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Mark A. Calabria

The growth of the U.S. subprime mortgage market was made possible only by the willingness of investors to fund that market.  The largest single investors in the market for private label subprime securities appears to have been Fannie Mae and Freddie Mac, whose market share reached almost 40% of private label subprime mortgage-backed securties (MBS) in 2004.  A less recognized driver was investment demand coming from the European Union.  Perhaps the role of EU has been less appreciated due to data limitations, which will soon become apparent.

What we do know is that as of June 30, 2008, just before the crisis hit, almost $460 billion in non-agency residential mortgage-backed securities (RMBS) was held outside the US (see table 24 here). This represented almost a fourth of total US-issued RMBS at that time.  Of course not all non-agency MBS is subprime.  For instance a significant share are jumbo prime mortgages.  Estimates suggest subprime were a little more than half of outstanding non-agency MBS.  This breakdown does not appear to be available for EU holdings, which were almost half of non-US holdings.  More than $30 billion was held by German institutions.

One reason Germany merits special discussion is that some research has been done on who exactly these institutions were.  Germany is also interesting because of the diversity of its financial system and the special role of state-owned banks.  Almost half of banking in Germany is conducted by the public sector.  The most prominent of this being the Landesbanken, which are owned by the German regional governments.  One study found losses from US subprime MBS to be “on average three times as large for state-owned banks compared to privately owned banks.” Overall about two-thirds of losses in Germany on US subprime MBS were from holdings by state owned banks.

What I find to be of particular interest is that the political nature of state-owned banks appears as a statisically significant driver of these losses.  The same study found that German state-owned banks had board of directors that were primarily politicians with little experience in finance and that drove losses.  Another study has found similar impacts of politics on banking lending in Germany.  Even the IMF warned before the crisis of dangers lurking in state-owned German banks.

This German experience offers a number of lessons for financial reform.  First, my friends who advocate for an expansion of “public banks” in the U.S. should give a close look to the dismal experience of such in the EU.  Second, it appears that a significant portion, perhaps more than half, of the ultimate global investor demand for US subprime MBS came from not from the private sector but from state-controlled institutions.  While these entities clearly lack sufficient market discipline, there is growing evidence that their very political nature leaves them open to greater losses with signicant harm to the larger economy. If we truly desire financial stability and economic growth, then a greater role for the private market in finance is badly needed.         

Michael F. Cannon

As an irony junkie, this New York Times article on the outrage among Harvard’s faculty that they should face greater cost-sharing in their health benefits – and the incredulity of Harvard’s health economists at their colleagues’ reactions – is one of the most wonderful things I have read in the course of my career. And it reminded me of another Ivy League health economist: Princeton health economist Uwe Reinhardt.

It has long been one of Reinhardt’s hobby horses that “the American public’s idea of ‘common sense’ in health care” is fundamentally irrational:

To be responsive, then, to the “simple common sense” of the American people, any proposed health reform must not reduce the revenue of hospitals, lest some neighborhood hospital may have to close; or of doctors, lest some doctors might refuse to see patients; or of the manufacturers of health products, lest they are unable to innovate; or of anyone on the supply side of the health sector, lest they go out of business and have to lay off employees.

At the same time, the “simple common sense” of the American people dictates that any health reform that fails to bend down the growth curve of future health spending — the current jargon for controlling health spending better — is unacceptable, too.

At the time Reinhardt penned this particular expression of his exasperation (July 2009), I noted that the irrationality he decries is a direct result of policies he and other left-leaning health reformers have enacted into law:

The [explanation] is actually pretty simple: government has given us a health sector where everyone is spending someone else’s money.  In such an economy, individuals can make irrational demands (cut spending — but don’t reduce my access to care!) because they don’t bear the cost of their irrationality.

Emphasis added. People who pay for their own consumption don’t have the luxury of being able to pretend that tradeoffs don’t exist. Walk into a BMW dealership and announce, “I want a 7-series at Hyundai prices!”, and the dealer will laugh at you. When Medicare enrollees do the same thing – Keep Your Government Hands Off My Medicare! – the people who run Medicare praise and court them.

The seeds of such irrationality can also be seen in the case of Harvard University or any other employer-sponsored health plan, where the federal government imposes stiff tax penalties on anyone who does not (1) surrender $5,000 or $11,000 of their income to their employer and (2) let their employer use that money to select their health plan. Since this goverment policy means that workers don’t control that portion of their compensation, and don’t perceive the direct and negative relationship that employer-provided health insurance has on their wages (partly because they can’t get that money back by declining health benefits), workers end up demanding mutually incompatible things: comprehensive health-insurance coverage that doesn’t cost them anything. If that seems irrational, it is because, as I put it in that 2009 blog post, “Socialized Medicine Socializes the Cost of Irrationality, Too.”

Now that the Smartest People In The Universe – the faculty at Harvard University, naturally – are displaying the same behavior as the supposedly irrational American public, would Reinhardt still describe that behavior as irrational? Or is it Reinhardt and like-minded health economists who are irrational for expecting the lab mice to behave some other way? 

Christopher A. Preble

A new year offers a fresh start, an opportunity to reminisce about the year past, and to set goals for the future.

2014 was a busy year. Vladimir Putin hosted the world at Sochi, then reacted to a popular revolt in Ukraine by supporting a counter-revolution and annexing Crimea. Other civil wars raged in Libya and Syria, while Egypt’s military quashed any remaining semblance of democracy that had survived from the 2011 protests. The not-destroyed insurgency returned to Iraq with gusto, fueled by American weapons left behind by an Iraqi army unwilling to fight. And the United States continued its habit of conducting numerous tactical operations abroad without any overarching strategy.

The news wasn’t all bad: Germany and the world celebrated the 25th anniversary of the fall of the Berlin Wall; President Obama proposed normalizing relations with Cuba; and NATO operations in Afghanistan have (kind of) ended.

The lessons from these episodes suggest some useful resolutions for U.S. policymakers:

Avoid using the U.S. military to fix other nations’ politics

You would think that policymakers would know this by now. After all, our track record over the last dozen years is objectively terrible: Iraq is a mess, Libya is a mess, Syria is a mess, and Afghanistan is still, despite many years of effort, a mess. It says a lot that the advocates of U.S. nation building efforts have to go back over six decades, to the successful rebuilding of Germany and Japan, and the Marshall Plan in Europe, to make their case. Though these countries were deeply scarred by war, they retained institutions, and social and political norms, that allowed them to recover, some quite quickly. In other words, they weren’t failed states at all. Building healthy states out of weak or failed ones, it turns out, is actually really hard – and rarely worth the effort given that ungoverned spaces aren’t as ungoverned as they might seem.

President Obama seemed to understand this. He came into office in 2009 generally opposed to using U.S. military personnel for armed nation-building. Unfortunately, he is now ignoring those instincts, largely because of public reaction to the atrocities committed by ISIS in Iraq and Syria. ISIS’s barbarism, however, does not invalidate the lessons learned from 13+ years of post-9/11 wars. While the U.S. military retains the ability to assist those on the ground who are fighting back against ISIS and other extremist groups (e.g. al Shabaab in Somalia; Boko Haram in Nigeria), the men and women of the U.S. armed forces should not be sent into harms way when U.S. vital national security are not at stake.

Stop rooting for the collapse of the Russian economy

Western sanctions (along with falling oil prices) are having an effect on Russia. November saw the Russian economy contract for the first time since 2009, a trend that is expected to continue. And the ruble’s collapse appears to be accelerating. Those rooting for a full-scale economic catastrophe, however, should be careful what they wish for. An unstable political situation in Russia—a country with still thousands of nuclear weapons—is not in America’s (or anyone else’s) interests. 

The goal of the sanctions should be a negotiated settlement to the Ukrainian crisis that favors western interests. Economic pressure raised the costs of Russia’s revanchism in Ukraine and might deter Putin from trying to foment trouble elsewhere along Russia’s border. But while we can take some pleasure in Putin’s discomfort, the United States still needs Russia’s cooperation on a host of important issues, including Iran’s nuclear program and the Syrian civil war.

Put terrorism in context

In their 2014 Cato report, “Responsible Counterterrorism Policy,” John Mueller and Mark Stewart show that the odds of being killed in a terrorist attack in the United States are 1 in 4 million. Compare that to other fatality rates, like driving in a car (approximately 1 in 8,200) or drowning in a bathtub (1 in 950,000) and you start to realize that while terrorism may be frightening, it’s not a large threat. And yet, the United States spends about $100 billion per year seeking to deter, disrupt, or otherwise protect against, terrorism at home. Too much money chasing after too little threat is sure to be spent unwisely.

So, this year, let’s put the danger posed to Americans by terrorists in context, and demand accountability for taxpayer funds spent to fight it. Terrorism is a threat, but not a large one, and certainly not one that justifies all of the current policies enacted under the overly broad counterterrorism rubric.

Related, stop hyping threats in general

The world is a dangerous place, but it is not more dangerous than it has ever been, and most measurements of the quality of life and general human progress are trending up, not down.

You may be forgiven for thinking that we live in a uniquely dangerous world, but appearances can be deceiving. As Harvard’s Steven Pinker points out, “If you base your beliefs about the state of the world on what you read in the news, your beliefs will be incorrect.” After all, we are beset with daily stories of violence, but one’s chances of suffering a violent or premature death are very low, and still declining. And our prosperity and broader well-being are protected by a dynamic and resilient international economy, and by the spread of powerful ideas that have reduced poverty and disease.

A better understanding of what actually threatens us will help tame our tendency to overreact. An honest assessment of the threat environment—problems that lurk today and on the horizon—will allow us to redirect some of the money that currently goes to the national security state back to the taxpayers and private entrepreneurs.

Reform military spending

The 2011 bipartisan Budget Control Act (BCA) imposed caps on discretionary spending, and these caps have worked, to a degree: government spending has remained essentially flat since 2009, and spending as a share of GDP, according to figures compiled by Cato’s Dan Mitchell, experienced the biggest five-year drop since the end of World War II. Though some would lift the caps on the Pentagon’s budget going forward, the United States can maintain the finest military in the world without breaking the bank. The Congressional Budget Office projects that Pentagon spending under the BCA caps will average about $526 per year through 2021 (.pdf, Table 1-4, p. 13), and this figure omits funding for nuclear weapons spending in the Department of Energy; as well as the Departments of Homeland Security and Veterans Affairs, and overseas contingency operations (OCO). When one factors in those additional monies, total spending for national security in 2015 is likely to exceed $800 billion.

But while that much money can buy a lot, it can’t buy everything. Even the richest country in the world must make choices. So far, that hasn’t happened. The cost to implement the Pentagon’s 2014 Quadrennial Defense Review, according to Secretary of Defense Chuck Hagel, is $115 billion above sequestration levels in 2016 alone. The National Defense Panel, tasked with scrutinizing the QDR, calls for even more spending, presuming that the strategic requirements cannot or should not be constrained by fiscal or political reality.

Instead, the spending caps should be maintained, and the U.S. military’s global posture should be adjusted accordingly. Restraint was a wise policy, even when the United States was flush with cash. It is imperative now, when the costs of maintaining global primacy are rising, and the American people’s will to sustain them are declining.

Policymakers should also seek to end the slush fund known as OCO funding. Funding for overseas military operations should be included in the DoD’s base discretionary budget. That was how it was done for most of the nation’s history, and it’s time to return to pre-9/11, pre-Afghanistan, pre-Iraq spending practices. 

Alex Nowrasteh

Shortly before Christmas the Department of Homeland Security (DHS) released a report detailing deportations (henceforth “removals”) conducted by Immigration and Customs Enforcement (ICE) during fiscal year 2014.  Below I present the data on removals in historical context – combined with information from the Migration Policy Institute and Pew.  See my previous writing on this topic here and here.       

ICE deported 102,224 unauthorized immigrants from the interior of the United States in 2014, down from a peak of 188,422 in 2011.  Removals from the interior are distinct from removals of recent border crossers.  Removals from the interior peaked during the Obama administration and have since fallen to a level equal to that of 2007. 

Source: MPI and DHS.

The number of interior removals under the last six years of the Bush administration (the first two years is unavailable so far) was about 475,000.  From 2009-2014, the Obama administration has removed about 950,000 from the interior of the United States.  

President Bush’s administration removed an average of about 276,000 unauthorized immigrants per year for the years available and an average of 79,000 of them annually were interior removals.  President Obama’s administration has removed an average of 405,000 unauthorized immigrants a year, an average of 158,000 of them annually were interior removals.  There were a large numbers of unknowns during the Bush administration that decreased as the years progressed. 

 

Source: MPI and DHS.

The Obama administration’s decrease in the number of interior removals is not the whole story.  The best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population removed in each year.  Based on estimates of the total size of the unauthorized immigrant population, 0.89 percent of that population was removed from the interior of the United States in 2014 – down from 1.15 percent in 2013. 

 

Source: MPI, Department of Homeland Security, Pew, Author’s Calculations. 

For every year for which data was available, the Bush administration removed an average of 0.7 percent of the interior unauthorized immigrant population.  President Obama’s administration has removed an average of 1.39 percent of the interior unauthorized immigrant population every year of his presidency – about twice the rate as under the Bush administration.  Even when focusing on interior removals, President Obama is still out-deporting President Bush based on the data available.

The unauthorized immigrant population increased under the Bush administration from 9.4 million in 2001 to a peak of 12.2 million in 2007 and then declined to 11.7 million in 2008.  During Obama’s administration, the number of unauthorized immigrants has, so far, stayed at or below 11.5 million.    

Obama’s interior removal statistics show a downward trend beginning in 2012 through to 2014.  The Obama administration has also focused immigration enforcement on criminal offenders (not all unlawful immigrants are criminals) but the data is a little difficult to disentangle for 2014 so I left it out of this blog post – stay tuned for a future one on that topic. 

The Obama administration has clearly not gutted interior immigration enforcement as their 2014 figures for interior removals are higher than they were for every year of the Bush administration except for 2007 and 2008.  

Jason Bedrick

State legislatures across the nation are considering an innovative new education reform: education savings accounts. Hailed as “School Choice 2.0,” ESAs empower parents to customize their child’s education beyond the school walls—a development that could substantially alter the way students are educated. There is “no reason to expect that the future market will have the shape or form that our present market has,” observed Nobel laureate economist Milton Friedman in a 2003 interview, “How do we know how education will develop? Why is it sensible for a child to get all his or her schooling in one brick building?”

Two states have already enacted ESA laws. In Arizona, parents of eligible students that opt out of their assigned district school can access 90% of what the state of Arizona would have spent on those students. The Arizona Department of Education deposits the funds directly into a privately managed bank account that parents can access through a restricted-use debit card. The parents can then spend the ESA funds on any qualifying education-related service or provider they choose. In the first year, eligibility was restricted to students with special needs. Since then, Arizona has expanded eligibility to include children in foster care, children of military personnel, and children assigned to low-performing district schools. Last year, Florida adopted a special-needs ESA law similar to Arizona’s except that it is privately managed.

Today, National Affairs published an essay I coauthored with Lindsey Burke of the Heritage Foundation. Our essay explores the administrative, regulatory, and constitutional issues that policymakers will have to address when designing an ESA law. Policymakers should consider crafting a privately managed and privately funded ESA law that offers tax credits in return for donations to scholarship organizations that manage the ESAs. Florida’s privately managed model is already proving to be more operationally efficient and effective than Arizona’s government-run model. A privately managed ESA would be less susceptible to capture by hostile parties than a government agency, more likely to generate and retain best practices, and more likely to have the ability and incentives to be responsive to the needs of families. Privately funded ESAs also have several advantages over government-funded ESA laws. In particular, they are more likely to pass constitutional muster in states with restrictive “Blaine amendments” and less likely to include burdensome regulations that undermine the effectiveness of the program.

We conclude:

Most school choice programs offer significant but not revolutionary changes to the traditional educational model. But true educational choice, and the educational market it could help foster, promise to radically improve education for many children. As Milton Friedman observed, “not all ‘schooling’ is ‘education’ and not all ‘education’ is ‘schooling.’” Charter schools and voucher programs still conflate the two, but education savings accounts embody a more expansive understanding of education.

ESAs offer several key advantages over traditional school choice programs. Because families can spend ESA funds at multiple providers and can save unspent funds for later, ESAs incentivize families to economize and maximize the value of each dollar spent in a manner similar to spending their own money. ESAs also create incentives for education providers to unbundle services and products to better meet students’ individual learning needs. […] These laws hold great potential to expand educational opportunity and remake the entire education system in ways that better and more efficiently meet the needs of children.

Patrick J. Michaels and Paul C. "Chip" Knappenberger

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary.

In his article “Hot Stuff, Cold Logic” from the January/February 2015 issue of The American Interest, University of Sussex professor of economics Richard Tol takes us through the logical fallacies used to support arguments for aggressive regulation of greenhouse gas emissions from fossil fuel use in the name of mitigating climate change. These range from “if there is a human impact, it must be regulated,” to “future catastrophe awaits.” Tol effectively debunks these claims with historical examples.

Here is a taste:

Just as there is no logical or scientific basis for thinking that climate change is new, there is no self-evident reason to assume that the climate of the past is “better” than the climate of the future. With just as little logic, we might assume that women’s rights, health care, or education were necessarily better in the past. Any such judgment also contradicts Hume’s Law and, perhaps worse, is grounded in a fallacious appeal to nature understood in a very slanted wy. There is no prima facie reason to assume that any given past climate was better than the prospective one. The climate of the 21st century may well be unprecedented in the history of human civilization; the number of people living in countries with free and fair elections is unprecedented, too. So what? “Unprecedented” is not a synonym for “bad.”

Scientist/political scientist Roger Pielke Jr. recently announced that Tol’s article topped his list of the Top 5 Climate Essays of 2014. If Tol’s name seems familiar, recall that back in 2013 he made headlines by withdrawing from the United Nation’s Intergovernmental Panel on Climate Change (IPCC), deriding their irrational negativity. Tol frequently points out (and does so in this essay), that the costs incurred by moderate climate change are equivalent to (or perhaps even less than) the costs associated with trying to mitigate it—a point of view that the IPCC and many others do not want to admit.

While we may not agree with everything in Tol’s most recent analysis, there is a lot of good stuff in the article and you ought to have a look to see why he believes that “politically correct climate change orthodoxy has completely destroyed our ability to think rationally about the environment.”

Along the same lines—that overly simplistic logic leads to incorrect conclusions—is a piece by Georgetown University’s Arik Levinson for the National Bureau of Economic Research. In his study “How Much Energy Do Building Energy Codes Really Save? Evidence from California,” Levinson describes the results of his look into the effect of efficiency standards on residential energy usage.

His findings may be surprising to some. 

Levinson starts by citing the experts:

New building codes will reduce the energy “used in typical buildings by at least 80 percent.”

          - California Energy Commission, 1979. 

 

“New houses in California now use one-fourth of the energy they used 25 years ago.”

          - Tom Friedman in the NY Times, April 13, 2014

He ends with his (quite different) conclusions:

[T]here is very little evidence that homes constructed since California instituted its building energy codes are using less electricity today.

The reason the predictions are overly enthusiastic is that real-world human behavior is much more complex than rather simplistic model assumptions of “everything else being equal.”

Lenison explains the difficulties involved:

It seems like a straightforward empirical question: How much energy has been saved by state and local regulations that require newly constructed homes to meet energy-efficiency building standards? When the codes were first enacted, regulators projected enormous savings—like the 80 percent reductions promised for California’s nation-leading late-1970s building codes. Today, advocates of tightening those standards claim that those initial promises have been realized.

But answering that question requires knowing how much energy would have been used in the absence of the building codes, a far more difficult calculation than is sometimes suggested. We cannot just take engineers’ ex ante estimates of how much less energy a given building will use, because that ignores the ex post response by the building’s occupants. We cannot simply compare energy use by residents of efficient and inefficient buildings because that ignores the selection by people into those buildings in the first place. We cannot easily compare jurisdictions with more and less strict energy-efficient building codes because those jurisdictions presumably chose to enact the codes based on the energy-using characteristics of their residents. These problems—the selection of occupants into efficient homes, the behavioral response to having an efficient home, and the endogeneity of the policies—represent some most difficult problems in empirical microeconomics.

Levison’s article is a good example of how naïve—but logical sounding—expectations not only can be grossly wrong, but worse are used to drive policy goals.

Levison warns:

We should be concerned that a large fraction of our national climate strategy rests on the types of policies that have not delivered on past promises.

Not only is this true of the climate strategy, but also for the justifications for climate policies in the first place.

Marian L. Tupy

Cancer, we are told, lurks everywhere: popcorn, non-organic fruit, canned tomatoes, processed meats, farmed salmon, potato chips, foods (salted, pickled, and smoked),  GMOs (of course), candy, artificial sweeteners, diet soda, alcohol, red meat; even white flour can kill you.  

Enough already!

In fact, a recent study by researchers from the Johns Hopkins University School of Medicine in Baltimore contends that most occurrences of cancers are simply a result of bad luck. To wit, “Plain old bad luck plays a major role in determining who gets cancer and who does not, according to researchers who found that two-thirds of cancer incidence of various types can be blamed on random mutations and not heredity or risky habits like smoking.”

So, why do we obsess about what we eat and drink? Why do we see death lurking in every sip of coffee and every piece of bacon (the latter surely being the best proof yet that God truly loves us)?

Well, maybe it is due to evolution. For most of our existence on this blue dot hurtling through the universe, skepticism was perfectly warranted. Sometimes a delicious-looking berry was just a berry, and sometimes it made your stomach explode (I exaggerate, but only a little).

(As a side note, in some places skepticism about food and drink continues to be appropriate. Those who spend sleepless nights worrying about big, faceless corporations infusing us with poison may find it illuminating that in Zimbabwe it is generally safer to drink a can of Diet Coke than a glass of tap water.)  

Interestingly, obsession about the purity of food and drink seems to be much more prevalent among one (and, according to the MSNBC, the most highly evolved) sub-group of our species. I am, of course, talking about Homo Progressivensis.

As described by the Guardian,the magnificently evolved Gwyneth Paltrow, to give one example, wrote that she was moved to write a cookbook because “she nearly died after eating too many french fries…and so went to a doctor, submitted herself to more medical tests than a sufferer of Munchausen’s syndrome and came up with the diagnosis that her body was in crisis. A doctor duly decreed that she is allergic to pretty much everything, including peppers, corn and aubergine, and should eat next to nothing. Except quinoa. And maybe some pomegranate on special occasions.”

To explain this peculiar behavior of our social betters, we must consult Jonathan Haidt, the NYU Professor and former speechwriter for John Kerry. As the good professor writes in his ground-breaking book The Righteous Mind: Why Good People are Divided by Politics and Religion, progressives tend to moralize food. They obsess about food in much the same way that conservatives obsess about sex. Eating, like copulating, is a potential source of impurity. As such, the search for that locally sourced and organically grown tomato serves the same purpose as a pilgrimage to Lourdes or Mecca. It is a quasi-religious form of purification.

The fact is, as we discussed in a recent policy forum, just about everything–including our collective health–is getting better.

From now on, I am staring my day with butter-fried bacon and a strong cup of coffee.

Daniel J. Ikenson

Though a monument to the ravages of Soviet central planning, the barren Magnitogorsk steel works complex still inspires America’s industrial policy proponents.  “Failure to plan is a plan for failure,” said comrade Rep. Dan Lipinski (D-IL), as he described the “pro-manufacturing” legislation he helped slip into the mammoth Cromnibus bill, which became law this month.

The Revitalize American Manufacturing and Innovation Act directs the Secretary of Commerce to establish a “Network for Manufacturing Innovation” to:

  • improve the competitiveness of U.S. manufacturing and increase production of goods manufactured predominately within the United States;
  • stimulate U.S. leadership in advanced manufacturing research, innovation, and technology;
  • accelerate the development of an advanced manufacturing workforce; and
  • create and preserve jobs

Of course, the verbs “revitalize,” “improve,” “stimulate,” “accelerate,” “create,” and “preserve” are euphemisms for protect, subsidize, regulate, and intervene.

From Lipinsky’s perspective:

This is a big victory for a sector of our economy that over the years has provided so many high quality jobs in my district, in our region, and across the nation, but has taken many hits over the past couple of decades, especially during the recent recession. While manufacturing is by-and-large a private, market endeavor, few can disagree that government policy impacts manufacturing in countless ways.

Yes, government policy has affected manufacturing in countless–usually adverse–ways. Excessive regulations enabled by irresponsible agency cost-benefit analyses, a burdensome tax system, endemic exposure to frivolous lawsuits, exorbitant health care costs, inefficient union work rules, tariffs on industrial inputs, absurd restrictions on immigration, subsidization of chosen firms, and other forms of corporate favoritism are all drags on manufacturing (and other economic sectors, too). U.S. manufacturing would benefit from less Washington, not more.

The Revitalize Act is a solution in search of a problem – and a bad solution at that. American manufacturing does not need revitalizing. Despite Washington’s many meddling interventions, and despite the persistence of the myth of U.S. industrial decline, U.S. manufacturing is thriving–and always has been. Year after year, with the exceptions of during cyclical recession, new records are set with respect to most relevant industry health metrics.  The most recent official data reveal all-time highs for manufacturing sector output, value-added, revenues, exports, profits, and foreign direct investment–all in real terms and all achieved, largely, in the absence of top-down planning.

Moreover, for a country whose consumers spend twice as much on services than on goods, and where 90 percent of the workforce is employed outside the manufacturing sector, official obsession over the future of manufacturing is more than a bit overplayed. Many with this obsession dwell on the past, evoking the good old days of 1979, when the sector employed almost 20 million workers, or 1953, when manufacturing accounted for a record 28 percent of U.S. GDP.  But today’s manufacturing worker produces an average of $170,000 of value-added per year, as compared to $28,000 in 1979–a more than quadrupling of output in real terms. And, although manufacturing’s share of the economy has declined to about 12 percent today, the absolute value of U.S. manufacturing output, in real terms, has increased more than six-fold since 1953.  The facts that the sector supports far fewer jobs today and accounts for a smaller share of the U.S. economy say absolutely nothing about the state of the manufacturing.

What matters is whether there is continued growth in value-added, revenues, foreign direct investment, research and development expenditures, capital expenditures, and productivity. By each of those measures, U.S. manufacturing is robust.  When it comes to the question of the condition of U.S. manufacturing, which is likely to be a more credible barometer: legislators who benefit from the perception of fixing “manufactured” problems or investors revealing their preferences through their own actions? As of 2013, nearly $1 trillion of foreign direct investment was parked in U.S. manufacturing, by far the number-one manufacturing investment destination in the world. That’s a rather strong endorsement of the state of U.S. manufacturing.

How on earth would U.S. manufacturers–the world’s most advantaged with their unparalleled access to idea incubators, research universities, R&D laboratories, and broad and deep capital markets to commercialize the ideas that make it through a rigorous vetting process–benefit from the Commerce Department’s participation in mapping out the future?  Sure, some firms in some manufacturing industries–those that succeed in convincing the government that they are worthy of public support (i.e., those that commit more resources to political, rather than economic, activities)–may benefit.  But others, which rely upon and adapt to the verdicts of consumers in a market environment, will be disadvantaged.

Industrial policy is anathema to the market.  It short-circuits a selective, evolutionary process that has undergirded the world’s most successful innovation machine and reduces chances of worthy ideas, firms, and industries leading the next commercial wave. Did the last generation’s policymakers anticipate the arrival of Steve Jobs, Bill Gates, or Mark Zuckerberg and the revolutionary products and services they delivered? Did Washington bureaucrats foresee the advent of specific life-extending medicines and devices, like swallowable, pill-sized cameras? Had those proposing industrial policy in response to a rising Japan in the 1980s and early 1990s prevailed, much of the technology and medical advances taken for granted today would have never come to fruition. American manufacturing and the broader U.S. economy have been successful by shunning, more than embracing, industrial policy.

With its pre-eminence in innovation and entrepreneurship still intact, the United States is situated at the top of the global value chain. Staying there will require Americans to remain skeptical of top-down industrial policy. It could propel the United States above Kazakhstan as the world’s greatest producer of potassium, but at unthinkable costs.

David Boaz

The media are full of headlines about war, sexual assault, inequality, obesity, cancer risk, environmental destruction, economic crisis, and other disasters. It’s enough to make people think that the world of their children and grandchildren will be worse than today’s world.

But the real story, which rarely makes headlines, is that, to paraphrase Indur Goklany’s book title, we are living longer, healthier, more comfortable lives on a cleaner and more peaceful planet. (Allister Heath summed up his argument in a cover story for the Spectator of London, without all the charts and tables.) Fortunately, beyond the headlines, more people do seem to be recognizing this.

The Cato Institute, for instance, has created an ever-expanding website on human progress, known simply as HumanProgress.org.

Here’s Steven Pinker expanding on the information in his book The Better Angels of Our Nature: Why Violence Has Declined in Slate:

The world is not falling apart. The kinds of violence to which most people are vulnerable—homicide, rape, battering, child abuse—have been in steady decline in most of the world. Autocracy is giving way to democracy. Wars between states—by far the most destructive of all conflicts—are all but obsolete. 

He has charts of the data in each of those areas. And here’s Pinker at the Cato Institute discussing why people are so pessimistic when the real trends are so good:

Fraser Nelson, editor of the Spectator, writes that

2014 has been the best year ever – just as 2013 was, and just as 2015 will be. It is something that is, now, true every year but the point cannot be made enough. We’re living through a period of amazing progress – in medicine, prosperity, health and even conquering violence.

Nelson offers this brilliant graphic from the Lancet, a British medical journal:

And just today we learn in a new report from the American Cancer Society that cancer rates have fallen 22 percent in two decades. At Spiked Online, editor Brendan O’Neill points out “10 Kickass Things Humanity Did in 2014.”

Andres Martinez at Zocalo Public Square:

The “good old days” are a figment of our imagination. Life–here, there, everywhere–has never been better than it is today. Our lives have certainly never been longer: Life expectancy in the U.S. is now 78.8 years, up from 47.3 years in 1900. We are also healthier by almost any imaginable measure, whether we mean that literally, by looking at health indices, or more expansively, by looking at a range of living-standard and social measures (teen pregnancy rates, smoking, air-conditioning penetration, water and air quality, take your pick).

Martinez notes:

I’ll concede, very grudgingly, that all this whining can be a good thing. As Yuval Noah Harari, the author of Sapiens: A Brief History of Humankind, has written, we’re hard-wired to be disgruntled. It’s the only way we achieve progress. Evolution requires us to demand more and better, all the time.

So on Monday let’s go back to demanding more and better. But for tonight, Happy New Year!

Doug Bandow

The lame duck Congress suffered through its usual year end brinkmanship before avoiding a government shutdown.  Horrors! What would people do if politicians weren’t able to legislate, regulate, and dictate in the “public interest?” 

The traditional civics book notion of government is that the state does for us what we cannot do for ourselves.  If the state focused on its most fundamental tasks, we might notice if it closed.

Unfortunately, the state has turned into something very different.  It’s now a welfare agency for the wealthy, a vast soup kitchen for special interests, an engine for social engineering at home and abroad, and a national nanny determined to run citizens’ lives.  Closing down Washington’s great income redistribution racket actually would help most Americans. 

Yet, as I point out in the American Spectator:  “perhaps the most irritating, even infuriating, government activity is paternalism.  There’s a basic difference between a gang of highwaymen and Congress.  The first group takes your cash and then leaves you alone.  The second group empties your wallet or purse, and then insists on sticking around for your benefit to manage your life.  Your new overseers expect not only regular payment but eternal gratitude.”

Consider the campaign against smoking.  Adults are entitled to smoke cancer sticks if they want.  The idea that not one restaurant or bar in a city of thousands or state of millions can allow someone to smoke is, well, outrageous.

Former New York City Mayor Michael Bloomberg attempted to ban large cups of soda.  He felt entitled to substitute his preferences for those of the people he was supposed to “serve.”

Last month the City of Berkeley, California became the first city to impose a special tax on drinks with sugar.  No word yet on whether the tax man next will target chocolate bars, ice cream, and households lacking an elliptical trainer.

In October the City of Burien, Washington banned body odor.  Or at least too much body odor in public.  Explained city manager Kamuron Gurol, “Occasionally, people will unfortunately have such a bodily odor that it’s very hard for other patrons to physically be in the same place.”  Are mandatory public showers next?

Authorities in North Attleboro, Massachusetts recently rejected selectman Patrick Reynolds’s request to eliminate the ban on playing ball in the street after the police broke up a game being played by friends.  Responded the police chief:  what would people think of the city if the community okayed this horrid practice?

In August the State of California loosened its earlier prohibition on people bringing dogs into restaurants.  Now under a set of specific conditions—in an outdoor area, with the animal in a carrier or on a leash—dogs can join their owners at a meal.  But why not simply leave the decision up to the restaurant? 

The paternalist FDA long has delayed the approval of life-saving drugs, thereby killing thousands of people, far more than the number likely saved by preventing the sale of dangerous medicines.  Last year, the agency outlawed mimolette cheese because the rinds might contain trace quantities of cheese mites.  The latter are harmless, but never mind. 

Earlier this year, the FDA decided to ban cheese aged on boards—which means most European cheese imports.  After all, “The porous structure of wood enables it to absorb and retain bacteria, therefore bacteria generally colonize not only the surface but also the inside layers of wood.”  Millions of Europeans die every year from cheese poisoning.  Well, not really.  But you never can be too careful!

Actually, very frequently government is too careful, at least when it comes to regulating people’s lives.  When it comes to spending taxpayers’ money, tossing folks into jail, and invading foreign countries, on the other hand, officials go wild and crazy, tossing caution to the wind.

It’s time to shut down government activities that aren’t legitimate, which would include most of them, and especially paternalism.

Daniel J. Mitchell

I’m tempted to feel a certain degree of sympathy for Paul Krugman.

As a leading proponent of the notion that bigger government stimulates growth (a.k.a., Keynesian economics), he’s in the rather difficult position of rationalizing why the economy was stagnant when Obama first took office and the burden of government spending was rising.

And he also has to somehow explain why the economy is now doing better at a time when the fiscal burden of government is declining.

But you have to give him credit for creativity. Writing in the New York Times, he attempts to square the circle.

Let’s start with his explanation for results in the United States.

…in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments.

If you define “austerity” as spending restraint, Krugman is right. Overall government spending has barely increased in recent years.

But then Krugman wants us to believe that there’s been a meaningful change in fiscal policy in the past year or so. Supposedly there’s been less so-called austerity and this explains why the economy is doing better.

The good news is that we…seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. We are finally starting to see the kind of growth, in employment and G.D.P., that we should have been seeing all along… What held us back was unprecedented public-sector austerity…now that this de facto austerity is easing, the economy is perking up.

But where’s his evidence? Whether you look at OMB data, IMF data, or OECD data, all those sources show that overall government spending has been steadily shrinking as a share of GDP ever since 2009.

And deficits also are shrinking as a share of economic output according to all these measures, so there’s still “austerity” regardless of whether we’re looking at the underlying disease of government spending or the symptom of red ink.

I sliced and diced the data to see if there was some way of justifying Krugman’s hypothesis and the only numbers that are (vaguely) supportive are the ones from the IMF that show total government spending (federal, state, and local) has increased by an average of 2.3 percent annually over the past two years, after increasing by 1.3 percent per year over the prior three years.

On that basis, one could sort of argue that Krugman is right and “austerity is easing.”

But if that’s his definition of victory, then I’m more than willing to let him be the winner. If we can constrain the public sector so that it grows at 2.3 percent annually, we’ll be complying with my Golden Rule and the burden of government spending will continue to slowly but surely shrink as a share of GDP.

And we’ll definitely have much better fiscal policy than we had between 2002-2009, when overall government spending rose by an average of 7.1 percent annually.

So does this mean Krugman and I are on the same page? 

You may sense a slight tone of sarcasm in my remarks, and that’s because Krugman surely doesn’t want government to “only” grow by 2.3 percent annually. He simply wants to justify his hypothesis that the economy’s improving performance is somehow due to less austerity. Even if that means he’s implicitly endorsing genuine spending restraint.

In other words, Krugman actually is being slippery and misleading in his analysis of American austerity.

But that’s nothing compared to his analysis of so-called austerity on the other side of the Atlantic Ocean. Here’s some of what he wrote about fiscal policy in the United Kingdom.

…in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified? No, not at all.

Krugman then claims that there was better economic performance because U.K. politicians decided against “further cuts.”

What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. …And sure enough, the nation started feeling better.

So is he right?

Well, the IMF numbers show that overall government spending has been growing, on average, by 2 percent annually since 2009. By today’s standards, that’s a decent record of spending restraint.

But what if we dissect the numbers? Did spending grow very slowly between 2010-2012, followed by a relaxation of restraint beginning in 2013? In other words, is Krugman’s argument legitimate, even if it requires him to implicitly endorse (as in the American example) decent fiscal discipline over the past two years?

Nope. Instead, the numbers show just the opposite. Between 2010-2012, the burden of government spending expanded by an average of 2.3 percent per year.

But over the past two years, the “austerity” has become tighter and the budget has grown by 1.5 percent annually.

In other words, it seems that Krugman is either sloppy or mendacious.

Though I’m going to give him an escape hatch, a way of justifying his assertions. When the Tories took over in the United Kingdom, they quickly imposed a series of tax hikes (in addition to the tax hikes imposed by the outgoing Labor government). But since that time, the government has implemented some tax cuts, most notably reductions in corporate tax rates and lower tax rates on personal income.

So if Krugman wants to argue that tax increases decelerated the British economy for a few years and that tax cuts are now helping to boost growth, I’m willing to give him a probationary membership in the supply-side club.

But I don’t expect him at the next meeting.

P.S. This isn’t the first time Krugman has mangled numbers when analyzing U.K. fiscal policy.

P.P.S. He’s also butchered data when writing about fiscal policy in nations such as FranceEstonia, and Germany,

Charles Hughes

A new study from the Illinois Policy Institute analyzes the welfare benefits package available at different levels of earnings in that state. The authors find that low-income workers have limited economic incentive to increase their earnings from the minimum wage, and at some higher levels of earnings these workers actually see a reduction in net income. America’s complex welfare system can too often create these perverse situations where beneficiaries are financially worse off as they increase work effort and earned income. In these poverty traps, lost benefits and increased taxes outweigh any additional earnings, making it harder for beneficiaries to escape from poverty and reach the middle class

Author Erik Randolph finds that a single mother with two children who increases her hourly earnings from the Illinois minimum wage of $8.25 to $12 only sees her net income increase by less than $400. For many low-income workers striving to climb the ladder of prosperity, our welfare system takes away almost all of their incentive to move up from an entry-level job as they do not get to realize almost any of these gains. Even worse, someone in this scenario who works hard and increases her earnings all the way to $18 an hour, a wage level which would place her in the middle class, would actually see her net income decrease by more than $24,800 due to benefit reductions and tax increases. Instead of making it easier for beneficiaries to become independent and achieve a level of prosperity, the welfare system traps them into low levels of earnings. This parent would have to increase her earnings all the way to $38 an hour in order to replace the lost benefits and achieve the same standard of living.

These findings echo some of the insights from our Work versus Welfare Trade-off paper, in which we compared the benefits available to a similar family in each state to the equivalent wage that family would have to earn to obtain the same level of net income. Our study found that the high level of benefits available combined with benefit cliffs created situations that would deter work. In 34 states, the parent would have to earn well above the minimum wage to achieve the same standard of living she had when not working.

This new report from the Illinois Policy Institute illustrates some of the biggest problems with our current welfare system and corroborates many of the findings of our past work. Work versus Welfare looked at two situations, one where the parent worked and one where she had no earned income. This new study from the Illinois Policy Institute provides valuable additional insight, as it looks at this tradeoff at different levels of earned income to analyze the poverty traps in place as beneficiaries move to higher levels of earned income. Instead of encouraging work, the current welfare system often takes away much of the incentive for low-income workers to increase work effort and earnings. As Randolph puts it, “[r]ather than providing a hand up, Illinois’ welfare system can become a trap,” and this is unfortunately the case throughout the country. This study shows yet another reason why our welfare system needs fundamental reform.  

Cato will host a conference in New York January 29th to further explore poverty and the welfare system. The conference agenda and registration information can be found here

Ilya Shapiro

This spring, the Affordable Care Act will make its third trip to the Supreme Court. But King v. Burwell is different from its predecessors. Instead of challenging Obamacare’s constitutionality, or the way certain regulations burden particular types of plaintiffs, this lawsuit questions how the executive branch has enforced the law generally—or, more precisely, modified, delayed, and suspended it.

After supporting the challengers’ successful request that the Supreme Court take up this case, the Cato Institute has now joined with Professor Josh Blackman on an amicus brief that alerts the Court to the separation-of-powers and rule-of-law violations attending the ACA’s implementation. Through a series of memoranda, regulations, and even blog posts, President Obama has disregarded statutory text, ignored legislative history, and remade the law in his own image.

King focuses on tax credits—the subsidies that allow people to pay increased premiums—one of the key pillars of Obamacare that the administration has toppled. To assist those who lack employer-sponsored insurance, and because it couldn’t command states to establish exchanges, Congress authorized these credits for residents of states that do create the exchanges. The statute expresses this design in language that is clear as day: Individuals receive tax credits if they bought a qualifying health plan “through an Exchange established by the State.”

In other words, if a state failed to establish an exchange, its residents—who would end up buying plans through the federal HealthCare.gov—would not be eligible for the subsidies. (The ACA’s Medicaid expansion plan operated with a similar carrot-and-stick approach until the Supreme Court rewrote it.)

But a funny thing happened on the way to utopia: only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three-quarters of states. This result was untenable to an administration intent on pain-free implementation. To obviate the uncomfortable compromises Congress reached, the executive engaged in its own lawmaking process, issuing a regulation that nullifies the relevant ACA provision.

Under the “IRS Rule,” subsidies would be available in all states. As documented in a detailed report by the House Oversight Committee, the executive branch engaged in a multi-agency process based on a convoluted series of linguistic contortions without any meaningful analysis of the ACA’s history. At least one government attorney recognized that there “was no direct statutory authority to interpret [a federal] exchange as an ‘Exchange established by the State.’” But such concerns were squelched, and the rogue rule was released.

Through the IRS Rule, the executive emulates Humpty Dumpty: “When I use a word … it means just what I choose it to mean—neither more or less.” In response, Alice naturally asked “whether you can make words mean so many different things.”The Supreme Court must answer no and vacate the IRS rule that provides subsidies in states that did not establish exchanges.

Through its oversimplification of how the ACA works as a whole—by arguing for the legality of literally any policy that advances “access,” no matter how unmoored from statutory authority—the government incorrectly assumes that the 111th Congress shared President’s Obama’s evolving vision of how to reform the healthcare system (and granted him discretion to advance it accordingly). To paraphrase Inigo Montoya, Congress didn’t think “expand coverage” means what the executive thinks it means.

In King, which will be argued on March 4, the Supreme Court should address the president’s disregard of Congress and belief that legislative gridlock allows him to transcend his constitutional authority. A ruling that upholds his behavior sets a dangerous precedent for the nascent ACA superstatute, which will be implemented for years to come by administrations with different views of the law. More troubling, such a precedent could be used in future to license virtually any executive action that modifies, amends, or suspends any duly enacted law.

Josh Blackman, who co-authored Cato’s brief, contributed to this blogpost. 

Doug Bandow

The Ukrainian parliament has repealed the law barring participation in NATO. The U.S. should respond no.

Right before Christmas Ukraine’s Rada repealed legislation mandating “nonparticipation of Ukraine in the military-political alliances.” Said President Petro Poroshenko: “Ukraine’s nonaligned status is out.”

Russia’s foreign minister called the move “counterproductive.” An alliance spokesman said “Our door is open and Ukraine will become a member of NATO if it so requests and fulfills the standards and adheres to the necessary principles.”

In fact, joining could be counterproductive for Kiev. Some Ukrainians may imagine that NATO would protect them from Vladimir Putin. But if the consequence was a full-blown war, as is likely, it would be a disaster for Ukraine.

Moreover, the West doesn’t have the will to act. In 2008 Georgians expected the American military to come to their rescue in their war with Russia. However, Washington would not go to war with Russia over such minimal geopolitical stakes.

The allies made a similar assessment of Ukraine. Despite abundant verbal support, practical aid has been limited.

Russian President Vladimir Putin has violated international norms, unleashed bitter conflict, upset the regional order, and disturbed his European neighbors. Nevertheless, his actions have had little impact on America and Europe. Keeping Ukraine whole simply doesn’t warrant playing international chicken with a nuclear-armed power.

Thus, Ukraine might rue being inducted into NATO. The alliance would discourage Kiev from doing more for itself and addressing Russia directly. Yet Kiev might find its allies to be as inconstant as Moscow was antagonistic.

Which means the Western states must reject any NATO application from Kiev. Past NATO expansion has added members with minimal militaries and extensive problems. Providing small troop contingents for Washington’s unnecessary Third World wars (Afghanistan and Iraq so far) isn’t nearly enough recompense to America for defending countries from a nuclear-armed power.

The most dangerous alliance illusion is that if NATO would just demonstrate “resolve” the Russian invaders would turn tail and race back to Moscow. Yet deterrence works both ways.

Moscow desires respect from other great powers, consideration in decisions affecting its interests, and especially secure borders. The West challenged all of these concerns by expanding NATO, forcibly dismantling Serbia, and pressing to incorporate into the Western bloc both Georgia and Ukraine. None of this justifies Ukraine’s forcible dismemberment, but it is important to understand why Russia acted.

In fact, Russia is better able to deter the West than vice versa in Ukraine. The geopolitical stakes are far greater for Russia than for the U.S. and Europe. Thus, the Putin government remains willing to spend and risk more than the U.S. and Europe. Moscow already has demonstrated its “resolve” by going to war.

Moreover, history is filled with examples of alliances which failed to deter. Countries believe they will win, their opponents will back down, their adversaries will be forced to negotiate, or, if nothing else, they have no alternative but to fight.

Fear of a hostile hegemonic power dominating Eurasia animated Washington’s Cold War promise to protect war-torn Western Europe. Today Kiev is not key to any Western nation’s security.

Recognizing the problems of military action, the allies seem inclined to emphasize economic pressure. However, Ukraine is closer to collapse than is Russia.

Moreover, as I wrote in Forbes, “authoritarian governments like Moscow are more likely to retaliate than capitulate. The Europeans, especially, should beware creating “Weimar Russia.” A similar screenplay seven decades ago ended badly.”

Better for all to seek a negotiated settlement. Kiev decentralizing power, separatists accepting its formal authority, Ukraine acquiescing to Crimea’s separation, Russia holding an internationally monitored referendum, Kiev forbearing military ties to NATO and the U.S., the allies dropping sanctions, Moscow accepting a united Ukraine looking both east and west economically.

The Rada’s vote to end military neutrality is a desperation move. The U.S. should warn Kiev not to look to the alliance to solve its Russia problem.

Roger Pilon

Oh what a tangled web we weave when from the text we take our leave—or so it seems after reading the op-ed by David Rivkin and Elizabeth Foley in today’s Wall Street Journal, “Federal Antidrug Law Goes Up in Smoke.” Not that they’re entirely wrong, mind you, in their defense of the attorneys general of Nebraska and Oklahoma, who are suing to have the Supreme Court declare Colorado’s law legalizing marijuana unconstitutional. In fact, they’re relying simply on modern “constitutional law,” which has succeeded in this case in bringing a tangle of constitutional principles and powers to a fine boil.

Start with First Principles. In a radical fit some years ago I argued not only that Congress had no authority to wage a war on drugs under its power to regulate interstate commerce—its rationale for doing so today—but that it had a duty under the Fourteenth Amendment to block states from waging such a war. Since Congress’s commerce power was granted mainly to enable it to ensure free commerce among the states, especially by checking the kinds of state interference that had arisen under the Articles of Confederation, not only did Congress have no power to interfere with interstate commerce in “recreational” goods like tobacco, alcohol, and marijuana, but it had an affirmative power to check state interference with such commerce, as the Court held in 1824 in its first great Commerce Clause case, Gibbons v. Ogden. Moreover, since the general police power held by states was meant mainly to protect rights, not only could it not be employed to interfere with economic and personal liberty, but once the Fourteenth Amendment enabled individuals to seek federal protection against state violations of their rights, Congress had authority under section 5 of the amendment to afford that protection.

That’s not the law today, of course. Far from reading the Commerce Clause as empowering Congress to make commerce among the states “regular,” the Court read it in 1942 in the infamous case of Wickard v. Filburn as allowing Congress to prohibit a farmer from growing wheat in excess of the amount allotted by law even though the wheat never entered any stream of commerce—on the theory that his doing so, in the aggregate, “affected” interstate commerce, the same theory the Court used in 2005 in Gonzales v. Raich when it held that Congress could criminalize the medicinal use of home-grown marijuana, which California law allowed. Throw in the Supremacy Clause, which makes federal law supreme over conflicting state law, the Take Care Clause, which requires the president to see that the laws be faithfully executed, and add principles concerning federalism and individual liberty, and we have the fine constitutional brew that Rivkin and Foley are stirring.

Nebraska and Oklahoma complain that a significant influx of marijuana purchased in Colorado is increasing their law-enforcement costs. Hence their suit, arguing that “the Constitution and the federal anti-drug laws do not permit the development of a patchwork of state and local pro-drug policies and licensed-distribution schemes throughout the country which conflict with federal laws.” To conservatives complaining that the two states are “fair-weather federalists,” Rivkin and Foley answer that they should be directing their fire at President Obama, whose “now-signature response to disfavored laws” is to issue a memo directing federal law-enforcement officials, in this case, to ignore the federal ban in states that have liberalized their marijuana laws. The law is clear, they believe. Federal law trumps conflicting state law. And under Arizona v. United States (2012), even when the president won’t enforce that law, states “may not pursue policies that undermine federal law,” as policies in Colorado and three other states allegedly now do.

But do they? What precisely is Colorado doing that undermines federal law? Rivkin and Foley cite Colorado’s attorney general as saying that “his state is ‘becoming a major exporter of marijuana.’” He was doubtless speaking loosely there. After all, the state isn’t exporting marijuana. In essence, what the state has done is legalize the sale and use of marijuana—as if it had never made it illegal in the first place. Nothing requires a state to make marijuana illegal. Nor is the state doing anything to prohibit federal enforcement of federal prohibitions. It’s doubtful, therefore, that there is any conflict here.

Yet the issues and implications drawn together here are far reaching. Obama’s “law-by-memo” practices have arisen well beyond the war on drugs—with Obamacare, with same-sex marriage, with immigration, and more, all of which is now in litigation. And Rivkin and Foley are not oblivious to how this tangled web arose. “Whatever one thinks about Raich,” they write (or Wickard, one might add). And they note that “the Controlled Substances Act can be amended or repealed,” or the attorney general “could use his authority under the CSA to remove marijuana from Schedule I.” The heart of the problem remains, however, with the expansion of Congress’s commerce power beyond its intended bounds. When that happens, entanglement is inevitable and liberty suffers.

Walter Olson

In a Saturday editorial, the Washington Post calls for further hiking Maryland’s tobacco tax so as to push the state’s smuggled-cigarettes rate, currently around 20%, closer to New York state’s Bloomberg-influenced, nation-leading 57%. The New York policy has proved a highly effective way to bring petty and not-always-so-petty crime to New Yorkers’ everyday lives. With I-95, I-70 and other corridors, Maryland is already one of the most accessible states for contraband smugglers, and if the Post has its way organized gangs on the streets of Baltimore stand to get their hands on a new cash engine that, as one Brooklyn distributor is said to have boasted on wiretap, is “better than selling drugs.” What could go wrong?

P.S. The Post’s editorial never even mentions smuggling or evasion of the law, let alone bring up the Eric Garner case in Staten Island, although the Post’s own news analysts and opinion writers have repeatedly explored the role of taxes in that case. Is it too much to ask of the Post editorialists that they keep up with their own paper?

[cross-posted from my blog on Maryland issues, Free State Notes]

Doug Bandow

BANGKOK, THAILAND—Thailand’s capital has lost none of its frenetic motion but it is a bit quieter of late, with last year’s demonstrators dispersed by the military.

However, the junta, which took power in May, is not leaving. Instead it recently announced that it was putting off any vote.

Thailand’s political crisis has been years in the making. Once an absolute monarchy, the country’s democracy has been oft interrupted by military rule. A new constitution was instituted in 1997, but the business-military-court alliance hadn’t prepared for telecommunications executive Thaksin Shinawatra. 

In 2001 he won the votes of Thailand’s long neglected rural poor, giving his party a majority and making him prime minister. He spread state largesse far and wide and won again in 2005.

His frustrated opponents essentially gave up on democracy. Thailand’s political losers launched a campaign of disruptive protests against Thaksin, giving the military an excuse to oust the prime minister in 2006. 

However, new elections gave Thaksin’s successor party a plurality. Again opposition demonstrators took over streets.

Security agencies refused to protect the elected government. Courts abused the law to disqualify pro-Thaksin legislators. Elites which viewed themselves as born to rule then pressured coalition partners to switch sides. Bloodshed erupted when so-called “Red Shirts,” who backed Thaksin, traveled to Bangkok to protest the quasi-coup.

In Thailand’s 2011 election Thaksin’s sister Yingluck Shinawatra and their Pheu Thai party decisively defeated the Democrats. A former deputy prime minister then organized new mobs to prevent the government from functioning.

In May the army moved in. Emphasizing “national happiness,” the junta organized rallies featuring singing soldiers, female dancers in camo, and musicians.

Although soldiers did not arrive with guns blazing, the coup was real. Hundreds of people were arrested. Demonstrations are banned, as are public meetings of five or more people.

Journalists are barred from criticizing the government. Students are detained for using the three-finger salute from the movie Hunger Games. One of the military’s most effective tools of repression is the lese majeste law, which is used to punish even innocent discussions of the monarchy.

Shortly after grabbing control General turned Prime Minister Prayuth Chan-ocha said that he hoped not to violate human rights “too much.” In that he has failed dramatically. Burma’s people now are freer than Thais.

The junta originally promised new elections next year after the constitution was changed to create “genuine democracy.” However, the regime now expects to rule at least until 2016.

The military itself is divided, and draws many of its soldiers from areas that support Thaksin. More threatening may be the slow economy, made worse by the junta’s mismanagement. And once king the current crown prince may prove friendlier toward Thaksin.

No one in Thailand’s national soap opera appears innocent. Thaksin engaged in self-dealing and disdained checks and balances. But Thaksin’s opponents long used the system for their benefit and disdained democratic governance. When challenged, they responded with a strategy of rule or ruin. Rather like Mussolini’s Black Shirts, the protestors’ only objective was to seize power.

In my new column on Forbes I argue:  “Some sort of grand compromise is necessary to save Thai democracy. The Thaksin family should withdraw from politics. Those who headed the “rule or ruin” movements against Thaksin should barred from the public square. The court and military should agree to no more partisan interventions.”

Finally, the junta should allow positive constitutional reform. Central government power should be curbed. The national government needs checks and balances which don’t benefit only establishment elites. Authority also should be devolved on provinces, so national predominance by a Thaksin-like figure and party would not be so threatening to opponents.

There’s not a lot the U.S. can do to encourage restoration of democracy in Thailand. Ultimately Thailand’s future will be decided by the Thai people.

Hopefully they will free themselves from the grip of childish authoritarians. Democracy rarely is an easy ride, but it remains the best path to human liberty and happiness.

Doug Bandow

The Obama administration hasn’t had much foreign policy luck with the big issues.  But President Barack Obama is making progress with Cuba.

The spy/prisoner exchange offered obvious humanitarian benefits.  The more significant step announced by the president was to drop what he called today’s “outdated approach” to U.S.-Cuba relations.  His objective is to expand travel and trade with Cuba and reopen the U.S. embassy in Havana.

Of course, the administration’s plan has generated complaints from hard-line Cuban-Americans and Republican uber-hawks.  Representing both camps, Florida Sen. Marco Rubio denounced the policy as “absurd” and another example of “coddling dictators and tyrants.”

Rubio substituted rhetoric for argument.  He apparently realized he couldn’t make a practical case for maintaining sanctions, especially that they would ever achieve their purported end. 

A half century ago the Castros created a nasty dictatorship and allied with the Soviet Union.  But the Soviet Union, Cold War, Soviet-Cuban alliance, and Moscow subsidies for Cuba are all gone.  Only the Castro dictatorship lives on, despite the embargo.

Over the years the rest of the world ignored Washington’s ban.  Even after the cut-off of Soviet transfers the sanctions did not bring Havana to heel.

The administration’s plan is to begin discussions over reestablishing an embassy. Regulations would be changed to encourage more travel and remittances, particularly by Cuban-Americans.  The administration also intends to expand allowable exports to Cuba, including agriculture and construction.  The administration will review the designation of Cuba as a State Sponsor of Terrorism. 

Normalization is long overdue.  There’s no longer a security argument for isolating Cuba.  At home the Castros are thugs, but that’s old news and hasn’t been affected by a half century of sanctions.  What we know as a result of essentially a controlled experiment with the embargo is that sanctions do not release political prisoners, generate competitive elections, unseat dictators, create a free press, or foster a market economy. 

Thirty years into the embargo supporters thought their moment finally had arrived with the collapse of the U.S.S.R.  In 1994 the Heritage Foundation’s John Sweeney declared that the Castro regime’s collapse is “more likely in the near term than ever before.”

Another two decades have gone by and all Washington’s policy of isolation has done is given the Castros an excuse for their failure. When I visited Cuba (legally) a decade ago I met Elizardo Sanchez Santa Cruz, who spent years in Castro’s prisons.  He criticized U.S. sanctions for giving “the government a good alibi to justify the failure of the totalitarian model in Cuba.”

Nor does isolation make a symbolic statement.  There have been and remain plenty of worse regimes in the world. 

Moreover, U.S. policy essentially made Fidel Castro.  Had Washington dismissed his regime, he would have receded in global importance, just another windbag dictator in charge of a poor, small state.  Instead, for decades he was seen as the premier global opponent of Yanqui Imperialism.

Of course, it’s important not to overstate the benefits of normalization.  Cubans are limited in what they can buy and also in what they can produce to sell. 

Moreover, while greater economic and political contact will be naturally seditious and undermine Communist Party rule, the regime has carefully controlled past foreign investment.  Much more will still need to be done to encourage a freer society.

President Obama will face strong opposition, but even most Republicans today recognize that the embargo has failed.

As I wrote in National Interest:  “The Cuban people deserve far better than what the Castros have delivered.  Ultimately, their Communist dictatorship will end up in history’s legendary dustbin.  But not yet, unfortunately.”

Normalizing both economic and diplomatic relations with Havana should be seen not as a victory for the Castro government, but for the people of Cuba.  Liberty will come to that land.  The only question is when.  Expanding relations should help speed the process.

Craig D. Idso

One of the concerns expressed by the United Nations Intergovernmental Panel on Climate Change (IPCC) with respect to the potential impacts of CO2-induced global warming is an increase in the number of heat related deaths, which they predict should occur in response to enhanced summertime temperature variability and more extreme heat waves, particularly among the elderly.

Is this really the case? A new paper published by Bobb et al. (2014) in the scientific journal Environmental Health Perspectives provides an answer. 

In prefacing their work the team of four U.S. researchers writes “increasing temperatures are anticipated to have profound health impacts,” but they say “little is known about the extent to which the population may be adapting.” Therefore, they decided to examine “the hypothesis that if adaptation is occurring, then heat-related mortality would be deceasing over time.”

To accomplish this objective, Bobb et al. used “a national database of daily weather, air pollution, and age-stratified mortality rates for 105 U.S. cities (covering 106 million people) during the summers of 1987-2005,” employing “time-varying coefficient regression models and Bayesian hierarchical models” to estimate “city-specific, regional, and national temporal trends in heat-related mortality and to identify factors that might explain variation across cities.”

With respect to their findings, Bobb et al. state “on average across cities, the number of deaths (per 1,000 deaths) attributable to each 10°F increase in same-day temperature decreased from 51 in 1987 to 19 in 2005” (see Figure 1). Furthermore, they report “this decline was largest among those ≥ 75 years of age, in northern regions, and in cities with cooler climates.”  In addition, they write “although central air conditioning (AC) prevalence has increased, we did not find statistically significant evidence of larger temporal declines among cities with larger increases in AC prevalence.”

Figure 1. The number of excess U.S. deaths (per 1,000) attributable to each 10°F increase in the same day’s summer temperature over the period 1987 to 2005. Adapted from Bobb et al. (2014).

Based on these findings, Bobb et al. conclude the U.S. population has, “become more resilient to heat over time”—in this case from 1987 to 2005—led by the country’s astute senior citizens. This discovery, coupled with many other similar findings from all across the world (Idso et al., 2014), adds yet another nail in the coffin of failed IPCC projections of increased heat related mortality in response to the so-called unprecedented warming of the past few decades. Perhaps it is high time for all the other apocalyptic projections of the global warming movement to be removed from life support, as they are each equally failing in comparisons with real world data.

References

Bobb, J.F., Peng, R.D., Bell, M.L. and Dominici, F. 2014. Heat-related mortality and adaptation to heat in the United States. Environmental Health Perspectives 122: 811-816.

Idso, C.D, Idso, S.B., Carter, R.M. and Singer, S.F. (Eds.) 2014. Climate Change Reconsidered II: Biological Impacts. Chicago, IL: The Heartland Institute.

David Boaz

Congratulations to former Treasury secretary Robert Rubin, who has become concerned, as he writes in the Wall Street Journal, that

The U.S. rate of incarceration, with nearly one of every 100 adults in prison or jail, is five to 10 times higher than the rates in Western Europe and other democracies, according to a groundbreaking, 464-page report released this year by the National Academy of Sciences. America puts people in prison for crimes that other nations don’t, mostly minor drug offenses, and keeps them in prison much longer.

Of course, if he’d been following the work of the Cato Institute, he could have read about the problems of drug prohibition and mass incarceration in this 2009 symposium at Cato Unbound, this 2013 paper on incarceration rates in the United States and other countries, this Washington Post article by Tim Lynch in 2000 when the U.S. prison population first exceeded 2 million, or indeed my 1988 New York Times article on the excessive arrests and intrusions on freedom in the drug war.

Meanwhile, on the same page of Friday’s Wall Street Journal, former senator James L. Buckley calls for ending federal aid to the states, an idea central to his new book Saving Congress from Itself and inspired by the work of Cato’s Chris Edwards.

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