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When the Berlin Wall fell, Warsaw Pact dissolved, and Soviet Union split apart, U.S. foreign policy became obsolete almost overnight. For a brief moment advocates of a quasi-imperial foreign policy seemed worried.

For instance, NATO advocates were reduced to talking about having the anti-Soviet military compact promote student exchanges and battle drug smuggling. But advocates of preserving every commitment, alliance, and deployment quickly recovered their confidence, insisting that the status quo now was more important than ever. Since then the political elite has remained remarkably united in backing America’s expanding international military role.

GOP presidential candidates competed over how much to intervene. The Democratic frontrunner pushed for U.S. military intervention in the Balkans as First Lady, voted for the Iraq war as Senator, and orchestrated the Libya campaign as Secretary of State.

Breaking with this pro-war consensus is Donald Trump. No one knows what he would do as president and his foreign policy pronouncements fall far short of a logical and consistent foreign policy program. Nevertheless, he was the most pacific GOP contender, perhaps save Sen. Rand Paul.

Unsurprisingly, Trump’s views have dismayed the guardians of conventional wisdom. However, for the first time in years, if not ever, many advocates of American dominance believe it necessary to defend their views, which they had previously considered to be self-evident. For instance, NATO supporters are trying to explain why the U.S. must defend European states which, collectively, are wealthier and more populous than America.

Nevertheless, the downsides of Trump as messenger are obvious. While his opinions on allied free-riding are well-established, on other issues he has shifted back and forth. Who knows if he means what he says about much of anything?

Moreover, even when he is right conceptually, he often misses the mark practically. For instance, the answer to allied free- (or cheap-) riding is not to charge other countries for America’s efforts. Rather, Washington should simply turn the defense of other nations over to them.

Trump also mixes sensible foreign policy opinions with misguided and overwrought attacks on trade, immigration, and Muslims. And his manner is more likely to repel than attract.

Yet almost in spite of himself he is likely to change U.S. foreign policy. Imagine Trump living down to expectations and losing badly. Then the usual advocates of war and intervention would insist that his foreign policy approach has been discredited and seek to squelch any further debate. Everything would simply go back to normal.

If Trump does respectably but loses narrowly, he will have demonstrated popular discontent with a policy in which average folks pay and die for utopian foreign policy fantasies advanced by Washington policy elites. That would encourage future political leaders to seek votes by challenging today’s interventionist consensus.

Finally, if Trump triumphs he will be in a position to transform U.S. foreign policy. What he would actually do is anyone’s guess. For the first time in decades there would be a serious debate over foreign policy and a meaningful opportunity to change current policies.

As I wrote for National Interest: “There are lots of reasons to criticize Donald Trump. However, he offers the most serious challenge in a generation to today’s interventionist zeitgeist. In spite of everything, he just might end up changing U.S. foreign policy.”

Donald Trump isn’t happy with the Washington Post, which has steadfastly opposed his presidential campaign on its editorial pages and now has assigned a reporter team to write a book about him. And he has repeatedly responded in Trump fashion: by threatening the business interests of the newspaper and its owner Jeff Bezos. Trump cited the Post by name in his February comments about how he wants to “open up” libel law so that “when The Washington Post… writes a hit piece, we can sue them and win money instead of having no chance of winning because they’re totally protected.” And he said then of Amazon, of which Bezos is CEO, “If I become president, oh do they have problems. They’re going to have such problems.” He has claimed for months that Bezos was using the newspaper as either itself a tax dodge or as a tool of influence to prevent Amazon from having to pay “fair taxes,” a theory hard to square with the institutional arrangements involved (Bezos owns the Post separately from his Amazon stake; the Post editors credibly deny that Bezos has interfered, and as it happens Amazon itself supports the idea of an internet sales tax.) More recently Trump has opened up a second front, arguing last week on the Sean Hannity show that Bezos employs the paper “as a political instrument to try and stop antitrust” and implying that he, Trump, would hit Amazon with antitrust charges. 

As you might expect, many critics are crying foul. “He’s basically giving us a preview of how he will abuse his power as president. … he is clearly trying to intimidate Bezos and in turn The Washington Post from running negative stories about him,” writes Boston Globe columnist Michael A. Cohen.  “Mr. Trump knows U.S. political culture well enough to know that gleefully, uninhibitedly threatening to use government’s law-enforcement powers to attack news reporters and political opponents just isn’t done. Maybe he thinks he can get away with it,” writes Wall Street Journal columnist Holman Jenkins

But as I wrote in this space four years ago, if you think blatant use of the machinery of government to punish newspaper owners or interfere in papers’ management somehow happens only in other countries, think again:

[Since-convicted Illinois Gov. Rod] Blagojevich, Harris and others are also alleged [in the federal indictment] to have withheld state assistance to the Tribune Company in connection with the sale of Wrigley Field. The statement says this was done to induce the firing of Chicago Tribune editorial board members who were critical of Blagojevich.

And in 1987, at the secret behest of the late Sen. Edward Kennedy (D-MA), Sen. Ernest Hollings (D-SC) inserted a legislative rider aimed at preventing Rupert Murdoch from simultaneously owning broadcast and newspaper properties in Boston and New York. The idea was to force him to sell the Boston Herald, the most persistent editorial voice criticizing Kennedy in his home state.

More recently, when the Tribune Company encountered financial difficulties and explored the sale of several large papers, city councils in more than one city passed resolutions opposing the sale to politically “bad” prospective owners; powerful Congressional figure Henry Waxman (D-CA) could not resist the urge to meddle as well in management issues affecting his hometown paper, the L.A. Times. 

This all goes back much farther, of course. Historian David Beito, writing about the FDR-Truman era, cites a long series of federal investigations of and retaliations against the distributors of pro-liberty books and pamphlets, including the proposal of Indiana Democratic Senator and New Dealer Sherman Minton (D-Ind.) to make it “a crime to publish anything as a fact anything known to be false,” a downright Trumpian idea that Minton let drop after an outcry.

It is thoroughly appalling – but, alas, it is not new.

 

 

Following up a proposal announced last year, the Obama administration is set to raise the salary threshold at which employers must pay time-and-half for overtime hours (normally, those above 40 hours per week). Currently these rules apply to workers with annual salaries up to $23,660; the new rule raises this threshold to $47,476.  This will affect about 4.2 million workers, according to administration estimates.

What impact will this regulation have? 

In the short run, many employers will indeed pay higher total compensation to affected employees, given limited options for offsetting the mandated increase in wage costs. This is the outcome sought by regulation advocates.

In the medium term, however, employers will offset these costs by re-arranging work schedules so that fewer employees hit 40 hours, by laying off employees who work more than 40 hours, or by pushing such employees to work overtime hours off the books.

In the longer term, employers will reduce base-level wages so that, even with overtime, total compensation for employees working more than 40 hours is no different than before.  

Thus, expanded overtime will benefit some employees in the short term; cost others their jobs or lower their compensation in the medium term; and have no meaningful impact in the long term.

Is that good policy?

Some recent studies have presented evidence that inequality of mortality is increasing, and that life expectancy is actually falling for some groups. Those studies generally focus on life expectancy at a certain age threshold, usually 50. In a recent paper in the Journal of Economic Perspectives, authors Janet Currie and Hannes Schwandt instead focus primarily on gains in life expectancy at birth. They find that, along this metric, inequality in mortality has fallen significantly in recent years, and that the gains in life expectancy have been widely shared. Given the impact of childhood health on health later in life, these findings suggest “today’s children are likely to face considerably less inequality in mortality as they age than current adults.” Despite the headlines, there have been impressive gains in life expectancy and reductions in mortality in recent years, especially for children.

There are three different methods of analyzing inequality in mortality: across counties, by educational attainment, and by career earnings. The latter two approaches have been more commonplace in the recent literature. As the authors note, analyzing by education suffer from changes in the underlying composition of the categories they are using. In people with only a high school education in 2010 was much different than the group with the same level of educational attainment twenty years ago. Using relative income levels runs into some data limitations and problems with reverse causality, in that some cases poverty or limited might be caused by health issues instead of the other way around. For these reasons, the authors instead turn to the third method and analyze inequality in mortality by geographic region, counties in this case.

One of their most important findings is that over the twenty year period 1990 to 2010, life expectancy at birth increased everywhere for both men and women, from the most poverty-stricken counties to the most prosperous locales in the country.  The rising tide of life expectancy at birth lifted all boats.

Life Expectancy at Birth across County Poverty Percentiles, 1990-2010

 

Source: Currie and Schwandt.

In the first decade they analyze (1990-2000), there were greater reductions in mortality in poorer counties for both young children (under 5) and older children (5 to 19) than in richer ones, leading to a reduction in mortality inequality at the same time overall income inequality was increasing. Even in the working age group (20 to 49) men in poorer counties experienced significant declines in mortality while those in richer ones did not. The exception to this trend was in the group over age 50. Here the authors corroborate some of the earlier studies, where gains in life expectancy were larger in richer counties, even as all counties saw improvements over the twenty year period.

The authors also extend their analysis to age and race-specific mortality, and here there are more positive developments, with a “truly remarkable reduction in black mortality rates” for children under five from 1990 to 2000, with smaller but still notable gains in the second decade. For people over 50, mortality rates fell for every race and gender category they investigated. The exception to these broad-based gains is for white women between ages 20 to 59. Mortality rates for this group stagnated, and in some poorer counties even increased, over the twenty year period, echoing findings from some earlier studies like this one from Anne Case and Angus Deaton.

These different trends in different age cohorts and locations cut against attempts to explain them through any one mechanism, like changes in income inequality. This paper also offers a respite from the drumbeat of studies highlighting increases in mortality inequality at older ages, and some evidence that the better outcomes the authors observe for younger age cohorts will continue, and they “may well be healthier and suffer less mortality inequality in the future.” While analyses of mortality rates and life expectancy are always valuable due to their implications for a wide range of policy spheres, studies like this one can be even more important as a counterbalance to the news and a political landscape that can sometimes seem so unrelentingly bleak. 

Donald Trump is headed toward the Republican Party’s presidential nomination. He’s among the most pugnacious of candidates.

Many of his political battles could reduce his chance of getting elected president. But his fight with foreign policy professionals might help. Given the disastrous course of U.S. foreign policy in recent years, there’s little public support for more military adventurism in the Middle East.

Trump clearly is out-of-step with the neoconservatives and militaristic interventionists who dominated the Republican Party of late. One of Trump’s most important pledges addressed personnel, not policy

He declared: “My goal is to establish a foreign policy that will endure for several generations. That’s why I also look and have to look for talented experts with approaches and practical ideas, rather than surrounding myself with those who have perfect resumes but very little to brag about except responsibility for a long history of failed policies and continued losses at war. We have to look for new people.”

Trump may have been reacting against the open letter from 117 self-described members of “the Republican national security community,” including leading neoconservatives and right-leaning interventionists of other stripes. They denounced Trump as “fundamentally dishonest,” acting like “a racketeer,” being “hateful,” and having a vision that “is wildly inconsistent and unmoored in principle.” Their critique contained important truths, but was fueled by Trump’s lack of enthusiasm for new wars.

Trump’s promise to ignore the usual foreign policy suspects also may reflect media coverage of some members of the very same policy elite publicly stating their willingness to serve Trump—though only reluctantly, of course. An unnamed GOP official told the Washington Post: “Leaving any particular president completely alone and bereft from the best advice people could give him just doesn’t sound responsible.”

Of course, it’s all about advancing the national interest, and not gaining attractive, influential, prestigious, and career-enhancing jobs. No wonder Trump apparently sees no need for advice from such folks.

Author Evan Thomas defended the “global corps of diplomats, worldly financiers and academics.” Thomas seemed to miss Trump’s point. Trump endorsed diplomacy, which would require the assistance of a variety of seasoned professionals.

Not needed, however, are “advisers” with the reverse Midas Touch, whose counsel has proved to be uniformly disastrous. Indeed, every recent intervention, such as Iraq, has created new problems, creating calls from the usual suspects for more military action.

Trump may be feeling especially dismissive of those who never learn from their mistakes—like supporting the wars in Iraq and Libya, for instance. In August 2011, after the ouster of Moammar Khadafy, Anne-Marie Slaughter celebrated the success in an article entitled “Why Libya skeptics were proved badly wrong.” Once that country imploded and the Islamic State made an appearance, she dropped any discussion of who had been “proved badly wrong” by that conflict.

Samantha Power later criticized the public for losing its faith in her strategy of constant war: “I think there is too much of, ‘Oh, look, this is what intervention has wrought’ … one has to be careful about overdrawing lessons.”

Of course, what she really sought was to avoid responsibility for supporting multiple foreign policy blunders. As I wrote in Forbes online, “consider what the Iraq invasion has wrought: thousands of American dead, bloody sectarian war, promiscuous suicide attacks, hundreds of thousands of Iraqis killed, trillions of dollars squandered, rise of the Islamic State, destruction of the historic Christian community, dramatic increase in Iranian influence. Why should anyone listen to such people with such ideas?”

There are many reasons to fear Donald Trump’s candidacy. However, he is right to dismiss Washington’s interventionist foreign policy crowd. Their policies have cost America precious lives, abundant wealth, international credibility, and global influence. The next president should reject the same failed advisers with their same failed proposals.

The Supreme Court issued a short, unanimous opinion in the contraceptive-mandate cases known as Zubik v. Burwell. There’s plenty of punditry out there for you to read so I’ll just offer three thoughts:

1. This was the biggest punt in Supreme Court history.

The Court abdicated its duty to say what the law is in favor of wiping the slate clean and telling the lower courts to facilitate a settlement between the parties. This is a cop-out. If the justices were hopelessly deadlocked 4-4 regarding the legal issue presented in the case – whether there was a way for the government to achieve its free-contraceptives-for-all goal in a way less-burdensome on religious employers – then they should’ve held the case for reargument at such a time as there’s a ninth justice to provide the tie-breaking vote.

2. The challengers win.

Although the opinion goes out of its way to state that the Court takes no position on the questions of whether (a) the contraceptive mandate poses a “substantial burden” on religious free exercise, (b) the government’s interest was compelling, and (c) the current regulations are the least-restrictive means of achieving that interest, it’s clear that the justices think that the government and nonprofit challengers are close enough in their legal positions that they can just “work it out.” In other words, after an unusual round of supplemental briefing wherein the Court asked the parties to speculate on what kinds of regulations might avoid involving religious employers in what they consider to be sinful behavior, the justices think there may well be a workable solution: simply have the employers object and let the government handle the rest (dealing with insurers and otherwise). Even Justices Sotomayor and Ginsburg, who concurred specially to protest (too much?) that lower courts should be free to continue ruling for the government, essentially accepted the “I object” solution so long as the resulting insurance/contraceptive coverage is “seamless.” 

If that’s correct, then the Court has essentially conceded that the challengers should have won their claim under the Religious Freedom Restoration Act – wherein, as the Hobby Lobby case showed two years ago, the government loses if there’s a way it can achieve its goal in a way that imposes less of a burden on the religious rights of the objecting parties. So really, the end result, assuming the lower courts don’t engage in a bout of judicial disobedience (not a slam-dunk assumption given how some courts have treated the Second Amendment in the wake of Supreme Court rulings in that regard) should be the same as if the Court, with Justice Scalia, had ruled 5-4 for the Little Sisters et al.

3. The legal precedent doesn’t matter.

RFRA is an unusual statute in that it’s meant to be applied case-by-case, so a ruling in favor of peyote-smokers says nothing about how judges should rule regarding prison beards – or objectors to contraceptive mandates. Contra the progressive alarmists in the wake of Hobby Lobby, a successful RFRA claim regarding one aspect of Obamacare implementation doesn’t mean that left-handed lesbians now have to sit in the back of the bus (or however the tired parade of horribles went). So even though the Court declined to adopt my argument (or any other) in the case, it doesn’t mean that our liberties are diminished in future or that the government can exceed its lawful powers in some future case.

In sum, the wily chief justice persuaded his colleagues to go in for a non-judicial non-decision. I may like the practical result here, but this isn’t law.

People criticize business subsidies because they harm taxpayers. But there is another group harmed by business subsidies: the recipients. Government welfare for low-income families induces unproductive behaviors, but the same is true for companies taking corporate welfare.

When subsidized, businesses get lazy and less agile. Their cost structures get bloated, and they make decisions divorced from market realities. Lobbying replaces innovation.

Corporate leaders get paid the big bucks for their decisionmaking skills, yet many of them get duped by politicians promoting faddish subsidy schemes.

From the Wall Street Journal yesterday:

A Mississippi power plant intended as a showcase for clean-coal technology has turned into a costly mess for utility Southern Co., which is now facing an investigation by the Securities and Exchange Commission, a lawsuit from unhappy customers and a price tag that has more than doubled to $6.6 billion.

The power plant, financed in part with federal subsidies, aims to take locally mined coal, convert it into a flammable gas and use it to make electricity.

Conceived as a first-of-a-kind plant, it currently looks to be the last of its kind in the U.S., though China and other nations have expressed interest in the technology. Kemper costs have swelled to $6.6 billion, far above the $3 billion forecast in 2010.

A former Kemper project manager said he was let go after complaining to top company officials that public estimates for the project’s completion were unrealistic and misleading.

Brett Wingo, who was a project manager for the gasification portion of the plant, said he thinks the company put a positive spin on construction so it wouldn’t have to acknowledge to investors it was likely to lose federal subsidies due to delays.

To date, Southern has paid back $368 million in federal tax credits for missing deadlines, but believes it will be able to keep $407 million in grants from the Energy Department.

My advice to corporate leaders: don’t take corporate welfare. Grabbing hand-outs will undermine your cost control, induce you to make bad investments, and distract you from serving your customers. Subsidies will make you weaker.

More on Southern’s subsidized coal blunder see here.

Under our criminal justice system, ignorance of the law is no defense.  But what if the law is undefined?  Or what if it seems to change with every new case that’s brought?  What if unelected judges (with life tenure) started to invent crimes, piece by piece, case by case?  Holding people accountable for knowing the law is just only if the law is knowable, and only if those creating the law are accountable to the people. 

On Friday, Cato filed an amicus brief in Salman v. U.S. that is aimed at limiting the reach of just such an ill-defined, judicially created law. “Insider trading” is a crime that can put a person away for more than a decade, and yet this crime is judge-made and, as such, is ever-changing. Although individuals may know generally what is prohibited, the exact contours of the crime have remained shrouded, creating traps for the unwary.

The courts, in creating this crime, have relied on a section of the securities laws that prohibits the use of “any manipulative or deceptive device or contrivance” in connection with the purchase or sale of a security. The courts’ rationale has been that by trading on information belonging to the company, and in violation of a position of trust, the trader has committed a fraud.  The law, however, does not mention “insiders” or “insider trading.”  And yet, in 2015 alone, the Securities and Exchange Commission (SEC) charged 87 individuals with insider trading violations.  

Broadly speaking, insider trading occurs when someone uses a position of trust to gain information about a company and later trades on that company, without permission, to receive a personal benefit.  But what constitutes a “benefit”?  The law doesn’t say.

Left to their own devices, the SEC has pushed the boundaries of what constitutes a “benefit,” making it more and more difficult for people to know when they are breaking the law.  In the case currently before the Court, Bassam Salman was charged with trading on information he received from his future brother-in-law, Mounir Kara, who had, in turn, received the information from his own brother, Maher.  The government has never alleged that Maher Kara received anything at all from either his brother or Salman in exchange for the information.  The government has instead claimed that the simple familial affection the men feel for each other is the “benefit.”  Salman’s trade was illegal because he happens to love the brothers-in-law who gave him the inside information.

Under this rationale, a person who trades on information received while making idle talk in a grocery line would be safe from prosecution while the same person trading on the same information heard at a family meal would be guilty of a felony.  Or maybe not.  After all, if we construe “benefit” this broadly, why not say that whiling away time chit-chatting in line is a “benefit”?    

No one should stumble blindly into a felony.  We hope the Court will take this opportunity to clarify the law and return it to its legislative foundation.  Anything else courts tyranny. 

In January, the International Monetary Fund (IMF) told us that Venezuela’s annual inflation rate would hit 720 percent by the end of the year. The IMF’s World Economic Outlook, which was published in April, stuck with the 720 percent inflation forecast. What the IMF failed to do is tell us how they arrived at the forecast. Never mind. The press has repeated the 720 percent inflation forecast ad nauseam.

Since the IMF’s 720 percent forecast has been elevated to the status of a factoid, it is worth a bit of reflection and analysis. We can reverse engineer the IMF’s inflation forecast to determine the Bolivar to U.S. greenback exchange rate implied by the inflation forecast.

When we conduct that exercise, we calculate that the VEF/USD rate moves from today’s black market (read: free market) rate of 1,110 to 6,699 by year’s end. So, the IMF is forecasting that the bolivar will shed 83 percent of its current value against the greenback by New Year’s Day, 2017. The following chart shows the dramatic plunge anticipated by the IMF.

Changes in the general level of prices are capable, as we’ve seen, of eliminating shortages or surpluses of money, by adding to or subtracting from the purchasing power of existing money holdings.  But because such changes place an extra burden on the price system, increasing the likelihood that individual prices will fail to accurately reflect the true scarcity of different goods and services at any moment, the less they have to be relied upon, the better.  A better alternative, if only it can somehow be achieved, or at least approximated, is a monetary system that adjusts the stock of money in response to changes in the demand for money balances, thereby reducing the need for changes in the general level of prices.

Please note that saying this is not saying that we need to have a centrally-planned money supply, let alone one that’s managed by a committee that’s unconstrained by any explicit rules or commitments.  Whether such a committee would in fact come closer to the ideal I’m defending than some alternative arrangement is a crucial question we must come to later on.  For now I will merely observe that, although it’s true that unconstrained central monetary planners might manage the money stock according to some ideal, that’s only so because there’s nothing that such planners might not do.

The claim that an ideal monetary regime is one that reduces the extent to which changes in the general level of prices are required to keep the quantity of money supplied in agreement with the quantity demanded might be understood to imply that what’s needed to avoid monetary troubles is a monetary system that avoids all changes to the general level of prices, or one that allows that level to change only at a steady and predictable rate.  We might trust a committee of central bankers to adopt such a policy.  But then again, we could also insist on it, by eliminating their discretionary powers in favor of having them abide by a strict stable price level (or inflation rate) mandate.

Monetary and Non-Monetary Causes of Price-Level Movements

But things aren’t quite so simple.  For while changes in the general price level are often both unnecessary and undesirable, they aren’t always so.  Whether they’re desirable or not depends on the reason for the change.

This often overlooked point is best brought home with the help of the famous “equation of exchange,” MV = Py.   Here, M is the money stock, V is its “velocity” of circulation, P is the price level, and y is the economy’s real output of goods and services.  Since output is a flow, the equation necessarily refers to an interval of time.  Velocity can then be understood as representing how often a typical unit of money is traded for output during that interval.  If the interval is a year, then both Py and MV stand for the money value of output produced during that year or, alternatively, for that years’ total spending.

From this equation, it’s apparent that changes in the general price level may be due to any one of three underlying causes: a change in the money stock, a change in money’s velocity, or a change in real output.

Once upon a time, economists (or some of them, at least) distinguished between changes in the price level made necessary by developments in the “goods” side of the economy, that is, by changes in real output that occur independently of changes in the flow of spending, and those made necessary by changes in that flow, that is, in either the stock of money or its velocity.   Deflation — a decline in the equilibrium price level — might, for example, be due to a decline in the stock of money, or in its velocity, either of which would mean less spending on output.  But it could also be due to a greater abundance of goods that, with spending unchanged, must command lower prices.  It turns out that, while the first sort of deflation is something to be regretted, and therefore something that an ideal monetary system should avoid, the second isn’t.  What’s more, attempts to avoid the second, supply-driven sort of deflation can actually end up doing harm.  The same goes for attempts to keep prices from rising when the underlying cause is, not increased spending, but reduced real output of goods and services.  In short, what a good monetary system ought to avoid is, not fluctuations in the general price level or inflation rate per se, but fluctuations in the level or growth rate of total spending.

Prices Adjust Readily to Changes in Costs

But what about those “sticky” prices?  Aren’t they a reason to avoid any need for changes in the price level, and not just those changes made necessary by underlying changes in spending?  It turns out that they aren’t, for a number of reasons.[1]

First of all, whether a price is “sticky” or not depends on why it has to adjust.  When, for example, there’s a general decline in spending, sellers have all sorts of reasons to resist lowering their prices.  If the decline might be temporary, sellers would be wise to wait and see before incurring price-adjustment costs.  Also, sellers will generally not profit by lowering their prices until their own costs have also been lowered, creating what Leland Yeager calls a “who goes first” problem.  Because the costs that must themselves adjust downwards in order for sellers to have a strong motive to follow suit include very sticky labor costs, the general price level may take a long time “groping” its way (another Yeager expression) to its new, equilibrium level.  In the meantime, goods and services, being overpriced, go unsold.

When downward pressure on prices comes from an increase in the supply of goods, and especially when the increase reflects productivity gains, the situation is utterly different.  For gains in productivity are another name for falling unit costs of production; and for competing sellers to reduce their products’ prices in response to reduced costs is relatively easy.  It is, indeed, something of a no-brainer, because it promises to bring a greater market share, with no loss in per-unit profits.  Heck, companies devote all sorts of effort to being able to lower their costs precisely so that they can take advantage of such opportunities to profitably lower their prices.  By the same token, there is little reason for sellers to resist raising prices in response to adverse supply shocks. The widespread practice of “mark-up pricing” supplies ample proof of these claims.  Macroeconomic theories and models (and their are plenty of them, alas) that simply assign a certain “stickiness” parameter to prices, without allowing for the possibility that they respond more readily to some underlying changes than to others, lead policymakers astray by overlooking this important fact.

A Changing Price Level May be Less “Noisy” Than a Constant One

Because prices tend to respond relatively quickly to productivity gains and setbacks, there’s little to be gained by employing monetary policy to prevent their movements related to such gains or setbacks.  On the contrary: there’s much to lose, because productivity gains and losses tend to be uneven across firms and industries, making any resulting change to the general price level a mere average of quite different changes to different equilibrium prices.  Economists’ tendency — and it hard to avoid — to conflate a “general” movement in prices, in the sense of a change in their average level, with a general movement in the across-the-board sense, is in this regard a source of great mischief.  A policy aimed at avoiding what is merely a change in the average, stemming from productivity innovations, increases instead of reducing the overall burden of price adjustment, introducing that much more “noise” into the price system.

Nor is it the case that a general decline or increase in prices stemming from productivity gains or setbacks itself conveys a noisy signal.  On the contrary: if things are generally getting cheaper to produce, a falling price level conveys that fact of reality in the most straightforward manner possible.  Likewise, if productivity suffers — if there is a war or a harvest failure or OPEC-inspired restriction in oil output or some other calamity — what better way to let people know, and to encourage them to act economically, than by letting prices generally go up?  Would it really help matters if, instead of doing that, the monetary powers-that-be decided to shrink the money stock, and thereby MV, for the sake of keeping the price level constant?  Yet that is what a policy of strict price-level stability would require.

Reflection on such scenarios ought to be enough to make even the most die-hard champion of price-level or inflation targeting reconsider.  But in case it isn’t, allow me to take still another tack, by observing that, when policymakers speak of stabilizing the price level or the rate of inflation, they mean stabilizing some measure of the level of output prices, such as the Consumer Price Index, or the GDP deflator, or the current Fed favorite, the PCE (“Personal Consumption Expenditure”) price-index.  So long as changes in total spending (“aggregate demand”) are the only source of changes in the overall level of prices,  those changes will tend to affect input as well as output prices, so policies that stabilize output prices will also tend to stabilize input prices.   General changes in productivity, in contrast, necessarily imply changes in the relation of input to output prices: general productivity gains (meaning gains in numerous industries that outweigh setbacks in others) mean that output prices must decline relative to input prices; while general productivity setbacks mean that output prices must increase relative to input prices.  In such cases, to stabilize output prices is to destabilize input prices, and vice versa.

So, which?  Appeal to menu costs supplies a ready answer: if a burden of price adjustment there must be, let the burden fall on the least sticky prices.  Since “input” prices include wages and salaries, that alone makes a policy that would impose the burden on them a poor choice, and a dangerous one at that.  As we’ve seen, it means adding insult to injury during productivity setbacks, when wage earners would have to take cuts (or settle for smaller or less frequent raises).  It also increases the risk of productivity gains being associated with asset-price bubbles, because those gains will inspire corresponding boosts to aggregate demand which, in the presence of sticky input prices, can cause profits to swell temporarily.  Unless the temporary nature of the extraordinary profits is recognized, asset prices will be bid up, but only for as long as it takes for costs to clamber their way upwards in response to the overall increase in spending.

What About Debtor-Creditor Transfers?

But if the price level is allowed to vary, and to vary unexpectedly, doesn’t that mean that the terms of fixed-interest rate contracts will be distorted, with creditors gaining at debtors expense when prices decline, and the opposite happening when they rise?

Usually it does; but, when price-level movements reflect underlying changes in productivity, it doesn’t.  That’s because productivity changes tend to be associated with like changes in  “neutral” or “full information” interest rates.  Suppose that, with each of us anticipating a real return on capital of four percent, and zero inflation, I’d happily lend you, and you’d happily borrow, $1000 at four percent interest.  The anticipated real interest rate is of course also four percent.  Now suppose that productivity rises unexpectedly, raising the actual real return on capital by two percentage points, to six percent rather than four percent.  In that case, other things equal, were I able to go back and renegotiate the contract, I’d want to earn a real rate of six percent, to reflect the higher opportunity cost of lending.  You, on the other hand, can also employ your borrowings more productively, or are otherwise going to be able (as one of the beneficiaries of the all-around gain in productivity) to bear a greater real interest-rate burden, other things equal, and so should be willing to pay the higher rate.

Of course, we can’t go back in time and renegotiate the loan.  So what’s the next best thing?  It is to let the productivity gains be reflected in proportionately lower output prices — that is, in a two percent decline in the the price level over the course of the loan period — and thus in an increase, of two percentage points, in the real interest rate corresponding to the four percent nominal rate we negotiated.

The same reasoning applies, mutatis mutandis, to the case of unexpected, adverse changes in productivity.  Only the argument for letting the price level change in this case, so that an unexpected increase in prices itself compensates for the unexpected decline in productivity, is even more compelling.  Why is that?  Because, as we’ve seen, to keep the price level from rising when productivity declines, the authorities would have to shrink the flow of spending.  Ask yourself whether doing that will make life easier or harder for debtors with fixed nominal debt contracts, and you’ll see my point.

Next: The Supply of Money

_____________________________

[1] What follows is a brief summary of arguments I develop at greater length in my 1997 IEA pamphlet, Less Than Zero.  In that pamphlet I specifically make the case for a rate of deflation equal to an economies (varying) rate of total factor productivity growth.  But the arguments may just as well be read as supplying grounds for preferring a varying yet generally positive inflation rate to a constant rate.

[Cross-posted from Alt-M.org]

May 16, 1966, is regarded as the beginning of Mao Zedong’s Cultural Revolution in China. Post-Maoist China has never quite come to terms with Mao’s legacy and especially the disastrous Cultural Revolution

Many countries have a founding myth that inspires and sustains a national culture. South Africa celebrates the accomplishments of Nelson Mandela, the founder of that nation’s modern, multi-racial democracy. In the United States, we look to the American Revolution and especially to the ideas in the Declaration of Independence of July 4, 1776. 

The Declaration of Independence, written by Thomas Jefferson, is the most eloquent libertarian essay in history, especially its philosophical core:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The ideas of the Declaration, given legal form in the Constitution, took the United States of America from a small frontier outpost on the edge of the developed world to the richest country in the world in scarcely a century. The country failed in many ways to live up to the vision of the Declaration, notably in the institution of chattel slavery. But over the next two centuries, that vision inspired Americans to extend the promises of the Declaration—life, liberty, and the pursuit of happiness—to more and more people.

China, of course, followed a different vision, the vision of Mao Zedong. Take Mao’s speech on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, and unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning, it went terribly wrong, as should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness” in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

When Mao died in 1976, China changed rapidly. His old comrade Deng Xiaoping, a victim of the Cultural Revolution, had learned something from the 30 years of calamity. He began to implement policies he called “socialism with Chinese characteristics,” which looked a lot like freer markets: decollectivization and the “responsibility system” in agriculture, privatization of enterprises, international trade, liberalization of residency requirements.

The changes in China over the past generation are the greatest story in the world—more than a billion people brought from totalitarianism to a largely capitalist economic system that is eroding the continuing authoritarianism of the political system. On its 90th birthday, the CCP still rules China with an iron fist. There is no open political opposition, and no independent judges or media. And yet the economic changes are undermining the party’s control, a challenge of which the party is well aware. In 2008, Howard W. French reported in the New York Times:

Political change, however gradual and inconsistent, has made China a significantly more open place for average people than it was a generation ago.

Much remains unfree here. The rights of public expression and assembly are sharply limited; minorities, especially in Tibet and Xinjiang Province, are repressed; and the party exercises a nearly complete monopoly on political decision making.

But Chinese people also increasingly live where they want to live. They travel abroad in ever larger numbers. Property rights have found broader support in the courts. Within well-defined limits, people also enjoy the fruits of the technological revolution, from cellphones to the Internet, and can communicate or find information with an ease that has few parallels in authoritarian countries of the past.

The Chinese Communist Party remains in control. And there’s a resurgence of Maoism under the increasingly authoritarian rule of Xi Jinping, as my former colleague Jude Blanchette is writing about. But at least one study finds ideological groupings in China divided between statists who are both socialist and culturally conservative, and liberals who tend toward “constitutional democracy and individual liberty, … market-oriented reform … modern science and values such as sexual freedom.” 

Xi’s government struggles to protect its people from acquiring information, routinely battling with Google, Star TV, and other media. Howard French noted that “the country now has 165,000 registered lawyers, a five-fold increase since 1990, and average people have hired them to press for enforcement of rights inscribed in the Chinese Constitution.” People get used to making their own decisions in many areas of life and wonder why they are restricted in other ways. I am hopeful that the 100th anniversary of the CCP in 2021 will be of interest mainly to historians of China’s past and that the Chinese people will by then enjoy life, liberty, and the pursuit of happiness under a government that derives its powers from the consent of the governed. 

Computer modeling plays an important role in all of the sciences, but there can be too much of a good thing. A simple semantic analysis indicates that climate science has become dominated by modeling. This is a bad thing.

What we did

We found two pairs of surprising statistics. To do this we first searched the entire literature of science for the last ten years, using Google Scholar, looking for modeling. There are roughly 900,000 peer reviewed journal articles that use at least one of the words model, modeled or modeling. This shows that there is indeed a widespread use of models in science. No surprise in this.

However, when we filter these results to only include items that also use the term climate change, something strange happens. The number of articles is only reduced to roughly 55% of the total.

In other words it looks like climate change science accounts for fully 55% of the modeling done in all of science. This is a tremendous concentration, because climate change science is just a tiny fraction of the whole of science. In the U.S. Federal research budget climate science is just 4% of the whole and not all climate science is about climate change.

In short it looks like less than 4% of the science, the climate change part, is doing about 55% of the modeling done in the whole of science. Again, this is a tremendous concentration, unlike anything else in science.

We next find that when we search just on the term climate change, there are very few more articles than we found before. In fact the number of climate change articles that include one of the three modeling terms is 97% of those that just include climate change. This is further evidence that modeling completely dominates climate change research.

To summarize, it looks like something like 55% of the modeling done in all of science is done in climate change science, even though it is a tiny fraction of the whole of science. Moreover, within climate change science almost all the research (97%) refers to modeling in some way.

This simple analysis could be greatly refined, but given the hugely lopsided magnitude of the results it is unlikely that they would change much.

What it means

Climate science appears to be obsessively focused on modeling. Modeling can be a useful tool, a way of playing with hypotheses to explore their implications or test them against observations. That is how modeling is used in most sciences.

But in climate change science modeling appears to have become an end in itself. In fact it seems to have become virtually the sole point of the research. The modelers’ oft stated goal is to do climate forecasting, along the lines of weather forecasting, at local and regional scales.

Here the problem is that the scientific understanding of climate processes is far from adequate to support any kind of meaningful forecasting. Climate change research should be focused on improving our understanding, not modeling from ignorance. This is especially true when it comes to recent long term natural variability, the attribution problem, which the modelers generally ignore. It seems that the modeling cart has gotten far ahead of the scientific horse.

Climate modeling is not climate science. Moreover, the climate science research that is done appears to be largely focused on improving the models. In doing this it assumes that the models are basically correct, that the basic science is settled. This is far from true.

The models basically assume the hypothesis of human-caused climate change. Natural variability only comes in as a short term influence that is negligible in the long run. But there is abundant evidence that long term natural variability plays a major role climate change. We seem to recall that we have only very recently emerged from the latest Pleistocene glaciation, around 11,000 years ago.

Billions of research dollars are being spent in this single minded process. In the meantime the central scientific question – the proper attribution of climate change to natural versus human factors – is largely being ignored.

I spent the latter part of last week on a too-short trip to Alicante, Spain, to present some of my latest work on the reuse of former defense facilities in the United States. The occasion was a conference on “Defence Heritage” – the third since 2012 – hosted by the Wessex Institute (.pdf) in which scholars from more than a dozen countries shared their findings about how various defense installations around the world have been repurposed for everything from recreational parks to educational institutions to centers of business and enterprise.

This sort of research is sorely needed as Congress appears poised to deny the Pentagon’s request to close unneeded or excess bases. It is the fifth time that Congress has told the military that it must carry surplus infrastructure, and continue to misallocate resources where they aren’t needed, in order to protect narrow parochial interests in a handful of congressional districts that might house an endangered facility.

In a cover letter to a new Pentagon report that provides ample justification for the need to close bases, Deputy Secretary of Defense Robert Work explained:

Under current fiscal restraints, local communities will experience economic impacts regardless of a congressional decision regarding BRAC authorization. This has the harmful and unintended consequence of forcing the Military Departments to consider cuts at all installations, without regard to military value. A better alternative is to close or realign installations with the lowest military value. Without BRAC, local communities’ ability to plan and adapt to these changes is less robust and offers fewer protections than under BRAC law.

Work is almost certainly correct. But in my latest post at The National Interest’s The Skeptics, I urge him “and other advocates for another BRAC round” not to “limit themselves to green-eyeshade talk of cost savings and greater efficiency. They must also show how former defense sites don’t all become vast, barren wastelands devoid of jobs and people.”

It obviously isn’t enough to stress the potential savings, even though the savings are substantial. The DoD report estimates that the five BRAC rounds, plus the consolidation of bases in Europe, have generated annual recurring savings of $12.5 billion, and that a new BRAC round would save an additional $2 billion per year, after a six-year implementation period. A GAO study conducted in 2002 concluded that “BRAC savings are real and substantial and are related to cost reduction in key operational areas.”

Members of Congress who are uninterested in such facts, and who remain adamantly opposed to any base closures, anywhere, should consider what has actually happened to many of the bases dealt with during the five BRAC rounds, and the hundreds of other bases closed in the 1950s and 60s, before there was a BRAC. 

They don’t have to go far. They could start by speaking with the Association of Defense Communities and the Pentagon’s Office of Economic Adjustment, who keep track of these stories.

House Armed Services Committee Chairman Mac Thornberry (R-TX) could visit Austin-Bergstrom International Airport in Austin, Texas. He probably has, many times. The closure of Bergstrom Air Force Base was a thinly disguised blessing for a city that had struggled for years to find an alternative for its inadequate regional airport. Austin-Bergstrom today services millions of passengers, and has won awards for its design and customer service.

Sen. Kelly Ayotte (R-NH), Chair of the Senate Armed Services Readiness Subcommittee, might stop by the former Pease Air Force Base in Portsmouth, New Hampshire, during one of her trips home. One of the very first bases closed under the BRAC process, the sprawling site still hosts several massive runways, and the 157th Air Refueling Wing of the Air National Guard. But the base has chiefly been reborn as the Pease International Tradeport, which is now home to over 250 businesses that employ more than 10,000 people.

And both would benefit from a visit to the former Brunswick Naval Air Station in my home state of Maine. They used to launch P-3 submarine-hunting airplanes (pictured), now they host dozens of businesses, including 28 start-ups in a new business incubator, TechPlace, that opened 14 months ago. 

It’s particularly lovely in the summer time, if you don’t mind all the tourists. If they go, Thornberry and Ayotte should talk to some of the people who are responsible for its rapid turnaround, including Steve Levesque, the Executive Director of the Midcoast Regional Redevelopment Authority (MRRA), who contributed a chapter in this forthcoming volume on the renovation and reuse of former military sites, and Jeffrey Jordan, the MRRA’s Deputy Director, who I interviewed in 2014. I’m sure they’d be happy to show HASC and SASC members around Brunswick Landing.

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

Badges? Do we need these stinking badges?

Need, perhaps not, but apparently some of us actually want them and will go to lengths to get them. We‘re not talking about badges for say, for example, being a Federal Agent At-Large for the Bureau of Narcotics and Dangerous Drugs:

 

(source: Smithsonianmag.org)

But rather badges like these, being given out by the editors of Psychological Journal for being a good data sharer and playing well with others:

A new paper, authored by Mallory Kidwell and colleagues, examined the impact of the Psychological Journal’s badge/award system and found it to be quite effective at getting authors to make their data and material available to others via an open access repository. Compared with four “comparison journals,” the implementation of the badge system at Psychological Journal led to a rapidly rising rate of participation and level of research transparency (Figure 1).

Figure 1. Percentage of articles reporting open data by half year by journal. Darker line indicates Psychological Science, and dotted red line indicates when badges were introduced in Psychological Science and none of the comparison journals. (Source: Kidwell et al., 2016).

Why is this important? They authors explain:

Transparency of methods and data is a core value of science and is presumed to help increase the reproducibility of scientific evidence. However, sharing of research materials, data, and supporting analytic code is the exception rather than the rule. In fact, even when data sharing is required by journal policy or society ethical standards, data access requests are frequently unfulfilled, or available data are incomplete or unusable. Moreover, data and materials become less accessible over time. These difficulties exist in contrast to the value of openness in general and to the move toward promoting or requiring openness by federal agencies, funders, and other stakeholders in the outcomes of scientific research.

For an example of data protectionism taken to the extreme, we remind you of the Climategate email tranche, where you’ll find gems like this:

“We have 25 or so years invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it.”
-Phil Jones email Feb. 21, 2005

This type of attitude, on display throughout the Climategate emails, makes the need for a push for more transparency plainly evident.

Kidwell et al. conclude that the badge system, as silly as it may seem, actually works quite well:

Badges may seem more appropriate for scouts than scientists, and some have suggested that badges are not needed. However, actual evidence suggests that this very simple intervention is sufficient to overcome some barriers to sharing data and materials. Badges signal a valued behavior, and the specifications for earning the badges offer simple guides for enacting that behavior. Moreover, the mere fact that the journal engages authors with the possibility of promoting transparency by earning a badge may spur authors to act on their scientific values. Whatever the mechanism, the present results suggest that offering badges can increase sharing by up to an order of magnitude or more. With high return coupled with comparatively little cost, risk, or bureaucratic requirements, what’s not to like?

The entire findings of Kidwell et al. are to be found here, in the open access journal PLOS Biology—and yes, they’ve made all their material readily available!

Another article that caught our eye this week provides further indication why transparency in science is more necessary than ever. In a column in Nature magazine, Daniel Sarewitz, suggests that the pressure to publish has the tendency to result in lower quality papers through what he describes as “a destructive feedback between the production of poor-quality science, the responsibility to cite previous work and the compulsion to publish.” He cites and example of a contaminated cancer cell line that gave rise to hundreds of (wrong) published studies which receive over 10,000 citations per year. Sarewitz points to the internet and other search engines for the hyper citations which make doing literature searches vastly easier than the old days, which required a trip to the library stacks and lots of flipping through journals, etc.  Now, not so much.

Sarewitz doesn’t see this rapid expansion of the scientific literature and citation numbers as a good trend, and offers an interesting way out:

More than 50 years ago, [it was] predicted that the scientific enterprise would soon have to go through a transition from exponential growth to “something radically different”, unknown and potentially threatening. Today, the interrelated problems of scientific quantity and quality are a frightening manifestation of what [was foreseen]. It seems extraordinarily unlikely that these problems will be resolved through the home remedies of better statistics and lab practice, as important as they may be. Rather, they would seem …to announce that the enterprise of science is evolving towards something different and as yet only dimly seen.

Current trajectories threaten science with drowning in the noise of its own rising productivity… Avoiding this destiny will, in part, require much more selective publication. Rising quality can thus emerge from declining scientific efficiency and productivity. We can start by publishing less, and less often…

With the publish or perish culture securely ingrained in our universities, coupled with evaluation systems based on how often your research is cited by others, its hard to see Sarewitz’s suggestion taking hold anytime soon, as good as it may be.

In the same vein is this article by Paula Stephan and colleagues titled “Bias against novelty in science: A cautionary tale for users of bibliometric indicators.” Here the authors make the point that:

There is growing concern that funding agencies that support scientific research are increasingly risk-averse and that their competitive selection procedures encourage relatively safe and exploitative projects at the expense of novel projects exploring untested approaches. At the same time, funding agencies increasingly rely on bibliometric indicators to aid in decision making and performance evaluation.

This situation, the authors argue, depresses novel research and instead encourages safe research that supports the status quo:

Research underpinning scientific breakthroughs is often driven by taking a novel approach, which has a higher potential for major impact but also a higher risk of failure.  It may also take longer for novel research to have a major impact, because of resistance from incumbent scientific paradigms or because of the longer time-frame required to incorporate the findings of novel research into follow-on research…

The finding of delayed recognition for novel research suggests that standard bibliometric indicators which use short citation time-windows (typically two or three years) are biased against novelty, since novel papers need a sufficiently long citation time window before reaching the status of being a big hit.

Stephan’s team ultimately concludes that this “bias against novelty imperils scientific progress.”

Does any of this sound familiar?

The American presidency has accumulated an unprecedented set of institutional advantages in the conduct of foreign policy. Unlike on the domestic side where presidents face an activist and troublesome Congress, the Constitution, the bureaucratic and legal legacies of previous wars, the overreaction to 9/11, and years of assiduous executive branch privilege-claiming now afford the White House great latitude to run foreign policy without interference from Congress.

But one of the most tragic reasons for this situation stems from the abject failure of the marketplace of ideas to check the growth in executive power. In theory, the marketplace of ideas consists of free-wheeling debate over the ends and means of foreign policy and critical analysis of the ongoing execution of foreign policy that help the public and its political leaders to distinguish good ideas from poor ones. Philosophers since Immanuel Kant and John Stuart Mill have championed this dynamic. The Founding Fathers enshrined its logic in the First Amendment. Recent scholarship argues that the marketplace of ideas is central to the democratic peace and the ability of democracies to conduct smarter foreign policies than other nations.

In practice, however, today’s marketplace of ideas falls terribly short of this ideal.

The most famous recent example is the run up to the 2003 Iraq War. The Bush administration used an assortment of half-baked intelligence, exaggerations, and flat out lies about Iraqi WMD programs to urge the public into supporting the war. Shockingly, however, the national debate over the war was muted. Though false and based on flimsy evidence, the Bush administration’s claims received surprisingly little criticism. Reality reasserted itself, of course, as the failure to find any evidence of such programs made it clear that the administration had waged war under false pretenses. Where was the vaunted marketplace of ideas?

In an influential article in International Security written just after the 2003 Iraq War, political scientist Chaim Kaufmann argued that a good deal of the reason for the Bush administration’s ability to sell the war lay in the president’s institutional advantages. As president and Commander in Chief, Bush not only controlled the flow of critical intelligence information, he also enjoyed greater authority in the debate than his critics, allowing him to (falsely) frame the operation as part of the war on terrorism, thus taking advantage of the public’s outrage over the 9/11 attacks.

But Kaufmann (among many others) made another argument about why Bush succeeded: the news media simply failed to do its job. Indeed, after a review of its coverage of the run up to war, the New York Times editorial board took the unusual step of acknowledging it had failed in its core mission: “Looking back, we wish we had been more aggressive in re-examining the claims [about Iraqi WMD] as new evidence emerged – or failed to emerge.”

At this point, one might assume that more than a decade of intervention, chaos, and terrorism in the Middle East would have provided the news media with a powerful set of lessons. These lessons might include things like: scrutinize the basis for intervention; ask hard questions about the plans for what happens after the initial military operation ends, work to appreciate how U.S. actions affect the attitudes and actions of other people, groups, and nations around the world.

Unfortunately it does not appear that the news media has learned much if anything. President Obama has spent eight years talking about withdrawing the United States from the Middle East but has in fact expanded the military footprint of the United States. He has done so without much real debate in the mainstream news about the wisdom of his actions. Tellingly, what debate has occurred has focused on erroneous claims that Obama has appeased our enemies by withdrawing too much.

The figure below reveals some telling evidence of this sad state of affairs. Libya, Yemen, Afghanistan, and Syria all represent countries in which the United States is engaged in combat in various ways and at varying levels of intensity. Crucially, each represents a situation with the potential to involve the United States military in a bigger and messier conflict.

Figure 1. Stories per Newspaper per Month Mentioning Obama & U.S. Military & Country Name

 Source: New York Times, Washington Post, Wall Street Journal via Factiva

The figure indicates how often each month the three most important newspapers in the country (the New York Times, Washington Post, and Wall Street Journal) mention President Obama, the U.S. military, and the name of the country in the same story. In each case the newspapers are writing fewer stories per month in 2016 than they did in 2015 and the numbers over all are quite low. The average reader of one of these newspapers would have read just three stories about U.S. military involvement with Yemen, for example, assuming he or she was diligent enough to have caught all three stories over the past four and half months. 

This is no doubt an imperfect measure of the national debate about Obama’s foreign policy; it certainly fails to capture some of the other sources of information and debate. That said, it is difficult to imagine that the marketplace of ideas could be very robust without a good number of such stories in the mainstream news media. Moreover, this is something of a best-case metric for the marketplace since this figure only includes data from three newspapers that cover foreign affairs far more intensively than almost all other American news outlets.

For those who were hopeful that the American marketplace of ideas on foreign policy would improve as 9/11 receded into history, this comes as bad news. It suggests that the challenges to free-wheeling debate do not lie simply in emotional overreactions to terrorism, or to temporary Congressional obsequiousness to the White House. Recent concerns about presidential foreign policy narratives aside, it also suggests that the problem isn’t simply political spin. The problem is deeper than that. At root is a failure of the marketplace of ideas in at least one if not both of its most fundamental elements. The first possibility is that the news media in its current form – dominated by big corporations and yet weakened economically by the Internet, audience fragmentation, and increasing partisanship – is incapable of doing the job the marketplace of ideas requires of it. The second, even darker possibility, is that the public, the ultimate arbiter of what the news must look like, is simply uninterested in having the necessary debate required to force the White House to be honest and transparent about foreign policy.

The American Association of Motor Vehicle Administrators is the umbrella group for DMV bureaucrats across the nation. It’s a non-profit group, but it does more than earnestly educate government officials and the public about the nuances of driver licensing. Since the 1930s, it has advocated for increased government spending on licensing bureaucracy—and it has advocated against driver’s rights. (It’s all discussed in my book Identity Crisis.) That doesn’t mean AAMVA can’t have fun. Indeed, AAMVA’s social season gets underway next week.

You see, AAMVA is a growing business. A decade ago, when the Capitol Hill staffer with lead responsibility for the REAL ID Act came through AAMVA’s revolving door, I noted the dollar-per-driver fee it collects in the Commercial Driver Licensing system. That $13 million in revenue has surely grown since then.

AAMVA’s revenues will grow far more when it runs the back-end of the REAL ID system, potentially pulling in from three-and-a-quarter cents to five cents per driver in the United States. At 210 million licensed drivers, AAMVA could make upwards of ten million dollars per year.

To help that business flow, every year AAMVA holds not one, but five lavish conferences, each of which has its own awards ceremonies aimed at saluting DMV officials and workers. There, AAMVA leadership, vendors, and officials from government agencies both state and federal gather to toast their successes in advancing their cause, including progress in implementating our national ID law, the REAL ID Act.

The first conference and ceremony, for “Region IV” (roughly, everything west of Texas), starts this coming Monday, May 16, 2016, in Portland, Oregon. Several awards will be distributed. Last year’s Region IV winners included Washington State’s Department of Licensing (“Excellence in Government Partnership” for a “Use Tax Valuation Project”) and California’s Department of Motor Vehicles (“USC Freshman Orientation Project”). Stay tuned to find out who will win prizes at this year’s taxpayer subsidized extravaganza!

AAMVA is doing everything right to cultivate friendship with its membership and to advance the aims of the driver licensing industry. Department of motor vehicle officials, after all, are the ones who elected legislators turn to first when they have questions about policy.

It helps AAMVA a lot if DMV officials sing from the industry songbook. Heaven forfend if a DMV official were to tell his or her legislature that implementing REAL ID is unnecessary because the costs are disporportionate to the benefits, that REAL ID allows tracking of race, and that the federal government will always back down if a state declines to implement.

AAMVA regional conferences occur monthly between now and August, when their international conference kicks off in Colonial Williamsburg, “a location that is ideal to bring the entire family”! We will be taking a close look at awardees and top DMV officials who are close to AAMVA. There is a distinct possiblity that they represent the interests of AAMVA to the legislature when called upon, rather than giving dispassionate advice about what’s best for taxpayers and the people of their states. That inclination is helped along by AAMVA’s busy national ID social calendar.

The federal district court sitting in D.C. yesterday handed a victory to those who believe in following statutory text, potentially halting the payment of billions of dollars to insurers under the Affordable Care Act’s entitlement “cost-sharing” provisions.

Since January 14, 2014, the Treasury Department has been authorizing payments of reimbursements to insurers providing Obamacare coverage. The problem is that Congress never appropriated the funds for those expenditures, so the transfers constitute yet another executive overreach.

Article I of the Constitution provides quite clearly that “No Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.” The “power of the purse” resides in Congress, a principle that implements the overall constitutional structure of the separation of powers and that was noted as an important bulwark against tyranny by Alexander Hamilton in the Federalist 78.

It’s a basic rule that bears repeating: the executive branch cannot disburse funds that Congress has not appropriated.

Accordingly, in a win for constitutional governance, Judge Rosemary Collyer held in House of Representatives v. Burwell that the cost-sharing reimbursements authorized under the ACA’s section 1402 must be appropriated by Congress annually, and are not assumed to be appropriated.

Judge Collyer gave a biting review of the federal government’s argument in the case: “It is a most curious and convoluted argument whose mother was undoubtedly necessity.” The Department of Health and Human Services claimed that another part of the ACA that is a permanent appropriation—section 1401, which provides tax credits—also somehow included a permanent appropriation for Section 1402. Hearkening to the late Justice Scalia’s lyrical prose, Collyer explained that the government was trying to “squeeze the elephant of Section 1402 reimbursements into the mousehole of Section 1401(d)(1).”

Indeed, this ruling is a bit of a feather in Cato’s cap as well. The legal argument that prevailed here—that the section 1402 funds cannot be disbursed without congressional appropriation—first was discussed publicly at a 2014 Cato policy forum. The lawyer who came up with the idea, David Rivkin of BakerHostetler, refined it in conjunction with his colleague Andrew Grossman, also a Cato adjunct scholar who spoke at the forum. After BakerHostetler had to withdraw from the case due to a conflict, George Washington University law professor Jonathan Turley (who also spoke at the forum) took over the case.

Judge Collyer stayed her injunction against the Treasury Department pending appeal before the U.S. Court of Appeals for the D.C. Circuit. Regardless of how that court decides – as in King v. Burwell, even if there’s a favorable panel, President Obama has stacked the overall deck – the case is likely to end up before the Supreme Court. If Chief Justice Roberts sees this as a technical case (like Hobby Lobby or Zubik/Little Sisters) rather an existential one (like NFIB v. Sebelius or King), the challengers have a shot. But because Democrat-appointed justices simply will not interpret clear law in a way that hurts Obamacare, this case, like so much else, turns on the presidential election and the nominee who fills the current high-court-vacancy.

Whatever happens down that line, Judge Collyer’s succinct ruling makes a powerful statement in favor of constitutional separation of powers as a bulwark for liberty and the rule of law.

“Obama said ‘so sue me.’ The House did, and Obama just lost.” That’s how the Wall Street Journal sub-heads its lead editorial this morning discussing the president’s latest court loss, nailing this most arrogant of presidents who believes he can rule “by pen and phone,” ignoring Congress in the process. With an unmatched record of losses before the Supreme Court, this onetime constitutional law instructor persists in ignoring the Constitution, even when the language is crystal clear.

Article I, section 9, clause 7 of the Constitution provides that “No Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.” Not much wiggle room there. So what did the president do? He committed billions of dollars from the Treasury without the approval of Congress. In her opinion yesterday Judge Rosemary Collyer noted, the Journal reports, “that Congress had expressly not appropriated money to reimburse health insurers under Section 1402 of the Affordable Care Act. The Administration spent money on those reimbursements anyway.”

George Washington Law’s Jonathan Turley, lead counsel for the House in this case, House v. Burwell, called yesterday’s decision “a resounding victory not just for Congress but for our constitutional system as a whole. We remain a system based on the principle of the separation of powers and the guarantee that no branch or person can govern alone.”

But don’t expect the president to be any more chastened by this decision than by his many previous losses in the courts. Indeed, as he was smarting from yesterday’s loss he was preparing, the Washington Post reports, to release a letter this morning “directing schools across the nation to provide transgender students with access to suitable facilities—including bathrooms and locker rooms—that match their chosen gender identity.” And where did he get his authority for that? Not from Congress. It’s based on his reading of Title IX of the Civil Rights Act of 1964 that for over half a century no one else has seen, doubtless because Title IX prohibits discrimination on the basis of sex, not chosen sex. Reading Title IX as we want it to be is of a piece with reading the Constitution that way too. Thus do objectivity and the rule of law fade into the rule of man.

The day before yesterday, The Washington Post ran a piece with the alarming headline, “The middle class is shrinking just about everywhere in America.” Although you wouldn’t know it from the first few paragraphs, a shrinking middle class isn’t necessarily a bad thing. As HumanProgress.org Advisory Board member Mark Perry has pointed out, America’s middle class is disappearing primarily because people are moving into higher income groups, not falling into poverty. Data from the U.S. Census Bureau shows that after adjusting for inflation, households with an annual income of $100,000 or more rose from a mere 8% of households in 1967 to a quarter of households in 2014.

According to the Pew Research Center, 11% fewer Americans were middle class in 2015 than in 1971, because 7% moved into higher income groups and 4% moved into lower income groups. The share of Americans in the upper middle and highest income tiers rose from 14% in 1971 to 21% in 2015. 

One has to read fairly far into the Washington Post’s coverage before seeing any mention of the fact that a shrinking middle class can mean growing incomes: 

“[In many] places, the shrinking middle class is actually a sign of economic gains, as more people who were once middle class have joined the ranks at the top. [For example, in] the Washington, D.C. metropolitan area, the share of adults living in lower-income households has actually held steady [from 2000 to 2014]. The households disappearing from the middle-class, rather, are reflected in the growing numbers at the top.”

Other cities with a shrinking middle class, a growing upper class and very little change in the lower class include New York, San Francisco and New Orleans. So the next time you hear someone bemoan the “shrinking middle class,” take a closer look at the data and keep in mind that it may actually be a sign of growing prosperity. 

The 2016 Milton Friedman Prize for Advancing Liberty has been awarded to Flemming Rose and will be formally presented at a dinner in New York on May 25. (Tickets still available!)

Flemming Rose is a Danish journalist. In the 1980s and 1990s he was the Moscow correspondent for Danish newspapers. He saw the last years of Soviet communism, with all its poverty, dictatorship, and censorship, and the fall of communism, only to be disappointed again with the advance of Russian authoritarianism. After also spending time in the United States, he became an editor at the Danish newspaper Jyllands-Posten. In 2005 he noticed “a series of disturbing instances of self-censorship” in Europe. In particular, “a Danish children’s writer had trouble finding an illustrator for a book about the life of Muhammad. Three people turned down the job for fear of consequences. The person who finally accepted insisted on anonymity, which in my book is a form of self-censorship.”

Rose decided to take a stand for free speech and the open society. He asked 25 Danish cartoonists “to draw Muhammad as you see him.” Later, he explained that 

We [Danes] have a tradition of satire when dealing with the royal family and other public figures, and that was reflected in the cartoons. The cartoonists treated Islam the same way they treat Christianity, Buddhism, Hinduism and other religions. And by treating Muslims in Denmark as equals they made a point: We are integrating you into the Danish tradition of satire because you are part of our society, not strangers. The cartoons are including, rather than excluding, Muslims.

Rose promised to publish all the cartoons he received. He got 12. They were by turns funny, provocative, insightful, and offensive. One implied that the children’s book author was a publicity seeker.  One mocked the anti-immigration Danish People’s Party. One portrayed the editors of Jyllands-Posten as a bunch of reactionary provocateurs. The most notorious depicted the prophet with a bomb in his turban.

A firestorm erupted. Protests were made. Western embassies were attacked in some Muslim countries. As many as 200 people were killed in violent protests. Rose and the turban cartoonist were the subject of death threats. To this day Rose travels with security. 

Is Rose in fact a provocateur or anti-Muslim? No. When we discovered that his book A Tyranny of Silence had not been published in English, that was the first question we asked. From reading the manuscript, and from talking to contacts in Denmark and Europe, we became confident that Rose was a genuine liberal with a strong anti-authoritarian bent, sharpened during his years as a reporter in the Soviet Union. His book, recently reissued with a new afterword, confirms that. Chapter 10, “A Victimless Crime,” traces the history of religious freedom from the Protestant Reformation to the challenges faced today by Muslims of different religious and political views.

Through it all, and through future attacks such as those at the French magazine Charlie Hebdo, Rose has continued to speak out for free speech and liberal values. He has made clear that his concern has always been – in the Soviet Union, in Europe, in the United States, and in Muslim countries – for individual dignity, freedom of religion, and freedom of thought. But he has insisted that there is no “right not to be offended.” He has become a leading public intellectual in a time when free speech is threatened in many ways by many factions. Today, in Politico Europe, he deplores a proposed law that would deny admission to Denmark to Islamists and criminalize anti-democratic speech. He worries:

What’s at stake in this controversy, and visible in similar developments across Europe, is the success of the Continent’s struggle to manage cultural and religious diversity. Most politicians believe we need to promote a diversity of opinions and beliefs, but manage that diversity with more tightly-controlled speech. That is wrong. A more diverse society needs more free speech, not less. This will be the key challenge for Denmark and Europe in the years ahead. The prospects do not look bright.

The prospects are brighter as long as free speech has defenders such as Flemming Rose.

The first few recipients of the Milton Friedman Prize were economists. Later came a young man who stopped Hugo Chavez’s referendum to create a socialist dictatorship, and a writer who spent 6 years in Iranian jails, followed by economic reformers from China and Poland.

I think the diversity of the recipients reflects the many ways in which liberty must be defended and advanced. People can play a role in the struggle for freedom as scholars, writers, activists, organizers, elected officials, and many other ways. Some may be surprised that a Prize named for a great scholar, a winner of the Nobel Prize in Economics, might go to a political official, a student activist, or a newspaper editor. But Milton Friedman was not just a world-class scholar. He was also a world-class communicator and someone who worked for liberty in issues ranging from monetary policy to conscription to drug prohibition to school choice. When he discussed the creation of the Prize with Cato president Ed Crane, he said that he didn’t want it to go just to great scholars. The Prize is awarded every other year “to an individual who has made a significant contribution to advance human freedom.” Friedman specifically cited the man who stood in front of the tank in Tiananmen Square as someone who would qualify for the Prize by striking a blow for liberty. Flemming Rose did not shy away from danger when he encountered it. He kept on advocating for a free and open society. Milton Friedman would be proud. 

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