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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.

The New York Times ran an op-ed  last week extolling the virtues of a carbon tax by trying to poo-poo the idea that a tax on carbon emissions (which are produced by burning fossil fuels like coal, oil, and natural gas during the production of 80% of our nation’s energy supply) would produce a negative impact on our economy. The Times’ editors attempt to do this by running through a couple of examples where they claim the imposition of a carbon tax has produced economic benefits (or at least, was somewhat neutral).

Economist Dr. Robert Murphy takes the Times to task on this in his post “The NYT Gets It Wrong on Carbon Tax.”

Murphy is a senior economist at the Institute for Energy Research, research assistant professor at Texas Tech, and also the lead author of our Working Paper (soon to be Cato Policy Analysis) examining the cost for a carbon tax.

In his response to the Times, Murphy points out the Times’ editors’ favorite example of a carbon tax done well—British Columbia—actually serves as a counter-example when looked at a bit more carefully. Not only did British Columbia’s economy suffer after the establishment of a carbon tax, but also, the revenue-neutrality of the BC tax is not a real-world possibility in the U.S.

Murphy writes:

It’s worth pointing out that these dire economic impacts on the B.C. economy occurred even though they did a surprisingly good job of implementing offsetting tax cuts. Were a carbon tax to be introduced in the United States, the politics would almost certainly result in a large net tax hike.

 Ultimately Murphy concludes his piece with:

The American public is being sold a bill of goods regarding a carbon tax. On the one hand, proponents tell progressive citizens about all the “green” goodies that can be funded with the trillions in revenue that such a tax will bring in. On the other hand, supporters assure conservative citizens not to worry, that the tax will be revenue neutral and will allow for huge cuts in the corporate income tax rate. As Dr. Evil would say, “Riiight.”

 Check out Murphy’s full piece for the details of what’s wrong with the Times’ op-ed, and our “The Cost Against a Carbon Tax” Working Paper for what’s wrong with the concept of a carbon tax at large.

One of the many (bad) ideas behind a carbon tax is that the federal government will have more money in its hands to do with what it wants, including funding more climate change science to support why it needs to implement a carbon tax.

Dr. Roy Spencer frets over this is his recent blog post examining the observational science behind last year’s record high global temperatures. After reviewing the strength of the claims as to 2015’s temperature (including those as measured by satellites), Dr. Spencer‘s response is rather ho-hum: yes, the surface temperature data compilations do have 2015 as the warmest year in their record (thanks, in part, to a big El Niño); no, the same is not true for satellite observations which show the year as ranking 3rd or 4th; and take everything with a grain of salt, because all the data compilations have “issues.”

What really gets Roy fired up is the government’s behavior in all of this. Roy writes:

And this brings up the elephant in the room that I have a difficult time ignoring

By now it has become a truism that government agencies will prefer whichever dataset supports the governments desired policies. You might think that government agencies are only out to report the truth, but if that’s the case, why are these agencies run by political appointees?

Roy continues:

There indeed is a climate change problem to study…but I don’t think we know with any certainty how much is natural versus manmade. There is no way to know, because there is (contrary to the IPCC’s claims) no fingerprint of human versus natural warming. Even natural warming originating over the ocean will cause faster warming over land than over ocean, just as we already observe.

But since the government has framed virtually all of the research programs in terms of human-caused climate change, that’s what the funded scientists will dutifully report it to be, in terms of supposed causation.

And until the culture in the government funding agencies changes, I don’t see a new way of doing business materializing. It might require congress to direct the funding agencies to spend at least a small portion of their budgets to look for evidence of natural causes of climate change.

Because scientists, I have learned, will tend to find whatever they are paid to find in terms of causation…which is sometimes very difficult to pin down in science.

Be sure to check out Roy’s full post “On that Record Warmest 2015 Claim” for a more complete treatment of his concerns.

And, finally, as an amusing anecdote in support of Roy’s comments about the inherent uncertainties in weather observing systems comes this report on how snowfall during the weekend’s blizzard was measured at NOAA’s official weather station in our nation’s capital—Reagan National Airport.

Turns out it was snowing so hard at the height of the storm that the weather observers at the airport couldn’t find the official “snow board” on which the snowfall measurements were supposed to take place. So they improvised—and in doing so seemingly under-reported the snow total during the storm (to the great dismay of many snow nerds).  We are not making this up. From the Capital Weather Gang’s investigation:

It’s not that 17.8 inches of snow wasn’t enough.

But the number that will go down in the history books as Washington’s official total — recorded at Reagan National Airport — is downright paltry compared with some other spots in the region, raising the question: Why the disparity?

The reason, it turns out, may be partly due to the improvised technique used by a small team of weather observers at the airport who lost their snow-measuring device to the elements midway through the blizzard. It was buried by the very snow it was supposed to measure.

Couple the problem measuring snow at Reagan National Airport with the problem measuring temperature there that we identified last summer (see here and here) and you have the makings of a Laurel and Hardy routine on how weather observations of even fairly straightforward variables are collected. And to think, these types of somewhat major problems were identified as occurring at what would have to be considered among the best observing stations in the world.

Now you know why the data must be “adjusted.” Not a pretty picture.

Among Democrats seeking their party’s nomination, all candidates have proposed raising the highest tax rates to a least 43.6% (Clinton) or 45% (O’Malley).  Sanders famously admired Ike’s top tax rates of 91-92% from 1951 to 1963, but later suggested he’d settle for keeping top brackets of 43, 48 and 52% (including capital gains) while raising all the lower rates by 2.2%. Clinton and O’Malley assert or assume that raising only tax rates on the highest incomes would raise vast sums, enough to finance their many proposed new spending plans for various grants and benefits.

Leading Republican candidates, by contrast, would at least roll-back the highest tax rate to 35% (Rubio), 28% (Bush, Kasich & Christie) or 25% (Trump).  Senators Cruz and Paul would go further by replacing both payroll and corporate taxes with a 15-16% value-added tax (on payrolls and profits) while keeping a 10-15% flat tax on income.  Huckabee hopes to replace income and payroll taxes with a ~30% federal tax on all retail sales.  Carson and Santorum suggest a flat tax of 14.9% or 20% respectively.

Let’s put aside the VAT and lower corporate tax rates for now, to focus on individual income tax rates.

As the graph shows, the U.S. has had considerable experience with top tax rates as high as 91-92%, as low as 28%, and everything in between.  

The individual income tax averaged 7.7% of GDP since 1946. 

Revenues from this tax were 7.5% from 1951 to 1963 when the highest tax rate was 91%, then rose to 7.8% from 1964 after all tax rates were cut by 30% (with a top rate of 70%).  Revenues rose again to 7.9% of GDP from 1988 to 1990 when the top tax rate was only 28%.  We obviously can’t just assume that raising the highest tax rates will raise more revenue, nor that lowering them will necessarily lose revenue.

Revenues from the individual income have never reached 10% of GDP, and exceeded 9% only 5 times in U.S. history – 1944, 1981 and 1998-2000.  Revenues came close to 9%, briefly, when the surtax of 1969 raised all tax rates by 10%, not just the highest rates.  Revenues can rise as a share of GDP because GDP falls, of course, which is what happened after 1969 and 1981.  The unprecedented revenue surge in the tech boom of 1998-2000 has much to do with cutting the capital gains tax from 28% to 20% in 1997 combined with the quintupling of NASDAQ stocks, which also created big stock option payouts for thousands of non-executives.

Why does all this history matter?  Because Republican Tax Reform plans are being judged against last August’s Congressional Budget Office (CBO) “baseline projection” for revenue.  Failure to hit those baseline numbers has been described as “losing trillions” over a decade.   But baseline revenue projections are not forecasts, as the CBO warns, and they totally unrealistic.

First of all, baseline projections are required to assume that dozens of supposedly temporary tax breaks (like the 30% tax credit for solar and wind investments) magically sunset on schedule and disappear, even though they are routinely “extended” by Congress at the end of each year.   This is why the CBO just reduced projected 2016-2020 baseline revenues from 18.4% of GDP to 18.1%.  The new revenue estimates for the next few years are already much lower than the August projections being used to score Republican tax reforms.  And about $700 billion of the alleged 10-year revenue loss from tax reform is due to this fanciful convention of assuming no tax breaks are ever extended.

The second problem is that even though individual tax revenues have rarely touched 9% of GDP, CBO baseline projections assume revenues from individual income taxes supposedly rise from 8.1% of GDP in 2014 to 9% in 2017, 9.2% in 2020, 9.6% in 2026 and so on – reaching 13.3% of GDP by 2090 – according to a Tax Policy Center study.  The main reason is that the CBO assumes real household incomes grow faster than the assumed 2.4% inflation and the combination pushes more and more families into higher and higher tax brackets each year.  Because these are totally static estimates, the ever-increasing average individual tax burden is assumed to have no effect at all on economic growth or tax avoidance. 

In short, much of the alleged “revenue loss” from Republican proposals to eliminate tax rates higher than 28% is because such reforms rule out the “real bracket creep” that makes the fanciful CBO baseline revenue projections rise year after year, forever.

Anyone who flies, or, at least, anyone who isn’t rich who flies, probably wishes he or she had more leg room. Going “cattle class” isn’t fun. But for most people it still is better than not going. Which for most travelers is the real alternative.

For decades the Civil Aeronautics Board regulated airfares. Airlines competed on service rather than price. Business travelers, whose companies paid the bill, enjoyed uncrowded luxury in the air.

It wasn’t as grand for anyone on a budget. You were more likely to drive, especially if you had a family.

Deregulation of the airlines transformed flying. Discount airlines emerged, legacy carriers were forced to compete on price, airports filled with leisure travelers, and flying was possible for even those of modest means. Everyone was happy—except the old business flyers.

It isn’t fun being crammed into a metal tube zooming through the air, but most flyers still seem more interested in price than comfort. Now the group FlyersRights wants the government to mandate minimum seat width and pitch. The group’s president, Paul Hudson, argued that safety and health are at stake, with emergency evacuation made more difficult and deep vein thrombosis made more common.

Human rights analyst Laine Strutton suggested “an interesting argument to be made for a basic human right to physical space on an airplane.” Travelers United’s Christopher Elliott wondered why anyone would want to fly in an “unsafe and unhealthy space that doesn’t respect your dignity?”

Flying with dignity sounds rather grandiose for most Americans. As I ask on FEE.org, “If it is an overnight flight, do I have a right to a bed? With feather pillows? Does having a “basic human right” to airplane space mean someone else has a duty to pay for me to fly?”

A basic human right to space sounds like the culmination of the “positive” rights movement. I’m entitled to anything and everything that I desire. The only issue is figuring out how to make someone else pay for it.

Which is the big problem with the idea of a “right to space” on airplanes. Anyone who wants space can buy more today.

Yet most flyers still appear to prefer cheap fares over additional room. Flight attendants have to warn economy passengers not to move up into empty economy plus seats which could have been purchased for a modest fee.

Of course, health and safety are supposed to trump the cold and calculating market, but we’ve suffered no epidemic of unnatural deaths from cramped airline cabins.

Presumably putting just a handful of people in a 747 would be marginally safer for them, as would adding an extra engine, another pilot, more flight attendants, and ever more back-up systems. The question is the benefit-cost trade-off.

After all, the government could ban any car smaller or less well constructed than an S-Class Mercedes, or even better, a tank. More people would survive accidents. On the downside, most of us would be taking the bus.

Which is the same problem with mandating minimum space on airplanes. Make every airplane a premium economy flight and fares will rise to premium economy levels.

This would be fine for the wealthy and business travelers, who would enjoy additional options for better class travel and fewer vacationers blocking the aisle as they boarded. However, what about the family of four making its first trip to see grandparents across the country?

They’d be more likely to hop in a car—which actually would be far more dangerous than flying. Most affected, of course, would be those of little means.

Coming up with fabulous new “rights” to which we all supposedly are entitled is a magical process. There’s never any cost attached to them.

There is no “right” to any particular amount of space on an airplane. There is only a trade-off between comfort and cost. This is a decision that only passengers should make.

Secretary of State John Kerry recently traveled to Riyadh to reassure the Kingdom of Saudi Arabia and other Gulf states that the U.S. stood with them. “Nothing has changed” as a result of the nuclear pact with Iran, he insisted.

Washington’s long relationship with Riyadh was built on oil. There never was any nonsense about sharing values with the KSA, which operates as a slightly more civilized variant of the Islamic State. The royals run a totalitarian system which prohibits political dissent, free speech, religious liberty, and social autonomy.

At a time of heavy U.S. dependence on foreign oil a little compromise in America’s principles might have seemed necessary. Today it’s hard to make a case that petroleum warrants Washington’s “special relationship” with Saudi Arabia. The global energy market is expanding; the U.S. will soon become a petroleum exporter. The royal regime cannot survive without oil money and has continued to pump even as prices have collapsed.

In recent years Washington also treated Riyadh as an integral component of a containment system against Iran. Of course, much of the “Tehran problem” was made in America: overthrowing Iranian democracy ultimately led to creation of an Islamist state.

Fears multiplied as Tehran confronted its Sunni neighbors along with Israel and continued the Shah’s nuclear program. Overwrought nightmares of Islamic revolution throughout the region encouraged America’s fulsome embrace of the KSA and allied regimes.

But this argument for supporting the Saudi royals has become quite threadbare. Saudi Arabia is well able to defend itself. In 2014 it came in at world number four with $81 billion in military expenditures, a multiple of Iran’s total.

Threats of subversion reflect internal weaknesses beyond Washington’s reach: the kingdom’s general repression and particular mistreatment of its Shia minority, including the recent execution of cleric Nimr al-Nimr, who urged nonviolent opposition to the monarchy.

Moreover, the nuclear agreement creates a real opportunity for change in Iran. The process will not be quick or easy. However, in contrast to the KSA, there are (carefully circumscribed but real nonetheless) elections, political debate, religious diversity, generational resistance, and liberal sentiments.

Whatever the alleged benefits of the Saudi alliance, America pays a high price. First is the cost of providing free bodyguards for the royals.

For this reason the U.S. initiated the first Gulf War and left a garrison on Saudi soil. At the Saudis’ behest Washington backs their misbegotten war in Yemen and remains formally committed to the overthrow of Syrian President Bashir al-Assad, the strongest force opposing the far more dangerous Islamic State.

Saudi Arabia also tramples American values beyond its own borders. In next-door Bahrain Riyadh help suppress the majority Shia population. The KSA also has underwritten extremist Islamic teaching in madrassahs around the world.

Moreover, Saudi money backed al-Qaeda and people performed 9/11. Similar private support for extremist violence apparently continues.

Over the last few years Riyadh’s behavior has become more harmful to America’s interests. The monarchy has been pushing to oust Syria’s Assad without worrying about who or what would follow. Moreover, in Yemen Saudi Arabia turned a long-term insurgency into another sectarian conflict.

By executing Sheikh al-Nimr the KSA triggered sectarian protests in Bahrain, Iran, Iraq, and Lebanon. Riyadh responded by breaking diplomatic relations with Iran, undermining political negotiations to resolve Syria’s civil war.

Of course, the fact that Riyadh is a destabilizing force does not mean that the U.S. should attempt regime change in Riyadh. But Washington should stop lavishing support on the Saudi royals. Particularly important, the U.S. should disentangle itself from the KSA’s misbegotten war in Yemen.

As I point out in National Interest: “The two countries need a new, more normal relationship. They should work together when advantageous and disagree when appropriate. Sell weapons to Riyadh without committing to provide a royal bodyguard.”

Most important, Washington should continue to forge a better relationship with Tehran. Balance should return to American policy in the Middle East.

The Congressional Budget Office has just released its new 10-year fiscal forecast and the numbers are getting worse.

Most people are focusing on the fact that the deficit is rising rather than falling and that annual government borrowing will again climb above $1 trillion by 2022.

This isn’t good news, of course, but it’s a mistake to focus on the symptom of red ink rather than the underlying disease of excessive spending.

So here’s the really bad news in the report.

  • The burden of government spending has jumped from 20.3 percent of GDP in 2014 to 21.2 percent this year.
  • By the end of the 10-year forecast, the federal government will consume 23.1 percent of the economy’s output.

In other words, the progress that was achieved between 2010 and 2014 is evaporating and America is on the path to becoming a Greek-style welfare state.

There are two obvious reasons for this dismal trend.

Here’s a chart that shows what’s been happening. It shows the rolling average of annual changes in revenue and spending. With responsible fiscal policy, the red line (spending) will be close to 0% and have no upward trend.

Unfortunately, federal outlays have been moving in the wrong direction since 2014 and government spending is now growing twice as fast as inflation.

By the way, don’t forget that we’re at the very start of the looming tsunami of retiring baby boomers, so this should be the time when spending restraint is relatively easy.

Yet if you’ll allow me to mix metaphors, bipartisan profligacy is digging a deeper hole as we get closer to an entitlement cliff.

Now let’s shift to the good news. It’s actually relatively simple to solve the problem.

Here’s a chart that shows projected revenues (blue line) and various measures of how quickly the budget can be balanced with a modest bit of spending restraint.

Regular readers know I don’t fixate on fiscal balance. I’m far more concerned with reducing the burden of government spending relative to the private sector.

That being said, when you impose some restraint on the spending side of the fiscal ledger, you automatically solve the symptom of deficits.

With a spending freeze, the budget is balanced in 2020. If spending is allowed to climb 1 percent annually, the deficit disappears in 2022. And if outlays climb 2 percent annually (about the rate of inflation), the budget is balanced in 2024. And if you want to give the politicians a 10-year window, you get to balance by 2026 if spending is “only” allowed to grow 2.5 percent per year.

In other words, the solution is a spending cap.

Here’s my video on spending restraint and fiscal balance from 2010. The numbers obviously have changed, but the message is still the same because good policy never goes out of style.

Needless to say, a simple solution isn’t the same as an easy solution. The various interest groups in Washington will team up with bureaucrats, politicians, and lobbyists to resist spending restraint.

Admittedly, North Korean diplomats would have cut a curious figure in Davos, attending the just-ended World Economic Forum. Representatives of one of the few regimes which still professes to be communist might have had to close their eyes amidst the capitalist excess highlighting the conference.

Still, the North Koreans would have seen much new. And there was the potential of what the Wall Street Journal termed “awkward encounters,” which might have allowed some informal diplomatic discussions on the side.

Alas, while the DPRK was invited to attend the forum, WEF rescinded the offer after the North’s latest nuclear test.

North Korea may be the most isolated state on the planet. Much of that is by choice. Nevertheless, Washington and its allies have made isolation their tool of choice in dealing with the North.

Of course, frustration with Pyongyang is understandable. Yet the policy has utterly failed. The DPRK has enshrined a unique form of monarchical communism, created an extraordinarily brutal system of domestic repression, maintained a large conventional military poised within reach of Seoul, and developed a growing nuclear arsenal.

Kim Jong-un, who succeeded his father in December 2011, has not liberalized politically. Moreover, he has continued the North’s missile and nuclear research.

Yet the DPRK is loosening economic controls. While much more needs to be done, Pyongyang’s commitment to reform appears real.

Kim has promised higher living standards alongside nuclear weapons. The more the regime could be tempted to sample heretofore forbidden economic fruits, the better. Just taste the apple from the tree of capitalism, Jong-un.

Which is where the WEF could have come in. Late last year the WEF invited the North for the first time since 1998, “in view of positive signs coming out of the country.” After Pyongyang’s January 6 nuclear test, however, the invitation was revoked since “under these circumstances there would be no opportunity for international dialogue.”

Actually, after the latest nuclear test was precisely the time when international dialogue was most required. War would be a foolish response and sanctions have been applied without result. China is angry with its frenemy but unwilling to risk the regime’s collapse. So if not negotiation, then what?

The organization said it would welcome the North in the future if the latter “acts as a responsible and responsive member of the international community.” Yet the current challenge is convincing the DPRK to act that way.

As I point out in National Interest online: “the WEF could have included North Korea without giving it anything. North Korea’s attendance wouldn’t involve formal talks with U.S. officials. No money, food, or energy would have been provided to the North as reward for coming. Rather, the DPRK would have been present rather like the kid with his nose pressed up against the window looking inside a toy store.”

Secretary of State John Kerry recently reiterated that Washington would never accept the DPRK as a nuclear power. But after Pyongyang’s latest test, the North Korean Foreign Ministry announced: “The U.S. should be accustomed to the status of the DPRK as a nuclear weapons state whether it likes it or not.” The North responded to years of isolation by simply forging ahead.

North Korea remains a seemingly intractable problem. Unfortunately, Washington’s drive to strengthen sanctions in the aftermath of the latest nuclear test won’t change anything. It’s time for Western officials to try something different.

While Kim Jong-un continues to pursue his country’s nuclear and missile programs, he appears to be more serious than his predecessors about economic change. If so, that provides the West with a bit of leverage.

Inviting Pyongyang to Davos offered potential benefits at minimal cost. Show Pyongyang what could be. Maybe North Korean officials would want it bad enough to adjust their course.

Next year, include Kim and his cronies at the WEF. The more time they spend looking talking in Switzerland, the less time they will have for making and deploying weapons in North Korea.

For the past several years, the Washington Metropolitan Area Transit Authority (Metro) has vied with San Jose’s Valley Transportation Authority for the non-coveted title of “Worst-Managed Transit System in America.” It is still only January, but with its performance, or rather non-performance, during snowstorm Jonas, Metro appears to have already clinched the title for 2016.

 This is what it takes to shut down Metro subways. Flickr photo taken Sunday morning after the storm by Ted Eyten.

To start with, rather than try to provide transportation for people who needed to travel over the weekend, Metro pre-emptively shut down, ending all bus service at 5 pm Friday (well before the worst of the snow fell) and ending rail service for the weekend at 11 pm. By comparison, New York’s Metropolitan Transit Authority (MTA)–serving an area that received much more snow than the district–kept its subways running throughout the weekend and kept its above-ground trains and buses going for as long as it could into the storm.

Metro could have followed MTA’s example by keeping the underground portion of its subways running–Ballston to Eastern Market, Medical Center to Union Station, and Fort Totten to Anacostia–all weekend, but chose not to do so. These lines cover much of the length and breadth of the district and could have provided vital transportation for many people. 

Metro’s excuses for shutting down were rather thin. It claimed that passenger safety was more important than the convenience of having service. But how safe is it to be out in a blizzard compared with riding on a subway? Metro also said it needed to put its employees to work to put it back in service on Monday. But the people who operate trains are not maintenance workers and union rules probably prohibited Metro from putting them to work shoveling snow.

Besides, Metro didn’t do a very good job of putting the system back into operation. Most of MTA’s above-ground trains were running by Sunday afternoon. MTA also put most of its bus lines back into service on Monday. Metro was content to open the subway portions of its lines on Monday, leaving its above-ground lines still closed, and to run just 22 out of its 325 bus lines.

Metro might argue that federal offices were closed Monday anyway, so the demand for its services was lower. But if Metro had been more on the ball, federal offices might not have had to close.

In short, MTA passes but Metro flunks Snowstorm 101. But Metro puts itself well ahead of the pack in the race to being the worst-managed transit agency of 2016.

In my recent Cato Institute policy analysis, “Requiem for QE,” I analyze the transcripts of the 2008 and 2009 Federal Open Market Committee (FOMC) meetings in some detail.  Among them, the March 2009 transcript stands out as particularly troubling, as it reveals the FOMC’s failure to appreciate an economy’s ability to heal itself through market mechanisms following an adverse macroeconomic shock.

Yet market economies do have self-correcting mechanisms: relative prices change, resources get reallocated, and consumer and business expectations adjust to new realities.  In the case of the financial crisis, expectations had to adjust to the fact that house prices were significantly out of line with economic fundamentals.  As they did,  perceptions of wealth declined in line with house prices.  Workers, particularly those in construction, began the process of acquiring new skills, finding alternative employment, starting new businesses, and so on.  That these self-correction processes were already at work prior to the March 2009 FOMC meeting is one reason why the recession ended just three months later, in June 2009.

The same self-correcting mechanisms can be seen in the very markets in which the financial crisis began.  Put simply, the financial crisis was precipitated by a decline in house prices which, in turn, sparked concerns about the default risk of banks and other financial institutions with large holdings of mortgage-backed securities (MBS).

The problem was that those holding the MBS had no knowledge of the specific real estate underlying the securities.  As a result, once house prices crashed, and mortgage default rates spiked, no one could work out how much a given security was actually worth.  MBS became “toxic assets” that couldn’t be sold on the secondary market.  In consequence, default risk spreads in interbank and other markets in which loans were made to institutions that held large quantities of MBS widened significantly in the early stages of the financial crisis, and subsequently exploded when Lehman made its bankruptcy announcement.

And yet even then, at the very height of the financial crisis, the market’s self-correcting mechanisms were at work.  Financial institutions had begun the process of discovering what specific real estate backed their MBS before Lehman’s announcement, and the process accelerated thereafter.  The success of these efforts is reflected in the fact that many default risk spreads had returned to their pre-Lehman levels (and in some cases to their pre-crisis levels) weeks before the March 2009 FOMC meeting.

Did the FOMC not see that financial markets and the economy had improved significantly by March 2009, or did it just have no confidence in the self-correcting nature of markets and market economies?  The transcripts of the March meeting suggest the second answer.

Early in the discussion, President Plosser noted that he and President Bullard had recommended a change in the proposed policy statement.  The proposed statement, which was distributed to participants prior to the meeting, read: “the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.”  Plosser and Bullard proposed that the statement be amended to read: “the Committee anticipates that market forces and policy actions will contribute to a gradual resumption of sustainable economic growth.”  Plosser noted that the proposed statement implied that

policy actions alone will stabilize the world.  And, frankly, I think creating an impression that the only game in town is policy actions and that market economies have no contribution to make in this stabilization is setting us up for failure and a credibility problem.  So we added the reference to market forces.

One might suppose that Plosser and Bullard’s recommendation generated considerable discussion and support, but one would be wrong.  Not a single person responded; not Bernanke, not anyone.  It was a Mr. Cellophane proposal — you’d never even know it was made.

Just before the policy vote was to be taken, Bernanke asked if there were any comments.  Despite being summarily ignored, Plosser responded, “I had suggested this notion of putting in market forces in terms of returning to stability.  I didn’t know whether you had forgotten that, but nobody ever commented on it.”  Bernanke asked if people were okay with substituting the sentence.  Governor Tarullo responded, “To what market forces are you referring?”  Governor Kohn then added, “I think what I heard around the table, Mr. Chairman, was not much confidence that market forces are moving in that direction and might even be moving in the other direction.”

“There’s not much confidence that government forces are going to fix it either,” Plosser replied.  President Lacker interjected, “Surely, if the economy recovers, it’s going to be a combination of policy actions and market forces.  Surely that’s the case.”  Bernanke responded, “Well, all we’re saying here is that these things [policy actions] will contribute.  We’re not saying that they’re the only reason.  Let me go on.”  But President Bullard interrupted,

I just want to press on that a bit.  It gives the impression that we’re hanging on a thread as to what the Congress does or what we do or something like that.  I don’t think you want to leave that impression.  Despite what the government does, you might recover faster or you might recover slower, and I think you should leave that thought in the minds of private citizens.

Bernanke replied, “Again, I think what we’re saying here is that we anticipate that these things [policy actions] will contribute to an overall dynamic.”  Bernanke went on with the vote.  The discussion was over.

The fact that only three of the 18 participants spoke out to suggest that the recovery would not be due solely to policy actions is disturbing.  Bernanke’s lack of support for the language is particularly worrisome because in his book, The Courage to Act, he notes that “as an economist, I instinctively trusted markets” (p. 99) and “I thought of myself as a Republican…with the standard economist’s preference for relying on market forces where possible” (p. 108).

Curiously, he did not take a strong stand for “market forces,” when he had the opportunity.  He could have said, “our actions and fiscal policy are only assisting the market.  We certainly don’t want to leave the impression that policy will do it all.”  He could have said this when Plosser first made the recommendation or at any time during the discussion toward the end of the meeting.  But he didn’t.  One is left to speculate why a person who instinctively trusts markets and market forces did not seize the opportunity to make a point about the role markets would play in mitigating the effects of the financial crisis and facilitating recovery.

The suggestion that market forces contribute to the improvement in the economy did not appear in the March 18, 2009, FOMC statement.  Interestingly, however, the phrase “market forces” did appear in the April policy statement.  But it received third billing: “the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability” (italics added).  The statement appeared in the draft language that was distributed to FOMC participants in advance of the meeting.  There was no discussion of the role of market forces at the April meeting or any meeting in 2009.  Was the statement included out of a deep-seated belief in the healing power of markets or merely to appease a small, but vocal, minority?

It is impossible to know for sure.  But there is little doubt that the Committee failed to recognize that healing takes time.  Monetary policy had already eased considerably by March 2009.  The Fed’s balance sheet more than doubled during the six months between September 18, 2008, and March 18, 2009 — increasing from $931.3 billion to $2 trillion.  Instead of waiting and giving these actions, and the market’s own healing power, time to work, the FOMC voted to expand the Fed’s balance sheet by an additional $1.15 trillion.

This action paved the way for the FOMC’s nearly 8-year zero interest rate policy, which has encouraged risk taking, redistributed income to the wealthy, contributed significantly to the rise in equity and house prices (which have surpassed their previous “bubble” levels), and created considerable uncertainty.  If the FOMC had maintained some confidence in markets’ ability to adapt, it would have waited a little longer to act and might have avoided an incredibly long-lived policy that will be extremely difficult to exit.

[Cross-posted from Alt-M.org]

Libertarian fans of Downton Abbey got a special treat last night when Violet, the Dowager Countess of Grantham, let loose with an excoriation of statism right out of John Stuart Mill. Debating whether the village hospital should be merged into the larger regional hospital in 1925, Lady Grantham exclaimed:

For years I’ve watched governments take control of our lives, and their argument is always the same — fewer costs, greater efficiency. But the result is the same, too. Less control by the people, more control by the state until the individual’s own wishes count for nothing. That is what I consider my duty to resist….

The point of a so-called great family is to protect our freedoms. That is why the barons made King John sign Magna Carta.

Rosamund: Mama, we’re not living in 1215. And the strength of great families like ours is going, that’s just fact. 

Countess: Your great-grandchildren won’t thank you when the state is all-powerful because we didn’t fight.

Of course, the Dowager Countess is not a libertarian, nor a liberal, but a reactionary aristocrat. Still, libertarian ideas crop up wherever people feel their liberties being infringed. And such ideas were being enunciated by genuine liberals in that era. An editorial in The Nation in 1900, thought to have been written by its founding editor E. L. Godkin, mourned the decline of liberty and liberalism:

To the principles and precepts of Liberalism the prodigious material progress of the [19th century] was largely due.  Freed from the vexatious meddling of governments, men devoted themselves to their natural task, the bettering of their condition, with the wonderful results which surround us.  But it now seems that its material comfort has blinded the eyes of the present generation to the cause which made it possible.  In the politics of the world, Liberalism is a declining, almost a defunct force. 

Liberalism was giving way, he said, to the forces of socialism and imperialism; and “international struggles on a terrific scale” were the likely result, struggles that indeed had already begun by 1925 and would only get worse in the lives of Lady Grantham’s grandchildren and great-grandchildren.

Her case against hospital consolidation reminds me of John Stuart Mill’s “objections to government interference” in On Liberty:

The objections to government interference, when it is not such as to involve infringement of liberty, may be of three kinds.

The first is, when the thing to be done is likely to be better done by individuals than by the government. Speaking generally, there is no one so fit to conduct any business, or to determine how or by whom it shall be conducted, as those who are personally interested in it. This principle condemns the interferences, once so common, of the legislature, or the officers of government, with the ordinary processes of industry….

The second objection is more nearly allied to our subject. In many cases, though individuals may not do the particular thing so well, on the average, as the officers of government, it is nevertheless desirable that it should be done by them, rather than by the government, as a means to their own mental education—a mode of strengthening their active faculties, exercising their judgment, and giving them a familiar knowledge of the subjects with which they are thus left to deal…. Without these habits and powers, a free constitution can neither be worked nor preserved, as is exemplified by the too-often transitory nature of political freedom in countries where it does not rest upon a sufficient basis of local liberties. The management of purely local business by the localities, and of the great enterprises of industry by the union of those who voluntarily supply the pecuniary means, is further recommended by all the advantages which have been set forth in this Essay as belonging to individuality of development, and diversity of modes of action. Government operations tend to be everywhere alike. With individuals and voluntary associations, on the contrary, there are varied experiments, and endless diversity of experience….

The third, and most cogent reason for restricting the interference of government, is the great evil of adding unnecessarily to its power. Every function superadded to those already exercised by the government, causes its influence over hopes and fears to be more widely diffused, and converts, more and more, the active and ambitious part of the public into hangers-on of the government, or of some party which aims at becoming the government. 

If Lady Grantham had not read Mill – her granddaughter Lady Mary said last night that aristocratic young ladies were taught only “French, prejudice and dance steps” – we can be sure that the show’s creator Julian Fellowes did. So three cheers for Julian Fellowes and his injection of Millian liberty into television drama.

It’s interesting that the New York Times recapper noticed Lady Grantham’s speech, while the Wall Street Journal did not.

Earlier this month, the Federal Reserve released FOMC transcripts and related materials from 2010. One of the issues—an important one—discussed in October and November of 2010 concerned Fed disclosure of inside information. Those transcripts hit one of my hot buttons. Fed leadership, instead of being defensive as shown in the 2010 transcripts, should be vocal in explaining why non-public activities further the cause of sound monetary policy.

Consider first an extreme view, a view that will help to frame disclosure issues. Would we want the Fed to confine its contacts with outsiders to public meetings at which press were present, or could be present? In that case, the FOMC would make its policy decisions solely on the basis of publically available information, such as that released by the Bureau of Labor Statistics and other statistical agencies. Keep in mind that under this view Fed officials would not only cease to have any non-public meetings with private sector individuals but also with government officials.

I add government officials to the mix because it is well known that some members of Congress and congressional staff make stock trades based on inside information.

FOMC practice has long been to gather nonpublic information, some of which is presented in FOMC meetings. The beginning of every FOMC meeting is occupied with presentation, and discussion, of anecdotal information. I always made an effort to smoke out expectations about the future from my sources. Forward-looking information is especially important because there is little formal statistical data on business plans for hiring and investment. As an example, I routinely asked my contacts at FedEx and UPS about their plans to add capacity in the busy holiday season and what their customers were telling them about their expectations. I asked my Wal-Mart contact about his interpretation of retail sales. Did he think that recent sales reflected idiosyncratic issues for his own company or were the trends more general?

The FOMC has long believed that such information strengthened the policy process. I know of no study that has attempted to quantify the policy value of anecdotal information, but have to believe that this approach is sound. Fed critics remind me of the old saw about the weatherman. Look out the window. Can’t you see that it is snowing? Do you want the Fed to stop looking out the window? Would it not have been helpful in 2008 if the Fed had had some detailed inside information about the condition of Lehman and AIG?

The Federal Reserve has long had robust policies, and active internal controls, to prevent insider trading by all employees, especially those with access to confidential policy information. Yes, nonpublic contacts with industry insiders do raise the risk of improper disclosure. What is the evidence on that score?

I know of only three prominent, evident or possible violations of this confidentiality. One is ongoing today: an unresolved case concerning an alleged leak of FOMC information in 2012 to Medley Global Advisors. In the second case, Rohit Bansal, a former Goldman-Sachs employee, was convicted this past November of obtaining inside information from Jason Gross, a former bank examiner at the New York Fed, who was also convicted. In the third case, Robert A. Rough, a former director of the New York Fed pleaded guilty in 1989 to disclosing discount rate actions to securities traders while he was in office. The New York Times story on the case noted that, “Samuel A. Alito Jr., the United States Attorney for New Jersey, said Mr. Rough was the first director in the 75-year history of the Federal Reserve System to be convicted of criminal wrongdoing.”

As far as I know, that is it. A damn good record, I would say. I challenge anyone to find an agency of this size and longevity with a superior record. The very highest level of integrity is built into the Fed’s day-to-day procedures and its DNA. Fed leadership should be defending its disclosure and research policies rather than dancing away, dodging the issue.

A CBS segment on 60 Minutes in November 2011 discussed insider trading by some members of Congress and congressional staff. Public outrage ensued and led Congress to pass the Stock Act, which became law April 4, 2012. By April 15, 2013 Congress had modified the Act, largely gutting it.

The most gentle way I know to summarize the concerns of some members of Congress over Federal Reserve disclosure is that they represent rank hypocrisy.

It is National School Choice Week, and this ever-growing event-of-events will feature discussions throughout the country tackling test scores, competition, empowering the poor, efficient use of taxpayer dollars, monopoly breaking, and numerous other, very important topics. But ultimately just one goal must be paramount: maximizing freedom. In the end, it is defending liberty – the true, bedrock American value – that school choice must be about.

This is first and foremost a normative conviction. Freedom must have primacy because society is ultimately composed of individuals, and leaving individuals the right and ability to control their own lives is fundamentally more just than having the state – be it through a single dictator, or majority of voters – control our thoughts, words, or actions.

Of course, children are subject to someone’s control no matter what. But a corollary to free individuals, especially when no one is omniscient and there is no unanimous agreement on what is the “right” way to live, or think, or believe, must be free association – free, authentic communities. We must allow people and communities marked by hugely diverse religious, philosophical, or moral views, and rich ethnic and cultural identities and backgrounds, to teach their children those things. Short of stopping incitement of violence or clear parental abuse, the state should have no authority to declare that “your culture is acceptable,” or “yours must go.” Indeed, crush the freedom of communities and you inevitably cripple individual liberty, taking away one’s choices of how and with whom to live.

Of course, the reasons to demand educational freedom are not just normative. They are also about effective education, and it is not hard to understand, at a very basic level, why.

If there are things on which all agree, choice is moot – all will teach and respect those things. But if we do not all agree, forcing diverse people to support a single system of “common” schools yields but three outcomes: first, divisive conflict; then, either inequality under the law – oppression – when one side wins and the other loses, or lowest-common-denominator curricula to keep the peace. Forced conflict and curricular mush no one should want. And inequality under the law we should all loathe and fear, even if we do not care about the rights of others and think we will come out the victors today. Tomorrow, we may not.

School choice is something for which all Americans should fight. But ultimately, it is too limiting. What we need is freedom for all.

This week is National School Choice Week, the annual celebration of policies that empower families to choose the education that best meets the individual needs of their children. There have already been several important school choice developments this year, not all of them positive. Below is a roundup of the good, the bad, and the ugly.

Kicking Off National School Choice Week 2016

Florida expands its education savings account program

It will be hard to top 2015 (the Year of Educational Choice), but 2016 has already seen a flurry of legislative activity. Last week, Florida Governor Rick Scott signed legislation expanding the number of students with special needs who can receive education savings accounts. The bill also renamed the Personal Learning Scholarship Accounts to honor their legislative champion, Senator Andy Gardiner. 

The legislation comes on the heels of a large rally at the state capital supporting school choice and calling on the state teachers union to drop its lawsuit against the state’s scholarship tax credit law. A judge previously dismissed the suit, but the union has appealed. More than 10,000 protesters attended the rally, which featured Martin Luther King, III:

“I just find it interesting that in our country we have the gall to debate about how our most precious resource — our children — are treated,” [Martin Luther King, III] said.

“My dad, I don’t really know if I can actually speak to what he would speak today, but I can say is that he would always  stand up for justice,” he added. “This is about justice.”

Martin Luther King, III marches in the “Rally in Tally.” Image from RedefinED.

Several more states are considering educational choice legislation

Arizona is also considering expanding its ESA by making all incoming kindergarteners eligible. Several other states are considering new ESA laws, including Iowa, New Hampshire, New Jersey, North Carolina, Oklahoma, OregonTexas, and Virginia. In addition, Sen. Ted Cruz filed legislation to create an ESA for students in Washington, D.C.

Earlier this month, the New York Senate passed a scholarship tax credit (STC) bill. However, the bill faces a tough fight in the state assembly. Maryland will also likely consider STC legislation after a survey showed that seven in ten citizens in favored STCs, as will KentuckyMaineMissouriNebraskaNew JerseySouth CarolinaTexas, and likely several other states. Tennessee is considering a new voucher law.

Meanwhile, Missouri is considering the nation’s first tax-credit-funded ESA, similar to what is proposed in a new Cato Institute report I coauthored with Jonathan Butcher and Clint Bolick of the Goldwater Institute (now Justice Bolick of the Arizona Supreme Court).

Georgia donors max out tax credits

Once again, Georgia donors hit the cap on tax-credit-eligible donations to scholarship organizations on the first day. The law only grants $58 million in tax credits, which last year was only enough to provide scholarships to fewer than 13,500 students of Georgia’s nearly two million students. The tax-credit scholarships were worth about $3,150 on average, far less than the more than $10,000 per pupil spent on Georgia’s district school students according to the most recent NCES data.

The Georgia legislature may consider adopting a second, highly regulated, corporate-donor-only STC, but it would be better to simply raise the total tax credit cap on the existing program.

The Obama administration quietly ends questionable investigation of Wisconsin voucher program

For several years, the Obama Department of Justice has been investigating Milwaukee’s school choice program based on bogus allegations. However, it appears they can no longer keep up the charade:

Parents and advocates of Milwaukee’s storied school voucher program are feeling relief and frustration in learning that the U.S. Department of Justicehas quietly closed a four-year, “legally dubious investigation” into the parental choice program without charges of wrongdoing, according to the head of a school choice advocacy group.

“It was always an unwavering dedication to serving all children with all the resources you have in these (private) schools and knowing that there was no discrimination going on,” said Jim Bender, president of Wisconsin School Choice. “But when you have a long investigation without much information, you get skeptical.

“You are left feeling helpless, especially when you are dealing with the federal Department of Justice and the (Wisconsin) Department of Public Instruction,” said Bender, whose nonprofit organization serves the state’s growing market of educational alternatives to public education.

This is second time in just the last few months that the Obama administration had has to end its legal harrassment of a school choice program. Back in November, the Fifth Circuit Court of Appeals rejected the Obama administration’s attempt to exercise control over Louisiana’s school voucher program using a decades-old desegregation lawsuit. Writing for the majority, Judge Edith Jones slammed the administration’s case as “disingenuous” and “a fishing expedition.”

Nevada judge issues injunction against ESA program

Meanwhile, Nevada’s ESA program just had its first legal setback when a judge halted implementation of the program pending litigation:

A state judge Monday put the brakes on Nevada’s education savings accounts, granting an injunction sought by opponents who said it would drain critical funding resources from Nevada’s public schools and is unconstitutional.

District Judge James Wilson, in a 16-page ruling, said the state constitution requires “the legislature to set apart or assign money to be used to fund the operation of the public schools, to the exclusion of all other purposes.”

Wilson said because Senate Bill 302 diverts some general funds appropriated for public schools to fund private school tuition, it violates sections of the constitution.

“Plaintiff parents have met their burden of clearly proving that there is no set of circumstances under which the statute would be valid …” Wilson wrote.

An appeal to the Nevada Supreme Court is anticipated.

The ESA is facing two other legal challenges, including a challenge from the ACLU under the state’s historically anti-Catholic Blaine Amendment. Tim Keller of the Institute for Justice explains why the ESA law should pass constitutional muster even if some families use their ESA funds at religious schools:

Yes, parents may voluntarily choose to enroll their children in a religious school — and use the funds deposited in their student’s ESA to pay for tuition. Under the terms of the program, the government stays out of each family’s educational placement decision. By offering educational benefits on even terms to all families, both religious and nonreligious, the state protects religious liberty.

Moreover, by structuring the ESA program to give families a genuine, independent choice as to how and where they use their ESA funds, the state complies with the plain language of Article 11, Section 10. From the state’s perspective, every single dollar is spent for the purpose of educating children. And there is no constitutional bar to using public funds for educational purposes.

U.S. Supreme Court to consider religious liberty case

In related news, SCOTUS will soon consider a case that may impact whether Blaine Amendments are themselves constitutional. The state of Missouri created a program that gives schools and other organizations recycled tire products to use for children’s playgrounds. However, the state excludes religious schools and organizations from participation. The Alliance Defending Freedom challenged the law, arguing that the state must exercise neutrality and may not actively discriminate against religious groups:

“No state can define religious neutrality as treating religious organizations worse than everyone else,” said ADF Senior Counsel David Cortman. “That isn’t neutrality; it’s a hostility to religion that violates the First Amendment. That’s the primary issue that the Supreme Court will address. In this case, the state should not have excluded this preschool from the recycled tire program simply because a church operates the school.”

“Children’s safety is just as important on church daycare playgrounds as it is on other daycare playgrounds,” added ADF Senior Counsel Erik Stanley. “Missouri and every state should understand that the U.S. Constitution prohibits religious hostility, which is what Missouri exhibited when it denied Trinity Lutheran’s scrap tire grant application. This case has huge implications for state constitutional provisions across the nation that treat religious Americans and organizations as inferiors solely because of their religious identity.”

A victory for the plaintiffs would call into question whether Blaine Amendments are constitutional under the First Amendment.

In 2014, New Hampshire’s scholarship tax credit law survived a Blaine Amendment challenge in the state supreme court. You can learn more about how educational choice benefits students — and how defenders of the status quo are attempting to use Blaine Amendments to deprive families of that choice — in the Cato Institute’s short documentary, “Live Free and Learn”:

Live Free and Learn: Scholarship Tax Credits in New Hampshire

Even the most dedicated opponent of drug prohibition might not guess that this policy harms economic development.

Yet claims in a recent WSJ story, combined with research on the relation between banking and development, suggests just such an impact.

The reason is that drug prohibition fosters anti-money laundering laws; which then discourage U.S. banks from doing business in Mexico; which then impedes Mexican banking; which then negatively impacts development.

The WSJ story says,

U.S. banks are cutting off a growing number of customers in Mexico, deciding that business south of the border might not be worth the risks in the wake of mounting regulatory warnings.

At issue are correspondent-banking relationships that allow Mexican banks to facilitate cross-border transactions and meet their clients’ needs for dealing in dollars—in effect, giving them access to the U.S. financial system. The global firms that provide those services are increasingly wary of dealing with Mexican banks as well as their customers, according to U.S. bankers and people familiar with the matter.

And why are U.S. banks worried about regulation?  Because 

U.S. financial regulators have long warned about the risks in Mexico of money laundering tied to the drug trade. The urgency spiked more than a year ago, when the Financial Crimes Enforcement Network, a unit of the Treasury Department, sent notices warning banks of the risk that drug cartels were laundering money through correspondent accounts … Earlier, the Office of the Comptroller of the Currency sent a cautionary note to some big U.S. banks about their Mexico banking activities.

As for evidence that banking is important for economic development, see this paper by Scott Fulford of Boston College (featured soon in a Cato Research Brief).  Fulford writes:

Do banks matter for growth and how? This paper examines the effects of national banks in the United States from 1870–1900. I use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking. For the counties on the margin between getting a bank and not, gaining a bank increased production per person by 10%. National banks in rural areas improved agriculture over manufacturing, moving counties towards geographic comparative advantage. Since these banks made few long-term loans, the evidence suggests that the provision of working capital and liquidity matter for growth.

Bad policies (drug prohibition) breed more bad policies (anti-money-laundering laws), which have additional adverse consequences that few could plausibly have forseen.  This is one reason why any government interference with liberty, no matter how well intentioned or seemingly well justified, should face extreme skepticism.

Today I join some 20 other writers in making the case against Donald Trump’s presidential candidacy. The venerable National Review, founded by William F. Buckley, Jr., assembled a group of diverse critics to argue that Trump is not a conservative, not an advocate of limited government, but rather (as the editorial asserts) “a philosophically unmoored political opportunist who would trash the broad conservative ideological consensus within the GOP in favor of a free-floating populism with strong-man overtones.”

The symposium is understandably being described in the media as “conservative thought leaders take on Trump.” I of course consider myself a libertarian, as my book The Libertarian Mind would indicate, and not a conservative. But part of the impact of this symposium is that people of such widely varying views – I have a lot of disagreements with religious rightist Cal Thomas and neoconservative Bill Kristol – nevertheless regard Trump as dangerous. 

In my own contribution I emphasize two points:

From a libertarian point of view — and I think serious conservatives and liberals would share this view—Trump’s greatest offenses against American tradition and our founding principles are his nativism and his promise of one-man rule.

Not since George Wallace has there been a presidential candidate who made racial and religious scapegoating so central to his campaign. Trump launched his campaign talking about Mexican rapists and has gone on to rant about mass deportation, bans on Muslim immigration, shutting down mosques, and building a wall around America. America is an exceptional nation in large part because we’ve aspired to rise above such prejudices and guarantee life, liberty, and the pursuit of happiness to everyone. Equally troubling is his idea of the presidency—his promise that he’s the guy, the man on a white horse, who can ride into Washington, fire the stupid people, hire the best people, and fix everything. He doesn’t talk about policy or working with Congress. He’s effectively vowing to be an American Mussolini, concentrating power in the Trump White House and governing by fiat. It’s a vision to make the last 16 years of executive abuse of power seem modest.

This isn’t my first sally against Trump. After hearing him in person at FreedomFest in July, I wrote about his nationalism, protectionism, and megalomania in the Washington Times. And in August I reviewed his support for and use of eminent domain at the Guardian.

The National Review symposium was posted last night at 10 p.m., and I took note of it on Facebook and Twitter. It drew a lot of reaction. And I must say, I was surprised by how many of the responses, especially on Twitter, were openly racist and anti-Semitic. That did nothing to make me reconsider my deep concerns about the damage Trump is doing, and could do, to America’s libertarian heritage.

Thanks to market exchange, Americans enjoy a greater variety of food choices, pay less for groceries than before, and have more income left over after grocery expenses. And, of course, this abundance is not limited to food, but extends to material goods and technology.

Bafflingly, there are those who bemoan abundance. Bernie Sanders, to name one, has said, “You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers.”

When grocery-shopping to stock up for the impending blizzard, many of us on the U.S. East Coast were met with extremely limited choices and nearly barren aisles. When I attempted to buy sliced cheese, for example, there was only a single kind left: Swiss. There was no provolone or Muenster or pepper jack or cheddar or Colby any of the other varieties normally available. Although I find Swiss cheese bland, I bought it because it was my only option. I and many others were “living the dream” of those who romanticize scarcity.

An economics professor summed up the situation in this humorous tweet:

Yesterday, Sen. Ted Cruz introduced legislation to create an education savings account (ESA) program for students in Washington, D.C. In a press release, Cruz’s office stated that the legislation was modeled after Nevada’s ESA, and Cruz called educational choice “the civil rights issue of our era.”

“Each and every child has the right to access a quality education,” Sen. Cruz said. “Not only does school choice give low-income children the same choices and opportunities that children from wealthy families have always had, it also improves the public schools, making them stronger and more effective. This legislation ensures that every child in Washington, D.C., regardless of race, ethnicity, or zip code, has the same opportunity to choose the school that best fits their needs and will help them achieve their very best.”

Last September, Lindsey Burke of the Heritage Foundation and I explained why it’s imperative to break the link between housing and education in D.C. and how an ESA could do just that:

Sadly, access to a quality education is too often dependent on a family’s ability to purchase a home in an expensive area. As The Washington Post reported recently, the median price of a three-bedroom home in a D.C. neighborhood zoned to a public school where reading proficiency rates exceed 80 percent is about $800,000. The median price of similar homes near Eaton Elementary, where the Hills enrolled their children, is north of $1 million. Where the Hills resided in Maryland the median home prices ranged from a much more affordable $330,000 to $460,000.

There is a strong correlation between these housing prices and school performance. In nearly all D.C. neighborhoods where the median three-bedroom home costs $460,000 or less, the percentage of students at the zoned public school scoring proficient or advanced in reading was less than 45 percent. Children from families that could only afford homes under $300,000 are almost entirely assigned to the worst-performing schools in the District, in which math and reading proficiency rates are in the teens.

If policymakers truly believe in equality of opportunity, they must do more to sever the link between education and housing. The District has taken some important steps in the right direction — allowing parents to apply to charter schools and out-of-boundary district schools — but long waiting lists at the best schools have limited their usefulness for most families. […]

ESAs are restricted-use savings accounts parents can use to purchase a wide variety of educational products and services using a portion of the public funding that would have been spent on their child at their assigned district school.

ESAs are an improvement on the traditional voucher model because they empower families to completely customize their child’s educational experience. In addition to private school tuition, parents can spend ESA funds on tutors, textbooks, online courses, special education services and therapies, home-school curricula, and individual public school courses. ESAs even enable families to roll over unused funds from year to year.

These features also make ESAs more economically efficient than vouchers. Whereas traditional vouchers must be spent in their entirety at a single school each year, thereby creating a price floor, there is no minimum amount that ESA holders must spend in one place. The ability to spend ESA funds at multiple vendors or save them for future educational expenditures also gives parents a stronger incentive to economize, which should mitigate tuition inflation. […]

Because the District is under federal jurisdiction, Congress has a rare opportunity to advance a robust school choice option that is both constitutionally appropriate and would make a real difference in the lives of its young citizens by making every child in D.C. eligible for an ESA.

As President Obama counts down the days of his last year in office, one positive step he could take for his legacy would be to halt the federal government’s use of civil asset forfeiture and make the suspension of the equitable sharing program permanent.   

Civil asset forfeiture, which allows the government to seize your cash and property without ever charging you with a crime, is rife with abuse and violates many cherished principles such as due process, separation of powers, federalism, and private property rights.  The predatory practice has become so prevalent that in 2014, for the first time on record, law enforcement officers took more money from Americans under federal forfeiture law than burglars stole from their victims.  More than $5 billion was deposited into the Treasury Department and Justice Department forfeiture funds, and that astonishing figure doesn’t include seizures that were purely state-based.   Further compounding the abusive nature of civil forfeiture is the federal government’s equitable sharing program, which allows state and local cops in states with restrictive forfeiture laws (or none at all) to circumvent their state laws and seize property under more-permissive federal law in exchange for an 80% kickback of the proceeds.  The Department of Justice recently suspended the equitable sharing program, citing a budget shortfall, but it’s clear from the suspension statement that the Justice Department plans to restart the program in the future.   Civil asset forfeiture creates an inappropriate profit motive for predatory policing, it distorts the priorities of law enforcement, and it tramples our constitutional principles.  President Obama should take the time to end these practices before he leaves office.    For more information about civil asset forfeiture, check out our civil forfeiture explainer on PoliceMisconduct.net.   And for an updated version of the Institute for Justice’s fantastic national survey of civil forfeiture practices, check out Policing for Profit, 2nd Edition.

Compliments of rising atmospheric CO2, in the future you can have a larger cup of coffee and drink it too!

In the global market, coffee is one of the most heavily traded commodities, where more than 80 million people are involved in its cultivation, processing, transportation and marketing (Santos et al., 2015). Cultivated in over 70 countries, retail sales are estimated at $90 billion USD. Given such agricultural prominence, it is therefore somewhat surprising, in the words of Ghini et al. (2015) that “there is virtually no information about the effects of rising atmospheric CO2 on field-grown coffee trees.” Rather, there exists only a few modeling studies that estimate a future in which coffee plants suffer (1) severe yield losses (Gay et al., 2006), (2) a reduction in suitable growing area (Zullo et al., 2011), (3) extinction of certain wild populations (Davis et al., 2012) and (4) increased damage from herbivore, pathogen and pest attacks (Ghini et al., 2011; 2012; Jaramillo et al., 2011; Kutywayo et al., 2013), all in consequence of predicted changes in climate due to rising atmospheric CO2.

In an effort to assess such speculative model-based predictions, the ten-member scientific team of Ghini et al. set out to conduct an experiment to observationally determine the response of two coffee cultivars to elevated levels of atmospheric CO2 in the first Free-air CO2 Enrichment (FACE) facility in Latin America. Small specimens (3-4 pairs of leaves) of two coffee cultivars, Catuaí and Obatã, were sown in the field under ambient (~390 ppm) and enriched (~550 ppm) CO2 conditions in August of 2011 and allowed to grow under normal cultural growing conditions without supplemental irrigation for a period of 2 years.

No significant effect of CO2 was observed on the growth parameters during the first year. However, during the growing season of year 2, net photosynthesis increased by 40% (see Figure 1a) and plant water use efficiency by approximately 60% (Figure 1b), regardless of cultivar. During the winter, when growth was limited, daily mean net photosynthesis “averaged 56% higher in the plants treated with CO2 than in their untreated counterparts” (Figure 1c). Water use efficiency in winter was also significantly higher (62% for Catuaí and 85% for Obatã, see Figure 1d). Such beneficial impacts resulted in significant CO2-induced increases in plant height (7.4% for Catuaí and 9.7% for Obatã), stem diameter (9.5% for Catuaí and 13.4% for Obatã) and harvestable yield (14.6% for Catuaí and 12.0% for Obatã) over the course of year 2. Furthermore, Ghini et al. report that the increased crop yield “was associated with an increased number of fruits per branch, with no differences in fruit weight.”

Figure 1. Effect of ambient (390 ppm) and elevated (550 ppm) CO2 concentration on two coffee cultivars, Catuaí (CAT) and Obatã (OBA), growing in a FACE construct: (Panel A, top left) net CO2 assimilation rate (A) during the growing season, (Panel B, bottom left) net CO2 assimilation rate during the winter, (Panel C, top right) water use efficiency (WUE), defined as internal-to-ambient CO2 concentration ratio (Ci/Ca, during the growing season, (Panel D, bottom right) water use efficiency during the winter. Adapted from Ghini et al. (2015).

Some have hypothesized that increasing plant matter associated with elevated CO2 would contain less protein, but with respect to leaf nitrogen content  (a marker for protein content), the authors report it was “within an expected range for coffee” for both cultivars at both CO2 concentrations, “implying that no apparent N deficiency was observed in this study.” Ghini et al. were also able to examine the combined impact of elevated CO2 and plant damage from pests and disease. Here, they found that “under elevated CO2 reduced incidence of leaf miners (Leucoptera coffeela) occurred on both cultivars during periods of high infestation.” In addition, they report there was no significant effect of CO2 treatment on disease incidence of rust (Hemileia vastatrix) and Cercospora leaf spot (Cercospora coffeicola); and fungal communities associated with mycotoxins was not affected either.

All in all, it is quite clear that this observational assessment of the impacts of rising atmospheric CO2 concentrations on coffee plants is quite different from that derived from model-based analyses. And because observations always trump projections, those who cultivate, process, transport, market, and drink coffee now have a much more optimistic future to look forward to, a world in which coffee plants will benefit from this ever-benevolent aerial fertilizer!

 

References

Davis, A.P., Gole, T.W., Baena, S. and Moat, J. 2012. The impact of climate change on indigenous arabica coffee (Coffea arabica): predicting future trends and identifying priorities. PLoS ONE 7: e47981.

Gay, C., Estrada, C.G., Conde, C., Eakin, H. and Villers, L. 2006. Potential impacts of climate change on agriculture: a case of study of coffee production in Veracruz, Mexico. Climatic Change 79: 259-288.

Ghini, R., Bettiol, W. and Hamada, E. 2011. Diseases in tropical and plantation crops as affected by climate changes: current knowledge and perspectives. Plant Pathology 60: 122-132.

Ghini, R., Hamada, E., Angelotti, F., Costa, L.B. and Bettiol, W. 2012. Research approaches, adaptation strategies, and knowledge gaps concerning the impacts of climate change on plant diseases. Tropical Plant Pathology 37: 5-24.

Ghini, R., Torre-Neto, A., Dentzien, A.F.M., Guerreiro-Filho, O., Iost, R., Patrício, F.R.A., Prado, J.S.M., Thomaziello, R.A., Bettiol, W. and DaMatta, F.M. 2015. Coffee growth, pest and yield responses to free-air CO2 enrichment. Climatic Change 132: 307-320.

Jaramillo, J., Muchugu, E., Vega, F.E., Davis, A., Borgemeister, C. and Chabi-Olaye, A. 2011. Some like it hot: the influence and implications of climate change on coffee berry borer (Hypothenemus hampei) and coffee production in East Africa. PLoS ONE 6: e24528.

Kutywayo, D., Chemura, A., Kusena, W., Chidoko, P. and Mahoya, C. 2013. The impact of climate change on the potential distribution of agricultural pests: the case of the coffee white stem borer (Monochamus leuconotus P.) in Zimbabwe. PLoS ONE 8: e73432.

Santos, C.A.F., Leitão, A.E., Pais, I.P., Lidon, F.C. and Ramalho, J.C. 2015. Perspectives on the potential impacts of climate changes on coffee plant and bean quality. Emirates Journal of Food and Agriculture 27: 152-163.

Zullo, J., Jr., Pinto, H.S., Assad, E.D., de Ávila, A.M.H. 2011. Potential for growing arabica coffee in the extreme south of Brazil in a warmer world. Climatic Change 109: 535-548.

Another North Korean nuclear test, another round of demands that China bring Pyongyang to heel. Said Secretary of State John Kerry: Beijing’s policy “has not worked and we cannot continue business as usual.” Alas, his approach will encourage the PRC to dismiss Washington’s wishes.

The People’s Republic of China joined Washington in criticizing the latest blast. The PRC is the most important investor in and provides substantial energy and food assistance to the North. Beijing also has protected the Democratic People’s Republic of Korea by weakening past UN sanctions and enforcing those imposed with less than due diligence. If only China would get tough, runs the argument, the Kim Jong-un regime in Pyongyang would have to give way.

Alas, Chinese intervention is not the panacea many appear to believe. Contra common belief in Washington, the U.S. cannot dictate to the PRC. Threats are only likely to make the Chinese leadership more recalcitrant.

In fact, Beijing’s reluctance to wreck the North Korean state is understandable. If the administration wants to enlist China’s aid, it must convince Beijing that acting is in China’s, not America’s, best interest.

While unpredictable, obstinate, and irritating, so far the DPRK is not a major problem for China. The North disrupts American regional dominance and forces Seoul and Washington to beg for assistance in dealing with the DPRK. Even Pyongyang’s growing nuclear arsenal poses no obvious threat to China.

Why, then, should the PRC sacrifice its political influence and economic interests? A Chinese cut-off of energy and food would cause great hardship in the North. But a half million or more people died of starvation during the late 1990s without any change in DPRK policy.

Thus, the DPRK leadership may refuse to bend. The result might be a return to the 1990s, with a horrific collapse in living conditions but regime survival—and continued development of nuclear weapons.

Or the North Korean regime might collapse, with the possibility of violent conflict, social chaos, loose nukes, and mass refugee flows. The PRC might feel forced to intervene militarily to stabilize the North.

Moreover, in a united Republic of Korea China’s political influence would ebb. PRC business investments would be swept away. Worse, a reunited Korea allied with America would put U.S. troops on China’s border and aid Washington’s ill-disguised attempt at military containment.

Overall, then, sanctioning the North appears to create enormous benefits for Beijing’s rivals but few advantages for China.

Washington must make a compelling case to the PRC. The U.S. should begin by pointing out how unstable the current situation is, with an unpredictable, uncontrollable regime dedicated to creating a nuclear arsenal of undetermined size.

At the same time, the U.S., along with the ROK and Japan, should put together a serious offer for the North in return for denuclearization. The PRC has repeatedly insisted that America’s hostile policy underlies the DPRK nuclear program. Beijing responded acerbically to Washington’s latest criticism: “The key to solving the problem is not China.”

As I point out in National Interest: “Washington and its allies should offer a peace treaty, diplomatic recognition, membership in international organizations, the end of economic sanctions, suspension of joint military exercises, and discussions over ending America’s troop presence. This should be presented to the PRC with a request for the latter’s backing.”

At the same time, the U.S., South Korea, and Tokyo should promise to share the cost of caring for North Koreans and restoring order in the case of regime collapse. The U.S. and South should indicate their willingness to accept temporary Chinese military intervention in the event of bloody chaos.

The ROK should promise to respect Beijing’s economic interests while pointing to the far greater opportunities that would exist in a unified Korea. Finally, Washington should pledge to withdraw U.S. troops in the event of unification.

Getting Beijing’s cooperation still would be a long-shot. But the effort is worth a try. The U.S. and its allies have run out of options to forestall a nuclear North Korea.

In one of the least surprising election results in Taiwanese history, Tsai Ing-wen has won the presidency in a landslide. Even more dramatically, the Democratic Progressive Party will take control of the legislature for the first time. Tsai’s victory is a devastating judgment on the presidency of Ma Ying-jeou.

With the imminent triumph of the Chinese Communist Party, Chiang Kai-shek moved his government to the island in 1949. For a quarter century Washington backed Chiang. Finally, Richard Nixon opened a dialogue with the mainland and Jimmy Carter switched official recognition to Beijing. Nevertheless, the U.S. maintained semi-official ties with Taiwan.

As China began to reform economically it also developed a commercial relationship with Taipei. While the ruling Kuomintang agrees with the mainland that there is but one China, the DPP remains formally committed to independence.

Beijing realizes that Tsai’s victory is not just a rejection of Ma but of China. Support even for economic cooperation has dropped significantly over the last decade.

Thus, China’s strategy toward Taiwan is in ruins. In desperation in November Chinese President Xi Jinping met Ma in Singapore, the first summit between the two Chinese leaders. Beijing may have hoped to promote the KMT campaign or set a model for the incoming DPP to follow.

Xi warned that backing away from the 1992 consensus of one China could cause cross-strait relations to “encounter surging waves, or even completely capsize.” While Tsai apparently plans no formal move toward independence, she also rejects the 1992 consensus of “one China, separate interpretations.”

As I point out in Forbes: “Washington is in a difficult position. The U.S. has a historic commitment to Taiwan, whose people have built a liberal society. Yet America has much at stake with its relationship with the PRC. Everyone would lose from a battle over what Beijing views as a ‘renegade province’.”

Washington should congratulate President-elect Tsai, but counsel Taipei to step carefully. Taiwan’s new government shouldn’t give the PRC any reason (or excuse) to react forcefully.

The U.S. should accelerate efforts to expand economic ties with Taiwan. Doing so would affirm America’s commitment to a free (if not exactly independent) Taiwan by other than military means.

America should continue to provide Taipei with weapons to enable it to deter if not defeat the PRC. At the same time, the new government should make good on the DPP’s pledge to make “large investments” in the military. It makes little sense for the U.S. to anger Beijing with new arms sales if Taipei is unwilling to spend enough to make a difference.

Washington should press friendly states throughout Asia, Europe, and elsewhere to communicate a consistent message to China: military action against Taiwan would trigger a costly reaction around the world. The mainland would pay a particularly high economic and political price in East Asia, where any remaining illusions of a “peaceful rise” would be laid to rest.

Finally, American officials should explore ideas for a peaceful modus vivendi. One possibility is for Washington to repeat its acceptance of “one China” and eschew any military commitment to Taiwan.

Taipei would accept its ambiguous national status and announce its neutrality in any conflicts which might arise in East Asia, including involving America and Japan. The PRC would forswear military means to resolve Taiwan’s status and reduce the number of missiles in Fujian targeting the island.

The objective would be to make it easier for both China and Taiwan to “kick the can down the road.” A final resolution of their relationship would be put off well into the future.

 The ROC’s people have modeled democracy with Chinese characteristics. Hopefully someday the PRC’s people will be able to do the same.

In the meantime, President-elect Tsai is set to govern a nation which has decisively voted for change. However, if the PRC’s leaders fear they are about to “lose” the island—and perhaps even power at home—they may feel forced to act decisively and coercively. International ambiguity remains a small price to pay to avoid a cross-strait war.

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