Cato Op-Eds

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

“The godfather of inequality research,”  is how The Economist describes septuagenarian  British economist Anthony Atkinson. A frequent co-author with Thomas Piketty and Joe Stiglitz, Sir Atkinson has written a book about inequality which a  New York Times reviewer described as a “flurry of largely recycled policy proposals.”   Inequality: What can be done? is all about “unapologetic support for aggressive government intervention,” says The Economist, and “a throwback to the 1960s and 1970s.” 

There is no need to buy the book, because the following summary – “15 Proposals from Tony Atkinson’s book ‘Inequality: What can be done?’ – is more than enough.  Each Proposal is in the author’s own words, but followed by my own view of Problems with those plans.  [I skip Proposals 9-11, which are just inflated versions of policies similar to those in the U.S. – the earned income credit, estate & gift tax, and property tax.]

Proposal 1: The direction of technological change should be an explicit concern of policy-makers, encouraging innovation in a form that increases the employability of workers and emphasizes the human dimension of service provision.

Problem 1: To invite political officials to obstruct labor-saving technology or to encourage (subsidize) employment growth at the expense of output growth are plans to depress the growth of real output per worker (productivity) and therefore depress real income per worker.

Proposal 2: Public policy should aim at a proper balance of power among stakeholders, and to this end should

(a)   introduce an explicitly distributional dimension into competition policy;

(b)   ensure a legal framework that allows trade unions to represent workers on level terms;  and

(c)   establish, where it does not already exist, a Social and Economic Council involving the social partners and other nongovernmental bodies.

Problem 2: The first proposal (2a) hopes to turn antitrust lawsuits into a device for reducing profits, apparently based on a zero-sum notion that smaller profits ensure larger wages. The second proposal (2b) insinuates that current law is biased against unions in unspecified ways.  The third (2c) endorses a Social and Economic Council composed of private interest groups.  Such councils already exist at the Arab League and U.N., apparently as a pretext for conferences.

Proposal 3: The government should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it.

Problem 3:  Guaranteed public employment at the minimum wage would have to be financed by taxes, which reduce employment in the private sector. If the minimum wage were both high and binding, this could shift a large and growing share of employment away from production of marketable products into provision of “free” government services of unknown value to consumers.  By creating a growing constituency for large increases in the minimum wages, guaranteed tax-financed public jobs could displace or “crowd out” more and more private employment.  In the U.S., the legal minimum of $7.25 an hour is not binding; it applies only to certain formal and visible forms of employment. The U.S. Bureau of Labor Statistics reports that in 2014 there were only 550,000 people over the age of 25 earning the federal minimum wage of $7.25 an hour, but 999,000 earning less than that minimum wage.    

Proposal 4: There should be a national pay policy, consisting of two elements: a statutory minimum wage set at a living wage, and a code of practice for pay above the minimum, agreed as part of a “national conversation” involving the Social and Economic Council.

Problem 4: How could the proposed overturning of private labor contracts by an unelected “Council” be consistent with any concept of political or economic liberty?  This comes frighteningly close to saying governments (e.g., Nixon’s wage controls) and/or non-governmental interest groups (e.g., Medieval guilds) can and should dictate to workers how much they should charge for their work, and how much employers must offer.  Yet inequality is famously low in countries with no minimum wage, such as Sweden, Austria, Denmark and (until 2015) Germany.  And inequality is very high in U.S. cities with a high minimum wage, such as San Francisco. The concept of nationwide “living wage” is arbitrary gibberish, since such a goal cannot possibly be the same for an Alabama teen living with parents as it is for a single mother in Manhattan with four children.  

Proposal 5: The government should offer via national savings bonds a guaranteed positive real rate of interest on savings, with a maximum holding per person.

Problem 5:  U.S. Treasury inflation-protected securities (TIPS) guarantee a positive real rate if held to maturity, as do similar bonds in Europe. There could be no maximum holding of such bonds unless savers were somehow prohibited from selling their securities (which would make them illiquid and undesirable). If Atkinson means to offer a higher real return than the market provides then the proposal would misallocate capital and increase government (taxpayer) debt.

Proposal 6: There should be a capital endowment (minimum inheritance) paid to all at adulthood.

Problem 6: This proposal would everyone a check for about $15,000 upon reaching adulthood, described as “capital” yet likely used for consumption.  This indiscriminate transfer payment is to be financed by a 65% death tax. Higher tax rates on the capital accumulation of older savers to pay for large subsidies to the consumption of young consumers would, as Joe Stiglitz explained in 1978, reduce productivity and weal wages by reducing the ratio of capital to labor.

Proposal 7: A public Investment Authority should be created, operating a sovereign wealth fund with the aim of building up the net worth of the state by holding investments in companies and in property.

Problem 7: Atkinson is proposing to emulate Arabian princedoms, China and other autocratic states by investing taxpayer funds (like the U.S. Social Security trust fund) in private equites and real estate.  Malaysia’s wealth fund, for example, is the majority shareholder in Malaysian Airlines, whose stock recently fell 90%.  Governments with budget deficits would be investing borrowed funds in stock markets, which is as speculative as individuals buying stocks on margin.  The authority to allocate taxpayer capital by political favoritism could not safely be entrusted to even the most saintly and omniscient bureaucrats and politicians, and they would bear none of the losses from bad investments.

Proposal 8: We should return to a more progressive rate structure for the personal income tax, with marginal rates of tax increasing by ranges of taxable income, up to a top rate of 65 per cent, accompanied by a broadening of the tax base.

Problem 8: If a top tax rate of 65% would be harmless to the economy and raise more revenue, then why is no country in the world adopting this advice?  All of the fastest-growing economies in Asia and Eastern Europe have very low and sometimes flat marginal tax rates, particularly on capital. All countries with very high and/or rising marginal tax rates (France, Greece, Japan, etc.) have performed quite poorly.  U.S. tax revenues were a larger share of GDP when the top tax rate was 28% than when it was 70% or 91%.

Proposal 12: Child Benefit should be paid for all children at a substantial rate and should be taxed as income.

Problem 12: Atkinson views his “Child  Basic Income” (CBI) plan as an intermediate stepping stone toward his comprehensive Basic Income plan because he thinks it easier to peddle to intransigent voters than his actual Basic Income goal for everyone.  Basic Income is essentially the 1967 “credit income tax” plan designed by James Tobin of Yale and converted into a $1000 “demogrant” for Sen. McGovern’s 1972 Presidential campaign. What McGovern missed is that a flat tax was the other key element of Tobin’s plan, as was confirmed by later work by Atkinson and Stiglitz on optimum taxation.

Proposal 13: A participation income should be introduced at a national level, complementing existing social protection, with the prospect of an EU-wide child basic income.

Problem 13: Participation income  is another rhetorical device (like CBI) for moving toward a Basic Income on a piecemeal basis.  The pretense is to make guaranteed income conditional on “participation in the society” by residents (not just citizens). In addition to all children and seniors, checks go out to those participating in approved training, taking approved care of children; doing approved volunteer work, etc.  Caseworkers empowered to decide which activities get approved would have treacherous authority to promote politically-favored nonprofits and thwart others.  If he can’t sell this idea, Atkinson’s alternative Proposal 14 is to simply to spend more on “social insurance, raising the level of benefits and extending their coverage.”

Proposal 15: Rich countries should raise their target for Official Development Assistance to 1 per cent of Gross National Income.

Problem 15: Foreign aid has often been used to prop-up bad policies and authoritarian politicians, and has never helped those economies in Asia and elsewhere which lifted themselves from chronic poverty to rapid economic growth – after reducing tax rates, tariffs and regulations. Besides, no academic has any right to tell taxpayers of sovereign nations how their elected representatives “should” spend their money

After his 15 Proposals, Atkinson also mentions even stranger “Ideas to pursue.” The zaniest, borrowed from Thomas Piketty, is “a global tax regime for personal taxpayers, based on total wealth.” Try to imagine the size and power of the required global army of tax collectors attempting to assess every wealthy individual in every country and collect a tax based on such inevitably arbitrary assessments. If such a tax could be enforced on a global scale, there would clearly be no democracy anywhere.

Sir Atkinson’s old-fashioned “policy polemic,” as the New York Times’ reviewer described it, is surprisingly disappointing.  He wrote a much bolder and better book back in 1995: Public Economics in Action: The Basic Income/Flat Tax Proposal.  In it, he suggested replacing all means-tested and social insurance benefits (such as unemployment or disability benefits) with a guaranteed annual income (refundable tax credit).  This would, he wrote, “do away with the present complicated means-tested   benefits” and shrink unemployment.  A key second part of the plan required replacing the progressive income tax with an optimal flat tax of 16-31%.   The combination of a flat tax and basic income, he concluded, “should definitely be on the agenda for public discussion.”  What Atkinson now proposes, unfortunately, is the exact opposite – numerous lavish political gifts ostensibly financed with destructive tax rates on capital and entrepreneurship.  These proposals would soon leave any country that adopted them in ruins. 

The Bloomberg editorial board has a recent piece entitled “Free Trade Can Save the Rhino.”  I was already aware of how free trade could lead to more competition and lower prices for consumers, but tell me more about saving the rhino:

Trade in endangered species is already heavily restricted by the U.S. The [Trans Pacific Partnership] deal would make it far more difficult for other countries to trade in trafficked items such as elephant tusks and rhino horns. The pact would, for the first time, integrate species conservation with trade access by requiring the 12 countries that sign it to adopt conservation laws, or live up to commitments they’ve already made yet routinely ignore.

Much of the demand for poached wildlife comes from the same countries negotiating the TPP. Vietnam, for example, is the main source of demand for rhino horn. Malaysia is an important shipping port with a low rate of wildlife-trafficking detection. Under the trade deal, both would have to change their see-no-evil attitude or risk trade sanctions.  …

Ah, now I see.  It’s not that free trade would do anything to save rhinos.  Rather, it’s that the U.S. is a large and attractive market, and we can use our economic power to coerce our trading partners to adopt domestic policies that we like, including new conservation laws.  So actually, free trade has nothing to do with this.

The question of whether we should use our economic power to coerce our trading partners can be a difficult one.  I’m generally a skeptic on these sorts of things.  Here’s something I said a while back in a more general international law context:

if we are going to try to change the world to be “more like us,” we need to think about how we want to change it … If it is just more of the views of whichever party is currently in power, we may wear out our welcome with ever changing demands for how the world should behave.

But regardless of how we approach promoting our views around the world, we should not confuse this with free trade.

A recent article in Business Insider showing what the ancestors of modern fruits and vegetables looked like painted a bleak picture. A carrot was indistinguishable from any skinny brown root yanked up from the earth at random. Corn looked nearly as thin and insubstantial as a blade of grass. Peaches were once tiny berries with more pit than flesh. Bananas were the least recognizable of all, lacking the best features associated with their modern counterparts: the convenient peel and the seedless interior. How did these barely edible plants transform into the appetizing fruits and vegetables we know today? The answer is human ingenuity and millennia of genetic modification.

(Photo Credit: Genetic Literacy Project and Shutterstock via Business Insider).

Humanity is continuously innovating to produce more food with less land, less water, and fewer emissions. As a result, food is not only more plentiful, but it is also coming down in price.

The pace of technological advancement can be, if you will pardon the pun, difficult to digest. Lab-grown meat created without the need to kill an animal is already a reality. The first lab-grown burger debuted in 2013, costing over $300,000, but the price of a lab-grown burger patty has since plummeted, and the innovation’s creator “expects to be able to produce the patties on a large enough scale to sell them for under $10 a piece in a matter of five years.”

People who eschew meat are a growing demographic, and lab-grown meat is great news for those who avoid meat solely for ethical reasons. It currently takes more land, energy, and water to produce a pound of beef than it does to produce equivalent calories in the form of chickens, but also grains. So, cultured meat could also lead to huge gains in food production efficiency.

Another beautiful example of human progress in the realm of food is golden rice. The World Health Organization estimates that between 250,000 and 500,000 children become blind every year as a result of vitamin A deficiency, and about half of them die within a year of losing their sight. Golden rice, largely a brainchild of the private Rockefeller Foundation, is genetically engineered to produce beta carotene, which the human body can convert into vitamin A. Golden rice holds the potential to protect hundreds of thousands of children in the developing world from vitamin A deficiency, preserving their sight and, in many cases, saving their lives.

Humans have been modifying food for millennia, and today we’re modifying it in many exciting ways, from cultured meat to golden rice. Sadly, it has become fashionable to fear modern genetically-modified organisms (GMOs), even though scientists overwhelmingly agree that GMOs are safe.

Anti-GMO hysteria motivated the popular restaurant chain Chipotle to proclaim itself “GMO-free” earlier this year (a dubious claim), prompted a political movement calling for the labeling of GM foods (a needless regulation implying to consumers that GMOs are hazardous), and even fueled opposition to golden rice. advisory board member Matt Ridley summarized the problem in his recent Wall Street Journal op-ed:

After 20 years and billions of meals, there is still no evidence that [GMOs] harm human health, and ample evidence of their environmental and humanitarian benefits. Vitamin-enhanced GM “golden rice” has been ready to save lives for years, but opposed at every step by Greenpeace. Bangladeshi eggplant growers spray their crops with insecticides up to 140 times in a season, risking their own health, because the insect-resistant GMO version of the plant is fiercely opposed by environmentalists. Opposition to GMOs has certainly cost lives.

Besides, what did GMOs replace? Before transgenic crop improvement was invented, the main way to breed new varieties was “mutation breeding”: to scramble a plant’s DNA randomly, using gamma rays or chemical mutagens, in the hope that some of the monsters thus produced would have better yields or novel characteristics. Golden Promise barley, for example, a favorite of organic brewers, was produced this way. This method still faces no special regulation, whereas precise transfer of single well known genes, which could not possibly be less safe, does.

Fortunately, while regulations motivated by anti-GMO sentiment may slow down progress, they probably cannot do so indefinitely. For those who wish to avoid modern GM foods, the market will always provide more traditional alternatives, and for the rest of us, human ingenuity will likely continue to increase agricultural efficiency and improve food in ways we cannot even imagine. Learn more about the progress we have already made by visiting and selecting the “Food” category under “Browse Data.”

Last week’s Washington Post report of the CIA/Special Forces “secret” drone campaign provided fresh evidence that the United States is heading in the wrong direction on the Middle East. Supporters of increased military action abound in Washington, of course, and lacking any better idea, the Obama administration has decided to double down on drones, despite no evidence that such an effort will have any measurable effect on the situation in Syria or Iraq. Instead, the new drone campaign is likely to have (at least) five negative consequences.

First, it will inflame anti-American sentiment in the region. Sadly, as survey after survey shows, anti-Americanism is rampant through the Middle East, even in countries the U.S. counts on as allies in the fight against terrorism and the Islamic State. A recent study shows that the Arab Twitterverse is awash in negative sentiment toward the U.S., illustrating that  And even more relevant, a recent Pew study documents the unsurprising fact that U.S. drone strikes are incredibly unpopular almost everywhere, prompting majorities in several Arab countries to say strikes against the United States for its behavior are justified. More drone strikes will move the U.S. backwards, not forwards.

Second, it will aid Islamic State recruiting and spur more terrorism. After 9/11 the United States went on the offensive, looking to destroy Al Qaeda and kill terrorists abroad before they could visit America to do more harm. What happened, however, was that by killing large numbers of Al Qaeda members and supporters, but also a large number of civilians, and thereby causing immense chaos, strife, and uncertainty, the United States managed to give fresh air to first Al Qaeda’s recruiting efforts and now to the Islamic State’s. In 2001 there were 1878 terrorist attacks in addition to the 9/11 attacks. After 13 years of war on terror there were 16,818 terror attacks worldwide in 2014. In short, the U.S. counterterrorism strategy has been debunked. With every drone strike, the U.S. lends weight to jihadist claims that the U.S. is a malign presence in the Middle East.

Third, it will not change the facts on the ground in Syria. Hawkish critics of Obama’s ISIS campaign have correctly noted that the administration’s air campaign in Iraq falls far short of what would be necessary to make a decisive difference on the ground. Pentagon leaders have repeatedly made clear that U.S. troops on the ground would be required to provide a meaningful impact on the fight. Obama, who has clearly been trying to avoid reentering the ground war, may be looking at the drone strikes as a bit of national security theater – to look like he’s doing something without actually doing anything. At any rate, in a situation as complex as the one in Syria, targeted killings via drones won’t do much to swing the battle.

Fourth, it promotes the unhealthy involvement of CIA in military operations. Even though Joint Special Operations Command is reportedly doing all the actual drone strikes, this sort of mission goes against Obama’s previous efforts to pull the CIA back to its traditional mission of intelligence gathering and analysis. The CIA’s involvement may be expedient in the short term, but longer run risks warping the agency’s priorities and organizational culture. We need a CIA committed to independent analysis, not another agency that risks

Fifth, it will accelerate the slide towards greater entanglement in Syria and Iraq. If Obama had a clear strategy in Syria, we could argue about how much the drone campaign would help. In the absence of any strategy, however, the drone campaign represents merely another step down the slippery slope to greater entanglement. Every action the U.S. takes in Syria or Iraq raises the political stakes for the president, increasing the chances that he will take even more aggressive steps to ward off critics and ensure “success.” Unfortunately for the U.S. real success would start by recognizing that greater engagement in Syria is a bad idea.  

BEIJING—There are many obscure tourist sites in Beijing. One missed by many foreigners is the Chinese People’s Anti-Japanese War Memorial Hall.

The museum illustrates why China, America’s most fearsome potential competitor, and Japan, Washington’s most important Asian ally, often are at odds. The two are a conflict waiting to happen, which could draw the U.S. into war with a nuclear power.

Chinese President Xi Jinping presided over last week’s World War II victory parade in Beijing. However, the conflict with Japan continues in many people’s minds.

Following Washington’s lead, Tokyo did not recognize the PRC until 1972. Since reestablishing official ties the two countries’ relationship has gyrated up and down. More than talking is necessary to resolve four major disputes: history, trade, territory, and security.

Although the Chinese Communist Party manipulates history for its own benefit—young Chinese learn little about the 1989 Tiananmen Square protests—the CCP has been quick to criticize Tokyo for failing to take responsibility for Imperial Japan’s actions.

While China’s demand for remorse is understandable, the vast majority of Japanese are horrified by the prospect of conflict. Even more nationalistic Japanese, such as Prime Minister Shinzo Abe, don’t contemplate a new round of military aggression—which would be impossible against nuclear-armed China.

Yet high Japanese officials continue to inflame Chinese sensibilities. Commemorating World War II’s end Prime Minister Abe offered official regret for the conflict, but his remarks were dismissed by the leaders of China and other nations as “evasive” and not “sincere.”

Beijing has its own historical agenda. The regime has been battling Western influences and recently unleashed a veritable tsunami of documentaries, concerts, exhibitions, movies, television shows, musicals, children’s programs, and more to promote nationalistic fervor. Criticism of Japan is central.

Two months ago the Xi government opened a new exhibit at the anti-Japanese memorial, or Museum of the War of Chinese People’s Resistance Against Japanese Aggression. The government quoted visitors as calling the museum “a very good place to experience and see atrocities the Japanese imperialists committed.”

Economics provides an area of both cooperation and tension. After the PRC’s founding commercial ties developed slowly and were vulnerable to political disruption. Since establishing diplomatic relations in 1972 both trade and investment expanded greatly.

Total bilateral trade ran about $344 billion in 2014. However, politics continues to undermine the relationship.

Territorial disputes have grown increasingly vitriolic, especially over the status of the unpopulated Senkaku/Diaoyu Islands, claimed by both nations. The half dozen islets are controlled by Japan, but the PRC now conducts air and sea patrols around the contested lands. Tokyo has pressed the U.S. for explicit defense assurances for the islands.

Security remains a top Chinese priority. Japan recently proposed its largest defense budget yet, about $42 billion. The PRC is Tokyo’s primary target.

The Japan-U.S. alliance greatly magnifies Japanese military strength. Moreover, Washington not only has supported Tokyo in the controversy over the Senkakus/Diaoyus, but also has offered general backing for the Philippines and an ambiguous commitment to Taiwan’s independence.

While the U.S. and Japan have no aggressive designs on China, Beijing understandably looks uneasily at the alliance of its old enemy with the globe’s dominant power. Thus, China is developing a military capable of confronting American as well as Japanese military action, no easy task.

The anti-Japanese Museum illustrates the challenge to China-Japan relations. The memorial devotes 887 exhibits with 5000 documents and relics and 3800 photographs to sullying Japan’s reputation.

The animus between China and Japan should scare the rest of the world. While war between the PRC and Tokyo seems—and should be—unthinkable, it could be just one drunk ship captain or careless fighter pilot away.

As I wrote in Forbes online: “The people of China and Japan should work through their difficult histories. The future belongs to those now living. They must find reconciliation and create a better world for those yet born.”

When the clerk of Rowan County, Kentucky, went to jail rather than have to license same-sex marriages, she wasn’t committing civil disobedience – whether you think her action was courageous or bigoted. No, civil disobedience involves an intentional violation of an unjust law. Another name for it is nonviolent resistance: think Martin Luther King or Gandhi.

Kim Davis isn’t doing that; she’s instead declining to fulfill her duty as a government official, even after a judicial order confirming that duty. That’s official disobedience.

That Davis’s action (or inaction) is based on her religious belief is of no moment. She isn’t being ordered to give up her faith under penalty of law. Instead, as a public official, she has to enforce the law or, if she can’t in good faith (literally) do that, resign – at which point she would no longer be in contempt of court or face any other public sanction.

But why is a clerk in a county and state where gay marriage is unpopular bound by a ruling of U.S. Supreme Court? It’s not the Constitution’s Supremacy Clause, whereby state law must yield to (properly enacted) federal law to the contrary. Instead it’s because Justice Kennedy’s majority opinion in Obergefell v. Hodges, while not exactly the apotheosis of legal reasoning, stands for the proposition that state laws denying marriage licenses to same-sex couples violate the Fourteenth Amendment. So it’s not federal law that trumps state law, but individual rights that trump state law.

The Fourteenth Amendment worked a fundamental transformation in our constitutional order: As of its ratification in 1868, Americans can turn to federal courts to enforce infringements of their liberty against the states. And that principle stands whether a state infringes the right to keep and bear arms or the right to equality under the law.

To put a finer point on it, the Fourteenth Amendment says that “No state shall” violate rights to privileges or immunities, due process, and equal protection. That’s a prohibition on public actions, not private ones.

Both progressives and social conservatives miss that public-private distinction.

In other words, states must extend to same-sex couples whatever recognition they do to opposite-sex – though I don’t see a need for government involvement in marriage in the first place – but it’s illegitimate for them to bend the will of people who have religious differences from the prevailing viewpoint. Private citizens should be free to live their lives according to their consciences. Obergefell doesn’t say that everyone now has to support same-sex marriage, just that governments have to provide for it.

That’s where Barronelle Stutzman comes in. She’s the florist in Washington state who was fined for declining to provide arrangements for a same-sex wedding. Or Aaron and Melissa Klein, the bakers in nearby Oregon who were put out of business under similar circumstances. Or Elaine Huguenin, the New Mexico wedding photographer. There are, of course and alas, many more examples. Unlike Kim Davis, these people are indeed being forced to compromise their sincerely held beliefs under penalty of law.

Oh sure, they could “resign” too, and stop running businesses that are typically hired as wedding vendors (which, in theory, could be nearly anyone; I once attended a wedding where an economist gave the homily). But people have a basic right to earn an honest living, as well as to associate (or not) with whomever they choose. 

After all, we’re all born free and equal under the law. While governments must treat everyone equally, individuals should be able to make their own decisions on whom to do business with and how – on religious grounds or otherwise. Those who disagree with those choices can take their custom elsewhere and encourage others to do the same.

On the other hand, nobody has a right to a government job and I doubt it violates any religion to resign a government job (my colleague Walter Olson in jest called such an apocryphal religion “cool,” but given my Soviet background, the mere idea causes me to shudder).

Which doesn’t mean that we should applaud Kim Davis’s tenure behind bars. Frankly, the only colorable criticism I’ve seen of the contempt order is that it would’ve made more sense to fine Davis the amount of her salary – a fitting recompense for failure to do her job and also a lessening of her current martyr status – but Judge Bunning had a point in reasoning that outside groups would’ve simply paid those fines.

This whole episode really shows a failure to adjust to the needs of a pluralistic society, to give the law some “play in the joints” – as Justice Ginsburg has advised in other contexts. North Carolina passed a law allowing clerks to recuse from transactions that violate their consciences and Texas’s attorney general issued a directive along similar lines. If such regimes can work without impeding the orderly processing of official documents or giving the appearance of “separate but equal” (a big if), they may do the constitutional trick. A friend of mine suggested that all wedding bureaus institute a waiting period, so everyone waits the same amount of time while accomodating potential religious objections (including to remarriage after divorce, interfaith marriage, and who knows what else).

None of this is to say that Kim Davis was at all justified. But we shouldn’t equate the legal obligations of public officials with those of private citizens.

As South and North Korea exchanged artillery fire in late August, the U.S. rushed three B-2 bombers to Guam. The Obama administration hoped to deter the North from taking military action, but why is Seoul still a helpless dependent 62 years after the Korean War ended?

Imagine a hostile relationship existing between the U.S. and Mexico. The Mexicans threaten America with war. Washington responds by begging Europe and Japan to send military aid.

America would face raucous laughter. After all, the U.S. has more than 2.5 times Mexico’s population. America’s GDP is an even more impressive 14 times that of Mexico’s.

Yet the disparity between the ROK and Democratic People’s Republic of Korea is larger. The South enjoys a population edge of two-to-one and an economic advantage upwards of 40-to-one.

Seoul has stolen away the North’s chief military allies, China and Russia, which no longer would fight for the DPRK. On every measure of national power save military South Korea dominates. And it lags on the latter only out of choice.

ROK officials occasionally resent America’s dominant role. Nevertheless, the South, like Japan and Europe, likes having a superpower pick up a big chunk of its defense tab.

The South’s dependent relationship does not benefit America. The more defense commitments the U.S. makes, the larger the armed forces it must raise and deploy.

The principal burden is not the cost of basing troops in the South, for which Seoul helps pay, but the expense of creating the units. Today Americans must pay an exorbitant price to project power far from the U.S. even when they have no vital interests at stake.

Equally worrisome is the prospect of using those forces in a war. North Korea would lose, but the cost likely would be horrendous.

Unfortunately, the Kim dynasty has made provocation and brinkmanship the core of its foreign policy. Mistake or misjudgment could turn a violent act into a general war. Opined Defense Secretary Ashton Carter: “Korea is one of these places that is a tinder box. It’s probably the single place in the world where war could erupt at the snap of our fingers.”

Why is the U.S. still entangled in the volatile geopolitics of the Korean peninsula?

It’s certainly not because the ROK is incapable of defending itself. Some analysts imagine American forces on the peninsula doing double duty, both protecting the South and serving other U.S. interests. However, there’s no cause for garrisoning the Asian mainland.

An army division in Korea wouldn’t be much use in a war with China. Indeed, the ROK would not allow the U.S. to turn South Korea into a battlefield. South Koreans will have to live with the PRC long after America goes home.

There are areas where the U.S. and South might want to cooperate militarily, but that only requires a shared interest, not a “mutual” defense treaty. On other issues, such as economic development and environmental protection, the military relationship is irrelevant.

South Korean governments have sought to “pay” the U.S. by participating in some of Washington’s more foolish wars—Vietnam, Iraq, and Afghanistan. However, the small ROK contributions, especially in the latter two conflicts, do not warrant a permanent security guarantee and military deployment amidst the most volatile and dangerous military confrontation on earth.

Other ties, including commercial and family connections, span the Pacific. But trade and friendship do not depend on a military relationship.

What to do about the North would remain an issue, but it wouldn’t matter much to the U.S. Pyongyang is threatening to attack America only because American troops target the DPRK. North Korea’s neighbors, including China, have far more at stake in stopping the North’s nuclear activities.

As I wrote in National Interest online: “U.S. foreign policy should reflect global realities. The radical transformation of Northeast Asia over the last six decades requires a similarly radical transformation of U.S. policy.”

If I haven’t been posting much lately, it’s because I’m working on a paper about the 1908-12 National Monetary Commission, and have been up to my neck in research concerning it. As that commission supplies a precedent for the Centennial Monetary Commission plan that’s presently wending its way through Congress, I thought it would be a good idea to take a closer look at it so as to better understand its merits and shortcomings, with the aim of suggesting how the new Commission might replicate the first while avoiding the last.

That the original Monetary Commission was hardly free of shortcomings seems evident enough today, for it was largely thanks to that commission’s efforts that we ended up with the Federal Reserve System, the failures of which have prompted requests for a new commission. But there were also those who recognized the Fed’s shortcomings even before the Federal Reserve Act became law at the end of 1913. One of them was Elihu Root, a brilliant Republican Senator for New York.

Root offered his blistering criticisms of the Fed in a speech delivered just day’s before the Federal Reserve Act’s passage. He especially took aim at the bill’s provision — included as a sop to William Jennings Bryan and other influential populists within the Democratic party — making Federal Reserve notes obligations of both the Federal Reserve banks themselves and of the United States government. That provision, Root observed, encouraged other banks and the public to treat Federal Reserve notes as the equivalent of greenbacks, and hence as legal tender in fact if not (yet) in name.

There would, consequently, be no tendency for those notes to be routinely returned to their sources, or to the U.S. Treasury, for redemption in either actual greenbacks or gold. It followed that, despite the language of its preamble, the Federal Reserve Act did not actually provide for an “elastic” currency, and therefore did not achieve what had long been almost universally regarded as the very sine-qua-none of currency reform. As Root put it:

What is an elastic currency? We all agree that it is a currency which expands when more money is needed and contracts when less money is needed. It is important not merely that the currency shall expand when money is needed, but that it shall contract when money is not needed, for to an industrial commercial country a redundant currency is the source of manifold evils… .

The Federal Reserve, however,

does not provide an elastic currency. It provides an expansive currency, not an elastic one. It provides a currency which may be increased, always increased, but not a currency for which the bill contains any provision compelling reduction.

Although Root recognized that gold reserve requirements placed an upper limit on the Federal Reserve Banks’ total note issues, his point was that, notwithstanding the nominal convertibility of Federal Reserve notes, there were no forces at work in the proposed system to prevent it from always issuing up to this maximum, whether economic conditions warranted so much expansion or not.*

Root understood, in short, that instead of resembling ordinary banknotes, or the “emergency” currency issued under the Aldrich-Vreeland Act or, prior to that, by private clearinghouse associations, Federal Reserve Notes were what we now refer to as “high-powered” money. Since banks’ deposit credits with the Fed might be converted into such notes at any time, those liabilities amounted to high-powered money as well.

What was wrong with that? The problem was that a supplier of high-powered money can supply more of it, and have it remain outstanding, even when doing so doesn’t serve to accommodate a prior increase in the demand for real money balances. If the high-powered money isn’t needed for that purpose, it will instead give rise to an excessive quantity of money of all sorts. In short, the new law could mean more frequent bouts of excessively easy money, and, consequently, more booms and busts.

Both the presence of gold reserve requirements and the tendency for gold to leave the country in response to rising prices placed long-run limits on monetary expansion. But those constraints would only serve to limit the duration of booms, without preventing them.

With the exhaustless [sic] reservoir of the Government of the United States furnishing easy money, the sales increase, the spirit of optimism pervades the community.

Bankers are not free from it. They are human. The members of the Federal reserve board will not be free from it. They are human. Regional bankers will not be free from it. They are human. All the world moves along upon a growing tide of optimism. Everyone is making money. Everyone is growing rich. It goes up and up, the margin between cost and sales continually growing smaller and smaller as a result of the operation of inevitable laws, until finally some one whose judgement was bad, some one whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.

Need I state that events would more than amply vindicate Root’s dire predictions? Root himself lived to witness two major boom-bust cycles, including the worst bust of all. Had he lived a few months longer, he would also have witnessed the United States’ third-worst depression — that of 1937-8.

The whole idea of currency reform was, Root went on to say, to have a currency that wouldn’t lend itself to this sort of thing. That meant, to be sure, having a currency the supply of which would expand when the demand for currency rose. But it also meant having a currency the supply of which was bound to shrink when the demand for it subsided.

Nor would Root allow himself to be consoled by a colleague’s observation that the Federal Reserve Board had the ability to reduce the quantity of money any time it chose to. “I am not now speaking,” he said, “about what the reserve board may do. I am speaking about what we do; about how we perform our duty”:

Always up to this time the American Congress has attempted to perform its own duty in regard to the vital matter of currency. Always the American Congress, when it did not want inflation, has undertaken so to frame its legislation that its injunctions and requirements would prevent inflation. Now it is proposed that we shall make it possible that…a body of appointed officers…will perform the duties that we ought to perform.

The wiser, and proven, alternative, Root argued, “is to provide for a currency that will come down by the operation of natural forces as well as go up.” Like many others before him, Root offered the Canadian system as an example of what he had in mind.**

Finally, for all you opponents of Big Government, Root declared the Federal Reserve Act to be part of what he considered a deplorable tendency, to wit: the tendency “to substitute the support of a paternal government for that individual self-dependence which settled, which built, which developed, which made our country.

Not bad, Senator. Not bad at all.


*In a system of competing banks-of-issue, in contrast, there is no need for any statutory reserve requirement. Instead, banks are compelled to hold reserves against their outstanding notes for the purpose of settling interbank note clearings, with the optimum reserve ratio varying along with the public’s demand for real money balances.

**Alas — in an apparent nod to Senator Aldrich and to the findings of the Aldrich-led National Monetary Commission — Root instanced as well the currency systems of England, France, and Germany, although those arrangements had much more in common with the pending Federal Reserve system than they had with Canada’s decentralized alternative.

[Cross-posted from]

Across the political landscape this morning, people on one side are discovering that lawlessness is bad, while people on the other are discovering that the machinery of our justice system is harsh.  If experience is any guide, these lessons will last a lunchtime.

Yesterday federal judge David Bunning ordered elected Rowan County clerk Kim Davis jailed for defying his court’s order that she resume issuing Kentucky marriage licenses; she had stopped doing so on the grounds to have her name go on a marriage license for a same-sex couple, as state law now prescribes following Obergefell, would run counter to her religious feelings. As those close to our legal system know, the age-old civil contempt power of the Anglo-American courts is something not to be trifled with. Some Davis defenders, like former Arkansas Governor and presidential candidate Mike Huckabee, dodge the contempt issue entirely, while many others invoke episodes of doubtfully lawful official conduct that fell short of defying court orders, or in some cases was not even unlawful

Kim Davis purges the contempt if she either carries out her public duties or quits her public office. So she is not in jail for refusing to violate her religion, unless her religion requires her to keep her public job (cool religion!). Courts’ use of contempt remedies is itself bounded by law, and they are not supposed to resort to harsher remedies if milder ones such as fines would obtain compliance. But the Davis camp has not suggested that milder measures would secure her compliance; indeed, Davis’s Liberty Counsel lawyers have been associated with other cases in which clients claiming a religious justification have, if anything, gone to more remarkable lengths than Davis in defiance of court orders. (Michelle Meyer has more on the professional obligations of lawyers counseling clients regarding contempt.) As Chris Geidner notes at BuzzFeed, Kentucky does not provide for such alternative remedies as voter recall of county clerks or removal by the governor for official misconduct. 

A curious argument making the rounds posits it as somehow relevant that marriage law changed after Davis won elected office, supposedly upsetting her reliance on expectations of what duties she would be called on to perform. That’s not really a legal question, in the sense of casting any doubt on whether she is expected to follow the laws of Kentucky and the United States in current form if she wants to hold office. It’s more like a union shop steward’s argument — “you can’t change my job duties unless you bargain with me first.”

Among Republican White House candidates, Carly Fiorina seems to be among the few willing to draw appropriate public-private distinctions: “when you are a government employee, I think you take on a different role.” Also from a conservative perspective, Dan McLoughlin has a thoughtful what-goes-around-comes-around view on lawlessness and the pervasiveness of double standards. 

Davis’s defenders also have a point worth bearing in mind as we go forward: the traditional civil contempt power of the Anglo-American courts does generate many harsh, disturbing results. As defense lawyer Scott Greenfield has written, “calling the jailing of a person ‘civil’ doesn’t mean they put curtains on the cell windows.”  Targets of civil contempt orders remain in jail – sometimes for a remarkably long time – if they remain obdurate on principle or simply fail to satisfy a judge that compliance is impossible. Dads get jailed for trying to see their kids more often than a court order permits. To me, among these disturbing outcomes, pressure to resign a public office rates fairly low on the scale. But they all could benefit from overdue discussion.

[adapted from an earlier post at Overlawyered]

The World Trade Organization has reportedly found that India’s solar power subsidies violate global trade rules.  According to the Wall Street Journal:

In a report sent to India and the U.S. late last week, the dispute settlement panel of WTO stated that New Delhi violated trade rules by imposing the local purchases under its federal solar program, one of the officials, who didn’t want to be identified, said.

The panel also ruled against India’s incentive policies for domestic solar companies to manufacture solar cells and modules in the country, the official added.

This outcome was not surprising.  Conditioning the receipt of subsidies on the use of domestic goods is generally prohibited by WTO rules.  A Canadian scheme was successfully challenged on similar grounds just a few years ago. 

The ruling ought to be celebrated by advocates of solar power.  The local content requirement acts as a drag on the program by making solar power plants more expensive to build.  Allowing solar energy producers to purchase panels on the global market not only reduces prices for those producers, it also furthers the development of efficient supply chains for solar panel production.  Those panels may be made in China, Europe, the United States, or some combination thereof instead of India.

Of course, the whole solar power industry is a big mess of subsidies and other politicized incentives.  Many countries have mixed the goal of reducing greenhouse gas emissions with industrial policy designed to create “green jobs.”  This has led some governments, including the United States, to impose protectionist tariffs on products they subsidize.  The urge to pick winners and loser is simply too strong for governments to resist.

The Indian case is an example of how WTO rules designed to reduce protectionism can help at least limit the role of industrial policy as governments’ intervene in markets to increase the use of renewable energy.

The Department of Veterans Affairs has been embroiled in scandal for more than a year, ever since a whistleblower alleged that 40 veterans had died while waiting for care at the Phoenix branch. A subsequent investigation by the department’s Office of Inspector General confirmed that some veterans had died while waiting for an appointment, but also uncovered broader problems like “unacceptable and troubling lapses in follow-up, coordination, quality, and continuity of care.” These signs of widespread mismanagement and incompetence led to an investigation into the entire department. In a scathing report released this week, investigators again found evidence of serious problems within the VA and few signs that meaningful steps are being taken to address them.

As of September 2014, almost 900,000 veterans had pending applications and more than 300,000 of these belonged to veterans who had died. Due to data limitations, investigators could not determine how many of these deceased veterans were actively seeking health care, which ties into one of the most troubling problems that this scandal has exposed. The VA has failed to “ensure the consistent creation and maintenance of essential data” which means in many cases it is impossible for investigators to know just how bad things are. More than half of the pending applications did not have an application date, which “makes [the enrollment system] unreliable for monitoring timelines.” In addition, the investigators were able to substantiate the claim that VA employees had incorrectly marked unprocessed applications as completed and may have deleted more than 10,000 transactions over the past 5 years. In many cases, it is impossible to determine how many veterans who have actively applied for care are waiting, how long they have been waiting, and how many have died while waiting. Some aspects of the VA are so mismanaged that we can’t even tell how badly it is failing.

To date, there has been little appetite for real reform within the department, with few steps being taken to hold those responsible accountable or to rectify some of the department’s most egregious shortcomings. Back in 2010, after management identified individual staff that had hidden applications in their desks in order to artificially shorten wait-times by processing them later, human resources officials “advised them against pursuing disciplinary action against staff.” Contrary to VA Secretary McDonald’s assertion that 60 people had been fired for their role in the initial scandal, internal documents later revealed that only three people had been removed from their jobs as of April.

In response to the new report, the agency has pledged to “work diligently to address the issues [the] report raised to continue to improve the enrollment system to better serve Veterans” and that serving the veterans is a responsibility they “do not take lightly.” Maybe this time will be different and this will be the report that finally spurs the VA to take action. Even if the VA was competently run, there are better ways to serve the health care needs of our veterans. My colleague Michael D. Tanner has proposed some practical reforms, while Michael F. Cannon and Christopher A. Preble have offered a new approach to veterans’ benefits.

Americans are worried about jobs, yet the government makes it harder to work. More than 1100 professions are licensed by at least one state.

In addition to lawyers and doctors are locksmiths, interior decorators, funeral attendants, librarians, hair stylists, food caterers, florists, barbers, and music therapists. As well as operators of conveyor belts and sellers of frozen desserts.

In 1950 just five percent of Americans needed official permission to work. Today nearly a quarter require some form of government approval.

Licensing is an extraordinary scam. The Wall Street Journal noted Texas’ requirement that “shampoo specialists” in hair salons take 150 hours of classes, including on the “theory and practice” of shampooing. There’s also a practical exam—which tests applying conditioner.

Licensing obviously punishes consumers. The Obama administration found that licensing increase prices, on average, as much as 16 percent. The rise is bigger in some occupations and some states.

In response, people may go without or do the job themselves, sometimes with disastrous results. Surveys have found up to 95 percent of people in child support, consumer debt, and eviction cases act “pro se.”

Licensing denies many people work in their preferred career. Regulation also discourages new forms of practice online and across state lines. Immigrants and military spouses suffer particularly.

Government restrictions on employment are particularly counterproductive at a time of high unemployment. By one estimate licensure destroys nearly three million jobs. Overall, licensing has been estimated to cost $100 billion to $200 billion a year.

The only serious argument for regulation is to protect consumers or bystanders. But fewer than 60 occupations are licensed in all 50 states.

Public Choice economics predicts that concentrated interests will out-organize the public, manipulate the law, and capture regulatory agencies for fun and profit. Thus, professional regulation is not designed to weed out the incapable.

Virtually every system grandfathers in existing (incompetent) operators. The rules for the same work vary dramatically by state. Standards often are irrelevant to practice. Moreover, regulators focus on punishing competition, not incompetence.

Yet, reported the administration: “most research does not find that licensing improves quality or public health and safety.”

The administration suggested limiting requirements to health and safety, reducing regulatory burdens, adding public members to licensing boards, allowing licensees to provide all services in their competency, limiting restrictions to consumer protection, conducting rigorous cost-benefit assessments, harmonizing requirements across state boundaries, and creating interstate practice compacts.

Better would be to end most regulation, instead relying on market mechanisms for consumer protection. Mercatus noted how the rise of the sharing economy “has overcome market imperfections without recourse to traditional forms of regulation.” In particular, the internet and information technology have dramatically expanded information sharing, reputational feedback mechanisms, competitive alternatives, and innovative experimentation.

The only exception to full deregulation might be limited rules covering professions with the greatest impact on health and safety. Even then the market can do a better job than government.

California State University economist Shirley Svorny noted how state licensing fails to assure physician quality. In contrast, “Consumers are protected by an interdependent system of private oversight motivated by concerns over reputation and liability.”

At most, government might enhance private consumer protection by creating systems of registration of practitioners, certification of professionals, and requirements for bond or insurance. But voluntary licensure and certification can do the same.

Like so much pernicious regulation, licensing is virtually impossible to eliminate once imposed. Incumbent practitioners typically become strong advocates for protecting their privileged positions.

Rather than rely on political action alone, Nick Sibilla of the Institute for Justice urged more litigation. He noted that the Institute had won cases rolling back licensing of two dozen occupations, most recently for “tax preparers, casket-making monks in Louisiana and African hair braiders in Texas.”

As I point out in the Freeman: “Americans are concerned about too few jobs and slow economic growth. In the ‘land of the free’ people shouldn’t have to get anyone else’s permission to work.”

The American pika (Ochotona princeps) is an insanely cute critter often found in above-timberline rock fields in the western U.S.  

Because they often live near mountain peaks, there’s been concern that global warming could push them over the top, to extinction. Writing in the Journal of Mammalogy, Smith and Nagy (2015) state that American pikas (Ochotona princeps) “have been characterized as an indicator species for the effects of global warming on animal populations,” citing the works of Smith et al. (2004), Beever and Wilkening (2011) and Ray et al. (2012). Indeed, as they continue, “a consideration of the effects of climate, primarily recent warming trends due to climate change, has dominated much of the recent literature on American pikas and their persistence.” Hoping to provide some additional insight on the subject, the two Arizona State University researchers set out to investigate the resilience of a pika metapopulation residing near Bodie, California, USA, that was exposed to several decades of natural warming.

The investigation, which Smith and Nagy characterized as “the longest study of any pika species,” focused on the Bodie metapopulation for two primary reasons. First, it is “situated at the warmest locality of any longitudinal study of the American pika.” As such, its area of habitat is comparatively warm and fully capable of inducing warm temperature stress. Second, the population has been well-studied, having been censused (for patch occupancy data) several times since the early 1970s. Given these two characteristics of the Bodie metapopulation (location and well-studied) the two researchers were able to test for a relationship between pika extinctions/recolonizations and chronic/acute temperature warming. So what did their analysis reveal?

With respect to chronic temperature warming, Smith and Nagy report that despite a relatively high rate of patch (islands of pika-suitable habitat) turnover across the study location, there was “a near balance” of pika patch extinctions and recolonizations during the past four decades of intense data collection (see figure below). Furthermore, a series of statistical analyses that were performed on the patch turnover and historic temperature data revealed there was “no evidence that warming temperatures have directly and negatively affected pika persistence at Bodie.” In fact, the only significant correlation they found among these two parameters occurred between mean maximum August temperature and the number of pika recolonizations the following year, which correlation was positive, indicating that higher August temperatures lead to a greater rate of pika recolonization the next year, a result which the authors describe as “in the opposite direction of the expectation that climate stress inhibits recolonizations.”

Two decades of patch extinctions and recolonizations in a Bodie, California, American pika (Ochotona princeps) metapopulation. Source: Smith and Nagy (2015).

With respect to acute temperature warming, defined as the number of hot summer days exceeding a temperature threshold of 25°C or 28°C, Smith and Nagy write that “neither warm chronic nor acute temperatures increased the frequency of extinctions of populations on patches, and relatively cooler chronic or acute temperatures did not lead to an increase in the frequency of recolonization events.”

Taken together, the above findings demonstrate that the Bodie metapopulation of American pikas is “resilient at the individual (Smith, 1974) and population scales” to both chronic and acute temperature warming, and has “been so for at least 60 years.” And, as an “indicator species” for the effects of global warming on animal populations, the future for American pikas and other animal species looks bright!


Beever, E.A. and Wilkening, J.L. 2011. Playing by new rules: altered climates are affecting some pikas dramatically – and rapidly. The Wildlife Professional 5: 38-41.

Ray, C., Beever, E. and Loarie, S. 2012. Retreat of the American pika: up the mountain or into the void? Pp. 245-270 in Wildlife conservation in a changing climate (J.F. Brodie, E. Post, and D.F. Doak, eds.). University of Chicago Press, Chicago, Illinois.

Smith, A.T. 1974. The distribution and dispersal of pikas: influences of behavior and climate. Ecology 55: 1368-1376.

Smith, A.T., Li, W. and Hik, D. 2004. Pikas as harbingers of global warming. Species 41: 4-5.

Smith, A.T. and Nagy, J.D. 2015. Population resilience in an American pika (Ochotona princeps) metapopulation. Journal of Mammalogy 96: 394-404.

My recent Wall Street Journal op-ed, “Hillary Parties Like It’s 1938,” is not just about FDR’s self-defeating “tax increases” in 1936-37.  It is also about the particularly huge across-the-board increase in marginal tax rates the Herbert Hoover pushed for and enacted retroactively in 1932.   The primary motive in 1932, as in 1936, was to raise more revenue.   Federal spending under President Hoover doubled from 3.4% of GDP in 1930 to 6.8% in 1932, and he believed that unprecedented spending spree required that tax rates be even more than doubled to “restore confidence.”

Unfortunately, things did not quite work out as planned.  Total federal revenues fell dramatically to less than $2 billion in 1932 and 1933 – after all tax rates had been at least doubled and the top rate raised from 25% to 63%.  That was a sharp decline from revenues of $3.1 billion in 1931 and more than $4 billion in 1930, when the top tax was just 25%.  

Some may object that this is unfair, arguing that revenues should be expressed as a share of GDP because GDP fell so sharply in 1932 and 1933.  But that begs a key question.  Comparing the drop in revenues to the even deeper drop in GDP would make sense only if the depth and duration of the 1932-33 drop in GDP had absolutely nothing to do with higher tax rates (including Smoot-Hawley tariffs).  Yet neither Keynesian nor supply-side economics would consider huge tax hikes are so harmless (though Keynesians, seeing no revenue gain, might come to the paradoxical conclusion the Hoover actually cut taxes).  

In any case, dividing weak revenues by even weaker GDP doesn’t help support the conventional wisdom that higher tax rates always bring higher revenues. Revenues fell even as a share of falling GDP –  from 4.1% in 1930 and 3.7% in 1931 to 2.8% in 1932 (the first year of the Hoover tax increase) and 3.4% in 1933. That illusory 1932-33 “increase” was entirely due to less GDP, not more revenue. 

The 15 highest tax rates were increased again in 1936, dividends were made fully taxable at those higher rates, and both corporate and capital gains tax rates were also increased as explained in my Journal piece.  Yet all of those massive “tax increases” imposed by Presidents Hoover and Roosevelt failed to bring as much revenue in 1936 as was collected with much lower tax rates in 1930.

If the goal is to shrink GDP,  the 1932-37 experience suggests that steeply progressive tax rates certainly accomplish that, particularly when they’re aimed at business and investors.

If the goal is to raise more revenue, on the other hand, the fact is that a top tax of 28% brought in more revenue than we ever did with top tax rates of 70% or 91%. 

Steve Camarota of the Center for Immigration Studies (CIS) wrote a response to my criticism of his recent report.  Camarota and I have gone back and forth before on similar issues in the past (here and here).      

Camarota responded to few of the points I made and many that I didn’t make.  The gist of his response is that I changed the subject rather than replying to his paper which is odd since, in his response, he dodged many of my specific points while going off on tangents.  Camarota wrote, “Readers should carefully note when would-be critics try to change the subject.”  Good advice – Camarota should have followed it.     

Here are the points I made in my initial post that he didn’t respond to: 

  1. The head of household variable that forms the core of CIS’s analysis isn’t useful or used much anymore by scholars who study this issue.  That variable counts many native-born Americans, including American-born spouses of immigrants, as part of the welfare consuming households.  This significantly exaggerates welfare use rates.  There are otherreasons why households are not a useful unit of comparison.  Camarota didn’t respond to this.   
  2. The CIS report does not report the dollar value of welfare benefits consumed.  When immigrants consume welfare, the dollar value of the benefits is typically far lower for them than it is for natives – sometimes substantially so.  CIS could have included the value of welfare benefits consumed but they did not.  Camarota did not response to this.    
  3. Larger immigrant households could be driving the results.  Camarota did not respond to this. 
  4. Social Security and Medicare should be included because they are the largest programs in the welfare state.  Camarota sort of responded to that but then oddly implied that I support these welfare programs.  CIS frequently cites the existence of the welfare state to argue against immigration – whether legal or illegal.  I frequently use immigration as a means to argue for restricting or eliminating the welfare state.  You decide who is more opposed to the welfare state. 

CIS claims that welfare use rates for immigrants are higher because our immigration policy favors poorer family members over higher skilled workers.  That point would be noteworthy if CIS supported skilled immigration – which they don’t.  CIS opposes skilled immigration, making their complaint that immigrants are not skilled enough seem like merely a rhetorical play rather than a serious argument.

Camarota’s response was as unsatisfying as his initial report.  He impugns my motives, broadly misrepresents my positions on immigration, and responded to strawmen with only a vague resemblance to my actual criticisms rather than taking on the criticisms directly.  Frankly, I’m disappointed because CIS and Cato readers deserve a real debate on this issue.  

Harvard Law professor Lawrence Lessig is running for President on the single issue of adding restrictions to certain electoral speech. In his announcement video, he points to Eugene McCarthy’s 1968 run for the White House. He says in that video:

In 1967 Democratic Senator Eugene McCarthy entered the primary here in New Hampshire to challenge his own party’s sitting president because he feared the most important moral issue of the time, the Vietnam War, was going to be invisible in that election. In four months McCarthy went from almost nothing in the polls to almost beating Lyndon Johnson in the primary and the one issue that no one wanted to talk about became the one issue that no one could ignore.

It seems clear that Lessig intends to set up a parallel between Vietnam and America’s insufficiently regimented electoral system. There’s just one problem with pointing to McCarthy in this case: Eugene McCarthy was able to make that historic primary campaign about Vietnam because a few rich anti-war guys gave his campaign massive direct contributions, something Lessig strongly opposes.

In today’s Cato Daily Podcast (Subscribe: iTunes/RSS/CatoAudio for iOS), I talk to John Samples about the facts of McCarthy’s candidacy and why Lessig’s example doesn’t hold up. We also discuss Stewart Mott, one of McCarthy’s financial backers, and his appreciation for less-than-fully-fettered political speech.

The Center for Immigration Studies (CIS) released a new report this morning on immigrant welfare use. CIS found that immigrants use far more welfare than natives do. CIS’ methodology, parts of which are suspect, is what produced this result – as we’ve pointed out to CIS multiple times. They also omitted a lot of information that would make for a better comparison between immigrants and natives. Simply put, the CIS study does not compare apples to apples but rather apples to elephants.

The first issue is that CIS counts the welfare use of households, which includes many native-born American citizens, rather than individuals. There might be some good reasons to do this but the immigrant-headed household variable CIS uses is ambiguous, poorly defined, and less used in modern research for those reasons. To CIS’ credit they try to separate out households with children but didn’t separate out American-born spouses. There is debate largely over whether to count the American born children of immigrants as a welfare cost of immigration. If we should count them, shouldn’t we also count the welfare use of grandchildren, great-grandchildren, and great-great-grandchildren of immigrants?  Such a way of counting would obviously produce a negative result but it would also not be informative.

Another problem with counting households rather than individuals is that immigrants and natives have different sized households. According to the American Community Survey, immigrant households have on average 3.37 people in them compared to 2.5 people in native-born households. All else remaining equal, we should expect higher welfare use in immigrant households just because they’re larger. CIS should have corrected for household size by focusing on individual welfare use – which is included in the SIPP.

" title="<--break-->">

The second issue with the CIS report is that it does not correct for income. Since means-tested welfare programs are designed for those with lower incomes, it makes sense to only compare use rates among those with lower incomes. It is not enlightening to statistically compare the welfare use rates of rich immigrants and Americans like Elon Musk or Bill Gates to poorer immigrants and Americans as the CIS report does.

The interesting question is not whether poor people use more welfare than rich people but whether poor immigrants are more likely to use more welfare than poor natives. Our research found that poor immigrants are less likely to use welfare than poor natives. The CIS report isn’t very useful because it doesn’t correct for this.

The third issue with the CIS report is that they omitted the cash value of welfare benefits consumed by immigrant and native households. CIS only analyzed the use rates for each welfare program but they do not tell you how much welfare was actually consumed.  For instance, the cash value for many welfare benefits are determined by the number of eligible members living in the household.  If only half of the members of a household are eligible then the benefits are reduced.  Furthermore, CIS does not report how long immigrant households are in these benefit programs compared to natives.  Immigrants could be on these programs more frequently but for shorter periods of time and with fewer beneficiaries per household – which is roughly what we found.

Immigrant welfare usage could be higher but if the value of their benefits is lower then the picture changes.  A Cato report from 2013 written by George Washington University Professor Leighton Ku and lead research scientist and lecturer Brian Bruen included both the individual immigrant use rates of welfare programs and the monetary cost.  It turns out that when poor immigrants use welfare they consume a lower dollar value than poor natives do.  For poor adult Medicaid enrollees, natives consumed $3845 of benefits in 2010 compared to $2904 for immigrants.  Native born poor children enrolled in 2010 consumed $1030 in benefits while poor immigrant children enrolled only consumed $465.  This pattern also holds for food stamps and SSI (but not for cash assistance).

That CIS did not include any information on the monetary value of the benefits received, which is vital to understand the costs and benefits of various welfare programs not to mention fiscal cost estimates, is noteworthy.

The fourth issue is that this CIS analysis necessarily excludes the largest portions of the welfare state – Medicare and Social Security.  Social Security and Medicare are not intended for the poor but they are the largest programs in the welfare state. An OECD analysis of immigration’s impact on the U.S. budget found that immigrant net-contributions to Social Security and Medicare from 2007 to 2009 vastly outweigh their net-consumption of means-tested welfare which decreased U.S. government deficits by about 0.03 percent of GDP.

If you are really concerned about immigrant welfare use, you should be in favor of reforming welfare, eliminating it, or building a wall around the welfare state.  The most successful part of the 1996 Welfare Reform was limiting access to non-citizens – which could be partly responsible for the uptick in immigrant LFPR compared to natives since then. All are easier to do than stopping immigration.  In fact, the last time American immigration laws were well enforced without a large scale guest worker or legal entry program was during the Great Depression and World War II – when nobody wanted to come.

I co-authorized a policy analysis on how to build a wall around the welfare state with my former colleague Sophie Cole who had to move back to the United Kingdom because of our atrocious immigration laws. Rather than remove 11-12 million unlawful immigrants, impose economically expensive immigration barriers that are even more onerous than at present, and shrink U.S. population growth, reforming welfare is very cheap and easy to do.

One important issue that should be the topic of sober discussions in the ongoing U.S. presidential campaign is policy toward China.   Instead, that topic receives inadequate attention–especially compared to the obsession with every minutia of Middle East policy. As I point out in a recent article in China-U.S. Focus, when China policy is not ignored, candidates too often take shrill positions to score cheap political points. That has been true in nearly every presidential election cycle since the Carter administration established diplomatic relations with Beijing.

Although Donald Trump seems determined to ignite a trade war with China, Carly Fiorina and Gov. Scott Walker have been especially prone to engage in China-bashing on a broader basis. Fiorina has taken an extremely confrontational stance regarding such complex issues as the South China Sea territorial disputes and cyber security. In an interview with CBS News, she recommended that the United States increase its provocative flyover aerial surveillance of the South China Sea. And it is clear that she has no sympathy for Beijing’s territorial claims. “We cannot permit China to control a trade route through which passes $5 trillion worth of goods and services every year,” she stated bluntly. 

Fiorina was mild on the South China Sea controversy compared to her stance regarding recent cyber attacks—which she blithely assumed originated in China and were approved by the Chinese government. She contended that such attacks were an act of aggression against the United States, implying that an especially confrontational response was warranted.

Walker has likewise advocated a extremely hard-line policy.  In a July interview with The National Interest, he portrayed China as a threat, stating that Washington needed to beef-up its military capabilities in East Asia, strengthen its alliances with Beijing’s neighbors, and develop a robust cyber capability “that punishes China for its hacking.”  And as if those positions would not be enough to poison the bilateral relationship, Walker stressed that the United States needed to “speak out against the abysmal lack of freedoms in China.”  Interestingly, Walker has not adopted a similar position with respect to human rights abuses committed by Egypt, Saudi Arabia, and other U.S. allies.

Matters have become worse in the days since I wrote the China-U.S. Focus article. Walker recently insisted that President Obama rescind his invitation to Chinese Xi Jinping for a state visit to Washington in September. Chinese leaders (and the Chinese people) would regard a rescission as a gratuitous insult, so that proposal is especially irresponsible. 

Sen. Marco Rubio also has entered the China-bashing sweepstakes. Although Rubio took a shot at China’s human rights record, labeling it “a disgrace,” it was clear that Beijing’s principal sin, in his view, is its defiance of U.S. hegemony in East Asia. “Xi Jinping is trying to convince his country’s 1.3 billion people that the way to establish Chinese greatness is to undermine the United States and enhance China’s influence at our expense,” he fumed. The goal, Rubio assumed, was “to push America out of Asia.” Numerous scholars have pointed out that Beijing’s policy is far more ambivalent and nuanced than that, but such subtleties tend to get lost in the heat of presidential campaigns.

The onset of shrill, combative rhetoric is most unfortunate. The United States and China do have some major substantive disagreements, and they deserve to be addressed. But it is important that candidates do so in a sober, constructive fashion. Campaign grandstanding, even if not meant seriously, creates needless suspicions and resentment in U.S.-China relations. Presidential candidates need to remember that preserving a cordial relationship with China must be a top U.S. foreign policy priority. Bilateral cooperation enables China and the United States to foster global strategic stability and economic prosperity. Conversely, a breakdown of the relationship would lead to unpleasant and possibly catastrophic consequences. Policy toward China is far too important for candidates either to ignore or demagogue.   

As stock markets decline around the world, apparently in response to stalled economic growth in China, one might ask whether China’s difficulties should come as a surprise.  After all, has not China “liberalized” its economy in recent decades, paving the way for the spectacular growth that capitalism can deliver?

Alas, China has liberalized in some dimensions, but its economy remains highly controlled in other dimensions; it  has state capitalism, not true capitalism. In a recent Cato Research Brief, Donghua Chen, Dequan Jiang, Alexander Ljungqvist, Haitian Lu, and Mingming Zhou provide evidence for this claim:

The key function of an economic system is to allocate scarce resources efficiently. Having proved superior to central planning, Western liberal capitalism, based on markets and private enterprise, was in the ascendant following the collapse of the Soviet Union. More recently, however, state capitalism has won adherents as an alternative to Western capitalism.State capitalism, as practiced in China, Russia, and elsewhere, combines the power of the state with capitalist tools: the state controls access to capital, picks winners, and influences investment decisions, while at the same time listing state firms on domestic or overseas stock markets.

In our research, we ask how efficiently state firms allocate capital. Our focus is on China, the country where state capitalism is perhaps most entrenched. Because China’s capital markets are relatively underdeveloped and firms cannot access them without political approval, we focus on firms’ internal allocations of capital, the internal capital markets operating inside business groups. As we show, Chinese firms rely more heavily on capital obtained from fellow group members than on external capital markets.

We investigate the efficiency of capital allocation by contrasting how state business groups and privately owned business groups in China allocate capital across member firms. An efficient internal capital market allocates more capital to units with relatively better investment opportunities. This is exactly how, according to our evidence, private groups in China allocate capital. State groups, in contrast, do the opposite.  …

Our results suggest that state capitalism does a poor job of allocating capital, at least in China’s state business groups. This likely reflects the fact that the objective of the Chinese Communist Party (CCP) is not just maximizing profits or shareholder value but also maintaining a “harmonious society.” Consistent with this, we document that the chairmen of state groups are rewarded with promotions to higher office not only for raising productivity but also for avoiding large-scale job losses. These aims can be in conflict and over time may be incompatible. State group chairmen appear to let their career incentives influence their internal capital allocation decisions. Not only do we find that internal capital allocations are used to prop up large and struggling employers with poor prospects, consistent with the policy aims of the CCP. We also find that capital allocations are particularly distorted when group chairmen are up for promotion and cease to be distorted once a group chairman becomes ineligible for promotion under the CCP’s rules on mandatory retirement.

The surprise, therefore, might be that China’s economy has done as well as it has until now.

The Obama administration’s success in negotiating a nuclear deal with Iran has led to hope that a similar agreement might be reached with North Korea. Halt your program, dismantle some of your capabilities, and accept intrusive inspections in return for “coming in from the cold.”

Unfortunately, there’s virtually no chance of that happening. As I point out in National Interest online: “The North already has a nuclear capability and views preservation of a nuclear arsenal as critical for domestic politics as well as international policy. Moreover, the West’s ouster of Libya’s Moammar Khadafy is seen in Pyongyang as dispositive proof that only a fool would negotiate away missile and nuclear capabilities.”

In word and action the Democratic People’s Republic of Korea has demonstrated its commitment to being a nuclear state. Moreover, even a good offer for denuclearization looks suspect in light of U.S. and European support for the ouster of Libya’s Khadafy, who negotiated away his nuclear, chemical, and long-range missile programs.

President George W. Bush promised that Libya’s “good faith will be returned.” Khadafy was feted in European capitals. Tripoli was cited as a model for Iran and North Korea to follow.

However, four years ago the U.S. and European governments saw their chance. Under the guise of humanitarianism, Washington and Brussels promoted low-cost (to them) regime change.

Alas, the self-satisfied celebration of Libya as a “good war” quickly dissipated after that nation suffered post-war atrocities, loosed weapons across the region, generated rogue militias, spawned two governments, descended into incipient civil war, and became another battleground for Islamic State forces. 

Now Libya also stands as a stark warning against nonproliferation, at least for any government believing itself to be in Washington’s gunsights. Had Khadafy possessed nukes, chemical weapons, and/or missiles, the allies almost certainly would have kept their planes and drones at home.

The North Koreans took immediate note. The Foreign Ministry observed:  “Libya’s nuclear dismantlement much touted by the U.S. in the past turned out to be a mode of aggression whereby the latter coaxed the former with such sweet words as ‘guarantee of security’ and ‘improvement of relations’ to disarm and then swallowed it up by force.”

Pyongyang has no reason to believe that the allies would not take advantage of a similar opening against the Kim dynasty.

Nevertheless, the Iranian negotiations have revived hopes that the DPRK might be enticed into following suit. Undersecretary of State Wendy Sherman suggested that implementation of the Iran agreement “might give North Korea second thoughts about the very dangerous path that it is pursuing.” Chinese Foreign Minister Wang Yi said that the Iranian deal was an “active model” for the North.

Alas, Kim Jong-un took power only a couple months after Khadafy was killed in rather gruesome fashion. That event likely was imprinted upon his consciousness. Kim isn’t likely to give up his most important weapon to deter outside intervention.

After announcement of the Iranian agreement, the North Korean foreign ministry issued a statement explaining that the situation of the North was “quite different” from that of Iran and that Pyongyang was “not interested at all in the dialogue to discuss the issue of making it freeze or dismantle its nukes unilaterally first.”

After all, the DPRK was a nuclear state and faced ongoing threats from the U.S. Thus, its nuclear deterrent was not “a plaything to be put on the negotiating table.”

This should surprise no one. Author Mark Fitzpatrick contended that the Iranian deal showed that the U.S. “treated the Iranians as equal negotiating partners, according them respect and collegiality.” But Washington treated Libyans that way too. Which didn’t stop the U.S. and its allies from ousting the same government a few years later.

It never was likely that the DPRK would yield up its nuclear weapons. But the Obama administration’s Libyan misadventure makes that prospect even less likely. Washington may rue this precedent for years to come.