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Liberty News

  • Jim Grant Explains the Gold Standard    (Ryan McMaken, 2017-06-27)
    By: Ryan McMaken Earlier this month in the Wall Street Journal, James Grant explored the latest academic attack on the gold standard — this time in the form of One Nation Under Gold by financial journalist James Ledbetter.Not that the establishment economics profession needs another book trashing gold. Among the university- and government-employed PhDs who hand down their wisdom about economics from on high, few have anything but disdain for the yellow metal. RELATED: "The United States of Insolvency" — An Interview with James GrantGrant knows this all to well and notes: As if to clinch the case against gold—and, necessarily, the case for the modern-day status quo—Mr. Ledbetter writes: “Of forty economists teaching at America’s most prestigious universities—including many who’ve advised or worked in Republican administrations—exactly zero responded favorably to a gold-standard question asked in 2012.” Perhaps so, but “zero” or thereabouts likewise describes the number of established economists who in 2005, ’06 and ’07 anticipated the coming of the biggest financial event of their professional lives. The economists mean no harm. But if, in unison, they arrive at the conclusion that tomorrow is Monday, a prudent person would check the calendar.Nevertheless, the gold standard has a reputation for being dark and nefarious. It's backward and limiting, and the sort of thing one ought to associate with crucifixion, as implied in William Jennings Bryan's famous Cross of Gold speech. But, as Grant sums things up, it's not as complicated as all that: What was the gold standard, exactly—this thing that the professors dismiss so airily today? A self-respecting member of the community of gold-standard nations defined its money as a weight of bullion. It allowed gold to enter and leave the country freely. It exchanged bank notes to gold, and vice versa, at a fixed and inviolable rate. The people, not the authorities, decided which form of money was best.The gold standard was a hard task master, all right. You couldn’t devalue your way out of trouble. You couldn’t run up a big domestic budget deficit. The central bank of a gold-standard country (if there was a central bank) was charged with preserving the convertibility of the currency and, in a pinch, serving as lender of last resort to needy commercial banks. Growth, employment and price stability took their own course. And if, in a financial panic or a business-cycle downturn, gold fled the country, it was the duty of the central bank to establish a rate of interest that called the metal home. In the throes of a crisis, interest rates would likely go up, not down.The reason gold is so unpleasant then, Grant writes, is that "the modern sensibility quakes at the rigor of such a system." But, in an age when science and technology can solve all our problems, surely if we try really hard, we can devise an economic system that can create wealth out of thin air! Thus was the gold standard replaced by another standard: That system features monetary oversight by former university economics faculty—the Ph.D. standard, let’s call it. The ex-professors buy bonds with money they whistle into existence (“quantitative easing”), tinker with interest rates, and give speeches about their intentions to buy bonds and tinker with interest rates (“forward guidance”).But why was this new standard adopted? Many economists would have us believe it was due to some rational embrace of more "correct" thinking. But, as with Keynesian economics in general — which was largely embraced because it tells powerful people what they want to hear — the new monetary system was embraced because governments couldn't pay their debts:Addressing a national television audience on Sunday evening, Aug. 15, 1971, President Richard Nixon announced the temporary suspension of the dollar’s convertibility into gold. No more would foreign governments enjoy the right to trade in their greenbacks for bullion at the then standard rate of $35 to the ounce. It's not a coincidence that this came at the end of a long period of guns-and-butter policy in which the US government spent freely on new wars and a growing welfare state. But there was a problem. Government's ability to give itself a raise by inflating the currency was restrained somewhat by the Bretton Woods system, which guaranteed the international value of gold at a fixed number of dollars. Nixon yearned to be free of this restraint so he could spend dollars more freely, and not have to worry about their value in gold. Nixon's move was, in short, the final and total politicization on money itself, and, as Grant notes, "The Ph.D. standard is ... a political institution. It is the financial counterpart to the philosophy of statism."
  • Republican Healthcare Plan Fails the ‘Jimmy Kimmel Test’    (Ron Paul, 2017-06-26)
    By: Ron Paul This week the Senate Republican leadership unveiled its Obamacare replacement plan. Like its House counterpart, the misnamed Senate plan retains most of Obamacare’s core features.Both the House and Senate plans allow states to obtain waivers providing relief from some Obamacare mandates, although the waivers in both bills are too restrictive to be of much value. For example, the Senate's bill does not allow states to have waived two of Obamacare’s most destructive mandates — guaranteed issue and community ratings.The healthcare debate is dominated by emotional rhetoric about how government-run healthcare is necessary to protect the vulnerable. For example, in May, Jimmy Kimmel Live host Jimmy Kimmel delivered a touching monologue about his newborn son’s open-heart surgery. Mr. Kimmel ended his monologue with a plea to retain Obamacare so all children can obtain life-saving treatment. After the monologue became a national sensation, many suggested that any Obamacare replacement plan be judged by a "Jimmy Kimmel test.”Every decent human being supports a healthcare system that ensures children have access to medical care. However, this does not mean every decent person should support government-run healthcare. In fact decent people should oppose all forms of nationalized medicine.Government intervention in healthcare distorts the marketplace with mandates, subsidies, and price controls. As is the case with any goods or services, price controls in healthcare result in shortages and even price increases as providers look for ways to offset their losses caused by the controls. This is why many Americans have seen their health insurance premiums skyrocket under Obamacare.Government-run healthcare can be deadly. Anyone who doubts this should consider the case of Laura Hillier, an 18 year-old Canadian who passed away from leukemia while on a government medical treatment wait list. This is one of many horror stories from Canada, and other countries with nationalized healthcare, of individuals who died while waiting for their turn to receive medical treatment.One need not look to Canada to find casualties of government intervention in healthcare. In 2013 Sarah Murnaghan, a ten-year-old cystic fibrosis patient, almost died because of federal rules forbidding children her age from receiving organ transplants. Public outcry eventually forced the government to allow Sarah to receive the transplant, but how many Sarahs have died because of government organ transplant rules?The Jimmy Kimmel test is a valid way to evaluate healthcare proposals. However, there should also be a Laura Hillier or Sarah Murnaghan test forbidding adoption of a new healthcare system that increases healthcare costs, creates healthcare shortages, or allows government to deny anyone access to healthcare.The free market meets all these tests. In a free market, doctors voluntarily donate their time to help those in need, while private charities and churches fund charity hospitals and clinics. Such a system flourished in the days before Medicaid and Medicare, and would quickly return if the welfare state is eliminated.Congress should be working to repeal all federal interference in healthcare, including by shutting down the Food and Drug Administration (FDA). The FDA raises the cost of medicine, denies Americans access to effective treatments, and prevents individuals from learning about cost-effective ways to improve their health.Unfortunately, a Congress that so quickly abandons its promise to repeal and replace Obamacare will not restore free-market healthcare — or otherwise reduce the welfare-warfare state — unless forced to do so by an economic crisis or demands from a critical mass of pro-liberty Americans.Reprinted with permission. 
  • The Super Bubble Is in Trouble    (Thorsten Polleit, 2017-06-26)
    By: Thorsten Polleit You do not need to be a financial market wizard to see that especially bond markets have reached bubble territory: bond prices have become artificially inflated by central banks' unprecedented monetary policies. For instance, the price-earnings-ratio for the US 10-year Treasury yield stands around 44, while the equivalent for the euro zone trades at 85. In other words, the investor has to wait 44 years (and 85 years, respectively) to recover the bonds' purchasing price through coupon payments.Meanwhile, however, the US Federal Reserve (Fed) keeps bringing up its borrowing rate; and even the European Central Bank (ECB) is now toying with the idea of putting an end to its expansionary policy sooner rather or later. Most notably, however, US long-term rates have come down since the end of 2016, despite the Fed raising its short-term interest rate. How come?Presumably, investors seem to expect that the Fed might not hike interest rates much further, and/or that higher short-term interest rates will prove to be short-lived, to be reversed quite quickly. In any case, bond markets do not seem to expect interest rates to go back to normal levels — that is toward pre-crisis levels — anytime soon. Several reasons could be responsible for such an expectation.First and foremost, the US economy appears to be addicted to cheap money. The latest economic recovery has been orchestrated, in particular, through a hefty dose of easy monetary policy. It is therefore fair to assume that market agents will have a hard time coping with higher interest rates. For instance, corporations, consumers, and mortgage borrowers, in general, will face higher credit costs and a less favorable access to funding if and when interest rates edge higher.In particular, higher interest rates could send the inflated prices of stocks, bonds, and housing southward. For instance, expected future cash flows would be discounted at a higher interest rate, deflating their present values and thus market prices. The deflation of asset markets would hit borrowers hard: Their asset values would nosedive, while nominal debt would remain unchanged so that equity capital is wiped out — a scenario most investors might assume to be undesirable from the viewpoint of central banks.Moreover, the yield curve has become flatter and flatter in recent years. This, in turn, suggests that banks' profit opportunities from lending have been shrinking, potentially dampening the inflow of new credit into the economic system. A further decline of the yield spread could bring real trouble: In the past, a flat or even inverted yield curve has been accompanied by a significant economic downturn or even a stock market crash.That said, investors might expect that central banks find it hard to bring interest rates back up, especially back to a level where real interest rates are positive. This holds true for the Fed as well as for all other central banks, including the ECB. This is because the monetary policy of increasing borrowing rates by a significant margin would most likely prick the “Super-Bubble” which has been inflated and nurtured by central banks’ monetary policies over the last decades.However, it wouldn’t be surprising if, again, central banks, the monopolist producers of fiat money, turn out to be the major course of trouble. After many years of exceptionally low interest rates, central banks may well underestimate the disruptive consequences an increase in borrowing rates has on growth, employment, and the entire fiat money system. In any case, the artificial boom created by central banks must at some point turn into bust, as the Austrian business cycle theory informs us.The boom turns into bust either by central banks taking away the punchbowl of low interest rates and generous liquidity generation; or the commercial banks, in view of financially overstretched borrowers, stop extending credit; or ever greater quantities of fiat money need be issued by central banks to keep the boom going, inflating prices so that ultimately people start fleeing out of cash. In such an extreme case, the demand for money collapses, and then a Super-Super-Bubble pops.In this context, it is interesting to see that the price of Bitcoin has been skyrocketing in recent years. There are certainly several reasons for this. One reason is undoubtedly the fact that the cyber unit offers a potential “escape route” from fiat money. Bitcoin (and other cyber units as well) might well be seen, and increasingly so, as a “safe haven” in future times of trouble. And there will be for sure new waves of trouble going forward — whether central banks will tighten interest rates or not.As alternatives to fiat money become increasingly accepted, positive spill-over effects can be expected for gold. Gold has always been the monetary prototype of a “safe haven.” It may be increasingly in demand for its store of value function going forward and, by making use of the blockchain, even as a digitalized means of payment representing a claim on physical gold. Once the Super-Bubble pops, we will see for sure what people demand as the ultimate means of payment: gold or cyber units, or both.
  • Republican Healthcare Plan Fails the "Jimmy Kimmel Test"    (Ron Paul, 2017-06-26)
    By: Ron Paul This week the Senate Republican leadership unveiled its Obamacare replacement plan. Like its House counterpart, the misnamed Senate plan retains most of Obamacare's core features.Both the House and Senate plans allow states to obtain waivers providing relief from some Obamacare mandates, although the waivers in both bills are too restrictive to be of much value. For example, the Senate's bill does not allow states to have waived two of Obamacare's most destructive mandates — guaranteed issue and community ratings.The healthcare debate is dominated by emotional rhetoric about how government-run healthcare is necessary to protect the vulnerable. For example, in May, Jimmy Kimmel Live host Jimmy Kimmel delivered a touching monologue about his newborn son’s open-heart surgery. Mr. Kimmel ended his monologue with a plea to retain Obamacare so all children can obtain life-saving treatment. After the monologue became a national sensation, many suggested that any Obamacare replacement plan be judged by a "Jimmy Kimmel test."Every decent human being supports a healthcare system that ensures children have access to medical care. However, this does not mean every decent person should support government-run healthcare. In fact decent people should oppose all forms of nationalized medicine.Government intervention in healthcare distorts the marketplace with mandates, subsidies, and price controls. As is the case with any goods or services, price controls in healthcare result in shortages and even price increases as providers look for ways to offset their losses caused by the controls. This is why many Americans have seen their health insurance premiums skyrocket under Obamacare.Government-run healthcare can be deadly. Anyone who doubts this should consider the case of Laura Hillier, an 18 year-old Canadian who passed away from leukemia while on a government medical treatment wait list. This is one of many horror stories from Canada, and other countries with nationalized healthcare, of individuals who died while waiting for their turn to receive medical treatment.One need not look to Canada to find casualties of government intervention in healthcare. In 2013 Sarah Murnaghan, a ten-year-old cystic fibrosis patient, almost died because of federal rules forbidding children her age from receiving organ transplants. Public outcry eventually forced the government to allow Sarah to receive the transplant, but how many Sarahs have died because of government organ transplant rules?The Jimmy Kimmel test is a valid way to evaluate healthcare proposals. However, there should also be a Laura Hillier or Sarah Murnaghan test forbidding adoption of a new healthcare system that increases healthcare costs, creates healthcare shortages, or allows government to deny anyone access to healthcare.The free market meets all these tests. In a free market, doctors voluntarily donate their time to help those in need, while private charities and churches fund charity hospitals and clinics. Such a system flourished in the days before Medicaid and Medicare, and would quickly return if the welfare state is eliminated.Congress should be working to repeal all federal interference in healthcare, including by shutting down the Food and Drug Administration (FDA). The FDA raises the cost of medicine, denies Americans access to effective treatments, and prevents individuals from learning about cost-effective ways to improve their health.Unfortunately, a Congress that so quickly abandons its promise to repeal and replace Obamacare will not restore free-market healthcare — or otherwise reduce the welfare-warfare state — unless forced to do so by an economic crisis or demands from a critical mass of pro-liberty Americans.Reprinted with permission. 
  • The Money-Velocity Myth    (Frank Shostak, 2017-06-26)
    By: Frank Shostak For most financial commentators an important factor that either reinforces or weakens the effect of changes in money supply on economic activity and prices is a velocity of money.It is alleged that when the velocity of money rises, all other thing being equal, the buying power of money declines ie the prices of goods and services rise. The opposite occurs when velocity declines.If, for example, it was found that the quantity of money had increased by 10% in a given year, while the price level as measured by the consumer price index has remained unchanged it would mean that there must have been a slowing down of about 10% in the velocity of circulation.The mainstream view of money velocity According to popular thinking the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used again and again to finance people's purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services.For example, during a year a particular ten-dollar bill might have been used as following: a baker John pays the ten-dollars to a tomato farmer, George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob who uses the ten dollar bill to buy sugar from Tom. The ten-dollars here served in three transactions. This means that the ten-dollar bill was used 3 times during the year, its velocity is therefore 3.A $10 bill, which is circulating with a velocity of ‘3’ financed $30 worth of transactions in that year. Consequently, if there are $3000 billion worth of transactions in an economy during a particular year and there is an average money stock of $500 billion during that year, then each dollar of money is used on average 6 times during the year (since 6*$500 billion =$3000).The $500 billion of money is boosted by means of a velocity factor to become effectively $3000 billion. From this it is established thatVelocity = Value of transactions / supply of moneyThis expression can be summarized asV = P*T/MWhere V stands for velocity, P stands for average prices, T stands for volume of transactions and M stands for the supply of money. This expression can be further rearranged by multiplying both sides of the equation by M. This in turn will give the famous equation of exchangeM*V = P*TThis equation states that money times velocity equals value of transactions. Many economists employ GDP instead of P*T thereby concluding thatM*V = GDP = P*(real GDP)The equation of exchange appears to offer a wealth of information regarding the state of the economy. For instance, if one were to assume a stable velocity, then for a given stock of money one can establish the value of GDP. Furthermore, information regarding the average price or the price level allows economists to establish the state of real output and its rate of growth.Most economists take the equation of exchange very seriously. The debates that economists have are predominantly with respect to the stability of velocity. Thus if velocity is stable then money becomes a very powerful tool in tracking the economy. The importance of money as an economic indicator however diminishes once velocity becomes less stable and hence less predictable. It is held an unstable velocity implies an unstable demand for money, which makes it so much harder for the central bank to navigate the economy along the path of economic stability.Why velocity has nothing to do with the purchasing power of moneyBut does velocity have anything to do with the prices of goods? Prices are the outcome of individuals’ purposeful actions. Thus the baker John believes that he will raise his living standard by exchanging his ten loaves of bread for $10 which will enable him to purchase five kg of potatoes from Bob the potato farmer. Likewise, Bob has concluded that by means of $10 he will be able to secure the purchase of ten kg of sugar, which he believes will raise his living standard.By entering an exchange, both John and Bob are able to realize their goals and thus promote their respective well-being. John had agreed that it is a good deal to exchange 10 loaves of bread for $10 for it will enable him to procure 5kg of potatoes. Likewise Bob had concluded that $10 for his 5kg of potatoes is a good price for it will enable him to secure 10kg of sugar. Observe that price is the outcome of different ends, and hence the different importance that both parties to a trade assign to means.It is individuals' purposeful actions that determine the prices of goods and not some mythical velocity.Indeed, according to Mises, the whole concept of velocity is hollow;In analyzing the equation of exchange one assumes that one of its elements — total supply of money, volume of trade, velocity of circulation--changes, without asking how such changes occur. It is not recognized that changes in these magnitudes do not emerge in the Volkswirtschaft [political economy, or more loosely‘economy’] as such, but in the individual actors' conditions, and that it is the interplay of the reactions of these actors that results in alterations of the price structure. The mathematical economists refuse to start from the various individuals' demand for and supply of money. They introduce instead the spurious notion of velocity of circulation fashioned according to the patterns of mechanics (Human Action p 399).Furthermore money never circulates as such;Money can be in the process of transportation, it can travel in trains, ships, or planes from one place to another. But it is in this case, too, always subject to somebody's control, is somebody's property. (Human Action p 403)Consequently, the fact that so-called velocity is ‘3’ or any other number has nothing to do with average prices and the average purchasing power of money as such. Moreover, the average purchasing power of money cannot even be established. For instance, in a transaction the price of one dollar was established as one loaf of bread. In another transaction the price of one dollar was established as 0.5kg of potatoes, while in the third transaction the price is one kg of sugar. Observe that since bread, potatoes and sugar are not commensurable no average price of money can be established.Now, if the average price of money can’t be established it means that the average price of goods can’t be established either. Consequently, the entire equation of exchange falls apart. Conceptually the whole thing is not a tenable proposition and covering a fallacy in mathematical clothing cannot make it less fallacious.According to Rothbard (Man Economy and State p 730)The only knowledge we can have of the determinants of price is the knowledge deduced logically from the axioms of praxeology. Mathematics can at best only translate our previous knowledge into relatively unintelligible form.Even if we were to accept that the essential service of money is its speed of circulation there is no way that this characteristic of money could explain the purchasing power of money. On this Mises explains in Human Action:Even if this were true, it would still be faulty to explain the purchasing power — the price — of the monetary unit on the basis of its services. The services rendered by water, whisky, and coffee do not explain the prices paid for these things. What they explain is only why people, as far as they recognize these services, under certain further conditions demand definite quantities of these things.Velocity does not have an independent existenceContrary to mainstream economics velocity does not have a "life of its own". It is not an independent entity - it is always value of transactions P*T divided into money M ie P*T/M. On this Rothbard wrote in Man Economy and State:But it is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation.Since V is P*T/M it follows that the equation of exchange is reduced to M*(P*T)/M = P*T, which is reduced to P*T = P*T , and this is not a very interesting truism. It is like stating that $10=$10 and this tautology conveys no new knowledge of economic facts.
  • Single-Payer Healthcare Is Far More Expensive Than Advocates Claim    (2017-06-26)
    By Gary M. Galles; In the roughly quarter-century since then-First Lady span data-behavior="rolloverpeople"a data-nid="188224" href="http://thehill.com/people/hillary-clinton"Hillary Clinton/span...
  • Summer of Love's Hippies Had It Right about Big Government    (2017-06-26)
    By Lawrence J. McQuillan; Fifty years ago, during the Summer of Love, thousands of young people fled cultural norms and flocked to San Francisco's Haight-Ashbury neighborhood. They didn't all find what t...
  • Firearm Sound Moderators: Issues of Criminalization and the Second Amendment    (2017-06-26)
    By Stephen P. Halbrook; "Exposure to noise greater than 140 dB [decibels] can permanently damage hearing," according to Dr. Michael Stewart, Professor of Audiology at Central Michigan University. #147...
  • Reality Check: The "Assault Weapon" Fantasy and Second Amendment Jurisprudence    (2017-06-26)
    By Stephen P. Halbrook; From the founding of the Republic until the late twentieth century, rifles and other long guns were not subject to public controversy. At the end of that period, the words "assault ...
  • The Right to Bear Arms in the Virginia Constitution and the Second Amendment    (2017-06-26)
    By Stephen P. Halbrook; The right to keep and bear arms in Virginia is guaranteed by both the state and federal constitutions. Article I, section 13, of the Virginia Constitution provides in part: ''...
  • The Empire Strikes Back    (2017-06-26)
    By Stephen P. Halbrook; In District of Columbia v. Heller, the Supreme Court held the District of Columbia's handgun ban to violate the Second Amendment,1 which provides that "the right of the people...
  • New York's Not So 'SAFE' Act    (2017-06-26)
    By Stephen P. Halbrook; Use and manipulation of the pejorative term "assault weapon" is a classic case of "an Alice-in-Wonderland world where words have no meaning." The Second Amendment ...
  • Going Armed with Dangerous and Unusual Weapons to the Terror of the People    (2017-06-26)
    By Stephen P. Halbrook; Much ink has been spilt in recent times over what restrictions on firearm ownership by law-abiding citizens are permissible under the Second Amendment. Since it is litigation-driven, the ...
  • Hayek's Chicago Seminar on Justice and Equality    (Joseph T. Salerno, 2017-06-26)
    By: Joseph T. Salerno In 1950-51 Hayek presented a seminar at the University of Chicago entitled "Justice and Equality."  The seminar was opened to faculty and students and it was Hayek's . . . hope that the seminar can be conducted with the participation of members of all the various departments concerned, particularly a number of lawyers, economists, and philosophers, and that the discussion will be to some extent a [d]iscussion among faculty members in front of the students, though of course without excluding the students from active participation. Here is the seminar syllabus including the topical outline, bibliography, and seemingly a partial listing of guest co-leaders or leaders (it is not clear which) of some of the sessions of the seminar.
  • Why the Court's Church Decision Was a No-Brainer    (Ilya Shapiro, 2017-06-26)
    Ilya Shapiro The Trinity Lutheran case, in which the Supreme Court ruled that a Missouri policy excluding church-run preschools from a particular grant program was unconstitutional, has always seemed like an easy one to me. After all, what happened here sounds awfully un-American: a church was denied a government benefit simply because it’s a church. I’m not sure why a state should subsidize private institutions’ playground resurfacing — the benefit at issue here — but if it does, it has to make such funds available to all on equal terms. One contentious issue that does loom on the horizon, however, is that of exemptions for religious businesses — the opposite of inclusions for churches — from public accommodations laws. Stay tuned next term, when the Court takes up the case of a bakery that declined on religious and free speech grounds to make a cake for a same-sex ceremony. Masterpiece Cakeshop will make Trinity Lutheran look like the justices’ kumbaya moment.Today’s decision makes clear that Trinity Lutheran’s playground improvement is no different than the government provision of police or fire protection to houses of worship and other religious institutions. And it’s quite unlike taxpayer funding of religious instruction or the parade of horribles raised by Trinity Lutheran’s opponents (which no longer include the State of Missouri, whose new administration changed its policy). oday’s decision makes clear that Trinity Lutheran’s playground improvement is no different than the government provision of police or fire protection to houses of worship and other religious institutions. And indeed, as I predicted after argument, seven justices made short work of the case, finding that the state violated the First Amendment’s Free Exercise Clause in taking its action based on purely religious status. Chief Justice John Roberts’ majority opinion is a mere 15 pages long and the three concurrences were two, three, and two pages, respectively. It’s telling that Justice Elena Kagan — not exactly a stalwart right-winger — joined the decision in full, and that Justice Breyer concurred in the judgment. Further, Chief Justice Roberts’ attempt, via a curious Footnote 3, to narrow the scope of his ruling to “express discrimination based on religious identity with respect to playground resurfacing,” didn’t command a majority. Justices Clarence Thomas and Neil Gorsuch took issue with the distinction between religious “status” and “use.” And Justice Breyer, always a pragmatist, seems to have been concerned with “a general program designed to secure or to improve the health and safety of children.” The fate of Footnote 3 will thus turn on whether lower court judges like the Trinity Lutheran result or not. It’s an opportunity for mischief that the Court will have to resolve in future. Meanwhile, Justice Sonia Sotomayor, joined in her dissenting opinion only by Justice Ruth Bader Ginsburg, seems to think that the ruling dissolves the separation of church and state altogether. One can only hope that her admonition that 31 other states’ restrictions against direct government funding of religion are now in jeopardy is true in the context of school choice. Coincidentally, even before the US Supreme Court released its Trinity Lutheran decision, the Georgia Supreme Court unanimously upheld that state’s tax credit scholarship program despite a provision in that state’s constitution that mirrors the Missouri one at issue. The so-called Blaine amendments that have been used to stymie these programs were created in the late 19th century not simply to preserve church-state separation, but to harm religious minorities, especially Catholics. But the Supreme Court has rejected Establishment Clause challenges to both vouchers and tax credits; today’s ruling doesn’t change that. Ilya Shapiro is a contributor to the Washington Examiner’s Beltway Confidential blog.
  • The Danger of Mission Creep in Syria    (Emma Ashford, 2017-06-26)
    Emma Ashford On Sunday, a U.S. Navy fighter jet shot down one of Bashar al-Assad’s warplanes attacking U.S.-allied Syrian forces, drawing the United States deeper into that conflict. Raising tensions with Russia and potentially placing American troops in danger, this action was just another in a long line of tactical decisions which increase U.S. involvement in Syria without any viable long-term strategy for resolving or exiting the civil war. Much of the criticism has focused on President Donald Trump’s impulsive and pugnacious personality. While Trump has accelerated this process, he is not wholly to blame for the slippery slope that the United States is now sliding down in Syria. The Obama administration resisted large-scale escalation, but their choices nonetheless contributed directly to today’s haphazard Syria strategy. The Trump administration needs to decide what it wants to achieve in Syria now, or the inevitable logic of mission creep may rob them of the ability to choose. Obama’s Syrian Wars A common narrative among hawks in Washington is that Barack Obama’s failure to escalate in Syria—most notably his decision not to follow through on his “red line” comments about chemical weapons—reduced U.S. credibility and worsened the conflict there. These criticisms are largely unjustified: the red line comment may have been foolish, but the Russian-brokered chemical weapons deal succeeded in preventing the further use of chemical weapons during Obama’s term, and was likely more effective than air strikes would have been. The United States has no viable long-term strategy for resolving or exiting the civil war. Obama does deserve some credit for his willingness to avoid large-scale escalation against the Assad regime in Syria in 2013 and again in response to Russia’s 2015 intervention. Whether he feared a repeat of the 2011 Libya intervention—where narrow humanitarian goals quickly and almost seamlessly transitioned into regime change—or he simply acknowledged the complexity of the Syrian conflict, the former president repeatedly resisted pressure to commit U.S. forces against Damascus. Yet his administration did get involved in other ways, recognizing the Syrian opposition in 2012, and later supplying arms and training to anti-Assad rebels. Meanwhile, the campaign against ISIS was characterized by mission creep. Initially portrayed as air strikes in support of local forces, Operation Inherent Resolve quickly saw the deployment of troops in both Iraq and Syria: as early as May 2015, U.S. Special Forces were engaging in ground raids against ISIS, and by May 2016, they were fighting alongside Syrian rebels to take the town of al-Shaddadi. To support these missions, the United States helped to seize and expand an airfield near Kobane in northern Syria, staffing it with civil engineers, intelligence and support personnel. By the time Obama left office, the United States had 500 Special Forces personnel on the ground in Syria in addition to support staff. This gradual escalation went largely unnoticed at the time, with U.S. forces often seemingly “plugged-in” to fill a temporary gap in local partner capacity. Indeed, Obama never appeared to have a good strategy for the endgame. As long as the fighting in Syria’s civil war stayed geographically segregated from the campaign against ISIS, both could proceed without raising difficult questions about territorial control. Perhaps the biggest problem with the administration’s Syria policy was its failure to more aggressively pursue the diplomatic steps that could have begun the peace process. Rather than admitting America’s limited strategic interests in the Syrian conflict, ambivalence and gradual escalation ultimately laid the groundwork for Trump’s more impulsive escalations. Trump Hits the Afterburner If Obama’s involvement in Syria could be characterized as “creeping escalation,” Trump appears to be sprinting towards heavier involvement in the conflict. In his first months in office, the new president authorized substantial new deployments—almost doubling the number of Special Forces in Syria—and has begun to deploy conventional forces too, sending around 400 marines to establish fire bases in northern Syria. Trump has also proved far less willing to draw a clear line of distinction between ISIS and militias associated with the Assad regime. In April, in response to a chemical-weapons attack, Trump authorized a tomahawk missile strike on a Syrian air base. Since that time, U.S. troops have struck Assad-linked militias several times, bombing convoys and drones that entered into the exclusion zone near the U.S. base at al-Tanf. This increase in incidents inside Syria is the inevitable result of Trump’s choice to speed up the fight against ISIS. Since weaknesses in local partners can no longer be built-up slowly, U.S. forces are needed instead to provide required capacity (such as recently deployed marine artillery units) in key areas. This then produces new problems for force protection: recent strikes on regime-allied forces are largely aimed at protecting U.S. and allied forces. As U.S.-backed and regime-backed forces come into contact more frequently, these tensions will only grow. Danger, Will Robinson Worryingly, unlike the Obama administration, Trump’s approach to Syria does not appear to be driven by a coherent strategy. Though far from perfect, Obama’s slow-and-steady approach to the anti-ISIS campaign, coupled with a concerted international diplomatic effort, had the potential to yield a substantive rollback of ISIS and at least a managed ceasefire process in the rest of Syria. But in rushing the end of the campaign, substituting U.S. forces for local ones, and effectively ignoring diplomacy, the new administration is merely increasing the chaos in Syria. Worse, the Trump administration is reportedly considering using its involvement in Syria to push back on Iran, a step that will increase the risks to U.S. troops in Syria and Iraq while producing no obvious policy benefits. Aside from ISIS, the United States has never had strong interests in the Syrian conflict; in contrast, Iran, Russia and the Assad regime are all heavily invested in the outcome of the conflict. Indeed, the recent mission creep in Syria effectively refutes the long-running hawkish position on Syria which argued that targeted strikes would force other actors to take a more conciliatory approach to ending the conflict. Trump’s missile strikes have not stopped the Assad regime’s attacks on civilians, and militias continue to probe U.S.-associated forces on the ground—even after the recent strikes. The recent shootdown is of particular concern, as it highlights that the Trump administration is willing to retaliate for attacks on local partners, not just for direct attacks on U.S. forces. With neither side willing to back down in Syria, the potential for further escalation is high. Trump is accelerating fast, but with no clear goal in sight. The White House needs a coherent Syria strategy soon, before events spiral even further out of its control. Emma Ashford is a research fellow in defense and foreign policy studies at the Cato Institute.
  • The Danger of "Public" Education    (Murray N. Rothbard, 2017-06-26)
    By: Murray N. Rothbard The key issue in the entire discussion is simply this: shall the parent or the State be the overseer of the child? An essential feature of human life is that, for many years, the child is relatively helpless, that his powers of providing for himself mature late. Until these powers are fully developed he cannot act completely for himself as a responsible individual. He must be under tutelage. This tutelage is a complex and difficult task. From an infancy of complete dependence and subjection to adults, the child must grow up gradually to the status of an independent adult. The question is under whose guidance, and virtual "ownership" the child should be: his parents' or the State's? There is no third, or middle, ground in this issue. Some party must control, and no one suggests that some individual third party have authority to seize the child and rear it.It is obvious that the natural state of affairs is for the parents to have charge of the child. The parents are the literal producers of the child, and the child is in the most intimate relationship to them that any people can be to one another. The parents have ties of family affection to the child. The parents are interested in the child as an individual, and are the most likely to be interested and familiar with his requirements and personality. Finally, if one believes at all in a free society, where each one owns himself and his own products, it is obvious that his own child, one of his most precious products, also comes under his charge.The only logical alternative to parental "ownership" of the child is for the State to seize the infant from the parents and to rear it completely itself. To any believer in freedom this must seem a monstrous step indeed. In the first place, the rights of the parents are completely violated, their own loving product seized from them to be subjected to the will of strangers. In the second place, the rights of the child are violated, for he grows up in subjection to the unloving hands of the State, with little regard for his individual personality. Furthermore — and this is a most important consideration — for each person to be "educated," to develop his faculties to the fullest, he needs freedom for this development. We have seen above that freedom from violence is essential to the development of a man's reason and personality. But the State! The State's very being rests on violence, on compulsion. As a matter of fact, the very feature that distinguishes the State from other individuals and groups is that the State has the only (legal) power to use violence. In contrast to all other individuals and organizations, the State issues decrees which must be obeyed at the risk of suffering prison or the electric chair. The child would have to grow up under the wings of an institution resting on violence and restriction. What sort of peaceful development could take place under such auspices?Furthermore, it is inevitable that the State would impose uniformity on the teaching of charges. Not only is uniformity more congenial to the bureaucratic temper and easier to enforce; this would be almost inevitable where collectivism has supplanted individualism. With collective State ownership of the children replacing individual ownership and rights, it is clear that the collective principle would be enforced in teaching as well. Above all, what would be taught is the doctrine of obedience to the State itself. For tyranny is not really congenial to the spirit of man, who requires freedom for his full development.Therefore, techniques of inculcating reverence for despotism and other types of "thought control" are bound to emerge. Instead of spontaneity, diversity, and independent men, there would emerge a race of passive, sheep-like followers of the State. Since they would be only incompletely developed, they would be only half-alive.It might be said that no one is contemplating such monstrous measures. Even Communist Russia did not go so far as to impose a "communism of children," even though it did almost everything else to eliminate freedom. The point is, however, that this is the logical goal of the Statists in education. The issue which has been joined in the past and in the present is: shall there be a free society with parental control, or a despotism with State control? We shall see the logical development of the idea of State encroachment and control. America, for example, began, for the most part, with a system of either completely private or with philanthropic schools. Then, in the nineteenth century, the concept of public education changed subtly, until everybody was urged to go to the public school, and private schools were accused of being divisive. Finally, the State imposed compulsory education on the people, either forcing children to go to public schools or else setting up arbitrary standards for private schools. Parental instruction was frowned on. Thus, the State has been warring with parents for control over their children.Not only has there been a trend toward increased State control, but the effects of this have been worsened by the very system of equality before the law that applies in political life. There has been the growth of a passion for equality in general. The result has been a tendency to regard every child as equal to every other child, as deserving equal treatment, and to impose complete uniformity in the classroom. Formerly, this had tended to be set at the average level of the class; but this being frustrating to the dullest (who, however, must be kept at the same level as the others, in the name of equality and democracy), the teaching tends more and more to be set at the lowest levels.We shall see that since the State began to control education, its evident tendency has been more and more to act in such a manner as to promote repression and hindrance of education, rather than the true development of the individual. Its tendency has been for compulsion, for enforced equality at the lowest level, for the watering down of the subject and even the abandonment of all formal teaching, for the inculcation of obedience to the State and to the "group," rather than the development of self-independence, for the deprecation of intellectual subjects. And finally, it is the drive of the State and its minions for power that explains the "modern education" creed of "education of the whole child" and making the school a "slice of life," where the individual plays, adjusts to the group, etc. The effect of this, as well as all the other measures, is to repress any tendency for the development of reasoning powers and individual independence; to try to usurp in various ways the "educational" function (apart from formal instruction) of the home and friends, and to try to mold the "whole child" in the desired paths. Thus, "modern education" has abandoned the school functions of formal instruction in favor of molding the total personality both to enforce equality of learning at the level of the least educable, and to usurp the general educational role of home and other influences as much as possible. Since no one will accept outright State "communization" of children, even in Communist Russia, it is obvious that State control has to be achieved more silently and subtly.For anyone who is interested in the dignity of human life, in the progress and development of the individual in a free society, the choice between parental and State control over the children is clear.Is there, then, to be no State interference whatever in the relations between parent and child? Suppose that the parents aggress upon and mutilate the child? Are we to permit this? If not, where are we to draw the line? The line can be simply drawn. The State can adhere strictly to the function of defending everyone from the aggressive violence of everyone else. This will include children as well as adults, since children are potential adults and future freemen. Simple failure to "educate," or rather, instruct, is no grounds whatever for interference. The difference between these cases was succinctly put by Herbert Spencer:No cause for such [state] interposition can be shown until the children's rights have been violated, and that their rights are not violated by a neglect of their education [actually, instruction]. For … what we call rights are merely arbitrary subdivisions of the general liberty to exercise the faculties; and that only can be called an infringement of rights which actually diminishes this liberty — cuts off a previously existing power to pursue the objects of desire. Now the parent who is careless of a child's education does not do this. The liberty to exercise faculties is left intact. Omitting instruction in no way takes from a child's freedom to do whatsoever it wills in the best way it can, and this freedom is all that equity demands. Every aggression, be it remembered — every infraction of rights — is necessarily active; whilst every neglect, carelessness, omission, is as necessarily passive. Consequently, however wrong the non-performance of a parental duty may be … it does not amount to a breach of the law of equal freedom and cannot therefore be taken cognizance of by the state.1Excerpted from Education: Free and Compulsory 1. Herbert Spencer, Social Statics: The Conditions Essential to Human Happiness Specified, and the First of Them Developed (New York: Robert Schalkenbach Foundation, 1970), p. 294. Or as another writer expressed it, with regard to a parent and other members of the society: "his associates may not compel him to provide for his child, though they may forcibly prevent him from aggressing upon it. They may prevent acts; they may not compel the performance of actions." Clara Dixon Davidson, "Relations Between Parents and Children," Liberty, September 3,1892.
  • Will the Work Day Shrink to Four Hours?    (2017-06-26)
    By: Last week Ryan McMaken commented on Chinese billionaire Jack Ma's prediction that our grandchildren's work day would shrink to four hours.  I agree with Ryan's assessment of Ma's prediction, supported with the facts about how many fewer hours the average work day is today compared with the past.  But looking at averages can be deceiving.  The work day hasn't shrunk for everyone, and won't shrink for many.For people engaged in manual labor, or whose jobs just involve following the instructions of their supervisors, a shorter work day is feasible and probably desirable.  For knowledge workers, work time adds to their human capital, so knowledge workers who want to get ahead must work long hours.Cashiers and assembly line workers could work shorter hours without reducing their hourly output, and if shorter hours reduced fatigue, their hourly output might even rise.  But jobs like corporate CEO just can't be divided and maintain the same level of productivity.  CEOs make decisions that have huge impacts on the direction of their companies, and the more time the CEO spends gathering information and assessing alternatives, the more productive the CEO will be.Worker productivity often depends on tacit knowledge which cannot effectively be communicated to others.  The person with the knowledge is the only one who can use it.  Workers in those positions cannot work shorter hours and maintain the productivity of workers who work longer hours.Even secretaries will often be more productive if they have an understanding about how an office works and what has happened throughout the work day.  A secretary in the office all day will have a better understanding of its activities that one who comes in for the afternoon and may not know what happened in the office that morning.Knowledge workers will be more productive if they work a full work day, which means that a knowledge worker who works an eight-hour day cannot be replaced by two workers who work four hours each.  The work day won't shrink for ambitious knowledge workers who want to get ahead.Why do corporations pay such high salaries for experienced CEOs who have been out of school for decades when they could more cheaply hire new Harvard MBAs who have the most up-to-date education?  The reason is that years of experience have produced tacit knowledge that cannot be gained through the education system.  Someone working four hours a day will accumulate only half the experience of someone working eight hours a day, and we know that in some occupations, 60 to 70 hour work weeks are the norm.For some jobs, a four hour work day is very feasible, but in a knowledge economy, many jobs will continue to demand longer hours.
  • Wrong: Cheap Canadian Drugs Won’t Heighten Opioid Crisis    (Jeffrey Miron, 2017-06-26)
    Jeffrey Miron Senator Bernie Sanders has introduced a bill in Congress that would allow the importation of prescription drugs from Canadian pharmacies, subject to controls aimed at ensuring safety. The goal is to lower prices for Americans, because many drugs sell for far less in Canada. The U.S. drug lobby, and many other groups, oppose this importation, claiming that consumer savings would be minor and that imported drugs would not meet the same safety standards as those sold in the United States. Furthermore, recent commentary suggests that legalizing Canadian importation would exacerbate the opioid crisis in the U.S. by expanding access and lowering the costs of prescription opioids. These concerns are unjustified and in some cases just self-interested scare mongering. The crucial question about legalizing importation, implicit in the industry’s opposition, is its possible effect on drug innovation in the United States. The safety concern is easy to dismiss. Innumerable goods flow across the U.S.-Canada border every day, with little evidence of unsafe imports. U.S. consumers and their doctors have ample incentive to order from reputable Canadian suppliers, who in turn have no incentive to kill off their paying customers. Canadian drugs already flow across the border to some degree, with minimal examples of adverse consequences. Whether the cost savings from this importation would be large depends on multiple factors, such as how the Canadian government adjusts its price controls, and how U.S. drug makers change their distribution and pricing policies. If safety concerns are minimal, however, any cost savings are valuable even if modest. The crucial question about legalizing importation, implicit in the industry’s opposition, is its possible effect on drug innovation in the United States. The fear that importation will exacerbate the U.S. opioid crisis is also misplaced. Prescription opioids are already widely available and usually inexpensive; despite concern over the increasing opioid death rate in the U.S., many doctors still prescribe opioids routinely. And most of the increase in opioid-related deaths over the past six years has involved heroin and fentanyl rather than prescription opioids; these substances are already outlawed or tightly controlled, both in the U.S. and Canada. Legalizing importation might, however, harm new drug innovation. Private investment in new drugs is potentially less than is socially desirable because, absent patent protection, innovators cannot easily capture a large financial return. Innovation is expensive, and once a company has invented a new drug, rival companies can often reverse engineer it and then offer a competing product. The standard policy response is patent protection, which provides an innovating firm the exclusive right to sell the patented product for some period of time; this allows the innovator to recoup its research and development expenses by charging a price well above production costs. Some academic research suggests that patent protection does not necessarily increase innovation, but one industry where it appears to matter is drugs. Importation, however, undercuts patent protection if other countries limit U.S. drug prices (as Canada does), since many consumers will then buy their drugs at low prices in Canada, robbing the innovator of the high-priced sales necessary to pay off their research and development investments. The option to buy at low prices is good for consumers with respect to existing drugs, but bad over the longer haul if lower profit potential discourages new drug innovation. Determining the right combination of patent and importation policies is thus a messy and difficult empirical exercise; and given available evidence, reasonable people can disagree on whether importation will be beneficial or harmful on balance. But drug innovation is the crucial issue in this debate; not consumer safety or the opioid crisis. Jeffrey Miron is director of economic studies at the Cato Institute and the director of undergraduate studies in the Department of Economics at Harvard University.
  • As Narendra Modi Visits Donald Trump, India's Economic Revolution Needs a Reset    (Doug Bandow, 2017-06-26)
    Doug Bandow India’s Prime Minister Narendra Modi is making a working or “no frills” trip to Washington. It’s a chance for him to meet President Donald Trump as they discuss what the White House calls “common priorities.” And the premier has business to conduct, including expressing his concern over proposals to restrict use of H-1B visas, which have brought many Indian professionals to America. Some observers have highlighted similarities between the two leaders, including their nationalist/populist message. Both emphasize business and jobs but neither believes in free markets. Both benefited from a surge in support from religious voters, though the faiths differ. Finally, critics tagged both as potential strongmen. However, PM Modi appears measurably stronger politically. Indeed, the latter is the far more practiced politician. He led the state government of Gujarat and Bharatiya Janata Party before taking over as premier after the BJP’s overwhelming victory in 2014. The party did well last March in state elections, though it won outright only in the super-state of Uttar Pradesh. Still, the BJP far out-classed the once ruling Congress Party with a campaign that transcended caste politics, embraced Hindu nationalism, and relied on grassroots activism. PM Modi appears well-positioned for a repeat national victory when elections are held in two years. Under him India has become more active internationally. New Delhi gloried in its role as a member of the “nonaligned bloc” during the Cold War. Now the bipolar world is gone and India is wealthier and ready for global leadership. President George W. Bush initiated a significant improvement in U.S.-India relations, hoping to develop New Delhi as a counterweight to China’s growing influence. Although India has no desire to be the catspaw of Washington or anyone else, it is a natural rival to the People’s Republic of China. Their relationship remains marred by a territorial dispute that sparked a short war a half century ago. Even before the U.S.-New Delhi rapprochement, India was active economically in Burma when Western sanctions had given the PRC a near monopoly and the Indian navy was patrolling waters in Southeast Asia where local forces were dwarfed by China’s forces. The Obama administration continued to promote good relations, as should the Trump administration, despite some concerns in New Delhi created by the president’s criticisms of the Paris climate change treaty and H-1B visas. Hopefully tonight’s White House dinner will smooth any ruffled feathers. President Trump’s apparent choice for U.S. ambassador to India, Kenneth Juster, currently serving on the National Economic Council, also should be a positive influence given his extensive experience with India. There are several areas for fruitful cooperation, including economic. U.S. officials have suggested the possibility of negotiating a free trade agreement. No formal alliance is needed; a friendly, prosperous, and democratic India naturally serves the balance of power. It perhaps has become an international cliché, but India should follow China down the path of sustained high economic growth. With a growth rate of 7.9 percent in 2015 India has been growing faster than the PRC. Last year the International Monetary Fund forecast continued expansion above seven percent annually in coming years. Many of India’s fundamentals look solid. Inflation remains modest. India’s population is likely to surpass China’s and the McKinsey Global Institute predicted that India’s “consuming class” will triple in size over the coming decade. Entry of more women into the workforce affords India another important growth opportunity. Moreover, India’s “country risk” is below that of China, according to the Economist Intelligence Unit. Indeed, New Delhi enjoys a clear though hard to quantify advantage from democracy: Indian politics is messy, but offers a critical pressure valve lacking in the Chinese political system. Yet there are worrisome signs that India may fall short of its potential. Some growth fundamentals remain weak. For instance, government spending rather than private investment has been driving the economy. The drop in oil prices also spurred recent growth; no similar stimulus is likely in the near future. Per capita GDP increases have not kept up. Job creation also has disappointed. HDFC Bank warned of a “growing disconnect between economic growth, education, skills and jobs.” A number of companies fear the future. Business confidence, along with sales growth and capacity utilization, are down. In March the Economist reported that “firms are busy cutting back investment as if mired in recession. Bank lending to industry, growth in which once reached 30 percent a year, is shrinking for the first time in over two decades.” India’s Prime Minister Narendra Modi is making a working or ‘no frills’ trip to Washington. Even the information technology sector is suffering. The Modi government had hoped to expand India’s success in information technology, proposing to wire every village as part of the “Digital India” plan. But layoffs have hit the IT sector, which currently accounts for nearly ten percent of India’s GDP. Kris Lakshmikanth, who runs Head Hunters India, said that “For the first time, companies are touching middle management.” The industry, which provides two-thirds of world IT out-sourcing, also faces foreign pressure. A related threat from President Trump is limiting use of H-1B visas, available for more highly skilled workers. The national government has a debt to GDP ratio of 67 percent, among the highest in Asia; the 2018 deficit will be about 3.2 percent. State debt also has been increasing sharply, up from two percent of GDP in 2012 to about three percent now. Annual state deficits run about 2.5 percent of GDP. The combined national-state deficit is burdensome 5.7 percent of GDP. Earlier this year states began writing off agricultural debts. In Uttar Pradesh the victorious BJP promised to waive $5.6 billion in small farmers’ loans. Farmers across the nation then demanded the same treatment. The likely result is a $40 billion write-off, about two percent of GDP. (The then-ruling Congress party took a similar step in 2008, at a cost of 1.8 percent of GDP.) Still, the most serious barrier to an Indian economic take-off is India’s government, both national and state. Around the world—India’s diaspora numbers some 30 million—ethnic Indians are traders. But not in India. New Delhi and numerous state capitals simply smothered the natural entrepreneurship of the Indian people. Collectivist, dirigiste economics reigned. The state dominated the economy’s commanding heights, imposed confiscatory tax rates, created a “License Raj” to micro-manage private industry, and enforced its dictates through a bureaucracy rated the worst in Asia. Even as the famed “Tigers” of Japan, Taiwan, South Korea, and eventually China raced ahead, India languished. As late as 1983 the poverty rate was an astounding 60 percent. Meaningful reform finally came in 1991. Although the changes were sharply limited compared to what needed to be done, they were a dramatic advance over the past. Average incomes doubled within a decade and tens of millions of Indians escaped poverty. But people hoped for so much more while New Delhi again fell behind. For instance, in the 2014 Economic Freedom of the World rating, India had dropped to 112 from 102 the year before. Explained Swaminathan S. Anklesaria Aiyar in a Cato Institute study, “Although many old controls have been abolished, many still continue, and a plethora of new controls have been created.” Expectations were great when PM Modi took over, given his pro-business rhetoric and positive record in Gujarat. And his government has some solid achievements, despite lacking control of the upper house, which allowed the opposition to block some measures. Modi’s administration streamlined the goods and services tax (GST), implemented a new bankruptcy code, eased restrictions on foreign investment, limited spending, eliminated capital and certification requirements barriers for business, accelerated environmental approvals, and improved public administration and infrastructure. Chandrajit Banerjee, Director General of the Confederation of Indian Industry, praised the “impressive agenda of innovative economic reforms and social programs that have positively impacted growth.” However, some of the premier’s supporters have been disappointed, given the magnitude of the changes yet needed. For example, Shankar Acharya, a columnist for New Delhi’s Business Standard, worried: “Economic reforms have clearly lost momentum and there is a sense of drift in economic policy.” The Times of India editorialized that “the government hasn’t pressed the pedal hard on reforms” and “implementation of projects” has been slow. The Economist saw a cavalcade of mini-initiatives rather than a serious reform program. Despite BJP rule, the 2017 Index of Economic Freedom rated India at only 143 of 180 countries. In contrast, China stood at 111. Moreover, New Delhi’s rating fell from the year before. India performed particularly poorly on business freedom, financial freedom, government integrity, investment freedom, judicial effectiveness, and labor freedom. PM Modi’s ability to effect change will improve as the BJP makes additional gains in parliament’s upper chamber. However, the premier is more like Donald Trump than Ronald Reagan, to whom he was originally compared, in that he believes in managed rather than free markets. In fact, the BJP has, in the words of the Carnegie Endowment’s Milan Vaishnav, a “nationalist, protectionist wing” with which President Trump would be comfortable. Moreover, despite PM Modi’s dominating role, he “seems stuck in the mindset of a provincial executive: he is more interested in projects than in policies; he is a modernizer, not a reformer,” observed Sebastian Mallaby of the Council on Foreign Relations. The Economist similarly termed the premier “a fine administrator but not much of a reformer.” The government often has manipulated rather than freed the market. For instance, New Delhi imposed agricultural prices controls and criticized “hoarding,” Officials also have discussed recreating state monopolies in “strategic” economic sectors, Particularly harmful was last November’s currency “reform,” by which 86 percent of the nation’s currency was demonetized without an adequate number of new bills available. The result was chaos for all and ruin for some, particularly small, cash-based businesses. Currency shortages in ATMs persisted until last month. Saurabh Mukherjea of Ambit Capital described demonetization “as the economic equivalent of a heart attack.” PM Modi moderated the political blowback by playing the populist card, arguing that the program was necessary to tame the rich and stop corruption. But whatever the economic justification for moving the economy away from a disproportionate reliance on cash, the government appeared motivated more by the desire to bring the nation’s finances under its control. The botched swap probably accounted at least partly for the lower annualized growth of 6.1 percent during the first quarter of this year, below the rate when PM Modi took office. And the impact could last for some time. The premier should shift course and use his authority, strengthened by the March elections, to accelerate reforms. Much could be done to liberalize markets, encourage entrepreneurship, ease business creation, and spur employment. For instance, Cornell’s Eswar Prasad of Cornell advocated “reducing labor regulations, unshackling businesses from red tape and bureaucracy, reducing government control of banks and clearing up their bad loans, developing capital markets, revamping the government’s tax and expenditure systems and improving infrastructure.” Of particular concern, the rules governing business hiring and firing greatly increase costs, discouraging job creation. Employment actually has fallen in these areas, while growth has been limited primarily to uncovered industries. Regulated companies tend to stay small and rely on temporary labor. India hosts only 270 firms with sales above $125 million, compared to 7,680 in China. Nine out of ten jobs come from the informal sector. This system has greatly hindered development of a competitive manufacturing industry, like that in China. India’s abundant human resources are being squandered. Government enterprises are used to provide jobs. Even in a good economy losses are routine. Firms that make money usually rely on government monopolies or other special privileges. Air India loses more money the more it flies. Overall, parastatals lose billions of dollars a year. They survive only at extraordinary public cost: “soft loans, subsidies, and bail-outs keep them afloat,” observed the Economist. State banks are loaded with bad debts which McKinsey & Co. figures exceed the banks’ total value. Government “services” are a scandal. Said Aiyar, “With almost no exceptions, the delivery of government services in India is pathetic, from the police and judiciary to education and health.” Many teachers in public schools don’t even bother to come to class. Lawsuits can take decades to resolve: the legal system has a backlog of 31.5 million cases. PM Modi also should avoid the temptation to inflame Hindu nationalism to win votes. Religious intolerance and persecution have worsened since his 2014 victory. Vigilantism has been rising, especially against Muslims accused of trafficking in beef. Yet after the BJP’s victory in Uttar Pradesh he appointed as chief minister a Hindu priest once jailed for his violent rhetorical attacks on Muslims. Even if such tactics yield short-term political benefits, they risk not only social conflict but economic harm, discouraging foreign investment and trade which would benefit all Indians. Just as the world spent decades waiting for China to escape Mao Zedong’s communist madness, so, too, has the world spent decades waiting for India to leave behind Jawaharlal Nehru’s socialist nostrums. PM Modi offers competent management and has moved his country closer to economic freedom. But getting the rest of the way requires freeing India’s people from the shackles created by government social and economic engineers. Ethnic Indians have proved their economic prowess around the globe. Now they need the chance to do so at home. It is good for the prime minister to visit America early during the two leaders’ joint tenure. Although no one knows how two such egos that have climbed the political mountains in their respective nations will get along, Narendra Modi is a worthy partner for Donald Trump. Both have succeeded in tough political systems and overcome harsh opposition. And both have a unique opportunity to transform their respective nations, and ultimately the world. Working together they are more likely to succeed in doing so, and for the better. Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.
  • Yes, the Fed Really Is Holding Down Interest Rates    (Joseph T. Salerno, 2017-06-26)
    By: Joseph T. Salerno The very sluggish recovery of the economy since the financial crisis — despite zero and near zero interest rates — presents the dominant school of New Keynesian macroeconomists with a conundrum. Many have attempted to resolve the riddle by arguing that such unprecedentedly low interest rates are not the doing of the Fed and therefore do not indicate an expansionary monetary policy. Although not formally a New Keynesian, George Selgin has taken up and vigorously defended this position. According to Selgin, the view that interest rates have been “held down” by “the Fed’s easy money policies” is based on a “myth.” “The unvarnished truth,” according to Selgin, “is that interest rates have been low since the last months of 2008, not because the Fed has deliberately kept them so, but in large part owing to its misguided attempt, back in 2008, to keep them from falling in the first place.” Indeed, in Selgin’s view, the Fed’s monetary policy actually has been “too tight” since 2008.Let’s us analyze Selgin's argument, which consists of a number of empirical and theoretical claims. We’ll start with his empirical claims. Selgin contends that the policy of “quantitative easing” (QE) “represented an easing of monetary policy only in a ceteris paribus sense.” That is, QE would have expanded the money supply had it not been neutralized by other Fed policies. These policies include the payment of interest on excess reserves (IOER) and the Treasury’s Supplementary Financing Program (SPF), which either increased the demand by commercial banks for the reserves that the Fed was creating (IOER), or funneled them into a special Treasury account held at the Fed (SPF). Now it is certainly true that in theory these programs could offset or even reverse the expansionary effect of QE on the money supply. But it is easy to determine the actual effect of these programs by simply examining the data on the growth rates of monetary aggregates since 2008. Curiously, rather than following this obvious and simple procedure, Selgin presents a single chart showing the changes in total deposits at Federal Reserve banks held by the Treasury under the Supplementary Financing Account, commenting, “At one point . . . the SPF program alone immobilized almost $559 billion in base money preventing it from serving as a basis for private-sector [i.e., fractional-reserve bank] money creation.” But Selgin’s chart shows that this large neutralization of reserves only occurred for a few months in 2008, and never sidelined more than $200 billion in reserves from 2009 until the early 2011 when the program was terminated. More important, this chart gives us no indication whatsoever of the net effect of the combination of QE and the countervailing programs on monetary growth. In fact, as we can see from Chart 1, for the nearly six years from mid-2011 to 2017, the year-over-year (YOY) growth rates of M2 and MZM varied between 5% and 10%. Selgin does concede that the IOER policy failed to prevent the effective fed funds rate from declining to the “zero bound,” although he counters that it did succeed in encouraging banks to hoard some of the newly created reserves instead of using them to purchase assets and thereby create new money. But once again the question must be asked: why doesn’t Selgin just directly examine the variations in the growth rates of the money supply since 2008? It is noteworthy that the rates of monetary growth during the later period are comparable to and may slightly exceed the rates during the run-up of the housing bubble from the beginning of 2002 through 2005.CHART 1Another one of Selgin’s empirical claims that can easily be tested against the data is that there is no evidence that the Fed has been following an “easy monetary policy,” because monetary ease must lead to “an eventual increase in nominal spending, if not the rate of inflation. Yet, as everyone knows, neither of these things happened.” Selgin then goes on to display charts showing that GDP growth was negative between September 2008 and the same month in 2009 and that the inflation rate fell to either 1.00 percent or into negative territory (if we exclude food and energy) for six months beginning with March 2009. Yet his chart takes us only to the end of 2009, which hardly tests Selgin’s claim that the Fed did not pursue a policy of monetary ease because an “an eventual increase” in GDP, i.e., nominal spending, and inflation never occurred. (Emphasis added.) As Chart 2 shows, almost immediately after the period that Selgin considers, the YOY growth rate of GDP spurted up to nearly 5%. Between 2010 and 2017 it fluctuated in a range between 2.5% and 5.0%. By Selgin’s standards, this is surely evidence of an expansionary monetary policy. Indeed, in his book, Less Than Zero, Selgin (1997, pp. 64-66) calls for stabilizing the growth rate of nominal GDP at 0% per annum, thus allowing the price level to naturally decline in response to increases in labor (or total-factor) productivity induced by technological progress and capital accumulation.CHART 2And, indeed, as we see in Chart 3, outside of the period encompassing the end of the Great Recession and its immediate aftermath, the only period for which the CPI was at or slightly below zero occurred in the first nine months of 2015, when oil prices tanked. For most of the rest of the period the inflation rate fluctuated between one 1% and 2%, with two multi-month spikes into the 2%-3% range and one spike into 3%-4% range.CHART 3We should also note that positive inflation rates occurred in the face of a sustained fall in velocity of the monetary aggregates M2 and MZM which began in 2006, as shown in chart 4. Had the Fed merely offset this “demand-side shock,” to use New Keynesian terminology, as Selgin urges in Less Than Zero, then the inflation rate should have been negative to reflect growth of real GDP at an average annual rate of 1.2% (chart 5)driven mainly by increasing labor productivity of 1.1%. Thus the U.S. economy since 2009 has certainly experienced “relative inflation,” which Selgin (1997, p. 55) defines as “output prices rising relative to unit costs.” But Selgin gives no explanation of how such a relative — and for most of the period, absolute — inflation could develop and be sustained for seven years absent expansionary monetary policy by the Fed.CHART 4CHART 5Given these data, we must therefore reject Selgin’s empirically-based conclusion that the Fed was not engaged in expansionary monetary policy after the financial crisis and that its... unprecedented asset purchases, which might ordinarily have been expected to result in roughly proportional increases in broad money, spending, inflation, and nominal interest rates, affected those variables only modestly, if at all, and did so for the most part by limiting their tendency to decline, rather than by raising them in an absolute sense.Broad money, nominal spending, and prices did undergo a sustained and progressive rise in absolute terms during a period when velocity was steadily declining and labor productivity was increasing, which according to Selgin himself indicates a monetary easing.In addition to the empirical flaws in his case, Selgin dismisses the application of the “(relatively) tried and true” analysis of the central bank’s policy of driving down the interest rate below its natural level. This is Wicksell’s analysis of the cumulative process and Selgin seems to be confused about the empirical implications and the conceptual foundations of the theory. Regarding the empirical implications, Selgin quotes Larry White:If the central bank wants to keep the market rate low in the face of the nominal income effect, it must accelerate the monetary injection. Short-term real rates have been negative , and nominal rates near zero, for eight years now, with little signs of accelerating broad money growth or a rising inflation rate. Based on this reasoning, White, with Selgin presumably in accord, dismisses “the Wicksellian cumulative-process scenario ... as a viable candidate for explaining why current rates have remained so low since 2008.”Now, White’s description of the cumulative process does not accord with Wicksell’s. For Wicksell, the continuation of the process does not require “accelerating monetary growth,” which implies “a rising inflation rate.” The claim that Wicksell (2007, pp. 196, 201) makes is much more modest:T]he rise in prices, whether small or great at first, can never cease so long as the cause which gave rise to it continues to operate; in other words so long as the loan rate remains below the normal rate . . . . A lowering of the loan rate below the natural rate ... in itself tends to bring about a progressive rise in all commodity prices.Elsewhere Wicksell (p. 148) comments on his model of the cumulative process: “It is possible in this way to picture a steady, and more or less uniform, rise in all wages rents, and prices (as expressed in money).”Thus, in Wicksell’s analysis, the divergence between the two rates implies only a cumulative rise in the price level and thus in the level of the money supply at a “steady” rate, and not necessarily a continual rise in the rate of inflation and the rate of monetary growth. In his presentation of Wicksell’s model, Carl Uhr (pp. 235-41) demonstrates that the cumulative process can continue indefinitely with a constant 1.00% per year increase in nominal income and in the price level. Thus, White’s “nominal income effect” requires only a level change in the quantity of money and prices, and not a rate change in these variables. This is clear in the “one reservation” that Wicksell expressed about his model, according to Uhr (p. 241): “namely, that the entire sequence was predicated on the assumption that entrepreneurs and others act and react only to prices current in their planning periods.” It is only when inflationary expectations are introduced, according to Wicksell, that “the actual rise will become more and more rapid.” We may conclude, then, that the dynamics of Wicksellian cumulative process are completely consistent with the data presented in the charts above.This brings us to Selgin’s view that the natural rate is fundamentally unobservable and must be inferred from “a mass of empirical studies.” Thus Selgin cites a graph referred to by Janet Yellen which indicates that the natural rate has been negative since 2008. But this is a case of mistaken identity. For the rate that Selgin identifies is not Wicksell’s natural rate but what Keynes’s concept of the “neutral” or “optimum” rate. In fact, Keynes explicitly rejected the Wicksellian natural rate as not “very useful or significant.” Unfortunately, today, the terms “neutral rate” and “natural rate” are used interchangeably to designate the rate that was considered of policy significance by Keynes. When Bernanke, Krugman, Yellen, and other New Keynesians refer to the natural rate, they have in mind the interest rate that is consistent with full employment of resources at some targeted, non-accelerating inflation rate. The goal of the central bank is to discover and establish this fictional rate in financial markets, which will in turn drive investment spending and the real rate of return on investment to levels consistent with stability of the real economy. This New Keynesian notion of the natural rate contrasts sharply with Wicksell’s conception. According to Wicksell (p. 205), who was a follower of Böhm-Bawerk and an Austrian capital theorist, “the natural rate of interest [is] the real yield of capital in production.” The natural rate is thus an “intertemporal” price, or the ratio of prices between present consumption and future consumption (as embodied in capital goods), and it is wholly and directly determined by capital investment in the real sector of the economy. The loan rate of interest is therefore a reflection of the natural rate. As Wicksell (p. 192) put it: “That loan rate that is a direct expression of the real rate, we call the normal rate.” This “normal” or “natural” loan rate derives from the natural rate of return on investment throughout the economy’s capital structure and moves in near lock-step with it: “The rate of interest at which the demand for loan capital and the supply of savings exactly agree ... more or less corresponds to the expected yield on the newly created capital.” (Most of this paragraph is drawn from an earlier publication of mine.)There is thus no need to undertake econometric and other empirical studies to determine the natural rate. The natural interest rate is nothing but the basic or long-run rate of return on investment in the real structure of production. This fundamental or, what Mises called, “originary” interest rate governs the rate of interest on financial markets, not the other way around, as Keynes and his modern disciples would have it. For Wicksell and the Austrians, it is the real economy dog that wags the financial sector tail. Consequently, any and all attempts by central banks to lower the interest rate via monetary policy inevitably create a divergence between the actual and natural interest rates and initiate Wicksell’s inflationary cumulative process. A complete cessation of Fed open market operations would soon enough allow the underlying interest rate on all financial instruments to return to its natural level in line with the basic rate of return on real investment as dictated by people’s voluntary consumption/saving preferences. But what of Selgin’s and the New Keynesians’ assertion that the notional natural rate itself has plunged through the zero bound and, therefore, the inflationary Wicksellian cumulative process does not apply, because the Fed does not yet have the tools to push the nominal rate far enough below zero. First, this assertion is absurd on its face, because it is tantamount to the claim that capitalists are investing in real capital goods at a negative rate of return, despite the existence of the universal law of time preference.Second, we do not need “a mass of empirical studies” to confirm that the natural rate has not plunged into negative territory and may have even risen above its pre-crisis level. Consider the chart below, which appears in a publication by the U.S. Bureau of Economic Analysis (BEA) and is constructed from data in the U.S. national income and product accounts (NIPAs). The top panel plots annual average before tax and after tax rates of return for U.S. nonfinancial corporations for the period 1960-2015. These rates are calculated as the ratio of the net surplus of the corporation to its net stock of produced assets (i.e., capital assets plus inventories valued at current cost). The numerator of the ratio is net operating surplus which is the sum of corporate profits and a few minor items. Corporate profits are a composite of what the economist would call pure or entrepreneurial profit and the return to capital investment (the postponement of consumption). Most of “corporate profits” consist of the normal or natural return to capital investment since pure profits net to zero in a “stationary” or no-growth economy and are slightly positive in the slowly progressing U.S. economy, where saving, investment, and real output per capita is growing slowly. Note that the after tax average rate of return hit a decadal high of 7.6% in 2006 and then fell for the rest of the decade to a low of 6.2% in 2009. It then rose sharply in 2010 to 7.9% and has remained at 8.0% or above through 2015. These variations certainly do not bespeak a collapse of the natural rate after the financial crisis. CHART 6The same story is told by a data series calculated by the BEA from industry economic accounts (IEAs), which consists of average annual rates of return for the 71 industries that account for all U.S. economic activity. These return ratios are calculated as net operating surplus divided by the net stock of produced assets for each industry sector. Since the rates of return are calculated for entire industries, the numerator includes both corporate profits and the income of sole proprietorships and partnerships, so there is a significant wage component that inflates rates of return. But it is the variations in the rates of return that are significant. For this series, which is not charted, the decadal rate of return peaks in 2005 at 14.1% and then plunges to 11.7% by 2009, after which it rises rapidly to 13.3% in 2010 and fluctuates between 13.0 and 13.6% through 2015.To summarize: George Selgin makes three strong, empirically testable claims. First, under current conditions the Fed is incapable of controlling interest rates. Second, the Fed itself is responsible for its own impotence because its monetary policy has been “too tight” since 2008. Third, zero and near-zero interest rates are not indicative of expansionary monetary policy but of a Fed-induced collapse of the natural interest rate to less than zero by tight-money policy. Based on the data adduced above in conjunction with a proper understanding of Wicksell’s analysis of the natural rate, we are compelled to reject these claims as false. As noted above, a definitive empirical test of Selgin’s central contention — that the super-low interest rates we are experiencing are not caused by expansionary monetary policy — would involve the termination of all open market operations. Somehow, I doubt Selgin would approve of such a test.
  • The American Bar Association Stifles Legal Education    (Allen Mendenhall, 2017-06-25)
    By: Allen Mendenhall The Accrediting Council on Education in Journalism and Mass Communications is a nonprofit accrediting agency for journalism programs. Bradley Hamm, the dean at Northwestern’s Medill School of Journalism, has called the council’s accreditation-review process “flawed,” “superficial,” “extremely time-consuming,” and “sort of a low bar.”So he’s gotten out. Northwestern University has effectively terminated its relationship with the council, calmly embracing its new status as unaccredited.The online journal Inside Higher Ed, which points out that the Graduate School of Journalism at the University of California, Berkeley, has done the same, quotes Dean Hamm as saying that, “as we near the 2020s, we expect far better than a 1990s-era accreditation organization that resists change — especially as education and careers in our field evolve rapidly.”This is a tremendous blow — when two of the most prominent and celebrated journalism programs in the country refuse to acknowledge the authority and legitimacy of an accreditor, it’s tough for the accreditor to argue that the resistant institutions are merely upset about their ability to maintain accreditation. If other journalism schools are frustrated with the council’s obsolete standards, and its tendency to micromanage curricula, more of them will likely follow the example of Northwestern and Berkeley.The social and financial costs of burdensome accreditation standards and procedures are even more pronounced in the field of law. Small businesses and Americans of modest income struggle to afford the high costs of hiring an attorney or litigating a case. Access to justice or quality representation is a constant concern within the legal profession.Meanwhile, the American Bar Association, which remains the only accrediting body for law schools in the United States, regulates legal education in a way that drives up costs for law students, and for the consumers onto whom those costs are eventually projected.The ABA restricts innovation by fixing the number of credit hours necessary for law students to graduate, effectively eliminating the possibility of a shorter program than the standard three years. It discourages law professors from honing their practical skills by narrowing the designation of “full-time” faculty to exclude those who maintain an ongoing remunerative relationship with a law firm or business. Its requirements regarding equipment and technology mean, in practice, that many schools are buying expensive computers and furnishing computer labs that students may never use.ABA scrutiny of attrition rates has also contributed to a change in law-school culture and practices. There was a time when law schools could accept a high percentage of applicants who, as students, had to prove their competence in the classroom and stand or fall on their academic merit. Those who couldn’t cut it flunked out. They didn’t incur three years of debt only to take and retake a bar exam they weren’t equipped to pass.The ABA position penalizing schools for high attrition — the result of a new interpretation of Standard 501(b) that prohibits law schools from admitting applicants who aren’t “capable” of completing a Juris Doctor or passing a bar exam — now arguably causes law schools to seek to retain students who can’t cut it. To that end, it encourages grade inflation and heavier use of student loans.Law schools recently came under criticism for hiring their own graduates as a way to boost their post-graduation employment statistics. In response, the ABA instituted procedures to prevent the spread of misleading data. What seemed like a good-faith effort to enhance transparency and accountability has led, instead, to flawed incentives. Law schools have taken to promoting “JD-required” and “bar-passage-required” jobs to their graduates more strongly than corporate or financial positions that pay higher salaries but don’t require either a law license or bar membership.If you graduated from law school today and became the CEO of a large, multinational company tomorrow, you would skew your school’s data in an unfavorable direction.This changed emphasis neglects the realities of a marketplace in which the availability of traditional law jobs remains stagnant. To best serve their students, law schools should feel free to guide them toward alternative careers based in new technologies and businesses that would benefit from the knowledge and leadership that legal education supplies.The ABA’s ministrations also help drive up the price of legal education, forcing law schools to direct time and resources toward ABA compliance that could be put toward student scholarships or improving the curriculum. And a higher price tag means that members of the legal profession, and young lawyers in particular, in order to pay debts or compensate for opportunity costs incurred during law school, pass these costs on to consumers in the form of higher legal fees.The bottom line is that, when a substantial portion of the population cannot afford to hire an attorney, or at least feels that way, the legal system has failed in its chief purpose: to ensure that wrongs are righted and justice is served.Unintended harm, however, is nothing new for the ABA.Founded in 1878 by “leading” or “representative” lawyers who were selected by an elite group of men from states along the East Coast, the ABA sought to nationalize professional and ethical standards with these goals: “to advance the science of jurisprudence, promote the administration of justice and uniformity of legislation throughout the Union, uphold the honor of the profession of the law, and encourage cordial intercourse among the members.”1Noble ambitions indeed. But the organization soon became a fraternal guild that sought to enforce rigid barriers to entry into the legal profession with the assistance of independent bar associations in the 50 states. “For many years,” explained legal scholar Philip J. Wickser in the 1920s, “the Association fought hard to retain its selective quality, and not to forget that a relatively small homogenous group could get the most done.”2The ABA officially excluded African Americans for 66 years, according to Susan D. Carle in her 2013 book Defining the Struggle. Its ouster of three African Americans in 1912 on the basis of their skin color drew protests from the newly founded National Association for the Advancement of Colored People. That same year, the ABA issued a resolution stating that “it has never been contemplated that members of the colored race should become members of this Association.”3Although the ABA has since sought to make up for its racist past by increasing the ethnic diversity of its membership, creating a commission on sexual orientation and gender identity, and strengthening its rules prohibiting racial harassment or discrimination, part of its purpose historically has been to regulate entry into the profession and decrease the number of low-income, immigrant, and minority lawyers4 (though in recent decades such decreases have been a consequence, not the purpose, of ABA regulation).No matter how hard the ABA attempts to distance itself from its origins, it cannot escape the fact that its function is to exclude certain groups from membership to enable a monopoly on legal services by its members. Such exclusion has tended to fall along racial lines. One law professor has thus complained that “all of the ABA’s diversity efforts ring hollow” because the ABA “caused blacks to be excluded from the profession in the first place.”5Given its racially charged beginnings and racially dividing regulations and standards, it’s surprising that the ABA is still considering revising Standard 316, which addresses the bar-passage rates of law-school graduates. Compliance with the revised standard would require bar passage by 75 percent of the graduates of a currently approved (as opposed to provisionally approved) law school in at least three of the last five years.6A few months ago, Lawrence P. Nolan, the president of the State Bar of Michigan, penned a letter to ABA delegates to point out, among other things, that minority organizations — and even the ABA Council for Racial and Ethnic Diversity in the Educational Pipeline — were against the proposed revision to Standard 316. “The collective judgment of those committed to [reducing] the . . . racial disparity in the legal profession,” he said, “is reflected in their unanimous opposition to this amendment.”Nolan also stated that the ABA’s own data “confirms the large gap for African-American bar passage rates, which are lower than overall rates, particularly on the multiple-choice test.” Statistics cited by Nolan show that African Americans pass the bar exam at a lower rate than whites and that the percentage of white repeat takers of the bar exam is 3.2 percent whereas the figure for black repeat takers is 14.1 percent. If those statistics are accurate and predictive, then the effects of the revised standard would fall disproportionately on those schools with higher numbers of African American students.Supporters of the proposed revision portray law schools as exploiters of racial minorities that have been admitting underqualified applicants to make up for diminishing admissions applications. There’s truth to this characterization. Law-school admissions standards have dropped precipitously as enrollment has declined.But why trust the organization that caused or at least exacerbated many of these problems to fix them? We need imagination and rational risk to move forward constructively and creatively. Proposals as wide-ranging as abolishing the bar exam or developing non-JD curricula in law schools ought to be seriously considered. Another idea would be to strip the ABA of its accrediting powers altogether, something the U.S. Department of Education might consider.During this moment of social unrest, when rancorous partisanship seems to permeate all fields of discourse, faculty and administration all along the political spectrum can agree on one thing: The ABA is systematically harming ethnic minorities and becoming as obsolete as its counterpart in journalism education.It may well be time for top-ranked law schools to follow in the footsteps of the J-schools at Northwestern and Berkeley. Only if several leading law schools joined to seek an end to the ABA’s accrediting function would this reform stand a chance. Law schools with lower rankings may lack the credibility to resist, given their stake in the accreditation process. Their administrators already, in my view, avoid speaking out against the ABA due to their reasonable fear of retaliation. (My own trepidation almost prevented this piece from reaching print.)Granted, it might give the law schools pause that in most states, admission to the bar (by authority of the state bar or the state supreme court) is conditioned on holding a degree from an ABA-accredited law school. Still, the journalism-school revolt demonstrates that a mass rebuff of the ABA’s accrediting legitimacy is neither extreme nor absurd. Prominent law schools are already experimenting in other areas, such as considering GRE scores (rather than just LSAT scores) for admissions purposes. Such experimentation is all to the good.The legal profession is, in the words of Benjamin Barton, “facing a major retrenchment” and remains mired in outmoded tasks that artificial intelligence may replace. It’s stuck in a bygone period when lawyers felt threatened by entrepreneurial upstarts who breached longstanding protocols such as prohibitions on advertising or contingency fees. It’s time for an energetic rethinking of the goals and purpose of legal education and the legal profession.Ending ABA accreditation authority would be an exciting first step. It would enable administrators to reallocate resources to lower the costs of legal education and, consequently, of legal services. And it would allow them to focus on their true mission: not lining the pockets of accreditation agencies and bureaucratic guilds but educating prospective lawyers and bringing justice and order to rich and poor alike.Reprinted from the Library of Law and Liberty. The views expressed herein are solely the author’s, and do not reflect those of Faulkner University’s Thomas Goode Jones School of Law or its Blackstone and Burke Center. 1. Simeon E. Baldwin, “The Founding of the American Bar Association,” The American Bar Association Journal 3 (1917), 659-62, 695. 2. Philip J. Wickser, “Bar Associations,” Cornell Law Quarterly 15 (1929-30), 398. 3. Susan D. Carle, Defining the Struggle: National Organizing for Racial Justice, 1880-1915 (Oxford University Press, 2013), pp. 281-82, and 541-43. 4. Jerold S. Auerbach, Unequal Justice: Lawyers and Social Change in Modern America (Oxford University Press, 1976), p. 65: “During the second decade of the twentieth century the American Bar Association began to assert itself aggressively as a professional protective organization. Its purpose was twofold: to preserve its own exclusiveness (and the status that accompanied its preservation) and to exert professional leverage upon the political process.” For admission of minorities, see Auerbach, pp. 65-66, 71, 107, 131, 159-60, 200, 216, and 295. 5. George B. Shepherd, “No African-American Lawyers Allowed: The Inefficient Racism of the ABA’s Accreditation of Law Schools,” Journal of Legal Education 53 (2003), 104. 6. The ABA Council and the Accreditation Committee of the Section of Legal Education and Admissions to the Bar operate independently of the ABA pursuant to regulations of the U.S. Department of Education, which recognizes these bodies as authorized accreditors. For ease of reference and understanding, and because of the connection between these accrediting bodies and the ABA, the taxonomy I have adopted simply lumps these bodies together under the heading of “ABA.”
  • Build a Wall -- around the Welfare State for Non-US Citizens    (Alex Nowrasteh, 2017-06-24)
    Alex Nowrasteh Wednesday, President Trump argued that “those seeking immigration into our country must be able to support themselves financially and should not use welfare for a period of at least five years.” That law is already on the books, but Trump’s instincts are correct on this issue. Congress can do a lot more to restrict access to welfare for immigrants, but it should go even further than Trump recommends — by denying access to welfare for all noncitizens. Immigrants don’t come to the United States for welfare, they come to work. It’s bad enough that taxpayers have to support bloated, ineffective welfare schemes for U.S. citizens. They should not be forced to do so for recent arrivals. Preventing non-citizens from accessing welfare will save taxpayers money and calm the concerns of many taxpayers. Lower-income immigrants are less likely to use means-tested welfare programs than lower-income native-born Americans. When lower-income immigrants do use those programs, the dollar value of the benefits they consume is far below their native-born counterparts with similar income. If natives consumed Medicaid at the same rate and dollar value as lower-income immigrants do, the program would be 42 percent smaller. Relatedly, immigrant labor force participation rates tend to be higher than for natives and they are about twice as likely to start a business. Immigrant welfare use is a small problem relative to the size of the welfare state. In addition to their relatively lower use rates and the small value of the benefits they consume, immigrants pay about $14 billion a year more into Medicare Part A than they consume in benefits, compared to the roughly $31 billion a year deficit that natives impose. Medicare needs serious reform, but immigrants are helping to keep the system solvent in the meantime. Regardless of the truth, polls show that immigrant use of welfare is a very real concern to many Americans. Immigrants clearly don’t need welfare, but the false perception that they consume it in massive quantities dampens public enthusiasm for liberalizing immigration laws. A Cato Institute policy analysis from a few years back described how Congress could end this perception by simply barring non-citizens’ access to large portions of the welfare state, from food stamps to Medicaid. Ending non-citizen access to welfare can address these concerns. If false public perceptions of immigrant welfare use led to welfare reform that diminished their access then taxpayers, including those who are immigrants, would benefit at a very low cost. Such a proposal would separate those honestly worried about immigrant welfare use from those who use it as an excuse to oppose immigration. Trump’s statements in favor of restricting welfare access did not include many details. However, there is no shortage of means to restrict non-citizen access to welfare. For instance, there are some minor reforms, such as enforcing documentation requirements for Medicaid applicants, and improving the accuracy and frequency of use for the Systematic Alien Verification for Entitlements (SAVE) program that checks whether welfare applicants are actually eligible for benefits. Some reform suggestions go further, such as preventing all non-citizens from receiving cash benefits through the Temporary Aid to Needy Families program and food stamps, as well as reforming the Earned Income Tax Credit and Child Tax Credit so only citizens have access. Current law already bars immigrants from receiving many welfare benefits, but states have the authority to spend their own tax revenue on aid for immigrants ineligible under federal rules. As much as this rightly rankles many voters, principles of federalism and the Constitution make it difficult for Congress to ban that practice, except when federal funds are involved. Preventing non-citizens from accessing welfare will save taxpayers money and calm the concerns of many taxpayers. Congress can and should expand upon Trump’s idea to further restrict immigrant welfare use by barring all non-citizens from accessing benefits. Everyone will win under such a policy, and there will be no doubt that immigrants continue to flock to our shores to achieve the American Dream, rather than receive a welfare check. Alex Nowrasteh is an immigration policy analyst at the Cato Institute.
  • Week in Review: June 24, 2017    (Mises Institute, 2017-06-23)
    By: Mises Institute While the Federal Reserve is desperate to depict an optimistic vision for the global economy, their fellow central bankers aren't buying it. Earlier this week Mark Carney of the Bank of England shutdown talk of the BOE possibly following the Fed's lead in raising interest rates. Meanwhile, as Fed officials are openly worrying about whether technological advances are undermining their misguided war against deflation, the ECB is desperately looking for people to blame if Europeans begin to feel the pain from rising prices. On Mises Weekends, Jeff is joined by Dr. Ed Stringham, a Mises associated scholar and the author of the book Private Governance. More and more Americans are waking up to the reality that the US criminal justice system is hopelessly broken, riddled with bad incentives and bad actors. In the wake of recent police shootings Jeff and Ed discuss how and why private security firms could create vastly better outcomes for crime victims, society, and even perpetrators. This is a fascinating discussion you won't want to miss.And in case you missed them, here are this weeks Mises Wire articles, covering a wide array of topics including: shorter work week ahead, the Fed, our politicized legal system, the stalled money supply growth, and let's privatize the New York City subway.What Derek Carr's Contract Teaches Us about Wall Street and Income Inequality by Tho BishopThe ECB Blames Inflation on Everything but Itself by Louis RouanetRichard Cantillon Is Sleepless in Seattle by Doug FrenchTeaching "Tips": An Economic and Pedagogical Defense of Gratuities by Anthony GillOur Lawless Central Bank by Ryan McMakenFour Reasons Central Banks are Wrong to Fight Deflation by Guido HülsmannThe Tragedy of the Commons in the Courtroom by Chris CaltonDoes the Fed Follow Its Own Rules? by Daniel Fernández MéndezWill Our Grandchildren Work Only Four Hours Per Day? by Ryan McMakenJeff Sessions's Reefer Madness by Mark ThorntonHow to Fight For Peace by Ron PaulMoney Supply Growth Fell to a 104-Month Low in May by Ryan McMakenAfter Brexit: Germany and the EU Will Look to Asia by Alasdair MacleodOil Is Cheap — Why OPEC Can't Do Anything About It by Edgar OrtizPrivatize the New York City Subway System by Robert FellnerHelp Wanted: Lenders with No Experience (or Short Memories) to Make Risky Mortgages by Doug FrenchTrump Turns Back the Clock With Cold War Cuba U-Turn by Ron PaulFed Raises Rates — Will Other Central Banks Follow? by Ryan McMaken 
  • Draghi Doesn’t See “Bubbles” — Let Me Show You Some    (Daniel Lacalle, 2017-06-23)
    By: Daniel Lacalle Mario Draghi has again missed an exceptional opportunity to adjust monetary policy. By ignoring the huge risks that are being created from the brutal inflation of financial assets, saying that “there are no signs of a bubble,” the European Central Bank (ECB) remains adamantly focused on creating inflation by decree, denying the effects of technology, demography, and overcapacity.“No signs of bubble”? I’ll show you some of them myself.The percentage of debt of major countries “bought” by the ECB: Germany, 17%, France 14%, Italy 12%, and Spain 16%. In all cases, in 2016 and 2015 the ECB was the largest buyer of said countries’ net emissions.Ask yourself a question: On the day the ECB stops buying, which of you would buy peripheral or European bonds at these prices? Clearly, the first sign of a bubble is the absence of demand in the secondary that offsets the impact of the ECB. It indicates that the current price is simply unacceptable in an open market, even if the recovery is confirmed, especially because rates do not even reflect a minimum real return, being below inflation.European Union high-yield bonds are trading at record-low yields despite the fact that cash generation and debt repayment capacity, according to Moody’s and Fitch, have not improved significantly.European largest stocks (Eurostoxx 50) trade at 20x PE and 8.3x EV/EBITDA despite eight years of flat earnings and downgrades, which have only just recently reversed.Infrastructure deals’ multiples have increased five-fold in three years to an astonishing average of 16-19x EBITDA.Excess liquidity in the euro zone already reaches 1.2 trillion euros. It has multiplied by almost seven since the “stimulus” program was launched.Anything for InflationThere is a problem in the huge amount of assets bought by the ECB, whose balance sheet already exceeds 25% of the European Union’s GDP. At the beginning of the repurchase program, it could be argued that risky assets, especially sovereign bonds, could have been cheap or under-valued because of the risk of break-up of the euro and overall negative sentiment. However, that statement cannot be made today, with bond yields at historic lows and debt levels at historic highs. Monetary policy is a perverse incentive to spend more and add more debt.Of course, what the ECB expects is the arrival of the inflation mantra, that mirage that deficit states yearn for and no consumer has ever wanted.But the search for inflation by decree meets the pitfall of reality. The positive disinflation that technological advances generate adds to the logical change of consumption patterns due to aging of the population and the elephant in the room: The European Union has never had a problem of lack of investment, but of excess spending on dozens of industrial and infrastructure plans that have left behind some positive effects, but — due to excess — greater debt and overcapacity .Now that prices are moderating again with the dilution of the base effect, the opportunity to moderate this unnecessary monetary stimulus is lost. As I explained at CNBC on May 29, the supposed positive effects of the buyback program cannot make us ignore the accumulation of risk in sovereign and corporate bonds and the dangerous impact on the financial sector.Draghi, at Least, WarnsThe president of the ECB does not stop alerting governments about the importance of reforms to drive growth, lower taxes and reduced imbalances, but no one hears. When Draghi warns banks of their weaknesses, they don’t listen either. When he reminds deficit spending governments that monetary policy has an expiration date, they look the other way. It’s party time .Monetary policy is “like Coca-Cola,” said Jens Weidmann , president of the Bundesbank. A drink that stimulates, but has too much sugar and no real healing qualities.The problem of losing this opportunity to moderate monetary policy is that it is highly unlikely that the necessary measures will be taken to correct excesses when they are no longer a debate of economic analyst, but evident to all citizens. Because then, the central bank will be afraid of a financial market correction, after a bubble inflated by its policies.European governments make a huge mistake thinking that prosperity is going to be generated from debt and not from savings. But they make an even bigger mistake if they think that by perpetuating the imbalances, they will prevent a crisis.At the press conference, Draghi said that “nobody knows when or where the next crisis will come: the only sure thing is that it will come.”What Draghi did not explain is that the artificial creation of money without support, well above real economic growth, is always behind those crises. But that is another problem, that will be dealt with by the next president of the Central Bank, who will offer the “new” solution … Yes, you have guessed it: Cut rates and increase liquidity.Reprinted with permission of the author. Daniel Lacalle has a PhD in Economics and is author of Escape from the Central Bank Trap, Life In The Financial Markets, and The Energy World Is Flat (Wiley).
  • Draghi Doesn’t See "Bubbles" — Let Me Show You Some    (Daniel Lacalle, 2017-06-23)
    By: Daniel Lacalle Mario Draghi has again missed an exceptional opportunity to adjust monetary policy. By ignoring the huge risks that are being created from the brutal inflation of financial assets, saying that “there are no signs of a bubble,” the European Central Bank (ECB) remains adamantly focused on creating inflation by decree, denying the effects of technology, demography, and overcapacity.“No signs of bubble”? I’ll show you some of them myself.The percentage of debt of major countries “bought” by the ECB: Germany, 17%, France 14%, Italy 12%, and Spain 16%. In all cases, in 2016 and 2015 the ECB was the largest buyer of said countries’ net emissions.Ask yourself a question: On the day the ECB stops buying, which of you would buy peripheral or European bonds at these prices? Clearly, the first sign of a bubble is the absence of demand in the secondary that offsets the impact of the ECB. It indicates that the current price is simply unacceptable in an open market, even if the recovery is confirmed, especially because rates do not even reflect a minimum real return, being below inflation.European Union high-yield bonds are trading at record-low yields despite the fact that cash generation and debt repayment capacity, according to Moody’s and Fitch, have not improved significantly.European largest stocks (Eurostoxx 50) trade at 20x PE and 8.3x EV/EBITDA despite eight years of flat earnings and downgrades, which have only just recently reversed.Infrastructure deals’ multiples have increased five-fold in three years to an astonishing average of 16-19x EBITDA.Excess liquidity in the euro zone already reaches 1.2 trillion euros. It has multiplied by almost seven since the “stimulus” program was launched.Anything for InflationThere is a problem in the huge amount of assets bought by the ECB, whose balance sheet already exceeds 25% of the European Union’s GDP. At the beginning of the repurchase program, it could be argued that risky assets, especially sovereign bonds, could have been cheap or under-valued because of the risk of break-up of the euro and overall negative sentiment. However, that statement cannot be made today, with bond yields at historic lows and debt levels at historic highs. Monetary policy is a perverse incentive to spend more and add more debt.Of course, what the ECB expects is the arrival of the inflation mantra, that mirage that deficit states yearn for and no consumer has ever wanted.But the search for inflation by decree meets the pitfall of reality. The positive disinflation that technological advances generate adds to the logical change of consumption patterns due to aging of the population and the elephant in the room: The European Union has never had a problem of lack of investment, but of excess spending on dozens of industrial and infrastructure plans that have left behind some positive effects, but — due to excess — greater debt and overcapacity .Now that prices are moderating again with the dilution of the base effect, the opportunity to moderate this unnecessary monetary stimulus is lost. As I explained at CNBC on May 29, the supposed positive effects of the buyback program cannot make us ignore the accumulation of risk in sovereign and corporate bonds and the dangerous impact on the financial sector.Draghi, at Least, WarnsThe president of the ECB does not stop alerting governments about the importance of reforms to drive growth, lower taxes and reduced imbalances, but no one hears. When Draghi warns banks of their weaknesses, they don’t listen either. When he reminds deficit spending governments that monetary policy has an expiration date, they look the other way. It’s party time .Monetary policy is “like Coca-Cola,” said Jens Weidmann , president of the Bundesbank. A drink that stimulates, but has too much sugar and no real healing qualities.The problem of losing this opportunity to moderate monetary policy is that it is highly unlikely that the necessary measures will be taken to correct excesses when they are no longer a debate of economic analyst, but evident to all citizens. Because then, the central bank will be afraid of a financial market correction, after a bubble inflated by its policies.European governments make a huge mistake thinking that prosperity is going to be generated from debt and not from savings. But they make an even bigger mistake if they think that by perpetuating the imbalances, they will prevent a crisis.At the press conference, Draghi said that “nobody knows when or where the next crisis will come: the only sure thing is that it will come.”What Draghi did not explain is that the artificial creation of money without support, well above real economic growth, is always behind those crises. But that is another problem, that will be dealt with by the next president of the Central Bank, who will offer the “new” solution … Yes, you have guessed it: Cut rates and increase liquidity.Reprinted with permission of the author. Daniel Lacalle has a PhD in Economics and is author of Escape from the Central Bank Trap, Life In The Financial Markets, and The Energy World Is Flat (Wiley).
  • National Tax Reformers Should Look to Alaska for Landmines    (2017-06-23)
    By William F. Shughart II; Across the United States, people are talking about tax reform. Comprehensive overhaul of the federal tax code was a core part of President Trump's campaign platform, and voters on b...
  • Edward Stringham on Radically Rethinking Police    (Edward Stringham, Jeff Deist, 2017-06-23)
    By: Edward Stringham, Jeff Deist The US criminal justice system is hopelessly broken, riddled with bad incentives and bad actors. In the wake of recent police shootings, Dr. Ed Stringham joins Jeff Deist to help us understand how and why private security firms could create vastly better outcomes for crime victims, society, and even perpetrators. This is a fascinating discussion you won't want to miss.Recommended reading: Private Governance: Creating Order in Economic and Social Life
  • What Americans Really Want from Health Care Reform Is Impossible    (Michael D. Tanner, 2017-06-23)
    Michael D. Tanner It is an old joke among health policy wonks that what the American people really want from health care reform is unlimited care, from the doctor of their choice, with no wait, free of charge. For Republicans, trying to square this circle has led to panic, paralysis, and half-baked policy proposals such as the ObamaCare replacement bill. For Democrats, it has led from simple disasters such as ObamaCare itself to a position somewhere between fantasy and delusion. The latest effort to fix health care with fairy dust comes from California, whose Senate voted to establish a statewide single-payer system. As ambitious as the California legislation is, encompassing everything from routine checkups to dental and nursing home care, its authors haven’t yet figured out how it will be paid for. The plan includes no co-pays, premiums or deductibles. Perhaps that’s because the legislature’s own estimates suggest it would cost at least $400 billion, more than the state’s entire present-day budget. Adopting a single-payer system would crush the American economy, lowering wages, destroying jobs and throwing millions into poverty. In fairness, legislators hope to recoup about half that amount from the federal government and the elimination of existing state and local health programs. But even so, the plan would necessitate a $200 billion tax hike. One suggestion being bandied about is a 15 percent state payroll tax. Ouch. The cost of California’s plan is right in line with that of other recent single-payer proposals. For example, last fall, Colorado voters rejected a proposal to establish a single-payer system in that state that was projected to cost more than $64 billion per year by 2028. Voters apparently took note of the fact that, even after figuring in savings from existing programs, possible federal funding, and a new 10 percent payroll tax, the plan would have still run a $12 billion deficit within 10 years. Similarly, last year Vermont was forced to abandon its efforts to set up a single-payer system after it couldn’t find a way to pay for the plan’s nearly $4 trillion price tag. The state had considered a number of financing mechanisms, including an 11.5 percent payroll tax and an income tax hike (disguised as a premium) to 9.5 percent. On the national level, who could forget Bernie Sanders’ proposed “Medicare for All” system, which would have cost $13.8 trillion over its first decade of operation? Bernie would have paid for his plan by increasing the top US income-tax rate to an astounding 52 percent, raising everyone else’s income taxes by 2.2 percentage points, and raising payroll taxes by 6.2 points. Of course, it is no surprise that Medicare for All would be so expensive, since our current Medicare program is running $58 trillion in the red going forward. It turns out that “free” health care isn’t really free at all. How, though, could a single-payer system possibly cost so much? Aren’t we constantly told that other countries spend far less than we do on health care? It is true that the US spends nearly a third more on health care than the second-highest-spending developed country (Sweden), both in per-capita dollars and as a percentage of GDP. But that reduction in spending can come with a price of its own: The most effective way to hold down health care costs is to limit the availability of care. Some other developed countries ration care directly. Some spend less on facilities, technology or physician incomes, leading to long waits for care. Such trade-offs are not inherently bad, and not all health care is of equal value, though that would seem to be a determination most appropriately made by patients rather than the government. But the fact remains that no health care system anywhere in the world provides everyone with unlimited care. Moreover, foreign health care systems rely heavily on the US system to drive medical innovation and technology. There’s a reason why more than half of all new drugs are patented in the United States, and why 80 percent of non-pharmaceutical medical breakthroughs, from transplants to MRIs, were introduced first here. If the US were to reduce its investment in such innovation in order to bring costs into line with international norms, would other countries pick up the slack, or would the next revolutionary cancer drug simply never be developed? In the end, there is still no free lunch. American single-payer advocates simply ignore these trade-offs. They know that their fellow citizens instinctively resist rationing imposed from outside, so they promise “unlimited” care for all, which is about as realistic as promising personal unicorns for all. In the process, they also ignore the fact that many of the systems they admire are neither single-payer nor free to patients. Above and beyond the exorbitant taxes that must almost always be levied to fund their single-payer schemes, many of these countries impose other costs on patients. There are frequently co-payments, deductibles and other cost-sharing requirements. In fact, in countries such as Australia, Germany, Japan, the Netherlands and Switzerland, consumers cover a greater portion of health care spending out-of-pocket than do Americans. But American single-payer proposals eliminate most or all such cost-sharing. Adopting a single-payer system would crush the American economy, lowering wages, destroying jobs and throwing millions into poverty. The Tax Foundation, for instance, estimated that Sanders’ plan would have reduced the US GDP by 9.5 percent and after-tax income for all Americans by an average of 12.8 percent in the long run. That is, simply put, not going to happen. So Americans are likely to end up with a lot less health care than they have been promised. Santa Claus will always be more popular than the Grinch. But the health care debate needs a bit more Grinch and a lot less Santa Claus. Americans cannot have unlimited care, from the doctor of their choice, with no wait, for free. The politician who tells them as much will not be popular. But he or she may save them from something that will much more likely resemble a nightmare than a utopian dream. Michael Tanner is a senior fellow at the Cato Institute and the author of “Going for Broke: Deficits, Debt, and the Entitlement Crisis.”
  • Health Care Bill Would Rescue ObamaCare and Take Democrats off the Hook    (Michael F. Cannon, 2017-06-23)
    Michael F. Cannon Senate Republicans have released their supposed ObamaCare-repeal bill, the “Better Care Reconciliation Act.” Like its counterpart, the House-passed “American Health Care Act,” the Senate bill would not repeal ObamaCare. Indeed, it’s not even fair to call it a partial repeal or “ObamaCare-lite.” The Senate bill fails to repeal ObamaCare’s major provisions. Its purported repeal and reform provisions, particularly those tied to Medicaid, are phony. Indeed, the bill would actually expand ObamaCare in significant respects. Let’s start with what it will do to the cost, quality and stability of private health insurance. ObamaCare’s “community rating” price controls are causing premiums to rise, coverage to get worse for the sick and insurance markets to collapse across the country. The Senate bill would modify those government price controls somewhat, allowing insurers to charge 64-year-olds five times what they charge 18-year-olds (as opposed to three times, under current law). But these price controls would continue to make a mess of markets and cause insurers to flee. The bill would also preserve other ObamaCare mandates and regulations that contribute to higher premiums. On top of that, the Senate bill wouldn’t even repeal the parts of ObamaCare Republicans claim it would. On paper, it would repeal ObamaCare’s expansion of Medicaid — but not until 2024. There will be three federal election cycles, three new Congresses and potentially a brand new president between now and then. It is almost certain Democrats will control at least one of those Congresses, and could then rescind this “repeal” as if it never happened. The Senate bill fails to repeal ObamaCare’s major provisions. Its purported repeal and reform provisions, particularly those tied to Medicaid, are phony The rest of the bill’s supposed Medicaid cuts are no less phony. The bill wouldn’t cut traditional Medicaid by one penny. It would reduce the rate of growth in traditional Medicaid spending, but Medicaid spending would still grow, year after year, forever. Yet even those changes are phony. They would not take effect until 2025, giving four future Congresses the opportunity to rescind them. Republicans have been promising full ObamaCare repeal for seven years. That means repealing all of ObamaCare’s regulations, mandates, bailouts and subsidies, including the entire Medicaid expansion. Instead, the Senate bill actually expands ObamaCare in at least two ways. First, it expands eligibility for ObamaCare’s so-called “premium-assistance tax credits” to 2.6 million people in the 19 states that didn’t expand Medicaid, which is effectively a Medicaid expansion by other means. Second, the bill would fund ObamaCare’s “cost-sharing” subsidies — something not even Democrats ever did. The Democratic Congress that enacted ObamaCare authorized but did not fund those subsidies — which, a federal judge ruled, makes the Obama and Trump administrations’ payment of those subsidies to insurers unconstitutional. Rather than let those unconstitutional subsidies die, the Republican bill would expand ObamaCare beyond what a Democratic Congress created. Finally, rather than let Democrats outdo them when it comes to budget gimmicks, Senate Republicans ordered the nonpartisan Congressional Budget Office to “score” their bill against spending and revenue projections that overestimate the number of exchange enrollees and exchange spending. Comparing their bill to inflated spending estimates allows Republicans to spend more ObamaCare money than honest budgeting would. We may never know for sure, but Senate Republicans could be hiding that their bill would increase federal deficits and/or even increase actual spending on exchange subsidies. Nevertheless, Senate Republicans will claim that their bill repeals ObamaCare and replaces it with free-market reforms. Perhaps the worst part is that ObamaCare supporters would be able to blame the ongoing harm their law causes on free markets rather than the actual culprit. Michael F. Cannon is director of health policy studies at the Cato Institute.
  • If We Want "Unity," Government Must Become Weaker    (Ryan McMaken, 2017-06-23)
    By: Ryan McMaken Last week, a gunman opened fire on a group of Republican members of Congress. Letters sent by the gunman to his local newspaper suggest he was obsessed with Republican policies, and concluded that Donald Trump "Has Destroyed Our Democracy" [sic] and that "It's Time to Destroy Trump and Co." In the wake of the attack, there have been the usual predictable calls for "unity." These calls, of course, fail to address a central reason why unity appears to be a problem, and why many feel the need to manufacture it where it does not exist. Fear of a "Foreign" MajorityIn the wake of the 2016 election, it was not uncommon to read in both the mainstream media, and in social media, predictions that with a Republican victory, a fascist police state would soon be bringing the hammer down on all the enemies of the regime. In this case, "enemy of the regime" was anyone other than the alleged troglodytes who had voted Trump into office. Nine months later, we're still waiting on that border wall and on that Obamacare repeal, and on that tax cut. In fact, all we're likely to get is more government spending, more deficits, and more war. In short, the new administration will look a lot like the old one. Nevertheless, there are some significant changes that are likely to take place. The administration may refrain from forcing nuns to pay for someone else's birth control, and environmental regulations are likely to be loosened. The general tenor of the federal government will shift slightly more toward favoring members of a center-right coalition of interest groups. The change, however, is anything but radical.Nevertheless, any change that disfavors one's own preferred interest groups and ideological groups is a real problem for those who find themselves on the outside of the winning coalitions. Many voters and activists who now feel powerless saw themselves as being in the majority ruling coalition while Obama was in power. Now that he's been replaced by Trump, the fear of abuse at the hands of the new ruling majority shifts to others. While the consequences are probably less significant than many imagine, there will be real winners and losers over the next four years compared to what was the case under the previous administration. Calling for unity and asking people to play nice will do nothing to eliminate this reality. Those groups that saw themselves as being on the outside during the Obama years are all to familiar with what many Obama supporters are now feeling. Indeed, living among the minority that finds itself out of power is an unpleasant experience in any context. Ludwig von Mises wrote on this phenomenon. He couched it within the context of immigration, but the lesson learned here applies to any situation in which one group manages to wrest control of government power away from another group:As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying. It is frightful to live in a state in which at every turn one is exposed to persecution—masquerading under the guise of justice—by a ruling majority. It is dreadful to be handicapped even as a child in school on account of one’s nationality and to be in the wrong before every judicial and administrative authority because one belongs to a national minority. Mises speaks of nationality in this example, but with some modest changes to the text, we could apply this illustration to any number of other examples. It is not necessary for a potentially dangerous majority to be composed of foreigners. Mises might just as easily have said that "the thought of having to live in a state whose government is in the hands of members of a competing ideology is positively terrifying."For many, the fear is real, and is indeed analogous to those who fear changes in government control fostered by migrations. Consider another passage by Mises: The entire nation, however, is unanimous in fearing inundation by foreigners. The present inhabitants of these favored lands fear that some day they could be reduced to a minority in their own country and that they would then have to suffer all the horrors of national persecution...In this case, Mises might have said that "Californians are unanimous in fearing a takeover by Southerners and Christians...and they fear that some day they could be reduced to a minority in their own country." The analogy is a bit clunky here, but it's not difficult to see the similarity. For most California voters (59 percent of whom voted for Clinton), there is a real fear that the levers of power in Washington really will be "inundated" by members of the so-called "basket of deplorables" that Hillary Clinton spoke of. In the minds of West Coast leftists, the thought of government under the control of evangelical Christians from Texas really is something to fear. This same leftist might then imagine himself personally subject to the whims of his rightwing enemies in this manner as described my Mises: And when he appears before a magistrate or any administrative official as a party to a suit or petition, he stands before men whose political thought is foreign to him because it developed under different ideological influences. ... At every turn the member of a national minority is made to feel that he lives among strangers and that he is, even if the letter of the law denies it, a second-class citizen. Again, Mises is speaking of ethnic and linguistic differences, but the observation applies to any sort of minority subject to a majority group with differing values. Now, we can debate as to how much a leftist from Silicon Valley might "suffer" under the alleged yoke of a rightwing regime that might cut taxes. The perception of the danger posed by "the other" is very real, however. Nor is this limited to leftists, of course. Sarah Palin's declaration that there are "real Americans" (i.e., conservatives) who are to be contrasted with presumably fake Americans highlights the tendency to simply declare other ideological groups to be essentially "foreign" to one's own interests. The fact that these "others" happen to speak the same language or be born in the same legal jurisdiction does little to erase the perception of a rift between different groups. It's not surprising then, that the issue of "unity" appears to be a growing problem. If the members of competing political groups aren't "real Americans" or are "deplorables," then one should hardly be motivated to pursue unity with such people. Many may even conclude that violence is necessary.How to Address the Problem For Mises, one of the primary answers to the problem of oppressing minorities was to make governments smaller and less powerful — and thus less able to oppress minorities. Again, in the context of immigration, Mises concludes: It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?In other words, even if ethnic Japanese groups took control of the Australian state, it would not matter if the state were conducted along liberal [i.e., libertarian] lines. But the same might be said of feminists, or Christians, university professors or working class white people. If all were "governed according to liberal principles," there isn't a problem. If the state lacks the power to regulate, oppress, and impoverish one group for the benefit of another, then what group is in the majority is irrelevant. But, if a state "is not conducted along completely liberal lines," Mises concludes,there can be no question of even an approach to equal rights in the treatment of the members of the various national groups. There can then be only rulers and those ruled. The only choice is whether one will be hammer or anvil.Put simply: the bigger the government, the greater the threat when the other guys manage to get political power. The Other Option: Secession Should efforts to restrain the state's overall power fail, another answer is decentralization. And this was Mises's other solution to the problem of minorities subject to majorities. For Mises, the problem of "self-determination" could be addressed through decentralization, secession, and an acceptance that minority groups must have the option of breaking free from political bonds with majority groups of divergent interests: The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars ... To call this right of self-determination the "right of self-determination of nations" is to misunderstand it. It is not the right of self-determination of a delimited national unit, but the right of the inhabitants of every territory to decide on the state to which they wish to belong...In his essay on Mises's views on self-determination and nationalism, Joseph Salerno notes that for Mises the answer lies in "providing for the continual redrawing of state boundaries in accordance with the right of self-determination." In other words, in order to prevent the oppression of minorities by majorities, it may be necessary to allow the minority group to separate from the majority. It is becoming increasingly clear that the United States is becoming a country in which every election brings a perceived mandate to forcefully — and even vengefully — impose the winning coalition's agenda on the losers. In a country where political power is relatively weak, decentralization is effective, and taxes are low, then the effects of a political loss can be relatively minor. But that's not the situation we now face.
  • Laurence Tribe's Impeachment Hysteria    (Gene Healy, 2017-06-23)
    Gene Healy In a way, you can’t blame conservatives for thinking the fix is in on impeachment. A broad swathe of the liberal intelligentsia has been hell-bent on removing Donald Trump from office since before Day One of his presidency. The worst among them seem to have taken a cue from Marlon Brando in The Wild One: What are the charges? “Whaddya got?” Former labor secretary Robert Reich says we should impeach Trump for “abridging the freedom of the press” by … calling the media names and “choosing who he invites to news conferences.” In his rushed-to-publication tome, The Case for Impeachment, American University’s Allan J. Lichtman argues that Trump can be removed for the “crime against humanity” of global-warming skepticism. Are these really the sorts of offenses that qualify as “high Crimes and Misdemeanors”? To divine the meaning of that phrase, it would help to have the guidance of a preeminent constitutional scholar — someone such as Harvard’s Laurence Tribe, whose treatise American Constitutional Law has been “cited more than any other legal text since 1950.” Unfortunately, Trump’s election seems to have rattled Tribe hard enough to knock loose both his constitutional standards and his sense of proportion. The dean of con-law professors has spent the administration’s opening months frantically hurling charges at Trump, and managing mainly to impeach his own reputation in the process. The Harvard Law professor’s arguments for removing President Trump from office have grown increasingly unhinged. Impeachment “Should Begin On Inauguration Day,” Tribe declared in December; by January 28, he had concluded that Trump “must be impeached for abusing his power and shredding the Constitution more monstrously than any other president in American history” — pretty impressive for a man entering the second week of his presidency. In the first months of Trump’s tenure, Tribe floated everything from violations of the Emoluments Clause to the “cruel brand of bigotry” that supposedly motivates the travel ban to a State Department blogpost touting the “winter White House” at Mar-a-Lago, even suggesting that the president could be defenestrated on the basis of a single tweet: his March 4 claim that Obama had his “wires tapped” in Trump Tower. When law professor Johnathan Turley laughed off the idea on Morning Joe, back in March, Tribe had a mini-conniption on Twitter: “Using power of WH to falsely accuse [Obama of an] impeachable felony does qualify as an impeachable offense whether via tweet or not,” he huffed. What’s funny about all this is, when it was Bill Clinton’s political life on the line, Tribe nearly threw his back out trying to raise the constitutional bar for removal. In his November 1998 testimony before the House Judiciary Committee, Tribe insisted that “an impeachable offense must itself severely threaten the system of government or constitute a grievous abuse of official power or both.” Perjury and obstruction to cover up an illicit affair weren’t nearly grave enough. Hell, back then even murder was a close call in Tribe’s eyes, if the president did the deed himself, for personal reasons. In his testimony, Tribe emphasized the fact that “when Vice President Aaron Burr killed Alexander Hamilton in a duel in July 1804 … Burr served out his term, which ended in early 1805,” without getting impeached. “There may well be room to argue,” Tribe grudgingly conceded, that a contemporary president could be impeached for an extracurricular homicide — but that exception “must not be permitted to swallow [the] rule.” Whack a guy in Weehawken and we might have to let you get away with it; lie about him on Twitter, though, and you’ve got to go. Charges of “Trump Derangement Syndrome” are often jus a debater’s dodge, used to change the subject from the president’s behavior to his critics’ alleged hang-ups. Spend any time following Laurence Tribe on social media, though, and you’ll begin to think of it as an actual, clinical condition. It turns out that Donald J. Trump isn’t the only septuagenarian who’s too excitable to be trusted with a Twitter account. Tribe’s feed has become a “vector of misinformation and conspiracy theories on Twitter,” as Dartmouth political scientist Brendan Nyhan puts it. The distinguished professor of constitutional law has become a sucker for crackpot theories about the Trump-Russia connection, and a fan of those who spread them, such as “the incomparable Louise Mensch.” “Incomparable” is right. Mensch, the “paranoid bard of the age of Trump,” claims, among other things, that Vladimir Putin had Andrew Breitbart assassinated, and that “the Marshal of the Supreme Court” has notified President Trump of secret impeachment proceedings that are already underway. (I like to think that the mysterious “Marshal” sports a Stetson and swaggers around like Raylan Givens.) More conventional grounds for impeachment emerged in May, when the president sacked FBI director James Comey over “this Russia thing.” As that story was breaking, Tribe took to the Washington Post op-ed page to insist that “Trump must be impeached” for obstruction of justice. Trump’s actions, Tribe argued, read like a replay of the charges against Richard Nixon: “making misleading statements to, or withholding material evidence from, federal investigators or other federal employees … [and] dangling carrots in front of people who might otherwise pose trouble for one’s hold on power.” “To say that this does not in itself rise to the level of ‘obstruction of justice,’” Tribe thundered, “is to empty that concept of all meaning.” Not quite: Reasonable legal minds differ about whether Trump’s behavior rises to that level. Besides, those charges also read like a replay of the rap against Clinton. And as Tribe stressed during that imbroglio, whether obstruction is impeachable depends in part on how serious a thing the president was trying to cover up. It’s entirely possible that further investigation won’t yield evidence of collusion, and the entire episode will end up looking less scandalous than Clinton’s romp with Monica Lewinsky. By Tribe’s own indulgent standard, then, without “the threat of substantial harm to the nation required to establish a high crime or misdemeanor,” Trump should get a pass. As it happens, the scope of the impeachment power is considerably broader than partisans such as Tribe led people to believe back when they were trying to save Clinton’s hide. But that’s the problem with tailoring your constitutional interpretations to the political needs of the moment: As Tribe put it in 1998, it’s “short-sighted … to approach the task of defining ‘high Crimes and Misdemeanors’ from a narrowly result-oriented perspective,” because you “may live to regret” the standard you’ve set when the presidency changes hands. Gene Healy is a vice-president of the Cato Institute and the author of The Cult of the Presidency.
  • If Russia Wants the Syria Mess, Let Them Have It    (Ted Galen Carpenter, 2017-06-23)
    Ted Galen Carpenter Relations between Moscow and Washington continue to deteriorate over a variety of issues. Contrary to the expectations of Americans who favor a more conciliatory policy toward Russia (and contrary to the fears of those who believe that a confrontational stance is necessary), the frigid bilateral relationship during Barack Obama’s administration has not warmed under Donald Trump. The new president retreated from indications he gave during the 2016 presidential election campaign that he would reconsider the economic sanctions that his predecessor imposed following Russia’s annexation of Crimea and Moscow’s support for separatist forces in eastern Ukraine. Beyond the administration’s policy retreat, Congress is in a militant, anti-Russia mood. The Senate just voted 98-2 to impose additional sanctions on Moscow in retaliation to the Putin government’s alleged interference in America’s 2016 elections. An avalanche of vitriolic denunciations of Vladimir Putin and Russian behavior in general preceded that vote and have been a staple of the media for months. Russian officials are reacting with growing resentment and anger to Washington’s mounting displays of hostility. On one issue, Syria, bilateral tensions especially are flaring to an alarming extent. That animosity has been building for years. Obama administration officials openly backed the Sunni-dominated insurgency that has waged a war for nearly six years to oust Bashar al-Assad’s religious-minority (Alawite, Druze and Christian) regime. Moscow deeply resented the U.S. position, since the Assad family has been a long-time Russian geopolitical client. After seething for more than four years about Washington’s intrusion into a country that the Kremlin regards as part of Russia’s rightful sphere of influence, Putin deployed military forces in 2015 to back the beleaguered Assad government. With U.S. military personnel already operating in Syria to assist selected rebel factions, that move created an inherently dangerous situation. It is better if Russia incurs the risks and suffers the negative consequences of geopolitical meddling than if the United States does so. Matters have grown increasingly ominous. The most recent incident occurred just days ago when a U.S plane shot down a Syrian government fighter jet that was attacking U.S.-backed insurgents. Moscow responded with an announcement that it will now track coalition aircraft , including American planes, operating in Syrian airspace. That move was just one step short of threatening to shoot down any planes that seemed to be threatening Russian forces or their Syrian allies. The danger of a direct military clash between the United States and Russia over Syria is no longer the stuff of paranoid fantasies. There are now two dueling policies regarding the bloody Syrian civil war. Moscow’s agenda is rather straightforward, if somewhat cold-blooded. The decision to send Russian forces into the conflict confirmed a determination to prop up Assad’s government. The Russians are concerned about two dangers if their besieged client falls from power. One risk is that Washington would become the leading outside player in Syria and move to eradicate Russian influence there and throughout the Middle East. The other well-founded worry is that radical Islamic elements will dominate any post-Assad government. That development would enhance the overall terrorist threat and boost hostile Muslim factions in Russia’s near abroad (especially the Caucasus and Central Asia) and even inside Russia itself. U.S. leaders are—to put it mildly—indifferent to Moscow’s concerns. But while Russia’s Syria policy is straightforward and coherent, U.S. policy is a contradictory, incoherent mess. The Obama administration made it clear that Bashar al-Assad could not be part of any future Syrian government. At first, the Trump administration seemed inclined to reconsider that approach. Secretary of State Rex Tillerson initially indicated that Washington would no longer demand Assad’s removal. But just days later, a chemical attack occurred in rebel-held town. Trump immediately blamed Assad’s forces (despite conflicting evidence ) and ordered cruise-missile strikes against the Syrian air base that Washington alleged was the source of the attack. Tillerson subsequently stated that Assad must leave office before any political settlement could occur (essentially a return to the Obama policy), only to say days later that the Trump administration’s policy had not changed and that regime change was not part of the agenda. By this time, intelligent observers could be excused if they were totally confused. That is hardly the only manifestation of U.S. policy incoherence regarding Syria. Washington’s attempt to calibrate support so that it strengthens so-called Syrian moderates has led to multiple embarrassing episodes. The Obama administration’s program to identify and train moderate military units was a $500 million fiasco that produced only a handful of fighters—most of whom were promptly captured by or surrendered to their adversaries. Other ventures fared little better. At one point a CIA-backed Syrian faction apparently engaged in combat against another faction that the Pentagon supported. More recently, Washington has been caught in a dilemma as fellow NATO member Turkey attacked Syrian Kurdish units that were battling ISIS with American assistance. Russia is especially mystified at the U.S. flirtation with factions that are anything but secular moderates. One of those groups is the Nusra Front, at one time Al Qaeda’s affiliate in Syria. Former CIA Director David Petraeus openly advocated U.S. military cooperation with that organization. Other de facto U.S. rebel allies display more than few signs of being Islamists rather than moderates—even given a broad definition of the latter term. Moscow’s fury reached a new level in the past few weeks as the United States has launched air strikes against militias allied with the Assad regime in southeastern Syria. Russia asserts that those forces were battling ISIS and other militant factions, and that Washington’s actions play into the hands of Islamic terrorists. Both the Kremlin and the White House need to make serious moves to defuse growing tensions before a potentially cataclysmic clash takes place between Russian and American forces in Syria. The bulk of the changes must come from the American side. The United States should defer to Russia regarding Syria policy. Moscow has far more significant security interests at stake in Syria and the broader Middle East. Northern Syria lies barely 600 miles from the Russian frontier. Syria is some 6,000 miles from America’s homeland. In the process of deferring to Russia, Washington would also off-load the responsibility and risks onto the Kremlin. It is doubtful that any outside power can truly bring an end to the fighting in Syria, much less restore a stable, united country. Such intervention thus far has bred only resentment and terrorist retaliation. It is better if Russia incurs the risks and suffers the negative consequences of geopolitical meddling than if the United States does so. Syria could well become another Afghanistan for Russia. That would be tragic, but it is preferable to Syria becoming another Vietnam or Iraq for America. And continued U.S. meddling in Syria certainly is not worth triggering a new cold war —and perhaps a hot war—with Russia. Yet that is the perilous path our nation is following. Ted Galen Carpenter, a senior fellow 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 650 articles on international affairs.
  • What Derek Carr’s Contract Teaches Us about Wall Street and Income Inequality    (Tho Bishop, 2017-06-23)
    By: Tho Bishop Derek Carr has just signed the most lucrative deal in NFL history, receiving a five-year extension worth $125 million with the soon-to-be Las Vegas Raiders. At $25 million per year, Carr edges out Indianapolis Colts quarterback Andrew Luck (though Luck’s contract did reward him with over twice as much in guaranteed money.) Carr also becomes a big winner in the Raiders’ taxpayer-funded escape from Oakland, with his contract scheduled so most of the money kicks in after the franchise moves to income-tax-free Nevada.While the structure of Carr’s contract offers another opportunity to discuss the “jock tax,” it also serves to illustrate a more important issue: why Wall Street wins whenever the Fed expands the monetary supply.After all consider this: while Derek Carr has certainly proven to be a promising young player at perhaps the most important position in professional sports, he is by no means the most accomplished player at his position or the NFL. He’s been selected to the Pro Bowl twice, once as an alternate. His career QB rating is beneath players such as Chad Pennington, Carson Palmer, and Colin Kaepernick. Meanwhile he’s led his team to the playoffs once, unfortunately breaking his fibula before he could make a start in the post-season.So why, then, is he being rewarded with the NFL’s largest contract?The answer itself is fairly obvious: he was due a new deal at a time when the salary cap has never been higher. As such, NFL salaries have more to do about the size of the salary cap when a contract is signed, than it is about the merit of the individual player. Of course, over time Carr’s yearly salary will be used as a starting point with other more accomplished quarterbacks, and the average for the position will gradually rise over time. Matthew Stafford, for example, is likely to sign an even larger contract in the coming months. Salaries league-wide will rise with salary cap inflation.But at the moment, Carr is the biggest winner of the NFL’s salary cap moving from $155M to $167M in the past year. Meanwhile a player like Aaron Rodgers may feel underpaid, with his salary averaging $22 million a year. A similar dynamic plays out in the “real economy” as well.Now, the relationship between all economic actors and the Fed isn’t as simple as players and their teams. Neither businesses nor consumers constantly renegotiate contracts with their country’s central bank, trying to lock up their relative value compared to everyone else on the market. Instead their earnings are decided, for the most part, based on a never ending series of transactions on the market.Like the NFL increasing its salary cap, the economy sees constant increases to the money supply due the monetary policy of the Federal Reserve. While the Fed (wrongly) views this monetary expansion as vital to maintaining economic growth, there are consequences to their actions that are often overlooked.For example, monetary inflation doesn’t impact everyone at the same time. There is no magical helicopter dropping money evenly across the country. Money is created by the Fed and either spent into the economy by the government, or loaned out through the banking system. By being the first to be able to take access this previously unavailable fund, Wall Street has a competitive advantage — relative to the rest of the economy — before the new money works its way throughout the rest of the economy.Clearly this access to new money has nothing to do with the merit of the financial industry relative to other sectors; it’s simply a byproduct of their proximity to the central bank. The same is true for the industries that are the first to receive the newly created money from Wall Street, which itself plays a role in inflating asset bubbles and spawning business cycles.This phenomenon was first discovered by Richard Cantillion, and is an issue often completely overlooked in the debates over growing income inequality. While the elimination of “income inequality” should never be the aim of government policy, it is useful to illustrate the ways government enriches Wall Street at the expense of the rest of the economy; especially when the politicians who fundraise off income inequality are the same ones cheerleading the Fed’s inflationary policy.All of this is not to say that Derek Carr should be looked upon with the same disdain American’s should hold for the Federal Reserve. In fact, I would strongly oppose the Raiders replacing Carr with any amount of gold. Obviously the big difference between the quarterback and Wall Street is that the former doesn't have a unique, privileged relationship with the source of new funds. Every quarterback, over time, will have the chance to renegotiate their contract and, as such, they will all have the opportunity to benefit from an ever growing salary cap.Unfortunately the same cannot be said for economy as a whole. While various sectors may take terms in being the prized investment of financial markets — dot-coms in the late 90’s, housing in the 2000’s, tech companies and auto loans (among other things) today — it is always the financial sector that wins first.As such, until we abolish the Fed, Wall Street will continue to dominate the economy even more than Bill Belicheck has the NFL.
  • The Labour Party's Disregard for Property Rights Is Extraordinarily Worrying    (Ryan Bourne, 2017-06-23)
    Ryan Bourne Jeremy Corbyn’s call for the requisition of empty luxury homes to rehouse the victims of the Grenfell fire is significant for confirming what many of us long suspected: the Labour leader holds the concept of private property, a necessary foundation of our prosperity and freedom, in disdain. Worse, he is willing to exploit horrific events to harness public support for such an agenda. Those who studied the Labour manifesto in detail would not be surprised by this. Though unlikely to invoke sympathy for the affected, Labour promised new legislation requiring football club owners to offer shares to fans, and an effective government veto on banks closing branches. It also pledged to introduce a provision for workers to obtain the option to be a “buyer of first refusal” when their company is up for sale. All of these would dilute the freedom to purchase, use and dispose of property. All start from the effective premise that the state is the de facto owner of all property, and able to intervene to decide what uses and sales are “socially beneficial”. All would add significant complexity and time to the cost of selling the businesses or properties affected, deterring private-sector investment. Well-established private property rights are a necessary condition for prosperity. Now we know the manifesto was the thin end of the wedge. On the pertinent issue of housing, Mr Corbyn has previously suggested extending the “right to buy” to the tenants of private landlords too — in essence, forcing property owners to sell at a discount. It’s hardly surprising then, given this and his “bash the rich” populism, that he feels so sanguine about exploiting this tragedy to even suggest the physical occupation of the property of others in Kensington. But eroding freedom around property in this way would be dangerous. Well-established private property rights are a necessary condition for prosperity. Unless one can secure the gains from your labour or risk-taking, and guarantee the freedom to use those returns as you wish, then what is the point of working or investing? The research of Hernando de Soto, the Peruvian development economist, has shown the vital importance of property rights in regards to housing, and how they aid the development of sophisticated financial markets. The ability to individually decide how to use our property guarantees our freedom too. If all property was owned or controlled by the government or some community, then the group of leaders in the form of the state would have complete control over us. Clearly, there have been some situations in the past when mass mobilisation conflicts have led to the requisitioning of property in aid of the war effort. Local government uses compulsory purchase orders to buy out people’s land when there is a significant “public interest” as well. But as utterly tragic as the Grenfell fire was, to suggest that the rehousing of up to 600 people is a level of emergency comparable to war is hard to sustain. In fact, all of Mr Corbyn’s justifications for advocating such a policy are based on a broader critique of the social divisions in the area. In essence, the rhetorical question he himself answers is: “how can it be right that some people have nowhere to live when others leave homes empty?” The real answer to the affordability crisis and the plight of people living in poor, cramped and dangerous conditions is obvious and well-known: we need to make more land available for the development of housing. But rather than address the structural conditions of the land market and take on the vested interests that oppose new building and defend the arbitrary greenbelt, Mr Corbyn’s simplistic and foolish answer is that the state can steal property to decide who to house where. No doubt the victims need adequate support. But the logical consequences of Mr Corbyn’s idea would be extremely destructive. Why could this justification for requisition not be applied to all homeless people or those living in bad conditions? Who would decide to invest in new housing developments with such expropriation looming over them? What about when the same principle is applied to business property, or anything else owned by anyone that did not live up to Mr Corbyn’s vision of what was fair and equitable? With Brexit looming, Britain needs to remain open to foreign capital and as attractive a destination as possible for investment. But Mr Corbyn’s Labour Party, newly emboldened with most of its MPs now seemingly singing from the same Venezuelan hymn-sheet, appears willing to put all that at risk as part of its hard-Left agenda. Chillingly, when confronted with the prospect that taking the homes of others would be illegal, a spokesman for Mr Corbyn told the BBC: “We’d find a way to do this if necessary.” In Britain, we take institutions such as the rule of law and effective private property rights for granted. But countless examples through history and around the world show that they must be defended from pernicious ideologies such as the socialism that underpins Mr Corbyn’s agenda. With a heightening frequency of terrorist attacks, the uncertainties of Brexit and the hard Left running riot following the election, Britain currently gives every impression of being on the ropes politically. The environment is ripe for overt populism and Mr Corbyn is tapping into that anger. But one would hope that in suggesting the theft of property, Mr Corbyn’s team have overreached and the public will have seen the true nature of his ideology. Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.
  • The ECB Blames Inflation on Everything but Itself    (Louis Rouanet, 2017-06-22)
    By: Louis Rouanet Unsurprisingly, central banks are reluctant to claim credit for inflation. In their latest bulletin, the European Central Bank (ECB) published the graph below explaining what causes inflation.See the problem? Neither the money supply nor the ECB are mentioned. While there are many factors that influence the purchasing power of money, inflation is still inherently a monetary phenomenon and the role central banks play simply can’t be ignored.Instead, the ECB prefers to do what all central banks did just before the 2009 great recession: blame inflation on rising food and energy prices. But large central banks like the ECB have a strong and disproportionate effect on energy prices, as predicted by Austrian business cycle theory. The rise in oil prices in 2007, for example, was triggered by the end of the euphoric monetary boom initiated by the Fed and the ECB in the years prior. As investment in energy production was fueled, in part, by credit expansion instead of real savings. The quantity of producer’s goods — or at least of some of them — revealed themselves to be insufficient to complete the plans of entrepreneurs, thus generating a sharp increase in their prices.Therefore the ECB has some responsibility in the so-called external drivers of inflation.Another problem worth noting is that the ECB seems eager to revive the old myth of cost push inflation. The author of the ECB bulletin writes that: "Domestic price pressures result mainly from wage and price-setting behaviour, which is closely linked to the domestic business cycle."But it is the values of the first order goods which are imputed back to productive factors, rather than the other way around. As Henry Hazlitt puts it:The other rival theory is that inflation and the rise of prices are caused by higher wage demands — by a “cost push.” But this theory reverses cause and effect. “Costs” are prices. An increase in wages above marginal productivity, if it were not preceded, accompanied, or quickly followed by an increase in the supply of money, would not cause inflation; it would merely cause unemployment. It is not true, as so often assumed, that a wage increase in a given firm or industry can be simply “added on to the price.” Without an increased money supply, prices cannot be raised without reducing demand and sales, and hence production and employment. We can stop the “cost push” if we halt the increase in the money supply and repeal the labor laws that confer irresponsible private powers on union leaders.With a constant demand for money, it is possible for some prices to go up but it is impossible for all prices to go up. For all prices to go up, a central bank must exist and pump more money into the economy. If, in a free market, the cost for oil increases for whatever reason, other prices, ceteris paribus, must fall.Of course, the ECB is right to argue that global commodity prices affect the domestic price level. Nonetheless, the bulletin deliberately understates the impact the ECB has on the movement of prices. To simply chalk it up to international pressure will, for sure, become a handy justification for the ECB if they fail to maintain inflation under 2%.But don’t be fooled, central banks, not oil, are responsible for the debasement of the currency. 
  • Richard Cantillon Is Sleepless in Seattle    (Doug French, 2017-06-22)
    By: Doug French A Seattle resident told me last night she counted 50 high-rise construction cranes in her hometown. Seattle developer Kevin Daniel provides confirmation, “Seattle is definitely the pretty girl on the dance floor.” It turns out “there are currently 13 high-rise apartment or condo buildings of at least 24 stories in development or planning in the downtown area. The average is 39 stories. Another 24 high-rises are in the proposal pipeline, according to city and industry reports,” writes Paul Roberts for CrossCut.  The woman from the Emerald City told me the tallest building in Seattle was soon to be built. Perhaps she was talking about Miami developer Sonny Kahn’s proposed 102-story 4/C project which has attracted adverse attention from the FAA.  It’s believed that even if Kahn shortens the building it’ll cost $700 million and the top floor will command $15,000 a month in rent, for “a vertical mansion offering everything from 24-hour concierges to personal shopping and dog-washing, all linked by ‘intelligent mobile technology’ that allows staff to anticipate a tenant’s every need,” Roberts explains.  No one will construct the world’s tallest building in Seattle. But, considerable clusters of cranes must mean we’re near a top.  Mark Thornton explains in his seminal article “Skyscrapers and Business Cycles” that, “the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business-cycle theory of the Austrian school of economics has much to contribute to our understanding of business cycles, particularly severe ones.”The number of units in downtown Seattle is set to explode, unless a crash gets in the way. Prior to 2010, the number of high-rise rental units in Seattle’s urban “core” was just 2,960. By 2020, the total is projected to be 16,543.“Given the number of high-rise units expected by the end of the decade, this boom implies a downtown transformation that can strain even the most active imagination,” writes Roberts. “While most of the debate around these towers has centered on familiar questions about affordability, inequality, traffic, and our urban character, we also might want to ask questions of another sort.”Andrew Lawrence, who invented the Skyscraper Index, found that in virtually all cases, the start of new record-breaking skyscrapers was a precursor to financial crisis. “Generally,” writes Professor Thornton, “the skyscraper project is announced and construction is begun during the late phase of the boom in the business cycle; when the economy is growing and unemployment is low. This is then followed by a sharp downturn in financial markets, economic recession or depression, and significant increases in unemployment.” However, Seattle academics and civic leaders view their downtown as the new Field of Dreams — “Build it and they will come.” And “once all of this intellectual power and capital, and corporate talent comes together,” says Peter Orser, who runs University of Washington’s Runstad Center for Real Estate Studies, “it just feeds on itself and now we’re exponentially growing, from what was once Bill Gates, Paul Allen and Bill Boeing … Now it’s a lot more guys like that.” Developers assume the new residents coming to rent downtown will live alone with their laptops. Roberts writes, “based on proposed projects, says [real estate consultant Brian] O’Connor, the studio/one-bedroom ratio for new towers will likely hover between 80 percent and 85 percent.”  Normal folk are not wanted, “the towers are key to attracting a very specific category of newcomer — the ‘creatives’ widely seen as the secret sauce for a hot urban economy,” explains Roberts. As cheap money gushes in to finance new projects, even a journalist like Roberts can identify this skyscraper building binge as a “capital-fueled boom.”  Richard Cantillon, widely credited as the first economic theorist, would be able see what’s going on in Seattle before he hit the Strait of Juan de Fuca. Thornton explains how the Cantillon Effect relates to skyscraper construction,  Combined with a lower cost of capital brought about by a lower rate of interest, land owners will seek to build more capital-intensive structures and, at the margin, this will cause land to be put to alternative uses. In the central business district, this means more intensive use of land and thus higher buildings. Simplified, higher prices for land reduce the ratio of the per-floor cost of tall vs. short buildings and thus create the incentive to build buildings taller to spread the land cost over a larger number of floors. Lower rates of interest also reduce the cost of capital, which facilitates the ability to build taller. Thus, higher land cost leads to taller buildings.  “Although many observers expect some sort of correction in the Seattle high-rise sector, the timing and severity are anyone’s guess,” Roberts writes. “The correction might be so modest that most of Seattle doesn’t really notice.”Seattle, Mr. Cantillon would contend, you’ll notice.  Reprinted from DouglasinVegas. Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth.
  • Teaching "Tips": An Economic and Pedagogical Defense of Gratuities    (Anthony Gill, 2017-06-22)
    By: Anthony Gill A few upscale restaurants in the United States recently have ended the practice of tipping their wait staff, preferring a fixed labor cost method of compensation. This attempt to change this long-standing cultural practice presents a fascinating opportunity to explore a variety of economic concepts including principal-agent problems, gains-from-trade, price discrimination, and cultural institutions designed to build trust.Professor Gill argues that tipping remains an economically efficient means of providing quality service wherein restaurant owners, wait staff, and customers all benefit in a win-win-win situation. Furthermore, the norm of tipping also provides an excellent example to teach basic economic principles and foster classroom discussion.Presented at the Mises Institute on 22 June 2017. The MP3 version includes Question-and-Answer period.
  • Do Conservatives Really Want To Repeal Obamacare?    (2017-06-22)
    By John C. Goodman; Probably not. Here's why: virtually every conservative health policy analyst advising Republican candidates and Republican office holders believes in the same model Barack Obama bel...
  • Why You Can't Visit Your Doctor Virtually and Why That Might Finally Be Changing    (2017-06-22)
    By John C. Goodman; Sometime in the last century, most professionals discovered that face-to-face meetings with clients weren't always necessary--or even desirable. Lawyers, accountants, engineers, ...
  • Our Lawless Central Bank    (Ryan McMaken, 2017-06-22)
    By: Ryan McMaken The economic arguments against central banks are numerous to say the least. Through the writings of Lduwig von Mises and Murray Rothbard we have a wide variety of critiques that explain the many ways the central banks distort economies, cause booms and busts, punish savers, and chose winners and losers through monetary policy. But, even if confronted with these arguments, and one remains supportive of central banks, other non-economic arguments must still be addressed.For example, it is becoming increasing important — in our current age of "non-traditional" monetary policy — to take note of the fact that central banks, and especially the Federal Reserve, are essentially unrestrained by law. Economists themselves often defend this total unmooring from legal or political accountability, saying it is necessary for the Fed to have "independence" from elected officials. In reality, however, this "independence" is best described as "total lack of accountability." Writing in today's Dallas Morning News, Texas Tech economist Alexander William Salter writes: A phenomenal amount of time and money is spent trying to anticipate what the Fed will do and, afterwards, what the ramifications will be. The reason it takes so many experts to weigh in on Fed behavior is because the Fed's actions are fundamentally unpredictable. This is a huge defect in an organization of such public importance in a nation whose founding principles include the sanctity of the rule of law."Rule of law" does not merely mean "according to some official procedure." In order to be truly lawful, the behaviors of government entities must adhere to a more general framework of rules, so that these behaviors are not arbitrary. The more general rules must be more or less fixed, known in advance, and — most importantly — not subject to reinterpretation by those whose hands the rule is supposed to bind. This concept of the rule of law is central to classically liberal constitutionalism and jurisprudence, which underlies the American experiment in ordered liberty. The behavior of the Fed fails to meet any of these criteria.Fed activities are more or less unpredictable on any given day, as indicated by the need for various financial houses to devote significant resources to Fed-watching. Congress has almost entirely abdicated its responsibility in holding the Fed accountable, so Fed's actions are not in conformity with any general rule other than what the Fed Board of Governors thinks is expedient. This means the Fed is a judge in its own cause and a law unto itself. In recent years, some observers — Robert Higgs, for instance — have focused on "regime uncertainty" which is a problem arising from "a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights."Much of the focus in this research has been on the presidency and the Congress and the courts while ignoring the central role of the Fed itself in promoting this uncertainty. As Salter notes, the Fed is now unpredictable, and it's anyone's guess what policy change might be coming down the road any given time. Needless to say, this isn't great for economic growth for all the reasons laid out in the regime-uncertainty research. Of course, the Fed has always essentially been unaccountable to any outside institutions. Nevertheless, both political ideology and prevailing views among many economists helped to restrain Fed action over the past century. Since World War II, another important factor has been the fact that the US economy has often been relatively strong, and there rarely appeared to be ample justification for the sorts of radical monetary policy now routinely being discussed among Fed policymakers. As perfect example of how radical monetary thought has become might be the discussion surrounding Marvin Goodfriend, who was recently revealed to be a leading candidate for appointment by Donald Trump to the Fed's board of governors. According to the Financial Times, Goodfriend possesses "a radical willingness to embrace deeply negative rates."As a member of the Fed's board, would Goodfriend push for negative rates under the "right" conditions? Who knows? But if he was successful in winning over a majority of voting members to such a position what could anyone do about it? More importantly, what documents, guidelines, or statutes would indicate for us ahead of time what the "right" conditions would be for implementing negative rates? There are none. Whether or not the "time is right" for negative rates is completely up to the whims of Board members. This situation is, as Salter points out, the complete opposite of "the Rule of Law" and has no place in a legal or political regime that claims to respect such a concept. Moreover, the situation that now prevails at the Fed is exactly the sort of thing F.A. Hayek warned about in The Road to Serfdom when Hayek outlines the incompatibility between the rule of law and an economy controlled by government planners. Hayek writes: ...stripped of all its technicalities, [the rule of law] means that government in all its actions is bound by rules fixed and announced beforehand - rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one's individual affairs on the basis of this knowledge.Serious problems begin to arise, Hayek continues, when "ad hoc actions" on the part of government planners prevent market actors from planning for their own economic futures. Unfortunately, "ad hoc" would appear to be one of the most apt phrases for describing how the Fed functions in today's world. The Fed's defenders will tell us that this unrestrained capriciousness must be tolerated or else the Fed will not longer have its precious "independence." Of course, applying this logic to any other political institution — and the Fed most certainly is a political institution — would be immediately denounced as absurdly authoritarian. And rightly so.But the Fed's lack of accountability continues to be sacrosanct among many in power — and it continues in spite of a decade of lackluster economic performance under teh Fed's "keadership. Salter is forced to conclude: But when money is governed by the arbitrary rule of central bankers, things become much more uncertain.Trade slows. The economy stagnates, jobs are hard to come by, and the gains from trade mostly accrue to politically connected financial elites. The Fed bears no small responsibility for the past 10 years of anemic economic performance.
  • Trump Would Further Damage U.S. Manufacturing if He Restricts Steel Imports    (Daniel R. Pearson, 2017-06-22)
    Daniel R. Pearson President Trump has asked the Department of Commerce to conduct a seldom-used Section 232 investigation to determine whether steel imports are harming U.S. national security. And although statute allows the study to be conducted over 270 days, Secretary Wilbur Ross’s stated intention is to complete the report by the end of June. The president then would have 90 days in which to decide whether and how to “adjust the imports.” How would those adjustments look? In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy. Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing sector. Five points are particularly relevant: First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications. Most steel used by the military comes from domestic suppliers, such as United States Steel Corp., AK Steel Holding Corp. and Nucor Corp. or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills — no import controls are required. Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input. [pullquote]Using national security as justification isn’t credible, and retaliation would hit export-competitive industries.[/pullquote] Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more. Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% of U.S. gross domestic product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8% of GDP. Any government action to drive steel prices even higher by further restricting imports will hurt steel-consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas. Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted. The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board. Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs. Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped. The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker. But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel. Secretary Ross should resist the temptation to use the Section 232 report to recommend more protection for the steel market. Instead, he should advocate that President Trump seek removal of all U.S. import restrictions on steel. This would build a firm foundation for a vibrant and growing manufacturing economy that is essential to America’s national security. Dan Pearson is a senior fellow at the Cato Institute, and served as chairman of the U.S. International Trade Commission during the George W. Bush Administration.
  • Four Reasons Central Banks are Wrong to Fight Deflation    (Jörg Guido Hülsmann, 2017-06-22)
    By: Jörg Guido Hülsmann The word “deflation” can be defined in various ways. According to the most widely accepted definition today, deflation is a sustained decrease of the price level. Older authors have often used the expression “deflation” to denote a decreasing money supply, and some contemporary authors use it to characterize a decrease of the inflation rate. All of these definitions are acceptable, depending on the purpose of the analysis. None of them, however, lends itself to justifying an artificial increase of the money supply.The harmful character of deflation is today one of the sacred dogmas of monetary policy. The champions of the fight against deflation usually present six arguments to make their case.1 One, in their eyes it is a matter of historical experience that deflation has negative repercussions on aggregate production and, therefore, on the standard of living. To explain this presumed historical record, they hold, two, that deflation incites the market participants to postpone buying because they speculate on ever lower prices. Furthermore, they consider, three, that a declining price level makes it more difficult to service debts contracted at a higher price level in the past. These difficulties threaten to entail, four, a crisis within the banking industry and thus a dramatic curtailment of credit. Five, they claim that deflation in conjunction with “sticky prices” results in unemployment. And finally, six, they consider that deflation might reduce nominal interest rates to such an extent that a monetary policy of “cheap money,” to stimulate employment and production, would no longer be possible, because the interest rate cannot be decreased below zero.However, theoretical and empirical evidence substantiating these claims is either weak or lacking altogether.2 First, in historical fact, deflation has had no clear negative impact on aggregate production. Long-term decreases of the price level did not systematically correlate with lower growth rates than those that prevailed in comparable periods and/or countries with increasing price levels. Even if we focus on deflationary shocks emanating from the financial system, empirical evidence does not seem to warrant the general claim that deflation impairs long-run growth.3Second, it is true that unexpectedly strong deflation can incite people to postpone purchase decisions. However, this does not by any sort of necessity slow down aggregate production. Notice that, in the presence of deflationary tendencies, purchase decisions in general, and consumption in particular, does not come to a halt. For one thing, human beings act under the “constraint of the stomach.” Even the most neurotic misers, who cherish saving a penny above anything else, must make a minimum of purchases just to survive the next day. And all others—that is, the great majority of the population—will by and large buy just as many consumers’ goods as they would have bought in a nondeflationary environment. Even though they expect prices to decline ever further, they will buy goods and services at some point because they prefer enjoying these goods and services sooner rather than later (economists call this “time preference”). In actual fact, then, consumption will slow down only marginally in a deflationary environment. And this marginal reduction of consumer spending, far from impairing aggregate production, will rather tend to increase it. The simple fact is that all resources that are not used for consumption are saved; that is, they are available for investment and thus help to extend production in those areas that previously were not profitable enough to warrant investment.Third, it is correct that deflation—especially unanticipated deflation—makes it more difficult to service debts contracted at a higher price level in the past. In the case of a massive deflation shock, widespread bankruptcy might result. Such consequences are certainly deplorable from the standpoint of the individual entrepreneurs and capitalists who own the firms, factories, and other productive assets when the deflationary shock hits. However, from the aggregate (social) point of view, it does not matter who controls the existing resources. What matters from this overall point of view is that resources remain intact and be used. Now the important point is that deflation does not destroy these resources physically. It merely diminishes their monetary value, which is why their present owners go bankrupt. Thus deflation by and large boils down to a redistribution of productive assets from old owners to new owners. The net impact on production is likely to be zero.4Fourth, it is true that deflation more or less directly threatens the banking industry, because deflation makes it more difficult for bank customers to repay their debts and because widespread business failures are likely to have a direct negative impact on the liquidity of banks. However, for the same reasons that we just discussed, while this might be devastating for some banks, it is not so for society as a whole. The crucial point is that bank credit does not create resources; it channels existing resources into other businesses than those which would have used them if these credits had not existed. It follows that a curtailment of bank credit does not destroy any resources; it simply entails a different employment of human beings and of the available land, factories, streets, and so on.In the light of the preceding considerations it appears that the problems entailed by deflation are much less formidable than they are in the opinion of present-day monetary authorities. Deflation certainly has much disruptive potential. However it mainly threatens institutions that are responsible for inflationary increases of the money supply. It reduces the wealth of fractional-reserve banks, and their customers-debt-ridden governments, entrepreneurs, and consumers. But as we have argued, such destruction liberates the underlying physical resources for new employment. The destruction entailed by deflation is therefore often “creative destruction” in the Schumpeterian sense.5Excerpted from The Ethics of Money Production 1. For an overview, see Federal Reserve Bank of Cleveland, Deflation— 2002 Annual Report (May 9, 2003); R.C.K. Burdekin and P.L. Siklos, eds., Deflation: Current and Historical Perspectives (Cambridge: Cambridge University Press, 2004). On the latter volume, see Nikolay Gertchev’s excellent review essay in Quarterly Journal of Austrian Economics 9, no. 1 (2006): 89–96. 2. For recent Austrian analyses of deflation, see the special issue on “Deflation and Monetary Policy” in Quarterly Journal of Austrian Economics 6. no. 4 (2003). See also Murray N. Rothbard, America’s Great Depression, 5th ed. (Auburn, Ala.: Ludwig von Mises Institute, 2000), part 1; idem, Man, Economy, and State, 3rd ed. (Auburn, Ala.: Ludwig von Mises Institute, 1993), pp. 863–65. 3. See George Selgin, Less Than Zero (London: Institute for Economic Affairs, 1997); Michael D. Bordo and Angela Redish, “Is Deflation Depressing? Evidence from the Classical Gold Standard,” NBER Working Paper #9520 (Cambridge, Mass.: NBER, 2003); A. Atkeson and P.J. Kehoe, “Deflation and Depression: Is There an Empirical Link?” American Economic Review, Papers and Proceedings 94 (May 2004): 99–103. 4. One might argue that, even though deflation had no negative impact on production, the aforementioned redistribution is unacceptable from a moral point of view. We will discuss some aspects of this question in the second part of the present book, in the section dealing with the economics of legalized suspensions of payments. 5. See Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (London: Allen & Unwin, 1944), chap. 7.
  • Trump Panders on Cuba, Preferring Cold War over Progress    (Doug Bandow, 2017-06-22)
    Doug Bandow Last week, President Donald Trump announced his outrage at Cuba’s poor human rights record. On his recent Mideast trip the president did not even mention the issue in totalitarian Saudi Arabia. But of Cuba, he declared: “We will not be silent in the face of Communist oppression any longer.” A cynic might observe that more Cuban-Americans than Saudi-Americans voted for him last November. Cuba has been on Washington’s “bad” list since Fidel Castro’s revolutionaries took power n 1959. The island would have been of little geopolitical importance had Castro not turned to the Soviet Union for support in the Cold War. Washington feared a hostile base so near and targeted the regime. Instead of disappearing into obscurity as his impoverished nation floundered, Castro gained international acclaim by posing as the heroic opponent of Yanqui imperialism. His government relied on Soviet subsidies for sustenance, but survived, with difficulty, even after the USSR dissolved. Castro reluctantly adopted modest economic reforms to attract more foreign cash and spur more domestic enterprise. Returning to yesterday’s failed policies of isolation will not free the Cuban people. Cuban Communism’s record is dismal. When I visited (legally) a dozen years ago, I found crumbling infrastructure, homes which hadn’t seen paint in decades, cars held together with wire and tape, and seemingly half the population touting cigars stolen from state factories. But the elite lived well: in fine homes behind high walls, with luxury cars in driveways, serving lobster and other fine foods to guests, and deploying guard dogs for security. The U.S. economic embargo failed to overly disturb Castro & Co. Europeans invested in Cuba; I stayed at a Dutch hotel. Hard currency stores were full of foreign goods. Fidel Castro remained in charge, along with brother Raul and other aging revolutionaries. None of them had to produce a ration book to eat. Dissidents complained that the regime covered up its economic failures by blaming the embargo. When I visited Elizardo Sanchez Santa Cruz, who had been imprisoned by Castro, he told me that the “sanctions policy gives the government a good alibi to justify the failure of the totalitarian model in Cuba.” In the face of this reality, American policy was brain dead, determined by a diminishing number of hardline Cuban-Americans who opposed any softening of sanctions. U.S. policy illustrated the definition of insanity: doing more of the same while expecting a different result. Younger Cuban-Americans, who spent their entire lives in the U.S. and had few, if any, memories of Cuba, increasingly questioned the embargo. However, rabid proponents of the half-century-old restrictions still delivered a sizeable vote in Florida, one of the nation’s biggest pools of electoral votes. President Barack Obama did little about the issue until shortly before leaving office. Then he established diplomatic relations with Havana and relaxed restrictions on travel and business, though he lacked legal authority to lift the embargo. In his typical fact-free approach, President Trump last week criticized “the last administration’s completely one-sided deal with Cuba.” The U.S. had diplomatic relations with the Soviet Union, Eastern European nations, and assorted Third World dictatorships throughout the Cold War. An embassy is a communication channel, not a political endorsement. Moreover, trade and investment benefit both sides economically. Commerce with freer societies also tends to destabilize authoritarian regimes, encouraging economic and political liberalization. Trade links and economic growth helped spur democratization in such nations as Mexico, South Korea, and Taiwan. Of course, economic liberalization does not guarantee political transformation. The (Raúl) Castro regime is aware of the risks and intensified repression of political dissidents and religious believers. But communism’s appeal is dwindling. Columbia University’s Christopher Sabatini argued that “The dam has broken. When I was in Cuba last year, the difference in people’s willingness to speak out, the growing prosperity of a new class of independent entrepreneurs and—as the Committee to Protect Journalists has also reported—the growth of new space for independent, investigative online journalism was undeniable.” Over time, state controls will further erode. Greater involvement by ethnic Cubans from Florida will increasingly challenge a regime that has failed to serve its people. At least, such change seemed likely before the president proclaimed he was “canceling” Obama’s Cuban policy. President Trump announced limits on tourism and banned business with companies linked to the island’s military or intelligence services. The first restricts individual travel by normal folks. The second puts much of the Cuban economy off-limits for U.S. involvement. Alas, returning to yesterday’s failed policies of isolation will not free the Cuban people. The Castro government worries most about regime preservation. The elite will not end repression to satisfy Washington, even if doing so might bring in a few more tourist dollars. But President Trump’s retreat will hurt the island’s growing private sector. When informed of the Trump administration’s plans, a waitress complained to the Washington Post: “We’re the ones who are going to lose.” There will be fewer American tourists and the ones who still come will be pushed toward government-approved tours and guides, going where the Castro regime wants them to. There will be fewer U.S. enterprises and less contact between Americans and Cubans. Citizens in the “land of the free” will lack travel opportunities available to Europeans, South Americans, and most everyone else in the world. Trump’s policy will end up strengthening Castro’s communist dictatorship. The system will stagger on a few years longer, despite the embargo. The presidential campaign is over. President Trump should do what is best for both the American and Cuban people, and end economic restrictions on the island. Freedom eventually will come to Cuba. Flooding the island with foreign people and money would make that day arrive sooner. Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.
  • Will Germany Fulfill Its Responsibility for Europe's Defense?    (Doug Bandow, 2017-06-22)
    Doug Bandow In recent history no European nation has demonstrated greater military prowess then Germany. That competence had tragic consequences in World War II and colors Berlin’s approach to the world today. However, more than seven decades after that horrendous conflict’s end Germany should take on the defense responsibilities appropriate for a significant power. For years American officials have urged, asked, and even begged the Europeans to spend more on their militaries. Six years ago Defense Secretary Bill Gates argued: “The blunt reality is that there will be dwindling appetite and patience in the U.S. Congress, and in the American body politic writ large, to expend increasingly precious funds on behalf of nations that are apparently unwilling to devote the necessary resources.” But Europe’s governments consistently refused, even during the Cold War when facing what Ronald Reagan called the “Evil Empire.” Like the domestic welfare cheats of political lore, they consistently preferred dependency to work. In fact, the Europeans long have been reducing military expenditures. Only four of the European members currently spend at least two percent of GDP on the military, NATO’s admittedly arbitrary standard. They include just one of the three Baltic nations which profess to be so concerned about potential Russian aggression. Only one of the largest states with the most proficient militaries, the United Kingdom, hits the mark, and only through statistical legerdemain. An independent analysis concluded that despite claims to the contrary, Poland, too, fell short, despite claims to the contrary, leaving only Estonia and Greece at two percent or above. Unless the majority of NATO’s European members consistently spend a lot more on the military, an alliance showdown has only been deferred. France lags as well. But Germany, further east and most closely connected to the nations bordering Russia, does even worse. Last year Berlin devoted 1.19 percent of GDP to the military. Either Germans are cheap-riding or believe they face no serious security threat. In either case, Americans shouldn’t be expected to subsidize Germany’s defense. In fact, President Donald Trump and his officials have been pressing the issue. Defense Secretary James Mattis said “America will meet its responsibilities, but if your nations do not want to see America moderate its commitment to this alliance, each of your capitals needs to show support for our common defense.” The president made much the same pitch: “We strongly support NATO, we only ask that all NATO members make their full and proper financial contribution to the NATO alliance, which many of them have not been doing.” He reinforced that message at the recent NATO summit meeting. Of course, that’s an unpopular argument to Europeans. They tend to dismiss this as a grubby preoccupation with money. First, if you just look at NATO costs—$2.8 billion in common funding, for instance—the Europeans argue that they look better. Of that amount, Washington provides just 22 percent, followed by Germany at 15 percent. But common funding is not force structure. NATO only has manpower and weapons to the extent that its members have manpower and weapons. Which means mostly the U.S. Second, contend the Europeans, the relationship should be about trust and solidarity. Thus speak advocates of nations that deny trust and solidarity with the country they expect to defend their own. Cynics might point out how such an attitude is more than a little convenient. Why don’t the Europeans show trust and solidarity and promote America’s security? The position of Germany is of particular note. It simultaneously bears the greatest historical responsibility for Europe’s current make-up, possesses the most abundant resources available to protect the continent, and has the most at stake in today’s European order. Berlin has spent the last seven decades atoning for its past. If Germany will not step up militarily, then who will? And if no one will, why should the U.S. continue to fill the gap? A large German increase is necessary for Europe to come anywhere close to the extra $100 billion sought from the continent. Some countries, such as Italy, continue to retrench, while others which are spending more are minor contributors. Noted Fabrice Pothier, a former NATO staffer at Rasmussen Global, “Now more than ever, $100 billion is a long shot. Other important European players—such as Italy, Spain and the Netherlands—are either too small or too economically weak to have much of an effect on the European defense budget. In this scenario, Germany’s $30 billion could make all the difference between a stronger Europe or a weaker one.” Secretary Mattis apparently worried after his first meeting with German Defense Minister Ursula von der Leyen that the administration’s message was not clear. Noted Der Spiegel’s Konstantin von Hammerstein and Peter Mueller: “Mattis had opted for a polite formulation, saying diplomatically that there was a certain amount of ‘impatience’ in Washington regarding the German contribution to the Western alliance. In other words: It’s time to finally pay your share or things will get uncomfortable! It seemed as though von der Leyen had been lulled into complacency by the friendly atmosphere and hadn’t recognized the urgency of Mattis’ message.” However, it now appears that the Trump administration has achieved what none of its predecessors could—win a commitment from Berlin to meet the NATO two percent standard. Although German officials deny responding to Trump, the timing looks more than a little coincidental. Chancellor Angela Merkel told a recent campaign rally: “Obligations have to be fulfilled and others in the world will demand that of us, and I think they’re right that Germany must fulfill its obligations too.” She earlier told a party organization: “In the 21st Century, we won’t be getting as much help as we got in the 20th. We need to greatly increase the Bundeswehr budget to get from 1.2 to two percent.” Von der Leyen also has been pressing her government to do more. She admitted that other NATO members saw Germany was “doing so well economically” and described Washington’s demands for greater burden-sharing as “fair.” At the recent Munich Security Conference she admitted “yes, we know that we must bear a larger, fairer, share of the burden for trans-Atlantic security.” And she announced: “We Germans want to accept this challenge, and we want to accept it as Europeans.” The Bundeswehr is planning to add 20,000 personnel by 2024 and take a more active role in NATO operations, such as deploying 450 troops in Lithuania. Moreover, Berlin recently inked agreements with France and the Netherlands to create joint fleets of transport and tanker planes, respectively. In January von der Leyen unveiled a $135 billion procurement program through 2030. She said: “I am sure that this will find attention and recognition in Washington.” However, Trump administration officials are likely more interested to see if Germany follows through with the Merkel government’s plans. Reaching two percent requires Germany to almost double its present outlays. Von der Leyen stated the obvious: “We’re moving in the right direction, but we can’t do it in one year.” Alas, it isn’t obvious that Germany can do it in seven years either. Recent annual increases have been modest. Last year the rate was two percent, and in 2015 just 1.2 percent. The previous two years German military outlays shrank in real terms. This year is supposed to be a more impressive 6.8 percent, but that still will barely nudge German outlays to 1.22 percent of GDP. And observers doubt Berlin will sustain similar increases in the future. Despite its past vaunted military experience, Germany faces many problems. The International Institute for Strategic Studies observed that “the Bundeswehr is already struggling with recruitment and retention” and the “German armed forces are struggling to improve their readiness levels in light of increasing demands on NATO’s eastern flank.” Moreover, “the budget cuts of previous years have led to a shortage of spare parts and maintenance problems.” Despite Berlin’s assurances, many of Germany’s neighbors are skeptical. Explained Fabrice Pothier: “The Bundeswehr is underperforming and has a limited ability to deploy its own troops or those of its allies. Germany is one of the world’s leading defense manufacturers and exporters, but too much of its defense budget is apportioned to personnel spending. No wonder, then, that German pledges to increase spending are usually met in Paris with an ironic shrug that it will only serve to make German officer pensions more attractive.” Moreover, the fall elections might upend Germany’s pledge. Germany long has emphasized balanced budgets and resisted an active military role. Polls of public opinion are conflicting. In late 2015 the public favored expanding defense outlays by 56 to 30 percent. But in December another poll found two thirds of Germans opposed to spending more on the military. When Merkel advocated increasing military outlays even she felt constrained to add that “the matters of development and crisis prevention are also important.” In fact, the government is divided, with control of the Foreign Ministry and other positions in the hands of the Social Democratic Party, the junior member of the “grand coalition.” The SPD already has blocked some of Merkel’s defense initiatives, such as increased military sales to Saudi Arabia. Last June Sigmar Gabriel, SPD chairman, complained: “We’ve fallen back into a kind of logic I know from my youth, in which the only question being discussed is who has to spend more money to procure arms.” Other SPD officials have spoken of “NATO saber rattling.” At the Munich Security Conference earlier this year Gabriel, now also foreign minister and vice-chancellor, doubted the wisdom of going along with U.S. pressure, though he believed Berlin would have to spend more. Gabriel opined: “One has to ask whether it would really calm Germany’s neighbors if we turned into a big military power in Europe and … spent over 60 billion euros [roughly $63 billion] a year” on the military. He suggested that outlays for refugees was a preventative measure and should count as equivalent. An overemphasis on the military, he warned, “will not allow us to fight climate change, drought or poverty.” Indeed, “military intervention also taps funding that could be better spent in combatting hunger and misery.” As for Chancellor Merkel’s promise to reach the two percent level by 2024, he tartly observed: “I don’t know where this money should come from.” Similarly, SPD Vice chairman Ralf Stegner said “Tanks instead of social security is a completely false debate.” The SPD’s parliamentary whip, Thomas Oppermann argued that “We should not make the mistake and trigger off a new arms race.” The SPD defense policy spokesman, Rainer Arnold, said simply that the two percent objective is “unrealistic.” The betting is that attention on American demands will benefit the SPD in the upcoming election. While anti-Americanism is not likely to play as well as it did in 2002 when Gerhard Schroeder essentially ran against the Bush administration and its myopic plan for war in Iraq, opposition to both increased military spending and compliance with U.S. demands could energize SPD voters. Merkel’s party has responded by promising to maintain social outlays, but has not yet answered Gabriel’s question about the source of the extra money for defense. In fact, the most fundamental problem may be that many Germans perceive no threats to warrant more “defense” outlays. They aren’t consciously cheap-riding. They simply aren’t worried. Merkel argued: “We have to spend more for our external security. The conflicts of this world are currently on Europe’s doorstep, massively so.” However, a bigger military doesn’t look like the answer to Germans’ greatest security concerns: refugee flows and terrorist attacks. And no one has suggested intervening in Syria’s civil war—that is routinely seen as America’s job. As for Russia, few Germans appear to believe its brutish behavior toward Georgia and Ukraine portends an attack on Poland, let alone Germany. For all of the fretting in the Baltics and tut-tutting elsewhere in Europe and America about Moscow’s actions, no one has provided any evidence that Vladimir Putin is mad enough to try to conquer Europe. What would Russia gain by triggering a potential nuclear war while attempting to swallow the continent backed by the U.S.? What evidence is there that the cynical authoritarian ruling in Moscow has morphed into a Slavic Adolf Hitler? Berlin’s commitment to a substantial military build-up almost certainly will flag well before it reaches the two percent level. Which would result in renewed pressure from Washington. And a potential bilateral confrontation. Administration officials see Germany as key. Wrote Hammerstein and Mueller: “It is increasingly clear that things could soon become uncomfortable for Berlin. The Pentagon sees Germany as the most important country in Europe, the one that sets the tone on the Continent. If the Germans don’t pay their share, U.S. defense officials believe, smaller European countries will follow suit, essentially hiding behind Berlin’s coat tail. The pressure from Washington, in other words, is only going to grow in intensity.” And if Germany resists Secretary Mattis will be forced to confront his own red line: does he support America reducing its commitment to alliance with those unwilling to do substantially more to protect themselves? Unless the majority of NATO’s European members consistently spend a lot more on the military, an alliance showdown has only been deferred. Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.
  • The Tragedy of the Commons in the Courtroom    (Chris Calton, 2017-06-21)
    By: Chris Calton As many who follow websites like mises.org already know, Ross Ulbricht was sentenced to life in prison for running a dark web drug marketplace known as Silk Road under the pseudonym Dread Pirate Roberts. After receiving his sentence — a deliberately harsh ruling for a man barely in his thirties — Ulbricht’s defense team began to work on his appeal. On May 31, Ulbricht lost the appeal, meaning that his life sentence will stand.To libertarians, this is a tragedy. Even for many supporters of the Drug War or at least some regulation of narcotics, Ulbricht’s punishment was far from proportionate to the crime. But the consequences of Ulbricht’s ruling and the underlying problems with our justice system that allowed it do not end there. The Drug War has created an environment for our justice system that frequently places people in a position where they are pressured to go to jail, even if they’re innocent, for fear of suffering an even greater sentence if they choose to fight for their freedom, and Ulbricht will now serve as the go-to example for defense attorney’s warning clients to avoid going to jury trial at all costs.The Justice System as a Public GoodBecause the government holds a monopoly on the justice system in the United States, courtrooms are treated as public goods. For public goods, costs are socialized, so there is no individual cost to using this resource. From the perspective of the criminals, of course, this seems like a no-brainer — a defendant is hardly going to pay the cost of his own conviction. But the socialized costs of courtrooms remove the incentive to economize for two specific groups of people: legislators and police officers.Legislators have an incentive to flood the courtrooms because if they want to get elected, they need to appear “tough on crime.” The product of this incentive is legislation geared toward continually creating newer infractions or criteria for arrest that signal to the voters that you, the politician, are going to clean up the streets. Naturally, the focus of these infractions tends to be on non-violent crimes because the scope of violent crimes is narrower and has long been an established part of criminal law. But any new criteria for arrest means more people being funneled through the criminal justice system, and the costs are borne by the citizenry.A corollary of the “tough on crime” image is the pressure for police precincts to keep up arrest rates. If arrest rates are low, it looks to the layperson like they are failing to do their jobs. Few people actually make a conscious distinction between the different types of crimes people are arrested for, so the general assumption is that the more people are arrested, the safer everybody else is. Thus, the pressure is created for police to not merely make arrests, but to make easy arrests. Finding a drug dealer or a prostitute to arrest has a lower cost in time and energy than hunting down a rapist or murderer, at least in part due to the fact that there are fewer violent criminals in general. So more arrests again mean that more criminals are being shuffled through the courts.A Game Theory Analysis of the Justice SystemIn The Economic Anatomy of a Drug War, David Rasmussen and Bruce Benson offer an insightful analysis regarding the effects that these incentives have on the court and prison systems.Because individual police and legislators have nothing to lose and everything to gain from sending people through the court system, the courts became incredibly overcrowded. The incentive this creates for the legal teams and the judges is to work together to get people in and out as quickly as possible. Because jury trials are lengthy and expensive, plea bargains are the go-to option.Because defense attorneys, prosecutors, and judges frequently deal with each other, their court interactions are essentially “repeat games,” meaning that without directly colluding, they learn how to tacitly appeal to each other’s interests to maximize their own gains. Unfortunately for the defendant, they are engaged in a “one-shot game,” and are thus at the mercy of the incentives for the repeat players.The judges incentivize defense attorneys to encourage their clients to accept plea bargains by offering significantly lighter sentences to avoid time consuming jury trials. Because the prosecutors want to avoid any situation in which losing is an option, they capitulate by offering lighter terms as well. Both the prosecutor and the defense have an incentive to agree on a plea bargain because of the power that the judge has over them in the courtroom. If either legal team plays hardball — such as in the case of the defense attorney seeking a jury trial for a legitimately innocent defendant — they run the risk of facing the consequences of harsher sentences (for the defense) or statistic-damaging losses (for the prosecutors), not to mention the disadvantages the judge may create for them in the court setting. Although direct collusion has been known to happen, Rasmussen and Benson demonstrate that no overt interaction need take place for these consequences to take effect. This phenomenon is known as “Group Cohesion.”The plea bargain incentive creates a mechanical process of herding prisoners quickly through the court system and into the prison. The logical result is the well-known problem of prison overcrowding. Overcrowded prisons have their own unseen consequences, but that will be the topic for a different article.Ross Ulbricht and the Plea Bargain PressureFor anybody who cares about the Bill of Rights, the overcrowding of the court system should be a concern. The Sixth Amendment guarantees the right to a speedy trial. Unfortunately, by not defining what constitutes “speedy,” modern interpreters have enough leeway to ignore this right entirely. But court backlogs grow steadily due to the incentives created by victimless crimes — most significantly being drug crimes.In the years Rasmussen and Benson had data for when doing their research, court backlogs in federal courts grew from 1,200 cases to a whopping 7,400 cases in a one-year time period (1989 to 1990).1 Since then, we have only seen more “tough on crime” legislation, such as the Joe Biden-sponsored Crime Control Act that significantly increased funding for state and city law enforcement to target drug crimes.For libertarians, the problems of the justice system hardly need to be expanded upon. But for people who support drug laws, the overcrowded courtrooms, and concomitant violation of the Constitution should still be a reason for concern. But there are only two solutions: either repeal legislation regarding non-violent crime or significantly expand the legal system — which would require a tax increase of a magnitude that even the most severe “drug warrior” would be unlikely to tolerate.With Ross Ulbricht’s unjust and severe ruling, he will undoubtedly be the example cited by state-appointed defense attorneys to any defendant facing a drug charge. “It doesn’t matter if you’re innocent,” I can already hear a defense attorney telling one of the thousands of young people arrested for dealing drugs, “if you don’t accept their plea bargain, you might end up like Ross Ulbricht.” 1. Rasmussen, David W., and Bruce L. Benson, The Economic Anatomy of a Drug War: Criminal Justice in the Commons (Lanham, MD: Rowman and Littlefield Publishers, 1994), p. 23.
  • Will Our Grandchildren Work Only Four Hours Per Day?    (Ryan McMaken, 2017-06-21)
    By: Ryan McMaken Chinese billionaire and Alibaba founder Jack Ma predicted this week that in 30 years, people will be working less than they do now. According to NBC: I think in the next 30 years, people only work four hours a day and maybe four days a week," Ma said. "My grandfather worked 16 hours a day in the farmland and [thought he was] very busy. We work eight hours, five days a week and think we are very busy.Only time will tell if Ma's prediction will come true in terms of its time horizon and magnitude. But, if the next century follows the pattern of the previous 150 years, we could be looking at continued and significant reductions in total working hours. Some of the biggest gains are likely to occur in the so-called "developing" world, but even the wealthy West will continue seeing gains in this regard. For many Americans, at least, comments such as Ma's may cause them to scoff. Remarkably, there still seems to be an impression among many Americans that they are working more hours now than their grandparent did. This is no doubt true in some specific cases, but overall, the evidence is clear that people are working less now than in the past — with the possible exception of the recent past.RELATED: "Why Median Incomes Probably Are Really Going Down" by Ryan McMakenIndeed, if we look at a survey or total work hours conducted by Michael Huberman and Chris Minns, we find that total hours worked have declined over time: In Germany, for example, total hours worked declined from 3,284 hours in 1870 to 1,463 in 2000. In Canada, work hours declined over the same period from 2,845 to 1,835. The overall trend is obvious, and only the US, Sweden, and Canada in this sampling of wealthy countries shows something other than a decline from 1980 to 2000. From 1870 to 2000, though, total work hours declined 39 percent in the United States, 40 percent in the UK, and 55 percent in Germany. While it's certainly possible that some Americans may be working as much as their great-grandparents did, overall, most of us work more than a third less time than they did. Other studies have shown similar results. A study by Thomas Juster and Frank Stafford, it was found that from 1965 to 1981 in the United States, “market work” hours per week fell from 51.6 hours to 44 hours for men. For women, market work rose from 18.9 hours to 23.9 hours. We would expect an increase for women over this period as women began to take on “market work” at higher rates than before.In yet another study by Mary Coleman and John Pencavel, average weekly hours worked fell for white men from 44.1 hours in 1940 to 42.9 hours in 1988. It fell for white women from 40.6 hours to 35.5 hours over the same period.Most of this is thanks to continued progress in worker productivity. As recently explained by Ferghane Azihari at mises.org, we work less for more as capital accumulation and productivity increases. Obviously, our standard of living is higher than that of our grandparents. And yet, we're often working less than they did. Moreover, our working lives are shorter than they were in the past. As Ben Powell has noted in his work on sweatshops on child labor, wealthy countries enjoy the luxury of eschewing child labor nearly in its entirety.By the 20th century, thanks to increasing productivity, the adult members of the family could produce enough to pay a family's expenses in a way that had previously required the labors of the family's 9- and 10-year-olds. It was the decline in the necessity of child labor that made it feasible to finally outlaw child labor in wealthy countries in the early 20th century. Today, labor activists act as if laws prohibiting child labor were the primary driver behind its decline. It is far more likely that the opposite is true. Namely, that growing wealth allowed for more children to leave the work force. Prohibitions on child labor came only in the late stages of this process. Powell writes: In the United States, Massachusetts passed the first restriction on child labor in 1842. However, that law and other states’ laws affected child labor nationally very little.11 By one estimate, more than 25 percent of males between the ages of 10 and 15 participated in the labor force in 1900.12 Another study of both boys and girls in that age group estimated that more than 18 percent of them were employed in 1900.13 Economist Carolyn Moehling also found little evidence that minimum-age laws for manufacturing implemented between 1880 and 1910 contributed to the decline in child labor.14 Similarly, economists Claudia Goldin and Larry Katz examined the period between 1910 and 1939 and found that child labor laws and compulsory school-attendance laws could explain at most 5 percent of the increase in high school enrollment.15 The United States did not enact a national law limiting child labor until the Fair Labor Standards Act was passed in 1938. And it wasn't just the children who could afford the new luxury of skipping work.During this same period, the elderly were beginning to enjoy for the first time the concept of "retirement."Just as increased productivity had made it possible to for parents to more fully support children with just the parents' wages, so too did these gains make new pension programs — both governmental and private — possible. After all, the implementation of the Social Security tax would have been a political impossibility in an earlier era when workers were living closer to subsistence levels.Thanks to the surpluses made possible by growing industrialization and worker productivity, both private corporations and government agencies could skim off enough of the surplus to hand over to elderly workers who were no longer actively producing products or services as wage workers. Thus, like child workers, elderly workers began to disappear from the work force. W Andrew Achenbaum writes: In [1890 in the US], about two-thirds of men aged 65 and older were still in the labor force — roughly the same proportion found today in developing countries such as Brazil and Mexico. By 1920, that number had dropped to 56 percent, and by 1940 it was down to 42 percent. Today it is 27 percent.Today, not only are modern workers working fewer hours in many cases, but fewer workers are necessary to produce at least as much wealth. This is especially true when we look at these trends through a global lens. As Powell notes, child labor declines the most in those countries where real incomes exceed $12,000. The number of countries where this is actually the case continues to expand, just as poverty continues to decline in the developing world. This isn't to say that everything is perfect or getting better in every way all the time. Nor are things the gains evenly distributed. The relative gains being made in recent decades in the US, for example, have slowed as American workers face greater competition from foreign workers. Gone are the days when the European competition was still digging out from the rubble of World War II. Also gone are the days when workers in places like India and Latin America and China offered little competition. Workers in the Western world once had a near monopoly on the benefits of being in close proximity to the world's best capital — including the best factories and the best technology. Nowadays, highly advanced production facilities can be found throughout the world. And this means more competition from workers in the developed world. Moreover, continued interventionism by states and their central banks may drive real wages and economic opportunities down. Regulations on starting small business, coupled with central-bank driven asset price inflation, takes its toll on earnings for many throughout the world.Time will tell if war, unchecked government regulation, or some other disaster may put a halt to the declines in working hours we've been enjoying for so long. If not, our descendants will be looking back on five-day weeks the way we should now look at the grueling work schedules of our great-grandparents. 
  • Student Activists Hurt the Workers They Try to Help    (Chelsea Follett, 2017-06-21)
    Chelsea Follett During the student activity fair for freshmen, you may have noticed organizations like United Students Against Sweatshops urging you to protest so-called sweatshops in poor countries. Maybe you’ve seen posters around campus calling for boycotts of goods made in such factories. Perhaps you yourself have engaged in anti-factory activism alongside your classmates. Yet experts across the political spectrum—including Nobel Prize winning economist Paul Krugman, Pulitzer Prize-winning journalist Nicholas Kristof, and Columbia University professor Jeffrey Sachs—have argued that opposition to “sweatshops” in poor countries hurts the very workers that activists seek to help. Student activists would do well to read Benjamin Powell’s concise and persuasive defense of such factory work, “Out of Poverty: Sweatshops in the Global Economy,” published by Cambridge University Press in 2014. The book focuses solely on the well-being of factory workers—not what would be best for factory owners or economic efficiency. People in developing nations deserve the chance to industrialize and achieve the same prosperity the West gained through its own Industrial Revolution. Factory workers routinely garner more publicity than the world’s poorest people, who are overwhelmingly rural and live lives of destitution precisely because they are largely untouched by global capitalism. Powell devotes his second chapter to showing that anti-factory activism receives generous funding from labor unions in the United States and Europe. These unions pay lip service to “solidarity” with workers in poor countries but are primarily focused on keeping manufacturing jobs away from poor countries. Powell suggests that unions manipulate idealistic student activists to push for high labor standards that only rich countries can meet, including “sweat-free” labeling for clothing made under those standards. Powell presents two main arguments for why activists should change their approach: (1) taking away the option of factory work harms factory workers, and (2) factories can serve as a step in the process of economic development that ultimately cures poverty. If someone chooses to work in a factory, she must see that as her best option. Taking away her best option without offering anything better makes her worse off. As Powell shows, prematurely raising of labor standards and wages by governments results in worse options for factory workers. In the early 1990s, Indonesia more than doubled the real value of its minimum wage in response to U.S. threats of trade restrictions—a policy pushed by U.S. student activists. This led to the closure of many manufacturing plants, and Indonesian employment fell by at least 12 and as much as 36 percent. Similarly, when Nike and Adidas limited working hours at Chinese supplier factories to ease the consciences of U.S. activists, “many workers quit, complaining that the overtime pay was no longer enough.” In South Africa, when government officials tried to shut down rural garment factories for failing to comply with minimum wage laws in 2010, “desperate clothing workers threatened to assault officials and burn their vehicles rather than lose their jobs.” As Paul Krugman has eloquently put it, “Bad jobs at bad wages are better than no jobs at all.” (Or, as in the Chinese example, jobs at bad wages are better than jobs at even worse wages.) Yet the campaign against factories in poor countries routinely ignores the wishes of the workers themselves, limiting workers’ options. Factory work is not only a stepping-stone out of extreme poverty for workers, but can help grow an entire economy and eradicate extreme poverty altogether. Remember, today’s wealthy countries once had their own factories with conditions often worse than those in poor countries today. In the United Kingdom, the first country to industrialize, “the process of development involving sweatshops lasted from 130 to 160 years. In the United States, the process was faster, taking around 100 years.” Powell notes that legal labor standards and the introduction of a minimum wage in those countries largely mirrored what factories were already doing—essentially codifying preexisting norms instead of prompting a change in industry practices. The development process has gotten faster. In South Korea, Taiwan, Hong Kong, and Singapore, the process of moving from industrialization to First World living standards took less than two generations, as opposed to a century in the United States. Factories helped workers in those countries escape poverty and their children achieve postindustrial prosperity. As Powell says, “Sweatshops themselves are part of the very process of development that will lead to their own elimination.” Instead of opposing factories, activists might consider campaigns to buy goods manufactured in impoverished parts of the world, such as sub-Saharan Africa, in the name of ending poverty. “My concern is not that there are too many sweatshops but that there are too few,” Jeffrey Sachs has stated. “Those are precisely the jobs that were the steppingstone for Singapore and Hong Kong, and those are the jobs that have to come to Africa to get them out of their backbreaking rural poverty.” Foreign aid has never lifted a single country out of poverty, and in Africa aid may actually discourage needed reforms by propping up dictators. “If Africa’s economies are to take off, Africans will have to start making a lot more things,” The Economist declared three years ago. “Few countries … have escaped poverty without putting a lot of workers through factory gates.” Unfortunately, despite its growing population and need for jobs, Africa has been deindustrializing. The continent’s poor business environment and faulty institutions are partially to blame for reducing Africa’s competitiveness relative to the rest of the world. Activists who want to help the poor should refocus their efforts on ending forced labor (slavery), corruption, and economic restrictions that stifle growth and perpetuate poverty. Governments in many poor countries score poorly in economic freedom and may violate their citizens’ property rights. Africa, the world’s poorest continent, also has the worst record on economic freedom and business environment. People in developing nations deserve the chance to industrialize and achieve the same prosperity the West gained through its own Industrial Revolution. Infringements upon economic freedom hinder the process of development and prevent people from lifting themselves out of poverty. That is an injustice worth protesting. Chelsea Follett is the managing editor of HumanProgress.org, a project of the Cato Institute.
  • Take a Look at the New 'Consensus' on Global Warming    (Michael Bastasch, Ryan Maue, 2017-06-21)
    Michael Bastasch and Ryan Maue A scientific consensus has emerged among top mainstream climate scientists that “skeptics” or “lukewarmers” were not long ago derided for suggesting — there was a nearly two-decade long “hiatus” in global warming that climate models failed to accurately predict or replicate. A new paper, led by climate scientist Benjamin Santer, adds to the ever-expanding volume of “hiatus” literature embracing popular arguments advanced by skeptics, and even uses satellite temperature datasets to show reduced atmospheric warming. More importantly, the paper discusses the failure of climate models to predict or replicate the “slowdown” in early 21st century global temperatures, which was another oft-derided skeptic observation. The global warming “hiatus” is real and the models didn’t see it coming “In the early twenty-first century, satellite-derived tropospheric warming trends were generally smaller than trends estimated from a large multi-model ensemble,” reads the abstract of Santer’s paper, which was published Monday. “Over most of the early twenty-first century, however, model tropospheric warming is substantially larger than observed,” reads the abstract, adding that “model overestimation of tropospheric warming in the early twenty-first century is partly due to systematic deficiencies in some of the post-2000 external forcings used in the model simulations.” The paper caught some prominent critics of global climate models by surprise. Dr. Roger Pielke, Sr. tweeted “WOW!” after he read the abstract, which concedes “model tropospheric warming is substantially larger than observed” for most of the early 21st Century. It’s more than a little shocking. Santer recently co-authored a separate paper that purported to debunk statements EPA Administrator Scott Pruitt made that global warming had “leveled off.” But Santer’s paper only evaluated a selectively-edited and out-of-context portion of Pruitt’s statement by removing the term “hiatus.” Moreover, climate scientists mocked Texas Republican Sen. Ted Cruz for talking about the global warming “hiatus” during a 2015 congressional hearing. Instead, activist scientists worked hard to airbrush the global warming slowdown from data records and advance media claim that it was a “myth.” Santer and Carl Mears, who operate the Remote Sensing System satellite temperature dataset, authored a lengthy blog post in 2016 critical of Cruz’s contention there was an 18-year “hiatus” in warming that climate models didn’t predict. They argued “examining one individual 18-year period is poor statistical practice, and of limited usefulness” when evaluating global warming. “Don’t cherry-pick; look at all the evidence, not just the carefully selected evidence that supports a particular point of view,” Santers and Mears concluded. Cruz’s hearing, of course, was the same year the National Oceanic and Atmospheric Administration (NOAA) released its “pause-busting” study. The study by lead author Tom Karl purported to eliminate the “hiatus” from the global surface temperature record by adjusting ocean data upwards to correct for “biases” in the data. Democrats and environmentalists praised Karl’s work, which came out before the Obama administration unveiled its carbon dioxide regulations for power plants. Karl’s study also came out months before U.N. delegates hashed out the Paris agreement on climate change. Karl’s study was “verified” in 2016 in a paper led by University of California-Berkeley climate scientist Zeke Hausfather, but even then there were lingering doubts among climate scientists. Then, in early 2016, mainstream scientists admitted the climate model trends did not match observations — a coup for scientists like Patrick Michaels and Chip Knappenberger who have been pointing out flaws in model predictions for years. John Christy, who collects satellite temperature data out of the University of Alabama-Huntsville, has testified before Congress on the failure of models to predict recent global warming. Christy’s research has shown climate models show 2.5 times more warming in the bulk atmosphere than satellites and weather balloons have observed. Now, he and Santer seem to be on the same page — the global warming “hiatus” is real and the models didn’t see it coming. Santer’s paper argues the “hiatus” or “slowdown” in warming “has provided the scientific community with a valuable opportunity to advance understanding” of the climate system and how to model it. What’s interesting, though, is Santer and his co-authors say their paper is “unlikely to reconcile the divergent schools of thought regarding the causes of differences between modeled and observed warming rates.” In other words, the “uncertainty monster” is still a problem. Ryan Maue is a PhD meteorologist at WeatherBELL Analytics and an adjunct scholar at the Cato Institute. And credit to Michael Bastasch for contributing to the article.
  • Jeff Sessions's Reefer Madness    (Mark Thornton, 2017-06-20)
    By: Mark Thornton US Attorney General Jeff Sessions recently penned an opinion article in the Washington Post. He wrote that the illegal drug business generates violence and violent crime. True enough.He further noted that violent crime is down by half since the War on Drugs peaked in 1991. Again, this is true.Then he noted that as marijuana laws and federal sentencing guidelines have been relaxed, violent crime rates have increased. He noted that “In 2015, the United States suffered the largest single-year increase in the overall violent crime rate since 1991.” That is also true, but it is highly misleading, to say the least. It is like claiming that you have never dealt with the Russians only to find out that you have dealt with the Russians on several occasions and then used a semantic trick to prevent yourself from going to jail.The violent crime rate in 1996 was 637 per 100,000 of population. In 2015, the violent crime rate was 373, a decrease of over 40%. Over this period there were a few years of small increases, but most years saw noteworthy declines. In 2014 there were 1.15 million violent crimes and in 2015 there were 1.20 million violent crimes in the United States. That moved the violent crime rate from 361.6 in 2014 to 372.6 in 2015, or an increase of 11 violent crimes per 100,000 population, or an increase of 3% in the violent crime rate.With crime statistics, as with many social indicators, there is more revealing information below the national aggregate statistics. Many academic and professional criminologists have noted that the recent increase in violent crime occurs mainly in very large cities. According to the numbers, from January to June 2015–2016 the murder rate increased by 9.7% in cites with a population of more than one million people and the murder rate increased by 21.6%. The murder rate increased by 10.9% in metropolitan areas and decreased by 14.7% in non-metropolitan areas over the same period.During the same period in the city of Denver — where recreational marijuana has been legal since late 2012 — violent crime was virtually unchanged. The homicide rate did not increase at all. In the state of Colorado overall the homicide rate fell from 2013 to 2015, decreasing from 3.3 to 3.2 per 100,000.1 In San Francisco, one of California’s most crime prone cities, the rate of violent crime actually decreased from 2014 to 2015.Attorney General Sessions’s argument really does not make any sense. Legalized marijuana greatly reduces the size of the illegal drug market and the violence it causes, both by eliminating the illegal marijuana market and by encouraging producers and consumers to switch from hard drugs such as heroin, cocaine, and crystal meth to marijuana/cannabis which is non-addictive and non-lethal.Sessions is using this argument to protect his plans to crack down on legal dispensaries in states that have legalized recreational and medical marijuana. He is also trying to block the passage of the Rohrabacher-Blumenauer amendment, which would protect states that have enacted medical marijuana programs from federal interference. He recently sent a letter to Congressional leaders demanding that Congress set aside the Rohrabacher-Blumenauer amendment.Medical marijuana/cannabis is now legal in 30 states. Legal medical use by authorized patients is supported by 94% of Americans. Regulated recreational use is supported by over 60% of Americans and rising.How do we explain Sessions's efforts? He is neither a medical doctor nor a sociologist. His rationale is based on his notion that “only bad people smoke pot,” but this is obviously not the case. Could it be that he has a “reefer madness” point of view where marijuana/cannabis causes people to go insane, cause violent crimes, and die in quick order as we see in horror movies of the 1930s?Maybe someone should check on the donor list to his latest senate campaign. Might we find the alcohol, tobacco, pharmaceutical, and corporate prison industries listed prominently? 1. 2015 data is the most recently available for the whole state. 


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