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In recent years, politicians set impossibly high mandates for the amounts of ethanol motorists must buy in 2022 while also setting impossibly high standards for the fuel economy of cars sold in 2025.  To accomplish these conflicting goals, motorists are now given tax credits to drive heavily-subsidized electric cars, even as they will supposedly be required to buy more and more ethanol-laced fuel each year.  

Why have such blatantly contradictory laws received so little criticism, if not outrage? Probably because ethanol mandates and electric car subsidies are lucrative sources of federal grants, loans, subsidies and tax credits for “alternative fuels” and electric cars.  Those on the receiving end lobby hard to keep the gravy train rolling while those paying the bills lack the same motivation to become informed, or to organize and lobby. 

With farmers, ethanol producers and oil companies all sharing the bounty, using subsidies and mandates to pour ever-increasing amounts of ethanol into motorists’ gas tanks has been a win-win deal for politicians and the interest groups that support them and a lose-lose deal for consumers and taxpayers.

The political advantage of advocating contradictory future mandates is that the goals usually prove ridiculous only after their promoters are out of office.  This is a bipartisan affliction.  In his 2007 State of the Union Address, for example, President Bush called for mandating 35 bil­lion gallons of biofuels by 2017, an incredible target equal to one-fourth of all gasoline consumed in the United States in 2006.  Not to be outdone, “President Obama said during the presidential campaign that he favored a 60 billion gallon-a-year target.”

The Energy Independence and Security Act of 2007 (EISA) did not go quite as far as Bush or Obama, at least in the short run.  It required 15 billion gallons of corn-based ethanol by 2015 (about 2 billion more than were actually sold), but 36 billion gallons of all biofuels by 2022 (which would be more than double last year’s sales). The 2007 energy law also raised corporate average fuel economy (CAFE) standards for new cars to 35 miles per gallon by 2030, which President Obama in 2012 ostensibly raised to 54.5 mpg by 2025 (a comically precise guess, since requirements are based on the size of vehicles we buy).

The 36 billion biofuel mandate for 2022 is the mandate Iowa Governor Terry Branstad (and Donald Trump) now vigorously defend against the rather gutsy opposition of Sen. Ted Cruz.  But it is impossible to defend the impossible: Ethanol consumption can’t possibly double as fuel consumption falls.  

From 2004 to 2013, cars and light trucks consumed 11% less fuel.  The Energy Information Agency likewise predicts that fuel consumption of light vehicles will fall by another 10.1% from 2015 to 2022.   So long ethanol is no more than 10% of a gallon (much higher than Canada or Europe), ethanol use must fall as we use less gasoline rather rise as the mandates require. If we ever buy many electric cars or switch from corn to cellulosic sources of ethanol, as other impossible mandates pretend, then corn-based ethanol must fall even faster.

If raising ethanol’s mandated share above 10% is any politician’s secret plan, nobody dares admit it.  Most pre-2007 cars can’t handle more than 10 percent ethanol without damage, and drivers of older cars often lack the income or wealth to buy a new one.  Since ethanol is a third less efficient than gasoline, adding more ethanol would also make it even more impossible for car companies to comply with Obama’s wildly-ambitious fuel economy standards (which must also reduce ethanol use, if they work).

The 2007 law also mandated an astonishing 16 billion gallons of nonexistent “cellulosic” ethanol by 2022 from corn husks or whatever.  We were already supposed to be using a billion gallons of this marvelous snake oil by 2013. Despite lavish taxpayer subsidies, however, production of cellulosic biofuel was only about 7.8 million barrels a month by April, 2015 (about 94 million a year).  The Environmental Protection Agency (EPA) mandate in June 10, 2015 was 230 million billion in 2016, which is more fantasy.

It doesn’t help that the Spanish firm Abenoga – which received $229 million from U.S. taxpayers to produce just 1.7 million gallons of ethanol – is trying to sell its plant in Kansas to avoid the bankruptcy fate of cellulosic producer KiOR. It also doesn’t help that a $500,000 federally-funded study paid finds biofuels made with corn residue release 7% more greenhouse gases than gasoline.

The contradictory, fantastic and often scandalous history of ethanol mandates illustrates the increasing absurdity of mandates from Congress and the EPA. 

The 2007 biofuel mandate was not just bad policy.  It was and remains an impossible, bizarre policy.

The Obama administration has been easing restrictions on travel, exports, and export financing. Commerce Secretary Penny Pritzker spoke of “building a more open and mutually beneficial relationship.”

However, the administration expressed concern over Havana’s dismal human rights practices. Despite the warm reception given Pope Francis last fall, the Castro regime has been on the attack against Cubans of faith.

In a new report the group Christian Solidarity Worldwide warned of “an unprecedented crackdown on churches across the denominational spectrum,” which has “fueled a spike in reported violations of freedom of religion or belief.” There were 220 specific violations of religious liberties in 2014, but 2300 last year, many of which “involved entire churches or, in the cases of arrests, dozens of victims.”

Even in the best of times the Castros have never been friends of faith in anything other than themselves. The State Department’s 2014 report on religious liberty noted that “the government harassed outspoken religious leaders and their followers, including reports of beating, threats, detentions, and restrictions on travel. Religious leaders reported the government tightened controls on financial resources.”

Last year the U.S. Commission on International Religious Freedom was similarly critical. The Commission explained: “Serious religious freedom violations continue in Cuba, despite improvements for government-approved religious groups.” Never mind the papal visit, “the government continues to detain and harass religious leaders and laity, interfere in religious groups’ internal affairs, and prevent democracy and human rights activists from participating in religious activities.”

Now CSW has issued its own report. Last year’s increase in persecution “was largely due to the government declaring 2000 Assemblies of God (AoG) churches illegal, ordering the closure or demolition of 100 AoG churches in three provinces, and expropriating the properties of a number of other denominations, including the Methodist and Baptist Conventions.”

This wide-ranging campaign was led by the Office of Religious Affairs. Noted CSW: “In 2015, the ORA continued to deny authorization for a number of religious activities and in cooperation with other government agencies, issued fines and threats of confiscation to dozens of churches and religious organizations.”

Through the ORA the Communist Party exercises control over religious activities. Indeed, reported CSW, the Office “exists solely to monitor, hinder and restrict the activities of religious groups.”

The regime also has increasingly targeted church leaders and congregants, for the first time in years jailing one of the former. In early January two churches were destroyed, church members arrested, and three church leaders held incommunicado. One of the government’s more odious practices, according to CSW, has been to threaten churches with closure if they “do not comply with government demands to expel and shun specific individuals.”

The regime’s destructive activities have been justified as enforcing zoning laws. But in practice the measure is a subterfuge to shut down churches.

Other legislation threatens house churches. While not consistently implemented in the past, “church leaders have repeatedly expressed concern at its potential to close down a large percentage of house churches.”

CSW concluded that the ongoing crackdown was an attempt to limit calls for social reform which would complement ongoing, though limited, economic changes. Detentions initially were concentrated on “Cubans considered by the government to be political dissidents,” including a group of Catholic women called the Ladies in White. The regime crackdown later “expanded to include other individuals associated with independent civil society, including human rights and democracy activists.”

The Obama administration was right to engage Cuba. After more than 50 years, the embargo serves no useful purpose.

However, even lifting all economic restrictions won’t turn Cuba into a democracy. Only sustained pressure from within and without Cuba is likely to force the Castro regime to yield control to the Cuban people.

As I wrote in Forbes: “Americans should forthrightly encourage freedom in Cuba. Religious believers should be particularly vocal in supporting people seeking to live out their faith under Communist oppression. Some day autocracy will give way to liberty even in Cuba.”

In the past two decades, much scientific research has been conducted to examine the uniqueness (or non-uniqueness) of Earth’s current climate in an effort to discern whether or not rising atmospheric CO2 concentrations are having any measurable impact. Recent work by Thapa et al. (2015) adds to the growing list of such studies with respect to temperature.

According to this team of Nepalese and Indian researchers, the number of meteorological stations in Nepal are few (particularly in the mountain regions) and sparsely distributed across the country, making it “difficult to estimate the rate and geographic extent of recent warming” and to place it within a broader historical context. Thus, in an attempt to address this significant data void, Thapa et al. set out “to further extend the existing climate records of the region.”

The fruits of their labors are shown in the figure below, which presents a nearly four-century-long (AD 1640-2012) reconstruction of spring (Mar-May) temperatures based on tree-ring width chronologies acquired in the far-western Nepalese Himalaya. This temperature reconstruction identifies several periods of warming and cooling relative to its long-term mean (1897-2012). Of particular interest are the red and blue lines shown on the figure, which demark the peak warmth experienced during the past century and the temperature anomaly expressing the current warmth, respectively. As indicated by the red line, the warmest interval of the 20th century is not unique, having been eclipsed four times previous (see the shaded red circles) in the 373-year record – once in the 17th century, twice in the 18th century and once in the nineteenth century. Furthermore, the blue line reveals that current temperatures are uncharacteristically cold. Only two times in the past century have temperatures been colder than they are now!

Figure 1. Reconstructed spring (March-May) temperature anomalies of the far western Nepal Himalaya, filtered using a smoothing spline with a 50 % frequency cut off of 10 years. The red line indicates the peak temperature anomaly of the past century, the blue line indicates the current temperature anomaly, the shaded red circles indicate periods in which temperatures were warmer than the peak warmth of the past century, and the shaded blue circles indicate periods during the past century that were colder than present. Adapted from Thapa et al. (2015).

In light of the above facts, it is clear there is nothing unusual, unnatural or unprecedented about modern spring temperatures in the Nepalese Himalaya. If rising concentrations of atmospheric CO2 are having any impact at all, that impact is certainly not manifest in this record.

 

Reference

Thapa, U.K., Shah, S.K., Gaire, N.P. and Bhuju, D.R. 2015. Spring temperatures in the far-western Nepal Himalaya since AD 1640 reconstructed from Picea smithiana tree-ring widths. Climate Dynamics 45: 2069-2081.

 

An editorial in today’s New York Times calls for a financial transactions tax – a tenths of a percent charge on the market value of every trade of a stock, bond, or derivative. My Working Papers column two years ago described the pitfalls of such a tax.  While tax rates in the range of tenths of a percent sound small they would have large effects on stock values.  Bid-ask spreads are now 1 cent for large cap stocks. A 0.10 percent tax would add 5 cents to the spread for a $50 stock.

The alleged purpose of such a tax is to reduce the arms race among High Frequency Traders who exploit differences in the timing of bids and offers across exchanges at the level of thousandths of a second to engage in price arbitrage.  In the Fall 2015 issue I review a paper that demonstrates that this arms race is the result of stock exchanges’ use of “continuous-limit-order-book” design (that is, orders are taken continuously and placed when the asset reaches the order’s stipulated price). The authors use actual trading data to show that the prices of two securities that track the S&P 500 are perfectly correlated at the level of hour and minute, but at the 10 and 1 millisecond level, the correlation breaks down to provide for mechanical arbitrage opportunities even in a perfectly symmetrical information environment.  In a “frequent batch” auction design (where trades are executed, by auction, at stipulated times that can be as little as a fraction of a second apart), the advantage of incremental speed improvements disappears. In order to end the arbitrage “arms race,” the authors propose that exchanges switch to batch auctions conducted every tenth of a second.  No need for a tax.      

“Billions spent, but fewer people are using public transportation,” declares the Los Angeles Times. The headline might have been more accurate if it read, “Billions spent, so therefore fewer are using public transit,” as the billions were spent on the wrong things.

The L.A. Times article focuses on Los Angeles’ Metropolitan Transportation Authority (Metro), though the same story could be written for many other cities. In Los Angeles, ridership peaked in 1985, fell to 1995, then grew again, and now is falling again. Unmentioned in the story, 1985 is just before Los Angeles transit shifted emphasis from providing low-cost bus service to building expensive rail lines, while 1995 is just before an NAACP lawsuit led to a court order to restore bus service lost since 1985 for ten years.

The situation is actually worse than the numbers shown in the article, which are “unlinked trips.” If you take a bus, then transfer to another bus or train, you’ve taken two unlinked trips. Before building rail, more people could get to their destinations in one bus trip; after building rail, many bus lines were rerouted to funnel people to the rail lines. According to California transit expert Tom Rubin, survey data indicate that there were an average of 1.66 unlinked trips per trip in 1985, while today the average is closer to 2.20. That means today’s unlinked trip numbers must be reduced by nearly 25 percent to fairly compare them with 1985 numbers.

Transit ridership is very sensitive to transit vehicle revenue miles. Metro’s predecessor, the Southern California Rapid Transit District, ran buses for 92.6 million revenue miles in 1985. By 1995, to help pay for rail cost overruns, this had fallen to 78.9 million. Thanks to the court order in the NAACP case, this climbed back up to 92.9 million in 2006. But after the court order lapsed, it declined to 75.7 million in 2014. The riders gained on the multi-billion-dollar rail lines don’t come close to making up for this loss in bus service.

The transit agency offers all kinds of excuses for its problems. Just wait until it finishes a “complete buildout” of the rail system, says general manager Phil Washington, a process (the Times observes) that could take decades. In other words, don’t criticize us until we have spent many more billions of your dollars. Besides, agency officials say wistfully, just wait until traffic congestion worsens, gas prices rise, everyone is living in transit-oriented developments, and transit vehicles are hauled by sparkly unicorns.

A more realistic assessment is provided by Brian Taylor, the director of UCLA’s Institute of Transportation Studies, who is quoted by the L.A. Times saying, “Lots of resources are being put into a few high-profile lines that often carry a smaller number of riders compared to bus routes.”

Los Angeles ridership trends are not unusual: transit agencies building expensive rail infrastructure often can’t afford to keep running the buses that carry the bulk of their riders, so ridership declines.

  • Ridership in Houston peaked at 102.5 million trips in 2006, falling to 85.9 million in 2014 thanks to cuts in bus service necessitated by the high cost of light rail;
  • Despite huge job growth, Washington ridership peaked at 494.2 million in 2009 and has since fallen to 470.4 million due at least in part to Metro’s inability to maintain the rail lines;
  • Atlanta ridership peaked at 170.0 million trips in 2000 and has since fallen nearly 20 percent to 137.5 million and per capita ridership has fallen by two thirds since 1985;
  • San Francisco Bay Area ridership reached 490.9 million in 1982, but was only 457.0 million in 2014 as BART expansions forced cutbacks in bus service, a one-third decline in per capita ridership;
  • Pittsburgh transit regularly carried more than 85 million riders per year in the 1980s but is now down to some 65 million;
  • Austin transit carried 38 million riders in 2000, but after opening a rail line in 2010, ridership is now down to 34 million.

Even where ridership is increasing, it’s decreasing. After building two light-rail lines, transit ridership in the Twin Cities has grown by 50 percent since 1990. However, bus ridership is declining and driving has grown faster than transit.

Transit in some cities was hurt by the 2008 financial crash. But in most cases, declines in ridership parallel declines in service. If transit agencies reduce bus service to pay for the high cost of the rail lines they want to build, transit riders and ridership will be hurt.

Whatever the service levels, transit just isn’t that relevant anymore to anyone. As I’ve pointed out before, more than 95 percent of American workers live in a household with at least one car, and of the 4.5 percent who don’t, less than half take transit to work, suggesting that transit isn’t even relevant to most people who don’t have cars. This will only get worse, of course, as self-driving cars change the urban landscape.

“It’s not the dream of every bus rider to arrive in a bus that was on time, air conditioned and clean, where a seat was available,” the L.A. Times quotes USC civil engineering professor James Moore as saying. “It’s the dream of every bus rider to own a car. And as soon as they can afford one, that’s the first purchase they’ll make.”

Cities that invest in expensive transit infrastructure are ignoring the reality that, long before that infrastructure is worn out, self-driving cars will replace most transit. The short-run issue is that transit agencies that spend billions on rail transit or bus-rapid transit with dedicated lanes are doing a disservice to their customers. The most important thing they should focus on instead is increasing bus revenue miles in corridors where they will do the most good.

Politicians pander. It’s what they do. But Christians seem especially susceptible to those claiming to be their spiritual brethren. It would be better if people of faith focused on candidates’ practical ability to perform the duties of what remains a secular office.

With the Iowa caucuses drawing near, it seems like every Republican tramping through the snow claims to be a Bible-believing, God-fearing, Jesus-loving Christian. A gaggle of church leaders are promoting their favorite presidential wannabe.

It’s a fruitless exercise. It’s rarely easy to judge whether a particular candidate’s faith claims are true. God told the prophet Samuel: “Man looks at the outward appearance, but the Lord looks at the heart.” (1 Samuel 16:7)

For instance, Ted Cruz appears to have done the best this year in presenting himself as a committed Christian. His religious tale, including the conversion story of his pastor father, is contained in an 18-minute documentary. By all accounts, Cruz is doing well among the most theologically conservative Republicans in Iowa.

Yet McKay Coppins of BuzzFeed reported on doubts about Cruz’s faithfulness. Moreover, in late 2014, Cruz used a conference on persecuted Christians from the Middle East, among the most vulnerable people on the planet, as a campaign prop.

Cruz also gave less than one percent of his income to charity between 2006 and 2010. Opposing candidate Mike Huckabee observed: “It’s hard to say God is first in your life if he’s last in your budget.”

Donald Trump has been doing his best to pander without a carefully crafted story. Running casinos with strip clubs is unusual “fruit” from a Christian walk. His style of campaigning doesn’t exactly advance the Christian faith.

How about the rest of the GOP candidates? What do they really believe about God? Do they have a personal relationship with Jesus?

The best response is: who cares? One’s theological views just don’t tell much about a person’s competence to perform a civil office. Voters should care most about how a candidate would confront Washington’s virtual fiscal insolvency, end America’s constant warring in the Middle East, address dependency as well as poverty among the poor, and deal with other serious policy issues.

Indeed, by the most public measures of behavior, President Barack Obama appears to be a more faithful Christian than Donald Trump. Yet many political activists who loudly assert their Christian faith are trending toward the Donald. Indeed, Liberty University President Jerry Falwell Jr., gave a fulsome introduction to Trump, even comparing Trump to Jesus in expressing unpopular opinions.

It actually would have been more reassuring had Liberty University invited Trump to speak and The Donald done so, with neither pandering to the other. Trump ain’t my cup of tea, but the argument for his candidacy is entirely secular. Nevertheless, Christians should vote for him if they believe him to be the best candidate—and not because they believe him to be a faithful Christian like themselves.

As I wrote for American Spectator: “After years of being manipulated by ambitious politicos, believers should check their credulity at the polling place door. Christians shouldn’t cast their ballots based on their perceptions of the contenders’ religious faith. Martin Luther was right when he declared that he preferred to be governed by a smart Turk than a stupid Christian.”

Goodness and faithfulness are important, but no substitute for competence. Believers and nonbelievers alike should choose the best candidate, not the best Christian, for president. 

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.

The New York Times ran an op-ed  last week extolling the virtues of a carbon tax by trying to poo-poo the idea that a tax on carbon emissions (which are produced by burning fossil fuels like coal, oil, and natural gas during the production of 80% of our nation’s energy supply) would produce a negative impact on our economy. The Times’ editors attempt to do this by running through a couple of examples where they claim the imposition of a carbon tax has produced economic benefits (or at least, was somewhat neutral).

Economist Dr. Robert Murphy takes the Times to task on this in his post “The NYT Gets It Wrong on Carbon Tax.”

Murphy is a senior economist at the Institute for Energy Research, research assistant professor at Texas Tech, and also the lead author of our Working Paper (soon to be Cato Policy Analysis) examining the cost for a carbon tax.

In his response to the Times, Murphy points out the Times’ editors’ favorite example of a carbon tax done well—British Columbia—actually serves as a counter-example when looked at a bit more carefully. Not only did British Columbia’s economy suffer after the establishment of a carbon tax, but also, the revenue-neutrality of the BC tax is not a real-world possibility in the U.S.

Murphy writes:

It’s worth pointing out that these dire economic impacts on the B.C. economy occurred even though they did a surprisingly good job of implementing offsetting tax cuts. Were a carbon tax to be introduced in the United States, the politics would almost certainly result in a large net tax hike.

 Ultimately Murphy concludes his piece with:

The American public is being sold a bill of goods regarding a carbon tax. On the one hand, proponents tell progressive citizens about all the “green” goodies that can be funded with the trillions in revenue that such a tax will bring in. On the other hand, supporters assure conservative citizens not to worry, that the tax will be revenue neutral and will allow for huge cuts in the corporate income tax rate. As Dr. Evil would say, “Riiight.”

 Check out Murphy’s full piece for the details of what’s wrong with the Times’ op-ed, and our “The Cost Against a Carbon Tax” Working Paper for what’s wrong with the concept of a carbon tax at large.

One of the many (bad) ideas behind a carbon tax is that the federal government will have more money in its hands to do with what it wants, including funding more climate change science to support why it needs to implement a carbon tax.

Dr. Roy Spencer frets over this is his recent blog post examining the observational science behind last year’s record high global temperatures. After reviewing the strength of the claims as to 2015’s temperature (including those as measured by satellites), Dr. Spencer‘s response is rather ho-hum: yes, the surface temperature data compilations do have 2015 as the warmest year in their record (thanks, in part, to a big El Niño); no, the same is not true for satellite observations which show the year as ranking 3rd or 4th; and take everything with a grain of salt, because all the data compilations have “issues.”

What really gets Roy fired up is the government’s behavior in all of this. Roy writes:

And this brings up the elephant in the room that I have a difficult time ignoring

By now it has become a truism that government agencies will prefer whichever dataset supports the governments desired policies. You might think that government agencies are only out to report the truth, but if that’s the case, why are these agencies run by political appointees?

Roy continues:

There indeed is a climate change problem to study…but I don’t think we know with any certainty how much is natural versus manmade. There is no way to know, because there is (contrary to the IPCC’s claims) no fingerprint of human versus natural warming. Even natural warming originating over the ocean will cause faster warming over land than over ocean, just as we already observe.

But since the government has framed virtually all of the research programs in terms of human-caused climate change, that’s what the funded scientists will dutifully report it to be, in terms of supposed causation.

And until the culture in the government funding agencies changes, I don’t see a new way of doing business materializing. It might require congress to direct the funding agencies to spend at least a small portion of their budgets to look for evidence of natural causes of climate change.

Because scientists, I have learned, will tend to find whatever they are paid to find in terms of causation…which is sometimes very difficult to pin down in science.

Be sure to check out Roy’s full post “On that Record Warmest 2015 Claim” for a more complete treatment of his concerns.

And, finally, as an amusing anecdote in support of Roy’s comments about the inherent uncertainties in weather observing systems comes this report on how snowfall during the weekend’s blizzard was measured at NOAA’s official weather station in our nation’s capital—Reagan National Airport.

Turns out it was snowing so hard at the height of the storm that the weather observers at the airport couldn’t find the official “snow board” on which the snowfall measurements were supposed to take place. So they improvised—and in doing so seemingly under-reported the snow total during the storm (to the great dismay of many snow nerds).  We are not making this up. From the Capital Weather Gang’s investigation:

It’s not that 17.8 inches of snow wasn’t enough.

But the number that will go down in the history books as Washington’s official total — recorded at Reagan National Airport — is downright paltry compared with some other spots in the region, raising the question: Why the disparity?

The reason, it turns out, may be partly due to the improvised technique used by a small team of weather observers at the airport who lost their snow-measuring device to the elements midway through the blizzard. It was buried by the very snow it was supposed to measure.

Couple the problem measuring snow at Reagan National Airport with the problem measuring temperature there that we identified last summer (see here and here) and you have the makings of a Laurel and Hardy routine on how weather observations of even fairly straightforward variables are collected. And to think, these types of somewhat major problems were identified as occurring at what would have to be considered among the best observing stations in the world.

Now you know why the data must be “adjusted.” Not a pretty picture.

Among Democrats seeking their party’s nomination, all candidates have proposed raising the highest tax rates to a least 43.6% (Clinton) or 45% (O’Malley).  Sanders famously admired Ike’s top tax rates of 91-92% from 1951 to 1963, but later suggested he’d settle for keeping top brackets of 43, 48 and 52% (including capital gains) while raising all the lower rates by 2.2%. Clinton and O’Malley assert or assume that raising only tax rates on the highest incomes would raise vast sums, enough to finance their many proposed new spending plans for various grants and benefits.

Leading Republican candidates, by contrast, would at least roll-back the highest tax rate to 35% (Rubio), 28% (Bush, Kasich & Christie) or 25% (Trump).  Senators Cruz and Paul would go further by replacing both payroll and corporate taxes with a 15-16% value-added tax (on payrolls and profits) while keeping a 10-15% flat tax on income.  Huckabee hopes to replace income and payroll taxes with a ~30% federal tax on all retail sales.  Carson and Santorum suggest a flat tax of 14.9% or 20% respectively.

Let’s put aside the VAT and lower corporate tax rates for now, to focus on individual income tax rates.

As the graph shows, the U.S. has had considerable experience with top tax rates as high as 91-92%, as low as 28%, and everything in between.  

The individual income tax averaged 7.7% of GDP since 1946. 

Revenues from this tax were 7.5% from 1951 to 1963 when the highest tax rate was 91%, then rose to 7.8% from 1964 after all tax rates were cut by 30% (with a top rate of 70%).  Revenues rose again to 7.9% of GDP from 1988 to 1990 when the top tax rate was only 28%.  We obviously can’t just assume that raising the highest tax rates will raise more revenue, nor that lowering them will necessarily lose revenue.

Revenues from the individual income have never reached 10% of GDP, and exceeded 9% only 5 times in U.S. history – 1944, 1981 and 1998-2000.  Revenues came close to 9%, briefly, when the surtax of 1969 raised all tax rates by 10%, not just the highest rates.  Revenues can rise as a share of GDP because GDP falls, of course, which is what happened after 1969 and 1981.  The unprecedented revenue surge in the tech boom of 1998-2000 has much to do with cutting the capital gains tax from 28% to 20% in 1997 combined with the quintupling of NASDAQ stocks, which also created big stock option payouts for thousands of non-executives.

Why does all this history matter?  Because Republican Tax Reform plans are being judged against last August’s Congressional Budget Office (CBO) “baseline projection” for revenue.  Failure to hit those baseline numbers has been described as “losing trillions” over a decade.   But baseline revenue projections are not forecasts, as the CBO warns, and they totally unrealistic.

First of all, baseline projections are required to assume that dozens of supposedly temporary tax breaks (like the 30% tax credit for solar and wind investments) magically sunset on schedule and disappear, even though they are routinely “extended” by Congress at the end of each year.   This is why the CBO just reduced projected 2016-2020 baseline revenues from 18.4% of GDP to 18.1%.  The new revenue estimates for the next few years are already much lower than the August projections being used to score Republican tax reforms.  And about $700 billion of the alleged 10-year revenue loss from tax reform is due to this fanciful convention of assuming no tax breaks are ever extended.

The second problem is that even though individual tax revenues have rarely touched 9% of GDP, CBO baseline projections assume revenues from individual income taxes supposedly rise from 8.1% of GDP in 2014 to 9% in 2017, 9.2% in 2020, 9.6% in 2026 and so on – reaching 13.3% of GDP by 2090 – according to a Tax Policy Center study.  The main reason is that the CBO assumes real household incomes grow faster than the assumed 2.4% inflation and the combination pushes more and more families into higher and higher tax brackets each year.  Because these are totally static estimates, the ever-increasing average individual tax burden is assumed to have no effect at all on economic growth or tax avoidance. 

In short, much of the alleged “revenue loss” from Republican proposals to eliminate tax rates higher than 28% is because such reforms rule out the “real bracket creep” that makes the fanciful CBO baseline revenue projections rise year after year, forever.

Anyone who flies, or, at least, anyone who isn’t rich who flies, probably wishes he or she had more leg room. Going “cattle class” isn’t fun. But for most people it still is better than not going. Which for most travelers is the real alternative.

For decades the Civil Aeronautics Board regulated airfares. Airlines competed on service rather than price. Business travelers, whose companies paid the bill, enjoyed uncrowded luxury in the air.

It wasn’t as grand for anyone on a budget. You were more likely to drive, especially if you had a family.

Deregulation of the airlines transformed flying. Discount airlines emerged, legacy carriers were forced to compete on price, airports filled with leisure travelers, and flying was possible for even those of modest means. Everyone was happy—except the old business flyers.

It isn’t fun being crammed into a metal tube zooming through the air, but most flyers still seem more interested in price than comfort. Now the group FlyersRights wants the government to mandate minimum seat width and pitch. The group’s president, Paul Hudson, argued that safety and health are at stake, with emergency evacuation made more difficult and deep vein thrombosis made more common.

Human rights analyst Laine Strutton suggested “an interesting argument to be made for a basic human right to physical space on an airplane.” Travelers United’s Christopher Elliott wondered why anyone would want to fly in an “unsafe and unhealthy space that doesn’t respect your dignity?”

Flying with dignity sounds rather grandiose for most Americans. As I ask on FEE.org, “If it is an overnight flight, do I have a right to a bed? With feather pillows? Does having a “basic human right” to airplane space mean someone else has a duty to pay for me to fly?”

A basic human right to space sounds like the culmination of the “positive” rights movement. I’m entitled to anything and everything that I desire. The only issue is figuring out how to make someone else pay for it.

Which is the big problem with the idea of a “right to space” on airplanes. Anyone who wants space can buy more today.

Yet most flyers still appear to prefer cheap fares over additional room. Flight attendants have to warn economy passengers not to move up into empty economy plus seats which could have been purchased for a modest fee.

Of course, health and safety are supposed to trump the cold and calculating market, but we’ve suffered no epidemic of unnatural deaths from cramped airline cabins.

Presumably putting just a handful of people in a 747 would be marginally safer for them, as would adding an extra engine, another pilot, more flight attendants, and ever more back-up systems. The question is the benefit-cost trade-off.

After all, the government could ban any car smaller or less well constructed than an S-Class Mercedes, or even better, a tank. More people would survive accidents. On the downside, most of us would be taking the bus.

Which is the same problem with mandating minimum space on airplanes. Make every airplane a premium economy flight and fares will rise to premium economy levels.

This would be fine for the wealthy and business travelers, who would enjoy additional options for better class travel and fewer vacationers blocking the aisle as they boarded. However, what about the family of four making its first trip to see grandparents across the country?

They’d be more likely to hop in a car—which actually would be far more dangerous than flying. Most affected, of course, would be those of little means.

Coming up with fabulous new “rights” to which we all supposedly are entitled is a magical process. There’s never any cost attached to them.

There is no “right” to any particular amount of space on an airplane. There is only a trade-off between comfort and cost. This is a decision that only passengers should make.

Secretary of State John Kerry recently traveled to Riyadh to reassure the Kingdom of Saudi Arabia and other Gulf states that the U.S. stood with them. “Nothing has changed” as a result of the nuclear pact with Iran, he insisted.

Washington’s long relationship with Riyadh was built on oil. There never was any nonsense about sharing values with the KSA, which operates as a slightly more civilized variant of the Islamic State. The royals run a totalitarian system which prohibits political dissent, free speech, religious liberty, and social autonomy.

At a time of heavy U.S. dependence on foreign oil a little compromise in America’s principles might have seemed necessary. Today it’s hard to make a case that petroleum warrants Washington’s “special relationship” with Saudi Arabia. The global energy market is expanding; the U.S. will soon become a petroleum exporter. The royal regime cannot survive without oil money and has continued to pump even as prices have collapsed.

In recent years Washington also treated Riyadh as an integral component of a containment system against Iran. Of course, much of the “Tehran problem” was made in America: overthrowing Iranian democracy ultimately led to creation of an Islamist state.

Fears multiplied as Tehran confronted its Sunni neighbors along with Israel and continued the Shah’s nuclear program. Overwrought nightmares of Islamic revolution throughout the region encouraged America’s fulsome embrace of the KSA and allied regimes.

But this argument for supporting the Saudi royals has become quite threadbare. Saudi Arabia is well able to defend itself. In 2014 it came in at world number four with $81 billion in military expenditures, a multiple of Iran’s total.

Threats of subversion reflect internal weaknesses beyond Washington’s reach: the kingdom’s general repression and particular mistreatment of its Shia minority, including the recent execution of cleric Nimr al-Nimr, who urged nonviolent opposition to the monarchy.

Moreover, the nuclear agreement creates a real opportunity for change in Iran. The process will not be quick or easy. However, in contrast to the KSA, there are (carefully circumscribed but real nonetheless) elections, political debate, religious diversity, generational resistance, and liberal sentiments.

Whatever the alleged benefits of the Saudi alliance, America pays a high price. First is the cost of providing free bodyguards for the royals.

For this reason the U.S. initiated the first Gulf War and left a garrison on Saudi soil. At the Saudis’ behest Washington backs their misbegotten war in Yemen and remains formally committed to the overthrow of Syrian President Bashir al-Assad, the strongest force opposing the far more dangerous Islamic State.

Saudi Arabia also tramples American values beyond its own borders. In next-door Bahrain Riyadh help suppress the majority Shia population. The KSA also has underwritten extremist Islamic teaching in madrassahs around the world.

Moreover, Saudi money backed al-Qaeda and people performed 9/11. Similar private support for extremist violence apparently continues.

Over the last few years Riyadh’s behavior has become more harmful to America’s interests. The monarchy has been pushing to oust Syria’s Assad without worrying about who or what would follow. Moreover, in Yemen Saudi Arabia turned a long-term insurgency into another sectarian conflict.

By executing Sheikh al-Nimr the KSA triggered sectarian protests in Bahrain, Iran, Iraq, and Lebanon. Riyadh responded by breaking diplomatic relations with Iran, undermining political negotiations to resolve Syria’s civil war.

Of course, the fact that Riyadh is a destabilizing force does not mean that the U.S. should attempt regime change in Riyadh. But Washington should stop lavishing support on the Saudi royals. Particularly important, the U.S. should disentangle itself from the KSA’s misbegotten war in Yemen.

As I point out in National Interest: “The two countries need a new, more normal relationship. They should work together when advantageous and disagree when appropriate. Sell weapons to Riyadh without committing to provide a royal bodyguard.”

Most important, Washington should continue to forge a better relationship with Tehran. Balance should return to American policy in the Middle East.

The Congressional Budget Office has just released its new 10-year fiscal forecast and the numbers are getting worse.

Most people are focusing on the fact that the deficit is rising rather than falling and that annual government borrowing will again climb above $1 trillion by 2022.

This isn’t good news, of course, but it’s a mistake to focus on the symptom of red ink rather than the underlying disease of excessive spending.

So here’s the really bad news in the report.

  • The burden of government spending has jumped from 20.3 percent of GDP in 2014 to 21.2 percent this year.
  • By the end of the 10-year forecast, the federal government will consume 23.1 percent of the economy’s output.

In other words, the progress that was achieved between 2010 and 2014 is evaporating and America is on the path to becoming a Greek-style welfare state.

There are two obvious reasons for this dismal trend.

Here’s a chart that shows what’s been happening. It shows the rolling average of annual changes in revenue and spending. With responsible fiscal policy, the red line (spending) will be close to 0% and have no upward trend.

Unfortunately, federal outlays have been moving in the wrong direction since 2014 and government spending is now growing twice as fast as inflation.

By the way, don’t forget that we’re at the very start of the looming tsunami of retiring baby boomers, so this should be the time when spending restraint is relatively easy.

Yet if you’ll allow me to mix metaphors, bipartisan profligacy is digging a deeper hole as we get closer to an entitlement cliff.

Now let’s shift to the good news. It’s actually relatively simple to solve the problem.

Here’s a chart that shows projected revenues (blue line) and various measures of how quickly the budget can be balanced with a modest bit of spending restraint.

Regular readers know I don’t fixate on fiscal balance. I’m far more concerned with reducing the burden of government spending relative to the private sector.

That being said, when you impose some restraint on the spending side of the fiscal ledger, you automatically solve the symptom of deficits.

With a spending freeze, the budget is balanced in 2020. If spending is allowed to climb 1 percent annually, the deficit disappears in 2022. And if outlays climb 2 percent annually (about the rate of inflation), the budget is balanced in 2024. And if you want to give the politicians a 10-year window, you get to balance by 2026 if spending is “only” allowed to grow 2.5 percent per year.

In other words, the solution is a spending cap.

Here’s my video on spending restraint and fiscal balance from 2010. The numbers obviously have changed, but the message is still the same because good policy never goes out of style.

Needless to say, a simple solution isn’t the same as an easy solution. The various interest groups in Washington will team up with bureaucrats, politicians, and lobbyists to resist spending restraint.

Admittedly, North Korean diplomats would have cut a curious figure in Davos, attending the just-ended World Economic Forum. Representatives of one of the few regimes which still professes to be communist might have had to close their eyes amidst the capitalist excess highlighting the conference.

Still, the North Koreans would have seen much new. And there was the potential of what the Wall Street Journal termed “awkward encounters,” which might have allowed some informal diplomatic discussions on the side.

Alas, while the DPRK was invited to attend the forum, WEF rescinded the offer after the North’s latest nuclear test.

North Korea may be the most isolated state on the planet. Much of that is by choice. Nevertheless, Washington and its allies have made isolation their tool of choice in dealing with the North.

Of course, frustration with Pyongyang is understandable. Yet the policy has utterly failed. The DPRK has enshrined a unique form of monarchical communism, created an extraordinarily brutal system of domestic repression, maintained a large conventional military poised within reach of Seoul, and developed a growing nuclear arsenal.

Kim Jong-un, who succeeded his father in December 2011, has not liberalized politically. Moreover, he has continued the North’s missile and nuclear research.

Yet the DPRK is loosening economic controls. While much more needs to be done, Pyongyang’s commitment to reform appears real.

Kim has promised higher living standards alongside nuclear weapons. The more the regime could be tempted to sample heretofore forbidden economic fruits, the better. Just taste the apple from the tree of capitalism, Jong-un.

Which is where the WEF could have come in. Late last year the WEF invited the North for the first time since 1998, “in view of positive signs coming out of the country.” After Pyongyang’s January 6 nuclear test, however, the invitation was revoked since “under these circumstances there would be no opportunity for international dialogue.”

Actually, after the latest nuclear test was precisely the time when international dialogue was most required. War would be a foolish response and sanctions have been applied without result. China is angry with its frenemy but unwilling to risk the regime’s collapse. So if not negotiation, then what?

The organization said it would welcome the North in the future if the latter “acts as a responsible and responsive member of the international community.” Yet the current challenge is convincing the DPRK to act that way.

As I point out in National Interest online: “the WEF could have included North Korea without giving it anything. North Korea’s attendance wouldn’t involve formal talks with U.S. officials. No money, food, or energy would have been provided to the North as reward for coming. Rather, the DPRK would have been present rather like the kid with his nose pressed up against the window looking inside a toy store.”

Secretary of State John Kerry recently reiterated that Washington would never accept the DPRK as a nuclear power. But after Pyongyang’s latest test, the North Korean Foreign Ministry announced: “The U.S. should be accustomed to the status of the DPRK as a nuclear weapons state whether it likes it or not.” The North responded to years of isolation by simply forging ahead.

North Korea remains a seemingly intractable problem. Unfortunately, Washington’s drive to strengthen sanctions in the aftermath of the latest nuclear test won’t change anything. It’s time for Western officials to try something different.

While Kim Jong-un continues to pursue his country’s nuclear and missile programs, he appears to be more serious than his predecessors about economic change. If so, that provides the West with a bit of leverage.

Inviting Pyongyang to Davos offered potential benefits at minimal cost. Show Pyongyang what could be. Maybe North Korean officials would want it bad enough to adjust their course.

Next year, include Kim and his cronies at the WEF. The more time they spend looking talking in Switzerland, the less time they will have for making and deploying weapons in North Korea.

For the past several years, the Washington Metropolitan Area Transit Authority (Metro) has vied with San Jose’s Valley Transportation Authority for the non-coveted title of “Worst-Managed Transit System in America.” It is still only January, but with its performance, or rather non-performance, during snowstorm Jonas, Metro appears to have already clinched the title for 2016.

 This is what it takes to shut down Metro subways. Flickr photo taken Sunday morning after the storm by Ted Eyten.

To start with, rather than try to provide transportation for people who needed to travel over the weekend, Metro pre-emptively shut down, ending all bus service at 5 pm Friday (well before the worst of the snow fell) and ending rail service for the weekend at 11 pm. By comparison, New York’s Metropolitan Transit Authority (MTA)–serving an area that received much more snow than the district–kept its subways running throughout the weekend and kept its above-ground trains and buses going for as long as it could into the storm.

Metro could have followed MTA’s example by keeping the underground portion of its subways running–Ballston to Eastern Market, Medical Center to Union Station, and Fort Totten to Anacostia–all weekend, but chose not to do so. These lines cover much of the length and breadth of the district and could have provided vital transportation for many people. 

Metro’s excuses for shutting down were rather thin. It claimed that passenger safety was more important than the convenience of having service. But how safe is it to be out in a blizzard compared with riding on a subway? Metro also said it needed to put its employees to work to put it back in service on Monday. But the people who operate trains are not maintenance workers and union rules probably prohibited Metro from putting them to work shoveling snow.

Besides, Metro didn’t do a very good job of putting the system back into operation. Most of MTA’s above-ground trains were running by Sunday afternoon. MTA also put most of its bus lines back into service on Monday. Metro was content to open the subway portions of its lines on Monday, leaving its above-ground lines still closed, and to run just 22 out of its 325 bus lines.

Metro might argue that federal offices were closed Monday anyway, so the demand for its services was lower. But if Metro had been more on the ball, federal offices might not have had to close.

In short, MTA passes but Metro flunks Snowstorm 101. But Metro puts itself well ahead of the pack in the race to being the worst-managed transit agency of 2016.

In my recent Cato Institute policy analysis, “Requiem for QE,” I analyze the transcripts of the 2008 and 2009 Federal Open Market Committee (FOMC) meetings in some detail.  Among them, the March 2009 transcript stands out as particularly troubling, as it reveals the FOMC’s failure to appreciate an economy’s ability to heal itself through market mechanisms following an adverse macroeconomic shock.

Yet market economies do have self-correcting mechanisms: relative prices change, resources get reallocated, and consumer and business expectations adjust to new realities.  In the case of the financial crisis, expectations had to adjust to the fact that house prices were significantly out of line with economic fundamentals.  As they did,  perceptions of wealth declined in line with house prices.  Workers, particularly those in construction, began the process of acquiring new skills, finding alternative employment, starting new businesses, and so on.  That these self-correction processes were already at work prior to the March 2009 FOMC meeting is one reason why the recession ended just three months later, in June 2009.

The same self-correcting mechanisms can be seen in the very markets in which the financial crisis began.  Put simply, the financial crisis was precipitated by a decline in house prices which, in turn, sparked concerns about the default risk of banks and other financial institutions with large holdings of mortgage-backed securities (MBS).

The problem was that those holding the MBS had no knowledge of the specific real estate underlying the securities.  As a result, once house prices crashed, and mortgage default rates spiked, no one could work out how much a given security was actually worth.  MBS became “toxic assets” that couldn’t be sold on the secondary market.  In consequence, default risk spreads in interbank and other markets in which loans were made to institutions that held large quantities of MBS widened significantly in the early stages of the financial crisis, and subsequently exploded when Lehman made its bankruptcy announcement.

And yet even then, at the very height of the financial crisis, the market’s self-correcting mechanisms were at work.  Financial institutions had begun the process of discovering what specific real estate backed their MBS before Lehman’s announcement, and the process accelerated thereafter.  The success of these efforts is reflected in the fact that many default risk spreads had returned to their pre-Lehman levels (and in some cases to their pre-crisis levels) weeks before the March 2009 FOMC meeting.

Did the FOMC not see that financial markets and the economy had improved significantly by March 2009, or did it just have no confidence in the self-correcting nature of markets and market economies?  The transcripts of the March meeting suggest the second answer.

Early in the discussion, President Plosser noted that he and President Bullard had recommended a change in the proposed policy statement.  The proposed statement, which was distributed to participants prior to the meeting, read: “the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.”  Plosser and Bullard proposed that the statement be amended to read: “the Committee anticipates that market forces and policy actions will contribute to a gradual resumption of sustainable economic growth.”  Plosser noted that the proposed statement implied that

policy actions alone will stabilize the world.  And, frankly, I think creating an impression that the only game in town is policy actions and that market economies have no contribution to make in this stabilization is setting us up for failure and a credibility problem.  So we added the reference to market forces.

One might suppose that Plosser and Bullard’s recommendation generated considerable discussion and support, but one would be wrong.  Not a single person responded; not Bernanke, not anyone.  It was a Mr. Cellophane proposal — you’d never even know it was made.

Just before the policy vote was to be taken, Bernanke asked if there were any comments.  Despite being summarily ignored, Plosser responded, “I had suggested this notion of putting in market forces in terms of returning to stability.  I didn’t know whether you had forgotten that, but nobody ever commented on it.”  Bernanke asked if people were okay with substituting the sentence.  Governor Tarullo responded, “To what market forces are you referring?”  Governor Kohn then added, “I think what I heard around the table, Mr. Chairman, was not much confidence that market forces are moving in that direction and might even be moving in the other direction.”

“There’s not much confidence that government forces are going to fix it either,” Plosser replied.  President Lacker interjected, “Surely, if the economy recovers, it’s going to be a combination of policy actions and market forces.  Surely that’s the case.”  Bernanke responded, “Well, all we’re saying here is that these things [policy actions] will contribute.  We’re not saying that they’re the only reason.  Let me go on.”  But President Bullard interrupted,

I just want to press on that a bit.  It gives the impression that we’re hanging on a thread as to what the Congress does or what we do or something like that.  I don’t think you want to leave that impression.  Despite what the government does, you might recover faster or you might recover slower, and I think you should leave that thought in the minds of private citizens.

Bernanke replied, “Again, I think what we’re saying here is that we anticipate that these things [policy actions] will contribute to an overall dynamic.”  Bernanke went on with the vote.  The discussion was over.

The fact that only three of the 18 participants spoke out to suggest that the recovery would not be due solely to policy actions is disturbing.  Bernanke’s lack of support for the language is particularly worrisome because in his book, The Courage to Act, he notes that “as an economist, I instinctively trusted markets” (p. 99) and “I thought of myself as a Republican…with the standard economist’s preference for relying on market forces where possible” (p. 108).

Curiously, he did not take a strong stand for “market forces,” when he had the opportunity.  He could have said, “our actions and fiscal policy are only assisting the market.  We certainly don’t want to leave the impression that policy will do it all.”  He could have said this when Plosser first made the recommendation or at any time during the discussion toward the end of the meeting.  But he didn’t.  One is left to speculate why a person who instinctively trusts markets and market forces did not seize the opportunity to make a point about the role markets would play in mitigating the effects of the financial crisis and facilitating recovery.

The suggestion that market forces contribute to the improvement in the economy did not appear in the March 18, 2009, FOMC statement.  Interestingly, however, the phrase “market forces” did appear in the April policy statement.  But it received third billing: “the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability” (italics added).  The statement appeared in the draft language that was distributed to FOMC participants in advance of the meeting.  There was no discussion of the role of market forces at the April meeting or any meeting in 2009.  Was the statement included out of a deep-seated belief in the healing power of markets or merely to appease a small, but vocal, minority?

It is impossible to know for sure.  But there is little doubt that the Committee failed to recognize that healing takes time.  Monetary policy had already eased considerably by March 2009.  The Fed’s balance sheet more than doubled during the six months between September 18, 2008, and March 18, 2009 — increasing from $931.3 billion to $2 trillion.  Instead of waiting and giving these actions, and the market’s own healing power, time to work, the FOMC voted to expand the Fed’s balance sheet by an additional $1.15 trillion.

This action paved the way for the FOMC’s nearly 8-year zero interest rate policy, which has encouraged risk taking, redistributed income to the wealthy, contributed significantly to the rise in equity and house prices (which have surpassed their previous “bubble” levels), and created considerable uncertainty.  If the FOMC had maintained some confidence in markets’ ability to adapt, it would have waited a little longer to act and might have avoided an incredibly long-lived policy that will be extremely difficult to exit.

[Cross-posted from Alt-M.org]

Libertarian fans of Downton Abbey got a special treat last night when Violet, the Dowager Countess of Grantham, let loose with an excoriation of statism right out of John Stuart Mill. Debating whether the village hospital should be merged into the larger regional hospital in 1925, Lady Grantham exclaimed:

For years I’ve watched governments take control of our lives, and their argument is always the same — fewer costs, greater efficiency. But the result is the same, too. Less control by the people, more control by the state until the individual’s own wishes count for nothing. That is what I consider my duty to resist….

The point of a so-called great family is to protect our freedoms. That is why the barons made King John sign Magna Carta.

Rosamund: Mama, we’re not living in 1215. And the strength of great families like ours is going, that’s just fact. 

Countess: Your great-grandchildren won’t thank you when the state is all-powerful because we didn’t fight.

Of course, the Dowager Countess is not a libertarian, nor a liberal, but a reactionary aristocrat. Still, libertarian ideas crop up wherever people feel their liberties being infringed. And such ideas were being enunciated by genuine liberals in that era. An editorial in The Nation in 1900, thought to have been written by its founding editor E. L. Godkin, mourned the decline of liberty and liberalism:

To the principles and precepts of Liberalism the prodigious material progress of the [19th century] was largely due.  Freed from the vexatious meddling of governments, men devoted themselves to their natural task, the bettering of their condition, with the wonderful results which surround us.  But it now seems that its material comfort has blinded the eyes of the present generation to the cause which made it possible.  In the politics of the world, Liberalism is a declining, almost a defunct force. 

Liberalism was giving way, he said, to the forces of socialism and imperialism; and “international struggles on a terrific scale” were the likely result, struggles that indeed had already begun by 1925 and would only get worse in the lives of Lady Grantham’s grandchildren and great-grandchildren.

Her case against hospital consolidation reminds me of John Stuart Mill’s “objections to government interference” in On Liberty:

The objections to government interference, when it is not such as to involve infringement of liberty, may be of three kinds.

The first is, when the thing to be done is likely to be better done by individuals than by the government. Speaking generally, there is no one so fit to conduct any business, or to determine how or by whom it shall be conducted, as those who are personally interested in it. This principle condemns the interferences, once so common, of the legislature, or the officers of government, with the ordinary processes of industry….

The second objection is more nearly allied to our subject. In many cases, though individuals may not do the particular thing so well, on the average, as the officers of government, it is nevertheless desirable that it should be done by them, rather than by the government, as a means to their own mental education—a mode of strengthening their active faculties, exercising their judgment, and giving them a familiar knowledge of the subjects with which they are thus left to deal…. Without these habits and powers, a free constitution can neither be worked nor preserved, as is exemplified by the too-often transitory nature of political freedom in countries where it does not rest upon a sufficient basis of local liberties. The management of purely local business by the localities, and of the great enterprises of industry by the union of those who voluntarily supply the pecuniary means, is further recommended by all the advantages which have been set forth in this Essay as belonging to individuality of development, and diversity of modes of action. Government operations tend to be everywhere alike. With individuals and voluntary associations, on the contrary, there are varied experiments, and endless diversity of experience….

The third, and most cogent reason for restricting the interference of government, is the great evil of adding unnecessarily to its power. Every function superadded to those already exercised by the government, causes its influence over hopes and fears to be more widely diffused, and converts, more and more, the active and ambitious part of the public into hangers-on of the government, or of some party which aims at becoming the government. 

If Lady Grantham had not read Mill – her granddaughter Lady Mary said last night that aristocratic young ladies were taught only “French, prejudice and dance steps” – we can be sure that the show’s creator Julian Fellowes did. So three cheers for Julian Fellowes and his injection of Millian liberty into television drama.

It’s interesting that the New York Times recapper noticed Lady Grantham’s speech, while the Wall Street Journal did not.

Earlier this month, the Federal Reserve released FOMC transcripts and related materials from 2010. One of the issues—an important one—discussed in October and November of 2010 concerned Fed disclosure of inside information. Those transcripts hit one of my hot buttons. Fed leadership, instead of being defensive as shown in the 2010 transcripts, should be vocal in explaining why non-public activities further the cause of sound monetary policy.

Consider first an extreme view, a view that will help to frame disclosure issues. Would we want the Fed to confine its contacts with outsiders to public meetings at which press were present, or could be present? In that case, the FOMC would make its policy decisions solely on the basis of publically available information, such as that released by the Bureau of Labor Statistics and other statistical agencies. Keep in mind that under this view Fed officials would not only cease to have any non-public meetings with private sector individuals but also with government officials.

I add government officials to the mix because it is well known that some members of Congress and congressional staff make stock trades based on inside information.

FOMC practice has long been to gather nonpublic information, some of which is presented in FOMC meetings. The beginning of every FOMC meeting is occupied with presentation, and discussion, of anecdotal information. I always made an effort to smoke out expectations about the future from my sources. Forward-looking information is especially important because there is little formal statistical data on business plans for hiring and investment. As an example, I routinely asked my contacts at FedEx and UPS about their plans to add capacity in the busy holiday season and what their customers were telling them about their expectations. I asked my Wal-Mart contact about his interpretation of retail sales. Did he think that recent sales reflected idiosyncratic issues for his own company or were the trends more general?

The FOMC has long believed that such information strengthened the policy process. I know of no study that has attempted to quantify the policy value of anecdotal information, but have to believe that this approach is sound. Fed critics remind me of the old saw about the weatherman. Look out the window. Can’t you see that it is snowing? Do you want the Fed to stop looking out the window? Would it not have been helpful in 2008 if the Fed had had some detailed inside information about the condition of Lehman and AIG?

The Federal Reserve has long had robust policies, and active internal controls, to prevent insider trading by all employees, especially those with access to confidential policy information. Yes, nonpublic contacts with industry insiders do raise the risk of improper disclosure. What is the evidence on that score?

I know of only three prominent, evident or possible violations of this confidentiality. One is ongoing today: an unresolved case concerning an alleged leak of FOMC information in 2012 to Medley Global Advisors. In the second case, Rohit Bansal, a former Goldman-Sachs employee, was convicted this past November of obtaining inside information from Jason Gross, a former bank examiner at the New York Fed, who was also convicted. In the third case, Robert A. Rough, a former director of the New York Fed pleaded guilty in 1989 to disclosing discount rate actions to securities traders while he was in office. The New York Times story on the case noted that, “Samuel A. Alito Jr., the United States Attorney for New Jersey, said Mr. Rough was the first director in the 75-year history of the Federal Reserve System to be convicted of criminal wrongdoing.”

As far as I know, that is it. A damn good record, I would say. I challenge anyone to find an agency of this size and longevity with a superior record. The very highest level of integrity is built into the Fed’s day-to-day procedures and its DNA. Fed leadership should be defending its disclosure and research policies rather than dancing away, dodging the issue.

A CBS segment on 60 Minutes in November 2011 discussed insider trading by some members of Congress and congressional staff. Public outrage ensued and led Congress to pass the Stock Act, which became law April 4, 2012. By April 15, 2013 Congress had modified the Act, largely gutting it.

The most gentle way I know to summarize the concerns of some members of Congress over Federal Reserve disclosure is that they represent rank hypocrisy.

It is National School Choice Week, and this ever-growing event-of-events will feature discussions throughout the country tackling test scores, competition, empowering the poor, efficient use of taxpayer dollars, monopoly breaking, and numerous other, very important topics. But ultimately just one goal must be paramount: maximizing freedom. In the end, it is defending liberty – the true, bedrock American value – that school choice must be about.

This is first and foremost a normative conviction. Freedom must have primacy because society is ultimately composed of individuals, and leaving individuals the right and ability to control their own lives is fundamentally more just than having the state – be it through a single dictator, or majority of voters – control our thoughts, words, or actions.

Of course, children are subject to someone’s control no matter what. But a corollary to free individuals, especially when no one is omniscient and there is no unanimous agreement on what is the “right” way to live, or think, or believe, must be free association – free, authentic communities. We must allow people and communities marked by hugely diverse religious, philosophical, or moral views, and rich ethnic and cultural identities and backgrounds, to teach their children those things. Short of stopping incitement of violence or clear parental abuse, the state should have no authority to declare that “your culture is acceptable,” or “yours must go.” Indeed, crush the freedom of communities and you inevitably cripple individual liberty, taking away one’s choices of how and with whom to live.

Of course, the reasons to demand educational freedom are not just normative. They are also about effective education, and it is not hard to understand, at a very basic level, why.

If there are things on which all agree, choice is moot – all will teach and respect those things. But if we do not all agree, forcing diverse people to support a single system of “common” schools yields but three outcomes: first, divisive conflict; then, either inequality under the law – oppression – when one side wins and the other loses, or lowest-common-denominator curricula to keep the peace. Forced conflict and curricular mush no one should want. And inequality under the law we should all loathe and fear, even if we do not care about the rights of others and think we will come out the victors today. Tomorrow, we may not.

School choice is something for which all Americans should fight. But ultimately, it is too limiting. What we need is freedom for all.

This week is National School Choice Week, the annual celebration of policies that empower families to choose the education that best meets the individual needs of their children. There have already been several important school choice developments this year, not all of them positive. Below is a roundup of the good, the bad, and the ugly.

Kicking Off National School Choice Week 2016

Florida expands its education savings account program

It will be hard to top 2015 (the Year of Educational Choice), but 2016 has already seen a flurry of legislative activity. Last week, Florida Governor Rick Scott signed legislation expanding the number of students with special needs who can receive education savings accounts. The bill also renamed the Personal Learning Scholarship Accounts to honor their legislative champion, Senator Andy Gardiner. 

The legislation comes on the heels of a large rally at the state capital supporting school choice and calling on the state teachers union to drop its lawsuit against the state’s scholarship tax credit law. A judge previously dismissed the suit, but the union has appealed. More than 10,000 protesters attended the rally, which featured Martin Luther King, III:

“I just find it interesting that in our country we have the gall to debate about how our most precious resource — our children — are treated,” [Martin Luther King, III] said.

“My dad, I don’t really know if I can actually speak to what he would speak today, but I can say is that he would always  stand up for justice,” he added. “This is about justice.”

Martin Luther King, III marches in the “Rally in Tally.” Image from RedefinED.

Several more states are considering educational choice legislation

Arizona is also considering expanding its ESA by making all incoming kindergarteners eligible. Several other states are considering new ESA laws, including Iowa, New Hampshire, New Jersey, North Carolina, Oklahoma, OregonTexas, and Virginia. In addition, Sen. Ted Cruz filed legislation to create an ESA for students in Washington, D.C.

Earlier this month, the New York Senate passed a scholarship tax credit (STC) bill. However, the bill faces a tough fight in the state assembly. Maryland will also likely consider STC legislation after a survey showed that seven in ten citizens in favored STCs, as will KentuckyMaineMissouriNebraskaNew JerseySouth CarolinaTexas, and likely several other states. Tennessee is considering a new voucher law.

Meanwhile, Missouri is considering the nation’s first tax-credit-funded ESA, similar to what is proposed in a new Cato Institute report I coauthored with Jonathan Butcher and Clint Bolick of the Goldwater Institute (now Justice Bolick of the Arizona Supreme Court).

Georgia donors max out tax credits

Once again, Georgia donors hit the cap on tax-credit-eligible donations to scholarship organizations on the first day. The law only grants $58 million in tax credits, which last year was only enough to provide scholarships to fewer than 13,500 students of Georgia’s nearly two million students. The tax-credit scholarships were worth about $3,150 on average, far less than the more than $10,000 per pupil spent on Georgia’s district school students according to the most recent NCES data.

The Georgia legislature may consider adopting a second, highly regulated, corporate-donor-only STC, but it would be better to simply raise the total tax credit cap on the existing program.

The Obama administration quietly ends questionable investigation of Wisconsin voucher program

For several years, the Obama Department of Justice has been investigating Milwaukee’s school choice program based on bogus allegations. However, it appears they can no longer keep up the charade:

Parents and advocates of Milwaukee’s storied school voucher program are feeling relief and frustration in learning that the U.S. Department of Justicehas quietly closed a four-year, “legally dubious investigation” into the parental choice program without charges of wrongdoing, according to the head of a school choice advocacy group.

“It was always an unwavering dedication to serving all children with all the resources you have in these (private) schools and knowing that there was no discrimination going on,” said Jim Bender, president of Wisconsin School Choice. “But when you have a long investigation without much information, you get skeptical.

“You are left feeling helpless, especially when you are dealing with the federal Department of Justice and the (Wisconsin) Department of Public Instruction,” said Bender, whose nonprofit organization serves the state’s growing market of educational alternatives to public education.

This is second time in just the last few months that the Obama administration had has to end its legal harrassment of a school choice program. Back in November, the Fifth Circuit Court of Appeals rejected the Obama administration’s attempt to exercise control over Louisiana’s school voucher program using a decades-old desegregation lawsuit. Writing for the majority, Judge Edith Jones slammed the administration’s case as “disingenuous” and “a fishing expedition.”

Nevada judge issues injunction against ESA program

Meanwhile, Nevada’s ESA program just had its first legal setback when a judge halted implementation of the program pending litigation:

A state judge Monday put the brakes on Nevada’s education savings accounts, granting an injunction sought by opponents who said it would drain critical funding resources from Nevada’s public schools and is unconstitutional.

District Judge James Wilson, in a 16-page ruling, said the state constitution requires “the legislature to set apart or assign money to be used to fund the operation of the public schools, to the exclusion of all other purposes.”

Wilson said because Senate Bill 302 diverts some general funds appropriated for public schools to fund private school tuition, it violates sections of the constitution.

“Plaintiff parents have met their burden of clearly proving that there is no set of circumstances under which the statute would be valid …” Wilson wrote.

An appeal to the Nevada Supreme Court is anticipated.

The ESA is facing two other legal challenges, including a challenge from the ACLU under the state’s historically anti-Catholic Blaine Amendment. Tim Keller of the Institute for Justice explains why the ESA law should pass constitutional muster even if some families use their ESA funds at religious schools:

Yes, parents may voluntarily choose to enroll their children in a religious school — and use the funds deposited in their student’s ESA to pay for tuition. Under the terms of the program, the government stays out of each family’s educational placement decision. By offering educational benefits on even terms to all families, both religious and nonreligious, the state protects religious liberty.

Moreover, by structuring the ESA program to give families a genuine, independent choice as to how and where they use their ESA funds, the state complies with the plain language of Article 11, Section 10. From the state’s perspective, every single dollar is spent for the purpose of educating children. And there is no constitutional bar to using public funds for educational purposes.

U.S. Supreme Court to consider religious liberty case

In related news, SCOTUS will soon consider a case that may impact whether Blaine Amendments are themselves constitutional. The state of Missouri created a program that gives schools and other organizations recycled tire products to use for children’s playgrounds. However, the state excludes religious schools and organizations from participation. The Alliance Defending Freedom challenged the law, arguing that the state must exercise neutrality and may not actively discriminate against religious groups:

“No state can define religious neutrality as treating religious organizations worse than everyone else,” said ADF Senior Counsel David Cortman. “That isn’t neutrality; it’s a hostility to religion that violates the First Amendment. That’s the primary issue that the Supreme Court will address. In this case, the state should not have excluded this preschool from the recycled tire program simply because a church operates the school.”

“Children’s safety is just as important on church daycare playgrounds as it is on other daycare playgrounds,” added ADF Senior Counsel Erik Stanley. “Missouri and every state should understand that the U.S. Constitution prohibits religious hostility, which is what Missouri exhibited when it denied Trinity Lutheran’s scrap tire grant application. This case has huge implications for state constitutional provisions across the nation that treat religious Americans and organizations as inferiors solely because of their religious identity.”

A victory for the plaintiffs would call into question whether Blaine Amendments are constitutional under the First Amendment.

In 2014, New Hampshire’s scholarship tax credit law survived a Blaine Amendment challenge in the state supreme court. You can learn more about how educational choice benefits students — and how defenders of the status quo are attempting to use Blaine Amendments to deprive families of that choice — in the Cato Institute’s short documentary, “Live Free and Learn”:

Live Free and Learn: Scholarship Tax Credits in New Hampshire

Even the most dedicated opponent of drug prohibition might not guess that this policy harms economic development.

Yet claims in a recent WSJ story, combined with research on the relation between banking and development, suggests just such an impact.

The reason is that drug prohibition fosters anti-money laundering laws; which then discourage U.S. banks from doing business in Mexico; which then impedes Mexican banking; which then negatively impacts development.

The WSJ story says,

U.S. banks are cutting off a growing number of customers in Mexico, deciding that business south of the border might not be worth the risks in the wake of mounting regulatory warnings.

At issue are correspondent-banking relationships that allow Mexican banks to facilitate cross-border transactions and meet their clients’ needs for dealing in dollars—in effect, giving them access to the U.S. financial system. The global firms that provide those services are increasingly wary of dealing with Mexican banks as well as their customers, according to U.S. bankers and people familiar with the matter.

And why are U.S. banks worried about regulation?  Because 

U.S. financial regulators have long warned about the risks in Mexico of money laundering tied to the drug trade. The urgency spiked more than a year ago, when the Financial Crimes Enforcement Network, a unit of the Treasury Department, sent notices warning banks of the risk that drug cartels were laundering money through correspondent accounts … Earlier, the Office of the Comptroller of the Currency sent a cautionary note to some big U.S. banks about their Mexico banking activities.

As for evidence that banking is important for economic development, see this paper by Scott Fulford of Boston College (featured soon in a Cato Research Brief).  Fulford writes:

Do banks matter for growth and how? This paper examines the effects of national banks in the United States from 1870–1900. I use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking. For the counties on the margin between getting a bank and not, gaining a bank increased production per person by 10%. National banks in rural areas improved agriculture over manufacturing, moving counties towards geographic comparative advantage. Since these banks made few long-term loans, the evidence suggests that the provision of working capital and liquidity matter for growth.

Bad policies (drug prohibition) breed more bad policies (anti-money-laundering laws), which have additional adverse consequences that few could plausibly have forseen.  This is one reason why any government interference with liberty, no matter how well intentioned or seemingly well justified, should face extreme skepticism.

Today I join some 20 other writers in making the case against Donald Trump’s presidential candidacy. The venerable National Review, founded by William F. Buckley, Jr., assembled a group of diverse critics to argue that Trump is not a conservative, not an advocate of limited government, but rather (as the editorial asserts) “a philosophically unmoored political opportunist who would trash the broad conservative ideological consensus within the GOP in favor of a free-floating populism with strong-man overtones.”

The symposium is understandably being described in the media as “conservative thought leaders take on Trump.” I of course consider myself a libertarian, as my book The Libertarian Mind would indicate, and not a conservative. But part of the impact of this symposium is that people of such widely varying views – I have a lot of disagreements with religious rightist Cal Thomas and neoconservative Bill Kristol – nevertheless regard Trump as dangerous. 

In my own contribution I emphasize two points:

From a libertarian point of view — and I think serious conservatives and liberals would share this view—Trump’s greatest offenses against American tradition and our founding principles are his nativism and his promise of one-man rule.

Not since George Wallace has there been a presidential candidate who made racial and religious scapegoating so central to his campaign. Trump launched his campaign talking about Mexican rapists and has gone on to rant about mass deportation, bans on Muslim immigration, shutting down mosques, and building a wall around America. America is an exceptional nation in large part because we’ve aspired to rise above such prejudices and guarantee life, liberty, and the pursuit of happiness to everyone. Equally troubling is his idea of the presidency—his promise that he’s the guy, the man on a white horse, who can ride into Washington, fire the stupid people, hire the best people, and fix everything. He doesn’t talk about policy or working with Congress. He’s effectively vowing to be an American Mussolini, concentrating power in the Trump White House and governing by fiat. It’s a vision to make the last 16 years of executive abuse of power seem modest.

This isn’t my first sally against Trump. After hearing him in person at FreedomFest in July, I wrote about his nationalism, protectionism, and megalomania in the Washington Times. And in August I reviewed his support for and use of eminent domain at the Guardian.

The National Review symposium was posted last night at 10 p.m., and I took note of it on Facebook and Twitter. It drew a lot of reaction. And I must say, I was surprised by how many of the responses, especially on Twitter, were openly racist and anti-Semitic. That did nothing to make me reconsider my deep concerns about the damage Trump is doing, and could do, to America’s libertarian heritage.

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