Cato Op-Eds

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

Saudi Arabia and Iran continue to turn their national struggle into a religious conflict. The first is dangerous. The second could be catastrophic.

Yet Riyadh, America’s nominal ally, just demonstrated that it is the more reckless of the two states by executing Shia cleric Nimr al-Nimr.

There is much bad to say about Tehran’s authoritarian and interventionist Islamic regime. But even worse is Saudi Arabia, considered by Washington to be a valued ally.

The Kingdom of Saudi Arabia is essentially a totalitarian state. Last year Human Rights Watch reported that Saudi Arabia continued “to try, convict, and imprison political dissidents and human rights activists solely on account of their peaceful activities.”

Freedom House rated the kingdom at the bottom in terms of both civil liberties and political rights. Purported “antiterrorism” legislation allowed the “authorities to press terrorism charges against anyone who demands reform, exposes corruption or otherwise engages in dissent.”

The U.S. State Department devoted 57 pages to the Saudi monarchy’s human rights (mal)practices. Noted State: “The most important human rights problems reported included citizens’ lack of the ability and legal means to change their government; pervasive restrictions on universal rights such as freedom of expression, including on the internet, and freedom of assembly, association, movement, and religion; and a lack of equal rights for women, children, and noncitizen workers.”

The Saudi royals are, if anything, even more repressive when it comes to matters of faith. The U.S. Commission on International Religious Freedom reported that the regime “remains unique in the extent to which it restricts the public expression of any religion other than Islam.”

In its latest assessment State noted that citizens are required to be Muslims and that apostasy may be punished by death. Obviously, “freedom of religion is not protected under the law.”

Essentially, Saudi Arabia is an early version of the Islamic State which won social acceptance in the West.

Unfortunately, Riyadh doesn’t limit religious repression to home. The licentious royals propagate fundamentalist Wahhabist Islam abroad. The KSA backed the Taliban regime, which shared Riyadh’s enthusiasm for brutal implementation of 7th century Islam. Some wealthy Saudis supported al-Qaeda before 9/11.

According to Wikileaks, Secretary of State Hillary Clinton confirmed that Saudi money continues to flow to terrorists. And the monarchy has generously supported extremist Syrian rebels.

Turning the American military into the Saudi royals’ bodyguard also spurred attacks on Americans The first Gulf War was directed more to safeguard Saudi Arabia than liberate Kuwait; the U.S. garrison left in Saudi Arabia stoked Osama bin-Laden’s anger and was later targeted in the 1996 Khobar Towers bombing.  Finally, attacking Iraq created the murderous al-Qaeda in Iraq, which became a prolific employer of suicide bombers and morphed into the Islamic State.

Saudi Arabia sells the West oil, but out of necessity, not friendship. Any successor regime would do the same. Anyway, the transformation of the international energy marketplace means Washington need not worry about reduced Saudi oil exports.

On foreign policy, Riyadh is as problematic as Iran. Killing a Shiite cleric for standing up to the oppressive Sunni monarchy moved the region closer to multinational sectarian conflict. The royals have made a political settlement in Syria far harder, if not impossible.

Saudi Arabia also is ruthless in suppressing democracy and human rights elsewhere. For instance, Riyadh intervened militarily to back Bahrain’s Sunni monarchy and subsidized Egypt’s brutal al-Sisi dictatorship.

Even worse has been the KSA’s intervention in Yemen. The long-running civil war was tribal more than sectarian, but Saudi Arabia turned it into another sectarian proxy fight. The humanitarian consequences have been horrific.

Instead of being treated as an ally, Saudi Arabia “should be a pariah,” argued Freedom House President Mark Lagon. As I point out in Forbes, “at the very least, U.S. officials should drop the faux intimacy. .”

Of the many bemusing chapters of the whole interest-on-reserves tragicomedy, none is more jaw-droppingly so than that in which the strategies’ apologists endeavored to show that paying interest on reserves did not, after all, discourage banks from lending, or contribute to the vast accumulation of excess reserves.

Apart from resting on logic that’s bound to bring a smile to the face of anyone reasonably conversant with the rudiments of Money and Banking 101, these demonstrations fly in the face, both of the original justification for IOR, as offered by Federal Reserve officials themselves, and of the Fed’s recent decision to double IOR (and, with it, the upper-bound of the Fed’s federal funds rate target range) so as to prevent inflation from rising above the Fed’s 2 percent target.

Now, unless general understanding of basic monetary economics has deteriorated even more than I suspect it has over the course of the crisis and recovery, that understanding still sees inflation as a consequence of “too much money chasing too few goods.” But money can either chase after goods, or rest in bank vaults (or in the virtual vaults consisting of deposits at the Fed). It can’t do both. Thus the logic (and for once it is logical logic) behind the Fed’s decision, both in October 2008 and last month, to check inflation by raising the interest return on bank reserves.

Now on to the exhibits. I start with another passage from the Richmond Fed article by Walter and Courtois referred to in my earlier post. There I noted how these authors shared Bernanke’s own understanding of the Fed’s decision to introduce IOR in October 2008. “Once banks began earning interest on the excess reserves they held,” Walter and Courtois write, “they would be more willing to hold on to excess reserves instead of attempting to purge them from their balance sheets via loans made in the fed funds market.”

Perfectly correct. Nor do Walter and Courtois suggest that there was anything wrong with the Fed’s understanding of what it was up to. Yet, some paragraphs later, the same authors declare that banks’ subsequent accumulation of excess reserves

has mistakenly been viewed by some as a sign that the Fed’s lending facilities — the goal of which has been to maintain the flow of credit between banks, and therefore from the banking sector to firms and households — have not worked.

Now, this is already rather confusing, for as we’ve seen, according to these authors themselves, the whole point of IOR was, not to “maintain the flow of credit” in the sense of keeping it from shrinking — for shrink it most certainly did — but to make sure that the Fed’s additions to the total stock of reserves did not increase that flow, which is to say, did not serve to arrest the flow’s decline.

But let us set our befuddlement aside, in order to allow our authors to dispute the view that the vast post-IOR accumulation of excess reserves was evidence that the Fed’s emergency loans and asset purchases weren’t serving to “maintain” an adequate flow of credit:

To the contrary, the level of reserves in the banking system is almost entirely unaffected by bank lending. By virtue of simple accounting, transactions by one bank that reduce the amount of reserves it holds will necessarily be met with an equal increase in reserves held at other banks, and vice versa. As described in detail in a 2009 paper by New York Fed economists Todd Keister and James McAndrews, nearly all of the total quantity of reserves in the banking system is determined solely by the amount provided by Federal Reserve. Thus, the level of total reserves in the banking system is not an appropriate metric for the success of the Fed’s lending programs.

A gold star to all who spot the fallacy here. For those who can’t, it’s simple: “reserves” and “excess reserves” aren’t the same thing. Banks can’t collectively get rid of “reserves” by lending them — the reserves just get shifted around, exactly as Walter and Courtois suggest. But banks most certainly can get rid of excess reserves by lending them, because as banks acquire new assets, they also create new liabilities, including deposits. As the nominal quantity of deposits increases, so do banks’ required reserves. As required reserves increase, excess reserves decline correspondingly. It follows that an extraordinarily large quantity of excess reserves is proof, not only of a large supply of reserves, but of a heightened real demand for such, and of an equivalently reduced flow of credit.

And what about Keister and McAndrew’s 2009 paper, which Walter and Courtois refer to as the locus classicus of their argument? As Jamie McAndrews has generously contributed, in the course of several recent email exchanges and also in his published works, to my own understanding of the whole IOR business, I’m pleased to report that a careful reading of that paper does not support the conclusion that Walter and Courtois draw from it. On the contrary: Keister and McAndrews understand that, unlike the total quantity of reserves, the quantity of excess reserves is a function of banks’ willingness to lend. Moreover, they remind their readers that the Fed began paying interest on reserves “to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions,” and that it was only owing to IOR that banks willingly held on to so many excess reserves instead of lending them away.

But while the 2009 paper by Keister and McAndrews cannot be said to confuse the determinants of banks’ excess reserve holdings with those of banks’ total reserves holdings, the same cannot be said of an August 27, 2012 Liberty Street Economics post by Keister and Gaetano Antinolfi. Antinolfi and Keister explicitly deny that the Fed, by lowering the interest return on excess reserves, might encourage banks to “lend out some of these ‘idle’ balances.” Why not? Because, according to their reasoning, “lowering the interest rate paid on reserves wouldn’t change the quantity of assets held by the Fed.” Since lowering the rate of IOR is also unlikely to increase the share of the monetary base consisting of currency rather than bank reserves, it follows that it “will not have any meaningful effect on the quantity of balances banks hold on deposit at the Fed.”

Here is that silly fallacy again: for the question isn’t whether a lower rate of IOR can reduce banks’ total reserve balances. It is whether it can reduce their excess (“idle”) balances by inducing them to lend more. For while such lending wouldn’t serve to reduce the aggregate stock of reserves, it would lead to an increase in the nominal quantity of bank deposits, and a proportional increase in banks’ required reserves. So, even as they caution their readers that “Language Matters,” Antinolfi and Keister blunder badly by neglecting to heed the crucial distinction between the total quantity of bank reserves, which no amount of bank lending can alter, and the quantity of excess reserves, which, by means of sufficient bank lending, might always be reduced to zero.

Speaking of language, one of the peculiarities of how it evolves, according to my own (admittedly inexpert) observations, is the particular tendency of bad language memes to go viral. Once upon a time, some moron imagined that “incentivise” was a word, and the next thing you knew every other moron couldn’t wait to slip it into a sentence.

In the same way, bad monetary analysis has a way of spreading like a wildfire. So I suppose it was only to be expected that Antinolfi and Keister’s “proof” that lowering IOR wouldn’t promote bank lending would be cited approvingly (or at least not disapprovingly) by numerous other commentators. Jon Hilsenrath reported favorably on Antinolfi and Keister’s argument for the Wall Street Journal’s Real Time Economics blog, as did Jonathan Spicer for Reuters, while Mark Thoma included a large chunk of their post in a post of his own, without expressly endorsing it, but also without suggesting that there was anything wrong with it.

The mistaken understanding of Keister and McAndrews (or, as now seems more likely, the correct understanding of Keister’s own contribution to that work) likewise became, in some quarters at least, the popular understanding. Thus, according to Frances Coppola, writing for Forbes,

The volume of excess reserves in the system is what it is, and banks cannot reduce it by lending. They could reduce excess reserves by converting them to physical cash, but that would simply exchange one safe asset (reserves) for another (cash). It would make no difference whatsoever to their ability to lend. Only the Fed can reduce the amount of base money (cash + reserves) in circulation. While it continues to buy assets from private sector investors, excess reserves will continue to increase and the gap between loans and deposits will continue to widen.

Nor, according to Ms. Coppola (writing in another Forbes column), has IOR anything to do with it:

Banks are not being paid not to make loans. They don’t lend out reserves to customers. They only lend reserves to each other. By competing with banks in the market for reserves, the Fed controls the price at which they lend reserves to each other. It has nothing whatsoever to do with customer lending.

There you have it: banks can hold on to reserves, and yet lend all they wish to (though not, for some reason, overnight). Such a marvelous business! Whoever said that one can’t have one’s cake and eat it, too?

Well, banking would indeed be a marvelous business if it worked as our expert at Forbes assumes. Alas, it is not so marvelous at all in fact. For despite what Ms. Coppola claims, banks do, in effect, lend “reserves” to customers no less than to other banks. The lending of “reserves” is more apparent in the overnight market simply because it is reserves per se that borrowers in the market are after, for they need extra reserves to avoid shortfalls that would otherwise subject them to penalties, or to what amounts to the same thing: a visit to the Fed’s discount window.

If, on the other hand, a businessman borrows $500,000 from a bank, it isn’t cash itself that the businessman wants, but other things that can be got for the cash. But as soon as the proceeds of the loan, originally received as a deposit balance, are drawn upon for the sake of acquiring these other things, the withdrawals, whether by check or draft, lead quickly to redeposits in other banks, and thence to a $500,000 adjustment to the pattern of interbank clearings and settlements at the expense of the lending bank and in favor of rival institutions compared to what would have been the case had it not made the loan.

All this is entirely elementary. Yet it is not just the folks at Forbes that don’t get it. Here is what The Economist had to say back in December 2009 about the piling-up of excess reserves:

The point is that the Fed is not trying to increase lending by increasing reserves; it is trying to increase lending by lowering long-term rates and directly supplying credit to borrowers who can’t get it elsewhere. Higher reserves are the unintended byproduct. Well, unintended or not, couldn’t all those excess reserves spur credit growth and inflation? No. Reserves have not been a relevant constraint on bank lending for decades, if ever. Bank lending is constrained by customer demand and by capital. Right now, loan demand is moribund (in spite of a zero federal funds rate) and capital is in short supply.

Although it is certainly true that the Fed wasn’t trying to get banks to lend more, it did not itself believe that reserves were not a “relevant constraint on bank lending.” If it had thought so, it would not have bothered sterilizing its pre-Lehman lending, and it would not have resorted post-Lehman to paying interest on excess reserves. Jose Berrospide has it right when he says that, once that policy was in place,

banks sold assets worth selling, such as treasuries and [other] government securities, because the return on those assets was almost zero. Banks accumulated cash and excess reserves at the central bank because of the interest earned on reserves balances.

The Fed’s creation of vast quantities of fresh reserves did not result in a like increase in bank lending, not because reserves had ceased to be a relevant constraint on lending “decades before,” but because, thanks to IOR, “the marginal return on loans [was] smaller than the opportunity cost of making a loan” (ibid.).

Nor, as I pointed out in my previous post, was bank lending capital constrained except for a brief time during 2009. After that, many banks held both excess reserves and excess capital. As for lending being “constrained by customer demand,” oh puh-lease! The quantity of loans demanded, which is what the writer ought to be talking about, depends on the rate charged. The problem is that no bank was willing to lend for, or to buy assets yielding, less than the rate paid on reserves themselves.

Economists seem lately to have built a little cottage industry around the notion that those old-fashioned accounts of bank lending, what with their reserve multipliers and clearing losses and all that, are passé. To subscribe to them is to be hopelessly out of fashion. Well, call me an old fogey if you must, but I say, show me some au courant writings on the matter, and I will show you some fashionable nonsense.

[Cross-posted from]

The more I read about the case of Dwight and Steven Hammond, the more convinced I am that their prison sentences are a gross miscarriage of justice. After conducting prescribed fires on their own land that crossed onto a few acres of federal grasslands, they were convicted of arson on federal lands, which under a 1996 anti-terrorism law carries a five-year mandatory minimum sentence.

The law says, “Whoever maliciously damages or destroys … by means of fire or an explosive, any … real property in whole or in part owned or possessed by, or leased to, the United States … shall be imprisoned for not less than 5 years.” The key word is “maliciously”: there is nothing malicious about starting a prescribed fire, something that is regularly practiced by thousands of landowners as well as the government itself.

In its opinion on the case, the Ninth Circuit concluded that a 2001 fire (which the Hammonds started on their own land but which escaped to federal land) was malicious because Dwight Hammond’s grandson and Steven’s nephew, who was a 13 years old in 2001, “testified that Steven had instructed him to drop lit matches on the ground so as to ‘light up the whole country on fire.’” This betrays a divide between urban and rural cultures. To urbanites such as the judges on the Ninth Circuit, “the whole country” means the entire United States.

This obviously makes no sense; no one would think that a teenager with a few matches could light the whole nation on fire. This is probably why some press accounts reported that Steven told the teenager to “light the whole county on fire,” but even that makes little sense: Harney County, in which the Hammonds live, is the largest county in Oregon and bigger than the entire state of New Jersey.

Ruralites use the word “country” to mean something other than “United States.” Instead, it means what urbanites would call “land” or “countryside” (another word used in some press accounts). Steven Hammond’s instruction to the teenager probably was intended to mean, “burn this entire field.”

The court also noted that the fire “took the acreage out of production for two growing seasons.” Again, this indicates urbanite ignorance of rural processes. Fire is a natural component of many ecosystems, and burning can produce long-run increases in ecosystem productivity that justify short-term losses. In any case, grazing rights on the land in question were leased by the Hammonds, so they, more than anyone else, would pay for any declines in productivity.

Prescribed fire has been controversial within federal agencies for decades. As described in Ashley Schiff’s classic bureaucratic study, Fire and Water, the Forest Service long opposed prescribed burnings. During the 1920s and 1930s, it included such fires in their annual counts of total acres burned by wildfire, which greatly inflated those numbers. It wasn’t until the 1950s that the agency begrudgingly accepted the use of prescribed fire, though it still resisted its use on its own lands in the West until very recently. I remember in the 1980s hearing an agency official calling people who burned their own lands “vandals.”

The Hammonds have apparently been at odds with the Bureau of Land Management (BLM) over fire before, as a 1999 fire that they lit on their own land crossed over to BLM land, which led the BLM to warn the Hammonds not to do so again without a permit. They failed to get a permit for the 2001 fire, which burned 139 acres of federal land and probably improved its long-term productivity. The fire cost the federal government nothing as the Hammonds themselves put it out.

Nor did they get a permit for the 2006 fire, which was set to defend against a wildfire on BLM lands near their ranch. Such a backfire is standard procedure, but–probably because there wasn’t time–the Hammonds didn’t get either a permit or a waiver of a fire ban that was then in effect due to dry conditions. The fire burned just one acre of federal land, and the Hammonds paid $400,000 of federal fire suppression costs, though I suspect most of that money had been used fighting the wildfire, not the Hammond’s back fire.

The Hammond precedent could severely inhibit prescribed burning anywhere near federal land, which means practically anywhere in the West. While such burning should theoretically be okay so long as people get the appropriate permits, if they fail to follow every single rule to the letter, they could be imprisoned for five years for a “terrorist” act. Even a lightning-caused that starts on private land could be labeled “malicious” if the landowner does not make every possible effort to insure that the fire does not cross over onto federal land.

In chapter 23 of Roughing It, Samuel Clemons tells how, in the early 1860s, he lit a campfire near Lake Tahoe. When he “went back to the boat to get a frying pan… , I heard a shout from Johnny, and looking up I saw that my fire was galloping all over the premises!” They got in their boat for safety, and “Within half an hour all before us was a tossing, blinding tempest of flame!” Clemons could get away with this because there was no one other than his party for miles around. Today, the world is different, something that the Hammonds apparently failed to recognize.

Defense attorneys for the Hammonds submitted character references arguing they “have done wonderful things for their community.” But the defense brief to the Supreme Court also indicates that they have alienated numerous people.

  • A private hunting guide who testified against the Hammonds about the 2001 fire “had a great deal of animosity to the Hammonds,” probably due to conflicts between cattle and wildlife;
  • The teenager who said Steven told him to “burn the whole country” was estranged from his uncle because Steven had taken sandpaper to the boys skin to remove a self-applied tattoo;
  • One BLM official claimed that Steven had threatened to expose the official’s own careless prescribed fires to get him to change his testimony (an accusation for which the court concluded there was insufficient evidence);
  • In addition, in a classic Western conflict, the BLM and Fish & Wildlife Service were apparently upset that Hammonds had legally obtained water rights for their land and unsuccessfully challenged those rights in court.

Like a Western film noir, it seems that the Hammond’s real crimes are that they live in the past, may be somewhat hot-headed, and have made too many enemies. They’ve more than paid for those crimes with (in Steven’s case) a year in jail and a $400,000 fine. President Obama should grant their plea for clemency.

Unfortunately, their “friends” the Bundys have probably made it politically impossible for Obama to do so. It would be one thing if the Bundys and their friends had conducted an unarmed sit-in, saying they wouldn’t leave a federal office until the Hammonds were freed. Instead, they took up arms and have threatened to shoot anyone who tries to remove them, adding that they’ve invited other people to come and live on and take over the wildlife refuge. Though they clearly have a completely different axe to grind, politicians will be wary that helping the Hammonds would appear to also support the Bundys.

Our recent policy analysis criticizing E-Verify drew a response from NumbersUSA that we did not notice until recently. Most of the NumbersUSA piece is about how well E-Verify polls, which has nothing to do with the system’s failures or how it will harm Americans. NumbersUSA does take an issue with the data set we used for showing that E-Verify is largely ineffective at identifying unauthorized immigrants. As the piece reads:

According to Nowrasteh and Harper, the “the most damning indictment of E-Verify as a tool to force unlawful immigrants out of the labor market” is it’s [sic] susceptibility for identity theft. The authors write that “E-Verify cannot tell the employer, for instance, that the SSN handed to him by a Hispanic job applicant in 2015 in Texas actually belongs to an 11-year old girl who died in Minnesota decades ago.” To be sure, E-Verify was not created to catch identity thieves. And the authors report that “an estimated 54 percent of unauthorized workers submitted to E-Verify were incorrectly found to be work authorized because of rampant document fraud.” That was the finding of a 2009 report that studied statistics from April to June of 2008. The authors present it as if it was a recent discovery applicable to 2015.

The 2009 dataset is older but more reliable and detailed than more recent sets. Also, the NumbersUSA critic acknowledges in his next paragraph that  identity-theft still plagues E-Verify in 2015.  He blasts the Social Security Administration (SSA) for “failing to crack down” on identity thieves and demands further integration with the DHS.

We are glad that NumbersUSA at least shares our concerns over E-Verify’s problematic identity theft issues. However, the problem with E-Verify is economic and won’t be solved by sharing data with DHS. Our immigration laws try to separate willing workers from willing employers where large mutual gains exist. E-Verify is just one of the latest tools to attempt that. Spending more taxpayer dollars to keep these workers and employers apart with ever fancier gadgets like E-Verify won’t work. Liberalizing the law to allow more lawful immigration will. 

Thanks to Scott Platton for his excellent research assistance.

Nowhere is China’s growing reach more obvious than in Africa. President Xi Jinping just returned from a trip during which he promised African officials $60 billion in new investment. Beijing also has grown more active culturally, educationally, and even militarily.

The PRC’s increasing role has created unease in Washington. But China has run into many of the same sort of problems which faced America in the past.

The U.S. obviously fears losing business: African trade with China surpassed that with America in 2009. Beijing undermines Western pressure to improve democracy and human rights.

Yet the ultimate results of President Xi’s visit remain to be seen. The photo ops were impressive, but both the pictures and promises may fade over time.

Dealing with the continent remains a challenge. Many African nations remain in crisis. The November terrorist attack in Mali killed three Chinese citizens.

The PRC appears willing to ignore some risks which deter Western countries and companies. However, no money put into Zimbabwe—a large destination of Chinese investment—is likely to turn out well.

Osadebe Osakwe, managing director of North China Construction Nigeria, argued that “Unless the West changes its risk assessment, the Chinese will beat them to the African market.” But the market is not worth dominating at any price. Observed the New York Times:  “Nigeria is a particularly shaky bet for China.”

African countries also have discovered that Beijing desires what the U.S. demanded in the past: political loyalty, resource control, investment return. For instance, most of the $60 billion will be concessional loans. Assuming the money is forthcoming. Observed Claire Provost and Rich Harris in the Guardian, many past projects announced with great fanfare “never make it past the ceremonial pledges.”

Moreover, Africa long has been awash in “aid” from multilateral development banks, but much of that has been stolen or wasted. Beijing’s experience so far is no different.

For instance, more than a $1 billion essentially vanished, noted the Economist magazine, after being invested in a palm oil plantation in a region where “there were no roads, the river was barely navigable and villagers were hostile.” Because of the lack of conditionality, observed Brad Parks of the research lab AidData, “African officials know that they have more leeway with Beijng’s money, and they use it.”

Even cheap loans may become a significant burden to repay. Observed the Times: “Infrastructure projects in Nigeria have been fueled by the same manic lending that has also created mountains of debt for China’s economy at home.”

The PRC also often demands concessions for land, minerals, or other commodities in return. Moreover, Beijing often requires use of Chinese firms, even bringing laborers from the PRC. This is seen as a new version of neocolonialism.

In fact, the “Ugly Chinese” looks a lot like the “Ugly American” before. Explained a recent Rand Corporation report: “Labor unions, civil society groups, and other segments of African society criticize Chinese enterprises for their poor labor conditions, unsustainable environmental practices, and job displacement.”

Both sides must worry about declining growth rates. As China’s economy has slowed, demand for African commodities—food, minerals, and energy, in particular—has weakened. Another problem is that Chinese products have gained a reputation for being shoddy and counterfeit.

Thus, Western fears of Chinese domination in Africa appear overblown. Although Beijing has attempted to adapt to criticism, “African perceptions of China include a mix of approval, apathy, and contempt,” reported the Rand Corporation.

While America’s role has shrunk, I argue on China-US Focus that “the U.S. remains the largest, most productive, and most attractive economic partner for African nations. American enterprises also have a reputation for offering better working conditions, purchasing local products, and transferring more technologies.”

The U.S. has lost economic primacy in Africa, as in Asia, to China. But America likely will do just fine as long as they compete rather than whine about a changing world.

Amidst increased public scrutiny of policing practices and rising concerns over police officer safety, a recent Cato/YouGov national survey finds fully 65% of Americans say there is a “war on police” in America today. Majorities across partisan groups share this view, although Republicans (81%) express greater concern than independents (62%) and Democrats (55%). 

While Americans are concerned about police safety, this does not mean they wish to avoid reform. Instead, Americans overwhelming support (92%) requiring police officers wear body cameras that would record video of their interactions. Moreover fully 6 in 10 “strongly support” such a proposal. A paltry 8% oppose police wearing body cameras. Support extends across demographic and political groups. In an era of hyper-partisanship, police wearing body cameras achieves rare post-partisan consensus.

Sign up here for Cato’s regular digest of Public Opinion Insights.

Studies of police departments reveal officers perceive public support for body cameras as an indication of public distrust. However, this does not comport with this survey’s findings. Americans who have a favorable opinion of the police are as likely as those with an unfavorable view to support implementing a police body camera program in their community. 

Moreover, Americans do not view the police wearing body cameras as exclusively protecting citizens from the police. Instead, 81% believe such a policy will protect both—the police officers who wear them and the citizens who interact with the police—equally. Only 10% expect cameras to protect citizens more and 9% percent expect cameras to protect police officers more. While African-Americans and Hispanics (19%) are about three times as likely as Caucasians (7%) to say cameras will primarily protect citizens, overwhelming shares of all groups still say cameras will protect both members of the public and officers equally. 

A truth too often overlooked is that public support for a policy is not synonymous with a willingness to pay for it. However in the case of body cameras, a majority—55%—of Americans says they would be willing to pay higher taxes in order to outfit their local police department with body cameras, while 45% would not support increased taxes for this purpose. Nevertheless, it is worth emphasizing that if support were contingent on raising additional revenues, initial support decreases a substantial 37 points.

Politics, rather than demographics, primarily drive attitudes toward tax increases for body cameras. Sixty-five percent of Democrats (including independent leaners) say they’d pay higher taxes in exchange for a police body camera program, while 35% oppose. Conversely, a majority (54%) of Republicans (including leaners) oppose raising additional revenues and prefer local governments redirect funds from other programs to pay for police body cameras, while 46% would favor. There are not significant differences across race, gender, and age. Furthermore, favorability toward the police does not correlate with support for raising tax revenues for cameras.

Police body camera policy becomes particularly contentious when it comes to accessing the video footage. Fifty-two percent of Americans say police officers ought to be allowed to watch body camera footage before making their official statement about violent encounters, while 48% oppose. Recent legislative trends have favored police advocates’ recommendation that police officers be allowed to view video footage before making any official statements. They reason doing so allows officers to “more clearly” remember a stressful incident and point out that officers will still have to explain their actions. However body camera advocates have warned that allowing officers to view the footage beforehand creates an opportunity for officers to change their stories in efforts to absolve themselves from blame. This will likely remain a contentious policy issue going forward.

Public support for early officer access to video footage hinges largely on favorability toward the police. Among those with a favorable opinion of the police, 61% say officers should be allowed to watch the video footage before making a statement, while 39% say they should not. Results are reversed among those with an unfavorable view of the police: 74% say officers should not be allowed to watch the footage while 26% say they should. There are stark political divisions as well: 59% of Democrats oppose early access while 68% of Republicans favor early access. Non-partisan independents are divided but lean with Democrats with 53% opposed to early video access. A similar pattern emerges across ideology, with respondents who identify as “very liberal” stridently opposed (72%) while “very conservative” respondents are firmly in support (64%). Self-identified libertarians reflect moderates with slightly more in favor than opposed (55% v 45%).

Race, income, and living in a city or suburb also correlate with support for officers obtaining early access to body camera footage. Majorities of Caucasians (57%), individuals living in the suburbs and rural areas (56%), and households making more than $50,000 a year (58%) say officers ought to be allowed to watch camera footage before making an official statement of a violent encounter. Conversely, majorities of African-Americans (65%), Latinos (51%), city dwellers (56%), and households making less than $50,000 a year (55%) oppose allowing an officer view video footage before making an official statement.  A simple statistical model that simultaneously controls for race/ethnicity, urban density, and income finds that race and living in a city both exert independent effects on attitudes, while income loses statistical importance.


Americans support equipping their local police departments with body cameras even if doing so requires them pay higher taxes. Furthermore, animus toward the police does not appear to drive support for police body cameras. Police favorability does not correlate with support for the program, raising taxes to pay for cameras, or whether one believes cameras better protect citizens or police officers.

One explanation for broad public support is that different groups favor body cameras and raising revenues to pay for them for different reasons. Those who trust the police may view cameras as a safeguard protecting police officers from frivolous lawsuits or may encourage citizens to behave better when interacting with cops. Furthermore, this disproportionately conservative group also tends to view policing as part of the proper role for government and thus may be more willing to raise taxes for this purpose. On the other side, those distrustful of the police may view cameras as a way to encourage officers to behave better and will make it easier to hold officers accountable for misconduct.

Favorability—and by extension public trust—of the police does play a significant role when it comes to providing individual officers early access of video footage. Those with greater confidence in their local departments likely trust that officers won’t use their early access to change their stories or mislead investigators. Conversely those who lack confidence in their local police likely worry that officers who view footage before making statements will use the opportunity to absolve themselves from blame.

For more public opinion analysis and upcoming public opinion studies sign up here for Cato’s regular digest of Public Opinion Insights.

The Cato Institute/YouGov national survey of 2000 adults was conducted November 19-24, 2015 using a sample drawn from YouGov’s online panel, which is designed to be representative of the US population. The margin of sampling error for all respondents is +/-3.27 percentage points. Topline (.pdf) results can be found here, full methodological details can be found here.

Note: In this report, Democrats include independents who lean Democratic and Republicans include independents who lean Republican. Independents include those who said they did not lean toward either the Democratic or Republican parties.

The Identity Project says that a new DHS “Rumor Control” web page lies about the REAL ID Act. That may be true, but a lie is an intentional misstatement, and we don’t know if the PR professional who wrote the material on that page knows the issues or the law. Let’s review the record, taking each of the rumors DHS addresses in turn, so that the agency doesn’t misstate the federal government’s national ID policy in the future.

Rumor: I need a passport to fly domestically

The DHS is correct that residents of any state can currently use their drivers’ licenses and IDs, as well as a variety of other forms of ID, at TSA checkpoints. Last fall, though, in an effort to buffalo states into compliance, DHS officials and others started fanning rumors that TSA would soon refuse the IDs and licenses of states that resisted the national ID program. You don’t need a passport to fly yet.

Given the practice of checking IDs at airport checkpoints, the upshot of REAL ID compliance would be that the U.S. will have an internal passport system for domestic air travelers. You don’t need a passport to travel within the United States now, but that is the direction the policy is going.

Rumor: TSA isn’t going to accept my driver’s license starting on January 1, 2016

It must have been reassuring when DHS’s “Rumor Control” page started spreading this good news on December 31, 2015….

After deferring deadlines many times since the statutory deadline came and went in May 2008, DHS said last year that it would begin to refuse IDs from recalcitrant states “no sooner than 2016,” and it has said it would provide 120-days’ notice before it did. But the desire to manufacture urgency and bring states to heel seems to have gotten the better of the department, and refusal of IDs on January 1 became a widespread belief.

In fact, TSA will never institute a policy of turning away travelers from recalcitrant states. The reason why is the tidal wave of blame the agency would bring down on itself and the Congress if it ever followed through on this threat.

That doesn’t mean its brinksmanship won’t work. Many governors and state legislators haven’t calculated what the politics look like, and they don’t know that DHS has backed down every time a state has refused them.

What’s also little understood is that DHS is picking and choosing which states to threaten based not on the REAL ID law, but on an in-house “material compliance checklist.” DHS is issuing blanket waivers of some terms of the law to some states while it tells state officials in other states that it is absolutely required to enforce other terms against them.

Rumor: I need to get a new driver’s license or passport

The DHS response here says, “The REAL ID Act places the responsibility for action on the state, not residents of the state.” A more complete clarification would say, “The REAL ID Act threatens residents of states to coerce action out of their state representatives.”

The only thing that might require people to get new driver’s licenses is their state legislatures and governors caving to the DHS and putting them into the national ID system. People in those states will be required to go back to the DMV and stand in line to show papers proving that they’re legally entitled to be in the country. That’ll be a challenge for many people, an insult to others, costly and time-consuming for everyone.

Rumor: The Department of Homeland Security is trying to build a national database with all of our information

DHS should not try to refute this again. Doing so is untruthful, false, not accurate, and incorrect. As I’ve noted before, the law requires states to

(12) Provide electronic access to all other States to information contained in the motor vehicle database of the State.

(13) Maintain a State motor vehicle database that contains, at a minimum –

(A) all data fields printed on drivers’ licenses and identification cards issued by the State; and
(B) motor vehicle drivers’ histories, including motor vehicle violations, suspensions, and points on licenses.

Who knows why those two items are listed out of order, but compliance with REAL ID means maintaining a big database and sharing it with every other state. States that don’t do that are non-compliant with the REAL ID Act. DHS isn’t requiring it yet—it’s not on their “material compliance checklist”—but if states get on board, DHS will add this statutory requirement to the list.

REAL ID compliance now will put states “in for a penny, in for a pound.” They’re going to have to share lots of information about their residents with other states and the federal government.

Rumor: I can’t use my license to access a federal facility or nuclear power plant

As part of its staged implementation, DHS says that agencies are to refuse IDs from non-compliant states at federal facilities and locations regulated by federal identification rules. You see lots of announcements in the Federal Register about meetings where IDs from non-compliant states will be refused, and I’ve heard anecdotes about people coming to Washington, D.C., for government meetings being warned to have compliant IDs if their states are on the wrong side of DHS. What we haven’t seen yet is anyone actually turned away from a meeting, a courthouse, or other location because the only ID they had was from a non-compliant state.

When someone is turned away from a meeting or government facility for not having a national ID, the lawsuit will be really interesting. DHS will have to claim that it can condition the right to petition the government (for example) on showing ID. And it will raise the question whether a person can be denied a constitutional right because they live in a state whose driver licensing policy differs from what the federal government prefers. The lawsuit will also expose that DHS is picking and choosing among provisions of the REAL ID law to treat as “compliance.”

So, if you want your life to be easy, bring a passport on your next tour of a nuclear facility. But there are people in the country who stand on principle for liberty, sometimes at substantial cost to their convenience.

Accepting Syrian migrants in America and Europe has become an increasingly divisive political issue. While the Gulf States have refused to offer refuge to any fleeing Syrians, Syria’s direct neighbors bear a huge burden, with Jordan, Lebanon, and Turkey each hosting more than a million refugees. More than four million people have left Syria and even more have been displaced internally.

Last year I visited Zaartari Refugee Camp, located just a few miles from the Syrian border in Jordan. I was traveling with International Orthodox Christian Charities, which carries out an expansive ministry addressing the many needs of Syrians inside and outside of their country.

Zaartari, just a few miles from the Syrian border, opened in July 2012 and now contains around 80,000 people, making it Jordan’s 4th largest “city.” The United Nations High Commissioner for Refugees has overall authority to care of refugees, but a multitude of other governments and NGOs, such as the IOCC, my host, support Zaartari’s operations.

Camp residents are dependent on the charity of others. Economic life is almost entirely controlled from outside.

I visited a clinic which typically serves about 700 people daily. Samer Makahleh, with the Jordan Health Aid Society, coordinates health care programs. “To fill gaps we go to outside partners like IOCC,” he explained. Two people came up to me during my brief visit seeking financial support for operations.

Refugees receive a stipend of roughly $30 a month. Many also work for the camp, NGOS, or in private shops. Most surprising may be the diversity of private businesses, around 2500 in all, many of which line the main street, called the Champs-Elysees. (I’ve included photos in my photo-essay on Forbes online.)

The UNHCR estimates that 60 percent of working age refugees are employed to some degree. Helping with security was 22-year-old Abdul al-Jabbar, who said his family of nine came from the city of Daraa to the camp three years ago. Life is difficult, he said, “but at least we are alive. We must adapt.”

Almost anything is available for a price. Shops sell food, cell phones, tools, household supplies, and clothes, including wedding dresses, which are available for rent. There are barbers and hair-dressers. Restaurants and cafes.

Residents can buy falafels and order pizzas. There’s even a travel agency, though few refugees are in a position go far. I bought a few worry beads to supplement my supply.

Homes are a mix of tents and containers, which can be purchased by residents to gain a bit more protection from the extremes of hot and cold. Most refugees now have their own latrines and kitchens, instead of having to rely on communal facilities.

The landscape is dusty, a bit out of Mad Max World, suggested journalist Mark Haddon of London’s Daily Mail. But there are spots of green. Two homes, across from each other, have a few plants growing outside.

Both families, from the Syrian city of Daraa, were farmers. They are determined to preserve a little memory of home, and use wastewater to keep the plants alive.

The future weighs heavily. Many refugees want to return to homes which may no longer exist. Others would like to try life outside of the camp in Jordan, but cannot go legally without financial sponsorship. Resettlement elsewhere grows less likely as political opposition to increased immigration rises.

Still, life goes on. One of al-Jabbar’s sisters is engaged. The present may be difficult, but who wants to wait for a future which may never come?

As I write in Forbes online, “people in America and elsewhere in the West enjoy lives of comparative privilege. We should respond with compassion to those in need. Even Americans afraid to open their nation to Syrian refugees can give to organizations which help care for the human tsunami from Syria.”

“Whatever you did for one of the least of my brothers of mine, you did for me,” said Jesus. (Matthew 25:40) Helping refugees in Zaartari would be a fine place to start.

We’ve all heard it said that the “rich are getting richer” while the middle class suffers. Political figures on both the right and left frequently speak about the need to “bring back” or “restore” the “disappearing” middle class. Pew Research Center just put out a report that calls those ideas into question, according to a recent Washington Post opinion piece.

The report shows that from 1971 to 2014, middle-income households (meaning three-person households making from $41,869 to $125,608 annually in inflation-adjusted dollars) decreased from 61 to 50 percent of U.S. households. Why the 11 percentage point difference?

Seven of those 11 percentage points can be explained by households moving into a higher income bracket. High-income households grew from 14 percent to 21 percent of all households during the same period.

The Pew report also stated that all income groups have typically made double-digit pre-tax income gains since the 1970s:

Middle-income household income increased by 13% in the 1970s, 11% in the 1980s, and 12% in the 1990s. Lower-income households had gains of 13% in the 1970s, 8% in the 1980s and 15% in the 1990s. Upper-income households registered a 10% gain in the 1970s [and] 18% in both the 1980s and 1990s.

Then the Great Recession struck in the late 2000s. But even the Great Recession only removed 6 percentage points from the gains made by the middle class. In 2000, an average middle-income household earned 40 percent more than in 1970. In 2014, an average middle-income household earned 34 percent more than in 1970.

The Washington Post piece opines that “We’ve mistaken what is plausibly a one-time setback—the response to the Great Recession—for long-term stagnation. People have understandably but wrongly taken their recent experience and projected it onto the past.” We cannot predict the future, but it certainly seems as though the middle class has fared better than many people believe.

Yet another top North Korean official has met a violent and untimely death. No one knows if it was a tragic accident or political assassination.

Kim Yang-gon was in charge of negotiations with South, where he was respected. He supposedly died in an early morning car accident. A surprising number of North Korea’s high officials appear to leave the world this way; yet defectors say accidents are common given the poor streets and tendency of top officials to drive drunk.

Still, it looks suspicious. But it doesn’t appear to be a state-sanctioned hit. Dictator Kim Jong-un praised his “close comrade-at-arms” and showed emotion at the state funeral. 

Perhaps a rival took out Kim Yang-gon. However, while he was well-connected, having served “Dear Leader” Kim Jong-il too, it’s not apparent that he is the sort of rival worth killing.

Which leaves everyone outside again looking through the mirror darkly, as the Bible puts it.

The Korean status quo obviously is unsatisfactory. Indeed, it is positively dangerous. While everyone discounts North Korea’s endless threats against both South Korea and the U.S., as the North’s military capabilities grow people are more likely to treat them as warnings to be taken seriously. Proposals for military action against the Democratic People’s Republic of Korea might enjoy a revival.

Of course, the more dangerous Pyongyang perceives the international environment, the more committed it likely will become to building a sizeable nuclear arsenal and missile force. And to the extent that the North can argue that it is responding defensively to America, the less likely Beijing will be to apply more pressure on the DPRK.

An intrepid few have forthrightly proposed military action. But that would be a wild gamble, risking thousands of lives, mostly Korean, on both sides.

Enhanced sanctions look pretty good compared to war. And tighter financial controls would make it much harder for the Kim regime to do business with the world. However, Sudan gets by despite strict financial controls.

Moreover, without Beijing’s acquiescence, the U.S. won’t be able to cut the North’s lifeline. Forcing a national implosion would have unpredictable and potentially violent consequences.

For some the People’s Republic of China is the preferred option. Just get the PRC to force the North into line. That presumes Beijing has the ability to do so.

Moreover, the PRC has good reason to choose the status quo over creating the possibility of chaos and war on China’s southern border. Moreover, Beijing is unlikely to do any favors for the U.S., which would use a united Korea as part of a containment strategy against China.

If none of these, then what?

Some form of engagement with the objectives of moderating regime behavior, easing the threat environment, constraining arms development, encouraging domestic reform, and improving human development. Not because the chances of success seem great, but because there is no better option.

That means the South should continue talks despite Kim Yang-gon’s death. In fact, in his New Year’s Day address, Kim Jong-un expressed his desire to improve bilateral relations.

And as I argue on National Interest online: “the U.S. should open a dialogue, with the objective of initiating official though low-key relations. A diplomatic presence in Pyongyang would provide a small keyhole for peering into this mysterious country. Although expectations should be low, tempering hostilities could lead to additional benefits, especially if Kim Jong-un uses next year’s party congress to modernize.”

Winston Churchill once said of the Soviet Union that it was “a riddle wrapped in a mystery inside an enigma.” That certainly describes the DPRK for the West. Kim Yang-gon’s death only makes the puzzle more complex. Increasing contact with Pyongyang is the best way to begin to understand the North and influence its future.

History weighs heavily on East Asia. To Washington’s enduring frustration, its two most important democratic allies, Japan and the Republic of Korea, have been at odds for decades.

The divergence between the two grew especially sharp over the last couple of years, during which ties between Seoul and the People’s Republic of China notably warmed while those between Japan and the PRC sharply deteriorated, driven by the dispute over the Senkaku/Diaoyu Islands. Moreover, South Korea had its own contentious territorial contretemps with Tokyo.

Both parties deserved blame. The South was determined to hang onto emotional grievances—serious and real, but long past. Japan insisted on justifying indefensible actions whose perpetrators were long dead. Destructive domestic politics ruled.

At the end of December, however, the two countries tried to put the issue of the “comfort women” behind them. Beginning in 1931, with Japanese military operations in China, Tokyo created brothels for its soldiers. For years Japanese officials insisted that the women were prostitute voluntarily engaged, despite evident coercion.

Now Japan has apologized and agreed to create a compensation fund. In return, the ROK promised to drop the matter and “address” the issue of the private statue of a young girl, representing the comfort women, facing the Japanese embassy in Seoul.

It’s an important step forward, but does not yet close the issue. Both leaders have been called “traitors” by domestic critics. South Koreans have protested and termed the accord “humiliating.”

Unsurprisingly, the PRC denounced the agreement. Beijing cited the plight of Chinese comfort women. Japan must “face up to its history and take concrete actions to win the trust of its Asian neighbors and the international community,” said Foreign Ministry spokesman Lu Kang.

Of course, that is precisely what Tokyo has been doing. It previously moved ahead with relations with India. Manilla has publicly urged Japan to do more to promote regional security. Tensions never have been as great with Taiwan and Australia.

Most interesting are the implications for the Japan-Korea-China triangle. An unnamed State Department official called the agreement “strategically consequential.”

While Tokyo and the ROK have been at odds, Beijing and Seoul have ostentatiously embraced, with President Park meeting PRC President Xi-Jinping several times. This has simultaneously hindered U.S. efforts to isolate and contain China and added pressure on North Korea to moderate its behavior.

The PRC’s warm feelings toward South Korea may ebb a bit as a result of the pact, but Beijing cannot easily criticize another government—the sort of interference with internal affairs which it routinely decries when directed in its direction. Moreover, the bilateral economic ties are too important great for the two nations to drift apart.

While the pact opens the way for expanded military cooperation between the ROK and Seoul, President Park is unpopular and nearing the end of her term. More important, the two nations face very different security situations.

In contrast to Japan, the South fears North Korea more than the PRC. The historical and territorial disputes between Beijing and South Korea are very unlikely to lead to war.

Thus, irrespective of Washington’s wishes, it makes sense for Seoul to continue to prioritize its relationship with China over that with Tokyo. In contrast, Japan has little desire to get sucked into a land war on the Korean peninsula, while worrying mightily about Beijing’s naval advances.

Only if the ROK appears to actively join America in seeking to contain the PRC might Chinese-South Korean relations suffer. And Seoul is unlikely to make that mistake. The giant next door will always be there. The U.S. will remain the world’s leading power for years, but no longer can afford to police the globe.

As I point out in National Interest: “The South Korean-Japanese settlement is a positive step. But while it will ease tensions between America’s two top allies, it isn’t likely to turn their relationship into a new anti-China axis. Washington’s job in East Asia has gotten easier, but only somewhat.”

There are no good guys to cheer for in the militia takeover of an Oregon federal office building on January 2. The ostensible issue is the re-sentencing of two Oregon ranchers–Dwight Hammond and son Steven Hammond–for arson, while the underlying issue is federal land ownership of much of the West.

The arson fires lit by the Hammonds in 2001 and 2006 may have actually represented sensible land management, but the Hammonds lost the high ground by their failure to coordinate with the government agency managing the land they burned. Prescribed fire is a tool used to improve wildlife habitat, increase land productivity, and control wildfire. The 2001 fire aimed at improving productivity, but the government says the ranchers didn’t bother informing the Bureau of Land Management (BLM) they planned to burn until two hours after they lit the fire. While they lit the fire on their own land, it escaped and burned 139 acres of federal land, but that burning probably did not do serious damage to the grassland and they put the fire out themselves.

The 2006 fire was more questionable. A wildfire was burning on BLM land near the Hammond’s ranch, so to defend their land they lit a backfire on their own land. That would be standard procedure except, again, they didn’t tell anyone and when their fire crossed over onto federal land it endangered firefighters who the Hammonds apparently knew were located between the wildfire and their backfire. Due to severe fire hazards, the county had a no-burn rule which the Hammonds apparently violated, but this was hardly a terrorist act.

For these actions, they were sentenced to a year in jail, which possibly was appropriate considering they endangered people’s lives. But the federal government, citing an anti-terrorism law that sets a mandatory minimum sentence of five years for arson on federal land, demanded that they be re-sentenced. Having already served the first year, they were scheduled to be re-incarcerated for four more years after the New Year. It is always disturbing when the federal government uses laws aimed at foreign terrorists to oppress citizens who have political differences of opinion with government policy. The Hammonds, who have paid $400,000 in fine related to the fires they lit, probably should not have been re-sentenced to four more years in prison, but that’s a problem with mandatory sentencing laws and overly aggressive prosecutors, not federal land management.

Enter Ammon Bundy, son of Cliven Bundy, the Nevada rancher whose use of BLM land in that state became a hot issue in 2014. The Bundys and their allies believe that federal land should belong to the states or the ranchers themselves since the ranchers have grazed their cattle on it for so many generations. Thus, they ignored limits the BLM placed on the number of cattle they could graze on federal land near their ranch and refused to pay legally mandated fees for grazing those cattle.

Section 8 of the Constitution authorizes the federal government to control land in the nation’s capital, but nowhere else. If you believe that any power not granted to the federal government belongs to the states, then the Bundys are correct. However, the federal government has owned land outside the capital since 1790, when Alexander Hamilton convinced the states to yield land west of the Appalachians in exchange for federal assumptions of state debt. A few years later, Thomas Jefferson himself questioned the constitutionality of the Louisiana Purchase even as he persuaded the Senate to approve it 

The Supreme Court has heard hundreds of cases involving federal land and has never ruled that the Constitution does not allow the federal government to own land in the West. So any battle against federal ownership would have to fought politically, not in the courts.

That may be what Bundy and his friends think they are doing. Just as tree sitters raised public awareness of issues related to old-growth forests in the 1980s, the “militia’s” occupation of a Fish & Wildlife Service building that was closed for the holidays might be a way to raise public awareness of alleged federal mistreatment of ranchers. The problem with this tactic is that 90 percent of western residents are urbanites who are much more likely to sympathize with spotted owls and sandhill cranes than with cattle and sheep.

Decades ago, ranchers grazing their livestock on public lands paid enough fees to earn the Forest Service a profit. But in 1978, ranchers persuaded Congress to adopt a grazing fee formula on national forests and BLM lands that is designed to guarantee ranchers a profit even as grazing costs taxpayers more than $100 million per year. Thus, many people, including some agency officials, view the ranchers as freeloaders and their livestock as invasive species damaging the habitat for native fish and wildlife.

The Hammonds shouldn’t have lit the 2006 fire without coordinating with the BLM. The federal government shouldn’t have prosecuted them for prescribed burning using an anti-terrorist law. The Bundys shouldn’t have occupied the Fish & Wildlife Service office.

Property rights advocates who want to change public views need to find ranchers more appealing than the Bundys, who want to overgraze other people’s land without paying for the right to do so, or the Hammonds, whose unauthorized fire on federal lands threatened firefighters’ lives. Without better representatives–preferably ones willing to pay their own way and not rely on taxpayer subsidies–they won’t be able to capture the hearts and minds of the American people, which means the future of ranchers who depend on federal lands is dim.

A standard argument for outlawing drugs is that such substances are “addictive.”  As a matter of science, this claim is often over-stated: using alcohol, caffeine, cigarettes, or heroin a few times does NOT generate physiological or psychological dependence; such effects kick in only after repeated, long-term use (and even then, far from universally).  That said, all these substances - and many more - can indeed be addictive.

But a crucial question is: so what?  Take the caffeine example. Hundreds of millions of people around the globe - perhaps billions - are addicted to tea, coffee, or diet coke, yet few consider this an issue for health or policy.  Why? Because long-term, heavy use of caffeine does not seem to have major undesired side effects.  Indeed, much of the world celebrates its coffee and tea habit, praising the culinary enjoyment and social interaction that accompanies or even arises from this addiction.

So for those who believe government should  ban “harmful products,” the question should not be whether a substance is addictive but whether long-term, heavy use harms health, productivity, or other aspects of life.  I will not discuss this issue here for alcohol, tobacco, or heroin, other than to suggest that the two substances with the worst sides effects from regular use (cirrhosis for alcohol and lung cancer for cigarettes) are currently legal while heroin, with much less obvious or dramatic side effects, is not.  So much for rational public policy.

Instead, as illustration of misguided thinking about addiction, consider this passage from a recent New York Times article:

DELRAY BEACH, Fla. — Three shaky months into recovery from heroin addiction, Dariya Pankova found something to ease her withdrawal. A local nonalcoholic bar sold a brewed beverage that soothed her brain and body much as narcotics had. A perfect solution — before it backfired.

Ms. Pankova grew addicted to the beverage itself. She drank more and more, awakened her cravings for the stronger high of heroin, and relapsed. Only during another stay in rehab did Ms. Pankova learn that the drink’s primary ingredient, a Southeast Asian leaf called kratom, affects the brain like an opiate and can be addictive, too.

Nowhere does the article cite evidence that Kratom addiction has large or common side effects; rather, the article takes as given that addiction is undesirable per se.  That makes no sense, as the caffeine example shows.

So if some people prefer Kratom addiction to heroin addiction - or vice versa - why should policy interfere?

After years of embarrassing trade litigation and the threat of imminent sanctions by Canada and Mexico, Congress has finally repealed federal country of origin labeling regulations for meat.  Disguised as a way to help consumers, the COOL law was actually designed to protect a small segment of the U.S. cattle industry at the expense of everyone else.  But as this unfortunate episode comes to an end, it’s important to remember that disguised regulatory protectionism remains a major problem in the United States.

In the olden days, uncompetitive U.S. industries seeking protection from import competition would just lobby Congress for higher tariffs.  It works differently than that today in part due to international trade rules but also because there’s a broad consensus among economists and intellectuals that trade barriers harm our economy.  Still, our government is run by politicians who will always be willing to sacrifice the good of the public to help special interests.

Since transparent pleas for protection have gone out of vogue, businesses achieve the same aim by lobbying in favor of public interest regulation that disproportionately disadvantages their competitors.  This dynamic where altruistic motivation meets rent-seeking cronyism can be a powerful driver of public policy.  And when the biggest losers are foreign businesses, there’s very little organized resistance. 

The consequences of disguised regulatory protectionism are the same as imposing tariffs—higher prices and less variety for consumers, less opportunity and lower wages for workers.  While it may be impossible to count up all instances of regulatory protectionism, the pernicious nature of the problem can be seen clearly if we look at a few high-profile examples.

Dolphin-Safe Fraud

American consumers rely on “Dolphin Safe” labels to ensure that their tuna purchases don’t contribute to harmful fishing practices.  By defining what “dolphin safe” means, the federal government ostensibly ensures that the label is reliable.  In reality, the regulations benefit three major U.S. tuna companies by making it nearly impossible for their Mexican competitors to sell tuna in the United States. 

Hidden within the regulations is a double standard that gives those U.S. companies access to the label without having to meet stringent reporting or verification requirements.  It also prohibits the Mexican tuna companies from using any label that makes claims about how their fishing methods impact dolphins.  The law actually makes it illegal to provide consumers with information that some special interests don’t want them to have.

Big Tobacco’s Favorite Anti-Smoking Law

The 2009 Family Smoking Prevention and Tobacco Control Act greatly expanded federal control over people who smoke.  One of the law’s key features was a ban on flavored cigarettes, which anti-smoking activists claimed were designed to entice “children” to take up smoking. 

At the time the law went into effect, there were in fact only two kinds of flavored cigarettes on the market—menthols, which are predominantly made in the United States by American companies, and clove cigarettes, which come from Indonesia.  The law exempted menthols from the ban, so that the only cigarettes taken off the market were foreign.  The flavored cigarette ban actually benefited the very same tobacco companies that campaigners constantly malign by cementing their dominance of the flavored cigarette market.

To get a sense of just how senseless the menthol exception is from a tobacco control standpoint, it’s worth noting that 30% of American smokers regularly smoke menthols, while cloves are a niche product with miniscule market share.  Every other country with a ban on flavored cigarettes has included menthols.

Both of these protectionist regulations have been the subject of international disputes at the World Trade Organization.  In fact, just like with COOL, the United States lost these cases.  The threat of retaliation from Canada and Mexico prompted Congress to fix the worst parts of its court-of-origin labeling law, but the prospects are not as bright for the others.  Indonesia lacked the economic clout to impose sanctions on the United States, so when Washington refused to comply, Indonesia agreed to “settle” the case by dropping its complaint in exchange for nothing.  The WTO will soon determine the level of sanctions Mexico can impose in retaliation since the United States refused to comply in the tuna case.

Crony Catfish

Perhaps the most obvious example of disguised protectionism in recent years has been the process of moving catfish inspection from the Food and Drug Administration to the U.S. Department of Agriculture.  Why does this matter?  Because the USDA’s inspection service would place a moratorium on catfish imports until it certifies individual farming facilities.  That inspection can take years.  Consumers would face drastically higher prices.  And there’s no evidence that this new catfish inspection regime will improve the safety of catfish, which are not especially unsafe. 

Aside from the lack of scientific justification, what makes the catfish regulations a particularly obvious example of protectionist regulation is that its most ardent supporters are politicians from states with lots of catfish farms.  Those catfish farmers don’t like having to share the U.S. market with their Vietnamese and Chinese counterparts, and they’re willing to undergo more rigorous testing of their own facilities if it keeps out the competition. 

The good news is that the Obama Administration may have solved the catfish problem by agreeing to allow a grace period for Vietnamese catfish as part of the as part of the Trans-Pacific Partnership negotiations.  The grace period will let catfish imports continue for 18 months while the inspections take place.  This significantly reduces the possibility of a “catfish cliff” that would’ve caused a dramatic disruption for U.S. consumers and retailers.  It may also prevent the United States from having to defend another ridiculous regulation in a WTO dispute settlement case, which it would likely lose.

Finding a Solution

Unfortunately, these examples show how political forces are naturally aligned to disadvantage consumers.  When companies are asking Congress to regulate their own industry, you can be certain the result will not benefit consumers.  Trade negotiations and dispute settlement can surely help eliminate some forms of regulatory protectionism, but the results are mixed. 

Regulatory protectionism will persist until the public develops a greater skepticism for regulatory solutions to problems better dealt with in a free market.  Labeling laws impose a monopoly on definitions where competition among different labels would be more beneficial.  Paternalistic product bans are more likely to force consumers to expend extra energy to get what they want than to alter behavior.  And consumers are in a much better position than governments to respond reasonably to potential food safety scares.

As Sallie James and I wrote in our 2012 Cato Policy Analysis about the threat of regulatory protectionism:

Policymakers, commentators, and the public must be more willing to look past altruistic defenses of regulatory proposals to find the true winners and losers. When the winner is not consumers, then it must serve other ends; when the end is consumers, the regulation is probably unnecessary anyway.

On Wednesday January 13 at noon, Leif Wenar will be at Cato to discuss his new book, Blood Oil: Tyrants, Violence, and the Rules that Run the World. The book explores one of the great moral challenges of our time. That is, the massive benefits from development and global connectedness—in which we are all inescapably complicit—also enriched, enabled, and emboldened people who systematically made the lives of others desperate and miserable.

This cycle rolls on seemingly unabated. Indeed, the world’s dependence on oil and other natural resources continues to fuel violent conflicts and fund a large fraction of the world’s autocrats. But Wenar provides hope. After detailing the myriad negative consequences of resource wealth, Blood Oil outlines how “citizens, consumers, and leaders can act today to avert tomorrow’s crises — and how we can together create a more united human future.”

An important and timely book, Blood Oil has caught the eye of highly distinguished scholars. Angus Deaton of Princeton University and the 2015 Nobel Prize Winner in Economics, stated that “Wenar has written the indispensable guide, combining politics, economics, and ethics to tell us just how and why we are all involved, and what we ought to do to make the world a better place.” Harvard’s Steven Pinker, author of The Better Angels of Our Nature, called Blood Oil “one of those rare manifestos that awaken people to a pressing ethical issue by changing the way they see the world.” And while noting that “philosophers rarely write big books that could change the world,” Princeton’s Peter Singer finds that “Blood Oil is such a book.”

Wenar, who is Chair of Philosophy and Law at King’s College, will be joined by Bruce W. Jentleson of Duke University and the Library of Congress, and my Cato colleagues Ian Vasquez and Christopher Preble. The forum is open to public, and we hope that you can join what is sure to be a lively and informative discussion.

Click here to register or to learn more.

Last week, The National Interest (Online) published a critique of U.S. grand strategy in Asia by my friend and colleague John Glaser. Harry Kazianis, a former editor at TNI who now divides his time between the Potomac Foundation and the Center for the National Interest, posted a rejoinder and Glaser has since responded here.

Together, the pieces reveal a useful debate over primacy, writ large, and all three are worth a careful read.

Calling Glaser’s idea “Unthinkable,” Kazianis asked:

And what’s so bad about America’s so-called primacy in Asia in the first place? Glaser, at least in my view, makes it sound like the Asia-Pacific is some large American vassal state that it should relinquish control of. It should be clear for anyone to see that Washington is the provider of many important net public goods—like those all-important security alliances, nuclear umbrellas and protected sea lanes that allow trade to thrive.

His clinching argument, it seems, is that we should continue with our present grand strategy in Asia (and elsewhere, implicitly) because it’s the strategy that we have, and it’s worked fairly well. Why change now?

Kazianis quotes former Under Secretary of Defense for Policy Eric Edelman who, in 2010, offered up this fairly typical defense of U.S. grand strategy. “The concept of Primacy,” Edelman wrote, in a paper (.pdf) for the Center for Strategic and Budgetary Assessments:

has underpinned U.S. grand strategy since the end of the Cold War because no other nation was able to provide the collective public goods that have upheld the security of the international system and enabled a period of dramatically increased global economic activity and prosperity. Both the United States and the global system have benefitted from that circumstance.

I would take issue with two of Edelman’s claims, and, by extension, those of Kazianis and other of primacy’s defenders:

1) Correlation is not causation. While it is true that the long peace has coincided with U.S. primacy, that does not prove that U.S. primacy was the sole (or even main) cause of it. Some attempt should be made to account for the other possible explanations for the absence of great power war since 1945, e.g. nuclear weapons, economic interdependence, and the end of formal empires.

2) Circumstances change. Even if it were true that U.S. primacy was the main factor explaining the security of the international system during the last quarter century, to describe what we have done for the roughly 25 years since the end of the Cold War does not, by itself, justify what we should do for the next 25 years, or more. The U.S. share of global economic output has fallen sharply since the end of the Cold War. When looking at GDP by Purchasing Power Parity in the IMF’s most recent data set, for example, the U.S. share stood at 22.5 percent in 1989; the estimate for 2015 is 15.9 percent. Whatever statistic one chooses to use, it is clear that the burden is growing heavier on a single country. And those trends are unlikely to reverse themselves. The U.S. share is expected to dip below 15 percent by 2020.

I will stipulate that no single country could have done what the United States did in terms of providing global public goods in 1995 – or 1975 or 1955, for that matter. I doubt that a single country – including the United States – can do it forever. Forever is a long time.

It may be true that some number of countries – be it 5 or 10 or 50 – might be able to collectively muster comparable capabilities in the future to ensure that the burdens of global governance don’t fall exclusively on the shoulders of American troops and American taxpayers.

We are unlikely to reach that possible alternative future of greater burden sharing, however, if the United States clings to its present grand strategy and continues to discourage other countries from defending themselves and their core interests.

Nearly 40 years ago, the Supreme Court held in Wooley v. Maynard (1977)—the famous “Live Free or Die” case from New Hampshire—that the First Amendment protects against being compelled to convey a message displayed on a state-issued license plate. Nevertheless, the Denver-based U.S. Court of Appeals for the Tenth Circuit recently held that someone could not object to an image on Oklahoma’s license plate of the Scared Rain Arrow statue, which depicts a young Apache warrior shooting an arrow into the sky as a prayer for rain.

The court’s decision turned on drawing a line between speech in the form of words and other kinds of expression. Keith Cressman had objected to the Oklahoma tag because of the history and origin of the Sacred Rain Arrow statue. The Tenth Circuit held that Cressman’s objection was not entitled to full First Amendment protection because images are not “pure speech” and must be analyzed under the less rigorous “symbolic speech” test.

The term “symbolic speech” may be an unfortunate misnomer—it doesn’t mean speech via symbols—but the Supreme Court has only ever used the phrase to refer to “expressive conduct.” That is, “symbolic speech” is conduct that conveys a message, such as burning one’s draft card in protest of war.

The Supreme Court has always regarded non-conduct forms of expression as “pure speech.” And that’s exactly as it should be: Government has no more ability to ban bumper stickers displaying a cross than ones referencing “John 3:16,” and the same must be true for ones depicting Da Vinci’s painting “The Last Supper.” Despite the Court’s consistency on this point, lower courts are split. While the Ninth Circuit has extended full First Amendment protection to tattoos and even the process of making them and the business of tattooing, other circuits have suggested that “pure speech” is limited to words. And of course the Tenth Circuit has now said that the First Amendment protects as symbolic speech at best.

But the Tenth Circuit’s ruling did even more harm to the First Amendment than that, because the court also held that, regardless of what kind of speech the image was, the First Amendment didn’t support Cressman because he didn’t object to the actual message Oklahoma was sending; his understanding of the image didn’t align with the state’s. That holding is particularly problematic when the speech at issue is visual art, which is inherently open to interpretation and has no authoritative interpretation.

Consider, for example, Cloud Gate—better known as the Chicago Bean—whose sculptor sought to convey themes of immateriality, spirituality, and the tension between the masculine and the feminine. But most people who take selfies in front of the Bean have no idea what it’s meant to convey, or might think it has to do with distorted reflection and the like. The freedom of speech—even the freedom to think—would be threatened if compelled-speech cases hinged on whether plaintiffs “really” disagreed with the “actual” message the government was sending and thus could be compelled to speak because they opposed it for their own “wrong” reasons.

In the quintessential compelled-speech case, West Virginia State Board of Education v. Barnette (1943), the Supreme Court held that the First Amendment protected Jehovah’s Witnesses having to salute the American flag and recite the Pledge of Allegiance. Surely the Constitution would have likewise protected an atheist who opposed the flag salute because the stars represent the heavens and man’s divine goal—even though most people today don’t know that history.

But the Tenth Circuit’s decision said otherwise: The First Amendment would have protected Cressman if he objected to Oklahoma’s Native American message but did not protect him when his objection was based on what it considered to be a misunderstanding about the Sacred Rain Arrow statue. As in religious-freedom cases, courts shouldn’t evaluate the reasons behind an objection to compelled speech.

Mr. Cressman has asked the Supreme Court to review his case, and Cato has filed an amicus brief making the above arguments in support of that petition. 

BEIRUT—“Syrians are everywhere,” an aid worker told me. “Everybody is poor now.” Well over a million Syrians are scattered across Lebanon, many in small “tented settlements.” Almost half live in sub-standard housing; many lack fuel and warm clothes for winter.

Jordan hosts even more Syrians at greater cost. (So does Turkey, though it is much larger and wealthier.) Six of every seven refugees live in poverty.

Almost five years of civil war have killed a quarter of a million Syrians, wrecked the country, created economic catastrophe, displaced millions, and left virtually no one unaffected. As many as five million people have fled to surrounding countries.

Thus, the stampede of Syrian migrants to Europe should not surprise the rest of the world. Americans traditionally have offered sanctuary to those fleeing repression and war. But, apparently, not now.

Private relief groups offer the best means for Americans to help Syrians in need. There are many worthy organizations. Earlier this year, I traveled with International Orthodox Christian Charities to Lebanon and Jordan to view several aid projects. Since 2012, the charity has helped more than 3.2 million Syrians throughout the Middle East.

Much of IOCC’s work is conducted in Syria. More than half Syria’s population now is estimated to require outside aid.

Assistance runs the gamut, starting with emergency food, infant care, clothing, and bedding. IOCC repairs sanitation and water systems, helps provide shelter, and supports education.

Alas, the longer the war rages, the greater the destruction. One aid official lamented: “Buildings can be rebuilt. You cannot rebuild human beings.”

In Lebanon, I visited a project focused on mother-child nutrition, from conception up to five years of age. The “public health system was overwhelmed by refugees,” explained Rana Hage of IOCC.

Children are screened, regularly measured and weighed, and provided with nutritional supplements, high-protein foods, and milk. Tens of thousands of children have been screened and hundreds have been rescued from malnutrition.

I visited a community kitchen, one of two that helps feed 1750 people. IOCC underwrote a large, efficient cooking facility and hired local women to cook. Pots of food are distributed to needy refugee and resident families.

The charity also runs the Water, Sanitation, and Hygiene program (WASH) at two refugee encampments with more than 7,500 people. I went to one of the settlements where IOCC is seeking to develop efficient and safe water and waste systems.

The agency also was establishing water/wash facilities while providing hygiene education to reduce disease. Here, as elsewhere, the IOCC hires staff from areas being served. Unfortunately, the job is never done. Another aid worker said that the camp is “constantly changing as more people come.”

Jordan may be less fragile than Lebanon, but it suffers greatly as well. Some 80,000 people are crowded into Jordan’s Zaatari Refugee Camp, sitting only a few miles from Syria.

IOCC runs a program to prevent and treat lice, especially affecting children. The charity has distributed anti-lice kits to more than 20,000 kids. There’s nothing glamorous about this sort of work, but it meets a critical need. Health coordinator Samer Makahleh explained: “To fill gaps we go to outside partners like IOCC.”

With most refugees living outside the camps, IOCC works outside as well, even making home visits for those unable to travel. The group provides everything from school uniforms—required to attend Jordanian schools—to infant supplies and household items. IOCC also provides vocational training and English instruction.

IOCC’s identity is Christian, but it serves the needy without discrimination. In the Middle East, the charity mostly aids Muslims.

Of course, even the best humanitarian efforts can only do so much. One top IOCC official worried: “Funding is going to diminish next year. Donors are not going to be there.”

As I wrote in Forbes: “Unless more Americans and other people of good will around the world step up to address Syria’s humanitarian disaster. Centuries ago Christ called on his listeners to help the ‘least among us.’ We must meet that challenge today.”


Christians in America remain free to celebrate Christmas, but not tens or perhaps hundreds of millions of believers abroad. Murder by groups such as the Islamic State and Boko Haram topped pervasive persecution and discrimination in many nations.

On Christmas Eve, senator and presidential contender Marco Rubio penned an article decrying the lack of “attention paid to the plight of these Christian communities in peril.” He criticized the Obama administration and called for action.

Undoubtedly, Rubio’s concern is genuine. However, the GOP’s policies have hurt and will continue to hurt Christians around the world.

No single action was as injurious to Middle Eastern Christians as the invasion of Iraq. American intervention triggered a sectarian conflict which displaced hundreds of thousands of Christians, spawned a new al-Qaeda organization which morphed into the Islamic State, and tolerated ruthless Shia rule which encouraged Baathists and Sunnis to support ISIL. Absent George W. Bush’s Iraq folly, backed by Rubio and most of his competitors, the Islamic State wouldn’t exist.

Most of the usual GOP suspects, starting with Rubio, also backed the Obama administration’s decision to intervene in the Libyan civil war. This misbegotten policy left two competing governments and multiple armed militias in its wake. Worse still, it left a vacuum partly filled by the Islamic State, which publicly murdered Egyptian Copts who were working in Libya.

Syria is engulfed by a hideous civil war. Bashar al-Assad is a secular dictator who uses fear of potential religious persecution for his political benefit. But Christians and other religious minorities have good reason to be terrified about Syria après Assad. After all, many of them fled Iraq where they’ve seen the ending of the movie: it isn’t pretty.

Should Rubio & Co. succeed in ousting Assad, the likely fate of Christians is grim. The State Department noted: In Syria “ISIL required Christians to convert, flee, pay a special tax, or face execution in territory it controls, and systematically destroyed churches, Shia shrines, and other religious sites.”

On a recent trip to Jordan and Lebanon, I met with several Christian aid workers active in Syria. Most complained about U.S. policy targeting Assad. One said simply, “You Americans don’t know what you are doing.”

Washington’s reflexive support of ruthless Islamic regimes throughout the Middle East–endorsed by Rubio and the rest of the GOP presidential gaggle–is almost as bad. For instance, despite complaining about foreign blasphemy laws, Rubio declared that the U.S. must “reinforce our alliances.” Some of his Republican competitors are even more insistent.

Yet Saudi Arabia is essentially a totalitarian state, without a single operating church (or synagogue or temple) for non-Muslims. The State Department wrote, “the government harassed, detained, arrested, and occasionally deported some foreign residents who participated in private non-Muslim religious activities.”

Coptic Christians remain victims of persecution, discrimination, and violence in Egypt, even after the military ouster of the Muslim-dominated government of Mohamed Morsi.

I wrote in Forbes, “Americans should remember the plight of Middle East Christians. At the same time, voters should remember that Republican support for promiscuous military intervention and Islamic dictators did much to bring down disaster upon Middle Eastern Christians.”

Unfortunately, doing more of the same in the Mideast, as Rubio proposed, would only yield the same result. He should put helping persecuted Christians before promoting misbegotten neoconservative crusades.

, endorsed by Rubio and the rest of the GOP presidential gaggle,

In this past summer’s controversy over whether Alexander Hamilton’s image should be replaced on the $10 bill, outraged commentators made many extravagant claims on behalf of Hamilton’s wisdom in matters of money and banking policy. For example, Ben Bernanke blogged that “Hamilton was without doubt the best and most foresighted economic policymaker in U.S. history,” citing among other evidence that “over the objections of Thomas Jefferson and James Madison, Hamilton also oversaw the chartering in 1791 of the First Bank of the United States, which was to serve as a central bank and would be a precursor of the Federal Reserve System.”

Now that the controversy has cooled we can take a more informed perspective. There is no denying Hamilton’s importance and influence, or that his life story is compelling, as evidenced by the sold-out hip-hop musical Hamilton currently running on Broadway. But the wisdom of his policy advice, and the merits of the First Bank of the United States (BUS), are another matter.

To describe Hamilton’s Bank accurately, one should note that Congress owned one fifth of its shares, and chartered it exclusively, that is, made it the only bank allowed by law to branch nationwide. (State governments chartered banks, but each state denied entry to banks with charters from other states.) The BUS monopoly franchise was among the chief of the objections of Jefferson and Madison, and deservedly so. One nationwide bank is better than none, but many is better than one. Creating a legal monopoly where open competition could and should prevail is hardly a mark of good or foresighted economic policy.

Many modern-day historians miss this point, and laud Hamilton as a man of unerring financial genius. Robert E. Wright and David J. Cowen, in their 2006 book Financial Founding Fathers: The Men Who Made America Rich, write of Hamilton’s “creative genius, as he became the architect and chief advocate of a powerful national bank.” They claim that “Hamilton’s thought was often far in advance of that of most of his contemporaries,” as when he was early to advocate a national bank. They quote Hamilton’s 1781 statement that “in a National Bank alone we can find the ingredients to constitute a wholesome, solid and beneficial paper credit,” and add: “He was correct.” They call Hamilton’s 1790 Report on the Bank “a masterpiece that cogently explained the importance of banks in a capitalist economy.” They credit Hamilton with the following argument, as though it made good sense: “Next, he stressed that all the great powers of Europe possessed public banks and were indebted to them for successful trade and commerce. The implications of the comparison were clear: if young America wanted to join the ranks of the elite powers, it too would have to create a banking infrastructure.” In much the same way, Hamilton would elsewhere argue that if the leading European nations have protective tariffs, we should have them too. The error should be plain.

Hamilton modeled the Bank of the United States after the Bank of England. But in truth, the monopoly privileges of the BOE and other national banks of Europe were badges of mercantilism, and drags on financial and economic activity by comparison with free competition in banking services. A more wholesome, solid, and beneficial credit system could be observed in Scotland at the time, with free entry into nationwide branch banking. Hamilton’s “masterpiece” was oblivious to the benefits of competition in banking, much less the separation of banking and state. In his banking policy views, as in his tariff policy views, Hamilton was a retrograde mercantilist.

Wright and Cowen note that in drafting his plan for the Bank, “Hamilton also drew on Adam Smith’s seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations, where financial matters, including the advantages of banks and bank money, were amply and ably discussed. Hamilton must have brimmed with excitement as he read Smith declare that ‘the trade of Scotland has more than quadrupled since the first erection of the two publick banks at Edinburgh.’” They should also have noted that in his able discussion Smith — the penetrating Scottish critic of mercantilism — did not defend monopoly privileges in banking, but argued for free competition (see below). The “publick” banks of Edinburgh were chartered non-exclusively (note that Smith refers to the two earliest; later there would be a third plus dozens of non-chartered joint-stock banks that were similarly sized and equally branched nationwide), and were completely privately owned. Nor were they great engines of the state, as the Bank of England was according to Smith. Unlike the BOE or the BUS, which were created in large part to lend the national government money, the Bank of Scotland was actually prohibited by its 1695 charter from lending to the government.

The policy conclusion of Smith’s chapter on banking (Book II, chapter II of the Wealth of Nations) bears quoting here:

The late multiplication of banking companies in both parts of the United Kingdom, an event by which many people have been much alarmed, instead of diminishing, increases the security of the public. … By dividing the whole circulation into a greater number of parts, the failure of any one company, an accident which, in the course of things, must sometimes happen, becomes of less consequence to the public. This free competition, too, obliges all bankers to be more liberal in their dealings with their customers, lest their rivals should carry them away. In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so.

In light of Smith’s clarity and correctness here, it is actually a telling criticism of Hamilton to note that he read Smith on banking, because it means that he ought to have known better when he promoted monopoly privileges. Although Hamilton’s Report on the Bank alludes to Smith’s understanding of how banking promotes the wealth of a nation, Hamilton either didn’t understand Smith’s policy message — the more banks competing the better — or rejected it as not helpful to his own mission of empowering the federal government, for which his chosen means was to forge an alliance between the government and a new privileged financial elite.[1] Smith’s policy here was wise, and Hamilton’s not.

In brief, contrary to what is nearly the conventional wisdom, Alexander Hamilton was not “far in advance” of contemporary thinking on banking. He was decidedly retrograde in pushing for an exclusive nationwide bank with a sweetheart government deal. He was not a creative policy genius so much as a persuasive second-hand dealer in discredited mercantilist ideas.

Here I draw upon a dissertation chapter, unfortunately not available online, by Nicholas Curott.

[Cross-posted from]