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Doug Bandow

The slaughter at the French magazine Charlie Hebdo brought hundreds of thousands of marchers and scores of world leaders onto the streets of Paris.  The killings demonstrate how the destructive phenomenon of religious persecution is spreading from Third World dictatorships to First World democracies. 

Religious minorities long have faced murder and prison around the world.  Now the freedom not to believe by majorities in Western democracies is under attack.

As I write in Forbes online:  “Free expression goes to the very essence of the human person.  While good judgment tells us not to express every thought we have, as moral agents responsible for our actions we must be free to assess the world and express ourselves in vibrant public debate.  For religion there is no greater affront than to inhibit people’s search for the transcendent and liberty to respond, yay or nay, to God’s call.” 

Western governments must protect the liberties of their peoples.  Members of no group, Muslim or other, should be treated as enemies.  However, the problem of violent religious intolerance is almost uniquely Muslim. 

Christians finally learned to stop killing over spiritual differences.  Today in most countries in which Muslims constitute a majority religious minorities suffer discrimination and persecution. 

There is no disguising reality.  If you are a Baha’i, Jew, Ahmadi, Christian, Yazidi, Hindu, wrong kind of Muslim, or atheist you likely will find life always difficult and often threatening in Iran, Iraq, Pakistan, Saudi Arabia, Somalia, Afghanistan, Libya, Egypt, Indonesia, Brunei, Malaysia, Sudan, Yemen, Maldives, Syria, and others. 

Some Muslims point to blowback from promiscuous U.S. intervention.  Washington has supported dictators, harmed innocents, and wrecked societies throughout the Islamic world.  However, these are acts of a nation state, not a religious faith.  And while that behavior might explain (though not justify, since nothing warrants the murder of civilians) attacks on U.S. targets, it does not illuminate why, say, Pakistani mobs burn to death Pakistani Christians.

The thugs who cut down a dozen Charlie Hebdo are the international cousins of those who murder alleged blasphemers and apostates in Muslim nations.  Earlier this year the U.S. Commission on International Religious Freedom reported that victims of the ongoing attack on free expression include people from Bangladesh, Egypt, Indonesia, Iran, Kazakhstan, Pakistan, Saudi Arabia, Tunisia, and Turkey.  Nowhere are blasphemy laws more used and abused than in Pakistan. 

In its study on the issue USCIRF explained how the law encourages abuse:  “The so-called crime carries the death penalty or life in prison, does not require proof of intent or evidence to be presented after allegations are made, and does not include penalties for false allegations.”  Judges prefer not to hear evidence, since doing so could be construed as blasphemy.  A claim usually is sufficient to send someone to prison, making the law a common weapon in personal and business disputes.

Non-Muslims are peculiarly vulnerable.  Many people do not reach trial:  mobs have killed more than 50 people charged with the offense.  And thugs like those who gunned down the Charlie Hebdo staffers have murdered judges who acquitted defendants, attorneys who represented those accused, and politicians who proposed reforming the laws.

There isn’t much Washington can do to protect liberty in other countries, but the U.S. government must insist that the liberties of Americans are non-negotiable and will be defended.  More broadly, the Charlie Hebdo murders should remind policymakers that religious liberty is not an afterthought. 

A government which refuses to protect individuals in exploring the transcendent is more likely to leave other essential liberties unprotected.  People in Muslim-majority nations, where religious persecution today is at its worst, must come to peacefully accept those who believe differently both at home and abroad.

Chris Edwards

Another day, another news article supportive of raising the federal gas tax. This time it’s the Wall Street Journal. The article notes that there is strong public opposition to raising gas taxes, but then proceeds to give us the arguments in favor of it, but none against. So for the next reporter writing about raising the gas tax, here are some policy reasons against it.

Let me zero in on two points made by the Journal story.

First, it says, “elected officials from both parties are treading into the debate cautiously, framing the issue around improving highway safety and local economies by repairing a growing backlog of troubled roads and bridges.”

I don’t think that’s true about a “growing backlog.” In fact, our highways and bridges appear to be improving, not getting more “troubled.” Federal Highway Administration (FHWA) data show that of the nation’s 600,000 bridges, the share that is “structurally deficient” has fallen from 22 percent in 1992 to 10 percent in 2013. The share that is “functionally obsolete” has also fallen.

Meanwhile, the surface quality of the interstate highways has steadily improved. A study by Federal Reserve economists examining FHWA data found that “since the mid-1990s, our nation’s interstate highways have become indisputably smoother and less deteriorated.” And they concluded that the Interstate system is “in good shape relative to its past condition.”

The Journal says, “The federal levy … has stood at 18.4 cents a gallon since the first year of the Clinton administration, despite multiple proposals over the years to raise it. Over the past decade, Congress has approved higher spending for highway construction but hasn’t raised the tax to pay for it, creating periodic funding crises.”

It’s true that Congress has not raised the gas tax recently, but that’s because the American people have been consistently against it in polls. The problem is that Congress has gone ahead and jacked up spending anyway. So we don’t have a “funding” crisis, but a “spending” crisis.

Gas tax supporters say that it is time to raise the tax because it has not been raised in two decades. What they leave out of the story is that the gas tax rate more than quadrupled between 1982 and 1994 from 4 cents per gallon to 18.4 cents, as shown in the chart below the jump. Thus, looking at the whole period since 1982, federal gas tax revenues have risen at a robust annual average rate of 6.1 percent (based on Tax Foundation data). So, again, we have a spending crisis, not a funding crisis.

Jason Bedrick

Last month, the Orthodox Union, a prominent Jewish organization, launched a campaign advocating for private school choice policies. That raised hackles from Americans United for Separation of Church and State (AU), which condemned the chutzpah of the Orthodox Union to work for equal funding for children in their community:

“It [the campaign] will require us to stop being timid,” [Orthodox Union executive vice president Allen Fagin] said. “We pay our taxes, and our kids are also entitled not to be left behind.”

That statement, of course, is only half-true: Fagin’s constituents do pay their taxes, and their children are indeed entitled to an education. But that’s exactly what public schools are for. OU’s campaign relies on the same faulty logic we’ve seen from advocates of voucher programs: Because parents pay taxes, they should be able to ask every other taxpayer in the state to subsidize their child’s religious education. It’s a clear constitutional violation. […]

It’s unconscionable (and exceptionally brazen) for OU to demand that further funds be siphoned away from public schools intended to serve entire communities in order to promote their private religious agenda. If Orthodox parents want to place their children in religious schools, that’s their right. And it’s their responsibility to pay for it.

In reality though, it’s the idea that so-called “public” schools are actually “public” that is only half-true. District schools are technically open to any student whose parents can afford to live in the district, but they are certainly not “intended to serve entire communities.” For example, they are not intended to serve Orthodox Jews or others like them who have a different vision of education. When everyone is forced to pay for one school system and decisions about education are made via a political process, there will be winners and losers.

Let’s consider an imaginary “public” school district where there are three groups of people: Hobbits, Ewoks, and Terrans. Each groups has very different and passionately held views about what should be taught in school and how it should be taught. All three groups are required to pay taxes to support the district school, which is ostensibly nonpartisan, nondenominational, and open to all. However, the majority of the district is Terran so the school reflects the Terran preferences. When the Hobbits and Ewoks open their own schools and seek equal per-pupil support from the local government, the indignant Terrans respond that the district school is meant for everyone. “It’s your right to open your own schools,” explain the Terrans, “but it’s your responsibility to pay for them.” Thus the majority brazenly forces minority groups either to abandon their values or to pay for two school systems. And lower-income minorities may have no choice at all.

Sadly, this is far from hypothetical. Indeed, it’s the unconscionable status quo that the AU defends. As my colleague Neal McCluskey has observed, “Public schooling politics is a zero-sum game: all people pay in, but only those with political power get control.”

Familiarizing oneself with the history of American education makes clear just how divisive public schooling has been. For instance, see the Philadelphia “Bible Riots” or the textbook war in Kanawha County, WV. And just because something is local- or state-controlled doesn’t free it from conflict. Cato’s still-under-construction public schooling “battle map” pinpoints well over 800—and growing—contemporary battles over basic values and rights fought at the school, district, and state levels. And that doesn’t include constant combat over budgets, teacher evaluations, school start times, math curricula, and on and on.

Ultimately, understanding why public schools are the source of unceasing conflict—and why it worsens the more that control is centralized—requires the simplest of logic: One government school system cannot possibly serve all, diverse people equally.

The voucher system that AU maligns is actually a solution to the social strife and unfairness inherent in government schooling. When students who opt out of the district school receive vouchers to attend the school of their choice, no family is forced to send their child to a school that does not reflect their values. Parents are therefore not forced into conflict with each other over what the schools should teach, nor are minority groups expected to fund schools that are anathema to them while paying for their own schools. Fortunately, contrary to AU’s claims, the U.S. Supreme Court found that school voucher systems are in harmony with the U.S. Constitution.

Nevertheless, the AU still has a legitimate concern about coercion. Why should everyone be forced to fund schools that teach values that some find abhorrent? As Thomas Jefferson argued, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors, is sinful and tyrannical.” The AU has a point when they object to forcing atheists to pay for religious schools, or forcing members of one religion to pay for schools run by members of another denomination.

Of course, if the AU is truly concerned about coercion, they should also be concerned about the coercion inherent in government-run district schools. Why should the Hobbits and Ewoks be forced to fund “public” schools that teach Terran values? And why should devout Christians, observant Jews, or pious Muslims be forced to subsidize district schools that teach values they might abhor?

A voucher system is superior to a government-run school system because vouchers reduce social conflict and empower parents to choose schools aligned with their values. But they fail to eliminate coercion. An education system that truly cherishes fairness and respects diversity would empower parents to choose the schools their children attend while also respecting the freedom of conscience of taxpayers. Fortunately, more than a dozen states have moved in that direction by adopting scholarship tax credit laws, which grant tax credits to donors to scholarship organizations that aid families who opt out of the district school system. As Andrew J. Coulson has explained:

Unlike the funding of public schools, which is compulsory for all taxpayers, participation in [a scholarship] tax credit program is voluntary. If an individual chooses not to donate to [a scholarship organization], his taxes are collected just as they have always been, and those dollars cannot be used for any sectarian purpose. Furthermore, if a taxpayer does choose to make a donation, he is free to select the [scholarship organization] most consistent with his own values.

Sadly, Americans United has repeatedly opposed scholarship tax credit laws in the court of public opinion and courts of law. We hope that someday they will realize that scholarship tax credits are the best policy to achieve their pluralistic goals.

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.

As you may have guessed from the title of this post, this week we call attention to a few articles around the web examining the common sense behind a tax on carbon. It turns out there is none.

From time to time, there is a pitch made to conservatives that a “revenue neutral” carbon tax would be a win-win for everyone. It would help mitigate climate change while at the same time spur economic activity. Even if you don’t care about the former, you’re bound to like the latter. Or vice versa.

To try to win some new carbon tax recruits in the incoming Republican-led Congress, two recent high profile articles—one in the Washington Post by one-time Obama economic adviser Larry Summer and the other on National Review Online by the Hudson Institute’s Irwin Stelzer—make that argument, with embellishments.

If a carbon tax sounds too good to be true, then your intuition is correct.

Robert Murphy, an economist for the Institute for Energy Research, provides the technical details, collected from the economic literature, as to why the economic gains don’t actually come along with a carbon tax as they are being promised. In his National Review Online article “Taxing Carbon Won’t Help the Economy,” Murphy rebuts many of Stelzer’s claims. Ultimately, he delivers this sage advice:

Far from offering something for everyone, a revenue-neutral carbon tax advances the policy agenda of the environmental Left at the expense of the American people. The economic theory of a carbon tax is unmoored from political reality. In practice, carbon-tax supporters have shown that they would rather spend the revenue on pet projects than reduce taxes, thereby hindering economic growth. Conservatives should resist the temptation to give central planners in Washington more money to waste and more control over our economic affairs.

Another take on the carbon tax is offered by our good friend, the always insightful Marlo Lewis, from the Competitive Enterprise Institute. Marlo takes on Summers’ “Oil Swoon Creates the Opening for a Carbon Tax” with his own “Oil ‘Swoon’ Is Not an Argument for Carbon Taxes” over at the blog for Globalwarming.org.

Marlo leads off with this bit of depressing (yet predictable) news,

It was inevitable. As soon as consumers and the economy start to enjoy significant relief from a decade of pain at the pump, the political class clamors for higher gas taxes and new carbon taxes.

Marlo then takes us through the long list of supposed “benefits” of a carbon tax, tearing each one down along the way. From “Is carbon energy a tax haven?” to “Do we overuse fossil fuels?” to “Would a carbon tax make energy markets more efficient?” Marlo’s answer is always the same, “No.”  He summarizes:

Summers makes a clear, concise, but unpersuasive case for a carbon tax. The holes in the argument are not his doing but rather arise from the thesis he propounds. The case for a carbon tax fails because:

  • American energy is not undertaxed or under-regulated.
  • An underperforming economy and anti-market policies already restrict oil consumption.
  • Policymakers do not know the sign (positive or negative), much less the monetary impact, of an incremental ton of CO2, so even a small carbon tax could do more harm than good.
  • Carbon taxes are regressive and would be piled on top of existing taxes and regulations rather than replace them.
  • Even a very aggressive carbon tax imposing trillion-dollar costs on the economy would have no discernible climate impact for decades to come.
  • Consumers are finally getting a break from high gasoline prices. Having endured years of energy-price windfall losses, they should now be allowed to enjoy windfall gains.

Also adding to the anti-carbon tax sentiment is Heritage Foundation economist Nicolas Loris. Loris highlights the results of an economic analysis of a carbon tax that the Heritage Foundation recently conducted. According to Loris:

Using the same model as the Energy Information Administration, we modeled what a carbon tax equivalent to the federal government’s social cost of carbon estimate would do to the economy between 2015 and 2030 and found:

  • An average employment shortfall of nearly 300,000 jobs,
  • A peak employment shortfall of more than 1 million jobs,
  • 500,000 jobs lost in manufacturing,
  • Destruction of more than 45 percent of coal-mining jobs,
  • An aggregate GDP loss of more than $2.5 trillion (inflation-adjusted), and
  • A total income loss of more than $7,000 per person

Loris has this most useful suggestion:

Here’s a better deal: Let’s cut the taxes we don’t like and in turn everyone will get more economic growth, more jobs with higher wages and a better standard of living for all Americans. Such a policy will provide the world with more wealth and resources to tackle the problems of the future, whether they’re climate-related or not.

These are three good counters to arguments for a carbon tax that everyone should be familiar with. So, to stay in the know, you ought to have a look!

Walter Olson

At my Cato blog Overlawyered I’ve been pulling together month-by-month highlights of stories from last year. I’m currently up to October in the series. Here’s a small sampling of my favorites: 

Read the whole series here.

Paul C. "Chip" Knappenberger

Today, the Nebraska Supreme Court overturned a lower court ruling and held that the power to approve a route for the Keystone XL pipeline through the state lay with the governor. Nebraska Gov. Dave Heineman had previously approved the pipeline’s route, but his authority was challenged by a group of landowners (pipeline opponents) who claimed the authoritative power was held by the state’s Public Service Commission rather than the governor.

President Obama repeatedly referred to this pending decision as the reason why he could not made a final decision on whether to approve or deny the pipeline. As recently as earlier this week, when indicating the president would veto a measure to approve the pipeline that is currently making its way through Congress, Obama press secretary Josh Earnest referred to a  “well-established process in place” for making such decisions. The Nebraska case was the last remaining part of that process, as the State Department has already given the pipeline a clean bill of environmental health.

As for the president himself, in delivering his Climate Action Plan back in the summer of 2013, he said:

I do want to be clear: Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interest. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward. It’s relevant.

Odd that he should say that in June of 2013 when a month earlier, in May of 2013, I testified before Congress as to that climate math of the Keystone XL pipeline and found its effect on our climate was inconsequential, resulting in less than 1/100th of a degree of warming by the end of this century. Case closed.

Before the Nebraska decision, Congress was preparing to send legislation to the president’s desk that would wrest the decision from the State Department. But now that the Nebraska court decision has been handed down, Obama can steal the thunder for himself and simply grant approval to the pipeline.

And, who knows, with today’s oil economics, perhaps the pipeline will not be built, and the president can have his cake and eat it too.

Mark A. Calabria

According to a White House release, the Federal Housing Administration (FHA), which insures lenders’ against borrower default, will be lowering its annual premiums. While I believe this to be a reckless move in the wrong direction, I am the first to say that setting the appropriate premium is a lot harder than it looks.

The fundamental problem facing any insurer, like the FHA, is that the risk profile of borrowers is influenced by the premium rates they are charged. Obviously a rate that is set too low will not cover losses and the insurance fund will lose money. But a rate set too high will drive away low-risk borrowers and leave the insurer covering only high risk borrowers (and likely also losing money). An insurance fund can easily find itself in a position where it needs to raise rates to cover losses from risky borrowers, but each rate increase only drives out the good borrowers, making the risk composition of the pool ever worse. If you want to see this spelled out with a lot of fancy math, I refer you to Joe Stiglitz and Andrew Weiss’s classic paper on the topic (which builds upon earlier work by Dwight Jaffee).

Figure 3 from Stiglitz and Weiss (below the jump) illustrates this tension. If you want to attract both low- and high-risk borrowers, you need to have a much lower rate than if you only want to attract high-risk borrowers. In fact, one of the rationales I often hear from advocates of expanding the FHA is that doing so will improve the health of the fund by attracting better quality borrowers.

The problem with this is that President Obama is quite explicit that his desire is to lower the credit quality of FHA borrowers. From the White House fact sheet: “FHA premium reduction will help hundreds of thousands of additional families own a home for the first time.” This initiative is targeted at first-time buyers, those who have not been able to get a loan previously. First-time buyers who have been previously “waiting on the sidelines” are likely to be younger and hence have lower credit scores on average, or else be older buyers who have had trouble finding credit because they are high-risk.

Such is also borne out in the FHA’s most recent origination report, which shows average FICO scores (a measure of creditworthiness) declining over recent years. Almost 60 percent of recent FHA borrowers have FICOs below 680. Almost 75 percent made a down-payment of less than 5 percent. If they would need to sell their homes within a few years of purchase, then given the transactions costs they’d need to bring cash to the table. This is not a high-quality book of business. 

As I wrote almost three years ago, if the FHA is serious about rebuilding its financial health and protecting the taxpayer, it needs to move in the direction of reducing its lending to higher-risk borrowers. If the agency is unwilling to do so, which appears to be the case, then any change in premiums should be up not down.

 

Neal McCluskey

Word came out last night that in a speech in Tennessee today President Obama will propose that two years of community college be made free to all “responsible” students, primarily funded by federal taxpayers. But one look at either community college outcomes or labor market outlooks reveals this to be educational folly.

The fact of the matter, according to the federal government’s own data, is that community college completion rates are atrocious. The federal Digest of Education Statistics reports that a mere 19.5 percent of first-time, full-time community college students complete their programs within 150 percent of the time they are supposed to take. So less than 20 percent finish a two-year degree within three years, or a 10-month certificate program within 15 months. And that rate has been dropping almost every year since the cohort of students that started in 2000, which saw 23.6 percent complete. Moreover, as I itemize in a post at SeeThruEDU.com, even when you add transfers to four-year schools, the numbers don’t improve very much. Meanwhile, interestingly, the for-profit sector that has been so heavily demonized by the administration has an almost 63 percent completion rate at two-year institutions, and that has been rising steadily since the 2000 cohort.

The other huge problem is that the large majority of job categories expected to grow the most in the coming years do not require postsecondary training. Of the 30 occupations that the U.S. Department of Labor projects to see the greatest total growth by 2022, only 10 typically need some sort of postsecondary education, and several of those require less than an associate’s degree. Most of the new jobs will require a high school diploma or less.

Of course, one of the biggest problems in higher ed is that for so much of it, someone other than the student is paying the bill, tamping down students’ incentives to seriously consider whether they should go to college and what they should study if they do. This proposal would only exacerbate that problem, essentially encouraging people to spend two years in community college fully on the taxpayer dime while they dabble in things they may or may not want to do—and as they maintain a pretty low 2.5 GPA—then maybe focusing a little more when the two years is up and they have to pay something themselves.

Unfortunately, there is no way to look at this proposal (at least as it has been spelled out so far), investigate the reality of community college, and conclude anything other than it is a terrible idea.

Nicole Kaeding

The House of Representatives voted this week to establish rules for the 114th Congress. One rule change requires that the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) dynamically score legislation. The change is a much-needed reform to the federal budgeting process.

The current legislative scoring process completed by CBO and JCT is generally called static scoring. It currently incorporates some microeconomic behaviorial responses to projected changes in federal spending and taxes.

But static scoring misses a big piece of the puzzle. It assumes that the size of the economy is constant. It does not include an analysis of the economy-wide responses to  policy changes. By constrast, dynamic scoring  acknowledges the obvious fact that actions of Congress could effect gross domestic product (GDP). 

Consider a hypothetical income tax increase from 35 to 40 percent. The tax increase may cause  individuals to work fewer hours and businesses to reduce their capital investment. Those sorts of decisions will be made by millions of individuals and businesses in response to tax changes. In aggregate, these responses would affect GDP. Dynamic scoring includes these macroeconomic responses.

Contrary to some opponents, dynamic scoring is not new to CBO. CBO has used dynamic scoring before. The large immigration bill in 2013 was dynamically scored to show how less stringent immigration policy could foster economic growth. CBO estimated the economic growth effects of the 2009 stimulus. And CBO’s long run spending projections include supplementary forecasts that include the effects of future spending, taxes, and deficits on economic growth. The House rule change requires that CBO and JCT use dynamic scoring on all  legislative cost estimates above a certain magnitude.

Dynamic scoring is not perfect. Its results are influenced by the assumptions made by the models used to produce the results. For this reason, CBO should make its models, assumptions, and data available to outside experts so it can receive feedback from scholars and improve its methods. But static scoring is even less perfect than dynamic scoring. Its assumption of constant GDP leads to results that are biased against policies that lead to economic growth, such as tax rate reductions.

Dynamic scoring will not be a cure-all, but it will be a helpful tool so policymakers can better weigh  policy options. Providing Congress with the best information available on policies to help grow the economy seems like a no-brainer. Congress should understand how its actions affect economic output. This rule change starts the new Congress off on the right foot.

K. William Watson

Some of the most vocal criticism of the Transatlantic Trade and Investment Partnership, a proposed trade agreement between the European Union and the United States, is coming from Europeans worried that the agreement will liberalize parts of their economy that it actually won’t.  This is a very frustrating situation, because supporters of the agreement are then forced to assure critics that the TTIP will not, in fact, do this particular good thing they don’t want it to do.

For example, people have claimed angrily that the TTIP will require the UK to privatize its National Health Service and then prevent the government from “renationalizing” it—that would be great, but it’s not true.  At most, the UK would be required to allow U.S. companies to participate if the government chose to privatize parts of the NHS and then compensate them in any future taking, as it would surely do anyway.  If the UK ever reforms its health system, it won’t be because of TTIP.

Now a new boogieman has emerged, with European news media fretting this week that the TTIP could require Europe to relax protections for geographical indications on cheese and meat products.

As reported in the Financial Times:

Christian Schmidt, Germany’s agriculture minister, said in an interview with Der Spiegel: “If we want to seize the opportunities of free trade with the enormous American market then we can’t carry on protecting every sausage and cheese speciality.”

Food producers, politicians and campaigners against the trade deal seized on his remarks as evidence that the protection of regional brands would be sacrificed to globalisation.

[But] Daniel Rosario, spokesman for the EU, insisted that TTIP would not undermine European food brands or weaken intellectual property safeguards.

“On the EU side, we have made clear to our American counterparts that geographical indications are one of our main priorities and we have not agreed and will not agree to reduce the protection of our geographical indications in Europe,” he said.

Despite what a German official may have said, the EU is not only committed to maintaining its GI protection scheme but is intent on spreading it internationally.  If the TTIP does impact the use of geographical indications it will likely be to require the United States to recognize and protect European GIs in the U.S. market.

That’s a real shame, because Europe’s method for protecting GIs is bad for European consumers.  U.S. policymakers should avoid imitating it.

Sometimes when a product uses the name of a place, it’s to indicate origin.  For example, any consumer that purchased  Napa Valley wine, Wisconsin cheese, or Florida orange juice expects that some or all of the product was produced in those locations.  On the other hand, lots of place names are generic indicators of a product’s characteristics.  For example, no one thinks Philly cheesesteak, Boston cream pie, or Texas toast have to be made only in those places.

The proper way to distinguish between these different uses of place names is to gauge consumer expectation.  However, many countries in Europe, and the EU itself, protect GIs not to prevent consumer confusion but to secure advantages for traditional producers.  They use restrictions on language in order to prevent names from becoming generic, and are trying to claw back names that have already become generic in foreign markets.

Americans would be surprised to learn how many of the foods they eat have names that Europe thinks are GIs in need of protection.  The most well-known example of a term that is generic to Americans but not Europeans is champagne, which to most Americans simply means wine with bubbles.  But cheeses like asiago, parmesan, and gorgonzola are also regulated geographically in Europe as well as countless other descriptive terms like Cornish pasty and Greek yogurt.

The result for Europe is a market where quality and geography are legally tied together.  This system pleases local producers and politicians, but it also kills innovation and prevents the development of efficient supply chains.  Consumers may know just where their cheese came from, but without competition, they will have to pay more for it and it probably won’t taste as good.

David Boaz

Through Tammany Hall, the New York City Democratic political machine in the late 19th century, “Boss” William M. Tweed essentially controlled the city’s government and much of the state’s. Like most political leaders he never felt entirely secure, and he tried to bully his opponents, including journalists. He is famously reported to have been especially outraged by cartoonists such as Thomas Nast, and to have roared to his associates,

Let’s stop them damn pictures. I don’t care so much what the papers write about—my constituents can’t read—but damn it, they can see pictures.

It seems that Islamic extremists may feel the same way. Theo van Gogh was murdered after producing a film about Islam. The publication of cartoons about Muhammad in the Danish newspaper Jyllands-Posten generated much outrage and numerous death threats. And now we have the brutal murders of cartoonists and other journalists from the French newspaper Charlie Hebdo. At least Boss Tweed just used bribery and corrupt politics to ruin his enemies.

Walter Olson wrote eloquently in Time magazine yesterday about the Charlie Hebdo murders and the challenge they present to liberal society:

There is no middle ground, no soft compromise available to keep everyone happy–not after the murders at the satirical newspaper Charlie Hebdo. Either we resolve to defend the liberty of all who write, draw, type, and think–not just even when they deny the truth of a religion or poke fun at it, but especially then–or that liberty will endure only at the sufferance of fanatical Islamists in our midst. And this dark moment for the cause of intellectual freedom will be followed by many more.

Flemming Rose, the editor who commissioned the Jyllands-Posten cartoons, writes about threats to free speech in his book The Tyranny of Silence, published recently by the Cato Institute, and in various articles and interviews.

And herewith my favorite Thomas Nast cartoon, not primarily about Boss Tweed’s corruption, but about “Peace with a War Measure” – peace and liberty shackled by the income tax.

 

Ilya Shapiro

Our immigration system is broken and Congress has shamelessly refused to fix it. Of course, this unfortunate circumstance doesn’t give the executive branch the power to institute reforms itself. Yet through a recently announced policy known as Deferred Action for Parental Accountability (DAPA), President Obama has given partial legal status to more than four million illegal migrants, entitling them to work authorizations and other benefits.

This unilateral action is good policy, bad law, and terrible precedent. Perhaps most importantly, it violates the separation of powers and is thus unconstitutional.

In what is becoming a routine occurrence under this administration, 25 states have sued the federal government in response to this executive action. The case is now before a federal district judge in Brownsville, Texas, who is entertaining the plaintiffs’ motion to enjoin DAPA.

Cato, joined by law professors Josh Blackman, Jeremy Rabkin, and Peter Margulies, has filed an amicus brief supporting the motion. It’s highly unusual for Cato to file at the district court level—indeed amicus briefs of any kind are unusual in this forum—but this is a highly unusual situation.

To be clear, we support comprehensive reform that would provide relief to the aliens protected by DAPA (among many other goals), but it’s not for the president to make such legislative changes alone.

President Obama has defended his action by citing past deferrals for (1) battered and abused aliens, (2) aliens involved in human trafficking, (3) foreign students affected by Hurricane Katrina, and (4) widows of U.S. citizens. But these deferred actions, to the extent they’re relevant here, served as temporary bridges from one legal status to another, not tunnels that undermine legislative structure or detours around the law to hitherto unknown destinations. Moreover, they were several orders of magnitude smaller than DAPA, in the tens of thousands not the millions. Most significantly, they were all approved by Congress.

None of these principles holds true for DAPA. The administration itself stated the applicable test in the memorandum setting out DAPA’s legal justification: “an agency’s enforcement decisions should be consonant with, rather than contrary to, the congressional policy underlying the statutes the agency is charged with administering.” This executive action represents a fundamental rewrite of the immigration laws that is inconsistent with the congressional policy currently embodied in the Immigration and Naturalization Act (INA)—a policy that, again, those who joined this brief by no means endorse.

As Prof. Blackman explains in a new law review article, DAPA is in palpable tension with the INA, implementing under the guise of executive discretion wholesale waiver/suspension/deferral that swallows the enforcement rule. Indeed, Congress rejected or failed to pass immigration-reform bills reflecting this policy several times, so executive power in this area is “at its lowest ebb,” to use Justice Robert Jackson’s famous formulation from the 1952 Steel Seizure Case.

In our constitutional architecture, executive action based solely on Congress’s resistance to presidential policy preferences has no place. While we agree that the immigration laws need to be overhauled and sympathize with the plight facing undocumented aliens, the path designed by the Framers for implementing needed reforms goes through the halls of Congress. Unilateral exercises of power such as DAPA undermine the separation of powers and ultimately the rule of law.

Judge Andrew Hanen, who was nominated by George W. Bush and unanimously confirmed by the Senate, will hold his preliminary injunction hearing in Texas v. United States on Jan. 15 in Brownsville, Texas.

Chris Edwards

The Washington Post reported that NASA spent $349 million on a rocket test facility that is completely unused. It is an impressive structure, a handsome monument to congressional folly, as the photo shows.

The story made me ponder an idea I’ve had for a while. Why not collect similar stories of federal waste and present them in a Museum of Government Failure in Washington?

About 18 million tourists visit D.C. each year. They view the grand government buildings, and they see the monuments to the great political leaders. They learn about the government’s successes in places such as the Air and Space Museum, and they read the pro-government history in places such as the Capitol Visitor Center. They also might notice the man-and-horse statue outside the FTC, which signifies the government’s heroic battle to strangle trade.

We need more balance in the D.C. tourist experience. Major failures are a fundamental part of the government’s story, but most of the boondoggles and scandals get forgotten. How many people remember the appalling scandals at HUD during the 1980s? Or the $2 billion down the drain on the Superconducting Supercollider, or the $10 billion down the drain on the Yucca Mountain waste site?

I envision a museum near the Smithsonian that would give tourists a reality-based perspective on the government. It could display a scale model of the NASA rocket facility with photos of the politician responsible, Sen. Roger Wicker (R-Miss.). It could explore failures in history, such as a diorama of a boondoggle Indian trading post from the 1790s. It could have a video screening room showing disgraceful moments caught on tape, such as the Abscam sting of the late 1970s. So if there is a philanthropist out there who wants to educate Americans on the government’s real track record, this is an idea to consider.

I Googled the other day, and was pleasantly surprised that someone is proceeding with such a project. Jim and Ellen Hubbard have proposed a Museum of Government Waste, and have filmed a related movie. I understand that their idea began as an investigation into pork barrel politics, but they are now considering an actual museum. Budget expert David Williams is also involved in the project.      

It will be interesting to see what these folks come up with. Good for them for taking the initiative. They should note that the problem in Washington is broader than just “waste” in the sense of porky projects. Instead, it is government failure on a grand scale, meaning the vast spending and regulation that costs us much more than it benefits us, while also reducing our freedom. I’m not sure how that can be captured in museum displays, but it is worth a try. A possible model is the private International Spy Museum in D.C., which gets 600,000 visitors a year.

One issue that a Museum of Government Failure would have to tackle: What should be sold in the gift shop? Perhaps a Lego kit of the Bridge to Nowhere? T-shirts with the humorous “I am not a crook” line? Science kits with experiments in ethanol and other wasteful energy sources?

One thing for sure is that the museum should not take any federal grants: that would guarantee that construction costs would soar!

Daniel J. Ikenson

President Obama is in Michigan today, which means his handlers at the White House recently consulted their very thin manila file folder labeled “Economic Successes or Anything That Might Pass for Such” to cull talking points about the auto bailout. Of course, nothing has been more celebrated as an economic policy success of this administration by this administration than the “rescue” of GM and Chrysler.   I spent a good deal of time in 2008-2010 analyzing, commenting, and testifying about the collateral damage–the often unseen but important externalities and longer term costs–that was being inflicted on third parties, the U.S. economy, and the rule of law, all for the purpose of ensuring that specific interests were insulated from the consequences of their behavior. So let me just summarize by repeating some previous thoughts.   It is galling to hear the auto bailouts characterized as “successful.” The word should be off-limits when describing this unfortunate chapter in U.S. economic history. GM and Chrysler, through their own relatively poor decisions with respect to labor contracts, product offerings, and quality management, failed by the market’s judgment and were rightful candidates for downsizing or liquidation. The bailouts essentially deprived the better auto companies of the spoils of competition and forestalled a capacity reckoning, which meaning that in the years ahead, auto workers in Alabama, Tennessee, South Carolina, Indiana, and even Michigan and Ohio may lose their jobs because GM and Chrysler were propped up beginning in 2009.   Calling the bailouts “successful” is to whitewash:
  • the diversion of funds from the Troubled Assets Relief Program by two administrations for purposes unauthorized by Congress;
  • the looting and redistribution of claims against GM’s and Chrysler’s assets from shareholders and debt-holders to pensioners;
  • the use of questionable tactics to bully stakeholders into accepting terms to facilitate politically desirable outcomes;
  • the unprecedented encroachment by the executive branch into the finest details of the bankruptcy process to orchestrate what bankruptcy law experts describe as “sham” sales of Old Chrysler to New Chrysler and Old GM to New GM;
  • the costs of denying Ford and the other more deserving automakers greater market share and access to GM’s and Chrysler’s best workers and capital;
  • the costs of insulating irresponsible actors, such as the United Auto Workers, from the outcomes of an apolitical bankruptcy proceeding, and;
  • the diminution of U.S. moral authority to counsel foreign governments against similar market interventions, to name some.
Acceptance of the president’s claim of auto bailout success demands profound gullibility or willful ignorance and virtually guarantees similar interventions in the future. 

David Boaz

While other matters dominate the headlines, American governments continue to spend more money, despite the presumed effects of the Great Recession. Washington Post reporter Abha Bhattarai lays out the latest details:

State and local governments in Maryland, Virginia and the District spent $7.82 billion more than they collected in revenue between 2007 and 2012, during the throes of the economic downturn, according to data released from the U.S. Census Bureau last month….

State and local governments in Virginia spent $1.03 billion more than they took in between 2007 and 2012, while expenditures in Maryland outpaced earnings by $6.07 billion….

Nationally, state and local governments spent $118.15 billion more than they collected between 2007 and 2012. Total expenditures during that period increased by 18.2 percent, from $2.7 trillion to $3.2 trillion, while total revenue declined 3.2 percent over the same five-year period, from $3.1 trillion to $3.0 trillion.

Over that five-year period, plenty of businesses, families, and nonprofits found their revenue declining by more than three percent, and most responded by spending less.

Of course, it’s often said that governments spend when times are good and the tax revenue is rolling in, then find themselves over-extended and facing painful cuts when growth slows down. But the evidence above suggests that governments just keep spending even as the money stops rolling in. It’s exceedingly difficult to get governments to spend less, especially when every government dollar helps to create pro-spending constituencies who will resist cuts. Spending interests never rest; taxpayer groups have to work twice as hard just to hold the line.

One side note: The online headline for this article is

State, local governments continue to spend more than they earn

Actually, I don’t think governments “earn” money. Merriam-Webster defines “earn” as “to receive as return for effort and especially for work done or services rendered.” Governments don’t earn, they take. Just try saying “I don’t find your services worth the money, and I won’t be renewing my contract.”

For more on state government spending, see Cato’s latest “Fiscal Policy Report Card on America’s Governors.”

 

Michael F. Cannon

Tomorrow, the Republican-controlled House of Representatives will vote on a measure that would alter the definition of full-time work, for purposes of the Patient Protection and Affordable Care Act’s employer mandate, from 30 hours per week to 40 hours per week. The measure is likely to pass. The House approved a similar measure last Congress, but it never went anywhere in the Senate, which was then under Democratic control. Now that Republicans have a majority in the Senate, there’s a chance the measure could clear both chambers of Congress. The president threatens a veto. Yuval Levin writes this change “seems likely to be worse than doing nothing.”

I have a few questions about this supposed threat to ObamaCare:

  1. This legislation would reduce the burden of ObamaCare’s employer mandatem but it would also increase government spending by making more workers eligible for health-insurance subsidies through ObamaCare’s Exchanges. How is that a policy victory?
  2. The legislation would therefore shift part of ObamaCare’s cost from an organized and influential interest group (employers) to a disorganized and less-influential interest group (taxpayers). How is that strategically smart?
  3. The legislation would make ObamaCare more tolerable for an organized and influential interest group (again, employers), thereby reducing their incentive to lobby for full repeal. How is that strategically smart?
  4. House Republicans say they are committed to repealing ObamaCare entirely. If so, why is this bill, rather than a full-repeal bill, the first item on their agenda? 
  5. House Republicans say this bill will show they can govern. But they also acknowledge the president will veto it. How is that governing?
  6. This legislation would merely lessen the burden of the employer mandate, and only for some employers. By June, however, the Supreme Court could completely invalidate employer-mandate penalties for all employers across 36 states. (See King v. Burwell.) How is this legislation a wise use of Congress’ time, when a Supreme Court ruling could go much farther in just a few months?
  7. A King ruling could also invalidate Exchange subsidies in 36 states, thereby exposing millions of Americans to the full cost of ObamaCare’s hidden taxes. That would give Congress more leverage than ever before to reopen and repeal the law. With this legislation, House Republicans are playing small ball with no leverage. How is that strategically smart?
  8. If enacted, this legislation would actually reduce the leverage a King ruling would give Congress to reopen and repeal ObamaCare. How is that strategically smart?
  9. The president has said he would veto this legislation. Given the above, should Republicans believe him?

Note that many of these questions also apply to repeal of the employer mandate before a King ruling, and sometimes after.

(Cross-posted at Darwin’s Fool.)

Marian L. Tupy

The horrific killing of 12 people who ran the French satirical magazine Charlie Hebdo, which published the controversial Mohammed cartoons in 2011, by suspected Muslim extremists is likely to have serious consequences. In the short run, it will result in shock, grief, and possibly counterattacks on some innocent Muslims living in France. The long-term consequences of the shooting could be monumental.

First, the French could get their first female head of state since Queen Anne’s regency during the minority of Louis XIV. Queen Anne faced a massive revolt of the nobles known as the Fronde and a subsequent civil war. Ms. Marine Le Pen’s presidency could be similarly eventful.

While, as libertarians, we despise much of what Ms. Le Pen stands for, the two mainstream political parties in France, Mr. Sarkozy’s socialist center-right UPM and Mr. Hollande’s Socialist Party, have totally failed to address the legitimate concerns of the French citizens, chief among them the failure of multiculturalism and high unemployment. The country is ready to hand the reins of power to someone else.

Second, the euro will end its role as a global currency and remain a legal tender in something akin to Großdeutschland greater Germany, composed of Germany and her satellites, like the hapless Slovakia. Ms. Le Pen is mistaken in thinking that the French withdrawal from the euro will revive the French economy. French economic difficulties are primarily structural (i.e., high taxes and over-regulation), not monetary.

Be that as it may, Ms. Le Pen has set her sights on exiting the euro and, at least as far as this author is concerned, the sooner she puts the euro out of its misery, the better. They might even build her a statue in Athens. (Perhaps 2,000 years from now, it will be admired with as much reverence as Venus de Milo is revered today, but I digress…).

Third, on day two of a Le Pen presidency, border guards will return to the French frontiers. Of course, the end of the freedom of movement will be in full breach of all sorts of European treaties and conventions. (The British, by the way, would love to do the same, but cannot, because the British, being British, follow the rules. In contrast, the French, being French, will do what they have always done: follow their national interest.)

France will not be stopped. Because as it is big and powerful, it is not subject to the same rules that govern the rest of the EU. That is why the French have been allowed to make mincemeat out of the Maastricht Treaty without any consequences.

That will cause a major crisis in the EU and lead to a clarification of what the EU is–a cooperative arrangement between sovereign states–and what the EU is not–the United States of Europe.

Peter Van Doren

The latest issue of Regulation, which has just been released, examines several public health topics.

Many economists argue that “choice architects” should “nudge” Americans toward healthier decisions about their diets and physical activity. These nudges can come from government in the form of food taxes, information requirements, and other mechanisms, or through markets in the form of diet plans, reduced-calorie products, and fitness programs. Cal Poly professor Michael Marlow questions the scientific evidence supporting the governmental nudges because many promote weight-loss strategies that have proven ineffective or even counterproductive.

Cigarette taxes are rationalized as providing public health benefits.  But Professors Kevin Callison and Robert Kaestner demonstrate that because smoking rates are now so low further cigarette tax increases will have very little effect on smoking rates.  Thus future tax increase proposals cannot be justified by health benefits and instead should be debated on traditional public finance criteria.

Thomas Hemphill and Syagnik Banerjee explore the effects of some states enacting mandatory genetically modified organism(GMO) labeling.  These requirements would raise food prices nationwide by requiring fully independent food distribution networks for GMO and non-GMO foods, while implicitly and falsely suggesting to the public that GMO foods are unsafe. 

An article by American University’s Lewis Grossman argues consumers are much more empowered now than 50 years ago in areas of life regulated by the FDA.  The availability of medicines—and even of information about their efficacy and use—were once tightly controlled so that only physicians would have access.  Today, an ever-growing number of drugs are available over the counter, drugmakers can advertise direct to consumers, and drug labels are intended to be comprehensible to the layman.

Two articles examine environmental policy.  Economists Art Fraas and Randal Lutter criticize the U.S. Environmental Protection Agency’s recently released Clean Power Plan for reducing carbon dioxide emissions from U.S. power plants for failing to specify how much it would lower global temperatures.  One estimate is 0.018 degrees Celsius—surprisingly little gain for such a costly and extensive rule.  Lawyers Brian Potts and David Zoppo describe the legal basis for the civil suit challenging the EPA’s authority to issue such a rule.

On more general regulatory matters, Sam Batkins and Ike Brannon examine delays in the publication of regulations in the Federal Register. Though publication can happen almost immediately after completion of OMB review, some agencies delay publication for political reasons. Pierre Lemieux asks whether the extensive regulatory burden has had obvious negative effects on U.S. economic growth.

M. Todd Henderson and Adam Pritchard describe the history of class action securities regulation.  The current system provides ripe opportunities for inefficiency and mischief because long-term shareholders pay damages and settlements in such class actions even though those shareholders didn’t profit from the alleged misstatement, while shareholders who sold during the purported fraud period (including dishonest actors) would not make such payments.  The authors propose a special arbitration procedure in the event of a fraud claim that avoids the failure of Congress and the courts to reform the status quo.

Finally Kenneth Button quantifies  the economic benefits that have resulted from the Open Skies agreement liberalizing air travel between Europe and the U.S.

For these articles and many others, including book reviews and my Working Papers column, click here.

This blog post was coauthored with Regulation editorial assistant Nick Zaiac. 

Peter Van Doren

On Friday, the New York Times ran an op-ed by University of New Hampshire historian W. Jeffrey Bolster describing the long history of the decline of the stock of cod off the coast of New England.  The article corrects the misperception that the decline is recent or the result of modern industrial fishing methods.  Instead the decline started more than 150 years ago and is the not the result of deliberate action by anyone in particular, but the “system” itself.  By “system” he means the exploitation of an open access resource, in which no one owns the rights to harvest the stock.  In such an environment overfishing is the inevitable result because all have incentive to take as much as they can because others will if you do not.  Thus individual efforts at conservation are irrational.

Unfortunately his essay ends there and does not describe policy innovations that would create a better “system.”  In the Spring issue of Regulation, Jonathan Adler and Nathaniel Stewart argue that the best way to regulate fisheries for sustainable exploitation over long periods of time is a system of individual transferable quotas (ITQs), better known as catch shares.  In ITQ systems, the total allowable catch in a fishery is set by biologists to allow sustainable fishing without degradation of the stock. The rights to particular shares of the total catch are allocated to individuals, who may fish themselves, or sell or rent the rights to others. These systems have been successfully in use in a number of countries for decades.  Implementing them in the New England cod fishery would yield similar results.

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.         

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