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On April 1st, the federal government will begin accepting petitions for hiring workers on the H-1B visa–a temporary visa for skilled workers.  H-1B visas for highly skilled workers are annually limited to 85,000 for private firms.  There is no numerical limit for H-1Bs employed at non-profit research institutions affiliated with universities.  The numerical cap for private firms was reached in fiscal years 2015 and 2016 within seven days after applications could be submitted.  During poor economic times, the visa cap can take months to fill, but it does do so without fail except for the years 2001 to 2003 when the cap was increased to 195,000 annually during a poor economy.[i] 

There are obvious economic benefits from adding more skilled workers so the numbers should be expanded greatly, preferably without government-created limits. Taking a page from the Senate’s 2013 immigration reform bill (S. 744), one way to expand the numbers and adjust them annually based on market conditions would be through a formula that takes into account labor market conditions.  The formula could be a big improvement to the current system but it also carries several risks. 

There are some rules of thumb the government should follow if it chooses to create such a formula.  It should be simple and based on publicly available economic data like the unemployment rate.  The formula should not include variables such as the opinions of various stakeholders or appointed officials.  For example, unions or technology firms should not be able to pull a number from their respective black boxes to influence the outcome: any decision should be purely based on publicly available economic data.  Finally, if guest worker visas are assigned to sector- or occupation-specific areas of the economy, the economic data applicable to that sector of occupation should be the only data relevant in calculating the number of visas issued. 

Learning from S. 744

S. 744 included a formula that would adjust the number of W-visas issued each year beginning four years after it was created.  The formula was complex and included:

  • The number of applications for the W-visa in the previous year,
  • The number of job positions open for the visa,
  • The number of currently unemployed Americans,
  • The number of unemployed Americans last year,
  • The current Bureau of Labor Statistics (BLS) job openings,
  • The number of BLS job openings from last year, and
  • Numerical recommendations of the Commissioner, or Migration Czar, of the newly-created Bureau of Immigration and Labor Market Research. 

The formula is a manageable improvement over the current restrictive system except for the last two points.

Migration Czar

A Migration Czar’s decisions would be very important in setting the number of W-visas because his decision is heavily weighted.  His input increases economic uncertainty because it could change without regard to any external factor. In a Democratic administration, the appointed Migration Czar could be a supporter of organized labor and, thus, likely recommend lower numbers.  In a Republican administration, the Migration Czar could be a supporter of employers and, thus, likely recommend higher visa numbers.  Far from creating an objective means of determining future visa flows, the Migration Czar could skew the number of visas toward political considerations and away from economic ones. 

Under the formula, if the number of current BLS job openings was as high as it was in January 2001 (its peak according to historical data) and the number of unemployed Americans falls to 5.5 million (the lowest number recorded on an annualized basis since 1980), then the formula would still not grant the maximum number of W-visas unless the Migration Czar recommends that maximum for two consecutive years.  If the Migration Czar recommends that only 100,000 visas should be issued annually during the same prosperous economic conditions described above, then the number of W-visas issued would actually decline for two years before climbing (assuming the number of applications increased by 25 percent per year). 

Previous Years Have Too Much Influence

The formula is too dependent upon the previous year’s number of W-visa positions and applications.  Including previous year’s numbers slows the growth in the number of visas available during times of economic expansion, precisely when the number of visas needs to increase rapidly in response to a growing economy.  If the visa numbers don’t expand fast enough, then illegal immigration will likely increase to fill any gap, undermining one of the best arguments for a large market-based guest worker visa program.  


The W-visa’s method of adjusting the number of visas was a good start and probably the best that could have arisen from the acrimonious negotiations that birthed it.  The coming petition storm for H-1B visas will likely exhaust all of the available visas (for businesses) within a week.  S. 744 W-visa provides some helpful ways to think about redesigning the quota system for H-1B or other visas along the lines of a formula.  However, before any similar visa adjustment program is created in the future, two big changes should be made:

  • The Migration Czar position at the Bureau of Immigration and Labor Market Research should be eliminated.  The formula is complex enough without adding in the possibility of further regulatory capture and rent-seeking.  The immigration system is already political enough.  Adding a political appointee whose recommendations have an enormous amount of power to set the W-visa quota will only intensify the partisan political influence on our migration system. 
  • The previous year’s number of W-visa applications and positions should not be counted as variables.  The future growth of the program during periods of expanding economic activity should not be constrained by previous year’s applications.   

If the goal is to create a market-based migration system, then that system should rely on the market to set the number in an uncapped program where the workers can switch jobs without seeking ex ante government permission. Prices are a far better regulator of the numbers rather than numerical quotas imposed by macro-level economic indicators.  It’s far better to rely on the market than a clunky formula that masquerades as a market-based mechanism.


A new piece of scientific research hit the presses last week. It reported finding more warming in one of the (several) satellite-observed temperature histories of the earth’s lower atmosphere than had been previously reported. As these satellite-measured temperatures were the recent subject of comments made by presidential candidate Ted Cruz, a lot of scrutiny and interest surrounds these new findings—findings which seemed to refute some of Cruz’s assertions.

In researching his story on the new study, the Associated Press’s Seth Borenstein solicited my opinion about them and how they may alter climate change skeptics’ way of thinking about the satellite-observed temperatures—temperature datasets which had previously shown precious little warming over the past nearly two decades.

I was happy to offer my thoughts, and equally happy to see some of them reflected in Seth’s AP story. Given topical and length constraints, understandably, Seth had to be selective.

But I do have a bit more to say about the new research finding besides that it “shows ‘how messy the procedures are in putting the satellite data together.’”

Many of my additional thoughts were included in my broader email response to Seth’s initial inquiry and, with his permission, I am reproducing our correspondence below.

To Seth’s summary of my thoughts, I’d add “but even considering the new findings, the complete collection of satellite- and weather balloon-observed temperature histories of the earth’s atmosphere  indicate that climate models are projecting too much warming in this important region.”

Again, my thanks to Seth for reaching out to me in the first place. Here is out question and answer exchange:


Seeing that the climate doubter community has hinged so much on RSS and saying there has been no warming post 1997 _ despite NOAA heat records in 1998, 2005, 2010, 2014 and 2015 _  you’ve seen the RSS update that shows there has been warming in the last 18 years. I’m wondering what your thoughts are on it. Will you and those in your community keep using RSS, even if it shows no warming. Add to that the UAH record warming in February. Are satellites now contradicting the climate doubter community?




Thanks for soliciting my opinion.

I can’t speak for the climate doubter community, however that is defined.

Personally, my doubts are not that human-caused climate change as a result of greenhouse gas emissions is not occurring and that a temperature rise as a result is not detectable in large spatial averages, but I have doubts that the change is taking place at the rate projected by the collection of climate models and that its effects are currently detectable on most smaller scale climate/weather metrics.

So with that out of the way, I’ll give some opinions as to the new RSS results and their importance to my way of thinking…

First off, as I have tweeted (, the overall 1979-2014 trend in the RSS v4 MT data is still pretty far beneath the climate model expectations…far enough to continue to indicate a sizable discrepancy that needs further scientific attention.

Second, the trend in the new RSS v4 MT now makes it the mid-tropospheric (MT) dataset (including other satellite based and weather-balloon based) that has the greatest trend over the 1979-2014 period (see the same tweet mentioned above, as well as this one, which shows the old and new RSS data in comparison to weather-balloon compilations).

Given these two things, I don’t think it helps settle any questions regarding the temperature behavior of the mid-troposphere.

But what it does do is shed more light on just how messy the procedures are in putting the satellite data together.  Decisions, guided by science but not specifically defined by it, occur at many points in the procedure. The new RSS paper, again highlights how sensitive the final results are to those decisions. It is good that we have many different groups involved in assembling both the satellite history and the weather-balloon history. That these different groups provide answers that are pretty close to each other helps not to lower the uncertainty in any single result, but that the general result is not indicative as to what is going on in the MT.  The new RSS v4 now lies outside the old envelop of these collective findings. It’ll either prove to move the science in a bit of a different direction, or prove to be an erroneous result.  Time will tell. 

As to the impact on the “pause,” IMO there was too much being made about the “pause” in the first place. No serious student of climate science thought that it would last forever.  The important thing about it was that it provided a challenge to climate science and prompted enhanced research into natural climate variability, climate sensitivity, and other important aspects of climate science. So that it’s now over comes as no surprise.  But, once the El Nino warming subsides, I think we’ll probably see a continuation of the modest (below model mean) rate of warming.

I hope this is useful.  If you have any further questions, I’d be more than happy to try to answer them.


In addition to Seth’s story for the AP, more reactions about the new satellite-study can be found at Watts Up With That, Climate Etc., and at Roy Spencer’s blog, among others.

Henry James, T.S. Elliot famously remarked, “Had a mind so fine that no idea could violate it.”  Similarly, more than a few economics papers involve formal models so fine that no facts can violate them.

Two recent examples purport to demonstrate the instability and inefficiency of “private money.”  One, on “Private Money and Banking Regulation,” appeared in the September 2015 Journal of Money, Credit and Banking (JMCB).  Its authors are Cyril Monnet, a Professor at the University of Bern, and Daniel Sanches, an economist at the Philadelphia Fed.  The other, by Sanches alone, is called “On the Inherent Instability of Private Money,” and is about to be published in the Review of Economic Dynamics (RED, for short).

That the models in these papers are indeed “fine,” meaning first-rate, from a strictly analytical point of view, can’t be gainsaid.  They meet all of the exacting requirements of  those economists who insist that a model’s institutional features should be “essential” in the sense Frank Hahn had in mind when he argued that monetary GE models should provide an essential role for money.  The features must, in other words, overcome frictions inherent in the model environment that would otherwise condemn optimizing agents to lower levels of utility.  In particular, the models in question supply “essential” roles for indirect exchange, banks, and banknotes.  Yet they are tractable enough to allow their authors to draw inferences from them concerning both the stability and the efficiency of private currency.  So far as the realm of formal economic modeling is concerned, these are highly impressive achievements.

As the two papers are similar in their arguments and conclusions, I won’t bother to distinguish between them except when necessary.  The gist of the argument in each case is that, assuming perfect competition, private money (meaning competitively-supplied, redeemable bank notes) won’t work, because people will have good reason to distrust the banks that issue it.  That’s so because the bankers’ willingness to redeem their notes depends on how profitable the banking business is.  If it is profitable enough, they can be trusted to redeem their notes, because they’re better-off staying in business than reneging on their promises.  The trouble is that, with perfect competition, the continuation or “franchise” value of staying in the currency business could well end up being so low that banks are tempted to drop out.  Consequently, prospective note-holders aren’t able to rule out the possibility that private money will become worthless.  To put it in Sanches’s more technical language, under perfect competition “there exist multiple equilibrium allocations characterized by a self-fulfilling collapse of the value of privately issued liabilities that circulate as a medium of exchange.”  A competitive, private currency system is, Monnet and Sanches conclude, “inherently unstable.”

In fact, the news for fans of private money is even worse, for the conclusion doesn’t just apply to the special case of perfect competition.  Although allowing for banking industry concentration and associated market power makes for a greater likelihood that bankers will honor their promises, by increasing banker’s expected profits, it doesn’t necessarily rule out a collapse.   And even if returns were high enough to avert a collapse, in the absence of further regulation banks would earn monopoly profits rather than pay a return on currency sufficient to guarantee an “optimum quantity of money” in the sense made famous by Milton Friedman.  Private money would, in short, be either unstable or inefficient.

If unregulated private money won’t work, what will?  The obvious solution is a government currency monopoly, regulated so as to assure a return on currency sufficient to achieve an optimum money stock.  But it’s also possible, according to Sanches and Monnet, to achieve an optimal and stable outcome by having the government guarantee bankers a minimum after-tax income regardless of the demand for banknotes, using a subsidy financed by a lump-sum tax on currency users.  The guaranteed minimum income rules out the panic equilibrium.

So much for a summary.  The question is, do these models really make a persuasive case that unregulated private currency won’t work, and that governments can do substantially better?  Like many economists, I subscribe to the old-fashioned view that a theory, if it’s any good, will yield conclusions that are, or at least appear to be, consistent with relevant experience, meaning, in this instance, the empirical evidence, so far as we are aware of it, concerning arrangements — and unregulated or lightly-regulated ones especially — in which currency did in fact consist of redeemable notes, supplied by competing, private banks.  Alas, judged against such experience, rather than for their ingenuity,  Sanches and Monnet’s models must be considered failures, comparable to André Sainte-Laguë’s demonstration that bumblebees cannot fly.

One might well wonder how such clever model-building could go so awry.  One might suppose that Sanches and Monnet, themselves believing that theories should agree with facts, consulted relevant empirical work in constructing their theories.  But that supposition is, to judge by what their papers reveal, not correct.  Between them those papers hardly refer to relevant empirical cases at all, or (despite containing sections labeled “Related Literature”) to other works addressing those relevant cases.

To be precise, the papers’ only references to historical evidence consists of tangential ones, in the JMCB paper, to studies of antebellum U.S. experience.  Yet even the evidence to which these few studies point isn’t generally consistent with Sanches and Monnet’s theory.  Instead of illustrating the instability of private money, or of the tendency of the value of private notes to collapse, the Suffolk System, which is referred to by one of the cited papers (albeit one that merely comments on another theoretical work), was famous for keeping the notes of all New England banks circulating at par, that is, at their full specie values, throughout the region.  The Suffolk did this, moreover, for more than three decades.  During that time only one temporary system-wide suspension of New England bank notes took place, following the Panic of 1837; and even then New England notes continued to be received at par at the Suffolk Bank.  (During the 1857 panic, the banks of Maine alone suspended payments temporarily.)  In short, banking historian and former Comptroller of the Currency John Jay Knox appears to have been fully justified in regarding the Suffolk episode as proof “that private enterprise could be entrusted with the work of redeeming the circulating notes of the banks, and it could thus be done as safely and much more economically than the same service can be performed by the Government.”  To say that this conclusion appears inconsistent with one of the main implications of Sanches and Monnet’s models is putting things mildly.

As for antebellum “free banking” episodes, to which the other cited works refer, although it’s true that large numbers of banks failed in several (but by no means all) U.S. “free banking” systems, these failures were mainly due, not to the public’s sudden loss of confidence in their notes, or to the bankers’ decision to voluntarily close-up shop because their business no longer seemed profitable enough, but to the depreciation of securities they were compelled by law to purchase as a condition for issuing notes.  And, although some fly-by-night or “wildcat” banking also took place, here, too, the trouble was usually traceable to ill-designed bond-deposit requirements that allowed banks to operate with little if any capital, while simultaneously assuring people that those banks’ notes were entirely secure and backed by the state.  Because Michigan’s first, disastrous free banking experiment occurred during the post-1837 suspension of specie payments, the problem of wildcatting was compounded by the fact that Michigan’s free bankers could, as Hugh Rockoff notes in one of the cited papers, “issue bank notes with practically no cost to themselves and unchecked by the need to redeem the notes in specie.”

Though it was exceptional, the Michigan episode is nevertheless significant, for if the inferences that Sanches and Monnet draw from their private money model can be said to fit any actual private money episode, Michigan’s first “free banking” episode is it.  And no wonder, because on close inspection, the  “banks” and “banknotes” in the Sanches and Monnet models, and in Sanches’ RED model especially, involve features of that unique episode that were absent from other  past private money systems.

Although Sanches and Monnet refer to the “private money” in their models as “bank notes” and “privately issued liabilities,” and also to bankers’ willingness (or lack thereof) to “keep their promises” by “redeeming” their notes, such language masks the fact that the “bank notes” in their models differ from most of their historical counterparts in not being fixed-value claims to any definite quantity of real goods, let alone instantly redeemable ones.  This is particularly evident in the RED paper, which states that “A banker who issues a note at date t is expected to retire it at date t + 1 at the current market value” (my emphasis), and that the note in question “is equivalent to a debt instrument with a market-determined real return of Φt+1/Φt,” where Φt+1/Φt is the ratio of the note’s redemption value to its initial value.  The same paper then goes on to observe that, although “it is possible to construct an equilibrium with the property that the value of privately issued notes is stable over time…it is also possible to construct other equilibrium in which the exchange value of notes is not constant over time.”  Specifically, an equilibrium path exists along which notes’ purchasing power declines monotonically.  Because a bank’s franchise value depends on the purchasing power of its notes, this equilibrium path must eventually result in notes ceasing to be convertible.  The only sustainable equilibrium is therefore the stationary one.  It is, nevertheless, not the case that that the notes in question have a contractually-fixed redemption value.  The model is therefore, strictly speaking, not a model of “redeemable” bank notes in the generally-understood sense of the term, but of something much more like irredeemable private fiat money:  like the notes in the RED model, actual fiat monies may be “redeemable” in the sense that they have some positive but variable exchange value, but they are certainly not redeemable according to the conventionally-understood meaning of that term.*

The finding that a system of private fiat money may not succeed in winning the public’s confidence, let alone in achieving an “optimum” quantity of money, is neither surprising nor new.  A substantial literature now exists on the topic, dating back to Benjamin Klein’s pioneering work.  (Chapter 12 of Larry White’s Theory of Monetary Institutions supplies an excellent review.)  And though some contributions to that literature suggest that a competitive fiat money system can work under special conditions, the general consensus — and one to which we free banking theorists have long subscribed — is that such a system is unlikely to command any confidence.  Indeed, Larry and I have argued that it is precisely for that reason that private banking systems of the past have had to rely, occasional suspensions aside, on “goods-back guarantees,” meaning offers to convert paper money into fixed amounts of real goods, to make private notes acceptable.

Nor do the terms “reneging” and “defaulting” mean the same thing in the Sanches-Monnet models as they do in real-world banking systems.  Bankers in these models renege, not because they are unable to meet their obligations, but because, judging it no longer worthwhile to go on being bankers, they decide to quit the banking business.  A sort of “liquidation” does occur, but it is one in which the bankers themselves consume the goods they acquired in exchange for their notes.  The result is much as if the bankers absconded, wildcat style, taking any assets they’d acquired with them.  Noteholders, in any event, have no recourse to retiring bankers’ assets, for if they did their notes would not become worthless.  The notes, in other words, do not even qualify as meaningful (in the sense of enforceable) claims to some positive but variable quantity of real goods.  Banking crises happen, in the Sanches-Monnet model economies, not because note holders believe that their banks are in danger of becoming insolvent, but because they believe them to be in danger of becoming insufficiently profitable.  Insolvency doesn’t enter into it because, strictly speaking (and unless I’m missing something), it isn’t possible for a Sanches-Monnet bank to become insolvent.

This last observation brings me to a second feature of most real-world private financial  firms, though not of Michigan’s wildcats, that is conspicuously absent from Sanches and Monnet’s models, namely, bank capital.  When a Sanches-Monnet banker, finding that the franchise value of his business has fallen below a critical level, “makes a decision to renege on his promises as the dissolution of his note-issuing business,” he sacrifices nothing apart from that franchise value itself, having no other “skin in the game”: no initial investment, and certainly no double or unlimited liability, to which bank owners were subject in many historical private currency arrangements.  (See also here.)

Think about this.  A “banker” offers you a note, which he promises to “redeem,” not whenever you like, but at a future date, and not in a definite quantity of goods, but (in the RED model) in some uncertain amount.  If the banker chooses to renege, that is, to offer nothing at all for the goods, he loses nothing save whatever profit he might have earned by staying in business.  The banker promises to invest the proceeds obtained in exchange for the note, but you have no idea how.  The bank has no capital, so that any adverse change to the value of its assets must affect the value of its liabilities by a like amount.  Finally, no court will find the banker obliged to pay you, or other note-holders; and no other government agency even pretends to protect you from any loss you might incur should your bank close-up shop.

Will you trade valuable goods for such a note?  Neither would I.  Nor, I suppose, would any sane person.  (In Michigan in 1837 people did accept similar notes because state government authorities assured them that the notes were fully secured by good collateral, and also because there were no other notes to be had.)  That the sort of “private money” we’re talking about won’t fly seems, in fine, self-evident, once its basic features are set forth in plain language.  To go to the length of developing a fully-articulated model economy for the sake of reaching the same conclusion hardly seems necessary.

It’s a shame that Sanches and Monnet didn’t make more than a cursory effort to familiarize themselves with the actual nature and performance of past private currency arrangements, for had they done so they presumably would have constructed a very different sort of model, and reached very different (and perhaps more interesting) conclusions.  Instead of confining themselves to a few desultory references to banking in antebellum U.S., they might have read some portion of the heaps of books and articles concerning those historical banking systems that came closer than any U.S. episode did to representing genuine monetary “laissez faire.” They might, for starters, have familiarized themselves with the famously stable pre-1844 Scottish free banking episode.  They might also have gotten to know the pre-1935 Canadian system, which was almost as stable.  They might even have gleaned a clue or two about unregulated private currency from the less well-known, and less long-lasting, free banking episodes of Australia, Switzerland, Ireland, Colombia, France, or Chile.  They would have noticed how bank capital and (in some instances) extended liability served in these arrangements to win prospective note holders’ trust.  What they certainly could not have done was to write the papers they’ve written, while still imagining that by so doing they were shedding light on what typically happens when currency provision is left to the private marketplace.

So far I’ve emphasized the matter of stability, concerning which the predictions of the Sanches and Monnet models are most glaringly at odds with experience.  While free banking systems were often stable, it doesn’t follow that they supplied “optimum” quantities of money in Milton Friedman’s sense.  To the extent that they didn’t, their performance agrees with one of the main conclusions Sanches and Monnet draw from their models.  But if free banking systems did not fully meet Friedman’s ideal, it’s unlikely that they veered very far from it, or that any regulated system could do better.

One obvious respect in which historical private money systems departed from Friedman’s ideal was in not paying explicit (that is, nominal) interest on circulating banknotes.  In The Theory of Free Banking,  I acknowledged that, although competition will tend to drive free banks “to pay competitive rates of interest on…deposits,” bank notes might still be held in sub-optimal quantities owing to the difficulty of paying interest on circulating notes.  But I also noted that the consequence, instead of consisting of sub-optimal quantity of money, might well consist of a cross-subsidy of deposits such as would enhance the demand for them enough to compensate for the sub-optimal demand for currency.  What’s more, even the relatively minor inefficiency implicit in such a cross subsidy would be limited to the extent that private currency suppliers engaged in non-price competition.

But to regard the absence of an explicit interest return on circulating private bank notes as “sub-optimal” is to suppose that some alternative arrangement could do better.  And for that supposition there is, I believe, no sound basis.  The circulating notes of government monetary authorities have also tended to be non-interest bearing, and remain so to this very day, despite many authorities’ wish that this weren’t necessarily the case.  The explanation lies in the practical impossibility of keeping tabs on banknotes’ owners when the notes change hands frequently and anonymously, as they must do if they are to be convenient exchange media in transactions for which non-circulating forms of money will not serve.  Because government monetary authorities must reckon with the same transactions costs as of paying interest on circulating notes as their private counterparts, they cannot come closer to Friedman’s ideal by that means.  Moreover, because competitive pressures do not prevent them from earning monopoly profits, they are likely to stray even further from that ideal, even taking the rate of inflation, and hence the real return on non-interest-bearing notes, as given.

And what about the interventions that Sanches and Monnet recommend?  Might they at least help to nudge things closer to Friedman’s ideal?  I wouldn’t count on it.  Their proposal, you may recall, is to have the government tax currency users and use the proceeds to subsidize banks enough to keep their franchise values from falling below some critical level.  But Sanches and Monnet also assume — and the assumption is absolutely critical to their model — that “agents” apart from bankers themselves “do not observe the amount of collateral (if any) an individual banker holds in reserve to secure his circulating liabilities.”  Alternatively, “agents” do not know the value of their banks’ assets.  A bank’s franchise value is, however, strictly a function of the quantity of assets it has on hand.  Consequently, in order to implement the policy in question, the government must have access to information unobtainable by anyone else.  If this vaguely reminds you of the flaw in Diamond and Dybvig’s argument for deposit insurance, give yourself a gold star.  And give yourself another if you are wondering, as I am, how the government would manage the subsidies in question in a world in which some bankers are just-plain incompetent.

And that, you may rest assured, is a world that doesn’t just exist on paper.


*Although Sanches recognizes that the indeterminacy of the equilibrium value of “bank notes” in his model resembles that of fiat money in other writings, he does not seem to appreciate how the similarity arises owing in large part to the fact that nothing in his model obliges his bankers contractually to redeem their notes at a definite rate.

The JMCB paper differs from the RED paper in that bankers there  offer to redeem notes issued in sub-period 1 for a predetermined amount of a good in sub-period 2; still, the notes’ purchasing power when first issued can differ from their eventual redemption value.  The “notes” in question are therefore neither fiat money in the usual sense of the term nor ordinary banknotes but zero-coupon bearer bonds that mature after a set period, rather like Continental dollars, according to Farley Grubb’s understanding of the latter.  In referring to the notes in their model as “debt instruments…redeemable on demand,” Sanches and Monnet appear to overlook the distinction between “after one sub-period” and “on demand.”

[Cross-posted from]

Always a fable worth bearing in mind in a presidential election year:

* * *

THE FROGS, grieved at having no established Ruler, sent ambassadors to Jupiter entreating for a King. Perceiving their simplicity, he cast down a huge log into the lake. The Frogs were terrified at the splash occasioned by its fall and hid themselves in the depths of the pool. But as soon as they realized that the huge log was motionless, they swam again to the top of the water, dismissed their fears, climbed up, and began squatting on it in contempt. After some time they began to think themselves ill-treated in the appointment of so inert a Ruler, and sent a second deputation to Jupiter to pray that he would set over them another sovereign. He then gave them an Eel to govern them. When the Frogs discovered his easy good nature, they sent yet a third time to Jupiter to beg him to choose for them still another King. Jupiter, displeased with all their complaints, sent a Heron, who preyed upon the Frogs day by day till there were none left to croak upon the lake.

–Aesop, in the 1867 translation of George Fyler Townsend

(Illustration by Walter Crane, Baby’s Own Aesop, 1887. Note the motto that Crane appends: DON’T HAVE KINGS.)

Trade has enriched humanity, continuously providing cheaper and better goods while dramatically decreasing global poverty. Extreme poverty’s end is now in sight. A Gallup poll released recently shows that 58 percent of Americans view trade as an opportunity rather than a threat, and this belief has been rising. Yet we seldom hear of the incredible benefits of exchange. The 2016 presidential election has brought with it an increased interest in U.S. trade with China, with political figures like Donald Trump prominently focusing on the alleged “harm” done by China to the United States. Here are the three main arguments that trade-skeptics use regarding China and reasons why those arguments are wrong. 

1) Trade-skeptics often claim that trade with China is “taking American jobs.” However, in most cases American and Chinese workers are not competing for the same jobs because they do different kinds of work.   

Comparative advantage and specialization play an important role in every trade relationship. China has the comparative advantage in light manufacturing and heavy industry, while the United States has an advantage in areas involving a high degree of human capital like technology, education, and precision industrial manufacturing

Fewer and fewer Americans work in grueling areas like traditional manufacturing and agriculture, both of which are still common in China. The fall in traditional manufacturing and agriculture employment has been more than offset by a rise in the caring professions and in creative and knowledge-intensive careers, which are safer, more intellectually stimulating, and help improve the standard of living in the United States. 

For example, the number of physicians per person has risen in the United States, and there are also more teachers per student. The graph below shows that, while manufacturing employment has decreased, total non-agricultural employment has soared.

2)Many people are concerned about China’s so-called currency manipulation. China, they claim, is keeping the value of the yuan artificially low relative to the U.S. dollar. That means that Americans pay less for Chinese goods. As board member Mark J. Perry puts it

[T]he “manipulation” of China’s currency is actually to the distinct advantage of millions of American consumers (especially low-income Americans) and U.S. businesses buying products and inputs made in China. Those two groups certainly aren’t complaining about low-priced Chinese products, and in fact would be made worse off if China were forced to revalue its currency and in the process make its products more expensive for Americans.
So if neither American consumers nor U.S. import-buying businesses would benefit from a stronger yuan and a reduction in China’s “foreign aid” to America, who would really benefit? The same group that always benefits from protectionist, mercantilist trade policies: domestic producers who compete against foreign rivals in China and elsewhere … Unfortunately, the costs to consumers from protectionism are greater than the benefits to producers, resulting in a net economic loss for the country and a reduction in its standard of living.

In other words, while a few industries would benefit, the vast majority of Americans would be made poorer by America’s imposition of protectionist policies or penalties on China. 

3) China trade-skeptics often claim that trade leads to the exploitation of Chinese laborers and makes them worse off. However, as Cato’s Johan Norberg wrote

Western activists rail against “sweatshops,” but among researchers and economists from left to right there is a consensus that these jobs are the stepping stones out of poverty

Lest we forget, the United States and Europe had their own sweatshops during the Industrial Revolution. Work was often dangerous and difficult—though not as much as the drudgery of agricultural subsistence. Yet, as a result of the industrial revolution, life expectancy and GDP per capita shot up while poverty fell rapidly. Since economic liberalization, life expectancy in China has skyrocketed, nearing the U.S. level, and hundreds of millions of Chinese have escaped from extreme poverty. That represents the greatest reduction in poverty the world has ever seen. 

As prosperity has increased, gender inequality has diminished, and a smaller share of the population suffers from food inadequacy. If the trade-skeptics genuinely care about the wellbeing of the poor in China, they should support the most successful anti-poverty program of all time: economic freedom, including freedom to trade internationally. 


Over at Cato’s Police Misconduct web site, we have identified the worst case for the month of February.  It was from Champaign, Illinois and involves several incidents regarding Officer Matt Rush.

Last month Precious Jackson filed a lawsuit against Rush and the City of Champaign for excessive force when Rush arrested her.  According to the lawsuit, Rush’s actions caused Jackson to lose her unborn baby.  Jackson also says that she begged to be taken to a hospital but that Rush and the other officers on the scene ignored her pleas and took her to the jail instead.

Local news agencies report that the City of Champaign has settled several similar lawsuits involving Rush to the tune of $320,000.  In 2014, Police Chief Anthony Cobb actually fired Rush for lies in police reports and omitting important details in the incidents he was involved in.

A labor arbitrator overturned the police chief’s discipline and reinstated Rush to his job.  

At this point, it may not be appropriate to compare anyone to Donald Trump. In terms of overheated rhetoric, he is in a (low) class by himself. Nevertheless, I am struck by the parallels between Bernie Sanders and Trump on trade policy. Of all the remaining presidential candidates, these two are the most strongly opposed to international trade and to international trade agreements. While most of the candidates have something negative to say about trade, Sanders and Trump go the furthest in this regard, and, unfortunately, their views seem to appeal to a lot of people.

As we all know, Trump has been inflammatory on the subject of immigration and trade, which could be taken as a general dislike for and distrust of non-Americans, with a few particular groups demonized. Sanders is a little different. He’s not generally negative about foreigners, but now and then he says things in a way that makes me wonder if he is trying to tap into the same group of voters that Trump has in his camp. For example, in last night’s debate, Sanders said this:

… Look, I was on a picket line in early 1990s against NAFTA because you didn’t need a Ph.D. in economics to understand that American workers should not be forced to compete against people in Mexico making 25 cents an hour.

Obviously, if Sanders had a Ph.D. in economics, he would be a free trader. But putting that aside, what exactly does Sanders have against people in Mexico? Yes, they are, on average, not as wealthy as Americans. But why does that mean they should not be allowed to sell their goods and services to Americans? Clearly, it would make them better off if they could (and their income has risen a lot since NAFTA was signed). Why should the U.S. government take action (protectionism) to keep them poor?

No doubt Sanders would say that this isn’t about keeping Mexicans poor, but rather about making Americans better off. Now, in fact, protectionism does not make Americans better off, so he’s actually hurting everyone. But regardless, even if he did believe his policies would make Americans better off, that wouldn’t change the fact that his policies would help keep Mexicans poor. Those are two sides of the same coin.

Overall, it is pretty clear that Sanders is no Trump. But still, the way his policies treat poor foreigners–and how that appeals to some of his supporters–leaves a bad taste in my mouth.

Like the apocryphal story of the state legislature that passed a law dictating that pi equals 3, the Oregon state legislature has passed two laws that pretend the laws of supply & demand don’t exist. The difference is that, in reality, no state legislature ever did pass a law saying that pi equals 3, but Oregon’s legislature is totally ignoring basic economic principles.

First, earlier this week, the legislature passed a new minimum wage law increasing the minimum to as high as 14.75 per hour in the Portland area by 2022 (with lower minima for other parts of the state). This will supposedly be the highest in the nation, but only in the unlikely event that no other state raises its minimum wage in the next six years. However, after adjusting for the cost of living, Oregon’s new minimum wage probably is the highest in the nation even before 2022.

Proponents claim the minimum-wage law will improve Oregon’s economy by putting more money in the hands of its residents that they will spend in Oregon businesses. The new minimum wage “is going to be good for Oregon families and is going to add to consumer purchasing power that will benefit our small businesses,” Oregon’s labor commissioner told a reporter. That’s like warming the bed by cutting off one end of a blanket and sewing it on to the other end. If increasing the minimum wage does so much good, why not increase it to $15 right away? Or $50? Or $500?

The reality is that a minimum wage law is a balancing act for politicians. They have to have the wage be just high enough to create a constituency for the wage that will support them but not so high that people who actually vote will lose their jobs. As a Congressional Budget Office study concluded, for every two people who benefit from a minimum wage law, one is put out of work. That’s okay if the people who are out of work don’t vote.

The Oregon situation is complicated by threats by higher wage advocates to use the initiative petition process put a $15 wage on the November ballot. The legislature hopes its bill can forestall that without causing the economic damage that an immediate $15 wage would do.

Buoyed by its success, the legislature yesterday passed a law legalizing inclusionary zoning, that is, forcing homebuilders to sell a certain percentage of their products below cost. This will also lead them to build fewer homes and to sell the market-rate homes they do build for higher prices to offset their losses on the “affordable” homes. In other words, this law relies on the counterintuitive notion that making housing more expensive will make it more affordable.

Once again, the legislature is playing a balancing game. A few people will get–and be very grateful for–more affordable housing. Every other homebuyer and renter will end up paying more, but not enough more for them (the legislature hopes) to complain about it.

The Oregonian, for example, accompanied my article criticizing the urban-growth boundary with a photo of a man who enjoys “affordable” housing provided by the city of Bend that was funded by taxing all other new homes in the city. Where are the photos of the people having to pay higher taxes or who can’t afford to buy a new home because of that tax?

Are the legislators who voted for these laws really really trying to promote their political careers by cynically benefitting a few at everyone else’s expense? Or are they just ignorant of simple economic principles? Either way, their votes demonstrate the flaws in a society that believes it can get rich by robbing some people and giving it to others.

Earlier this week, Buzzfeed unearthed a 2005 blog post in which Donald Trump explained the economic benefits of outsourcing jobs overseas.  The piece flatly contradicts the boisterously protectionist rhetoric of Trump’s presidential campaign.  No doubt it will be added to the many arguments for why Trump can’t be trusted, but there’s really nothing special about Trump’s flip-flop on trade.  It is an exceedingly common tactic among politicians.

In this election cycle alone, we’ve see Hillary Clinton oppose the Trans-Pacific Partnership, which she once heralded as the “gold standard in trade agreements.”  And Ted Cruz did a full 180 in opposing trade promotion authority last year after he eloquently praised the bill in the Wall Street Journal.

One of the most impressive trade flip-floppers in recent memory was Mitt Romney in the 2012 presidential campaign.  Prior to running for office, Romney properly criticized protectionist tariffs the Obama administration imposed on Chinese tires as an economically harmful sop to labor unions. 

But then the Obama campaign started accusing Romney of being the “outsourcer-in-chief” for helping companies invest abroad during his time at Bain Capital.  In response, Romney struck a very confrontational tone against China, accusing them of cheating while criticizing Obama for being too soft on Chinese trade.

Four years later, Romney is back to talking sense about trade.  In his recent speech warning Republicans about Trump, Romney directly addressed Trump’s signature trade policy proposal:

[Trump’s] proposed 35% tariff-like penalties would instigate a trade war that would raise prices for consumers, kill export jobs, and lead entrepreneurs and businesses to flee America.

Peter Suderman at Reason points to Romney’s duplicity in a scathing indictment of the GOP establishment he claims have enabled Trump’s candidacy:

Romney, like many Republican elites, has now changed his tune, and he deserves credit for speaking unequivocally about Trump’s many serious flaws. But Romney and others in the party played Trump’s game, and talked Trump’s language, for long enough that they helped legitimize it, and allowed it, even encouraged it, to fester and grow.

Republicans’ election-year flirtations with anti-trade populism are especially frustrating, because populist rhetoric doesn’t always have to be anti-market.  You can and should make the case for free trade by railing against the evils of protectionism. 

Every artificial trade barriers is an example of crony rent-seeking.  You don’t have to extol the economic virtues of free trade in order to condemn corporate welfare.   Republicans did a good job of this in their (temporarily successful) fight against the Export–Import Bank. 

Some of Donald Trump’s primary opponents recently took a similar tack when they criticized Trump’s tariff proposal as harmful to consumers.  Tariffs are taxes that raise prices.  This is bad for consumers, especially poor consumers, and bad for U.S. businesses that need low-priced imports to remain competitive in a global market.  By making it more expensive to do business in America, tariffs directly drive away investment and jobs. 

Protectionism benefits big businesses with lobbyists while killing American jobs.  That’s the populist case for free trade.  It may be easier to blame foreign competition and outsourcing for perceived economic ills, but it’s not accurate and it won’t lead to good policies that help the American public.

In the end, elected Republicans shouldn’t be surprised that Trump’s belligerent economic nationalism resonates with voters.  They’ve consistently failed or refused to articulate the broadly compelling case for good economic policy they desperately need at the moment.

The Republican foreign policy establishment is up in arms over Donald Trump’s ascendancy. The prospect that “The Donald” could become The Commander in Chief is simply too much for many of them to stomach.

Take, for example, this “Open Letter on Donald Trump From GOP National Security Leaders” signed by almost 80 members of the Republican foreign policy elite. They warn that a Trump presidency would be dangerous to America’s safety, civil liberties, and international reputation.

I share their concern. But when people ask who is at fault for America’s tragic turn inward, if Trump wins a major party nomination – or, worse, the election – the very GOP foreign policy elite that is now denouncing him should get the lion’s share of the blame for his rise.

We should begin by understanding the people who comprise today’s GOP foreign policy elite, and what motivates them. This is not Dwight Eisenhower’s GOP, or even George H.W. Bush’s. Their bias toward interventionism is not grounded in traditional conservative precepts of order and fiscal discipline. When forced, they will call for higher taxes to fund more military spending. And they are openly disdainful of whatever small government instincts the modern conservative movement draws from libertarianism. 

So no one should be surprised when some neoconservatives speak openly of choosing Hillary Clinton over Donald Trump as many are now doing. If they do ultimately pull the lever for Clinton, they will merely be reaffirming their core beliefs.

After all, some of the older neocons cut their teeth writing policy briefs for the hawkish Democrat Henry M. “Scoop” Jackson. The earlier generation’s intellectual descendants fastened themselves firmly to the GOP, which they saw as the most convenient vehicle for implementing their foreign policy views. But that doesn’t mean that the association was either automatic or permanent.

The neocons would occasionally show their hand, admitting that they would choose foreign policy orthodoxy over party, and threatening to return to their Democratic Party roots. In 2004, for example, Bill Kristol praised the Democratic nominee John Kerry’s proposal to double down on the U.S. military presence in Iraq, at a time when some Republicans were wavering on Iraq. Kristol pointed out in an interview with the New York Times that his magazine The Weekly Standard, “has as much or more in common with the liberal hawks than with traditional conservatives.” In 2014, in a long feature article in the New York Times magazine, Jacob Heilbrunn noted that many putative GOP foreign policy elites would abandon the party if Republican voters nominated a skeptic of U.S. military intervention, such as Kentucky Sen. Rand Paul. The party’s own nominee for president in 2008, John McCain, when asked who he would vote for in 2016 if it came down to Clinton vs. Paul said, with a nervous laugh, “It’s gonna be a tough choice.”

So it should surprise no one that the neoconservatives are in a panic over Trump, and ready and willing to cast their votes for Clinton, if it came to that. In addition to her vote in favor of the Iraq war in 2002, Clinton has pushed many of the neocons’ other foreign policy adventures, including in Libya in 2011. And although The Weekly Standard editors castigated Bill Clinton for his personal foibles, they cheered him when he waged war in the Balkans.

But while Washington elites were also looking for the next dispute to meddle in, public skepticism of such global adventurism lingered below the surface. Americans were unconvinced by arguments that American exceptionalism necessarily meant defending other countries that can and should defend themselves – effectively, forever. More than half thought that the United States was doing too much to try to solve all the world’s problems, while fewer than one in five thought we should be doing more. And a growing number of Americans questioned whether even those interventions sold purely on the basis of advancing U.S. national security – e.g. Iraq in 2003 – actually had that effect. But when the leading candidates of both parties promised them more of the same, they went looking for alternatives. They found Donald Trump.


It didn’t have to be this way. As I’ve watched Trump’s rise, and seen his poll numbers grow after every ugly, xenophobic, and racist comment, I’ve had a passage from my book, The Power Problem, running in the back of my head. I wrote the book in 2008, before Barack Obama’s election, and before the effects of the financial crisis had become clear. It was after the surge in Iraq, but before the surge in Afghanistan. A lot has happened during Obama’s seven years in office. But, back then, I was most concerned about the unwillingness of the bipartisan foreign policy elite to revisit some of the core assumptions that had guided U.S. foreign policy for decades. And I was most troubled by the elite’s utter disregard for the will of the people who actually fight their wars, and pay the bills.

So, here’s what I wrote. I hoped at the time that I would be proved wrong. But I’m afraid that I was right. You decide:

For years, international relations scholars have stressed that the world would resist the emergence of a single global superpower. The fact that we’ve managed to sustain our “unipolar moment” for nearly twenty years does not mean that an alternate path might not have delivered a comparable level of security at far less cost and risk. Even many who celebrate our hegemony admit that their approach is costly. They also admit that it cannot last forever. It was they, not their intellectual opponents, after all, who called it a “unipolar moment.”

The wisest course, therefore, is to adopt policies that will allow us to extricate ourselves from regional squabbles, while maintaining the ability to prevent a genuine threat to the United States from forming. This book has tried to set forth just some of the many reasons for doing this. The strongest reason of all might be that our current strategy doesn’t align with the wishes of the American people. As the costs of our foreign adventures mount, and as the benefits remain elusive, Americans may push with increasing assertiveness for the United States to climb down from its perch as the world’s sheriff.

For now, no clear consensus on an alternative foreign policy has emerged. Polls show that Americans are opposed to using the U.S. military to promote democracy abroad. Similar majorities believe that the costs of the war in Iraq have not been worth the benefits. There is now precious little enthusiasm for launching new military missions, and considerable skepticism that the United States must solve the world’s problems, or even that these problems require solving.

If the trends are moving away from a strategy of primacy, away from the United States as indispensable nation, and away from Uncle Sam as global sheriff, where might a new consensus on foreign policy end up? It is possible that it will coalesce around a strategy that is less dependent on the exercise of U.S. military power and more on other aspects of U.S. influence — including our vibrant culture, and our extensive economic engagement with the world. Another very different consensus could also coalesce, however, and move the country — and possibly the world — in a sad and ugly direction.

Surveying the high costs and dubious benefits of our frequent interventions over the past two decades, many Americans are now asking themselves, “what’s the point?” Why provide these so-called global public goods if we will be resented and reviled — and occasionally targeted — for having made the effort? When Americans tell pollsters that we should “mind our own business” they are rejecting the global public goods argument in its entirety.

As noted in the introduction to this book, the defenders of the status quo like to describe such sentiments as isolationist, a gross oversimplification that has the additional object of unfairly tarring the advocates of an alternative foreign policy — any alternative — with an obnoxious slur. There is, however, an ugly streak to the turn inward by the United States. It appears in the form of anti-immigrant sentiment and hostility to free trade. The policies that flow from these misguided feelings include plans to build high walls to keep unskilled workers out, and calls for mass deportations to expel those already here. And we already have a very different wall built with regulations and arbitrary quotas for skilled workers under the H1-B program.

For the most part, Americans want to remain actively engaged in the world without having to be in charge of it. We tire of being held responsible for everything bad that happens, and always on the hook to pick up the costs. We have grown even more skeptical of our current foreign policies when the primary benefit that they are supposed to deliver, namely greater security, fails to materialize. If “global engagement” is defined as a forward-deployed military, operating in dozens of countries, and if the costs of this military remain very high, then we should expect the public to object. And if the rest of the world looks upon this military power and our propensity to use it as a growing threat, and if Americans gain a fuller recognition that our great power and our willingness to use it increases the risks of terrorism directed against the United States, then many will demand that we change course. But if Washington refuses to do so, or simply tinkers around the margins while largely ignoring public sentiment, then we should not be surprised if many Americans choose to throw the good engagement out with the bad, opting for genuine isolationism, with all of its nasty connotations.

That would be tragic. It would also be dangerous. For to the extent that there is a global war brewing, it will not be won by closing ourselves off from the rest of the world. If Americans reject the peaceful coexistence, trade, and voluntary person-to-person contact that has been the touchstone of U.S. foreign policy since the nation’s founding, the gap between the United States and the rest of the world will grow only worse, with negative ramifications for U.S. security for many years to come.


The latest working paper in the ongoing Social Security Programs and Retirement Around the World project asks whether older people are healthy enough to work more years, and finds that there is a significant amount additional work capacity due to health and mortality gains. While piecemeal reforms like increasing the retirement age or changing how benefits are indexed are not as comprehensive as allowing young workers to invest a portion in personal accounts, they could be part of some comprehensive package to address the program’s shortfall. In a recent AP/NORC poll, 85 percent of respondents said protecting the future of Social Security is extremely or very important, but under current law, the Congressional Budget Office projects the trust fund will be exhausted by 2029 and benefits the following year would need to be cut by 29 percent. Delaying the needed reforms only increases the magnitude of changes that will be needed.  Increases in life expectancy and the additional capacity for work at older ages should be considered when designing those reforms.

In the report, the authors use a few different methods and find that in each scenario, due to gains in health and life expectancy, older people are able to work significantly more than they currently do. In the Milligan-Wise (MW) method, the authors estimate additional work capacity by comparing employment rates for men in 2010 with men at the age with the same mortality rates from previous years. For all age groups, older men have significantly more work capacity, as much as 42 percent for men between ages 65 and 69, for example.

Additional Work Capacity by Age Group, MW Method 2010 vs. 1977


Source: Coile et al. (2016).

In the Cutler et al. (CMR) method, the authors estimate a relationship between employment and health for people between 50 and 54, and then combine this estimation with actual health for older age groups. With this method, they also find significant additional work capacity: 31.4 percent for men between ages 65 and 69, and even more for the older age group. 

Source: Coile et al. (2016).

While older Americans have more work capacity overall, if the health status of people with lower-educational attainment hasn’t seen any improvement, it’s possible that they would have difficulty working additional years. To examine this question, the authors look at Self-Assessed Health (SAH) and find significant reductions in the percent of men responding that they were in poor or fair health across all education quartiles. The quartile with the lowest educational attainment saw a 22 percent improvement, and the second education quartile enjoyed an almost 44 percent improvement. Older Americans have seen significant gains in self-assessed health across all levels of education. While this is admittedly just one subjective metric, taken with the other findings of the paper, it suggest that older Americans have the capacity to work more than they do now.

Increasing the retirement age is one option to begin to address the program’s shortfall, although a better reform would allow younger workers to choose to divert some of their payroll taxes into some form of personal accounts. Without significant changes, Social Security will be unable to pay all scheduled benefits long before today’s young workers get close to retirement age. Absent reform, this shortfall will require significant tax increases or benefit cuts, and it only gets worse the longer policymakers delay. Due to welcome gains in life expectancy and other health improvements, older Americans can work more, and this should be considered when crafting reform proposals.

This week Howard Dudley was released from prison after serving 23 years.  He was accused of sexually assaulting his 9-year old daughter, but the daughter now recants her testimony from the 1992 trial. When ordering Dudley’s release, the judge said he was convinced that her earlier testimony was false.  Moreover, the government is supposed to provide the defense with evidence in its possession that tends to indicate that the accused is innocent.  (Lawyers call that “Brady material” after the name of a landmark case on the subject.)  In this case, the judge noted that Dudley was never given copies of reports that showed wildly inconsistent and improbable stories of the alleged assault that his daughter related to social services employees.

The problem of innocents behind bars received lots of attention in January and February as a result of the popular Netflix series, Making a Murderer.  The primary reason the documentary grabs your attention is that Steven Avery finds himself accused of an awful crime shortly after he is released from prison for a crime he did not commit.  The police department that conducted a sloppy investigation in the first case is then shown to be sloppy (and perhaps corrupt) in the second case.  In this podcast interview, I discuss Making a Murderer and the problem of innocents behind bars with Shawn Armbrust of the Mid-Atlantic Innocence Project.  (Spolier alert if you have not yet seen the Netflix documentary, which I do think is well worth your time).

In the fall, Federal Appellate Court Judge Alex Kozinski was here at Cato to reiterate his view that there is an epidemic of Brady violations in the U.S. and that there are more innocents behind bars than most people want to believe. 

“Dean Dad” Matt Reed has responded to my rebuttal to him Tuesday, and I appreciate his engaging me in discussion. His main point now: The student loan default problem is not mainly about big total debts, but smaller debts that are hard to pay off because the students dropped out before getting a degree.

I agree. Indeed, that was pretty much the point of my Wall Street Journal article that kicked off the exchange. As I wrote:

Many dropouts have loans, which are much harder to repay when one fails to finish, or gets a worthless degree. Borrowers on the academic margins, who often attend community colleges and for-profit schools, likely struggle the most to repay even though their debts tend to be relatively small. The Federal Reserve Bank of New York found that 34% of borrowers with debts between $1,000 and $5,000 defaulted, versus only 18% with debts in excess of $100,000, a level of debt associated with advanced degrees.

Where the confusion might lie is that I thought in his response to me Reed was suggesting that a major problem for anyone coming out of community college was that the minimum wage was too low and, connected to that, so were the wages of entry-level jobs. This was based on the following:

Why are former students having a hard time paying debt back? Mostly because entry-level jobs don’t pay very well. But McCluskey never addresses either the supply of entry-level jobs, or the minimum wage. 

Knowing that Reed did not mean to include graduates among “former students” makes his comments about low wages less alarming. Still, his solution – raise low wages instead of requiring evidence of college readiness – seems a broad, slow, and dubious way to deal with the debt problem. “Broad” because it calls for, essentially, overhauling a huge part of the economy as opposed to specifically reforming students loans; “slow” because doing that would take a pretty long time; and “dubious” because there is a lot of evidence that raising the minimum wage has substantial negative effects.

In addition to raising the minimum wage, Reed calls for “free (or much less expensive) community college.”

Free community college would probably solve the problem of community college noncompleters leaving with debt, depending on how one accounted for living expenses, but it comes with its own set of troubles. The first is that we would likely still have lots of people not finishing, only the costs would be borne more by taxpayers and less by students. The second is that, unless “free” were somehow focused on the poor, you would have taxpayers subsidizing well-to-do people. Recent data show about 39 percent of dependent undergraduate students at community colleges, and about 54 percent of independent students, are from the upper half of the income distribution.  About 16 and 28 percent are from the highest income quartile. Then there is the question of how to pay for this, especially if making it free leads to even more people enrolling. And will community colleges be able to handle all of the new students, or will they have to ration spots? What will encourage students to complete their studies as quickly as possible?

Then there is this: Taxpayers would have used the money sent to community colleges for their own ends. Maybe for buying food, employing farmers and truck drivers and lots of other people. Or maybe they’d have invested it in businesses, some of which may have employed low-skill labor. Or maybe they’d have bought cars to get their kids back and forth to school, in the process employing autoworkers. Quite simply, there are major opportunity costs to society when we funnel money into community colleges, and it is not at all clear that the more beneficial use of taxpayer dollars is higher education.

One last critique of Reed’s rebuttal: He attacks my proposal that we put student lending in private hands by writing, “I took offense at the prospect of replacing universal access to higher education with screening done by the same people who caused the mortgage crisis.” I’d suggest he reexamine the mortgage crisis. Government “help” – much like student loans – had a lot to do with it.

Reed is certainly right, though, to ask what to do to help unprepared people now, while the loan qualification debate is mainly about not inflicting more harm. Ultimately, a sustainable college preparation solution must come before people reach higher education – and I have strong opinions on how to do that – but what about for people right now who did not get an adequate K-12 education and want a better future?

I’m not sure what the answers are – I’d love to hear suggestions – or even if there are any that are really satisfactory, especially if we want to avoid major, negative, unintended consequences that might go with them. I suspect viable ones might involve options like apprenticeships and quick, specific-skill programs – perhaps provided by community colleges or for-profit schools – or even remedial learning through outlets like the Khan Academy. Indeed, maybe a relatively quick measure – though it would involve changing law – would be Washington putting limits on loan amounts so that they would only cover a few courses, aimed at getting specific skills, or just remediation. What I am pretty sure are not solutions are spending more on community colleges to make them free to students, raising the minimum wage, or giving out loans to pursue degrees for which students are unprepared.

Introducing their work, Stapleton et al. (2016) write that polar bears (Ursus maritimus) are “considered among the most highly sensitive marine mammals to the projected consequences of climate change,” citing Laidre et al. (2008). Indeed, increased sea ice losses projected for mid-century have led to concerns that “polar bears may be extirpated from or substantially reduced across most of the circumpolar Arctic.” As a result, the Arctic polar bear has become the proverbial canary in the coal mine for those seeking proof of climate change impacts in the far northern latitudes of our planet. Efforts have long been under way to study trends in these northern mammals and relate those trends to changes in climate.

The study of Stapleton et al. is no different in this regard. Their objective was to provide an updated analysis of the polar bear population within the Foxe Basin of Canada, a region that spans 1.1 million square kilometers across the Nunavut territory and northern Quebec. Last inventoried in the early 1990s, the Foxe Basin has been identified as a region of concern as climate conditions over the period 1979-2008 have led to a deterioration of the sea ice habitat (Sahanatien and Derocher, 2012) that has long been thought to engender a stable polar bear population. Against this backdrop of potential decline, Stapleton et al. set out to conduct an updated population survey of polar bears in this region to discern whether or not declining sea ice conditions had indeed affected their numbers as model-based projections claimed it would. And to this end, the three researchers conducted a series of aerial surveys in late summer of 2009 and 2010.

So what did their survey reveal?

Following rigorous statistical analysis of their data Stapleton et al. report a current average estimate of 2,585 polar bears in the Foxe Basin, which is similar to the last estimate of 2,200 obtained in 1994.  This new number, along with evidence of “robust cub production,” in the words of the authors, “suggests a stable and healthy population despite deteriorating sea ice conditions.” “In other words,” as Stapleton et al. emphatically conclude, “the deterioration of sea ice habitat has not resulted in a decline in [polar bear] abundance.” Thus, it would appear that this canary of the north has so far been oblivious to alarmist predictions of its demise.


Laidre, K.L., Stirling, I.,Lowry, L.F., Wiig, Ø., Heide-Jørgensen M.P. and Ferguson, S.H. 2008. Quantifying the sensitivity of Arctic marine mammals to climate-induced habitat change. Ecological Applications 18: S97–S125.

Sahanatien, V. and Derocher, A.E. 2012. Monitoring sea ice habitat fragmentation for polar bear conservation. Animal Conservation 15: 397–406.

Stapleton, S., Peacock, E. and Garshelis, D. 2016. Aerial surveys suggest long-term stability in the seasonally ice-free Foxe Basin (Nunavut) polar bear population. Marine Mammal Science 32: 181-201.

Why do countries have different economic policies and political institutions?  One view, oft-expressed, is that people in different countries are different.  For example, back in the early 1990s, many observers believed Russia was not ready for a transition to capitalism because Russians did not understand markets.

Around that time, economists Robert Shiller, Maxim Boycko, and Vladimir Korobov decided to examine this view using surveys of New Yorkers and Moscovites. They found that Russians did have significant misgivings about markets, but so did Americans. In fact, attitudes and understanding were, to a first approximation, the same.

In a recent update, Shiller and Boycko ask whether things have changed:

We repeat a survey we did in the waning days of the Soviet Union … comparing attitudes towards free markets between Moscow and New York. Additional survey questions … are added to compare attitudes towards democracy. Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences. While we find some differences in attitudes towards markets across countries and through time, we do not find most of the differences large or significant. Our evidence does not support a common view that the Russian personality is fundamentally illiberal or non-democratic.

So if underlying differences in attitudes and values do not explain differences in economic policies and political institutions, what does? Many factors presumably play a role, but my bet would be on historical accidents. In some times and places, the indviduals with greatest influence have valued freedom (e.g., the American Revolution), while in others they have cared mainly about their own power (e.g., Putin). 

The broader significance is that claims like, “The citizens of country X will never accept capitlism / democracy,” or “transitions from statism to liberalism must be gradual,” do not seem well-supported by existing evidence.

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.

This week’s collection of not-to-be-missed stories is larger than most—it’s been a busy week!

First up is an examination by Competitive Enterprise Institute’s Marlo Lewis as to whether or not the Paris Climate Agreement is a treaty requiring the assent of two-thirds of the Senate. 

Prior to the U.N.’s climate conference held in Paris last December, President Obama was quick to insist that whatever came out of it would not be considered a “treaty” but rather some sort of “executive agreement.” That’s because it would never get the approval of the Senate that is required under the Constitution in order for it to have the force of law.  

Marlo builds the case why the President was unsuccessful and why the Senate should act—now.

He writes:

Far from being toothless, the Paris Agreement is the framework for a multi-decade global campaign of political pressure directed chiefly against Republican leaders, Red State voters, and the fossil fuel industry. Specifically, the treaty is designed to advance three political objectives:

1. Deter the next president, future Congresses, and even courts from overturning the Environmental Protection Agency’s (EPA) so-called Clean Power Plan (CPP) and other climate regulations, including some not yet proposed, by rebranding those policies as “promises” America has made to the world.

2. Pressure future U.S. policy makers to make increasingly “ambitious” emission-reduction pledges—known as Intended Nationally Determined Contributions (INDCs)—every five years starting in 2020, implement those pledges via ever-more stringent regulations, and pony up untold billions in “climate finance”—foreign aid to subsidize “green energy” ventures in developing countries.

3. Make U.S. energy and climate policy increasingly unaccountable to Congress and to the American people, and increasingly beholden to the demands of foreign leaders, multilateral bureaucrats, international pressure groups, and their media allies.

As a result, he emphatically concludes:

To safeguard America’s economic future and capacity for self-government, congressional leaders must expose Obama’s climate diplomacy as an attempted end-run around the Constitution’s treaty-making process. They should do so before the President signs the Agreement on Earth Day, April 22, at a United Nations ceremony in New York.

The centerpiece of this counteroffensive should be a Sense of Congress resolution emphasizing a clear and simple message: The Paris Agreement is a treaty, and therefore, under Article II, Section 2 of the U.S. Constitution, the United States is not a party, and therefore not bound to its terms, unless the Senate ratifies it. Absent Senate approval, Obama’s climate pledges to the United Nations are just administration proposals, not commitments of the United States.

Be sure to check out the entirety of Marlo’s persuasive essay here.

Next up, we want to draw attention to some (less-than-favorable) opinions about various ideas that are floating around as to how the U.S. may attempt to try to achieve the carbon dioxide emissions limits that President Obama has promised to under the Paris Agreement.

First is an update on Congress’s stance on the EPA’s Clean Power Plan which was stayed by the U.S. Supreme Court earlier this month pending the outcome of a case before the U.S. Court of Appeals in Washington DC. From House Speak Paul Ryan’s blog comes this:

Now that legal fight is heating up. The House and Senate joined together to file an amicus brief to support the states in the State of West Virginia et al v. EPA litigation pending in the U.S. Court of Appeals for the District of Columbia. 

We argue that this regulatory onslaught is an illegal, unconstitutional federal power grab. It twists the Clean Air Act to interpret an expansion of federal authority that the law never intended. It usurps the states’ rightful regulatory regimes to accomplish federal ends.

“This move would have stunned both the writers of the Clean Air Act and the founders of our country,” Speaker Ryan, who signed on to the brief along with 171 representatives and 34 senators, said. “It’s a blatant violation of the law of the land—one that will cause a lot of pain around this country. We will not rest until the War on Affordable Energy is stopped.”

Okay, so if things aren’t looking good for the Clean Power Plan, how about a carbon tax? 

As Terence Corcoran explains in this piece for the Financial Post, what’s elegant in theory goes terribly wrong in practice. He describes the situation with Canada’s carbon tax:

Touted by economists as a wondrous market mechanism that will deliver Canada from the evils of climate change, carbon pricing is emerging out of the political swamps as a regulatory nightmare.

Corcoran continues:

The original claim was that carbon tax revenue was to be revenue neutral and given back to consumers. As Philip Cross notes on an oped today, “cash-strapped governments in Alberta, Ontario and Quebec are simply raising carbon taxes with no offsetting tax cuts elsewhere.”

The new objective of the green state is to manage carbon emissions down. Growth, they say, will come if governments plow the carbon tax cash back into government-planned green development to encourage low-carbon growth. That means government controls the nature of the growth, the technology developed, the future of the energy, the future of the economy.

We can’t help but to think the same would be the case in the U.S. Read his whole piece for a devastating indictment of a carbon tax.

And last but certainly not least, we’d be remiss if we didn’t highlight a couple of significant science stories that broke during the past week. Here is a quick run-down of the headlines (and the backstories):

Headline: “Seas Are Rising at Fastest Rate in Last 28 Centuries.”

Backstory: The scientific paper which generated this headline actually represents a significant backing down from previous extreme sea level rise projections made by the same scientists. The “new” findings are completely consistent with what is already in the most recent report (AR5) from the Intergovernmental Panel on Climate Change (IPCC). Roger Pielke Jr. summed it up with this pithy tweet:

Headline: “Top scientists insist global warming really did slow down in the 2000s.”

Backstory: This is apparently news when it’s reported by “top scientists” who are members of the climate science “mainstream.” But we, and other “skeptics” and “lukewarmers” far and wide, have been saying this for close to a decade. We tweeted

Headline: “Decline in U.S. Greenhouse Gas Emissions Overestimated by More Than a Third.”

Backstory: Okay, actually, that was our headline from a couple of weeks ago. But no one seemed to take notice then. But now comes a report  that EPA Administrator Gina McCarthy told an energy conference this week “methane emissions from existing sources in oil and gas sector are substantially higher than we previously understood.” We can’t help but to wonder whether this applies to the trend in U.S. methane emissions as well. If so, add this to the list of other accounting irregularities (pointedly documented here) that are going to doom the US greenhouse gas reduction commitment made by President Obama in Paris. 

That’s all for now, check in again next week, for more stories of which you ought to have a look. If you can’t wait ‘til then, sometimes you can find a bit of foreshadowing (and a lot of other fun stuff) by following us on Twitter: PCKnappenberger, CatoMichaels, and CatoCSS.

UC-Irvine’s Rick Hasen is undoubtedly the leading law professor who advocates restricting money spent on political speech (well, it’s between him and Harvard’s Lawrence Lessig). In an interview with Ron Collins that was posted on the popular legal-academic blog Concurring Opinions this morning, one of Hasen’s comments stuck out:

I would not allow a self-funded candidate to contribute/spend in the aggregate more than $25,000 on his or her own campaign.

This is remarkable. I mean, Hasen’s general approach of overturning Citizens United and restricting how much anyone can donate to any group that engages in election-related speech is par for the course on that side of the debate. As is, unfortunately, the exemption for “bona fide press entities” – whatever that means: I’m sure Hasen has balancing tests that distinguish Sheldon Adelson-owned Las Vegas Review Journal from the blog of Adelson’s Venetian/Palazzo casino – and government-financed campaigns (yes, the solution to the “money-in-politics problem” is to have the government control the money).

But to say that you can’t spend money on promoting yourself for public office… words fail. (This proposal likely wouldn’t even stop Donald Trump, by the way, depending on the specifics of the relevant legislation: most of his personal “contributions” have come in the form of loans that are supposed to be repaid out of the donations that he takes in.)

If the point of campaign-finance “reform” is to prevent corruption, how is it possibly corrupting to spend your own money on yourself?

Moreover, Hasen goes on to endorse overturning “the part of Buckley [v. Valeo, the 1976 case that heralded the modern camapign-finance regime] that rejected individual spending limits.” That means that campaigns would be limited in how much they could spend, regardless of how much money they raise in whatever increments from however many donors.

Unbelieveable. Wouldn’t it be healthier for our democracy just to remove all campaign-donation limits then have instant disclosure of donations beyond a certain threshold? (There needs to be a threshold because of the potential threat of intimidation and harrassment – see, e.g., the fallout from California’s Prop 8 campaign, where disclosure didn’t even make sense in the first place because a referendum initiative can’t be corrupted.)

Let the voters decide how much they care who gets how much funding from what source.

The New York Times reported last week on some of the details of the Obama Administration’s recovery plan for Puerto Rico, and it does not bode well for investors — or for states and municipalities that borrow money.

The island’s government is $72 billion in debt, with billions more in unfunded pension obligations.  It has been in recession for a decade during which time it has never run a balanced budget, and today it is nearly bankrupt.  The government has appealed to the federal government to help, and the Treasury has drawn up a plan.  A major feature of that plan is that it will ignore the law by putting government employee pensions in front of general obligation bondholders in the hierarchy of credits, despite the provision of Puerto Rico’s Constitution that mandates GO bondholders will be paid before all other government obligations.  The rationale for doing so is, essentially, that public sector pension holders are in greater need of the money than the investors (many of whom are retirees and pensioners themselves), so this ex post change is simply a matter of fairness.

The bondholders, naturally, do not like this. After lending money to the Puerto Rican government under the explicit assurance that they would have the highest priority in all payment scenarios, having this promise revoked seems a tad unfair, as well as blatantly illegal.

It isn’t just the Puerto Rican bondholders that should be angry.  The problems with screwing over bondholders in order to protect government pensioners goes farther than its illegality:  Doing so sets a precedent for dealing with other bankrupt states in the future.  While the Administration avers that this in no way sets a precedent, since the fifty states have recourse to use Chapter 9 of the federal bankruptcy code to reorganize, the reality is otherwise.

The Times correctly notes that Chapter 9 makes no provision for the states extricating themselves from their own general obligation debt.  No out was given for a very good reason:  Foreclosing the possibility of a default up front (at least as much as possible) makes it easier and cheaper for states to borrow money.

The Obama Administration’s proposal threatens to upset this equilibrium.  By upending the law and decades of precedent, the Treasury’s plan threatens to make it more difficult for the states and municipalities to borrow money as well, since their lenders see that they too, might get their promise of being first to be repaid pulled out from under them.

This administration has a long history of picking winners and losers in bankruptcy.  In the Chrysler and GM bankruptcies, the secured bondholders took a major hit being reduced to unsecured status while workers and pensioners were elevated to protected status, and the Detroit bankruptcy did the same thing.

While it may seem “fair” to help little old ladies rather than mean old hedge funds, the investors who lost money in these maneuvers weren’t Wall Street plutocrats — they were regular people who invested their money into assets they thought were safe, because the law explicitly said they were. Many of them are retirees and pensioners themselves, and thousands of them will see a reduction in the value of their retirement funds.  CNN recently reported that 45% of Puerto Rico’s debt is held by “middle class Puerto Ricans” and “average Joe Americans.”  Abrogating bankruptcy law isn’t akin to Robin Hood — it’s transferring money from one group of retirees to another.

A Puerto Rico bailout that punishes secured bondholders would represent a short-term political win for the Treasury but at a long-run cost to the rest of the country in the form of higher borrowing rates.  It would be a terrible precedent.  It is hard to conceive of a reason for a Republican Congress to acquiesce to such a thing, or to allow a control board to do such a thing down the road.

[Cross-posted from]

With the prospect of a Republican president who could conceivably repeal and replace ObamaCare, it is time for ObamaCare opponents to take a hard look at their “replace” plans. As I have argued elsewhere, expanding health savings accounts – a proposal I call Large HSAs – beats other alternatives like health-insurance tax credits. In short, if opponents succeed in repealing ObamaCare, Large HSAs would take another step in the direction of a market system. Health-insurance tax credits would constitute a step backward, because they would simply resurrect some of ObamaCare’s worst features–including an individual mandate and much of ObamaCare’s government spending and redistribution.

I set off a kerfuffle last week when I wrote that Sen. Marco Rubio’s (R-FL) ObamaCare replacement plan contains an individual mandate in the form of tax credits for health insurance. Rubio supporters and others were none too pleased. 

For those who are interested, here’s my short response to Capretta’s well-taken argument that Large HSAs also involve a mandate:

  1. Unlike tax credits or a standard deduction for health insurance, Large HSAs would consolidate and reduce the burden of all existing health-related tax preferences (i.e., mandates). So while a mandate would remain, it would only be a mandate to contribute to an HSA, where the money could only be saved or spent on health insurance or medical care, or passed on to one’s heirs. Thus, at worst, it would be a mandate to save one’s own money.
  2. The tax preference/mandate that would exist under Large HSAs would therefore be far less restrictive than either the existing smorgasbord of health-care mandates in the tax code, or that smorgasbord with a health-insurance tax credit layered on top.
  3. My preference is to eliminate all health-related tax preferences/mandates in the tax code, because doing so would lead to better health care, particularly for the most vulnerable. Large HSAs would take a huge step in that direction. They would deliver an effective tax cut of nearly $1 trillion per year, and in so doing would greatly facilitate a transition to a tax code with no health-related tax preferences/mandates, because that tax cut would remove the greatest obstacle to that transition.

There’s a lot more to say about tax credits vs. Large HSAs, and I will return to this question soon.

Although it doesn’t get nearly as much attention as it warrants, one of the greatest threats to liberty and prosperity is the potential curtailment and elimination of cash.

As I’ve previously noted, there are two reasons why statists don’t like cash and instead would prefer all of us to use digital money (under their rules, of course, not something outside their control like bitcoin).

First, tax collectors can’t easily monitor all cash transactions, so they want a system that would allow them to track and tax every possible penny of our income and purchases.

Second, Keynesian central planners would like to force us to spend more money by imposing negative interest rates (i.e., taxes) on our savings, but that can’t be done if people can hold cash.

To provide some background, a report in the Wall Street Journal looks at both government incentives to get rid of high-value bills and to abolish currency altogether.

Some economists and bankers are demanding a ban on large denomination bills as one way to fight the organized criminals and terrorists who mainly use these notes. But the desire to ditch big bills is also being fueled from unexpected quarter: central bank’s use of negative interest rates. …if a central bank drives interest rates into negative territory, it’ll struggle to manage with physical cash. When a bank balance starts being eaten away by a sub-zero interest rate, cash starts to look inviting. That’s a particular problem for an economy that issues high-denomination banknotes like the eurozone, because it’s easier for a citizen to withdraw and hoard any money they have got in the bank.

Now let’s take a closer look at what folks on the left are saying to the public. In general, they don’t talk about taxing our savings with government-imposed negative interest rates. Instead, they make it seem like their goal is to fight crime.

Larry Summers, a former Obama Administration official, writes in the Washington Post that this is the reason governments should agree on a global pact to eliminate high-denomination notes.

…analysis is totally convincing on the linkage between high denomination notes and crime. …technology is obviating whatever need there may ever have been for high denomination notes in legal commerce. …The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well.  If Europe moved, pressure could likely be brought on others, notably Switzerland. …Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100.  Such an agreement would be as significant as anything else the G7 or G20 has done in years. …a global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

Summers cites a working paper by Peter Sands of the Kennedy School, so let’s look at that argument for why governments should get rid of all large-denomination currencies.

Illegal money flows pose a massive challenge to all societies, rich and poor. Tax evasion undercuts the financing of public services and distorts the economy. Financial crime fuels and facilitates criminal activities from drug trafficking and human smuggling to theft and fraud. Corruption corrodes public institutions and warps decision-making. Terrorist finance sustains organisations that spread death and fear. The scale of such illicit money flows is staggering. …Our proposal is to eliminate high denomination, high value currency notes, such as the €500 note, the $100 bill, the CHF1,000 note and the £50 note. …Without being able to use high denomination notes, those engaged in illicit activities – the “bad guys” of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their “business models”.

Are these compelling arguments? Should law-abiding citizens be forced to give up cash in hopes of making life harder for crooks? In other words, should we trade liberty for security?

From a moral and philosophical perspective, the answer is no. Our Founders would be rolling in their graves at the mere thought.

But let’s address this issue solely from a practical, utilitarian perspective.

The first thing to understand is that the bad guys won’t really be impacted. The head the The American Anti-Corruption Institute, L. Burke Files, explains to the Financial Times why restricting cash is pointless and misguided.

Peter Sands…has claimed that removal of high-denomination bank notes will deter crime. This is nonsense. After more than 25 years of investigating fraudsters and now corrupt persons in more than 90 countries, I can tell you that only in the extreme minority of cases was cash ever used — even in corruption cases. A vast majority of the funds moved involved bank wires, or the purchase and sale of valuable items such as art, antiquities, vessels or jewellery. …Removal of high denomination bank notes is a fruitless gesture akin to curing the common cold by forbidding use of the term “cold”.

In other words, our statist friends are being disingenuous. They’re trying to exploit the populace’s desire for crime fighting as a means of achieving a policy that actually is designed for other purposes.

The good news, is that they still have a long way to go before achieving their goals. Notwithstanding agitation to get rid of “Benjamins” in the United States, that doesn’t appear to be an immediate threat. Additionally, according to SwissInfo, is that the Swiss government has little interest in getting rid of the CHF1,000 note.

The European police agency Europol, EU finance ministers and now the European Central Bank, have recently made noises about pulling the €500 note, which has been described as the “currency of choice” for criminals. …But Switzerland has no plans to follow suit. “The CHF1,000 note remains a useful tool for payment transactions and for storing value,” Swiss National Bank spokesman Walter Meier told

This resistance is good news, and not just because we want to control rapacious government in North America and Europe.

A column for Yahoo mentions the important value of large-denomination dollars and euros in less developed nations.

Cash also has the added benefit of providing emergency reserves for people “with unstable exchange rates, repressive governments, capital controls or a history of banking collapses,” as the Financial Times noted.

Amen. Indeed, this is one of the reasons why I like bitcoin. People need options to protect themselves from the consequences of bad government policy, regardless of where they live.

By the way, if you’ll allow me a slight diversion, Bill Poole of the University of Delaware (and also a Cato Fellow) adds a very important point in a Wall Street Journal column. He warns that a fixation on monetary policy is misguided, not only because we don’t want reckless easy-money policy, but also because we don’t want our attention diverted from the reforms that actually could boost economic performance.

Negative central-bank interest rates will not create growth any more than the Federal Reserve’s near-zero interest rates did in the U.S. And it will divert attention from the structural problems that have plagued growth here, as well as in Europe and Japan, and how these problems can be solved. …Where central banks can help is by identifying the structural impediments to growth and recommending a way forward. …It is terribly important that advocates of limited government understand what is at stake. …calls for a return to near-zero or even negative interest rates…will do little in the short run to boost growth, but it will dig the federal government into a deeper fiscal hole, further damaging long-run prospects. It needs to be repeated: Monetary policy today has little to offer to raise growth in the developed world.

Let’s close by returning to the core issue of whether it is wise to allow government the sweeping powers that would accompany the elimination of physical currency.

Here are excerpts from four superb articles on the topic.

First, writing for The American Thinker, Mike Konrad argues that eliminating cash will empower government and reduce liberty.

Governments will rise to the occasion and soon will be making cash illegal.  People will be forced to put their money in banks or the market, thus rescuing the central governments and the central banks that are incestuously intertwined with them. …cash is probably the last arena of personal autonomy left. …It has power that the government cannot control; and that is why it has to go. Of course, governments will not tell us the real reasons.  …We will be told it is for our own “good,” however one defines that. …What won’t be reported will be that hacking will shoot up.  Bank fraud will skyrocket. …Going cashless may ironically streamline drug smuggling since suitcases of money weigh too much. …The real purpose of a cashless society will be total control: Absolute Total Control. The real victims will be the public who will be forced to put all their wealth in a centralized system backed up by the good faith and credit of their respective governments.  Their life savings will be eaten away yearly with negative rates. …The end result will be the loss of all autonomy.  This will be the darkest of all tyrannies.  From cradle to grave one will not only be tracked in location, but on purchases.  Liberty will be non-existent. However, it will be sold to us as expedient simplicity itself, freeing us from crime: Fascism with a friendly face.

Second, the invaluable Allister Heath of the U.K.-based Telegraph warns that the desire for Keynesian monetary policy is creating a slippery slope that eventually will give governments an excuse to try to completely banish cash.

…the fact that interest rates of -0.5pc or so are manageable doesn’t mean that interest rates of -4pc would be. At some point, the cost of holding cash in a bank account would become prohibitive: savers would eventually rediscover the virtues of stuffed mattresses (or buying equities, or housing, or anything with less of a negative rate). The problem is that this will embolden those officials who wish to abolish cash altogether, and switch entirely to electronic and digital money. If savers were forced to keep their money in the bank, the argument goes, then they would be forced to put up with even huge negative rates. …But abolishing cash wouldn’t actually work, and would come with terrible side-effects. For a start, people would begin to treat highly negative interest rates as a form of confiscatory taxation: they would be very angry indeed, especially if rates were significantly more negative than inflation. …Criminals who wished to evade tax or engage in illegal activities would still be able to bypass the system: they would start using foreign currencies, precious metals or other commodities as a means of exchange and store of value… The last thing we now need is harebrained schemes to abolish cash. It wouldn’t work, and the public rightly wouldn’t tolerate it.

The Wall Street Journal has opined on the issue as well.

…we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency. …the European Central Bank would like to ban €500 notes. …Limits on cash transactions have been spreading in Europe… Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. …Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. …The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet…Criminals will find a way, large bills or not. The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. …Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it… But that goal will be undermined if citizens hoard cash. …So, presto, ban cash. …If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses. All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft. …the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. …it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? …Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

Last, but not least, Glenn Reynolds, a law professor at the University of Tennessee, explores the downsides of banning cash in a column for USA Today.

…we need to restore the $500 and $1000 bills. And the reason is that people like Larry Summers have done a horrible job. …What is a $100 bill worth now, compared to 1969? According to the U.S. Inflation Calculator online, a $100 bill today has the equivalent purchasing power of $15.49 in 1969 dollars. …And although inflation isn’t running very high at the moment, this trend will only continue. If the next few decades are like the last few, paper money in current denominations will become basically useless. …to our ruling class this isn’t a bug, but a feature. Governments want to get rid of cash… But at a time when, almost no matter where you look in the world, the parts of it controlled by the experts and technocrats (like Larry Summers) seem to be doing badly, it seems reasonable to ask: Why give them still more control over the economy? What reason is there to think that they’ll use that control fairly, or even competently? Their track record isn’t very impressive. Cash has a lot of virtues. One of them is that it allows people to engage in voluntary transactions without the knowledge or permission of anyone else. Governments call this suspicious, but the rest of us call it something else: Freedom.

Amen. Glenn nails it.

Banning cash is a scheme concocted by politicians and bureaucrats who already have demonstrated that they are incapable of competently administering the bloated public sector that already exists.

The idea that they should be given added power to extract more of our money and manipulate our spending is absurd. Laughably absurd if you read Mark Steyn.

P.S. I actually wouldn’t mind getting rid of the government’s physical currency, but only if the result was a system that actually enhanced liberty and prosperity. Unfortunately, I don’t expect that to happen in the near future.