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I have never been entirely satisfied with how either economists or historians identify and date past U.S. recessions and banking crises. Economists, as their studies go further back in time, have a tendency to rely on highly unreliable data series that exaggerate the number of recessions and panics, something most strikingly but not exclusively documented in the notable work of Christina Romer (1986b, 1989, 2009). Historians, on the other hand, relying on more anecdotal and less quantitative evidence, tend to exaggerate the duration and severity of recessions. So I have created a revised chronology in the table below. From the nineteenth century to the present, it distinguishes between three types of events: major recessions, bank panics, and periods of bank failures. I have tried to integrate the best of the approaches of both economists and historians, using them to cross check each other. My chronology therefore differs in important ways from prior lists.

One of the table’s benefits is that it gives a visual presentation of which recessions were accompanied by bank panics and which were not. Equally important, it distinguishes between bank panics and periods of significant numbers of bank failures. These two categories are often confused or conflated, and yet this distinction is critical. Not all bank panics (periods of contagious runs and sometimes bank suspensions) were accompanied by numerous bank failures, nor were all periods of numerous failures accompanied by panics.

Among other advantages, the table helps highlight how sui generis the Great Depression was. Not only does it have the longest downturn (43 months), but it also is one of the few depressions accompanied by both bank panics and numerous bank failures. Once the Great Depression is thrown out as a statistical outlier, we observe no significant change in the frequency, duration, or magnitude of recessions between the period before and the period after that unique downturn. Given that the Great Depression witnessed the initiation of extensive government policies to alleviate depressions and that the Federal Reserve had been created fifteen years earlier explicitly to prevent such crises, this overall historical continuity with a single exception indicates that government intervention and central banking has done little, if anything, to dampen the business cycle.

There has been a dramatic elimination of bank panics, at least until the financial crisis of 2007-2008, but the timing suggests that deposit insurance more than the Federal Reserve deserves the credit. Furthermore, note that more outbreaks of numerous bank failures occurred in the hundred years after the Federal Reserve was created than the hundred years before, with the Federal Reserve presiding over the most serious case of all: the Great Depression.

Because my table departs from previous lists and dating, in what follows, I explain the most important differences for each of the three categories. At the end of the post is a list of the most useful references I consulted.


I have almost entirely confined the list of major recessions to those constituting part of a standard business cycle, omitting periods of economic dislocation resulting from U.S. wars or government embargoes. For the number and dating of recessions from 1948 forward, I have exclusively followed the National Bureau of Economic Research (NBER). But prior to 1929, the NBER notoriously exaggerates the volatility of the U.S. economy. Moreover, between 1929 and 1948, the NBER reports a post-World War II recession lasting from February to October 1945 that no one was aware of at time, as easily confirmed by looking at the unemployment data as well as contemporary writings. Richard K. Vedder and Lowell E. Gallaway (1993) pointed out in their neglected study of U.S. unemployment that this alleged postwar recession is a statistical artifact that varies in severity with the regular comprehensive revisions of GNP/GDP estimates by the Bureau of Economic Analysis (BEA). The BEA’s original estimates showed only a minor downturn, subsequent revisions converted it into a major downturn, and the latest comprehensive revision of 2013 have reduced its magnitude, although not to the level of the BEA’s original estimates.

For the pre-1929 period, therefore, I have only listed recessions that can be documented with unemployment data or more traditional historical evidence. The unemployment data I have employed are the revisions of both J. R. Vernon (1994) and Romer (1986b). I have still accepted NBER dating, which only goes back to 1857, for those pre-1929 recessions that I consider genuine, with the notable exception of 1873. In that case, the NBER dating (based on the Kuznets-Kendrick series) of a 65-month recession is so inconsistent with other evidence that it was even questioned by Milton Friedman and Anna Jacobson Schwartz in their Monetary History (1963). This is one of the most striking cases in which some observers at the time and many economists today have confused mild secular deflation with a depression – a confusion exposed by George Selgin in Less than Zero (1997). Even the Kuznets-Kendrick estimates show no decline in real net national product during this recession, and an acceleration of its growth after 1875. I have therefore accepted Joseph H. Davis’s (2006) revised dating, shortening this recession to not more than 27 months, and probably less if he had attempted a monthly rather than just an annual revision of the depression’s end point.

Estimates of U.S. GDP prior to the Civil War are even more problematic, making precise monthly dating of recessions impossible. So I have relied upon the consensus of standard historical accounts along with the GDP statistics in Historical Statistics: Millennial Edition (Carter 2006) to determine what qualifies as an actual recession and its annual dating. The one case where I diverge from some (but not all) mainstream historical accounts is the alleged recession during the banking crisis that began in 1839, after the recovery from the 1837 recession. As Friedman and Schwartz (1963), Douglass C. North (1961), and Peter Temin (1969) have all noted, estimates of real GDP growth over the next four years are quite robust. Thus, 1839-1843 appears to be another case were deflation (in this case, quite severe) is confused with depression.

Bank Panics

The number of bank panics is also often exaggerated. For the post-Civil War period, many authors follow the enumeration first compiled by O. M. W. Sprague (1910), and some even add in a few more. But Elmus Wicker (2000) has persuasively demonstrated that the alleged Panics of 1884 and 1890 were really only incipient financial crises nipped in the bud by the actions of bank clearinghouses. For the pre-Civil War period, especially egregious in its listing of panics is the widely cited work of Willard Long Thorp (1926), which even mistakenly attributes to the United Sates panics that affected only England (those in 1825 and 1847).

I have confined my own list to those panics that Andrew J. Jalil (2015) in his comprehensive survey of previous literature defines as “major,” with two exceptions. First, I have omitted the very minor economic contraction of 1833, following Andrew Jackson’s phased withdrawal of government deposits from the Second Bank of the United States, since the impact on banks was almost entirely confined to the Second Bank and its branches. Second, I have included the more pronounced global financial crisis at the outbreak of World War I, in which the U.S. stock market was shut down for four months, although the emergency currency authorized under the Aldrich-Vreeland Act prevented bank suspensions. The monthly dating of other panics listed is confined to the period during which major suspensions or runs occurred and does not always reflect how long banks suspended, which for the War of 1812 was until January 1817.

Bank Failures

Bank panics, even when accompanied by numerous suspensions (or what Friedman and Schwartz prefer to call “restrictions on cash payments” to distinguish them from government suspensions of redeemability), do not always result in a major number of bank failures.

For instance, Calomiris and Gorton report the failure of only six national banks out of a total of 6412 during the Panic of 1907, or less than 0.1 percent. Of course the Panic of 1907 was concentrated among state banks and trust companies. Unfortunately, as far as I can tell, there are no good time series on the failures of state banks for the period prior to the creation of the Federal Reserve. Yet there were over 12,000 state banks at the outset of the Panic of 1907. One very fragmentary and incomplete estimate of total bank suspensions (rather than failures) in Historical Statistics (1975), including both state and national banks, puts the number during that panic at 153. Even if all suspensions had resulted in failures, which of course did not happen, we still have a failure rate of 0.7 percent for all commercial banks.

Confusion of bank suspensions with bank failures can even infect serious scholarly work. For example, in Michael D. Bordo and David C. Wheelock (1998), charts meant to show bank failures are instead clearly depicting statistics on the annual number of bank suspensions. Similarly, periods of numerous bank failures do not always coincide with bank panics, as the S&L crisis dramatically illustrates. So it is crucial to distinguish between periods of panics and failures, although specifying the latter requires judgment calls. For the monthly number of national bank failures prior to the Fed’s creation, I have depended heavily on Comptroller of the Currency (1915), v. 2, Table 35, pp. 66-103.


To be sure, banking in the United States has never been fully deregulated. Even from 1846 until 1861, under the Independent Treasury during the alleged free-banking period, when there was almost no significant national regulation of the financial system, state governments still imposed extensive, counter-productive banking regulation. This fact obviously complicates any comparison of the periods before and after the creation of the Federal Reserve System in 1914. Nonetheless, such a comparison offers more than a prima facie case against the Fed’s success at either stabilizing the U.S. economy or preventing banking crises. In short, the widespread belief among economists, historians, and journalists that the Federal Reserve was an essential, major improvement appears to be no more than unreflective faith in government economic management, with little foundation in the historical evidence.

Acknowledgments: I would like to thank Graham Newell and Kurt Schuler for their invaluable assistance and comments while preparing this table. Any remaining errors or oversights are my responsibility.

[Cross-posted from Alt-M.org]

South Korean Park Geun-hye met President Barack Obama in Washington last week. Nominally, it was a meeting between equals. But Park reaffirmed her nation’s continuing dependence on America.

The U.S.-ROK alliance was created in the aftermath of the Korean War, in a world that no longer exists. America’s security commitment is an anachronism.

There’s no doubt why Seoul continues to support the security relationship. The South saves money relying on the global superpower for protection.

As Scott Snyder of the Council on Foreign Relations put it, the alliance lessens “South Korea’s vulnerability to North Korea and rising Asian rivalries.” A related point was made by Van Jackson of the Center for a New American Century, who argued that America’s defense commitment helps deter the North from attacking the ROK.

Of course, that is the usual point of defense. But the U.S. guarantee acts as a deterrent for the South, not America. The alliance serves South Korea, not the United States.

Like most of America’s alliances, the U.S.-ROK treaty is entirely one-sided. Americans do the defending. South Koreans get defended.

If there was no cost to the United States, there would be little complaint with Washington’s policy. Alas, military spending is the price of America’s foreign policy. Most of the Pentagon’s efforts are devoted to protecting other nations rather than the United States.

Moreover, Washington’s constant promise to go to war creates a greater risk of conflict involving America. Deterrence frequently fails.

Those protected also are more likely to be confrontational, creating a greater risk of conflict. If deterrence fails, the alliance ensures that the United States will be drawn into an otherwise avoidable conflict.

And if things go wrong in Korea, they could go really wrong. Kim Jong-un almost certainly doesn’t want war, but he may not be prudent enough to avoid it.

Of course, America has plenty of interests around in the world, including in the Korean Peninsula, but most are not worth the risk of war. Charity is no basis for foreign policy.

After all, Washington could seek to deter all war by scattering American garrisons even more widely. Doing so presumably would enhance deterrence, as Jackson wishes, but for other nations and at great cost to American taxpayers.

South Korea is capable of protecting itself, both by deterrence and winning any conflict. Indeed, as I point out in Forbes online: “it beggars the imagination that a nation with a 40-1 economic edge, 2-1 population advantage, significant technological lead, dramatically larger industrial base, more resilient infrastructure, and vastly stronger international position could not build the military necessary to deter its far weaker antagonist.”

Jackson also worried about U.S. credibility should Washington restructure a defense relationship a mere 62 years after forging it. Actually, credibility is at risk when one makes promises that one does not keep, not changes old promises to fit new circumstances.

More interesting is Jackson’s concern insisting South Korea act on its own behalf might cause it to revive its nuclear program. Nonproliferation is an important goal, but not one of unlimited value.

Today, Northeast Asia demonstrates the ill-effects of an international version of gun control: only criminals have guns. China, Russia, and North Korea possess the ultimate weapon. None of America’s democratic allies are so armed. So America is expected to risk Los Angeles to protect Seoul, Taipei, Tokyo, and who knows where else.

Washington needs to consider whether the second best of a South Korean nuclear weapon is worse than the second best of an American nuclear umbrella. Especially since the possibility of proliferation to U.S. friends might cause Beijing to more seriously pressure North Korea to halt the nuclear parade.

Unfortunately, President Park’s visit was wasted. The two governments should discuss how to transform the alliance into a relationship of equals. South Korea has reached the forefront of nations. It should act the part.

After Germany, the Netherlands, and Great Britain, it is now Italy’s turn to privatize its postal service. It seems that even “old Europe” welfare states are more reform-minded on some economic matters than Congress and the current U.S. administration.

The Financial Times reports:

Italy will this week launch its biggest privatisation in more than a decade with the partial sale of Poste Italiane — an initial public offering on which the government of prime minister Matteo Renzi has staked its reformist reputation.

The government is planning to sell up to a 40 percent stake in Poste Italiane, Italy’s national post office, and raise a maximum of €3.9bn in proceeds. The IPO is due to have a price range of €6 to €7.5 a share, giving the company an equity value of up to €9.8bn.

Poste Italiane is a 153-year old behemoth, and generates €28.5bn in annual group revenue, holds €420bn in postal savings deposits, and has 32m customers.

Why is the government selling Poste Italiane? “Because of the decline in its letter business caused by email, and the rise of e-commerce,” notes the FT. That is one of the same concerns that prompted the 2013 sell-off of Britain’s Royal Mail, and it is also central to the downward spiral of the U.S. Postal Service (USPS). If Italy can sell its 153-year old behemoth, and Britain can sell its 500-year old behemoth, then America can sell its dinosaur, USPS.

On the Italian sale, Reuters notes, “A successful listing of Poste Italiane will then open the way for the sale of air traffic control operator Enav in the first half of 2016, while the listing of the national railway company is scheduled for the second half of next year.”

Americans look to Italy for the best in fashion. Our government-run postal services, air traffic control, and national railway company are looking very drab and old-fashioned. It is time for an Italian-style privatization makeover.    

For more on postal privatization, see here, here, and here.

Yesterday, in a move being described as “a major shift,” the American Cancer Society changed its guidelines on when and how often women should undergo professional physical exams and mammograms for breast cancer.

Under previous guidelines that the organization had trumpeted for years, women “of average risk” were to begin both at age 40 and repeat them every year. Now the ACS is recommending annual mammography start at age 45, cutting back to once every two years at age 55, and eliminating the screen altogether when a woman’s future life expectancy falls inside of 10 years. As for the physical exam, the ACS no longer recommends it at all.

The reason for the change is that both screens provide so many stressful false positives that the ACS doesn’t believe regular testing passes a cost-benefit test unless the woman is of “higher than average risk.”

The shift should be welcome news for women. Mammograms and doctor breast exams are charitably described as “uncomfortable,” and probably more accurately described as “painful and embarrassing.” But the ACS change could become painful and embarrassing for the architects of the 2010 Patient Protection and Affordable Care Act (ACA).

One of the most scrutinized provisions of the ACA is the creation of the Independent Payment Advisory Board (IPAB), whose ostensible job is to recommend cost-containment measures if Medicare expenditure projections begin to outpace a previously determined growth rate. In reality, IPAB is to monitor the cost and effectiveness of various types of care to determine which will be covered by Medicare, with the expectation that those decisions will serve as a template for private health insurers and other third-party payers. The hope is that IPAB’s decisions will eliminate coverage of procedures that don’t measure up, thereby “bending the cost curve”—that is, reducing the nation’s overall spending on health care.

IPAB has been derided by critics as a “death panel” that could eliminate crucial care, and criticized by more thoughtful scholars as an unaccountable rationing board that will inject itself in decisions that ought to be private. In contrast, I’ve argued that IPAB is more likely to be a paper tiger that may occasionally block some treatment or another, but will usually cave to political pressure and approve popularly appealing procedures and treatments that pass no reasonable cost-benefit test. Those decisions will then pressure third party payers to also cover the care. That way, IPAB will bend the cost curve—just in the opposite direction from what the ACA writers intended.

So think of the ACS shift as a looming test of IPAB, as not-recommended breast cancer screenings are exactly the sort of Medicare expenditure the board should identify for elimination. So far, the “projected expenditures” provision for the board (or the secretary of health and human services, acting in IPAB’s stead) has not been triggered, so no cost-containment recommendations are currently forthcoming. Thus give IPAB an “incomplete” on this test for now—but don’t expect a good grade later.

BEIRUT—Lebanon is the Middle East’s only melting pot. Never has the region more needed a peaceful oasis.

However, the country is a sectarian volcano. If the country crashes, so will the only Middle Eastern model for tolerant coexistence. Lebanon desperately needs statesmen willing to look beyond their personal and group interests.

Full-scale civil war erupted in 1975. That conflict ended in 1990. Since then, the country has suffered through conflict with Israel, spasms of sectarian violence, and now Syria’s implosion.

Despite all this, Lebanon remains generally free and uniquely diverse. But politics systematically undermines the country’s economic potential.

The implosion of Syria poses an even bigger threat to Lebanese stability. The Shia Hezbollah movement has directly intervened on the side of the Assad regime. At the same time, the Sunni party Future Current has backed the Syrian opposition. Tensions also have risen between Sunnis and Alawites, who support the Syrian government, and Christians, who criticize the Islamic State.

With Syria to the north and east, Lebanon also is vulnerable to a influx of violence. Military leaders with whom I spoke, generally not for attribution, acknowledged the challenging security environment. “We work hard not to have spillover from Syria,” one general told me.

Directly responsible for internal security is Interior Minister Nuhad Mashnouq, who emphasized the importance of cooperation with the military. While refusing to discuss details, he said the government had successfully thwarted a number of terrorist attacks.

However, as I point out in Forbes online: “Lebanon can blame no one else for its political crisis. The confessional system emphasizes consensus and effectively grants major factions veto power. Stasis is the natural result and today pervades the entire political system.”

The president is to be a Christian, the prime minister a Sunni, and National Assembly Speaker a Shiite. But the system rests on compromise, which has been sorely lacking lately.

Nominated in 2013, the prime minister took months to form a government, and only then by appointing members of all factions. The president’s term ended in May 2014. With two Maronite Christians contending for the position, backed by different Muslim factions, the National Assembly has deadlocked in choosing his successor.

Parliament was elected in 2009, but divisions over election law reform caused legislators to postpone the ballot from June 2013 to November 2014, and then to June 2017. The government has been unable even to resolve a trash crisis, leading to a youthful protest known as “You Stink.”

No solution is forthcoming. The divided, superannuated government staggers on. Druze leader Walid Jumblatt told me: “Lebanon is crumbling under the garbage.”

Out of desperation, many people are looking outside Lebanon for a solution. For instance, Beirut Governor Liad Chebib argued that “different domestic agendas make the political crisis impossible to resolve within Lebanon.” Proposals advanced include Washington using its new influence with Tehran to encourage discussions between Iran and Saudi Arabia and Oman, an independent but respected Gulf State, hosting an international conference in Muscat about Lebanon.

Washington should be concerned about Lebanon. The country combines a mix of tolerance, economic openness, pluralism, human rights, democracy, cultural freedom, and liberty unusual for the Middle East.

All of these are under threat. If these trappings of liberalism disappear in Lebanon, the Arab world will lose its only example of a humane political and social order.

However, Washington will not solve Lebanon’s problems. Military intervention is inconceivable and the Obama administration is unlikely to find the time and resources to devote to another Middle Eastern state.

Moreover, the Lebanese political system remains the basic problem. Those who benefit from the country’s fragile stability must cooperate to ensure the system’s survival.

Many people rely on Lebanon’s oft-demonstrated resilience. One person called Lebanon’s survival “a miracle.”

However, today the entire system appears poised on the precipice amid worsening regional chaos. The price of failure would be catastrophic. Only the Lebanese can ensure that their nation survives and thrives. 

The Senate Judiciary Committee held a hearing this week on sentencing reform.  One of the witnesses was Debi Campbell, who was sentenced to 19 years in a federal penitentiary for selling meth.  One of her colleagues in the meth trade was busted by the police first–so that person cut a deal and agreed to testify against Campbell.  Federal authorities rewarded that drug offender with zero jail time. 

Conservatives sometimes argue that longer prison sentences will “send a message” to the community and deter drug offenders.  Ms. Campbell’s testimony offers a dose of reality on that one.  She says she knew selling meth was against the law, but had no idea she could face close to 20 years in prison for what she was doing.  She was hooked on meth and was selling to support her addiction.  She was not reading the Congressional Record to see what messages Congress was sending. 

Another conservative argument is that long prison sentences will incapacitate the offender.  That holds true for a rapist, but one wonders how the community was made safer by keeping Ms. Campbell locked up for so many years.  But there’s a former federal prosecutor out there who probably thinks he did good work on Ms. Campbell’s case.

Check out Ms. Campbell’s testimony.  Only 7 minutes, but powerful.

Related items here and here.

This week, the New York Times editorial board wrote in support of greater taxes on sweetened drinks, citing new research from a team Mexican and American researchers. They praise the novel design of the tax, which is levied on drink distributors rather than consumers. This caused the tax to be included in shelf prices, making the increase in total cost clear to consumers. The research found that soda consumption fell 12 percent in a year, and 17 percent among the poorest Mexicans.

The Times admits that we do not know whether any health benefits will actually result from soda taxes.  In this article in Regulation, the University of Pennsylvania’s Jonathan Klick and Claremont McKenna’s Eric Helland examined the effects of soda taxes. They conclude that a one percent increase in soda taxes led to a five percent reduction in soda consumption among young people.  But consumers substituted to other beverages.  A 6-calorie reduction in soda consumption was accompanied by an 8-calorie increase in milk consumption and a 2-calorie increase in juice consumption. Thus, the tax on soda led to an increase in overall calorie consumption, which offset the benefits of falling soda consumption. Moreover, there was “no statistically significant effect of soda taxes on body weight or the likelihood of being obese or overweight”.

Five years ago, Bob Poole and I wrote that Canada’s privatized air traffic control (ATC) system would be “a very good reform model for the United States.” U.S. policymakers—including the chairman of the House committee that oversees ATC—are now coming around to that view. 

The Wall Street Journal reports:

The headquarters of Canada’s air traffic control corporation is becoming a busy destination for U.S. transportation officials and airline executives looking for a model to privatize U.S. airspace management.

John Crichton, chief executive of Nav Canada, has hosted more than a dozen U.S. delegations in the past 18 months as Congress considers stripping U.S. air-traffic control from the Federal Aviation Administration—much as Ottawa did 19 years ago.

U.S. admirers—including Rep. Bill Shuster (R., Pa.), chairman of the House Transportation and Infrastructure Committee—advocate similarly extricating air-traffic control from the FAA and its parent, the Transportation Department. They say that would assure more reliable funding than the current mix of taxes and congressional appropriations, and could help advance NextGen, a $40 billion FAA air-traffic modernization program criticized by government watchdogs for being delayed and over budget.

Mr. Shuster has been preparing a bill that could establish a Nav Canada-like corporate structure for the U.S. He may introduce it as soon as November, people familiar with the matter said.

What are the advantages of air traffic control privatization? The head of Canada’s system, John Crichton, described some of them to the Journal:

Nav Canada operates through user fees that Mr. Crichton says are 35% lower than the government formerly levied in ticket taxes, not adjusted for inflation. The operation is safer while handling more traffic with fewer people, he says. It can sell bonds to fund upgrades, unlike the FAA, and airlines save fuel through more efficient altitudes and routes, Nav Canada says.

“This business of ours has evolved long past the time when government should be in it,” Mr. Crichton argues. “Governments are not suited to run … dynamic, high-tech, 24-hour businesses. When they try, they mess up.”

Exactly. Imagine if the federal government, with all its red tape, tried to run Apple Computer. It would be a total screw-up, which is the direction the government’s ATC is headed without privatization reforms. While the FAA has long struggled with technology upgrades, Nav Canada is now a leader in developing ATC technologies and exporting them to the world.

Some critics claim that Canada’s successful reform model could not be scaled up to the larger U.S. market. That is ridiculous, and it goes against everything we know about private enterprise and governments. The former successfully scales from the smallest sole proprietorship to the largest multinational corporation. By contrast, government performance gets increasingly more bureaucratic and dysfunctional as it expands in scope from local and state governments, to the federal government, to the United Nations.

Kudos to chairman Shuster for seizing the initiative and pursuing a reform that would be a boon to one of the nation’s most important industries. America pioneered the aviation industry, but it will fall behind if it keeps critical parts of it locked inside old-fashioned government bureaucracies.

For more, see here, here, and here.

The word “daunting” comes to mind when considering the task before U.S. and EU trade negotiators, who are meeting in Miami this week for the 11th round of the Transatlantic Trade and Investment Partnership negotiations, which commenced in late spring of 2013.  If a TTIP deal is eventually reached, the 11th round may only be remembered as part of the early era of the negotiations. Not only are there so many issues on the table, but the number of issues that have drifted from low-hanging fruit to difficult, and from difficult to intractable, seems to be growing.

One seemingly intractable issue is the matter of “Geographic Indications,” (GIs) and what protections, if any, they should be afforded. EU negotiators consider GIs to be intellectual property deserving of robust protection, which includes proscribing use of words like “Champagne,” “Parma” ham, and “Muenster” cheese (yes, GIs could just as aptly signify gastrointestinal issues) unless the product is made in the named region using processes and standards traditional in the region.  It’s a priority issue for the EU negotiators, but the U.S. negotiators aren’t buying it at all.

My colleague Bill Watson has immersed himself in the details of the geographic indications issue and, in his Cato Online Forum essay (published in conjunction with last week’s Cato TTIP conference), describes the conflicting EU and U.S. positions and explains why there is very little room for compromise. Bill does offer up some possible solutions, but he’s not betting the house that it will work:

The United States has demands of its own in the TTIP negotiations that are at least as unpopular in Europe as is GI protection in the United States.  American negotiators have been tasked with the near impossible mission of opening up Europe’s market to genetically modified crops and meat from hormone-treated cattle, ractopamine-fed swine, and chlorine-washed chicken.

It may be possible that TTIP could include a grand bargain in which some combination of these agricultural demands are met along with a commitment for stronger GI protection in the United States.  For traditional trade barriers like tariffs and quotas, that kind of bargain would be a welcome outcome and, indeed, is the basic way that reciprocal agreements work to liberalize trade.  

In the regulatory sphere, however, this sort of political horse-trading raises questions of democratic legitimacy and is, in any event, not a way to arrive at well-reasoned policies.  Many regulatory policies that impede market access are motivated by non-economic interests.  And the benefits for foreign producers that stem from changing those policies aren’t going to mollify irate domestic constituencies.  

The tradeoff strikes at the heart of the difference in American and European cultural approaches to agriculture.  It’s difficult to imagine that TTIP negotiators could strike a deal that overcomes the European desire to protect traditional foods and ways of life or America’s ingrained preference for high-tech production and innovation.

Read Bill’s essay here.  Read all of the Cato Online Forum essays here.



Americans “don’t make anything anymore,” said Donald Trump on Fox on Sunday with Chris Wallace, lamenting what he sees as the death of U.S. manufacturing. “I just ordered 4,000 television sets. You know where they come from? South Korea … I don’t think anybody makes television sets in the United States anymore.” Actually, America still makes televisions. More importantly, Trump’s insinuation that trade has destroyed U.S. manufacturing is fundamentally mistaken.

The truth is that U.S. manufacturing is thriving, although the industry employs fewer people, mainly because of automation—not trade. Would Trump undo technological progress and massive savings to bring back manufacturing jobs?

The rumors of American manufacturing’s death have been greatly exaggerated. Sales revenues and output are rising. In 2014, value-added by the industry set a new record. While it’s true that manufacturing is a smaller share of the U.S. economy than it once was, that’s not because it isn’t growing—other sectors of the economy are simply growing faster.

The reason that so many goods found in a U.S. convenience store say, “Made in China,” is because U.S. manufacturing has shifted towards high value-added products like aerospace equipment, not because the U.S. has stopped “making things.”

Despite growing revenues and output, manufacturing employs fewer Americans than it once did. Technological advancement has led to gains in efficiency, and it is primarily automation, not trade, that has reduced demand for workers in manufacturing.

In fact, the U.S. manufacturing industry added jobs in the years immediately after the North American Free Trade Agreement was passed. Trade restrictions sometimes even inflict harm on domestic manufacturing. Tariffs on manufacturing inputs (e.g., hot-rolled steel) may protect U.S. workers making that specific product, but harm all the U.S. manufacturers who need those inputs to create other products (e.g., airplane parts) further down the production line. On the whole, trade enriches us.

While manufacturing employs fewer Americans than it did in Donald Trump’s youth, total U.S. employment has risen, as more Americans find work in other sectors of the economy. If Trump would give up gains in efficiency solely to boost employment in manufacturing, then he may want to consider this famous piece of advice attributed to Milton Friedman: 

Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

Does the Donald want America to build things, or does he want us digging with spoons?

The Transatlantic Trade and Investment Partnership is about much more than reducing border barriers.  In fact, the largest economic gains from a prospective deal are expected to come from “coherence” or “harmonization” of regulations and regulatory processes. Think about the added savings that could be passed on in the form of lower prices, higher R&D expenditures, and more investment if producers didn’t have to comply with two (or more) different sets of regulations implemented to achieve the same health, safety, or environmental outcomes. Regulatory coherence is not a race to the regulatory bottom (as the European Left likes to say) or global government enshrining the growth-strangling regulations preferred by Europeans (as the American Right likes to say). It is, in theory, smarter regulation.

In his Cato Online Forum essay (submitted in conjunction with last week’s Cato TTIP conference), international law professor Alberto Alemanno gets into some of the details of this important part of the negotiations. While he applauds the prospect of regulatory discussions yielding greater awareness of the extraterritorial impact of regulations, and hence opening the door to best practices and restraint, he also worries that the agreement will inevitably entail some limitations on regulatory autonomy.


Canadian federal elections yesterday ousted the ruling Conservatives under Stephen Harper and replaced them with the Liberals under Justin Trudeau. The Liberals have promised to increase taxes on high earners, ramp up spending on government infrastructure, and purposely run deficits to supposedly stimulate the economy.

It appears that two decades of fairly sensible and fiscally conservative government is ending at the federal level in Canada. Under the Liberals (1993-2006) and then the Conservatives (2006-2015), Canada cut spending, privatized government activities, cut tax rates, and slashed government debt. The reforms are discussed here.

The extended run of spending restraint and pro-growth policies by the Canadian federal government was impressive, and it contributed to a strong economy and rising incomes. Now the democratic pendulum has swung back to the left. The country may be in for another experiment in Santa Claus economics, which it suffered from during the 1970s under prime minister Pierre Trudeau, the father of the newly elected prime minister.

The chart shows federal spending in Canada and the United States over the past five decades. You can see that soaring outlays under Pierre Trudeau (1968-1984) outpaced even the high spending of Nixon, Ford, and Carter south of the border.

But you can also see that the Canadian restraint since the 1990s has been remarkable, especially compared to the spendthrift policies since 2000 under Bush and Obama in the United States. Canadian federal spending plunged from 23 percent of GDP in 1993 to just 14 percent by 2015. By contrast, U.S. federal spending in 2015 was 21 percent of GDP. While U.S. spending used to be lower than Canadian spending, it is now almost 50 percent higher relative to the size of the economy.


Canadian federal budget data is here. U.S. data is here.

About 5000 migrants have drowned in the Mediterranean on their way to Europe in 2014 and 2015.  Although drownings are moderating, the danger remains.  Illegally crossing the Mediterranean to Europe claims the lives of about 2 percent of all migrants who attempt the voyage.  The United States’ southwest border is also dangerous but less so.

Migrant Deaths along Southwest Border


Source: U.S. Customs and Border Protection      

Based on data from Customs and Border Protection (CBP), 6336 people died crossing the border from 1998 to 2014 (2015 data is unavailable).  The peak year of recorded deaths) was 2005 with 492 deaths.  In 2014, there were 307 deaths.  From 1998 to 2014, deaths averaged 0.04 percent of all apprehensions – a proxy measurement for the size of the unlawful immigrant flow.  2012 was the most dangerous year to cross when the number of deaths was equal to 0.13 percent of all apprehensions.  The most dangerous border sector during the whole period was Del Rio with deaths as a percentage of apprehensions at 0.046 percent that resulted in 458 deaths.  The Tucson sector’s death rate was 0.045 percent but there were 2507 deaths during the entire time period.     

Border Deaths and Apprehensions on the Southwest Border

Source: U.S. Customs and Border Protection      

Migrant deaths by border sector is correlated with the number of migrants apprehended at each sector.  Places where migrants tend to cross are those where they also tend to die in the attempt. 

Dying of thirst in the Southwestern desert while trying to immigrate was not written about (as far as I’ve looked) and was probably very rare prior to the Chinese Exclusion Act of 1882.  In that year Chinese immigration was banned, diverting many Chinese immigrants into the black market where they first went to Canada or Mexico before entering the United States instead of just landing legally in San Francisco.  Erika Lee’s wonderful book At America’s Gates documents this.  This problem was so widely discussed that Harper’s New Monthly Magazine even published this brutal drawing in March, 1891:

“Dying of Thirst in the Desert,” Harper’s New Monthly Magazine, March 1891.   

Chinese immigrants died crossing the Southwestern desert in pursuit of the American Dream when the Chinese Exclusion Act was in effect.  Today, Mexicans and Central Americans are dying while trying to enter because our legal immigration system has made no room for them.  No doubt there are many bodies in the desert that have not and will not be discovered. 

More immigration enforcement would deter some of them from trying to immigrate or rescue many who are dying but it would also drive many of the more desperate ones to take riskier trips in more dangerous terrain, possibly increasing the death rates.  The deaths of Chinese immigrants more than a century ago and most of those who are crossing today would be easily prevented by allowing them to enter legally. 

Yesterday morning I was very pleased to encounter, in The Wall Street Journal, a report by Brian Blackstone on deflation in Switzerland. In it Blackstone observes that the Swiss case appears to contradict the widespread belief among economists (“as close to an economic consensus as you can get,” he says) that deflation is necessarily a bad thing.

Blackstone’s report pleased me because, as many readers will know, I’ve been banging the drum for “good” deflation for decades. I started doing so with The Theory of Free Banking (1988), when I imagined that I’d made a new discovery. There I observed, among other things, “that a fall in prices in response to reduced per-unit costs is, not only consistent with, but essential to the maintenance of equilibrium” (p. 99) and that “What is needed is a policy that prevents price changes due to changes in the demand for money relative to income without preventing price changes due to changes in productive efficiency” (p. 101). Not quite a decade later, in Less Than Zero: The Case for a Falling Price Level in a Growing Economy , I developed the same arguments, defending what I then called a “productivity norm” ideal for price-level movements, at much greater length. By then I’d also learned that, despite the consensus to which Blackstone refers, the idea I was defending was anything but new: in fact, until the Keynesian revolution came along, economists who accepted it outnumbered those who didn’t.[1]

Although the “long deflation” of 1873-1896 was roughly consistent with a productivity norm, albeit one adhered to more by accident than by design, and more specifically with “good” deflation, one rarely witnesses good deflation these days. The Swiss case appears to be a rare exception. As Mr. Blackstone reports,

evidence of deflation’s pernicious side effects—recession, weak employment, rising debt burdens—is pretty much nonexistent in Switzerland. Its economy is expected to expand this year and next, albeit slowly, in the 1% to 1.5% range. Unemployment was just 3.4% in September. Government debt is low.

Nor have Swiss wage earners had to tighten their belts:

Although wage growth has slowed in Switzerland, it was 0.6% on an annual basis in the second quarter, which combined with falling prices means strong real pay gains, boosting spending power.

Precisely. Even if the number of Swiss Francs Switzerland’s workers take home isn’t increasing all that rapidly, the fact that prices are falling means that their real wages may be improving at a healthy clip. And if prices are falling because unit costs are falling — if cuckoo clocks, chocolate bars, and watches cost less but are also cheaper to produce than before — Swiss industry is none the worse for it.

Concerning the crucial distinction between “good” and “bad” deflation, Mr. Blackstone quotes Swiss economist Alexander Koch. “You have to distinguish between good and bad deflation,” Koch told him. “There’s no crash, no strong increase in unemployment in manufacturing and as there are no bursting bubbles in other sectors, domestic demand and the labor market are quite resilient.” A few B.I.S. economists, Blackstone notes, have also “challenged some of the conventional wisdom on deflation’s pernicious effects.”

Toward the end of his article Mr. Blackstone asks, quite appropriately, “So why aren’t central banks embracing the Swiss example?” “Analysts note,” he writes in answering the question, “that it’s difficult to distinguish between good and bad deflation until it’s too late.” However, that answer simply won’t do, because distinguishing between good and bad deflation is as simple as noting whether or not nominal spending (NGDP or domestic final demand or their equivalents) are growing at healthy rates.

Finally, Mr. Blackstone reports that it may not be easy for the Swiss to keep up their regimen of good deflation, and particularly so if the ECB further eases its own policy. I hope he’s wrong, or at least that the Swiss manage to keep their experiment going long enough to erase any lingering doubts concerning both the practical possibility of benign deflation, and its merits as a monetary policy objective.

[Cross-posted from Alt-M.org]

The town of Red Wing, Minnesota, has passed a resolution urging that assaults on police be made a hate crime, a position urged for some years by the Fraternal Order of Police (FOP) union. How bad an idea is this? A very bad one indeed, I argue in an op-ed for the Minneapolis Star-Tribune:

Critics argue that [existing hate-crime] laws in effect play favorites, departing from the spirit of equal protection under law that aims at treating all victims of personal assault as equally important.

Because they seem to put an official public seal on a narrative of oppression, such laws are also lobbied for in me-too fashion by other groups that rightly or wrongly see themselves as oppressed….

Not only are lethal assaults on police declining, I note, but the vast majority of them do not arise from any supposed prejudice or animus against cops, nor do such crimes go neglected and unprosecuted. Besides, most states already allow sentence enhancements on other grounds for crimes against police:

…what would [such a change in law] symbolize? The merely absurd proposition that police in the U.S. today are an oppressed minority group? Or the downright dangerous proposition that the law should step in to chastise and rectify the attitudes of a public that may not be as supportive of police wishes and demands as cop advocates would like?

Read the whole thing. Incidentally, the town council voted last week to let its Human Rights Commission review the resolution, a possible step toward reconsidering it. Some earlier Cato commentary on hate-crime laws hereherehere, and here.

One of the joys of working on the subject of human progress is learning about the many ways in which the world is becoming a better place. Keeping up with all of the scientific and technological breakthroughs is, of course, impossible. And so, here is a sliver of the good news that caught my eye last week.

We are one step closer to solving the problem of organ shortages

Harvesting organs from animals may provide the solution to the shortfall of human donors. However, two technical obstacles need to be overcome before animal-human transplants can become a medical reality. One is that human immune systems often reject foreign tissue. The second problem comes from the risk of disease transfer. According to George Church of Harvard Medical School, genetically engineering pigs may provide the key to overcoming this second problem.

Due to their size, pigs are natural candidates for animal-human transplants, but their DNA is naturally rife with dangerous PERVs, or porcine endogenous retroviruses. An innovative gene-editing technique known as CRISPER/Cas9 has the capacity to identify and delete specific sequences out of the genome. Upon discovering that a single porcine gene enables PERVs to infect human hosts, Dr. Church and his colleagues turned CRISPER/Cas9 against the culprit. Initial results suggest that this procedure may be a success, preventing human infection without compromising the pig cells.

Dissolving stent for heart arteries is coming to the hospital near you  

The Absorb stent, a dissolvable heart stent that is already marketed in Europe, has passed its first major test in a large study, paving the way for FDA approval in the United States. Heart stents are tiny cages inserted into an arterial passage to keep blood vessels from reclogging after specific angioplasty procedures. While metal stents are already available in the United States, they sometimes result in long term complications such as inflammation. In contrast, Absorb stents are designed to stay intact for a certain period, and then harmlessly dissolve, resulting in fewer such complications in the long-term. 

Looking to the animal kingdom for cancer cure

Two animals, elephants and naked mole rats, experience dramatically lower rates of cancer, which may provide inspiration to cancer researchers looking to tackle the problem in humans.  Since cancer is the result of errors in cell division, one would expect larger organisms with longer lives to experience higher cancer rates. Contrary to these predictions, elephants die from cancer in much lower rates than humans. A gene responsible for repairing DNA, TP53 gene is likely responsible for this disparity. While Elephants posses 20 copies of the TP53 gene, human only posses 1.

Naked mole rats also provide potential insights for fighting cancer since they apparently never develop it. Researchers discovered a polymer between naked mole rat cells, called hyaluronan. Experiments suggest that hyaluronan prevents cancer growth through regulating whether a cell grows or not.

Machine upgrades for the brain?

Cathy Hutchinson lost control of limbs due to brain-stem stroke at age 53, but advances in computer/brain interfacing have returned her ability to lift things on her own. As a research subject for the company Cyberkinetics, Cathy had a pill-sized brain implant inserted that enables her to control robotic limbs. This procedure works through converting the brain’s neural signals into a language comprehensible to computers. Computer/brain interfacing has the potential to link the brain to countless digital environments such as internet browsers and computerized exoskeletons.

Genetically modified cassava could help combat Vitamin B6 deficiency

Cassava is a staple of the sub-Saharan African diet, yet this plant contains woefully low levels of vitamins. As a consequence, vitamin B6 deficiency is prevalent in sub-Saharan Africa, which results in higher rates of cardiovascular and nervous diseases. However, a group of Swiss plant scientists claim to have engineered a genetically modified cassava with a several-fold increase in B6 levels over natural varieties. These scientists identified the two enzymes responsible for B6, PDX1 and PDX2, and introduced genes to augment their production. Field tests of these modified cassava plants resulted in stable yields under a variety of growing conditions, thereby confirming is potential efficacy as a means of reversing sub-Saharan Africa’s widespread B6 deficiency problem.

The front page of today’s New York Times contains reportage by William Neuman and Patricia Torres on the ravages of Venezuela’s inflation. The headline writer produced a very catchy title for Neuman and Torres: “In Venezuela, Even Thieves Prefer Dollars.” While the reporters turned up some colorful anecdotal evidence, they came up short when they attempted to deal with the hard facts.

Neuman and Torres claim that there is no estimate for inflation in war-torn Syria. This is not true. The Johns Hopkins-Cato Troubled Currencies Project, which I direct, produces reliable implied annual inflation rates for Syria each day. I have recently written about Syria’s inflation in the Huffington Post, and was interviewed about it on Bloomberg TV last Friday. At present, Syria’s annual inflation rate is 79.8 percent.

As for Venezuela, Neuman and Torres report that the International Monetary Fund “has predicted that inflation in Venezuela will hit 159 percent this year (though President Nicolás Maduro has said it will be half that)…” Well, our Johns Hopkins-Cato Troubled Currencies Project is not predicting inflation’s course in Venezuela, we are accurately estimating where it is now. At present, Venezuela’s implied annual inflation rate is 717 percent. That’s four-and-a-half times higher than the New York Times reportage.

When it comes to countries with troubled currencies and high inflation rates, The New York Times should do its homework.

Harvard University Center for European Studies fellow John Gillingham doesn’t exactly make the case that the European Union is worth saving, but he argues in his Cato Online Forum essay that a successful Transatlantic Trade and Investment Partnership agreement is essential to its survival. Among last week’s Cato conference participants, Dr. Gillingham was perhaps the most skeptical that the EU would be able to get its act together and achieve success, arguing that TTIP’s fate will hinge less on the deal’s specifics and more on the politics of the EU, which are poisonous.

Put quite simply, the adoption of TTIP, as it is presently conceived by the negotiating parties, would put the EU back onto a course of liberalization, from which it swerved in the mid-1990’s, and thereby bring it abreast of the concurrent globalization process being driven by China and the United States. Within Europe, the Single Market, something only half-complete, would become a reality. State interventionism would be sharply reduced and international competitiveness restored. Will this happen?

To help answer that question, check out the collection of essays from Cato’s TTIP conference participants.

It’s baaaaaack.

In today’s issue of The Hill, the Heritage Foundation’s “dangerous” director of economic policy Paul Winfree and I explain that King v. Burwell makes repealing ObamaCare about nine Senate votes easier:

As early as this week, the House could consider a reconciliation bill that repeals only parts of ObamaCare, leaving many of its taxes in place. Not only do more Americans oppose that approach than oppose ObamaCare itself, but the Supreme Court’s recent King v. Burwell ruling shows why a full-repeal bill is more likely to reach the president’s desk. Indeed, unlike partial repeal, Senate leaders can all but guarantee that full repeal can pass the Senate with just 51 votes…

A full-repeal bill, by contrast, would recognize that ObamaCare creates a single, integrated program of taxes and subsidies that work in concert to expand coverage, and would eliminate that entire program as a whole. Its primary effect would be budgetary. According to the Congressional Budget Office (CBO), full repeal would eliminate $1.7 trillion of spending and “would reduce deficits during the first half of the decade.” Retaining ObamaCare’s spending cuts would ensure that repeal reduces deficits in perpetuity…

The Senate Budget Committee can further clarify that these provisions create one integrated program. First, it can ask CBO to score ObamaCare as it scored President Clinton’s essentially identical proposal in 1994, with “all payments related to health insurance policies…recorded as cash flows in the federal budget.” Second, it can adopt that score as the baseline against which the Senate considers reconciliation. Using that baseline would show ObamaCare’s regulations are merely components of a larger program, that all financial effects of repeal would be budgetary, and that Congress may repeal those regulations via reconciliation just as it can repeal rules regulating any other government spending Congress zeroes-out through that process.

Read the whole thing.

A San Jose ordinance requires developers to set aside 15 percent of their units for sale at an “affordable housing cost.” Those affordability restrictions remain in effect for 45-55 years. If developers don’t want to set aside affordable housing units, they have the option to build affordable units elsewhere, pay a fine, dedicate land for affordable units, or acquire or rehabilitate existing affordable units.

However laudable it is to construct affordable housing, the city is essentially appropriating part of the developers’ property for its own uses or conditioning the issuance of permits on paying out large amounts of money. The California Building Industry Association (CBIA) filed suit, arguing that the city’s restrictions violate the Fifth Amendment’s Takings Clause, which prohibits the government from taking private property for public use without just compensation.

Previous Supreme Court decisions, including Koontz v. St. Johns River Water Management District from 2013 (which Cato supported), held that such conditions on building permits can violate the Takings Clause if the exaction—whether a fine or a requirement to set aside affordable housing—is unrelated to the proposed building project. It would thus be unconstitutional to condition a permit for a housing development on the construction of a new library, because the library has nothing to do with the proposed building project.

In the CBIA case, however, the California Supreme Court ruled that, because the conditions in San Jose derive from a legislative act rather than an ad hoc permitting condition, the U.S. Supreme Court’s clear precedents don’t fully apply. The CBIA has asked the U.S. Supreme Court to set the California Supreme Court straight by making clear that the Takings Clause prohibits such permitting conditions whether they come from a legislature or a discretionary permitting process.

Cato, joined by the Reason Foundation, has filed a brief in support of the CBIA’s petition. We argue that there’s no basis in the Takings Clause for distinguishing between legislative conditions and ad hoc permitting conditions. To the landowner or the developer, the effect is the same: the government imposes onerous conditions before allowing them to use their land. Moreover, legislatively imposed conditions are worse because they have broader effects, thus magnifying the unconstitutional harms to property owners.

Finally, there’s no reason to expect less abuse from the legislature than from permitting officials. Legislatures are prone to being captured by special interests who demand all sort of exactions from and conditions on landowners. Government officials, whether they are legislators or permitting clerks, often see taking property without compensation as a way to get something for nothing.

The Supreme Court should take this case and say that this ain’t okay, San Jose.