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It appears that the Amtrak crash that killed seven people Tuesday resulted from speeding, but big-government advocates are already using this accident to make their case for more infrastructure spending. In fact, the problem is not too little money, but too much money going to the wrong places.

In 2008, President George Bush signed a law mandating that most railroads, including Amtrak, install positive train control (PTC) by December of 2015. PTC would force trains to slow or stop if the operator ignored signals or speed limits.

In 2009 and 2010, President Obama asked a Democratic Congress to give him $10 billion to spend on high-speed trains, and Congress agreed. Not one cent of that money went to installing PTC in Amtrak’s Northeast Corridor.

PTC would have prevented this accident. There was plenty of money available to install it, but the Obama administration, in its infinite wisdom, chose to spend it elsewhere. Two days ago, it would have been embarrassing to think that the government-run Amtrak hadn’t yet completed installation of PTC on its highest-speed corridor. Today, it’s a tragedy. But how is it the fault of fiscal conservatives?

This accident is just one more example of a political fact of life: Politicians are more likely to put dollars into new construction, such as high-speed rail, than to spend them on safety and maintenance of existing infrastructure. As John Nolte says on Breitbart, “Amtrak is not underfunded; it is criminally mismanaged.”

Transportation journalist Don Phillips presents one example of Amtrak mismanagement in the June issue of Trains magazine: instead of promoting a culture of safety, Amtrak has a culture of don’t care. Phillips points to a February report from Amtrak’s Inspector General that found that Amtrak has the least-safe working environment of any major railroad. Amtrak employees are more than three times as likely to be injured or killed on the job as employees of BNSF, CSX, Norfolk Southern, or Union Pacific.

This poor record, says the report, is a direct result of a lack of accountability “at all levels.” Employee injuries in 2013 were only one-twelfth as likely to result in disciplinary action as in 2009, resulting in employees who believe today that they “can ignore rules and safe practices with impunity.” Safety is of so little importance in the organization that three out of four of the employees interviewed by the inspector general believed that Amtrak’s safety record was better, not worse, than other railroads.

One reason why Amtrak has a poor safety culture may be that Congress has legally limited Amtrak’s liability for any single crash to $200 million. Imagine the outrage if Congress limited the liability of oil companies, pipeline companies, Monsanto, or other private corporations. Yet the progressives who wrote Amtrak legislation considered such a liability limit perfectly acceptable.

If Congress were to respond to this crash by increasing federal infrastructure spending, it is all too likely that much if not most of that money would go for useless new projects such as new high-speed rail lines, light rail, and bridges to nowhere. We don’t need intercity trains that cost several times as much but go less than half as fast as flying; we don’t need urban trains that cost 50 times as much but can’t carry as many people per hour as buses; we don’t need new bridges if bridge users themselves aren’t willing to pay for them.

As I’ve documented elsewhere, infrastructure that is funded out of user fees tends to be better maintained than infrastructure that is funded out of tax dollars. User fees also give transportation managers signals for where new infrastructure is really needed; if people won’t pay for it out of user fees, it probably isn’t necessary.

Before 1970, America’s transportation system was almost entirely funded out of user fees and it was the best in the world. Since then, funding decisions have increasingly been made by politicians who are more interested in getting their pictures taken cutting ribbons than in making sure our transportation systems run safely and smoothly.

This country doesn’t need more infrastructure that it can’t afford to maintain. Instead, it needs a more reliable system of transport funding, and that means one based on user fees and not tax subsidies or federal deficit spending.

Caleb’s latest podcast is an interview with Charles Murray on his new book, By the People: Rebuilding Liberty without Permission. You can watch the podcast below or download the audio here. Be forewarned: if you’re like me, you’ll be Kindle-ing the book before the interview ends.

The word “provocative” is applied to far too many books these days, and often to books that should instead be called “wacky.” Murray’s thesis fully earns the former adjective, and perhaps a touch of the second–and I write that as high praise.

He argues that American government today is so far divorced from the nation’s founding principles of limited government and individual liberty that it can’t be returned to those principles through normal political action. No presidential administration, congressional turnover, or set of SCOTUS appointments will restore the Commerce and General Welfare clauses. Thus, he writes, supporters of liberty should try to effect change through carefully chosen but broadly adopted acts of civil disobedience against publicly unpopular regulations. Some examples that come to my mind: people could become part-time Uber drivers, or cash businesses could routinely make deposits of $9,999, or parents could include cupcakes in their schoolchildren’s packed lunches.

Of course, public officials will try to punish the participants. But that’s good, Murray argues, for two reasons: First, it’ll consume a lot of the regulators’ surprisingly scarce resources in order to punish even a small percentage of the participants. Second, it opens the way for challenging the regulations in court–where, in recent years, they’ve had trouble surviving judicial scrutiny.

To fund those challenges and financially protect participants, he proposes the participants create a legal defense and compensation fund prior to any disobedience. In essence, the fund would be an insurer with a muscular legal wing, reducing regulatory violations to mere insurable events.

This last bit is what gives Murray’s book a touch of wackiness–but then, perhaps not. If the targets of civil disobedience are well chosen and participation is large, the participants as a group could benefit financially even though they’d pay the “insurance premium.”

I’m interested in reading parts of the book that Murray briefly mentions in the interview: how to select “stupid and pointless” regulations that would be good targets of civil disobedience, how exactly the insurance fund would operate, how to rally public opinion and attract support from non-libertarians, and perhaps most importantly, why does he think the general public–and not just libertarians–are tired of being hassled by regulators and government officials.

Could Murray’s idea spark a large wave of civil disobedience? Perhaps–with the help of insurance.

In 2010, the Federal Trade Commission approached an Atlanta-based medical testing company, LabMD, with accusations that it had wrongfully left its customer data insecure and vulnerable to hackers. LabMD’s owner denied that the company was at fault and a giant legal battle ensued. To quote my post last year at Overlawyered:

…according to owner Michael Daugherty, allegations of data insecurity at LabMD emanated from a private firm that held a Homeland Security contract to roam the web sniffing out data privacy gaps at businesses, even as it simultaneously offered those same businesses high-priced services to plug the complained-of gaps.

Last week, finally, after five years, the case reached an administrative hearing at the FTC, which heard “bombshell” testimony given under immunity by former Tiversa employee Richard Wallace:

After LabMD CEO Michael Daugherty refused to buy Tiversa’s services, Tiversa reported false information to the FTC about an alleged security incident involving LabMD’s data, Wallace claimed in his testimony.

CNN headlined its story “Whistleblower accuses cybersecurity company of extorting clients” – that is, by threatening to turn them in to the feds if they spurned its vendor services.

To be sure, allegations are merely allegations, and we haven’t heard Tiversa’s side of the story, except for a statement from its CEO Bob Boback: “This is an overblown case of a terminated employee seeking revenge. Tiversa has received multiple awards from law enforcement for our continued efforts to help support them in cyber activities.” The advisory board of the Pittsburgh-based security services company includes former four-star Army general and former Democratic presidential candidate Wesley Clark.

Two years ago, Daugherty wrote up his experience in a book, The Devil Inside the Beltway. Tiversa tried to stop its publication, saying it had been defamed. While the book got write-ups in various places – by our friend Edward Hudgins at the Atlas Society, for example – and while the story has drawn the interest of a House oversight committee and the group Cause of Action, the threatened litigation probably did chill some media coverage.

As for last week’s surprise testimony, it’s not clear the FTC was prepared for it:

FTC attorneys declined to cross-examine Wallace at the May 5 FTC administrative session, but they could still introduce a rebuttal witness later.

And per CNN:

If Wallace is telling the truth, the FTC aggressively prosecuted a company based on bogus evidence.

The FTC declined to comment, citing an ongoing lawsuit against LabMD, which still hasn’t reached its conclusion.

I was a little surprised that the FTC declined to comment. Should they change their mind, I’ve dashed off a comment that they might consider giving:

Much of our enforcement process against businesses is driven by complaints filed with us by jealous competitors, spurned vendors, and other vengeful or disappointed parties–often of some sophistication–as opposed to the consumers and small businesses who are frequently depicted as the beneficiaries of our work. We take very seriously the danger that such complaints will be used as a weapon or will be false themselves in whole or part. In all our investigations, we intend to respect a presumption of innocence; at the same time, we will not rest until we have uncovered the truth about the serious allegations Mr. Wallace has raised.

As for Mr. Daugherty’s business and its 40 employees, the news comes too late. Unable to sustain the business amid the legal battle, he stopped testing specimens and wound down LabMD last year.

According to opinion polls, Americans think the federal government is too big and too powerful. On average, people think that more than half of the tax dollars sent to Washington are wasted. When Gallup asked people what the most important problem facing the nation was, more people identified “government” than any other concern, including the economy, immigration, health care, and terrorism.

The people are right. The federal government is too big, too powerful, and too wasteful. Rather than defending our rights to life, liberty, and the pursuit of happiness, the federal government often abuses those rights. The bigger it is, the more it abuses, and less well it functions.

The solution is a major downsizing. I have posted an updated plan to cut spending and balance the federal budget by 2020. The plan includes cuts to low-value and harmful programs across the government. Whether or not the government was running deficits, the proposed cuts would make sense because they would generate growth and expand freedom.

Political leaders should listen to the public’s concerns about big government. They should help lead a national discussion on programs to eliminate, devolve to the states, and privatize. They can start with the items in my new plan, including cuts to subsidies, entitlements, and state aid.

Why cut? Because Americans would gain more net benefits from the federal government if it were much smaller.

The Wall Street Journal today reports a policy shift that I had predicted and recommended 20 years ago. Rachel Emma Silverman writes:

Amid a push that has made same-sex marriage legal in 37 states and the District of Columbia, some employers are telling gay workers they must wed in order to maintain health-care coverage for their partners. About a third of public- and private-sector employees in the U.S. have access to benefits for unmarried gay partners, according to a federal tally, but employment lawyers say the fast-changing legal outlook is spurring some employers to rethink that coverage.

“If the Supreme Court rules that suddenly there is marriage equality in 50 states, the landscape totally changes,” says Todd Solomon, a law partner in the employee-benefits practice group at McDermott Will & Emery in Chicago, who has been tracking domestic partnership benefits for nearly two decades.

Such a decision will likely result in more employers dropping same-sex partner benefits in favor of spousal benefits, according to Mr. Solomon.

Over the past decade, a growing share of companies has offered coverage for gay employees and their partners as a way to provide equal benefits for couples who couldn’t legally wed. Others companies offer coverage more broadly to unmarried domestic partners, regardless of sexual orientation. 

Now, some employers who offer benefits targeting same-sex partners say it is only fair to require those couples to marry where legal, just as their straight co-workers must do to extend coverage.

I anticipated that eventuality in a January 4, 1995, op-ed in the New York Times, as the movement for marriage equality, civil unions, and domestic partnership was just beginning:

In 1992 Stanford University extended benefits to domestic partners of homosexuals (but not heterosexuals) because “their commitment to the partnership is analogous to that involved in contemporary marriage,” said Barbara Butterfield, a university vice president.

Governments invariably get this wrong, while businesses usually get it right. Every city that has adopted domestic partnership laws has included both same-sex and heterosexual couples, and in almost every case more heterosexuals than homosexuals have filed for partnership status.

But many private organizations—including Stanford, Montefiore Medical Center, Lotus Development Corporation and the Public Broadcasting Service—have extended benefits only to same-sex couples. Most of these companies have said that if homosexual couples are allowed to legally marry, these policies would be ended—which is as it should be.

Actually, I had made the point somewhat more bluntly a year earlier in Liberty magazine (not online apparently, but cited here):

Once again, businesses get it right and governments get it wrong:  Businesses are taking the appropriate position that “if you want the benefits of marriage, get married; but if the state won’t let you get married, we’ll be more progressive.”  Governments just see domestic partnership as one more goodie to hand out; businesses see it as a way of remedying an unfairness, not to mention retaining valued employees.

I was wrong about businesses. Eventually, most large businesses did offer partnership benefits to same-sex couples, but a large percentage of them also made the benefits available to heterosexual couples. There are no doubt more unmarried heterosexual partners working at most businesses than unmarried gay partners, so eventually the “marry if you can” standard didn’t hold out. 

But now, as the Journal notes, if marriage equality becomes universal, companies are likely to start returning to the policy of offering spousal benefits only to actual spouses.

That, some of you may recall, was the name of a November 1, 2013 conference put on by the Mercatus Center. (The full name was actually “Instead of the Fed: Past and Present Alternatives to the Federal Reserve System”). The proceedings of that conference–or most of them, at any rate–are now available in a special issue of the Journal of Financial Stability, edited by yours truly.

Although online access to the articles is by subscription only, individual contributors have temporary, open links to their own articles. Here is mine on “Synthetic Commodity Money.”

The controversy over the upcoming military exercise called “Jade Helm 15” is unfortunate.  It is unfortunate because there really are some alarming trends underway here in the United States, but instead of finding common ground, the Right and the Left too often talk past each other.  Some examples:

Recall the militaristic raid to snatch Elian Gonzales?

The Right said, “That’s outrageous!”

The Left’s reply was, “What are you talking about?  That’s just law enforcement.”

Recall the militaristic police response in Ferguson last summer?

The Left said, “That’s outrageous!”

The Right’s reply was, “What do you mean?  That’s just law enforcement.”

***********************************************

Let’s take a step back from specific incidents and look at some of the broader trends that have been underway.  First, the line between the police and the military has become badly blurred.  The military itself is more involved in policing and the civilian police are now more militarized.  This is worrisome because the military does not typically concern itself with rights of persons on the other side of the battlefield.  Second, the National Security Agency’s powers used to be directed outward, but we now know those powers are directed inward, on the communications of Americans.  Third, presidents (red & blue) claim the power to take our country to war, and that when we are at war, presidential power trumps constitutional rights.  High-ranking officials tell us that America–from Seattle to Miami (and all the tiny towns in between)–is a “battlefield.”  That’s a bold and disturbing claim since there are no rights on the battlefield, only raw power.

As the next presidential contest gets underway, let us hope these important matters get the attention they deserve. 

Not entirely unsurprisingly, the Senate failed to reach cloture on Tuesday, falling eight votes shy of the 60 needed to start the timer on debate over Trade Promotion Authority (TPA), which will be needed to conclude the Trans-Pacific Partnership (TPP) negotiations and bring it to a timely vote in Congress.  The cloture vote concerned two of four pieces of trade legislation voted out of the Finance Committee two weeks ago (TPA and Trade Adjustment Assistance).  Senate Majority Leader Mitch McConnell excluded the other two bills, which contain language that would attract Democratic support. So, while I wouldn’t bet the ranch on TPA’s passage, there’s still room for horse trading.

In more surprising (and disappointing) news, one senator who will say “no” if TPA makes it to the floor for a vote is Rand Paul, who explained his reasoning on a New Hampshire television news broadcast:

We give up so much power from Congress to the presidency, and with them being so secretive on the treaty, it just concerns me what’s in the treaty.

Let me take Paul’s issues with power, secrecy, and content in order.

Certainly, this president has accelerated the trend toward executive aggrandizement and that warrants concern and correction. But it’s a stretch to conclude that TPA (despite containing the word “Authority”) gives the president power at the expense of Congress.  TPA is a compact between the legislative and executive branches, each of which has distinct constitutional authorities in the formulation of trade policy.  The way TPA works is as follows: Congress delegates the president as the point person responsible for conducting negotiations and requires him or her to fulfill a long list of congressional trade policy objectives in the course of those negotiations.  If the president brings back an agreement that satisfies Congress’s requirements, the agreement is given fast track consideration, which means a guaranteed up-or-down vote with no amendments within a set number of days after the signed agreement is announced. If the trade agreement is found to have not met the congressional objectives spelled out in the TPA legislation, it can be taken off of the fast track by way of a majority vote in the Senate Finance or House Ways and Means Committees.  Sen. Paul doesn’t seem to be invoking objections on any specific constitutional grounds, though he laments what he characterizes as a transfer of power from Congress to the president. 

The claim that the administration has been secretive about the negotiations and related processes has some merit, but access to the details of ongoing trade negotiations has always been limited.  Allegations of excessive secrecy have been thematic in the Far Left’s hyperbolic narrative that the TPP is about President Obama selling out labor, the environment, product safety, access to medicines, and regulating in the public interest for the benefit of those evil multinational corporations.  But as the president has belatedly and clumsily attempted to assuage the Left’s fears with assurances that the TPP is the most progressive trade agreement in history, complete with the most robust environmental and labor protections, including guaranteed minimum wages in partner countries, he has raised concerns among conservatives and libertarians about what exactly the president plans to spring on us.  That, I believe, justifies Paul’s reticence.

But the bottom line is this: Congress and the public will have the opportunity to scrutinize the TPP for 60 days before the agreement is signed, up to another 135 days during the “Reporting and Mock Markup” period, and up to another 90 days during the “Congressional Consideration and Implementation” period.  If Sen. Paul and his colleagues don’t like the contents of the agreement, they can vote “no.” 

So, if I were a senator and an advocate of economic freedom who happened to be understandably suspicious about the president’s agenda, I would vote “yes” for TPA, which opens the door to the possibility of even seeing a completed TPP.  Then, if after evaluating the TPP’s contents my worst fears were confirmed (or, more succinctly, if it were not net liberalizing), I’d vote “no” on its implementing legislation.  The error in voting “no” on TPA, though, is that if TPA fails to pass, we won’t see the TPP and we forgo the opportunity to pass a potentially good, net liberalizing trade agreement, which doesn’t come around all too often.

That’s why Rand Paul has it backwards.

The SEC has come under fire lately for its use – some might say overuse – of internal administrative proceedings.  The SEC’s use of administrative proceedings and administrative law judges (ALJs) is by no means unique within the federal government.  Thirty-four agencies currently have ALJs.  Nor is the SEC the heaviest user of administrative proceedings or ALJs; the Social Security Administration has that distinction, with more than 1,300 ALJs according to the most recent data available.  The SEC, by comparison, has only five ALJ positions, two of which are recent additions. 

The SEC’s ALJs have been in the spotlight due to a provision in Dodd-Frank that expands their ability to impose fines.  In the past, the SEC could impose monetary sanctions only on individuals and entities registered with the Commission – typically brokers, investment advisors, and similar entities and their employees.  By registering with the SEC, it was reasoned, these individuals and organizations had submitted to the SEC’s jurisdiction.  Others could be brought before the SEC’s tribunals for violating federal securities laws, and the ALJs could make findings of fact (that is, decide which side’s version of the facts was correct) and issue cease and desist orders, but could not impose fines.  Instead, the SEC’s lawyers would have to bring a separate case in federal district court.  Under Dodd-Frank, registered and unregistered persons are treated the same.

Administrative proceedings have their advantages.  Like a federal judge, an ALJ can issue subpoenas, hold hearings, and decide cases.  Because an ALJ’s cases deal with a very narrow area of law – only that related directly to the ALJ’s agency – the ALJ’s knowledge of that area tends to be deeper than that of a federal judge who hears a broad range of civil and criminal cases.  The proceedings before ALJs tend to be somewhat truncated, with fewer procedural requirements than federal district court, allowing the case to be decided more quickly. 

While administrative proceedings have some advantages, there are also disadvantages, especially for defendants. There are no juries, which raises questions about the constitutional right to a trial by jury, especially if ALJs impose quasi-criminal sanctions such as imposing fines.  (There are, more generally, also constitutional questions about whether there is appropriate separation of powers between the judicial and executive function in agency hearings, and whether the current method of selecting ALJs violates the appointments clause.)  The speed with which administrative proceedings move can also disadvantage a defendant; by the time the SEC has filed charges, it has already prepared its case, leaving the defendant to play catch-up.  In addition, because the discovery process in administrative proceedings is limited, defendants’ ability to obtain exculpatory documents from the SEC is also limited.  Finally, although ALJs are expected to remain neutral in fulfilling their duties, they are a part of the agency whose case they are hearing.  Justice demands not only actual impartiality from the court, but the appearance of impartiality as well.  As an agency’s ALJs approach a win rate of 100 percent, the appearance of impartiality fades.

Almost certainly in response to the recent criticism, this past Friday the SEC released guidance on how its enforcement division chooses whether to pursue a case in federal district court or before an ALJ.  The guidance is vague.  In general, the SEC tells us:

There is no rigid formula dictating the choice of forum.  The Division considers a number of factors when evaluating the choice of forum and its recommendation depends on the specific facts and circumstances of the case.  Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case.  Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum.   

These factors include: (1) the availability of the desired claims, legal theories, and forms of relief in each forum; (2) whether any charged party is a registered entity or an individual associated with a registered entity; (3) the cost‐, resource‐, and time‐effectiveness of litigation in each forum; and (4) fair, consistent, and effective resolution of securities law issues and matters.  Absent from the guidance is the recognition that it is the “availability of the…claims, legal theories, and forms of relief” that the SEC desires that factors into the determination. 

This “guidance” is troubling.  The fact that it is unlikely to be unique among federal agencies is also troubling.  The agency should not be able to choose to bring the case in the venue where it’s more likely to win (i.e., because it can use “desired…legal theories”).  It should not be able to choose a venue because certain “forms of relief” (i.e., punishments) are unavailable in the other venue.  To be sure, such “forum shopping” happens even outside of administrative proceedings.  A criminal case may be brought in federal court instead of state court because prosecutors believe they are more likely to prevail in federal court.  But such concurrent jurisdiction between state and federal court pits two sovereigns – the state and the federal government – against one another, creating certain checks on each other’s power.  In the case of an agency’s attorneys choosing an ALJ over a federal district court, you have simply increased the ways in which the government can win.

On November 20, 2014, President Obama unveiled DAPA, an executive policy that would defer the deportation of up to four millions illegal aliens and afford them work authorization. One week later, Texas, joined by 25 other states, filed a lawsuit against this unprecedented expansion of executive power.

Cato, joined by law professors Josh Blackman, Jeremy Rabkin, and Peter Margulies, filed an amicus brief supporting the challenge. While we broadly support comprehensive immigration reform, we argued that DAPA violated the president’s constitutional duty to take care that the laws were faithfully executed because this action went far beyond merely setting priorities on who will be pursued and deported given finite enforcement resources. It was highly unusual for Cato to file in a district court—amicus briefs of any kind are rare at this level—but this was a highly unusual situation.

On February 16, 2015, Judge Andrew Hanen blocked DAPA from going into effect, finding that the executive branch did not follow the proper administrative procedures—such as seeking comments from the public—before implementing what is effectively a substantive change in established immigration law.

The federal government appealed this judgment to the U.S. Court of Appeals for the Fifth Circuit (my old stomping grounds). It also filed for an “emergency stay,” arguing that Judge Hanen’s ruling causes irreparable damage to the United State and asking the appellate court to put it on hold. This was a cheeky maneuver given that Hanen’s ruling was itself a “temporary injunction” justified by the irreparable damage to the states that the judge determined would flow from DAPA’s operation. In effect, the government was asking for an “emergency” reversal of the district court, to which the Fifth Circuit panel didn’t seem particularly sympathetic at a hearing last month.

In any event, Cato has now filed a brief on the underlying appeal that again supports the 26 states and argues that President Obama’s action amounts to an illegal expansion of executive authority. While the lower court did not reach this constitutional issue, the president’s duty to faithfully execute the laws is a cornerstone of our separation of powers and provides the background architecture upon which the administrative state has been constructed.

Our message is simple: the implausible defense of the president’s unilateral executive action requires a level of legal sophistry that puts Humpty Dumpty to shame. As Justice Robert H. Jackson recognized six decades ago in the seminal case of Youngstown Sheet & Tube Co. v. Sawyer (the “Steel Seizure Case”), presidential lawmaking that lacks congressional support “must be scrutinized with caution.”

Such scrutiny will reveal that, even though Congress has previously authorized deportation deferrals and accompanying work permits, DAPA amounts to a deliberate effort to bypass Congress and conflicts with five decades of congressional immigration policy. The government implores the judiciary to believe that DAPA is a humdrum exercise of prosecutorial discretion based on modest new policy guidance that enable the Department of Homeland Security to prioritize resources. Don’t believe it. 

The Fifth Circuit has yet to set a hearing date for Texas v. United States but, assuming as expected that it denies the government’s motion for emergency stay, will likely hear argument this summer.

Former Arkansas Governor Mike Huckabee launched his presidential campaign last week. Huckabee highlighted his fiscal successes as governor during his announcement. He claims that he cut taxes 94 times while governor, and he promised to bring his tax-cutting experience to Washington, D.C. Huckabee’s statements do not tell the full story. While Huckabee cut some taxes, his time in office also included a rapid increase in Arkansas state spending and multiple tax hikes. 

Huckabee took office in July 1996 after Governor Jim Guy Tucker was convicted for his involvement in the Whitewater scandal. Shortly after taking office,  Huckabee signed a $70 million  package of income tax cuts. It eliminated the marriage penalty, increased the standard deduction, and indexed tax brackets to inflation. The broad-based tax cut was Arkansas’s first in 20 years.  Huckabee followed it with a large cut to the state’s capital gains tax. These tax cuts were popular, and they improved Arkansas’s economic climate.

Huckabee’s fiscal policies then changed direction. Huckabee used the state’s tobacco settlement money to expand Medicaid, and he supported a large bond initiative to increase spending for infrastructure. These and other spending policies came with a hefty price tag.

When Huckabee was in office during fiscal year 1997, Arkansas general fund spending was $2.6 billion, according to data from the National Association of State Budget Officers. By 2007, Huckabee’s last year in office, general fund spending had grown by 54 percent to $4 billion. Total state spending–which includes spending from federal aid and other non-general sources–grew even faster. Over the same period, it rose from $8.3 billion to $16.1 billion, an increase of 94 percent.

Huckabee relied upon multiple tax increases to fund this rapid spending growth. According to data from the state of Arkansas, examined by the Washington Post, net taxes increased by $505 million during Huckabee’s tenure. Huckabee supported increases in the state gasoline, cigarette, and sales taxes. He instituted a three percent personal income surtax.

Huckabee’s scores on Cato’s Fiscal Policy Report Card show his growing embrace of big government. Cato’s report card includes various measures of tax and spending restraint, and assigns governors grades on an A through F scale. Below are Huckabee’s scores:

In 2006 Huckabee tied for the worst-rated Republican governor. The authors of the report summarized Huckabee’s fiscal record: “Like many Republicans, his grades dropped the longer he stayed in office…Huckabee’s leadership has left taxpayers in Arkansas much worse off.”

If elected president, Huckabee promises not to increase taxes and to control federal spending. However, given his proclivity for raising taxes and spending while governor, his promises ring hollow.

Note: This post is part of a series on the fiscal records of governors running for president. Previous editions covered include Martin O’Malley and Jeb Bush.

The Common Core War, over the last few months, has been fought on a largely new front: whether students can be forced to take state tests – in the vast majority of cases, Core-aligned tests – or whether parents and students can refuse. It is perhaps an even more fundamental question than whether the federal government may constitutionally coerce standardization and testing generally, and with Common Core, specific standards and tests. The testing battle is to a large extent about whether a child, in seeming opposition to the seminal Supreme Court ruling in Pierce v. Society of Sisters, is indeed a “mere creature of the State.”

The opt-out numbers are hard to pin down, though there is little question that some districts have seen very large percentages while others – probably the large majority nationwide – have seen few. It is also probably reasonable to conclude that the leader of the opt-out crusade has been New York State, where animosity toward the Core has been high since the state first rushed implementation and state officials, in an effort to calm things, actually inflamed them with a condescending approach to public engagement that launched weeks of recriminations. Last year the state saw an estimated 60,000 students opt out, which leapt to nearly 200,000 this year.

The root question, of course, is should students and parents be able to opt out without fear of punishment? And since punishment would be coming from a government institution – yes, that is what a public school is – that means without fear of punishment by the state. If children are, in part, creatures of the state – and Pierce did not say there is no legitimate state role in education – than punishment is legitimate. If, however, the public schools exist to serve fully free citizens, then punishment cannot be meted out for refusing the test; it is up to parents to freely decide whether or not their children are subjected to the tests.

So far the answer to whether students may opt out without fear of punishment has been muddled. In part this is for a good reason: federalism allows states – and within states, local control allows districts – to decide for themselves what they want their policies to be. Unfortunately, another part of the confusion lies with Washington, which has a law on the books – No Child Left Behind – that says 95 percent of students in a district must take state tests. The Obama administration, however, has issued waivers out of parts of NCLB to numerous states with various provisions, and it is unclear to whom the 95 percent requirement actually applies. Exacerbating this – and illustrating why a few clear laws beat rule by waiver, regulation, and cabinet secretaries – is that even if the 95 percent rule should technically apply, U.S. Secretary of Education Arne Duncan has mainly invoked the specter of federal force rather than stating clearly what he will do to under-95-percenters. Of course, there are likely political calculations behind this: he wants to push states and districts to force testing while being able to technically say, “Washington didn’t require anything.”

To a large extent, the opt-out conflict is no different than the seemingly endless battles over countless matters into which public schooling forces Americans. As we at CEF never get tired of saying – and politicians never get tired of ignoring – all children, families, and communities are different. They have different needs, desires, abilities, values, educational philosophies, and on and on, and no single system can possibly treat them all equally.  That is why educational freedom – connecting educational funding and decisions to individual children – is the essential reform. That said, if parents are allowed to opt their children out of government-dictated tests it would be a welcome move in the right direction. It would loosen the state’s grip on the children, at least a little bit.

Since before the Declaration of Independence, equality under the law has long been a central feature of American identity—and was encapsulated in the Constitution. The Fourteenth Amendment expanded that constitutional precept to actions by states, not just the federal government.

For example, if a state government wants to use race as a factor in pursuing a certain policy, it must do so in the furtherance of a compelling reason—like preventing prison riots—and it must do so in as narrowly tailored a way as possible. This means, among other things, that race-neutral solutions must be considered and used as much as possible.

So if a state were to, say, set race-based quotas for its construction contracts and claim that no race-neutral alternatives will suffice—without showing why—that would fall far short of the high bar our laws set for race-conscious government action.

Yet that is precisely what Montana has done. Montana’s Disadvantaged Business Enterprise (“DBE”) program implements a federal program aimed at remedying past discrimination against minority and women contractors by granting competitive benefits to those groups. While there may be a valid government interest in remedying past discrimination, in its recent changes to the program, Montana blew through strict constitutional requirements and based its broad use of racial preferences on a single study that involved weak anecdotal evidence—a study that recommended more race-neutral alternatives, not fewer.

Even worse, Montana’s federal district court upheld the new provisions. Although Montana did not show which race-neutral alternatives were considered, tried, or rejected as insufficiently addressing past discriminatory practices, the court upheld the DBE’s grant of benefits to groups that were not shown to have ever been discriminated against. The contracting company that brought the suit has appealed the case to the U.S. Court of Appeals for the Ninth Circuit.

Cato has joined the Pacific Legal Foundation and Center for Equal Opportunity in filing a brief supporting that appeal. We argue that Montana doesn’t meet the high standard of narrow tailoring in its approach to the DBE program because it (1) failed to establish that race-neutral measures were insufficient, (2) failed to seriously consider race-neutral alternatives, and (3) extended benefits to groups who never even suffered past discrimination. We point out that Montana also failed to adequately establish the very existence of the discrimination that its program purportedly intends to remedy.

By cutting corners and paying lip service to race-neutral solutions, Montana and the lower court have each done a disservice to the hard-won principle of equality under the law. We urge the Ninth Circuit to correct those mistakes when it takes up Mountain West Holding Co. v. Montana this summer.

On Friday, May 8, the public comment period closed for the new 2015 Dietary Guidelines issued by the U.S. Department of Agriculture (USDA) and the Department of Health and Human Services (HHS). In a nutshell, the new dietary guidelines are to eat a diet richer in plant-based foods and leaner in animal-based products. One of the considerations used by the USDA/HHA in their Scientific Report used to rationalize these new dietary guidelines was that such diets are

“associated with more favorable environmental outcomes (lower greenhouse gas emissions and more favorable land, water, and energy use) than are current U.S. dietary patterns.” [emphasis added]

Throughout the Scientific Report whenever greenhouse gases are mentioned, a negative connotation is attached and food choices are praised if they lead to reduced emissions.

This is misleading on two fronts. First, the dominant greenhouse gas emitted by human activities is carbon dioxide which is a plant fertilizer whose increasing atmospheric concentrations have led to more productive plants, increasing total crop yields by some 10-15 percent to date. The USDA/HHS is at odds with itself in casting a positive light on actions that are geared towards lessening a beneficial outcome for plants, while at the same time espousing a more plant-based diet.

And second, the impact that food choices have on greenhouse gas emissions is vanishingly small—especially when cast in terms of climate change. And yet it is in this context that the discussion of GHGs is included in the Scientific Report. The USDA/HHS elevates the import of GHG emissions as a consideration in dietary choice far and above the level of its actual impact.

In our Comment to the USDA/HHS, we attempted to set them straight on these issues.

Our full Comment is available here, but for those looking for a synopsis, here is the abstract:

There are really only two reasons to discuss greenhouse gas emissions (primarily carbon dioxide) in the context of dietary guidelines in the U.S., and yet the USDA and HHS did neither in their Scientific Report of the 2015 Dietary Guidelines Advisory Committee (DGAC).

The first reason would be to discuss how the rising atmospheric concentration of CO2—a result primarily of the burning of fossil fuels to produce energy—is a growing benefit to plant life. This is an appropriate discussion in a dietary context as atmospheric CO2 is a fertilizer that promotes healthier, more productive plants, including crops used directly as food for humans or indirectly as animal feed. It has been estimated that from the atmospheric CO2 enrichment to date, total crop production as increased by 10-15 percent. This is a positive and beneficial outcome and one that most certainly should be included in any discussion of the role of greenhouse gases emissions in diet and nutrition—but is inexplicably lacking from such discussion in the DGAC report.

The second reason to discuss greenhouse gas emissions in a diet and nutrition report would be to dispel the notion that through your choice of food you can “do something” about climate change.  In this context, it would be appropriate to provide a quantitative example of how the dietary changes recommended by the DGAC would potentially impact projections of the future course of the climate. Again, the DGAC failed to do this.  We help fill this oversight with straightforward calculation of averted global warming that assumes all Americans cut meat out of their diet and become vegetarians—an action that, according to the studies cited by the DGAC, would have the maximum possible impact on reducing greenhouse gas emissions and thus mitigating future climate change.  Even assuming such an unlikely occurrence, the amount of global warming that would be averted works out to 0.01°C (one hundredth of a degree) by the end of the 21st century.  Such an inconsequential outcome has no tangible implications.  This should be expressed by the DGAC and mention of making dietary changes in the name of climate change must be summarily deleted.

We recommend that if the DGAC insists on including a discussion of greenhouse gas emissions (and thus climate change) in it 2015 Dietary Guidelines, that the current discussion be supplemented, or preferably replaced, with a more accurate and applicable one—one that indicates that carbon dioxide has widespread and near-universal positive benefits on the supply of food we eat, and that attempting to limit future climate change through dietary choice is misguided and unproductive.  These changes must be made prior to the issuance of the final guidelines. 

We can only guess on what sort of impact our Comment will have, but we can at least say we tried.

Free speech can get awfully expensive when billionaires are involved. Just ask the International Crisis Group, a charity that seeks to prevent war and related atrocities by monitoring conditions in the world’s most dangerous regions.

In 2003, ICG published a report on the political and social climate of Serbia following the assassination of Zoran Đinđić, the country’s first democratically elected prime minister after the fall of Slobodan Milošević. One of the issues noted there was the concern of “average Serbs” that powerful businesses were still benefiting from corrupt regulatory arrangements that dated back to the Milošević regime.

One of several oligarchs mentioned was Milan Jankovic, who also goes by the name Philip Zepter. With an estimated net worth of $5 billion, Jankovic is widely believed to be the richest Serb (and one of the 300 wealthiest men in the world). His holdings include Zepter International, which sells billions of dollars of cookware each year and has more than 130,000 employees.

One might think that a man responsible for running a vast business empire would have better things to do than suing a charity, but you’d be wrong. For the last decade, Jankovic has hounded ICG, relentlessly pressing a defamation suit, first in Europe and now in the United States. After 10 years of litigation, the case finally comes down to a single question: Is Milan Jankovic a public figure?

The Supreme Court has long held that the First Amendment’s protection of speech (and political criticism) requires libel plaintiffs who are public figures—like politicians and celebrities—to show that potentially defamatory statements were not only false but also published with “actual malice.” Under this standard, the defendant must have actually known that the statements were false; a negligent misstatement or the innocent repetition of another’s falsehood isn’t enough.

In an amicus brief filed in the U.S. Court of Appeals for the D.C. Circuit, Cato, along with a diverse group of organizations including the Brookings Institution, Council on Foreign Relations, and PEN American Center, argues that while Jankovic is not a politician or other government official, he should still be treated as a public figure for the purpose of this case.

Under the “limited public figure” doctrine, the Supreme Court holds that private citizens become public figures when they “thrust themselves to the forefront of particular public controversies in order to influence the resolution of the issues involved.” As we argue, Jankovic is in his own words one of Serbia’s most powerful and influential citizens, whose vast wealth and political connections gives him a near-unparalleled ability to shape the outcome of public debates. What’s more, Jankovic has played an active role in Serbian politics. He describes himself as one of the men responsible for overthrowing Milošević, and he once hired American lobbyists to represent the Serbian government in Washington. He’s even rumored to have used his own money to fund the government during a budget crisis!

In short, Jankovic is the very definition of a public figure—and criticism of public figures, whether they be elected officials like Frank Underwood or shadowy powerbrokers like Raymond Tusk, must be privileged. Unless the weakest are free to criticize the most powerful, democracy is nothing but a house of cards.

The D.C. Circuit will hear argument in Jankovic v. International Crisis Group later this spring or summer.

One consequence of the financial crisis of 2008-09 has been renewed interest in the merits of contingent convertible debt as a mechanism for equity bail-ins at moments of acute financial distress. Should it fail, a financial institution’s contingent bonds are automatically converted into equity shares. History suggests that convertible debt can help to preserve financial stability by limiting the spillover effects of individual financial institution failures.

A particularly revealing historical illustration of this advantage of contingent debt comes from the Scottish free banking era. From 1716 to 1845, the Scottish financial system functioned with no official central bank or lender of last resort, no public (or private) monopoly on currency issuance, no legal reserve or capital requirements, and no formal limits on bank size, at a time when Scotland’s was a classic emerging economy with large speculative capital flows, a fixed exchange rate, and substantial external debt. Despite this, Scotland’s banking sector survived many major shocks, including two severe balance of payments crises arising from political disturbances during the Seven Years’ War.

The stability of the Scottish banking system depended in part on the use it made of voluntary contingent liability arrangements. Until the practice was prohibited in 1765, some Scottish banks included an “optional clause” on their larger-denomination notes. The clause allowed the banks’ directors to convert the notes into short-term, interest-bearing bonds. Although the clause was seldom invoked, it was successfully employed as a means for preventing large-scale exchange rate speculators from draining the Scottish banks’ specie reserves and remitting them to London during war-related balance of payments crises–that is, as a private and voluntary alternative to government-imposed capital controls.

Contingent debt also helped to make Scottish bank failures less costly and disruptive. If an unlimited liability Scottish bank failed, its shorter-term creditors were again sometimes converted into bondholders, while its shareholders were liable for its debts to the full extent of their personal wealth. Although the Scottish system lacked a lender of last resort, the unlimited liability of shareholders in bankrupt Scottish banks served as a substitute, with sequestration of shareholders’ personal estates serving to “bail them in” beyond their subscribed capital. The issuance of tradeable bonds to short-term creditors, secured by mortgages to shareholders’ estates, served in turn to limit bank counter-parties’ exposure to losses, keeping credit flowing despite adverse shocks.

A particularly fascinating illustration of how such devices worked came with the spectacular collapse in June 1772 of the large Scottish banking firm of Douglas, Heron & Co., better known as the Ayr (or Air) Bank, after the parish where its head office was located. The Ayr collapsed when the failure of a London bond dealer in Scottish bonds caused its creditors to panic. The creditors doubted that the bank could could meet liabilities that, thanks to its reckless lending, had ballooned to almost £1.3 million. The disruption of Scottish credit ended quickly, however, when the Ayr’s partners resorted to a £500,000 bond issue, secured by £3,000,000 in mortgages upon their often vast personal estates—including several dukedoms. By this means the Ayr Bank managed to satisfy creditors, at 5% interest, as the Ayr’s assets, together with those of its partners, were gradually liquidated. In modern parlance, the Ayr Bank had been transformed into a “bad bank,” whose sole function was to gradually work off its assets and repay creditors while the immense landed wealth of its proprietors’ personal estates provided a financial backstop. Creditors were thus temporarily satisfied with fully secured, negotiable bonds, which were eventually redeemed in full, with interest.

We are unlikely today to witness a return to unlimited liability for financial institution shareholders. The extensive and effective use of contingent liability contracts during the Scottish free banking episode nevertheless offers important evidence concerning private market devices for limiting the disruptive consequences of financial-market crises. When compared to the contemporary practice of public socialization of loss through financial bail-outs, such private market alternatives appear to deserve serious consideration. Most importantly, perhaps, by encouraging closer monitoring of financial institutions by contingently liable creditors and equity holders, these private alternatives appear, in the Scottish case at least, not only to have made crises less severe, but also to have made them far less common.

This post is based on Tyler Goodspeed’s doctoral dissertation, a revised version of which is under consideration at Harvard University Press under the title Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772.

My op-ed today at The Federalist discusses exciting developments in Canada and Britain regarding personal savings. Both nations have implemented universal savings vehicles of the type I proposed with Ernest Christian back in 2002. The vehicles have been a roaring success in Canada and Britain, and both countries have recently expanded them.

In Canada, the government’s new budget increased the annual contribution limit on Tax-Free Savings Accounts (TFSAs) from $5,500 to $10,000. In Britain, the annual contribution limit on Individual Savings Accounts (ISAs) was recently increased to 15,240 pounds (about $23,000). TFSAs and ISAs are impressive reforms—they are pro-growth, pro-family, and pro-freedom.

America should create a version of these accounts, which Christian and I dubbed Universal Savings Accounts (USAs). As with Roth IRAs, individuals would contribute to USAs with after-tax income, and then earnings and withdrawals would be tax-free. With USAs, withdrawals could be made at any time for any reason.

USAs, TFSAs, and ISAs adopt the principle that saving for all reasons is important, not just reasons chosen by the government. When people can use such accounts for all types of saving and for any length of time, it increases simplicity, flexibility, and liquidity.

In the United States, the government chooses which savings to favor, with the result that we have a mess of separate accounts with different rules for retirement, health care, and education. Everyone agrees that Americans don’t save enough, and one reason is the complexity of savings accounts. The creation of large accounts for all types of saving would simplify personal financial planning and encourage more saving.

There are differences between the Canadian and British accounts. While the annual contribution limit is lower for TFSAs than ISAs, unused contribution amounts can be carried forward under the TFSA, but not the ISA. Also, the TFSA is simpler because it is a single type of account. By contrast, the Brits created unneeded complexity by having separate “cash” and “stocks and shares” versions of ISAs.

Dividends, interest, and capital gains earned within TFSAs and ISAs are completely tax-free. Some U.K. news articles say that higher-earners may face a 10 percent dividend tax on shares held within ISAs. That is not correct, as Richard Teather confirmed to me. The U.K. has a complicated system for non-ISA dividends, which involves the use of a 10 percent dividend credit. That seems to have confused some reporters about dividends within ISAs.

If legislation to enact USAs moves ahead in America, we might expect complaints that such accounts would only benefit high earners. Such complaints would be both short-sighted and incorrect. In this new report, HM Revenue and Customs data show that ISAs have broad-based appeal in Britain. The columns in the chart below show that 13 million of the 23 million ISA account holders earn less that 20,000 pounds (about $30,000) a year. That high level of use by moderate-income individuals is great news.

 

The red line shows that the average value of accounts rises with income. That is not surprising given that people with higher incomes do more saving, which, by the way, is good for the overall economy. But note that the relative level of holdings is higher for people nearer the bottom. For example, earners in the 10,000-19,999 income range hold about 18,000 pounds of assets in their ISAs, so the average holding is about as high as annual income. But for higher earners, average account holdings are only a fraction of annual income.

In sum, policymakers in the United States have put too much emphasis on giving certain groups narrow tax breaks. USAs would be a better policy approach because they would help all Americans help themselves through their own thrift.

For more on universal savings accounts, see my op-ed with Amity Shlaes.  

Interested in how to advance economic growth? Join the Cato Institute’s Center for Monetary and Financial Alternatives in New York on June 2nd for a day examining the current state of U.S. capital markets regulation at Capital Unbound: The Cato Summit on Financial Regulation.

We’ve assembled an impressive list of distinguished speakers to discuss efficient capital markets and offer proposals to unleash a new engine of American economic growth.

Our lineup includes such notables as Commissioner of the U.S. Commodity Futures Trading Commission J. Christopher Giancarlo, Commissioner of the U.S. Securities and Exchange Commission Michael Piwowar, and our very own CMFA Director George Selgin.

The speakers will explore a wide variety of topics, including alternative vehicles for small business capital, the failure of mathematical modeling, and alternative solutions to monetary and financial instability.

Click here for the full schedule and to register for the event. We hope to see you in New York on June 2nd!

The ceasefire in eastern Ukraine is under strain as Kiev presses the West for more financial and military aid. Americans’ sympathies should go to both Ukrainians and Russians suffering in Vladimir Putin’s deadly geopolitical games, but Washington should stay out of the battle.

Putin obviously bears immediate responsibility for the conflict. However, Washington and Brussels consistently disregarded Russian security interests.

That still didn’t justify Putin’s actions and the results have been a horror for many Ukrainians, though Kiev’s military and nationalist militias have contributed to the unnecessary carnage. However, Moscow views the war less about expanding Russia’s “empire” than about protecting Russia from America’s expanding “empire.”

The U.S. should not intervene and treat Moscow as an adversary. To the contrary, Washington should stay out of the conflict and maintain a passable relationship with Russia.

After all, the latter, with a substantial nuclear arsenal, is the one power capable of annihilating America. Moscow also matters at the United Nations and in policy toward Afghanistan, Iran, North Korea, Syria, and terrorism.

Moscow’s behavior in Ukraine, though atrocious, poses no threat to America. Some emotional Ukrainian expatriates compare Putin to Hitler, but Russia isn’t a reincarnation of the Soviet Union, let alone Nazi Germany. Moscow is a declining, not rising power.

Ukraine obviously matters more to Europe than America. But Europe has a greater GDP and population than America (and much larger advantages over Russia). Yet almost all European states continue to disarm. No one is prepared to fight for Ukraine.

There also is a humanitarian call for action, but Ukraine ranks below many conflicts elsewhere. Some Ukrainians point out that Kiev gave up its nuclear weapons, leftovers from the Soviet arsenal, in return for international guarantees.  But Washington never promised to act militarily.

Anyway, the allies have no cost-effective way to force Moscow to back down. Iraq, Russia, a major power with nuclear weapons and a deep sense of grievances, is certain to prove intractable and respond with great force.

Of course, the U.S. and European militaries are more powerful than Russia’s armed forces. However, the latter possesses the great equalizer of nuclear weapons. Moreover, with far more at stake, the Kremlin will bear greater costs and take greater risks.

Kiev wants additional military aid. But Moscow likely would respond in kind, just as it intervened more directly last year when Ukrainian forces began winning on the field. The stakes for Moscow are too high to yield.

Arming Kiev would put U.S. credibility at issue. If greater American efforts only led to higher Ukrainian losses, pressure would build for additional weapons and training, and perhaps much more, including airstrikes and ground personnel.

Ian Brzezinski of the Atlantic Council recently urged Congress to authorize NATO’s Supreme Allied commander “to deploy in real time against provocative Russian military operations,” that is, offer combat and start a war. Yet no policymaker of note in the West is prepared for war over Ukrainian separatism.

Finally, ramping up sanctions on banking and energy wouldn’t likely change Moscow’s behavior. There’s little European support for such a course. Putin could respond by expanding economic controls, political repression, and foreign adventurism.

Nor is a domestic crisis likely to yield a liberal, pro-Western government. Putin actually appears to be a pragmatic nationalist compared to more radical forces.

The best outcome would be a negotiated settlement recognizing Ukraine as nominally whole while according the Donbas extensive autonomy and guaranteeing no NATO membership or other Western-oriented military relationship for Ukraine.

Ukrainians insist that these decisions should be up to them. Kiev should set its own policy, but then bear the cost of doing so. Washington and Brussels should not support permanent confrontation and potential war with Moscow.

As I argue on Forbes online: “Hopefully the tattered ceasefire in the Donbas will hold and both sides will accept a compromise solution. In any case, the U.S. should keep its arms and troops home. Ukraine is not America’s fight.”

To capitalism’s detractors, Nike symbolizes the Dickensian horrors of trade and globalization – a world ripened for mass exploitation of workers and the environment for the impious purpose of padding the bottom line. They are offended by President Obama’s selection of Nike headquarters as the setting for his speech, last week, in which he touted the benefits of the emerging Trans-Pacific Partnership agreement. But Nike exemplifies the redeeming virtues of globalization and illustrates how self-interested capitalism satisfies popular demands – including, even, the demands of its detractors.

Fealty to the reviled bottom line incentivizes companies like Nike to deliver, in a sustainable manner, what those genuinely concerned about development claim to want. U.S. and other Western investments in developing-country manufacturing and assembly operations tend to raise local labor, environmental, and product safety standards. Western companies usually offer higher wages than the local average to attract the best workers, which can reduce the total cost of labor through higher productivity and lower employee turnover. Western companies often use production technologies and techniques that meet higher standards and bring best practices that are emulated by local firms, leading to improvements in working conditions, environmental outcomes, and product safety.

Perhaps most significantly, companies like Nike are understandably protective of their brands, which are usually their most valuable assets. In an age when people increasingly demand social accountability as an attribute of the products and services they consume, mere allegations – let alone confirmed instances – of labor abuses, safety violations, tainted products, environmental degradation, and other objectionable practices can quickly degrade or destroy a brand. Western brands have every incentive to find scrupulous supply chain partners and even to submit to third party verifications of the veracity of all sorts of practices in developing countries because the verdict of the marketplace can be swift and unambiguous.

Nike remembers the boycotts and the profit losses it endured on account of global reactions to its association with “sweatshop” working conditions in the past. Mattel’s bottom line took a beating when some of its toys manufactured in certain Chinese factories were found to contain dangerous levels of lead paint. There have been numerous examples of lax oversight and wanting conditions, but increasingly they are becoming the exception and not the rule.

Obviously, most Americans would find developing country factory conditions and practices to be, on average, inferior to those in the United States. But the proper comparison is not between wages and conditions in a factory in Ho Chi Minh City and Akron, Ohio or between Akron in 2015 and Akron in 1915. Trade and globalization scolds who would hamper investment flows to developing countries by demanding that poor countries price themselves out of global supply chain networks by adopting rich-country standards should stop and ponder the conditions that would prevail in those locations without Western investment because that’s where their demands ultimately lead.

Even New York Times columnist Nicholas Kristof – an icon of the Left – has argued that factory work offers a step up the ladder for billions of impoverished people around the world.  His stories about the limited options for subsisting among Cambodian women before the arrival of apparel factories, which included picking through garbage dumps, backbreaking agricultural work, and prostitution, remind us that development is a process and not one that is prone to use of magic wands. What employment options would exist in the absence of Western investment? How much accountability would there be if locally-owned factories were the only choices? Without Western investment, there would be much less opportunity and much less scrutiny of labor and environmental practices.

Globalization has brought greater accountability by assigning globally recognizable brand names to otherwise anonymous, small-scale, production and assembly operations. Brands have the most to lose from the discovery of any unscrupulous practices, so the incentives are aligned with the goals of development. An important lesson of capitalism and markets is that even corporate behavior that meets the disapproval of consumers gets punished and corrected.

Unfortunately, a lesson that too many on the Left fail to heed is that capitalism and trade are making life much better for people around the world. Calling globalization a “race to the bottom” may make for a hip bumper sticker, but it has no bearing in reality.

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