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Trade ministers from the twelve nations negotiating the Trans-Pacific Partnership (TPP) met last week in Maui.  Some observers had expressed hopes that the Maui ministerial meeting would produce a final TPP agreement.  The “collapse” in Hawaii has caused some commentators to voice fears that it may not be possible to conclude TPP anytime soon.  Those fears are overblown.  My view is that the Maui meeting qualifies as quite a good start toward actually finishing the TPP. 

Bear in mind that the TPP negotiations have been going on for several years.  The United States became an active participant during President Obama’s first term.  However, until recently, U.S. negotiators have been handicapped by lack of Trade Promotion Authority (TPA, also known as “fast track”).  Other countries were understandably reluctant to try to conclude TPP without assurance that Congress would be willing to vote up or down on the agreement, rather than picking it to pieces with amendments.  So all previous negotiating sessions amounted to warm-up rounds, with the most serious discussions being held in abeyance until the United States finally was ready to engage without reservations.

Maui was the first TPP ministerial at which U.S. negotiators actually were in a position to consider closing the deal.  If all other countries had the same perspective on the issues as the Obama administration, the agreement could have been concluded.  Not surprisingly, other countries have various opinions on key topics.  The Maui talks allowed ministers to put those differences clearly on the table. Undoubtedly, negotiators now have a much better idea of the realm of possible outcomes.  They know what they will be expected to give in order to receive what they want in return.  By last Friday afternoon, it was time for ministers to leave Maui and head back to their capitals for high-level consultations.

How long might it take to wrap up the negotiations?  The Obama administration would like to hold a TPP signing ceremony in conjunction with the Nov. 18-19 meeting of the Asia-Pacific Economic Cooperation forum (APEC) in the Philippines.  The TPA statute requires the administration to inform Congress of the president’s intent to enter into a trade agreement 90 days before it is signed.  This would require the TPP agreement to be concluded in August. Japanese Economy Minister Akira Amari has suggested that TPP ministers should meet again on the sidelines of the Aug. 22-25 meeting of the Association of Southeast Asian Nations (ASEAN) in the Philippines. 

Finalizing the pact in August seems quite unlikely.  This is not only because many government officials are accustomed to taking vacations in late summer.  The more important factor is the Oct. 19 election in Canada.  Conservative Prime Minister Stephen Harper is in a very tight three-way race against New Democratic Party (NDP) Leader Tom Mulcair and Liberal Party Leader Justin Trudeau.  There is considerable doubt as to whether Harper will continue as prime minister. 

It seems improbable that other TPP countries would choose to complicate Harper’s re-election bid by pressuring him to make politically difficult concessions on Canada’s dairy and poultry support schemes during the heat of the relatively short campaign.  Pushing to wrap up the negotiation now almost certainly means obtaining less liberalization than might be achieved by waiting.  As trade ministers left Maui, they gave the impression that a deal among the 12 participating governments could be reached reasonably soon.  If a new Canadian government that is less supportive of trade liberalization takes office, the future of TPP could be very much up in the air. 

To those who think that U.S. politics are far more important than those of any other country, the thought of TPP delays relating to Canada’s election may cause a good bit of angst.  Team Obama would like Congress to vote on the TPP relatively early in 2016 before the congressional and presidential campaign season takes center stage.  Postponing final TPP negotiations until after the Canadian election would mean that the agreement wouldn’t be ready for review by the U.S. Congress until sometime next summer, at the earliest.

Those who are anxious about potential political complications relating to TPP delays should step back and take a deep breath.  All is not lost.  There are two quite reasonable scenarios under which Congress could find it feasible to pass TPP in the foreseeable future.  One would be for Congress to deal with it in the lame-duck session following the election on Nov. 8, 2016.  This was how the Uruguay Round WTO agreement was passed in 1994.  A second approach would be to hold the agreement over into 2017, which would allow a new Congress and new president to pass implementing legislation at a time when no election is looming. 

As a matter of strengthening its legacy, the Obama administration may prefer to complete the entire TPP process on its watch.  That concern should be set aside.  History correctly gives credit to President George HW Bush (41) for negotiating NAFTA and to President Clinton for getting it through Congress.  Likewise, history acknowledges the role of President George W Bush (43) in negotiating free-trade agreements with Colombia, Panama, and South Korea, as well as the role played by President Obama in moving them through Congress. 

The most important objective in wrapping up TPP should be to obtain a solid, trade-liberalizing agreement.  That objective should not be sacrificed for the sake of speed.  A somewhat patient approach will serve the nation’s trade agenda well, and President Obama will earn credit for it.

Libertarians are frequently confused with conservatives in mainstream discourse, and  proponents of “fusionism” see libertarians and conservatives as natural political allies. But, are the two philosophies really as similar as many seem to believe?

For the last several years, the Cato Institute intern coordinators have extended an invitation to the Heritage Foundation to pick among their best and brightest interns to join two of Cato’s in an annual debate on the virtues of libertarianism versus conservatism, and the differences between the two ideologies.

It should be noted that the interns who debate do so in their private capacities and don’t necessarily represent the views of either organization, but the competition to be chosen is nonetheless fierce one, with Cato interns, at least, going through multiple levels of qualification to be picked. The resulting debate is an engaging and fun conversation about the meaning of individual liberty, limited government, free market, and policy that has quickly become a popular social event of the D.C. summer season.

This year the debate, which took place on July 23rd, attracted a live audience of over 330 people (filling Cato’s main auditorium and spilling into an overflow room), while the livestream was watched by an additional 385 viewers.

The popularity of the event has been reflected online as well. In both 2013 and 2014, the hashtag for the annual intern debate (#LvCdebate) was a sidebar trend on Twitter. This year’s debate, generating 1,134 tweets overall and 1,061 tweets on the day of the debate itself, solidified that trend, locking in the number one spot early on and maintaining it throughout the event.

The debate itself went on the inspire several blog posts and articles, both before and after the actual event. Perhaps most interesting, however, are the results of a survey released today by my colleague, Emily Ekins.

The survey, which polled debate attendees, identifies important similarities and striking differences between self-identified conservative and libertarian attendees. According to the data, libertarian and conservative attendees were similar in skepticism of government economic intervention, and regulation, but were dramatically different in their stances toward immigration, LGBT inclusion, national security, privacy, foreign policy, and perceptions of racial bias in the criminal justice system.

So, are libertarianism and conservatism really that similar? Watch the debate below, read the results of the survey, and decide for yourself. Then, let us know what you think on Twitter using #LvCdebate.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

The first paragraph of EPA’s 1500+ page Clean Power Plan, released on August 3, says this:

These final emission guidelines…will lead to significant carbon dioxide (CO2) emission reductions from the utility power sector that will help protect human health and the environment from the impacts of climate change.

This isn’t simply an exaggeration, a misstatement or a sophomoric rhetorical flourish.  It is simply not true.

The operative claim is that EPA’s  plan “will help protect human health and the environment from the impacts of climate change.” 

It will do no such thing.  The EPA’s own policy analysis model, called MAGICC*, tells us how much global warming will be prevented by the new plan:  0.019°C by the year 2100 (based on procedures similar to those we detailed here).  That’s the amount of temperature change a person will experience in about every second of life. It is simply impossible to detect this change in any global temperature history.

Even that is an overestimate of the actual impact of the plan.  The EPA has also published a “base case” which includes emissions reductions expected from existing state and federal regulations.  The difference between the plan and the base—i.e., the future temperature savings directly attributable it drops to 0.009°C—let’s be generous and call that 0.01°C.  

It is global warming that causes the “climate change” that we will be “protected” from.  So, if the amount of saved warming can’t be detected (the cause), there will be no detectable alteration in the trajectory of related climate change (the effect).

For that, we award the Clean Power Plan a “Heavy Duty” spin cycle award.


Heavy Duty. Government regulations or treaties claiming to save the planet from certain destruction, but which actually accomplish nothing. Can also apply to important UN climate confabs, such as Copenhagen 2009 (or, quite likely, the upcoming 2015 Paris Summit), that are predicted to result in a massive, sweeping, and world-saving new treaty, followed by self-congratulatory back-patting. Four spin cycles.

 *Model for the Assessment of Greenhouse-Gas Induced Climate Change


Over at Cato’s Police Misconduct web site, we have selected the worst case for the month of July.  It was the case involving Officer Eric Paull.

Paull worked as a sergeant for the Akron Police Department.  He also taught a course on criminal justice at the University of Akron.  One of his students was a single mom.  According to news reports, the woman (name withheld) says they started a romantic relationship.  But after a year or so, that relationship turned ugly and violent.  After he beat her up on a Thanksgiving holiday, Paull told her that he was legally “untouchable.”

She believed him–so she did not file a complaint right after the beating.  Instead, she just tried to avoid him.  But Paull stalked her and her boyfriends, using police databases to discover addresses, phone numbers, and vehicle information.  Paull would also text pictures of himself holding his gun and leave bullets on their automobiles.  There were threats to kill the woman and her boyfriend.  The woman did lodge complaints with the police and would later obtain a protective order, but the police department seemed indifferent.  Paull would not stop.

Finally, after months of harassment, Paull was charged with stalking, aggravated menacing, felonious assault, and burglary, among other charges.  His trial is expected to begin in a few weeks.

Paul Hlynsky, the police union leader, says he will try to have Paull back on the police force if he can avoid a felony conviction.

The Cato Institute and Heritage Foundation recently co-hosted a debate in which interns from both organizations debated whether conservatism or libertarianism is the better philosophy. At the conclusion of the debate, the Cato Institute conducted a survey of debate attendees finding important similarities and striking differences between millennial conservative and libertarian attendees.

Full LvCDebate Attendee Survey results found here

The survey finds that libertarian and conservative millennial attendees were similar in skepticism of government economic intervention and regulation but were dramatically different in their stances toward immigration, LGBT inclusion, national security, privacy, foreign policy and perceptions of racial bias in the criminal justice system.

While the survey is not a representative sample, this survey offers a snapshot of engaged conservative and libertarian millennial “elites” who have higher levels of education and political information, and who chose to come to this event. To date, little information exists on young conservative and libertarian elites. Since these attendees are politically engaged millennials, their responses may provide some indication of the direction they may take both movements in the future.

Eighty-percent of millennial respondents self-identified as either conservative (41%) or libertarian (39%): This post will focus on these conservative and libertarian millennial attendees.

Economics Bind Conservative and Libertarian Millennial Attendees

Libertarian and conservative millennial attendees were clearly similar on questions related to government intervention in the economy. Both libertarians and conservatives overwhelmingly endorsed the idea that the free market can better solve problems than government (98% and 95% respectively), that government regulation of business too often does more harm than good (100% and 93%), and that people who work hard can get ahead (85% and 97%). Furthermore, 96-98% of both groups preferred a “smaller government” that offered fewer services and low taxes over a “larger government” that offered more services with high taxes.

While national polls find that about 6 in 10 Americans favor raising taxes on households making over $250,000 a year (including 30% of Republicans) fully 9 in 10 libertarian and conservative millennial attendees opposed such an action.

Both groups also solidly favor free trade, although a portion of conservatives were less enthusiastic about global competition. For instance, majorities of both groups agreed the country should “eliminate all barriers to trade,” but 100% of libertarians agree compared to 66% of conservatives.

Besides economic policies, however, these young attendees revealed important differences on most of the other important policy issues.

Foreign Policy Divides

While both libertarian and conservative millennial attendees favored smaller government, they split on cutting defense spending. Fully 96% of libertarians supported cutting defense spending compared with only 32% of conservative millennial attendees.

This disagreement over defense spending maps onto disparate visions about what role the U.S. military should have in the world. While 93% of libertarian millennials wanted to decrease U.S. military presence around the world, only 19% of conservatives agreed. Instead, 44% of conservative attendees thought the United States ought to increase its global military presence and 37% would keep it at present levels.

Similarly, 85% of conservative millennial elites favored sending ground troops to participate in a campaign against ISIS while 74% of libertarian millennial elites opposed this action. However, these positions were not rock solid. Fifty-one percent of conservatives said they “somewhat” supported sending ground troops and 37% of libertarians “somewhat” opposed doing so.

National Security: Is Edward Snowden a Hero or Traitor?

Both conservative and libertarian attendees tended to disapprove of government’s “collection of telephone and internet data as part of anti-terrorism efforts.” But libertarian millennials opposed much more fervently (96%) than did their conservative peers (51%). Forty-five percent of these young conservative elites favored domestic surveillance to fight terrorism compared to 2% of libertarians.

Despite shared opposition to government domestic surveillance, both groups were diametrically opposed in their evaluation of Edward Snowden, the former government contractor who leaked classified information about these programs to the media. Fully 9 in 10 libertarians said Snowden is a “patriot” while 8 in 10 conservatives said he is a “traitor.”

Conservative and libertarian attendees made the trade-off between freedom and security differently, explaining some of these results. While 80% of conservative millennials would “give up some personal freedom and privacy for the sake of national security” 76% of libertarian attendees would not.

Accord on Criminal Justice Reform; Division Over Perceived Systemic Racial Bias

Both conservative and libertarian millennial elites tended to support criminal justice reforms. However, libertarian millennial attendees tended to be more sympathetic to charges of racial bias in the criminal justice system.

Majorities of both groups favored eliminating mandatory minimum prison sentences for people convicted of possessing or selling drugs. However, libertarians were more in favor (87%) than conservatives (54%). In fact fully 76% of libertarians “strongly favor” eliminating this mandatory minimum compared to 22% of conservative attendees.

Majorities of both groups also agreed that local police departments using “drones, military weapons, and armored vehicles is not necessary for law enforcement purposes” but rather is going too far. Yet libertarians were far more likely than conservatives to oppose police militarization (96% to 56%).

Striking differences emerged between libertarian and conservative attendees in the perception of racial bias in the criminal justice system. Sixty-eight percent of conservatives thought minorities receive equal treatment under the law. In contrast, 85% of libertarians felt that African-Americans and other minorities do not receive equal treatment as white Americans in the criminal justice system.

Similarly 85% of libertarians felt that police in “most communities” are “more likely to use deadly force against a black person.” However conservative attendees disagreed and 64% said that “race doesn’t’ affect police use of deadly force.”

Since the conservative attendees did not perceive significant racial bias in the law enforcement, it’s not surprising that 88% said they opposed the “national protests of police treatment of Black Americans that centered around the slogan #BlackLivesMatter,” including 59% who strongly opposed.

In contrast, 58% of libertarian millennials support the #BlackLivesMatter protests; the remainder said they didn’t know enough to say (25%) or they opposed (19%).

Both Open to Easing Immigration Process, Split Over Unauthorized Immigration

Both libertarian (93%) and conservative (66%) millennial attendees supported making it “easier for people to immigrate to the United States,” although libertarians were significantly more supportive.

However, major differences emerged between conservative and libertarian elite attendees on what to do about illegal immigration. A majority (61%) of conservatives opposed a pathway to citizenship for people in the United States illegally, including 41% who wanted these individuals to leave the United States. In contrast, 74% of libertarian millennials favored a pathway to citizenship for unauthorized immigrants and only 15% said they should leave.

Additionally, 69% of conservative elite attendees supported the United States “constructing a large wall along the border with Mexico.” In stark contrast, 91% of libertarian attendees opposed building a border wall including 65% who strongly opposed doing so.

Libertarian and conservative attendees also differed in their perception of unauthorized immigrants’ propensity to commit crimes in the United States. A slim majority (53%) of conservative attendees thought unauthorized immigrants are “more likely” to commit crimes while conversely 51% of libertarians thought they are “less likely” to do so.

In sum, both libertarian and conservative millennial attendees were friendly toward legal immigrants, but only libertarians were also friendly to undocumented immigrants.

LGBT and Abortion Issues Divide

In June the Supreme Court effectively legalized same-sex marriage in the United States; however, conservative and libertarian millennial attendees disagreed about this outcome.

Fifty-nine percent of conservative attendees thought same-sex marriage ought to be illegal, while 85% of libertarian attendees thought it should be legal.

However, this difference isn’t just about legal definitions of marriage. Sixty-percent of libertarian attendees felt that “we should do more to ensure that lesbians, gays, bisexual and transgender people feel fully accepted in society,” while a nearly equal share of conservatives disagreed.

This disagreement maps onto larger differences in worldview. Ninety-six percent of libertarians agreed that “we should be more tolerant of people who choose to live according to their own moral standards” compared with 54% of conservatives.

Part of these differences might be explained by the fact that 72% of conservative attendees agreed that “religious values should play a more important role in government” while 96% of libertarian attendees disagreed.

Conservatives were more religious than libertarian attendees. A slim majority (51%) of conservative elites said they attend religious services once a week or more compared to 19% of libertarians. Instead, 31% of libertarians said they never attend.

When it comes to abortion, conservatives were fervently pro-life (93%), but libertarian attendees were divided. A slim majority of libertarians (51%) said they were pro-choice, but a sizable minority (41%) also said they were pro-life.

Free Speech and Autonomy Tends To Unify

Both conservative (76%) and libertarian (98%) millennial attendees were more supportive than Americans nationally (43%) in allowing a Muslim clergyman to “preach hatred against the United States” in a public speech.

Furthermore, conservative and libertarian attendees tended to oppose outright bans on a number of personal activities including gambling, online pornography, and using marijuana. However, the groups differed significantly in how much the government should regulate these activities. In addition, cocaine divided the attendees: 76% of conservatives wanted it banned and 93% of libertarians wanted it legalized.

What Are the Priority Issues?

The survey asked respondents to rate on a scale of 1 to 5 how concerned they were on eighteen different issues, including on economics, spending, national security, immigration, drugs, criminal justice, morality, racial issues, income inequality, the environment, etc.

The top five issues for conservatives attendees were: 1) Government spending/deficit 2) The economy 3) Terrorism 4) Size of Government 5) Jobs. The top five issues for the libertarian attendees were 1) The economy 2) Government spending/deficit 3) Size of Government 4) Regulation of Business 5) Taxes.

Statistical tests were run to determine if conservative and libertarians elites rated these issues significantly different. The following chart shows that the two groups were statistically significantly different on all the national security, criminal justice, social/cultural, and racial issues, except for drug prohibition. Both libertarians and conservatives were equally concerned about all the economic issues.

Note: This chart displays the mean level of concern across 18 different issues for both conservative and libertarian millennials who attended the Libertarianism v. Conservatism intern debate at the Cato Institute. Moving from the inner to the outer circles indicates an increasing level of concern for each respective issue. Results from statistical tests are shown which indicate if conservatives and libertarians significantly differed in their concern for the issue ** p < .01 * p < .05. Green: Economic/Govt Size related issues, Blue: Criminal Justice, Yellow: Racial Issues, Orange: National Security issues, Purple: Social and Cultural related issues.

How Do They Identify Politically?

At first glance, conservative millennial attendees appeared much more Republican than the libertarian millennial attendees, but once independents were probed, both conservatives (98%) and libertarians (70%) revealed they were part of the Republican coalition. Nevertheless, a quarter of libertarian millennial attendees said they were completely independent of either party.

Since these attendees are politically engaged and tend to lean Republican, their agreements and conflicts may portend future debates the GOP may have to confront in the future.

If these results have any external validity for party insiders in the future, the GOP will find itself largely in agreement around limiting government intervention in the economy. However, the GOP will have to contend with significant disagreements over the future of American foreign policy, balancing freedom and national security, the influence of religion on politics, its approach toward immigration and immigrants—legal or not, whether it will make concerted efforts to include LGBT people and understand the experiences of minorities in the country.

Who Won the Debate Depends on Whom You Ask

Who won the debate depends on whom you ask:

  • Among libertarian millennial attendees, 96% said the libertarian team won and 4% said the conservative team won.
  • Among conservative millennial attendees, 67% said the conservative team won and 33% said the libertarian team won.
  • If you combine the libertarian and conservative attendees 64% said the libertarian team won and 36% said the conservative team won.
  • Among the remaining moderate, liberal, and progressive attendees, 8 in 10 said the libertarian team won and 2 in 10 said the conservative team won.

In sum, the 2015 intern libertarianism vs. conservatism debate goes to the libertarian team. 

Full LvCDebate Attendee Survey results found here


The Cato Institute conducted a survey of attendees at the debate hosted by the Cato Institute and Heritage Foundation in which interns at both organizations debated whether conservatism or libertarianism is a better political philosophy on July 23, 2015.

An email was sent to every person who pre-registered or walked-in to the debate at the conclusion of the event with a link to a Qualtrics survey. Emails were sent to 588 people, of these we estimated 360 were in attendance at the debate. In total, we collected 179 surveys from debate attendees, producing a response rate of 30% among all those emailed and 50% of estimated attendees. The margin of error for this attendee survey is +/- 5.2%. Of the 179 surveys, millennial attendees completed 139, including 59 self-identified millennial conservatives and 54 self-identified millennial libertarians. The margin of error for millennial conservatives is +/- 8.9% and for millennial libertarians is +/- 9.6%. The remaining survey respondents included self-identified moderates, liberals, progressives, and some over the age of 35 and thus not considered a millennial attendee.



On July 24, Rep. Robert Pittenger (R-NC, pictured at right) remarked on the radio that the consequences of the Iran deal bear comparing to the consequences of the Munich Agreement signed in 1938, except that 

The consequences of this deal make Hitler look - is a minor player in the context of the challenge to the rest of the world.

I wish I had seen this comment in time to include it in a piece I published yesterday at the Washington Examiner, highlighting the fact that Iran cannot dominate the Middle East, with or without a nuclear deal, with or without an extra $100 billion, with or without nuclear weapons. Pittenger’s remark, one would hope, was given thoughtlessly, but a lot of people who have allegedly spent a lot of time thinking about Iran have made claims that Iran is poised to dominate the Middle East, or if you prefer political science jargon, become a “regional hegemon.” As my piece argues, however,

Iran is capable of engaging in an array of provocative behaviors throughout the region, to include support for terrorism, support for nasty regimes like Bashar al-Assad’s in Syria, and meddling in other foreign civil wars like Yemen’s or Iraq’s. All of these things make Iran problematic, but do not help it dominate the region.

After discussing what regional hegemony means and demonstrating that Iran cannot attain it, I conclude that

An Iran that could keep the profits from its oil sales and that engaged in more terrorism and proxy wars throughout the Middle East would look a lot like the Iran of 2007 or 2008, before most of the sanctions were enacted. No one argued then that Iran was a regional hegemon, and for good reason. Returning Iran to this status would not make it a regional hegemon today, and policymakers ought to stop inflating the Iran threat. U.S. policymakers should not signal to Tehran that they believe Iran could dominate the region as a consequence of the deal, if for no other reason than Iranian policymakers may foolishly believe them and act out accordingly.


Far from being a regional hegemon or dominating the Middle East, Iran is a nuisance. Great powers, to say nothing of the self-styled “home of the brave,” should not convince themselves that nuisances somehow constitute peers.

Read the whole thing, if you like.

That’s right: the Federal Reserve is now in the business of enforcing the U.S. government’s drug laws, even if that means making a mockery of both state governments’ right to set their own drug policies and the Fed’s own governing statutes.

The Fed’s involvement in drug prohibition became official last month, when the Federal Reserve Bank of Kansas City informed Denver’s Fourth Corner Credit Union — a non-profit cooperative formed by Colorado’s state-licensed cannabis manufacturers — of its decision to deny its application for a master account.  Since asking any sort of depository institution to operate without such an account, and hence without access to the Fed’s payment facilities, including its check clearing, wire transfer, and ACH facilities, is like asking a commercial airline to make do with propeller-driven biplanes, and established banks don’t want the extra hassle that comes with dealing with pot growers, the Kansas City Fed’s action forces Colorado’s marijuana industry to do business on a cash-only basis, with all the extra risk and inconvenience that entails.[1]

The Fourth Corner Credit Union isn’t taking this sitting down.  On the contrary: it is suing the Federal Reserve Bank of Kansas City.  Your typical civil action isn’t exactly a page turner.  But this one reads like a chiller, largely because that’s exactly what it is.  If you like a good horror story, I suggest you read the whole thing.  But for the sake of those in a hurry, here are the Cliff Notes.   Unless otherwise indicated, the details are as alleged by the lawsuit itself.

The basic legal facts as set forth in that document are, first, that it is the essence of the so-called “dual” banking system that both state governments and the Federal government have the right to grant charters to banks and other depository institutions, and, second, that, according to the 1980 Monetary Control Act, “All Federal Reserve bank services…shall be available to nonmember depository institutions and such services shall be priced at the same schedule applicable to member banks.”

Furthermore, as if to resolve any doubts regarding whether access to the Fed’s payment services was to be granted even to depository institutions that did business with pot growers, on August 13, 2014 the Board of Governors, together with the FDIC, the Comptroller of the Currency, and the National Credit Union Authority, issued guidelines declaring that

Generally, the decision to open, close, or decline a particular account or relationship is made by a bank or credit union, without the involvement of the supervisor.  This decision may be based on the bank or credit union’s particular business objectives, its evaluation of the risks associated with offering particular products or services, and its capacity to effectively manage those risks.[2]

Now to the facts of the case, also as presented in the suit.  On November 19, 2014, The Fourth Corner Credit Union acquired an unconditional charter from the state of Colorado, having received  a conditional charter from the state some months before, pending its application for share deposit insurance.  Fourth Corner applied to the Kansas City Fed for a master account on the same day.  As it had previously applied for and received a Routing Number from the ABA, and had applied with the National Credit Union Authority (NCUA) for deposit insurance (and was exploring options for private insurance in case its NCUA request was denied), it had satisfied the only eligibility requirement for having such an account, and so had only to submit a “resolution” authorizing the Fed to open an account for it, together with an FRB “Official Authorizations List.”  Once these documents were approved, the Kansas City Fed was expected to accept and process a one-page Master Account Agreement completed by the credit union.  No other documents were necessary.

According to the Kansas City Fed itself, the suit alleges, processing a Master Account Agreement “may take 5-7 business days.”  That is, it usually takes only a week or so for an account to be established once the necessary paperwork is submitted.  But although Kansas City Fed officials quickly approved of the credit union’s paperwork, the bank refused to process its Master Account Agreement, saying that its application would be processed “upon approval by credit and risk.”  When the Fourth Corner’s lawyers asked the Kansas City Fed what the rules for such approval were, they were at first told that no such rules existed.

Months later, on January 7, 2015, Kansas City Fed president Esther George at last sent a letter to Fourth Quarter’s lawyers.  In it she observed that the Fed Bank’s Operating Circular, besides setting for the explicit requirement for opening a master account,

also states that a master account is subject to other applicable Federal Reserve regulations and policies.  These include policies related to risk posed by a financial institution and how the risk will be mitigated when determining whether and under what conditions an account may be opened.  Issuing of a master account is within the Reserve Bank’s discretion  and requires that the Reserve Bank be in a position to clearly identify the risk(s) posed by a financial institution and how that risk can be managed to the satisfaction of the Reserve Bank (my emphasis).

Given the time normally allowed to process a master account application, it is doubtful that the Kansas City Fed can have bothered to investigate the risks posed by previous applicants for such an account.  One may wonder, moreover, whether any Reserve Bank, or the Fed Board, has ever shown itself capable of  “clearly” identifying the risks posed by different financial institutions — let alone ones that have yet to open for business.  But the more important point, which the credit union’s attorneys claim they pointed out to the Kansas City Fed, was that it simply had no authority to deny their client an account, on any grounds whatsoever, given that it had already met all of the provisions of the law.

Still Fourth Corner received neither an account nor any further explanation.  In vain did Deirdra O’Gorman, its CEO, write to both Esther George and Janet Yellen to request a meeting to discuss the risks to which George had alluded.  Not only did both decline, but the Kansas City Fed replied by instructing the credit union to stop submitting documents to it, whether testifying to its safety or otherwise.  Nor did an earlier letter to Yellen and George, from Colorado Senator Michael Bennet, noting the “significant public safety concerns” raised by the  cash-only basis to which Colorado’s cannabis industry was being confined, appear to have made any difference.

And so matters stood until July 2, almost nine months after Fourth Corner had applied for its master account.  On that day the NCUA’s Office of Consumer Protection denied the credit union its application for federal share deposit insurance, while (according to the complaint) secretly and illegally sharing a copy of its confidential letter with the Kansas City Fed.[3]  Two weeks later, on July 16, 2015, the Kansas City Fed denied Fourth Corner’s request for a master account, justifying its decision in part on the grounds that the NCUA had rejected its application for federal insurance.  The decision remains the sole instance in which the Kansas City Fed has denied a master account to any applicant since the passage of the 1980 Monetary Control Act.

Although the Kansas City Fed attempted to justify its action by referring to the NCUA’s refusal to grant federal insurance to Fourth Corner, according to the credit union’s attorneys that justification had no legal merit: a state-chartered credit union is entitled to a master account “irrespective of whether it has obtained federal share deposit insurance; it only need be ‘eligible to make application to become’ federally insured.”  In fact, federal law doesn’t require that a state-chartered credit union have any insurance at all.  In any event, as I’ve noted, the Fourth Quarter Credit Union was prepared to arrange for private insurance when its master account was denied.  Currently, 129 credit unions  rely primarily if not solely on private insurance, and all have master accounts.[4]

According to Fourth Quarter’s attorneys, the Kansas City Fed had acted in concert with NCUA:

The NCUA is on record that it is against private deposit insurance because the NCUA has no authority to supervise, regulate, or examine privately insured state chartered credit unions.  Apparently, the NCUA does not trust the highly qualified state regulators with superior local knowledge to supervise state-chartered credit unions without NCUA oversight.  Thus, in order to carry out their nefarious scheme to unlawfully block TFCCU [The Fourth Corner Credit Union] from the Federal Reserve payments system, FRB-KC and the NCUA concocted an aggressively expressed denial of the federal deposit insurance application that also gratuitously impugned the reputation and work of the multitude of highly qualified professionals…  .

Here, finally, is the plaintiff’s own verdict regarding the Kansas City Fed’s actions:

FRB-KC’s denial of the TFCCU’s master account application is anti-competitive; it is detrimental to public safety; it is an abuse of monopoly power; it is a collusive practice in restraint of trade; and it is statutorily and constitutionally unlawful.

I’m an economist, not a lawyer.  Still, this seems like a fair conclusion to me.


[1]  Since February 14, 2014, when formal Federal guidelines for dealing with “Marijuana-Related Businesses” were first issued, hundreds of financial institutions in states (and the District of Columbia) where marijuana production and sales are partly or entirely legal, have been compelled to submit several thousand marijuana-related “suspicious activity” reports.  On the legal reasons for banks’ reluctance to offer accounts to marijuana related businesses, see Julie Andersen Hill,“Banks, Marijuana, and Federalism,” in the Case Western Law Review.

[2] This is the wording as it appears in the suit.  That of the original guidance, as I discovered it, has a few typographical differences.  The suit also incorrectly gives the year of this statement as 2013 rather than 2014.

At the time of Fourth Corner’s application for a master account, the Federal Reserve’s official payments system risk management policy included a passage stating that “relevant safety and soundness issues associated with [relationships between financial institutions and their customers] are more appropriately addressed through the bank supervisory process” than by policies governing access to the payments system.  This passage was, however, removed in the December 31, 2014 amended policy.

[3] According to 12 U.S.C. 1784 – “Examination of Insured Credit Unions,” the NCUA is permitted to share information about a credit union with the Fed only “for the purpose of facilitating  insured credit unions’ access to liquidity” and then only provided that the Fed offers “appropriate assurances of confidentiality” (my emphasis).  The NCUA’s conduct is the subject of a separate Fourth Corner Credit Union lawsuit.

[4] Although the NCUA has tried for years to get Congress to abolish the private insurance option, and to give it control over state-chartered credit unions, Congress has consistently refused to support its plan.

This is cross-posted from Alt-M.

Last month, the British government announced plans to spend two percent of GDP on defense through 2020, meeting the NATO mandated level. This comes after months of nudging from the Obama administration that feared “if Britain doesn’t spend 2 percent on defense, then no one in Europe will.” The reasoning is bizarre given that few nations were meeting this spending threshold to begin with. As I wrote in June:

In 2014, only Greece, Estonia, the U.S. and the U.K. spent as much as 2 percent of GDP on defense. Excepting NATO member Iceland, which is exempted from the spending mandates, the 23 other NATO members failed to spend even two cents of every dollar to defend themselves from foreign threats. And Greece only met the 2 percent threshold because their economy is falling faster than their military spending.

Perhaps things are shifting a bit among the NATO nations. Fear of Russia has prompted some members to announce increases to their defense spending. Germany, which currently spends only 1.2 percent of its GDP on defense, pledged to increase its defense budget by 6.4 percent over the next five years. Latvia and Lithuania will also increase their defense spending, reaching two percent of GDP by 2018 and 2020, respectively.

It’s comforting to hear some Europeans talking about taking their security more seriously, but whether they will follow through remains to be seen. Either way, they will remain heavily subsidized by the United States for some time. Cato’s latest infographic demonstrates just how far ahead the United States is in all measures of defense spending, and also documents how American security guarantees allow European governments to devote a far larger share of their spending to dubious domestic priorities. Put simply, U.S. taxpayers are subsidizing Europe’s bloated welfare states.

According to the most recent NATO figures, the United States spent an estimated $654 billion or 3.8 percent of its GDP, on defense (based on the NATO definition) in 2014. That amounts to $2,052 spent by every man, woman, and child in America, nearly 4 times more than the average in NATO founding states, and 7 times more than was spent in those member states that have joined NATO since the end of the Cold War. As a share of the sum total of NATO member states’ defense spending, U.S. taxpayers contributed nearly 69 percent, even though the United States accounts for only 46 percent of total economic output by NATO members. And the free-riding problem has only been getting worse. Total military spending by NATO’s European members was less in real terms in 2014 than in 1997 – and there are 12 more member states in NATO today.

In fairness, one can hardly blame the Europeans for failing to spend more on defense. And one shouldn’t expect that they will willingly change course, despite faint signs that some European members are finally getting serious about their security. After all, people are disinclined to pay for something that someone else is willing to provide for free.

The free ride could come to an end if Washington signaled that it wanted it to. Alas, U.S. officials have been sending the opposite message. The modest spending restraint imposed on the Pentagon’s budget by the bipartisan Budget Control Act of 2011 has forced the military services to make some difficult choices, but the Pentagon’s civilian masters have so far refused to prioritize roles and missions. They could start by having an adult conversation with NATO members, and declare emphatically that our allies have primary responsibility for defending themselves and their interests. And, in order to back up words with actions, Washington should stop deploying the U.S. military in ways that discourage these other countries from doing more. It is unreasonable to expect U.S. taxpayers to shoulder these burdens indefinitely.


Infographic Sources:

NATO: Public Diplomacy Division. “Financial and Economic Data Relating to NATO Defence.” Brussels, Belgium, 2015.

Central Intelligence Agency. “The World Factbook.2014” Washington, D.C., 2014.

The International Institute for Strategic Studies. The Military Balance 2015. Edited by James Hackett. London: Routledge, 2015.

In an effort to distinguish itself from competitors, poultry producer Purdue recently ran advertisements touting its “no antibiotics ever” line of chicken products. This is not just another corporate ad campaign; the story goes deeper than that, as the New York Times recently reported. At issue is the definition of what makes poultry “antibiotic free.”

Poultry companies like Purdue and its main competitors, Tyson and Foster Farms, have long used antibiotics important to humans in the raising of chickens. Many scientists have advocated a ban on routine (non-disease) use of antibiotics in the raising of food animals because of concerns that such use will hasten the evolution of antibiotic-resistant bacteria. In 2012 the Food and Drug Administration issued nonbinding regulatory guidance on using human-important antibiotics in livestock.

Companies other than Purdue continue to use animal-only antibiotics called ionophores. Even if the FDA regulatory guidance was instead a legally binding regulation, such antibiotics would not be banned because they are not “human-important,” hence Purdue’s move to use the term “no antibiotics ever” in marketing its products.

The debate over ionophores is reminiscent over the fights as to what constitutes “organic” food. The popular perception of “organic” often differs from the government’s specific definition of the term. According to Henry Miller of the Hoover Institution at Stanford University, “so long as an organic farmer abides by his organic system (production) plan–a plan that an organic certifying agent must approve before granting the farmer organic status–the unintentional presence of GMOs (or, for that matter, prohibited synthetic pesticides) in any amount does not affect the organic status of the farmer’s products or farm.” Only 5 percent of organic operators area actually tested every year.

Each time the government defines the characteristics of an acceptable product regarding its safety, organic, or antibiotic-free characteristics, some competition in the market is lost. Only those who deeply understand the intricacies of the definition can both produce compliant products and work around some of the “in spirit” rules. Ionophores are one of these workarounds. They keep chickens healthy, reduce costs, and are technically compliant with rules on human-important antibiotic use in poultry production.

Most command-and-control regulations have some anticompetitive aspects. They hinder innovation at the margins of regulatory definitions that otherwise would occur in a free market. The battle between Purdue, Tyson, and Foster Farms is an excellent case study of how competition rather than regulation can serve consumer and public health interests.

The judiciary has been described as the least dangerous branch.  But that isn’t true.  The Supreme Court has become a continuing constitutional convention, in which just five votes often turns the Constitution inside out.

The latest Supreme Court term was seen as a shift to the left. These decisions set off a flurry of promises from Republican Party presidential candidates to confront the judiciary.

For instance, Jeb Bush said he would only appoint judges “with a proven record of judicial restraint.” Alas, previous presidents claiming to do the same chose Anthony Kennedy, David Souter, and John Roberts, among many other conservative disappointments.

Sen. Ted Cruz (R-Texas) called for judicial retention elections. Even more controversially, he suggested that only those before the justices had to respect Supreme Court rulings.

Extreme measures seem necessary because a simultaneously progressive and activist judiciary has joined the legislature and executive branches in forthrightly making public policy.  The influence of judges has been magnified by their relative immunity from political pressure, including life tenure.

Lose the battle over filling a Supreme Court slot and you may suffer the consequences for decades.  Unelected, accidental President Gerald Ford merits little more than a historical footnote.  But his malign Supreme Court legacy long persisted through Justice John Paul Stevens, a judicial ideologue hostile to liberty in most forms.

Life tenure is enshrined in the Constitution and rooted in history.  The justification for lifetime appointment is to insulate the courts from transient political pressures. 

Yet judicial independence does not require lack of accountability. Judges are supposed to play a limited though vital role—interpreting, not transforming, the law.

The dichotomy activism/restraint is the wrong prism for viewing judges. They should be active in enforcing the law, including striking down legislation and vindicating rights when required by the Constitution. They should be restrained in substituting their policy preferences for those of elected representatives.

When jurists violate this role, as do so many judges, including Republican appointees, they should be held accountable. Unfortunately, many of the proposed responses are more dangerous than the judges themselves. Such as Ted Cruz’s idea that people should ignore the Supreme Court.

After all, as originally conceived the judiciary was tasked with the critical role of holding the executive and legislative branches accountable, limiting their propensity to exceed their bounds and abuse the people. For instance, Alexander Hamilton imagined that the judiciary would “guard the Constitution and the rights of individuals” from “the people themselves.”

Of course, all too often the judiciary fails to fulfill this role today, illustrating how unreviewable power is always dangerous.

Some 20 states have implemented Cruz’s second idea, of retention elections. National judicial elections, however, would be far more problematic. Alas, Americans who today choose their president based on 30-second television spots are unlikely to pay serious attention to esoteric legal issues and make the fine legal and constitutional distinctions.

There is a better alternative. The Constitution should be amended to authorize fixed terms for federal judges. Perhaps one of ten or twelve years for Supreme Court justices. Such an approach would offer several advantages. While every appointment would remain important, judicial nominations no longer would be as likely to become political Armageddon. 

Term limits also would ensure a steady transformation of the Court’s membership.  New additions at regular intervals would encourage intellectual as well as physical rejuvenation of the Court. Most important, fixed terms would establish judicial accountability.  Justices still would be independent, largely immune to political retaliation for their decisions. Nevertheless, abusive judges no longer would serve for life. Elective officials could reassert control over the court without destroying the judicial institution.

As I point out for The Freeman: “The Supreme Court has become as consequential as the presidency in making public policy. It is time to impose accountability while preserving independence. Appointing judges to fixed terms would simultaneously achieve both objectives.”

Yesterday, Ohio Governor and presidential candidate John Kasich appeared on Fox News. During his interview with host Chris Wallace, Kasich was asked about his “D” in our 2014 Governors Fiscal Report Card.

Here is a transcript of the exchange:

WALLACE: Unemployment down from 9.1 percent to 5.2 percent. And the top income tax rate has been lowered from 6.2 percent to 4.9 percent.

But the Cato Institute, a libertarian think tank, gave you a “D” on its government’s [sic] report card just last year, noting the budget grew 13.6 percent in 2014 and that over your time as governor, government jobs have increased 3 percent. A “D”, sir?

KASICH: Well, I don’t know who these folks are, Chris, another Washington group. But, look, we have the lowest number of state employees in 30 years and in addition to that, our budget overall is growing by about 2 percent or 3 percent, and our Medicaid growth has gone from 9 percent when I came in to less than 4 percent and no one has been left behind. We haven’t had to cut benefits or throw anybody off the rolls. So, we pay attention to the mentally ill and the drug addicted and the working poor.

But, you know, it’s Washington. And, Chris, here’s the thing – remember they said, “He won’t get in the race.” Then I did.

Then, they said, “OK, well, if he gets in, he won’t be able to raise the money.” Then I did.

Then, they said, “Well, he’s getting in too late.” Now they say, “What a brilliant move.”

So, I pay no attention to folks in Washington. I want to move a lot of the power and money and influence out of that town back to where we live like normal Americans, you know?

We seem to have two conflicting views here. In 2014 we gave Governor Kasich the worst score of any governor on spending and he is saying that his spending is growing by “2 percent or 3 percent.” Kasich did score well on the report card for his various tax cuts.

When I summarized Kasich’s record on July 21st, I said:

Data from the National Association of State Budget Officers illustrates the rapid growth in general fund spending. From fiscal year 2012, Kasich’s first full fiscal year, to fiscal year 2015, general fund spending increased in Ohio by 18 percent. Nationally, state general fund spending increased by 12 percent during that period. Kasich’s proposed budget for fiscal year 2016 increased spending further. It included a year-over-year increase of 11 percent. The average governor proposed a spending increase of 3 percent from fiscal year 2015 to fiscal year 2016.

In today’s Columbus Dispatch, Kasich’s team argues that I used the wrong measure of Ohio spending growth.

So who is right?

Every state has a different budget structure, and so we use spending data from the National Association of State Budget Officer (NASBO) to compare the states. NASBO tries to create a consistent dataset, which allows us to make comparisons as neutral as possible.

Ohio budgets can be measured in at least three different ways. By any measure, spending is growing in Ohio. The question is by how much.

The first method looks at state-funded Ohio spending, or general fund spending. It ignores any contribution from the federal government. Spending from fiscal year 2012 to fiscal year 2015 increased by 12 percent. The newly-enacted budget increases spending in fiscal year 2016 by 5 percent over fiscal year 2015. In fact, from 2013 to 2016, spending is increasing in Ohio at an increasing rate.

2013 2014 2015 2016 2.9% 4.1% 4.6% 5.0%

The difference between the NASBO data used in the Governors Report Card and my initial blog post, and the data just cited is that the NASBO data includes federal Medicaid. Medicaid is jointly-financed by the state and the federal government. For fiscal year 2015, Ohio receives 62 cents from the federal government for every dollar spent in the state. The NASBO data includes the federal government’s contribution to Medicaid.

Given Kasich’s record this is an important inclusion. In 2013 Governor Kasich expanded Medicaid over strong objections within the legislature. For that newly-eligible population, the federal government is currently paying 100 percent of the costs. To exclude the effect of Medicaid expansion from spending data minimizes the cost of Kasich’s policies.

According to the state’s Legislative Service Commission, Medicaid expansion is overbudget. Eighteen months into the program, costs are 63 percent over original projections. The problem for Ohio is that  the 100 percent federal reimbursement will not continue. Starting in 2017, Ohio will need to start contributing to the costs. By 2020, 10 percent of the costs will be borne by Ohio taxpayers.

Kasich’s team prefers the third type of spending data, known as all-funds data, as they told the Columbus Dispatch. This includes all Ohio state spending and all of the federal contributions made to Ohio’s budget. It includes things like federally-funded education and transportation spending. From fiscal year 2012 to fiscal year 2014, the last year for which data is available, spending increased by 6 percent.

By using the all-funds number, Kasich is trying to use federal spending to mask the quick increase in general fund spending. Federal spending—besides Medicaid—is not increasing in Ohio that quickly. Kasich has little control over federal spending, but he is using it hide how much Ohio’s state spending has grown during his tenure. Additionally, Kasich is campaigning on a promise to cut federal spending and balance the federal budget. Under those promises, federal aid to states would decrease. If this was currently the case, Kasich’s record would look worse.

Outside of our dispute over how to measure state spending, Kasich criticized our information on the growth of Ohio’s state employees. The difference between our numbers and his is the difference between when the measurements occurred. Our report card was released last October and used the most recent data available. Since publication, Ohio has decreased the number of state employees.

This graph from the St. Louis Federal Reserve shows the initial growth and the subsequent decrease.

Kasich dismissed Cato’s research yesterday suggesting that we overestimated spending growth during his tenure. Our data is correct, and so is his. Kasich seems to pick the dataset that shed the best light on him. Ohio spending has increased quickly when you look at the general fund.

The Wall Street Journal today discusses how the growth in federal subsidies for college has contributed to the growth in college costs for students. Cato scholars have been arguing for years that rising grants and loans are not so much helping students, but causing bloat in college administration costs, including wages, benefits, and excess building construction.

It is a similar story in other policy areas. Federal subsidies cause unintended effects that undermine the stated purpose of interventions, and often end up lining the pockets of people not targeted. Farm subsidy advocates want you to believe that struggling farmers are aided by billions of dollars in annual subsidies, but the real beneficiaries are mainly wealthy landowners. Housing subsidies are supposed to reduce housing costs for people with low incomes, but–to an extent—programs such as Section 8 and the Low Income Housing Tax Credit fatten the wallets of landlords and developers.

Federal taxes and regulations often miss their targets as well because of unintended consequences. Corporate tax hikes, for example, mainly reduce worker wages, not corporate profits as targeted, at least in the long run. Minimum wage laws do not help the lowest-income, least-skilled workers, they harm them. And federal regulations, in general, often serve to protect big firms from competition, not make the marketplace more fair or efficient.

My new study, Why the Federal Government Fails, discusses the unintended consequences of federal intervention. In my experience, federal policymakers focus far too much on what programs are supposed to do in their idealistic dreams, and not enough on the actual effects in the real world.

As my colleague Jeff Milyo wrote somewhat recently, the national sport isn’t baseball; it’s politics. With Americans across the nation loyally cheering on either Team Red or Team Blue (or, for a growing few, Team Purple), the discussion around key political events can seem somewhat superfluously shallow. That’s where the Cato Institute comes in.

Throughout the 2016 campaign season, Cato scholars will be injecting insightful commentary and hard-hitting policy analysis into the national conversation using the Twitter hashtag #Cato2016

We’ll be off to a running start with not, one, not two, but three major nationally televised events this week.

Tonight at 7 p.m. EST, the Voters First Forum will be held at the Dana Center at Saint Anselm College and broadcast nationwide on C-SPAN. Featuring Ben Carson, Chris Christie, Ted Cruz, Carly Fiorina, Lindsey Graham, Bobby Jindal, John Kasich, Jeb Bush, Rick Perry, Scott Walker, Rand Paul, Marco Rubio, Rick Santorum, and George Pataki, the forum will be the first time the majority of the GOP presidential primary contenders will be sharing one stage.  Tune in on Twitter for commentary from Emily Ekins, Jonathan Blanks, Adam Bates, and more. You can find a full list of participating scholars and follow their accounts here.

Then, on Thursday, August 6th, Fox News will host two nationally-televised debates featuring candidates for the GOP nomination for the 2016 presidential elections. The first of these debates—to be held at 5:00 p.m. EST—will be an opportunity to hear from some of the lesser-known contenders, while the second of these debates—to be held at 9:00 p.m. EST—will feature those candidates who place in the top 10 of an average of the five most recent national polls, as recognized by FOX News, leading up to the debate. Tune in on Twitter for commentary from Emma Ashford, Alex Nowrasteh, Patrick Eddington, Michael Cannon, Jason Bedrick, and more. You can find a full list of scholars participating in the 5. pm  and 9 p.m. debates via the @CatoEvents Twitter account.

Tuning into the debates (or simple wondering how they might impact the policy debate)? Join the conversation on Twitter with #Cato2016

Mark Iannicelli has been charged with 7 counts of jury tampering.  He did not pressure jurors in a case to vote one way or the other.  All he did was set up a booth near the courthouse and distribute pamphlets that contained information about jury nullification–the idea that jurors should be able vote according to their conscience.  Prosecutors were so outraged by this that they want Mr. Iannicelli imprisoned.  Free speech is nice, but they apparently think the supreme law does not apply as you approach the, er, courthouse.  Hmm.

Are the prosecutors aware that judges in other jurisdictions have dismissed charges in such circumstances?  If so, this could be just a thuggish attempt to intimidate people from exercising their right to talk about jury nullification.

To learn more about this subject, check out the Cato Institute book, Jury Nullification by Clay Conrad.  But Denver residents had best be careful about where they take the book and talking about it above a whisper.

This week marks the first anniversary of our latest war in the Middle East, but after some 5,000 airstrikes in two countries, and with 3,500 U.S. troops on the ground, we’ve yet to have an up-or-down vote in Congress on authorization for the use of military force against ISIS.

We’re recognizing—“celebrating” isn’t the right word—that unhappy anniversary at Cato with a talk by Senator Tim Kaine (D-VA), who holds the unfashionable view that Congress ought to vote on the wars we fight, and has been waging a (sometimes lonely) battle to get his colleagues to live up to their most important constitutional responsibility. The event runs from 9:00-10:00 AM on Thursday, August 6, so you can hear about the erosion of congressional war powers and grab your morning coffee without getting to work too late; RSVP here.  

President Obama announced the first wave of airstrikes in Iraq on August 7, 2014, and expanded the campaign against ISIS to Syrian territory in September. But it took him six months to send Congress a draft Authorization for the Use of Military Force—along with a message insisting that “existing statutes provide me with the authority I need” to wage war anyway.  Since then, as Senator Kaine recently noted, “Congress has said virtually nothing.” Recent headlines make that all too clear: “Congress avoids war debate as ISIL advances” (Politico, 5/28); “Islamic State War Authorization Goes Nowhere, Again” (Bloomberg, 6/9); “House kills measure to force debate on military force against ISIS” (The Hill, 6/11)…and so on. 

In the debate over the 2016 National Defense Authorization Act last month, Senator Kaine noted that, in the bill, Congress addresses military minutia in “excruciating detail,” but, at the same time, “we don’t want to vote on whether the nation should be at war.” When Kaine cosponsored (with Senators Jeff Flake (R-AZ) and Joe Manchin (D-WV)) an amendment to the NDAA “expressing the sense of the Senate that we should have an authorization debate about whether we should be at war with ISIL,” it was ruled out of order: “so barracks mold, yes; vehicle rust, yes; the athletic programs at West Point, yes;” he sums up, but “whether we should be at war, nongermane to the Defense authorization act. Interestingly, we even took a vote on the floor of the Senate in the NDAA about whether we should arm the Kurds in a war that Congress has not authorized that we could debate and vote on; but whether we should be at war we have not debated and voted upon.”

The president’s claim that he already has all the authority he needs to wage war with ISIS is, as Senator Kaine put it in an earlier speech, “ridiculous.” Its principal basis is the AUMF Congress passed three days after the 9/11 attacks and was intended to be used against those who “planned, authorized, committed or aided” the September 11 attacks or “harbored” those who did. Its main targets were, obviously, Al Qaeda and the Taliban, yet now, nearly 14 years later, the administration insists it serves as legal justification for a war of at least three years, in at least two countries, against a group that is not only not a “cobelligerent” with Al Qaeda, but is engaged in open warfare against the group. Building on the Bush administration’s expansive interpretation of the 2001 authorization, the Obama administration has turned the 9/11 AUMF into an enabling statute for an open-ended globe-spanning war. “This is unacceptable,” Senator Kaine argues, “and we should be having a debate to significantly narrow that authorization” as well. 

The decision to go to war is among the gravest choices a constitutional democracy can make. The Framers erected firebreaks to hasty action, designed to force deliberation and consensus before the resort to deadly force. As James Wilson put it to the Pennsylvania ratifying convention, “this system will not hurry us into war; it is calculated to guard against it. It will not be in the power of a single man, or a single body of men, to involve us in such distress; for the important power in declaring war is vested in the legislature at large.’’ Join us Thursday as we explore how Congress can take that power back. 

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary. 

This week, the royal families of Clinton and Bush offered up their 2016 campaign insights on climate change.  People have been very interested in what they would say because, as Secretary of State, Clinton gave hints that she was even more aggressive on the issue than her boss, and Bush is the son of GHW Bush, who got us into this mess in the first place by going to Rio in 1992 and signing off on the Climate Treaty adopted there.*

Hillary Clinton unveiled her “climate plan” first.  As feared, it’s a step-up over Obama’s, with an impossibly large target for electricity production from renewable energy. While her fans were exuberant, noticeably absent from her plan were her thoughts on Keystone XL pipeline and a carbon tax.

Manhattan Institute scholar Oren Cass (whose take on the carbon tax we’ve featured previously) was, overall, less than impressed. Calling Hilary’s climate plan a “fake plan” in that it really would have no impact on the climate. Cass identifies what Hilary’s “real” plan is—pushing for a $100+ billion annual  international “Green Climate Fund”  (largely populated with U.S. dollars) to be available to developing countries to fight/prepare for climate change. 

Here’s Cass’s take:

Hillary Clinton has a real climate change plan and a fake climate change plan. She released the fake plan earlier this week to predictably rapturous media applause for its “far-reaching” and “comprehensive” agenda.

…The plan is most obviously fake because it is not really a climate plan at all. Clinton offers no estimated reductions in carbon dioxide emissions or future temperatures, probably because her plan cannot achieve any meaningful ones. Her ultimate goal to generate 33 percent of U.S. electricity from renewable sources by 2027 would reduce global emissions by less than 2 percent annually, even if every new kilowatt-hour of renewable power managed to replace coal-fired power. That is only a [tiny-eds] fraction of the increase expected from China during the same period.

Instead of claiming any climate success, Clinton’s campaign material emphasizes health benefits from reducing air pollutants (not carbon dioxide). It promotes job creation (though job losses would be at least as large). And it promises to “make the United States the world’s clean energy superpower,” whatever that means.

The plan is most importantly fake because it obscures an actual climate plan that Clinton has no interest in discussing with voters. The real plan, simply put, is to pay for other countries to reduce their emissions through an unprecedented transfer of wealth from the developed world to the developing world. This plan emerged from the international climate negotiations in Copenhagen in 2009, at which then-Secretary Clinton pledged the United States would help create a Green Climate Fund of at least $100 billion in annual aid – a commitment comparable in scale to all existing development aid from OECD countries.

 Be sure to check out the whole thing, in which Cass concludes:

The silly gap in Clinton’s climate plan is the continuing no-comment on the Keystone XL pipeline. The surprising one is the absence of a price on carbon. But the dangerous one is the omission of what she actually wants to do.

Clearly, Hillary is more interested in influencing public opinion than the actual climate.

Jeb Bush then offered up his thoughts about climate change. In an interview with Bloomberg BNA, Bush said, among other things that “the climate is changing” and that “human activity has contributed to it” but that “we should not say the end is near.”  

Sounds like a solid take!

Bush went on to with his opinions on various aspects of energy regulations currently aimed at climate change. Keystone XL pipeline? “Yes.” Renewable fuel standard? “2022 is the law and is probably the good break point.” EPA’s Clean Power Plan? “[I]rresponsible and ineffective.”

You ought to have a look at the complete set of questions and answers. A refreshing and logical response to the various aspects of the issue.

For example, here’s his full answer to Bloomberg BNA’s question “Is climate change occurring? If so, does human activity significantly contribute to it?”:

The climate is changing; I don’t think anybody can argue it’s not. Human activity has contributed to it. I think we have a responsibility to adapt to what the possibilities are without destroying our economy, without hollowing out our industrial core.

I think it’s appropriate to recognize this and invest in the proper research to find solutions over the long haul but not be alarmists about it. We should not say the end is near, not deindustrialize the country, not create barriers for higher growth, not just totally obliterate family budgets, which some on the left advocate by saying we should raise the price of energy so high that renewables then become viable.

U.S. emissions of greenhouse gasses are down to the same levels emitted in the mid-1990s, even though we have 50 million more people. A big reason for this success is the energy revolution which was created by American ingenuity—not federal regulations.

This is an encouraging stance from a Republican presidential candidate. And one that we think should come to dominate the issue—from both sides. It serves no one to deny that humans are causing climate change, nor to cry that we’re all going to die. Actions should be appropriate to the magnitude of the issue—in other words, lukewarm.


*Many people advised him not to go. But he did, anyway, probably thinking he would get yelled at if he didn’t, and lose votes in the upcoming Presidential election. How well did that work out for him?

Over the last couple of decades, reserve requirements all but vanished as a means of bank regulation and monetary control. But now a new variation on reserve requirements is being introduced through the capital controls of the Basel Accords.

Canada, the UK, Sweden, Australia, New Zealand, and Hong Kong have all abolished traditional reserve requirements. In many other countries, reserve requirements have become a dead letter. In the U.S., for instance, the Fed under Alan Greenspan reduced all reserve requirements to zero except for transactions deposits (checking accounts), while permitting banks to evade reserve requirements on transactions balances by using sophisticated computer software to regularly “sweep” those balances into money market deposit accounts, which have no reserve requirement. In 2011 Congress went a step further by allowing the Fed to eliminate all reserve requirements if it so desired. The Eurozone, for its part, began with a reserve requirement of only 2 percent, which was reduced to 1 percent in January 1999.

There were good reasons for this deregulatory trend. Economists consider reserve requirements an implicit tax on banks, requiring them to hold non-interest earning assets, while central banks considered changes in such requirements too blunt an instrument for monetary control. The Fed discovered the latter shortcoming when, in the midst of the Great Depression, having just gained control over the reserve requirements of national banks, it doubled them, contributing to recession of 1937.

Ostensibly designed to keep banks more liquid, reserve requirements can prevent them from drawing on their liquidity when it is most needed. As Armen A. Alchian and William R. Allen point out in University Economics (1964): “To rely upon a reserve requirement for the meeting of cash-withdrawal demands of banks’ customers is analogous to trying to protect a community from fire by requiring that a large water tank be kept full at all times: the water is useless in case of emergency if it cannot be drawn from the tank.”

As reserve requirements became less fashionable, advocates of more stringent bank regulation resorted instead to risk-based capital requirements, as implemented through the international Basel Accords. More recently the increasingly widespread practice of paying interest on bank reserves has also given central banks an alternative and less burdensome means for inducing banks to hold more reserves.

But in Basel III, agreed upon in 2010-2011, there appeared a new kind of liquidity requirement that mimics reserve requirements in many respects. Known as the “Liquidity Coverage Ratio” or LCR, it requires banks to hold “high quality liquid assets” (HQLA) sufficient to cover potential net cash outflows over 30 days. In September 2014 the Fed, the Comptroller, and the FDIC finalized the rule implementing the Liquidity Coverage Ratio. The rule, which took effect at the beginning at 2015, must be fully complied with by January 2017.

Far from involving a simple ratio, as earlier reserve requirements did, the Liquidity Coverage Ratio is extremely complicated, filling 103 pages in the Federal Register. The rule does not apply to small community banks but instead to banks with more than $250 billion of assets, with a modified rule applying to the holding companies of both banks and savings institutions. The Fed also plans to impose a similar rule on non-bank financial institutions. But because a variant of the rule applies to bank holding companies on a “consolidated basis,” the Liquidity Coverage Ratio already affects most major investment banks, which are owned by bank holding companies.

Unlike traditional reserve requirements, the Liquidity Coverage Ratio does not call for any minimum quantity of cash reserves. Instead, it calls for a minimum quantity of various high quality liquid assets. Weighting bank assets according to their maturity, marketability, and riskiness, the LCR even counts as high quality some forms of corporate debt at half of face value. The LCR also differs in being applied, not just to bank deposits, but to nearly all bank liabilities, including large CDs, derivatives, and off-balance sheet loan commitments, according to their maturity.

In short, the Liquidity Coverage Ratio is designed to reduce maturity mismatches for large financial institutions in order to protect against the kind of panics in the repo and asset-backed commercial paper markets that occurred during the financial crisis of 2007-2008. In any case, the rule will still require banks to hold more reserves or short-term Treasury securities than they otherwise might prefer. Since the rule was under discussion by 2010, it could be another reason—along with interest on reserves and capital requirements—why U.S. banks have continued to hold more than 100-percent reserves behind M1 deposits.

Every time there is a financial crisis, the proposal to force banks to hold higher reserve ratios, if not 100-percent reserves, resurfaces. During the Great Depression, this proposal went under the name of the Chicago Plan and even received support from Milton Friedman in his early writings. The proposal was called “narrow banking” during the savings and loan crisis. Since the recent crisis, it has been advocated in one form or another by such economists as Laurence Kotlikoff of the Boston University, John Cochrane of the University of Chicago, and Martin Wolf of the Financial Times. All of these proposals hinge on the government paying interest on bank reserves.

The new Liquidity Coverage Ratio in one sense is less restrictive than these proposals but in another is more so. It is less restrictive in that it allows deposits to be covered by liquid securities other than cash equivalents, and in that sense is a bit reminiscent of the discredited real-bills doctrine that insisted the banks should make only short-term, self-liquidating loans.

But the Liquidity Coverage Ratio is more restrictive than conventional reserve requirements in so far as it applies to a much broader range of bank liabilities. Unlike such requirements, it is striving to prevent banks from engaging in significant maturity transformation, which involves bundling and converting long-term securities into short-term securities. That makes it closest in spirit to Cochrane’s reform proposal, which combines a 100-percent reserve requirement for deposits with a 100-percent capital requirement for all other bank liabilities. Cochrane’s proposal really would eliminate all maturity mismatches; indeed, it would make all banks resemble combinations of safe-deposit businesses on the one hand and mutual funds or, for that matter, Islamic banks, on the other.

Will the Liquidity Coverage Ratio ultimately work? Although the question requires further thought and study, I doubt it. Several monetary economists, considering the rule’s implementation in Europe (here and here), are more optimistic than I am, and a few even think that it will not be restrictive enough. But they may be overlooking the long-term downsides.

As with so many past banking regulations, this one could ultimately end up being non-binding. Banks may find loopholes in the rule, or may innovate around it, and the rule’s very complexity and supposed flexibility is likely to make doing these things easier. On the other hand, when the next financial crisis hits, by hobbling a bank’s discretionary control over its balance sheet, the rule may well exacerbate the crisis. To the extent that the rule is binding, it changes the fundamental nature of banking in a way that may curtail efficient financial intermediation. Whatever happens, it definitely increases the government’s central planning of the allocation of savings. In the final analysis, it is another futile attempt to use prudential regulation to overcome the excessive risk taking resulting from the moral hazard created by deposit insurance and too-big-to-fail.

[Cross-posted from Alt-M.org]

News comes this morning that Beijing has been awarded the 2022 Winter Olympics, beating out Almaty, Kazakhstan. Which touches on a point I made in this morning’s Boston Herald

Columnist Anne Applebaum predicted a year ago that future Olympics would likely be held only in “authoritarian countries where the voters’ views will not be taken into account” — such as the two bidders for the 2022 Winter Olympics, Beijing and Almaty, Kazakhstan.

Fortunately, Boston is not such a place. The voters’ views can be ignored and dismissed for only so long.

Indeed, Boston should be celebrating more than Beijing this week. A small band of opponents of Boston’s bid for the 2024 Summer Olympics beat the city’s elite – business leaders, construction companies, university presidents, the mayor and other establishment figures – because they knew what Olympic Games really mean for host cities and nations:

E.M. Swift, who covered the Olympics for Sports Illustrated for more than 30 years, wrote on the Cognoscenti blog a few years ago that Olympic budgets “always soar.”

“Montreal is the poster child for cost overruns, running a whopping 796 percent over budget in 1976, accumulating a deficit that took 30 years to repay. In 1996 the Atlanta Games came in 147 percent over budget. Sydney was 90 percent over its projected budget in 2000. And the 
Athens Games cost $12.8 billion, 60 percent over what the government projected.”

Bent Flyvbjerg of Oxford University, the world’s leading expert on megaprojects, and his co-author Allison Stewart found that Olympic Games differ from other such large projects in two ways: They always exceed their budgets, and the cost overruns are significantly larger than other megaprojects. Adjusted for inflation, the average cost overrun for an Olympics is 179 percent.

Bostonians, of course, had memories of the Big Dig, a huge and hugely disruptive highway and tunnel project that over the course of 15 years produced a cost overrun of 190 percent.

Read the whole thing.

It isn’t every day that a person can go to his or her job, work, not participate in any criminal activity, and still get a prison sentence. At least, that used to be the case: the overcriminalization of regulatory violations has unfortunately led to the circumstance that corporate managers now face criminal—not just civil—liability for their business operations’ administrative offenses.

Take Austin and Peter DeCoster, who own and run an Iowa egg-producing company called Quality Egg. The DeCosters plead guilty to violating certain provisions of the Food, Drug, and Cosmetic Act because some of the eggs that left their facilities contained salmonella enteritidis, a bacterium harmful to humans. They were sentenced to 90 days in jail and fined $100,000 for the actions of subordinates, who apparently failed, also unknowingly, in their quality-control duties.

In other words, the “crime” that the DeCosters were convicted of didn’t require them to have put eggs with salmonella into interstate commerce, or even to have known (or reasonably been able to foresee) that Quality Egg was putting such eggs into interstate commerce. It didn’t even require the quality-control operator(s) most directly involved in putting the contaminated eggs into interstate commerce to have known that they were contaminated.

Nearly a century of jurisprudence has held that imprisoning corporate officers for the actions of subordinates is constitutionally suspect, given that there’s neither mens rea (a guilty mind) nor even a guilty act—the traditional benchmarks of criminality since the days of Blackstone. Yet there are about 300,000 regulations that can trigger criminal sanctions. These rules are too often ambiguous or arcane, and many lack any requirement of direct participation or knowledge, imposing strict liability on supervisors for the actions (or inactions) of their subordinates.

In United States v. Quality Egg, the district court ruled that courts have previously held that “short jail sentence[s]” for strict-liability crimes are the sort of “relatively small” penalties that don’t violate constitutional due process.  Such a sentence has only been imposed once in the history of American jurisprudence, however, and for a much shorter time on defendants with much more direct management of the underlying bad acts. Additionally, prison is not the sort of “relatively small” penalty—like a fine or probation—that the Supreme Court has allowed for offenses that lack a guilty mind requirement.

Joining the National Association of Manufacturers, Cato points out in an amicus brief supporting the DeCosters’ appeal that this case presents an opportunity for the U.S. Court of Appeals for the Eighth Circuit to join its sister court, the Eleventh Circuit, in holding that prison sentences constitute a due-process violation when applied to corporate officers being charged under a strict-liability regulatory regime.

This week, the United States and Turkey agreed on a deal to expand cooperation in the fight against ISIS, in part through the creation of an ‘ISIS-free zone’ in Northern Syria. The scope of the agreement is unclear, not least because Turkish officials are hailing it as a ‘safe zone’ and a possible area for refugees, while U.S. officials deny most of these claims. U.S. officials are also explicit that the agreement will not include a no-fly zone, long a demand of U.S. allies in the region.

But what’s not in doubt is that the United States and Turkey plan to use airstrikes to clear ISIS fighters from a 68-mile zone near the Turkish border. The zone would then be run by moderate Syrian rebels, although exactly who this would include remains undefined.

Over at the Guardian today, I have a piece talking about the many problems with this plan, in particular the fact that it substantially increases the likelihood of escalation and mission creep in Syria:

“The ambiguity around the ‘Isis-free zone’ creates a clear risk of escalation. It’s unclear, for example, whether groups engaged in fighting the regime directly will be allowed to enter the zone and train there, or only those US-trained and equipped rebels focused on Isis. US officials have been keen to note that Assad’s forces have thus far yielded to American airstrikes elsewhere in Syria – choosing not to use their air defense system and avoiding areas the US is targeting - but that is no guarantee that they would refrain from attacking opposition groups sheltering inside a safe zone.”

The plan is just another step in the current U.S. approach to Syria, which has been haphazard and ill-thought out. The United States is engaged in fighting ISIS while most fighters on the ground want to fight the Assad regime, a key reason for the abysmal recruitment record of the U.S. military’s new train-and-equip programs in Syria. Increased U.S. involvement in Syria risks our involvement in another costly, open-ended civil war.

Renewed diplomatic efforts to find a settlement are the only way to effectively address the Syrian crisis. A negotiated settlement which sees Assad removed from power - while allowing some of his followers to participate in a unified Syrian government - would allow fighters inside the country to focus on fighting ISIS, while ensuring that Syria’s minorities are not entirely disenfranchised.

A successful diplomatic settlement will be difficult to achieve. Negotiations would by necessity involve other unpleasant states, including Assad’s Iranian and Russian patrons. But there have been recent indications that Moscow may be more willing to talk, and the ties forged during the U.S.-Iranian nuclear talks could prove valuable. The United Nations is once again trying to restart talks, an initiative the United States should support wholeheartedly. Nonetheless, diplomacy is infinitely better than the slippery slope to military intervention offered by this week’s agreement with Turkey.

You can find the whole article at the Guardian here. For more thoughts on how a U.S. diplomatic strategy for Syria might work, check out this podcast.