Cato Op-Eds

Individual Liberty, Free Markets, and Peace
Subscribe to Cato Op-Eds feed

The European Union’s leaders said they wanted the United Kingdom to remain in the EU. But Brussels offered only minimal concessions to British Prime Minister David Cameron, undercutting his effort to sell the benefits of continued EU membership.

Now the Eurocrats who dominate EU policy are attempting to push the UK out the door. London should slow down the process and maximize its leverage.

The vote to Leave shocked Eurocrats across Europe. Even many Brexit advocates believed that Remain would carry the day. The British government is not prepared to announce a Brexit program.

However, EU leaders almost immediately began pressing London to act. They want the UK to trigger Article 50, which begins a two-year process to renegotiate a departing member’s relationship with the EU.

Once taken the decision cannot be reversed. And if no agreement is reached within two years the country is unceremoniously defenestrated without any special access to the European market.

But the UK need not hurry. The British government should hold off until it is ready.

First, the situation is chaotic. The prime minister is resigning. The opposition leader might be forced to resign. Scotland might again vote for independence. No one is ready to discuss Brexit terms.

Second, with both leading parties in flux, waiting would allow a new government and opposition to emerge. How to implement the vote remains to be decided. A new government should be in office first.

Third, the Eurocrats have split between those determined to impose punitive terms in order to discourage other states from leaving and those who prefer to be generous and maximize continued cooperation. Better to let passions cool.

Fourth, when the Brexit trigger is pulled is a political, not legal issue. The referendum was advisory. No enabling legislation has been passed. Effective negotiations won’t be possible until a government, backed by a stable majority, is prepared to act.

Fifth, waiting would increase London’s bargaining power. The Eurocrats understand that accelerating the process would put greater pressure on London to make concessions, since a shorter deadline would threaten to leave the UK outside of the EU without any special access to the European market. However, Britain can play the same game by delaying.

Sixth, as passions cool the desire to exact revenge—to punish Britain to discourage other exiteers—likely will fade. While punitive measures might provide emotional satisfaction for some, failing to reach an agreement with the world’s fifth and Europe’s second largest economy would hurt everyone. Continued commercial links between the UK and continent are too important to sacrifice in a fit of pique.

Seventh, slowing the process would give Washington more time to play a positive role. As I wrote in the American Spectator: “It should start by indicating its willingness to begin negotiations with the UK over a free trade agreement as soon as the Brits are ready. The U.S. also should indicate that a smoother UK-EU divorce would improve the chances of a U.S.-EU trade pact.”

Eighth, holding off on the official trigger creates at least a possibility of rapprochement between the UK and EU. Brexit just might shock Europe’s leading powers toward serious reforms. Donald Tusk, one of the EU’s many presidents (of the European Council) admitted that “ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.” The EU will have to work to regain public trust and support. If successful, the EU might even change attitudes in the UK.

The ultimate impact of Brexit remains to be seen. All parties should allow the passions political battle to cool. In fact, slowing down the process would benefit Europe as well as the UK. A hasty, angry negotiation would serve no one. The British vote could change the EU for the better. There’s no need to hurry the Brexit. 

It was an odd and sad year at the Supreme Court. Most years, reporters and pundits devise a “theme” that’s mostly an artificial construct driven by the vagaries of the docket: “The Court moved left/right/minimalist/unanimous …” But this year there actually is a real theme: the loss of Justice Antonin Scalia. Justice Scalia’s passing “deflated” what would otherwise have been yet another blockbuster term in many ways, defusing several high-profile cases as well as removing the most quotable pen on Earth from media coverage these last weeks of June.

In practical terms, however, Scalia’s absence was felt in ways different than most people assume. For example, of the major cases, only Friedrichs (worker rights) came out the other way, affirming the lower court by a 4-4 vote that would’ve been a 5-4 reversal with Scalia. United States v. Texas (immigration) would’ve been a 5-4 affirmance of the lower-court injunction instead of a 4-4 affirmance. Fisher II (affirmative action) would’ve been a 4-4 affirm instead of 4-3. Zubik (contraceptive mandate) would’ve been 5-4 reversal instead of a weird 8-0 decision to vacate that effectively forces a compromise that the challengers can accept. Whole Women’s Health (abortion) would’ve been a 5-4 reversal instead of a 5-3. To be sure, there would’ve been interesting nuances from the opinions in Scalia’s presence – which may have set precedents for, say, future executive actions – but the direct results wouldn’t have really changed except in Friedrichs (which was a big deal, don’t get me wrong) and a handful of lower-profile cases.

Also, this was a term of very few surprises; the conventional wisdom was borne out in every case that I followed except Fisher II. I still can’t figure out what Justice Kennedy was doing there, reversing himself from Fisher I regarding deference to administrators and voting to uphold a use of racial preferences for the first time ever. Maybe he was just tired of the case. Indeed, both Fisher and Whole Women’s Health, while making national news due to their fraught subject matter, are minimalistic and sui generis, dealing with very specific government policies.

But regardless of the good, bad, and ugly, when the dust cleared, there was one aspect of continuity that’s particularly gratifying to me: Cato continued its successful streak in cases in which we filed amicus briefs. While not as dominating as two terms ago, we still managed to pull off a 4-4 (or 3-3-2, as I’ll explain shortly) record.

Here’s the breakdown, in the order the opinions arrived:

Winning side (4): Luis v. United StatesU.S. Army Corps of Engineers v. HawkesZubik v. BurwellUnited States v. Texas (4-4 affirming our position).

Losing side (4): Evenwel v. Abbott; Fisher v. UT-AustinTyson Foods v. BouaphakeoFriedrichs v. California Teachers Association (4-4 affirming position we opposed).

But regardless, we still pipped our main competition, the U.S. government, which went 13-14 on the term, including a record 10 unanimous losses. This administration is easily the worst performer of any to have come before the Court in modern times (and probably ever, though it’s more relevant to compare Obama to Bush, Reagan, and Kennedy than, say, Benjamin Harrison). There are three basic reasons for this: expansive executive action, envelope-pushing legal theories, and Justice Kennedy acting like a libertarian on close cases.

I’ll have more to say on this in future commentary, but if you’d like to learn more about all these cases/trends and the views of Cato-friendly scholars and lawyers, register for our 15th Annual Constitution Day Symposium, which will be held September 15 to review the term and look ahead to next year. That’s also when we’ll be releasing the latest volume of the Cato Supreme Court Review, the editing of which will consume much of my summer.

Here are links to the latest polls and public opinion studies:   CBS/YOUGOV June 26, 2016 WISCONSIN, NORTH CAROLINA, FLORIDA, COLORADO — Poll: Donald Trump, Hillary Clinton in tight races in battleground states
  • CBS polls of likely voters show Clinton narrowly leading Trump across a number of key states of Florida (44 to 41 percent); Colorado (40 to 39 percent); Wisconsin (41 to 36 percent) and North Carolina (44 to 42 percent). North Carolina has flipped back and forth between the parties in the last two elections.

ABC/Washington Post
June 26, 2016
In new poll, support for Trump has plunged, giving Clinton a double-digit lead

  • Two-thirds of Americans see Trump as biased against groups such as women, minorities, or Muslims. Sixty-four percent of respondents say Trump is unqualified to serve as president, a new high, and 34 percent say he is qualified. 

Wall Street Journal/NBC
June 26, 2016
Hillary Clinton Holds 5-Point Lead Over Donald Trump, Latest Poll Finds

  • Half of registered voters (50 percent) said they were concerned the government would go “too far” in curtailing the people’s right to own guns while 47 percent said they worry the government would not do enough to regulate the ability to get guns. Forty-two percent of those polled had a positive image of the NRA, while 36 percent viewed the group negatively. 

American Enterprise Institute:
June 23, 2016
Report: Public opinion on affirmative action
Karlyn Bowman and Eleanor O’Neil

  • Americans generally support “affirmative action” in employment and education, but oppose “preferential treatment.”
Gallup
June 27, 2016
Trump Not Yet Generating Evangelical Republican Zeal
  • Highly religious white Protestant Republicans are no more likely to view Trump favorably than are white Protestant Republicans who are moderately or not religious. In contrast, while he was still in the race, former candidate Ted Cruz’s appeal was significantly higher among highly religious members of this group than among those who were less religious.

Gallup
June 24, 2016
In U.S., Slim Majority Confident About Financial Future

  • Fifty-three percent of respondents were “very” or “somewhat” confident about financial future compared to 46 percent who report feeling at least somewhat insecure about their financial future, including 17 percent who feel “very” insecure. Lower-income Americans report being the most financially insecure: 37 percent of those making below $30,000 a year reported feeling “very insecure.”
Public Policy Polling (PPP) June 24, 2016  NC Governor’s Race Remains Tied; HB2 Still Unpopular
  • Only 28 percent of voters think HB2 (also known as the Charlotte Bathroom Bill) is helping North Carolina, whereas 52 percent think it’s hurting the state. Voters feel the law it’s having an adverse effect both on the state’s economy (49 percent say it’s having a negative impact, only 10 percent say it’s having a positive one) and on the state’s national reputation (50 percent say it’s having a negative impact, only 19 percent a positive one.)

Rasmussen
June 27, 2016
Most Voters Don’t See Love As Answer to Terrorism

  • Fifty-three percent of Americans disagree with Loretta Lynch that love is the best response to terror incidents like the one in Orlando.

Portland Press Herald
June 25, 2016
MAINE: Charts: Portland Press Herald/Maine Sunday Telegram poll results

  • Governor Paul LePage suffers from low favorability. Just 36 percent or respondents view him favorably whereas 59 percent hold unfavorable opinions.

PRRI/Brookings
June 23, 2016
Report: How Immigration and Concerns about Cultural Change are Shaping the 2016 Election | PRRI/Brookings Survey
Betsy Cooper, Ph.D., Daniel Cox, Ph.D., E.J. Dionne Jr., Rachel Lienesch, Robert P. Jones, Ph.D., William A. Galston

  • The general public is evenly divided over whether American culture and way of life have mostly changed for the better (49 percent) or changed for the worse (50 percent) since the 1950s. White working-class Americans (62 percent) and white evangelical Protestants (70 percent) are among the most likely to believe that American culture and the American way of life has changed for the worse since the 1950s. Approximately eight in ten Republicans (79 percent) and Trump supporters (83 percent) believe the values of Islam are at odds with the American way of life. This view is shared by a majority (54 percent) of independents and less than half (42 percent) of Democrats. A majority (55 percent) of Democrats say Islam does not conflict with American values.
Pew Research June 22, 2016 Partisanship and Political Animosity in 2016
  • For the first time in surveys dating back to 1992, majorities in both parties express not just unfavorable but “very unfavorable” views of the other party. And today, sizable shares of both Democrats and Republicans say the other party stirs feelings of not just frustration, but fear and anger. More than half of Democrats (55 percent) say the Republican Party makes them “afraid,” while 49 percent of Republicans say the same about the Democratic Party. Among those highly engaged in politics – those who say they vote regularly and either volunteer for or donate to campaigns – fully 70 percent of Democrats and 62 percent of Republicans say they are afraid of the other party.
 Sam Henick contributed research to these polling links.

 

 

 

 

Today, The Supreme Court issued a unanimous ruling on the closely watched corruption case concerning former Virginia governor, Robert McDonnell. McDonnell and his wife were charged with a Hobbs Act violation and honest services fraud. The McDonnells had accepted $175,000 in loans and gifts from the CEO of Star Scientific, a nutritional supplement developer. Merely accepting gifts is not a crime, however. Under the honest services statutes and the Hobbs Act, a government official must have exchanged “official acts” for those gifts. The crux of the case boiled down to what, exactly, constitutes an “official act”.

The prosecution argued that McDonnell made five official acts, all in furtherance of getting Star Scientific’s new supplement, Anatabloc, tested by Virginia’s public universities, which would greatly assist the FDA-approval process. The acts included sending aides to view and take notes at meetings between the CEO and others, hosting events where he encouraged state universities to conduct studies on Anatabloc, contacted other officials within the governor’s office to encourage the same studies, allowing the CEO to invite business partners to events at the governor’s mansion, and suggesting that Anatabloc be a part of the state healthcare plan.

Another “official act” was an email saying “pls see me about Anatabloc issues at VCU and UVA.”

Jonnie Williams, the CEO, failed in his attempts to get state universities to conduct his studies, but according to the prosecution, it was the intention to influence the process which triggers the corruption charges.

The situation does look suspicious on its face, but a problem stems from the fact that if the government construes the term “official acts” this broadly, it could criminalize many actions which officials take in order to make government function more smoothly for any and all of its constituents. If the prosecution succeeded in its argument (and it had succeeded in two lower courts before making its way to SCOTUS), it could punish any official who sends or forwards an email to a slow-moving bureaucracy urging them to remedy the problems of an aggrieved citizen. It could punish any official who invites business leaders to an event. It could punish any official who attends an event which is promoted by business leaders. And it could punish an official who asks any of his subordinates to take notes at any of these meetings. During oral arguments, Justice Breyer said, “For better or for worse, it puts at risk behavior that is common.”

Seventy-seven former attorneys general from a variety of states agreed with these fears and reiterated them in an amicus curiae brief. “McDonnell’s acts were ‘assuredly ‘official acts’ in some sense,’ but they ‘[were] not ‘official acts’ within the meaning of’ the federal bribery statutes. United States v. Sun-Diamond Growers of Cal.” Lastly, from page 5 of the same, “And when they ask their legal advisers, ‘Does this violate the law?’ too often the reply will be, ‘We really don’t know.’”

Here’s an excerpt from the ruling:

[C]onscientious public officials arrange meetings for constituents, contact other officials on their behalf, and include them in events all the time. The basic compact underlying representative government assumes that public officials will hear from their constituents and act appropriately on their concerns—whether it is the union official worried about a plant closing or the homeowners who wonder why it took five days to restore power to their neighborhood after a storm. The Government’s position could cast a pall of potential prosecution over these relationships if the union had given a campaign contribution in the past or the homeowners invited the official to join them on their annual outing to the ballgame. Officials might wonder whether they could respond to even the most commonplace requests for assistance, and citizens with legitimate concerns might shrink from participating in democratic discourse.

This concern is substantial. White House counsel who worked in every administration from that of President Reagan to President Obama warn that the Government’s “breathtaking expansion of public-corruption law would likely chill federal officials’ interactions with the people they serve and thus damage their ability effectively to perform their duties.” Six former Virginia attorneys general—four Democrats and two Republicans—also filed an amicus brief in this Court echoing those concerns, as did 77 former state attorneys general from States other than Virginia—41 Democrats, 35 Republicans, and 1 independent. [internal citations removed]

Chief Justice Roberts made it clear that the underlying facts were distasteful (the McDonnells exercised extremely poor judgment), but the Court had to consider the implications of the government’s “boundless interpretation” of the federal corruption statutes.  By its unanimous vote, the Court has sent a powerful signal to both the U.S. Attorney General and the lower federal courts: Stop stretching the laws to cover grubby politicking; only crack down on old-fashioned bribery.  Lastly, the Court noted that due process requires that people have fair notice of what conduct is criminal and what conduct is lawful.  When the government urges broad interpretations of the criminal statutes, due process is threatened.  To avoid that danger, courts should generally embrace a more confining view of the statute and thus federal prosecutorial power.

It may appear abstract, but look at what happened today.  Prosecutors asked that Robert McDonnell be imprisoned ten years for his conduct.  Today, he remains a free man because it is not obvious that his conduct was unlawful.  There might still be a retrial, but the prosecution’s theory was unanimously rejected by the Supreme Court.

Related item here.  

 

Smithsonian leaders have revealed that renovating the Air and Space museum in Washington, D.C. will cost almost $1 billion. That’s the equivalent of an army of 10,000 workers earning $100,000 each for a year to fix it up. Geez, government projects are expensive!

My letter in the Washington Post today proposes that rather than hitting taxpayers, museum visitors should pay for the renovation:

Regarding the June 23 Style article “Estimate for Air and Space facelift closes in on $1 billion”:

About $250 million of the ballooning makeover costs for the National Air and Space Museum will come from private donations, leaving a $750 million bill for taxpayers.

But rather than burdening taxpayers, how about charging visitors? The Post noted that the museum gets 7 million visitors a year, so a modest $5 fee would raise $35 million a year and pay back the makeover costs over 21 years.

Aside from the greater fairness of charging users rather than taxpayers, fees would limit demand and thus improve the visitor experience at the overcrowded institution. User fees for Air and Space — and other Smithsonian museums — would also help level the playing field with private D.C. museums, such as the International Spy Museum.

There is one more advantage of user pays. The Post notes that the estimated cost of the renovation has already skyrocketed from earlier figures of $250 million and $600 million (a common pattern). If the museum were required to fully cover renovation costs through voluntary donations and user fees, Smithsonian executives would have a strong incentive to find design savings and control construction costs.  

Where did Hillary Clinton’s campaign get the “I’m with her” slogan that Donald Trump criticized last week? I saw this in the Washington Post:

Ida Woldemichael, a designer who came up with “I’m with Her” for the Clinton campaign,…is a graphic designer who worked for the Clinton Foundation before joining the campaign about a year ago.

Not that the Clinton Foundation is any kind of tax-exempt, dictator-supported, $2 billion advance team for the Clinton campaign.

Back in January, I blogged about TransCanada taking legal action under NAFTA-related to the rejection of its Keystone XL pipeline permit application. It is now being reported that TransCanada has taken the next step in the process. This is from Canada’s Financial Post:

TransCanada Corp. made good late Friday on its threat to challenge President Barack Obama’s rejection of the Keystone XL pipeline, filing a request for arbitration under the North American Free Trade Agreement (NAFTA) to recoup US$15 billion in damages from the U.S. government.

In the 42-page document, TransCanada claims the U.S. government “ultimately denied Keystone’s application, not because of any concerns over the merits of the pipeline, but because President Obama wanted to prove his administration’s environmental credentials to a vocal activist constituency that asserted that the pipeline would lead to increased production and consumption of crude oil and, therefore, significantly increased greenhouse gas (“GHG”) emissions.”

TransCanada further claims that the U.S. administration knew “those assertions were false” and that in fact, “the State Department had issued five environmental impact statements between 2008 and 2015, all of which concluded that the Keystone XL Pipeline would not result in a significant increase in GHG emissions.  The State Department reiterated that conclusion for a sixth time when it denied Keystone’s second application in November 2015.”

As I noted in January, these cases take a long time:

Keep in mind, also, that these investment cases are not quick. We’ll have a new president long before the NAFTA case is completed. If the new president is a Republican, he/she will likely approve Keystone (if TransCanada files a new application). That should end the NAFTA lawsuit (although TransCanada could still claim damages from the delay). If it’s President Clinton/Sanders, though, who both oppose Keystone, we could see a ruling in the case.

Let me amend one aspect of this, however, to take into account Donald Trump. Trump says he would approve Keystone, but only under some absurd conditions:

Donald Trump’s vow to resuscitate the Keystone XL oil pipeline in exchange for a share of its profits has a glaring problem: It risks running afoul of laws against government takings of private property. And even supporters of the project warn that it risks hurting relations with Canada, the nation’s No. 1 oil supplier.

The presumptive Republican nominee has repeatedly pledged to revive the Canada-to-Texas pipeline, a long-standing cause for Republicans in Congress, but Trump has brought a twist. He wants U.S. taxpayers to get a slice of the project’s revenue.

“I want it built, but I want a piece of the profits,” Trump said May 26 before delivering an energy speech to an oil-industry audience in North Dakota. “That’s how we’re going to make our country rich again.”

Trump’s suggestion of taking “a piece of the profits” would likely mean that TransCanada’s claim will go ahead, but with a slightly different factual and legal basis.

The United Kingdom will exit the European Union. The shock waves first hit Scotland. The secession-minded government plans to hold another independence vote. Next time a majority of Scots may see no reason to stay.

Both the Conservative and Labour Parties face bitter, internecine strife. Calls already have been made for the resignation of opposition leader Jeremy Corbyn. Prime Minister David Cameron announced his intention to resign and the rest of his government is likely to be swept away as well.

The UK and EU must plan a process never before undertaken. Most important will be early negotiations over London’s future economic and political association with the rest of Europe.

However, some Eurocrats, who dominate Brussels, have threatened to retaliate against the British vote by making the UK’s departure as difficult as possible. For no obvious reason President Barack Obama took a similar position, telling the British people that they would end up at “the back of the queue” for free trade negotiations with Washington. Yet turning post-Brexit negotiations into a punitive expedition would harm everyone involved.

The impact of the vote will radiate across the continent. Some Eurocrats imagine that dissatisfaction with the EU is a uniquely English phenomenon. It actually is much more.

Observed Raoul Ruparel and Stephen Booth of London-based Open Europe: “a number of other states attempted to piggy-back on the UK’s reforms, but this was resisted by others for fear of ‘reform contagion’.” Reform may be harder to resist in the future, however.

Cato’s Marian Tupy pointed out that “the EU is undemocratic not by accident but by design.” Thus, the British are not the only Europeans desiring to escape from the EU’s smothering embrace.

A majority of French and Italians and plurality of Danes and Swedes told pollsters that they want a similar vote. And strong pluralities in most states polled favor returning more powers to national governments.

Moreover, populist and nationalist parties are likely to make EU membership an issue in upcoming elections. France, Germany, and Italy will hold elections within the next two years. Recently the hard nationalist right barely missed winning the presidency in Austria. Economic hardship also has elevated Euroskeptics of varying degrees on the left.

Although there will be no mass exodus from the EU, the departure of even a couple more nations would further diminish the reality of the “European Union.” Moreover, other governments are likely to push to regain authority or at least resist any further accretions of power to Brussels. The continent is fracturing, not uniting.

Some European leaders remain oblivious. There was strong resistance in Brussels to Cameron’s reform proposals as well as other nations’ attempts to win similar concessions. Yet ever fewer Europeans appear to desire the existing union.

In contrast, Donald Tusk, who heads the European Council, admitted that “ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.” France’s ambassador to America, Gerard Araud, argued: “Reform or die!”

What the EU desperately needs is a true “reform contagion.” Painful as it would be to Brussels in light of Brexit, the EU should move “in a ‘British’ direction,” argued Vernon Bogdanor of King’s College London. At least the organization could allow multiple levels of integration, with different requirements for different states.

Most important, I argue on Forbes online: “instead of attempting to circumvent the public, Eurocrats should make their case for change and abide by the voters’ decisions.” For today “the specter of a breakup is haunting Europe,” warned Tusk.

Once again the British have lived up to their reputation. Average folks rejected expert opinion and economic special pleading in order to better govern themselves. Just as America’s forefathers did against the British Empire so many years ago.

The final panel of last week’s foreign policy conference continued the discussion of the political obstacles to restraint and provided further details on what such a strategy would look like today. Cato’s Emma Ashford kicked off the discussion by explaining how U.S. involvement has undermined U.S. interests in the Middle East, recommending instead that the United States adopt an offshore balancing approach to the region.

John Mueller, also of Cato, used his time to downplay the many commonly cited threats to U.S. security, including rising powers, proliferation, and terrorism. He also cast doubt on whether our large, powerful military is well-suited to deal with these minor threats, most of which are exacerbated by the use of force.

Ben Friedman discussed why primacy enjoys so much support in Washington, despite its flaws. U.S. safety and wealth, he argued, insulate most Americans from the consequences of foreign policy, making them indifferent to it, and enabling special interests that benefit from primacy dominate policy-making. He discussed policy reforms that would heighten appreciation of primacy’s costs in order to increase support for restraint.

The conference’s final speaker, Jacqueline Hazelton of the Naval War College, challenged those who seek a more restrained U.S. foreign policy to develop a plan to bring make it a reality. Picking up on that point, panel moderator Trevor Thrall brought the conference to a close by noting: “Our work is not done.”

The conference’s hosts, Cato’s Ben Friedman and Trevor Thrall are editing a book featuring chapters by the experts who presented at “The Case for Restraint” conference. For more information on the book, please email tevans [at] cato.org.

You can watch full discussion from final panel below.

 

House Republicans have released a proposal for major tax reform. Kudos to Ways and Means chairman Kevin Brady for stepping up to the plate and planning ahead for 2017. Brady and his staff did extensive outreach to think tank experts and the GOP caucus, and they have come up with a blueprint that focuses on savings, investment, simplification, and economic growth.  

The GOP plan would cut the top personal income tax rate from 40 percent to 33 percent, while consolidating the bracket structure from 7 rates to 3. The plan would reduce the top tax rate on small businesses to 25 percent, and it would repeal the estate tax and alternative minimum tax.

The corporate tax rate would be cut from 35 percent to 20 percent. That would be the single most important thing that the next Congress could do for the U.S. economy. Corporations build factories, buy equipment, and hire workers to earn after-tax profits. Slashing the marginal tax rate by 15 points would substantially increase the after-tax profits companies could earn on new investments, and they would respond accordingly. More capital investment would mean more job opportunities and higher wages for American workers.

The GOP plan would allow businesses to immediately write off capital investment, which would further boost after-tax returns on new investment and simplify the tax code. The plan would adopt a “territorial” approach for foreign business income to make America an attractive place to headquarter multinational corporations. The lower tax rate, territorial approach, and capital expensing would generate a large inflow of real investment and paper profits to our shores, rather than repelling them as our current tax system does.

The GOP plan would expand individual saving opportunities as well. In particular, it embraces the Brat/Flake proposal (H.R. 4094/S. 2320) for creating Universal Savings Accounts (USAs). After the big success of such accounts in Canada and Britain, I’ve long argued that USAs are a no-brainer for tax reform in the USA.

House Speaker Paul Ryan has championed major tax reform for years. If Donald Trump wins the White House, the GOP could well move swiftly on tax reform early in 2017. Ryan and Brady are smart to put a detailed plan out there now and rally support for bold changes.

Last night, the British people voted to leave the European Union. When Britain joined the European Economic Community in 1973, the EEC was little more than a free trade area. Over time, the EEC evolved into a supranational entity that at least superficially resembled a federal state. The European Union has its own flag, anthem, currency, president (five of them, actually) and diplomatic service. It is governed by an overpaid and arrogant bureaucracy in Brussels that is unelected and unaccountable. It was, therefore, perfectly reasonable to give the British electorate an opportunity to reflect on the changes that have taken place in Europe over the last 43 years.

Moving forward, there is no reason why nations committed to entrepreneurship and free trade should not prosper outside of the EU. Switzerland has done so in the past and Britain can do so in the future. By showing the rest of Europe that it is possible to live in prosperity and peace outside the suffocating confines of the EU, Britain will lead the way for other nations – including Denmark, France, Holland and Sweden – that wish to regain their sovereignty and chart their own course. Yesterday was Great Britain’s Independence Day. There is now a reason to hope that one day, freedom will return to the rest of Europe. 

In a lunch address to last week’s foreign policy conference, Barry Posen of MIT and author of Restraint discussed the perils of liberal hegemony, which he defined as a strategy that combines economic and military primacy with the “noble” goals of active democracy and human rights promotion. Posen argued that the advocates of liberal hegemony rely heavily on the use of force to achieve their objectives, and view military power as a scalpel that can perform precise, strategic operations.

Restraint-minded scholars, however, see military power as a “blunt and costly instrument” that is often counterproductive. Posen explained, for example, how identity politics, especially nationalism and religion, lead many to fight against or oppose invading armies, regardless of how benevolent the latter’s intentions may be.

Posen pointed out that there is strong opposition to America’s liberal hegemony strategy, in large part due to its high costs and profligate adventures abroad. Yet, by labeling restraint as “retreat,” Posen laments, liberal hegemony proponents militate substantive discussions and muddy the waters of the foreign policy debate.

You can watch Posen’s full remarks below. 

After six-plus years, congressional Republicans have finally offered an ObamaCare-replacement plan. They should have taken longer. Perhaps we should not be surprised that House Republican leaders* who have thrown their support behind a presidential candidate who praises single-payer and ObamaCare’s individual mandate would not even realize that the plan cobbled together is just ObamaCare-lite. Don’t get me wrong. The plan is not all bad. Where it matters most, however, House Republicans would repeal ObamaCare only to replace it with slightly modified versions of that law’s worst provisions.

Here are some of ObamaCare’s core private-health insurance provisions that the House Republicans’ plan would retain or mimic.

  1. ObamaCare offers refundable health-insurance tax credits to low- and middle-income taxpayers who don’t have access to qualified coverage from an employer, don’t qualify for Medicare or Medicaid, and who purchase health insurance through an Exchange. House Republicans would retain these tax credits. They would still only be available to people ineligible for qualified employer coverage, Medicare, or Medicaid. But Republicans would offer them to everyone, regardless of income or where they purchase coverage.
  2. These expanded tax credits would therefore preserve much of ObamaCare’s new spending. The refundable part of “refundable tax credits” means that if you’re eligible for a tax credit that exceeds your income-tax liability, the government cuts you a check. That’s spending, not tax reduction. ObamaCare’s so-called “tax credits” spend $4 for every $1 of tax cuts. House Republicans know they are creating (preserving?) entitlement spending because they say things like, “this new payment would not be allowed to pay for abortion coverage or services,” and “Robust verification methods would be put in place to protect taxpayer dollars and quickly resolve any inconsistencies that occur,” and that their subsidies don’t grow as rapidly as the Democrats’ subsidies do. Maybe not, but they do something that Democrats’ subsidies don’t: give a bipartisan imprimatur to ObamaCare’s redistribution of income.
  3. As I have tried to warn Republicans before, these and all health-insurance tax credits are indistinguishable from an individual mandate.  Under either a tax credit or a mandate, the government requires you to buy health insurance or to pay more money to the IRS. John Goodman, the dean of conservative health policy wonks, supports health-insurance tax credits and calls them “a financial mandate.” Supporters protest that a mandate is a tax increase while credits—or at least, the non-refundable portion—are a tax cut. But that’s illusory. True, the credit may reduce the recipient’s tax liability. But it does nothing to reduce the overall tax burden imposed by the federal government, which is determined by how much the government spends. And wouldn’t you know, the refundable portion of the credit increases the overall tax burden because it increases government spending, which Congress ultimately must finance with additional taxes. So refundable tax credits do increase taxes, just like a mandate.
  4. Health-insurance tax credits also give the federal government as much control over the content of your health plan as ObamaCare’s individual and employer mandates do. The government has to define both (a) how much coverage you must buy to qualify for the credit, and (b) whether your employer offers sufficient coverage to make you ineligible for the credit. What House Ways & Means Committee chairman Kevin Brady (R-TX) said yesterday of the tax preference for employer-sponsored insurance–“You only get it if you do exactly what Washington says”–is also true of his proposed tax credit. Republicans may try to allow for flexibility in insurance design, but they would still be creating (preserving?) tools that future Congresses and unelected bureaucrats would use (a) to restrict choice and innovation in both the individual and employer markets, (b) to push consumers back and forth between these markets, and (c) to increase government spending.
  5. Since House Republicans would offer tax credits for non-employer coverage without imposing an employer mandate to discourage employers from dropping coverage, their plan would do even more than ObamaCare to encourage employers to drop coverage. I don’t necessarily think that employers dropping coverage a bad thing–but wait until you see what happens next.
  6. House Republicans appear to want to retain ObamaCare’s guaranteed-issue regulations: “No American should ever be denied coverage or face a coverage exclusion on the basis of a pre-existing condition,” they write. “Our plan ensures every American, healthy or sick, will have the comfort of knowing they can never be denied a plan from a health insurer.” (Emphases added.)
  7. They also would modify, rather than repeal, ObamaCare’s community-rating price controls. A bit of explanation. Rather than allow reality-based (i.e., actuarially fair) premiums, ObamaCare requires insurers to charge everyone of a given age the same premium, and forbids insurers to charge their oldest enrollees more than three times what they charge their youngest enrollees. The centerpiece of ObamaCare, these government price controls literally punish insurers (like United Healthcare) who offer coverage the sick actually want, while rewarding insurers who offer coverage that’s unattractive to the sick. House Republicans propose not to repeal these price controls, but merely to increase the age-rating ratio to 5:1 (better, but still binding) and, more importantly, to preserve pure community rating in cases where consumers switch plans. That last part is a big problem. Imposing community rating for plan-switchers would create the same perverse penalties and rewards, and cause the same race to the bottom among health plans, that we observe in ObamaCare’s Exchanges. The race to the bottom might be even worse under the House Republicans’ plan than under ObamaCare. The GOP plan contains none of the mechanisms ObamaCare uses to slow down the degradation of coverage. And if the House Republicans’ tax credits and lack of employer mandate cause employers to drop coverage, which is a real concern, then House Republicans could trap tens of millions more Americans in an even quicker race to the bottom than ObamaCare does.
  8. House Republicans would also keep ObamaCare’s millennial mandate.
  9. Like ObamaCare, they would cap the tax exclusion for employer-sponsored coverage in a way that increases taxes on workers with expensive health benefits.

Expect howls from conservatives who protest that the House plan is not ObamaCare-lite. I mean, gosh, Chairman Brady promised it would create “health care freedom in a way Americans have never experienced”!

Please. The above similarities to ObamaCare include at least remnants of all three legs of ObamaCare’s three-legged stool. Conservatives, libertarians, and independents have spent seven years fighting ObamaCare…for this?

Moreover, this plan is downright dishonest. House Republicans say they want to “Repeal ObamaCare” and make “a clean start,” because they want to signal to their conservative base that they remain committed to full repeal. But then they too start down the same path ObamaCare has blazed. That is arguably worse than framing this plan as partial repeal and promising to finish the job later. Pretending to repeal all of ObamaCare but then reinstating some of its provisions with a Republican imprimatur would make those provisions completely repeal-proof.

To be fair, the plan includes some proposals that move in the right direction. It would modestly expand tax-free health savings accounts (HSAs) and health reimbursement arrangements (HRAs). It would allow people to purchase health insurance licensed by states other than their own. It would limit federal spending on Medicaid by giving states the option of a fixed amount of federal dollars per enrollee or a block grant (except for the elderly and disabled). A pure lump-sum, block-grant approach would be better, but at least this would be a step in the right direction. The Medicare reforms would move that program ever so slightly in the direction of Social Security, where the government subsidizes enrollees’ health care simply by giving them cash. But there would have to be a lot–a lot–of Medicare and Medicaid cuts to make up for Republicans keeping an ObamaCare entitlement they are pretending to repeal.

And still other parts of this plan betray Republicans’ lack of seriousness about health care reform and/or their own principles. Its authors claim, “ObamaCare set America on a path that leads to a larger government having a greater role in how health care decisions are made,” even though just a few paragraphs before they were lauding and promising to protect Medicare–a disaster of a program–and even boasting that it was Republicans who expanded it with a new, unfunded entitlement to prescription-drug coverage. They apparently see HSAs as a product to be promoted–or a nice way to shave a little off your tax bill–rather than as a mechanism for fundamental reform that gets the IRS out of your health care decisions entirely. Sen. Jeff Flake (R-AZ) and Rep. Dave Brat (R-VA) have introduced legislation that includes the basic elements of that approach. At press time, the House Republicans’ plan didn’t even include that bill among its list of health care proposals Republicans have offered this Congress. And then there are House Republicans’ wrong-headedunconstitutionalanti-federalism, special-interest-pandering medical malpractice liability reforms. At a time when the estimated number of annual deaths due to medical errors in the United States (251,454) is seven and a half times the number of firearms deaths (33,636), these geniuses are proposing to reduce incentives for providers to invest patient safety–oh, and to abandon their principles along the way.

Health care reform should make health care better, more affordable, and more secure, particularly for the most vulnerable. ObamaCare does the opposite, and Republicans are right to oppose it. If they really care for patients, Republicans need to go back to the drawing board until they find a better way.

 

*One of the architects of this plan, House Committee on Energy and Commerce chairman Fred Upton (R-MI), has refused to endorse presumptive GOP presidential nominee Donald Trump.

In my continuing quest to shine the light on successful cases of defense conversion (i.e. transitioning former military facilities to non-military uses), I traveled to the Big Apple on Wednesday to visit Governors Island, a former U.S. Army and later Coast Guard facility that the federal government sold back to the City of New York in 2003.

The occasion of my visit was a rendezvous with Samer Bagaeen and Celia Clark, co-editors of a new book, Sustainable Regeneration of Former Military Sites. I contributed a chapter on two sites in Philadelphia, and co-authored a second chapter (with Clark) on the Brooklyn Navy Yard. Celia had previously visited Governors Island, and included it as one of many cases where former defense facilities had been converted to venues for art exhibitions.

Governors Island is accessible via ferry from Battery Park, at Slip No. 7, just adjacent to the Staten Island Ferry terminal. The ferries to the island run once every hour during the summer, with a second ferry route coming from Brooklyn on weekends. The trip takes only a few minutes, but along the way you are treated to some terrific view of Lower Manhattan and the Brooklyn Bridge.

There were perhaps one hundred on the boat that I boarded at 2 pm, but one of the friendly deck hands Krishendat (“Call me Kris,” he said) explained that the boats, which can accommodate 1,250 passengers, were packed on weekends.

I was skeptical. There were few others there as I strolled the peaceful grounds on a pleasant weekday. The National Park Service supervises the 22 acres of the Governors Island National Monument, and park rangers and volunteers showed people around and answered questions. A few folks tooled around on two-person bikes, and the lucky ones had golf carts for shuttling between the historic properties, including Fort Jay and Castle Williams (a former prison). For the most part, the walkways were sparsely populated or empty. The view of Lower Manhattan through the talls trees was striking.

The Commanding Officer’s House, constructed in the 1840s, is a nice venue for meetings. A plaque in the entry way boasted of one such meeting: Ronald Reagan’s luncheon with Mikhail Gorbachev and then-Vice President/President-elect George H.W. Bush on December 7, 1988. Other structures were not as well maintained, and the worst of the lot were closed off with gates and warning signs.

Leslie Koch, the long-time president and chief executive of the Trust for Governors Island, confirmed that 10,000 or more come to the island each day on summer weekends. Many will come for the grand opening of a new park, The Hills, constructed from the remnants of the old seawall. Leslie, who is stepping down next month, gave us a sneak peak.

The 10-acre area, once completely flat, now features several undulating hills of grass, small trees, and rock walkways (scrambleways) for climbing. The Statue of Liberty rose up from behind the hills as the golf cart wound its way up the freshly paved road. The new park is sure to be a big hit for all ages, but the young ones will like the slides.

We had sped past a number of brick buildings on the way there. Most of the structures are unoccupied. Per the terms of the sale from the federal government to the City of New York, residential housing is forbidden on Governors Island. This could be a lucrative source of revenue to offset more than $16 million per year in operating expenses; by way of comparison, the Presidio Trust in San Francisco collects more than 50 percent of its revenue from residential rents. Residences can also draw businesses to former base properties, one of the reasons why the former Philadelphia Navy Yard decided to develop a few thousand apartment units. The restaurants and shops that cater to these residents also make the place more attractive to businesses, whose employees otherwise would have to travel off site for lunch or to run errands.

But while there are untapped opportunities on the island, it is a terrific space just a few minutes away from the heart of New York’s financial district. If you haven’t been, you should. And, when you go, remember: this former defense site was once closed off to nearly everyone. Now it is open for all to use and enjoy. We can and should do the same with other defense facilities around the country.

At the Washington Post, Tom Jackman highlights a new report documenting arrests of police officers across the country. The report, entitled “Police Integrity Lost: A Study of Law Enforcement Officers Arrested” and written by scholars at Bowling Green State University, estimates that three American police officers are arrested per day every year. The years covered in the study cover 2005-2011.

From the WaPo story:

The most common crimes were simple assault, drunken driving and aggravated assault, and significant numbers of sex crimes were also found. About 72 percent of officers charged in cases with known outcomes are convicted, more than 40 percent of the crimes are committed on duty, and nearly 95 percent of the officers charged are men.

[…]

“This is probably the tip of the iceberg,” said Cara Rabe-Hemp, a professor at Illinois State University who has studied police deviance. She said the effort is the “first-ever study to quantify police crime” and shows it is “much much more common than what police scholars and police administrators previously thought.”

A representative of the National Fraternal Order of Police union stated that the numbers are small when put in the context of 900,000 police officers nationwide. But there is nothing contradictory between his statement and that of Professor Rabe-Hemp. The raw numbers the BGSU researchers found are interesting, but we can be sure that they do not tell the whole story.

At the National Police Misconduct Reporting Project, we collect similar data that is consistent with the BGSU findings. Every day we find cases of misconduct, both on and off-duty. Some incidents result in arrests, other incidents are handled administratively, and some others are revealed by civil suits brought by victims and surviving families of police misconduct. We track the stories over time to see how they are handled by the police and prosecutors as the cases move through the labyrinth of administrative, civil, or criminal procedures.

We find cases where officers are arrested and convicted of crimes. But we also find officers who are given “professional courtesy” and not arrested for drunk driving. We see cases in which officers plea down their violent and disturbing felony cases to misdemeanor disorderly conduct, which allows them to maintain their peace officers’ license. We find longstanding criminal conspiracies that sometimes take years to uncover. And, just today in Baltimore, we see prosecutors unable to convict the officer believed to be most culpable for the conduct that resulted in the death of Freddie Gray. It is impossible to gauge the extent of misconduct because we don’t know how much of it the police and the media are catching.

Part of the reason NPMRP tracks these stories is to get a better sense of how different police agencies handle their misconduct cases, as well as the judicial systems that are sometimes involved. For a number of reasons—the Blue Wall of Silence, qualified immunity, use-of-force protocols, political pressures, the Law Enforcement Officers Bills of Rights, and sympathetic juries, among others—it is very difficult to bring criminal charges against a police officer, let alone secure a conviction, absent incontrovertible proof of wrongdoing.

As I testified last year before the U.S. Commission on Civil Rights, policymakers, watchdog agencies, and police leadership can benefit from more collection and analysis of police misconduct data. The new BGSU report is a welcomed one. It is 209 pages plus another 440 pages of notes and appendices, and we’re looking forward to digging further into those findings. You can read it for yourself here.

We are doing our part to make these issues clearer at NPMRP, which you can check out here. Keep an eye on NPMRP for more information about police misconduct in the coming weeks.

The welfare state is so vast and complex that it often works against itself. Regulations and taxes kill jobs and work incentives, but EITC subsidies are supposed to boost incentives. The government tells women to breastfeed, but the federal WIC program subsidizes baby formula.

The food stamp program provides billions of dollars for people to buy junk food, but liberals are pressing governments to penalize junk food with special taxes. Philadelphia just passed the first special tax on soda.

May I suggest that health do-gooders wanting people to eat less junk food focus on cutting subsidies rather than imposing taxes?

At the same time as Philly is imposing this new tax, Maine Governor Paul LePage is fighting the federal government to cut junk food out of the food stamp program. He is not getting much help from the Obama administration.

The federal government won’t reveal what share of $78 billion a year in food stamps are spent on junk food, but one estimate put soda alone at $4 billion of the total.

The Feds: Drink soda! Philly: Don’t drink soda! Me: Drink whatever you want, but not on my dime!

Food subsidies should be ended altogether, and we should have a simple and neutral tax code. Imposing special taxes on things that liberal elites dislike is a dangerous trend. Much better if those elites rallied around LePage, and focused on cutting junk food subsidies.

The deadlocked Supreme Court couldn’t issue an opinion, but still left in place the block on President Obama’s immigration actions. The lower courts had correctly found that the executive actions implementing DAPA violated both administrative law and immigration statutes so, for practical purposes, it wouldn’t have mattered if Justice Scalia had still been on the bench to make this a 5-4 decision against the government. In any case, DAPA is now dead and so is any chance for immigration reform until the next president. That’s why those of us favoring reform in this area counseled against the president’s attempt to rewrite the law via executive action. This country’s immigration system is a mess - not serving anyone’s interests, let alone national security - but changing the law requires a new law. 

The Supreme Court’s 4-3 ruling upholding UT-Austin’s use of racial preferences in admissions was surprising and disappointing. Justice Alito does well to call out the majority’s imperial opinion as having no clothes. “Something strange has happened since our prior decision in this case,” he begins in his magisterial dissent - referring to the Court’s 2013 ruling directing the lower court to scrutinize university officials’ self-serving justifications for their policy.

“Even though UT has never provided any coherent explanation for its asserted need to discriminate on the basis of race,” Alito concludes in a way I can’t improve upon, “and even though UT’s position relies on a series of unsupported and noxious racial assumptions, the majority concludes that UT has met its heavy burden.” (He cites Cato’s two amicus briefs for the proposition that UT’s misleading legal arguments can’t be trusted.)

The best that can be said about this decision is that it’s limited to the weird affirmative action program that UT-Austin uses, which is unique in the country. Future lawsuits are still possible, and will depend on the type of racial preferences challenged and, of course, the composition of the Supreme Court. 

Federal Reserve Chair Janet Yellen recently appeared before the Senate Banking Committee to deliver the Semiannual Monetary Policy Report to the Congress. A handful of Senators queried Yellen as to the lack of diversity among both the Fed staff and the members of the Federal Open Market Committee (FOMC).

Here, for example, is the exchange between Senator Warren and Yellen (paraphrased, as I heard it):

Warren: Diversity is very important. Studies show gender diversity in leadership makes for stronger institutions. I’m not surprised there’s a stunning lack of diversity at our biggest financial institutions. The Fed’s leadership diversity is somewhat better, but not a whole lot better. … Does lack of diversity among regional Fed presidents concern you?

Yellen: Yes, I believe it’s important to have diverse groups of policy makers who can bring different perspectives to bear. It is the responsibility of regional banks’ Class B and C directors to to conduct a search and identify candidates for regional Fed presidents. The Board reviews those candidates and we insist the search be national and every attempt is made to identify a diverse pool of candidates.

Warren: But what about the outcome? When a new regional Fed president is selected by the regional Fed board that person must be approved by you and others on the Board of Governors before taking office. The Fed Board recently reappointed each and everyone of these presidents without any public debate or any public discussion about it. If you’re concerned about diversity, why didn’t you use these opportunities to say enough is enough? Let’s go back and see if we can find qualified regional presidents who also contribute to the overall diversity of the Fed’s leadership?

Yellen: Well we did undertake a thorough review of the reappointments … [etc., etc.]

Warren: [Interrupting] But you’re telling me diversity’s important and yet you just signed off on all these folks without any public discussion about it. …The selection process is broken. Congress should take a hard look at reforming the regional Fed selection process so that we can all benefit from a Fed leadership that reflects a broader array of backgrounds and interests.

While it is tempting to dismiss such questions as mere identity politics (I’m waiting for Trump to complain about bringing in the Fed Vice Chair from Israel), the Fed has increasingly over time come to look less and less like the rest of America.

Should this matter, at least in terms of monetary policy? I believe it should.

We are a big country and, despite a focus on national aggregates, different parts of the country experience different economic conditions. California isn’t Texas; nor is it Ohio or New York. To some extent these regional differences are why we have the convoluted regional structure of the FOMC. Different voices can bring their experiences and local knowledge to bear in a manner that should result in a monetary policy that weighs the conditions of both New York and Ohio (as well as the rest of the country). Researchers have found that local economic conditions do indeed influence voting behavior on the FOMC. The finding holds not just for the regional bank Presidents, but also for Fed governors.

Of course geography is only one element. Having Fed leadership from different segments of our society, as well as different disciplines, encourages multiple approaches to problem-solving. While I am an economist and see a lot of value in economics, I’d be the first to say economics doesn’t have all the answers. Similarly, bankers can have important insights into the functioning of the economy, but so can manufacturers, retailers and farmers.

A greater variety of backgrounds could also improve Fed communications. Spending a lot of time around economists, I think it is fair to say we often speak a different language, sometimes foreign and strange to outsiders. A Fed board where deliberations occur across disciplines could improve the explanations of those deliberations to the broader public. I know I’ve often learned a considerable amount of economics in the process of trying to explain something to non-economists.

It is perhaps for this reason that Section 10 of the Federal Reserve Act requires that

In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.

Despite the clear language of Section 10, since 1996 80 percent of Fed governors have come from the East Coast (which has only about 30 percent of the population). The chart below shows successful nominees and the Federal Reserve district they were connected with, as viewed by the President who nominated them, the Senate who approved them, and the district of the nominees birth. The fact is we are not getting a monetary policy reflecting the perspectives and needs of the entire nation, but rather one concentrating on those of New York and Washington (which falls in the Richmond district).

To some extent the heavy concentration of appointments to the Board from NY, Boston and DC reflects the revolving door between the Fed, the financial industry and the executive branch (particularly the Treasury and the Council of Economic Advisors). So the lack of diverse perspectives is likely even worse than it seems. Not only do Fed appointments reflect biases favoring New York, but predominately biases favoring New York’s financial industry. Similarly, for Washington, appointments reflect biases favoring the Treasury department or the status quo thinking in monetary economics.

As both The Wall Street Journal and the Harvard Business Review have noted, the FOMC has come to be dominated by academic economists. Josh Zumbrun observed in 2015:

Of the 17 Fed officials in office next year—five members of the Board of Governors and 12 regional bank presidents—all but three will have professional backgrounds as academics or with Goldman Sachs. The exceptions will be Atlanta Fed President Dennis Lockhart and Fed governor Jerome Powell, who worked at other banking institutions, and Kansas City Fed President Esther George, who was primarily a bank supervisor.

About 70 percent of Fed Board members and regional Presidents were once either Fed economists or academics:

Educational background of FOMC’s members has also become more concentrated around PhDs in economics:

Additionally, Fed economists themselves are heavily concentrated among the graduates of a handful of graduate programs:

Don’t get me wrong. A couple of smart economists with degrees from MIT, who have lived most of their lives in either Boston, New York or DC, are certainly able to contribute to monetary policy. But when the entire system starts to consist of individuals from the same small number of cities, who graduated from the same schools and studied the same disciplines, then “yes” we have a problem. You are guaranteed to have an institution that suffers deeply from groupthink, as well as being insulated from the everyday experiences of most Americans.

Senator Warren suggests that “the selection process is broken.” I couldn’t agree more. To repair it, we must first recognize that the choice of Fed Board members begins with the President. At a minimum the President should faithfully follow the considerations spelled out in Section 10 of the Federal Reserve Act. If he fails to do so, as was the case with the nomination of Peter Diamond, the Senate is obligated to reject that nomination. While Diamond’s case was clear, previous nominations have been less so. To provide some clarity, I would suggest that Congress amend Section 10 to list specific conditions determining residency. I believe a minimum of ten years actual residency should be the requirement for a nominee to be “from” a particular Fed district.

Congress could put additional limitations on Board appointments to increase diversity. For example, amending Section 10 to state that no more than two board members may come from any one of “finance, manufacturing, agriculture, government or academia” would reduce groupthink and likely increase the quality of decision-making at the Fed. Slowing the revolving door between the Fed, Treasury and finance could also increase diversity. I would suggest we ban from consideration for Fed nomination anyone who has served in the executive branch in the previous six years and impose a similar ban for those working for institutions regulated by the Fed.

Having worked on Fed nominations as a staffer for the Senate Banking Committee, I’d be the first to say that the Senate has too often rubber-stamped a President’s Fed nominees. Recent years have witnessed an improvement in Senate due diligence, but far more needs to be done. Changes in the norms behind Senate consideration may not be durable. Accordingly changes to the selection process for the FOMC are badly needed. I agree with Sen. Warren, the Fed needs leadership with a “broader array of backgrounds and interests.” Which means the definition of diversity must also include geographic diversity, educational diversity, and diversity of professional experience. The quality of monetary policy-making depends on it.

[Cross-posted from Alt-M.org]

Pages