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Roger Pilon

With the Final Four set to begin in Indianapolis this evening, maybe we can shift our attention from the anti-discrimination protests there that have consumed our attention all week to the games. But maybe not, since protests are expected even at the games. The left just doesn’t know when to stop. That’s the subject of the lead editorial in today’s Wall Street Journal, “Liberal Intolerance, Round II: To stamp out cultural dissent, the left is willing to stomp on religious liberty.” Here’s a sense of what the week’s been like for ordinary Hoosiers:

Take the family-owned pizza parlor in Walkerton, Indiana—population 2,144. A local TV reporter went door-to-door asking restaurants how they would respond if they were asked to cater a gay wedding. The innocents at Memories Pizza, who had never faced the question in daily business, said that they would prefer not to participate in a hypothetical same-sex pizza party ceremony. Cue the national deluge.

They were suddenly converted into the public face of antigay bigotry across cable news and the Internet, and became the target of a social-media mob, as if they somehow screened for sexual orientation at the register. The small business closed amid the torrent, although a crowd-funding counter-reaction supplied tens of thousands of dollars in recompense.

Tens of thousands? The South Bend Tribune reports that the fund stood at $842,000 as of this morning.

Faithful readers of Cato@Liberty know our views on the underlying issue. Indeed, Cato’s amicus brief supporting those now pressing the Supreme Court to prohibit states from discriminating against same-sex marriages has just generated a brief from conservative scholars who direct their arguments entirely against ours: A most unusual move, they must be concerned.

But while we support same-sex marriage, we support religious liberty every bit as much. This week I addressed that issue here and here. And The National Interest has just put up a longer piece of mine that puts the whole freedom of association issue in perspective.

 

Walter Olson

Just for fun: check it out, by artist Mike Wilkins (via our friend Eugene Volokh, who incidentally is the subject of a new magazine profile, on April 1). Because sometimes you want a version more whimsical (if much less portable) than Cato’s Pocket Constitution.

Chelsea German

While a “cure for cancer,” is not yet in hand, it is probably not as far away as you think. As an article in yesterday’s Wall Street Journal shows, we are making tremendous strides in the fight against cancer.

Let us take a moment to look at the data and rejoice in the many lives saved by medical innovation. We focus on gains made against the top four deadliest cancers: lung cancer, bowel cancer, breast cancer, and prostate cancer.

Consider how the lung cancer death rate per 100,000 men has decreased since the 1980s:

While the decline is global, the greatest gains can be seen in wealthy, developed countries like the United States. This is in part because, as HumanProgress.org advisory board member Matt Ridley notes, “In the western world we’ve conquered most of the causes of premature death that used to kill our ancestors,” and with old age comes an increased incidence of cancer, making gains against cancer more notable.

Next, consider how the death rate for the second deadliest cancer–colon or bowel cancer–has fallen in the developed world.

There has also been a steep decline in the breast cancer death rate per 100,000 women. The death rate for the third deadliest cancer held fairly steady from the 1950s through the early 1990s, when it began to plummet, and it has continued to fall ever since.

Finally, consider the similar drop in the death rate of prostate cancer, the fourth deadliest cancer.

Innovation and the free market are helping to propel the medical advancements leading to falling cancer death rates. Some people believe that the modern lifestyle (e.g., drinking soda) causes cancer, but those claims are uninformed–most cancer is the result of bad luck. Instead of killing us, innovation is actually saving lives.

We have seen that cancer breakthroughs abound when regulation does not slow them down. To hurry along a cure for cancer, we need to let free innovation take its course.

Adam Bates

Arizona Gov. Doug Ducey (R) has vetoed a bill that would have prohibited disclosure of the names of police officers involved in shootings for 60 days, citing the potential unintended consequences of such a law:

“I know the goal of this legislation is to protect officers and their families, and it’s a goal I share… Unfortunately, I don’t believe this bill in its current form best achieves the objectives we share, and I worry it could result in unforeseen problems.”

While proponents argued that the bill was necessary to prevent officers from being unfairly targeted by mass protests or threatened with violence, opponents–including some in law enforcement–argued that transparency considerations and community relations outweighed that concern.

Roberto Villaseñor, chief of the Tucson Police Department and president of the Arizona Association of Chiefs of Police, told the New York Times:

“To add another law that’s going to add distrust or adversarial relationships is not the way to go. Why do I cloak it in secrecy for 60 days, and now I’m going to have this story run twice? Sixty days later, we’re going to rehash it again.”

The opaqueness of government behavior, especially surrounding the government’s use of violence, has eroded the rule of law and the relationship between civilians and police around the country.  Transparency about police shootings is a necessity for effective reform and accountability. We need more transparency, not less. 

Good for Governor Ducey and the Arizona law enforcement officials who stood against more police secrecy. 

Matthew Feeney

Last week, Sens. Rand Paul (R-KY) and Brian Schatz (D-HI) introduced legislation that would create a pilot grant program to assist state and local police agencies in leasing or purchasing body-worn cameras. The bill requires states, “units of local government,” and Indian tribes wishing to receive a full grant to commit to a range of reforms related to privacy, police practice, and data storage.

The bill presents something of a dilemma for libertarians like me, who want increased accountability and transparency within law enforcement but are also hesitant to support federal policy prescriptions for issues such as policing, which are often best handled at the local level. Given the worrying body camera legislation that has been proposed by some state lawmakers, it is tempting to think that a conditional federal police body camera grant program might be the best way to ensure that local government agencies implement worthwhile body camera policies. Yet Paul and Schatz’s legislation shows that police body camera policy ought to be addressed at the state and local level.

This is not to say that the legislation does not contain some good policy requirements. If the bill were to be enacted as written, an entity (state, unit of local government, or Indian tribe) interested in receiving a full grant would have to demonstrate a commitment to implementing some sensible policies before officers use the body cameras.

Among those policies is the development of public regulations and protocols relating to the use of body cameras, the storage of body camera footage, and the protection of the privacy rights of individuals recorded by body cameras. This is an important requirement. As the ACLU discovered last year, some law enforcement agencies do not have body camera policies, and some of those that do choose not to release them.

Yet while the legislation does make committing to publishing policies related to the release of body camera footage a condition for receipt of a full grant, it does not require that these policies advance transparency and accountability. The legislation only requires that a requesting entity develop and publish policies for “the release of any data collected by a body-worn camera in accordance with the open records laws, if any, of the State” (my bolding).

This is worrisome considering that, according to the AP, “Lawmakers in nearly a third of the states have introduced bills to restrict public access to recordings from police officer-worn body cameras.” Some of these bills, such as Michigan’s HB 4234 and Florida’s SB 248, aim to protect citizens from privacy violations by exempting police body camera footage of the interior of private homes from disclosure. SB 248 extends this protection to footage captured at the site of medical emergencies and on the property of social service, mental health, and health care facilities. However, other legislation such as North Dakota’s HB 1264, which has been passed by the North Dakota House and Senate, and New Hampshire’s HB 617 would make police body camera footage exempt from public record requests, though HB 617 would allow for citizens who pay for the recording to access body camera footage in which they can be seen or heard. (HB 617 would also require state police to use body cameras and to record all interactions with the public).

There is at least one case of a public record exemption bill being gutted in state legislatures. The Arizona House cut a section of a Senate bill that would have exempted police body camera footage from public record requests.

In addition to only requiring that entities receiving grants commit to developing and publishing policies relating to existing open record laws, the Paul and Schatz legislation also states:

IN GENERAL.—Data collected by an entity receiving a grant under this section from a body-mounted camera shall be used only in internal and external investigations of misconduct by a law enforcement agency or officer, if there is reasonable suspicion that a recording contains evidence of a crime, or for limited training purposes.

Unfortunately, the legislation does not outline how this requirement is compatible with comparatively open state public record laws that may regulate the release of police body camera footage.

Given that state lawmakers are working on implementing a range of police body camera policies, federal legislation such as Paul and Schatz’s would potentially allow for law enforcement agencies that are subject to poor open record laws to receive body camera grants. A good police body camera policy will allow for footage captured by the cameras that has been sensibly redacted and is not part of an ongoing investigation to be available via public record request. As written, Paul and Schatz’s bill provides no incentive for state lawmakers to improve their public record laws as they relate to police body cameras, although it does require that within 90 days of the bill being enacted the COPS director outline grant submission requirements.

In the coming years we should expect good as well as bad body camera policies to be passed by state legislators. While the bad policies will be frustrating to those advocating for increased police accountability and transparency, this frustration will not warrant the implementation of federal body camera grants. As with many other policy areas, police body camera policy ought to be crafted within America’s laboratories of democracy. As time goes on it will become increasingly clear which police body camera policies encourage good behavior and increase transparency as well as accountability, and are therefore worth copying.

Adam Bates

In a per curiam opinion this week, Grady v. North Carolina, the U.S. Supreme Court reinforced recent 4th Amendment decisions in holding that when the government physically occupies private property for the purpose of obtaining information, it engages in a search under the 4th Amendment.

The State of North Carolina subjects certain repeat offenders to a lifetime of satellite-based monitoring (SBM) after they complete their sentences.  The plaintiff, Torrey Dale Grady, argued that such a program represents a violation of his 4th Amendment rights under recent U.S. Supreme Court opinions, including a 2012 case called United States v. Jones (installing a GPS tracker on a suspect’s car represents a search) and a 2013 case called Florida v. Jardines (using a drug-sniffing dog on a suspect’s porch represents a search).

The Supreme Court agreed with Grady that such monitoring constitutes a search. In light of these decisions, it follows that a state also conducts a search when it attaches a device to a person’s body, without consent, for the purpose of tracking that individual’s movements.

In concluding otherwise, the North Carolina Court of Appeals apparently placed decisive weight on the fact that the State’s monitoring program is civil in nature. See Jones, ___ N. C. App., at ___, 750 S. E. 2d, at 886 (“the instant case … involves a civil SBM proceeding”). “It is well settled,” however, “that the Fourth Amendment’s protection extends beyond the sphere of criminal investigations,” Ontario v. Quon, 560 U. S. 746, 755 (2010), and the government’s purpose in collecting information does not control whether the method of collection constitutes a search. A building inspector who enters a home simply to ensure compliance with civil safety regulations has undoubtedly conducted a search under the Fourth Amendment. 

The court also rejected North Carolina’s somewhat strange argument that its monitoring program is not meant to collect information:

In its brief in opposition to certiorari, the State faults Grady for failing to introduce “evidence about the State’s implementation of the SBM program or what information, if any, it currently obtains through the monitoring process.” Brief in Opposition 11. Without evidence that it is acting to obtain information, the State argues, “there is no basis upon which this Court can determine whether North Carolina conducts a ‘search’ of an offender enrolled in its SBM program.” Ibid. (citing Jones, 565 U. S., at ___, n. 5 (slip op., at 7, n. 5) (noting that a government intrusion is not a search unless “done to obtain information”)). In other words, the State argues that we cannot be sure its program for satellite-based monitoring of sex offenders collects any information. If the very name of the program does not suffice to rebut this contention, the text of the statute surely does:

“The satellite-based monitoring program shall use a system that provides all of the following:
“(1) Time-correlated and continuous tracking of the geographic location of the subject ….
“(2) Reporting of subject’s violations of prescriptive and proscriptive schedule or location requirements.”
N. C. Gen. Stat. Ann. §14–208.40(c).

The State’s program is plainly designed to obtain information. And since it does so by physically intruding on a subject’s body, it effects a Fourth Amendment search.

The Court did not, however, examine whether the program constitutes an unreasonable, and therefore unconstitutional, search.  The case was remanded to a lower court to sort through that issue.

Notwithstanding the reasonability issue, this ruling reinforces a heartening trend in 4th Amendment jurisprudence away from the nebulous “reasonable expectation of privacy” standard and toward a more concrete “common-law trespass” standard, at least insofar as searches of private property are concerned.

George Selgin

Lately more and more people seem inclined to congratulate the Fed for the great job it has done saving us from another Great Depression and getting the U.S. economy back on its feet. Frankly, I’m getting tired of it.

It’s not that I’m cock-sure that the Fed’s post-2008 actions haven’t achieved anything. It’s just that I’m pretty darn sure that all the people who claim that the Fed has done a bang-up job haven’t any solid reasons for doing so. They remind me of the characters in an episode of The Beverly Hillbillies who were certain that Granny had a concoction that could cure the common cold–certain, that is, until Granny told them that it took about ten days for the stuff to work.

Some point to Europe’s relatively feeble economy, and the ECB’s belated attempt to revive it by means of Bernanke-style Quantitative Easing, as proof of the Fed’s enlightened conduct. But that comparison may only prove that Europe’s central bank has bungled things even more than ours has. In fact, the comparison doesn’t even prove that much, since U.S. money market conditions appeared to offer better prospects for the success of quantitative easing than those that prevailed in Europe.

Apart from being better than Europe’s, our recovery offers precious little for Fed boosters to brag about. It has been remarkably slow—slower, according to some experts, than the severity of the crisis can itself account for. It has been remarkably incomplete. And it has landed us in a low low-interest-rate mire from which there’s no easy escape.

But surely, some may object, the Fed’s policies—all that Quantitative Easing and Twisting and Reverse-Repo-ing—have helped. Maybe. But proving the point isn’t just a matter—as some commentators seem to think—of pointing to improved economic numbers, noting that the numbers arrived after the Fed did this and that, and declaring Quod Erat Demonstrandum.

Why not? Because, first of all, economies tend to recover from slumps, if only very slowly and painfully, without the help of fiscal or monetary stimulus. The immediate cause of such slumps is a slow down or collapse of spending or “aggregate demand,” like the one that took place during the last half of 2008. When spending collapses, businesses generally can’t recover their costs. Nor can they hope to keep producing as before, unless the prices of their inputs decline enough to make up for their lower earnings. The ideal remedy is to get spending back up again—and fast—by increasing the total supply of dollars. But suppose you had a negligent central bank that first resisted creating new dollars, and then made sure that new dollars it did create piled up in bank vaults instead of being lent and spent. In that case, spending would remain depressingly low. [1]

What then? Well, eventually, people start to come to grips with the new reality. They stop hoping that spending will pick up again, and start thinking about getting by at a permanently lowered spending level. In economists’ fancy jargon, this means that “aggregate supply” schedules start dropping. In plain English it means that workers start to accept pay cuts they wouldn’t have considered before, while firms settle for lower product prices.

Downward supply-schedule shifts aren’t pretty. No one likes making them—and I’m certainly not recommending them. (I also promise to track-down and give a noogie to anyone who suggests otherwise.) But make them they will—eventually—if the alternative is not selling their services and goods at all. The adjustments might be delayed for a long time, and it might take much longer for them to succeed in getting the economy back to full employment. They might even take more than six years to do so. But it’s hardly likely that they would not have achieved some considerable measure of recovery during such a long stretch of time, unless it was because monetary (or fiscal) authorities discouraged needed adjustments by repeatedly promising to revive spending, and then failing to deliver on those promises.

The last observation brings me to my second point, which is that central bank actions—including some superficially expansionary ones—can delay as well as promote recovery. Policy announcements that end up giving a bigger boost to aggregate demand expectations than to aggregate demand itself are one example. (I continue to be perplexed by all the chatter since 2008 concerning the need to raise, not the actual, but the expected rate of CPI inflation–as if doing that would not have the effect of further raising supply schedules that are already too high.) And although Quantitative Easing necessarily increases the nominal supply of bank reserves, it doesn’t necessarily increase that supply more than it increases demand: as St. Louis Fed economist Li Wen has observed, when real interest rates on riskier assets are already low relative to the return on reserves, QE can cause some investors “to switch from interest-earning assets to money,” and so can actually end-up reducing instead of increasing an (already excessively low) equilibrium price level.

All of which is a long way of saying that determining the Fed’s actual contribution to the recovery takes some fancy statistical work—so fancy, indeed, that no one is quite sure how to do it. Instead we have, so far, numerous studies reaching different—and sometimes dramatically different—conclusions. (Here is another review of some of them.)

Many of these studies do find that the Fed’s policies succeeded to some degree. But “succeeded” in most of them means succeeded in lowering long term interest rates, which though perhaps a step in the right direction is not at all the same thing as boosting employment or real output. Those studies that attempt to measure the effect of the Fed’s interventions on output or employment generally report modest gains only, if not negligible ones (see, for instance, the studies by Wen and by Chen, Cūrdia, and Ferrero). Finally, even some of the larger estimates supply only very meager grounds for celebration. One recent Federal Reserve Board study, for example, has the Fed’s combined Large Scale Asset Purchases achieving a 1.2 percentage point peak reduction in the unemployment rate by early 2015. Though large compared to other estimates, this reduction in the unemployment rate is less than half as large as that attributable to the post-2008 decline in labor force participation. Also, because the actual unemployment rate in January 2015 was 5.7%, with 9,000,000 unemployed and an implied labor force of 157,894,737, the gain amounts to only about one job for every $2 million in Fed asset purchases!

Don’t get me wrong: I’m not claiming that the new jobs attributable to Fed asset purchases weren’t worth it: creating money to combat cyclical unemployment isn’t the same as spending it in a state of full employment, so the numbers I mentioned don’t amount to any sort of cost-benefit calculation. What I am saying is that its worth pondering whether, had it handled things differently, the Fed might have created a lot more jobs, without having had to create nearly as many dollars. Suppose, for instance, that, instead of engaging in sterilized direct lending, the Fed had taken steps to expand the monetary base as soon as demand started flagging (or, better still, that it had expanded preemptively, as it had done on some prior occasions when markets were badly rattled). Suppose that it had refrained from paying interest on bank reserves just when the economy was starving for want of lending and spending. Suppose that instead of trying by hook and crook to preserve an obsolete interest-rate target, it had been targeting NGDP growth all along. Suppose, to go a bit further back, that it had not rescued Bear Stearns, or that, having rescued it, it made clear that it did so for reasons that would not entitle larger investment banks to similar aid?[2] Suppose, finally, that instead of “rolling the dice” (as the New York Times put it recently), the Fed had stuck to a tried-and-true monetary rule, or that it had been obliged to follow a novel but potentially superior rule, and that it had also obeyed Walter Bagehot’s sound advice for last resort lending? Is is not possible that by doing some or all of these things it might have allowed the U.S. economy to recover at least as rapidly as it has, if not considerably more rapidly, without having to purchase trillions of dollars worth of assets?

What difference does the extent of the purchases make? Plenty. First, the wealth redistribution effects of the Fed’s policies might have been smaller and correspondingly less unpalatable. Second, the Fed might not have undermined to the extent that it has its ability to tighten money by means of conventional open-market sales. The Fed claims it can instead manage by means of a combination of reverse repos and a higher interest rate on bank reserves; but there are good reasons for being less-than-sanguine about these alternative “exit” strategies: for one thing, to the extent that they succeed in reducing banks’ excess reserve holdings, they do so by permanently increasing the Fed’s share of total financial intermediation (and correspondingly reducing the efficiency of investment), and (so far as repos are concerned) by inadvertently propping-up Money Market Mutual Funds at the expense of commercial banks.[3] Finally, by boosting the prices and lowering the term premium on low-risk assets, the Fed has given an artificial fillip to riskier ones, increasing in like measure the risk of a major correction.[4] In short, after more than six years worth of Fed experiments, we haven’t yet heard the last monetary-policy shoe drop.

Am I suggesting that the Fed could not possibly have done worse? Of course not. Only someone with a severely defective imagination could suppose so. Whatever his shortcomings, Ben Bernanke was far from being an incompetent central banker. In suggesting that we might have done better than Bernanke’s Fed did, I don’t mean that we could have used a better discretion-wielding central banker. I mean that we might have been better off avoiding seat-of-the-pants-style central banking altogether.

I struggle, moreover, to understand why more people don’t take the same view. For if it takes a stunted imagination to suppose that things couldn’t have been worse, it takes a no-less defective one to suppose that we couldn’t possibly improve upon the presently-constituted Fed. Far for supplying grounds for celebration, or warranting complacency, the events of the last decade or so ought to make it more evident than ever that our monetary system is very far from being the best of all possible alternatives.

[1] If you wonder why any monetary authority would encourage banks to hoard reserves in the middle of a spending crunch, the answer in the Fed’s case is that they did it precisely because they didn’t want Quantitative Easing to lead to increased bank lending and, thence, to a general increase in spending. “It is important to keep in mind,” a Fed source informs us, “that the excess reserves [generated by Quantitative Easing] were not created with the goal of lowering interest rates or increasing bank lending significantly relative to pre-crisis levels. Rather, these reserves were created as a by-product of policies designed to mitigate the effects of a disruption in financial markets. In fact, the central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.” Got that?

[2] Here, for once, the FCIC got things right:

The lesson taught by the rescue of Bear was that all large financial institutions—and especially those larger than Bear—would be rescued by the government. The moral hazard introduced by this one act irreparably changed the position of Lehman Brothers and every other large firm in the world’s financial system. From that time forward, (i) the critical need for more capital became less critical; the likelihood of a government bailout would reassure creditors, so there was no need to dilute the shareholders any further by raising additional capital; (ii) firms such as Lehman that might have been saved through an acquisition by a larger firm or an infusion of fresh capital by a strategic investor drove harder bargains with potential acquirers; (iii) the potential acquirers themselves waited for the U.S. government to pick up some of the cost, as it had with Bear—an offer that never came in Lehman’s case; and (iv) the Reserve Fund, a money market mutual fund, apparently assuming that Lehman would be rescued, decided not to sell the heavily discounted Lehman commercial paper it held; instead, with devastating results for the money market fund industry, it waited to be bailed out.

[3] This fear that it might trigger such a correction is of course one reason for the Fed’s reluctance to absorb excess liquidity by selling any substantial share of the assets it has acquired.

[4] Actually only 94 MMMF’s are so favored. As Bob Eisenbeis points out, they all belong to a relatively small number of U.S. and foreign financial institutions.

Steve H. Hanke

Venezuela has the dubious honor of registering the world’s highest inflation rate. According to my estimate, the annual implied inflation rate in Venezuela is 252%.

The only other country in which this rate is in triple digits is Ukraine, where the inflation rate is 111%. The only encouraging thing to say about Ukraine’s shocking figure is that it’s an improvement over my February 24th estimate of 272%—an estimate that attracted considerable attention because Matt O’Brien of the Washington Post understood my calculations and reported on them in the Post’s “Wonk blog.”

As a bailout has started to take shape in Ukraine, the dreadful inflation picture has “improved.” Since February 24th, the hryvnia has strengthened on the black market from 33.78 per U.S. dollar to 26.1 per U.S. dollar. That’s almost a 30% appreciation (see the accompanying chart). 

As night follows day, currency strength is followed by lower inflation. When inflation rates are elevated, standard economic theory and reliable empirical techniques allow us to produce accurate inflation estimates. With free market exchange-rate data (usually black-market data), the inflation rate can be calculated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

To calculate the inflation rate in Ukraine, all that is required is a rather straightforward application of a standard, time-tested economic theory (read: PPP). Using black-market exchange rate data that the Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Ukraine’s current annual inflation rate to be 111%.

That rate is much higher than the “official” rate of 34.5%. Both the International Monetary Fund’s Extended Fund Facility for Ukraine (which has recently been approved) and Ukraine’s debt rescheduling negotiations (which have just commenced) are sitting on quicksand. Programs and negotiations based on a false premise are always treacherous affairs.

Daniel J. Ikenson

If you don’t yet subscribe to Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current edition here.  Highlighted in this month’s release is Simon Lester’s new paper, Expanding Trade in Medical Care through Telemedicine.  Additionally, you will find Cato trade scholars’ commentaries on the Export-Import Bank; the Trans-Pacific Partnership talks; Investor-State Dispute Settlement (ISDS); Trade Promotion Authority (TPA); and, other important matters of U.S. trade policy.

And here are the links to all previous monthly newsletters:

Cato Trade Monthly Update, Mar. 4, 2015

Cato Trade Monthly Update, Feb. 2, 2015

Cato Trade Monthly Update, Jan. 6, 2015

Cato Trade Monthly Update, Dec. 1, 2014

Cato Trade Monthly Update, Nov. 3, 2014

Cato Trade Monthly Update, Oct. 1, 2014

Cato Trade Monthly Update, Sept. 2, 2014

Cato Trade Monthly Update, Aug. 4, 2014

Cato Trade Monthly Update, July 1, 2014

Cato Trade Monthly Update, June 2, 2014

Cato Trade Monthly Update, May 1, 2014 

Cato Trade Monthly Update, Apr. 1, 2014

Cato Trade Monthly Update, Mar. 4, 2014

Cato Trade Monthly Update, Feb. 4, 2014

Cato Trade Monthly Update, Jan. 6, 2014

Cato Trade Monthly Update, Dec. 2, 2013

Randal O'Toole

American Nightmare is in some ways the most profound of the three books I have written for Cato. It covers a wide range of issues, including a detailed explanation of the 2008 financial crisis. But the overarching theme is that urban planning and zoning are best viewed as a form of economic warfare by the upper and middle classes against the working and lower classes. While that might not have been the original intent, to judge by the smug attitudes of the beneficiaries of such planning and zoning, they are perfectly happy with the results.

The book, therefore, was really about inequality, an issue that of course has been made popular and controversial by Thomas Piketty’s book Capital in the Twenty-First Century. Piketty’s thesis is that income inequality is necessarily rising because the returns to capital wealth are greater than overall economic growth, thus giving people one more reason to hate capitalists.

Last month, a paper by an MIT graduate student in economics named Matthew Rognlie, examined Piketty’s thesis in detail. Rognlie found that, contrary to Piketty, the returns on most kinds of wealth and capital have not been greater than overall economic growth, and therefore haven’t been contributing to income inequality. The one exception, Rognlie found, was housing.

“Is capital income displacing labor income?” asks Rognlie in a Brookings paper. “Only if you count housing.” As The Economist summarizes Rognlie’s results, “surging house prices are almost entirely responsible for growing returns on capital,” which means that “rising house prices may be chiefly responsible for rising inequality.” As a result, Rognlie concludes, Piketty should have titled his book, Housing in the Twenty-First Century.

 

Here’s the housing bubble that contributed to the 2008 financial crisis and growing wealth inequality.

American Nightmare showed that those surging housing prices only happen in certain regions, specifically those that use planning and zoning to increase urban densities. This includes most of Europe, Australia, much of New Zealand, most coastal states in the United States, and a few Canadian cities including Vancouver, Victoria, Toronto, and Montreal.

Housing is also a factor in many developing nations where most land is still owned by the government, or held in trust by the government on behalf of local villages. This includes most of Africa, much of South America, and part of Asia. In such places, the only people who can enjoy the benefits of “surging housing prices” are the few who own their own land, and since land ownership opportunities are limited due to widespread state control, everyone else stays poor. (In the United States, the closest analogues are Nevada, where 90 percent of the land is owned by the government, and Hawai’i, where more than 90 percent of the land is owned by a handful of corporations and trusts that might be willing to sell it for housing, but the state governent won’t let them.) 

Urban areas like Houston, Indianapolis, and Raleigh were and are growing much faster than the ones shown in the previous chart, yet experienced no bubble because they didn’t have the restrictive land-use rules found in the bubble regions.

On the other hand, places that don’t practice restrictive zoning and land-use planning don’t see housing prices surge. The classic example is Houston, but in fact the infamous housing bubble that peaked in 2006 only took place in a minority of American cities and states. No bubbles were seen in most of the South (except Florida), the Midwest, or the arid West (except Arizona and Nevada).

In other words, Piketty isn’t entirely wrong. As The Economist concludes, “a story in which a privileged elite uses its political clout to create economic rents for the few (albeit through the planning system) fits Mr Piketty’s argument to a tee.” But anyone who concludes that this is some conspiracy by the 1 percent is wrong: instead, as American Nightmare shows, it is a conspiracy by the 30 percent (at least in the developed world) who are among the middle and upper classes who own their own homes.

The solution to inequality, therefore, isn’t to make war on the upper classes through punitive taxation, but simply to relax the zoning and other land-use restrictions that make housing prices so volatile. This will both reduce the returns to housing and make housing more affordable to lower-income families so they can enjoy the benefits of modest wealth accumulation that come with property ownership.

John Samples

I will be taking part in a discussion of money, politics, and policymaking on April 8, 2015, at 7:30pm at Beth Sholom Congregation, 8231 Old York Road, Elkins Park, PA 19027.

Craig Holman of Public Citizen will also set out his views on this topic. The event will be moderated by Chris Satullo, Vice President, WHYY, and Co-founder/co-director, of the Penn Project for Civic Engagement.

The Bernard Wolfman Civil Discourse Project is sponsoring this event. You can register for the event and find out more about this worthy institution at www.CivilDiscourseProject.org. You might also register by calling 215.887.1342.

Craig and I will disagree about much on April 8, but we won’t be disagreeable, and I hope we say something you might not have heard about money and politics. I’m looking forward to participating, and I would love to see Cato folks there, whether you agree with me or not.

Jonathan Blanks

Yesterday, the Department of Justice announced that President Obama commuted the sentences of 22 federal prisoners, eight of whom were sentenced to spend the rest of their lives in prison. These commutations are in line with the administration’s criteria for reviewing certain clemency petitions.

Courtesy of the Clemency Project, the administration’s criteria to apply for the new clemency policy require the applicant to:

  • be serving a federal sentence;
  • be serving a sentence that, if imposed today, would be substantially shorter;
  • have a non-violent history with no significant ties to organized crime, gangs or cartels;
  • have served at least 10 years;
  • have no significant prior convictions; and
  • have demonstrated good conduct in prison.

Of course, these commutations are a welcomed development. But there are potentially thousands of inmates eligible under these criteria, as well as many others who have paid more than enough for their past misdeeds. Yesterday’s action doubled the number of granted petitions during Obama’s presidency, but these grants are not nearly enough.

Governors in the 50 states should institute their own clemency initiatives. Most of America’s incarcerated population is under state jurisdiction. The states house many more prisoners that should be brought back into society instead of  serving draconian prison sentences.

Kudos to the Clemency Project’s member organizations and 1,500 attorneys working pro bono to bring these and the many other inmates home. And congratulations to those 22 individuals who can be reunited with their friends and families as they look to rebuild their lives and rejoin society.

In a new Why Liberty? video released today, Families Against Mandatory Minimums’ founder (and Cato alumna) Julie Stewart talks about why she started her organization and the work that still needs to be done in sentencing reform.

Charles Hughes

Last week, the Associated Press reported that more than 9,000 food stamp recipients in Maine have been removed from the program because they failed to comply with the program’s work requirements. These requirements themselves are largely nothing new, but in the years since the recession, almost every state received a waiver exempting them from these provisions. By allowing the waiver to lapse, Maine will again enforce the requirement that able-bodied adults without dependents participate in some form of work activity. These rules only apply to a small fraction of beneficiaries, just 10 percent of Maine’s beneficiaries in 2013. A spokesman for the Maine Department of Health and Human Services revealed that the number of SNAP beneficiaries subject to the reinstated requirements has fallen from roughly 12,000 to 2,680. This is a steep reduction, but relatively small compared to the 250,000 people in the Supplemental Nutrition Assistance Program (SNAP) when the rule change went into effect.

Even before the recession, the percentage of Maine households in the program surged from 9.6 percent in 2002 to 12.3 percent in 2007. The recession caused the beneficiary rolls to swell even further, and they have continued to grow in the years since, in part due to the waiver. In 2013, 18 percent of Maine households participated in SNAP, third highest in the country. As the figure shows, since October 2010, Maine’s unemployment rate has fallen significantly, but the number of SNAP recipients remains elevated. Since the enforcement of the new rules began, these two measures have been more highly correlated.

Maine Unemployment Rate vs. SNAP Beneficiaries

 

Sources: Federal Reserve Bank of St. Louis, “Federal Reserve Economic Data,” MEUR_NBD20100901, BRME23M647NCEN; Office of Family Independence, “Geographic Distribution of Programs and Benefits,” Maine Department of Health and Human Services, June 2013-February 2015.

Some advocates for the poor have raised concerns that there are not enough jobs available, so even willing beneficiaries might be disqualified. Looking at the broad array of activities that meet the work requirements could allay some of these fears. As the state’s Employment and Training Plan explains, the requirements are “very broad” and include aspects like job training, assisted job search and education, in addition to traditional work. Beneficiaries who volunteer for 24 hours a month would also meet these requirements.

Part of the motivation for this renewed enforcement is to provide a better path for beneficiaries to transition off  the program and back into the mainstream economy. Many beneficiaries are on the program for extended periods of time, and for too many, next to nothing is being done to help them improve their employment prospects during this time. A recent national study found that, over a 56 month period, a full quarter of beneficiaries participated for more than four years. Some of these people are exempt due to disability status or age, but those with the capacity for work are not really helped by a program that leads them to languish for years on the welfare rolls.

Reinstating enforcement SNAP’s work requirements will not drastically change the entire anti-poverty regime. SNAP is just one small (but growing) component of the welfare system, and these requirements only apply to a small fraction of those beneficiary households. Those caveats aside, Maine’s renewed focus on work requirements is an improvement and will help more people transition out of the program and into work, where they are much more likely to flourish.

Kat Murti

April is Alcohol Awareness Month. What better time to take a close look at one of our nation’s most heavily regulated industries and the inventive ways entrepreneurs are innovating within this realm?

The ratification of the 21st Amendment may have officially ended this nation’s failed experiment with alcohol Prohibition, but the policy hangover has had lingering effects. From dry counties to bans on Sunday sales, the sale of alcohol is severely restricted in a confusing patchwork of local, state, and federal regulations. Homebrewing was not legal in all 50 states until 2013 (and homebrewers still cannot legally sell their product). Eighteen states maintain a state monopoly over the wholesaling or retailing of some or all categories of alcoholic beverages. But, even in this stifling economy, intrepid businesses are finding new ways to serve thirsty consumers.  

One real-world example of this is Klink, formerly known as DrinkDrivers, a rapidly growing start-up with a strong foothold in the nation’s capital. The app-based alcohol delivery company relies upon the mechanisms of the sharing economy—which has faced its own share of difficulties from overzealous regulators—to navigate the treacherous legal landscape of the American alcohol industry.

The concept behind Klink is a simple one: modern consumers want the ease of on-demand goods and services, deliverable at the touch of a button, wherever they are. Yet, Klink is not an alcohol provider in the traditional sense.

Unlike many other businesses in the sharing economy, Klink is stringent in its adherence to the laws and regulations governing alcohol sales. When you place an order, the company does not itself process your payments or deliver your alcohol. Instead, Klink plays the role of middleman, partnering with licensed liquor retailers, providing an easy-to-use online platform to connect alcohol providers with customers and occasionally running localized marketing campaigns.

Tomorrow at noon, I’ll be moderating a live-streamed lunchtime discussion featuring my colleague Matthew Feeney, who is Cato’s leading expert on the sharing economy; David Ozgo, the Distilled Spirits Council of the United States (DISCUS)’s Senior Vice President of Economic & Strategic Analysis; and Klink’s Founder and CEO, Jeffrey Nadel.

We’ll be discussing the ways in which Klink is navigating the treacherous regulatory waters of both the sharing economy and the alcohol industry, the regulatory hurdles standing in their way, and what this means for the future of tech innovation and alcohol sales. The panel will be live-streamed, and at-home viewers are encouraged to participate in the Twitter discussion—and tweet their question—using #CatoDigital.

Ilya Shapiro

This debate is so banal. Progressives shout “discrimination,” conservatives cry “liberty,” and it really all boils down to the difference between government and private action, which both sides misunderstand.

Progressives aren’t satisfied with state recognition of same-sex couples and want to bend the will of those private citizens who have religious objections to the only belief system that’s now allowed by MSNBC polite society. Conservatives are wrong to oppose the extension of state marriage licenses to same-sex couples – I’m against such licensing schemes, but states have no good reason to treat gay and straight people differently – and it’s that opposition that breeds distrust when they correctly argue that people should be free to live their lives according to their consciences.

As I said a year ago,

[The Indiana law] does nothing more than align state law with the federal Religious Freedom Restoration Act (which passed the House unanimously, the Senate 97-3, and was signed by President Clinton in 1993). That is, no government action can “substantially burden” religious exercise unless the government uses “the least restrictive means” to further a “compelling interest.” This doesn’t mean that people can “do whatever they want” – laws against murder would still trump religious human sacrifice – but it would prevent the government from forcing people to violate their religion if that can at all be avoided. Moreover, there’s no mention of sexual orientation (or any other class or category).

The prototypical scenario that [the law] is meant to prevent is the case of the New Mexico wedding photographer who was fined for declining to work a same-sex commitment ceremony. This photographer doesn’t refuse to provide services to gay clients, but felt that she couldn’t participate in the celebration of a gay wedding. There’s also the Oregon bakery that closed rather than having to provide wedding cakes for same-sex ceremonies. Why should these people be forced to engage in activity that violates their religious beliefs?

For that matter, gay photographers and bakers shouldn’t be forced to work religious celebrations, Jews shouldn’t be forced to work Nazi rallies, and environmentalists shouldn’t be forced to work job fairs in logging communities. This isn’t the Jim Crow South; there are plenty of wedding photographers – over 100 in Albuquerque – and bakeries who would be willing to do business regardless of sexual orientation, and no state is enforcing segregation laws. I bet plenty of [Indiana] businesses would and do see more customers if they advertised that they welcomed the LGBT community.

At the end of the day, that’s what this is about: tolerance and respect for other people’s beliefs. While governments have the duty to treat everyone equally under the law, private individuals should be able to make their own decisions on whom to do business with and how – on religious or any other grounds. Those who disagree can take their custom elsewhere and encourage others to do the same. 

I hate to repost exactly the same thing, but literally nothing has changed but the site of the overwraught protests.

Moreover, I don’t know why you’d want to have someone who can’t in good faith (literally) support your celebration be a vendor for that event. Actually, I do know: it’s the desire of some to change and narrow the rules of the game “such that private institutions are allowed to continue operating only as long as they follow a prescribed list of behaviors and mores.” (To quote something new, my recent recent National Affairs essay on “Hobby Lobby and the Future of Freedom.”) For more smart takes, see Josh Blackman and Jon Adler.

Oh, and apparently Arkansas is now joining the party too. This could become one of the big issues of the 2016 election – not same-sex marriage itself, mind you, but the brave new world of government mandates clashing with religious (among other) freedoms.

Adam Bates

Today Attorney General Eric Holder issued new guidelines to federal prosecutors tightening the rules for seizing assets for so-called “structuring” offenses.

Under the Bank Secrecy Act, structuring occurs when someone is suspected of arranging their financial transactions as to avoid triggering a report to the federal government by the financial institution.  Some of civil asset forfeiture’s most egregious abuses are the result of federal prosecutors utilizing this nebulous statute to empty the bank accounts of unwitting citizens and small businesses who are never charged with any crime or even aware that their transactions are considered illegal. 

The new rules require:

1. That structuring seizures against people for whom there is no criminal charge be based upon probable cause that the funds were either generated by unlawful activity or intended for use in anticipated unlawful activity.  Alternatively, prosecutors must procure a warrant from a court and with the approval of either the U.S. Attorney (for Assistant U.S. Attorneys) or the Chief of the Asset Forfeiture and Money Laundering Section (AFMLS) (for Criminal Division trial attorneys).

2. That when the prosecutor determines subsequent to a structuring seizure that the government lacks the necessary evidence to succeed at either a civil or criminal trial, the seizing agency must return the full amount.

3. That when a prosecutor seizes property pursuant to suspicion of structuring, the prosecutor must file either a criminal indictment or a civil complaint, or receive an exception from either a U.S. Attorney or Chief of AFMLS within 150 days or else return the seized assets.

4. That all settlements must be complete and in writing.  Informal settlements are expressly prohibited.

Time will tell how impactful these reforms are, and they certainly stop well short of the abolition of civil forfeiture advocated by civil liberties advocates like Cato and the Institute for Justice.  The reforms are also limited to seizures made under suspicion of structuring, which represent only a portion of civil asset forfeiture abuses.

However, much like Eric Holder’s previous reforms to the federal government’s equitable sharing program, this memo can be taken as yet another signal that even the federal government is concerned about the increasingly publicized abusive nature of the government’s asset forfeiture regime. In that sense, these common sense reforms represent another step in the right direction, toward a legal system that respects due process and property rights.

Nicole Kaeding

The Veterans Health Administration (VHA) is plagued with problems. Veterans wait months for medical care and have few options for accessing non-VHA providers. In addition to all of the issues relating to providing health care, construction of VA medical facilities is mismanaged, which costs taxpayers billions of dollars in extra costs.

However, the VHA might be trying to change direction. Glenn Haggstrom, the individual who oversees VHA construction, “stepped down” last week after being put under internal investigation. Hopefully, he will be replaced by a reform-minded leader. In 2013 the Government Accountability Office (GAO) studied the four largest VHA construction projects, which are located in Denver, Orlando, New Orleans, and Las Vegas. GAO found a host of problems. All four projects had major cost overruns and schedule delays.

GAO discovered that the combined costs for the projects have doubled, from $1.5 billion to $3 billion. Construction of the Denver facility was 144 percent over budget and the Orlando facility was 143 percent over budget. The New Orleans facility was only 59 percent over-budget.The construction projects are also taking much long than planned. The Denver and New Orleans projects were 14 months behind schedule. The Las Vegas project was 74 months behind scheduled. GAO put much of the blame for these problems on the VHA: “Our review of VA’s four largest projects indicates that weaknesses in VA’s construction management processes…contributed to cost increases and schedule delays.” These sorts of problems have continued since GAO’s 2013 analysis. Costs at the Denver facility have continued to skyrocket. The most recent estimate in 2015 put total costs at $1.73 billion, five times greater than its original projected cost of $328 million, and $900 million more than GAO’s 2013 estimate.

Members of Congress were furious with the latest cost estimate. Many called for all VHA construction to be shifted to the Army Corps of Engineers, which handles construction for many federal agencies. The Chairman of the House Armed Services Committee said, “One thing is certain: Congress will not authorize another dime until VA gets its construction affairs in order.” These problems increased the pressure on Haggstrom. The VHA launched an investigation into the agency’s handling of construction issues. Haggstrom decided to step down, but not before collecting $64,000 in bonuses over the last several years. Since Haggstrom left voluntarily, he will continue to be eligible for his federal pension.

Haggstrom’s investigation and departure is a good first step to remedying the problems surrounding VHA hospital construction, but much more reform is needed. The failures with VHA construction projects are endemic. The inefficiencies related to the construction of VHA hospitals is another reason why veterans health care should be shifted to a system based on private providers.

K. William Watson

When deciding whether to impose antidumping duties on imports from Vietnam, the United States uses what’s known as nonmarket economy (NME) methodology.  That is, instead of comparing a product’s U.S. price with the price for the same or similar product in Vietnam, U.S. authorities compare it with a fictitious price constructed using surrogate values from third countries.

The use of NME methodology is prohibited under the rules of the World Trade Organization.  But when Vietnam and China joined the WTO, they each agreed that the use of NME methodology would be permitted against them for an additional 15 years.  For China that’s until the end of 2016, and for Vietnam it’s until the end of 2018.

Vietnam, however, is also a negotiating party to the Trans-Pacific Partnership, a 12-member free trade agreement that may be concluded this year.  Last week, Vietnam’s Ambassador to the United States implied that Vietnam was seeking to have its NME status revoked as part of those negotiations.  As reported at Inside U.S. Trade ($):

“I think on the question of the market economy status, we can do it together. Vietnam has been doing it with other countries and I think about three dozen or something countries have recognized that,” said Pham Quang Vinh, Vietnam’s ambassador in Washington. Vinh added that he hopes “when we reach a conclusion of the TPP, then everything [with regard to this issue will] be resolved.”

It certainly makes sense that Vietnam would hope to negotiate the end of NME treatment.  As the Ambassador explained, they’ve already secured market economy status in other countries.  The TPP is a natural vehicle for getting a similar commitment from the United States .  But there’s no guarantee they’re going to get it:

But his counterpart, U.S. Ambassador to Vietnam Ted Osius, seem to tamp down those expectations. Speaking at the same event, Osius indicated that while TPP might put Hanoi on strong footing to make the economic reforms necessary to become a market economy, a change in its status would be likely be further down the road. Both officials spoke at March 24 event at the Center for Strategic and International Studies (CSIS).

Osius said that the U.S. Commerce Department process to determine a country’s market economy status is non-political, and that Vietnam still needs to fulfill certain requirements, such as having a convertible currency.

The U.S. official’s characterization is telling.  The U.S. government has consistently argued that NME status is a factual question.  That is, if Vietnam or China meets the criteria under U.S. law for market economy treatment, their NME status will be revoked accordingly. 

This characterization is misleading and troubling for a number of reasons.  First, NME status is very much a political decision.  There are factors for evaluating nonmarket economy status under U.S. law, but those factors are not especially relevant to the problem a genuinely nonmarket economy poses for the use of regular antidumping methodology.  “Currency convertibility” is an excellent example.  Moreover, the factors ask regulators to evaluate “the extent of” certain interventionist policies without giving guidance on how extensive they must be.  And a determination of whether a country “meets” the factors is explicitly not reviewable by any court. 

Second, the important question is not about Vietnam’s economy but about when the U.S. will end this abusive antidumping practice.  As I explained in a policy analysis paper last year, the NME designation is merely an excuse for lawless protectionism.  Whatever factors the U.S. government wants to come up with, the fact remains that Vietnam and China both are sufficiently market-oriented that authorities can use domestic prices to determine whether goods are being sold in the United States at “dumped” prices.

Finally, it’s particularly repugnant for the United States to impose NME treatment on imports from a country it has a free trade agreement with.  The TPP should eliminate barriers to trade between the United States and Vietnam and further integrate their markets, so that increased competition can effectively drive economic growth.  Singling out Vietnam for discriminatory antidumping treatment is entirely incompatible with that goal.

Vietnam is right to demand an end to abusive NME treatment by the United States.  If U.S. negotiators are serious about making the TPP an “ambitious, 21st Century agreement,” they should welcome that demand without objection.

Roger Pilon

Few recent battles have seized the nation’s moral compass quite as emotionally as the one going on in Indiana right now, pitting defenders of religious liberty against opponents of discrimination based on sexual orientation. But Apple’s chief executive Tim Cook brings the moral confusion surrounding the battle to a head this morning with his op-ed in the Washington Post. Lumping together both legitimate and illegitimate “religious freedom restoration acts,” he writes, “they go against the very principles our nation was founded on.”

Really? Let’s see if that claim stands up. We find those principles in the nation’s founding document, the Declaration of Independence. And Cook himself invokes them: freedom and equality. Rightly understood, they hold that we’re all born free, with equal rights to remain free. That means—to cut to the chase—that we may associate with anyone who wishes to associate with us; but we are equally free to decline to associate with others, for any reason, good or bad, or no reason at all. That right to discriminate is the very essence of freedom. That’s why people came to this country, to escape forced associations—religious, economic, political, or otherwise.

Cook turns those principles on their head. He says religious freedom bills “rationalize injustice” by, for example, allowing a baker to decline to bake a cake for a same-sex wedding. He would compel the baker to accept that request, by force of law. That’s the very opposite of the freedom of association—the right to be left alone—that the nation was founded on.

Just to be clear, I’m as offended as Cook is by that kind of discrimination. But I’m even more offended by the belief that we can force people to conform to our values when they’re asking simply to be left alone to enjoy their right to pursue their values. And precisely there is the source of Cook’s confusion, his conflation of rights and values, two very different moral notions. True liberalism recognizes that distinction. It’s the epistemic foundation of a free society, absent which not only intolerance reigns—ironically, what Cook charges even as he practices it—but intolerance coupled with the force of law.

There are many related issues, of course—too many for a mere post. (See here, here, and here.) These religious freedom restoration acts arose, for example, only because of an erroneous 1990 Supreme Court decision. More deeply, our anti-discrimination law, inconsistent as it is with freedom of association, arose understandably from the ashes of slavery and Jim Crow; and its spill-over to private discrimination was probably necessary to break the back of institutional racism in the South. More immediately, the discrimination permitted here, as Cook says, is “bad for business” and therefore will likely arise only in rare cases. But the principle at issue is crucial. If we lose that, as this battle suggests we’re doing, it will fall ever more to government to determine what values will and will not be tolerated, and that will be the end of liberty—including the liberty to offend, which a free society must tolerate.

Adam Bates

In 2012, the people of Colorado voted to legalize marijuana through a state constitutional amendment, which went into effect in January of 2014.  Two of Colorado’s neighbors, Nebraska and Oklahoma, subsequently filed a lawsuit urging the U.S. Supreme Court to prohibit the state of Colorado from constructing a regulatory regime for the marijuana industry.  Last Friday, Colorado filed its response.

The Nebraska/Oklahoma argument: because the federal government, through the Controlled Substances Act, has banned marijuana, states are not allowed to contradict that ban by creating a regulatory framework for legalization.  Further, Colorado’s official regulation of recreational marijuana imposes a nuisance burden on surrounding states due to an alleged increase in drug trafficking.  While Nebraska and Oklahoma disclaim any intent to force Colorado to “re-criminalize” marijuana, the suit argues that Colorado’s official efforts to regulate the legal marijuana industry bring the state into conflict with federal and international drug laws.

Colorado’s response: there is no conflict.  Federal marijuana prohibition is still in effect, and the decision not to prioritize enforcement in states that legalize marijuana came from the federal government, not Colorado.  If Nebraska and Oklahoma object to the manner in which the federal government is discharging its law enforcement duties in Colorado, they should be suing the federal government.  Colorado’s regulation of the marijuana industry is within its prerogatives under the CSA. As to the nuisance claim, Colorado argues that mere policy differences between states that don’t directly injure the sovereignty of other states are not actionable nuisances.

The legal basis for the lawsuit has been questionable from the beginning, with legal commentators both challenging its merits and pointing out the irony in two of America’s “reddest” states taking a legal posture that overruns state sovereignty in favor of federal power.

And, of course, if prohibition states are concerned with the costs, they could always legalize and regulate marijuana themselves and spare their justice systems the immense costs of prohibition.  

While some notable conservatives appear to be coming around in favor of a federalist experiment on drug legalization, it is a testament to the unfortunate power of the drug war that two state governments that routinely invoke the merits of federalism would abandon it in favor of federal prohibition.  As discussed previously, federalism would hardly be the only cherished principle to be left in the drug war’s wake.

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