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Three weeks ago I wrote in the Guardian about Donald Trump’s years-long effort to use eminent domain to take Vera Coking’s Atlantic City house, along with two nearby small businesses, in order to build a limousine parking lot for his Trump Plaza hotel. Coking’s house may not have been paradise, but as Joni Mitchell would say, Trump wanted to pave it and put up a parking lot.

Today the Washington Post splashes the story of the billionaire and the widow across the front of its Style section. It’s a story that deserves further attention.

As I wrote:

For more than 30 years Vera Coking lived in a three-story house just off the Boardwalk in Atlantic City. Donald Trump built his 22-story Trump Plaza next door. In the mid-1990s Trump wanted to build a limousine parking lot for the hotel, so he bought several nearby properties. But three owners, including the by then elderly and widowed Ms Coking, refused to sell.

As his daughter Ivanka said in introducing him at his campaign announcement, Donald Trump doesn’t take no for an answer.

Trump turned to a government agency – the Casino Reinvestment Development Authority (CRDA) – to take Coking’s property. CRDA offered her $250,000 for the property – one-fourth of what another hotel builder had offered her a decade earlier. When she turned that down, the agency went into court to claim her property under eminent domain so that Trump could pave it and put up a parking lot.

Trump consistently defended his use of eminent domain. He told John Stossel, “Everybody coming into Atlantic City sees this terrible house instead of staring at beautiful fountains and beautiful other things that would be good.” Later, after the Supreme Court upheld the use of eminent domain to take property from one owner for the benefit of another private owner, he told Neil Cavuto, 

“I happen to agree with it 100%. if you have a person living in an area that’s not even necessarily a good area, and … government wants to build a tremendous economic development, where a lot of people are going to be put to work and … create thousands upon thousands of jobs and beautification and lots of other things, I think it happens to be good.”

Manuel Roig-Franzia of the Post adds lots of colorful detail to the story. He notes how the Institute for Justice represented Coking in court – and won. “In the long melodrama that is Trump’s business career, the house in Atlantic City is the place where all the billionaire’s money and all the billionaire’s men couldn’t keep a 5-foot-3 widow from whupping him”–with the government on his side and IJ on hers.

Earlier this year, the Library Freedom Project launched an initiative to test the use of Tor exit relays in local libraries as a means of helping library patrons browse the internet annonymously. As the LFP noted

To begin this new project, we needed a pilot, and we had just the library in mind – Kilton Library in Lebanon, New Hampshire, one of two Lebanon Libraries. Chuck McAndrew is the IT librarian there, and he’s done amazing things to the computers on his network, like running them all on GNU/Linux distributions. Why is this significant? Most library environments run Microsoft Windows, and we know that Microsoft participated in the NSA’s PRISM surveillance program. By choosing GNU/Linux operating systems and installing some privacy-protecting browser extensions too, Chuck’s helping his staff and patrons opt-out of pervasive government and corporate surveillance. Pretty awesome.

At least it was awesome until the Department of Homeland Security got wind of the project.

As Julia Angwin of ProPublica reports today

In July, the Kilton Public Library in Lebanon, New Hampshire, was the first library in the country to become part of the anonymous Web surfing service Tor. The library allowed Tor users around the world to bounce their Internet traffic through the library, thus masking users’ locations.

Soon after state authorities received an email about it from an agent at the Department of Homeland Security.

“The Department of Homeland Security got in touch with our Police Department,” said Sean Fleming, the library director of the Lebanon Public Libraries.

After a meeting at which local police and city officials discussed how Tor could be exploited by criminals, the library pulled the plug on the project.

“Right now we’re on pause,” said Fleming. “We really weren’t anticipating that there would be any controversy at all.”

He said that the library board of trustees will vote on whether to turn the service back on at its meeting on Sept. 15.

Nearly everything in our society has been or will be exploited by criminals: cars, cellphones, hatchets, cleaning solutions, tape, boats, aircraft–the list is virtually endless. It’s part of living with and in a free society, and the feds don’t come knocking on 3M’s door every time a criminal uses their tape to facilitate a break-in or other criminal act. But federal agencies like DHS and the FBI are literally on an anti-encryption, anti-privacy crusade with respect to consumer electronics and software–especially high-quality, publicly audited and effective anonymization technology like Tor. The Kilton Library’s internet freedom project has just become the federal government’s latest victim in that misguided campaign.

To recap: DHS used the Lebanon, New Hampshire police department to lean on–if not outright intimidate–a local library into at least temporarily abandoning a tool that reinforces Fourth Amendment privacy protections–and in doing so treated all of the Kilton Library’s patrons as potential criminals first, and as citizens with rights a very distant second.

The Inspector General (IG) of the Department of Homeland Security (DHS) has released a report finding waste in the department’s vast warehousing of equipment and supplies. Here are a few examples of the problems found by the IG:

Customs and Border Protection (CBP) leases a 54,000 square foot warehouse in Northern Virginia to store mostly excess furniture leftover from projects in which CBP reduced office space. CBP also stockpiles reams of printer/copier paper at this location and will pay about $934,000 per year to lease this warehouse. Many of the items in the warehouse appeared to be obsolete or broken. The annual lease cost exceeds our estimated value of these items.

… CBP leases a 41,129-square-foot GSA warehouse also located in Northern Virginia to support its Data Center and store new computer equipment CBP distributes to its field offices. In addition, CBP stores old computer equipment. CBP will pay about $502,000 each year to lease this warehouse. The iTeam estimated that about half of the items stored in this warehouse were old computer systems and other obsolete technologies.

… CBP leases a 6,500-square-foot GSA warehouse in Northern California to store old computers, broken equipment, old office furniture, and some books. CBP will pay about $74,000 each year to lease this warehouse. The warehouse is mostly empty and CBP does not actively manage or conduct physical inventories of the stored items.

These examples exemplify points made in my study, Why the Federal Government Fails. Well-managed businesses would not be holding onto piles of obsolete and broken furniture and computers, and paying for expensive storage. They have a bottom line to worry about, and face constant pressure to reduce costs. By contrast, federal government managers have little or no incentive to reduce costs, and so they don’t.

The new report on DHS inventory mismanagement is a microcosm of the broader waste in the government’s vast holdings of real property. The federal government owns or leases more than 275,000 buildings, including offices, hospitals, and warehouses. There is huge excess in these holdings, which cost $22 billion a year to maintain. The government has long been a poor manager of it assets, and the GAO has had federal property holdings on its “high risk” list for years.

To the Obama administration’s credit, it is taking modest steps to reduce the waste in federal property management. But the more fundamental issue is that the government is a vastly bloated enterprise that does too much and has little incentive to do it efficiently.

Just when you thought that any further Obamacare lawsuits involved things like contraceptive mandates rather than anything at the law’s core, today a federal judge ruled that Speaker of the House John Boehner’s case against the HHS and Treasury secretaries can proceed. In a highly technical 43-page opinion, Judge Rosemary Collyer found that the House of Representatives has standing to sue these officials and their agencies for spending money on ACA implementation that Congress didn’t authorize.    That’s clearly the right call: only Congress can appropriate funds for federal programs and so Congress faces a unique institutional injury when the executive branch decides to take that particular prerogative upon itself.    Judge Collyer went on to deny standing on the additional claim that the executive amended the statute when it delayed and modified Obamacare’s employer mandate–but this is a much closer issue that will be hotly contested on appeal.    As Cato described in our King v Burwell brief, Obamacare implementation has been a seat-of-the-pants executive frolic from the get-go (and we didn’t even include the episode at the heart of the surviving claim here). It’s not surprising that a law written in haste behind closed doors and that was rammed through Congress via procedural shenanigans would have growing pains as it went online. In the normal course, that would mean technical amendments and orderly administrative rulemaking, but here, given the lack of popular support–and the loss of Congress by the enacting party as a direct result–that wasn’t possible. Accordingly, the Obama administration is (again) reaping what it has sown.    Keep an eye on U.S. House of Representatives v. Burwell – and note that one of the early sketches of this suit was presented at a Cato policy forum by my colleague Andrew Grossman. 

Over at Cato’s Police Misconduct web site, we have selected the worst case for the month of August.  This one goes to the City of Phoenix and its police agent, Kevin McGowan.

Here’s the background.  Patrick D’Labik, age 18, admits that he ran away from the police.  He ran because he said he had a bag of marijuana in his pocket and he didn’t want to go to jail.  Phoenix police officer Kevin McGowan caught up with D’Labik in a convenience store and the store had security cameras that captured the encounter.  Officer McGowan has his gun pointed at D’Labik, who was on his phone with his father, but who then quickly raises his hands in surrender.  As D’Labik is getting on the ground, Officer McGowan kicks him.  The force was so great that several teeth are knocked out.

In response to a complaint about excessive force, police commanders review the security camera footage and conclude the kick was unjustifiable.  McGowan loses his job with the police department.

But wait, Officer McGowan is now back on the force, patrolling the streets of Phoenix.  Turns out his termination was overturned by the Civil Service Board.

Here is security footage from the store:

POLICE BRUTALITY - Phoenix Cop Smashes Teen’s Teeth In & Now Begs For His Job Back

In my 2012 primer on fundamental tax reform, I highlighted the three biggest warts in the current system.

1. High tax rates that penalize productive behavior such as work and entrepreneurship.

2. Pervasive double taxation that undermines saving and investment.

3. Corrupt loopholes and cronyism that lure people into using resources inefficiently.

These problems all need to be addressed, along with additional problems with the internal revenue code, such as worldwide taxation and erosion of constitutional freedoms and civil liberties.

Based on these criteria, I’ve already reviewed the tax reform plan put forth by Marco Rubio. And I’ve analyzed the proposal introduced by Rand Paul.

Now let’s apply the same treatment to the “Reform and Growth Act of 2017” that former Florida Governor Jeb Bush has unveiled in today’s Wall Street Journal.

Bush identifies three main goals, starting with lower tax rates.

First, I want to lower taxes and make the tax code simple, fair and clear. …We will cut individual rates from seven brackets to three: 28%, 25% and 10%. At 28%, the highest tax bracket would return to where it was when President Ronald Reagan signed into law his monumental and successful 1986 tax reform.

This is a positive step, effectively wiping out the tax-rate increases imposed by Presidents George H.W. Bush, Bill Clinton, and Barack Obama.

Then Governor Bush takes aim at tax loopholes.

Second, I want to eliminate the convoluted, lobbyist-created loopholes in the code. For years, wealthy individuals have deducted a much greater share of their income than everyone else. We will retain the deductibility of charitable contributions but cap the deductions used by the wealthy and Washington special interests, enabling tax-rate cuts across the board for everyone.

This also is a step in the right direction, though it’s unclear what Bush is proposing - if anything - for other big tax loopholes such as the mortgage interest deduction, the healthcare exclusion, the state and local tax deduction, and the municipal bond exemption.

The final big piece of Jeb’s plan deals with America’s punitive treatment of business income.

Third, I believe that the tax code should no longer be an impediment to the nation’s competitiveness with China, Europe and the rest of the world. …To stop American companies from moving out of the country, I will cut the corporate tax rate from 35%—the highest in the industrial world—to 20%, which is five percentage points below China’s. We will end the practice of world-wide taxation on U.S. businesses, which fosters the insidious tactic called corporate “inversions.” …We will also allow businesses to fully and immediately deduct new capital investments—a critical step to increase worker productivity and wages.

All of these reforms are very good for growth.

A lower corporate tax rate, particularly combined with territorial taxation and “expensing” of investment expenditures, will make American companies far more competitive.

More important, these reforms will fix flaws in the tax code that reduce capital formation. And that will mean more investment and higher wages for American workers.

There are other positive features mentioned in the column that are worth celebrating. Governor Bush’s plan eliminates the death tax, which is an especially punitive form of double taxation.

His proposal also gets rid of the alternative minimum tax (AMT), which is a convoluted part of the tax code seemingly designed to grab more money from taxpayers in a very complicated fashion.

Now let’s move to a part of Bush’s plan that seems bad, but arguably is good. He’s proposing to get rid of interest deductibility for companies, which will increase double taxation (remember, investors who buy corporate bonds pay tax on the interest payments they receive from firms).

…we will eliminate most corporate tax deductions—which is where favor-seeking and lobbying are most common—and remove the deduction for borrowing costs. That deduction encourages business models dependent on heavy debt.

So why is this feature arguably good when one of the key goals of tax reform is eliminating double taxation?

For two reasons. First, we already have double taxation of dividends (i.e., equity-financed investment), so imposing double taxation on borrowing (i.e., debt-financed investment) creates a level playing field and addresses the bias for debt in the tax code.

To be sure, it would be best to level the playing field by having no double taxation of any kind, but presumably the Bush team also was paying attention to revenue constraints.

And this is the second reason why this portion of the plan arguably is good. The revenue implications of this change are non-trivial, so one could argue that it is helping to finance pro-growth changes such as a lower corporate tax rate and immediate expensing of business investment.

Let’s close by highlighting some unambiguously worrisome features of the Bush plan.

According to his column, an additional 15 million Americans no longer will have any income tax liability, largely because the plan almost doubles the standard deduction. It’s good for people not to have to pay tax, of course, but we already have a system where almost half of all households are exempt from the income tax. So the concern is that we have a growing share of the population that perceives government as a no-cost dispenser of goodies.

And one of those goodies is the Earned Income Tax Credit, which is a form of income redistribution operated through the tax code. And Bush is proposing to expand the EITC, though there aren’t any details about this part of his plan.

Presumably Bush is including these provisions to somewhat fend off the class-warfare attack that his plan provides big tax cuts for the “rich” while not doing enough for the rest of the population. Yet upper-income taxpayers already pay the lion’s share of the income tax.

Even the IRS has acknowledged that the top 3 percent pay more than half the burden!

So a fair tax cut, by definition, will benefit the rich since they’re the ones who are carrying the load.

In any event, the purpose of good tax policy is to generate faster growth by improving incentives for work, saving, investment, and entrepreneurship, and that’s where you get the big benefits for lower- and middle-income taxpayers.

Simply stated, the close you get to a Hong Kong-style flat tax, the closer you get to robust Hong Kong-type growth rates.

The bottom line is that Bush’s tax plan isn’t a touchdown. Like the Rubio plan and Paul plan, it’s not a Hall-Rabushka flat tax, which is the gold standard for tax reform. But it’s a big step in that direction. Bush takes the ball from the wrong side of the field and puts it on the right side of the field.

If implemented (and accompanied by the spending restraint needed to make the plan sustainable), Bush’s proposal would be a significant boost for the American economy and American taxpayers.

Despite bitter partisan controversies on foreign policy issues such as the Iran nuclear agreement and the normalization of relations with Cuba, there is one issue where liberals and conservatives share a common delusion.  That issue is policy toward Syria.  The Obama administration persists in wanting to oust Syrian President Bashar al-Assad and at the same time crush the ISIS insurgents.  Washington continues to flirt with establishing a no-fly zone in northern Syria to protect supposedly moderate rebels, and it is moving forward with its much- mocked scheme to train a moderate insurgent force that would oppose both Assad and ISIS.  The latter plan is hopelessly behind schedule and has thus far produced only a handful of graduates from the training program.

Conservatives are no more realistic than the Obama foreign policy team.  Presidential candidates and conservative pundits alike routinely talk of escalating the fight against ISIS, but then, in almost the same breath, stress the need to defeat Assad and his principal ally, Iran.  I had the “pleasure” of witnessing such illogic in two major broadcasts within the past week.  The first occurred in a September 5 segment on CNBC, in which Larry Kudlow, a prominent economist and possible candidate for the U.S. Senate, raged against the Obama administration’s alleged unwillingness to conduct a concerted campaign against the twin evils of ISIS and Iran.  On Labor Day, the Fox News program “The Five” featured a discussion in which nearly all of the participants adopted arguments that echoed Kudlow’s rant.

What is striking about all of these episodes—and many others like them—is that the advocates of decisive, simultaneous U.S. action against both ISIS and the Assad-Iran alliance are in denial that those two goals are hopelessly contradictory.  Like it or not, the principal forces arrayed against ISIS are Assad’s “coalition of religious minorities” in Syria together with Iran and its Shiite allies in Iraq. The Syrian Kurds have their own agenda, seeking to create a de facto independent Kurdish state in northeastern Syria akin to the self-governing Kurdish region next door in Iraq.  

Secular Syrians committed to a united, democratic Syria are few in number and badly factionalized to boot.  U.S. officials need to stop basing policy on the expectation that a mythical moderate Syrian insurgency will emerge. The reality is that there is no credible moderate alternative to Assad and ISIS.  If Washington moves to oppose one side in that bipolar struggle, it automatically strengthens the other.

Of course, the option always exists to drastically lower the U.S. profile in the Middle East and let the contending forces, which reflect a broad Sunni-Shiite regional struggle for power, fight it out.  But hawks of whatever ideological stripe are unwilling to adopt that strategy.  Therefore, their only option is to choose their poison.  Which outcome do they find less unpalatable: an ISIS victory and the triumph of Sunni extremism, or an Assad victory and the expansion of Iranian influence?  As much as they might wish to avoid that choice, the notion of a defeat of both Assad and ISIS is nothing more than wishful thinking.  And that is never a good basis for foreign policy.

Darren Chaker was under supervised release when he wrote on his personal blog that Ms. Leesa Fazek, an investigator with the Nevada Attorney General’s Office, was “forced out” of her previous post with the Las Vegas Police Department. That statement, according to the district court ultimately overseeing Chaker’s parole, was a violation of the requirement that he “not . . . disparage or defame others on the internet”—and so Chaker was returned to prison.

In so ruling, the court placed an unconstitutional prior restraint on Darren Chaker. But this country long ago moved past the notion of lèse majesté laws protecting public officials from harsh treatment by the press and the people. Indeed, the American people were so reviled by the enforcement of these statutes during the presidency of John Adams—particularly the Alien and Sedition Acts—that the people ousted the Federalist Party that proposed them. Since that time, Americans have given true meaning to their First Amendment rights against prior restraints on speech or on the terms by which public officials may be discussed.

Even prisoners and parolees receive constitutional protection; terms of supervised release must be narrowly drawn to avoid infringing substantive rights, like those of political expression. If the anti-disparagement provision of Chaker’s supervised release becomes widespread, it could easily stifle valuable speech by activists and others.

For instance, in his Letter from a Birmingham Jail, Dr. Martin Luther King Jr. remarked that “[w]e are sadly mistaken if we feel that the election of Albert Boutwell as mayor will bring the millennium to Birmingham. While Mr. Boutwell is a much more gentle person than Mr. Connor, they are both segregationists, dedicated to maintenance of the status quo.” Had King been subject to the same conditions as Chaker, he might have been resentenced for some of his most powerful writings. Worse still, he might never have published at all.

Imposing vague and broad restraints on speech leaves people like Darren Chaker guessing as to the limit of their rights and as to which leaders are “touchable” by the spoken and written word. The First Amendment needs appropriate “breathing space” to thrive, as the Supreme Court recognized in NAACP v. Button (1963). Much earlier, Sir William Blackstone noted, “The liberty of the press is indeed essential to the nature of a free state; but this consists in laying no previous restraints upon publications, and not in freedom from censure for criminal matter when published. Every freeman has an undoubted right to lay what sentiments he pleases before the public; to forbid this, is to destroy the freedom of the press; but if he publishes what is improper, mischievous or illegal, he must take the consequence of his own temerity.”

Public officials are appropriate objects of criticism and the protection of their feelings is not the appropriate province of the courts. Chaker’s words don’t even rise to the standard that must be met to constitute defamation of a public figure. Chaker didn’t act with “actual malice” or reckless disregard for the truth when he published his blogpost, which is the mental requirement necessary to sustain such a charge. His speech was thus constitutionally protected political discourse.

Accordingly, Cato has joined the ACLU, the First Amendment Project, the Electronic Frontier Foundation, and the First Amendment Coalition on a brief supporting Darren Chaker before the U.S. Court of Appeals for the Ninth Circuit, which will hear the appeal this fall.

In late August, the North Dakota legislature approved a bill allowing police in the state to arm their drones with “less than lethal” weapons. Not surprisingly, “less than lethal” is defined nowhere in the bill. Thus, North Dakotans could see taser-armed drones in their police departments–even though police-used tasers have killed 42 people this year alone, according to the Guardian. And while current Federal Aviation Administration (FAA) regulations prohibit commerically operated drones from dropping objects, an FAA spokesperson told USA Today that

A government aircraft operation needs FAA authorization in the form of a Certificate of Waiver or Authorization (COA). We can’t speculate if an operation involving a Taser-equipped unmanned aircraft would be approved.

Notice that the FAA did not rule out approving a taser-armed police drones.

What else might a law enforcement entity want to put on a drone? Tear gas dispensers? Rubber bullets or other “non-lethal” projectiles? Or in the case of the Department of Homeland Security, the potential employment of unspecified “non-lethal weapons designed to immobilize” their targets?

In May 2015, the International Association of Chiefs of Police issued a model policy that provided the best answer regarding small unmanned aircraft systems (sUAS) operations

The sUAS shall not be equipped with weapons of any kind (emphasis added)

When he testified before the House Homeland Security Committee in March 2015, IACP president Chief Richard Beary spent a lot of time talking about potential criminal uses of drones. He did not discuss the perils of law enforcement arming its own drones, or the privacy implications of police-operated drones. While the IACP model policy was not yet public when he testified, it’s a shame Beary didn’t use his appearance before the committee as a forum to discredit the idea of arming police drones, and to talk about the need for police departments to get a warrant for drone use if such use might “intrude on reasonable expectations of privacy.” Those were messages the North Dakota legislature clearly needed to hear before passing their armed drone bill.

“The godfather of inequality research,”  is how The Economist describes septuagenarian  British economist Anthony Atkinson. A frequent co-author with Thomas Piketty and Joe Stiglitz, Sir Atkinson has written a book about inequality which a  New York Times reviewer described as a “flurry of largely recycled policy proposals.”   Inequality: What can be done? is all about “unapologetic support for aggressive government intervention,” says The Economist, and “a throwback to the 1960s and 1970s.” 

There is no need to buy the book, because the following summary – “15 Proposals from Tony Atkinson’s book ‘Inequality: What can be done?’ – is more than enough.  Each Proposal is in the author’s own words, but followed by my own view of Problems with those plans.  [I skip Proposals 9-11, which are just inflated versions of policies similar to those in the U.S. – the earned income credit, estate & gift tax, and property tax.]

Proposal 1: The direction of technological change should be an explicit concern of policy-makers, encouraging innovation in a form that increases the employability of workers and emphasizes the human dimension of service provision.

Problem 1: To invite political officials to obstruct labor-saving technology or to encourage (subsidize) employment growth at the expense of output growth are plans to depress the growth of real output per worker (productivity) and therefore depress real income per worker.

Proposal 2: Public policy should aim at a proper balance of power among stakeholders, and to this end should

(a)   introduce an explicitly distributional dimension into competition policy;

(b)   ensure a legal framework that allows trade unions to represent workers on level terms;  and

(c)   establish, where it does not already exist, a Social and Economic Council involving the social partners and other nongovernmental bodies.

Problem 2: The first proposal (2a) hopes to turn antitrust lawsuits into a device for reducing profits, apparently based on a zero-sum notion that smaller profits ensure larger wages. The second proposal (2b) insinuates that current law is biased against unions in unspecified ways.  The third (2c) endorses a Social and Economic Council composed of private interest groups.  Such councils already exist at the Arab League and U.N., apparently as a pretext for conferences.

Proposal 3: The government should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it.

Problem 3:  Guaranteed public employment at the minimum wage would have to be financed by taxes, which reduce employment in the private sector. If the minimum wage were both high and binding, this could shift a large and growing share of employment away from production of marketable products into provision of “free” government services of unknown value to consumers.  By creating a growing constituency for large increases in the minimum wages, guaranteed tax-financed public jobs could displace or “crowd out” more and more private employment.  In the U.S., the legal minimum of $7.25 an hour is not binding; it applies only to certain formal and visible forms of employment. The U.S. Bureau of Labor Statistics reports that in 2014 there were only 550,000 people over the age of 25 earning the federal minimum wage of $7.25 an hour, but 999,000 earning less than that minimum wage.    

Proposal 4: There should be a national pay policy, consisting of two elements: a statutory minimum wage set at a living wage, and a code of practice for pay above the minimum, agreed as part of a “national conversation” involving the Social and Economic Council.

Problem 4: How could the proposed overturning of private labor contracts by an unelected “Council” be consistent with any concept of political or economic liberty?  This comes frighteningly close to saying governments (e.g., Nixon’s wage controls) and/or non-governmental interest groups (e.g., Medieval guilds) can and should dictate to workers how much they should charge for their work, and how much employers must offer.  Yet inequality is famously low in countries with no minimum wage, such as Sweden, Austria, Denmark and (until 2015) Germany.  And inequality is very high in U.S. cities with a high minimum wage, such as San Francisco. The concept of nationwide “living wage” is arbitrary gibberish, since such a goal cannot possibly be the same for an Alabama teen living with parents as it is for a single mother in Manhattan with four children.  

Proposal 5: The government should offer via national savings bonds a guaranteed positive real rate of interest on savings, with a maximum holding per person.

Problem 5:  U.S. Treasury inflation-protected securities (TIPS) guarantee a positive real rate if held to maturity, as do similar bonds in Europe. There could be no maximum holding of such bonds unless savers were somehow prohibited from selling their securities (which would make them illiquid and undesirable). If Atkinson means to offer a higher real return than the market provides then the proposal would misallocate capital and increase government (taxpayer) debt.

Proposal 6: There should be a capital endowment (minimum inheritance) paid to all at adulthood.

Problem 6: This proposal would everyone a check for about $15,000 upon reaching adulthood, described as “capital” yet likely used for consumption.  This indiscriminate transfer payment is to be financed by a 65% death tax. Higher tax rates on the capital accumulation of older savers to pay for large subsidies to the consumption of young consumers would, as Joe Stiglitz explained in 1978, reduce productivity and weal wages by reducing the ratio of capital to labor.

Proposal 7: A public Investment Authority should be created, operating a sovereign wealth fund with the aim of building up the net worth of the state by holding investments in companies and in property.

Problem 7: Atkinson is proposing to emulate Arabian princedoms, China and other autocratic states by investing taxpayer funds (like the U.S. Social Security trust fund) in private equites and real estate.  Malaysia’s wealth fund, for example, is the majority shareholder in Malaysian Airlines, whose stock recently fell 90%.  Governments with budget deficits would be investing borrowed funds in stock markets, which is as speculative as individuals buying stocks on margin.  The authority to allocate taxpayer capital by political favoritism could not safely be entrusted to even the most saintly and omniscient bureaucrats and politicians, and they would bear none of the losses from bad investments.

Proposal 8: We should return to a more progressive rate structure for the personal income tax, with marginal rates of tax increasing by ranges of taxable income, up to a top rate of 65 per cent, accompanied by a broadening of the tax base.

Problem 8: If a top tax rate of 65% would be harmless to the economy and raise more revenue, then why is no country in the world adopting this advice?  All of the fastest-growing economies in Asia and Eastern Europe have very low and sometimes flat marginal tax rates, particularly on capital. All countries with very high and/or rising marginal tax rates (France, Greece, Japan, etc.) have performed quite poorly.  U.S. tax revenues were a larger share of GDP when the top tax rate was 28% than when it was 70% or 91%.

Proposal 12: Child Benefit should be paid for all children at a substantial rate and should be taxed as income.

Problem 12: Atkinson views his “Child  Basic Income” (CBI) plan as an intermediate stepping stone toward his comprehensive Basic Income plan because he thinks it easier to peddle to intransigent voters than his actual Basic Income goal for everyone.  Basic Income is essentially the 1967 “credit income tax” plan designed by James Tobin of Yale and converted into a $1000 “demogrant” for Sen. McGovern’s 1972 Presidential campaign. What McGovern missed is that a flat tax was the other key element of Tobin’s plan, as was confirmed by later work by Atkinson and Stiglitz on optimum taxation.

Proposal 13: A participation income should be introduced at a national level, complementing existing social protection, with the prospect of an EU-wide child basic income.

Problem 13: Participation income  is another rhetorical device (like CBI) for moving toward a Basic Income on a piecemeal basis.  The pretense is to make guaranteed income conditional on “participation in the society” by residents (not just citizens). In addition to all children and seniors, checks go out to those participating in approved training, taking approved care of children; doing approved volunteer work, etc.  Caseworkers empowered to decide which activities get approved would have treacherous authority to promote politically-favored nonprofits and thwart others.  If he can’t sell this idea, Atkinson’s alternative Proposal 14 is to simply to spend more on “social insurance, raising the level of benefits and extending their coverage.”

Proposal 15: Rich countries should raise their target for Official Development Assistance to 1 per cent of Gross National Income.

Problem 15: Foreign aid has often been used to prop-up bad policies and authoritarian politicians, and has never helped those economies in Asia and elsewhere which lifted themselves from chronic poverty to rapid economic growth – after reducing tax rates, tariffs and regulations. Besides, no academic has any right to tell taxpayers of sovereign nations how their elected representatives “should” spend their money

After his 15 Proposals, Atkinson also mentions even stranger “Ideas to pursue.” The zaniest, borrowed from Thomas Piketty, is “a global tax regime for personal taxpayers, based on total wealth.” Try to imagine the size and power of the required global army of tax collectors attempting to assess every wealthy individual in every country and collect a tax based on such inevitably arbitrary assessments. If such a tax could be enforced on a global scale, there would clearly be no democracy anywhere.

Sir Atkinson’s old-fashioned “policy polemic,” as the New York Times’ reviewer described it, is surprisingly disappointing.  He wrote a much bolder and better book back in 1995: Public Economics in Action: The Basic Income/Flat Tax Proposal.  In it, he suggested replacing all means-tested and social insurance benefits (such as unemployment or disability benefits) with a guaranteed annual income (refundable tax credit).  This would, he wrote, “do away with the present complicated means-tested   benefits” and shrink unemployment.  A key second part of the plan required replacing the progressive income tax with an optimal flat tax of 16-31%.   The combination of a flat tax and basic income, he concluded, “should definitely be on the agenda for public discussion.”  What Atkinson now proposes, unfortunately, is the exact opposite – numerous lavish political gifts ostensibly financed with destructive tax rates on capital and entrepreneurship.  These proposals would soon leave any country that adopted them in ruins. 

The Bloomberg editorial board has a recent piece entitled “Free Trade Can Save the Rhino.”  I was already aware of how free trade could lead to more competition and lower prices for consumers, but tell me more about saving the rhino:

Trade in endangered species is already heavily restricted by the U.S. The [Trans Pacific Partnership] deal would make it far more difficult for other countries to trade in trafficked items such as elephant tusks and rhino horns. The pact would, for the first time, integrate species conservation with trade access by requiring the 12 countries that sign it to adopt conservation laws, or live up to commitments they’ve already made yet routinely ignore.

Much of the demand for poached wildlife comes from the same countries negotiating the TPP. Vietnam, for example, is the main source of demand for rhino horn. Malaysia is an important shipping port with a low rate of wildlife-trafficking detection. Under the trade deal, both would have to change their see-no-evil attitude or risk trade sanctions.  …

Ah, now I see.  It’s not that free trade would do anything to save rhinos.  Rather, it’s that the U.S. is a large and attractive market, and we can use our economic power to coerce our trading partners to adopt domestic policies that we like, including new conservation laws.  So actually, free trade has nothing to do with this.

The question of whether we should use our economic power to coerce our trading partners can be a difficult one.  I’m generally a skeptic on these sorts of things.  Here’s something I said a while back in a more general international law context:

if we are going to try to change the world to be “more like us,” we need to think about how we want to change it … If it is just more of the views of whichever party is currently in power, we may wear out our welcome with ever changing demands for how the world should behave.

But regardless of how we approach promoting our views around the world, we should not confuse this with free trade.

A recent article in Business Insider showing what the ancestors of modern fruits and vegetables looked like painted a bleak picture. A carrot was indistinguishable from any skinny brown root yanked up from the earth at random. Corn looked nearly as thin and insubstantial as a blade of grass. Peaches were once tiny berries with more pit than flesh. Bananas were the least recognizable of all, lacking the best features associated with their modern counterparts: the convenient peel and the seedless interior. How did these barely edible plants transform into the appetizing fruits and vegetables we know today? The answer is human ingenuity and millennia of genetic modification.

(Photo Credit: Genetic Literacy Project and Shutterstock via Business Insider).

Humanity is continuously innovating to produce more food with less land, less water, and fewer emissions. As a result, food is not only more plentiful, but it is also coming down in price.

The pace of technological advancement can be, if you will pardon the pun, difficult to digest. Lab-grown meat created without the need to kill an animal is already a reality. The first lab-grown burger debuted in 2013, costing over $300,000, but the price of a lab-grown burger patty has since plummeted, and the innovation’s creator “expects to be able to produce the patties on a large enough scale to sell them for under $10 a piece in a matter of five years.”

People who eschew meat are a growing demographic, and lab-grown meat is great news for those who avoid meat solely for ethical reasons. It currently takes more land, energy, and water to produce a pound of beef than it does to produce equivalent calories in the form of chickens, but also grains. So, cultured meat could also lead to huge gains in food production efficiency.

Another beautiful example of human progress in the realm of food is golden rice. The World Health Organization estimates that between 250,000 and 500,000 children become blind every year as a result of vitamin A deficiency, and about half of them die within a year of losing their sight. Golden rice, largely a brainchild of the private Rockefeller Foundation, is genetically engineered to produce beta carotene, which the human body can convert into vitamin A. Golden rice holds the potential to protect hundreds of thousands of children in the developing world from vitamin A deficiency, preserving their sight and, in many cases, saving their lives.

Humans have been modifying food for millennia, and today we’re modifying it in many exciting ways, from cultured meat to golden rice. Sadly, it has become fashionable to fear modern genetically-modified organisms (GMOs), even though scientists overwhelmingly agree that GMOs are safe.

Anti-GMO hysteria motivated the popular restaurant chain Chipotle to proclaim itself “GMO-free” earlier this year (a dubious claim), prompted a political movement calling for the labeling of GM foods (a needless regulation implying to consumers that GMOs are hazardous), and even fueled opposition to golden rice. HumanProgress.org advisory board member Matt Ridley summarized the problem in his recent Wall Street Journal op-ed:

After 20 years and billions of meals, there is still no evidence that [GMOs] harm human health, and ample evidence of their environmental and humanitarian benefits. Vitamin-enhanced GM “golden rice” has been ready to save lives for years, but opposed at every step by Greenpeace. Bangladeshi eggplant growers spray their crops with insecticides up to 140 times in a season, risking their own health, because the insect-resistant GMO version of the plant is fiercely opposed by environmentalists. Opposition to GMOs has certainly cost lives.

Besides, what did GMOs replace? Before transgenic crop improvement was invented, the main way to breed new varieties was “mutation breeding”: to scramble a plant’s DNA randomly, using gamma rays or chemical mutagens, in the hope that some of the monsters thus produced would have better yields or novel characteristics. Golden Promise barley, for example, a favorite of organic brewers, was produced this way. This method still faces no special regulation, whereas precise transfer of single well known genes, which could not possibly be less safe, does.

Fortunately, while regulations motivated by anti-GMO sentiment may slow down progress, they probably cannot do so indefinitely. For those who wish to avoid modern GM foods, the market will always provide more traditional alternatives, and for the rest of us, human ingenuity will likely continue to increase agricultural efficiency and improve food in ways we cannot even imagine. Learn more about the progress we have already made by visiting HumanProgress.org and selecting the “Food” category under “Browse Data.”

Last week’s Washington Post report of the CIA/Special Forces “secret” drone campaign provided fresh evidence that the United States is heading in the wrong direction on the Middle East. Supporters of increased military action abound in Washington, of course, and lacking any better idea, the Obama administration has decided to double down on drones, despite no evidence that such an effort will have any measurable effect on the situation in Syria or Iraq. Instead, the new drone campaign is likely to have (at least) five negative consequences.

First, it will inflame anti-American sentiment in the region. Sadly, as survey after survey shows, anti-Americanism is rampant through the Middle East, even in countries the U.S. counts on as allies in the fight against terrorism and the Islamic State. A recent study shows that the Arab Twitterverse is awash in negative sentiment toward the U.S., illustrating that  And even more relevant, a recent Pew study documents the unsurprising fact that U.S. drone strikes are incredibly unpopular almost everywhere, prompting majorities in several Arab countries to say strikes against the United States for its behavior are justified. More drone strikes will move the U.S. backwards, not forwards.

Second, it will aid Islamic State recruiting and spur more terrorism. After 9/11 the United States went on the offensive, looking to destroy Al Qaeda and kill terrorists abroad before they could visit America to do more harm. What happened, however, was that by killing large numbers of Al Qaeda members and supporters, but also a large number of civilians, and thereby causing immense chaos, strife, and uncertainty, the United States managed to give fresh air to first Al Qaeda’s recruiting efforts and now to the Islamic State’s. In 2001 there were 1878 terrorist attacks in addition to the 9/11 attacks. After 13 years of war on terror there were 16,818 terror attacks worldwide in 2014. In short, the U.S. counterterrorism strategy has been debunked. With every drone strike, the U.S. lends weight to jihadist claims that the U.S. is a malign presence in the Middle East.

Third, it will not change the facts on the ground in Syria. Hawkish critics of Obama’s ISIS campaign have correctly noted that the administration’s air campaign in Iraq falls far short of what would be necessary to make a decisive difference on the ground. Pentagon leaders have repeatedly made clear that U.S. troops on the ground would be required to provide a meaningful impact on the fight. Obama, who has clearly been trying to avoid reentering the ground war, may be looking at the drone strikes as a bit of national security theater – to look like he’s doing something without actually doing anything. At any rate, in a situation as complex as the one in Syria, targeted killings via drones won’t do much to swing the battle.

Fourth, it promotes the unhealthy involvement of CIA in military operations. Even though Joint Special Operations Command is reportedly doing all the actual drone strikes, this sort of mission goes against Obama’s previous efforts to pull the CIA back to its traditional mission of intelligence gathering and analysis. The CIA’s involvement may be expedient in the short term, but longer run risks warping the agency’s priorities and organizational culture. We need a CIA committed to independent analysis, not another agency that risks

Fifth, it will accelerate the slide towards greater entanglement in Syria and Iraq. If Obama had a clear strategy in Syria, we could argue about how much the drone campaign would help. In the absence of any strategy, however, the drone campaign represents merely another step down the slippery slope to greater entanglement. Every action the U.S. takes in Syria or Iraq raises the political stakes for the president, increasing the chances that he will take even more aggressive steps to ward off critics and ensure “success.” Unfortunately for the U.S. real success would start by recognizing that greater engagement in Syria is a bad idea.  

BEIJING—There are many obscure tourist sites in Beijing. One missed by many foreigners is the Chinese People’s Anti-Japanese War Memorial Hall.

The museum illustrates why China, America’s most fearsome potential competitor, and Japan, Washington’s most important Asian ally, often are at odds. The two are a conflict waiting to happen, which could draw the U.S. into war with a nuclear power.

Chinese President Xi Jinping presided over last week’s World War II victory parade in Beijing. However, the conflict with Japan continues in many people’s minds.

Following Washington’s lead, Tokyo did not recognize the PRC until 1972. Since reestablishing official ties the two countries’ relationship has gyrated up and down. More than talking is necessary to resolve four major disputes: history, trade, territory, and security.

Although the Chinese Communist Party manipulates history for its own benefit—young Chinese learn little about the 1989 Tiananmen Square protests—the CCP has been quick to criticize Tokyo for failing to take responsibility for Imperial Japan’s actions.

While China’s demand for remorse is understandable, the vast majority of Japanese are horrified by the prospect of conflict. Even more nationalistic Japanese, such as Prime Minister Shinzo Abe, don’t contemplate a new round of military aggression—which would be impossible against nuclear-armed China.

Yet high Japanese officials continue to inflame Chinese sensibilities. Commemorating World War II’s end Prime Minister Abe offered official regret for the conflict, but his remarks were dismissed by the leaders of China and other nations as “evasive” and not “sincere.”

Beijing has its own historical agenda. The regime has been battling Western influences and recently unleashed a veritable tsunami of documentaries, concerts, exhibitions, movies, television shows, musicals, children’s programs, and more to promote nationalistic fervor. Criticism of Japan is central.

Two months ago the Xi government opened a new exhibit at the anti-Japanese memorial, or Museum of the War of Chinese People’s Resistance Against Japanese Aggression. The government quoted visitors as calling the museum “a very good place to experience and see atrocities the Japanese imperialists committed.”

Economics provides an area of both cooperation and tension. After the PRC’s founding commercial ties developed slowly and were vulnerable to political disruption. Since establishing diplomatic relations in 1972 both trade and investment expanded greatly.

Total bilateral trade ran about $344 billion in 2014. However, politics continues to undermine the relationship.

Territorial disputes have grown increasingly vitriolic, especially over the status of the unpopulated Senkaku/Diaoyu Islands, claimed by both nations. The half dozen islets are controlled by Japan, but the PRC now conducts air and sea patrols around the contested lands. Tokyo has pressed the U.S. for explicit defense assurances for the islands.

Security remains a top Chinese priority. Japan recently proposed its largest defense budget yet, about $42 billion. The PRC is Tokyo’s primary target.

The Japan-U.S. alliance greatly magnifies Japanese military strength. Moreover, Washington not only has supported Tokyo in the controversy over the Senkakus/Diaoyus, but also has offered general backing for the Philippines and an ambiguous commitment to Taiwan’s independence.

While the U.S. and Japan have no aggressive designs on China, Beijing understandably looks uneasily at the alliance of its old enemy with the globe’s dominant power. Thus, China is developing a military capable of confronting American as well as Japanese military action, no easy task.

The anti-Japanese Museum illustrates the challenge to China-Japan relations. The memorial devotes 887 exhibits with 5000 documents and relics and 3800 photographs to sullying Japan’s reputation.

The animus between China and Japan should scare the rest of the world. While war between the PRC and Tokyo seems—and should be—unthinkable, it could be just one drunk ship captain or careless fighter pilot away.

As I wrote in Forbes online: “The people of China and Japan should work through their difficult histories. The future belongs to those now living. They must find reconciliation and create a better world for those yet born.”

When the clerk of Rowan County, Kentucky, went to jail rather than have to license same-sex marriages, she wasn’t committing civil disobedience – whether you think her action was courageous or bigoted. No, civil disobedience involves an intentional violation of an unjust law. Another name for it is nonviolent resistance: think Martin Luther King or Gandhi.

Kim Davis isn’t doing that; she’s instead declining to fulfill her duty as a government official, even after a judicial order confirming that duty. That’s official disobedience.

That Davis’s action (or inaction) is based on her religious belief is of no moment. She isn’t being ordered to give up her faith under penalty of law. Instead, as a public official, she has to enforce the law or, if she can’t in good faith (literally) do that, resign – at which point she would no longer be in contempt of court or face any other public sanction.

But why is a clerk in a county and state where gay marriage is unpopular bound by a ruling of U.S. Supreme Court? It’s not the Constitution’s Supremacy Clause, whereby state law must yield to (properly enacted) federal law to the contrary. Instead it’s because Justice Kennedy’s majority opinion in Obergefell v. Hodges, while not exactly the apotheosis of legal reasoning, stands for the proposition that state laws denying marriage licenses to same-sex couples violate the Fourteenth Amendment. So it’s not federal law that trumps state law, but individual rights that trump state law.

The Fourteenth Amendment worked a fundamental transformation in our constitutional order: As of its ratification in 1868, Americans can turn to federal courts to enforce infringements of their liberty against the states. And that principle stands whether a state infringes the right to keep and bear arms or the right to equality under the law.

To put a finer point on it, the Fourteenth Amendment says that “No state shall” violate rights to privileges or immunities, due process, and equal protection. That’s a prohibition on public actions, not private ones.

Both progressives and social conservatives miss that public-private distinction.

In other words, states must extend to same-sex couples whatever recognition they do to opposite-sex – though I don’t see a need for government involvement in marriage in the first place – but it’s illegitimate for them to bend the will of people who have religious differences from the prevailing viewpoint. Private citizens should be free to live their lives according to their consciences. Obergefell doesn’t say that everyone now has to support same-sex marriage, just that governments have to provide for it.

That’s where Barronelle Stutzman comes in. She’s the florist in Washington state who was fined for declining to provide arrangements for a same-sex wedding. Or Aaron and Melissa Klein, the bakers in nearby Oregon who were put out of business under similar circumstances. Or Elaine Huguenin, the New Mexico wedding photographer. There are, of course and alas, many more examples. Unlike Kim Davis, these people are indeed being forced to compromise their sincerely held beliefs under penalty of law.

Oh sure, they could “resign” too, and stop running businesses that are typically hired as wedding vendors (which, in theory, could be nearly anyone; I once attended a wedding where an economist gave the homily). But people have a basic right to earn an honest living, as well as to associate (or not) with whomever they choose. 

After all, we’re all born free and equal under the law. While governments must treat everyone equally, individuals should be able to make their own decisions on whom to do business with and how – on religious grounds or otherwise. Those who disagree with those choices can take their custom elsewhere and encourage others to do the same.

On the other hand, nobody has a right to a government job and I doubt it violates any religion to resign a government job (my colleague Walter Olson in jest called such an apocryphal religion “cool,” but given my Soviet background, the mere idea causes me to shudder).

Which doesn’t mean that we should applaud Kim Davis’s tenure behind bars. Frankly, the only colorable criticism I’ve seen of the contempt order is that it would’ve made more sense to fine Davis the amount of her salary – a fitting recompense for failure to do her job and also a lessening of her current martyr status – but Judge Bunning had a point in reasoning that outside groups would’ve simply paid those fines.

This whole episode really shows a failure to adjust to the needs of a pluralistic society, to give the law some “play in the joints” – as Justice Ginsburg has advised in other contexts. North Carolina passed a law allowing clerks to recuse from transactions that violate their consciences and Texas’s attorney general issued a directive along similar lines. If such regimes can work without impeding the orderly processing of official documents or giving the appearance of “separate but equal” (a big if), they may do the constitutional trick. A friend of mine suggested that all wedding bureaus institute a waiting period, so everyone waits the same amount of time while accomodating potential religious objections (including to remarriage after divorce, interfaith marriage, and who knows what else).

None of this is to say that Kim Davis was at all justified. But we shouldn’t equate the legal obligations of public officials with those of private citizens.

As South and North Korea exchanged artillery fire in late August, the U.S. rushed three B-2 bombers to Guam. The Obama administration hoped to deter the North from taking military action, but why is Seoul still a helpless dependent 62 years after the Korean War ended?

Imagine a hostile relationship existing between the U.S. and Mexico. The Mexicans threaten America with war. Washington responds by begging Europe and Japan to send military aid.

America would face raucous laughter. After all, the U.S. has more than 2.5 times Mexico’s population. America’s GDP is an even more impressive 14 times that of Mexico’s.

Yet the disparity between the ROK and Democratic People’s Republic of Korea is larger. The South enjoys a population edge of two-to-one and an economic advantage upwards of 40-to-one.

Seoul has stolen away the North’s chief military allies, China and Russia, which no longer would fight for the DPRK. On every measure of national power save military South Korea dominates. And it lags on the latter only out of choice.

ROK officials occasionally resent America’s dominant role. Nevertheless, the South, like Japan and Europe, likes having a superpower pick up a big chunk of its defense tab.

The South’s dependent relationship does not benefit America. The more defense commitments the U.S. makes, the larger the armed forces it must raise and deploy.

The principal burden is not the cost of basing troops in the South, for which Seoul helps pay, but the expense of creating the units. Today Americans must pay an exorbitant price to project power far from the U.S. even when they have no vital interests at stake.

Equally worrisome is the prospect of using those forces in a war. North Korea would lose, but the cost likely would be horrendous.

Unfortunately, the Kim dynasty has made provocation and brinkmanship the core of its foreign policy. Mistake or misjudgment could turn a violent act into a general war. Opined Defense Secretary Ashton Carter: “Korea is one of these places that is a tinder box. It’s probably the single place in the world where war could erupt at the snap of our fingers.”

Why is the U.S. still entangled in the volatile geopolitics of the Korean peninsula?

It’s certainly not because the ROK is incapable of defending itself. Some analysts imagine American forces on the peninsula doing double duty, both protecting the South and serving other U.S. interests. However, there’s no cause for garrisoning the Asian mainland.

An army division in Korea wouldn’t be much use in a war with China. Indeed, the ROK would not allow the U.S. to turn South Korea into a battlefield. South Koreans will have to live with the PRC long after America goes home.

There are areas where the U.S. and South might want to cooperate militarily, but that only requires a shared interest, not a “mutual” defense treaty. On other issues, such as economic development and environmental protection, the military relationship is irrelevant.

South Korean governments have sought to “pay” the U.S. by participating in some of Washington’s more foolish wars—Vietnam, Iraq, and Afghanistan. However, the small ROK contributions, especially in the latter two conflicts, do not warrant a permanent security guarantee and military deployment amidst the most volatile and dangerous military confrontation on earth.

Other ties, including commercial and family connections, span the Pacific. But trade and friendship do not depend on a military relationship.

What to do about the North would remain an issue, but it wouldn’t matter much to the U.S. Pyongyang is threatening to attack America only because American troops target the DPRK. North Korea’s neighbors, including China, have far more at stake in stopping the North’s nuclear activities.

As I wrote in National Interest online: “U.S. foreign policy should reflect global realities. The radical transformation of Northeast Asia over the last six decades requires a similarly radical transformation of U.S. policy.”

If I haven’t been posting much lately, it’s because I’m working on a paper about the 1908-12 National Monetary Commission, and have been up to my neck in research concerning it. As that commission supplies a precedent for the Centennial Monetary Commission plan that’s presently wending its way through Congress, I thought it would be a good idea to take a closer look at it so as to better understand its merits and shortcomings, with the aim of suggesting how the new Commission might replicate the first while avoiding the last.

That the original Monetary Commission was hardly free of shortcomings seems evident enough today, for it was largely thanks to that commission’s efforts that we ended up with the Federal Reserve System, the failures of which have prompted requests for a new commission. But there were also those who recognized the Fed’s shortcomings even before the Federal Reserve Act became law at the end of 1913. One of them was Elihu Root, a brilliant Republican Senator for New York.

Root offered his blistering criticisms of the Fed in a speech delivered just day’s before the Federal Reserve Act’s passage. He especially took aim at the bill’s provision — included as a sop to William Jennings Bryan and other influential populists within the Democratic party — making Federal Reserve notes obligations of both the Federal Reserve banks themselves and of the United States government. That provision, Root observed, encouraged other banks and the public to treat Federal Reserve notes as the equivalent of greenbacks, and hence as legal tender in fact if not (yet) in name.

There would, consequently, be no tendency for those notes to be routinely returned to their sources, or to the U.S. Treasury, for redemption in either actual greenbacks or gold. It followed that, despite the language of its preamble, the Federal Reserve Act did not actually provide for an “elastic” currency, and therefore did not achieve what had long been almost universally regarded as the very sine-qua-none of currency reform. As Root put it:

What is an elastic currency? We all agree that it is a currency which expands when more money is needed and contracts when less money is needed. It is important not merely that the currency shall expand when money is needed, but that it shall contract when money is not needed, for to an industrial commercial country a redundant currency is the source of manifold evils… .

The Federal Reserve, however,

does not provide an elastic currency. It provides an expansive currency, not an elastic one. It provides a currency which may be increased, always increased, but not a currency for which the bill contains any provision compelling reduction.

Although Root recognized that gold reserve requirements placed an upper limit on the Federal Reserve Banks’ total note issues, his point was that, notwithstanding the nominal convertibility of Federal Reserve notes, there were no forces at work in the proposed system to prevent it from always issuing up to this maximum, whether economic conditions warranted so much expansion or not.*

Root understood, in short, that instead of resembling ordinary banknotes, or the “emergency” currency issued under the Aldrich-Vreeland Act or, prior to that, by private clearinghouse associations, Federal Reserve Notes were what we now refer to as “high-powered” money. Since banks’ deposit credits with the Fed might be converted into such notes at any time, those liabilities amounted to high-powered money as well.

What was wrong with that? The problem was that a supplier of high-powered money can supply more of it, and have it remain outstanding, even when doing so doesn’t serve to accommodate a prior increase in the demand for real money balances. If the high-powered money isn’t needed for that purpose, it will instead give rise to an excessive quantity of money of all sorts. In short, the new law could mean more frequent bouts of excessively easy money, and, consequently, more booms and busts.

Both the presence of gold reserve requirements and the tendency for gold to leave the country in response to rising prices placed long-run limits on monetary expansion. But those constraints would only serve to limit the duration of booms, without preventing them.

With the exhaustless [sic] reservoir of the Government of the United States furnishing easy money, the sales increase, the spirit of optimism pervades the community.

Bankers are not free from it. They are human. The members of the Federal reserve board will not be free from it. They are human. Regional bankers will not be free from it. They are human. All the world moves along upon a growing tide of optimism. Everyone is making money. Everyone is growing rich. It goes up and up, the margin between cost and sales continually growing smaller and smaller as a result of the operation of inevitable laws, until finally some one whose judgement was bad, some one whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.

Need I state that events would more than amply vindicate Root’s dire predictions? Root himself lived to witness two major boom-bust cycles, including the worst bust of all. Had he lived a few months longer, he would also have witnessed the United States’ third-worst depression — that of 1937-8.

The whole idea of currency reform was, Root went on to say, to have a currency that wouldn’t lend itself to this sort of thing. That meant, to be sure, having a currency the supply of which would expand when the demand for currency rose. But it also meant having a currency the supply of which was bound to shrink when the demand for it subsided.

Nor would Root allow himself to be consoled by a colleague’s observation that the Federal Reserve Board had the ability to reduce the quantity of money any time it chose to. “I am not now speaking,” he said, “about what the reserve board may do. I am speaking about what we do; about how we perform our duty”:

Always up to this time the American Congress has attempted to perform its own duty in regard to the vital matter of currency. Always the American Congress, when it did not want inflation, has undertaken so to frame its legislation that its injunctions and requirements would prevent inflation. Now it is proposed that we shall make it possible that…a body of appointed officers…will perform the duties that we ought to perform.

The wiser, and proven, alternative, Root argued, “is to provide for a currency that will come down by the operation of natural forces as well as go up.” Like many others before him, Root offered the Canadian system as an example of what he had in mind.**

Finally, for all you opponents of Big Government, Root declared the Federal Reserve Act to be part of what he considered a deplorable tendency, to wit: the tendency “to substitute the support of a paternal government for that individual self-dependence which settled, which built, which developed, which made our country.

Not bad, Senator. Not bad at all.


*In a system of competing banks-of-issue, in contrast, there is no need for any statutory reserve requirement. Instead, banks are compelled to hold reserves against their outstanding notes for the purpose of settling interbank note clearings, with the optimum reserve ratio varying along with the public’s demand for real money balances.

**Alas — in an apparent nod to Senator Aldrich and to the findings of the Aldrich-led National Monetary Commission — Root instanced as well the currency systems of England, France, and Germany, although those arrangements had much more in common with the pending Federal Reserve system than they had with Canada’s decentralized alternative.

[Cross-posted from Alt-M.org]

Across the political landscape this morning, people on one side are discovering that lawlessness is bad, while people on the other are discovering that the machinery of our justice system is harsh.  If experience is any guide, these lessons will last a lunchtime.

Yesterday federal judge David Bunning ordered elected Rowan County clerk Kim Davis jailed for defying his court’s order that she resume issuing Kentucky marriage licenses; she had stopped doing so on the grounds to have her name go on a marriage license for a same-sex couple, as state law now prescribes following Obergefell, would run counter to her religious feelings. As those close to our legal system know, the age-old civil contempt power of the Anglo-American courts is something not to be trifled with. Some Davis defenders, like former Arkansas Governor and presidential candidate Mike Huckabee, dodge the contempt issue entirely, while many others invoke episodes of doubtfully lawful official conduct that fell short of defying court orders, or in some cases was not even unlawful

Kim Davis purges the contempt if she either carries out her public duties or quits her public office. So she is not in jail for refusing to violate her religion, unless her religion requires her to keep her public job (cool religion!). Courts’ use of contempt remedies is itself bounded by law, and they are not supposed to resort to harsher remedies if milder ones such as fines would obtain compliance. But the Davis camp has not suggested that milder measures would secure her compliance; indeed, Davis’s Liberty Counsel lawyers have been associated with other cases in which clients claiming a religious justification have, if anything, gone to more remarkable lengths than Davis in defiance of court orders. (Michelle Meyer has more on the professional obligations of lawyers counseling clients regarding contempt.) As Chris Geidner notes at BuzzFeed, Kentucky does not provide for such alternative remedies as voter recall of county clerks or removal by the governor for official misconduct. 

A curious argument making the rounds posits it as somehow relevant that marriage law changed after Davis won elected office, supposedly upsetting her reliance on expectations of what duties she would be called on to perform. That’s not really a legal question, in the sense of casting any doubt on whether she is expected to follow the laws of Kentucky and the United States in current form if she wants to hold office. It’s more like a union shop steward’s argument — “you can’t change my job duties unless you bargain with me first.”

Among Republican White House candidates, Carly Fiorina seems to be among the few willing to draw appropriate public-private distinctions: “when you are a government employee, I think you take on a different role.” Also from a conservative perspective, Dan McLoughlin has a thoughtful what-goes-around-comes-around view on lawlessness and the pervasiveness of double standards. 

Davis’s defenders also have a point worth bearing in mind as we go forward: the traditional civil contempt power of the Anglo-American courts does generate many harsh, disturbing results. As defense lawyer Scott Greenfield has written, “calling the jailing of a person ‘civil’ doesn’t mean they put curtains on the cell windows.”  Targets of civil contempt orders remain in jail – sometimes for a remarkably long time – if they remain obdurate on principle or simply fail to satisfy a judge that compliance is impossible. Dads get jailed for trying to see their kids more often than a court order permits. To me, among these disturbing outcomes, pressure to resign a public office rates fairly low on the scale. But they all could benefit from overdue discussion.

[adapted from an earlier post at Overlawyered]

The World Trade Organization has reportedly found that India’s solar power subsidies violate global trade rules.  According to the Wall Street Journal:

In a report sent to India and the U.S. late last week, the dispute settlement panel of WTO stated that New Delhi violated trade rules by imposing the local purchases under its federal solar program, one of the officials, who didn’t want to be identified, said.

The panel also ruled against India’s incentive policies for domestic solar companies to manufacture solar cells and modules in the country, the official added.

This outcome was not surprising.  Conditioning the receipt of subsidies on the use of domestic goods is generally prohibited by WTO rules.  A Canadian scheme was successfully challenged on similar grounds just a few years ago. 

The ruling ought to be celebrated by advocates of solar power.  The local content requirement acts as a drag on the program by making solar power plants more expensive to build.  Allowing solar energy producers to purchase panels on the global market not only reduces prices for those producers, it also furthers the development of efficient supply chains for solar panel production.  Those panels may be made in China, Europe, the United States, or some combination thereof instead of India.

Of course, the whole solar power industry is a big mess of subsidies and other politicized incentives.  Many countries have mixed the goal of reducing greenhouse gas emissions with industrial policy designed to create “green jobs.”  This has led some governments, including the United States, to impose protectionist tariffs on products they subsidize.  The urge to pick winners and loser is simply too strong for governments to resist.

The Indian case is an example of how WTO rules designed to reduce protectionism can help at least limit the role of industrial policy as governments’ intervene in markets to increase the use of renewable energy.

The Department of Veterans Affairs has been embroiled in scandal for more than a year, ever since a whistleblower alleged that 40 veterans had died while waiting for care at the Phoenix branch. A subsequent investigation by the department’s Office of Inspector General confirmed that some veterans had died while waiting for an appointment, but also uncovered broader problems like “unacceptable and troubling lapses in follow-up, coordination, quality, and continuity of care.” These signs of widespread mismanagement and incompetence led to an investigation into the entire department. In a scathing report released this week, investigators again found evidence of serious problems within the VA and few signs that meaningful steps are being taken to address them.

As of September 2014, almost 900,000 veterans had pending applications and more than 300,000 of these belonged to veterans who had died. Due to data limitations, investigators could not determine how many of these deceased veterans were actively seeking health care, which ties into one of the most troubling problems that this scandal has exposed. The VA has failed to “ensure the consistent creation and maintenance of essential data” which means in many cases it is impossible for investigators to know just how bad things are. More than half of the pending applications did not have an application date, which “makes [the enrollment system] unreliable for monitoring timelines.” In addition, the investigators were able to substantiate the claim that VA employees had incorrectly marked unprocessed applications as completed and may have deleted more than 10,000 transactions over the past 5 years. In many cases, it is impossible to determine how many veterans who have actively applied for care are waiting, how long they have been waiting, and how many have died while waiting. Some aspects of the VA are so mismanaged that we can’t even tell how badly it is failing.

To date, there has been little appetite for real reform within the department, with few steps being taken to hold those responsible accountable or to rectify some of the department’s most egregious shortcomings. Back in 2010, after management identified individual staff that had hidden applications in their desks in order to artificially shorten wait-times by processing them later, human resources officials “advised them against pursuing disciplinary action against staff.” Contrary to VA Secretary McDonald’s assertion that 60 people had been fired for their role in the initial scandal, internal documents later revealed that only three people had been removed from their jobs as of April.

In response to the new report, the agency has pledged to “work diligently to address the issues [the] report raised to continue to improve the enrollment system to better serve Veterans” and that serving the veterans is a responsibility they “do not take lightly.” Maybe this time will be different and this will be the report that finally spurs the VA to take action. Even if the VA was competently run, there are better ways to serve the health care needs of our veterans. My colleague Michael D. Tanner has proposed some practical reforms, while Michael F. Cannon and Christopher A. Preble have offered a new approach to veterans’ benefits.