Feed aggregator

Polls recently have found that millennials have a more favorable view of socialism than older Americans do. Of course, Emily Ekins suggests that those attitudes are likely to fade as they start paying taxes. But I was interested to read this in the Washington Post today:

another Pew poll found that 95 percent of Vietnamese felt that people were better off in a free-market economy.

Wow, 95 percent. Rand Paul should run for president there. Today’s Vietnamese, of course, grew up in a Stalinist political and economic system. Since 1986 the Communist party government has pursued “market economy with socialist direction.” That’s not a Western-style free(ish) market, but it’s a lot better than Stalinist socialism, and the economy has prospered. Sounds like the Vietnamese people want more market, less socialist direction.

U.S. millennials grew up in a market economy, and after the fall of the Soviet Union they didn’t even hear much criticism of socialist economies, so they can support some imaginary vision of “socialism.” Even there, though, Ekins notes that 

millennials tend to reject the actual definition of socialism — government ownership of the means of production, or government running businesses. Only 32 percent of millennials favor “an economy managed by the government,” while, similar to older generations, 64 percent prefer a free-market economy. 

Yesterday, Sue Desmond-Hellmann, CEO of the Bill and Melinda Gates Foundation, made an important admission in an open letter about the Common Core:

Deep and deliberate engagement is essential to success. Rigorous standards and high expectations are meaningless if teachers aren’t equipped to help students meet them.

Unfortunately, our foundation underestimated the level of resources and support required for our public education systems to be well-equipped to implement the standards. We missed an early opportunity to sufficiently engage educators – particularly teachers – but also parents and communities so that the benefits of the standards could take flight from the beginning.

This has been a challenging lesson for us to absorb, but we take it to heart. The mission of improving education in America is both vast and complicated, and the Gates Foundation doesn’t have all the answers.

Think about this. One of numerous objections to the Core has been that the Obama administration, at the behest of Core advocates including Gates, attempted to impose the standards on the entire country without the Core ever having been tested. Avoiding the sort of implementation obstacles that Desmond-Hellmann laments is exactly why testing – in a federalist system, typically done by a state or two voluntarily trying something – is so important. It is how you learn what works and what doesn’t, how to improve it, and it is how you keep the whole country from suffering when something fails. But no, Gates and other Core supporters could not wait for that – they had to impose the Core on everyone because, well, they just knew what America needed.

Or maybe they didn’t.

No one – not the Gates Foundation, not the Obama administration, no one – is omniscient, which is one reason it is so dangerous to impose one “solution” on everyone. There is a very good chance that the solution, even if it seems foolproof, will have lots of major, unanticipated problems.

The question now is, will Gates and other Core advocates learn from the ill effects of their hubris, and cease their efforts to impose a single solution on all people?

We can only hope.

President Obama’s trip to Asia is off to a running start with the announcement that the United States will lift a decades-long American arms embargo on Vietnam. Initial commentary on the announcement has been generally positive, portraying the end of the embargo as the most recent in a string of events signaling improved relations with America’s former adversary in an increasingly dangerous region. So, what comes next in the U.S.-Vietnam defense relationship?

1. How will China react?

China’s Ministry of Foreign Affairs had a relatively quiet response to the announcement thus far. However, increased American military support for Vietnam fits into the narrative of a U.S.-led effort to contain China. It would not be surprising if more aggressive rhetoric comes to the fore in Chinese media over the coming days. China has also shown a willingness to respond to U.S. shows of force or resolve with military displays of its own. Vietnam’s capacity to resist Chinese coercion should increase once arms sales begin, but if China responds to such sales with assertive counter-moves then the security dilemma in the South China Sea (SCS) could become worse.

2. What equipment will Vietnam buy?

Given the challenges it faces in the SCS, Vietnam will likely place a premium on military hardware that improves maritime domain awareness and the ability to quickly respond to infringement on its claimed territories. For example, in 2015 the United States pledged $18 million to help Vietnam purchase U.S.-made Metal Shark patrol boats for its coast guard. Sales of more advanced or lethal systems may be more difficult given the challenges of integrating such systems into an arsenal already dominated by Russian weapons and the high price tag of U.S. hardware. Additionally, Vietnam has overlapping territorial claims with the Philippines, a U.S. treaty ally. Vietnam-Philippine squabbling is not the primary threat in the SCS right now, but Washington policymakers have an incentive not to approve sales of equipment that could give Vietnam a significant advantage over the Philippines.

3. How does lifting the arms embargo advance U.S. goals in the SCS?

In a press conference announcing the end of the embargo, President Obama stated “the decision to lift the ban was not based on China,” but was part of a broader process of normalization with Vietnam. This statement is only partly true. On the one hand, U.S.-Vietnam relations have greatly improved over the years and this is the next logical step in normalization. On the other hand, assertive Chinese activity in the SCS is the most pressing security concern in the region and lifting the arms embargo should improve Vietnam’s ability to deal with it. Improving the military capacity of U.S. allies and partners is a low-risk way to increase the costs of Chinese actions, which seems to be the current U.S. objective in the SCS. Unfortunately, “imposing costs” isn’t an end state.

Lifting the arms embargo on Vietnam is an important step toward the best course of action for the United States in the SCS: using weapons sales and economic support to bolster the self-defense capabilities of friendly states. It will be virtually impossible for America’s partners to achieve military parity with China on their own, but with the right mix of weapons systems and strategy they could present serious challenges to Chinese military action. More capable allies and partners should enable the United States to be a balancer of last resort in the SCS, instead of the first line of defense. 

For November, voters turned off by Trump and Clinton may be interested in the likely Libertarian Party ticket of Gary Johnson and William Weld. Johnson is a former governor of New Mexico (1995-2003), and Weld is a former governor of Massachusetts (1991-1997).

David Boaz gives an overview of their records, noting that both governors scored well on Cato’s fiscal report cards. Since 1992, the report cards have examined the tax and spending records of the nation’s governors every two years.  

Cato report cards are here. The best governors get an “A” and the worst get an “F.” The reports covering Johnson and Weld were written by Steve Moore and various coauthors.

Here are Johnson’s grades, with a few notes from the reports:

  • 1996, “B.” Johnson is “aggressively trying to make the state more taxpayer friendly. To control spending, Johnson has vetoed 200 bills passed by a liberal legislature.”
  • 1998, “B.” Johnson is “a true citizen-lawmaker who calls himself a libertarian … In a big-government state like New Mexico … Johnson’s staunch fiscal conservatism has been much needed, but also much resisted.” Johnson “reduced the number of state employees by nearly 10 percent, and he has set a state record for legislative vetoes.”
  • 2000, “B.” Johnson “has gained a well deserved reputation as a maverick governor. More so than just about any prominent politician in America today, Johnson has a libertarian attitude when it comes to government.” In “battling the legislators at every turn, Johnson has succeeded in cutting the state income tax, the gasoline tax, the state capital gains tax, and the unemployment tax. In 1999 he vetoed a 12-cent-a pack cigarette tax hike—not because he likes smoking, he says, but because he opposes all tax hikes.”
  • 2002, “B.” Johnson “has done much to create private-sector jobs and to erode the culture of dependence on government in New Mexico.”

Why didn’t Johnson get some “A” grades from Cato? In most of the reports, he scored rather middling on spending. Also, the 2002 report suggests that the legislature blocked many of his reforms.

Here are Weld’s grades:

  • 1992, “A.” Weld cut the budget and pushed to reduce income and capital gains taxes.
  • 1994, “B.” Weld cut spending, balanced the budget, improved the state’s bond rating, and cut numerous taxes. Even with a Democratic legislature, “Weld has a stunningly successful fiscal record.”
  • 1996, “B.” Weld “began to engage in a whirlwind of government downsizing. In his first two years in office, the state budget actually declined in nominal terms—an astonishing achievement given the pro-spending inclinations of the legislature. Weld privatized state services, slashed the public payroll, and cut general welfare assistance for employable adults. Weld has also been a supply-side tax cutter.”

Look for a new Cato fiscal report card in October.

The Washington Post discusses an effort by a Maine philanthropist to donate 88,000 acres of land to the National Park Service (NPS). Showing good sense, Mainers are pushing back against the idea:

“How many times do we have to say, ‘No, it’s not what we want for the area?’ ” Millinocket resident Lorri Haskell said, noting that residents in towns near the proposed park voted against its creation, that the governor and legislature are opposed and that Maine’s congressional delegation refuses to introduce the measure necessary to create a national park.

That leaves only the prospect of President Obama using his authority under the Antiquities Act of 1906 to declare the land a national monument — something he has done nearly two dozen times while in office.

“It has nothing to do with us anymore,” Haskell said as she sat at her kitchen table. “It has to do with whether President Obama is going to betray us. Is this how democracy works?”

The land was assembled by Roxanne Quimby, co-founder of Burt’s Bees. She and her son have lobbied for a decade to give it to the NPS. But their effort “has bitterly divided this corner of New England… where distrust of the federal government runs as deep as the rivers and streams.”

Why would Quimby want to give her land to the mismanaged, gridlocked, and polarized federal government? Why not preserve it within a private, nonprofit environmental organization? Why not give it to the state government?

Skeptical Mainers fear that once the Feds have the land, they will curtail access to it and move decisionmaking to faraway Washington. As discussed on DownsizingGovernment.org, centralizing control over assets and activities does not solve problems, it creates them. Whether it is land, water, education, housing, or transportation, federal control creates more bureaucracy, more regulation, less certain funding, and less democracy.

Quimby must have a romantic and unrealistic vision of the NPS, because the actual agency is likely to mismanage her land and run it down over time. The NPS operates more than 400 parks, monuments, and historic sites. The total acreage of NPS holdings has quadrupled from 20 million in 1940 to 85 million today. That is far too large an inventory to manage efficiently, and many NPS sites suffer from deterioration. About 60 percent of 27,000 NPS historic structures need repairs. The NPS and other Department of Interior agencies have accumulated more than $14 billion in deferred maintenance.

America does not need more national parks. The NPS can’t maintain what it already has. Human bureaucracies are not like efficient bee colonies. Mainers would be better off keeping control of their land within Maine.

For more on NPS, see here.

Jim Harper provides an excellent response to the too-smart-by-half libertarians who pride themselves on not voting (and mock those who do). I’ll add another benefit of voting Harper does not mention explicitly.

The usual anti-voting spiel goes like this. Your vote has zero chance of being the deciding vote. So what’s the point? You’re totally wasting your time. Not voting is smart. You should be smart. Like me. Harper responds by noting that the non-deciding vote also has value:

Votes are a dazzling roman candle of information supplied to elected officials, their staffs, political parties, journalists, opinion leaders, and future candidates, to name a few. All these witnesses to elections incorporate vote information—not just outcome, but win/loss margins—into their actions and assessments well beyond election and inauguration day.

Margins of victory matter: to candidates, donors, other officials, etc.

Yet voting has value apart from its direct effect on vote totals for various candidates or referenda. This is principally because many people see voting as an act of caring. If you vote, they think you care about your community/state/country. If you don’t, they think you don’t care and – listen up, libertarians – they will be less open to your ideas. Libertarians who want to influence other people might want to drag themselves to the polls if only so that they can later pass this test.

One might object that it makes no sense to use voting as a signal for caring. Perhaps, but it makes no less sense than using non-voting as a signal for smartness. We don’t get to choose how others interpret voting. Sometimes, if you want to get anywhere with people, you obey the local customs, even if they seem silly. 

I am not recommending that everyone always vote. There may be principled reasons not to vote. Many people who vote maybe shouldn’t. But we should put to rest the “deciding vote” objection.

Your vote matters. Not as much as it would under instant-runoff voting, but it still matters.

A fair number of libertarians pride themselves on not voting. Among their reasons: One person’s vote is so unlikely to influence the outcome of an election that almost any alternative action is a better use of time. That reasoning has appealing simplicity. For consistency’s sake, our hyper-rational non-voting friends should refrain from applauding at performances or cheering at games. People who want to see liberty advance, and not just bask in the superiority of libertarian ideas, should probably vote—and vote loudly.

News that former Massachusetts governer William Weld desires to join Gary Johnson on the Libertarian Party ticket makes the question of libertarians’ voting practices particularly salient in 2016. The major parties’ candidates are the least popular ever.

Here’s a reason why non-provision of the pivotal vote is not a reason not to vote: Voting does more than elect candidates.

Votes are a dazzling roman candle of information supplied to elected officials, their staffs, political parties, journalists, opinion leaders, and future candidates, to name a few. All these witnesses to elections incorporate vote information—not just outcome, but win/loss margins—into their actions and assessments well beyond election and inauguration day.

Here’s one use of vote information that I’m familiar with as a former Hill staffer: Folks in Congress assess each other’s strength and weakness according to electoral margin of victory. When a one- or two-term member of Congress is re-elected by a wide margin, it’s a signal that he or she is there to stay. That member is going to have a vote for a long time and will acquire more power with increasing seniority. The stock of that person and his or her staff rises, and they immediately have more capacity to move their agenda.

The process is the same in reverse. When a longer-serving member suffers a narrow win, that signals blood in the water. That member is likely to draw more serious, better funded challenger in the next election, and defeat becomes much more likely. The stock of that politician drops, and the ability of that person’s office to advance an agenda falls with it.

Winning is essential, but margins of victory affect margins of power.

In the coming presidential election, margin of victory will have similar dynamics among other groups—and they could be quite substantial. The larger the “protest vote” going to Libertarian Party candidates or others, the more news stories there will be that expose people for the first time to the existence and relative popularity of libertarian ideas, as well as others. While driving up the stock of liberty, a showing for libertarian candidates could drive down the stock of the Republican and Democratic offerings, putting blood in the water around the establishment parties.

Though hard to measure, the social and political consequences of voting are quite real, regardless of a U.S. election’s (binary) outcome. This does not mean that any libertarian should feel obligated to vote. But libertarians who shave and wear clean clothes, to say nothing of those who write or Tweet about liberty, should probably consider engaging in voting as a similar social signaling tool without respect to whether it elects a candidate.

On May 20th, the Financial Times reported the surprising contraction recorded in Nigeria’s economy. The first negative year-over-year quarter for GDP in six years. This will be the start of more negative news from Nigeria.

Without a major currency reform (read: the installation of a currency board), the weakness of Nigeria’s naira will not end anytime soon. This is bad news for inflation, which, according to my Cato Troubled Currencies Project estimate, has exploded to an annual rate of 58.6 percent. This is a long way from the official estimate (see the chart below).

 

This large discrepancy between the most recent official annual inflation rate of 12.77 percent and my implied inflation rate of 58.6 percent calls again for the use of a lie coefficient. The formula for utilizing this lie coefficient is as follows: (official data) × (lie coefficient) = real estimate. At present, the Central Bank of Nigeria’s lie coefficient is 4.6.

Earlier this week Ruth Marcus of the Washington Post published a column titled (in the print edition) “Stonewaller, shape-shifter, liar.” I won’t keep you in suspense: it was about Donald Trump. But apparently I wasn’t the only reader to have the reaction, Wouldn’t that title apply to more than one candidate this year? And some of the readers made their view known to Marcus. So today she tries valiantly to explain why Hillary Clinton isn’t – really, quite, so much – guilty of the same offenses.

Sure, she stonewalls and keeps secrets. But in many cases, she eventually comes clean. Like, you know, with her private-server emails and her Benghazi correspondence.

And yes, she’s flipped 100 percent from her previously firm positions on same-sex marriage (against, then for) and the Pacific region free-trade agreement (for, then against). Yet, Marcus writes, “voters, agree or disagree, can have reasonable confidence about Clinton’s basic worldview and where she stands on issues.” Really? Just where does she stand on trade? For TPP or against it? For a trade agreement with Europe or against it? Unless Marcus is psychic, she’d surely have to admit that Clinton stands firmly with her finger to the wind. (Admittedly, that might be better than Trump’s adamant support for protectionism.)

And then there’s, well, the lying. Marcus cites two fact-checkers who conclude that there isn’t sufficient evidence to prove that Clinton like about the Benghazi attack. Not beyond a reasonable doubt, anyway. Marcus even praises Clinton’s wildly inaccurate and repeated statements about coming under sniper fire:

Clinton’s handling of another “lie” is instructive. At several points during the 2008 campaign, Clinton described “landing under sniper fire” in Bosnia in 1996; video debunked that account. But confronted with conflicting evidence, Clinton acknowledged that she “misspoke.” Has Trump ever backed down from his bevy of demonstrably false statements?

Sorry, counselor, this is not “misspeaking.” It would be misspeaking if she said she came under fire in 1998, when it was really 1996. We might even credit her with misspeaking if she said it happened in Bosnia when it really happened in Kabul; she’s traveled a lot. But in this case, she made a claim about her own experience, and repeated it many times over several years with great detail (as a video with 7 million views illustrates), that was completely at odds with the facts. It’s not a stumble. It’s more like the false claim of Joe Biden that he came from a long line of coal miners, or the false claim of Sen. Richard Blumenthal throughout his political career that served in Vietnam, or indeed the false claim of historian Joseph Ellis that he too served in Vietnam. In every case these claims served to make the teller seem more experienced and even heroic than he or she actually was – helpful in building a political persona, but absolutely false.

And that doesn’t even get us to statements at odds with known facts on such points as whether she was “dead broke” upon leaving the White House, why she was named Hillary, whether her grandparents were immigrants, and whether she tried to enroll in the Marines or how and why she voted for the war in Iraq.

My low regard for Donald Trump is pretty well known. But I don’t see how any honest assessment can dismiss the low levels of honesty that Hillary (and Bill) Clinton have displayed for 25 years now. Which might explain why exactly 64 percent of voters consider both Clinton and Trump not to be “honest and trustworthy.” And given the high levels of unpopularity of both major-party nominees, you have to wonder if voters are going to be looking around for plausible alternative candidates.

The Peace of Westphalia in the mid-17th Century established the idea of state sovereignty. Under Westphalian principles, each state has exclusive authority over its territory and domestic affairs.  That’s been pretty good for kings, ruling elites, and the lucky few who live in top-class democracies or benevolent dictatorships.

But Westphalia is on the way out. Individual sovereignty is coming in.

Territorial state sovereignty is just one way to organize human affairs. It was probably an improvement on constant tribal war, but it’s not the last step in political evolution. It’s exciting to see how the boundaries of Westphalia can be surpassed in favor of individual empowerment. People are increasingly able to conduct their intellectual affairs—speaking, transacting, and so on—without reference to nation-states.

I’m reminded of this far-sighted (or far-out) notion by a relatively practical observation from identity expert and former Utah CIO Phil Windley. In “Self-Sovereign Identity and Legal Identity” Phil says:

We’ve finally gotten to a place where self-sovereign identities are technically possible. This is a huge milestone. The next hurdle is getting organizations, including governments to allow the use of self-sovereign identities as the basis for their administrative identities.

Over the last few centuries, it has become the state’s acknowledgement of one’s identity that provides entree to the accoutrements of human society. Want to go to school? Check out a library book? Open a bank account? Buy a home? Drive a car? Get Internet access? Ride in a plane? Have a beer? You’ll probably need to show or have shown government-issued ID.

The dominance of government identification probably emerged because states have generally had the better administrative capability to fix identities to people. Has it strengthened the power of the state as a byproduct? Oh, yes. Identity is a linchpin.

But the administrative environment has changed. Government systems wil become less and less important. Anyone can create a secure digital identity, and systems will emerge to attach biography and reputations to such identities that are as good or better than what attaches to our government-sanctioned identities in the highly regulated credit reporting system.

That opens up new vistas for people to act without respect to the constraints of governments and government-approved systems—to speak, assemble, interact, transact. We’ve enjoyed felicitious and generally well-enforced rules that protect free speech in the United States (and not that many other places).That’s only one important dimension of freedom. Now not only identity but money and digital goods and services are ripe for a break from government (and corporate) control. Using Bitcoin as its payment rail, for example, the OpenBazaar software system allows people to buy and sell on their own terms.

Territoriality still matters. The Westphalian norm rules in situations where government agents can lay hands on you and your stuff. But in the intellectual realm, as distinguished from the physical, a new sovereignty of individuals is fit to emerge. The clear benefits of Westphalian ordering to political leaders and rulers may soon begin to fall away as individuals conduct their lives without respect to political authority, including politicians’ demands for control or a cut of the action.

Phil’s post is inspired by the ID2020 summit being held today at the UN’s headquarters in New York. The Westphalian system has failed to deliver usable identity to some 20% of the world’s people, it turns out, and that conference aims to get them some. The risk in a top-down identity enterprise, if that’s what results, is that such systems could nail humanity irreversibly onto government machinery rather than fostering freedom in all its facets. I’m heartened to see some participants there who I know from the Bitcoin world to be liberty-minded, among many who are at best indifferent.

“Descartes didn’t say ‘I have a birth certificate, therefore, I am.’” That’s Phil Windley again. Brilliant. I don’t know that he shares the vision unreservedly, but here’s hoping that technology can fulfill the promise that men and women will exist and live more fully on their own terms, and less on terms dictated by the state.

The Obama administration this week announced final regulations doubling the salary threshold (from $23,660 to $47,476) at which most employers must pay time-and-a-half overtime to white-collar workers, and indexing future thresholds to advances in the wage level. Employees 25-34 and those with a bachelor’s degree are expected to be the most heavily affected groups; among sectors expected to be hard hit are not only retail chains, restaurants, and small businesses that hire on-site managers, but also colleges and even food co-ops.

As colleague Jeffrey Miron observed in this space on Wednesday, the notional paycheck benefits to employees reassigned to hourly status are likely to prove temporary, since employers have many ways over the medium term of dodging a permanent upward jump in payroll costs: they can forbid employees to clock more than 40 hours a week, lay off those who regularly do so, cut back on non-cash perks for the salaried, and so forth, not to mention suppressing the level of base pay itself.

The final version slightly softens some of the worst features of last year’s proposal, knocking down the pay threshold a bit, allowing bonuses and commissions to count toward 10 percent of the sum, and dropping a scheme to expand the range of duties forbidden to salaried managers. But overall, it’s still impractical in the extreme - as House Democrats, of all people, discovered when they tried to comply with the spirit of the rules in their own offices. The result, as I noted in this space last month, turned out to be a series of headaches including the prospect of unanswered phones and other gaps in constituent service, layoffs, and even closure of some district offices.

Two years ago, when the administration announced its plans, I pointed out in this space that the proposal, part of President Obama’s “binge” of executive orders and unilateral decrees to bypass Congress, posed very large compliance costs, aside from giant class action payouts by employers unlucky enough to guess wrong about the law’s requirements. It would also “frustrate ambitious individuals who willingly tackle long hours to rise into management ranks.” Perhaps most significant, it would force millions of workers into time-clock or hour-tracking arrangements even if they themselves prefer the freedom and perks of salaried status. The hassles of this system, when stringently enforced by law, are major:

For years, some lawyers have been advising clients not to hand out company-paid cellphones to any workers who lack a lawful overtime exemption, lest a claim later be made that work was done on the phones during evenings and weekends. Where the law is particularly stringent about calculation of lunch breaks, as in California, some lawyers have advised employers to make it a firing offense to do any work during the allotted break.

Many workers will also lose the option of “comp time” arrangements, often valued as family-friendly, by which extra hours worked one week are offset by a paid day off in the next. Much more on the likely constriction of workplace flexibility is to be found in Donald Boudreaux and Liya Palagashvili’s recent Mercatus Center paper, which discusses the menace posed by the rules for the practice of telecommuting (which by its nature makes it hard to track work hours).

I’ve covered the regulations extensively over the past two years at Overlawyered, including the tactics (such as lowballing costs and fast-walking comment periods) by which the intensely ideologized Department of Labor of Thomas Perez has sought to evade scrutiny of the measure’s costs. Along the way,  I also noted that “one big if unstated aim” of the rules is one of ideological transformation of the American workforce itself: “with more people punching clocks at work, there’ll be fewer with the politically unproductive ‘management mentality’ of salaried types.”

While everyone was debating Trump’s judicial-nominations list yesterday, the judge in Brownsville, Texas, who still maintains control of certain technical aspects of the immigration-executive-action case now before the Supreme Court issued an extraordinary order sanctioning the Justice Department for various misrepresentations and other ethical breaches. It turns out that the government had begun implementing DAPA and extended DACA – the program providing temporary eligibility for residence and other benefits to large classes of illegal aliens – before the February 2015 date when those programs were intended to become active.

Judge Andrew Hanen had worked to produce a 123-page opinion enjoining the executive action on the eve of that “go” date, and it turns out that the Justice Department violated its duty of candor by not revealing the extent of its malfeasance – and continuing with the program in certain ways for a few weeks after the order went into effect. That is, regardless whether the government purposely defied the judge or this was a case of the left hand not knowing what the far-left hand was doing, administration lawyers had a duty to disclose everything that was going on, and to make best efforts to stop the Department of Homeland Security from putting its new programs into effect.

But they didn’t do that, so Judge Hanen issued a truly remarkable sanctions order that not only details DOJ’s “bad faith” but incorporates movie dialogue to illustrate points about the the government’s not being above the law and the importance of truth-telling. As Josh Blackman says in an excellent summary:

This egregious conduct violates the most basic tenets of judicial ethics, which demand an ongoing duty of candor to the courts. What is the government’s defense? The Justice Department rationalized that its lawyers “lost focus on the fact” or that somehow “the fact receded in memory or awareness.” In one of the more light-hearted parts of the otherwise sober opinion, Judge Hanen quoted from the classic movie Miracle on 34th Street. When young Tommy Mara was asked to testify about Kris Kringle’s secret identity, he was asked, “Tommy, you know the difference between telling the truth and telling a lie, don’t you?” The boy answered, “Gosh, everybody knows you shouldn’t tell a lie, especially in court.” The Justice Department lawyers deserved coal in their stockings.

These accusations aren’t even the most audacious aspect of the court’s 28-page order. In a decision that will be studied in legal-ethics classes for decades to come, Judge Hanen placed many of the lawyers at the Justice Department’s headquarters in Washington, D.C. — known as “Main Justice” — under his personal supervision. This relief is reminiscent of federal courts that placed recalcitrant school districts under supervision to ensure compliance with desegregation orders. Or more recently, this relief is akin to judges who placed deficient police departments under federal oversight to ensure they reduce police brutality or other offenses. What is remarkable here is that Main Justice will now be required to report to Judge Hanen’s authority for the next five years to improve its ethics.

Indeed, Hanen’s remedy consists of five component: (1) all the lawyers at DOJ headquarters who litigate in the 26 states that challenged DAPA (most of them) have to go back to school for an annual ethics course taught by an outside expert; (2) DOJ has to certify annually for five years that these lawyers are indeed going to school; (3) the attorney general must report within 60 days “a comprehensive plan to prevent this unethical conduct from ever occurring again,” and “what steps she is taking to ensure that . . . the Justice Department trial lawyers tell the truth — the entire truth.”; (4) the attorney general is also required to report in 60 days “what steps she is taking to ensure that the Office of Professional Responsibility … appropriately disciplines those whose actions fall below the standards that the American people rightfully expect from their Department of Justice.”; and (5) the government must “file a list of each of the individuals in each of the Plaintiff States given benefits” under the enjoined programs, including their names, addresses, and other personally identifying information. These records would remain sealed, but the states would be able to access them on a “showing by a state of actual or imminent damage that could be minimized or prevented by release of the information to one of the Plaintiff States.” (Josh is dubious about the purpose and propriety of this last item, but it would seem to me that it would facilitate, should the plaintiff states ultimately prevail in their legal challenge, the state revocation of driver’s licenses and other benefits from those who wouldn’t have gotten them had not the government acted so egregiously.)

I can’t overstate how unusual such a sanctions order is. Judge Hanen even said that in a normal case, he’d simply strike the guilty party’s pleadings – meaning the government’s entire defense, handing a summary win to the challengers – but he couldn’t do that here because such a move would imperil the Supreme Court’s jurisdiction over a case of national import. He also said that he’d disbar the attorneys responsible if he had that power, but instead simply revoked the out-of-state lawyers’ ability to practice in his court pro hac vice (for this case).

Amazing. I’m sure that much if not all of this will be affirmed on appeal.

Yet again Donald Trump has proved that he was not the most militaristic Republican running for President. While most of Trump’s erstwhile Republican opponents were more likely to propose bombing North Korea, he proposed talking with Pyongyang.

Whether Trump meant a summit, phone conversation, or diplomatic discussion is unclear. But Washington should propose diplomatic talks, whether or not ultimately capped by a presidential conversation.

After all, other approaches are a nonstarter or have failed. Military strikes likely would trigger serious retaliation and possibly full-scale war. Sanctions have inflicted pain but not changed Pyongyang’s policy.

Why engage? First, even paranoids have enemies. Diminishing its sense of threat would at least create a possibility that Pyongyang would respond favorably to American initiatives.

Second, while the DPRK almost certainly would not voluntarily dismantle its existing nuclear arsenal, it might be willing to accept restrictions on future developments and proliferation.

Third, enlisting China’s aid, meaning a willingness to cut energy and food assistance, thereby potentially threatening the survival of the North Korean state, remains a long-shot and requires a significant American initiative to engage the DPRK.

Fourth, America could use a window, however small, into the Hermit Kingdom. Negotiations would offer a peak.

Fifth, the DPRK desires direct talks with America. One reason may be the desire to balance against China, which Washington should encourage.

Of course, any talks should be conducted with realistic expectations. Pyongyang is hardly a model negotiating partner. But that doesn’t preclude a more limited agreement at least moderating Pyongyang’s threats.

No surprise, Trump’s proposal to talk is controversial. However, as I write in the Diplomat, despite a policy agenda highlighted by foolish and unrealistic proposals (starting trade wars and building walls, for instance), on Korea Donald Trump is right. Offering to talk with North Korea’s Kim Jong-un could help break today’s stalemate.

The 2016 election season has put international trade in the spotlight – or, actually, under the heat lamp – like never before.  But just as some of us in the trade policy community started getting big heads over the increasing prominence of our pet issues, the U.S. International Trade Commission released this report yesterday, which concludes that the Trans-Pacific Partnership Agreement, if implemented, would boost real annual GDP by 0.15 percent by the year 2032. In other words, the economic growth from TPP could be wiped out by a single new major EPA regulation.  So much for the importance of trade, I guess.

Of course, some will downplay the magnitude of the issue and turn these modest gains into positive talking points to encourage TPP ratification. In addition to GDP, small gains are estimated for real income, employment, and trade, as well.

Others will suggest that the estimates overstate the benefits, as the ITC studies are wont to do.  But as Dan Pearson explained a few months ago in this paper, the ITC’s assessments are not intended to be interpreted as projections into the future. They are static comparisons. The TPP study compares today’s economy without TPP to today’s economy with TPP.  The results are just estimates of what the various outcome metrics would be ceteris paribus.  Accordingly, the utility of the estimates is limited and the validity of the model cannot be tested by comparing real future outcomes to these estimates because in the real world there is no ceteris paribus. Things change.

For example, the model doesn’t take into account things like: supply shocks (such as another fracking-type boom) or demand shocks (such as mass adoption of hand-held devices); transitions from human labor to robots; changes in institutions; the policy reactions of other countries to the TPP; accessions to the agreement by other countries; the impact on the multilateral trading system, and so on.  All of these factors matter at least as much as the terms of the TPP itself. 

So the question is: Why even bother performing these studies?  The real outcomes are determined primarily by information that is unknown and difficult to estimate with reasonable accuracy when the models are run. The results are politicized and misused by advocates and proponents of trade agreements alike.

As it stands now, the ITC is required under the terms of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (the Trade Promotion Authority Bill) to conduct an economic impact assessment of a trade agreement within 105 days of the president entering into such an agreement. While there is some useful information to obtain from these assessments, it seems that their greatest utility is to provide political cover to members of Congress.

In the end, I believe, these assessments do more damage to the credibility of trade advocates and provide fodder to trade’s opponents.  Moreover, as I wrote earlier this year:

What the public and policymakers should be considering – what should be under the spotlight – are the rules of the TPP, not the projected outcomes. The outcomes cannot be known with certainty. The rules are objective and concrete. We should be able to draw conclusions about the desirability of the TPP from its language – from the rules it articulates – without guarantees of particular outcomes. The TPP should be judged by the degree of economic freedom it restores, not by a shouting match over highly contestable estimates.  Indeed, some chapters of the TPP are expressly about reducing trade barriers, including tariffs and other obstacles to competition. Those provisions should be universally embraced, as they will help restore our economic freedoms…

Other chapters of the TPP are less about liberalization and more about crafting common rules about how governments treat foreign enterprises and how they enforce labor rights, environmental regulations, intellectual property provisions, and so on.  It is less clear whether and how these “governance” chapters enhance or impair our economic freedom. But each chapter can be assessed exhaustively on a qualitative basis, without need of highly malleable estimates of economic outcomes.

 

Dismissing a challenge from the ACLU, yesterday Las Vegas District Court Judge Eric Johnson ruled that Nevada’s education savings account (ESA) program is constitutional. However, the ESA program is still on hold due to a second lawsuit against the ESA program in which the judge issued an injunction against issuing the accounts. That case is currently pending before the Nevada Supreme Court, and it is possible that the two legal challenges will be merged.

The ACLU challenged the ESA law on two grounds, claiming that the ESA violated the Nevada Constitution’s “uniformity” clause and the state’s historically anti-Catholic Blaine Amendment. Siding with the state of Nevada and the Institute for Justice, the court rejected these claims. 

“Uniform” Does Not Mean “Exclusive”

Nevada’s state constitution requires that the legislature “shall provide for a uniform system of common schools.” These schools must “be established and maintained in each school district at least six months in every year” and it is forbidden for these schools to “allow instruction of a sectarian character therein.” In a separate clause, the state constitution enjoins the legislature to “encourage” education “by all suitable means.”

The ACLU argued the “suitable means” mentioned in Article XI, Section 1 are defined by uniformity clause in Section 2. The ACLU cited the infamous Bush v. Holmes decision in Florida, in which Florida’s state supreme court struck down the state’s voucher program by interpreting the state’s duty to create a “uniform” system of public schools to mean that the state had a duty to provide a system of schooling exclusively according to the means described in the state constitution, despite the state constitution empowering the legislation to create “other public education programs that the needs of the people may require.” (The Florida Education Association is now suing to halt the state’s tax-credit scholarship program on the same grounds.)

However,  the judge rejected this interpretation, holding instead that that in these two clauses, “the framers indicated that they intended to create two duties, a broad one to encourage education by ‘all suitable means,’ and a specific, but separate, one to create a uniform public school system.” The judge noted that the framers’ “use of two different sections to set out the Legislature’s responsibilities without reference in either section to the other plainly suggests the sections are separate and distinct.” By contrast, adopting the ACLU’s clever but strained interpretation would, according to the judge, “make section 1 superfluous, without any meaning or purpose.”

In other words, the Nevada constitution requires the state to establish a non-sectarian system of public schools, but it is also empowered to encourage education by other means that are not limited to non-sectarian schooling. 

Winning the Blaine Game

The ACLU also claimed that the ESA law violated the state constitution’s Blaine Amendment, which states that “[n]p public funds of any kind or character whatever […] shall be used for sectarian purpose.” As the Becket Fund details in their amicus brief, this clause was inserted into the Nevada state constitution out of animus toward Catholics during a time when the so-called “common schools” were actually de facto non-denominational Protestant schools that taught the Bible and held prayer in school. (“Sectarian” was a thinly veiled euphemism for “Catholic.”)

Having already found that the legislature has a general power to create programs like the ESA, a finding that the ESA ran afoul of the Blaine Amendment would only have invalidated its use at religious institutions, similar to the Montana Department of Revenue’s interpretation of its own state constitution with regard to administering its state’s tax-credit scholarship program. (It should be noted that the Institute for Justice is suing the Montana DOR, arguing that excluding religious institutions from participating in a religiously neutral program violates the U.S. Constitution’s Free Exercise clause.) However, the judge held that the ESA did not violate the Blaine Amendment.

Following the U.S. Supreme Court’s First Amendment jurisprudence, the judge held that the Nevada Constitution prohibits aiding one religion, preferring one religion over others, or aiding all religions in a manner that prefers religion over non-religion, citing in particular the state constitution’s declaration that the “free exercise and enjoyment of religious profession and worship without discrimination or preference shall forever be allowed in this State.” The Blaine Amendment had prohibited “sectarian” instruction in the public schools, but did not preclude the legislature from enacting religiously neutral programs that would provide funding to families to educate their children in the manner they preferred, whether at a religious or secular institution. In rejecting the ACLU’s view, the judge cited the Indiana Supreme Court’s 2013 decision Meredith v. Pence, which held that it was “inconceivable” that own state’s Blaine Amendment would prohibit:

any an all government expenditures from which a religious or theological institution derives a benefit–for example, fire and police protection, municipal water and sewage service, sidewalks and streets, and the like. Certainly religious or theological institutions may derive relatively substantial benefits from such municipal services. But the primary beneficiary is the public, both the public affiliated with the religious or theological institution, and the general public.

The Indiana Supreme Court concluded: “Any benefit to religious or theological institutions in the above examples, though potentially substantial, is ancillary and indirect.” Likewise, the Nevada judge held, any benefit to religious schools from the ESA was ancillary and indirect. The Blaine Amendment “was not intended to preclude any expenditure that has an incidental benefit to religion, where such is made for a primary secular purpose,” and the ESA “was enacted for the valid secular purpose of providing financial assistance to parents to take advantage of educational options available to Nevada children.”

Case dismissed.

Those who fear anthropogenerated climate change have long claimed that global warming will negatively impact Earth’s ecosystems, including old-growth forests, where it is hypothesized that these woodland titans of several hundred years age will suffer decreased growth and increased mortality as a consequence of predicted increases in temperature and drought. However, others see the situation as the opposite – one in which trees are enhanced by the aerial fertilization effect of rising atmospheric CO2 concentrations, which is expected to increase growth and make trees less susceptible to the deleterious effects of drought.

So which vision of the future appears more likely to come about? According to the seven member research team of Urrutia-Jalabert et al. (2015), the much more optimistic future not only coming, it is already here.

Working in the Andean Cordilleras region of southern Chile, Urrutia-Jalabert et al. performed a series of analyses on tree ring cores they obtained from long-lived Fitzroya cupressoides stands, which they say “may be the slowest-growing and longest-lived high biomass forest stands in the world.”

Focusing on two of the more pertinent findings of their study, as shown in Figure 1 below, both the basal area increment (a surrogate for aboveground woody biomass accumulation) and intrinsic water use efficiency (a measure of drought resistance) of Fitzroya dramatically increased over the past century. Commenting on these trends, the authors write “the sustained positive trend in tree growth is striking in this old stand, suggesting that the giant trees in this forest have been accumulating biomass at a faster rate since the beginning of the [20th] century.” And coupling that finding with the 32 percent increase in water use efficiency over the same time period, Urrutia-Jalabert et al. conclude the trees “are actually responding to environmental change.” Indeed they are. Magnificently.

Figure 1. Basal area increment chronology (left panel, AD 1355-2010) and intrinsic water use efficiency (right panel, AD 1900-2010) of long-lived Fitzroya cupressoides trees in the Andean Cordilleras of southern Chile.

With respect to the cause of these favorable developments, the researchers state “we believe that this increasing growth trend…has likely been driven by some combination of CO2 and/or surface radiation increases,” adding that “pronounced changes in CO2 have occurred in parallel with changes in climate, making it difficult to distinguish between both effects.” Thus, it is clear that of the two views predicting the future of old-growth forests, the one most likely to occur (and which is actually occurring in the southern Chilean Andes) is the one in which the benefits of CO2 win out over model projections of climate-induced demise.

 

Reference

Urrutia-Jalabert, R., Malhi, Y., Barichivich, J., Lara, A., Delgado-Huertas, A., Rodríguez, C.G. and Cuq, E. 2015. Increased water use efficiency but contrasting tree growth patterns in Fitzroya cupressoides forests of southern Chile during recent decades. Journal of Geophysical Research, Biogeosciences 120: 2505-2524.

The long security lines at some of the nation’s major airports in recent weeks have been nuts. Over and over, we have seen that it was a big mistake for the Bush administration and Congress to nationalize airport screening back in 2001.

One of the issues playing out is the lack of workforce flexibility in the Transportation Security Administration (TSA), which is a centralized, bureaucratic monopoly. I have written that we should separate airport screening from the regulatory oversight of aviation security. We should move responsibility for passenger and baggage screening from TSA to the nation’s airports. The airports would then be free to contract screening to expert security companies.

Yesterday, chairman of the House Homeland Security Committee, Michael McCaul, affirmed my observations about the problems of centralized control and the rigid TSA bureaucracy:

I think one of the biggest takeaways that I have is the lack of transparency and a lack of local input that each of the airports and airline authorities have with the local TSA field rep director… There appears to be a line of non-communication centralized here in Washington.

[The TSA has] centralized and all the decisions are being made out of Washington with no flexibility on staffing decisions, that if they have local input from the airlines and airport authorities it could result in a lot of these problems. If you don’t know the peak airline times of when the planes are coming in, how can you possibly staff and have a model that makes any sense?

The flexibility issue is a huge problem we heard [about] from the airlines and airport associations in terms of the local director doesn’t have discretion over where to staff the TSO or TSA officer.

McCaul is right. Unfortunately, the knee-jerk Washington response when problems arise in society is to centralize power and control, as we saw after 9/11. That is nearly always a mistake. Even if central planning made sense in theory, members of Congress simply don’t have the time to oversee the vast empire of programs that they have accumulated.

Remarkably, the federal budget is 100 times larger than the average state government budget. Federal policymakers have no idea what’s really going in the hundreds of bureaus they have created. So, not surprisingly, the only time Congress tries to fix anything is when crises rise to the top of the news cycle, like now with airports.

McCaul is also right on one of the short-term fixes for the current airport mess: repurpose the 3,000 TSA “behavioral officers” that roam around airports, and add them to the TSA screening teams. Federal auditors have concluded essentially that those officers do little in terms of reducing risks, so let’s put them to work reducing congestion and serving the travelling public.

A recent Marginal Revolution post has alerted me to Eric Posner’s January 2016 working paper, “What Legal Authority Does the Fed Need During a Financial Crisis?”  Posner’s paper is remarkable, both for its assessment of the legality of the Fed’s emergency lending operations during the recent crisis, and for the policy recommendations Posner offers based on that assessment.[1]

Posner’s account of the Fed’s actions reads like a long bill of indictment.  The Fed’s Bear Stearns rescue, for starters, “was legally questionable.”  The Fed couldn’t legally purchase Bear’s toxic assets, and it knew it.  Instead it created a “Special Purpose Vehicle” (SPV), named it Maiden Lane, and lent Maiden Lane $28.82 billion so that it could buy Bear’s toxic assets.  Voila!  What would have been an illegal Fed purchase of toxic assets was  transformed into a Fed loan “secured” by the very same assets.

But clever as the Fed’s gambit was, it  wasn’t so clever as to render it entirely innocent of legal hanky-panky.  “The problem,” Posner observes,

is that the transaction provided that the value of the Fed’s interest would be tightly connected to the value of the underlying assets.  If the assets fell in value by as little as 4%, the Fed would lose money… By contrast, in a [properly] secured loan…the lender bears very little to no risk from the fluctuation of asset values.  Functionally, the Maiden Lane transaction was a sale of assets, not a secured loan.

In rescuing AIG, the Fed resorted to the same “legally dubious” bag of tricks it employed in saving Bear, creating two more Maiden Lane vehicles, and again assuming considerable downside risk.  The Fed also grabbed a 79.9 percent equity stake in AIG, which it placed in a trust established for the sole benefit of the U.S. Treasury.  That transaction was later held by the Court of Federal Claims to have been been unauthorized by the Federal Reserve Act, and therefore illegal.

In fact, according to Posner, all of the Fed’s emergency lending programs, the TALF alone excepted, “raised legal problems.”  In each case the Fed violated the spirit of 13(3), which requires that its loans be “secured to the satisfaction of the Federal Reserve bank.”  Posner is especially good at explaining the speciousness of  Fed lawyers’ claims that the Fed’s loans were indeed secured:

Imagine, for example that the Fed would like to make an unsecured loan to Joe Shmo, who has no assets.  Following the legal division’s advice, the Fed could create an SPV called Shmo LC.  Shmo LC would then lend money to Joe, and in return receive an unsecured note from him, that is, an IOU.  Shmo LC would get its money from the Fed, which would make a section 13(3) loan to Shmo LC secured by Shmo’s note.

All of which would be just dandy, were it not for the inconvenient fact, pointed out by Posner, “that the Fed, Congress, and all other relevant actors have always understood section 13(3) to [require] ‘real’ security — in the sense of collateral that would render the loan riskless or close to that.”

Suppose, on the other hand, that the Fed’s lawyers were in fact correct.  Suppose that it was perfectly legal for the Fed to have “secured” many of its 13(3) loans using assets of doubtful value.  In that case, the Fed’s claim that it was unable legally to rescue Lehman Brothers was itself a sham, for a Fed that might have legally lent to Joe Shmo could certainly have lent legally to what was at the time the United States fourth-largest investment bank.  Fed officials can’t have it both ways: either they lied about Lehman, or they broke the law left-and-right with the 13(3) loans they did make.

Posner himself believes that the Fed let Lehman fail for political and “operational” reasons rather than legal ones, and that the questionable legality of yet another Joe Shmo-type operation — and an especially blatant one at that — merely provided it with “a convenient excuse” for avoiding political backlash.  I’m pretty sure he’s right.  But although he recognizes the capricious nature of the Fed’s decision to let Lehman fail, neither that awareness nor his understanding that the Fed rode roughshod over existing laws causes Posner to see any need to limit the Fed’s last-resort lending powers.

Quite the contrary: so far as Posner is concerned, the fact that the Fed has been inclined to bend or break the law, or to invoke it only when it found doing so convenient, is reason, not for strengthening the rules governing the Fed’s last-resort lending, but for getting rid of them altogether!  According to him, the problem isn’t that the Fed thumbed its nose at existing laws.  It’s that “gaps in the government’s powers” made all that nose-thumbing necessary.  What we need to do, Posner says, is fill those “gaps.”

For Posner, filling the power gaps means, first of all, consolidating within a single “Financial Crisis Response Authority” (FCRA), and preferably within the Fed itself, all of the crisis-response powers presently divided among it, the Treasury, and the FDIC.  It also means granting to that authority the power to:

  • buy assets, including equity.
  • make unsecured loans to non-bank financial institutions.
  • control non-bank financial institutions…in order to force them to pay off counterparties, lend money, and so on.
  • wind up insolvent non-bank financial institutions….
  • force non-bank financial institutions to raise capital.
  • dictate terms of transactions, control the behavior of firms (for example, forcing them to lend), or acquire them where necessary.

The recent crisis shows, Posner insists, that “all these powers are necessary”:

Because of the fear of stigma, even liquidity-constrained financial institutions will be inclined to delay before borrowing from emergency credit facilities.  The FCRA needs the authority to force those firms to borrow, and also to force healthy firms to borrow at the same time in order to prevent the market from picking off the weakest firm.  Moreover, the crisis showed that when financial institutions accept emergency loans, they have strong incentives to hoard cash when the system as a whole benefits only if they lend into the market a portion of the money they borrow.  For this reason, the FCRA needs the authority to order firms to enter financial transactions.  Finally, the crisis showed that financial institutions that should be given emergency money may not be able to offer collateral for a loan, and it may be very difficult to value the collateral in any event.  The FCRA needs the authority to make capital injections, unsecured loans, and partially secured loans; and to buy assets

Posner fails to recognize that the stigma problem to which he refers can be solved, without forcing anyone to borrow, by substituting an auction-style lending facility for the Fed’s discount window, as was in fact done during the crisis when the TAF was established; and his suggestion that financial firms’ hoarding of cash was something the Fed would have prevented had it had the power to do so, rather than something the Fed deliberately encouraged, doesn’t square with the facts.  But these are secondary points.  What’s most troublesome about Posner’s proposal is that it fills the “gaps” in the Fed’s power so generously as to do away with practically all limits upon the Fed’s ability to meddle with people’s property.  His suggestion that a FCRA should be perfectly free to make unsecured loans and commandeer equity, for example, would allow it to lend to Joe Shmo on whatever terms it likes, and to nationalize private firms at will, with utter impunity.

Posner insists nonetheless that his proposed FCRA would not command unlimited power.  Instead, its power would be checked by means of “a robust legal regime” that would “correct abuses after [a] crisis.”  Specifically, firm shareholders would “be entitled to sue” the FCRA “and receive a remedy if they can show that the FCRA’s actions were unreasonable”:

The usual post-crisis analyses by independent government agencies with the power to compel testimony and discover documents from the FCRA will facility the litigation by collecting facts and making them publicly available.

With all due respect to Professor Posner, he seems here to be putting a great deal of weight on an awfully thin read, if not a broken one.  If it was far from easy for Starr International to convince a court that the New York Fed acted illegally, and if Starr received no “remedy” even despite doing so, how much harder would it be for a plaintiff to establish that the actions of a much more powerful Fed (or FCRA), though perfectly legal, were nevertheless both harmful and “unreasonable”?  And suppose such a plaintiff somehow managed to prevail.  Might Professor Posner, or some like-minded legal scholar, not be inclined in that case to regret the discovery of still another “gap” in the Fed’s power, and to recommend, on the basis of the very same arguments Posner offers for filling already apparent gaps, further reforms aimed at ruling-out such lawsuits, to guard against the possibility, however remote, that the threat of them might discourage some desirable (if not obviously “reasonable”) anti-crisis measure?

Yet it would be unfair to accuse Posner of depending entirely on lawsuits to constrain his proposed FCRA.  For it’s clear that Posner’s case for an FCRA wielding vast powers mainly rests, not on the naive belief that such an authority could be adequately constrained by the threat of successful litigation alone, but on the assumption that it will never (or hardly ever) abuse its powers  in the first place.

What’s the basis for that bold assumption?  Posner certainly can’t claim that it’s difficult to conceive of ways in which his proposed FCRA might behave badly.  The rescuing of firms that might safely be allowed to fail, including ones that richly deserve to fail, is only one obvious example.[2]

Instead, Posner’s postulate of an infallible Fed appears to take shape as a mutation of his much less heroic (if still doubtful) claim that the Fed did nothing wrong during the recent crisis.  Early in his paper he explains that he plans “to assume that the mainstream view that the Fed acted properly during the financial crisis by lending widely is correct.”  As a means for determining what reforms would have allowed the Fed to avoid errors of omission (but not ones of commission) during the recent crisis, the assumption makes perfect sense, even if it happens to be false.  But Posner isn’t content to limit himself to such a counterfactual exercise: he wants to draw conclusions concerning “what reforms are necessary to supply [the Fed] with the proper legal authority” going forward.  To do so he segues, perhaps unconsciously, from assuming, arguendo, that the Fed acted correctly this last time around, to assuming, implicitly, not only that it will act correctly in any future crisis, but that it will do so even if it wields much vaster powers than before.

Is it being uncharitable to suggest that, once we grant the assumption that the only errors that a government agency is ever likely to commit are errors of omission, we do not really need a legal scholar, or any other sort of expert, to tell us how to make that agency function ideally?  The granting of unlimited power is in that case a no-brainer.  To anyone who isn’t prepared to altogether set-aside the possibility of errors of commission, on the other hand, the sort of reforms Posner proposes must seem naive — and dangerous — in the extreme.

And that’s what troubles me most about Posner’s proposal.  It’s not that his logic is bad.  It’s seeing a legal scholar, and a very intelligent one, blithely cast aside the very idea of the rule of law, while championing its opposite: the arbitrary decisions of (practically) omnipotent bureaucrats.

Nor does Posner not realize what he’s doing.  On the contrary: he’s aware of the complaint of other scholars that the Fed already demonstrates the dangers of substituting  the rule of men for the rule of law, even citing a recent Cato Journal article by CMFA Adjunct Scholar Lawrence White to that effect.  But having recognized White’s complaint, Posner dismisses it summarily, on the technical grounds that

the constitutional limitations on delegation of power to agencies — embodied in the nondelegation doctrine – are effectively nil.  The requirement that the LLR use its powers to unfreeze the financial system would supply the intelligible principle required by the nondelegation doctrine under recent precedents.

But White isn’t arguing a point of U.S. Constitutional Law.  He’s appealing to a fundamental legal principle that’s older than the U.S. Constitution, and one that transcends the laws of any particular nation.  Posner’s response therefore misses the point entirely.  The question isn’t whether or not Congress may grant Fed officials unlimited power.  It’s whether it ought to grant them so much power.  Posner thinks it should.  I don’t know about you, but I hope Congress puts more weight on the advice of John Locke, David Hume, and John Adams.

_______________________

[1] Although I concern myself here only with his account of the Fed’s emergency lending, Posner also assesses the legality of the crisis-related actions of the Treasury and the FDIC.

[2] I dare readers to peruse the aforementioned list of proposed FCRA powers, and to submit comments — under their real names — to the effect that they are unable to imagine others.

Posner himself (p. 30) recognizes that Congress had reasons for not awarding the Fed unlimited last-resort lending powers.  However, he notes that the reasons have been “mostly political, including distrust of the Fed, and popular resentment of the bailouts of Wall Street firms,” and appears to dismiss them simply for that reason.  As for the moral hazard problem — the sole non-“political” reason he recognizes for limits upon the Fed’s last-resort lending power —  Posner dismisses it as well, claiming that it can be adequately contained by means of “ex ante regulation such as capital requirements, which are independent of the LLR’s power.”  But as Richard Fisher has argued,

Requiring additional capital against risk sounds like a good idea but is difficult to implement.  What should count as capital? How does one measure risk before an accident occurs?  And how does one counteract the strong impulse of the regulated to minimize required capital in highly complex ways?  History has shown these issues to be quite difficult.  While we do not have many examples of effective regulation of large, complex banks operating in competitive markets, we have numerous examples of regulatory failure with large, complex banks.

Nor is it clear that even the strictest capital requirements can suffice to rule out excessive risk taking when its the case, as it would be under Posner’s proposed regime, that regulatory authorities need not hesitate to bail out, not only firms’ uninsured creditors, but their shareholders.

[Cross-posted at Alt-M.org]

We’ve been waiting for months for presumptive Republican presidential nominee Donald Trump to release his list of potential Supreme Court appointees. Today he actually came through on that promise. The would-be justices, in the (alphabetical) order in which they appear in the AP story that broke the news, are:

  • Judge Steve Colloton of the U.S. Court of Appeals for the Eighth Circuit (Iowa)
  • Justice Allison Eid of the Colorado Supreme Court
  • Judge Raymond Gruender of the U.S. Court of Appeals for the Eighth Circuit (Missouri)
  • Judge Thomas Hardiman of the U.S. Court of Appeals for the Third Circuit (Pennsylvania)
  • Judge Raymond Kethledge of the U.S. Court of Appeals for the Sixth Circuit (Michigan)
  • Justice Joan Larsen of the Michigan Supreme Court
  • Justice Thomas Lee of the Utah Supreme Court
  • Judge William Pryor of the U.S. Court of Appeals for the Eleventh Circuit (Alabama)
  • Justice David Stras of the Minnesota Supreme Court
  • Judge Diane Sykes of the U.S. Court of Appeals for the Seventh Circuit (Wisconsin)
  • Justice Don Willett of the Texas Supreme Court

This is an exceptional list. I’m not intimately familiar with all 11 judges and I don’t expect to agree with all of them on everything, but those whose jurisprudence I know well are excellent and the others have sterling reputations. These are not squishes or lightweights.

Also notable and commendable is that 5 of the 11 are state supreme court justices; not all judicial talent is already on the federal bench and the U.S. Supreme Court could use that sort of different perspective. I’ll forego quibbling over this or that pick – whom to drop for a top 10 or 5, whom to add to round out to 15, whether Senator Mike Lee would be better than his brother – but want to emphasize that these are among the very best judges who are young and smart enough to be on the Court.

I’m no fan of the Donald – and who knows whether he’d follow through if elected? – but he’s listening to the right advisers here. As I’ve previously written, Trump may not know originalism from origami, but there are better reasons to vote against him than judges.

All the presidential candidates are opposed to the Trans-Pacific Partnership, some because protectionism seems to sell well during elections and others because they generally oppose foreign trade.  But the most immediate obstacle to passage of the TPP may be a counterproductive demand from one of the agreement’s most ardent congressional supporters.

Orrin Hatch (R-Utah) is Chair of the Senate Finance Committee, which oversees trade policy, where he has been instrumental in securing trade promotion authority and building support among Republicans for the TPP.  Hatch is also a committed advocate for the inclusion of strong intellectual property protections in trade agreements and has been very critical of one provision in the TPP that he doesn’t think goes far enough to provide regulatory exclusivity for biologic drugs.  He’s made his support for the entire agreement contingent on whether the administration can fix that one provision. 

Exclusivity (often called data exclusivity) is the practice of denying regulatory approval of a competitor’s drug until the original drug has had a numbers of years of monopoly status in the market.  This is unrelated to whether the drug is covered by a patent. 

The U.S. government provides 12 years of exclusivity, the highest of any country in the world, for a special class of drugs known as biologics.  At Hatch’s insistence, U.S. negotiators officially pushed for a minimum 12 year term in the TPP. 

But the TPP was never going to have a 12 year term for biologic exclusivity, because the other members were dead set against it.  Japan and Canada currently provide 8 years, while the other TPP members provide either 5 years or zero.  There was no interest from the other members to increase their own level of protection, so the United States wasn’t going to be able set an international standard of 12 years.  Indeed, U.S. negotiators knew that they best they could really hope for was 8 years. 

Even the 8-year proposal met a lot of resistance.  Australia was especially adamant that they would not increase exclusivity beyond the 5 years they currently impose.  This made biologic exclusivity an especially intractable issue in the TPP negotiations, and the text we now have was agreed to under tremendous pressure to finish the deal and was reached in the closing hours of the negotiations. 

The final compromise is a peculiar dual provision that gives TPP members two options.  Under one option, TPP members are required to provide at least 8 years of exclusivity.  Under the second option they can provide only 5 years of exclusivity as long as they also use “other measures” to provide a “comparable market outcome” to the first option.  What makes the second option extra curious is that “market circumstances” may be relied upon to ensure that 5 years of exclusivity provides a comparable outcome to 8 years.  This arrangement enables the U.S. government to claim they negotiated an 8 year term, while Australia can still claim that they didn’t agree to anything more than 5 years. 

Senator Hatch has seen through this simple scheme and correctly describes the provision as requiring only 5 years.  Because the requirement to provide a comparable outcome through “other measures” allows reliance on “market circumstances,” there is no requirement for government intervention aside from the 5 year minimum of regulatory exclusivity.  The Obama administration is trying to say that 5 + 0 = 8.

The pharmaceutical industry has expressed disappointment at the outcome.  They think they should have gotten 12 years, and Senator Hatch seems to agree.  But the idea that the TPP could ever have had a 12-year term is impressively wishful thinking.

Hatch and the pharmaceutical industry really ought to be happy that they got the 5+ deal in the TPP.  That’s more than they had before and it shows that momentum is on their side in adding this new issue into the trade agenda.  Creating a special provision that treats biologics differently than other drugs and offers some sort of additional protection sets a bar that can be expanded on in future agreements.  The TPP’s dual provision provides a good starting point for U.S. business interests to further develop a more-stringent international norm.

It’s been reported that Hatch may be trying to secure a commitment from the administration that it will pressure TPP members who provide only 5 years of exclusivity to adopt particularly effective “other measures” to achieve an 8-year outcome when they implement the TPP.  Even after implementation, the provision will serve as a mechanism for the U.S. Trade Representative to exert continued pressure on TPP members.

Hatch is essentially complaining that the TPP doesn’t do enough of a good thing.  The idea that the agreement could be better is hardly a reason to oppose it altogether.  That’s especially true in this case, where the “better agreement” that Hatch and the pharmaceutical industry were asking for was unrealistic.  

The whole episode shows how the politics of trade agreements have gotten mixed up in regulatory issues that don’t have a direct connection to trade.  A lot of the regulatory provisions in trade agreements were originally included at the behest of protectionists who wanted to put conditions on trade.  That’s why trade agreements include labor and environment rules. 

It’s a shame that supporters of free trade are now also putting so much emphasis on regulatory issues, elevating arcane regulatory tweaks above actual free trade.  Senator Hatch’s inflexibility on biologics is only making it harder to achieve the real gains that come from trade liberalization.  If Senator Hatch values free trade, he ought not oppose the agreement simply because it doesn’t do as much he would like to benefit one U.S. industry. 

Pages