The deadlocked Supreme Court couldn’t issue an opinion, but still left in place the block on President Obama’s immigration actions. The lower courts had correctly found that the executive actions implementing DAPA violated both administrative law and immigration statutes so, for practical purposes, it wouldn’t have mattered if Justice Scalia had still been on the bench to make this a 5-4 decision against the government. In any case, DAPA is now dead and so is any chance for immigration reform until the next president. That’s why those of us favoring reform in this area counseled against the president’s attempt to rewrite the law via executive action. This country’s immigration system is a mess - not serving anyone’s interests, let alone national security - but changing the law requires a new law.
The Supreme Court’s 4-3 ruling upholding UT-Austin’s use of racial preferences in admissions was surprising and disappointing. Justice Alito does well to call out the majority’s imperial opinion as having no clothes. “Something strange has happened since our prior decision in this case,” he begins in his magisterial dissent - referring to the Court’s 2013 ruling directing the lower court to scrutinize university officials’ self-serving justifications for their policy.
“Even though UT has never provided any coherent explanation for its asserted need to discriminate on the basis of race,” Alito concludes in a way I can’t improve upon, “and even though UT’s position relies on a series of unsupported and noxious racial assumptions, the majority concludes that UT has met its heavy burden.” (He cites Cato’s two amicus briefs for the proposition that UT’s misleading legal arguments can’t be trusted.)
The best that can be said about this decision is that it’s limited to the weird affirmative action program that UT-Austin uses, which is unique in the country. Future lawsuits are still possible, and will depend on the type of racial preferences challenged and, of course, the composition of the Supreme Court.
Federal Reserve Chair Janet Yellen recently appeared before the Senate Banking Committee to deliver the Semiannual Monetary Policy Report to the Congress. A handful of Senators queried Yellen as to the lack of diversity among both the Fed staff and the members of the Federal Open Market Committee (FOMC).
Here, for example, is the exchange between Senator Warren and Yellen (paraphrased, as I heard it):
Warren: Diversity is very important. Studies show gender diversity in leadership makes for stronger institutions. I’m not surprised there’s a stunning lack of diversity at our biggest financial institutions. The Fed’s leadership diversity is somewhat better, but not a whole lot better. … Does lack of diversity among regional Fed presidents concern you?
Yellen: Yes, I believe it’s important to have diverse groups of policy makers who can bring different perspectives to bear. It is the responsibility of regional banks’ Class B and C directors to to conduct a search and identify candidates for regional Fed presidents. The Board reviews those candidates and we insist the search be national and every attempt is made to identify a diverse pool of candidates.
Warren: But what about the outcome? When a new regional Fed president is selected by the regional Fed board that person must be approved by you and others on the Board of Governors before taking office. The Fed Board recently reappointed each and everyone of these presidents without any public debate or any public discussion about it. If you’re concerned about diversity, why didn’t you use these opportunities to say enough is enough? Let’s go back and see if we can find qualified regional presidents who also contribute to the overall diversity of the Fed’s leadership?
Yellen: Well we did undertake a thorough review of the reappointments … [etc., etc.]
Warren: [Interrupting] But you’re telling me diversity’s important and yet you just signed off on all these folks without any public discussion about it. …The selection process is broken. Congress should take a hard look at reforming the regional Fed selection process so that we can all benefit from a Fed leadership that reflects a broader array of backgrounds and interests.
While it is tempting to dismiss such questions as mere identity politics (I’m waiting for Trump to complain about bringing in the Fed Vice Chair from Israel), the Fed has increasingly over time come to look less and less like the rest of America.
Should this matter, at least in terms of monetary policy? I believe it should.
We are a big country and, despite a focus on national aggregates, different parts of the country experience different economic conditions. California isn’t Texas; nor is it Ohio or New York. To some extent these regional differences are why we have the convoluted regional structure of the FOMC. Different voices can bring their experiences and local knowledge to bear in a manner that should result in a monetary policy that weighs the conditions of both New York and Ohio (as well as the rest of the country). Researchers have found that local economic conditions do indeed influence voting behavior on the FOMC. The finding holds not just for the regional bank Presidents, but also for Fed governors.
Of course geography is only one element. Having Fed leadership from different segments of our society, as well as different disciplines, encourages multiple approaches to problem-solving. While I am an economist and see a lot of value in economics, I’d be the first to say economics doesn’t have all the answers. Similarly, bankers can have important insights into the functioning of the economy, but so can manufacturers, retailers and farmers.
A greater variety of backgrounds could also improve Fed communications. Spending a lot of time around economists, I think it is fair to say we often speak a different language, sometimes foreign and strange to outsiders. A Fed board where deliberations occur across disciplines could improve the explanations of those deliberations to the broader public. I know I’ve often learned a considerable amount of economics in the process of trying to explain something to non-economists.
It is perhaps for this reason that Section 10 of the Federal Reserve Act requires that
In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.
Despite the clear language of Section 10, since 1996 80 percent of Fed governors have come from the East Coast (which has only about 30 percent of the population). The chart below shows successful nominees and the Federal Reserve district they were connected with, as viewed by the President who nominated them, the Senate who approved them, and the district of the nominees birth. The fact is we are not getting a monetary policy reflecting the perspectives and needs of the entire nation, but rather one concentrating on those of New York and Washington (which falls in the Richmond district).
To some extent the heavy concentration of appointments to the Board from NY, Boston and DC reflects the revolving door between the Fed, the financial industry and the executive branch (particularly the Treasury and the Council of Economic Advisors). So the lack of diverse perspectives is likely even worse than it seems. Not only do Fed appointments reflect biases favoring New York, but predominately biases favoring New York’s financial industry. Similarly, for Washington, appointments reflect biases favoring the Treasury department or the status quo thinking in monetary economics.
Of the 17 Fed officials in office next year—five members of the Board of Governors and 12 regional bank presidents—all but three will have professional backgrounds as academics or with Goldman Sachs. The exceptions will be Atlanta Fed President Dennis Lockhart and Fed governor Jerome Powell, who worked at other banking institutions, and Kansas City Fed President Esther George, who was primarily a bank supervisor.
About 70 percent of Fed Board members and regional Presidents were once either Fed economists or academics:
Educational background of FOMC’s members has also become more concentrated around PhDs in economics:
Additionally, Fed economists themselves are heavily concentrated among the graduates of a handful of graduate programs:
Don’t get me wrong. A couple of smart economists with degrees from MIT, who have lived most of their lives in either Boston, New York or DC, are certainly able to contribute to monetary policy. But when the entire system starts to consist of individuals from the same small number of cities, who graduated from the same schools and studied the same disciplines, then “yes” we have a problem. You are guaranteed to have an institution that suffers deeply from groupthink, as well as being insulated from the everyday experiences of most Americans.
Senator Warren suggests that “the selection process is broken.” I couldn’t agree more. To repair it, we must first recognize that the choice of Fed Board members begins with the President. At a minimum the President should faithfully follow the considerations spelled out in Section 10 of the Federal Reserve Act. If he fails to do so, as was the case with the nomination of Peter Diamond, the Senate is obligated to reject that nomination. While Diamond’s case was clear, previous nominations have been less so. To provide some clarity, I would suggest that Congress amend Section 10 to list specific conditions determining residency. I believe a minimum of ten years actual residency should be the requirement for a nominee to be “from” a particular Fed district.
Congress could put additional limitations on Board appointments to increase diversity. For example, amending Section 10 to state that no more than two board members may come from any one of “finance, manufacturing, agriculture, government or academia” would reduce groupthink and likely increase the quality of decision-making at the Fed. Slowing the revolving door between the Fed, Treasury and finance could also increase diversity. I would suggest we ban from consideration for Fed nomination anyone who has served in the executive branch in the previous six years and impose a similar ban for those working for institutions regulated by the Fed.
Having worked on Fed nominations as a staffer for the Senate Banking Committee, I’d be the first to say that the Senate has too often rubber-stamped a President’s Fed nominees. Recent years have witnessed an improvement in Senate due diligence, but far more needs to be done. Changes in the norms behind Senate consideration may not be durable. Accordingly changes to the selection process for the FOMC are badly needed. I agree with Sen. Warren, the Fed needs leadership with a “broader array of backgrounds and interests.” Which means the definition of diversity must also include geographic diversity, educational diversity, and diversity of professional experience. The quality of monetary policy-making depends on it.
In the debate over CO2-induced global warming, projected impacts on various weather and climate-related phenomena can only be adjudicated with observed data. Even before the specter of dreaded global warming arose, scientists studied historical databases looking for secular changes or stability. With the advent of general circulation climate models, using historical data, scientists can determine whether any observed changes are consistent with the predictions of these models as atmospheric carbon dioxide increases. An example of the pitfalls in such work was recently presented by Rahmat et al. (2015), who set out to analyze precipitation trends over the past century at five locations in Victoria, Australia. More specifically, the authors subjected each data set to a series of statistical tests to “analyze the temporal changes in historic rainfall variability at a given location and to gain insight into the importance of the length of data record” on the outcome of those tests. And what did their analyses reveal?
When examining the rainfall data over the period 1949-2011 it was found that all series had a decreasing trend (toward less rainfall), though the trends were significant for only two of the five stations. Such negative trends, however, were reversed to positive in three of the five stations when the trend analyses were expanded over a longer time domain that encompassed the whole of the 20th century (1900-2011 for four stations and 1909-2011 for the fifth one). In addition, the two stations with statistically significant negative trends during the shorter time period were also affected by the longer analysis. Though their trends remained negative, they were no longer statistically significant when calculated over the expanded 112 years of analysis. In summation, in the expanded analysis the “annual rainfall time series showed no significant trends for any of the five stations.”
In light of the above findings, Rahmat et al. write that “conclusions drawn from this paper point to the importance of selecting the time series data length in identifying trends and abrupt changes,” adding that due to climate variability, “trend testing results might be biased and strongly dependent on the data period selected.” Indeed they can be; and this analysis shows the absolute importance of evaluating climate model projections using data sets that have been in existence for sufficiently long periods of time (century-long or more) that are capable of capturing the variability of climate that occurs naturally. And when such data sets are used, as in the case of the study examined here, it appears that the modern rise in CO2 has had no measurable impact on rainfall trends in Victoria, Australia.
Rahmat, S.N., Jayasuriya, N. and Bhuiyan, M.A. 2015. Precipitation trends in Victoria, Australia. Journal of Water and Climate Change 6: 278-287.
The third in a series of panels at last week’s conference on restraint explored the evolution of foreign policy in America—from the Founders’ embrace of restraint to Theodore Roosevelt’s interventionism to our current strategy of primacy. Speaking first, William Ruger of the Charles Koch Institute affirmed the roots of restraint in American history by presenting the Founders’ pillars of strategic independence and neutrality. Ruger explained how those principles guided U.S. foreign policy from the nation’s founding through the outbreak of the Spanish-American War in 1898.
Edward Rhodes of George Mason University followed with an analysis of Theodore Roosevelt’s ideas about politics, society, and foreign policy. According to Rhodes, Roosevelt feared that if left unchecked, the liberalism of the previous era would lead the moral decay of America. Roosevelt believed waging war, crusading, and searching abroad for challenges would strengthen American virtues and thus provide the needed balance to American liberalism.
Lastly, Cato’s Trevor Thrall discussed the current state of politics as it relates to foreign policy. Thrall presented polling data to demonstrate that while the foreign policy establishment continues to defend vociferously the merits and wisdom of primacy, a large contingent of Americans would prefer a restrained, less interventionist foreign policy. This “restraint constituency,” in fact, outnumbers supporters of primacy by nearly a two-to-one margin.
You can watch the full panel here.
A new Congressional Research Service report provides a handy overview of the current state of knowledge surrounding Unaccompanied Alien Children (UAC) apprehended on the Southwest border. Many Central American children and other family members have crossed the border and sought asylum in the United States.
UAC apprehensions so far in 2016 exceed those apprehended in 2015 but they are still below the peak year of 2014 (See Figure 1).
Unaccompanied Alien Children Apprehensions
Source: Customs and Border Protection.
The number of apprehensions is up this year on a monthly basis. The UAC are a small fraction of the total apprehensions (Figure 2)
All Apprehensions and UAC
Source: Customs and Border Protection.
UAC apprehensions are concentrated in just a few border sectors, most are entering through Texas (Figure 3). A map of the border patrol sectors puts the flow in perspective (Figure 4).
UAC Apprehensions by Border Sector
Source: Customs and Border Protection.
Border Patrol Sectors
Source: Customs and Border Protection.
If the UAC could instead receive a worker visa or green card then they would not have to brave the difficult trip through Mexico from Central America and endure uncertainty and detention once they reach the United States. Border Patrol wouldn’t have to waste their time apprehending these folks but could instead focus on stopping actual violent and property crime. The lack of a legal immigration alternative for the UACs and their family already in the United States has created this situation. An expanded legal immigration system can fix it.
The Center for American Progress has a new paper out calling for the demise of the Accrediting Council for Independent Colleges and Schools (ACICS), one of the primary accrediting bodies of for-profit colleges. The paper accuses ACICS of being negligent in its accrediting practices, and as a result enabling loads of students and federal aid dollars to flow to bad schools. And ACICS may well be lax, though there is a big debate about exactly what the role of an accreditor is: college watchdog, or friendly advisor? But ACICS itself is not what I mainly want to discuss here. No, it is the evidence that for-profit schools are perhaps being unfairly targeted rather than being particularly bad actors.
The first bit of evidence is something I’ve hinted at before: lots of suits have been brought against for-profit schools, typically by state attorneys general, but few have ended in findings of guilt. As CAP’s paper helpfully itemizes, most accusations, at least for ACICS accredited schools, have been settled with “no finding or admission of fault by the college.” And in the most notable case of a court finding a for-profit guilty—the now-defunct Corinthian Colleges—the judgement was issued without a trial because Corinthian no longer existed and could not defend itself.
Many of the state AGs who have brought suits—including in California, Kentucky, and Massachusetts—have pursued higher political office. California’s Kamala Harris is running for the U.S. Senate. Kentucky’s Jack Conway unsuccessfully ran for governor in 2015. Former Massachusetts AG Martha Coakley ran for governor in 2014.
Were the suits motivated by a desire to raise the AGs’ profiles? No one but the AGs themselves knows their motivations, and they may well have concluded that the schools had intentionally done illegal things. But it is hard not to also see for-profit schools as relatively easy, unsympathetic targets. Moreover, it is possible that many schools settled not because they thought they were guilty, especially of systematic illegality, but because they did not want their names dragged through the mud anymore. In addition, unlike the AGs, they had to use their own money to defend themselves.
The CAP report also largely brushes off a contention that is crucial—but oft neglected—to understanding the seemingly poor outcomes of the proprietary sector: they work with students facing big obstacles in hugely disproportionate amounts. Writes author Ben Miller, “That argument is not necessarily accurate according to detailed reviews of literature around student default, which found that race and ethnicity do matter for default but that degree completion status is typically the strongest predictor of default.”
Of course, the abilities and personal situations of students have a ton to do with degree completion. And this is not primarily about race. Students at for-profit schools are much more likely to be African-American, but also older, low-income, and dealing with children and full-time jobs than students in other sectors, including community colleges. Indeed, a report on accreditors released by the U.S. Department of Education just yesterday reveals that among major accreditors ACICS member institutions have the highest percentage of undergraduates receiving Pell Grants, a rough proxy for income. 74 percent of students at ACICS accredited schools receive Pell, versus, for instance, 38 percent among schools accredited by the Middle States Commission on Higher Education, and 32 percent at the New England Association of Schools and Colleges.
Now, maybe the schools should choose not work with a lot of students who face too many obstacles. But it is the federal government that gives the students much of the funding with which they pay for these schools, on the general principle that everyone should have access to college. And the feds do this without trying to meaningfully evaluate if the students are ready. So, essentially, the for-profit schools, but also the community colleges and nonselective public and nonprofit private schools, which are all seeing poor outcomes, are just doing what the feds want them to do.
Again, the evidence—all of it—needs to be considered before singling out for-profit schools for censure. Too often, it doesn’t seem to be.
On Monday afternoon, the Central Bank of Nigeria (CBN) ended the Nigerian naira’s sixteen-month peg to the U.S. dollar, sending the naira into a freefall. The currency had been pegged at 197 naira per dollar, but as the chart below shows, it had been trading at over 320 naira per dollar for months on the black market (read: free market) and currently sits at 345 naira per dollar. At the time of writing, the naira was officially trading at 282.50 naira per dollar.
The official inflation rate for Nigeria in May was 15.6 percent. However, by using changes in the black market exchange rate data and applying the Purchasing Power Parity Theory, I calculate that the annual inflation rate implied by the free market is actually much higher – currently sitting at over 56 percent (see the accompanying chart).
A managed, floating exchange-rate regime is ill-suited for a country with weak institutions and little discipline, like Nigeria. More troubles lie ahead.
[Note: Normally I have the good sense to keep my writing focused on trade policy topics. This blogpost is an exception. It would not be wise to place much confidence in my abilities as a political analyst. However, I lived in Minnesota and was politically active during the 1998 gubernatorial election. That experience left me with impressions that are shared below.]
Jesse Ventura is an intriguing individual. In 1998 he was nominated by the Reform Party of Minnesota as their candidate for governor. Among his several prior careers were: Navy special-forces diver; professional wrestler; screen actor; radio and TV personality; and mayor of Brooklyn Park, a suburb of Minneapolis. He has a disdain for “politics as usual,” especially when wrangling between Democrats and Republicans results in poor use of taxpayer funds. He has an outsized personality, a robust and brash sense humor, and enjoys the limelight. He also looks great in a feather boa.
Ventura described himself as “fiscally conservative and socially liberal,” a straightforward expression of his libertarian philosophy. He had considerable interest in policy issues, more than is the case for some candidates in the 2016 presidential campaign. His fiscal priorities included reforms in sales, property, and income taxes. On social issues, he supported the right for gays to serve in the military and to marry. He was quite open about not having all the answers, readily admitting that he hadn’t formed opinions on every aspect of state policy.
In sharp contrast to the likely Democratic and Republican nominees in the 2016 presidential race, Ventura ran against solid, mainstream nominees from both those parties. Hubert H. “Skip” Humphrey III, Minnesota’s attorney general and son of the former U.S. senator and vice president, was the Democratic-Farmer-Labor (DFL) choice. Norm Coleman, well regarded for his service as mayor of St. Paul, was selected by the Republicans. Neither of them had particularly high negative ratings. A poll conducted in late October 1998 showed 33 percent with an unfavorable view of Humphrey, and 26 percent taking a dim view of Coleman. Ventura’s unfavorable rating was 21 percent. (Such ratings would be envied by today’s major-party presidential candidates, both of whom are viewed negatively by some 50-60 percent of recent poll respondents.)
A June 1998 poll commissioned by Minnesota Public Radio (MPR), KARE 11 TV, and the Pioneer Press asked respondents for whom they likely would vote. The results:
- Humphrey 46 %
- Coleman 30 %
- Ventura 7 %
- Undecided 17 %
In contrast to Ventura’s 7 percent number from June 1998, recent polling shows Libertarian Party nominee Gary Johnson receiving support of 11-12 percent for his 2016 presidential bid. So Johnson’s candidacy as of June is doing relatively better than Ventura’s did.
A similar MPR/KARE/Pioneer Press poll conducted in late October, shortly before the election, showed:
- Humphrey 34 %
- Coleman 33 %
- Ventura 23 %
- Undecided 10 %
Ventura had increased his support by 16 percentage points, mostly coming at the expense of Humphrey (decline of 12 points). Coleman gained 3 points.
The final results on Election Day, Nov. 3, 1998, were:
- Ventura 37 %
- Coleman 34 %
- Humphrey 28 %
Ventura gained 14 percentage points of support during the final ten days of the campaign to win election as the 38th governor of Minnesota. This swing was aided by his performance in the debate on Oct. 24, along with creative advertising that featured a Jesse Ventura action figure and Ventura singing a campaign song to the theme from “Shaft.”
Ventura’s victory was remarkable. As a keen observer of Minnesota politics that summer and fall, I confess to having been dumbfounded. If I had been asked in June 1998 whether there was any chance Ventura actually would win the race, I simply would have said it was impossible. The real question was how much support his unconventional – albeit enjoyable – campaign would draw from Humphrey and Coleman. But Ventura did win, and he earned it. He presented ideas and attitude that were more engaging than those being offered by two other credible candidates.
Fast forward to 2016. Gary Johnson definitely is not a clone of Jesse Ventura. Johnson was a successful businessman who served two terms as a Republican governor of New Mexico. He is notably less flamboyant than Ventura, but probably more accustomed to explaining libertarian concepts to a broad audience. It’s clear that the odds are against an outright win by Johnson. Having lived through an “impossible” victory, though, I’d rate Johnson’s prospects as better than that – perhaps “highly improbable” would be the right term.
Of course, the electoral college may make it feasible for Johnson to have a very meaningful effect on the outcome of the election, even if he doesn’t garner the most votes nationwide. Consider the hypothetical situation in which he wins his home state of New Mexico, which has five electoral votes. If the major party candidates split the remaining electors evenly, no one would receive the 270 votes needed for election. In that scenario, the outcome would be decided by state delegations in the House of Representatives.
Ventura and Johnson know each other. Ventura endorsed Johnson’s candidacy when he ran for the White House as the Libertarian nominee in 2012, and has encouraged people to vote for him again this year. Ventura has a substantial following across the country, so may be in a position to take other steps on behalf of the Johnson campaign. Who knows? Perhaps that might include coaching him on proper use of a feather boa.
It should be an interesting campaign.
Daniel R. Pearson is a senior fellow in the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.
On Thursday, Britain will vote on whether or not to leave the European Union (EU). As things stand, the race is too close to call: a week ago, “Leave” were surging in the polls; this week, things have swung back towards “Remain.” But neither side has managed to build a lead beyond the pollsters’ margin for error, and veteran political campaigners suggest it will all come down to turnout. So what is really at stake as Britons submit their “Brexit” ballot papers?
To me, the case for Brexit is rooted in the idea of self-government, and the democratic accountability that goes along with that. The question facing British voters is, fundamentally, whether their parliament should be sovereign and their laws supreme, or whether such powers should continue to be pooled at the European level.
In other words, this is a constitutional referendum. It is not a choice between rival political platforms, or between rival sets of politicians; nor, indeed, does the result of the referendum have any immediate legal consequences. Rather, this is an opportunity for British voters to decide how they should be governed in future. Once the result is in, it will be up to the British government, and to parliament, to determine policy going forward.
This point is important, because it undercuts a lot of the fears people have about Britain leaving the EU. There is no denying, for example, that the Leave campaign has taken some unsavory positions on immigration, and promised unrealistic “bread and circuses” once Britain leaves the EU. But Leave are, emphatically, not a government in waiting.
Then there’s the government-backed Remain campaign, who have scarcely let an opportunity to scaremonger about the economic consequences of Brexit pass them by. From their increasingly shrill and outlandish claims, you would think that a vote for Brexit meant surrounding Britain with naval mines and never letting anything—whether goods, services, capital, or people—cross the border again.
That scenario is, of course, absurd. In reality, post-Brexit Britain is likely to rejoin the European Free Trade Area (EFTA), which it left in 1973 to become an EEC member, alongside Switzerland, Norway, Iceland, and Liechtenstein. These countries participate fully in the EU’s single market, without being subject to its political union. They are also free from the EU’s Common Agricultural Policy (which horribly distorts produce markets), its Common Fisheries Policy (which has helped to deplete European fish stocks), and its Common External Tariff (which prevents EU member states from trading freely with other countries).
The arguments against this “Norway option,” as it is often called, are well-rehearsed, but mostly without foundation. Yes, EFTA members have to contribute to the EU budget—but they do so at a far lower per capita level than full EU members. And yes, EFTA members have to adhere to a lot of EU regulation—but, again, far less than full EU members. More to the point, EFTA members have independent representation on the global trade and standards bodies that inspire most of this regulation in the first place, while EU member states are represented collectively by the European Commission. As a result, EFTA countries arguably have more say over the actual content of EU regulation than individual EU member states do.
There is, inevitably, a flaw in this plan: EFTA members, whether through parallel membership of the European Economic Area, or through a series of bilateral agreements with the EU (as is the case for Switzerland), must accept the free movement of people within the area covered by the European single market. And given how much Britain’s Leave campaign has focused on reducing immigration, that might prove a political tough sell—despite clear evidence that EU migrants are a boon to the British economy.
On the other hand, a YouGov poll commissioned by the Adam Smith Institute suggests that a majority of the British public would back EFTA membership in the event of a Brexit vote. The House of Commons also contains a clear majority in favor of continued membership of the European single market. So I am optimistic that British intransigence on European migration would not scupper a fully-fledged trading relationship in the event of Brexit.
But perhaps this all begs a question: Why am I willing to take the risk, however slight it may be, that Brexit will damage Britain’s trading relationship with Europe? My response comes down to two things. First, even if Britain were denied continued access to the single market, I am certain that a comprehensive UK–EU trade agreement could nevertheless be reached. An independent Britain would, after all, instantly become the EU’s single largest export market.
Such negotiations might prove difficult; their outcome would probably provide less access to the EU market for British agriculture and services; and British banks might lose the right to do business in other EU countries without establishing separate operations there. These would be real losses, to be sure. But they could easily be outweighed by freer trade with the rest of the world. Britain, as it happens, already sends more exports out of the EU than it does into it.
It is also worth highlighting research by Economists for Brexit, whose modelling suggests that a post-Brexit policy of unilateral free trade within the WTO framework could deliver substantial benefits over the status quo, without requiring any bilateral trade agreements whatsoever. That might not be a politically palatable option, but it does suggest that the single market need not necessarily be the be-all and end-all of Britain’s trade policy.
Second—and finally—let me come back to where I started: this referendum isn’t ultimately about trade, or immigration, or even about economics in general; it is about whether Britain should govern itself, or whether it should cede an ever-increasing portion of that responsibility to the institutions of the European Union. There are principled arguments on both sides of that question but, for me, the answer is clear.
Britain’s common law tradition, which asserts our freedoms from government, and which assumes we are at liberty to do anything that isn’t specifically prohibited, sits uneasily alongside the continent’s Napoleonic approach, which tends to create positive entitlements that can be enforced against government, and which often assumes that anything the law does not explicitly provide for must be illegal. Britain’s majoritarian political culture, which prizes above all the ability of voters to get rid of one government and replace it with another, does not chime harmoniously with Europe’s permanent coalitions, technocratic governments, and late-night deals made in proverbial, smoke-filled rooms. Nor does Britain’s laissez-faire, internationalist view of economics marry well with the EU’s dirigiste, fortress-Europe mentality.
In the end, that’s why I believe Britain should be free to rule itself, while also seeking the most open possible trading arrangements with both its European neighbors and the rest of the world. A Brexit vote alone, it must be stressed, will not make those things happen. But it would mark the beginning of a process that could eventually prove very beneficial for Britain—just so long as the right policies are pursued in its aftermath.
If you haven’t heard much from me on these pages of late, it’s because I spent most of the last two weeks traveling back and forth, and so had little time for blogging.
I did, however, participate in some interesting events while I was away. The first of these was “Futures Unbound,” the second installment so far of Cato’s annual Summit on Financial Regulation, held at the Drake Hotel in Chicago on June 6th. I gave a talk there on the regulatory role of private clearinghouses. I also had the pleasure, the night before, of taking part in a speakers’ dinner that was also attended by two distinguished (and very fun!) members of the CMFA’s Council of Academic Advisors, George Kaufman of Loyola University Chicago and Randy Wright of the University of Wisconsin.
After the Chicago event I headed straight to London, where I’d been invited to give the Institute of Economic Affairs’ annual Hayek Lecture. Before the lecture Philip Booth, the Institute’s Editorial and Programme Director, interviewed me briefly on the necessity of central banks. The main event took place that evening at Church House, a few blocks away from the IEA’s offices in Westminster; and I was pleased to find that in arranging for that commodious venue the Institute hadn’t overestimated the audience for my topic, which included many good friends from all over Europe.
Alas, much as I would have liked to linger with that crowd, I had to be whisked away, first for some dinner, and thence to a Heathrow hotel, where I could rest a little before catching an early flight to the States, where I took part in the second in what I hope will be a long-lived series of Liberty Fund conferences co-sponsored by them and Cato’s Center for Monetary and Financial Alternatives. This one, on “Liberty and Currency: The U.S. Asset Currency Reform Movement,” took place (appropriately enough) on Jekyll Island, under the direction of CMFA Adjunct Scholar (and occasional Alt-M contributor) Jeff Hummel, with David Henderson serving as discussion leader. The other distinguished participants included Rutgers’ Hugh Rockoff and U.C.S.D.’s Lawrence Broz. Like every other Liberty Fund conference I’ve attended, this one was great fun. Unfortunately, it’s unbuttoned proceedings were so in part (as is also always the case) because they were both confidential and unrecorded, so I’m unable to share any part of them with you.*
After Jekyll Island it was across the Atlantic again, this time to Zurich, where I took part in the ETH Risk Center’s conference on “Alternative Financial and Monetary Architectures.” Others who spoke there included William R. White, another member of the CMFA’s Council of Academic Advisors, as well as “Limited Purpose Banking” champion (and write-in U.S. presidential candidate) Laurence Kotlikoff. Although this event’s proceedings were also not recorded, the ideas I presented were a somewhat modified version of ones I presented at a Cato Monetary Conference a few years ago.
After the Zurich conference, I lingered for a day in Zurich, where I was able, by sheer luck, to dine with Cato Senior Fellow Jerry O’Driscoll, who happened to be on his way to an event in Lichtenstein. That dinner was a splendid and relaxing conclusion to a sometimes taxing itinerary — and the next-best thing to being back home again, with my very best friend.
*Those interested in taking part in future Liberty Fund-CMFA events are encouraged to write to me expressing their interest. Please note, however, that these events are generally open only to academics and other holders of graduate degrees.
Yesterday, the Supreme Court decided the case of Utah v. Strieff, which involved the power of the police to detain and search citizens, and what the courts should do when the police break the law in the course of their investigations. Washington Post reporter, Robert Barnes, writes, “the low profile case more likely will be remembered for a fierce and personal dissent from Justice Sotomayor, who said the ruling would exacerbate illegal stops of minorities.” He’s right.
Here’s an excerpt from Sotomayor’s dissenting opinion:
[T]his case tells everyone, white and black, guilty and innocent, that an officer can verify your legal status at any time. It says that your body is subject to invasion while courts excuse the violation of your rights. It implies that you are not a citizen of a democracy but the subject of a carceral state, just waiting to be cataloged. We must not pretend that the countless people who are routinely targeted by police are “isolated.” They are the canaries in the coal mine whose deaths, civil and literal, warn us that no one can breathe in this atmosphere. See L. Guinier & G. Torres, The Miner’s Canary 274–283 (2002). They are the ones who recognize that unlawful police stops corrode all our civil liberties and threaten all our lives. Until their voices matter too, our justice system will continue to be anything but.
Regular visitors to the Cato web site will already be very familiar with many of the points Sotomayor made in her opinion. We have been trying to draw more attention to the problem of confrontational police stops since the death of Amadou Diallo in 2000. Sotomayor cites several scholars that have presented their research findings at Cato. Last year, Professor James Jacobs discussed his book, The Eternal Criminal Record. In 2014, Professor Alice Goffman, discussed her book, On the Run, at a Cato forum titled Lessons from Ferguson.
To stay ahead of the news, keep following Cato’s work.
Proponents of America’s foreign policy strategy of primacy insist that its benefits far outweigh its costs. But as last week’s conference at the Cato Institute demonstrated, not everyone agrees. During the first panel of the conference, for example, foreign policy experts challenged the conventional wisdom about the benefits of the United States’ post-Cold War alliances, as I highlighted yesterday. Experts on the second panel continued that critique of primacy by discussing and debunking its myths related to geography, energy, and democracy promotion.
Alexander Downes of George Washington University and Jonathan Monten of University College London started the discussion by arguing that trying to spread democracy through military intervention is generally difficult and often counterproductive. A fact, they point out, that is supported by America’s efforts in Iraq and Afghanistan.
Eugene Gholz of the University of Texas at Austin closed out the panel with a discussion of U.S. energy security. He explained that the United State is energy secure, and that, more broadly, market forces have a stabilizing effect on the world’s energy prices. Indeed, Gholz argues, the world’s energy markets are quite resilient, and do not require protection from the U.S. military.
You can watch the full discussion below.
The latest issue of Regulation magazine has been released on the Cato website.
The cover article, by Christopher Robertson and Jamie Cox Robertson of the University of Arizona, examines the extent of over incarceration in the U.S. Why are so many innocent people convicted of crimes? They review recent scholarship that concludes that many types of evidence introduced by prosecutors to convince jurors of guilt, such as bite mark, fingerprint, and bullet analysis, are not scientifically reliable. The authors suggest various remedies to the wasteful incarceration problem including public rewards for attorneys who demonstrate that a prisoner should be released.
Researchers John Lott and Gary Mauser explore empirical research on firearms. They found that the findings of such research vary systematically with the disciplinary orientation of the authors. A large majority of articles written by economists find that expanded legal access to firearms reduces crime and does not increase the suicide rate, and that gun owners who are approved for concealed-carry are less likely to commit crimes than ordinary Americans. In contrast Criminologists were more evenly divided on these questions.
Two articles critique regulatory rationales rooted in behavioral economics. In Infantilization by Regulation law professors Jonathan Klick and Greg Mitchell argue that protecting people from the effects of their choices reduces their ability to think critically about them. Georgetown ethics professor John Hasnas explores how much liberty is preserved under modern “libertarian paternalism.” He then asks whether the insights of behavioral economics apply to public decisions, argues yes, and concludes that U.S. Constitution is an excellent example of choice architecture.
One of the most disussed topics in higher education policy is the rate of inflation in university tuition. Top William and Mary economists find empirical evidence that highly selective schools reduce financial aid to students who receive federal tuition support.
In our Briefly Noted articles economist Ike Brannon argues that cities harm transit riders by over-providing subsidized parking near street corners. Brannon and the American Action Forum’s Sam Batkins question whether expanded family leave policies would harm workers. University of California, Irvine emeritus professor Richard McKenzie shares the results of his survey that found servers at fast-casual restaurants would not support substituting higher hourly wages for the current tipped-wage system. Finally, University of Michigan professor Thomas Hemphill lays out a practical approach to reforming occupational licensing laws.
Book reviews include Free Market Environmentalism reviewed by Timothy Brennan, Robert Reich’s Saving Capitalism and Robert Gordon’s The Rise and Fall of American Growth reviewed by David R. Henderson, and Phil Murray’s review of Dani Rodrik’s Economics Rules.
My Working Papers column describes papers on cigarette taxes and food stamps, e-cigarettes and adolescent smoking, corporate inversions, and public housing and crime.
America remains at war in Afghanistan. After almost 15 years it’s time to bring the last troops home.
In October 2001 George W. Bush sent U.S. forces to destroy Osama bin-Laden’s al-Qaeda terrorist organization and oust the Taliban government which hosted him. Washington then shifted to nation-building.
The 9800-man American contingent was to have been cut in half this year and reduced to 1000 early next year. But last October the administration decided to slow the planned withdrawal. The total now will drop to 5500 in 2017.
Although U.S. participation in combat has formally ended, American troops remain on call. Proposals abound for rejoining the war. For instance, Gen. John F. Campbell, then-U.S. commander in Afghanistan, urged the administration to allow American troops to attack the Taliban even if it did not threaten allied forces and use air support on behalf of Afghan forces until Kabul established its own air force.
In 2012 Afghanistan became America’s longest military conflict, passing the Vietnam War. What is Washington doing there?
There’s an air of desperation about Kabul. James R. Clapper, director of National Intelligence, cited the “serious risk of a political breakdown” in Afghanistan.
The authorities remain generally incompetent, ineffective, and corrupt. Transparency International ranks the country as 166 out of 168 in corruption. There is little tangible to show for the more than $100 billion in aid provided over the last decade.
The economy is crashing as the flow of foreign money ebbs. Only poppy production remains a growth industry.
Since the bulk of foreign troops came home in 2014 fighting has surged. Government forces are on the defensive and the Taliban is believed to hold more territory than at any other time since America’s intervention. Even in Kabul Westerners rarely leave their secure compounds as attacks have become common. Civilian casualties are way up.
Unfortunately, hope for a political settlement has gone a glimmering. The chief threat probably is not a complete Taliban triumph. More likely is a fractured land with a multi-sided conflict continuing for years. That would be a tragedy, but wouldn’t be much different than today.
Former US commander David Petraeus and Brookings Institution’s Michael O’Hanlon claimed that a continued military presence is necessary because Afghanistan is “effectively the eastern bulwark in our broader Middle East fight against extremist forces.” Yet America’s Afghan presence has not deterred Al-Qaeda or the Islamic State from operating in Afghanistan.
Al-Qaeda as well as the Taliban has found sanctuary in Pakistan, and the Islamic State could do so as well. Moreover, al-Qaeda has metastasized in Yemen and ISIL has grabbed sections of Iraq, Libya, and Syria.
As I point out in Business Insider: “Afghanistan is a tragedy. But Washington cannot fix Afghanistan. The U.S. cannot afford the human and financial cost of endless war. It’s well past time to bring home America’s military personnel.”
The rate of growth in a country’s money supply, broadly measured, will determine the rate of growth in its nominal GDP. For Saudi Arabia, the following table presents a snapshot of the relationship between the growth in the money supply (M3) and nominal GDP.
The chart below shows the course of M3. Following the oil price plunge of September 2014, the growth in M3 has slowed. The rate of nominal GDP growth will follow.
Why is the money supply growth rate declining? Since the plunge in oil prices, the Saudis’ current account has dipped into negative territory. This has to be financed, and the Saudis have used their stash of foreign reserves to do the financing.
When the Saudi Arabian Monetary Agency (SAMA) sells foreign currency to finance the current account deficit (and maintain the Riyal/USD peg), it debits the reserve accounts (in Riyals) of the Saudi banks at the SAMA. This causes the domestic money markets to tighten, which works its way through the banking system. Not surprisingly then, there has been a marked slowdown in the growth of broad money since the oil price plunge and associated current account deficit.
So, a slowdown in Saudi nominal GDP is already baked in the cake. The Saudis should get used to that sinking feeling, which will only abate if oil prices continue to rise.
The Constitution gives the power to declare war to the legislative branch. In recent decades, however, members of Congress have preferred to leave the hard decisions to the president. This constitutional abdication has allowed unilateral war-making.
Even President Barack Obama, who tossed the issue of Syria’s use of chemical weapons to Congress, has relied on the outdated authorization passed after the terrorist attacks of 9/11 to validate multiple military operations today.
Congress could make a bad situation worse. Representatives Scott Perry (R-PA), Matt Salmon (R-AZ), and Cynthia Lummis (R-WY) have introduced H.J. Res. 84,”Authorization for Use of Military Force Against Islamist Extremism.” It would create a long list of target “organizations that support Islamist extremism,” many of which have done nothing against America.
It is a bad bill.
First, a country normally declares war against entities, not philosophies. What matters is not whether a nation or group is Islamist but whether it endangers America.
Second, the threat to the U.S. and other nations is violent extremism, not extremism. It doesn’t particularly matter if people have seemingly kooky ideas on how to live if they do not kill and otherwise harm others.
Third, war should be reserved for responding to threats to America. In World War II Washington declared war on specific countries, most notably Japan and Germany, not on fascism.
Yet Representatives Perry, Salmon, and Lummis came up with numerous new enemies: “the Islamic State, Al-Qaeda, Al-Qaeda in the Arabian Peninsula, Al-Qaeda in the Islamic Maghreb, Al Shabab, Boko Haram, Al-Nusra Front, the Haqqani-Network, the Taliban, Houthis, Khorasan Group, Hamas, Hezbollah, and any substantial supporters, associated forces, or closely related successor entities to any of such organizations.”
The proposed choice of enemies well illustrates the problem of U.S. foreign policy. The Islamic State did not turn to terrorism against America or Europe until Washington and its allies took over the fight against the putative caliphate. Had Washington left the battle to those in the region threatened by the Islamic State—essentially everyone—the group likely would be devoting its terrorist energies elsewhere.
Al-Qaeda remains an enemy, but not much of one after nearly 15 years. Moreover, by supporting Saudi Arabia’s brutal campaign in Yemen, Washington actually has weakened the forces against al-Qaeda and opened space for the Islamic State.
Al-Shabab is essentially a criminal gang operating in Somalia. It has little to do with America. So, too, Boko Haram, the vicious Islamic insurgency in Nigeria. Not every evil doer on earth is America’s problem.
The al-Nusra Front and Khorasan Group are seemingly associated with al-Qaeda but focused on the Syrian civil war. Ironically, they are on America’s “side” in that conflict. Washington should stay out of Syria.
The Haqqani Network and Taliban are America’s opponents in Afghanistan. However, Washington long ago fulfilled dispersed al-Qaeda and punished the Taliban for hosting anti-American terrorists. The U.S. should drop its forlorn attempt at nation-building.
Far from being Islamic extremists, the Houthis were known for religious moderation and are a Shia variant close to Sunnis. The group has never targeted Americans. Intolerant Saudi Arabia has turned the conflict into a sectarian struggle.
Hamas is a malign organization, but has no global ambitions and does not threaten America. Although also no friend of Israel, Hezbollah is not a military enemy of the U.S. Targeting Hezbollah would put America at odds with the Lebanese government—and the nation’s substantial Christian population.
As I wrote for National Interest: “Congress should declare war before the U.S. goes to war, but should approve military action only when Washington has no alternative course to protect America. That is not the case in the Mideast today.”
Since the end of the Cold War, the United States has followed a foreign policy of primacy. The strategy aims to preserve and extend America’s dominant position in the world using its massive military and global network of alliances to spread western values and stop prospective threats before they materialize. Yet, while primacy continues to receive bipartisan support, a growing number of U.S. foreign policy and military experts are now calling for a new grand strategy, one that would make the United States stronger and more secure, and that would better align with the fundamental values at the core of the nation’s founding.
Last Wednesday, the Cato Institute hosted an all-day conference titled “The Case for Restraint in U.S. Foreign Policy” to explore one such strategy. Over the course of the day, four panels of international relations experts explained why a grand strategy of restraint could and should replace primacy.
The first panel challenged the conventional wisdom about the benefits of U.S. alliances formed during the Cold War. The first speaker, Brendan R. Green of the University of Cincinnati, discussed the gulf between the academic literature and the arguments made by primacists on nuclear proliferation, concluding that the advocates of hegemony oversell the role that alliances play in halting nuclear proliferation.
Following Green, Eugene Gholz of the University of Texas at Austin explained how our alliance relationships come at significant costs to American security by exacerbating the security dilemma between the United States and countries like China for the sake of ally interests.
The third and final panel speaker, Joshua I. Shifrinson of Texas A&M University, spoke on behalf of himself and David Edelstein of Georgetown University. Shifrinson and Edelstein argued that the United States faces significant risks of entrapment—getting drawn into a conflict by its allies.
You can watch the full discussion below.
In this essay on government construction projects, I discuss how promoters use “strategic misrepresentation” to subdue taxpayer opposition and get dubious spending schemes approved. The low-balling of projected costs is a tried and true deception used by infrastructure promoters the world over.
A variation on the strategy was apparently used to gain support for California’s expensive bullet train project. The Los Angeles Times reports that while people were aware that taxpayers would pay the system’s huge construction costs, officials promised that the operating costs would be covered by rail system revenues, not taxpayers. That promise appears to have been a fraud:
When a Spanish firm submitted a bid last year to help build the California bullet train, it cautioned that taxpayer money probably would be needed to keep the system operating.
Having reviewed data on 111 high-speed train lines around the world, construction giant Ferrovial said, it found that all but three could not make ends meet.
“More than likely, the California high speed rail will require large government subsidies for years to come,” the proposal said.
That warning, however, was expunged from the version of Ferrovial’s proposal posted on the state’s website. The only record of it was on a data disk provided to The Times and others under a public records act request.
The state rail authority repeatedly has asserted that it will not need a subsidy and that every high-speed system in the world operates without taxpayer assistance — despite significant evidence to the contrary. A number of projects around the world have failed financially, others require direct operating subsidies and many more benefit from government taxes and regulations on competing airline and highway systems, according to audits, studies and interviews.
But in asking taxpayers to help build the Los Angeles-to-San Francisco line, officials assured the state would be able to pay the operating costs purely from the system’s revenues — and thus not sap money needed for social services, education or other projects.
When California voters committed the $9 billion in bonds in 2008, the measure stipulated that the system would have to operate without future public funding.
How can citizens fight such deceptions? This episode illustrates the importance of citizen engagement and transparency in government fiscal matters. It was not a state auditor that discovered the operating subsidy cover-up, but a concerned citizen doing some poking around:
The change in Ferrovial’s proposal was first noticed this spring by Morris Brown, a Bay Area resident and former Caltech chemistry professor who closely monitors documents and statements issued by the bullet authority.
Terrorism has hijacked American foreign policy. First Al Qaeda and now the Islamic State have come to dominate thinking about international affairs so completely that there is hardly any issue that has not been “terrorized.” Issues that once had significance because they were important in their own right now only matter insofar as they affect the fight against terrorism. Russia? Now discussed primarily with respect to whether their air campaign affects ISIS in Syria. Syria? Important only because of ISIS and other jihadists who want to rule. Iraq? The birthplace of ISIS. Iran? A regional power broker who supports terrorism as whose support for Assad in Syria matters because of…ISIS. Libya, the latest concern du jour? You guessed it: concern for Libya is in fact concern for the growth of ISIS in the country.
The figures below illustrate just how deeply ISIS has infiltrated American foreign policy news. In the first figure, you can see that over the past three years almost every foreign policy topic has taken on a distinct ISIS flavor. As the second figure shows, after reaching a historical high after September 11, news coverage of terrorism dropped steadily in the following years until rebounding in 2013. Attention to ISIS only really took off after June 2014 when ISIS started calling itself ISIS and simultaneously announced the establishment of a global caliphate.
(News data from Factiva’s Top US newspaper file)
(News data from Factiva’s Top US newspaper file)
Why should the United States spend so much time talking about ISIS and terrorism? To be sure, the Islamic State is a disaster for the Middle East, but it presents a relatively modest terrorist threat to the United States. And to keep things in perspective, since 9/11, just 78 Americans have died from Islamist terrorist attacks including the 49 who died in Orlando on June 12. None of those, it should be pointed out, were killed directly by members of either Al Qaeda or ISIS. ISIS and the broader problem of Islamist-inspired terrorism certainly deserve attention from both the government and the news media, but at this point, a case can be made that the current hyper focus on it has become dangerously counterproductive.
First, it seems pretty clear that sustained American intervention in the Middle East – and the news coverage that follows – helps spur attacks like the one in San Bernardino and Orlando. If the United States weren’t so closely linked in people’s minds with ISIS, then self-radicalized jihadists like Omar Mateen in Orlando or Syed Rizwan Farook and Tashfeen Malik from San Bernardino would not have found meaning in killing Americans to further the cause of ISIS.
Second, the size of the government agenda is more or less fixed. Every hour the government spends thinking about ISIS is time not spent dealing with other foreign policy issues. Issues of greater importance to the United States than ISIS include the increasingly dangerous dance with China in the South China Sea, nuclear proliferation, the future of free trade, and global health security, just to name a few. Given how much effort the United States has expended since 9/11 to confront terrorism and most recently ISIS, it is staggering to think how much has been left undone on other critical issues.
Finally, the deafening roar of ISIS-flavored news is creating incentives for political leaders to keep doing stupid things in the name of the war on terrorism. To be clear, the news media did not create the ISIS problem. That blame falls at the feet of the bipartisan Washington foreign policy consensus that has dictated endless intervention since 9/11. Once in motion, however, the news media have dutifully amplified the rhetoric of our political leaders, and by now it is almost impossible for anyone to change the conversation or reframe the foreign policy debate. This reinforcing spiral of government overreaction and media hype have helped pave the way for a series of failed, unnecessary, and/or counterproductive policies from the 2003 invasion of Iraq through the American support of the current efforts in Yemen and Libya. Most recently it has given rise to Trump’s nativist foreign policy screeds.
Much like communism did during the Cold War, terrorism has proven itself an extremely potent rhetorical resource. Political leaders are no more anxious to appear soft on terrorism than they were soft on communism. Afraid of losing votes for seeming unconcerned about the safety and security of the United States, politicians propose one costly and counterproductive strategy after another. Duly reported by the news media, these strategies and their fallout then start the next cycle, reinforcing the same pattern of behavior. Unfortunately, as with the Cold War, it is difficult to see this problem ending until the fires that stoke Islamist-inspired terrorism have burned themselves out.