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Maryland Governor Larry Hogan announced today that he was cancelling Baltimore’s Red light-rail line while approving suburban Washington’s Purple Line. However, that approval comes with some caveats that could still mean the wasteful transit project will never be built.

The latest cost estimate for the Purple Line is nearly $2.5 billion for a project that, if done with buses, would cost less than 2 percent as much. The Purple Line finance plan calls for the federal government to put up $900 million, the state to immediately add $738 million, and then for the state to borrow another $810 million.

Instead, Governor Hogan says Maryland will contribute only $168 million to the project, and that local governments–meaning, mainly, Montgomery County but also Prince Georges County–will have to come up with the rest. It isn’t clear from press reports whether Hogan is willing to commit Maryland taxpayers to repay $810 million worth of loans, but it is clear that local taxpayers will have to pay at least half a billion dollars more than they were expecting.

Local Purple Line advocates claim that the line will pay for itself by increasing property values along the route and therefore property tax revenues. In fact, this is a zero-sum game: any increases along the route would be matched by decreases in property values elsewhere in the county. But from the rhetoric, it seems likely that they will propose to use tax-increment financing–which takes all of the tax revenues from increased property values–to pay the county share of the Purple Line. But that may not even be enough to cover the cost.

So it is possible that the Purple Line will never get built. That would be a win for Maryland taxpayers; a win for commuters, because the Purple Line is predicted to increase traffic congestion; and a win for transit riders, because the Purple Line is so expensive it will almost certain force Maryland Transit to cut bus service.

Some say that today’s decision maintains business as usual for Obamacare, taxpayers and consumers. The Supreme Court upheld the subsidies (also known as the Premium Tax Credit) to consumers in the 34 states that rely on the federal exchange. Proponents of these subsidies argue they help keep health insurance affordable.

The subsidies lower the out-of-pocket cost to consumers who get them, but at what cost? Consider a 64-year-old consumer in Hialeah, Florida (one of the largest areas impacted by King v. Burwell) who is receiving the maximum subsidy of $7,488 per year. Of the 87 plans offered in the marketplace, 16 entail zero cost to the consumer. Premiums for these “free” plans range from $6,300 to $7,200. There is no incentive for the consumer to shop prudently from these 16 plans. The consumer does not get to keep any unused subsidy, creating incentives to choose health plans with additional features of only marginal value. The taxpayer – not the consumer – picks up the cost of the imprudent choices.

In addition to discouraging shopping based on plan value, the premium tax credit offers a set of perverse incentives, especially on the decision to earn more than 400% of the poverty line and on reporting your income for the upcoming year.

Today’s decision may very well mean business as usual, but there are serious economic issues with how the subsidy is set up.

Stop calling it fair housing law. If it was ever a matter of fairness, it isn’t now.

Under today’s 5-4 Supreme Court holding in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, you can be held liable for housing discrimination whether or not you or anyone in your organization intended to discriminate. Instead – to quote Justice Anthony Kennedy, who joined with the Court’s four liberals in a 5-4 majority – you might have been influenced by “unconscious prejudice” or “stereotyping” when you lent money or rented apartments or carried on appraisal or brokerage or planning functions. What you did had “disparate impact” on some race or other legally protected group, and now you’re caught up in potentially ruinous litigation in which it’s up to you to show that you had a good reason for what you did and could not have arranged your actions in some other way that had less disparate impact.   

The decision is quite broad in its implications. For example, in employment discrimination law, where disparate impact has long been legally established, it is increasingly legally dangerous to ask job applicants about criminal records, or carry out criminal background checks on them before a job offer, for fear of disparate impact. Is it still safe to ask such questions of prospective tenants in your apartment building? Better ask your lawyer.  

The case hinged on statutory interpretation, and as Justice Alito’s dissent makes clear, King v. Burwell wasn’t the only case decided today in which a majority mangled the clear meaning of a law’s text to get the result it wanted. As Justice Ginsburg was frank enough to note at oral argument, “”If we’re going to be realistic about it…in 1968, when the Fair Housing Act passed, nobody knew anything about disparate impact.” On the contrary, the law’s text specified that it was banning decisions taken “because of” race, and to find a loophole the majority was obliged to fall back on an incidental clause banning the making “unavailable” of a “dwelling,” which we are meant to believe snuck in a huge new area of liability. As the majority stresses, many appeals courts did go along with a liberal interpretation. But the Executive Branch did not – in 1988 it took the position before the Court that the law did not permit disparate impact claims – while Congress hedged the issue in later enactments so as to keep all sides on board a compromise. 

Despite ridiculous claims (like that in a Vox headline) that the Court today “saved” the Fair Housing Act or that a contrary decision would have “gutted” it, the great majority of litigation under the Act has been on disparate-treatment complaints (which, as Alito notes, can already use disparate impact as evidence of pretext.) But the Obama administration, as I’ve documented elsewhere, has launched a huge effort to turn disparate-impact law into an engine of revolutionary changes in local government and housing practice, introducing, for example, such concepts as a local government obligation to pursue subsidized federal housing grants and to enact laws forcing private landlords to accept Section 8 tenants. 

As the four dissenters make clear, a compliance and litigation nightmare now looms for many in real estate, finance, and local government as they try to dodge liability. “No matter what [Texas] decides” in the case at hand on locating low-income housing, for example, one or another group “will be able to bring a disparate-impact case” based either on the theory that projects should be put in poorer areas (which enables building more of them) or in affluent areas (which will benefit some future residents). 

If you have time to read only one bit of today’s opinion, read Justice Clarence Thomas’s separate dissent. Thomas brilliantly recounts the EEOC’s successful subversion of its own founding statute, culminating in the Court’s profoundly mistaken opinion in Griggs v. Duke Power, the employment case that founded disparate impact theory. “We should drop the pretense that Griggs’ interpretation of Title VII was legitimate,” he writes. It’s a tour de force – and already being denounced vehemently on the Left. 

“If we give the phrase ‘the State that established the Exchange’ its most natural meaning, there would be no ‘qualified individuals’ on Federal Exchanges.” You’d think that I pulled that phrase from Justice Scalia’s dissenting opinion in today’s big Obamacare ruling—it makes clear that Congress said what it meant in the ACA, giving states the incentive to create exchanges by making their citizens eligible for tax credits if they do—but you’d be wrong.

It comes from the pen of Chief Justice Roberts, who admits, as he did three years ago in the individual-mandate case, that those challenging the administration are correct on the law. Nevertheless, again as he did before, Roberts contorts himself to eviscerate that “natural meaning” and rewrite Congress’s inartfully concocted scheme, this time such that “exchange established by the state” means “any old exchange.” Scalia rightly calls this novel interpretation “absurd.”

Of course, Roberts explains his transmogrification by finding it “implausible that Congress meant the Act to operate in this manner,” to deny subsidies to millions of people as part of legislation intended to expanded coverage. But it’s hardly implausible to think that legislation that still says that states “shall” set up exchanges—the drafters forgot to fix this bit after lawyers pointed out that Congress can’t command states to do anything—would effectively give states an offer nobody thought they’d refuse. It was supposed to be a win-win: states rather than the federal government would run health care exchanges (yay federalism!) and all those who need subsidies to afford Obamacare policies would get them (yay universal healthcare!).

But a funny thing happened on the way to utopia, and only 14 states (plus D.C.) took that too-tempting offer, perhaps having been burned too many times before by the regulations that accompany any pots of “free” federal money. And that’s why we ended up with King v. Burwell: Obamacare the reality doesn’t accomplish Obamacare the dream. That may not be the absolutely, 100-percent correct reading of the Affordable Care Act. But it’s nothing if not plausible.

That should’ve been the end of the story: the clear text of the statute produces a plausible result, so courts should enforce that “natural meaning.” Alas, as Justice Scalia put it, “normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved.”

The best that can be said about today’s ruling is that it explicitly disclaimed any reliance on so-called Chevron deference, the idea that courts should almost always defer to executive-agency interpretations of statutes—including on questions of their own authority. That pernicious bit of 1984 jurisprudence has enabled the administrative state to explode in the last three decades and, had Roberts relied on it, would really have allowed the executive branch to legislate without any real limit. Instead, again like three years ago, we have a horrendous bit of word play that violates all applicable canons of statutory interpretation to preserve the operation of a unpopular program that has done untold damage to the economy and health care system.

No, instead of allowing agencies to rewrite the law, the Supreme Court today gave itself that power. We might as well call the law at issue RobertsCare.

A few additional broader thoughts on the Court’s King v. Burwell ruling today. First, technically, this is an administrative law ruling. That is, the Court did not apply so-called Chevron deference and uphold the IRS’s reading of the provision of the Affordable Care Act that provides tax credits to eligible individuals who buy insurance on exchanges “established by the State”—even though, as a practical matter, the Court agreed with the IRS’s interpretation of that provision as allowing tax credits for those who buy on exchanges established by the federal government.

Rather, this is a statutory ruling—as if the IRS has never interpreted that provision and the Court were doing so as a matter of first impression. And the tangled web the Court weaves in reading “established by the State” as meaning “established by the State or by the federal government” is reduced to shreds by Justice Scalia’s devastating dissent. It is a tour de force that must be read.

Toward the end of his dissent, however, Scalia waxes more broadly, on the proper roles of Congress and the Court. “Our task,” he writes, “is to apply the text, not to improve upon it.” “Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitation of tax credits to state Exchanges.” “The Court’s insistence on making a choice that should be made by Congress both aggrandizes judicial power and encourages congressional lassitude.” And he concludes this important section of his dissent with Hamilton in Federalist No. 78: “What a parody today’s decision makes of Hamilton’s assurances [that the Court has] ‘neither FORCE nor WILL but merely judgment.’”

With Chief Justice Roberts’s opinion for the Court, therefore, we have a perverse blend of the opposing positions of the judicial restraint and activist schools that reigned a few decades ago. To a fault, the Court today is deferential to the political branches, much as conservatives in the mold of Alexander Bickel and Robert Bork argued against the activism of the Warren and Burger Courts. But its deference manifests itself in the liberal activism of a Justice Brennan, rewriting the law to save Congress from itself. As Scalia writes, “the Court forgets that ours is a government of laws and not of men.”

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.


This week, we feature three analyses of the top climate stories of recent weeks—the papal encyclical, the carbon tax, and the EPA’s Clean Power Plan. Each of these analyses provides uncommon insight.

The first is an article penned by the always insightful Roger Pielke Jr. appearing in the typically non-insightful U.K.’s The Guardian.  Roger’s piece is titled “Is science policy a theological matter?” and is a reminder that Pope Francis’ encyclical, Laudato Si’ is “just the latest intervention in a debate over technologies that has been going on for centuries.”

Roger reviews some of the historic highlights of this debate and the philosophical roots of Pope Francis’ way of thinking—basically that “human roots of the ecological crisis” are grounded in a “technocratic paradigm.” In other words, technology (spurred by capitalism) is leading to the downfall of humanity through ecological deterioration. Not everyone agrees with the pope on this. But even for those who do, Roger points out they are often inconsistent when it comes to embracing (or disavowing) the fruits of technology. Roger provides this example:

But for many, embracing an overt religious framing for existential debates over technology can quickly become problematic, or at least deeply inconsistent. Consider technologies of family planning. Consistent with Catholic history, Pope Francis largely dismisses concern about global population as a contributor to environmental problems, “To blame population growth instead of extreme and selective consumerism on the part of some, is one way of refusing to face the issues.”

…Our views on whether certain technologies are good or bad are a reflection of what kind of world we collectively want.

And this is where politics comes in. Roger continues:

Nuclear power? GMOs? Birth control pills? Fracking? Human germline editing? Solar thermal stations? Vaccinations? Coal power? Good luck finding someone, anyone, with a consistently pro- or anti- technology position across just this small set of innovations. People around the world show a remarkable degree of inconsistency when applying religious principles to technological innovation. Of course, one person’s inconsistency is another’s pragmatism, and the pragmatic way to settle conflicts in through the difficult and frustrating process of politics.

Which leads back to the articles title “Is science policy a theological matter?”

The whole 1300-word piece is well-worth a read both for its historical reflections as well as questions that it provokes.  Roger concludes:

With his encyclical Pope Francis has done the world a service by helping us to see that our choices about technology and economic growth are part of a deeper set of questions focused on what kind of world we wish to live in together. Answering such questions collectively through action will be messy, inconsistent and deeply political. If history is any guide, religious teachings will inform these answers but not determine them. That will mean disappointment for fundamentalists of all stripes.

The next piece that you ought to have a look at is a well-argued, critical look at the arguments forwarded for a carbon tax—supposedly a grand bargain for Republicans and Democrats to come together  and “do something” about climate change. But the Manhattan Institute’s Oren Cass doesn’t see it that way at all. His article, “The Carbon Tax Shell Game” in the summer issue of National Affairs is perhaps the most complete and thorough take down of the myriad excuses as to why it’s okay for conservatives (libertarians, even) to support a carbon tax.  Oren leads:

Support for a carbon tax has become the height of fashion among some on the right, and an express pass to “strange new respect” from the left. It even earned former congressman Bob Inglis (a Republican from South Carolina) the 2015 JFK Profile in Courage Award[1]. Supposedly, the tax is at once a free-market economist’s efficient approach to combatting climate change, a savvy fiscal reform for promoting economic growth, and a statesman-like grand bargain poised to break through the political gridlock. But as with most fads, it makes little sense when scrutinized closely.

He shows why the popular pro-carbon tax memes such as “US should be a global leader,” “we must be concerned with the negative externalities,” “we need to take out an insurance policy for catastrophic events,” “let’s swap a carbon tax for other forms of taxation,” etc. all fall flat.

Oren concludes, astutely:

The almost total lack of support for a price on carbon by elected representatives across the political spectrum, including by President Obama in his re-election campaign, is perhaps the best evidence for the true level of public support and likelihood of an attractive deal. As White House press secretary Jay Carney explained, days after the President had secured a second term, “We would never propose a carbon tax.”

A good policy does not repeatedly hide in the alternative. When the carbon-tax shells finally stop moving, one turns them over to find a sharply regressive tax likely to harm the economy while failing to meaningfully reduce emissions or insure against catastrophe, poorly suited to the important goals of spurring innovation and protecting public health, and deeply unpopular and inconsistent with basic principles of policymaking. Supporters inevitably commit themselves to the project of costly and superficial climate action while achieving no concessions in return. And this is before Congress gets involved.

If one is looking for a poorly designed consumption tax to pair with a corporate-tax cut in a politically implausible package, a carbon tax might be the answer. But surely no one is looking for that.

And finally, we end with something you don’t see every day—a cost/benefit analysis of greenhouse gas regulations that uses a domestic social cost of carbon (SCC), rather than a global SCC estimate preferred by the Obama Administration.

Recall that the SCC is a wildly gameable estimate of the damages that accrue between now and the year 2300 resulting from each of carbon dioxide emitted from human activates.

In our recent set of Comments on the latest in a series of proposed federal regulations limiting carbon dioxide emissions, we point out the problem of the federal use of the global SCC to justify the costs of the proposed regulations (an increasing frequent practice).

We write:

The [federal task force] only reports the global value of the SCC which the [task force] determines to accrue from continued carbon dioxide emissions in the United States. This is in direct violation of existing OMB [Office of Management and Budget] guidelines.

OMB Circular A-4 (September 17, 2003) regarding Regulatory Analysis explicitly states:

“Your analysis should focus on benefits and costs that accrue to citizens and residents of the United States. Where you choose to evaluate a regulation that is likely to have effects beyond the borders of the United States, these effects should be reported separately.”

In reporting the SCC, the [task force] argues away the need to “focus on benefits and costs that accrue to citizens and residents of the United States” and instead bases its SCC solely on its determinations of “effects beyond the borders of the United States.” Rather than reporting the latter “separately,” as recommended by OMB guidelines, the [task force] only reports the global costs in its tablature and makes no determination of the domestic costs (providing only approximate guidelines). Considering that the majority (if not all) of the federal regulations incorporating the SCC into cost/benefit analysis apply to rules regulating domestic activities, reporting only the global impact—the knowledge (in all areas, i.e., economics, social, environmental, etc.) of which is far less constrained than potential U.S. impacts—imparts a huge degree of uncertainty and is a grossly misleading. Thus, the [task force’s] determination of the SCC is not appropriate for use in federal regulatory analyses such as this one.

During the public comment period associated with new regulations such as this one which incorporate the SCC, a distinction should be made between domestic costs/benefits and foreign cost/benefits—and numerical calculations of each provided (not merely a mention as to how to calculate the domestic costs) in all cost/benefits analyses included in the proposal—such that the public can judge for itself the value of the regulation. As it currently stands, the public likely has little idea as to how large a percentage of the benefits of the proposed EPA regulations on domestic activities are conferred upon foreign nations under the guise of the SCC. This is clearly not a “transparent” situation.

While the Obama Administration remains deaf to these calls, the U.S. Chamber of Commerce has not.

Last week, the Chamber’s Institute for 21st Century Energy released a report whose title pretty much sums up the findings “EIA Analysis Shows EPA’s Carbon Regulations All Economic Pain for No Climate Gain.” In that report, they compared the economic losses from the EPA’s power plant carbon dioxide regulations  with the supposed “benefits” from avoided damages resulting from the lowered CO2 emissions. Using  Administration’s preferred global social cost of carbon, the Chamber found that the costs of the EPA’s Clean Power Plan exceeded the benefits to the tune of some $899 billion over the period 2020-2030. The net loss was even greater when the Chamber used the more relevant domestic SCC value. In that case, the net costs ballooned to a whopping $1.16 trillion.

The Chamber thus concludes:

No matter how one slices and dices the data, EIA‘s analysis leaves little room for doubt that EPA’s Clean Power Plan flops badly as a climate policy, even on the administration’s own terms and using the administration’s own methods, data, and exaggerated SCC.

Maybe creating a huge new bureaucracy to implement carbon dioxide regulations that would highjack well-established state authority, disrupt the entire U.S. electricity sector, jeopardize the reliability of the electric grid, raise electricity costs on struggling families, and yield an estimated net loss in wealth of $899 billion to $1.16 trillion is appealing to EPA. But for the rest of the country, it’s a decidedly bad deal.

[1] We note, that for embracing global warming, Inglis lost his 2010 primary in a heavily Republican South Carolina district by an 70-29 margin, a margin of defeat unprecedented for an incumbent congressman with no scandal.


Today the Supreme Court allowed itself to be intimidated. Afraid that ObamaCare as written would throw the sickest patients out of their health plans a second time, the Court rewrote ObamaCare to save it—again. In doing so, the Court has sent a dangerous message to future administrations: If you are going to violate the law, make sure you go big.

The Court today validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim.

ObamaCare will continue to disrupt coverage for sick Americans until Congress repeals it and replaces it with reforms that make health care better, more affordable, and more secure. Despite today’s ruling, ObamaCare remains unpopular with the American public and the battle to set in place a health care system that works for all Americans is far from over.

Justice Scalia’s final paragraph in his dissent today in King v. Burwell pretty much says it all. Read the opinion and weep.

Perhaps the Patient Protection and Affordable Care Act will attain the enduring status of the Social Security Act or the Taft-Hartley Act; perhaps not. But this Court’s two decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed (“penalty” means tax, “further [Medicaid] payments to the State” means only incremental Medicaid payments to the State, “established by the State” means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence. And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.

We’ll have more on the decision in due course.

If you think that the Fed isn’t involved in the Greek mess, you may want to think again. Paul-Martin Foss, our good friend at the Carl Menger Center, wrote a very nice post a few days ago concerning how the Fed may be getting itself tangled-up in an impending Greek default, through its swap lines with the ECB.

According to the Federal Reserve Board of Governors, those swap lines were first established in December 2007 “to improve liquidity conditions in U.S. and foreign financial markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions during times of market stress.”

Those original swap facilities, never meant to be permanent, were shut-down in February 2010. But — wouldn’t you know it? — similar facilities were announced in May 2010 in response to “the re-emergence of strains in short term funding markets in Europe.” Those facilities were also supposed to be temporary, but then, in October 2013 — what do you know! — they were made permanent. According to the Fed, that step

further supports financial stability by reducing uncertainties among market participants as to whether and when these arrangements would be renewed. This action results from the ongoing cooperation among these central banks to help maintain financial stability and confidence in global funding markets.

What has all this got to do with Greece? Here is Paul-Martin:

If you want to get a sense of the Fed’s involvement in Europe, watch the swap lines. Swap line data is published every Thursday afternoon on the Fed’s balance sheet, the H.4.1 release. If you look at the St. Louis Fed’s charts and data on swap lines, you’ll see the huge amount of swaps during the financial crisis, and then a smaller but still significant increase in swap lines during the first iteration of the Greek financial crisis back in 2012. While swaps have been relatively non-existent this year, there was a small blip back in April, likely Greek-related, and more importantly, another blip this week. While the amount, $114 million, is a drop in the bucket compared to what it has been in the past, this number needs to be watched. It could very well be an indicator of the Fed getting involved in Europe again. And if the doomsday scenario ends up taking place next week, expect that $114 million figure to skyrocket. The Fed seems to want the conversation to revolve around a possible upcoming interest rate hike, so it’s been relatively silent on the topic of Greece and its involvement in bailing out Europe. But even if the Fed doesn’t say anything about Greece, its money-printing to pump up the swap lines will do plenty of talking.

That was on June 19th. Well, the CMFA’s champion Fed watcher, Walker Todd (who you will be hearing from shortly on these pages) has been keeping a sharp eye on those swap lines. On June 11th — a week before the transaction showed up on the Fed’s own H.4.1 release — Walker reported that “Someone in Europe drew a small amount on a dollar swap with FRBNY”:

ECB website today has details below on a swap line drawing this week against the US dollar swap line with FRBNY. It says that there was one bidder; one wonders whom. Amount is $113 million. There has been no swap line activity for several months now. These numbers should show up on FRBNY next week (due to timing of swap drawings and time zone differences, there usually is a one-week lag between a drawing in Europe and the FRBNY report of the same drawing).

(The $1 million difference between the numbers mentioned by Paul-Martin and Walker reflects a Bank of Japan draw of that amount.)

The day after Paul-Martin’s post came out, Walker alerted us to another transaction that had not yet been reported by the Fed:

It won’t show up until next week in Fed statistics, but ECB statistics show that an unnamed entity (one suspects the same one as last week) borrowed again for a week under the dollar swap line for $115 million. The drawing was $113 million the last time I checked. As a purely hypothetical example, a Greek bank could be borrowing dollars under the swap line. Other than a token $1 million to $2 million that Bank of Japan borrows from time to time to reassure itself, this is the only borrowing outstanding under the Fed’s swap line, according to FRBNY statistics. The notable thing is that it is still there and growing.

Today the swap was rolled over yet again.

Stay tuned…

[Cross-posted from]

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

For starters, a 29-chapter trade agreement negotiated between 12 countries over several years, where final offers have yet to be presented, is a venue ripe for discord.  The “end game” of trade negotiations often reveals distance between parties where none had been assumed. It features unexpected demands – Hail Marys and otherwise – that can reverse progress and unravel other commitments. And it is typically the case with trade agreements that the most difficult issues are left until the end.  So there’s that.

Now consider that over the course of the past 6 years, negotiators identified numerous sticking points between parties that struck trade policy observers as difficult to resolve.  In many of those cases, it’s not apparent that resolution has been achieved. 

For example, will the TPP include a “tobacco carve-out” and, if so, what will it entail? A few years ago the United States floated the idea of entirely excluding tobacco products from the agreement.  Then the Obama administration backed away from that position at the urging of tobacco state policymakers – including the Senate Majority Leader – as well as those who argued that excluding products was a slippery slope that would lead to certain junk food exemptions, then alcohol exemptions, and so on. 

So, the administration retreated and proposed that the agreement include language specifying that governments are free to regulate tobacco, as they see fit, for the purpose of protecting public health and safety.  While that effort was dismissed as toothless by anti-tobacco crusaders, it was criticized by trade lawyers because, well, governments’ authorities to regulate for the purpose of protecting public health and safety is already sacrosanct under global trading rules and is clearly articulated in Article XX of the General Agreement on Tariffs and Trade. Including specific language in TPP to affirm that governments can regulate tobacco would call into question the force of GATT Article XX, which already grants that authority.  Meanwhile, at about this point, Malaysia announced its support for the original U.S. proposal, which was the total exemption of tobacco from the TPP.

It is unclear whether and how this issue has been resolved among TPP negotiators.  The most recent position associated with U.S. negotiators – although not the official position, reportedly – is that tobacco-related claims should be excluded from access to the Investor-State Dispute Settlement (ISDS) process.

But will ISDS even be a part of the final deal? At the outset of negotiations, Australia was dead set against including an ISDS provision in the agreement.  The current government seems to have reversed course, but there is a great deal of antipathy toward ISDS in the parliament and among the public in Australia, where Phillip Morris is suing the government under the ISDS provisions of a Hong Kong-Australia bilateral investment treaty for depriving it of the benefits of its intellectual property (use of its logos, etc.) by way of Australia’s plain (cigarette) packaging law.

What about imports of clothing from Vietnam?  Will garments made from textiles produced in non-TPP member countries be accorded the preferential duty rates of the agreement?  Vietnam is a large apparel producer that relies heavily on Chinese fabric.  Restricting duty preferences to clothing made from TPP-originating textiles would increase the cost of inputs and the cost of paperwork and compliance for Vietnamese clothing producers, which could render the “preferential access” too expensive to even bother obtaining.  As is the case with textile provisions in many U.S. trade agreements, the cost of complying with the onerous rules of qualification often doesn’t justify the effort, so the full duty is paid and the “on-paper” benefits of the agreement go unrealized.  Resolution is complicated further by the fact that Mexico – another TPP party – is a large apparel producer and exporter to the United States that sees Vietnam as a major competitor and threat.

How will Malaysia’s government procurement project set-asides for its ethnic Malay population affect the effort to open bidding on government projects to firms in all TPP countries?  And for that matter, how will U.S. negotiators agree to open U.S. government procurement projects to firms in TPP countries without broaching the “Buy American” provisions identified as red lines by many members of Congress?

Numerous other issues seem to remain unresolved.

Will the agreement provide for a single set of tariffs and rules of origin for all countries, or will it amount to a less liberalizing series of bilateral agreements?

Will the United States insist on, and other countries submit to, the U.S. process of certification, which conditions entry-into-force of the agreement on the U.S. president’s certification that the trade partner’s laws are in compliance with the terms of the agreement?

Will Japan, Canada, and the United States open their various agricultural markets to the satisfaction of one another and other agricultural product exporters, such as Australia, New Zealand, and Mexico?

Will improved dairy, beef, and sugar export market access be enough to compel New Zealand and Australia to accommodate U.S. pharmaceutical access and intellectual property protection demands? And will those U.S. intellectual property demands accommodate terms of compliance that aren’t too onerous for developing countries and that don’t impede access to medicines?

It’s good that U.S. negotiators can return to the table with Trade Promotion Authority in hand because now the TPP “end game” can begin.  But there is a lot of heavy lifting ahead.  The issues above and many others will have to be resolved before TPP can conclude.  And once it does conclude, the real scrutiny of its provisions will begin. 

Most provisions will be trade liberalizing.  Some will be protectionist.  Where the congressional battle lines are drawn on the implementing legislation of TPP remains to be seen.  But the whole process is likely to unfold in the midst of primary election season, ensuring TPP (and trade policy, in general) is a boisterous 2016 campaign issue. 

In his new encyclical, Laudato Si, Pope Francis challenges people to adopt a new “ecological spirituality.” But his economic and policy prescriptions are more controversial than his theological convictions.

The Pope’s commitment to the poor and our shared world is obvious. Yet when he addresses policy, his grasp is less sure.

The Pontiff ignores the flawed nature of government. He is disappointed with its present failings, but appears to assume that politics, unlike humanity, is perfectible.

Most environmental problems result from the absence of markets and property rights. For instance, since no one owns the great common pools of air and water, “externalities” abound.

When possible, government should create quasi-markets or apply market incentives. In contrast, where government acts as property manager, it typically performs badly. For example, at the behest of business interests, Washington subsidizes grazing and timbering on its lands, opening up areas which otherwise would not be developed.

Politics does no better in caring for future generations. Politicians have a short time horizon, usually to the next election.

There’s even a more basic point. The Pope notes how hard it is “to find adequate ways of solving the more complex problems of today’s world,” which “cannot be dealt with from a single perspective or from a single set of interests.” He goes on to complain how hard it is “to take into account the data generated by other fields of knowledge.”

However, officials often come from “a single perspective” and cannot consider the mass of knowledge available in the world beyond. In contrast, markets act–imperfectly to be sure–with the widest number of participants, arrays of information, and variety of perspectives.

While Laudato Si largely ignores government’s woeful record as environmental steward, it does express frustration at politicians’ failure to pass the kind of program the Holy Father advocates. Public choice economists long ago explained how interest groups with concentrated benefits so often defeat a disinterested public bearing diffuse costs.

As I point out for the Acton Institute: “Apparently unrecognized by the encyclical, not everyone claiming to speak for the common good does so. Many ecological interest groups seek to impose their visions and policies on others, rather than achieve a responsible balance, in this case of ecological values, human liberty, and economic prosperity.”

Moreover, it is not enough to blame special interests for influencing government. Politicians are no more virtuous than the people they represent.

In spite of all this, the Pontiff pushes for not just more government, but more global government. He does so despite recognizing that this approach has failed in the past. While universal problems may require global solutions, international bureaucracies are least accountable to the poor and dispossessed.

Despite the many well-documented reasons for questioning both the severity of environmental problems and wisdom of entrusting government with new powers, Laudato Si appears to doubt the legitimacy of opposing views. The document complains that “Obstructionist attitudes, even on the part of believers, can range from denial of the problem to indifference, nonchalant resignation or blind confidence in technical solutions.” This lack of openness to dissenting viewpoints is evident in the encyclical’s brief discussion of climate change.

The Pope offers a detailed policy agenda and then insists that his proposed program should not be subject to electoral change or oversight, since “continuity is essential.” This undermines the democratic principles so important for those without economic and social influence.

True, the Pontiff hopes for a new kind of politics and politician, but that runs against thousands of years of experience. There is no guarantee increasing the power of parliaments, officials, and agencies will solve problems.

Despite his failings as a policy analyst, Pope Francis is right to ask, “How much is enough?” But expanding government power will not fill the empty hearts that he sees.

A fun thing about making predictions is ultimately finding out how wrong you were, and why. The chart below depicts the actual growth in charter school enrollment from 2000 to 2011, presented in Richard Buddin’s paper “The Impact of Charter Schools on Public and Private School Enrollments.” Now, as the old investment adds exhorted “past performance is no guarantee of future results.” But such a definitive pattern cried out for a regression fit. The dashed blue line in the chart below represents the “predicted” growth of Charter schools since 2011 (which I calculated three years ago from the 2000-to-2011 data). But how good was the prediction? As a test, I have plotted the actual data for 2012 to 2015 as red dots, using this and this as sources.

Well. Not bad. The accelerating growth in charter school enrollment could be excellent news for children and families–expanding the breadth of their educational options. Or (in the long term) it might reduce the variety of educational choices if charters become re-regulated (and thus homogenized) after having “eaten” a substantial number of diverse and much freer private schools. As Richard Buddin showed, charter schools are drawing students away from the freer independent school sector. And as the news routinely informs us, there are regular efforts to pile regulations onto charters to make them behave more like conventional state-run schools. In 2011, I raised the concern that this cycle could reduce educational liberty.

Two things are likely to happen over time: more private schools will be forced by economic expediency to convert to charter status as the number of competing charter schools grows, and the charter law is very likely to accrete regulation as charters enroll a larger share of the total student population. After all, the conventional U.S. public schools of the mid-to-late 1800s generally had more parental power and more autonomy than do typical charter schools today, but they have succumb to ever more extensive and more centralized regulation. If charter public schools follow the pattern set by conventional public schools, and if private schools continue to convert to charter status, what will be the end result? We could well see a heavily regulated state education monopoly that enjoys not a 90 percent market share, as it does now, but a 95 or even 99 percent market share. The end point would be worse than the situation we have today. While it is possible that charter schools will not accrete regulation like other public schools have as they begin to enroll a larger share of students, there is no reason to be hopeful in that regard.

With attempts to regulate charter schools more like state-run district schools continuing to this day, reasons for hopefulness remain scarce.

This, admittedly is a long-run concern. And as Keynes observed, “In the long-run, we’re all dead.” While that is literally true of any given generation, policy must be made with a view to functioning well not simply for us, now, but also for subsequent generations, decades hence. Having spent years studying the history of education systems, it’s hard not to be concerned with the long-run.

Following the protests and riots in Ferguson last year, President Obama created a Task Force on 21st Century Policing to examine policing problems and make recommendations.  The Task Force issued its final report last month.  In this post, I want to highlight the numerous ways in which the report would expand the role of the federal government.

By way of background, policing is supposed to be the near-exclusive province of state and local government under the U.S. Constitution.  The federal government is nevertheless constantly seeking to expand its jurisdiction.  The number of federal crimes and the number of federal law enforcement agents keeps rising.  Members of Congress also like to throw millions and millions of dollars at local police departments.  Of course, having accepted the money, local policymakers are now swamped with myriad federal conditions and mandates.  On top of that, the feds have entwined themselves with local police with the creation of hundreds of permanent joint federal-state police units that operate to enforce narcotics, guns, and immigration offenses.

President Obama’s Task Force is now recommending a host of actions to expand the role of the federal government even further.  Here is an excerpt from the final report (pdf):

The President should support and provide funding for the creation of a National Crime and Justice Task Force to review and evaluate all components of the criminal justice system for the purpose of making recommendations to the country on comprehensive criminal justice reform.

The President should promote programs that take a comprehensive and inclusive look at community-based initiatives that address the core issues of poverty, education, health, and safety.

The Federal Government should develop survey tools and instructions for use of such a model to prevent local departments from incurring the expense and to allow for consistency across jurisdictions.

The Federal Government should create a Law Enforcement Diversity Initiative designed to help communities diversify law enforcement departments to reflect the demographics of the community.

Discretionary federal funding for law enforcement programs could be influenced by that department’s efforts to improve their diversity and cultural and linguistic responsiveness.

The Federal Government should incentivize this collaboration through a variety of programs that focus on public health, education, mental health, and other programs not traditionally part of the criminal justice system.

Policies on use of force should also require agencies to collect, maintain, and report data to the Federal Government on all officer-involved shootings, whether fatal or nonfatal, as well as any in-custody death.

The Federal Government could further incentivize universities and other organizations to partner with police departments to collect data and develop knowledge about analysis and benchmarks as well as to develop tools and templates that help departments manage data collection and analysis.

The Federal Government should create a mechanism for investigating complaints and issuing sanctions regarding the inappropriate use of equipment and tactics during mass demonstrations.

The Federal Government should support the development and delivery of training to help law enforcement agencies learn, acquire, and implement technology tools and tactics that are consistent with the best practices of 21st century policing.

The Federal Government should support the development of new “less than lethal” technology to help control combative suspects.

The Federal Government should make the development and building of segregated radio and increased bandwidth by FirstNet for exclusive use by local, state, tribal, and federal public safety agencies a top priority.

The Federal Government should assess and evaluate zero tolerance strategies and examine the role of reasonable discretion when dealing with adolescents in consideration of their stages of maturation or development.

The Federal Government should support the development of partnerships with training facilities across the country to promote consistent standards for high quality training and establish training innovation hubs.

The Federal Government should encourage and support partnerships between law enforcement and academic institutions to support a culture that values ongoing education and the integration of current research into the development of training, policies, and practices.

The Federal Government, as well as state and local agencies, should encourage and incentivize higher education for law enforcement officers.

The Federal Government should create a loan repayment and forgiveness incentive program specifically for policing.

The Federal Government should support research into the development of technology that enhances scenario-based training, social interaction skills, and enables the dissemination of interactive distance learning for law enforcement.

The Federal Government should support the continuing research into the efficacy of an annual mental health check for officers, as well as fitness, resilience, and nutrition.

This litany fits right into Mr. Obama’s big government philosophy.  Congressional Republicans, for their part, seem dazed and confused.  Instead of trying to scale back the role of the federal government, they seem to focus on steering federal funds to their districts.

It is true that the report only makes recommendations, but you get the drift of it.  The next concrete legislative bill to expand the federal role will likely be federal funding for police body cameras.  It is expected to attract strong bipartisan support. 

For related Cato work, go here, here, and here.

Great Britain long reigned as the globe’s greatest maritime power, determined to maintain a navy as strong as those of its next two competitors combined. However, by the end of the 19th century, America and Germany had ended London’s economic primacy.

Britain chose to accommodate the United States and confront Germany. The result was an enduring alliance during the first and two world wars before the global order was settled after the second.

Washington faces a similar choice in dealing with the People’s Republic of China. There are many differences in circumstances, of course, but again the globe’s dominant force, accustomed to premier status, faces a serious challenge from a new power mixing rapid economic growth, nationalistic exuberance, and powerful grievances. Increasingly the United States faces a choice between accommodation and confrontation.

Into this imbroglio steps Lyle Goldstein, a professor at the National War College. In his new book, Meeting China Halfway: How to Defuse the Emerging US-China Rivalry (Georgetown University Press) he offers a strategy of cooperation for the two nations, which includes recognizing natural but much-reviled “spheres of influence.”

Goldstein encourages both nations to reward reach other’s good behavior. Forging a successful relationship requires Americans to honestly confront the past, which continues to color Chinese attitudes. From there, Goldstein discusses several difficult issues between the two nations and proposes policies which would encourage “cooperation spirals.”

Some matters, such as economics and environment, are politically contentious but not so freighted with emotion. Others reflect America’s and China’s roles in the world.

Goldstein begins with Taiwan. In a series of reciprocating steps, he urges the PRC to reduce military threats and allow expansion of Taipei’s international presence. In turn, he pushes the United States to end arms sales and encourage final status negotiations. His proposals are painful to both sides but would reduce tensions between the United States and the PRC.

In Southeast Asia, Goldstein suggests that Washington encourage greater Chinese naval participation, recognize the legitimacy of Beijing’s territorial claims, and reduce American military activities. China should offer greater naval cooperation and transparency, moderate promotion of its territorial claims, and scale back military activities.

The toughest suggestion concerns relations with Japan. He notes that “the capabilities and preparedness of the US-Japan Alliance have been ratcheted up to such an extent that the alliance itself is now triggering … acute security anxiety” in Beijing, thereby “feeding China’s vast appetite for new and more capable military systems.”

That still doesn’t make his ideas easy to accept. He advocates that the United States reduce troop levels, push for joint Chinese-Japanese naval patrols, urge a Japanese visit to Nanking, press for joint administration of the Senkaku/Diaoyu Islands, and turn the bilateral alliance into a more normal relationship.

For China, he proposes accepting trilateral negotiations, guaranteeing supplies of rare earths minerals, settling East China Sea disputes, accepting Japanese constitutional reform regarding the military, and backing Japanese membership on the UN Security Council. American policy changes should come easily since it reduces a military role that no longer serves American interests. In contrast, Beijing would have to confront deep nationalist antagonisms toward Tokyo.

The many difficulties in making such a cooperative approach work are obvious. But Goldstein creatively challenges the confrontation ethos which appears to be taking over Washington.

As I explain in National Interest: “Compromise and cooperation are the only realistic choice. And they are fully consistent with American security. The U.S. is the world’s strongest military power, allied with or friendly to most industrialized states worldwide and most of the growing nations in Asia. The path forward should help Beijing feel similarly secure.”

Today American foreign policy is dominated by a bipartisan consensus that what Washington says should go. There’s no way such an approach will work against a rising nation like China. As Goldstein ends his remarkable book, “for America, there is no viable alternative to meeting China halfway.” He’s right.

In Monday’s Financial Times, columnist Gideon Rachman presented a grim outlook for Greece and the European Union. He argues there are no good outcomes. There are three options. First, the EU can make concessions to Greece. Second, the EU can stand firm and allow Greece to leave the Euro. Third, the Greek government can accept the EU’s terms.

The first option represents a near-term victory for the Greek government. It also creates moral hazard within the broader EU. Governments in other countries implementing austerity measures would come under pressure. Populist parties would make further electoral gains across Europe. Consensus rule within the EU would become impossible.

It is feared the second route would put pressure on other countries, e.g., Spain and Italy, viewed as being vulnerable to the economic woes besetting the Greeks. That is an argument for “contagion.”

The third outcome may offer no long-term solution. Even were the Greek government largely to accept what the EU, the ECB and the IMF want to impose on it, that would likely not solve the Greek problem in the long run. Greece’s debt level would still likely be unsustainable. It is not clear that any government can implement the far-reaching economic reforms needed to put the Greek economy on a sustainable growth trajectory.

Richman’s analysis is cogent, if bleak.

The IMF, and its partners in the troika, first proposed its standard nostrum for a highly indebted sovereign: incur more debt. Existing debt may be restructured, and payment terms extended, but always new loans are made. The cure for drinking is more drinking, the cure for over-eating is more food, and the cure for excessive debt is more debt. It all makes sense in the Alice-in-Wonderland world of the IMF.

True, later some debt-relief was offered to Greece when the utter unsustainability of its existing debt could not be overlooked. But the relief was too little, too late. More recently, in a rare moment of humility for the organization, the IMF appears to have accepted that still more debt relief is needed.

Unsustainable debt cannot be repaid.

The unstated reason for policy intransigence in the face of reality is that much of the Greek sovereign debt was owed to important financial institutions, including major banks. Other global banks were also exposed because of interbank lending. The rational thing for individual governments to have done was to bail out their own banks and write down the Greek debt. That was politically unpalatable, however, because it would have involved acknowledging the shaky finances of European banks. Politicians would have had to acknowledge the bad practices of its banks. That would have been messy and unpleasant. Far better to offload the problem on the Greeks.

I will close by offering one possible optimistic scenario. Contrary to received wisdom, Greece may be better off out of the Euro. Left to their own devices, including the need to finance sovereign debt, the Greek people and their political leaders might be forced to make the needed economic reforms and to implement fiscal discipline. The good outcome is not guaranteed, but Grexit from the Euro may be the only feasible way of achieving it.

Alas, it is more likely that the EU and Greek government will muddle through until the next crisis. Perhaps, the next crisis will break out first in another EU country. Take your pick.

[Cross-posted from]

Bobby Jindal, Governor of Louisiana, will officially announce his run for the White House this afternoon, joining the ever-growing Republican field. Jindal hopes his experience cutting state spending and shrinking the state’s workforce will help propel him to the presidency. However, like the other governors whose records we have highlighted, Jindal’s fiscal record is not without faults.

Jindal took office in January of 2008, and 2015 will be his last year in office. He has scored well on the Cato Fiscal Policy Report Card on America’s Governors earning an “A” in 2010, and a “B” in both 2012 and 2014. All three report cards commend Jindal’s resolve to cut Louisiana state spending.

Since fiscal year 2009, the first full fiscal year of Jindal’s term, state general fund spending has decreased by 7 percent. Per capita state spending has fallen from $2,089 in 2009 to $1,883 in 2015, a decrease of 10 percent. This spending restraint is quite remarkable. For comparison, per capita state spending grew nationally by 8.5 percent during the same time period.

Total state spending, which includes money from the federal government for programs like Medicaid, stayed constant while Jindal was in office. It was $28.9 billion in 2008 compared to $29.1 billion in 2014.   

One way that Jindal reduced spending was cutting the state’s workforce. State government employment has decreased 26 percent since he’s been governor, according to data from the Bureau of Labor Statistics. Additionally, he passed broad pension reforms. All state employees hired after July 2013 receive a cash-balance retirement plan, similar to a 401(k) plan, instead of a traditional defined-benefit pension.

Jindal has also cut state higher education spending. State higher education spending fell from $1.1 billion a year in 2009 to $535 million in 2015. His 2016 budget includes further cuts to the state higher education system, but the cuts were avoided in a last-minute budget deal under a complicated financing structure.

Jindal’s strong fiscal record is partly undercut by Louisiana’s generous economic development programs, i.e., corporate welfare. Jindal helped expand the state’s wasteful film tax credit program. In 2013, the state wasted $250 million on the program, which is one of the largest film giveaways in the nation. The state offsets 30 percent of the cost of film production expenses. An episode of Duck Dynasty, the popular television show, represents $330,000 in tax credits to its production company. His administration also gave $36.5 million to the New Orleans Hornets, the professional basketball franchise, to encourage them to stay in New Orleans through the 2024 season. According to research from the Commonwealth Foundation in Pennsylvania, Louisiana was fourth in state economic development spending from 2007 to 2014.

Louisiana general fund spending has fallen during Bobby Jindal’s tenure as governor. At a time when states were increasing spending, Jindal instituted reforms that cut the state workforce and lowered per capita spending. This feat makes Jindal unique among Republican contenders for the presidency.


A ruling for the challengers in King v. Burwell would have benefits that swamp other effects of the ruling, including:

  • More than 67 million Americans would be freed from illegal taxes in the form of ObamaCare’s employer mandate.
  • More than 11 million Americans would be freed from an illegal tax averaging $1,200 (i.e., ObamaCare’s individual mandate).
  • Affected workers could receive a pay raise of around $900 per year.
  • The ruling could create an estimated 237,000 new jobs.
  • It could add an estimated 1.3 million workers added to the labor force.
  • It could result in more hours and higher incomes for 3.3 million part-time workers.

The number of people who could benefit from a ruling for the challengers is, therefore, more than ten times the number who would lose an illegal subsidy. And, as discussed here, the pool of people who need such subsidies may be as small as one-tenth the number receiving them.

Click here for state-by-state data on the number of employers and taxpayers who would benefit from King v. Burwell.

Europe is at risk from Russia, we are told. But no one in Europe seems to care. Even the countries supposedly in Vladimir Putin’s gun sites aren’t much concerned.

Even if Russia threatens the continent, the Europeans don’t plan on defending themselves. Instead, virtually everyone expects America to save them, if necessary. Washington is being played for a sucker as usual.

Defense Secretary Ashton Carter recently announced that the United States. will contribute aircraft, weapons, and personnel to the “Very High Readiness Joint Task Force.” That’s not all. Separately, the Obama administration plans to pre-position tanks and other equipment for a combat brigade in Eastern Europe.

Carter explained that Washington was acting “because the United States is deeply committed to the defense of Europe, as we have for decades.” America is more committed to Europe than are Europeans.

The Europeans scrimp on the military while funding their generous welfare state. They promise Washington whatever it desires—and then go back to doing what they do best, depending on America.

NATO always stood for North America and the Others. During the Cold War, the allied states shamelessly took a very cheap ride on the United States.

The problem has gotten worse in recent years. The United States accounts for three-quarters of NATO outlays even though Europe has a larger GDP than America. Of 28 members, only the United States, Great Britain, and Greece typically broke the officially recommended level of two percent of GDP. Estonia has become a member of that exclusive club. After frenetically demanding that the United States do more, Poland only hit that mark this year. But several members have been cutting outlays.

Of the five largest European defense budgets, only France’s will increase. Those of Canada, Germany, Great Britain, and Italy will continue to decline. None of these countries will hit the recommended two percent of GDP level in 2015. Cooperation is poor even among those most at risk.

Never mind the events of the last year. “It is much more business as usual,” said British defense analyst Ian Kearns. As of 2013, the Europeans devoted just 3.6 percent of their governments’ budgets to the military, compared to a fifth of U.S. government spending. America’s per capita military outlays are five times that of the alliance’s Cold War members and eight times that of those states which joined later.

The issue is more than just money.

“Make no mistake: we will defend our allies,” declared Carter. But will the Europeans defend anyone, even themselves? A new poll suggests not.

The Pew Foundation recently surveyed eight leading NATO countries: If Russia got into a conflict with another member of NATO, should your country use military force in the victim’s defense? A majority of French, Germans, and Italians said no. Only pluralities said yes in Poland, Spain, and the United Kingdom. (Yet Poland is insisting that everyone else defend it!) Only in America, naturally, and Canada did a majority say yes.

Yet why should the Europeans take action as long as they believe they can count on Washington to save them? According to Pew, two-thirds of Europeans were convinced the Americans would come rushing over to do what they would not do for themselves.

It’s time to change that. The Cold War is over. Moscow is an unpleasant actor, not a global threat.

Europe has a much larger GDP and population than Russia and even with its current anemic level of military outlays devotes more to defense. The U.S. government is essentially bankrupt, with far greater unfunded liabilities than the Europeans, despite Greece’s travails.

As I argue in Forbes: “Instead of pouring more resources into NATO, Washington should disengage militarily, turning leadership of the alliance and responsibility for defending the continent over to Europe. Americans shouldn’t protect their rich cousins even if the latter were devoted to protecting each other. That the Europeans expect the U.S. to do their job is yet another reason for Americans to say no more.”

Over the last couple weeks, the Thomas B. Fordham Institute has been holding its second annual Wonk-a-thon. In the wake of Nevada enacting a groundbreaking, nearly universal education savings account (ESA) law, Fordham asked practitioners, scholars, and policy analysts what Nevada must “get right in order to provide positive outcomes for kids and taxpayers.”

Readers can vote for the wonk who offered the wisest analysis here. For a summary of the various recommendations, see here.

ESAs have the potential to radically remake the education landscape. Rather than choose just a single school, parents can use ESA funds for a variety of educational goods and services. Students may spend part of a day in a classroom, part on a computer, and part with personal tutors. Someday, students may even learn in “education malls” where they will choose from among numerous education providers for each subject, each with a different approach or focus. Or perhaps there will be explosive growth in full or partial homeschooling or blended learning. Frankly, we cannot predict with any certainty how education will change over the next few decades in a robust market.

In another sense, though, ESAs aren’t radical at all. They only appear so because the K-12 education system is so radically at odds with the rest of American life—a fact that escapes notice only because we are so accustomed to the status quo. No other good or service in American life is so widely subsidized by the government and assigned to citizens based on the location of their homes. The very presence of publicly subsidized schools crowds out the vast majority of providers who would exist in a market system, leaving only niches like religious schools or schools for the elite. ESAs would merely create space for the market that the government has crowded out.

But what should the government’s role be in that market? As I detail at Jay P. Greene’s blog, the Wonk-a-thon participants differ considerably on this question.

Some (myself included) argue the state government should ensure that the taxpayer money is being spent only for eligible expenses, but should refrain from trying to assess the quality of different education providers. There is a legitimate difference of opinion about what should be taught and how it should be taught, so assessing educational quality should be left to private organizations.

Others have argued the state should take a more active role in assessing and even mandating quality. One wonk went so far as to recommend that the state “set a high bar for the quality of services offered by providers” and “eliminate providers who consistently fail to meet the mark.” Another claimed that “no one but the purest Friedmanites think that the magic hand of the market will automatically lead to better outcomes.” Of course, there’s nothing “magic” about the “invisible hand” of the market – it’s just a metaphor Adam Smith used to describe the process of spontaneous order, by which the voluntary actions of disparate individuals organically form a system that is the result of human action, but not human design.

So how does the market “magically” provide quality? Imagine you’re looking for a new dishwasher. As an average consumer, you know nothing about the mechanics involved in making a dishwasher, so the dishwasher manufacturers and retailers have a great advantage over you. Fortunately for you, without any government mandate, numerous organizations took it upon themselves to help you overcome this information asymmetry and ensure product quality. Some, like Underwriters Laboratories, provide private certification for dishwashers that meet their standards. Others, like Consumer Reports, provide expert reviews of hundreds of dishwashers and rate them on five criteria. And still others, like Amazon, offer a platform for consumers to rate and provide feedback about dishwashers based on their personal experience.

In these ways, the market spontaneously channels expert knowledge and user experience to provide would-be consumers with needed information. It’s a messy process but, as scholars from the Mercatus Center at George Mason University show in a recent paper, it works better than having a Ministry of Dishwasher Quality define what makes a “quality” dishwasher and force all manufacturers into compliance: 

Regulatory measures such as food labels or product safety warnings may seem like fail-safe mechanisms to correct information-based uncertainty. Regulations, however, are not as effective as market solutions, and may harm consumers instead of helping them. Regulators can be influenced by regulated industries, erecting barriers to keep out new competition, stifling innovation, and imposing higher prices and reduced quality on consumers. By making it more difficult to do business, regulations can have the unintended consequence of entrenching already-established businesses while closing the market to entrepreneurs with innovative ideas.

Still, one might object that just because the market can overcome the information asymmetry problem doesn’t mean it will. Why should we have any confidence that these solutions will emerge? In short, as economist Steve Horwitz explains, overcoming the information asymmetry barrier is in the interest of both buyers and sellers:

Consumers want a way of knowing that they are getting products that won’t explode, mechanics who know their stuff, and scuba instructors who won’t get them killed (not to mention gear that won’t leak). Sellers want to be able to signal to potential buyers that their products and services are of high quality. Solving this problem requires an independent intermediary such as these certification organizations, and sellers are glad to pay to acquire the signal of certification. The certifiers are happy to provide it, and most (though not all) are run as private nonprofits to alleviate any concern about conflicts of interest.

What is also important here is that there is genuine competition via freedom of entry into the certification business. Certification organizations cannot afford to make mistakes since there’s nothing preventing either an existing competitor or new entrant from offering a higher quality alternative. Even if there is no actual competitor at any given time, the threat of competition via new entrants, and consumers’ and sellers’ option to “exit” and use that new firm, keep established certifiers on their toes.

Parents want a way of knowing that their children will receive a high-quality education. Likewise, schools and other education providers want to be able to signal to parents that they are offering a high-quality education. What has been missing until now is robust competition because the fully subsidized government schools have crowded out most would-be competitors. Education savings accounts have the potential to rectify that, if bureaucrats stay out of the way.