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The myth that there’s no evidence that school choice works has more lives than Dracula. Worse, it’s often repeated by people who should know better, like the education wonks at Third Way or the ranking Democrat on the U.S. Senate education committee. In a particularly egregious recent example, a professor of educational leadership and the dean of the University of Wisconsin-Madison School of Education wrote an op-ed repeating the “no evidence” canard, among others:

The committee also expands the statewide voucher program. There is no evidence privatization [sic] results in better outcomes for kids. The result will be to pay the tuition for students who currently attend private school and who will continue to attend private school—their tuition will become the taxpayers’ bill rather than a private one. Additionally, the funds for the expansion would siphon an estimated $48 million away from public schools, decreasing the amount of money available for each and every school district in the state.

It is astounding that a professor and a dean at a school of education in Wisconsin would be unfamiliar with the research on the Milwaukee voucher program, never mind the numerous gold standard studies on school choice programs elsewhere. Fortunately, Professor James Shuls of the University of Missouri-St. Louis and Martin Lueken of the Wisconsin Institute for Law & Liberty set the record straight:

…the Wisconsin Legislature commissioned a comprehensive five-year study by researchers at the University of Arkansas. The research team matched and compared children at private schools in the choice program to similar students at Milwaukee Public Schools. The study concluded that children in Milwaukee who used vouchers were more likely to graduate from high school, enroll in four-year colleges and persist in college.

These findings are very similar to those of “gold-standard” studies done nationwide. Among 13 peer-reviewed studies on voucher programs that use research methods based on random assignment, all but one study concluded that vouchers benefit students (the other was unable to detect an impact). In addition, recent work by a Harvard economist demonstrates that giving low-income families better educational options can help improve social mobility for children.

Just a year and a half ago–in response to yet another school choice denier who should know better–the coauthors of the Milwaukee study clarified that their research found school choice produced “a modest but clearly positive effect on student outcomes.”

First, students participating in the Milwaukee Parental Choice (“voucher”) Program graduated from high school and both enrolled and persisted in four-year colleges at rates that were four to seven percentage points higher than a carefully matched set of students in Milwaukee Public Schools. Using the most conservative 4% voucher advantage from our study, that means that the 801 students in ninth grade in the voucher program in 2006 included 32 extra graduates who wouldn’t have completed high school and gone to college if they had instead been required to attend MPS.

Second, the addition of a high-stakes accountability testing requirement to the voucher program in 2010 resulted in a solid increase in voucher student test scores, leaving the voucher students with significantly higher achievement gains in reading than their matched MPS peers.

Moreover, as Shuls and Lueken note, “private schools in the choice program obtain these results when the government funding for a voucher is 60 percent less than what public schools receive.”

The final two claims by the UW-Madison faculty–that the voucher program benefits students who would attend private school anyway and siphons money from the district school system–also fail to withstand scrutiny. A conservative analysis of the Milwaukee voucher program by Prof. Robert Costrell of the University of Arkansas found that “about 10 percent of low-income voucher users would have attended private school anyway.” The 2009 study also found that the voucher program produced significant savings to the state taxpayers, as shown in the figure below:

Chart by Robert M. Costrell.

A Friedman Foundation study released last year found that the Milwaukee voucher program saved the state more than $238 million since its inception in 1990. Moreover, as the Wisconsin Institute for Law & Liberty notes in a recent report, Wisconsin gives a “school choice bonus” to district schools that lose students to the voucher program. Although a district’s total revenue decreases when a student leaves (along with the variable costs associated with that student), the “school districts will actually have more revenue per pupil because the district can continue to count students it no longer educates for equalization aid and revenue limit purposes.”

Sadly, opponents of school choice are likely to continue resurrecting the “no evidence” canard. But when they do, Van Helsings like Shuls and Lueken will be there to put a stake in its heart.

How much Australian sugar should be allowed to enter the U.S. market?  That’s a key question the U.S. government must answer prior to concluding the Trans-Pacific Partnership (TPP) negotiations.  The United States is the largest sugar market in the TPP, consuming about 11 million metric tons (MMT) per year.  It also is the largest producer (7-8 MMT) and importer (3 MMT) in the group.  Australia generally is believed to be the most cost-competitive sugar producer among the12 TPP nations.  It also is the largest exporter, annually shipping 3-4 MMT to other countries. 

To complicate matters further, sugar liberalization was explicitly excluded from the 2004 Australia-United States Free Trade Agreement (AUSFTA) due to U.S. political sensitivities.  Australian sugar producers understandably want to redress that omission.  Failure to obtain commercially meaningful access to the U.S. sugar market could lead to rejection of the pact by the Australian parliament.

The U.S. sugar program includes a price-support level for raw cane sugar of 22.25 cents per pound ($490/MT), with refined sugar supported at 26 cents.  Those levels effectively have been raised more than 10 percent to around 24.7 cents ($545/MT) and 30-32 cents, respectively, under the trade-restricting terms of the recent settlement agreement in the antidumping/countervailing-duty (AD/CVD) dispute involving imports from Mexico. (For more on U.S.-Mexico sugar issues, see here and here.)  Mexico is the largest supplier of U.S. sugar imports, generally providing between 1.0-1.5 MMT per year.  Suffice it to say that the agreement between the U.S. and Mexican governments will limit the amount of sugar Mexican producers can export to the United States, and also force that sugar to be sold at higher prices. 

With global raw sugar prices currently at relatively low levels of around 12 cents, Australian cane growers find the possibility of selling more sugar to the United States at high prices to be quite intriguing.  However, those sales currently are limited to the amount allocated to Australia under the U.S. tariff-rate quota (TRQ) regime – a modest quantity of only 87,000 MT.  Australia is asking that the TRQ be boosted by 750,000 MT, an increase of more than nine times.  The United States apparently has offered an additional 65,000 MT (official figure not disclosed), which would not even double Australia’s current access. 

Frankly, the Australians have the better side of this argument.  For the United States to insist on only a small increase in sugar access would be tantamount to accepting a very low level of ambition for agricultural market access in the TPP. 

But, you ask, aren’t the Aussies being too greedy?  Wouldn’t an additional 750,000 MT of imports cause the U.S. sugar program to collapse?  Close analysis reveals that the request actually is quite reasonable and that such an increase in sugar imports – handled appropriately – would not cause the program to collapse. 

Even U.S. sugar growers would acknowledge that a lot more Australian sugar imports could be accommodated, but they would want imports from Mexico to be reduced to make room in the marketplace.  (An increase in imports from Australia would equal a decrease from Mexico.)  Since Mexico is an active participant in the TPP negotiations, it probably isn’t feasible to reach agreement on a pact that simply robs Peter to pay Paul.  Plus, Mexico’s open access to the U.S. sugar market was negotiated over 20 years ago as part of the balance of concessions that went into NAFTA.  Mexican negotiators likely would not be amused at an attempt in the TPP to reduce the value of that access. 

The proper approach would be to reduce the quantity of sugar that U.S. growers are allowed to sell in the U.S. market by 750,000 MT.  This actually is a lot simpler to do than one might think.  Several years ago the U.S. sugar industry gave up the right to market as much as they could grow in order to maintain attractive price support levels.  They made a conscious decision that they would be better off selling somewhat less sugar than they would prefer, but at artificially high prices.  As if it was regulating a public utility, the U.S. Department of Agriculture (USDA) each year sets the overall allotment quantity (OAQ) that sugar growers are allowed to market domestically, roughly 10 MMT.  If the law was changed under the TPP implementing legislation to reduce the OAQ by 750,000 MT, U.S. growers would be able to sell about 9.25 MMT. 

There’s little doubt that the U.S. sugar industry would oppose such a change.  However, their protests should not be heeded.  Recall the earlier comment that the agreement settling the Mexican AD/CVD case had the effect of boosting U.S. price support levels by more than 10 percent?  That price increase would more than offset the smaller quantity growers would be allowed to sell.  Let’s do the math, using the conservative assumption that all sugar is valued at the effective support level for raw cane:

Income prior to the Mexican agreement: 

10 MMT x $490/MT = $4.9 billion

Income following the Mexican agreement, and incorporating a 750,000 MT reduction in the OAQ:

9.25 MMT x $545/MT = $5.04 billion

In other words, the increase in price that will accrue to U.S. sugar growers in response to the agreement with Mexico is more than large enough to offset revenues they would lose from a 750,000 MT reduction in the OAQ.  Since overall U.S. sugar policy would lead to a slight increase in the incomes of sugar growers, they have no legitimate basis for complaining about giving Australia the market access it is seeking.  The regulated sugar industry would remain comfortably cossetted.

What about commitments U.S. officials have made to the sugar industry regarding the TPP?  It’s important to understand what USTR Michael Froman has said.  When speaking about sugar on July 1 he stated, “Whatever we do in that area won’t undermine the sugar program.”  Frankly, granting Australia increased access of 750,000 MT while reducing the OAQ by a like amount would not undermine the sugar program.  Growers would earn more money than before, courtesy of the AD/CVD settlement agreement.  The structure of the U.S. sugar program would remain the same – a high price for sugar, coupled with limitations on how much domestic and imported sugar can be marketed.  There would be no fundamental reform of the sugar program to make it more market oriented.

It would be nice to think that the Obama administration might have sought a reduction in the U.S. sugar support price as part of the TPP process.  Meaningful liberalization of sugar policy would require reforms that strengthen competition, improve economic efficiency, and reduce costs for consumers.  (A paper on sugar policy reform can be found here.).  Such an outcome seems beyond reach at this point in the TPP negotiations, and would clearly be incompatible with Amb. Froman’s commitment not to undermine the sugar program. 

Instead, the administration’s trade policy has focused on “expanding economic opportunity for American workers, farmers, ranchers and businesses” by increasing “made-in-America exports.”  U.S. sugar growers generally do not export. The U.S. sugar price is higher than in most other countries, and the large and affluent U.S. market provides ample opportunities to sell their sugar at home.  The sugar industry simply isn’t in a position to help the administration achieve its goal of increasing exports.

On the other hand, U.S. farmers that raise the vast majority of other crops and livestock are globally competitive.  They easily could expand their exports, if more overseas markets are open to them.  The U.S. government is using the TPP as a forum in which to push Japan and Canada to make truly meaningful policy changes that would expand access for food and agricultural imports into those countries.  Trade negotiations are a poor time for practicing hypocrisy.  If the United States hopes to be successful in its legitimate pursuit of market opening in other countries, it needs to be willing to address its own previously sacrosanct programs.  The admittedly protectionist U.S. sugar program is at the top of the list.  Providing 750,000 MT of additional sugar access to Australia could be the key that would unlock the door to boosting exports of made-in-America grains, oilseeds, meats, and dairy products, along with a wide array of horticultural and specialty items. 

The best hope for a truly trade-expanding conclusion to the TPP is for the United States to provide a very substantial increase in sugar market access to Australia, coupled with equally significant efforts by the Japanese and Canadian governments to open their agricultural markets.  Genuine liberalization of the U.S. sugar market will have to wait for another day. 

If you’re familiar with Cato’s project, then you probably know that according to the available data, people today are wealthier, healthier, better educated, and less exposed to violence than in the past. provides you with the tools to explore how the state of humanity has changed over time. But even if you have visited the website before, you may not be aware of every feature it offers. Did you know that allows you to compare datasets of human wellbeing against one another, allowing you to see if the datasets correlate? Or that you can download a customized chart or map with the click of a mouse? Our new introduction video offers a rundown of all our current features. Check it out:

An Introduction to

I blogged last year about efforts to promote free trade within Canada, through an improved “Agreement on Internal Trade.” Some Canadians are now attempting a new approach to addressing this problem: Invoking the Canadian Constitution.

Here’s what happened to trigger the constitutional litigation, via the Canadian Constitution Foundation:

On October 6, 2012, New Brunswick resident Gerard Comeau decided to go to Quebec on a booze run. As a result of his trip, Mr. Comeau was surprised to find himself charged with violating New Brunswick’s Liquor Control Act.

Here is the strange part: Mr. Comeau’s purchase of beer and liquor in Quebec was entirely legal. His alleged crime was bringing it home to New Brunswick.

Mr. Comeau was stopped in Campbellton, New Brunswick just after crossing the bridge spanning the Quebec-New Brunswick border. He had been followed by the RCMP while he made two stops to buy liquor in Quebec. He was charged with violating the ban on bringing in more than 12 pints of beer or liquor from an out-of-province source (per s. 43 of the Act). As a New Brunswick resident, you can legally buy larger amounts only from a New Brunswick Liquor Corporation store. This crown corporation holds a legally enforced monopoly on liquor sales in the province, and it effectively protects its monopoly across provincial borders through the Liquor Control Act’s prohibitions on importation.

So what does the Canadian Constitution say about all this?  Section 121 of the Constitution Act, 1867 states that: “121. All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”  You might think that would be enough to ensure free trade, but apparently there is a 1921 Supreme Court decision narrowly interpreting the provision so that it only prohibits customs duties imposed at the border.

The Canadian Constitution Foundation is bringing the litigation in this case, and is arguing for a broader view of the provision, which would allow Canadians to bring goods accross provincial borders more generally. They argue that:

If Comeau is successful in restoring the correct, original meaning of s. 121 of the constitution, many forms of internal trade barriers may also be invalidated.  The implications go beyond the liquor and beer industries.  Restrictions on interprovincial trade in eggs, poultry and dairy products—often referred to as supply management—may likewise be considered unconstitutional.

Through NAFTA, Canadians have (mostly) free trade with the United States.  It would be nice if they also had free trade with each other.

The Republican presidential race is heating up and Florida Sen. Marco Rubio is talking foreign policy. Alas, he believes intervention and war to be a first resort and seems willing to sacrifice American lives, wealth, and prosperity for almost any reason.

Rubio shares the common delusion on the Right that the world has grown more dangerous since the end of the Cold War. Actually, the end of the Soviet Union and Warsaw Pact has made it much safer for America.

Rubio claimed that “Turmoil across the world can impact American families almost as much as turmoil across town.” But that is only if the United States allows it. During most of America’s history, Washington avoided involvement in foreign tragedies.

Rubio worried about rising prices from foreign instability. Far more consequential is the expense of military intervention, human and financial.

But Rubio was right when he declared: “foreign policy is domestic policy.” It is difficult to maintain a democratic republic with a limited government committed to individual liberty while pursuing an imperial foreign policy. Americans’ freedom ends up as an afterthought.

In Rubio’s view, America’s ideals “have been replaced by, at best, caution, and at worse, outright willingness to betray those values for the expediency of negotiations with repressive regimes.” That actually sounds like Washington’s persistent support for the dictatorial allies that Rubio cherishes.

He wouldn’t admit any error in invading Iraq “because the president was presented with intelligence that said Iraq had weapons of mass destruction.” Never mind that the supposed evidence variously was manipulated, based on lies, and carefully scrubbed.

But Rubio blamed Barack Obama for the current Iraq imbroglio, criticizing support for Nouri al-Maliki, who became prime minister under George W. Bush. Rubio urged an American return to Iraq: “It’s not nation-building. We are assisting them in building their nation.” That fine distinction might earn a good grade in law school, but it won’t fool the American people.

Rubio also backed the Obama administration’s Libya misadventure. Yet he complained that “Anytime there’s a vacuum created anywhere in the Middle East it becomes a magnet for these sorts of terrorist groups.”

The United States must “reinforce our alliances,” he insisted, particularly in Europe. Never mind that it has more money and people than America yet continues to underfund defense.

Worse, Washington must “reaffirm that the open door policy is still intact and applies to any NATO aspirant, including Ukraine if it so chooses.” But the burden of defending any new member would fall on the United States.

As I point out on Forbes online: “Because Kiev is stuck in conflict America might face an immediate call to fulfill NATO’s Article 5 security commitment—against a nuclear-armed power. Does Rubio want to start World War III?”

Rubio complained that “Most threatening of all, we’ve seen Iran expand its influence.” Actually, Iran is a wreck and poses little danger to the United States. Moreover, the most important impetus for Tehran’s increased clout was Bush’s invasion of Iraq, which Rubio endorsed.

Rubio attempted to add a humanitarian gloss to his disastrous proposals: “Oppressed peoples still turn their eyes toward our shores, wondering if we can hear their cries.” He also argued that “we have a responsibility to support democracy.” Does his heart-warming concern apply to friendly oppressors in Egypt, Bahrain, Saudi Arabia, and Central Asia?

Yet Rubio also would turn the military into an agent of corporate America through his plan for “the protection of the American economy in a globalized world.” The United States is insulated from much tumult overseas. Shouldn’t other nations take the lead when they are directly affected? How many lives is he prepared to sacrifice to sustain corporate jobs and profits?

Of course, with this agenda there must be more military spending. But America already is stronger than every other nation. If more than 40 percent of the world’s military spending isn’t enough, how much is?

Most of the other GOP candidates sound similar to Rubio. Unfortunately, Republican group-think won’t make the United States more secure. The GOP needs to engage in a real debate over foreign and military policy.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

President Obama is keen on calling carbon dioxide emitted from our nation’s fossil fuel-powered energy production, “carbon pollution.” For example, last week, when introducing EPA’s Clean Power Plan—new regulations limiting carbon dioxide emissions from the power plants that currently produce 67 percent of the country’s electricity—he used the term “carbon pollution” ten times. For example:

Right now, our power plants are the source of about a third of America’s carbon pollution. That’s more pollution than our cars, our airplanes and our homes generate combined. That pollution contributes to climate change, which degrades the air our kids breathe. But there have never been federal limits on the amount of carbon that power plants can dump into the air. Think about that. We limit the amount of toxic chemicals like mercury and sulfur and arsenic in our air or our water – and we’re better off for it. But existing power plants can still dump unlimited amounts of harmful carbon pollution into the air. [emphasis added]

Clearly, he is trying to paint a picture for the American public whereby carbon dioxide emissions are thought of as dirty, noxious substances that invade the air we breathe and make us sick. Who wouldn’t support regulation to try to limit such a menace?

But, this is scientifically inaccurate and, no doubt, intentionally misleading. It reflects poorly on the president and on his scientific advisors.

First and foremost, carbon dioxide is a colorless, odorless gas that is non-toxic to humans at concentrations below some tens of thousands of parts per million (ppm). The current carbon dioxide concentration in the atmosphere is 400 ppm and even worst case projections by the end of the century only put the concentration at 800-1000ppm. This is still some 5-6 times below the government’s recommended exposure limits. No one breathing open, well-mixed air* has ever been sickened from breathing carbon dioxide—nor ever will be.

Secondly, far from being sickened, the planet’s plant life is invigorated by carbon dioxide—the more the merrier. High concentrations (~1,000ppm) of carbon dioxide are routinely used in commercial greenhouses to produce faster growing and more robust plants. Scientific studies have shown that as carbon dioxide concentrations rise, plants become more resilient to environmental stressors, more efficient in their use of water, and more productive. A recent estimate has pegged the economic contribution of human carbon dioxide emissions to date, acting via increased crop production, at $3.2 trillion over the past 50 years and estimates an additional $10 trillion by mid-century. Pretty good for a “harmful” pollutant.

Thirdly, referring to carbon dioxide as “carbon pollution” is just plain scientifically inaccurate.

A carbon dioxide molecule is made up of two atoms of oxygen and one atom of carbon. Under the president’s apparent logic, wouldn’t it be twice as apt to term carbon dioxide “oxygen pollution”? But, we think, everyone would agree that would be deeply misinformative. So, too, everyone should agree, is applying the term “carbon pollution.”

In fact, carbon pollution already exists—it is more commonly called “soot,” the tiny elemental carbon particles that result from incomplete combustion. Soot is black, dirty, and oily, and not only makes an environmental mess, but is also dangerous to breathe. It is just what you expect a “pollutant” to be. And, it is already highly regulated by the EPA. So Obama’s statement that “existing power plants can still dump unlimited amounts of harmful carbon pollution into the air” is factually incorrect.

And finally, the carbon dioxide emitted from power plants is part and parcel of the chemistry of combustion. It is not some sort or gas or particle that is produced as a result of impurities in the fuels and can be separated from the process—it IS the process. Adding heat to hydrocarbons, such as fossil fuels (like coal, natural gas, or oil) in the presence of oxygen starts a chemical reaction that releases more heat (in excess of what was original applied) along with carbon dioxide and water (CO2, and H2O)**. Consequently, the power plants that the President refers to as being able to “dump unlimited amounts of harmful carbon pollution into the air” aren’t so much polluting as simply doing their job, the one that we ask of them—to produce the power that drives modern society and our way of life.

By calling carbon dioxide emissions “carbon pollution” President Obama and his EPA seek not to be scientifically accurate, but rather to sway public opinion in support of voluminous regulations aimed to restrict energy choice, not only here, but through his leadership aspirations, abroad (e.g., at the upcoming UN climate conference this December in Paris). For this, we award him 2.5 spin cycles—somewhere between Slightly Soiled and Normal Wash—in other words, the standard modus operandi of the federal government.

*There have been documented, although quite rare, occurrences of sudden carbon dioxide outgassing events associated with volcanic activity that have led to high fatalities in affected areas.

** In fact, it is similar to the process your body uses to power itself (in this case metabolism rather than combustion), breaking apart carbohydrates into carbon dioxide and water and liberating energy. Just as power plants emit H2O and CO2 into the air, so do you. The biggest difference, from a climate standpoint anyway, is that the carbohydrates you ingest were taken out of the air recently by plants (via photosynthesis), while the hydrocarbons ingested by power plants were taken out of the air by plants millions of years ago (and have been geologically converted and stored in the form of fossil fuels). Consequently, the collective breath of humanity does not lead to a build-up of CO2 in the atmosphere, whereas the collective breath of fossil fuel-powered electricity generating facilities does.

SHENYANG, CHINA—North Korea is a major topic of interest in this provincial capital in China’s northeast. The “Hermit Kingdom” is just a couple hours away by car. Again, the North’s harvest does not look good. Observers warn that another famine may be coming.

The first reports of drought appeared earlier this year. The United Nations warned that 70 percent of North Korea’s population faces a food shortage.

Another famine is a grievous embarrassment. Several hundred thousand, and perhaps as many as two million, North Koreans died between 1995 and 1997 from a brutal, extended famine. The North since has been dependent on the generosity of others to feed its people.

The DPRK again has begun to bang its tin cup, seeking aid. The People’s Republic of China remains the North’s most important food supplier. The Chinese government almost certainly will continue to stand by its ally.

Between 1995 and 2005, Seoul provided nearly $1.2 billion in food and fertilizer alone. South Korea largely cut off general support after Pyongyang’s military attacks in 2010.

Still, the South remains willing to restart humanitarian transfers. In June, Unification Minister Hong Yong-pyo said: “If North Korea faces tougher situations, South Korea is willing to provide the necessary support.”

Japan has episodically provided food assistance, but aid generally has reflected the state of relations, which in recent years remains tainted by the controversy over North Korea’s abduction of Japanese citizens. With the Abe government adopting a more assertive foreign policy, it is unlikely to come to the North’s rescue.

Washington has provided aid in the past—roughly $1.1 billion worth, about 60 percent of which was food, between 1995 and 2005. Since then, assistance has been only little and occasional.

Alas, Pyongyang has tended to take the money and, if not run, at least ignore its promises to behave better. In fact, in early 2012, the North almost immediately violated a new agreement negotiated with Washington trading aid for nuclear restraint with a new rocket launch.

So far the administration is saying no. The State Department’s East Asia-Pacific spokeswoman, Katina Adams, explained that “the U.S. has no plans to provide humanitarian assistance to North Korea at this time.”

However, as I point out in National Interest, “having succeeded in engaging the pariah states of both Cuba and Iran, the Obama administration might decide to make another try with Pyongyang. And the threat of famine offers an obvious excuse for another aid effort.”

Of course, no one wants the North Koreans to starve. But famine is a self-inflicted disaster. The North has socialized its agriculture and used food to reward political loyalty. Moreover, Pyongyang has devoted scarce resources to nukes, other weapons, and luxuries for the nomenklatura that otherwise could be used to purchase food.

Tempting though it might be to try again, such an effort would certainly be a bad idea. Pyongyang would treat official aid as support for the regime; any resources transferred inevitably free-up resources for use elsewhere. U.S. support would increase popular hardship over the long-term.

However, Washington should allow truly private aid. Such assistance carries no imprimatur of political support.

Moreover, the North appears to be less vulnerable to disaster than two decades ago because farmers produce more food privately, which increasingly is distributed through private markets.

Indeed, that is how many North Koreans survived during the 1990s famine. Such a process will help distribute even limited food supplies to people today.

Refusing to provide aid does not mean Washington should not talk with the North. The United States just should keep its expectations quite low—and not pay anything for mere promises.

North Korea is a continuing tragedy. There is no easy or simple policy guaranteed to end confrontation on the peninsula.

Almost everything the United States has failed so far, including providing government aid to the DPRK. If famine again does strike, the United States and its allies should tell Pyongyang no.

Scott Walker touts his record as a fiscal conservative. But this morning, reports the Associated Press

Wisconsin Gov. Scott Walker took a break from the presidential campaign trail Wednesday to commit $250 million in taxpayer money to pay for a new arena for the Milwaukee Bucks.

Walker’s come under a lot of criticism from both left and right for his arena funding plan, including an article I wrote at the Huffington Post after he defended his plan on ABC’s “This Week.” Such deals are paid for by average taxpayers to benefit millionaire players and billionaire owners. But millionaires and billionaires have more influence than average taxpayers, and the pictures around stadium deals are great: 

Calling the new NBA stadium a “dynamic attraction for the entire state of Wisconsin,” Walker signed the bill at the Wisconsin State Fair Park surrounded by state lawmakers, local officials and Bucks team president Peter Feigin.

The economics, not so good. Walker has claimed a ”return on investment” of three to one, which he says is “a good deal” for the taxpayers. Economists disagree. As Dennis Coates and Brad Humphreys wrote in a 2004 Cato study criticizing the proposed D.C. stadium subsidy, “The wonder is that anyone finds such figures credible….

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

Republican voters are looking for fiscal conservatives and straight talkers. We’re hearing a lot of denunciations of corporate welfare and crony capitalism. And here’s a leading conservative candidate for president sitting down in front of cameras to sign a bill handing $250 million in taxpayers’ money (Bloomberg says $400 million with interest) to wealthy owners of a sports team (some of whom, no doubt coincidentally, are large donors to his campaign), in defiance of free-market advocates and virtually all economists. Will the other Republican candidates take him on? Will they denounce this wasteful extravagance?

Or will we have to rely on John Oliver to do the job small-government Republicans ought to be doing?


I never watched That ’70s Show, but according to Wikipedia, the comedy program “addressed social issues of the 1970s.”

Assuming that’s true, they need a sequel that addresses economic issues of the 1970s. And the star of the program could be the Congressional Budget Office, a Capitol Hill bureaucracy that apparently still believes - notwithstanding all the evidence of recent decades - in the primitive Keynesian view that a larger burden of government spending is somehow good for economic growth and job creation.

I’ve previously written about CBO’s fairy-tale views on fiscal policy, but wondered whether a new GOP-appointed director would make a difference. And I thought there were signs of progress in CBO’s recent analysis of the economic impact of Obamacare.

But the bureaucracy just released its estimates of what would happen if the spending caps in the Budget Control Act (BCA) were eviscerated to enable more federal spending. And CBO’s analysis was such a throwback to the 1970s that it should have been released by a guy in a leisure suit driving a Ford Pinto blaring disco music.

Here’s what the bureaucrats said would happen to spending if the BCA spending caps for 2016 and 2017 were eliminated.

According to CBO’s estimates, such an increase would raise total outlays above what is projected under current law by $53 billion in fiscal year 2016, $76 billion in fiscal year 2017, $30 billion in fiscal year 2018, and a cumulative $19 billion in later years.

And here’s CBO’s estimate of the economic impact of more Washington spending.

Over the course of calendar year 2016,…the spending changes would make real (inflation-adjusted) gross domestic product (GDP) 0.4 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.5 million. …the increase in federal spending would lead to more aggregate demand than under current law. …Over the course of calendar year 2017…CBO estimates that the spending changes would make real GDP 0.2 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.3 million.


If Keynesian spending is so powerful and effective in theory, then why does it never work in reality? It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Nixon, Ford, and Carter in the 1970s. It didn’t work for Japan in the 1990s. And it hasn’t worked this century for either Bush or Obama. Or Russia and China.

And if Keynesianism is right, then why did the economy do better after the sequester when the Obama Administration said that automatic spending cuts would dampen growth?

To be fair, maybe CBO wasn’t actually embracing Keynesian primitivism. Perhaps the bureaucrats were simply making the point that there might be an adjustment period in the economy as labor and capital get reallocated to more productive uses.

I’m open to this type of analysis, as I wrote back in 2012.

…there are cases where the economy does hit a short-run speed bump when the public sector is pruned. Simply stated, there will be transitional costs when the burden of public spending is reduced. Only in economics textbooks is it possible to seamlessly and immediately reallocate resources.

But CBO doesn’t base its estimates on short-run readjustment costs. The references to “aggregate demand” show the bureaucracy’s work is based on unalloyed Keynesianism.

But only in the short run.

CBO’s anti-empirical faith in the magical powers of Keynesianism in the short run is matched by a knee-jerk belief that government borrowing is the main threat to the economy’s long-run performance.

…the resulting increases in federal deficits would, in the longer term, make the nation’s output and income lower than they would be otherwise.

Sigh. Red ink isn’t a good thing, but CBO is very misguided about the importance of deficits compared to other variables.

After all, if deficits really drive the economy, that implies we could maximize growth with 100 percent tax rates (or, if the Joint Committee on Taxation has learned from its mistakes, by setting tax rates at the revenue-maximizing level).

This obviously isn’t true. What really matters for long-run prosperity is limiting the size and scope of government. Once the growth-maximizing size of government is determined, then lawmakers should seek to finance that public sector with a tax system that minimizes penalties on work, saving, investment, risk-taking, and entrepreneurship.

Remarkably, even international bureaucracies such as the World Bank and European Central Bank seem to understand that big government stifles prosperity. But I won’t hold my breath waiting for the 1970s-oriented CBO to catch up with 21st-century research.

P.S. Here’s some humor about Keynesian economics.

P.P.S. If you want to be informed and entertained, here’s the famous video showing the Keynes vs. Hayek rap contest, followed by the equally clever sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

In this Bloomberg BNA podcast, Supreme Court correspondent Kimberly Robinson and I discuss King v. BurwellSissel v. HHS (the Origination Clause case), and House of Representatives v. Burwell, (the House GOP’s lawsuit against the Obama administration’s efforts to exceed its powers under the Constitution and the Affordable Care Act).

Keep an eye out for my article on King v. Burwell with Jonathan Adler in the upcoming Cato Supreme Court Review.

Adler and I will be speaking about King at the Cato Institute’s 14th annual Constitution Day symposium on September 17, 2015. Register here.

Of course I didn’t expect my recent post, listing “Ten Things Every Economist Should Know about the Gold Standard,” to stop economists from repeating the same old misinformation. So I’m not surprised to find two of them, from the New York Fed, repeating recently some of the very myths that I would have liked to lay to rest.

The subject of James Narron and Don Morgan’s August 7th Liberty Street Economics post is the California gold rush. After describing the discovery at Sutter’s mill and the “stampede” of prospectors anxious to get their hands on part of the “vast quantities of gold” whose existence that discovery had revealed, Narron and Morgan observe that the

large gold discovery functioned like a monetary easing by a central bank, with more gold chasing the same amount of goods and services. The increase in spending ultimately led to higher prices because nothing real had changed except the availability of a shiny yellow metal.

No economist worthy of the name would deny that, other things being equal, under a gold standard more gold means higher prices. But other things evidently weren’t equal in the U.S. in the late 1840s and early 1850s, for if they had been the path taken by the U.S. CPI between 1830 and 1880 would not have looked as it does in the chart shown below, which was also in my above-mentioned post:

*Graphing Various Historical Economic Series,” MeasuringWorth, 2015.

As you can see, the gold rush didn’t even cause a blip in the CPI, which was about as stable from 1840 to 1860 as it has ever been. Indeed, prices fell slightly, making for an annual inflation rate of minus .19 percent. For the shorter period of 1845 to 1860 the inflation rate is, admittedly, much higher: a whopping .63 percent. But even this higher rate is, according to the Fed’s current credo, was dangerously low. Were one to assume that a 2 percent inflation rate was as desirable 167 years ago as Fed officials claim it to be today, one would have to conclude that the gold rush, far from having made the U.S. money stock grow too rapidly, didn’t suffice to make it grow rapidly enough.

Having left their readers with a quite false impression regarding the inflationary effects of the gold rush, the New York Fed economists go on to claim that “the gold standard led to more volatile short-term prices (including bouts of pernicious deflation) and more volatile real economic activity (because a gold standard limits the government’s discretion to offset aggregate demand shock [sic]).”

Here again, a little more attention to both the statistics themselves and the economic forces underlying them, casts doubt upon the Fed experts’ conclusions.

It is, first of all, notorious that early macroeconomic statistics tend to be based on smaller samples, and ones that lean more heavily on relatively volatile components, than modern ones. Christina Romer documented this fact with respect to early real GNP estimates, but the same goes for early price-level measures. Consequently it is more than likely that at least some of the gold standard’s apparent short-run price level volatility is nothing more than a statistical artifact.

Second, and more fundamentally, the authors’ implicit premise — that an ideal monetary standard avoids short-run price level volatility — is false. What’s desirable isn’t that the price level not fluctuate, or that it only fluctuate within narrow limits, but that it should fluctuate only to the extent that is needed to reflect corresponding changes in the general scarcity of final goods. In other words, the price level ought to vary in response to shocks to “aggregate supply,” but not because of shocks to total spending or “aggregate demand,” which an ideal monetary system will prevent.

A sharp rise in prices connected to a drought-induced harvest failure, for example, isn’t the same thing as one caused by a surplus of exchange media. The rise supplies a desirable signal of underlying real economic conditions. Far from making anyone better off, a monetary system that kept prices from rising under the circumstances would have to do so by reducing the flow of spending, which would only mean adding the hardship of tight money to the damage done by the drought itself.

As numerous studies (including several that I, Bill Lastrapes, and Larry White cite in “Has the Fed Been a Failure?”) have shown, harvest failures and other sorts of aggregate supply shocks were a relatively much more important cause of macroeconomic volatility during the gold standard era than they have been in more recent times. It follows that one would expect both the price level and real output to have varied more during the gold standard days than they do now even if, instead of having been governed by a gold standard, the money supply back then had been regulated by a responsible central bank. As a matter of fact, according to a fairly recent study by Gabriel Fagan, James Lothian, and Paul McNelis, had a Taylor Rule been in effect during the gold standard period, it would not have resulted in any welfare gain.

Just as there are good reasons for allowing adverse supply shocks to be reflected in higher prices, so too are there good reasons for allowing the price level to decline in response to positive supply innovations. Those reasons can be found both in my writings defending a “productivity norm” and in arguments by Scott Sumner and others for targeting NGDP.

Consideration of these arguments brings me to Narron and Morgan’s claim that the gold standard was responsible for “bouts of pernicious deflation.” That the gold standard did bring periods of deflation no one would deny. But it doesn’t follow that those deflationary episodes, or most of them, were “pernicious.” In fact, Michael Bordo, whom Narron and Morgan give as the source for their claim, has himself denied that “pernicious” deflation was a frequent occurrence under the classical gold standard. According to the abstract to Bordo’s paper, “Good versus Bad Deflation: Lessons from the Gold Standard Era,” written with John Landon Lane and Angela Redish,

the deflation of the late nineteenth century reflected both positive aggregate supply shocks and negative money supply shocks. However, the negative money supply shocks had little effect on output. This we posit is because the aggregate supply curve was very steep in the short run during this period. This contrasts greatly with the deflation experience during the Great Depression. Thus our empirical evidence suggests that deflation in the nineteenth century was primarily good.

Several other recent studies reach broadly similar conclusions, including at least a brief research note from another Federal Reserve economist.[1]

To say that deflation can be either “good” or “bad,” depending on whether it stems from goods becoming more abundant or from money becoming more scarce, and to observe that, under the gold standard, deflation was mostly good, isn’t to deny that there’s such a thing as bad deflation. But if it’s striking examples of bad deflation that one seeks, one will find them, not by peering back into the days before the Fed’s establishment, but by looking no further back than the Coolidge recession of 1920-21, or the Great Contraction of 1930-33, or the Roosevelt Recession of 1937-8. Heck, instead of even going back that far, one could just consider the subprime deflation of 2008-9. According to the linked sources, in each of these instances, deflation was to some considerable extent an avoidable consequences of the Fed’s deliberately-chosen policies, rather than something beyond the Fed’s control.[2]

Besides exaggerating both the inflationary and the deflationary risks posed by the classical gold standard, Narron and Morgan repeat the myth that a gold standard costs considerably more than a fiat standard:

Apart from their macroeconomic disadvantages, gold standards are also expensive; Milton Friedman estimated the cost of mining the gold to maintain a gold standard for the United States in 1960 at 2.5 percent of GDP ($442 billion in today’s terms).

What Friedman’s calculation actual showed was, not that “gold standards” are quite expensive, but that one very peculiar sort of gold standard is so, namely, a “pure” gold standard arrangement in which gold coins alone serve as exchange media, without the help of any fractionally-backed substitutes! Not a single one of modern history’s actual “gold standards” ever even came close to Friedman’s fictional case. (Even mid-17th century goldsmith-banks are said to have kept specie reserves equal to about a third of their “running cash” liabilities.) If one assumes that banks in 1960 would have required 10 percent gold reserves, one arrives at a gold-standard cost estimate of .25 percent of GDP; if one assumes (still more plausibly) that 2 percent reserves would have sufficed, one arrives at an estimate one-fiftieth as large as Friedman’s! When, oh when!, will economists stop taking Milton Friedman’s absurd 2.5 percent estimate seriously?

Yet correcting Friedman’s estimate is only part of the story. All sorts of other things are wrong with the claim that the gold standard was expensive. Those interested in a quick summary may consult item # 2 of my “Ten Things” post. I will only add here that even Friedman himself came to doubt that fiat money was a bargain.

Narron and Morgan conclude their article thus:

Despite the demonstrable disadvantages of a gold standard, some observers still call for the Unites States to return to a classical gold standard. Should we? Let us know what you think?

What I think is that, if the gold standard really does have “demonstrable disadvantages,” Messrs. Narron and Morgan haven’t managed to put a finger on any of them.


[1]See also Atkeson and Kehoe, Borio et al., and Beckworth.

[2]The U.S. did, of course, experience several less-severe cases of “bad” deflation during the classical gold standard era. But these episodes resulted, not from the ordinary working of the gold standard, but from financial crises that were peculiar consequences of misguided U.S. banking and currency laws.

[Cross-posted from]

The Court of Appeals for the Federal Circuit heard oral arguments today in a case about dental retainers that could threaten the free flow of information over the Internet.  The question is whether the U.S. International Trade Commission has the authority to bar the “importation” of digital transmissions.  The case has serious implication for the future of 3D printing, internet service providers’ liability for copyright piracy, and the internet’s global infrastructure. 

The ITC has the power to ban imports to prevent “unfair competition” and has become a popular venue to enforce U.S. patents.   A Cato Policy Analysis from 2012 details how the ITC’s patent enforcement powers are unnecessary, protectionist, and inconsistent with U.S. trade obligations

The case before the appeals court today involves products that are manufactured inside the United States based on schematics generated by a computer in Pakistan.  The production of those schematics is covered by a patent owned by Align Technology, who successfully petitioned the ITC to issue an order barring its competitor ClearCorrect from transmitting the data from Pakistan to the United States.

An editorial in yesterday’s New York Times explained the dangers of allowing the agency to have power over digital transmissions:

The I.T.C. has long had the power to forbid companies from importing physical goods like electronics, books and mechanical equipment that violate the patents, copyrights and trademarks of American businesses. It does so by ordering customs officials to seize items at the border or by issuing cease and desist orders to importers. The commission’s order to ClearCorrect was the first time it had sought to bar the transfer of digital information. If the appeals court upholds this decision, it could set a precedent that would allow businesses to seek to block all kinds of data transmissions.

Of course businesses should be able to protect their patents and copyrights. But there are far better ways to do so. In this case, for example, Align could sue ClearCorrect and seek damages for patent infringement. Or the company could ask a judge to order ClearCorrect to stop selling products made using the information contained in the files.

It is not even clear that the commission has the authority to restrict international data transfers. Congress has given it authority to block the import of “articles,” which for decades has been understood to mean physical goods. In last year’s ruling, a five-member majority of the commission ruled that the word “article” includes data.

Groups like the Motion Picture Association of America and the Recording Industry Association of America are supporting the commission’s view. They argue that, as trade increasingly becomes digital, the definition of “article” should include data. The Internet Association, which represents companies like Facebook, Google and Twitter, is asking the court to reverse the decision.

We already know from leaked documents that the MPAA plans to use the ITC’s potential jurisdiction over data transmissions  as a way to block Americans from accessing foreign websites that host copyrighted movies.

The purpose of the ITC’s patent enforcement power is to make sure that U.S. companies have a remedy against foreign infringers who are otherwise unreachable by a domestic court.  That’s why the ITC’s remedy is a ban on future imports rather than money damages for past infringement like you would get in federal district court.  But the bulk of the ITC’s caseload, including the Align case, involves disputes between parties that can and do sue each other in U.S. courts. 

In today’s global economy, it’s particularly pointless to have a specialized IP court for imports, digital or otherwise.  The fact that an article is imported from outside the United States or a piece of information travels through a foreign computer server has no bearing on whether that product infringes a U.S. patent or copyright. 

Giving the ITC power to bar cross-border data transmissions invites mischievous litigation without serving any legitimate public policy goal.

The GOP’s Cleveland debate was spirited, but shed little light on foreign policy. There are important differences among the participants, but few were exposed.

For instance, elsewhere Donald Trump opined that Crimea was Europe’s problem and asked why Washington still defended South Korea. These sentiments deserved discussion.

No multi-candidate forum can delve deeply into such complex issues, however. Even those Republicans giving formal foreign policy addresses have come up short. The GOP contenders have been largely captured by a reflexive, even rabid interventionism which ignores consequences and experience.

Leading the hawks is Sen. Lindsey Graham, a member of the Senate’s unabashedly pro-war caucus. In the interventionist middle some candidates demonstrate hints of reluctance, such as Ted Cruz and John Kasich. Sen. Rand Paul brings up the rear, uncomfortably gyrating between his father’s views and the GOP conventional wisdom.

Chris Christie delivered a formal foreign policy address in which he easily staked his claim to being most committed to violating Americans’ civil liberties through surveillance of dubious value. He charged that his critics were “ideologues,” yet opposed any restraints on the new, far-reaching presidential powers that he demanded.

His foreign policy views are even worse. At age 52, Christie declared: “I don’t believe that I have ever lived in a time in my life when the world was a more dangerous and scary place.”

This is nonsense. As I pointed out on Forbes online: “Christie barely missed the Cuban missile crisis. During his life the Cold War raged, the Vietnam War was lost, the Soviets invaded Czechoslovakia and Afghanistan, and China’s Mao Zedong unleashed the bloody Cultural Revolution. People talked about the potential for a ‘nuclear winter’ from a nuclear exchange. Today the U.S. vastly outspends its potential adversaries and is allied with every major industrialized power save China and Russia.”

 “Building stronger alliances” is a “pillar” of Christie’s foreign policy. U.S. foreign policy is based on “partnership with the people and nations who share our values,” he explained. Like the totalitarian Saudis, brutal Egyptian military, and dictatorial Central Asian states?

Moreover, America’s friends can defend themselves. For instance, South Korea has 40 times the GDP of the North; Japan possesses the world’s third largest economy. Europe has a larger GDP and population than America and multiple of those of Russia.

Many so-called allies are security black holes, making America less secure. Why would Washington wish to confront nuclear-armed Moscow over interests the latter considers vital by defending nations such as Georgia and Ukraine, which always have been irrelevant to America’s security?

Christie argued that “We didn’t have to be a global policeman who solved every problem.” But that’s what Washington has done with perpetual social engineering through foreign aid, military intervention, war, and more.

In Christie’s view squandered U.S. credibility is why Russia grabbed Crimea, Syria’s Bashar al-Assad used force against his opponents, and “Iranian-backed militias are rampaging across Yemen.”

In fact, Washington never was going to go to war over Crimea with nuclear-armed Russia. Assad was determined to remain in power and therefore had to fight, irrespective of Washington’s view. Yemen’s Houthis have been in revolt for decades and have never had much connection to Iran, let alone America.

Of course, Christie demanded more military outlays. But it would be easier “to keep our edge” if Washington didn’t constantly squander Americans’ resources defending other nations and rebuilding failed states.

Christie insisted that “What happened on 9/11 must never happen again.” But he failed to understand that promiscuously supporting authoritarian regimes, aiding foreign combatants, dropping drones and, most important, bombing, invading, and occupying other lands creates enemies determined to do America ill.

Rubio and Bush also have given formal speeches, but sound no better than Christie. Most GOP candidates promise brave new interventions and wars.

If Republicans really believe in limited government and individual liberty, they should promote peace. It is time for a real Republican debate over foreign and military policy.

Let’s celebrate some good news.

When politicians can be convinced (or pressured) to exercise even a modest bit of spending restraint, it’s remarkably simple to get positive results.

Here’s some of what I wrote earlier this year.

…one of the few recent victories for fiscal responsibility was the 2011 Budget Control Act (BCA), which only was implemented because of a fight that year over the debt limit. At the time, the establishment was screaming and yelling about risky brinksmanship. But the net result is that the BCA ultimately resulted in the sequester, which was a huge victory that contributed to much better fiscal numbers between 2009-2014.

And “much better fiscal numbers” really are much better.

Here’s a chart I put together showing how the burden of federal spending declined between 2009 and 2014. And this happened for the simple reason that spending was flat and the economy had a bit of growth.

But now let’s look at some bad news.

It won’t surprise anyone to learn that the big spenders in Washington don’t like fiscal discipline.

They don’t like the modest restraint required by the Budget Control Act and they want to repeal or eviscerate the law. And they’ve already enjoyed some success, replacing spending restraint with tax hikes and budget gimmicks back in 2013.

And now there’s pressure for a similar capitulation this year, led by the Committee (gee, what a shocker) that’s in charge of spending money.

An article in Politico captures some of the internal dynamics.

…what should have been a dream job for House Appropriations Chairman Hal Rogers (R-Ky.) has instead become an exercise in frustration. Despite his plum position, Rogers finds himself at odds with GOP leadership… He’s calling for his party to raise strict spending caps he says are choking off necessary funding… But Rogers’ calls for a budget deal have fallen flat.

By the way, it’s not the main point of today’s column, but the article also shows why it was so important to eliminate “earmarks.”

Lawmakers no longer can be bribed to support more spending in exchange for pork-barrel projects.

It’s a reminder of the sway lost by the once powerful appropriations panel, in an age when earmarks are outlawed… The committee, once an aspiration for every lawmaker, is struggling to make its voice heard… appropriator Steve Womack (R-Ark.)…cheered Rogers for “pushing our leaders to the extent that he can” toward a budget accord. “Appropriators are in a tough spot … We just don’t have the grease that we formerly possessed.”

Good. I don’t want big spenders to have “grease” that facilitates a bigger burden of government.

But getting rid of earmarks didn’t win the war. Washington is still filled with lobbyists, bureaucrats, cronies, special interests, and other insiders who want more spending.

They want to bust the spending caps so they can line their pockets at the expense of the American people. Which is why maintaining the BCA caps are a critical test of whether Republicans are sincere about controlling Leviathan.

To understand the importance of the spending caps, here’s a chart from the Center on Budget and Policy Priorities, a left-wing group that supports bigger government. I won’t vouch for their specific numbers since they have an incentive to exaggerate and overstate the amount of fiscal discipline that’s been imposed, but there’s no question that the big spenders have been handcuffed in recent years.

Now that we’ve reviewed why it’s important to have spending caps, let’s talk about the elephant in the room.

There are two reasons why Republicans may sell out. First, as already discussed, some of them are spendaholics. They like bribing voters with other people’s money.

The second reason the GOP may capitulate is that the President and congressional Democrats may force a “government shutdown” fight.

To be more specific, the annual spending (or “appropriations”) bills are supposed to be completed by October 1, which is the start of the new fiscal year.

If President Obama uses his veto pen, which is what most observers expect, there will be a shutdown. And even though previous shutdowns have yielded positive policy changes, Republicans are afraid that they will suffer political blowback.

Given that they won a landslide election in 2014 after the 2013 shutdown (and also prevailed after the 1995 shutdown fight), this skittishness is a bit of a mystery, but the conventional wisdom is that GOPers will capitulate to Obama and agree to a deal that busts the spending caps.

Which would be very unfortunate for the cause of good fiscal policy.

On the issue of big government and spending discipline, I recently appeared on John Stossel’s show, along with Chris Edwards, while participating in FreedomFest. Here’s what we said about the importance of shrinking Washington to promote freedom and prosperity.

Dan Mitchell and Chris Edwards on Big Government vs Growth

P.S. In this video, Chris and I pontificate at greater length on fiscal policy issues.

P.P.S. While I’m critical of the politicians on the Appropriations Committee, I don’t think they’re necessarily any worse than other lawmakers. As I explained last month when analyzing the bad behavior of politicians who are on the committees that deal with transportation, the system creates a perverse incentive structure to expand government.

P.P.P.S. Here’s some government shutdown humor. And some more at the bottom of this post.

Ecuador’s ambassador to the U.S., Francisco Borja Cevallos, wrote a letter, “Ecuador’s Progress,” which was published in the New York Times on August 8th. Ambassador Borja reviews a number of Ecuador’s recent economic accomplishments. Fine. After all, by Latin American standards, Ecuador has performed well. Indeed, my Misery Index rankings for the region in 2014 show that only Panama, Mexico, and El Salvador performed better than Ecuador did.

What Ambassador Borja failed to mention is the true source of Ecuador’s relative success: dollarization. Yes, Ecuador is dollarized. Ecuador represented a prime example of a country that was incapable of imposing the rule of law and safeguarding the value of its currency, the sucre. The Ecuadorian sucre traded at 6,825 per dollar at the end of 1998, and by the end of 1999 the sucre-dollar rate was 20,243. During the first week of January 2000, the sucre rate soared to 28,000 per dollar.

With the sucre in shambles, President Jamil Mahuad announced, on January 9, 2000, that Ecuador would abandon the sucre and officially dollarize the economy. Telephone calls from both President Bill Clinton and U.S. Treasury Secretary Larry Summers encouraged Mahuad to dollarize. The positive confidence shock was immediate. On January 11th — even before a dollarization law had been enacted—the central bank lowered the rediscount rate from 200 percent a year to 20 percent. On February 29th, the Ecuadorian Congress passed the so-called Ley Trolebus, which contained dollarization provisions. It became law on March 13th, and after a transition period in which the dollar replaced the sucre, Ecuador became the world’s most populous dollarized country. And dollarization remains, to this day, highly popular; most Ecuadorians — 85 percent — still give dollarization a thumbs up. What Ecuadorians fear is that President Rafael Correa, who has opposed dollarization in the past, might just abandon the greenback, which is Ecuador’s anchor of stability.

Motoko Rich of the New York Times reports:

Across the country, districts are struggling with shortages of teachers, particularly in math, science and special education — a result of the layoffs of the recession years combined with an improving economy in which fewer people are training to be teachers.

So do we really have a shortage of teachers today, compared to historical levels? How big were the recession layoffs in historical context? I offer an updated chart below of the % change, since 1970, in the number of teachers and students, as well as the change in the cost per graduate of a public school K-12 education.

As the chart reveals, the recession layoffs were tiny when compared to the massive growth in our teaching workforce since 1970. To this day, we employ over 150% as many teachers as we did in 1970, to teach only 109% as many students. In other words, the number of teachers has grown 5 times faster than enrollment. That does not mean that there couldn’t be a small portion of districts in the U.S. that really need to hire teachers, but it does mean that there is no “national teacher shortage” compared to historical levels of employement. To anyone who claims otherwise, we can only ask: a shortage compared to what?

Recently I got an envelope at home that looked important. It had no return address, just a notice that said “DO NOT DESTROY/OFFICIAL DOCUMENT.” Trembling, I tore it open. The reply envelope inside also looked official, with “PROCESS IMMEDIATELY” emblazoned across the top. But since it was addressed to the Republican National Committee, I began to suspect that it wasn’t actually an OFFICIAL DOCUMENT. It did say that I had been specially selected “to represent voters in Virginia’s 8th Congressional District” and that I was receiving documents registered in my name, with tracking code J15PM110. The document must be returned by August, 17, 2015.

So in another words, just another dishonest communication from a political party. The dishonesty didn’t even wait for the letter, it started with the outer envelope.

But I wouldn’t take time to complain about mere political dishonesty. What I actually found interesting was the first question on my 2015 CONGRESSIONAL DISTRICT CENSUS. It was a simple question, asking how I describe my political ideology:

1. Do you generally identify yourself as a:

  • Conservative Republican
  • Moderate Republican
  • Independent Voter who leans Republican
  • Liberal Republican
  • Tea Party Member
  • Libertarian
  • Other____________________

So it’s nice to see that at last political professionals are noticing the existence of libertarian voters. My colleague David Kirby and I have been writing about libertarian voters for about nine years now, starting with our paper “The Libertarian Vote.” In that paper we found that some 13 to 15 percent of voters give libertarian answers to three standard questions about political values. (And as Clive Crook wrote in the Atlantic, why do so FEW Americans give such “characteristically American answers” to the questions?) The Gallup Poll, with a slightly easier test, found that 24 percent of respondents could be characterized as libertarians. David Kirby found that some 34 percent of Republicans hold libertarian views, which might just be what the RNC wants to investigate.

However, our studies have also shown that more voters hold libertarian views than know or accept the word “libertarian.” In a followup study done by Zogby International we found that only 9 percent of the voters we identified as libertarian chose the “libertarian” label. (That is, only 9 percent of 15 percent, or about 1.5 percent of the electorate.) Fifty percent chose “conservative” and 31 percent “moderate.” So the RNC survey, even if the results are actually tallied, is likely to underestimate the number of Republicans who hold libertarian views. A better question, which they didn’t ask, might be 

“Would you describe yourself as fiscally conservative and socially liberal?”

In the Zogby survey 59 percent of respondents answered “yes” to that question. When we made the question a little more provocative, adding the word “libertarian”–

“Would you describe yourself as fiscally conservative and socially liberal, also known as libertarian?” 

–44 percent of respondents still said “yes.” Now that would be a fun question for the RNC to ask next time! Or indeed the DNC.

Over the next couple of days, Democratic presidential candidate Hillary Clinton will be playing up her new, $350-billion proposal primarily intended to make paying public college tuition a debt-free experience.

Beware “free”!

According to early information about the plan – I couldn’t find details on Clinton’s campaign Web page yet – under the proposal the federal government would spend $200 billion over ten years on public colleges and universities, with a condition that states also increase their higher ed outlays. The goal would be to make paying public college tuition debt-free for all. In addition, the plan – called the “New College Compact” – would give $25 billion to historically black colleges and universities, and other schools with low endowments, over ten years. Next, the proposal would allow all current student debt holders to refinance loans at lower interest rates and sign up for income-based repayment plans capping monthly payments at 10 percent of discretionary income and forgiving whatever remained after 20 years. The loan-term plan is estimated to cost $125 billion over ten years.

Of course, as with any politically good plan, it seems details on how all this would be paid for – other than to say the rich will cover the $35-billion annual price tag – will be announced at some later, likely quieter date. Ditto details on how the plan will ensure colleges spend all the new, forced taxpayer largesse on instruction rather than fluff like climbing walls and water parks that students demand and schools, increasingly, deliver. Putting off these latter details could be especially important politically because while colleges love money, they do not love strings. To keep maximum support from the Ivory Tower – typically a welcoming edifice for Democrats – you’ll want to keep the downside hazy.

Of course, the estimated price tag is just the most immediate, obvious cost of the plan. The more hidden cost would be the plan’s deleterious effects: encouraging yet more people to spend more time in programs even less tethered to real-world needs. Quite simply, when someone else pays your bills you are more likely to consume, and less likely to think efficiently about what you are consuming. That’s been the higher education problem for decades, and this plan would have someone else foot even more of the bill.

Already we see massive overconsumption of higher ed: About a third of bachelor’s degree holders are in jobs that don’t require the credential. Lots of employers seek people with degrees for jobs that don’t appear to need college-level learning. And “college-level learning” has come to mean less and less actual learning. In other words, thanks largely to third-party funding, we appear to have a vicious cycle of credential inflation that would almost certainly get even worse as more and more people saw college as “free.” And no, it does not appear that spending more on higher education automatically increases human capital and, hence, economic growth. Indeed, government college spending may well hamper growth by taking money from the individual taxpayers who earned it – and would have used it for their real needs – and giving it away to colleges regardless of what people need.

“Free” always sounds so good. Until, that is, you think through how costly “free” can be.

Regular readers might recall a Supreme Court brief Cato filed last year in SBA List v. Driehaus, which involved a challenge to an Ohio law that made it a crime to “lie” about a politician during an election. That case predictably resulted in the law being overturned as an unconstitutional violation of the First Amendment.

But that wasn’t the end of the story. Because SBA List reached the Supreme Court on procedural grounds – and the law was only declared unconstitutional by the district court on remand – the ruling didn’t automatically invalidate similar laws across the nation. Over a dozen states still have criminal laws almost identical to Ohio’s, letting thin-skinned politicians haul their critics into court whenever they think politics attacks against them are unfair.

One of these states was Massachusetts. Earlier this year, Cato filed an amicus brief in the Massachusetts Supreme Judicial Court to argue that there was no way that the law could withstand any level of First Amendment scrutiny. The SJC agreed. In an opinion released this past Thursday, the court invalidated the law for being “antagonistic to the fundamental right of free speech,” and chilling “the very exchange of ideas that gives meaning to our electoral system.”  

While a victory, the facts of Commonwealth v. Lucas show just how odious and dangerous these law are in practice. The case began with Brian Mannal, a sitting state representative. When he was last up for reelection (he won by 205 votes), Mannal took issue with a series of flyers distributed by his critics.  Instead of engaging in a debate about the underlying issues, Mannal initiated criminal proceedings against the treasurer of the organization that published the flyers. This demonstrates one of the most dangerous aspects of these laws: any politician whose ego has been bruised can file a complaint in order to silence and intimidate opponents. 

The basis for Mannal’s complaint was utterly ridiculous. The flyers drew voters’ attention to the fact that Mannal, who in addition to being a politician is also a criminal defense attorney, had sponsored bills to increase state funding for lawyers who represented indigent defendants and reduce the mandatory restrictions placed on sex offenders released on parole or probation. The flyers claimed that “Brian Mannal is putting criminals and his own interest above our families.”

Mannal insisted that this violated the state law against publishing “any false statement in relation to any candidate for nomination or election to public office, which is designed or tends to aid or to injure or defeat such candidate” because, as he put it in his formal (handwritten) complaint “the mailer inferred [sic] in no uncertain terms that Brian Mannal sought to benefit financially from legislation that he had filed.”

Instead of compounding Mannal’s foolishness by prosecuting his victim, however, the district attorney referred the case to the SJC, asking the court to rule on the law’s constitutionality. The prosecutor sensibly declined to defend the law but, at the last minute, the state’s attorney general submitted a brief urging the SJC to uphold it.

And this is when things got really weird. Remember, this case wasn’t just argued in the immediate aftermath of the Supreme Court’s decisions in SBA List and United States v. Alvarez (striking down a law that made it a crime to falsely claim to have won military honors), but after nearly 200 years of rulings holding that political discourse is at the very heart of the First Amendment’s protection – and that any law that chills or limits electoral speech is presumptively invalid. Against that backdrop, the attorney general made what the court charitably called “the rather remarkable argument that the election context gives the government broader authority to restrict speech.” Of course, as the court noted “the opposite is true.”

And that’s the point: judges and other government officials should only be called upon to determine the truth or falsity of legal propositions – not political opinions.

Although I don’t call myself a Friedmanite or a monetarist (or anything else), and many of my opinions on monetary economics are ones that he rejected, I’m a huge Milton Friedman fan. I regard him as the most influential champion of free market economics after Adam Smith, and as one of the greatest monetary economists of the last century. He is certainly among the dozen monetary economists of any era from whom I have learned the most. Finally, in my own dealings with him I found him to be an upright and generous man, as well as one who gave me a great deal of encouragement and support when I most needed it.

Consequently it distresses me to see Friedman attacked, and especially so when the attacks come from persons who share my fondness for monetary freedom. One such attack came my way two weeks ago, in the shape of a complaint about a Cato email notice commemorating what would have been Friedman’s 103rd birthday, on July 31. The writer, a free-market gold standard advocate, and a generally pleasant and mild-mannered fellow, called “Chicago School” monetary economics “a virulently anti-free market conception that has institutionalized our unstable…monetary system,” and said that, in leading it, Friedman “did us and the world an unfathomable disservice.”

Alas, far from being rare, harsh opinions about Friedman are easy to come by among the more uncompromising critics of government intervention in monetary affairs. Ludwig von Mises, another of my monetary economics heroes, may have started the trend when, according to Friedman himself, he stormed out of a debate at the first (1947) Mont Pelerin meeting after calling its other participants, Friedman among them, “socialists.” Some years later, in 1971, Murray Rothbard reached a similar verdict, this time in print, though he substituted “statist” for “socialist.” (That Friedman was more of a statist than Rothbard himself was certainly true. But who, in 1971, wasn’t?) Today more than a few “End the Fed” libertarians still accept Rothbard’s judgement.*

My first personal encounter with Friedmanophobia took place in 1988. Thinking that The Freeman might review it, I had sent a copy of The Theory of Free Banking to the Foundation for Economic Education. But instead of getting a review, I got a terse letter from Hans Sennholz, FEE’s director at the time, who was also a well-known champion of monetary freedom. In the letter Sennholz lashed out at me for having had the brass gall to send him a book that expressed approval for some of Friedman’s ideas, while also offering some (mild) criticisms of “The Master.” (“The Master,” in case you don’t know it, was von Mises.) Of course I was taken aback, and all the more so since I considered myself, back then, much more a Mises than a Friedman fan.

Even now I’m sure I’m as aware as any of Friedman’s toughest critics of the various forms of government intervention in the monetary system he favored at one time or another. Throughout most of his career Friedman categorically favored a managed fiat standard over a gold standard. He also favored (as was only natural given that first preference) flexible over fixed exchange rates. Finally, for much of his career he dismissed free banking as the equivalent of legal counterfeiting. These are all, needless to say, positions that are objectionable, if not obnoxious, to persons who believe that unhindered markets are more capable than governments are of producing orderly and reliable monetary systems.

But there is another side to the ledger that Friedman’s more radically free-market critics seem to overlook. Two items especially deserve notice. Although he favored fiat money, Friedman was an unflinching and relentless opponent of monetary discretion. We also have him (and Anna Schwartz, another of my economist-heroes), to thank for the fact that the Great Depression is no longer considered proof of the inherent instability of free markets.**

Friedman’s more strident critics also seem unaware of how his monetary ideas changed over time, evolving in a way that fans of either the gold standard and free banking ought to commend. Much of this evolution appears to have taken place during the mid-1980s. In various articles written then, Friedman admitted having erred in treating fiat money as a less expensive alternative to gold. He also renounced his previous defense of central banks’ currency monopolies, conceding that there was in fact no good reason for prohibiting commercial banks from issuing their own paper notes. Instead of recommending a constant growth rate for the money stock, as he had in the past, he switched to arguing for a constant or “frozen” monetary base, which was tantamount to recommending that the Fed’s monetary and discount window operations be altogether shut down. Finally, he publicly declared himself in favor of abolishing the Fed on numerous occasions. Think what you will of Friedman’s later opinions, you will go blue in the face trying to convince me that they are those of a “statist.”

Finally, had it not been for Milton Friedman, I and other academic (or formerly academic) proponents of monetary laissez-faire would be an even more pathetically forlorn bunch than has actually been the case. For setting a handful of “Austrian” economists aside, the list of academic economists, including economists working for central banks and other financial regulatory authorities, who have shown a willingness to take free banking ideas seriously, and to treat their authors courteously, even allowing some of their articles to get published in mainstream academic journals, consists overwhelmingly of prominent “Chicago-School” monetary economists, if not of Friedman’s own students. Had it not been for Friedman and his students, in other words, there would almost certainly not be a Modern Free Banking School of any academic standing today.***

One of those students — and yet another of my monetary economics heroes — is David Laidler, who wrote me just recently. Like that other recent correspondent David was passing on some of his thoughts about Milton Friedman on the 103rd anniversary of his birth, in the shape of a copy of his speaking notes for a talk he gave on “Milton Friedman’s Intellectual Legacy” at Canada’s Institute of Liberal Studies. David has kindly allowed me to make those notes available here. As David’s appraisal of Friedman is, like all of his work, both thoughtful and well-written, I urge everyone to read it.

In fact, I disagree with only one sentence in David’s otherwise excellent talk. This occurs when David says that, starting in the 1980s, “Milton’s…inclination was to drift toward ‘free banking’.” That doesn’t sound right to me, for “drifting” was hardly Friedman’s style. Instead, I’m inclined to believe — and Friedman himself claimed — that he moved toward free banking quite deliberately, upon finding that the predictions of its theorists conformed better to observed reality than his own earlier views did.

I hope that David would not disagree.


* An amusing illustration of this — though one of admittedly doubtful evidential value — consists of a straw poll taken on the Ron Paul Forum in which 16 out of 28 participants held that Friedman was either “a statist leaning libertarian, or a flat out statist.” (Since I eat vegetables now and then, I suppose I must be a “radical vegetarian-leaning carnivore.”)

**In America’s Great Depression, originally published in the same year as Friedman and Schwartz’s Monetary History of the United States, Murray Rothbard also blamed the Great Depression on the Fed, basing his arguments not on monetarist ideas but on the Mises-Hayek theory of the business cycle. But regardless of the the different theories, it was Friedman and Schwartz’s work rather than Rothbard’s that was primarily responsible for reversing the tide of opinion, especially among academic economists.

***I also owe a particular debt to Dick Timberlake, a Chicago-trained monetary economist who had Friedman among his teachers. It was Dick who brought Larry White to the University of Georgia and who later, with Larry’s help, got me a job there. Dick has been yet another hero to me, as a monetary economist certainly, but also in lots of other ways.