Policy Institutes

The American Civil Liberties Union announced today that it is filing a legal challenge against Nevada’s new education savings account program. The ACLU argues that using the ESA funds at religious institutions would violate the state’s historically anti-Catholic Blaine Amendment, which states “No public funds of any kind or character whatever…shall be used for sectarian purposes.”  

What “for sectarian purposes” actually means (beyond thinly veiled code for “Catholic schools”) is a matter of dispute. Would that prohibit holding Bible studies at one’s publicly subsidized apartment? Using food stamps to purchase Passover matzah? Using Medicaid at a Catholic hospital with a crucifix in every room and priests on the payroll? Would it prohibit the state from issuing college vouchers akin to the Pell Grant? Or pre-school vouchers? If not, why are K-12 subsidies different?

While the legal eagles mull those questions over, let’s consider what’s at stake. Children in Nevada–particularly Las Vegas–are trapped in overcrowded and underperforming schools. Nevada’s ESA offers families much greater freedom to customize their children’s education–a freedom they appear to appreciate. Here is how Arizona ESA parents responded when asked about their level of satisfaction with the ESA program:


And here’s how those same parents rated their level of satisfaction with the public schools that their children previously attended:


Note that the lowest-income families were the least satisfied with their previous public school and most satisfied with the providers they chose with their ESA funds.

Similar results are not guaranteed in Nevada and there are important differences between the programs–when the survey was administered, eligibility for Arizona’s ESA was limited only to families of students with special needs who received significantly more funding than the average student (though still less than the state would have spent on them at a public school). By contrast, Nevada’s ESA program is open to all public school students, but payments to low-income families are capped at the average state funding per pupil ($5,700). Nevertheless, it is the low-income students who have the most to gain from the ESA–and therefore the most to lose from the ACLU’s ill-considered lawsuit.

Last month, our friends at the Competitive Enterprise Institute filed suit against the TSA because the agency failed to follow basic administrative procedures when it deployed its notorious “strip-search machines” for use in primary screening at our nation’s airports. Four years after being ordered to do so by the U.S. Court of Appeals for the D.C. Circuit, TSA still hasn’t completed the process of taking comments from the public and finalizing a regulation setting this policy. Here’s hoping CEI’s effort helps make TSA obey the law.

The reason why federal law requires agencies to hear from the public is so that they can craft the best possible rules. Nobody believes in agency omniscience. Public input is essential to gathering the information for setting good policies.

But an agency can’t get good information if it doesn’t share the evidence, facts, and inferences that underlie its proposals and rules. That’s why this week I’ve sent TSA a request for mandatory declassification review relating to a study that it says supports its strip-search machine policy. The TSA is keeping its study secret.

In its woefully inadequate (and still unfinished) policy proposal on strip-search machines, TSA summarily asserted: “[R]isk reduction analysis shows that the chance of a successful terrorist attack on aviation targets generally decreases as TSA deploys AIT. However, the results of TSA’s risk-reduction analysis are classified.”

Since then, we’ve learned that TSA’s security measures fail 95% of the time when undercover agents try to defeat them.

By its nature, risk management requires analysts to make assumptions and to work with data that are often imprecise. It is crucial that analyses of this type be open and transparent, so that assumptions and data can be tested and challenged. Our comments on the proposal discussed risk management, as well as many other aspects of the proposed policy. Making the TSA’s “risk reduction analysis” available for public perusal would undoubtedly help the agency come up with a better rule. Hopefully, they’ll have the sense to declassify and publish it.

Though we remain uninformed by TSA’s incomplete administrative processes, next month CEI’s Marc Scribner and I will be on Capitol Hill discussing the sorry state of airline security, a product of TSA’s lawlessness and ill-advised secrecy.

(From time to time, critics of my work will suggest—not without reason—that working to bring TSA within the law is futile and that the agency should be shuttered. It should be. That is a goal that we can pursue at the same time as we pursue one alternative: an agency that follows the law and manages risks more intelligently.)

According to a report I have before me, straight from the U.S. Senate, prominent Federal Reserve officials, including the presidents of the Federal Reserve Banks of New York and Philadelphia, have publicly endorsed legislation that would establish a bipartisan Monetary Commission authorized “to make a thorough study of the country’s entire banking and monetary set-up,” and to evaluate various alternative reforms, including a “return to the gold coin standard.” The proposed commission would be the first such undertaking since the Aldrich-Vreeland Act established the original National Monetary Commission in 1908.

Surprised? It gets better. The same Senate document includes a letter from the Fed’s Chairman, addressed to the Senate Banking Committee, indicating that the Board of Governors itself welcomes the proposed commission. Such a commission, the letter says, “would be desirable and could be expected to form the basis for conservative legislation in this field.”

Can it be? Have Fed officials had a sudden change of heart? Have they really decided to welcome the proposed “Centennial Monetary Commission” with open arms? Is it time to break out the Dom Pérignon, or have I just been daydreaming?

Neither, actually. Who said anything about the Centennial Monetary Commission? The Senate report to which I refer isn’t about that commission. It concerns neither S. 1786, the Centennial Monetary Commission bill just introduced in the Senate, nor its House companion, H.R. 2912. Instead, the report refers to S. 1559, calling for the establishment of a National Monetary Commission. That’s S. 1559, not of the 115th Congress, but of the 81st Congress – the one that sat from 1949 to 1951, when Harry Truman was president.

It turns out, you see, that the Centennial Monetary Commission legislation isn’t the first time that Congress has tried to launch a new monetary commission.

Things were, evidently, rather different in 1949 than they are now. Back then, the Fed was thoroughly under the Treasury’s thumb, where it had been throughout World War II. In particular, it found its powers of monetary control severely diminished by both the vast wartime increase in the Federal debt and by the Treasury’s insistence that it intervene to support the market for that debt. Fed officials hoped to reestablish the Fed’s powers of monetary control by having it acquire the ability to set reserve requirements for non-member banks. In short, Fed officials, including then Federal Reserve Chairman Thomas McCabe (who would later lose his job for standing up to the Treasury), favored a new Monetary Commission because they anticipated that such a commission would end up recommending reforms that would enhance the Fed’s then truncated powers.

S. 1559 ended up being killed by the Subcommittee on Monetary, Credit, and Fiscal Policies of the Joint Committee on the Economic Report. Interestingly, that body argued that the proposed, comprehensive study of the U.S. monetary system should instead “be made by a committee composed exclusively of Members of Congress rather than, as proposed in S. 1559, by a mixed commission composed of Members of Congress, members of the executive department, and members drawn from private life.” As it happens, the currently proposed Centennial Monetary Commission is to have 12 voting members, all of whom are to be members of Congress.

As for any possibility that the Centennial Monetary Commission bill might itself garner support from highly-placed Fed officials: fuhgeddaboudit. Those officials now have all the power they could possibly desire. Why should they look kindly upon legislation that’s far more likely to lessen that power than to enhance it?

Although the fact that the Fed welcomed a new National Monetary Commission in 1949 is no cause for celebration today, supporters of the new reform may still have reason to be cheered by the Fed’s earlier stance. After all, should Fed officials declare themselves against the new proposal, they can be reminded of their predecessors’ stance, and asked to explain why they should oppose the same sort of inquiry that those predecessors considered a jolly good idea. If they are good for nothing else, their answers should at least be good for a chuckle.

[Cross-posted from Alt-M.org]

Donald Trump has wrecked the best plans of nearly a score of “serious” Republican presidential candidates. Yet, what may be most extraordinary about his campaign is that, on foreign policy at least, he may be the most sensible Republican in the race. It is the “mainstream” and “acceptable” Republicans who are most extreme, dangerous, and unrealistic.

First, the Republicans scream that the world has never been so dangerous. Yet when in history has a country been as secure as America from existential and even substantial threats?

Hyperbole is Trump’s stock in trade, but he has used it only sparingly on foreign policy. Referring to North Korea, for instance, he claimed: “this world is just blowing up around us.” But he used that as a justification for talking to North Korea, not going to war.

Second, the Republicans generally refuse to criticize George W. Bush’s misadventure in Iraq. In contrast, Trump said, “I was not a fan of going to Iraq.”

Third, the Republican candidates blame the rise of the Islamic State on President Obama. This claim is false at every level. The Islamic State grew out of the Iraq invasion and succeeded with the aid of former Baathists and Sunni tribes who came to prefer an Islamist Dark Age to murderous Shia rule. There were no U.S. troops in Iraq because George W. Bush had planned their withdrawal.

Trump understands that the basic mistake was invading Iraq. He said: “They went into Iraq. They destabilized the Middle East. It was a big mistake. Okay, now we’re there. And you have ISIS.”

Fourth, Republicans see other waiting enemies, such as China. But Trump apparently doesn’t view war as an option against Beijing. Rather, he sees China primarily as an economic competitor: he declared that he would “get tough with” and “out-negotiate” the Chinese, not bomb them.

Fifth, all the other Republicans apparently view Iran as an unspeakable enemy. All would block the Obama nuclear deal and most appear ready to tear it up. Trump criticized the agreement, but announced: “I will police that deal,” a far more realistic response.

Sixth, the GOP candidates almost uniformly treat handing out security guarantees as similar to accumulating Facebook friends: the more the merrier. Yet as I point out on Forbes online: “most of America’s major allies could defend themselves. The Europeans, for instance, have a combined population and GDP greater than America and much greater than Russia. South Korea has twice the population and around 40 times the GDP of the North.”

Some potential allies are security black holes, such as Ukraine. The latter would set the United States against nuclear-armed Russia. America has nothing at stake warranting that kind of risky confrontation.

Many of America’s official friends are more oppressive than Washington’s enemies. Saudi Arabia, for instance, is a totalitarian state. Egypt today is more repressive than under Mubarak.

Here Trump is at his refreshing best. Decades ago he called on the United States to “stop paying to defend countries that can afford to defend themselves.” He then pointed to Japan and Saudi Arabia.

A couple years ago he said: “I keep asking, how long will we go on defending South Korea from North Korea without payment?” Similarly, Trump recently explained: “Pulling back from Europe would save this country millions of dollars annually. The cost of stationing NATO troops in Europe is enormous.” Regarding Ukraine, he asked: “Where’s Germany? Where are the countries of Europe?”

As I wrote in the Forbes article: “Trump obviously is not a deep thinker on foreign policy or anything else. Nevertheless, on these issues he exhibits a degree of common sense lacked by virtually every other Republican candidate. The GOP needs to have serious debate over foreign policy.”

Last year in this space, I wrote about a case in which a New Jersey appeals court found that a mother could be put on the state’s child abuse registry, with life-changing consequences, for having left her sleeping toddler alone in the back seat of her locked, running car while she ran into a store briefly. No harm had come to the child during the ten minutes and an investigation found nothing else wrong with the family. 

Now a unanimous New Jersey Supreme Court has reversed that decision. Not only does the mother deserve a hearing before being put on the registry, it said, but such a hearing should not find neglect unless her conduct is found to have placed the child at “imminent risk of harm.” 

The battle is by no means over. The New Jersey Department of Children and Families vowed to continue its efforts to hold the mother responsible for gross neglect, its spokesperson saying that “leaving a child alone in a vehicle – even for just a minute – is a dangerous and risky decision.” That’s one view. Another view is the one I expressed last year: 

When the law behaves this way, is it really protecting children? What about the risks children face when their parent is pulled into the police or Child Protective Services system because of overblown fears about what conceivably might have happened, but never did?

For much more on this subject, check out the speech at Cato last year (with me moderating) by the founder of the Free-Range Kids movement, Lenore Skenazy, who has written extensively on the New Jersey case. She’s also been contributed the lead essay at a Cato Unbound symposium on children’s safety and liberty. We’ve also covered the celebrated case of the Meitiv family of Silver Spring, Md., who have faced extensive hassles from Montgomery County, Md. Child Protective Services for letting their children walk home alone from a local park. 

This post was adapted and expanded from Overlawyered

Ending extreme poverty may sound like a remote dream voiced by idealists and beauty pageant contestants, but that goal’s attainment is actually closer than you think. The share of people living in absolute poverty (i.e., living on less than $1 a day) has dwindled to around five percent of the world’s population. Much of this progress can be attributed to massive poverty reduction in China that elevated hundreds of millions of people out of destitution.

Not only has the share of the global population living on less than $1 a day fallen, but so has the total number of people living on less than $1 a day. This is incredible when one takes into account population growth.  Consider the graph below, showing the total number of absolute poor decrease by more than 700 million between 1981 and 2008, even as the world population rose by 48 percent (i.e., over 2 billion). Again, a large part of this improvement can be explained by China. Even if one excludes China, close to 200 million people escaped absolute poverty over this time period.

If one takes a slightly broader definition of extreme poverty and considers persons living on less than $1.25 a day, instead of on less than $1 per day, then the share of people living in extreme poverty appears larger. However, the overall trend is still one of dramatic decline. According to estimates by the Brookings Institution, the portion of the world population living on less than $1.25 a day will most likely fall to five percent by 2030.

The vast majority of this poverty reduction came about, not because of international aid programs, but rather because of economic development spurred by capitalism and globalization. Even Bono acknowledges this. (Please stay tuned to that video after Bono’s comments conclude to hear HumanProgress.org’s Editor, Marian Tupy, discuss the issue in more detail with John Stossel). Consider the graph below showing China’s economic freedom increasing as the percent of its population living on less than $1.25 a day decreases.

The end of extreme poverty is in sight, quite possibly within our lifetimes, thanks to the free market. To learn more about poverty’s decline, explore the data for yourself at HumanProgress.org, and check out Cato’s recent report on sustaining growth in Africa, the world’s poorest continent. 

There have been many good, if ultimately unconvincing, arguments against allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts.  There have been even more silly ones.  One of the silliest is the one regurgitated Monday by ThinkProgress, that this week’s stock market decline proves that “If Social Security Had Been In Private Accounts The Stock Market Drop Could Have Been A Disaster.”

Few personal account plans would require a retiree to cash out their entire account on the day that the market crashed.  But what if they did?  It is important to understand that someone retiring Monday would have begun paying into their account 40 years ago when the Dow was at 835.34.  After yesterday’s decline, it opened at 15,676 today.  Over those 40 years, the worker would have made roughly 1,040 contributions to their account.  Only 48 of them would have been at a time when the market was higher than today’s open.

Yep, even after Monday’s crash, the worker would have made a tidy profit.  In fact, his return would have been substantially higher than what he could expect to receive from Social Security. 

The last that defenders of the status quo made this argument was 2009, during the market crash that led into the Great Recession.  At that time the market hit a low of 6,547.   Obviously, if workers had been allowed to start investing then, they would have done pretty well.  But more importantly, retirees in 2009 would have done well too, once again better than Social Security.

Cato published this comprehensive study of that downturn and its impact on personal accounts.

Social Security is running nearly $26 trillion in future unfunded liabilities.  It cannot pay promised future benefits to young workers without substantial tax hikes.  We should begin a discussion of how to reform this troubled program.  A start to such a discussion would be to retire the canard about market crashes and personal accounts.

Cross-posted at TannerOnPolicy

KHARTOUM, SUDAN—Ubiquitous American advertising is absent in Sudan. Washington bans most imports and exports to the country. Among the strongest supporters of economic coercion have been American Christians, seeking to punish the Muslim-dominated central government for its brutal conduct in past ethnic conflicts.

While the combat has largely ceased, the embargo remains. And Sudanese Christians with whom I recently spoke said that they suffer when Washington penalizes the Sudanese people for Khartoum’s sins. Rev. Filotheos Farag of Khartoum’s El Shahidein Coptic Church, explained “we want to cancel all the sanctions.”

The Clinton administration first imposed restrictions two decades ago for Sudan’s alleged sponsorship of terrorism. But the Obama administration admits that Khartoum cooperates with the United States today.

Penalties were later strengthened to punish Sudan for its tactics in the civil war in Sudan’s south and subsequent fighting around Darfur. But the first was resolved with the independence of South Sudan, which itself has tragically descended into its own civil war. And the large-scale killings at Darfur also have ended. While some fighting continues elsewhere, it is no worse than many other Third World countries.

Khartoum also is criticized for religious repression, but American allies such as Saudi Arabia are worse. Moreover, Sudanese Christians say they are among those most hurt by sanctions.

I visited a number of churches of different denominations which appeared to operate freely. A consistent message from Christian clerics is that they suffer disproportionately from U.S. sanctions.

Farag said, “Everybody here is affected. From America, we stopped importing necessities we need.” Moreover, “Many businesses here are closed. Taxation is much higher.” In his view “the government is not punished. If officials ask about anything, they can bring it from outside. But we can’t.”

Isaiah Kanani of the Presbyterian Nile Theological College reported that “sanctions are affecting everyone in the community in every corner of the country.” Unfortunately, “the grassroots feel it very harshly.” He pointed to lost jobs and people relocating for work. Moreover, while people believe the government is not responsible for these problems, their “eyes fix on the government to find a solution.”

Hafiz Fassha, an Evangelical Presbyterian pastor at the Evangelical Church of Khartoum North, said the harm is felt in “medical services, even education.” He prays for the lifting of controls, which “are like putting oil on a fire.”

Sanctions “make life very difficult for Christians and their jobs,” reported George Banna, the Patriarchal Vicar in the Greek Melkite Catholic Patriarchate, who heads the Oriental Catholic church. A number of his parishioners are in businesses or professions and “they find difficulties importing what they need.” Over the years “many have left the country for financial reasons.”

As for the church, “we depend on donations. If members don’t work, they don’t have anything to give.” He suffered from prostate cancer and had to go abroad for treatment. “We all oppose sanctions,” he said.

I spoke with two Catholic priests in Port Sudan, E. Luigi Cignolini and Antonio Manganhe Meej. Cignolini said because of the sanctions “we don’t get offerings. Even Europe can’t send them. Of course this hampers our work.”

Meej emphasized that “Poor people feel it more.” When they aren’t able to pay their school fees “it is becoming impossible to run these schools.” In school, he said, they have trouble getting the latest information and can’t upgrade computer programs. “While the U.S. might believe it is punishing the government,” it is “only punishing the people.”

As I point out in Forbes: “There was and remains much about which to criticize Sudan’s government. However, U.S. sanctions have lost any purpose they once may have had.”

Most important for American Christians, the sanctions hurt believers already living and worshipping in difficult circumstances. Fassha said, “We love America. We need America to help Sudan.”

The world has changed since sanctions were first imposed. Washington’s policy toward Sudan should change as well.

Criminal asset forfeiture has the taste of Old Testament justice: an eye for an eye, a tooth for a tooth. The bank robber stole $100,000, so the government takes $100,000 from him. That seems right and fair, but only if we know that the defendant’s guilty.

If the government took $100,000 from someone who was innocent, or whose guilt was ambiguous, it wouldn’t merely be an “unjust” forfeiture, it would be theft—or, to be more politic, an uncompensated and unwarranted taking.

Consider the case of Sila Luis. For several years, Luis ran a healthcare company that provided home nursing services to patients enrolled in Medicare. In 2012, the government accused Luis of fraud, claiming that her company billed Medicare for unnecessary services. In addition to criminal charges, the grand jury indictment included a forfeiture finding, stipulating that if Luis is convicted, up to $45 million of her personal assets would be forfeited, to make up for all of the money her company ever received from Medicare.

Leaving aside the validity of that number—the government hasn’t alleged that all, or even most, of the claims submitted to Medicare were false—the questionable fairness of holding an individual personally responsible for a company’s liabilities, and the fact the Luis doesn’t have anywhere near $45 million, the indictment got one thing right: the government should only be able to confiscate Luis’s property after she’s been convicted. Of course, the government found a loophole: a statute providing that when the government thinks a defendant is going to spend or hide assets before they can be forfeited, prosecutors can ask for a court order “freezing” the assets.

Freezing property is practically the same as confiscating it; the defendant technically remains the owner, but is no longer allowed to sell or even use the property. The government applied for such an order on the same day that Luis was indicted—and three years later, it’s still in effect. Because Luis’s net worth is only a fraction of the $45 million the government claims, the freezing order applies to all of her assets. As a result, Luis can’t afford to pay a lawyer to defend her at trial.

Last year in Kaley v. United States (another case where Cato filed a brief), the Supreme Court ruled that there is no Sixth Amendment right to hire counsel with “tainted” money (and even the process due is less before freezing); the robber can’t use the money he stole from the bank to pay his lawyer, because he never actually owned it in the first place. But Luis is arguing that Kaley doesn’t apply to cases like this, where the government admits that none of the frozen property is in any way connected to illegal activity (only that it may be necessary to satisfy an eventual judgment).

While Cato agrees with Luis’s Sixth Amendment argument, we’ve filed an amicus brief, joined by the DKT Liberty Project, challenging the legitimacy of freezing orders on an institutional level. Fifteen years ago, the Supreme Court stopped federal courts from freezing a defendant’s assets where the plaintiff is afraid that the defendant will become bankrupt because the whole point of a trial is to determine what, if anything, the defendant owes. The Court has been adamant that unless and until the plaintiff wins that trial, judges should not interfere with the defendant’s existing rights—unless a court order is the only way to prevent a significant and incurable injury to the plaintiff that substantially outweighs any harm this action would do to the defendant.

The freezing order here isn’t protecting the government from any new loss, while the burden it continues to impose on Luis is grievous, especially since she still faces criminal charges. The Supreme Court was right when it condemned freezing orders as “nuclear weapons.” They are powerful and destructive—and their use is rarely if ever justified.

Oral arguments in Luis v. United States will take place this fall.

Earlier this month, Americans for Prosperity held a “Road to Reform” event in Las Vegas.

I got to be the warm-up speaker and made two simple points.

First, we made a lot of fiscal progress between 2009 and 2014 because various battles over debt limits, shutdowns, and sequestration actually did result in real spending discipline.

Second, I used January’s 10-year forecast from the Congressional Budget Office to explain how easy it would be to balance the budget with a modest amount of future spending restraint.

Here’s my speech:

I realize I sound uncharacteristically optimistic in these remarks, but it is amazing how easy it is to make progress with even semi-effective limits on the growth of government.

Genuine spending cuts would be very desirable, of course, but we move in the right direction so long as government spending grows slower than the private sector.

The challenge, needless to say, is convincing politicians to limit spending.

Well, we now have some new data in that battle. The CBO released its Update this morning, which means the numbers I shared in Nevada are now slightly out of date and that I need to re-do all my calculations based on the new 10-year forecast.

But it doesn’t really make a difference.  As you can see from the chart, we can balance the budget by 2021 if spending is capped so that it grows by 2 percent annually. And even if spending is allowed to grow by 3 percent per year (about 50 percent faster than projected inflation), the budget is balanced by 2024.

At this point, I feel compelled to point out that the goal should be smaller government, not fiscal balance.

But since fiscal policy debates tend to focus on how to eliminate red ink and balance the budget, I may as well take advantage of this misplaced focus to push a policy (spending restraint) that would be desirable even if we had a budget surplus.

And that’s the purpose of this video I narrated for the Center for Freedom and Prosperity back in 2010. The numbers obviously have changed over the past five years, but the underlying argument about the merits and efficacy of spending restraint are exactly the same today.

For more information on the merits of smaller government, here’s my tutorial on government spending.

A new poll by the Peter G. Peterson Foundation finds that 80 percent of Americans think that rising federal debt should be a top priority of policymakers. The poll also finds that:

… an overwhelming majority of voters (85%) are now calling for the President and Congress to spend more time addressing our nation’s long-term fiscal future. More than two-thirds (68%) say their concern about this vital issue has increased over the last few years, including nearly one-half (46%) who say it has increased “a lot.” Majorities of voters across party lines, including 53% of Democrats, 69% of Independents, and 84% of Republicans, say that their concerns about the debt have deepened in recent years.

The spokesman for the Peterson Foundation said that Americans “…want candidates to put forward plans to address our nation’s long-term fiscal challenges … Americans understand that putting our fiscal house in order is vital to ensure a growing, prosperous economy and are calling for more action from their leaders.” I agree with that, and so does the centrist group “First Budget,” which is trying to pin down candidates on fiscal specifics.

Presidential candidates should propose specific plans to cut spending. Spending cuts are good economics, and they are also good politics, at least for Republican candidates. So it is disappointing how few of them have proposed budget plans so far, let alone discussed overspending and rising debt in any detail.

Candidates interested in fiscal reform can start with these proposed cuts. A particularly good target for reforms would be terminations of state aid programs, as Emily Ekins and I discuss here.

The full Peterson poll results are here.

SHENYANG, CHINA—Public space is shrinking in China for discussion of “Western” views. But “contrary to the general crackdown, North Korea policy seems to be an exception,” a U.S. diplomat told me on my recent trip to China. One hears plenty of criticism of Pyongyang.

Even official Beijing’s unhappiness with the Democratic People’s Republic of Korea is evident, though China continues to bankroll the Kim Jong-un regime. It’s a position some Chinese would like to change, including a scholar in Shenyang, a couple hours away from the Yalu by car. My colleague was careful not to directly criticize Beijing policy but advocated a much different approach. He noted that the two nations “still care about each other,” but now there are a “lot of problems between the countries.”

The most important issue, no surprise, is nuclear weapons. China supports denuclearization of the Korean peninsula. This is the “worst disagreement between them.”
Second is economic development. “China insists on reform of the whole economic and political system,” explained my friend. Beijing’s objective is to “transform North Korea.” The DPRK government fears such change.

Issue number three involves bilateral commerce. “China wants to have normal trade with North Korea,” but the DPRK expects to receive goods even if it does not pay. This has “caused great loss for China and for companies in China.”

The fourth concern is refugees. “Many North Koreans have fled to this part of China,” he said, forcing Beijing to “think about how to deal with the issue.” So far, the People’s Republic of China has returned refugees when caught, sparking sharp international criticism.

Coming in at fifth is the Six Party Talks. My interlocutor explained that “China insists on peaceful dialogue among the respective countries” over “the nuclear problem.” On this question the PRC “has had some issues with the U.S. and North Korea not cooperating.”

In his view the U.S. and PRC should focus on solving these matters: “China and the USA have a common understanding greater than their disagreement.” He hoped the PRC and U.S. together would pressure the North. He admitted that “China has its own interests and cares about its national security.” But “China would be a direct victim of ” a nuclear North. 

What to do? There should be dialogue “among the three countries.” Beijing and Washington need to demonstrate that there isn’t “any gap, any room” between them that would allow Pyongyang to develop nuclear weapons.

More controversially, he wanted “to stop giving foreign aid to the North and impose additional sanctions on North Korea.” Penalties should be applied if the Kim government “does not listen to the U.S. and China.”

If these steps failed, at that point “we should know the way.” When asked to explain further, he said “I wouldn’t say it out loud, but Israel would know how to do it.” That is, military action. He didn’t explain whether he envisioned Chinese cooperation in or merely acquiescence to a U.S. strike. But he believed extreme measures could be justified. What would the Chinese government think of his idea? He admitted that the perspective was his own, not that of Beijing. However, if the three steps were followed, beginning with negotiation, then he believed Beijing might “follow his suggestions.” He believed the severity of the threat would drive policy.

In the end, he expected Pyongyang either to reform, open the country, or resist, destroying itself. He hoped for the first.

As I wrote for China-US Focus: “Although there’s no evidence that Beijing government is about to adopt my friend’s proposals, Chinese attachment to North Korea evidentally continues to drain away. While Beijing continues to prop up the Kim dynasty, it does so without enthusiasm. That creates an opportunity for Washington to persuade the PRC to change policy.”

My friend’s proposal offers a possible blueprint: talk with Beijing, address its problems, and suggest a common program. This strategy would offer at least a hope of change.

Whitney Ball was always outraged for the right reasons and could be counted on to add the choicest comments to the latest political or cultural atrocity. She was bright, opinionated, well-informed, and dedicated to human liberty. She also was a great friend. Those who knew her and the liberty movement were made much worse off with her recent passing.

Whitney is one of the largely unknown political activists who did far more than her share to help others. She got into the movement early, working in Washington, D.C. at the National Journalism Center for the late M. Stanton Evans—a grand figure who linked the older, more traditional and newer, more assertive conservative movements. But Whitney never hesitated to take the lone road. She was rare, a libertarian and Christian. We met when she worked at Cato a couple decades ago. She exuded kindness and wit and was impossible to dislike.

She moved on to the Philanthropy Roundtable, a conservative counterpart for the liberal Council on Foundations. Then in 1999 Whitney launched her own venture, Donors Trust. From very modest beginnings—one account—DT turned into a major success. It hit roughly 200 contributors in 2013 and to date has channeled $740 million to the cause of liberty. There is a long history of freedom-minded donors’ money being effectively hijacked by left-wing activists and causes. Money created from the inspiration and sweat of past entrepreneurs now funds some of the organizations most determined to stifle a free economy. It turns out that those most adept at creating wealth often aren’t very good at controlling how it is distributed.

As Whitney later explained: “charitable capital that’s held in a vehicle like a private foundation often drifts away from the intent of its founding donor over time.” This sort of adverse capture almost always works against advocates of a free society, she added. Organizations dedicated to liberty gained enormously from Whitney’s efforts.

Despite her serious endeavors, she had a whimsical streak. She liked cows, for instance, and incorporated them in her home décor. She demonstrated notable self-control in halting at cow kitchenware rather than making the jump, as I did in other areas, to pricier and more serious antiques.

Unfortunately, very serious was the breast cancer which struck in 2001. She accepted the pain, inconvenience, and uncertainty with extraordinary grace and good humor. She joked about her loss of hair and wearing a wig and dispassionately described the side-effects of chemotherapy. But she never quit and emerged victorious. At least, as victorious as one ever can be against that horrid disease.
The cancer returned, more virulent than ever, which she fought with as much tenacity and cheerfulness as before. She was upbeat, funny, and determined to triumph again.
Alas, it was not to be. She fought to the end, dying at a far, far too young age of 52.

As I wrote in American Spectator online: “Whitney’s life is one that truly mattered. The freedom movement was more vibrant because of her efforts. The lives of her friends and family were much enriched because of her presence.”

Her death reminds us how easy it is to take those around us for granted. We only realize how badly we miss them when they leave us. So it is with Whitney.

In its “Free Exchange” column, the Economist recently took up the issue of monetary rules. Provocatively titled “Rule It Out,” the column announced that “setting interest rates according to a fixed formula is a bad idea.”

Reading the column one quickly learns the author doesn’t understand what constitutes a rule, and what the argument for a rule is. The column moves from a general consideration of monetary rules to considering specifically the Taylor Rule. I leave it to Professor Taylor to defend his rule, which he did on his blog. I, however, consider the general case for monetary rules.

“Free Exchange” links the case for rules to the 1977 article by Finn Kydland and Edward Prescott, “Rules Rather than Discretion: The Inconsistency of Optimal Plans.” The title is not cited nor is the article’s central argument addressed: Discretionary economic policy cannot be optimal. Their article undermines the case for discretion over rules that “Free Exchange” attempts to make. “Free Exchange” lamely says that Kydland and Prescott’s argument “helps to explain the high inflation of the 1970s.” It did far more than that. It explains why policymakers cannot credibly commit to future policies. That is known as the time inconsistency problem.

The argument for rules versus discretion in monetary policy goes back at least to Henry C. Simons’ 1936 article, “Rules versus Authorities in Monetary Policy.” The case for a monetary rule was re-argued by Milton Friedman in the 1960s and he anticipated the dynamics developed in Kydland and Prescott.

“Free Exchange” states that “monetary policy based on rules has one major advantage: transparency.” Certainly a rule will likely be more transparent than policy discretion. But it has never been the central argument for a monetary rule. The central argument for a monetary rule is what is known as the knowledge problem in economics and social affairs.

Policymakers cannot in principle possess the knowledge required to devise an optimal (or time consistent) monetary policy. The information required for centralized policymaking is dispersed among the millions of actors in society. It cannot be aggregated or concentrated in one mind. No expert or set of experts can ever know as much as the totality of individuals in society.

Rules are a response to the knowledge problem. Uncertainty generates reliance on rules. Rules are constructed or evolved based on accumulated experience over long periods of time. Rules encapsulate the totality of knowledge and experience not only of all alive today, but also of those who preceded them.

Rules can be formal or informal, and could – but need not – be a formula. (Most rules are not a formula.) When people do not possess the information required to optimize, they rely on rules.

The knowledge problem arises in any attempt to set centralized policy or planning. Even before Simons, F. A. Hayek articulated the knowledge problem in monetary policy and in the debate over centralized economic planning.

“Free Exchange” turns the knowledge problem upside down: “Until the day the economy is fully understood, human judgment has a crucial role to play.” No, actually, it is just the opposite. There would be no need for reliance on a rule if the economy were fully understood. The less we know about the specifics of a situation, the more we must rely on rules. A good rule incorporates the general features of a class of situations, in which the specific features vary unpredictably. If we possess full information, why would we want to rely on a rule?

In a paper that I will present at Cato’s annual monetary conference on November 12th, I develop in more depth the case for rules in monetary policy. I attribute the central argument to Hayek. But I note that Friedman also adduced an argument based on the knowledge problem in support of his monetary rule.

Monetary rules and policy rules more generally are a subset of behavioral rules. The case for a monetary rule is ultimately the same as the case for the rule of law in society. For those would like to see that argument in print, along with the philosophical tradition undergirding it, see my recent article in the Journal of Private Enterprise, “Hayek and the Scots on Liberty.”

[Cross-posted from Alt-M.org}

Our hyperactive, grasping federal government has inserted its wasteful, probing fingers into just about everything these days.

I hadn’t been to an eye doctor in a while, and so when I went recently I was surprised to be presented with these two forms:

The first form claims that electronic transmission of prescriptions “helps protect the privacy of your personal information.” That strikes me as plainly false—an old-fashioned piece of paper with my eye information couldn’t get hacked on the Internet or wouldn’t be sent to the government. The form lists the supposed benefits of e-prescribing to the patient. On net, the benefits may indeed outweigh the costs—but then we wouldn’t need a federal mandate to bring it about.

Like many Americans, I find the second form regarding race rather offensive. It would be one thing if university researchers were surveying a sample of patients for such information in order to study eye diseases that may vary by personal characteristics. But reading between the lines on this form, the government appears to be collecting the information not for medical research, but essentially for socialist planning purposes.

Obamacare imposes a requirement that employers provide insurance that covers “preventive care” for women, but does not specify what that entails. The Department of Health & Human Services (HHS) determined that “preventive care” includes all FDA-approved contraceptives, from condoms to the morning-after pill.

While houses of worship were exempted outright from the mandate, other religious orders were not. (And, as we know from the Hobby Lobby case, for-profit employers who object to certain forms of contraceptive don’t have to pay to cover them.) Instead, under an “accommodation” created by HHS and the Departments of Labor and Treasury, an objecting religious organization isn’t required to pay for the offending contraceptives, but they do have to notify HHS, which then modifies their insurance contracts so their insurers cover the objected-to items.

Even though the religious organizations are not paying for the contraceptives, groups like the Little Sisters of the Poor—an order of nuns who provide various kinds of social services—still feel complicit in sin and claim that their free exercise of religion has been burdened.

Cato and law professor Josh Blackman (who recently became a Cato adjunct scholar) have filed an amicus brief supporting the Little Sisters’ request that the Supreme Court hear their case. The Little Sisters raise claims under the First Amendment and the Religious Freedom Restoration Act. Our brief asks the Court to consider a supplemental question: Whether the Departments have the interpretive authority and “expertise” to resolve this “major question” of profound social, “economic and political significance”—to quote Chief Justice Roberts’s majority opinion in King v. Burwell (where he said that courts couldn’t simply defer to the IRS on the important question presented there).

Congress gave absolutely no indication that it delegated to federal agencies the authority to decide which religious groups would be exempted and which could have their religious liberty burdened under an accommodation, or for that matter, how agencies were to design any accommodations. To quote another recent case where the Court refused to defer to an administrative agency, UARG v. EPA (2014), here the agencies are “laying claim to an extravagant statutory power” affecting fundamental religious liberty interests—a power that the ACA “is not designed to grant.”

If the Departments lack the interpretive authority to craft accommodations, then Hobby Lobby provides the rule of decision and the Little Sisters must be exempted from the mandate. Accordingly, the Supreme Court should consider this additional question and conclude that the Departments’ regulatory incompetence prevents them from forcing the Little Sisters to be complicit in what they view as sin.

Each year, since 1978, the Federal Reserve Bank of Kansas City hosts central bankers from around the globe at Jackson Hole, Wyoming, to assess monetary policy.  The conference is closed to the public and the Kansas City Fed does not make its program available to the public until the day of the event.  Here’s what one can find when going to their website:

“The 2015 Economic Symposium, “Inflation Dynamics and Monetary Policy,” will take place Aug. 27-29, 2015. (The program will be available at 6 p.m., MT, Aug. 27, 2015).”

This information is treated as if it’s “top secret.”

But it’s not a top secret that the Federal Reserve lacks transparency, is not bound by any monetary rule, has more power than ever before (as a result of the unconventional monetary policies pursued since the 2008 financial crisis), and opposes a congressional audit—even though the Constitution gives Congress the power to regulate the value of money. 

Luckily, the American Principles Project will be holding a parallel conference near the Fed’s site in Jackson Hole to evaluate the Fed’s performance after more than 100 years and offer alternatives to a regime of pure discretionary government fiat money.

The topic of the APP conference—“Is Central Banking the Problem or the Solution?”—will give participants the opportunity to offer advice on how to improve the monetary regime, not just monetary policy. (On the same topic, see the Spring/Summer 2015 issue of the Cato Journal: “Alternatives to Central Banking: Toward Free-Market Money”)

Mark Calabria, director of Cato’s Financial Regulation Studies, within Cato’s newly established Center for Monetary and Financial Alternatives, will be speaking at the APP conference on Friday, August 28. His topic is “Regulatory Failure at the Fed.” Tune in.

According to Gallup, more Americans think of themselves as “have-nots” today than at any point since Gallup began posing the question almost thirty years ago, while fewer Americans see themselves as “haves.” (Please see Emily Ekins’s earlier post for an in-depth analysis from a different angle). But do Americans actually have less in 2015 than in 1988? Let’s dig into the data to see whether Americans might have more than they realize.

2015 is the first year when Americans spent more money dining out than they spent on groceries. Let’s examine why that might be. In 2015, U.S. GDP per person (adjusted for inflation) reached an all-time high. At the same time that average personal wealth is rising, many necessities like food are going down in price. As a result, spending on the basics takes up a smaller and smaller share of an American’s personal disposable income—dropping from 39% in 1988 to 32% in 2013. This means that Americans have more money left at the end of the day, which they can then choose to save, invest, or spend on luxuries like dining out.

Not only are Americans wealthier on average, but they are also working less. The average American worker in 2015 works 30 fewer hours in a year than her counterpart in 1988, and yet is almost $18,000 dollars richer in real terms.

HumanProgress.org advisory board member Mark Perry recently pointed out that today’s young Americans may actually be the luckiest generation in history, based on what they can buy with earnings from a summer job. And increases in real wealth do not capture technological advances, which also contribute to rising living standards. The quality and variety of available goods is improving across the board. Almost no one had a cell phone in the United States back in 1990, but today they’re ubiquitous—and more useful, with an app for just about everything.

In many ways, Americans have more today than ever before: more leisure time away from work, more disposable income left after basic expenses,  more choice in what they buy, and more advanced technologies at their fingertips.  Of course, there are still people who live in genuine need. The Great Recession and various growth-retarding policy decisions have done great harm, especially to the poor. Still, if the many positive trends that we are seeing continue, then hopefully more Americans will come to count themselves among the haves instead of the have-nots. To learn more about improving living standards in the United States and beyond, pay a visit to HumanProgress.org.

Last week I dissected the annual Education Next poll a bit, and today the newest Phil Delta Kappa/Gallup poll on the state of education is out. Let’s take a look at several of the same topics we examined in the EdNext poll, shall we?

Common Core

Last week’s survey featured questions with several different wordings about Core backing, and while they all showed the Core hemorrhaging support over the last few years, percentages approving ranged from 49 percent to 39 percent. PDK/Gallup asked just one question about Core support, and it had very different wording from any used by EdNext, focusing not on the intention of the Core – “accountability” – or describing the Core as “standards for reading and math that are the same across states,” but asking if respondents approve of “having the teachers in your community use the Common Core State Standards to guide what they teach.” In response, 54 percent appeared to oppose the Core and only 24 percent supported it. It’s an odd way to ask about Core support – how about just ask if people “support or oppose the Common Core” – but it is unquestionably true both that an intended effect of the Core is to guide what is taught, and that this is more bad news for the Core.

Federal Role

EdNext found what I thought was unexpectedly (and discouragingly) high support for having Washington in charge of “setting educational standards for what children should know,” but still very low approval of federal direction over labeling schools as “failing” and dictating how to fix such schools. PDK/Gallup did not ask directly about setting standards, but did ask which level of government should be “holding schools accountable” and “determining the right amount of testing.” What they found was in line with what EdNext found: Only about 1 in 5 respondents want Washington in charge, with most wanting states and districts in control. Maybe the Constitution does still count.

Opting Out

Constant standardized testing, the Common Core, federal strong-arming, and possibly numerous other irritants have seemingly spurred a revolt against standardized testing, most visibly seen in the “opt-out” movement in New York and elsewhere. Both the EdNext and PDK/Gallup polls suggest this movement comprises a minority – though a pretty large and vocal one – with around a third of parents in the PDK-Gallup poll saying they would “excuse” their child from “one or more standardized tests,” and almost the exact same percentage of EdNext parents saying they support allowing parents to opt their kids out of standardized math and reading tests. Obviously these are somewhat different questions – would you exempt your kids, versus allowing other parents to exempt theirs – but I’m guessing the one-third in both polls are basically the same group of people.   

School Choice

Interestingly, the PDK/Gallup pollsters prominently conclude that “Americans endorse choice,” but the only question they ask about private school choice is the one they love to use that consistently gets the most negative response: “Do you favor or oppose allowing students and parents to choose a private school to attend at public expense?” This and a somewhat similarly worded question used by EdNext found about 58 percent of people in opposition and about 30 percent in support. But EdNext asked several other questions, including some stating a goal to provide people with “a wider choice” which polled much better. And PDK/Gallup didn’t ask at all about the reigning choice champ, scholarship tax credits, which are quite popular, perhaps because they are about providing wider choice and, unlike the connotation of “at public expense,” taxpayers get to choose whether or not they fund them. PDK/Gallup found higher support for charter schools than did EdNext, with question wording again likely heavily at play, but both found robust approval, from 51 percent to 64 percent of respondents.

Much More

In addition to these topics, the PDK/Gallup poll delves into school grades, approval of President Obama’s “support” for public schools, and more. So just as I asked for Education Next, why are you still here? Go read the PDK/Gallup poll!

When most Americans learn about the Thirteenth Amendment in high school, the teacher will cursorily remark that “the Thirteenth Amendment ended slavery in the United States,” and move on to the Fourteenth Amendment. This oversimplification is a fiction. Slavery is still legal in the United States, so long as it is pursuant to a criminal conviction and if it is limited to compulsory uncompensated labor—and indeed that is precisely the system America maintains today.

The Thirteenth Amendment, as enacted, reads “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” Slavery is neither a cruel nor unusual punishment according to the Supreme Law of the Land, nor historically has it been considered that. In the 1700s and early 1800s, Americans viewed compulsory labor was viewed as a way to fight vagrancy and to rehabilitate such idleness.

However, the states began to understand the potential for revenue generation from prisons in the 1800s—compulsory labor and the sale of prison products became a means to offset state costs. To be sure, the Virginia Supreme Court in Ruffin v. Commonwealth (1871) declared that prisoners were the “slaves of the State” within a compulsory labor system.

This “Punishments” Clause allowed for the birth of the “convict-lease” system in the South after the War. Many southern states passed anti-vagrancy “black codes,” criminalizing the status of being unemployed. Citing cost reasons, states would then lease out their prisoners to private persons to work under slave-like conditions. As Frederick Douglass noted, “companies assume charge of the convicts, work them as cheap labor and pay the states a handsome revenue for their labor. Nine[-]tenths of these convicts are Negroes.”

Since the 1860s, courts have interpreted the Thirteenth Amendment as it plainly reads. “Once individuals have been duly tried, convicted, sentenced, and imprisoned, courts will not find Thirteenth Amendment violations where prison rules require inmates to work.” For example, in Mikeska v. Collins (1990), the Fifth Circuit Court of Appeals held that “Any unjustified refusal to follow the established work regime is an invitation to sanctions.”

The compensation of prison labor today reflects this history. In Georgia and Texas, the maximum wage in dollars per day is $0. In Nevada, prisoners make $0.13 an hour. The average wage is between $0.93 a day and $4.93 a day—less than an hour of work at minimum wage. Conservative estimates put the value of output from prison labor at $2 billion annually.

Indeed, much like the southern states claimed after the Civil War, “States facing growing budget deficits are increasingly turning to inmate labor to produce additional revenue, or at a minimum, offset the cost of imprisonment.” “At least 37 states have legalized the contracting of prison labor by private corporations that mount their operations inside state prisons.”

While amending the Constitution to fix a $2 billion a year compulsory labor industry is politically unlikely, Congress may take measures to ensure that rehabilitative compulsory labor is not uncompensated, like compelling the payment of a federal minimum wage. State legislatures also could apply minimum wage rules to prisoners.

Prisoners are often indigent upon release; allowing them to save money for their transition back to society seems only logical if the goal is the reduce recidivism. Paying prisoners fair wages allows them to afford housing and sustenance while transitioning back to being a productive member of society. Additionally, the availability of compulsory, cheap labor to private companies undercuts domestic industry itself.

America must change its practice of not compensating prisoners for their labor. While work has rehabilitative benefits, rehabilitation of the wards of the state should not convert them to the “slaves of the State.” Fair wages should follow compelled work.