over much of the country and radical Islamists dominated the opposition. America was secure when the Islamic State created its infamous “caliphate” stretching over much or Iraq and Syria. America is secure with ISIS defeated, Assad ascendant, and chunks of the country held by a confusing mix of competing forces allied with varying nations. America’s interest in Syria is transcended by that of virtually every nation in the region, especially Iran, Turkey and Russia. Tillerson cited the Islamic State, contending that America’s presence “is just more training and trying to block ISIS from their escape routes.” Former NATO commander James Stavridis similarly argued that “the message is our military presence is still about defeating ISIS and ensuring that it’s an enduring defeat.” However, an American occupation of northern Syria isn’t necessary to stop ISIS from regrouping. The Islamic State always was the responsibility of the Middle Eastern states, all of which it considered to be its enemies. American involvement encouraged the Assad government to focus on other insurgents, enabled Ankara to tolerate the activities of ISIS, and allowed the Sunni Gulf States, led by Saudi Arabia, to shift their resources elsewhere, especially to intervening in Yemen’s civil war. The Islamic State has lost 98 percent of the territory it once held. It beggars belief that Turkey, Jordan, Iran, Saudi Arabia, Iraq and Syria cannot together prevent an Islamic State revival. While early in the conflict Damascus targeted other insurgents, for reasons both of geography, particularly the location of the country’s most heavily populated areas, and Washington’s involvement, which made U.S.-backed forces more dangerous. Today the Assad government wants to reestablish control over any lands controlled by the Islamic State. Ironically, ISIS resulted from prior U.S. military intervention. Secretary Tillerson’s appeal to the alleged mistake of withdrawing from Iraq in 2011 misrepresents history. It was the Bush administration’s invasion which created Al Qaeda in Iraq, the precursor to ISIS. It was the Bush administration’s inability to win approval of a status-of-forces agreement that forced America’s withdrawal. And it was the Bush administration which put in place a Shia-nationalist government which alienated Sunnis, whose support was necessary for the Islamic State to take over much of the country. Equally false is Tillerson’s claim that Washington is working with Ankara and maintaining friendly ties. Overall, the U.S.-Turkey relationship has never been worse, at least in recent history: Ankara is unashamedly moving toward dictatorship and enhancing ties with Russia, against which NATO is directed. Moreover, President Erdogan always was more interested in ousting the Assad government and containing Kurdish forces than in destroying the Islamic State. Steven A. Cook of the Council on Foreign Relations observed: “Over the course of the conflict in Syria, the Turkish government turned a blind eye to jihadists, enabled Al Qaeda affiliates, and was (at best) ambivalent about fighting the Islamic State.” The Erdogan government long complained about U.S. reliance on Kurdish fighters and now has intervened militarily to prevent consolidation of an autonomous Syrian Kurdish state. Forget fine distinctions drawn by the United States between forces which it supports and those being attacked by Turkey. Ankara sees only “terrorists.” Tillerson also made the unexceptional observation that Assad’s regime violates human rights. But then, so do many U.S. allies in the Middle East, such as Saudi Arabia, Turkey, Bahrain and Egypt. Nor has the administration indicated how a continuing presence in north Syria will help oust Assad, which continues to enjoy the backing of Iran and Russia. Reviving support for much-diminished “moderate” insurgents would be hopeless. Russia likely would respond as it did before, accelerating its support for Damascus. The administration’s strategy is simply wishful thinking: “Because of its influence on the Syrian regime, Russia must join the international community and support this way forward [meaning Assad’s departure] to end the conflict in Syria.” Tillerson probably believes in the Tooth Fairy and Great Pumpkin as well. Tillerson complained that “for many years, Syria under Bashar al-Assad has been a client state of Iran.” But as he recognized, the two governments were allied before the start of the civil war. Tillerson warned that to disengage “would provide Iran the opportunity to further strengthen its position in Syria” and spoke of “reducing and expelling malicious Iranian influence from Syria.” How would a small U.S. presence do that? Iran is not only closer geographically, but has much greater interest in Syria and is working with the Damascus government. Tillerson assured Americans that “we’re not there to engage with Iran,” but then what will America do? Anyway, why does this justify U.S. military involvement? Tillerson cited “continued strategic threats to the U.S.” from Tehran. But Iran will not attack America. The Jewish Institute for National Security of America recently worried that Iran’s gains “threaten to entrench Tehran as the arbiter of postwar Syria and consolidate its control of a ‘land bridge’ connecting Iran directly to Lebanon and Hezbollah.” However, Iran is weak economically, isolated internationally, divided internally and surrounded by enemies. Tehran’s “empire” is more drain than gain: embattled Yemen, divided Iraq, sectarian Lebanon and ravaged Syria. Israel, Turkey, Saudi Arabia and others are fully capable of containing Iran without an American military presence. Military outlays by Saudi Arabia alone vastly outrange those of Tehran. The administration’s fixation with Iran is encouraging Syrian factions to again play the U.S. Former YPG spokesman Newaf Xelil said “We think that it is surely possible that the Americans will find real reasons to deepen their relationship with the Kurds in a strategic sense,” pointing to Washington’s desire to roll back Iranian influence. The Free Syrian Army’s Mustafa Sejari argued that the president should “turn words into action” and do more to aid “moderate forces.” Yet defending a Kurdish statelet would be a high price to pay for doing little to limit Iran. Tillerson also contended that “we must persist in Syria to thwart Al Qaeda, which still has a substantial presence and base of operations in northwest Syria.” But in its foolish determination to oust the Assad government, the Obama administration aided Al Qaeda affiliated groups. Moreover, the same administration supported Riyadh’s attack on the Houthi-backed Yemeni government, limiting its operations against the local Al Qaeda in the Arabian Peninsula, perhaps the group’s most threatening off-shoot. Nor would staying in Syria hamper terrorist operations. To the contrary, American military intervention has created enemies and spawned terrorists around the globe. Anyway, Al Qaeda and other groups can operate almost anywhere, including in the territory of an ally, such as Pakistan. Staying around Syria would change nothing. Despite Tillerson’s contrary assurances, the administration is embarking upon another interminable nation-building project. Tillerson said “consistent with our values, America has the opportunity to help a people which has suffered greatly. We must give Syrians a chance to return home and rebuild their lives.” But this does not require an American military presence. Even though Washington doesn’t control the entire nation, the secretary’s ambition is expansive: “Continued U.S. presence to ensure the lasting defeat of ISIS will also help pave the way for legitimate local civil authorities to exercise responsible governance of their liberated areas.” He talked about “stabilization initiatives,” which “consist of essential measures such as clearing unexploded land mines left behind by ISIS, allowing hospitals to reopen, restoring water and electricity services, and getting boys and girls back in school.” Other officials also forecast a lengthy U.S. presence. Said Col. Ryan Dillon, a military spokesman in Baghdad, “We’re going to be [in Syria] until the political process gains traction” — which could be never. The State Department’s Stanley Brown observed: “Right now the key foreign-policy interest is stabilizing these areas and creating a sense of hope in these communities.” Creating a sense of hope? How long will that take? However, the fullest measure of the administration’s folly is evident from the potential U.S.-Turkish clash over the Kurds. The situation is complicated, but Turkey’s worries are not baseless. The PYD and YPG are nominally independent from the PKK and the U.S. government insists that it does not back Kurds battling Turkey. However, in Ankara’s view these Kurdish groups are but an “offshoot” of the PKK. And the connections are strong. Newaf Xelil said that “They are not different parts at all, and they cannot be divided in any way, not politically, not economically, not militarily.” Indeed, he added, “For us, it is all Kurdistan and we are now defending Afrin with all we have,” including forces once working with America. In any case, Washington long showed little concern for the Erdogan government’s perspective. But the administration miscalculated when it announced plans to create, train, and arm what the Pentagon called the Border Security Force to patrol Syria’s border with Turkey. Although Washington backtracked in response to Ankara’s invasion, its reassurances fell short. Turkish foreign minister Mevlut Cavusoglu warned that “We would need to restore trust before we can even discuss a serious issue.” Turkey’s President Erdogan bluntly warned the United States: “don’t get in between us and terrorist organizations, or we will not be responsible for the unwanted consequences.” He added: “Don’t force us to bury in the ground those who are with the terrorist.” Indeed, insisted Erdogan, “Until the last terrorist is neutralized, this operation will continue.” An unnamed administration official told Washington Post columnist David Ignatius: “Threats to our forces are not something we can accept.” Another one anonymously told the Wall Street Journal: “We’ve been pretty clear that there will be consequences if they move toward Manbij.” But no one seriously imagines the United States going to war with Turkey. Various proposals have been offered to avoid a confrontation. The United States should broker talks between Kurds and the Turks as well as other insurgents. Washington should promise the Turks not to support independence or expansion for Syrian Kurds or cooperation with the PKK and promise Kurds that Ankara will not intervene militarily into Syria. This requires “quietly persuading” the Turks, wrote Stavridis. Alas, the United States is in no position to give such guarantees. Doing so would permanently entangle the United States in a conflict not its own. In fact, Washington will abandon the Kurds. When Iraqi Kurdistan went ahead with an independence referendum against Washington’s advice last September, the Trump administration left the territory to its fate: blockade by Iraq, Turkey and Iran, and a military assault by Baghdad. Washington quickly disclaimed any attempt to halt the Turkish advance in Afrin. Nothing more should be expected if Ankara expands its operations to toward Manbij. Washington has attempted to juggle inconsistent policies throughout the Syrian civil war. Attempting to stay after the Islamic State’s defeat would be even more foolish. Before taking office, President Trump declared, “What we should do is focus on ISIS. We should not be focusing on Syria.” He even warned: “You’re going to end up in World War III over Syria if we listen to Hillary Clinton.” The best strategy to avoid that possibility is for America to disengage. “What we don’t want to do is leave a mess,” said Gen. Joseph L. Votel, head of U.S. Central Command. That is inevitable, however. The better objective is to avoid being part of the mess that others make. Washington should treat Syria as the human tragedy that it is, not the security priority that it is not. Bring American forces home. Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.
  • How We Got Trump's Clash with the Deep State    (Christopher A. Preble, 2018-02-15)
    Christopher A. Preble AMERICA’S FOUNDERS anticipated how a sprawling national-security state could subvert the popular will, and even endanger the nation’s interests. James Madison told his fellow delegates at the Constitutional Convention in Philadelphia, “A standing military force, with an overgrown Executive will not long be safe companions to liberty.” History informed his judgement. “The means of defense against foreign danger,” he said, “have been always the instruments of tyranny at home.” George Washington agreed. In his Farewell Address, the general turned president advised his countrymen to “avoid the necessity of those overgrown military establishments which, under any form of government, are inauspicious to liberty, and which are to be regarded as particularly hostile to republican liberty.” Another general-president, Dwight Eisenhower, echoed these concerns. He worried that the evolving “military-industrial complex” would acquire “unwarranted influence” and “endanger our liberties or democratic processes.” “Only an alert and knowledgeable citizenry,” he continued, “can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Alas, the citizenry is neither alert nor knowledgeable. Which means that the actual conduct of foreign policy falls to what Michael Glennon dubbed the Trumanites: “the network of several hundred high-level military, intelligence, diplomatic, and law enforcement officials within the executive branch who are responsible for making national security policymaking.” And within that executive branch, Glennon concludes in his book National Security and Double Government, “The President … exercises little substantive control over the overall direction of U.S. national security policy.” Even if you don’t buy Glennon’s argument, it seems likely that the men and women responsible for executing U.S. foreign policy are uninterested in the views of the many Americans who actually pay for the nation’s wars, and the few Americans who fight them. Defenders of the status quo like to argue that it survives because it works. The public is wrong to doubt the wisdom of wars in Iraq and Afghanistan. As the foreign-policy elite sees it, the American people can’t be expected to understand why we defend wealthy allies, deploy hundreds of thousands of military personnel in numerous foreign countries and align ourselves with some of the world’s most reprehensible autocrats. Dean Acheson, Truman’s secretary of state, presumably spoke for many elites (though perhaps too candidly) when he explained, “If you truly had a democracy and did what the people wanted, you’d go wrong every time.” In this sense, it isn’t merely inertia that explains why U.S. foreign policy remains on autopilot, despite widespread public dissatisfaction with the status quo. Rather, it’s the deep state, doing what the deep state does. Donald Trump tapped into the resentment engendered by the establishment’s contempt for the great unwashed. He has failed, so far at least, to dislodge the deep state and its policies. Then again, maybe he never intended to roll back American primacy. After all, he promised massive military spending increases, and expressed regret that we didn’t take the Iraqis’ oil. Even his claim to have always opposed the Iraq War was a taradiddle. So there were ample grounds for doubting that Trump would give the American people the foreign policy they wanted. Maybe the deep state didn’t thwart him? The deep state obviously isn’t all-powerful. After all, had the deep state gotten its way, Donald J. Trump would never have come close to the Oval Office, let alone be sitting in it. Now, given the power that we have erroneously invested in the office of the presidency, critics of the deep state should rethink their opposition to it, and members of the deep state should rethink their enthusiasm for a chief executive generally unencumbered by the Congress or the people. The deep state doesn’t control the @realDonaldTrump Twitter feed. It cannot stop him from engaging in behavior that increases the risk of a catastrophic conflict. Perhaps we should wish that it could? But we should never welcome a situation in which unelected officials distort or ignore public sentiments, or undertake policies that are demonstrably harmful to vital national interests. Christopher Preble is vice president for defense and foreign-policy studies at the Cato Institute and the author of The Power Problem: How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free.
  • Fake News on the Nunes Memo    (2018-02-14)
    By John C. Goodman; A week ago Friday, I turned on my television to discover what was in the Devin Nunes memo, released earlier that day. On CNN and on CNBC, I couldn't find out. Instead, I was...
  • Cinematic Injustice: Oscar-Nominated 'Darkest Hour' Leaves Out a Key Element    (2018-02-14)
    By K. Lloyd Billingsley; To play Winston Churchill is no easy task, as Richard Burton (emThe Gathering Storm/em) and Robert Hardy (emChurchill: 100 Days that Saved Britain/em) discovered firsthand. Gary O...
  • America’s Creeping Regime Change in Syria    (John Glaser, 2018-02-14)
    John Glaser In eastern Syria last week, American air and ground forces attacked Syrian pro-government military units, killing roughly 100 people, including some Russian advisors. U.S. Army Colonel Thomas Veale described the attack as “taken in self-defense.” “Self-defense”? Had the regime of Bashar al-Assad bombarded Boston Harbor? No, but it had attacked a base, long held by Syrian rebels, with U.S. military advisors present. Despite the tit-for-tat chronology here, it’s hard to see how Veale’s “self-defense” claim is tenable. After all, as Secretary of State Rex Tillerson explained last month, the Trump administration has committed to an indefinite military presence of roughly 2,000 U.S. boots on the Syrian battlefield. Are these troops present at the behest of the host government? Certainly not. Has Congress ratified their deployment in some way? Guess again. Are they there preempting an imminent threat of attack on America? Nope. Are they under the mandate of a UN Security Council resolution? No. And you thought our government toppling days were over. In fact, the U.S. military presence in Syria has no legal authorization whatsoever. Those American forces are cooperating with Syrian rebels to, as Tillerson put it, “help liberated peoples” in territory outside Assad’s control “stabilize their own communities” and defend themselves against regime forces. This is, he added, “a critical step to creating the conditions for a post-Assad political settlement.” Dispensing with the euphemistic flummery, U.S. forces are engaged in a kind of creeping regime change operation — the lessons of recent history be damned. One might fairly argue that the Assad regime, in its brutality against its own people, long ago forfeited the sovereign right to defend its territory against an invading foreign army. Fine, but we should be clear that Washington, in responding to the lawlessness, is also acting lawlessly — hardly a lodestar mission of the liberal, rules-based world order America claims to lead, and, in the big picture, decidedly not a case of “self-defense.” Quaint legalisms aside, the clash between U.S. and Syrian forces should make clear just how dangerous our military presence in Syria is. This particular incident, we can reasonably assume, didn’t escalate only because the regime is desperate to avoid escalation. Were they to counterattack, the Syrians surely know, the full might of America would come crashing down upon Damascus, and that would be the end of them all. But that is by no means a reassuring “balance of terror,” the term nuclear strategist Albert Wohlstetter used to describe the deterrence model of the Cold War’s mutually assured destruction. Indeed, the multi-sided chaos of the Syrian Civil War is neither balanced nor stable and the risk of escalation is very real. Should the actors in the next clash miscalculate, will the Russians defend their ally in Damascus before it falls, or will America’s “self-defense” spiral into the destruction of the regime? Will the resulting anarchy plunge us into a full-scale occupation? Will Turkey take advantage of the mayhem to rampage through Kurdish-held Syria? Will Iranian-backed militias still prioritize fighting Sunni extremist groups? If anything could reverse the defeat of the Islamic State, it is an escalation like this. As with much of American foreign policy today, the threat to the United States in Syria is roughly proportional to the extent to which we choose to expose ourselves to it. None of the five missions Tillerson laid out for the U.S. military effort in Syria — to defeat ISIS and al-Qaeda, usher in a post-Assad state, counter Iranian influence, facilitate the return of refugees, and free Syria of weapons of mass destruction — are vital to protect America’s wealth and physical security. Nor are these low-cost, low-risk, or high-probability-success missions. And as everyone knows, the last thing America needs now is a new set of elective, hazardous, and unachievable war aims on the other side of the globe. America has an interest in a stable Middle East, and thus in a stable Syria, but the notion that U.S. policy has contributed to that end is rather dubious. The Islamic State, which exacerbated the Syrian Civil War by orders of magnitude, is, after all, an outgrowth of America’s war in Iraq. And the U.S. and its allies encouraged the Syrian rebellion from early on, an effort that was not only a spectacular failure but also fostered quite the opposite of stability. An enduring feature of U.S. foreign policy is that each intervention, whether it is seen to fail or succeed, eventually serves to justify further intervention. While it’s true that the Islamic State has been decimated, thanks in part to the collective destructive power of Damascus, Tehran, Baghdad, Moscow, Washington, and various Kurdish and Syrian militias on the ground, it has been accomplished at great cost in blood and treasure. The answer to this near-Pyrrhic victory is not for Washington to invent new missions that lack legal authorization or a plausible timeline of success, but instead to reckon with its own role in this interminable tempest and acknowledge the very real possibility that backing away may be in the best interest of America and of Syria. John Glaser is director of Foreign Policy Studies at the Cato Institute.
  • Perhaps It’s Time for South Korea to Go Nuclear    (Doug Bandow, 2018-02-14)
    Doug Bandow North Korea’s Kim Jong-un plays the international game with style. He sent his sister, Kim Yo-jong, to the Olympic games in the Republic of Korea. And he extended an invitation for South Korea’s President Moon Jae-in to visit Pyongyang. It’s impossible for the ROK leader to say no. Unsurprisingly, the Trump administration isn’t happy. Even before the North’s dramatic move, Vice President Mike Pence demonstrated his great displeasure at the North Koreans’ presence in the Olympics, which he called a “charade.” Then, the refused to stand when Pyongyang’s athletes entered the stadium and studiously ignored the presence of not only Kim Yo-jong but also the North’s nominal head of state Kim Yong-nam (no relation). Had Pence approached them with his hand outstretched he would have grabbed the initiative for the Trump administration. But instead he refused to even glance in the North Koreans’ direction, as if doing so would make them disappear. Of course, there is no reason to believe that Kim Jong-un has decided to mend his evil ways and abandon nuclear weapons, respect human rights, hold elections, and accept unconditional reunification. But the North Koreans really didn’t use their participation “to paper over the truth about their regime, which oppresses its own people & threatens other nations,” as Pence tweeted before leaving for Korea. After all, lots of thuggish dictators, including several proclaimed to be “friends” by President Trump, sent delegations, without much affecting their reputations. Since none of Pyongyang’s attitudes or positions have changed, there is no reason to believe that it is willing to offer anything more of value. Pyongyang’s grand gestures were aimed less at Seoul and more at the Trump administration. After all, the two Koreas have fielded joint sports teams before, most recently in the 2014 Asia Games, without lasting impact. Moreover, the last two leftish ROK presidents held summits with Kim Jong-il, the father of the present ruler — many missile and nuclear tests ago. Along the way Pyongyang collected some $10 billion in aid and other revenue as part of the “Sunshine Policy,” without yielding peace. The regime is focused on self-preservation. Officials in the Democratic People’s Republic of Korea told me they had no intention of being “swallowed” by the South. But South Korea does not threaten Pyongyang’s security. Last summer my North Korean interlocutors dismissed the ROK as a “puppet” of America. In truth, while the South is a vibrant democracy with one of the world’s largest industrial economies, it has subcontracted its security to the U.S. The American military even has operational control over South Korean forces in wartime. And all the “big guns” are in Washington’s hands. Moreover, the advanced U.S. military position — roughly 30,000 troops stationed on the peninsula, a Marine Expeditionary Force on Okinawa targeted for a Korean conflict, and much more within reach via sea or air — threatens more than retaliation for another North Korean invasion. Washington has demonstrated its willingness to oust foreign governments at its pleasure. Even without Seoul’s consent the U.S. could start a preventive war. Hence North Korea’s push to create not only nuclear weapons, but missiles to strike America. In Muammar Khadafy’s final moments he might have thought, if only I hadn’t given up my missiles and nukes. The North’s Kim seems unlikely to ever utter those words, whatever happens to his rule. For the DPRK, talking to the ROK is usually a waste of time, other than attempting to shake free a few loose won. But not in this case. President Trump’s belligerent behavior made the otherwise meaningless gesture worthwhile. The Kim regime is looking for some insurance until it creates a nuclear deterrent which is unquestionably secure. In this way the president probably deserves, as he shamelessly demanded, credit for Pyongyang’s softening. But the North offered only process, an inter-Korean summit, not substance, acceptance of denuclearization. Indeed, the purpose of offering the former was to avoid the latter. And the Olympics gambit was successful, in part because it pushed President Moon back to his left-wing roots. After reaching agreement with Pyongyang on the Olympics, he declared: “We are facing a precious opportunity to resolve the North Korean nuclear issues in a peaceful manner and open up the path of establishing peace on the Korean peninsula now.” At Moon’s request, the U.S. reluctantly agreed to postpone military exercises with South Korean forces. Pleasant video of smiling North Koreans, and especially the attractive Kim Yo-jang, filled the South’s airwaves. The North even raised questions about “dependence on the outsiders,” meaning the U.S. And talk of military options at least temporarily faded. In return, Pyongyang offered the prospect of fewer provocations and better relations. Again. Said Kim Jong-un in his New Year’s Day address: “The South Korean authorities should respond positively to our sincere efforts for a detente.” Of course, there was no mention of ending missile or nuclear developments, let alone eliminating existing arsenals. The North’s objective is not to surrender its sovereignty, but to get Seoul to assert its sovereignty against Washington. Since none of Pyongyang’s attitudes or positions have changed, there is no reason to believe that it is willing to offer anything more of value. Which makes North Korea’s Olympics participation, by normal terms, a bad deal for the allies. After all, so far Pyongyang has given up nothing. But “normal” means that Korean policy is set in Washington. That was inevitable so long as the ROK was essentially helpless, unable to defend itself against the DPRK and its allies. But that world long ago disappeared. South Korea has taken its place among the first rank of nations. Yet its security remains in the hands of American presidents, most of whom know little of the Koreas and have no incentive to sacrifice U.S. interests on the ROK’s behalf. Today that means an aggressive, coercive approach, topped by threats of war. And it is based on the belief that any conflict would occur, as Sen. Lindsey Graham (R-SC) coldly put it, “over there,” meaning the Koreas. Which is why North Korea’s Olympic politics actually is a win for Americans, if not the Trump administration. First is creating a communication channel which might also encourage a U.S.-North Korean dialogue. Axios reported that National Security Adviser H.R. McMaster believed “resumed communications by the North Koreans are diversions and don’t have any effect on its determined pursuit of nuclear weapons.” However, President Trump said “I would love to see them take it beyond the Olympics.” Indeed, “at the appropriate time, we’ll get involved.” Hopefully he is serious. Second, the North Korean gambit makes a U.S. attack less likely. President Trump could act over the objection of Seoul and without using any American forces based in the ROK. However, doing so would be less effective and more dangerous, especially if the U.S. made no preparations for North Korean retaliation. And it likely would rupture the alliance. Third is to channel South Korean nationalism in a positive direction. Katina Adams, a State Department spokeswoman, said “We are in close contact with the Republic of Korea about our unified response to North Korea.” However, Washington analysts worry about the North driving a “wedge” between the U.S. and South Korea. In fact, the president said “if I were them I would try.” Continuing positive signs from the North could encourage the Moon administration to step back from President Trump’s “maximum pressure” policy. For instance, during last year’s presidential campaign candidate Moon proposed restarting the Kaesong industrial park, which likely would run afoul of sanctions passed after its closure. Such a step might be unwise in Washington’s view, but the Korean challenge most directly affects South Korea. Seoul should take the lead. Keeping the ROK dependent on America is in neither country’s interest. Of course, the bilateral relationship goes back more than seven decades. The vice president waxed enthusiastic: “the sons and daughters of our two nations have stood together in defense of our most cherished values.” However, younger South Koreans remember military dictatorships rather than the Korean War, and are more likely to bridle at the costs of dependence. Indeed, though the ROK benefits from U.S. defense subsidies, Seoul could pay a very high price for that backing. And much more than host nation support, at issue in upcoming burden-sharing negotiations. The ROK could find itself dragged into a catastrophic conflict by its ally. With the potential for mass death and destruction. Washington’s hostile reaction to a possible South-North détente should remind South Koreans about the dangers of placing their security in the hands of a self-interested superpower half a world away. At the same time, Washington is coming to realize that guaranteeing the South’s security is not cheap. The U.S. soon might find its homeland under nuclear attack if it comes to the ROK’s aid in a war with the North. While the South is an attractive friend, the relationship does not warrant risking the incineration of one or more major American cities. There is much on which the U.S. and ROK can and should cooperate on. But the South, with 45 times the GDP and twice the population of the North, is well able to defend itself. Then its future would not be subject to Washington’s whims. And if the North moves ahead with its missile and nuclear programs, it might be better for the ROK to create a countervailing arsenal than expect the U.S. to maintain a nuclear umbrella that holds Americans hostage. At the very least, the mere mention of such a possibility might get Beijing’s attention and spur greater action against the North. There is no simple answer to the challenge posed by a nuclear North Korea. But the starting point of any Korea policy remains preventing an unnecessary conflict. And the North’s participation in the Olympics has, however imperfectly, slowed the momentum to war. For that Americans should be thankful. Doug Bandow is a Senior Fellow at the Cato Institute.
  • Let's Make America a Mineral Superpower    (Stephen Moore, Ned Mamula, 2018-02-14)
    Stephen Moore and Ned Mamula Why is the United States reliant on China and Russia for strategic minerals when we have more of these valuable resources than both these nations combined? This has nothing to do with geological impediments. It is all politics. This is an underreported scandal that jeopardizes American security. As recently as 1990, the U.S. was No. 1 in the world in mining output. But according to the latest data from the U.S. Geological Survey, the U.S. is 100 percent import dependent for at least 20 critical and strategic minerals (not including each of the “rare earths”), and between 50 and 99 percent reliant for another group of 30 key minerals. Why aren’t alarm bells ringing? This import dependency has grown worse over the last decade. We now are dependent on imports for vital strategic metals that are necessary components for military weapon systems, cellphones, solar panels and scores of new-age high-technology products. We don’t even have a reliable reserve stockpile of these resources. Fortunately, the Trump administration is working to reverse decades of policies that have inhibited our ability to mine our own abundant resources, mostly in the western states — Montana, Colorado, Wyoming and the Dakotas. In December the Trump administration issued a long-overdue policy directive designed to open up federal lands and streamline the permitting process so America can mine again. Rare earth minerals are the seeds for building new technologies, and a strong case could be made that these strategic metals are the oil of the 21st century. No nation on the planet is more richly endowed with a treasure chest of these metals than the U.S. The U.S. Mining Association estimates there are more than $6 trillion in resources. We could easily add $50 billion of GDP every year through a smart mining policy. Environmentalists are threatening to file lawsuits and throwing up other obstacles to this pro-economic development mineral policy — just as they oppose more open drilling for oil and gas. The stupidity of this anti-mining stance is that the green energy sources that they crave — solar and wind power — are dependent on rare metals to be viable. Rare earth minerals are the seeds for building new technologies, and a strong case could be made that these strategic metals are the oil of the 21st century. The suite of 15 primary minerals — which the U.S. has in abundance domestically — has been referred to as “the vitamins of chemistry.” They exhibit unique attributes, such as magnetism, stability at extreme temperatures, and resistance to corrosion: properties that are key to today’s manufacturing. These rare earth elements are essential for military and civilian use for the production of high-performance permanent magnets, GPS guidance systems, satellite imaging and night vision equipment, flat screens, sunglasses and a myriad of other technology products. Thanks to hostility to mining, huge portions of public lands in the west have not been explored or mapped in nearly enough detail to satisfy the hunt for minerals. It takes seven to 10 years to get mining permits here, versus two or three years in Australia and Canada. The nation must also map and explore again as was done in the Old West, when mining for gold, copper, coal and other resources was common. Mineral imports from China and Russia are providing enormous geopolitical leverage to these countries at precisely the wrong time in global events. China, Russia and others have used their mineral wealth to hold importing countries hostage. Do we want Vladimir Putin to hold the commanding heights on strategic minerals? We need a change in strategy and philosophy when it comes to mining. For federal land development, the 20th-century philosophy of “lock up and preserve” needs to be replaced with an ethic of “use and explore.” We have hundreds of years of these resources with existing technology. China’s leaders have been known to boast that the Middle East has the oil and China has the rare earth minerals. But that’s false. We do. With a pro-mining policy, we can make America a mineral-exporting superpower, not an importer reliant on our adversaries. This strategy has worked like a charm when it comes to energy; it should be employed to yield the same America First results for strategic minerals. Stephen Moore is a senior fellow at the Heritage Foundation and an economic consultant with Freedom Works. Ned Mamula is a geoscientist and adjunct scholar at the Center for the Study of Science at the Cato Institute.
  • Silvio Berlusconi, the Candidate of Calm    (Alberto Mingardi, 2018-02-14)
    Alberto Mingardi When Silvio Berlusconi exited the public arena to universal relief in 2011, few would have predicted the scandal-ridden politician’s return would be met with the same emotion. Berlusconi’s background as a media mogul, not to mention his adventurous private life, aroused lasting suspicions. And his political style — defined by a certain directness in appealing to voters and a total disregard for the liturgy of politics — anticipated contemporary “populism.” But the world is now welcoming back a new Berlusconi. No longer able to hold public office - a law bars people who have been sentenced to more than two years in jail — his name will nevertheless be on the ballot, written in large block letters in the logo of “Forza Italia,” when voters go to the polls next month. If Italians back his center-right coalition, they will effectively be choosing him as its puppet-master. It’s easy enough to see why Italians may be drawn to Berlusconi out of nostalgia (though his tenure was by no means impeccable). What’s perhaps more surprising is that European partners and international observers seem to have developed a new sympathy for the scandal-ridden former prime minister, whom they see as a safe card in next month’s election. While he occasionally embraced some uncompromising, conservative positions (most recently on immigration, after a Nigerian man was accused of killing a young woman in Macerata), Berlusconi has for the most smoothed out his coalition partners’ rough edges. Under his influence, for example, the far-right Northern League has stopped calling for Italy to leave the eurozone. And his attacks on the populist 5Star Movement — which he has called “a job center for the unemployable” — showed his willingness to confront that other homo novus of politics, Beppe Grillo. What plays in Berlusconi’s favor is that, more than anything, what everyone wants from Italy is stability. Foreign investors own 40 percent of Italian public debt — which stands at about €2.2 trillion — and have nothing to gain from further turmoil. The rest of the country’s debt is domestically owned, meaning domestic investors too, are interested in stability. Italy is a country of savers, with a high home ownership rate (70 percent) and a rapidly aging population. In this context, Berlusconi — who has claimed that Italy should comply with the fiscal compact and cut taxes, but without raising the deficit — is starting to look like the “reliable” choice. His conflicts of interest, for once, strengthen this impression. It’s not as crazy as it sounds. Berlusconi’s rhetoric may have been over the top, but the policies he put in place never were. This perhaps cost Italy the radical reforms it badly needed, but in times of heated populism, it could be reassuring. When it comes to economic policy, Berlusconi was never very effective. His governments (2001-2006 and 2007-2009) tended to increase the budget deficit, before promoting cuts in their later years under market pressure. He may have promised to deregulate the Italian economy in every one of his electoral campaigns, but he didn’t achieve a permanent cut in red tape. He did cut some taxes, but selectively — he took aim at the death tax, and the property tax — and he didn’t show any Reaganesque impulse to take on productivity and the private sector. He attempted to challenge the power of the trade unions, too, but can hardly claim much success there either. His rhetoric may be over the top, but his policies never were. His critics often implied that he would use his office to promote his own business agenda (he owns substantial stakes of an insurance company and has conspicuous real estate interests, aside from his media and publishing empire.) But it’s plausible that the causation ran the other way; Berlusconi’s personal interests made him a more careful politician that he would otherwise have been. His own debut in politics, in 1994, ended up strengthening republican institutions: He curbed the secessionist attempts of his northern allies and indirectly forced the communist left to embrace more market-friendly public policies. In 2011, when the spread of Italian bonds vis-à-vis the German Bunds escalated and occasioned a political crisis, the center-right leader made the most difficult choice a career politician can face: He quit high office, paving the way for a grand coalition government led by Mario Monti. Resigning is never easy, but Berlusconi’s own conflict of interest made him understand better than anyone else that international markets needed to be calmed. It made him reliable. Never a fan of unpopular measures himself, he loyally supported Monti’s, which included a sharp rise in retirement age. Vilfredo Pareto, an Italian giant in the social sciences, famously made a distinction between rentiers and speculators: The first care deeply about stability of their possessions, aim to preserve their savings, go for security; the second are apt to shrewdly take advantage of anything, including reckless public finance initiatives, to increase their lot. Both kinds of people are essential to a healthy society, according to Pareto, but cannot both prevail at once. Berlusconi may have made his money as a “speculator” as an enterprising newcomer, but, at age 81, he is now firmly on the rentier side. He, as much as anybody else in the country, will put a premium on Italy’s economic security. This shift is reflected in his political agenda. Berlusconi has plenty to lose, and is more attuned to the many Italian families who, when push comes to shove, prioritize safeguarding their savings, their purchasing power, the value of their flat. His opponents, meanwhile, are clearly political speculators: They make dangerous bets because they have little to lose and little to preserve. Both speculators and rentiers can be attractive political candidates. People may vote because they want to gamble on some bold vision of the future, or they may vote to preserve their peace of mind and their holdings. But at a time when Italy needs someone to calm the waters, the scales could tip in favor of safety. It is true that Berlusconi appears worryingly old and sometimes confuses his own points. But 24 years after he entered Italian politics promising a free market tsunami that never happened, his own life and story makes him the only candidate who represents the calm, still waters of the status quo. Alberto Mingardi is director general of Istituto Bruno Leoni, Italy’s free-market think tank, and an adjunct scholar at the Cato Institute in Washington, D.C.
  • The Dangers of America’s Obsession with Inequality    (Michael D. Tanner, 2018-02-14)
    Michael D. Tanner Yippee! Last week’s sell off on Wall Street wiped out more than $3 trillion in wealth. Overnight, economic equality increased. True, you and I aren’t any better off - in fact, some of those losses came out of our 401(k)s and pension plans - but the important thing is that the biggest losers were evil rich people. Warren Buffet lost more than $5 billion, Jeff Bezos more than $3 billion. All together, the world’s 500 wealthiest people lost more than $180 billion. Aren’t you happy? Of course not. But doesn’t the mindset increasingly heard on the progressive left and the populist right dictate that you should be? We have become obsessed with economic equality at the expense of economic growth. Inequality is said to be the transcendent issue of our time. Yet a society that is rich and unequal still beats one that is poor and equal any day of the week. It is inarguably true that modern free-market capitalism leads to inequality. It is equally true that it makes all of us richer. By most measures, most Americans were poor at the start of the last century. Indeed, if we use a definition corresponding to today’s poverty measures, 60-80 percent of the U.S. population was poor in 1900. Today just 23 percent of Americans are poor, and even they enjoy a standard of living that would be envied by the rich of a century ago. If in our rush to level the playing field we limit economic freedom, we could end up with a society that is more equal but less prosperous. Crucially, much of the economic progress responsible for that happy state of affairs came long before the Great Society and the advent of the mammoth welfare state we have today. “As a matter of empirical fact,” George Mason economist Tyler Cowen notes, “it is economic growth that lifts most people out of poverty, not transfer payments.” Above and beyond its ability to alleviate poverty, economic growth also brings with it all sorts of side benefits, including longer life expectancies, a better-educated citizenry, and expanded civil and political rights. Someone else’s success does me no harm. Nor am I worse off because someone else receives a bigger tax cut than I do. Such a viewpoint stems from the misguided notion that the economy is a pie of fixed size. In reality, the size of the pie is infinite, and when it grows we are all better off, even if some people get bigger slices than others. To make it grow, we need ambitious, skilled risk-takers. We need people to be always striving for more. But they will only do so if they can anticipate rewards commensurate with the risks they take. Incentives matter. As Nobel Prize-winning economist Gary Becker once pointed out, “It would be hard to motivate most people if everyone had the same earnings, status, prestige, and other rewards.” None of this means that there are not some people who take advantage of the system. Crony capitalism - the reliance on government favors, subsidies, and protection from competition - is a curse. Nor does it mean that some people are not left behind. The creative destruction that fuels a dynamic economy guarantees that there will always be shocks and temporary dislocations. Racism, sexism, and xenophobia lock too many people outside the system. We should be doing everything we can to ensure that everyone has the necessities of life, and that they can be full participants in a growing economy. Those are all legitimate concerns that need to be addressed. But the answer lies with more economic freedom, not less. If, in our obsession with equality, we kill the golden goose, we may quickly find out that the society we thought we wanted isn’t all it’s cracked up to be. Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.
  • Five Myths about chain Migration    (David Bier, 2018-02-14)
    David Bier President Trump has said an end to “chain migration” is one of the must-have elements of any immigration deal in Congress. Many analysts believe this demand could impede an agreement. But if we are to debate the right policy on chain migration, we should first understand what the debate is about. And right now various myths about the concept are muddling the already contentious conversation. MYTH NO. 1 ‘Chain migration’ is an offensive term for ‘family reunification.’ Sen. Chris Murphy (D-Conn.) is among those who consider the mere phrase offensive, tweeting that it is “a made up term by the hardline anti-immigration crowd” whose “purpose is to dehumanize immigrants.” In fact, it was academics John and Leatrice MacDonald who popularized the term in the early 1960s to describe immigrants who follow earlier immigrants, just as links follow one another in a chain. In any case, explaining relationships with metaphors is not dehumanizing. No one sees “step”-child as an epithet. Some liberal groups insist that “family reunification” is the only proper term. But the chain metaphor is more descriptive, referring to a specific type of family reunification: when the family member is following another immigrant. A foreigner who marries someone born in the United States and comes to live with them here, sometimes after waiting months or even a year while their application is pending, is “reuniting” with family, but they are not part of a “chain.” In reality, America’s immigration laws strictly limit the types and numbers of family-sponsored immigrants. Trump confuses the issue further by using “chain” to refer to all family-sponsored immigrants except spouses and minor children of citizens or legal residents. Yet many U.S. citizens with foreign-born spouses are themselves immigrants who received citizenship through naturalization, and all foreign-born spouses and minor children of permanent residents are chain migrants. On the flip side, he labels all parents, siblings and adult children of citizens as “chain migrants,” even though many of the citizens were born here. MYTH NO. 2 Chain migration is a liberal policy. Conservative commentator Ann Coulter claims the 1965 law that created America’s chain migration system was, as one interviewer summarized, “expressly designed to change the demographics of our country — to be poorer and more inclined to vote Democrat.” But the flow from Europe had already dropped from nearly two-thirds of all legal immigration to just one-third between 1946 and 1965, and it was conservatives who pushed for the family-sponsored system, believing it would reverse the trend. House immigration subcommittee Chairman Michael Feighan, a conservative Democrat from Ohio, refused to hold hearings on the initial bill in 1965 because it emphasized employer-sponsored immigration. He guided the final package to focus on an expansive family-sponsored system. Because at the time European immigrants remained three-quarters of America’s foreign-born residents, conservatives like those at the American Legion expected that “the great bulk of immigration henceforth will not merely hail from the same parent countries as our present citizens, but will be their close relatives.” This prediction turned out to be incorrect. The pre-1965 trend continued unabated, and by 1985, just 1 legal immigrant in 10 arrived from Europe. As Europeans became wealthier, fewer wanted to relocate, while other nationalities continued to find ways into the family-sponsored system — first through marriage and later through other relations. Nonetheless, the conservatives’ theory has merit: Chain migration does act as a conservative force, maintaining the status quo longer than would selecting immigrants solely on market or humanitarian factors. Without “chains,” European immigration may have died out even faster than it did. MYTH NO. 3 One immigrant can bring in many far-flung family members in just a few years. In his State of the Union address, Trump claimed, “Under the current broken system, a single immigrant can bring in virtually unlimited numbers of distant relatives.” In reality, America’s immigration laws strictly limit the types and numbers of family-sponsored immigrants. The laws allow U.S. citizens and legal residents to sponsor only immigrants who are their immediate relatives — spouses, children, siblings and parents — and the spouses and minor children of those immigrants. Even these categories are strictly controlled. Only parents, spouses and young children of U.S. citizens can enter without a numerical limit. The law places caps on adult children and siblings of U.S. citizens, as well as spouses and all children of legal residents. The law also prevents any single country from using more than 7 percent of the quota in a given category. In combination, these restrictions can result in significant wait times for certain nationalities. Mexican and Filipino siblings and adult children of U.S. citizens, for example, typically wait more than two decades to immigrate to America. MYTH NO. 4 Chain immigrants are security and terrorist threats. House Judiciary Committee Chairman Bob Goodlatte (R-Va.) argues that restricting family reunification would “make us safer,” citing a failed terrorist attack in New York in which an immigrant, who had come to the United States on a family visa, detonated a bomb on his chest, injuring only himself. Yet from 1975 through 2017, the likelihood of a U.S. resident or citizen being murdered by any person who entered the United States as a legal permanent resident — i.e. not someone who entered on a temporary visa — was just 1 in 1.2 billion per year. Regular murderers were 80,000 times more likely to kill Americans than legal immigrant terrorists. Legal immigrants to the United States — more than 70 percent of whom are sponsored by a U.S. family member — are also far less likely to commit crimes generally. Based on Census Bureau data, U.S.-born adults are three times more likely to be incarcerated than legal immigrants of the same age group. By lowering the crime rate, law-abiding residents make America safer. MYTH NO. 5 Chain immigrants lack skills to succeed. In making his case for the president’s proposals last month, Attorney General Jeff Sessions said, “What good does it do to bring in somebody who is illiterate in their own country, has no skills and is going to struggle in our country and not be successful?” This description distorts the picture of immigrants who settle in the United States. Nearly half of adults in the family-sponsored and diversity visa categories had a college degree, compared with less than a third of U.S. natives. America would lose nearly a quarter-million college graduates every year without the family-sponsored and diversity programs. Even among the 11 percent who have little formal education, there is no evidence that they aren’t successful. By virtually every measure, the least-skilled immigrants prosper in America. Immigrant men without high school degrees are almost as likely as U.S.-born men with college degreesto look for a job and keep one. Family-sponsored immigrants are the most upwardly mobile American workers. Whether high-skilled or not, chain or not, immigrants succeed in and contribute to this country. David Bier is an immigration policy analyst at the Cato Institute.
  • Get Ready for the War on Meat    (José Niño, 2018-02-13)
    By: José Niño Plant-based diets, especially vegan diets, seem to be all the rage these days.Based on the practice of eschewing animal products, veganism has attracted a broad coalition of interest groups — ranging from animal rights to environmental activists — who believe that veganism is the most ethical and sustainable way of promoting human health and animal welfare.At first, these appear to be reasonable premises for an alternative lifestyle that challenges the dietary status quo.But when placed under the microscope, the modern vegan movement has shown signs of increased politicization and a tendency to mesh with socialist causes. Veganism as a Vessel for InterventionismRecent developments have demonstrated that veganism is making headway not only in the cultural realm, but also in the political sphere.It is no secret that many elites at international organizations have an aversion toward meat. In fact, institutions like the United Nations have called for the reduction of meat consumption on the grounds of environmental sustainability and health concerns.And like any good globalist institution, they believe in using government force, in this case, taxation, to curb meat consumption.But bureaucrats and their vegan foot soldiers are not alone. Groups like the Farm Animal Investment Risk and Return (FAIRR), an investment initiative network that monitors factory farms, has thrown its hat into the ring by pushing for meat taxation. This group is no roughshod, grassroots operation; it’s backed by investors that preside over roughly $4 trillion in assets.The recent meat tax discussions show a paradigm shift in the issue where politicians, bureaucrats, nutritionists, and even powerful financial interests are actively flirting with the idea of using state power to discourage meat consumption.It’s only a matter of time before governments around the world start implementing meat taxes, adding to the ever-growing list of taxes that citizens must endure.But is meat taxation a viable way to reduce consumption?The Problems with Sin TaxesSin taxes are nothing new in US history. Busybody politicians have targeted all sorts of activities — alcohol consumption and smoking — that they deem to be destructive and try to use the heavy-hand of the state to curtail these so-called vices.In the majority of the aforementioned cases, sin taxes failed to reduce consumption of said activities. And in the few instances that sin taxes did succeed in curbing consumption, the problems of prohibition and black markets would come into the equation.Mark Thornton accurately depicts the results of prohibitive taxation or outright bans of certain goods or substances:The scourge of crystal meth is another example of the "potency effect" or what has been called the "iron law of prohibition." When government enacts a prohibition, increases enforcement, or increases penalties on a good such as alcohol or drugs, it inevitably results in substitution to more adulterated, more potent, and more dangerous drugs.The major takeaway from Thornton’s analysis is that when the government puts the clamps on goods and services, it creates incentives for black market actors to offer more dangerous, lower quality alternatives.If the anti-meat crowd had their way, proposed meat taxes would have a similar effect, as shady suppliers will look to profit off lower-quality meat products that turn out to be harmful for consumers.As these alternatives start to bring about negative effects, politicians will naturally respond with even more intervention. Unless cooler heads prevail, more destructive interventions and unintended consequences will follow.Moreover, just as meat providers are being driven by consumer demand toward more organic, cage-free and "certified humane" meats, additional government interventions will only work in the opposite direction, placing these products out of reach of more consumers. It's about ControlHealth arguments aside, the real issue at hand in these discussions is control. Taking a page from their environmentalist ilk, vegans constantly rely on alarmist tactics to advance their cause. And this agenda consists of more than just educational campaigns — it involves using a strong centralized state to carry out their dietary vision.To achieve this zealous plant-based vision, these actors will ultimately have to control and regulate the means of production of meat. The US government already wields tremendous power over food through the Food and Drug Administration (FDA) and the Department of Agriculture (USDA). These agencies, with pressure from anti-meat activists, can be used as vehicles to implement one-size-fits-all policies.Central planning of this sort forms the bedrock of socialism and the latest anti-meat crusades represent another ambit that socialists will exploit in order to gain more traction. At its core, political veganism is the same fundamental philosophy but with different cosmetic features.It Boils down to FreedomIndividuals should be free to choose whatever diet they desire. The best diet is the one an individual can consistently stick to long enough to achieve their body composition and health goals.Unfortunately, veganism has taken a page out of the global warming playbook by lending itself as a vehicle for increased state centralization and control over the private affairs of peaceful citizens. The recent meat tax propositions serve as a firm reminder of why there must be a complete separation of Food and State.Just like the state should stay out of our wallets, the state should stay out of our grocery stores and kitchens. 
  • E-Verify Threatens Us All    (Ron Paul, 2018-02-13)
    By: Ron Paul In addition to funding for a border wall and other border security measures, immigration hardliners are sure to push to include mandatory E-Verify in any immigration legislation considered by Congress. E-Verify is a (currently) voluntary program where businesses check job applicants’ Social Security numbers and other Information — potentially including “biometric” identifiers like fingerprints — against information stored in a federal database to determine if the job applicants are legally in the United States.Imagine how much time would be diverted from serving consumers and growing the economy if every US business had to comply with E-Verify. Also, collecting the relevant information and operating the mandatory E-Verify system will prove costly to taxpayers.Millions of Americans could be denied jobs because E-Verify mistakenly identifies them as illegal immigrants. These Americans would be forced to go through a costly and time-consuming process to force the government to correct its mistake. It is doubtful employers could afford to keep jobs open while potential hires went through this process.A federal database with Social Security numbers and other identifying information is an identify thief’s dream. Given the federal government’s poor track record for protecting personal information, is there any doubt mandatory E-Verify would put millions of Americans at risk for identity theft?Some supporters of E-Verify deny the program poses any threat to civil liberties, as it will only be used to verify citizenship or legal residency. They even claim a system forcing individuals to have their identities certified by the government is not a national ID system. These individuals are ignoring the history of government programs sold as only affecting a particular group or being used for a limited purpose being expanded beyond initial targets. For example, Americans were promised that only the wealthiest Americans would ever pay income taxes. And some of the PATRIOT Act’s worst provisions that we were told would only be used against terrorists are routinely used to investigate drug crimes.E-Verify almost certainly will be used for purposes unrelated to immigration. One potential use of E-Verify is to limit the job prospects of anyone whose lifestyle displeases the government. This could include those accused of failing to pay their fair share in taxes, those who homeschool or do not vaccinate their children, or those who own firearms.Unscrupulous government officials could use E-Verify against those who practice antiwar, anti-tax, anti-surveillance, and anti-Federal Reserve activism. Those who consider this unlikely should remember the long history of the IRS targeting the political enemies of those in power and the use of anti-terrorism laws to harass antiwar activists. They should also consider the current moves to outlaw certain types of “politically incorrect” speech, such as disputing the alleged “consensus” regarding climate change.Claiming that mandatory E-Verify is necessary to stop illegal immigration does not make it constitutional. Furthermore, having to ask the federal government for permission before obtaining a job is a characteristic of authoritarian societies, not free ones. History shows that mandatory E-Verify’s use will expand beyond immigration enforcement and could be used as a tool of political repression. All those who value liberty should oppose mandatory E-Verify.Reprinted with permission. 
  • Jeff Sessions' Profound Failure to Understand the Overdose Crisis    (Jeffrey A. Singer, 2018-02-13)
    Jeffrey A. Singer Attorney General Jeff Sessions spoke to a group of U.S. Attorneys in Tampa, Fla., last week, and demonstrated his ignorance about the root causes of the opioid overdose crisis. “I am operating on the assumption that this country prescribes too many opioids,” Sessions said. “People need to take some aspirin sometimes.” A day earlier, Sessions told a gathering celebrating the birthday of President Ronald Reagan, “Sometimes you just need to take two Bufferin or something and go to bed.” Bob Twillman, the executive director of the Academy of Integrative Pain Management, said, “That remark reflects a failure to recognize the severity of pain in some patients.” Twillman went on, “It further illustrates how out of touch parts of the administration are with opioids and pain management.” I think “out of touch” is an understatement. Sessions seems unaware that high-dose opioid prescriptions are down 41% since 2010, and that the majority of overdose deaths are due to heroin and fentanyl. He probably doesn’t know that the overdose rate from street fentanyl rose by 88% per year from 2013 to 2016; for heroin it rose by an average of 32% per year from 2010 to 2016. Yet it remained unchanged and stable for prescription opioids from 2009 to 2016. As long as policymakers remain as clueless as Sessions about the causes and remedies of the rising overdose death rate, look for the rate to continue to climb. What’s even more disturbing to me as a doctor is the attorney general’s demonstrated lack of compassion for patients suffering in pain. Many have been severely impacted by the restrictive policies that have pressured doctors to curtail or cut off their patients in pain. Some are so desperate that they turn to the black market in search of relief, where they sometimes wind up with heroin and fentanyl. Some even resort to suicide. I have performed major operations on patients with complex intra-abdominal diseases who return home in agonizing, debilitating pain that lasts for weeks. Sometimes they need several days — sometimes weeks — of strong opioids to help them recover at home and resume a normal life. Aspirin won’t do the trick. I hope the attorney general never has to experience such pain. In what is beginning to sound like a broken record, New York City recently reported that in 2016 nearly three-quarters of all overdoses deaths were from heroin or fentanyl, and 97% involved multiple drugs; 46% of the time, cocaine was involved. By contrast, last month a Harvard study of one million postoperative patients given prescription opioids showed a “misuse” rate of just 0.6%. Yet Sessions, like most policymakers, seems oblivious to the evidence. Most still focus their efforts on the wrong target — in reality, it has always been about nonmedical users seeking drugs in the illicit market. The war on drugs is the real killing machine. If they can’t bring themselves to end this war, policymakers should follow the lead of most developed nations, and at least redirect efforts to harm reduction measures. This means removing obstacles to the expansion of what’s known as Medication Assisted Treatment, so that more health care practitioners can prescribe substitution drugs like methadone and suboxone to help addicts avoid withdrawal and gradually detoxify. It means allowing for the proliferation of needle-exchange and supervised injection facilities, endorsed by the Centers for Disease Control and Prevention, and proven to prevent the spread of disease, reduce overdose deaths, and steering addicts into rehab programs. The overdose antidote naloxone, already used by thousands of first responders and laymen with minimal training, should be re-classified as an over-the-counter drug to enhance its dissemination. And although Congress may not lead on these issues, at the very least the attorney general should leave states free to go their own way. As long as policymakers remain as clueless as Sessions about the causes and remedies of the rising overdose death rate, look for the rate to continue to climb. The least they can do, though, is speak about this problem like adults. Jeffrey A. Singer is a senior fellow at the Cato Institute and practices general surgery in Phoenix.
  • Establishment Republicans Can No Longer Claim to Be Fiscal Conservatives    (Ryan Bourne, 2018-02-13)
    Ryan Bourne So much for US Republicans starving the government beast. When the party’s major tax reform package passed in December, Democrats worried that projections for a $1 trillion debt increase over a decade would be used by Republicans to justify spending cuts and reforms to old-age entitlements. Instead, with a looming government shutdown, Republican and Democrat leaders last week conspired to pass a budget-cap busting spending package. This increased outlays by around $300bn over two years — a rise that no doubt will become the new baseline thereafter. People decry a lack of bipartisanship in the US, but Congress has shown that when you get a cross-party consensus, taxpayers suffer. Under these plans, military spending would be raised by $80bn in 2018, and then $85bn in 2019. At Republicans’ request, the US will have added around one-and-a-half times the UK defence budget to its military spending its year. Not only is the long-term outlook unsustainable with untouchable entitlement growth, but the country is now running up huge debts even in a strong and growing economy. And now we know what “working across the aisle” really means — chucking money your opponents’ way. Democrats pushed for matching increases in non-defence spending, and eventually settled for an extra $63bn in 2018 and $68bn in 2019. This cross-party spending spree will result in a budget deficit that Jeremy Corbyn would be proud of. According to the Congressional Budget Office, the US was already projected to run a deficit of 4.7 per cent in 2019 after the tax cuts, up from 2.9 per cent in 2017. Given reasonable economic assumptions, we are looking at the US federal government now running deficits in excess of 5.6 per cent of GDP, and then increasing further. All this comes, of course, after a long period of sustained growth and with unemployment at a 16-year low of just 4.1 per cent. This makes no economic sense from any school of thought. In Keynesian terms, now is the time to fix the roof while the sun is shining. Certainly, the deficit should be restrained to levels necessary to get the debt-to-GDP ratio back on a downward path. With monetary policy tightening, unemployment low, and most forecasters estimating that the US is already growing above potential, there is no case for any kind of “fiscal stimulus” today. It is utterly irresponsible from a pure public finance perspective too. The country’s burgeoning entitlement spending, which is driven by an ageing population, means debt is forecast to increase exponentially from here to the future absent reform to those programmes. Even before the recent tax and spending changes, the Congressional Budget Office thought debt held by the public would rise from 78.7 per cent to 150 per cent by 2047. Facing these headwinds with higher debt levels risks large future fiscal consolidations being needed. At that stage, no doubt taxes will be hiked, therefore reversing some of the pro-growth effects of the recent tax reform. Sadly, the Republican establishment has shown that they can no longer claim to be fiscal conservatives. The revenue impacts of the tax reform bill had a big enough effect on the debt. But arguably net tax cuts were necessary to grease the wheels of pro-growth reforms, such as cutting the corporate tax rate, and lowering marginal income tax rates. Otherwise too many losers kick up a fuss. But in the long run, spending is the true burden of government activity. The Republicans should have been telling voters that if they want to keep their tax cuts, there needs to be some fiscal restraint. Instead, they have now given up any pretence of caring about the government debt burden. We are therefore left with the bizarre spectacle of President Trump having last year advocated for balancing the budget over 10 years, only for a Republican-controlled Congress to present him with proposals that will blow up deficits to more than $1 trillion per year. Extrapolating this forward, the only feasible means of the US getting on top of its terrifying debt outlook is to reform the generosity and eligibility of entitlements, yet Trump has effectively said this will not happen. Congress can therefore form all the groups and task forces it wants about how to deal with the long-term debt challenge. But the truth is current politicians have conspired to put the US in a very worrying position indeed. Not only is the long-term outlook unsustainable with untouchable entitlement growth, but the country is now running up huge debts even in a strong and growing economy. With a starting point of high debt levels and a political equilibrium where agreement can only be found to raise spending upwards, at the moment, it is difficult to see a way out. Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.
  • Consumer Sovereignty Is a Problem For Government "Stimulus" Plans    (Justin Murray, 2018-02-13)
    By: Justin Murray It’s a new year and that means we are in for another year of the same rehashed political partisanship disguised as sound economic analysis. The latest rehash is that the US economy is still experiencing the worst post-recession recovery in the nation’s history (a story that’s rehashed year after year) and, as usual, the old saws are dusted off and trucked out as explanations. The usual explanations come in the form of the “savings glut” and the “demand deficit” and the answer is usually increasing spending somewhere and that somewhere is entirely dependent on the policy pronouncement’s partisan leanings. In other words, it’s the job of the government to rush to the rescue, stimulate the economy and make up for the lack of aggregate demand, or the Keynesian policy pronouncement that government should go into debt to make up for the lack of consumption by the consumers on the market.Of course, if any of this actually worked, the US would be on a rather stable path already since, despite the arguments, government spending and debt has soared significantly in the wake of the 2007 financial crash. To put it into context, the increase in annual US Federal (not to mention State level) government spending since the end of the recession is roughly equal to the entire annual output of Canada and is greater than the economic output of all but nine nations. And that’s just the spending increase. The total spending puts US government entities, if calculated as its own country, #4 on the GDP list, a DoD budget increase away from surpassing Japan.Given this immense level of spending, how come the recovery is still considered to be relatively poor? The problem is that the entire philosophy of government stimulus; be it interest rate manipulations or direct subsidy and spending, runs into a harsh truth. And that harsh truth is what Mises referred to as consumer sovereignty.As Mises noted:The real bosses [under capitalism] are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or is cheaper, they desert their old purveyors.In other words, the notions of demand deficit or savings glut are entirely fictitious and it is not the government’s job to try and fix this.What does this mean? For a demand deficit to be a real issue, it would imply that the consumer, or the demand end of the supply-demand mechanic, is obligated to purchase what is supplied. This is exactly the opposite of what the relationship is. While it is true that, per the common misinterpretation of Say’s Law, it is difficult for demand to manifest without the supply first being brought to market, this by no means implies that the demand is now under any obligation to purchase that supply. If this were true, the road to riches is as simple as hanging up a sign in a store front and presenting whatever junk you find lying around in the window.What is seen as a savings glut or demand deficit is no more than the sovereign consumer saying, “I have no interest in what is available on the marketplace right now.” That disinterest can either be in what is being offered or at the price which it is offered.The onus, then, is on the producer, or the supply, to alter or adjust to meet the demand. This is where the entrepreneurial process is so important as the demand frequently does not know what it wants until someone takes a risk and offers up a product or service to the marketplace. It’s not the fault of the buyer that the corner store went out of business but the fault of the operator of that corner store for not offering what the consumer wanted or not organizing his capital in a way that allowed him to deliver that offering to the consumer at a reasonable price. It is up to him to reorganize, either the offering or how it is offered, or go out of business and liquidate that capital to someone else who may have a better insight on the desires of the market.Where the prolonged recession recovery comes is not because of this mythical insufficient demand but by the very policies the government is engaging in to fight this mythical problem. By boiling down economic activity from innumerable granular transactions between a near infinitely varied mixes of interests into simple aggregates, the government creates the misconception that it can fix things by boosting the “gross” in “gross domestic product.” The only way it can do so is by boosting the consumption of pre-existing goods and services. The very same goods and services the sovereign consumer has rejected.Doing this overrides the desire of the consumer and forcibly directs their resources to purchase those very same goods and services they previously did not want and, by the basis of the taxation system, don’t even receive even the modicum of benefit they may otherwise have obtained if they were forcibly marched into the store to buy a product. Since the government can’t tell the difference between a pet rock and an iPhone, it will just assume the product or services it purchases or subsidizes are part of this demand deficit and not the market losing interest in what is being offered with attempts to bail out failing entities leading to future supply gluts, is again manifesting in automobiles when the market was not permitted to liquidate to match the new demand requirements.Government then expects the market to just magically start working again and the demand just start buying again without ever concerning itself about the what and for how much and uses the reinvigoration of old marketplace product sales as a benchmark to cease intervention; which is a situation that will never manifest. Even fully subsidized to the point of “free” won’t necessarily manifest demand, as the Soviets have long proven with multiple supply gluts under their planned economy.By trying to fight this illusionary problem, government has essentially ensured that the problem will persist near indefinitely and require even greater luck and chance to find those products and services the market desires. Those taxes, subsidies, and competition for debt in the credit markets does little more than ensure the entrepreneurs who have the ideas are now cut off from the necessary capital and labor required since it is tied up in subsidized and artificially supported entities. Even if an entrepreneur can find a way to obtain the capital and personnel required to start-up his new business, those sovereign consumers are being taxed to support industries they no longer desire and lack the resources necessary to complete the transaction.If government was really concerned with a sustained, strong, economic recovery, it would first begin by ceasing support of non-performing entities. While it would be painful, given the length of time non-valuable companies have been allowed to persist or even propagate, those lost jobs and closed businesses will now have a clear path to be reallocated to more valuable uses. The government can do this by cutting spending and eliminating the immense regulatory burden placed on the economy as a whole.The economy can’t recover when the government is interfering with the ability of suppliers to reorganize, reallocate, and reinvest. Because the demand side of the equation will not suddenly decide it will start buying the products and services it has already rejected. If a brutal totalitarian society like the former Soviet Union couldn’t force people to consume products in the exact quantities and mix it dictated, the United States can’t, either and won’t see any serious economic recovery or sustained growth until it ceases with the expectation that consumers will fall in line with expectations. You can lead consumers to the store, but you can’t make them buy.
  • Our Interests and Their Interests    (Murray N. Rothbard, 2018-02-12)
    By: Murray N. Rothbard In the 20th century, the advocates of free-market economics almost invariably pin the blame for government intervention solely on erroneous ideas — that is, on incorrect ideas about which policies will advance the public weal. To most of these writers, any such concept as "ruling class" sounds impossibly Marxist. In short, what they are really saying is that there are no irreconcilable conflicts of class or group interest in human history, that everyone's interests are always compatible, and that therefore any political clashes can only stem from misapprehensions of this common interest.In "The Clash of Group Interests," Ludwig von Mises, the outstanding champion of the free market in this century, avoids the naïve trap embraced by so many of his colleagues. Instead, Mises sets forth a highly sophisticated and libertarian theory of classes and of class conflict by distinguishing sharply between the free market and government intervention.It is true that on the free market there are no clashes of class or group interest; all participants benefit from the market and therefore all their interests are in harmony.But the matter changes drastically, Mises points out, when we move to the intervention of government. For that very intervention necessarily creates conflict between those classes of people who are benefited or privileged by the State and those who are burdened by it. These conflicting classes created by State intervention Mises calls castes. As Mises states,Thus there prevails a solidarity of interests among all caste members and a conflict of interests among the various castes. Each privileged caste aims at the attainment of new privileges and at the preservation of old ones. Each underprivileged caste aims at the abolition of its disqualifications. Within a caste society there is an irreconcilable antagonism between the interests of the various castes.In this profound analysis Mises harkens back to the original libertarian theory of class analysis, originated by Charles Comte and Charles Dunoyer, leaders of French laissez-faire liberalism in the early 19th century."We have to abandon the cozy view that all of us, we and our privileged rulers alike, are in a continuing harmony of interest."But Mises has a grave problem; as a utilitarian, indeed as someone who equates utilitarianism with economics and with the free market, he has to be able to convince everyone, even those whom he concedes are the ruling castes, that they would be better off in a free market and a free society, and that they too should agitate for this end. He attempts to do this by setting up a dichotomy between "short-run" and "long-run" interests, the latter being termed "the rightly understood" interests. Even the short-run beneficiaries of statism, Mises asserts, will lose in the long run. As Mises puts it,In the short run an individual or a group may profit from violating the interests of other groups or individuals. But in the long run, in indulging in such actions, they damage their own selfish interests no less than those of the people they have injured. The sacrifice that a man or a group makes in renouncing some short-run gains, lest they endanger the peaceful operation of the apparatus of social cooperation, is merely temporary. It amounts to an abandonment of a small immediate profit for the sake of incomparably greater advantages in the long run.The great problem here is: why should people always consult their long-run, as contrasted to their short-run, interests? Why is the long run the "right understanding"? Ludwig von Mises, more than any economist of his day, has brought to the discipline the realization of the great and abiding importance of time preference in human action: the preference of achieving a given satisfaction now rather than later. In short, everyone prefers the shorter to the longer run, some to different degrees than others.How can Mises, as a utilitarian, say that a lower time preference for the present is "better" than a higher? In brief, some moral doctrine beyond utilitarianism is necessary to assert that people should consult their long-run over their short-run interests. This consideration becomes even more important when we consider those cases where government intervention confers great, not "small," gains on the privileged, and where retribution does not arrive for a very long time, so that the "temporary" in the above quote is a long time indeed.Mises, in "The Clash of Group Interests," tries to dismiss war between nations and nationalisms as senseless, at least in the long run. But he does not come to grips with the problem of national boundaries; since the essence of the nation-State is that it has a monopoly of force over a given territorial area, there is ineluctably a conflict of interest between States and their rulers over the size of their territories, the size of the areas over which their dominion is exercised.While in the free market, each man's gain is another man's gain, one State's gain in territory is necessarily another State's loss, and so the conflicts of interest over boundaries are irreconcilable — even though they are less important the fewer the government interventions in society.Mises's notable theory of classes has been curiously neglected by most of his followers. By bringing it back into prominence, we have to abandon the cozy view that all of us, we and our privileged rulers alike, are in a continuing harmony of interest. By amending Mises's theory to account for time preference and other problems in his "rightly understood" analysis, we conclude with the still less cozy view that the interests of the State-privileged and of the rest of society are at loggerheads — and further, that only moral principles beyond utilitarianism can ultimately settle the dispute between them.This article is excerpted from Murray Rothbard's 1978 preface to Ludwig von Mises's The Clash of Group Interests and Other Essays.
  • End Space-Station Funding Right Now    (Laurence M. Vance, 2018-02-12)
    By: Laurence M. Vance Donald Trump’s possible decision to end NASA’s funding of the International Space Station by 2025 brings up that age-old question of the proper role of government, although it is certainly not he who is bringing it up.The International Space Station (ISS) program is a joint operation between NASA and the space agencies of Russia, Japan, Canada, and eleven countries of Europe. According to NASA’s “Reference Guide to the International Space Station.”NASA and the space agencies of Russia, Japan, Europe and Canada have hosted investigators from 83 nations to conduct over 1700 investigations in the long-term micro-gravity environment on-board the ISS. Many investigators have published their findings and others are incorporating findings into follow-on investigations on the ground and onboard. Their research in the areas of earth and space science, biology, human physiology, physical sciences, and technology demonstration will bring yet to be discovered benefits to humankind and prepare us for our journey beyond low Earth orbit.The first of many components of the ISS was launched into orbit in November 1998. Assembly was completed in July 2011. The station has been continuously occupied by a maximum of six astronauts from various countries since November 2000.The ISS is the largest man-made object to ever orbit the Earth. In NASA’s reference guide, it is described thus:The ISS has a mass of 410,501 kg (905,000 lbs) and a pressurized volume of approximately 916 m3 (32,333 ft3). The ISS can generate up to 80 kilowatts of electrical power per orbit from solar arrays which cover an approximate area of 2,997 m2 (32,264 ft2). The ISS structure measures 95 m (311 ft) from the P6 to S6 trusses and 59 m (193 ft) from PMA2 to the Progress docked on the aft of the Russian Service Module. The ISS orbital altitude can range from 278-460 km (150-248 nautical miles) and is in an orbital inclination of 51.6 degrees. The ISS currently houses 6 crew members.The ISS is so large it can be seen from Earth with the naked eye. It maintains an orbit between 205 and 270 miles above the Earth, and completes 15.5 orbits per day.Of course, all of this comes at a price — an enormous price to U.S. taxpayers.The ISS is the most expensive object ever built. According to a recent audit by NASA’s Office of Inspector General, “Through fiscal year (FY) 2017, NASA has spent approximately $87 billion for ISS development, operations, research, and associated Space Shuttle flights. For FY 2018, NASA’s total projected ISS budget is $3.4 billion, including roughly $318 million for research efforts.” The program’s total cost is estimated to be about $150 billion, with each day spent on-board by an ISS crewmember costing about $7.5 million.Although Donald Trump’s fiscal year 2018 budget request is not due to be released until February 12, according to a draft budget proposal leaked by the White House Office of Management and Budget (OMB) and reviewed by The Verge, “The Trump administration is preparing to end support for the International Space Station program by 2025.” A NASA spokesman would say only that “NASA and the International Space Station partnership is committed to full scientific and technical research on the orbiting laboratory, as it is the foundation on which we will extend human presence deeper into space,” and would not comment “on any leaked or pre-decisional documents prior to the release of the President’s FY19 budget.” Back in 2014, the Obama administration extended funding of the ISS “until at least 2024.” Many players in the commercial space industry want NASA to extend funding through 2028, the year that many consider to be the end of the ISS’s operational lifetime.If Donald Trump decides that he wants to end NASA’s funding of the ISS, it won’t be because he opposes government space exploration or government funding of scientific research in space. He simply has other ambitions, such as wanting NASA “to send astronauts back to the Moon, as a pit stop to eventually send people to Mars.”But why wait until 2025 to end funding of the ISS? Why not end funding now?That a government space program has or has not resulted in valuable discoveries and inventions; created jobs; or benefited science, medicine, and engineering is not the issue. And besides, there is no real way to measure or quantify what the space program has done for society. There is a big difference between government jobs and private-sector jobs. Government funding of space exploration, research, and experiments crowds out private efforts. And the actual costs of a space program may exceed its supposed benefits.RELATED: "Government Spending on "Innovation": The True Cost Is Higher Than You Think" by Peter KleinAlthough a government space program may be popular with the majority of Americans and have wide bipartisan support in Congress, it is still neither authorized by the Constitution nor a proper function of government.In an ideal society in which the federal government is strictly limited by the Constitution, the only possible legitimate functions of government are defense, judicial, and policing activities: keeping the peace; prosecuting, punishing, and exacting restitution from those who initiate violence against, commit fraud against, or otherwise violate the personal or property rights of others; providing a forum for dispute resolution; and constraining those who would attempt to interfere with people’s peaceful actions.If an exception can be made for government funding of a space program because it has “benefits,” then no reasonable, logical, or rational argument can be made against government funding of anything.Not only should government funding of the ISS be ended now, government funding and operating of the space program should also be ended now.All space stations, bases on the Moon, missions to Mars, space exploration, space tourism, space experiments, space research, rocket launches, and space colonization should be carried out and funded by private organizations and institutions without government management, cooperation, partnerships, or funding of any kind. Americans who want astronauts to explore strange new worlds, seek out new life and new civilizations, and boldly go where no man has gone before should be the ones paying for it.Originally published by the Future of Freedom Foundation. 
  • Stop Funding Georgia Charter Schools ‘on the Cheap’    (Corey A. DeAngelis, 2018-02-12)
    Corey A. DeAngelis Sponsored by Rep. Scott Hilton, R-Peachtree Corners, House Bill 787 would increase charter school investment by about $10 million. (Along with raising the per-pupil spending, the bill would add money for some school buildings in higher-cost areas and computers.) At a recent legislative hearing, Hilton maintained the increase for charters would not take money from other public schools because it wouldn’t come out of the $9 billion state education budget. Instead, the new funds would come from the general fund. My AJC colleague Ty Tagami reported there were still concerns about the proposed spending increase, with Rep. Howard Maxwell, R-Dallas, saying, “If we’re going to increase the size of the pie, we’re going to have to put more money into the making of it.” Atlanta has a great education opportunity ahead, because Georgia policymakers are considering funding public schools equitably. The new legislation, House Bill 787, would equalize public charter school funding with traditional public schools for all 180 school districts in Georgia, and would cost the state about $10 million. The bill’s sponsor, Rep. Scott Hilton, says that the price tag is a “drop in the bucket,” especially since charter school students are currently being educated “on the cheap.” He has a point. Research shows charter schools can achieve the same outcomes or even better than traditional public schools, and for less money, too. It’s exciting to think about how successful these schools would be if they received just as much funding as their traditional counterparts. As shown in a recent study by my colleagues at the University of Arkansas and me, Atlanta public charter schools receive around $2,000 less funding allocated on a per-child basis than their district school counterparts each year, or almost $26,000 less throughout a full K-12 education. And we find that despite the large funding disadvantage, Atlanta public charter schools are 14 percent more cost-effective and produce an 18 percent higher return-on-investment than their neighboring district schools. Let’s make this a bit more concrete. The data show that every thousand dollars spent on education in Atlanta district schools translates to around a $4,560 increase in students’ lifetime earnings. That is commendable. But that same thousand-dollar-expenditure produces an estimated $5,370 in students’ lifetime earnings if allocated to a public charter school in the city. And that 18 percent advantage is very important considering that Atlanta taxpayers spend over $210,000 for each child’s K-12 education in district schools. In other words, 13 years of equal funding in charter schools could produce around an additional $170,000 in lifetime earnings for each charter school student in Atlanta. Of course, this isn’t the only study finding that charter schools do more with less. In 2014, researchers at the University of Arkansas also found that charter schools across the country were 40 percent more productive, as measured by gains in student achievement, than neighboring district schools. In addition, experimental studies by researchers at Harvard University and Princeton University found that male students that won a public charter school lottery were less than half as likely to commit crimes later on in life, and female students were 59 percent less likely to become pregnant as teenagers. And positive effects like these pay off. When charter schools reduce the likelihood that students commit crimes as adults, society spends less resources on policing, court cases, corrections programs, and prisons. Overall, the scientific evidence suggests that charter schools improve academic outcomes for students. Researchers from the University of California San Diego recently completed the most comprehensive review of the evidence on charter schools to date. The review concluded that, on average, charter schools helped students achieve the equivalent of over a month of additional learning in math, relative to their peers in district schools. Three experimental evaluations also find that winning a random lottery to go to a charter school increases students’ chances of attending college. For example, an experiment published in the Journal of Labor Economics found that children that won a charter school lottery in Boston were 13 percentage points more likely to enroll in a four-year college. It’s about time the thousands of children in Atlanta public charter schools get the educational resources they deserve. The data show that Atlanta charter schools do more with less, helping children to get good educations in spite of a lack of funding parity. Let’s see what they can do with the same resources. Any individual investor would know what decision to make in this situation. Policymakers in the state should treat Atlanta taxpayer money as if it were their own - and invest wisely. Corey A. DeAngelisis a policy analyst at the Cato Institute’s Center for Educational Freedom.
  • Brand Loyalty    (Julian Sanchez, 2018-02-12)
    Julian Sanchez For the No. 3 lawyer at the Department of Justice to quit after just nine months on the job is, to say the least, unusual. Under the Trump administration, where the downright bizarre is so commonplace that the merely unusual barely registers, this is nevertheless an aberration worth marking, because it says a lot about the state of a Justice Department locked in a surreal conflict with its own president and his party, none of it good. When United States Associate Attorney General Rachel L. Brand last week announced she’d be stepping down to take a job as a vice president at Wal-Mart, it made headlines primarily because it also meant passing on her role as heir apparent to embattled Deputy Attorney General Rod Rosenstein. Tasked with supervising Robert Mueller’s investigation into Russian interference in the 2016 presidential election following Attorney General Jeff Sessions’ recusal, Rosenstein has become an improbable target of invective from the very president who appointed him, from Republican legislators, and even from Political Action Committees. It seems clear that Trump is laying groundwork for his eventual removal, in hopes that Rosenstein’s successor—meaning, until her departure, Brand—might be more willing to carry out an order to fire Mueller. But her departure should be seen as a warning sign with implications not only for the Mueller inquiry, but the future of the Trump Justice Department as a whole. To see why, it’s helpful to appreciate two things about Rachel Brand. Brand’s departure suggests that the working environment at Justice—not only under regular assault from Trump as a handmaiden of a corrupt “Deep State,” but facing unsubtle and unseemly pressure from White House Chief of Staff John Kelly—had become corrosive and demoralizing. The first is that Brand had a solid bipartisan reputation as a conservative lawyer of professionalism and integrity. When confirmed to her post last May, she won praisefrom Clinton Administration veteran Jamie Gorelick, as well as Barack Obama’s former acting solicitor general, Neal Kaytal. When I first encountered Brand, in her previous role as a Republican member of the Privacy and Civil Liberties Oversight Board during the Obama administration, she was as consistent as she was vocal in her disagreement with those of us who believed government surveillance in the name of the War on Terror had gone too far. Yet she also impressed me as a serious and fair-minded advocate for her positions, and many of my colleague in civil society have expressed public disappointment at her impending departure. The second thing to understand is that if you squint at Brand’s resumé, it resolves itself like a Magic Eye stereogram into a single bold-faced, all-caps sentence, which reads: “MY LIFE’S AMBITION IS A SENIOR POST AS A POLITICAL APPOINTEE AT THE JUSTICE DEPARTMENT.” At Harvard Law School she joined the conservative Federalist Society, and after graduating won a coveted Supreme Court clerkship under Justice Anthony Kennedy. When Elizabeth Dole was considering a run for the Republican presidential nomination, Brand served as general counsel to her exploratory committee, and would later join the judicial advisory committee for Sen. John McCain’s campaign. She was on the transition team for the George W. Bush administration, which she would later join, spending five years as Assistant Attorney General for the Office of Legal Policy. Decamping to the private sector, she spent a few years at the firm WilmerHale, returned to public service as a member of the PCLOB, worked at the the U.S. Chamber of Commerce as chief counsel for regulatory litigation, and finally found herself back at Main Justice as one of the early appointees of the fledgling Trump Administration. All of which is to say: This is not the profile of a person who arrives two rungs south of attorney general at the age of 44, then departs after less than a year on the job because she has suddenly realized the private sector pays better. It should be no surprise, then, to find there’s more to this story than a hidden passion for Wal-Mart. As NBC News reported Monday, citing sources close to Brand, the Associate AG “had been unhappy with her job for months,” having grown both “frustrated by vacancies at the department” and afraid she would be forced to take up Rosenstein’s burden of supervising—and so potentially being ordered to dismiss—Robert Mueller. The most obvious and immediate inference to draw from this is that Brand, surely as well positioned as anyone to read the writing on the wall, has not been reassured by the White House’s repeated assertions that neither Mueller nor Rosenstein are on the chopping block. She regarded it as likely she’d be faced with the Hobson’s choice of executing an order to sack Mueller, and in the process immolating her reputation for probity, or defying a Republican president and being sacked herself, which however popular it might make her with MSNBC hosts, would play poorly in the conservative legal circles where she’d built her career. Yet not everything in life, improbable as it sometimes seems, is about Russia and Bob Mueller. Brand’s departure also suggests that the working environment at Justice—not only under regular assault from Trump as a handmaiden of a corrupt “Deep State,” but facing unsubtle and unseemly pressure from White House Chief of Staff John Kelly—had become corrosive and demoralizing. Whatever the relative weight of these factors, that Brand preferred to jump ship before the dilemma could present itself can only be an ill omen to those in line behind her. Imagine being seated for a long flight, then seeing the plane’s co-pilot parachute out just as you reach cruising altitude. The clear message: If you’ve got options, now’s the time to take them if you want to avoid damage to your career. Who, with Brand’s parachute deploying in full view, will be most inclined to stay at this Justice Department, let alone step in to fill one of those many frustrating vacancies? Those without more attractive private sector options, perhaps—but also those sufficiently free of professional qualms that carrying out a President’s legally dubious order would present no dilemma at all. Bad news for Mueller? Perhaps. But also bad news for an independent Justice Department. If one thing has become clear over the past year, it is this: Donald Trump entered the White House with little real grasp of how government works—of its rules and policies, of course, but also its institutional norms. He expected to operate like a corporate CEO, expressing his whims and watching his subordinates scurry to carry them out, whatever they were. It had not occurred to him that those subordinates—even bonafide conservative Republicans—might tell him no, or insist that it was improper for him to issue direct orders at all. And he has expressed his profound surprise, frustration, and anger at discovering how the Justice Department works repeatedly and vehemently, not only in private conversations related to press, but in public interviews. He has fumed at Sessions’ decision—quite clearly required by DOJ’s own rules—to recuse himself from overseeing the Russia inquiry, and openly professed the view that the attorney general’s proper role is to “protect” the President. But more than that: Echoing his unsettling declaration during the campaign that Hillary Clinton would bound for prison under a Trump administration, he has made it quite clear, in both fiery tweets and interviews, that he wants to the Justice Department and FBI to investigate his Democratic opponents. He is incensed that he is “not supposed to” simply order “his” law enforcement agencies to do so. At the start of 2018, an editorial in the Wall Street Journal chided Trump critics for their dire predictions of looming autocracy. Not, mind, because Trump lacked autocratic impulses, but because American institutions had proven robust enough to check those impulses. And there is, perhaps, something to that. Trump—according not to the paranoid fears of his opponents, but his own professed desires—would have the government’s law enforcement institutions act as political weapons, aimed by his diktat. His anger and frustration testify that they have, as yet, failed to do so. Brand’s departure shines a spotlight on the flaw in the Journal’s argument, however: Institutions are, in the end, made up of people. Their cultures and norms are sustained by individual human beings who treat them as binding. But people can be replaced. The primary check on who replaces them, at least at the highest levels, is the United States Senate, whose Republican majority has not demonstrated any very great will to block questionable appointees. Imagine, then, a Justice Department where the Rachel Brands and the Rod Rosensteins have either sought greener pastures, or been booted toward them. Imagine a Justice Department staffed by lawyers as compliant and loyal to the boss as Trump the CEO had assumed at the outset they all would be. Imagine, ultimately, a Justice Department that actually behaves in all the ways Trump constantly and openly insists that it should. Don’t conjure worst case scenarios dreamed up by Trump’s critics: Just assume that Trump’s own words should be taken seriously. Now realize that the chief practical obstacle to that bleak image being realized is people like Rachel Brand. They are starting to leave. There are three years left. Julian Sanchez is a research fellow at the Cato Institute.
  • Nato Discovers War Is Bad for Women    (Doug Bandow, 2018-02-12)
    Doug Bandow The North Atlantic Treaty Organization once defended Western civilization. The alliance was to hold back the Soviet hordes from conquering “Old Europe,” as it was later called. Then disaster struck. The enemy disappeared: the Soviet Union dissolved and Warsaw Pact broke up. For the last quarter-century the quintessential anti-Moscow alliance has sought to find a new purpose. NATO officials originally suggested interdicting drugs and promoting student exchanges. Then members decided on “out-of-area” activities, that is, fighting wars everywhere but in NATO-Europe. Recently the transatlantic alliance shifted back to containing Russia because of the latter’s military action against non-NATO members. Yet the effort has generated little enthusiasm among members other than those along Russia’s border. So Secretary General Jens Stoltenberg is pushing another, perhaps more popular, cause: protecting women. NATO created the Special Representative for Women, Peace and Security, who explained a few years ago explained that “Achieving gender equality is our collective task. And NATO is doing its part.” In 2016 the organization held a conference on gender equality, at which Stoltenberg declared the issue to be critical. After all, Stoltenberg said, “NATO is a values-based organization and none of the Alliance’s fundamental values — individual liberties, democracy, human rights and the rule of law — work without equality.” Actually, that’s not true — Western nations established a generally effective rule of law and protective system for liberties even when forced to accommodate sometimes pervasive injustice, including slavery. During the Cold War the alliance helped deter the Soviet Union, i.e. “worked,” despite much greater discrimination against minorities and women than today. If NATO still has a role, it is to protect Europeans from geopolitical uncertainties in a more nationalistic and sectarian era. It is not to jump onto the latest social cause being advanced by the latest visiting celebrity. Stoltenberg also claimed that “by integrating gender within our operations, we make a tangible difference to the lives of women and children.” He added last fall, “empowering women is not just the right thing to do, it’s the smart thing to do: it makes countries safer and more stable.” In fact, NATO has found that it is difficult if not impossible to transform another nation’s culture through temporary combat missions. The allies have not liberated women across Afghanistan despite more than 16 years of combat. The U.S. doesn’t even interfere with the pervasive sex slavery of young boys, called bacha bazi, or dancing boys, by Afghan military personnel. To make Afghanistan safe first requires making a deal with or defeating the Taliban. And any stability would disappear if the allies wandered around the country attacking institutions which didn’t live up to Western standards. None of this stopped actress Angelina Jolie late last month from visiting NATO headquarters in Brussels. Jolie serves as a goodwill ambassador for the UN High Commissioner for Refugees, which means serving as a global scold when people fall short of the UN’s and her expectations. Previously she coauthored an article with Stoltenberg entitled “Why NATO must Defend Women’s Rights.” It cited the impact of armed conflict on women, particularly the role of “sexual violence” which “accounts in large part for why it is often more dangerous to be a woman in a warzone today than it is to be a soldier.” That may be true, but while sexual violence is uniquely directed at women, all civilians are vulnerable to the violence of war. In World War II atomic bombs and more prosaic high explosives and incendiaries destroyed entire cities, causing mass death and destruction. Nazi forces devoted tremendous effort to kill millions of Jews and many other victims of all sexes and ages. Many other citizens were killed by the natural consequences of unnatural war, such as starvation and flight. The essential problem was violence, not gender. NATO’s chief responsibility is to deter wars when possible and win wars when not. No alliance can effectively function if it diverts resources from fighting those conflicts which cause the harms to address some of the violence against some of the victims. Yet Stoltenberg and Jolie want to add to NATO’s responsibilities. One duty they proposed is to “integrate gender issues into its strategic thinking as part of its values” and promote “the role of women in the military.” Meaning what, exactly? Better for the armed forces to focus on their overall mission and choose the best service personnel, irrespective of gender, who will most effectively perform their important duties while seeking to protect all civilians. Another objective proposed by the two is to raise the standards of other militaries. But training programs have only a limited impact on personnel coming from hostile cultures. The U.S. has trained foreign soldiers for years but rarely has transformed foreign militaries. Egypt’s current president went through such a program and nevertheless is creating a dictatorship more brutal than that of Hosni Mubarak — which arrests, prosecutes, and imprisons many women. Jolie and Stoltenberg also want NATO personnel to be “trained to prevent, recognize and respond to sexual and gender-based violence.” That might make sense for civil affairs officers in an occupation, but not combat troops. The alliance’s most important task is to defeat bad guys in battle. If NATO forces lose, they won’t prevent the victors from doing anything. Other organizations are likely to be far better equipped “to create lasting cultural changes,” as the two advocate. Another demand from the duo is that the alliance do more on gender, since “stronger awareness of the role that gender plays in conflict improves military operational effectiveness.” Again, maybe for occupation troops. But not for defeating a Russian invasion, about the only serious military contingency that could justify NATO’s existence. Finally, Jolie and Stoltenberg advocate “reporting crimes and supporting work to bring perpetrators to justice.” That’s fine as far as it goes, which isn’t very far. There are plenty of appropriate targets for human rights prosecutions. However, war crimes trials typically require military victory or political transformation. The number of Balkan war criminals dragged before the International Criminal Court in The Hague is few. The number of officials involved in various slaughters and massacres in Africa, Asia, and the Middle East hauled before the ICC is minuscule. Ironically, Jolie admitted that her greatest concern was one that could not be solved by NATO: the plight of the Rohingya in Burma; “We should all hang our head on how little we have been able to do.” Which is no different than so many other tragedies around the world. The two authors conclude with a claim that “violence against women, whether in peaceful societies or during times of war, has been universally regarded as a lesser crime.” Really? Go back seven decades. Even then many people recognized that one of the horrors of World War II was the mass rape of German women by conquering Soviet troops. But the crime often was dismissed because the victims were Germans. Indeed, the wrongs committed by the allies at the end of the war were many: German POWs were held for years as slave laborers in the USSR, millions of ethnic German civilians ethnically cleansed from Poland and Czechoslovakia, with deaths in the hundreds of thousands or more, and large numbers of Soviet prisoners and other enemies of Joseph Stalin forcibly repatriated, after which they were imprisoned or murdered. These crimes arguably were worse than what befell women in eastern Germany, yet they also go largely unremarked today. There were many stories on alleged use of rape during the Balkan wars, serving as “a key component of NATO’s propaganda campaign during the 1999 bombing of Yugoslavia,” argued George Szamuely of London’s Global Policy Institute. Yet a report from the U.N. Commission of Experts could only document 126 victims in 113 incidents. The group concluded that the claim there was “a systematic rape policy… remains to be proved.” Szamuely noted that the Obama administration made similar claims about widespread rape in Libya, which subsequently were discredited. Violence against women is a monstrous crime that should be confronted at every opportunity. But NATO’s essential duties do not include promoting gender equality. The European Union “does” social engineering. But NATO is supposed to be a military alliance formed to defend the continent against existential or at least serious military threats. Ultimately what matters most is preventing a war from starting. If conflict nevertheless erupts, most important then is defeating the killers in battle and ending the conflict. In such a case, militaries need warriors, not counselors. With the collapse of the Soviet Union the transatlantic alliance lost its essential purpose. The Europeans either believe they face no serious threats or refuse to sacrifice to meet any threats they perceive. As a result, even President Donald Trump’s effort to raise European defense outlays is largely a bust. Most governments promising to hit the two percent of GDP standard, like Germany, won’t make it. Instead of enjoying a few glamorous moments of press attention by inviting a famous actress to Brussels, Stoltenberg should work on convincing European peoples that there is a threat and train European soldiers how best to meet it. If NATO still has a role, it is to protect Europeans from geopolitical uncertainties in a more nationalistic and sectarian era. It is not to jump onto the latest social cause being advanced by the latest visiting celebrity. Doug Bandow is a Senior Fellow at the Cato Institute and a former Special Assistant to President Ronald Reagan.
  • Has Trump Evolved on Trade?    (Daniel J. Ikenson, 2018-02-12)
    Daniel J. Ikenson On the campaign trail and into the first year of his presidency, Donald Trump has been a walking, talking billboard for protectionist nationalism. He promised 45 percent tariffs on imports from China, 35 percent levies on imports from Mexico, a requirement that U.S. oil and gas pipelines use only American steel, and the closure of “loopholes” in our Buy American laws to ensure that only U.S. goods and American workers are eligible for federal procurement projects. Trump withdrew the United States from the Trans-Pacific Partnership, forced renegotiations of the North American Free Trade Agreement and our trade deal with South Korea under threats of withdrawal, launched investigations under a provocative and rarely used statute to determine whether U.S. dependence on foreign sources of aluminum and steel represent national security threats, and initiated another investigation under an even more provocative statute to determine whether China is engaging in unfair technology transfer and intellectual property practices. A year and change into his presidency, however, Trump’s making noises about rejoining the TPP, the odds are looking better for NAFTA renegotiation over withdrawal, and the president’s only overtly protectionist actions have been to impose safeguard tariffs on solar cells and tariff rate quotas on washing machines. Of course, imposing tariffs is as aggressive as it is self-destructive, so use of the word “only” is not to excuse the actions, but to suggest that the administration has exercised relative restraint. There is near consensus that the bark has been worse than the bite. Have Trump’s views changed? Is he beginning to recognize that his protectionist impulses are economically and politically constrained? Are we merely in the eye of the hurricane? What to make of the state of U.S. trade policy? Is he beginning to recognize that his protectionist impulses are economically and politically constrained? First, we are by no means in the clear with respect to avoiding a deluge of protectionism. Still pending are three potentially explosive cases (and more contentious issues could soon emerge). The two investigations into the national security implications of U.S. imports of steel and aluminum, conducted under Section 232(b) of the Trade Expansion Act of 1962, reportedly have been completed. Whether those findings reveal national security concerns and, if so, whether the president is going to respond with trade barriers remains to be seen. The president has broad discretion to impose high tariffs under this statute and—as is the case generally on matters of national security—the U.S. courts show great deference to the executive. Should Trump announce tariffs, the United States might find itself defending that decision at the World Trade Organization by invoking GATT Article XXI (the Security Exception), which allows members to abandon their tariff obligations in times of war or national security emergencies. Aggrieved trade partners, however, could then seek compensation under GATT Article XXIII (Nullification or Impairment), arguing that they were deprived of their expected trade benefits as a result or they could register their disapproval by simply retaliating with their own tariffs. In my somewhat hopeful estimation, the administration will back away from the precipice and refrain from imposing trade restrictions in both 232 cases. Despite the rhetoric, Trump doesn’t want to subvert “his” economy. Having heard from steel- and aluminum-using industries, as well as potential, retaliation-targeted agricultural and manufacturing exporters over the course of the past year, Trump is today more aware that the impulsive actions he has threatened to take would carry some very significant economic and political costs. In October, the administration self-initiated antidumping and countervailing duty investigations into aluminum from China. The move was predictably perceived as the administration going full “America First,” but was also a possible indication that the administration was looking for a way to extricate itself from its 232 promises. So, the aluminum 232 case could be terminated with a conclusion that national security is not threatened by imports of foreign aluminum, but that the main foreign competition is benefiting from government subsidies and is dumping. While those conclusions might not be correct and the trade remedy laws are badly flawed, at least the WTO and its members would have less difficulty swallowing U.S. restrictions imposed under a couple of abused, but familiar laws targeted exclusively at the most problematic country. On the steel 232, of course the administration is loaded with former industry executives and trade lawyers. It’s safe to assume the steel producers will get their bowls filled. But, the relationship works both ways. Who better than the administration’s steel guys to explain to the industry that the risks of imposing tariffs under Section 232 would be too great and that the administration will help them out in other ways. By other ways, what is meant is that, in addition to the 158 already existing antidumping and countervailing duty measures restricting U.S. imports of 18 different kinds of steel from 29 countries at huge costs to downstream industries, there will be even more. How else might the administration help the U.S. steel oligarchs? By guaranteeing them a bigger slice of the $1.5 trillion infrastructure pie and by getting an enforceable commitment from China to reduce capacity and curtail production, which brings us to the other even more explosive case in the pipeline. Section 301 of the Trade Act of 1974 provides legal authority for the U.S. Trade Representative (USTR) to deny U.S. trade benefits or impose import duties in response to foreign trade barriers, including “unreasonable or discriminatory” actions that harm U.S. exporters, service providers, or intellectual property rights holders. An investigation into alleged Chinese forced technology transfer and intellectual property infractions was initiated last year by the U.S. Trade Representative. Section 301 has not been used to threaten or dole out unilateral sanctions since the WTO was established in 1995 because—rather than permit member governments to be judge, jury, and executioner—members agreed to have these issues adjudicated and resolved through the WTO Dispute Settlement Body. The possibility of unilateral actions by the United States under this statute represents a big threat to the multilateral trading system because, frankly, no member has ever shown such blatant disregard for the rules. On the other hand, conducting an investigation under Section 301 that does not result in the imposition of unilateral sanctions is a different matter. There is no major difference between the evidence-gathering phase of a 301 investigation and the evidence-gathering that culminates in the filing of a request for consultations at the WTO. Under both sets of circumstances, USTR and other agencies collect evidence. Assuming USTR has credible evidence of Chinese WTO violations, there is nothing that commits USTR to the 301 remedies phase, as opposed to peeling off and using the evidence to initiate a WTO case. Importantly, if USTR has credible evidence of underhanded Chinese practices that might not constitute WTO violations, he can still avoid 301 remedies by organizing a united front with like-minded, similarly-concerned governments to compel China to alter its course. (Here’s where being a part of the TPP would really pay dividends.) It’s unclear how the administration will proceed in this case, but there are several unexplored paths short of sanctions that could bear fruit. It seems unlikely that an administration that seems to be demonstrating greater mindfulness of the importance of abiding by the trade rules would choose to pursue a rogue, unilateralist path—at least not without exploring the options that don’t make the United States the international scofflaw. But then again, just today President Trump threatened new border taxes to remedy unfair foreign practices. Such are the risks of bringing reasoned analysis to current public policies. Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies and author of the 2017 policy analysis: Cybersecurity or Protectionism: Defusing the Most Volatile Issue in the U.S.-China Relationship.
  • As China Rises, the U.S. Should Stand Back and Allow Other Asians to Rise Too    (Doug Bandow, 2018-02-12)
    Doug Bandow How to respond to the People’s Republic of China is one of Washington’s more vexing foreign policy challenges. Not only is the PRC on the rise, but President Xi Jinping is pushing an increasingly authoritarian policy. The result looks ominous to many Americans. The strategy preferred by successive U.S. administrations, continued military dominance of East Asia, cannot last. This approach is not necessary to protect the U.S. Yet it costs far more to project power against China than to defend America from China. And it costs the PRC far less to deter Washington than for Washington to coerce the PRC. Which makes Washington’s strategy financially unsustainable. Last year the Congressional Budget Office figured the U.S. was going to again run trillion dollar annual deficits around 2022. Total red ink would run $10 trillion over the following decade. Whatever Washington’s short-term desire to limit the PRC, America also benefits greatly from a peaceful Asia. But because of irresponsible Republican fiscal policies, analysts now fear the U.S. could begin running an annual trillion-dollar deficit as early as next year. That will come on top of a national debt which already tops $20 trillion and accumulated unfunded liabilities—promised benefits with no funding behind them—of some $200 trillion. At some point Washington will have to trim outlays or face fiscal disaster. However, Americans are unlikely to accept reductions in social programs to finance military outlays to confront the PRC over such issues as Taiwan, the Diaoyu/Senkaku Islands, and other bits of foreign territory. Instead of trying to organize a containment system, Washington should focus on advancing its few serious interests, such as freedom of navigation. Otherwise the U.S. should step back and leave China’s neighbors free to respond to whatever they believe necessary. Those with the most at stake should do the most. Perhaps the PRC’s most important potential antagonist is Japan. Since the late 19th century, their bilateral history has been always difficult and sometimes violent. Nuclear-armed China is no longer vulnerable to Japanese coercion, but much hostility remains. As Beijing’s “peaceful rise” has turned more assertive if not aggressive, Tokyo has begun to slowly expand military outlays and adjust defense policies. (North Korea also has contributed to rising Japanese hawkishness.) Prime Minister Shinzo Abe is pushing to change the so-called Peace Constitution to authorize a wider military role. There is even talk of adding aircraft carriers, creating an ability to preempt hostile missile launches, and developing nuclear weapons, though the latter remains unlikely absent either a South Korean nuclear program or America closing its nuclear umbrella. Equally noteworthy is how Japan’s other neighbors, once captive to their memories of World War II, also are beginning to escape the past. Tokyo has been increasing defense cooperation with Australia. The two nations are looking to forge a visiting forces agreement for Japanese personnel involved in joint exercises. Noted Euan Graham at Sydney’s Lowy Institute: “Japan doesn’t enter into these types of agreements lightly. This will provide a framework so the two countries do not have to negotiate separate agreements every time they want to conduct exercises.” The PRC’s attempt to turn its financial clout into political influence also has created controversy in Australia. The Philippines, which suffered under brutal Japanese military rule, now is encouraging Tokyo to do more. Last year Japan announced that it was providing spare helicopter parts and donating aircraft to Manila, as well as training Filipino pilots. Disputes over the Paracel and Spratly Islands have helped keep China and Vietnam apart. The latter, which fought a brief but bloody war with the PRC in the late 1970s, has been looking for new friends. As a result, Japan and Vietnam have been expanding their defense ties, including port calls and naval exercises, and the two nations’ defense ministers met late last year. India also is playing a growing regional role. Beijing long dismissed the former’s potential, but India’s economic growth has accelerated in recent years and Prime Minister Narendra Modi seems capable of matching President Xi. Hemant Adlakha of Jawaharlal Nehru University recently pointed to a shift among Chinese academics, who increasingly cite India as their nation’s second most important rival, after America. When Myanmar was under western sanctions, India helped counterbalance China there. India began a military relationship with Vietnam in 2000, which has since expanded. Last year Vietnam’s foreign minister visited New Delhi, where he declared that he wanted to “step up” the two nations’ partnership to contribute to “stability, security and prosperity.” India has also sold anti-ship cruise missiles and advanced surface-to-air missiles to Vietnam. In December, New Delhi and the Philippines conducted maritime maneuvers. Even more significant, in November, Prime Minister Modi met Filipino President Rodrigo Duterte and the two signed a memorandum of understanding on defense cooperation and logistics. India also has been expanding its relations with Japan. Moreover, in January India invited ambassadors from the ten ASEAN (Southeast Asian) nations to the annual Republic Day parade. Thitinan Pongsudhirak of Chulalongkorn University in Thailand observed: “When India is included, Southeast Asian countries see it as a potential giant that could counterbalance China.” The point is not to “match China one for one,” noted Dhruva Jaishankar of Brookings India, “but if you can provide even part of an alternative, that is helpful.” New Delhi looks increasingly willing to challenge the PRC in the latter’s home territory. Of course, none of these countries want war and the U.S. should encourage regional rapprochement. Whatever Washington’s short-term desire to limit the PRC, America also benefits greatly from a peaceful Asia. As for China, the U.S. should emphasize common interests, such as bilateral trade and denuclearization of North Korea. Instead of seeking to ostentatiously contain the PRC militarily, Washington should step back. Better for the U.S. to balance from afar, relying on natural competition from Beijing’s neighbors, and especially India and Japan, to moderate what might otherwise become threatening tendencies from China. The PRC is going to grow, but so will its neighbors. Washington’s best policy will be to reduce its military role while leaving China’s neighbors to decide how best to respond to a potentially more assertive China. The ultimate objective is not to suppress China’s potential growth, but to ensure that peaceful development continues to govern East Asia. Doug Bandow is a Senior Fellow at the Cato Institute and a former Special Assistant to President Ronald Reagan. He is the author of Foreign Follies: America’s New Global Empire (Xulon).
  • Yes, Tax Cuts Really Are The Reason for Your Raise    (Nathan Keeble, 2018-02-12)
    By: Nathan Keeble Since Trump’s reduction of the corporate tax to 21%, workers across the country have been rejoicing. Companies like Wal-Mart, Apple, Bank of America, and many more have announced firm wide bonuses and minimum wage raises. To most, the tax cuts appear to be a clear success. However, some commentators, such as Dr. Veronique de Rugy at Reason, are saying not so fast.Dr. de Rugy claims that these announcements are not in line with economic theory. For wages to be affected by tax cuts takes an extended period of time. The newly freed revenue must be accumulated and invested into new capital equipment which boosts worker productivity and, consequently, their wages. Quite simply, Dr. de Rugy suggests that the tax cuts simply have not been in place long enough to be held directly responsible for these announcements, and she even ponders if they are nothing more than PR moves.In truth, these bonuses and raises are perfectly in line with what economic theory predicts.How Wages Are DeterminedWages are equivalent to the expected increase in revenue an individual’s labor generates for the business, or, equivalently, the amount which is expected to be lost if his or her labor went unemployed.For example, imagine a restaurant employs 5 cooks who are capable of serving C number of customers per hour, earning E dollars in revenue. One cook wins the lottery and retires to the Bahamas, and now the restaurant is only capable of serving C-L customers, and consequently only earns X in revenue. Clearly, entrepreneurs will only be willing to pay the difference between E and X, a number which will be called W, to employ a fifth cook. W is what economists refer to as the marginal revenue product, and, thanks to competition in the labor market, wages tend towards this number in a free market, less a discount for time preference.To see how taxation effects wages, imagine if every time the restaurant owner goes to deposit his firm’s earnings an armed robber stole 35% of the firm’s net income. Disregarding momentarily what that thief does with his loot, whether he builds roads or funds a study of cocaine’s effects on the promiscuity of Japanese quail, the moment the robbery occurs, the restaurant is making less money than before. It immediately renders the firm less efficient, and the money to be imputed back to the factors of production, including workers, is immediately smaller.1 Put another way: the revenue the firm can keep has now gone down, meaning revenue per employee goes down. This pushes wages down, even though, in a free market, the firm would have been willing to pay employees more. After some time, a new, more “charitable” thief replaces the former and decides to only steal 21% of the restaurant’s net income. Part of the cost of the crime has been reduced, and this will have the same effect as a reduction in any other cost. While wages won’t return to their levels before the robberies began, they will rise, because the worker’s labor has become more productive the moment the reduction in theft occurs. Moreover, the firms expectations of revenue will rise, potentially leading to higher wages. If one replaces the word theft with tax, and the restaurant with corporate America, one can see clearly that the rise in wages is clearly in line with standard economic analysis. While it is true that a reduction in corporate taxes will enable greater investment in capital goods, this phenomena is separate from the one that is primarily at work presently. Reducing the burden of government on the private sector has both immediate and long run benefits for workers and capitalists alike, and Trump’s tax reform is evidence of this.Tax Cuts are Good, But We Need Spending Cuts TooMore action is needed for the benefits of this reform to stick. So long as there is deficit spending enabled by money printing at a central bank, government spending must also be reduced to lessen the effects of the inflation tax.Returning to our example, imagine the thief does not desire to reduce his expenditures below his current levels despite stealing less. Indeed, our thief has developed the ability to perfectly counterfeit his local economy’s currency, deceiving everyone who receives it. The tangible effects will be similar to his blatant theft. The price of goods will rise in such away as to nullify nominal increases in wages, but not before real tangible wealth has been transferred to the thief and the first receivers of the new money respectively.Alternatively, perhaps if the thief fears the community catching on to his counterfeiting scheme, he could seek to borrow the money from the community’s financiers. The financiers would be happy to oblige, because he can clearly demonstrate that he has a large and incomparably reliable source of income. In this case, the thief would be able to maintain his current expenditure levels, but at the expense of growth within the economy. Sooner or later, the thief’s debt must come due, and to meet it without a drop in his expenditures, his only recourse will be to either steal a greater amount of money from the restaurant or turn on his printing press.The lesson is clear. If Congress and the Trump administration wish to see the welfare of the American people rise in a permanent fashion, they should follow their tax cuts with cuts in spending. 1. A situation is conceivable in which the demand for the restaurant’s food is such that it’s customers are willing to pay enough to cover the costs of the robbery, but this scenario would only mean that demand for other goods must fall accordingly, with the corresponding fall in factor values.
  • The Deep State Isn't What You Think    (Emma Ashford, 2018-02-11)
    Emma Ashford THE MIGRATION of the idea that a “deep state” controls the U.S. government from the realm of fringe conspiracy theorists to mainstream political discussion is undoubtedly one of the more intriguing developments in the last year. But Donald Trump’s repeated assertions that a deep state exists, and that it is actively thwarting his policy agenda, pushing investigations into his campaign or even wiretapping his offices, mean that the idea has now become a part of our mental landscape. It is utter nonsense. Certainly, there will always be pressure on foreign policy from entrenched interest groups, both inside and outside the government. Political scientists study the field of bureaucratic politics for a reason: institutional structure and incentives matter a lot. But the idea that the whole American bureaucracy shares a common goal on practically any issue area simply doesn’t pass muster. The tools of the so-called “deep state”—bureaucratic inertia, internal policy debates, conflicts over resources—are far more often used in interagency turf wars than to force politicians to adopt a certain policy. The problem is not that the “deep state” is thwarting Trump’s policy agenda. It is his reliance on advisers who agree with the post-Cold War foreign-policy consensus. At the same time, there are undoubtedly civil servants who find themselves unwilling or unable to implement the president’s policy agenda. Whether it is a special counsel who pursues the law rather than loyalty to an individual, as Donald Trump demands, or a Foreign Service professional who finds himself unwilling to work for a leader such as Trump, not all public servants will willingly help Trump implement his policy or personal preferences. Yet this mostly results in resignations, not internal rebellion. Indeed, as John Feeley, ambassador to Panama, noted in his resignation letter, civil servants take an oath to defend the constitution. When they cannot reconcile that oath or their personal opinions with the administration’s stances, they are “honor bound to resign.” Nonetheless, critics like Michael Glennon are right that there has been remarkable consistency over time in U.S. foreign policy. Even presidents who are critical of U.S. foreign policy while campaigning usually dial back that criticism in office, and fail to follow through on their promises. Jimmy Carter’s plan to withdraw U.S. troops from the Korean Peninsula ultimately failed, while Donald Trump’s promise to end the war in Afghanistan eventually morphed into an increase of troops on the ground. These critics are accurate in their depiction of U.S. foreign policy. There is a surprising amount of consistency between presidential administrations on foreign policy. But whether they call it “double government” or the “deep state,” the focus of critics on some unelected network of bureaucrats as the cause of this consistency is misguided. Instead, they’d do better to look to the bipartisan foreign-policy consensus that has guided American policy since the end of the Cold War. This consensus—commonly described as liberal hegemony or primacy—focuses on a globally active United States with extensive overseas military and alliance commitments, and is shared by the majority of the policymaking community in Washington, DC. The result is that when presidents seek foreign-policy advisers, they primarily draw on this pool of recruits. Trump has been reluctant to recruit from among this pool of advisers, in part due to the open opposition to him from many during the campaign. Nor has he been able to recruit those who criticize the liberal international consensus—his views on trade and immigration, and his repugnant statements and personal views, have alienated even those who might be willing or happy to attempt to reshape U.S. foreign policy in any other administration. Instead, Trump has been forced to rely on a mixture of unqualified individuals and former military officers. Many other offices remain unfilled. Unsurprisingly, his administration has found it difficult to formulate and implement foreign policy while understaffed. The areas in which it has done so are thus far conventional, as his few advisors push him towards orthodoxy on issues like troop levels in Afghanistan, and take the lead in drafting his administration’s strategy documents. The problem is not, as Trump claims, that the “deep state” is thwarting his policy agenda. It is his reliance—even as a relative outsider to DC politics—on advisers who themselves agree with the post-Cold War foreign-policy consensus. So long as that consensus remains unchallenged, U.S. foreign policy will continue to tread the same, consistent path, regardless of administration. Emma Ashford is a research fellow in defense and foreign-policy studies at the Cato Institute.
  • No, There’s No Evidence of a Murder Wave Targeting Gay Americans    (Walter Olson, 2018-02-11)
    Walter Olson “Why Are Murders Of Gay And Bi Men Up A Staggering 400 Percent?” asks the headline atop Michelangelo Signorile’s new HuffPost column, shared at least 13,000 times so far “Hint: This Alarming Surge Has Taken Place Since Donald Trump Became President,” adds HuffPost unsubtly in a tweet promoting the column. If your response was to wonder first whether such murders are in fact skyrocketing, yours is the right instinct. With the FBI reporting 11,821 male homicide victims in the U.S. in 2016, even a conservative estimate of how many are gay or bisexual yields a number of annual victims well into the hundreds, and perhaps significantly above that. Were such a number to jump by 400 percent, it would generate a noticeable blip of 1,000 or more extra gay male murder victims in a single year. Terrifying, right? One large gay nonprofit, Victory Fund, has already been citing the study in fundraising outreach. But Signorile, it seems, is working with a different data set. Citing a report by an advocacy group called the National Coalition of Anti-Violence Programs, he says the number rose “from four in 2016 to 20 in 2017.” Wait a minute. Only four gay men were murdered in all of 2016? And then 20 the next year? Maybe these figures are meant to count only those murders of gay or bi men in which the motive is anti-gay hatred. Signorile notes darkly that hateful groups and persons “may feel emboldened” by current political trends, perhaps explaining a murder spree. And he leads off his piece with the story of one murder last month, the Blaze Bernstein case in California, in which hateful ideology does appear to have played a key role. But Signorile also mentions in passing that the NCAVP stats include murders following social media hookups. That seemed curious: when do those get counted as hate-related crimes, and when not? So I went and looked at the underlying report, entitled “A Crisis of Hate.” The first problem with the data is one that the advocates at NCAVP make no effort to hide, which is that the recently launched database consists only of killings reported to them. Among its sources are “media reports, police reports, or … our member programs.” If more killings are being brought to NCAVP’s attention, it’s hard to know whether that reflects an actual increase, or just that the group has been more successful in receiving reports. The report also relegates to a footnote a fact that might seem significant: the database includes only “individually reported” murders of LGBT persons. It thus excludes the 2016 slaying of 49 persons in Orlando’s Pulse nightclub by an Islamic State adherent. Had these numbers been included, 2017 would have shown a steep plunge rather than sharp rise. The omission is ironic given NCAVP’s (and Signorile’s) concern for murders motivated by hateful ideologies, of which Islamic State’s is assuredly one. One valuable aspect of the NCAVP report is that it goes on to narrate the individual stories of murders in its 2017 database, including the 20 murders of gay men on which Signorile relies. In one place it asserts that each killing was listed because of “information that indicates a strong likelihood that the motivations behind the violence were either primarily or partially related to anti-LGBTQ bias.” And yet the individual narratives tell an entirely different story. In fact, for 16 of the 20, it is hard to see any evidence at all that the perpetrators were motivated by such bias. In two cases, it’s mentioned specifically that police don’t attribute the killings to hate. More than a third of the murders were known to have followed hookups in person or on social media, with another quarter consisting of victims found slain at home in unexplained circumstances. Of the social-media-related killings, there is no indication that any resulted from the sorts of persecution games, notorious from certain Russian videos, in which local thugs motivated by a desire to hurt gays as such (as opposed to, say, trying to get money) lure an unsuspecting person to an assignation. For 2017, I counted in NCAVP’s database not 20, but rather four murders of men in which anti-gay feeling appeared to be a factor. In one especially horrible case from Florida, Juan Javier Cruz was gunned down after defending his friends, who were leaving a restaurant, from anti-gay slurs shouted by Nelson Hernandez Mena, who has been charged in Cruz’s death. The three other cases included a Nevada man fatally shot by his disapproving, abusive father; a prison inmate in Michigan killed by a fellow inmate after a dispute over sexual orientation; and a man shot on a Manhattan street whose killer claimed that the victim had “come on to” him. Even one murder is too many, but none of these four narrations — in fact, none of the 20 — has an obvious link at all to hate groups or to national political tensions, as Signorile devotes much of his column to implying. Much less does anything in the report document a plot to kill gay men, fueled by organized haters, that has succeeded in quadrupling the murder rate. Yet many readers will be petrified with fear at such a report, which may be one reason at least one large gay nonprofit, Victory Fund, has already been citing the study in fundraising outreach. The more you scare, after all, the more they’ll share — and donate. Walter Olson is a senior fellow at the Cato Institute and author of several books on the American legal system.
  • Remembering Burt Blumert    (David Gordon, 2018-02-11)
    By: David Gordon Today would have been the 89th birthday of Burt Blumert, one of the greatest personalities of the modern libertarian movement. Burt was the indispensable man behind the scenes and was a key figure in the Mises Institute, the Center for Libertarian Studies, and LewRockwell.com. He was one of Murray Rothbard’s closest friends; and when you met him, it was easy to see why Murray liked him. He was a genial and kind person and a source of wise counsel to all those fortunate to know him. Burt was the founder of Camino Coins and a principal figure in the hard money community. If you want to get a sense of what Burt was like, you have only to read his collection of humorous essays, Bagels, Barry Bonds, and Rotten Politicians (2008). It was a source of great pride and comfort to Burt in his final illness that he was able to see this book in print. Burt helped me with good advice when I most needed it, and I will always be grateful to him for his counsel and friendship
  • Brexit Has Reached the Point of No Return    (Alasdair Macleod, 2018-02-10)
    By: Alasdair Macleod The actual negotiations could easily run right up to the deadline in March 2019, when Britain is due to leave. If no agreement is forthcoming by that date, both sides might agree to extend negotiations, but that only seems likely if there is a good prospect of an agreement. Otherwise, Britain leaves and falls back on WTO trading rules, or does away with tariffs altogether. This is seen by the EU negotiators as a threat to Britain, believing it is Britain which is running out of time. Therefore, if Britain wants a trade deal, she must make it clear that a no-deal option is attractive to her. And, be it clearly understood, the negotiations only cover a minor part of the UK’s overall economy.It’s Much Ado About Not Much TradeWTO tariffs apply to physical goods, involving only £143bn exported from the UK’s £2,000 billion economy to the EU, and imports from the EU of a larger £235.5bn. Excluding agricultural products of some £5bn (net of spirits), average trade-weighted tariffs on goods imported into the EU from non-member states without a trade agreement is only 2.3%.[i] Therefore, the EU’s external tariffs which will be applied to UK non-agricultural goods exports to the EU involves only 7.5% of the UK’s GDP, and is a tax on EU citizens amounting to roughly £2bn. Is this really worth arguing over, and paying massive divorce fees?The larger issue is services, and here we must differentiate between services sold to consumers, such as retail investments, and wholesale services, such as capital market operations, commercial lending, legal services, architectural services, etc. The retail services involved are not material, and in any event are easily distributed through locally-incorporated subsidiaries in Dublin and Luxembourg. Wholesale services are generally excluded from trade agreements for practical reasons.Therefore, if a trade agreement is not forthcoming, the cost to British business as a whole is not as material as the Remainers and lobbying businesses have it, and certainly less than the implied cost of normal currency volatility on cross-border settlements. One should conclude that the absence of a trade agreement costs considerably less than the UK Government paying money to the EU for an implementation period.The Current State of the Brexit DebateIt is becoming clear that the Remainers are driven by little more than a desire to prevent change while distrusting free markets. Nick Clegg, who was Deputy Prime Minister in the Conservative/Liberal-Democrats coalition, has recently published a book entitled How to stop Brexit (And make Britain great again)[ii]. There are no substantive arguments in favour of Remain, not even a neo-Keynesian discourse. Make Britain great again? The book is miss-sold. There is nothing on the subject of the book’s subtitle at all.Mr Clegg’s unquestioning assumption, which he appears to share with other leading Remainers, is Brexit is just plain wrong. He makes much of the Brexit campaign’s supposed lies about the extent of the rebate when Britain leaves the EU. There was no lie: it merely failed to differentiate between the funds Britain would save, and the money that is spent by the EU in the UK funded by the UK taxpayer. The latter amount is decided by the EU, not the UK, so all the Brexiteers were quoting was a gross figure sent to Brussels, which on Brexit would become available to the Government to save or spend as it sees fit.Furthermore, there was no mention of “project fear”, the Remain campaign’s concerted effort to frighten voters into voting Remain. But, as we saw only this week, the pro-Remainers in the establishment are at it again. They prepared and leaked another negative report based on the same economic modelling. A reasonable person would have been so embarrassed by the failure of the first attempt at economic propaganda, as to not repeat it. But we are dealing with ingrained beliefs, not reason.On the evidence, Remainers cannot argue their case effectively. Furthermore, the cost of backtracking on Brexit, which receives too little attention, is now considerable, and almost certainly unpalatable to the electorate. Unless Britain does achieve a proper Brexit, she becomes, taking the words of Jacob Rees-Mogg,[iii] a vassal state, having lost considerable political credibility and the ability to influence EU policy as she has done before.Realistically, bridges have been burnt, even though the panjandrums in Brussels want Britain to change her mind. The Thatcher rebate would certainly be lost, and Brussels is preparing more onerous regulations in the knowledge Britain can no longer obstruct the EU executive’s plans. The Tobin tax on financial transactions can now be introduced, which would kill the City, if Britain remained, more certainly than any threat from Paris and Frankfurt as rival financial centres. A Tobin tax introduced in Euroland after Britain leaves would see Eurozone wholesale financial business migrate to London.If Britain backtracks or compromises on sovereignty, it will be disastrous for her, and little account has been taken of the new opportunities for the City, operating from outside the EU.Enter the European Research GroupThe ERG, unlike its name might suggest, is the grouping of pro-Brexit backbench Conservative MPs determined to ensure Britain truly leaves the EU. The recent appointment of Jacob Rees-Mogg, as its new high-profile chairman, promises a new dynamism in the battle between the Brexiteers and the Remainers. The ERG has considerable power, being comprised of sixty MPs while Mrs May commands no overall majority.Further pressure is being applied through the 1922 Committee, which officially represents all backbench Conservative MPs. Amongst them are Remainers and those without well-defined opinions, the latter becoming increasingly alarmed at the lack of a clear government policy. If forty-eight of them formally write to the 1922 Committee expressing no confidence in Mrs May, an election for a new leader (and therefore prime minister) is automatically triggered. It is rumoured that forty such letters have already been received. Between the ERG and the 1922 Committee, the Brexiteers’ ability to pressure the Government into sticking with a firm Brexit policy is increasing.All this lends support to Mrs May’s original Lancaster House declaration, which is what the ERG is seeking to achieve. In the Commons, opposition to Brexit has been subdued enough to get the required legislation through the House, without major concessions. This is not the case, however, in the Lords, which by sending legislation back to the Commons for reconsideration threatens to delay the whole process at a time of tightening deadlines.Mrs May’s greatest problems are likely to be in dealing with her own advisors, senior civil servants whose only world is one of bureaucracy, and the Treasury, populated with staunch neo-Keynesians. Bureaucrats resist change, particularly when it involves a whole new paradigm, which is always seen as risky. And the Treasury believes in manipulating the economy to enhance tax income, the antithesis of any free market proposition, with which it has little empathy.These operators are unhappy at the prospect of past agreements being torn up to be replaced by, in their view, uncertainty. Thus, Oliver Robbins, whose job is to coordinate negotiations with the EU from Downing Street, and Sir Jeremy Heywood, the Cabinet Secretary, are seen by the ERG to be pursuing a policy of fudging the changes required for a true Brexit. And Philip Hammond, the Chancellor, is now being downright obstructive.However, governments have a duty to represent the electorate, not the permanent establishment, which is there to serve ministers in pursuing government policy. Individual ministers are meant to toe the agreed policy line. Mrs May, in trying to accommodate the Remainers, appears to be in danger of siding with the permanent establishment and the Treasury, against her own stated policy, instead of firmly instructing it to do the Cabinet’s bidding. Doubtless, the ERG will ram this point home.Keeping the Broader Picture in SightIt is always difficult for a prime minister at the coal-face of day-to-day problems to retain a broader vision. The ultimate prize for Mrs May would be to go down in history as having laid the foundations for a prosperous Britain. To achieve this, she must have a proper understanding of free trade, as Robert Peel acquired when he sided with Richard Cobden and abolished the Corn Laws in the 1840s. Unfortunately, Mrs May has little option but to listen to risk-averse advisors and central planners who deny the primacy of free markets, not just for handling day-to-day issues, but also, it appears, to guide her for the broader picture. In short, she has to have an independence and resolve to act despite her advisors’ advice.Some members of Mrs May’s Cabinet do understand free trade. They include heavyweights such as Boris Johnson, Michael Gove, David Davis and Liam Fox. Even though Philip Hammond, the Chancellor, has been persuaded against it by his permanent staff, the ERG does have powerful allies in the Cabinet.[iv]The European Research Group understands, to a reasonable degree at least, the fallacies of central planning and the faults of the socialism of the European project, while understanding the benefits of free trade. Its leadership should be well placed for the task. This is where the position of Mr Rees-Mogg is important. He personally appears to understand the benefits of free markets, has a good grasp of the individual Brexit issues, and argues his case well. This is in sharp contrast with the Remain camp, and the middle ground of lobby-fodder on both sides of the House.That middle ground is his to win, but time is severely limited. To do so he must not only argue his case well, but also get the following points across, loud and clear:The best outcome for the British consumer is no tariffs, and their removal is the responsibility of the UK Government. The best outcome for the economy is not found in protecting business through trade tariffs, because that is to the detriment of the consumer.Current EU trade tariffs disadvantage the poor most. This point will become increasingly relevant when price inflation gathers pace ahead of the final Brexit date (March 2019), as the global credit cycle progresses. An appreciation of this simple fact makes tariffs indefensible, and a clean break Brexit becomes more obviously the best solution.No separation payments should be made to the EU, unless they are specifically itemised and contractually justified. The capital payments demanded by the EU in any political compromise are not only a needless expense, but an imposition on the Treasury’s finances which are already in deficit. Furthermore, the loss of revenue from the removal of all tariffs is a considerably smaller sum than the amounts demanded by the EU negotiators.The Treasury must be persuaded that free trade leads to a stronger economy, which will be reflected in higher tax revenues. Moreover, a botched compromise, effectively being advocated by the Treasury, is a significant threat to the government’s finances.There is no need for an implementation or transition period. These extensions do not encourage businesses to adapt to Brexit so much as they delay the necessary changes. Any such period should be firmly restricted to be as short as possible and involve no payment.In any event, time is short, not only given the Brexit timetable, but ideally it must be concluded, or at least set in stone, before the disruption of the next crisis of the global credit cycle.
  • How Entrepreneurs Wouldn't Let a Beloved Car Brand Die    (Marcia Christoff-Kurapovna, 2018-02-10)
    By: Marcia Christoff-Kurapovna Aston Martin, “the noble company that’s been at death’s door more times in its long history than most”, in the words of one elegant British sporting journal, is going through one of the very best periods of its storied 105-year history, with a public offering being organized to crown a profitable run that has saved the day—yet again. In 2016, the carmaker, now based at sleek new Warwickshire digs a far cry from the leaky-roof “cottage” where it was camped out most of its life, hit record profits when just a year prior the company had reported close to $100 million in losses. Following an astute game plan to launch a new car every nine months for the next five years, the strategy led to the creation of DB11, its first all-new model for a decade and called the most powerful production car the company has ever built. It won the Car Design Award for 2016 and helped double revenues in the first quarter of 2017. Enigmatic Aston Martin, it appears, is finally back on track.The turnaround is the latest episode in the Great Entrepreneurial Saga that is the course of Aston Martin’s wild ride through seven bankruptcies between 1924 and 2017. More entertainingly, it is the story of the derring-do businessmen-adventure hunters who swooped in with deus ex machina timing to save the sexy company at each crisis milestone armed with more panache than the dapper spy associated with the car’s alluring mystique. “Maybe we should wait for more data points”, opined the New York Bureau Chief of The Automobile, one the UK’s best written reading pleasures. “But as far as I’m concerned, the car is the most important data point. This one makes me think it is saved.”Those beautiful cars: once upon a time hand-made (requiring 1200 hours of labor each); the seven coats of paint (requiring 40 hours each), the long wheelbases, the fine Italian bone structure…It’s been a costly venture and the company’s victory lap is deserved. Yet none of it would have happened had a handful of risk-taking romantics decided to abandon or debase what to them was the gold standard of engineering.Born in 1913 by Mssrs. Bamford and Martin on a borrowed English engine (Coventry-Simplex) and a borrowed Italian chassis (Isotta Franschini), Aston (the name of a racing hill) Martin was steered over the course of its luxuriously bumpy ride by three principal visionaries. Sir David Brown, who led the company during its magic era of the 60s (hence the “DB” model initials); Victor Gauntlett, the pinstriped patriot who saw saving the company as a matter of British honor, and Ulrich Bez, the BMW and Porsche engineering icon--each man as distinctly maverick as the troubled cars that held them in awe.In the case of Brown, born into a successful tractor manufacturing family, it was merely a matter of answering a classified ad in The Times of London one day in 1947 that offered for sale a “High Class Motor Business”. The “business”, largely supported by a Polish count, had gone bankrupt already three times in 1924, 1925 and 1932. Going into the 1940s, the company only produced parts for the war effort.Brown acquired Aston Martin and, a year later, Lagonda (a well-regarded British car marque founded in 1906 by an American former opera singer) for a total of less than £75,000. This was followed by his acquisition of coachbuilder Tickford in 1955. Sir David concentrated these all under the Aston Martin umbrella and spearheaded the gran tourismo style of design that would come to define the car’s image. The iconic DB series of Aston Martins soon came to grace the planet-—in particular, the whip-smart DB2 (1950-1953) favored by this author; the DB4 (1958-1963), considered the “quintessential” Aston Martin, and the DB5 (1963), the “James Bond” (Goldfinger) car;Amateur racing driver and motorcyclist, Joint Master of the South Oxfordshire Hunt, a keen sailor, shooting aficionado, qualified pilot, polo and tennis player, racehorse owner, it was the handsome Sir David who gave birth to the British rival of Ferrari and the Aston Martin brand its “eternal” cachet. During the quarter century of his stewardship, with the win at Le Mans in 1959 and one “bloody marvelous” road car after another, DB’s influence on the company was immense.However, in the early seventies the company was in trouble again—one factor being California emission standards requirements, which entirely halted all U.S. sales. Brown paid off all the company’s debts and sold it for £101 to an investment bank. The company went into receivership in 1974 and then was sold for around £1 million to an American semi-conductor magnate. New models, beautiful as they were, could not resuscitate the company. Then in stepped petroleum magnate Victor Gauntlett, who in April 1980, Gauntlett put £500,000 into Aston Martin Lagonda (representing a 10 percent stake). “Aston Martin's reputation seemed to exceed its capacity for making profits”, as one publication noted. The company was cash-starved with a luxury product, and faced an uncertain future but none of this deterred Gauntlett who, in 1981, became executive chairman.Wry and romantic—in reply to a journalist’s inquiry into how he would make a small fortune of the car company he stated: “start with a big one”—the heritage-obsessed Gauntlett saved the company twice in the 1980s, something he deemed a personal crusade. He bought a stake in Italian auto design house of Andrea Zagato, resurrecting a prior collaboration with that company from the 1950s, and instituted new high-ticket limited edition models. Bolstered by a reviving economy, sales began to climb. A limited-edition Vantage (dubbed “Britain’s first supercar”), and Volante Zagato (1989) coupes at £86,000 each brought in enough funds to complete the Aston Martin Virage, the first new Aston launched in 20 years, in 1988.He promoted the brand tirelessly. He marketed the Lagonda as the fastest four-seater in the world, achieving impressive sales in countries like Oman, Kuwait and Qatar. In 1986, Gauntlett negotiated the return of fictional British secret agent James Bond to Aston Martin, with Gauntlett supplying his personal pre-production Vantage for use in the filming of The Living Daylights and selling a Volante to Bond producer for use at his home in America. (Sadly, Gauntlett turned down the role of a KGB colonel in the movie). Through Gauntlett’s stewardship, the car become a Royal Appointment to the Prince of Wales for the first time and production at Newport Pagnell, the famous “cottage” that housed the company, continued to improve, with the factory managing to build about four and a half luxury sports cars a weekThe company was doing well, but Gauntlett knew it needed extra funds to survive long term. In May 1987, he met Walter Hayes, then vice-president of Ford Europe, who saw the potential of the brand and the meeting resulted in Ford taking a share holding in September 1987. Gauntlett stayed on until 1991.Soon to follow was the Ulrich Bez era. Throughout the 1990s, Aston was launching cars though as models refitted from unused Jaguar prototypes, another Ford property. It was in 2000 at the age of fifty-seven, that the racing enthusiast, aeronautics PhD protégé of Ferdinand “Ferry” Porsche came on the scene to become of the company’s most colorful names in the company’s recent history.“Ulrich Bez is a carmaker, and the last of a dying breed”, states Paolo Tumminelli, a noted automobile historian, forward to the book Making Aston Martin. For Bez, “the Professor” in his life was Ferdinand Porsche—the father of the 911, uncompromising, resourceful and idealistic—who was the mentor of Bez’s ten year apprentice-to-designer (the Porsche 993, 986, 928 GTS) career. When Bez was recruited by Ford to take over, he bluntly told the company to pull the plug on everything because “everything” was being done wrong. Disgusted by the cheapening of luxury sports cars for the mass market (with harsh words to say about Porsche), Bez explained to Ford that his aim was to “retain Aston Martin’s exclusivity while wanting its popularity and market share to grow exponentially”. Ford gave him the green light. “Bez understood that something as special as Aston Martin could not be successful—or profitable—if it was treated as just another cog in the machine of a large motor corporation”, writes Tumminelli.And so began an era of a new production plant, new vehicle architecture, Italian chassis designers Andrea Zagaro and Girogetto Giugiaro, the latter called the “designer of the century”, were brought back to the company. The DB9, with its striking architecture, was introduced, as was the V12 Vanquish. The company started to make a profit for the first time since its founding in 1913. However, in 2006 Ford sold off its premium unit, including Aston Martin, to a consortium of investors led by David Richards, a Formula One name. Bez’s proudest accomplishment, he has said, was for Aston to be voted “coolest brand” in 2011, beating out Apple.But they weren’t out of the woods just yet. Though the beautiful DB9 was a purely Aston product, unlike what had come before it that had been contracted out to Jaguar, critics were tough. “[It was] not without rough edges…more than seemed appropriate for the leather-lined cabin of a gentleman’s express”, sniffed a reviewer from Automobile, the UK publication. “It lacked the surprise and delight you’d want in something meant to be more special than mere Porsches and VW-era Bentleys.”Still, under Bez’s leadership Aston Martin took on a new life, selling more than 50 000 cars in 13 years, more than three times the number sold from 1913 to 2000. Then, problems began to loom once more. Shiny, carbon fiber hyper-cars such as the hybrid electric Valkyrie and the Vulcan came out in 2015, yet these multimillion dollar wonders could not stave off an encroaching financial slump. Already in 2013, Dr. Bez stepped down as CEO staying on as executive chairman and Andy Palmer, formerly the American CEO of Nissan, took his place.The company went back to the drawing board and soon followed the now famous DB11 of 2016, the first model Aston Martin has launched under a technology partnership with Daimler, its popularity sent sales soaring by 75%. Die-hard fans and would-be worshippers want this to be the last of the legendary car maker’s troubles. In the words of Andrew Palmer: “In the first century we went bankrupt seven times. The second century is all about making sure that is not the case”.
  • Mark Thornton: Is the Bust Here?    (Mark Thornton, Jeff Deist, 2018-02-09)
    By: Mark Thornton, Jeff Deist With stocks markets in turmoil earlier this week, the Mises Institute's resident expert on booms and busts join Jeff Deist to make sense of it. Will new Fed Chair Jerome Powell do everything possible to prop up markets, or will he be more hawkish than Janet Yellen? What kinds of indicators does Mark look for to predict trouble (hint: it's not the VIX). Why does the volume of margin loans matter, and why is the Russell 2000 Index a better predictor than the Dow or Nasdaq? Are cryptocurrencies now bound up with macro trends? And is Austrian business cycle theory necessarily incomplete as a tool to help investors?See Mark Thornton's 2004 article "Housing: Too Good to be True".
  • The Grassley Letter Everyone Is Ignoring Is Way More Important Than the Nunes Memo    (Julian Sanchez, 2018-02-09)
    Julian Sanchez It hasn’t been built up by weeks of hype or a fevered social media campaign, but a letter from Sens. Chuck Grassley and Lindsey Graham—sent to the Justice Department in January, and released in declassified form this week—may be more significant than the now-infamous #memo #released by Rep. Devin Nunes earlier this month. The Grassley letter and the Nunes memo both deal with the same thing: The FBI’s surveillance of former Donald Trump adviser Carter Page under the Foreign Intelligence Surveillance Act, and the role of a controversial dossier on links between Trump and the Russian government compiled by former British spy Christopher Steele. But while the Nunes memo has largely been greeted with justified ridicule, the Grassley letter makes a more direct and serious case that the FISA warrant targeting Page may have been issued on insufficient grounds—while at the same time undermining key aspects of Nunes’ argument. Grassley’s letter pokes holes in the one truly significant claim made in the Nunes memo: That the FBI improperly concealed from the Foreign Intelligence Surveillance Court that the Steele dossier was part of opposition research underwritten by the Democratic National Committee. Grassley’s letter confirms the accuracy of the counter almost immediately offered by intelligence committee Democrats: That the application did, in fact, disclose that the dossier’s funders were politically motivated. More than that, it makes clear that not specifically naming the DNC was not some aberrant omission, but the result of the common intelligence practice of obfuscating the identities of people who aren’t under suspicion. Glenn Simpson of the research firm Fusion GPS, who directly hired Steele, is referenced only as an “identified U.S. person.” Even Steele himself does not appear to have been named: The ambiguous pronoun “his/her” is used to avoid specifying a gender for the dossier’s author. The judges who reviewed the application almost certainly would have recognized Page as an adviser to Trump and inferred that opposition research concerning him was likely funded by Democrats—and could easily have asked if they thought it was necessary to clarify. But when it comes to the broader question of whether the FISA wiretap order on Page was adequately grounded in evidence, the Grassley letter provides more serious grounds for doubt, directly making several key claims that the Nunes memo only insinuates. Critically, Grassley and Graham assert that the Steele dossier formed the “bulk” of the FISA application, and as important, that the application “appears to contain no additional information corroborating the dossier allegations against Mr. Page,” and that the FBI “relied more heavily on Steele’s credibility than on any independent verification or corroboration for his claims.” If the Grassley letter is accurate, it should provoke a debate, not about whether some cabal within the FBI had chosen Carter Page as the unlikely vehicle for a byzantine plot against Trump, but about whether the FISA process is rigorous enough to protect the civil liberties of all Americans, including those without high political connections. The Nunes memo, strangely, never explicitly made this claim, instead misleadingly quoting former FBI Director James Comey’s testimony that parts of the dossier were “salacious and unverified”—apparently a delicate way of referring to the headline-grabbing allegation that Trump had been caught on tape with prostitutes. Grassley and Graham focus on the more relevant question Nunes neglected: Whether the specific (and not particularly salacious) allegations about Carter Page relied upon in the FISA application had been corroborated. Much of the rest of the Grassley letter is focused on whether Steele misled the FBI about the extent of his contacts with the press regarding his findings, and whether this should have influenced their assessment of him as credible. These are reasonable questions to pose, though it’s worth recalling that warrant applications, especially before the FISA court, are routinely based at least in part on information provided by sources with checkered histories and ulterior motives. Whether any of the facts about Steele outweighed his track record as a reliable intelligence partner and source of information is a judgment call that is difficult to assess from the outside and after the fact. More important is the question of whether the FBI took adequate steps to either confirm or refute Steele’s reporting before seeking a wiretap order. The bureau, after all, has a number of quite intrusive tools that should have been available well before the high standard of “probable cause” for a full wiretap order was met. They could have used National Security Letters, which require no judicial approval, or Section 215 orders, which require only a minimal showing of “relevance to an investigation” to review Page’s financial and telecommunications records and search for indications that he might be acting as a liaison or “cutout” between Russians and the Trump campaign. They would also have been able to plumb a substantial database of information—including intercepted communications from Russian intelligence targets—looking for apparent references to Page. If they were truly relying primarily on their personal confidence in Steele’s reliability, despite these myriad means of seeking confirming evidence, one might quite reasonably regard that as an unacceptably thin basis for seeking a 90-day wiretap of an American citizen. Neither Grassley nor Nunes really grapple with the critical question of why, if the evidence was so thin, surveillance on Page was renewed on three separate occasions, including once during the Trump administration. Normally, after all, the FISA court would ask for evidence that the previous three months of wiretaps had produced some substantive intelligence before acceding to a renewal. But the question of whether the initial order was adequately justified is an important one, even if the surveillance did bear fruit. The Constitution demands that searches be supported by probable cause before they are carried out, not retroactively justified by the fact that evidence was found. If the Grassley letter is accurate, it should provoke a debate, not about whether some cabal within the FBI had chosen Carter Page as the unlikely vehicle for a byzantine plot against Trump, but about whether the FISA process is rigorous enough to protect the civil liberties of all Americans, including those without high political connections. This is no longer a question of whether the FBI concealed information from the FISA court, but of whether the court looked at a relatively meager body of evidence and signed off on a wiretap anyway. That wouldn’t imply a personal conspiracy against Trump, but a deficiency in the mechanism by which thousands of targeted FISA warrants—more than 300 focused on Americans in 2016—are routinely approved. The problem, in other words, would not be that the Page application got exceptionally lax scrutiny, but rather that it didn’t. Julian Sanchez is a research fellow at the Cato Institute.
  • When There Is No Compromise — And Democracy Fails    (Ryan McMaken, 2018-02-09)
    By: Ryan McMaken The UK Independent reported last week that legislators in Iceland have proposed a ban on circumcision of boys. In practice of course, a ban on male circumcisions essentially outlaws Judaism. Anticipating opposition from advocates for religious freedom, the legislation "insists the 'rights of the child' always exceed the 'right of the parents to give their children guidance when it comes to religion'."Iceland is not alone in considering laws that pit the majority against the allegedly barbaric practices of a minority group. In the Netherlands, for example, animal rights activists are hard at work trying to outlaw kosher and halal meats. The laws will, as one Jewish activist noted "make Europe more uncomfortable for Jews, because the essence and centrality of our life are our ancient traditions." Meanwhile, in Quebec, lawmakers have recently prohibited the use of head coverings by — presumably Muslim — women in certain public places. Nor is the circumcision debate limited to Iceland. Male circumcision has been on shaky legal ground in Germany in recent years where a court banned the practice in 2012. Perhaps recognizing that banning Judaism could look bad for German "tolerance," lawmakers intervened to allow the practice again. In cases such as these, whose values ought to prevail? Democracy Doesn't Always WorkThroughout most of the West, of course, we're all taught from an early age that "democracy" will allow everything to work itself out. The parties in conflict will enter into "dialogue," will arrive at a "compromise" and then everyone will be happy and at peace in the end. But, that's not how it works in real life. With issues based on fundamental moral values, there often is very little room for compromise. While there some areas for compromise can often be found around the edges of issues such as these, the fact is that in the end, kosher meats are either legal or they're not. Circumcision is either legal or it's not. Abortion is either legal or it's not. Muslim head coverings are either legal or they're not. After all, if one group of people believe that a 3-month-old fetus is a parasite that has trespassed against the mother, those people are going to find little room for compromise with a group of people who think the same fetus is a person deserving legal protection.Indeed, we see the shortcomings of democracy at work every time this latter issue comes up. One side calls the other killers who are complicit in the killing of babies. The other side calls their opponents rubes and barbarians, probably motivated by little more than crazed misogyny. Similar dynamics, of course, are present in cases involving animal rights, circumcision, and headscarves. One side thinks that their side is the only acceptable option for virtuous people. "Virtue," of course, can be defined any number of ways. Some are so blinded by their cultural biases, in fact, that they even conclude that no "civilized" person could possibly believe that, say, circumcision is anything other than a barbaric practice.Those who continue to believe in such things must therefore be forced "into the 21st century" by the coercive power of the state. Their religious beliefs, as Hillary Clinton demanded in 2015, "have to be changed." What many supporters of democracy refuse to admit, of course, is that there is no peaceful debate that will solve this conflict. The conflict is philosophical and moral in nature. And, so long as both sides are forced to live under a single legal system, any "compromise" will take the shape of one side imposing its position on the other by force. In the end, the losing side will be taxed to support the regime that disregards its views and forces compliance with laws made by the winning side. Majority Rule: Conquest and Colonialism by Other MeansIn his work on nationalism, Ludwig on Mises examined the fundamental problem that comes from various groups with different value systems living under a single unitary state. Even when there are certain theoretical guarantees for minority groups, the political reality is that groups with minority beliefs are at the mercy of the majority. This is true in matters of conflicting ethnic groups and religions, but is also applicable to any number of groups with conflicting values. Joseph Salerno has ably sums up Mises's thought:Mises maintains that two or more “nations” cannot peacefully coexist under a unitary democratic government. National minorities in a democracy are “completely politically powerless” because they have no chance of peacefully influencing the majority linguistic group. The latter represents “a cultural circle that is closed” to minority nationalities and whose political ideas are “thought, spoken, and written in a language that they do not understand.” Even where proportional representation prevails, the national minority “still remains excluded from collaboration in political life.” According to Mises, because the minority has no prospect of one day attaining power, the activity of its representatives “remains limited from the beginning to fruitless criticism . . . that . . . can lead to no political goal.” Thus, concludes Mises, even if the member of the minority nation, “according to the letter of the law, be a citizen with full rights . . . in truth he is politically without rights, a second class citizen, a pariah.”Mises characterizes majority rule as a form of colonialism from the point of view of the minority nation in a polyglot territory: “[It] signifies something quite different here than in nationally uniform territories; here, for a part of the people, it is not popular rule but foreign rule.” Peaceful liberal nationalism therefore is inevitably stifled in polyglot territories governed by a unitary state, because, Mises argues, “democracy seems like oppression to the minority. Where only the choice is open oneself to suppress or be suppressed, one easily decides for the former.” Thus, for Mises, democracy means the same thing for the minority as “subjugation under the rule of others,” and this “holds true everywhere and, so far, for all times.” Mises dismisses “the often cited” counter-example of Switzerland as irrelevant because local self-rule was not disturbed by “internal migrations” between the different nationalities. Had significant migration established the presence of substantial national minorities in some of the cantons, “the national peace of Switzerland would already have vanished long ago.”Those on the winning side, of course, don't see any problem here. What the minority thinks of as "oppression" is really — according to the winners — just "modernization," "progress," "decency," "common sense," or simply "the will of the majoirity." The fact that the enforcement of that will of the majority is founded on state violence is of little concern. The Solution: Secession and DecentralizationMises, who himself supported democracy, offered a solution to the problem of democratic majorities: self-determination through secession and decentralization. For Mises, populations must not be forced perpetually into states where they will never be able to exercise self-determination due to the presence of a more powerful majority. On a practical level then, populations in regions, cities, and villages within existing states must be free to form their own states, join other states with friendlier majorities, or at least exercise greater self-government via decentralization. Moreover, in order to accommodate the realities of constantly-changing populations, demographics, and cultures, borders and boundaries must change over time in order to minimize the number of people living within minority populations with little to no say in national governments controlled by hostile majorities. There is no perfect solution. There will always be some minority groups that at odds with the ruling majority. But, by making states smaller, more numerous, and more diverse, communities and individuals stand a better change of finding a state in which their values match up with the majority.  Large unitary states, however, offer exactly the oppose: less choice, less diversity, and fewer changes to exercise self-determination.  The Option of Decentralized ConfederationsNor do all political jurisdictions need to be totally independent states. Mises himself advocated for the use of confederation as a solution to problems of cultural and linguistic minorities. Confederations might be formed for purposes of national defense and diplomacy, Mises noted. But in any country with a diverse population, in order to maintain internal peace, self-government of domestic affairs must be kept localized and so as to minimize the ability of a majority group to dominate a minority group.Mises didn't invent this idea, of course. This sort of confederation was justified on similar grounds by the founders of the Swiss Confederation and the United States. Moreover, while not planned out ahead of time, the government of Austria-Hungary was by necessity decentralized to minimize internal conflict.  In cases such as these, matters of language, religion, education, and even economic policy must be handled by the local majority, independent of any nationwide majorities. Or else democracy becomes little more than a tool for the winning coalition to bludgeon the losing coalition. For decades, this worked at various times in the United States. On the matter of abortion, for instance, Americans agreed prior to Roe v Wade to allow abortion laws to be determined at a local level and be kept out of the hands of the national government. Public schools — and what was taught in them — were governed almost exclusively by local school boards and state governments. Even immigration policies and linguistic issues were decided by local majorities, and not by national ones. So long as these matter remained local matters they were irrelevant to national politics. Under these conditions, a victory for one party or another at the national level has little impact on the daily practice of one's religion, moral values, or schooling. As localized democracy turns into mass democracy, however, majorities exercise increasing power over minority groups. Each election becomes a nationwide referendum on how the majority shall use its power to crush those who pose a threat to the prevailing value system. Even worse, when there is one nationwide "law of the land" there is no escape from this reality, save to relocate hundreds of miles away for a foreign land where the emigrant must learn a new language and a new way of life far from friends and family. Needless to say, as this sort of democratic centralization increases, the stakes become higher and higher. The potential for violence becomes greater, and the disenfranchisement of minority groups becomes ever more palpable. Mises understood well what the end game to this process is. It's political and social unrest — followed by political repression to "restore" order. War may even follow. For Mises, the need to guarantee localized self-determination was no mere intellectual exercise for political scientists. It was a matter essential to the preservation of peace and freedom. We would do well to take the matter as seriously as he did.  
  • When Democracy Fails — And There Is No Compromise    (Ryan McMaken, 2018-02-09)
    By: Ryan McMaken The UK Independent reported last week that legislators in Iceland have proposed a ban on circumcision of boys. In practice of course, a ban on male circumcisions essentially outlaws Judaism. Anticipating opposition from advocates for religious freedom, the legislation "insists the 'rights of the child' always exceed the 'right of the parents to give their children guidance when it comes to religion'."Iceland is not alone in considering laws that pit the majority against the allegedly barbaric practices of a minority group. In the Netherlands, for example, animal rights activists are hard at work trying to outlaw kosher and halal meats. The laws will, as one Jewish activist noted "make Europe more uncomfortable for Jews, because the essence and centrality of our life are our ancient traditions." Meanwhile, in Quebec, lawmakers have recently prohibited the use of head coverings by — presumably Muslim — women in certain public places. Nor is the circumcision debate limited to Iceland. Male circumcision has been on shaky legal ground in Germany in recent years where a court banned the practice in 2012. Perhaps recognizing that banning Judaism could look bad for German "tolerance," lawmakers intervened to allow the practice again. In cases such as these, whose values ought to prevail? Democracy Doesn't Always WorkThroughout most of the West, of course, we're all taught from an early age that "democracy" will allow everything to work itself out. The parties in conflict will enter into "dialogue," will arrive at a "compromise" and then everyone will be happy and at peace in the end. But, that's not how it works in real life. With issues based on fundamental moral values, there often is very little room for compromise. While there some areas for compromise can often be found around the edges of issues such as these, the fact is that in the end, kosher meats are either legal or they're not. Circumcision is either legal or it's not. Abortion is either legal or it's not. Muslim head coverings are either legal or they're not. After all, if one group of people believe that a 3-month-old fetus is a parasite that has trespassed against the mother, those people are going to find little room for compromise with a group of people who think the same fetus is a person deserving legal protection.Indeed, we see the shortcomings of democracy at work every time this latter issue comes up. One side calls the other killers who are complicit in the killing of babies. The other side calls their opponents rubes and barbarians, probably motivated by little more than crazed misogyny. Similar dynamics, of course, are present in cases involving animal rights, circumcision, and headscarves. One side thinks that their side is the only acceptable option for virtuous people. "Virtue," of course, can be defined any number of ways. Some are so blinded by their cultural biases, in fact, that they even conclude that no "civilized" person could possibly believe that, say, circumcision is anything other than a barbaric practice.Those who continue to believe in such things must therefore be forced "into the 21st century" by the coercive power of the state. Their religious beliefs, as Hillary Clinton demanded in 2015, "have to be changed." What many supporters of democracy refuse to admit, of course, is that there is no peaceful debate that will solve this conflict. The conflict is philosophical and moral in nature. And, so long as both sides are forced to live under a single legal system, any "compromise" will take the shape of one side imposing its position on the other by force. In the end, the losing side will be taxed to support the regime that disregards its views and forces compliance with laws made by the winning side. Majority Rule: Conquest and Colonialism by Other MeansIn his work on nationalism, Ludwig on Mises examined the fundamental problem that comes from various groups with different value systems living under a single unitary state. Even when there are certain theoretical guarantees for minority groups, the political reality is that groups with minority beliefs are at the mercy of the majority. This is true in matters of conflicting ethnic groups and religions, but is also applicable to any number of groups with conflicting values. Joseph Salerno has ably sums up Mises's thought:Mises maintains that two or more “nations” cannot peacefully coexist under a unitary democratic government. National minorities in a democracy are “completely politically powerless” because they have no chance of peacefully influencing the majority linguistic group. The latter represents “a cultural circle that is closed” to minority nationalities and whose political ideas are “thought, spoken, and written in a language that they do not understand.” Even where proportional representation prevails, the national minority “still remains excluded from collaboration in political life.” According to Mises, because the minority has no prospect of one day attaining power, the activity of its representatives “remains limited from the beginning to fruitless criticism . . . that . . . can lead to no political goal.” Thus, concludes Mises, even if the member of the minority nation, “according to the letter of the law, be a citizen with full rights . . . in truth he is politically without rights, a second class citizen, a pariah.”Mises characterizes majority rule as a form of colonialism from the point of view of the minority nation in a polyglot territory: “[It] signifies something quite different here than in nationally uniform territories; here, for a part of the people, it is not popular rule but foreign rule.” Peaceful liberal nationalism therefore is inevitably stifled in polyglot territories governed by a unitary state, because, Mises argues, “democracy seems like oppression to the minority. Where only the choice is open oneself to suppress or be suppressed, one easily decides for the former.” Thus, for Mises, democracy means the same thing for the minority as “subjugation under the rule of others,” and this “holds true everywhere and, so far, for all times.” Mises dismisses “the often cited” counter-example of Switzerland as irrelevant because local self-rule was not disturbed by “internal migrations” between the different nationalities. Had significant migration established the presence of substantial national minorities in some of the cantons, “the national peace of Switzerland would already have vanished long ago.”Those on the winning side, of course, don't see any problem here. What the minority thinks of as "oppression" is really — according to the winners — just "modernization," "progress," "decency," "common sense," or simply "the will of the majoirity." The fact that the enforcement of that will of the majority is founded on state violence is of little concern. The Solution: Secession and DecentralizationMises, who himself supported democracy, offered a solution to the problem of democratic majorities: self-determination through secession and decentralization. For Mises, populations must not be forced perpetually into states where they will never be able to exercise self-determination due to the presence of a more powerful majority. On a practical level then, populations in regions, cities, and villages within existing states must be free to form their own states, join other states with friendlier majorities, or at least exercise greater self-government via decentralization. Moreover, in order to accommodate the realities of constantly-changing populations, demographics, and cultures, borders and boundaries must change over time in order to minimize the number of people living within minority populations with little to no say in national governments controlled by hostile majorities. There is no perfect solution. There will always be some minority groups that at odds with the ruling majority. But, by making states smaller, more numerous, and more diverse, communities and individuals stand a better change of finding a state in which their values match up with the majority.  Large unitary states, however, offer exactly the oppose: less choice, less diversity, and fewer changes to exercise self-determination.  The Option of Decentralized ConfederationsNor do all political jurisdictions need to be totally independent states. Mises himself advocated for the use of confederation as a solution to problems of cultural and linguistic minorities.1 Confederations might be formed for purposes of national defense and diplomacy, Mises noted. But in any country with a diverse population, in order to maintain internal peace, self-government of domestic affairs must be kept localized and so as to minimize the ability of a majority group to dominate a minority group.Mises didn't invent this idea, of course. This sort of confederation was justified on similar grounds by the founders of the Swiss Confederation and the United States. Moreover, while not planned out ahead of time, the government of Austria-Hungary was by necessity decentralized to minimize internal conflict.  In cases such as these, matters of language, religion, education, and even economic policy must be handled by the local majority, independent of any nationwide majorities. Or else democracy becomes little more than a tool for the winning coalition to bludgeon the losing coalition. For decades, this worked at various times in the United States. On the matter of abortion, for instance, Americans agreed prior to Roe v Wade to allow abortion laws to be determined at a local level and be kept out of the hands of the national government. Public schools — and what was taught in them — were governed almost exclusively by local school boards and state governments. Even immigration policies and linguistic issues were decided by local majorities, and not by national ones. So long as these matter remained local matters they were irrelevant to national politics. Under these conditions, a victory for one party or another at the national level has little impact on the daily practice of one's religion, moral values, or schooling. As localized democracy turns into mass democracy, however, majorities exercise increasing power over minority groups. Each election becomes a nationwide referendum on how the majority shall use its power to crush those who pose a threat to the prevailing value system. Even worse, when there is one nationwide "law of the land" there is no escape from this reality, save to relocate hundreds of miles away for a foreign land where the emigrant must learn a new language and a new way of life far from friends and family. Needless to say, as this sort of democratic centralization increases, the stakes become higher and higher. The potential for violence becomes greater, and the disenfranchisement of minority groups becomes ever more palpable. Mises understood well what the end game to this process is. It's political and social unrest — followed by political repression to "restore" order. War may even follow. For Mises, the need to guarantee localized self-determination was no mere intellectual exercise for political scientists. It was a matter essential to the preservation of peace and freedom. We would do well to take the matter as seriously as he did.   1. For more on this, see Mises's 1941 essay "An Eastern Democratic Union: A Proposal for the Establishment of Durable Peace in Eastern Europe." Mises discusses the issue of handling linguistic and ethnic conflicts within a larger confederation. Found in Selected Writings of Ludwig von Mises, Volume 3, edited by Richard Ebeling. 
  • From Abortion to Circumcision, Democracy Won't Save Minorities from the Majority    (Ryan McMaken, 2018-02-09)
    By: Ryan McMaken The UK Independent reported last week that legislators in Iceland have proposed a ban on circumcision of boys. In practice of course, a ban on male circumcisions essentially outlaws Judaism. Anticipating opposition from advocates for religious freedom, the legislation "insists the 'rights of the child' always exceed the 'right of the parents to give their children guidance when it comes to religion'."1Iceland is not alone in considering laws that pit the majority against the allegedly barbaric practices of a minority group. In the Netherlands, for example, animal rights activists are hard at work trying to outlaw kosher and halal meats. The laws will, as one Jewish activist noted "make Europe more uncomfortable for Jews, because the essence and centrality of our life are our ancient traditions." Meanwhile, in Quebec, lawmakers have recently prohibited the use of head coverings by — presumably Muslim — women in certain public places. Nor is the circumcision debate limited to Iceland. Male circumcision has been on shaky legal ground in Germany in recent years where a court banned the practice in 2012. Perhaps recognizing that banning Judaism could look bad for German "tolerance," lawmakers intervened to allow the practice again. In cases such as these, whose values ought to prevail? Democracy Doesn't Always WorkThroughout most of the West, of course, we're all taught from an early age that "democracy" will allow everything to work itself out. The parties in conflict will enter into "dialogue," will arrive at a "compromise" and then everyone will be happy and at peace in the end. But, that's not how it works in real life. With issues based on fundamental moral values, there often is very little room for compromise. While there some areas for compromise can often be found around the edges of issues such as these, the fact is that in the end, kosher meats are either legal or they're not. Circumcision is either legal or it's not. Abortion is either legal or it's not. Muslim head coverings are either legal or they're not. After all, if one group of people believe that a 3-month-old fetus is a parasite that has trespassed against the mother, those people are going to find little room for compromise with a group of people who think the same fetus is a person deserving legal protection.Indeed, we see the shortcomings of democracy at work every time this latter issue comes up. One side calls the other killers who are complicit in the killing of babies. The other side calls their opponents rubes and barbarians, probably motivated by little more than crazed misogyny. Similar dynamics, of course, are present in cases involving animal rights, circumcision, and headscarves. One side thinks that their side is the only acceptable option for virtuous people. "Virtue," of course, can be defined any number of ways. Some are so blinded by their cultural biases, in fact, that they even conclude that no "civilized" person could possibly believe that, say, circumcision is anything other than a barbaric practice.Those who continue to believe in such things must therefore be forced "into the 21st century" by the coercive power of the state. Their religious beliefs, as Hillary Clinton demanded in 2015, "have to be changed." These problems also exist under authoritarian, non-democratic regimes. But anti-democrats usually admit that the state is using force to support one side over the other. Democrats, on the other hand, often prefer to indulge in comforting fictions. What many supporters of democracy refuse to admit, of course, is that there is no peaceful debate that will solve this conflict. The conflict is philosophical and moral in nature. And, so long as both sides are forced to live under a single legal system, any "compromise" will take the shape of one side imposing its position on the other by force. In the end, the losing side will be taxed to support the regime that disregards its views and forces compliance with laws made by the winning side. Majority Rule: Conquest and Colonialism by Other MeansIn his work on nationalism, Ludwig on Mises examined the fundamental problem that comes from various groups with different value systems living under a single unitary state. Even when there are certain theoretical guarantees for minority groups, the political reality is that groups with minority beliefs are at the mercy of the majority. This is true in matters of conflicting ethnic groups and religions, but is also applicable to any number of groups with conflicting values. Joseph Salerno ably sums up Mises's thought:Mises maintains that two or more “nations” cannot peacefully coexist under a unitary democratic government. National minorities in a democracy are “completely politically powerless” because they have no chance of peacefully influencing the majority linguistic group. The latter represents “a cultural circle that is closed” to minority nationalities and whose political ideas are “thought, spoken, and written in a language that they do not understand.” Even where proportional representation prevails, the national minority “still remains excluded from collaboration in political life.” According to Mises, because the minority has no prospect of one day attaining power, the activity of its representatives “remains limited from the beginning to fruitless criticism . . . that . . . can lead to no political goal.” Thus, concludes Mises, even if the member of the minority nation, “according to the letter of the law, be a citizen with full rights . . . in truth he is politically without rights, a second class citizen, a pariah.”Mises characterizes majority rule as a form of colonialism from the point of view of the minority nation in a polyglot territory: “[It] signifies something quite different here than in nationally uniform territories; here, for a part of the people, it is not popular rule but foreign rule.” Peaceful liberal nationalism therefore is inevitably stifled in polyglot territories governed by a unitary state, because, Mises argues, “democracy seems like oppression to the minority. Where only the choice is open oneself to suppress or be suppressed, one easily decides for the former.” Thus, for Mises, democracy means the same thing for the minority as “subjugation under the rule of others,” and this “holds true everywhere and, so far, for all times.” Mises dismisses “the often cited” counter-example of Switzerland as irrelevant because local self-rule was not disturbed by “internal migrations” between the different nationalities. Had significant migration established the presence of substantial national minorities in some of the cantons, “the national peace of Switzerland would already have vanished long ago.”Those on the winning side, of course, don't see any problem here. What the minority thinks of as "oppression" is really — according to the winners — just "modernization," "progress," "decency," "common sense," or simply "the will of the majoirity." The fact that the enforcement of that will of the majority is founded on state violence is of little concern. The Solution: Secession and DecentralizationMises, who himself supported democracy, offered a solution to the problem of democratic majorities: self-determination through secession and decentralization. For Mises, populations must not be forced perpetually into states where they will never be able to exercise self-determination due to the presence of a more powerful majority. On a practical level then, populations in regions, cities, and villages within existing states must be free to form their own states, join other states with friendlier majorities, or at least exercise greater self-government via decentralization. Moreover, in order to accommodate the realities of constantly-changing populations, demographics, and cultures, borders and boundaries must change over time in order to minimize the number of people living within minority populations with little to no say in national governments controlled by hostile majorities. There is no perfect solution. There will always be some minority groups that at odds with the ruling majority. But, by making states smaller, more numerous, and more diverse, communities and individuals stand a better change of finding a state in which their values match up with the majority.  Large unitary states, however, offer exactly the oppose: less choice, less diversity, and fewer changes to exercise self-determination.  The Option of Decentralized ConfederationsNor do all political jurisdictions need to be totally independent states. Mises himself advocated for the use of confederation as a solution to problems of cultural and linguistic minorities.2 Confederations might be formed for purposes of national defense and diplomacy, Mises noted. But in any country with a diverse population, in order to maintain internal peace, self-government of domestic affairs must be kept localized and so as to minimize the ability of a majority group to dominate a minority group.Mises didn't invent this idea, of course. This sort of confederation was justified on similar grounds by the founders of the Swiss Confederation and the United States. Moreover, while not planned out ahead of time, the government of Austria-Hungary was by necessity decentralized to minimize internal conflict.  In cases such as these, matters of language, religion, education, and even economic policy must be handled by the local majority, independent of any nationwide majorities. Or else democracy becomes little more than a tool for the winning coalition to bludgeon the losing coalition. For decades, this worked at various times in the United States. On the matter of abortion, for instance, Americans agreed prior to Roe v Wade to allow abortion laws to be determined at a local level and be kept out of the hands of the national government. Public schools — and what was taught in them — were governed almost exclusively by local school boards and state governments. Even immigration policies and linguistic issues were decided by local majorities, and not by national ones. So long as these matter remained local matters they were irrelevant to national politics. Under these conditions, a victory for one party or another at the national level has little impact on the daily practice of one's religion, moral values, or schooling. As localized democracy turns into mass democracy, however, majorities exercise increasing power over minority groups. Each election becomes a nationwide referendum on how the majority shall use its power to crush those who pose a threat to the prevailing value system. Even worse, when there is one nationwide "law of the land" there is no escape from this reality, save to relocate hundreds of miles away for a foreign land where the emigrant must learn a new language and a new way of life far from friends and family. Needless to say, as this sort of democratic centralization increases, the stakes become higher and higher. The potential for violence becomes greater, and the disenfranchisement of minority groups becomes ever more palpable. Mises understood well what the end game to this process is. It's political and social unrest — followed by political repression to "restore" order. War may even follow. For Mises, the need to guarantee localized self-determination was no mere intellectual exercise for political scientists. It was a matter essential to the preservation of peace and freedom. We would do well to take the matter as seriously as he did.   1. Chinese communist officials have taken this a step further by banning children from churches and taking other measures to "restric[t] children from joining Christian groups and attending religious activities." (http://www.catholicherald.co.uk/news/2018/02/09/chinese-priests-ordered-to-put-up-signs-banning-children-from-churches/) 2. For more on this, see Mises's 1941 essay "An Eastern Democratic Union: A Proposal for the Establishment of Durable Peace in Eastern Europe." Mises discusses the issue of handling linguistic and ethnic conflicts within a larger confederation. Found in Selected Writings of Ludwig von Mises, Volume 3, edited by Richard Ebeling. 
  • Uber Drivers Can Help to Explain the Pay Gap    (Ryan Bourne, 2018-02-09)
    Ryan Bourne The gender pay gap is a tricky concept for proponents of “evidence-based policy”. The Government has introduced a legal requirement for businesses with more than 250 employees to publish average gender pay statistics. The rationale is for “transparency”, apparently, though it does not take Nostradamus to forecast how these will be used in public debate. The demands for action will follow. Yet what is rarely mentioned is that there is a large amount of empirical literature in economics that explains why apparent headline pay gaps exist. Controlling for occupation types, time in the labour force, education levels, and market rewards for unpleasant or unpopular work and more, the remaining “gap” between genders almost entirely disappears. The evidence for discrimination by sex is weak to non-existent. Judging whether the somewhat different demand for “equal pay for equal work” is achieved is likewise heavily dependent on how you define “equal work”, given the nature of different jobs. Many would argue, with some reason, that societal expectations of women shape occupation choice, tasks assigned, the nature of pay negotiations, and decisions on how to care for children. If all male advantages in these areas were eliminated, so is implied, the sexes would be equally represented across jobs. Pay gaps for the same work would likewise be eliminated. But is a 50-50 occupation split and pay gap elimination likely? There were already reasons to be severely doubtful. In Scandinavian countries with extensive pro-family policies, preferences for child caring and careers still seem to result in higher pay for men. In the UK, male models are unlikely, on average, ever to be paid as much as female. An innovative new study sheds further light, showing pay gaps still exist even in markets where contractors do the same job and workers set their own hours. A new paper on ride-sharing app Uber shows male drivers, on average, earn 7pc more per hour than their female counterparts in the USA. This is remarkable. Drivers have full flexibility to work when they like, pay rates are fixed and transparent, there are no earnings negotiations and customers do not appear to care about the gender of their driver. Almost all the explanations about the patriarchal nature of business environments and how non-women friendly the working hours are therefore fall away. And yet there is still a pay gap. Why? The study’s authors Cody Cook, Rebecca Diamond, Jonathan Hall, John List and Paul Oyer drilled down into what was happening in Chicago, and found three factors fully explain the phenomenon. First, men were likely to have more experience using the app, and so make more efficient decisions to boost earnings. Though men and women experienced very similar learning curves for performance, men tended to have delivered more rides, both because they stayed using the app for longer and completed more rides per hour. This “experience” effect explains over a third of the average. Second, men tended to drive faster than women, accounting for almost 50pc of the gap. Faster driving increases the number of rides completed per hour. This is not just an experience effect either. There is no evidence that women, on average, drove faster after completing more journeys. They seem to just have a preference for driving more slowly no matter how many trips they have completed. Third, and finally, men were more likely to drive in the lucrative locations. As a result, men tended to have shorter trips to the rider, longer overall trips, and higher returns through incentives such as surge pricing. This explains about a quarter of the gap. Might this be due to women feeling constrained about when they can drive, due to family responsibilities? No. The authors show that the times workers drive actually tend to boost women’s pay relative to men. It simply seems to be that with free choice, women Uber drivers in Chicago, on average, act differently from their male counterparts. Politicians would do well to bear this in mind next time they wade in on some pay gap statistic for a certain industry. Yes, policies, work environments, and social norms affect career paths and earnings. But free choice in occupation and at work, including attitudes to risk and personal priorities, can drive apparently inequitable aggregated statistics too. It is easy to perceive how this could affect other industries. Might any pay gap in the financial sector in part be explained by different attitudes to risk? Could it not be the case that warehouse staff doing ostensibly the same job as those in stores for retailers are paid more because their workplace locations are less desirable? There are lots of potential explanations for differential pay by industry, let alone nationwide. Indeed, if campaigners and politicians really want to “eliminate the gender pay gap”, as they say, then their to-do list is quite extensive. It includes: enforcing complete educational parity for men and women, in the same disciplines, imposing the same preferences on work-life balance, ensuring the same time is spent in exactly the same careers, making sure men and women have the same risk-appetite and preferences, the same levels of productivity, share domestic tasks exactly equally, have the same attributes, the same career paths and working lifetimes in the same occupations in the same sized firms. Yet, the Uber example shows that when men and women are genuinely free to choose, they tend to choose differently. A more just goal is surely to facilitate people pursuing their own dreams. Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute
  • Why Democrats Are Obsessed with Russia    (Ted Galen Carpenter, 2018-02-09)
    Ted Galen Carpenter The issue of Russia’s alleged interference in the 2016 U.S. presidential election has intensified an already deep and bitter partisan divide. Democrats and the broader progressive community argue that a hostile nation worked to defeat Hillary Clinton and install a president that Moscow could influence, perhaps even control. Those allegations have become increasingly shrill and over-the-top. In the process, they have chilled debate on U.S. policy toward Russia and created an atmosphere of intolerance and guilt-by-association disturbingly reminiscent of the McCarthy era in the 1950. It is astonishing how outlandish some of the comments have become. A recent example was the speculation that MSNBC contributor John Heilemann engaged in when Devin Nunes, chairman of the House Intelligence Committee, sought to make public the memo that the committee majority approved about possible FBI abuses during its investigation of collusion between the Trump campaign and the Russian government. Heilemann asked Democrat Sen. Chris Murphy: “Is it possible that we actually have a Russian agent running the House Intel Committee on the Republican side?” It was the second time that Heilemann raised that absurd notion on air. Even if one concedes the allegations that Russia engaged in election meddling, the response of progressives is wildly excessive. Other progressives have wildly exaggerated the supposed Russian threat to America’s security and domestic liberty. During the 2016 campaign itself, Clinton asserted that Donald Trump would be “Putin’s puppet.” The accusations have grown wilder and more inflammatory since then, as Democrats hype the dangers that Russia’s apparent election meddling posed. During a March 2017 House Homeland Security Committee session, Democrat Rep. Bonnie Watson Coleman accused Russia of engaging in outright warfare against the United States. “I think this attack that we’ve experienced is a form of war, a form of war on our fundamental democratic principles.” She was hardly unique in using such hyperbole. During House Intelligence Committee hearings that same month, several of Coleman’s Democratic colleagues made similar alarmist statements. Democrat Rep. Jackie Speier insisted that Russia’s activities were indeed “an act of war.” Democrat Rep. Eric Swalwell echoed that assertion. Citing the alleged Russian hacking of the Democratic National Committee and other targets, Swalwell stated: “We were attacked by Russia,” and that attack “was ordered by Vladimir Putin.” Democrat Rep. Denny Heck explicitly compared Russia’s actions to the Japanese attack on Pearl Harbor and the 9/11 terrorist attacks. Worries about Russia, he insisted, had nothing to do about politics. Instead, “this is about patriotism … this is about country, and the very heart of what this country is built on, which is open, free, trusted elections.” Such threat inflation is not confined to House members. Democrat Sen. Ben Cardin, the ranking Democrat on the Senate Foreign Relations Committee, similarly described the election meddling as an “attack” and likened it to a “political Pearl Harbor.” Vermont Sen. Bernie Sanders asserts that “Russia’s attack on our democracy is of enormous consequence.” As Clinton’s smear of Trump and Heilemann’s attack on Nunes illustrate, the progressive hysteria about Russia dovetails into impugning the integrity of anyone who disputes the narrative that Russia poses an existential threat to America and its democratic system. Sanders epitomizes the technique with his Twitter comment that “we need to know whether the president’s foreign policy serves the best interests of our country or the best interests of Russia.” Targets of such McCarthyism extend far beyond Trump and his inner circle. Figures receiving similar treatment include Jeffrey Taylor, columnist for the Atlantic, University of Chicago Professor (and dean of the realist school among U.S. international relations scholars) John Mearsheimer, conservative writer and former presidential candidate Pat Buchanan, and an assortment of journalists with a wide range of ideological orientations, such as the American Conservative’s Daniel Larison, the Intercept’s Glenn Greenwald, and the Boston Globe’s Stephen Kinzer. Epithets such as “apologists,” “stooges,” “Russian trolls,” and “useful idiots” appear frequently in attacks on these maverick foreign-policy critics. Many of those attacks occurred before the 2016 election, indicating that the anti-Russia hysteria and vitriol has much deeper roots than concerns about Moscow’s interference in that election. Even if one concedes the allegations that Russia engaged in election meddling, the response of progressives is wildly excessive. It is preposterous to compare cyber espionage with the bloody Pearl Harbor and 9/11 attacks. Indeed, such a comparison trivializes the tragedy and horror of those episodes. Moreover, even if Moscow’s interference did take place, it is hardly an act of war. Indeed, it is not materially different from what the United States has done in dozens of countries, including democratic countries, for decades. Progressives need to adopt a course correction. Those who sincerely believe their shrill rhetoric need to get a grip and not succumb to Russia Derangement Syndrome. Those who are cynically using the anti-Russia hysteria as a club with which to beat the Trump administration need to pause and consider how their actions are triggering a second “cold war” with the one power that has the military wherewithal to destroy America. In either case, their current behavior is doing their country a grave disservice. Ted Galen Carpenter, a senior fellow in defense and foreign-policy studies at the Cato Institute and a contributing editor at the National Interest, is the author of ten books, the contributing editor of ten books, and the author of more than seven hundred articles on international affairs.
  • Budget Deal Promises More Red Ink and a Surge in the Trade Deficit    (Steve H. Hanke, 2018-02-09)
    Steve H. Hanke The U.S. trade deficit for 2017 ballooned to $566 billion, the largest since 2008. This, no doubt, gave President Trump a headache. After all, one of his ill-advised campaign promises was to rebalance the U.S. trade account with the rest of the world. The President, like many businessmen, understands little of international economics. Indeed, they usually wrap their heads around what economists term “closed economies,” rather than “open economies.” In consequence, they get virtually everything about economics wrong, because economies are “open,” not “closed.” In the case of President Trump and his lieutenants, their obsession with the U.S. trade deficit is unfortunate. It will result in no end of foolish and costly (read: wrong) policies. If that isn’t bad enough these policies will fail to deliver what the President claims is important: the closing of the U.S. trade deficit. Congress’s fiscal folly will explode the trade deficit—precisely the opposite of what the President has promised. Contrary to the claims of Wilbur Ross, the U.S. Secretary of Commerce, our deficit will not be reduced by enforcing trade rules, renegotiating existing trade pacts, or forming new ones. While these policies might shuffle the deck and alter the bilateral trade balances the U.S. has with other countries, they will not alter the overall U.S. trade balance. Indeed, policies aimed at eliminating so-called “unfair trade practices”—while attractive to many businessmen, trade unionists, most progressive activists, and all who harbor mercantilist sentiments—are wrongheaded and futile. Why? The simple analytics of the trade deficit can be used to prove the utter futility of the Trump administration’s trade policies. Their policies will not affect America’s aggregate trade deficit. In economics, identities play an important role. These identities are obtained by equating two different breakdowns of a single aggregate. Identities are interesting, and usually important, by definition. In national income accounting, the following identity can be derived. It is the key to understanding the trade deficit: (Imports - Exports) ≡ (Investment-Savings)+(Government Spending-Taxes) Given this identity, which must hold, the trade deficit is equal to the excess of private sector investment over savings, plus the excess of government spending over tax revenue. So, the counterpart of the trade deficit is the sum of the private sector deficit and the government deficit (federal + state and local). Therefore, The U.S. trade deficit is just the mirror image of what is happening in the U.S. domestic economy. If expenditures in the U.S. exceed the incomes produced in the U.S., which they do, the excess expenditures will be met by an excess of imports over exports (read: a trade deficit). The table below shows that the data support the important trade identity. This table is unique because the state and local governments’ fiscal balances have been included in the “government saving minus investment” column. The cumulative trade deficit the U.S. has racked up since 1975 is about $11.154 trillion, and the total investment minus savings deficit is about $10.435 trillion, confirming the power of the identity. U.S. trade deficits are not caused by so-called unfair trade practices. They are made in the good old U.S.A. It’s the government budget deficits that call the tune for the trade deficits. So, if President Trump is worried about the trade deficit and wishes to shrink it, he should be panicked by Congress’s “deficit-busting,” bipartisan budget deal. It will explode the federal deficit. Indeed, Goldman Sachs projects that the federal fiscal deficit would increase from $750 billion in fiscal year 2018 to $1,050 billion in fiscal year 2019. By definition, this deal would explode the trade deficit, too. President Trump has a little problem, one generated by his administration’s wrongheaded view on international economics. The President has stated that he will sign Congress’s budget bill. But, little does he know, Congress’s fiscal folly will explode the trade deficit—precisely the opposite of what the President has promised. Steve Hanke is a professor of applied economics at The Johns Hopkins University and senior fellow at the Cato Institute.
  • Is This Week's Mini-Crash Just the Beginning?    (Brendan Brown, 2018-02-09)
    By: Brendan Brown According to the mainstream narratives, a state of inflation alert was the catalyst to the US stock market mini-crash of February 2 and February 5, 2018. This explanation echoes the run-up to the October 1987 stock market crash. On other occasions in history, inflation alerts have not had such an immediate effect, with the pull-back of asset price inflation (which typically leads reported goods and services inflation) waiting for a substantial tightening of monetary policy.Now everyone and his dog realizes that an inflation “break-out” (from inertia under the 2 per cent standard) would mean a bigger take for Uncle Sam and an eventual crash and recession. Some investors who have been riding the “hunt for yield” train decide it is time to get off, but on approaching the exit they encounter a stampede of like-minded people. Asset prices have gapped down or, worse, the market has seized up. Aggravating the stampede is the arrival of fellow-investors who have suddenly discovered the state-of-the-art products and services they — during the hunt for yield — have blown up.Many decide to postpone their exit hoping for a quieter time in the future. The history of the stampede and the realization that many of its one-time participants still “want out” weigh on markets and the economy going forward.In autumn 1987, the trigger to the inflation alert had been the new Fed Chief (Alan Greenspan) hinting that he would no longer steer monetary policy towards bolstering the dollar in line with the Louvre Accord of early that year. Paul Volcker (the previous Fed Chief) had had late remorse for having pursued a policy of monetary inflation since the Plaza Accord of summer 1985 (where he had signed up for Treasury Secretary Baker’s dollar devaluation policy). In the first half of 1987, Volcker had been tightening policy, annoying the Treasury Secretary and thereby failing to gain a nomination for a further term. The Bundesbank quickly indicated that Germany (unlike Japan at the time) would not follow the US on this further journey into monetary inflation. The US-German policy divergence (underlined by Secretary Baker criticizing a Bundesbank rate hike) and the related dollar setback, triggered a US inflation alarm in the stock markets. The late Jude Wanniski, a well-known contemporary economist close to anti-Baker conservatives, saw this alarm as the crucial catalyst to Black Monday (October 19). Adding to the drama of the market quake was the failure of a newly popular strategy of portfolio insurance during the post-Plaza asset price inflation; many investors had become convinced that they could carry larger equity risk positions than in the past due to the hedging potential of the new equity future markets; but when prices suddenly gapped down they found this tool of “hedging on demand” froze.Today Germany is out of the picture in terms of sounding an inflation alert. The new “grand” coalition deal concluded this week in Berlin seals German abdication as hard money sovereign in Europe, a role in practice abandoned in stages since the launch of European Monetary Union. At every point where Germany could have called a halt to the softening of the European monetary regime Chancellor Merkel has fallen back on the default position “there is no way back.”Pundits suggest the Merkel coalition deal will culminate in an electoral disaster for her CDU/CSU alliance and its SPD partner, meaning an overall majority next time for the anti-euro and euro-sceptic parties (AfD, FDP, and Left). Perhaps that would make possible a German hard money restoration, especially if in a post-Merkel era the CDU/CSU move to the right, but that is too uncertain and too far ahead to become a matter of present market speculation.Despite German abdication, the inflation alert this time did nonetheless come in part from a weakening of the dollar, which responded to the Davos chatter of Treasury Secretary Mnuchin (expressing fondness for a cheap greenback). But it was due more fundamentally to a US federal budget deficit in a late boom phase of the cycle projected now at as much as 6% of GDP next year. Another factor is the appointment of a Yellen loyalist who gets on well with the Treasury Secretary (and presumably President Trump) as Fed Chief, with only four Republican senators voting against.  Actual wage and price data was a factor as well. The approach of 10-year Treasury bond yields to 3% helped to precipitate the alert. Asset managers following the popular risk parity portfolio strategies using innovatory financial products based on trading so-called “market volatility” (the VIX) found themselves blindsided when the alert caused equity prices to gap down. Underlying the strategies had been the notion that asset managers could combine high leverage with assets of perceived low volatility to manufacture synthetic portfolios of a stipulated overall higher volatility and returns to match; they could also take advantage of an alleged overpricing of volatility in the markets to create arbitrage profit (taking short positions in volatility against long positions in risk). As the price for volatility and actual volatility gapped up at the start of this month, these strategies blew up. Central bank officials, whether from the Fed, ECB, or Bundesbank have been quick to say that there is no macro-economic significance or even serious financial consequence from the blow up and the related mini-crash. But how could it be that a jump in perceived asset risks (volatility) across the board and related jump in the price of put and call options can be so inconsequential?In Finance 101 we learn that the price of credit, especially high-risk credit, is tied by formula to the price of options on the underlying equity, and volatility is a key input to pricing (according to Black-Scholes). The spread on corporate bond yields (above Treasuries), for example, should now rise meaningfully, especially for high-risk categories. That is a potential big drag on overall risk markets and economic activity. Alongside we may well find a greater reticence of many households and businesses to spend now that the recent market tremor has heightened anxiety about the end game all know is coming for the monetary inflation created by our central bankers. No doubt the Fed, ECB and BoJ would exercise their “Greenspan puts” in response to an economic slowdown and continued market pullback this year by delaying still further policy normalization. That put was successful in 1987/8 in producing an eighteen-month respite before the final stage of asset price inflation set in (featuring then global real estate market downturn and eventually recession) while goods-inflation meanwhile did indeed spike upwards. This time a hypothetical Powell put may not even have that success given that so much of the speculative narrative that has accompanied asset market temperature rises to the sky in this cycle is already so aged and problematic sustained by market momentum which has faded away and even gone into reverse.
  • Paul Krugman Should Love President Trump’s Infrastructure Plan    (Robert P. Murphy, 2018-02-09)
    By: Robert P. Murphy America’s most famous Keynesian, economist Paul Krugman, predictably used his New York Times column to excoriate President Trump’s State of the Union infrastructure proposal. Yet ironically, Krugman’s own positions on the economy and climate change should lead him to applaud Trump’s ideas. This is just another episode where Krugman displays his partisanship, rather than fidelity to his ostensible goals for the public.Right off the bat, Krugman is in an awkward position, because back when he thought Hillary Clinton was going to be the next president, Krugman stressed the need for more infrastructure spending. For example, in a column from August 2016 titled, “Time to Borrow” (!), Krugman wrote:The campaign still has three ugly months to go, but the odds — 83 percent odds, according to the New York Times’s model — are that it will end with the election of a sane, sensible president. So what should she do to boost America’s economy, which is doing better than most of the world but is still falling far short of where it should be?There are, of course, many ways our economic policy could be improved. But the most important thing we need is sharply increased public investment in everything from energy to transportation to wastewater treatment.How should we pay for this investment? We shouldn’t — not now, or any time soon. Right now there is an overwhelming case for more government borrowing. [Bold added.]Well, it turns out that the NYT’s model gave Krugman a false sense of security, since his “sane, sensible” choice didn’t end up winning. After Trump’s surprise election, Krugman—being Krugman—suddenly flipped in his economic analysis. After the August 2016 column we just cited—titled “Time to Borrow,” remember—Krugman then wrote a column in early January 2017 titled, “Deficits Matter Again.” (Of course they do—a Republican is in the White House again!) And, if Krugman flipped on the wisdom of government deficits, he also now must be a massive opponent of Trump’s proposed infrastructure plan.How Can Krugman Oppose a Giant Infrastructure Plan?So how does the Nobel laureate pull this particular rabbit out of the hat? Here’s Krugman’s case, from the recent column following Trump’s State of the Union address:[W]hile we desperately need new investment in public capital, Trump’s proposal – Trumpfrastructure? – isn’t remotely serious. At best, it would be a trivial sum of money pretending to be something big. At worst, it would amount to an orgy of crony capitalism, privatizing public assets while generating little new investment.So, what’s being sold here? Trump gave a big number, $1.5 trillion. But a leaked draft of the plan says that it will involve only $200 billion of federal money. The rest is supposed to be induced spending from private investors. That’s quite a trick. How does it work?The answer is, basically, that it doesn’t. Private investors won’t spend on public infrastructure unless guaranteed a return. This only works if they’re given ownership, and the ability to collect future revenue from the public.…[E]ven where it does work — say, on toll roads and bridges — that private investment doesn’t come free; it’s in return for the ability to collect fees from the public, which is just taxation in another form. And there’s no evidence that doing public investment this way saves any money. On the contrary, it usually ends up costing taxpayers more than just having the government build the thing.So there you have it: Krugman thinks he’s reconciled his earlier calls for massive infrastructure spending, with his current opposition to Trump’s call for massive infrastructure spending. But even on his own terms, and in light of his other writings, Krugman’s case doesn’t hold up.Why Krugman Ought to Applaud Trump’s PlanOn Krugman’s own description of it, Trump’s plan has private investors put up a bunch of their own money to do the lion’s share of infrastructure spending, in exchange for the revenues that flow to the projects over time from fees levied on the citizens who use the items (bridges, roads, etc.). In other words, the plan is economically equivalent to financing public works projects through privately financed deficits, except it cuts out the IRS middleman.Krugman should be a huge fan of this approach. After all, Krugman tells us that sure, the economy seems to be doing OK in the first year under Trump, but that “when the next big shock comes…we’ll need an effective, coherent response from officials beyond the world of central banking.” This is because—Krugman claims—we are dangerously close to the “zero lower bound” world of the liquidity trap, so that the Fed can’t just cut interest rates when the next shock hits us.In that context, then, Krugman should be ecstatic to learn that the Trump Administration has already gotten the wheels in motion for private investors to put up $1.3 trillion on the front end to build infrastructure, in exchange for revenues to be collected over the following decades. That is exactly the kind of plan to promote investment spending via deficit finance that Krugman thinks is necessary when the Fed is rendered impotent because interest rates hit 0%.Better for the Environment, TooI am not being facetious; my analysis above flows directly from Krugman’s writings in the years following the financial crisis. Back then—when it was Barack Obama rather than Donald Trump in the White House—Krugman even stressed the fact that it was foolish to worry about costs. Indeed, it was a virtue for the government to spend more money than “necessary” on things; worrying about cost-effectiveness was the last thing to do in the midst of a depression. So again, in that spirit, Krugman should be happy for Trump’s plan to go through, even if it works exactly as Krugman has described it in his latest column.Finally, if we’re talking about roads and bridges, then even “price gouging” is great, from Krugman’s perspective. If a private owner sets tolls to maximize profit, then this will ensure a smooth flow of traffic. As economists have been arguing for decades, the familiar and agonizing traffic jams plaguing our major cities are not a force of nature—they are instead the predictable consequence of government setting prices below their market-clearing levels.And so, even in the “worst case” scenario where private owners charge higher tolls than would occur on government-owned roads, this will reduce traffic congestion and cut back on vehicle emissions. Not only will it enhance economic efficiency (which is why free-market economists welcome it), but it will reduce the threat of catastrophic climate change, which Krugman claims to be very worried about.In short, even if President Trump’s infrastructure proposal works out exactly as Paul Krugman has described it, Krugman should be applauding it. According to Krugman’s own stated views, Trump’s plan will be an insurance policy to maintain aggregate demand in the event of another shock to the economy. Furthermore, the more bridges and roads that are transferred into private hands, the less traffic congestion and carbon dioxide emissions.Originally published by the Institute for Energy Research 
  • Central Banks Holding Steady, But Promise More Rate Hikes    (Ryan McMaken, 2018-02-08)
    By: Ryan McMaken On February 5, the Reserve Bank of Australia held its key rate steady at 1.5 percent. The Bank of Canada raised its benchmark interest rate to 1.25 percent in January.At its February Meeting, the Federal Reserve announced it would hold the Federal Funds Rate steady at 1.5 percent.The Bank of England in January warned that it plans to hike rates this year, possibly as early as May. But its policy committee unanimously voted to keep the key rate at 0.5 percent earlier this month. The Bank of Japan announced it is keeping its key rate steady at -0.1 percent. In all cases — The Fed, the Bank of Canada, the BofE, the BOJ, and the Bank of Australia — central bankers said they expected to raise rates more in the near future. Even at the Bank of Japan, which has been especially dovish and pro-QE in recent years, the bank scaled back QE a tiny bit: After years of blistering asset purchases, the Bank of Japan disclosed today that total assets on its balance sheet actually inched down by ¥444 billion ($3.9 billion) from the end of November to ¥521.416 trillion on December 31. While small, it was the first month-end to month-end decline since the Abenomics-designed “QQE” kicked off in late 2012.The Bank of Canada has perhaps been the most aggressive at raising rates, with three rate hikes since July.But, in all cases, rates remain well below where they were in 2008 before the financial crisis. We're now entering the tenth year of low-low interest-rate policy and Quantitative Easing. And even though we're hearing constantly about how the global economy is red hot, it appears the most central banks are still reluctant to get anywhere near what might be properly called "normalization." One big exception to the claims of more rate hikes is the European Central Bank which isn't even talking about optimism at this point. Unlike other central banks, the ECB is already saying it might have to miss its self-imposed deadlines for unwinding QE: The European Central Bank's top economist has warned that its bond-buying efforts will have to continue beyond the planned deadline of September, if inflation does not pick up.Inflation has remained well short of the central bank's target of close to, but below, 2pc in recent years. Monthly data released at the end of January revealed that prices had risen by 1.3pc, the lowest reading since July 2017. The ECB has also warned that it expects inflation to slow in the next few months.The European economy continues to be nothing to write home about, but even if things were better, it's hard to see how the ECB, faced with so many debt heavy regimes in Europe, would be willing to raise interest rates and put European governments on the hook for higher payments on their debts.Using their conventional measures of inflation, central banks continue to see muted growth, which is partly why they refuse to budge much on their QE and key rates. Asset prices, however, continue to rise, with home prices reaching new highs in the US and — until this week, at least — stock prices were moving up rapidly. With interest rates so far below where they were at the beginning of the last financial crisis, it's hard to see where central banks will go the next time a recession hits. The likely outcome is only small movement in interest rates, with more reliance on central-banks buying assets. The Fed's Bill Dudley, however, maintains that the economy is still strong, and there's plenty of time and room to bring rates up. This week's mini-crash was only "small potatoes" according to Dudley.  Here are the specific key rates discussed here, with links: Fed. Reserve: Federal Funds Rate Bank of England: Official Bank RateReserve Bank of Australia: Cash RateBank of Japan: Overnight Call Rate (Observed); (Target Rate)Bank of Canada: Overnight Target RateECB: Deposit Facility RatePeople's Bank of China: Overnight Rate
  • James Buchanan on Methodological Individualism and the Market Process    (Thomas J. DiLorenzo, 2018-02-08)
    By: Thomas J. DiLorenzo A rigorous application of methodological individualism is perhaps what most separates the Austrian and Public Choice schools from most others. The idea that the individual should be the unit of analysis has spared public choice and Austrian economists from many of the mistakes of what might be called collectivist economics. The Austrians, for example, have exposed a great deal of macroeconomic nonsense due to the fact that Keynesian theory largely ignored aggregation problems. The Austrian conception of markets, based on the interaction among individuals and on man's inherent "propensity to truck, barter and exchange," is also more useful and informative, in my view, than the perfect competition model.Buchanan and other public choice theorists have greatly improved our understanding of the political process by scrapping the "organic" view of collective action, which describes government, more or less, is a benevolent despot, making decisions that are assumed to be in the public interest."Not so long ago, in 1968, Buchanan remarked:Most ... economists take an approach different from my own, and one that I regard as both confused and wrong. In my vision of social order, individual persons are the basic component units, and "government" is simply that complex of institutions through which individuals make collective decisions, and through which they carry out collective as opposed to private activities. Politics is the activity of persons in the context of such institution.1Of course, the economics profession has changed significantly since then, particularly in light of the public choice revolution. Methodological individualism has replaced more collectivist views in academic circles.Nevertheless, it is far from clear that there has been a decisive "victory." Social welfare functions still clutter the economics journals. Moreover, there is no shortage of recommendations for government intervention in the name of the mythical "public interest." Proponents of methodological individualism have made great strides, but the collectivist mind set dies a slow death.Buchanan has also long been considered a proponent of the Austrian view of the 'market process. In this regard he is more than jus a "fellow traveler"; his work has played an important role in helping to distinguish between the theory of the market as a process and the alternative, neoclassical theory of competitive equilibrium. Thus, in addition to his seminal work on subjective cost theory, Buchanan has helped clarify the Austrian view of the market as a process.In his 1963 presidential address to the Southern Economic Association, Buchanan explained how the economics profession was apparently being led astray by its focus on the "theory of resource allocation." He forcefully argued that the standard neoclassical definition of economics as the study of the allocation of scarce mean among competing ends "has served to retard, rather than advance scientific progress.2" The reason for this, according to Buchanan, is that there is very little economic content in much of modern economics. What neoclassical economics, all too often involves is a computation problem, the computation of equilibrium prices, for example which "to the subjectivist, [seems] an absurd exercise.'"'3A good example is the work of Nobel Laureate Tjalling Koopmans who began his career by working out the optimal allocation of a set of tankers carrying oil across the Atlantic during World War II. Buchanan properly labels such work as engineering, not economics and claims that he must have been "a confirmed subjectivist long before I realized what I was because I recall thinking in 1946, when Koopmans was lecturing...at the University of Chicago, that there seemed to be absolutely no economic content in what he was doing."4Buchanan has attempted to persuade the economics profession to abandon its fixation on allocation problems per se, for "if there is really nothing more to economics than this, we had as well turn it all over to the applied mathematician.5" This does appear to be the direction the profession has been heading; for "developments of note ...during the past two decades consist largely of improvements in...computing techniques, in the mathematics of social engineering."6Instead of becoming weakly-trained mathematicians (at least by the standards of professional mathematicians), Buchanan suggested replacing the theory of resource allocation with the theory of markets.This would require paying more attention to a particular form of human activity, and upon the various institutional arrangements that arise as a result of this form of activity. [Namely,] man's behavior in the market relationship, reflecting the propensity to truck and to barter, and the manifold variations in structure that this relationship can take.7These, Buchanan has written, are the proper subjects of economics.This approach helps us understand why, in perfect competition, there is no competition (or any trade, for that matter). It also reveals how a market is not competitive by definition, as in the neoclassical model, but that a market becomes competitive. "It is this becoming process, brought about by the continuous pressure of human behavior in exchange, that is the central part of our discipline...not the dry rot of postulated perfection."8Thus, Buchanan's view of the market system may properly be labeled Austrian. Furthermore, he has urged us to apply this same notion of the economic process to the study of political institutions. This is why public choice theory is largely a study of political processes, with policy recommendations usually focusing on altering institutional processes, rather than political outcomes or end states. Excerpted from The Subjectivist Roots of James Buchanan's Economics  1. JamesBuchanan, "An Economists's Approach to Scientific Politics," in M. Parons, ed., Perspectives in the Study of Politics (Chicago: Rand McNally, 1968),p. 78.  2. JamesBuchanan, "What Should Economists Do?" Southern Economic Journo (January 1964): 213-22.   3. JamesBuchanan, "General Implications of Subjectivism In Economics," In Geo frey Brennan and Robert D. Tollison, eds., What Should Economrsts Do? (Indianapoh Ind.: Liberty Press, 19791, p. 85.  4. Ibid. 5. JamesBuchanan, "What Should Economists Do?"p. 217.  6. Ibid. 7. Ibid. 8. Buchanan,Cost and Choice, p. 83. 
  • Doctors Should Support Interstate Telemedicine    (Shirley Svorny, 2018-02-08)
    Shirley Svorny Should licensed physicians be allowed to practice telemedicine across state borders? Lawmakers in Congress have been reluctant to move this forward. An exception is the recent VETS Act of 2017, versions of which just passed in both houses of Congress. Department of Veterans Affairs’ health care professionals will be allowed to practice via telemedicine in any state, no matter where the clinician is licensed or the patient is located. Why not make this type of access available to everyone? Lawmakers have introduced bills that included language to reduced barriers to interstate telemedicine, but ultimately pushback from state medical boards and physician groups have doomed these efforts. Reps. Devin Nunes, R-Tulare, and Sens. Mazie Hirono, D-Hawaii, and Joni Ernst, R-Iowa, tried to expand cross-state accessibility for Medicare recipients via the Telemedicine for Medicare Act of 2015. Sen. John McCain, R-Arizona, addressed the needs of TRICARE beneficiaries by including a similar provision in an early version of the 2016 National Defense Authorization Act. In both cases, the provision was stripped from the final legislation. Rep. Mike Thompson, D-St. Helena, included a provision in the Telehealth Promotion Act of 2012 that would have allowed physicians to practice across states on the basis of their home-state licensed and would have applied to all Americans: “For the purposes of [telehealth service] … providers of such services are considered to be furnishing such services at their location and not at the originating site.” A greater awareness of the benefits of telemedicine is needed to counter special interest groups that benefit financially from the status quo. In each case, well-respected and politically powerful groups, including the American Medical Association, and representatives of state medical boards opposed the language. As always, when it comes to proposals that would inject competition into the market for physician services, physicians raise the patient safety flag. However, there is no evidence to support this claim. So the existing laws stand. Physicians who want to provide services to residents in another state must be licensed in that state. Initial license fees (about $430 a state - double that if the physician uses a private company to assist in the process) and renewal fees (about $220 a year per state) limit the number of out-of-state licenses a physician is likely to acquire and maintain. Another complication to interstate practice under multiple state licenses is that state requirements for medical practice, including patient informed consent and continuing medical education, vary. So do rules regarding such things as fee-splitting and referrals. As health care lawyer Erika L. Adler put it, “Every state has its own rules for just about everything.” Setting aside costly state licensing requirements would allow telemedicine practitioners to expand into each and every state. This would allow large-scale providers, who are potentially more efficient, to develop a presence across the country. This would encourage patients to choose telemedicine over more costly sources of care, including emergency rooms, urgent care facilities, and even doctors’ offices. Interstate telemedicine also offers options for patients in small states without specialists, or for seriously ill patients who have a rare disease and are too ill or too poor to travel across state lines for care. The irony of opposition by the largest physician organizations is that telemedicine offers the scores of overworked, unhappy physicians unprecedented flexibility. Telemedicine neatly solves the problem of physicians who, increasingly, are unwilling to be on call on evenings and weekends. Remote digital encounters improve patient access to care and save commutes for both the physicians and their patients. With remote medicine, physicians can see additional patients without expanding their offices (saving money on staff and facilities). Via telemedicine, physicians may practice at the hours they choose, allowing for more personal time. The ability to practice remotely may keep some physicians active who would otherwise retire, putting a dent in the expected physician shortage. When necessary, or if they choose to, it would be legal for physicians to talk with patients when the patient is vacationing in another state. This would facilitate continuity of care for snowbirds who travel to Florida or Arizona for the winter months. The fact that private insurance companies are expanding the use of telemedicine tells us that telemedicine saves money. Legislation that would allow physicians to practice across state borders - perhaps redefining the location of the practice of medicine to that of the physician - would make telemedicine even more attractive. A greater awareness of the benefits of telemedicine is needed to counter special interest groups that benefit financially from the status quo. Physicians’ increasing appreciation of the value of telemedicine, both for themselves and their patients, could offer politicians the leverage needed to open state markets to out-of-state telemedicine providers. Such an opening would normalize and strengthen a burgeoning practice that stands to revolutionize the delivery of health care, potentially making it more accessible and more affordable. For anyone who can see their way through to put the needs of patients first, it makes all the sense in the world. Shirley Svorny is a professor of economics at California State University, Northridge, an adjunct scholar at the libertarian Cato Institute, and author of the study, “Liberating Telemedicine: Options to Eliminate the State-Licensing Roadblock.”
  • Venezuela Needs Monetary Freedom, and Soon    (Luis B. Cirocco, 2018-02-08)
    By: Luis B. Cirocco We've heard many excuses from the Venezuelan state: "private property can't not be protected under such a system," and "schools of economics will close because we won't need economists to control monetary policy," and  "we tried that in the past," and "our currency is a national symbol," and "it destroys jobs!"  Many have been the sophisms spread by Venezuelan “intellectuals” and politicians over decades to demonize what should be one of the most natural market processes of a society: monetary freedom, otherwise known as "currency competition."The selection of one particular medium of exchange (money) or various media of exchange as a market process, and not as a governmental imposition, is explained in a masterful way by Murray Rothbard in his essay What Has Government Done to Our Money? and by Friedrich von Hayek in his essay Denationalisation of Money, just to mention two outstanding examples. Detractors and criticisms based upon the most ridiculous and selfish fallacies are particularly abundant in Venezuela to justify the intervention of the state through “legal tender” laws and other laws designed to force citizens to use only the money approved by the Venezuelan state. \Why It's ImportantIn my personal case, I first heard the concept of monetary freedom while I was studying a master´s course in 2011. It was the first time I heard names such as Mises, Friedman, Hayek, and Rothbard, and when I became aware of the essence of their work in defense of liberty. It was in that class where Dr. Hugo J. Faría showed us that there is an efficient way to protect the fruit of people’s work that has been overlooked — on purpose — by our intellectuals and “leaders” for decades. The benefits of currency competition are ignored because it would empower individuals while curtailing the power of the state and other state-favored elites. Of course, in Venezuela at this point in history, denationalizing the money should also be accompanied by an effective and profound institutional reform focused on the protection of natural rights, the empowerment of citizens – and not of government, and the establishment of a free market economy.How It WorksIn the simplest form of the system, the US dollar, the euro, and the Venezuelan bolivar – for example – could coexist within the country, allowing people to have options to better protect their savings and negotiate with their employers the currency in which they would like to receive their salaries. The scheme can even embrace currencies issued by private organizations as well. In other words, the local bolivar would have to compete against other counterparts for the preference of all Venezuelans. It would eventually become clear that just the most useful money would be accepted and exchanged while the others would be displaced.Although I do not believe in central banks — because they represent a terrible source of moral hazard for the economies — in a scenario of free monetary competition the political cost of eliminating the central bank at once or by decree could be avoided because currency competition would induce the central bank to behave in a more ethical way. If it indiscriminately increased the money supply — for example — the local bolivar would lose its purchasing power and people would easily migrate to other currencies.The implementation of its simplest form necessarily goes through the elimination of the legal tender in our constitution. Panama is a clear example of a nation which, from its constitution on, does not force people to use a specific currency. There, just for practical and historical reasons, the US dollar is used as a primary medium of exchange but not because it is legally mandated. Not having a central bank and legal tender has resulted in an average annual inflation rate of around 3% in Panama over the last century.It is not necessary to be an expert in economics to understand the evil results caused by the fractional reserve scheme, eneabled by governments and central banks. But, providing citizens with options to better protect the fruit of their work is one of the most important policies that should be carried out nowadays in Venezuela, a country with the highest annual inflation rate of the planet, according to The Troubled Currencies Project led by professor Steve Hanke. Venezuela also now has the lowest level of economic freedom of the world, according to the Economic Freedom of the World report of the Fraser Institute, and where 82% of the population is in poverty, of which 50% is in critical poverty, according to a recent survey conducted by three renowned Venezuelan universities (Universidad Central de Venezuela, Universidad Simón Bolívar and Universidad Católica Andrés Bello).“People will not understand the model” is another typical excuse political “leaders” use to push the idea that monetary freedom’s implementation is not possible. Our experience at Econintech conferences, however, is that people do understand it and, moreover, would be willing to accept it.Venezuela is Desperate for ReformIn July 2017, Dr. Rafael Acevedo and I were truly honored by the Mises Institute when we were allowed to present the reality of the Venezuelan crisis and its historical causes at the 2017 Mises University. To us, it was a very rewarding experience for which we will always be thankful, but we could not imagine how the crisis would be explained now: just some months later, the inflation, scarcity, insecurity and corruption levels are even higher than those we showed last July. The cause, as imagined, is always the same: there is no political willingness to change, from its roots, the central planning and mercantilist model imposed since 1959 and exacerbated since 1998, just – perhaps – to relax it.I always tell my students to think about the following fundamental questions: Why is a monetary system with so evident benefits for the citizens of our country always demonized by intellectuals and politicians? Why is it surrounded by ridiculous technical jargon to make it look complicated, when barely mentioned? Why is monetary freedom purposely confused with not having monetary exchange controls? Will it be possible that some elites are profiting from preventing common people from enjoying the benefits of monetary freedom? For answer to tehse questions, I direct them to Dr. Faría’s papers: Venezuela: Without Liberals There Is No Liberalism Hugo Chávez Against the Backdrop of Venezuelan Economic and Political History.
  • What to Expect from North Korea in the Olympics    (Doug Bandow, 2018-02-08)
    Doug Bandow The two Koreas are sending a united women’s hockey team to the upcoming Olympic games. The Moon government’s invitation was controversial in the South, where residents are not in a particularly forgiving mood toward the North. American analysts almost uniformly dismissed the likelihood that the maneuver will achieve anything substantive, let alone represent serious movement toward denuclearization of the Democratic People’s Republic of Korea. Which is undoubtedly true, but to be expected. The Olympics has never been free of politics. Perhaps most infamous was the 1936 Berlin games, which highlighted Adolf Hitler’s Third Reich. Also common are boycotts. In 1956 two groups of states refused to attend the games to protest France’s, Great Britain’s, and Israel’s invasion of the Suez and the Soviet Union’s invasion of Hungary. Nearly thirty African nations boycotted the 1976 Montreal games because New Zealand’s rugby team had toured South Africa, which then imposed Apartheid. The United States and Soviet Union traded boycotts in 1980 and 1984, triggered by the invasion of Afghanistan. None of these efforts achieved much, other than disappointing athletes who had trained to compete. Those who have criticized North Korea’s participation in the upcoming game ignore the obvious benefits. In 1988 the Republic of Korea used the games to highlight its arrival internationally as a prosperous and newly democratic power. In this Seoul largely succeeded, though the DPRK sought to disrupt the games, engaging in one of its most notorious acts of terrorism, bringing down a Korean Airlines flight. That had no impact on the Olympics, however. This time Pyongyang has taken a different approach, using the Olympics to engage the Republic of Korea and promote cheery notions of national brotherhood and reunification. Whatever happens is unlikely to have much impact on the current nuclear controversy, but it will have a positive impact if it strengthens the resolve of the Moon government to resist the Trump administration’s apparent plans for war. Reports that the administration decided not to nominate Victor Cha as U.S. ambassador to South Korea because he advised against war suggest that President Donald Trump really may be prepared to blow up Northeast Asia. Until now, Washington sought to prevent a recurrence of the Korean War, but the president appears to hope that Kim Jong-un would trust the United States to leave him alone after being disarmed. Alas, the fate of Muammar el-Qaddafi is likely to push Pyongyang to arms. Even if the war was “over there,” as Sen. Lindsey Graham (R-SC) so inelegantly put it, the consequences would be horrific and global. Only resolute opposition from South Korea might be able to block the president’s apparent plans. However, the inclusion of the DPRK in the Olympics offers another benefit, a unique opportunity to add some new competitions specially organized for the winter extravaganza being hosted by the South. And these new challenges should not be treated as unique to the Korea games, but should be made a permanent part of the Olympics, at least until the Korean Peninsula again becomes one. For instance, imagine speed-skating across the Yalu River, the route taken by many North Korean defectors. The athletes would be encouraged to excel by including pursuers armed and authorized to shoot to kill. Reaching China first from the North would win the gold. Related would be hide-and-seek in the Chinese countryside around the city of Dandong. National teams would successively play defectors and pursuers. The best combined score would triumph; poor performers would spend a week in Chinese jail. The speed-skating and hide-and-seek races could be combined in a new biathlon, displacing the traditional combination of skiing and shooting. Another new event could be precision artillery fire. Working with a fixed number of cannon, athletes would try to do the most damage to targets painted with landmark buildings in Seoul. The team causing the most destruction would win gold. Last place finishers would have to move to the South Korean capital for the duration of the nuclear crisis. Also worth adding would be Burrowing for Battle. Teams would dig a tunnel about 2.5 miles long, the average width of the Demilitarized Zone separating the two Koreas. Medals would be awarded based on the size of the tunnel constructed within a given time. A related event, also providing an opportunity for another biathlon, would be to push a set number of people and vehicles through a given size tunnel, with victory going to the fastest competitor. Urban defection would be another event. Participants would have to elude trained teams of “minders” and reach a designated “asylum point.” Athletes would be graded on speed and grace of their escape, race for freedom, evasive techniques and undetected arrival. Also testing both physical and mental agility would be obsequious freestyling. Participants would develop a routine involving singing and dancing dedicated to praising political tyranny and oppression. The more fawning the rhetoric, unctuous the behavior, imperial the wardrobe, and majestic the music, the higher the score. A related event would be artistic militarism. Athletes would use traditional sports—running, ice-skating, rowing, diving, snowboarding and even curling—to illustrate the triumph of the heroic representatives of the people over long odds against imperialist aggression. Points would be awarded for creatively representing military forces, ingeniously caricaturing evil warmongers and effectively providing an uplifting liberation message. In the game of underwater detection participants would seek to sink sailboats painted as warships. Extra points would be awarded for the quickest and most complete demolitions. Premature detection would result in athletes being placed on the target boat in a subsequent heat. The Olympics highlight could be the insult marathon. Contestants would run the usual 26.2 miles, while spewing vicious slurs at one another. The participants would be judged not on racing speed, but on number, creativity, and harshness of their epitaphs. Unique and esoteric nastiness would be preferred, but insults would have to be suitable for publication around the world. Those who have criticized North Korea’s participation in the upcoming game ignore the obvious benefits. By simply seeming to reduce tensions on the peninsula, the competition will place another obstacle in the Trump administration’s dangerous race to war. Moreover, the Olympics has an opportunity to add a series of timely and interesting events. How better to ensure a large and engaged television audience around the globe? Doug Bandow is a Senior Fellow at the Cato Institute and a former Special Assistant to President Ronald Reagan.
  • Thanks to Ai, the Future of 'Fake News' May Be Easily-Faked Video    (Julian Sanchez, 2018-02-08)
    Julian Sanchez From the printing press and home VCRs to Snapchat and virtual reality, the pervasive desire to look at attractive naked people has been a great unsung driver of technological progress. If you want to know where technology is going, in other words, a good rule of thumb is: Look to porn. When it comes to the future of news, however, that advice may leave you feeling unsettled — and for reasons having nothing to do with prudery. As the technology news site Motherboard reported late last month, the latest merger of high tech and low urges is a phenomenon dubbed “deepfakes.” Using free, readily available software, the everyday horndog can now swap the faces of celebrities — or anyone else — into pornographic videos. While once such fakery would have required advanced video editing skills, the FakeApp, designed for the convenience of deepfake aficionados, makes use of machine learning algorithms to produce what is, in effect, a video editing Artificial Intelligence. The upshot is that shoehorning an onscreen — or real life — crush into an ersatz but highly convincing porn no longer requires a serious technical background. That ought to be disturbing enough: Most of us would rather not contemplate the prospect of discovering we’ve been unwillingly cast in an obscene video that’s gone viral online, even if it’s known to be a fake. (Some major porn sites are now barring the phony videos, though plenty remain in circulation.) But perhaps even more unsettling should be the inevitable application of this free-to-download tech to politics and journalism. Combined with software like Adobe Voco, which can create a pitch-perfect virtual simulation of anyone’s voice based on a short audio sample, you’ve got a recipe for realistic viral “fake news” fodder that the average prankster can manufacture in an afternoon. Technology has made it easier to fake; the economics of the internet make it increasingly likely that the fakes become news. And the inevitable blunders will confirm diminishing public trust in professional news media — the effect of which to date, ironically, has been to drive many viewers and readers into the arms of outlets with even fewer journalistic scruples. Just imagine the October Surprise potential: The candidate caught cavorting with prostitutes, spewing racial epithets, outlining a plan to round up Lutherans for secret medical experiments! Even the most brazen political campaign might fear the damage of such a forgery being traced back to its own doorstep — but when the software to pull it off is available to anyone with a broadband connection, they likely won’t have to. In an ecosystem flooded with forged amateur videos, of course, many viewers will naturally become more skeptical about the idea that “seeing is believing.” But that, too, has a cost: Recall Donald Trump’s strange, belated efforts to raise doubts among his associates about the veracity of the infamous Access Hollywood “grab ‘em by the pussy” tape. In a world of fake video, such a denial might well have seemed plausible, at least to those who wished to believe. A sufficiently shameless politician might deny even actions caught on tape, with supporters given license to trust their preconceptions over their eyes. Democratized digital fakery is nothing new, of course: Photoshopped images of political figures have long been a staple of those chain e-mails your uncle forwards along periodically. But they’ve typically remain confined to the fringes of political discourse for a few important reasons. One is that amateur Photoshop jobs are usually not too hard for even untrained eyes to detect: Zoom in close enough, and the pixelated hallmarks of a sloppy edit are apparent. Just as importantly, however, is the fact that it’s harder than you might initially think to construct a still image that’s unambiguously scandalous without being so comically heavy-handed as to raise instinctive suspicion in the minimally savvy viewer. (For instance, most of us understand that, when politicians take bribes, they rarely come in the form of giant sacks of cash emblazoned with dollar signs.) Audio alone, by contrast, offers more opportunity for creating plausibly scandalous content — it’s much easier to concoct damaging things that a politician might unwisely say out loud in an unguarded moment — but we’re all accustomed enough to hearing uncanny impersonations of famous people that an audio recording alone lacks persuasive power without a relatively ironclad provenance. All of that, taken together, make mainstream media outlets less likely to be taken in by and amplify such forgeries. Thus, what harm they do stays confined to chain e-mails. Video combined with audio, however, is another matter, especially as algorithmic assistants get better at concealing the more obvious digital artifacts of editing. Even in an era of sophisticated CGI, we are all still inclined to believe what we can both see and hear. Maybe more importantly, something that’s caught on video makes for good television. And the technology is arriving precisely as the incentives that media outlets face make them less able to resist paying attention to something that’s gone viral. Recall the path taken by the now-infamous “Steele Dossier,” the research compiled by a former British Intelligence officer purporting to document collusion between the Trump campaign and the Russian government. Many media outlets had obtained copies of the dossier, but because — however much of it ultimately proves accurate — they could not verify its claims, it remained unpublished. Until, that is, the online news site Buzzfeed decided that the dossier was sufficiently newsworthy to publish with the caveat that its allegations could not be confirmed. Instantly, the fact that one news organization had run with the story was itself a newsworthy development that others could justify covering. In the Internet Era, there are no more regional media oligopolies. Every news outlet is, essentially, in competition with hundreds, if not thousands, of others. That makes the traditional benign paternalism exercised by news organizations much harder to sustain economically: If you don’t run with that explosive video, your competitors may — and when there are thousands of competitors, it becomes a near certainty that at least one will. A site with dubious journalistic standards deciding that a fake clip is “newsworthy” merely on the grounds that it has gone viral on social media can plausibly kick off a chain reaction, as more credible outlets rush to cover the coverage, lest they be left last in the increasingly pitiless competition for eyeballs. Technology has made it easier to fake; the economics of the internet make it increasingly likely that the fakes become news. And the inevitable blunders will confirm diminishing public trust in professional news media — the effect of which to date, ironically, has been to drive many viewers and readers into the arms of outlets with even fewer journalistic scruples. Eventually, of course, both news producers and news consumers will adapt to the new reality, with some combination of professional protocols and personal skepticism. But the chaotic period of fumbling toward a new equilibrium promises to be a wild ride. Julian Sanchez is a senior fellow at the Cato Institute studying issues at the busy intersection of technology, privacy, and civil liberties.
  • Could North Korea Be America's Next Forever War?    (Christopher A. Preble, 2018-02-08)
    Christopher A. Preble The estimable Mira Rapp-Hooper, CNAS Senior Fellow, and also a Senior Fellow at the Paul Tsai China Center at Yale Law School, recently published a thorough take-down of the illogic of the so-called “bloody nose” option against North Korea. Here are a few choice passages: It makes little sense for American war planners to assume a “limited” strike like this would stay limited…. If [Kim Jong Un decided] to hit back, the result could be the most calamitous U.S. conflict since World War II. Much of the speculation about the supposed benefits of the bloody nose revolves around the presumption that Kim would not retaliate. But, as Rapp-Hooper notes: If Kim is irrational on matters concerning his nuclear weapons and missiles, it’s reasonable to assume he’d be similarly irrational across the board. If he cannot be stopped from trying to reunify the two Koreas, further U.S. or UN sanctions are also unlikely to alter his cost calculations…. Irrational actors are irrational in all domains—Washington does not have the luxury of picking and choosing where deterrence prevails. The case against the United States initiating force against any country, especially a nuclear-armed North Korea, is strong. Indeed, Korea expert Victor Cha raisedall the right questions last week. If we believe that Kim is undeterrable without such a strike, how can we also believe that a strike will deter him from responding in kind? And if Kim is unpredictable, impulsive and bordering on irrational, how can we control the escalation ladder, which is premised on an adversary’s rational understanding of signals and deterrence? He concludes: The United States must continue to prepare military options. Force will be necessary to deal with North Korea if it attacks first, but not through a preventive strike that could start a nuclear war. Under normal circumstances, these sorts of arguments should rule the day. Americans would have learned something from our other still-open-ended conflicts—mostly wars that we started—and be anxious to avoid future ones. Donald Trump secured the Republican nomination by railing against the Iraq war, started by a Republican, claimed (falsely) that he had always opposed that war, and hinted that he was intent upon avoiding similar misadventures, including the war in Afghanistan (that he subsequently expanded). A careful reading of Trump’s campaign statements would have revealed his hawkish instincts, but a number of voters were focused on Trump’s opponent, who they were convinced was an even bigger hawk. Still, given public sentiment—and Trump’s occasional skepticism—it would be reasonable to expect that new wars were unlikely. Or, at least, that he was unlikely to start them. As I said, under “normal” times. Alas, these are not normal times. Neither Rapp-Hooper nor Cha are likely to appear on “Fox and Friends,” which seems to be the best way to reach President Trump. So expect the drums of war to keep beating. I would offer just one caveat to Rapp-Hooper’s excellent article. She notes how National Security Advisor H. R. McMaster has focused on North Korea’s ICBM capability “as opposed to any of Kim’s other weapons systems or behavior” as the Trump administration’s red line. Such a declaration gives Pyongyang ample notice that Washington’s extended-deterrence commitments to its allies will become less credible once Kim deploys long-range missiles, and that the United States values its homeland far more than it values its international partners. It signals that we are gravely concerned for ourselves, but that allies are no more than a passing worry. That is always the problem with extended deterrence. Countries do value their own security over that of others, if forced to choose. Knowing this, and in order to prove the credibility of extended deterrent threats to allies and adversaries alike, U.S. leaders might undertake actions that do not serve narrow U.S. national security interests. These actions might be fairly innocuous, such as sanctions or diplomatic pressure, but they might also include wars fought on behalf of allies. There is no doubting Washington’s commitment and capacity for responding to an attack on any square inch of U.S. territory, from Portland, Oregon to Portland, Maine. But, as Henry Kissinger noted many years ago, “Because the consequences of our weapons technology are so fearsome, we have not found it easy to define a casus belli which would leave no doubt concerning our moral justification to use force.” Thomas Schelling, a leading strategist of the Cold War, shared Kissinger’s concerns. “To fight abroad is a military act, but to persuadeenemies or allies that one would fight abroad, under circumstances of great cost and risk, requires more than a military capability,” wrote Schelling, with emphasis, in his seminal work, Arms and Influence. “Extended deterrence,” Schelling continued, “requires projecting intentions. It requires having those intentions, even deliberately acquiring them, and communicating them persuasively to make other countries behave.” In short, we shouldn’t understate the difficulty of maintaining credible extended deterrence, or ignore the attendant costs and risks to the state issuing such deterrent threats. These risks now do (or soon will) include North Korean nuclear-tipped ICBMs targeting U.S. cities. Christopher Preble is vice president for defense and foreign-policy studies at the Cato Institute and the author of The Power Problem: How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free.
  • The New German Government Is Bad News    (Kai Weiss, 2018-02-08)
    By: Kai Weiss Germany finally has a new government. After months of negotiating, a breakdown of talks between the Conservatives, Greens, and Liberals, and constant fighting between the Conservatives (CDU/CSU) and Social Democrats (SPD), the two major parties reached an agreement yesterday.Members of the SPD still have to vote on the coalition agreement, which is “only” 177 pages long, but this should just be a matter of time – that is, no later than early March. For all Germans however, this spells trouble – well, at least for everyone except the Social Democrats. The SPD, despite being the biggest losers in the federal election, are the triumphant winners of the coalition talks.Martin Schulz, their leading candidate in the elections, will become Minister of Foreign Affairs, something unimaginable just a few weeks back, when his political career seemed closer to coming to an abrupt end after the miserable job he was doing, rather than getting one of the most prestigious jobs in the country. Under the leadership of the former President of the European Parliament, the SPD had the worst result in party history – in current polling, they now even have to fight for second place with the right-wing Alternative for Germany (AfD). Funnily enough, right after the election Schulz proclaimed loudly that he would never be a minister in a Merkel-led government. So much for that.But Schulz is not the only SPD loser who suddenly comes out as a (temporary) winner. Olaf Scholz (yes, the same name just with an “o”), the mayor of Hamburg, was close to having to step away from his position last July, when his city got demolished by left-extremist groups during the G8 meeting, Hamburg became a war zone between the “antifascists,” and the police. Now he is Minister of Finance. Whatever one might think of his predecessor Wolfgang Schäuble, in comparison to Scholz, Schäuble will surely seem as a fiscal hawk – he did balance the budget after all, and was the loudest proponent of the EU’s austerity policy, which was so heavily attacked by the SPD.Even worse, Heiko Maas will probably return to the Justice Department. Thanks to him, hate speech and fake news are now monitored in Germany, which for many has made the normal usage of Facebook an impossibility.Long term, however, the appointment of Andrea Nahles as the new leader of the SPD could be worst. All of the SPD politicians mentioned so far do have high positions for now, but in reality are merely “dead men walking” (as George Osborne would say).Nahles, though, has finally arisen from the far-left wing of the SPD, after being Minister of Labor in the last four years. Her goal is that the “new” SPD will from now on focus more on “social justice,” and should get closer to the Left Party, potentially even for a future coalition government. “We have failed to address the negative sides of globalization,” she said in September. “The SPD once again has to learn how capitalism works, and, if necessary, criticize it viciously.” Obviously, the SPD could learn how capitalism works – but under Nahles, it’s likelier that only the fallacious critique remains, and in a worst-case scenario, that the SPD turns into a Jeremy-Corbyn-style Labour party.This government, however, doesn’t just spell trouble for Germany, but perhaps even more so for Europe. The EU is already missing the sound voice from across the pond – no, not the US, but the common-sense Brits – but the skeptical, lukewarm voice from Germany could be history now as well. Angela Merkel, who suddenly looks like the right-wing part of the government (which should make it clear how dire the situation is), is probably in the final years of her tenure as Chancellor. She will intend to make a statement – and nowhere is this better possible than concerning the EU.This is why she will be much friendlier to the idea of a “United States of Europe,” already endorsed by Martin Schulz on Twitter a few weeks back, who demanded it to be implemented by 2025 (just like that). Reform plans put forward by Macron, Juncker, Verhofstadt, and other EU federalists should find much more support from Germany – these include for example a European Monetary Fund, a more intense cohesion policy (i.e. more direct redistribution from rich to poor member states), more cooperation on defense, regulatory and tax harmonization, maybe even a European-wide social safety net, and just overall – how could it be any other way – more power to Brussels (also by possibly easing majority voting in the Council to mum the “dissidents” from Poland, Hungary, the Netherlands, or Denmark for instance). The coalition agreement is extremely vague on which EU the German government actually wants to see – but be assured, if anything it is starkly pro-EU, and will favor more integration.Thus, the question remains if there are any good news at all – and thankfully there are, though they will be hard to notice at first. In parliament, now with another Grand Coalition, but two new parties, the opposition will be much stronger. With the liberal FDP, and the right-wing AfD – which both have their own problems, but do bring a breath of fresh air in favor of slightly more liberty-oriented policies, there will be loud opponents to the status quo.More importantly, though, the two ruling parties have just shifted their problems forward another four years. Judgement day will come nonetheless, and will just be worse. Germans are fed up by the CDU and SPD, which is why the two parties were the biggest losers in the last election. Germans are fed up by the Merkel’s and Schulz’. Let’s hope – and it admittedly may be naïve – this translates to a major political turnaround in the near future, regardless of inside the ruling CDU, where a conservative rebellion against the left-wing Merkel wing is ongoing, or outside, with new faces coming in. Today’s news will not change anything on that. It can only postpone it.
  • The United States Is a Tax Haven for Global Investors…and that’s Good for America    (Daniel J. Mitchell, 2018-02-08)
    By: Daniel J. Mitchell According to bureaucrats at the Paris-based Organization for Economic Cooperation and Development, so-called tax havens are terrible and should be shut down. Their position is grossly hypocritical since they get tax-free salaries while pushing for higher taxes on everyone else, but not very surprising since the OECD’s membership is dominated by increasingly uncompetitive European welfare states.Many economists, by contrast, view tax havens favorably since they discourage politicians from over-taxing and over-spending (thus protecting nations from “goldfish government“).I agree with this economic argument for tax havens, but I also think there’s a very strong moral argument for these jurisdictions since there are so many evil and incompetent governments in the world.But I don’t want to rehash the argument about the desirability of tax havens in this column. Instead, we’re going to focus on a nation that is becoming the world’s premier “offshore” center.But it’s not a Caribbean island or a micro-state in Europe.Instead, as noted in a recent Bloomberg editorial, the United States is now the magnet for global investment.…the U.S. is becoming one of the world’s best places to hide money from the tax collector. …Congress rejected the Obama administration’s repeated requests to make the necessary changes to the tax code. As a result, the Treasury cannot compel U.S. banks to reveal information such as account balances and names of beneficial owners. The U.S. has also failed to adopt the so-called Common Reporting Standard, a global agreement under which more than 100 countries will automatically provide each other with even more data than FATCA requires. …the U.S. is rapidly becoming the new Switzerland. Financial institutions catering to the global elite, such as Rothschild & Co. and Trident Trust Co., have moved accounts from offshore havens to Nevada, Wyoming and South Dakota. New York lawyers are actively marketing the country as a place to park assets. …From a certain perspective, all this might look pretty smart: Shut down foreign tax havens and then steal their business.The Economist also identified the U.S. as a haven.America seems not to feel bound by the global rules being crafted as a result of its own war on tax-dodging. It is also failing to tackle the anonymous shell companies often used to hide money. …All this adds up to “another example of how the US has elevated exceptionalism to a constitutional principle,” says Richard Hay of Stikeman Elliott, a law firm. …America sees no need to join the CRS. …reciprocation is patchy. It passes on names and interest earned, but not account balances; it does not look through the corporate structures that own many bank accounts to reveal the true “beneficial” owner; and data are only shared with countries that meet a host of privacy and technical standards. That excludes many non-European countries. …The Treasury wants more data-swapping and corporate transparency, and has made several proposals to bring America up to the level of the CRS. But most need congressional approval, and politicians are in no rush to enact them. …Meanwhile business lobbyists and states with lots of registered firms, led by Delaware, have long stymied proposed federal legislation that would require more openness in corporate ownership. (Incorporation is a state matter, not a federal one.) …America is much safer for legally earned wealth that is evading taxes… It has shown little appetite for helping enforce foreign tax laws.And here are some passages from a recent column in Forbes.…foreign financial institutions are required to report the identities and assets of United States taxpayers to the IRS. Meanwhile, U.S. financial institutions cannot be compelled to reveal the same information to foreign countries. Additionally, the United States has not adopted the Common Reporting Standard. …So, the United States government obtains tax and wealth information from other countries, but fails to share information about what occurs in the U.S. with those other counties. …the U.S. is among the top five best countries for setting up anonymous shell companies. Tax havens deliver a set of benefits including secrecy, potential tax minimization, and the ability of the wealthy to access their monies from anywhere in the world. For a substantial percentage of the global super-rich, the United States is regularly unmatched.Here’s some of what was reported by the U.K.-based Financial Times.South Dakota is best known for its vast stretches of flat land and the Mount Rushmore monument… Yet despite its small town feel, Sioux Falls has become a magnet for the ultra-wealthy who set up trusts to protect their fortunes from taxes… Assets held in South Dakotan trusts have grown from $32.8bn in 2006 to more than $226bn in 2014, according to the state’s division of banking. The number of trust companies has jumped from 20 in 2006 to 86 this year. The state’s role as a prairie tax haven has gained unwanted attention… The Boston Consulting Group estimates that there is $800bn of offshore wealth in the US, nearly half of which comes from Latin America. …Bruce Zagaris, a Washington-based lawyer at Berliner, Corcoran & Rowe, says the US offshore industry is even bigger than people realise. “I think the US is already the world’s largest offshore centre. It has done a real good job disabling competition from Swiss banks.”If this sounds like the United States is hypocritical, that’s a very fair accusation.Indeed, it was the topic of an entire panel at an Offshore Alert conference. If you have a lot of interest in this topic, here’s the video.This is an odd issue where I agree with statists (though only with regard to which jurisdictions are “havens”). For instance, the hard-left Tax Justice Network has calculated that the United States is not the biggest offshore jurisdiction. But America is close to the top.In the TJN’s most-recent Financial Secrecy Index, the United States ranks #2. They think that’s a bad thing (indeed, one of their top people actually asserted that all income belongs to the government), but I’m happy we’ve risen in the rankings.TJN also has specific details about U.S. law and I think they’ve put together a reasonably accurate summary.The bottom line is that America is a haven, though it’s probably worth noting that we’ve risen in the rankings mostly because other nations have been coerced into weakening their human rights laws on financial privacy, not because the United States has improved.At the risk of pointing out the obvious, TJN and I part ways on whether it’s good for the United States to be a tax haven.I already explained at the start of this column why I like tax havens and tax competition. Simply stated, it’s good for taxpayers and the global economy when governments are forced to compete.But there’s also a good-for-America argument. Here’s the data from the Commerce Department’s Bureau of Economic Analysis on indirect investment in the U.S. economy. As you can see, cross-border flows of passive investment have skyrocketed. It’s unknown how much of this increase is due to overall globalization and how much is the result of America’s favorable tax and privacy rules for foreigners.But there’s no question the U.S. economy benefits enormously from foreigners choosing to invest in America.All of which helps to explain why it would be a big mistake for the United States to ratify the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.Unless, of course, one thinks it would be good to undermine American competitiveness by creating a global tax cartel to enable bigger government.P.S. The OECD doesn’t like me, but I don’t like them either.P.P.S. The TJN folks and OECD bureaucrats claim that their goal is to reduce tax evasion. My response is that a global tax cartel is a destructive way of achieving that goal. There’s a much better option available.P.P.P.S. Rand Paul is one of the few heroes on this issue.Originally published on International Liberty
  • Why Stock Market Upheaval Was Inevitable    (James A. Dorn, 2018-02-07)
    James A. Dorn The sharp plunge in stock markets around the world earlier this week tells us that major central banks, with the US Federal Reserve at the forefront, have severely underestimated the risk of keeping interest rates too low for too long. Now that markets expect higher rates — due to improved economic growth, higher inflation, growing fiscal deficits, and the unwinding of central bank balance sheets — it has become clear that monetary stimulus created a pseudo wealth effect, and that suppressing interest rates by unconventional policy to spur risk-taking and pump up asset prices was itself a risky strategy. The long stock market rally since 2009 was fueled in large part by the Federal Reserve’s unconventional monetary policies. By promising to keep its policy rate (the federal funds rate) near zero “for a considerable period of time” and engaging in large-scale asset purchases, known as “quantitative easing,” the Fed hoped to boost asset prices and stimulate the economy. A law of the market is that when interest rates fall, asset prices rise. As long as markets believe the Fed will support asset prices by keeping rates low, stocks will be the investment of choice, rather than conservative, low-yield saving accounts, money market funds, or highly-rated bonds. But now it seems markets don’t believe those helpful Fed policies will last much longer. The uptick in economic growth forecasts, the expectation of higher inflation, and the growing federal deficits are putting pressure on the Fed to increase the pace of their policy rate hikes. Markets are now factoring in those forces and the realization that stock prices are not on a sustainable path — hence a big sell-off. Such a downturn was inevitable, because reality tells us that there has been a mismatch between the economy and the stock market. Fed policy did not — and could not — permanently increase real economic growth and wealth. If it could, then the best policy would be to simply run the money printing presses day and night. When stock prices increase by double digit percentages for more than seven years while economic growth is sluggish (last year the Dow increased by 25% and the economy grew by less than 3%), something is amiss. And we’ve seen what happened to the market in previous instances when it seemed like the Fed was going to change course. In 2013, when Fed Chairman Ben Bernanke indicated he might start exiting QE — decreasing the support for stocks — markets dropped sharply in the famous “taper tantrum.” Bernanke quickly reassured markets that the low-rate policy and QE would continue, and markets resumed their upward trend. The fear now is that the new Fed chairman, Jerome Powell, may have to quicken the pace of interest rate hikes and speed up the unwinding of the Fed’s huge portfolio of mortgage-backed securities and longer-term Treasuries, or else the Fed will lose control of its ability to manage inflation. Given the inverse relationship between interest rates and asset prices, investors rightfully are looking to reduce the weight of stocks in their portfolio before rising rates cut into the gains made over much of the last decade. And there are other factors that may push up interest rates, and push equity prices down in the process. There is the expectation that with President Trump’s $1.5 trillion tax cut and plans for increased spending, fiscal deficits will grow, leading to higher interest rates as the government enters the bond market to cover its deficit spending. Floating more bonds will decrease their prices and increase their yields, attracting more investors into bonds and out of stocks. The only sure path toward future prosperity is to let free markets determine interest rates and the allocation of credit. Private saving finances productive investment that increases future real income and consumption. That linkage is an iron law of economics. When government tries to circumvent that law, it may create short-run stimulus, but in the long run the ill effects become apparent. Financial booms generated by loose monetary policy can last for a considerable time, but central banks never know when to take the punch bowl away. And when they do, the boom is followed by a bust. As interest rates return to normal and the Fed exits its unconventional policy, there will be some financial turmoil. However, if policymakers put monetary, fiscal, trade and regulatory policies on a sound path, the economy will prosper — and so will asset markets. James A. Dorn is vice president for monetary studies and a senior fellow at the Cato Institute in Washington, DC.
  • Tax Cut Doomsayers Need a History (and Economics) Lesson    (2018-02-07)
    By Mary L. G. Theroux; The recent federal tax cut is creating a lot of fear and angst that a quick historical survey would go far to allay. Consider, for example, this recent opinion piece by two offici...
  • The Scam That Is Urban "Land Use" Planning    (Lee Friday, 2018-02-07)
    By: Lee Friday For many years, property owners with vacant buildings in London, Ontario have applied for a 30 percent rebate on their property taxes. However, City Council decided to cut the rebate in half for 2018, then eliminate it entirely at year’s end. Additionally, despite insufficient parking in downtown London, Council is seriously considering a reduction in the number of parking lot permits.Ending the rebate and reducing the number of parking lots will stimulate development, according to the politicians. Unfortunately, these actions may produce the opposite result.Regarding the tax rebate, the London Free Press (LFP) quotes Councillor Stephen Turner:The policy benefits land speculators, those who buy land to sit on it, and hurts development . . . We want to offer incentives to develop, not disincentives . . . If someone has been holding on to a vacant building since 1998, they are clearly speculators. That decreases development potential . . .Similarly, Councillor Tanya Park was quoted by the LFP:Any owner with vacant lots downtown are not doing themselves or the city any service. The earning potential is huge . . . It behooves one to get them (developed). . .The Scourge of Speculators?Politicians constantly vilify “speculators.” We are all speculators! Each of us makes decisions on a regular basis, the outcomes of which are often unknown to us until some future time. This means we are speculating. My wife and I decide to dine at a restaurant that is new to us. We may love it. We may be disappointed. We are speculating.When entrepreneurs initiate new projects, they do not know if they will be successful. There are many unknown factors awaiting them, not the least of which is the fickle, discriminating consumer. Entrepreneurs are speculating, and most new businesses fail within five years.Our standard of living i.e. the goods and services we enjoy in modern society, are an outcome of successful entrepreneurial efforts. Thus, speculators should be praised, not condemned. As Ludwig von Mises wrote in Human Action:. . . dealing with the uncertain conditions of the unknown future – that is, speculation – is inherent in every action, and . . . profit and loss are necessary features of acting which cannot be conjured away by any wishful thinking.Developers Want Profits — But Also Must Avoid LossesCouncillor Turner says long-term owners of vacant land and buildings are “decreasing development potential”, and to address this supposed deficiency he wants to increase taxes. First, increasing taxes is not an incentive to development, but a disincentive.Second, owners are not keeping properties idle because of tax rebates. They have simply not yet identified a development project which they believe will be sufficiently profitable to justify the cost – including taxes – of development which they must obviously absorb. The risk of loss is always present. Profits, or losses, determine the success, or failure, of any business. As Mises said, this reality “cannot be conjured away by any wishful thinking.”Owners hold idle property because (a) they believe a profitable opportunity will materialize in the future, and/or (b) they have not received an offer for the property which is sufficiently attractive for them to forego the opportunity for future development themselves. The fact that they have not received such an offer indicates that other entrepreneurs do not have any better ideas. As Murray Rothbard wrote in Man, Economy, and State:In many cases . . . a land site, once committed to a certain line of production, could not easily or without substantial cost be shifted to another line. Where the landowner anticipates that a better line of use will soon become available or is in doubt on the best commitment for the land, he will withhold the land site from use if his saving in “change-over cost” will be greater than his opportunity cost of waiting and of forgoing presently obtainable rents. The speculative site-owner is, then, performing a great service to consumers and to the market in not committing the land to a poorer productive use. By waiting to place the land in a superior productive use, he is allocating the land to the uses most desired by the consumers.More from Councillor Park:Park said she likes an initiative by Montreal to tax land at its highest potential use, to encourage building on the lot.This is a ridiculous idea!Let’s define “highest potential use” as a use which an entrepreneur believes will provide products or services which are more highly valued by consumers as compared to any alternative use of the land. No one can possibly know, in advance, what this use is, which means such political edicts would be completely arbitrary. Someone must first identify a particular use, develop the property accordingly, then wait to see if enough consumers approve of the enterprise to allow it to be profitable. As Rothbard told us, the only way to know the answer to this question is to wait, and allow market events to naturally unfold.The Function of For-Profit Parking LotsThe LFP quoted a major developer:The most important reason London has 700,000 sq. ft. of vacant office space in the downtown is because we do not have enough convenient parking,” said Shmuel Farhi, a top core property owner. “Every spot lost means one less potential new downtown worker."This simple economic fact seems lost on Councillor Jesse Helmer, who said (emphasis added):I understand why people want parking downtown . . . I have been consistent with not voting for temporary parking . . .So, Helmer is saying he does not want to allow entrepreneurs to provide the parking which he knows people want. And Helmer is supposedly a representative of the people!Do not concern yourself with Helmer’s choice of words, “temporary parking” versus permanent parking, because some councillors seem opposed to either form of parking. The LFP reported that in 2014, Sifton Properties applied for a rezoning to establish a parking lot for permanent use and council refused, instead approving a new temporary use for three years.Government Ignorance about Land-use PlanningCity Council says vacant space and parking lots are preventing more economically productive development. However, business expansion requires parking expansion. As Farhi pointed out, there is a lot of vacant office space because there is insufficient parking. John Fleming, the bureaucrat in charge of planning, said:It would be a lot easier if we knew that once parking lot permission is withdrawn, somebody would by default develop the land. We know that that’s going to take some time, and in that time, we’re going to potentially have a vacant piece of land that’s not being used.Exactly. Fleming is confessing his ignorance about whether the City’s policy will actually achieve its goal. It is entirely possible that a former downtown parking lot will remain vacant for many years, when it could have served a useful economic purpose as a parking lot. And as parking facilities become more scarce and expensive, businesses and workers may flee to the suburbs. Thus, downtown London would experience economic contraction, which is the opposite of Council’s professed goal.Politicians and bureaucrats are ignorant about land-use planning. The same goes for numerous entrepreneurs, as many of their ventures fail. The difference is that entrepreneurs (and their investors) are investing their own money. Thus, they are highly incentivized to plan well because they personally bear the burden of their own mistakes.In contrast, the government has little incentive to plan well because taxpayers, consumers, and businesses are forced to bear the burden of the government’s mistakes. But why do politicians and bureaucrats continue to force their planning decisions on the rest of us when they readily admit to their own ignorance?The simple answer is because they can. They are power hungry, and like to portray themselves as indispensable masterminds to the voters. And it matters not a whit to them when their grandiose schemes fail, as they invariably do. After all, they have no skin in the game, and they always blame someone else, e.g., those evil speculators. As Shmuel Farhi said:The market drives development, not hopes and wishes . . . all mayors want to see development. The problem is, if the development is unsuccessful they can just walk away, but the bankers and lenders will not.Entrepreneurs should not have to apply for parking lot permits from the government. They should be free to seek permission directly from consumers. If the government stops interfering in the marketplace, more parking lots will be provided, and parking fees will decline. If too many lots are built, owners of empty lots will face losses.Losses are the method by which consumers deny permission to parking lot owners to continue their business. Thus, the land remains available for a future development which an entrepreneur believes will more effectively satisfy the preferences of consumers.


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