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It isn’t often that an SEC decision involves the star of a best seller, a “magic shoe box,” and fundamental questions about the meaning of words like “immediate” and “fair.”  The SEC made such a decision on Friday. 

Last fall, the trading system IEX applied for designation as a stock exchange.  IEX, and its CEO Brad Katsuyama, rose to fame several years ago with the publication of Michael Lewis’s popular book Flash Boys.  Lewis, ever the artful storyteller, cast Katsuyama as the likeable underdog, exposing and undermining high-frequency traders (HFTs) through the development of IEX.  IEX, an alternative trading system, or in the more colorful industry jargon, a “dark pool,” has allowed investors to trade away from market scrutiny and the HFTs that populate “lit” exchanges.  But there are advantages to being an exchange, and IEX wants in.

At issue in determining whether to approve the application was the meaning of the word “immediate” in an SEC regulation known as Regulation NMS.  Regulation NMS, approved by the SEC in 2005, was intended to increase competition among trading exchanges, resulting in better execution of trades and better prices for investors.  In furtherance of that goal, a part of the regulation requires that trades be made at the best price listed on any exchange and that exchanges make their quotations “immediately” and automatically available.  In the past “immediate” has been defined as “immediately and automatically executable, without any programmed delay.”  Seems clear enough, right?

Well, here’s where we get to the “magic shoe box.”  IEX’s claim to fame is that it slows down the trading process, just a little, just enough to make it impossible for HFTs to get ahead of big orders.  Because for those who dislike HFTs, it’s this very habit that makes them a problem.  The argument is that HFTs see a trade coming and are fast enough to get ahead of it, buy up the shares, and then resell them immediately at a higher price.  IEX introduces a 350-microsecond delay, a short enough time to be unnoticeable to any human, but long enough to make this type of trading unprofitable.  The way that IEX introduces this delay is to run the orders through a long cable, which is kept coiled up in a box.  The magic box is a shoebox-sized box of coiled cable. 

See the problem?  “Immediate” has been defined as “without any programmed delay.”  It seems that running the order through a length of cable with the intent of introducing a delay is, well, a “programmed delay.”  If the delay is only 350 microseconds – less time, Katsuyama has said, than it takes to blink – does it count?  It has to count.  It doesn’t matter whether it’s essentially imperceptible to humans.  If it didn’t make a difference to HFTs, IEX wouldn’t have introduced it via the shoebox.

Well, then that’s clear enough, right?  If intentionally included, a delay is impermissible because it’s a “programmed delay.” Thus, IEX can’t use its magic shoebox and be in compliance with the rules.  The SEC should have denied the application. 

Not so fast.  Other exchanges also intentionally introduce delays through coiled cable.  That’s where IEX likely got the idea.  Except these other exchanges don’t delay everyone.  It may seem that when you send an email to a friend in China, it arrives “instantly” in your friend’s inbox.  But of course, it doesn’t.  It’s really fast, but not instant.  In the trading world, speed has become so essential that the difference between having a server pressed right up against the exchange’s servers means being faster (and better able to make money) than being located just on the other side of the same room.  To even out these differences (entirely imperceptible to humans, but very visible to computers) exchanges will attach all the servers with the same length of cable, coiling the excess cable for the servers located closest to the front of the room.  That is to say that many existing exchanges have their own shoeboxes, also filled with coiled cable.  But those boxes are designed not to slow down the whole exchange, but to even the playing field within the exchange.

What should the SEC have done?  Was it right in approving IEX’s application, allowing them to introduce an intentional exchange-wide delay?  There are those who support that position, for very compelling reasons.  Regulation NMS has caused more problems than it solved.  Former SEC Commissioner Daniel Gallagher has dubbed it the “poster child of unintended consequences,” pointing to the fact it was Regulation NMS that essentially created high-frequency trading.  If IEX’s 350-microsecond delay can starve out the HFTs, it will provide a market-based solution to any perceived problems posed by HFTs.  (I am not, to be clear, saying that HFTs are problematic.  There is evidence that they improve market quality.) 

To make the approval work within the strictures of Regulation NMS, the SEC simultaneously released updated guidance stating that any delay of less than one millisecond will be considered de minimis.  In legal terms, Black’s Law Dictionary defines de minimis as “trifling” or “so insignificant that a court may overlook it in deciding an issue or case.”  As a microsecond is significantly shorter than a millisecond, IEX’s 350-microsecond delay fits neatly into the new guidance. 

But is the solution to bad regulation to create one-off exemptions, essentially regulating by fiat?  Another former commissioner, Paul Atkins, who voted against the regulation when it came up for a vote during his tenure, has argued that the real solution is to fix Regulation NMS.  Not surprisingly, many existing exchanges have also voiced their opposition to approval of the application.  While much of this may be chalked up to their aversion to increased competition, several have raised credible arguments about the unfairness of creating loopholes for specific parties, while also highlighting potential technical problems with designating IEX as an exchange. These technical problems, of course, would not exist but for Regulation NMS.

Ultimately the SEC’s solution is a band-aid, and a poor one at that.  While 350 microseconds, or even 1 millisecond, is truly less than a blink of an eye, no one spending the kind of fortune IEX must have spent in not only its application but in the attendant lobbying efforts would view the delay as de minimis.  The delay is the issue.  Deciding that it’s too trivial to be worth considering is simply disingenuous.  Introducing competition into a marketplace is good.  But creating regulatory carve-outs for special interests is not.  The solution is to fix Regulation NMS.

The Philadelphia City Council has voted to become the second city in the United States to impose a tax on the sale of particular types of sweetened beverages. The tax applies to sugared soda, diet soda, sports drinks and more, while excluding drinks that are more than half milk or fruit, as well as drinks to which sugar is added such as coffee. The tax will be 1.5 cents per ounce, amounting to 18 cents per standard size can of soda or $1 per two-liter bottle.

Public health advocates often propose taxes on sugary drinks, colloquially known as “soda taxes,” as a means of improving public health outcomes. They argue that such beverages disproportionately cause obesity and that consumers of sugary beverages impose external costs on others through higher medical costs associated with obesity.

The evidence supporting the disproportionate effect of sugar beverages on obesity is not powerful.  An article in Obesity Review concluded, “The current evidence does not demonstrate conclusively that nutritively sweetened beverage consumption has uniquely contributed to obesity or that reducing NSB consumption will reduce BMI levels in general.” 

And the externalities of the obese also appear to be minimal.  “The existing literature … suggests that obese people on average do bear the costs and benefits of their eating and exercise habits.”

But for purposes of discussion assume that consumption of such beverages does result in obesity and its health effects, which, in turn, create costs for others.  Are the taxes a good corrective?

An article in Regulation by California Polytechnic State University professors Michael Marlow and Alden Shiers examined the economics of soda taxes.  They find several problems.  First, the tax isn’t on obesity and thus taxes the soda consumption of the majority who are non-obese.  If obesity creates additional health care costs, the first best solution would be for health insurers to price health insurance for the obese higher and then those affected would have incentive to alter all behavior that leads to excessive weight and not just soda consumption.  But under the Affordable Care Act, such pricing is not allowed.  Second, the level of taxation enacted by Philadelphia, while significant in a percentage sense, will have very little effect on weight.  Every percentage point of tax increase is estimated to result in a body mass index decrease of only .003 points.  Coca-Cola on sale at my supermarket is $2.50 for 12 cans of 12 ounces or 1.7 cents per ounce.  The tax of 1.5 cents per ounce is about an 86 percent tax on the price and would decrease BMI by about .26 points (86.4 X .003), “a trivial effect given that obesity is defined as a body mass index of at least 30.”  Finally, the tax encourages substitution of other beverages that are taxed less. Notably, the tax on beer in Pennsylvania stands at only 9 cents per 12-pack, about 4 percent of the new soda tax in Philadelphia.

There are some positives in the Philadelphia case.  The program was not sold to voters as a public health measure, but rather as a means of raising new tax monies. The discussion of the tax and the public spending for which the revenues would be used was explicit.  And the tax is a consumption tax rather than a tax on the rich or corporations.  To be sure, the tax is on a very narrow consumption base and thus is distortionary, but at least the tax is visible. The voters will see the tax and the public services that result and can make an informed decision in the next election about the tax and its uses.

Cato research assistant Nick Zaiac contributed to this post.

Imagine living in a country in which the two major parties had nominated a couple of candidates not to be trusted on the town council. Imagine deciding to stay home on Election Day.

But then imagine government officials showing up at your door, demanding that you accompany them to the polling place to vote for one of the candidates who you can’t stand even to listen speak. That is the world which some high-minded “civic activists” desire.

Every election can be expected to unleash ponderous commentaries bemoaning low voter turnout. Many Americans don’t register, let alone cast ballots. Why, oh why, won’t they get out and participate?

It is so unfair, we are told. The wealthy, elderly, and well-educated disproportionately participate, which “skews policymaking,” complained the Economist. Just think of all the government programs the underrepresented could vote for themselves if only they showed up on Election Day.

Of course, there is another way of looking at the process. Those most likely to follow politics, understand policy issues, watch the news, and know the candidates vote disproportionately. This might “skew” policy, but presumably in a very good way. Those choosing America’s leaders are actually more likely to know something.

For those determined to drive more people to the polls, the options seem few. Civic propaganda and celebrity endorsements don’t do much. Postal ballots actually may reinforce existing voting patterns. Election Day registration has limited effect. Treating Election Day as a holiday is a bust.

So, as one would expect, left-wing minds turn to coercion. Make people vote. Force them to act on their ignorance and prejudice. All that matters is pushing up turnout numbers.

Mandatory voting isn’t a new idea. Both Australia and Belgium penalize non-voters. Down Under you get hit with a roughly $14 fine if you don’t have a good excuse for staying home. (A bit like having a parent’s note for missing a day of school.)

Those in favor of a coerced ballot emphasize that you are free to do what you want once you are in the polling place, including choose no one. At least the authorities don’t look over your shoulder to ensure that you marking an officially approved selection.

Of course, there are worse impositions in life. Governments shoot people for resisting their authority, send people off to die in foolish foreign wars, invade people’s homes to punish them for conduct which threatens no one, confiscate property on the claim that it is drug-related, seize workers’ incomes to spread among political supporters and other influential interest groups, and much more. Requiring you to show up on Election Day appears, well, minor compared to so much else that government does!

However, as I wrote for Fee.org, “seemingly small exactions reinforce the presumption that the state determines and sanctions individual rights. A refusal to vote, thereby encouraging those who compete to dominate and control the lives of others, is a matter of basic conscience.”

Of course, one can argue that such staying home is irresponsible. Voting for a third party also registers dissent, but in most elections the numbers are barely noticed. This election might be different, but who knows? As for choosing the lesser of two evils, the likelihood that any one vote will make a difference is so small as to be a strong argument against wasting time trooping down to the polls.

Moreover, if those committed to liberty are unable to defeat the sort of big-spending, war-friendly candidates nominated of late, the best tactic might be withdrawing legitimacy from those who win. A steadily increasing share of the population abstaining from a process which yields choices between Tweedle Dum and Tweedle Dee might spark a serious conversation about the state of American democracy.

Ultimately, the issue of voting comes down to conscience. Simply saying no and refusing to cast a ballot is a powerful form of dissent. A decision not to vote deserves the same respect as one to participate.

 

I and others have repeatedly questioned the U.S. Department of Justice’s adventurous decision to charge Federal Express with crimes for, in essence, refusing to snoop into its customers’ packages and business. From my post at Overlawyered two years ago:

The federal government has prevailed on a grand jury to indict Federal Express for servicing what it should have known were illicit online pharmacy operations. FedEx says it repeatedly asked the government to supply a list of shippers it considered illicit so that it could cut off service, but that the government refused; the Department of Justice contends that circumstantial evidence should have been enough to alert the package shipment company. …

And last month, quoting Washington Legal Foundation’s Cory Andrews:

“Federal prosecutors have accused FedEx of knowingly shipping illegal drugs in interstate commerce and laundering money by merely doing its job: delivering packages (in this case, from online Internet pharmacies) to their intended recipients and getting paid for the service. …To avoid the very sort of ‘gotcha’ prosecution at issue here, Congress inserted exceptions for common carriers in each of the relevant statutes” authorizing shipment of prescription medications and controlled substances when done in the usual course of business….

Now, this big news from federal court in San Francisco:

A criminal trial nearly two years in the making alleging FedEx knowingly delivered illegal prescription drugs to dealers and addicts ended suddenly Friday when prosecutors moved to dismiss all charges against the shipping giant.

U.S. District Court Judge Charles Breyer, who had been highly critical of the government’s positions as the trial unfolded, granted the motion to dismiss: on Friday he called FedEx “factually innocent” and said the withdrawal of charges was “in the court’s view, entirely consistent with the government’s overarching obligation to seek justice even at the expense of some embarrassment.”

FedEx spokesman Patrick Fitzgerald said in a statement Friday that the company has always been innocent and the case should never have been brought.

“The government should take a very hard look at how they made the tremendously poor decision to file these charges,” he said. “Many companies would not have had the courage or the resources to defend themselves against false charges.”

Many in the field of white-collar legal defense have warned large corporations, particularly those with businesses built upon relationships of public trust, to cut a deal with the federal government rather than try to withstand the full force it can bring to bear in a prosecution. But FedEx, for one, has shown that it is still possible to defy the authorities and win. Mike Koehler at FCPA Professor says that might help lay to rest what has been called the “Arthur Andersen effect” in which indictment is itself seen as tantamount to corporate death.

P.S.: Our friend James Copland of the Manhattan Institute has this observation (via email):

What’s remarkable here is that UPS agreed to a $40 million non-prosecution agreement — and to hire a new corporate officer and an independent auditor looking over their shoulder and reporting to the U.S. Attorney — for the same alleged conduct.

(cross-posted from Overlawyered). 

The feds are yet again trying to have their cake and eat it too, this time regarding constitutional criminal procedure. The Double Jeopardy Clause prevents the government from using its immense resources to prosecute criminal defendants twice for the same crime. Still, if a defendant’s first trial results in a hung jury, or the conviction is reversed on appeal, the trial is a legal “non-event” and the government can seek a new trial. If the defendant is acquitted, however, then no new trial is possible; the acquittal precludes a second try because that would be “double jeopardy.”

In a new case out of Puerto Rico, the government is trying to claim that acquittals can also be “non-events” that allow retrial. Juan Bravo-Fernandez and Hector Martinez-Maldonado received a mixed verdict at trial: they were acquitted on two charges—conspiring and travelling to bribe a member of the Puerto Rican Senate—but convicted of the actual bribery. But the two acquittals necessarily depended on a finding that neither defendant violated the bribery statute. Indeed, the U.S. Court of Appeals for the First Circuit vacated the bribery conviction because the jury’s verdict was improperly based on invalid instructions from the trial judge.

That left one vacated conviction and two acquittals that logically required a finding of “not guilty” on the bribery charge. At that point, double jeopardy should have kicked in; the acquittals precluded a retrial regarding the underlying bribery. As the Supreme Court said in Yeager v. United States (2009), any “apparent inconsistency between a jury’s verdict of acquittal on some counts and its failure to return a verdict on other counts” does not “affect[] the preclusive force of the acquittals under the Double Jeopardy Clause.”

But the trial and appeals courts found that this precedent did not prevent retrial here. The Supreme Court has now taken up the case and Cato has filed an amicus brief supporting the defendants. We argue that the government’s position is contrary to the common law of double jeopardy and misunderstands the effect of a court’s having vacated a conviction that cannot stand given other acquittals.

When a court vacates a ruling in the double-jeopardy context, the effect is to wipe it out as if it never existed. Going back to Sir William Blackstone and English common law, if a “judgment, pronounced upon conviction, [wa]s falsified or reversed, all former proceedings [we]re absolutely set aside, and the party st[ood] as if he had never been at all accused,” for better and for worse: He was “restored in his credit, his capacity, his blood, and his estates,” but he was also “liable to another prosecution for the same offense.” Yet here the government seeks to have the vacated conviction stop the preclusive effect of acquittal.

The government simply should not be able to benefit from the vacating “non-event” that enables a retrial while at the same time arguing that it is also an “event” such that the acquittals don’t count in the double-jeopardy calculus.

Moreover, allowing the First Circuit’s decision to stand would give prosecutors more incentive to overcharge the same underlying conduct with multiple counts, forgive them for pursuing dubious theories of criminality, and permit them to use trials as dress rehearsals for future successive prosecutions—as well as impugning the inviolate nature of jury acquittals.

These concerns strike at the heart of the Double Jeopardy Clause. That’s why the Supreme Court should prevent the government’s attempt to overreach its prosecutorial authority by eviscerating a well-established, logical set of legal doctrines.

The Supreme Court will hear argument in Bravo-Fernandez v. United States this fall at the start of its next term.

The horrific massacre at the Pulse Orlando nightclub has prompted calls for new restrictions on firearms. Those calls are understandable—fight mass murder by restricting some of the tools of mass murder, the thinking goes—but would such restrictions really reduce violent crime? Or, in a country with a robust black market, would gun restrictions merely constrain the lawful, giving violent criminals greater opportunity for mayhem? 

To answer that question, researchers John Lott Jr. and Gary Mauser decided to ask the experts. They surveyed fellow academics who published empirical research on guns and violent crime in peer-reviewed academic journals over roughly the last 15 years. Specifically, Lott and Mauser asked about their perceptions of legal firearms possession’s associations with crime and suicide, and the effects of gun-free zone and concealed carry laws.

The respondents can be divided into two groups: economists (many of whom act as applied statisticians) and criminologists. The two groups differ in an important way: economists are much more mindful of incentives and expectations. This difference in the disciplines’ views of human nature likely explains the difference between the groups’ responses. Economists were highly skeptical of the idea that greater restrictions on legal gun ownership—specifically, concealed carry, gun-free zones, and the presence of a firearm in the home—would reduce violent crime, while criminologists were considerably more mixed, with a lean (that sometimes wasn’t statistically significant) toward skepticism. Importantly for the current gun control debate, neither group supported the notion that more restrictions on legal gun possession would reduce violent crime.

Lott and Mauser present their findings in the summer issue of Regulation. You can read the article online here.

A new documentary series, “Improbable Success,” looks at countries that have thrived by implementing free-market policies. The series is currently running on Sinclair Broadcast Group stations, which are found across the country, from WJLA in Washington, D.C., to KBFX in Bakersfield, California. (Sinclair stations are variously affiliated with all major networks.) This weekend, including at noon Sunday on WJLA, host Emerald Robinson will look at Chile’s economic growth since its reforms around 1980. Experts on the show include Jose Pinera, Ian Vasquez, and Richard Rahn, along with several Chilean entrepreneurs. Last week featured Estonia; next week, Switzerland. 

Some work by Catoites responding to the lethal rampage by an Islamic State devotee at closing time last Sunday morning in Orlando’s LGBT-oriented Pulse nightclub: 

Writes Michael Tanner in his piece: “As Representative Justin Amash (R., Mich.) noted, he has heard ‘Democrats and Republicans endorse violating the 1st, 2nd, 4th, 5th, 6th, and 8th Amendments’ in response to the attack. About the only thing we are missing is a call to quarter troops in our homes.”  

And more: “Without self-defense, there are no gay rights.” Dave Kopel has a post today at the Volokh Conspiracy, “The history of LGBT gun-rights litigation,” citing the pioneering work of several scholars and activists whose name will be familiar to Cato readers, including Cato University director Tom Palmer, leading up to and following the landmark D.C. v. Heller individual rights case.

This morning, the New York Times and the Wall Street Journal published excerpts and summaries of an internal memo by 51 State Department officials calling for airstrikes against the Assad regime in Syria. The key idea expressed in the memo is simple: take military action immediately to stem the tide of violence in Syria. It’s an understandable sentiment, especially from those who have been dealing with Syria’s barbaric civil war on a daily basis, as many of the signatories have. Unfortunately, it is also an exercise in wishful thinking, ignoring the concrete problems with further U.S. military commitment in Syria which have formed the basis for the Obama administration’s refusal to overthrow Assad.

The memo criticizes the Obama Administration’s decision to eschew military action in Syria, arguing instead for the “judicious use of stand-off and air weapons” against the Assad regime. Though such internal memos contesting the administration’s official policy – known as a ‘dissent channel cable’ – are not uncommon, the large number of signatories is more unusual. The memo blames the Assad regime’s violence towards civilians for both Syria’s instability and the appeal of ISIS, arguing that the moral rationale for airstrikes “is unquestionable.”

It is this moral rationale which appears to figure more highly for the authors than practical questions. Despite this, the memo stops short of explicitly calling for regime change, arguing instead that airstrikes will provide a credible threat against Bashar al-Assad and more solid footing for a future diplomatic settlement. But while the authors note that they are not “advocating for a slippery slope that ends in a military confrontation with Russia,” they fail to note how such a confrontation could be avoided. And in calling for partnership with moderate Syrian rebels, the memo appears to gloss over the many problems inherent in finding and arming such ‘moderates,’ which often coexist and fight alongside far more extreme groups.

At the same time, such arguments sound suspiciously like those made in advance of the 2011 Libya intervention, which did not explicitly call for regime change, but embraced it wholeheartedly almost as soon as airstrikes began. And though they say otherwise, it is unclear how the authors’ call to work with Syrian rebel groups against both ISIS and the Assad regime is not a call for regime change in Syria. Among the more ironic lines reported to be in the memo is an argument that U.S. military action would “increase the chances for peace by sending a clear signal to the regime and its backers that there will be no military solution to the conflict.”

As observers have noted, it’s extremely unlikely that this memo will alter the Obama administration’s stance on Syria. The White House has been clear that any benefits of intervention against the Assad regime are far outweighed by the inherent risks of escalation and the practical obstacles to it. Yet the simple fact that the memo was simultaneously leaked to the New York Times and Wall Street Journal, rather than simply referred through internal channels suggests that it was intended as much for public ears as official ones. Its existence has the potential to shape public debates on Syria in this election year.

The bias towards action seen in this report is understandable. In the face of human suffering, it is far easier to advocate for quick, effective military strikes than it is to pursue a process of patient diplomacy and humanitarian aid. But it is not always better in practice. It is extremely unlikely that U.S. airstrikes will improve the diplomatic process, or lessen Syria’s humanitarian toll. At the same time, airstrikes carry major risks: conflict with Russia, the empowerment of extremist groups, the further destabilization Syria, or even the collapse of today’s peace talks. The authors’ wishful thinking cannot reduce these risks. 

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

We’ll get right to it.

First up this week is an examination by the Global Warming Policy Foundation (GWPF) of the prospects of a quick ratification of the Paris Climate Agreement—something that President Obama desperately wants in order to insure that if the next president proves hostile to the Agreement, he won’t be able to derail the whole thing.

While Obama was all smiles when Indian Prime Minister Narendra Modi was in town recently discussing cooperation on the climate, Indian officials were quick to point out that we shouldn’t get the wrong idea, stating that India is “unlikely to sign the Agreement this year, or even the next.”

The GWPF analysis takes us through India’s stance was well as the opinions of other countries which are vital to the Agreement’s ratification. Some have ratified it already, while others, like India, aren’t rushing forward.  From the GWPF:

Representing the two largest greenhouse gas emitters, the joint US and Chinese commitment to early entry into force is undoubtedly significant. Nonetheless, the picture becomes significantly more complicated looking at the next two largest emitters: Russia and India. Both countries have indicated that they are prepared to wait before they ratify the Agreement, wanting a clear set of rules and a greater recognition of differentiated responsibilities. The EU process of securing unanimity between 28 member states is likely to mean a significant delay to European ratification. This means that early entry to force is dependent on building a coalition of many smaller countries, a procedure that is likely to be challenging.

Next up is a good piece by Competitive Enterprise Institute’s Marlo Lewis showing just how dodgy the EPA’s calculation of “benefits” for their recent emissions regulations really is. Turns out that in addition to double counting them, they find health benefits from reducing emissions in regions which remain below the EPA’s cut-off concentrations for deleterious effects. Marlo wonders how it is that

EPA does not explain or try to justify why associations between PM2.5 [tiny particulate matter] and health that are too weak or uncertain to be used to determine what is requisite to protect the public health with an adequate margin of safety are strong and certain enough to calculate regulatory benefits.

He concludes that the reason is that if the EPA were to remove the monetized health “benefits” from those areas which are projected remain in attainment with EPA standards (which turns out to be most of impacted regions), the “benefits” drop to near zero. This not only applies to the EPA’s Mercury and Toxic Standards (MATS) rule, but to their Clean Power Plan (CPP) as well. Such a result would, in Marlo’s words, be a “potential PR disaster for the agency.”

And we can’t have that—so we imagine that the EPA will stick with their inconsistent methodology.

But some things are looking up.

Last week, the House of Representatives passed Rep. Steve Scalise’s (R-LA) resolution “Expressing the sense of Congress that a carbon tax would be detrimental to the United States economy” by a vote of 237 to 163. Not a single Republican vote was cast against the resolution.

Seems “conservative thinkers” still have a lot of work ahead of them.

All the while, their work is being made more difficult by growing scientific evidence that the climate’s sensitivity to carbon dioxide emissions is considerably less than advertised—a situation which reduces the urgency to “do something” (like implementing a carbon tax) about global warming.

Which brings us, again, to the topic of the social cost of carbon—the monetary manifestation of the impetus to tax carbon dioxide emissions in the first place.

Before signing out this week, we wanted to point you to an article by Ross McKitrick in the Financial Post in which he explains the importance of his new analysis of the government’s social cost of carbon determination—an analysis that we highlighted in last week’s YOTHAL.  In summary, Ross writes:

The numbers produced by the [U.S. federal government] have a large and growing influence over energy and economic policy in the U.S. and Canada and elsewhere. Unfortunately, for all its claims about following the science, where it really counts it ended up peddling guesstimates based on inconsistent models. To borrow a phrase, it is time to restore science to its rightful place. Calculations behind the social cost of carbon need to reflect empirical evidence about low climate sensitivity, and when this is done, the numbers appear to be much lower than those currently in use.

You ought to have a look.

On Fox News last night, Megyn Kelly agreed with her guest James Kallstrom that the FBI needs a larger budget. The horrific attack in Orlando has raised the issue of whether the FBI has sufficient resources to investigate potential terrorists.

I don’t know how large the FBI budget should be. The agency does fill a lot of crucial roles, including tackling never-ending corruption in federal, state, and local governments.

But I do know that the FBI has not been starved; its budget has grown rapidly. The chart, from DownsizingGovernment.org, shows that FBI spending in constant 2016 dollars has more than tripled since 1990, from $2.7 billion to $9.1 billion. 

Congress, in predictable fashion, seems poised to slap a band aid on a problem in the nation’s Selective Service system. The smarter long-term solution would end the practice of draft registration once and for all. 

Changes to the military’s combat rules would open the Selective Service system to new legal challenges on equal protection grounds. The new rules allow women to serve in previously closed ground combat units, a sensible change in policy that reflects the realities of the modern military. But, given this change, it is unfair to require only 18-year-old males to register for the draft. If the rules remain in place – and they should – women should also be required to register.

The Senate version of the National Defense Authorization Act, which passed by a wide margin on Tuesday, includes this change. Hillary Clinton has come out in favor of draft registration for women. Some conservatives are now urging the House and Senate conferees to strip the provision, and, if they don’t, to vote against the entire NDAA. But these objections mostly revolve around the changed combat rules, not the inherent unfairness of requiring only men to register. 

Congress should instead revisit whether we need a Selective Service, not whether both men and women should register for it. As I explained back in February in an online article for the Washington Post:

The entire draft architecture is anachronistic and unnecessary. We’ve operated with an all-volunteer force for decades; no one, regardless of gender, expects that they’ll be drafted; and the wars that we fight don’t depend upon conscription. Future wars aren’t likely to, either.

[…]

[I]t is highly unlikely that we’ll face threats that require troop deployments on a scale that would necessitate another draft. Policymakers in Washington have chosen to fight wars in the Middle East with smaller, more nimble and highly-trained special operators, along with air power, manned and unmanned, in part because the capabilities are available to them, but mostly because these wars do not engage vital U.S. national security interests or threaten our survival.

In the event that a mass-conscripted army was ever again required to defend our country from attack, Congress could immediately pass a law to make that happen. But any notion that today’s Selective Service System is what stands between us and military defeat is absurd. And the push to expand combat roles to women signals that more, rather than fewer, Americans are willing, voluntarily, to do their part to defend this nation. We should take this opportunity to recognize that we can get rid of the draft altogether.

You can read more here.

The Financial Times (FT) published a June 9, 2016, editorial titled, “Coping with a world of too much Chinese steel.”  (Link)  The editorial makes the case correctly that China’s steel overcapacity has spilled onto world markets and is having negative effects on steel makers in the European Union and United States.  It appropriately argues against Western governments nationalizing their steel industries or providing “other indefinite state support.” 

The editorial errs, however, in suggesting that “the best option is a judicious and limited use of trade remedies against subsidized imports.”  Economists have understood for decades that when a nation imposes trade restrictions, it always reduces its own economic welfare.  It is difficult to argue that imposing a policy measure that reduces a nation’s economic welfare is a good thing to do.  The country would have been better off simply by doing nothing.  (“Don’t do something, just stand there!”)

There are two easily understood reasons why imposing trade restrictions won’t help the situation.  The first is that the global overcapacity is so great that market prices for commodity grades of steel are low worldwide.  If imports of hot-rolled steel from China are limited by newly implemented antidumping or countervailing duty (AD/CVD) measures, relatively low-priced hot-rolled coil could easily be imported instead from countries such as South Korea, Brazil, or Turkey.  Curtailing imports from China is likely to provide relatively little relief to domestic steel manufacturers. 

The second reason is that restricting imports in an attempt to benefit steel producers will have the effect of increasing costs of production for manufacturers that use steel as an input.  These downstream users constitute a much larger segment of the economy.  In the United States, for example, data compiled by the Bureau of Economic Analysis (BEA) at the Department of Commerce indicate that economic value added by “primary metal manufacturing,” which includes steel, copper, aluminum, magnesium, etc., amounted to about $60 billion in 2014.  Downstream manufacturers that utilize steel as an input generated value added of $990 billion, more than 16 times larger.  Employment by primary metal manufacturers was 400,000, while downstream manufacturers employed 6.5 million, also 16 times greater.  Use of trade remedies against steel imports amounts to an attempt to benefit the few at the expense of the many.

To elaborate, the United States currently imposes some 150 AD or CVD orders against a large number of steel products from a large number of countries.  These restrictions have had the effect of making U.S. steel prices relatively high, while in the rest of the world they are relatively low.  Still, important portions of the American steel industry have not been sufficiently profitable.  United States Steel Corporation, the country’s largest producer, reported a 2015 loss of $1.5 billion.  So U.S. prices are somewhat high, but not high enough to cure the industry’s commercial problems.

Prices are high enough, though, to do meaningful damage to manufacturers of value-added products that use steel as an input.  Many of those firms have difficulty competing with manufactured goods imported from countries with much lower steel prices.  Carrier, for instance, has been criticized by politicians for its decision to move 2100 air conditioner jobs from Indiana to Mexico.  It seems likely that the many AD/CVD duties against steel – not to mention restrictions on imports of copper tubing and aluminum extrusions – played a role in that decision.  Carrier can escape those policy-imposed costs simply by moving production across the border.

The FT acknowledges that antidumping and countervailing duty (AD/CVD) measures “will increase costs for the numerous companies that use steel as an input,” and explains that the EU trade remedy process includes a “community interest” test that balances the potential benefit of import restrictions to steel producers against the likely damage that would be done to steel users.  The community interest test helps to explain why the EU has many fewer AD/CVD measures in place than does the United States. 

Statutes in the United States contain nothing equivalent to the community interest test.  Instead, the law requires the U.S. International Trade Commission (ITC) to consider only the effects of imports on the domestic industry producing the same product.  So as long as the ITC determines that domestic industry has been injured, it must vote to impose duties no matter how great the costs will be to users.  From experience, I know that this is an economist’s nightmare.  But commissioners are sworn to uphold the law, so have little choice.

Thus, a suggestion by FT that trade remedies offer a reasonable way to counter China’s excesses seems to be much more a political response than one grounded firmly in economic realities. The policy analysis becomes clearer if we begin by recognizing that China’s decisions to export subsidized steel have the effect of transferring a substantial amount of wealth from that country to the importers.  What’s not to like about being on the receiving end of a wealth transfer?  Yes, there are adjustment challenges for firms producing basic grades of steel in importing countries.  Trade Adjustment Assistance (TAA) exists to help address those problems in the United States.  If policymakers conclude that more assistance is needed, they should take care to avoid measures that damage the broader economy.

The better policy approach would be for the European Union and United States to get the attention of Chinese leaders by reframing the debate and delivering this message:

“Thank you for transferring so much wealth from China to Western countries by selling low priced steel.  It’s helping to keep our large manufacturing sectors globally competitive.  Please keep doing it.”

This approach has a decent prospect for encouraging Chinese leaders to deal with the root cause of global overcapacity by downsizing and restructuring their steel industry. 

And, after engaging creatively with the Chinese, U.S. officials should follow up by reforming AD/CVD laws so that import restrictions could be imposed only when economic analysis shows that benefits would outweigh the costs.  It makes no sense to respond to economic harm caused by low steel prices by imposing policies that do even more damage to the U.S. economy.

ReasonTV interviews Cato adjunct scholar Harvey Silverglate on overcriminalization and the threat to free speech at American universities.

When Everything is a Crime: Harvey Silverglate on the Overregulation of Ordinary Life

Almost anything associated with the Cold War appears to be an anachronism these days. New college graduates never saw the hammer and sickle fly over the Kremlin, the deadly wall cut Berlin in half, and defectors leave home in search of that most precious human commodity, liberty.

Even for those of us with a few more years such memories are fading. Still, 1989 remains an extraordinary moment.

The Soviet Union lasted another two years, but it was only a shell of its former totalitarian self. No longer did its citizens have to hope for a trip to the West for an opportunity to leave everything behind.

But that’s not the world in which Viktor Korchnoi grew up. He was born in Leningrad in 1931 and survived the 872-day siege during World War II. He displayed an aptitude for chess, winning the Soviet junior championship in 1947.

Korchnoi was not just a good chess player. In 1975 he lost a close match, essentially the semi-finals, to countryman Anatoly Karpov. Since American Bobby Fischer, who broke the Soviet stranglehold over the championship in 1972, refused to defend his title, Karpov was declared champion, making his match with Korchnoi the de facto title fight.

But he never was a compliant Soviet citizen. Eventually Moscow denied him permission to travel abroad and promoted his great rival and former friend, Karpov.  The regime threatened to kill destroy his future.

When he finally was allowed to play in Europe in 1976 he failed to take the flight home. Although his defection was about career, not politics, he immediately became a non-person at home and a target of Soviet fury overseas.

He was old, in chess terms, when he fled at age 45. Yet he continued to knock on the championship door.

In 1978 he disposed of the other challengers to gain a shot at Karpov. The winner would be the first to six victories. Korchnoi fell behind 5-2. Then he won three of four games, tying the match. Alas, Karpov, the perfect Soviet role model, won the next game, along with the match. Korchnoi again challenged in 1981, but was overwhelmed 6-2.

Although he had escaped, his wife and son languished in the U.S.S.R., denied permission to join him. Indeed, his son was later imprisoned for resisting the draft. Moscow was only too willing to use them as hostages against Korchnoi. (They were finally freed in 1982.)

Korchnoi played in matches leading to the championship for another decade, but never again challenged for the title. He was doomed to be known as the best chess player who never won the championship.

In the 1984 competition the 53-year-old Korchnoi suffered a 32-year-age gap and lost early to Gary Kasparov, another malcontent in the Soviet system. Kasparov, of Azerbaijani and Jewish descent, went on to defeat Karpov. Soon the Soviet Union was tossed on the trash heap of history.

Korchnoi ended up as the oldest active grandmaster playing major tournaments. For years he was by far the oldest grandmaster in the top 100 and still a ferocious competitor. Even after a stroke in 2012 he continued to play.

Korchnoi truly was a chess legend, playing for more than a half century. His 80th birthday was celebrated by Kasparov, now retired and fighting for democracy in Russia. And eulogies were many on his passing.

As I wrote for American Spectator, “thankfully, Korchnoi finished his life in freedom. His childhood was harsh; his career difficult. But he spent almost half of his life in the West, able to taste liberty even before the Soviet Union fell. Viktor Korchnoi is one more reminder of the manifold injustices of totalitarian communism. RIP Viktor.”

For-profit colleges. Accreditors. Endowments. Loan servicers. Debit card companies. Federal policymakers have blamed just about everyone associated with higher education but themselves for the Ivory Tower’s myriad problems. The most recent target just happens to be one specific accreditor: the Accrediting Council for Independent Colleges and Schools (ACICS), which accredits lots of those icky proprietary schools.

Now, ACICS might be as bad as its detractors say. I don’t know because, frankly, I don’t have the time or resources to launch a full and fair investigation into the group. Of course, that is itself a huge problem: Unless you have umpteen free hours on your hands, it is very hard to know whether “bad actors” are really bad, their accusers are jumping to conclusions or are political opportunists, or some combination of those things.

Here is what I do know: Washington gives out big sums of money to people to pay for college without meaningfully determining whether those people are prepared for higher education. That fuels rampant price, credential, and luxury inflation, and seriously mutes incentives for students to think critically about their higher education choices. In other words, “caring and generous” federal policy – policy that lets politicians telegraph how “concerned” they are with education, the poor, and the middle class – is very much at the self-defeating root of all of higher ed’s biggest problems.

So go after ACICS, the openly for-profit schools they accredit, and anyone else you think looks bad (while ignoring crucial context needed to see reality). But don’t expect doing so to fix higher ed. Expect it to just lead to other hunts when these scapegoats are dispatched, and the Ivory Tower getting no better.

Introducing their work, Butterly et al. (2016) write that rising atmospheric CO2 concentrations are projected to increase the productivity of agricultural cropping systems in the future, primarily via enhanced photosynthesis and reduced evapotranspiration when water and nutrients are not limiting. One field crop that is economically important in many semi-arid locations is the common pea plant (Pisum sativum); yet according to Butterly et al., “few studies have examined the effects of elevated CO2 on field pea.” Therefore, in an attempt to rectify this situation, the team of four Australian researchers set out to examine the interactive effects of elevated CO2 and soil nitrate (NO3-) concentration on the growth, nodulation, and nitrogen (N2) fixation of pea plants. Nodules house bacteria that “fix” atmospheric nitrogen into ammonia, which serves as plant food.

The study was conducted in a semi-arid location at the SoilFACE facility of the Department of Economic Development, Jobs, Transport and Resources Plant Breeding Centre in Horsham, Victoria, Australia. There, pea plants were grown for a period of 15 weeks in Vertisol soils containing either 5, 25, 50 or 90 mg NO3--N kg-1 under either ambient (390 ppm) or elevated (550 ppm) carbon dioxide concentrations maintained using free-air CO2 enrichment (SoilFACE). It was the hypothesis of the researchers that “nodule establishment (nodule number), development (nodule mass) and function (nitrogenase activity, N derived from the atmosphere) would be progressively inhibited with increasing NO3- (nitrate) concentration, but these effects would be reduced under elevated CO2 via enhanced N demand due to greater photosynthetic activity and plant biomass accumulation.”

The results of their analysis confirmed the inhibitory effects of soil nitrate concentration on field pea plants growing under ambient CO2. In the elevated CO2 treatment, however, field pea plants had approximately 30 percent more biomass and were not affected by N level (see figure below). What is more, Butterly et al. report that “elevated CO2 alleviated the inhibitory effect of soil NO3- on nodulation and N2 fixation,” which impressive finding they say “is likely to lead to greater total N content of field pea growing under future elevated CO2 environments.” And the end result of these findings, they add, “indicate that field pea may perform well in semiarid agricultural systems under future CO2 concentrations irrespective of soil N status, and subsequent gains in N input via enhanced N2 fixation will be important for maintaining the N fertility of cropping systems.”

Now that is good news worth reporting!

Figure 1. Shoot (Panel A) and root (Panel B) biomass of field pea grown for 15 weeks under either an ambient (aCO2) or elevated (eCO2) carbon dioxide concentration and with 5, 25, 50 or 90 mg NO3--N kg-1 soil.

 

Reference

Butterly, C.R., Armstrong, R., Chen, D. and Tang, C. 2016. Free-air CO2 enrichment (FACE) reduces the inhibitory effect of soil nitrate on N2 fixation of Pisum sativum. Annals of Botany 117: 177-185.

The United States is attempting to use its military to check Chinese military and political assertiveness in East Asia. Yet Beijing has not responded to American freedom of navigation operations in the South China Sea (SCS), increased troop deployments to the region, and deepening political/military relations with former adversaries by changing course. Instead, China has reacted with its own form of military escalation.

In response to Beijing’s intransigence, prominent U.S. policymakers, think tanks, and scholars advocate policies that impose higher costs on Chinese actions. This singular focus on cost imposition is dangerous because it ignores the “benefit” aspect of coercive strategies and places China in a corner. Cost imposition has utility, but it should not be the only leg for U.S. policy to stand on.  

Coercive strategies work by manipulating a target state’s cost/benefit calculation to prevent it from taking certain actions (deterrence) or force it to take certain actions (compellence) to the benefit of the coercing state. Advocates of greater cost imposition in the SCS want to deter aggressive Chinese actions by making the costs of such actions greater than the benefit that would accrue to Beijing. However, the high value that China places on the SCS implies a very high level of cost necessary for deterrence to be successful.

Complicating the task of deterrence further is the fact that China has shown a willingness to escalate its military presence and bellicose rhetoric when confronted. This suggests that any increase in costs inflicted by the United States will be replied to in kind by China. Such a dynamic is ripe for dangerous escalation, which undermines a stated U.S. goal of “peace and stability” in East Asia.

Instead of focusing on cost imposition, U.S. policymakers should devote more effort toward the benefit side of China’s cost/benefit equation. China’s willingness to respond to American displays of military presence in kind shows that Beijing thinks it can gain more from escalating than backing down. It will be difficult to move Beijing away from its territorial ends, but Washington can counteract the ongoing escalation spiral by offering incentives for China to change its means in the SCS.

On the pressing issue of whether or not China will conduct island building in the Scarborough Shoal, the United States could agree to not go through with plans to set up “permanent logistics facilities” at five military bases in the Philippines so long as China does not engage in island building at the shoal. Such an agreement would benefit China by keeping the U.S. military presence in the Philippines at its current level while avoiding the diplomatic costs associated with island building. The United States would benefit from reducing escalation risks in the SCS. Washington could also retain the ability to impose costs on China through its position at Subic Bay, which would not be affected by this agreement. Importantly, the United States could make sure Beijing upholds its end of the bargain via satellite imagery of Scarborough Shoal.

The approach outlined above would likely be difficult to implement for a host of reasons, and it is certainly no silver bullet for solving U.S.-China tensions in the SCS. However, taking a step back from cost imposition will serve U.S. policymakers well in crafting an effective coercive strategy to prevent armed conflict. The most important task for American policymakers is to prevent deterioration in U.S.-China relations to the point that China has more to gain from conflict than cooperation. A “nothing to lose” mentality in Beijing would be a major problem. 

Back in December, Senate Democrats, with President Obama’s backing, attempted to prohibit anyone on the federal government’s terrorism watchlist from purchasing a firearm.

At the time, I criticized the proposal for its lack of process and its inevitable inefficacy at reducing gun crime or terrorism.

Yesterday, Senate Democrats launched a filibuster in order to push for the resurrection of the failed “No-Guns List.”

The substance of their plan has not changed, and my earlier criticism still stands:

How does a person prove they are not a terrorist? It’s virtually impossible. A no-flyer doesn’t receive the evidence against them or a hearing before being placed on the list. They are not allowed to confront their accuser. Even getting the government to acknowledge that a person is on the list may require lengthy and expensive litigation. A person on the no-fly list may not even know they are on the list until they’re refused service at the airport. A person on the broader terror watch list has no means of finding out. The system is devoid of anything resembling due process, a flaw The New York Times condemned as being intolerable in a free and democratic society and over which the American Civil Liberties Union is currently suing the Obama administration. The no-fly listing procedure has already been declared unconstitutional by at least one federal judge.

Including too many people on the list is inevitable. Nobody wants to explain, after a terrorist attack, why the attacker wasn’t in the database. And that overly inclusive quality has manifested itself in absurd ways already. Just a few examples of no-fly denials: the late Democratic Massachusetts Sen. Ted Kennedy, congressman and civil rights hero John Lewis, dozens of people named Robert Johnson, members of the U.S. military and federal air marshals.

The potential for false positives and mistaken identities is not just accepted as collateral damage by these no-gun list proposals; it is the entire point. Anyone who has actually been convicted or is currently charged with terrorism-related crimes is already prohibited from purchasing a firearm under federal law. The people adversely affected by this proposal will inevitably be people against whom the government lacks sufficient evidence to charge.

The fact that a person hasn’t been adjudicated as dangerous doesn’t preclude them from committing violence, of course. But just how much discretion should the president have in abolishing constitutional rights without charge or trial?

What has changed is the political climate in the interim.

The No-Guns List appears to have picked up some powerful allies on the right.   Presumptive Republican presidential nominee Donald Trump has expressed support for the idea, and is apparently lobbying the National Rifle Association to come along with him. 

The GOP and the NRA are generally regarded as the two primary bulwarks against misguided gun control proposals.  Adding their weight to this particular gun control proposal would bolster its legislative prospects immensely.

Even if, as some supporters have urged, the law requires hearings before a watchlisted person can be denied the right to bear arms, important questions remain.  What exactly does the state need to prove in order to take someone’s 2nd Amendment rights away?  What is the burden of proof?  Will judges allow the use of secret evidence, citing state secrecy concerns for refusing to disclose it?  Will the individual be entitled to legal representation?  Can he call and cross-examine witnesses? Can he appeal the ruling? Can he publicly discuss his case?

And those are just the legal concerns.  There are also pragmatic issues. What information does the FBI convey to the gun seller when someone on the list is denied?  Is the gun seller told that he’s got a terror suspect standing in his store?  What if the person actually is an aspiring terrorist under government surveillance?  Doesn’t this process inevitably tip him off? Would finding out that he’s on the government’s radar only encourage an aspiring terrorist to act quicker? Would it compromise legitimate surveillance operations?

The Boston bombers didn’t need guns. Nor did Timothy McVeigh or the 9/11 hijackers.  Giving terror suspects a sure-fire way to figure out whether they’re being surveilled seems like a large price to pay for what may be a non-existent benefit.

Omar Mateen passed background checks.  He passed training requirements. He had access to weapons as a security guard.  He wasn’t even on the terrorism watchlist. Nothing in this proposal, and nothing in any of the other gun control proposals this tragedy has spawned, would have kept firearms out of Omar Mateen’s hands.  The only way his rampage could have been prevented was for someone to kill him first. Unfortunately, laws that deny even sober people the right to carry weapons in establishments that serve alcohol meant that the law-abiding victims were sitting ducks.

Knee jerk reactions to horrible tragedies have proven to be a poor basis for good public policy.  We have institutions like due process precisely for times when emotions threaten to overrun safeguards that are just as important for protecting the innocent as the guilty.

It’s hard to imagine a graver violation of the spirit of the 2nd Amendment than a law allowing the President to declare anyone an enemy of the state without so much as a charge and subsequently bar them from exercising their 2nd Amendment rights.  But Republicans, lured from their stalwart support of gun rights by fears of terrorism, and Democrats, lured from their stalwart support of civil rights by their zeal for gun control, combined with an election cycle that has been defined by appeals to fear may be creating a perfect storm and a severe threat to liberty.

P.S. Two tweets this morning from sitting Congressmen highlight the divide.

Democratic Senator and gun control advocate Joe Manchin doesn’t inspire confidence when he says things like “due process is killing us.”

.@Sen_JoeManchin: Due process is what's killing us right now https://t.co/OTf9LnxHXZ

— Morning Joe (@Morning_Joe) June 16, 2016

Luckily, not everyone in Congress agrees.

Amazing that U.S. senators would filibuster in favor of using secret lists, like some authoritarian regime, to deny rights w/o due process.

— Justin Amash (@justinamash) June 16, 2016

This morning, Senator Joe Manchin (D-WV) was on MSNBC’s Morning Joe discussing police responses to the Orlando shooting. Here’s his key thought:

.@Sen_JoeManchin: Due process is what's killing us right now https://t.co/OTf9LnxHXZ

— Morning Joe (@Morning_Joe) June 16, 2016

With all due respect, due process is the essential basis of America. The Constitution was established to “secure the blessings of liberty”—that’s the whole purpose of our government—and that government can’t deny us our life, liberty, or property without due process of law. If the government wants to deny someone’s liberty, it better have an awfully good reason and it better be ready to defend itself in court immediately—akin to what happens when someone is arrested or involuntarily committed. Otherwise, we’d live in a world where perhaps there’s less crime, but also life isn’t worth living.

Senator Manchin may want to live in a police state, but few of us would want to join him there. Count me out of the time machine to East Germany.

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