Policy Institutes

The Truth about Military Spending

Cato Op-Eds - Wed, 06/25/2014 - 14:58

Christopher A. Preble

In April, the CBO projected – based on current law – that the Pentagon would spend roughly $606 billion dollars in 2015. The just-passed House defense budget spends $570.4 billion. Both figures assumed, among other things, that we we would spend about $79 billion for overseas contingency operations (OCO), which is mainly for the war in Afghanistan. We have since learned that the Obama administration’s actual OCO request is likely to be “substantially smaller” than $79 billion, so perhaps $560 or $565 billion in total Pentagon spending when combined with their earlier base budget request.

One glance at Cato’s latest infographic* will tell you that even the lowest of these figures is too high.

For a little perspective, CBO’s original estimate of $606 billion dollars is roughly $10 billion more – in inflation-adjusted dollars – than the Pentagon spent in 2005, when the United States was engaged in wars in Iraq and Afghanistan, and is close to the United States’ Cold War peak of $611 billion in 1985, when the Soviet Union was spending an estimated $590 billion. Today, however, the United States is out of Iraq and is winding down its war in Afghanistan, and its nearest competitors – Russia and China – combined spend less than half as much as the United States on their militaries. Yet, some on the right continue to believe that Pentagon cuts should be off limits, including House Budget Committee Chairman Paul Ryan (R-WI), who argues that the United States should be spending much more on its military.

Rep. Ryan’s budget proposal would have busted the current spending caps to a tune of nearly $50 billion a year for the next decade. This would have amounted to $500 billion more than is currently projected, and around $1.7 trillion more than was spent in the decade following the Cold War. Incredibly, Ryan called for more spending while admitting that “the Department of Defense has repeatedly revised downward its estimates of the budgetary resources necessary to meet the nation’s security objectives.” Think about that: The military says that it does not need additional funding to meets its objectives, yet Ryan insisted that it should receive more money anyway. Luckily, if the budget that recently passed the House is any indication, few of Ryan’s colleagues seem to agree. Indeed, it now seems almost certain that we will spend less than CBO projected, and far less than Ryan called for. 

Some could argue that the United States can ill afford to cut its military spending given the current state of the world. Such cuts would only serve to embolden our adversaries like China and Russia, and exacerbate the turmoil in the Middle East, North Africa, and southwest Asia.

But, if anything, many of the current security issues in the world have resulted from America being too involved militarily. The U.S.-led war in Iraq, for example, certainly contributed to the current chaos in the Middle East. The war also undermined American influence by revealing the limits of America’s military power. The operation in Libya destabilized a country in which the United States had no vital interest, and showed Iran and others what happens when you negotiate away your nuclear program. And arming Syrian rebels has prolonged a civil war in which ISIS gained the strength, experience, and gear needed to launch a successful offensive into Iraq. It turns out that having an unrivaled military only gets you so far.

Americans can and should spend less on the military, because the U.S. military can and should do less, even in the face of what is happening in the Middle East, Eastern Europe, and Asia. And others, especially our wealthy allies in Europe and Asia, can, and probably should, spend more, as illustrated by another Cato infographic.

Beyond the numbers, however, it is important to maintain perspective. Although one might not know it from the images on television every day, the world, as President Obama stated, is less violent than it has ever been. Moreover, the threats to America’s vital national security interests are modest and manageable, and prudent reductions in America’s military spending won’t change that. Indeed, curing our power problem should make us safer, because it would limit our ability to become embroiled in unnecessary wars.

 

 

* Thanks to Travis Evans for his help in assembling these statistics, and in supervising the production of the various figures. 

—————— 

Infographic sources (in order of figures listed, top to bottom):

Figures in 2015 inflation-adjusted dollars, unless otherwise noted.

2015-24 Paul Ryan = $6 trillion ($6.469 nominal): House Budget Committee, “The Path to Prosperity: Fiscal Year 2015 Budget Resolution,” Table S5, April 2014, p. 93.

2015-24 Current Law = $5.5 trillion ($5.987 nominal): House Budget Committee, “The Path to Prosperity: Fiscal Year 2015 Budget Resolution,” Table S5, April 2014, p. 93.

1992-01 = $4.3 trillion ($4.281): Department of Defense, “Fiscal Year 2015 Green Book,” Table 6-8 – Dept. of Defense BA by Public Law Title, April 2014, p. 133.

2005 = $596 billion ($596.3): Department of Defense, “Fiscal Year 2015 Green Book,” Table 6-8 – Dept. of Defense BA by Public Law Title, April 2014, p. 134.

2015 = $606 billion ($521 + $85): House Budget Committee, “The Path to Prosperity: Fiscal Year 2015 Budget Resolution,” Table S5, April, 2014, p. 93.

All above figures include OCO funding.

Cold War Average (1948-90) = $457 billion: Department of Defense, “Fiscal Year 2015 Green Book,” Table 6-8 – Dept. of Defense BA by Public Law Title, April 2014, pp. 129-132.

U.S. 1985 = $611 billion ($610.86): Department of Defense, “Fiscal Year 2015 Green Book,” Table 6-8 – Dept. of Defense BA by Public Law Title, April 2014, p. 132.

USSR 1985 = $590 billion: State Department, “World Military Expenditures and Arms Transfers: 1989,” Table I, Released October 1990, p. 65. Author’s inflationary calculations.

U.S. 2013 = $600 billion (2013 dollars): International Institute for Strategic Studies, The Military Balance 2014 (London: Routledge, 2014), p. 42.

China 2013 = $169 billion (2013 dollars): IHS Jane’s, Chinese Defense Budget, March 2014. Author’s inflationary calculations.

Russia 2013 = $68 billion ($68.2) (2013 dollars):  International Institute for Strategic Studies, The Military Balance 2014 (London: Routledge, 2014), p. 180.

Iran 2013 = $18 billion ($17.7) (2013 dollars):  International Institute for Strategic Studies, The Military Balance 2014 (London: Routledge, 2014), p. 318.

 

Categories: Policy Institutes

Poland’s Alliance with America: Worthless to Whom?

Cato Op-Eds - Wed, 06/25/2014 - 14:54

Doug Bandow

The outspoken Polish Foreign Minister, Radoslaw Sikorski, apparently believes his nation’s alliance with America is “worthless.”  Washington should not race to reassure him.  Instead, Warsaw should demonstrate why it is worthy of Washington’s support.

A weekly Polish publication received a recording of Sikorski’s conversation in which he declared:  “This Polish-American union is worthless.  It is even harmful because it gives Poland a false sense of security.  Complete [B.S.].  We get into conflicts with the Germans, with Russia, and we think everything’s great because the Americans like us.  Suckers.  Complete suckers.” 

There are suckers in the existing relationship, but they are American rather than Polish.

The United States spends more than four percent of its GDP on the military and accounts for three-fourths of total defense outlays by NATO members.  Poland has been patting itself on the back for recently hiking defense expenditures—to 1.8 percent of GDP.  Overall, America’s contribution to direct NATO expenditures is nearly ten times that of Poland.

The collapse of the Soviet Union exacerbated the discrepancy among alliance members.  While Washington preserved its globe-spanning military, the Europeans cut their armed forces significantly.

Worse, the alliance expanded willy-nilly to the Russian border, bringing in nations combining minimal military capabilities and serious potential disputes with Moscow.  None had ever mattered to American security, but Washington handed out security guarantees like hotels place chocolates on pillows:  everyone got one, including Poland.

American and European officials simply assumed that they would never have to make good on their promises.  Then came the crisis in Ukraine. 

The eastern-most members of the alliance started clamoring for reassurance.  No one was more insistent than the Poles.  Back before he thought the alliance was worthless, Sikorski stated:  “America, we hope, has ways of reassuring us that we haven’t even thought about.  There are major bases in Britain, in Spain, in Portugal, in Greece, in Italy.  Why not here?” 

As I point out in my latest article on National Interest online:  “The benefits to Poland of winning a defense commitment against Russia backed by a permanent garrison from the world’s superpower are obvious.  But what’s in it for America?  The relationship runs one-way.  Warsaw does not offer commensurate aid to the United States.”

As a substitute, Poland, like several other NATO members and member wannabes, participated in Washington’s foolish wars in Iraq and Afghanistan.  But even if the missions had been worthwhile, they didn’t compare to America promising to face down Poland’s potential nuclear-armed antagonist.  The United States could find itself facing catastrophic destruction if things went bad.

There is no security reason for the United States to risk war for Warsaw. Poland never was strategically important for Washington.  Even the Reagan administration did not consider military intervention in early 1982 when the Polish government cracked down on the Solidarity union after being threatened with a Soviet invasion.

Americans always felt sympathy for the plight of the Poles—for centuries stuck among avaricious empires.  Although unfortunate, even tragic, Poland’s situation is no casus belli for the United States.

Washington’s policy changed only when U.S. policymakers ceased thinking about NATO as a military alliance and began treating it as an international social club.  Thus Poland received a coveted Article 5 security guarantee.

The alliance is worthless only if the United States won’t back it.  Most administrations would see that as a threat to core commitments that could not be ignored.  Moscow would recognize that threatening Poland carried significant risks of confrontation with America.  That’s far from “worthless” for Poland.

Sikorski’s comments should be a wake-up call in America.  Washington has accumulated a host of welfare dependents in Europe and elsewhere.  Yet those whose teeth are most tightly clamped onto the U.S. teat show the least respect for America. 

The real sucker in this arrangement is Washington.  The United States should reconsider who it protects from whom, reserving “worthwhile” alliances for countries which offer something meaningful to America in return.

                                                                  

Categories: Policy Institutes

Riley and Wurie: Beyond "Get a Warrant"

Cato Op-Eds - Wed, 06/25/2014 - 14:45

Jim Harper

As Ilya noted earlier, the Supreme Court struck a blow for privacy and the Fourth Amendment today. It ruled that a warrant is generally required when law enforcement officers want to search a cell phone they have seized. Justice Roberts’ opinion for a unanimous court provides some crisp language:

Modern cell phones are not just another technological convenience. With all they contain and all they may reveal, they hold for many Americans “the privacies of life.” (citation omitted) The fact that technology now allows an individual to carry such information in his hand does not make the information any less worthy of the protection for which the Founders fought. Our answer to the question of what police must do before searching a cell phone seized incident to an arrest is accordingly simple—get a warrant.

In this case, we pretty well knew we were going to get a win. So let’s set aside the trumpets and talk about the margin of victory. Did we get improvements in Fourth Amendment doctrine that will bolster privacy protection in cases to come? Only a little.

OK, let’s trumpet the case a bit. This is a unanimous case with a bright-line rule. It’s about the best outcome you could hope for in Riley and Wurie themselves (argued separately, decided together), and it’s a great vindication of the constitutional status of cell phones and our data on them.

Chief Justice Roberts seems to have brought the Court together on this one (save a niggling Alito concurrence) to produce a strong opinion that doesn’t show gaps among the justices. (They may all have felt a need to huddle, avoiding an open fight or the tipping of hands on the NSA spying controversy, for example.)

And on the major privacy controversy of the day, the Court did not tip its hand. It distinguished Smith v. Maryland, the case the government uses to justify gathering records about every U.S. phone. Smith held that using a pen register to gather phone calling information was not a search. “There is no dispute here that the officers engaged in a search of Wurie’s cell phone,” Chief Justice Roberts wrote, punting for the Court in this case based on the consensus among parties.

The errant decision in Smith relied on the “reasonable expectation of privacy” test arising from the 1967 case, Katz v. United States. The very good news from this decision is that the Court once again declined to use the Katz test in resolving a Fourth Amendment issue, as our briefs invited the Court to do (or not to do, as it were). Instead, the Court implicitly found that there were searches in both cases and that those searches were of persons, houses, papers, or effects. Then it examined the reasonableness of searching cell phones.

That’s important because it means that the Court is interpreting the Fourth Amendment more like a law and not as the stack of doctrines that I’ve previously called a “jumble of puzzles.”

Did the Court go all the way our way? Certainly not. The Court didn’t do the simplest thing we invited, which was to state explicitly that a cell phone is an “effect” under the Fourth Amendment. (It’s essential to the holding that a cell phone is an item protected by the Fourth Amendment, but the Court should have said so to model behavior for lower courts.) The Court also did not distinguish cleanly between “search” and “seizure,” which is a distinction that courts will have to navigate if they are to get right the harder Fourth-Amendment-and-technology cases.

There are delightful hints of our briefs’ influence on the case, though. (And what is this kind of write-up but an exercise in searching for—if necessary, inventing—your role in the development of the law?)

As our Wurie brief invited, the Court re-interpreted the decision in United States v. Robinson (1973) in a subtle but important way. Robinson approved the search of a crumpled cigarette pack owned by a person subjected to a traffic-related arrest. The Court incautiously granted a general right to search arrestees, including things they held which could have no relevant or destructible evidence and which created no risk to arresting officers. Since then, the Court has had to curtail the “container” doctrine that Robinson spawned.

Our brief commended the more granular analysis of searches and seizures that Justice Marshall had argued for in his Robinson dissent. Chief Justice Roberts was more granular with Robinson in this case, calling the examination of the cigarrette pack a “reasonable protective measure.” The idea of a general right to search arrestees, arising from Robinson, is further curtailed. There must be a constitutionally valid reason for going into an arrestee’s things.

The delightful (if contrived) ego-booster in the case, though, is the opinion’s reference to what use law enforcement may make of keys they acquire from an arrestee. In our Wurie brief, we emphasized that government agents had taken Wurie’s keys and used them to unlock the door of a home where they suspected he stayed. Inside the home at the time were a woman and her baby, who were not suspects in the case. While illustrating how keys applied to locks can be investigatory tools like cell phones when their electronics are activated, we also illustrated the gross extent to which the warrantless investigation of Wurie went—unlocking the door of a home behind which innocent Americans rested.

Using a cell phone to access cloud data, the Court wrote, “would be like finding a key in a suspect’s pocket and arguing that it allowed law enforcement to unlock and search a house.”

Whether Chief Justice Roberts or another justice picked up on our argument, we cannot know, but the decision used the key example to illustrate how possession of a tool or device does not allow any use of it law enforcement may wish to make.

There will need to be more cases that articulate details unexplored by the Court today, but the decision in Riley and Wurie are a solid vindication of the requirement that law enforcement wishing to examine the contents of cell phones must “get a warrant”—nice quote.

Categories: Policy Institutes

NIDA Director Has Misguided Views on Marijuana Legalization

Cato Op-Eds - Wed, 06/25/2014 - 13:06

Jeffrey Miron

Today’s Washington Post contains a Ruth Marcus interview of Nora Volkow, head of the National Institute on Drug Abuse.

Volkow opposes marijuana legalization; she believies it will generate a large increase in use, which will (allegedly) harm users and society.

No one knows how much use might increase under legalization; existing evidence suggests a modest change, but since few countries have fully repealed their drug (or alcohol) prohibitions, we do not have decisive evidence.

The fact Volkow ignores, however, is that if use increases substantially, this means many people perceive a significant benefit from increasing their use or from initiating use; that is a positive of legalization, not a negative!

Marijuana use can, of course, generate unwanted side effects, but Volkow exaggerates these enormously. And other goods, like alcohol, also generate negative spillovers; yet we keep them legal (in part) because they generate substantial benefits.

Volkow further ignores the fact that prohibition generates its own negatives, such as violence, corruption, poor quality control, civil liberties infringements, medical restrictions, enforcement costs, and foregone tax revenue (which forces other tax rates to be higher).

So even if legalization means far greater use, and even if this generates undesirable consequences, the sum of benefits for current and prospective users, combined with elimination of prohibition’s costs, makes legalization the right choice.

Categories: Policy Institutes

Unanimous Supreme Court Correctly Stops Police from Searching Peoples’ Entire Lives Willy-Nilly

Cato Op-Eds - Wed, 06/25/2014 - 11:54

Ilya Shapiro

In its ruling today in Riley v. California, the Supreme Court unanimously established a clear new rule for police-citizen interaction: The police can’t, without a warrant, search the digital information on cell phones they seize from people they arrest. This is a big deal because it means that being arrested for, say, not paying a speeding ticket, will no longer open you up to having your entire life examined by law enforcement. Unlike the satchels and billfolds of yore, people now carry essentially all their private documents with them at all times: address books, financial and medical records, photo albums, diaries, correspondence, and more. To allow police to review all of that information just because they happen to have arrested someone would violate the Fourth Amendment’s protection of personal papers and effects against unreasonable searches and seizures.

If the police have independent probable cause to access someone’s digital information, they can get a warrant. If they don’t, making an arrest shouldn’t give them license to go on a fishing expedition.

What’s really surprising about this ruling is that it’s both broad and unanimous. Sweeping rulings on high-profile subjects tend to split the Court, whether ideologically or, in criminal procedure cases like this one, between formalists and pragmatists. Unanimous rulings, meanwhile, tend to be cautious, splitting the baby in a way that doesn’t significantly change the law. Yet here we have a loud and unified “bright-line rule” that sets a major standard for the digital age. Kudos to the Court—and raspberries to the federal government, which has now had its expansive arguments rejected unanimously 11 times since January 2012.

Categories: Policy Institutes

Are Driverless Cars Fool-Proof? Not Quite

Cato Op-Eds - Wed, 06/25/2014 - 10:49

David Boaz

Randal O’Toole discussed the idea of safe, efficient, driverless cars in his book Gridlock: Why We’re Stuck in Traffic and What to Do about It and in this full-page Wall Street Journal essay in 2010. It wasn’t exactly a new idea – Norman Bel Geddes first imagined the idea 75 years ago at the New York World’s Fair of 1939 – but O’Toole was on the cutting edge of bringing it to more popular attention. And as he noted, one of the important benefits of driverless, or “self-driving,” cars is safety. As a driving-test site, citing British studies, says: “By far the biggest cause of road accidents is driver/rider error or reaction, which causes 68% of all crashes.” The loss of control, the reliance on mysterious computers, scares many of us. But there’s good evidence that computers can guide both airplanes and automobiles more reliably than human operators.

But maybe not all human operators.

Meredith Shiner of Yahoo! News reports:

Scientists from Carnegie Mellon University on Tuesday brought a prototype of a driverless car to Washington in an attempt to show Congress that it could embrace a future devoid of man-made errors. 

And then Congress broke that car.

It was not immediately clear whether the mere proximity to the Capitol created the series of events that led to an emergency switch being flipped, causing the car to shut down, or if an actual member of Congress did it….

In true Washington fashion, no one would take immediate responsibility for the developing car situation.

Okay, not entirely fool-proof. But getting there.

Update: NBC News reports: “D.C. Delegate Eleanor Holmes Norton hit the kill switch on the car before she was supposed to take a ride, and they couldn’t get it running again.”

Categories: Policy Institutes

Are Beef Prices at An All-Time High?

Cato Op-Eds - Wed, 06/25/2014 - 09:56

Marian L. Tupy

The press is reporting record prices for beef. According to a June 18 story in the New York Post,

“It’s a barbecue-season bummer! Meat, poultry and fish prices have spiked an average of 8 percent since last year — soaring to an all-time high, national data show. The cost of ground beef has gone up 11 percent… ‘Everything is going through the roof,’ said Jim Hopkins, 52, a supervisor at Associated Supermarket in the West Village, who has worked in the grocery business for 30 years. ‘I’ve never seen increases like this — where they jump as much as this.’”

 

 

Yet the World Bank data shows remarkable stability in the inflation-adjusted price of ground beef over the last half century. That is all the more remarkable considering that:

  1. There were 3 billion people in the world in 1960. Today there are 7 billion of us.
  2. In 1960, the average income per person was $3,000 (in inflation adjusted 2000 dollars). Today it is $7,500.
  3. More people earning more money = higher demand for meat, especially beef.
  4. Yet, beef prices are, roughly where they were in 1960.

So, cheer up and don’t let those pessimists spoil your barbecue-season.

Categories: Policy Institutes

When Does Defense Aid Work?

Cato Op-Eds - Tue, 06/24/2014 - 16:53

Jennifer Keister

The debate over an appropriate American response to Iraq’s resurgent violence and the threat of radical rebels has highlighted the challenges and risks of even limited U.S. assistance.

As I argue in a post at The National Interest, Iraq is emblematic of a larger challenge in U.S. foreign policy. President Obama’s West Point address last month emphasized the role of “partner nations” who may leverage US assistance to counter security threats within their own borders and regions. But the president’s speech and subsequent debate about it have largely failed to provide criteria for selecting these partners.

Both the threats (insurgency, instability, radical rebels) and the possible solutions (military advisers and training, direct intervention, pushing for better governance) have cropped up in discussion of numerous other events: Boko Haram’s kidnappings in Nigeria, Al-Shabaab’s siege of Westgate Mall in Kenya, unrest in northern Mali, continuing instability in Libya, and so on.

All of these policy suggestions constitute calls for foreign internal defense (FID) assistance. FID, or “Helping others defend themselves,” sounds like an attractive option while facing a fiscal and domestic political reality that limits prospects for direct intervention. However, the Iraq debate highlights a crucial question: how do we tell the difference between states we can “partner” into effective and self-sufficient stability, versus those that risk pulling the US into local quagmires or exacerbating security problems?

Policymakers, media, and the American public are asking these questions about Iraq, in part because we have a lot of information about Iraq’s internal dynamics. But we should ask these questions about other potential partners too.

Join us to discuss the challenges and opportunities of Foreign Internal Defense aid next month at our Cato Policy Forum on the topic. Register here.

Categories: Policy Institutes

23andMe Closer to FDA Approval

Cato Op-Eds - Tue, 06/24/2014 - 15:42

Matthew Feeney

 23andMe, the Google-backed personal genomics company ordered by the Food and Drug Administration to stop marketing its health-related services in November last year, is closer to a reconciliation with the government agency. The FDA did not object to the ancestry information 23andMe provides, but rather the information on inherited risks it released to customers.

Before halting the release of health information 23andMe had provided its customers with information on their ancestry and health. 23andMe gathered genetic information from customers by having them send saliva in a $99 kit.

What had the FDA concerned was the possibility that a false result from a 23andMe test could lead to customers undergoing drastic procedures such as “prophylactic surgery, chemoprevention, intensive screening, or other morbidity-inducing actions.” Reason magazine’s Ron Bailey pointed out such a fear is misplaced because not only is the biochip used by 23andMe and researchers around the word very accurate, anyone who received worrying health news from a 23andMe test would almost certainly consult a doctor and/or get a more comprehensive screening done before undergoing any surgery or procedure.

Last week 23andMe’s Chief Legal and Regulatory Officer, Kathy Hibbs, wrote on the company’s blog that the FDA had “accepted for review 23andMe’s submission for a new 510 (k) application,” which Reuters describes as “a regulatory process that applies to most medical devices sold in the United States.” The FDA considers the 23andMe saliva collection kit a device.

Although 23andMe’s submission focuses on one condition — Bloom Syndrome — Hibbs wrote the following:

Once cleared, it will help 23andMe, and the FDA, establish the parameters for future submissions. More importantly, for our customers, it marks a baseline on the accuracy and validity of the information we report back to them. The submission includes robust validation data covering major components of our product such as the genotyping chip, software and saliva kit.

While it is good news that 23andMe seems to be on its way to being in good standing with federal regulators, Stephanie M. Lee of SFGate.com notes that 23andMe could potentially face months of questions and data requests before being granted FDA approval.

 

Categories: Policy Institutes

Senseless in Seattle: The Minimum-Wage Follies

Cato Op-Eds - Tue, 06/24/2014 - 14:56

Roger Pilon







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Meet the Marxist behind Seattle’s wage hike,” read the headline of the lead item at CNN Money late this morning. It seems that one Kshama Sawant, an immigrant from India who earned a Ph.D. in economics from North Carolina State University before taking a teaching position at Seattle Central Community College, is credited by the local press with being the political force behind the city council’s recent vote to raise the minimum wage there to $15 an hour, phased in for large businesses by 2017 and all businesses by 2021.

A self-described Marxist, Ms. Sawant went from Occupy Wall Street to occupying Seattle City Council, the story says, adding that she was “radicalized politically by the gaping inequality she observed upon arriving in the world’s richest country.” Thus, she ran for city council last year “under the banner of Socialist Alternative, an organization that calls for ‘international struggle’ against global capitalism.”

Say this for Ms. Sawant: Whatever she learned about economics in the course of getting her degree, at least she’s not hiding her views. But what can we say about the Seattle City Council, which passed her proposal unanimously? Perhaps there’s something in the coffee out there. Or perhaps they really believe, as Ms. Sawant does, that this measure will “transfer $3 billion from businesses to low-wage workers over the next decade.”

Well it turns out that you don’t need a Ph.D. in economics to understand that economies are not static. That elementary insight from Econ 101 was captured, in fact, in an earlier lead item at CNN Money, “Seattle $15 wage plan is unfair to me.” Quoting several small business owners on what’s in store for them—and their employees—here we find Subway franchise owner Matthew Hollek lamenting that, although he has only eight employees, he’ll have to start paying them 60 percent more by 2017—while the sandwich shop next door will be immune from the law for another four years. The reason? The law counts him as a large employer because he’s part of a national chain. It looks like these “gaping inequalities” are more difficult to close than Ms. Sawant seems to have realized.

Indeed, not only are economies dynamic and is Seattle not an island, but if the benefits of a minimum wage were as good as its advocates believe, then why stop at $15? Why not $20, or $30, or more? You never hear an answer to that because there is none. For a sampling from Cato of a more serious approach to the subject, see here, here, and here.



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Categories: Policy Institutes

Resources for a Potential Ruling Today in Halbig v. Sebelius

Cato Op-Eds - Tue, 06/24/2014 - 10:11

Michael F. Cannon

The D.C. Circuit is due to rule any day now, quite possibly today, on Halbig v. Sebelius. For those who haven’t been watching the vigil I keep over at DarwinsFool.comNewsweek calls Halbigthe case that could topple ObamaCare.”

First a little background. The Patient Protection and Affordable Care Act offers refundable “premium-assistance tax credits” to qualified taxpayers who purchase health insurance “through an Exchange established by the State.” The PPACA contains no language authorizing tax credits through the 34 Exchanges established by the federal government in states that declined to establish one themselves, nor does it authorize the Internal Revenue Service to treat those federally established Exchanges as if they had been “established by the State.” Offering benefits only in compliant states was proposed by numerous Republicans and Democrats in 2009, for obvious reasons: Congress cannot force states to implement federal programs, but it can create incentives for states to act, such as by offering health-insurance subsidies to residents of compliant states.

Halbig is one of four cases challenging the IRS’s decision to rewrite the statute and offer tax credits in the 34 states with federal Exchanges. The plaintiffs are individuals and employers who are injured by the IRS’s overreach because, due to the PPACA’s many inter-locking pieces, issuing those illegal tax credits subjects them to illegal penalties.

Since a ruling may come today (or some Tuesday or Friday hence, as is the D.C. Circuit’s habit), here are some materials for those who want to hit the ground running.

Update: The D.C. Circuit has handed down rulings for today, and Halbig is not among them. Click here to check on the court’s most recent rulings.

Categories: Policy Institutes

IRS IT: $2.4 Billion But Not World-Class

Cato Op-Eds - Tue, 06/24/2014 - 10:05

Chris Edwards

Perhaps the most suspicious thing about the disappearance of Lois Lerner’s emails is that the IRS is not a small business operation that cannot afford high-quality computer, email, and backup systems. It is a huge modern bureaucracy that has computer technology at the core of its operations. The IRS IT budget in 2014 is a massive $2.4 billion (page 149 here).

Here is what the administration’s most recent IRS budget says (page 150) about its IT strategy:

IT is a key enabler for efficient and effective tax administration … To ensure the public trust, the IRS also is making significant investments to secure infrastructure, data, and applications. With continued investment in new technologies and the modernization of existing IT systems, the IRS is improving service to taxpayers, achieving productivity gains, and distinguishing itself as a model of tax administration around the world. The IRS also has established world-class practices and tools to manage and implement its portfolio of IT investments more efficiently.

There is no doubt that the IRS has distinguished itself recently, but not as a model of world-class practices.

Obamacare FYI: Page 147 shows that IRS IT costs for the ACA will be $345 million in 2014. Page 32 shows that IRS IT costs for the ACA over 2010-2018 will be $1.9 billion.

Categories: Policy Institutes

Obama Administration Should Keep U.S. Out Of Iraq’s Revived Killfest

Cato Op-Eds - Mon, 06/23/2014 - 16:55

Doug Bandow

The uber-hawks and neocons who led America into the disastrous invasion of Iraq are campaigning for a repeat.  If only the U.S. will go to war along the Euphrates a second time, they promise, everything will turn out well.

As I point out on Forbes online:  “Americans should ignore these Sirens of Death.  Attempting to forcibly transform Iraq never was Washington’s responsibility.  Having botched the job once, U.S. policymakers should not try again.” 

There was much to despise about Saddam Hussein’s Iraq, but he helped constrain Iran and enforced an ugly stability at home, suppressing sectarian violence and al-Qaeda.  As many analysts, including yours truly, warned, his forced departure would be welcome in principle but bloody in practice. 

Prime Minister Nouri al-Maliki ruled with a harsh hand, favored his Shia supporters, and rejected a permanent U.S. military garrison.  Nor would an American presence have saved Iraq from internal collapse. 

U.S. troops could not have forced positive political change.  Employing U.S. troops against Baghdad’s opponents, such as the Islamic State of Iraq and al-Sham (ISIS), would have been far worse. 

Washington nevertheless helped arm the Iraqi military, but a secret program begun last year to aid Baghdad against Sunni militants foundered.  The Maliki government simply failed to maintain an effective force.  As a result, Iraqi military units melted away in the face of ISIS attacks.

Yet the situation is not nearly as threatening for Washington as for Baghdad.  So far ISIS has acted as an insurgency in both Syria and Iraq, not a terrorist group targeting America.  In fact, the organization’s break with al-Qaeda reflected the latter’s focus on the “far enemy,” that is, the U.S. 

In contrast, ISIS is seeking to establish a real state and may not want to risk its practical gains in a war against the U.S.  Obviously this could change, but Washington should not encourage retaliation against Americans by needlessly striking the group.

Moreover, Iraq will not fall under ISIS control.  The radicals lack the resources necessary to conquer Iraq or even take Baghdad.  Moreover, by making the conflict into a religious war ISIS has galvanized Iraq’s Shia majority.  A bitter and potentially long struggle between essentially lawless paramilitaries impends.

Into this violent and unpredictable imbroglio President Obama is sending “up to 300” Special Forces.  Even worse, he maintains the possibility of “targeted, precise military action,” presumably meaning air and drone strikes. 

However, Baghdad’s military lacks leadership and commitment while the Iraqi state lacks credibility and will.  These Washington cannot provide, especially with the Iraqi people having so little faith in their government.

The administration now is not so subtly attempting to oust Maliki from power.  But Maliki has pointedly rejected demands for his scalp, even as a condition of aid.  Many Shiites have rallied around Maliki and Iran continues to back him.  Many possible successors are untested or even less credible than Maliki. 

Military action is even more problematic.  Airpower offers no simple solution. 

Air strikes have limited effectiveness in urban warfare and cannot liberate captured cities.  To minimize “collateral damage” airpower best relies on ground support for targeting, something that could not be left to sectarian Iraqi forces. 

Unfortunately, another war on Muslims would make even more enemies of America.  Indeed, targeting Sunni areas would kill people, including noncombatants, who once allied with Washington against al-Qaeda.  De facto partition, perhaps with autonomous Shia, Sunni, and Kurdish zones within a highly federalized state, might offer the best possibility of peaceful coexistence. 

The Middle East appears to be a tragedy permanently set on repeat.  That is a reason for America to stay out, not jump in. 

After blowing up the country, the U.S. obviously did not leave behind “a sovereign, stable and self-reliant Iraq,” as President Obama claimed in 2011.  America cannot put Humpty Dumpty back together again.  Washington should learn a little humility and leave the clean-up to others.

Categories: Policy Institutes

Should Taxi Medallion Owners Be Compensated?

Cato Op-Eds - Mon, 06/23/2014 - 15:59

Peter Van Doren

The Sunday Washington Post published a very interesting long article on the effects of Uber and other similar ride-sharing services on the value of the medallions required for operation of conventional taxis in Chicago and other cities.

The medallions have value because the supply of rights to operate taxis, restricted by city regulation, is low relative to demand. The Post article presents data on the number of taxis per 100,000 residents. Washington D. C. licenses cabs, but does not restrict the number of cabs operating through a medallion requirement, and has almost 900 taxis per 100,000 residents. In contrast, Chicago and New York, which have medallion restrictions, only have approximately 230 to 250 taxis per 100,000 residents.[1] The supply restrictions in Chicago and New York lead to excess profits, which reveal themselves in the bids for medallions in the secondary market. The present value of the profits from owning the “rights to cruise for passengers” relative to the profits of other investments is the market value of the medallions, which until recently ranged from $500,000 to a million dollars depending on the city and the severity of the medallion restrictions.

Uber, which supplies luxury town-car service, and especially UberX, which supplies service similar to cabs, in effect, have increased the supply of taxis to eliminate some, if not all, of the difference between the number of vehicles per capita in Washington D.C. and those cities with medallion supply restrictions. This increased supply reduces the market value of the medallions. The article asks whether reductions in the value of the medallions are a “taking” by the government that deserves compensation like any normal taking of “property” by government action.

I (along with Richard Sansing, a Professor at Dartmouth Business School) wrote an article in the Journal of Policy Analysis and Management (volume 13, issue 3, Summer 1994 pp. 565- 570) that analyzed the question of whether governments should compensate those citizens who lose wealth because public policies change. (Here is a version published in Regulation in Winter 1997)

We analyzed data on lease versus purchase of tax medallions in New York City. If there were no risk, the purchase price of a medallion would reflect the present value of leasing in perpetuity. Unlike other assets the medallion’s only value is the entry restrictions created by government. At the time we conducted our analysis the present value of leasing in perpetuity at 5 percent interest was $240,000 whereas the sale price of medallions was only $100,000. That is the purchase price of a medallion at that time amortized the cash flows over a period of 20 years as if they would go to zero in year 21. Unlike other investments the only reason that cash flows might go to zero was the possibility of deregulation or reduction in enforcement of the entry restrictions. If policy change created any reduction in cash flows in years one through 19 investors made less than normal profits. Investors made “excess” profits if any reduction in cash flow occurred after year 20. Thus the medallion market was like a fairly priced lottery ticket that took into account the possibility of deregulation, even though at the time we did this calculation no change in taxi regulation had ever taken place since it was instituted in the late 1930s. We concluded that no compensation was required to preserve equity or fairness because the price for medallions reflected the risk investors faced from policy change.

We then analyzed the efficiency consequences of a no-compensation regime. The lack of compensation for policy change increases the riskiness (variance) of returns on assets even though it does not change the average return. Investors handle risk by diversification: owning assets whose returns do not all increase or decrease at the same time. As long as the risk of policy change in taxi medallions does not occur at the same time as the risk to assets in all other markets, the risk of taxi medallion policy change can be managed through asset diversification. Thus in the case of taxi medallion deregulation due to changes such as the advent of Uber and Lyft, compensation is not required for efficiency either.

[1] Chicago has 6904 medallions according to the Post article and 2,718,782 population in 2013 for 254 cabs per 100k people. NYC has 13,605 medallions http://en.wikipedia.org/wiki/Taxicabs_of_New_York_City  In December 2011, Governor Cuomo signed law allowing 18,000 new outer borough medallions. 6, 000 of the outer borough medallions have been issued. Thus New York City has 19,605 medallions and 8,405,837 people in 2013 according to the census, which equals 233 cabs per 100k people.

Categories: Policy Institutes

Several States Expand Educational Choice

Cato Op-Eds - Mon, 06/23/2014 - 15:26

Jason Bedrick

On Friday, Gov. Rick Scott signed legislation that expands eligibility for the Florida’s longstanding scholarship tax credit (STC) program and creates a new education savings account for students with special needs. Earlier this year, Oklahoma expanded its STC program and Arizona expanded both its STC and education savings account programs. Kansas Gov. Sam Brownback signed legislation creating a new STC program, though unfortunately it is limited only to low-income students assigned to government schools that are designated as “failing” by the state’s board of education. Students in “non-failing” schools that are nevertheless failing to meet their needs are not eligible to receive scholarships.

The changes to Florida’s scholarship program were mostly positive. Florida eliminated the requirement that students first spend a year at a government school before being eligible to receive a scholarship. Also, starting in 2016-17, the income eligibility cap for first-time recipients will increase to include middle-income families (from 185 percent of the federal poverty line to 260 percent), with priority given to lower-income students. Students from middle-income families will receive smaller scholarships. Students in foster homes will be eligible regardless of their foster family’s income.

Unfortunately, the law adds new rules regulating the operation of scholarship organizations. Florida already has the most regulated scholarship program in the nation, which explains why the state has only one scholarship organization while other states have dozens or even (in the case of Pennsylvania) hundreds.

Back in March, the bill’s prospects seemed dim. The Florida Speaker of the House and Senate President battled over whether to mandate that private schools administer the state test (i.e. – Common Core) as a condition of receiving scholarship students. As a result, the bill’s sponsor withdrew the legislation. That poison pill would have severely restricted school autonomy and parental choice. Fortunately, the resurrected bill that the governor signed into law did not mandate state tests. Participating schools must still administer nationally norm-referenced tests.

Florida’s new education savings account for students with special needs is based on Arizona’s highly popular program, but with a twist: nonprofit scholarship organizations will administer the program rather than the state, though the accounts will still use public funds.

Parents will be able to use the funds to pay for a variety of educational services, including private school tuition, tutoring, online education, curriculum, therapy, post-secondary educational institutions in Florida, and other defined educational services. … The maximum amount for the Personal Learning Scholarship Account shall be equivalent to 90 percent of the state and local funds reflected in the state funding formula that would have gone to the student had he or she attended public school.  

Students qualify if they reside in Florida and are eligible to enroll in kindergarten through 12th grade who have an Individualized Education Plan or have been diagnosed with one of the following: autism, Down syndrome, Intellectual disability, Prader-Willi syndrome, Spina-bifida, Williams syndrome, and kindergartners who are considered high-risk. 

Unfortunately, New York legislators ended the session without passing an educational choice bill, despite majority support in both chambers of the legislature and a promise by Gov. Andrew Cuomo to Timothy Cardinal Dolan that he would support STC legislation. Given the legislative support, the New York Post faulted Gov. Cuomo for the failure to pass the legislation:

The human tragedy, of course, is who will pay the price for Cuomo’s alliance with the Working Families Party & Co.: i.e., the children of actual working families, who have no avenues of escape from rotten public schools where they aren’t learning.

Categories: Policy Institutes

Refusal to Set Military Priorities Creates Strategic Bankruptcy

Cato Op-Eds - Mon, 06/23/2014 - 15:24

Doug Bandow

The U.S. government is financially bankrupt and can ill afford to police the world.  Unfortunately, U.S. policymakers refuse to reconsider even the most antiquated security promise.  The result is strategic bankruptcy as well.

In the aftermath of World War II the U.S. effectively took over the defense of much of Asia and Europe, fought or supported combatants in several Third World proxy wars, engaged in nation-building, and otherwise routinely intervened around the globe.

Despite a changed world, the U.S. continues to defend now wealthy Asian and European client states.  American military personnel continue to die fighting in Third World conflicts, only in different nations.  Washington continues to attempt to micromanage the globe.

On the day President Barack Obama announced America’s return to Iraq’s conflict, Air Force Lt. Gen. Jan-Marc Jouas said Air-Sea Battle was the Pentagon’s new war-fighting doctrine in the Korean peninsula.  Is there anywhere America is prepared to say does not warrant military intervention?

For a time President Barack Obama followed his predecessors in acting as if there were no limits to U.S. capabilities.  However, the so-called “pivot” to Asia suggested that the administration finally realized some choices had to be made.  Yet Washington’s commitment of more resources and attention to Asia appeared to have little effect on American policy elsewhere in the world. 

Administration officials continued to treat a U.S.-dominated NATO as essential.  The war in Afghanistan went on.  Last year the president proposed to launch air strikes against Syria, backing away only after failing to win congressional approval.  

More dramatically, Russia’s absorption of Crimea prompted manifold administration efforts to “reassure” the Europeans, including shifting ground, air, and naval units to the region.  Washington even appeared open to proposals for adding permanent U.S. garrisons to NATO’s eastern-most members. 

Now the president is sending limited ground forces to Iraq, with the added possibility of air and drone strikes.  He may find it hard to limit U.S. involvement in a complex and evolving conflict. 

Yet military officials are discussing their war doctrines for Korea.

U.S. foreign and military policy has a mad quality to it, suggesting that involvement everywhere should be forever.  If President Obama is unwilling to keep America out of any conflict in any part of the world, he should at least set priorities within regions. 

In the Middle East, for instance, the president should halt incremental escalation in Syria.  The battle is tragic, but no one knows what would emerge if Bashar al-Assad is ousted.  Almost certainly fighting would continue, reprisals would be made, and radical forces, such as ISIS, would be empowered. 

In Europe Ukraine remains far from the continent’s population and economic centers which the U.S. spent decades defending.  Kiev’s situation is unfortunate, even tragic, but the country matters not strategically to America.  There should be no thought of military involvement by the U.S or NATO. 

In Asia there is no more dramatic disparity than on the Korean peninsula, where the South has a GDP and population respectively forty times and twice those of the North.  The Republic of Korea could deploy a military capable of deterring North Korea.  Instead of concentrating on defense, in the past Seoul has shipped cash, food, and other goods north in an attempt to buy goodwill—even as the Democratic People’s Republic of Korea was building nuclear weapons. 

As I point out in my latest article on National Interest online:  “These should be just the start.  In a world of diminishing resources—Washington faces a debt tsunami in the years ahead, with more than $200 trillion in accumulated unfunded liabilities—the U.S. no longer can be expected to solve every international problem, especially through military means.  American policymakers should begin to make tough choices.  Now.”

Categories: Policy Institutes

Why Piketty Was Mistaken for Endorsing the Zucman & Saez Slide Show

Cato Op-Eds - Mon, 06/23/2014 - 15:10

Alan Reynolds

I will have more to say about this fairly soon, but this might serve as a preview.

Thomas Piketty is now advising innocent readers of his book to (1) not demand a refund or dump the book used on Amazon, and (2) ignore his own flawed estimates of top 1% U.S. wealth shares and instead utilize a PowerPoint by Gabriel Zucman and Emmanuel Saez.  Zucman and Saez use capital income reported on individual tax returns (dividends, interest, rent and capital gains) to infer ownership of capital assets, and not just greater realization of gains or portfolio shifts from tax-exempt bonds to dividend-paying stock.

That might be semi-plausible if businesses and professionals were not free to report income on either corporate or individual tax forms, and if tax rates never changed. But this methodology can’t possibly work after the huge tax rate reductions of 1986 (for partnerships & SubS corps), 1997 (capital gains) and 2003 (dividends and capital gains).  The reason it can’t work was fairly well explained by Piketty, Saez and Stantcheva in the original unsanitized version of a paper they published this February (which I have cited beforebut also critiqued):

There is a clear negative overall correlation between the [reported] top 1% income share and the top marginal tax rate: …  [T]he top 1% income share has increased significantly since 1980 after the top tax rate  has been greatly lowered… . [T]he top 1% income share more than doubled from around 8% in the late 1970s to around 18% in last five years, while the net-of-tax (retention) rate increased from 30% (when the top marginal tax rate was 70%) to 65% (when the top tax rate is 35%).”

Categories: Policy Institutes

How Far Can Congress Delegate Its Legislative Authority?

Cato Op-Eds - Mon, 06/23/2014 - 14:10

Roger Pilon

The Supreme Court this morning announced that in its next term it will hear oral argument in a case called Department of Transportation v. Association of American Railroads, which asks whether Congress, when it passed the Passenger Rail Investment and Improvement Act of 2008, unconstitutionally delegated its legislative power to a private entity—in this case, Amtrak. The non-delegation doctrine, grounded in the separation of powers, arises from the very first word of the Constitution, after the Preamble: “All legislative Powers herein granted shall be vested in a Congress of the United States ….” (emphasis added). Taken at face value, that clear a statement would seem to preclude much of the “lawmaking” that goes on every day in the 300 and more executive branch agencies to which Congress over the years has delegated vast regulatory authority. Unfortunately, the Court long ago held otherwise, unleashing the modern executive state, indulged no more assiduously that by President Obama with his resort to “pen and phone” as he wills his agencies to action, the will of Congress often notwithstanding.

This case, however, challenges the next step in undermining the constitutional doctrine: again, whether Congress can delegate its lawmaking authority to a private entity. In time, one hopes, the case may sow the seeds for the Court’s revisiting the main form of legislative delegation, if only by putting the issue in play. That was at least implicit in the opinion below from the D.C. Circuit, written by the irrepressible Judge Janice Rogers Brown and joined by Senior Judges Stephen Williams and David Sentelle, each of whom has been a presence at Cato. In fact, it was only three weeks ago that Judge Williams was here, commenting on Professor Philip Hamburger’s new book entitled, appropriately, Is Administrative Law Unlawful?—the broad question at issue here.

As with so many administrative law cases, DOT v. AAR involves a complex tangle of agencies and authorities that the reader will be taxed to untangle. But Judge Brown put the principle of the matter plainly: “While often phrased in terms of an affirmative prohibition [as with rights], Congress’s inability to delegate government power to private entities is really just a function of its constitutional authority not extending that far in the first place. In other words, rather than proscribing what Congress cannot do, the doctrine defines the limits on what Congress can do.” This is one to watch.

Categories: Policy Institutes

How Political Repression Breeds Islamic Radicalism

Cato Op-Eds - Mon, 06/23/2014 - 13:52

Dalibor Rohac

Following the decision upholding numerous death penalties for Muslim Brotherhood members accused of a 2013 attack on a police station, Egypt has recently seen the conclusion of another sham trial, resulting in harsh sentences for three al-Jazeera journalists, accused of aiding terrorists.

While it is obvious that trials like these move Egypt further away from freedom, could they also be inadvertently helping Islamic radicals? My new development bulletin argues that political repression of the kind we are seeing in Egypt creates incentives for Islamists to use violence in order to attain their goals.

Iraq, where ISIS is making continual progress fighting the government of Nouri al-Maliki, is an extreme example of where things can end when political elites exclude a significant part of the population from democratic politics. Al-Maliki’s premiership has been marked by a strengthening of his own hold to power, progressively alienating the country’s Sunni population.

My paper argues that the electoral successes of Islamists in Arab Spring countries have relatively little to do with religion but rather with the organizational characteristics of Islamic political groups, which were typically active in the provision of local public goods and social services. Instead of seeing the rise of Islamic political organizations as a pathology that needs to be countered – possibly through repressive means – we should note that,

[I]n transitional environments, the electoral success of Islamists is a natural result of the political environment, which can be mitigated only by an increase in the credibility of alternative political groups. The electoral advantage enjoyed by Islamic parties can be expected to dissipate over time as competing political groups establish channels of communication, promise verification for their voters, and build reputation over time.

Furthermore,

There is no denying that religion and politics do not always mix well. However, the appropriate answer to the ugly side of religious politics is not political repression of the kind we are seeing in Egypt but rather open, competitive democratic politics.

Categories: Policy Institutes

SCOTUS: Maybe We Broke Securities Law, But Don't Ask Us To Fix It

Cato Op-Eds - Mon, 06/23/2014 - 13:23

Walter Olson

Today the Supreme Court missed an opportunity to undo one of its worst corporate-law mistakes of modern times, its 1988 decision in Basic, Inc., v. Levinson that lawyers can file class-action suits on behalf of investors without proving class members’ actual reliance on allegedly fraudulent statements, by presuming the price of the stock was affected. (Colleague Andrew Grossman covered the oral argument in Halliburton v. Erica P. John Fund, Inc. in this space in March.)

In the narrower sense, the Court did unanimously grant relief to defendant Halliburton by recognizing its right to offer proof at an earlier stage that its claimed misstatement had not affected the price of its stock. That’s welcome, and shows that the Court recognizes – maybe even unanimously recognizes – that the current class-action mechanism operates unfairly to pressure defendants to settle at the certification stage, and needs procedural overhaul aimed at fixing that. 

Unfortunately, a six-member majority led by Chief Justice Roberts invoked the doctrine of stare decisis to reaffirm its general holding in Basic, reasoning that it will not inquire whether earlier precedents are wrong, just whether they are so extra-super-wrong as to stand out from the usual run of wrong precedent.  Chief Justice Roberts’s majority opinion makes much of the idea that securities law is statutory and that Congress could therefore alter matters if it chose.

But Justice Thomas, writing in concurrence for himself and Justices Scalia and Alito, has the better logic when he points out that Basic v. Levinson never emerged from an engagement with statutory text at all – it was a product of the Court’s now-discredited “implied private rights of action” period, in which Justices for a while took it upon themselves to invent new civil causes of action from whole cloth. And as with the so-called Pottery Barn rule in government (you break it, you own it) the Court might want to consider taking responsibility for undoing messes that are entirely of its own making.  

Categories: Policy Institutes

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