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I think this is the first official act of the Trump administration that I can honestly say I can get behind, and enthusiastically. According to the Washington Post, Trump’s budget plan would dramatically cut funding for TSA’s roving Fourth Amendment violation squads, better known as “Visible Intermodal Prevention and Response” (VIPR) teams. From the Post story:

Under the proposed budget, VIPR funding would drop to $15 million from $58 million and the number of VIPR teams would be cut to 8 from 31, with 277 full-time positions being eliminated, according to the report. The Democratic staff members of the Senate Homeland Security Committee say in the report they were told that even though federal officials say eight VIPR teams can “maintain an acceptable security posture,” the three-quarters funding cut will “limit” the presence of teams nationwide.

I would’ve preferred the complete abolition of these ineffectual, costly teams–which have never stopped a single terrorist attack but which have often caused havoc at the transportation hubs they’ve haunted. But these cuts are a welcome, significant step in the right direction, and the administration is to be commended for making this move.

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments.

And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially when the IMF’s politicized and leftist (and tax-free) leadership dictates the organization’s agenda.

Which explains why I’ve referred to that bureaucracy as a “dumpster fire of the global economy” and the “Dr. Kevorkian of global economic policy.”

I always make sure to point out, however, that there are some decent economists who work for the IMF and that they occasionally are allowed to produce good research. I’ve favorably cited the bureaucracy’s work on spending caps, for instance.

But what amuses me is when the IMF tries to promote bad policy and accidentally gives me powerful evidence for good policy. That happened in 2012, for example, when it produced some very persuasive data showing that value-added taxes are money machines to finance a bigger burden of government.

Well, it’s happened again, though this time the bureaucrats inadvertently just issued some research that makes the case for the Laffer Curve and lower corporate tax rates.

Though I can assure you that wasn’t the intention. Indeed, the article was written as part of the IMF’s battle against tax competition. As you can see from these excerpts, the authors clearly seem to favor higher tax burdens on business and want to cartelize the global economy for the benefit of the political class.

…what’s the problem when it comes to governments competing to attract investors through the tax treatment they provide? The trouble is…competing with one another and eroding each other’s revenues…countries end up having to…reduce much-needed public spending… All this has serious implications for developing countries because they are especially reliant on the corporate income tax for revenues. The risk that tax competition will pressure them into tax policies that endanger this key revenue source is therefore particularly worrisome. …international mobility means that activities are much more responsive to taxation from a national perspective… This is especially true of the activities and incomes of multinationals. Multinationals can manipulate transfer prices and use other avoidance devices to shift their profits from high tax countries to low, and they can choose in which country to invest. But they can’t shift their profits, or their real investments, to another planet. When countries compete for corporate tax base and/or real investments they do so at the expense of others—who are doing the same.

Here’s the data that most concerns the bureaucrats, though they presumably meant to point out that corporate tax rates have fallen by 20 percentage points, not by 20 percent.

Headline corporate income tax rates have plummeted since 1980, by an average of almost 20 percent. …it is a telling sign of international tax competition at work, which closer empirical work tends to confirm.

But here’s the accidental admission that immediately caught my eye. The authors admit that lower corporate tax rates have not resulted in lower revenue.

…revenues have remained steady so far in developing countries and increased in advanced economies.

And this wasn’t a typo or sloppy writing. Here are two charts that were included with the article. The first one shows that revenues (the red line) have climbed in the industrialized world as the average corporate tax rate (the blue line) has plummeted.

This may not be as dramatic as what happened when Reagan reduced tax rates on investors, entrepreneurs, and other upper-income taxpayers in the 1980, but it’s still a very dramatic and powerful example of the Laffer Curve in action.

And even in the developing world, we see that revenues (red line) have stayed stable in spite of - or perhaps because of - huge reductions in average corporate tax rates (blue line).

These findings are not very surprising for those of us who have been arguing in favor of lower corporate tax rates.

But it’s astounding that the IMF published this data, especially as part of an article that is trying to promote higher tax burdens.

It’s as if a prosecutor in a major trial says a defendant is guilty and then spends most of the trial producing exculpatory evidence.

I have no idea how this managed to make its way through the editing process at the IMF. Wasn’t there an intern involved in the proofreading process, someone who could have warned, “Umm, guys, you’re actually giving Dan Mitchell some powerful data in favor of lower tax burdens”?

In any event, I look forward to repeatedly writing “even the IMF agrees” when pontificating in the future about the Laffer Curve and the benefits of lower corporate tax rates.

Neither of the defense bills (National Defense Authorization Acts, NDAAs) wending their way through the House and Senate grant the Pentagon the authority to reduce excess infrastructure. Military leaders have asked for such permission for many years, but Congress has stubbornly refused. An amendment sponsored by Rep. Tom McClintock (R-CA) would have stripped the language from the House NDAA that blocks a new Base Realignment and Closure (BRAC) round. That amendment failed yesterday by a vote of 175-248.

Before the vote, the House Armed Services Committee issued a “BRAC Facts” one pager to preempt the McClintock amendment and other attempts to resolve the impasse between Congress and military leaders over BRAC.

The one pager includes a few facts, but is selective to the point of misleading. For example, it states that Secretary of Defense James Mattis “does not have confidence in DOD BRAC assessments.” And quotes Mattis as saying “I am not comfortable right now that we have a full 20 some percent excess.” 

But the SecDef also said that a new BRAC round could save the Pentagon $2 billion a year. In written testimony last month, Mattis called BRAC “a cornerstone of our efficiencies program” and necessary to “ensure we do not waste taxpayer dollars.” Granting the Pentagon authority to reduce overhead, Mattis continued, “is essential to improving our readiness by minimizing wasted resources and accommodating force adjustments.” He observed, “Of all the efficiency measures the Department has undertaken over the years, BRAC is one of the most successful and significant.”

Meanwhile, deputy defense secretary Robert Work has also called for BRAC. “Spending resources on excess infrastructure does not make sense,” he wrote last year. In short, it simply isn’t accurate to imply that current Pentagon leaders doubt whether the military has more bases than it needs. And that is true even if the military were to grow in the next few years, as the HASC claims it must.

There are other problems with the HASC BRAC fact sheet. It notes that the “FY18 NDAA, which does not authorize a BRAC round, passed through Committee with an overwhelming bipartisan vote of 60 to 1.” But that doesn’t mean that 60 members supported everything in the bill. Indeed, 19 HASC members voted in favor of the McClintock amendment.    

HASC ranking member Adam Smith (D-WA) also attempted to amend the NDAA to allow for a BRAC, but his effort was blocked by the rules committee. During floor debate in support of the McClintock amendment, Smith scolded his fellow members. “We cannot afford for parochial interests to get in the way of what is in the best interests of our troops. We need a BRAC.” And he dismissed claims that a BRAC won’t save taxpayers’ dollars as “just factually ridiculous.” 

But an interesting divide might be opening, as well, between HASC Chairman Mac Thornberry (R-TX) and the chair and ranking member on the Senate Armed Services Committee. Bryan Bender at PoliticoPro reported that Senators John McCain (R-AZ) and Jack Reed (D-RI) “are preparing to offer an amendment to this year’s defense policy bill authorizing a new round of military base closures.”

A summary of the McCain-Reed proposal explains that it “is a significant departure from the 2005 BRAC round and includes a number of improvements which are all specifically designed to address common critiques from 2005.” The amendment was a bipartisan effort by SASC staff, in consultation “with the GAO, DOD, [Association of Defense Communities], CRS, former BRAC commissioners, various think tanks, [and] former DOD staff, etc.” A recent coalition letter that I spearheaded, signed by over 45 individuals from more than 35 different organizations, reveals the breadth and depth of support for a new BRAC round. 

Looking at the politics of BRAC on Capitol Hill, one could chalk up past Republican resistance to the fact that the requests were coming from an Obama administration that the GOP routinely accused of gutting the U.S. military. But now the Trump administration is requesting authority to eliminate unnecessary and underutilized facilities, even as it calls for more Pentagon spending. And Mattis has a lot more clout on Capitol Hill than his predecessors. If he gets behind the McCain-Reed proposal, the military might finally have a chance to redirect taxpayer resources to where they are most needed.

The other day, I wrote a piece lauding an amendment Sen. Ted Cruz (R-TX) was proposing to add to the Senate GOP’s health care bill. Cruz called it the the Consumer Freedom Amendment. If insurers offered two ObamaCare-compliant plans to all comers, the Cruz amendment would have freed them to sell–and freed consumers to purchase–health-insurance plans that did not comply with those regulations. The legislative language I saw appeared to free consumers, not from all the regulations I would like, but from enough that it would have made the Senate bill a step in the right direction. It also included more restrictions on the use of this “freedom option” than I would like, but same thing. The changes would have dramatically reduced premiums for consumers. Perhaps more important, it would have offered more comprehensive and more secure coverage to people who develop expensive illnesses than ObamaCare does.

Today, Senate GOP leaders released an updated draft of their health care bill. 

This draft imposes ObamaCare’s “single risk pool” price controls on “freedom option” plans. Long story short, that means there is no “freedom option” in this bill. Insurers probably would not even offer non-compliant plans. If they did, ObamaCare’s “single risk pool” price controls would make secure, guaranteed-renewable health insurance impossible by taxing such plans to death. Here’s how.

  • The “single risk pool” price controls would require insurers to increase premiums for both both ObamaCare-compliant plans and non-compliant plans by the same percentage. If claims in the complaint market necessitate a 10 pecent increase, while claims in the non-compliant market necessitate only a 6 percent increase, the insurer would have to increase premiums in the former market by too little and/or increase premiums in the latter market by too much.
  • Let’s say insurers split the difference by increasing premiums in both markets by 8 percent. In the second year, insurers would be over-charging consumers in the non-compliant market. The problem would only get worse with time. By year five, the insurer would be overcharging consumers in the non-compliant plans by almost 10 percent. That creates an incentive for the insurer or a competitor to issue new, appropriately priced non-compliant plans that lure the healthy people out of the old non-compliant plans.
  • Consumers who had who developed expensive illnesses in the first year could not switch to the new non-compliant plans, because insurers would underwrite them and charge them an even higher premium. So those folks would stay in the old non-compliant plans until the hidden tax imposed by the “single risk pool” price controls made those plans a worse deal than the heavily subsidized ObamaCare-compliant plans. At that point, those consumers would switch to the ObamaCare-compliant plans. Actually, the effect would be a lot like that of the MacArthur waivers in the House’s health care bill. 
  • In other words, secure, long-term, guaranteed-renewable coverage would be impossible, because the “single risk pool” price controls would tax those plans to death.
  • This dynamic would happen even faster if insurers increase both the compliant and noncompliant plan premiums by 10 percent, which they probably would.

I’m not saying there’s no way Senate Republicans can redeem their bill. I have offered ideas that might. But at this point, the Cruz amendment does not redeem or even add to the bill.

I don’t get Republicans’ sudden infatuation with price controls

For most of American educational history, government massively discriminated against African Americans, first with some states prohibiting any education for them, and long after that districts maintaining de jure, and to this day de facto, segregated schools. But we are to believe that the big segregation danger is school choice? That’s like saying it’s not the nuke we’ve been using that’s the big threat, but that someone might use a slingshot. It is also what the Center for American Progress is asserting in a new brief: The Racist Origins of Private School Vouchers.

This may be a new report, but that modern proposals are a huge danger because some states and districts used choice to evade public school integration after Brown v. Board of Education isn’t a new argument. Some places absolutely did do this, but the argument remains as logically and factually untethered from full history as it has ever been.

For one thing, the large-scale drive to have education dollars follow students to chosen schools did not start with white people trying to escape racial integration, but Roman Catholics—and others—trying to direct funding for their children to schools that taught their religious values, not someone else’s. They wanted to be treated equally, which public schools did not do. Meanwhile, as even the CAP report hints, often private people tried to help African Americans in the face of government discrimination.

Of course, we continue to have segregation in education: if you want to access a “good” district, you have to be able to pay for a home there. That is why most people probably do not think of private schooling when they think of “white flight,” but of families moving out of districts with growing African-American populations into suburban districts that tended to be largely white. This happened most famously in Michigan, not deep in the kudzu of Alabama or Mississippi.

Here, perhaps, is the biggest thing the CAP report misses: private school choice is extremely popular with African Americans, who want to be empowered to seek out something better for themselves, not be dependent on politicians and bureaucrats. For instance, a 2016 poll by the journal Education Next found that a whopping 64 percent of African Americans supported “a tax credit for individual and corporate donations that pay for scholarships to help low-income parents send their children to private schools.” Such support is not new, with approval for vouchers in the 60 percent range at least as far back as 1999.

Asserting that the origins of school choice are racist reeks of politicized guilt by association. But far more important, it ignores historical, current, and logical reality. Government, including the public schools, often forced segregation, and the public schools continue to be massively segregated. Meanwhile, logic dictates that there is far more danger of inflicting continued harm with a government system in which choice is primarily only possible by purchasing a home, than by giving parents control of education funds. Indeed, most African Americans agree: they want school choice.

As I predicted 72 hours ago, the FY18 National Defense Authorization Act (NDAA) will not be a vehicle for reforming National Security Agency (NSA) surveillance authorities under Sec. 702 of the FISA Amendments Act (FAA). The twist is that while the House Rules Committee did disallow an amendment to prevent “back door” warrantless searches of the stored communications of Americans (the full NDAA amendment list is available here), the author of all three surveillance reform amendments to the bill, Rep. Ted Lieu (D-CA) withdrew the other two before a Rules Committee vote. Lieu’s office offered the author the following statement on the decision:

Mr. Lieu has always been a strong advocate for protecting our civil liberties and our privacy. He introduced these NDAA amendments (which have been offered previously by other Members) to prevent warrantless searches of Americans’ data under Section 702 of the Foreign Intelligence Surveillance Act. Warrantless searches are just one of many problems with the law, which is set to expire at the end of this year. The House Judiciary Committee is currently negotiating a package that reauthorizes the necessary foreign surveillance authorities while adding sweeping reforms to protect Americans’ civil liberties. We were asked to withdraw our amendments this week to allow those reform discussions to continue in good faith, and we obliged because we are optimistic about achieving our goals. The amendment decision in no way changes the fact that a broad, bipartisan coalition of Member’s will fight any attempt to reauthorize Section 702 without serious reform.

So where does that leave FAA reform prospects? That will depend in no small measure on how determined reformers are to push the House GOP leadership on the question. As I write these lines, House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Ranking Member John Conyers (D-MI) are working on competing FAA bills; while I expect the Conyers bill to offer more sweeping reform proposals, Goodlatte will no doubt not allow the Conyers bill to get a vote in committee. All of this means that unless at least 5-6 GOP House Judiciary members make it clear to Goodlatte that any FAA Sec. 702 reform bill brought up in committee must be amendable, what passes out of that committee and goes to the House floor for a vote may be just as anemic a reform measure as the 2015 USA Freedom Act

What would real reform look like? In an ideal world, the FAA would simply sunset and become an historical footnote. If the American public was more politically engaged on this issue, that outcome would be within reach. Unfortunately, that’s not the case at the moment. It’s possible that further surveillance-related revelations in the “Russiagate” scandal might change that dynamic, but those pushing for real surveillance reform cannot rely on chance to achieve their aims. Pro-surveillance advocates are certainly leaving nothing to chance.

The Office of the Director of National Intelligence (ODNI) is pushing hard to maintain this surveillance authority, and if possible, see that it becomes permanent and remains unchanged otherwise. As I noted in The American Conservative earlier this year, there’s plenty of reason to question the veracity of the executive branch’s claims about the necessity and efficacy of Sec. 702 collection.

Accordingly, I’ll judge any Sec. 702 reform bill by the following criteria. First, does it ban the collection & retention of U.S. Person data unless said data is collected pursuant to an authorized investigation governed by a probable cause-based warrant? Does it require the verified destruction of non-investigation relevant U.S. Person data extant in Intelligence Community IT systems? Does it require mandatory compliance audits by (preferably) the Government Accountability Office or (2nd choice) the Intelligence Community Inspector General? Does it ban so-called “about” collection, as suggested by Rep. Tulsi Gabbard (D-HI)? Does it mandate efficacy and cost audits?

If the bill that comes out of the House Judiciary Committee does not do all of these things (and ideally several more), then it’s just another edition of the old Capitol Hill “Let’s-Not-But-Say-We-Did” legislative shell game.

Olivia Enos, David Inserra, and Joshua Meservey of the Heritage Foundation published an interesting Backgrounder last week about the U.S. refugee program. We agree with many, though not all, of its conclusions and think that it serves as a wonderful example of policy experts grappling with a difficult policy question in a nuanced and thoughtful way – two characteristics often lacking in Washington, D.C.

However, the Backgrounder’s claim that 61 refugees were convicted of Islamist “terrorism-related” offenses since 2002 has earned a lot of attention from the media. David Inserra was kind enough to send us a complete list of the refugee terrorists he and his colleagues counted. Here are the facts about these 61 people:

  • None of these refugees killed anyone in a terrorist attack on U.S.-soil.
  • Only five (8 percent) were refugees who attempted or planned an attack on U.S. soil. The other 56 (92 percent) of the list were either not refugees or not terrorists targeting U.S. soil.
  • At most 50 were actual refugees who may have committed terrorism offenses, out of the 2.1 million refugees admitted since 1989, which is the earliest year that anybody on the list entered as a refugee. At least eleven (18 percent) of the refugee terrorists reported by Heritage were either not actually refugees or not convicted of terrorism offenses.
  • Only five (8 percent) entered as refugees since 2008.
  • Only five (8 percent) were likely refugee security vetting failures who entered as adults or older teenagers and committed an offense soon after entering.
  • The 50 refugees represent just five of the 124 nationalities of refugees admitted since 2002 (4 percent). Three-quarters of the refugees who committed a terrorism offense came from a single nation.

The security threat from refugees is minuscule, concentrated among a few Somalis, and has little to do with vetting.

The Non-Refugees and Non-Terrorists

The Backgrounder’s use of terrorism-related offenses is problematic as it is not synonymous with actual direct or indirect support of terrorism. There is no definition of a terrorism-related offense in U.S. statutes but there is a broad working GAO definition: that it relates to “terrorism, homeland security, and law enforcement, as well as other information.” As far as we can tell, the term terrorism-related is used to describe a conviction for any offense that results from a terrorism investigation – even if it is for crimes that bear no relation to terrorism such as buying stolen cereal. David Inserra told us that “Our [Heritage’s] inclusion criteria wasn’t based on convictions for terrorism offenses because people could be involved in that sort of activity and not ever be convicted. We were trying to find the happy medium between overly-restrictive and too loose definitions.” Thus, we are working with different definitions and the reader should keep that in mind. 

Six individuals on the Heritage list were not convicted of terrorism offenses. The government dismissed its complaint against Al-Hazmah Mohammed Jawad. Aws Mohammed Younis Al-Jayab and Ali Mohammed Al Mosaleh were charged with making false statements. Abdi Mahdi Hussein was convicted of failure to follow financial reporting requirements and was “not charged with any terrorism offense and was not alleged to have knowingly been involved in terrorism activities,” according to the FBI. Yusra Ismail was charged with stealing a U.S. passport—not terrorism—and Saynab Hussein was convicted of perjury.

At least five individuals on the Heritage list did not enter under the U.S. refugee program. One of Heritage’s errors is due to an error that Alex Nowrasteh made in his 2016 Policy Analysis (corrections will be made in future editions) that listed Nuradin Abdi as a refugee instead of an asylum recipient. Nima Ali Yusuf was also an asylum recipient. Harlem Suarez was a Cuban national would have received asylum by virtue of the Cuban Adjustment Act, not through the refugee program. Mahmoud Elhassan was a Sudanese immigrant whose mother sponsored him for a green card. Jasminka Ramic was a Bosnian immigrant who “immigrated to the United States as a legal permanent resident.” There may be others who should not be included in Heritage’s list as well as unknown individuals who should be counted.

This means that only 50 of the 61 people on the Heritage list were refugees who may have committed actual terrorism offenses. At the time of the publication of the Heritage Background, charges against 12 of the 50 remaining refugees were still pending. As Al-Hazmah Mohammed Jawad’s case shows, we cannot assume guilt based on the charges alone. But for the purpose of this post, we will assume these 12 cases will all end in convictions for terrorism offenses.

Few Refugees Plan Attacks on U.S. Soil—and Even Fewer Succeed

The text of President Trump’s original executive order cutting the refugee program justified itself as an attempt to “protect the American people from terrorist attacks by foreign nationals admitted to the United States.” It is remarkable, then, how few of these refugees actually planned or committed an attack on U.S. soil.  As Heritage writes, “Five refugees successfully committed a terrorist attack inside the U.S., two of which occurred after the U.S. reformed the program post-9/11.”  Three of the five refugees planned to commit an attack but were unable to follow through. Mohamed Osman Mohamud was caught in an FBI sting where he attempted to detonate a fake bomb. Similarly, Fazliddin Kurbanov’s bomb-making activities were “closely monitored by federal agents during the investigation and no terrorist attack occurred,” the Justice Department stated. Hysen Sherifi plotted to attack a military base but the FBI broke up his ring before they could do any damage. Abdul Artan and Dahir Adan were two refugee terrorists who actually committed their attacks but fortunately, they failed to get anybody killed other than themselves.

No refugee terrorist has killed a single person in a terrorist attack on U.S. soil since 1976—four years before the creation of the modern U.S. refugee program in 1980. From 1975 through the end of 2015, the annual chance of being murdered on U.S. soil in a terrorist attack committed by a refugee was an astronomical 1 in 3.64 billion per year.

Vetting Failures are Very Uncommon in the Refugee Program

The Heritage Backgrounder’s findings show just how uncommon vetting failures actually are. Heritage notes that the cases are mostly concentrated among “refugees who were resettled at a young age—often known as the ‘1.5 generation’—or the children of resettled refugees, who radicalize and then commit terrorist offenses.” That indicates that there is an assimilation problem for some refugees and not a vetting problem from the refugee program as a whole. We have entry dates for 47 of the 50 refugees, and 29 of them (62 percent) were juveniles at the time of their entry to the United States.

Additionally, many of the adult refugee terrorists were most likely not vetting failures who came intending to commit terrorism in the United States. We can’t read anyone’s mind, but the fact that the vast majority appeared to have shown no interest in an offense long after their arrival is probably about the best evidence we could get. Of the refugees for whom we have entry dates, 78 percent of them lived in the country for more than seven years before they committed an offense. Sixty-one percent lived here for more than a decade.

The seven-year point seemed particularly significant because the longest period between the entry of a refugee and his offense in a confirmed refugee vetting failure case—in which the government had evidence of radicalization prior to entry—was six years (Abdinassir Mohamud Ibrahim). If we assume that all offenders who entered as adults or older teenagers and committed their offense before their 7th year in the United States are vetting failures—regardless of whether there is evidence of that—we can get a rough estimate of the number of vetting failures.

By this measure, it appears likely that just five on the Heritage list were vetting failures: Abdinassir Mohamud Ibrahim lied about his clan membership on his refugee application; Waad Ramadan Alwan and Mohanad Shareef Hammadi fought with insurgents in Iraq; Fazliddin Kurbanov plotted an attack just four years after entering as an adult; and Abdul Razak Ali Artan committed an attack just two years after entry. Only Kurbanov and Artan intended to carry out an attack on U.S. soil, out of the approximately 2.1 million refugees who have entered the United States since 1989.

Nationalities of Refugee Terrorists

Since 2002, the United States has resettled refugees from 124 nations. Yet only five nationalities are represented on the Heritage list: Somalia (37), Bosnia (7), Iraq (2), Uzbekistan (2), and Kosovo (1). However, President Donald Trump’s executive order shuts down refugee resettlement for all countries. Notably, Syrian refugees are absent from this list entirely, despite Donald Trump’s overwrought rhetoric on the subject—as are five of the six nationalities targeted by the order: Libya, Yemen, Sudan, Syria, and Iran. Somalia is the only country that has sent refugee terrorism offenders to the United States and that is specifically listed on President Trump’s executive order.  

Somalis constitute only about 10 percent of the refugee program. Even Somali refugees have not proved dangerous to Americans. Almost all of the Somali terrorism offenders raised money for or went to join terrorist organizations abroad. Two did commit terrorist attacks in the United States but fortunately failed to kill anyone. Nobody from Somalia has killed anybody on U.S. soil in an act of terrorism for as far back as we have data.

Conclusion

The Heritage Backgrounder makes a valuable and interesting contribution to the debate over the future of the American refugee program. As a side effect, it shows just how small and manageable the refugee terrorist threat is.

Signaling its intent to proceed with business as usual, despite ongoing controversy over its leadership and structure, the Consumer Financial Protection Bureau (CFPB) recently finalized a rule restricting the ability of financial services companies to use arbitration clauses in their contracts. 

An arbitration clause requires the parties to the contract to take any dispute to arbitration, a privately operated hearing procedure that typically has a legally binding effect. Arbitration is often attractive because it can be quicker and less expensive than a case brought in court. It also typically means that the plaintiff cannot join together with other plaintiffs to bring a class action suit. This is the crux of the issue. 

Supporters of the new rule claim that these clauses, buried in fine print and ubiquitous in almost all parts of American legal life, allow banks and credit card companies to get away with abuses that would otherwise be checked by class action litigation. An unlawful practice that costs every customer $5 is almost assuredly not worth the cost or hassle of going to court over. However, bring together a class of one million customers (most of whom will never realize they’re part of the class at all), and there’s real money at stake. Enough money to entice a lawyer to litigate and, let’s be honest, control the entire process for a chance at the typical fee of 33 percent of whatever is recovered. 

Is this true? Were companies able to get away with practices that netted them cash while harming consumers because the harms were so diffuse? Maybe.  Probably. Without speculating about what kinds of practices companies may have engaged in or how wide-spread any were (I have no intention of impugning an entire industry, but every industry has its bad eggs), to the extent litigation was required to check any particular misconduct, if the harm per customer was marginal, it is unlikely anyone would bother with litigation. 

But that does not necessarily argue in favor of this rule. The rule will likely increase litigation costs for some companies. That’s kind of the point, right? To force the companies into court instead of using the often cheaper option of arbitration? Those costs will likely be passed along to customers in the form of higher fees. Before the CFPB’s rule, nothing prevented companies from drafting contracts without arbitration clauses. (Also, to be clear, before the rule nothing prevented a company and a customer from deciding together that they preferred to go to court. It’s just that if the contract had an arbitration clause, no one party could decide unilaterally to take the issue to court.) 

If customers were really upset about arbitration, it seems they would have presented a terrific market for a company that would offer them contracts free of arbitration clauses. The trade-off would likely have been slightly higher fees for their products to off-set the costs. That is, effectively the trade-off the new rule presents: no arbitration clause, but higher costs. To my knowledge, no one offered this trade-off. Given the competitiveness of the market, it seems that if there were customers willing to pay for a product, banks and credit card companies would have offered it. The fact that no one did suggests to me that arbitration clauses are not that important to consumers. Not important enough, at least, to justify higher costs. This makes the rule a bit strange. It forces on consumers an option they never chose, all in the name of protecting their best interests.   

Last week, when discussing the Trump administration’s secret memo requiring “enforcement action” against “all removable aliens” who immigration agents encounter, I pointed out that every year since 2008, the House Appropriations Committee has included a provision in its version of the Department of Homeland Security (DHS) funding bill that requires the department to “prioritize the identification and removal of aliens convicted of a crime by the severity of that crime.”

I also noted that this provision was strangely left out of the “omnibus” funding bill enacted into law this May, which packaged funding for all departments in a single bill. But I chalked that up to an oversight due to the irregular process of putting together the large bill and predicted that the provision would reappear in the individual appropriations bill for 2018. I was wrong. The new House appropriations bill for DHS contains no requirement for prioritization. Now the Trump administration’s illogical non-prioritization policies will receive the tacit consent of the committee.

Remember that this provision has been included no matter which party controlled the House for almost a decade—really for as long as DHS has carried out major deportation operations. The first bill to contain this language was 2008 to fund the department for 2009 written by House Democrats and signed by President Bush. Here’s 2010 written by House Democrats and signed by President Obama. In 2011, House Republicans funded the government with a serious continuing resolutions—which essentially maintain the earlier funding bills’ status quo.

In 2012, 2013, 2014, however, Republicans wrote the bills and President Obama signed them with the requirement to prioritize criminal aliens based on the severity of their crime. Then in March 2015, the House of Representatives entered a bitter fight to stop President Obama’s proposed program to give work permits to certain non-criminal unauthorized immigrants who were parents of U.S. children (DAPA). In so doing, it nearly shut down the department. Yet the Republican funding bill for 2015 still included explicit language requiring prioritization. It did again in 2016.

Republicans wrote and passed all of these bills. Then in May 2017, after relying on continuing resolutions through part of the year, they enacted the 2017 omnibus appropriations bill—the big package I referenced at the beginning—which dropped this language. They did this despite the fact that the 2017 House standalone committee bill for DHS still had the restriction, which is why I figured it must have been an oversight. Sadly, it was not. The new House committee DHS funding bill drops the language, freeing the Trump administration from even the appearance of a conflict with Congress over its new policies.

President Trump’s executive order laying out his priorities for immigration enforcement explicitly prioritizes those who were never convicted of a crime. This would have directly contradicted the congressional mandate, so the committee staff appears to have just quietly removed it.

To be clear, this is not just a bad move because it will result in peaceful people being deported from the country that is their home, but because it will result in serious criminals not being deported. Every moment that DHS wastes on workers and families is a moment that it is not focused on criminals. That will not make us safer. The only reason that anyone would think that it would is if they think that unauthorized immigrants are more prone to commit serious crimes against Americans than the U.S.-born—a belief that is demonstrably false.

Hopefully, members of the House who still believe in prioritization offer amendments to correct this mistake.

Federal government spending is rising, deficits are chronic, and debt is reaching dangerous levels. Growing spending and debt are undermining the economy and may push the nation into a crisis. The solution is cutting and eliminating programs in every federal department.

I have posted a new plan at DownsizingGovernment.org that would reduce spending by almost one-quarter and balance the budget within a decade. The cuts compliment the ones proposed by President Trump in his 2018 budget.

Federal spending cuts would spur economic growth by shifting resources from lower-valued government activities to higher-valued private ones. Indeed, much federal spending is not just low value, it actively distorts markets and thus reduces overall income levels.

Cuts would expand personal freedom by giving people more control over their lives and by reducing the top-down controls that come with federal spending activities.

Liberals see government spending cuts as evil, while conservatives may see them as a necessary evil. Actually, spending cuts would positively benefit society.

From the full list of proposed cuts, these are my favorites: 

  • End farm subsidies and rural subsidies.
  • End K-12 school subsidies.
  • End HUD, including rental and public housing subsidies.
  • End urban transit subsidies.
  • End the ACA.
  • Reduce Social Security growth by indexing initial benefits to prices.
  • Raise Medicare cost sharing to increase skin in the game.
  • Block grant Medicaid to encourage states to find savings.
  • Privatize TVA, the PMAs, USPS, Amtrak, and air traffic control.

 See the full plan here.

  

Last month, the Department of Homeland Security (DHS) released a privacy impact assessment for its Traveler Verification Service (TVS), a program designed to develop and expand DHS’s biometric entry-exit system for international flights. The document sends a clear message to passengers: if you don’t want your biometric information to be collected, don’t travel.

The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 required an automated screening system for foreign nationals leaving and entering the United States. Since 1996 a range of legislation has called for the implementation of a biometric entry-exit system, although such a system has yet to be fully implemented. In March, President Trump signed Executive Order 13780, which called upon DHS to “expedite the completion and implementation of a biometric entry-exit tracking system for in-scope travelers to the United States.”

According to the DHS privacy assessment, TVS is growing:

[Customs and Border Protection] is publishing this updated [privacy impact assessment] because the recently initiated TVS is expanding to allow commercial air carriers and select airport authorities (“partners”) to provide their own facial recognition cameras and capture the images of travelers consistent with their own business processes and requirements (for example, to use facial images instead of paper boarding passes).

More from the assessment:

These partners will capture the traveler images consistent with their business purposes, and then transmit the photos they capture to CBP through a connection with CBP’s cloud-based TVS. CBP does not capture the photos directly from the traveler under this TVS expansion.

There are already pilot face scanning schemes in place at airports in six American cities; Boston, Chicago, Houston, Atlanta, New York City, and Washington, D.C. These pilot programs allow passengers and pilots to opt out. The DHS assessment explains that while you may be able to opt out of TVS scanning, government collection of your biometrics is unavoidable if you want to travel (highlighting is mine):

The assessment goes on to explain that passengers will be able to opt out of biometric identification under TVS. However, unless this opt-out option is clearly advertised to travelers it’s likely that most travelers will use a ubiquitous facial scanning system at airports.

Anyone who travels from American airports is familiar with the body scanners the Transportation Security Administration (TSA) uses for security. You can opt out of these scanners, but it’s very rare to see travelers telling TSA officials that they’re not going through the machines. When I opt out of these scanners I’m almost always the only one doing so. That is, unless I’m traveling with some Cato colleagues.

Sadly, millions of Americans consider passing through a body scanner to be an ordinary part of air travel. It would be a shame if facial scans became as widely accepted.

ObamaCare’s community-rating regulations generally bar insurance companies from using any factor other than age to determine premiums, and prevent insurers from charging 64-year-olds more than three times what they charge 18-year-olds. I have long maintained community rating is nothing more than a system of government price controls, and should meet with the usual scorn economists universally heap on such boneheaded policies.

An esteemed colleague challenges my claim that ObamaCare’s community-rating is a system of price controls, because “the government doesn’t set a price.” Here is how I responded:

Price controls don’t always take the form of a fixed integer. Sometimes government sets prices using ratios.

Premium caps control prices by limiting this year’s premium to a ratio of last year’s premium. Medicaid’s prescription-drug price controls set prices as a ratio of the average wholesale price. Medicare’s price controls involve all sorts of complex ratios.

ObamaCare’s community-rating regulations control prices by (a) setting the ratio of premiums for healthy vs. sick people within each age category to 1:1, and (b) setting the ratio of premiums for young vs. old to 1:3. Insurers would not voluntarily follow those ratios, with good reason. But community rating forces insurers to set prices according to those ratios. Thus it is a price-control scheme.

Yesterday the Missile Defense Agency (MDA) announced a successful test of the Terminal High Altitude Area Defense (THAAD) missile defense system against an intermediate-range ballistic missile (IRBM) target. This is a significant milestone for the THAAD system, which was recently deployed to South Korea to defend southern cities and the port of Busan against missile attack by North Korea. Even though this particular test was planned months ago, its timing is especially important given North Korea’s successful test of the Hwasong-12 IRBM in May 2017.

Despite the successful test, it would be dangerous and premature for U.S. policymakers to read too much into THAAD’s capabilities. Initial information about the test suggests that it did not reflect a wartime use of an IRBM by North Korea. Moreover, the test could have negative implications for U.S.-China strategic stability.

Based on the statement released by the MDA and video of the test, the test seems to have been relatively easy for THAAD. For example, at the moment the warhead is intercepted it does not seem close to any other objects. This makes it relatively easy for THAAD’s infrared sensor to locate the warhead and slam into it. However, it would be much harder for the sensor to locate the warhead if the target missile broke up in flight and cluttered the sensor. It is not clear whether the target missile used in the most recent test broke up in flight, but based on past tests it seems unlikely. This makes for successful testing, but it does not reflect real-world scenarios.

An additional departure from real-world conditions is the apparent lack of countermeasures on the target missile. Countermeasures such as decoy warheads or chaff make it harder for THAAD to find the warhead. These devices do not have to be incredibly advanced or expensive to be effective. It is safe to assume that North Korea has some rudimentary countermeasures on its missiles, and it will likely develop more sophisticated countermeasures in the near future. A recent test of the Ground-based Midcourse Defense system did feature countermeasures, but the MDA has not said if countermeasures were part of the recent THAAD test. So long as missile defense tests are relatively controlled and sanitized they cannot reveal much information about how the systems would perform in a combat scenario.

At the strategic level, this successful intercept test of an IRBM target will exacerbate Chinese concerns about THAAD. China’s opposition to THAAD deployment in South Korea and the effect of missile defense systems on U.S.-China strategic stability are well documented. Missile defense advocates insist that THAAD does not threaten China’s strategic nuclear deterrent because the system is meant to respond to shorter-range missiles that don’t threaten the American homeland. U.S. officials also insist that there is a difference between regional missile defense systems like THAAD and homeland missile defense systems.

THAAD’s ability to successfully engage IRBMs could blur the distinction between regional and homeland missile defense and bolster arguments by Chinese observers that such a distinction does not really exist. Is a missile defense system truly “regional” if it can defend U.S. territory like Guam, Alaska, or Hawaii from nuclear attack? This may be a bridge too far in terms of what THAAD is capable of doing from a technical perspective, but Chinese perceptions of missile defense effectiveness, correct or incorrect, will shape the development of their nuclear forces.

Discussions of military intervention often focus on the U.S. invasion of Iraq. This is entirely understandable: the war in Iraq was a catastrophic foreign policy choice that is still reshaping the political landscape of the Middle East today.

Yet the Iraq war is unusual in many ways. There was no existing civil war or humanitarian crisis, a factor which has driven many of America’s other post-Cold War interventions in Bosnia, Somalia, Kosovo and Libya. The United States also undertook the invasion of Iraq largely alone and against the wishes of other countries; unable to gain support from the majority of its NATO allies, the Iraq invasion relied on the so-called “coalition of the willing,” a small ad-hoc group of countries persuaded by the Bush administration.

In my newly published article in the Canadian Foreign Policy Journal, I attempt to move past the Iraq War case to examine the broader range of U.S. military interventions. I look at the two recent civil war cases where intervention was possible – Syria and Libya during the Arab spring – to explore the role played by allies and security partners in decision-making about whether to intervene.  

Logic suggests that smaller states do have a strong incentive to seek the help of a major power ally like the United States for their interventions. As I note in the article:

“Put more simply, small states can benefit substantially from the intervention of a major power ally, particularly if they lack the capacity or manpower to carry out an effective campaign alone. African Union peacekeeping forces, for example, typically lack military assets required for their missions; training, logistical support and equipment are often provided by the United States to overcome this deficiency (Williams 2011)…. pressure from allies to join an intervention is likely to be highest when A is larger (i.e., relatively more capable in military terms) than B, and has the potential to tip the balance toward B’s intervention objectives.”

This logic bears a strong resemblence to the concept of entrapment, which has been studied before, but primarily in the context of alliances and interstate wars. In contrast, this article explores how smaller states can seek to entangle bigger ones in their civil war interventions, using techniques like lobbying, media manipulation and even altering the conflict’s strategic balance. In Libya, for example, British and French policymakers successfully swayed the skeptical Obama administration towards intervention through the use of an aggressive media and diplomatic campaign. In contrast, in Syria, Saudi and Turkish officials used many of the same tactics, but were largely unsuccessful in obtaining a U.S. intervention in that conflict.

“In the aftermath of the 2003 Iraq war, British ambassador to the United States Christopher Meyer bemoaned the use of alliance ties to justify the British choice to join the coalition, noting that “there comes a point where if you hug too close, it becomes an end in itself” (quoted in Davidson 2011, p. 135). As Meyer – and many scholars – have noted, alliances can help to entrap states in unwanted conflicts.”

As this article illustrates, it’s important to understand where the pressures for U.S. intervention come from. Sometimes – as in the case of Iraq – that pressure is largely home-grown. Yet in other cases, pressure can come from allies and security partners, as those states which have a stronger interest in the conflict try to convince the United States to join them in intervening. Before joining an intervention, therefore, U.S. policymakers would be well-served to consider whether an intervention is in American interests, or merely in the interests of other states.

You can check out the whole paper, with more examples and detail, here.

That’s the thesis of a Washington Post opinion piece titled, “Why replacing Obamacare is so hard: It’s fundamentally conservative” by Northwestern University professor Craig Garthwaite. A lot of ObamaCare supporters find this claim appealing. If true, then it makes them look moderate and open to compromise, and makes ObamaCare’s conservative opponents look duplicitous and partisan. But is it true?

No. Not by a long shot.

I’m not a conservative. (I was, once, in my youth, but I’m feeling much better now.) So I will let the editors of National Review explain what a conservative approach to health reform is, as they did in this unsigned 2007 editorial. Spoiler alert: it’s a far cry from ObamaCare.

Against Universal Coverage

By The Editors — June 21, 2007

The Democrats running for president are competing over whose health-care plan gets closest to “universal coverage.” The Republican presidential candidates, meanwhile, have been mostly silent. Their inattention to the issue is a mistake. A great many voters are anxious about health care, and better government policies could alleviate that anxiety. The Republican candidates have an opportunity to present a distinctively conservative set of reforms.

Those reforms should begin with the rejection of the goal of universal coverage. Deregulating health insurance would make it more affordable, and thus increase the number of Americans with coverage. But to achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it. The first option, national health insurance in some form or other, would either bust the budget or cripple medical innovation, and possibly have both effects. Mandatory health insurance, meanwhile, would entail a governmental definition of a minimum package of benefits that insurance has to cover. Over time, that minimum package would grow more and more expensive as provider groups lobbied the government to include their services in the mandate.

The health-care debate has centered on the uninsured. That so many people do not have health insurance is a consequence of foolish government policies: regulations that raise the price of insurance, and a tax code that ensures that most people get their insurance through their employer. If you don’t work for a company that provides health insurance, you’re out of luck. People locked out of the insurance system still have access to health care. But they often end up in emergency rooms because they did not receive preventive care.

For most people, however, it is another aspect of our employer-based health-care system that causes the most trouble: the insecurity it creates. People worry that if they switch jobs, they will lose their health insurance. They worry that their company will cut back on health benefits. Universal coverage is not necessary to address these worries. Making it possible for individuals to own their health-insurance policies themselves, rather than getting them through their companies, would solve the problem. It would also reduce the political momentum behind socialized medicine.

Most universal-coverage plans accept the least rational features of our health-care system — its reliance on employer-based coverage and on “insurance” that covers routine expenses — and merely try to expand that system to cover more people. Republicans should go in a different direction, proposing market reforms that make insurance more affordable and portable. If such reforms are implemented, more people will have insurance.

Some people, especially young and healthy people, may choose not to buy health insurance even when it is cheaper. Contrary to popular belief, such people do not cause everyone else to pay much higher premiums. Forcing them to get insurance would, on the other hand, lead to a worse health-care system for everyone because it would necessitate so much more government intervention. So what should the government do about the holdouts? Leave them alone. It’s a free country.

As part of the 100 Day Action Plan on economic issues that the U.S. and China negotiated back in May, there was agreement by both sides to liberalize trade in a few areas.  It was a relatively minor set of issues, but nonetheless there was some real progress.  The Trump administration likes to tout exports, not imports, so in their remarks about the agreement, they tended to focus on areas of interest to U.S. exporters.  To provide some balance, I’m going to take it upon myself to tell everyone about some import liberalization the U.S. carried out as part of this agreement.  

In the agreement, the U.S. said it would start to allow imports of certain Chinese chicken products:

The United States and China are to resolve outstanding issues for the import of China origin cooked poultry to the United States as soon as possible, and after reaching consensus, the United States is to publish a proposed rule by July 16, 2017, at the latest, with the United States realizing China poultry exports as soon as possible.

This past week-end, a Washington Post story indicated that these imports are now underway:

The first known shipment of cooked chicken from China reached the United States last week, following a much-touted trade deal between the Trump administration and the Chinese government.

The Post article has a lot of fearmongering in it.  The online title is “The dark side of Trump’s much-hyped China trade deal: It could literally make you sick.”  And the article says, “consumer groups and former food-safety officials are warning that the chicken could pose a public health risk, arguing that China has made only minor progress in overhauling a food safety regime that produced melamine-laced infant formula and deadly dog biscuits.”

But before anyone panics, there is also this from the article:

Because cooking kills bacteria and viruses, including the one that causes bird flu, processed poultry is considered “tremendously safer” than raw chicken, said Richard Raymond, who served as undersecretary of agriculture for food safety from 2005 to 2008.

Anyway, the Chinese exporters will have a pretty big incentive to ensure the safety of the products:  If there are health and safety problems, consumers won’t buy them (and the U.S. government might restore the ban). 

It remains to be seen what is coming from the Trump administration on trade policy more generally.  But it’s nice to see a bit of import liberalization, especially given the protectionist rhetoric we keep hearing.

Back in April, I shared a new video from the Center for Freedom and Prosperity that explained how poor nations can become rich nations by following the recipe of small government and free markets.

Now CF&P has released another video. Narrated by Yamila Feccia from Argentina, it succinctly explains - using both theory and evidence - why spending caps are the most prudent and effective way of achieving good fiscal results.

Ms. Feccia covers all the important issues, but here are five points that are worth emphasizing.

  1. Demographics - Almost all developed nations have major long-run fiscal problems because welfare states will implode because of aging populations and falling birthrates (Ponzi schemes need an ever-growing number of new people to stay afloat).
  2. Golden Rule - If government spending grows slower than the private sector, that reduces the relative burden of government spending (the underlying disease) and also reduces red ink (the symptom of the underlying disease).
  3. Success Stories - Simply stated, spending caps work. She lists the nations that have achieved very good results with multi-year periods of spending restraint. She points out that the U.S. made a lot of fiscal progress when GOPers aggressively fought Obama. And she shares the details about the very successful constitutional spending caps in Hong Kong and Switzerland.
  4. Better than Balanced Budget Amendments or Anti-Deficit Rules - The video explains why policies that try to target red ink are not very effective, mostly because tax revenues are very volatile.
  5. Even International Bureaucracies Agree - Remarkably, the International Monetary Fund (twice!), the European Central Bank, and the Organization for Economic Cooperation and Development (twice!) have acknowledged that spending caps are the most, if not only, effective fiscal rule.

I touch on some of these issues in one of my chapters in the Cato Handbook for Policymakers. The entire chapter is worth reading, in my humble opinion, but I want to share an excerpt echoing Point #4 that I just shared from Ms. Feccia’s video.

There’s a very practical reason to focus on capping long-run spending rather than trying to balance the budget every year. Simply stated, the “business cycle” makes the latter very difficult. …when a recession occurs and revenues drop, a balanced-budget mandate requires politicians to make dramatic changes at a time when they are especially reluctant to either raise taxes or impose spending restraint. Then, when the economy is enjoying strong growth and producing lots of tax revenue, a balanced-budget requirement doesn’t impose much restraint on spending. All of which creates an unfortunate cycle. Politicians spend a lot of money during the good years, creating expectations of more and more money for various interest groups. When a recession occurs, the politicians suddenly have to slam on the brakes. But even if they actually cut spending, it is rarely reduced to the level it was when the economy began its upswing. Moreover, politicians often raise taxes as part of these efforts to comply with anti-deficit rules. When the recession ends and revenues begin to rise again, the process starts over—this time from a higher base of spending and with a bigger tax burden. Over the long run, these cycles create a ratchet effect, with the burden of government spending always reaching new plateaus.

It’s not that I want to belabor this point, but the bottom line is that it is very difficult to amend a country’s constitution (at least in the United States, but presumably in other nations as well).

So if there’s going to be a major campaign to put a fiscal rule in a constitution, then I think it should be one that actually achieves the goal. And whether people want to address the economically important goal of spending restraint or the symbolically important goal of fiscal balance, what should matter is that a spending cap is the effective way of getting there.

The Department of Housing and Urban Development (HUD) will spend $10 billion this year on “community development,” including Community Development Block Grants (CDBGs). The grants to state and local governments are for such things as repairing streets and subsidizing neighborhood businesses. There is no constitutional or practical reason why the federal government should be involved in such local activities.

Furthermore, a new city-by-city analysis by Politico shows that CDBG spending is disbursed with little regard to actual “need” or “fairness.” 

San Francisco will get $19-a-person in community development block grants this year, while Allentown, with twice the poverty and less than half of the median income, will draw a per-capita allotment of $17.53….Community development block grants rely on outdated, 1970s formulas that have increasingly shuttled dollars to wealthy places like Newton, Mass., while other locales in need, such as Compton, Calif., go wanting.

Tad DeHaven found similar problems with the program. He noted, “CDBG spending has gradually shifted from poorer to wealthier communities over time…It should not be the role of the federal government to redistribute income between regions, but even if it was, the CDBG program is not very good at it.”

President Donald Trump’s 2018 budget proposes to eliminate the CDBG program, saying “the program is not well-targeted to the poorest populations and has not demonstrated results.” Good for the president.

There is no sound reason for the federal government to fund the CDBG program or hundreds of other local subsidy programs. As I discuss here, these programs generate bureaucratic waste, undermine political accountability, and stifle policy innovation in the states. 

The federal aid system generates no net value—it is simply a roundabout way of funding local activities. Taxpayers in San Francisco mail checks to the IRS to fund the CDBG program. Their money flows through the HUD bureaucracy, and then is dished out to bureaucracies in Harrisburg and Allentown, with some trickling down to local residents and businesses. Meanwhile, taxpayers in Allentown are also mailing checks to the IRS to fund the CDBG program. Their money flows through the HUD bureaucracy, and then is dished out to bureaucracies in Sacramento and San Francisco, with some trickling down to local residents and businesses.

What is the point of that?

There is none—other than to empower the well-paid political and bureaucratic elites in all three levels of government, and in the derivative lobby groups. The federal aid system thrives not because it benefits the American people, but because it benefits governments and lobbyists.

For more information, see herehere, and here.

Illinois law mandates that non-union public-sector workers like Mark Janus pay money for union collective-bargaining activities that they do not support. Collective bargaining in the public-sector often involves advocacy of quintessentially political questions, such as the amount of public worker wages, pensions, and other benefits that will be paid for with the public’s tax money. Thus, these government-compelled exactions—“agency fees”—give these workers a Hobson’s choice: Either sacrifice your First Amendment rights and fund political advocacy you may not like, or find other employment.

The Supreme Court upheld the constitutionality of these fees in Abood v. Detroit Board of Education (1977), but has since questioned Abood’s reasoning in Knox v. SEIU (2012) and Harris v. Quinn (2014). Two terms ago, the Court in Friedrichs v. California Teachers Association (2016) seemed primed to overrule Abood, but the untimely passing of Justice Antonin Scalia left the Court to split 4-4 on the question. This case deals with the same question that was presented in Friedrichs: Should Abood be overruled and public-sector agency-fee arrangements be declared unconstitutional? Following the Abood precedent, a federal district court understandably dismissed Janus’s case, which ruling the U.S. Court of Appeals for the Seventh Circuit quickly upheld. Cato and the National Federation of Independent Business Small Business Legal Center are now supporting Janus in petitioning the Supreme Court to reconsider Abood once again. We focus on the embedded issue of whether stare decisis—a doctrine that argues for generally letting precedent lie even if wrong—should prevent the Court from overruling Abood.

Stare decisis is a prudential policy designed to promote predictable and consistent legal principles, not a mandatory edict to blindly follow past decisions. This is especially true in cases involving constitutional rights. Indeed, the Supreme Court has repeatedly held that stare decisis is at its lowest ebb when constitutional rights are at stake, because it is exceptionally difficult—if not impossible—to correct constitutional cases. Moreover, judges can get the law wrong. And when past judges or courts get the law wrong, current judges and courts have a duty to correct misapplications of the law. This is what happened in Abood. The Supreme Court has made clear in subsequent cases that when government majorities compel people to subsidize speech with which they disagree, those laws are subject to the highest form of judicial scrutiny—which the rationales put forth in Abood cannot overcome. Furthermore, Abood doesn’t even meet the traditional justifications for applying stare decisis. These factors—including whether reliance interest have built up around the decision, and whether the decision has become unworkable—favor overruling Abood. No one relies on having their First Amendment rights abridged and it is nearly impossible to draw a line between what’s political and what’s not in public-sector collective bargaining. Abood has caused serious infringement of people’s core constitutional rights for over 40 years. In that time, millions of public workers have had millions of dollars taken from them to further causes that they don’t support.

The Supreme Court should take this case and reaffirm that the First Amendment protects against compelled speech and association of this kind.

I receive lots of daily health-policy newsletters. This morning, one of them exhibited an all-too-common misunderstanding and bias about how health-insurance markets work.

The setting is the “Consumer Freedom Amendment” Sen. Ted Cruz (R-TX) has offered to the Senate GOP’s bill to rewrite ObamaCare. Contrary to what the Republican Party has pledged for seven yearsa pledge that presidential candidate Donald Trump even put in writingthe Senate bill would not repeal the health-insurance regulations that are behind ObamaCare’s rising premiums, race-to-the-bottom coverage, and collapsing insurance markets. The Cruz amendment would keep those regulations on the books, but allow consumers to purchase insurance that does not include all of ObamaCare’s hidden taxes and coverage mandates. In effect, it would separate the market. Currently healthy enrollees would opt for the lower-cost “Freedom Option” coverage, which would stay with them once the developed expensive illnesses. Currently sick enrollees would opt for ObamaCare-compliant plans. Premiums for ObamaCare-compliant plans would rise even more than they already have, essentially turning ObamaCare’s Exchanges into high-risk pools that would require lots of government subsidies to keep afloat.

Enter one of my daily newsletters, which matter-of-factly reported:

Of course, everyone paying into the system for those who most need care is the way insurance is fundamentally supposed to work.

Of course! I hear this sort of thing all the time. Now, there is a charitable interpretation that would render this particular phrasing just barely true, but I am fairly sure that interpretation is not what the author intended to convey. Instead, the sentence glosses over a distinction so crucial that entire insurance markets hang in the balance. And it does so in a way that presents the (legitimately disputed and controversial) pro-ObamaCare ideology as an of-course-this-is-fundamentally-true fact.

Fundamentally, insurance markets are a system of subsidies. People with the same ex ante (i.e., before-the-fact) risk of needing medical care pay into the system to subsidize the few in that group who will develop expensive medical needs. We know insurance is supposed to work this way, because of what happens when you try to pool together people with different ex ante health risks at the same premium: the system of subsidies collapses. (See: state-level experiments with community rating, ObamaCare’s CLASS Act, the child-only market under ObamaCare, U.S. territories under ObamaCare, and Exchanges in dozens of counties). Risk-based premiums, exclusions for preexisting conditions, and other measures that ObamaCare supporters hate are actually consumer protections. They exist to keep that system of subsidies stable, so it can keep doing the most good possible by subsidizing people who become sick.

The idea that everyone should pay the same premium regardless of risk arises because left-of-center folks want to cram additional, hidden subsidies into the insurance system. They want to do this rather than create explicit taxes and transfers because, as Jonathan Gruber taught us, there is not sufficient political support for explicit taxes and transfers. But again, when you force insurers to cover unlike risks at the same premium, insurance markets collapse. So ObamaCare throws tons of money at insurers—with everything from the individual mandate to risk-adjustment—in the hope of preventing a collapse. Sometimes it prevents a collapse. Sometimes, not so much.

The above sentence therefore amounts to saying, “Insurance is fundamentally supposed to work exactly like ObamaCare supporters want, with mandates and lots of government subsidies, not like its opponents say.”

That’s what the news tells me, anyway.

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