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Hands On Originals, a t-shirt printing company in Kentucky, refused to print t-shirts promoting a gay-pride event, the Lexington Pride Festival. Its owners weren’t objecting to any customers’ sexual orientation; instead, they objected only to the ideological message conveyed by the shirts.

The Gay and Lesbian Services Organization nevertheless filed a complaint with the Lexington-Fayette Urban County Human Rights Commission under an antidiscrimination ordinance that bans public accommodations from discriminating against individuals based on sexual orientation. The Commission ruled against Hands On Originals, but the state district court reversed on free speech and free exercise grounds.

The case is now before the Kentucky Court of Appeals, where Cato filed an amicus brief, drafted by Prof. Eugene Volokh and UCLA’s First Amendment clinic. Our brief urges the court to uphold the right of printers to choose which speech they will help disseminate and which they won’t.

In Wooley v. Maynard (1977)—the “Live Free or Die” license-plate case—the Supreme Court held that people may not be required to display speech with which they disagree because the First Amendment protects the “individual freedom of mind.” Wooley’s logic applies equally to Hands On Originals’ right not to print messages with which they disagree, which is an even greater imposition than having to passively carry the state motto on your car’s tag.

Thanks to Prof. Volokh and his student, Ashley Phillips, for their work on the brief, and on this blogpost.

The European Union (EU) and its member states have had a difficult time dealing with the politics of genetically modified organisms (GMOs).  Despite the fact that the European Food Safety Authority (EFSA) has determined numerous GMO products to be safe, only one currently is allowed to be planted.  MON 810 corn (maize) resists insects, such as the European corn borer.  Although this type of corn is widely grown around the world, it is planted on only 1.5 percent of the land area devoted to corn production in the EU.  The main reason is a decision by the EU to allow individual member states to forbid the planting of crops that have been enhanced through genetic engineering. Member states now banning the planting of GMOs include Austria, France, Germany, Greece, Hungary, Italy, Luxembourg, and Poland. 

Regardless of the EU’s reluctance to allow GMO crops to be grown, importation of GMO soybeans and soybean meal has been a commercial necessity.  In 2014 the EU consumed the protein equivalent of 36 million metric tons of soybeans for livestock feeding.  Roughly 97 percent of those soybeans were imported.  The three largest soybean producing and exporting countries – the United States, Brazil, and Argentina – each devote more than 90 percent of their plantings to GM varieties.  It simply isn’t possible to buy enough non-GMO soybeans in today’s world to meet the protein needs of the EU livestock sector. 

Apparently it also isn’t possible for the European Commission to achieve agreement among member countries to authorize new GMOs for importation as human food or livestock feed.  Since the regulations for considering GMO applications went into effect in 2003, a qualified majority of member states has never agreed to approve a new food or feed product.  When the outcome among member states is “no opinion,” the decision on whether to allow a product containing GMOs to be imported reverts to the Commission.  Perhaps with some reluctance, the Commission has approved the importation of around 50 genetically modified products. 

Not pleased to be in a situation in which opponents of GMOs criticize it every time a new application gets approved, the European Commission proposed in April 2015 to pass the buck and allow individual member countries to ban the importation of GMO foods and feed ingredients that they don’t like.  The EU Parliament, a popularly elected legislative body, voted on Oct. 28 to reject the proposal by a convincing 577-75 margin.  Among the reasons for disapproval are that it would fracture the EU internal market, violate World Trade Organization rules, and impose huge costs on livestock producers. 

It is gratifying to see legislators acting in support of sound science, economic integration, and the rules-based global trading system.  It would be nice to think that the Parliament’s strong rejection of the proposal would mean the end of it.  Not so fast, though.  The Commission still is hoping for an affirmative decision by the European Council, which includes the heads of state of EU member countries.  If the Council decides to approve it, the measure would go back to the Parliament to be considered once again.

Even though this particular proposal does not seem likely to be adopted, the question of how best to regulate GMOs in the EU is far from settled.  In the United States, there has been a general consensus that approved GMOs should be allowed to be marketed, but debate continues on whether they should carry special labeling.  The political process in the EU still is wrestling with the basic question of whether the government should prevent people from purchasing products that are recognized as safe, but are opposed by some members of society.  A libertarian approach would be to ensure that people are free to exercise their rights to buy – or to refrain from buying – whatever they wish.  The EU still has some distance to go to achieve that degree of individual liberty and consumer choice.

Perhaps in anticipation of Halloween, two components of corporate welfare have been doing their best impression of a Hollywood monster that refuses to die.

The Export-Import Bank (Ex-Im) seems poised to come back from the grave, and promises have already been made to reverse the minor cuts to the crop insurance subsidy program agreed to in this week’s budget deal. These cases give some insight into just how difficult it is to actually get rid of corporate welfare.

Cato has long criticized both corporate welfare and crony capitalism, which benefit the few, the powerful, and the politically connected at the expense of everyone else. These policies introduce distortions into the market and limit competition, all at taxpayer expense. Despite their many harmful effects, the nature of these programs, with concentrated benefits and dispersed costs makes it hard to root out corporate welfare from the budget. The groups and companies that benefit are highly motivated to make sure they continue, while ordinary people who all bear a smaller share of the cost are more focused on other things like the practical concerns of providing for their families. This can explain part of why it’s so hard to end any of the many programs that make up the web of corporate welfare.

Ex-Im provides financing and loan guarantees for foreign customers of certain U.S. companies. While proponents argue that Ex-Im is critical to exports and helps American businesses, the vast majority of these benefits flow to a handful of major corporations, and roughly 98 percent of U.S. exports do not get any kind of Ex-Im assistance at all. As Cato’s Dan Ikenson has shown, these subsidies also harm “competing U.S. firms in the same industry, who do not get Ex-Im backing, and U.S. firms in downstream industries, whose foreign competition is now benefiting from reduced capital costs courtesy of U.S. government subsidies.” Given these inefficiencies and distortions, opponents of Ex-Im cheered when the bank’s charter lapsed this summer, but unfortunately that was not the last chapter in this saga. Earlier this week, the House, in a discouraging instance of bipartisanship, voted to reopen Ex-Im by a 331-118 margin. While it still has to get past the Senate, a similar bill passed that chamber earlier this year, and the measure will likely be included in the coming highway bill. So after a prolonged battle to shut down this one small component of corporate welfare, the hard-fought victory for Ex-Im opponents will probably be short-lived.

Tucked into this week’s very disappointing budget deal was one minor positive aspect: modest cost savings from making changes to the subsidized crop insurance program. In this program, farmers can purchase insurance from approved private insurance companies, and the federal government reimburses these insurance companies for administrative and operating costs in addition to reinsuring their losses. The tweak in the budget deal wouldn’t even achieve savings by increasing the insurance premiums paid by farmers, but by merely lowering the rate of return for the insurance companies from 14.5 percent of premiums to 8.9 percent.  It’s worth noting that the Congressional Budget Office estimated that this change would save about $3 billion through 2025, and that these savings would not really start to materialize until 2019. Perhaps unsurprisingly, Roll Call reports that “[f]arm-state lawmakers have been assured by leaders that a provision in the bipartisan budget deal that would trim the federal crop insurance subsidy program will be replaced down the road.” This modest change was years away from even taking effect and the savings were extremely modest over a decade, but there have already been promises to reverse them, citing the potential for “dramatic” consequences.

Past Cato research has analyzed the amount of corporate welfare in the federal budget, estimating that it consistently accounts for more than $100 billion (in inflation-adjusted dollars) each year.

Sources: Author’s calculations using Office of Management and Budget, “Public Budget Database, Outlays,” https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/outlays.xls and Office of Management and Budget, “The Appendix, Budget of the United States Government, Fiscal Year 2016,” https://www.whitehouse.gov/omb/budget/Appendix; Tad DeHaven, “Corporate Welfare in the Federal Budget,” Cato Institute Policy Analysis No. 703, July 25, 2012; Stephen Slivinski, “The Corporate Welfare State: How the Federal Government Subsidizes U.S. Businesses,” Cato Institute Policy Analysis No. 592, May 14, 2007.

The developments with Ex-Im and crop insurance subsidies are just the two most recent examples of why corporate welfare keeps coming back like a Hollywood monster, costing taxpayers and introducing economic distortions, year after year. Even so, opponents of corporate welfare need to continue to expose the flaws, costs and harmful effects of these programs, otherwise they will always be with us.

The Trans-Pacific Partnership negotiations have just concluded and the parties are about to begin a very long process of ratification and implementation. Once all of that is complete, the TPP will be ready and willing to accept new members. There’s a pretty long list of countries ready to join.

The president called the TPP America’s chance to “write the rules” instead of China. That’s an unfortunately confrontational way to sell international commercial cooperation. Certainly, the TPP is an effort to circumvent gridlocked negotiations at the World Trade Organization and establish new norms while lowering trade barriers. It’s not clear yet whether the proliferation and growth of megaregional agreements like the TPP will help or hinder the broader and more valuable goal of global trade liberalization.  

In practice, having America “write the rules” mostly means (1) lower tariffs; (2) more rules on things like intellectual property, state-owned enterprises, and labor and environment protection; and (3) less pressure to eliminate America’s own protectionist policies like outrageous farm subsidies, shipping restrictions, and abusive antidumping laws. 

But if the TPP is going to be a vehicle for exercising American influence over global economic governance, it will surely need to expand beyond its current 12 members. 

Since the negotiations concluded a few weeks ago, half a dozen governments in the region have expressed or reiterated their interest in joining the TPP. These include Indonesia, South Korea, Colombia, Thailand, the Philippines, and Taiwan. The fact that so many countries are eager to join an agreement they haven’t seen and had no role in drafting says a lot about the politics of international trade.

Once the TPP text is released, we will have a better idea of what these countries will be required to do to gain entry to the agreement. Will they need unanimous approval from existing members? Will they be required to accept additional obligations beyond the current text? Will Congress and other legislatures have to ratify each accession? The answers to these questions could have a big impact on the future of the global trading system.

In the trade policy world, everyone is eagerly awaiting the release of the full text of the Trans Pacific Partnership (TPP) agreement, but trade news sources say this is still several weeks away. My colleague Bill Watson has done a nice job with the one chapter, on intellectual property, that is available in mostly final form through a leak, but for the rest of the text, it is hard to say too much at this point.

But if we can’t talk much about substance yet, what we can talk about is the politics of the TPP: What are its chances in Congress?  The Obama administration has taken a somewhat creative approach to assembling a coalition from across the political spectrum in support of the TPP.

They have tried to appeal to free market conservatives by talking about how the TPP would involve “18,000 tax cuts,” in the form of lower tariffs on U.S. exports.

They have tried to bring in liberal support by calling it the “most progressive trade agreement in history.”

And some people have portrayed the TPP as having a security component, in order to bring security hawks on board.

But here’s a key question related to the first two: Can they bring in supporters without creating new opponents?  For example, with regard to the TPP’s “progressive” nature, the administration says the TPP would do the following on labor protections: “Require laws on acceptable conditions of work related to minimum wages, hours of work, and occupational safety and health.”  Focusing on the first one, what exactly would the TPP require with a minimum wage?  If it requires that all TPP countries have a minimum wage – either set at a particular level, or just having one at all – some Republicans in Congress might object.

With trade agreements these days addressing so many aspects of social policy, assembling a package of provisions that Congress will support is a challenge. Putting aside the substance, which we will get to once the text is released, the politics of the TPP are going to be very interesting.

In the Republican debate last night, former Gov. Mike Huckabee of Arkansas criticized calls for Social Security reform, saying “people paid their money. They expect to have it,” and that the country needs to honor its promises to seniors. There are problems with this line of argument: the Social Security payroll taxes a person pays are not tied to the benefits they receive in a legal sense, and the ‘promises’ made by Social Security are, and always have been, subject to change.

Congress has had the authority to alter Social Security since its inception. Section 1104 of The Social Security Act of 1935 explicitly says: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”

Not only does Congress have the right to make changes, it has done so multiple times in the past. Sometimes these changes are smaller things, like a technical correction to the indexation formula, but there were also larger reforms that were part of attempts to address the programs solvency issues.

The Supreme Court revisited the issue of Social Security’s promises in Flemming v. Nestor, in which Nestor, who had paid into Social Security for 19 years and begun to receive benefits, was then deported for previous ties to the Communist Party. Nestor tried to appeal the termination of his benefits, citing his previous contributions, but the Supreme Court upheld it, saying:

To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands… It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.

The other aspect Huckabee touches on is the link between the taxes paid in and the benefits a person ultimately receives, implying that a worker’s contributions are kept in some kind of silo to be paid out to them at a later date. As another Supreme Court case found, this is not true.

In Helvering v. Davis (1937)the Court held that Social Security was not a contributory insurance program in the sense that  “[t]he proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” Despite how Huckabee and his fellow defenders of the status quo describe the program, the payroll tax payments a person pays into Social Security have no direct link to the benefits that they receive in a legal sense: they  are subject to future changes made by Congress and dependent on the program having sufficient revenue.

Huckabee doesn’t need to familiarize himself with these decades-old Supreme Court cases or the Social Security Act to be able to understand the problems with his invocation of the program’s ‘promises’. Anyone, including Huckabee, can see this for themselves in the Social Security Statement that the Social Security Administration periodically sends to workers:

Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.

The ‘promises’ with Social Security always came with an asterisk, and beneficiaries are not entitled to a certain amount because they have contributed payroll taxes. In the past the law has been altered to change the deal facing beneficiaries, and there will undoubtedly have to be more changes in the future if Social Security is to remain viable. If we maintain the status quo and do nothing, benefits will have to cut by 23 percent across the board when the combined trust fund is exhausted in 2034. There can be disagreements about the best way to reform Social Security, but when it is facing trillions in unfunded obligations and the certainty of drastic cuts in the future absent reform, doing nothing is not a feasible option.

Technically, even though the negotiations are over, the TPP isn’t finished being drafted.  Lawyers are currently going over every inch of the agreement to make sure the negotiators’ intent is reflected effectively and accurately in the final text, which will presumably be released in the coming weeks.  However, Wikileaks has published what appears to be the fully negotiated, pre-scrub TPP chapter on intellectual property.  While the final text may have somewhat different language, the leaked version gives a clear picture of what the parties agreed to on a number of contentious IP issues.

I have been critical of the inclusion of IP rules in trade agreements generally and in the TPP in particular.  Trying to resolve contentious policy differences that are not strictly trade-related impedes the important and valuable work of trade agreements in lowering trade barriers and reducing harmful protectionism.  Moreover, trade negotiations are not the proper forum for devising complex patent and copyright systems, which if done poorly can have negative impacts on the rights of consumers and even hinder innovation. 

It would have been best if the TPP did not impose any obligations related to IP, but it will, so the task at hand is to evaluate the individual provisions.  While it’s tempting to judge TPP provisions as being good or bad policy on their face, it’s important to remember that the agreement does not exist in a vacuum.  What matters is whether and to what extent the TPP is going to impact national IP laws—that includes not only changes to the law but also restrictions on a legislature’s ability to change the law later. 

I offer three standards for judging individual IP provisions in the TPP.  These standards are U.S.-focused, but you could do the same analysis for any other country.

  1. Does the provision require a change in U.S. law?
  2. Does the provision impose a greater obligation than past U.S. trade agreements?
  3. Is the provision more strict than current global rules at the World Trade Organization?

The original negotiating position of the United States in the TPP included provisions that went beyond current U.S. law.  For example, U.S. negotiators wanted the TPP to require governments to limit copyright exhaustion to domestic sales, a rule that contradicts U.S. law’s global first sale doctrine.  U.S. negotiators were also pushing for rules that secured more protections than previous U.S. trade agreements to match recent changes in U.S. law, the most prominent example being 12 years of market exclusivity for biologic medicines.

The latest leak reveals, however, that the United States failed to secure any of these ambitious proposals.  In fact, the TPP’s IP chapter is by and large less onerous than the U.S.–Korea Free Trade Agreement, the most recent agreement negotiated by the United States before the TPP.  Many provisions are less detailed and more flexible than their counterparts in the last agreement.  I suspect this outcome is due in large part to the fact that the TPP has 12 members, many of whom do not want to reform their IP regimes.

But while the TPP’s IP chapter is apparently not going to impose any new international obligations on the United States, many of its provisions go beyond what is required under the rules of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and so other TPP members will have to change their laws.  The most notable example of a TRIPS-plus requirement in the TPP is the provision mandating that copyrights last for 70 years after the author’s death.  That is twenty years longer than the TRIPS requirement, so a number of TPP members—including Canada, Japan, and New Zealand—will have to extend copyright duration retroactively, keeping many very old works from entering the public domain for another two decades. 

The IP chapter is just one of many components of the TPP that will need to be evaluated to determine whether the entire agreement is net liberalizing and therefore worth doing.  Everyone should wait until the final text of the entire deal is available before making that determination.

It’s been a day since the disappointing “Nation’s Report Card” results came out, and it has given me a chance to crunch some numbers a bit. They don’t tell us anything definitive – there is a lot more that impacts test scores than a policy or two – but it is worth seeing if there are any patterns that might bear further analysis, and it is important to explore emerging theories.

Not surprisingly, while many observers have been rightly hesitant to make grand pronouncements about what the scores mean, some theories revolving around the Common Core have come out. The one I’ve seen the most, coming from people such as U.S. Secretary of Education Arne Duncan and Karen Nussle of the Core-defending Collaborative for Student Success, is that the Core will bring great things, but transitioning to it is disruptive and we should expect to see short-term score drops as a result.

That is plausible, and we can test it a bit by looking at the performance of states (and the Department of Defense Education Activity) that have demonstrated some level of what I’ll call Core aversion. Those are states that (1) hadn’t adopted the Core at the time of the NAEP test; (2) had adopted but had moved away by testing time; and (3) were still using the Core at test time but officially plan to move away. They are broken down in the following table, which uses score changes in the charts found here:

What we see in the highlighted area is that, with the exception of eighth grade math scores for states that will be departing the Core but were still in it as of NAEP testing, average score changes were better in all four testing categories for Core-averse states than the national average.

That the states that never adopted the Core outperformed the average could indicate that the disruption theory is correct: foregoing the transition to the Core enabled better performance. Of course, it could also be that the Core standards are less effective at boosting NAEP scores than what Core-averse states are using. Or that those states had better economies over the last two years. Or many other possibilities.

The problem for the disruption theory is that the states that adopted the Core but then dropped it likely underwent greater disruption than states that have been consistently working on the Core. Indeed, Michael Petrilli of the Core-supporting Fordham Institute said that Oklahoma was plunged into “chaos” when it abandoned the Core in May 2014. Yet the Core-dropping states performed better than the national average. It is also likely that the two states that announced they would be leaving the Core but were still in it as of the time of the NAEP testing – Missouri and South Carolina – experienced greater disruptions than consistent Core states.

Of course more, much deeper analysis of the NAEP data – and more iterations of the test – will be needed to reach any firm conclusions about the Core’s effects. But the disruption theory already seems to be in a bit of trouble.

The tax-reform landscape is getting crowded.

Adding to the proposals put forth by other candidates (I’ve previously reviewed the plans offered by Rand Paul, Marco RubioJeb Bush, Bobby Jindal, and Donald Trump), we now have a reform blueprint from Ted Cruz.

Writing for the Wall Street Journal, the Texas Senator unveiled his rewrite of the tax code.

…tax reform is a powerful lever for spurring economic expansion. Along with reducing red tape on business and restoring sound money, it can make the U.S. economy boom again. That’s why I’m proposing the Simple Flat Tax as the cornerstone of my economic agenda.

Here are the core features of his proposal.

…my Simple Flat Tax plan features the following: • For a family of four, no taxes whatsoever (income or payroll) on the first $36,000 of income. • Above that level, a 10% flat tax on all individual income from wages and investment. • No death tax, alternative minimum tax or ObamaCare taxes. • Elimination of the payroll tax and the corporate income tax… • A Universal Savings Account, which would allow every American to save up to $25,000 annually on a tax-deferred basis for any purpose.

From an economic perspective, there’s a lot to like. Thanks to the low tax rate, the government no longer would be imposing harsh penalties on productive behavior. Major forms of double taxation such as the death tax would be abolished, creating a much better environment for wage-boosting capital formation.

And I’m glad to see that the notion of a universal savings account, popularized by my colleague Chris Edwards, is catching on.

Moreover, the reforms Cruz is pushing would clean up some of the most complex and burdensome sections of the tax code.

But Cruz’s plan is not a pure flat tax. There would be a small amount of double taxation of income that is saved and invested, though the adverse economic impact would be trivial because of the low tax rate.

And the Senator would retain some preferences in the tax code, which is somewhat unfortunate, and expand the earned income credit, which is more unfortunate.

It maintains the current child tax credit and expands and modernizes the earned-income tax credit… The Simple Flat Tax also keeps the current deduction for all charitable giving, and includes a deduction for home-mortgage interest on the first $500,000 in principal.

But here’s the part of Cruz’s plan that raises a red flag. He says he wants a “business flat tax,” but what he’s really proposing is a value-added tax.

…a 16% Business Flat Tax. This would tax companies’ gross receipts from sales of goods and services, less purchases from other businesses, including capital investment. …My business tax is border-adjusted, so exports are free of tax and imports pay the same business-flat-tax rate as U.S.-produced goods.

His proposal is a VAT because wages are nondeductible. And that basically means a 16 percent withholding tax on the wages and salaries of all American workers (for tax geeks, this part of Cruz’s plan is technically a subtraction-method VAT).

Normally, I start foaming at the mouth when politicians talking about value-added taxes. But Senator Cruz obviously isn’t proposing a VAT for the purpose of financing a bigger welfare state.

Instead, he’s doing a swap, imposing a VAT while also getting rid of the corporate income tax and the payroll tax.

And that’s theoretically a good deal because the corporate income tax is so senselessly destructive (swapping the payroll tax for the VAT, as I explained a few days ago in another context, is basically a wash).

But it’s still a red flag because I worry about what might happen in the future. If the Cruz plan is adopted, we’ll still have the structure of an income tax (albeit a far-less-destructive income tax). And we’ll also have a VAT.

So what happens 10 years from now or 25 years from now if statists control both ends of Pennsylvania Avenue and they decide to reinstate the bad features of the income tax while retaining the VAT? They now have a relatively simple way of getting more revenue to finance European-style big government.

And also don’t forget that it would be relatively simple to reinstate the bad features of the corporate income tax by tweaking Cruz’s business flat tax/VAT.

By the way, I have the same specific concern about Senator Rand Paul’s tax reform plan.

My advice to both of them is to ditch the VAT and keep the payroll tax. Not only would that address my concern about enabling the spending proclivities of statists in the future, but I also think Social Security reform is more feasible when the system is financed by the payroll tax.

Notwithstanding my concern about the VAT, Senator Cruz has put forth a plan that would be enormously beneficial to the American economy.

Instead of being a vehicle for punitive class warfare and corrupt cronyism, the tax code would simply be the method by which revenue was collected to fund government.

Which gives me an opportunity to raise an issue that applies to every candidate. Simply stated, no good tax reform plan will be feasible unless it’s accompanied by a serious plan to restrain government spending.

The budget agreement between congressional leaders and the Obama administration would break prior budget caps and increase spending over the next two years by $80 billion. The Bipartisan Budget Act (BBA) of 2015 would theoretically offset that cost with savings down the road, but promises of future savings are worth little given that GOP leaders have shown they will break agreed-to restraints whenever the time comes. The Heritage Foundation is right that the deal is a “colossal step” in the wrong direction and “does nothing to reduce the size and scope of government.”

If passed, the deal would undermine a crucial GOP policy plank going into 2016. The issue that unifies all the Republican presidential candidates is the promise of major tax cuts for individuals and businesses. It has been heartening to see so many candidates proposing pro-growth cuts. The Tax Foundation has run the numbers on the plans, and nearly all of them would generate revenue losses for the government and savings for the people.

I’m all for a large tax cut, but how do Republicans plan on passing such a cut if they keep increasing spending? The next president will be confronted with very ugly budget numbers looking forward, thanks partly to the bipartisan profligacy of recent years. Coming into office in 2017, the new president will see deficits exploding to more than $1 trillion by the early 2020s, and $8 trillion more in debt projected to be piled up over the coming decade.   

The best pro-growth tax cuts should be enacted regardless of the deficit situation. In particular, a permanent corporate tax rate cut would generate strong economic growth and would not increase the long-term deficit because the corporate tax base is so dynamic. But to cut taxes, the next president will have to convince enough members of Congress to go along, and the higher are spending and deficits, the harder it will be to get moderates on board.

By repeatedly caving into President Obama, Republican leaders are undermining the ability of the next president, if a Republican, to follow though on major tax reforms and stronger economic growth.

The chart below shows total federal spending on programs, and excludes spending on interest, which has been abnormally low in recent years. While current spending is down from the stimulus peak of 2009, it is still substantially above spending during the Bush years, which in turn was substantially above spending during the Clinton years. With the new budget deal, non-interest spending will be about 19.9 percent of gross domestic product (GDP) in 2016, up more than two percentage points from the Bush years.

That may not sound like much, but two points of GDP is about how much the government collects in corporate income taxes each year. If Obama and the Republicans hadn’t splurged on spending in recent years, we would have had the budget room to completely abolish the corporate income tax—a reform that would generate a powerful boom and rising prosperity for all Americans.

Rising spending matters because it damages the economy. But it also matters because it balloons deficits and makes desperately-needed tax reforms more difficult.    



Data note: the 2009 spending spike was not quite as high as shown because recorded TARP spending did not materialize.

Today, China abandoned its 35-year-old one-child policy. Based on the now debunked threat of overpopulation that was popularized by Stanford University scholar Paul Ehrlich, the communist government subjected the Chinese people to forced sterilizations and abortions. Many newborn babies were either killed or left to die. Today, the Chinese population suffers from a dangerous gender imbalance that favors boys over girls at a ratio of 117:100, and a demographic implosion that threatens future economic growth and prosperity. In fact, as Human Progress advisory board member Matt Ridley shows in his book The Rational Optimist, population growth and economic expansion go hand in hand. The horrific consequences of the Chinese one-child policy are a reminder of what happens when governments are allowed to interfere in the deeply personal decisions of individual citizens and their families.

For decades, discriminatory housing policies in the U.S. restricted the ability of black citizens to purchase homes outside of predominantly black ghettos. From the 1950s through the 1970s, real estate speculators called “blockbusters” made some progress opening up white-only neighborhoods to black families until an odd coalition of segregationists and left-wing activists succeeded in regulating blockbusters out of existence. Tragically, the U.S. housing market has remained largely segregated even until today. Moreover, because a family’s access to a quality education is determined primarily by the location of their home, black children are disproportionately assigned to low-performing district schools, depriving them of opportunity. 

Sadly, misguided suspicions about the market led left-wing leaders to support paternalistic regulations that harmed the very people they intended to help – a disastrous mistake that many modern progressives are now repeating in education policy.

In a recently updated version of his 1998 paper, “A Requiem for Blockbusting,” Dmitri Mehlhorn of the Progressive Policy Institute details the sordid history of discriminatory housing policy in the U.S. When Southern agricultural jobs dried up in the early 20th century, black workers began migrating to the industrial North. The response was ugly:

White Americans mostly reacted to this migration with coordinated and violent hatred. Driven by xenophobia, they used physical, political, and economic power to drive blacks into strictly circumscribed ghettos. The ugliness was a team sport, including local governments, state and federal agencies, courts, businesses, and the media.

At the federal level, the Federal Housing Administration encouraged racial covenants, stating that they “provide the surest protection against undesirable encroachment and inharmonious use.” These covenants contractually prohibited homes from being resold to black families. By the 1940s, integrated neighborhoods had ceased to exist in every major city in the United States.

The U.S. Supreme Court eventually ruled against racial covenants in housing, but racists found workarounds. As Mehlhorn details:

For instance, both federal and local agencies encouraged white flight by steering resources to whites seeking segregated suburban houses and schools, while cutting those resources for black families. So-called “urban renewal” laws were used to raze expanding black neighborhoods that threatened white institutions. Federal funds were used to construct massive public housing projects for the displaced black residents.

We are still feeling the effects of these discriminatory policies today, particularly in education, which is intimately linked with housing policy. According to a 2012 study by the UCLA Civil Rights Project, “80% of Latino students and 74% of black students attend majority nonwhite schools (50-100% minority), and 43% of Latinos and 38% of blacks attend intensely segregated schools (those with only 0-10% of whites students) across the nation.”

In the 1950s, “blockbusters” began selling homes in white areas to black families in violation of industry norms because they could charge blacks significantly higher prices. As Mehlhon details:

From the 1950s onward, for roughly two decades, blockbusters bought low, sold high, and moved housing supply from whites to blacks at an accelerating pace. By 1962, when blockbusting had been in existence for barely a decade, Chicago alone had over 100 operators. For a time, blockbusters around the country were on pace to destroy the price differential between white and black housing markets, making housing much more widely available for African Americans.

But make no mistake, these men were hated.

It’s easy to understand why segregationist whites hated the blockbusters, whom the segregationists accused of being race traitors perpetrating “communicide.” The reason progressives joined with the segregationists in supporting laws against blockbusting is more complicated. Progressives believed blockbusting entailed an “unconscionable exploitation of minority groups” for profit because blockbusters regularly charged blacks higher prices than whites. Congress responded by passing a series of regulations restricting blockbusting and in 1969, a federal court ruled that any black homebuyer could invalidate his property and finance contracts if he could demonstrate “that he was charged more than a white person would have been charged or that he received less favorable terms and conditions than would have been given to a white person.” On its face, that seems sensible. But practically, as Mehlhorn shows, these regulations and rulings preserved segregation:

Thus, by the early 1970s, any real estate agent who wished to sell a home to a black family faced enormous legal liabilities. If any clients alleged that their contractual terms were not identical to the terms a white family might have obtained, they would have an automatic cause of action in federal court to challenge the contracts. If a client asked about changing racial demographics, the agent would either have to decline to answer, or could be subjected to substantial civil and criminal penalties. Given the realities of the racially segregated markets of the time, the only safe way to avoid these lawsuits was to adhere to the prior professional code of racial steering: buy and sell homes only within a single race.

Blockbusters charged blacks higher prices but, as Mehlhorn explains, they also bore significantly higher risks and costs. “By dealing with blacks, blockbusters earned the social sanctions of the segregationist era, including boycotts, local government sanctions, and even death threats.” At the time, “banks would not lend to blacks and whites would not sell to blacks” so, Mehlhorn concludes, “Without the profits available from blockbusting, the real estate and finance industries might not have been willing to alienate their racist white customer base by dealing with blacks, or at the very least might have slowed their activities. The profits available to blockbusters were the biggest driver of support for black homebuyers during this period.” By eliminating those profits, well-intentioned activists eliminated blacks’ only promising avenue to escape the ghetto and live in middle-income communities.

Given all of these problems, it seems astonishing that progressive elements of society supported the anti-blockbusting movement. The problem appears to be that progressives lacked economic savvy, and in fact were openly hostile to market mechanisms. This hostility blinded them to the needs of individual blacks and allowed them to accept destructive policies. […]

The first way that blacks suffered from this bias by their leaders was at the individual level. Prior to anti-blockbusting laws, blacks had the choice of whether or not to patronize blockbusters. By the millions, blacks indicated that their preference was for blockbusting. The anti- market, anti-blockbusting progressives, however, refused to accept that choice as legitimate, and thus enacted laws that prevented blacks from acting upon these preferences. Perhaps some progressives genuinely felt that the decisions to patronize the blockbusters were the result of market distortions such as fraud. Others, however, refused even to accept the possibility that market mechanisms can empower individuals and reveal preferences.

Fear and misunderstanding about profit and market mechanisms also drives much of the modern left’s opposition to school choice. Even more prevalent is the concern that by choosing a better education for their children, parents who accept vouchers or tax-credit scholarships or enroll their children in charter schools thereby deprive traditional district schools of funding. The left’s solution, therefore, is to deprive families of that choice – and those families are disproportionately low-income minorities

Take, for example, the case of Washington D.C.’s Opportunity Scholarship Program (OSP). Nearly all of the OSP voucher recipients are black or Hispanic and a gold-standard study of the program found that it increased high school graduation rates by 12 percentage points. As the study’s lead researcher notes, this finding is important because “high school graduation is strongly associated with a large number of important life outcomes such as lifetime earnings, longevity, avoiding prison and out-of-wedlock births, and marital stability.” Moreover, Congress intentionally funded the OSP separately from the district schools to shield them from any fiscal impact. Yet although 74 percent of D.C.’s mostly black residents support the OSP, all but two Democrats in Congress voted against the OSP’s reauthorization last week.

D.C.’s non-voting member of Congress, Eleanor Holmes Norton, condemned the voucher program as Speaker John Boehner’s “pet project” and argued that “D.C. residents, not unaccountable members of Congress, know best what our children need and how to govern our own affairs.” However, by “our own affairs” Norton appears to be referring to government officials rather than individual residents and families. Norton’s language betrays the progressive inclination to celebrate democratic decision-making while dismissing decisions made in a market, a tendency that Mehlhorn detected in the progressive opposition to blockbusting:

One court made this argument explicitly, holding that blacks should be forced to express their preferences through political, instead of market, mechanisms. According to this court, the availability of housing from blockbusters actually reduced the likelihood of true justice, “by offering the long-oppressed black an unattractive yet alternative choice to that of a confrontation for equal buyers’ rights in a white neighborhood.” The explicit articulation of the court’s anti-market bias allows us to explore its moral and empirical flaws. At face value, the court’s argument seems brutal. After all, the court appears to be agreeing that individual blacks would choose blockbusters over political confrontation. Nonetheless, the court refuses to allow them that option, preferring to force them to take political action. In addition to moral problems with overtly removing decision-making power from blacks, the court’s logic has little empirical grounding. The court fails to consider the speculative nature of the eventual political relief, or the costs that would be imposed by delay while blacks waited for political reform to take effect. Moreover, it is not clear how making blacks desperate would have enhanced their ability to influence the all-white power-brokers of city government.

One hears echoes of these arguments in the claims of some modern leftists that–using Albert O. Hirschman’s lexicon–giving families an “exit option” (the ability to leave a school that isn’t working for them) undermines their exercise of “voice” (advocating for change) within in a school. However, this is an empirically testable hypothesis and it has been tested repeatedly. Of 23 studies on the impact of competition on district schools, 22 found a modest but statistically significant positive impact on student outcomes and one found no detectable difference. None found harm.

Indeed, the ability to leave may well enhance the ability of and propensity for parents to advocate change within their schools. Hirschman himself later realized that “opening up of previously unavailable opportunities of choice or exit may generate feelings of empowerment in parents, who as a result may be more ready than before to participate in school affairs and to speak out.” When administrators who know that parents have other options, they are more likely to pay attention to their concerns. And when parents see that the administration takes their concerns seriously, they’re more likely to speak up. Choice, therefore, benefits not only those who choose to leave it but also those who choose to stay.

Moreover, despite fears to the contrary, numerous studies have found that school choice improves integration. As Dr. Ben Scafidi details in a Friedman Foundation study released yesterday, school choice policies have a better track record of promoting integration than government efforts. Sadly, it is too often the case that “government restrictions on the choices of African Americans and of low-income families leads to a more segregated society.”

The market is not the enemy of social justice. As Mehlhorn observes, “Markets allow an expression of preferences, including in some circumstances the preferences of society’s worst-off.” The best way for policymakers to foster integration and remedy historical wrongs against minorities is to empower minorities to make decisions in their own best interests rather than to presumptuously make decisions for them. 

To learn more about the impact of housing policy on access to quality education, watch the recent Cato Institute event, “Race, Housing, and Education”:

There’s big news in the crowdfunding world. The Securities and Exchange Commission (SEC) announced that they are (finally) voting on final rules Friday that would make investment crowdfunding legal.

Other types of crowdfunding — funding a venture with small amounts of money solicited from a large group of people — have been around for a while. The biggest crowdfunding site has even seen its name become a verb – as in “we’re Kickstarting our indie film.” And while one typically thinks of crowdfunding as a creature of the Internet, the concept has a long history. The Statue of Liberty stands in New York Harbor because of a successful crowdfunding effort, although in those days they called it taking subscriptions for donations, and the campaign was done door-to-door and not, of course, online.

But crowdfunding has been limited legally. Organizations raising money through crowdfunding, including for-profit corporations, have been restricted in what they can give in exchange for funds provided through online solicitations. Things like t-shirts have been popular thank-you gifts, while creators of innovative products, like the Pebble Watch, have offered pre-sales of their coveted inventions.

But offering any kind of return on investment, including the opportunity to buy a piece of the company, has been off limits. That’s because securities offered for sale in the U.S. must be registered with the relevant regulators, including the SEC and any state regulator in the states in which the securities will be offered. Any offering that deviates from this rule must fall under one of the laws’ exemptions. For example, there is an exemption that can apply when an issuer sells only to accredited investors (broadly speaking, institutional investors and wealthy individuals). Until now, there hasn’t been an exemption for crowdfunding.

In 2010, some entrepreneurs began thinking about an exemption for investment crowdfunding. They wanted to allow regular people to invest small amounts of money either in start-ups or in small businesses, such as a local coffee shop, without requiring the start-up or small business to register with the regulators. The fact is that registering an offering with the SEC is extremely time-consuming and expensive. When companies register an offering for the first time — that is, when the company has its initial public offering or IPO — it’s a big deal. The local coffee shop is not going to do an IPO to raise $100,000 for a renovation; nor is a start-up going to use an IPO to get seed money.

In the wake of the financial crisis, there was broad concern about capital access for small companies. In early 2012, Congress passed the Jumpstart Our Business Start-ups (JOBS) Act with wide-spread bi-partisan support, passing 390 to 23 in the House and 73 to 26 in the Senate. Among other provisions, the Act included a new crowdfunding exemption in securities law. Reactions in some corners of the start-up world could not have been more enthusiastic: investment crowdfunding would “change the world.” But the new exemption required implementing regulation, and although the Act ordered the SEC to issue rules by the end of 2012, no rules were forthcoming. In October 2013, the SEC finally issued proposed rules, but those proposed rules sat untouched for two years.

Finally, with Friday’s vote, the SEC will likely finalize the rules, dubbed Regulation CF, making investment crowdfunding legal.

I doubt, however, that the world will change because of Regulation CF.

The problem is that Regulation CF is really not very new. It’s an exemption built into the regulatory framework created through the Securities Act and Securities Exchange Act in the mid-1930s. Even though legislators clearly attempted to create a workable exemption in the JOBS Act, the process was fraught with concern about investors losing all their money through risky start-up investments. The legislation includes limits on how much any one investor can invest in crowdfunding in any given year — ranging from $2,000 or less for lower and middle income investors, to $10,000 for people with incomes over $100,000.

Even this limit was deemed insufficient to fully protect retail investors. So other features of public offerings (those that are registered with the SEC pursuant to an IPO or later offering) were incorporated into the crowdfunding exemption both in the JOBS Act itself and in proposed Regulation CF. For example, crowdfunding issuers must both make a number of disclosures about the business and its financial status to the SEC (and the public) and make annual disclosures for as long as the crowdfunding securities remain outstanding, or the company goes out of business. Additionally, under proposed Regulation CF, issuers must follow U.S. Generally Accepted Accounting Principles (GAAP) in preparing their financial statements. Among other things, GAAP requires accrual-based accounting, but most small businesses use the simpler cash-based accounting method. There are reasons to use accrual-based accounting for larger businesses, but it’s not clear that financial statements prepared in accordance with GAAP provides much benefit for investors in small businesses.

The crowdfunding exemption, both as it’s written in the JOBS Act and as the SEC proposes implementing it, is built on several assumptions that underlie the federal securities laws. While some of these assumptions may be appropriate for the kinds of companies the SEC typically regulates — the large public companies — it’s not clear they apply to the small companies the crowdfunding exemption was designed to support. Crowdfunding is supposed to be a simple process, one that an issuer could navigate without expensive assistance from accountants and lawyers. Under the proposed rules and underlying legislation as they are currently written, most issuers will likely need help. With the $1 million cap on how much a company can raise through selling securities through crowdfunding, it’s unlikely that many issuers will find the process worth the expense.

Fortunately, the JOBS Act included other provisions, many of which have already begun to help companies access capital. There is no reason why investment crowdfunding should not exist; it’s just unlikely that many issuers will find it useful without significant changes to the underlying legislation, something no rules from the SEC can fix. And investment crowdfunding is almost certainly not going to change the world.

[Cross-posted from Alt-M.org]

That’s the title of my Forbes oped today, following on some comments this weekend from the man that some polls show has taken over from Donald Trump as the new Republican frontrunner in the race for the White House. Before you can even begin to analyze how a president would go about changing abortion jurisprudence, however, you first have to understand what that jurisprudence says:

… Roe isn’t even the governing legal precedent regarding abortion—and hasn’t been for over two decades, since the Supreme Court’s ruling in Planned Parenthood v. Casey (1992). While Roe recognized a right to abortion as part of constitutional privacy protections, it set up a trimester framework to balance that right against the governmental interest in protecting the “potentiality of human life.” First-trimester abortions were to be at the complete discretion of the woman and her doctor, states could ban third-trimester abortions, and there was a gray area in the middle.

Casey collapsed that framework, upholding Roe’s “essential holding” about the abortion right but replacing the trimester framework with one that focused on viability. No regulations that placed an “undue burden” on the abortion right would be allowed before viability, while after viability states had more leeway so long as they made exceptions for maternal life and health. What constitutes an “undue burden”? In effect, it’s whatever you can get five votes for at the Supreme Court.

In other words, if you’re pro-life, returning to a world where Roe v. Wade is the law of the land would actually be an improvement over the current situation.

I go on to examine the institutional dynamics of trying to change the Supreme Court – which has some application to debates beyond abortion, though I doubt potential nominees’ (assumed) positions even on such controversial recent cases as HellerCitizens UnitedShelby County, and NFIB v. Sebelius, would play as large a role in the political battle. In any event, to see my further analysis of the Carson conundrum, read the whole piece.

Back in June, I detailed a study by the Violence Policy Center that purported to show that private gun owners were far more likely to kill innocent people than to defend themselves.  The study arrived at this conclusion by using woefully incomplete data sets from the FBI crime reports, which are voluntarily submitted (or not submitted) by law enforcement agencies.  You can read my full analysis here, but the short version is that the VPC study interprets the lack of justified homicide submissions by law enforcement as proof that justified homicides do not occur, resulting in an unbelievable assertion that there were literally zero defensive gun uses in dozens of states over a five year period.  The VPC study also fails to distinguish between legal and illegal firearm uses and fails to adequately consider defensive gun uses that didn’t result in anyone dying (i.e. the vast majority of such uses).

This week the New York Times editorial board regurgitated that shoddy study, and managed to compound the illogic by drawing even broader and less supported conclusions than the original.  The op-ed is brief, yet still manages an impressive amount of specious reasoning.

From the top:

The more that sensational gun violence afflicts the nation…

Gun homicide rates have been decreasing for the last generation, a fact as little known as it is demonstrably true.

This foolhardy notion of quick-draw resistance, however, is dramatically contradicted by a research project showing that, since 2007, at least 763 people have been killed in 579 shootings that did not involve self-defense.

Those numbers are not from the study linked by the Times, which analyzed all private firearm deaths regardless of legality.  Instead they come from the VPC website itself, on a page about concealed carriers.  Of that 763 figure, 223 were suicides, which hardly seem relevant to a discussion about gun crime in America. 

That leaves 540 non-suicide fatalities between May 2007 and October 2015, or fewer than 64 deaths a year.  Just for comparison’s sake, roughly 49 people a year are killed by lightning strikes in this country, without lightning strikes being labeled “a severe public health problem” by the New York Times.

The figure is also useless without a full accounting of legitimate defensive gun uses on the other side of the ledger, an effort neither the VPC nor the Times seems interested in making.

Tellingly, the vast majority of these concealed-carry, licensed shooters killed themselves or others rather than taking down a perpetrator.

The death toll includes 29 mass killings of three or more people by concealed carry shooters who took 139 lives; 17 police officers shot to death, and — in the ultimate contradiction of concealed carry as a personal safety factor — 223 suicides.

The attempt to connect concealed carry rights to gun suicides is incoherent. There is nothing about a permit to carry a handgun in public that would make it easier to kill yourself with one. A person can typically purchase and possess a handgun (and commit suicide with it) without a concealed carry permit.  Access to handguns has nothing at all to do with the right to carry concealed in public, and the Times makes no effort to establish why suicide prevalence is remotely relevant to concealed carry policies.

The tally by the Violence Policy Center, a gun safety group, is necessarily incomplete because the gun lobby has been so successful in persuading gullible state and national legislators that concealed carry is essential to public safety, thus blocking the extensive data collection that should be mandatory for an obvious and severe public health problem. For that reason, the center has been forced to rely largely on news accounts and limited data in 38 states and the District of Columbia.

More complete research, unimpeded by the gun lobby, would undoubtedly uncover a higher death toll. But this truly vital information is kept largely from the public. A Gallup poll this month found 56 percent of Americans said the nation would be safer if more people carried concealed weapons.

The VPC study cited by the Times utilizes FBI Universal Crime Reports for its data.  The Times makes no effort to explain how the “gun lobby” is responsible for the failings of the FBI UCR system, which also collects utterly inadequate data, for instance, on police killings of civilians.  The UCR system was never meant to be a database of justified gun uses.  Its purpose is to aggregate national data on crimes, not non-crimes. The decision to rely on this incomplete data alone is an error in the VPC study and the Times’ reliance on it, not evidence of some conspiracy between the government and gun rights activists.

For instance, the VPC and the Times could have instead referred to a CDC study commissioned by the Obama Administration (which cannot seriously be depicted as in the thrall of the “gun lobby”) which acknowledged thousands of defensive gun uses every year and found that armed victims were better off than unarmed ones (p. 15).

Further, the implication that gun rights activists are opposed to finding out how often guns are used in self-defense is simply bizarre.  Criminal homicides tend to be reported to and by law enforcement. There is little reason to believe that there is an epidemic of unreported gun murders by concealed carriers in this country, and the Times makes no effort to establish one. Defensive gun uses, on the other hand, often do not generate police reports, submissions to the FBI, or news stories.  It’s awfully difficult for the media to report when an attack or a robbery doesn’t occur because of a defensive gun use.

Contra the claim that proponents of gun rights are attempting to obfuscate data about defensive gun uses, the Cato Institute studies and databases such uses, as does the NRA, and as do several other gun rights organizations. 

Regarding the alleged obfuscation, the editorial links to a previous Times article that asks three questions:

Are communities where more people carry guns safer or less safe?

There seems to be no correlation between state gun laws and state homicide rates, while a nationwide liberalization of concealed carry laws has accompanied a steady decline in the national gun homicide rate.  Correlation, of course, is not causation, but the data fly in the face of the suggestion that concealed carry laws generate a “severe public health problem” of gun crime.

Does the availability of high-capacity magazines increase deaths?

The 1994 Federal Assault Weapons Ban, which included a ban on high-capacity magazines, mandated a post-expiration study which concluded (p. 78-79) that the ban had no discernible impact on the  use of high-capacity magazines in crime.  The availability of high-capacity magazines, especially for criminals who utilize the black market for weapons, does not seem to be affected by policies banning them.

Do more rigorous background checks make a difference?

While there are many reasons for the inefficacy of background checks, this question is irrelevant to the concealed carry debate, as anyone whose record prohibits them from passing a background check would also deny them the protection of concealed carry laws.

In other words, just as there is plenty of data in circulation suggesting far more defensive gun uses than the Times admits, the questions they demand answers to, and condemn gun rights supporters for refusing to answer, have already been answered. 

As for the polling data, the fact that a majority of Americans support concealed carry rights in the face of such disingenuous tactics by anti-gun organizations is a testament to Americans’ commitment to the principle of self-defense.

Clearly, concealed carry does not transform ordinary citizens into superheroes. Rather, it compounds the risks to innocent lives, particularly as state legislatures, bowing to the gun lobby, invite more citizens to venture out naïvely with firearms in more and more public places, including restaurants, churches and schools.

College campuses are the latest goal for the gun lobby — a perverse marketing campaign after the gun massacre that took 10 lives this month at a community college in Oregon.

After failing to utilize any of the available resources on defensive gun uses, the Times simply declares that they “clearly” do not occur at all. Yet all of the above-mentioned databases and studies show that regular citizens regularly use firearms to defend themselves and others around them from criminals.

Yes, in restaurants.

Yes, in churches.

Yes, in schools.

Yes, on college campuses.

Defensive gun use is not a myth, it’s an everyday reality.

The hallmarks of an irrational devotion to a myth are the use of irrelevant evidence, conclusions that do not follow from the available data, the insistence that absence of proof must be proof of absence, and an appeal to wild, incoherent conspiracies to explain why your premises and conclusion do not match.

Advocates for gun rights have no need for such tactics, nor do the more reasonable opponents of gun rights, but the same obviously cannot be said for the New York Times.

For months, the United States has contemplated launching a series of naval patrols in the South China Sea.  Pentagon leaders are especially determined to defy China’s position that building “reclaimed” or artificial reefs and islands also creates rights to new territorial waters surrounding those entities.  On October 27, the Navy sent the guided-missile destroyer USS Lassen on a “freedom of navigation” patrol within 12-miles of a man-made island in the Spratly chain.  That action triggered an immediate outburst, with China’s Foreign Ministry admonishing the United States to “immediately correct its mistake and not take any dangerous or provocative acts that threaten China’s sovereignty and security interests.”

Washington’s action is a dangerous escalation of already worrisome tensions in the South China Sea.  It is understandable that, as the world’s leading maritime power, the United States is unwilling to accept Beijing’s extremely broad territorial claims in that body of water.  The full extent of China’s claims would cover nearly 90 percent of the South China Sea.  U.S. officials stress the importance of the sea lanes that pass through the area.  They note that some $5 trillion in oceanic commerce is involved, and that unimpeded navigation is especially crucial to the trade and overall economies of Japan, South Korea, Australia, and other U.S. allies in East Asia.

The importance of continued free navigation in the South China Sea is obvious, but two points are relevant.  First, China has made no credible threat to disrupt the trade routes.  Indeed, given China’s vast stake in international trade, threatening trade flows in any region would be risky to the point of self-destructive folly.  Second, one has to ask why the United States is expected to take the lead in dealing with this issue.  A Reuters article notes that “U.S. allies such as Japan and Australia, are unlikely to follow with their own direct challenges to China, despite their concerns over freedom of navigation along vital trade routes.”

If China truly poses a threat to trade routes that are so essentiall to countries in the immediate neighborhood, why aren’t those countries initiating naval patrols to challenge Beijing’s claims?  Why is the United States, whose homeland lies thousands of miles away, the only challenger?  The answer is that such reticence by the East Asian countries continues a long-standing habit of free riding on U.S. security exertions.  That is never going to change unless and until Washington conveys the message to those countries that the United States is through bearing the expense and incurring the risks of dealing with matters that are (or at least ought to be) far more important to them than to us.

The trajectory of U.S. policy in the South China Sea creates a crisis atmosphere and entails the grave risk of a direct military confrontation with China.  The potential benefits flowing from an aggressive U.S. policy are, at most, quite modest.  China’s East Asian neighbors should not be allowed to stand on the sidelines while Washington does their dirty work for them.

In his Cato Online Forum essay, Georgetown University law professor Joost Pauwelyn deftly rebuts some of the central – but, as you will be convinced, outdated – objections to the Transatlantic Trade and Investment Partnership. Joost’s essay supports two main points:

First, the Transatlantic Trade and Investment Partnership (TTIP) is less of a threat to multilateral trade than were first generation free trade agreements (FTAs), which involved a proliferation of preferential tariff treatment.  And second, unlike these shallow FTAs, deep FTAs – such as TTIP – force us to re-think the operating system of the World Trade Organization (WTO).

Thoughout his presentation, Pauwelyn challenges certain long-held assumptions about the trade-diverting effects of preferential trade agreements, making a compelling case for why TTIP is a different animal.  He also exposes some of the conventional wisdom and calls into question some of the purist gospel about the need for WTO primacy, arguing that its role should be diminished and more focued.

Read Joost’s essay here.

Read the other essays published in conjuction with the Cato TTIP conference here.

Take a look at how markets and technology are taking on some of society’s biggest problems and revolutionizing the way we live. 

Nanotech and clean drinking water 

The World Economic Forum recently reflected on nanotechnology’s potential to improve people’s lives by providing smaller yet more powerful batteries, and by speeding up the purification process for air and water, among other things. Nanotechnology could deliver clean drinking water to millions of people who currently lack it, furthering the current positive trend. Around 10 percent of the global population lacks clean drinking water, down from around 20 percent in 1990.

Telemedicine and elderly care 

Lifespans are rising. As a result, elderly populations in developed countries are growing, and their need for medical care is increasing. Both Politico and the Huffington Post recently commented on how telemedicine may be poised to help make medical care more widely available and cost-efficient for the elderly. Some benefits of a virtual visit to the doctor include allowing aging patients to avoid the strain of a physical trip to the doctor’s office, communicate better with their doctors as they are more relaxed in their home environment, and even remember medical advice more accurately. 

Eye-scanners and money transfers 

The Wall Street Journal reported that eye-scanning ATMs will soon be available. Citigroup will roll out eye-scanning ATMs first, while J.P. Morgan Chase and Bank of America are still in earlier phases of internally testing eye-scanning technology. Credit cards once represented a huge innovation in how people transferred money, but the future may be card-less, with credit card swipes supplanted by quick biometric scans. Eye-scanning technology could simultaneouslyincrease the security and lessen the hassle of monetary transfers. 

Data and precision agriculture 

Robots, smart tractors, sensors and big data hold the potential to increase agricultural profits, while lessening negative environmental impact. Technological innovation is key to increasing yields per unit of land and decreasing emissions and erosion—all areas in which we are already seeing positive trends. Some specific examples of precision agriculture include using sensors to monitor weather and crop moisture levels, as well as to identify crop diseases early on. In the words of HumanProgress.org advisory member Jesse H. Ausubel, “The environment will be protected, not harmed, technology.”  

Learn more about how human ingenuity is making the world a better place at HumanProgress.org.

In Washington, the word “bipartisan” usually means “watch your wallet.”  If anyone needs any further proof, just look to the bipartisan budget agreement announced yesterday. 

Hailed in the name of “coming together” and “compromise” to “get things done,” the proposed deal is a dog’s breakfast of every bad budgetary idea to land on the table in recent months. 

It’s a deal so bad that even incoming House Speaker Paul Ryan says it “stinks” (although, it appears, he will still be voting for it). Still, current speaker John Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Mitch McConnell, and Senate Minority Leader Harry Reid, who hammered out the deal behind closed doors, can probably put together enough votes to push it through, with a united Democratic caucus and just enough pro-defense spending Republicans.  

The deal essentially guts the spending limits in place under the 2011 Budget Control Act which brought about sequestration. It would increase spending by at least $80 billion over the next two years above current spending limits, split equally between domestic and defense spending. It would also increase funding for the military’s Overseas Contingency Operation slush fund by $32 billion, meaning the total spending hike would top $112 billion. More domestic spending for Democrats. More defense spending for Republicans.  Everyone wins except the taxpayers. 

But the deal is much worse than just the particular spending increases it contains. Sequestration may have been a blunt instrument but it has been one of the few successful restraints on federal spending in recent years. Without it and the caps in the Budget Control Act, federal spending would have been at least $200 billion higher since 2011.  

This really would mark the second consecutive budget deal in which Congress agreed to ignore the caps. That’s a pretty clear signal that Congress plans to return to its wide open tax and spend past. 

The deal would supposedly offset these increases through a rehashed collection of budget gimmicks such as selling some of the strategic petroleum oil reserves, auctioning telecommunications spectrum (again), and making changes to the crop insurance program.  Been there.  Done that. Still paying for the t-shirt. 

In fact, this deal actually weakens long term entitlement reform.  For example, it cancels coming increases in Medicare Part B premiums for the 30 percent of beneficiaries not already shielded from premium increases by a hold harmless provision.  It would also allow Congress to avoid reforming the Social Security Disability Insurance program by shifting funds to it from Social Security’s retirement program. The move weakens Social Security’s overall financing, but props up the disability program for another six years.   

So we will spend more on domestic discretionary programs, more on defense, and more on entitlements, while papering over the cost.  Happy days all around. 

The deal would also raise the debt ceiling by enough to last through March 2017.  In fact, the deal doesn’t just raise the debt ceiling, it simply does away with it for a year and a half. 

Of course, no one really expected Congress not to raise the debt ceiling eventually. But this deal surrenders even token Republican leverage. 

We’ve been fortunate the last few years.  A combination of renewed economic growth and sequestration-driven spending restraint has reduced our budget deficit to just (just!) $435 billion.  But this is only a temporary respite.  Within just a couple of years, deficits are expected to start growing once more. By 2025 we could again see $1 trillion deficits.  Worse, our $18.2 trillion debt is scheduled to rise to $26.9 trillion over the same period.  And all of this is before the big cost of entitlements really kicks in.  By some measures, our real debt tops $80-90 trillion. 

But at least we’ve found something everyone in Washington can agree on: screwing the taxpayer. 

This morning the latest scores from the 4th and 8th grade National Assessment of Educational Progress – the so-called Nation’s Report Card – came out, and the story isn’t very good, at least upon first examination. Average scores in 4th and 8th grade math, and in 8th grade reading, were down from 2013, and essentially stagnant in 4th grade reading.  

Of course, there is a lot you cannot tell about school systems from looking just at NAEP scores. Numerous variables that affect academic outcomes, ranging from demographic changes to cultural shifts, can have important impacts on scores. But it is sobering to see national test scores stagnate or drop, and at the very least the scores should put a damper on some of the declarations of success we’ve seen in the past from people like U.S. Secretary of Education Arne Duncan, who in 2013 credited state transitions to the Common Core national curriculum standards for upticks that year.

Perhaps a look at Kentucky, which has been held up as a success story for adopting the Core ahead of all other states and seeing increases on its state tests, is telling. Kentucky may well be seeing improvements, but the NAEP exams, for many people, serve as something of an external audit to see if states’ own tests are producing deceptive information. Of course there can be legitimate disagreements about what test is better – and if testing is even a good way to measures success – but many people who support the Core see state tests as dishonest if they differ markedly in their results from NAEP. So NAEP is important to them. Well, now, while seeing rising scores in 4th grade reading, Kentucky has seen falling scores in 8th grade math and reading, and stagnant scores in 4th grade math. Does that mean the Common Core, or anything else they are doing in Kentucky, necessarily doesn’t work? No. But it does furnish evidence that contradicts the simplistic message of, “Look at Kentucky – the Common Core works!”

There is much that NAEP is too limited to tell us definitively, but the same goes for any single measure of education. And we should be concerned whenever we see scores go down.