Cato Op-Eds

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

The Trump administration will highlight its infrastructure agenda this week. As outlined in its recent budget, the administration plans to reduce regulations on construction projects and attract private investment to traditionally government activities, such as air traffic control (ATC).

Trump will “deliver remarks in the White House Rose Garden about his vision for separating air traffic control from the federal government,” and Transportation Secretary Elaine Chao will testify to Congress on the issue. The administration has just released principles for ATC reform.

The Hill says that ATC reform has run into a “buzz saw of opposition on Capitol Hill,” but that is not a fair characterization. There is always opposition to any legislation that reduces the government’s role in anything. That’s Washington. But ATC reform has momentum, and a bill has been passed out of the House transportation committee to move ATC operations from the bureaucratic Federal Aviation Administration (FAA) to a private, nonprofit corporation.

The airlines are for it, the key labor union is for it, aviation experts are for it, and the second-largest nation on earth did it. Canada privatized its system in 1996, and today the nonprofit Nav Canada is on the leading edge of ATC efficiency and innovation. The image below shows Iridium satellites that will form the basis of an advanced navigation system for aircraft called Aireon. Nav Canada leads the revolutionary project in an international partnership—a partnership that does not include the FAA. The system will generate “more efficient use of airspace, substantial fuel savings, fewer delays and significantly enhance safety over large parts of the world.”

What is the opposition The Hill refers to? The corporate jet lobby—the National Business Aviation Association (NBAA)—is against reform, and it raises the spectre of higher fees under a privatized system. But aircraft charges under the privatized Canadian system have fallen, not risen. The latest data show that “Nav Canada has seen its inflation-adjusted user fees fall 45 percent lower than the aviation taxes they replaced,” notes Marc Scribner of CEI.

The opposition of NBAA’s leadership to reform is short-sighted. Over the long term, NBAA members will be best served by an advanced and dynamic private ATC system, not one mired in bureaucracy and unstable government funding. NBAA members should research the successful Canadian reforms themselves because the record is clear.

Kudos to President Trump and Secretary Chao for rebuffing the special interests on this issue, and pursuing reforms to the overall benefit of the aviation industry and flying public.

For an overview of ATC reform, see here. For Reason’s resources on the issue, see here.

I recently questioned two connected remarks by Wall Street Journal reporter Richard Rubin that (1) “Each percentage-point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade” and that (2) “independent analyses show economic growth can’t cover all the costs of rate cuts.”

That first remark–about each percentage-point reduction in the rate losing $100 billion over a decade–is an interpretation of pages 178-79 from a Congressional Budget Office (CBO) report on “Options for Reducing the Deficit.”

But the CBO was just talking about raising the corporate rate by one point, not cutting it 10-20 points. That can’t be converted into a rule of thumb because each percentage point reduction in the top corporate tax rate can’t lose the exact same amount of dollars. A percentage point reduction in a 35% rate loses more static revenue than a percentage point reduction in a 30% rate, which loses more than a percentage point reduction in a 25% rate, and so on. 

Yet even for a single percentage point, I called the $100 billion 10-year projection a “bad estimate” because it assumes zero change in the economy and zero change in tax avoidance (“elasticity”).

The Table compares the CBO/JCT static estimates of what might happen with a percentage-point increase in the corporate tax rate to their baseline “projections” of what corporate revenues might look like under current tax law, assuming 1.9% GDP growth. The line below the baseline adds static estimates (“from the staff of the Joint Committee on Taxation” or JCT) of the revenue gain from raising four graduated corporate tax rates from 15-35% to 16-36%. 

The average tax rate is below the top marginal rate because of reduced 15-25% rates on small profits, credits for foreign taxes, deferral of taxes on unrepatriated foreign profits, and deductions for interest and business expenses. Goldman Sachs estimates the average tax as 28% under current law and 24% (not 20%) under the Ryan-Brady tax.

If the average tax is 28% then a 1 percentage point increase in all four marginal rates might be expected to raise static revenue by about 2.8%. Sure enough, JCT claims a 1 percentage point increase in corporate rates would eventually raise revenues by roughly 2.8%, suggesting those estimates entirely staticThat is, they assume zero impact on GDP and zero elasticity of taxable income.

Despite publishing these static revenue estimates, the CBO analysis does a good job of explaining why they are seriously flawed. Bad bookkeeping is no substitute for good economics.

What follows is the CBO analysis of the economics of a higher corporate tax rate, with emphasis added in bold:

Increasing corporate income tax rates would make it even more advantageous for firms to organize in a manner that allows them to be treated as an S corporation or partnership…. Raising corporate tax rates would also encourage companies to increase their reliance on debt financing because interest payments… can be deducted…. Moreover, the option [of raising the tax rate] would discourage businesses from investing, hindering the growth of the economy.

Higher rates in the United States influence businesses’ choices about how and where to invest; to the extent that firms respond by shifting investment to countries with low taxes as a way to reduce their tax liability at home, economic efficiency declines…. The current U.S. system also creates incentives to shift reported income to low-tax countries without changing actual investment decisions. Such profit shifting erodes the corporate tax base and requires tax planning that wastes resources. Increasing the top corporate rate to 36 percent (40 percent when combined with state and local corporate taxes) would further accentuate those incentives to shift investment and reported income abroad.

How could all of those changes possibly fail to affect the amount of revenue collected?

Hindering growth of the economy by discouraging business investment reduces revenue. Shifting reported income into other countries and into pass-through entities erodes the tax base and reduces revenue. Increasing debt and other deductible expenses (fancier offices and lunches) reduces revenue. Yet the static revenue estimates in the Table obviously take none of this into account–ignoring both macroeconomic effects of higher tax rates on investment and GDP growth and microeconomic “elasticity” effects on tax avoidance.

Since the CBO explains how and why a higher corporate tax rate has numerous adverse effects on revenues, it follows that a lower corporate tax rate has numerous beneficial effects on revenues. In fact, the CBO analysis explains quite well why CBO/JCT estimates of the effects of a lower corporate tax rate on revenues are worthless.

Richard Rubin wrote that “independent analyses show economic growth can’t cover all the costs of rate cuts.” But the estimates in the Table, which he cites, pretend economic growth can’t cover a single dollar of those badly estimated costs. Besides, as the CBO explains, the effect of tax rates on revenues involves much more than just economic growth.

Tax Foundation economist Alan Sloan figures that “for a corporate income tax cut to 15 percent to be self-financing [over 10 years], it would have to raise the level of growth to 2.8 percent on average,” or 0.9% faster than the 1.9% the CBO projects. A 2.8% growth rate doesn’t seem ambitious compared to the 1947-2006 average of 3.6%. Yet the Tax Foundation “model predicts something more like 0.4 percent over the budget window: a sustained period of 2.3 percent growth instead of 1.9 percent growth.”

This is an example of what Mr. Rubin meant by independent analysts predicting that “economic growth can’t cover all the costs.” Yet faster economic growth would cover nearly half the cost, in Sloan’s estimation. CBO/JCT static revenue estimates, by contrast, always assume no effect at all. Whether tax rates are doubled or cut in half, JCT revenue estimates will pretend GDP growth remains unchanged.

Tax Foundation estimates of the revenue feedback from faster GDP growth are a huge improvement over static JCT estimates, yet they too remain incomplete. They do not account for microeconomic “elasticity of taxable income” of the sort the CBO wrote about–such as shifting income and/or investment abroad, setting up pass-through entities, and maximizing deductions for interest and office expenses. 

My previous blog noted that Treasury Department economists find the elasticity of corporate taxable income is 0.5 for smaller corporations, so when the tax rate goes down reported taxable income goes up. A paper for the Center for European Economic Research finds a higher 0.8 elasticity for multinationals: “Hence, reported profits decrease by about 0.8% if the international tax differential [e.g., between U.S. and foreign rates] increases by 1 percentage point.”

Lowering the super-high U.S. corporate tax rate will not reduce revenues from corporate and other taxes by nearly as much as crude rules of thumb may suggest, if revenues decline at all. And the reason is not entirely the result of greater investment, entrepreneurship, and economic growth, but also a reduction in myriad wasteful ways of avoiding this country’s uniquely dispiriting business tax.

Whether people in a society think that most others can be trusted seems to predict many positive social and economic outcomes. A common criticism of liberalized immigration is that the newcomers come from societies with low trust, so they might bring their low-trust attitudes with them, pass them on to their descendants, and leave our society with less trust, potentially reducing future economic growth.

Economist Bryan Caplan ran a recent exercise showing that immigrants and their descendants make substantial gains in trust, virtually assimilating by the second generation. In a similar vein, my research shows that trust levels among the second-generation are basically the same as Americans whose ancestors have been here for at least four generations according to survey responses on three related questions. 

Caplan’s post provides a possible answer to the oddest question raised in my post: Why do third-generation Americans have the highest trust scores? Based on cliometric research, Caplan argues that the descendants of slaves in the United States have far lower levels of trust, similar to how African societies that were most afflicted by the slave trade have enduringly low trust rates today. All of the descendants of slaves in the United States have ancestors who arrived on our shores more that four generations ago, as legal slave importation ended in 1808. 

Excluding black respondents from the General Social Survey (GSS) on the question “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in life?” does improve trust for Americans who can trace their lineage in the United States back at least four generations (all of their grandparents were born in the United States), but the biggest trust improvement is for the immigrants themselves. I limited my sample to the years 2004 to 2014 to focus on more recent immigrants. Figure 1 presents my original findings that include respondents of all races. Figure 2 excludes all black respondents. 

Figure 1

Trust, Respondents of All Races Included, Years 2004-2014

Source: General Social Survey.

Figure 2

Trust, Black Respondents Excluded, Years 2004-2014


Source: General Social Survey.

When black respondents are excluded, “can trust” for Americans whose descendants have been here at least four generations goes from 32.7 percent to 37 percent while “cannot trust” drops from 62.7 percent to 58.1 percent. The answer “depends” shrinks the most from 8.5 percent to 1.2 percent. For immigrants, the “can trust” response shoots up from 22.6 percent to 36.1 percent while “cannot trust” drops from 68.9 percent to 62.7 percent. The GSS survey question shows that non-black immigrants have trust scores about the same as Americans whose grandparents were all born in the United States.

As part of its 2018 budget proposal, the Trump administration has introduced a plan to improve the nation’s infrastructure. The administration intends to reduce regulatory barriers on infrastructure projects and encourage greater private investment. It has also proposed increasing federal spending on infrastructure by $200 billion over 10 years.

A new Cato study provides input to the debate by examining infrastructure ownership and funding. Some people assume that the federal government plays the main role in infrastructure, but the states and private sector own 97 percent of U.S. nondefense infrastructure, and they fund 94 percent of it.

However, the federal government is the tail that wags the dog—its regulations, taxes, and subsidies affect the level and efficiency of state, local, and private infrastructure investment. The study argues that reforms to these federal interventions and privatization are the paths to higher-performance infrastructure.

President Trump’s decision to withdraw from the Paris Climate Accord was the latest in a steadily expanding list of actions that highlight his contempt for multilateral diplomacy in U.S. foreign policy. This does not mean that Trump is an isolationist. He clearly favors bilateral engagement with other countries and doesn’t mind using American military power to wage war in the Middle East and apply pressure to North Korea. The question is, what does Trump’s withdrawal from the Paris agreement mean for other areas of multilateral engagement?

A preference for bilateral over multilateral diplomacy may be appropriate in some cases, but the bilateral approach is not ideal for combating, for example, nuclear proliferation. Trump’s disdain for multilateral diplomacy is especially worrisome when combined with the deepening militarization of U.S. foreign policy. These two emerging trends simultaneously endanger the Iran nuclear deal, a major success for multilateral diplomacy and nuclear nonproliferation, while increasing the probability of armed conflict should the deal fail.

The Iran deal is a triumph of multilateral diplomacy, involving the United Nations’ Permanent Five (United States, United Kingdom, France, Russia, and China), Germany, and the European Union. This level of international involvement enhances both the legitimacy and strength of the agreement, which Iran has complied with since implementation began in January 2016. If the Trump administration wants to successfully renegotiate the deal, it would need the buy-in of the partner countries, a condition that becomes harder to achieve as Trump alienates many of our Iran deal partners with actions such as withdrawing from the Paris Climate Accord.

If Trump truly wants to renegotiate the Iran deal (and not just unilaterally withdraw from it), then he will need the support of the very countries that he is repeatedly frustrating with his characteristically undiplomatic actions on the world stage.

The other major nuclear challenge facing the Trump administration is North Korea. So far, the administration has tried to rein in the North’s nuclear weapons and ballistic missile programs through shows of military force and sanctions. Trump also wants China to do more to pressure North Korea. Pyongyang does not seem deterred by this approach. While there has not been a nuclear weapons test since Trump took office, there has been a steady march of successful ballistic missile tests and Kim Jong Un continues to place great value in his nuclear arsenal.

A multilateral diplomatic approach failed to bring North Korea to heel in the 2000s, so it makes sense that Trump would not place much confidence in a similar approach today. The administration has made no serious overt attempt at multilateral diplomacy besides introducing new sanctions via the United Nations. If the current approach of pressure fails to halt North Korea’s progress, the administration could choose to double down on their approach or try a different strategy that makes greater use of multilateral diplomacy. Trump’s aversion to multilateral diplomacy suggests that the administration is primed to keep ratcheting up pressure rather than change course.

While this latest withdrawal from a multilateral initiative is not the end of the world, it arguably has worrisome implications for nuclear nonproliferation. Multilateral cooperation is not necessary to solve every foreign policy problem, but it is incredibly valuable for preventing the spread of nuclear weapons. The sooner Trump and his advisors realize this, the better. 

In response to the U.S. withdrawing from the Paris climate treaty, I’ve issued the following statement:

The Paris climate treaty is climatically insignificant. EPA’s own models show it would only lower global warming by an inconsequential two-tenths of a degree Celsius by 2100. The cost to the U.S. – in the form of required payments of $100 billion per year to the developing world – is too great for the inconsequential results. These very real expenses will consume money that could be used by the private sector to fund innovative new technologies that are economically sound and can power our society with little pollution.

Because of our private investments in technological innovation, America leads the world in reducing carbon dioxide emissions from power plants. We did that without Paris, and we will continue our exemplary leadership without it.

While Paris will be with us for the near future as the process of withdrawing transpires, this is a step in the right direction. If you’d like to read more on the science behind Paris, take a look at this recent piece I wrote for The Hill, called “The Scientific Argument against the Paris Climate Agreement.”

The Supreme Court issued a ruling this week in the case of County of Los Angeles v. Mendez.  The case involved a police shooting and the ruling involves some technical legal analysis regarding the proper application of prior Supreme Court precedents.  In this post I want to take a step back from the technical legal discussion and highlight the facts of the case, which are quite sad.

In October 2010, Angel Mendez and his then pregnant girlfriend, Jennifer Garcia, were dirt poor.  They lived in a one room shack, made of plywood, in the backyard of a home owned by Paula Hughes in Lancaster, California.  On the awful day in question, the couple were not bothering anyone.  They were actually napping in their tiny shack when their world was suddenly shattered.

Without any announcement at all, a police officer entered the shack.  Startled, Angel got up and grabbed a BB gun that he kept in the shack to kill rodents and other pests.  The deputy then yelled “Gun!” to alert his fellow officers of potential danger.  In a moment, several police officers entered and opened fire, discharging a total of 15 rounds.  Both Angel Mendez and Jennifer Garcia were shot “multiple times and suffered severe injuries.”  Mr. Mendez’s right leg had to be amputated below the knee.

Two people minding their own business and in just a few moments, the police are shooting at them.  The police did not accuse them of violating any law. They were totally innocent.

Since Angel and Jennifer Mendez (they were subsequently married) knew they had done nothing wrong, they filed a lawsuit against the police officers and the police department. The government’s response was that it was just a tragic accident and no one was really to blame.  Since the BB gun resembled a real rifle, the deputies acted reasonably under the circumstances.

The Supreme Court, as noted above, addressed certain Fourth Amendment precedents that had been in place in the lower federal court, and remanded the case for further proceedings.  It remains to be seen whether the couple will receive the $4 million in damages that the district judge awarded, or whether that legal win will be reversed.  

It is worth noting here that the case does not have to run its course thru additional legal proceedings.  A just government would never have waited for a lawsuit to be filed.  An apology and a lavish settlement offer would have been quickly forthcoming.  The County of Los Angeles can still do the right thing.  Rein in the county lawyers and agree to the $4 million in money damages that the federal district court previously awarded to Angel and Jennifer.

That would be a decent outcome for the Mendez family, to the extent that money can address such a horrific episode.

In our recent American Banker opinion piece, Heritage’s Norbert Michel and I argue that, if the Fed is really serious about shrinking its balance sheet, it had better quit paying interest on banks’ excess reserves (IOER) as well. How come? Because the current, relatively high IOER rate  is contributing to a strong overall demand for excess reserves, while a shrunken Fed balance sheet will mean a reduced supply of reserves. Reducing the supply of reserves while doing nothing to reduce banks’ demand for them is a recipe for demand-driven deflation, which is a monetary policy no-no.

Predictably (because it has happened every time I write on this topic) our article generated several comments to the effect that we didn’t know what we were talking about, because banks couldn’t possibly prefer the meager 100 basis points they can earn by holding reserves (or something less than that, if they are obliged to pay FDIC premiums) to the far greater amount they can earn by making loans.

The remarkable thing about these criticisms is that they all appear to deny that banks (or some banks, in any event) are in fact sitting on large amounts of excess reserves, and that they are, to that extent, settling for a return on those reserves of 100 basis points or less, instead of swapping reserves for other assets.

“For a bunch of ‘smart guys,” our first commentator writes,

these fellows don’t understand how banking works. 10 times out of 10 a bank would rather make a loan than have the funds parked at the Fed. Of course the loans have to be of the quality that the bank would expect the borrower to be able to repay the loan.

So far as the evidence up to October 2008 is concerned, our commentator is on solid ground, for until then banks did in fact prefer making loans to holding reserves 10 times out of 10. But that has manifestly not been the case since since October 2008, which happens to be when the Fed started paying IOER. Since then, as the figure below, comparing commercial banks’ loans and leases to their total deposits and Fed reserve balances, shows, the odds that a bank would rather make a loan than park funds at the Fed have been closer to 8 to 10:

Although our friend Chris (“r.c.”) Whalen, a highly-regarded bank consultant, is at least aware that reserves now make up a substantial share of commercial banks’ assets, he denies that this has anything to do with the fact that those reserves now yield a positive (if seemingly modest) return.

Whalen’s brief comment consists of two parts. The first, declaring that “The Fed is not paying banks not to lend. It prices the rate for excess reserves and Fed funds at a margin designed to preserve balance,” strikes me as nothing more than an exercise in empty semantics. Whatever “balance” the Fed may be trying to strike, the fact remains that it involves a substantial increase in banks’ overall demand for excess reserves. And if paying 100 basis points instead of zero doesn’t make reserves more desirable, and all the more so when rates are generally low, then it is time for us economists to toss-away everything we thought we knew about the workings of supply and demand.

The rest of Whalen’s comment is more substantial. “Even if you ended paying interest on excess reserves,” he observes, “the totals would not move because they are ultimately tied to a purchase of securities by the FOMC.” More substantial, but still wrong. As I tried to make explain in a previous Alt-M article, although the Fed’s security purchases largely determine the total outstanding quantity of bank reserves (and currency), those purchases  don’t determine banks quantity of excess reserves, which depend on what banks choose to do with reserves that come their way.

The point is perhaps best illustrated by looking at statistics from before 2008. Back then, banks hardly held any excess reserves; yet ongoing Fed security purchases (and sales) caused the total quantity of reserves to vary considerably, at least by pre-2008 standards:

Again, for emphasis: the size of the Fed’s balance sheet determines the quantity of total, but not excess, reserves. If excess reserves increase along with total reserves, as they have tended to do since the fall of 2008, that’s because banks have found it worthwhile to accumulate excess reserves, and not because they could not possibly get rid of them.

The last comment on our piece is by Wayne Abernathy, the ABA’s Executive VP for Financial Institutions Policy and Regulatory Affairs. In full it reads,

A major problem with the authors’ theory is the assumption that banks prefer to place money at the Fed rather than lend it out. In fact, banks would rather receive the 3.19% margin that they get on loans than the net 60 or 70 basis points that they get from the Fed. Loan demand, while growing, is not yet vigorous enough to absorb the flood of deposits that banks are still receiving. The banks’ choice is place the excess deposits with the Fed or tell their depositors “no thank you.”

In referring to “60 or 70” rather than 100 basis points as the net return on reserves, Abernathy evidently has domestic U.S. banks in mind, since U.S. branches and agencies of foreign banks, being exempt from FDIC charges, earn their 100 basis points free and clear. Pointing this out isn’t nit-picking, because  foreign banks have been holding a very large share of all outstanding excess reserves, in part precisely because reserves yield more to them than to their domestic counterparts. But the more important point is that, so far as both these foreign banks and the (mostly very large) U.S. banks holding large amounts of excess reserves are concerned, holding Fed balances is in fact more profitable, at the margin, than lending the funds those balances represent.

Evidently, so far as these banks are concerned, the relevant net margin isn’t 3.19%. So what is it? First of all, margins for the largest U.S. banks and foreign bank branches and agencies, which are the ones holding most of the reserves, are much lower than that for U.S. banks as whole. Although the FRED database doesn’t supply separate net interest margin data for the very biggest U.S. banks (instead it gives the margin for banks of over $15 billion in assets, which is not high enough for the purpose), it does report the margin for New York banks, which is a better though still rough proxy.  Here’s a chart comparing that measure to net interest margins for U.S. banks as a whole, and also to margins for banks in the Euro area, which are available in FRED only until 2014:

Evidently, if you are a New York bank, or a branch of a European bank, your idea of a decent net lending margin is, not 3.19%, as it might be for a “typical” U.S. bank, but something closer to 2% or (for the foreign banks) 1.5%.

In fact, many foreign banks found it profitable to acquire and retain excess dollar reserves for the sake of earning the modest spread between the risk-free IOER rate and lower effective Fed Funds and private repo rates. We know that, because they’ve been arbitraging that difference for some time. Foreign central banks, in the meantime, have been parking money at the Fed through its reverse-repo facility, which allows them to arbitrage the spread between what the facility pays and rates on short-term  T-bills. Before the Fed began paying banks to keep balances with it, these arbitrage opportunities simply didn’t exist.

The 3.19% margin to which Mr. Abernathy refers would, in any event, be irrelevant allowing, as he does, that the demand for loans is  not “vigorous enough” to actually support it! Here it’s worth keeping in mind that, whereas the demand schedule for bank reserves is, in effect, a horizontal line at whatever rate the Fed is paying, the  demand schedule for loans slopes downward. Assuming a state of equilibrium, banks have already expanded their loan portfolios to the point where the net loan margin, whatever its value may be for banks’ entire loan portfolio, is no higher at the margin than the IOER rate. Beyond that, reserves dominate loans. In equilibrium, in other words, parking another dollar at the Fed pays more than lending it does. Were IOER reduced to zero again, on the other hand, banks would once again find lending more profitable than reserve-hoarding, and they would continue to make loans until the net margin on them (the marginal net margin, that is!)  itself approached zero.

In case it helps, here is a picture of what I just said:

In the picture, the blue line is the (downward-sloping) demand schedule for bank loans, while the orange and grey lines are the Net Interest Margin for all bank loans and the IOER rate, respectively. The picture assumes a given level of total bank deposits, here set equal to $10 trillion. The vertical red line shows equilibrium quantity of bank loans with IOER=1, while the vertical green line shows the equilibrium quantity with IOER=0.  The numbers are, of course, only meant to be suggestive.  Since banks can’t dispose of reserves (though they can dispose of excess reserves by creating more deposits), a reduced IOER rate would in practice lead, other things equal, to growth in the level of both loans and deposits.

For those who continue nonetheless to doubt that the IOER rate has much bearing on banks’ demand for excess reserves, I offer, as a final exhibit, and without commentary, one last chart, this time comparing the difference between the IOER rate and the LIBOR rate, which I treat as a measure of the relative yield on reserves, to the overall ratio of reserves to commercial bank deposits:

[Cross-posted from]

Stream Energy is a retail gas and electrical energy provider whose business model allows prospective salesmen to purchase the right to sell its products and to recruit new salesmen. In 2014, some former salesmen brought a class-action lawsuit against Stream for fraud, alleging that the company’s business model constituted an illegal pyramid scheme.

But unusually for a fraud claim, the plaintiffs argued that they didn’t need to identify any specific misrepresentations made by Stream that might have convinced particular class members to become salesmen. Instead, the plaintiffs claimed that simply offering membership in an illegally structured business would be fraud in and of itself, even if people joined with full knowledge of all risks and benefits.

A federal district court in Texas certified the class, so Stream appealed that decision to the U.S. Court of Appeals for the Fifth Circuit. A three-judge panel reversed the district court, holding that a class could not be certified because each plaintiff must individually prove that he was subject to a misrepresentation. But the entire Fifth Circuit then reheard the appeal and ruled for the plaintiffs. The court didn’t rule on whether Stream was in fact engaged in an illegal pyramid scheme, but did affirm the class certification, accepting the plaintiff’s theory that a single proof of illegal structuring would prove a fraud against every one of Stream’s salespeople.

Stream has asked the Supreme Court to review this last question, and Cato has filed an amicus brief supporting that petition. In our brief, we explain why it is dangerous to hold that someone can be liable for fraud without ever having made a misrepresentation. Reasonable judicial limitations on liability are essential to protecting the personal autonomy of all parties in a case.

In the fraud context, the key inquiry has always been whether the alleged fraudster made a specific misrepresentation on which someone actually relied to her detriment. To be liable for someone else’s losses, not only must a particular misrepresentation have been made, but it must have been the direct or “proximate” cause of those losses. By abandoning this proximate-cause rule and holding that misrepresentation isn’t necessary for potential fraud liability, the Fifth Circuit removed an important check on liability.

If individual reliance on a misrepresentation need not be proven, savvy investors may search out multi-level marketing programs, knowingly put their money in such risky ventures, and then sue for fraud if their investment doesn’t yield a profit. This significantly increases the likelihood of improper class-action lawsuits—potentially subjecting undeserving defendants to crushing liability.

Instead of that uncertainty, businesses should instead be secure in the simple legal rule that has worked for centuries: if you don’t want to be liable for fraud, don’t lie about what you’re selling.

The Supreme Court should take the case of SGE Management v. Torres and ultimately reverse the Fifth Circuit.

What some doctors say about regulating the treatment of sepsis has much broader application. Sepsis, an often lethal reaction to infection sometimes called blood poisoning, is the leading cause of death in hospitals, Richard Harris reports for NPR. Understandably, then, some doctors and regulators have a typical reaction: “A 4-year-old regulation in New York state compels doctors and hospitals to follow a certain protocol, involving a big dose of antibiotics and intravenous fluids.”

Other doctors aren’t so sure about the rush to regulation. 

Dr. Jeremy Kahn at the University of Pittsburgh believes that regulations can prod doctors to follow the latest protocol. But “The downside is that a regulatory approach lacks flexibility. It essentially is saying we can take a one-size-fits-all approach to treating a complex disease like sepsis.” Harris continues:

That’s problematic, because doctors haven’t found the best way to treat this condition. The scientific evidence is evolving rapidly, Kahn says. “Almost every day another study is released that shows what we thought to be best practice might not be best practice.”

Kahn wrote a commentary about the rapid changes earlier this month for the New England Journal of Medicine.

For a while, medical practice guidelines distributed to doctors called on them to use one particular drug to treat sepsis. It turned out that drug did more harm than good. Another heavily promoted strategy, called goal-directed therapy, also turned out to be ineffective.

These are concerns that economists often raise about regulation: that government mandates may be rigid, inflexible, and frozen in time. They don’t change easily in response to new information. They may require a specific protocol that may turn out not to be the best practice:

And a study presented last week at the American Thoracic Society and published electronically in the New England Journal of Medicine finds that one of the steps required in New York may not be beneficial, either.

The regulations call for a rapid and substantial infusion of intravenous fluids, but that didn’t improve survival in New York state hospitals….

In fact, some doctors believe that most patients are better off without this aggressive fluid treatment. There’s a study getting underway to answer that question. Dr. Nathan Shapiro at Harvard’s Beth Israel Deaconess Medical Center hopes to enlist more than 2,000 patients at about 50 hospitals to answer this life-or-death question.

But that study will take years, and in the meantime doctors have to make a judgment call.

“It is possible that at present they are requiring hospitals to adopt protocols for fluid resuscitation that might not be entirely appropriate,” Kahn says.

Somehow this reminds me of the phenomenon noted in the 1980s when Canada banned cyclamates and the United States banned saccharin. Presumably one country had banned the less dangerous sugar substitute.

Economists Gerald P. O’Driscoll Jr. and Lee Hoskins wrote about the problems with regulatory mandates in 2006:

Coercion may bring uniformity of product or conduct, but only at the expense of innovation and flexibility. Merchant law suffered when the hand of the state took it over: “Many of the desirable characteristics of the Law Merchant in England had been lost by the nineteenth century, including its universal character, its flexibility and dynamic ability to grow, its informality and speed, and its reliance on commercial custom and practice” (Benson 1989: 178).

Markets excel in adapting to changing circumstances, while legislation and government regulation are notoriously rigid. That is perhaps the strongest case for market self-regulation over government-mandated regulation.

Regulation seems to substitute the judgment of a small group of fallible politicians or bureaucrats for the results of a market process that coordinates the needs and preferences of millions of people. It sets up static, backward-looking rules that can never deal with changing circumstances as well as voluntary decisions by people on the ground, whether entrepreneurs, customers, scientists, or doctors.

Greater reliance on user fees, federal loans rather than grants, and corporatization are three keys to the Trump administration’s infrastructure initiative released as a part of its 2018 budget. The plan will “seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained,” says the six-page document. More federal funding “is not the solution,” the document says; instead, it is to “fix underlying incentives, procedures, and policies.”

In building the Interstate Highway System, the fact sheet observes, “the Federal Government played a key role” in collecting and distributing monies to “fund a project with a Federal purpose.” Since then, however, those user fees, mainly gas tax receipts, have been “inefficiently invested” in “non-federal infrastructure.”

As a result, the federal government today “acts as a complicated, costly middleman between the collection of revenue and the expenditure of those funds by States and localities.” To fix this, the administration will “explore” whether transferring “responsibilities to the States is appropriate.”

The document contains a number of specific proposals:

  • Allow states to toll interstate and other federally funded highways;
  • Encourage states to fix congestion using “congestion pricing, enhanced transit services, increased telecommuting and flex scheduling, and deployment of advanced technology”;
  • Corporatize air traffic control, as many other developed countries have done;
  • Streamline the environmental review process by having a one-stop federal permit process and “curtailing needless litigation”;
  • Expand the TIFIA loan program and lift the existing cap on private activity bonds, both of which will make more money available for infrastructure without increasing federal deficits.

The paper also includes proposals for reforming inland waterways, the Power Marketing Administration, and water infrastructure finance. Like the transportation proposals, these call for increased reliance on user fees, corporatization, privatization, or loans rather than grants.

“Corporatization” means creating a non-profit or for-profit corporation that may be government owned but doesn’t necessarily rely on taxpayer subsidies. Comsat is a classic example, but Canada and other countries’ air traffic control systems work in this way.

Except for air traffic control reform, Trump’s plan isn’t fleshed out in detail. But these ideas have all been tossed around enough that everyone pretty much knows what they mean. Most importantly, they mean a significant change in the way Washington deals with infrastructure.

Because it doesn’t contain a list of projects that members of Congress could take credit for, the plan has received relatively little notice in the media. Democrats, of course, are unhappy with it, but they would be unhappy no matter what Trump proposed.

One of the more controversial proposals is to allow the states to toll interstate highways. “I don’t like paying for a road twice,” Representative Sam Graves (R-MO), who chairs the Highways and Transit Subcommittee of the House Transportation and Infrastructure Committee, told The Hill. But, given that Congress has had to inject tens of billions of dollars of general funds into the highway trust fund in recent years, what makes Graves thinks existing user fees are paying for the roads now? All roads need maintenance and occasional rehabilitation, so the fact that user fees paid for construction 50 years ago doesn’t mean that costs stop.

The most important point is that Trump wants user fees to pay a greater share of infrastructure costs. Naturally, the transit lobby, which represents the most heavily subsidized form of transportation, per unit of output, is upset about this. But Trump’s agenda sounds good to anyone who wants an efficient, user-fee-driven infrastructure program.

Politicians seem increasingly likely to (falsely) assert that “hate speech is not protected by the First Amendment.” The mayor of Portland, Oregon, just did so following anti-Muslim violence in his community. Former governor and Democratic Party official Howard Dean said the same last month.

The Washington Post does a good job of showing why the claim is false. Courts have not recognized a “hate speech” exception to the First Amendment. To allow us such a prohibition would allow the government to discriminate among viewpoints, a power precluded by the First Amendment. As the FIRE Guide to Free Speech on Campus says, “Laws that ban only certain viewpoints are not only clearly unconstitutional, but are also completely incompatible with the needs, spirit, and nature of a democracy founded upon individual rights.”

Part of the problem here is the term “hate speech” itself. People generally do not like expressions of hatred of individuals or groups. The term “hate speech” in and of itself makes censorship more likely especially when compared to the more neutral term “extreme speech” often used by legal scholars.

Indeed extreme speech can be odious. But we also should recall the general libertarian principle that allowing liberty to do or say something does not constitute endorsing what is done or said. You can criticize extreme speech and argue against prohibiting it. In other words, we need to defend the rights of a speaker but not what he or she says. That difference is likely to be lost in the extreme events that sometimes evoke extreme speech. Indeed that appears to have happened in Portland.

A communications group at Yale University has put out a video that seems to be a rebuttal to a Dilbert cartoon by Scott Adams poking fun at climate scientists and their misplaced confidence in models. The video is full of impressive-looking scientists talking about charts and data and whatnot. It probably cost a lot to make and certainly involved a lot of time and effort. The most amazing thing, however, is that it actually proves the points being made in the Dilbert cartoon. Rather than debunking the cartoon, the scientists acted it out in slow motion.

The Dilbert cartoon begins with a climate scientist saying “human activity is warming the earth and will lead to a global catastrophe.” When challenged to explain how he knows that, he says they start with basic physical principles plus observations about the climate, which they then feed into models, pick and choose some of the outputs, then feed those into economic models, and voila. When asked, what if I don’t trust the economic models, the scientist retreats to an accusation of denialism.

The Yale video ends in exactly the same way. After a few minutes of what I will, for the moment, call “scientific information,” we see climatologist Andrew Dessler appear at the 4:28 mark to say “It’s inarguable, although some people still argue it – heh, heh.” As in, ah those science deniers.

What exactly is “inarguable”? By selective editing we are led to believe that everything said in the video is based on multiple independent lines of evidence carrying such overwhelming force that no rational observer could dispute it. Fine, let’s go to the 2:38 mark and watch someone named Sarah Myhre tell us what this inarguable science says.

“It’s irrefutable evidence that there are major consequences that come with climate warming, and that we take these Earth systems to be very stable, we take them for granted, and they’re not stable, they’re deeply unstable when you perturb the carbon system in the atmosphere.”

How does she know this? From models of course. These claims are not rooted in observations but in examining the entrails of model projections. But she has to pick and choose her models because they don’t all say what she claims they say. Some models show very little sensitivity to greenhouse gases.  If we put the low-sensitivity results into economic models the results show that the economic impacts of warming are very low and possible even negative (i.e. a net benefit). And the section of the IPCC report that talks about the consequences of warming says:

For most economic sectors, the impact of climate change will be small relative to the impacts of other drivers (medium evidence, high agreement). Changes in population, age, income, technology, relative prices, lifestyle, regulation, governance, and many other aspects of socioeconomic development will have an impact on the supply and demand of economic goods and services that is large relative to the impact of climate change.

It goes on to show (Figure 10-1) that at low levels of warming the net economic effects are zero or positive. As to the climate being “deeply unstable” there’s hardly any point trying to debate that since these are not well-defined scientific words, but simple reflection on human experience will tell you that the climate system is pretty stable, at least on decadal and century time scales. The main thing to note is that she is claiming that changes to atmospheric CO2 levels have big warming effects on the climate and will cause a global catastrophe. And the only way she knows this is from looking at the outputs of models and ignoring the ones that look wrong to her. Granted she isn’t bald and doesn’t have a little beard, but otherwise she is almost verbatim the scientist in the cartoon.

Much of what she says in the video is unsubstantiated and sloppy. For instance she talks (2:14) about paleoclimatic indicators like tree rings, ice cores and sediment cores as if they are handy records of past climate conditions without acknowledging any of the known problems extracting climate information from such noisy sources.

Her most telling comment was the Freudian slip at 1:06 when she says “There is incredible agreement about the drivers of climate science.” What she meant (and quickly corrected herself to say) was “climate change.” But her comment is revealing as regards the incredible agreement—i.e. groupthink –that drives climate science, and the individuals who do the driving.  Myhre’s Freudian slip comes right after a clip in which Michael Mann emphatically declares that there are dozens of lines of evidence that all come together, “telling us the same thing,” adding “that’s how science works.” Really? The lines of evidence regarding climate do not all lead to one uniform point of view, nor is that how science works. If that’s how science worked there would be no need for research. But that’s how activists see it, and that’s the view they impose to drive climate science along in service of the activist agenda. As Dr. Myhre herself wrote in a recent op-ed:

Our job is not to objectively document the decline of Earth’s biodiversity and humanity, so what does scientific leadership look like in this hot, dangerous world? We don’t need to all agree with each other – dissent is a healthy component of the scientific community. But, we do need to summon our voices and start shouting from rooftops: “We have options”, “We don’t have to settle for cataclysm”.

Got that? The job of scientists is not objectively to gather and present evidence, but to impose an alarmist view and yell it from the rooftops. At least according to Sarah Myhre, Ph.D..

The video opens with a straw man argument: climate science is all just made up in computer models about the future, and it’s all just based on simulations. This is then refuted, rather easily, with clips of scientists listing some of the many observational data sets that exist. Whoopee. That wasn’t even the point of the Dilbert cartoon, it was just a straw man made up by the interviewer. Then, in the process of presenting responses, the video flits back and forth between lists of observational evidence and statements that are based on the outputs of models, as if the former prove the latter. For instance, when Myhre says (2:45—2:55) that the climate systems is “deeply unstable” to perturbations in the carbon “system” (I assume she meant cycle) the video then cuts to Andrew Dessler (2:55) talking about satellite measurements, back to Myhre on paleo indicators, then to Carl Mears and Dessler (3:11) talking about sea ice trends. None of those citations support Myhre’s claims about instability, but the selective editing creates the impression that they do.

Another example is a sequence starting at 1:14 and going to about 2:06, in which various speakers lists different data sets, glossing over different spatial and time scales, measurement systems, etc. Then an assertion is slipped in at 2:07 by Ben Santer to the effect that the observed warming can’t be explained by natural causes. Then back to Myhre listing paleoclimate indicators and Mann describing boreholes. The impression created is that all these data types prove the attribution claim made by Santer. But they do no such thing. The data sets only record changes: claims about the mechanism behind them are based on modeling work, namely when climate models can’t simulate 20th century warming without incorporating greenhouse gas forcing.

So in a sense, the video doesn’t even refute the straw man it set up. It’s not that climate science consists only of models: obviously there are observations too. But all the attribution claims about the climatic effects of greenhouse gases are based on models. If the scientists being interviewed had any evidence otherwise, they didn’t present any.

Now suppose that they are correct in their assertion that all the lines of evidence agree. All the data sets, in Mann’s words, are telling us the same thing. In that case, looking at one is as good as looking at any of the others.

Ignore for a moment the selective focus on declining Arctic sea ice data while ignoring the expansion of Antarctic sea ice. And ignore the strange quotation from Henry Pollock (3:23—3:41) about how ice doesn’t ask any questions or read the newspaper: it just melts. Overlaid on his words is a satellite video showing the summer 2016 Arctic sea ice melt. Needless to say, had the filmmaker kept the video running a few seconds more, into the fall, we’d have seen it re-freeze. Presumably the ice doesn’t read or ask questions in the fall either, it just freezes. This proves what exactly?

Anyway, back to our assumption that all the data sets agree and say the same thing. And what is it they tell us? Many key data sets indicate that climate models are wrong, and in particular that they overstate the rate of warming, (see here, here, here, here, here, here, here, here, etc.). So according to the uniformity principle so strongly enunciated in the video, all the evidence points in the same direction: the models aren’t very good. And by implication, statements made based on the models aren’t very reliable.

There’s another irony in the video’s assertions of uniformity in climate science. At the 3:55 mark Michael Mann announces that there’s a consensus because independent teams of scientists all come at the problem from different angles and come up with the same answers. He’s clearly referring to the model-based inferences about the drivers of climate change. And the models are, indeed, converging to become more and more similar. The problem is that in the process they are becoming less like the actual climate. Oops.

So how did the video do refuting Scott Adams’ cartoon? He joked that scientists warning of catastrophe invoke the authority of observational data when they are really making claims based on models. Check. He joked that they ignore on a post hoc basis the models that don’t look right to them. Check. He joked that their views presuppose the validity of models that reasonable people could doubt. Check. And he joked that to question any of this will lead to derision and the accusation of being a science denier. Check. In other words, the Yale video sought to rebut Adams’ cartoon and ended up being a documentary version of it. 

We will never achieve a good tax reform by trusting bad revenue estimates.

According to Wall Street Journal reporter Richard Rubin, “Each percentage-point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade, and independent analyses show economic growth can’t cover all the costs of rate cuts.”

Economic growth does not have to “cover all the cost” to make that $100 billion-per-point rule of thumb almost all wrong.  If extra growth covered only 70% the cost of a lower rate, the static estimates would be 70% wrong.  Yet the other 30% would be wrong too, because it ignores reduced tax avoidance.  Mr. Rubin’s bookkeepers’’ rule-of-thumb implicitly assumes zero “elasticity” of reported taxable profits. Corporations supposedly make no more effort to avoid a 35% tax than to avoid a 25% tax.

Acceptance of this simplistic thumb rule – which imagines a 35% corporate rate could raise $1 trillion more over a decade than a 25% rate – explains why Ways and Means Committee Chairman Kevin Brady still insists a big new import tax is needed to “pay for” a lower corporate tax rate. 

In this view, a border adjustment tax (BAT) is depicted as a tax increase for some companies to offset a tax cut for others.  No wonder the idea has been ruinously divisive – with major exporters lobbying hard for a BAT and major retailers, refiners and automakers vehemently opposed.  Mr. Rubin declares the BAT “dead or on political life support,” while nevertheless accepting that it would and should raise an extra $1 trillion over a decade – assuming no harm to the economy and no effect on trade deficits.

Like Mr. Rubin, Reuters claims “Trump could have trouble getting the rate much below 30 percent without border adjustability.”  That is false even on its own terms because the Ryan-Brady plan would eliminate deductibility of interest expense, which is enough to “pay for” cutting the rate to 25% on a static basis.  Adding a BAT appears to cut the rate further to 20%, but the effective Ryan-Brady rate is really closer to 25% because the import tax and lost interest deduction are not a free lunch.

In any case, the entire premise is wrong. There is no need to “pay for” cutting a 35% corporate “much below 30 percent” because nearly every major country has already done that and ended up with far more corporate tax revenue than the U.S. collects with its 35% tax.  

The average OECD corporate tax rate has been near 25% since 2008, and revenue from that tax averaged 2.9% of GDP.  The U.S. federal tax rate is 35% and revenue averaged just 1.9% of GDP.  Ireland’s 12.5% corporate rate, by contrast, brought in 2.4% of GDP from 2008 to 2015.

Sweden cut the corporate tax rate from 28% to 22% since 2013 and corporate tax revenues rose from 2.6% of GDP in 2012 to 3% in 2015 according to the OECD. Britain’s new 20% corporate tax in 2015 brought in 2.5% of GDP according the same source, unchanged from 2013 when the rate was 23%. 

Many countries have deeply reduced corporate tax rates including Germany, Russia, Israel, Indonesia, Taiwan, Thailand, Mauritius, Vietnam and more.  And they didn’t raise VAT or other taxes to “pay for” lower corporate rates, because corporate revenues didn’t fall. Canada cut the corporate rate from 36.5% to 26.5% since 2006 while also cutting VAT from 7% to 5%.  

AEI Economist Alex Brill surveyed several studies that used experience of other countries to estimate what U.S. corporate tax rate would bring in the most revenue over time.  Among recent studies, the revenue-maximizing tax rate was found to range from 23.2% to 29.1%.  Contrary to The Wall Street Journal, each percentage point cut in the 35% rate raises revenue up to a point.   To cut the rate below 25%, simply cap interest deductions.  Expensing ends up raising more revenue after 20 years, so Congress could extend the window if they want expensing.

So, the first way to pay for a tax rate below 30% is to lower the rate. And that has nothing to do with whether or not a lower corporate tax rate raises economic growth, thought it would.  

The “Laffer Curve” revenue gains from cutting a 35% corporate tax rate are not due to faster economic growth, but reduced tax avoidance. Revenue gains from cutting the 35% rate to about 25% (23-29%) are not about macroeconomics but microeconomics.

The Joint Tax Committee makes this distinction: “A conventional [‘static’] JCT estimate incorporates behavioral responses in projecting tax revenues, but assumes that these tax and behavioral changes do not change the size of the US economy.”  

Less-conventional “dynamic” estimates from The Tax Foundation do allow behavioral changes to change the size of the US economy, but do not usually incorporate “microeconomic” behavioral responses that the JCT includes.  By combining the macroeconomic responses of the Tax Foundation with the microeconomic details of the JCT we could get closer to the truth.  

When the tax rate goes up, corporations find ways to report less taxable income. They do that by moving profitable activities other countries, by booking expenses in the U.S. and revenues abroad, by diverting profitable activities to pass-through entities, and by taking-on more tax-deductible debt and maximizing other deductible expenses such as travel and entertainment.

Economists have begun to estimate the “elasticity of taxable income” (ETI) for corporate marginal tax rates, as they have for individual tax rates on salaries and capital gains.  A joint paper by the Congressional Budget Office and Joint Committee on Taxation, for example, found the elasticity of realized capital gains to be arguably high enough for a lower tax rate to generate more revenue.  That is not because a lower capital gains rate raises GDP growth (though it does), but because it tax raises the volume and frequency of asset sales.

Similarly, a lower tax rate on corporate income can increase the amount of reported taxable income by reducing accounting gimmicks, corporate relocation, partial or complete conversion to unincorporated status, and superfluous deductions (e.g., interest expense on Apple’s needless borrowing).

Elena Patel and Matt Smith from the Treasury Department’s Office of Tax Analysis wrote a 2014 study about the Elasticity of Corporate Income. They include only taxable domestic income and focus on 2 million smaller C-corporations (83% of the total).  This study’s “baseline estimate of the corporate elasticity is 0.5, suggesting the corporate income tax distorts behavior and may cause substantial deadweight loss.”  

Such high elasticity of reported corporate earnings is quite consistent with Brill’s estimates of a revenue-maximizing tax rate.

If we also take account of faster growth of investment and GDP, of course, the case for lower tax rates becomes even stronger.

Phil Gramm and Michael Solon noted that even if lower marginal tax rates on labor and capital “closed only half the gap between the current [CBO projection of a ]1.8% GDP growth rate and the 3.4% GDP growth rate that the economy averaged for the previous 64 years, that alone would deliver $2.3 trillion in new revenues due to higher growth over the next 10 years.”  That sum is twice as large as those doubtful back-of-the-envelope estimates of a 10-year $1 trillion revenue windfall from a BAT, which blithely assume nothing bad happens – such as mass layoffs among afflicted retailers, automakers and refiners.  

The New York Times has once again published a report claiming that transit hubs are a “growing lure for developers.” The Times published a similar story eight years ago, and I quickly showed that subsidies from tax-increment financing (TIF) and other government support, not transit, was what stimulated those developments.

So has anything changed since then? Nope. The first development described in the recent story by Times reporter Joe Gose is Assembly Row, in the Boston suburb of Somerville. Is it subsidized? Yes, with at least $25 million in TIF along with other state funds. Far from being “free money” as its advocates claim, TIF steals from school districts and other agencies that rely on property taxes to subsidize developers.

Then Gose mentions Chicago’s Fulton Market, downtown Kansas City, Austin, and Denver’s RiNo neighborhood. Fulton Market just happened to receive at least $42 million in support from the city of Chicago, much of which comes from TIF

Supposedly a new streetcar sparked a revitalization of downtown Kansas City. But could it be that revitalization was due more to Kansas City’s twenty-four downtown TIF districts?

Gose doesn’t specify a particular neighborhood or development in Austin, Texas. Of course, Austin is one of the fastest growing cities in America, so anything that’s open for development is going to be developed. But not satisfied to let the market work, Austin has heavily bought into the use of TIF districts. Transit is an afterthought in Austin, carrying less than 1 percent of the passenger travel; the city’s sole rail line was a huge flop that cost way more than expected and now carries fewer than 1,500 round-trips per weekday.

Denver’s RiNo neighborhood–RiNo being short for River North–is growing thanks to at least $44 million on infrastructure improvements in that neighborhood, plus additional TIF funds for special projects.

In Washington, DC, Gose mentions a $3 million project “in Washington’s fast-growing Capital Riverfront neighborhood.” That’s the same neighborhood that received at least $198 million in TIF subsidies.

Gose also refers to Tysons Corner, which has seen new development since the opening of the Silver Line. What he doesn’t mention is that the developers were perfectly happy to do that development without the Silver Line, but planners wouldn’t let them do it until the Silver Line was built, saying that transportation to the area couldn’t support increased density. The Silver Line didn’t stimulate the development, but it did give Fairfax County an excuse to rezone the area to allow for more development.

Transit serves most neighborhoods in most cities while only a few areas are in tax-increment districts. Is it just a coincidence that all of the examples in the Times article are in TIF districts? Which is more likely: that development is being stimulated by transit lines that carry, in most of these cities, less than 3 percent of travelers? Or that it is stimulated by the TIF and other subsidies? And why doesn’t the Times even hint that government subsidies, not rail transit, just might be the reason why these areas are getting redeveloped?

To answer these questions, Mr. Gose should have looked at transit corridors that aren’t getting huge amounts of redevelopment subsidies, such as Denver’s West light-rail line; Portland’s streetcar line after it leaves the Pearl District (where, according to page 15 of the Portland Development Commission’s latest budget, developers have so far received $344 million in TIF subsidies); or Green Belt, Maryland. None of these areas have seen a lot of redevelopment.

Then Mr. Goes should have looked at redevelopment districts that aren’t on major transit corridors. There are a lot of TIF districts in Columbus, Indianapolis, Omaha, Wichita, and other cities that haven’t spent much on transit but still got redevelopment. What he would have found is that transit hubs without subsidies see minimal new development, while redevelopment districts with subsidies see lots of new development even if they have minimal transit service.

Of course, TIF doesn’t cause an urban area to grow any faster–and it may even cause it to grow slower. All it really does is influence the location of new development that would have taken place somewhere in the area anyway, which is nothing to cheer about unless you are one of the lucky property owners or developers to get the subsidies.

The Times’ 2009 article had been inspired by the 2009 annual conference of the Congress for the New Urbanism (CNU), which has an almost religious love of transit. The most recent CNU conference took place just a few weeks ago, and Joe Gose has cited CNU in his articles before, so I have to wonder if he attended that conference. If so, then maybe he’ll learn that next time he attends a political rally he should try to get a different point of view before reporting the claims made at the rally as facts.

Before it even hit the fiber-optics, defenders of public schooling were agitated that PBS stations would be airing Andrew Coulson’s documentary School Inc., which takes viewers on a ride through time and around the world to learn how innovation happens, and why it happens too rarely in education. Last Friday a new critique was published, this time on the website of Phi Delta Kappa, a professional association of educators. In the piece, Loyola University Chicago professor Amy Shuffelton asks, “Why did PBS and its local New York affiliate, WNET, agree to broadcast and distribute such an unbalanced, journalistically questionable series on such a controversial and complicated topic as education?”

Perhaps the answer is that PBS officials thought the series had high-quality content, and discerning viewers could determine for themselves whether they accepted its premise. Writes Shuffelton: “According to WNET’s Specter [Shuffelton does not provide a first name], the second part of the series title, ‘A Personal Journey’ is key to understanding the project. ‘When you read that subtitle, you know that you’re going to get a point of view, and we’re not opposed to presenting different points of view.’”

The documentary certainly is clear that you are getting one person’s perspective. And while I don’t watch a lot of television, PBS or otherwise, it seems unlikely that PBS programs such as Bill Moyer’s Journal or Democracy Now! have been committed to strict, equal time for opposing views. As with public schooling, there is good reason to oppose publicly funded television because it is impossible to represent the views of every taxpayer equally. But PBS exists, and points of view seem to be articulated without having to be balanced out.

Of course, the best way to judge the quality and merits of School Inc. is to view it yourself, which you can do here, or by watching this space for future airings in your market. And you should of course read opposing views like Shuffelton’s, though don’t expect objectivity there, either. For instance, Shuffelton says that Coulson quotes Horace Mann and Thomas Jefferson out of context, but does not say how. Worse, she suggests that Coulson believes discrimination in government funding is a solution to religious conflicts in education:

Coulson does consider the possibility of civic discord in the last ten minutes of the series, but his answers are not convincing. School Inc. turns to Supreme Court Justice Steven Breyer’s dissent in the case Zelman v Simmons-Harris, which upheld an Ohio voucher program. Breyer worried that publicly financed voucher programs, which funnel federal funds to religious schools, raise the possibility of religiously based social conflict.

Coulson’s response should raise concern for anyone worried about First Amendment rights. To show that social conflict is unlikely to follow, he uses the example of a voucher program proposed in New Orleans. One of the schools eager to participate was a Muslim school. When Louisianans got wind of this, controversy followed. So the Muslim school dropped out. In Coulson’s eyes, the problem was thereby solved.

Wait, I found myself thinking as I watched, that’s discrimination, not a defense of First Amendment rights. I expected Coulson to explain why it was not, but the series moved on to clips of jazz performances, which, according to Coulson, demonstrate Americans’ ability to get along.

This is just incorrect. For one thing, Coulson devotes nearly half of the final episode to social conflict, choice, and equality. And far from condoning exclusion of the Muslim school, he explains that a fundamental problem with vouchers is that while they create more freedom and equality than majority-rules public schools, they can still unjustly compel people to furnish funds for teachings they oppose, opening choice up for government discrimination.

The solution, Coulson suggests, are tax credits for people who choose to donate to groups that award scholarships. Want to give to a group providing scholarships for Montessori students? Go ahead! Catholic schools? Sure! Muslim institutions? Absolutely! This maximizes freedom for both families and funders, and minimizes incentives to legally exclude groups.

I think there is a huge amount of value to be found in School Inc., but others can certainly disagree. What they should not try to do is squelch the documentary, or misrepresent what it says. Oh, and if they want to learn even more about Andrew and debate his ideas, they can check out this new book. After all, the more open discussion we have, the better!

Since the end of the Cold War Europe has been obsessed with the idea of eradicating hate as a shortcut to eternal peace. In short, a world relieved from human conflict. This is an utopia and we know from earlier attempts to turn utopias into reality that one of the first victims of these fantasies is freedom. In this case freedom of expression will be endangered.

Germany has for several years been at the forefront of this endeavor so it shouldn’t come as a surprise that the German government now wants to enable its authorities to fine social media companies up to 50 million euros for not deleting online ”hate speech” and defamatory ”fake news” within 24 hours after being notified.

In Germany criminalization of hate speech and fake news is seen as a legitimate way to protect democracy and the historical truth against onslaught. That’s why a mainstream German politician and member of the European Parliament a couple of years ago countered my criticism of legislation against Holocaust denial by insisting that ”European citizens have a constitutional right to the truth.” The frightening implications of this statement didn’t bother him at all. He didn’t realize that it would be welcomed by any dictator wanting a monopoly on state-sanctioned ”facts” and ”truth”.

In Germany and other European democracies the right to free speech is just one among many rights that has to be balanced against other rights, values and considerations, be it public order, dignity, democracy, religious sensibilities, security, equality and so on and so forth.

In the U.S. the First Amendment’s protection of speech cannot be balanced against other rights. That principle has served the US well.

When Heiko Maas, Germany’s minister of justice, earlier this year announced that the government was planning new legislation to criminalize fake news he said:

Defamation and malicious gossip are not covered under freedom of speech. (…) Justice authorities must prosecute that, even on the internet. Anyone who tries to manipulate the political discussion with lies needs to be aware (of the consequences).

This phrasing sounds disturbingly familiar to brave individuals and groups who during the Cold War were fighting oppression behind the Iron Curtain. The Soviet Union made it a serious crime to distribute false and slanderous information defaming the Soviet social and political system. Such criminal laws were widely used by the Kremlin to silence dissidents, human rights activists, religious movements, and groups in the Soviet republics fighting for national independence.

Recently in Foreign Affairs, Heidi Tworek, a fellow at the German Marshall Fund’s Transatlantic Academy and an assistant professor of International History, frames the German government’s targeting of U.S. tech giants like Facebook, Twitter, Google and Microsoft as ”a fight about how much free speech a democracy can take.” She adds that ”social media companies have brought this law upon themselves by failing to understand the historical reasons why the German definition is different than the American one.”

Germany’s push for enforcing its limits on free speech on the European level has been going on since the end of the Cold War. A European Union decision from 2008 aimed at fighting racism and xenophobia called for tougher hate speech legislation and for every EU member state to pass laws criminalizing Holocaust denial. These laws are now on the books in 13 EU-countries.

They were all passed after the fall of the Berlin Wall, not during the first decades following the genocide of European Jews during World War II. The legislation has triggered a wave of memory laws across Europe that challenges academic freedom and freedom of speech. In several former Communist states in Central and Eastern Europe it’s now a criminal offense to deny or minimize the crimes of Communism. Russia has passed a law banning criticism of the actions of the Soviet Union during World War II and Ukraine’s parliament has adopted a law criminalizing insults on to the country’s fighters for national independence in the 20th century. Among them were groups implicated in mass killings of Jews and Poles in Western Ukraine and Poland. Latvia has adopted a law criminalizing speech that denies the fact that Latvia was occupied by both Nazi Germany and the Soviet Union.  

In the aftermath of the refugee crisis in the summer of 2015 the EU-commissioner for judicial affairs, Vera Jourova, said it was disgraceful that Holocaust denial is a criminal offense in only 13 EU-member states. She called for additional measures to combat hate speech. In 2016 the US tech giants signed a Code of Conduct with the EU that obliged them to remove illegal hate speech or disable access to such content with 24 hours of notification. And now we have the German government passing a law that threatens media companies that do not delete ”false information” and ”hate speech”.  

There is no agreement on a clear definition of hate speech, which means that it can be applied to criminalize almost any speech. European countries have different understandings of what constitutes illegal hate speech. In Sweden, an artist was convicted to six months in prison for ”racist and offensive” posters exhibited in a private art gallery; the same posters were freely exhibited in Denmark. A Swedish pastor was given a one-month suspended prison sentence for saying homosexuality is a tumour on society. That wouldn’t necessarily be the case in other European countries. Hizb-ut-Tahrir, an Islamist organization committed to the non-violent establishment of a global caliphate, is banned in Germany but not in Denmark. One man’s hate speech is another man’s poetry, to paraphrase Supreme Court Justice John Marshall Harlan II. What is an unacceptable hateful expression to some may sound like a perfectly legitimate opinion to somebody else.

All human-beings are biased at some level or another. We all know the emotion of hate or serious dislike of something or somebody. If a society really wants to criminalize any expression of hate it would have to ban a lot of speech. That’s not the case. Europe is very selective in its approach to hate speech. Some expressions of bias are treated as criminal offenses, others are not. This indicates there iis acceptable and unacceptable hate speech. It’s okay to mock Christians but not to ridicule Islam. There is no equality before the law when it comes to hate speech.

Hate speech laws seem to be a tool to enforce social norms as Robert Post, a US expert on the First Amendment, has observed. This is problematic in a culturally and socially diverse society where individuals and groups subscribe to different norms. One would assume that the more diverse a society is the more diverse ways people will find to express themselves, i.e. a multicultural society needs more freedom of speech than a monocultural one.  

Historically hate speech laws and laws criminalizing dissemination of false information are being used in unfree societies to silence political opponents and persecute minorities. But even in Italy, a European democracy, the country’s antitrust chief Giovanni Pitruzella wants to criminalize fake news in order to weaken his political opponents on the left and right.

Said Pitruzella to Financial Times: ”Post-truth in politics is one of the drivers of populism, and it is one of the threats to our democracies.”.

As Brendan O’Neill, editor of Spiked puts it:

By its very definition free speech must include hate speech. Speech must always be free, for two reasons: everyone must be free to express what they feel, and everyone else must have the right to decide for themselves whether those expressions are good or bad. When the EU, social-media corporations and others seek to make that decision for us, and squash ideas they think we find shocking, they reduce us to the level of children. That is censorship’s greatest crime: it infantilises us. Let us now reassert our adulthood, our autonomy, and tell them: Do not presume to censor anything on our behalf. We can think for ourselves.

Indeed. Unfortunately, Europe is moving in a different direction with an increasingly powerful Germany imposing its standards of militant democracy on all of Europe.

Journalists are now reporting regularly on the crisis in Venezuela, with shortages of everything from toilet paper to food and now daily street protests. What the news reports too often miss is, Why? Why is a formerly middle-class, oil-rich country now so desperately poor?

The Weekly Standard notes a New York Times article, “How Venezuela Stumbled to the Brink of Collapse,” that spends 1800 words on the country’s “collapse into authoritarianism.” The Standard summarizes:

The strongman Hugo Chávez “ran for president in 1998. His populist message of returning power to the people won him victory.” Chávez polarized because “populism describes a world divided between the righteous people and the corrupt elite.” Now, under the late Chávez’s successor, Nicolás Maduro, “The political system, after years of erosion, has become a hybrid of democratic and authoritarian features.”

But never does the article identify what economic system could cause such disaster. It does mention specific policies: subsidies, welfare programs, money printing, inflation, and price controls. But nationalization is never mentioned. And in particular, the Standard points out, the article does not use the word “socialism” (or “socialist”). It does not mention that Hugo Chavez and Nicolas Maduro have headed the United Socialist Party of Venezuela. Socialism is the cause that must not be named.

So it’s refreshing to see a rather more forthright article in the Washington Post this weekend by Mariana Zuniga and Nick Miroff:

With cash running low and debts piling up, Venezuela’s socialist government has cut back sharply on food imports….

Venezuela’s disaster is man-made, economists point out — the result of farm nationalizations, currency distortions and a government takeover of food distribution. While millions of Venezuelans can’t get enough to eat, officials have refused to allow international aid groups to deliver food, accustomed to viewing their oil-rich country as the benefactor of poorer nations, not a charity case.  

“It’s not only the nationalization of land,” said Carlos Machado, an expert on Venezuelan agriculture. “The government has made the decision to be the producer, processor and distributor, so the entire chain of food production suffers from an inefficient agricultural bureaucracy.”

My colleague Marian Tupy notes that according to the Economic Freedom of the World Index, economic freedom in Venezuela fell from just above 7 out of 10 in 1970 to barely above 3 in this decade. Meanwhile, its GDP per capita has fallen over 40 years, while Chile’s has tripled.

Venezuela doesn’t have to be poor. But to restore its standard of living, it will have to reverse recent changes in property rights, judicial independence, free trade, and corruption.

Last week’s travel-ban ruling by the U.S. Court of Appeals for the Fourth Circuit is a travesty. Not because the underlying policy is anything to write home about. As I wrote when the second executive order came out in March, “[r]efugees generally aren’t a security threat, for example, and it’s unclear whether vetting or visa-issuing procedures in the six remaining targeted countries represent the biggest weakness in our border defenses or ability to prevent terrorism on American soil.” But the judiciary simply can’t substitute its own policy judgment for that of our elected representatives, no matter how well-informed judges may be or how misguided they think our political leaders may be.

Indeed, what’s going on here isn’t a sober legal analysis – incredibly, the majority opinion contains no discussion of the relevant statutory text, or of the scope of executive power in light of congressional policy (the so-called Youngstown Steel analysis) – but a wholesale rejection of Donald Trump. Essentially, the court ruled that anything the current president does, at least in the areas of immigration and national security, is de facto (and therefore de jure) illegitimate. The judiciary has joined the #resistance.

Of course, even a court engaged in civil disobedience has to clothe its willfulness in legal trappings. Here’s how that fig leaf looks here:

  1. Find “snowflake standing” to bring the lawsuit for individuals who haven’t personally been harmed but are experiencing “feelings of disparagement and exclusion.”
  2. As other courts have done, bypass the more technical analysis regarding statutory authorizations and restrictions on the executive power over immigration in order to pontificate on sexier constitutional claims (the opposite of the standard “constitutional avoidance” that courts practice).
  3. Privilege various statements made by Donald Trump on the election trail, as well as media interviews by the president and his surrogates, over official determinations by the Departments of Justice and Homeland Security and the text of the revised executive order itself. Ignore the admissions of plaintiffs’ counsel that another president, one not burdened by the “forever taint” of Trump’s supposed bad faith, could lawfully execute the same order.
  4. Indeed, ignore the revisions to the executive order, even though they fix the problems that the first order’s hasty rollout created by, for example, providing exemptions not just to those with green cards and other valid visas, but also people with significant contacts to United States, students, children, urgent medical cases, and other special circumstances – as well as detailing reasons for the remaining restrictions.
  5. Find that the order violates the Establishment Clause by cherry-picking irrelevant precedents even though our immigration laws routinely classify would-be refugees and immigrants on religious grounds and the order only affects six of the 50 Muslim-majority countries, which contain but 13 percent of Muslims worldwide.

With no due respect, that’s not law. It’s another dog’s breakfast of a legal ruling which I won’t dignify with a full fisking. (Josh Blackman is a better man than I because he’s in the midst of a multi-part series that does unpack the opinions, and I also recommend the work of Peter Margulies, a progressive immigration and national-security expert who actually believes in the rule of law.) 

Perhaps the worst thing about this ruling, and the identical one from the Ninth Circuit that we should get any day now, is that it makes me spend time supporting, as a matter of law, government actions that I don’t think are helpful to either immigration or national-security policy. It’s really the inverse of what I was doing in the late Obama years. As brother Josh says,

writing these (many) posts about the travel bans is not a particularly enjoyable or rewarding task, because I write in defense of policies I profoundly oppose. In many respects, my work on these cases is a mirror image to my previous work on the constitutionality [of] President Obama’s deferred action policies. While I supported DACA and DAPA as a matter of policy, I concluded they were unlawful. In contrast, while I oppose the travel bans as a matter of policy, I concluded they were lawful.

Thus, my commitment to the travel ban litigation is dual-faceted. First, I aim to fill the void, as there is a shortage of clear-eyed analyses of the travel bans due to Trump’s toxicity. Second, recognizing that the judicial resistance may ultimately defeat the Trump presidency, my sincere hope is that courts do so with as little collateral damage as possible to other areas of law.

They told me that if Trump won the presidency, the rule of law would suffer. They were right.

Earlier this week I attended a very thoughtful and stimulating debate on the modernization of U.S. nuclear missiles hosted by the Project on Nuclear Issues (PONI) at CSIS. The debate addressed the merits and downsides of two planned U.S. nuclear delivery system recapitalization efforts: the Ground Based Strategic Deterrent intended to replace the Minuteman III ballistic missile system, and the Long-Range Stand-Off (LRSO) cruise missile that is supposed to replace the AGM-86 air-launched cruise missile (ALCM). The ALCM is a dual-capable missile, meaning it can carry either a nuclear or conventional payload. While the LRSO is planned to be only used for nuclear missions, in a conflict scenario it would be hard to discern between it and a conventionally-armed cruise missile until the moment of impact.

One topic raised during the debate was the effect of the LRSO on strategic stability, an important and hotly debated issue. The advocates of the LRSO downplayed the destabilizing potential of the system by pointing out that the United States has used dual-capable cruise missiles in past conflicts. Concerns about strategic stability should be kept in mind, they argued, but the United States has a track record of using dual-capable cruise missiles while safely navigating such concerns.

This argument may be technically true, but it ignores a critical fact: all past uses of dual-capable cruise missiles were in conflicts with countries that did not have nuclear weapons—not between two nuclear-armed countries. Policymakers should be wary of arguments that use historical evidence to dismiss or downplay the negative effects of LRSO on strategic stability because there are no adequate past cases to test such arguments against.

Such an oversight is especially damning when one considers the likely targets of the LRSO. The missile, and the B-21 bombers supposed to carry them into combat, are designed to penetrate the dense and increasingly complex air defense networks of “near-peer” adversaries like China and Russia. This enhances the ability of the U.S. Air Force to hold high-value targets, such as command and control facilities, military bases, and enemy nuclear forces, at risk. However, the same bombers could also be armed with conventional cruise missiles.

The ambiguity about whether a cruise missile is nuclear or conventional poses a dilemma for nuclear-armed opponents in a conflict or crisis situation. If the United States starts destroying high-value targets necessary for the effective use of nuclear weapons, will adversaries feel pressure to either escalate the conflict in the hope of getting the strikes to stop or use nuclear weapons while they still have some ability to do so? Will the adversary be able to quickly determine what kind of cruise missile was used against it if communications links are damaged and they suspect more missiles are incoming? The decision to develop and field the LRSO greatly affects these questions. If the United States only possessed conventional cruise missiles, then the target would be more confident that they were not under nuclear attack.  

Countries that the United States has already used dual-capable cruise missiles against did not possess nuclear weapons. Therefore, the United States and the targeted countries did not have to grapple with the dilemma. Firing Tomahawk missiles at a Syrian air base or using ALCMs to punish Saddam Hussein for attacking a Kurdish safe haven does not carry the same escalation risks as using conventional cruise missiles to tear down Russian or Chinese air defense networks.

It is misleading and irresponsible to point to past uses of dual-capable cruise missiles to downplay concerns about the LRSO. Historical evidence cannot settle this debate because there are no cases of the United States using a dual-capable cruise missile against a nuclear-armed adversary. There should be a lively discussion of the LRSO’s impact on strategic stability, but that discussion needs to have sound arguments.