Policy Institutes

New York Attorney General Eric Schneiderman is pursuing an investigation of the Exxon Corporation in part for making donations to think tanks and associations like the American Enterprise Institute and American Legislative Exchange Council, which mostly work on issues unrelated to the environment but have also published some views flayed by opponents as “climate change denial.” Assuming the First Amendment protects a right to engage in scholarship, advocacy, and other forms of supposed denial, it is by no means clear that information about such donations would yield a viable prosecution. Which means, notes Hans Bader of the Competitive Enterprise Institute, that the New York probe raises an issue of constitutional dimensions not just at some point down the road, but right now:

A prolonged investigation in response to someone’s speech can violate the First Amendment even when it never leads to a fine. For example, a federal appeals court ruled in White v. Lee, 227 F.3d 1214 (9th Cir. 2000) that lengthy, speech-chilling civil rights investigations by government officials can violate the First Amendment even when they are eventually dropped without imposing any fine or disciplinary action. It found this principle was so plain and obvious that it denied individual civil rights officials qualified immunity for investigating citizens for speaking out against a housing project for people protected by the Fair Housing Act.

In another case, in which a company had been sued seeking damages over its participation in trade-association-related speech, a federal appeals court found that the pendency of the lawsuit all by itself caused enough of a burden on the firm’s speech rights that the court used its mandamus power to order the trial judge to dismiss the claims, a remarkable step.

Moreover, Bader writes, a string of federal precedents indicate that the constitutional rights Schneiderman is trampling here are not just Exxon’s but those of the organizations it gave to, which have a right to challenge his action whether or not the oil company chooses to do so:

These groups themselves can sue Schneiderman under the First Amendment, if Schneiderman’s pressure causes them to lose donations they would otherwise receive. Government officials cannot pressure a private party to take adverse action against a speaker.

Meanwhile, writing at Liberty and Law, Prof. Philip Hamburger of Columbia Law School takes a different tack: the subpoenas imperil due process and separation of powers because they issue at the whim of Schneiderman’s office. Earlier ideas of constitutional government “traditionally left government no power to demand testimony, papers, or other information, except under the authority of a judge or a legislative committee.” In more recent years executive subpoena power has proliferated; so has the parallel power of lawyers in private litigation to demand discovery, but the latter at least in theory goes on under judicial supervision that can check some of its abuse and invasiveness. Extrajudicial subpoenas by AG offices are particularly dangerous, Hamburger argues, because of their crossover civil/criminal potential: the targets do not enjoy a high level of procedural protection when “attorneys general claim to be acting merely in a civil rather than a criminal capacity,” yet the same offices can and do threaten criminal charges. Especially dangerous is New York’s Martin Act, a charter for general invasion of the private papers of anyone and anything with a connection to New York financial transactions.

An attorney general’s concern about fraud or the “public interest” is no justification for allowing him to rifle through private papers. When he thereby extracts the basis for a criminal prosecution, he evades the grand jury process. When he thereby lays the groundwork for a civil enforcement proceeding, he evades the due process of law, for there ordinarily is no discovery for a plaintiff until he commences a civil action. Even worse, when a prosecutor uses a subpoena to get a remunerative settlement, it is akin to extortion — this being the most complete end run around the courts.

Previously on the probe here and here (and earlier here and here), and on the New York attorney general’s office here and here.

John Wagner of the Washington Post reports that Bernie Sanders rallies feature a playlist to back up that “political revolution” he keeps talking about:

Supporters of the senator from Vermont who arrive at events early are likely to hear “Talkin’ Bout a Revolution” by folkster Tracy Chapman. And “The Revolution Starts Now” by country rocker Steve Earle. And “Revolution” by reggae legend Bob Marley & the Wailers. And “Revolution” by Celtic punk band Flogging Molly….

There’s “Uprising,” by Muse; “Power to the People,” by the John Lennon/Plastic Ono Band; “Make a Change,” by Buckwheat Zydeco; and “Give the People What They Want,” by The O’Jays.

And as I read through his article, I kept waiting for the most famous “Revolution” song of all, by the Beatles. Apparently you won’t hear that at a Bernie Sanders rally. Now, my more music-savvy colleagues tell me that’s probably because the Beatles’ label, Apple Records, is very tight-fisted about rights. But I wonder if it just might be that John Lennon’s lyrics are a little too cautionary:

You say you got a real solution
Well, you know
We’d all love to see the plan…

You say you’ll change the constitution
Well, you know
We all want to change your head
You tell me it’s the institution
Well, you know
You better free you mind instead
But if you go carrying pictures of chairman Mao
You ain’t going to make it with anyone anyhow.

Of course, Bernie hasn’t been carrying any pictures of Chairman Mao. But he did honeymoon in the Soviet Union – in 1988! – and in the 1960s he spent some time on an Israeli kibbutz run by a pro-Soviet group (Noam Chomsky called them “split between Stalinist and Trotskyite”). So that disparagement of Mao might be a little too close for comfort. Not to mention the skepticism about radical solutions and changing the Constitution. In fact, as he moves to a national campaign, maybe he should add a few songs from the American Revolution.

President Obama has released his budget for fiscal year 2017. The president’s spending and revenue proposals will be mainly dead on arrival on Capitol Hill, including his $3 trillion in proposed tax hikes.

So it is more interesting to look at the budget baseline, which presents projections assuming no changes in law going forward. Since Obama’s proposals will go nowhere in Congress, the baseline gives us a better picture of what the next president will face when he or she comes into office next year.

Under the baseline, fast-growing spending inflates the deficit from $616 billion this year to $1.4 trillion by 2026. As the deficits accumulate, federal debt held by the public will soar from $14 trillion this year to about $24 trillion by 2026.

If you stacked $24 trillion in $100 bills in a pile, it would stretch 16,000 miles high, or about the height of 150,000 Washington Monuments. Government debt—driven by deficit spending—is by far Washington’s largest monument.

Where is all the spending going? The chart below shows federal outlays divided into four pots, as a share of gross domestic product (GDP) from 1970 through to 2026, with projections under the baseline. The chart reveals that entitlement spending—driven by rapid growth in Social Security and health programs—will increasingly dominate the budget in coming years.

I suspect that entitlement spending will also dominate the next president’s tenure in office as it drives up debt to unprecedented and dangerous levels, although you wouldn’t know that from the campaign trail so far this year.

It is no secret that the United States wants China to take a firmer stance toward its troublesome North Korean ally.  That was true even before the North’s satellite launch/long-range ballistic missile test.  And Chinese officials may be receptive to the argument that steps need to be taken to rein-in Kim Jong-un’s regime, even at the risk of destabilizing his government.  But as I point out in a China-U.S. Focus article getting Beijing to accept the risks entailed in becoming more assertive toward Pyongyang will require some major changes in U.S. policy.

At a minimum, Washington will have to respond favorably to China’s long-standing demand that the United States be willing to engage North Korea in wide ranging negotiations to reduce tensions on the Korean Peninsula.  Chinese officials are increasingly uneasy about Pyongyang’s behavior, especially the regime’s continued defiance of China’s warnings not to conduct more nuclear weapons or ballistic missile tests.  But Chinese policymakers also still cling to the belief that much of North Korea’s belligerence and recalcitrance is the result of the U.S.-led campaign to isolate the country.  Only by offering a comprehensive settlement to Pyongyang to finally end the state of war on the Peninsula, lift most economic sanctions, and establish diplomatic relations, will Washington convince Beijing that it truly seeks to an equitable outcome.

If the United States makes such a generous offer and Pyongyang rejects it, an already uneasy China will be even more impatient with its North Korean ally.  And China is the one country that can inflict real pain on Kim Jong-un’s regime.  Beijing supplies North Korea with a sizable portion (by some estimates more than half) of its food and energy supplies.  If China severed that link, North Korea would soon face an economic and social crisis.  Beijing has been reluctant to take that risky step for two reasons, however.  First, it could well trigger chaos in North Korea, perhaps bringing down Kim’s regime and leading to massive refugee flows out of North Korea into China.  That is no small concern, but in addition to that headache, Chinese officials worry that the United would seek to exploit such a situation to its geopolitical advantage.

For all of its annoying behavior, North Korea is an important buffer state to China, separating the Chinese homeland from the U.S.-led alliance system in East Asia.  Destabilizing North Korea carries the inherent risk that China might then confront a united Korea on its border—a united Korea in a military alliance with the United States.  Even worse from China’s standpoint, it might have to deal with the presence of U.S. air and naval bases in what is now North Korea.  The buffer would be gone.

Even verbal assurances that the United States has no plans for such bases would provide scant comfort.  Chinese leaders are fully aware that U.S. officials promised their Russian counterparts when the Soviet empire in Eastern Europe evaporated that NATO would not expand eastward.  Today, all of those nations are members of the U.S-led NATO, including several directly on the border of the Russian Federation itself.  Moreover, the United States is building up its forces in the eastern members of the alliance.

Chinese leaders are determined that nothing comparable will take place in Northeast Asia.  They will want something more tangible than an easily forgotten paper promise.  Fortunately, the United States can offer that more tangible guarantee.  Washington’s military alliance with South Korea is a Cold War dinosaur.  It was formed at a time when South Korea was poor, weak and war-ravaged.  Worse, that weak South Korea faced a heavily armed North Korea fully backed by both Moscow and Beijing.  South Korea could not have survived without U.S. protection and massive U.S. aid.

How times have changed!  The last thing that either Moscow or Beijing want is another war on the Korean Peninsula.  They have utterly no interest in backing such a venture by their nominal North Korean ally.  Indeed, Beijing especially is developing is significant economic relationship with South Korea.  And China is wise to do so.  South Korea now has twice the population and an economy 40 times the size of North Korea’s.  Seoul can afford to build whatever forces it deems necessary to deter North Korea, or failing that, to utterly destroy an attacking force.  Washington should have terminated the alliance with South Korea years ago.  U.S. leaders should make it clear now to Seoul (and Beijing) that we will be doing so over the next few years.

That concession must be made with eyes open.  The withdrawal of U.S. forces from the Korean Peninsula means that China will likely become the most influential outside power there.  The continuing animosity of the Korean people toward Japan because of the abuses of the colonial period makes it unlikely that that country would become the leading player on the Peninsula.  But a united Korea would be a serious midsize country in its own right and not easily dominated by any neighboring state.

Washington will likely be reluctant to make that—or any other—concession to get Beijing to adopt a more hardline policy toward Pyongyang.  U.S. officials seem to assume that other countries should do what we want simply because we want it.  A graphic example of that occurred in late January when Secretary of State John Kerry was on his way to Beijing to prod Chinese leaders to toughen their policy toward North Korea.  On his way, he stopped to address a meeting of the Association of Southeast Asian Nations (ASEAN) to urge them to adopt a united position opposed to China’s claims in the South China Sea. The diplomatically tone-deaf secretary of state didn’t seem to grasp that Washington’s anti-China collusion with ASEAN might affect China’s willingness to take a tougher stance against North Korea.

But foreign policy is rarely a charitable enterprise.  And Chinese foreign policy is never a charitable enterprise.  If we want Beijing to incur the risks of getting tough with its loose cannon North Korean ally, we must offer worthwhile concessions.  Unfortunately, there are no indications that our policymakers are even close to doing so.

I have two posts up at Darwin’s Fool on ObamaCare’s impact on jobs. In one post, I critique Politifact’s ruling that GOP presidential candidate (and Iowa caucus winner) Sen. Ted Cruz (TX) is a liar for claiming that ObamaCare is a job-killer. An excerpt:

In their rush to label Ted Cruz a liar, PolitiFact ignored economic theory, ignored economic consensus, ignored problems with the evidence they had amassed, ignored that some of the evidence they collected supports Cruz, ignored reams of anecdotal evidence, and dismissed Congressional Budget Office projections based on nothing more than a subjective and arbitrary distinction PolitiFact themselves invented.

In the other post, I offer a compilation of media reports about employers who have eliminated jobs or switched to part-time hiring. 

Andrew J. Coulson was my friend and mentor in school choice policy. He was a good, principled, brilliant, and funny man whom I will miss deeply, along with many, many, others. Andrew was so much more than his work, but I’d like to focus here on that legacy he leaves behind for those who never had the pleasure of knowing him personally.

There is no one else beside Andrew Coulson that you must read to discover what reforms we need in education and why they will work. That is not hyperbole. There are many very sharp people who have contributed important thoughts on education reform, but you will get everything essential that you need from reading through Andrew’s collective works. I have a short list of links to material representing Andrew’s core ideas below. In the near future, his final project – a documentary series on the history and future of education – will be released and should be added as mandatory viewing.

All the way through Andrew’s illness, he continued work on his passion; bringing freedom and excellence to education and opportunities to children. I know he has made a huge difference already, but I hope even more people read and learn from Andrew after his passing. If you have even a fleeting interest in education reform, please do yourself a favor and read as much as you can by Andrew Coulson.

I was first introduced to Andrew in graduate school, about twelve years ago. I’d written an article for NRO on vouchers, playing off a West Wing episode to encourage conservatives and Republicans to provoke a wedge-issue fight for targeted vouchers and black voters. Someone working in the choice movement emailed to compliment me on the article, but gently suggested I might be missing some important concerns about school choice policy.

He attached a late draft of a paper written by Andrew for the Mackinac Center called “Forging Consensus.” I read it. And that was it. I was convinced that education tax credits were the best option for remaking our education system into one of freedom and excellence, one where we could provide the best opportunities possible to all children. In terms of practical impact, principle, public opinion, politics and legal restrictions; Andrew made a thoroughly convincing case for consensus on what the goals of school choice proponents should be.

More than a decade later, I’m more convinced than ever that Andrew was correct then and still correct now. His work directly inspired my PhD dissertation, and I ultimately went to work for Andrew at the Cato Institute. I don’t think it’s an exaggeration to say that everything I’ve written on education reform since then has been a recapitulation or an extension of Andrew’s thinking and analysis.

Andrew was a fine thinker and passionate advocate. But, as many have noted, he was also a kind man with a splendid sense of humor and relentless optimism. He remained immovably committed to his principles and the conclusions to which his great mind had led him. But he always engaged with a sense of magnanimity and humor, never bitter or angry. Even when I made a good deal of trouble for him with my lack of these qualities, Andrew stood by me. When he faced difficulties because of his principles, he always stood firm on those as well.

I wish more of his qualities had rubbed off on me along with his ideas. I had a great deal of difficulty maintaining my balance and optimism to continue in what I knew would be an extraordinarily long and difficult battle. Andrew did not, or at least he never let it show or slow him down.

Andrew’s passing is a great personal loss to those of us who knew and worked with him. It’s an even greater loss to our collective movement to expand liberty and opportunity.

But Andrew would never approve of ending on such a gloomy note. So I’ll keep in mind all the wonderful gifts he’s left us – the memories and impact of his friendship and the continuing inspiration and power of his ideas.

Market Education: The Unknown History, Transaction Publishers, January 1999

Forging Consensus, Mackinac Center, April 30, 2004

Expanding Choice through Tax Credits: Q&A with Cato’s Andrew Coulson Reason TV, Jan 28, 2011

Tax Credits Better for Schools Than Vouchers,” Philadelphia Inquirer. May 15, 2011.

On the Way to School: Why and How to Make a Market in Education, Freedom and School Choice in American Education. June 2011

Do Vouchers and Tax Credits Increase Private School Regulation?, Working Paper No. 1. October 5, 2010.

Arizona Christian School Tuition Organization v. Winn, Legal Briefs. August 4, 2010.

Cato Education Market Index Full Technical Report, Policy Analysis No. 585. December 13, 2006.

The Fiscal Impact of a Large-Scale Education Tax Credit Program, Policy Analysis No. 618. July 1, 2008.

State Education Trends, Policy Analysis No. 746. March 18, 2014.

Comparing Public, Private, and Market Schools: The International Evidence, Journal of School Choice. Vol. 3. 2009.

Given all the recent controversy about whether Congress should require women to register for the draft (answer: no, Congress stop requiring anyone to register), over at Darwin’s Fool I offered an alternative proposal for all those who still think conscription would reduce unnecessary wars: 

The only argument for the draft for which I have any sympathy is one the anti-war Left offers. (Remember them? They existed briefly during the Bush years.) It is the idea that conscription might make Congress and the president less eager go to war, because it would impose more of the cost of war on influential middle- and upper-class voters…

If the goal is to make Congress feel the burdens of war, drafting congressional staff would be a more effective deterrent to war than general conscription.

Read the whole thing.

Over at TimeCato adjunct scholar Shirley Svorny offers a proposal that GOP and Democratic presidential hopefuls would be wise to endorse:

Ted Cruz won Iowa’s Republican presidential caucus promising to repeal every word of Obamacare. When pressed for details, he said he would separate insurance from employment, expand the use of health savings accounts, and allow people to purchase insurance across state lines. These are good ideas, ones we’ve heard before. There are, however, a number of other policy initiatives worthy of attention, whether the Affordable Care Act is repealed or not. There’s one simple thing Congress could do that would expand access to high-quality care, especially for patients in rural areas, without costing taxpayers a dime.

Telemedicine providers [use] telecommunication to provide health care over distances [and] have made great strides in improving access to care for rural communities. Telemedicine allows quick access to specialists, as with stroke victims where time is of the essence. Video interactions are expected to replace a sizable chunk of face-to-face office visits.

But the current system of state licensing stands in the way of interstate practice. Physicians must maintain licenses in each state in which they treat patients. Congressional action to define the location of telemedicine services as the location of the physician would allow physicians to practice with a single license in multiple states. It would allow telemedicine to achieve its full potential.

Read the whole thing. Svorny explains this proposal at greater length in a forthcoming Cato policy analysis.

The Obama administration has released the numbers from the 2016 open enrollment period for Obamacare’s health insurance exchanges. The Congressional Budget Office had already downgraded its enrollment projection for 2016 from 21 million to 13 million. The news is actually just slightly worse: only 12.7 million enrollments, a number that is likely to shrink over the course of the year. Naturally, the administration declared success because enrollments exceeded the 10 million it had predicted back in October (thereby confirming speculation it had deliberately low-balled that prediction so it could later declare victory in spite of what it knew would be terrible enrollment numbers). Yet most observers overlooked what may be the worst news of all: evidence suggesting significant adverse selection in the Exchanges.

The administration reported that 70% of those who re-enrolled for 2016 shopped for a better plan, while 43% switched plans. The administration spun this as a positive, as evidence that Obamacare is expanding choice.

In reality, those numbers mean the vast majority of enrollees were dissatisfied enough with their Obamacare coverage to look for a better option , and a near-majority were so dissatisfied with their premiums or their coverage that they switched to what they hope will be a better plan. Most importantly, such widespread plan-switching is strong evidence of the type of adverse selection that is already eroding Obamacare’s promise to the sick , and could cause the exchanges to collapse.

As architect Jonathan Gruber helpfully explained, Obamacare imposes hidden taxes on the healthy in the form of higher premiums in order to provide hidden subsidies to the sick in the form of lower premiums. Widespread plan-switching is an indication that sick enrollees are trying to maximize their subsidies, while healthy enrollees are trying to minimize their implicit tax. In pursuit of lower premiums, healthy people will gravitate toward plans that save money by using narrow networks and high-cost sharing for drugs. Sick enrollees will gravitate toward the plans that provide the most comprehensive coverage for the drugs, doctors, and hospitals they use. That’s adverse selection.

By encouraging adverse selection, Obamacare literally punishes insurers who offer the most comprehensive coverage. Those plans end up with lots of sick people, and not enough healthy enrollees to offset their claims costs. Obamacare’s architects – who knew they were creating this problem – included additional subsidies for insurers who attracted a disproportionate number of sick enrollees. They figured that if the government threw enough money at those insurers, they would not respond to the incentives Obamacare creates for them to avoid the sick by skimping on coverage. Yet those subsidy programs don’t seem to be working very well, and either way two of them expire after this year.

We can already see evidence of how such adverse selection is driving carriers out of the market and driving a race to the bottom. UnitedHealthcare has already signaled it will be leaving the Exchanges, and other carriers are also looking to the exits. A study published in the New England Journal of Medicine found evidence that Obamacare plans are offering increasingly lousy coverage to people with high-cost illnesses.

It remains to be seen whether more insurers will abandon the exchanges, or whether the exchanges will collapse entirely. But even if it limps along, yesterday’s enrollment figures show why Obamacare coverage will get worse over time.

Here is a recent Bernie Sanders tweet

We need trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations.

I agree. And that is why Bernie Sanders and other progressives should support free trade: Current U.S. tariff and trade policy is bad for poor working families.  Economist Ed Gresser has explained that import tariffs are the most regressive of our taxes: 

… Tariffs are highest on the goods important to the poor. The trade agreements and bills of the past 25 years have sharply cut tariffs on luxury products and industrial inputs. But domestic industrial lobbies have fought hard and usually successfully to keep tariffs on cheap consumer goods high. The result of these bills is that as a percentage of total revenue, tariffs are now lower than at any time since at least the 1950s and perhaps ever; but on a few products, most of all shoes and clothes, the tariff system has changed little since the 1960s.

Therefore, shoes and clothes make up only one-fifteenth of America’s merchandise imports, but bring in almost half of America’s annual tariff revenue. In comparison to other major expenses—education, transport, entertainment, and so on—these goods are relatively small expenses for middle-class and wealthy families, but very large expenses for poor families with children.

This is why tariffs now hit maids and secretaries harder than company vice presidents—the more the tariff system raises money from shoes and clothes, therefore, the more it becomes some thing like a large excise tax on necessities especially important to the poor. Its regressive nature is especially striking in comparison to other federal taxes. …

Getting rid of these regressive taxes should be a priority for anyone truly interested in helping the poor.

The writer Lionel Shriver, best known for her novel We Need to Talk about Kevin, cites The Libertarian Mind in a New York Times column today, about the difficulty of being a “disenfranchised…socially progressive economic conservative.” Shriver writes:

Yet whether it’s “leftist” or “rightist,” my catechism is consistent. The rubric to which those positions hew — we should be free to do whatever doesn’t impinge on the rights of others — forms the conceptual backbone of the United States. The Constitution is libertarian. To the extent that the unamended Constitution was flawed, it was more rigorous application of libertarian principles that would have abolish slavery and granted women’s suffrage. Libertarians were way ahead of the pack on decriminalizing homosexuality.

We can at least thank Rand Paul for nominally refurbishing libertarianism so that it is halfway respectable. But the real mystery is why American libertarianism was ever marginalized (and why they marginalized themselves). David Boaz encapsulates the essential idea in last year’s “The Libertarian Mind”: “You learn the essence of libertarianism in kindergarten: Don’t hit other people, don’t take their stuff, and keep your promises.”

Shriver goes on to endorse seatbelt and helmet laws, a higher minimum wage, gun control, and socialized medicine, a useful reminder to us more ideological sorts that even intelligent, well-informed voters don’t always fit into neat categories. But she does complain about being “repeatedly forced to vote Democratic because the Republican social agenda is retrograde, if not lunatic — at the cost of unwillingly endorsing cumbersome high-tax solutions to this country’s problems.” And she says:

Voters like me — who believe that environmental quality, health and safety, and security needn’t be purchased at the cost of our liberty, and who defend the right to make our own mistakes as a crucial aspect of being human — deserve political representation.

Exactly. And that’s a point we’ve been making here at the Cato Institute since our 1981 paper on liberal, conservative, libertarian, and populist perspectives right up through our recent work on “the libertarian vote.” It’s gratifying to see this additional confirmation that there are many voters out there who are “socially progressive economic conservatives,” or “fiscally conservative and socially liberal,” or indeed broadly libertarian.

Think the end of the No Child Left Behind Act means the end of federal micromanagement? You may have to think again.

As I’ve laid out before, the Every Student Succeeds Act (ESSA) has several ambiguities that seem to keep the door open for continued federal control over state standards, tests, and accountability mechanisms, even as the law has some provisions that seem to prohibit federal intervention. What, for instance, constitutes “challenging” state standards, and who determines that? Or who decides what the right mix of academic and non-academic factors is in school accountability schemes? It certainly seems that because this is federal law, and it includes required federal approval of state plans, there will be federal control.

A report on comments from numerous interest and advocacy groups as the U.S. Department of Education prepares to write ESSA regulations – frankly, where law is really made – only bolsters the fear of continued federal domination. While some groups are certainly calling for a light federal touch, others clearly want continued force. As the Connecticut Coalition for Achievement Now – hardly just a player in the Nutmeg State – wrote:

As you establish rules and regulations around the ESSA, we urge you to maintain challenging and high standards for all students, ensure high-quality, valid and reliable annual statewide assessments, and implement comprehensive and robust school and district accountability and performance systems that help identify and improve our highest need schools and districts.

Sound like a light federal touch? Not to me, either.

Thankfully, rules and regs haven’t been written yet, and there is still time to address what appear to be very real threats of continued federal control both specifically in the law, and ultimately in regulation. And address them we shall on February 16, when Cato will host a debate between experts who see the ESSA as returning power to states and districts, and those who see that as a very uncertain proposition. Or maybe you think the law goes too far removing influence from DC. Well we’ll tackle that, too, especially if you join us – either in-person or online, and using #FedsLeaveEd on Twitter – and ask our panel about it.

Does the ESSA really relinquish federal power? That remains an open question, and lots of people – including at Cato – will be debating what the answer should be.

Sartre famously wrote, “L’enfer, c’est les autres” (“Hell is other people”).  In his recent speech, Fed Vice Chairman Stanley Fischer, assisted, as he says, by William English of the Board’s staff, supplies an example of hell being the “other policy.”

The last substantive paragraph of Fischer’s speech includes the following summary of current FOMC policy:

The Committee has indicated that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively.  But that statement leaves open the question of when we should begin to reduce the size of our balance sheet.  Because the tools I mentioned earlier — the payment of interest on reserve balances and the overnight reverse repurchase facility — can be used to raise the federal funds rate independent of the size of the balance sheet, we have the flexibility to adjust the size of our balance sheet at the appropriate time.  With the federal funds rate still quite low and expected to rise only gradually, I think there is some benefit to maintaining a larger balance sheet for a time.  Doing so should help support accommodative financial conditions and so reduce the downside risks to the economic outlook in the event of a future adverse shock to the economy.  Consistent with this view, the Committee has decided to continue to reinvest principal payments from its securities portfolio until normalization of the federal funds rate is well under way.  The decision about when to cease or begin phasing out reinvestment will depend on how economic and financial conditions and the economic outlook evolve.

From this statement one gathers a number of facts.

First, the Fed remains determined to stay on an interest rate-raising path, as circumstances allow.  The question here is, just what are the circumstances presently pointing to the desirability of further raising interest rates?

Second, the Fed plans to maintain its bloated Fed balance sheet, including reinvesting maturing asset balances, for the indefinite future, instead of looking hard for a chance to reduce it, as it has long promised to do.

Third, we’re still going to pay increased interest rates on excess reserve balances (a subsidy) and maintain the raised rate on the already subsidized reverse repo transactions (principally for nonbanks).  One wonders what would happen in the market to those rates if the Fed allowed the balance sheet to shrink, even short of outright asset sales, by simply allowing maturing assets to roll off and stopping the implicit subsidy of reverse repos.  Has anyone on the Board’s or FRBNY’s staff done such a study?  If not, isn’t the absence of such a study a hallmark of willful indifference to “data-driven policy”?  If such a study exists, shouldn’t the transparent Fed release it so that we might see it?

Finally (a case of omission), Fischer’s speech says not a word, either in his summary or in the rest of his speech, about negative rates.  If the Fed (which created a generation’s worth of new reserves in recent years) stopped intervening in the Federal funds market, one wonders where market rates would go.  I think they would go negative, at least briefly, before eventually recovering with normal economic activity.

A negative rates environment might be a powerful incentive to bankers, encouraged if need be by bank examiners and discount window officers, finally to restructure legacy (that is, pre-2009) debt at the household and firm level (the one very big thing that was done in the 1930s that was not done after 2008).  The payoffs for such restructuring would be resumption of natural economic growth as debt burdens are eased, with positive (but significantly lower than present) interest rates on the restructured debt.  In my tax practice, I still encounter too many households paying 8 or 9 percent interest on legacy mortgage, car loan, and student loan debt.  It won’t do to say that credit scoring requires such outrageous spreads; credit scoring is rotten to the core, and bankers know it (or should know it).  The scores are low because the debt is not restructured.  Also, the insurance industry now sets rates using credit scoring; no one at the Fed appears to be concerned about this expansion of the use of credit scoring.  This bankers’ and insurers’ sword is not what was intended when credit scoring was invented as a shield for use in the banking industry in judging patterns of racial discrimination in mortgage lending in the 1980s and 1990s.  Congress and the Fed gave bankers a shield and they turned it into a sword.

In short, it looks as though the Fed is persuaded that economic growth will resume and increase once the prices of oil and other commodities stop falling.  If there is a historical or an econometric policy model supporting the Fed’s current policy mix, I’d like to know what it is.  The data so far, and the Japanese experience since the 1990s, seem to suggest that maintenance of Fed-managed low interest rates to stimulate economic growth against a backdrop of elevated excess reserve levels tends, if anything, to depress economic activity.  (Japan finally took its official rates into negative territory last week, by the way.)  What Vice Chairman Fischer describes is but a procrustean attempt to make the Fed’s model fit the data.  One wonders what economy, shorn of its limbs, will emerge from the other side of the Fed’s latest, indefinite policy commitment.

I’m not suggesting that negative rates are a cure for all that ails us.  The Swiss experience indicates that negative rates merely stop the bleeding (in this case, adverse domestic economic effects of high foreign exchange value of the dollar), giving the patient a respite during which natural healing forces might take over.  In any case, Fed tolerance of temporarily negative rates cannot possibly have worse cumulative economic effects than the bloated balance sheet policy that actually has been followed, with no exit in sight.

[Cross-posted from Alt-M.org]

Great news from the Peach State, where a superior court judge dismissed a constitutional challenge to Georgia’s scholarship tax credit (STC) law. The Institute for Justice intervened to defend the law on behalf of five tax-credit scholarship recipients. Currently, more than 13,000 Georgia students receive tax-credit scholarships to attend the schools of their choice.

School choice opponents alleged that the STC violated the state constitution’s historically anti-Catholic Blaine Amendment, which prohibits the state from publicly funding religious schools, among other provisions. However, citing precedent from the U.S. Supreme Court and several state supreme courts, Judge Kimberly M. Esmond Adams held that tax-credit eligible donations constitute private funds, not public expenditures:

Courts that have already considered whether a tax credit is an expenditure of public revenue have answered this question in the negative. Of particular importance is Arizona Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436 (2011), where the United States Supreme Court found that taxpayers lacked standing to challenge a scholarship tax credit program under the Establishment Clause of the United States Constitution that was almost identical to the Program at issue here. Like Georgia’s Program, the Arizona program provided that taxpayers could receive a credit for donations made to independent scholarship organizations which then provided scholarships for students to attend private schools. […] Plaintiffs have not presented any arguments for why this Court should not follow this persuasive authority.

The fact that tax-credit eligible donations are private funds is the primary reason that STC laws have a perfect track record in the state courts thus far. It’s also why tax credits are the most liberty-friendly means of financing educational choice, as the late, great Andrew J. Coulson never tired of reminding us. In response to the U.S. Supreme Court’s similar ruling five years ago, Andrew wrote:

The rationale underlying the Court’s ruling highlights a unique advantage that tax credits have over other ways of funding education: they expand both freedom of choice for parents and freedom of conscience for taxpayers.

Plaintiffs had argued that cutting a person’s taxes is equivalent to spending government money, and so taxpayers were being compelled to support religion when credits were used for donations to religious [scholarship organizations]. The Court said, “that is incorrect.”

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

There are other ways of funding universal choice in education, but only tax credits (either for parent’s own education expenses or for donations to [scholarship organizations]) respect the freedom of conscience of taxpayers as well as the freedom of choice of parents. If we truly wish our schools to help build strong, harmonious communities, there is no better way than to adopt such programs at the state level on a grand scale.

The opponents of educational choice are likely to appeal the judge’s decision. Let us hope their appeal meets the same fate as all of its predecessors. 

New York is far denser than any other large American city, with an average of 27,000 people per square mile compared with 2,500 to 4,000 for most American cities. Although the city is criss-crossed by an extensive subway system, there are still some neighborhoods that are more than half a mile from a subway station.

So naturally, what those neighborhoods need is an ultra-low-capacity, high-cost form of urban transit: a streetcar. At least, that’s what Mayor Bill de Blasio thinks: last week, he proposed to spend $2.5 billion building a 16-mile streetcar line connecting Brooklyn with Queens.

This is such a dumb idea that even transit advocates oppose it. Streetsblog observes that the proposed streetcar route doesn’t easily connect with subway stations that would give riders access to Manhattan. It also argues that bus-rapid transit  (which New York calls “select bus service”) makes a lot more sense than streetcars.

TransitCenter advocate and Brooklyn resident John Orcutt argues that “the American streetcar ‘renaissance’ of the past 15 years has mainly turned out turkeys”: slow (“Reporters for The Oregonian, CharlotteFive and Atlanta magazine have all laced up sneakers and outraced their local streetcars on foot”), expensive (“L.A.’s streetcar has seen its initial cost estimate more than double”), and underperforming (“ridership on Salt Lake City’s S-Line is less than half of planning projections”).

TransitCenter head David Bragdon, who previously was president of Portland’s Metro Council, agrees. “Most streetcar projects in the U.S. provide slow, unreliable service that does not serve many people,” Bragdon noted, urging New York not to “repeat the mistakes of other places and spend $2.5 billion if the result is not useful transportation for riders.”

While Portland often claims its streetcar is a great success, it has inflated ridership numbers by at least 19 percent and gained most of the ridership it by offering free rides to most passengers for the first dozen years of operation. Even though it supposedly started collecting fares from all riders in 2012, average fare revenues in 2014 were still just 4 cent per trip, showing that no one is enforcing the fare.

TransitCenter also questions de Blasio’s claim that streetcars will generate enough new development to pay for themselves. “Much of the property adjacent to the route is undergoing large-scale development without the spur of a new transit proposal,” says a TransitCenter blog post. “Would more value be realized by supporting transit projects of proven effectiveness in other parts of the city?” In fact, as I’ve repeatedly pointed out, streetcars don’t generate any economic development unless that development gets additional subsidies. Even Portland’s city auditor agrees.

Few of the critics have commented on the high cost of de Blasio’s proposal. Portland spent just under $150 million on its 3.3-mile Eastside streetcar line, which it said somewhat proudly was the most expensive streetcar line ever built. De Blasio’s line would cost more than $150 million per mile. Labor costs in New York may be somewhat higher than in Portland, but I don’t know of any inherent reason why construction costs should be more than three times as much as elsewhere.

Nor does anyone raise the capacity issue. For safety reasons, a single streetcar line can only support about 20 cars per hour. When jammed full, with most people standing and packed together more closely than most Americans are willing to accept, a streetcar is rated to hold about 134 people, for a throughput of 2,680 people per hour in each direction. By comparison, New York City’s subways can move close to 50,000 people per hour, and buses on city streets with a dedicated lane and parking strip can easily move more than 10,000 people per hour (and nearly double that on double-decker buses), most of them comfortably seated. Plus, if a bus breaks down, others can go around it while if a streetcar breaks down most of the line must shut down as they are built with few passing tracks.

Also little noted is the conflict between bicycles and in-street rails. New York has seen a quintupling in bicycle commuting since 2000, and streetcar tracks are a major hazard to these cyclists. A survey of 1,520 Portland cyclists revealed that two-thirds “have experienced a bike crash on tracks.”

The real purpose of the streetcar is to give the owners of housing projects that are currently under construction along its proposed route a Disneyland-like ride they can use to distinguish their projects from others in the city. They won’t get it very soon, however: de Blasio’s plan calls for construction to begin no sooner than 2019 and completion in 2024. For a lot less money, the city could start a locally branded bus service in a few months that wouldn’t cause as much congestion and wouldn’t create a street hazard for cyclists.

The irony is that de Blasio campaigned for office on the claim that, unlike his predecessors, he wouldn’t cowtow to developers. Now, when the city has far higher transportation priorities elsewhere, he wants to blow $2.5 billion on a toy train that, at best, will slightly enhance the value of developments that are being built anyway and at worst add to congestion and make streets more dangerous for cyclists.

It is always refreshing to see journalists draw attention to the incredible decline in world poverty. An article that did just that appeared yesterday in the Christian Science Monitor. The piece shines a spotlight on three heartening facts in particular. 

First, poverty is decreasing. Not only have poverty rates fallen, but the total number of people in poverty has decreased. This is incredible when one considers population growth—there are more people alive today who aren’t in poverty than ever before. The Brookings Institution projects poverty will be practically eliminated by 2030. 

Second, average incomes are rising. World per capita GDP, adjusted for inflation and differences in the cost of living, has never been higher. And average income growth is not limited to developing countries: the average American has more disposable income left after basic expenses

Finally, humanity is healthier. Globally, average life expectancy is at an all-time high, largely due to plummeting infant mortality rates. More people have enough to eat and enjoy access to clean drinking water and improved sanitation facilities. The developed world has also seen health gains, with cancer death rates falling for both men and women in the OECD countries. 

The article attributes improvements in well-being to three main factors: the fall of communism, the rise of trade and globalization, and the courage of those who stood up against tyranny. 

While the CSM article gives some credit to international aid programs, it is important to recognize that aid is not a good driver of economic development. Even vocal aid-proponent Bono acknowledges that international aid and charity pale in comparison to the prosperity-creating power of people engaging in market exchange. 

When given the freedom to do so, it is truly remarkable what ordinary people can achieve. Consider the utter transformation of Singapore from poverty to riches – that is the power of economic freedom!

On Friday, a federal appellate court issued an opinion in Stamps v. Town of Framingham, holding that a SWAT team officer who points and accidentally fires a loaded semi-automatic weapon at a subdued 68-year-old grandfather is not immune from facing a lawsuit for using excessive force in violation of the Fourth Amendment.

Eurie Stamps was the stepfather of Joseph Bushfan, whom the police suspected of dealing crack. Effectuating a search warrant on Stamps’s apartment, the SWAT team raided the apartment at midnight on January 5, 2011.  Stamps—whose presence the SWAT team was aware of and who was not suspected of any wrongdoing—lay prostrate and motionless on the ground with his hands out while Officer Duncan guarded him. During the time that Duncan was guarding him, Duncan moved his finger to the trigger and accidentally fired, killing Stamps.

The real story is how this seemingly obvious outcome—that juries should be able to decide whether officers who finger the trigger of loaded guns pointed at non-threatening individuals use excessive force—even became an issue. At the district court, Officer Paul Duncan claimed that his actions aren’t subject to scrutiny because of a doctrine entitled qualified immunity. As I wrote in September:

Under the doctrine of “qualified immunity,” government officials—including police officers—are immune from suit if their actions don’t violate a “clearly established” constitutional right. The crux of Duncan’s argument is that when his weapon discharged, he became immune from suit even if pointing an assault rifle at Stamps was an unconstitutional act by itself—because there’s no clearly established right against accidental death.

The district court rightly rejected that argument, which Cato categorized as both “dangerous and bizarre” in our brief. The U.S. Court of Appeals for the First Circuit was plain in its rejection well: “The defendants’ proposed rule has the perverse effect of immunizing risky behavior only when the foreseeable harm of that behavior comes to pass.” It seems that the court agreed with Cato’s position that “foreseeable accidents don’t remove liability from the harming actor . . . immunizing an officer from liability for the foreseeable result of his intentional actions [is improper].” Indeed, the court noted the “widespread agreement” of other federal courts in rejecting exactly that sort of argument.

Thus, because Officer Duncan’s actions were not immunized, the case goes back to the jury to determine whether he is liable for his actions, and what the damages should be. (In all likelihood, Duncan will now settle the case because it’s hard to imagine that a jury won’t rule for Stamps’s family here.)

This decision comes at a time when SWAT raids across the country creates pressing issues on the proper use of government force in effectuating criminal arrests. In a militarization case with nearly identical facts, Kane v. Lewis, Cato filed a brief noting that “SWAT team deployments have increased more than 1,400% since the 1980s … .  SWAT teams and tactical units were originally created to address high-risk situations, such as terrorist attacks and hostage crises. Today, however, these extreme situations account for only a small fraction of SWAT deployments; they’re used primarily to serve low-level drug-search warrants.”

Federal courts should continue to reign in the use of militarized SWAT teams – and indeed government officials abusing their powers in all contexts – improving respect for law enforcement officers as well as protecting arrestees and innocent bystanders.

The Virginia legislature is moving forward with so-called “proffer” reform.  Proffers are local amenities such as parks, computers for schools, architectural changes and other benefits provided by housing developers to local governments in exchange for a relaxation of zoning restrictions on new housing development.  A bill to restrict these deals has passed the state’s House of Representatives and is moving through its Senate. While this prohibition on a “gray market” may appear to be good policy reform, the result will likely be less development and higher housing prices.  The reform seeks to ban all proffers that do not address “an impact that is specifically attributable to a proposed new residential development…”.

Local groups are famously resistant to housing development. This makes sense to some extent, because new development can impose external costs on existing residents in the form of traffic congestion and overutilized municipal infrastructure.  An ideal resolution of such external costs would be an explicit market for zoning change.  Such a market would allow developers to explicitly negotiate with relevant community groups and homeowners associations.  The consent of existing residents for new denser more urban development would be obtained in exchange for cash and/or home buyouts.  The payments would compensate existing residents for change.

Given that such explicit markets for zoning change do not exist, how should municipalities negotiate with housing developers? Some, such as Steve Teles from Johns Hopkins University and Jonathan Rauch from the Brookings Institution have argued that allowing a broad scope of for negotiation with less transparency can yield better political outcomes. Inability to accept community demands for ancillary benefits can prevent new developments from ever getting off the ground. Similarly, William Fischel of Dartmouth has long argued that allowing highly-specific tradeoffs for community support can make sense in many cases.

The Virginia bill would restrict local powers to negotiate highly specific development agreements without adding any mechanism that facilitates either an explicit or an alternative “gray” market to ensure that restrictions would encourage development. While it may seem sleazy to allow communities to demand computers for schools in exchange for denser development, if cash were exchanged for denser development, the cash recipients might very well use the cash for computers rather than a park or wider roads.  While the gray market is imperfect, putting more restrictions on it will make development less rather than more likely.

This blog post was coauthored with Cato research assistant Nick Zaiac.

Public oversight of government and internal managment could both improve dramatically with an authoritative, machine-readable representation of what the federal government is. Right now, there isn’t a list of all of the federal government’s agencies, bureaus, programs, and projects. That’s a big part of why the government is run so badly and so impervious to change. The government is illegible, even to many insiders.

What the President Should Do: Transparent Government

Happily, the Obama Administration recently promised to produce a machine-readable federal government organization chart. And it promised to do so in a matter of months. That’s something the administration can do to leave a lasting legacy and fulfill an important part of his promise of more transparent government, something we touted here in a 2008 policy forum, Just Give Us the Data!

The U.S. plans on filling Eastern Europe with thousands of troops along with vehicles and weapons to equip an armored combat brigade. That will require a special budget request of $3.4 billion for next year.

An unnamed administration official told the New York Times, that the step “fulfills promises we’ve made to NATO” and “also shows our commitment and resolve.” Moreover, said another anonymous aide: “This reflects a new situation, where Russia has become a more difficult actor.”

However, the basic question remains unanswered: Why is the U.S. defending Europe? The need for America to play an overwhelming role disappeared as the continent recovered and the Cold War ended.

Today NATO involves collective defense, but “their,” not “our,” defense. Although the Europeans sometimes join America in “out of area” activities, for which no alliance is necessary, they have never come to, and are unlikely to ever come to, America’s actual defense. Applying Article 5 after 9/11 was a nice act of solidarity, but European support was never necessary to strike al-Qaeda and oust the Taliban.

Nor is there any serious military threat to Europe. Russia may be “a more difficult actor,” but it is not a suicidal aggressor. Russia has gone from Soviet Union back to Russian Empire.

Vladimir Putin’s Russia cares about border security. It wants to be respected and have its interests protected. It doesn’t act precipitously, but it does act.

Moscow responded to what it perceived as Western provocations in Ukraine. That didn’t justify Russia’s support for Ukrainian separatists, but it was far different than a Hitleresque Blitzkrieg across Ukraine. Indeed, Putin wanted to weaken rather than swallow his neighbor, which would be indigestible.

Moreover, if this really is a “new situation” and “changed security environment,” why don’t the Europeans act like they believe that? The countries theoretically most at risk, the Europeans, continue to cut their military outlays and capabilities. As always, NATO stands for “North America and the Others.”

According to the alliance’s latest annual report, total NATO Europe expenditures went from $275 billion in 2010 to $253 billion last year. As percentage of GDP outlays have slipped from 1.64 to 1.43.

A majority of European countries have cut their spending. Overall, U.S. expenditures ran a bit more than 2.6 times those of Europe in 2010. The disparity had increased to almost 2.8 times in 2015.

Although NATO aspires to devote two percent of its members’ GDP to the military, NATO Europe managed just 1.43 percent overall. Only Estonia, Greece, Poland, and the United Kingdom hit the two percent level. Several of the alliance’s most important members fell below even this mediocre average.

On defense expenditures per capita the numbers are particularly striking. Last year the U.S. devoted $1865 per person to the military. NATO Europe spent $446 per person. Several European countries barely broke the $100 level.

The Eastern Europeans are theoretically at the greatest risk but do not impress with their efforts. They put little effort into their defense.

But NATO Secretary General Jens Stoltenberg proudly announced that the Europeans cut military outlays only a little last year. That’s his good news.

U.S. expenditures are down as well, but mainly because the U.S. no longer is so intensely fighting so many wars. The Obama administration is merely reducing the massive Bush build-up. And as a percentage of GDP America’s outlays are more than double those of the Europeans. Even though the U.S. faces even fewer serious military threats than does Europe.

World War II ended long ago. If the Europeans feel endangered, they should take action.

 After all, as I wrote for Forbes: “the U.S. is very busy in the world. Moreover, the U.S. government is effectively bankrupt. Washington no longer can afford to garrison the globe.”

The world is changing. So should America’s national security priorities. Europe should take over its own defense.

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