Policy Institutes

Kat Murti

On Tuesday night, President Obama delivered his sixth annual State of the Union address. Cato scholars took to Twitter to live-tweet not only the President’s address, but also the Republican and Tea Party responses—delivered by Sen. Joni Ernst and Rep. Curt Clawson respectively—focusing, as always, on what the policies being discussed would mean for the future of liberty. 

Many on Twitter joined the discussion, which was billed as a chance to ask experts what to expect from the policy world in 2015; the hashtag #CatoSOTU has been used over 4,400 times since Tuesday, a number which will likely continue to grow as Cato scholars and members of the public continue the online conversation. 




Over the years, the State of the Union has become an annual spectacle much larger than the founding fathers would ever have expected, and Cato scholars were quick to put it in context:  


Topics spanned the gamut—from cybersecurity and Guantanamo Bay to the President’s community college proposal and what he has termed “middle class economics”—but Cato responses remained strong throughout.  

Cato’s policy analysts were quick to call out factual inaccuracies:




And hypocrises:  




 They highlighted omissions: 


And, even, doled out praise where it was due: 

The conversation certainly wasn’t one-sided however. Cato scholars were just as critical of the response speeches as they were of the President’s address:





Many Cato scholars also took the opportunity to make policy suggestions to the President and the legislature:



At the end of the night though, Cato Institute Executive Vice President David Boaz probably summed it up best: 


Looking for even more reactions? Watch our annual State of the Union response video

Steve H. Hanke

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on “misery.”

Below the jump are the index scores for 2014. Countries not included in the table did not report satisfactory data for 2014.

The five most miserable countries in the world at the end of 2014 are, in order: Venezuela, Argentina, Syria, Ukraine, and Iran. In 2014, Argentina and Ukraine moved into the top five, displacing Sudan and Sao Tome and Principe.

The five least miserable are Brunei, Switzerland, China, Taiwan, and Japan. The United States ranks 95th, which makes it the 14th least miserable nation of the 108 countries on the table.

Walter Olson

Rumors of ethics problems have long swirled around long-time New York assembly speaker Sheldon Silver, many of them connected with his role as a private lawyer associated with a personal-injury firm whose interests extend to many government- and policy-related matters. This morning, according to multiple reports, the FBI took Silver into custody following a corruption investigation. 

The complaint (courtesy WSJ, more here and here) alleges improprieties with Silver’s income both from a real estate law firm patronized by developers and from asbestos-injury legal work. On the latter, it alleges that Silver directed hundreds of thousands of dollars in state research money to a university doctor in Manhattan, and that the doctor referred lucrative cases over asbestos-related mesothelioma to Silver’s law firm. The doctor is described as a “well-known expert” who “conducts mesothelioma research” at a center at his university dedicated to that purpose. The unnamed “Doctor-1” “has entered into an agreement with the USAO SDNY [U.S. Attorney’s Office for the Southern District of New York] under which he will not be prosecuted for the conduct described herein, and that obligates him to provide truthful information to and cooperate with the government.” [pp. 24-25]

As science has grown more dependent on government funding, libertarians have warned that the money isn’t really free. Whatever the stated intentions at first, legislators come to scrutinize science budgets with an eye toward what’s in it for them: promoting a favored policy initiative, catering to the whims of some constituent or family member, employing the right people in the right districts. And how deeply embarrassing it must be – assuming the truth of the prosecutors’ allegations, which of course are at this stage unproven – to support one’s work through state grants for medical research while quietly referring patients to the assembly speaker’s law firm. According to the complaint, the state paid $500,000 to the research center, while the asbestos-suit referrals brought Silver more than $3 million.

There must be a better way to fund scientific inquiry, and maybe that way involves less appropriation of tax moneys and more voluntary action. [adapted in part from a post at Overlawyered]

Craig D. Idso

One of the major concerns with forecast CO2-induced global warming is temperatures might rise so rapidly that many plant species will be driven to extinction, unable to migrate fast enough toward cooler regions of the planet to keep pace with the projected warming. The prospect of species demise and potential extinction have served as a rallying cry in calls for restricting CO2 emissions. But how much confidence should be placed in this climate-extinction hypothesis? Do real world data support these projections? Are plants really as fragile as model projections make them out to be? 

A new paper published in the research journal Botany investigates this topic as it pertains to sugar maple trees, and the findings do not bode well for climate alarmists. In this work, Hart et al. (2014) analyzed “the population dynamics of sugar maple (Acer saccharum Marsh.) trees through the southern portion of their range in eastern North America,” selecting this particular species for this specific task because its range “has been projected to shift significantly northward in accord with changing climatic conditions” by both Prasad et al. (2007) and Matthews et al. (2011).

The three U.S. researchers

analyzed changes in sugar maple basal area, relative frequency, relative density, relative importance values, diameter distributions, and the ratio of sapling biomass to total sugar maple biomass at three spatial positions near the southern boundary of the species’ range using forest inventory data from the USDA Forest Service’s Forest Inventory and Analysis program over a 20-year observation period (1990-2010),” during which time temperatures increased and summer precipitation declined.  

And what did they discover?

Range expansion (!). Hart et al. write that,

In contrast to a contraction of the sugar maple range, our results corroborate the pattern of increased mesophyte (including sugar maple) density and dominance that has been widely reported throughout the Central Hardwood Forest of the eastern US, including sites near the southern range boundary (e.g., Hart and Grissino-Mayer, 2008; Hart et al., 2008; Schweitzer and Dey (2011).

Or put another way, they say the results of their study indicate that (1) “over the past 20 years, the southern range boundary of sugar maple has neither contracted nor expanded,” and that (2) “when accounting for documented northern range boundary shifts (Woodall et al., 2009), these results indicate an expansion of the geographic distribution for sugar maple at this time attributed to the relatively stable southern range boundary.”

Clearly, the rise in temperature and decline in precipitation observed across the study area has had no negative impact on sugar maple populations, despite model projections to the contrary.  Rather, the observed response has been positive, and largely so as evidenced by increased sugar maple density, dominance and range expansion. To most rational people, these observations represent benefits. To climate alarmists, they are problematic, inconvenient truths which they tend not to  acknowledge.


Hart, J.L. and Grissino-Mayer, H.D. 2008. Vegetation patterns and dendroecology of a mixed hardwood forest on the Cumberland Plateau: implications for stand development. Forest and Ecology Management 255: 1960-1975.

Hart, J.L., Oswalt, C.M. and Turberville, C.M. 2014. Population dynamics of sugar maple through the southern portion of its range: implications for range migration. Botany 92: 563-569.

Hart, J.L., van de Gevel, S.L. and Grissino-Mayer, H.D. 2008. Forest dynamics in a natural area of the southern ridge and valley, Tennessee. Natural Areas Journal 28: 275-289.

Matthews, S.N., Iverson, L.R., Prasad, A.M. and Peters, M.P. 2011. Changes in potential habitat of 147 North American breeding bird species in response to redistribution of trees and climate following predicted climate change. Ecography 34: 933-945.

Prasad, A.M., Iverson, L.R., Matthews, S. and Peters, M. 2007. A Climate Change Atlas for 134 Forest Tree Species of the Eastern United States. Northern Research Station, USDA Forest Service, Delaware, Ohio, USA.

Schweitzer, C.J. and Dey, D.C. 2011. Forest structure, composition, and tree diversity response to a gradient of regeneration harvests in the mid-Cumberland Plateau escarpment region, USA. Forest and Ecology Management 262: 1729-1741.

Woodall, C.W., Oswalt, C.M., Westfall, J.A., Perry, C.H., Nelson, M.D. and Finley, A.O. 2009. An indicator of tree migration in forests of the eastern United States. Forest and Ecology Management 257: 1434-1444.

Doug Bandow

North Korea has been in a conciliatory mood recently, suggesting a summit with South Korean President Park Geun-hye.  Pyongyang also indicated that it would suspend nuclear tests if the United States cancelled joint military exercises with the South. 

The United States refused and went ahead with the naval maneuvers.  In fact, the Obama administration recently expanded sanctions on North Korea in response to the Kim regime’s apparent hacking of Sony pictures.  Alas, past experience suggests the Democratic People’s Republic of Korea likely will respond with new provocations, perhaps another nuclear test.

Frustration with the Kim regime led retired Gen. John Macdonald to propose turning the movie ‘The Interview’ into reality:  “We’ve got to do something.”

Since Pyongyang hasn’t changed its behavior, the United States should try a different approach, but not an assassination attempt on Kim Jong-un.  Washington should start by dropping the annual military exercise and reducing America’s military presence.  The administration also should develop a comprehensive engagement plan for North Korea.

Obviously, there’s no guarantee that engagement would yield a more positive result.  However, the People’s Republic of China’s growing frustration with the younger Kim provides an unexpected opportunity for Washington. 

So far, Beijing has proved unwilling to apply significant pressure on the DPRK lest the result be a messy collapse with advantage to a united Korea allied with America.  But China has tired of the antics of its irresponsible neighbor, especially the latter’s nuclear weapons program. 

The PRC nevertheless remains reluctant to cooperate with Washington unless the United States reduces the perceived threat to North Korea.  The United States should express its willingness to negotiate with the North, and even create a low-key diplomatic presence, such as a small consular office. As I point out in National Interest:  “Whatever the North’s response, the U.S. would gain a useful window into a mysterious political system and provide the Kim regime with something to lose for bad behavior.”

Equally important, Washington should work with the Republic of Korea and Japan to prepare an offer for full engagement.  North Korea would receive diplomatic recognition and economic benefits.  The United States would withdraw its troops from the ROK and drop future military exercises.  And the three governments would pledge not to push regime change.  In return, Pyongyang would end its nuclear program, turn over existing nuclear materials, and accept a verification system.

In the unlikely event that the North agreed, the deal would benefit all Northeast Asia.  If DPRK said no, the United States would have greater leverage with China. 

Washington could point out that it had followed Beijing’s advice.  If the PRC was serious about promoting peace over the long-term on the peninsula, it would apply progressively greater pressure on North Korea to negotiate a satisfactory agreement. 

Should China fail to act, it would be clear that they planned to remain part of the problem.  The United States could plan accordingly. 

North Korea targets America only because U.S. troops confront the DPRK.  Otherwise, Pyongyang would have little reason to consider Washington.  It would be best for America to back away from the peninsula by withdrawing U.S. forces and terminating the formal defense guarantee, leaving the South responsible for its own defense. 

American officials also should stop reaffirming America’s nuclear umbrella over the region.  Nuclear non-proliferation in Northeast Asia has turned into an unfortunate variant of gun control at home: only the bad guys have guns. 

It is not in the interests of the American people to be stuck in the region’s nuclear tangle.  Moreover, stepping back, thus creating the prospect of South Korean and Japanese bombs, would be the most effective way to push Beijing into taking a more active role in discouraging a North Korean arsenal.

Pyongyang wants to talk and the United States should talk with them.  Washington has little to lose and possibly something to gain.

Christopher A. Preble

In a speech at the American Enterprise Institute yesterday, House Armed Services Committee Chairman Mac Thornberry lamented the effects of the Budget Control Act’s spending caps: “the plummeting readiness levels, the long lines of equipment in disrepair, the jets that aren’t flying, and the soldiers who aren’t practicing at the rifle range.” These are problems, to be sure. The bigger problem is a general trend that has the Pentagon spending more, and getting less.

Consider the chart below, prepared by my colleague Travis Evans. Following World War II, the United States did what it had always done at a wars’ end: it demobilized. The result was a sharp and sudden decline in both military manpower and funding. From 1948 to 1950, Pentagon spending averaged $187 billion per year (all figures in 2015 dollars). Demobilization was short-lived, however. As the British and French empires retrenched and the Soviet Union expanded, the United States assumed the role of communist counterweight. Then North Korea invaded South Korea, and all hell broke loose. The primary beneficiary of the strategic shift was the Pentagon, whose budget increased by 156 percent in just one year, from $198 billion in 1950 to $508 in 1951. Large defense budgets became the norm, with spending even after the Korean armistice well above the pre-war levels.

All told, Pentagon spending averaged $458 billion per year throughout the Cold War (1948-1990). That figure includes funding for wars in Korea and Vietnam, as well as for the 1980’s arms buildup. Pentagon spending decreased steadily following the fall of the Berlin Wall, only to ramp back up as the United States embarked on the current round of post-9/11 wars. Defense budgets under Bush the younger averaged $601 billion per year, while his successor has presided over annual budgets averaging $687 billion between 2009 and 2014. Indeed, President Obama, who was elected during an economic crisis, will leave office having approved more military spending than any presidential administration in the nuclear era. Not too bad for a president who is often accused of trying to gut the military.

To be sure, Obama inherited large and rising Pentagon budgets, and pledged to end the costly Iraq war (even as he ramped up the Afghan one – and started several others). He might have wished to dedicate even less to the Pentagon, and more to his domestic spending hobby-horses, were it not for Republicans in Congress who wouldn’t let him. Similarly, one can easily surmise that military spending under either a President John McCain or a President Mitt Romney would have been higher than what we’ve seen under Obama. But they, too, would eventually have had to contend with the messy fiscal reality: to wit, we’re broke.

The bipartisan Budget Control Act, and the dreaded sequester that it contained, may have been an elaborate gimmick either to trick Republicans into increasing taxes, or convince Democrats to approve cuts in the true drivers of fiscal imbalance: so-called entitlements. But while the BCA achieved neither of those things, it is (or at least was) bipartisan; and it has limited discretionary spending. The BCA has not, however, resulted in a precipitous decline in military spending relative to where we were a generation ago.

Less bang for the buck should not be used as an excuse for raising taxes, blowing up the deficit, or reneging on modest and sensible spending caps. If the Pentagon is getting less for every dollar spent, that is an argument for reforming bad practices – including eliminating excess base capacity, reducing the Pentagon’s bloated civilian workforce, and fixing an acquisition system that consistently delivers products late (if at all) and over budget.

David Boaz

At the National Interest, I critique the president’s State of the Union speech:

Instead, we got a sweeping vision of a federal government that takes care of us from childhood to retirement, a verbal counterpart to the Obama campaign’s internet ad about “Julia,” the cartoon character who has no family, friends, church or community and depends on government help throughout her life. The president chronicled a government that provides us with student loans, healthcare, oil and the Internet.

The spirit of American independence, of free people pursuing their dreams in a free economy, was entirely absent. Indeed, the word “freedom” appeared only once in the speech.

I wasn’t so impressed with the “middle-class economics” he laid out:

The president wants more and better jobs. And yet he wants to raise taxes on the savings and investment that produce economic growth and better jobs. And he proposes a higher minimum wage, which would cost some low-skilled workers their jobs. Those proposals are not well thought out….

The president spoke a lot about the future. He mentioned Social Security, Medicare and Medicaid. And he twice boasted of shrinking deficits. But he never addressed the elephant in the room: The deficit is about to head back up, reaching $1 trillion in a few years. The national debt is $18 trillion and still growing. Worse, those entitlements programs have an unfunded liability of around $90 trillion. What’s his plan to avert an unprecedented financial crisis a few years after he leaves office? He didn’t say, because he has no plan.

Things got a little better when he turned to foreign policy:

When he turned from economics, the president offered a bit more to libertarian-minded voters. He said that we don’t want to be “dragged into costly conflicts that strain our military and set back our standing” or “dragged into another ground war in the Middle East.” He said that “when the first response to a challenge is to send in our military, then we risk getting drawn into unnecessary conflicts, and neglect the broader strategy we need for a safer, more prosperous world.” Music to noninterventionist and realist ears.

But the reality is somewhat different. He has officially ended the wars in Afghanistan and Iraq, but American troops remain in both countries, which are hardly experiencing postwar tranquility. He has bombed seven countries, three more than President Bush. We are getting more deeply entangled in a new war in Iraq and Syria, without congressional authorization. Obama asked Congress to “pass a resolution to authorize the use of force against ISIL. We need that authority.” Really? He hasn’t shown any need for it these past six months. Nor did he ask for authorization to wage war in Libya. The senator who said in his 2008 campaign, “The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation,” has become a president who acts as if he does.

I also found an opportunity to praise his promises on Cuba, criminal justice reform, and the dignity of every citizen. But I concluded:

Early in the speech the president said, “We need to set our sights higher than just making sure government doesn’t screw things up, the government doesn’t halt the progress we’re making. We need to do more than just do no harm.” Please, just do no harm. Americans will make plenty of progress if government doesn’t interfere. 

William Poole

Here is the statement I would like to see the Federal Open Market Committee issue on January 28 on conclusion of its first meeting of 2015:

Information received since the FOMC met in December confirms that economic activity is expanding at a moderate pace. Inflation has continued to run below the Committee’s longer-run objective, primarily reflecting a decline in energy prices. That decline appears to be principally a consequence of improving technology in oil and natural gas production and is, thus, a change in relative prices that has no long-term implications for the aggregate rate of inflation.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. To support continued progress toward these goals, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.

To minimize uncertainty over the course of policy, the Committee judges that the process of normalizing interest rates should begin in June. However, the exact timing is data dependent and might be adjusted as necessary.

The Committee also judges that it is now appropriate to begin the process of normalizing its open market portfolio. Effective immediately, the Federal Reserve will cease to reinvest interest on the portfolio and maturing principal.

Several FOMC members have suggested that midyear will be the appropriate time to begin to raise policy rates. The FOMC itself has been vague. No member of the leadership team–which I would define as Chair Janet Yellen, Vice Chair Stanley Fischer, and William Dudley, President Federal Reserve Bank of New York–has ruled out the midyear timing. In general, it is not good practice to announce a future date for a policy change, but such an approach makes sense at this time given that policy rates have been near zero since December 2008. Announcing a June date will not be a shock to the market, as market commentary widely suggests that June is the time the FOMC will act. It is, of course, always possible that economic conditions will change dramatically before June, requiring a change of plan. Nonetheless, it is time for the FOMC to clear the air by stating a plan.

By beginning the process of letting the portfolio run off, the FOMC will dispose of that issue. This part of the plan should not be subject to revision, because any revision would send a confused signal about the direction of policy. If the portfolio is left to a future decision, the matter will become entangled with signals about future interest-rate policy. Dealing with the problem of defining the appropriate course of policy rates and helping to set corresponding market expectations on that course will be difficult. The FOMC does not need to complicate interest-rate policy with implicit announcements—possibly intended, possibly not—flowing from decisions on the portfolio.

The U.S. economy is growing in a balanced fashion. Employment growth has exceeded most forecasts from a year ago. Inflation is below the two percent target but will rise once oil prices stop falling. Treasury and corporate bond rates are almost 100 basis points below where they were a year ago. The stock market has been volatile day-to-day but without a clear trend.

It would be easy to recite additional data. but the bottom line is that the economy is doing fine and is not fragile. The FOMC is unlikely to face more benign circumstances in which to address its policy challenges than it faces today. The Committee should act in a preemptive fashion, leading the markets rather than being led by them.

Further FOMC patience on policy is indecision on leadership. What is the Committee waiting for?

My statement does away with statement bloat—the profusion of meaningless sentences and phrases that, over the past few years, have made the FOMC statement increasingly long, obscure, and difficult to interpret. The final policy statement of the Greenspan era contained 120 words, excluding the final paragraph reporting the vote. Measured the same way, a year before Bernanke left office, the January 2012 statement contained 348 words. The final statement of the Bernanke era contained 563 words. The December 2014 FOMC statement had 564 words.

My statement has 190 words. It is longer than the last Greenspan statement for two reasons. First, it makes the important point, which the FOMC has not yet made, that the decline in energy prices reflects a relative price change with minimal significance for long-run inflation. Second, it announces the policy decision to begin to wind down the portfolio. There would be no need to repeat this language in future statements unless that decision were changed.

Every word in the statement ought to convey useful information to the markets. The Committee seems to have lost sight of the fact that the market reads each statement for changes against prior statements. It used to be that observers would print the statement and hold it up to the light against the previous statement. Now we rely on powerful features in the word processor to spot the changes. Even that approach fails when the Committee changes the order of sentences, or similar sentences. We can spot word changes where a synonym is substituted for a word in the prior statement but that often creates mystery. Synonyms rarely have exactly the same meaning, but differ in nuance or some other way. The question then is whether the FOMC is trying to send a signal of some sort, or has decided for stylistic reasons to change words. The Committee’s current approach is not a recipe for clarity.

Perhaps the policy statement has grown because the Committee is attempting to provide a summary on policy, very broadly defined. That cannot be done in a few paragraphs. The summary as it stands is a profusion of platitudes.

Consider a couple of examples. The December 2014 statement says, “… the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement … .” If there is no change in policy, then why change the language? In this same statement, we learn that, “The Committee continues to monitor inflation developments closely.” Isn’t that something we already know?

Here is a sentence in the December statement that does provide information: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” However, this sentence is also a trap. When the time comes in the future to take the sentence out of the statement, doing so will be read as a signal of forthcoming rate increases. Will that be a sound way of sending such a signal? Or, does the FOMC simply leave the sentence in the statement until it becomes irrelevant?

The Committee has set such traps for itself in the past. There are many examples. Here is one of my favorites: “Although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.” (From statement issued on August 7, 2007) The statement language would seem to indicate that the FOMC was trying to tell the market that the next policy adjustment might be an increase in the fed funds target rate. The transcript of that meeting is publically available, along with staff documents. From these, it is clear that no member of the Committee was advocating a rate increase, or a signal of a rate increase. The markets were shaky, and this was the beginning of the financial crisis.

Why was this language in the August 7, 2007 statement? A year earlier, in August 2006, the FOMC ended its string of 17 straight fed funds rate increases. However, the Committee did not want to signal to the market that the job was done. Thus, this sentence: “Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.” Similar language appeared in every statement until the financial crisis started to become acute, shortly after the meeting of August 7, 2007. The Committee did not want to take such language out for fear of sending a signal that it was preparing to reduce rates.

Going forward, the Committee will have to deal with its current posture that, “… economic conditions may … warrant keeping the target federal funds rate below [normal] levels … .” Moreover, this language may become inconsistent with FOMC economic projections published after meetings of March, June, September and December. What the Committee ought to do is to remove this trap from its statement language and let its quarterly projections carry the burden.

The statement I propose has the virtue of addressing all these matters. It is short and focused on changes in the stance of policy. It contains the decision to begin to address the winding down of the Fed’s huge portfolio—it gets that issue out of the way. It announces a tentative decision to begin normalizing interest-rate policy in June, which corresponds to the stated views of several FOMC members and widespread market expectation. By shortening the statement dramatically, the approach clears away underbrush and will make future communication easier.

Doug Bandow

One of Washington’s greatest policy failures is North Korea.  Apparently, Pyongyang’s most recent provocation was hacking Sony Pictures in retaliation for the movie ‘The Interview.’  More fundamentally, the Democratic People’s Republic of Korea remains determined to create a sizeable nuclear arsenal.

Successive administrations have sought China’s aid to restrain the DPRK, but have failed to listen to Beijing while lobbying Chinese officials for their support.  If Washington hopes to win support from the People’s Republic of China, American policymakers must respond to the PRC’s concerns.

Understandably distrustful of Pyongyang, the United States has insisted upon de-nuclearization before delivering substantial aid to the North.  However, when approached by Washington for assistance, China has responded by blaming America for creating a sense of insecurity which encouraged the DPRK to develop nuclear weapons. 

In 2013, Wang Jiaru, head of the Chinese Communist Party’s International Department, met with several China specialists in Beijing.  I asked him about North Korea.  He criticized the United States and South Korea for contributing to increased tensions through such policies as regular military exercises.  He contended that while “the United States believes talks should start after the North abandons nuclear weapons, nuclear weapons should be abandoned through talks.”  He explained, “If the United States does not act, it cannot rely on China to solve the problem.” 

In Beijing’s view, the DPRK will not yield its nukes so long as it feels insecure.  Of course, Pyongyang might not do so in any case.  But it almost certainly is true that the Kim regime will not give up what looks like the ultimate security guarantee if it believes its future is at risk. 

As I point out on China-US Focus, “the North has no reason to take U.S. promises on faith.  Just as Washington has good reason to disbelieve North Korea’s commitments, so the DPRK has fair cause to distrust America.  Just ask Moammar Kaddafi, who made a deal sacrificing his nukes and missiles in return for engagement, only to be ousted by the Western powers at their first opportunity.”

Moreover, Pyongyang currently has nothing positive to lose from disruptive behavior.  The administration recently tightened sanctions again.  But in practice not much is going to change, especially since the PRC continues to moderate punitive U.S. actions.

Washington and its allies should consider an alternative approach.  Together, they could develop a comprehensive proposal for a grand bargain.  In exchange for the DPRK’s denuclearization and withdrawal of advanced conventional forces from near the DMZ, the allies could provide diplomatic recognition, end economic penalties, and eschew attempts at regime change.

The United States, South Korea, and Japan then should present the package to Beijing for its suggestions and, more importantly, support.  Pyongyang would lose its excuse for not responding positively.  In return for taking the PRC’s advice, the three allies could request that Beijing back allied efforts, including with the threat of cutbacks in aid, trade, and investment.

Only such a strategy of U.S. engagement seems likely to galvanize Beijing to action.  The PRC worries about regional instability and fears a united Korea allied with America and U.S. troops along the Yalu.  As long as Washington appears to be engaged in a campaign of containment, China has no reason to do the United States any favors.  This reluctance and fear is bound to continue if the Chinese believe, as some have suggested, that Washington is using North Korea’s program as an excuse to expand U.S. military involvement to ultimately threaten the PRC.

Indeed, Washington should consider a grand bargain to China as part of a broader process of re-learning the art of diplomacy.  America’s military-first policy is not working out very well anywhere, and especially against the PRC.

Washington’s frustrations with North Korea are obvious and understandable.  Nothing seems to work, and the administration’s latest sanctions are unlikely to have a different result.  At this stage, Washington has little to lose from taking China’s advice on how to address Pyongyang.  It is time for both the United States and PRC to act.

Caleb O. Brown

Cato Institute scholars Alex Nowrasteh, Aaron Ross Powell, Neal McCluskey, Mark Calabria, Bill Watson, Chris Edwards, Gene Healy, Chris Preble, Julian Sanchez, Pat Michaels and Trevor Burrus respond to President Obama’s 2015 State of the Union Address.

Video produced by Caleb O. Brown, Austin Bragg and Tess Terrible.

Michael F. Cannon

Tonight, President Obama will deliver his annual State of the Union address to Congress. He will no doubt boast that his administration has enrolled 6.8 million individuals in ObamaCare plans in the 37 states with federal Exchanges – i.e., through HealthCare.gov – and a couple million more in the few states that established their own Exchanges. The State of the Union would also be a good time for the president to be honest with those HealthCare.gov enrollees, especially the roughly 6 million of them who are purchasing coverage with the help of federal subsidies, about the risks to which he has exposed them.

The Patient Protection and Affordable Care Act, which the president himself signed, expressly provides that those subsidies are authorized only “through an Exchange established by the State.” Since majority of American people have never supported ObamaCare, about three quarters of the states now have refused or otherwise failed to establish Exchanges.

If the president were following the law, he would not be issuing subsidies to any HealthCare.gov enrollees. Indeed, if the president had followed the law – if he had all along admitted he has no authority to subsidize HealthCare.gov enrollees – then enough of the country would have seen the full cost of ObamaCare coverage that Congress would have reopened and likely repealed the statute by now. It would have happened even before anyone lost their coverage in the “if you like your health plan you can keep it” debacle of late 2013.

Instead, President Obama insisted on violating the express language of his own health care law. The result is that he put millions of Americans in jeopardy of losing their health insurance – again.

On March 4, the Supreme Court will hear a case called King v. Burwell, one of four challenges to those illegal subsidies, and the illegal taxes that those subsidies trigger. The Court will likely issue a ruling by June. The fact that the Supreme Court agreed to consider King at all means that at least four justices believe the Fourth Circuit’s ruling for the government in King merits review. 

If the justices agree with two other lowercourts, they will hold that the president is breaking the law and will put an immediate end to those illegal subsidies. Such a ruling would free the plaintiffs and more than 57 million individuals and employers from being illegally subjected to the aforementioned taxes – ObamaCare’s individual and employer mandates.

The people with whom the president most needs to be honest are the millions of Americans who enrolled in HealthCare.gov. If the Court finds those subsidies are illegal, then enrollees receiving subsidies would see their health insurance bills quadruple (on average). They would be hit with a new tax bill of up to $5,000. Their plans could disappear, and they may not be able to find a replacement. An estimated one million of these folks left jobs with secure coverage because the president promised them secure, affordable coverage through HealthCare.gov. Only he never had that power, and by pretending he did, Obama has now made coverage less secure for millions.

Instead of warning Americans of these risks of HealthCare.gov coverage, the president and his administration have been lying to HealthCare.gov enrollees. As they lost before lower courts and even as the Supreme Court agreed to hear King just days before open enrollment in HealthCare.gov began, the White House and administration officials have repeated the mantra that “nothing has changed.” Watch HHS Secretary Sylvia Burwell say “nothing has changed” four times in 90 seconds (go to 3:40):

It is not true that nothing has changed, and the administration knows it isn’t true. The administration knows the risks inherent in HealthCare.gov coverage have increased, because the administration changed the agreements between HealthCare.gov and participating insurers to insert a clause allowing insurers to back out if the subsidies disappear:

CMS acknowledges that QHPI has developed its products for the FFE based on the assumption that APTCs and CSRs will be available to qualifying Enrollees. In the event that this assumption ceases to be valid during the term of this Agreement, CMS acknowledges that Issuer could have cause to terminate this Agreement subject to applicable state and federal law.

The administration made the change, reports Inside Health Policy, because insurers demanded it and because administration officials themselves “believe the clause is critical.” 

What does this mean? It means the president knows that millions of HealthCare.gov enrollees are facing serious financial risks, or worse. Yet his administration is actively concealing those risks from enrollees by telling enrollees “nothing has changed.” At the same time the president is protecting insurers from the risks they face by participating in HealthCare.gov, he is not even informing consumers about the risks HealthCare.gov coverage poses for them.

The president needs to put an end to the deception, tonight. He needs to warn HealthCare.gov enrollees about the risks inherent in their coverage, so they have time to prepare. If he tells them tonight, some of those who need insurance the most might be able to find jobs with secure coverage (or other access to coverage) by the time the Court rules. He needs to tell HealthCare.gov enrollees what his contingency plans are if the Supreme Court rules that he was breaking the law and playing games with their coverage.

He can blame it all on his political opponents. He can claim to be the only honest man in Washington, for all I care. But he needs to level with HealthCare.gov enrollees tonight about the risks they are facing. To keep pretending “nothing has changed” would be a reckless lie.

Nicole Kaeding

Tonight, President Obama will deliver the State of the Union address. In addition to the lofty rhetoric and self congratulations, the president will likely claim that the federal government’s budget has improved during his tenure.

It is true that  the deficit has decreased in recent years due partly to  large tax increases, which have helped the government but not the economy. Also, spending levels have stabilized, partly due to Republican efforts to slow discretionary spending growth. However, these are temporary trends. Spending is expected to explode in coming years, which will fuel larger deficits and higher levels of debt. The nation’s longer term fiscal outlook is a mess.

Comparing today’s budget situation to the situation at the beginning of President Obama’s tenure is difficult. President Obama took office in January of 2009, several months into fiscal year 2009. Spending in 2009 was $3.5 trillion, up from $3.0 trillion in 2008. Part of the higher spending in 2009 was attributable to  the Bush administration, but President Obama’s big stimulus bill passed in February 2009 also added to the increase.

Below is a fiscal overview for the last six years:

(All years are fiscal years unless noted.)

  • Federal Debt: 74 percent in 2015
    • Debt held by the public has grown from 39 percent of  gross domestic product (GDP) in 2008, to 52 percent in 2009, 61 percent in 2010, and then to 74 percent in 2015. Growth of the federal  debt has greatly outpaced economic growth.
  • Federal Spending: $3.8 trillion in 2015
    • The federal government will spend an estimated $3.8 trillion in 2015. Federal spending has been stable in recent years due mainly to the 2011 Budget Control Act, but it is expected to skyrocket in coming years. The federal government is projected to spend $4.6 trillion in 2019, according to the Congressional Budget Office (CBO), and the president will probably propose an even higher number in his upcoming budget.
  • Federal Revenue: $3.3 trillion in 2015
    • The federal government will collect $3.3 trillion in revenue this year, the most in American history. This is an increase of $1.2 trillion since 2009 when the government collected $2.1 trillion. Part of that increase is due to the stronger economy, but the president’s tax hikes are also fueling the growth.
  • Deficit: $469 billion in 2015
    • The president will likely trumpet the dramatic decrease in the deficit during his tenure, down from $1.4 trillion in 2009 and $1.3 trillion in 2010 to an expected $469 billion in 2015, but the Congressional Budget Office forecasts that the deficit will increase quickly in coming years.
  • Cost of ObamaCare insurance coverage provisions: $1.8 trillion over the next 10 years
    • ObamaCare is expected to increases federal government spending on health care including $792 billion in new Medicaid spending, and $1 trillion in spending on insurance subsidies over the next ten years.
  • ObamaCare Tax Hikes: $500 billion over the next 10 years
    • To help for the $1.8 trillion in new spending obligations, ObamaCare imposed $500 billion in tax increases over 10 years including a higher Medicare tax on high income earners, a tax on health insurers, and a tax on medical devices.
  • Fiscal Cliff Tax Hikes: $620 billion over 10 years
    • Passed on January 1, 2013, the Fiscal Cliff tax hikes increased income taxes, and capital gains taxes, limited deductions for high income earners, and increased the death tax over ten years.
  • Proposed Tax Hikes: $320 billion over 10 years
    • The president’s staff leaked the tax section of tonight’s address. The president will call for higher capital gains taxes, a new tax on banks, and eliminating tax-free withdrawals from 529s, which allow families to save for college. The $320 billion in tax hikes would occur over the next ten years, though Congress is unlikely to pass the package.

Simon Lester

As I was reading my print copy of the Economist last week, an advertisement taken out by the African Export-Import Bank, in search of a new President and Chairperson of the Board of Directors, grabbed my attention.  No doubt the pay and perks are pretty good, but I wasn’t thinking of applying.  Rather, it made me wonder, just how many Ex-Im Banks are there in the world?  To get a sense of it, I checked out the official list compiled by the Organization for Economic Co-operation and Development (OECD) for agencies in OECD countries , as well as Wikipedia’s broader, global list

It’s quite a long list!  Which leads me to the following point.  These days, trade negotiations often seem to have veered away from their traditional focus, with a lot of time now spent on issues such as intellectual property protection and labor rights.  Subsidies were one of the original targets of trade talks, and it would be great to put them back in the mix.  How about negotiating an end to the proliferation of export subsidies by these kinds of institutions?

Chris Edwards

President Obama’s economic policies always seem to be a zero-sum proposition with winners and losers. Usually the losers are all Americans, who suffer from slower economic growth.

The president’s new tax proposals are a case in point. One damaging item is a proposal to raise the top federal capital gains tax rate from 24 percent to 28 percent. That would come on top of his previous increase from 15 percent.

Despite what the president and his political advisors may think, low capital gains tax rates are not some sort of unjustified loophole. We’ve had reduced rates virtually the entire time we have had an income tax, and for very good reasons. Low capital gains tax rates are crucially important for spurring entrepreneurship, investment, and growth.

Recognizing that, nearly every other high-income nation has a reduced capital gains tax rate. The average top long-term rate in the 34 Organization for Economic Cooperation and Development nations is just 18 percent, according to Tax Foundation. By contrast, the U.S. rate (including state taxes) would jump to 32 percent under the Obama plan—far higher than the rate in most other nations.

For more, see my op-ed in Daily Caller today.


Wonk note: Data is from Tax Foundation and my Cato study. Unlike TF, I did not include the effect of the limitation of itemized deductions, which slightly increases the effective rate. 

David Boaz

In a comprehensive article on the comprehensive 1984-like propaganda efforts of North Korea, Anna Fifield reports on some underlying themes:

Tatiana Gabroussenko, an expert on North Korean literature who teaches at Korea University in Seoul, said that by not allowing people to form their own opinions, North Korea infantilizes its citizens.

“North Korea molds children socially,” Gabroussenko said. Books for different generations have different styles but the same message and characters, sometimes involving South Korean “stooges” or American “beasts.”

“In the children’s version, a child will be fighting Americans by throwing pepper in their eyes and making them sneeze and cough,” Gabroussenko said. In the adult version, weapons, rather than condiments, are used.

“The message ‘We are one nation’ implies that you can’t rebel against your father, you can’t rebel about your government, that it’s important to stick together,” she said.

North Korea’s totalitarianism may be unique, exceeding even that in the Soviet Union and Cuba, though perhaps reminiscent of Maoist China. So one must be careful not to draw too many analogies between the Kim cult and the efforts of political leaders anywhere else.

Still, it’s worth noting that the themes of unity, “we are one nation,” and “it’s important to stick together” are employed by both democratic and non-democratic states. Incumbent presidents call for unity and decry divisiveness, in the United States and elsewhere. Recall how President Bush and his allies accused their opponents in 2001-8 of “erod[ing] our national unity,” of “divisive comments [that] have the effect of giving aid and comfort to our enemies by allowing them to exploit divisions in our country,” of “questioning the president’s leadership, …constantly throwing up hurdles to keep us from doing what we have to do to protect the American people.”

President Obama too declares that “we’re all in this together,” we must act “as one nation, and one people,” while charging that his critics “scare and mislead the American people” and “scare Americans with half-truths and outright lies.” His Department of Education produced lesson plans for American schools in which children would be asked such questions as

How will [President Obama] inspire us?

What is President Obama inspiring you to do?

Why is it important that we listen to the president and other elected officials?

Political leaders seek to present themselves as the embodiment of the nation, so that criticism of the official or his policies is divisive and unpatriotic. Combine that with language about “national unity,” “one nation,” “national purpose,” “national greatness,” and you have a recipe for the imperial presidency. You don’t often see the political opposition calling for unity around the national leaders (except in times of genuine threats to the nation’s existence or freedom); oppositions by definition want to change the nation’s leadership. 

The “all in this together” trope has been criticized many times in these pages, by Roger Pilon, Gene Healy, Ed Crane, and no doubt others. I took on the nationalistic collectivism of Obama and John McCain in 2008.

North Korea is unique. No democratic nation, and hardly any undemocratic nation, has such a comprehensive system of cult worship and brainwashing. But that doesn’t mean there aren’t collectivist themes that turn up in widely varying political systems.


Kat Murti

Tonight at 9 p.m. EST, President Obama will lay out his plans for the upcoming year in his sixth annual State of the Union (SOTU) address. What will the President’s words mean for liberty? 

Find out tonight: Cato scholars will be live-tweeting their reactions to what the president says—and what he leaves out. Following the President’s address, stay tuned for commentary on the Republican and Tea Party responses. Featured scholars will include everyone from David Boaz to Mark Calabria, Walter Olson to Alex Nowrasteh….and many, many more.

This is your chance to ask the experts what to expect from the policy world in 2015—and to add your two cents to the discussion. Follow @CatoInstitute on Twitter and join the conversation using #CatoSOTU

William Poole

Information received since the Federal Open Market Committee met in December confirms that economic activity is expanding at a moderate pace. Inflation has continued to run below the Committee’s longer-run objective, primarily reflecting declines in energy prices. The decline in energy prices appears to be principally a consequence of improving technology in oil and natural gas production and is, thus, a change in relative prices that has no long-term implications for the aggregate rate of inflation.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. To support continued progress toward these goals, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.

To minimize uncertainty over the course of policy, the Committee judges that the process of normalizing interest rates should begin in June. However, the exact timing is data dependent and might be adjusted as necessary.

The Committee also judges that it is now appropriate to begin the process of normalizing its open market portfolio. Effective immediately, the Federal Reserve will cease to reinvest interest on the portfolio and maturing principal.

This statement does away with statement bloat—the profusion of meaningless sentences and phrases that have made the FOMC statement increasingly long, obscure and difficult to interpret over the past few years. Every word in the statement ought to convey useful information to the markets.

A number of FOMC members have suggested that midyear will be the appropriate time to begin to raise policy rates. The FOMC itself has been vague. No member of the leadership team, which I would define as Janet Yellen, Chairman, Stanley Fischer, Vice Chairman, and William Dudley, President Federal Reserve Bank of New York, has ruled out the midyear timing. In general, it is not good practice to announce a future date for a policy change but such an approach makes sense now given that policy rates have been near zero since December 2008. Announcing a June date will not be a shock to the market; market commentary widely suggests that June is the time the FOMC will act.

By beginning the process of letting the portfolio run off, the FOMC will dispose of that issue. If the portfolio is left to a future decision, the matter will become entangled with signals about future interest-rate policy. Dealing with the problem of defining the appropriate course of policy rates and helping to set corresponding market expectations on that course will be difficult. The FOMC does not need to complicate interest-rate policy with implicit announcements—possibly intended, possibly not—flowing from decisions on the portfolio.

The FOMC is unlikely to face more benign circumstances for dealing with its policy challenges than it faces today. The U.S. economy is growing in a balanced fashion. Inflation is below target but will rise once oil prices stop falling. Bond rates are lower than they were a year ago. The FOMC should act in a preemptive fashion, leading the markets rather than being led by them.

FOMC patience on policy is indecision, not patience, on leadership. What is the Committee waiting for?

Jeffrey Miron

In tonight’s SOTU address, President Obama plans to push policies aimed at “helping middle-class Americans.”

Why is that a sensible goal for policy?  Where are goals like liberty or economic efficiency?

What about scaling back excessive regulation, simplifying our byzantine tax code, or slowing the growth of unsustainable entitlements?

What about the huge range of policies that might encourage economic growth?

The President’s proposals–increased taxes on the rich, more handouts for the middle class–are about redistributing the economic pie; and they will shrink rather than grow that pie by distorting economic incentives.

None of this is likely to matter, of course; the Republican Congress will presumably block most of the President’s proposals.

But it’s sad that a lame-duck president with nothing to lose will not endorse something valuable and historic, like legalizing drugs, vastly expanding legal immigration, or withdrawing all our troops from the Middle East.

Alas, the Republicans would presumably block these policies as well, since Republicans, like Democrats, worry more about pandering to their constituents than promoting freedom or economic growth.

But taking a stand for liberty is a first step; on this score the President’s approach fails miserably.



Patrick J. Michaels

Most people think pretty highly of Pope Francis, and I am one of them.  His concern for the poor is exemplary.  His tilt towards gay issues has been widely lauded.  But I am afraid he has been very poorly informed on climate change.

That would be of little consequence, except he is taking the issue very seriously.  Flying to the Philippines on Wednesday, he told reporters  that he will be releasing an encyclical on ecology this coming summer.  According to the AP,

He said he wanted it out in plenty of time to be read and absorbed before the next round of climate change negotiations in Paris in November after the last round in Lima, Peru, failed to reach an agreement.

While he’s definitely right about what happened in Lima, he also is clearly trying to influence the UN process. I guess that’s well and good, after all, the Vatican is a state.  But what is troubling, very troubling, is that poorly informed views on global warming can lead to a tremendously expensive agreement that will do nothing about the climate, while taking away needed resources and exacerbating poverty around the world.

Saturday, in the Philippines, he met with survivors from 2013’s Typhoon Haiyan (also known as Yolanda in the Islands), certainly one of the most powerful storms in recent history. Haiyan reportedly killed 6,000. On the aircraft, Francis said that human activity, meaning emissions of greenhouse gases, was involved. 

A Pope who wants to be as influential as Francis lends great credence to the belief that tropical cyclones (like Haiyan) are being made worse by global warming. These storms are as iconic as polar bears (whose populations are growing) when it comes to generating the political will for a new treaty in Paris. 

It is very easy to see whether global warming is strengthening tropical cyclones.  Dr. Ryan Maue, of Weatherbell Analytics, has examined every storm back to the beginning of global satellite coverage,  for their winds and their duration, which together yield the energy associated with them.  Here’s his result, updated through December 2014:


Figure 1. Accumulated Tropical Cyclone Energy, 1972-2014, by Dr. Ryan Maue.  There is simply no relationship between storm activity and global temperature.

The  only way major emissions reductions—of the kind ultimately envisioned by Pope Frances—can be accomplished is to make carbon dioxide-emitting energy so expensive that people will use less, much less.  There’s really no viable energy-dense alternative out there that doesn’t emit CO2. Nuclear fission, which would qualify, is anathema to the same people who want big emissions cuts. His policies will therefore keep the underdeveloped world poor, precisely what he wants to change.

Wealthy societies are much less affected by bad weather than poorer ones. Very strong typhoons regularly strike affluent Hong Kong, with few, if any fatalities.  By making energy unaffordable, the policies Francis wants will impede economic development, so that, decades from now, when a repeat of Haiyan barrels through the Islands, many more will die.

Ilya Shapiro

New York State is standing athwart medical progress yelling “STOP!” In a move straight from the pages of Atlas Shrugged, the state sued Forest Laboratories, the subsidiary of pharmaceutical giant Actavis that makes the Alzheimer’s drug Namenda IR, to force the company to continue making the drug, which was being phased out in favor of the new Namenda XR (which, among other improvements, need only be taken once a day rather than twice—a not insignificant plus when dealing with Alzheimer’s patients!).

Why would New York’s attorney general want to interfere with medical progress and the development of a better drug that would improve the lives of potentially millions of Americans? Perhaps to reduce state drug costs—maybe the state feels that the marginal benefit from switching to XR isn’t worth the marginal cost—or to provide a competitive advantage to the generic pharmaceutical industry (under New York law, when a patent expires—as IR’s will in a few months—the remaining prescriptions automatically switch to generics).

The state’s claim relies on some very dubious antitrust law and seeks to force Forest Labs to keep producing and offering IR under the same “terms and conditions” as before XR came out. Not only would this keep patients using an older, inferior drug, it would effectively compel Forest to support its competitors’ business strategy. The generics were already set to benefit from the hundreds of millions of R&D dollars Forest Labs spent developing IR, but now they get free advertising too.

Maybe the state doesn’t like the incentives created by the interplay of patent and antitrust law and FDA regulations—drug companies constantly develop and promote new drugs that monetize new patents—but no possible legal reason justifies the injunction that the state sought, which a federal district court recently granted! Even worse, the injunction is breathtakingly vague; in responding to Forest Labs’ motion for clarification, the judge acknowledged the vagueness but didn’t change his order, wishing the company “good luck”!

Setting aside the policy and ethical considerations underlying New York’s maneuver, the injunction order is a legal travesty. Cato has thus filed a brief supporting Forest Labs before the U.S. Court of Appeals for the Second Circuit. We argue that the order is impermissibly vague, that the doctrine of constitutional avoidance requires interpreting the order as not actually compelling Forest Labs to engage in speech that is protected by the First Amendment, and that to construe the order as actually imposing speech obligations would render the order unconstitutional.

The First Amendment does more than just limit the government’s power to prevent people from speaking, after all: it also prohibits the government from telling people—including companies—what they must say. That is especially the case when, as here, the speech being compelled goes against the speaker’s self-interest and sincerely held beliefs on how best to treat Alzheimer’s. If the district court below actually believes the injunction passes jurisprudential muster, well, “good luck.”

The Second Circuit will hear argument in New York v. Actavis later this month.

Cato legal associate Julio Colomba contributed to this blogpost.